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Next
Generation
Security
Annual Report & Accounts 2012
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
USA
www.corero.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 www.corero.com is an international network security
company and leading provider of next generation security solutions. Deployed as a
First Line of Defense solution, Corero’s products and services sit outside a client’s
network, effectively stopping unwanted traffic (including Distributed Denial of Service
(“DDoS”) cyber-attacks) from reaching and overwhelming firewalls and other
infrastructure components, such that good customer traffic can flow unimpeded.
Corero’s First Line of Defense solution utilises sophisticated techniques and
technologies to block malicious traffic to stop DDoS and other advanced cyber-
attacks before they enter an organisation’s IT infrastructure. This industry best
practice is helping customers worldwide, including enterprises, service providers
and government organisations, safeguard their IT infrastructure and eliminate
downtime, ultimately protecting their bottom line.
Corero Business Systems www.coreroresource.com is a leading provider
of powerful and dynamic modular accounting, human resources, payroll and
management information software to the schools (including academies) and
further education and commercial sectors in the UK and internationally. Corero
has a strong background and pedigree in education having been involved in the
sector since the early 1990’s.
Corero’s proprietary software solution “Resource” is at the core of the Corero
suite of business applications:
• Resource Financials & HR – a finance and HR management solution
delivering web-enabled and workflow controlled business processes.
• Resource EMS – a student record and learner management information
solution for the post 16 education sector.
Contents
01 Highlights
02
02
04
Business Profile
Corero Network Security
Corero Business Systems
06 Chairman’s Statement
10
Financial Review
14 Governance
14
16
Directors’ Biographies
Directors’ Report
Corero Network Security plc
19
23
25
24
25
26
27
Corporate Governance Report
Statement of Directors’
Responsibilities
Financial Statements
Independent Auditor’s Report
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Company Statement of
Financial Position
28
29
30
31
Statements of Cash Flows
Consolidated Statement
of Changes in Equity
Company Statement of
Changes in Equity
Notes to the Financial Statements
62 Notice of AGM
65 Corporate Directory
Annual Report & Accounts for the year ending 31 December 2012
Highlights
Financial highlights
• Consolidated revenue $20.6 million (2011: $18.0 million)
• Consolidated EBITDA loss* $3.1 million
(2011: profit $0.4 million)
• Loss per share 9.7 cents (2011: 5.3 cents)
• Cash of $4.9 million at 31 December 2012
(2011: $6.7 million)
• Raised $6.2 million (£4.1 million) (before costs) on
20 March 2013 by way of a placing
* before depreciation, amortisation, acquisition and restructuring
costs and financing
Operating highlights
Corero Network Security division
• Successful launch of “First Line of Defense”
offering to leverage its leading DDoS solution
• Ashley Stephenson appointed as CEO of CNS division
• Won 66 important new customers including a leading
telecommunication service provider in Asia, Books.com,
a Malaysian state ministry and a leading French
retail group
• Ranked by Gartner as “a Visionary” in the IPS
Magic Quadrant
Corero Business Systems division
• 251 new academy and schools customers driving strong
and profitable growth
• Continued investment in software products
(Resource Financials & HR and Resource EMS)
• Winner of The UK Business Software Industry Software
Satisfaction Awards 2012 (“SSA12”) in the category of
Accounting & Finance (corporate)
“ 2012 was an important transition year for the Corero Network Security division.
We are confident that the progress and investments made in the business, along
with the appointment of Ashley Stephenson as Chief Executive Officer to drive
forward its sales-led growth strategy, have positioned the business well for the
future. We are excited about the market opportunity and the Corero Network
Security division’s growth prospects.
The Corero Business Systems division has delivered strong profitable growth
in 2012 which is expected to continue in 2013 and beyond, providing very good
cash generation on the back of sustained revenue increases.”
Andrew Miller, Group COO
Annual Report & Accounts for the year ending 31 December 2012 01
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
CORERO NETWORK SECURITy
www.corero.com
Vision
Global market leader of next generation cyber-threat defence products and services that enable
Enterprise, Government and Cloud Service Providers to combat increasingly sophisticated
unwanted network traffic to protect and optimise Internet facing businesses and organisations.
Market dynamics
Society’s increasing reliance on the Internet has streamlined
business efficiency and led to booming online revenue growth.
Online sales, on what is termed in the United States Cyber
Monday (November 26, 2012), approached $1.5 billion, up 30%
from sales on the same day in 2011. This growth in online sales
has created an explosion of cyber-attack entrepreneurs –
looking to cash in on the growing digital marketplace.
According to the 2012 Verizon Data Breach Investigations
Report, the number of compromised records skyrocketed to
174 million. It also found that external attackers were behind
the majority (98%) of breaches. As the number of attacks
increase, so do the financial consequences. Research
published by the Ponemon Institute found a 42% increase in
the number of cyber-attacks, with the average annualised cost
of cyber-crime incurred by a benchmark sample of US
organisations of $8.9 million. It noted that organisations
experienced an average of 102 successful attacks per week,
compared to 72 attacks per week in 2011. It cited distributed
denial of service (DDoS) as a common attack type and one of
the most costly cyber-crimes. With the growing number of
attacks, the DDoS protection market is forecast to grow by
16% per annum to $485 million by 2016 (Infonetics Research).
With the number of successful attacks on the rise it is evident
that existing firewall, intrusion prevention systems, and
traditional security infrastructure are not equipped to combat
them. These technologies were not built to stop many of
today’s attacks and are being overwhelmed by DDoS attacks,
advanced evasion techniques, server side exploits and other
unwanted traffic. Organisations will need to adopt a first line
of defence to effectively combat these attacks which are
increasing in number and sophistication.
Technology for Today’s Problems,
Tomorrow’s Challenges
As an organisations First Line of Defense, Corero’s products
and services stop unwanted traffic including DDoS attacks
and intrusions at the perimeter to protect IT infrastructure,
eliminate downtime and ensure the uninterrupted flow of
revenue generating traffic.
Corero’s First Line o f Defense
Corero’s First Line of Defense defines
the network perimeter to be in front of the
firewall. The First Line of Defense stops
increasingly sophisticated unwanted
traffic, which is intended to flood or
otherwise harm the IT infrastructure,
before it hits the firewall. This ensures
availability for legitimate users.
This First Line of Defense provides
deep-packet inspection to dynamically
detect and stop flooding attacks,
server-targeted malware and other
exploits designed to compromise
systems or access sensitive and
confidential data.
Internet
Router
First line
of defence
Firewall
Infrastructure
Servers and database
Automatically blocks
unwanted, suspicious
and malicious traffic
Before it hits
your firewall
and infrastructure
Protecting your
network, services
and data
Organisations need to shore up their network perimeter with a new security device, purpose built to detect and stop
unwanted traffic before it can overrun the firewall and expose IT infrastructure to performance issues, compromise
or catastrophic failures.
02 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Business Profile The Real Core is Service
Corero believes that the best security technology requires
best-in-class services to assure customers’ protection and
success. Corero’s services include:
• 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);
• ReputationWatchTM which identifies in real-time known
malicious entities and blocks access to ‘bad’ IP addresses
‘on-the-fly’ based on reputation or geographic origin, to
dynamically prevent DDoS attacks and other attack
activity. ReputationWatchTM provides dynamic real-time
configuration changes in response to the latest intelligence
so that organisations are defended from all types of
attacks including: known sources of DDoS; Bots that fall
within identified botnet command structures; systems
delivering specially crafted exploits such as KillApache;
identified sources of malicious content attacks; phishing
sites and Spam sources.
• SecureWatch®, an operational security service which
ensures that Corero’s solutions are always current and
in the highest state of maintenance, so that customers’
networks are protected around the clock against the
latest threats.
• SecureWatch® PLUS, a comprehensive suite of monitoring
and response services for DDoS-defence and unwanted
traffic control at the perimeter. With SecureWatch® PLUS,
customers receive expert DDoS defence services starting
with the organisation-specific implementation, continuing
with round-the-clock monitoring, and immediate and
effective response in the event of an attack.
Benefits of Corero’s First Line of Defense
Stop DDoS Attacks
Protect IT Infrastructure
Eliminate Downtime
• Stop perimeter security breaches
• Protect the web presence
• Greater visibility into attack vectors
• Remove unwanted traffic
from the existing network
• Improve performance of
the IT infrastructure
• Extend usable life of IT assets
• Ensure business continuity
• Measurably reduce costly outages
• Improve the customer experience
Corero’s Customers
Corero’s First Line of Defense network security products
protect customers across all industries against cyber-attacks.
Currently Corero’s core vertical markets are: finance and
banking, power and energy, education, defence, on-line
gaming and e-Commerce.
• City Index – a leading UK financial services provider
• Fastmetrics – a full-service Internet service provider
• GamersFirst (part of the K2 Network) – company
serves more than 28 million gamers in 160 countries,
offering a range of multiplayer online games as well as
rich community features
Customers include some of the world’s largest service
providers (including BT, BSkyB, Telefonica, Telekom Malaysia,
SFR and Verizon), and:
• Applied Innovations – web hosting provider, hosting
35,000 websites worldwide
• Brady Distributing – second largest distributor in the US
of amusement games and vending machines
• Bridgepoint Education – on-line and campus based
Higher Education provider
• bwin – leading on-line gaming company
• Camelot – UK based international lottery operator
• Hyve – a UK based cloud hosting provider
• Journal Register – one of the largest newspaper
publishers in the US
• Laclede Gas Company – leading US-based natural
gas distributor
• Pep Boys – multi-billion automotive services and retail chain
with more than 700 stores across the US and Puerto Rico
• Phase 2 – Hawaii-based leading software-as-a-service
provider servicing the federal and enterprise markets
• San Miguel County, a county of the State of Colorado, US
• Zacks Investment Research – one of the most highly
regarded firms in the investment industry
Annual Report & Accounts for the year ending 31 December 2012 03
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Business Profile continued
CORERO BUSINESS SySTEMS
www.coreroresource.com
Vision
Leading strategic business software provider in the schools and further education
sectors in the UK and internationally both directly and through partnerships.
Business enabling software
Corero is a provider of business accounting, human resources,
payroll and learner management information software solutions
to the schools and academies, further education and commercial
markets. Corero’s proprietary software solution, ResourceTM, is
the core of the Corero suite of business applications. Resource
empowers business and finance departments by providing
streamlined processes which offer increased efficiencies, help
to control costs and improve an organisation’s cash flow
management, all of which address the challenges for public
sector and commercial organisations faced with tighter funding
and increased competition.
Resource Financials & HR
Corero Resource Financials is a powerful, flexible system which
helps perform both every day and strategic financial and business
process management tasks quickly and easily – improving
efficiencies and reducing business administration costs.
Corero’s award winning, integrated software allows
customers to:
• Process transactions faster and with greater efficiency
thus reducing cost;
• Significantly increase the visibility of key business
performance indicators;
The two core Corero Resource software solutions are:
• Leverage and manage revenue opportunities;
• Resource Financials & HR (“Resource Financials”),
a financial, procurement, billing, projects, human
resources and payroll software solution; and
• Automate and control the management of business expenses;
• Improve access to information by providing clear financial
reports available in real-time and on-line; and
• Resource Education Management System (“Resource
EMS”), a learner management information system for
the post 16 education sector.
• Significantly reduce and even eliminate paper
through sophisticated, automated workflow
and document management.
Key features include:
• Core financial ledgers including Nominal Ledger, Purchase
Ledger, Sales Ledger and Cash Book;
• Strategic and statutory financial management and reporting;
• Sophisticated billing and debt management including cash
flow forecasting;
• Fully automated ‘Purchase-To-Pay’ system with on-line
requisitions and purchase ordering;
• Full commitment accounting and reconciliation;
• Integrated project ledger including Time & Expense systems;
• Asset management and tracking with bar code scanning;
• Document management and scanning subsystem;
• Fully integrated HR suite covering recruitment, absence
management, reviews & tracking, pay & benefits, personal
development and employee self-service; and
• HMRC Accredited and ‘RTI’ ready Payroll solution.
