2011-03-03 08:15:00 CET
2011-03-03 08:16:08 CET
REGULATED INFORMATION
Stonesoft - Annual Financial Report
STONESOFT CORPORATION FINANCIAL STATEMENT RELEASE FOR JANUARY-DECEMBER 2010
StoneGate product sales made all-time record
Stonesoft Corporation's operating result for the fourth quarter was, as
previously announced, slightly negative and was MEUR -0.7, which is -0,8 MEUR
weaker than during the corresponding period in the previous year. The company's
product sales developed very positively and were MEUR 4.4, while total net sales
were MEUR 7.5. This was the all-time record in the company's history.
The comparable figures from the corresponding period in the previous year are in
brackets and refer to the figures of continuing operations.
October-December 2010
- Net sales MEUR 7.5 (6.5 and 6.9), growth 15%
- Product sales MEUR 4.4 (3.7 and 4.3), growth 19%
- Operating result MEUR -0.7 (0.1 and -0.2)
- Operating result as percentage of net sales -9 (1 and -3)%
- Earnings per share EUR -0.01 (0.00 and -0.00)
- Operative cash flow MEUR -2.5 (0.7 and -0.2)
- Liquid cash funds at the end of the reporting period MEUR 8.0 (6.2 and 7.0).
The corporate had no interest-bearing debts.
January-December 2010
- Net sales MEUR 24.3 (23.6 and 24.4), growth 3%
- Product sales MEUR 12.7 (12.6 and 14.8), growth 0.4%
- Operating result MEUR -2.7 (-1.0 and -2.3)
- Operating result as percentage of net sales -11 (-4 and -9)%
- Earnings per share EUR -0.04 (-0.02 and -0.04)
- Operative cash flow MEUR -2.8 (-0.8 and -1.9)
CEO ILKKA HIIDENHEIMO
In the last quarter of the year 2010 Stonesoft's StoneGate product sales grew by
19% and reached the all time high in the company's history. The company's sales
project pipeline has looked promising for already several quarters, and during
the last quarter of the year the customers started making long postponed
investments. The investments were made largely towards the end of the year,
which is why cash flow remained still weak.
In October we announced the discovery of a significant new network security
threat category, advanced evasion techniques (AET), which put the functionality
of organization's data capital and systems at risk. The issue received a lot of
publicity in international media and ICSA Labs, a recognized company specialized
in independent testing and certification of security products has tested and
verified the discovery. We had already earlier reported our discovery to the
national computer security incident response team CERT-FI, based on whose
process other network security vendors had six (6) months time to update their
systems. By the end of this time period, in addition to Stonesoft only one,
Cisco, had provided an official statement, in which it announced it will
investigate the matter. After this a couple of other security vendors have
announced they provide protection against advanced evasion techniques. In our
tests we have seen that the protection offered by many vendors is not
sufficient.
During the reporting period we published more information and technical details
about the first 23 advanced evasion techniques. Also the research company
Gartner has published the first detailed report about advanced evasion
techniques. The report recommends companies to demand their network security
vendors to provide proof that their products offer protection against advanced
evasion techniques.
After the reporting period we have delivered CERT-FI 124 new recordings of
advanced evasion techniques. We will continue to research the threat posed by
them and aim to increase knowledge about traditional as well as advanced evasion
techniques among the security players. Stonesoft has a unique advantage in the
market in this respect, and we believe it will open new business opportunities
and have a positive effect on the company's net sales and profitability during
the year 2011.
NET SALES AND RESULT
October-December 2010 (hereinafter 'reporting period')
The Group's net sales in the reporting period were MEUR 7.5 (6.5 and 6.9).
Increase compared to the corresponding period in the previous year was MEUR
1.0, or 15%. The operating result (EBIT) was MEUR -0.7 (0.1 and -0.2) and the
result after taxes was MEUR -0.9 (+0.0 and -0.2).
Product sales were MEUR 4.4 (3.7 and 4.3), growth by 19% compared to the
corresponding quarter in the previous year.
