Cohen & Steers
Annual Report 2011

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Next 
Generation 
Security

Annual Report & Accounts 2011

Corero Network Security plc

169 High Street
Rickmansworth
Hertfordshire WD3 1AY

T +44 (0)1923 897333

www.coreroplc.com

Corero Business Systems Limited

169 High Street
Rickmansworth
Hertfordshire WD3 1AY

T +44 (0)1923 897333

www.coreroresource.com

Corero Network Security, Inc

1 Cabot Road
Hudson
MA 01749

www.corero.com

CNS2799 - AR11 COVER AW03.indd   1

30/03/2012   13:35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate Directory
Corporate Directory

Directors
Directors

Jens Montanana (Non-executive Chairman) 
Jens Montanana (Non-executive Chairman) 
Andrew Miller (Executive Director)  
Andrew Miller (Executive Director)  
Richard Last (Non-executive Director)  
Richard Last (Non-executive Director)  
Stephen Graham (Non-executive Director)
Stephen Graham (Non-executive Director)

Secretary and Registered Office
Secretary and Registered Office

Duncan Swallow 
Duncan Swallow 
169 High Street  
169 High Street  
Rickmansworth  
Rickmansworth  
Hertfordshire  
Hertfordshire  
WD3 1AY
WD3 1AY

Nominated Adviser and Broker
Nominated Adviser and Broker

FinnCap  
FinnCap  
60 New Broad Street  
60 New Broad Street  
London  
London  
EC2M 1JJ 
EC2M 1JJ 

Auditor
Auditor

BDO LLP  
BDO LLP  
Clarendon House 
Clarendon House 
Clarendon Road  
Clarendon Road  
Cambridge  
Cambridge  
CB2 8FH
CB2 8FH

Solicitors
Solicitors

Dorsey and Whitney LLP  
Dorsey and Whitney LLP  
21 Wilson Street  
21 Wilson Street  
London  
London  
EC2M 2TD
EC2M 2TD

Bankers
Bankers

Santander  
Santander  
2 The Forbury  
2 The Forbury  
Reading  
Reading  
RG1 3EU
RG1 3EU

Silicon Valley Bank  
Silicon Valley Bank  
3003 Tasman Drive  
3003 Tasman Drive  
Santa Clara  
Santa Clara  
California  
California  
95054  
95054  
USA
USA

Registrars
Registrars

Capita Registrars Limited 
Capita Registrars Limited 
The Registry 
The Registry 
34 Beckenham Road 
34 Beckenham Road 
Beckenham 
Beckenham 
Kent 
Kent 
BR3 4TU
BR3 4TU

Website address 
Website address 
www.coreroplc.com
www.coreroplc.com

Corero Network Security plc (‘Corero’, 
the ‘Group’ or the ‘Company’), is a 
software focused business with a 
leading position in its two markets: 
network security and business 
management solutions. 

Corero Network Security 

An international network security company and the leading provider 
of Distributed Denial of Service (DDoS) defence and Intrusion 
Prevention System (IPS) solutions. Corero’s products and services 
provide comprehensive, integrated, high-performance protection 
against constantly evolving network-borne cyber threats. Customers 
include enterprises, service providers and government organisations 
worldwide. Corero’s appliance-based solutions are highly adaptive 
and pre-emptively respond to modern cyber attacks, known and 
unknown, protecting critical information and online assets. Corero’s 
products have superior performance, are highly scalable, and 
feature the lowest latency and best reliability in the industry. 

www.corero.com

Corero Business Systems 

A leading provider of powerful and dynamic modular accounting, 
human resources, payroll and learner management information 
software to the schools (including academies) and further education 
sectors in the UK and internationally.

www.coreroresource.com

Contents

01  Highlights

02  Business Profile
02  Corero Network Security
04  Corero Business Systems

06  Chairman’s Statement

10  Financial Review

14  Governance
14  Directors’ Biographies
16  Directors’ Report 
21  Corporate Governance Report
25  Statement of Directors Responsibilities

26  Financial Statements 
26  Independent Auditor’s Report 
28  Consolidated Statement of  
Comprehensive Income

29   Consolidated Statement of  

Financial Position 

30  Consolidated Statement of Cash Flows
31  Consolidated Statement of  

Changes in Equity

32  Notes to the Financial Statements

69  Notice of AGM

73  Corporate Directory

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02/04/2012   16:14
02/04/2012   16:11

02/04/2012   16:11

Corero Network Security plc

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  73

Annual Report & Accounts for the year ending 31 December 2011  73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Highlights

Financial highlights 

Operating highlights 

•	 Consolidated	revenue	£11.3	million	(2010:	£3.0	million)

•	 Corero	Network	Security	division

–  Corero Network Security: £6.9 million

–  Acquired Top Layer Networks, Inc in March 2011, 

•	

•	

•	

•	

•	

–  Corero Business Systems: £4.4 million

	Consolidated	operating	profit*	£287,000	(2010:	£333,000)

	Adjusted	consolidated	loss	before	tax**	of	£260,000		
(2010:	loss	£32,000)

	Loss	per	share	2.75p	(2010:	0.68p)

	Cash	of	£4.3	million	at	31	December	2011	(2010:		
£7.2	million)

	Raised	£4.56	million	(before	costs)	on	6	March	2012	by	
way	of	a	placing	to	support	the	growth	of	the	Corero	
Network	Security	business

renamed Corero Network Security

–  Repositioned through investments in product 

development and a new international sales organisation

–  Sales order intake up on the previous year

–  78 new customers in 2011 with an average order value per 

customer of £36,000

–  Management team reshaped 

–  Launch of DDoS Defence System (DDS), a network-layer 
and application-layer Distributed Denial of Service (DDoS) 
defence product

•	 Corero	Business	Systems	division

–  Revenue up 45% on 2010

–  36% operating profit margin (2010: 34%)

–  Won contracts from 192 Academies (2010:70)

–  Reseller agreement signed with Serco Learning,  

part of FTSE 100 Serco plc

–  Management team strengthened

*	 before	depreciation,	amortisation,	acquisition	and	restructuring	costs	and	financing	

**	excluding	acquisition	and	restructuring	costs	and	amortisation	of	acquired	intangible	assets

Our performance in 2011 has validated our strategy in 
the network security market. This market is forecast 
to continue to grow strongly, and with ongoing growth 
prospects in Corero Business Systems, we continue to 
see the opportunities for Corero as compelling.

Jens Montanana Chairman

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  01

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02/04/2012   16:26

 
 
 
 
 
 
 
 
Business Profi le

CORERO 
NETWORK 
SECURITY

Robust Platform

Superior Performance

Unmatched Protection

Vision

To be recognised as 
a leading provider of 
the industry’s most 
innovative network 
security technologies, 
delivering value to 
customers through 
solutions and services 
that provide a “First Line 
of Defence” to pre-empt 
and dynamically respond 
to the threats posed by 
the constantly evolving 
landscape of network 
based cyber attacks.

Technology for Today’s Problems, 
Tomorrow’s Challenges

Corero is uniquely positioned to build 
upon and extend its suite of industry-
leading Intrusion Prevention System (IPS) 
and DDoS Defence System (DDS) security 
products through development and 
selective acquisition. Corero’s agility and 
fl exibility lies in its primacy as a software 
company developing solutions which run 
on its powerful Core Platform.

The Corero Core Platform, which 
integrates Tilera Corporation’s multi-core 
processors with the proprietary Corero 
Operating System (“CoreOS”), is the 
foundation on which Corero developers 
and engineers create network security 
products that combat today’s cyber 
security assaults, and rapidly respond 
to tomorrow’s new threats and changing 
IT business environments. This high 
performance platform delivers a full suite 
of fundamental capabilities for network 
security processing, including packet 
handling, deep packet inspection and 
policy management.

The IPS and DDS products built upon 
the Core Platform leverage Corero’s 
Three Dimensional Protection (“3DP”) 
technology. 3DP combines traffi c rate 
management, stateful fi rewall fi ltering 
and deep inspection traffi c analysis, 
allowing for the strongest possible 
defence against today’s malware 
penetration attempts and both network 
and application-layer DDoS (Distributed 
Denial of Service) attacks.

Corero products are available in a 
range of high throughput appliances 
that provide the lowest latency and 
highest reliability in the industry. The 
powerful scaling attributes of Corero 
ProtectionCluster technology, provides 
high availability, multiples of processing 
power and performance, and the utmost 
fl exibility for deployment.

This foundation of powerful and fl exible 
hardware, in concert with security centric 
software development, enables Corero to 
rapidly create new products in response to 
customers’ network security needs.

Corero also leverages the expertise of 
its technology partners, which include 
eIQnetworks, Kaspersky, Netronome, 
RSA and Tilera.

02  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 FRONT AW05.indd   2

02/04/2012   16:28

Corero’s Customers 

Corero’s “First Line of Defence” network security products can protect customers against 
cyberattacks in any industry. Currently Corero’s core vertical markets are: fi nance and 
banking, power and energy, education, defence, on-line gaming and e-Commerce.

Customers include some of the world’s largest service providers (including BT, BSkyB, Telefonica, Telekom Austria, Telekom 
Malaysia, SFR and Verizon), and:

•  Air Liquide – one of the world’s largest 

industrial gases suppliers

•  Laclede Gas Company – leading US-

•  Bridgepoint Education – on-line 
and campus based Higher 
Education provider

based natural gas distributor

•  Butler Community College – 

•  City of Baltimore

•  Journal Register – one of the 

largest newspaper publishers in 
the US

•  Applied Innovations – web hosting 
provider, hosting 35,000 websites 
worldwide

•  Brady Distributing – second largest 
distributor in the US of amusement 
games and vending machines

The Real Core 
is Service

Corero believes that the best security 
technology requires best-in-class 
services to assure customers’ protection 
and success. These services include 
Corero’s Threat Update Service, an 
automated protection update service that 
provides customers with timely pro-active 
protection from the latest security threats 
(including malicious software threats), 
and SecureWatch, a cyber security 
monitoring service.

Corero is committed to work with like-
minded channel partners, who combine 
security expertise and technical savvy 
with the same dedication to partnership 
and customer service.

Trusted partnership is the cornerstone 
of the Corero-customer relationship. 
Partnership, through the combination of 
products and services, enables Corero 
to create holistic network security 
solutions which inspire confidence and 
engender trust. 

Kansas-based college with over 
13,000 students

•  bwin – leading on-line gaming company

•  Camelot National Lottery – 

lottery operator

•  Pep Boys – multi-billion automotive 
services and retail chain with more 
than 700 stores across the US and 
Puerto Rico

•  Yankee Candle Company

“Corero’s device was the only one that combined 
the high levels of performance with the deep 
packet inspection that made us comfortable 
with putting it in-line in our network that simply 
cannot afford a minute being offl ine.” 

Charles Neely Harper, Director National Supply & Pipeline Operations 
for Air Liquide Industrial Gases 
Corero Network Security customer

Corero’s IPS delivers the most 
comprehensive network protection 
compared to other IPS products. 
The IPS solution comprises (i) an 
in-line, transparent network 
appliance, (ii) Network Security 
Analyzer Software, a powerful real-
time security event manager, (iii) IPS 
Controller software, a centralized 
management module for multi-device 
deployments and (iv) Threat Update 
Service, a comprehensive update 
service together with (v) hardware 
and software support & maintenance. 

Corero’s newest product family, 
Corero DDS*, is the fi rst solution to 
offer an integrated approach to DDoS 
defence, providing network through 
to application layer protection against 
evolving DDoS threats.

Aligned with its DDS offering, in 2011 
Corero launched SecureWatch® 
PLUS, a comprehensive suite of DDoS-
defence, confi guration optimization, 
monitoring and response services. 
SecureWatch PLUS is emblematic 
of Corero services: a continuous, 
collaborative DDoS defence program 
engaging the customer and their 
trusted partner, Corero.

*  Corero’s DDS Winner of Info Security 8th Annual 2012 ‘Global Excellence Award’ in the 

category ‘Security Products and Solutions for Enterprises (Large)’

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  03

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02/04/2012   16:28

 
 
 
 
 
 
 
 
Business Profi le continued

CORERO 
BUSINESS 
SYSTEMS

Market Leading Finance Software for Schools, Academies and Colleges

Powerful Student Record Management System for Post 16 Education Sector

Vision

To be recognised as 
one of the leading 
strategic business 
software providers in 
the schools and further 
education sectors in the 
UK and internationally, 
both directly and 
through partnerships. 

Focus
Corero is a provider of business 
accounting, human resources, payroll 
and management information software 
solutions to the schools and academies, 
further education and commercial 
markets. Corero’s proprietary software 
solution, Resource, is at the core of the 
Corero suite of business applications. 
Resource empowers business and 
fi nance departments by providing 
streamlined processes which offer 
increased effi ciencies, help to control 
costs and improve an organisation’s 
cash fl ow management, all of which 
address the 21st Century challenges for 
public sector and commercial 
organisations faced with tighter funding 
and increased competition.

The two core Corero Resource software 
solutions are:

•		 Resource Financials & HR 

(“Resource Financials”), a fi nancial, 
human resources and payroll 
software solution; and 

•		 Resource Education Management 

System (“Resource EMS”), a learner 
management information system.

Resource Financials 
Resource Financials is a market-leading 
fi nance management solution delivering 
web-enabled, workfl ow controlled 
business processes which lower the 
cost of processing transactions and 
increase both visibility and control over 
revenues and expenses. Its functionally 
rich and fl exible modules cater for:

•  Core Accounting and Banking 

•  Web-based Purchase Requisitioning 

and e-Procurement

•  Web-based Sales Requisitioning 

and Billing

•  Project Costing with Web based 
Timesheets and Expenses entry 
and approval

•  Fixed Asset accounting and tracking

Resource EMS 
Resource EMS is a modern and powerful 
Learner Record Management Information 
System, designed specifi cally to meet the 
challenges of the post 16 Education sector 
in England. Resource EMS manages the 
complete learner life-cycle, from initial 
enquiry through to completion. Easy 
to use, easy to learn, responsive and 
fl exible, Resource EMS is designed to 
empower both staff and learners with 
accurate, up to date information in easy 
reach. Fully integrated modules replace 
the many disparate and costly add-on 
systems to become a true establishment-
wide management information solution. 
Resource EMS streamlines and validates 
all data capture ensuring complete 
confi dence in the quality of data, provides 
integrated marketing and CRM to increase 
enrolment and employer engagement 
opportunities and enables accurate 
delivery of ILR (Individualised Learner 
Record) data to improve the effi ciency 
of the funding claim process. Its key 
application modules cater for:

•  Staff & Learner Web Portal

•  Web Enquiry, Application & Enrolment

•	 Graphic	Timetabling

•  Web Attendance

•  Management Reporting & KPI 

•  Human Resources and Payroll

Dashboards

•  Document Scanning and 

•  Course Planning & Management

management

•	 Graphical	Reporting	and	Business	
Intelligence with full drill-down to 
view source transactions

•  Web-based HR Self-Service

•  Learner Tracking & Reviews

•  UCAS References

•  Customer/Employee Relationship 

Management

•  Activity Management

•  Statutory Returns

04  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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30/03/2012   13:24

Corero’s Customers 
Resource Financials

Resource Financials customers include 
over 350 academies and schools and 
over 100 colleges. Attracted by the 
breadth of the solutions available and 
proven track record within education, 
Corero is recognised as a market 
leading provider to the education sector. 

Schools and Academies including:
•	 The School Partnership Trust

•  Landau Forte Academy Trust

•  St. Mary Magdalene Academy

•  Walsall Academy

•  The Cabot Federation Bristol

•  West London Academy

•  North Liverpool Academy

•  The Kemnal Academies Trust

•  The Samworth Enterprise Academy

•  Barnby Road Primary

Key Features 

Resource Financials key 
features include:

•  Workfl ow automation of key business 

processes

•  Business Intelligence and Dashboard 
solutions for real-time reporting to 
Senior Leadership teams 

•  Key management reports output 
integrated with Microsoft Excel 

•  Web-based organisation/

departmental/cost centre reporting 
with full drill-down providing 
devolved on-line access for budget 
holders and senior management

•  Web-based and intuitive timesheet, 

expense, purchase and sales 

Further Education and 
Sixth Form colleges including:
•	 Heythrop College

•	 Dumfries	&	Galloway	College

•	 Peterborough Regional College

•	 Leeds College Of Art & Design

•	 Loughborough College

•	 Cirencester College

•	 Havering Sixth Form College

•	 Norwich School of Art and Design

•	 Queen Elizabeth Sixth Form College

•	 Queen Mary’s College

•	 Royal College of Music

•	 Stoke On Trent Sixth Form College

In addition, Corero has over 50 
commercial customers including 
architect, consulting engineer, market 
research and design companies.

Resource EMS

Resource EMS has over 40 Sixth 
Form and Further Education 
Colleges including:
•	 South Staffordshire College

•	 Oxford & Cherwell College

•	 North West Kent College

•	 Mid Kent College

•	 St	John	Rigby	College

•	 Joseph	Chamberlain	Sixth	

Form College

•	 Richmond Adult Community College

•	 Gateway	College

•	 Wyggeston & Queen Elizabeth I 

College

•	 Rotherham College of Arts & 

Technology

•	 Lewisham College

•	 Guildford	College

requisition entry and approval plus 
web HR ‘Self Service’

•  Embedded document and fi le 

management and scanning offering 
effi ciencies in the storage and 
retrieval of key fi nancial documents 
such as Invoices and Contracts

Resource EMS key features include:

•  Management and administration of 
the complete learner life-cycle from 
initial enquiry through to achievement 
and destination following the 
completion of the course 

•  Advanced course/programme 
planning and examination 
management tools 

•  Full management of statutory returns 
such as the new Single Individualised 
Learner Record (SILR)

•  Timetabling, registers, staff and 

resource planning tools 

•  Web Portal deployment that delivers 
real time information to both tutors 
and learners 

•  Simple, at-a-glance reporting 

and analysis 

•  Full integration with Resource 

Financials to provide a true college 
wide ‘Enterprise’ suite of business 
solutions for Colleges

“From every point of view, the 

implementation of the Resource 
system has signifi cantly improved 
the effi ciency of our fi nancial 
management. In addition to being able 
management. In addition to being able 
to make much more effective use of 
the budgets available through tighter 
the budgets available through tighter 
control, the web portal has enabled 
us to achieve considerable savings 
through more streamlined purchasing.” 
through more streamlined purchasing.” 

Auditors, West London Academy
Corero Business Systems customer

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  05

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Chairman’s Statement

“The network security market is forecast to 
continue to grow strongly fueled by escalating 
cyber crime and cyber war threats, economic 
disruption and associated costs as cyber attacks 
multiply, and growing security compliance and 
business continuity requirements.”
Jens Montanana
Chairman

Introduction and results highlights

Corero Network Security review

2011 was a transformational year for 
Corero with the acquisition and 
successful integration of Top Layer 
Networks, Inc (“Top Layer”) coupled 
with the continuing growth of the Corero 
Business Systems division (“CBS”).  
The Top Layer acquisition closed on  
2 March 2011 and Top Layer was 
rebranded Corero Network Security 
(“CNS”)	in	June	2011.	

Corero plc was also renamed as Corero 
Network	Security	plc	on	29	June	2011.	

CNS has made significant progress 
post acquisition, with the establishment  
of an international sales team and 
considerable investment into product 
development, leading to increased 
sales momentum and order intake.  
In addition, CBS has experienced 
strong growth during the period. In  
the year ended 31 December 2011  
the	Group	reported	revenues	of	 
£11.3 million (2010: £3.0 million) and 
operating profit before depreciation, 
amortisation, acquisition and 
restructuring costs and financing  
of £287,000 (2010: £333,000). 

Corero’s acquisition of Top Layer 
marked the first step in the Company’s 
stated strategy to build an international 
network security business delivering 
software and hardware solutions to 
mid-market and enterprise customers, 
telecommunication service providers 
and government agencies, through an 
international network of distributors, 
integrators and specialised  
channels partners. 

CNS reported revenue of £6.9 million 
and an operating loss before 
depreciation, amortisation, acquisition 
and restructuring costs and financing  
of £550,000 in the period since the  
2 March 2011 acquisition date. 

CNS sales order intake (bookings) in  
the year ended 31 December 2011  
was $12.0 million (£7.5 million) with an 
average value per customer of $47,000 
(£29,000). This compared to $11.7 million 
(£7.6 million) in 2010 with an average 
value per customer of $32,000 (£21,000). 
The increase in order intake along with 
the increase in the average value per 
customer was encouraging, particularly 
in the light of the restructuring of the US 

sales team post the acquisition and 
establishing the international team in  
the second half of 2011. 

