Last checked at 26 Mar 2009 07:00
26 March 2009 Corero plc ("Corero" or "the Group") Preliminary Results for the period ended 31 December 2008
Corero PLC, the specialist provider of software solutions to the banking and securities and education markets, announces its preliminary results for the period ended 31 December 2008.
2008 showed a significant improvement over 2007 and the trading profit is in line with the statement issued on 20 January 2009. The Board is pleased with the result which demonstrates the strength of our products, the quality and commitment of our staff and the success of the restructuring in the second half of 2007.
* Trading profit of £272,000 (2007: loss of £798,000) on revenues of £5,249,000 (2007: £5,244,000) * Non cash impairment charge of £0.68 million converts profit before taxation of £25,000 into net loss before taxation of £0.66 million. (2007: loss of £1.49 million) * Increased cash at the end of 2008 of £1,145,000 (2007: £825,000) * Record year for Business Systems division * Return to profitability for Financial Markets division in the second half of 2008 * Overheads reduced by 19.6 per cent. compared to 2007 * Contracted recurring revenue covers 61 per cent. of the 2009 budgeted administrative overheads
Peter Waller, Executive Chairman, said
"The actions taken in 2007 to reduce the cost base have had the desired effect of delivering a trading profit in a year when the general economic environment meant that revenues remained flat overall. We believe that the company will maintain its progress in 2009 while making the necessary investments in products and people to position Corero to grow more strongly in 2010 and 2011.
Enquiries:
Corero plcPeter Waller, Executive Chairman Tel: 07785 228080Duncan Swallow, Financial Controller Tel: 01923 695136John East & Partners LimitedJohn East/Virginia Bull Tel: 020 7628 2200College HillJamie Ramsay Tel: 020 7457 2047About Corero
Corero designs, develops and delivers market leading software products for financial institutions through its Financial Markets Division, and business and education markets through its Business Systems Division.
Blue Curve software allows organisations to vastly improve the production and distribution of their financial research. It collates and presents complex financial data efficiently and quickly for analysts to make informed opinions on market conditions and trends. It speeds up the process of content creation, content approval and publishing. And it also makes sure that each piece of content conforms to the correct regulatory requirements, and that it gets sent to the right people, using the right method and at the right time.
Radica CAPS is the European leading software system that addresses the needs of asset servicing operations for the global banking & securities sector. By fully automating the life cycle of corporate actions and dividends, including taxation and new issues and placings, Radica reduces the serious operational risk of missing or miscalculating corporate events. This area of operations has traditionally been very manual with all the risk and cost associated with such processes. Radica is designed for a global market and can address the needs of financial institutions from Europe, North America or Asia Pacific.
Resource Financials, which is ICAEW accredited, is at the core of our suite of business applications. Solutions also exist for eProcurement, Project Costing, HR & Payroll, Continuing Professional Development and Learner Management. Together with Workflow and Web Applications covering Reporting, Timesheets, Expenses and Requisitions, there are over 20 highly integrated modules offering large and small enterprises modern and dynamic business solutions.
Resource EMS, our new Learner Management platform manages the students, tutors and processes within Further Education by electronically capturing the information required throughout the "learning lifecycle", by satisfying Government reporting requirements and, most importantly, by helping to secure the funding upon which Colleges depend.
Chairman's Statementfor the year ended 31 December 2008
Introduction
The results for the year ended 31 December 2008 showed a significant improvement over those for 2007 and the trading result is in line with my statement issued on 20 January 2009. The board is pleased with the result, which demonstrates the strength of our products, the quality and commitment of our staff and the success of the restructuring undertaken in the second half of 2007.
Results
For the year ended 31 December 2008, the Group reported revenues of £5.25 million (2007: £5.24 million). Trading profit was £0.27 million compared with a loss in 2007 of £0.8 million.
The directors felt it prudent to recognise an impairment charge of £0.68 million against the £1.87 million goodwill carrying value of the Blue Curve acquisition.
