Intercede Regulatory News (IGP)

20 May 2008 07:00



INTERCEDE GROUP plc

('Intercede', 'the Company' or 'the Group')

Preliminary Results for the Year Ended 31 March 2008

Intercede, one of the world's leading developers and suppliers of identity management software, today announces its preliminary results for the year ended 31 March 2008.

SUMMARY

Sales increased by 7% from £2.6m to £2.8m.

Further improvement in gross margin to 99% (2007: 97%).

Loss for the year reduced from £379k to £87k.

Cash inflow of £0.5m during the year, which includes £0.7m raised in the May 2007 Placing (2007: £0.5m outflow). 

Cash balances of £1.15m (2007: £0.65m) at the financial year end.

Launch of MyID Version 8.0 which is the only solution of its kind to deliver registration, ID verification and card/device issuance and life cycle management within a single product.

Continuing progress with business partners and systems integrators to build a global distribution model.

Stronger pipeline than ever before; the 10 largest projects alone have the potential to generate aggregate sales of at least £15m over the next 5 years.

Recession proof business drivers give cause for optimism.

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

"This year has seen Intercede engaged on 10 major projects that both generally and individually demonstrate our strong technology capabilities and market position. This is a considerable advancement from where we were even two years ago. Intercede has emerged from a period of 'silent running' with the strongest identity and credential management system in the world. We have developed an unrivaled network of global partners and Systems Integrators licensing our patented technology. 

"As a result, Intercede is now firmly established as the 'go-to' partner for any technology provider that needs to add identity and credential management to their solutions portfolio, which suggests we have created an industry standard. Having established this firm foundation, Intercede now looks forward to a period of rapid growth in one of the few recession proof markets available to investors." 

About Intercede

Intercede Group plc is a leading developer and supplier of smart card and identity management software listed on the London Stock Exchange (IGP LN) (IGP.L). Intercede's MyID software manages the secure registration, issuance and lifecycle of digital identities for a wide range of uses. This requires the integration of multiple technologies and products from many different vendors, including smart cards, biometrics, digital certificates, Open Platform applets and physical access control systems.

 Intercede works with a number of market leading OEM, re-seller and technology partners that supply MyID technology to the global market place including: Athena Smartcard Solutions, Gemalto, Oberthur Card Systems, Oracle, RSA Security, SafeNet, Thales, VeriSign and a variety of systems integrators and other security product and service providers. 

Intercede and MyID are registered trademarks or trademarks in the UK, US and/or other countries. 

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

ENQUIRIES

 INTERCEDE GROUP plc

('Intercede', 'the Company' or 'the Group')

Preliminary Results for the Year Ended 31 March 2008

Chairman's Statement

Intercede is one of the world's leading developers and suppliers of software for identity and credential management. This software is branded as the Intercede MyID Identity and Credential Management System and comprises multiple functional modules delivered on a single common management platform. 

Operational Highlights

During the year, Intercede's business model has been further proven through the securing of additional major projects, including:

Additional good progress is being made with a number of existing high profile and potentially very large projects:

During the year Intercede has started to complement its UK and US successes with penetration into the European market. Business development activities have also commenced in the Middle East, Indian and Australian markets.

Results

In the year ended 31 March 2008, revenue increased by 7% from £2,620,000 to £2,805,000 at a gross margin of 99%.  

Operating losses have been significantly reduced from £349,000 to £102,000 and the net loss for the year has fallen from £379,000 to £87,000. The cash outflow before financing decreased from £459,000 to £178,000. As at 31 March 2008, the Group had cash balances of £1,153,000.

Whilst costs have continued to be tightly controlled throughout the period, good progress has been made with the establishment of a US team to provide sales and technical support to partners. The Group continues to balance the importance of short term profitability against the need to ensure that resources are in place to meet partner and customer demands.

Intercede's short term results will be heavily dependent on the timing of the 10 largest projects which the Group is already working on. It is anticipated that these 10 projects alone have the potential to generate aggregate sales of at least £15m over the next 5 years.

Product Development

A major development in the last year has been the repositioning of MyID from being a smart card management system to a fully featured Identity and Credential Management System. This has required a significant research and development investment over the last 12 months. The resulting new functionality is embedded in the recently completed MyID Version 8.0. This significantly broadens the scope and revenue potential of our target market. It also extends the competitive appeal of the Intercede MyID platform compared to our competitors. The securing of the UK Government contract highlighted above, which is mainly concerned with requirements for user enrolment, provides an early reference site for this exciting new capability.

