Annual Report and Accounts 2020
Corero Network Security plc
A Leader in real-time,
high performance,
automatic DDoS
cyber defense solutions
Corero is dedicated to improving the
security and availability of the internet
through the deployment of innovative
Distributed Denial of Service (DDoS)
protection solutions.
DDoS
Protection
Without the
Downtime
Corero is a leader in real-time, high-performance, automatic DDoS
protection: on-premises, as-a-service and in the cloud,
with comprehensive visibility, analytics and reporting.
We protect thousands of organisations worldwide, across many
verticals. Our customers include corporate enterprises, network security
providers, hosting and data centre providers, co-location providers,
network edge providers, and managed security service providers.
We are deployed internationally in over 40 countries and, through our own
teams and strategic partners, we are expanding our global footprint.
Operational Highlights
• Global acceleration of remote working and internet
usage as a result of COVID-19 has reinforced the need
for online security and further emphasised the on-going
importance of Corero’s high quality solutions
• Order intake increased by 61% to $20.9 million
(2019: $13.0 million)
• Addition of 42 new customers in 2020
(2019: 18 new customers)
— 17 of which were acquired through Corero’s strategic
partnership with Juniper Networks (2019: 6 new Juniper
customers)
• Strong growth in DDPaaS and software subscriptions
continues to support recurring revenues and
earnings visibility
• Sustained high levels of customer satisfaction continue
to result in follow-on orders, which were $10.3 million
in 2020 (2019: $6.1 million)
• Lionel Chmilewsky, CEO and Neil Pritchard, Group
Finance Director joined the Company during 2020, with
Ashley Stephenson appointed Chief Technology Officer
• Significant progress in delivering the Group’s
growth strategy:
— Continued investment in sales and marketing underpins
on-going direct and channel sales efforts globally
— Addition of more agent, distributor and reseller
relationships and in more geographies
— Leveraging strategic partnerships with Juniper and
GTT and adding new complementary partners
— Amplifying the Group’s services offering
— Intensifying relationships with global and
major accounts
— Continuing to focus on technological innovation
2020 Highlights
$20.9m
$16.9m
$9.8m
$13.0m
$11.1m
$8.8m
$8.5m
$10.0m
$9.7m
$9.3m
$7.0m
$7.2m
$5.8m
$5.0m
$4.5m
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
Order intake
Revenue
ARR1
61%
increase over the prior year
$16.9m
(2019: $9.7 million)
36%
increase over the prior year
16
17
18
19
20
16
17
18
19
20
$7.6m
$5.4m
$4.4m
$2.9m
$1.4m
$-1.7m
$-1.4m
$-3.2m
$-0.6m
$-1.7m
$-2.5m
16
17
18
19
20
$-5.1m
$-5.8m
$-5.0m
$-6.4m
Net cash
EBITDA2 loss
Adjusted EBITDA3
$7.6m
(2019: $5.4 million)
$1.4m
(2019: loss $3.2 million)
$0.6m
(2019: loss $2.5 million)
Financial Highlights
• Significant revenue growth underpinned by record order intake and strong H2 2020 performance
— Revenues increased 74% to $16.9 million (2019: $9.7 million)
— Record H2 2020 revenues, up 93% at $10.6 million (H2 2019: $5.5 million)
— Annualised Recurring Revenues1 (‘ARR’) up 36% to $9.8 million as at 1 January 2021 (1 January 2020: $7.2 million)
— Revenue from DDoS Protection as-a-Service (‘DDPaaS’) contracts increased to $2.9 million (2019: $1.3 million)
• Gross margins of 77% (2019: 81%)
• EBITDA2 loss of $1.4 million (2019: loss of $3.2 million)
• Adjusted EBITDA3 loss of $0.6 million (2019: loss of $2.5 million)
• Loss before taxation of $4.0 million (2019: loss of $6.6 million)
• Loss per share of 0.8 cents (2019: loss per share of 1.6 cents)
• Net cash at 31 December 2020 of $7.6 million (30 June 2020: $3.3 million, 31 December 2019: $5.4 million)
1
2
3
ARR is defined as the normalised annualised recurring revenues and includes recurring revenues from contract values of annual
support, software subscription and from DDoS Protection-as-a-Service (DDPaaS) contracts
Defined as Earnings before Interest, Taxation, Depreciation and Amortisation. The Directors consider EBITDA to be a better measure
of profitability as it excludes non-cash items
Defined as Earnings before Interest, Taxation, Depreciation (including DDPaaS assets‘ depreciation which is charged to cost of sales)
and Amortisation, before share-based payments, and less unrealised foreign exchange differences on an intercompany loan
Contents
Overview
01 2020 Highlights
02 At a glance
04 Market overview
05 2020 Key Trends
06 Corero Explained
08 How does the technology work?
09 Customer proposition
09 Investor proposition
10 Business model
11 Our Strategy
Strategic Report
12 Chief Executive’s strategic update
17 Financial Review
18 Key Performance Indicators
20 Key Stakeholders
Section 172 Statement
21 Principal Risks
22 Risk Management
23 Environmental, Social and
Governance report
Governance
24 Board of Directors
26 Chairman’s Corporate
Governance Introduction
27 QCA Code Compliance
28 Corporate Governance Report
31 Board Performance and
Remuneration Policy
32 Board Committee Reports
33 Directors’ Report
36 Statement of Directors’
Responsibilities
Financial Statements
and associated notes
37 Independent Auditor’s Report
42 Consolidated Income Statement
43 Consolidated Statement
of Comprehensive Income
44 Consolidated Statement
of Financial Position
45 Company Statement
of Financial Position
46 Consolidated Statement
of Cash Flows
47 Consolidated Statement
of Changes in Equity
48 Company Statement
of Changes in Equity
49 Notes to the
Financial Statements
Corporate Directory
80 Corporate Directory
81 Glossary
For more information visit
corero.com
01
Corporate DirectoryOVERVIEWStrategic ReportGovernanceFinancial Statements
At a glance
Corero is dedicated to improving the
security and availability of the internet
through the deployment of innovative DDoS
protection solutions.
Who we are
• Corero is a leader in real-time, high-performance, automatic Distributed Denial of Service
cyber defense solutions, with comprehensive visibility, analytics and reporting
• Corero is active in the following customer segments: Enterprise, Telecommunications and
Service providers, Hosting providers, Co-location, Edge providers, Managed Service Providers
& Managed Security Service Providers
• Corero protects thousands of organisations across 40+ countries worldwide
• Corero invests approximately 18% of its revenue in R&D, with development in-house and owns
strategic patents
• Corero has strategic partnerships with companies including Juniper Networks,
GTT Communications, Neustar and Splunk
• Corero Network Security plc is publicly traded on the London Stock Exchange under CNS.L.
and is headquartered in London with offices near Boston (US) and in Edinburgh (UK)
Corero in numbers
Thousands
of organisations protected
by Corero solutions
40+ countries
Corero is deployed in more than
40 countries
$16.9 million
2020 annual revenue
c18%
of revenues
reinvested in R&D
Why customers choose us
Speed
Attacks mitigated in seconds
versus minutes or tens of minutes
for competing technologies
Simplicity
Automatic software, plug
and play appliances for
lowest TCO
Flexibility
Multiple deployment options:
on-premises, hybrid and
cloud protection
02
Corero Network Security plc – Annual Report and Accounts 2020 Raw Internet
SmartWall®
Good Traffic
Allowed
Attack Traffic
Blocked
Protected Network
Revenue-protecting real-
time DDoS mitigation product
optimised for service providers
and cloud providers
Available for rapid deployment
within the provider’s own
infrastructure delivering
compelling ROI
Revenue and reputation-
protecting real-time DDoS
mitigation product for
digital enterprises
Solves for the scalability &
accuracy demands of both
service cloud providers and
digital enterprise businesses
Corero’s product mitigates
attacks in seconds, unlike
competing technologies
which mitigate attacks in tens
of minutes
Global reach and world-class customers
Corero has global reach, and an outstanding portfolio of
world-class customers. The Company has an outstanding
reputation for technological innovation, supported by a
clear strategy, strengthened global sales team, multiple
routes to market and an experienced management team.
42
new customers added in 2020 (2019: 18)
17
new customers acquired through Corero’s
strategic partnership with Juniper Networks
(2019: 6 customers)
Corero is now deployed in over
40
countries
Geographic revenue
Employees
Protection for All Environments
Americas – 65%
EMEA – 26%
APAC – 9%
Engineering – 34%
Sales & Marketing – 33%
Support & Services – 23%
Management & other
support functions – 10%
INTERNET
Appliances
SmartWall TDS physical or virtual
software solutions protect inbound
traffic with always-on blocking of
DDoS attack packets
Infrastructure
SmartWall TDD virtual software solution
protects inbound traffic
by enabling edge devices to block
DDoS attack packets
Cloud
SmartWall TDC protects other
inbound traffic from saturation
attacks by blocking larger DDoS
attacks in the cloud
Scalability
Modular and distributed,
pay as you grow protection
Visibility
Accurate, forensic-level
attack and traffic visibility
with SecureWatch Analytics
Support
World-Class 24x7x365 SOC
support with SecureWatch
Managed Services
03
Corporate DirectoryOVERVIEWStrategic ReportGovernanceFinancial Statements Market overview
Critical cybersecurity DDoS attacks
continue to grow in sophistication,
scale and frequency.
Cyber threats and DDoS attacks
A wide range of critical cybersecurity issues face every internet
connected organisation. These threats include DDoS, hacking,
breach, phishing, fraud, ransom, data theft and exfiltration.
These cyber threats present themselves via the essential internet
connections that are required to support the online business.
DDoS Protection Market in 2020
$2.7bn in 2020
Global DDoS Protection Market expected
to reach $4.7bn by 2024 at 14% CAGR*
Today, internet service providers typically sell raw internet transit
connectivity. This raw internet connectivity, usually sold via 1Gbps,
10Gbps and increasingly 100Gbps transport connections, carries
good customer traffic and malicious bad traffic without discrimination.
If an enterprise, data centre, or hosting facility connects to these raw
transit providers they will be exposed to internet-borne cyber threats
and their information security posture must be prepared to detect
and protect against any associated malicious intent.
Corero focuses on one specific category of these cybersecurity
threats encompassing DDoS and has developed a real-time
detection and mitigation solution that delivers automatic detection
and protection against DDoS attacks.
The broad range of motives for executing DDoS attacks, coupled
with the relative ease with which attacks can be launched, means
that they are easily carried out by a variety of actors, including;
criminal gangs, activists, terrorist groups and even nation states.
Aside from those who are focused purely on disrupting services,
some of those who carry out DDoS attacks do so for extortion via
ransom DDoS or as a smokescreen for other cyberattacks designed
to steal data, or plant malware.
DDoS attacks continue to grow in sophistication, scale and frequency.
Businesses and public-sector organisations are equally vulnerable
to DDoS attacks and recent years have seen some of the world’s
best-known companies fall victim to DDoS attacks with catastrophic
impact for their customers.
DDoS protection market driven by growing
need for enterprise business continuity.
Increasingly always-on protection is the
only answer to defend against the smaller
attacks which dominate.
4,694
2,441
2,097
1,789
2017
2018
2019-e
2024-p
Global DDoS Protection Market
Market Size (USD Millions)
>26,000
Daily DDoS attacks were recorded
during 2020, up 15% YoY**
What are the key DDoS market drivers?
• Rise in multi-vector DDoS attacks, availability of DDoS-for-hire
services and growing demand for hybrid DDoS protection
and mitigations services and solutions.1
• Internet of Things (‘IoT’) devices, which are the source of high-
intensity DDoS attacks, forecast to grow 18 billion devices
by 2022.1
• The increased bandwidth of 5G networks opens avenues
for DDoS attackers to induce large DDoS attacks capable
of impacting millions of mobile and IoT devices.1
• Communication service providers (‘CSPs’) are increasingly
targets of DDoS attacks. 85% of survey respondents say DDoS
attacks against their organisations are either increasing
or continuing at the same relentless pace and 71% of
respondents say they are not or only somewhat capable of
launching measures to moderate the impact of DDoS attacks.
The increase in IoT devices due to the growth of 5G increases
the risk to CSPs.2
1
2
MarketsandMarkets DDoS Global Forecast Report, Forecast to 2024, June 2019
Ponemon Institute The State of DDoS Attacks Against Communication Service Providers,
April 2019
* Markets & Markets DDoS protection Global forecast to 2024
** NetScout 2020 report
04
Corero Network Security plc – Annual Report and Accounts 2020 2020
Key Trends
99%
OF OBSERVED ATTACKS
ARE BELOW LINK
SATURATION
17%
INCREASE IN HIGH
PACKET RATE ATTACKS
86%
ATTACKS OF
10 MINUTES
DURATION OR LESS
70%
INCREASE IN ATTACKS
OVER 10 GBPS
400%
INCREASE IN OPENVPN
ATTACKS ON REMOTE
WORKERS
68%
INCREASED
PROBABILITY OF
A REPEAT ATTACK
WITHIN A WEEK
Every half and full year, Corero looks at the latest trends it is seeing in the DDoS market.
The above observations are from our 2020 DDoS Threat Intelligence Report.
‘DDoS attacks have become harder to detect and mitigate
as they are increasing in frequency and sophistication.
In today’s online world, even seconds of downtime can
cost… and tarnish brand reputation. The only way to ensure
business continuity when faced with the growing threat
of attacks, is by investing in a real-time, always-on DDoS
detection and mitigation solution.
However, be sure to assess your risk tolerance and
that of your customers. If any amount of downtime cannot
be tolerated, you should invest in an always-on solution.
Like many organisations, even a minute of downtime is
too much. Relying on a cloud solution alone can disrupt
internet availability. Many cloud services advertise ‘always-
on’ however, that often means just always-routed through
their cloud, it does not mean you are always protected,
resulting in additional delays for time-to-mitigation that
may still be measured in minutes.’1
There are a variety of protection options available,
on-premises, in the cloud or a combination of the
two commonly referred to as hybrid DDoS protection.
1
Page 10, 2020 Corero DDoS Threat Intelligence Report
05
Corporate DirectoryOVERVIEWStrategic ReportGovernanceFinancial Statements
Corero Explained:
Your Questions Answered
What is our mission?
Corero is dedicated to improving the security and availability of the
Internet through the deployment of innovative DDoS protection and
mitigation cyber solutions.
DDoS attacks are a threat to service availability, network security,
brand reputation and ultimately lead to lost revenues. Attackers are
continuing to leverage DDoS attacks as part of their cyber threat
arsenal to either disrupt business operations or provide a smokescreen
while they attempt to access sensitive corporate information.
What is a DDoS attack?
A DDoS attack is a cyber threat, in which multiple computer systems
or devices attack a target, such as a server, website or other
network asset, and cause a denial of service for users of the
targeted resources.
The flood of incoming messages, connection requests or malformed
packets to the target system, causes it to slow down or shut down,
thereby denying service to legitimate users or systems.
Attackers are leveraging increasingly creative ways to circumvent
traditional security solutions or reduce the effectiveness of DDoS
scrubbing centres. DDoS attacks can be found in a multitude of
sizes and are launched for a variety of motivations. They may
also be used to extort payments via Ransom DDoS. Today’s cyber
criminals do not even have to construct the attacks themselves,
they can simply download DDoS malware or rent the botnet they
need to accomplish their goal.
Baby
Monitors
Video
Cameras
Home/
Office
Routers
WiFi
Access
Points
Botnet
Machine
Botnet
Machine
Botnet
Machine
Botnet
Machine
Step 3
Open devices respond with UPnP
‘reply’ packets to victim’s network
because of botnet spoofing
victim’s IP addresses. Allows for
a 30.8x amplification factor.
SSDP Amplification DDoS Attack
Victim
IPS/APT
SLB/ADC
WAF
Step 2
Botnet is told to spoof IP
address of victim’s network and
sends UPnP ‘discovery’ packets
to open devices.
Attacker
Step 1
Attacker sends
command and
control attack signals
to small botnet.
06
Corero Network Security plc – Annual Report and Accounts 2020 What damage can a DDoS attack do?
High availability of Cloud services and applications are critical for
modern businesses and institutions. Any DDoS downtime brings risk:
• Lost revenue or loss of control
• Operational costs to mitigate or recover from attacks
• Increased costs to retain unhappy customers and attract
new customers
• Brand and reputation damage leading to competitive
disadvantage or loss of confidence
• Regulatory fines, legal action, resignations
What solutions do we have?
The goal of the Corero SmartWall real-time DDoS protection
solutions are to protect business continuity, service availability,
revenues and brand reputations from harmful DDoS attacks. We do
this for corporate enterprises, network security providers, hosting
and data centre providers, co-location providers, network edge
providers, and managed security service providers.
The SmartWall family of products utilises innovative, patented,
technology to automatically and surgically remove DDoS attack
traffic, while allowing good traffic to flow uninterrupted. Corero
solutions are amongst the highest performing in the industry, while
providing the most automated DDoS protection, at unprecedented
scale, with the lowest total cost of ownership to the customer.
We protect against DDoS attacks in seconds, or less, rather than
the minutes or tens of minutes taken by legacy solutions.
Corero has a market leading SmartWall Threat Defense System
(‘TDS’) solution portfolio endorsed by over 160 direct customers,
many of whom are providers using it to protect hundreds, or
thousands, of their customers. Our products are recommended
by NSS Labs (a leading independent product testing laboratory).
Our SmartWall Threat Defense Director (‘TDD’) delivers edge
protection for even the largest provider networks. Powering the
silicon filtering capabilities increasingly built into modern edge
routers, TDD software scales to tens-of-terabits per second of
protection, without the need to deploy additional appliances at
the edge or needing to back-haul large volumes of attack traffic
to scrubbing centres.
What strategic alliances do we have?
Juniper Networks
Juniper Networks, Inc. (NYSE: JNPR) (‘Juniper’) is one of the world’s
largest networking product, solutions and services companies, with
revenues of over $4.4bn in 2020. Corero has a global partnership
agreement with Juniper enabling Juniper to select Corero as their
DDoS protection solution and to sell Corero’s SmartWall Threat
Defense Director (‘TDD’) software product in conjunction with its
own MX Series routers. Juniper and Corero have developed this
integrated solution for large-scale network-edge DDoS defence that
leverages powerful filtering capabilities in the latest generation of
Juniper’s MX Series routers.
GTT Communications
GTT Communications, Inc. (NYSE: GTT) (‘GTT’) is a leading global
cloud networking provider to multinational clients, with over 600
points of presence (‘POPs’), with revenues of $1.7bn in 2019.
GTT operates a global Tier 1 internet network and provides a
comprehensive suite of cloud networking services. GTT customers
can purchase IP transit with DDoS protection provided by Corero’s
SmartWall TDS’s which are deployed within the GTT network.
Neustar
Neustar, Inc. (‘Neustar’) is an American technology company
that provides real-time information and analytics for the Internet,
risk, digital performance and defense, telecommunications,
entertainment, and marketing industries, and also provides
clearinghouse and directory services to the global communications
and Internet industries. Corero has a hybrid DDoS protection
solution combining on-premises TDS with the SmartWall Threat
Defense Cloud (‘TDC’) service, powered by Neustar, which provides
protection against the largest attacks which can saturate an
organisation’s internet connections and overwhelm legitimate traffic.
Where are we located?
Corero’s key operational centres are in Marlborough,
Massachusetts in the USA and Edinburgh in Scotland, UK, with
the Company’s registered office in Amersham in England, UK.
07
Corporate DirectoryOVERVIEWStrategic ReportGovernanceFinancial Statements How does the technology work?
How do we combat DDoS Attacks?
Traditional DDoS providers use net flow sampling, which requires
spotting mainstream anomalies, re-directing traffic, to be cleaned in
scrubbing centres (which may be overseas, or some distance away)
with manual intervention, and then traffic is re-directed back. This is
a time-consuming and costly process when the length of an attack
might be short – but it takes hold quickly and the impact is high.
High availability of cloud services and applications are critical for
modern businesses and institutions.
Traffic providers which use DDoS providers that have this simple
generic approach have basic DDoS protection. While this may
be adequate for simple and obvious attacks, it may not be for
sophisticated, highly engineered attacks. So, for example,
Ransom DDoS attacks are real-time, in depth (deep packets)
and highly automated.
However, Corero uses Deep Packet Inspection (‘DPI’) and processes
packets in real-time and on-data path (‘in-line’) with as much
automation as possible. Our approach is very scalable to the tens
of terabits per second which makes our cost per performance ratio
superior in the industry. It can also be used to augment broad
upstream netflow based basic protection with an in-line, on-data-
path DPI tool on network edges. Corero operates ‘SmartWall’ and
‘SecureWatch’ solutions.
SmartWall
Corero’s SmartWall solution is highly automated, detecting and
mitigating attacks surgically, without the intervention of security
analysts or network operators, who may not even know the network
is under attack unless they are monitoring Corero’s dashboard or
subscribed to the automated mitigation alerts.
With varied deployment topologies (in-line, scrubbing, edge or
cloud) Corero’s SmartWall family of solutions utilise innovative,
patented technology to automatically and surgically remove the
vast majority of DDoS attack traffic.
Protection is available in cost-effective scaling increments, from
1Gbps, 10Gbps and 100Gbps to tens-of-terabits, to support the full
spectrum of customer bandwidth and inspection requirements.
We have combined advances in Intel x86 multicore CPU technology,
Data Plane Development Kit (‘DPDK’) software for packet
processing acceleration, and high-performance network interface
cards (‘NICs’), together with an innovative, patented, and highly
efficient software architecture, to develop a new generation of
physical and virtual appliances providing breakthrough price/
performance for DDoS defense.
SmartWall appliances perform sampled DPI to generate security
metadata from traffic flows. The internal rules-engines examine
this metadata to flag offending packet flows in real-time and block
attacks. At the same time, the security metadata is streamed to the
Corero SecureWatch® Analytics platform, where further analysis,
involving correlation with other performance metrics and event data,
enables rapid identification of new attack vectors. SecureWatch
Analytics can formulate new mitigation rules for these vectors that
are distributed out to each SmartWall instance.
SecureWatch
The Corero SecureWatch service is a tiered offering comprised of
configuration optimisation, monitoring and mitigation response services.
Corero SecureWatch Analytics leverages Splunk’s analytics engine
and provides robust reporting to transform sophisticated DDoS
event data into easily consumable dashboards accessed via the
SecureWatch Analytics web portal. The portal allows customer
security operators to monitor and manage incident response,
with the ability to conduct sophisticated forensic analysis.
The Corero Service Portal enables providers’ customers
(or ‘tenants’) to gain visibility into attacks via per-tenant dashboards.
Providers can assign tenant service levels and automatically
distribute reports which showcase the value of the protection their
customers are receiving.