The geographical distribution of net sales was as follows: Europe 60 (68 and
60) %, Emerging Markets (Russia, North Africa and Middle East) 20 (9 and 18) %,
Americas (North and South America) 17 (20 and 18) % and APAC (Asia-Pacific) 3 (3
and 4) %.
January-December 2010 (hereinafter 'fiscal period')
The Group's net sales in the fiscal period were MEUR 24.3 (23.6 and 24.4).
Increase compared to the corresponding period in the previous year was MEUR
0.7, or 3 %. The operating result (EBIT) was MEUR -2.7 (-1.0 and -2,3) and the
result after taxes was MEUR -2.7 (-1.0 and -2.2).
Product sales were MEUR 12.7 (12.6 and 14.8), growth by 0.4 % compared to the
corresponding period in the previous year.
The geographical distribution of net sales was as follows: Europe 60 (64 and
60) %, Emerging Markets (Russia, North Africa and Middle East) 17 (13 and 17) %,
Americas (North and South America) 19 (20 and 19) % and APAC (Asia-Pacific) 4 (3
and 4) %.
FINANCE AND INVESTMENTS
At the end of the fiscal year, Stonesoft's total assets were MEUR 19.9 (16.0 and
16.2). The equity ratio was 49 (40 and 46)% and gearing (the ratio of net debt
to shareholders' equity) was EUR -1.75 (-2.31 and -1.99).
The comparable cash flow during the fiscal year was MEUR -2.8 (-0.8 and -1.9).
The Group has no interest-bearing debt. The consolidated liquid assets at the
end of the fiscal year totalled MEUR 8.0 (6.2 and 7.0).
At the end of the fiscal year the group had a considerable amount of fiscal
losses, for which no deferred tax receivables have been entered into the balance
sheet. The total amount of these deferred tax receivables is MEUR 20.5, of which
MEUR 20.1 is accrued in Finland and MEUR 0.4 in the United States. The company
activates part of its research and development expenses in the Finnish taxation
(as of 1 January 2008), due to which the Finnish calculated tax receivables have
decreased from the previous year. The company can deduct the activated research
and development expenses in its taxation later.
In March 2010 Stonesoft Corporation conducted a directed share issue for a
limited number of experienced and professional domestic investors. In the share
issue, all 5.700.000 shares were subscribed for. The subscription price was EUR
0.80 per share. The company's own capital grew thereby by MEUR 4.4. The share
issue had a strong financial reason, as its purpose was to strengthen the
company's capital structure and to ensure the positive development according to
the company's strategy and growth plan.
Investments in tangible and intangible assets totalled MEUR 0.6 (0.3 and 0.5).
DEVELOPMENT OF BUSINESS OPERATIONS AND STRATEGY
During the past years Stonesoft has carried out a number of significant
operational changes as well as intensely extended its product offering. Despite
the global financial insecurity the company has demonstrated strong commitment
in strengthening its product offering, competitiveness and customer base.
Stonesoft's organization and sales processes are at the level required by the
targets set for the year 2011. Stonesoft aims to continue its decisive and
persistent efforts according to its selected growth strategy to increase its net
sales and result.
MAIN BUSINESS EVENTS
Main business events in 2010
In January, Stonesoft announced the StoneGate Firewall 5.1 and StoneGate
Management Center 5.1 versions.
In January Stonesoft announced that its IPS (intrusion prevention system)
appliances had perfomed well in the tests of the US-based a testing and
certification company NSS Labs Inc.
In February, Stonesoft warned organizations about the use of heightened security
risks associated with recent trends such as credit card payments, social media,
cloud computing and mobility.
In March, Stonesoft introduced the new StoneGate SSL VPN Virtual Appliance, SSL
VPN 1.4 and SSL-1060 for secure mobile and remote access.
In March, Stonesoft conducted a directed share issue to strengthen the company's
capital structure and to ensure the positive development according to the
company's strategy and growth plan. In the share issue, 5,700,000 new shares
were subscribed and registered for experienced and professional domestic
investors. The company's own capital grew thereby by MEUR 4.4.
