Intercede Group plc
Annual Report & Accounts
2018
Content
Company Profile
01
Company Profile
04 Chairman’s Statement
06
12
Strategic Report
Board of Directors
14 Directors’ Report
16
17
18
22
23
Corporate Governance
Report of the Remuneration Committee
Independent Auditors’ Report
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
24 Consolidated Statement of Changes in Equity
25
Consolidated Cash Flow Statement
26 Notes to the Consolidated Financial Statements
38
39
Company Balance Sheet
Company Statement of Changes in Equity
40 Notes to the Company Financial Statements
44 Notice of Annual General Meeting
Intercede® is a cybersecurity company specialising in digital
identities, derived credentials and access control, enabling digital trust
in a mobile world.
Headquartered in the UK, with offices in the US, we believe in
a connected world in which people and technology are free to
exchange information securely, and complex insecure passwords
become a thing of the past.
Our vision is to make the highest levels of cybersecurity available to
organizations and consumers alike, solving complexity and scalability
issues by managing high volumes of digital credentials.
We have been delivering trusted solutions to high profile customers
for over 20 years. Our team of experts has deployed millions of
identities to governments, most of the largest aerospace and
defence corporations, and major financial services and healthcare
organizations, as well as leading telecommunications, cloud services
and information technology firms, providing industry-leading
employee and customer credential management systems.
For more information visit: www.intercede.com
1
Annual Report & Accounts 2018 Intercede have been providing trusted digital identities for more than 20
years – our MyID platform enables organizations to easily issue secure
digital credentials at scale so they can be sure their employees, citizens
or customers are who they claim to be.
Our solutions operate on-premise or in the cloud and are designed to
create and secure trusted digital identities that combine the highest
levels of security with a frictionless user experience.
These solutions are deployed by a range of organizations in the most
data critical industries including Aerospace & Defence, military & police,
government, healthcare and financial institutions.
Intercede is trusted by tech giants such as Microsoft, Intel, Citrix,
AirWatch and MobileIron to add digital identity management to their
solutions.
Intercede’s expertise combined with the MyID platform’s capabilities
provides digital trust, enabling organizations to secure access, validate
transactions and protect themselves against the number one cause of
data breach - compromised user credentials.
MyID for employee ID
A flexible, feature-rich product enabling passwords to be
replaced with secure digital identities on multiple devices.
Trusted by high profile organizations around the world to
secure employee access to business-critical systems and
information.
l Enables deployment of digital identities to smart
cards, virtual smart cards and mobile devices for
securing access to corporate assets and information.
MyID can be deployed as either an on-premise
solution or via the cloud.
l Built to integrate with your existing systems, including
certificate authorities (PKIs), identity management
systems (IDMS), physical access control systems
(PACS) and mobile device management systems
(MDMs).
l MyID is particularly well known within US Federal
government as Intercede were one of the first
companies to issue and manage FIPS-201 compliant
PIV credentials to cards and derived PIV credentials to
mobile devices.
2
` Annual Report & Accounts 2018 MyID for citizen ID
MyID helps governments to maximise return on investment by
extending existing smart card based national identity schemes
to the citizen’s smartphone. MyID enables governments to
issue mobile IDs into a government app and citizens have the
frictionless experience of using their familiar Android or iOS
phone with a simple PIN or biometric, such as a fingerprint, to
authenticate to government services.
l Easy to Deploy: Citizens download a government mobile
app from the Apple App Store or Google Play. They
authenticate to the government portal and scan a QR code
using the app on their phone to collect their Mobile ID over
the air. MyID enables secure storage of the citizen identity
within the government app.
l Easy to Use: When a citizen wants to use a government
service they simply use the government app to
authenticate. By confirmation of their PIN or biometric
details, the Mobile ID stored within the app strongly
authenticates the citizen to the service.
l Trusted Identity Provider: Our innovative solution
enables the provision of identity services to third parties
(e.g. healthcare or financial institutions). The trusted Mobile
ID within the government app can be used to strongly
authenticate to other services, enabling them to use the
highest assurance levels delivered by a National Identity.
MyID for consumer ID
MyID provides 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.
l At its core is cryptographic key management, which has
been proven to prevent such breaches by only allowing
access to verified devices that have been unlocked by
verified users. This contrasts with alternatives such as
biometric-only security or SMS one-time passwords which,
although having a place, are also open to compromise.
l MyID offers a frictionless solution compared to the clumsy
operation of SMS/token based one-time passwords,
meaning user frustration is kept to a minimum – and they
can forget their passwords forever.
l
It is simple to implement: with just a few lines of code and
our SDK, you are all set to provide the strongest possible
protection for users, apps & data on mobile devices.
3
Annual Report & Accounts 2018 Chairman’s
Statement
The last financial year was another difficult period for
Intercede, following a challenging 2016/2017. The Board
remains confident in the Company, its products and
the potential to be a leading player in the fast-evolving
cybersecurity market.
Following review, the Board agreed to make several changes and
brought in a new Chief Executive and reorganized the management
team. The new leadership team are fully focused on building on recent
successes and are committed to improving standards, enhanced
operating performance and the conversion of recent product
development into meaningful revenue generation and growth.
Strategy & Partnerships
At the heart of Intercede’s strategy remains its market leading product
MyID. With over 80 blue chip deployments worldwide and a number of
important contract wins that have been added in the last 12 months,
MyID continues to be the solution of choice for major public key
infrastructure (PKI) system deployments. Intercede is working closely
with some of the leading industry IT majors and looking to form more
partnerships, from which a commercial relationship could result in a
significant increase in sales revenues.
Results
Revenue for the year was £9.2m (2017: £8.3m), which represents
an 11% increase on the previous year. This revenue generation has
predominantly come from existing customers in Intercede’s core
markets of government, defence contractors and large, highly secure
corporate enterprises. Against a backdrop of continued investment in
technology, the Group made a loss for the year of £3.8m in the year
ended 31 March 2018 (2017: £3.9m).
In the second half of the year, a cost-cutting review removed significant
costs from the business without impacting our operational capability.
The Group has started the new financial year with an operating cost
run rate that is more than 20% lower (approximately £3m per annum)
than at this point last year.
Board Changes
The founder of Intercede, Richard Parris, ceased his roles as Chairman
& Chief Executive and became a Non-Executive Director of the
Company on 28 March 2018. I would like to thank Richard for his many
years of service to Intercede. His vision and hard work have helped
make the Company what it is today.
Jayne Murphy ceased her role as Operations Director on 20 April 2018.
I thank Jayne for her professionalism and hard work during her many
years of service to Intercede.
I was appointed as Non-Executive Chairman on 28 March 2018 and
Klaas van der Leest was appointed as Chief Executive on 10 April 2018.
4
` Annual Report & Accounts 2018 I have been on the Intercede Board since 1 June 2017 as the Company’s
Senior Independent Non-Executive Director. Prior to this I was Chairperson of
Vodafone Americas, a role held since 2013 and in which I led the development
of applications for the Internet of Things (“IoT”). I joined Vodafone Americas
as President of its Global Enterprise division where I built a US-wide mobile
business focused exclusively on Enterprises. I have also held senior roles at
BT Americas including Chief Operating Officer and President. On leaving BT in
2008, I was President of BT Global Financial Services and was responsible for
BT’s relationships with the top 40 global investment banks.
Klaas is an experienced executive with extensive sales, marketing, business
development and general management experience in IT and IT services. He has
significant international knowledge and experience as a result of various roles
with remits across EMEA, Asia-Pac and North America. Klaas has worked for a
number of large and small, quoted and privately owned organizations in market
leading and turnaround situations including CA Technologies, Intelecom UK,
Amulet Hotkey, Global Crossing, Attenda and Logica. He has proven expertise
in the development and execution of national and international sales growth,
‘go to market’ initiatives and customer focused expansion strategies.
Outlook
Cyber-threats, whether driven by individuals, organizations or nation states are
increasing in sophistication and the economic and reputational cost is growing
exponentially. Intercede’s MyID continues to enable our customers to eliminate
reliance on the use of potentially insecure passwords for secure authentication.
In doing so, they become increasingly resistant to social engineering and other
cyber-attacks based on compromising employee (or end customer) login
details.
The investment in new formats and components of MyID puts Intercede in
a strong position to provide the market with reliable Digital Trust. Intercede
experienced a strong end to the financial year which included the receipt of a
large US Federal Government license order on 28 March 2018. License orders
relating to this deployment have historically been received every 12 months
or so and therefore the revenue for the years ending 31 March 2019 and 2020
is particularly sensitive to the timing of future orders. Following reviews, the
cost base has been brought back in line with future revenue forecasts and the
Board are confident that Intercede will grow and return to profit within the next
two years.