This competitive advantage has been reinforced by the award of US patent 7430773 to Intercede on 4 March 2008; UK and EU patents having already been obtained in previous periods. This patent for 'Secure Multipart Authorisation', is critical to the securing of remote registration and enrolment of identities on distributed workstations. Using this invention, any remote workstation equipped with a smart card reader can become a highly secure identity enrolment and smart card issuing station. In particular this technology, unique to Intercede, enables strong and legally binding auditing and non-repudiation of all management functions undertaken by the operators of our system. This enhances systems security and reduces exposure to fraudulent usage and is a necessary requirement of large scale credential systems such as national ID schemes or large corporate security projects.

A full production release of MyID Version 8.0 is now ready for shipping and a launch event has been scheduled for 4 June 2008 in the Washington DC area.

MyID Version 8.0 also incorporates new physical access integration to enable customers to manage logical and physical access control from a single system. This capability is especially powerful when the customer has multiple physical access systems from a variety of different vendors to manage. By providing a single management interface from which all of the credentials assigned to an employee can be controlled, the task of policing employee access to computer systems and buildings is significantly simplified and security is enhanced. This capability has already been tested and deployed with a major US banking customer and is now ready for general resale.

Finally, Intercede has designed MyID Version 8.0 to have direct appeal to the Systems Integration community. By opening up a range of development tools to trained and certified professionals, Intercede is enabling Systems Integrators to build custom implementations of MyID to suit a wide range of customer needs. This will further increase the scalability of Intercede's business model and enable Systems Integrators to add value faster whilst earning additional professional service fees.

Current Trading

It is becoming increasingly clear that the market we are targeting is starting to move beyond the emerging technology phase. This is apparent from the significant acceleration in the number of commercial opportunities and requests for proposals from partners and customers. This is very good news for Intercede, which has established a leading position in the sector in terms of market share, technology adoption, reference sites and overall industry reputation.

Intercede's strategy of selling through channel partners has resulted in a number of major project wins over the last 12-18 months. However, particularly on the larger more complex projects, the revenue sharing benefits of these relationships have not always been proportional to the value added by the respective parties. Intercede is therefore embarking on a business review of its partner relationships to ensure that the risks and rewards are appropriately aligned.

Strategy 

In our statement last year, we highlighted that in the 2007/08 year the Group would be focusing on executing its strategy to achieve profitability by:

Continuing to expand our share of the US Federal market and penetrating the much larger emerging market at state and local level;

Increasing the number of channel partners to facilitate entry into new market areas not currently being serviced; and

Expanding our revenues from mainland Europe and the Middle East.

After 12 months of further progress, and notwithstanding funding delays in the US Federal Government market, the Group's success in executing this strategy can be summarised as follows:

Major new US Federal Agency secured as a customer and an additional 40,000 HSPD-12 licences sold;

New channel partners added in Eastern Europe and in the US State and local markets;

A number of European projects have already been secured and the pipeline has increased with further prospects in Europe, the Middle East and Australia; and

The development of the new Identity and Credential Management capability in MyID Version 8.0.

The success of this strategy is based upon the superiority of Intercede's products, the dedication and professionalism of its staff, the strength and position of its partners and the ongoing support of the Group's shareholders. In all of these respects, Intercede has an impressive track record. Furthermore, a program of continuous product development and new innovation continues to ensure that Intercede remains a leader amongst its global competitors.

The Group's business plan in the coming year is to build on this year's success by executing the following strategy:

Add to our current list of major projects wins;

Refocus our channel strategy to improve Intercede's margins on existing business;

Add additional sales channels to attack new markets in different sectors and regions;

Become recognised as a major player in the Identity Registration and Enrolment market space; and 

Expand our professional service capabilities to better support our largest customers and to provide enhanced feedback to our product management team.

Outlook

After several years of early stage development, the identity and credential management market is showing signs of transitioning to a more rapid growth phase. This is demonstrated by a recent Frost & Sullivan report which forecasts that the Smart Card Management System market will grow by 500% to $800m+ pa between 2007 and 2012.

Intercede's business strategy is to track these growth rates in its existing markets and to obtain additional growth by expanding its commercial footprint across new sectors, new regions and by new expansion into both the physical access and identity management markets.

The outlook for the next two to three years is exciting as an increasing number of large scale Government and private projects are being launched in the US, Europe and other regions. Intercede is well positioned, through its market leading MyID products and channel partner network, to exploit these emerging growth opportunities.

