RNS Number:6557M
Intercede Group PLC
24 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, today
announces 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 in
Europe and the US delivering year on year revenue growth and profitability in
the second half of the year."
23 May 2005
ENQUIRIES:
Intercede Group plc Tel. 01455 558111
Richard Parris, Chairman & Chief Executive
Andrew Walker, Finance Director
CHAIRMAN'S STATEMENT
The Group has taken a major stride forward with significant new contracts in
Europe and the US delivering year on year revenue growth and profitability in
the second half of the year.
Introduction
Intercede is a leading developer of software to issue and manage smart cards and
digital identities.
In my report last year I indicated that the use of smart cards for
identification purposes, and hence the need for Intercede's MyID(TM) software,
would accelerate through the period. I am pleased to confirm gathering momentum
in this early stage market as evidenced by rapidly increasing demand from
partners and potential customers. Sales revenues in the second half of the year
increased substantially compared to the first six months and the Group traded
profitably 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 within
the last 12 months. MyID has now been successfully deployed in a wide range of
customer environments, including; a European aerospace contractor,
telecommunications companies in Russia and Israel, a major US Defence
contractor, a US Federal Financial Institution, two major UK clearing banks, a
world famous police force, a national association of Notary Publics, the Irish
Department of Transport, one of the world's largest health care providers, a
Dutch hospital and an African university.
In many cases, the number of licences sold to these customers in the last twelve
months is only a small proportion of the licences still to be purchased over the
coming year and beyond. Along with recurring support and maintenance revenues,
Intercede is building an annuity stream from additional licence sales and now
has its largest ever forward looking sales pipeline of new customers.
To ensure the scalability of our business model, we continue to grow an
international network of business partners who are working with Intercede to
establish the MyID product line as a de facto standard for a wide range of
identification applications around the world. MyID is the only technology of its
class 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 sectors
and geographical territories.
It is testimony to the vision of the management team and the quality of our
technical and sales staff that the Group has forged a position of global
leadership in a highly specialised niche. This is an enviable platform for
growth as smart cards move from a niche market to the technology mainstream and
the need for effective lifecycle management of those cards is increasingly being
recognised.
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 gross
margin of 94% (compared to #1.6m at a gross margin of 83% in the previous
period).
Over the past four years, Intercede has significantly reduced operating losses
from #2.2m to #0.4m and the cash outflow before financing has been reduced
during that time from #1.2m to #0.4m. As at 31 March 2005, the Group had a cash
balance of #0.7m.
Our strategy of concentrating on continuing to develop and promote our own
products, while maintaining tight control over costs, is succeeding and has
brought the Group much closer to breakeven for the whole year. I am particularly
pleased to report that the second half of the year was both profitable and cash
generative.
Strategy and Outlook
In my statement last year, I highlighted that in the 2004/05 year the Group
would 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 and
the channels to market, to deliver a strong finish to the financial year and to
continue the trend towards profitability and rapid revenue growth."
After 12 months of continued progress, we have succeeded in executing this
strategy as demonstrated by the following new orders:
1) DoT Ireland
Intercede has been selected by the Irish Department of Transport to provide its
MyID smart card and identity management software for the secure enrolment,
processing and management of digital tachograph cards.
2) Gemplus
An order in excess of #0.5m has been received from Gemplus, a leading provider
of smart card solutions, for a major European customer.
3) RSA Security
Partnered with RSA Security to win an initial order with a prestigious European
aerospace contractor.
4) European Notaries
Secured a strategically important win with an Association of European Notaries
to issue smart cards to all of the notaries in that country.
5) The British Library
Following a public tender, Intercede was awarded a contract to issue smart cards
to all of the British Library's employees.
6) Major Russian Telecoms Company
After a successful test installation, the rollout of production licences has
commenced to a major Russian Telecoms Company via Athena Smart Card Systems, an
OEM partner.
7) Major Israeli Corporate Customer
Delivered a combined physical and logical security smart card management
solution in partnership with Athena Smart Card Systems and EDS.