Chuck Pol
Chairman
7 June 2018
5
Annual Report & Accounts 2018 Strategic Report
For the year ended 31 March 2018
Introduction
Intercede is a cybersecurity 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 it can now be
delivered via the Cloud, mobile and web applications 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 recognised 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.
6
` Annual Report & Accounts 2018 Operational Review
It has been a year of major change. As well as the Board and senior management changes already highlighted in
the Chairman’s Statement, actions have been taken to reduce the cost base and there is a renewed focus on the
MyID platform at the core of Intercede’s strategy.
Customers and partners recognize Intercede’s leading expertise in cryptographic key management, which form
market leading solutions that cannot be readily duplicated by the industry majors themselves. To widen the
market into which Intercede can sell its products MyID can be deployed in various formats; namely on-premise,
cloud-based and via web and mobile applications. One of the cornerstones of the Group’s strategy is to utilize
the various formats and components of our MyID technology to provide a solution tailored to the user; be they a
government, an employee or the enterprise’s end customer.
An exciting example of this in action is the recent sale of a MyID solution to a Middle Eastern country to
issue mobile government identities to its citizens. This solution incorporates Intercede’s mobile application
authentication technology to allow citizens to easily and securely generate a digital identity on their smart phone
via a government app. Using Intercede’s MyID software, the digital identity can then be used for accessing a
mobile eco-system of government services, healthcare, banking and e-commerce. This solution catapults them to
being a world-leading nation for the mobile-first delivery of digital services.
There is also demand for Intercede’s mobile authentication technology from existing US Federal agency customers.
Intercede continues to work with a range of Mobile Device Managers (MDMs), including AirWatch, MobileIron, Citrix
and Blackberry to extend the PIV program to issue derived credentials to a federal user’s smartphone, tablet or
laptop. Intercede’s MyID was the first derived PIV Credential solution to receive an Authority to Operate (ATO) for a
US Federal agency. It is pleasing to note that the pipeline for the next financial year contains a number of derived
proof of concept opportunities for various US Federal agencies.
There is also demand for Intercede’s mobile authentication technology from existing US Federal agency
customers. Intercede continues to work with a range of Mobile Device Managers (MDMs), including Airwatch,
MobileIron, Citrix and Blackberry to extend the PIV program to issue derived credentials to a federal user’s
smartphone, tablet or laptop. Intercede’s MyID was the first derived PIV Credential solution to receive an
Authority to Operate (ATO) for a federal agency. It is pleasing to note that the pipeline for the next financial
year contains a number of derived proof of concept opportunities for various US Federal departments.
Markets and Products
Intercede’s solutions are deployed in many market sectors for a variety of customers from governments to
defence contractors and large enterprises. MyID is particularly well known within US Federal agencies as Intercede
were one of the first to issue and manage FIPS-201 compliant PIV credentials to cards and derived PIV credentials
to mobile devices.
Markets and Products
Intercede’s solutions are deployed in many market sectors for a variety of customers from governments to
defence contractors and large enterprises. MyID is particularly well known within US Federal departments as
Intercede were one of the first to issue and manage FIPS-201 compliant PIV credentials to cards and derived
PIV credentials to mobile devices.
Intercede works with some of the largest organisations in the world; both as customers or as partners.
Intercede works with some of the largest organizations in the world; both as customers or as partners.
Customers and partners value MyID because it is highly configurable and feature-rich and interfaces with a
broad range of third party technologies that make up a PKI infrastructure. Intercede’s product strategy continues
to be working with partners where possible to sell MyID to an end user as part of an end-to-end PKI solution.
The Group sells its products through a global network of authorised partners. They vary in size from large
There is also demand for Intercede’s mobile authentication technology from existing US Federal agency
customers. Intercede continues to work with a range of Mobile Device Managers (MDMs), including Airwatch,
international consultancies and cybersecurity companies to local system integrators and value added resellers.
MobileIron, Citrix and Blackberry to extend the PIV program to issue derived credentials to a federal user’s
smartphone, tablet or laptop. Intercede’s MyID was the first derived PIV Credential solution to receive an
It is important to make MyID customisable so it can be easily integrated into a partner’s solution but this can be
Authority to Operate (ATO) for a federal agency. It is pleasing to note that the pipeline for the next financial
year contains a number of derived proof of concept opportunities for various US Federal departments.
achieved by giving the partner the toolkit to do it themselves, rather than Intercede continually changing the core
MyID product to address each individual solution. This modular approach means Intercede only produces core
Markets and Products
formats of MyID (on-premise, Cloud, mobile etc), which become modules around which a partner can customise
Intercede’s solutions are deployed in many market sectors for a variety of customers from governments to
defence contractors and large enterprises. MyID is particularly well known within US Federal departments as
their solution using either a simple API (Application Programming Interface) or an SDK (Software Development Kit).
Intercede were one of the first to issue and manage FIPS-201 compliant PIV credentials to cards and derived
PIV credentials to mobile devices.
Intercede works with some of the largest organisations in the world; both as customers or as partners.
7
Annual Report & Accounts 2018
Financial Graphs
The US represents Intercede’s largest
market with sales to North America
making up 71% of total sales during
FY 2018.
The last five years has seen progressive
growth in recurring Support &
Maintenance (S&M) revenues due
to a cumulative increase in customers.
Software license revenues from the
traditional MyID business tend to
be lumpy. Professional services is
slightly down on last year partly due
to large license orders received in
the second half of the year that are
expected to be implemented in the
next financial year. Intercede is also
encouraging new customers to stick
to core product configurations,
thereby reducing the need to
implement costly customisations.
The substantial increase in operating
expenses (OpEx) over the last five
years primarily reflects 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 2018 year end cash does
not include the impact of significant
orders received in the last two months of
the year with gross cash balances as at
30 April 2018 increasing to £4.7m.
m
£
m
£
m
£
12
10
8
6
4
2
0
12
10
8
6
4
2
0
14
12
10
8
6
4
2
0
-2
-4
Regional Sales
2014
2015
2016
2017
2018
North America
ROW
Revenue Breakdown
2014
2015
2016
2017
2018
S&M
Professional Services
Software Licenses
Other
Revenue, OpEx, Profit/Loss & Cash
2014
2015
2016
2017
2018
Revenue
OpEx
Profit/Loss
Year End Cash
8
` Annual Report & Accounts 2018
l
s
e
e
y
o
p
m
E
f
o
r
e
b
m
u
N
140
120
100
80
60
40
20
0
m
£
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Employees
2014
2015
2016
2017
2018
Average Employees
Year End Employees
Intercede employ one of the largest
teams with cryptographic key
management experience and
expertise anywhere in the world.
Research & Development (R&D)
2014
2015
2016
2017
2018
R&D Expenditure
R&D Tax Credit (in arrears)
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.
9
Annual Report & Accounts 2018
Trading Results
Revenues for the year ended 31 March 2018 totalled £9,204,000, an 11% increase on the
previous year’s revenues of £8,286,000. Although orders from US Federal agencies have
been slower than expected, it is pleasing to see growth in newer markets and revenues
generated in the second half of the year represent a high for the Group.
As previously reported, the first half of the year saw significant contract wins including an
award from a major US Aerospace & Defence contractor, to manage digital identities for
130,000 devices, and a sale to a large UK defence organization. In additional there were
initial MyID license sales to the largest US military shipbuilding company and to one of the
world’s largest diversified natural resource companies. Although both of these initial sales
were small, they will help to drive future revenue growth as successful implementation
should lead to follow-on orders for tens of thousands of licenses.
The second half of the year saw improvement, with significant revenue generated
from existing customers as well as new customers. This includes the aforementioned
sale to allow a Middle Eastern country to issue mobile national identities to its citizens.
For Intercede, this is a strategically important project that exploits many of the new
technologies Intercede has developed over the past few years. This Middle Eastern country
is a top tier reference customer for other nations to follow and, through Intercede’s
network of partners, the target is to replicate this solution in multiple geographic
territories. In addition to this win, Intercede secured a license order with another major
healthcare provider, converted a pilot deployment with a large European bank into a full
deployment and secured an initial proof of concept sale in respect of the 2020 US Census.
All of these wins are expected to generate incremental revenue in the next financial year.