CNS secured 78 new customers in 2011 
with an average order value per 
customer of $57,000 (£36,000). This 
added new customers in the core 
vertical markets of finance and banking, 
education, defence, on-line gaming and 
e-Retail. New customer wins included 
significant orders from: bwin (one of the 
world’s largest on-line gaming 
companies); City of Baltimore; a leading 
spread betting and CFD provider; an 
award winning developer and publisher 
of online games; and Bridgepoint 
Education (an on-line & campus based 
Higher Education provider). Particularly 
pleasing was new business wins with 
major telecommunications service 
providers in France and Spain. 

In addition, material upgrade orders 
were secured from existing customers 
including	Party	Gaming	(which	was	
acquired by bwin in 2011); a Texas 
based clinical healthcare provider;  
one of the largest health insurance 
associations in the United States; one of 
the largest insurers in the United States; 

“We have recently purchased and implemented a finance 

package from Corero. Corero’s support has been 
invaluable during our conversion to an Academy and 
their work has been a major factor in our successful 
transition. I know they are always at the end of the 
phone and always happy to help, they go the extra mile 
and the ‘Helpdesk’ service is second to none.” 

Humberston Park Special School 
Corero Business Systems customer

06  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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and an agency of the United States 
Department of Defense.

In 2011, CNS secured maintenance and 
Threat Update Service renewals of  
$2.8 million (£1.75 million) including 
material renewals from a leading US- 
based insurer and one of the world’s 
largest energy companies.

In the period since the acquisition 
closed, a number of important 
milestones have been achieved:

•	 Management team reshaped with 
the appointment of new CEO, VP  
of Engineering, Chief Marketing 
Officer, VP Sales North America  
and VP of Finance.

•	 Launch of DDoS Defence System 

(DDS), a network-layer and 
application-layer Distributed  
Denial of Service defence product.

•	 Launch of DDoS defence support 
services, SecureWatch Plus, a 
comprehensive suite of DDoS 
defence, configuration optimisation, 
monitoring and response services. 

•	 Significant new investment and 

progress made in growing the 
product development team.

The nature, frequency and 
sophistication of cyber attacks continue 
to increase across all spectrums:

•	 Sales teams recruited in France, 

Italy, Malaysia, Spain and Taiwan. 

•	 Cyber-crime driven by financial 
motivation of cyber criminals.

•	 The rebranding of Top Layer to 

Corero Network Security.

•	 Licensing agreement with 

Kaspersky Lab, a leading developer 
of threat management solutions,  
to augment Corero’s Intrusion 
Prevention solution.

•	 Appointment of over 30 new  

channel partners. 

The security market dynamics  
and opportunity for Corero  
Network Security

The network security market is forecast 
to continue to grow strongly, fuelled by 
escalating cyber threats, economic 
disruption and associated costs as 
cyber attacks multiply, and growing 
security compliance and business 
continuity requirements (Gartner 
forecast cumulative annual growth  
of over 8% in the period to 2014).

•	 Cyber-activism which in 2011 saw 
hacktivism (the convergence of 
hacking and activism) activities 
increase significantly with the 
exploits of groups such as 
Anonymous and Lulzsec.

•	 Cyber-espionage and cyber-warfare 
impacting both government and 
commercial organisations targeting 
national security information, trade 
secrets and intellectual property 
assets. Cyberspace is increasingly 
being regarded as the new frontline 
of warfare – the fifth domain along 
with land, sea, air and space.

•	 Cyber-terrorism which US 

intelligence agencies consider is 
likely to overtake terrorism as the 
number one threat facing the US.

According to independent research 
recently commissioned by Corero, 
DDoS attacks are becoming 

“Corero’s detection capabilities have picked up a lot of things 

we weren’t aware were going through our network. Its protocol 
analysis [Corero’s unique Protocol Validation Modules and 
file format-specific Data Validation Modules, which evaluate 
payloads as well the protocols themselves] does an effective 
job and tips me off when things aren’t right.” 

Gary Kay, Director Infrastructure and Security Services at 
Laclede Gas Company  
Corero Network Security customer

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  07

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Chairman’s Statement continued

“The education sector in the UK offers 
Corero an excellent opportunity for growth, 
particularly in light of the continuing trend for 
schools in England to convert to Academies.”

increasingly prevalent with 31% of 
organisations having suffered an attack 
in the past 12 months. The research, 
conducted by VansonBourne, 
questioned 300 mid to large-sized 
enterprises in the UK and US and found 
US companies were twice as likely to be 
attacked as those in the UK, with 63% 
of US and 29% of UK IT directors 
concerned over future attacks. Political 
and ideological motivation was cited as 
the largest source of DDoS attacks 
among UK companies with the retail 
sector most concerned. In the US 52% 
of attacks were caused by competitors 
seeking unfair business advantages.

The security market is fragmented, with 
Gartner	estimating	that	only	44%	of	the	
market share belongs to the top five 
vendors. In this fragmented and ever 
changing market many established 
leaders are losing market share to 
smaller players with new offerings to 
meet new threats. 

CNS’s products and services offer an 
effective first line of defence against 
cyber attacks. With a strong software 
centric platform, Corero has the 

flexibility and performance to address 
the challenges of customers today  
and into the future.

Corero Business Systems review

Revenues for the CBS division 
increased by 45% in 2011 to £4.4 million 
(2010: £3.0 million). CBS sales order 
intake in the year to 31 December 2011 
was £5.1 million (compared to  
£3.4 million in 2010). 

CBS reported an operating profit before 
depreciation, amortisation, acquisition 
and restructuring costs and financing of 
£1.6 million (2010: £1.0 million).

The CBS division won new contracts 
from 192 Academies in the 12 months 
ended 31 December 2011, compared 
with 70 in 2010, underlying its strong 
position in this growth market. In 
addition, despite the tight Public  
Sector spending environment, CBS  
won four new contracts with sixth form 
colleges in 2011. These included three 
colleges,	St	John	Rigby	in	Wigan,	
Joseph	Chamberlain	in	Birmingham	 
and St Dominic’s in Harrow for the 
Resource EMS solution, CBS’ Learner 

Management Information System  
and one new college, Blackpool Sixth 
Form College, for its Resource 
Financials solution.

Key achievements in 2011 include:

•	 Reseller agreement signed  
with Serco Learning, part of  
FTSE 100 Serco plc.

•	 Strategic partnerships with two 
schools and academy groups:

–	 The	School	Partnership	Trust	– 
a Leeds based educational 
charity, awarded ‘Accredited 
Schools	Group	Status’	in	2010,	
with 20 schools and Academies.

–	 The	Kemnal	Academies	Trust	–	 
a Kent based multi-Academy 
Trust with 26 secondary and 
primary Academies, who are 
establishing one of the first  
new Teaching Schools.

•	 Strengthening of the management 
team by appointment of Sales 
Director, HR Manager, Product 
Manager and Service Delivery 
Manager.

“Having taken the decision to switch our financial package 
to Corero Resource, I am more than happy to recommend 
it to other School Business Managers. The support from 
the start was first class with plenty of advice regarding 
the setting up our Chart of Accounts. The on-site training 
can only be described as superb. The system is designed 
to meet all the demands of Academy status whilst being 
logical and straight forward to use.” 

Range High School
Corero Business Systems customer

08  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 FRONT AW05.indd   8

30/03/2012   13:24

•	 Additional sales talent recruited 
–	sales	team	increased	from	6	 
at 31 December 2010 to 10 at  
31 December 2011. 

•	 Launch of Resource Financials v7, 
CBS’ next generation financial 
software solution.

Business strategy

The strategy for the Corero Network 
Security division is to drive organic 
revenue growth through increased 
marketing and industry visibility of the 
business’ approach and product 
capabilities. In addition, Corero will 
continue to develop its international, 
channel focused sales model to access 
new markets and customers. The 
division will also invest in product 
development, with the emphasis on 
Cyber defence/attack solutions with its 
IPS and DDoS protection product 
offerings and services. The business 
will continue to explore opportunities 
that can complement its buy and  
build strategy.

on the education sector where CBS has 
a strong market position, particularly in 
the further education college and 
academy markets in England. 
Development will continue on Resource 
Financials & HR and Resource EMS with 
additional modules to meet customer 
requirements. Opportunities in new 
customer segments and in international 
markets will also be evaluated.

The	Group	will	continue	to	manage	 
and operate Corero as two separate 
divisions with a small central overhead.

Staff

Our employees include highly skilled 
developers, and experienced 
management, sales executives and 
support staff, all focused on delivering 
market leading solutions to our 
customers. On behalf of the Board I 
would like to thank the employees of 
Corero for their efforts in the last 
financial year.

Directors

The strategy for the Corero Business 
Systems division will be to continue to 
invest for growth. The focus will remain 

I would like to thank Edward Forwood 
for his contribution and welcome 
Stephen	Graham	to	the	Board.

Outlook

Significant progress has been made in 
the Corero Network Security business. 
The business and management team 
have been reshaped and the 
groundwork laid to drive incremental 
business in many exciting new 
international markets. This division  
is well positioned to deliver growth  
in 2012.

Corero Business Systems performed 
strongly in 2011 and is expected to 
continue its robust and profitable 
development into 2012. The early 
opportunities identified in this division’s 
core customer segment have enabled 
the business to build a strong  
presence and annuity base in the  
UK education market.

Jens Montanana 
Chairman 
19 March 2012 

“We like the ability of Corero’s IPS not only to see things 
in real time on the unit, but use the reporting features to 
watch trends over time and do security reviews for our 
clients. It’s important to surgically remove malicious traffic 
and keep legitimate traffic flowing. We have the blade 
[Corero IPS], the surgical weapon of choice.”

Dan Farrell, Director of Network Operations at Applied Innovations
Corero Network Security customer

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  09

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30/03/2012   13:24

 
 
 
 
 
 
 
 
 
Financial Review

for the year ended 31 December 2011

“Corero Network Security and Corero Business 
Systems are well placed to capitalise on the 
opportunities in their respective markets and 
deliver growth with a strong sales pipeline of 
opportunities going into 2012.”

Andrew Miller
COO and Executive Director

Financial performance

For the year ended 31 December 2011, 
the	Group	reported	an	operating	profit	
before depreciation, amortisation, 
acquisition and restructuring costs and 
financing of £287,000 (2010: £333,000) 
and a loss after taxation of £1.2 million 
(2010: profit £404,000). This included an 
unrealised exchange gain of £73,000 
arising on intercompany balances.

Central costs were £756,000 (2010: 
£693,000). Central costs relate to the 
Group	finance	and	administration	
functions as well as the costs 
associated with the Company’s listing 
on AIM. Central costs in 2011 include a 
full year of costs of the management 
team and directors appointed in  
August 2010.

Interest costs were £224,000 (2010: 
£199,00) comprising interest on the Loan 
Notes issued by Top Layer Networks, Inc 
(subsequently renamed Corero Network 
Security, Inc) as part of the purchase 
consideration for Top Layer and the 
Corero Network Security working capital 
facility. The interest in 2010 relates to 
interest on the Cumulative Unsecured 
Loan Stock (‘CULS’) which were 
redeemed by the Company in the year 
ended 31 December 2010. 

Interest received was £61,000  
(2010: £32,000). 

revenue growth, operating margin and 
cash conversion.

The loss per share was 2.75p  
(2010: 0.68p). 

The	Group’s	net	assets	at	the	year	end	
were £11.5 million (2010: £6.9 million).

Performance indicators

The directors and managers of the group 
monitor a number of metrics, both 
financial and non-financial, on a monthly 
basis. The most important of these are 
as follows:

•	 Revenue: £11.3 million for the year 

ended 31 December 2011;

•	 Gross	margin:	77%	for	the	year	
ended 31 December 2011;

Cash and treasury 

The closing cash balance was  
£4.3 million (2010: £7.2 million).  
The net reduction in cash and cash 
equivalents was £931,000 (2010:  
net increase £768,000).

In 2011 the Company raised £2.3 million 
(before expenses) of which the directors 
contributed £0.9 million.

At	the	end	of	the	year	the	Group	 
had aggregate banking facilities  
of £2.1 million which are committed  
for a period of one year and are 
repayable	on	demand.	Group	companies	
have complied with the financial 
covenants relating to these facilities.

•	 Number of employees: 130 at  

31 December 2011; and

Taxation

•	 Cash: £4.3 million at  
31 December 2011.

The Board is satisfied with the status of 
the above performance indicators given 
the	current	stage	of	the	Group’s	
development. Although not particularly 
relevant for the period under review, the 
Board will in future also monitor organic 

As a result of losses carried forward in 
the UK subsidiary and losses in the US 
acquired through the acquisition of Top 
Layer,	the	Group	does	not	expect	to	pay	
the full rate of UK or US corporation tax 
for a number of years.

At	31	December	2011	the	Group	had	
unutilised tax losses carried forward of 
approximately £21.3 million comprising 

“We’re working with a couple of support companies  

at the moment, and can we say that Corero has  
the fastest response times, been the most helpful 
and fixed the problem the fastest. We realise  
that different problems take different amounts  
of time to fix, but we were really impressed by  
the communication.” 

St	John	Rigby	College
Corero Business Systems customer

10  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 FRONT AW05.indd   10

30/03/2012   13:24

£6.1 million in the UK and £15.2 million in 
the US. An element of the tax losses 
carried forward in the US can only be 
utilised in an equal annual amount of 
£445,000 over 20 years from the date of 
the	acquisition	of	Top	Layer.	Given	the	
varying degrees of uncertainty as to the 
timescale of utilisation of these  
losses,	the	Group	has	not	recognised	
£5.3 million of potential deferred tax 
assets associated with these losses.

Dividends

The Board is not recommending the 
payment of a dividend (2010: nil).

Principal risks and uncertainties

The Directors believe the following risks 
to	be	the	most	significant	for	the	Group.	
However, the risks listed do not 
necessarily comprise all those 
associated	with	the	Group.	In	particular,	
the	Group’s	performance	may	be	
affected by changes in market or 
economic conditions and in legal, 
regulatory and tax requirements. If any of 
the following risks were to materialise, 
the	Group’s	business,	financial	condition,	
results or future operations could be 
materially adversely affected. Additional 
risks and uncertainties not presently 
known to the Directors, or which the 
Directors currently deem immaterial,  

may also have an adverse effect upon 
the Company.

1. Competition

The	Group	operates	in	competitive	
markets with Corero Network Security 
and Corero Business Systems main 
competitors being much larger 
companies with significant financial 
resources.	The	Group	has	experienced,	
and expects to continue to experience, 
competition from a number of companies. 
This competition may take the form of 
new products and services to better meet 
industry needs and to enable competitors 
to respond more quickly to client 
requirements. Further, if the market for the 
Group’s	products	does	not	develop	as	it	
expects or if it fails to respond to market 
and competitive developments, the 
Group’s	business	and	prospects	could	 
be materially adversely affected.

The network security market, in 
particular, is becoming increasingly 
competitive	and	the	Group	may	face	
significant competition, including from 
competitors who have greater capital 
resources	than	the	Group.	There	is	no	
assurance	that	the	Group	will	be	able	to	
compete successfully in such a market 
place. The Board are aware of this 
threat and intend to continue to invest in 

the	enhancement	of	the	Group’s	
products and services and by making 
strategic acquisitions. 

A careful watching brief is maintained on 
competitors	to	enable	the	Group	to	react	
quickly to any change in circumstance or 
technical developments.

2. Technology and market 
requirements

The	markets	the	Group	operates	in	are	
fast changing, driven by changing 
customer requirements and technology 
trends.	As	such	the	Group’s	solutions	
require on-going development and 
enhancement to meet the needs of 
customers in its target markets. The 
Group’s	ability	to	anticipate	changes	in	
technology and customer requirements 
and to develop successfully and 
introduce new and enhanced solutions 
on a timely basis will be significant 
factors	in	the	Group’s	ability	to	grow	 
and remain competitive. 

The	ability	of	the	Group	to	invest	in	 
such development is dependent on  
new business generation and future 
cash flows. There can be no assurance 
that	the	Group	will	have	sufficient	
resources to make such investments, 
that these investments will bring the  

“Corero has absolutely provided the protection that 

has enabled us to transform our IT organization and 
our entire enterprise. The peace of mind that the 
partnership has given us is huge.” 

Bob	Mason,	CTO	at	Journal	Register
Corero Network Security customer

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011 

11

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Financial Review continued

“The placing in March 2012 which raised £4.3 
million after costs will allow Corero to further 
penetrate the network security market and 
ensure that it is well placed to fully exploit 
opportunities in network security, an area which 
is becoming ever more relevant to businesses in 
light of increasing cyber attacks.”

full advantages or any advantage as 
planned or that it will not encounter 
technical or other difficulties that  
could delay the introduction of new 
technologies or enhancements in the 
future.	The	Group’s	failure,	for	
technological or other reasons, to 
develop in a timely manner, and market, 
products or services incorporating new 
technologies could have a material 
adverse effect on its revenues, results 
of operations and/or prospects.

3. International expansion

The	Group’s	future	success,	and	
particularly the Corero Network Security 
business, will depend in part on its 
ability to expand its operations 
internationally. Such expansion is 
expected to place significant demands 
on management, support functions, 
sales and marketing and other 
resources and would involve a number 
of risks. In order to address these risks 
the	Group	focuses	on	developing	good	
relationships with partners, and 
exploiting these to deliver sales of the 
Group’s	products	and	solutions	and	
recruiting appropriately skilled staff.

4. Technology partners

Corero Network Security’s 4th 
generation IPS and DDoS defence 

solutions utilise a multi-core 
processing chip produced by Tilera 
Corporation. Should the supply of 
these chips by Tilera Corporation be 
interrupted or if this relationship was 
lost, this could result in a material 
adverse	impact	on	the	Group’s	
financial	performance.	The	Group	
maintains a close relationship with 
Tilera Corporation to reduce the risk of 
loss of this relationship.

5. Key management

The	Group	depends	on	the	recruitment	
and retention of the services of its key 
technical, sales, marketing and 
management personnel. Competition for 
such personnel can be intense, and the 
Group	cannot	give	assurances	that	it	will	
be able to attract or retain such staff.  
The	Group	seeks	to	address	this	risk	by	
ensuring that suitable and competitive 
remuneration structures are in place.

6. Foreign business, political  
and economic risks

The successful penetration of overseas 
markets	by	the	Group	may	take	longer	
than the Directors currently expect. 
The	Group	contracts	and	expects	to	
contract with various entities from 
around the world including distributor 
and reseller partners. As a result,  

the	Group	is	exposed	to	foreign	
business, including risks associated 
with political and economic instability, 
less developed infrastructures, 
exposure to possible litigation in 
foreign jurisdictions, competition from 
foreign-based service providers and 
the existence of protectionist laws  
and business practices that favour 
such providers.

7. Dependence upon key  
intellectual property

The	Group’s	success	depends	in	part	on	
its ability to protect its rights in its 
intellectual	property.	The	Group	relies	
upon various intellectual property 
protections, including patents, copyright, 
trademarks, trade secrets and 
contractual provisions to preserve its 
intellectual property rights. Despite these 
precautions, it may be possible for third 
parties	to	obtain	and	use	the	Group’s	
intellectual property without its 
authorisation	and	as	such	the	Group	 
may become involved in litigation which 
could be costly and time consuming. 

8. Acquisitions

There can be no guarantee that the 
Group	will	successfully	identify	any	
further companies or businesses 
meeting the objectives of its stated 

“We were delighted that the implementation was 

completed so quickly. We were up and running within 
4 days and a big plus from our point of view was the 
ease of data migration from our old system.” 

Walsall Academy
Corero Business Systems customer

12  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 FRONT AW05.indd   12

30/03/2012   13:24

the Group to progress through further 
stages of development. Any additional 
equity financing may be dilutive to 
shareholders. There can be no 
assurance that such funding, if required, 
will be available to the Company.

Andrew Miller 
Director 
19 March 2012 

strategy and may be unable to effect an 
acquisition or investment where there is 
an identified opportunity and, as a result, 
resources may be expended on 
investigative work and due diligence 
without a transaction being completed.

Further, the Group may encounter other 
issues arising post-acquisition, including:

•	

•	

the difficulty of assimilating operations 
and personnel of acquired companies 
into the Group’s operations;

the potential disruption of ongoing 
business and distraction of 
management; 

•	 additional operating losses and 

expenses of acquired businesses;

•	

•	

•	

the difficulty of integrating acquired 
technology and rights into the 
Group’s products and services and 
unanticipated expenses related to 
such integration;

the impairment of relationships with 
customers of acquired businesses as 
a result of the integration; and

the impairment of relationships with 
employees of acquired businesses 
as a result of integration.

