Intercede Regulatory News (IGP)

INTERCEDE GROUP plc

Preliminary Results for the Year Ended 31 March 2013

Intercede, one of the world's leading software providers, today announces its preliminary results for the year ended 31 March 2013.

SUMMARY

- Resilient financial performance in line with February Trading Update:

·; Sales £6.7m (2012: £7.0m) include North American sales 7% higher at £4.8m (2012: £4.5m).

·; Admin expenses £7.5m (2012: £6.0m) reflect planned investment in infrastructure, technology development and sales capacity.

·; Headcount increased to 80 at 31 March 2013 (2012: 70).

·; Loss before tax in line with expectations at £0.7m (2012: Profit before tax £0.9m).

·; Loss per share 1.2p (2012: Earnings per share 1.4p).

·; Cash balances of £6.8m remain strong at 31 March 2013 (2012: £7.0m).

- Won a major homeland security project since the year end for a G8 government with a contract value likely to exceed £1.5m in the year ended 31 March 2014 and £10.0m over a five year period.

- Increase in the number of digital identities under management by MyID to 7m (2012: 5m).

- New technology to manage virtual smartcards and the security of mobile devices showcased in partnership with Microsoft and GSMA.

Richard Parris, Chairman & Chief Executive of Intercede, said today:

"I am pleased to report that Intercede is making good progress towards the realization of its 2020 vision as the market validates that our commercial vision is an 'Idea whose Time has Come'. For the last ten years Intercede has been building a solid technology and reference customer base in anticipation of widespread adoption of digital identities for business and personal use. During this period Intercede has built a leadership position in a highly selective market.

"In 2014 we plan to exploit this established position as the product life cycle moves from early adoption into a high growth phase. This growth will be inexorably driven by the ubiquity of the Cloud, trusted computing on smartphones and tablets, cyber security threats and the cost savings to be harvested from on-line citizen service provision. I am confident that Intercede will emerge as one of the successful competitors in our sector, thereby adding significant shareholder value."

About Intercede

Intercede™ is a security software provider whose MyID® identity management platform enables global organisations and governments to create trusted digital identities for employees and citizens on secure devices such as smartcards, smartphones and tablets. MyID® enables the protection of IP, assets, and digital content, delivering trusted digital identities as the cornerstone of cyber security strategies for government, defence, financial services and other industries.

The Company operates in global markets (including the US, Europe and Middle East) and works with large international partners to deliver flexible digital identity solutions that are interoperable with other existing technologies and which are tailored to customer needs.

The world's largest governments, major corporations and mobile network operators trust Intercede's deep expertise to deliver effective solutions. The Company's technology achievements reflect a significant investment in the development of intellectual property, exemplary speed of deployment and adherence to international standards including FIPS 201, where MyID® was the first electronic personalisation product to obtain GSA approval. This trust is reflected in Intercede's rate of repeat business with its customers, which typically runs at 70-80% of annual revenues. 

Intercede has been developing ID management systems since 1992 and MyID® is currently deployed by end customers located in 24 countries. The company is headquartered in the UK, listed on the London Stock Exchange (AIM: IGP) and is ISO 9001 and TickIT certified.

For more information visit http://www.intercede.com

ENQUIRIES

Chairman's Statement

Financial and Operational Highlights

Significant progress has been made this year in building a platform for a step change in performance as the market for identity management moves towards mass adoption. Highlights include:

·; Resilient financial performance

o Sales £6.7m (2012: £7.0m) include North American sales 7% higher at £4.8m (2012: 4.5m).

o Admin expenses £7.5m (2012: £6.0m) reflect planned investment in infrastructure, technology development and sales capacity.

o Headcount increased to 80 at 31 March 2013 (2012: 70).

o Loss before tax £0.7m (2012: Profit before tax £0.9m).

o Loss per share 1.2p (2012: Earnings per share 1.4p).

o Cash balances of £6.8m remain strong at 31 March 2013 (2012: £7.0m).

·; Large scale homeland securityproject awarded by a multinational prime contractor on behalf of a government agency in a G8 Nation; an initial order for £0.6m received April 2013 with a contract value likely to exceed £1.5m in the year ended 31 March 2014 and £10.0m over a five year period.