After taking into account this non cash item, the result turns our profit before taxation of £0.02 million into a loss of £0.66 million, a very significant improvement over the previous year ( 2007: loss of £1.49 million ).
The cash position of the group improved in the year under review. Cash at the end of 2008 was £1,145,000 (2007: £825,000) and is adequate to support the trading of the group. The administrative cost base for 2008 was £4.53 million, a reduction of £1.16 million, or 19.0 per cent when compared to 2007. Contracted support and services revenue was £2.9 million at 31 December 2008, which covers over 60 per cent. of the 2009 budgeted administrative expense.
Business Systems Division
2008 was a successful year for the Business Systems division, which achieved record revenue and profit figures, based to a large degree upon the successful conversion of existing customers to the Resource Education Management System ("REMS"), its new learner management product.
Whilst REMS took many of the headlines last year, we also continued to be seen as a market leading vendor of financial systems to the City Academy sector. We added 15 more City Academy customers to the growing list of those which have opted to use Resource Financials as their system of choice. These new wins mean that we have managed to increase our market share of academies to almost 30 per cent of those now open. The government continues to indicate that it plans to have over 200 City Academies open, or in the pipeline, by 2010 and still hopes to have more than 400 in total over the coming years. This continues to provide us with a steady stream of opportunities.
As a result of the launch of REMS, we secured two new clients, Walford & North Shropshire College and Ludlow College, making us the dominant vendor in Shropshire. We also added new customers for the full Resource financials and web applications suite. These were Heythrop College and Orchard Hill College, both in London, and Peterborough Regional College.
As we move into 2009 we believe that the education sector will continue to provide us with the majority of our opportunities and that our business remains stable in the current challenging economic environment. We also intend to make a significant further investment in our product, which will enable us to remain competitive, enhance customer retention and allow us to build upon the customer base we already have in the commercial `Project Costing' market sector.
Financial Markets Division
Trading in the Financial Markets division was difficult in 2008 as a result of the current economic climate and the general downturn in the global Banking and Securities sector. Despite this, as a result of tight cost containment and much improved productivity, the division moved into profit in the second half of 2008 for the first time since the second half of 2006. This turnaround helped the division achieve an overall positive contribution for 2008, which was a vast improvement on the previous year.
A number of significant changes were made in the Financial Markets division, which helped us to achieve this result. These included a reduction in headcount, changes in the organisational structure and an integration of several operational teams. These changes make us confident that we can deliver improved customer service from a reduced cost base. We also believe that these changes should produce future profit growth.
2009 will be challenging as the market is only improving marginally. However, we enter it with a good degree of confidence and better visibility in our contracted revenues, due to the increasing proportion of recurring income arising from hosted services, annual licence fees and support revenues. We have also made a significant investment in our sales team in North America as we seek to capitalise on an increasing number of opportunities in that region. We also aim to make major improvements to both our Blue Curve and Radica product suites, helping them to maintain their premier position in the market. Our focus will remain on building long term sustainable revenue streams through providing high value software solutions and related services to the Banking and Securities sector globally.
Business Model and Strategy
Our strategy at the operating level remains one of running Corero as two separate businesses. These are our Financial Markets and Business Systems divisions, with the minimum of central resources required for co-ordination, development and implementation of corporate strategy and to meet public company requirements. The focus for 2009 is to maintain operating profitability, increase our market share, manage the cost base prudently and invest for future targeted growth. In the longer term we have a clear plan to increase the size of both businesses through organic growth and acquisition or merger where appropriate.
Staff
At the start of this statement I commented on the quality and commitment of our staff. It was a difficult year in some parts of our business and on behalf of the board I thank everyone for the excellent contribution they have made.
Outlook
Because of the current global economic situation it is difficult to predict future performance with certainty. However, the directors expect the group to maintain progress in 2009. The Business Systems division should continue to do well in the education sector, although we will need to make further investment in its products in order to take advantage of future market opportunities. We also expect the Financial Markets division to have a slightly better year, which we anticipate will set the foundations for growth in 2010 and 2011.
