Last checked at 20 Sep 2010 07:00
20 September 2010
CORERO PLC
Interim Results
Corero plc (AIM: CORO, "Corero" or "the Group"), announces its half yearly report for the six month period ended 30 June 2010.
Highlights
·; 6% revenue growth in Business Systems Division - underpinned by 17 new Academy wins
·; Trading profit of £164,000 (2009: loss £180,000)
·; Profit before tax of £21,000 (2009: loss of £445,000)
·; Earnings per share 1.38p (2009: loss 29.1p)
·; Central costs reduced to £179,000 (2009: £322,000)
Post half year end - fund raise, disposal, new management and strategy
·; £6.5 million equity raising in August 2010
·; Transformation strategy to develop a Network Security business
·; New investment initiatives in the Business Systems division
·; Sale of the Financial Markets division for the assumption by the purchaser of £2.0 million of convertible unsecured loan stock ("CULS")
·; Conversion of remaining £2.0 million of CULS to ordinary shares
·; Debt free
Peter Waller, Corero Chairman, said:
"We are particularly pleased with these results, which represent the best first half performance since 2006. They directly reflect the targeted investment and management initiatives of the past two years. With the injection of a new management team and considerable funds in August, we are now well placed to grow the business."
Andrew Miller, Corero Chief Operating Officer, said:
"The highly fragmented global network security market continues to show vibrant growth as cyber security threats broaden and the market demand for evolved security solutions increases.
"With the new experienced team in place and supportive investors, we are well placed to execute our strategy.
"We aim to build a strong network security systems business, by a combination of acquisitions and organic growth, to address the network security challenges encountered by mid-market and enterprise organisations as well as telecommunication service providers."
Enquiries:
| Corero plc |
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| Peter Waller, Chairman Andrew Miller, Executive Director | Tel: 020 7457 2047
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| FinnCap | |
| Sarah Wharry / Henrik Persson | Tel: 020 7600 1658
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| College Hill |
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| Adrian Duffield / Rozi Morris | Tel: 020 7457 2047 |
Interim Results for the six month period ended 30 June 2010
Overview
As a result of the £6.5 million equity fund raising in August 2010, the sale of the Financial Markets division, the conversion of the convertible unsecured loan stock ("CULS") to ordinary shares, and the appointment of two directors and senior executives, Corero has been transformed, financially and operationally.
The Group's strategy is to develop a new Network Security Systems business through acquisition and organically whilst continuing to grow the existing Business Systems division.
In the six months to 30 June 2010 the Group reported revenues of £2,214,000 (2009: 2,180,000) with a significantly improved trading profit of £164,000 (2009: loss £180,000) mainly as a result of cost reduction actions taken in 2009. The cash balance improved to £621,000 (2009: £351,000).
Business Systems division
Revenues increased by 6% despite the tough economic outlook in the first half of 2010 and a much tighter funding environment in the division's key education market.
The division's success in the education Academy market has continued with a total of 17 new customer wins for the Resource Financials business solution during the first half of the year. In addition, a further 18 Academy contracts have been won since the end of June 2010 which will represent the division's most successful year in the Academy market and will result in market share increasing to over 30%. The division is confident that it can continue to attract new Academy customers as the government increases the number of schools approved for Academy status.
In a further development, Oxford & Cherwell Valley College awarded the division a major contract extension for Resource EMS, the division's Education Management System (REMS). In a shared services initiative and, believed to be a first for the sector, Oxford & Cherwell Valley College took on joint management responsibility with LSN, a not-for-profit charity, for the further education provision of Reading College, who demerged from Thames Valley University.
In May 2010, the division showcased a pre-release version of Resource Financials v7, the next generation financial software solution. The new version incorporates a number of enhancements including an improved user interface, extended general ledger coding and budgeting, a completely revamped reporting engine with support for multiple output scenarios, closer integration with MS Office and a dynamic hierarchy manager for more in-depth analysis and reporting. With general availability in early 2011, Resource Financials v7 will also provide the division with the platform to explore new market opportunities during the next 12 to 18 months.