In the second half of the year, a cost-cutting review removed significant costs from the
business without impacting our operational capability. This year contains exceptional
one-off costs connected with the savings, such as Settlement Agreement costs, which
are primarily responsible for a 6% increase in operating expenses from £12,891,000 to
£13,669,000. The Group has started the new financial year with an operating cost run rate
that is more than 20% lower (approximately £3m per annum) than at this point last year.
The increase in revenues is largely offset by the increase in operating expenses, leading to
a £4,506,000 operating loss (2017: £4,721,000 operating loss).
Staff costs continue to represent the main area of expense, representing 76% of total
operating expenses (2017: 78%). The average number of employees and contractors was
119, down from the previous year’s average of 125. However, as a result of the second half
cost reductions referred to above, the number of employees and contractors as at 31
March 2018 had been reduced to 98 (2017: 121).
Expenditure on research and development (R&D) activities totaled £3,736,000 (2017:
£3,994,000), approximately 57% of which related to the areas of strategic investment
outlined above (2017: 62%). 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 2018 (2017: £nil).
The net finance cost for the year was £442,000 (2017: £57,000). This reflects a full year
of interest payable on the convertible loan notes that were issued in January 2017 and a
partial year of interest payable on the additional £510,000 convertible loan notes that were
issued, under the same instrument, on 25 August 2017.
A £1,118,000 taxation credit in the period (2017: £888,000 taxation credit) primarily reflects
cash received following the 2017 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 £3,830,000 (2017: loss of £3,890,000) resulted in a basic and fully
diluted loss per share of 7.6p (2017: loss per share 8.0p).
10
` Annual Report & Accounts 2018 Financial Position
The Group’s cash position at 31 March 2018 was £2,272,000 (2017: £6,891,000), but it is worth noting that
the year end cash position does not include the impact of significant orders received in the last two months
of the year. As at 30 April 2018, gross cash balances totalled £4.7m.
The cost-cutting review has enabled the Group to exit one of its UK properties, which has been put up for
sale and is expected to realise a net receipt of £0.4m during the new financial year.
The Group has no plans to commence the payment of dividends and will do so when the Board considers
this to be appropriate.
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)
Sales growth
Export sales
North American sales
New deployments with revenues over £20,000
2014
45%
91%
61%
10
2015
(10%)
85%
51%
6
2016
25%
96%
79%
6
2017
(25%)
95%
77%
8
2018
11%
94%
71%
10
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Group are as follows:
l The Group operates in a complex and competitive technological environment so the business will be
negatively affected if the Group does not enhance its product offerings and/or respond effectively to
technological change. This risk is mitigated by ongoing investment in research and development.
l The Group operates in multiple markets, both geographically and by sector, so there is a risk that
territory and global macro-economic conditions may result in one or more of these markets being
adversely affected and the revenues of the business impacted accordingly. This risk is mitigated to an
extent, both through the long term nature of customer relationships and the diversification that results
from operating in multiple markets.
l Technology companies are exposed to intellectual property infringement and piracy. The Group
rigorously defends its intellectual property in the primary jurisdictions within which it operates.
l The Group’s performance is largely dependent on the experience and expertise of its employees.
The loss or lack of key personnel is likely to adversely impact the Group’s results. To mitigate this
risk, the Group aims to put in place appropriate management structures and to provide competitive
remuneration packages to retain and attract key personnel.
By order of the Board
Klaas van der Leest
Chief Executive
7 June 2018
Andrew Walker
Finance Director
7 June 2018
11
Annual Report & Accounts 2018 Board of Directors
Charles (“Chuck”) Pol – Non-Executive Chairman
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.
He was appointed a Non-Executive Director of Intercede on 1 June 2017 and has
taken on the role of Non-Executive Chairman from 28 March 2018.
Klaas van der Leest – Chief Executive
Klaas van der Leest is an experienced executive with extensive sales, marketing,
business development and general management experience in IT and IT services.
He has significant international knowledge and experience as a result of various
roles with remits across EMEA, Asia-Pac and North America.
Klaas has worked for a number of large and small, quoted and privately
owned organisations in market leading and turnaround situations including
CA Technologies, Intelecom UK, Amulet Hotkey, Global Crossing, Attenda and
Logica. He has proven expertise in the development and execution of national
and international sales growth, ‘go to market’ initiatives and customer focused
expansion strategies.
Klaas has a master’s degree from the Cranfield School of Management. He also is a
Chartered Marketer as well as a Fellow of the Chartered Institute of Marketing. He
was appointed Chief Executive of Intercede on 10 April 2018.
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.
12
` Annual Report & Accounts 2018 Royston Hoggarth – Non-Executive Director
Royston Hoggarth is Chair of Xchanging Insurance Services (XIS) Limited, Chair &
Chief Executive of iPSL Limited, an advisor to the NEC Corporation and the Board of
Northgate Public Services Limited and Chair of Cirrus Response Limited. He is also
Chair of England Hockey. He has held a range of Executive and Board Director roles
with Private Equity backed and Publicly listed companies including IBM, Logica PLC,
Cable & Wireless PLC, BT PLC, Hays PLC, Bluefin Solutions Limited and Northgate PS
Limited. He was also a Venture Partner at Wellington Partners.
He was appointed a Non-Executive Director of Intercede on 5 August 2002.
Richard Parris – Non-Executive Director
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 led the Group
through all stages of its growth, including an IPO on the London Alternative
Investment Market (AIM) through to 28 March 2018.
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.
Jacques Tredoux – Non-Executive Director
Jacques Tredoux is the Chief Executive of Tredoux Capital Limited, a company
authorized by the Financial Services Authority to provide corporate finance
advisory services. Prior to establishing Tredoux Capital Limited, he was the Chief
Executive Officer of the Credo Group (UK) Limited, a group of companies in London
that provides wealth management services. Members of the Credo Group 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.
13
Annual Report & Accounts 2018 Directors’ Report - For the year ended 31 March 2018
The Directors present their Annual Report and the audited
financial statements for the year ended 31 March 2018.
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.
In accordance with the Company’s Articles of Association, Royston
Hoggarth, Richard Parris, Jacques Tredoux and Klaas van der Leest
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:
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 2018 are
set out on pages 22 to 43. The Group’s loss for the year was
£3,830,000 (2017: £3,890,000 loss for the year). The Directors do
not recommend the payment of a dividend (2017: £nil).
Management of Financial Risk
The Group’s policy for the management of financial risk is set out
within note 15.
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 2018 was £3,736,000 (2017: £3,994,000)
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.
Ben Drury resigned as a non-executive director on 13 September
2017 and Richard Parris ceased his roles as Chairman & Chief
Executive and became a non-executive director of the Company
on 28 March 2018. Charles (“Chuck”) Pol, the Company’s Senior
Independent Director was appointed as non-executive Chairman
on 28 March 2018.
R Hoggarth
RA Parris
C Pol
J Tredoux
AM Walker
Ordinary Shares
31 March 2018
Ordinary Shares
31 March 2017
168,721
5,713,552
70,537
11,813,888
1,531,270
168,721
5,681,012
—
11,813,888
1,515,000
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 2018, 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 13). The interests
of the Directors, and their immediate families, that were included in
this issue are £50,000, £1,000,000 and £50,000 for Richard Parris,
Jacques Tredoux and Andrew Walker respectively. None of the
Directors participated in a further issue of CLNs totalling £510,000
on 25 August 2017.
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 18.
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 2018, 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
Anjar International Limited
Plastic Technologies Limited
Liontrust Asset Management
Link Market Services Trustees Nominees
Herald Investment Management
Ordinary Shares
%
Number
10,350,672
5,713,552
3,241,631
3,147,436
2,353,275
2,238,927
2,050,266
1,531,270
20.5
11.3
6.4
6.2
4.7
4.4
4.1
3.0
Klaas van der Leest was appointed as Chief Executive on 10 April 2018.
AM Walker
14
` Annual Report & Accounts 2018 The Link Market Services 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 80,086 and 40,043 shares
respectively that are also included within the Link Market Services
Trustees Nominees Limited shareholding.
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 company’s performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
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 (United Kingdom 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 company, together with a description of the principal risks
and uncertainties that it faces.
In the case of each director in office at the date the Directors’
Report is approved:
l
l
so far as the director is aware, there is no relevant audit
information of which the group and company’s auditors are
unaware; and
they have taken all the steps that they ought to have taken
as a director in order to make themselves aware of any
relevant audit information and to establish that the group and
company’s auditors are aware of that information.
Annual General Meeting
The eighteenth Annual General Meeting of the Company will be
held on Wednesday 19 September 2018. The Notice of the Annual
General Meeting can be found on pages 44 and 45.
