nCipher Plc
Interim results for the six months ended 30 June 2008
nCipher plc (LSE: NCH), a leading provider of IT security solutions, announces
its unaudited financial results for the six months to 30 June 2008.
-- Order intake increased by 24% to �14.4 million (H1 2007: �11.6 million)
-- Revenue increased by 2% to �12.3 million (H1 2007: �12.1 million)
-- Operating loss of �1.7 million (H1 2007: �1.0 million profit) reflecting
stated strategy of increased investment in the business
-- Loss before tax of �1.6 million (H1 2007: �2.0 million profit)
-- Balance sheet includes �6.4 million of cash and cash equivalents
(December 2007 : �7.3 million)
-- 300p recommended cash offer by Thales UK Limited announced 11 July
Commenting on the results Geoffrey Finlay, Chief Executive Officer, said:
"I am pleased to report a set of results showing good progress towards the 3
year plan that we announced as part of our preliminary results back in March of
this year.
"At that time we stated that we are making significant additional investment
this year to improve all aspects of our business and consequently trading to
June 2008 shows a loss reflecting the investment needed to ensure a strong
foundation for scalable future growth of both sales and profits.
"Overall we consider that the business is performing well and trading is in line
with our expectations."
Commenting on the Company's recent recommended cash offer from Thales UK Limited
Robert Jeens, Chairman, said:
"The Board of nCipher believes that this Offer recognises the inherent value of
our technology, services and staff, as well as delivering significant value to
shareholders. nCipher and Thales are two highly synergistic businesses with
minimal operational overlap, and we believe that together we will be able to
provide both independent and joint customers with a more effective and
attractive way to deal with their ongoing security issues. Therefore we are
pleased to recommend this offer to shareholders."
Enquiries:
Geoffrey Finlay, Chief Executive Officer
Robert Jeens, Chairman
George Ralph, Chief Financial Officer Tel: +44 (0)1223 723612
Financial Dynamics
Juliet Clarke / Erwan Gouraud Tel: +44 (0)20 7831 3113
About nCipher
nCipher protects critical enterprise data for many of the world's most
security-conscious organizations. Delivering solutions in the fields of identity
management, data protection, enterprise key management and cryptographic
hardware, nCipher enables businesses to identify who can access data, to protect
data in transit and at rest, and to comply with the growing number of
privacy-driven regulations. nCipher plc is listed on the London Stock Exchange
(LSE:NCH).
Chairman and Chief Executive's Statement
Recommended offer by Thales
On 11 July the boards of Thales UK Limited ("Thales"), a wholly owned subsidiary
of Thales S.A., and nCipher announced that they had reached agreement on the
terms of a recommended cash offer to be made by Thales for the entire issued and
to be issued share capital of nCipher(the "Offer"). It is intended that the
Offer will be implemented by way of a court approved scheme of arrangement under
Part 26 of the Companies Act 2006. Under the terms of the Offer, nCipher
Shareholders will receive 300 pence in cash for each nCipher Share.
As set out in the document sent out to shareholders on 9 August the court
meeting to vote on the proposed scheme and the general meeting of nCipher
shareholders to approve certain matters in relation to the scheme of arrangement
will be held on 2 September 2008.
Business Review
We are pleased to announce that nCipher has continued to make good progress
since the preliminary results announced on 18 March 2008. We are particularly
pleased with the overall level of order intake achieved so far this year,
including the CryptoStor product suite acquired as part of the acquisition of
certain assets from Neoscale in December 2007.
Total order intake for the Group for the first 6 months of the year was
�14.4million, an increase of 24% over the same period last year. Included in
this figure is �0.9 million of orders for products and maintenance associated
with CryptoStor, which is encouraging given that sales of CryptoStor commenced
only in February of this year under the nCipher banner.
Risks and uncertainties
The Board reported on the principal risks and uncertainties faced by the Group
in the Annual Report and Financial Statements for the year ended 31 December
2007. These risks have not changed and a detailed explanation can be found on
pages 30 of the Annual Report and Financial Statements. A list of the Group's
five major business risks is listed in note 7.
Financial Results
Revenue for the first half of 2008 increased by 2% to �12.3 million compared
with the same period last year (H1 2007: �12.1 million) and is also 2% higher
than the immediately preceding six months to 31 December 2007 (H2 2006: �12.1
million). These numbers do not reflect the substantial growth of order intake
during the same period. The order backlog at the end of June had increased by
�2.3 million to �3.75 million.
As previously announced, we are moving the company to a 30 April year end and
the internal operational processes are now focussed on the new quarterly
periods. Total recognised revenue for the seven months to 31 July 2008 was up
12% on the same period in 2007 and trading continues in line with our
expectations.
