Final Results

Intercede Group PLC 29 May 2003 INTERCEDE GROUP plc ('Intercede', 'the Company' or 'the Group') Preliminary Results for the Year Ended 31 March 2003 Intercede, a leading developer of electronic identity management software today announces its preliminary results for the year ended 31 March 2003. SUMMARY * Turnover increased by 50% to £1.8 million (2002: £1.2 million) and pre-tax losses halved from £2.2 million to £1.1 million * Sales and margins have improved for the fourth consecutive half year period, whilst operating costs have been reduced, thereby providing a clear trend towards profitability * Intercede is now established as one of the leaders in smart card and identity management software, based on both the excellence of its edeficeTM technology and the penetration of key channels to market * Intercede's partners have sold edefice-enabled products to a number of US Federal Government Agencies, as well as to companies in Europe and the USA * Edefice has been selected as a preferred product for installation in a number of high profile demonstration sites in Europe and the USA * Placing agreed to provide £1.25 million of additional funding (net of expenses) Richard Parris, Chairman & Chief Executive of Intercede, said today: 'Following a further period of excellent financial and commercial progress, the Group is well positioned to deliver significant growth in the short to medium term.' 29 May 2003 ENQUIRIES: Intercede Group plc Tel. 01455 558111 Richard Parris, Chairman & Chief Executive Andrew Walker, Finance Director INTERCEDE GROUP plc Preliminary Results for the Year Ended 31 March 2003 CHAIRMAN'S STATEMENT Following a further period of excellent financial and commercial progress, the Group is well positioned to deliver significant growth in the short to medium term. Introduction Intercede Group plc is a leading developer and supplier of identity management software for the government and corporate sectors. Its main product, edeficeTM, is a powerful smart card and identity management software that unites smart cards, tokens, biometrics, public key infrastructure (PKI) and a host of other technologies to provide cost effective smart ID solutions ranging from corporate ID badges to citizen, driving license, health, campus and transportation card programs. Edefice-enabled smart ID solutions allow end-users to enjoy faster and more secure smart card-based access to PCs, networks, buildings and services while providing systems administrators with an intuitive web-based digital identity enrolment, issuance and life cycle management tool. The world market for smart card products and services is forecast to grow at 11% per annum to US$8bn in 2006. Growth will be fuelled, in particular, by demand for multi-application smart cards, migration from magnetic stripe cards to chip based cards for financial applications and generic growth in Asia/Pacific. Other emerging market sectors include corporate ID cards, transit systems, citizen cards and government benefits schemes. The US market is projected to increase at a nominally rapid rate from a small base. Growth will be most rapid in software and high end services including systems integration. (Source: Freedonia Group Market Report April 2003). All of these sectors and regions have emerging needs for smart card and identity management software such as edefice. The Group's opportunity is to exploit the large market potential, using its established technical lead, ahead of the relatively few existing competitors. Results Despite difficult trading conditions, I am pleased to report that sales have increased by more than 50% from £1.2m to £1.8m. This, coupled with an increase in gross margins and a reduction in overheads, has resulted in the level of operating losses being halved from £2.2m to £1.1m. Throughout the year, the Group has substantially reduced the level of cash outflows on a quarter by quarter basis. However, in order to provide additional flexibility in pursuit of the Group's strategic objectives, a Placing has been agreed which will raise approximately £1.25m net of expenses. I will be writing to you separately about this transaction which is subject to shareholder approval at an Extraordinary General Meeting of the company on 1 July 2003. Strategy and Outlook In my statement last year, I highlighted that in the 2002/03 year the Group would be focused on executing its strategy to ensure that: •Existing partners successfully sell edefice-enabled products to their end-user customers. •Product development remains world-class and competitive. •New partners are signed. •Gross margins are increased. I also remarked that: 'A critical measure of success in the next 12 months will be the Group's ability to secure wide market penetration through channel partners while managing cash reserves.' After 12 months of continued progress, I am pleased to report success in executing this strategy as demonstrated by the following: •Intercede's partners have sold edefice-enabled products to a number of US Federal Government Agencies, as well as to companies in Europe and the USA. •Edefice has been selected as a preferred product for installation in a number of high profile demonstration sites in Europe and the USA. •Intercede has signed new partnership agreements and is at an advanced stage of negotiation with a number of smart card manufacturers, security product producers, service providers and systems integrators. •In an emerging market, Intercede has penetrated more channels to market than our competitors. •Gross margins have grown from 62% to 71% year on year. •Intercede is approaching breakeven within the next financial year as a result of all of the above efforts, coupled with tight cost control. Our strategy in the forthcoming year is to drive sales growth by exploiting the Company's technical product lead, principally using the distribution channels that have been established over the previous