Intercede Regulatory News (IGP)

24 May 2005 07:00

Intercede Group PLC24 May 2005 INTERCEDE GROUP plc ("Intercede", "the Company" or "the Group") Preliminary Results for the Year Ended 31 March 2005 Intercede, a leading developer of electronic identity management software, todayannounces its preliminary results for the year ended 31 March 2005. SUMMARY - Sales increased from £1.6m to £1.8m - Pre-tax losses reduced from £0.7m to £0.4m - Strong second half performance resulting in the first half year's profit since the Group was admitted to AIM - Full year cash outflow reduced from £0.5m to £0.4m and cash generative in the second half - Second patent granted and issued in February 2005 - New orders received from DoT Ireland, Gemplus, RSA Security, European Notaries, The British Library, a major Russian Telecoms Company and a major Israeli Corporate - Successful year securing new channels to market and consolidating activities with existing partners, notably Athena Smart Card Systems, Atos Origin, Axalto, Giesecke & Devrient, Gemplus, Siemens and Thales e-Security - Good progress continues to be made in the development of strategic relationships with a number of other product companies and channel partners - The Group is well placed to take advantage of a major new market that is opening up rapidly in the US as a result of Homeland Security Presidential Directive 12 - The Group's technology is increasingly being bid by major industry players on smart card related projects in all parts of the world Richard Parris, Chairman & Chief Executive of Intercede, said today: "The Group has taken a major stride forward with significant new contracts inEurope and the US delivering year on year revenue growth and profitability inthe second half of the year." 23 May 2005 ENQUIRIES: Intercede Group plc Tel. 01455 558111Richard Parris, Chairman & Chief ExecutiveAndrew Walker, Finance Director CHAIRMAN'S STATEMENT The Group has taken a major stride forward with significant new contracts inEurope and the US delivering year on year revenue growth and profitability inthe second half of the year. Introduction Intercede is a leading developer of software to issue and manage smart cards anddigital identities. In my report last year I indicated that the use of smart cards foridentification purposes, and hence the need for Intercede's MyID(TM) software,would accelerate through the period. I am pleased to confirm gathering momentumin this early stage market as evidenced by rapidly increasing demand frompartners and potential customers. Sales revenues in the second half of the yearincreased substantially compared to the first six months and the Group tradedprofitably during the second half period. The major drivers fuelling this growth in the use of smart cards and devices,requiring the use of MyID software, include: 1. Identity management and security is now one of the highest IT spending priorities in many large organisations. 2. Homeland Security Presidential Directive (HSPD) 12 requires smart card identity badges to be issued to all US Federal government employees by October 2006. 3. Fears of identity theft and "phishing" for retail and corporate banking customers is creating new demand within the financial services industry. 4. The use of smart cards, national identity cards and passports is becoming a global inevitability in the fight against terrorism, crime and illegal immigration. 5. The issuance of digital tachograph cards to all new trucks drivers throughout the EU. 6. New service delivery mechanisms and legislation requiring the enhanced protection of electronic medical records in the US and EU health care industries. 7. Personal identity and loyalty cards that deliver financial benefits, cashless vending and access control to campus communities, e.g. universities, hospitals, major employers. Intercede has been engaged in projects propelled by all of these drivers withinthe last 12 months. MyID has now been successfully deployed in a wide range ofcustomer environments, including; a European aerospace contractor,telecommunications companies in Russia and Israel, a major US Defencecontractor, a US Federal Financial Institution, two major UK clearing banks, aworld famous police force, a national association of Notary Publics, the IrishDepartment of Transport, one of the world's largest health care providers, aDutch hospital and an African university. In many cases, the number of licences sold to these customers in the last twelvemonths is only a small proportion of the licences still to be purchased over thecoming year and beyond. Along with recurring support and maintenance revenues,Intercede is building an annuity stream from additional licence sales and nowhas its largest ever forward looking sales pipeline of new customers. To ensure the scalability of our business model, we continue to grow aninternational network of business partners who are working with Intercede toestablish the MyID product line as a de facto standard for a wide range ofidentification applications around the world. MyID is the only technology of itsclass that can now be purchased through: • Each of the five largest smart card companies in the world, i.e. Axalto, Gemplus, Giesecke & Devrient, Oberthur, Siemens. • Specialist security companies, e.g. Athena Smart Card Systems, Thales e-Security and RSA. • Major systems