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IEN.L

Intelligent Environments Group PLC

('IE' or 'the Group')

Major client wins drive growth

Intelligent Environments Group plc (AIM Ticker: IEN), the online software provider for financial services, today announces its interim year results for the six months ended 30th June 2009.

Financial highlights

• Recurring revenues up 21%, as high profile brands adopt IE platform.
• • 30% of total revenues are now recurring
• Total revenues up 8% at £3.2 million (2008: £2.9 million)
• Gross margin percentage up to 86% (2008: 82%)
• Operating profit up 36% at £0.5 million 
• Operating cash inflow of £0.6 million 
• Net cash balance £1.1 million

 

Operational Highlights

• 22 royalty earning brand contracts operational by end of June 2009
• Three new customer wins in the half year
• Contract wins with Home Retail Group and Stroud and Swindon Building Society
• Three NetFinance V4 projects completed in the half year, including National Savings & Investments
• Research and Development expenditure increases to a sustainable £0.5 million

Outlook

Clive Richards, IE's Chairman commented:-

'We have delivered a solid performance in the first half with further strong growth in the savings markets expected. This is underpinned by further opportunities to upgrade our existing customers to the NetFinance V4 platform during the second half of the year. Our increasing profitability has enabled the Group to propose a maiden dividend for the full year and with financial service institutions increasingly using the internet to cut costs, IE is well positioned to continue with its growth curve. 

I look forward to reporting further progress in due course' 

For further information:

Intelligent Environments Group plc Phillip Blundell, Chief Executive   www.ie.com	Tel: 020 8614 9800
FinnCap Charles Cunningham, NOMAD and Broker	Tel: 020 7600 1658
Biddicks Shane Dolan	Tel: 020 7448 1000

 

Chairman's Statement

Introduction

I am pleased to report solid progress during the first six months of 2009 underpinned by a series of new customer wins. This has resulted in an 8% increase in total revenues and a 36% increase in operating profit for the six months ended 30 June 2009. 

As mentioned in our 2008 annual report, the difficulties in the UK banking sector combined with a global recession have had an impact on our business, particularly our plans to expand internationally. Testimony to this was the cancellation of our contract with the Royal Bank of Scotland who pulled out of the European consumer finance market. Other prospects do exist and through our partnership programme we continue to assess viable opportunities. 

We have enjoyed steady success in the consumer finance market with two new customers being acquired who both wish to offer their cardholders secure online account management and e-statements. This is a proven way to enhance customer service and reduce operational costs.

Revenue from the consumer finance market has reduced as Banks limit their current phase of investment in acquisition platforms. However, this reduction has been more than offset by the buoyant market for online retail saving systems for both the acquisition of new customers and for providing a secure online account management platform. Continuing work from our existing savings customers coupled with the addition of Stroud and Swindon Building Society as a new customer has seen our revenues from the UK savings market double in the six month period.

One of our key strategic aims is to increase the proportion of our total recurring revenues. I am pleased to report therefore that in the half year, recurring revenues were up 21% and now represent 30% of total revenues with a doubling of income from transactional revenues. Our investment in Research and Development has continued to increase. Our teams in Kingston and Pune, India, are working effectively together to enhance the functionality of the NetFinance V4 platform. We have extended the capabilities to support mobile banking and the product factory over the last six months with further exciting developments in the coming months. Our R&D expenditure doubled in the period to £0.5 million, a level that we are comfortable with going forward.

The delivery function has had a very busy six months with three major V4 projects reaching a successful conclusion and significant enhancements to the Barclaycard platform. I am particularly proud of the first V4 project completions that now give us live reference sites to strengthen our marketing message as well as increasing the knowledge and expertise of our staff. Currently we employ 65 people up from 50 at the same point in 2008.

Financial summary

The addition of three new customers contributed to the 8% overall increase in revenues to £3.2 million and to the 30% increase in licence income during the six month period, compared with the same period last year. Consulting revenues fell 7% in the period, compared with the prior six month period, due to the termination of the RBS contract and the reduced spend at HBOS. On the positive side the completion of three V4 projects and the higher number of brands on the transactional revenue model meant that recurring revenues were up 21% compared with the same period last year.