Threat Defense System (TDS)
Physical & Virtual Appliances – On-premises
Threat Defense Director (TDD)
Provider Edge – Sampled Detection
1G
10G
100G
100G > Multi-Tbps
+
NTD220
• Standalone 2x1/10G Solution
NTD280
• Up to 8x10G Protection
NTD1100
• 1x100G Protection
• 100G-40Tbps Edge Protection
• Basic Volumetric Attacks
• Easiest for Small Deployments
• Scales to Terabits/s
• Scales to Terabits/s
• Supports Juniper MX Routers
vNTD Software
Cloud & Virtualised Net Flow Protection
08
Corero Network Security plc – Annual Report and Accounts 2020 Customer proposition
What really sets Corero apart
Speed
Attacks mitigated in seconds versus
minutes or tens of minutes for competing
technologies with zero downtime
Simplicity
Automatic software, plug and play
appliances for lowest TCO
Flexibility
Multiple deployment options: on-premises,
hybrid and cloud protection
Scalability
Modular and distributed,
pay-as-you-grow protection
Visibility
Accurate, forensic-level attack and traffic
visibility with SecureWatch Analytics
Support
World-Class 24x7x365 SOC support with
SecureWatch Managed Services
Investor
proposition
Superior Performance
High performance, class leading solutions: real time effective DDoS protection and mitigation
without disrupting or delaying legitimate network traffic
Time to Market
Unlike some technology companies,
we have that superior solution
already developed
No development cycle with customers
On-going R&D investment reflects solution
refresh and enhancements
High growth markets
This increasingly inter-connected world grows
faster and more complex with higher speed
connections, the proliferation of IoT devices
and the continued growth of cloud services
Corero market share leaves lots of
headroom expansion opportunity
Customer relationships
We enjoy high levels of trust with our
customers which translates into high
retention rates and long-term relationships
Our diverse customer base includes
blue chip global customers
High annualised recurring revenues
demonstrate such enduring relationships
Proprietary Intellectual Property
In-house expertise and proprietary
knowledge means we can innovate
without significant outsourcing
dependencies or royalty costs
Many engineer years of software
development leveraged to expand
feature set and pipeline
Customer support and service
We provide high levels of customer
support and service through our sales
engineers, SOC and Operations Team
We can provide high levels
of compatibility with customer
indigenous equipment and systems
We have key relationships with
other providers
Scalability – organic and partners
Where appliances are employed for
the software solution, manufacturing is
outsourced so there are no in-house
supply constraints
We have established and extensive
global routes to market through our
own direct sales force, agents, resellers,
distributors, and strategic partnerships
09
Corporate DirectoryOVERVIEWStrategic ReportGovernanceFinancial Statements Business model
Corero SmartWall real-time DDoS
mitigation protects business continuity,
service availability, revenues and brand
reputations from harmful DDoS attacks.
A Customer Driven Business Model
Key solutions
Sales channels
Customer segments
Source of Revenue
SmartWall
Threat Defence
System (‘TDS’)
Available in physical
and virtual for 10G,
100G and cloud
SmartWall
Threat Defence
Director (‘TDD’)
Delivers software
edge protection for
even the largest
networks
SmartWall
Threat Defence
Cloud (‘TDC’)
Protects against
the largest
Cloud attacks
SecureWatch
Support, updates,
maintenance,
monitoring
10
Direct sales
Own sales team
Service
Providers
Indirect sales
Agents, value-
added resellers
and distributors
Cloud hosting
providers
Co-location
providers
Edge
providers
Partners
Enterprises
Juniper, GTT and
Neustar
Managed
Security
Service
Providers
Appliance
& perpetual
software
licence sale
SmartWall TDS
Term Licence
SmartWall vNTD
and SmartWall TDD
DDoS Protection
as-a-Service
SmartWall TDS
and TDC
Revenue share
SmartWall TDS
(through GTT)
Support and
services
SmartWall TDS
and TDD
Corero Network Security plc – Annual Report and Accounts 2020
Our Strategy
Strategic vision and focus
Our vision is to become the world leader in DDoS
protection, servicing a significant proportion of
our growing target market. Our focus, while maintaining
our superior technological performance, is delivering
sustainable, long-term value to our stakeholders.
Our strategic pillars
1. Increase our international presence
• Our solutions are now deployed in 40 countries
• We are leveraging on our strategic partnerships
(9 new countries in 2020)
to penetrate more countries
• We have appointed new agents in 2020 in Latin America
and the Caribbean, APAC, Europe, and Middle East
• We are enabling more international distributor and reseller
channel partners
2. Leverage our existing partnerships and bring new ones
• 17 new customers with Juniper (vs 6 in 2019), increased
scale with GTT and significant growth in our business
with Juniper
• Looking at further partnerships with System Integrators
and Managed Security Service Providers
• Looking at further business arrangements with
• Establishing additional go-to-market relationships
technology partners
3. Intensify our global, Tier One and major account relationships
• Strengthened our position in 2020 with our existing customer
accounts with significant add-on and upgrade business as
these customers grow in scale
• Increasingly active prospects for larger customers in our
pipeline and targeting our sales resources to address
these prospects
• Secured in 2020 many new major and tier one operators
both as direct sales or through partners
4. Better monetise our existing services and introduce new services
• Increasing service offering including deployment support,
training and other professional services with a higher attach
rate for existing and new customers
• We are adding new services to our portfolio: pre-sales,
consulting services, bespoke services and development
5. Amplify our demand generation programmes
• Increased focus and optimisation on both in-house and
external outsourced resource lead generation activity
• Increased marketing activity and resourcing
to new geographies
• Increased ‘Account Based Marketing’ initiatives
6. Continue to increase our technological innovation leadership
• We have delivered major new SmartWall portfolio software
• We are providing greater focus on our product
releases to customers and partners
line management
• We are enhancing our solution portfolio to take into account
the new market trends for the short and long term
11
Corporate DirectoryOVERVIEWStrategic ReportGovernanceFinancial Statements Chief Executive’s strategic update
Introduction
Corero’s performance across 2020 clearly
demonstrates that the Company’s renewed
strategic focus on its global sales and
marketing efforts is delivering tangible
benefits. In the year ended 31 December
2020, the Company generated a 74%
increase in revenue to $16.9 million (2019:
$9.7 million), which as announced in January
2020, was ahead of market expectations,
with H2 2020 revenues at a record high of
$10.6 million (H2 2019: $5.5 million).
The Company’s trading was underpinned
by order intake reaching an all-time high
at $20.9 million for 2020 (2019: $13.0 million),
representing an increase of 61%, with
$13.0 million secured in H2 2020 (H2 2019:
$8.0 million), another period of record order
intake for the Company. It is important to
note that revenues associated with order
intake are recognisable over the lifetime
of each of the contracts.
Significantly, Corero achieved a marked
increase in Annualised Recurring
Revenues in the year to $9.8 million as
at 1 January 2021, driven by growth in
DDoS Protection-as-a-Service and software
subscription orders, which continues to
give management better visibility over
the Company’s future earnings (ARR at
1 January 2020: $7.2 million).
This strong performance was delivered
against the backdrop of the COVID-19
pandemic, which presented both
opportunities and challenges for the
Group. The health and safety of our
global workforce was and continues to
be of paramount importance and
the transition to remote working was
implemented seamlessly across the
Group with business continuity maintained
throughout. Corero continued to achieve
extremely high customer satisfaction
metrics throughout the pandemic, and this
could only have been delivered through
the dedication of our highly talented and
hard working employees.
The pandemic also reinforced the
importance of both effective and scalable
cyber defense solutions as increased remote
working and significantly higher levels of
internet usage and e-commerce created
new challenges for the sector and the
number of DDoS attacks rose globally.
This market dynamic coupled with our
customer centric values and market-leading
solutions created a strong growth platform
for the Group across 2020.
Strategic Progress
The Group has a clearly defined set of near
and mid-term strategic priorities, and during
2020, Corero delivered significant progress
across all of these ambitious initiatives.
These priorities are focused on expanding
our market coverage and capitalising on
our industry-leading technology stack and
are to:
• increase our international footprint;
• leverage sales channel and business
partnerships;
• broaden our Global, major and Tier One
client base;
• augment our services portfolio;
• amplify our demand generation
programmes; and
• continue to increase our technological
innovation leadership.
Increase our international footprint
The Group’s solutions are now deployed
across more than 40 countries, with nine
new territories added during the year.
Central to enhancing the Group’s global
presence are our strategic business
relationships and agents, which accelerate
our sales growth. During the year, we added
six new agents across Eastern Europe,
Latin America, APAC, Europe and the
Middle East. These new relationships are
important in increasing our profile across
a number of high growth and strategically
important markets.
Leverage sales channel and
business partnerships
The Group also continues to leverage its
existing strategic partners, such as Juniper,
and GTT, embedding our products into
these highly valuable sales ecosystems.
During 2020, we signed 17 new customers
through our Juniper partnership, compared
to six in the previous year. We also
significantly increased the level of business
generated with Juniper compared to
previous year. This strong traction is
testament to the excellent work carried out
by our sales teams in engaging in closer
new business collaboration and product
Lionel Chmilewsky, CEO
The successful
implementation of
our strategic priorities
is creating a strong
platform for the business.
These are centred across
geographic expansion,
creating sustainable sales
growth and maintaining
our product excellence.
The Company is confident
in the market dynamics
and drivers and well
placed for future growth.
$20.9m
$13.0m
$11.1m
$9.3m
$7.0m
16
17
18
19
20
Order intake growth
61%
increase over the prior year
12
Corero Network Security plc – Annual Report and Accounts 2020 support with the Juniper team.
We intend to continue to increase
the level of engagement across
all our sales channels and believe
this is central to creating additional
revenue growth.
Broaden our Global, major
and Tier One client base
As set out during 2020, the Group sought
to both secure new mandates and expand
existing mandates with Tier One and
Major customers.
During 2020 we secured a number of new
mandates with global operators either
directly or via our partner network.
Augment our services portfolio
During the period, the Group further
increased the level of revenues generated
from Managed Professional Services as
part of total order intake, launching a
number of initiatives to significantly increase
development and promotion of our services
offering and therefore increase our recurring
revenue base.
Continue to increase our technological
innovation leadership
Alongside our on-going investment in
enhancing the features and offering of our
solutions, the Group has created a number
of internal initiatives to examine product
development and enhancements to drive
near-term and mid-term improvements
across our existing software portfolio.
This is key to ensuring Corero maintains
its market leading position to take
advantage of new market trends.
As part of this process, Corero has
created a number of customer-facing
task forces to both improve and expand
customer engagement.
DDoS market dynamics
Organisations around the world depend on
the Internet now more than ever to conduct
business and deliver services. This Internet-
first world grows more complex each year
due to the demand for faster connections,
5G, Internet of Things (‘IoT’) devices, and
cloud services. DDoS attacks are growing
in sophistication, size, recurrency and
frequency. Each year, we see a rising
number of total recorded attacks. Often
such attacks are cover for other nefarious
motives and attacks.
Service Providers and Hosting Providers
are increasingly expected to assume the
responsibility for upholding their customers’
internet availability. Real-time DDoS
protection has become more critical now
than ever before. Unfortunately, in parallel,
DDoS-for-hire services, that make it cheap
and easy to launch attacks, have become
increasingly common. Expectations for
Internet response and resilience comes down
to seconds not minutes. When the Internet
goes down, organisations that rely
on Internet service go down with it.
DDoS attacks are considered one of the most
serious yet most common threats to Internet
availability. Downtime and internet disruption
can damage brand reputation, customer
trust and revenue. Market reports have
commented that during 2020, the average
number of attacks per customer per day
increased by c.20%, as did the chance of
being attacked again within 24 hours, with the
average duration of an attack less than five
minutes making them more difficult to detect.
In addition, during the COVID-19 pandemic,
Corero has seen a 400% year-on-year
increase in the use of OpenVPN attacks as
businesses transitioned to working remotely.
Opportunities for Corero
2020 was clearly a watershed moment for
the digital community with heightened levels
of remote working, and online commerce
highlighting the importance of cyber security
innovation. Whilst it is difficult to predict if
consumer demand will be maintained, what
is clearly evident, is the need for highly robust
and secure IT infrastructure is set to continue,
as we saw before the pandemic.
Corero’s solutions sit firmly at the centre
of this trend with customers across
telecommunications, retail, banking,
data-centres, hosting, and infrastructure
all putting DDoS mitigation as a key
near-term priority.
13
Corporate DirectoryOverviewSTRATEGIC REPORTGovernanceFinancial Statements Chief Executive’s strategic update continued
In addition, the expansion of 5G mobile
broadband and Edge computing, coupled
with the on-going global reliance on data,
business intelligence and Artificial Intelligence
(AI) based services, will undoubtably
accelerate the creation of more sophisticated
cyber threats. Corero intends to continue
its path of product development alongside
geographic and market coverage expansion
to further ensure its customers are best
protected from the threat of DDoS attacks.
Financial Summary
The Group generated revenues of $16.9
million in 2020 (2019: $9.7 million), with total
operating expenses before share-based
payments of $16.4 million (2019: $13.8 million)
while continuing to invest in sales and
marketing expansion and R&D efforts.
• Operating expenses net of capitalised
R&D costs and before depreciation and
amortisation of intangible assets and
before share-based payments were
$14.1 million (2019: $10.8 million).
Capitalised R&D costs were $1.4 million
(2019: $1.4 million)
• Operating expenses include an
unrealised exchange loss of $0.3 million
(2019: loss of $0.3 million) arising from
an intercompany loan
• Depreciation and amortisation of
intangible assets was $2.3 million
(2019: $3.0 million).
The EBITDA loss in 2020 of $1.4m narrowed
by 56% over the prior year (2019: $3.2m loss)
and Adjusted EBITDA loss reduced by 76%
to $0.6m (2019: loss of $2.5m). Losses before
taxation in 2020 were $4.0 million (2019:
loss $6.6 million) including amortisation of
capitalised R&D of $1.9 million (2019: $2.6
million). Losses after interest and taxation
were $3.8m (2019: $6.6m). The reported loss
per share was therefore 0.8 cents (2019:
loss per share 1.6 cents). The 2020 losses
decreased primarily due to the increased
revenues ahead of the increase in
operating expenses.
The net cash generated from operating
activities in the year was $5.1 million (2019:
net cash outflow of $0.6 million) reflecting the
loss for the year and improvement in working
capital investment in the period of $5.7
million (2019: decrease in working capital
investment of $2.2 million). This improvement
was partly due to an order received from a
sizeable customer in the third quarter, the
proceeds of which were received towards
the end of the fourth quarter, but the
associated outflows for which fell into the
first quarter of the 2021 year.
In terms of overall position, Corero had net
cash of $7.6 million at 31 December 2020
(31 December 2019: $5.4 million; H1 2020
$3.3 million), comprising:
• Cash at bank of $10.1 million as at
31 December 2020 (2019: $8.3 million)
• Debt of $2.5 million (2019: $2.9 million)
including $0.6 million of a US Paycheck
Protection Program (“PPP”) Loan. This
PPP loan was forgiven by the Group’s US
bank in January 2021.
In April 2021 we have entered into a new
banking facility for up to £3.0 million (circa
$4.1 million), the net proceeds of which will
be used for working capital purposes and
our on-going investment programme to
support our growth strategy ahead.
Outlook
The Company begun 2021 with a solid
pipeline and encouraging levels of
business activity from both new and
existing customers, particularly through our
strategic partnerships. The requirement for
its products and the need for cyber security
mitigation remains high and continues
to grow, and this has undoubtedly been
accelerated by the increased levels of
remote working and online commerce.
However, the Company remains mindful
of the risks and challenges presented by
COVID-19 including the on-going wider
economic impact and customer purchasing
decisions.
The successful implementation of our
strategic priorities is creating a strong
platform for the business. These are centred
across geographic expansion, creating
sustainable sales growth and maintaining
our product excellence. The Company is
confident in the market dynamics and drivers
and believes it is well placed for future
growth.
The strong sales traction over the last
12 months, combined with the Group’s
attractive customer offering and recurring
revenue generation provide us with renewed
optimism and vigour as we navigate 2021
and beyond.
Lionel Chmilewsky
Chief Executive Officer
12 April 2021
14
Corero Network Security plc – Annual Report and Accounts 2020 Chief Executive’s strategic update
Q&A with Lionel Chmilewsky
to a virtual or a cloud type of protection
architecture and have several pricing models
aligned to match our customers’ priorities.
You implemented a number
of new strategic initiatives since
joining, could you explain why
you felt the Company needed a
change in direction and when you
expect to see the benefits of
these changes?
As I said, the Company had built some
foundations on the technology and with
customers. I believed it was time to take
it to the next level of expansion by being
active in more countries, with more larger
accounts, a broader software and services
offering and an intensified relationship with
our strategic partners.
Pleasingly, we are already seeing the
benefits of our new strategic drivers as
illustrated by a strong order book and
revenue performance in the full year
2020 and expect this to continue over
the next years.
What does Corero’s go to
market strategy look like across
the medium-term and should we
expect an increase in sales and
marketing headcount, or are
channel partnerships the focus?
I would expect a combination of all of
these. There is scope to further deepen our
relationships and increase traction with our
existing partners, building on the success
that we achieved – in particular with Juniper
and GTT – during 2020. We are also aiming
at adding additional business partners
operating in different fields and at acquiring
larger customers in order to grow our
share in this significant DDoS market. Our
approach is to have a very complementary
and not an overlapping go-to-market
strategy.
What attracted you to Corero
and how would describe your first
10 months in the role?
The market Corero is operating in
is very dynamic and the Company has
built over the last few years some solid
foundations. These foundations are the
people, the technology, and the solid base
of customers we have acquired since we
started to focus on DDoS seven years ago.
I felt that there was an interesting opportunity
to take the Company to the next stage of
performance, capitalising on our existing
assets while implementing an augmented
strategy around market coverage, business
and strategic alliances, innovation and new
solutions offering.
I joined the company at the beginning
phase of the global COVID-19 pandemic.
I then had to adjust to a very new working
environment with new teams and limited
possibilities to meet in person. I must say
above all else, that I have been incredibly
impressed with the tenacity and dedication
of the Corero team and their ability to
successfully drive the activity in difficult
conditions. We were able to launch and
implement all together some new pillars
to our strategy and generate some strong
growth in 2020.
What differentiates Corero in,
what is, a very crowded market?
Quite simply, our technology and our
customer-driven flexible mindset. Corero’s
SmartWall products are the leading DDoS
defense solutions out there and offer
the best performance over total cost of
ownership ratio in the industry. SmartWall
mitigates an attack in seconds, while other
competitors take minutes or tens of minutes.
Furthermore, more than 95% of the attacks
are mitigating automatically without any
human intervention.
Corero is also a very customer-centric
company, 100% focused on DDoS defense
solutions with a global footprint and
thousands of organisations in more than
40 countries being protected by our software.
We are extremely flexible and offer a range
of deployment solutions from an “always on”
15
$9.8m
$7.2m
$5.8m
$5.0m
$4.5m
16
17
18
19
20
ARR
36%
increase over the prior year
Corporate DirectoryOverviewSTRATEGIC REPORTGovernanceFinancial Statements
For you, what does success for
Corero really look like?
Success is very much about increasing
our market share and taking the company
to the next level of growth and financial
performance. It’s all about achieving full
customers’ satisfaction, happy shareholders
and happy employees.
Chief Executive’s strategic update
Q&A with Lionel Chmilewsky continued
What are the barriers to entry
to stop the large network players
from developing their own DDoS
solutions and therefore shrinking
Corero’s addressable market?
The barriers to entry are really
entrenched in the knowhow and technology
that Corero developed over the last seven
years. And importantly, the customer’s
experience that we have acquired and
the thousands of case studies we have
experienced is not something you can
build from scratch. There are domains
where a large investment does not ensure
success and does not replace years of
customer practice.
What, if any, product
development initiatives will you
implement? Will the focus always
be on DDoS specifically or is there
scope to broaden your specialty?
That is a great question! Our focus
remains right now on DDoS and execution
of our strategy for growth as I believe that
there is still a lot to capture in the DDoS
market. This market, while growing, will
continue to evolve taking into account some
new trends like IoT, 5G, Multi-Cloud, Edge
Computing, Virtualisation etc… So keep your
eyes open in that domain as we will always
look to enhance our solution offerings
which may take us into adjacent and
complementary spaces in time.
It is well understood that
the increase in remote working
during COVID-19 has resulted in
an increase in cyber-attacks and
therefore demand for cybersecurity
solutions, how do you see this
recent trend developing?
We expect the increase in demand
for cybersecurity solutions that has been
apparent worldwide over the last 12 months
to continue, as the pandemic has caused a
shift in behaviour which we believe is here
to stay. Not only are many corporations
permanently moving to a more flexible
working model, but digital transformation
has been accelerated as a result of the
pandemic, giving rise to the potential for
more cyber security attacks and therefore the
heightened requirement for defense solutions.
How do you see the DDoS
landscape evolving over the
coming years?
During 2020, the average number of
attacks per customer per day increased
by c.20%, as did the chance of a customer
being attacked again within 24 hours. In
addition, the average duration of an attack
is now less than five minutes, making these
kinds of attacks particularly insidious as they
are more difficult to detect. We would expect
these trends to continue in the near-term,
with DDoS continuing to pose a significant
threat to businesses globally.
We also predict that with an increasing
number of businesses making the digital
transition and with the rush to do so, that
DDoS protection may be delayed, making
many businesses increasingly vulnerable.
The proliferation of 5G, Cloud based
services and IoT will also give rise to an
increasing number of opportunities for DDoS
attacks, so overall we expect the threat of
DDoS attacks is heightened and here
to stay.
16
Corero Network Security plc – Annual Report and Accounts 2020 Financial Review
Revenue and gross margins
Deriving from heightened order intakes,
revenue recognised increased from $9.7m
to $16.9m, a 74% improvement. All revenue
categorisations (appliance and licence
revenue; DDoS Protection-as-a-Service
revenue; maintenance and support services
revenue) advanced year-on-year.
Annualised recurring revenues1 increased
in the year with ARR of $9.8 million as at
1 January 2021, driven by growth in DDPaaS
and software subscription orders (ARR at
1 January 2020: $7.2 million).
Corero’s overall gross margin, while remaining
high, slightly decreased from last year’s high of
81.0%. New and add-on and upgrade business
represented a higher proportion of the overall
business mix, leading to this slightly lower
overall gross margin of 77.3%.
Operating expenses and
R&D investment
Operating expenses increased by
$2.6 million from $13.8 million to $16.4
million. Underlying operating expenses
were $3.3 million higher, reflecting the
continued strategic scale up of the Group’s
investment in its front-line sales and
marketing resources, increase in central
costs, mitigated to a minor extent by lower
travel and acommodation costs due to the
COVID-19 pandemic.
Underlying operating expenses were
offset by a lower amortisation charge for
research and development (‘R&D’) by $0.7
million between 2020’s $1.9 million and the
$2.6 million in 2019. During the year, the
Group enhanced its existing products with
new features and functionality, with R&D
investment of $1.4 million (2019: $1.4 million).
In relation to this on-going investment in
R&D to maintain the Group’s competitive
edge, we secured UK R&D tax credits of
$0.2 million in 2020 (2019: Nil) relating to the
2018 and 2019 tax years.
Capital expenditures in property plant and
equipment increased to $1.0 million ($0.6
million) due mainly to increased investment
in assets to facilitate our DDPaaS offerings,
both directly ourselves and through our GTT
strategic partner.
Share based payments increased from
$0.3 million in 2019 to $0.4 million in 2020,
reflecting the granting of increased options
to staff and management in the year,
including the successful cancellation,
re-pricing and re-grant exercise that took
place in June 2020.
Financing costs were slightly lower in the
year at $0.3 million (2019: $0.4 million) due
to the Company’s $1.2 million progressive
repayment of its borrowings in accordance
with its agreed banking schedule.