Network Security
The Group's strategy is to build, through a combination of acquisition and organic development, a network security propriety technology business focused on delivering software and hardware solutions and related support services to mid-market commercial and enterprise customers and telecommunication service providers, through international channels.
Market and opportunity
In 2009, cyber attacks grew by over 300% worldwide. High profile attacks on Google, Adobe and Yahoo have emphasised the necessity to address these threats, while new legislation is mandating corporate wide deployment of pervasive security regimes.
Network security is a resilient area of IT spend and is often considered by organisations to be non-discretionary. There are a number of reasons for this:
·; The rapid growth of the Internet has resulted in considerable growth of cyber crime, together with an increase in the threat of insider fraud and data theft.
·; The security market is not at the point where existing solutions can protect against emerging or as yet unknown threats - the evolution of new threats demands continued security technological advances.
·; The security market is a constantly changing and evolving industry. There are several business drivers and IT trends which are forcing changes in security practices and related technology adoption:
o The network perimeter is rapidly dissolving as initiatives around external access to Internet connected corporate networks, cloud computing domains, consumer and social networking and software-as-a-service, are now making the notion of a determinable secure network border more irrelevant.
o Virtualisation is disrupting traditional security models and causing a significant rethink of network security.
o The evolving Web is the new frontier for attacks - traditional Web protection practices such as URL filtering and antivirus protection at the gateway have failed to keep up with today's security issues.
·; As a direct result of increasing cybercrime, new legislation is creating an always-changing compliance requirement for information security.
The network security market is also highly fragmented with no single company offering a solutions portfolio that spans the total customer requirements spectrum. Larger security vendors generally lag behind the market in terms of innovation, whilst smaller innovative companies typically remain too small to compete effectively.
The rapid expansion and continual innovation within the security industry has created an array of small technology companies who have developed innovative solutions to counter specific threats. A large number of these companies have been unable to achieve critical mass, garner sufficient operational expertise to grow beyond specific markets, or develop full commercial potential.
Strategy implementation
Corero has adopted a buy and build strategy to maximise opportunities through the acquisition, consolidation and progressive integration of targeted technologies that address the market requirements of mid-market commercial and enterprise customers as well as telecommunication service providers, offering best in class solutions.
The acquisition strategy is focused on the acquisition of software oriented intellectual property assets that leverage the power of today's generation of high performance hardware appliances in order to address the sheer volume of security threats.
The Group has identified various technologically advanced and proven companies and is in discussions with a number of potential acquisition opportunities.
Subsequent to the acquisitions, the primary focus will be to build scale by increasing the revenues and market share of the acquired entities by developing and adding commercial activities in sales and marketing, technical support services, international business partners and distribution channels, whilst leveraging the Group management team's expertise and contacts within the security industry.
Management team
In addition to the appointment of Jens Montanana as a non-executive director and Andrew Miller as Chief Operating Officer, Andre Stewart has been appointed Vice President of Sales and Stephen Turner Vice President of Technology Solutions and Services. Both of the latter two have extensive international experience and expertise in the network security market.
Andre Stewart was most recently at Fortinet as VP Worldwide Sales. Initially, VP EMEA sales, and managing director of European operations, Andre grew Fortinet's European revenues from zero to over $100 million in the period 2003 to 2008.
Stephen Turner was most recently at Fortinet, initially shaping the high-end appliance strategy, and subsequently as VP Customer Services and Support worldwide.
Sale of Financial Markets division, CULS conversion and fund raising
On 6 August 2010, the Financial Markets division was sold to Brokerhorse Limited, a subsidiary of Rivington Street Holdings plc, the major part of the sale price being the assumption by Rivington of £2 million of the Company's CULS.
