Intercede Group plc Annual Report & Accounts 2014
ID anywhere l mobile ❘ smart cards ❘ devices
2
01 02 09 12 14 16 17 18 19 20 21 22 23 32 33 34
Intercede Group plc Annual Report and Accounts 2014
Company Overview Chairman’s Statement Strategic Report Board of Directors Directors’ Report Corporate Governance Report of the Remuneration Committee Independent Auditors’ Report: Group Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Accounts Independent Auditors’ Report: Company Company Balance Sheet Notes to the Company Accounts
Intercede Group plc Annual Report and Accounts 2014
01
Company Overview 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 smartphones 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
The Company is headquartered in the UK, listed on the London Stock Exchange (AIM: IGP) and is ISO 9001 certified. MyID adheres to international standards including FIPS 201, where MyID was the first electronic personalisation product to obtain GSA approval. Intercede is also a trusted cyber supplier to the UK government and a member of The FIDO Alliance.
02
Intercede Group plc Annual Report and Accounts 2014
Chairman’s Statement
The Year Reviewed
Intercede has achieved many key milestones during the past year. Following a strong end to the year, sales reached a record level of almost £10m, staff levels reached 100 and the number of identities under management using MyID is now approaching 10 million. Against the backdrop of an aggressive investment plan to take full advantage of the future market opportunity and a target of remaining EBITDA positive for the year, Intercede returned to profit at all levels with a profit for the year of £0.8m and a record year end cash balance of £7.2m. Intercede has continued to increase its penetration into the global market for its solutions. The customer base now includes four of the top six worldwide aerospace & defence companies and government contracts included the award of our largest PIV (Personal Identity Verification) project to date - a large-scale US government transportation security programme. The strength of Intercede’s core MyID software platform has given us a market leading position in government and aerospace & defence sectors and increasing penetration into other high-security sectors. The contract wins during the year further strengthen our position and are contributing to an increasingly buoyant and consistent revenue stream. Perhaps most importantly, the critical nature of these deployments provides a robust proving ground for MyID and points to future revenue opportunities. The early adopting lead sectors for identity and credential management solutions require the highest levels of security but they also provide an excellent indicator of growing demand in the wider market. The global backdrop is one of increased recognition of the importance of cyber security strategies and the continued and well-publicised failures of traditional password-based authentication systems. To meet this demand, Intercede has continued to invest heavily in research and development and, in particular, to position the Company to exploit the growing mobile digital identity market. We see the potential for explosive growth in this sector over the next five years - growth that will help us to meet our 2020 target of 100 million identities under management - and that investment is already producing results. During the year we signed flagship mobile identity contracts with two telecommunications companies including a project with TELUS, the Canadian telecommunications operator. The strength and potential of Intercede’s technology and the value of our partner ecosystem was reinforced as we exhibited alongside the likes of Samsung and ARM at Mobile World Congress and Microsoft at RSA.
03
Intercede Group plc Annual Report and Accounts 2014
Microsoft stand, RSA, San Francisco
Performance
Sales revenues for the year ended 31 March 2014 were almost £10 million; ahead of expectations and substantially higher than the prior year. The Company has returned to profitability and has a record year end cash balance.
Results and Financial Headlines: l
Sales revenues up 45% to £9.8m (2013: £6.7m).
l
Operating expenses increased to £9.4m (2013: £7.5m) reflecting planned
investment in infrastructure, technology development and sales capacity. l
Headcount increased to 105 at 31 March 2014 (2013: 80).
l
Profit for the year of £0.8m (2013: loss of £0.6m).
l
Earnings per share 1.6p (2013: loss per share 1.2p).
l
Cash balances of £7.2m remain strong at 31 March 2014 (2013: £6.8m).
l
The Group has no debt.
Customer and Partner Developments: l
Large scale US government transportation security programme.
l
Exhibited MyID technology alongside Samsung, ARM, Trustonic, G&D and
GSMA at Mobile World Congress. l
Demonstrated virtual smart card technology at RSA alongside Microsoft.
l
Gained membership of The FIDO Alliance.
l
Signed flagship mobile identity contracts with two telecommunications
companies, proving the use cases of MyID for mobile. This includes a joint Intercede/Gemalto/TELUS project, with TELUS employees accessing secure buildings and networks with NFC smartphones powered by MyID. l
ARM stand, GSMA Mobile World Congress, Barcelona
MyID virtual smart card solution for HP ElitePads delivered to a UK
government customer.
04
Intercede Group plc Annual Report and Accounts 2014
Technology Developments: l
Development of MyID Identity Agent which enables the
delivery of digital identities to the secure element of mobile devices, for example the Trusted Execution Environment (TEE) or UICC (next-generation SIM) or Trusted Platform Module (TPM). l
MyID Mobile Identity Software Development Kit (SDK),
enabling developers to make use of credentials within apps. l
Offering device identity through MyID machine certification
solution; the first customer secured is a European aerospace & defence contractor. l
MyID apps for secure email and web browser available on
iTunes, providing proof of concepts for government and industrial customers.
MyID SDK on Samsung Galaxy S4
MyID Mail on iPhone 5
Corporate Development: l
Additional office space and staff recruitment in both the UK
and US to support the Company’s continued growth. l
Increased investment in sales staff including training and
increased headcount. l
The implementation of a Share Incentive Plan for all UK staff
through a share buyback programme. l
The appointment of Ben Drury, Chief Executive of 7Digital, as
a new Non-Executive Director with effect from 1 April 2014. l
New corporate website plus investment in public relations
and public affairs to raise the Company’s profile among target audiences.
New Intercede corporate website launched February 2014
Intercede Group plc Annual Report and Accounts 2014
Looking Ahead
05
As we report a record year for the Company, it is the larger opportunities now available to us that we are focusing on against the backdrop of the following key market trends: There is a growing recognition amongst organisations around the world, and the
l
citizens, consumers and businesses they interact with, that traditional passwordbased authentication is fatally flawed. The trust relationship is being compromised on an almost daily basis; notable recent examples including the eBay data breach and the discovery of the ‘Heartbleed’ bug, both of which led to high profile, front-page calls for password changes globally. Mobility is less of a choice today; more of a paradigm shift in the way we live and
l
work. We increasingly expect to be able to interact with anyone and anything, from anywhere, at any time. Global adoption of mobiles has grown at a staggering rate. eMarketer reports that just
l
over 61% of the world’s population owns a mobile, that’s around 4.5 billion people. Significantly 1.75 billion of these have smartphones, which is up from 1 billion a couple of years ago. As costs continue to fall and networks get built out, smartphones will carry on increasing their share of the total. The projection for 2017 is for them to account for about half of all phones and be used by a third of the world’s population. That’s 2.5 billion people accessing the mobile internet. Organisations are putting more services online in the drive for efficiency. eMarketer’s
l
latest forecasts suggest worldwide business-to-consumer (B2C) ecommerce sales alone will exceed $2.3 trillion by 2017. The much-heralded Internet of Things is fast becoming a reality. Industry analyst
l
Gartner is predicting that the installed base of connected devices will reach 26 billion units by 2020 with the potential growth beyond that almost incalculable. The growing complexity of the market, and the tight resourcing position for many
l
organisations, precludes the development of in-house solutions. The time, resources and expertise simply aren’t available.
Growth trajectory of identity management market
06
Intercede Group plc Annual Report and Accounts 2014
Failure of traditional authentication, combined with exponential growth in the requirement for reliable, trusted identity and credential management, for people and machines, opens up an almost unlimited range of opportunities for Intercede. When passwords are not enough, the market has to explore alternatives. MyID allows organisations to move beyond passwords, creating secure trusted identities on mobile, smart cards and devices. Combining a securely stored credential (something I have) with a second factor of authentication such as a PIN (something I know) or a biometric (something I am) increases both security and user convenience. Organisations can be sure that only the right people and devices are connected to their networks, and users can replace multiple complex passwords with a single easy to remember PIN or fingerprint. With MyID ‘no more passwords’ is becoming a reality for a growing number of organisations and major global technology partners. We live in a world in which every connected device, fixed or mobile, and every individual will require at least one digital identity, and will need technology that can ensure that identity is protected wherever it is stored and whenever it is used. Even in a benign environment, the billions of identities in use every day dictate identity management that is simple and secure in equal measure to guard against confusion, conflict, error and accident. Without it our digital society and our digital economy is compromised. Citizens rightly expect their health and tax records to remain private, consumers need to trust that their credit card data is safe and companies need to protect intellectual property and data assets. Of course, the environment is rarely benign and the complexity of digital relationships provides a myriad of opportunities for malicious and fraudulent activity. Billions of dollars are invested annually in the detection and prevention of that activity and in remedial action. The task has never been more complex but, whilst cyber security is huge in scope, at its core is efficient and reliable identity and credential management. Put simply, trusted identity is the cornerstone of cyber security and it is an area in which Intercede is a leading provider.