Core
Modules
Purchase
-to-Pay
Suite
Statutory
Reporting
& BI
Resource
Financials &
HR system
Web Apps
& Self
Service
HR &
Payroll
Corero Resource Financials combines seamlessly with Corero Resource Web, HR & Payroll, and provides senior managers
and budget holders with on-line management information and reports in real time such as the current status of their budget
with visibility of current commitments and details of previous spending with full transaction drill down.
04 Corero Network Security plc
04 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2011
Annual Report & Accounts for the year ending 31 December 2012
Resource EMS
Corero Resource Education Management System (Resource
EMS) is specially designed to meet the challenges of the post
16 education sector.
• Monitor student progress on-line in real time;
• Engage with local business community to
exploit training opportunities;
• Generate all returns and reports for statutory
Key student, course and employer data is fully integrated,
centralised and accessible on-line in real time which
enables colleges to:
• Create individual learner records via user-definable,
on-line enquiry, application and enrolment processes;
• Plan and monitor course profitability;
• Quickly identify requirements for Special
Educational Needs/Additional Learner Support;
bodies; and
• Measure improvement across the college
through dashboard/KPI reporting.
Corero Resource EMS combines seamlessly with
all other Corero Resource products, to produce one
integrated solution, ‘Corero Resource ERP for Education’.
Key features include:
• Full learner administration management from
enquiry and enrolment to leaving;
• Course/programme planning and examination
management tools;
• Individualised learner record (ILR) management;
• On-line timetabling and registers including student
mobile options;
• Real time, online ‘Portal’ information delivery
to tutors, learners and parents; and
• Simple, at-a-glance reporting and analysis.
MIS
Reporting
Learner
Internet
Enrolment
Resource
Education
Management
System
(REMS)
Staff
Portal
Core
MIS
Learner
Portal
Corero’s Customers
Resource Financials
Corero is recognised as a market
leading provider to the education sector.
Resource Financials customers include
over 580 academy trusts, federations and
individual academies and schools (with
some 22% of academies in England using
Corero’s software) and over 100 colleges.
Schools and academies including:
• The Cabot Learning Federation
• The Kemnal Academics Trust
Further Education and Sixth
Form colleges including:
• Dumfries & Galloway College
• Heythrop College
• Mid Kent College
• Peterborough Regional College
• Truro College
In addition, Corero has over 50
commercial customers including
architects, consulting engineers,
market research and design
companies such as:
• Landau Forte Academy Trust
• British Bankers Association
• St. Mary Magdalene Academy
• Fountain Television
• The School Partnership Trust
• Walsall Academy
• IFF Research
• RSA Films
Resource EMS
Resource EMS is used in over 40
Sixth Form and Further Education
College Customers including:
• Cirencester College
• Mid Kent College *
• North West Kent College *
• Oxford & Cherwell Valley College *
• South Staffordshire College *
• St Dominics Sixth Form College
• W A Fairhurst & Partners
* Also use Resource Financials & HR
Corero Resource Financials & HR software won
The UK Business Software Industry Software
Satisfaction Awards 2012 in the category of
Accounting & Finance (corporate).
Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2011 05
Annual Report & Accounts for the year ending 31 December 2012 05
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Chairman’s Statement
“ The strategy for the Corero Network Security
division is to exploit the opportunity to provide cyber
security attack mitigation defences in a rapidly
growing market including DDoS protection products
configured for either on-premise or cloud solutions.”
Jens Montanana
Chairman
Presentation currency
Subsequent to the acquisition and
integration of the US based Corero
Network Security division (formerly
Top Layer Networks) during 2011, the
Group’s presentation currency has
been changed to US Dollars (“$”) which
is more closely aligned to the profile of
the Group's revenue and cost base. The
change is effective from 1 January 2012
and thus the results for the 12 months
ended 31 December 2012 are reported
in $. The average $-GBP sterling
(“GBP”) exchange rate, used for the
conversion of the statement of
comprehensive income, for the 12
months ended 31 December 2012 was
1.59 (2011: 1.60). The closing $-GBP
exchange rate, used for the conversion
of the Group’s assets and liabilities, at
31 December 2012 was 1.63 (2011: 1.55).
Results highlights
In the year ended 31 December 2012
the Group reported revenues of $20.6
million (2011: $18.0 million) and an
EBITDA loss before depreciation,
amortisation, acquisition and
restructuring costs and financing of
$3.1 million (2011: profit $0.4 million).
Corero Network Security
division review
CNS reported revenue of $11.4 million
(2011: $11.0 million) and an EBITDA
loss before depreciation, amortisation,
acquisition and restructuring costs
and financing of $5.0 million
(2011: $0.9 million).
growth strategy and to build upon
the progress made in the product
development, marketing and operational
aspects of the business in 2012.
In September 2012, CNS launched
its “First Line of Defense” solution
to leverage its industry leading
Distributed Denial of Service
(“DDoS”) protection and intrusion
prevention technology. Sales order
intake (bookings as opposed to
amounts recognised as revenue)
in the 12 month period ended
31 December 2012 was $10.4 million
(2011: $12.0 million). Sales order intake
was impacted by the repositioning of
the CNS division around its new First
Line of Defense solution in the second
half of the year.
In 2012, 44 new partners were recruited
bringing the total number of partners at
31 December 2012 to over 80. The First
Line of Defense positioning has been
well received by important new
customers and partners as a compelling
and differentiated offering.
Ashley Stephenson, who joined CNS in
March 2012 as Executive Vice President
Product Marketing and Strategy, was
appointed Chief Executive Officer of the
CNS division in January 2013 as a result
of a leadership reconfiguration to
position the business for a sales led
Highlights of 2012 include:
• Business continues to win
important new customers
• Investment in the
commercialisation of SecureWatch
and SecureWatchPLUS services
• Launched “ReputationWatch” which
blocks known malicious entities in
real-time to dynamically prevent
DDoS cyber-attacks
• Ranked by Gartner as “a Visionary”
in the IPS Magic Quadrant
New customer wins in 2012 included
significant orders from: Agarik (a
leading French web hosting and
managed service provider); a leading
telecommunication service provider in
Asia; Books.com; a Malaysian state
ministry; Hyve (a UK based cloud
hosting provider); a leading French
retail group; and a leading international
provider of financial technology to
banks and corporations.
Material orders (upgrades and
support contract renewals) in 2012
from existing customers included:
the world’s leading online gaming
“We haven’t experienced any successful attacks (since
implementing Corero’s solution). We haven’t had anyone
penetrate our networks. Another value add was the
support provided by Corero. They were outstanding.”
Oleg Voloshin, Chief Technology Officer,
Zacks Investment Research,
Corero Network Security customer
06 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012
company; a Swiss-based
telecommunication service provider;
a leading international credit card
processing company; one of the
largest telecommunication service
providers in Europe and South
America; City Index; a leading price
comparison website; a leading
UK-based on-line gaming company; a
leading international energy group and
one of the largest insurers in the US.
The security market dynamics
and opportunity for Corero
Network Security
The market demand for security
products and services continues to be
driven by the growing threat landscape
and increasingly influenced by the
more widespread attack patterns.
Organisations globally have to face
constant threats originating from
economically, criminally and politically
motivated cyber attackers, with an
increasing business impact as
organisations become commercially
more reliant on the Internet. The huge
growth in online business and Internet
financial transactions has created an
explosion of cyber-attack entrepreneurs
looking to cash in on the burgeoning
digital marketplace.
• According to a
PriceWaterhouseCoopers survey
published in April 2012, most
companies had a security breach in
2011 with the level of attacks double
that in 2010 (organisations had an
average of 54 significant attacks by
an unauthorised outsider in 2011).
There is heightened awareness in
governments to the increasing cyber
security challenge which is driving
awareness in both commercial and
government organisations:
• Research published by the
• UK Cabinet Office minister Francis
Ponemon Institute found that
occurrences of cyber-attacks is
mounting, with a 42% increase in
the number of cyber-attacks in
2011. The research reported an
average annualised cost of cyber
crime incurred by a benchmark
sample of U.S. organisations of
$8.9 million. It also noted that
organisations experienced an
average of 102 successful attacks
per week, compared to 72 attacks
per week in 2010. It cited DDoS as
a common attack type and one of
the most costly cyber crimes.
• Forrester research shows DDoS
protection is one of the top five
security technology growth
opportunities for the next three years
given the increase in hactivism.
• A December 2012 Ponemon Institute
survey of 350 retail banks revealed
that 64% of banks were hit by at
least one DDoS attack in the past 12
months (48% hit by multiple DDoS
attacks) and that 78% of banks
expect that attacks will continue or
significantly increase.
Maude commented in his December
2012 Cabinet office statement “The
Internet has revolutionised the way
we do business and is driving
growth – the UK’s Internet-related
market is now worth £82 billion a
year and this is set to rise. Cyber-
attacks are one of the top four
threats to our national security and
cyber crime is costing our economy
billions of pounds a year. And as
businesses and government move
more of their operations online, the
scope of potential targets will
continue to grow. It’s a race: to build
sufficient cyber defences to match
the growing volume and
dependence of our online economic,
security and social interests.”
• The Obama administration has
recently urged organisations to
implement stronger firewalls and
other systems to provide a first line
of defence for better resiliency to
cyber-attacks.
In the last year there has been a
significant increase in unwanted,
suspicious and malicious traffic arriving
“Resource 32000 is a system that is user friendly,
and comprehensive enough to meet all our reporting
requirements including fulfilling companies house
accounts regulations.”
Barnby Road Primary School,
Corero Business Systems customer
Annual Report & Accounts for the year ending 31 December 2012 07
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Chairman’s Statement continued
“ The strategy for the Corero Business Systems division
will be to continue to invest for growth. The focus will
remain on the education sector where the business
has a strong market position, particularly in the
further education college and academy and schools
markets in England.”
Jens Montanana
Chairman
via the Internet, breaching enterprise
networks and compromising the
performance of online services. With
the number of successful attacks on
the rise it is evident that existing
firewall, intrusion prevention systems,
and traditional security infrastructure
are not equipped to combat them.
These technologies were not built to
stop many of today’s attacks and are
being overwhelmed by DDoS attacks,
advanced evasion techniques, server
side exploits and other unwanted
traffic. As a result, a market is
emerging for new security solutions
that are deployed in front of the
traditional firewalls, with the primary
business driver being DDoS protection.
Corero has a first mover advantage in
this market - and plans to reinforce this
advantage through its investment in a
next generation product to establish a
leadership position. With the increase in
the prevalence of malicious activity -
particularly DDoS attacks -
organisations, most notably in financial
services and ecommerce verticals, are
starting to include DDoS protection
investment in their IT security budgets.
Research by Forrester confirms that
42% of organisations expect to increase
network security spend in 2013 with
24% of security budgets allocated to
network security. The DDoS prevention
appliance market is forecast by
Infonetics to grow from $270 million
in 2012 to $485 million in 2016.
Corero Business Systems review
Revenues for the CBS division
increased by 30% in 2012 to $9.2 million
(2011: $7.0 million). CBS sales order
intake in the year to 31 December 2012
was $10.5 million (2011: $8.1 million).
CBS reported an EBITDA profit before
depreciation, amortisation, acquisition
and restructuring costs and financing
of $3.1 million (2011: $2.6 million).
The CBS division won new contracts
from 251 academies and schools in the
12 months ended 31 December 2012
(2011: 192) for its Resource Financials
& HR software solution, underlying its
strong position in this growth market.
In addition, despite the tight Public
Sector spending environment, CBS
won 3 new contracts (2011: 3) from
sixth form colleges in the 12 months
ended 2012 for its Resource EMS
learner management system.
Key achievements in 2012 include:
• Expansion of schools managed by
Multi Academy Trust customers: The
Kemnal Academies Trust adding 24
schools and the School Partnership
Trust adding 15 schools.
• New academy trust groups signed
including: REACH 2, Outwood
Grange Academy Trust and London
Diocesan Board for Schools.