At the same time, the remaining £2.0 million of CULS was converted into ordinary shares and £6.5 million (£4.2 million of which was invested by the incoming directors and management) was raised by a Placing and Subscription.
The pro-forma net assets of the Group at 30 June 2010 after the sale of the Financial Markets division, CULS redemption and fund raising amounted to £7,190,000.
Financial Review
In the six months to 30 June 2010 the Group reported revenues of £2,214,000 (2009: 2,180,000) with a significantly improved trading profit of £164,000 (2009: loss £180,000), mainly as a result of cost reduction actions taken in 2009.
The Business Systems division revenues were £1,384,000 (2009: £1,306,000). New licence sales were made to 17 Academies in 2010. The revenue from consultancy and support services showed a small increase. The divisional trading profit was £282,000 (2009: £271,000).
The Financial Markets division, which has been sold since the half year end, had revenues of £830,000 (2009: £874,000). The divisional trading profit was £61,000 (2009: loss £129,000). The profit improvement was as a result of actions taken in 2009 to reduce staff costs.
Central costs were sharply down to £179,000 (2009: £322,000), due to a reduction in staff costs.
Group operating profit before financing was £184,000 (2009: loss £287,000) and profit before taxation was £21,000 (2009: loss £445,000). The Group reported earnings per share of 1.38p (2009: loss 29.1p).
The financial position of the Group improved in the first six months of 2010. Net cash from operating activities was £241,000 (2009: absorption £492,000).
Following the sale of the Financial Markets division, conversion of the CULS and the £6.5m equity fund-raising, the Group's financial position has been transformed, albeit that additional costs have been added to support the development of the growth strategy.
Outlook
Post the disposal of the Financial Markets division, the ongoing revenues of the Group currently comprise the operations of the Business Systems division.
The outlook for the Business Systems division is positive as it is a major provider of business solutions to both the UK college market and importantly the Academy market, which is expected to grow substantially over the next two years, encouraged by government support. The strong financial position of the Group will now enable the division to build on the success of the first six months of the year by providing additional investment in new product releases and the hiring of additional staff.
Consolidated Interim Statement of Comprehensive Income
For the six months ended 30 June 2010
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| Unaudited six months ended 30 June 2010 | Unaudited six months ended 30 June 2009 | Audited Year ended 31 December 2009 |
| £'000 | £'000 | £'000 | |
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| Revenue | 2,214 | 2,180 | 4,922 |
| Cost of sales | (115) | (69) | (202) |
| Gross profit | 2,099 | 2,111 | 4,720 |
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| Trading Expenses | (1,935) | (2,291) | (4,409) |
| Trading profit/(loss)
| 164 | (180) | 311 |
| Non trading expenses | 21 | (56) | (111) |
| Restructuring charge | (1) | (51) | (63) |
| Profit/(loss) before financing | 184 | (287) | 137 |
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| Finance costs | (163) | (158) | (317) |
| Profit/(loss) before taxation | 21 | (445) | (180) |
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| Taxation | - | 3 | 4 |
| Profit/(loss) attributable to equity shareholders | 21 | (442) | (176) |
| Total comprehensive income/(loss) for the period | 21 | (442) | (176) |
| Basic and diluted earnings/(loss) per share |
1.38p |
(29.1p) |
(11.6p) |
Consolidated Interim Statement of Financial Position
As at 30 June 2010
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| Unaudited as at 30 June 2010 | Unaudited as at 30 June 2009 | Audited as at 31 December 2009 |
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| £'000 | £'000 | £'000 |
| Assets |
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| Non-current assets |
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| Goodwill | 1,677 | 1,677 | 1,677 |
| Other intangible assets | 1,123 | 1,174 | 1,119 |
| Property, plant and equipment | 59 | 97 | 78 |
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| 2,859 | 2,948 | 2,874 |
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| Current assets |
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| Trade and other receivables | 1,194 | 977 | 885 |
| Cash and cash equivalents | 621 | 351 | 686 |
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| 1,815 | 1,328 | 1,571 |
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| Liabilities |
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| Current liabilities |
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| Trade and other payables | (722) | (649) | (630) |