MyID can issue and manage IDs anywhere
07
Intercede Group plc Annual Report and Accounts 2014
Strategy 2013-14
Goals
Progress
Corporate Development l
Position MyID as the credential management system of
l
choice for high assurance networks - both in the public and private sector. l
Exploit global leadership in PIV solutions market.
Intercede now supplies four of the top six global aerospace &
defence companies; continued growth in US federal and UK government customers. l
Contract signed for major US government transportation
security programme, comprising Intercede’s largest ever PIV-based deployment (3m licences). l
Capture new major corporate accounts in US and
l
Europe. l
Widen sales channel to cover major players in the mobile
company and a leading UK law enforcement organisation. l
telecoms industry. l
Progress the Microsoft partnership to revenue generation.
Contracts signed with a major European aerospace & defence
Contracts signed with major North American and German
telcos. l
Delivered a MyID Windows 8 virtual smart card solution for
HP ElitePads to a UK government customer. l
Partner with Cloud service providers to deliver Identity
l
in the Cloud using MyID.
Pilot Cloud based deployment of MyID in partnership with a
global industry major. l
Obtained listing on HMG G-Cloud with UK partner.
l
MyID v10 (market release May 2014) includes the ability
Product and Innovation l
Continue to re-engineer the existing MyID platform to
improve scalability and supportability in anticipation of a rapid expansion of market demand.
l
Accelerate research and development in expanding the
to issue TPM-protected machine certificates for device authentication to networks, support for Windows 8 virtual smart cards as standard and soft certificate credentialing to iOS and Android devices. l
MyID platform to provision digital identities onto mobile devices. l
Expand the MyID mobile identity product suite to
(SDK) which enables developers to make use of credentials within apps. Development of MyID Identity Agent. l
include client applications for secure communications. l
Expand the scope of MyID to also manage the identities
of networked components as part of the emergence of the Internet of Things.
Engineered MyID Mobile Identity Software Development Kit
Secure email and web browser apps now available on iTunes and
CardChecker app on both Google Play and iTunes. l
Device identity (machine certificates) included within May
2014 MyID v10 release and first customer secured.
08
Strategy 2014-15
Intercede Group plc Annual Report and Accounts 2014
Continued traction in corporate and government sectors where core MyID platform is
l
the credential management system of choice for high assurance networks. Protect, defend and expand existing customer base by offering solutions for derived
l
credentials in support of FIPS 201-2. Progress revenue generation from Microsoft partnership through exploitation of TPM
l
for virtual smart card deployments on Windows Phone and tablets. Grow the MyID ecosystem by developing channel partners to both capture existing
l
demand and create new demand for product. Progress TEE to revenue generation by taking proof of concept to market.
l
Continued research and development in expanding the MyID platform to provision
l
digital identities onto mobile, portable and wearable devices. Revenue generation from Cloud services/MyID in the Cloud.
l
Continued investment in growing sales channel and support capacity in order to be
l
able to fully exploit new market opportunities.
Intercede’s MyID is the hallmark solution that sets the standard for identity protection anywhere and everywhere and satisfies the requirements of the Chief Technology Officer, the Security Manager and the Finance Director. MyID is not simply a security solution - it is a business enabler delivering competitive advantage and a tangible return on investment.
Summary
We believe that we are on the edge of another step change in market growth and we need to be able to exploit this opportunity to maximum effect. With this in mind, and targeted revenue growth of 30%+ per annum, we will continue to invest in the necessary corporate infrastructure to provide us with the scale and critical mass to do so having due regard for the Board’s objective of remaining EBITDA positive. We are confident that a considered programme of investment is the correct direction for the Company to take. It is against a backdrop of a market with the potential to grow exponentially that the Board executes its long-term growth strategy and has continued confidence it will create significant shareholder value.
Richard Parris Chairman & Chief Executive
Intercede Group plc Annual Report and Accounts 2014
09
Strategic Report
Introduction Intercede is a leading independent developer and supplier of identity and credential management software. The Group’s vision can be outlined as follows: Everybody and everything will need a digital identity.
l
Digital IDs will be used for authentication, content protection, entitlement, safety and
l
convenience. IDs need to be available on whatever platform a user chooses - ID anywhere.
l
IDs need to be trusted, non-repudiable, auditable and managed according to policy.
l
To establish Intercede’s MyID as the market-leading platform to exploit this
l
opportunity.
Strategic Investment Intercede has embarked upon a period of substantial investment in order to take advantage of the opportunity outlined above. The costs associated with this strategy are being incurred now but the benefits, in terms of increased revenues and cash flow generation, are anticipated to arise in future periods. The main areas of selective investment are: l
The development of mobile security applications involving interoperability with
technologies such as iOS, Android, Windows and BlackBerry. l
Increased collaboration with major industry players such as Microsoft and ARM.
l
The establishment of accredited PIV-I platforms with a number of new entrants to a
market which is forecast to involve in excess of 50 million identities. l
Re-engineering and expansion of the MyID platform to improve scalability and to
ensure that all of the new areas of opportunity are supported. l
Sales and marketing to promote and protect the MyID name and technology and to
build industry relationships. These activities have resulted in further growth in headcount and a commensurate need for office and IT infrastructure and equipment. The Company has taken on additional office space during the past year in both the UK and US.
10
Intercede Group plc Annual Report and Accounts 2014
Trading Results The Group’s financial targets were to deliver a 30%+ increase in sales revenues whilst accelerating investment in people and resources to take advantage of the opportunities provided by the impact of smartphones and global cyber security concerns, as described in the Chairman’s Statement. Following a strong end to the year, revenue for the year ended 31 March 2014 was £9,783,000, which was ahead of expectations and 45% higher than the prior year (2013: £6,727,000). This increase reflects high levels of demand for Intercede’s proprietary MyID technology with notable contract wins secured in the telecommunications, aerospace & defence and public service sectors. No single project represented more than 28% of total revenue (2013: 25%). Over the last five years, exports have increased from 56% to 91% of total revenue. The planned investment in additional resources outlined above has resulted in a 25% increase in operating expenses from £7,467,000 to £9,366,000 but, with revenues ahead of expectations and gross profit margins remaining high, Intercede has returned to profitability reporting a £318,000 operating profit (2013: £764,000 operating loss). Staff costs continue to represent the main area of expense, representing 76% of total operating costs (2013: 74%). Intercede had 105 employees and contractors as at 31 March 2014 (2013: 80). The average number of employees and contractors increased from 77 to 90 year on year. Expenditure on research and development (R&D) activities totalled £2,876,000 (2013: £2,328,000), approximately 52% of which related to the areas of strategic investment outlined above (2013: 54%). In accordance with the IFRS recognition criteria, the Board has continued to determine that all internal R&D costs incurred in the year are expensed. No development expenditure has been capitalised as at 31 March 2014 (2013: £nil). Finance income for the year was £77,000 (2013: £91,000) as the Group maintained cash and interest bearing short term deposits in excess of £6 million throughout the period notwithstanding increased levels of investment. A £385,000 taxation credit for the period (2013: £101,000 taxation credit) primarily reflects a higher level of cash received following the 2013 R&D claim as a result of the investment activities outlined above. The Group is a beneficiary of the UK Government’s efforts to encourage innovation by allowing 125% of qualifying R&D expenditure to be offset against taxable profits. As at 31 March 2014, the Group has £6,606,000 (2013: £6,843,000) of prior year tax losses available for carry forward. A profit for the year of £780,000 (2013: loss of £572,000) resulted in a basic and fully diluted earnings per share of 1.6p (2013: loss per share 1.2p).
Financial Position Cash performance also continues to be strong with an increase in net cash from £6,770,000 to £7,247,000 year on year, notwithstanding the increased investment outlined above and the £475,000 impact of a share buyback programme in support of the new Intercede Share Incentive Plan for UK employees. The Group has no debt and is in a position to be able to commence the payment of dividends as and when the Board considers this to be appropriate.
11
Intercede Group plc Annual Report and Accounts 2014
Treasury The Group manages its treasury function as part of the finance department. Whilst the Group’s operations are primarily based in the UK it has successfully exported its technology throughout the world for many years. This results in invoices being raised in currencies other than sterling; the most notable being US dollars and euros. A number of suppliers also invoice the Group in US dollars and euros. The Group’s current policy is not to hedge these exposures and the exchange differences are recognised in the statement of comprehensive income in the year in which they arise.
