Intercede Group plc
Annual Report & Accounts
2017
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Annual Report & Accounts 2017
Content
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08
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Company Profile
Chairman’s Statement
Strategic Report
Board of Directors
14 Directors’ Report
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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
23 Notes to the Consolidated Financial Statements
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Independent Auditors’ Report: Company
Company Balance Sheet
Company Statement of Changes in Equity
37 Notes to the Company Financial Statements
Company Profile
Intercede® is a software and service company specializing in
identity, credential management and secure mobility.
Its solutions create a foundation of trust between connected people,
devices and apps and combine expertise with innovation to provide
world-class cybersecurity.
Intercede has been delivering solutions to high profile customers,
from the US and UK governments to some of the world’s largest
corporations, telecommunications providers and information
technology firms, for over 20 years.
Intercede’s product portfolio includes MyID, an identity and credential
management system that assigns trusted digital identities to
employees citizens and machines.
In 2015, Intercede launched MyTAM, enabling trusted applications to
be loaded into a mobile device’s Trusted Execution Environment (TEE),
providing hardware-level security for Android apps. In 2016, Intercede
launched RapID, a secure, easy to implement authentication service
for mobile apps and cloud services to completely eliminate the need
for passwords.
For more information visit: www.intercede.com
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Annual Report & Accounts 2017
Intercede’s heritage is in securing some of the world’s most sensitive data assets. For two decades, the
Company’s software has ensured that access to physical infrastructure, networks, applications and data is
restricted to people and machines that are both positively identified and authorised. Intercede’s solutions are
deployed by UK and US governments, by companies like Boeing and Lockheed and by a range of organizations
in the most data critical industries including defence, aerospace, government and financial institutions.
Identity & Credential Management
MyID® Secure enterprise access has never been a more critical requirement for protection from
growing threats. MyID enables enterprises to replace employee passwords with more secure and
more convenient digital identities: providing protection against the number one cause of data
breaches - weak or compromised user credentials.
Once deployed, MyID is connected to existing infrastructure to issue trusted digital identities to
employees across a wide range of devices including smart cards, virtual smart cards and mobile.
It complies with specific regulatory requirements such as FIPS 201 and SP800-171 in the US and
GDPR in Europe and can be provided as an on-premise or private cloud solution. Administrators
manage the lifecycle of credentials, for example automatically revoking them if a user leaves the
organization, or updating them in advance of them expiring.
All credential issuance and lifecycle events are recorded within MyID allowing full visibility of who
has active access credentials, and the built-in audit enquiries and reports are often used as part
of a compliance audit to show an organization is in control of who can access their systems.
Identity Authentication for Mobile Apps
RapID™, Consumers are fed up with being told to remember an increasing number of complex
passwords and the hardware tokens that are commonly seen in banking applications are
universally disliked and costly. RapID is the alternative – a secure, easy to implement two-factor
authentication service for mobile apps and cloud services. It allows service providers to quickly
deploy strong authentication to services from mobile apps, with minimal effort and cost. RapID
has relevance in a variety of sectors including banking, shopping, healthcare, social media, gaming
and TV/media services.
Built on the experience and using similar core technologies to MyID, RapID uses PKI certificates
with two-way SSL to secure trust between the mobile and the service without the need for
additional SMS verification or ‘one-time’ passwords. The result is a frictionless solution for service
provider and customer.
RapID dramatically enhances application security with quick and secure two-factor identity
authentication, that simultaneously improves the user’s experience by eliminating passwords
from the equation. As well as authenticating customers without passwords, RapID credentials
can also be used for additional security capabilities, such as digitally signing transactions. A prime
regulatory market in the payments space solved by RapID is PSD-2.
Trusted application management
MyTAM™, We are set for massive growth in IoT (Internet of Things) devices and services and
yet we have already seen the havoc that can be caused through unauthorised access to insecure
devices. The requirement for trusted identity applies as much to the IoT device access as it does
to enterprise applications and consumer services.
MyTAM allows developers to deploy trusted applications to a secure environment, within the IoT
device, to provide hardware-backed, end-to-end authenticated and encrypted communication
from the silicon to the service.
For a consumer IoT device like a home gateway, the user registers the device with a cloud service
via a mobile app. The IoT service then creates secure hardware protected containers on the home
gateway, it then loads applications into containers to enable capabilities and finally, a secure
credential is loaded to the gateway to identify it to the subscribed services. Passwords, and their
vulnerabilities, are eliminated.
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Chairman’s
Statement
Annual Report & Accounts 2017
It has always been my view that success in business is best gauged
by how well management copes with adversity. The year to 31 March
2017 was a challenging period for Intercede; however, I am pleased
to report that the management team has responded admirably.
Revenue for the year was £8.3m (2016: £11.0m) which, given our
reporting a 49.0% fall during the first half, highlights a return in the
second half to the record levels of business recorded by the Group
in 2015/16. The improvement is both a testament to the on-going
attractions of MyID and a reminder that its addressable market is
dominated by a small number of large, highly secure organisations.
Mindful of this, the Intercede team has been focused on developing further
applications for its market leading cybersecurity software. We have been at the
forefront of mobile usage in evolving MyID for this important segment of our
original market. RapID provides a compelling answer to the questions posed by the
growth of mobile transactions, particularly in banking, while MyTAM is an innovative
security solution for developers within the Internet of Things (IoT). We have also
recently launched MyID as a Service (MyIDaaS) which takes the core functionality
of MyID and offers it as a cloud-based service that is easy to operate. We believe
MyIDaaS provides a proven, cost effective solution for enterprises of all sizes that
need to comply with new regulations for protecting customer information.
These developments, and the associated investment in skilled people and
marketing, are reflected in our results for the year. I am convinced that we have
positioned Intercede well for the demands of these new markets.
The Group has continued to expand its customer base and interaction with
partners. During the year, Intercede has won orders from within its traditional
markets of the US Federal Government, with an order from the Department of
State, and Aerospace & Defence, namely CDG (part of Boeing) and Hanscom Air
Force Base. There was also growth in the banking sector, with new wins from LGT
Vestra and the Swiss National Bank, and the newer market of healthcare, with
orders from Alexion Pharmaceuticals and Mayo Clinic. In addition, there has been
significant repeat business from existing customers including ANZ, Boeing, the
US Department of Homeland Security Transportation Security Administration,
Deutsche Telekom, Telus, the US Federal Aviation Administration, the US Federal
Reserve Bank, Northrop Grumman, RDW, the United Health Group and Wells Fargo.
Following the year end, Intercede has won orders from BAE Systems, M.C. Dean
and Verizon. Intercede is proud to note that MyID is now used by five of the seven
largest Aerospace & Defence companies.
Establishing Intercede at the heart of the critical eco-systems in place or being
developed in our space is central to the Group’s strategy. I am pleased to report
that we are working with a number of partners including ARM, Centrify, Citrix, Intel,
LG Electronics, Microsoft, MobileIron, Symantec and VMWare (Airwatch) to further
this aim.
Since its foundation, Intercede has developed largely through the use of its own
funds. However, recognising the need to accelerate our progress in key areas, the
Group raised a total of £4.6m (net of costs) via the issue of Convertible Loan Notes
(CLNs) and new equity in January 2017. These funds are already being deployed
successfully and will provide the Group with considerable resources with which
to address our expanding market place. Notwithstanding this investment, at the
financial year end on 31 March 2017, Intercede had cash and short term deposits
totalling £6.9m (31 March 2016: £5.3m).
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Annual Report & Accounts 2017
Financial Results
The substantial increase in operating
expenses (OpEx) over the last five years
primarily reflects continued high levels
of strategic investment to exploit new
market opportunities. This investment
is expected to result in increased
revenue and cash flow generation in
future periods. The 2017 year-end cash
includes net funds raised of £4.6m
during the year.
Intercede’s strategic investment plan
has resulted in a progressive increase
in employees, resulting in one of the
largest teams with cryptographic key
management experience and expertise
anywhere in the world. The introduction
of RapID, MyIDaaS and MyTAM is
expected to result in exponential
growth of apps and devices under the
management of Intercede’s software.
Research and development (R&D)
is an important part of Intercede’s
investment strategy. Money spent on
people qualifies, in arrears, for UK
government tax credits which are paid
in cash in the following year.
