Half Yearly Report

RNS Number : 1381O
Corero Network Security PLC
17 September 2013
 



 

Corero Network Security plc (AIM: CNS)

("Corero", the "Group" or the "Company")

 

Interim results for the six month period ended 30 June 2013

 

Corero Network Security plc, the AIM listed US based network security company, announces its half yearly report for the six month period ended 30 June 2013.

 

Group Financial Highlights:

·      Revenues of $9.5 million (H1 2012: revenue $10.8 million)

·      Operating loss* $1.5 million (H1 2012: loss $1.5 million)

·      Adjusted loss before tax** $1.7 million (H1 2012: $1.7 million)

·      Loss per share 4.8 cents (H1 2012: 4.9 cents)

·      Cash of $5.3 million at 30 June 2013 (30 June 2012: $9.2 million)

 

* before depreciation, amortisation and financing costs

** before depreciation and amortisation

 

Post Balance Sheet Event:

·      Completed sale of Corero Business Systems Limited on 1 August 2013

o   Net consideration* to the Company $16.5 million

o   Profit on sale of approximately $15.0 million

·      Gross cash on a pro-forma basis** at 30 June 2013 $21.2 million and net cash $15.2 million

 

* net of debt repayment

** including the net consideration from the sale

 

Operating Highlights:

·      Corero Network Security ("CNS") continues to win new customers, 28 in the H1 2013 period

·      New business and renewals won in core verticals of gaming (including Camelot), e-betting and e-retail (including leading price comparison web site)

·      Appointment of David Ahee as Senior Vice President Global Sales

·      Next generation product development ready for initial customer deployments by end of 2013

·      Developed DDoS protection "as-a-Service" offering

 

Ashley Stephenson, CEO of Corero, commented: "The Corero Network Security division has made solid progress in the first half of 2013 developing the global sales team and our 'next generation' product.  We remain excited about the market opportunity for protection against DDoS and cyber attacks and believe we have a strong product offering today which we expect will deliver revenue growth in the second half of 2013, with a growing pipeline of opportunities, and beyond. The development of our 'next generation' product has progressed according to plan and we see a significant opportunity to increase the addressable market for the business in 2014 with the goal to further accelerate revenue growth."

 

Enquiries:

 

Corero Network Security plc


Andrew Miller, Group Chief Financial Officer

Tel: 01923 897 333



finnCap


Stuart Andrews/Henrik Persson

Tel: 020 7220 0500



Walbrook PR

Tel: 020 7933 8780

Bob Huxford/Helen Westaway (Media Relations)

                 corero@walbrookpr.com                                                      corero@walbrookpr.com

Paul Cornelius (Investor Relations)


 

About Corero Network Security

Corero Network Security is an international network security company and the leading provider of Distributed Denial of Service (DDoS) and cyber-attack defence solutions.  As the First Line of Defense, Corero's products and services stop DDoS attacks, protect IT infrastructure and eliminate downtime. Customers include enterprises, service providers and government organizations worldwide. Corero's appliance-based solutions are dynamic and automatically respond to evolving cyber attacks, known and unknown, allowing existing IT infrastructure -- such as firewalls -- to perform their intended purposes. Corero's products are transparent, highly scalable and feature the lowest latency and highest reliability in the industry.



Interim results for the six month period ended 30 June 2013

Group summary

 

In the six months to 30 June 2013 the Group reported revenues of $9.5 million (H1 2012: $10.8 million) and an operating loss before depreciation, amortisation and financing costs of $1.5 million in line with the comparative period (H1 2012: loss $1.5 million).  This included an unrealised exchange gain of $0.5 million (H1 2012: loss $0.1 million) arising on an intercompany loan. The reported Group loss before taxation was $3.0 million (H1 2012: loss $2.8 million) with a reported loss per share of 4.8 cents (H1 2012: 4.9 cents).

 

The Group had cash balances of $5.3 million at 30 June 2013 (2012: $9.2 million). The net reduction in cash from operating activities in the 6 months ended 30 June 2013 was $3.4 million (H1 2012: $2.6 million). In March 2013, the Company raised $5.9 million net of expenses in a share placing to fund organic growth.

