Intercede Regulatory News (IGP)

25 May 2007 07:02

Intercede Group PLC25 May 2007 25 MAY 2007 INTERCEDE GROUP plc ('Intercede', 'the Company' or 'the Group') Preliminary Results for the Year Ended 31 March 2007 Intercede, one of the world's leading developers and suppliers of smart card andidentity management software, today announces its preliminary results for theyear ended 31 March 2007. SUMMARY - Sales increased by 22% from £2.1m to £2.6m, with sales of core MyID licences up 25%. - Further improvement in gross margin to 97% (2006: 95%). - Operating loss held at £0.3m, against a background of increased investment to exploit the growing US market opportunity. - Full year cash outflow of £0.5m (2006: cash inflow of £0.4m). - Cash balances of £0.7m (2006: £1.1m) at financial year end. - Additional £0.7m subsequently raised through an institutional placing on 16 May 2007. - First sales to US Government sector with $1.0m of licence fees booked from the delivery of products compliant with the US Government's Homeland Security Presidential Directive- 12 ("HSPD- 12"). - More than 85% of licence revenues are now secured through Intercede's partners including Gemalto, RSA Security, SafeNet, Thales and VeriSign. This represents a wide and very scalable future route to market. Richard Parris, Chairman & Chief Executive of Intercede, said today: "The last year has seen Intercede move rapidly towards establishing an industrystandard for the management of ID cards. In the key US Federal Governmentmarket, we have been successful in eight out of ten publicly announced awardsarising from HSPD-12. We expect further success as this programme reaches itscritical phase and extends to related initiatives at State and local level. "In Europe and Asia our partner networks are starting to generate revenues froma wide range of customers and this is expected to accelerate. Closer to home,substantial opportunities for Intercede are also likely to emerge to support theUK National ID Card scheme, as well as to provide security for the constructionand operational phases of the 2012 London Olympic Games." About Intercede Intercede Group plc is a leading developer and supplier of smart card andidentity management software listed on the London Stock Exchange (IGP LN)(IGP.L). The Group's MyID software manages the secure registration, issuance andlifecycle of digital identities for a wide range of uses. This requires theintegration of multiple technologies and products from many different vendors,including smart cards, biometrics, digital certificates, Open Platform appletsand physical access control systems. Intercede works with a number of market leading OEM, re-seller and technologypartners that supply MyID technology to the global marketplace including: AthenaSmartcard Solutions, Gemalto, RSA Security, SafeNet, Thales, VeriSign and avariety of systems integrators and other security product and service providers. Intercede and MyID are registered trademarks or trademarks in the UK, US and/orother countries. For more information on Intercede and MyID visit http://www.intercede.com ENQUIRIES Intercede Group plc Tel. +44 (0)1455 558111Richard Parris, Chairman & Chief ExecutiveAndrew Walker, Finance Director Pelham Public RelationsArchie Berens Tel. +44 (0)20 7743 6679 KBC Peel HuntJulian Blunt Tel. +44 (0)20 7418 8900 INTERCEDE GROUP plc ('Intercede', 'the Company' or 'the Group') Preliminary Results for the Year Ended 31 March 2007 Chairman's Statement Introduction Intercede is one of the world's leading developers and suppliers of softwarewhich supports the issue and management of smart secure devices (e.g. smartcards containing digital identities). The Board of Intercede is pleased toreport a 22% increase in sales during the year ended 31 March 2007 compared tothe previous period, at an increased gross margin of 97%. It has been a year of material progress for Intercede, the most significantdevelopment being the widespread adoption of Intercede's MyID technology by theUS Federal Government. This opens up the US market as a significant source offuture licence and maintenance revenues. Equally importantly, it also validatesthe applicability and competitive differentiation of Intercede's MyID productline in this most demanding of markets. In parallel with its successful penetration of the US market, Intercede has alsoworked with its partners to strengthen its customer base at home and in otheroverseas territories. In the UK Intercede has completed further deployments atBarclays Bank, LloydsTSB and the National Health Service. In Europe new saleshave been made to the police forces in Ireland and Denmark, to Swisscom inSwitzerland and to the top two banks in Israel. In the Middle East major newcustomers have been secured in Saudi Arabia and the UAE and in the Far East anorder has also been fulfilled with the Royal Army of Thailand. Intercede continues to lead its sector in terms of thought leadership,technology adoption, reference sites and overall industry reputation. Throughour focused approach, we have displaced competitors from incumbent positions ina number of major accounts in the US Government marketplace. Intercede's strategy of selling through channel partners is starting to generatescalable revenues. Through the year Athena, Gemalto, RSA Security, SafeNet,Thales and VeriSign have