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Annual Report & Accounts 2017
The US represents Intercede’s largest
market with sales to North America
again approaching 80% of total sales
during FY 2017.
The last five years has seen progressive
growth in recurring Support &
Maintenance (S&M) revenues due to
a cumulative increase in customers
which has also resulted in a substantial
level of ongoing Professional Services
activity. Software license revenues
from the traditional MyID business
tend to be lumpy but the introduction
of the RapID, MyIDaaS and MyTAM
cloud-based services (which currently
represent less than 5% of total annual
revenues) is expected to both increase
growth and smooth future volatility.
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Annual Report & Accounts 2017
Review of Operations Intercede’s heritage is in securing sensitive data assets in the most data critical
industries but today few companies, in any market sector, can afford to ignore
the requirement to more effectively establish digital identity and create the trust
relationships that enable 21st Century commerce. The volume of data held has
increased dramatically, the regulatory requirements are much more onerous,
cybercrime is sophisticated and widespread, consumers are demanding answers
and yet much of the world’s data is still protected by little more than a username
and password combination. That situation cannot continue and it represents a
significant market opportunity that Intercede is ideally placed to address.
I believe that Intercede’s products will be integral to the way we all conduct a wide
range of activities; from work through transactions to managing every day activities.
It is a developing market but I am encouraged by the new enquiries we are now
receiving, from companies large and small, that recognise the need for change.
Our goal has been to evolve the business in order that it can provide support to
this broader range of customers. We have developed cloud-based delivery and
applications. We have adapted our products to enable mobile usage. We have
produced one of the few applications which allow the secure deployment of apps
within the Internet of Things.
Over the last few years, the Directors’ believe that Intercede has built one of the
most talented teams in the world to address this evolution while maintaining
its core principles. We have demonstrated our ability to bring products and,
increasingly, services to the market. Indeed, I am pleased to report that Intercede:
(1) was the first company to receive an authority to operate (ATO) a mobile derived
credential service within the US Government;
(2) was selected to provide a proof-of-concept implementation of RapID within the
Italian banking industry for PSD2 authentication; and
(3) has begun operations of a production MyTAM service for retail banking
consumers in Korea.
Intercede now works with some of the largest organisations in the world; both as
customers or as partners.
Intercede’s Customer Base
Intercede’s Interoperability Partners
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Annual Report & Accounts 2017
We are continuing to strengthen our team and, therefore, our ability to address our widening market.
Since the end of our financial year, I am pleased to report that we have recruited two high profile and
competent team members who will add materially to Intercede’s efforts.
Charles (“Chuck”) Pol has recently served as Chairperson of Vodafone Americas, a role he has held
since 2013 and in which he has led the development of applications for the Internet of Things. Chuck
joined Vodafone Americas as President of its Global Enterprise division where he built a US-wide mobile
business focused exclusively on Enterprises. Prior to Vodafone Americas, Chuck held senior roles at BT
Americas including Chief Operating Officer and President. On leaving BT in 2008, Chuck was President
of BT Global Financial Services where he was responsible for BT’s relationships with the top 40 global
investment banks.
Chuck, who was appointed with effect from 1 June 2017, is now Intercede’s Senior Independent Director,
reflecting his considerable experience within the North American technology and telecoms industries.
Helen Adams joined the Group on 5 June 2017 from ARM Holdings plc, the world’s leading semiconductor
intellectual property supplier, where she was Vice President of Regional Sales for both Europe and
Asia/Pacific, leading a global team which, under her leadership, delivered more than half of ARM’s total
revenue which was last reported as £1.3bn. Her mandate will be to manage the growing sales, marketing
and business development activity at the Group across all principal product lines and services. Helen is
specifically tasked with increasing the Group’s engagement with its growing partner base. In addition,
given her silicon industry background, Helen will also be responsible for leading the development and
growth of its emerging Internet of Things business.
Chuck and Helen join a talented team which is focused clearly on our vision, mission and goals. I would
like to take this opportunity to thank that team for its efforts during the last year and to congratulate
them on their successes. I believe that the Group is ideally placed to benefit from the likely evolution of
the interconnected world in which we live. This position is a reflection of our enthusiasm and skills; values
which will be, I am sure, a factor in the success of Intercede.
Outlook
Intercede is now ready to address the demands of a significantly wider customer base. Our team has
developed a range of applications for our digital trust software and services which lead the evolution
of security across most of the eco-systems in place or likely to form part of interconnectivity for a
generation to come.
We face the future with increased confidence and our growth prospects appear significant. We must be
mindful of the challenges ahead, but I am convinced that these are surmountable and that the Group is
on the cusp of a period of sustained growth and shareholder value creation.
Richard Parris
Chairman & Chief Executive
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Annual Report & Accounts 2017
Strategic Report
For the year ended 31 March 2017
Introduction
Intercede is a cyber security software and services company specialising in digital
trust for a hyper-connected, increasingly mobile world.
The Group’s vision is a world without passwords and its mission is to provide the
enabling technology and services to make this possible for people and things.
Intercede’s core pillars of strength can be outlined as follows:
l For over 20 years, Intercede has been providing trusted identities to people, devices
and apps for some of the world’s largest corporations and government agencies.
l
Intercede’s product innovation roadmap leverages over 1,000 man years of
internal expertise and is underpinned by strong customer demand and a
committed set of international partners.
l New solutions can be engineered at high speed by a specialist team with
longevity of employment. Product design is also informed by major customers
and interoperability partners.
l Software is US and UK Government accredited, which secures access to
regulated markets. Traditionally it was delivered as an on premise solution
but can now be delivered via the Cloud to make it a scalable solution with the
potential for exponential growth.
These core strengths mean that Intercede is well placed to take advantage of
opportunities in the market, in particular:
l Passwords are universally recognized as being insecure and inconvenient by
organizations and end users.
l A growing number of governments and industry bodies are enacting legislation
to mandate enhanced levels of security by removing passwords. This increased
regulation covers a wide range of activities including banking & finance, general
data protection and critical national infrastructure.
l
In-house cybersecurity skills are in short supply creating an increased demand
for outsourced security solutions.
l There is a growing demand for cloud-based identity as a service (IDaaS)
solutions to meet the scalability requirements of large end user populations,
particularly in the consumer and IoT markets.
Intercede has the heritage, skills and technology platform to deliver digital identity
solutions across a wide range of market sectors and geographical regions, meeting
the growing demand for a secure and convenient alternative to passwords.
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Annual Report & Accounts 2017
Strategic Investment
Intercede has embarked upon a period of substantial investment in order to take advantage of the
opportunities 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 The establishment and launch of RapID, a cloud-based service that enables service providers to
simply replace passwords with a digital identity, protecting themselves against identity fraud and the
resultant data breach.
l
Increased collaboration with major industry players such as Intel, Microsoft, ARM and Google.
l Strengthening of the dedicated Intercede Services team focused on delivering Intercede solutions into
the consumer and IoT markets.
l Enhancing the core MyID platform to support US Standard FIPS 201-2 compliant derived PIV
credentials, thereby extending Intercede’s strong position in the US federal government market to
incorporate the growing demand for digital identity on mobile devices.
l Re-engineering and expansion of the MyID platform as a cloud-based service to improve scalability to
consumer levels and to ensure all of the new areas of opportunity are supported.
l Sales and marketing to promote and protect the MyID, MyTAM and RapID names and technology and
to build industry relationships.
To support this investment Intercede raised £4,945,000 in new funding during the year (£4,624,000 net
of costs) via the issue of convertible loan notes and equity. The funding has come from new and existing
institutional and other investors, as well as experienced technology entrepreneurs. This demonstrates
the confidence of our long term backers as well as illustrating that our strategic story resonates strongly
with a new generation of technology and security savvy investors.
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Annual Report & Accounts 2017
Trading Results
Revenues for the year ended 31 March 2017 totalled £8,286,000, a 25% reduction
on the previous year’s record revenues of £11,004,000. The US presidential race
resulted in delays from government agencies making investment decisions but
we have seen the resumption of business for the MyID platform. We are pleased
to see that revenues generated in the second half of the year matched the record
revenues achieved in both halves of the previous year.
The rate of investment in the Company’s newer products, RapID and MyTAM,
continues and business development has resulted in the identification of target
markets and talks with reference customers in each of those markets. Work
continues on pilot RapID solutions for customers in the wealth management and
banking sectors and revenues are expected to be generated in the coming months.