 

Corero Network Security ("CNS")

 

Revenues in the first half of 2013 were $4.9 million (H1 2012: $6.7 million).

 

CNS reported an operating loss before depreciation, amortisation and financing costs in the six months to 30 June 2013 of $2.3 million (H1 2012: loss $2.1 million).

 

Highlights in the first half of 2013 include:

·      Appointment of David Ahee, who has extensive experience in establishing enterprise and channel sales strategies internationally, as Senior Vice President Global Sales

·      Growing pipeline of opportunities going into the second half of 2013

·      Next generation product development ready for initial customer deployments by end of 2013

·      Developed DDoS protection "as-a-Service" offering to be launched in the second half of 2013

·      "Best IT Products & Services for Finance, Banking & Insurance" by Network Product's Guide

 

New customer wins included significant orders from a US energy utility, a leading telecommunications service provider in Brazil, two US regional banks, an Asian based provider of on-line games, a web hosting company, a provider of real estate and mortgage portfolio management information services and a large US city corporation. 

 

Material orders (upgrades and support contract renewals) from existing customers included a leading industrial group, a leading price comparison web site, Camelot (the UK Lottery operator), two US university colleges, a satellite operator, a Middle East based investment services firm, a global electronics manufacturing services and a European telecommunications service provider.

 

Further information on the CNS 'next generation' product and strategy

 

The CNS 'next generation' offering is intended to add support for deployment in cloud infrastructure, virtual environments, and larger scale networks enabling access to new global markets.

 

An increasing number of online providers, enterprises and data centres are actively upgrading their network designs to include a traffic inspection, monitoring and control layer at their points of connectivity to the Internet. This additional layer of security protection has become increasingly important to combat the growing variety and frequency of Internet-borne cyber threats including DDoS attacks, bot-net operations, competitive abuse and server intrusion.

 

During 2012 and 2013, CNS has invested in the development of a 'next generation' First Line of Defense product which expands both the feature set and market reach of its solutions for this growing market segment. The first release of this 'next generation' product is expected to be deployed in customer networks at the end of 2013, with further releases to follow in the course of 2014.        

 

Corero Business Systems ("CBS")

 

Revenues in the first half of 2012 were $4.6 million (H1 2012: $4.1 million).

 

CBS reported an operating profit before depreciation, amortisation, and financing costs in the six months to 30 June 2013 of $1.4 million (H1 2012: profit $1.2 million).

 

Key achievements in the first half of 2013 include:

·      158 new academy and school customers  

·      Sales to 18 academy groups

 

Sale of CBS

 

The Company's interest in CBS was sold on 1 August 2013. The total aggregate cash consideration was $19.7 million, subject to the repayment of the CBS debt of $1.8 million. The Company had a legal and beneficial holding of 92% of the issued share capital of CBS, with the remainder held by management employees of CBS. The proceeds of the sale received by the Company after repayment of the CBS debt were $16.5 million.

 

On a pro-forma basis to illustrate the effect on the net cash position of the Group that the sale of CBS would have had if it had occurred on 30 June 2013 and including the net consideration received by the Company from the sale (after repayment of the CBS debt), the Group would have had net cash at 30 June 2013 of $15.2 million. 

 

The aggregate valuation of CBS of $19.7 million on a debt free basis represents:

 

·      a multiple in excess of 8.0 times the CBS earnings before development costs capitalised, depreciation, amortisation and financing for the year ended 31 December 2012; and

 

·      in excess of 2.2 times the CBS revenues for the year ended 31 December 2012.

 

The sale has generated a profit on disposal, to be reported for the year ending 31 December 2013, of approximately $15.0 million.

 

Central costs

 

Central costs for the the six months to 30 June 2013 were $0.7 million (H1 2012: $0.6 million) which relate to the Group's finance and administration functions as well as the costs associated with the Company's listing on AIM.

 

Board changes

 

On 6 September 2013 Ashley Stephenson was appointed Chief Executive Officer and Andrew Miller was appointed Chief Financial Officer and Chief Operating Officer, having previously been Group Chief Operating Officer.