A reduction in the use of third party contractors combined with the favourable revenue mix has resulted in a reduction in the cost of sales that has also improved the gross profit by 13% compared with the same period last year. The gross margin percentage now stands at 86% up from 82% in the first half of 2008.

Operating expenses are up 9% in the period, compared with the same period last year, driven by the increase in headcount. We have also increased our marketing expenditure as we look to commercially exploit the new NetFinance V4 software platform.

The increase in operating profit has been achieved by a reduction in the cost of sales coupled with the net capitalisation of research and development costs totalling £356k, in accordance with International Financial Reporting Standards. The operating margin for this first half of the year is up from 11% in the corresponding period last year to 14% this year.

Given the continued profitable growth, the Board feel there is sufficient certainty to increase the deferred tax asset to reflect the recoverability of trading losses in the foreseeable future. The result of this action is a non-cash credit to the income statement of £28k.

The cash position improved to £1.1 million compared to £1.0 million at the end of 2008 and also at 30 June 2008.

On the basis of the continuing trend of profitability, it is your board's intention to have a progressive dividend policy and to pay its first dividend which will be declared at the time of the issuance of the preliminary figures for the year ending 31 December expected in April 2010.

Outlook

The continued disruption to the credit markets is expected to deliver strong revenue growth in the savings market that will be partly offset by continued weakness in the consumer finance market. There are further opportunities to upgrade our existing customers to the NetFinance V4 platform during the second half of the year, which should bring further progress to our strategic aims. 

I expect that the focus of our customers will continue to be on cost cutting, which will bring to the fore the greater use of the internet and mobile banking. These are your company's core strengths and should generate profitable sales opportunities. We have a market leading solution, delivered by an unrivalled team of experts in a prominent channel and this drives my enthusiasm for the future.

Clive Richards OBE.DL

Chairman

Condensed Consolidated Interim Income Statement
for the six months ended  30 June 2009
				Notes	Unaudited	Unaudited	Audited
					Six months	Six months	Year to
					to 30 June	to 30 June	December
					2009	2008	2008
					£	£	£
Revenue				4	3,160,051	2,933,982	6,405,054
Cost of Sales					(436,904)	(521,693)	(1,120,612)
Gross Profit					2,723,147	2,412,289	5,284,442
Operating expenses					(2,297,854)	(2,110,972)	(4,195,235)
Other operating income					30,800	33,184	63,184
Operating profit					456,093	334,501	1,152,391
Investment income					1,442	4,944	27,108
Profit before taxation					457,535	339,445	1,179,499
Tax				6	28,000	74,000	36,000
Profit for the period attributable to equity  holders of the parent company					485,535	413,445	1,215,499
Earnings per share
Basic earnings per share				3	0.29p	0.25p	0.74p
Diluted earnings per share				3	0.29p	0.24p	0.72p

The operating profit for the period arises from the Group's continuing operations.

Condensed Consolidated Statement of Other Comprehensive Income (Unaudited)

for the six months ended 30 June 2009

		Unaudited  Six months to 30 June 2009	Unaudited  Six months to 30 June 2008	Audited  Year to December 2008
		£	£	£
Profit for the period		485,535	413,445	1,215,499
Currency translation differences		(12,128)	806	17,486
Other comprehensive income (net of tax)		(12,128)	806	17,486
Total comprehensive income for the year attributable to equity holders of the parent company		473,407	414,251	1,232,985

  

Condensed Consolidated Statement of Financial Position
As at 30 June 2009
			Notes	Unaudited	Unaudited	Audited
				at 30 June	at 30 June	at 31 December
				2009	2008	2008
				£	£	£
Assets
Non-current assets
Property, plant and equipment				128,795	110,505	131,992
Intangible assets			7	1,303,809	530,433	947,395
Trade and other receivables				535,333	320,417	671,333
Deferred tax assets			6	364,000	374,000	336,000
Total non-current assets				2,331,937	1,335,355	2,086,720
Current assets
Trade and other receivables				2,394,313	1,887,158	2,093,275
Cash and cash equivalents				1,051,737	1,034,164	985,317
Total current assets				3,446,050	2,921,322	3,078,592
Total assets				5,777,987	4,256,677	5,165,312
Current liabilities
Trade and other payables				(1,420,487)	(1,366,646)	(1,408,145)
Total current liabilities				(1,420,487)	(1,366,646)	(1,408,145)
Total liabilities				(1,420,487)	(1,366,646)	(1,408,145)
Net assets				4,357,500	2,890,031	3,757,167
Equity
Called up share capital			8	1,668,174	1,643,524	1,645,824
Share premium account			8	61,538	21,815,635	21,823,185
Share option reserve			5	195,163	113,573	152,125
Cumulative translation reserve			5	2,648	(1,904)	14,776
Retained earnings				2,429,977	(20,680,797)	(19,878,743)
Total equity attributable to equity holders of the parent company				4,357,500	2,890,031	3,757,167