Prior to concluding an acquisition, 
comprehensive technical, legal and 
financial due diligence is undertaken in 
order to ensure a full understanding of 
the business being acquired. Once 
acquired, a process of integration 
management is implemented including 
regular reporting to the Board on 
progress so that any issues are 
highlighted at an early stage.

9. System failures and breaches  
of security

The successful operation of the Group’s 
business depends upon maintaining 
the integrity of the Group’s computer, 
communication and information 
technology systems which are 
vulnerable to damage, breakdown or 
interruption from events which are 
beyond the Group’s control. All systems 
are backed up on a regular basis and 
appropriate investment is made in 
systems infrastructure within the Group 
to maintain appropriate standards of 
integrity and security.

10. Further issues of ordinary shares

It may be desirable for the Company to 
raise additional capital by way of the 
further issue of ordinary shares to enable 

 “After the bake-off, it was very easy to pick a winner; 
in technology, support and overall operational value, 
Corero’s IPS clearly outperformed all of the  
competitors. It was an easy choice.” 

Philip Pell, Chief Information Security Officer at Butler 
Community College 
Corero Network Security customer

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Annual Report & Accounts for the year ending 31 December 2011  13

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Governance

Directors’ Biographies

Jens Montanana 

Andrew Miller 

Richard Last 

Non-executive Chairman (51) 

COO and Executive Director (47) 

Non-executive Director (54) 

Jens	is	the	founder	and	CEO	of	Datatec	
Limited, established in 1986. Between 
1989	and	1993	Jens	served	as	
managing director and vice-president of 
US Robotics (UK) Limited, a wholly 
owned subsidiary of US Robotics Inc, 
which was acquired by 3Com. In 1993, 
he co-founded US start-up Xedia 
Corporation in Boston, an early pioneer 
of network switching and one of the 
market leaders in IP bandwidth 
management, which was subsequently 
sold to Lucent Corporation in 1999 for 
$246	million.	In	1994,	Jens	became	CEO	
of Datatec Limited which listed on the 
Johannesburg	Stock	Exchange	in	1994	
and on AIM in 2006. He has previously 
served on the boards and sub-
committees of various public 
companies.	Jens	is	chairman	of	the	
Corero Remuneration Committee. 

Andrew	is	the	Group	Chief	Operating	
Offi cer and is also responsible for the 
Group’s	fi	nance	function	and	for	
acquiring	businesses	into	the	Group.	
Prior	to	joining	the	Group,	Andrew	was	
with the Datatec Limited group in a 
number of roles between 2000 and 
2009	including	the	Logicalis	Group	
Limited (“Logicalis”) Operations 
Director and Corporate Finance and 
Strategy Director. He led the Logicalis 
acquisition strategy, acquiring and 
integrating 12 companies in the US, UK, 
Europe and South America. Prior to this, 
Andrew gained considerable corporate 
fi nance experience in London with 
Standard Bank, West Deutsche 
Landesbank and Coopers & Lybrand. 
He trained and qualifi ed as a chartered 
accountant and has a bachelor’s degree 
in commerce from the University of 
Natal, South Africa. 

Richard is a Fellow of the Institute of 
Chartered Accountants in England and 
Wales (FCA). Richard is Chairman of 
Arcontech	Group,	a	provider	of	IT	
solutions for the fi nancial services 
sector which is listed on AIM and the 
British Smaller Technology Companies 
VCT 2 plc, a fully listed Venture Capital 
Trust. In addition Richard also sits on 
the	Board	of	Lighthouse	Group	plc,	an	
AIM listed fi nancial services group as 
well as a number of private businesses. 
Richard	is	also	Chairman	of	CSE	Global	
(UK) Ltd which is a subsidiary of 
Singapore	listed	CSE	Global	Ltd	of	
which he is a Non-executive director. 
Richard is chairman of the Corero 
Audit Committee.

“We have found the personal touch, with an open 

customer/supplier relationship, together with the 
“can do” attitude of Corero to be a refreshing change. 
During our implementation of the system we found 
the Corero team to be extremely professional and we 
appreciated their consultative approach.” 

North West Kent College 
Corero Business Systems customer

14  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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Stephen Graham 

Duncan Swallow 

Non-executive Director (59) 

Company Secretary (47) 

Duncan is responsible for the Company 
secretarial	function	within	the	Group	
and	is	also	the	Group	Financial	
Controller. Prior to joining the Company, 
Duncan was Divisional Financial 
Controller for CCH, a Wolters Kluwer 
business, specialising in providing 
books, online information, software, 
CPD and fee protection to tax and 
accounting professionals. He is a 
fellow of the Association of Chartered 
Certifi ed Accountants.

Stephen is President of CrossHill 
Financial	Group,	Inc.	(“CrossHill”),	
a private merchant bank and advisory 
fi	rm	and	is	General	Partner	of	CrossHill	
Georgetown	Capital,	LP	and	CrossHill	
Debt II, LP, funds focused on making 
senior and subordinated debt 
investments in private entities. Stephen 
has more than 30 years of investment 
banking and private equity experience 
with both public and private companies. 
Prior to founding CrossHill, he was a 
Principal of the investment banking 
fi rm Kidder, Peabody & Co. Stephen is 
a Board member and chairs the Audit 
Committee of TNS, Inc (NYSE:TNS), 
and is a Board member of Central Park 
Credit Bank, and the Washington D.C. 
International Film Festival. He is a 
graduate	of	Georgetown	University	
and received an M.B.A. from the 
University of Chicago.

“Straight out of the box, Corero’s differentiated solution 

had a lot of capabilities that the other IPS vendors’ 
products just didn’t have, such as protection against 
Distributed Denial of Service (DDoS) attacks, stateful 
fi rewall fi ltering and protection against Botnet attacks. 
It has made my job a whole lot easier and my network a 
whole lot safer and the performance is outstanding.” 

Rick Baird, IT Manager at Brady Distributing 
Corero Network Security customer

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  15

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Governance

Directors’ Report

for the year ended 31 December 2011

Principal activities

The	principal	activity	of	the	Group	during	the	year	ended	31	December	2011	was	the	supply	of	security	products	and	services	
to international customers and the supply of finance and management information software solutions to the UK education and 
commercial markets.

A	review	of	the	Group’s	performance	is	disclosed	within	the	Chairman’s	Statement	and	the	Financial	Review.

Business review

The information satisfying the business review requirements is set out in this report: the Chairman’s Statement on pages 6 to 9;  
the Financial Review on pages 10 to 13; the review of the principal risks and uncertainties on pages 11 to 13; all of which are 
incorporated	into	this	report	by	reference.	The	Corporate	Governance	report	forms	part	of	this	Directors’	report	and	is	
incorporated into it by reference.

Group results

The	Group’s	Statement	of	Comprehensive	Income	on	page	28	shows	a	loss	for	the	year	of	£1.2	million	(2010:	profit	£404,000).

Going concern

The financial position, cash flows and borrowing facilities are described in the Financial Review on pages 10 to 13. 

Forecasts and projections, taking into account reasonably possible changes in trading performance, show that the Company 
and	Group	will	be	able	to	operate	within	the	level	of	current	cash	balances	and	facilities.

The Directors are satisfied, in view of the cash reserves of £4.3 million (2010: £7.2 million) held on the balance sheet at  
31	December	2011	that	the	Company	and	the	Group	have	adequate	resources	to	continue	operating	for	the	foreseeable	future.	
For this reason they have adopted the going concern basis in preparing the accounts.

Dividends

The Directors have not recommended a dividend (2010: £nil). 

Transfers to reserves 

The loss for the year amounting to £1.2 million (2010: profit £404,000) will be taken to retained earnings and carried forward to 
next year. 

Post balance sheet events

On 6 March 2012, the Company raised £4.56 million (before costs), of which the directors and senior management contributed 
£1.4 million, by way of a placing of 10,615,694 new ordinary shares at a price of 43p per share, to support the growth of the 
Corero Network Security business by investing in the sales and marketing functions of the business to gain end-user customer 
and channel partner awareness, and investing in its product development capabilities. 

“Our more professional, efficient systems give us the 

ability to improve our performance for our customers, 
governors, staff, auditors, regulators and the government 
alike. We made the right choice selecting Resource from 
Corero and we would recommend it to others. The Corero 
team has the right skills, the right technology and the 
right attitude.” 

Richmond Adult Community College 
Corero Business Systems customer

16  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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Share capital

The issued share capital of the Company together with details of movements in the Company’s issued share capital during the 
financial period are shown in note 27 to the financial statements. As at the date of this report, 58,329,412 ordinary shares of 1p 
each (‘ordinary shares’) were in issue and fully paid with an aggregate nominal value of £583,294.

The market price of the ordinary shares at 31 December 2011 was 44.5p and the shares traded in the range 31p to 49p during the year.

Issue of shares

At	the	AGM	held	on	24	May	2011	shareholders	granted	authority	to	the	Board	under	the	Articles	and	section	551	of	the	
Companies Act 2006 (the ‘Act’) to exercise all powers of the Company to allot relevant securities up to an aggregate nominal 
amount	of	£158,579.05.	It	is	proposed	at	the	forthcoming	AGM	to	renew	the	authority	to	allot	relevant	securities	up	to	an	
aggregate nominal amount of £194,431, being one-third of the nominal value of the current issued share capital.

Also	at	the	AGM	held	on	24	May	2011,	shareholders	granted	authority	to	the	Board	under	the	Articles	and	section	570(1)	of	the	Act	
to exercise all powers of the Company to allot equity securities wholly for cash up to an aggregate nominal amount of £71,360.58 
without application of the statutory pre-emption rights contained in section 561 (1) of the Act. It is proposed at the forthcoming 
AGM	to	renew	the	authority	to	allot	relevant	securities	wholly	for	cash	up	to	an	aggregate	nominal	amount	of	£87,494	being	15%	of	
the current nominal value of the issued share capital, without application of the statutory pre-emption rights.

Substantial shareholdings

The	Company	has	been	notified	of	the	following	holdings	that	are	3%	or	more	of	the	Group’s	ordinary	share	capital	as	at	 
19 March 2012:

Ordinary shares of 1 pence each

Jens Montanana*

Andre Stewart**

Herald Investment Management Limited

BlackRock, Inc.

Legal and General Investment Management Limited

Octopus Investments Limited

Investec Bank plc

CrossHill Debt II, L.P.

Number

15,793,687 

5,731,023 

3,928,389

3,581,705 

2,790,697 

2,790,697 

2,460,132 

2,168,346 

%

27.08

9.83

6.73

6.14

4.78

4.78

4.22

3.72

*	 of	which	11,936,545	are	held	in	the	name	of	JPM	International	Limited,	which	is	wholly	owned	by	Jens	Montanana.	

**	of	which	5,731,023	are	held	in	the	name	of	BFG	Investments	Group	Limited	which	is	wholly	owned	by	Andre	Stewart.

“Corero has allowed us to quickly cut out malicious traffic 
from our network, maintain high levels of performance 
and save time and expenses wasted on other inefficient 
security scans. We chose Corero over our existing HP 
TippingPoint IPS for improved performance and support, 
and its devices and support team have each delivered.” 

Bruce	Pruitte,	Permanent	General	Insurance	
Corero Network Security customer

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011 

17

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Governance

Directors’ Report continued

Directors and directors’ interests

The directors who served in office during the year and up to the date of this report and their interests in the Company’s shares 
were as follows: 

Ordinary shares held 

Jens Montanana

Andrew Miller

Richard Last

Stephen Graham  
(appointed 19 March 2012)

Edward Forwood  
(appointed 29 June 2011, 
resigned 19 March 2012)

Bernard Snowe  
(resigned 30 June 2011)

Peter Waller  
(resigned 4 February 2011)

19 March 
2012 
Number 

31 December 
 2011 
Number

%

15,793,687 

27.08

12,828,571

623,255 

400,000 

1.07

0.69

600,000

221,619

31 December 
 2010 
Number 

10,400,000

600,000

7,333

%

26.9

1.3

0.5

–

–

n/a

n/a

–

–

–

–

n/a

–

n/a

n/a

–

–

–

–

n/a

–

1,373

20,600

0.1

%

32.5

1.9

–

–

–

–

The biographical details of the current Directors of the Company are given on pages 14 to 15. 

Jens	Montanana	and	Andrew	Miller	hold	share	options,	details	of	which	are	shown	in	note	33	to	the	Financial	Statements.	

Bernard Snowe, managing director of Corero Business Systems, stepped down as a Director of the Company with effect 
from	30	June	2011	to	enable	him	to	focus	entirely	on	the	growth	of	Corero	Business	Systems	and	build	on	the	division’s	
strong presence in the UK education sector. He remains a director of Corero Business Systems Limited (the Corero 
Business Systems trading entity). 

Edward	Forwood,	a	director	of	Loudwater	Trust	Limited	(‘Loudwater’)	was	appointed	a	non-executive	director	on	29	June	2011.	
His appointment was a result of Loudwater, which became a significant shareholder in the Company following the acquisition of 
Top Layer, exercising its right to appoint a non-executive director, as set out in a board representation and observer rights 
agreement	between	(1)	the	Company,	(2)	CrossHill	Debt	II,	L.P.,	(‘Crosshill’)	(3)	Crosshill	Georgetown	Capital,	L.P.	(‘Georgetown’)	
and (4) Loudwater dated 7 February 2011 (‘Relationship Agreement’). For the purposes of this summary of the Relationship 
Agreement,	‘Shareholders’	means	Crosshill	and	Georgetown	on	the	one	hand	(together	being	a	‘Shareholder’)	and	Loudwater	
on the other hand. The Relationship Agreement provides that for so long as the Shareholders (or any of them) hold any of the 
Loan Notes (note 22) and such notes remain outstanding or the Shareholders (or any of them) are, in aggregate, the legal and 
beneficial owners of more than 10% of the entire issued ordinary shares of the Company, the Larger Shareholder (being the 
Shareholder that holds the greater number of ordinary shares or, if neither Shareholder holds any ordinary shares, the 
Shareholder that holds Loan Notes representing the greater principal sum) shall be entitled (but not obliged) to require the 

“We selected Corero for our financial system based on 

research and strong recommendations from our Auditors. 
We have been delighted with the professionalism of the 
implementation team and particularly the training that 
has been provided to our Business Manager and Finance 
Team and their prompt response to any enquiries made.” 

Congleton High School 
Corero Business Systems customer

18  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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appointment of one director to the Board, such appointment to be of a non-executive Director. Loudwater, being the Larger 
Shareholder	exercised	its	right	to	appoint	a	non-executive	director	on	6	June	2011	and	nominated	Edward	Forwood.	

In addition, for as long as either (a) the Shareholders (or any of them) are, in aggregate, the legal and beneficial owners of more 
than 10% of the entire issued ordinary shares of the Company, or (b) the Shareholders (or any of them) hold Loan Notes with an 
aggregate principal value of not less than $1 million, the Smaller Shareholder shall have the right, exercisable by notice in writing 
to the Company, to appoint a representative as an observer (“Observer”), to attend (in person or by conference telephone 
facility) (but not to speak, vote or to place items on the agenda for discussion) at each and any meeting of the Board and remove 
any person so appointed. CrossHill being the Smaller Shareholder exercised the right to appoint an Observer on 14 October 
2011. On 19 March 2012 following Loudwater’s disposal of their in shares in Corero on 6 March 2012, Edward Forwood resigned 
as a director of the Company. 

On	19	March	2012,	CrossHill	exercised	their	right	to	appoint	a	non-executive	director	and	nominated	Stephen	Graham	whose	
appointment was confirmed at a Board meeting of that date. On 19 March 2012 Loudwater exercised the right to appoint an Observer.

Payment of suppliers

It	is	Group	policy	to	agree	and	clearly	communicate	the	terms	of	payment	as	part	of	the	commercial	arrangements	negotiated	
with suppliers and then to pay according to those terms based upon the satisfactory completion of contractual obligations and 
timely receipt of an accurate invoice. The creditor days outstanding (based on the count back method) at 31 December 2011 
was 29 days (2010: 24 days). 

Environment

The	Group’s	activities	are	primarily	office	based	and	as	such	the	directors	believe	that	there	is	no	significant	environmental	
impact	arising	from	the	Group’s	activities.	No	environmental	performance	indicators	are	therefore	included	within	this	report.	
The	Group’s	environmental	policy	states:	“We	endeavour	to	recycle	appropriate	materials	where	possible	and	to	efficiently	use	
natural resources and energy supplies so as to minimise our environmental impact. We will comply with the relevant statutes and 
legislation. Furthermore employees are encouraged to be environmentally aware. Company cars are not provided.”

Research and development

The	development	of	computer	software	is	an	integral	part	of	the	Group’s	business	and	the	Group	continues	to	develop	its	
core software in response to user demand, and particularly the changing IT security threat landscape, and changes in 
software	technology.	During	the	year	the	Group	enhanced	its	existing	products	and	developed	new	products.	A	capital	
investment of £1.1 million (2010: £367,000) was made during the year. Amortisation of £201,000 (2010: £270,000) was 
charged to the Statement of Comprehensive Income during the year. 

Employees

The	quality	and	commitment	of	the	Group’s	employees	has	played	a	major	role	in	the	Group’s	business	success.	This	has	
been demonstrated in many ways, including strong customer satisfaction, the development of new product offerings and 
the	flexibility	employees	have	shown	in	adapting	to	changing	business	requirements.	The	Group	operates	sales	
commission, incentive bonus plans and share option and incentive plans to provide incentives for achievements which  
add value to the business.

“Corero Network Security has brought just the right 

product (DDS) to market at just the right time.” 

Forbes,	June	2011

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Annual Report & Accounts for the year ending 31 December 2011  19

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Governance

Directors’ Report continued

Charitable or political donations

A donation of £1,000 was made to a charity during the year (2010: £1,000). No political donations were made during the year.

Annual General Meeting

The AGM will be held at the offices of FinnCap Ltd, 60 New Broad Street, London, EC2M 1JJ, on 7 June 2012 at 10 a.m. The 
notice convening the meeting is on pages 69 to 72 together with details of the business to be considered and explanatory 
notes relating to each of the resolutions being proposed.

Auditors

In so far as each director is aware:

•	

there is no relevant audit information of which the Company’s auditors are unaware; and

•	

the directors have taken all the steps that they ought to have taken to make themselves aware of any relevant audit information and 
to establish that the Company’s auditors are aware of that information.

BDO LLP was appointed as auditor during the year and a resolution to re-appoint BDO LLP for the ensuing year will be 
proposed at the AGM.

By order of the Board

Duncan Swallow  
Company Secretary 
19 March 2012

20  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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02/04/2012   16:32

 
Corporate	Governance	Report

As	an	AIM	listed	company,	Corero	is	not	required	to	comply	with	the	Corporate	Governance	Code	prepared	by	the	Committee	on	
Corporate	Governance,	appended	to	the	Listing	Rules	of	the	FSA,	however	the	Company	has	regard	to	the	requirements	of	the	
Code and its activities in these areas are described below.

The Board

Corero	recognises	its	responsibility	to	provide	entrepreneurial	and	responsible	leadership	to	the	Group	within	a	framework	of	
prudent and effective controls (described below) allowing assessment and management of the key issues and risks impacting the 
business.	The	Board	sets	Corero’s	overall	strategic	direction,	reviews	management	performance	and	ensures	that	the	Group	has	
the necessary financial and human resources in place to meet its objectives. The Board is satisfied that the necessary controls and 
resources	exist	within	the	Group	to	enable	these	responsibilities	to	be	met.

Operational	management	of	the	Group	is	delegated	to	the	Executive	Director	and	Business	unit	heads	who	meet	regularly	to	discuss	
such matters. These matters include product development and roadmap, sales, customer relationships and employee matters.

The Board of Directors comprises the Non-executive chairman, one executive director and two Non-executive directors whose 
Board and Committee responsibilities as at 31 December 2011 are set out below:

Jens Montanana

Andrew Miller

Richard Last

Edward Forwood 

Board

Audit

Remuneration

Chairman

Member

Chairman

Member

Member

Member

Chairman

Member

The composition of the Board of Directors is reviewed regularly. Appropriate training, briefings, and induction are available to all 
directors on appointment and subsequently as necessary, taking into account existing qualifications and experience.

Richard Last is considered to be independent. The Company plans in due course to appoint an additional independent Non-
executive director.

Executive directors’ normal retirement age is 60 and non-executive directors’ normal retirement age is 65. One third of all 
directors are subject to annual reappointment by shareholders as well as any director appointed by the Board in the period  
since	the	last	AGM.	Richard	Last	and	Stephen	Graham	(appointed	19	March	2012)	will	be	offering	themselves	for	re-election	at	
the	forthcoming	AGM.