• Appointment of Mike Stansfield as
Product Development Director who
brings 25 years’ IT industry
experience with leading companies
such as Taxsoft, Sage, QSA and
Pitney Bowes.
• CBS’ Resource Financials product
was announced as the winner of
The UK Business Software Industry
Software Satisfaction Awards 2012
(“SSA12”) in its category.
• Achieved full ISO9001
Accreditation status.
The UK education market
dynamics and opportunity
for Corero Business Systems
The key growth market for Corero
Business Systems is the schools market
(including academies and free schools).
The academy conversion programme is
a key part of the Government’s
education policy. As of 1 January 2013,
only 12% of the 21,000 schools in
England were academies.
There continues to be strong interest
from Local Education Authority
controlled schools to convert to
academies, encouraged by The
“We’re very security conscious. We take our responsibility to protect
our customers’ data very seriously. One of our key criteria was
inspected throughput for the invested dollar. Corero meets our
demanding requirements, including the need for very low latency.”
Kevin Doherty, President of Phase 2,
Corero Network Security customer
08 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012
Department of Education, coupled with
the emergence of academy groups
including CBS customers, the School
Partnership Trust (based in Leeds) and
The Kemnal Academies Trust (based in
Kent), each with 30 and 32 academies
respectively at 31 December 2012.
Business strategy
The Corero Network Security division's
strategy is aimed at exploiting the
opportunity to provide cyber security
attack mitigation defences in a rapidly
growing market, including DDoS
protection products configured for
either on-premise or cloud solutions. If
CNS can capitalise on this exploding
opportunity, with its recently launched
and differentiated First Line of Defense
offering, we would expect to see strong
revenue growth emerging from 2013
and beyond.
CNS is also investing in a next
generation product to increase its
addressable market. This product, the
initial release of which is anticipated for
later in 2013, is aimed at extended
deployments in cloud infrastructure,
virtual environments, and in very large
scale networks.
The strategy for the Corero Business
Systems division is to continue to invest
for growth and remain focused on the
education sector where the business has
a strong market position, particularly in
the further education college and
academy and schools markets in
England. The potential also exists to
consider expansion into international
markets. The CBS division plans to make
further investment in its existing products,
including plans for a Software-as-a-
Service (Saas) enabled finance software
product. These plans will be funded from
existing resources and the on-going
profitable trading of the division.
The Group will continue to manage and
operate as two separate divisions with a
small central head office 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.
Directorate
I would like to thank Edward Forwood
and Stephen Graham who resigned
from the Board in March and June 2012
respectively, for their contribution
and welcome Andrew Lloyd who
was appointed to the Board in
November 2012.
Outlook
Significant progress has been made in
the Corero Network Security business.
The business and management team
have been reorganised and the
groundwork laid to drive incremental
growth in new international markets. This
division is well positioned to deliver
growth in 2013. Corero Network Security
has had an encouraging start to 2013 with
material business wins generated from
both new and existing customers. New
customer wins include: a US utility, a
leading mobile service provider in Brazil,
and an Internet domain services
company. Existing customer renewals
include a leading European lottery
operator, one of the largest insurers in the
United States, and a leading price
comparison web site.
The Corero Business Systems division
performed strongly in 2012 with this
growth expected to continue. The
division plans to make further self-
funded investments in its products
and to consider adjacent market
opportunities. Corero Business Systems
has had an encouraging start to 2013.
Jens Montanana
Chairman
25 March 2013
“I have really enjoyed using Corero Resource and have
found it extremely easy to use. It has been a pleasure
dealing with Corero; any queries have been handled
immediately and professionally.”
Heart of England Business and Enterprise School,
Corero Business Systems customer
Annual Report & Accounts for the year ending 31 December 2012 09
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Financial Review
for the year ended 31 December 2012
“ We are confident that the progress and investment
made in the Corero Network Security division, the Q3
2012 positioning as a First Line of Defense and the
appointment of Ashley Stephenson as CEO to drive
forward its sales-led growth strategy, have positioned
the business well for the future.”
Andrew Miller
COO and Executive Director
Financial performance
Performance indicators
For the year ended 31 December 2012,
the Group reported an EDITDA loss
before depreciation, amortisation,
acquisition and restructuring costs and
financing of $3.1 million (2011: profit
$0.4 million) and a loss after taxation of
$5.9 million (2011: $2.0 million). This
included an unrealised exchange loss of
$0.3 million (2011: $0.1 million) arising
on an intercompany loan.
Central costs were $1.2 million (2011:
$1.2 million) which relate to the Group's
finance and administration functions as
well as the costs associated with the
Company’s listing on AIM.
Interest costs were $0.5 million (2011:
$0.4 million) comprising interest on the
Loan Notes issued by Top Layer
Networks, Inc. ("Top Layer" subsequently
renamed Corero Network Security, Inc.)
as part of the purchase consideration
for Top Layer and the Corero Network
Security working capital facility.
Interest received was $0.1 million
(2011: $0.1 million).
The loss per share was 9.7 cents
(2011: 5.3 cents).
The Group’s net assets at the year end
were $19.3 million (2011: $17.8 million).
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: $20.6 million for the year
ended 31 December 2012 (2011:
$18.0 million);
• Gross margin: 75% for the year ended
31 December 2012 (2011: 77%);
• Number of employees: 152 at 31
December 2012 (2011: 130); and
• Cash: $4.9 million at 31 December
2012 (2011: $6.7 million)
Whilst the CNS division’s sales growth
in 2012 (revenue $11.4 million compared
to $11.0 million in 2011 for the 10 month
period from the 2 March 2011
acquisition date) was disappointing, we
are confident that the progress and
investment made in the business, the
Q3 2012 positioning of CNS’ proposition
as a First Line of Defense and the
appointment of Ashley Stephenson as
Chief Executive Officer to drive forward
its sales-led growth strategy, have
positioned the business well for the
future. Despite revenue being below
expectations, CNS continued its
investment in product development
and in the third quarter of 2012
commenced the development of its
next generation product as the Board
believes this investment is important for
CNS to increase it addressable market
and revenue in the future. Operating
expenses increased from $9.2 million in
2011 (a 10 month period) to $13.2 million
in 2012 predominantly as a result of the
increase in headcount from 73
employees at 31 December 2011 to
90 employees at 31 December 2012
and the full year impact of the increase
in headcount of 19 employees in the
second half of 2011. The lower revenue
growth and continued investment
resulted in an operating loss of
$7.4 million for the year ended
31 December 2012 (2011: $2.6 million).
The CBS division delivered strong
profitable growth in 2012 (revenue
$9.2 million compared to $7.0 million in
2011). Operating expenses increased
from $3.1 million in 2011 to $4.1 million
in 2012 predominantly as a result of the
increase in headcount from 53 employees
at 31 December 2011 to 58 employees
at 31 December 2012 and the full year
impact of the increase in headcount
of 15 employees in the second half of
2011. CBS reported an operating profit
of $2.7 million for the year ended
31 December 2012 (2011: $2.2 million).
“Corero is the new IT perimeter. Adding it to our arsenal of best-of-breed offerings
perfectly rounds out our network security portfolio. By stopping all the known and
unknown traffic at the perimeter, Corero’s solutions guarantee uptime while ensuring
our customers’ are able to maximize their existing IT infrastructure investment, from
their next generation firewalls to their IPS devices, and remain secure.”
John Harris, Director of Sales, AE Business Solutions,
Wisconsin IT solutions provider
Corero Network Security channel partner
10 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012
Cash and treasury
The closing cash balance was
$4.9 million (2011: $6.7 million). The
net reduction in cash from operating
activities was $5.1 million (2011:
$1.6 million).
In 2012, the Company raised $7.2 million
(£4.6 million) (before expenses) of which
the directors and senior management
contributed $2.2 million (£1.4 million).
At the end of the year, the Group had
aggregate banking facilities of $2.8
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.
Taxation
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 2012, the Group had
unutilised tax losses carried forward of
approximately $37.7 million (2011: $31.4
million). This comprised UK tax losses of
$10.0 million and US tax losses of $27.7
million. $4.2 million of the tax losses
relates to US capitalised R&D
deductions which will be available at an
accelerated level for 4 years. $9.0 million
of the tax losses relate to pre-acquisition
US tax losses which can be offset
against taxable profits over 19 years
(there is a limit on the utilisation of
pre-acquisition tax losses of $0.7 million
per annum and any unused loss may be
carried forward to subsequent periods).
Given the varying degrees of uncertainty
as to the timescale of utilisation of these
losses, the Group has not recognised
$11.6 million of potential deferred tax
assets associated with these losses.
Dividends
The Board is not recommending the
payment of a dividend (2011: 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 Group.
1. Competition
The Group operates in competitive
markets with Corero Network Security
and Corero Business Systems business'
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 is aware of this threat
“The beauty of Resource for me is that it is an extremely
powerful and flexible system that is also very easy to
understand and use.”
Loughborough College,
Corero Business Systems customer
Annual Report & Accounts for the year ending 31 December 2012
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Financial Review continued
“ The Corero Business Systems division
delivered strong profitable growth in 2012
with revenue of $9.2 million compared to
$7.0 million in 2011.”
Andrew Miller
COO and Executive Director
and intends to continue to invest in the
enhancement of the Group’s products
and services.
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 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. Technology Partners
Corero Network Security’s First Line
of Defense 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.
4. 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. 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.
“DDoS attacks cost us thousands of dollars an hour.
It’s all the money that players can’t spend and we can’t
get. [With Corero] DDoS doesn’t affect us the way
it used to. Without Corero, we would be seeing slow
response times. But now it doesn’t get to that point.”
Matt Gee, Network Engineer at GamersFirst,
Corero Network Security customer
12 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 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
25 March 2013
7. 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.
8. Further issues of Ordinary
Shares and access to finance
It may be necessary for the Company to
raise additional capital by way of the
further issue of ordinary Shares to
enable the Group to progress through
further stages of development. Any
“We had a high-profile Wall Street firm that was under constant DDoS attack
with more than 10,000 attackers at one point hitting them from almost every
country in the world, overtaxing their firewall and bringing their sites to a
standstill. None of their clients were able to access any of their websites.
They were, to say the least, not happy. Though the firewall vendor had claimed
to offer DDoS protection we quickly learned that this was not the case. We
needed something that was specifically designed to handle this type of traffic.
The Corero First Line of Defense product was installed and within hours the
attacks were mitigated and the site performance returned to normal.”
Colin Ryan, General Manager of Dynamic Business Systems,
Corero Network Security channel partner
Annual Report & Accounts for the year ending 31 December 2012 13
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Directors’ Biographies
Jens Montanana
Non-executive Chairman
Age: 52
Appointed: 9 August 2010
Andrew Miller
Group Chief Operating Officer
and Executive Director
Age: 48
Appointed: 9 August 2010
Richard Last
Non-executive Director
Age: 55
Appointed: 22 May 2008
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 Officer and is also
responsible for the Group’s finance 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
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 finance experience in London with Standard Bank,
West Deutsche Landesbank and Coopers & Lybrand. He
trained and qualified as a chartered accountant and has a
bachelor’s degree in commerce from the University of Natal,
South Africa.
Richard is Chairman of Arcontech Group, a provider of IT
solutions for the financial services sector which is listed on
AIM; Lighthouse Group plc, an AIM listed financial services
group; and the British Smaller Technology Companies VCT 2
plc, a fully listed Venture Capital Trust. He 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 and is a
director of a number of private businesses. Richard is a Fellow
of the Institute of Chartered Accountants in England and Wales
(FCA). Richard is chairman of the Corero Audit Committee.
14 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012
Andrew Lloyd
Non-executive Director
Age: 47
Appointed: 19 November 2012
Andrew has been involved in the IT software and systems
sector for more than 25 years. His career has included roles in
early stage companies, high-growth pre-IPO ventures as well
as large corporations such as Computer Associates and
Oracle. Andrew is Senior Vice President of PRISMTECH
Group’s OpenSplice business which, through offices in Europe
and North America, develops and markets performance-critical
middleware software products for the military, aerospace,
telecommunications, industrial and financial services markets.