 

Outlook

 

The sale of the CBS business has resulted in the Company becoming exclusively focused in the network security market and has provided the Company with the cash resources to fund the organic development of the network security business. 

 

The Board believes that the network security market remains highly attractive.  Specifically, the DDoS prevention market is forecast by Infonetics to grow by over 25% CAGR in the period 2012 to 2017 and IDC forecast the market will be worth $870 million in 2017.

 

For the year ending 31 December 2013 the CNS division expects to report revenue similar to that for the year ended 31 December 2012.

 

The Board remains confident in the Group's prospects.

 



 

Consolidated Interim Statement of Comprehensive Income

for the six month period ended 30 June 2013

 


Unaudited six months ended 30 June

Unaudited six months ended 30 June

Audited year ended 31 December


2013

2012

2012


$'000

$'000

$'000

Revenue

9,495

10,757

20,565

Cost of sales

(2,397)

(2,634)

(5,116)

Gross profit

7,098

8,123

15,449

Operating expenses before highlighted item

(8,598)

(9,618)

(18,554)

-      Depreciation and amortisation of intangible assets

(1,264)

(1,107)

(2,767)

Operating expenses

(10,725)

(21,321)

Operating loss

(2,764)

(2,602)

(5,872)

Finance income

11

56

119

Finance costs

(260)

(246)

(507)

Loss before taxation

(3,013)

(2,792)

(6,260)

Taxation

186

186

371

Loss for the period

(2,827)

(2,606)

(5,889)

Other comprehensive (expense)/income




Difference on translation of GBP functional currency entities

(661)

(5)

537

Total comprehensive expense for the period

(3,488)

(2,611)

(5,352)

 

Total (loss)/profit for the period attributable to:




Equity holders of the parent

(2,903)

(2,660)

(6,055)

Non-controlling interest

76

54

166


(2,827)

(2,606)

(5,889)

 

Total comprehensive (expense)/income for the period attributable to:




Equity holders of the parent

(3,565)

(2,650)

(5,495)

Non-controlling interest

77

39

143

Total

(3,488)

(2,611)

(5,352)

 

 


 30 June 2013

30 June 2012

31 December 2012


Cents

Cents

Cents

Basic and diluted loss per share

(4.8)

(4.9)

(9.7)

 



 

Consolidated Interim Statement of Financial Position

as at 30 June 2013

 


Unaudited six months ended 30 June

Unaudited six months ended 30 June

Audited year ended 31 December


2013

2012

2012


$'000

$'000

$'000

Assets




Non-current assets




Goodwill

18,758

18,778

18,811

Acquired intangible assets

3,174

4,225

3,739

Capitalised development expenditure

6,336

3,512

4,528

Property, plant and equipment

1,579

995

1,241


29,847

27,510

28,319

Current assets




Inventories

618

569

622

Trade and other receivables

6,554

6,338

5,565

Cash and cash equivalents

5,321

9,217

4,861


12,493

16,124

11,048

Liabilities




Current Liabilities




Trade and other payables

(3,664)

(3,921)

(3,972)

Borrowings

(6,653)

(235)

(182)

Deferred income

(6,512)

(8,466)

(7,592)


(16,829)

(12,622)

(11,746)

Net current assets/(liabilities)

(4,336)

3,502

(698)





Non-current liabilities




Borrowings

(1,426)

(5,840)

(5,984)

Deferred income

(1,400)

(1,740)

(1,146)

Deferred taxation

(1,010)

(1,382)

(1,196)


(3,836)

(8,962)

(8,326)

Net assets

21,675

22,050

19,295





Equity




Ordinary share capital

1,333

920

925

Deferred share capital

7,051

7,051

7,051

Shares to be issued

-

124

-

Share premium

43,507

37,928

38,046

Share options reserve

268

291

268

Translation reserve

(451)

(339)

211

Retained earnings

(30,298)

(24,000)

(27,395)


21,410

21,975

19,106

Non-controlling interest

265

75

189

Total equity

21,675

22,050

19,295

 

 

 

