Corero Network Solutions, the network intrusion protection company, is investing heavily to drive top line growth in 2012 after spending most of 2011 refashioning the company.
The company reported full year results for 2012 that were heavily distorted by the acquisition of Top Layer Networks, the US network security firm's whose intellectual property will form the basis of Corero's cyber-security platform.
Revenues rose from £3.0m in 2010 to £11.3m in 2011, with Top Layer - now renamed Corero Network Security - contributing £6.9m to that.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The legacy part of the business, Corero Business Systems, which supplies finance and business systems - the latter principally to the education market - chipped in with revenue of £4.4m, up 45% on 2010's level.
The company's management makes no bones about the fact that the two parts of the business operate entirely independently, and offer no real synergies.
Management took over Corero intending to use it as a vehicle for its "buy and build" strategy in the cyber-security arena, but discovered that the business systems bit of the firm it had bought was a nice little operation, which had been used as a cash cow by the previous management.
"We have liberated that business," Chief Operating Officer Andrew Miller told Sharecast. "We grew headcount from 30 to over 50 during 2011 and will continue to invest in CBS [Corero Business Systems] to drive growth," Miller vowed.
The group as a whole made an underlying operating profit of £0.29m, down from £0.33m in 2010, and made an adjusted loss before tax of £0.26m, versus a loss of £0.03m the year before.
Acquisition and restructuring costs of £0.6m were largely responsible for the deterioration in the bottom line, but Miller stresses that these were "one off costs that won't be recurring."
"We feel we have the right management in place now to take the business forward," Miller said.
The company also has plenty of cash, having successfully raised £4.3m through a share placing in March which saw the company cast its net beyond its existing shareholders to get some new institutional investors on board.
"We had significant demand and had to scale back interest," Miller divulged.
Corero's gross profit margin is an eye-popping 77%, which means it can afford to give up a bit of margin to resellers and distributors, as it moves even further to an indirect selling model.
"What you give away in margins, you gain in leverage," explained Jens Montanana, Chairman of Corero, and also founder and Chief Executive Officer of Datatec, the information and communications technology products and services provider.
For Corero, it is all about growing the top line, as increased sales will add very little to the overheads, ensuring most of the increased revenue drops through to the bottom line.
Miller acknowledges that Corero is a small company competing against some big players, but - as you would expect - he is convinced that the company has a compelling product serving a fast growing market.
"We position ourselves as the first line of defence [on a company network]. Some of our clients have intrusion protection systems (IPS) from our rivals but they do not have the ability to counteract a distributed denial of service attack in the same way our platform has, so they use our product to augment their existing IPS," Miller said.
A distributed denial of service - or DDoS - attack is when malware attempts to bring a computer system grinding to a halt by flooding it with pointless input/output requests.
"Obviously, when they upgrade their IPS systems, we hope they will move over completely to using our platform," Miller added.
In view of the recent profit warning from network monitoring solutions firm Endace, which has been experiencing delays in getting customers to sign on the dotted line, analysts have apparently been questioning Corero about how their markets are holding up.
Miller and Montanana were adamant that Endace is a different kettle of fish, both in product terms and in the size of contracts the two companies typically deal in.
"Endace is purely a netowrk monitoring firm. Their products can alert the user to an attack, but they can't counter it in the way our products can. it's a different market," Miller explained.
Montanana, meanwhile, pointed out that Endace is dealing in much bigger contracts than Corero, which leads to "longer lead times, as more people have to sign off on them."
Shares in Corero were unchanged following the figures.
jh
Six investment funds for beginners
Farming isn't for the faint-hearted – and isn't profitable
