Half Yearly Report

RNS Number : 2428W

Intercede Group PLC

06 November 2014

 



6 November 2014

INTERCEDE GROUP plc

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

Interim Results for the Six Months Ended 30 September 2014

Intercede (AIM: IGP.L) is a leading producer of Identity and Credential Management software, called MyID, which manages the secure registration, issuance and life cycle of digital identities for a wide range of uses.

SUMMARY

·      Existing and new products and solutions gain traction in target markets with significant revenues expected in future periods. As previously announced in our October trading update, first half sales totalled £4,045,000 (H1 2013: 4,614,000).

·      Short term and planned operating loss following investment in corporate infrastructure announced previously in our most recent full year results: loss for period of £705,000 (H1 2013: Profit for period of £652,000).

·      Basic and fully diluted loss per share of 1.4p (H1 2013: Earnings per share of 1.3p).

·      Cash balances of £6,301,000 as at 30 September 2014 (30 September 2013: £7,429,000) demonstrating a strong cash balance to support ongoing investment in business development.

·      First orders received for newly announced cloud-based Trusted Application Management service and MyID v10.1 Mobile Derived Credential platform validating product development strategy.

·      Significant new and repeat orders in existing and new markets, including US public sector, aerospace and oil & gas.

·      On track for year on year growth with further upside potential based on a strong pipeline of opportunities, more and more of which is developing in new markets.

Richard Parris, Chairman and Chief Executive of Intercede, commented:

"We have experienced one of our busiest six-month trading periods and, with a team that has grown 50% over the last 18 months, we have never been better placed to exploit the growing need for digital identities across a wide range of corporate, government and consumer markets.

That said, a glut of orders received and recognised at the end of the last period and a delay in seasonal US government orders at the end of this period, has made it that much more difficult to exceed last year's H1 performance; and the unpredictably of timing of government orders and uncertainty associated with the adoption rates of new technologies are factors that must always be taken into account. However, we have confidence that the high levels of customer engagement experienced in H1 will continue into the second half, leading to a strong end to the financial year."

ENQUIRIES

Intercede Group plc                                                             Tel. [phone]

Richard Parris, Chairman & Chief Executive

Andrew Walker, Finance Director

FinnCap                                                                                 Tel. [phone]

Stuart Andrews, Corporate Finance

Joanna Weaving, Corporate Broking

Bell Pottinger                                                                        Tel. [phone]

Archie Berens

About Intercede

Intercede is a software company specialising in identity and credential management with a global team of experts located in the US and UK.

Intercede's MyID software enables organisations to create and use trusted digital identities for employees, citizens and machines. This allows secure access to services, facilities, information and networks.

MyID meets the highest government standards yet is simple enough to be deployed onto consumer devices such as smart phones and tablets. Critically, MyID provides an easy, convenient and secure alternative to passwords.

Millions of identities are managed using MyID and Intercede has provided identity verification and management services to global customers for more than 20 years. MyID is a commercial off the shelf software product, designed and developed to be configurable so it can be embedded as the cornerstone of cyber security infrastructure for governments and corporations.

Customers trusting Intercede for secure digital identity include the US and UK governments and some of the world's largest corporations, telecommunications providers and information technology partners.

For more information visit www.intercede.com  

INTERCEDE GROUP plc

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

Interim Results for the Six Months Ended 30 September 2014

Chairman's Statement

Introduction

I am pleased to announce Intercede's interim results for the six month period ended 30 September 2014.  We have experienced one of our busiest six month trading periods and, based on the indications so far, we have confidence that this pattern of customer engagement will continue through the second half. Underlying that confidence is a well publicised and growing acceptance that password-based authentication is incompatible with the convenience and security demanded by today's digital economy. With a team that has grown 50% over the last 18 months we have never been better placed to exploit the growing need for trusted digital identities across a wide range of corporate, government and consumer markets.

Financial Results

Revenues in the period totaled £4,045,000 compared to £4,614,000 in the previous year. A net loss of £705,000 for the period compares to a £652,000 net profit in the prior year, a reflection of the short term and planned operating loss following the investment in corporate infrastructure announced previously in our most recent full year results.

The Company has no debt and continues to fund its growth through existing cash resources. Cash balances at the end of September totalled £6,301,000 compared to £7,247,000 at the end of March 2014 and £7,429,000 at the end of September 2013.