The key macro trends driving this growth include:

Convergence in logical and physical security gaining traction;

Fear of terrorism and government mandates for increased homeland security including: 

common federal ID systems for government employees and contractors

National ID cards, border management systems, e-driving licences, e-passports etc;

Identity theft, corporate sabotage by employees and other fraud;

High growth rates in the number of remote access workers;

Increased consumer ID solution needs driven by widespread use of on-line transactions; and

Regulatory and compliance concerns. 

At a time of macro-economic uncertainty and potential global recession, the growth drivers listed above are likely to become more rather than less important to our customers. At the same time, the credit squeeze means that any potential new market entrants are less likely to be able to obtain development funding and more likely to buy external solutions than invest in building their own. The Board therefore believes Intercede is very well positioned to continue its growth and that our business is as recession proof as it is possible to be in these challenging times.

 We look forward with confidence to reporting on our progress during the current year and beyond.

20 May 2008

Richard Parris 

Chairman & Chief Executive

Operating and Financial Review

Introduction

Whilst Intercede has never been busier across all areas of the business, the increased level of activity has yet to be fully reflected in the financial performance. However, as outlined in the Chairman's Statement, the momentum is building.

Business Development

The Group is currently involved in significant work on over 10 major projects whereas, as recently as 2 years ago, Intercede was typically only working on 2 major projects at a time. 

It is the nature of new technology in an early stage market that the investment is front end loaded. This is the case, both in respect of the extent to which products have to be proven at proof of concept and pilot phases prior to roll-out or, at the other end of the spectrum, the level of functionality required to start to make repeat volume sales of the same product. 

In both respects, 2007/08 has been a watershed year for Intercede, both with the nature and extent of individual project wins (which will provide substantial additional revenues over the next few years and serve as excellent references for future opportunities) and with the development of MyID Version 8.0. 

MyID Version 8.0 represents a substantial strengthening and broadening of the Group's historical card management offering since it is the only solution of its kind to deliver registration, ID verification and card/device issuance and life cycle management within a single product.

The growing level of interest in MyID is particularly encouraging. Over the last few years, Intercede has established channel partner agreements with a number of market leading partners that supply MyID technology to the global marketplace. The nature and extent of project wins over the past 12-18 months has established MyID as a market leader in its own right. Both existing and potential new industry partners report that MyID now has sufficient market profile and strength that they believe it to be in their interests to market and sell Intercede's technology under the MyID name.

The Group enters 2008/09 with a stronger pipeline than ever before, both in terms of the nature and scale of individual opportunities and in terms of the probability of success. The current pipeline contains a high level of forecast revenue from projects we have already won (ie additional revenues from existing projects) quite apart from other projects that we are still bidding for.

Whilst our experience to date tells us that project delays can and will happen for a variety of reasons, we remain focused on the action we can take to ensure that we are best placed to deal with any changes. 

Financial Results

The financial results outlined below do not truly reflect the increased level of activity throughout all areas of the business. However, they do illustrate that the Group has continued to make progress in the emerging identity market.

Sales have increased by 7% year on year with an underlying 10% increase in MyID licence sales. Gross profit margins have increased from 97% to 99% as the proportion of sales of proprietary technology has increased from 96% to 97%. 

Costs have been tightly controlled throughout the period and maintained at the same level as the prior year so that the increased revenue and gross profit has all flown through to the bottom line. As a result, the Group is close to break even at the operating level. 

As at 31 March 2008, Intercede had 42 employees (2007: 43 employees). The average number of employees fell slightly from 41 to 40 year on year. 

The loss per share has also been substantially reduced from 1.1p to 0.2p, the reduction in operating losses being augmented by increases in the level of interest received on short term bank deposits and R&D tax credits received from HM Revenue and Customs. 

This is the first set of financial statements prepared under International Financial Reporting Standards (IFRS). The results for the comparative period have accordingly been restated from UK Generally Accepted Accounting Principles to IFRS. The transition has not had a material impact on the results, details of which are outlined in Note 1.

Funding

As at 31 March 2008, the Group had cash balances totaling £1,153,000 (2007: £653,000). 

As reported in the 2007 Annual Report, the Group announced an institutional placing of new shares on 16 May 2007 which raised a total of £703,000 (£678,000 net of expenses) at an issue price of 33p per ordinary share. Having adjusted for this additional funding, the underlying cash outflow for the year is £178,000 (2007: £459,000 outflow). 

On 13 May 2008, Credo Corporate Finance exercised the warrants which were granted in connection with the July 2003 placing. This has resulted in the issue of a further 1,017,100 ordinary shares at the July 2003 placing price of 7.8p per ordinary share, raising a total of £79,000.