Condensed Consolidated Statement of Changes in Equity (Unaudited)
for the six months ended  30 June 2009
						Attributable to equity holders of the parent company
			Issued share			Share			Share	Cumulative translation				Retained			Total
			capital			premium			option reserve	reserve				earnings			equity
			£			£			£	£				£			£
Balance at 1 January 2009			1,645,824			21,823,185			152,125	14,776				(19,878,743)			3,757,167
Profit for the period			-			-			-	-				485,535			485,535
Exchange translation differences on			-			-			-	(12,128)				-			(12,128)
foreign operations (net of tax)
Total comprehensive income for the period			-			-			-	(12,128)				485,535			473,407
Share option charge			-			-			43,038	-				-			43,038
Issued share capital			22,350			61,538			-	-				-			83,888
Cancellation of the share premium account			-			(21,823,185)			-	-				21,823,185			-
Balance at  30 June 2009			1,668,174			61,538			195,163	2,648				2,429,977			4,357,500
For the six months ended 30 June 2008 (Unaudited)
Balance at  1 January 2008				1,636,816			21,796,918		81,136		(2,710)	(21,094,242)				2,417,918
Profit for the period				-			-		-		-	413,445				413,445
Exchange translation differences on
foreign operations (net of tax)				-			-		-		806	-				806
Total comprehensive income for the period				-			-		-		806	413,445				414,251
Share option charge				-			-		32,437		-	-				32,437
Issue of share capital				6,708			18,717		-		-	-				25,425
Balance at  30 June 2008				1,643,524			21,815,635		113,573		(1,904)	(20,680,797)				2,890,031

Condensed Consolidated Statement of Changes in Equity (Audited)
for the year ended  31 December 2008
					Attributable to equity holders of the parent company
			Issued share		Share		Share	Cumulative translation	Retained		Total
			capital		premium		option reserve	reserve	earnings		equity
			£		£		£	£	£		£
Balance at  1 January 2008			1,636,816		21,796,918		81,136	(2,710)	(21,094,242)		2,417,918
Profit for the year			-		-		-	-	1,215,499		1,215,499
Exchange translation differences on			-		-		-	17,486	-		17,486
foreign operations (net of tax)
Total comprehensive income for the period			-		-		-	17,486	1,215,499		1,232,985
Share option charge			-		-		70,989	-	-		70,989
Issue of share capital			9,008		26,267		-	-	-		35,275
Balance at  31 December 2008			1,645,824		21,823,185		152,125	14,776	(19,878,743)		3,757,167

Condensed Consolidated Statement of Cash Flows
for the six months ended 30 June 2009
					Unaudited	Unaudited	Audited
					Six months	Six months	Year to
					to 30 June	to 30 June	31 December
					2009	2008	2008
					£	£	£
Cash flow from operating activities
Profit before tax					457,535	339,445	1,179,499
Investment income					(1,442)	(4,944)	(27,108)
Depreciation of property, plant and equipment					43,846	36,264	71,469
Amortisation of intangible assets Exchange differences					177,059  (12,128)	- 806	114,956 17,486
Increase in trade and other receivables					(165,038)	(276,495)	(833,528)
Increase in trade and other payables					12,342	118,779	160,278
Share option charge					43,038	32,437	70,989
Net cash inflow from operating activities					555,212	246,292	754,041
Cash flow from investing activities
Investment income					1,442	4,944	27,108
Purchase of property, plant and equipment					(40,649)	(28,777)	(85,469)
Purchase of intangible assets					(533,473)	(185,566)	(717,484)
Net cash outflow from investing activities					(572,680)	(209,399)	(775,845)
Cash flow from financing activities
Proceeds from the issue of share capital					83,888	25,425	35,275
Net cash generated from financing activities					83,888	25,425	35,275
Net increase in cash and cash equivalents					66,420	62,318	13,471
Cash and cash equivalents at start of period					985,317	971,846	971,846
Cash and cash equivalents at end of period					1,051,737	1,034,164	985,317

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Accounting policies

Basis of preparation

This Report was approved by the directors on 18 September 2009. 