Profitability
The classic EBITDA2 loss measure
decreased in the year from $3.2 million
in 2019 to $1.4 million in 2020, or a 56%
favourable variance. Fully adjusted
EBITDA3 loss measure improved from
$2.5 million in 2019 to $0.6 million in 2020,
or a 76% improvement. Further details on
these measures are provided in the Key
Performance Indicators section on pages
18 to 19.
Loss before taxation was materially lower
at $4.0 million (2019: $6.6 million). With the
addition of the R&D tax credit mentioned
above, loss after taxation was $3.8 million
(2019: $6.6 million). Basic and diluted loss
per share was halved from 1.6 cents per
share to 0.8 cents per share.
Cash and operating cash
Net cash at 31 December 2020 was
$7.6 million (H1 2020: $3.3 million; 2019:
$5.4 million).
Gross cash at bank at 31 December 2020
was $10.1 million (H1 2020: $6.2 million;
2019: $8.3 million). Gross cash at the year
end was high in part due to the proceeds
received from an atypical sizeable multi-
million-dollar contract awarded by a
customer in the third quarter, the proceeds
of which were received towards the end
of the fourth quarter, but the associated
outflows for which fell into the first quarter
of the 2021 year.
Borrowings were $2.5 million, including $0.6
million of a US Paycheck Protection Program
(“PPP”) loan (H1 2020: $2.9 million including
PPP loan; 2019: $2.9 million of borrowings).
Bank borrowings decreased due to the
repayment schedule discussed. Notification of
the forgiveness of the PPP loan was received
from our US bank at the end of January
2021 and will therefore be credited to the
Consolidated Income Statement in 2021.
Overall, net cash from operating activities
of $5.1m was generated by the business
(2019: $0.6 million used in the business)
and overall, cash and cash equivalents
increased by $1.8 million (2019: $0.3 million).
No equity raises were conducted in 2020.
Neil Pritchard
Group Finance Director
12 April 2021
1
2
3
Defined as the normalised annualised recurring revenue and
includes recurring revenues from contract values of annual
support, software subscription and from DDoS Protection-as-
a-Service contracts
Defined as Earnings before Interest, Taxation, Depreciation
and Amortisation
Defined as Earnings before Interest, Taxation, Depreciation
(include DDPaaS assets’ depreciation which is charged to cost of
sales), Amortisation, share-based payments and less unrealised
foreign exchange differences on an intercompany loan
17
Neil Pritchard, GFD
The 2020 year saw very
significant and pleasing
progress in our strategic
objectives to increase
Group revenues and attain
EBITDA break-even and,
thereafter, profitability.
$16.9m
$10.0m
$9.7m
$8.8m $8.5m
16
17
18
19
20
Revenue
+74.0%
increase over the prior year
16
17
18
19
20
$-1.7m
$-1.4m
$-3.2m
$-5.1m
$-5.8m
EBITDA loss2
$1.4m
(2020: loss $3.2 million)
Corporate DirectoryOverviewSTRATEGIC REPORTGovernanceFinancial Statements Key Performance Indicators
$20.9m
$16.9m
$9.8m
76.4%
75.1%
78.4%
81.0%
77.3%
$13.0m
$11.1m
$10.0m
$9.7m
$8.8m
$8.5m
$7.2m
$5.8m
$5.0m
$4.5m
$9.3m
$7.0m
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
Order intake
Revenue
$16.9m
+74%
Represents statutory-
recognised revenue
from Corero solutions.
Performance
Revenue for the year
ended 31 December 2020
increased by 74% to $16.9
million (2019: $9.7 million).
H2 2020 revenue was also a
record high, at $10.6 million
(H2 2019: $5.5 million),
up 93%.
$20.9m
+61%
Represents purchase
orders from customers
including multi-year
services and
support orders.
Performance
Order intake for the year
ended 31 December 2020
was $20.9 million (2019:
$13.0 million), an increase
of 61%. H2 2020 order
intake was at record levels
at $13.0 million (H2 2019:
$8.0 million), up 63%. It is
important to remember
that revenues associated
with order intake are
recognisable over
the lifetime of each
of the contracts.
ARR (annualised
recurring revenues)
$9.8m
+36%
Represents the
normalised annualised
recurring revenues
and includes recurring
revenues from contract
values of annual support,
software subscription and
from DDPaaS contracts.
Performance
Annualised recurring
revenues increased in
the year with ARR of
$9.8 million as at 1 January
2021, driven by growth
in DDPaaS and software
subscription orders
(ARR at 1 January 2020:
$7.2 million).
Gross margin %
77.3%
Represents statutory
gross profit divided by
statutory revenue. It
measures the Group’s
underlying profitability
before overheads.
Performance
Corero’s overall gross
margin of 77.3% slightly
decreased from last year’s
high of 81.0%. New and
add-on and upgrade
business represented a
higher proportion of overall
business, leading to a slightly
lower overall gross margin.
18
Corero Network Security plc – Annual Report and Accounts 2020 16
17
18
19
20
16
17
18
19
20
$-1.7m
$-1.4m
$-3.2m
$-0.6m
$-1.7m
$-2.5m
$2.9m
$1.4m
$7.6m
$5.4m
$4.4m
$-5.1m
$-5.8m
EBITDA
-$1.4m
+56%
Represents the classic EBITDA
definition: operating loss less
depreciation, amortisation and any
impairment of goodwill. The Board
considers EBITDA to be a useful
measure of profitability as it excludes
typical non-cash items. For further
details please see note 8.
Performance
Loss before taxation as a starting
point was materially lower at $4.0
million (2019: $6.6m). This was due to
an increase in revenues driving gross
margin improvement of $5.2 million,
more than offsetting the $2.6 million
increase in operating expenses. An
increased share option charge between
the years was approximately matched
by lower financing costs following the
progressive paydown in the Group’s
borrowings. Underlying operating
expenses were $3.3 million higher,
reflecting the continued scale up of the
Group’s investment in its front-line sales
and marketing functions, increase in
central costs, mitigated to a minor extent
by lower travel and accomodation
costs due to the COVID-19 pandemic.
Underlying operating expenses were
offset by lower amortisation of R&D costs
by $0.7m between 2020’s $1.9m and the
$2.6 million in 2019. Depreciation was at
similar levels between the years.
$-5.0m
$-6.4m
Adjusted EBITDA –
Fully adjusted basis
-$0.6m
+76%
Represents the operating loss
less unrealised foreign exchange
differences on an intercompany loan,
depreciation (including adjusting for
DDaaP assets depreciation which is
charged to cost of sales), amortisation
and any impairment of goodwill, and
share based-payment non-cash costs.
The Board considers the Adjusted
EBITDA – Fully adjusted basis to be a
further useful measure of profitability
as it excludes other significant non-
cash items in addition to classic typical
EBITDA non-cash items. For further
details please see note 8.
Performance
The fully adjusted EBITDA loss measure
improved from $2.5 million in 2019
to $0.6 million in 2020, or a 76%
improvement. The main reasons for
this $1.9 million change aside from
that already described for EBITDA
were: an increase in depreciation on
DDPaaS assets of $0.1 million in 2020
over 2019 (due itself to an increase in
those contracts between the years); an
increase in share-based payments non-
cash cost of $0.1 million between the
years (a reflection of increased share
based payments made to management
and staff); and, a similar in both periods
but sizeable adverse unrealised (non-
cash) foreign exchange difference on an
intercompany loan between sterling and
dollar denominated subsidiaries.
16
17
18
19
20
Net cash
$7.6m
+41%
Represents cash at
bank less total debt.
Performance
Net cash as at 31 December 2020 was
$7.6 million (H1 2020: $3.3 million; 2019:
$5.4 million). Net cash is derived from
gross cash (cash at bank and in hand)
less borrowings.
Gross cash at bank as at 31 December
2020 was $10.1 million (H1 2020: $6.2m;
2019: $8.3 million). Gross cash at the
year end was high in part due to the
proceeds received from an atypical,
sizeable, multi-million-dollar contract
awarded by a customer in the third
quarter, the proceeds of which were
received towards the end of the fourth
quarter, but the associated outflows for
which fell into the first quarter of the
2021 year.
The Group continues to pay down its
bank borrowings according to the
agreed loan repayment schedule.
Borrowings were $2.5 million, including
$0.6 million of a US Paycheck
Protection Program (“PPP”) loan
(see note 18) (H1 2020: $2.9 million
including PPP loan; 2019: $2.9 million
of borrowings).
19
Corporate DirectoryOverviewSTRATEGIC REPORTGovernanceFinancial Statements Key Stakeholders
Section 172 Statement
The Directors are aware of their duty under Section 172 of the Companies Act 2006 to act in the way which they consider, in good faith,
would be most likely to promote the success of the Company for the benefit of its members as a whole and, in doing so, to have regard
(amongst other matters) to the: likely consequences of any decisions in the long-term; interests of the Company’s employees; need to foster
the Company’s business relationships with suppliers, customers and others; impact of the Company’s operations on the community and
environment; Company’s reputation for high standards of business conduct; and need to act fairly as between members of the Company.
The Board reviewed and re-confirmed the Company’s key stakeholder groups during the year. These are set out below along with details
of the forms of engagement undertaken by the Board:
Why they matter
What matters to them
Corero’s engagement
The Board’s engagement
Key events in the year
Stakeholder: Customers
Customers are
the lifeblood of a
successful growing
business.
Executive Directors meet
with customers throughout
the year and feedback
issues to the Board.
Corero customers are concerned
with having products and services
that protect their online presence
and operations from the increasing
threat of DDoS attacks. High
availability of cloud services and
applications are critical for modern
businesses and institutions, their
revenue streams rely on having
internet connectivity protected from
the threat of DDoS attacks.
The Board reviews strategy
and monitors performance
during the year with the aim
of meeting customers’ needs
more effectively.
Receives regular competitor
updates to understand
Corero’s competitive
performance and its strengths
and weaknesses as regards
meeting customer needs.
Every day Corero is
interacting with potential
and actual customers in
the business – including
in tenders, in technical
presentations, in
quoting, in invoicing,
in deployment, and in
after-sales and on-going
customer support roles.
Stakeholder: Shareholders
Shareholders own the
business. They are the
providers of capital
to grow and invest for
future success.
Concerned with a broad range of
issues including, but not limited to,
Corero’s financial and operational
performance, strategic execution,
investment plans and governance.
Communications such as
annual reports, interim
reports and notices of
general meetings.
Investor roadshows, Stock
Exchange announcements
and press releases;
www.corero.com.
Board attendance at the AGM
to answer questions.
Feed back on investor meetings
held by the Chairman.
Executive Director meetings
with investors in the UK.
In conjunction with the
Company NOMAD, Corero
consulted with major
shareholders and key
strategic partners regarding
a share option cancellation,
reprice, and regrant
exercise in June 2020.
Stakeholder: Partners
Partners are an
extension of Corero,
representing the
Corero brand in the
market, providing
an additional route
to market to scale
the business.
Corero’s partners harness Corero’s
innovative technology to deliver
customer success through creation
of unique joint value propositions.
They share insights into what
current and future customers want,
ultimately impacting product strategy
and roadmaps and accelerating
business growth through sales and
marketing programmes, as well
as technical training, often with a
greater, and more geographically
dispersed sales force.
Partner Code of Conduct
define expectations
of responsible business
and behaviour.
Board reports, including
updates on performance
and key partner issues,
are regularly made. Senior
management engaged in
quarterly review of progress
of the Corero-Juniper and
GTT engagements.
Stakeholder: Employees
Corero employees
are a key resource,
dedicated to creating,
selling and supporting
solutions that protect
Corero’s customers
from the increasing
threat of DDoS attacks.
Opportunities for personal
development and career
progression, a culture of inclusion
and diversity, compensation and
benefits, and the ability to make
a difference within Corero.
Various activities
and forums to foster
participation in Group
events, invite opinions,
questions and ideas.
Monthly ‘All Hands’
meetings are held.
Board updates regarding
partner relationships,
development and engagement.
The Board provides on-going
consideration of key strategic
partnerships, and whether
to change or add to existing
relationships.
Board engaged in
quarterly review of
progress of the Corero-
Juniper and Corero-GTT
engagements.
Regular Board member
engagement with senior
Juniper management.
In pre-COVID-19 times, Non-
executive Directors have
provided ‘town hall’ meetings
for employees at Corero’s key
locations to participate in a
Q&A session.
New style performance
appraisal and objective
setting processes have
been rolled-out in 2021.
An employee survey is
also planned.
20
Corero Network Security plc – Annual Report and Accounts 2020 Principal Risks
Principal risks and uncertainties
The Group has a number of principal risks and uncertainties.
Revenue growth
People
Corero’s strategy outlined on page 11 depends on delivering revenue
growth to meet these ambitions. Clearly, higher order intake and related
revenue growth provides the opportunity for Corero to invest further in
its future. Revenue growth, given high cyber security industry salaries,
is highly important to deliver profitable growth for the business.
Conversely, lower sales growth reduces the Company’s cash resources
which could impact the Company’s investment in sales and marketing
and product development and its other associated goals.
To deliver this order intake and, as a subset, revenue growth then Corero
needs to identify, meet and exceed customer needs and desires. If
Corero is not successful in identifying customer prospects with a business
need Corero can solve, or developing go to market partner and channel
partner relationships which generate revenue, this will compromise
growth plans and success. The Group seeks to maintain a diverse
customer base and over different revenue streams and several target
customer verticals.
To be successful Corero is:
• focussing its lead generation and sales resources, and product
development, on its target markets;
• working closely with go to market partners to progress sales
opportunities and generate revenue; and
• developing relationships with new go to market partners and channel
partners to expand its routes to market.
Market awareness
Corero is an emerging player in the DDoS prevention market and
competes with much larger, traditional, established organisations. If
Corero is not successful in connecting with the market and raising its
profile this will compromise growth plans. To raise market awareness of
Corero and its DDoS protection solutions, the Company will continue to
invest in targeted digital marketing and lead generation programmes,
together with its brand marketing programmes.
Technology change and innovation
The DDoS mitigation market is competitive and characterised by
changes in technology, customer requirements and frequent new product
introductions and improvements. Cybersecurity and DDoS attacks are
constantly evolving and changing as attackers develop new methods and
tools to evade defenses.
Corero is focused on its chosen markets and delivering continuous
innovation by adding new DDoS attack defenses and new machine learning
and artificial intelligence capabilities, and striving to provide market leading
solutions to secure customers from the threat of DDoS attacks.
Retaining and recruiting people with the necessary skills and experience.
To grow and address the challenges resulting from technology change
and innovation in the DDoS protection market, the Company needs
to retain and recruit the required sales, business development, and
software development skills. Corero operates in a high growth cyber
security market, and in a thriving DDoS protection sector of that market,
with new players emerging. If Corero is unable to recruit and retain
the right skills this will compromise growth plans. Consequently, Corero
targets paying salaries in the upper quartile for comparable positions
and has a share options plan to provide an attraction and retention
incentive for employees.
Foreign exchange fluctuations
Past Corero equity fund raises have been in GBP and its debt is
denominated in GBP. To the extent such funds are required to support US
dollar denominated funding requirements more generally for the Group,
the exchange rate value of GBP to the value of US dollar may vary,
either impacting adversely or favourably compared to the denominated
funding requirements that can be funded from such fund raises. The
Group mitigates this risk by utilising US denominated funds received by
the Group’s UK subsidiary to fund the Group’s US subsidiary to the extent
such funding is required, with the GBP funding requirements satisfied
from the GBP denominated funds generated from GBP equity and debt
fund raises, where possible.
COVID-19 Pandemic
The global COVID-19 pandemic in 2020 and 2021 has brought tragic
consequences, uncertainty, and wider market disruption globally. Corero
has, to date, not seen short-term adverse impact on the provision of its
solutions; indeed, the global increase in remote working and internet
usage as a result of COVID-19 restrictions have further emphasised the
on-going relevance of Corero’s solutions.
Nevertheless, COVID-19 may have a wider, more consequential effect
on economies as a whole as the pandemic continues and where tighter
fiscal policy follows to pay for governmental support, this may lead to a
tougher economic climate in which to operate. The Board will continue to
monitor the situation very closely.
Operationally, remote working across the Group continues to be
fully operational worldwide, as the health and wellbeing of Corero’s
workforce is of the utmost importance. There continues to be the
possibility of localised virus outbreaks impacting the Company’s supply
chain, and we continue to closely monitor for any signs of this and take
action as appropriate.
Other non-principal risks and uncertainties
There are a multitude of other risks and uncertainties that face
companies like Corero, these include: risks and uncertainties associated
with local legal requirements, political and geographic risk, the
enforceability of laws and contracts, changes in tax laws, terrorist
activities, natural disasters and other types of health epidemics.
21
Corporate DirectoryOverviewSTRATEGIC REPORTGovernanceFinancial Statements Risk Management
Risk Management
The Company operates a risk assessment process, which is embedded in day-to-day
management and governance processes. As part of the annual planning and budgeting
process, Corero management document 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 Board reviews the annual risk assessment including an annual assessment of
the effectiveness of the Company’s internal control system, comprising financial,
operational and compliance controls, to ensure that the Company’s risk management
framework identifies and addresses all relevant risks in order to execute and deliver the
Company’s strategy.
The Directors are responsible for the Company’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 Company’s system of internal control is
designed to manage, rather than eliminate, the risk of failure to achieve the
Company’s business objectives and can only provide reasonable, and
not absolute, assurance against material misstatement or loss.
The Company 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, and forecasts to the Board. Given the size of
the Company, the Board has concluded it is not appropriate
to establish a separate, independent internal audit function.
The Board will keep this under review.
The Audit, Risk and Compliance Committee (‘ARCC’) reviews
the effectiveness of internal controls. The ARCC 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 for consideration. The Corero Risk
Register, auditor’s report, assessment of the
effectiveness of the internal control system and
key judgements report for the Annual Report
and Accounts are tabled and reviewed by
the ARCC.
22
Corero Network Security plc – Annual Report and Accounts 2020 Environmental, Social and
Governance (ESG) Report
Corero aspires to carry out its business to the highest ethical standards,
treating customers, partners, suppliers and employees in a professional,
courteous and honest manner.
Corero’s culture and Values
Our defined values are: Customers First;
Technology Leadership & Innovation;
Operational Excellence; Integrity; and,
Our People, Empowerment & Team Work.
We seek to live our culture and values every
day, in a dynamic and professional manner.
In common with most intellectual property
technology businesses, we know that the
expertise, experience, and passion of our
employees at Corero are genuinely what
make our products and services market
leading. For example, Corero’s Security
Operation Centre (‘SOC’) comprises a team
of highly experienced security analysts
whose role it is to assist our customers’
IT and security teams mitigate the growing
number of increasingly sophisticated
DDoS attacks. This service and customer
support offering is therefore an important
competitive differentiator. Customers tell us
they value the service levels and our team
regularly receives very favourable feedback
from our customers.
Corero’s approach to
responsible business in society
Corero recognises that long-term success
is underpinned by good relations with its
key stakeholders, both external (partners,
suppliers, customers, shareholders,
regulators and others) and internal
(employees). As part of Corero’s annual
planning and budgeting process, the
Company identifies its stakeholders and
their respective needs, interests and
expectations. In addition, the strategy for
engaging with these stakeholder groups
is formulated and implemented.
Corero values feedback from its stakeholders
and proactively endeavours to address any
matter identified. Feedback is gathered
from: customers and partners relating to
Corero’s products and services in an on-
going, continuous manner; shareholders, for
example through investor relation roadshows;
and employees, for example as part of
monthly Company updates.
Environmental sustainability
Corero is committed to promoting
sustainability. We aim to lead, follow and
to promote good sustainability practice,
to carry out our operations in a way which
manages and minimises any adverse
environmental impacts from our activities.
Our products are used by thousands
of businesses throughout the world to
protect against disruptions that could have
adverse economic, health, well-being
and environmental consequences for the
users and customers of those businesses
(sometimes in a mission critical way) and the
knock-on effects to populations as-a-whole.
Corero encourages the reuse or recycling
of office waste, including paper, packaging,
computer supplies and redundant
equipment. Wherever possible we seek to
ensure that waste materials are disposed
of in an environmentally safe manner and
in accordance with regulations. Furthermore
employees are encouraged to be
environmentally aware. Company cars are
not provided.
Ethical business
Corero is committed to the fundamental
values of integrity, transparency and
accountability. We have a zero-tolerance
policy with regard to bribery and corruption.
Corero adopts and enacts an Ethics and
Anti-Bribery Policy to record the ethical way
in which we conduct business and to make
our ethical standards clear to everyone,
including those with whom we do business.
Employees, equal opportunities
and employee interaction
Our employees are one of Corero’s most
important assets and the continued and
sustained development of the Company
relies on its ability to retain and attract high
calibre employees. Corero operates an
all-employee share option plan, with awards
approved by the Corero Remuneration
Committee. We are proud to have over one-
third of our employees with more than five
years’ service.
The Corero equal opportunities policy
ensures that all job applicants and
employees are treated fairly, no matter
what age, race, colour, gender, religion
or beliefs, sexual orientation, marital or
partner status, ethnic origin or community,
disability, and without favour or prejudice.
We are committed to applying this policy
throughout all areas of employment,
recruitment and selection, training,
development and promotion.
The Corero equal opportunity policy sets
out the Company’s position on equal
opportunity in all aspects of employment.
The policy has been developed to maintain
the following policy objectives:
• To provide a safe and welcoming
environment, in which individuals are
valued, included and respected
• To advance equality of opportunity
• To eliminate unfair discrimination
• To foster good relations between
different groups of people
Employees are regularly informed of
matters concerning their interest and the
financial factors affecting the Company.
The Company uses company-wide forums
to communicate matters as well as team
and individual meetings.
Strategic Report Sign-Off
In accordance with Section 414D(1) of The Companies Act 2006,
The Strategic Report on pages 12 to 23 is signed by order of the Board.
Duncan Swallow
Company Secretary
12 April 2021
23
Corporate DirectoryOverviewSTRATEGIC REPORTGovernanceFinancial Statements Board of Directors
Jens Montanana
Non-executive Chairman
Appointed
Richard Last
Independent
Non-executive Director*
Peter George
Independent
Non-executive Director
Andrew Miller
Non-executive Director
9 August 2010
22 May 2008
3 January 2019
9 August 2010
Peter George is a US based
executive with over 30 years’
experience in the IT networking and
cybersecurity industry.
He has a successful track record
as CEO of leading IT network and
security companies and provides
sales and marketing leadership
experience to the Board.
Peter is the CEO of Evolv Technology,
a US based leader in human
security screening. Prior to that he
was President and CEO of empow
cybersecurity, a market innovator
in AI, machine learning and
advanced security analytics. Prior to
empow, between 2008 to 2017, he
was President and CEO of Fidelis
Cybersecurity, a leading US-based
Advanced Threat Defense business.
Before joining Fidelis, Peter was
President and CEO of Crossbeam
Systems, a market leader in Unified
Threat Management. Prior to that
he was the President of Nortel
Networks’ enterprise business where
he was responsible for growing a
$2 billion and 5,000 employee voice
and data business in EMEA.
Andrew Miller (Non-executive
Director) was until 31 May 2020
the CFO of the Company. He is
currently the CFO and COO of
C5 Capital Limited, an investment
firm investing in the secure data
ecosystem including cybersecurity,
cloud infrastructure, data analytics
and space, and CFO of the Haven
Group, a private equity backed
cyber security services provider.