He is also a non-executive director of NetIDme Limited, a
venture capital-backed provider of online age verification and
identity authentication technology for a wide variety of
industries including online gaming and gambling businesses.
Andrew has a BSc (Hons), Electronic and Electrical Engineering
from Heriot-Watt University, Scotland.
Duncan Swallow
Company Secretary
Age: 48
Appointed: 1 November 2007
Duncan is responsible for the Company secretarial function
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 Certified Accountants.
Annual Report & Accounts for the year ending 31 December 2012 15
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Directors’ Report
for the year ended 31 December 2012
Principal activities
The principal activity of the Group during the year ended 31 December 2012 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 25 shows a loss for the year of $5.9 million (2011: $2.0 million).
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 $4.9 million (2011: $6.7 million) held on the balance sheet at
31 December 2012, and the $6.2 million (before costs) raised from the March 2013 share issue, that the Company and the
Group have adequate resources to continue operating for the foreseeable future. For this reason the going concern basis
has been adopted in preparing the accounts.
Dividends
The Directors have not recommended a dividend (2011: £nil).
Post balance sheet event
On 20 March 2013 the Company raised $6.2 million (£4.1 million) (before costs), of which the directors contributed $4.2 million
(£2.8 million), by way of a placing of 27,000,004 new ordinary shares at a price of 15p per share, to support the investment in
the Corero Network Security business’ next generation product.
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 25 to the financial statements. As at the date of this report, 85,637,416 ordinary shares of 1p
each (‘ordinary shares’) were in issue and fully paid with an aggregate nominal value of $1.3 million.
The market price of the ordinary shares at 31 December 2012 was 32.5p and the shares traded in the range 29.5p to 60.5p
during the year.
Issue of shares
At the AGM held on 7 June 2012 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 £194,431. It is proposed at the forthcoming AGM to renew the authority to allot relevant securities up to an aggregate
nominal amount of £285,458, being one-third of the nominal value of the current issued share capital.
Also at the AGM held on 7 June 2012, 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 £87,494
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 £85,637 being 10%
of the current nominal value of the issued share capital, without application of the statutory pre-emption rights.
16 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 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
20 March 2013:
Ordinary shares of 1 pence each
Jens Montanana*
Herald Investment Management
Andre Stewart**
Investec Wealth & Investment Limited
Blackrock, Inc
Legal & General Investment Management Limited
Octopus Investments Limited
Number
33,943,687
7,261,723
6,039,023
5,268,448
4,570,494
3,957,364
2,749,697
%
39.6
8.5
7.1
6.2
5.3
4.6
3.2
* of which 20,936,545 are held in the name of JPM International Limited, which is wholly owned by Jens Montanana,
and 9,000,000 are held in the name of The New Millennium Technology Trust of which Jens Montanana is a beneficiary.
** of which 5,731,023 are held in the name of BFG Investments Group Limited which is wholly owned by Andre Stewart.
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
Edward Forward (resigned 19 March 2012)
Stephen Graham (resigned 30 June 2012)
Andrew Lloyd (appointed 19 November 2012)
20 March
2013
Number
31 December
2012
Number
%
33,943,687
39.6
15,943,687
723,255
1,066,667
–
–
–
0.8
1.3
–
–
–
623,255
400,000
n/a
n/a
–
31 December
2011
Number
12,828,571
600,000
221,619
–
n/a
n/a
%
27.9
1.1
0.7
–
–
–
%
26.9
1.3
0.5
–
–
–
The biographical details of the current Directors of the Company are given on pages 14 and 15.
Jens Montanana, Andrew Miller and Richard Last hold share options, details of which are shown in note 30 to the
Financial Statements.
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 2012
was 28 days (2011: 29 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.”
Annual Report & Accounts for the year ending 31 December 2012
17
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Directors’ Report continued
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
$3.2 million (2011: $1.8 million) was made during the year. Amortisation of $1.0 million (2011: $0.3 million) 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.
Charitable or political donations
No charitable donations were made during the year (2011: $1,600). No political donations were made during the year.
Annual General Meeting
The AGM will be held at the offices of FinnCap Ltd, 60 New Bond Street, London, EC2M 1JJ, on 13 June 2013 at 10.00 a.m.
The notice convening the meeting is on page 62 together with details of the business to be considered.
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.
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
25 March 2013
18 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 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 2012 are set out below:
Jens Montanana
Andrew Miller
Richard Last
Andrew Lloyd
Board
Chairman
Member
Member
Member
Audit
Remuneration
Member
Chairman
Chairman
Member
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 and Andrew Lloyd are considered to be independent.
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. Jens Montanana, Andrew Miller and Andrew Lloyd (appointed 19 November 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.
Annual Report & Accounts for the year ending 31 December 2012 19
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Corporate Governance Report continued
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;
• 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 2012 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 2012 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 in the year to 31 December 2012 is shown in the
table below:
Jens Montanana
Andrew Miller
Richard Last
Edward Forwood (resigned 19 March 2012)
Stephen Graham (appointed 19 March 2012, resigned 30 June 2012)
Andrew Lloyd (appointed 19 November 2012)
Meetings attended
5/5
5/5
5/5
2/2
1/1
1/1
20 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 Board Committees
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.
The Audit Committee met twice in the year ended 31 December 2012. The attendance of individual Committee members at
Audit Committee meetings in the year to 31 December 2012 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, Richard Last and Andrew Lloyd.
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 twice times in the year ended 31 December 2012. The attendance of individual Committee
members at Remuneration Committee meetings in the year to 31 December 2012 is shown in the table below:
Jens Montanana
Richard Last
Andrew Lloyd (appointed 19 November 2012)
Nominations Committee
Meetings attended
2/2
2/2
–
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.
Annual Report & Accounts for the year ending 31 December 2012 21
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Corporate Governance Report continued
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. There were no specific reports tabled during the year ended 31 December 2012.
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 any reports prepared on
internal controls by management and any issues identified by external auditors.
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 2012 are disclosed in note 30 of the Financial Statements.
Details of directors’ remuneration for the year ended 31 December 2012 are set out in note 27 of the Financial Statements.
Jens Montanana has elected to waive the fees payable to him for the financial year ended 31 December 2012.
Andrew Miller, executive director, has a service agreement which is terminable by either party on not less than three
months’ written notice increasing by one month at the end of each complete 12 month period of continuous employment
provided that the notice period shall not exceed six months in total. The agreement contains provisions for early termination
in certain circumstances.
None of the Non-executive Directors has a service agreement. Letters of appointment for Jens Montanana, Richard Last and
Andrew Lloyd 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.
22 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 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.
Annual Report & Accounts for the year ending 31 December 2012 23
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
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 2012 which
comprise the consolidated statement of comprehensive income, the consolidated and company statements of financial
position, the consolidated and company statements of cash flows, the consolidated and company statements 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 2012 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.
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
United Kingdom
25 March 2013
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
24 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 Consolidated Statement
of Comprehensive Income
for the year ended 31 December 2012
Revenue
Cost of sales
Gross profit
Operating expenses before highlighted items
– Depreciation and amortisation of intangible assets
13,14,15
– Acquisition and restructuring costs
Note
Operating expenses
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation
Loss for the year
Other comprehensive income/(expense)
Difference on translation of UK functional currency entities
Total comprehensive expense for the year
Total loss for the year attributable to:
Equity holders of the parent
Non-controlling interest
Total comprehensive expense for the year attributable to:
Equity holders of the parent
Non-controlling interest
Total
Basic and diluted loss per share
Basic and diluted loss per share
The notes on pages 31 to 61 form part of these financial statements.
6
7
9
11
Total
2012
$’000
20,565
(5,116)
15,449
(18,554)
(2,767)
–
(21,321)
(5,872)
119
(507)
(6,260)
371
(5,889)
537
(5,352)
(6,055)
166
(5,889)
(5,495)
143
(5,352)
2012
Cents
(9.7)
Total
2011
Restated
$’000
18,034
(4,090)
13,944
(13,501)
(1,521)
(975)
(15,997)
(2,053)
98
(359)
(2,314)
308
(2,006)
(358)
(2,364)
(2,051)
45
(2,006)
(2,400)
36
(2,364)
2011
Restated
Cents
(5.3)
Annual Report & Accounts for the year ending 31 December 2012 25
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Consolidated Statement
of Financial Position
as at 31 December 2012
Assets
Non-current assets
Goodwill
Acquired intangible assets
Capitalised development expenditure
Property, plant and 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
Liabilities
Current Liabilities
Trade and other payables
Borrowings
Deferred income
Net current (liabilities)/assets
Non-current liabilities
Borrowings
Deferred income
Deferred taxation
Net assets
Total equity attributable to owners of the parent
Ordinary share capital
Deferred share capital
Shares to be issued
Share premium
Merger reserve
Share options reserve
Translation reserve
Retained earnings
Non-controlling interest
Total equity
Note
12
13
14
15
17
18
18
19
20
22
20
22
23
25
25
26
2012
$’000
18,811
3,739
4,528
1,241
28,319
622
4,442
1,123
4,861
11,048
(3,972)
(182)
(7,592)
(11,746)
(698)
(5,984)
(1,146)
(1,196)
(8,326)
19,295
925
7,051
–
38,046
–
268
211
(27,395)
19,106
189
19,295
2011
Restated
$’000
2010
Restated
$’000
18,772
4,659
2,325
1,015
26,771
373
5,059
245
6,680
12,357
(4,375)
(273)
(8,390)
(13,038)
(681)
(5,510)
(1,252)
(1,567)
(8,329)
17,761
752
7,051
124
31,228
–
259
(349)
(21,340)
17,725
36
17,761
790
8
917
56
1,771
–
1,271
3
11,155
12,429
(1,148)
–
(2,306)
(3,454)
8,975
–
–
–
–
10,746
496
7,051
–
22,262
1,588
226
–
(20,877)
10,746
–
10,746
These financial statements were approved by the Board of Directors on 25 March 2013 and signed on their behalf.
Andrew Miller
Director
The notes on pages 31 to 61 form part of these financial statements.
26 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 Company Statement
of Financial Position
as at 31 December 2012
Assets
Non-current assets
Investments in subsidiaries
Current assets
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
Net current assets
Net assets
Equity
Ordinary share capital
Deferred share capital
Shares to be issued
Share premium
Merger reserve
Share options reserve
Translation reserve
Retained earnings
Total equity
2012
$’000
2011
Restated
$’000
2010
Restated
$’000
Note
16
18
18
19
25
25
26
18,220
18,220
3
6,159
4,714
638
638
99
4,415
9,850
10,876
14,364
26,720
26,720
–
8,407
2,971
11,378
–
–
11,378
38,098
925
7,051
–
–
–
10,876
29,096
752
7,051
124
38,046
31,228
–
268
1,171
(9,363)
38,098
–
259
(525)
(9,793)
29,096
(3)
(3)
14,361
14,999
496
7,051
–
22,262
1,588
226
–
(16,624)
14,999
These financial statements were approved by the Board of Directors on 25 March 2013 and signed on their behalf.
Andrew Miller
Director
The notes on pages 31 to 61 form part of these financial statements.
Annual Report & Accounts for the year ending 31 December 2012 27
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Statements of Cash Flows
for the year ended 31 December 2012
Group
Company
Cash flows from operating activities
Note
13
14
15
6
7
30
32
13
14
15
6
(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
(Decrease)/increase in payables
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
Repayment of term loans
Capital element of finance lease repayments
Repayment of credit facility
Net cash from financing activities
Effects of exchange rates on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The notes on pages 31 to 61 form part of these financial statements.