Consolidated Interim Statement of Cash Flows

for the six month period ended 30 June 2013

 


Unaudited six months ended 30 June

Unaudited six months ended 30 June

Audited year ended 31 December


2013

2012

2012

Cash flows from operating activities

$'000

$'000

$'000





Loss before taxation

(3,013)

(2,792)

(6,260)

Adjustments for:




Amortisation of acquired intangible assets

596

570

1,157

Amortisation of capitalised development expenditure

278

292

1,044

Depreciation

390

245

566

Finance income

(11)

(56)

(119)

Finance expense

260

246

507

Share based payment charge

-

32

9





Changes in working capital




Decrease/(increase) in inventories

5

(196)

(233)

Increase in trade and other receivables

(1,184)

(899)

-

Decrease in payables

(770)

(54)

(1,802)

Net cash from operating activities

(3,449)

(2,612)

(5,131)





Cash flows from investing activities




Purchase of intangible assets

(36)

(135)

(237)

Capitalised development expenditure

(2,195)

(1,472)

(3,174)

Purchase of property, plant and equipment

(734)

(225)

(802)

Net cash used in investing activities

(2,965)

(1,832)

(4,213)





Cash flows from financing activities




Net proceeds from issue of ordinary share capital

5,869

6,868

6,989

Term loan received

1,893

250

250

Finance income

11

56

119

Finance expense

(27)

(68)

(64)

Repayment of term loans

(379)

-

(121)

Capital element of finance lease repayments

(13)

(13)

(27)

Increase/(repayment) of credit facility

158

(136)

(189)

Net cash from financing activities

7,512

6,957

6,957





Effects of exchange rates on cash and cash equivalents

(638)

24

568

Net increase/(decrease) in cash and cash equivalents

460

2,537

(1,819)

Cash and cash equivalents at 1 January

4,861

6,680

6,680

Cash and cash equivalents at balance sheet dates

5,321

9,217

4,861

 

 



 

Consolidated Interim Statement of Changes in Equity

for the six month period ended 30 June 2013

 

                                                                                                                                                                                                                                                                                       2002

Share capital

Shares to be issued

Share premium account

Share options reserve

Translation reserve

Retained earnings

Total attributable to equity holders of the parent

Non-controll-ing interest

Total equity

                                                                                                                                                                                                                       

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

 

1 January 2012

7,803

124

31,228

259

(349)

(21,340)

17,725

36

17,761

Loss for the period

-

-

-

-

-

(2,660)

(2,660)

54

(2,606)

Other comprehensive income

-

-

-

-

10

-

10

(15)

(5)

Total comprehensive expense for the period

-

-

-

-

10

(2,660)

(2,650)

39

(2,611)

Contributions by and distributions to owners










Share based payments

-

-

-

32

-

-

32

-

32

Issue of share capital

168

-

6,700

-

-

-

6,868

-

6,868

Total contributions by and distributions to owners

168

-

6,700

32

-

-

6,900

-

6,900

30 June 2012

7,971

124

37,928

291

(339)

(24,000)

21,975

75

22,050

Loss for the period

-

-

-

-

-

(3,395)

(3,395)

112

(3,283)

Other comprehensive income

-

-

-

-

550

-

550

(8)

542

Total comprehensive expense for the period

-

-

-

-

550

(3,395)

(2,845)

104

(2,741)

Contributions by and distributions to owners










Share based payments

-

-

-

(23)

-

-

(23)

-

(23)

Issue of share capital

5

(124)

118

-

-

-

(1)

-

(1)

Dilution of ownership of subsidiary

-

-

-

-

-

-

-

10

10

Total contributions by and distributions to owners

5

(124)

118

(23)

-

-

(24)

10

(14)

31 December 2012

7,976

-

38,046

268

211

(27,395)

19,106

189

19,295

Loss for the period

-

-

-

-

-

(2,903)

(2,903)

76

(2,827)

Other comprehensive income

-

-

-

-

(662)

-

(662)

1

(661)

Total comprehensive expense for the period

-

-

-

-

(662)

(2,903)

(3,565)

77

(3,488)

Contributions by and distributions to owners










Issue of share capital

408

-

5,461

-

-

-

5,869

-

5,869

Total contributions by and distributions to owners

408

-

5,461

-

-

-

5,869

-

5,869

30 June 2013

8,384

-

43,507

268

(451)

(30,298)

21,410

265

21,675



 

Notes to the interim financial statements

 

1. General information and basis of preparation

 

Corero Network Security plc (the "Company") is a company domiciled in England. The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2013

comprise the Company and its subsidiaries (together referred to as the "Group").