Peter WallerChairman25 March 2009Finance Officer's Reportfor the year ended 31 December 2008
Financial Performance
The directors and managers of the Group use revenue growth, trading profit and cash generation as their Key Performance Indicators. Details of these indicators are disclosed throughout the financial statements.
For the year ended 31 December 2008, the Group reported a trading profit of £ 272,000 (2007: loss £798,000) and a loss before taxation of £658,000 (2007: loss £1,491,000). This represents a considerable turnaround at the trading level. The loss before taxation for 2008 included an impairment charge of £ 683,000 (2007: £nil).
Group revenues remained constant at £5,249,000 (2007: £5,244,000). The Business Systems division increased revenue by £490,000, whilst there was a decrease of £485,000 in revenue in the Financial Markets division.
The Business Systems division grew revenues to £3,208,000 (2007: £2,718,000) due to sales to new City Academy customers and from the launch of the new Resource Education Management System "REMS" product.
The Financial Markets division revenue declined to £2,041,000 (2007: £ 2,526,000). The decrease in Blue Curve revenues to £909,000 (2006: £1,296,000) was due to a lack of new licence sales and a reduction in the professional services revenue. Radica revenues were £1,132,000 (2007: £1,230,000) the reduction also being due to a lack of new licence sales.
Contracted annual licence and support revenues have remained at £2,900,000 (2007: £2,900,000) due to the net effect of price rises, new customers and cancellations of support contracts.
The trading profit from the Business Systems division grew 14 per cent. to £ 873,000 (2007: £766,000) based on new sales to City Academies and the successful conversion of existing customers to the new "REMS" Learner Manager product. This was the divisions' most successful year ever.
The Financial Markets division recorded a trading profit of £10,000 (2007: loss £468,000). The turnaround resulted from the reduction in headcount, tight control of costs and a reorganisation of the internal divisional structure.
Central costs have reduced by 44 per cent. to £611,000 (2007: £1,096,000). Central costs relate to the costs of the central services employees covering the areas of finance, HR, marketing, IT and the executive chairman, together with the regulatory costs of being an Aim listed PLC. Central costs are budgeted to remain at 2008 levels in 2009.
Non trading expenses - holiday pay accrual, amortisation of customer contracts and the related customer relationships, capitalisation of research and development, amortisation of research and development increased the profit by £ 80,000 (2007: £45,000).
Exceptional credits of £14,000 (2007 costs £401,000) related to the release of an appropriate part of the provision against future property lease costs for the surplus Blue Curve property made in 2007. The property lease was assigned in August 2008.
An impairment charge of £683,000 (2007: £nil) was made during the year. The impairment charge was a result of an impairment review of the Blue Curve goodwill.
Net interest on the 8% Convertible Unsecured Loan Stock less interest on bank deposits was £341,000 (2007: £337,000). This includes notional interest payments as required by International Accounting Standard 32.
Tax credits of £80,000 were received in the year which relate to prior year tax credits reclaimed. Total tax losses carried forward are approximately £ 6,565,000.
The loss for the year was £578,000 (2007: £1,443,000).
Loss per share was 1.27 pence (2007: loss 3.33 pence). The average number of shares in issue in 2008 was 45,569,702 (2007: 43,347,651).
Financial Position
Net trade receivables were £759,000 (2007: £1,319,000), which represented 25 days sales outstanding (2007: 26). Cash collection was maximised at year end, reducing the trade receivables and increasing the closing cash balance to £ 1,145,000 (2007: £825,000) despite improved creditor payment days.
Net cash generated from operations was £1,098,000 (2007: £697,000). This was partially spent on investment and financing activities leading to a net increase in cash and cash equivalents of £320,000 (2007: decrease £82,000).
Deferred income, which represents future revenues for the Group, reduced slightly to £1,892,000 (2007: £1,962,000).
The Group's net deficit at the year end was £1,646,000 (2007: £1,065,000).