Operational Highlights

This has been a very busy period in terms of product development and customer engagement. The following additional contract wins were added to the order book during the period, all of which will contribute to revenues in the current financial year and beyond:

·      First orders received for newly announced (i) Cloud-based Trusted Application Management service and (ii) MyID v10.1 Mobile Derived Credential platform validating product development strategy.

·     New major US Federal agency added to Intercede's customer list with focus on mobile identity showing intrinsic growth in our existing government market. This was announced on 29 September 2014.

·     Further order received via CertiPath for 'PIV in a box' identity solution demonstrates scalability of MyID as a component in 'shrink wrapped' packages. This solution was first announced on 9 April 2013.

·     First oil & gas sector order from a European major who has bought the Intercede MyID Mail solution for iOS to integrate with existing employee smart cards showing the competitive strength of our BYOD mobile applications.

·     European aerospace manufacturer buys MyID licences to distribute into its airline customer base indicating how industry leaders are starting to encourage the use of digital identities throughout their supply chains. This customer was first announced on 25 September 2013.

·     US aerospace manufacturer ready to go live with enterprise-wide deployment of MyID for employee authentication. This proves that Intercede MyID remains a highly current and relevant technology for companies that take security seriously. This contract was initially signed on 5 November 2013, demonstrating the typical lead times from first engagement to production delivery.

·      Repeat orders for national identity and critical national infrastructure projects.

Business Development

During the period, Intercede invested in developing the MyID family of products to serve three new emerging markets:

1.   Trustonic TEE - moving beyond identity into consumers, payments and the Internet of Things

We have extended our partnership with Trustonic to enable Intercede to manage the provisioning of trusted applications to devices equipped with a Trusted Execution Environment (TEE). Under this collaboration, Intercede will expand its solution set to serve the growing ecosystem of Trustonic and Intercede partners who require fast, simple, secure deployment of TEE enhanced services. Initial use of the Intercede cloud-based Trusted Application Management service (MyTAM) will enable over-the-air provisioning of trusted applications to TEE enabled devices. Partners will then be able to personalise apps either with third party providers or, for more convenience and security, use a seamlessly integrated MyID Identity Management product hosted in the Cloud or on-premise.

From an end-user or consumer perspective, the MyTAM experience will be as easy as using any cloud-based service with simple and transparent user interfaces, high resilience, systems redundancy, massive scalability and fast response. Leveraging Intercede's cyber security expertise and trusted reputation, the MyTAM service will be protected by industrial strength security.

At the time of writing, Intercede is engaging with 10 application developers and service providers who have already written, or plan to write, trusted applications that utilise TEE infrastructure. Each of these organisations is waiting on the provision of a TAM service to complete their go-to-market strategies. Intercede is well placed to be the preferred partner. These partners are spread across multiple applications including secure voice, banking, mobile operators, payments, Bitcoin, mobile device management and mobile app toolkits. This will enable Intercede to generate revenues beyond the digital identity market eg through mobile payments. This is an important development that validates Intercede's investment strategy.

2.   Microsoft Virtual Smart Card - expanding the appeal of Intercede's solutions into the mid-market customers

One of the biggest security challenges faced by organisations today is verifying the identity of people and devices that attempt to access their networks, data and premises. Many firms rely on usernames and passwords, but these are an inherently insecure form of authentication, while proving especially awkward to use on mobile devices. To address this, we have increased our collaboration with Microsoft so that organisations can now give their employees secure access to corporate networks and resources straight from their Windows device, whether it is a PC, tablet or phone. Intercede announced in June 2014 that it was the first company to provide virtual smart card (VSC) management - a form of authentication that uses a device's inbuilt secure element (known as a TPM) - for Windows Phone 8.1.

The advantage of Windows VSC solutions is the low cost and ease of deployment, making it an ideal way to provide higher levels of cyber security and identity assurance to mid-market customers.

A significant amount of man time has been invested during the period in supporting Microsoft on a number of internal and external facing proofs of concept and pilots that involve key security components and the Azure Cloud services.

As a further sign of our strengthening relationship, Intercede was a bronze sponsor at Microsoft's World Partner Conference in July 2014.

3.   FIPS 201-2 Derived Credentials - mobile solutions for governments and security sensitive large scale organisations

Intercede's US Federal market for secure identities is about to go through a revolution as government agencies seek to improve productivity and reduce costs through the mobile enablement of their workforce. Intercede has invested to ensure it can ride this wave of opportunity. In September 2014 we announced that a high-profile US Federal government agency had placed an initial order for MyID v10.1 credential management software to provide its employees with secure identity on mobile devices to meet the new FIPS 201-2 standard.