Within the last few weeks, we have also been advised that we have been
successful in bids for a major US aerospace contractor, a major UK clearing
bank, and a major European insurance group. Further details will be provided as
appropriate as contracts are finalised.
Intercede has had a successful year securing new channels to markets and
consolidating 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 and
to 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 of
our products, the dedication and professionalism of our staff, the quality of
our partners and the ongoing support of our shareholders. In all of these
respects, Intercede has an impressive track record. Furthermore, a programme of
continuous product innovation and improvement continues to ensure that Intercede
remains a leader amongst a small number of global competitors.
The outlook for the next 12 months is one of accelerating growth in the number
of software licences sold to an increasing number of customers around the world.
Intercede is well positioned to take advantage of this emerging growth. The
management team is committed to maintaining the Group on its focused course and
I look forward to reporting further progress.
Richard Parris
Chairman & Chief Executive
23 May 2005
OPERATING AND FINANCIAL REVIEW
It is good to be able to report the Group's first profitable half year period of
trading. As we enter a new financial year, the focus is on sustaining this
performance against a backdrop of the largest ever forward order book and sales
pipeline.
Introduction
As outlined in the Chairman's Statement, excellent progress has been made during
the past financial year. The momentum for the Group's technology, and the
markets it serves, has continued to grow and there are clear signs of
acceleration, notably in areas such as the US Federal Government as a result of
Homeland Security Presidential Directive 12.
Business Development
Technical development efforts continue to be focused on further increases in the
level of interoperability of the MyID technology and additional areas of
functionality as driven by the various market sector requirements. Following the
grant of the "Secure Multipart Authorization" patent on 18 February 2004, a
further patent ("Web File Server") was granted and issued by the UK Patent
Office on 23 February 2005.
Business activity has been building rapidly with customers and partners over the
past year and the number of invitations to tender for prospects throughout the
world has exceeded expectations. Intercede has welcomed major new channel
partners in the US, France, Japan, Switzerland and Austria and additional key
contracts have been secured with customers in the UK, Ireland, Continental
Europe, Israel, Russia and Austria. Good progress continues to be made in the
development of strategic relationships with a number of other product companies
and channel partners.
Financial Results
Good progress has been made towards profitability over the past financial year
with a strong second half performance resulting in the first half year's profit
since the Group was admitted to AIM. An analysis of the last two year's trading
is 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 MyID
license sales. Gross profit margins have increased from 83% to 94% as the
proportion 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 year
on year increase reflecting the cost of engaging Ernst & Young to assist with
the Group's outstanding Research & Development tax claims. This was successful
as 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 in
costs all related to the second half with the Group re-commencing recruitment of
personnel in key areas in order to be able to respond to customer and partner
demands.
The combined effect of higher sales and margins coupled with continued control
over costs has resulted in a further reduction in full year losses and, more
significantly, second half profits totalling #152,000 and #132,000k at the
operating 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 profitable
and 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 of
trading. As we enter a new financial year, the focus is on sustaining this
performance against a backdrop of the largest ever forward order book and sales
pipeline.
Given the Group's current size, the timing of contract commitments and
deliveries will continue to be very important in the short to medium term.
However, with momentum continuing to build in this early stage and exciting
market, the Board believes that the Group is increasingly well placed to meet
its longer term objectives.
Andrew Walker
Finance Director
23 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 operations
were acquired or discontinued.
There are no recognised gains or losses in either year other than the loss for
the year.
Consolidated Balance Sheet at 31 March 2005
2005 2004
#'000 #'000
Fixed assets
Tangible assets 25 42
Current assets
Debtors 379 119
Cash 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 reserves
Called-up share capital 4,271 4,271
Share premium account 2,107 2,107
Other reserves 1,508 1,508
Profit 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 finance
Interest received 35 31
Interest 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 expenditure
Purchase of tangible fixed assets (7) (6)
Cash outflow before financing (394) (503)
Financing
Issue of ordinary share capital - 1,270
Repayment 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
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