Key Performance Indicators (KPIs) The following KPIs are some of the tools used by management to monitor performance in addition to the more traditional financial statement and sales pipeline information that is provided to the Board each month.
Target
2014
2013
Identities under MyID management
100 million
9 million
7 million
Sales growth
30%+
45%
(3%)
Export sales
80%+
91%
88%
North American sales
50%+
61%
72%
New deployments with revenues over £20,000
10+
10
9
All of the above KPIs support the overall target of 100 million identities under MyID management by 2020.
Principal Risks and Uncertainties The principal risks and uncertainties facing the Group are as follows: l
The Group operates in multiple markets, both geographically and by sector, so there
is a risk that territory and global macro-economic conditions may result in one or more of these markets being adversely affected and the revenues of the business impacted accordingly. This risk is mitigated to an extent, both through the long term nature of customer relationships and the diversification that results from operating in multiple markets. l
The Group operates in a complex and competitive technological environment so
the business will be negatively affected if the Group does not enhance its product offerings and/or respond effectively to technological change. This risk is mitigated by ongoing investment in research and development. l
Technology companies are exposed to intellectual property infringement and piracy.
The Group rigorously defends its intellectual property in the primary jurisdictions within which it operates. l
The Group’s performance is largely dependent on the experience and expertise of its
employees. The loss or lack of key personnel is likely to adversely impact the Group’s results. To mitigate this risk, the Group aims to put in place appropriate management structures and to provide competitive remuneration packages to retain and attract key personnel.
Andrew Walker Finance Director
12
Board of Directors
Intercede Group plc Annual Report and Accounts 2014
Intercede is a software company specialising in identity and credential management, with a track record of successfully delivering cyber security solutions to some of the world’s leading organisations for over 20 years. Backed by a dedicated team of subject matter experts located in the UK and US, customers are supported by a global partner network. Intercede is ISO 9001 certified and is listed on the London Stock Exchange’s Alternative Investment Market (AIM). Day to day management of the Group’s activities is undertaken by a senior management team comprising Jayne Murphy, Operations Director, together with the executive directors of Intercede Group plc. The Company has a board of six directors, which currently comprises two executive and four non-executive directors, who meet regularly to discuss all aspects of the business.
Richard Parris Chairman & Chief Executive Richard Parris is an Anglo-American technology entrepreneur with extensive experience in the cyber security and identity management industry. He founded Intercede in 1992 and has led the Group through all stages of its growth, including an IPO in 2001. Richard regularly engages with governments, systems integrators, cloud service providers and major corporations to promote the importance of identity assurance as the cornerstone of cyber security, physical access control and the digital delivery of public services. He is a Chartered Engineer and has an MBA from the University of Warwick Business School. Richard is a member of Catalyst UK, a global network of business leaders, influencers and academics that have agreed to help UK Trade & Investment (UKTI) and other parts of the British government to promote UK excellence internationally. He is also a member of the UK government’s Cyber Growth Partnership.
Andrew Walker Finance Director Andrew Walker is a finance professional with 30 years of senior management experience, during which time he has worked for a number of large international organisations. He was Group Financial Controller of The Rugby Group PLC between 1995 and 2000, and was an Executive Board member from 1997. Before this, he worked for APV plc in a variety of roles, having joined as Group Chief Accountant in 1990 and progressed to subsidiary and divisional Finance Director roles. Between 1981 and 1990, Andrew qualified and worked for Price Waterhouse with a wide range of audit clients. Andrew has a BCom (Honors) degree in Accounting from the University of Birmingham and is a Fellow of the Institute of Chartered Accountants. He was appointed Finance Director of Intercede on 11 September 2000.
Jayne Murphy Operations Director Jayne has 15 years experience at Intercede as Operations Director. During this time she has been responsible for the establishment of Intercede’s global infrastructure including human resources, facilities, customer support functions, ISO quality culture, administration functions, staff incentive and retention plans. Jayne participates in all main Board meetings in the capacity of PDMR to support the CEO in all operational and HR matters. She is also a director of Intercede’s US subsidiary, Intercede MyID Inc. In this role Jayne spends a significant amount of time in the US supervising the growth of intercede’s US operation. Prior to joining Intercede Jayne held a number of senior managerial roles in the NHS including that of Chief Executive of Coventry Healthcare NHS Trust. Trained as a professional hospital manager, Jayne is experienced in managing large multidisciplinary teams of highly qualified professionals in resource constrained environments. Jayne is a serving Magistrate.
Intercede Group plc Annual Report and Accounts 2014
13
Ian Drew Non-Executive Director Ian Drew is Chief Marketing Officer and Executive Vice President of Business Development for ARM Holdings plc. He joined ARM in July 2005 as VP Segment Marketing and has been a member of the Executive Committee since July 2008. Prior to this, he worked at Intel Corporation for 14 years in various senior management roles in Asia, Europe and the US; latterly as GM of the Russia/CIS office based in Moscow. Ian is also ARM’s Shareholder Director at Trustonic, a joint venture company between ARM, Gemalto and G&D, and at Linaro, a not-for-profit engineering organisation consolidating and optimising open source Linux software and tools for the ARM architecture. He was appointed a Non-Executive Director of Intercede on 15 April 2013.
Ben Drury Non-Executive Director Ben Drury is CEO of 7digital, which has grown into a global company since he founded it in 2004. Ben began his career in 1996 as a founder of dotmusic.com before being headhunted in 2000 by BT Group. He was named by Growing Business magazine as a Young Gun 2006 – the award for leading entrepreneurs under 35 – and in 2007, 7digital was awarded the prestigious Red Herring Top 100 Europe Award. In 2008, Ben was a finalist in the Ernst & Young Entrepreneur of the Year awards, and in 2013 7digital made it into the Sunday Times Tech Track 100 and the Deloitte Fast 500. Ben graduated from King’s College London with a BSc (Honors) Physics with Philosophy of Science degree. He is an active angel investor and has served as Deputy Chairman of the Entertainment Retailers Association (ERA) and on the board of the Official UK Charts Company. Ben also acts as an advisor to the Entrepreneur First Program. He was appointed a Non-Executive Director of Intercede on 1 April 2014.
Royston Hoggarth Non-Executive Director Royston Hoggarth is Chairman of iPSL Limited and a Non-Executive Director on several public and private boards. Until April 2012 he was UK Marketing Director for Hays PLC. Prior to Hays, he was Chief Executive UK for BT Global Services, and, before that, Chief Executive for the UK, US and European subsidiaries of Cable & Wireless PLC. He also worked for Logica CMG PLC for six years as Group Marketing Director, responsible for Group strategy and Chief Executive International, responsible for the Americas, Middle East, Asian and Australian businesses, and for IBM where he spent 13 years in a variety of senior management roles. He was appointed a Non-Executive Director of Intercede on 5 August 2002.
Jacques Tredoux Non-Executive Director Jacques Tredoux is the Chief Executive of Tredoux Capital Limited, a company authorised by the Financial Services Authority to provide corporate finance advisory services. Prior to establishing Tredoux Capital Limited, he was the Chief Executive Officer of the Credo Group (UK) Limited, a group of companies in London that provides wealth management services. Members of the Credo Group have provided corporate finance and fundraising assistance to the Company since before its admission to AIM. Jacques qualified as a lawyer in 1988 in South Africa, and practiced at Edward Nathan & Friedland Inc and Clifford Chance. He was appointed a Non-Executive Director of Intercede on 31 March 2006.
14
Intercede Group plc Annual Report and Accounts 2014
Directors’ Report For the year ended 31 March 2014
The Directors present their Annual Report and the audited financial statements for the year ended 31 March 2014. Principal Activities The Group is a leading independent developer and supplier of identity and credential management software. The Company The Company is a holding company which was set up to facilitate the admission of the Group onto the AIM section of the London Stock Exchange. Results and Dividends The audited accounts for the year ended 31 March 2014 are set out on pages 19 to 36. The Group’s profit for the year was £780,000 (2013: £572,000 loss for the year). The Directors do not recommend the payment of a dividend (2013: £nil). Management of Financial Risk The Group’s policy for the management of financial risk is set out within note 13. Research and Development Expenditure The Group continues to invest in an ongoing programme of research and development. The total cost of development during the year ended 31 March 2014 was £2,876,000 (2013: £2,328,000) which has been written off as incurred. Intellectual Property The Group’s revenues are primarily derived from licensing its proprietary MyID product. Intercede Limited owns the copyright for this product. The Group relies on trademark laws and the law of passing off, or its equivalent in non-UK countries, to protect the trademarks which it uses. Intercede Limited is the proprietor or applicant of certain trademarks in important markets. The Group also endeavours to protect its intellectual property through the filing of patent applications where appropriate. Employees It is the Group’s policy to provide, where possible, employment opportunities for disabled people and to care for people who become disabled whilst in the Group’s employment. The Group operates an equal opportunities employment policy. Employees are kept informed of the performance and objectives of the Group through a combination of regular formal and informal meetings.