While MyTAM continues to be sold as a standalone product it will also become a
core component in an Internet of Things product that will address a number of
challenges in the IoT market, namely security, interoperability and control via a
single interface. The Directors’ believe that this development work is expected to
result in significant revenues in the coming years.
In the second half of the year, a cost-cutting review removed £600,000 of
annualised costs from the business without impacting our development of new
products. This partly offset the strategic investment as outlined and resulted in a
lower than initially planned increase of 3% in operating expenses from £12,511,000
to £12,891,000. The drop in revenues has primarily lead to a £4,721,000 operating
loss (2016: £1,917,000 operating loss).
Staff costs continue to represent the main area of expense, representing 78%
of total operating expenses (2016: 79%). Intercede had 121 employees and
contractors as at 31 March 2017 (2016: 123). The average number of employees and
contractors was unchanged from the previous year at 125.
Expenditure on research and development (R&D) activities totalled £3,994,000
(2016: £3,905,000), approximately 62% of which related to the areas of strategic
investment outlined above (2016: 71%). 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 2017 (2016: £nil).
The net finance cost for the year was £57,000 (2016: £32,000 income) as a result of
the interest payable on the convertible loan notes issued during the year.
An £888,000 taxation credit for the period (2016: £892,000 taxation credit) primarily
reflects cash received following the 2016 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 130% of qualifying R&D expenditure to be
offset against taxable profits.
A loss for the year of £3,890,000 (2016: loss of £993,000) resulted in a basic and
fully diluted loss per share of 8.0p (2016: loss per share 2.1p).
Financial Position
The Group’s cash position remains strong with cash and short term deposits
totaling £6,891,000 as at 31 March 2017 (2016: £5,289,000). The increase reflects
the fundraising that was announced on 28 December 2016 but, it is also worth
noting that, following a difficult first half of the year, the Group generated cash from
its operating activities in the second half.
The Group has no plans to commence the payment of dividends and will do so
when the Board considers this to be appropriate.
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Annual Report & Accounts 2017
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.
2014
2015
2016
2017
Target
Trusted identities, devices and apps
9 million
11 million
12 million
13 million
250 million
Sales growth
Export sales
North American sales
New deployments (revenues over £20,000)
45%
91%
61%
10
(10%)
85%
51%
6
25%
96%
79%
6
(25%)
95%
77%
8
30%+
80%+
50%+
10+
All of the above KPIs are geared towards the traditional MyID business. The introduction of RapID and MyTAM
is expected to result in the growth of devices (IoT enabled equipment) and apps (online banking) under
the management of Intercede’s software. This suite of software supports the overall target of 250 million
identities, devices and apps under management by 2020.
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Group are as follows:
l
l
l
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.
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.
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.
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.
By order of the Board
Andrew Walker
Finance Director
7 June 2017
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Annual Report & Accounts 2017
Board of Directors
Richard Parris - Chairman & Chief Executive
Richard Parris is an Anglo-American technology entrepreneur with extensive
experience in the digital trust and cybersecurity industries. Expert in business
development and innovation, Richard founded Intercede and has led the Group
through all stages of its growth, including an IPO on the London Alternative
Investment Market (AIM).
He is a regular speaker and evangelist for digital trust at major conferences and has
provided advice to government policy makers in senior executive agencies in the
UK and US.
Richard is a Chartered Engineer and has an MBA from the University of Warwick
Business School. He has served on the UK Government’s Cyber Growth Partnership
and the membership committee of TechUK.
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 organizations. 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 (Honours) 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 - Chief Operations Officer
Jayne has 18 years’ experience at Intercede as Chief Operations Officer. 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 a PDMR (Person Discharging Managerial
Responsibilities) 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.
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Annual Report & Accounts 2017
Charles (“Chuck”) Pol - Non-Executive Director
Chuck Pol recently served as Chairperson of Vodafone Americas, a role he held since 2013 and in
which he led the development of applications for the Internet of Things (“IoT”). Chuck joined Vodafone
Americas as President of its Global Enterprise division where he built a US-wide mobile business focused
exclusively on Enterprises.
Prior to Vodafone Americas, Chuck held senior roles at BT Americas including Chief Operating Officer
and President. On leaving BT in 2008, Chuck was President of BT Global Financial Services where he was
responsible for BT’s relationships with the top 40 global investment banks.
Chuck was appointed a Non-Executive Director of Intercede on 1 June 2017 and will become Intercede’s
Senior Independent Director, reflecting his considerable experience within the North American
technology and telecoms industries. Under the terms of his engagement he will also work in a senior
sales consulting role and mentor Intercede’s sales leadership.
Ben Drury - Non-Executive Director
Ben Drury is the co-founder of Fooropa and the founder and former CEO of 7digital, which has grown into
an AIM listed global company since he founded it in 2004. He is also a Non-Executive Director of Pimoroni
Limited. 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 (Honours) 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 & Chief Executive of iPSL Limited and Non-Executive Chairman of
Northgate Public Services. Until April 2012, he was UK Chief Executive 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.
Royston 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 authorized by the Financial
Conduct 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.
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Annual Report & Accounts 2017
Directors’ Report - For the year ended 31 March 2017
The Directors present their Annual Report and the audited
financial statements for the year ended 31 March 2017.
Principal Activities
Intercede is a cybersecurity company specialising in identity,
credential management and secure mobility to enable digital trust.
A review of the activities of the Group and future developments is
provided in the Chairman’s Statement and Strategic Report.
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 2017 are
set out on pages 19 to 39. The Group’s loss for the year was
£3,890,000 (2016: £993,000 loss for the year). The Directors do
not recommend the payment of a dividend (2016: £nil).
Management of Financial Risk
The Group’s policy for the management of financial risk is set out
within note 14.
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 2017 was £3,994,000 (2016: £3,905,000)
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.
Rob Chandhok retired as an independent non-executive director on
31 December 2016 and Charles (“Chuck”) Pol was appointed as an
independent non-executive director on 1 June 2017.
In accordance with the Company’s Articles of Association, Andrew
Walker and Chuck Pol will offer themselves for re-election at the
forthcoming Annual General Meeting.
The interests of the Directors serving at the end of their year, and
their immediate families, in the shares of the Company are set out
below:
RA Parris
AM Walker
B Drury
R Hoggarth
J Tredoux
Ordinary Shares
31 March 2017
Ordinary Shares
31 March 2016
5,681,012
1,515,000
5,239
168,721
5,664,516
1,506,752
—
168,721
11,813,888
11,813,888
Jacques Tredoux is interested in 1,463,216 shares which are
registered in the name of Pershing Nominees Limited which is a
nominee of Angus Investment Holdings Limited (“Angus”). Angus is
controlled by The South Hills Trust. As at 31 March 2017, 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
South Hills Trust and The Azalia Trust.
On 28 December 2016, the Company announced a fundraising
that resulted in the subsequent issue of convertible loan notes
(“CLNs”) totalling £4,495,000 on 30 January 2017 (see note 12).
The interests of the Directors, and their immediate families, that
were included in this issue are £50,000 and £50,000 for Richard
Parris and Andrew Walker respectively.
None of the Directors had any material interest in any other
contract or arrangement made by the Company during the year
with the exception of those referred to in note 17.
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 10 May 2017, the following had notified the Company of
disclosable interests in 3% or more of the Company’s issued share
capital:
The Azalia Trust
RA Parris
Liontrust Asset Management
Anjar International Limited
Plastic Technologies Limited
Ordinary Shares
%
Number
10,350,672 20.7
5,701,652 11.4
3,849,166 7.7
3,241,631 6.5
3,147,436 6.3
Herald Investment Management
2,050,266 4.1
Capita IRG Trustees Nominees Limited
1,803,626 3.6
AM Walker
1,525,320 3.1
14
`
Annual Report & Accounts 2017
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.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Group and the Company’s performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in the
Directors’ Report confirm that, to the best of their knowledge:
l
l
l
the Company financial statements, which have been
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (UK Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”,
and applicable law), give a true and fair view of the assets,
liabilities, financial position and loss of the Company;
the Group financial statements, which have been prepared
in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and loss of the Group; and
the Directors’ Report includes a fair review of the
development and performance of the business and the
position of the Group and the Company, together with a
description of the principal risks and uncertainties that it
faces.