all started to generate end-user licence sales in avariety of international markets. Software development, professional service andtraining revenues have also been earned in support of production deploymentsfrom BT, Lockheed Martin, RSA Security and Thales. Intercede has continued tobuild new partnerships across the industry, in order to secure additionalchannels to market and to broaden the interoperability of our solutions. Results Year ended 31 March£000 2007 2006 2005Turnover 2,620 2,142 1,806Gross Profit 2,546 2,027 1,693Operating loss (338) (344) (386) In the year ended 31 March 2007, turnover increased from £2.1m to £2.6m andgross margins increased from 95% to 97%. This enhanced gross margin highlightsIntercede's transition to a 'pure play' software company. Over the past five years, Intercede has significantly reduced operating lossesfrom £1.1m to £0.3m and the cash outflow before financing from £1.4m to £0.5m.As at 31 March 2007, the Group had a cash balance of £0.7m. We are pleased tohave subsequently secured new institutional backing with the announcement of a£0.7m placing on 16 May 2007. The cash raised will provide additional workingcapital and will also enable the Group to exploit more fully the variousopportunities around the world that are increasingly presenting themselves. The Group's strategy of continuing to develop its own products and promote theminternationally has resulted in a 17% increase in headcount and a 22% increasein operating costs. This accelerated investment, principally to exploit ourearly successes in the US, has deferred our expectations of breakevenperformance through the whole year. As reported in previous periods, the Group's results in the short term continueto be dependent on the timing of a small number of relatively large prospects.However, this dependence is starting to reduce and during the period, no oneproject or customer accounted for more than 20% of our turnover. Last year we predicted a step change in demand for smart card managementproducts over the next two to three years. One year on we stand by thisforecast, particularly given the knowledge that several large scale projects arein the pipeline. We remain fully committed to exploiting this strong growthopportunity. Business and Product Development The major achievement of the year was our penetration of the US FederalGovernment market. In the second half of the financial year, Intercede hasachieved unprecedented success deploying MyID, via our partner network, to USgovernment customers. At the time of writing our partners have won contracts tosupply MyID to the following agencies: • Executive Office of the President • Department of Education • Department of the Interior (and 19 other US Government Agencies serviced by DoI) • Environment Protection Agency • Federal Trade Commission • Federal Housing and Finance Board • Housing and Urban Development • Social Security Administration Additionally, Intercede's MyID technology will be used to issue the US TransportWorker Identity Card (TWIC) under Phase IV of the TWIC programme. Intercede'sOEM partner RSA Security, a division of EMC, announced its participation in thisprogramme in support of Lockheed Martin on 15 May 2007. TWIC Phase IV has thepotential to deploy to several million transportation and associated employeesthroughout the US. In February 2007, MyID was used to issue ID cards to the First ResponderCommunity in Maryland and Pennsylvania for use in Operation Winter Storm, anoperational test of First Responder Authentication Credential (FRAC) readiness.This is a forerunner of every first responder in the US, i.e. police, fire,paramedic and essential support service officers, receiving a smart identitycard in order to control access to the scene of major disasters, e.g. 9/11,Hurricane Katrina etc. Intercede and its partners are in a good position tobenefit from this large market. In the UK, the National Health Service continues to be an important customerwith 500,000 MyID licences having been purchased to date. Barclays Bank andLloyds TSB have both taken technical refreshes of systems first delivered byIntercede more than five years ago. This is a testament to the longevity of bothour products and customer relationships. In other areas we have completed amajor infrastructure delivery to a major US bank and look forward to significantlicence sales in the next year. In the Middle East we have secured a number ofcustomers some of whom have the potential for high volume deployment in 2008. I am pleased to report that Intercede has now sold MyID licences to enable theissuance of more than 2 million smart secure devices. However, the number oflicences sold in the last 12 months is only a small proportion of the licencesthat can potentially be purchased by our growing customer base in the comingyears. Along with recurring support and maintenance revenues, Intercede isbuilding an annuity stream from these additional licences. A number ofIntercede's customers have contracted for a minimum of between 5 and 10 years'annual support and maintenance, with the potential for additional year on yearlicence sales. The universal applicability of Intercede's business model is demonstrated by itsgrowing and maturing network of business partners who have now established MyIDas the de facto security industry standard. These