| Provisions | (4) | (11) | (12) |
| Deferred income | (1,500) | (1,642) | (1,458) |
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| (2,226) | (2,302) | (2,100) |
| Net current liabilities | (411) | (974) | (529) |
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Non-current liabilities |
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| Convertible 8% unsecured loan stock | (4,216) | (4,055) | (4,134) |
| Provisions | - | (7) | - |
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| (4,216) | (4,062) | (4,134) |
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Net liabilities |
(1,768) |
(2,088) |
(1,789) |
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| Shareholders' equity |
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| Ordinary share capital | 15 | 15 | 15 |
| Deferred share capital | 4,542 | 4,542 | 4,542 |
| Share premium | 6,369 | 6,369 | 6,369 |
| Merger reserve | 1,023 | 1,023 | 1,023 |
| Convertible unsecured loan stock equity reserve | 146 | 146 | 146 |
| Share options reserve | 14 | 12 | 14 |
| Retained earnings | (13,877) | (14,195) | (13,898) |
| Total deficit attributable to equity holders of the parent | (1,768) | (2,088) | (1,789) |
Consolidated Interim Statement of Cash Flow
For the six months ended 30 June 2010
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| Unaudited six months ended 30 June 2010 | Unaudited six months ended 30 June 2009 |
Audited year ended 31 December 2009 |
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| £'000 | £'000 | £'000 |
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| Net cash from operating activities | 241 | (492) | 85 |
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| Cash flows from investing activities |
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| Purchase of intangible assets | (222) | (137) | (292) |
| Purchase of property, plant and equipment | (3) | (4) | (11) |
| Net cash used in investing activities | (225) | (141) | (303) |
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| Cash flows from financing activities |
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| Interest paid | (81) | (161) | (241) |
| Interest received | - | - | - |
| Net cash used in financing activities | (81) | (161) | (241) |
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| Net decrease in cash and cash equivalents | (65) | (794) | (459) |
| Cash and cash equivalents at 1 January | 686 | 1,145 | 1,145 |
| Cash and cash equivalents at balance sheet date | 621 | 351 | 686 |
Statement of Changes in Shareholders' Equity
For six months ended 30 June 2010
| 2002 | Capital | Share options reserve | CULS equity reserve | Merger reserve | Share premium account | Profit and loss reserve | Total |
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| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| 1 January 2010 | 4,557 | 14 | 146 | 1,023 | 6,369 | (13,898) | (1,789) |
| Total comprehensive income for period ended 30 June 2010 | - | - | - | - | - | 21 | 21 |
| 30 June 2010 | 4,557 | 12 | 146 | 1,023 | 6,369 | (13,877) | (1,768) |
Notes to the interim financial statements
1. General information and basis of preparation
The consolidated interim financial statements have been prepared in accordance with the AIM Rules for Companies and in accordance with International Financial Reporting Standard (IFRS) IAS 34 Interim Financial Reporting.
The interim financial statements are unaudited and do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2009.
Corero's consolidated interim financial statements are presented in Pounds Sterling (£), which is also the functional currency of the parent company.
The financial information for the year ended 31 December 2009 has been derived from the published statutory accounts. A copy of the full accounts for that period, on which the auditors issued an unqualified report, has been delivered to the Registrar of Companies.
These interim financial statements have been prepared in accordance with the accounting policies applied in the financial statements for the year ended 31 December 2009. They have been prepared under the historical cost convention except for the valuation of financial instruments. The 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 should ensure that Corero 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 17 September 2010 and approved for issue on 20 September 2010.
2. Segment reporting
Business segments
The Group is managed according to two operating divisions: Financial Markets and Business Systems. These divisions are the basis on which the Group reports its primary segment information. The principal activities of each division is the design, development and delivery of market leading software products for financial institutions through its Financial Markets division and business and education markets through its Business Systems division.