Annual General Meeting
The seventeenth Annual General Meeting of the Company will be
held on Wednesday 13 September 2017. The Notice of the Annual
General Meeting will be sent out to shareholders prior to the
meeting.
Auditors
A resolution to re-appoint 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
7 June 2017
The Capita IRG Trustees Nominees Limited shareholding relates
to the Intercede Share Incentive Plan (“SIP”) which has been set
up for UK employees (including directors). The RA Parris and
AM Walker shareholdings include 68,186 and 34,093 shares
respectively that are also included within the Capita IRG Trustees
Nominees Limited shareholding.
Purchase of own Shares to be held in Treasury
As at 31 March 2017, the Company had 294,000 ordinary shares
held in treasury (2016: 294,000). There were no purchases or
transfers of shares to or from treasury during the year. During the
previous year, the Company purchased 32,500 ordinary shares for
a consideration of £47,000; 32,500 options were exercised using
treasury shares and 15,000 ordinary shares were transferred to
an employee, pursuant to an incentive arrangement.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulation.
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 company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (UK Accounting Standards, comprising FRS 101 “Reduced
Disclosure Framework”, 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 and the Company for that period. In preparing the
financial statements, the Directors are required to:
l select suitable accounting policies and then apply them
consistently;
l state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements
and UK Accounting Standards, comprising FRS 101, have been
followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
l make judgements and accounting estimates that are
reasonable and prudent; and
l prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and the
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and the Company
and enable them to ensure that the financial statements comply
with the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets
of the Group and the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
15
`
Annual Report & Accounts 2017
Corporate Governance
As a company listed on AIM, Intercede Group plc is not required
to comply with the requirements of the Combined Code. The
Company does endeavour to comply with the NAPF Corporate
Governance Guidelines for smaller companies and 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. Chuck Pol has been
appointed as the senior independent non-executive director with
effect from 1 June 2017 reflecting his considerable experience
within the North American technology and telecoms industries.
All directors 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.
The structure of the Board Committees from 1 June 2017 onwards
is as follows:
Audit Committee – Royston Hoggarth is 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 given his prior experience as Chairman of the Axon
Group plc Audit Committee. Ben Drury and Chuck Pol, both of
whom are considered to be independent, are also members of
the Audit Committee.
Remuneration Committee – Ben Drury has been appointed as the
Chairman of the Remuneration Committee which also comprises
Royston Hoggarth and Chuck Pol, thereby providing a majority of
independent directors.
Nominations Committee – The Nominations Committee consists
of Richard Parris (Chairman) and Chuck Pol (senior 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 21 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, have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. This
expectation is on the basis that the Group has significant cash
balances as at the date of these accounts and these balances,
together with receipts from confirmed and highly likely renewals
and repeat orders, are anticipated to cover substantially all of the
Group’s operating costs for the next 12 months. 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.
16
`
Annual Report & Accounts 2017
Report of the Remuneration Committee
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 2017.
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 one month’s notice by either party with the exception of R Hoggarth whose
service contract is terminable on three months’ 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
awards made to senior managers on 26 July and 20 December 2011 vested during the year ended 31 March 2016. No options were
exercised during the year. The awards made to directors on 16 August 2011 have yet to vest but will vest and become exercisable
subject to the Company’s share price reaching 200p over 30 consecutive dealing days prior to 16 August 2018.
Further options were granted to senior managers and directors on 7 November 2014 and on 29 June 2015 in accordance with the
resolution that was approved by shareholders at the Company’s AGM on 17 September 2014. These options will vest and become
exercisable subject to the Company’s share price reaching 400p over 30 consecutive dealing days in the period between the 3rd and
7th anniversary of the date of grant.
The following options were outstanding as at 31 March 2017:
Date of Grant
No. of Shares
Exercise Price
Dates Exercisable
Plan
EMI
EMI
26 July 2011
16 August 2011
152,500
631,572
Unapproved
16 August 2011
612,087
EMI
EMI
20 December 2011
7 November 2014
Unapproved
7 November 2014
50,000
401,961
98,039
1.0p
1.0p
1.0p
26 July 2014 to 25 July 2021
16 August 2014 to 15 August 2021
16 August 2014 to 15 August 2021
1.0p 20 December 2014 to 19 December 2021
127.5p
7 November 2017 to 6 November 2024
127.5p
7 November 2017 to 6 November 2024
EMI
29 June 2015
74,025
94.5p
29 June 2018 to 28 June 2025
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) and 250,000 options were granted
on 7 November 2014 (98,039 of which are unapproved).
AM Walker – 374,094 options were granted on 16 August 2011 (163,570 of which are unapproved) and 50,000 options were granted
on 7 November 2014.
On 1 September 2015, a free unit award equivalent to 100,000 ordinary shares of 1 pence each in the capital of the Company (“Free
Units”) was granted to R Chandhok, Non-Executive Director of Intercede Group plc. The award was made under the existing Intercede
MyID Inc. Unit Incentive Plan, further details of which are provided in note 16. A pro rata payment of this award totalling £28,000 was
made to R Chandhok following his retirement from the Board on 31 December 2016.
Share Incentive Plan (SIP)
Following the introduction of a Share Incentive Plan for all UK employees during the year ended 31 March 2014, a similar plan was
introduced for all US employees during the year ended 31 March 2015. Full details are provided in note 16.
Share Price
As at 31 March 2017, the market value of the shares of the Company was 44.0p (mid-market price). The share price fluctuated between
a high of 129.5p and a low of 42.5p during the year ended 31 March 2017.
17
`
Annual Report & Accounts 2017
Independent Auditors’ Report
to the Members of Intercede Group plc
Report on the group financial statements
Our opinion
In our opinion, Intercede Group plc’s group financial statements
(the “financial statements”):
l give a true and fair view of the state of the group’s affairs as at
31 March 2017 and of its loss 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.
What we have audited
The financial statements, included within the Annual Report &
Accounts (the “Annual Report”), comprise:
l
l
the Consolidated Balance Sheet as at 31 March 2017;
the Consolidated Statement of Comprehensive Income for the
year then ended;
the Consolidated Statement of Changes in Equity for the year
then ended;
the Consolidated Cash Flow Statement for the year then
ended; and
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
l
l
l
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRSs as adopted by the
European Union, and applicable law.
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.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
l
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; and
the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the
group and its environment obtained in the course of the audit,
we are required to report if we have identified any material
misstatements in the Strategic Report and the Directors’ Report.
We have nothing to report in this respect.
l
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, 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
International Standards on Auditing (UK and Ireland) (“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.
What an audit of financial statements involves
We conducted our audit in accordance with 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
l
circumstances and have been consistently applied and
adequately disclosed;
the reasonableness of significant accounting estimates made
by the directors; and
l
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information
in 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. With respect to the Strategic Report and Directors’
Report, we consider whether those reports include the disclosures
required by applicable legal requirements.
Other matter
We have reported separately on the company financial statements
of Intercede Group plc for the year ended 31 March 2017.
Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
7 June 2017
18
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2017
Annual Report & Accounts 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Operating expenses
Operating loss
Finance income
Finance costs
Loss before tax
Taxation
Loss for the year
Total comprehensive expense attributable to owners of the parent company
Loss per share (pence)
- basic
- diluted
The accompanying notes are an integral part of these financial statements.
Notes
2
3
5
5
6
7
2017
£’000
8,286
(116)
8,170
(12,891)
(4,721)
13
(70)
(4,778)
888
(3,890)
(3,890)
(8.0)p
(8.0)p
2016
£’000
11,004
(410)
10,594
(12,511)
(1,917)
32
—
(1,885)
892
(993)
(993)
(2.1)p
(2.1)p
19
Consolidated Balance Sheet
At 31 March 2017
Annual Report & Accounts 2017
Non-current assets
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Equity reserve
Merger reserve
(Losses)/retained earnings
Total equity
Non-current liabilities
Convertible loan notes
Deferred revenue
Current liabilities
Trade and other payables
Deferred revenue
Total liabilities
Total equity and liabilities
Notes
8
10
11
12
13
2017
£’000
695
1,280
6,891
8,171
8,866
499
673
60
1,508
(2,354)
386
4,124
141
4,265
1,390
2,825
4,215
8,480
8,866
2016
£’000
864
1,146
5,289
6,435
7,299
487
232
—
1,508
1,131
3,358
—
122
122
1,795
2,024
3,819
3,941
7,299
The financial statements on pages 19 to 33 were authorised for issue by the Board of Directors on 7 June 2017 and were signed on
its behalf by::
RA Parris
AM Walker
Director
Director
The accompanying notes are an integral part of these financial statements.