First half 2007 revenue is split geographically between North America - 41.8%
(H1 2007: 45.2%), Europe Middle East and Africa - 49.0% (H1 2007: 45.9%) and
Asia-Pacific Rim - 9.2% (H1 2007: 8.9%).
Gross margins of 84.9% are in line with those achieved in H1 2007 (85.3%)
despite the increasing element of Professional Services income which has a lower
gross margin percentage than the rest of the business.
Operating costs have increased significantly to �12.1 million from �9.3 million
for the same period last year and �10.0 million during the second half of 2007.
This is due to the investment needs identified in respect of product, people and
infrastructure in accordance with our three year growth plan. Part of the
increase in operating costs comes from the establishment of the Storage Security
Group based in Milpitas, California which sells and supports the CryptoStor
product acquired in the Neoscale transaction in December 2007.
Our employees are fundamental to our success and remain our key resource whilst
forming the most significant part of our cost base. At 30 June 2008 our
headcount stood at 217 (30 June 2007: 185), including 7 employees at the
majority-owned Abridean operation (30 June 2007: 37).
The operating loss of �1.7 million compares with a profit of �1.0 million in the
same period last year.
Interest income was �0.1 million (H1 2007: �1.0 million) reflecting the reduced
cash balances following the return of �34 million to shareholders at the end of
June 2007.
The estimated tax credit for the period was �712,000 compared with a charge of
�762,000 for H1 2007. This is based on the estimated tax position for the
financial year.
The net loss for the period is �0.9 million (H1 2007: profit of �1.3 million).
The Balance Sheet has net assets of �6.8 million compared with �7.4 million at
31 December 2007. As part of the investment in infrastructure we are currently
involved in establishing a "state of the art" shared server facility based in
Cambridge and have undertaken a refurbishment of the Jupiter House offices in
Cambridge. This investment is the reason for the increase in property, plant and
equipment on the balance sheet.
In the six months to 30 June 2007 net cash consumed by operations was �0.6
million compared with cash generated of �1.5 million in the same period last
year or �0.8 million in the full year. This figure is reported after the payment
of Corporation taxes of �0.7 million (H1 and full year 2007 repayment of �0.1
million). The cash position at the end of June was �6.4 million compared with
�7.3 million at the end of 2007 and includes an out flow of �1.2 million for the
investment in Property, Plant and Equipment and the payment of Corporation
taxes.
Prospects
The Board continues to believe that the business is performing well and trading
is in line with management expectations. The Company's financial position
remains strong.
Robert Jeens Geoffrey Finlay
Chairman Chief Executive Officer
INDEPENDENT REVIEW REPORT TO NCIPHER PLC
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2008 which comprises the condensed income statement, the condensed balance
sheet, the condensed statement of changes in equity, the condensed cash flow
statement and related notes 1 to 8. We have read the other information contained
in the half-yearly financial report and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the
condensed set of financial statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements 2410 issued by the Auditing Practices Board. Our
work has been undertaken so that we might state to the company those matters we
are required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdoms' Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with IFRS as adopted by the European Union. The condensed
set of financial statements included in this half-yearly financial report has
been prepared in accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of Review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2008 is not prepared, in all material
respects, in accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditor
21 August 2008
Cambridge, UK
Interim Financial Statements
Condensed Consolidated Income Statement
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
Note �'000 �'000 �'000
Revenue 5 12,290 12,062 24,171
Cost of sales (1,852) (1,768) (2,776)
---------------------------------
Gross profit 10,437 10,294 21,395
=================================
Sales and marketing costs (6,261) (4,670) (8,993)
Research and development costs (2,683) (2,043) (5,461)
Administrative costs (3,224) (2,565) (4,787)
---------------------------------
(12,168) (9,278) (19,241)
=================================
OPERATING (LOSS)/PROFIT 5 (1,731) 1,016 2,154
Interest income 130 1,035 1,251
Preference share dividends - (4) (7)
---------------------------------
(LOSS)/PROFIT BEFORE TAX (1,601) 2,047 3,398
Tax 712 (762) (880)
---------------------------------
(LOSS)/PROFIT FOR THE PERIOD (890) 1,285 2,518
=================================
Attributable to:
Equity holder of the parent (890) 1,285 2,518
Minority interests - - -
---------------------------------
(890) 1,285 2,518
=================================
(Loss)/Earnings per share
Basic (pence) 4 (5.7) 4.6 11.4
Diluted (pence) 4 (5.7) 4.4 10.9