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 2018
Purchase of own Shares to be held in Treasury
As at 31 March 2018, the Company had 41,645 ordinary shares
held in treasury (2017: 294,000). The movement during the year
reflects the purchase of 252,355 ordinary shares out of treasury
by a director and a senior manager in July 2017. There were no
purchases or transfers of shares to or from treasury during the
previous year.
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 (United Kingdom 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 company and of
the profit or loss of the group and company for that period. In
preparing the financial statements, the Directors are required to:
l
l
select suitable accounting policies and then apply them
consistently;
state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements
and United Kingdom 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
company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the group and
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the group and 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 company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors of the ultimate parent company are responsible for
the maintenance and integrity of the ultimate parent company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
15
Annual Report & Accounts 2018 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 has historically endeavoured to comply with the NAPF
Corporate Governance Guidelines for smaller companies and will
be taking the necessary steps to comply with AIM Notice 50 by 28
September 2018. 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, one of whom is considered to be independent. All of
the directors have extensive business experience and submit
themselves for re-election at least every three years.
Richard Parris, Intercede’s founder, ceased his roles as Chairman
& Chief Executive and became a non-executive director of the
Company on 28 March 2018. Chuck Pol, the previous Senior
Independent Director, was appointed as Non-Executive Chairman
on 28 March 2018 and Klaas van der Leest was appointed as
Chief Executive on 10 April 2018.
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 10 April 2018
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. Chuck Pol is also a member of the
Audit Committee.
Remuneration Committee – Chuck Pol is the Chairman of
the Remuneration Committee which also comprises Royston
Hoggarth.
Nominations Committee – Chuck Pol is the Chairman of the
Nominations Committee which also comprises Royston Hoggarth,
Jacques Tredoux, Klaas van der Leest and Andrew Walker.
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
and debtor 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 reduced level of ongoing 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
the 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 2018 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 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 2018.
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.
Further options were granted to a senior manager on 29 September 2017. These options will vest and become exercisable on 29
September 2020 subject to the achievement of performance targets based upon 50% growth on FY2017 revenues in FY2018, a
doubling of FY2017 revenues in FY2019 and a tripling of FY2017 revenues in FY2020.
During the year, two senior managers left the Company resulting in the forfeiture of 40,000 and 74,025 options that had been
granted on 7 November 2014 and 29 June 2015 respectively. RA Parris ceased his roles as Chairman & Chief Executive and became
a non-executive director of the Company on 28 March 2018. This resulted in the forfeiture of 567,029 and 200,000 options that had
been granted on 16 August 2011 and 7 November 2014 respectively.
The following options were outstanding as at 31 March 2018:
Plan
EMI
EMI
Unapproved
EMI
EMI
EMI
Date of Grant
No. of Shares
Exercise Price
26 July 2011
16 August 2011
16 August 2011
20 December 2011
7 November 2014
29 September 2017
152,500
421,048
255,582
50,000
260,000
181,818
1.0p
1.0p
1.0p
1.0p
127.5p
57.5p
Dates Exercisable
26 July 2014 to 25 July 2021
16 August 2014 to 15 August 2021
16 August 2014 to 15 August 2021
20 December 2014 to 19 December 2021
7 November 2017 to 6 November 2024
29 September 2020 to 28 September 2027
The interests of the Directors and their immediate families that are included within the options outlined above are as follows:
RA Parris – 302,536 options were granted on 16 August 2011 (92,012 of which are unapproved) and 50,000 options were granted on
7 November 2014 to JK Murphy, the wife of RA Parris. These options were forfeited when JK Murphy ceased her role as
Operations Director on 19 April 2018.
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 24 October 2017, a free unit award equivalent to 70,537 ordinary shares of 1 pence each in the capital of the Company (“Free
Units”) was granted to C Pol, a non-executive Director of Intercede Group plc. This award will vest and become exercisable on
24 October 2020 subject to the achievement of performance targets based upon 50% growth on FY2017 revenues in FY2018,
a doubling of FY2017 revenues in FY2019 and a tripling of FY2017 revenues in FY2020. The award was made under the existing
Intercede MyID Inc. Unit Incentive Plan, further details of which are provided in note 17.
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 17.
Share Price
As at 31 March 2018, the market value of the shares of the Company was 24.0p (mid-market price). The share price fluctuated
between a high of 64.5p and a low of 21.5p during the year ended 31 March 2018.
17
Annual Report & Accounts 2018 Independent Auditors’ Report
to the Members of Intercede Group plc
Report on the audit of the financial statements
Opinion
In our opinion:
l
l
l
l
Intercede Group plc’s group financial statements and company financial statements (the “financial
statements”) give a true and fair view of the state of the group’s and of the company’s affairs as at 31
March 2018 and of the group’s loss and cash flows for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by
the European Union;
the company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101
“Reduced Disclosure Framework”, and applicable law); and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the
“Annual Report”), which comprise: the consolidated and company balance sheets as at 31 March 2018;
the consolidated statement of comprehensive income; the consolidated cash flow statement; the
consolidated and company statements of changes in equity for the year then ended; and the notes to
the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities
for the audit of the financial statements section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable
to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
Our audit approach
Overview
l Overall group materiality: £124,000 (2017: £119,642), based on 2.5% of loss before tax.
l Overall company materiality: £98,590 (2017: £87,380), based on 1% of total assets.
l We conducted our audit of the complete financial information of two entities; Intercede
Limited and Intercede Group plc (Company) due to their size and risk characteristics.
l Going Concern assessment (Group and parent).
18
` Annual Report & Accounts 2018 The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the directors that represented a risk of material
misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most
significance in the audit of the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Going Concern assessment
Refer to the notes to the financial statements
on page 26 of the Group financial statements
and page 40 of the Company financial
statements for the going concern assessment.
The preparation of the financial statements on
the going concern basis requires the directors
to consider future forecasts of cash flows, to
determine whether the Group and Company
will be able to meet their liabilities as and
when they fall due for a period of at least 12
months from the date on which the financial
statements are signed.
As part of our audit, we have reviewed the Board
approved Budget for the year ended 31 March 2019
and forecasts for the year ended 31 March 2020 and
in particular;
l we have reviewed the historical track record of the
business in terms of generating revenue and the
pipeline of orders as at 31 March 2018;
l we have reviewed the impact of the recent cost
reduction exercise, particularly noting the operating
costs incurred by the business in the period since
this exercise was undertaken;
l we have reviewed the movements in cash and cash
equivalents in the period since 31 March 2018;
l we have reviewed the assumptions in respect of
cash receipts from the disposal of assets held for
sale and tax credits in relation to research and
development expenditure;
l we have also considered the key sensitivities within
the Budget and forecasts, the further mitigating
actions available to management and the expected
cash headroom over the next 12 months.
Based on the work undertaken, we believe that
the directors have a reasonable basis on which to
conclude that it is appropriate to prepare the accounts
on the going concern basis.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an
opinion on the financial statements as a whole, taking into account the structure of the group and the
company, the accounting processes and controls, and the industry in which they operate.
The Group financial statements are a consolidation of a number of entities. In establishing our overall
approach, we identified two entities which in our view, require an audit of their complete financial
information both due to their size and risk characteristics: Intercede Limited and Intercede Group plc
(the Company).
The audit work performed on these two entities, together with additional procedures performed on, the
consolidation of Intercede Group plc, gave us the evidence we needed for our opinion on the Group
financial statements as a whole.
19
Annual Report & Accounts 2018 Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative
thresholds for materiality. These, together with qualitative considerations, helped us to determine the
scope of our audit and the nature, timing and extent of our audit procedures on the individual financial
statement line items and disclosures and in evaluating the effect of misstatements, both individually and
in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole
as follows:
Group financial statements
Company financial statements
Overall materiality
How we determined it 2.5% of loss before tax.
£124,000 (2017: £119,642).
£98,590 (2017: £87,380).
1% of total assets.
Rationale for
benchmark applied
Based on the benchmarks used in
the Annual Report and Accounts,
loss before tax is the primary
measure used by the shareholders
in assessing the performance of the
group, and is a generally accepted
auditing benchmark.
Based on the benchmarks used in
the Annual Report and Accounts,
total assets is the primary measure
used by the shareholders in
assessing the performance of
the Company, and is a generally
accepted auditing benchmark.