In March, Stonesoft announced it had signed partnership agreements with four
leading Saudi-Arabian system integrators and is in the process to establish a
representative office in Riyadh, Kingdom of Saudi Arabia during spring 2010.
In March, Stonesoft announced it has entered a value added reseller agreement
with Teamsun Technology, a leading integrated IT service provider in China.
In April, Stonesoft shared five tactics organizations can use to protect
themselves against security threats and attacks related to cloud services and to
improve their IT strategy.
In May, Stonesoft introduced StoneGate IPS-1205 for advanced gigabit network
protection.
In June, Stonesoft announced its StoneGate IPS (Intrusion Prevention System)
provides efficient protection against the latest critical vulnerability that
exists in Adobe Flash Player, Adobe Reader and Acrobat as well as the Microsoft
vulnerability.
In July, Stonesoft announced it expects the net sales for the second quarter of
2010 to decline by about 15% compared to the corresponding period in the
previous year and expects the operating result to be negative.
In August, Stonesoft announced the extended availability of the StoneGate
MobileID authentication software token for five additional platforms: Apple Mac
OS, iPod, iPhone, iPad and Google Android.
In August, Stonesoft announced a selection of new modular network security
appliances. The key benefits offered by the modular appliances are scalability,
connectivity and ease of maintenance. Thanks to the modularity, the capacity of
StoneGate 5.2 firewall and intrusion prevention system appliances can be raised
flexibly to meet network connectivity needs.
In September, Stonesoft announced it estimates its net sales to grow from the
previous year's level but the operating result for the full year 2010 to be
negative.
In September, Stonesoft announced it has extended its strategic partnership with
the US-based IT service provider Accuvant.
In September, Stonesoft announced its StoneGate Firewall/VPN and IPS network
security solutions have received FSTEK certifications in Russia. FSTEK is one of
the main government authorities regulating information security in the Russian
Federation. As a result, Stonesoft's StoneGate solutions are now approved to
secure highly critical information systems in state and commercial organizations
as well as government authorities.
In October, Stonesoft announced its research and development unit has discovered
a new and significant security threat category, Advanced Evasion Techniques,
which enables intruding into organizations' data systems without leaving a
trace. AETs can also transport already known malware or phishing programs, worms
and viruses, which otherwise would be detectable and stoppable by network
security systems.
In November, Stonesoft announced Hansel Ltd, the central procurement unit of the
Finnish Government, has selected Atea as one of the suppliers of firewalls as
well as equipment and services related to them in a new four- year framework
agreement. Atea was selected as the distributor of Stonesoft's StoneGate
products and services.
In November, Stonesoft published a new technical paper on advanced evasion
techniques, "New Methods and Combinatorics for Bypassing Intrusion Prevention
Technologies."
In December, the entire StoneGate Intrusion Prevention System (IPS) suite of
appliances successfully attained the ICSA Labs Network Intrusion Prevention
System (IPS) certification.
In December, Stonesoft announced Tekes, the Finnish Funding Agency for
Technology and Innovation had decided to fund its research and development
project "Dynamic network security" with more than one million Euros. The funding
is distributed mainly during the years 2011 and 2012.
In December, Gartner, Inc. Positioned Stonesoft in the Niche Players quadrant in
the Network Intrusion Prevention System (IPS) Magic Quadrant based on evaluation
of its StoneGate IPS.
In December, Stonesoft published detailed technical descriptions of the first
set Advanced Evasion Techniques (AETs). The first samples comprising of 23
evasion methods and their descriptions were delivered to CERT-FI in May,
September and October 2010. Within the CERT-FI vulnerability coordination
process, security vendors have had up to six months time to find a way to update
their systems against these newly found threats.
In December, Stonesoft announced its year 2004 Option Plan subscription period
of shares will expire December 31, 2010 for all the stock options.
Main business events after the reporting period
In January, Stonesoft published a list of security risks organizations should
prepare for in 2011.
In January, Stonesoft announced its StoneGate(TM) IPS-1205 and IPS-3205
intrusion prevention system (IPS) appliances were rated excellent in value
purchase according to the latest Network Intrusion Prevention System Comparative
Test Report from NSS Labs, Inc. Both appliances ranked in the top three in their
respective performance categories for best price per Mbps protected and total
cost of ownership (TCO) per real world throughput.
