nCipher core business grows but held back by slow growing subsidiary; to return £34m to shareholders
nCipher plc (NCH.L), specialist in protecting critical enterprise data, said last month it would return £34m in cash to shareholders by tender as it unveiled preliminary financial results for the year ended 31 December 2006 which showed a 21% increase in sales revenue to £21.1m, but a fall in profits.
Subscribers please note: this article is a repeat. It first appeared on 22 February2007 but a technical glitch deleted it from our comprehensive news data base.
nCipher saw its operating profit slump to £0.5m from £1.9m as it absorbed losses from its 61%-owned subsidiary software developer Abridean, acquired in November 2005. The Board said a review of Abridean last December confirmed the acquisition had developed considerably more slowly than anticipated.
The Board said it believed this is likely to continue in 2007 and considered it likely that the achievement of breakeven by Abridean will take significantly longer than previously expected. nCipher said it is not planning to purchase any further equity stake in Abridean.
nCipher will continue to provide short term funding for Abridean until its obligation lapses in April 2007. The Board continues to believe that there is potential to build on the intellectual property developed by Abridean. However, as a result of the continuing underperformance, the Board feels it is appropriate to write off the goodwill and intangible assets of Abridean, which leads to a charge of £7.3m, and contributed to a net loss before tax of £4.7m.
Overall result
On the overall result, CEO Alex van Someren (pictured) said: "In 2006, nCipher's tenth anniversary year, [we have] delivered [our] highest ever revenues. The performance of nCipher's core business in cryptographic security products, including hardware, software and services, has remained strong.
"I believe that the uncertainty following last year's aborted offer is now past and that the Company has a clear strategy for expanding its business into areas with the potential for strong growth. Therefore, in 2007 we intend to increase our internal investment to develop and further refine our product portfolio.
"By consolidating Abridean's losses we have shown an operating profit of £0.5m for the full year. However, we are pleased that the core business in high-end encryption hardware has remained strong, delivering its best ever sales revenues, and continuing to provide a solid foundation for future growth".
In early 2006 nCipher received an offer from the US-based competitor SafeNet, Inc. which after was recommended by the Board but ultimately lapsed following the referral to the Office of Fair Trading on market share grounds.
"Conditions imposed by this offer, coupled with the distraction it provided, resulted in Abridean missing its operational and financial targets and consequently we have not completed the acquisition of the remaining share of the business", Mr van Someren said.
He said that in 2007 nCipher will increase R & D investment to develop its own solutions to meet customers' requirements for credential management and data protection, whilst continuing to evolve its products for enterprise key management and cryptographic hardware still further.
Prospects
The Board believes the uncertainty following last year's aborted offer is now past and that nCipher has a clear strategy for expanding business into areas with the potential for strong growth.
The Board said is was conscious of the consolidation taking place in the broader security market, particularly amongst larger companies, but believed major customers would continue to value high quality enterprise offerings from independent specialist suppliers.
22nd February, 2007