The company is domiciled in the United Kingdom. The company is listed on the Alternative Investment Market stock exchange.

The current and comparative periods to June have been prepared using the accounting policies and practices consistent with those adopted in the annual financial statements for the year ended 31 December 2008 except the adoption of IAS 1 Revised and IFRS 8 as noted below and are also consistent with those which will be adopted in the 31 December 2009 financial statements. Comparative figures for the year ended 31 December 2008 have been extracted from the statutory financial statements for that period which carried an unqualified audit report, did not include reference to any matters to which the auditor drew attention by way of emphasis, and did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and have been delivered to the Registrar of Companies.

The Group has applied IAS 1 Revised 'Presentation of Financial Statements' and IFRS 8 'Operating Segments' as of 1 January 2009. In accordance with IAS 1 the financial statements have been re-titled and a consolidated statement of other comprehensive income produced. IFRS 8 states that segment information should be based on management's internal reporting structure and accounting principles.  

As disclosed in the financial statements for the year ended 31 December 2008, the Group's segment information has already been based on the management reporting structure and therefore the operating segments are the same as previously reported.  

The financial statements for the year ended 31 December 2008 were prepared in accordance with International Accounting and Financial Reporting Standards ('IFRS') as adopted in the EU.

The Financial Information contained in this report does not constitute statutory accounts as defined by section 434 of the Companies Act 2006. This report has not been audited or reviewed by the Group's auditors.

During the first six months of the current financial year there have been no related party transactions that materially affect the financial position or performance of the group and there have been no changes in the related party transactions described in the last annual financial report.

The principal risks and uncertainties of the group have not changed since the publication of the last annual financial report where a detailed explanation of such risks and uncertainties can be found.

2. Dividends

The Board has not declared a dividend for the period ended 30 June 2009 (30 June 2008: Nil; 31 December 2008: Nil).

3. Basic and diluted earnings per share

Basic and diluted earnings per share is based on the figures in the table below: 

Earnings per share
				Unaudited	Unaudited	Audited
				Six months	Six months	Year to
				to 30 June	to 30 June	31 December
				2009	2008	2008
				£	£	£
Basic and diluted earnings				485,535	413,445	1,215,499
Number of shares
Basic weighted average number of shares				164,594,713	163,766,042	164,146,543
Effect of dilutive share options				4,298,614	6,937,604	4,063,855
Diluted weighted average number of shares				168,893,327	170,703,646	168,210,398
Basic EPS				0.29p	0.25p	0.74p
Diluted EPS				0.29p	0.24p	0.72p

4. Revenue

The Group's revenue and profit before taxation is derived entirely from its principal business activity. The Group's management and internal reporting structures split the turnover between licences, customer consultancy services and recurring revenues, but not costs and its operating results. Consequently there is only one class of business activity undertaken by the Group, being the provision of online software and services that allow organisations to disseminate information, integrate systems and deliver e-business applications.  

The Group provides the following supplementary analysis:

	Unaudited		Audited
	Half-year ended                       30 June		Year ended 31 December
	2009	2008	2008
	£	£	£
Licence	752,395	577,565	1,589,321
Consultancy services	1,469,825	1,580,825	2,957,255
Recurring revenues	937,831	775,592	1,858,478
	3,160,051	2,933,982	6,405,054

Geographical analysis

The analysis by geographical area of the Group's revenue is set out below:                                  