The Board of Directors meets on average once a quarter and additional meetings are held each year to review and approve the 
Group’s	strategy	and	financial	plans	for	the	coming	year.	Each	director	is	provided	with	sufficient	information	to	enable	them	to	
consider matters in good time for meetings and enable them to discharge their duties properly.

All directors have access to the advice and services of the Company Secretary. There is also a procedure in place for any 
director to take independent professional advice if necessary, at the Company’s expense.

The Board also ensures that the principal goal of the Company is to create shareholder value, while having regard to other 
stakeholder interests and takes responsibility for setting the Company’s values and standards. 

There is a documented schedule of matters reserved for the Board, the most significant of which are:

•	

responsibility	of	the	overall	strategy	and	management	of	the	Group;

•	 approval of strategic plans and budgets and any material changes to them;

•	 approval of the acquisition or disposal of subsidiaries and major investments, projects and contracts;

•	 oversight	of	the	Group’s	operations	ensuring	competent	and	prudent	management,	sound	planning	and	management	of	

adequate accounting and other records;

•	 changes	relating	to	the	Group’s	capital	structure;

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  21

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30/03/2012   13:24

 
 
 
 
 
 
 
 
Governance

Corporate	Governance	Report	continued

•	 final approval of the annual and interim financial statements and accounting policies;

•	 approval of the dividend policy;

•	 ensuring an appropriate system of internal control and risk management is in place;

•	 approval of changes to the structure, size and composition of the Board;

•	

review of the management structure and senior management responsibilities;

•	 with	the	assistance	of	the	Remuneration	Committee,	approval	of	remuneration	policies	across	the	Group;

•	 delegation of the Board’s powers and authorities;

•	 consideration of the independence of the Non-executive Directors; and

•	

receiving reports on the views of the Company’s shareholders.

In	the	year	ended	31	December	2011	the	Board	received	monthly	briefings	on	the	Group’s	performance	(including	detailed	
commentary	and	analysis),	key	issues	and	risks	affecting	the	Group’s	business.	

The Company maintains liability insurance for its directors and officers. The Company has also entered into indemnity agreements 
with the Directors, in terms of which the Company has indemnified its directors, subject to the Companies Act limitations, against 
any liability arising out of the exercise of the directors’ powers, duties and responsibilities as a director or officer.

In the year ended 31 December 2011 the Board met on five scheduled occasions; further meetings and conference calls  
are held as and when necessary. Details of Directors’ attendance at scheduled meetings during the year are set out in the  
table below: 

Jens Montanana

Andrew Miller

Richard Last

Edward Forwood (appointed 29 June 2011)

Peter Waller (resigned 4 February 2011)

Bernard Snowe (resigned 30 June 2011)

Board Committees

Meetings 
attended

5/5

5/5

5/5

3/3

1/1

3/3

The Company has an Audit Committee and Remuneration Committee, details of which are set out below.

Audit Committee

The	audit	committee	members	comprise	Richard	Last,	who	is	the	committee	chairman,	and	Jens	Montanana,	and	meets	twice	a	
year.	The	Group	Financial	Controller,	Chief	Operating	Officer	and	the	Company’s	external	auditors	attend	the	meetings.	The	
audit	committee	considers	the	adequacy	and	effectiveness	of	the	risk	management	and	control	systems	of	the	Group.	It	reviews	
the scope and results of the external audit, its cost effectiveness and the objectivity of the auditors. It also reviews, prior to 
publication, the interims, preliminary announcement, the annual financial statements and the other information included in the 
annual report.

22  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 FRONT AW05.indd   22

30/03/2012   13:24

The Audit Committee met twice in the year ended 31 December 2011. The attendance of individual Committee members at 
Audit Committee meetings in the year to 31 December 2011 is shown in the table below: 

Richard Last

Jens Montanana

Remuneration Committee

Meetings 
attended

2/2

2/2

The	Remuneration	Committee	comprises	Jens	Montanana,	who	is	the	committee	chairman,	and	Richard	Last.	It	meets	at	least	
twice a year and reviews and advises upon the remuneration and benefits packages of the executive directors. The remuneration 
of the chairman and non-executive directors is decided upon by the Board of Directors. 

The Remuneration Committee met six times in the year ended 31 December 2011. The attendance of individual Committee 
members at Remuneration Committee meetings in the year to 31 December 2011 is shown in the table below: 

Jens Montanana

Richard Last

Nominations Committee

Meetings 
attended

6/6

6/6

Due to the size of the Board of Directors, the directors do not consider there to be any need for a nominations committee. Issues 
that would normally be dealt with by a nominations committee are handled by the Board of Directors. The Board of Directors will 
review the need for a nominations committee on a regular basis.

Internal controls

The	directors	are	responsible	for	the	Group’s	system	of	internal	control	and	for	reviewing	its	effectiveness	whilst	the	role	of	
management	is	to	implement	policies	on	risk	management	and	control.	The	Group’s	system	of	internal	control	is	designed	to	
manage,	rather	than	eliminate,	the	risk	of	failure	to	achieve	the	Group’s	business	objectives	and	can	only	provide	
reasonable, and not absolute, assurance against material misstatement or loss.

The Board continually reviews the effectiveness of other internal controls, including financial, operational, compliance 
controls and risk management.

The	Group	operates	a	risk	management	process,	which	is	embedded	in	normal	management	and	governance	processes.	As	
part of the annual strategic planning and budgeting process, each business unit documents the significant risks identified, the 
probability of those risks occurring, their potential impact and the plans for managing and mitigating each of those risks. 

The	Group	operates	a	series	of	controls	to	meet	its	needs.	These	controls	include,	but	are	not	limited	to,	the	annual	strategic	
planning and budgeting process, a clearly defined organisational structure with authorisation limits, reviews by senior 
management of monthly financial and operating information including comparisons with budgets, monthly treasury and cash 
flow reports and forecasts to the Board. 

The Audit Committee receives reports from management and observations from the external auditors concerning the system 
of internal control and any material control weaknesses. Significant risk issues, if any, are referred to the Board of Directors 
for consideration.

The	Board	of	Directors	makes	an	annual	assessment	of	the	effectiveness	of	the	Group’s	internal	control	system,	including	
financial, operational and compliance controls, before making this statement. The Board of Directors also considers issues 
included in reports received during the year, how the risks have changed during the year and reviews reports on internal controls 
from management and any issues identified by external auditors. 

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  23

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CNS2799 - AR11 FRONT AW05.indd   23

30/03/2012   13:24

 
 
 
 
 
 
 
 
Governance

Corporate	Governance	Report	continued

The Board of Directors does not believe it is currently appropriate to establish a separate, independent internal audit function 
given	the	size	of	the	Group.

Remuneration report

The	Remuneration	Committee’s	principal	function	is	to	set	remuneration	of	the	Group’s	executive	directors	and	business	unit	
heads to ensure they are fairly compensated. 

Basic	salaries	are	set	to	ensure	high	quality	executive	directors	and	management	are	attracted	and	retained	by	the	Group.	They	
reflect the knowledge, skill and experience of each individual director. Bonuses are non-pensionable and only payable if  
the Remuneration Committee assesses the director’s achievements as worthy of the award.

The	Remuneration	Committee	is	also	responsible	for	ensuring	the	Group’s	share	option	schemes	are	operated	properly.	Details	
of directors’ share options at 31 December 2011 are disclosed in note 33 of the Financial Statements.

Details	of	directors’	remuneration	for	the	year	ended	31	December	2011	are	set	out	in	note	30	of	the	Financial	Statements.	Jens	
Montanana has elected to waive the fees payable to him for the financial years ended 31 December 2010 and 2011.

None	of	the	Non-executive	Directors	has	a	service	agreement.	Letters	of	appointment	for	Jens	Montanana	and	Richard	Last	are	
for 12 month terms and provide that the appointment may be terminated by either party giving to the other not less than three 
months	notice.	Stephen	Graham’s	appointment	is	governed	by	the	Relationship	Agreement.

24  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 FRONT AW05.indd   24

30/03/2012   13:24

Statement of Directors Responsibilities 

The directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable 
law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have 
elected	to	prepare	the	Group	and	Company	financial	statements	in	accordance	with	International	Financial	Reporting	Standards	
as adopted by the European Union (IFRSs). Under company law the directors must not approve the financial statements unless 
they	give	a	true	and	fair	view	of	the	state	of	affairs	of	the	Group	and	parent	company	and	of	the	profit	or	loss	of	the	Group	 
for that period. The directors’ are also required to prepare financial statements in accordance with the rules of the London  
Stock Exchange for companies trading securities on the AIM. In preparing these financial statements, the directors are  
required to:

•	 select suitable accounting policies and then apply them consistently;

•	 make judgements and estimates that are reasonable and prudent;

•	 state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the 

financial statements; and

•	 prepare	the	financial	statements	on	the	going	concern	basis	unless	it	is	inappropriate	to	presume	that	the	Group	will	

continue in business. 

The	directors	are	responsible	for	keeping	adequate	accounting	records	that	are	sufficient	to	show	and	explain	the	Group’s	
transactions	and	disclose	with	reasonable	accuracy	at	any	time	the	financial	position	of	the	Group	and	enable	them	to	ensure	
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the 
Group	and	hence	for	taking	reasonable	steps	for	the	prevention	and	detection	of	fraud	and	other	irregularities.	

The directors are responsible for ensuring the annual report and the financial statements are made available on a website. 
Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing 
the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The 
maintenance and integrity of the Company’s website is the responsibility of the directors. The directors’ responsibility also 
extends to the ongoing integrity of the financial statements contained therein.

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  25

CNS2799 - AR11 FRONT AW05.indd   25

30/03/2012   13:24

 
 
 
 
 
 
 
 
Financial Statements

Independent Auditor’s Report 

to the members of Corero Network Security plc

We have audited the financial statements of Corero Network Security plc for the year ended 31 December 2011 which 
comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial 
position, consolidated statement of cash flows, the consolidated statement of changes in equity and the related notes.  
The financial reporting framework that has been applied in their preparation is applicable law and International Financial 
Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements,  
as applied in accordance with the provisions of the Companies Act 2006. 

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies  
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are  
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not  
accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit  
work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of  
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express  
an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and 
Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. 

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/
private.cfm. 

Opinion on financial statements

In our opinion: 

•	  the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at  

31 December 2011 and of the group’s loss for the year then ended;

•	 the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

•	 the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European 

Union and as applied in accordance with the provisions of the Companies Act 2006; and

•	 the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

•	 the information given in the directors’ report for the financial year for which the financial statements are prepared is 

consistent with the financial statements.

26  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   26

02/04/2012   16:33

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if,  
in our opinion:

•	 adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been 

received from branches not visited by us; or

•	 the parent company financial statements are not in agreement with the accounting records and returns; or

•	 certain disclosures of directors’ remuneration specified by law are not made; or

•	 we have not received all the information and explanations we require for our audit.

Gary Hanson (senior statutory auditor) 
For and on behalf of BDO LLP, statutory auditor 
Cambridge 
19 March 2012

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  27

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02/04/2012   16:48

 
 
 
 
 
 
 
 
Financial Statements

Consolidated Statement of 
Comprehensive Income

for the year ended 31 December 2011

Existing 
continuing
2011
£’000

Acquired
2011
£’000

Continuing 
total
2011
£’000

Note

4,393

(857)

3,536

(2,699)

(219)

(306)

(3,224)

312

61

–

373

–

373

–

–

373

345

28

373

–

373

345

28

373

Revenue

Cost of sales

Gross profit

Operating expenses before highlighted items 

– Depreciation and amortisation of intangible assets

15,16,17

– Acquisition and restructuring costs

Operating expenses 

Operating profit/(loss)

Finance income

Finance costs

Profit/(loss) before taxation

Taxation

6

7

9

Profit/(loss) for the year from continuing/acquired operations

Profit from discontinued operations

Profit from sale of discontinued operations

Profit/(loss) for the year

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

Equity holders of the parent

Non-controlling interest

10

10

Other comprehensive income 

Difference on translation of foreign subsidiary

Total comprehensive income/(expense) for the year 

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

Equity holders of the parent

Non-controlling interest

Total 

(1) restated for change in cost of sales accounting policy as set out in note 13.

There were no acquisitions in 2010.

Basic and diluted (loss)/earnings per share

Basic loss per share from continuing and acquired operations

Basic earnings per share from discontinued operations

Basic (loss)/earnings per share

Diluted loss per share from continuing and acquired operations

Diluted earnings from discontinued operations

Diluted (loss)/earnings per share

6,872

(1,699)

5,173

(5,723)

(730)

(297)

(6,750)

(1,577)

–

(224)

(1,801)

192

(1,609)

–

–

11,265

(2,556)

8,709

(8,422)

(949)

(603)

(9,974)

(1,265)

61

(224)

(1,428)

192

(1,236)

–

–

(1,609)

(1,236)

(1,609)

–

(1,609)

25

(1,584)

(1,584)

–

(1,584)

Note

12

12

(1,264)

28

(1,236)

25

(1,211)

(1,239)

28

(1,211)

2011
Pence

(2.75)

–

(2.75)

(2.58)

–

(2.58)

Total
2010 (1)
£’000

3,020

(593)

2,427

(2,094)

(198)

(60)

(2,352)

75

32

(199)

(92)

–

(92)

4

492

404

404

–

404

–

404

404

–

404

2010
Pence

(0.68)

3.67

2.99

(0.62)

3.35

2.73

In the previous year the diluted earnings per share figure was omitted from the approved financial statements in error. As a result this has 
been calculated and included within the financial statements this year. There was no difference between basic and diluted earnings per 
share for the year ended 31 December 2009.

The notes on pages 32 to 68 form part of these financial statements. 

28  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   28

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Consolidated Statement of  
Financial Position 

as at 31 December 2011

Group

2011
£’000

2010 
£’000

Note

Assets
Non-current assets
Goodwill
Acquired intangible assets
Capitalised development expenditure
Property, plant and equipment
Investments in subsidiaries

Current assets
Inventories
Trade and other receivables – due in less than one year
Trade and other receivables – due in more than one year
Cash and cash equivalents

Liabilities
Current Liabilities
Trade and other payables
Borrowings
Deferred income
Provisions

Net current (liabilities)/assets

Non-current liabilities
Borrowings
Deferred income
Deferred taxation

Net assets

Equity
Ordinary share capital
Deferred share capital
Shares to be issued
Share premium
Merger reserve
Share options reserve
Non-controlling interest
Translation reserve
Retained earnings
Total surplus attributable to equity holders of the parent

14
15
16
17
18

19
20
20

21
22
24

22
24
25

27
27
28
29

12,144
3,008
1,484
655
–
17,291

241
3,266
158
4,312
7,977

(2,824)
(176)
(5,416)
–
(8,416)
(439)

(3,557)
(808)
(1,012)
(5,377)
11,475

477
4,542
80
19,846
–
166
28
25
(13,689)
11,475

509
5
591
36
–
1,141

–
818
2
7,186
8,006

(735)
–
(1,485)
(4)
(2,224)
5,782

–
–
–
–
6,923

319
4,542
–
14,341
1,023
146
–
–
(13,448)
6,923

Company

2011
£’000

–
–
–
–
11,787
11,787

–
2
3,977
3,043
7,022

–
–
–
–
–
7,022

–
–
–
–
18,809

477
4,542
80
19,846
–
166
–
–
(6,302)
18,809

2010
£’000

–
–
–
–
411
411

–
64
2,844
6,345
9,253

(2)
–
–
–
(2)
9,251

–
–
–
–
9,662

319
4,542
–
14,341
1,023
146
–
–
(10,709)
9,662

These financial statements were approved by the Board of Directors on 19 March 2012 and signed on their behalf.

Andrew Miller
Director

The notes on pages 32 to 68 form part of these financial statements. 

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  29

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30/03/2012   13:25

 
 
 
 
 
 
 
 
Financial Statements

Consolidated Statement of Cash Flows

for the year ended 31 December 2011

Group

Company

Cash flows from operating activities
Continuing operations
(Loss)/profit before taxation
Adjustments for:
Amortisation of acquired intangible assets
Amortisation of capitalised development expenditure

Depreciation 

Finance income

Finance expense

Decrease in provisions
Share based payment charge

Changes in working capital
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in payables
Cash (used)/generated from continuing operations
Net cash from discontinued operations
Net cash from operating activities

Cash flows from investing activities
Acquisition of subsidiaries, net of cash acquired
Purchase of intangible assets
Capitalised development expenditure
Purchase of property, plant and equipment
Repayments from subsidiaries
Payments made to subsidiaries
Net cash used in investing activities

Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Term loan received
Finance income
Finance expense
Capital element of finance lease repayments
Repayment of credit facility
Net cash from financing activities

Note

15
16

17

6

7

33

10

35
15
16
17

6

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December

2011
£’000

(1,428)

576
201

172

(61)

224

(4)
20

(94)
(1,729)
1,192
(931)
–
(931)

(2,283)
(38)
(1,094)
(629)
–
–
(4,044)

2,089
162
61
(10)
(14)
(187)
2,101

(2,874)
7,186
4,312

2010
£’000

(92)

7
168

22

(32)

199

(8)
131

–
(344)
424
475
293
768

–
–
(367)
(24)
–
–
(391)

6,383
–
32
(292)
–
–
6,123

6,500
686
7,186

2011
£’000

3,384

–
–

–

(94)

–

–
20

–
(216)
(3,596)
(502)
–
(502)

(2,413)
–
–
–
1,314
(3,851)
(4,950)

2,089
–
61
–
–
–
2,150

(3,302)
6,345
3,043

2010
£’000

65

–
–

–

(26)

199

–
131

–
323
(692)
–
–
–

–
–
–
–
–
(64)
(64)

6,383
–
26
–
–
–
6,409

6,345
–
6,345

Significant non-cash transactions
a) The conversion of 50% of the convertible unsecured loan stock to equity
b) Disposal proceeds of the sale of the Financial Markets division (note 10)
c) Part of the purchase consideration for the acquisition of Top Layer Networks, Inc (note 35)

The notes on pages 32 to 68 form part of these financial statements. 

30  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   30

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Consolidated Statement of Changes in Equity

for the year ended 31 December 2011

Ordinary and 
deferred 
share capital
£’000

Shares 
to be 
issued
£’000

Share 
premium 
account
£’000

Merger 
reserve
£’000

Share 
options 
reserve
£’000

CULS 
equity 
reserve
£’000

Non-
controlling 
interest
£’000

Translation 
reserve
£’000

Profit and 
loss 
reserve
£’000

Total
£’000

Group

1 January 2010 

Share based payments

Redemption of CULS

CULS fair value 
adjustments

Issue of share capital

Profit for year ended  
31 December 2010

31 December 2010

Share based payments

Issue of share capital

Merger reserve transfer

Shares to be issued

Other comprehensive 
income

Loss for the year ended  
31 December 2011 

4,557

–

–

–

304

–

4,861

–

158

–

–

–

–

–

–

–

–

–

–

–

–

–

–

80

–

–

6,369

1,023

–

–

–

7,972

–

–

–

–

–

–

14,341

1,023

–

5,505

–

–

–

–

–

–

(1,023)

–

–

–

–

14

132

–

–

–

–

146

20

–

–

–

–

–

166

146

–

(146)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

28

28

31 December 2011

5,019

80

19,846

Company

1 January 2010

Share based payments

Redemption of CULS

CULS fair value adjustments

Issue of share capital

Profit for year ended  
31 December 2010

31 December 2010

Share based payments

Issue of share capital

Merger reserve transfer

Shares to be issued

Profit for the year ended  
31 December 2011

31 December 2011

Ordinary and 
deferred 
share capital
 £’000

4,557

–

–

–

304

–

4,861

–

158

–

–

–

5,019

Shares 
to be 
issued
 £’000

Share 
premium 
account
 £’000

Merger 
reserve
 £’000

–

–

–

–

–

–

–

–

–

–

80

–

80

6,369

1,023

–

–

–

7,972

–

–

–

–

–

–

14,341

1,023

–

5,505

–

–

–

19,846

–

–

(1,023)

–

–

–

Share 
options 
reserve 
£’000

14

132

–

–

–

–

146

20

–

–

–

–

166

CULS 
equity 
reserve 
£’000

146

–

(146)

–

–

–

–

–

–

–

–

–

–

The notes on pages 32 to 68 form part of these financial statements. 