·; Increase in the number of digital identities under management by MyID to 7m (2012: 5m).

·; New corporate identity card projects demonstrate viability of current product line.

·; Services to support majorMyID system upgrades across a range of international customers ensure longevity of existing customer base.

·; MyID as Software as a Service (SaaS) deployments continue via third parties in support of anticipated market demand.

·; Technology developments

o Re-architecting of MyID infrastructure to support new platforms and to deliver new levels of user experience.

o MyID extensions to manage virtual identity credentials on Trusted Platform Modules (TPM) in production release of Windows 8 Professional.

o Launch of the first MyID Apps to iTunes.

o Launch of the first MyID Near Field Communications (NFC) Apps to GooglePlay for Android phones.

·; Corporate development: Additional office space and staff recruitment in the UK and US to support the next phase of Intercede's growth.

Results

In the year ended 31 March 2013, revenue decreased by 3% from £6,964,000 to £6,727,000 at a gross margin of 99.6% (2012: 98.4%).

Good progress has been made growing our sales and delivery capabilities. North American sales have increased to $7.6m (2012: $7.1m) and Intercede has expanded its office in Reston, Virginia, to support further growth.

The operating loss for the period was £764,000 which compares to a prior year operating profit of £829,000. As at 31 March 2013, the Group had cash balances of £6,770,000 (2012: £6,968,000).

During the year, Intercede recorded a loss before tax of £673,000 (2012: Profit before tax £910,000). The loss reflects planned investment in our infrastructure, technology development and sales capacity.

Company Vision

Since I wrote my Chairman's Statement for last year's Annual Report, the amount of digital data in the world has increased by at least 40%, the number of internet users has grown by 0.4 billion, tablet computer sales have overtaken laptops, the Samsung Galaxy has outsold the iPhone, North Korea launched a cyber attack on South Korea, social media has outpaced the mainstream news services in covering global events, the UK and US governments have moved citizen services to 'digitally by default' and the Bitcoin phenomenon has provided a window into the future of on-line payment. The boundaries between the real world and cyberspace are becoming more blurred and the smooth running of the global village is increasingly dependent on adequate levels of information security.

Not only are we all now digital consumers, we are also becoming digital publishers uploading gigabytes of multimedia content to the likes of Facebook and Instagram. Furthermore, we are also actors in a surveillance society leaving digital footprints wherever we tread. The Cloud provides the storage and distribution mechanism and Big Data the means to query and analyse the records of our lives. This is a rich seam of information to be mined and exploited by ourselves or others for years to come. In this brave new world of human experience the need for digital security and privacy has become a popular concern. Both viewers and providers of content need to be identified with appropriate levels of trust and confidence. This means digital rights management at an individual level of granularity. We need to know if sources are trustworthy and to control who can view our most cherished on-line memories and intellectual property. Content needs to be protected for its lifetime to avoid embarrassment, abuse or theft of value. This requires we all have trusted digital identities or personas to assert who we are in cyber space and that we have consumer level access to cryptographic tools that can be used to lock our content away from prying eyes. This is equally applicable in private, citizen or business life.

Issuing and managing digital identities including necessary encryption technology is Intercede's business.

Intercede currently has 7 million digital identities actively managed by its MyID software. In my Chairman's Statement last year I stated that Intercede's Vision is to have more than 100 million identities under management by 2020. The Vision anticipates a 20-fold increase in volume from the 2012 base financial year will yield a 10-fold increase in revenue against a much smaller increase in the cost base. This is a very attractive business model. On the basis of this Vision, Intercede continues to invest to ensure the Company is best placed to exploit this opportunity and to maximise medium and long term returns to shareholders.

Typically deployed as a back office infrastructure platform, Intercede's MyID software manages the issuance of digital identities that are used to authenticate the access of users to networks and services. This is a key cyber security requirement with significant commercial upside across governments, large corporations and telecommunications network operators. Over the last 12 months, we have also seen our customers, including governments, large corporations and telecommunications network operators, step change their dependency on the use of digital channels for service delivery over the Cloud and on to mobile devices such as smartphones and tablets. This is a new driver that has the potential to push the use of Intercede's products into support for consumer devices and the Internet of Things.