 

These condensed consolidated financial statements have been prepared in accordance with IAS 34,

"Interim Financial Reporting", as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2012 Annual Report. The financial information for the half years ended 30 June 2013 and 30 June 2012 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

 

The annual financial statements of Corero Network Security plc are prepared in accordance with

IFRSs as adopted by the European Union. The comparative financial information for the year ended

31 December 2012 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2012 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial

Statement for 2012 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

The consolidated financial statements have been prepared on a going concern basis as the Directors believe that the current sales prospects combined with existing working capital resources and proceeds from the sale of CBS should ensure that the Group has adequate working capital to service its existing business for the foreseeable future. The directors have made this assessment based on internal forecasts and cash flow projections.

 

These consolidated interim financial statements were approved by the Board on 16 September 2013 and approved for issue on 17 September 2013.

 

2. Segment reporting

 

Business segments

 

The Group is managed according to two business units which make up the Group's two reportable operating segments: Corero Network Security and Corero Business Systems.  These divisions are the basis on which the Group reports its primary segment information to the Board, which management consider to be the Chief Operating Decision maker for the purposes of IFRS 8 Operating Segments.  The principal activity of Corero Network Security is the design, development and delivery of network security products. The principal activity of Corero Business Systems is the design, development and delivery of finance and management information software to the school, further education and commercial sectors.

 

 

 

 

 

 

 

 

 

 



 

2. Segmental reporting continued

 


Corero Network Security

Corero Business Systems

Central Costs

Total


6m

6m

12m

6m

6m

12m

6m

6m

12m

6m

6m

12m


30 Jun

2013

30

Jun

2012

31

Dec

2012

30 Jun

2013

30

Jun

2012

31

Dec

2012

30 Jun

2013

30

Jun

2012

31

Dec

2012

30 Jun

2013

30

Jun

2012

31

Dec

2012


$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Revenue to external customers













Product and licence

1,830

3,109

4,437

1,694

1,343

3,207

-

-

-

3,524

4,452

7,644

Professional services

149

82

215

1,180

1,132

2,545

-

-

-

1,329

1,214

2,760

Support

2,890

3,467

6,726

1,752

1,624

3,435

-

-

-

4,642

5,091

10,161

Total

4,869

6,658

11,378

4,626

4,099

9,187

-

-

-

9,495

10,757

20,565

Cost of sales

-1,509

-1,667

-3,171

-888

-967

-1,945

-

-

-

-2,397

-2,634

-5,116

Gross profit

3,360

4,991

8,207

3,738

3,132

7,242

-

-

-

7,098

8,123

15,449

Operating expenses before depreciation and amortisation costs

-5,617

-7,071

-13,190

-2,315

-1,950

-4,125

-666

-597

-1,239

-8,598

-9,618

-18,554

Depreciation and amortisation of intangible assets

-1,070

-934

-2,399

-194

-173

-368

-

-

-

-1,264

-1,107

-2,767

Operating expenses

-6,687

-8,005

-15,589

-2,509

-2,123

-4,493

-666

-597

-1,239

-9,862

-10,725

-21,321

Operating (loss)/profit

-3,327

-3,014

-7,382

1,229

1,009

2,749

-666

-597

-1,239

-2,764

-2,602

-5,872

Finance income

-

-

-

3

1

3

8

55

116

11

56

119

Finance costs

-245

-246

-507

-15

-

-

-

-

-

-260

-246

-507

(Loss)/profit before taxation

-3,572

-3,260

-7,889

1,217

1,010

2,752

-658

-542

-1,123

-3,013

-2,792

-6,260

 

 

 

 

 

 