year. In line with this approach, product development strategy will focus on the adaptation of existing technology. This will facilitate early exploitation of the emerging and growing markets for identity management software under the Intercede MyIDTM solutions brand. Richard Parris Chairman & Chief Executive 29 May 2003 INTERCEDE GROUP plc Preliminary Results for the Year Ended 31 March 2003 REVIEW OF OPERATIONS ActivCard and Datakey commence sales of edefice based products to global customers and further important agreements are secured with GemPlus, Northrop Grumman and Thales. Product Design The Group's software is called edefice. This is a broad based proprietary identity management platform that is finding wide application with customers around the world. The latest version of edefice, version 6.6, was launched in March 2003. Conceived to be a management platform for corporate IT security, edefice has evolved over the last two years into a highly scalable and globally competitive identity management system suitable for deployment in many different markets. The Group is now switching its focus to producing a number of sector specific solutions based on edefice. These solutions will be marketed under the MyID brand name eg MyID Citizen, MyID Campus, MyID Corporate. The edefice platform is powerful because it enables any workstation with an Internet connection to become a distributed yet secure and centrally controlled identification management station. Edefice is a sophisticated product that makes very complicated security products, processes and technologies (typically provided via a number of different manufacturers) simple to deploy and easy to use. The strength of the Group is the intellectual property embedded in edefice and the high quality of its workforce, both of which the Group works rigorously to protect and nurture. Edefice represents more than 60 man years of development by the Group's in-house technical team. Business Development The Group's preferred route to market is to license edefice to global product and service companies who embed the edefice technology within their own branded product lines or service offerings. To date, Intercede has sold more than 200,000 edefice licences through its partner network and significantly more licences are expected to be sold through a step change in the Group's distribution network. Important new relationships have commenced with GemPlus, Northrop Grumman, and Thales. These relationships will enable Intercede to sell its edefice product throughout the world without the need to establish a costly international infrastructure. The Group continues to resell third party security products, primarily within its established UK market, to the finance and public sectors. These activities make an important contribution to earnings. However, as a proportion of total revenue, these earnings will continue to reduce as the Group moves to an international indirect distribution model. Competition in the market for identity management software has been slow to emerge, mainly due to a general reduction in R&D expenditure within the software industry and the smart card sector in particular. Under these circumstances, the Group has an opportunity to exploit its technical lead in a number of market sectors and to gain a predominant market share in advance of the market maturing. International Expansion The growth in international business over the past 12 months reflects the success the Group has had in establishing overseas distribution channels. This trend is anticipated to accelerate and the Group is targeting to generate the majority of its revenues from international sales in the next year. All international sales are conducted through selected channel partners, managed from the Group's UK offices and supported by the Group's website. This approach is proving to be appropriate and highly cost effective. Jayne Murphy Operations Director 29 May 2003 INTERCEDE GROUP plc Preliminary Results for the Year Ended 31 March 2003 FINANCIAL REVIEW The Group continues to make significant progress with limited funds. Whilst the short term imperative remains to break even and become cash generative, the Board believes that the platform is in place for substantial growth. Financial Results Intercede has continued to drive sales revenues, whilst also maintaining a sharp focus on product development, in conjunction with tight control over costs. The Board continues to balance the requirement to achieve short term profitability with the need to continue to invest in product development, in order to maximise the longer term market potential. Over the past 24 months, both sales revenues and margins have increased, whilst operating costs have been reduced. This has resulted in a substantial reduction in the level of losses as shown in the table below: Year ended Year ended 31 March 2003 31 March 2002 Change £'000 £'000 % Sales 1,819 1,193 52.5 ----------- ----------- ----------- Gross profit 1,291 743 73.8 Operating costs (2,365) (2,939) (19.5) ----------- ----------- ----------- Operating loss (1,074) (2,196) (51.1) ----------- ----------- ----------- Loss per share (5.6)p (11.7)p (52.1) ----------- ----------- ----------- Funding As at 31 March 2003, the Group had cash balances totalling £317,000. During the year ended 31 March 2003, the net cash outflow before financing was £1,421,000 compared with £1,211,000 in the prior year. This increase in cash outflow was due to a number of one-off items and does not reflect the true cash trading position of the Group. Action has been taken to reduce overheads during the period and the Board is continuing to take appropriate actions to constrain near term costs and cash outflows. However, in order to provide additional flexibility as the Group moves towards a position of profitability and cash generation, a Placing has been agreed which will raise approximately £1.37 million of additional