Environment The Group’s policy with regard to the environment is to ensure that we understand and effectively manage the actual and potential environmental impact of our activities. Our operations are conducted such that we comply with all legal requirements relating to the environment in all areas where we carry out our business. During the period covered by this report, the Group has not incurred any fines or penalties or been investigated for any breach of environmental regulations. Directors and their Interests Details of the present Directors are provided on pages 12 and 13. Ian Drew and Ben Drury were appointed as independent non-executive directors on 15 April 2013 and 1 April 2014 respectively and Jurek Sikorski retired as a non-executive director on 21 May 2014. In accordance with the Company’s Articles of Association, Andrew Walker and Ben Drury will offer themselves for re-election at the forthcoming Annual General Meeting. The interests of the Directors serving at the end of the year, and their immediate families, in the shares of the Company are set out below: Ordinary shares 2014
2013
RA Parris
5,610,963
5,549,878
AM Walker
1,492,738
1,616,227
47,000
–
R Hoggarth
168,721
168,721
JS Sikorski
123,776
123,776
J Tredoux
11,813,888
12,526,344
I Drew
Jacques Tredoux is interested in 1,463,216 shares which are registered in the name of Pershing Keen Nominees Limited which is a nominee of Angus Investment Holdings Limited (“Angus”). Angus is controlled by The Woodcock Trust. As at 31 March 2014, Jacques Tredoux was also interested in 10,350,672 shares indirectly held by The Azalia Trust. Jacques Tredoux and his wife and children are members of the class of discretionary beneficiaries of both The Woodcock Trust and The Azalia Trust. None of the Directors had any material interest in any contract or arrangement made by the Company during the year with the exception of those referred to in note 16.
15
Intercede Group plc Annual Report and Accounts 2014
Directors’ Indemnity As permitted by the Articles of Association, the Directors have the benefit of an indemnity which is a qualifying third party indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force. The Company also maintains insurance cover for the Directors and key personnel against liabilities which may be incurred by them while carrying out their duties. Substantial Shareholders As at 12 May 2014, the following had notified the Company of disclosable interests in 3% or more of the Company’s issued share capital: Ordinary shares Number
%
10,350,672
21.2
RA Parris
5,615,937
11.5
Liontrust Investment Partners LLP
3,474,166
7.1
Anjar International Limited
3,241,631
6.7
Plastic Technologies Limited
3,147,436
6.5
Hargreave Hale & Co.
2,334,825
4.8
Herald Investment Management
2,050,266
4.2
AM Walker
1,495,225
3.1
The Woodcock Trust
1,463,216
3.0
The Azalia Trust
Purchase of own Shares As at 31 March 2014, the Company had 164,000 ordinary shares held in treasury (2013: 57,975). During the year the Company purchased 250,000 ordinary shares (2013: Nil) for a consideration of £475,000 and transferred 143,975 ordinary shares from treasury to Capita IRG Trustee Limited as trustees of the new employee share incentive plan. Statement of Disclosure of Information to Auditors Each of the Directors confirm that, so far as they are aware, there is no relevant audit information of which the auditors are unaware; and each Director has taken all of the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
Statement of Directors’ Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: l select suitable accounting policies and then apply them consistently; l make judgements and accounting estimates that are reasonable and prudent; l state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual General Meeting The fourteenth Annual General Meeting of the Company will be held on Wednesday 17 September 2014. The Notice of the Annual General Meeting will be sent out to shareholders prior to the meeting. Auditors A resolution to reappoint PricewaterhouseCoopers LLP as the Company’s auditor will be proposed at the forthcoming Annual General Meeting. By order of the Board
Andrew Walker Company Secretary 5 June 2014
16
Intercede Group plc Annual Report and Accounts 2014
Corporate Governance For the year ended 31 March 2014
As a company listed on AIM, Intercede Group plc is not required to comply with the requirements of the Combined Code. A number of voluntary disclosures have been made that are not subject to audit. Board of Directors The Company is controlled through the Board of Directors which currently comprises two executive and four non-executive directors; two of whom are considered to be independent. All of the directors have extensive business experience. The Company has historically combined the posts of Chairman and Chief Executive in one person, namely Richard Parris. The Board believes that to separate the roles would be detrimental at this stage of the Group’s development. All directors, in accordance with the Combined Code, submit themselves for re-election at least every three years. Committees of the Board The Board has established three committees; the Audit Committee, the Remuneration Committee and the Nominations Committee. Prior to the retirement of Jurek Sikorski on 21 May 2014, membership of both the Audit Committee and the Remuneration Committee was exclusively nonexecutive while membership of the Nominations Committee comprised the Chairman and the non-executive directors. The structure of the Board Committees from 21 May 2014 onwards is as follows: Audit Committee – Royston Hoggarth has been appointed as the Chairman of the Audit Committee given his ‘recent and relevant’ financial experience in a variety of Chairman, Chief Executive and non-executive director roles and his prior experience as Chairman of the Axon Group plc Audit Committee. Ian Drew and Ben Drury, both of whom are considered to be independent, are also members of the Audit Committee. Remuneration Committee – Ian Drew has been appointed as the Chairman of the Remuneration Committee which also comprises Royston Hoggarth and Ben Drury, thereby providing a majority of independent directors. Nominations Committee – The Nominations Committee consists of Richard Parris (Chairman) and Ian Drew (independent non-executive director).
Relations with Shareholders The Company gives high priority to communications with current and potential future shareholders by means of an active investor relations programme. The principal communication with private investors is through the website (www.intercede.com) and the provision of Annual and Interim Reports. All shareholders will receive at least twenty one clear days’ notice of the Annual General Meeting at which the Directors will be present and available for questions. Going Concern The Directors, after having made appropriate enquiries including a review of the Group’s financial forecasts for 2014/15 and 2015/16, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. Internal Control The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by Group which complies with the guidance “Internal Control: Guidance for Directors on the Combined Code (The Turnbull Report)”. The key features of the Group’s internal control systems are as follows: Group Organisation and Culture The Board meets regularly, and is responsible for the overall Group strategy, acquisition and divestment policy, approval of major capital expenditure projects and consideration of significant financing matters. It monitors the key business risks and reviews the strategic direction of the Group, its codes of conduct, forward projections and progress towards their achievement. Senior management concentrates on the formulation of strategic proposals to the Board and operational decision making. Delegation of Authority The Board reserves to itself a range of key decisions to ensure it retains proper direction and control of the Group, whilst delegating authority to individual directors who are responsible for the day to day management of the business. Financial Reporting There is a comprehensive planning system, including regular periodic forecasts which are presented to and approved by the Board. The performance of the Group is reported monthly and compared to the latest forecast and the prior period.