–

–

–

–

–

–

–

–

–

–

–

25

–

25

(13,898)

(1,789)

–

132

146

–

567

567

(667)

7,609

404

404

(13,448)

6,923

–

–

20

5,663

1,023

–

–

–

80

25

(1,264)

(1,236)

(13,689) 11,475

Profit and 
loss 
reserve 
£’000

(10,953)

–

146

567

Total 
£’000

1,156

132

–

567

(667)

7,609

198

(10,709)

–

–

1,023

–

198

9,662

20

5,663

–

80

3,384

3,384

(6,302)

18,809

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  31

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Financial Statements

Notes to the Financial Statements

1. General information

These consolidated financial statements 
are presented in pounds sterling, which 
represents the functional currency of the 
parent and each of its UK subsidiaries. 

Corero Network Security plc is a public 
limited company incorporated in the 
United Kingdom under the Companies 
Act 2006.

2. Significant accounting policies

2.1 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 2006 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 preparation of financial statements 
which comply with IFRS requires the use 
of estimates and assumptions, and for 
management to exercise its judgement in 
the process of applying the Group’s 
accounting policies. Critical judgements 
and key estimates and assumptions are 
disclosed in note 3.

2.2 Going Concern

The financial statements have been 
prepared on a going concern basis. The 
Group was loss making and used cash 
in operating activities during the year.

The directors have prepared detailed 
income statement, balance sheet and 
cash flow projections for the period to 
31 December 2013. The cash flow 
projections have been subjected to 
sensitivity analysis at the revenue, cost 
and combined revenue and cost levels. 
The cash flow projections show that the 
Group will maintain a positive cash 
balance until at least 31 December 2013.

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. 

Non-controlling interests are initially 
recognized at their fair value. The total 
comprehensive income of non-wholly 
owned subsidiaries is attributed to 
owners of the parent and to the non-
controlling interests in proportion to their 
relative ownership interests.

2.3 Basis of consolidation

2.5 Revenue

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 2011, or for  
the period from the date on which 
control of the subsidiary was obtained 
to 31 December 2011 in the case of the 
subsidiaries acquired during the year.

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.

2.4 Business combinations

The acquisition method is used to 
account for all acquisitions. The cost  
of an acquisition is measured at the  
fair values, on the date of exchange, 
of assets given, liabilities incurred or 
assumed, and equity instruments issued. 

At the date of acquisition, the identifiable 
assets and liabilities and contingent 
liabilities of a subsidiary are measured at 
their fair values. Any excess of the cost 
of acquisition over the fair values of the 
identifiable net assets acquired is 
recognised as goodwill.

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.

The Group has adopted the  
following policy in respect of  
revenue recognition:

1. Software Products
Revenue results mainly from the sale 
of 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; and

  – No significant obligations remain.

32  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   32

30/03/2012   13:25

iii.  If services are incidental to the 

functionality and/or the payment 
terms are linked to 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 at 
the start of the term of the agreement.

2. Hardware and Software Products
When a sales arrangement contains 
multiple elements, such as hardware 
and software products, licenses  
and/or services, the Group allocates 
revenue to each element based on a 
selling price hierarchy, having evaluated 
each deliverable in an arrangement  
to determine whether they represent 
separate units of accounting. A 
deliverable constitutes a separate unit of 
accounting when it has standalone value.

The selling price for a deliverable is 
based on its vendor specific objective 
evidence (“VSOE”) if available, third 
party evidence (“TPE”) if VSOE is not 
available, or best estimated selling  
price (“BESP”) if neither VSOE nor  
TPE is available. In multiple element 
arrangements where more-than-
incidental software deliverables are 
included, revenue is allocated to each 
separate unit, accounting for each of 
the non-software deliverables and to 
the software deliverables as a group 
using the relative selling prices of each 
of the deliverables in the arrangement 
based on the aforementioned selling 
price hierarchy.

The Group establishes the VSOE of 
selling price using the price charged for 
a deliverable when sold separately. The 
TPE of selling price is established by 
evaluating similar and interchangeable 
competitor products or services in 
standalone sales to similarly situated 

customers. The best estimate of selling 
price is established considering both 
internal and external factors such as 
pricing practices, customer pricing 
strategies, margin objectives, market 
conditions, competitor pricing strategies, 
and industry technology lifecycles.

3. Consulting and Professional Services
Revenue from the provision of 
consultancy and professional services 
is recognised as the work is performed.

4. Support income is recognised on  
a straight line basis over the life of  
the agreement.

5. Interest income is accrued on a time 
basis using the effective interest method.

2.6 Cost of sales

Cost of sales includes all direct costs 
associated with revenue generation, 
including services delivery, support costs 
and 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 costs (details  
of the change made to the treatment of 
certain costs are presented in note 13).

2.7 Foreign currencies

Transactions in foreign currencies  
are translated at the exchange rate 
ruling at the date of each transaction. 
Foreign currency monetary assets  
and liabilities are retranslated using  
the exchange rates at the reporting 
date. Gains and losses arising from 
changes in exchange rates after the 
date of the transaction are recognised 
in profit or loss in the Statement of 
Comprehensive Income. 

Non-monetary assets and liabilities that 
are measured in terms of historical cost 
in a foreign currency are translated at 
the exchange rate at the date of the 
original transaction.

In the consolidated financial statements, 
the net assets of the Group’s foreign 
operations are translated at the 
exchange rate at the reporting date. 
Income and expense items are translated 

at the average exchange rates for  
the period. The resulting exchange 
differences are recognised in translation 
difference on translation of foreign 
subsidiary and included in the translation 
reserve. Such translation differences  
are recognised in profit or loss on the 
disposal of the foreign operation.

2.8 Goodwill

Goodwill on acquisition of subsidiaries 
represents the excess of the cost of an 
acquisition over the fair value of the 
Group’s share of the identifiable net 
assets of the acquired subsidiary. 
Goodwill is not amortised, but tested  
at least annually for impairment, and 
carried at cost less accumulated 
impairment losses. Impairment losses 
are immediately recognised in the 
Statement of Comprehensive Income 
and are not subsequently reversed.

2.9 Intangible assets

Internally generated intangible assets
The Group’s internally generated 
intangible asset relates to its 
development expenditure.

Development expenditure is 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.

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  33

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Financial Statements

Notes to the Financial Statements continued

2. Significant accounting policies 
continued 

2.9 Intangible assets continued

Expenditure not meeting these criteria  
is expensed in the Statement of 
Comprehensive Income. 

After initial recognition, internally 
generated intangible assets are carried 
at cost less accumulated amortisation 
and any impairment losses.

Acquired intangible assets
Purchased computer software is carried 
at cost less accumulated amortisation 
and any impairment losses.

Customer contracts and the related 
customer relationships are carried at 
cost less accumulated amortisation and 
any impairment losses.

Identifiable intangible assets acquired as 
part of a business combination are initially 
recognised separately from goodwill, 
irrespective of whether the assets have 
been recognised by the acquiree before 
the business combination. An intangible 
asset is considered identifiable only if it is 
separable or if it arises from contractual 
or other legal rights, regardless of 
whether those rights are transferable or 
separable from the entity or from other 
rights and obligations.

Intangible assets acquired as part of a 
business combination and recognised 
by the Group are computer software, 
customer contracts and the related 
customer relationships.

After initial recognition, assets acquired 
as part of a business combination are 
carried at cost less accumulated 
amortisation and any impairment losses.

Amortisation
Intangible assets are amortised on a 
straight line basis, to reduce their 
carrying value to their residual value, 
over their estimated useful lives. The 
following useful lives were applied 
during the year:

Computer software acquired –  
3 or 5 years straight line

Customer contracts and the related 
customer relationships – 
7 years straight line

Capitalised development expenditure – 
5 years straight line

Amortisation costs are included within 
operating expenses in the Statement  
of Comprehensive Income.

Methods of amortisation, residual 
values and useful lives are reviewed, 
and if necessary adjusted, at each 
reporting date.

2.10 Property, plant and equipment

Property, plant and equipment is stated 
at cost less accumulated depreciation 
and any impairment losses. Cost 
comprises the purchase cost of 
property, plant and equipment together 
with any directly attributable costs.

Subsequent costs are included in an 
asset’s carrying value or are recognised 
as a separate asset when it is probable 
that future economic benefits 
associated with the additional 
expenditure will flow to the Group and 
the cost of the item can be measured 
reliably. All other costs are charged to 
the Statement of Comprehensive 
Income as incurred.

Depreciation commences when an 
asset is available for use. Depreciation 
is calculated so as to write off the cost 
or value of an asset, net of anticipated 
disposal proceeds, over the useful life 
of that asset as follows:

Leasehold improvements – 
Period of the lease straight line

Computer equipment – 
2 to 4 years straight line

Fixtures and fittings – 
2 to 5 years straight line

Office equipment – 
3 to 5 years straight line

Methods of depreciation, residual 
values and useful lives are reviewed, 
and if necessary adjusted, at  
each balance sheet date.

The gain or loss arising from the disposal 
or retirement of an item of property, plant 
and equipment is determined as the 
difference between the net disposal 
proceeds and the carrying amount of the 
item, and is included in the Statement of 
Comprehensive Income.

2.11 Inventory

Inventory is stated at the lower of  
cost or net realisable value. Cost is 
computed using standard cost, which 
approximates actual cost, on a first-in, 
first-out basis. Rapid technological 
change and new product introductions 
and enhancements could result in 
excess or obsolete inventory. To 
minimise this risk, the Group evaluates 
inventory levels and expected usage  
on a periodic basis and records 
valuation allowances as required.

2.12 Impairment

At each reporting 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 

34  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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depreciation or amortisation is 
recognised immediately in the 
Statement of Comprehensive Income.

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 carrying amounts of the other 
assets of the unit pro rata.

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 
Statement of Comprehensive Income. 
Impairment losses on goodwill are not 
subsequently reversed.

2.13 Borrowing costs

All borrowing costs directly attributable 
to a qualifying asset are capitalised as 
part of the cost of the asset. 

2.14 Leases

Where substantially all of the risks and 
rewards incidental to ownership of a 
leased asset are transferred to the 
Company (a “finance lease”), the asset 
is treated as if it had been purchased 
outright. The amount initially recognised 
as an asset is the lower of the fair value 
of the leased property and the present 
value of the minimum lease payments 
payable over the term of the lease. The 

corresponding lease commitment is 
shown as a liability. Lease payments are 
analysed between capital and interest. 
The interest element is charged to the 
Statement of Comprehensive Income 
over the period of the lease and is 
calculated so that it represents a 
constant proportion of the lease liability. 
The capital element reduces the 
balance owed to the lessor.

Where substantially all of the risks and 
rewards incidental to ownership are not 
transferred to the Company (an 
“operating lease”), the total rentals 
payable under the lease are charged to 
the Statement of Comprehensive 
Income on a straight-line basis over the 
lease term. The aggregate benefit of 
lease incentives is recognised as a 
reduction of the rental expense over the 
lease term on a straight-line basis.

2.15 Investments in subsidiaries

In the Company’s separate  
financial statements, investments  
in subsidiaries are carried at cost  
less any impairment provisions.

2.16 Taxation

The tax expense represents the sum  
of current tax and deferred tax.

Current tax
Current tax is based on taxable profit 
for the year and is calculated using tax 
rates enacted or substantively enacted 
at the reporting date. Taxable profit 
differs from accounting profit either 
because items are taxable or deductible 
in periods different to those in which 
they are recognised in the financial 
statements, or because they are never 
taxable or deductible.

Deferred tax
Deferred tax on temporary differences 
at the reporting date between the tax 
bases of assets and liabilities and their 
carrying amounts for financial reporting 
purposes is accounted for using the 
balance sheet liability method.

Using the balance sheet liability method, 
deferred tax liabilities are recognised in 
full for all taxable temporary differences 

and deferred tax assets are recognised 
to the extent that it is probable that 
taxable profits will be available against 
which deductible temporary differences 
can be utilised. However, if the 
temporary difference arises from the 
initial recognition of goodwill or the initial 
recognition of an asset or liability in a 
transaction other than a business 
combination, that at the time of the 
transaction affects neither accounting 
nor taxable profit, it is not recognised as 
deferred tax asset or liability.

Deferred taxation is measured at the 
tax rates that are expected to apply 
when the asset is realised, or the 
liability settled, based on tax rates and 
laws enacted or substantively enacted 
at the reporting date.

2.17 Provisions

A provision is recognised when, as a 
result of a past event, the Group has a 
legal or constructive obligation, it is 
probable that an outflow of resources 
embodying economic benefits will be 
required to settle the obligation and a 
reliable estimate of the amount of such 
an obligation can be made.

Provisions are measured at the best 
estimate of the expenditure required to 
settle the obligation at the reporting 
date. When the effect is material, the 
expected future cash flows required to 
settle the obligation are discounted at 
the pre-tax rate that reflects the current 
market assessments of the time value  
of money and the risks specific to  
the obligation.

2.18 Post-retirement benefits

The Group operates defined 
contribution group personal pension 
plans under which it is required to pay 
fixed contributions to separate funds 
controlled by trustees. Contributions to 
the schemes are based on a proportion 
of the employees’ earnings and are 
charged to the Statement of 
Comprehensive Income when incurred. 

The Group has no obligation to the 
scheme beyond these contributions.

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  35

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30/03/2012   13:25

 
 
 
 
 
 
 
 
Financial Statements

Notes to the Financial Statements continued

2. Significant accounting policies 
continued 

2.19 Financial instruments

The Group classifies financial 
instruments, or their component parts, 
on initial recognition as a financial asset, 
a financial liability or an equity instrument 
in accordance with the substance of the 
contractual arrangement.

Financial assets and financial liabilities 
are recognised in the Group’s statement 
of financial position when the Group 
becomes party to the contractual 
provisions of the instrument.

The particular recognition and 
measurement methods adopted for the 
Group’s financial instruments are 
disclosed below:

Trade and other receivables
Trade and other receivables are stated 
at their fair value at time of initial 
recognition, reflecting where material 
the time value of money. A provision for 
impairment of trade receivables is 
established when there is evidence that 
the Group will not be able to collect all 
amounts due according to the original 
terms of these receivables. The amount 
of the provision is the difference 
between the carrying value and the 
present value of estimated future cash 
flows, discounted at the original 
effective interest rate. 

Cash and cash equivalents
Cash and cash equivalents include cash 
in hand, deposits on call with banks and 
bank overdrafts. Bank overdrafts are 
disclosed as current borrowings in the 
statement of financial position.

Trade and other payables
Trade and other payables are not 
interest bearing and are stated at their 
fair value at time of initial recognition. 
Thereafter they are accounted for at 
amortised cost.

Fair value determination
Whenever available, the fair value of a 
financial instrument is derived from 
quoted prices in an active market. For 
assets held, fair value is the bid price 

and for liabilities held it is the asking 
price. If there is no active market, fair 
value is established by using a 
valuation technique. Valuation 
techniques include the use of 
information from recent arm’s length 
market transactions between 
knowledgeable, willing parties, if 
available, reference to the current  
fair value of similar instruments and 
discounted cash flow analysis. The 
valuation technique used incorporates 
all factors that market participants 
would consider in setting a price and  
is consistent with accepted  
economic methodologies for  
pricing financial instruments.

2.20 Equity instruments

An equity instrument is any contract 
that evidences a residual interest in the 
assets of the Company after deducting 
all its liabilities. Equity instruments 
issued by the Company are recorded at 
the proceeds received, net of directly 
attributable issue cost.

2.21 Employee share option schemes

The Group operates an equity-settled 
share-based compensation plan. The 
fair value of the employees’ services 
received in exchange for the grant of 
share options is measured at grant date 
and recognised as an expense on a 
straight line basis over the vesting 
period, based on the Group’s estimate 
of shares that will eventually vest. Fair 
value is determined by reference to the 
Black Scholes option pricing model.

At each reporting date, the Group revises 
its estimate of the number of options that 
are expected to become exercisable.

When share options are exercised,  
the proceeds received, net of any 
transaction costs, are credited to 
share capital (nominal value) and 
share premium.

2.22 Discontinued operations

A discontinued operation is a 
component of the Group that has been 
disposed of and represents a separate 
major line of business or geographical 
area of operations.

The amounts presented in the Statement 
of Comprehensive Income comprise the 
post-tax profit of discontinued 
operations and the post-tax gain 
resulting from the disposal of the assets 
of discontinued operations. These 
amounts are further analysed in note 10. 

The disclosures for discontinued 
operations in the prior year relate to all 
operations that have been discontinued 
by the reporting date for the latest 
period presented.

2.23 Invoice discounting

The group makes use of an invoice 
discounting facility to fund certain of  
its operations. Trade receivables are 
recognised as the Group retains the 
significant risks and benefits. The 
related funding is shown as a  
financial liability and accounted for  
on an amortised cost basis.

2.24 Standards and Interpretations 
not yet effective

At the date of authorisation of these 
financial statements, certain new 
standards, amendments and 
interpretations to existing standards 
have been published but are not yet 
effective, and have not been adopted 
early by the Group.

Management anticipates that all of the 
relevant pronouncements will be 
adopted in the Group’s accounting 
policies for the first period beginning 
after the effective date of the 
pronouncement and EU adoption. 
Information on new standards, 
amendments and interpretations that are 
expected to be relevant to the Group’s 
Financial Statements is provided below. 
Certain other new standards and 
interpretations have been issued but are 
not expected to have a material impact 
on the Group’s financial statements.

Standards, amendments or 
interpretations issue but not yet effective.

Disclosures – Transfers of Financial 
Assets (Amendments to IFRS 7)

Deferred Tax – Recovery of Underlying 
Assets (Amendments to IAS 12)

36  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   36

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Presentation of Items of Other 
Comprehensive Income  
(Amendments to IAS 1)

IFRS 10 Consolidated  
Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in  
Other Entities

FRS 13 Fair Value Measurement 

IAS 27 Separate Financial Statements

IAS 28 Investments in Associates  
and Joint Ventures

Disclosure – Offsetting Financial  
Assets and Financial Liabilities 
(Amendments to IFRS 7) 

Offsetting Financial Assets and 
Financial Liabilities (Amendments  
to IAS 32)

IFRS 9 Financial Instruments

Standards, amendments or 
interpretations adopted during the  
year that do not have a material effect 
on the Group’s financial statements

Classification of Rights Issues 
(Amendment to IAS 32)

IFRIC 19 Extinguishing Financial 
Liabilities with Equity Instruments

Revised IAS 24 Related Party Disclosures

Improvements to IFRSs (2010)

3. Critical accounting judgements and 
key sources of estimation uncertainty

3.1 Critical judgements in applying 
the Group’s accounting policies

In the process of applying the Group 
accounting policies, the following 
judgements have had a significant  
effect on the amounts recognised in  
the financial statements:

Internally generated research and 
development costs

Management monitors progress of 
internal research and development 

projects. Judgement is required in 
distinguishing the research phase from 
the development phase. Development 
costs are recognised as an asset when 
all criteria are met, whereas research 
costs are expensed as incurred. 
Management monitors whether the 
recognition requirements for 
development costs continue to be  
met. This is necessary as the  
economic success of any product 
development is uncertain.

3.2 Key accounting estimates  
and assumptions

Key assumptions concerning the 
future and other key sources of 
estimation uncertainty that have a 
significant risk of causing a material 
adjustment to the carrying amounts  
of assets and liabilities within the  
next financial year, are as follows:

Impairment of intangible assets and 
property, plant and equipment
The Group tests goodwill at least 
annually for impairment, and whenever 
there is an indication that the asset may 
be impaired. All other intangible assets 
and property, plant and equipment are 
tested for impairment when indicators 
of impairment exist. Impairment is 
determined with reference to the higher 
of fair value less costs to sell and value 
in use. Value in use is estimated using 
adjusted future cash flows. Significant 
assumptions are made in estimating 
future cash flows about future events 
including future market conditions and 
future growth rates. Changes in these 
assumptions could affect the outcome 
of impairment reviews.

Impairment of investments and 
intercompany balances (applies to the 
Company Financial Statements only)
The directors have reviewed the carrying 
value of the intercompany balances and 
cost of investments in subsidiaries of the 
Company with reference to current and 
future trading conditions. The provision 
recorded at 31 December 2010 in 
relation to the intercompany balance 
between the Company and Corero 

Business Systems Limited is now 
deemed recoverable based on the 
estimated market value of Corero 
Business Systems Limited and as result 
the provision has been released. The 
estimated market value has been 
calculated by reference to a multiple 
of the 2011 profit which the directors 
consider to be an appropriate  
valuation method.

The investment and intercompany 
balances between the Company and 
Corero Network Security, Inc and Corero 
Network Security (UK) Limited have 
been reviewed with reference to the 
Equity Value based on the discounted 
free cash flow used in conjunction with 
the goodwill impairment review. 