integrators, e.g. Atos Origin, Fujitsu Services, Northrop Grumman. • Managed services providers, e.g. PinkRoccade and RBS Trust Assured Services. This list of partners continues to grow as the Group targets new market sectorsand geographical territories. It is testimony to the vision of the management team and the quality of ourtechnical and sales staff that the Group has forged a position of globalleadership in a highly specialised niche. This is an enviable platform forgrowth as smart cards move from a niche market to the technology mainstream andthe need for effective lifecycle management of those cards is increasingly beingrecognised. I will now describe our results and achievements in more detail. Results In the year ended 31 March 2005, turnover of £1.8m was achieved at a grossmargin of 94% (compared to £1.6m at a gross margin of 83% in the previousperiod). Over the past four years, Intercede has significantly reduced operating lossesfrom £2.2m to £0.4m and the cash outflow before financing has been reducedduring that time from £1.2m to £0.4m. As at 31 March 2005, the Group had a cashbalance of £0.7m. Our strategy of concentrating on continuing to develop and promote our ownproducts, while maintaining tight control over costs, is succeeding and hasbrought the Group much closer to breakeven for the whole year. I am particularlypleased to report that the second half of the year was both profitable and cashgenerative. Strategy and Outlook In my statement last year, I highlighted that in the 2004/05 year the Groupwould be focused on executing its strategy to: • Increase our software licence revenues from Europe and the US and to establish distribution channels in the Asia Pacific region. • Progress OEM partners from initial OEM licence fees through to recurring licence revenues. • Continue product development focused on the packaging of the MyID range of solutions to meet a wider range of vertical markets. • Expand the Company's turnover much faster than the associated cost base by exploiting Intercede's product maturity, scalability, ease of use and global distribution channels. I also remarked in the 2004 Interim Report that "Intercede has the contracts andthe channels to market, to deliver a strong finish to the financial year and tocontinue the trend towards profitability and rapid revenue growth." After 12 months of continued progress, we have succeeded in executing thisstrategy as demonstrated by the following new orders: 1) DoT IrelandIntercede has been selected by the Irish Department of Transport to provide itsMyID smart card and identity management software for the secure enrolment,processing and management of digital tachograph cards. 2) GemplusAn order in excess of £0.5m has been received from Gemplus, a leading providerof smart card solutions, for a major European customer. 3) RSA SecurityPartnered with RSA Security to win an initial order with a prestigious Europeanaerospace contractor. 4) European NotariesSecured a strategically important win with an Association of European Notariesto issue smart cards to all of the notaries in that country. 5) The British LibraryFollowing a public tender, Intercede was awarded a contract to issue smart cardsto all of the British Library's employees. 6) Major Russian Telecoms CompanyAfter a successful test installation, the rollout of production licences hascommenced to a major Russian Telecoms Company via Athena Smart Card Systems, anOEM partner. 7) Major Israeli Corporate CustomerDelivered a combined physical and logical security smart card managementsolution in partnership with Athena Smart Card Systems and EDS. Within the last few weeks, we have also been advised that we have beensuccessful in bids for a major US aerospace contractor, a major UK clearingbank, and a major European insurance group. Further details will be provided asappropriate as contracts are finalised. Intercede has had a successful year securing new channels to markets andconsolidating activities with existing partners. In particular: • Athena Smart Card Systems Intercede's sales channels have been extended into Asia with Athena Smart Card Systems, Japan, signing an OEM contract to adopt MyID as the Athena Smart Card Manager. Two major customers have already been secured under this contract. • Atos Origin Atos Origin, a leading global systems integrator, signed a European-wide reselling contract for MyID in May 2004. Bids are outstanding on a number of potential contracts across Europe. • Axalto In November 2004, Axalto (formerly part of Schlumberger and a world leading smart card manufacturer) announced that it would adopt MyID as its strategic smart card management system for major corporate customers. Intercede is working closely with Axalto to implement a product integration plan and strategy for those corporations already using Axalto's previous card management offering. • Giesecke & Devrient (G&D) Following a recent major joint win in the US defence industry, G&D are continuing to propose MyID to a number of major North American customers. • Gemplus In February 2005, Gemplus launched Gemplus SafesITe Corporate, incorporating MyID, at the RSA Show in San Francisco. The Gemplus channel has already generated revenues in excess of £0.5m and additional revenues are expected from a number of prospective customers in the United States. • Siemens In March 2005, Intercede