There are no inter-segment sales. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets and liabilities comprise items such as cash and cash equivalents, taxation, accruals, prepayments and borrowings.
2. Segment reporting (continued)
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| Financial Markets | Business Systems | Central | Total | ||||||||
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| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
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| 6m | 6m | 12m | 6m | 6m | 12m | 6m | 6m | 12m | 6m | 6m | 12m |
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| 30 Jun 2010 | 30 Jun 2009 | 31 Dec 2009 | 30 Jun 2010 | 30 Jun 2009 | 31 Dec 2009 | 30 Jun 2010 | 30 Jun 2009 | 31 Dec 2009 | 30 Jun 2010 | 30 Jun 2009 | 31 Dec 2009 |
| Income Statement |
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| Revenue to external customers | 830 | 874 | 2,222 | 1,384 | 1,306 | 2,700 | - | - | - | 2,214 | 2,180 | 4,922 |
| Trading profit/(loss) | 61 | -129 | 350 | 282 | 271 | 544 | -179 | -322 | -583 | 164 | -180 | 311 |
| Non trading expenses* | -88 | -77 | -191 | 107 | 29 | 88 | 2 | -8 | -8 | 21 | -56 | -111 |
| Restructuring charge | - | -9 | -9 | - | - | - | -1 | -42 | -54 | -1 | -51 | -63 |
| Profit/(loss) before financing | -27 | -215 | 150 | 389 | 300 | 632 | -178 | -372 | -645 | 184 | -287 | 137 |
| Finance costs | - | - | - | - | - | - | -163 | -158 | -317 | -163 | -158 | -317 |
| (Loss) /profit before taxation | -27 | -215 | 150 | 389 | 300 | 632 | -341 | -530 | -962 | 21 | -445 | -180 |
| Taxation | - | - | - | - | - | - | - | 3 | 4 | - | 3 | 4 |
| (Loss)/profit for the year from continuing operations | -27 | -215 | 150 | 389 | 300 | 632 | -341 | -527 | -958 | 21 | -442 | -176 |
| Balance Sheet |
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| Goodwill | 1,168 | 1,168 | 1,168 | 509 | 509 | 509 | - | - | - | 1,677 | 1,677 | 1,677 |
| Other intangible assets | 574 | 785 | 673 | 549 | 389 | 446 | - | - | - | 1,123 | 1,174 | 1,119 |
| Property, plant & equipment | 32 | 54 | 42 | 27 | 43 | 36 | - | - | - | 59 | 97 | 78 |
| Non current assets | 1,774 | 2,007 | 1,883 | 1,085 | 941 | 991 | - | - | - | 2,859 | 2,948 | 2,874 |
| Trade and other receivables | 383 | 321 | 409 | 498 | 417 | 319 | 313 | 239 | 157 | 1,194 | 977 | 885 |
| Cash and cash equivalents | - | - | - | - | - | - | 621 | 351 | 686 | 621 | 351 | 686 |
| Total assets | 2,157 | 2,328 | 2,292 | 1,583 | 1,358 | 1,310 | 934 | 590 | 843 | 4,674 | 4,276 | 4,445 |
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| Segment liabilities | -73 | -66 | -71 | -157 | -120 | -121 | -4,712 | -4,536 | -4,584 | -4,942 | -4,722 | -4,776 |
| Deferred income | -292 | -514 | -221 | -1,208 | -1,128 | -1,237 | - | - | - | -1,500 | -1,642 | -1,458 |
| Total liabilities | -365 | -580 | -292 | -1,365 | -1,248 | -1,358 | -4,712 | -4,536 | -4,584 | -6,442 | -6,364 | -6,234 |
* 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.
3. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average of ordinary shares outstanding during the period.