Condensed Consolidated Statement of Changes in Shareholders' Equity
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
�'000 �'000 �'000
At beginning of period 7,393 41,403 41,403
(Loss)/profit for the period (890) 1,285 2,518
Translation adjustments 22 (107) (248)
New shares issued to satisfy options exercised 35 57 116
Sale of own shares to satisfy options - 32 98
Share buy back and cancellation - (34,353) (34,459)
Share based payments 180 59 166
Minority interest - - (2,201)
----------------------------
At end of period 6,740 8,376 7,393
============================
Interim Financial Statements
Condensed Consolidated Balance Sheet
30 June 30 June 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
�'000 �'000 �'000
Non-current assets
Intangible assets - goodwill 142 - 123
Other intangible assets 279 - 303
Property, plant and equipment 944 419 652
Deferred tax assets 362 433 374
---------------------------
1,727 852 1,452
---------------------------
Current assets
Inventories 3,147 2,041 3,196
Trade and other receivables 7,980 6,695 9,741
Cash and cash equivalents 6,426 11,132 7,306
---------------------------
17,554 19,868 20,243
---------------------------
Total assets 19,281 20,720 21,695
===========================
Current liabilities
Trade and other payables 492 372 477
Accrued payroll and related expenses 1,663 1,646 1,559
Deferred service contract revenue 7,053 5,598 6,866
Corporation tax 395 1,716 1,817
Other accrued liabilities 1,247 1,243 1,795
Short term provisions 67 80 148
Debt 125 116 126
Borrowings 148 257 157
---------------------------
11,190 11,028 12,945
---------------------------
Net current assets 6,364 8,840 7,298
---------------------------
Non-current liabilities
Long term debt 1,350 1,316 1,357
Deferred tax liabilities - - -
Deferred cash considerations - - -
---------------------------
1,350 1,316 1,357
---------------------------
Total liabilities 12,540 12,344 14,302
---------------------------
Net assets 6,740 8,376 7,393
===========================
EQUITY
Share capital 89 89 89
Share premium account 94 - 59
Translation reserve (1,312) (1,144) (1,332)
Own shares (2,897) (761) (2,897)
Equity reserve 2,196 1,906 2,015
Capital redemption reserve 193 130 193
Special reserve 3,053 3,215 3,052
Merger reserve 15,937 15,937 15,937
Retained earnings (10,613) (10,996) (9,723)
---------------------------
Equity attributable to equity of the parent 6,740 8,376 7,393
Minority interest - - -
---------------------------
TOTAL EQUITY 6,740 8,376 7,393
===========================
Interim Financial Statements
Condensed Consolidated Cash Flow Statement
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Note Unaudited Unaudited Audited
�'000 �'000 �'000
NET CASH (CONSUMED/)FROM OPERATING
ACTIVITIES 3 (564) 1,459 809
------------------------------
INVESTING ACTIVITIES
Interest received 115 1,124 1,250
Purchases of property, plant and equipment (440) (96) (273)
Acquisition of subsidiary, net of cash
acquired (18) - (971)
Proceeds from issuance of treasury shares - - 98
------------------------------
NET CASH (CONSUMED)/FROM INVESTING
ACTIVITIES (343) 1,171 104
------------------------------
FINANCING ACTIVITIES
Dividends paid on redeemable B shares - (4) (7)
Proceeds on issue of ordinary shares 35 57 116
Purchases and cancellation of own shares (34,459)
Purchase of own shares - (34,371) (2,201)
Redemption of B shares (9) (10) (75)
Repayment of debt - (3) (71)
------------------------------
NET CASH USED IN FINANCING ACTIVITIES (26) (34,331) (36,697)
------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (881) (31,844) (35,784)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 7,306 43,098 43,098
Effects of foreign exchange rate changes 1 (122) (8)
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 6,426 11,132 7,306
==============================
Interim Financial Statements
Notes to the Condensed Financial Statements
1 The Board of Directors and Authorisation of Condensed Financial Statements
The Board of nCipher plc ('nCipher') currently has five members comprising a
non-executive Chairman Robert Jeens, a Chief Executive Officer G J Finlay, one
other executive and two other non-executive Directors. There has been no change
in the Board of Directors since the issuance of the 2007 Annual Report which is
available on the nCipher's website (address: www.ncipher.com).
2 Bases of Preparation and accounting policies
In accordance with EU regulations, nCipher plc is required to prepare statutory
financial statements which comply with the International Financial Reporting
Standards adopted for use in the European Union ("IFRS").
The condensed financial statements have been prepared in accordance with IFRS
issued by the International Accounting Standards Board ("IASB") and, the
interpretations issued by the International Financial Reporting Interpretations
Committee ("IFRIC") adopted by the European Union that were effective at the
time of preparing the financial statements and with those parts of the Companies
Act 1985 applicable to companies reporting under IFRS. These statements do not
include all the information and disclosures required in the annual financial
statements and should be read in conjunction with the Group's annual financial
statements for the year ended 31 December 2007.