20
Consolidated Statement of Changes in Equity
For the year ended 31 March 2017
Annual Report & Accounts 2017
At 1 April 2015
Purchase of own shares
Employee share option plan charge (note 16)
Employee share incentive plan charge (note 16)
Employee treasury share transfer
Loss for the year and total comprehensive expense
At 31 March 2016
Purchase of own shares
Employee share option plan charge (note 16)
Employee share incentive plan charge (note 16)
Issue of new shares (note 11)
Equity component of convertible loan notes (note 12)
Loss for the year and total comprehensive expense
At 31 March 2017
Share
capital
£’000
487
Share
premium
£’000
232
—
—
—
—
—
—
—
—
—
—
487
232
—
—
—
12
—
—
499
—
—
—
441
—
—
673
Equity
reserve
£’000
—
—
—
—
—
—
—
—
—
—
—
60
—
60
Merger
reserve
£’000
1,508
—
—
—
—
—
1,508
—
—
—
—
—
—
1,508
(Losses)/
retained
earnings
£’000
2,257
(610)
115
334
28
(993)
1,131
(143)
60
488
—
—
Total
equity
£’000
4,484
(610)
115
334
28
(993)
3,358
(143)
60
488
453
60
(3,890)
(2,354)
(3,890)
386
All amounts included in the table above are attributable to owners of the parent company.
Share capital: Nominal value of shares issued.
Share premium: Amount subscribed for share capital in excess of the nominal value.
Equity reserve: Amount recorded as equity on the initial fair value measurement of issued convertible loan notes.
Merger reserve: Created on the issue of shares on acquisition of its subsidiary accounted for in line with merger accounting principles.
(Losses)/retained earnings: All other net (losses)/profits not recognised elsewhere.
The accompanying notes are an integral part of these financial statements.
21
Annual Report & Accounts 2017
2017
£’000
2016
£’000
(4,721)
(1,917)
194
48
60
488
(20)
(28)
—
(364)
(417)
820
(3,940)
14
888
(3,038)
(73)
(73)
(143)
453
4,495
(321)
4,484
1,373
5,289
229
6,891
186
—
115
334
58
—
28
(100)
611
(66)
(751)
36
892
177
(197)
(197)
(610)
—
—
—
(610)
(630)
5,895
24
5,289
Consolidated Cash Flow Statement
For the year ended 31 March 2017
Cash flows from operating activities
Operating loss
Depreciation
Loss on disposal of property, plant and equipment
Employee share option plan charge
Employee share incentive plan charge
Employee unit incentive plan (credit)/charge
Employee unit incentive plan payment
Employee treasury share transfer
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
Increase/(decrease) in deferred revenue
Cash used in operations
Finance income
Taxation
Net cash (used in)/generated from operating activities
Investing activities
Purchases of property, plant and equipment
Cash used in investing activities
Financing activities
Purchase of own shares
Proceeds from issue of ordinary share capital
Proceeds from issue of convertible loan notes
Convertible loan note issue costs
Cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange gains on cash and cash equivalents
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of these financial statements.
22
Annual Report & Accounts 2017
Notes to the Consolidated Financial Statements
For the year ended 31 March 2017
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 04101977.
Basis of preparation
The consolidated financial statements of Intercede Group
plc have been prepared in accordance with European Union
endorsed International Financial Reporting Standards (IFRS)
and IFRS Interpretations Committee (IFRS IC) interpretations as
adopted by the EU 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.
Critical accounting estimates and judgements
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:
l Research & Development (R&D) costs – in accordance with the
IFRS recognition criteria outlined elsewhere within this note,
the Board has determined that all internal R&D costs incurred
in the year are expensed. No development expenditure has
been capitalised as at 31 March 2017 (2016: £nil).
l The Group is a beneficiary of the UK Government’s efforts to
encourage innovation by allowing a percentage of qualifying
R&D to be paid as tax credits. The annual R&D tax credit
claims are recognised in arrears, ie the period during which
cash is received.
l Deferred tax asset – a deferred tax asset has not been
recognised against the backdrop of the current programme
of substantial strategic investment and unused tax losses
brought forward.
l Share-based payments – the estimation of fair values for
share-based payments is dependent on a number of
assumptions (outlined in note 16) including expected volatility
and the expected life of the option.
The Company has elected to prepare its entity financial
statements in accordance with Financial Reporting Standard
101 Reduced Disclosure Framework (FRS 101) and these are
separately presented on pages 35 to 39.
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 (goods) – Revenue is recognised once the
license is ready for transfer to the customer. This is on the basis
that the customer cannot return the license or ask for it to be
transferred to another party and the Group is under no obligation
to provide a refund.
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 services – 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.
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 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.
23
Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2017
Annual Report & Accounts 2017
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 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 (excluding freehold land), plant and
equipment over their estimated useful economic lives by equal
annual instalments using the following rates:
Freehold buildings
Leasehold improvements
2% pa
Remaining period of
the lease
15% pa
25% pa
Fixtures and fittings
Computer and office equipment
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 classified as loans and receivables under
IFRS 7 and 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 are classified as loans and receivables
under IFRS 7 and are held with highly rated financial institutions.
These comprise cash at bank and in hand and bank deposits with
a short-term maturity.
Convertible loan notes
The proceeds received from the issue of the convertible loan
notes are allocated between their financial liability and equity
components. The financial liability is initially recognised at fair
value (being the discounted cash flows using a market rate of
interest that would be payable on a similar instrument that
does not include an option to convert). The equity component
is assigned to the residual amount after deducting this fair value
liability from the fair value of the financial instrument as a whole.
It is recognised in the ‘Equity reserve’ within shareholders’ equity.
More information is provided in note 12.
The financial liability is subsequently measured at amortised cost
using the effective interest rate method, which ensures that any
interest expense over the period to repayment is at a constant
rate on the balance of the liability carried in the balance sheet.
The difference between the interest expense and the coupon
payable is added to the carrying amount of the liability in the
balance sheet.
Issue costs are apportioned between the liability and equity
components of the convertible loan notes based upon their
relative carrying amounts at the date of issue. The portion relating
to the equity component is charged directly against equity.
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.
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 16.
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 expected
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.
The Group operates a Unit Incentive Plan to provide similar
benefits for all US employees. The plan provides phantom shares
or units, equivalent in value to shares in the Company, and the
plan is cash-settled.
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
A number of new amendments to existing standards are effective
for the first time for periods beginning on (or after) 1 January 2016
and have been adopted in these financial statements. None of
the amendments impacted on the Group’s consolidated financial
statements.
At the balance sheet date there are a number of new standards
and amendments to existing standards in issue but not effective,
including IFRS 9 ‘Financial Instruments’, which is effective for
periods beginning on or after 1 January 2018; IFRS 15 ‘Revenue
from contracts with customers’, which is effective for periods
beginning on or after 1 January 2018; and IFRS 16 ‘Leasing’, which
is effective for periods beginning on or after 1 January 2019.
The Group has not early-adopted any of these new standards
or amendments to existing standards. The Group is currently
assessing the impact of IFRS 9, IFRS 15 and IFRS 16. There are
no other new standards, amendments to existing standards or
interpretations that are not yet effective that would be expected
to have a material impact on the Group.
24
Annual Report & Accounts 2017
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
UK
Rest of Europe
North America
Rest of World
2017
£’000
403
960
6,367
556
8,286
Revenue of £2,711,000 (2016: £3,334,000) is derived from the only end customer that individually represents over 10% of the
Group’s revenues.
3 Operating loss
Operating loss is stated after charging/(crediting):
Staff costs (note 4)
Foreign exchange gain
Depreciation of property, plant and equipment (note 8)
Operating lease rentals
Cost of sales
Other expenses
2017
£’000
10,049
(165)
194
390
116
2,423
13,007
Included in the costs above is research and development expenditure totalling £3,994,000 (2016: £3,905,000).