17
Intercede Group plc Annual Report and Accounts 2014
Report of the Remuneration Committee For the year ended 31 March 2014
As a company listed on AIM, Intercede Group plc is not required to present a Report of the Remuneration Committee. A number of voluntary disclosures have been made which are not subject to audit. The matters set out below are nevertheless relevant to understanding the activities of the Remuneration Committee and remuneration of the Company’s Directors. The Remuneration Committee is composed entirely of Non-Executive Directors. None of the Committee members has any personal interest in the matters to be decided. The Chairman & Chief Executive is invited to attend committee meetings but is not present during discussions relating to his own remuneration. Remuneration Policy The remuneration packages for Executive Directors are intended to incentivise them to meet the financial and strategic objectives of the Group. The policy is to pay individual directors a salary at market levels for comparable jobs recognising the size of the Group and the business sector in which it operates. The main components are base salary, an annual bonus plan, pension contributions and share options. Note 4 to the financial statements provides details of the remuneration paid and payable in respect of the year ended 31 March 2014. Service Contracts The Executive Directors have service contracts that are terminable by either party giving 12 months’ notice to the other. The Non-Executive Directors’ service contracts are terminable on three months’ notice by either party with the exception of J Tredoux whose services are provided via Tredoux Capital, corporate finance advisers to the Group. This engagement is terminable on 30 days’ notice by either party. Pension Arrangements The Group makes pension contributions to money purchase schemes in respect of both of the Executive Directors. Share Options The Company introduced a new Share Option Plan for senior executives on 22 July 2011 and options were granted later that year. The Board’s decision to embark upon a continuing programme of accelerated investment in technology development to take advantage of the opportunities provided by the advent of smartphones and global cyber security concerns has resulted in subsequent amendments to the performance conditions associated with these options. The awards made to directors on 16 August 2011 are exercisable subject to the Company’s share price reaching 200p and the awards made to senior managers on 26 July and 20 December 2011 will now become exercisable subject to their continued employment three years after the date of grant. No new options were granted during the year ended 31 March 2014. The following options were outstanding as at 31 March 2014: Plan
Date of grant
No. of shares
Exercise price
Dates exercisable
EMI
26 July 2011
200,000
1.0p
26 July 2014 to 25 July 2021
EMI
16 Aug 2011
631,572
1.0p
16 Aug 2014 to 15 Aug 2021
Unapproved
16 Aug 2011
612,087
1.0p
16 Aug 2014 to 15 Aug 2021
EMI
20 Dec 2011
50,000
1.0p
20 Dec 2014 to 19 Dec 2021
The interests of the Directors and their immediate families that are included within the options outlined above are as follows: RA Parris – 869,565 options were granted on 16 August 2011 (448,517 of which are unapproved). AM Walker – 374,094 options were granted on 16 August 2011 (163,570 of which are unapproved). Share Incentive Plan (SIP) The Company introduced a new SIP for all UK employees during the period and, as outlined in note 15, a Free Share award of £3,000 per employee was made on 26 March 2014. Share Price As at 31 March 2014, the market value of the shares of the Company was 190.5p (mid-market price). The share price fluctuated between a high of 199.0p and a low of 53.5p during the year ended 31 March 2014.
18
Intercede Group plc Annual Report and Accounts 2014
Independent Auditors’ Report to the Members of Intercede Group plc Report on the group financial statements Our opinion In our opinion the financial statements, defined below: l give a true and fair view of the state of the group’s affairs as at 31 March 2014 and of its profit and cash flows for the year then ended; l have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and l have been prepared in accordance with the requirements of the Companies Act 2006. This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The group financial statements (the “financial statements”), which are prepared by Intercede Group plc, comprise: l the Consolidated Balance Sheet as at 31 March 2014; l the Consolidated Statement of Comprehensive Income for the year then ended; l the Consolidated Statement of Changes in Equity for the year then ended; l the Consolidated Cash Flow Statement for the year then ended; and l the Notes to the Consolidated Accounts, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union. In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: l whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; l the reasonableness of significant accounting estimates made by the directors; and l the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report & Accounts (the “Annual Report”) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Other matters on which we are required to report by exception Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion, we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 15, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other matter
We have reported separately on the company financial statements of Intercede Group plc for the year ended 31 March 2014.
Mark Smith (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Birmingham 05 June 2014
19
Intercede Group plc Annual Report and Accounts 2014
Consolidated Statement of Comprehensive Income For the year ended 31 March 2014
Notes
2014 £’000
2013 £’000
2
9,783
6,727
Continuing operations Revenue Cost of sales
(99)
Gross profit Operating expenses Operating profit/(loss)
3
Finance income
5
Profit/(loss) before tax Taxation
9,684
6,703
(9,366)
(7,467)
318 77 395
(764) 91 (673)
385
101
Profit/(loss) for the year
780
(572)
Total comprehensive income/(expense) attributable to owners of the parent company
780
(572)
- basic
1.6p
(1.2p)
- diluted
1.6p
(1.2p)
Earnings/(loss) per share (pence)
There is no other comprehensive income for the current or preceding year. The accompanying notes are an integral part of these financial statements.
6
(24)
7
20
Intercede Group plc Annual Report and Accounts 2014
Consolidated Balance Sheet At 31 March 2014
2014 £’000
2013 £’000
8
757
644
10
1,785
991
7,247
6,770
9,032
7,761
9,789
8,405
Notes Non-current assets Property, plant and equipment Current assets Trade and other receivables Cash and cash equivalents
Total assets Equity Share capital
11
487
487
232
232
Other reserves
1,508
1,508
Retained earnings
3,972
3,530
Total equity attributable to owners of the parent company
6,199
5,757
Share premium account
Current liabilities Trade and other payables
12
Deferred revenue
Total equity and liabilities
1,719
998
1,871
1,650
3,590
2,648
9,789
8,405
The financial statements on pages 19 to 31 were authorised for issue by the Board of Directors on 5 June 2014 and were signed on its behalf by: RA Parris AM Walker
Director Director
The accompanying notes are an integral part of these financial statements.
21
Intercede Group plc Annual Report and Accounts 2014
Consolidated Statement of Changes in Equity For the year ended 31 March 2014
Share capital £’000 At 1 April 2012 Issue of shares, net of costs
Share premium £’000
Other reserves £’000
Retained earnings £’000
Total £’000
484
110
1,508
3,930
6,032
3
122
—
—
125
Employee share option plan charge (note 15)
—
—
—
172
172
Total comprehensive expense
—
—
—
(572)
(572)
487
232
1,508
At 31 March 2013
3,530
5,757
Purchase of own shares
—
—
—
(475)
(475)
Employee share option plan charge (note 15)
—
—
—
136
136
Employee share incentive plan charge (note 15)
—
—
—
1
1
Total comprehensive income
—
—
—
780
780
487
232
1,508
3,972
6,199
At 31 March 2014
All amounts included in the table above are attributable to owners of the parent company. The accompanying notes are an integral part of these financial statements.
22
Intercede Group plc Annual Report and Accounts 2014
Consolidated Cash Flow Statement For the year ended 31 March 2014
2014 £’000
2013 £’000
Cash flows from operating activities Operating profit/(loss)
318
(764)
Depreciation
116
92
Employee share option plan charge
136
172
Employee share incentive plan charge (Increase)/decrease in trade and other receivables
1 (795)
— 317
Increase in trade and other payables
721
88
Increase in deferred revenue
221
130
78
94
Cash generated from operations
796
129
Taxation
385
101
1,181
230
Interest received
Cash generated from operating activities Investing activities Purchases of property, plant and equipment
(229)
(553)
Cash used in investing activities
(229)
(553)
Financing activities Purchase of own shares Proceeds on issue of shares Net cash (used)/generated from financing activities Net increase/(decrease) in cash and cash equivalents
(475) — (475) 477
— 125 125 (198)
Cash and cash equivalents at the beginning of the year
6,770
6,968
Cash and cash equivalents at the end of the year
7,247
6,770
The accompanying notes are an integral part of these financial statements.
23
Intercede Group plc Annual Report and Accounts 2014
Notes to the Consolidated Accounts For the year ended 31 March 2014
1
Accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all of the years presented, unless otherwise stated. General information Intercede Group plc (‘the Company’) and its subsidiaries (together ‘the Group’) is a leading independent developer and supplier of identity and credential management software. The Company is a public limited company which is listed on the AIM section of the London Stock Exchange and is incorporated and domiciled in the UK. The address of its registered office is Lutterworth Hall, St. Mary’s Road, Lutterworth, Leicestershire, LE17 4PS. The registered number of the company is 4101977. Basis of preparation The consolidated financial statements of Intercede Group plc have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The Directors consider that the going concern assumption is appropriate and therefore the consolidated financial statements have been prepared on a going concern basis under the historical cost convention. The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based upon historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates. The accounting estimates that have the most risk of causing a material adjustment to the amounts recognised in the financial statements are the judgements relating to revenue recognition, capitalisation of intangible assets and the recognition of current and deferred income tax assets and liabilities. The Company has elected to prepare its entity accounts in accordance with UK GAAP and these are separately presented on pages 33 to 36. Basis of consolidation The Group financial statements include the results of the Company and its subsidiary undertakings. The results of subsidiaries acquired or disposed of during the year are included from the date of acquisition or disposal respectively. The financial statements of the Company and its subsidiary undertakings are prepared for the same reporting year as the Group, using consistent accounting policies and in accordance with local Generally Accepted Accounting Principles. All intercompany balances and transactions, including unrealised profits arising from inter-group transactions, have been eliminated in full. Foreign currencies The consolidated financial statements are presented in pounds sterling, which is the Group’s functional and presentational currency. Transactions in foreign currencies by individual entities are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the balance sheet date and the gains or losses on translation are included in the statement of comprehensive income.