The CULS and share options were non-dilutive for both periods and thus the diluted earnings/(loss) per share is the same as the basic amount.
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| Unaudited six months ended 30 June 2010 | Unaudited six months ended 30 June 2009 | Audited Year ended 31 December 2009 |
| Earnings/(loss) £'000 after taxation |
21 |
(442) |
(176) |
| Basic earnings/(loss) per share | 1.38p | (29.1p) | (11.6p) |
| Weighted average number of ordinary shares |
1,518,990 |
1,518,990 |
1,518,990 |
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The weighted average number of shares has been adjusted in prior periods to reflect the capital reorganisation on 29 June 2009.
4. Cash flows from operations
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| Unaudited six months ended 30 June 2010 | Unaudited six months ended 30 June 2009 | Audited year ended 31 December 2009 |
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| £'000 | £'000 | £'000 |
| Profit/(loss) before taxation | 21 | (445) | (180) |
| Adjustments for: |
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| Depreciation | 22 | 29 | 54 |
| Amortisation | 218 | 204 | 414 |
| Finance expense | 163 | 158 | 317 |
| Decrease in provisions | (8) | (4) | (10) |
| Share based payment credit | - | - | 2 |
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| Changes in working capital |
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| (Increase)/decrease in trade and other receivables |
(309) |
(3) |
90 |
| Increase/(decrease) in payables and deferred revenue |
134 |
(434) |
(606) |
| Cash generated from continuing operations |
241 |
(495) |
81 |
| Corporation tax received | - | 3 | 4 |
| Net cash from operating activities |
241
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(492) |
85 |
5. Post balance sheet events
At the shareholder and CULS holder meetings held on the 6 August 2010 resolutions were passed to:
·; Dispose of the business and assets of the Financial Markets division in consideration for the assumption of the liability of £2.0 million of CULS.
·; Allot 18,000,000 ordinary shares in connection with a subscription at a price of 25p.
·; Allot 8,000,000 ordinary shares in connection with a placing at a price of 25p.
·; Allot 4,444,444 ordinary shares at a conversion price of 45p per £1.00 nominal value of CULS in consideration for the compromise of £2.0 million of CULS.
·; Appoint Jens Montanana as non-executive director and Andrew Miller as executive director.
The terms of the disposal of the Financial Markets division included the assignment of the lease for the London property.
The profit on the disposal of the Financial Markets division will be reported in the year end financial statements.
6. Pro-forma Consolidated Interim Statement of Net Assets as at 30 June 2010 after the disposal of the Financial Markets division, CULS conversion and fund raising
This pro-forma interim statement of net assets is for illustrative purposes only
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| Pro-forma unaudited as at 30 June 2010 | |
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| £'000 | |
| Assets |
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| |
| Non-current assets |
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| |
| Goodwill |
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| 509 | |
| Other intangible assets |
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| 549 | |
| Property, plant and equipment |
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| 27 | |
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| 1,085 | |
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| Current assets |
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| Trade and other receivables |
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| 1,035 | |
| Cash and cash equivalents |
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| 7,004 | |
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| 8,039 | |
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|
|
| |
| Liabilities |
|
|
| |
| Current liabilities |
|
|
| |
| Trade and other payables |
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| (722) | |
| Provisions |
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| (4) | |
| Deferred income |
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| (1,208) | |
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|
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| (1,934) | |
| Net current assets |
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| 6,105 | |
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Non-current liabilities |
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| |
| Convertible 8% unsecured loan stock |
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| - | |
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|
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| - | |
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Net assets |
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7,190 | |
The pro-forma interim statement of net assets shows the consolidated net asset position of the Group at 30 June 2010 as if the sale of the Financial Markets division, CULS redemption and receipt of the equity fund raising (net of expenses) had occurred at 30 June 2010. The disposal of the Financial Markets division is reflected in the changes to goodwill, intangible assets, property, plant and equipment, trade and other receivables and deferred income.