28 Corero Network Security plc
2012
$’000
(6,260)
1,157
1,044
566
(119)
507
–
9
(233)
–
(1,802)
(5,131)
–
(237)
(3,174)
(802)
–
–
2011
Restated
$’000
(2,314)
924
322
275
(98)
359
(7)
32
(151)
(2,776)
1,864
(1,570)
(3,649)
(61)
(1,754)
(976)
–
–
(4,213)
(6,440)
6,989
250
119
(64)
(121)
(27)
(189)
6,957
568
(1,819)
6,680
4,861
3,403
250
98
(17)
–
(22)
(300)
3,412
123
(4,475)
11,155
6,680
2012
$’000
430
–
–
–
2011
Restated
$’000
5,243
–
–
–
(443)
(151)
–
–
9
–
40
–
36
10
–
–
–
792
(9,774)
(8,972)
6,868
–
116
–
–
–
–
6,984
209
(1,743)
4,714
2,971
–
–
32
–
(349)
(5,582)
(807)
(3,649)
–
–
–
2,108
(6,176)
(7,717)
3,403
–
98
–
–
–
–
3,501
(113)
(5,136)
9,850
4,714
Annual Report & Accounts for the year ending 31 December 2012 Shares
to be
issued
$’000
Share
premium
account
$’000
Merger
reserve
$’000
Share
options
reserve
$’000
Translation
reserve
$’000
Retained
earnings
$’000
Total
attributable
to equity
holders of
the parent
$’000
Non-
controlling
interest
$’000
Total
equity
$’000
22,262
1,588
226
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2012
1 January 2011
Loss for the year
Other
comprehensive expense
Total comprehensive
expense for the year
Contributions by and
distributions to owners
Share based payments
Issue of share capital
Transfer
Shares to be issued
Total contributions by and
distributions to owners
31 December 2011
Loss for the year
Other comprehensive
income
Total comprehensive
expense for the year
Contributions by and
distributions to owners
Share based payments
Share
capital
$’000
7,547
–
–
–
–
256
–
–
256
7,803
–
–
–
–
Issue of share capital
173
–
–
–
–
–
–
–
124
124
124
–
–
–
–
–
Shares to be issued
Dilution of ownership
of subsidiary
–
–
(124)
–
Total contributions by and
distributions to owners
173
(124)
6,818
31 December 2012
7,976
–
38,046
–
–
–
–
8,966
–
–
–
–
–
–
–
(1,588)
–
8,966
(1,588)
31,228
–
–
–
–
6,818
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33
–
–
–
33
259
–
–
–
9
–
–
–
9
–
–
(20,877)
10,746
–
10,746
(2,051)
(2,051)
45
(2,006)
(349)
–
(349)
(9)
(358)
(349)
(2,051)
(2,400)
36
(2,364)
–
–
–
–
–
–
–
1,588
–
1,588
(349)
(21,340)
33
9,222
–
124
9,379
17,725
–
–
–
–
–
33
9,222
–
124
9,379
36
17,761
–
(6,055)
(6,055)
166
(5,889)
560
–
560
(23)
537
560
(6,055)
(5,495)
143
(5,352)
–
–
–
–
–
-
–
–
–
–
9
6,991
(124)
–
–
–
9
6,991
(124)
–
10
10
6,876
10
6,886
268
211
(27,395)
19,106
189 19,295
Amounts prior to 1 January 2012 have been restated as per note 1 to the Financial Statements.
The notes on pages 31 to 61 form part of these financial statements.
Annual Report & Accounts for the year ending 31 December 2012 29
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Company Statement
of Changes in Equity
for the year ended 31 December 2012
1 January 2011
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Contributions by and
distributions to owners
Share based payments
Issue of share capital
Transfer
Shares to be issued
Total contributions by and
distributions to owners
31 December 2011
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Contributions by and
distributions to owners
Share based payments
Issue of share capital
Shares to be issued
Total contributions by and
distributions to owners
31 December 2012
Share
capital
$’000
7,547
–
–
–
–
256
–
–
256
7,803
–
–
–
–
173
–
173
7,976
Shares
to be
issued
$’000
Share
premium
account
$’000
Merger
reserve
$’000
Share
options
reserve
$’000
Translation
reserve
$’000
Retained
earnings
$’000
Total
equity
$’000
22,262
1,588
226
–
–
–
–
–
–
–
124
124
124
–
–
–
–
–
(124)
–
–
–
–
8,966
–
–
–
–
–
–
–
(1,588)
–
8,966
(1,588)
31,228
–
–
–
–
6,818
–
–
–
–
–
–
–
–
–
–
–
–
–
33
–
–
–
33
259
–
–
–
9
–
–
9
–
–
(525)
(525)
(16,624) 14,999
5,243
5,243
–
(525)
5,243
4,718
–
–
–
–
–
–
–
1,588
–
33
9,222
–
124
1,588
9,379
(525)
(9,793) 29,096
–
430
430
1,696
1,696
–
1,696
430
2,126
–
–
–
–
–
–
–
–
9
6,991
(124)
6,876
(124)
6,818
–
38,046
268
1,171
(9,363) 38,098
Amounts prior to 1 January 2012 have been restated as per note 1 to the Financial Statements.
Under the terms of the Top Layer Networks, Inc. acquisition (which has since been renamed Corero Network Security, Inc.),
deferred consideration of $123,558 payable to the management of Top Layer, was 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. The Company made a cash payment in
September 2012 of $105,000 (net of a set-off of $7,500 for warranty claims) to satisfy the deferred consideration obligation.
The notes on pages 31 to 61 form part of these financial statements.
30 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 Notes to the Financial Statements
1. General information
Presentation currency
Subsequent to the acquisition and
integration of the US based Corero
Network Security division (formerly
Top Layer Networks) during 2011, the
Group’s reporting currency has been
changed to US Dollars (“$”) which is
more closely aligned to the profile of
the Group’s revenue and cost base.
The change is effective from 1 January
2012 and thus the results for the 12
months ended 31 December 2012 are
reported in $. The average $-GBP
sterling (“GBP”) exchange rate, used
for the conversion of the statement of
comprehensive income, for the 12
months ended 31 December 2012 was
1.59 (2011: 1.60). The closing $-GBP
exchange rate, used for the conversion
of the Group’s assets and liabilities, at
31 December 2012 was 1.63 (2011:
1.55, 2010: 1.55).
Restatement of comparatives
Values in the primary statements and
notes 5 to 32 relating to the periods
prior to 1 January 2012 have been
restated from GBP to $.
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.
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.
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.
The directors have prepared detailed
income statement, balance sheet and
cash flow projections for the period to
31 December 2014. 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
2014 on the assumption that the 8%
Loan Notes (see note 20) which are
due for repayment in March 2014 will
be refinanced.
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.
2.3 Basis of consolidation
The consolidated financial statements
incorporate the results, assets, liabilities
and cash flows of the Company and
each of its subsidiaries for the financial
year ended 31 December 2012.
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.
The merger reserve which was
transferred to retained earnings in
the prior year related to a realised
investment in a former division of
a subsidiary undertaking.
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.
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.
2.5 Revenue
Revenue is measured at the fair value of
the consideration received or receivable
and represents the amounts receivable
for services provided in the normal
course of business, net of all related
discounts and sales tax.
Annual Report & Accounts for the year ending 31 December 2012 31
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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;
– No significant obligations remain.
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 products revenue 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.
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
Support income is recognised on
a straight line basis over the life of
the agreement.
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.
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 UK 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 the translation reserve. Such
translation differences are recognised
in profit or loss on the disposal
of the UK operation.
32 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 2.8 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.
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 zero 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 and useful
lives are reviewed, and if necessary
adjusted, at each reporting date.
2.9 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.
Annual Report & Accounts for the year ending 31 December 2012 33
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2.10 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.
2.11 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
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.
2.12 Borrowing costs
All borrowing costs directly attributable
to a qualifying asset are capitalised as
part of the cost of the asset.
2.13 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.
2.14 Investments in subsidiaries
In the Company’s separate financial
statements, investments in
subsidiaries are carried at cost
less any impairment provisions.
2.15 Taxation
The tax expense represents the sum
of current tax and deferred tax.
34 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 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.
2.16 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.
2.17 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.
2.18 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.
2.19 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.
2.20 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.
Annual Report & Accounts for the year ending 31 December 2012 35
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When share options are exercised,
the proceeds received, net of any
transaction costs, are credited to
share capital (nominal value) and
share premium.
2.21 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.
2.22 Standards and Interpretations
not yet effective
The standards and interpretations that
are issued but not yet effective at the
date of authorisation of these financial
statements are those that the Group
reasonably expects will have an impact
on disclosures, financial position or
performance when applied at a future
date. The Group intends to adopt these
standards and interpretations, if
applicable, when they become effective.
IAS 1 Presentation of Items of
Other Comprehensive Income –
Amendments to IAS 1
The amendments to IAS 1 change the
grouping of items presented in other
comprehensive income (OCI). Items
that could be reclassified (or recycled)
to profit or loss at a future point in
time would be presented separately
from items that will never be
reclassified. The amendment affects
presentation only and therefore has
no impact on the Group’s financial
position or performance.
The amendments to IAS 1 are effective
for annual periods beginning on or after
1 July 2012.
IFRS 10 Consolidated
Financial Statements
IFRS 10 establishes a single control
model that applies to all entities including
structured entities (previously referred to
as special purpose entities). The
changes introduced by IFRS 10 will
36 Corero Network Security plc
require management to exercise
significant judgement to determine which
entities are controlled and therefore are
required to be consolidated by a parent,
compared with the requirements that
were in IAS 27. IFRS 10 is not expected
to have any impact on the investments
currently held within the Group.
This standard is effective for annual
periods beginning on or after
1 January 2013.
IFRS 12 Disclosure of Interests
in Other Entities
These disclosures relate to an
entity’s interests in subsidiaries,
joint arrangements, associates and
structured entities. A number of new
disclosures are also required, but will
have no impact on the Group’s financial
position or performance.
This standard is effective for annual
periods beginning on or after
1 January 2013.
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
discounted future cash flows.
Significant assumptions are made in
estimating future cash flows about
future events including future market
conditions, future growth rates and
apporpriate discount rates. Changes in
these assumptions could affect the
outcome of impairment reviews.
Changes in these assumptions could
affect the outcome of impairment
reviews. Details of the main assumptions
used in the assessment of the carrying
value of the Group’s cash generating
units are set out in note 12.
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 investment
and intercompany balance between the
Company and Corero Business Systems
Limited has been reviewed by reference
to a valuation based on a multiple of the
2012 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
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued Corero Network Security (UK) Limited
have been reviewed with reference to
a valuation based on a discounted free
cash flow which the directors consider
to be an appropriate valuation
methodology, 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.
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.
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 18).
The credit risk on liquid funds and
financial instruments is limited because
the counterparties are banks with
acceptable 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.
The Group’s policy is to balance the risk
in relation to cash balances held by
spreading these across a number of
financial institutions as opposed to
maximising interest income.
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.
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.
Central costs comprise mainly central
and parent company overheads relating
to the group management, the finance
function and regulatory requirements.