Revenue recognition Revenue, which excludes sales between Group companies and trade discounts, represents the invoiced value of goods and services net of value added tax. The Group’s revenue recognition polices are detailed below: Software licence sales – Revenue is recognised upon delivery of the software. Software as a service (SAAS) sales – Revenue is recognised evenly over the period during which the service is provided. Consulting and development services – Revenue is recognised on a time and materials basis as costs are incurred. Support and maintenance – Support and maintenance services are provided on fixed fee contracts. Fees are invoiced at the beginning of the period to which they relate and are initially recorded as deferred revenue. Revenue is then recognised evenly over the maintenance period. Distribution of hardware – Revenue is recognised upon delivery of the product. Training and installation services – Revenue is recognised upon the completion of training or installation services. Segmental reporting A geographical segment is engaged in providing products or services within a particular economic environment and may be subject to risks and returns that are different from those of segments operating in other economic environments. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. All of the Group’s sales, operating profits and net assets originate from operations in the UK. The Directors consider that the activities of the Group across all areas of revenue constitute a single business segment. This conclusion is consistent with the nature of information that is presented to the Board of Directors of the parent company, which is considered to be the Chief Operating Decision Maker (CODM) for the purposes of IFRS 8. Research and development costs Expenditure incurred on research and product development and testing is charged to the statement of comprehensive income in the period in which it is incurred, unless the development expenditure meets the criteria for capitalisation. Where the development expenditure meets the criteria for capitalisation, development costs are capitalised and amortised over the period of expected future sales of the related projects with impairment reviews being carried out at least annually. The asset is carried at cost less any accumulated amortisation and impairment losses. In general the Group’s research and development activities are closely interrelated and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs are considered for capitalisation. In addition, intangible assets are not recognised unless it is reasonably certain that the resultant products will generate future economic benefits in excess of the amounts capitalised. Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and any impairment losses. Historical cost includes all expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when the costs
24
Intercede Group plc Annual Report and Accounts 2014
Notes to the Consolidated Accounts continued For the year ended 31 March 2014
provide enhancement, it is probable that future economic benefits associated from the item will flow to the Group and the cost of the enhancement can be measured reliably. All other repair and maintenance costs are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation is provided to write off the cost less the estimated residual value of property, plant and equipment over their estimated useful economic lives by equal annual instalments using the following rates: Land and buildings 2% pa Leasehold improvements Remaining period of the lease Fixtures and fittings 15% pa Computer and office equipment 25% pa Leased assets Leases under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Operating lease payments are charged to the statement of comprehensive income on a straight-line basis. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectible amounts. Provision against trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The amount of the write-down is determined as the difference between the asset’s carrying value and the present value of estimated future cash flows. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and shortterm deposits with an original maturity of up to twelve months. Finance income Finance income represents interest received and receivable on cash and cash equivalents. Pension costs The Group operates a money purchase pension scheme via an independent provider. Contributions are charged to the statement of comprehensive income as incurred. Holiday entitlements In accordance with IAS 19 “Employee Benefits”, accruals are made in respect of holiday entitlements that have accrued to employees but had not been taken at the balance sheet date. Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. Estimating fair values requires determination of the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield and making assumptions about them. The assumptions and models used are disclosed in note 15.
Where share options are awarded to employees, the fair value of share-based compensation at the date of grant for equity-settled plans granted to employees after 7 November 2002 is charged to the statement of comprehensive income over the vesting period with a corresponding amount recognised as an increase in equity. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each balance sheet date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to profit or loss over the remaining vesting period. Taxation The tax expense represents the sum of the current tax and deferred tax. UK corporation tax is provided at amounts expected to be paid (or recovered) and the current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax is recognised using the balance sheet liability method for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantively enacted at the balance sheet date. A deferred tax asset represents the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. Deferred tax assets are only recognised to the extent that it is more likely than not that taxable profits will be available against which deductible temporary differences can be utilised. Adoption of new accounting standards Since the Group’s previous annual financial report for the year ended 31 March 2013 the following pronouncements are now effective and have been adopted by the Group: Amendment to IAS 1 ‘Presentation of financial statements’ IFRS 13 ‘Fair value measurement’ Annual improvements 2011 There has been no material effect on the Group’s financial statements following the introduction of the above. A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and are not considered to be relevant to the Group. None of these is expected to have a significant effect on the consolidated financial statements of the Group. In addition, a number of exposure drafts of new or amended standards and interpretations have been announced by the International Accounting Standards Board (IASB). These include exposure drafts on revenue recognition and leases. The Group is not able to evaluate the potential impact of these pronouncements until final details of these and other exposure drafts have been concluded by the IASB.
25
Intercede Group plc Annual Report and Accounts 2014
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: 2014 £’000
2013 £’000
928
806
Rest of Europe
2,195
651
North America
5,990
4,823
670
447
9,783
6,727
UK
Rest of World
Revenue of £ 2,695,000 (2013: £nil) and £1,017,000 (2013: £nil) is derived from two end customers. These revenues are from the only end customers which individually represent over 10% of the Group’s revenues.
3
Operating profit/(loss)
Operating profit/(loss) is stated after charging/(crediting):
Staff costs (note 4)
2014 £’000
2013 £’000
7,074
5,518
Foreign exchange loss/(gain)
140
Depreciation of property, plant and equipment (note 8)
116
92
Operating lease rentals
244
210
1,891
1,704
9,465
7,491
2014 £’000
2013 £’000
34
33
Other expenses
(33)
Included in the costs above is research and development expenditure totalling £2,876,000 (2013: £2,328,000).
The analysis of auditors’ remuneration is as follows:
Fees payable for the audit of the parent company and consolidated financial statements Fees payable for the audit of the Company’s subsidiaries, pursuant to legislation Services related to remuneration
2
2
23
9
59
44
26
Intercede Group plc Annual Report and Accounts 2014
Notes to the Consolidated Accounts continued For the year ended 31 March 2014
4
Staff costs
The average monthly number of employees and contractors of the Group (including Executive Directors) was: 2014 Number
2013 Number
Technical
69
61
Sales and marketing
13
9
Administration
8
7
90
77
2014 £’000
2013 £’000
Their aggregate remuneration comprised:
Wages and salaries
6,042
4,675
Social security costs
717
520
Pension costs
178
151
Employee share option plan charge (note 15)
136
172
Employees share incentive plan charge (note 15)
1
—
7,074
5,518
2014 £’000
2013 £’000
834
455
Pension contributions totalling £30,000 (2013: £53,000) are included within year end trade and other payables.
Directors’ remuneration The aggregate remuneration of the Directors and key management was as follows:
Emoluments Company contributions to money purchase pension scheme
27
26
861
481
Emoluments exclude fees paid to third parties.
Directors’ emoluments Salary and fees 2014 £’000
Bonus 2014 £’000
Benefits in kind 2014 £’000
Total 2014 £’000
Total 2013 £’000
RA Parris
216
183
1
400
AM Walker
147
116
1
264
I Drew
16
—
—
R Hoggarth
16
—
—
Pension contributions 2014 £’000
2013 £’000
181
14
14
143
7
7
16
—
—
—
16
12
—
—
Executive Directors
Non-Executive Directors
JS Sikorski Fees paid to third parties
16
—
—
16
15
—
—
411
299
2
712
351
21
21
12
—
—
12
12
—
—
Fees paid to third parties comprise amounts paid to Tredoux Capital Limited under an arrangement to provide the Group with the services of J Tredoux as a Non-Executive Director. J Tredoux is a Director of Tredoux Capital Limited. Details of the Directors’ share options are set out in the Report of the Remuneration Committee on page 17. .
27
Intercede Group plc Annual Report and Accounts 2014
5
Finance income 2014 £’000
2013 £’000
77
91
2014 £’000
2013 £’000
Current year – UK corporation tax
—
—
Current year – US corporation tax
(26)
(13)
Interest income on short term bank deposits
6
Taxation
The tax credit comprises:
Prior year – US corporation tax
—
6
Research and development tax credits relating to prior years
411
108
Taxation
385
101
The difference between the tax credit shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit/(loss) before tax is as follows: 2014 £’000
2013 £’000
Profit/(loss) before tax
395
(Profit)/loss before tax at UK corporation tax rate of 23% (2013: 24%)
(91)
(673) 162
Research and development claim
862
771
Research and development tax credits relating to prior years
411
108
Capital allowances in excess of/(lower than) depreciation
22
(8)
Expenses not deductible for tax purposes
(1)
(1)
Other temporary differences
(6)
(3)
(820)
(913)
(31)
(26)
50
—
—
6
Losses carried forward Employee share option plan Employee share incentive plan Prior year – US corporation tax Current year – US corporation tax
(11)
Tax credit/(charge) for the year
385
5 101
The Group has unused tax losses of £6,606,000 (2013: £6,843,000) and unrecognised deferred tax assets of £1,321,000 calculated at the UK corporation tax rate of 20% that came into effect from 1 April 2014 (2013: £1,574,000 calculated at the previous UK corporation tax rate of 23%).