Launched September 2014, MyID v10.1 is the US's first derived credential solution that can securely issue and manage trusted personal identity verification (PIV) credentials for mobile. Meeting the technical and business process standards for FIPS 201-2 compliance, MyID combines technology independence with an easy "mobile first" self-service interface to enable fast enterprise-wide deployment of derived credentials.

The use of derived credentials enables Federal employees to securely access mobile resources that they could previously only get to with their PIV smart card, leading to higher productivity while simultaneously strengthening security.

Intercede previewed MyID v10.2 at the Smart Card Alliance on 29-30 October 2014. This is Intercede's inaugural "Cloud-first, Mobile-first" product. Designed to be run by end-user organisations or service providers in a cloud environment, MyID v10.2 enables any Federal agency to manage their derived credentials using MyID irrespective of their existing PIV provider. This opens up a large premium government market to Intercede.

Strategy and Outlook

Intercede's strategy is to continue to grow its identity and credential management business in its historically strong markets and to reinvest in the significantly higher growth opportunity that is anticipated in the mobile and Internet of Things (IoT) markets. Our diverse product portfolio and long term 'sticky' customers enable the Company to ride the inherent risks associated with selling products based on new technology and to focus on maximising market penetration ahead of nascent competition.

We believe the upside of success is huge. For example, Trustonic TEE technology alone already protects more than 250 million smart devices, empowering service providers to protect their applications in hardware to simplify access and enhance the services provided. The technology enables usernames and passwords to be replaced with strong identity and authentication credentials that increase convenience, privacy and security for consumer and business applications. This population is expected to grow significantly in the next 12-24 months and by 2020 the Internet of Things market is estimated to be in excess of 50 billion devices. Each of those digital identities needs to be managed and this therefore represents a massive potential market for Intercede.

The commercial upside of the Microsoft VSC and Derived Credential markets, while smaller in terms of number of licenses than the TEE opportunity, carry higher unit prices and have the scope for generating significant returns in the medium term.

In the markets in which we operate orders can be delayed and the adoption of new products and services can be slower than planned. However, we see encouraging signs based on the level of customer engagement in the current financial year to date. Our expectations are thus for year on year growth and further upside potential based on a strong pipeline of opportunities, more and more of which is developing in new markets. In the longer term it has become clear that Intercede is very well placed to capitalise on a market in which it has been recognised that passwords are not enough.

Richard Parris

Chairman & Chief Executive

6 November 2014

Consolidated Statement of Comprehensive Income

For the period ended 30 September 2014

	6 months ended		6 months ended		Year ended
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
Continuing operations
Revenue	4,045		4,614		9,783
Cost of sales	(296)		(18)		(99)
Gross profit	3,749		4,596		9,684
Operating expenses	(4,868)		(4,376)		(9,366)
Operating (loss)/profit	(1,119)		220		318
Finance income	31		36		77
(Loss)/profit before tax	(1,088)		256		395
Taxation	383		396		385
(Loss)/profit for the period	(705)				780
Total comprehensive (expense)/income attributable to owners of the parent company	(705)		652		780
(Loss)/earnings per share (pence)
- basic	(1.4)p		1.3p		1.6p
- diluted	(1.4)p		1.3p		1.6p

Consolidated Balance Sheet

As at 30 September 2014

	As at		As at		As at
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
Non-current assets
Property, plant and equipment	786		658		757
Current assets
Trade and other receivables	1,744		1,575		1,785
Cash and cash equivalents	6,301		7,429		7,247
	8,045		9,004		9,032
Total assets	8,831		9,662		9,789
Equity
Share capital	487		487		487
Share premium account	232		232		232
Other reserves	1,508		1,508		1,508
Retained earnings	3,010		4,250		3,972
Total equity attributable to owners of the parent company	5,237		6,477		6,199
Current liabilities
Trade and other payables	1,396		1,225		1,719
Deferred revenue	2,198		1,960		1,871
	3,594		3,185		3,590
Total equity and liabilities	8,831		9,662		9,789

Consolidated Statement of Changes in Equity

For the period ended 30 September 2014

	Share		Share		Other		Retained
	capital		premium		reserves		earnings		Total
	£'000		£'000		£'000		£'000		£'000
At 31 March 2014	487		232		1,508		3,972		6,199
Purchase of own shares	-		-		-		(379)		(379)
Employee share option plan charge	-		-		-		62		62
Employee share incentive plan charge	-		-		-		60		60
Total comprehensive expense	-		-		-		(705)		(705)
At 30 September 2014	487		232		1,508		3,010		5,237