The condensed financial statements have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Services Authority and IAS34
"Interim Financial Reporting" as adopted by the European Union.
The condensed financial statements are unaudited and do not constitute statutory
financial statements within the meaning of section 240 of the Companies Act
1985. The figures for the year ended 30 December 2007 are an extract from the
audited financial statements for that period which are available on nCipher's
website at www.ncipher.com and have been delivered to the Registrar of Companies
and on which the auditors have issued an unqualified report which contained no
statement under section 237(2) or section 237(3) of the Companies Act 1985.
The financial information in this statement has been prepared under the same
accounting policies as the statutory accounts for the year ended 31 December
2007.
Interim Financial Statements
Notes to the Condensed Financial Statements
The significant judgments made by management in applying the Group's accounting
policies and the key sources of uncertainty were the same as those that applied
to the Group's financial statements as at 31 December 2007, namely:
a) determining whether non-current assets, particularly goodwill, are impaired;
b) impairment valuations of inventories and receivables, which are based on the
Directors' judgments using their experience.
3 Reconciliation of (loss)/profit from operations to net cash from operating
activities
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
�'000 �'000 �'000
(Loss)/profit from operations (1,731) 1,016 2,154
Adjustments for:
Impairment loss - - -
Loss on operations attributable to minority
interest - - -
Depreciation of property, plant and equipment 148 125 250
Amortisation of intangibles 24 - -
Equity-settled share based payment transactions 222 94 228
Foreign currency movements - - -
Proceeds from issuance of treasury shares - 34 -
-------------------------------
Operating cash flows before movements in working
capital (1,337) 1,269 2,632
Decrease/(Increase) in inventories 48 (878) (1,567)
Decrease/(Increase) in receivables 1,742 (44) (2,961)
(Decrease)/Increase in payables (278) 969 2,608
-------------------------------
175 1,316 712
Income taxes (paid)/received (739) 143 97
Net cash (consumed)/from Operating activities (564) 1,459 809
===============================
Interim Financial Statements
Notes to the Condensed Financial Statements
4 Earnings per Share
The calculation of the basic and diluted earnings per share is based on the
following data:
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Earnings Unaudited Unaudited Audited
�'000 �'000 �'000
Earnings for the purposes of basic and
diluted earnings per share being:
Profit for the period attributable to
common shareholders (890) 1,285 2,518
=====================================
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2008 2007 2007
Number of shares Unaudited Unaudited Unaudited
Weighted average number of ordinary shares
for the purpose of basic earnings per
share 15,645,944 28,156,892 22,030,781
Effect of dilutive potential ordinary
shares:
Share options and Long Term Incentive Plan - 821,859 1,030,313
-------------------------------------
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 15,645,944 28,978,751 23,121,094
=====================================
Interim Financial Statements
Notes to the Condensed Financial Statements
5 Segmental Information
The following table, which represents the Group's primary reporting segments,
provides an analysis of the Group's revenue including between regions and
operating profits/(losses) by geographical region, irrespective of the origin of
the goods/services.
Six months Six months Year
ended ended Ended
30 June 30 June 31 Dec
2008 2007 2007
Unaudited Unaudited Audited
Sales
Asia 1,127 1,070 2,250
Europe, Middle East and Africa 7,370 8,825 16,905
North and South America (including Abridean) 5,140 5,884 10,283
Eliminations (1,347) (3,717) (5,267)
---------------------------------
12,290 12,062 24,171
=================================
Operating (losses)/profits
Asia (369) (17) (165)
Europe, Middle East and Africa (218) 2,634 2,515
North and South America (including Abridean) (824) (1,275) 753
Unallocated corporate expenses and
eliminations (320) (326) (949)
---------------------------------
Operating (loss)/profit (1,731) 1,016 2,154
=================================
6 Subsequent event note:
Apart from the recommended bid by Thales UK Ltd for the entire share capital of
nCipher plc which is discussed earlier in this report, there were no significant
events after the balance sheet date.
Interim Financial Statements
Notes to the Condensed Financial Statements
7 Risks and uncertainties
Market
Operational
Credit
Liquidity
Foreign Currency
These risks together with the systems and initiatives in place to address them
are discussed on page 30 of the 2007 Annual Report and Accounts
8 Responsibility statement
The directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the condensed consolidated financial statements include a fair view of the
information required by DTR 4.2.7 and DTR 4.2.8.
The condensed financial statements were approved by the Board of Directors on 21
August 2008 and signed on their behalf by Geoffrey Finlay.
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