Prior to joining Corero Andrew
was with the Datatec Limited group
in a number of roles between
2000 and 2009 including the
Logicalis Group Limited (‘Logicalis’)
Operations Director and Corporate
Finance and Strategy Director.
Prior to this, Andrew gained
considerable corporate finance
experience in London with Standard
Bank, West Deutsche Landesbank
and Coopers & Lybrand. Andrew
trained and qualified as a chartered
accountant and has a bachelor’s
degree in commerce from the
University of Natal, South Africa.
Andrew is a Chartered Accountant
with over 20 years’ experience in
the technology industry.
CEO of Evolv Technology Inc.
None.
Background & Experience
Jens has spent the majority
of his over 30-year career in
the technology industry with
considerable operational and
commercial experience in
the resale and distribution of
information technology hardware
and software solutions. He is
the founder and CEO of Datatec
Limited, established in 1986 which
listed on the Johannesburg Stock
Exchange in 1994. 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 IP bandwidth management,
which was subsequently sold to
Lucent Corporation in 1999 for $246
million. He has previously served on
the boards and sub-committees of
various public companies.
Current Appointments
CEO of Datatec Limited and
Director of various Datatec Limited
subsidiary companies.
24
Richard has over 20 years’ senior
experience in information technology
having worked at board level for
a number of publicly quoted and
private companies in the technology
sector. He is a Fellow of the Institute
of Chartered Accountants in England
and Wales (‘FCA’).
*
as Richard Last is a Corero shareholder
and has been a Non-executive Director
of the Company for over 10 years, his
independence has been considered by
the Board. The Board is satisfied that
Richard Last is independent.
Chairman of Hyve Group plc, an
international events and exhibitions
group listed on the London Stock
Exchange. Chairman of AIM listed
Gamma Communications plc, a UK
telecommunications service provider,
Tribal Group plc, a technology
company, and Arcontech Group
plc, a provider of IT solutions for the
financial services sector. Richard
is also a director of a number of
private companies.
Corero Network Security plc – Annual Report and Accounts 2020 Lionel Chmilewsky
Chief Executive Officer
Ashley Stephenson
Chief Technology Officer
Duncan Swallow
Company Secretary
1 May 2020
6 September 2013
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.
Lionel has 30 years of international
experience in the technology field,
in particular in the Infrastructure,
Software and Services domains.
Most recently Lionel was CEO of
Cambridge Broadband Networks
Ltd, a leader in wireless solutions
based in the UK. Before joining
CBNL, Lionel was CEO of Comverse
IP Communications and Senior Vice
President of Comverse Group. Prior
to that, he was Executive Vice-
President of Proxim Wireless, leading
the worldwide business activity and
subsidiaries. Lionel’s background
also includes General Management
and Senior Executive roles in Alcatel,
JDS Uniphase, EXFO and Fairchild in
the USA. Lionel is a French national
and earned an MBA from NEOMA
(Rouen Business School).
Lionel has a successful track record
as CEO of leading technology
companies together with sales and
managerial leadership experience.
Ashley Stephenson (CTO) first joined
Corero Network Security as Executive
Vice President of the Network
Security division, with responsibility
for product and solution strategy
in March 2012, and was appointed
Chief Executive Officer of Corero in
January 2013. An IT industry executive
and internet technology entrepreneur,
Ashley has operating experience in
the United States, Europe and Asia.
His previous experience includes:
CEO of Reva Systems, which was
acquired by ODIN, and CEO of Xedia
Corporation, which was acquired by
Lucent. He has provided strategic
advisory services to a number of
leading multinational IT companies
including technology vendors,
distributors and services companies.
Ashley began his career at IBM
Research & Development in the UK.
He is a graduate of Imperial College,
London with a degree in Physics and
is an Associate of the Royal College
of Science.
Ashley has deep technology and
software development skills and
experience.
Cambridge Broadband
Networks Limited.
Director of Eyealike, Inc.
and StepVest LLC.
None.
Nomination Committee
Remuneration Committee
Audit, Risk and Compliance Committee
Chair of Committee
25
Corporate DirectoryOverviewStrategic ReportGOVERNANCEFinancial Statements Chairman’s Corporate
Governance Introduction
Board composition
The Board comprises two Executive Directors and four Non-
executive Directors (including the Chairman), two of whom are
independent. Andrew Miller, former Chief Financial Officer of the
Company, became a Non-executive Director on 1 May 2020.
With effect from 1 May 2020, Lionel Chmilewsky joined the Board
as an Executive Director and CEO of the Company from 1 July 2020.
The Board extends its gratitude to Ashley Stephenson for having led
the organisation over the past seven years while helping to pioneer
and position our cutting-edge technology in the marketplace. The
Company continues to benefit from his extensive experience and
technology leadership in his new role as Chief Technology Officer
and Executive Director.
Lionel Chmilewsky has been an excellent addition to Corero’s
executive management team, the Company will benefit from his
extensive expertise in international business development for
technology companies as we enter the next phase of our evolution.
We are equally delighted with the hiring of Neil Pritchard who
joined at the same time. Neil is an experienced listed Group
Finance Director, who strongly complements the existing team and
has been active in various strategic initiatives such as our recently
announced new debt financing arrangements.
Stakeholder engagement
Details of our stakeholders along with details of the forms of
engagement undertaken by the Board are set out on page 20.
We seek to maintain an open dialogue with all stakeholders including
shareholders, customers, partners, suppliers and our employees,
even in these on-going uncertain times with the global pandemic.
In this context, I would like to give my continued thanks to our
institutional and private investors for their continued support; to all
wider stakeholders such as our customers, strategic partners and
suppliers; and thank you to all our employees for their efforts, hard
work and commitment.
Looking ahead
The results for 2020 represent the next stage of Corero’s growth.
The strategy and its implementation remains focused on acquiring
new customers with a high degree of recurring revenues to deliver
growth. Our continually developing technology, OEM partnership
and growing channel momentum complements our investments in
expanding our direct business development and marketing. The
expectation of strong forecast growth in the DDoS market underpins
our continued confidence in the greater growth potential of Corero.
Jens Montanana
Non-executive Chairman
12 April 2021
The results for 2020 represent the next
stage of Corero’s growth. The strategy
and its implementation remains
focused on acquiring new customers
with a high degree of recurring
revenues to deliver growth.
Board commitment to governance
The Board is committed to continue to uphold high standards of
corporate governance, protecting and growing shareholder value,
and engaging in a fair and transparent manner with all of the
Group’s stakeholders.
The Board therefore supports and is committed to the principles of
the QCA Corporate Governance Code. Details of our governance
processes and procedures are set in out in the following pages.
Board leadership and effectiveness
The Board recognises that to remain effective it must ensure
that it has the right balance of skills, experience, knowledge
and independence to enable it to discharge its duties and
responsibilities. The Directors believe in the necessity for open
debate in the boardroom and consider that existing Board
dynamics and processes encourage honest, constructive and open
debate with the Executive Directors. We conduct an annual internal
Board evaluation review. The most recent review conducted in
February 2020 showed that the Board is operating effectively.
Our culture
The Board undertakes informal enquiries of employees to ensure
our values are upheld and promoted to maintain a healthy
corporate culture. Board meetings are normally held at Corero’s
offices in the US and UK which gives the Board the opportunity to
informally interact with employees based at those office locations.
Due to the COVID-19 pandemic, however, virtual Board meetings
have been required in 2020.
26
Corero Network Security plc – Annual Report and Accounts 2020 QCA Code
Compliance
As an AIM-listed company, Corero adopts the principles of the Quoted Companies Alliance Corporate Governance Code (the ‘QCA
Code’). The QCA Code identifies ten principles to be followed in order for companies to deliver growth in long-term shareholder value,
encompassing an efficient, effective and dynamic management framework accompanied by good communication to promote confidence
and trust. The following explains how Corero follows those QCA Code principles:
Establish a strategy and business
model to promote long-term value
for shareholders
Corero’s strategy is focused on being the leader in real-time,
high performance DDoS protection and scaling the business for
profitability though revenue growth.
For more information
please see pages 10
and 11
Understand and meet shareholder
needs and expectations
The CEO and GFD communicate regularly with shareholders,
investors and analysts, including at our half-yearly results
roadshows. The full Board is available at the AGM to
communicate with shareholders.
For more information
please visit: http://www.
corero.com/who-we-are/
investor-relations
Take into account wider
stakeholder and social
responsibilities and their
implications for long-term success
Shareholders, our customers, partners and employees are
our most important stakeholders. We engage with these
communities via regular communications in our day-to-day
activities, and via formal feedback requests.
For more information
please see page 20
Embed effective risk
management, considering
both opportunities and threats,
throughout the organisation
Maintain the Board as a well-
functioning, balanced team led
by the Chair
Ensure that between them the
Directors have the necessary
up-to-date experience, skills
and capabilities
Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvement
Ultimate responsibility for risk management rests with the Board.
Day-to-day management of risk is delivered through the way we
do business and our culture.
For more information
please see pages 21
and 22
The Board has three established Committees: Audit, Risk and
Compliance Committee; Nomination Committee; and Remuneration
Committee. The composition and experience of the Board is
reviewed regularly, primarily by the Nomination Committee.
For more information
please see pages 28 to 30
and 32
The Board is satisfied that its current composition includes an
appropriate balance of skills, experience and capabilities,
including experience of the cyber security market and
international markets.
For more information
please see pages 24, 25
and 31
The Board regularly considers the effectiveness and relevance
of its contributions, any learning and development needs and
the level of scrutiny of the senior management team. An annual
Board effectiveness review is undertaken to enable the Board to
stand back and assess its strengths and areas for development.
For more information
please see page 31
Promote a corporate culture
that is based on ethical values
and behaviours
Corero recognises the importance of culture and values and in
conjunction with employees, defined the Company’s agreed values
which are reinforced via training and performance management.
For more information
please see page 23
1
2
3
4
5
6
7
8
9
Maintain governance structures
and processes that are fit for
purpose and support good
decision making by the Board
10
Communicate how the Company
is governed and is performing
by maintaining a dialogue
with shareholders and other
relevant stakeholders
The Board is responsible for the Group’s overall strategic
direction and management, and for the establishment and
maintenance of a framework of delegated authorities and
controls to ensure the efficient and effective management of the
Group’s operations. The Board is satisfied that the necessary
controls and resources exist within the Company to enable these
responsibilities to be met.
For more information
please see pages 28 to 31
The investors section of our website includes our Annual Report,
results, presentations, notice of AGM and results of the AGM
and general meetings.
For more information
please visit: http://www.
corero.com/who-we-are/
investor-relations
27
Corporate DirectoryOverviewStrategic ReportGOVERNANCEFinancial Statements
Corporate Governance Report
Board composition and responsibilities
The Board sets Corero’s overall strategic direction, reviews management performance and ensures that the Company has the necessary
financial and human resource in place to meet its objectives. Operational management of the Company is delegated to the Chief
Executive Officer.
The Board comprises the Non-executive Chairman, two independent Non-executive Directors, one non-independent Non-executive Director
and two Executive Directors whose Board and Committee responsibilities are set out below:
Non-executive /
Executive Director
Audit, Risk and
Board
Compliance Committee
Remuneration
Committee
Jens Montanana
Richard Last
Peter George
Andrew Miller
Lionel Chmilewsky
Ashley Stephenson
Non-executive
Non-executive
Non-executive
Non-executive
Executive
Executive
Chairman
Member
Member
Member
Member
Member
Chairman
Member
Member
Member
Chairman
Nomination
Committee
Chairman
Member
Member
One third of all Directors are subject to annual reappointment by shareholders, as well as any Director appointed to the Board in the
period since the last AGM, and any Non-executive Director whose tenure is more than nine years or whose independence is the subject of
Board judgement. Lionel Chmilewsky, Richard Last and Andrew Miller will be offering themselves for re-election at the forthcoming AGM.
The Corero Board members’ biographies and their relevant experience, capabilities and skills and are set out on pages 24 and 25.
Board balance and independence
The composition of the Board is reviewed regularly. Appropriate training, briefings, and inductions are available to all Directors on
appointment and subsequently as necessary, taking into account existing qualifications and experience.
The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills and experience, including
operational, commercial and technology expertise and experience. All members of the Board have more than 20 years’ technology
experience through investing in and working for a range of companies from start-ups to large established technology companies,
with complementary financial, commercial, sales and marketing skills.
The skills and experience of the Board are summarised in the table below:
Technology
Cyber security
Sales and
marketing
People
International
Governance
Finance
Jens Montanana
Richard Last
Peter George
Andrew Miller
Lionel Chmilewsky
Ashley Stephenson
The Board is cognisant of the lack of gender diversity and plans to address this as the Company grows.
All Directors are able to take independent legal advice in relation to their duties, if necessary at the Company’s expense. In addition, the
Directors have direct access to the advice and services of the Company Secretary and Group Finance Director. The Directors keep their
skills up to date through a combination of their other roles (if applicable), attending appropriate training courses and seminars funded by
the Company if appropriate, and by reading widely.
28
Corero Network Security plc – Annual Report and Accounts 2020
Board responsibilities
The Board meets, virtually or in person, on average once a quarter;
additional meetings or conference calls are held as required.
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.
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.
The Board has a formal schedule of matters reserved to it for
consideration and approval. These include:
• Strategy and management.
• Responsibility for the overall strategy and management of
the Company.
• 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.
• Changes relating to the Company’s capital structure.
• Delegation of the Board’s powers and authorities.
There are no external advisers to the Board or any of its
Committees, other than the brokers (Canaccord Genuity) and the
auditors (BDO LLP).
Corero’s Chairman, Jens Montanana, is a material shareholder with
an equity interest in Corero of 37.85% at 12 April 2021. His interests
are strongly aligned with all shareholders.
Richard Last is a Corero shareholder with a 0.51% equity interest
in Corero at 12 April 2021 and has been a Non-executive Director
of the Company for over 10 years. His independence has been
considered by the Board. The Board is satisfied that Richard Last
is independent.
Andrew Miller is a Corero shareholder with a 0.22% equity interest
in Corero at 12 April 2021 and was previously Chief Financial
Officer of the Company for over 10 years. His independence has
been considered by the Board. The Board considers him to be
not independent.
Employment and service agreements The Director employment
and service contracts are summarised below:
• Lionel Chmilewsky, Executive Director, has an employment
agreement which provides for the payment of six months’
base salary if the agreement is terminated by the Company
without cause.
• Ashley Stephenson, Executive Director, has an employment
agreement which provides for the payment of six months’
base salary if the agreement is terminated by the Company
without cause.
• The Non-executive Director’s letters of appointment 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.
Non-executive Directors, per their letters of appointment, have
a time commitment to the Company of not less than eight days
per annum including the attendance of Board meetings and the
Company AGM. In addition, Non-executive Directors are expected
to devote appropriate preparation time ahead of each meeting.
29
Corporate DirectoryOverviewStrategic ReportGOVERNANCEFinancial Statements Corporate Governance Report continued
Directors’ conflict of interest
The Company has effective procedures in place to monitor and
deal with conflicts of interest. The Board is aware of the other
commitments and interests of the Directors, and changes to these
commitments and interests are reported to and, where appropriate,
agreed with the rest of the Board.
Evolution of the Company’s governance framework
The Board will, on an on-going basis, and as the Company’s
business develops and grows, review the appropriateness of the
governance framework, including the composition of the Board
and the need for an internal audit function, to ensure the Company
delivers on its strategy and goals whilst maintaining appropriate
governance structures.
Financial matters and internal controls
• Oversight of the Company’s operations ensuring competent
and prudent management, sound planning and management
of adequate accounting and other records.
• 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.
Corporate Governance
• 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.
• Consideration of the independence of the Non-executive Directors.
• Receiving reports on the views of the Company’s shareholders.
The Board receives monthly briefings on the Company’s
performance (including commentary and analysis), key issues
and risks affecting the Company’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 2020, the Board met, virtually
or physically, on five scheduled occasions; further meetings and
conference calls were held as and when necessary (with four
additional such meetings in the year ended 31 December 2020).
Details of Directors’ attendance at scheduled meetings in the year
to 31 December 2020 is shown in the table below:
Jens Montanana
Richard Last
Peter George
Andrew Miller
Lionel Chmilewsky
Ashley Stephenson
*
Lionel Chmilewsky joined the Board on 1 May 2020
Meetings attended
5/5
5/5
5/5
5/5
3/5*
5/5
30
Corero Network Security plc – Annual Report and Accounts 2020 Board Performance
and Remuneration Policy
Introduction
An annual Board effectiveness review is undertaken to enable
the Board to stand back and assess its strengths and areas for
development. This review is conducted internally. A review was
conducted in February 2020, the results of which showed that the
Board is operating effectively. Each Board member’s performance
over the past twelve months was formally reviewed by the
Chairman at the December 2020 Board meeting.
The Board may refresh the performance assessment process
based on external advice and if appropriate engage a third-party
facilitator to assist in the performance of such effectiveness reviews
every three years.
The Remuneration Committee’s (‘RC’) remit is to measure the
performance of and determine the remuneration policy relating
to Directors and senior employees. To support this responsibility,
it has access to professional and other advice external to the
Group. Taking the performance factors into account, it then makes
recommendations to the Board.
To assist the work of the RC, the views of the Chief Executive Officer
and Group Finance Director are also invited where appropriate.
However, they do not participate in any decision related to their
own remuneration.
The Nomination Committee reviews and recommends nominees as
new Directors to the Board. Senior management appointments are
required to be approved by the RC.
The Group is committed to the governing objective of maximising
shareholder value over time. Each year the remuneration framework
and the packages of the Directors are reviewed to ensure they
continue to achieve this objective.
The Group operates in the cyber security market which is a market
with significant growth potential. It is also a competitive market with
a number of companies who are significantly larger than Corero.
The Group’s Executive Director remuneration policy is designed to
attract and retain Directors of the calibre required to maintain the
Group’s position in its marketplace. This is maintained through the
use of bonus and share option schemes, as follows:
Bonus
A cash bonus designed to incentivise specific short-term financial
goals. Goals and objectives are set for the Executive Directors with
a significant weight being on key financial performance metrics.
Executive Directors’ on-target bonuses are set at two-thirds of
base salary.
Share options
Share options are granted to encourage and reward delivery of the
Company’s long-term strategic objectives and provide alignment
with shareholders through the use of share-based incentives.
All share-based incentives offered to Directors have a three year
vesting schedule, with one-third vesting on the first anniversary of
the grant/start date, a further third on the second anniversary of
the grant/start date and the final third the third anniversary of the
grant/start date. Shares acquired on the exercise of options may
not be sold until the second anniversary of the grant date. Share
options are granted with an exercise price set at the higher of
market price or such other price as determined by the RC.
In order to ensure that share options in issue continue to act
as an effective incentive and staff retention tool, the Company
sought shareholder approval at the AGM for the cancellation,
and subsequent regrant, of certain Existing Share Options granted
to various of its directors and employees, and this was enacted on
16 June 2020.
Conflicts of interest
The members of the RC do not have any conflicts from cross-
directorships that relate to the business of the Committee. The
members of the RC do not have any day-to-day involvement in
the running of the Group.
Board changes
Given Corero’s size, the Company does not have internal succession
candidates for the Executive Directors. In the event an Executive
Director replacement is required, the Company would seek to
recruit a replacement through a recruitment search process. The
Board is satisfied that the Company’s middle management will
ensure the Company’s business is not adversely impacted in the
period between an Executive Director leaving and a replacement
being recruited.
31
Corporate DirectoryOverviewStrategic ReportGOVERNANCEFinancial Statements Board Committee Reports
The Board has three established Committees:
• Audit, Risk and Compliance Committee: responsible
for reviewing the Group’s interim and year end results
announcements, and the Annual Report and Accounts;
determining the application of the financial reporting and
internal control and risk management procedures and assessing
the scope, quality and results of the external audit.
• Remuneration Committee: responsible for the policy for the
remuneration of the Executive Directors and senior management;
setting the remuneration of the Executive Directors, determining
the payment of bonuses to Executive Directors; and approving the
Company’s bonus and incentive arrangements for employees.
• Nomination Committee: responsible for reviewing the
composition, structure and size of the Board; assessing the
leadership needs of the Group; and recommending nominees
as new Directors to the Board.
Audit, Risk and Compliance Committee (‘ARCC’) Report
The ARCC members comprise Richard Last, who is the Committee
Chairman, and member Peter George, and meets at least twice a
year. The Company’s Group Finance Director and Group Financial
Controller, and the Company’s external auditors attend the meetings.
In the year ended 31 December 2020, the ARCC met on two
occasions. The attendance of individual Committee members at
ARCC meetings in the year to 31 December 2020 is shown in the
table below:
Remuneration Committee (‘RC’) Report
The RC comprises Peter George, and members Jens Montanana
and Richard Last. The RC meets at least twice a year.
In the year ended 31 December 2020, the RC met on two scheduled
occasions; further meetings and conference calls were held as and
when necessary (with one additional meeting in the year ended 31
December 2020). The attendance of individual Committee members
at scheduled RC meetings in the year to 31 December 2020 is
shown in the table below:
Peter George (Committee Chairman)
Richard Last
Jens Montanana
Meetings attended
3/3
3/3
3/3
The RC’s activities during the year, which are based on its terms of
reference, are set out below:
• Reviewed the performance of the Executive Directors and set the
remuneration of the Executive Directors.
• Determined the payment of bonuses to Executive Directors and
approved the Company’s bonus and incentive arrangements
for employees.
• Ensured the Company’s share option schemes were operated
properly and approved the share option grants to Executive
Directors and employees.
Meetings attended
The remuneration of the Chairman and Non-executive Directors
is decided upon by the Board.
Richard Last (Committee Chairman)
Peter George
2/2
2/2
The ARCC’s activities during the year, based on its terms of
reference, are set out below:
• Reviewed the scope and results of the external audit, its cost
effectiveness and the objectivity of the auditors.
• Reviewed, prior to publication, the interim financial statements,
preliminary results announcement, the annual financial
statements and the other information included in the Annual
Report. Considered the regulatory, technical and operational
risks of the Company and ensured these risks are properly
assessed, monitored and reported on and the appropriate
policies and procedures are in place.
Details of Directors’ remuneration for the year ended 31 December
2020 is set out in note 23 of the financial statements.
Nomination Committee (‘NC’) Report
The NC comprises Jens Montanana (Chairman), Richard Last and
Peter George. The NC meets as required.
In the year ended 31 December 2020, the NC met on one
scheduled occasion. The attendance of individual Committee
members at NC meetings in the year to 31 December 2020 is
shown in the table below:
Meetings attended
1/1
1/1
1/1
The key financial reporting judgements relating to the financial
statements for the year ended 31 December 2020 which the ARCC
have considered and discussed with the auditors, include:
Richard Last
Peter George
Jens Montanana (Committee Chairman)
Financial Statements note
The NC’s activities during the year, which are based on its terms
of reference, are set out below:
Going concern basis for financial statements
Revenue recognition
2.2
2.5
Carrying value of goodwill and intangible assets
2.12 and 8
The ARCC is satisfied with the treatment in the financial statements
and the disclosure in the notes.
• Reviewed the composition, structure, and size of the Board.
• Reviewed the leadership needs of the Group.