Annual Report & Accounts for the year ending 31 December 2012 37
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Reportable Operating Segments
Unallocated Items
Network Security
Business Systems
Central Costs
Total
2012
$’000
2011
$’000
2012
$’000
2011
$’000
2012
$’000
2011
$’000
2012
$’000
2011
$’000
4,437
4,845
215
272
6,726
5,871
11,378
10,988
3,207
2,545
3,435
9,187
1,978
2,030
3,038
7,046
(3,171)
(2,716)
(1,945)
(1,374)
8,207
8,272
7,242
5,672
–
–
–
–
–
–
–
–
–
–
–
–
7,644
2,760
10,161
6,823
2,302
8,909
20,565
18,034
(5,116)
(4,090)
15,449
13,944
(13,190)
(9,181)
(4,125)
(3,121)
(1,239)
(1,199)
(18,554)
(13,501)
Revenue to external customers
Product and licence
Professional services
Support
Total
Cost of sales
Gross profit
Operating expenses before
depreciation, amortisation,
acquisition and restructuring costs
Depreciation and amortisation
of intangible assets
Acquisition and restructuring costs
–
(485)
–
–
(2,399)
(1,171)
(368)
(344)
–
–
(6)
(2,767)
(1,521)
(490)
–
(975)
Operating expenses
Operating (loss)/profit
Finance income
Finance costs
(15,589)
(10,837)
(4,493)
(3,465)
(1,239)
(1,695)
(21,321)
(15,997)
(7,382)
(2,565)
2,749
2,207
(1,239)
(1,695)
(5,872)
(2,053)
–
–
(507)
(359)
3
–
116
–
–
98
–
119
(507)
98
(359)
(Loss)/profit before taxation
(7,889)
(2,924)
2,752
2,207
(1,123)
(1,597)
(6,260)
(2,314)
38 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued Reportable Operating Segments
Unallocated Items
Network Security
Business Systems
Central Costs
Total
2012
$’000
2011
$’000
2012
$’000
2011
$’000
2012
$’000
2011
$’000
2012
$’000
2011
$’000
17,983
17,983
3,734
2,662
1,095
4,652
998
928
828
5
789
7
1,866
1,327
146
87
25,474
24,561
2,845
2,210
622
373
2,354
3,676
689
714
3,665
4,763
–
3,083
1,107
4,190
–
1,487
812
2,299
–
–
–
–
–
–
128
3,065
3,193
–
–
–
–
–
–
141
5,154
18,811
18,772
3,739
4,528
1,241
4,659
2,325
1,015
28,319
26,771
622
5,565
4,861
373
5,304
6,680
5,295
11,048
12,357
Non-current assets
Goodwill
Acquired intangible assets
Capitalised development expenditure
Property, plant & equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables
(1,853)
(2,877)
(1,787)
(1,369)
(332)
(129)
(3,972)
(4,375)
Borrowings
Deferred income
(182)
(273)
–
–
(4,057)
(5,238)
(3,535)
(3,152)
–
–
–
–
(182)
(273)
(7,592)
(8,390)
(6,092)
(8,388)
(5,322)
(4,521)
(332)
(129)
(11,746)
(13,038)
Net current (liabilities)/assets
(2,427)
(3,625)
(1,132)
(2,222)
2,861
5,166
(698)
(681)
Non-current liabilities
Borrowings
Deferred income
Deferred taxation
(5,984)
(5,510)
(1,146)
(1,252)
(1,196)
(1,567)
(8,326)
(8,329)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,984)
(5,510)
(1,146)
(1,252)
(1,196)
(1,567)
(8,326)
(8,329)
Net assets/(liabilities)
14,721
12,607
1,713
(12)
2,861
5,166
19,295
17,761
Annual Report & Accounts for the year ending 31 December 2012 39
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
The Group’s revenues from external customers and its non-current assets are divided into the following geographical areas:
Geographical area
North America
EMEA
APAC
Other countries
Total
EMEA revenue analysis
UK
Europe
Total
2012
$’000
Revenue
5,736
13,078
1,597
154
20,565
2012
$’000
Non-current
assets
25,474
2,845
–
–
28,319
2011
$’000
Revenue
5,885
10,645
1,293
211
18,034
2012
$’000
11,338
1,740
13,078
2011
$’000
Non-current
assets
24,561
2,210
–
–
26,771
2011
$’000
8,913
1,732
10,645
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.
The Group’s revenue is analysed as follows for each revenue category:
Licence revenue
Professional services revenue
Support revenue
Total
2012
$’000
7,644
2,760
10,161
20,565
2011
$’000
6,823
2,302
8,909
18,034
40 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 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
Other
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 13)
Amortisation of capitalised development (note 14)
Impairment of capitalised development (note 14)
Research and development cost
Depreciation of property, plant and equipment (note 15)
Operating lease rentals payable
Trade receivables impairment
Auditor’s remuneration
Remuneration received by the Company’s auditors or an associate of the Company’s
auditor for the audit of these Financial Statements
The audit of the accounts of other group companies
Fees payable to the Company’s auditor for corporate finance services
Fees payable to the Company’s auditor for taxation compliance services
Fees payable to the Company’s auditor for taxation advisory services
2012
$’000
119
2012
$’000
443
51
6
7
507
2012
$’000
1,157
662
382
3,119
566
441
–
2012
$’000
33
73
5
24
25
160
2011
$’000
98
2011
$’000
343
12
4
–
359
2011
$’000
924
322
–
2,223
275
343
(6)
2011
$’000
16
74
214
24
47
375
Annual Report & Accounts for the year ending 31 December 2012 41
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
9. Tax on loss on ordinary activities
Deferred tax credit for the year
2012
$’000
371
2011
$’000
308
The tax assessed on the loss on ordinary activities for the year differs from the weighted average UK corporate rate of tax of
24.5% (2011: 26.5%). The differences are reconciled below:
Total tax reconciliation
Loss before taxation
Theoretical tax credit at UK Corporation tax rate 24.5% (2011: 26.5%)
Effect of:
– expenditure that is not tax deductible
– R&D tax credits
– accelerated capital allowances
– other timing differences
– relief for losses brought forward
– losses not utilised
– deferred tax credit
Actual taxation credit
Factors Affecting Future Tax Charges
(6,260)
(1,534)
(2,314)
(613)
198
(934)
(10)
1
(268)
2,547
371
371
401
–
(18)
2
(481)
709
308
308
As at 31 December 2012, the Group’s cumulative fixed asset timing differences were $24,000 (2011: $86,000) and no deferred
tax asset has been recognised in respect of these items.
In addition, the tax losses at that date amounted to $37.7 million (2011: $31.4 million). This comprised UK tax losses of $10.0
million and US tax losses of $27.7 million. $4.2 million of the tax losses relate to US capitalised R&D deductions which will be
available at an accelerated level for 4 years. $9.0 million of the tax losses relate to pre-acquisition US tax losses which can be
offset against taxable profits over 19 years (there is a limit on the utilisation of pre-acquisition tax losses of $0.7 million per
annum and any unused loss may be carried forward to subsequent periods). All other US tax losses will expire in 20 years from
the end of the accounting period in which the loss arose.
The deferred tax asset at a rate 23% of $1.9 million (2011: $1.9 million) relating to the UK tax losses (after offsetting the deferred
tax liability of $0.4 million (2011: $0.3 million) relating to capitalised research and development expenditure) and the deferred tax
asset at a rate of 35% of $9.7 million (2011: $7.7 million) relating to the US tax losses have not been recognised due to
uncertainties as to the extent and timing of their future recovery.
10. 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 $430,000 (2011: $6,831,000).
11. Loss per share
Loss 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.
At the reporting dates there were no potentially dilutive ordinary shares. Therefore the diluted loss per share is equal to the loss per share.
2012
weighted
average
number of
1p shares
Thousand
2012
loss
$’000
Basic and diluted loss per share
(5,495)
56,426
42 Corero Network Security plc
2012
loss per
share
Cents
(9.74)
2011
loss
$’000
(2,400)
2011
weighted
average
number of
1p shares
Thousand
45,074
2011
loss per
share
Cents
(5.32)
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 12. Goodwill
Group
Cost
At 1 January 2011
Additions (note 32)
Foreign currency translation
At 31 December 2011
Foreign currency translation
At 31 December 2012
Impairment
At 1 January 2011
At 31 December 2011
At 31 December 2012
Carrying amount
At 31 December 2012
At 31 December 2011
At 1 January 2011
$’000
790
17,983
(1)
18,772
39
18,811
–
–
–
18,811
18,772
790
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 the Corero Network Security (“CNS”) division
and Resource EMS (“REMS”), part of the Corero Business Systems division.
As at 31 December the carrying amount of goodwill allocated to each of these CGUs is:
CNS
REMS
Total
2012
$’000
17,983
828
18,811
Total
2011
$’000
17,983
789
18,772
The recoverable amount for the CNS CGU was determined based on a value-in-use calculation using cash flow projections over
a 10 year period (2011: 5 year period). The key assumptions for the value-in-use calculation are those regarding revenue growth
and discount rates as summarised in the table below and commented on below.
Forecast cash flow period
Extrapolated cash flow period
Cumulative annual growth rate (CAGR) for revenue used for the forecast/extrapolated period
Revenue growth rates used beyond the extrapolated period
Discount rate
Discount rate required for recoverable amount to equal carrying amount
Percentage reduction in forecast revenue for recoverable amount to equal carrying amount
2012
Years 1–2
Years 3–10
14.3%
1.5%
11.2% and 15.6%
–*
–*
2011
Years 1–2
Years 3–5
24.5%
0%
10.0%
12.0%
9.0%
Amount by which the CGU’s recoverable amount exceeds its carrying amount
$0.1 million
$7.6 million
* negligible changes to the key assumptions would result in the carrying value of the goodwill allocated to that CGU being less
than its recoverable amount.
Annual Report & Accounts for the year ending 31 December 2012 43
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
• The pre-tax cash flows for the forecast period are derived from the most recent financial budget for the year ending
31 December 2013 and the plan for the year ending 31 December 2014 approved by the Board. The extrapolation for
the period 2015 to 2022 is based on management estimates (with the key assumptions set out below).
• The future pre-tax cash flows are discounted by a weighted average cost of capital (“WACC”) of 11.2% for the period in
which CNS utilises tax losses carried forward to reduce tax payable to nil and a WACC of 15.6% thereafter once the cost
of tax becomes relevant.
• The key assumptions underlying the cash flow projections and which the recoverable amount is most sensitive to are (i)
the revenue growth rates forecast and extrapolated for the period 2013 to 2017 (ii) and the discount rate.
i.
The cash flow forecasts assume a CAGR revenue growth of 25.5% in the period 2013 to 2017 (43.3% for the period
2013 to 2014) and 4.0% for the period 2018 to 2022 (a CAGR of 14.3% for 10 year forecast period). The management
of the Group believe these growth rates are appropriate for the forecasts following CNS’ repositioning as a First Line of
Defense in 2012, management changes, investment in product development (and the next generation product which is
expected to be available by the end of 2013 which is expected to deliver a step change in revenue in 2014), channel
partner enablement and marketing.
These growth rates are supported by the fact that the IT security market is forecast to grow strongly for the foreseeable
future. Gartner for instance forecast that the IT security market will grow by a CAGR of 8.9% in the period 2011 to 2016
and Infonetics forecast that the DDoS protection market will grow from $270 million in 2012 to $485 million in 2016
(CAGR 16%).
The above market growth rates used in the future cash flow assumptions reflect that CNS is in the early stages of the
commercial exploitation of its intellectual property. In addition, the business’ strategy is to continue to develop its
product and solution offerings to remain a market leader in its chosen markets thereby providing the opportunity to
generate above market average growth rates.
The growth rate assumed in the period beyond the 10 year extrapolation period of 1.5% is considered reasonable
as historically IT spend has exceeded GDP growth.
ii.
The discount rate is based on a cost of equity using the Capital Asset Pricing Model with the key inputs being a
risk-free interest rate estimate of 2.95% (based on 30 year US government bonds), comparable company betas, an
equity risk premium of 5% and small company risk premium of 4.5%. The WACC has been assessed based on a long
term cost of debt of 6.5% and a gearing level based on the Company gearing at 31 December 2012. The WACC used in
the valuation reflects current market assessments of the time value of money and the risks specific to CNS.
As stated above, the valuation to support the value in use of the CNS CGU is highly sensitive to negligible changes in cash flow
forecasts and discount rate assumptions, and there is no guarantee that the expected growth will be achieved. If the expected
growth is not achieved, this could result in a requirement to impair the goodwill associated with the CNS CGU in the future. If the
revenue growth in 2013 and 2014 is reduced by 10% (which in the assessment of management is reasonably possible) in 2013
and 2014, and the same reduction is made to overheads, this would result in an impairment of goodwill associated with the CNS
CGU of $2.8 million. If the discount rate is increased by 10% (which in the assessment of management is reasonably possible),
this would result in an impairment of goodwill associated with the CNS CGU of $4.5 million.
Apart from the considerations in determining the value in use of the CNS CGU described above, the management of the Group
is not currently aware of any other reasonably possible changes that would necessitate changes in its key estimates.