Duncan SwallowGroup Financial Controller25 March 2009Consolidated Income Statementfor the year ended 31 December 2008 2008 2007 Note £'000 £'000 Revenue 5,249 5,244 Cost of sales (363) (303) Gross profit 4,886 4,941 Trading expenses (4,614) (5,739) Trading profit/(loss) 272 (798) Non trading expenses 80 45 Restructuring credit/(charge) 2 14 (401) Impairment charge 3 (683) - Loss before financing (317) (1,154) Finance income 4 13 16 Finance costs 5 (354) (353) Loss before taxation (658) (1,491) Taxation 6 80 48 Loss attributable to equity 9 (578) (1,443)shareholders Basic and diluted loss per share 7 (1.27p) (3.33p)
Non trading expenses are the holiday pay accrual, amortisation of customer contracts and the related customer relationships, capitalisation of research and development, amortisation of research and development.
Consolidated Statement of recognised income and expense
2008 2007 £'000 £'000 Loss for the financial period (578) (1,443) Total recognised losses relating to the (578) (1,443)year Total recognised losses since the last (578) (1,443)financial statements Consolidated Balance Sheetas at 31 December 2008 2008 2007 £'000 £'000 Assets Non-current assets Goodwill 1,677 2,361 Other intangible assets 1,241 1,187 Property, plant and equipment 122 148 3,040 3,696 Current assets Trade and other receivables 975 1,639 Cash and cash equivalents 1,145 825 2,120 2,464 Liabilities Current Liabilities Trade and other payables (834) (1,093) Provisions (14) (90) Deferred income (1,892) (1,962) (2,740) (3,145) Net current (liabilities)/assets (620) (681) Non-current liabilities Convertible 8% unsecured loan stock (4,058) (4,027) Provisions (8) (53) (4,066) (4,080) Net (liabilities)/assets (1,646) (1,065) Shareholders' equity Ordinary share capital 9 4,557 4,557 Share premium 9 6,369 6,369 Merger reserve 9 1,023 1,023 Convertible unsecured loan stock equity 9 146 146reserve Share options reserve 9 12 15 Retained earnings 9 (13,753) (13,175) Total equity attributable to equity (1,646) (1,065)holders of the parent Consolidated Cash Flow Statementfor the year ended 31 December 2008 2008 2007 Note £'000 £'000 Net cash from operating activities A 1,098 697 Cash flows from investing activities Purchase of intangible assets (419) (345) Purchase of property, plant and equipment (49) (133) Net cash used in investing activities (468) (478) Cash flows from financing activities Interest paid (323) (317) Interest received 13 16 Net cash used in financing activities (310) (301) Net increase/(decrease) in cash and cash 320 (82)equivalents Cash and cash equivalents at 1 January 825 907 Cash and cash equivalents at 31 December 1,145 825
Note to the consolidated cash flow statement
A. Cash generated from operations
2008 2007 £'000 £'000 Continuing operations Loss before taxation (658) (1,491) Adjustments for: Depreciation 75 63 Amortisation of intangibles 365 274 Impairment of goodwill 683 - Finance income (13) (16) Finance expense 354 353 (Decrease)/increase in provisions (121) 75 Share based payment credit (3) - Changes in working capital (Increase)/decrease in trade and other 664 824receivables Increase/(decrease) in payables (328) 567 Cash generated from continuing operations 1,018 649 Corporation tax credit 80 48 Net cash from operating activities 1,098 6971. Accounting Policies1.1 Basis of preparation
The Group and parent company financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee (IFRIC) interpretations and those parts of the Companies Act 1985 applicable to companies reporting under IFRS.
The Group and parent company financial statements have been prepared under the historical cost convention. A summary of the significant Group accounting policies adopted in the preparation of the financial statements is set out below.
The financial statements have been prepared on a going concern basis. The Group was both profitable, before the impairment charge, and cash generative for the year.
