ID Data half-yearly losses double

Interim Results for the six months ended 30 September 2006
Summary

• Sales of £4.12 million (2005: £6.61 million)
• Loss of £2.24 million (2005 loss: £1.22 million)
• Improvement in margins following cost reductions resulting in lower break even sales figure
• Polish activities profitable and expanding
• Major contract wins and solid pipeline
• Interim financing implemented in October 2006
Commenting on the results, Peter Cox, Chief Executive of ID Data Plc, said: "This has been a challenging six months for ID Data. We have had to turn away business in order to protect our margin and this has resulted in lower turnover and an increased loss for the period.
"Encouragingly, ID Data has recently won several good contracts at an appropriate margin and this demonstrates that the Company can compete and win against stiff competition. The Company's Polish joint venture has performed strongly and is trading profitably.'
Chairman's statement
As I reported in September when ID Data's Annual Report and Accounts were released, your Company has been operating in a very challenging marketplace. Our refusal to accept business which would have further depressed margins shows through in these half year results.
Notwithstanding the reported fall in turnover and the associated increase in pre-tax losses, the business is in better technical order than ever before and our product offerings are at the forefront of market needs. The recently announced contract to supply Multos cards to Norway is a case in point.
On the production front, our joint venture in Poland has got off to a profitable start and lowers the Company's cost base enabling us to quote competitively for new and renewal business. We are already seeing customers returning to us, not simply on price but on our ability to provide complete solutions to their needs.
Faced with continuing outflows of cash, interim arrangements have been put in pl provide complete solutions l business. We are already seeing customers returning to us, not simply on price but on our ability to provide complete solutions to their needs.
Faced with continuing outflows of cash, interim arrangements have been put in pl provide complete solutions to their needs.
Faced with continuing outflows of cash, interim arrangements have been put in place with the support of our bankers whilst a longer term re-financing will be completed in early 2007.
Industry consolidation is expected to continue and your Board intends to be an active participant in that process. With a more flexible cost base, attractive products and an ability to operate at the leading edge, your Board is confident that considerable progress will be made in 2007.
JM Blackburn Chairman 22 December 2006
Chief Executive's Statement
The current year has been seen as the final year of transition in our business strategy to become a variable cost business, with future revenues coming from three key activities: the card manufacturing and personalisation business, card processing software licensing, and value-added services where we deliver total solutions to clients and provide managed services.
Looking at the current results, I feel it is appropriate to provide a more detailed insight into our business and its activities so that shareholders can fully understand the strengths, risks and opportunities of the Company. As stated, the current trading period has been challenging with a slow down in the global card sector resulting in industry-wide over capacity, aggressive pricing and delays in major projects due to client budget issues driven by the economic uncertainty in some of the sectors in which we serve.
In facing this business environment your Company decided to decline a considerable amount of business where the prices would endanger its future profitability. This policy drastically reduced sales in first half of the year, but is now rewarding us as we gain new contracts at the right price and contribution to overheads.
The recent RNS contract announcements demonstrate that we are capable of winning substantial contracts through delivering quality products and services using our world class capabilities.
The impact of our restructuring and relocation of labour intensive production to Poland has enabled your Company to manage the current market conditions and limited the impact on our bottom line through improved margins.
Business activity review
The card production and personalisation business
Recognising the current business climate, your Company has still made significant progress following its strategy aimed at gaining only profitable business and not taking business at any price. The result has been lower sales, but thanks to our offshore production and ongoing product development, we have managed to increase margins hence minimising our losses through the difficult first half. Our Polish Joint Venture has been profitable throughout the period and with future increased volumes will, we believe, deliver significant returns as the volume and complexity of product increases.
The impact of lower sales has been in the UK where we deliver the sophisticated personalisation and management of card solutions for clients throughout Europe. The current cost base is in line with our desire to have sales in excess of £14 million in card products and services, delivering a profit, so the lack of volume has had a negative impact on the bottom line during this period.
We believe this situation is temporary, as we are now seeing an increase in demand with customers who previously purchased on price returning, asking for more complex solutions and being prepared to pay the appropriate price.
Our card business has four distinct sectors: Retail, Banking/financial, Government and Leisure/membership.
I would like to inform you about the developments in these sectors in some detail to allow you as investors to clearly understand our value.