In February, Stonesoft announced it had discovered 124 new advanced evasion
techniques (AETs). Samples of these AETs have been delivered to the Computer
Emergency Response Team (CERT-FI), who will continue to coordinate a global
vulnerability coordination effort.
RESALES CHANNEL
The company sales are mainly conducted through an international resales channel.
RESEARCH AND DEVELOPMENT
Stonesoft's R&D operations are located in Finland, France and Poland. At the end
of the year 2010, R&D employed altogether 75 (63 and 66) persons.
The company's R&D investments during the fiscal period for continuing operations
totaled MEUR 5.6 (4.9 and 5.2). R&D costs represented 23 (22 and 21) % of all
expenses for continuing operations.
The research operations of Stonesoft's R&D unit expanded during the year 2010.
The most visible results were the discovery of Advanced Evasion Techniques
(AET), reporting about them to other security vendors via the global
vulnerability coordination process of CERT-FI, and developing efficient
protection methods against AETs. Stonesoft participated in the Future Internet
research program in Finland, developing the analysis and visualization of events
related to network traffic as well as blocking unwanted traffic.
In December, Tekes, the Finnish Funding Agency for Technology and Innovation,
announced it will fund Stonesoft's research and development project "Dynamic
network security" with more than a million Euros. The project will start in
2011, but it is partly a continuation of a previous project "The protection of
fast networks of critical infrastructure" that was finalized at the end of 2010
and has reached its goals.
Stonesoft's newest R&D unit in Cracow, Poland started its operations
successfully. At the end of the year the Cracow office employed 12 persons. The
unit already plays a significant role especially in the development of the key
features of the StoneGate firewall solution.
Stonesoft's StoneGate product offering was significantly renewed during the year
2010. With respect to the appliances, the most visible improvement was the
introduction of the modular network security appliances. Also the performance of
the appliances was significantly improved.
The visible improvements of the StoneGate firewall software included, among
others, IPv6 support, improvements in the Multicast routing and support for 64-
bit architecture, which facilitates more efficient use of resources. The last-
mentioned improvement applies also to the intrusion prevention system (IPS),
which now includes also the possibility of category-based web filtering.
Stonesoft's SSL VPN product was developed, in addition to remote use, a
versatile autentication environment for shared user authentication services. Its
authentication applications were complemented by support for several new mobile
devices and operating systems.
During the year 2010, Stonesoft's network security solutions performed well in
international tests and received several significant certifications. The most
important of these included ICSA Labs Network Intrusion Prevention System (IPS)
certification, the FSTEK certification in Russia and good results in the NSS
Labs Network IPS Group Test.
Stonesoft was granted two patents during the year. The patents were related to
safe remote updates of a network device and filtering tunneled data packets.
We estimate the above-mentioned operations and achievements to secure the
company's competitiveness in the future.
DEVELOPMENT OF SHARE PRICES AND TURNOVER
Stonesoft's share value at the beginning of the fiscal year on January 3, 2010
was EUR 0.70 (0.32 and 0.29). At the end of the fiscal year on December
31, 2010, the share price was EUR 0.58 (0.70 and 0.32). The highest share price
was EUR 1.19 (0.78 and 0.50), and the lowest EUR 0.54 (0.31 and 0.24). During
the year, the total turnover of Stonesoft shares amounted to MEUR 23.9 (5.8 and
5.2) and 29.1 (11.1 and 14.9) million shares, which is 46.0 (19.4 and 26.0)% of
the total amount of the shares. Based on the share price on December 31, 2010,
Stonesoft's market capitalization was MEUR 36.7 (40.1 and 18.3).
SHARE CAPITAL AND STOCK OPTION PROGRAMS
At the end of the fiscal year on December 31, 2010, Stonesoft's share capital
recorded in the Trade Register totaled EUR 1,150,574.64 (1,146,054.64 and
1,146,054.64). The number of shares at the end of the fiscal year corrected by
share issue was 64 283 238 (57 727 732 and 57 309 875). The weighted average
value of the numbers of shares corrected by share issue was 61 855 279 (57 723
942 and 57 307 748). The share capital changed due the subscription of options.
