28 December 2016
INTERCEDE GROUP plc
('Intercede', the 'Company' or the 'Group')
Interim Results for the Six Months Ended 30 September 2016
Intercede, the software and service company specialising in identity, credential management and secure mobility, today announces its interim results for the six months ended 30 September 2016.
Highlights
· Revenues of £2.8m (2015: £5.5m), a decrease of 49%.
· Operating expenses increased to £6.4m (2015: £5.7m), as a result of continuing investment in infrastructure, technology development and sales capacity.
· Headcount increased to 127 at 30 September 2016 (30 September 2015: 125).
· Operating loss of £3.7m (2015: £0.4m).
· Loss for the period of £2.8m (2015: profit of £0.5m).
· Basic loss per share 5.7p (2015: basic earnings per share 1.0p).
· Cash balances of £1.4m at 30 September 2016 (30 September 2015: £5.8m). Subsequently increased to £2.6m at 30 November 2016.
· Approximately £5.0m to be raised via a Convertible Loan Note instrument and Subscription Shares (announced separately today).
· New contracts, which will all contribute to revenues during the current financial year and beyond, include:
− Initial proof of concept order from a major German car manufacturer, targeting the provision of secure digital trust to more than 500,000 employees and devices.
− New license sale to a subsidiary of a major aerospace and defence company.
− Initial tranche of licenses sold to a global biopharmaceutical company serving patients in 50 countries.
− Further £0.7m of orders secured from a major US aerospace company for a MyID upgrade and support contract renewal.
Richard Parris, Chairman & Chief Executive of Intercede, said:
"The reduction in revenues in the first half of the financial year should not mask the scale of the market opportunity which we are positioned to exploit. We are very pleased at the support we have received from both new and existing investors who also understand this opportunity and are endorsing our strategy by subscribing for convertible loan notes and equity. We remain confident that the deferred orders which have affected the first half of the year will soon come to fruition and the outlook for the full year is in line with expectations. In the more medium term, we are equally confident that the technology we have developed to build a secure bond of trust between connected people and their devices will assume more and more importance in the markets for cloud-based applications, secure mobility and the Internet of Things."
ENQUIRIES
Intercede Group plc Tel. +44 (0)1455 558 111
Richard Parris, Chairman & Chief Executive
Andrew Walker, Finance Director
finnCap Tel. +44 (0)20 7220 0500
Stuart Andrews, Corporate Finance
Simon Hicks, Corporate Finance
Bell Pottinger Tel. +44 (0)7802 442486
Archie Berens
About Intercede
Intercede is a software and service company specializing in identity, credential management and secure mobility. Its solutions create a foundation of trust between connected people, devices and apps and combine expertise with innovation to provide world-class cybersecurity. Intercede has been delivering solutions to high profile customers, from the US and UK governments to some of the world's largest corporations, telecommunications providers and information technology firms, for over 20 years. Intercede's product portfolio includes MyID, an identity and credential management system that assigns trusted digital identities to employees citizens and machines. In 2015, Intercede launched MyTAM, enabling trusted applications to be loaded into a mobile device's Trusted Execution Environment (TEE), providing hardware-level security for Android apps. In 2016, Intercede launched RapID, a secure, easy to implement authentication service for mobile apps and cloud services to completely eliminate the need for passwords.
For more information visit: www.intercede.com
The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.
INTERCEDE GROUP plc
('Intercede', 'the Company' or 'the Group')
Interim Results for the Six Months Ended 30 September 2016
Chairman's Statement
Introduction
Intercede has benefited from six months of important strategic progress measured in terms of new partnerships, positive market developments and the initiation of critical proof of concept deployments for secure mobility and the Internet of Things. Unfortunately, during the same period we were affected by the deferment of a small number of particularly large orders. While none of these external delays are a comment on the fundamental strength of the business, the short term impact of more than £2m of sales being deferred is significant in terms of our ability to continue the scale of our investment in business expansion.
The Company has therefore implemented a plan to raise additional funding to ensure we are adequately resourced to exploit the opportunities we have created around future looking mobile and IOT digital trust solutions. I am pleased to say this fund raising has been successful and the Company has conditionally secured approximately £5.0m of additional cash via a conditional convertible loan note instrument and equity. This new funding will be principally deployed to ramp sales over the next two years in newly emerging regulatory markets in UK, Europe, Korea and the US. The funding has come from new institutions and seasoned technology entrepreneurs as well as some of our major existing investors. This demonstrates the confidence of our long term backers as well as illustrating that our strategic story resonates strongly with a new generation of technology and security savvy investors.
Additionally, we have removed more than £0.6m of annualized costs from the business compared to the start of the financial year without impacting our core delivery capabilities.