RETAIL: ID Data is recognised as an innovative market leader and one of the few companies in the world capable of delivering significant retail card launches in short time scales, as evidenced in the past by deliveries for Nectar and Tesco, where tens of millions of cards were produced, personalised and successfully delivered to consumers in very short time scales. Our innovation has been demonstrated recently through the launch of the patented Key tag which has now been adopted by some of Europe's leading retailers and will result in significant sales over the coming years.
The future of our retail offering will become even more exciting as the move to more sophisticated technology, using chips and RFID / near field communications, will drive the contract value and margins for our business.
BANKING & FINANCIAL: The introduction of the chip and pin card has changed this market from a simple card production business to one requiring technology driven solutions. ID Data is fully capable of delivering MasterCard and Visa approved solutions and has already secured major contracts in the UK and Europe for chip based programs. We are EMV accredited.
The move to more complex payment solutions including multi application cards and the mergers of our major competitors means we are now receiving record numbers of enquiries, which should result in a significant increase in sales over the next 15 months.
GOVERNMENT: The biggest prize and target for ID Data is the proposed introduction of ID cards across Europe. We are developing solutions to meet these needs and lobbying to ensure our capabilities are recognised by the appropriate decision makers.
Your Company already has at its disposal leading-edge technology that has been included in such major contracts as the US Green Card programme plus the Italian and Saudi Arabian identity card programs.
We have already had significant success stories in the government sector with the Post Office Card Account and National Smart Card projects and we expect further contracts from local and national government in the coming months.
LEISURE and MEMBERSHIP: ID Data has a significant business supplying hotel and leisure management card solutions, and in this sector we are seeing a move to higher technology products including contact and contactless chip card solutions leading to enhanced revenues and returns. We believe this business sector has significant growth capability in the near future.
Card management and software
Two years ago we acquired the loss making CardBASE business in Ireland. The company had some €30 million of investment prior to our purchase and significant ongoing losses whilst continuing its development of leading edge card management solutions. Our strategy is to look at ways to maximise our return on this business unit and gain significant traction and value from the investment.
CardBASE's products historically have been ahead of market needs, but now with multi-application chip cards becoming more common, the need for this technology is emerging in the Retail, Banking and most importantly Government applications of E Passports, ID and Health.
CardBASE has already delivered solutions to blue chip organisations, but current revenues are highly volatile, and its bottom line, like most software companies, moves dynamically subject to the current licence sales levels. Our challenge here is to gain sustainable profitability and maximise shareholder value on what we see as an under valued asset in our portfolio.
Value added services
This is where we believe our Company's future lies, our strategy being to position the business to be a full provider of end -to- end solutions to clients who require a fully outsourced solution around their card activities.
ID Data already has contracts to manage support services for local government and retailers; the challenge now is to enhance our capabilities in delivering more complex services that generate consistent monthly revenues and margins.
Industry Structure
In reviewing our current capabilities we can see significant opportunities to consolidate similar businesses into our now flexible cost based activities.
The past year has seen many card production companies suffer poor cash flow and diminishing returns. ID Data believes that the time is now right to consolidate some of these businesses into its structure. By doing so we should gain significant top -line sales and further develop our investments in Poland where we have the capacity to expand sales to some 500 million cards per year, whilst reaping the benefits of its lower cost base. We have identified three companies which would benefit from coming together with us and, subject to price, are hopeful, that we will move forward in the New Year on these discussions.
A similar logic applies to the CardBase business as it too needs scale and improved geographical coverage. Consequently we are looking at merger opportunities and alternative ways to enhance its value.
Distribution and Sales
The key to our future now, is very much about revenue. We have addressed this by appointing Tim Cronin as our Sales Director for the core business. Tim was the Managing Director of Orga Card Systems and has an excellent track record.
Conclusions
ID Data is now seeing its determination and strategy working, where we have regained clients who had departed on price considerations but have found that the services offered by others were incomplete. We have gained significant new business from clients based upon our proposition of 'flexibility, innovation, customer service and value'.
Recent new contract announcements and renewals have demonstrated our capability to compete with the market leaders.
We are increasing our geographical coverage through direct sales offices in India, Poland and Latvia and we have strengthened our UK based sales team. Accordingly we expect increased sales with improved contribution from our core business activities. Our short term challenge is to complete our funding requirements and then drive the sales line to deliver profitability. We have never been so well equipped to deliver success as we are now. My team's job is now very clear - deliver profitability and high investor returns.
Peter Cox Chief Executive 22 December 2006