There is one class of shares and every share has one vote. The shares have no
limitations on voting rights. The shares have no nominal value and no
bookkeeping equivalent value. There are no redemption or approval clauses
related to the shares, or securities entitling to the shares, and no other
limitations of transfer. Furthermore, the shares and securities entitling to the
shares have no special rights related to the decision making of the company.
The shares of the company have been connected to the book-entry securities
system maintained by Euroclear Finland Ltd, which maintains the official
shareholder register of the company. The shares of the company are rated on the
small company list under the information technology classification with the
trade identification SFT1V in the NASDAQ OMX Helsinki Ltd.
The company had two valid stock option programs in 2010, Stock Option program
2004-2010 and Stock Option program 2008-2014. Under the Stock Option program
2004-2010, the subscription price is EUR 0.56, and the total number of stock
options to be granted based on it is at the maximum 1 500 000. The subscription
period of the shares were graded and ended for all stock options on December
31, 2010. At the end of the year 2010 in total 1 076 250 stock options had been
granted under this program. Under the Stock Option program 2008-2014, the
subscription price is EUR 0.30 and the total number of stock options to be
granted based on this program is at the maximum of 3 000 000. The subscription
period of the shares is graded and will end for all stock options on December
31, 2014. At the end of the year 2010 in total 1 208 750 stock options had been
granted under this program. At the end of the fiscal year in total 1 352 750
shares could be subscribed based on these programs, which represents 2.13% of
the present number of shares and votes in the company. During the fiscal year,
309 750 subscriptions were made on the basis of the stock option programs
targeted for key persons in the company.
SHAREHOLDERS
At the end of 2010, the company had 6 646 (5 862 and 5 877) shareholders.
Nominee registered holdings represented 6.1% of the share capital in 2010.
The company gave three (3) notices of change of ownership during the fiscal
year.
SHAREHOLDINGS OF THE BOARD OF DIRECTORS AND THE CEO
On December 31, 2010, the members of the Board of Directors, the CEO and the
entities under their control held a total of 21 149 346 shares of the company,
which represented 33.4% of the shares and the voting rights. The stock option
rights held by the members of the Board of Directors on December 31, 2010
entitled them to a subscription of
108 750 shares.
PROPOSAL BY THE BOARD OF DIRECTORS FOR DISTRIBUTION OF PROFIT
The operating result of the parent company was MEUR -2.6. At the end of the
fiscal year the parent company had no distributable equity in its shareholders'
equity. The Board of Directors proposes that the company pay no dividend and
that the loss be debited to the Profit/Loss account.
AUTHORIZATIONS OF THE BOARD OF DIRECTORS
The Annual General Meeting of Shareholders (AGM) held on April 22, 2010, decided
to grant the Board of Directors a new authorization.
According to the new authorization, the Board of Directors is authorized to
issue new shares and to grant stock option rights and other special rights, in
one or several tranches, to the extent that the total number of new shares may
be 11 450 000 at the maximum, which is 18.1% of the shares and voting rights
registered to the Trade Register by 31.12.2010.
Based on the authorization, the Board of Directors may decide to issue new
shares for subscription according to the shareholders pre-emptive subscription
rights or in deviation from the shareholders pre-emptive subscription right, or
in a directed issue of option rights or other special rights in case the
deviation is justified by a weighty financial reason for the company, such as
financing of an acquisition, other arrangement concerning the business of the
company or development of its capital structure, or incentive to the company's
personnel.
The Board of Directors was authorized to decide other terms and conditions
related to the share issues and to the issuance of stock option or other special
rights.
The authorization is in force until the end of the AGM in 2011.
The company does not own its shares and the Board of Directors do not have an
authorization to acquire its own shares.