32
Corero Network Security plc – Annual Report and Accounts 2020 Directors’ Report
Group results
The Group’s Income Statement on page 42 shows a loss for the
year of $3.8 million (2019: loss $6.6 million).
Dividends
The Directors have not recommended a dividend (2019: $nil).
Going concern
The financial position and cash flows are described in the Financial
Review on page 17. An indication of likely future developments
affecting the Company is included in the Strategic Report on pages
12 to 23.
The Directors are, based on detailed financial projections, of
the opinion that the Group and Company 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. The financial projections
take into account the operational and financial progress made
by the Company over the past year and future opportunities as
described in the Chief Executive Strategic Update on pages 12
and 13, and the Group’s Strategy as detailed on page 11 which
is focused on scaling the business towards profitability.
However, the ability of the Company and Group to achieve the
future profit and cash flow projections cannot be predicted with
certainty. Additionally, the on-going impact of the COVID-19 global
pandemic on the business of the Company and Group is subject
to continuing uncertainty.
Failure of the Company and the Group to meet these projections
and deliver revenue growth may adversely impact the achievability
of the bank loan covenants which may result in the bank loan
being required to be repaid before the maturity date if the revenue
and cash consumption covenants are not met and cannot be
renegotiated. This would adversely impact the Company and the
Group’s working capital position and would require the Company to
raise additional funding, with no absolute guarantee such funding
would be secured.
These circumstances indicate a material uncertainty that may
cast significant doubt on the Company and the Group’s ability to
continue as a going concern for the foreseeable future. However,
although the Directors are confident, based on the forecast
assumptions and information available at the present time, that
the Company and Group will achieve the forecasts, they consider
if it becomes necessary that the covenants could be renegotiated
or further funds raised, and have therefore concluded that it is
appropriate to prepare the financial statements on a going concern
basis. The financial statements do not include the adjustments that
would result if the Group and Company were unable to continue as
a going concern. Further details are included within notes 2 and 3
to the financial statements.
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 22 to the financial statements. As at the
date of this report, 494,852,304 ordinary shares of 1p each (‘ordinary
shares’) were in issue and fully paid with an aggregate nominal value
of $6.9 million.
The market price of the ordinary shares at 31 December 2020
was 10.0p and the shares traded in the range 3.6p to 11.6p (as at
31 December 2019 was 5.88p and the shares traded in the range
2.4p to 12.9p during the year ended 31 December 2019).
Issue of shares powers at the AGM
At the AGM held on 11 June 2020, 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
£494,852.30.
Also at the AGM held on 11 June 2020, 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 £494,852.30
without application of the statutory pre-emption rights contained in
section 561(1) of the Act.
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
12 April 2021:
Ordinary shares of 1 pence each
Jens Montanana*
Premier Miton Group PLC
Juniper Networks, Inc.
Sabvest Capital Holdings Limited
Herald Investment Management
Richard John Koch
Peter Kennedy Gain**
Number
187,300,406
54,107,140
49,179,772
36,250,000
34,592,121
29,701,500
25,815,241
%
37.85
10.93
9.94
7.33
6.99
6.00
5.22
*
of which 33,674,846 are held in the name of JPM International Limited, which is wholly
owned by Jens Montanana, and 125,871,751 are held in the name of The New Millennium
Technology Trust of which Jens Montanana is a beneficiary
** of which 4,900,000 shares are held in the name of Draper Gain Investments Ltd
33
Corporate DirectoryOverviewStrategic ReportGOVERNANCEFinancial Statements Directors’ Report continued
Directors’ shareholdings
Jens Montanana
Richard Last
Peter George
Andrew Miller
Lionel Chmilewsky
Ashley Stephenson
3 April 2021
31 December 2020
31 December 2019
Number
187,300,406
2,500,000
–
1,091,437
–
38,000
%
37.85
0.51
–
0.22
–
0.01
Number
187,300,406
2,500,000
–
1,091,437
–
38,000
%
37.85
0.51
–
0.22
–
0.01
Number
187,300,406
2,500,000
–
1,091,437
–
38,000
%
37.85
0.51
–
0.22
–
0.01
Directors’ indemnities
The Company has qualifying third party indemnity provisions in
place for the benefit of its Directors. These remain in force at the
date of this report.
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 above.
The biographical details of the current Directors of the Company
are set out on pages 24 and 25.
Jens Montanana, Richard Last, Peter George, Andrew Miller, Lionel
Chmilewsky and Ashley Stephenson, hold share options, details of
which are shown in note 27 to the financial statements.
Financial risk management objectives and policies
The Group’s business activities expose it to a variety of financial
risks. The policies for managing these risks are described below:
• Liquidity risk – arises from the Group’s management of working
capital and finance charges. It is a risk that the Group will
encounter difficulty in meeting its financial obligations, including
a repayment term bank loan drawn down by the Company in
May 2018 ($1.8 million at 31 December 2020) details of which
are set out in note 18, as they fall due. Liquidity risk is managed
by the Finance function. Annual budgets are agreed by the
Board, enabling the Group’s cash flow requirements to
be anticipated.
• 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 seeks 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 15). The
Group has no significant concentration of credit risk, with exposure
spread over a number of customers.
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.
• Cash flow interest rate risk – the Group’s policy is to as far
as possible minimise interest rate cash flow risk exposure on
its financing. The Group is exposed to interest rate increases
on the term bank loan ($1.8 million at 31 December 2020)
details of which are set out in note 18, which bears interest at
3-month GBP Libor plus 7.5%. The bank loan does not have early
repayment penalties and thus the Group can if GBP interest
rates increase to punitive levels, seek to refinance the loan.
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 was no material impact from trading
currency risk on the Group’s profit or loss for the year 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. Exchange rate risks
do arise in relation to (i) the bank loan which is GBP denominated
and equity fund raises which are in GBP, given the Company’s AIM
listing, to the extent such funds are required to support US dollar
denominated funding requirements, and (ii) GBP denominated
obligations of the Group given the invoicing currency of the Group
is US dollar denominated. The Group has not hedged such GBP
debt and equity fund raises or GBP denominated expenses in
the past as US denominated funds received by the Group’s UK
subsidiary have been used to fund the Group’s US subsidiary to
the extent such funding has been required, with the GBP funding
requirements satisfied from the GBP denominated funds generated
from GBP debt and equity fund raises. The Group keeps this policy
under review based on the expected timing of US dollar and GBP
operational funding requirements.
The global COVID-19 pandemic brings on-going uncertainty and
wider market disruption globally. The Company continues to closely
monitor its supply chain for the supply and delivery of hardware
appliances to customers. There is a continued risk of COVID-19
resulting in possible supply chain constraints in the short-term and
some IT purchasing decisions by customers being delayed in the
medium-term as the virus transmission effects continue. The Group
has undertaken financial scenario planning to identify actions
that may need to be taken in the event that delays to customers
decision making impacts revenue and cash. These actions will be
implemented as required.
34
Corero Network Security plc – Annual Report and Accounts 2020 Employees
The quality and commitment of the Group’s employees has
played a major role in the Company’s continued progress. 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 plans to provide incentives for
achievements which add value to the business.
Annual General Meeting
Notice of the AGM together with details of the business to be
considered will be sent to shareholders in due course.
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.
By order of the Board
Duncan Swallow
Company Secretary
12 April 2021
The principal risk which applies to the Parent Company’s financial
statements is the risk that the returns generated by the subsidiaries
might not support the carrying value of the cost of the investments
in subsidiaries. The carrying value is tested at least annually for
impairment and, if necessary, impaired as appropriate.
Capital management
The Group monitors its available capital, which it considers to be
all components of equity 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 Company may return capital to shareholders, issue
new shares, or sell assets. The Group does not review its capital
requirements according to any specified targets or ratios.
Treasury management
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 may be 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 Financial
Controller who reports to the Board on the implementation of the
Group treasury policy.
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. The Group complies with local
WEEE regulations. No environmental performance indicators are
therefore included within this report. The Group’s environmental
policy states: “We endeavour to recycle appropriate materials
where possible and to efficiently use natural resources and energy
supplies so as to minimise our environmental impact. We will
comply with the relevant statutes and legislation. Furthermore,
employees are encouraged to be environmentally aware.
Company cars are not provided.”
Research and development
The development of computer software is an integral part of the
Group’s business and the Group continues to develop its software in
response to user demand, and particularly the changing IT security
threat landscape. During the year the Group enhanced the features
and functionality of its existing products. A capital investment of $1.4
million (2019: $1.4 million) was made during the year. Amortisation
of $1.9 million (2019: $2.6 million) and costs not capitalised of $1.6
million (2019: £1.4 million) were charged to the Group Income
Statement during the year.
35
Corporate DirectoryOverviewStrategic ReportGOVERNANCEFinancial Statements Statement of Directors’ Responsibilities
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 on-going integrity
of the financial statements contained therein.
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 financial statements in accordance
with international accounting standards in conformity with the
requirements of the Companies Act 2006. The Directors have
chosen to prepare the Company financial statements in accordance
with FRS101. 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 they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006, 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.
36
Corero Network Security plc – Annual Report and Accounts 2020 Independent Auditor’s Report
to the members of Corero Network Security plc
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at 31
December 2020 and of the Group’s loss for the year then ended;
• the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
• the Parent Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Corero Network
Security plc (the ‘Parent Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2020 which comprise the
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated and Company Statements
of Financial Position, the Consolidated Statement of Cash Flows,
the Consolidated and Company Statements of Changes in Equity
and the notes to the Financial Statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law
and international accounting standards in conformity with the
requirements of the Companies Act 2006. The financial reporting
framework that has been applied in the preparation of the Parent
Company financial statements is applicable law and United
Kingdom Accounting Standards, including Financial Reporting
Standard 101 Reduced Disclosure Framework (United Kingdom
Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of
our report. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
Material uncertainty related to going concern
We draw attention to note 2.2 to the financial statements which
states that the ability of the Group and Parent Company to continue
as a going concern is reliant on the continued availability of its
bank loan, the terms of which require compliance with certain
covenants. Failure to achieve revenue and cash flow projections
may adversely impact the achievability of the bank loan covenants
which could result in the bank calling in the loan. This would require
the Company to raise additional funding, with no guarantee such
funding would be secured.
As stated in note 2.2, these events and conditions indicate that
a material uncertainty exists that may cast significant doubt on
the Group and Parent Company’s ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Given the conditions and uncertainties noted above, we considered
going concern to be a key audit matter. Our evaluation of the
Directors’ assessment of the Group’s and Parent Company’s ability
to continue to adopt the going concern basis of accounting, and our
response to the key audit matter has been set out below:
• we reviewed the bank loan documents to understand the terms
and covenants which the Group and Parent Company is required
to comply with, comparing these to the Group’s forecasts;
• we reviewed the new loan agreement that was signed in the
subsequent period to understand the new terms and covenants;
• we recalculated management’s covenant compliance calculations
for the period under audit using the Directors’ forecasts for a
period of at least 12 months from the date of approval of the
financial statements, and compared them to the covenants in
place for each period; and
• we challenged the forecasts and sensitivity analysis used by the
Directors to assess the Group’s and Parent Company’s ability
to meet its financial obligations as they fall due for a period of
at least 12 months from the date of approval of the financial
statements, by examining post year end order values compared
to forecast financial information and by comparing previous
forecast financial performance to subsequent actual results.
We challenged the Directors’ assessment of the impact of the
COVID-19 pandemic.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections
of this report.
37
Corporate DirectoryOverviewStrategic ReportGovernanceFINANCIAL STATEMENTS Independent Auditor’s Report
to the members of Corero Network Security plc
continued
Overview
Coverage1
Key audit matters
100% (2019: 100%) of Group profit before tax
100% (2019: 100%) of Group revenue
100% (2019: 100%) of Group total assets
Revenue recognition
Goodwill and intangible asset impairment
Going concern
2020
2019
Materiality
Group financial statements as a whole
$381,000 based on 2.26% of revenue (2019: $318,000 based on 2% of aggregate operating expenses and cost of sales)
1 These are areas which have been subject to a full scope audit by the group engagement team
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control,
and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal
controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.
A full scope audit was performed for each component included in the consolidation. All audit work was undertaken by the Group audit
team. There were no non-significant components.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the
Material uncertainty related to going concern section, we have determined the matters described below to be the key audit matters.
Key Audit matter
Revenue recognition
See accounting policy at note 2.5, the key accounting estimate at note
3.2 and note 4.
The Group generates revenue primarily from the sale of hardware and
associated software and related maintenance and support contracts.
It does this directly through arrangements with end-users (either through
the sale of hardware and a software licence or by selling the software
as a service) as well as through distributors. The sales of licences may
be on a perpetual or a fixed term basis.
We considered there to be a significant audit risk arising from the
allocation of the value of the transaction between the multiple elements
of deliverables included in the sale as well as the timing of revenue
recognition with regard to appropriate deferral of maintenance and
support revenues and cut off around the year-end.
How the scope of our audit addressed the key audit matter
We assessed the appropriateness of the revenue recognition policy in accordance with
applicable accounting standards and management’s related accounting treatments.
We gained an understanding of the detail of the Group’s methodology in determining
the fair value of the different deliverables in multiple element arrangements as set out in
note 2.5 and examined management’s approach and resulting fair value measurements,
to check that it provided a suitable basis on which to recognise revenues.
We confirmed the proper identification of performance obligations and price allocation
in bundled products by benchmarking to standalone prices in the price lists.
We assessed the basis upon which performance obligations were recognised for each
material product sold and compared this to accounting guidance, industry practice, and
the Group’s specific circumstances.
We also tested the accuracy of the deferred income balance and tested a sample of
transactions around the year-end to check that they were recorded in the correct period.
Key observations: We are satisfied through the testing performed that revenue
and the related deferred income have been appropriately recognised.
38
Key Audit matter
How the scope of our audit addressed the key audit matter
Goodwill and intangible asset impairment review
See accounting policy at note 2.12, the key accounting estimate at
note 3.2 and note 9.
Management performed an impairment review over its sole cash
generating unit (CGU) – Corero Network Security (CNS) – as at 31
December 2020 using a discounted cash flow model to calculate fair
value less costs to sell. The impairment review necessitates significant
management judgement over the timing and degree of certainty
attaching to forecast net cash flows and the rate at which those
future cash flows should be discounted to present value. Certain key
assumptions and data points are required to be disclosed along with
sensitivity calculations where reasonably possible changes in key
assumptions could give rise to an impairment. The accurate disclosure of
such information formed part of the risk we assessed as being present.
Our work on the impairment review prepared by management had a dual
focus: firstly, to check that the model was mechanically accurate and prepared
in accordance with the requirements of applicable accounting standards and
secondly, to check that the assumptions regarding future cash flows and the rate at
which they had been discounted were appropriate to the Group’s circumstances.
We checked and confirmed the consistency of the forecasts used for impairment
with the forecasts used for going concern.
We used our internal valuations experts to assist with our interrogation of the
model and access the appropriateness of the discount rate. This work also included
comparison to industry data, historic trading, and macro-economic factors.
Our audit procedures relating to the review of forecast operating cash flows included
agreeing the existence of these to selected post year-end sales and gaining an
understanding of company internal sales initiatives which are expected to drive
growth in 2021, as well as a comparison of previous forecast to actual outcomes.
We checked that no additional impairment indicators in respect of development
costs, intangible assets and property, plant and equipment were present.
We also considered the appropriateness of the disclosures made in the financial
statements with reference to the requirements of applicable accounting standards.
Key observations: Based on the procedures we performed we consider the
judgements made by management in assessing the carrying value of goodwill
and intangible assets to be reasonable and the disclosures are appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that
are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence,
when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
Key Audit matter
Group financial statements
Parent company financial statements
2020
$’000
Materiality
381
2019
$’000
318
2020
$’000
190.5
2019
$’000
159
Basis for
determining
materiality
Rationale for
the benchmark
applied
Performance
materiality
Basis for
determining
performance
materiality
2.26% of revenue
2% of aggregate operating
expenses and cost of sales
50% of Group materiality
50% of Group materiality
We believe that revenue has become
the most appropriate benchmark for
materiality since revenue has become
more consistent and a better indicator
of the performance of the business.
In 2019 and previous years we
believed that this was the most
appropriate benchmark for materiality
since it represented the more
consistent measure from year to year.
We deem this to be the most
appropriate measure for
assessing the Group’s scale
of operations and level of
activity
We deem this to be the most
appropriate measure for
assessing the Group’s scale
of operations and level of
activity
75% – 285.75
75% – 238.50
75% – 142.86
75% – 119.25
based on past experience and
other factors
based on past experience and
other factors
based on past experience
and other factors
based on past experience
and other factors
39
Independent Auditor’s Report
to the members of Corero Network Security plc
continued
Component materiality
We set materiality for the Corero Network Security Inc. component of the Group based on 90% (2019: 90%) of Group materiality as it makes
up the majority of the Group’s external revenue generating activities. UK components were audited to a lower materiality of between 10%
and 26% (2019: between 5% and 30%) of Group materiality. In the audit of each component, we further applied a performance materiality
level of 75% of the component materiality level to our testing to ensure that the risk of errors exceeding component materiality was
appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £19,050 (2019:£14,650).
We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report
and Accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies
Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic Report and
Directors’ report
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we
are required to report
by exception
We have nothing to report in respect of the following matters in relation to which 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.
40
• We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and
remained alert to any indications of fraud or non-compliance
with laws and regulations throughout the audit.
• We had regular discussion with management during the audit
on the instances of identified fraud and non-compliance with
laws and regulations.
• We designed our audit procedures to detect irregularities,
including fraud. Our procedures included journal entry testing,
with a focus on large or unusual transactions based on our
knowledge of the business; enquiries with in-house Legal and
Group Management; and focussed testing as referred to in the
Key Audit Matters section above.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of
not detecting a material misstatement due to fraud is higher than the
risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery, misrepresentations
or through collusion. There are inherent limitations in the audit
procedures performed and the further removed non-compliance with
laws and regulations is from the events and transactions reflected in
the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company
and the Parent Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Julian Frost
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
12 April 2021
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Responsibilities of Directors
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,
and for such internal control as the Directors determine is necessary
to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group’s and the Parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws
and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are
capable of detecting irregularities, including fraud is detailed below:
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and its components and
determined that the most significant frameworks which are directly
relevant to specific assertions in the financial statements are those
than relate to the reporting framework, Companies Act 2006 and the
AIM rules and data privacy and the relevant tax regulations.
• We understood how the Group and its components are
complying with those frameworks by making enquiries of
management, those responsible for legal and compliance
procedures. We corroborated our enquiries through our review
of board minutes and papers provided to the Audit Committee.
• We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud might
occur, by meeting with management to understand where they
considered there was a susceptibility to fraud.
• Our audit planning identified fraud risks in relation to
management override and risk of fraud in revenue recognition
which has been assessed as a Key Audit Matter above.
We obtained an understanding of the processes and controls
that the Group has established to address risks identified,
or that otherwise prevent, deter and detect fraud and how
management monitors the processes and controls.
41
Consolidated Income Statement
for the year ended 31 December 2020
Continuing operations
Revenue
Cost of sales
Gross profit
Operating expenses
Consisting of:
Note
4
Operating expenses before depreciation and amortisation
Depreciation and amortisation of intangible assets
10,11,12
Loss from operations
Share-based payments
Operating loss
Finance income
Finance costs
Loss before taxation
Taxation credit
Loss after taxation
Loss after taxation attributable to equity owners of the parent
Basic and diluted loss per share
Basic and diluted loss per share
EBITDA
Adjusted EBITDA – for DDPaaS depreciation
Adjusted EBITDA – for DDPaaS depreciation and share based payments
Adjusted EBITDA – for DDPaaS depreciation, share based payments and unrealised
foreign exchange differences on intercompany loan – Fully adjusted basis
The notes on pages 49 to 79 form part of these financial statements.
5
6
7
8
8
8
8
Year ended
Year ended
31 December 2020
$’000
31 December 2019
$’000
16,877
(3,832)
13,045
(16,431)
(14,114)
(2,317)
(3,386)
(359)
(3,745)
16
(301)
(4,030)
246
(3,784)
(3,784)
Cents
(0.8)
(1,428)
(1,173)
(814)
(551)
9,714
(1,842)
7,872
(13,808)
(10,767)
(3,041)
(5,936)
(265)
(6,201)
15
(375)
(6,561)
–
(6,561)
(6,561)
Cents
(1.6)
(3,160)
(3,035)
(2,770)
(2,457)
42
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2020
Loss for the year
Other comprehensive (expense)/income:
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences
Other comprehensive income for the year net of taxation attributable
to the equity owners of the parent
Total comprehensive expense for the year attributable to the equity owners of the parent
Year ended
Year ended
31 December 2020
$’000
31 December 2019
$’000
(3,784)
(6,561)
216
216
(3,568)
429
429
(6,132)
43
Consolidated Statement of Financial Position
as at 31 December 2020
Assets
Non-current assets
Goodwill
Acquired intangible assets
Capitalised development expenditure
Property, plant and equipment – owned assets
Leased right of use assets
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current Liabilities
Trade and other payables
Lease liabilities
Deferred income
Borrowings
Net current assets
Non-current liabilities
Trade and other payables
Lease liabilities
Deferred income
Borrowings
Net assets
Capital and reserves attributable to the equity owners of the parent
Share capital
Share premium
Capital redemption reserve
Share options reserve
Foreign exchange translation reserve
Accumulated profit and loss reserve
Total shareholders’ equity
As at
31 December 2020
$’000
As at
31 December 2019
$’000
Note
9
10
11
12
12
15
14
15
18
17
20
18
18
17
20
18
22
23
8,991
9
4,646
1,099
237
694
15,676
98
3,714
10,140
13,952
29,628
(6,461)
(86)
(3,444)
(2,073)
(12,064)
1,888
(402)
(171)
(2,705)
(405)
(3,683)
13,881
6,914
82,122
7,051
968
(1,384)
(81,790)
13,881
8,991
7
5,169
652
357
307
15,483
63
2,572
8,321
10,956
26,439
(2,008)
(112)
(2,800)
(1,149)
(6,069)
4,887
(139)
(257)
(1,096)
(1,788)
(3,280)
17,090
6,914
82,122
7,051
609
(1,600)
(78,006)
17,090
These financial statements were approved by the Board of Directors on 12 April 2021 and signed on their behalf.
Lionel Chmilewsky
Director
The notes on pages 49 to 79 form part of these financial statements.
44
Company Statement of Financial Position
as at 31 December 2020
Assets
Non-current assets
Investments in subsidiaries
Trade and other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Liabilities
Current Liabilities
Trade and other payables
Borrowings
Net current assets
Non-current liabilities
Trade and other payables
Borrowings
Net assets
Total equity attributable to owners of the Parent
Share capital
Share premium
Capital redemption reserve
Share options reserve
Foreign exchange translation reserve
Accumulated profit and loss reserve
Total equity
As at
31 December 2020
$’000
As at
31 December 2019
$’000
Note
13
15
15
18
18
18
18
22
23
60,921
77
60,998
–
9,875
9,875
(5,845)
(1,436)
(7,281)
2,594
(143)
(405)
(548)
63,044
6,914
82,122
7,051
968
(9,947)
(24,064)
63,044
20,772
74
20,846
8
7,636
7,644
(5)
(1,149)
(1,154)
6,490
(139)
(1,788)
(1,927)
25,409
6,914
82,122
7,051
609
(10,724)
(60,563)
25,409
The Company financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework.