Certain components were audited to a local statutory audit materiality that was also less than our
overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our
audit above £6,200 (Group audit) (2017: £6,973) and £4,930 (Company audit) (2017: £4,269) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to
report to you when:
l
l
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that
may cast significant doubt about the group’s and company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee
as to the group’s and company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial
statements and our auditors’ report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, accordingly, we do
not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If
we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact. We have nothing
to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures
required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs
(UK) require us also to report certain opinions and matters as described below.
20
` Annual Report & Accounts 2018
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the
Strategic Report and Directors’ Report for the year ended 31 March 2018 is consistent with the financial
statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained
in the course of the audit, we did not identify any material misstatements in the Strategic Report and
Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of directors’ responsibilities in respect of the financial
statements set out on page 15, the directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and
fair view. The directors are also responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the
company’s ability to continue as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate
the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’
report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a
body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
l we have not received all the information and explanations we require for our audit; or
l adequate accounting records have not been kept by the company, or returns adequate for our audit
have not been received from branches not visited by us; or
l certain disclosures of directors’ remuneration specified by law are not made; or
l
the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Mark Smith (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Birmingham
7 June 2018
21
Annual Report & Accounts 2018 Consolidated Statement of Comprehensive Income
For the year ended 31 March 2018
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
2018
£’000
9,204
(41)
9,163
(13,669)
(4,506)
10
(452)
(4,948)
1,118
(3,830)
(3,830)
(7.6)p
(7.6)p
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
22
` Annual Report & Accounts 2018 Consolidated Balance Sheet
At 31 March 2018
Non-current assets
Property, plant and equipment
Current assets
Assets held for sale
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Share capital
Share premium
Equity reserve
Merger reserve
Accumulated deficit
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
14
2018
£’000
195
373
4,709
2,272
7,354
7,549
505
673
66
1,508
(5,719)
(2,967)
4,670
324
4,994
1,857
3,665
5,522
10,516
7,549
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
The financial statements on pages 22 to 37 were authorised for issue by the Board of Directors on 7 June 2018 and were signed on
its behalf by:
K van der Leest
AM Walker
Director
Director
The accompanying notes are an integral part of these financial statements.
23
Annual Report & Accounts 2018
Consolidated Statement of Changes in Equity
For the year ended 31 March 2018
Share
premium
£’000
Equity
reserve
£’000
As at 1 April 2016
Purchase of own shares
Employee share option plan charge (note 17)
Employee share incentive plan charge (note 17)
Issue of new shares
Equity component of convertible loan notes (note 13)
Loss for the year and total comprehensive expense
As at 31 March 2017
Purchase of own shares
Employee share option plan credit (note 17)
Employee share incentive plan charge (note 17)
Issue of new shares (note 12)
Re-issuance of treasury shares (note 12)
Equity component of convertible loan notes (note 13)
Loss for the year and total comprehensive expense
Share
capital
£’000
487
—
—
—
12
—
—
499
—
—
—
6
—
—
—
232
—
—
—
441
—
—
673
—
—
—
—
—
—
—
As at 31 March 2018
505
673
All amounts included in the table above are attributable to owners of the parent company.
Merger
reserve
£’000
1,508
—
—
—
—
—
—
1,508
—
—
—
—
—
—
—
1,508
Accumulated
deficit
£’000
1,131
(143)
60
488
—
—
(3,890)
(2,354)
(147)
(19)
493
—
138
—
Total
equity
£’000
3,358
(143)
60
488
453
60
(3,890)
386
(147)
(19)
493
6
138
6
(3,830)
(5,719)
(3,830)
(2,967)
—
—
—
—
—
60
—
60
—
—
—
—
—
6
—
66
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.
Accumulated deficit: All other net losses not recognised elsewhere.
The accompanying notes are an integral part of these financial statements.
24
` Annual Report & Accounts 2018 2018
£’000
2017
£’000
(4,506)
(4,721)
156
—
(19)
493
2
(8)
(3,340)
434
1,023
(5,765)
13
(344)
1,118
(4,978)
(29)
(29)
(141)
—
138
510
(27)
480
(4,527)
6,891
(92)
2,272
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
Consolidated Cash Flow Statement
For the year ended 31 March 2018
Cash flows from operating activities
Operating loss
Depreciation
Loss on disposal of property, plant and equipment
Employee share option plan (credit)/charge
Employee share incentive plan charge
Employee unit incentive plan charge/(credit)
Employee unit incentive plan payment
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in deferred revenue
Cash used in operations
Finance income
Finance costs on convertible loan notes
Taxation
Net cash used in 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 re-issuance of treasury shares
Proceeds from issue of convertible loan notes
Convertible loan note issue costs
Cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Exchange (losses)/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.
25
Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements
For the year ended 31 March 2018
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.
Going concern assessment
The Group has reported a loss for the year ended 31 March
2018 of £3,830,000 and as a consequence, it has net liabilities
of £2,967,000 as at 31 March 2018. However it should be
noted that the Group’s net liabilities include £4,670,000 in
respect of Convertible Loan Notes which are not due for
repayment until 29 December 2021.
The Group’s Cash Flow Statement for the year ended
31 March 2018 discloses a decrease in cash and cash
equivalents of £4,527,000 and the Balance Sheet discloses
cash and cash equivalents of £2,272,000 as at 31 March 2018.
Following a cost reduction exercise, the Group has started the
new financial year ended 31 March 2019 with an operating
cost run rate that is more than 20% lower (approximately
£3m per annum) than at the equivalent point in the year
ended 31 March 2018. In addition, it is noted that following
receipts from major customers, gross cash balances had
increased to £4.7m as at 30 April 2018.
The Directors have reviewed the approved Budget for the
year ended 31 March 2019 and forecasts for the year ended
31 March 2020 and have concluded that the Group is
expected to generate sufficient cash to enable it to meet its
liabilities, as and when they fall due, for a period of at least 12
months from the date of signing these financial statements.
Accordingly they believe it is appropriate to prepare the
financial statements 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 2018
(2017: £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 a claim is submitted and cash is received.
l Deferred tax asset – a deferred tax asset has not been
recognised against the backdrop of substantial strategic
investment leading to reported losses 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 17) 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 38 to 43.
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.
26
` Annual Report & Accounts 2018 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 revenue, operating losses and net liabilities
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.
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
Assets held for sale
Assets are categorised as held for sale when the value of the
asset will be recovered through a sale transaction rather than
continuing use. The condition is met when the sale is highly
probable, the asset is available for immediate sale in its present
condition and is being actively marketed. Assets held for sale are
valued at the lower of carrying value and fair value less costs to
sell and are no longer depreciated.
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 short-term
deposits.
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 13.
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
27
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2018
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 17.
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 IFRS 12, IAS 7, IAS 12
and IFRS for SMEs are effective for the first time for periods
beginning on 1 April 2017 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. The Group intends to adopt these standards
when they become effective, rather than adopt them early.
Information on these new standards that is expected to be
relevant to the Group’s financial statements is provided below.
There are no other new standards, amendments to existing
standards or interpretations that would be expected to have a
material impact on the Group.
l IFRS 9 Financial Instruments
l
l
FRS 9 addresses the classification, measurement and
impairment of financial instruments, along with hedge
accounting, and is effective for accounting periods
commencing on or after 1 January 2018. It is unlikely
that there will be any material impact on the financial
statements. The classification and measurement of
financial liabilities in accordance with IFRS 9 Financial
Instruments remains largely unchanged from IAS 39
Financial Instruments: Recognition and Measurement.
Hence short-term receivables and payables with no
stated interest rate would continue to be measured at
their invoiced amount, because the effect of discounting
is likely to be immaterial. The standard also applies a
new prospective impairment model to trade receivables
in which expected credit losses are recognised based on
historical observed default rates. The Group’s historical
observed default rates are extremely low.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 sets out to clarify the principles of revenue
recognition and also requires enhanced disclosures. The
standard is effective for accounting periods beginning
on or after 1 January 2018. The Group is continuing
to assess the full impact of the standard but does not
believe that there will be any material impact on the way
revenue is recognised. The Group already recognises
the separate performance obligations in any contract,
as stated in the Revenue Recognition policy, and each
obligation has a clear transaction price. Applying the
criteria of the standard is not expected to change the
revenue recognition method for each obligation with
the exception of Software as a Service (SAAS) sales. The
license element of these sales provides customers with
a right to use the intellectual property of the license at
a point in time. Therefore the revenue associated with
the license element should be recognised at a point in
time as opposed to the period over which the service is
provided. This change will only impact new SAAS sales in
the first year (typically the enforceable contract term) and
is likely to result in the acceleration of recognition of the
revenue associated with the software element. The total
revenue from SAAS sales in FY 2018 was less than 5%.