THE COMPANY'S BOARD OF DIRECTORS, EXECUTIVE MANAGEMENT AND AUDITORS
According to the Articles of Association of the company, the Board of Directors
is comprised of three to seven (3-7) ordinary members. The term of the member of
the Board of Directors starts at the end of the Annual General Meeting that
elects him/her and continues until the end of the next Annual General Meeting.
The Annual General Meeting held on April 22, 2010 elected five members to the
Board of Directors. Ilkka Hiidenheimo, Jukka Manner, Matti Viljo, Hannu Turunen
and Timo Syrjälä were elected to the Board. In its statutory meeting held on
April 22, 2010, the Board elected Matti Viljo as Chairman of the Board and Hannu
Turunen as Vice Chairman. Furthermore, the Board decided that there will be no
separate Board committees because due to the size of the company's business
operations and the size of the Board, there is no need to prepare issues in
smaller groups than the entire Board.
According to the Articles of Association, the company has a Chief Executive
Officer (CEO), who is appointed and discharged by the Board of Directors. In
2010, Ilkka Hiidenheimo was the CEO of the company. The CEO is in charge of the
day-to-day management of the company in accordance with the instructions and
orders given by the Board of Directors as well as the Companies Act.
The members of the company's Executive Management were Ilkka Hiidenheimo,Juha
Kivikoski,Kim Fagernäs, Mikael Nyberg, Mika Jalava and Ari Vänttinen. Saara
Laine and Klaus Majewski left the Executive Management Group during the
financial year 2010.
In 2010, authorized public accountants Ernst & Young Oy acted as Stonesoft's
auditor and authorized public accountant Bengt Nyholm as the auditor in charge.
The compensation of the CEO
CEO Ilkka Hiidenheimo will not accept any compensation for his duties until the
company is profitable. There is no specific retirement age set forth for the
CEO, and the CEO's pension is the same as for all the companys employees, as
defined in Finland's Employee Pension Act (TYEL). The contract of employment for
the CEO provides for notice of six (6) months prior to termination, with
compensation being equal to six months' salary and a further optional six (6)
months' fixed salary if the company terminates the contract without essential
breach of contract by the CEO. Both the pension right and the right to
compensation in case of termination of contract are only theoretical as long as
the CEO is not receiving any compensation.
ACQUISITIONS AND CHANGES IN GROUP STRUCTURE
No acquisitions were made during the fiscal year. The Brazilian subsidiary was
closed in March 2010 and a subsidiary was established in Poland, mainly focusing
to R&D. There were no other changes in the Group structure.
FOREIGN REPRESENTATIVE OFFICES
The group has a representative office in China.
PERSONNEL
At the end of the fiscal year, the Group's personnel totaled 201 (174 and 185)
people, of which 174 (154 and 167) were employees and 27 (20 and 18) had
contractual relationships as full-time sales representatives or consultants.
The geographical distribution of Stonesoft personnel was Europe 158 (135 and
144), Emerging markets (Russia, North Africa and Middle East) 17 (12 and 9),
Americas (North and South America) 21 (22 and 28) and APAC (Asia and Pacific) 5
(5 and 4).
The salaries and other remuneration paid to the employees, including social
security payments, were in total MEUR 14.7 (14.0 and 14.8).
The average number of personnel during the fiscal period was 191 (178 and 183).
ENVIRONMENT
Due to the nature of the company's business, the direct environmental impacts of
its business operations are fairly limited. The activities of the company
include internal software development and purchasing of external hardware
assembly services and related installation services from a subcontractor.
Stonesoft is a member of PYR (The International Register of Packaging PYR ltd).
Stonesoft's products are compliant with RoHS and WEEE directives (directives for
restrictions of hazardous substances in electric appliances and recycling of
electric appliances).
CORPORATE GOVERNANCE STATEMENT
Stonesoft Corporation's Corporate Governance Statement will be issued separately
from The Board of Director's report and published in the Annual Report.
Stonesoft's Board of Directors has reviewed and approved the Corporate
Governance Statement on 2.3.2011.