28
Intercede Group plc Annual Report and Accounts 2014
Notes to the Consolidated Accounts continued For the year ended 31 March 2014
7
Earnings/(loss) per share
The calculations of earnings/(loss) per ordinary share are based on the profit/(loss) for the financial year and the weighted average number of ordinary shares in issue during each year. 2014 £’000 Profit/(loss) for the year
2013 £’000
780
(572)
Number
Number
Weighted average number of shares – basic
48,661,716
48,615,263
50,228,664
50,228,664
Pence
Pence
Earnings/(loss) per share – basic
1.6p
(1.2p)
1.6p
(1.2p)
– diluted
– diluted
The weighted average number of shares used in the calculation of basic and diluted earnings per share for each year were calculated as follows:
Issued ordinary shares at start of year Effect of exercise of share options Effect of purchase of own shares
2013 Number
48,735,005
48,428,005
—
245,233
(73,289)
Weighted average number of shares – basic
(57,975)
48,661,716
Add back effect of purchase of own shares Effect of share options in issue Weighted average number of shares – diluted
8
2014 Number
48,615,263
73,289
57,975
1,493,659
1,555,426
50,228,664
50,228,664
Property, plant and equipment Land and buildings £’000
Leasehold improvements £’000
Fixtures and fittings £’000
Computer and office equipment £’000
Total £’000
—
—
61
420
481
422
—
25
106
553
Cost At 1 April 2012 Additions Disposals
—
—
(5)
(74)
(79)
422
—
81
452
955
Additions
—
58
2
169
229
Disposals
—
—
—
(10)
(10)
422
58
83
611
1,174
—
—
33
265
298
8
—
9
75
92
—
—
(5)
(74)
(79)
8
—
37
266
311
At 1 April 2013
At 31 March 2014 Accumulated depreciation At 1 April 2012 Charge for the year On disposals At 1 April 2013 Charge for the year
8
—
9
99
116
On disposals
—
—
—
(10)
(10)
At 31 March 2014
16
—
46
355
417
At 31 March 2014
406
58
37
256
757
At 31 March 2013
414
—
44
186
644
Net Book Amount
29
Intercede Group plc Annual Report and Accounts 2014
9
Subsidiaries
The Company’s subsidiaries, all of which have been consolidated in the Group’s financial statements at 31 March 2014, are as follows: Country of incorporation
Class of shares
% held
Principal activity
Intercede Limited
England and Wales
Ordinary
100
Software developer
Intercede 2000 Limited
England and Wales
Ordinary
100
Dormant
USA
Common
100
Service provider
Intercede MyID Inc.
10 Trade and other receivables
Trade receivables Prepayments and accrued income Other debtors
2014 £’000
2013 £’000
1,473
843
232
139
80
9
1,785
991
As outlined in note 13, the Group’s main credit risk relates to its trade receivables. The carrying amount of trade and other receivables approximates to their fair value, which has been calculated based on expectations of debt recovery from historic performances. Trade receivables are stated net of a provision for estimated irrecoverable amounts of £nil (2013: £nil). The level of trade receivables over 60 days old which have been provided for is £nil (2013: £nil). The amount written off as irrecoverable during the year was £nil (2013: £28,000). Included within trade receivables are receivables with a carrying amount of £69,000 (2013: £86,000) which are past due but have not been impaired as the amounts are still considered to be recoverable. The level of unprovided trade receivables over 60 days old was £23,000 (2013: £26,000). The average age of the Group’s trade receivables is 39 days (2013: 34 days).
11 Share capital 2014 £’000
2013 £’000
4,819
4,819
487
487
Authorised 481,861,616 ordinary shares of 1p each (2013: 481,861,616)
Issued and fully paid 48,735,005 ordinary shares of 1p each (2013: 48,735,005)
As at 31 March 2014 the Company had 164,000 ordinary shares held in treasury (2013: 57,975). During the year the Company purchased 250,000 ordinary shares (2013: nil) for a consideration of £475,000 and transferred 143,975 ordinary shares from treasury to Capita IRG Trustee Limited as trustees of the new employee share incentive plan (see note 15).
12 Trade and other payables 2014 £’000
2013 £’000
Trade payables
431
247
Taxation and social security
142
123
1,146
628
1,719
998
Accruals
30
Intercede Group plc Annual Report and Accounts 2014
Notes to the Consolidated Accounts continued For the year ended 31 March 2014
13 Financial instruments The numerical disclosures in this note deal with financial assets and financial liabilities. There is no material difference between the fair value and the book values disclosed. Short term trade receivables and payables have been excluded from the disclosures, with the exception of the currency disclosures. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, purchase existing shares, issue new shares, or sell assets to reduce debt. The Group’s financial instruments have historically comprised convertible loan notes, cash and cash equivalents, and various items such as trade receivables and payables which arise directly from its operations. The main purpose of these financial instruments has been to fund the Group’s operations. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken. The Group has no derivative financial instruments. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign currency risk. The Board has reviewed these risks on an ongoing basis throughout the year. The policy for their management is summarised below: Interest rate risk The Group has primarily financed its operations to date through equity finance. Liquidity risk The Group has cash balances and no external borrowings. Credit risk The Group’s business model is to license its technology and sell its products via partners who are typically major IT security industry players. Furthermore, at this stage in the development of the market for identity and credential management software, end user customers tend to be large corporates or government departments. As such, the inherent credit risk is relatively low. Foreign currency risk A number of suppliers invoice the Group in US dollars and euros. The Group has also entered into a number of agreements to license its technology and sell its products via other international organisations. This results in invoices being raised in currencies such as US dollars and euros. The Group’s current policy is not to hedge these exposures. The exchange differences are recognised in the statement of comprehensive income in the year in which they arise (see note 3). Interest rate profile The Group has cash deposits of £7,247,000 (2013: £6,770,000) at the year end. This includes US dollar deposits of £272,000 (2013: £206,000) and euro deposits of £85,000 (2013: £127,000). Interest rates on cash deposits are based on LIBOR. Maturity of financial liabilities The Group has no external borrowings. The only financial liabilities are short term trade and other payables as outlined within note 12. Borrowing facilities The Group has no undrawn committed borrowing facilities (2013: £nil). Currency exposures The table below shows the Group’s currency exposures; in other words, those transactional exposures that give rise to the net currency gains and losses recognised in the statement of comprehensive income. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the operating (or “functional”) currency of the Group (sterling). These exposures were as follows: Net foreign currency monetary assets US dollar £’000
Euro £’000
Total £’000
At 31 March 2014
1,484
278
1,762
At 31 March 2013
814
161
975
2014 £’000
2013 £’000
- within one year
136
110
- between two and five years
256
283
14 Financial commitments a) Capital commitments The Group had capital commitments totalling £33,000 at the year end (2013: £nil). b) Operating leases Future aggregate commitments under non-cancellable operating leases are as follows:
Expiry date:
31
Intercede Group plc Annual Report and Accounts 2014
15 Share based payments The Company introduced a new Share Option Plan for senior executives on 22 July 2011 and options were granted later that year. The contractual life of an option is 10 years and exercise of an option is subject to achievement of performance targets, a three year vesting period and continued employment. No new options have been granted during the year ended 31 March 2014 (2013: nil) but, as noted in the Report of the Remuneration Committee on page 17, certain changes have been made to the performance conditions associated with options that were granted in 2011. These changes did not alter the fair values that were calculated using the Black-Scholes option pricing model. The fair value per option granted and the assumptions used in the calculation were as follows: Grant date Share price at grant date Exercise price Number of employees
26 July 2011
16 August 2011
20 December 2011
69.0p
57.0p
64.0p
1.0p
1.0p
1.0p
4
3
1
200,000
1,243,659
50,000
Vesting period (years)
3
3
3
Expected option life (years)
7
7
7
Shares under option
Expected volatility
57.53%
58.21%
42.54%
Risk free rate
2.29%
1.65%
1.24%
Expected dividends expressed as a dividend yield
2.90%
3.51%
3.13%
Fair value per option
55.0p
44.0p
50.0p
The expected volatility is based on historical volatility over the three year period through to the date of grant. The risk free rate of return is the yield on zero-coupon UK government bonds of a term consistent with the assumed option life. The total charge for the year relating to employee share options was £136,000 (2013: £172,000). This charge reflects the impact of the change in performance conditions referred to above. The fair value of options granted on 16 August 2011 is now being recognised over six years (previously three years). Share options outstanding at the year end have a weighted average contractual life of 7.4 years (2013: 8.4 years). In February 2014, HM Revenue & Customs approved a Share Incentive Plan (SIP) for all UK employees including the Executive Directors. The Board has agreed to make awards to all UK employees on the following basis: l A Free Share award of £3,000 per employee was made on 26 March 2014 which, based upon the previous day’s closing middle market price of 198.5p, resulted in 1,511 shares being issued to each of the 73 employees who were eligible and had applied for the award. l Partnership Shares can be subscribed for by employees via salary deductions during the year ending 31 March 2015, either on a monthly or lump sum basis to a cumulative value of up to £1,800. As at 31 March 2014, 54 employees representing 74% of the eligible employees, had made binding commitments to subscribe for Partnership Shares during the year ending 31 March 2015. l Matching Shares will be given to employees on the basis of two Matching Shares for each Partnership Share. The initial Free Share award was met by the transfer of ordinary shares from treasury (as a result of 57,975 ordinary shares previously purchased and held in treasury plus the completion of a share buyback programme involving the purchase of 250,000 ordinary shares during the quarter ended 31 March 2014). It is intended that future Free Share and Matching Share awards will be met by the transfer of ordinary shares currently held in treasury and from continued on market purchases either by the Company or Capita IRG Trustees Limited as Trustee of the SIP. To the extent that ordinary shares are not available in treasury or in the volume required through the market, it is the Company’s intention to issue new ordinary shares to meet these awards. The total charge for the year relating to the employee share incentive plan was £1,000 (2013: £nil). This charge reflects the cost of the 26 March 2014 Free Share award having regard for the estimated number of employees who will depart the Company prior to the end of a three year forfeiture period.