                                                                  Unaudited                           Unaudited

Revenue	Half-year ended 30 June 2009		Half-year ended 30 June 2008
	Sales by destination	Sales by origin	Sales by destination	Sales by origin
	£	£	£	£
United Kingdom	1,746,706	3,160,051	1,425,184	2,933,982
Rest of Europe	137,374	-	403,738	-
USA	1,275,971	-	1,105,060	-
	3,160,051	3,160,051	2,933,982	2,933,982

 

Audited  

Revenue	Year ended             31 December 2008
	Sales by destination	Sales by origin
	£	£
United Kingdom	3,606,533	6,405,054
Rest of Europe	557,214	-
USA	2,241,307	-
	6,405,054	6,405,054

 

 

5. Capital and reserves

Share option reserve

The share option reserve includes an expense based on the fair value of share options issued since 7 November 2002 in accordance with IFRS 2 for a number of share-based payment awards which have been granted and which have not vested by the effective date of the accounting standard 1 January 2006. During the six months ended 30 June 2009, the group granted 2.75m share options to employees where the aggregate fair value at date of grant was £109,835. The share options were conditional on the achievement of minimum profit before tax targets of £1.5 million on an annual basis.

Cumulative translation reserve

The translation reserve comprises all foreign exchange differences arising since 1 January 2006 from the retranslation of opening net investment in subsidiary companies that do not have sterling as a functional currency. Exchange differences are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised in the income statement in the period in which the subsidiary is disposed of.

6. Tax on profit on ordinary activities

The Directors are confident that the group will achieve future profitability in line with the current business plan, therefore, a deferred tax asset of £364,000 (June 2008: £374,000; December 2008: £336,000) has been recognised at the balance sheet date. There is sufficient certainty to increase the deferred tax asset to reflect the recoverability of trading losses in the foreseeable future. The result of this action is a non-cash credit to the income statement of £28,000 (June 2008: £74,000; December 2008: £36,000).  

7. Intangible assets

							Development costs
							£
At 1 January 2009
Cost							1,062,351
Accumulated amortisation							(114,956)
Net book amount							947,395
Opening net book amount							947,395
Additions - internally developed							533,473
Amortisation							(177,059)
Closing net book amount at 30 June 2009							1,303,809
At 1 January 2008
Opening net book amount							344,867
Additions - internally developed							185,566
Closing net book amount at 30 June 2008							530,433
Additions -internally developed							531,918
Amortisation							(114,956)
Closing net book amount at  31 December 2008							947,395

The internally generated intangible asset arises from the Group's computer software development initiative. These development costs are capitalised and amortised on a straight-line basis over their useful lives of three years once the related software product is available for use. If the product becomes unviable the deferred development costs are written off. The amortisation included in operating expenses is £177,059 (June 2008: £nil and December 2008: £114,956). The development costs capitalised for the six months ended June 2009 amount to £533,473 (June 2008: £185,566 and December 2008: £717,484) and will be amortised on a straight-line basis over their useful life of three years once the software product is available for use.

Development costs which are not related to product maintenance and version upgrades are capitalised.

8. Share capital

				Number of	Ordinary	Share	Total
				shares	shares	premium
					£	£	£
Opening balance as at 1 January 2008				163,681,600	1,636,816	21,796,918	23,433,734
Proceeds from shares issued - employee share option scheme
				670,769	6,708	18,717	25,425
At 30 June 2008				164,352,369	1,643,524	21,815,635	23,459,159
Proceeds from shares issued - employee share option scheme
				230,000	2,300	7,550	9,850
At 31 December 2008				164,582,369	1,645,824	21,823,185	23,469,009
Cancellation of the share premium account				-	-	(21,823,185)	(21,823,185)
Proceeds from shares issued - employee share option scheme				2,235,000	22,350	61,538	83,888
At 30 June 2009				166,817,369	1,668,174	61,538	1,729,712

Share premium account

On 29 April 2009 the Company received a high court approval for the cancellation of its share premium account as the Company had an accumulated deficit on its retained earnings. The absence of distributable profits meant that the Company was unable to pay dividends. The Resolution, which was proposed as a special resolution, approved the cancellation of the Company's share premium account, which as at 29 April 2009 amounted to £21,823,185.

Accordingly the cancellation of the share premium account is now effective. This now enables the Company to consider the payment of dividends in the future.

ENDIR GGGMLGRDGLZM