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: [phone]
finnCap
Stuart Andrews/Henrik Persson		Tel: [phone]
Walbrook PR		Tel: [phone]
Bob Huxford/Helen Westaway (Media Relations)	[e-mail]                                                      [e-mail]
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	(9,862)	(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	4,218	3,734	-	7	5	-	-	-	3,174	4,225	3,739
Capitalised development expenditure	4,384	1,858	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.

 

END

 

 

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