16 Related party transactions During the year ended 31 March 2014, J Tredoux served as a Non-Executive Director. J Tredoux is also a director of Tredoux Capital Limited, the Group’s corporate finance adviser. Consultancy fees charged by Tredoux Capital Limited to the Group in respect of his services as a Non-Executive Director and general corporate finance advice, and balances outstanding at the year ends were as follows:
Consultancy fees charged Balance outstanding at the year end
2014 £’000
2013 £’000
21
21
5
5
32
Intercede Group plc Annual Report and Accounts 2014
Independent Auditors’ Report to the Members of Intercede Group plc Report on the company financial statements Our opinion In our opinion the financial statements, defined below: l give a true and fair view of the state of the company’s affairs as at 31 March 2014; l have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and l have been prepared in accordance with the requirements of the Companies Act 2006. This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The company financial statements (the “financial statements”), which are prepared by Intercede Group plc, comprise: l the Company Balance Sheet as at 31 March 2014; and l the Notes to the Company Accounts, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: l whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; l the reasonableness of significant accounting estimates made by the directors; and l the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report & Accounts (the “Annual Report”) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Other matters on which we are required to report by exception Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: l we have not received all the information and explanations we require for our audit; or l adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or l the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 15, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other matter We have reported separately on the group financial statements of Intercede Group plc for the year ended 31 March 2014.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Mark Smith (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Birmingham 05 June 2014
33
Intercede Group plc Annual Report and Accounts 2014
Company Balance Sheet At 31 March 2014
Notes
2014 £’000
2013 £’000
3
3,425
3,288
4
919
1,459
4,344
4,747
487
487
Fixed assets Investments Current assets Debtors Total assets Capital and reserves Called up share capital
5
Share premium account
6
232
232
Profit and loss account
6
3,625
4,028
4,344
4,747
Total shareholders’ funds
The accompanying notes are an integral part of these financial statements. Signed on behalf of the Board RA Parris AM Walker
Director Director
5 June 2014 Intercede Group plc: Registered No. 4101977
34
Intercede Group plc Annual Report and Accounts 2014
Notes to the Company Accounts For the year ended 31 March 2014
1
Accounting policies
The Company is a holding company which was set up to facilitate the admission of the Group onto the AIM section of the London Stock Exchange. It does not trade and it has no employees. The financial statements have been prepared on the going concern basis in accordance with applicable UK accounting standards and the Companies Act 2006. The Company has taken advantage of Section 408 of the Companies Act 2006 not to present its own profit and loss account. The amount of loss dealt with in the Company financial statements was £65,000 (2013: £61,000 loss). A summary of the principal accounting policies, which have been applied consistently, is set out below. Basis of accounting The financial statements have been prepared under the historical cost basis of accounting. Cash flow statement The Company has taken advantage of the exemption available under FRS 1 (Revised 1996) “Cash Flow Statements” which provides that a cash flow statement does not have to be prepared where a company is a member of a group and a consolidated Cash Flow Statement is published. Related party transactions In accordance with the exemption permitted by FRS 8 “Related Party Disclosures”, related party transactions between members of the Group, headed by Intercede Group plc, are not disclosed as 100% of the Company’s voting rights are controlled within the Group and the consolidated financial statements, which incorporate the results of the Company, are publicly available. Fixed asset investments Investments held as fixed assets are stated at cost less provision for impairment in value. Taxation UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable tax profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Share-based payment transactions The equity-settled share option programme allows employees to acquire shares of the ultimate Parent Company; these awards are granted by the ultimate Parent Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of all the options granted are measured using the Black–Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting. Share options made available to employees of the Company’s subsidiaries are treated as increases in equity over the vesting period of the award, with a corresponding increase in the Company’s investment in subsidiary undertaking based on an estimate of the number of shares that will eventually vest.
2
Auditors’ remuneration
Fees payable to the Company’s auditors for the audit of the parent company are £2,000 (2013: £2,000).
35
Intercede Group plc Annual Report and Accounts 2014
3
Investments
At 1 April Additions At 31 March
2014 £’000
2013 £’000
3,288
3,116
137
172
3,425
3,288
Additions in the year of £137,000 (2013: £172,000) reflect the employee share option and incentive plan charges relating to employees of the Company’s subsidiaries. The Company’s subsidiaries at 31 March 2014 were: Country of incorporation
Class of shares
% held
Principal activity
Intercede Limited
England and Wales
Ordinary
100
Software developer
Intercede 2000 Limited
England and Wales
Ordinary
100
Dormant
USA
Common
100
Service provider
Intercede MyID Inc
4
Debtors
Amounts owed by subsidiary undertakings Prepayments and accrued income
2014 £’000
2013 £’000
917
1,458
2
1
919
1,459
Amounts owed by subsidiary undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
36
Intercede Group plc Annual Report and Accounts 2014
Notes to the Company Accounts continued For the year ended 31 March 2014
5
Called up share capital 2014 £’000
2013 £’000
4,819
4,819
487
487
Authorised 481,861,616 ordinary shares of 1p each (2013: 481,861,616)
Allotted and fully paid 48,735,005 ordinary shares of 1p each (2013: 48,735,005)
As at 31 March 2014 the Company had 164,000 ordinary shares held in treasury (2013: 57,975). During the year the Company purchased 250,000 ordinary shares (2013: nil) for a consideration of £475,000 and transferred 143,975 ordinary shares from treasury to Capita IRG Trustee Limited as trustees of the new employee share incentive plan.
6
Reserves
At the beginning of the year
Share premium account £’000
Profit and loss account £’000
Total £’000
232
4,028
4,260
Purchase of own shares (note 5)
—
(475)
(475)
Employee share option and incentive plan charges (note 3)
—
137
137
Loss for the year At the end of the year
7
— 232
Financial commitments
a) Capital commitments The Company had no capital commitments at the year end (2013: £nil). b) Operating leases The Company had no annual commitments under non-cancellable operating leases at the year end (2013: £nil).
(65) 3,625
(65) 3,857
Intercede Group plc Lutterworth Hall St. Mary’s Road Lutterworth, Leicestershire LE17 4PS, UK +44 (0)1455 558 111
US Office 11951 Freedom Drive 13th Floor Reston, VA 20190 +1 (888) 646-6943
[email protected] www.intercede.com @intercedemyid
A UK Registered Company No. 4101977