44 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued
The recoverable amount for the REMS CGU unit was determined based on a value-in-use calculation using cash flow
projections over a five year period which is considered an appropriate period given the REMS business is a mature business
with a demonstrable track record. The key assumptions for the value-in-use calculation are summarised in the table below:
Forecast cash flow period
Extrapolated cash flow period
CAGR for revenue used in the forecast/extrapolated period
Revenue growth rates used beyond the extrapolated period
Discount rate
Discount rate required for recoverable amount to equal carrying amount
Percentage reduction in forecast revenue for recoverable amount to equal carrying amount
2012
Years 1–2
Years 3–5
14.9%
0%
8.8% and 11.1%
*
*
2011
Years 1–2
Years 3–5
6.9%
0%
10.0%
*
*
Amount by which the CGUs recoverable amount exceeds its carrying amount
$4.0 million
$2.8 million
* for the REMS 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.
13. Acquired intangible assets
Group
Cost
At 1 January 2011
Disposals
Acquisition
Additions
Foreign currency translation
At 31 December 2011
Additions
Disposals
Foreign currency translation
At 31 December 2012
Amortisation
At 1 January 2011
Disposals
Charge for year
At 31 December 2011
Disposals
Charge for year
Foreign currency translation
At 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
At 1 January 2011
Company
Computer
software
$’000
Customer
relationships
$’000
294
(129)
5,925
61
(3)
6,148
237
(425)
8
5,968
(286)
129
(1,506)
(1,663)
425
(1,129)
(8)
(2,375)
3,593
4,485
8
–
–
197
–
–
197
–
–
–
197
–
–
(23)
(23)
–
(28)
–
(51)
146
174
–
Total
$’000
294
(129)
6,122
61
(3)
6,345
237
(425)
8
6,165
(286)
129
(1,529)
(1,686)
425
(1,157)
(8)
(2,426)
3,739
4,659
8
The Company has no intangible fixed assets (2011: $nil).
Annual Report & Accounts for the year ending 31 December 2012 45
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
14. Capitalised development expenditure
Group
Cost
At 1 January 2011
Additions
Foreign currency translation
At 31 December 2011
Additions
Foreign currency translation
At 31 December 2012
Amortisation
At 1 January 2011
Charge for year
Foreign currency translation
At 31 December 2011
Charge for year
Impairment
Foreign currency translation
At 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
At 1 January 2011
$’000
1,657
1,754
(34)
3,377
3,174
132
6,683
(740)
(322)
10
(1,052)
(662)
(382)
(59)
(2,155)
4,528
2,325
917
The impairment recorded during the year of $382,000 (2011: $ nil) related to expenditure on certain products in the CNS division.
Having identified that these products would not generate cash inflows in the future sufficient to support their full carrying value,
management determined that an impairment should be recorded.
Company
The Company has no capitalised development expenditure (2011: $nil).
46 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 15. Property, plant and equipment
Group
Cost
At 1 January 2011
Acquisition
Additions
Foreign currency translation
At 31 December 2011
Additions
Disposals
Reclassification
Foreign currency translation
At 31 December 2012
Depreciation
At 1 January 2011
Acquisition
Charge for year
Foreign currency translation
At 31 December 2011
Disposals
Charge for the year
Reclassification
Foreign currency translation
At 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
At 1 January 2011
Company
Computer
Equipment
$’000
Fixtures
and Fittings
$’000
Office
Equipment
$’000
Leasehold
Improvements
$’000
245
1,305
954
53
2,557
706
(924)
–
19
59
468
5
–
532
22
–
(2)
3
65
176
5
–
246
–
(8)
–
3
96
202
12
–
310
74
–
2
6
Total
$’000
465
2,151
976
53
3,645
802
(932)
–
31
2,358
555
241
392
3,546
(205)
(1,154)
(243)
(54)
(1,656)
908
(505)
2
(15)
(1,266)
1,092
901
40
(43)
(419)
(19)
–
(481)
–
(17)
(4)
(2)
(504)
51
51
16
(65)
(150)
(7)
–
(222)
8
(12)
4
(3)
(96)
(169)
(6)
–
(409)
(1,892)
(275)
(54)
(271)
(2,630)
–
(32)
(2)
(5)
916
(566)
–
(25)
(225)
(310)
(2,305)
16
24
–
82
39
–
1,241
1,015
56
The Company has no property, plant and equipment (2011: $nil).
Annual Report & Accounts for the year ending 31 December 2012 47
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
16. Investments in subsidiaries
Company
Net book value
At 1 January
(Reduction)/additional investment in Corero Business Systems Limited
Investment in Corero Network Security, Inc.
Foreign currency translation
At 31 December
2012
$’000
18,220
(10)
7,558
952
26,720
2011
$’000
638
5,077
12,785
(280)
18,220
An amount of $6.9 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% per annum 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.
92% 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 $6,600, 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.
On 16 October 2012, the Company sold, at a market value of $9,900, 295 Corero Business Systems Limited ordinary shares
(comprising 1.0% of Corero Business Systems Limited issued ordinary shares) under the terms of the Plan to a member of the
management team.
No directors of the Company can participate in the Plan.
48 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 17. Inventories
Group
Gross inventory
Less: provision for impairment
Net inventory
Net inventory comprises only finished goods.
Company
The Company holds no inventory (2011: $nil).
18. Trade and other receivables
Trade receivables
Less: provision for impairment
Net trade receivables
Amounts owed by subsidiaries
Other debtors
Prepayments and accrued income
2012
$’000
1,340
(718)
622
2011
$’000
1,130
(757)
373
2010
$’000
–
–
–
Group
Company
2011
$’000
4,420
(49)
4,371
–
256
677
2010
$’000
2012
$’000
2011
$’000
2010
$’000
838
(16)
822
–
104
348
–
–
–
–
–
–
–
–
–
8,304
6,072
4,415
103
–
87
3
99
–
5,304
1,274
8,407
6,162
4,514
2012
$’000
3,303
(16)
3,287
–
1,592
686
5,565
The banking facilities of the Group, summarised in note 20, are secured by assets of the group companies.
• 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.
• Corero Business Systems Limited overdraft facility which is secured over the assets of Corero Business Systems
Limited (including trade receivables) has a covenant which requires 150% trade receivables cover.
None of the Company’s trade and other receivables are secured by collateral or credit enhancements.
Amounts due from Group undertakings are recoverable after more than one year from the reporting date.
The age of trade receivables not impaired but past due are as follows:
Group
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
2012
$’000
1,285
272
134
128
2011
$’000
1,225
99
124
19
1,819
1,467
2010
$’000
385
92
8
–
485
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
Annual Report & Accounts for the year ending 31 December 2012 49
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
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
2012
$’000
4,442
1,123
5,565
Group
2011
$’000
5,059
245
5,304
2010
$’000
1,271
3
1,274
The functional currency of trade and other receivables is set out in the table below:
US dollars
UK pound
2012
$’000
2,322
3,243
5,565
Group
2011
$’000
3,647
1,657
5,304
2010
$’000
–
1,274
1,274
Company
2011
$’000
3
6,159
6,162
Company
2011
$’000
–
6,162
6,162
2012
$’000
–
8,407
8,407
2012
$’000
–
8,407
8,407
2010
$’000
99
4,415
4,514
2010
$’000
–
4,514
4,514
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.
19. Trade and other payables
Trade payables
Other taxation and social security
Other payables
Accruals
Group
2012
$’000
1,018
533
290
2,131
3,972
Group
2011
$’000
1,363
661
345
2,006
4,375
Group
Company
2010
$’000
255
315
5
573
1,148
2010
$’000
–
–
–
3
3
None of the Group or Company’s trade and other payables are secured by collateral or credit enhancements.
The Company had no trade or other payables in 2012 or 2011.
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:
Group
US dollars
UK pound
2012
$’000
1,443
2,529
3,972
2011
$’000
2,473
1,902
4,375
2010
$’000
–
1,148
1,148
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.
50 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 20. Borrowings
Group
Current
Accounts receivable financing facility
Fixed term loan
Non-current
Fixed term loan
8% Loan Notes
Company
The Company has no borrowings (2011: $nil).
2012
$’000
2011
$’000
2010
$’000
–
182
182
197
5,787
5,984
190
83
273
167
5,343
5,510
–
–
–
–
–
–
The accounts receivable financing facility bears interest at c.8% of the financed value. The facility limit is US$1.5 million. 80%
of the eligible accounts receivable balance can be financed. The facility requires a minimum quick asset ratio covenant of 1.15:1.
The term loan comprises two term loans of $250,000 each which bear interest at 8.5% and are repayable over 33 months. The
first term loan matures in October 2014. The second term loan matures in April 2015.
Interest on the 8% Loan Notes principal ($5.0 million) is at the election of Corero Network Security, Inc. payable bi-annually or
added to the principal amount. Corero Network Security, Inc. has elected to add the interest to the principal. Rolled up interest
at 31 December 2012 amounted to $0.8m. The Loan Notes are repayable on 2 March 2014.
Undrawn facilities at 31 December 2012 amounted to $813,000 comprising the Corero Business Systems Limited overdraft
facility. The facility, if drawn, requires 150% trade receivables cover and is secured over the assets of Corero Business Systems
Limited. In addition, the Company has provided a guarantee.
At 31 December 2012, 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
2012
$’000
3,868
182
4,050
2011
$’000
4,195
273
4,468
2010
$’000
1,148
–
1,148
2012
$’000
104
5,984
6,088
2011
$’000
180
5,510
5,690
2010
$’000
–
–
–
In one year or less, or on demand
2012
$’000
–
–
2011
$’000
–
–
2010
$’000
3
3
Annual Report & Accounts for the year ending 31 December 2012 51
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
21. 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
Book Value
2011
$’000
4,627
6,680
11,307
2010
$’000
926
11,155
12,081
Book Value
2011
$’000
2010
$’000
4,375
190
250
5,343
10,158
1,148
–
–
–
1,148
2012
$’000
4,879
4,861
9,740
2012
$’000
3,972
–
379
5,787
10,138
There are no differences between the fair values and book values held by the Group and Company.
52 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 22. Deferred income
Group
Current
More than one year but less than five years
2012
$’000
7,592
1,146
8,738
2011
$’000
8,390
1,252
9,642
2010
$’000
2,306
–
2,306
The company’s 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 (2011: $nil).
23. Deferred tax liability
Group
1 January 2011
Addition
Credit to income statement
31 December 2011
Credit to income statement
31 December 2012
$’000
–
1,875
(308)
1,567
(371)
1,196
The deferred tax liability relates to the software and customer relationships acquired as part of the Top Layer Networks, Inc.
acquisition (note 32). The deferred tax liability has been calculated using a US Federal tax rate of 34%. The liability is released
to the Statement of Comprehensive Income as the intangible software and customer relationship assets are amortised.
24. Pensions
The Group’s pension arrangements are operated through defined contribution schemes.
Defined contribution schemes
Defined contribution pension costs
2012
$’000
151
2011
$’000
122
Annual Report & Accounts for the year ending 31 December 2012 53
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
25. Share capital
Authorised share capital
The authorised share capital comprises 745,821,970 (2011: 745,821,970) ordinary shares of 1p (1.63c) each and 1,518,990 (2011:
1,518,990) deferred shares of £2.99 ($4.64) each.
Issued ordinary share capital
1 January 2011
31,963,434 ordinary shares of 1p each (1.55c)
Issued
9,038,855 ordinary shares of 1p each (1.63c)
6,571,429 ordinary shares of 1p each (1.63c)
140,000 ordinary shares of 1p each (1.62c)
31 December 2011
47,713,718 ordinary shares of 1p each
Issued
10,615,694 ordinary shares of 1p each (1.58c)
308,000 ordinary shares of 1p each (1.60c)
31 December 2012
58,637,412 ordinary shares of 1p each
$’000
496
147
107
2
752
168
5
925
On 6 March 2012, 10,615,694 ordinary shares with a nominal value of 1p were issued at 43p (68c) per share by way of a placing.