Going Concern
The directors have reviewed the future 
profit and cash flow projections in 
conjunction with the current economic 
climate in order to express an opinion 
on the adequacy of working capital and 
the ability to continue as a going 
concern for the foreseeable future.  
The methodology and uncertainties 
contained in the projections are detailed 
in the note 2.2. 

4. Financial risk management

Capital management 

The Group monitors its available capital, 
which it considers to be all components 
of equity other than amounts reflecting 
non-controlling interests, against its 
expected requirements. 

The Group’s objectives when maintaining 
capital are to safeguard the entity’s 
ability to continue as a going concern, so 
that it can continue to provide returns for 
shareholders and benefits for other 
stakeholders, and to ensure that 
sufficient funds can be raised for 
investing activities. In order to maintain 
or adjust the capital structure, the Group 
may return capital to shareholders, issue 
new shares, or sell assets to reduce 
debt. The Group does not review its 
capital requirements according to  
any specified targets or ratios.

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  37

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Financial Statements

Notes to the Financial Statements continued

5. 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.

In 2011, segment results, assets  
and liabilities include items directly 
attributable to a segment. The 2010 
segment 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, VAT, PAYE, prepayments and 
borrowings. Central costs comprise 
mainly central and parent company 
overheads relating to the group 
management, the finance function  
and regulatory requirements.

None of the Group’s customers  
require disclosure in accordance  
with IFRS 8 Operating Segments. 

4. Financial risk management 
continued

Treasury management

Group treasury policies are reviewed 
and approved by the Board. The 
objectives of Group treasury policies 
are to ensure that adequate financial 
resources are available for development 
of the business while at the same time 
managing financial risks. Financial 
instruments are used to reduce financial 
risk exposures arising from the Group’s 
business activities and not for 
speculative purposes.

The Group’s treasury activities  
are managed by the Group finance 
function under the direction of the Group 
Financial Controller. The Group Financial 
Controller reports to the Board on the 
implementation of Group treasury policy.

The Group’s business activities  
expose it to a variety of financial  
risks that include:

•	  Liquidity risk;

•	  Credit risk;

•	  Cash flow interest rate risk; 

•	 Currency	risk;	and

•	 Market	risk.

The policies for managing these risks 
are described below:

Liquidity risk
Liquidity risk is the risk that arises from 
the Group’s management of working 
capital and finance charges. It is the risk 
that the Group will encounter difficulty 
in meetings its financial obligations as 
they fall due. Liquidity risk is managed 
centrally by the finance function. 
Budgets are set locally and centrally, 
and agreed by the Board annually in 
advance, enabling the Group’s cash 
flow requirements to be anticipated. 

Credit risk
Credit risk arises from cash and cash 
equivalents and from credit exposures 
to the Group’s customers including 
outstanding receivables and committed 

transactions. Credit risk is managed 
with regular reports of exposures 
reviewed by management. The Group 
does not set individual credit limits but 
will seek to ensure that customers enter 
into legally enforceable contracts that 
include settlement terms that 
demonstrate the customers’ 
commitment to the transaction and 
minimise this risk exposure.

The amounts of trade receivables 
presented in the Statement of Financial 
Position are shown net of allowances for 
doubtful accounts estimated by 
management based on prior experience 
and their assessment of the current 
economic environment (note 20).

The credit risk on liquid funds and 
financial instruments is limited because 
the counterparties are banks with high 
credit ratings assigned by international 
credit rating agencies.

The Group has no significant 
concentration of credit risk, with 
exposure spread over a large number  
of customers.

Cash flow interest rate risk
The Group’s policy is to minimise 
interest rate cash flow risk exposure on 
its financing. The majority of the Group’s 
financing is held in fixed rate loans 
therefore no analysis of interest rate 
sensitivity is presented. 

Currency risk
There is no material impact on the 
Group’s Statement of Comprehensive 
Income from exchange rate movements, 
as foreign currency transactions are 
entered into by Group companies 
whose functional currency is aligned 
with the currencies in which it transacts.

Market risk
The fair values of cash and cash 
equivalents, receivables, payables and 
borrowings with a maturity of less than 
one year are assumed to approximate 
their book values.

38  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   38

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Continuing and acquired operations

Reportable Operating Segments

Unallocated Items

Network Security

Business Systems

Central Costs

Total

2011
£’000

2010
£’000

2011
£’000

2010
£’000

2011
£’000

2010
£’000

2011
£’000

2010
£’000

3,042

152

3,678

6,872

(1,699)

5,173

(5,723)

–

(550)

(146)

(584)

(1,280)

(297)

(1,577)

–

(224)

(1,801)

192

(1,609)

Revenue to external customers

Product and licence

Professional services

Support

Total

Cost of sales

Gross profit

Operating expenses

Share options charge

Operating (loss)/profit before 
depreciation, amortisation, 
acquisition and restructuring 
costs and financing

Depreciation

Amortisation of intangible assets

Operating (loss)/profit before 
acquisition and restructuring 
costs and financing

Acquisition and restructuring costs

(Loss)/profit before financing

Finance income

Finance costs

(Loss)/profit before taxation

Taxation

(Loss)/profit after taxation

Discontinued Operations

Profit for the year

Profit on sale 

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

1,233

1,266

1,894

4,393

(857)

3,536

(1,947)

–

556

699

1,765

3,020

(593)

2,427

(1,406)

–

–

–

–

–

–

–

–

–

–

–

–

–

4,275

1,418

5,572

11,265

(2,556)

8,709

556

699

1,765

3,020

(593)

2,427

(732)

(20)

(557)

(131)

(8,402)

(1,963)

(20)

(131)

1,589

1,021

(752)

(688)

(22)

(193)

(26)

(167)

(4)

–

1,374

–

1,374

–

–

1,374

–

1,374

828

–

828

–

–

828

–

828

(756)

(306)

(1,062)

61

–

(1,001)

–

287

(172)

(777)

(662)

(603)

(1,265)

61

(224)

(1,428)

192

(5)

–

(693)

(60)

(753)

32

(199)

(920)

–

(1,001)

(920)

(1,236)

2011
£’000

–

–

333

(31)

(167)

135

(60)

75

32

(199)

(92)

–

(92)

2010
£’000

4 

492

Discontinued operations relate to the Financial Markets division (note 10).

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  39

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Financial Statements

Notes to the Financial Statements continued

5. Segment reporting continued

Reportable Operating Segments

Unallocated Items

Network Security

Business Systems

Central Costs

Total

2011
£’000

2010
£’000

2011
£’000

2010
£’000

2011
£’000

2010
£’000

2011
£’000

2010
£’000

Non-current assets

Goodwill

Acquired intangible assets

Capitalised development 
expenditure

Property, plant & equipment

Current assets

Inventories

Trade and other receivables –  
due in less than one year

Trade and other receivables –  
due in more than one year

Cash and cash equivalents

Current liabilities

Trade, other payables  
and provisions

Borrowings

Deferred income

Net current (liabilities)/assets

Non-current liabilities

Borrowings

Deferred income

Deferred taxation

Net assets/(liabilities)

11,635

3,003

627

599

15,864

241

2,278

95

461

3,075

(1,857)

(176)

(3,382)

(5,415)

(2,340)

(3,557)

(808)

(1,012)

(5,377)

8,147

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

509

5

857

56

509

5

591

36

1,427

1,141

–

–

954

532

6

524

–

–

1,484

532

–

–

–

–

–

–

–

–

–

–

–

–

12,144

3,008

1,484

655

509

5

591

36

17,291

1,141

241

–

34

57

3,327

3,418

288

3,266

820

–

7,186

7,474

158

4,312

7,977

–

7,186

8,006

(883)

(252)

(84)

(487)

(2,824)

(739)

–

–

(2,034)

(1,485)

(2,917)

(1,433)

(1,737)

(1,205)

–

–

–

– 

(84)

3,334

(487)

6,987 

(176)

(5,416)

(8,416)

–

(1,485)

(2,224)

(439)

5,782

–

–

–

–

–

–

–

–

–

–

–

–

– 

–

–

– 

(3,557)

(808)

(1,012)

(5,377)

– 

–

–

– 

(6)

(64)

3,334

6,987

11,475

6,923

40  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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The Group’s revenues from external customers and its non-current assets are divided into the following geographical areas:

Continuing and acquired operations

Geographical area

North America

EMEA

APAC

Other countries

Total

EMEA revenue analysis

UK

Europe

Total

Discontinued operations

Geographical area

North America

EMEA

Other countries

Total

2011
Revenue 
£’000

2011
Non-current 
assets 
£’000

2010
Revenue 
£’000

2010
Non-current 
assets 
£’000

3,680

6,644

809

132

15,864

1,427

–

–

–

3,020

–

–

–

1,141

–

–

11,265

17,291

3,020

1,141

2011
£’000

5,561

1,083

6,644

2010
£’000

3,020

–

3,020

Revenue 
2011
£’000

Non-current 
assets 
2011
£’000

Revenue 
2010
£’000

Non-current 
assets 
2010
£’000

–

–

–

–

–

–

–

–

25

742

219

986

–

–

–

–

Revenues from external customers in the Group’s domicile, United Kingdom, as well as its major markets have been identified 
on the basis of invoicing systems for the Corero Business Systems division. Revenues for external customers for the Corero 
Network Security division are identified on the basis of invoicing systems and adjusted to take into account the difference 
between invoiced amounts and deferred revenue adjustments required by IAS. 

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Annual Report & Accounts for the year ending 31 December 2011  41

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Financial Statements

Notes to the Financial Statements continued

5. Segment reporting continued

The Group’s revenue may be analysed as follows for each revenue category:

Continuing/acquired 
operations

 2011
£’000

4,275

1,418

5,572

11,265

2010
£’000

556

699

1,765

3,020

Licence revenue

Professional services revenue

Support revenue

Total

6. Finance income

Interest on bank deposits 

7. Finance costs

8% Loan Note interest payable

Bank interest payable: accounts receivable financing facility and term loan

Finance interest

Interest payable on CULS 

Amortisation of notional CULS interest charges

Discontinued 
operations

 2011
£’000

–

–

–

–

2011
£’000

61

2011
£’000

214

7

3

–

–

224

 2010
£’000

270

175

541

986

 2010
£’000

32

 2010
£’000

–

–

–

176

23

199

42  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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8. Loss for the year

The following items have been included in arriving at the loss for the year before taxation:

Amortisation of acquired intangible assets (note 15)

Amortisation of capitalised development (note 16)

Depreciation of property, plant and equipment (note 17)

Operating lease rentals payable

Trade receivables impairment

Amortisation of acquired intangible assets (note 15)

Amortisation of capitalised development (note 16)

Depreciation of property, plant and equipment (note 17)

Operating lease rentals payable

Trade receivables impairment

Continuing
2011
£’000

Acquired
2011
£’000

5

188

26

78

–

571

13

146

136

(4)

Continuing
2010
£’000

Discontinued
2010
£’000

7

168

22

71

(4)

58

102

13

83

–

Total
2011
£’000

576

201

172

214

(4)

Total
2010
£’000

65

270

35

154

(4)

In 2011 there were no discontinued operations nor were there any acquired operations in 2010.

Auditor’s remuneration

Services provided to the Company and its subsidiaries

Fees payable to the Company’s auditor for the audit of the annual financial statements

Fees payable to the Company’s auditor for other services

Fees payable to the Company’s auditor for taxation services

2011
£’000

 2010
£’000

56

163

15

234

33

–

22

55

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  43

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Financial Statements

Notes to the Financial Statements continued

9. Tax on loss on ordinary activities

Deferred tax credit for the year

2011
£’000

192

2010
£’000

–

The tax assessed on the loss on ordinary activities for the year differs from the weighted average UK corporate rate of tax of 
26.5% (2010: 28%). The differences are reconciled below: 

Total tax reconciliation

Loss before taxation

Theoretical tax credit at UK Corporation tax rate 26.5% (2010: 28%)

Effect of:

– expenditure that is not tax deductible

– accelerated capital allowances 

– other timing differences

– relief for losses brought forward

– losses not carried forward/(utilised)

– deferred tax credit

Actual taxation credit

Factors Affecting Future Tax Charges

(1,428)

(378)

250

(11)

1

(304)

442

192

192

(92)

(26)

102

(3)

(3)

–

(70)

–

–

As at 31 December 2011, the Group’s cumulative movements on accelerated capital allowances claimed was £55,000  
(2010: £54,000).

In addition, the tax losses at that date amounted to £21.3 million (2010: £4.8 million). This comprised UK tax losses of  
£6.1 million and US tax losses of £15.2 million. £5.5 million of the tax losses relates to US capitalised R&D deductions which  
will be available at an accelerated level for 5 years. £8.9 million of the tax losses relates to pre-acquisition US tax losses which 
can be offset against taxable profits over 20 years (there is a limit on the pre-acquisition tax losses of £445,000 per annum and 
any unused loss may be carried forward to subsequent periods). The resultant deferred tax asset at a rate of 25% (2010: 26%) 
of £5.3 million (2010: £1.3 million) has not been recognised due to uncertainties as to the extent and timing of its future recovery. 

10. Discontinued Operations

10.1 Profit from sale of discontinued operations

On 6 August 2010, the business and assets of the Group’s Financial Markets division were sold for a total consideration of 
£2,127,000, settled by the assumption by the purchaser of the Company’s liability to CULS holders with a nominal value of  
£2.0 million and deferred interest of £127,000. The carrying value of the Financial Markets division was considered to 
approximate to its fair value, having taken into account historical and forecast results for the division. The profit on disposal  
of the division amounted to £492,000, further details of which are set out in note 10.2.

44  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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10.2 Results from discontinued operations up to the date of disposal 
(as per the 2010 Statement of Comprehensive Income format and cost of sales accounting policy)

Revenue

Cost of sales

Gross profit

Trading expenses

Trading profit

Other non trading items

Profit before taxation 

Taxation

Profit for the year

The profit on the sale can be analysed as follows:

Disposal proceeds

Net assets disposed of:

Goodwill

Customer contracts and related customer relationships

Research and development

Fixed assets

Deferred income release

Legal and professional fees

Bonuses and benefits

Property related costs

Profit on sale

£’000

–

–

(1,168)

(233)

(322)

(34)

337

(101)

(24)

(90)

Cash flows generated by the Financial Markets division until the date of disposal are summarised as follows:

Profit before taxation

Adjustments for:

Depreciation 

Amortisation of acquired intangible assets

Amortisation of capitalised development

Decrease in trade and other receivables

Decrease in payables

Cash generated from discontinued operations

2010
£’000

986

(49)

937

(829)

108

(104)

4

–

4

£’000

2,127

–

–

–

–

(1,757)

122

492

2010
£’000

4

13

58

102

409

(293)

293

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  45

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Financial Statements

Notes to the Financial Statements continued

11. Profit of the parent Company for the financial year

The Company has taken advantage of section 408 of the Companies Act 2006 and has not included an income statement in 
these financial statements. The parent Company’s profit for the year was £3,384,000 (2010: £198,000).

12. (Loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the Company  
by the weighted average number of ordinary shares in issue during the year.

Diluted (loss)/earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted 
average of ordinary shares in issue during the year plus potentially dilutive ordinary shares attributable to share options issued 
by the Company, which is the only potential dilutive class of instruments. The total number of share options outstanding at the 
end of the year was 3,051,716 (2010:1,306,475). Of these, 45,133 were not potentially dilutive in the year to 31 December 2011 
(2010: 49,475).

2011 
weighted 
average 
number of 1p 
shares
Thousand

2011 
loss
£’000

(1,239)

45,074

–

–

Loss per share from continuing 
and acquired operations

Earnings per share from 
discontinued operations

(Loss)/earnings per share

(1,239)

45,074

2011 
loss per 
share
Pence

2010 
(loss)/
earnings
£’000

2010 
weighted 
average 
number of 1p 
shares
Thousand

2010
(loss)/
earnings
per share
Pence

(2.75)

–

(2.75)

(92)

13,530

(0.68)

496

404

13,530

13,530

3.67

2.99

Diluted loss per share from 
continuing and acquired 
operations

Diluted earnings per share  
from discontinued operations

Diluted (loss)/earnings  
per share

(1,239)

48,080

(2.58)

(92)

14,787

(0.62)

–

–

–

(1,239)

48,080

(2.58)

496

404

14,787

14,787

3.35

2.73

In the previous year the diluted earnings per share figure was omitted from the approved financial statements in error. As a  
result this has been calculated and included within the financial statements this year. There was no difference between basic 
and diluted earnings per share for the year ended 31 December 2009.

46  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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13. Statement of Comprehensive Income – restatement

The Statement of Comprehensive Income below illustrates the Statement of Comprehensive Income for the year ended  
31 December 2011 prepared on the same basis and applying the cost of sale accounting policy adopted in the  
31 December 2010 financial statements. 

The changes have been made to achieve a fairer presentation of the costs directly related to revenue and to align the gross 
margin presentation with peer companies.

Revenue

Cost of sales

Gross profit

Trading expenses

Trading (loss)/profit

Share options charge

Other non trading items*

(Loss)/profit before financing

Finance income

Finance costs

(Loss)/profit before taxation

Taxation

Loss for the year from continuing operations

Profit from discontinued operations

Profit from sale of discontinued operations

(Loss)/profit for the year

* holiday pay accrual, capitalisation and amortisation of development costs and acquisition and restructuring costs

2011
£’000

11,265

(1,933)

9,332

(10,860)

(1,528)

(20)

283

(1,265)

61

(224)

(1,428)

192

(1,236)

–

–

(1,236)

2010
£’000

3,020

(230)

2,790

(2,675)

115

(131)

91

75

32

(199)

(92)

–

(92)

4

492

404

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  47

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Financial Statements

Notes to the Financial Statements continued

13. Statement of Comprehensive Income – restatement continued

The Statement of Comprehensive Income below illustrates the Statement of Comprehensive Income for the year ended 
31 December 2011 prepared on the same basis and applying the cost of sale accounting policy adopted in the year ended 
31 December 2010 financial statements as shown in the column “Old Basis” and the effect of the new cost of sales accounting 
policy and reclassification of costs shown in the column “New Basis”.

Revenue

Cost of sales

Trading/operating expenses

Share options charge

Depreciation and amortisation of intangible assets

Acquisition and restructuring costs

Other non trading items

Loss before financing

Year ended 
31 December 
2011 
Old Basis
£’000

Change in cost 
of sales 
accounting 
policy and 
reclassification
£’000

Year ended 
31 December 
2011 
New Basis
£’000

11,265

(1,933)

(10,860)

(20)

–

–

283

(1,265)

–

(623)

2,458

–

(949)

(603)

(283)

–

11,265

(2,556)

(8,402)

(20)

(949)

(603)

–

(1,265)

The Group has not presented restated Consolidated Statement of Financial Positions for the three years ended 31 December 
2011 within the primary statements as a result of the reclassification of the costs noted above. This is because the 
reclassification affected the Statement of Comprehensive Income only. The reclassification had no impact on the profit or loss 
for any period and nor were any figures within the Consolidated Statement of Financial Position reclassified.

14. Goodwill

Group

Cost

At 1 January

Additions (note 35)

Foreign currency translation

Disposal (note 10)

At 31 December

Impairment

At 1 January

Disposal (note 10)

At 31 December

Carrying amount at 31 December

 2011
£’000

509

11,042

593

–

12,144

–

–

–

12,144

 2010 
£’000

2,360

–

–

(1,851)

509

683

(683)

–

509

Goodwill is tested at least annually for impairment and whenever there are indications that goodwill might be impaired.

Goodwill is allocated to the Group’s cash-generating units (CGUs) which are Corero Network Security and Resource EMS  
(part of Corero Business Systems). As at 31 December 2011 goodwill relates to Corero Business Systems and Corero  
Network Security.

48  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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The recoverable amounts for the Group’s cash-generating units 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 cash flows for the projections are derived from the most recent financial budget approved by management. Future cash 
flows are discounted in line with the weighted average cost of capital of 10% pre-tax. The average revenue growth rates are 
based on the management’s estimates of growth in those specific markets based on past experience and expected future 
developments. Management estimated discount rates using pre-tax rates that reflect current market assessments of the time 
value of money and the risks specific to the CGUs.

Projected cash flow period

Revenue growth rates used in 5 year projection

Revenue growth rates used beyond 5 year projection

Discount rate

Discount rate required for recoverable amount to equal carrying amount

Percentage reduction in 2013 revenue for recoverable amount to equal carrying amount

Resource 
EMS

Corero 
Network 
Security

5 years

5 years

5%

0%

10%

*

*

7.5%

0%

10%

12%

9%

Amount by which the CGUs recoverable amount exceeds its carrying amount

£1.8 million

£4.9 million

*  for the Resource EMS CGU no reasonably possible changes to key assumptions would result in the carrying value of the goodwill allocated  

to that CGU equalling its recoverable amount.