The Directors have prepared detailed profit and cash flow projections for the period to 30 September 2010. The profit projections are prepared on a current cost plus inflation basis with any additional headcount linked to incremental revenue. The projected receipts included in the cash flow projection have been reduced by 13 per cent to represent uncertainty within the sales forecasts. The cash flow projections show that the Group will maintain a positive cash balance.
As a result, the Directors are of the opinion that the Group has adequate working capital to continue as a going concern for the foreseeable future and, in particular, for a period of at least 12 months from the date of approval of these financial statements.
1.2 Basis of consolidation
The consolidated financial statements incorporate the results, assets, liabilities and cash flows of the Company and each of its subsidiaries for the financial year ended 31 December 2008.
Subsidiaries are entities controlled by the Group. Control is deemed to exist when the Group has the power, directly or indirectly to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results, assets, liabilities and cash flows of subsidiaries are included in the consolidated financial statements from the date control commences until the date that control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.
Intra-group balances and transactions are eliminated on consolidation.
1.3 Revenue
Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for services provided in the normal course of business, net of all related discounts and sales tax.
Corero has adopted the following in respect of software revenue recognition
1. Software Products
Revenue results mainly from licences, which provide customers with the right to use these products. Such revenue is recognised on the following basis:
i. If an arrangement to deliver software or a software system, either alone or together with other products or services, requires significant production, modification, or customisation, the revenue for both services and software is recognised under the percentage of completion method.
ii. If services are essential to the functionality of the software and the payment terms are linked, the revenue for both software and services is recognised when the following conditions are met:
- A signed contract exists;- Delivery has occurred;- The sales price is fixed and determinable;- Collection of the debt is probable;- No significant obligations remain.
iii. If services are incidental to the functionality and/or the payment terms are linked to simple installations, revenue from the grant of perpetual or fixed term licences to use Corero's software is recognised when the above conditions are met and services revenue is recognised separately as the services are provided. Where services are not incidental to the functionality licence revenues are recorded as agreed project milestones are achieved.
Software rentals or licences invoiced on a periodic basis are recognised over the term of the agreement.
2. Consulting and Professional Services
Revenue from the provision of consultancy and professional services is recognised as the work is performed.
3. Support income is recognised over the life of the agreement.
4. Interest income is accrued on a time basis using the effective interest method.
1.4 Cost of sales
Cost of sales represents amounts charged by external third parties for services and goods directly related to revenue. Examples of such costs would include, but not be limited to, external consultants and third party hardware and software.
1.5 Intangible assets
Separately acquired intangible assets
Purchased computer software is carried at cost less accumulated amortisation and any impairment losses.
Internally generated intangible assets
The Group's internally generated intangible assets include development costs.
Development costs are capitalised only when it is probable that future economic benefit will result from the project and the following criteria are met:
* The technical feasibility of the product has been ascertained; * Adequate, technical, financial and other resources are available to complete and sell or use the intangible asset; * The Group can demonstrate how the intangible asset will generate future economic benefits and the ability to use or sell the intangible asset can be demonstrated; * It is the intention of management to complete the intangible asset and use it or sell it; and * The development costs can be measured reliably.
After initial recognition, internally generated intangible assets are carried at cost less accumulated amortisation and any impairment losses.
1.6 Impairment
At each balance sheet date, the Group assesses whether there is any indication that its assets have been impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined.
The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. This present value is discounted using a pre-tax rate that reflects current market assessments of the time value of money and of the risks specific to the asset for which future cash flow estimates have not been adjusted. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is recognised as an impairment loss. An impairment loss relating to assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in the income statement.
Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the combination.
Goodwill is tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the unit. The impairment loss is allocated to reduce the carrying amount of the assets of the unit by first reducing the carrying amount of any goodwill allocated to the cash-generating unit, and then reducing the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.
If an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount but limited to the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised in the income statement. Impairment losses on goodwill are not subsequently reversed.