The Company has taken advantage of the following disclosure exemptions:
The requirements of IAS 7 Statement of Cash Flows, IFRS 7 Financial Instruments: Disclosures and IAS 24 Related Party Disclosures.
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 $36.5 million (2019: loss $8.9 million).
These financial statements were approved by the Board of Directors on 12 April 2021 and signed on their behalf.
Lionel Chmilewsky
Director
The notes on pages 49 to 79 form part of these financial statements.
45
Consolidated Statement of Cash Flows
for the year ended 31 December 2020
Operating activities
Loss before taxation for the year
Adjustments for movements:
Amortisation of acquired intangible assets
Amortisation of capitalised development expenditure
Depreciation – owned assets
Depreciation – leased assets
Finance income
Finance expense
Finance lease interest costs
Share based payments expense
Cash used in operating activities before movement in working capital
Movement in working capital:
Decrease in inventories and sales evaluation assets
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Net movement in working capital
Cash generated from/(used in) operating activities
Taxation received
Net cash generated from/(used in) operating activities
Cash flows from investing activities
Purchase of intangible assets
Investment in development expenditure
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of share capital (post fees)
Proceeds from borrowings
Finance income
Lease liability payments
Finance expense
Repayments of borrowings
Net cash (used in)/generated from financing activities
Increase in cash and cash equivalents
Effects of exchange rates on cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
The notes on pages 49 to 79 form part of these financial statements.
46
Year ended
31 December 2020
$’000
Year ended
31 December 2019
$’000
(4,030)
(6,561)
6
1,933
514
119
(16)
274
27
359
(814)
45
(1,187)
6,852
5,710
4,896
246
5,142
(8)
(1,410)
(1,015)
(2,433)
–
637
16
(136)
(206)
(1,187)
(876)
1,833
(14)
8,321
10,140
13
2,638
450
65
(15)
364
11
265
(2,770)
153
937
1,129
2,219
(551)
–
(551)
(6)
(1,360)
(579)
(1.945)
3,958
–
15
(74)
(296)
(856)
2,747
251
44
8,026
8,321
Consolidated Statement of Changes in Equity
for the year ended 31 December 2020
Share
capital
$’000
Share
premium
account
$’000
Capital
redemption
reserve
$’000
Share
options
reserve
$’000
Foreign
exchange
translation
reserve
$’000
Accumulated
profit and loss
reserve
$’000
Total
attributable to
equity owners
of the parent
$’000
5,740
79,338
7,051
344
(2,029)
1 January 2019
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
Total contributions by and distributions to owners
31 December 2019 and 1 January 2020
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Contributions by and distributions to owners
Share based payments
Total contributions by and distributions to owners
–
–
–
1,174
1,174
6,914
–
–
–
–
–
–
–
–
2,784
2,784
82,122
–
–
–
–
–
–
–
–
–
–
7,051
–
–
–
–
–
429
429
–
–
–
(1,600)
–
216
216
–
–
–
–
265
–
265
609
–
–
–
359
359
968
(71,445)
(6,561)
–
(6,561)
–
–
–
(78,006)
(3,784)
–
(3,784)
–
–
18,999
(6,561)
429
(6,132)
265
3,958
4,223
17,090
(3,784)
216
(3,568)
359
359
31 December 2020
6,914
82,122
7,051
The share capital comprises the nominal values of all shares issued.
(1,384)
(81,790)
13,881
The share premium account comprises the amounts subscribed for share capital in excess of the nominal value, net of issuance costs.
The capital redemption reserve comprises the amount transferred from deferred shares on redemption of the deferred shares.
The share options reserve represents the cost to the Group of share options.
The foreign exchange translation reserve arises on retranslating the net assets of UK operations into US dollars.
The retained earnings are all other net gains and losses and transactions with owners not recognised elsewhere.
The notes on pages 49 to 79 form part of these financial statements.
47
Company Statement of Changes in Equity
for the year ended 31 December 2020
Share
capital
$’000
Share
premium
account
$’000
Capital
redemption
reserve
$’000
Share
options
reserve
$’000
Foreign
exchange
translation
reserve
$’000
Accumulated
profit and loss
reserve
$’000
Total
equity
$’000
5,740
79,338
7,051
344
(12,073)
(51,650)
28,750
–
–
–
265
–
265
609
–
–
–
359
359
968
–
1,349
1,349
–
–
–
(8,913)
–
(8,913)
–
–
–
(10,724)
(60,563)
(8,913)
1,349
(7,564)
265
3,958
4,223
25,409
36,499
777
–
777
777
–
–
36,499
–
36,499
37,276
–
–
359
359
(9,947)
(24,064)
63,044
1 January 2019
Loss for the year
Other comprehensive income
Total comprehensive expense for the year
Contributions by and distributions to owners
Share-based payments
Issue of share capital
Total contributions by and distributions to owners
31 December 2019 and 1 January 2020
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Contributions by and distributions to owners
Share-based payments
Total contributions by and distributions to owners
–
–
–
–
–
–
–
–
1,174
1,174
6,914
2,784
2,784
82,122
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,051
–
–
–
–
–
31 December 2020
6,914
82,122
7,051
The notes on pages 49 to 79 form part of these financial statements.
48
Notes to the Financial Statements
1. General information
Presentation currency
These consolidated financial statements are presented in US dollars (‘$’) which represents the presentation and functional currency
of the Group.
The average $–GBP sterling (‘GBP’) exchange rate used for the conversion of the Consolidated Income Statement for the 12 months ended
31 December 2020 was 1.28 (2019: 1.28). The closing $–GBP exchange rate used for the conversion of the Group’s assets and liabilities at
31 December 2020 was 1.37 (2019: 1.33).
Corero Network Security plc is a public limited company incorporated in the United Kingdom under the Companies Act 2006 and
registered in England and Wales. The functional currency of the Company entity is GBP.
2. Significant accounting policies
2.1 Basis of preparation
The Group financial statements have been prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006. The Parent Company financial statements have been prepared in accordance with Financial
Reporting Standard 101 (‘FRS 101’) ‘Reduced Disclosure Framework’.
2.2 Going Concern
The financial statements have been prepared on a going concern basis.
The Directors have prepared detailed income statement, balance sheet and cash flow projections for the period to 31 December 2022.
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 and Company will maintain a positive cash balance until at least December 2022. In addition,
the projections and sensitivity analyses confirm that the bank loan covenants will be met for a period of at least 12 months from the date
of approval of these financial statements.
On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis.
However, the ability of the Company and Group to achieve the future profit and cash flow projections cannot be predicted with certainty.
Additionally, the impact of the on-going COVID-19 global pandemic on the business of the Company and Group brings continued
global uncertainties.
The inability of the Company and the Group to meet these projections and deliver revenue growth may adversely impact the achievability
of the bank loan covenants which may result in the bank loan being required to be repaid before the maturity date, assuming that the
revenue and cash consumption covenants are not met and cannot be renegotiated. This would adversely impact the Company and
the Group’s working capital position and could require the Company to raise additional funding, with no guarantee such funding could
be secured.
These circumstances therefore indicate a material uncertainty that may cast significant doubt on the Company and the Group’s ability
to continue as a going concern for the foreseeable future.
Although the Directors are confident, based on the forecast assumptions and information available at the present time, that the Company
and Group will achieve the forecasts, they consider if it becomes necessary, that the covenants could be renegotiated or further funds
raised, and have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis. The financial
statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.
Further details are included within notes 2 and 3 to the financial statements.
49
Notes to the Financial Statements
continued
2. Significant accounting policies continued
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 2020.
Subsidiaries are entities controlled by the Group. Control is deemed to exist when the Group has all of the following elements: a) power
over the subsidiary, b) exposure or rights to variable returns from that subsidiary, and c) ability to use its power to affect the amount of the
return from the subsidiary. The results, assets, liabilities and cash flows of subsidiaries are included in the consolidated financial statements
from the date control commences until the date that control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by the Group.
Intra-group balances and transactions are eliminated on consolidation.
2.4 Business combinations
The acquisition method is used to account for all acquisitions. The cost of an acquisition is measured at the fair values, on the date
of acquisition, 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.
2.5 Revenue
The Group’s revenue is derived from the following products and services:
• appliance and perpetual software licenses;
• support services for a defined term;
• installation and training services;
• DDoS Protection as-a-Service (‘DDPaaS’) for a defined term;
• SecureWatch Managed Service (enhanced security monitoring services) for a defined term; and
• software subscription licenses for a defined term.
The element of DDPaaS revenues pertaining to the lease of as-a-service assets is included in reported revenues and is recognised
on a straight-line basis over the term of the contract.
Performance obligations, timing of revenue recognition and revenue recognition
Revenue is recognised when control of the goods (appliances and software) transfer to the customer and services are delivered. Goods are
shipped free on board (‘FOB’) from Corero, or Corero’s contract manufacturer, to the customer. The point of transfer of control for appliances
is at the point of FOB shipment to the customer and for software at the point of electronic transfer to the customer.
Revenue recognised on transfer of control
of appliance and software products
Appliance, perpetual software licenses and software
subscription licenses
Revenue recognised over-time (over the term of the contract)
Support, DDPaaS and SecureWatch Managed services
Revenue recognised once the service has been delivered
Installation and training services
Determining the transaction price
The contract price is determined by reference to the Corero Sales Quotation or DDPaaS Agreement and is a fixed price. Certain DDPaaS
contracts have an element of the transaction value or all of the transaction value determined by reference to a share of the customers’ revenue
generated from the Corero solution (‘Revenue Share’). This Revenue Share revenue is recognised when the Revenue Share is determined.
Corero does not have any other variable consideration payable by the customer and does not pay any consideration to the customer.
There is no provision for purchase price adjustments, right of return or price concessions.
50
Allocating amounts to performance obligations
For contracts containing only a single performance obligation (annual support services, ‘DDPaaS’ and SecureWatch Managed Service)
there is no requirement to make an allocation of the contract price.
For contracts containing multiple products, the transaction price is allocated to the separate performance obligations based on relative
stand-alone selling prices (‘SSP’). The SSP is determined using defined price lists and historic customer discount rates.
Incremental costs of obtaining a contract
Sales commission paid to Corero sales employees is an incremental cost of obtaining a contract.
Sales commission relating to the support revenue from a new sales contract is recorded in prepayments and amortised over five years.
Corero follows the requirements of the IFRS 15 standard with regards to the amortisation period which requires amortisation on a
systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The expectation,
supported by historic evidence, is that customers will generally renew their support contracts for more than three years with the additional
expectation of follow-on hardware and software (and associated services) business from a significant number of existing customers. Based
on this, and consistent with previous treatment, Corero has assessed that a reasonable period for capitalised sales commission to be
amortised is five years. Periodic customer reviews will be undertaken to ascertain if there is any evidence that the value of the customer
relationship has been negatively impacted, in which case the prepayment will be appropriately written down. Applying the practical
expedient, Corero recognises the incremental costs of obtaining contracts as an expense when incurred if the amortisation period of the
prepayment that Corero otherwise would have recognised is one year or less.
Fulfilment costs
Corero’s principal fulfilment costs relate to the costs of the Corero customer support team which delivers the customer support services,
DDPaaS services and the SecureWatch Managed services. These costs are not separately allocated or identifiable against specific
customers. Therefore, these costs are recognised in the period in which they are incurred in the Consolidated Income Statement.
Contract assets and liabilities
Contract assets arise when goods and services have been delivered and invoiced but payment is not yet due. Contract liabilities arise
for future delivery of services which have been invoiced and payment is due. Contract liabilities are shown as deferred income in the
Statement of Financial Position.
2.6 Government grants
Government grants are recognised at fair value when there is reasonable assurance that the Group will comply with the conditions
attaching to them and the grant will be received. Grants related to purchase of assets are treated as deferred income and allocated to
the Consolidated Income Statement over the useful lives of the related assets while grants related to expenses are netted off against the
related item of expenditure in the Consolidated Income Statement.
2.7 Cost of sales
Cost of sales includes all direct costs associated with revenue generation, including goods directly related to revenue, services delivery,
operation costs, DDoS as-a-service depreciation and amounts charged by external third parties for services. Examples of such costs would
include third-party appliance costs and third-party software license costs.
2.8 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 Consolidated Income Statement.
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 from GBP into US dollars at the
exchange rate at the reporting date. Income and expense items are translated into US dollars at the average exchange rates for the
period. The resulting exchange differences are recognised in the foreign exchange translation reserve.
51
2. Significant accounting policies continued
2.9 Intangible assets
Internally generated intangible assets
The Group’s internally generated intangible asset relates to its development expenditure.
Development expenditure is capitalised only when it is probable that future economic benefit will result from the project and the following
criteria are met:
• the technical feasibility of the product has been ascertained;
• adequate technical, financial and other resources are available to complete and sell or use the intangible asset;
• the Group can demonstrate how the intangible asset will generate future economic benefits and the ability to use or sell the intangible
asset can be demonstrated;
• it is the intention of management to complete the intangible asset and use it or sell it; and
• the development costs can be measured reliably.
Expenditure not meeting these criteria is expensed in the Consolidated Income Statement.
After initial recognition, internally-generated intangible assets are carried at cost less accumulated amortisation and any impairment
losses. Amortisation is charged once the asset is capable of generating economic benefits.
Acquired intangible assets
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 and
customer relationships.
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.
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 – three years straight line.
• Capitalised development expenditure – five years straight line.
Amortisation costs are included within operating expenses in the Consolidated Income Statement. Methods of amortisation and useful
lives are reviewed, and if necessary adjusted, at each reporting date.
2.10 Property, plant and equipment
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 basis).
• Right-of-use assets – period of the lease (straight-line basis).
• Computer equipment, evaluation assets and DDoS Protection as-a-Service assets – three years (straight-line basis).
• Fixtures and fittings – five years (straight-line basis).
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. Evaluation assets are used by customers during proof-
of-concept trials. Evaluation assets are stated at cost less accumulated depreciation. When an evaluation asset is retained by a customer
as part of a sale, the net book value of the evaluation asset is charged to cost of sales. Depreciation of DDoS Protection as-a-Service
assets is charged to cost of sales.
52
Subsequent costs are included in an asset 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 Consolidated Income Statement as incurred.
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 included in the Consolidated Income Statement.
2.11 Inventory
Inventory is stated at the lower of cost or net realisable value. Cost is computed using standard cost, which approximates to 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, the value of which may not be recoverable.
To minimise this risk, the Group evaluates inventory levels and expected usage on a periodic basis and records valuation allowances
as required.
2.12 Impairment
At each reporting date, the Group assesses whether there is any indication that its assets have been impaired. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. If it is not possible to estimate
the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit (‘CGU’) to which the asset belongs
is determined.
The recoverable amount of an asset or a CGU is the higher of its fair value less costs to sell and its value in use. The recoverable amount is
calculated using the present value of the future cash flows expected to be derived from an asset or CGU. This present value is derived using
a cost of capital 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 or CGU 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
Consolidated Income Statement.
Goodwill acquired in a business combination is, from the acquisition date, allocated to each of the CGU’s or groups of CGU’s 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 CGU’s if the recoverable amount of the CGU is less than the carrying amount of the CGU. The impairment
loss is allocated to reduce the carrying amount of the assets of the CGU by first reducing the carrying amount of any goodwill allocated to the
CGU, and then reducing the carrying amounts of the other assets of the CGU pro rata.
If an impairment loss subsequently reverses, the carrying amount of the asset or CGU 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 Consolidated Income Statement. Impairment losses on goodwill are not
subsequently reversed.
2.13 Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
• leases with a duration of 12 months or less; and
• leases of low value assets.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Group’s incremental
borrowing rate on commencement of the lease is used.
53
2. Significant accounting policies continued
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option
being exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the lease.
Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding
and are reduced for lease payments made. Lease payments are analysed between capital and interest. The interest element is charged
to the Consolidated Income Statement over the period of the lease. The capital element reduces the balance owed to the lessor.
Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life
of the asset.
The total rentals payable under leases which are not recognised as a right-of-use asset and a lease liability (an ‘operating lease’)
are charged to the Consolidated Income Statement on a straight-line basis over the lease term.
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.
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 (temporary differences), or because they are never taxable or deductible (permanent differences).
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 Post-retirement benefits
The Group makes contributions in respect of certain employees to defined contribution pension plans under which it is required to pay
fixed contributions to group and personal pension funds.
Contributions to the schemes are based on a proportion of the employees’ earnings and are charged to the Consolidated Income
Statement. The Group has no obligation beyond these contributions.
54
2.17 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. The simplified approach is used for assessing the expected credit loss on trade receivables, requiring the lifetime expected credit
loss to be recorded as the provision for impairment.
An impairment provision is recorded against the intercompany loan note instrument between the Company and Corero Network Security,
Inc. based on calculating the risk adjusted carrying value of the loan to take account of the credit loss which is expected to arise over the
period until the cash is realised. The amount of the provision is based on whether there has been a significant increase in credit risk since
the initial recognition of the loan. In situations where the credit risk has not increased significantly and the loan amount is expected to be
recovered, the expected credit loss is limited to the effect of discounting the intercompany loan over the period until repayment is realised
at the effective interest rate.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits on call with banks.
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.
Debt obligations
Debt obligations include interest bearing bank borrowings which are stated at their fair value less transaction costs at time of initial
recognition. Debt obligations are subsequently measured at amortised cost.
2.18 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 costs.
2.19 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.
If a granted option is cancelled and regranted the increase in fair value of the granted option measured immediately before and after
the cancellation and regrant is added to the value of the employee’s service received in exchange for the grant. If an option grant is
cancelled the previously recorded expense is credited to the Consolidated Income Statement.
At each reporting date, the Group revises its estimate of the number of options that are expected to become exercisable.
When share options are exercised, the proceeds received, net of any transaction costs, are credited to share capital (nominal value)
and share premium.
2.20 Standards and Interpretations not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued that are effective in future
accounting periods that the Group has decided not to adopt early as they will not have a significant impact on the presentation of the
Group financial statements.
55
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 and a project has passed
the feasibility phase, 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. Fair value less costs to sell 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 appropriate discount rates. 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 CGU are set out in note 9.
Impairment of investments (applies to the Company financial statements only)
The Directors have reviewed the cost of investments in subsidiaries of the Company with reference to current and future trading conditions.
The investment in subsidiaries has been reviewed with reference to a valuation based on a discounted free cash flow, in conjunction with
the goodwill impairment review, which the Directors consider to be an appropriate valuation methodology.
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
contained in the projections is detailed in the note 2.2.
Standalone Selling Price – Revenue recognition
On a quarterly basis the Group analyses the selling prices for each deal compared to the current Standalone Selling Price (‘SSP’).
This analysis includes grouping similar deals based on qualitative factors such as customer profile, size, and region, together with a
quantitative comparison to the then current SSP. SSP fair value prices are adjusted for future quarters if management identifies a pattern
of variances of greater than 10% between actual selling prices and the then current SSP.
56
4. Segment reporting
Business segments
The Group is managed according to one business unit, Corero Network Security, which makes up the Group’s reportable operating
segment. This business unit forms 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 Group’s revenues from external customers are divided into the following geographies:
Year
ended
31 December 2020
$’000
Year
ended
31 December 2019
$’000
The Americas
EMEA
APAC
ROW
Total
10,988
4,323
1,278
288
16,877
Revenues from external customers are identified on the basis of invoicing systems and adjusted to take into account the difference
between invoiced amounts and deferred revenue adjustments as required by IFRS.
An international SaaS customer, the Group’s largest customer, accounted for 19% of 2020 revenue (2019: 11%).
The revenue is analysed as follows for each revenue category:
Software license and appliance revenue
DDoS Protection as-a-Service revenue
Maintenance and support services revenue
Total
The revenue is analysed by timing of delivery of goods or services as:
Point in time delivery
Over time
Total
2020
$’000
8,446
2,876
5,555
16,877
2020
$’000
8,446
8,431
16,877
6,552
2,468
395
299
9,714
2019
$’000
3,821
1,287
4,606
9,714
2019
$’000
3,821
5,893
9,714
No unsatisfied performance obligations arise except from those revenues which are recognised over time. See note 20 for further details.
The as-a-service assets element of DDoS Protection as-a-Service revenues arise under lease arrangements.
57
4. Segment reporting continued
Contract balances
Contract assets
Contract liabilities
At 1 January
Transfers in the period to/from trade receivables from/to contract assets
Amounts included in contract liabilities that were recognised as revenue
in the period from the opening balance
Amounts included in contract liabilities that were recognised as revenue
from amounts invoiced in the period
Amounts invoiced in the period and not recognised as revenue in the period
2020
$’000
1,326
1,103
–
–
–
2019
$’000
1,360
(34)
–
–
–
At 31 December
2,429
1,326
Company
The Company has no contract assets or liabilities (2019: $nil).
5. Loss for the year
The following items have been included in arriving at the Group’s loss for the year before taxation:
2020
$’000
3,896
–
2019
$’000
2,880
–
(3,211)
(1,974)
(5,219)
10,683
6,149
(3,919)
6,909
3,896
DDoS Protection as-a-Service asset depreciation
Unrealised loss on intercompany loan
Finance expense – Clydesdale loan including loan fees
Finance expense – lease liability
Development expenditure not capitalised
Amortisation of acquired intangible assets (note 10)
Amortisation of capitalised development expenditure (note 11)
Depreciation of property, plant and equipment (note 12)
Lease rentals payable
Auditor’s remuneration
Remuneration received by the Company’s auditor for the audit of these Financial Statements
The audit of the financial statements of other Group companies
Fees payable to the Company’s auditor for taxation compliance services
Fees payable to the Company’s auditor for taxation advisory services
2020
$’000
255
263
274
27
1,562
6
1,933
633
216
2020
$’000
105
41
33
17
196
2019
$’000
125
313
364
11
1,423
13
2,638
515
267
2019
$’000
85
37
30
–
152
58
6. Tax on loss on ordinary activities
Current tax credit
Total
2020
$’000
246
246
2019
$’000
–
–
The tax assessed on the loss on ordinary activities for the year differs from the weighted average UK corporate rate of tax of 19.0% per the
2019 and 2020 budgets (2019: 19.0%). The differences are reconciled below:
Total tax reconciliation
Loss before taxation
Theoretical tax credit at UK Corporation tax rate 19.0% (2019: 19.0%)
Effect of:
– expenditure that is not tax deductible
– R&D tax credits
– accelerated capital allowances
– other timing differences
– losses not utilised
Actual taxation credit
2020
$’000
(4,030)
(766)
168
246
(58)
–
656
246
2019
$’000
(6,561)
(1,247)
296
–
(31)
1
981
–
Factors affecting future tax charges
As at 31 December 2020, the Group’s cumulative fixed asset timing differences were $76,000 (2019: $195,000) and no deferred tax asset
has been recognised in respect of these items.
In addition, the tax losses at that date amounted to $94.2 million (2019: $91.1 million). This comprised UK tax losses of $13.5 million and US
tax losses of $80.7 million. $9.0 million of the tax losses relate to pre-acquisition US tax losses which can be offset against taxable profits
over 15 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 expire 20 years from the end of the accounting period in which the loss arose.
UK tax losses arising in the period prior to 1 April 2017 can only used against taxable profits of the same trade, after 1 April 2017 the
losses can be used against total company profits.