The inevitability of digital identities being ubiquitous by 2020 has moved a step closer during the last 12 months, driven by consumer demand and new platforms eg support for virtual smart cards on Windows 8 and the penetration of ARM's Trusted Execution Engine into most smartphones. The remaining roadblock to widespread adoption is the complexity of the integration, the interoperability challenges and enforcement of security policies necessary to deliver a transparent and convenient user experience. Amidst this maelstrom of technology, I am pleased to report to shareholders that Intercede's MyID platform solves this problem by acting as the 'missing link' that can unlock the market for all. I believe it is rare for a company of Intercede's size to hold such a key position in such a large potential market.

To realise this potential, Intercede will continue to focus on two core drivers of business growth as a foundation for realising its 2020 Vision:

·; Deepening our penetration of existing markets, where MyID has already been particularly applicable; and

·; Tapping into new technology-led trends such as the Cloud and the Internet of Things to protect and expand our industry leadership.

Key Performance Indicators

·; Last year we set a target of 100m user identities under MyID management by 2020. In the last 12 months we have advanced from 5m to 7m users.

·; The level of exports remains high at 88% (2012: 89%).

·; Sales in North America have increased by 7% and the proportion of revenue attributable to North American customers has further increased to 72% (2012: 64%). While this concentration has been challenging during a year when budgets have been subject to substantial pressure and uncertainty, we remain confident that the US is the largest and least fragmented market for our technology. In the longer term this market will deliver the greatest returns with the lowest cost of delivery.

·; The level of repeat business with existing customers remains high at 93% (2012: 79%) which reflects the level of trust placed in MyID as a critical component of their IT security infrastructure.

·; The number of new customers with revenues over £20,000 is 9 (2012: 8) which demonstrates that MyID remains cutting edge and meets market needs.

Strategy

The Group's 2012-13 Business Goals were as follows:

·; Corporate development

o Continue to invest in sales and marketing in order to increase the pipeline of opportunities.

o Be the partner of choice for provisioning digital identities to mobile devices.

o Position MyID as the convergence platform of choice for the next generation of physical access control systems (PACS) as an extension of our support of ICAM.

o Invest in protection of IP.

·; Product and innovation

o Exploitation of existing MyID product in maturing markets.

o Development of new product to target the mobile device market.

o Development of a SaaS model and the positioning of MyID as a core technology to sell to third party SaaS providers supporting the PIV-I and CIV markets.

o Close alignment with the release of Microsoft Windows 8.

Intercede has delivered against these objectives with solid progress. Examples include:

·; Corporate development

o Enhanced and enlarged sales and support teams to service growing market demand for existing product lines.

o Working in partnership with a North American Telco on a mutual mobile ID strategy.

o Formed a partnership with Certipath, to deliver converged LACS and PACS solutions (CIV-in-a-Box).

o Increased levels of patent and trademark activity.

·; Product and innovation

o Proved the value of the existing MyID platform by winning a major government security project.

o Demonstrated new MyID mobile platform in partnership with GSMA (the trade body for mobile telecoms operators) on the GSMA booth at the GSMA Mobile World Congress, Barcelona, February 2013.

o Received first MyID Mobile and Kiosk orders from US customers.

o MyID SaaS deployments continue via third parties in support of anticipated market demand.

o Launched MyID Windows 8 virtual smart card solution on the Microsoft booth at the RSA Conference, February 2013.

Dustin Ingalls, Microsoft Group Program Manager for Windows Security and Identity, said:

"Most enterprise mobile computer platforms, available on the market today, ship with Trusted Platform Modules (TPM) already installed. A key security benefit of Microsoft's Windows 8 is its ability to easily configure the TPM to do a number of operations including functioning as Virtual Smart Cards (VSC). We believe that VSCs will change the way mobile computer users assert their identities in cyberspace; therefore, we collaborated closely with Intercede to ensure that VSCs can be managed 'out-of-the-box' using the company's MyID Identity and Credential Management System. This means that Windows 8 customers have immediate access to an end-to-end solution for creating and managing the assured identities of employees and consumers. We chose to work with Intercede because of MyID's ease of deployment and advanced technical features."

