Interim Results

Intercede Group PLC 23 December 2002 INTERCEDE GROUP plc Interim Results for Six Months Ended 30 September 2002 CHAIRMAN'S STATEMENT Introduction The Group's performance in the first half of the current financial year demonstrates an ability to drive sales growth in a period that has been very challenging across the entire IT industry. During the period the Group has made excellent progress and continued to generate momentum across all areas of business activity. Key highlights during the period include: • Intercede is now established as one of the leaders in smart card and smart ID management software, based on both technical excellence and the penetration of key channels to market. • Sales and margins have improved for the third consecutive half year period, whilst operating costs have been controlled and reduced, thereby providing a clear trend towards profitability. • Intercede's edeficeTM software is now being actively marketed on a global basis via an established network of business partners. • Edefice has been successfully installed on important customer sites in the US and Europe. • Intercede has significantly increased its medium term sales pipeline in both its existing and a number of new potential markets. • Driven by customer demand, the Group has released edefice v6.5 and edefice SP, a new version of edefice targeted at service providers. Results Intercede has continued to drive sales revenues, while also maintaining a sharp focus on product development, in conjunction with rigorous cost control. 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 18 months, both sales revenues and margins have increased, whilst operating costs have been reduced. This has resulted in a reduction in the level of losses in each consecutive half year period, as shown in the table below: £'000 6 months ended 30 Sept. 2001 30 March 2002 30 Sept. 2002 Sales 471 722 876 Gross profit 211 532 630 Operating costs (1,419) (1,520) (1,277) Operating loss (1,208) (988) (647) Loss per share (7.3)p (4.4)p (3.4)p Business & Product Development Landmark events during the current period include the launch by ActivCard Inc. and Datakey Inc. of their own smart card management systems powered by Intercede's edefice technology and the commencement of their global sales and marketing programmes for these products. As a result, a number of blue chip organisations in various parts of the world now have edefice technology implemented within their corporate infrastructures and recurring indirect licence revenues are starting to be recorded. For example, a major US bank has taken delivery of the first edefice based implementation in North America. In October 2002, Intercede announced a £460,000 contract with a major European telecommunications group for the supply of edefice SP in support of a new secure access service for corporate customers. This order represents a significant development in the evolution of the edefice product line as it validates edefice as a tool for managing high volumes of customers in a service provider environment. Edefice SP also represents an extension to the edefice product line that has the potential to be sold internationally to other large organisations, both within and beyond the telecommunications sector. Edefice is an identity management platform that provides a wider range of interoperability options than any other product on the market. It supports open standards and proprietary technologies. This maximises Intercede's ability to satisfy many diverse customer requirements with a standard product. Furthermore, it enables the Group to access the sales and marketing infrastructures of these interoperability partners. By way of example, edefice has become the first smart card management system to be awarded 'Entrust Ready' status by Entrust Inc. This accreditation provides access to an international network of Entrust resellers and integrators, thus providing a potential new sales channel. Based on more than 50 man years of development, edefice continues to emerge as an innovative, easy to use, highly sophisticated product that is technically superior and more market ready than current competitors. The underlying design of edefice is highly adaptable and rapidly expandable, thereby enabling Intercede to follow new market trends and maintain technical leadership and differentiation. Sales of security solutions incorporating third party components continue to generate valuable revenue contributions to the Group. Customers during the period include Allied Irish Bank, Barclays Bank and the UK Government, in partnership with Fujitsu Services. Finance As at 30 September 2002, the Group had cash balances totalling £768,000. During the six months ended 30 September 2002, the net cash outflow from operating activities was £1,176,000 compared with £1,293,000 in the year ended 31 March 2002 and £940,000 in the six months ended 30 September 2001. This increase in cash outflow compared to the previous periods was due to a number of one off items that were expensed in the year ended 31 March 2002 but were actually paid in the current period. This does not reflect the true cash trading position of the Group. If the effects of such timing differences are removed, the monthly cash outflow in the six months ended 30 September 2002 was lower than in previous periods. Action was taken to reduce costs during the period and the Board is continuing to take appropriate actions to constrain near term costs and cash outflows. Tight control will continue to be particularly critical for the Group as it moves towards profitability and a cash generative position. Outlook The management of smart cards and other smart IDs, for use with physical and logical security systems, is perhaps one of the few market sectors forecast to grow world-wide in what is expected to be an otherwise depressed IT market. Within the industry, 2003 is seen as a year that will see an explosion in the number of identity and smart card based projects being initiated and 2004 as the year when volume deployments will start to become a reality. Intercede is very well positioned to take advantage of this emerging opportunity and is building both product functionality and channels to market to maximise early market penetration and subsequent revenue generation. Richard Parris Chairman and Chief Executive 23 December 