IFRS 16 Leases
IFRS 16 sets out the principles for recognition,
measurement, presentation and disclosure of leases
and will replace IAS 17 Leases. Adoption of IFRS 16 will
result in the Group recognising right of use assets and
lease liabilities for all contracts that are, or contain, a
lease. Instead of recognising an operating expense for
its operating lease payments, the Group will instead
recognise interest on its lease liabilities and depreciation
on its right-of-use assets. The standard is effective for
accounting periods beginning on or after 1 January
2019. The Group is in the process of reviewing IFRS 16
and believes that as a result of adopting this standard,
an asset for operating leases will be shown on the
balance sheet based on the minimum future lease
payments as disclosed in note 16. While there is no net
impact on the statement of comprehensive income over
the life of the lease, there is likely to be an immaterial
impact from applying the effective interest method,
resulting in a decreasing total lease expense throughout
the lease term.
28
` Annual Report & Accounts 2018
2 Revenue
All of the Group’s revenue, operating losses and net liabilities 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
2018
£’000
533
963
6,506
1,202
9,204
2017
£’000
403
960
6,367
556
8,286
Revenue of £2,852,000 (2017: £2,711,000) and £1,006,000 (2017: less than 10%) is derived from two end customers that individually
represents over 10% of the Group’s revenues.
3 Operating loss
Operating loss is stated after charging/(crediting):
Staff costs (note 4)
Settlement Agreement costs (note 4)
Compensation for loss of office paid to Executive Directors and key management (note 4)
Foreign exchange loss/(gain)
Depreciation of property, plant and equipment (note 8)
Operating lease rentals
Cost of sales
Other expenses
2018
£’000
9,868
190
334
155
156
397
41
2,569
13,710
Included in the costs above is research and development expenditure totalling £3,736,000 (2017: £3,994,000).
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
2018
£’000
42
5
47
2017
£’000
10,049
—
—
(165)
194
390
116
2,423
13,007
2017
£’000
37
5
42
29
Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2018
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 (credit)/charge (note 17)
Employee share and unit incentive plan (note 17)
2018
Number
91
17
11
119
2018
£’000
8,669
927
320
(19)
495
10,392
2017
Number
97
17
11
125
2017
£’000
8,355
857
309
60
468
10,049
Pension contributions totalling £59,000 (2017: £44,000) are included within year end trade and other payables.
The figures above include Settlement Agreement costs totalling £190,000 and the remuneration of the Executive Directors and key
management, which includes compensation for loss of office totalling £334,000.
Directors’ remuneration
The aggregate remuneration of the Executive Directors and key management was as follows:
Emoluments
Compensation for loss of office
Company contributions to money purchase pension scheme
Directors’ emoluments
2018
£’000
488
334
49
871
2017
£’000
486
—
28
514
Salary
and fees
2018
£’000
Bonus
2018
£’000
Compensation
for loss of office
2018
£’000
Benefits
in kind
2018
£’000
Total
2018
£’000
Total
2017
£’000
Pension contributions
2017
£’000
2018
£’000
222
152
43
—
13
25
455
25
—
—
—
—
—
—
—
—
192
—
—
—
—
—
192
—
2
1
—
—
—
—
3
—
416
153
43
—
13
25
650
25
223
153
—
57
25
25
483
25
29
8
—
—
—
—
37
—
14
8
—
—
—
—
22
—
Executive Directors
RA Parris
AM Walker
Non-Executive Directors
C Pol
R Chandhok
B Drury
R Hoggarth
Fees paid to third parties
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.
30
` Annual Report & Accounts 2018 5
Finance income and costs
Finance income
Interest income on short-term bank deposits
Finance costs
Convertible loan notes
2018
£’000
10
2017
£’000
13
(452)
(70)
Finance costs represent interest payable totalling £383,000 (2017: £60,000) in respect of the convertible loan notes that were issued
during the year plus £69,000 (2017: £10,000) representing an effective interest rate adjustment (note 13).
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
2018
£’000
—
(30)
1,148
1,118
2017
£’000
—
(34)
922
888
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 19% (2017: 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 credit/(charge)
Employee share incentive plan charge
Employee unit incentive plan credit
Purchase of shares for employee share incentive plan
US corporation tax
Losses brought forward utilised
Losses carried forward
Tax credit for the year
2018
£’000
(4,948)
940
850
1,148
(23)
(8)
(2)
4
(94)
1
98
(16)
13
(1,793)
1,118
2017
£’000
(4,778)
956
784
922
(32)
(2)
1
(12)
(70)
11
74
(1)
—
(1,743)
888
The Group has unused tax losses of £13,854,000 (2017: £11,773,000) and unrecognised deferred tax assets of £2,355,000
(2017: £2,001,000) calculated at the UK corporation tax rate of 17% (2017: 17%).
31
Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2018
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
2018
£’000
(3,830)
Number
50,212,714
50,212,714
Pence
(7.6)p
(7.6)p
2017
£’000
(3,890)
Number
48,835,080
48,835,080
Pence
(8.0)p
(8.0)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 treasury shares
Effect of issue of ordinary share capital
Weighted average number of shares - basic
Add back effect of treasury 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
Cost
At 1 April 2016
Additions
Disposals
At 1 April 2017
Additions
Reclassification to assets held for sale (note 10)
Disposals
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
On disposals
At 1 April 2017
Charge for the year
Reclassification to assets held for sale (note 10)
On disposals
At 31 March 2018
Net book amount
At 31 March 2018
At 31 March 2017
2018
Number
49,903,143
(115,623)
425,194
50,212,714
N/A
N/A
N/A
2017
Number
48,735,005
(294,000)
394,075
48,835,080
N/A
N/A
N/A
50,212,714
48,835,080
Freehold land
and buildings
£’000
Leasehold
improvements
£’000
Fixtures and
fittings
£’000
Computer and
office equipment
£’000
124
29
(83)
70
—
—
—
70
32
23
(37)
18
16
—
—
34
36
52
422
—
—
422
—
(422)
—
—
33
9
—
42
7
(49)
—
—
—
380
32
123
29
(20)
132
2
—
(8)
126
68
18
(18)
68
18
—
(8)
78
48
64
943
15
(13)
945
27
—
(7)
965
615
144
(13)
746
115
—
(7)
854
111
199
Total
£’000
1,612
73
(116)
1,569
29
(422)
(15)
1,161
748
194
(68)
874
156
(49)
(15)
966
195
695
` Annual Report & Accounts 2018
Subsidiaries
9
The Company’s subsidiaries, all of which have been consolidated in the Group’s financial statements at 31 March 2018, 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 Assets held for sale
An office based in the UK is presented as an asset held for sale following the commitment of the Group, on 23 February 2018, to a
plan to sell the property. Efforts to sell the asset have commenced and a sale is anticipated within the next 12 months.
The asset has been reclassified from Property, plant and equipment into Current assets at its carrying value of £373,000. This is
estimated to be lower than its fair value less costs to sell, so no impairment loss is required.
11 Trade and other receivables
Trade receivables
Prepayments and accrued income
Other debtors
2018
£’000
4,589
120
—
4,709
2017
£’000
1,033
137
110
1,280
As outlined in note 15, 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 (2017: £nil). The level of
trade receivables over 60 days old which have been provided for is £nil (2017: £nil). The amount written off as irrecoverable during
the year was £nil (2017: £nil).
Included within trade receivables are receivables with a carrying amount of £390,000 (2017: £37,000) 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 £2,000 (2017: £15,000). The average age of the Group’s trade receivables is 41 days (2017: 33 days).
12 Share capital
Authorised
481,861,616 ordinary shares of 1p each (2017: 481,861,616)
Issued and fully paid
2018
£’000
4,819
2017
£’000
4,819
50,523,926 ordinary shares of 1p each (2017: 49,903,143)
505
499
The increase in issued and fully paid ordinary shares of 1p each represents the issue of 620,783 shares on 25 July 2017 to facilitate
the July 2017 Free Share award (note 17).
As at 31 March 2018, the Company had 41,645 ordinary shares held in treasury (2017: 294,000). During the year, the Company re-
issued 252,355 treasury shares to a director and a senior manager.