The Group's 2013-14 Business Strategy is as follows:

·; Corporate development

o Position MyID as the credential management system of choice for high assurance networks.

o Exploit global leadership in PIV solutions market.

o Capture new major corporate accounts in US and Europe.

o Widen sales channels to cover major players in the mobile telecoms industry.

o Progress the Microsoft partnership to revenues generation.

o Partner with Cloud service providers to deliver Identity in the Cloud using MyID.

·; Product and innovation

o Continue to re-engineer the existing MyID platform to improve scalability and supportability in anticipation of a rapid expansion of market demand.

o Accelerate research and development in expanding the MyID platform to provision digital identities into mobile devices.

o Expand the MyID mobile identity product suite to include client applications for secure communications.

o Expand the scope of MyID to also manage the identities of networked components as part of the emergence of the Internet of Things. This expands the market size by at least one or two orders of magnitude.

Intellectual Property

Intercede continues to invest to protect its intellectual property and trademarks.

The Intercede MyID product suite is undergoing continuous development and improvement to support new hardware platforms, deliver heightened levels of user experience and ensure more resilience and security.

The Board continues to support ongoing investment in existing and new product capability to maximise the potential of market leadership, the value of its intellectual property and to ensure Intercede is best placed for future exploitation.

Appointment of Non-Executive Director

We were very pleased to announce the appointment, on 15 April 2013, of Ian Drew as a Non-Executive Director of the Company. Ian is currently Executive Vice President of Marketing and Business Development for ARM Holdings plc. He brings a wealth of highly relevant experience of our markets and will be a valuable addition to our Board.

Outlook

In summary, our pipeline of commercial opportunities is likely to reach an inflexion point in 2014 as we continue to deepen the penetration of markets where Intercede's MyID product has become an industry standard. In the emerging markets of Cloud computing, managed services and mobile digital identities I believe we can accelerate our growth profile. The outlook is therefore very positive and trending towards our 2020 Vision of having 100 million digital identities managed by MyID.

Richard Parris

Chairman & Chief Executive

Business and Finance Review

Introduction

The past year has been challenging, but the Company has had the courage of its convictions to execute the strategy determined by the Board and previously advised to shareholders. The costs associated with this strategy have been incurred now but the benefits, in terms of increased revenues and cashflow generation, are anticipated to arise in future periods.

Business Development

Intercede has embarked upon a period of substantial investment in order to take advantage of the opportunities provided by the advent of smart phones and global cyber security concerns.

The main areas of selective investment are;

·; The development of mobile security applications involving interoperability with technologies such as iPhone, Android and BlackBerry.

·; Increased collaboration with major industry players such as Microsoft and ARM.

·; The establishment of accredited PIV-I platforms with a number of new entrants to a market which is forecast to involve in excess of 50 million identities.

·; The launch of the world's first secure email service based on TSCP specification (TSCP is the Trans Global Secure Collaboration Program, a co-operative forum of leading aerospace & defence companies and government agencies working together to develop an open standards based security framework). Intercede is a member of the consortium involved in this initiative.

·; Sales and marketing to promote and protect the MyID name and technology and to build industry relationships.

These activities have resulted in further growth in headcount and a commensurate need for office and IT infrastructure and equipment. The Company has substantially increased its office space to facilitate further growth with the acquisition of a new office in Lutterworth close by the existing Head Office and by taking on additional rental space in the Reston, US office.

Financial Results

Revenue for the year ended 31 March 2013 was £6,727,000 (2012: £6,964,000) with no one project representing more than 25% of total revenue (2012: 15%). Over the last four years, exports have increased from 56% to 88% of total revenue.

Gross profit margins remain high, but the planned investment in additional resources outlined above has resulted in a 24% increase in administrative expenses from £6,023,000 to £7,467,000. With revenues broadly flat, this has resulted in a £764,000 operating loss (2012: £829,000 operating profit).

Staff costs continue to represent the main area of expense, representing 74% of total operating costs (2012: 77%). Intercede had 80 employees and contractors as at 31 March 2013 (2012: 70). The average number of employees and contractors increased from 68 to 77 year on year.

Expenditure on research and development (R&D) activities totalled £2,328,000 (2012: £2,071,000). In accordance with IFRS, the Board has continued to determine that all internal R&D costs incurred in the year are expensed. No development expenditure has been capitalised as at 31 March 2013 (2012: £nil).