Apart from the considerations described in determining the value in use of the Corero Network Security CGU  
described above, the management of the Group is not currently aware of any other probable changes that would  
necessitate changes in its key estimates.

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  49

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Financial Statements

Notes to the Financial Statements continued

15. Acquired intangible assets

Group 

Cost

At 1 January 2010

Disposals

At 31 December 2010

Disposals

Acquisition

Additions

Foreign currency translation

At 31 December 2011

Amortisation

At 1 January 2010

Charge for year

Disposals

At 31 December 2010

Disposals

Acquisition

Foreign currency translation

Charge for year

At 31 December 2011

Net book value

At 31 December 2010

At 31 December 2011

Company

The Company has no acquired intangible assets (2010: £nil).

Computer 
software
£’000

Customer 
relationships
£’000

199

(10)

189

(83)

3,638

38

187

3,969

(186)

(7)

9

(184)

83

(372)

(39)

(561)

(1,073)

5

2,896

668

(668)

–

–

121

–

6

127

(377)

(58)

435

–

–

–

–

(15)

(15)

–

112

Total
£’000

867

(678)

189

(83)

3,759

38

193

4,096

(563)

(65)

444

(184)

83

(372)

(39)

(576)

(1,088)

5

3,008

50  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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16. Capitalised development expenditure

Group

Cost

At 1 January 2010

Additions

Disposals

At 31 December 2010

Additions

At 31 December 2011

Amortisation

At 1 January 2010

Charge for year

Disposals

At 31 December 2010

Charge for year

At 31 December 2011

Net book value

At 31 December 2010

At 31 December 2011

Company

The Company has no capitalised development expenditure (2010: £nil).

Total 
£’000

1,585

367

(885)

1,067

1,094

2,161

(769)

(270)

563

(476)

(201)

(677)

591

1,484

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  51

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Financial Statements

Notes to the Financial Statements continued

17. Property, plant and equipment

Group

Computer 
Equipment
£’000

Fixtures  

and Fittings
£’000

Office
Equipment
£’000

Leasehold
Improvements
£’000

Cost

At 1 January 2010

Additions

Disposals

At 31 December 2010

Acquisition

Additions

Foreign currency translation

At 31 December 2011

Depreciation

At 1 January 2010

Charge for year

Disposals

At 31 December 2010

Acquisition

Foreign currency translation

Charge for year

At 31 December 2011

Net book value

At 31 December 2010

At 31 December 2011

Company

263

20

(126)

157

837

615

42

1,651

(238)

(15)

122

(131)

(744)

(41)

(151)

(1,067)

26

584

59

2

(22)

39

287

3

14

343

(38)

(8)

17

(29)

(257)

(13)

(12)

(311)

10

32

57

2

(16)

43

108

3

5

159

(57)

–

14

(43)

(92)

(5)

(4)

(144)

–

15

122

–

(60)

62

124

8

6

200

(90)

(12)

40

(62)

(104)

(5)

(5)

(176)

–

24

The Company has no property, plant and equipment (2010: £nil).

Total
£’000

501

24

(224)

301

1,356

629

67

2,353

(423)

(35)

193

(265)

(1,197)

(64)

(172)

(1,698)

36

655

52  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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18. Investments in subsidiaries

Net book value

At 1 January 

Additional investment in Corero Business Systems Limited

Investment in Corero Network Security, Inc

Disposal of subsidiaries

At 31 December 

Company
2011
£’000

Company
2010
£’000

411

3,098

8,278

–

11,787

3,493

–

–

(3,082)

411

An amount of £4.0 million of the Company’s investment in Corero Network Security, Inc is held as a Loan Note instrument. These Loan 
Notes bear interest at 5% that at the election of Corero Network Security, Inc is payable quarterly or added to the principal amount. 
The Loan Notes are repayable on 31 October 2016.

The Company owns:

100% of the issued share capital of Corero Network Security, Inc, a company incorporated in Delaware, USA. The principal business 
of the company consists of the development and sale of hardware and software security products.

100% of the issued share capital of Corero Group Services Limited, a company incorporated and registered in England and Wales. 
The principal business of the company consists of providing administration services to the Group.

100% of the issued share capital of Corero Network Security (UK) Limited, a company incorporated and registered in England and 
Wales. The principal business of the company consists of providing sales and marketing services on behalf of Corero Network 
Security, Inc.

93% of the issued share capital of Corero Business Systems Limited, a company incorporated and registered in England and Wales. 
The principal business of the company consists of the development and sale of computer software, comprising finance and 
management information software, and services, primarily to the education and commercial sectors.

On 18 July 2011, the Board of Directors approved the establishment of a Corero Business Systems Limited Deferred Payment Share 
Plan (“Plan”) in terms of which Corero Business Systems Limited can issue, at fair market value, (or the Company can sell) up to 10% 
of Corero Business Systems issued ordinary shares to employees. The purpose of the Plan is to incentivise the employees to 
profitably grow the business. 

On 1 August 2011, Corero Business Systems Limited issued, at a market value of £4,000, 2,062 ordinary shares (comprising 7.0% of 
Corero Business Systems Limited issued ordinary shares) under the terms of the Plan to members of the Corero Business Systems 
management team. No directors of the Company can participate in the Plan.

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  53

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Financial Statements

Notes to the Financial Statements continued

19. Inventories

Group

Gross inventory

Less: provision for impairment

Net inventory

Net inventory comprises only finished goods.

Company

The Company holds no inventory (2011: £nil).

20. Trade and other receivables

Trade receivables

Less: provision for impairment 

Net trade receivables

Amounts owed by subsidiaries

Other debtors 

Prepayments and accrued income 

2011
£’000

730

(489)

241

2010
£’000

–

–

–

Group
2011
£’000

2,853

(32)

2,821

–

165

438

3,424

Group
2010
£’000

Company
2011
£’000

Company
2010
£’000

540

(10)

530

–

66

224

820

–

–

–

–

–

–

3,921

2,844

56

2

64

–

3,979

2,908

None of the Company’s trade and other receivables are secured by collateral or credit enhancements.

Up to 80% of the trade receivables of Corero Network Security, Inc, included under ‘Group’, can be financed and are therefore 
secured for credit enhancements.

The Corero Business Systems overdraft facility covenant requires 150% trade receivables cover.

Amounts due from Group undertakings are recoverable after more than one year from the reporting date. 

54  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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The age of trade receivables not impaired but past due are as follows:

Not more than 3 months

More than 3 months but not more than 6 months

More than 6 months but not more than 1 year

More than one year

Group
2011
£’000

791

64

80

12

947

Group
2010
£’000

248

59

5

–

312

The directors consider that the carrying amount of trade and other receivables approximates their fair value.

The maturity profile of trade and other receivables is set out in the table below:

In one year or less, or on demand

In more than one year, but not more than five years

Group
2011
£’000

3,266

158

3,424

Group
2010
£’000

818

2

820

The functional currency of trade and other receivables is set out in the table below:

Company
2011
£’000

Company
2010
£’000

2

3,977

3,979

UK pound

US dollars

Group

Company

2011
£’000

1,070

2,354

3,424

2010
£’000

820

–

820

2011
£’000

3,977

–

3,977

64

2,844

2,908

2010
£’000

2,908

–

2,908

The foreign currency denominated receivables are the reporting currency of the subsidiary in which they report. There is no 
impact on the Statement of Comprehensive Income from exchange rate movements as the Statement of Comprehensive Income 
of the subsidiary is denominated in the currency of the subsidiary. 

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  55

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Financial Statements

Notes to the Financial Statements continued

21. Trade and other payables

Trade payables 

Other taxation and social security 

Other payables 

Accruals

Group
2011
£’000

880

427

223

1,294

2,824

Group
2010
£’000

Company
2011
£’000

Company
2010
£’000

164

203

3

365

735

–

–

–

–

–

–

–

–

2

2

None of the Group or Company’s trade and other payables are secured by collateral or credit enhancements.

The directors consider that the carrying amount of trade and other payables approximates its fair value.

90% of the trade and other payables are due in less than 3 months. 

The functional currency of trade and other payables is set out in the table below:

UK pound

US dollars

Group
2011
£’000

1,228

1,596

2,824

Group
2010
£’000

735

–

735

The foreign currency denominated payables are the reporting currency of the subsidiary in which they report. There is no impact 
on the Statement of Comprehensive Income from exchange rate movements as the Statement of Comprehensive Income of the 
subsidiary is denominated in the currency of the subsidiary. 

56  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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22. Borrowings

Current

Accounts receivable financing facility

Fixed term loan

Non-current

Fixed term loan

8% Loan Notes

Group
2011
£’000

122

54

176

108

3,449

3,557

Group
2010
£’000

Company
2011
£’000

Company
2010
£’000

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

The accounts receivable financing facility bears interest at c.8% of the financed value. The facility limit is US$2.0 million (£1.3 million). 
80% of the eligible accounts receivable balance can be financed. The covenant requires a minimum quick asset ratio of 1.25:1.

The term loan of $250,000 (£162,000) bears interest at 8.5% and is repayable over 33 months commencing February 2012. 

Interest on the 8% Loan Notes is at the election of Corero Network Security, Inc payable bi-annually or added to the principal amount. 
The Loan Notes are repayable on 2 March 2014. The outstanding principal and accrued interest at 31 December 2011 amount to  
$5.3 million (£3.4 million).

Undrawn facilities at 31 December 2011 amounted to £500,000 comprising the Corero Business Systems overdraft facility. The 
covenant requires 150% trade receivables cover and a Company guarantee. 

At 31 December 2011, the Group’s liabilities have contractual maturities which are summarised below. These contractual maturities 
reflect the payment obligations which may differ from the carrying values of the liabilities at the balance sheet date.

Group

Trade and other payables

Borrowings

Total

Company

Trade and other payables

Total

In one year or less, 
or on demand

More than one  

but less than five years

2011
£’000

2,707

176

2,883

2010
£’000

739

–

739

2011
£’000

117

3,557

3,674

2010
£’000

–

–

–

In one year or less,  
or on demand

2011
£’000

–

–

2010
£’000

2

2

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  57

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Financial Statements

Notes to the Financial Statements continued

23. Financial instruments

The Group’s financial instruments are categorised as shown below:

Group

Financial assets

Trade and other receivables

Cash

Group

Financial liabilities

Financial liabilities at amortised cost:

Trade and other payables

Accounts receivable financing

Fixed term loan

8% Loan Notes

24. Deferred income

Group

Current 

More than one year but less than five years

Book Value
2011
£’000

Fair Value
2011
£’000

Book Value
2010
£’000

Fair Value
2010
£’000

2,986

4,312

7,298

2,986

4,312

7,298

596

7,186

7,782

596

7,186

7,782

Book Value
2011
£’000

Fair Value
2011
£’000

Book Value
2010
£’000

Fair Value
2010
£’000

2,824

122

162

3,449

6,557

2,824

122

162

3,449

6,557

735

735

–

–

–

–

–

–

735

735

2011
£’000

5,416

808

6,224

2010
£’000

1,485

–

1,485

The deferred income balance that is presented as falling due in less than one year will be recognised as revenue evenly over the 
remaining term of the support agreements in place. Support agreements expire at various times throughout the year with no 
particular seasonality. 

Company

The Company has no deferred income (2010: £nil).

58  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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25. Deferred tax liability

Group

1 January 2011

Addition

Foreign currency translation

31 December 2011

Credit to income statement

Foreign currency translation

31 December 2011

£’000

–

1,152

59

1,211

(192)

(7)

1,012

The deferred tax liability relates to the software and customer relationships acquired as part of the Top Layer Networks, Inc 
acquisition (note 35). The deferred tax liability has been calculated using a US Federal tax rate of 34%. The liability will be 
released to the Statement of Comprehensive Income as the intangible software and customer relationship assets are amortised. 

Company

The Company has no deferred tax liability (2010: £nil).

26. Pensions

The Group’s pension arrangements are operated through defined contribution schemes. 

Defined contribution pension costs 

Defined contribution pension costs 

Continuing
2011
£’000

Acquired
2011
£’000

68

8

Continuing
2010
£’000

Discontinued
2010
£’000

54

23

Total
2011
£’000

76

Total
2010
£’000

77

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  59

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Financial Statements

Notes to the Financial Statements continued

27. Share capital

Authorised 

745,821,970 ordinary shares of 1p each

1,518,990 deferred shares of £2.99 each

Issued and fully paid

Ordinary share capital

1 January 2011

31,963,434 ordinary shares of 1p each

Issued

9,038,855 ordinary shares of 1p each

6,571,429 ordinary shares of 1p each

140,000 ordinary shares of 1p each

31 December 2011 

47,713,718 ordinary shares of 1p each

2011 
£’000

 2010 
£’000

7,458

4,542

12,000

7,458

4,542

12,000

2011 
£’000

319

90

66

2

477

On 2 March 2011, 9,038,855 ordinary shares with a nominal value of 1p were issued at 39p per share as part of the acquisition 
consideration of Top Layer.

On 2 March 2011, 6,571,429 ordinary shares with a nominal value of 1p were issued at 35p per share by way of a placing.

On 22 March 2011, 140,000 ordinary shares with a nominal value of 1p were issued at 40p per share. 

Deferred share capital

1 January 2011

1,518,990 deferred shares of £2.99 each

31 December 2011

2011
£’000

4,542

4,542

The deferred shares arose as a result of a capital reorganisation that took place in June 2009. The deferred shares have no voting or 
dividend rights and, on a return of capital, will have the right to receive the amount paid up thereon after the holders of the ordinary 
shares have received, in aggregate, the amount paid up thereon plus £10,000,000 per ordinary share. The deferred shares are not 
transferable (save with the consent of the Directors). The Company may, at any time, transfer the deferred shares to any other person 
or buy back the deferred shares, for an aggregate payment of 1p.

28. Shares to be issued

Shares to be issued relate to the deferred consideration of Top Layer Networks, Inc, comprising 177,145 new ordinary shares due to  
be issued on 2 September 2012 subject to adjustment for set off against any warranty claims brought by the Company in accordance 
with the terms of the acquisition agreement (note 35). These shares have been treated as a component of equity, with a sterling 
equivalent of £80,000. 

60  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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29. Share premium

1 January 2011

9,038,855 ordinary shares at 38p each less issue costs

6,571,429 ordinary shares at 34p each less issue costs

140,000 ordinary shares at 39p each

31 December 2011

 2011 
£’000

14,341

3,328

2,122

55

19,846

Consideration received in excess of the nominal value of the 15,610,284 shares issued on 2 March 2011, as a result of the 
subscription and placing has been included in the share premium, less registration, placing commission and professional fees  
of £267,000 associated with the simultaneous share issue.

30. Employees and directors

Group

Employee expenses during the period

Wages and salaries 

Social security costs 

Other pension costs (note 26)

Cost of employee share scheme (note 33)

Group 

Average monthly numbers of employees (including directors) employed

Sales and Marketing

Consulting and Professional Services 

Technical and Support 

Administration 

Company

The Company has no employees (2010: nil). 

Total
 2011 
Number

7,294

652

76

20

Total 
2010 
Number

2,353

282

77

131

8,042

2,843

Total
 2011 
Number

Total 
2010 
Number

38

11

46

11

106

9

6

21

5

41

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  61

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Financial Statements

Notes to the Financial Statements continued

30. Employees and directors continued

Directors

Executive directors

Andrew Miller

Bernard Snowe  
(resigned 30 June 2011)

Peter Waller (resigned 4 February 2011)

Non-executive directors

Richard Last

Jens Montanana 

Edward Forwood

Salary 
& fees 
£’000

Bonus 
£’000

Benefits 
£’000

Pension 
£’000

Share 
based 
payments 
£’000

2011 
£’000

 2010 
£’000

134

68

4

15

15

–

68

48

–

–

–

–

236

116

4

1

–

–

–

–

5

12

–

–

–

–

–

12

–

11

–

–

–

–

11

218

128

4

15

15

–

112

220

41

13

21

–

380

407

Bonus payments of £116,000 were awarded to the executive directors during the period to 31 December 2011 (2010: £118,000).

Andrew Miller has a service contract with a 4 month notice period. A subsidiary company provides for pension contributions of  
10% of basic salary. 

No directors were accruing benefits from the Group’s defined contribution pension arrangements (2010: nil).

Post the year end, Jens Montanana notified the Company that he wished to waive his non-executive director fees for the years  
ended 31 December 2010 and 2011. 

31. Operating lease commitments

Group

The Group has total future minimum lease payments under non-cancellable operating leases totalling £1.0 million  
(2010: £300,000) analysed by year of expiry as follows:

Land and building agreements expiring:

Within one year

Within two to five years

Company

The Company has no operating lease commitments (2010: £nil).

2011 
£’000

24

977

1,001

2010 
£’000

–

300

300

62  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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32. Contingent liabilities

The Group and Company do not have any contingent liabilities (2010: £nil).

On 17 March 2011, the Corero Remuneration Committee approved the establishment of the Corero Early Exit Incentive Plan 
(“EEIP”). The EEIP is a cash settled change of control incentive plan for the senior executives of the Group that provides for a 
cash payment in the event of (i) a sale of substantially all of the assets of Corero Network Security business, or (ii) an offer for all 
of the shares of Corero Network Security plc, in the period up to 30 April 2014 (thereafter it will lapse). 

The cash incentive payment is determined based on the difference between (i) the value of the transaction (consideration for  
the sale of all or substantially all of the assets of Corero Network Security, Inc or offer for all of Corero Network Security plc’s 
shares) and (ii) Corero Network Security plc’s accumulated cost of capital comprising the cash investment by Corero Network 
Security plc shareholders and shares issued for acquisitions or other purposes, defined as the “Total Gain”. The EEIP will pay 
those executives granted the incentive a percentage of the Total Gain. Under the terms of the EEIP, awards up to a maximum  
of 3.0% of the Total Gain can be issued with a maximum of 0.5% per individual. At 31 December 2011, EEIP awards comprising 
2.4% of the Total Gain had been awarded (including an award of 0.5% to Andrew Miller, a director).

As at the date of this report no discussions are in progress or contemplated which would result in the incentive payment being 
payable. As a result no provision has been recorded in the financial statements relating to the EEIP.

33. Share options

The Company has the following share option schemes:

•	 Enterprise	Management	Incentive	Scheme	for	its	employees,	which	has	been	approved	by	HMR&C	

•	 2010	Executive	Enterprise	Management	Incentive	Scheme,	which	has	been	approved	by	HMR&C	

•	 2010	Unapproved	Share	Option	Scheme

•	 Deferred	Payment	Plan

In August 2010, 1,257,000 options were granted to certain directors and employees under the 2010 Executive Enterprise 
Management Incentive Scheme and 2010 Unapproved Share Option Scheme. The options granted vested immediately upon grant.

All other options granted in 2010 and 2011 have a three year vesting period, vesting one third on the first anniversary of grant, 
one third on the second anniversary of grant and one third on the third anniversary of grant. There are no vesting conditions.

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  63

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Financial Statements

Notes to the Financial Statements continued

33. Share options continued

Share options granted at 31 December 2011 were as follows:

Option Holders

Date 
granted

Expiry 
date

Exercise 
price

At 1 
January 

2011 Granted

Lapsed

At 31 
December 
2011

Enterprise Management Incentive Scheme

Peter Waller

Bernard Snowe

April 2006

April 2001

April 2016

April 2011

October 2001

October 2011

December 2001

December 2011

January 2002

January 2012

February 2005

February 2015

April 2006

April 2016

March 2011

March 2021

Other Holders

January 2003

January 2013

555p

975p

525p

765p

825p

495p

555p

40p

735p

October 2003

October 2013

1,095p

February 2005

February 2015

April 2006

April 2016

September 2008

September 2018

March 2011

March 2021

March 2011

March 2021

May 2011

May 2021

495p

555p

300p

36p

40p

35p

 2,509 

1,333 

250 

250 

500 

1,667 

4,861 

–

–

–

–

–

–

–

–

125,000

–

–

–

–

–

40,750

40,000

633 

333 

533

500

27,334

–

–

–

2010 Executive Enterprise Management Incentive Scheme

Andrew Miller

August 2010

August 2020

25p

476,000

2010 Unapproved Share Option Scheme

(2,509)

(1,333)

(250)

(250)

–

–

–

–

–

–

–

–

–

–

–

– 

–

– 

– 

500 

1,667 

4,861 

125,000

633 

333 

533

500 

27,334 

40,750

40,000

–

–

–

–

476,000

165,000

308,000

308,000

24,000

(24,000)

–

Jens Montanana

Other holders

August 2010

August 2020

August 2010

August 2020

August 2010

August 2020

March 2011

March 2021

March 2011

March 2021

May 2011

May 2021

25p

25p

31p

36p

40p

35p

September 2011

September 2021

37.5p

165,000

308,000

308,000

–

–

–

–

–

–

–

634,250

(206,917)

427,333

500,000

(60,000)

440,000

190,000

–

190,000

546,500

(60,000)

486,500

Unapproved Share Option Scheme

Bernard Snowe 

April 2008

April 2017

555p

8,772

–

–

8,772

 1,306,475 2,100,500 

(355,259)

3,051,716

64  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

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The closing mid market price for the Company’s shares at 31 December 2011 was 44.5p and the high and low for the year was 
49p and 31p. There are no performance conditions to be met before share options are exercisable. 