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
2017
£’000
37
5
42
2016
£’000
462
1,312
8,699
531
11,004
2016
£’000
9,826
(108)
186
363
410
2,244
12,921
2016
£’000
36
5
41
25
Annual Report & Accounts 2017
Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2017
Staff costs
4
The average monthly number of employees and contractors of the Group (including Executive Directors) was:
Technical
Sales and marketing
Administration
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Employee share option plan (note 16)
Employee share and unit incentive plan (note 16)
2017
Number
97
17
11
125
2017
£’000
8,355
857
309
60
468
10,049
Pension contributions totalling £44,000 (2016: £44,000) are included within year end trade and other payables.
Directors’ remuneration
The aggregate remuneration of the executive Directors and key management was as follows:
Emoluments
Company contributions to money purchase pension scheme
2017
£’000
486
28
514
2016
Number
95
19
11
125
2016
£’000
8,192
842
285
115
392
9,826
2016
£’000
776
28
804
Directors’ emoluments
Executive Directors
RA Parris
AM Walker
Non-Executive Directors
R Chandhok
B Drury
R Hoggarth
Fees paid to third parties
Salary
and fees
2017
£’000
Bonus
2017
£’000
Benefits
in kind
2017
£’000
Total
2017
£’000
Total
2016
£’000
Pension contributions
2016
£’000
2017
£’000
222
152
57
25
25
481
25
—
—
—
—
—
—
—
1
1
—
—
—
2
—
223
153
57
25
25
483
25
372
247
67
25
25
736
25
14
8
—
—
—
22
—
14
8
—
—
—
22
—
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.
26
Annual Report & Accounts 2017
5
Finance income and costs
Finance income
Interest income on short term bank deposits
Finance costs
Convertible loan notes
2017
£’000
13
(70)
Finance costs represent interest payable totalling £60,000 (2016: £nil) in respect of the convertible loan notes that were issued
during the year plus £10,000 (2016: £nil) representing an effective interest rate adjustment (note 12).
Taxation
6
The tax credit comprises:
Current year – UK corporation tax
Current year – US corporation tax
Research and development tax credits relating to prior years
Taxation
2017
£’000
—
(34)
922
888
2016
£’000
32
—
2016
£’000
—
(40)
932
892
The difference between the tax credit shown above and the amount calculated by applying the standard rate of UK corporation tax
to the loss before tax is as follows:
Loss before tax
Loss before tax at UK corporation tax rate of 20% (2016: 20%)
Research and development claim
Research and development tax credits relating to prior years
Depreciation in excess of capital allowances
Expenses not deductible for tax purposes
Other temporary differences
Employee share option plan charge
Employee share incentive plan charge
Employee unit incentive plan credit/(charge)
Purchase of shares for employee share incentive plan
Share options exercised
US corporation tax
Transition to FRS101 by subsidiary
Losses carried forward
Tax credit for the year
2017
£’000
(4,778)
956
784
922
(32)
(2)
1
(12)
(70)
11
74
—
(1)
—
(1,743)
888
2016
£’000
(1,885)
377
859
932
—
(3)
(2)
(23)
(67)
(11)
97
9
(10)
19
(1,285)
892
The Group has unused tax losses of £11,773,000 (2016: £9,460,000) and unrecognised deferred tax assets of £2,001,000
(2016: £1,703,000) calculated at the UK corporation tax rate of 17% (2016: 18%).
27
Annual Report & Accounts 2017
Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2017
Loss per share
7
The calculations of loss per ordinary share are based on the loss for the financial year and the weighted average number of ordinary
shares in issue during each year. Basic and diluted loss per share are the same as potential dilution cannot be applied to a loss
making year.
Loss for the year
Weighted average number of shares – basic
– diluted
Loss per share – basic
– diluted
2017
£’000
(3,890)
Number
48,835,080
48,835,080
Pence
(8.0)p
(8.0)p
2016
£’000
(993)
Number
48,429,489
48,429,489
Pence
(2.1)p
(2.1)p
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 purchase of own shares
Effect of issue of ordinary share capital
Weighted average number of shares - basic
Add back effect of purchase of own shares
Effect of share options in issue
Effect of convertible loan notes in issue
Weighted average number of shares – diluted
8 Property, plant and equipment
2017
Number
48,735,005
(294,000)
394,075
48,835,080
N/A
N/A
N/A
2016
Number
48,735,005
(305,516)
—
48,429,489
N/A
N/A
N/A
48,835,080
48,429,489
Cost
At 1 April 2015
Additions
Disposals
At 1 April 2016
Additions
Disposals
At 31 March 2017
Accumulated depreciation
At 1 April 2015
Charge for the year
On disposals
At 1 April 2016
Charge for the year
On disposals
At 31 March 2017
Net book amount
At 31 March 2017
At 31 March 2016
Freehold land
and buildings
£’000
Leasehold
improvements
£’000
Fixtures and
fittings
£’000
Computer and
office equipment
£’000
422
—
—
422
—
—
422
25
8
—
33
9
—
42
380
389
83
41
—
124
29
(83)
70
13
19
—
32
23
(37)
18
52
92
28
97
27
(1)
123
29
(20)
132
57
12
(1)
68
18
(18)
68
64
55
814
129
—
943
15
(13)
945
468
147
—
615
144
(13)
746
199
328
Total
£’000
1,416
197
(1)
1,612
73
(116)
1,569
563
186
(1)
748
194
(68)
874
695
864
Annual Report & Accounts 2017
Subsidiaries
9
The Company’s subsidiaries, all of which have been consolidated in the Group’s financial statements at 31 March 2017, are as follows:
Intercede Limited
Intercede 2000 Limited
Intercede MyID Inc.
Country of incorporation
Class of shares
% held
Principal activity
England and Wales
England and Wales
USA
Ordinary
Ordinary
Common
100
100
100
Software developer
Dormant
Service provider
Intercede Limited and Intercede 2000 Limited are registered at Lutterworth Hall, St. Mary’s Rd, Leicestershire, LE17 4PS, UK.
Intercede MyID Inc. is registered at 2711 Centerville Rd, Suite 400, Wilmington, New Castle, DE 19808, USA.
10 Trade and other receivables
Trade receivables
Prepayments and accrued income
Other debtors
2017
£’000
1,033
137
110
1,280
2016
£’000
733
332
81
1,146
As outlined in note 14, 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 (2016: £nil). The level of
trade receivables over 60 days old which have been provided for is £nil (2016: £nil). The amount written off as irrecoverable during
the year was £nil (2016: £nil).
Included within trade receivables are receivables with a carrying amount of £37,000 (2016: £148,000) 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 £15,000 (2016: £6,000). The average age of the Group’s trade receivables is 33 days (2016: 34 days).
11 Share capital
Authorised
481,861,616 ordinary shares of 1p each (2016: 481,861,616)
Issued and fully paid
2017
£’000
4,819
2016
£’000
4,819
49,903,143 ordinary shares of 1p each (2016: 48,735,005)
499
487
The increase in issued and fully paid ordinary shares of 1p each represents the issue of 379,542 shares on 29 July 2016 to facilitate
the July 2016 Free Share award (note 16) and the issue of 788,596 shares on 27 January 2017, at an issue price of 57.0p per ordinary
share, in connection with the fundraising that was announced on 28 December 2016.
As at 31 March 2017, the Company had 294,000 ordinary shares held in treasury (2016: 294,000). There were no purchases or
transfers of shares to or from treasury during the year. During the previous year, the Company purchased 32,500 ordinary shares for
a consideration of £47,000; 32,500 options were exercised using treasury shares and 15,000 ordinary shares were transferred to an
employee pursuant to an incentive arrangement.
29
Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2017
12 Convertible loan notes
Non-current
8% Convertible loan notes (29 December 2021)
Borrowings are repayable as follows:
Between two and five years
Annual Report & Accounts 2017
2017
£’000
4,124
2017
£’000
4,124
2016
£’000
—
2016
£’000
—
On 30 January 2017 the Company issued £4,495,000 convertible loan notes that carry an interest coupon of 8.0% pa payable
quarterly. The Company has granted security by way of a composite guarantee and debenture in favour of Welbeck Capital Partners
LLP to secure the repayment of principal and interest due on the convertible loan notes to the holders. Holders of the convertible
loan notes may convert into ordinary shares, at a conversion price of 68.8125 pence per ordinary share, at any time until the final
redemption date of 29 December 2021.