Finance income for the year was £91,000 (2012: £81,000) as the Group maintained cash and interest bearing short term deposits in excess of £6 million throughout the period notwithstanding increased levels of investment.

A £101,000 taxation credit for the period (2012: £233,000 taxation charge) primarily reflects cash received following the 2012 R&D claim. The Group is a beneficiary of the UK Government's efforts to encourage innovation by allowing 125% (2012: 100%) of qualifying R&D expenditure to be offset against taxable profits.

As at 31 March 2013, the Group has £6,843,000 (2012: £4,091,000) of prior year tax losses available for carry forward.

A loss for the year of £572,000 (2012: Profit of £677,000) resulted in a loss per share of 1.2p (2012: Earnings per share 1.4p).

Funding

As at 31 March 2013, the Group had cash balances totaling £6,770,000 (2012: £6,968,000). The decrease in cash balances principally reflects the acquisition of new UK office facilities that resulted in a total outflow of £449,000 including set up costs. Cash generated from operations remained positive at £35,000 (2012: £862,000) notwithstanding the increased investment outlined above.

The Group has no debt and, following the 2010 Capital Reduction, is in a position to be able to commence the payment of dividends as and when the Board considers this to be appropriate.

Summary

When the Board determined its strategy for increased investment, it did so in expectation of a higher level of ongoing sales from Intercede's existing technology. This was not the case during the year ended 31 March 2013 against a general backdrop of funding issues for both existing and potential new customers (government and corporate alike) and consequent delays in project approval. Markets remain difficult, as illustrated by EU austerity measures and US sequestration, but we are better placed to successfully execute and achieve the benefits of our strategy 12 months on.

Andrew Walker

Finance Director

INTERCEDE GROUP plc

Consolidated Statement of Comprehensive Income for the year ended 31 March 2013

There is no other comprehensive income for the year.

The accompanying notes are an integral part of these financial statements.

INTERCEDE GROUP plc

The accompanying notes are an integral part of these financial statements.

INTERCEDE GROUP plc

Consolidated Statement of Changes in Equity for the year ended 31 March 2013

The accompanying notes are an integral part of these financial statements.

INTERCEDE GROUP plc

Consolidated Cash Flow Statement for the year ended 31 March 2013

The accompanying notes are an integral part of these financial statements.

INTERCEDE GROUP plc

Preliminary Results for the Year Ended 31 March 2013

NOTES

1. The financial information set out in this announcement does not constitute the Group's Statutory Accounts for the years ended 31 March 2012 or 2013, but is derived from those accounts. Statutory Accounts for 2012 have been delivered to the Registrar of Companies and those for 2013, which have been approved by the Board of Directors, will be delivered following the Group's Annual General Meeting. The Company's auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 498 of the Companies Act 2006.

The Annual General Meeting of the Company will be held at 11.00 am on Wednesday 25 September 2013 at Lutterworth Hall. 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.

2. SEGMENTAL REPORTING

All of the Group's revenue, operating profits and net assets originate from operations in the United Kingdom. The Directors consider that the activities of the Group constitute a single business segment.The split of revenue by geographical destination of the end customer can be analysed as follows:

3. TAXATION

The tax credit/(charge) comprises:

The Group has unused tax losses of £6,843,000 (2012: £4,091,000) and unrecognised deferred tax assets of £1,574,000 calculated at the UK corporation tax rate of 23% that came into effect from 1 April 2013 (2012: £982,000 calculated at the previous UK corporation tax rate of 24%).

4. (LOSS)/EARNINGS PER ORDINARY SHARE

The calculations of (loss)/earnings per ordinary share are based on the (loss)/profit for the financial year and the weighted average number of ordinary shares in issue during each year. Basic and diluted loss per share are the same as potential dilution cannot be applied to a loss making period.

5. DIVIDEND

The Directors do not recommend the payment of a dividend.

6. SHARE CAPITAL

On 14 March 2012, certain employees exercised options totalling 63,000 ordinary shares at an exercise price of 40.5p per share.

In June 2012, certain employees and a Director of the Company exercised options totalling 307,000 ordinary shares at an exercise price of 40.5p per share.