joined forces with Siemens in the UK to deliver MyID to a number of Siemens customers in the UK. The first award under this arrangement is anticipated during the first half of the 2006 financial year. • Thales e-Security Thales e-Security have now completed the integration of MyID into the Thales SafeSign product range. Following a European launch in November 2004 and an Asian launch in February 2005, Thales have already submitted a number of commercial proposals incorporating MyID licences and we are awaiting contract award decisions. Our strategy in the forthcoming year is to achieve full year profitability andto consolidate our industry leadership credentials by: • Exploiting our existing channel network to generate MyID licence sales in Europe, the US and Asia. • Establishing a significant revenue stream from the US Federal Government HSPD 12 initiative. • Increase our sales and support bandwidth by making our partners more self-sufficient through the delivery of enhanced training, configuration and integration capability. The effectiveness of this strategy is dependent on the ongoing high calibre ofour products, the dedication and professionalism of our staff, the quality ofour partners and the ongoing support of our shareholders. In all of theserespects, Intercede has an impressive track record. Furthermore, a programme ofcontinuous product innovation and improvement continues to ensure that Intercederemains a leader amongst a small number of global competitors. The outlook for the next 12 months is one of accelerating growth in the numberof software licences sold to an increasing number of customers around the world.Intercede is well positioned to take advantage of this emerging growth. Themanagement team is committed to maintaining the Group on its focused course andI look forward to reporting further progress. Richard ParrisChairman & Chief Executive23 May 2005 OPERATING AND FINANCIAL REVIEW It is good to be able to report the Group's first profitable half year period oftrading. As we enter a new financial year, the focus is on sustaining thisperformance against a backdrop of the largest ever forward order book and salespipeline. Introduction As outlined in the Chairman's Statement, excellent progress has been made duringthe past financial year. The momentum for the Group's technology, and themarkets it serves, has continued to grow and there are clear signs ofacceleration, notably in areas such as the US Federal Government as a result ofHomeland Security Presidential Directive 12. Business Development Technical development efforts continue to be focused on further increases in thelevel of interoperability of the MyID technology and additional areas offunctionality as driven by the various market sector requirements. Following thegrant of the "Secure Multipart Authorization" patent on 18 February 2004, afurther patent ("Web File Server") was granted and issued by the UK PatentOffice on 23 February 2005. Business activity has been building rapidly with customers and partners over thepast year and the number of invitations to tender for prospects throughout theworld has exceeded expectations. Intercede has welcomed major new channelpartners in the US, France, Japan, Switzerland and Austria and additional keycontracts have been secured with customers in the UK, Ireland, ContinentalEurope, Israel, Russia and Austria. Good progress continues to be made in thedevelopment of strategic relationships with a number of other product companiesand channel partners. Financial Results Good progress has been made towards profitability over the past financial yearwith a strong second half performance resulting in the first half year's profitsince the Group was admitted to AIM. An analysis of the last two year's tradingis provided below: Year ended Year ended 31 March 2005 31 March 2004 Change £000 % £000 % % Sales 1,806 1,605 12.5 Gross margin (%) 1,693 (94%) 1,339 (83%) 26.4 Operating costs (2,079) (1,960) 6.1 Operating loss (386) (621) (37.8) Loss per share (0.7)p (2.9)p (75.9) Sales have increased by 13% year on year with an underlying 81% increase in MyIDlicense sales. Gross profit margins have increased from 83% to 94% as theproportion of own technology related sales has increased from 67% to 87%. Costs have continued to be tightly controlled with £36,000 of the £119,000 yearon year increase reflecting the cost of engaging Ernst & Young to assist withthe Group's outstanding Research & Development tax claims. This was successfulas it resulted in the receipt of payments from the Inland Revenue totalling£182,000 for the 2002/03 and 2003/04 financial years. The underlying increase incosts all related to the second half with the Group re-commencing recruitment ofpersonnel in key areas in order to be able to respond to customer and partnerdemands. The combined effect of higher sales and margins coupled with continued controlover costs has resulted in a further reduction in full year losses and, moresignificantly, second half profits totalling £152,000 and £132,000k at theoperating and pre tax levels respectively. Funding As at 31 March 2005, the Group had cash balances totalling £672,000 (2004:£1,068,000). Whilst the full year cash outflow before financing was £394,000(2004: £503,000), it is worthy of note that cash balances have increased by£57,000 since the half year stage. The Group has