The amount recognised in the balance sheet in relation to the convertible loan notes is as follows:
Nominal value of convertible loan note issue
Issue costs
Equity component at date of issue
Liability component at date of issue
Effective interest rate adjustment
Liability component at 31 March
13 Trade and other payables
Trade payables
Taxation and social security
Accruals
2017
£’000
4,495
(321)
(60)
4,114
10
4,124
2017
£’000
451
175
764
1,390
2016
£’000
—
—
—
—
—
2016
£’000
609
188
998
1,795
Included within accruals is £16,000 (2016: £64,000) relating to the Employee Unit Incentive Plan (note 16).
30
Annual Report & Accounts 2017
14 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 financed its operations to date through a variety of sources of external finance primarily including equity and
convertible loan notes. The convertible loan notes, which are denominated in sterling, bear interest at fixed rates.
Liquidity risk
The Group’s policy has been to ensure continuity of funding throughout the year.
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 (note 3).
Interest rate profile
The Group has cash deposits of £6,891,000 (2016: £5,289,000) at the year end. This includes US dollar deposits of £910,000
(2016: £1,422,000) and euro deposits of £203,000 (2016: £195,000). Interest rates on cash deposits are based on LIBOR.
Maturity of financial liabilities
The maturity of the Group’s external borrowings are disclosed in note 12. The only other financial liabilities are short term trade and
other payables as outlined within note 13.
Borrowing facilities
The Group has no undrawn committed borrowing facilities (2016: £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:
At 31 March 2017
At 31 March 2016
US dollar
£’000
1,704
2,134
Net foreign currency monetary assets
Euro
£’000
230
200
Total
£’000
1,934
2,334
31
Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2017
15 Financial commitments
a) Capital commitments
The Group had no capital commitments at the year end (2016: £nil).
b) Operating leases
Future aggregate commitments under non-cancellable operating leases are as follows:
Due within one year
Due between one and two years
Due between two and five years
Due beyond five years
Annual Report & Accounts 2017
2017
£’000
410
383
953
371
2,117
2016
£’000
292
344
891
550
2,077
The operating lease commitments outlined above primarily relate to rent payable for the Company’s UK and US offices.
16 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 3 year
vesting period and continued employment. The fair value of the options granted during 2011 was determined using a Black-Scholes
valuation model.
Further options were granted on 7 November 2014 and 29 June 2015 in accordance with the resolution that was approved by
shareholders at the Company’s AGM on 17 September 2014. The fair value of the options granted was determined using a monte
carlo valuation model and includes a share price target of 400p, as disclosed in the Report of the Remuneration Committee.
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
Shares under option
Expected vesting period (years)
Expected option life (years)
Expected volatility
Risk free rate
Expected dividends expressed as a dividend yield
Fair value per option
26 July 2011
16 Aug 2011
20 Dec 2011
7 Nov 2014
29 June 2015
69.0p
1.0p
4
57.0p
1.0p
3
64.0p
1.0p
1
127.5p
127.5p
8
94.5p
94.5p
1
200,000
1,243,659
50,000
500,000
74,025
3
7
6
7
3
7
6
7
5
7
57.53%
58.21%
42.54%
39.03%
39.65%
2.29%
2.90%
55.0p
1.65%
3.51%
44.0p
1.24%
3.13%
50.0p
1.93%
3.00%
27.0p
1.87%
3.00%
15.0p
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 options granted on 26 July 2011 and 20 December 2011 have now vested and 47,500 of these options had been exercised to
date as at 31 March 2017 (2016: 47,500).
The total charge for the year relating to employee share options was £60,000 (2016: £115,000). Share options outstanding at the
year end have a weighted average contractual life of 5.3 years (2016: 6.3 years).
In February 2014, HM Revenue & Customs approved an equity-settled Share Incentive Plan (SIP) for all UK employees including
the Executive Directors. A Free Share award of £3,600 per employee was made on 29 July 2016 which, based upon the previous
day’s closing middle market price of 98.0p, resulted in 3,673 shares being issued to each of the 105 employees who were eligible.
Partnership Shares can be subscribed for by employees via salary deductions during the year ending 31 March 2018, either on a
monthly or lump sum basis to a cumulative value of up to £1,800. As at 31 March 2017, 77 employees representing 76% of the
eligible employees, had made binding commitments to subscribe for Partnership Shares during the year ending 31 March 2018.
Matching Shares will be given to employees on the basis of two Matching Shares for each Partnership Share.
32
Annual Report & Accounts 2017
16 Share based payments continued
Free Share and Matching Share awards to date have generally been met by the transfer of ordinary shares 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, the Company will issue new ordinary
shares to meet these awards. This was the route that was followed in respect of the July 2016 Free Share award.
The total charge for the year relating to the employee Share Incentive Plan was £488,000 (2016: £334,000).
In October 2014, the Company introduced a Unit Incentive Plan to provide similar benefits for all US employees. The plan provides
phantom shares or units, equivalent in value to shares in the company, and the plan is cash-settled.
As noted in the Report of the Remuneration Committee, a Free Unit award equivalent to 100,000 ordinary shares of 1 pence each
in the capital of the Company was granted to R Chandhok, Non-Executive Director of Intercede Group plc, on 1 September 2015. A
pro rata payment of this award totalling £28,000 was made to R Chandhok following his retirement from the Board on 31 December
2016.
The total credit for the year relating to the employee Unit Incentive Plan was £20,000 (2016: £58,000 charge) as outlined in the table
below:
At 1 April
Additional (credit)/ charge
Paid during the year
At 31 March
2017
£’000
64
(20)
(28)
16
2016
£’000
6
58
—
64
17 Related party transactions
During the year ended 31 March 2017, 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
2017
£’000
25
13
2016
£’000
25
6
During the year ended 31 March 2017, R Hoggarth served as a Non-Executive Director. R Hoggarth is also Chairman of Northgate
Public Services, an existing Intercede customer. Sales made to Northgate Public Services during the year ended 31 March 2017
totalled £39,000 (2016: £107,000), of which £8,000 (2016: £8,000) was outstanding at the year end.
On 28 December 2016, the Company announced a fundraising that resulted in the subsequent issue of convertible loan notes
totalling £4,495,000 on 30 January 2017 (note 12). The interests of the Directors, and their immediate families, that were included in
this issue are £50,000 and £50,000 for R Parris and A Walker respectively.
33
Independent Auditors’ Report
to the Members of Intercede Group plc
Annual Report & Accounts 2017
Report on the company financial statements
Our opinion
In our opinion, Intercede Group plc’s company financial
statements (the “financial statements”):
l give a true and fair view of the state of the company’s affairs as
at 31 March 2017;
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.
What we have audited
The financial statements, included within the Annual Report &
Accounts (the “Annual Report”), comprise:
l
l
the Company Balance Sheet as at 31 March 2017;
the Company Statement of Changes in Equity for the year
then ended; and
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
l
The financial reporting framework that has been applied in
the preparation of the financial statements is United Kingdom
Accounting Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law (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.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course of the
audit:
l
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; and
the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the
company and its environment obtained in the course of the
audit, we are required to report if we have identified any material
misstatements in the Strategic Report and the Directors’ Report.
We have nothing to report in this respect.
l
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
the financial statements are not in agreement with the
accounting records and returns.
l
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, 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
International Standards on Auditing (UK and Ireland) (“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.
What an audit of financial statements involves
We conducted our audit in accordance with 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
l
company’s circumstances and have been consistently applied
and adequately disclosed;
the reasonableness of significant accounting estimates made
by the directors; and
l
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial information
in 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. With respect to the Strategic Report and Directors’
Report, we consider whether those reports include the disclosures
required by applicable legal requirements.
Other matter
We have reported separately on the group financial statements of
Intercede Group plc for the year ended 31 March 2017.
Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
7 June 2017
34
Company Balance Sheet
At 31 March 2017
Annual Report & Accounts 2017
Non-current assets
Investments
Current assets
Trade and other receivables
Total assets
Equity
Share capital
Share premium
Equity reserve
Retained earnings
Total equity
Non-current liabilities
Convertible loan notes
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
Notes
3
4
5
6
7
2017
£’000
4,721
4,017
8,738
499
673
60
3,305
4,537
4,124
77
4,201
8,738
2016
£’000
4,221
—
4,221
487
232
—
2,946
3,665
—
556
556
4,221
The amount of loss dealt with in the Company financial statements was £46,000 (2016: £70,000 loss).