On 8 November 2012, 308,000 ordinary shares with a nominal value of 1p were issued at 25p (40c) per share by way of
exercise of options.
Deferred share capital
The deferred share capital consists of 1,518,990 deferred shares of £2.99 ($4.64) each.
31 December 2010
31 December 2011
31 December 2012
$’000
7,051
7,051
7,051
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
($16,259,000) 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 (1.63c).
54 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 26. Share premium
1 January 2011
9,038,855 ordinary shares at 38p (62c) each less issue costs
6,571,429 ordinary shares at 34p (55c) each less issue costs
140,000 ordinary shares at 39p (63c) each
31 December 2011
10,615,694 ordinary shares at 42p (66c) less issue costs
308,000 ordinary shares at 24p (38c)
31 December 2012
$’000
22,262
5,421
3,457
88
31,228
6,700
118
38,046
Consideration received in excess of the nominal value of the 10,615,694 shares issued on 6 March 2012 as a result of the placing
has been included in share premium, less registration, placing commission and professional fees of $340,000. The amount of
such directly attributable costs deducted from share premium in 2011 was $435,000.
27. Employees and directors
Employee expenses during the period
Group
Wages and salaries
Social security costs
Other pension costs (note 24)
Cost of employee share scheme (note 30)
Average monthly numbers of employees (including directors) employed
Group
Sales and Marketing
Consulting and Professional Services
Technical and Support
Administration
Company
The Company has no employees (2011: nil).
Total
2012
$’000
15,554
1,704
151
9
Total
2011
$’000
11,702
1,045
122
32
17,418
12,901
Total
2012
Number
Total
2011
Number
47
26
52
19
144
38
11
46
11
106
Annual Report & Accounts for the year ending 31 December 2012 55
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Directors
Executive director
Andrew Miller
Non-executive directors
Richard Last
Jens Montanana
Andrew Lloyd (appointed 19 November 2012)
Edward Forwood (resigned 19 March 2012)
Stephen Graham (appointed 19 March,
resigned 30 June 2012)
Salary
& fees
$’000
Bonus
$’000
Benefits
$’000
Pension
$’000
Share based
payments
$’000
Total
2012
$’000
Total
2011
$’000
228
95
28
38
4
–
–
–
–
–
–
–
298
95
6
–
–
–
–
–
6
21
–
–
–
–
–
21
–
2
3
–
–
–
5
350
350
30
41
4
–
–
24
24
–
–
–
425
398
Bonus payments of $95,000 were awarded to the executive director during the period to 31 December 2012 (2011: $109,000).
Andrew Miller has a service contract with a 5 month notice period. A subsidiary company provides for pension contributions of
10% of basic salary payable to a personal pension plan.
No directors were accruing benefits from the Group’s defined contribution pension arrangements (2011: nil).
Post the year end, Jens Montanana notified the Company that he wished to waive his non-executive director fees for the year
ended 31 December 2012. Jens Montanana waived his non-executive director fees for the year ended 31 December 2011.
28. Operating lease commitments
The Group has total future minimum lease payments under non-cancellable operating leases totalling $1,083,000 (2011:
$1,458,000) analysed by year of expiry as follows:
Group
Land and building agreements expiring:
Within one year
Within two to five years
Company
The Company has no operating lease commitments (2011: $nil).
2012
$’000
26
1,057
1,083
2011
$’000
37
1,421
1,458
56 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued 29. Contingent liabilities
The Group and Company do not have any contingent liabilities (2011: $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 the 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 2012, EEIP awards comprising
1.7% of the Total Gain had been awarded (including an award of 0.5% to Andrew Miller, a Company 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.
30. 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 Share 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 2010-2012 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.
Annual Report & Accounts for the year ending 31 December 2012 57
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Share options granted at 31 December 2012 were as follows:
Option Holders
Date granted
Expiry date
Enterprise Management Incentive Scheme
Exercise
price
At 1
January
2012 Granted Exercised
Lapsed/
cancelled
At 31
December
2012
Other Holders
January 2002
January 2012
825p (1,341c)
January 2003
January 2013
735p (1,195c)
October 2003 October 2013 1,095p (1,780c)
February 2005
February 2015
495p (805c)
April 2006
April 2016
555p (902c)
September
2008
September
2018
300p (488c)
March 2011
March 2021
36p (59c)
500
633
333
2,200
5,361
27,334
40,750
March 2011
March 2021
40p (65c)
165,000
–
–
–
–
–
–
–
–
March 2012
March 2022
54.5p (89c)
September
2012
September
2022
43p (70c)
–
–
37,500
110,000
2010 Executive Enterprise Management Incentive Scheme
Andrew Miller
August 2010
August 2020
25p (41c)
476,000
September
2012
March 2022
54.5p (89c)
2010 Unapproved Share Option Scheme
Andrew Miller
March 2012
March 2022
54.5p (89c)
–
–
Jens Montanana
August 2010
August 2020
25p (41c)
165,000
March 2012
March 2022
54.5p (89c)
Richard Last
March 2012
March 2022
54.5p (89c)
–
–
Other holders
August 2010
August 2020
25p (41c)
308,000
August 2010
August 2020
31p (50c)
308,000
March 2011
March 2021
36p (59c)
427,333
March 2011
March 2021
40p (65c)
440,000
May 2011
May 2021
35p (57c)
190,000
September
2011
September
2021
37.5p (61c)
486,500
80,000
80,000
–
30,000
20,000
–
–
March 2012
March 2022
54.5p (89c)
September
2012
September
2022
43p (70c)
–
–
1,122,250
146,000
Unapproved Share Option Scheme
Other holders
April 2008
April 2017
555p (902c)
8,772
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(308,000)
–
–
–
–
–
–
(500)
–
–
–
–
–
633
333
2,200
5,361
(2,000)
25,334
(33,750)
7,000
–
165,000
(7,500)
30,000
–
–
–
110,000
476,000
80,000
(80,000)
–
–
–
–
–
–
165,000
30,000
20,000
–
308,000
(180,750)
246,583
(135,000)
305,000
(80,000)
110,000
(47,500)
439,000
(88,000) 1,034,250
–
–
146,000
8,772
The closing mid market price for the Company’s shares at 31 December 2012 was 32.5p (53c) and the high and low for the year
was 60.5p (94c) and 29.5p (47c). There are no performance conditions to be met before share options are exercisable.
3,051,716 1,625,750
(308,000)
(655,000)
3,714,466
58 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued Changes in directors options held between 1 January 2012 and the 31 December 2012 are detailed in the following table:
At 1
January
2012
Granted
during year
Cancelled
during year
At 31
December
2012
Exercise
price
Date from
which partially
exercisable
Expiry date
Andrew Miller
476,000
Richard Last
–
–
–
Jens Montanana
165,000
–
80,000
80,000
20,000
–
–
30,000
–
476,000
25p (41c) August 2010
August 2020
(80,000)
–
54.5p (89c)
n/a
n/a
–
–
–
–
80,000
54.5p (89c) March 2013
March 2022
20,000
54.5p (89c) March 2013
March 2022
165,000
25p (41c) August 2010
August 2020
30,000
54.5p (89c) March 2013
March 2022
In addition, Andrew Miller has a contractual right (granted in March 2011) to purchase 140,000 ordinary shares in the Company from
the Employee Share Ownership Trust at 40p per share pursuit to a grant made to him under the Deferred Payment Share Plan.
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 2012
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
43p–54.5p (70c–89c)
43p–54.5p (70c–89c)
0.2%–0.3%
9.68–9.73
0.63%–1.25%
Annual Report & Accounts for the year ending 31 December 2012 59
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
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
8.3 years
25p–1,095p (41c–1,780c)
43.5p (71c)
44p (72c)
0.2%–10.7%
0.63%–5.3%
Nil
The total charge in the year relating to employee share based payments was $9,000 (2011: $32,000).
31. Related parties and transactions
Related party transactions subsist between Group companies and relate to costs paid on behalf of the parent Company.
The 2012 costs paid by other Group companies on behalf of the parent Company were $342,000 (2011: $308,000).
The directors consider the Group’s key management personnel to be the Board of directors of the Company and the Chief
Executive Officers of Corero Network Security, Inc. and Corero Business Systems Limited whose compensation is detailed below:
Key management personnel
Salary
& fees
$’000
744
Bonus
$’000
223
Benefits
$’000
Pension
$’000
Share based
payments
$’000
18
21
19
2012
$’000
1,025
2011
$’000
1,069
Company key management compensation was $nil (2011: $nil) as the key management are employed by subsidiaries.
32. Acquisition
On 2 March 2011, in the prior period, 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 were treated as a component of equity.
60 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012Notes to the Financial Statements continued The assets and liabilities of Top Layer at the date of acquisition were:
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
Book value
$’000
259
137
222
1,336
211
(2,104)
(590)
(6,310)
(302)
(7,141)
(1,875)
Fair value
$’000
259
137
222
1,336
211
(2,104)
(590)
(6,310)
(302)
(7,141)
(1,875)
17,983
197
5,320
14,484
5,500
5,000
3,860
124
14,484
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 $12,417,000 and $3,426,000 respectively.
33. Post balance sheet event
On 20 March 2013, the Company raised $6.2 million (£4.1 million) (before issue costs), of which the directors contributed
$4.2 million (£2.8 million), by way of a placing and subscription of 27,000,004 new ordinary shares at a price of 15p per share. The
funds were raised for the ongoing funding of the Corero Network Security division and development of its next generation product.
Annual Report & Accounts for the year ending 31 December 2012 61
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Notice of AGM
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 13 June 2013 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 2012, together with the directors’
report and the auditor’s report on those annual accounts.
2. Re-election of director
To re-elect Mr Jens Montanana, 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 Andrew Miller, who retires by rotation in accordance with the Company’s articles of association, as a director
of the Company.
4. Re-election of director
To re-elect Mr Andrew Lloyd, who retires in accordance with the Company’s articles of association, as a director of the Company.
5. 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.
6. 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 7 will be proposed as an ordinary resolution
and resolutions 8 and 9 will be proposed as special resolutions:
7. 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 £285,458.05 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.
8. 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:
62 Corero Network Security plc
Annual Report & Accounts for the year ending 31 December 2012 (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
(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 £85,637.42,
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.
9. 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
£85,637.42 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
25 March 2013
Registered Office:
169 High Street
Rickmansworth
Hertfordshire
United Kingdom
WD3 1AY
Annual Report & Accounts for the year ending 31 December 2012 63
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
Notice of AGM continued
Notes:
1. 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 11 June 2013 (or if the AGM is adjourned, on the day
which is two business days before the time fixed for the
adjourned AGM) 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 AGM.
2. 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 13 June 2013
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: RA1 0), no later than 10. 00 a.m. on 11 June
2013. 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.
64 Corero Network Security plc
3. 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.
4. 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
11 June 2013.
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.
7. 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.
8. The following documents are available for inspection at
the registered office of the Company during 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 am 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.
Annual Report & Accounts for the year ending 31 December 2012 Advisors
Directors
Jens Montanana (Non-executive Chairman)
Andrew Miller (Executive Director)
Richard Last (Non-executive Director)
Andrew Lloyd (Non-executive Director)
Secretary and Registered Office
Duncan Swallow
169 High Street
Rickmansworth
Hertfordshire
WD3 1AY
Nominated Adviser and Broker
FinnCap
60 New Broad Street
London
EC2M 1JJ
Auditor
BDO LLP
Lockton House
Clarendon Road
Cambridge
CB2 8FH
Solicitors
Dorsey and Whitney LLP
21 Wilson Street
London
EC2M 2TD
Bankers
Santander
2 The Forbury
Reading
RG1 3EU
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California
95054
USA
Registrars
Capita Registrars Limited
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 OLA
Website address
www.coreroplc.com
Annual Report & Accounts for the year ending 31 December 2012 65
Corero Network Security plcHighlightsBusiness ProfileChairman’s StatementFinancial ReviewGovernanceFinancial StatementsNotice of AGMCorporate Directory
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Annual Report & Accounts 2012
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
USA
www.corero.com