The Group's convertible loan notes mature on 31 May 2009 as outlined in note 5. At this stage, given that the Company's share price has been in excess of the conversion prices throughout the period since the loan notes were last renegotiated and extended on 31 May 2006, and having regard for future prospects, the Directors believe that the loan note holders are likely to elect to convert. As outlined in note 1, the financial statements have accordingly been prepared on a going concern basis.

Summary

After another challenging year, it is good to be able to look back and identify the progress made at all levels in the business. One year on, Intercede is better placed in terms of product functionality, project wins, sales prospects and market position.

The momentum is clearly building and the Directors are increasingly confident that this will be reflected in the Group's future financial performance as more and more projects move beyond the initial proof of concept and pilot phases.

Andrew Walker

Finance Director

 INTERCEDE GROUP plc

Consolidated Income Statement for the year ended 31 March 2008

The comparatives for the year ended 31 March 2007 have been restated as outlined in Note 1.

There are no recognised gains or losses other than the loss for the year.

INTERCEDE GROUP plc 

Consolidated Balance Sheet at 31 March 2008

The comparatives for the period ended 31 March 2007 have been restated as outlined in Note 1. 

INTERCEDE GROUP plc 

Consolidated Statement of Changes in Equity for the year ended 31 March 2008

 INTERCEDE GROUP plc 

Consolidated Cash Flow Statement for the year ended 31 March 2008

The comparatives for the period ended 31 March 2007 have been restated as outlined in Note 1.   INTERCEDE GROUP plc

Preliminary Results for the Year Ended 31 March 2008

NOTES

1. The financial information set out in this announcement does not constitute the Group's Statutory Accounts for the years ended 31 March 2007 or 2008, but is derived from those accounts. Statutory Accounts for 2007 have been delivered to the Registrar of Companies and those for 2008, 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 237(2) or (3) of the Companies Act 1985.

The auditors have included an emphasis of matter within their audit opinion on the 2008 Statutory Accounts. As set out in note 5, the convertible loan notes are set to expire on 31 May 2009. Since the loan note holders' decision is unknown at this date, International Standards on Auditing 570 'Going Concern' require the Directors to state that this may give rise to a material uncertainty related to events or conditions which may cast significant doubt on the Group's ability to continue as a going concern. In the event that some or all of the loan note holders do require repayment, the Group does not currently have in place sufficient cash or committed facilities to do so. Therefore it may, if it is required but not able to obtain alternative funding beyond 31 May 2009, be unable to realise its assets and discharge its liabilities in the normal course of business.

However, on the basis of cash flow forecasts, the exercise prices for loan note conversion, and previous discussions with the Group's loan note holders and major shareholders, the Directors have assumed that the Group will continue to operate within both available and prospective facilities. Accordingly the financial statements have been prepared on a going concern basis and do not include any adjustments that would be required in the event that the loan note holders do request repayment and alternative finance is not available.

Following the adoption of International Financial Reporting Standards ("IFRS"), the financial information in this announcement has been prepared on the basis of the accounting policies set out in the interim financial statements for the 6 months ended 30 September 2007. The 2007 financial information is restated as a result of adopting IFRS.

The only adjustment identified as being necessary as a result of the transition to IFRS relates to the requirement for a holiday pay accrual in accordance with IAS 19. The accruals required are £22,000 at 1 April 2006 and £33,000 at 31 March 2007. As outlined in the Consolidated Statement of Changes in Equity, the impact on the income statement is an £11,000 charge against profits for the year ended 31 March 2007.

2. TAX ON LOSS ON ORDINARY ACTIVITIES

The tax credit comprises:

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. Basic and diluted loss are the same as potential dilution cannot be applied to a loss making period.

4. DIVIDEND

The Directors do not recommend the payment of a dividend.

5. ANALYSIS AND RECONCILIATION OF NET DEBT

On 31 May 2006, a variation of terms was agreed with the convertible loan note holders. The loan periods were both extended through to 31 May 2009 and interest chargeable was increased to 6% per annum with effect from 1 April 2006. The convertible loan note holders are now able to convert the loans and associated interest outstanding at prices of 20p and 15p per ordinary share for the original £982,000 and £450,000 loans respectively. The loans and associated interest totalling £2,005,000 will be repayable as at 31 May 2009 if they choose not to convert. The non-cash movement represents the interest payable on the convertible loan notes.

6. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at 11.00 am on Wednesday 2 July 2008 at Lutterworth Hall.

7. 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.