The financial statements on pages 35 to 39 were authorised for issue by the Board of Directors on 7 June 2017 and were signed on
its behalf by:
RA Parris
AM Walker
Director
Director
The accompanying notes are an integral part of these financial statements.
Intercede Group plc: Registered No. 04101977
35
Company Statement of Changes in Equity
For the year ended 31 March 2017
Annual Report & Accounts 2017
At 1 April 2015
Purchase of own shares
Employee share option and share incentive plan charges
Loss for the year and total comprehensive expense
At 31 March 2016
Purchase of own shares
Employee share option and share incentive plan charges
Issue of new shares
Equity component of convertible loan notes
Loss for the year and total comprehensive expense
At 31 March 2017
The accompanying notes are an integral part of these financial statements.
Share
capital
£’000
487
—
—
—
487
—
—
12
—
—
499
Share
premium
£’000
Equity
reserve
£’000
232
—
—
—
232
—
—
441
—
—
673
—
—
—
—
—
—
—
—
60
—
60
Retained
earnings
£’000
3,149
(582)
449
(70)
2,946
(143)
548
—
—
(46)
Total
equity
£’000
3,868
(582)
449
(70)
3,665
(143)
548
453
60
(46)
3,305
4,537
36
Annual Report & Accounts 2017
Notes to the Company Financial Statements
For the year ended 31 March 2017
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 or staff costs and is therefore not required to display a staff costs note.
Basis of Preparation
The financial statements have been prepared on the going concern basis in accordance with Financial Reporting Standard 101
‘Reduced Disclosure Framework’ (FRS 101) 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 Company has taken advantage of the following disclosure exemptions under FRS 101:
(a) the requirements of IAS 7 ‘Statement of cash flows’;
(b) the requirements of IFRS 7 ‘Financial Instruments: Disclosures’;
(c) the requirements of paragraphs 45(b) and 46-52 of IFRS 2 ‘Share Based Payment’;
(d) the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’;
(e) the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’;
(f) the requirements of paragraphs 91-99 of IFRS 13 ‘Fair Value Measurement’; and
(g) the requirements of paragraphs 17-19 of IAS 24 ‘Related Party Disclosures’.
A summary of the principal accounting policies, which have been applied consistently, is set out below.
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for impairment in value.
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.
Convertible loan notes
The proceeds received from the issue of the convertible loan notes are allocated between their financial liability and equity
components. The financial liability is initially recognised at fair value (being the discounted cash flows using a market rate of interest
that would be payable on a similar instrument that does not include an option to convert). The equity component is assigned to the
residual amount after deducting this fair value liability from the fair value of the financial instrument as a whole. It is recognised in the
‘Equity reserve’ within shareholders’ equity. More information is provided in note 6.
The financial liability is subsequently measured at amortised cost using the effective interest rate method, which ensures that any
interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. The
difference between the interest expense and the coupon payable is added to the carrying amount of the liability in the balance sheet.
Issue costs are apportioned between the liability and equity components of the convertible loan notes based upon their relative
carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
Share-based payments
The equity-settled share option programme allows employees to acquire shares of the 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 most appropriate valuation model for a grant of equity instruments, which is dependent on the terms of
the grant. 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.
Adoption of new accounting standards
A number of new amendments to existing standards are effective for the first time for periods beginning on (or after) 1 January 2016
and have been adopted in these financial statements. None of the amendments impacted on the Company’s financial statements.
At the balance sheet date there are a number of new standards and amendments to existing standards in issue but not effective,
including IFRS 9 ‘Financial Instruments’, which is effective for periods beginning on or after 1 January 2018; IFRS 15 ‘Revenue from
contracts with customers’, which is effective for periods beginning on or after 1 January 2018; and IFRS 16 ‘Leasing’, which is effective
for periods beginning on or after 1 January 2019.
The Company has not early-adopted any of these new standards or amendments to existing standards. The Company is currently
assessing the impact of IFRS 9, IFRS 15 and IFRS 16. There are no other new standards, amendments to existing standards or
interpretations that are not yet effective that would be expected to have a material impact on the Company.
37
Annual Report & Accounts 2017
Notes to the Company Financial Statements continued
For the year ended 31 March 2017
2 Auditors’ remuneration
Fees payable to the Company’s auditors for the audit of the parent company are £2,000 (2015: £2,000).
3
Investments
At 1 April
Additions
At 31 March
2017
£’000
4,221
500
4,721
2016
£’000
3,713
508
4,221
Additions in the year of £500,000 (2016: £508,000) reflect the employee share option, incentive and unit plan charges and credits
relating to employees of the Company’s subsidiaries.
The Company’s subsidiaries at 31 March 2017 are:
Intercede Limited
Intercede 2000 Limited
Intercede MyID Inc.
Country of incorporation
Class of shares
% held
Principal activity
England and Wales
England and Wales
USA
Ordinary
Ordinary
Common
100
100
100
Software developer
Dormant
Service provider
The registered offices are set out in note 9 of the consolidated financial statements.
4
Trade and other receivables
Amounts owed by subsidiary undertakings
2017
£’000
4,017
2016
£’000
—
Amounts owed by subsidiary undertakings are unsecured, have no fixed date of repayment and are repayable on demand. Interest is
charged on amounts owed by subsidiary undertakings at market rates.
5
Share capital
Authorised
481,861,616 ordinary shares of 1p each (2016: 481,861,616)
Allotted and fully paid
2017
£’000
4,819
2016
£’000
4,819
49,903,143 ordinary shares of 1p each (2016: 48,735,005)
499
487
The increase in issued and fully paid ordinary shares of 1p each represents the issue of 379,542 shares on 29 July 2016 to facilitate
the July 2016 Free Share award (note 16 of the consolidated financial statements) and the issue of 788,596 shares on 27 January
2017, at an issue price of 57.0p per ordinary share, in connection with the fundraising that was announced on 28 December 2016.
As at 31 March 2017, the Company had 294,000 ordinary shares held in treasury (2016: 294,000). There were no purchases or
transfers of shares to or from treasury during the year. During the previous year, the Company purchased 32,500 ordinary shares for
a consideration of £47,000; 32,500 options were exercised using treasury shares and 15,000 ordinary shares were transferred to an
employee pursuant to an incentive arrangement.
38
6 Convertible loan notes
Non-current
8% Convertible loan notes (29 December 2021)
Borrowings are repayable as follows:
Between two and five years
Annual Report & Accounts 2017
2017
£’000
4,124
2017
£’000
4,124
2016
£’000
—
2016
£’000
—
On 30 January 2017 the Company issued £4,495,000 convertible loan notes that carry an interest coupon of 8.0% pa payable
quarterly. The Company has granted security by way of a composite guarantee and debenture in favour of Welbeck Capital Partners
LLP to secure the repayment of principal and interest due on the convertible loan notes to the holders. Holders of the convertible
loan notes may convert into ordinary shares, at a conversion price of 68.8125 pence per ordinary share, at any time until the final
redemption date of 29 December 2021.
The amount recognised in the balance sheet in relation to the convertible loan notes is as follows:
Nominal value of convertible loan note issue
Issue costs
Equity component at date of issue
Liability component at date of issue
Effective interest rate adjustment
Liability component at 31 March
7
Trade and other payables
Amounts owed to subsidiary undertakings
Accruals
2017
£’000
4,495
(321)
(60)
4,114
10
4,124
2017
£’000
—
77
77
2016
£’000
—
—
—
—
—
2016
£’000
492
64
556
Amounts owed to subsidiary undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on demand.
Financial commitments
8
a) Capital commitments
The Company had no capital commitments at the year end (2016: £nil).
b) Operating leases
The Company had no annual commitments under non-cancellable operating leases at the year end (2016: £nil).
39
Annual Report & Accounts 2017
40
41
sales sales@intercede.com
general inquiries info@intercede.com
customer support support@intercede.com
career inquiries careers@intercede.com
UK
Lutterworth Hall, St. Mary’s Road,
Lutterworth, Leicestershire LE17 4PS, UK
T +44 (0)1455 558 111
US
Suite 920, 1875 Explorer Street, Reston,
VA 20190, USA
T +1 888 646 6943
42