Financial Results
Revenues in the period totaled £2,828,000, a 49% reduction compared to the corresponding period last year. For the MyID platform, a large proportion of revenue is generated from US Government agencies, which have stalled investment decisions while bigger political events play out. We believe the conclusion of the US presidential race will result in a pick-up in the revenue run rate as business returns to normal and significant deferred orders - which, as noted above, amount to more than £2m - are realised.
For the Company's newer products, RapID and MyTAM, the work put into business development has resulted in the identification of target markets and talks with reference customers in each of those markets. A RapID solution with a wealth management company is expected to go live later in the year, along with a pilot for a large group of Italian banks. Intercede also continues to build on relationships with all of the major silicon designers and believes that the combined offering of RapID and MyTAM to the Internet of Things future is unmatched on the global stage. Both products are expected to generate significant revenues in future periods.
Planned investment in marketing and PR and business development of new markets, as outlined above, has resulted in a 14% increase in operating expenses from £5,670,000 to £6,448,000. The combined effect of planned investment and revenue deferment has resulted in an increase in operating losses from £447,000 to £3,678,000.
Staff costs continue to represent the main area of expense, representing 77% of total operating costs (2015: 78%). Intercede had 127 employees and contractors as at 30 September 2016 (30 September 2015: 125). The average number of employees and contractors during the period has risen to 128 (2015: 121).
An £898,000 taxation credit for the period (2015: £912,000 taxation credit) primarily reflects the 2016 Research & Development ("R&D") claim as a result of the investment activities outlined above. Whilst the 2015 R&D claim was received during September 2015, the 2016 claim was received during October 2016. The Group is a beneficiary of the UK Government's efforts to encourage innovation by allowing 130% (2015: 125%) of qualifying R&D expenditure to be offset against taxable profits and allowing 14.5% of the lower of R&D losses or taxable losses to be paid as tax credits.
A loss for the period of £2,773,000 (2015: profit of £480,000) resulted in a basic and a fully diluted loss per share of 5.7p (2015: basic earnings per share of 1.0p and a fully diluted earnings per share of 0.9p).
Cash balances as at 30 September 2016 totaled £1,377,000 compared to £5,289,000 as at 31 March 2016 and £5,767,000 as at 30 September 2015. As at 30 November 2016, cash balances had recovered to £2,567,000 due to the receipt of the 2016 R&D claim post period end and receipts from customers. Growth will continue to be funded through a combination of existing cash balances and the additional funding that has been announced separately to the Stock Exchange today.
Operational Highlights
There have been key wins in respect of product development and customer engagement, all of which will contribute to revenues in the current financial year and beyond:
· The successful completion of a proof of concept of a MyID virtual smartcard solution for a major German car manufacturer.
· Development of a RapID solution into an e-wallet application that is currently in trial and will be used by a large group of Italian banks.
· RapID has been implemented into an app for a London-based wealth management company that is expected to go live before the end of the year. This will enable their customers to perform transactions easily and securely, rather than calling to transact through a broker.
· Initial tranche of licenses sold to a global biopharmaceutical company serving patients in 50 countries.
· Signed memorandum of understandings with a number of silicon and IoT IP companies to develop collaborative digital trust solutions for connected devices.
· Taken leadership roles in a number of industry initiatives relating to digital trust and cyber security.
Strategy and Outlook
Intercede's strategy remains unchanged, despite the short term challenges: to grow its digital trust service and software business from a core of existing high value reference customers to a much broader range of industry sectors and customer size.
Intercede plans to achieve this by continuing to generate revenues in its historically strong markets and to reinvest in the significantly higher growth opportunity that is anticipated in the Cloud-enabled, application service centric, mobile and Internet of Things markets. Intercede has already developed much of the required core technology, such as its MyID and MyTAM platforms. The strategic focus is now moving to packaging Intercede's portfolio of IP assets into new combinations to provide innovative solutions to some of the most intractable challenges of the digital economy.
In the medium term, RapID will contribute more to revenue than MyTAM. Target markets for RapID include those that are impacted by new regulations in the financial services and consumer sectors such as Payment Services Directive 2 (PSD2) and the General Data Protection Regulations (GDPR). MyTAM will be essential for solutions to the Internet of Things market and we believe the upside of success in this market is huge. For example, trusted applications on mobile devices will increase convenience, privacy and security for everyday consumer and business applications and, by 2020, the Internet of Things market is estimated to be in excess of 50 billion devices with each 'thing' needing to validate the trustworthiness of its peers across a network. Each point of trust is an opportunity for Intercede to provide an enabling service.
Our expectations are for accelerating year on year growth and turning the tens of millions of MyID identities into hundreds of millions of RapID/MyTAM app users. Our confidence is growing commensurately that, in the longer term, Intercede is exceptionally well placed to capitalise on the market for digital trust services.
Richard Parris
Chairman & Chief Executive
28 December 2016