2. Administrative expenses - restructuring costs
2008 2007 £'000 £'000 Staff restructuring including professional fees 5 (346) Release of the provision against surplus premises 30 (55)arising on Blue Curve acquisition Dilapidation costs of West Byfleet office (21) - 14 (401)3. Impairment charge
Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to business segment.
As at 31 December 2008, the goodwill was allocated at the segment level as follows: £1,168,000 (2007: £1,852,000) relates to the Financial Markets division, and £509,000 (2007: £509,000) relates to the Business Systems division.
The recoverable amounts for the cash-generating units given above were determined based on value-in-use calculations using cash flow projections over a five year period. The key assumptions for the value-in-use calculations are those regarding growth and discount rates. The growth rates are based on the management's estimates of growth in those specific markets based on past experience and expected future developments. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU's.
The cash flows for the first four years of the cash flow projections are derived from the most recent financial forecasts approved by the management. The fifth year cash flow projection is based on an extrapolation of the growth rates used in the first four year projections. Future cash flows are discounted in line with the weighted average cost of capital of 10 per cent. pre-tax.
An impairment charge of £683,000 (2007: £nil) arose as a result of theimpairment test.4. Finance income 2008 2007 £'000 £'000 Interest on bank deposits 13 165. Finance costs 2008 2007 £'000 £'000 Interest payable on CULS (320) (285) Bank interest payable (3) (6) Amortisation of notional CULS interest charges under IAS (31) (62)32 (354) (353)6. Taxation
The amounts represent refunds in respect of corporation tax and research and development tax credits received during the year.
7. Loss per share
Basic loss per share is calculated by dividing the loss attributable toordinary shareholders by the weighted average of ordinary shares outstandingduring the period. 2008 2007 Loss £'000 after taxation (578) (1,443) Basic loss per share (1.27p) (3.33p) Weighted average number of 45,569,702 43,347,651ordinary shares
The CULS and share options were non-dilutive for both periods and thus the diluted loss per share is the same as the basic amount.
8. Dividend
The Directors do not recommend paying a dividend (2007: £nil).
9. Statement of changes in shareholder's equity
Shares Share Share CULS Merger Share Profit Total to be capital options equity reserve premium and loss issued reserve reserve account reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 1 January 1,531 3,685 15 146 364 6,369 (11,732) 3782007 Retained loss - - - - - - (1,443) (1,443)for year ended 31 December 2007 Deferred (1,531) 872 - - 659 - - -consideration for Blue Curve Limited 31 December - 4,557 15 146 1,023 6,369 (13,175) (1,065)2007 Share based - - (3) - - - - (3)payments Retained loss - - - - - - (578) (578)for year ended 31 December 2008 31 December - 4,557 12 146 1,023 6,369 (13,753) (1,646)2008
Share options reserve
A charge of £3,000 was made during the twelve months ended 31st December 2008 representing the estimated cost of any share options. The estimate was calculated using the Black Scholes option pricing model. No employee share options were exercised during the period.
Convertible unsecured loan stock equity reserve
Convertible loan stock is a compound instrument consisting of a liability component and an equity component. The fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, was transferred to reserves at the inception of the new instrument in August 2006.
Merger reserve
The premium on the issue of 5,606,060 10 pence ordinary shares in relation to the acquisition of Blue Curve Limited was transferred to the merger reserve during the year ended 31 December 2006. The premium on the issue of 8,720,952 10 pence ordinary shares in relation to the deferred consideration for Blue Curve Limited was transferred to the merger reserve during the year ended 31 December 2007.
10. Sundry Information
This preliminary statement, which has been agreed with the auditors, was approved by the Board on 26 March 2009. It is not the Company's statutory accounts for the year ended 31 December 2008 but has been extracted from them. Copies of the report and accounts for the year to 31 December 2008 will be posted to shareholders shortly and may be obtained from the company's registered offices.
The statutory accounts for the year ended 31 December 2008 received an audit report which was unqualified and did not contain a statement under s237 (2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31 December 2007 have been delivered to the Registrar of Companies but the audited 31 December 2008 accounts have not yet been filed.
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