funding (£1.25 million net of expenses) at an issue price of 7.8p per ordinary share. This agreement is subject to shareholder approval at an Extraordinary General Meeting (EGM) of the Company on 1 July 2003. Further details will be provided in a Circular which will be sent out to all of the Group's shareholders along with the 2003 Annual Report. Summary The Group has continued to make significant progress with the achievement of the objectives outlined at the time of its flotation on AIM, notwithstanding the constraints of the world economy and restricted funding. Whilst the short term imperative remains to break even and become cash generative, the Board believes that the platform is in place for substantial growth from a low cost base within the foreseeable future. Andrew Walker Finance Director 29 May 2003 INTERCEDE GROUP plc Consolidated Profit and Loss Account for the year ended 31 March 2003 Notes 2003 2002 £'000 £'000 Turnover 1,819 1,193 Cost of sales (528) (450) --------- -------- Gross profit 1,291 743 Other operating expenses (2,365) (2,939) --------- -------- (1,074) (2,196) Operating loss 29 66 Interest receivable and similar income Interest payable and similar charges (78) (58) --------- -------- Loss on ordinary activities before taxation (1,123) (2,188) Taxation 2 212 272 --------- -------- Retained loss on ordinary activities after taxation (911) (1,916) and for the year --------- -------- Basic and diluted loss per ordinary share 3 (5.6)p (11.7)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. INTERCEDE GROUP plc Consolidated Balance Sheet at 31 March 2003 2003 2002 £'000 £'000 Fixed assets Tangible assets 70 110 -------- -------- Current assets Stocks 2 8 Debtors 544 404 Cash at bank and in hand 317 1,772 -------- -------- 863 2,184 Creditors: Amounts falling due within one year (887) (1,328) -------- -------- Net current (liabilities)/assets (24) 856 -------- -------- Total assets less current liabilities 46 966 Creditors: Amounts falling due after more than one year Convertible debt (1,432) (1,432) Other creditors (2) (18) -------- -------- (1,434) (1,450) -------- -------- Net liabilities (1,388) (484) ======== ======== Capital and reserves Called-up share capital 4,095 4,090 Share premium account 1,013 1,011 Other reserves 1,508 1,508 Profit and loss account (8,004) (7,093) -------- -------- Shareholders' deficit - all equity (1,388) (484) ======== ======== INTERCEDE GROUP plc Consolidated Cash Flow Statement for the year ended 31 March 2003 Notes 2003 2002 £'000 £'000 Net cash outflow from operating activities 5 (1,608) (1,293) ======== ======= Returns on investments and servicing of finance Interest received 30 71 Interest paid (17) (34) Interest element of finance lease rentals (5) (9) ======== ======= Net cash inflow from returns on investments and servicing of finance 8 28 ======== ======= Taxation received 190 93 ======== ======= Capital expenditure Purchase of tangible fixed assets (11) (39) ======== ======= Cash outflow before financing (1,421) (1,211) ======== ======= Financing Issue of ordinary share capital 7 - 5% convertible loan stock - 982 Repayment of secured loan (10) (10) Capital element of finance lease rentals (31) (31) -------- ------- Net cash (outflow)/inflow from financing (34) 941 ======== ======= Decrease in cash in the year 6 (1,455) (270) ======== ======= INTERCEDE GROUP plc Preliminary Results for the Year Ended 31 March 2003 NOTES 1. The financial information set out in this announcement does not constitute the Group's Statutory Accounts for the years ended 31 March 2002 or 2003, but is derived from those accounts. Statutory Accounts for 2002 have been delivered to the Registrar of Companies and those for 2003, 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 comprises: Year ended 31 March 2003 2002 £'000 £'000 Current year - UK corporation tax 201 179 Adjustment in respect of prior periods 11 93 ---------- ---------- 212 272 ========== ========== The tax credit relates to tax relief for research and development expenditure. 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. Year ended 31 March 2003 2002 £'000 £'000 Loss for the year (911) (1,916) ------------ ----------- Number Number Weighted average number of shares 16,372,931 16,360,485 ------------ ----------- Pence Pence Basic and diluted loss per ordinary share (5.6) (11.7) ============ =========== 4. DIVIDEND The Directors do not recommend the payment of a dividend. 5. RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOW 2003 2002 £'000 £'000 Operating loss (1,074) (2,196) Depreciation charge 51 48 Decrease in stock 6 - (Increase)/decrease in debtors (119) 433 (Decrease)/increase in creditors (472) 422 --------- ------- Net cash outflow from operating activities (1,608) (1,293) ========= ======= 6. ANALYSIS AND RECONCILIATION OF NET DEBT 2002 Cash Flow 2003 £'000 £'000 £'000 Cash at bank and in hand 1,772 (1,455) 317 --------- -------- -------- Debt due within one year (10) - (10) Debt due after one year (1,444) 10 (1,434) Finance leases (37) 31 (6) --------- -------- -------- (1,491) 41 (1,450) --------- -------- -------- Net cash 281 (1,414) (1,133) ========= ======== ======== The reconciliation of net cash flow to the movement in net debt is as follows: 2003 2002 £'000 £'000 Decrease in cash in the year (1,455) (270) Cash inflow from decrease in debt and lease financing 41 41 -------- -------- Change in net debt resulting from (1,414) (229) cash flows New convertible debt - (982) -------- -------- Movement in net cash in the year (1,414) (1,211) Net cash at beginning of year 281 1,492 -------- -------- Net (debt)/cash at end of year (1,133) 281 ======== ======== 7. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held at 10.00am on Tuesday 1 July 2003 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.intercedegroup.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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