Deferred tax assets of $2.5 million (2019: $2.4 million) relating to the UK tax losses (applying a tax rate of 19.0%, the rate substantively enacted
on 17 March 2020) and the deferred tax assets of $17.0 million (2019: $16.5 million) relating to the US tax losses and taxable temporary fixed
asset differences (applying a tax rate of 21.0%) have not been recognised due to uncertainties as to the extent and timing of their future recovery.
7. 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. The effects of anti-dilutive ordinary shares resulting from the exercise of share options
are excluded from the calculation of the loss per share. Therefore, the diluted loss per share is equal to the loss per share.
Basic and diluted loss per share
2020
weighted
average number
of 1p shares
Thousand
2020
loss per share
Cents
494,852
(0.8)
2020
loss
$’000
(3,784)
2019
weighted
average number
of 1p shares
Thousand
2019
loss per share
Cents
406,574
(1.6)
2019
loss
$’000
(6,561)
59
8. Key performance measures
EBITDA and Adjusted EBITDA for share based payments
Earnings before interest, tax, depreciation, and amortisation (‘EBITDA’) is defined as earnings from operations before interest, tax,
depreciation, and amortisation charges. The following is a reconciliation of EBITDA and further adjustments for the periods presented:
Loss before taxation
Adjustments for:
Finance income
Finance expense
Finance lease interest costs
Depreciation – owned assets
Depreciation – lease liabilities
Amortisation of acquired intangible assets
Amortisation of capitalised development expenditure
EBITDA
Depreciation of DDoS Protection-as-a-Service assets charged to cost of sales
Adjusted EBITDA – for DDPaaS depreciation
Share based payments
Adjusted EBITDA – for DDPaaS depreciation and share based payments
Unrealised foreign exchange differences on intercompany loan
Adjusted EBITDA – for DDPaaS depreciation, share based payments and unrealised
foreign exchange differences on intercompany loan – Fully adjusted basis
Year ended
31 December 2020
$’000
Year ended
31 December 2019
$’000
(4,030)
(6,561)
(16)
274
27
259
119
6
1,933
(1,428)
255
(1,173)
359
(814)
263
(551)
(15)
364
11
325
65
13
2,638
(3,160)
125
(3,035)
265
(2,770)
313
(2,457)
60
9. Goodwill
Group
Cost
At 1 January 2019
At 31 December 2019
At 31 December 2020
Impairment
At 1 January 2019
At 31 December 2019
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
At 1 January 2019
$’000
17,983
17,983
17,983
(8,992)
(8,992)
(8,992)
8,991
8,991
8,991
Goodwill is tested at least annually for impairment and when there are indications that goodwill might be impaired.
Goodwill is allocated to the Group’s single CGU, Corero Network Security (‘CNS’).
The recoverable amount for the CNS CGU was determined based on a discounted cash flow calculation to calculate fair values less costs
to sell using cash flow projections over a 10 year period (2019: 10 year period). The discounted cash flow approach is a level 3 fair value
calculation in the IFRS 13 fair value hierarchy.
The key assumptions for the discounted cash flow 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 periods
Growth rates (‘CAGR’) used for the forecast/extrapolated periods:
Year 1–2 (forecast period)
Years 3–5 (extrapolated period)
Years 6–10 (extrapolated period)
Revenue growth rate used beyond the extrapolated period
Discount rate
2020
Years 1–2
Years 3–10
13.1%
29.8%
14.0%
6.5%
2.5%
12.2%
2019
Years 1–2
Years 3–10
14.2%
36.4%
14.0%
6.5%
2.5%
14.0%
The pre-tax cash flows for the forecast period are derived from the most recent financial budget for the year ending 31 December 2021
(‘2021 Budget’) and the plan for the year ending 31 December 2022 (‘2022 Plan’) approved by the Board, with a sensitivity reflecting prior
year experience and progress made in 2020 (10% applied to the 2021 Budget revenue and 15% to the 2022 Plan revenue). The extrapolation
for the period 2023 to 2030 is based on management estimates (with the key assumptions set out below).
The future pre-tax cash flows are discounted by a WACC of 12.2% (2019: 14.0%).
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 2021 to 2025 (ii) and the discount rate.
61
9. Goodwill continued
The cash flow forecasts assume a CAGR revenue growth of 20.1% in the period 2020 to 2025 (22.5% for the period 2019 to 2024) and 6.5%
for the period 2025 to 2030 (a ‘CAGR’ of 13.1% for 10-year forecast period; 2019: 14.2%). The cashflow forecasts reflect a sensitivity of
10% applied to the CNS 2021 Budget revenues and a sensitivity of 15% applied to the 2022 Plan revenues (and a sensitivity of 5% to 2021
operating costs and capital expenditure, and a sensitivity of 7.5% to 2022 operating costs and capital expenditure) reflecting prior year
experience. The management of the Group believe these growth rates are appropriate for the forecasts given the significant progress
the business made in 2020, the strategy for 2021 which is focused on scaling the business for profitability through leveraging the Group’s
expanded routes to market and the on-going investment in sales and marketing. This strategy is expected to deliver further increases
in revenue in the forecast period.
The global COVID-19 pandemic continues to bring uncertainty and wider market disruption globally. Whilst Corero has to date not seen
any significant short-term impact on the provision of its products and services, and the sector within which the Company operates, and
indeed to some extent benefits from increased network usage deriving from increased ‘Working From Home’ initiatives, there is likely to
be further disruptive impacts on the wider economy and this might impact some of its customer base. This impact continues to be a factor
in the on-going assessment on the carrying value of goodwill at future reporting dates.
The assumed growth rates are supported by the fact that the IT security market is forecast to grow strongly for the foreseeable future.
• According to Gartner (one of the leading global IT analyst firms), the global spending on infrastructure Protection and Network Security
Equipment to grow to $14.1 billion and $16.9 billion in 2024 respectively (a ‘CAGR’ of 10.3% and 8.7% over the 2019–2023 forecast
period) (Source: Gartner Forecast: Information Security and Risk Management, Worldwide, 2017–2023, Q4-19 Update).
• The DDoS market is expected to reach $4.7billion by 2024 (Source: MarketsandMarkets DDoS Protection and Mitigation market –
Global Forecast to 2024, June 2019) – a CAGR of 14.0% in the period 2019 to 2024.
The above market growth rates used in the future cash flow assumptions reflect that CNS is in the relatively early stages of the commercial
exploitation of its intellectual property. In addition, the business’s strategy, aside from greater sales growth penetration, is to continue to
develop its product and solution offerings to remain its market leadership technological credentials 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 2.5% is considered reasonable as historically IT spend
has exceeded GDP growth.
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 0.93% (based on 10-year US government bonds) (2019: 1.75%), comparable company betas, an equity risk premium of 6.2%
(2019: 7.4%), and small company risk premium of 4.5% (2019: 4.5%). The WACC has been assessed based on that fact that the Company
had debt at 31 December 2020 of $1.8 million (debt at 31 December 2019: $2.9 million). 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 sensitive to changes in the cash flow forecasts and the
discount rate assumptions, and there is no absolute guarantee that the expected growth will be achieved. If the discount rate is increased
from 12.2% to 52.7%, this would mathematically result in an impairment of the carrying value of goodwill of $9.0 million meaning the
goodwill would be fully impaired. If the sensitivity of 10% applied to the CNS 2021 Budget and 15% to the 2022 Plan revenues (and
sensitivity of 5% to CNS 2021 Budget operating costs and capital expenditure, and 7.5% to the 2022 Plan operating costs and capital
expenditure) was increased to 34.6% for the CNS 2021 Budget and 51.9% to the 2022 Plan revenues (and sensitivity of 17.3% to CNS
2021 Budget operating costs and capital expenditure, and 25.95% to the 2022 Plan operating costs and capital expenditure), this would
mathematically result in an impairment of the carrying value of goodwill of $9.0 million meaning the goodwill would be fully impaired.
Apart from the considerations in determining the value in use of the CNS CGU extensively 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.
62
10. Acquired intangible assets
Group
Cost
At 1 January 2019
Additions
At 31 December 2019 and at 1 January 2020
Additions
At 31 December 2020
Amortisation
At 1 January 2019
Charge for year
At 31 December 2019 and at 1 January 2020
Charge for year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Company
The Company has no intangible fixed assets (2019: $nil).
Computer
software
$’000
Customer
relationships
$’000
6,003
6
6,009
8
6,017
(5,989)
(13)
(6,002)
(6)
(6,008)
9
7
14
197
–
197
–
197
(197)
–
(197)
–
(197)
–
–
–
Total
$’000
6,200
6
6,206
8
6,214
(6,186)
(13)
(6,199)
(6)
(6,205)
9
7
14
63
11. Capitalised development expenditure
Group
Cost
At 1 January 2019
Additions
At 31 December 2019 and at 1 January 2020
Additions
At 31 December 2020
Amortisation
At 1 January 2019
Charge for year
At 31 December 2019 and at 1 January 2020
Charge for year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Company
The Company has no capitalised development expenditure (2019: $nil).
Total
$’000
19,540
1,360
20,900
1,410
22,310
(13,093)
(2,638)
(15,731)
(1,933)
(17,664)
4,646
5,169
6,447
64
12. Property, plant and equipment
Group
Cost
1 January 2019
Additions
Transfers
Disposals
Foreign currency translation
At 31 December 2019
and 1 January 2020
Additions
Transfers
Disposals
Foreign currency translation
At 31 December 2020
Depreciation
At 1 January 2019
Charge for year
Transfers
Disposals
Foreign currency translation
At 31 December 2019
and at 1 January 2020
Charge for year
Transfers
Disposals
Foreign currency translation
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Sales
evaluation
assets
$’000
DDoS
protection
as-a-service
assets
$’000
Computer
Equipment
$’000
Fixtures and
Fittings
$’000
Leasehold
Improvements
$’000
Right-of-use
assets
$’000
2,540
87
(2)
–
7
2,632
160
–
(1,755)
5
1,042
(2,213)
(213)
2
–
(5)
(2,429)
(154)
–
1,755
(6)
(834)
208
203
327
474
184
(8)
(140)
1
511
196
(83)
(405)
(3)
216
(338)
(90)
1
49
(1)
(379)
(68)
16
337
3
(91)
125
132
136
402
204
10
–
5
621
646
83
–
27
69
34
–
–
1
104
–
–
–
–
22
70
–
–
1
93
13
–
–
–
77
343
–
–
3
423
–
–
–
3
1,377
104
106
426
(280)
(125)
(3)
–
(5)
(413)
(255)
(16)
–
(11)
(695)
682
208
122
(47)
(11)
–
–
–
(58)
(15)
–
–
(1)
(74)
30
46
22
(18)
(11)
–
–
(1)
(30)
(22)
–
–
–
–
(65)
–
–
(1)
(66)
(119)
–
–
(4)
(52)
(189)
54
63
4
237
357
77
Total
$’000
3,584
922
–
(140)
18
4,384
1,015
–
(2,160)
32
3,271
(2,896)
(515)
–
49
(13)
(3,375)
(633)
–
2,092
(19)
(1,935)
1,336
1,009
688
DDoS Protection as-a-Service assets depreciation is charged to cost of sales.
Company
The Company has no property, plant and equipment (2019: $nil).
65
13. Investment in subsidiaries
Company
Cost
At 1 January 2019
Capitalisation of intercompany balances
Additions
Foreign currency translation
At 31 December 2019 and at 1 January 2020
Capitalisation of intercompany balances
Additions
Foreign currency translation
At 31 December 2020
Impairment
At 1 January 2019
Impairment charge
Foreign currency translation
At 31 December 2019 and at 1 January 2020
Impairment credit/(charge)
Foreign currency translation
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Investment in Corero
Network Security, Inc.
and Corero Network
Security (UK) Limited
$’000
Investment in
Corero Group
Services Limited
$’000
63,105
1,828
–
2,512
67,445
849
–
2,008
70,302
(47,447)
(7,816)
(1,889)
(57,152)
36,588
(1,704)
(22,268)
48,035
10,293
15,658
7,565
1,202
–
301
9,068
1,540
–
270
10,878
(3,652)
(533)
(146)
(4,331)
(469)
(128)
(4,928)
5,950
4,737
3,913
Loan
note
$’000
7,292
–
373
305
7,970
–
394
263
8,627
(1,745)
(414)
(69)
(2,228)
604
(67)
(1,691)
6,936
5,742
5,547
Total
$’000
77,962
3,030
373
3,118
84,483
2,389
394
2,541
89,807
(52,844)
(8,763)
(2,104)
(63,711)
36,723
(1,899)
(28,887)
60,921
20,772
25,118
The Directors have reviewed the carrying value of the cost of investments in subsidiaries of the Company with reference to current and
future trading conditions and on a discounted free cash flow valuation which the Directors consider to be an appropriate valuation
methodology. As at 31 December 2020 the provision against the investment in subsidiaries was $27.2 million (at 31 December 2019: $61.5
million), comprising a provision against the investment in Corero Network Security, Inc. and Corero Network Security (UK) Limited (together
‘CNS’) of $22.3 million and a provision against the investment in Corero Group Services Limited of $4.9 million. As noted in note 9, the
discounted cash flow valuation for CNS is sensitive to changes in the cash flow forecast and the discount rate assumptions. If the sensitivity
applied to the CNS 2021 Budget and 2022 Plan revenues (and the CNS 2021 Budget operating costs and capital expenditure, and 2022
Plan operating costs and capital expenditure) was increased to 40.0% for the CNS 2021 Budget and 49.1% to the 2022 Plan revenues
(and sensitivity of 20.0% to CNS 2021 Budget operating costs and capital expenditure, and 24.6% to the 2022 Plan operating costs and capital
expenditure), this would mathematically result in the net book value of the investment in CNS at 31 December 2020 being nil (fully impaired).
If the discount rate is increased from 12.2% to 32.8%, this would mathematically result in the net book value of the investment in CNS at
31 December 2020 being nil (fully impaired).
The Company’s investment in Corero Network Security, Inc. includes a loan note instrument. These loan notes bear interest at 5.0% per
annum which at the election of Corero Network Security, Inc. is payable quarterly or added to the principal amount which is due on
31 October 2021. As at 31 December 2020 the expected credit loss provision was $1.7 million (2019: $2.2 million).
66
The Company owns:
• 100% of the issued share capital of Corero Network Security, Inc. a company incorporated in Delaware, USA. The company’s business
address is 293 Boston Post Road, Marlborough, MA 01752, USA. The principal business of the company consists of the development
and sale of appliance and software security products and solutions.
• 100% of the issued share capital of Corero Group Services Limited, a company incorporated and registered in England and Wales.
The company’s business address is St Mary’s Court, The Broadway, Amersham, Buckinghamshire, HP7 0UT, England, United Kingdom.
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 company’s business address is 3rd Floor, 53 Hanover Street, Edinburgh, EH2 2PJ and registered address is St Mary’s Court,
The Broadway, Amersham, Buckinghamshire, HP7 0UT, England, United Kingdom. The principal business of the company consists of
sale of appliances and software security products and solutions, providing development and marketing services on behalf of Corero
Network Security, Inc.
14. Inventories
Gross inventory
Less: provision for impairment
Net inventory
Group
2020
$’000
148
(50)
98
Net inventory comprises finished goods and raw materials. The value of inventory recognised as an expense in cost of sales was
$2.7 million (2019: $1.2 million).
Company
The Company holds no inventory (2019: $nil).
15. Trade and other receivables
Trade receivables
Contract assets (note 4)
Less: provision for impairment of trade receivables
Net trade receivables
Other debtors
Prepayments
Group
2020
$’000
278
2,429
–
2,707
124
1,577
4,408
2019
$’000
345
1,326
–
1,671
137
1,071
2,879
Company
2020
$’000
–
–
–
–
77
–
77
Group
2019
$’000
104
(41)
63
2019
$’000
–
–
–
–
82
–
82
None of the Company’s trade and other receivables are secured by collateral or credit enhancements.
The Group applies the simplified approach to measuring expected credit losses using a lifetime expected credit loss for trade receivables
and contract assets. To measure expected credit losses on a collective basis, trade receivables and contract assets are grouped based
on a similar credit risk and aging. The expected loss rates are based on the Group’s historical credit losses experienced over a two year
period prior to the period end. The historical loss rates are then adjusted for current and forward-looking information on macroeconomic
factors affecting the Group’s customers. The Group has identified gross domestic product growth rates, unemployment rates and inflation
rates as the key macroeconomic factors in the countries in which the Group operates. The calculated expected credit loss allowance for
the current and prior reporting periods has not been included as an impairment provision as the Directors consider it to be immaterial.
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
67
15. Trade and other receivables continued
The maturity profile of trade and other receivables is set out in the table below:
In one year or less, or on demand
In more than one year, but not more than five years
Group
Company
2020
$’000
3,714
694
4,408
2019
$’000
2,572
307
2,879
2020
$’000
–
77
77
2019
$’000
8
74
82
Balances due in more than one year, but not more than five years, are presented as non-current in the Statement of Financial Position.
The analysis of trade and other receivables by foreign currency is set out in the table below:
US dollars
UK pound
Group
Company
2020
$’000
3,818
590
4,408
2019
$’000
2,483
396
2,879
2020
$’000
–
77
77
2019
$’000
–
82
82
The Group’s foreign currency receivables are denominated in the functional currency of the subsidiaries in which they arise. There is no
impact on the result for the year from exchange rate movements on such financial instruments.
16. Trade and other payables
Trade payables
Amounts due to subsidiaries
Other payables
Accruals
Group
Company
2020
$’000
3,977
–
348
2,538
6,863
2019
$’000
708
–
103
1,336
2,147
2020
$’000
–
5,845
–
143
5,988
2019
$’000
–
–
–
144
144
None of the Group or Company’s trade and other payables are secured by collateral or credit enhancements.
The Directors consider that the carrying amount of trade and other payables approximates their fair value. 74% (2019: 61%) of the trade
and other payables are due in less than three months.
The analysis of trade and other payables by foreign currency is set out in the table below:
US dollars
UK pound
Group
Company
2020
$’000
4,383
2,480
6,863
2019
$’000
798
1,349
2,147
2020
$’000
–
5,988
5,988
2019
$’000
–
144
144
The Group’s foreign currency payables are denominated in the functional currency of the subsidiaries in which they arise. There is no
impact on the result for the year from exchange rate movements on such financial instruments.
68
17. Lease Liabilities
Lease liabilities
The Directors consider that the carrying amount of lease liabilities approximates to their fair value.
Company
The Company has no lease liabilities (2019: $nil).
The analysis of lease liabilities by foreign currency is set out in the table below:
US dollars
UK pound
18. Borrowings
The Group borrowings:
Bank loans
The Company borrowings:
Bank loan
Group
2020
$’000
257
257
Group
2020
$’000
254
3
257
2020
$’000
2,478
2020
$’000
1,841
Group
2019
$’000
369
369
Group
2019
$’000
327
42
369
2019
$’000
2,937
2019
$’000
2,937
The Company bank loan comprises an initial four-year term GBP sterling bank loan of £3.0 million, which was drawn down in May 2018,
with quarterly repayments that commenced on 31 March 2019. These quarterly repayments increase from £150,000 on 31 March 2019 to
£310,000 on 31 March 2022 such that the loan will be repaid in full on 31 March 2022. The loan costs were $286,000, $143,000 of which
is payable on 31 March 2022. The bank loan has no early repayment penalties or redemption premium. The bank loan terms include the
payment of a fee equal to 1.0% of the disposal proceeds on a sale or a change of control of the Company above a threshold amount of
£100 million if such disposal or change of control occurs before April 2025.
After the financial period under review, the Company has entered into a new borrowing facility for up to £3.0 million (c$4.1 million) with its
existing banking partner, the net proceeds of which will be used for working capital purposes and its on-going investment programme to
support its growing strategy (see note 29).
Interest is payable quarterly in arrears based on 3-month GBP Libor plus 7.5%. The loan principal repayment schedule by year for the
bank loan is:
Year
2021
2022
$’000
1,510
424
1,934
69
18. Borrowings continued
The contractual future cash flows, including undiscounted interest based on the interest rate at 31 December 2020 of 7.561%
(at 31 December 2019: 8.292%) for the bank loan, are:
Year
2021
2022
$’000
1,613
575
2,188
The bank loan is secured by debentures over the business assets of all Group companies and by Group company guarantees including
a guarantee from the Company. The bank loan terms include typical covenants for such a loan, as well as revenue and cash consumption
covenants, which are tested quarterly and monthly respectively. These covenants were met for each covenant reporting period in the
reporting period ended 31 December 2020.
At 31 December 2020, 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
Lease liabilities
Total
Company
Trade and other payables
Total
In one year or less, or on demand
Between two and five years
2020
$’000
6,461
86
6,547
In one year or less,
or on demand
2020
$’000
5,845
5,845
2019
$’000
2,008
112
2,120
2019
$’000
5
5
2020
$’000
402
171
573
Between two
and five years
2020
$’000
143
143
2019
$’000
139
257
396
2019
$’000
139
139
Analysis of changes in net cash (cash and cash equivalents, and borrowings)
Cash and cash equivalents
Bank borrowings
Paycheck Protection Program Loan (see below)
Total net cash
As at
1 Jan 2019
$’000
Movement in
period
$’000
8,026
(3,606)
–
4,420
295
669
–
964
As at
1 Jan
2020
$’000
8,321
(2,937)
–
5,384
Movement in
period
$’000
As at
31 December
2020
$’000
1,819
1,096
(637)
2,278
10,140
(1,841)
(637)
7,662
The movement in the period is a combination of the actual flow (from operating, financing and investing activities) and the exchange
rate movement.
70
Paycheck Protection Program Loan (‘PPPL’)
The Company’s US trading subsidiary, Corero Network Security, Inc was advanced, via its US bank, Pacific Western Bank, a Paycheck
Protection Program Loan for $637,000 on 11 May 2020. The PPPL is a component of the US federal stimulus package known as the
Coronavirus Aid, Relief and Economic Security Act, which offers help to businesses in the US during the COVID-19 crisis. The loan,
approved under waiver from the Group’s borrowing providers represents allowable US payroll costs, together with a smaller element
of associated rent and utility costs.
The terms of the PPPL are 1% interest, 2-year term, no early repayment penalties, no collateral/guarantees and no fees. Loan repayments
are deferred for 6 months but interest accrues. Under PPP, the loan, or a proportion of it, may be forgivable if the use of the proceeds meets
certain criteria, including employee retention and payroll purposes. As at 31 December 2020, loan forgiveness had been applied for but not
granted. The Board did not have reasonable assurance that the loan would be forgiven and, as a result, it has not been treated as grant
income in the year. Notification of the PPPL forgiveness in full was received from Pacific Western Bank on 28th January 2021.
19. Financial instruments
The Group’s financial instruments are categorised as shown below:
Group
Financial assets
Trade and other receivables
Cash
Group
Financial liabilities
Trade and other payables
Borrowings
Book Value
2020
$’000
Book Value
2019
$’000
2,815
10,140
12,955
1,776
8,321
10,097
Book Value
2020
$’000
Book Value
2019
$’000
7,120
2,568
9,688
2,516
3,098
5,614
The Group manages liquidity and credit risk in line with the financial risk management objectives and policies as set out on page 21.
At the present time the Group does not have significant exposure to foreign exchange or interest rate risk. There are no differences
between the fair values and book values held by the Group.