At 31 March 2013	487		232		1,508		3,530		5,757
Employee share option plan charge	-		-		-		68		68
Total comprehensive income	-		-		-		652		652
At 30 September 2013	487		232		1,508		4,250		6,477

At 31 March 2013	487		232		1,508		3,530		5,757
Purchase of own shares	-		-		-		(475)		(475)
Employee share option plan charge	-		-		-		136		136
Employee share incentive plan charge	-		-		-		1		1
Total comprehensive income	-		-		-		780		780
At 31 March 2014	487		232		1,508		3,972		6,199

Consolidated Cash Flow Statement

For the period ended 30 September 2014

	6 months ended		6 months ended		Year ended
	30 September		30 September		31 March
	2014		2013		2013
	£'000		£'000		£'000
Cash flows from operating activities
Operating (loss)/profit	(1,119)		220		318
Depreciation	72		55		116
Employee share option plan charge	62		68		136
Employee share incentive plan charge	60		-		1
Decrease/(increase) in trade and other receivables	41		(584)		(795)
(Decrease)/increase in trade and other payables	(323)		227		721
Increase in deferred revenue	327		310		221
Interest received	31		36		78
Cash (used)/generated from operations	(849)		332		796
Taxation	383		396		385
Net cash (used)/generated from operating activities	(466)		728		1,181
Investing activities
Purchases of property, plant and equipment	(101)		(69)		(229)
Cash used in investing activities	(101)		(69)		(229)
Financing activities
Purchase of own shares	(379)		-		(475)
Cash used in financing activities	(379)		-		(475)
Net (decrease)/increase in cash and cash equivalents	(946)		659		477
Cash and cash equivalents at the beginning of the period	7,247		6,770		6,770
Cash and cash equivalents at the end of the period	6,301		7,429		7,247

Notes to the Accounts

For the period ended 30 September 2012

1   Preparation of the interim financial statements

These interim financial statements have been prepared under IFRS as adopted by the European Union and on the basis of the accounting policies set out in the Group's Annual Report for the year ended 31 March 2014.

The Group is not required to apply IAS 34 Interim Financial Reporting at this time.

These interim financial statements have not been audited and do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2014 have been delivered to the Registrar of Companies. The Auditors' Report on those accounts was unqualified and did not contain any statement under Section 498 (2) or (3) of the Companies Act 2006.

The Interim Report will be mailed to shareholders within the next few weeks and copies will be available on the website (www.intercede.com) and at the registered office: Intercede Group plc, Lutterworth Hall, St Mary's Road, Lutterworth, Leicestershire, LE17 4PS.

2   Revenue

All of the Group's revenue, operating profits and net assets originate from operations in the UK.  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:

	6 months ended		6 months ended		Year ended
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
UK	746		353		928
Rest of Europe	815		1,319		2,195
North America	1,628		2,812		5,990
Rest of World	856		130		670
	4,045		4,614		9,783

3   Taxation

Taxation represents the net effect of amounts receivable from HMRC in respect of research and development claims and US corporation tax payable. There is no charge for UK corporation tax due to the availability of losses brought forward from prior years.

4   (Loss)/earnings per share

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

	6 months ended		6 months ended		Year ended
	30 September		30 September		31 March
	2014		2013		2014
	£'000		£'000		£'000
(Loss)/profit for the period	(705)		652		780
	Number		Number		Number
Weighted average number of shares - basic	48,571,005		48,677,030		48,661,716
- diluted	50,228,664		50,228,664		50,228,664
	Pence		Pence		Pence
(Loss)/earnings per share - basic	(1.4)p		1.3p		1.6p
- diluted	(1.4)p		1.3p		1.6p

The weighted average number of shares used in the calculation of basic and diluted earnings per share for each period were calculated as follows:

	6 months ended		6 months ended		Year ended
	30 September		30 September		31 March
	2014		2013		2014
	Number		Number		Number
Issued ordinary shares at start of period	48,735,005		48,735,005		48,735,005
Effect of exercise of share options	-		-		-
Effect of purchase of treasury shares	(164,000)		(57,975)		(73,289)
Weighted average number of shares - basic	48,571,005		48,677,030		48,661,716
Add back effect of purchase of treasury shares	164,000		57,975		73,289
Effect of share options in issue	1,493,659		1,493,659		1,493,659
Weighted average number of shares - diluted	50,228,664		50,228,664		50,228,664

5   Dividend

The Directors do not recommend the payment of a dividend.

 

END

 

 

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