33
Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2018
13 Convertible loan notes
Non-current
8% Convertible loan notes (29 December 2021)
Borrowings are repayable as follows:
Between two and five years
The maturity of the debt and interest payments is as follows:
Due within one year
Due between one and two years
Due between two and five years
2018
£’000
4,670
2018
£’000
4,670
Debt
£’000
—
—
5,005
5,005
2018
Interest
£’000
400
400
799
1,599
Total
£’000
400
400
5,804
6,604
Debt
£’000
—
—
4,495
4,495
2017
Interest
£’000
331
360
1,077
1,768
2017
£’000
4,124
2017
£’000
4,124
Total
£’000
331
360
5,572
6,263
The table above shows the contractual, undiscounted cash flows due in future periods to settle the debt and interest payments. The
total amount of debt payable shown above differs from the total book value of debt of £4,670,000 (2017: £4,124,000) as the book
value of debt includes unamortised fees and is net of the value ascribed to the equity element of the convertible loan note.
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.
On 25 August 2017 the Company issued £510,000 convertible loan notes under the same convertible loan note instrument.
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 from date of issue
Liability component at 31 March
14 Trade and other payables
Trade payables
Taxation and social security
Accruals
2018
£’000
5,005
(348)
(66)
4,591
79
4,670
2018
£’000
397
166
1,294
1,857
2017
£’000
4,495
(321)
(60)
4,114
10
4,124
2017
£’000
451
175
764
1,390
Included within accruals is £10,000 (2017: £16,000) relating to the Employee Unit Incentive Plan (note 17).
34
` Annual Report & Accounts 2018 15 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 £2,272,000 (2017: £6,891,000) at the year end. This includes US dollar deposits of £589,000
(2017: £910,000) and euro deposits of £34,000 (2017: £203,000). 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 13. The only other financial liabilities are short term trade and
other payables as outlined within note 14.
Borrowing facilities
The Group has no undrawn committed borrowing facilities (2017: £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 2018
At 31 March 2017
US dollar
£’000
4,428
1,704
Net foreign currency monetary assets
Euro
£’000
132
230
Total
£’000
4,560
1,934
35
Annual Report & Accounts 2018 Notes to the Consolidated Financial Statements continued
For the year ended 31 March 2018
16 Financial commitments
a) Capital commitments
The Group had no capital commitments at the year end (2017: £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
2018
£’000
355
355
748
97
1,555
2017
£’000
410
383
953
371
2,117
The operating lease commitments outlined above primarily relate to rent payable for the Group’s UK and US offices.
17 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.
On 29 September 2017 options were granted with a contractual life of 10 years and exercise subject to achievement of performance
targets, a 3 year vesting period and continued employment. The fair value of these options was determined using a Black-Scholes
valuation model.
The fair value per option granted and the assumptions used in the calculation were as follows:
Grant date
Share price at grant date
Exercise price
Number of employees granted options
26 July 2011
16 Aug 2011
20 Dec 2011
7 Nov 2014 29 June 2015 29 Sept 2017
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
57.5p
57.5p
1
Number of shares originally under option
200,000
1,243,659
50,000
500,000
74,025
181,818
Expected vesting period (years)
Expected option life (years)
Expected volatility
Risk free rate
Expected dividends expressed as a dividend yield
Fair value per option
3
7
6
7
3
7
6
7
5
7
3
7
57.53%
58.21%
42.54%
39.03%
39.65%
45.32%
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
0.87%
3.00%
19.0p
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.
Details of outstanding options are disclosed in the Report of the Remuneration Committee.
The total credit for the year relating to employee share options was £19,000 (2017: £60,000 charge). Share options outstanding at
the year end have a weighted average contractual life of 4.7 years (2017: 5.3 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 25 July 2017 which, based upon the previous
day’s closing middle market price of 60.5p, resulted in 5,950 shares being issued to each of the 106 employees who were eligible.
Partnership Shares can be subscribed for by employees via salary deductions during the year ending 31 March 2019, either on a
monthly or lump sum basis to a cumulative value of up to £1,800. As at 31 March 2018, 50 employees representing 61% of the
eligible employees, had made binding commitments to subscribe for Partnership Shares during the year ending 31 March 2019.
36
` Annual Report & Accounts 2018 17 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 Link Market Services 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 and 2017 Free Share awards.
The total charge for the year relating to the employee share incentive plan was £493,000 (2017: £488,000).
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 70,537 ordinary shares of 1 pence each in the capital of the Company
(“Free Units”) was granted to C Pol on 24 October 2017.
The total charge for the year relating to the employee unit incentive plan was £2,000 (2017: £20,000 credit) as outlined
in the table below:
At 1 April
Additional charge/(credit)
Paid during the year
At 31 March
2018
£’000
16
2
(8)
10
2017
£’000
64
(20)
(28)
16
18 Related party transactions
During the year ended 31 March 2018, 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
2018
£’000
25
19
2017
£’000
25
13
During the year ended 31 March 2018, R Hoggarth served as a Non-Executive Director. R Hoggarth was also Chairman of Northgate
Public Services, an existing Intercede customer, up until 31 March 2018. Sales made to Northgate Public Services during the year
ended 31 March 2018 totalled £100,000 (2017: £39,000), of which £4,000 (2017: £8,000) was outstanding at the year end.
37
Annual Report & Accounts 2018 Company Balance Sheet
At 31 March 2018
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
2018
£’000
5,188
4,671
9,859
505
673
66
3,835
5,079
2017
£’000
4,721
4,017
8,738
499
673
60
3,305
4,537
4,670
4,124
110
4,780
9,859
77
4,201
8,738
The amount of profit dealt with in the Company financial statements was £65,000 (2017: £46,000 loss).
The financial statements on pages 38 to 43 were authorised for issue by the Board of Directors on 7 June 2018 and were signed on
its behalf by:
K van der Leest
AM Walker
Director
Director
The accompanying notes are an integral part of these financial statements.
Intercede Group plc: Registered No. 04101977
38
` Annual Report & Accounts 2018
Share
premium
£’000
Equity
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
3,665
(143)
548
453
60
(46)
4,537
(147)
474
6
138
6
65
2,946
(143)
548
—
—
(46)
3,305
(147)
474
—
138
—
65
3,835
5,079
—
—
—
—
60
—
60
—
—
—
—
6
—
66
232
—
—
441
—
—
673
—
—
—
—
—
—
Company Statement of Changes in Equity
For the year ended 31 March 2018
As at 1 April 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
As at 31 March 2017
Purchase of own shares
Employee share option and share incentive plan charges
Issue of new shares (note 5)
Re-issuance of treasury shares (note 5)
Equity component of convertible loan notes (note 6)
Profit for the year and total comprehensive income
Share
capital
£’000
487
—
—
12
—
—
499
—
—
6
—
—
—
As at 31 March 2018
505
673
The accompanying notes are an integral part of these financial statements.
39
Annual Report & Accounts 2018 Notes to the Company Financial Statements
For the year ended 31 March 2018
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’.
As outlined in note 1 to the Consolidated Financial Statements, the Directors consider that the going concern assumption is
appropriate and therefore the Company Financial Statements have been prepared on a going concern basis under the historical
cost convention.
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.
Critical accounting estimates and judgements
No critical accounting estimates or judgments have been applied in the preparation of the Company’s financial statements.
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.
40
` Annual Report & Accounts 2018
Adoption of new accounting standards
A number of new amendments to existing standards are effective for the first time for periods beginning on 1 April 2017 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.
The Company intends to adopt these standards when they become effective, rather than adopt them early. Information on these
new standards that is expected to be relevant to the Company’s financial statements is provided below. There are no other new
standards, amendments to existing standards or interpretations that would be expected to have a material impact on the Company.
The Company does not trade and therefore does not believe that there will be any impact from IFRS 15 Revenue from Contracts with
Customers and IFRS 16 Leases.
l IFRS 9 Financial Instruments
IFRS 9 addresses the classification, measurement and impairment of financial instruments, along with hedge accounting,
and is effective for accounting periods commencing on or after 1 January 2018. It is unlikely that there will be any material
impact on the financial statements. The classification and measurement of financial liabilities in accordance with IFRS 9
Financial Instruments remains largely unchanged from IAS 39 Financial Instruments: Recognition and Measurement. Hence
short-term receivables and payables with no stated interest rate would continue to be measured at their invoiced amount,
because the effect of discounting is likely to be immaterial. The standard also applies a new prospective impairment
model to trade receivables in which expected credit losses are recognised based on historical observed default rates. The
Company does not have trade receivables.
2 Auditors’ remuneration
Fees payable to the Company’s auditors for the audit of the parent company are £2,000 (2017: £2,000).
3
Investments
At 1 April
Additions
At 31 March
2018
£’000
4,721
467
5,188
2017
£’000
4,221
500
4,721
Additions in the year of £467,000 (2017: £500,000) 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 2018 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
2018
£’000
4,671
2017
£’000
4,017
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.