20. Deferred income
Group
Current
More than one year but less than five years
2020
$’000
3,444
2,705
6,149
2019
$’000
2,800
1,096
3,896
The Group’s deferred income balance will be recognised as revenue evenly over the remaining term of the service and support
agreements in place. The service and support agreements expire at various times throughout the year with no particular seasonality.
Company
The Company has no deferred income (2019: $nil).
71
21. Pensions
The Group’s pension arrangements are operated through defined contribution schemes.
Defined contribution schemes
Defined contribution pension costs
22. Share capital
2020
$’000
153
2019
$’000
145
Authorised share capital
The authorised share capital comprises 745,821,970 (2019: 745,821,970) ordinary shares of 1 penny (‘p’) (1.4 cents (‘c’)) each.
Issued ordinary share capital
1 January 2019
401,995,161 ordinary shares of 1p each
Issued
92,857,143 ordinary shares of 1p each (1.26c)
31 December 2019 and 31 December 2020
494,852,304 ordinary shares of 1p each
$’000
5,740
1,174
6,914
There have been no share issues in 2020. On 13 December 2019, 92,857,143 ordinary shares with a nominal value of 1p were issued
at 3.5p (4c) per share by way of a subscription and placing.
23. Share premium
1 January 2019
92,857,143 ordinary shares ordinary shares of 3.5p each (4c) less issue costs
31 December 2019 and 31 December 2020
$’000
79,338
2,784
82,122
There have been no share issues in 2020. Consideration received in excess of the nominal value of the 92,857,143 shares issued on
13 December 2019 as a result of the subscription and placing has been included in share premium, less registration, commission and
professional fees of $149,000.
24. Employees and Directors
Employee expenses, including Directors, during the period
Group
Wages and salaries
Social security costs
Other pension costs
72
Total
2020
$’000
9,581
1,166
153
10,900
Total
2019
$’000
7,059
622
145
7,826
Average monthly numbers of employees (including Directors) employed
Sales and marketing
Technical, support and services
Management, operations and administration
Company
The Company has no employees (2019: nil).
Directors, being the Key Management personnel
2020
Number
2019
Number
18
34
7
59
13
32
6
51
Directors
Ashley Stephenson
Andrew Miller
Jens Montanana
Lionel Chmilewsky
Peter George
Richard Last
Bonus
$’000
Benefits
$’000
Pension
$’000
Subtotal
$’000
Options
$’000
Company
National
Insurance
Contributions
$’000
Total
2020
$’000
Total
2019
$’000
176
–
–
158
–
–
334
19
4
–
7
–
–
30
–
10
–
35
–
–
45
518
129
41
413
36
35
1,172
93
67
–
277
–
–
437
9
23
–
50
–
3
85
620
219
41
740
36
38
443
349
41
–
82
38
1,694
953
Salary
& fees
$’000
323
115
41
213
36
35
763
Bonus payments of $334,000 were awarded to Directors in respect of the year to 31 December 2020 (2019: $175,000).
Lionel Chmilewsky has an employment agreement with a wholly owned subsidiary of the Company which provides for the payment
of six months’ base salary if the agreement is terminated by the Company without cause.
Ashley Stephenson has an employment agreement with a wholly owned subsidiary of the Company which provides for the payment
of six months’ base salary if the agreement is terminated by the Company without cause.
Andrew Miller resigned as an Executive Director on 31st May 2020 and took up a new role on the Board as a Non-executive Director
on 1st June 2020.
25. Lease commitments
The Group has total future minimum lease payments under non-cancellable leases totalling $3,000 (2019: $26,000) analysed
by year of expiry as follows:
Land and building agreements expiring:
Within one year
Company
The Company has no lease commitments (2019: $nil).
2020
$’000
3
3
2019
$’000
26
26
73
26. Contingent liabilities
Corero Network Security (UK) Limited was in December 2015 awarded a grant of £600,000 for a development project over three years
from Scottish Enterprise. Any monies becoming repayable by Corero Network Security (UK) Limited under the grant terms for breaches
of the grant conditions are guaranteed by the Company. These conditions which are typical for a grant of this nature, and which apply for
a period of five years from the final grant payment date (being 14 March 2019), include maintaining minimum headcount in Scotland and
no change of control.
27. Share options
The Company has the following share option schemes:
• Enterprise Management Incentive Scheme for its employees, which has been approved by HMRC.
• Executive Enterprise Management Incentive Scheme, which has been approved by HMRC.
• Unapproved Share Option Scheme.
• Deferred Payment Share Plan.
In August 2010, 1,257,000 options were granted to certain Directors and employees under the Executive Enterprise Management Incentive
scheme and Unapproved Share Option Scheme. The options granted vested immediately upon grant.
All other options granted in the period 2010 to 2020 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. Shares acquired on the exercise of an option
may not be sold until the expiry of the second anniversary following the date of option grant. With the exception of options granted in April
2017 to Directors which include a revenue growth performance vesting condition, there are no vesting conditions for options granted.
If an option holder ceases to be in employment or hold office within the Group, options granted shall immediately lapse unless such
cessation is because of the option holder’s death; the option holder’s ill health or disability; the company that employs the option holder
ceasing to be under the control of the Company or such company ceasing to be within the Group; the transfer of sale of the undertaking
or part-undertaking in which the option holder is employed to a person who is neither under the control of the Company nor within the
Group; or any other reason that the Board in its absolute discretion shall determine.
On a cessation of employment or office as set out above, options shall be exercisable to the extent they have vested according to the
terms of the option agreement and the provisions of the relevant share option scheme and must be exercised within 30 days following
such cessation unless otherwise determined by the Board or if such cessation is by reason of death in which case the option holder’s
personal representatives must exercise the option within 12 months following the date of the option holder’s death.
For option agreements granted post June 2020 and subject to the approval of the Board, where an option holder has, as at the date of
the grant, been employed by a Group company for a period of at least three years and whose employment is terminated either: (a) by
the company other than for cause; or (b) by resignation on the part of the option holder, such option holder shall be entitled to retain the
options granted under the option agreement following the effective date of the termination and such retained options shall continue to
vest and be exercisable by the option holder in accordance with the vesting terms set out in the agreement.
On 18 March 2014, the Enterprise Management Incentive Scheme was extended by 10 years to 20 April 2021.
In the year ended 31 December 2020, to continue to attract and retain the Company’s employees, and with the approval of the Company’s
significant shareholders, a share option re-pricing, cancellation and re-grant of 25,446,000 options were made on 16 June 2020. A summary
of the share option re-pricing, cancellation and re-grant is as follows:
• One-for-one basis for ‘out of the money’ options
• Share option price of 5.25p (7c): determined from higher of the 90-day volume weighted average share price (VWAP) and the
mid-market closing share price on Monday 15 June
• 14,403,000 new options were also granted
• No performance conditions attached other than: vest one third on the first anniversary, one third on the second anniversary and one
third on the third anniversary of the date of grant
• Any ordinary shares which are issued following exercise of the first tranche may not be sold or transferred by an option holder prior
to the second anniversary
• With shareholder approval, the overall limit on share options was increased from the previous limit of 10% of the Company’s issued
share capital to the greater of (i) a maximum of 61,856,538 share options (equivalent to 12.5% of the Company’s current issued share
capital) or (ii) 10% of the Company’s issued share capital.
74
Share options granted at 31 December 2020 were as follows:
Option holders
Date granted
Expiry date
Enterprise Management Incentive Scheme
Exercise
price –
pence (cents)
At
1 January
2020
Granted
Exercised
Forfeit/
cancelled
At
31 December
2020
Other Holders
April 2015
April 2017
June 2017
April 2025
15p (23c)
500,000
April 2027
8p (10c)
1,586,569
June 2027
13.6 (18c)
1,698,305
September 2017
September 2027
9.1p (12c)
5,000
October 2018
October 2028
11.0p (14c)
2,569,932
April 2019
April 2029
8.4p (11c)
237,500
September 2019
September 2029
2.5p (3c)
5,000
–
–
–
–
–
–
–
April 2020
June 2020
April 2030
4.2p (5c)
June 2030
5.3p (7c)
September 2020
September 2030
7.8p (10c)
October 2020
October 2030
9.0p (12c)
–
–
–
–
565,000
9,040,500
10,000
12,500
Executive Enterprise Management Incentive Scheme
Andrew Miller
May 2018
May 2028
13.6p (18c)
2,356,000
Andrew Lloyd
April 2017
April 2027
8p (10c)
2,083,333
October 2018
October 2028
11.0p (14c)
599,479
–
–
–
Unapproved French Share Option Scheme
Lionel Chmilewsky
June 2020
June 2030
5.3p (7c)
–
7,000,000
Unapproved Share Option Scheme
Jens Montanana
Richard Last
Andrew Lloyd
Ashley Stephenson
April 2017
May 2018
April 2027
8p (10c)
994,000
May 2028
13.6p (18c)
425,000
October 2018
October 2028
11.0p (14c)
400,000
April 2017
June 2017
April 2027
8p (10c)
450,000
June 2027
13.6 (18c)
180,000
October 2018
October 2028
11.0p (14c)
200,000
April 2017
June 2017
April 2017
June 2017
April 2027
8p (10c)
580,001
June 2027
13.6 (18c)
200,000
April 2027
8p (10c)
2,319,000
June 2027
13.6 (18c)
3,200,000
October 2018
October 2028
11.0p (14c)
2,400,000
–
–
–
–
–
–
–
–
–
–
–
June 2020
June 2030
5.3p (7c)
–
7,919,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(500,000)
(1,586,569)
(1,698,305)
(5,000)
(2,569,932)
(227,500)
–
(100,000)
–
–
–
–
–
–
5,000
465,000
(55,000)
8,985,500
–
–
10,000
12,500
(2,356,000)
(599,479)
–
–
–
–
–
–
–
–
–
–
(2,319,000)
(3,200,000)
(2,400,000)
–
–
2,083,333
7,000,000
994,000
425,000
400,000
450,000
180,000
200,000
580,001
200,000
–
–
–
–
7,919,000
75
27. Share options continued
Option holders
Date granted
Expiry date
Unapproved Share Option Scheme continued
Exercise
price –
pence (cents)
At
1 January
2020
Granted
Exercised
Forfeit/
cancelled
At
31 December
2020
Andrew Miller
April 2017
April 2027
8p (10c)
1,919,000
October 2018
October 2028
11.0p (14c)
900,521
–
–
June 2020
June 2030
5.3p (7c)
–
5,775,000
Peter George
Other holders
January 2019
January 2029
11.3p (15c)
750,000
August 2010
August 2020
31p (50c)
308,000
March 2011
March 2021
40p (65c)
290,000
September 2011
September 2021
37.5p (61c)
40,000
March 2012
March 2022
54.5p (89c)
140,000
April 2013
May 2014
April 2015
April 2023
25p (38c)
100,000
May 2024
25p (42c)
670,666
April 2025
15p (23c)
53,000
October 2015
September 2025
15p (23c)
105,000
May 2016
May 2026
20p (29c)
20,000
September 2016
September 2026
22.5p (33c)
455,000
April 2017
June 2017
April 2027
8p (10c)
623,626
June 2027
13.6 (18c)
665,500
September 2017
September 2027
9.1p (12c)
500,000
October 2018
October 2028
11.0p (14c)
3,268,568
April 2019
April 2029
8.4p (11c)
50,000
September 2019
September 2029
2.5p (3)
4,430,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
April 2020
April 2020
June 2020
April 2030
4.2p (5c)
April 2030
4.2p (5c)
June 2030
5.3p (7c)
September 2020
September 2030
7.8p (10c)
–
–
–
–
705,000
50,000
4,711,500
300,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,919,000)
(900,521)
–
–
(308,000)
–
–
–
–
–
(53,000)
(105,000)
(20,000)
(450,000)
(623,626)
(665,500)
(500,000)
–
–
–
750,000
–
290,000
40,000
140,000
100,000
670,666
–
–
–
5,000
–
–
–
(3,218,568)
50,000
(50,000)
–
–
4,430,000
(100,000)
–
605,000
50,000
(108,000)
4,603,500
–
300,000
38,278,000
36,088,500
– (26,638,000)
47,728,500
The closing mid-market price for the Company’s shares at 31 December 2020 was 10.0p (13.7c) and the high and low for the year
was 11.6p (15.1c) and 3.6p (4.1c).
In the 12 months to 31 December 2020, no options were exercised (2019: nil) and 1,192,000 options were forfeited (2019: 2,249,166).
Share options granted at 31 December 2019 were as follows:
Option holders
Date
granted
Exercise
price –pence
(cents)
Expiry
date
At
1 January
2019
Granted
Exercised
Forfeit/
cancelled
At
31 December
2019
Enterprise Management Incentive Scheme
Other Holders
April 2015
April 2017
June 2017
April 2025
15p (23c)
500,000
April 2027
8p (10c)
1,591,569
June 2027
13.6 (18c)
1,705,305
September 2017
September 2027
9.1p (12c)
April 2018
April 2028
5.9p (7c)
20,000
13,000
October 2018
October 2028
11.0p (14c)
2,712,432
–
–
–
–
–
–
April 2019
April 2029
8.4p (11c)
September 2019
September 2029
2.5p (3c)
–
–
247,500
5,000
–
–
–
–
–
–
–
–
–
(5,000)
(7,000)
(15,000)
(13,000)
500,000
1,586,569
1,698,305
5,000
–
(142,500)
2,569,932
(10,000)
–
237,500
5,000
76
Option holders
Date
granted
Exercise
price –pence
(cents)
Expiry
date
At
1 January
2019
Granted
Exercised
Forfeit/
cancelled
At
31 December
2019
Executive Enterprise Management Incentive Scheme
Andrew Miller
May 2018
May 2028
13.6p (18c)
2,356,000
October 2018
October 2028
11.0p (14c)
599,479
Andrew Lloyd
April 2017
April 2027
8p (10c)
3,124,999
Unapproved Share Option Scheme
Jens Montanana
Richard Last
Andrew Lloyd
Ashley Stephenson
April 2017
May 2018
April 2027
8p (10c)
994,000
May 2028
13.6p (18c)
425,000
October 2018
October 2028
11.0p (14c)
400,000
April 2017
June 2017
April 2027
8p (10c)
450,000
June 2027
13.6 (18c)
180,000
October 2018
October 2028
11.0p (14c)
200,000
April 2017
June 2017
April 2017
June 2017
April 2027
8p (10c)
870,001
June 2027
13.6 (18c)
200,000
April 2027
8p (10c)
2,319,000
June 2027
13.6 (18c)
3,200,000
October 2018
October 2028
11.0p (14c)
2,400,000
Andrew Miller
April 2017
April 2027
8p (10c)
1,919,000
October 2018
October 2028
11.0p (14c)
900,521
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Peter George
Other holders
January 2019
January 2029
11.3p (15c)
–
750,000
August 2010
August 2020
31p (50c)
308,000
March 2011
March 2021
40p (65c)
290,000
September 2011
September 2021
37.5p (61c)
40,000
March 2012
March 2022
54.5p (89c)
140,000
April 2013
May 2014
April 2015
April 2023
25p (38c)
100,000
May 2024
25p (42c)
670,666
April 2025
15p (23c)
53,000
October 2015
September 2025
15p (23c)
105,000
May 2016
May 2026
20p (29c)
20,000
September 2016
September 2026
22.5p (33c)
455,000
April 2017
June 2017
April 2027
8p (10c)
623,626
June 2027
13.6 (18c)
765,500
September 2017
September 2027
9.1p (12c)
505,000
October 2018
October 2028
11.0p (14c)
3,338,568
–
–
–
–
–
–
–
–
–
–
–
–
–
–
April 2019
April 2029
8.4p (11c)
September 2019
September 2029
2.5p (3c)
–
–
600,000
4,430,000
34,494,666
6,032,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,356,000
599,479
(1,041,666)
2,083,333
–
–
–
–
–
–
(290,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(100,000)
(5,000)
(70,000)
(550,000)
994,000
425,000
400,000
450,000
180,000
200,000
580,001
200,000
2,319,000
3,200,000
2,400,000
1,919,000
900,521
750,000
308,000
290,000
40,000
140,000
100,000
670,666
53,000
105,000
20,000
455,000
623,626
665,500
500,000
3,268,568
50,000
–
4,430,000
(2,249,166)
38,278,000
The closing mid-market price for the Company’s shares at 31 December 2019 was 5.88p (8c) and the high and low for the year was 12.89p
(16c) and 2.44p (3c).
In the 12 months to 31 December 2019, no options were exercised (2018: 3,333) and 2,249,166 options were forfeited (2018: 4,328,417).
77
27. Share options continued
Total number of options granted to Directors
31 December 2020
Options granted
31 December 2019
Options granted
Relevant Share Option scheme
Ashley Stephenson
Andrew Lloyd
Andrew Miller
Jens Montanana
Lionel Chmilewsky
Peter George
Richard Last
7,919,000
2,863,333
5,915,000
1,819,000
7,000,000
750,000
830,000
7,919,000 Unapproved Share Option Scheme
2,863,333
Executive Enterprise Management Scheme and Unapproved Share Option Scheme
5,915,000
Executive Enterprise Management Scheme and Unapproved Share Option Scheme
1,819,000 Unapproved Share Option Scheme
– Unapproved Share Option Scheme
750,000 Unapproved Share Option Scheme
830,000 Unapproved Share Option Scheme
27,096,333
20,096,333
None of the Directors holding office at the balance sheet date exercised options during the year (2019: none).
The options held by Andrew Lloyd at 31 December 2018 included 1,331,667 share options which were forfeited in accordance with the
settlement agreement with Andrew Lloyd dated 2 January 2019.
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 pursuant to a grant made to him under the Deferred Payment Share Plan.
Share-based payments
The Remuneration Committee (‘RC’) approves the grant of share options to employees of the Group under the Group’s share
option schemes.
Share 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 RC. The share options granted are required to be exercised within 10 years from the date of grant.
Share options are valued using the Black-Scholes option-pricing model.
The weighted average fair value of the options granted in the year was 2.7p (3.5c). The value of share 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
Estimated years to exercise
Risk free interest rate
2020
2019
4.2p–9.0p (5c–12c)
2.5p–11.3p (3c–15c)
4.2p–9.0p (5c–12c)
2.5p–11.3p (3c–15c)
62.3%–75.6%
4.25–4.8
-0.08%–0.2%
51.9%–62.4%
4.0–4.7
0.3%–0.9%
78
The table below provides information on all options outstanding at the end of the year:
Weighted average remaining contractual life
Average remaining contractual life
Options exercisable
Exercise price range
Weighted average share price
Weighted average exercise price
Expected volatility
Risk free rate – 5 year gilt rate
Expected dividend yield
8.8 years
6.5 years
8,329,667
2.5p-55p (3c-73c)
6p (8c)
6p (8c)
0.2%-70.8%
-0.08%-2.5%
Nil
Volatility is calculated as the standard deviation of the closing daily share price over a period of 24 months prior to the grant date.
Operating expenses in the Group Income Statement included a charge of $359,000 (2019: $265,000) relating to employee share-based payments.
28. Related parties and transactions
There have been no equity placings or offers in the year ended 31 December 2020. As part of the subscription and placing on
13 December 2019, Jens Montanana contributed $1.5 million and Richard Last contributed $22,000 (note 22).
The Directors consider the Group’s key management personnel to be the Board of Directors of the Company whose compensation
is detailed in note 24.
Company key management compensation was $nil (2019: $nil) as the key management are employed by subsidiaries.
29. Subsequent event
New borrowing facility
After the financial period under review, the Company has entered into a new borrowing facility for up to £3.0 million (c$4.1 million) with
its existing banking partner, the net proceeds of which will be used for working capital purposes and its on-going investment programme
to support its growing strategy.
The new borrowings facility comprises: a drawn £2.0 million term loan facility and an undrawn £1.0 million Revolving Credit Facility (‘RCF’);
is for a three-year term; has no early repayment penalties or redemption premium; a reduced interest payable quarterly at 6.5% per
annum over the Bank of England base rate (before any potential EBITDA margin ratchet downwards adjustment); 2.6% interest per annum
on the RCF; arrangement fee of 3.75%; and standard security and loan covenants in line with the existing lending arrangement (which will
continue to be repaid until its completion in March 2022).
Paycheck Protection Program Loan (PPPL)
Notification of the PPPL forgiveness in full was received from Pacific Western Bank on 28th January 2021. For further details see note 18.
79
Solicitors
Dorsey and Whitney LLP
199 Bishopsgate
London
EC2M 3UT
Bankers
Santander
2 The Forbury
Reading
RG1 3EU
Pacific Western Bank
406 Blackwell Street
Suite 240
Durham
North Carolina
27701
USA
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Website address
www.corero.com
Corporate Directory
Directors
Jens Montanana (Non-executive Chairman)
Richard Last (Non-executive Director)
Peter George (Non-executive Director)
Andrew Miller (Non-executive Director)
Lionel Chmilewsky (Chief Executive Officer)
Ashley Stephenson (Chief Technology Officer)
Secretary and Registered Office
Duncan Swallow
St Mary’s Court
The Broadway
Amersham
Buckinghamshire
HP7 0UT
Nominated Adviser and Broker
Canaccord Genuity Ltd
88 Wood Street
London
EC2V 7QR
Financial Public Relations
Vigo Communications
Sackville House
40 Piccadilly
London
W1J 0DR
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
80
Corero Network Security plc – Annual Report and Accounts 2020 Glossary
5G
AI
AIM
ARR
CAGR
CGU
CNS
CPU
CSPs
DDoS
DDPaaS
DPDK
DPI
DTR
EBITDA
EU
FCA
FRC
FRS
IAS
IASB
IFRIC
IFRS
IoT
IP
Fifth Generation Cellular Network Technology
Artificial Intelligence
Alternative Investment Market
Annualised Recurring Revenues
Compound Annual Growth Rate
Cash-Generating Unit
Corero Network Security
Central Processing Unit
Communication Service Providers
Distributed Denial of Service
DDoS Protection as-a-Service
Data Plane Development Kit
Deep Packet Inspection
Disclosure and Transparency Rules
Earnings Before Interest, Tax, Depreciation, and Amortisation
European Union
Financial Conduct Authority
Financial Reporting Council
Financial Reporting Standard
International Accounting Standards
International Accounting Standards Board
International Financial Reporting Interpretations Committee
International Financial Reporting Standards
Internet of Things
Internet Protocol
IPS/APT
Intrusion Prevention System / Advances Persistent Threat
ISA
MSP
MSSP
NICs
POPs
PPPL
RCF
R&D
ROI
International Standard on Auditing
Managed Service Provider
Managed Security Service Provider
Network Interface Cards
Points of Presence
Paycheck Protection Program Loan
Revolving Credit Facility
Research and Development
Return On Investment
SLB/ADC
Server Load Balancer / Application Delivery Controller
SOC
SSDP
SSP
TCO
TDC
TDD
TDS
UPnP
VWAP
WAF
Security Operations Center
Simple Service Discovery Protocol
Stand-alone Selling Prices
Total Cost of Ownership
SmartWall® Threat Defense Cloud
SmartWall® Threat Defense Director
SmartWall® Threat Defense System
Universal Plug and Play
Volume Weighted Average share Price
Web Application Firewall
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Registered Office
St Mary’s Court
The Broadway
Amersham
Buckinghamshire
HP7 0UT
UK