therefore been both profitableand cash generative in the second half of the current financial year. Summary It is good to be able to report the Group's first profitable half year period oftrading. As we enter a new financial year, the focus is on sustaining thisperformance against a backdrop of the largest ever forward order book and salespipeline. Given the Group's current size, the timing of contract commitments anddeliveries will continue to be very important in the short to medium term.However, with momentum continuing to build in this early stage and excitingmarket, the Board believes that the Group is increasingly well placed to meetits longer term objectives. Andrew WalkerFinance Director23 May 2005 Consolidated Profit and Loss Account for the year ended 31 March 2005 Notes 2005 2004 £'000 £'000 Turnover 1,806 1,605 Cost of sales (113) (266) Gross profit 1,693 1,339 Other operating expenses (2,079) (1,960) Operating loss (386) (621) Interest receivable and similar income 32 34 Interest payable and similar charges (72) (74) Loss on ordinary activities before taxation (426) (661) Taxation 2 182 (202) Retained loss on ordinary activities after taxation and for the year (244) (863) Basic and diluted loss per ordinary share 3 (0.7)p (2.9)p All operations of the Group continued throughout both years and no operationswere acquired or discontinued. There are no recognised gains or losses in either year other than the loss forthe year. Consolidated Balance Sheet at 31 March 2005 2005 2004 £'000 £'000 Fixed assetsTangible assets 25 42 Current assetsDebtors 379 119Cash at bank and in hand 672 1,068 1,051 1,187 Creditors: Amounts falling due within one year (869) (778) Net current assets 182 409 Total assets less current liabilities 207 451 Creditors: Amounts falling due after more than one year Convertible debt (1,432) (1,432) Net liabilities (1,225) (981) Capital and reservesCalled-up share capital 4,271 4,271Share premium account 2,107 2,107Other reserves 1,508 1,508Profit and loss account (9,111) (8,867) Shareholders' deficit - all equity (1,225) (981) Consolidated Cash Flow Statement for the year ended 31 March 2005 Notes 2005 2004 £'000 £'000 Net cash outflow from operating activities 5 (604) (525) Returns on investments and servicing of financeInterest received 35 31Interest paid - (1)Interest element of finance lease rentals - (2)Net cash inflow from returns on investments and servicing of finance 35 28 Taxation received 182 - Capital expenditurePurchase of tangible fixed assets (7) (6) Cash outflow before financing (394) (503) FinancingIssue of ordinary share capital - 1,270Repayment of secured loan (2) (10)Capital element of finance lease rentals - (6) Net cash (outflow)/inflow from financing (2) 1,254 (Decrease)/increase in cash in the year 6 (396) 751 NOTES 1. The financial information set out in this announcement does not constitute the Group's Statutory Accounts for the years ended 31 March 2004 or 2005, but is derived from those accounts. Statutory Accounts for 2004 have been delivered to the Registrar of Companies and those for 2005, which have been approved by the Board of Directors, will be delivered following the Group's Annual General Meeting. Accounting policies have been consistently applied throughout both accounting periods. The Company's auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. 2. TAX ON LOSS ON ORDINARY ACTIVITIES The tax credit/(charge) comprises: Year ended 31 March 2005 2004 £'000 £'000 Current year - UK corporation tax - - Adjustment in respect of prior periods 182 (202) 182 (202) There is no charge in respect of corporation tax in either year due to the availability of losses. An adjustment has been made in respect of research and development 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 the financial year and the weighted average number of ordinary shares in issue during each year. 2005 2004 £'000 £'000 Loss for the year (244) (863) Number Number Weighted average number of shares 33,963,438 29,672,863 Pence Pence Basic and diluted loss per ordinary share (0.7) (2.9) 4. DIVIDEND The Directors do not recommend the payment of a dividend. 5. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOW 2005 2004 £'000 £'000 Operating loss (386) (621) Depreciation charge 24 34 Decrease in stock - 2 (Increase)/decrease in debtors (263) 226 Increase/(decrease) in creditors 21 (166) Net cash outflow from operating activities (604) (525) 6. ANALYSIS AND RECONCILIATION OF NET DEBT 2004 Cash flow 2005 £'000 £'000 £'000 Cash at bank and in hand 1068 (396) 672 Debt due within one year (2) 2 - Debt due after one year (1,432) - (1,432) (1,434) 2 (1,434) Net debt (366) (394) (760) The reconciliation of net cash flow to the movement in net debt is as follows: 2005 2004 £'000 £'000 (Decrease)/increase in cash in the year (396) 751 Cash inflow from decrease in debt and lease financing 2 16 Movement in net cash in the year (394) 767 Net debt at beginning of year (366) (1,133) Net debt at end of year (760) (366) 7. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at 9.00am on Wednesday 13 July 2005 at Lutterworth Hall. 8. ANNUAL REPORT AND ACCOUNTS Copies of the full Statutory Accounts will be despatched to shareholders in due course. Copies will also be available on the website (www.intercede.com) and from 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