different channels offerIntercede unparalleled access to most of the smart card initiatives currentlyemerging around the world. Strategy In our statement last year, we highlighted that in the 2006/07 year the Groupwould be focusing on executing its strategy to achieve profitability by: • positioning Intercede's MyID platform as the critical product that enables convergence of IT and physical security systems; • consolidating the value of the Intercede technology proposition by helping its OEM partners to integrate MyID into the core of their product suites; • exploiting the commercial potential of the MyID offering by enabling Intercede partners to move a number of key pilot projects into volume production; and • delivering the highest quality products and customer support to Intercede's partners and customers by sustaining and expanding a truly world class team of software development, testing and support professionals. After 12 months of further progress the Group has been successful in executingthis strategy as demonstrated by the progress described above. The success of this strategy is based upon the superiority of Intercede'sproducts, the dedication and professionalism of its staff, the strength andposition of its partners and the ongoing support of the Group's shareholders. Inall of these respects, Intercede has an impressive track record. Furthermore, aprogram of continuous product development and new innovation continues to ensurethat Intercede remains a leader amongst its global competitors. The Group's business plan in the coming year is now to build on this year'ssuccess by executing the following strategy: • continue to expand our share of the US Federal market and penetrate the much larger emerging market at state and local level ; • increase the number of channel partners to facilitate entry into new market areas not currently being serviced e.g. pharmaceutical industry; • expand our revenues from mainland Europe and the Middle East; and Outlook EUROSMART, an international association located in Brussels representing thesmart secure technology industry, envisages the number of smart secure devicesin global circulation growing from 4 billion units in 2007 to more than 20billion units by 2020. Most of this growth will be led by identity centricapplications that require the secure issuance and management of devices. This isa tremendous opportunity for Intercede to build on our leading technology andbecome a significant participant in this growth market. The outlook for the next two to three years is exciting as we see a number oflarge scale Government and private projects being launched in the US, Europe andother regions. Intercede is well positioned, through its market leading MyIDproducts and channel partner network to exploit these emerging growthopportunities. Chief amongst these are the continuing opportunities afforded byHSPD-12, other US Federal and State Government programmes such as TWIC, FRAC andthe REAL ID Act, the UK National ID Card scheme and the security implicationsfor the construction and operational phases of the 2012 Olympic Games. The management team is committed to maintaining the Group on its current,focused course and delivering an accelerated growth in sales and profitability.We therefore look forward with confidence to reporting on our progress duringthe current year and beyond. 24 May 2007Richard Parris Chairman & Chief Executive Operating and Financial Review Introduction We believe that, within the next five to ten years, most of the world'spopulation will have been issued with at least one "identity card" by theirgovernment, bank, trading partner or employer. The new identity industry, whichIntercede anticipated some years ago, is now emerging. Intercede has developed its MyID technology as a world class software platformfor the issuance of smart identity cards to citizens, customers and employees.Our business model is to deliver this solution to governments, banks, serviceproviders and corporations via channel partners. Our objective is to establishand sustain a predominant market position by securing and occupying the majorityof the major channels to market and to earn revenues for each identity cardissued that functions through MyID. Business Development Over the last few years, Intercede has established channel partner agreementswith a number of market leading OEM, re-seller and technology partners thatsupply MyID technology to the global marketplace. These include Athena SmartcardSolutions, Gemalto, RSA Security, SafeNet, Thales, VeriSign and a variety ofsystems integrators and other security product and service providers. The US Federal Government's Homeland Security Presidential Directive-12,(HSPD-12) has acted as a major catalyst for the identity market. This directivesets out standards of conformity for the effective vetting of Personal IdentityVerification (PIV) for federal employees in response to the ongoing terrorismthreat. Intercede was pleased to announce on 4 October 2006 that it was thefirst card management company to achieve compliance with the prescribedstandards. As outlined in the Chairman's Statement, this announcement was followed by theannouncement of a number of high profile US Federal Government contract winsduring the second half of the financial year. Whilst the timelines for productprocurement