Changes in directors options held between 1 January 2011 and the 31 December 2011 are detailed in the following table.

Peter Waller

Bernard Snowe

At 1 
January 
2011

2,509 

1,333 

250 

250 

500 

1,667 

4,861 

8,772 

–

125,000

Andrew Miller

Jens Montanana

476,000

165,000

–

–

Granted 
during 
year

Lapsed 
during 
year

At 31 
December 
2011

Exercise 
price

Date from which 
partially 
exercisable

Expiry 
date

–

–

–

–

–

–

–

–

(2,509)

(1,333)

(250)

(250)

–

–

– 

–

–

–

–

–

–

–

–

500 

1,667 

4,861 

8,772 

125,000

476,000

165,000

555p

April 2009

975p

525p

April 2002

April 2011

October 2002

October 2011

765p

December 2002

December 2011

825p

495p

555p

555p

January 2003

January 2012

February 2006

 February 2015

April 2009

April 2010

April 2016

April 2017

40p

September 2011

March 2021

25p

25p

August 2010

August 2020

August 2010

August 2020

None of the directors holding office at the balance sheet date exercised options during the year.

Share based payments

The Remuneration Committee can grant options to employees of the Group under the Group’s share option schemes. 

Options are granted with a fixed exercise price which is equal to the market price at the date of the grant or higher price 
determined by the Remuneration Committee. The contracted life is ten years from the date of grant. 

Options are valued using the Black-Scholes option-pricing model.

Options granted during 2011

The value of options granted during the year was calculated using the Black-Scholes option pricing model. The following 
variables and ranges were used:

Share price at date of grants

Exercise price

Expected volatility

Years to maturity

Risk free interest rate

35p-40p

35p-40p

0.4%-6.4%

9.7-9.95

1.39%-2.58%

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  65

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Financial Statements

Notes to the Financial Statements continued

33. Share options continued

The following table provides information on all options outstanding at the end of the year:

Weighted average remaining contractual life

Exercise price range

Weighted average share price

Weighted average exercise price

Expected volatility

Risk free rate – 5 year gilt rate

Expected dividend yield

9.0 years

25p-1,095p

38p

38p

0.4%-10.7%

1.39%-5.3%

Nil

The total charge in the year relating to employee share based payments was £20,000 (2010: £131,000).

34. Related parties and transactions

Related party transactions subsist between Group companies and relate to costs paid on behalf of the parent Company.  
The 2011 costs paid by other Group companies on behalf of the parent Company were £192,000 (2010: £501,000).

The directors consider that the Group’s key management personnel are the Board of directors, whose compensation is  
detailed in note 30.

Company key management compensation was £nil (2010: £nil) as the key management are employed by subsidiaries. 

35. Acquisition

On 2 March 2011, the Company acquired the entire issued share capital of Top Layer Networks, Inc which has since been 
renamed Corero Network Security, Inc.

The aggregate consideration for the acquisition was $15,288,160 satisfied as follows:

•	  $6,304,602 by the issue, credited as fully paid, of 9,038,855 new ordinary shares of Corero Network Security plc;

•	  $5,000,000 by the issue of Loan Notes by Top Layer. These Loan Notes bear interest at 8% per annum and are repayable  

on 2 March 2014; 

•	  $3,860,000 in cash; and 

•	  Deferred consideration of $123,558, to be satisfied by the issue of 177,145 new ordinary shares in the Company to be issued 
on 2 September 2012 subject to adjustment for set off against any warranty claims brought by the Company in accordance 
with the terms of the acquisition agreement. These shares have been treated as a component of equity, with a sterling 
equivalent of £80,000. 

66  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   66

30/03/2012   13:25

The assets and liabilities of Top Layer at the date of acquisition were:

Book value 
£’000

Fair value 
£’000

Property, plant and equipment

Other non-current assets

Inventory

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Other short term financial liabilities

Deferred income

Other non-current liabilities

Net liabilities

Deferred taxation

Goodwill

Customer contracts and related customer relationships

Software 

Satisfied by consideration

Consideration comprises:

Completion consideration shares

Loan Notes

Cash

Deferred consideration shares

Total consideration

159

84

136

820

130

(1,292)

(362)

(3,874)

(185)

(4,384)

(1,152)

159

84

136

820

130

(1,292)

(362)

(3,874)

(185)

(4,384)

(1,152)

11,042

121

3,266

8,893

3,344

3,071

2,413

65

8,893

The Company’s strategy as set out in the Circular to shareholders dated 14 July 2010 is to build a network security technology 
focused business. The acquisition of Top Layer was the first step in executing the Company’s acquisition strategy and provided 
a core platform on which to build a leading network security business. The goodwill arising from the acquisition includes Top 
Layer’s 12 years of deep domain expertise in security and networking and its proprietary technology offering with a multi-core 
processing platform to support high performance security applications and scalable architecture. The Company plans to add 
functionality to the Top Layer platform to broaden its network security offering to deliver revenue growth.

The costs relating to the acquisition of Top Layer and associated placing were £564,000, of which £297,000 has been 
recognised as an expense in the Statement of Comprehensive Income and included under acquisition and restructuring 
costs, and £267,000 has been charged to the share premium account arising from the issue of the consideration and 
placing shares.

The revenue and loss of Top Layer since the acquisition date included in the Statement of Comprehensive Income for the 
year ended 31 December 2011 is shown in note 5 under the heading Corero Network Security. The consolidated revenue 
and loss before taxation for the year ended 31 December 2011 as though the acquisition date had been effective as of the 
beginning of the annual reporting period would have been £7,771,000 and £2,121,000 respectively.

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  67

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02/04/2012   16:44

 
 
 
 
 
 
 
 
Financial Statements

Notes to the Financial Statements continued

36. Post balance sheet event

On 6 March 2012, the Company raised £4.56 million (before issue costs), of which the directors and senior management 
contributed £1.4 million, by way of a placing of 10,615,694 new ordinary shares at a price of 43p per share. The funds were 
raised to support the growth of the Corero Network Security business by investing in the sales and marketing functions of the 
business to gain end-user customer and channel partner awareness, and investing in its product development capabilities. 

68  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   68

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Notice of AGM

Notice of Annual General Meeting

Notice is hereby given that the Annual General Meeting (the “AGM”) of Corero Network Security plc (the “Company”) will be held 
at the offices of FinnCap Ltd, 60 New Broad Street, London, EC2M 1JJ, on 7 June 2012 at 10.00 a.m. for the following purposes:

Ordinary Business

To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:

1.  Report and accounts

To receive the audited annual accounts of the Company for the year ended 31 December 2011, together with the directors’ 
report and the auditor’s report on those annual accounts. 

2.  Re-election of director

To re-elect Mr Richard Last, who retires by rotation in accordance with the Company’s articles of association, as a director 
of the Company. 

3.  Re-election of director

To re-elect Mr Stephen Graham, who retires in accordance with the Company’s articles of association, as a director of  
the Company.

4.  Re-appointment of auditors

To re-appoint BDO LLP as auditors of the Company to hold office from the conclusion of this AGM until the conclusion  
of the next annual general meeting at which accounts are laid before the Company.

5.  Auditors’ remuneration

To authorise the directors to determine the remuneration of the auditors.

Special Business 

To consider and, if thought fit, pass the following resolutions of which resolution 6 will be proposed as an ordinary resolution  
and resolutions 7 and 8 will be proposed as special resolutions:

6.  Directors’ authority to allot shares

THAT, in substitution for all existing and unexercised authorities and powers granted to the Directors prior to the date of this 
resolution in accordance with section 551 of the Companies Act 2006 (“Act”), the Directors be generally and unconditionally 
authorised for the purposes of section 551 of the Act to exercise all the powers of the Company to allot shares in the 
Company and grant rights to subscribe for or to convert any security into shares of the Company (such shares and rights to 
subscribe for or to convert any security into shares of the Company being “relevant securities”) up to a maximum nominal 
amount of £194,431.37 on such terms and conditions as the Directors may determine provided that, unless previously 
revoked, varied or extended, this authority shall expire on the earlier of the date falling 15 months after the date of the 
passing of this resolution and the conclusion of the next annual general meeting of the Company except that the Company 
may at any time before such expiry make an offer or agreement which would or might require relevant securities to be 
allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer or agreement as if this 
authority had not expired.

7.  Disapplication of pre-emption rights

THAT, in substitution for all existing and unexercised authorities and powers granted to the Directors prior to the date of this 
resolution in accordance with section 570(1) of the Act and subject to and conditional on the passing of resolution 7, the 
Directors be and are hereby empowered to allot equity securities (as defined in section 560(1) of the Act) of the Company 
for cash, pursuant to the authority of the Directors under section 551 of the Act conferred by resolution 7 above, and/or by 
way of a sale of treasury shares for cash (by virtue of section 573 of the Act), in each case as if section 561(1) of the Act did 
not apply to such allotment, provided that this power shall be limited to:

(a) 

 the allotment of equity securities in connection with an offer by way of a rights issue (i) to the holders of ordinary  
shares in proportion (as nearly as may be practicable) to their respective holdings and (ii) to holders of other equity 
securities as required by the rights of those securities or as the Directors otherwise consider necessary, but subject  
to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury 
shares, fractional entitlements, record dates, legal or practical problems in or under the laws of any territory or the 
requirements of any regulatory body or stock exchange; and

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  69

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Notice of AGM

Notice of Annual General Meeting continued

7.  Disapplication of pre-emption rights continued

(b)   the allotment and/or sale of treasury shares for cash (otherwise than pursuant to resolution 8(a) above) of equity 

securities up to a maximum nominal amount of £87,494.12,

 and that, unless previously revoked, varied or extended, this power shall expire on the earlier of the date falling 15 months 
after the date of the passing of this resolution and the conclusion of the next annual general meeting of the Company 
except that the Company may before the expiry of this power make an offer or agreement which would or might require 
equity securities to be allotted (and treasury shares to be sold) after such expiry and the Directors may allot equity 
securities (and sell treasury shares) in pursuance of such an offer or agreement as if this power had not expired.

8.  Authority to purchase Company’s own shares

THAT the Company be generally and unconditionally authorised for the purposes of section 701 of the Act to make market 
purchases (as defined in section 693(4) of the Act) on a recognised investment exchange (as defined in section 693(5) of the 
Act) of ordinary shares of £0.01 each in the capital of the Company (“Ordinary Shares”) and to hold such shares as treasury 
shares (as defined in section 724(3) of the Act) provided that:

(a) 

 this authority shall be limited to the purchase of Ordinary Shares up to a maximum aggregate nominal value equal to 
£58,329.41 representing approximately 10 per cent. of the nominal value of the current issued ordinary share capital  
of the Company;

(b)  the minimum price which may be paid for such Ordinary Shares is £0.01 (exclusive of expenses);

(c) 

 the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall not be more than 5 per cent. 
above the average middle market quotations for an Ordinary Share on the relevant recognised investment exchange on 
which Ordinary Shares are traded for the five business days immediately preceding the date on which the Ordinary 
Share is purchased;

(d)   unless previously revoked, varied or extended, the authority hereby conferred shall expire at the earlier of the date 
which is 15 months from the date of the passing of this resolution and the conclusion of the next annual general 
meeting of the Company; and

(e) 

 the Company may make a contract or contracts to purchase Ordinary Shares under the authority hereby conferred  
prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority  
and may make a purchase of Ordinary Shares in pursuance of any such contract or contracts.

By order of the Board

Duncan Swallow
Company Secretary
19 March 2012

Registered Office: 

169 High Street 
Rickmansworth 
Hertfordshire 
United Kingdom 
WD3 1AY

70  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   70

30/03/2012   13:25

 
Notes

1. 

2. 

3. 

4. 

 Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), only those members registered in the 
register of members of the Company at 6.00 p.m. on 1 June 2012 (or if the AGM is adjourned, on the day which is two business 
days before the time fixed for the adjourned General Meeting) shall be entitled to attend and vote at the AGM in respect of the 
number of shares registered in their name at that time. Any changes to the register of members after such time shall be 
disregarded in determining the rights of any person to attend or vote at the General Meeting.

 CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for 
the AGM to be held at 10.00 a.m. on 7 June 2012 and any adjournment(s) thereof by using the procedures described in the CREST 
Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting 
service provider should refer to their CREST sponsors or voting service provider(s), who will be able to take the appropriate action  
on their behalf. 

In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST 
Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications and must 
contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as 
to be received by the Company’s agent, Capita Registrars Limited (CREST Participant ID: RA10), no later than 10.00 a.m. on 1 June 
2012. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by 
the CREST Application Host) from which the Company’s agent is able to retrieve the message by enquiry to CREST in the manner 
prescribed by CREST.

CREST members and, where applicable, their CREST sponsor or voting service provider should note that Euroclear UK & Ireland 
Limited does not make available special procedures in CREST for any particular messages. Normal system timings and limitations 
will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to 
take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider, to 
procure that his CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is 
transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, 
their CREST sponsor or voting service provider are referred in particular to those sections of the CREST Manual concerning 
practical limitations of the CREST system and timings.

The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the 
Uncertificated Securities Regulations 2001.

 If you wish to attend the AGM in person, you should make sure that you arrive at the venue for the AGM in good time before the 
commencement of the meeting. You may be asked to prove your identity in order to gain admission.

 A member who is entitled to attend, speak and vote at the AGM may appoint a proxy to attend, speak and vote instead of him.  
A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares (so  
a member must have more than one share to be able to appoint more than one proxy). A proxy need not be a member of the 
Company but must attend the AGM in order to represent you. A proxy must vote in accordance with any instructions given by the 
member by whom the proxy is appointed. Appointing a proxy will not prevent a member from attending in person and voting at  
the AGM (although voting in person at the AGM will terminate the proxy appointment). A proxy form is enclosed. The notes to the 
proxy form include instructions on how to appoint the Chairman of the AGM or another person as a proxy. You can only appoint a 
proxy using the procedures set out in these Notes and in the notes to the proxy form.

5. 

 To be valid, a proxy form, and the original or duly certified copy of the power of attorney or other authority (if any) under which it is 
signed or authenticated, should reach the Company’s registrar, Capita Registrars, PXS, 34 Beckenham Road, Beckenham BR3 
4TU, by no later than 10.00 a.m. on 1 June 2012.

6. 

 In the case of joint holders of shares, the vote of the first named in the register of members who tenders a vote, whether in person 
or by proxy, shall be accepted to the exclusion of the votes of other joint holders.

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Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  71

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Notice of AGM

Notice of Annual General Meeting continued

7. 

8. 

 A member that is a company or other organisation not having a physical presence cannot attend in person but can appoint 
someone to represent it. This can be done in one of two ways: either by the appointment of a proxy (described in Notes 2 and 4 to 
6 above) or of a corporate representative. Members considering the appointment of a corporate representative should check their 
own legal position, the Company’s articles of association and the relevant provision of the Companies Act 2006.

 The following documents are available for inspection at the registered office of the Company during the usual business  
hours on any weekday (Saturday, Sunday or public holidays excluded) from the date of this notice until the conclusion  
of the AGM and will also be available for inspection at the place of the AGM from 9.00 a.m. on the day of the AGM  
until its conclusion:

(a) 

 copies of the executive directors’ service contracts with the Company and any of its subsidiary undertakings; and

(b)  letters of appointment of the non-executive directors.

72  Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011

CNS2799 - AR11 BACK AW03.indd   72

30/03/2012   13:25

Corporate Directory
Corporate Directory

Directors
Directors

Jens Montanana (Non-executive Chairman) 
Jens Montanana (Non-executive Chairman) 
Andrew Miller (Executive Director)  
Andrew Miller (Executive Director)  
Richard Last (Non-executive Director)  
Richard Last (Non-executive Director)  
Stephen Graham (Non-executive Director)
Stephen Graham (Non-executive Director)

Secretary and Registered Office
Secretary and Registered Office

Duncan Swallow 
Duncan Swallow 
169 High Street  
169 High Street  
Rickmansworth  
Rickmansworth  
Hertfordshire  
Hertfordshire  
WD3 1AY
WD3 1AY

Nominated Adviser and Broker
Nominated Adviser and Broker

FinnCap  
FinnCap  
60 New Broad Street  
60 New Broad Street  
London  
London  
EC2M 1JJ 
EC2M 1JJ 

Auditor
Auditor

BDO LLP  
BDO LLP  
Clarendon House 
Clarendon House 
Clarendon Road  
Clarendon Road  
Cambridge  
Cambridge  
CB2 8FH
CB2 8FH

Solicitors
Solicitors

Dorsey and Whitney LLP  
Dorsey and Whitney LLP  
21 Wilson Street  
21 Wilson Street  
London  
London  
EC2M 2TD
EC2M 2TD

Bankers
Bankers

Santander  
Santander  
2 The Forbury  
2 The Forbury  
Reading  
Reading  
RG1 3EU
RG1 3EU

Silicon Valley Bank  
Silicon Valley Bank  
3003 Tasman Drive  
3003 Tasman Drive  
Santa Clara  
Santa Clara  
California  
California  
95054  
95054  
USA
USA

Registrars
Registrars

Capita Registrars Limited 
Capita Registrars Limited 
The Registry 
The Registry 
34 Beckenham Road 
34 Beckenham Road 
Beckenham 
Beckenham 
Kent 
Kent 
BR3 4TU
BR3 4TU

Website address 
Website address 
www.coreroplc.com
www.coreroplc.com

Corero Network Security plc (‘Corero’, 
the ‘Group’ or the ‘Company’), is a 
software focused business with a 
leading position in its two markets: 
network security and business 
management solutions. 

Corero Network Security 

An international network security company and the leading provider 
of Distributed Denial of Service (DDoS) defence and Intrusion 
Prevention System (IPS) solutions. Corero’s products and services 
provide comprehensive, integrated, high-performance protection 
against constantly evolving network-borne cyber threats. Customers 
include enterprises, service providers and government organisations 
worldwide. Corero’s appliance-based solutions are highly adaptive 
and pre-emptively respond to modern cyber attacks, known and 
unknown, protecting critical information and online assets. Corero’s 
products have superior performance, are highly scalable, and 
feature the lowest latency and best reliability in the industry. 

www.corero.com

Corero Business Systems 

A leading provider of powerful and dynamic modular accounting, 
human resources, payroll and learner management information 
software to the schools (including academies) and further education 
sectors in the UK and internationally.

www.coreroresource.com

Contents

01  Highlights

02  Business Profile
02  Corero Network Security
04  Corero Business Systems

06  Chairman’s Statement

10  Financial Review

14  Governance
14  Directors’ Biographies
16  Directors’ Report 
21  Corporate Governance Report
25  Statement of Directors Responsibilities

26  Financial Statements 
26  Independent Auditor’s Report 
28  Consolidated Statement of  
Comprehensive Income

29   Consolidated Statement of  

Financial Position 

30  Consolidated Statement of Cash Flows
31  Consolidated Statement of  

Changes in Equity

32  Notes to the Financial Statements

69  Notice of AGM

73  Corporate Directory

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CNS2799 - AR11 BACK AW03.indd   73

CNS2799 - AR11 BACK AW03.indd   73

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02/04/2012   16:11

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Corero Network Security plc

Corero Network Security plc

Annual Report & Accounts for the year ending 31 December 2011  73

Annual Report & Accounts for the year ending 31 December 2011  73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C
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Next 
Generation 
Security

Annual Report & Accounts 2011

Corero Network Security plc

169 High Street
Rickmansworth
Hertfordshire WD3 1AY

T +44 (0)1923 897333

www.coreroplc.com

Corero Business Systems Limited

169 High Street
Rickmansworth
Hertfordshire WD3 1AY

T +44 (0)1923 897333

www.coreroresource.com

Corero Network Security, Inc

1 Cabot Road
Hudson
MA 01749

www.corero.com

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