Corero Network Regulatory News (CNS)

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:

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

Consolidated Interim Statement of Financial Position

as at 30 June 2013

Consolidated Interim Statement of Cash Flows

for the six month period ended 30 June 2013

Consolidated Interim Statement of Changes in Equity

for the six month period ended 30 June 2013

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

2. Segmental reporting continued

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.

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.