and delivery of these and other major contracts we are involved withhave yet to be fully established, these early wins provide strong validation ofIntercede's technology as an industry standard, and hence its business model. The creation of standards for the US Federal Government is expected toaccelerate the growth of the identity market in the US and beyond. This isalready evidenced by a number of major related federal and state projects suchas TWIC, FRAC and the REAL ID Act. Through its partner network, Intercede is inan excellent position to exploit this rapid growth as the US becomes the largestsingle market for smart card technology. Financial Results The financial results outlined below reflect a further year of increasedactivity in support of a growing partner list and a widening range of prospectsthroughout the world. As more and more projects commence, and move beyond proofof concept and pilot phases, Intercede's current short term dependency on asmall number of relatively large value projects will disappear. Year ended Year ended Change 31 March 2007 31 March 2006 £000 £000 % Sales 2,620 2,142 22.3 Gross margin (%) 2,546 (97%) 2,027 (95%) 25.6 Operating costs (2,884) (2,371) 21.6 Operating loss (338) (344) (1.7) Loss per share (1.1)p (1.1)p - Sales have increased by 22% year on year with an underlying 25% increase in MyIDlicense sales. Gross profit margins have increased from 95% to 97% as theproportion of own technology related sales has increased from 91% to 96%. On the cost side of the business, additional staff have been recruited tosupport the substantial amount of time and effort involved in supporting anincreasing number of existing and new partners in multiple bids for US FederalAgencies. That work has typically not been fully chargeable, but is expected tomake a positive revenue contribution though additional license fees in thefuture. As at 31 March 2007, Intercede had 43 employees (2006: 39 employees). Theaverage number of employees increased from 35 to 41 year on year. The combined effect of higher sales and margins coupled with continued tightcontrol over costs has resulted in a further small reduction in full yearoperating losses. With the levels of the net interest charge for the period andR&D tax credits received from HM Revenue remaining similar year on year, theloss per share is unchanged. As outlined in note 8, this year's accounts reflect the adoption of FRS 25 whichregards convertible loan stock agreements as compound financial instrumentswhich consist of a liability component and an equity component. Whilst this hasresulted in a number of changes, the overall impact is not significant; theprimary effect being the creation of an equity component which results in acorresponding increase in the interest charge each period through to the pointof conversion or repayment on 31 May 2009. Funding As at 31 March 2007, the Group had cash balances totalling £653,000 (2006:£1,112,000). This represents a full year cash outflow of £459,000 (2006:£440,000 cash inflow). As reported in the 2006 Annual Report, both of the Group's loan stock agreementshave been extended for a further three years to 31 May 2009. This demonstratesinvestor confidence and has avoided the need to repay £1,790,000 includinginterest that would otherwise have fallen due for repayment within the currentfinancial year. On 16 May 2007, the Group announced an institutional placing of new sharesraising a total of £703,000 (£678,000 net of expenses) at an issue price of 33pper ordinary share. The proceeds are intended to facilitate the furtherexploitation of an increasing number of opportunities both in the US and aroundthe world, as well as providing general working capital in advance of longerterm revenue streams accruing to the Group as a result of the contracts it hasalready won. Summary Intercede has established international distribution channels which have alreadybeen deployed to provide identity solutions to blue chip customers around theworld. Penetration of the US Federal Government market to date providesconfidence in the Group's ability to exploit a major market opportunity in theUS and beyond. The timing of contract commitments and deliveries will continue to be veryimportant in the short to medium term. Cost and cash control remain critical inorder to ensure that Intercede is able to make the most of the opportunitypresented by the emerging identity market. Andrew WalkerFinance Director INTERCEDE GROUP plc Consolidated Profit and Loss Account for the year ended 31 March 2007 Notes 2007 2006 £'000 £'000 Restated (Note 8)Turnover 2,620 2,142Cost of sales (74) (115) 2,546 2,027Gross profitOther operating expenses (2,884) (2,371) (338) (344)Operating loss 25 34Interest receivable and similar incomeInterest payable and similar charges (126) (124) (439) (434) Loss on ordinary activities before taxationTaxation 2 71 76 (368) (358) Retained loss on ordinary activities after taxation and for the yearBasic and diluted loss per ordinary share 3 (1.1)p (1.1)p All operations of the Group continued throughout both years and no operationswere acquired or discontinued. Statement of total recognised gains and losses 2007 2006 £'000 £'000 Total recognised gains and losses related to the year as above (368) (358)Prior year adjustment (Note 8) (160) _________Total gains and