 



 

2. Segmental reporting continued

 

 


Corero Network Security

Corero Business Systems

Group

Total


30 Jun

2013

30

Jun

2012

31

Dec

2012

30 Jun

2013

30

Jun

2012

31

Dec

2012

30 Jun

2013

30

Jun

2012

31

Dec

2012

30 Jun

2013

30

Jun

2012

31

Dec

2012


$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Non current assets













Goodwill

17,983

17,983

17,983

775

795

828

-

-

-

18,758

18,778

18,811

Acquired intangible assets

3,174

3,734

-

7

5

-

-

-

3,174

4,225

3,739

Capitalised development expenditure

4,384

2,662

1,952

1,654

1,866

-

-

-

6,336

3,512

4,528

Property, plant & equipment

1,354

874

1,095

225

121

146

-

-

-

1,579

995

1,241


26,895

24,933

25,474

2,952

2,577

2,845

-

-

-

29,847

27,510

28,319

Current assets













Inventories

618

569

622

-

-

-

-

-

-

618

569

622

Trade and other receivables

2,026

3,149

2,354

4,405

3,020

3,083

123

169

128

6,554

6,338

5,565

Cash and cash equivalents

525

846

689

445

486

1,107

4,351

7,885

3,065

5,321

9,217

4,861


3,169

4,564

3,665

4,850

3,506

4,190

4,474

8,054

3,193

12,493

16,124

11,048

Current liabilities













Trade and other payables

-1,669

-2,184

-1,853

-1,765

-1,583

-1,787

-230

-154

-332

-3,664

-3,921

-3,972

Borrowings

-6,178

-235

-182

-475

-

-

-

-

-

-6,653

-235

-182

Deferred income

-3,043

-4,753

-4,057

-3,469

-3,713

-3,535

-

-

-

-6,512

-8,466

-7,592


-10,890

-7,172

-6,092

-5,709

-5,296

-5,322

-230

-154

-332

-16,829

-12,622

-11,746

Net current (liabilities)

/assets

-7,721

-2,608

-2,427

-859

-1,790

-1,132

4,244

7,900

2,861

-4,336

3,502

-698

Non-current  liabilities













Borrowings

-

-5,840

-5,984

-1,426

-

-

-

-

-

-1,426

-5,840

-5,984

Deferred income

-1,400

-1,740

-1,146

-

-

-

-

-

-

-1,400

-1,740

-1,146

Deferred taxation

-1,010

-1,382

-1,196

-

-

-

-

-

-

-1,010

-1,382

-1,196


-2,410

-8,962

-8,326

-1,426

-

-

-

-

-

-3,836

-8,962

-8,326

Net assets

16,764

13,363

14,721

667

787

1,713

4,244

7,900

2,861

21,675

22,050

19,295

 



 

3. Loss per share

 

Loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

 

At the reporting dates there were no potentially dilutive ordinary shares.  Therefore the diluted loss per share is equal to the loss per share.

 


30 June 2013 loss

30 June 2013 weighted average number of shares

30 June 2013 loss per share

30 June 2012 loss

30 June 2012 weighted average number of shares

30 June 2012 loss per share


$'000

Thousand

Cents

$'000

Thousand

Cents

Basic and diluted loss per share

(3,565)

73,769

(4.83)

(2,650)

54,363

(4.87)

 





31 Dec 2012 loss

31 Dec 2012 weighted average number of shares

31 Dec 2012 loss per share





$'000

Thousand

Cents

Basic and diluted loss per share




(5,495)

56,426

(9.74)

 

4. Post balance sheet event

 

The Company's interest in Corero Business Systems Limited ("CBS") was sold on 1 August 2013.  The total aggregate cash consideration was $19.7 million, subject to the repayment of the CBS debt of $1.8 million. The Company had a legal and beneficial holding of 92% of the issued share capital of CBS, with the remainder held by management employees of CBS. The proceeds of the sale received by the Company after repayment of the CBS debt was $16.5 million (£10.9 million).  The sale has generated a profit on disposal, to be reported for the year ending 31 December 2013, of approximately $15.0 million.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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