2002 ENQUIRIES: Intercede Group plc Tel. 01455 558111 Richard Parris, Chairman & Chief Executive Andrew Walker, Finance Director College Hill Tel. 020 7457 2020 Archie Berens Clare Warren INTERCEDE GROUP plc Consolidated Profit and Loss Account 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Turnover 876 471 1,193 Cost of sales (246) (260) (450) Gross profit 630 211 743 Other operating expenses (1,277) (1,419) (2,939) Operating loss (647) (1,208) (2,196) Interest receivable and similar income 22 41 66 Interest payable and similar charges (39) (23) (58) Loss on ordinary activities before taxation (664) (1,190) (2,188) Tax on loss on ordinary activities 115 - 272 Loss on ordinary activities after taxation and retained loss for (549) (1,190) (1,916) the period Basic and diluted loss per ordinary share (3.4)p (7.3)p (11.7)p INTERCEDE GROUP plc Consolidated Balance Sheet As at As at As at 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Fixed assets Tangible assets 94 128 110 Current assets Stocks 6 5 8 Debtors 220 184 404 Cash at bank and in hand 768 1,071 1,772 994 1,260 2,184 Creditors: Amounts falling due within one year (674) (1,110) (1,328) Net current assets 320 150 856 Total assets less current liabilities 414 278 966 Creditors: Amounts falling due after more than one year Convertible debt (1,432) - (1,432) Other creditors (8) (36) (18) (1,440) (36) (1,450) Net (liabilities)/assets (1,026) 242 (484) Capital and reserves Called-up share capital 4,095 4,090 4,090 Share premium account 1,013 1,011 1,011 Other reserves 1,508 1,508 1,508 Profit and loss account (7,642) (6,367) (7,093) Shareholders' (deficit)/funds - all equity (1,026) 242 (484) INTERCEDE GROUP plc Consolidated Cash Flow Statement 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Net cash outflow from operating activities (1,176) (940) (1,293) Returns on investments and servicing of finance Interest received 22 44 71 Interest paid (12) (18) (34) Interest element of finance lease rentals (3) (5) (9) Net cash inflow from returns on investments and servicing of 7 21 28 finance Taxation received 190 - 93 Capital expenditure Purchase of tangible fixed assets (9) (32) (39) Net cash outflow on capital expenditure (9) (32) (39) Cash outflow before financing (988) (951) (1,211) Financing Issue of ordinary share capital 7 - - Issue of convertible debt - - 982 Repayment of secured loan (5) (5) (10) Capital element of finance lease rentals (18) (15) (31) Net cash (outflow)/inflow from financing (16) (20) 941 Decrease in cash in the period (1,004) (971) (270) INTERCEDE GROUP plc Notes to the Accounts 1. Preparation of the interim financial statements The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's 2002 statutory accounts. The interim financial statements are unaudited and do not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The figures for the year ended 31 March 2002 are an abridged version of the Group's statutory accounts for that year which have been filed with the Registrar of Companies. The audit opinion on those statutory accounts was unqualified and did not include a statement under Section 237 (2) or (3) of the Companies Act 1985. The Interim Report will be mailed to shareholders and copies will be available on the website (www.intercedegroup.com) and at the registered office: Intercede Group plc, Lutterworth Hall, St. Mary's Road, Lutterworth, Leicestershire, LE17 4PS. 2. Basic and diluted loss per ordinary share The calculations of loss per ordinary share are based on the loss for the period and the weighted average number of ordinary shares in issue during each period. 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Loss for the period (549) (1,190) (1,916) Number Number Number Weighted average number of shares 16,365,140 16,360,485 16,360,485 Pence Pence Pence Basic and diluted loss per ordinary share (3.4) (7.3) (11.7) 3. Reconciliation of movement in shareholders' funds 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Opening shareholders' (deficit)/funds (484) 1,432 1,432 Loss for the period (549) (1,190) (1,916) Issue of shares 7 - - Closing shareholders' (deficit)/funds (1,026) 242 (484) 4. Reconciliation of operating loss to operating cash flow 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Operating loss (647) (1,208) (2,196) Depreciation charge 26 23 48 Decrease in stock 2 3 - Decrease in debtors 110 477 433 (Decrease)/increase in creditors (667) (235) 422 Net cash outflow from operating activities (1,176) (940) (1,293) 5. Analysis and reconciliation of net debt As at As at 31 March 30 September 2002 Cash flow 2002 £'000 £'000 £'000 Cash at bank and in hand 1,772 (1,004) 768 Debt due within one year (10) - (10) Debt due after one year (1,444) 5 (1,439) Finance leases (37) 18 (19) (1,491) 23 (1,468) Net cash/(debt) 281 (981) (700) The reconciliation of net cash flow to the movement in net debt is as follows: 6 months ended 6 months ended Year ended 30 September 30 September 31 March 2002 2001 2002 £'000 £'000 £'000 Decrease in cash in the period (1,004) (971) (270) Cash outflow from decrease in debt and lease financing 23 20 41 Change in net debt resulting from cash flows (981) (951) (229) New convertible debt - - (982) Movement in net debt in the period (981) (951) (1,211) Net cash/(debt) at the beginning of the period 281 1,492 1,492 Net (debt)/cash at the end of the period (700) 541 281 6. Creditors: Amounts falling due after more than one year The convertible debt totalling £1,432,000 represents two issues of convertible loan stock, both carrying an interest coupon of 5%. The first issue totalling £982,000 is convertible at the option of the holder into fully paid ordinary shares of the Company at 60.0p per ordinary share (up to a maximum of 1,636,048 shares) at any time prior to 11 December 2006. The second issue totalling £450,000 is convertible at the option of the holder into fully paid ordinary shares of the Company at 41.4p per ordinary share (up to a maximum of 1,086,800 shares) at any time prior to 31 March 2007. Unless previously redeemed or converted, the debt will be redeemed at par on 11 December 2006 and 31 March 2007 respectively. 7. Dividend The Directors do not recommend the payment of a dividend. This information is provided by RNS The company news service from the London Stock Exchange

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