losses recognised since the last annual report (528) _________ INTERCEDE GROUP plc Consolidated Balance Sheet at 31 March 2007 Notes 2007 2006 £'000 £'000 Restated (Note 8)Fixed assetsTangible assets 38 27 Current assetsDebtors 234 317Cash at bank and in hand 653 1,112 887 1,429 Creditors: Amounts falling due within one year (964) (2,933) Net current (liabilities)/assets (77) (1,504) Total assets less current liabilities (39) (1,477) Creditors: Amounts falling due after more than one year (1,697) - Net liabilities (1,736) (1,477) Capital and reservesCalled-up share capital 4,271 4,271Share premium account 2,107 2,107Other reserves 1,508 1,508Equity reserve 109 214Profit and loss account (9,731) (9,577) Shareholders' deficit (1,736) (1,477) INTERCEDE GROUP plc Consolidated Cash Flow Statement for the year ended 31 March 2007 Notes 2007 2006 £'000 £'000 Net cash (outflow)/inflow from operating activities 5 (529) 347 Returns on investments and servicing of financeInterest received 25 33 Taxation received 71 76 Capital expenditure (26) (16) Cash (outflow)/inflow before financing (459) 440 (Decrease)/increase in cash in the year 6 (459) 440 INTERCEDE GROUP plc Preliminary Results for the Year Ended 31 March 2007 NOTES 1. The financial information set out in this announcement does notconstitute the Group's Statutory Accounts for the years ended 31 March 2006 or2007, but is derived from those accounts. Statutory Accounts for 2006 have beendelivered to the Registrar of Companies and those for 2007, which have beenapproved by the Board of Directors, will be delivered following the Group'sAnnual General Meeting. Accounting policies have been consistently appliedthroughout both accounting periods. The Company's auditors have reported onthose accounts; their reports were unqualified and did not contain statementsunder Section 237(2) or (3) of the Companies Act 1985. 2. TAX ON LOSS ON ORDINARY ACTIVITIES The tax credit comprises: Year ended 31 March 2007 2006 £'000 £'000 Current year - UK corporation tax - -Adjustment in respect of prior periods 71 76 71 76 There is no charge in respect of corporation tax in either year due to theavailability of losses. An adjustment has been made in respect of research anddevelopment claims which have been agreed by the Inland Revenue. 3. BASIC AND DILUTED LOSS PER ORDINARY SHARE The calculations of loss per ordinary share are based on the loss for thefinancial year and the weighted average number of ordinary shares in issueduring each year. Year ended 31 March 2007 2006 £'000 £'000 Restated (Note 8)Loss for the year (368) (358) Number Number Weighted average number of shares 33,963,438 33,963,438 Pence Pence Basic and diluted loss per ordinary share (1.1) (1.1) 4. DIVIDEND The Directors do not recommend the payment of a dividend. 5. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOW 2007 2006 £'000 £'000 Operating loss (338) (344)Depreciation charge 15 13Decrease in debtors 82 64(Decrease)/increase in creditors (288) 614 Net cash (outflow)/inflow from operating activities (529) 347 6. ANALYSIS AND RECONCILIATION OF NET DEBT 2006 Cash flow Non-cash movement 2007 £'000 £'000 £'000 £'000 Restated (Note 8)Cash at bank and in hand 1,112 (459) - 653 Debt due within one year (1,679) - 1,679 -Debt due after one year - - (1,697) (1,697) (1,679) - (18) (1,697) Net debt (567) (459) (18) (1,044) On 31 May 2006, a variation of terms was agreed with the loan stockholders. Theloan periods were both extended through to 31 May 2009 and interest chargeablewas increased to 6% per annum with effect from 1 April 2006. As a result, all ofthe convertible debt and associated interest will now fall due after one year. The loan stockholders are now able to convert the loans and associated interestoutstanding at prices of 20p and 15p per ordinary share for the original£982,000 and £450,000 loans respectively. The loans and associated interesttotalling £2,005,000 will be repayable as at 31 May 2009 if they choose not toconvert. The reconciliation of net cash flow to the movement in net debt is as follows: 2007 2006 £'000 £'000 Restated (Note 8)(Decrease)/increase in cash in the year (459) 440Non-cash movement (Note 8) (18) -Net debt at beginning of year (567) (1,007) Net debt at end of year (1,044) (567) 7. SUBSEQUENT EVENT On 16 May 2007, as noted in the Operating & Finance Review, a placing was agreedwhich will raise £703,000 of additional funding (£678,000 net of expenses) at anissue price of 33p per ordinary share. 8. PRIOR YEAR ADJUSTMENT FRS 25 regards convertible loan stock agreements as compound financialinstruments which consist of a liability component and an equity component.Adjustments have been made to adopt this standard in the current year and thecomparative figures have also been restated as if the standard had been adoptedin the previous year. 9. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at 11.00 am on Wednesday4 July 2007 at Lutterworth Hall. 10. ANNUAL REPORT AND ACCOUNTS Copies of the full Statutory Accounts will be despatched to shareholders in duecourse. Copies will also be available on the website (www.intercede.com) andfrom the registered office of the Company: Lutterworth Hall, St. Mary's Road,Lutterworth, Leicestershire, LE17 4PS. This information is provided by RNS The company news service from the London Stock Exchange