41
Annual Report & Accounts 2018
Notes to the Company Financial Statements continued
For the year ended 31 March 2018
5
Share capital
Authorised
481,861,616 ordinary shares of 1p each (2017: 481,861,616)
Allotted and fully paid
2018
£’000
4,819
2017
£’000
4,819
50,523,926 ordinary shares of 1p each (2017: 49,903,143)
505
499
The increase in issued and fully paid ordinary shares of 1p each represents the issue of 620,783 shares on 25 July 2017 to facilitate
the July 2017 Free Share award (note 16 of the consolidated financial statements).
As at 31 March 2018, the Company had 41,645 ordinary shares held in treasury (2017: 294,000). During the year, the Company re-
issued 252,355 treasury shares to a director and a senior manager.
6 Convertible loan notes
Non-current
8% Convertible loan notes (29 December 2021)
Borrowings are repayable as follows:
Between two and five years
The maturity of the debt and interest payments is as follows:
Due within one year
Due between one and two years
Due between two and five years
2018
£’000
4,670
2018
£’000
4,670
Debt
£’000
—
—
5,005
5,005
2018
Interest
£’000
400
400
799
1,599
Total
£’000
400
400
5,804
6,604
Debt
£’000
—
—
4,495
4,495
2017
Interest
£’000
331
360
1,077
1,768
2017
£’000
4,124
2017
£’000
4,124
Total
£’000
331
360
5,572
6,263
The table above shows the contractual, undiscounted cash flows due in future periods to settle the debt and interest payments. The
total amount of debt payable shown above differs from the total book value of debt of £4,670,000 (2017: £4,124,000) as the book
value of debt includes unamortised fees and is net of the value ascribed to the equity element of the convertible loan note.
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.
On 25 August 2017 the Company issued £510,000 convertible loan notes under the same convertible loan note instrument.
42
` Annual Report & Accounts 2018 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 from date of issue
Liability component at 31 March
7
Trade and other payables
Accruals
2018
£’000
5,005
(348)
(66)
4,591
79
4,670
2018
£’000
110
2017
£’000
4,495
(321)
(60)
4,114
10
4,124
2017
£’000
77
Financial commitments
8
a) Capital commitments
The Company had no capital commitments at the year end (2017: £nil).
b) Operating leases
The Company had no annual commitments under non-cancellable operating leases at the year end (2017: £nil).
43
Annual Report & Accounts 2018 Notice of Annual General Meeting
Notice is hereby given that the eighteenth Annual General Meeting of Intercede Group plc will be held at Lutterworth Hall, St.
Mary’s Road, Lutterworth, Leicestershire, LE17 4PS on Wednesday 19 September 2018 at 2.00 pm for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions of the Company.
1 To receive and to adopt the Company’s financial statements for the year ended 31 March 2018 together with the reports of
the Directors and the auditors.
2 To re-elect Royston Hoggarth as a director.
3 To re-elect Richard Parris as a director.
4 To re-elect Jacques Tredoux as a director.
5 To re-elect Klaas van der Leest as a director.
6 To re-appoint PricewaterhouseCoopers LLP to hold office as auditors until the next Annual General Meeting, and to authorise
the Directors to determine the remuneration of the auditors.
Special Business
To consider and, if thought fit, pass resolution 7 which will be proposed as an ordinary resolution of the Company and
resolutions 8, 9 and 10 which will be proposed as special resolutions of the Company.
7 THAT,
(a) the Directors be generally and unconditionally authorised, in accordance with section 551 of the Companies Act 2006 (the
“Act”), to exercise all powers of the Company to allot relevant securities (as defined in sections 549(1)-(3) of the Act) up to
a maximum nominal amount of £166,728.00 (being 33% of issued ordinary share capital);
(b) this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution or, if earlier, on 1 October 2019;
(c) the Company may, before this authority expires, make an offer or agreement which would or might require relevant
securities to be allotted after it expires; and
(d) all previous unutilised authorities under section 551 of the Act shall cease to have effect (save to the extent that the same
are exercisable pursuant to section 551(7) of the Act by reason of any offer or agreement made prior to the date of this
resolution which would or might require relevant securities to be allotted on or after that date).
8 THAT,
(a) the Directors be given power:
(i)
(subject to the passing of resolution 5) to allot for cash equity securities (as defined in section 560(1) of the Act for the
purposes of section 561 of the Act) pursuant to the general authority conferred on them by that resolution; and
(ii) to allot equity securities (as defined in section 560(2) of the Act),
in either case as if section 561(1) of the Act did not apply to the allotment but this power shall be limited:
(A) to the allotment of equity securities in connection with an offer or issue to or in favour of ordinary shareholders on
the register on a date fixed by the Directors where the equity securities respectively attributable to the interests of all
those shareholders are proportionate (as nearly as practicable) to the respective numbers of ordinary shares held by
them on that date but the Directors may make such exclusions or other arrangements as they consider expedient in
relation to fractional entitlements, legal or practical problems under the laws in any territory or the requirements of
any relevant regulatory body or stock exchange; and
(B) to the allotment (other than under (A) above) of equity securities having a nominal amount not exceeding in aggregate
£50,523.00 (being 10% of issued ordinary share capital);
(b) this power shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution or, if earlier, on 1 October 2019;
(c) all previous unutilised authorities under section 570 of the Act shall cease to have effect; and
(d) the Company may, before this power expires, make an offer or agreement which would or might require equity securities
to be allotted after it expires.
44
` Annual Report & Accounts 2018
9 THAT, in accordance with article 10 of the Company’s articles of association and the Act, the Company is generally and
unconditionally authorised to make market purchases (within the meaning of section 693 of the Act) of ordinary shares of
1 pence each in the capital of the Company (Ordinary Shares) on such terms and in such manner as the Directors of the
Company may determine provided that:
(A) the maximum number of Ordinary Shares that may be purchased under this authority is 5,052,392 (being 10% of issued
ordinary share capital);
(B) the maximum price which may be paid for any Ordinary Share purchased under this authority shall not be more than an
amount equal to 105% of the average of the middle market prices shown in the quotations for the Ordinary Shares in the
London Stock Exchange Daily Official List for the five business days immediately preceding the day on which that Ordinary
Share is purchased. The minimum price which may be paid shall be the nominal value of that Ordinary Share (exclusive of
expenses payable by the Company in connection with the purchase);
(C) this authority shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this
resolution, or, if earlier, on 1 October 2019; and
(D) the Company may make a contract or contracts to purchase Ordinary Shares under this authority before its expiry which
will or may be executed wholly or partly after the expiry of this authority and may make a purchase of Ordinary Shares in
pursuance of any such contract.
10 THAT the Directors be authorised to call general meetings (other than Annual General Meetings) on not less than 14 days’
notice, such authority to expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 1
October 2019.
By order of the Board
Andrew Walker
Company Secretary
7 June 2018
Registered office
Lutterworth Hall
St. Mary’s Road
Lutterworth
Leicestershire
LE17 4PS
Notes:
1. A member is entitled to appoint a proxy to exercise all or any of his rights to attend and to speak and vote instead of him at
the meeting. A member may appoint more than one proxy in relation to a meeting provided that each proxy is appointed to
exercise the rights attached to a different share or shares held by him. A proxy need not be a member of the Company.
2. The form of proxy and power of attorney or other authority, if any, under which it is signed or a notarially certified or office
copy of such power or authority must be received by the Company’s registrars not later than 48 hours before the time
appointed for the meeting. Completion and return of the form of proxy will not prevent you from attending and voting at the
meeting instead of the proxy, if you wish.
3. Only persons entered on the register of members of the Company at 6:00 pm on 17 September 2018 are entitled to attend
the meeting either in person or by proxy and the number of ordinary shares then registered in their respective names shall
determine the number of votes such persons are entitled to cast on a poll at the meeting.
4. Only holders of ordinary shares are entitled to attend and vote at the meeting.
5. As at 7 June 2018 the Company’s issued ordinary share capital consists of 50,523,926 shares. The total voting rights in the
Company as at 7 June 2018, as adjusted for 41,645 treasury shares, are 50,482,281.
6. Copies of the service contracts of the executive directors and the non-executive directors’ terms of appointment are available
for inspection at the registered office of the Company during normal business hours from the date of this notice and at the
place of the meeting for a period of at least 15 minutes prior to the meeting until its conclusion.
45
Annual Report & Accounts 2018
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