nCipher Q1 sales up 32% but profits hit by enforced slowdown in bedding in Abridean
Cryptographic IT security specialists nCipher plc (NCH.L) said today that first quarter revenues increased by 32% over Q1 2005 but costs relating to the aborted takeover by SafeNet, and losses and write-downs from the recently acquired Abridean Inc pushed operating profits into the red.
Revenues jumped 41% in North America, 33% in Asia Pacific and 22% in Europe for the three months to the end of March, taking the total to £5.1m, which CEO Alex van Someren (pictured) described as "unseasonably good".
The Cambridge-headquartered company reported an operating loss of £0.6m compared with profits of £0.2m Q1 2005 and £0.8m in Q4 2005. The Q1 operating profit of £0.3m from the traditional nCipher business was swamped by professional fees incurred on the SafeNet bid, [abondonned in April] by £0.16m of amortisation and fair value adjustments for and a £0.45m operating loss by Abridean, in which a majority stake was acquired in November.
Overall, nCipher generated net cash of £1.3m during the quarter and had £41.9m in the bank at 31 March 2006.
Sales disruption
But Mr van Someren said "As a result of SafeNet's aborted offer we have noted some disruption to our sales pipeline which may impact revenues during the balance of the year, and we expect to take steps to control the company's overheads accordingly".
This news saw nCipher's share price shed 7% or 15p to reach 195p by midday, but it was on a day when the whole market was significantly down.
However, Mr van Someren said, "We believe that our portfolio of security products and services puts us in an excellent position to exploit a number of high-growth market developments in the IT security field."
He said the gross margin of 78.0% during the quarter compared with margins of 79.5% in Q1 2005 and 79.1% in Q4 2005. Within this, the traditional nCipher business continued to enjoy strong margins but they were diluted by Abridean's margins.
R&D spending grew to £1.0m from £0.7m in Q4 2005, mainly because of the additional cost of a full quarter of Abridean's R&D costs.
Mr van Someren said the firm had also boosted its investment in sales and marketing. He said the acquisition of a 61% stake in Abridean remained an important part of its long-term strategy, but that its integration "has been slower than we intended as a result of conditions imposed by the SafeNet offer".
He said the acquisition was driven by market demand for solutions that comprehensively manage the rights to access sensitive information within enterprises. By developing these solutions, its customers will be able to deploy the cryptographic security techniques which are nCipher's recognised area of expertise much more widely.
"We expect user management and provisioning software provided by Abridean to become the focal point for administering this more complex security environment", he said.
nCipher now intends to complete the buy out of Abridean by making an offer to common stockholders and by offering its employees nCipher share options in exchange for their options in Abridean.
nCipher's "strategy remains focused on expanding beyond our core business of hardware cryptographic products to further develop our portfolio of solutions that protect critical enterprise data", Mr van Someren said. By delivering solutions in the fields of identity management, data protection, enterprise key management and cryptographic hardware, nCipher's security solutions enable 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.
The market for its IT security expertise remains strong. There has been no let up in 2006 in the number of high-profile announcements from companies obliged to publicly disclose the loss of confidential data due to theft of 'data at rest'.
Its customers are also coming under pressure to comply with stringent privacy legislation, in particular the Payment Card Industry Data Security Standard. The company is seeing the increasing deployment of public key infrastructures where digital certificates are being used to identify parties and to prove authenticity and data integrity.
New chairman sought
Mr van Someren said longstanding Chairman, Dr Ossama Hassanein, wants to retire from the board following his relocation to Silicon Valley. The company has hired a recruitment firm whose search for a replacement is well advanced.
Change to reporting
Due to the amount of time consumed by quarterly reporting and the significant extra costs of reporting accounts under both US GAAP and IFRS, nCipher said it will look into reporting its accounts half-yearly under IFRS alone.
8th June 2006