Stonesoft Corporation applies the Corporate Governance Code recommendations for
listed companies prepared by the NASDAQ OMX Helsinki Ltd, the Central Chamber of
Commerce and the Confederation of Finnish Industries EK and published in June
2010, with the exemption of recommendations concerning the establishment of
Board committees and on Board composition. A more detailed description of the
Corporate Governance principles of Stonesoft Corporation is available at the
corporate website (www.stonesoft.com).
The Corporate Governance Statement contains the main features of internal
control and risk management in relation to the financial reporting systems as
well as information about the composition and duties of the Board of Directors
and information about the Chief Executive Officer.
SHORT-TERM RISKS AND BUSINESS UNCERTAINTIES
During the fiscal year 2011, Stonesoft's main risks and business uncertainties
relate to the realization timetable of the sales projects and possible
production disruption of our subcontractors and suppliers. In addition, the
recent political restlessness in North Africa and Middle East may have a
negative impact on the company's business operations in these markets. The
company has no risks related to the order book, because it can process all
incoming orders within a couple of work days.
RISK MANAGEMENT, INTERNAL CONTROL AND INTERNAL AUDIT
The Board of Directors of Stonesoft Corporation has primary responsibility for
accounting and monitoring of financial administration of the company. The Board
of Directors is also ultimately responsible for risk management and internal
control of Stonesoft, and the CEO is in charge of arranging the risk management
and internal control in practice as well as of monitoring their functioning. Co-
ordination of risk management and internal control is the responsibility of the
Chief Financial Officer (CFO). The Executive Management of the Group supports
the risk management processes by considering the risks and management thereof in
its meetings.
Risk management and internal control aim at ensuring that
(i) the operation of the company is effective and suited to its purpose,
(ii) financial information is reliable and
(iii) authority regulation and internal policies are complied with.
CFO, as the coordinator of corporate risk management, creates corporate-level
risk management principles, develops risk management tools and is in charge of
global insurance policies. Business units must adhere to the corporate level
policies and proactively contribute to the development of corporate risk
management.
Risk management function concentrates on
(i) evaluation and management of operational risks,
(ii) management of financial risk and
(iii) management and safeguard of critical business-related information and
assets.
Operational risks
The company sets financial targets annually in connection with the budgeting and
the realization of the targets is monitored on a monthly basis. The guidance and
supervision of the business operations takes place with the means of a reporting
and forecasting system covering the entire group that the company strives to
develop on a continuous basis. The product sales and related services sales are
made mainly through global channel partners, using standardized Stonesoft
agreements. The sales operations are supported by the company's legal unit
seeking to reduce the risks related to the global business operations through
continuous management and development of contracts. The company also uses
insurance to cover property, operational and liability risks.
Financial risks
Stonesoft does not normally provide financing to its customers, other than
generally accepted terms of payment. The company invoices mainly in Euros, the
US dollar being the other invoicing currency. The company's costs occur mostly
in Euros. Exchange rate fluctuations can affect the company's financial results.
The company uses matching as a main tool for offsetting the exchange rate risks.
The task of Stonesoft's Corporate Treasury is to manage financial risks in
accordance with the Treasury Policy approved by Stonesoft's Board of Directors.
The main goals of the policy are
(i) to ensure the short-term liquidity of the company,
(ii) to guarantee efficient circulation and short-term investments of the
operational cash flows and
iii) to follow prudent and transparent investment policy for the cash reserves,
aiming at guaranteeing competitive return on a selected risk level.
The company's reserves are all invested on interest bearing low risk
instruments. The company's operations and related costs are continuously
controlled.
MANAGEMENT AND SAFEGUARD OF CRITICAL BUSINESS RELATED INFORMATION AND ASSETS
Stonesoft manages and safeguards its critical business information by stringent
internal policies and processes. The company constantly reviews and updates its
network infrastructure and takes actively advantage of its own products in order
to protect the network infrastructure of the company. The company has back-up
systems to ensure business continuity during the unexpected.
Internal audit
Due to the small size of the company and the scope of the business operations
Stonesoft does not have a separate organization for the internal audit function
or a separate internal audit committee. The regular audits conducted by the
audit firm in relation to the interim reports aim also for their part at
evaluating the efficiency of and constant developing of risk management,
internal audit and administrative processes.
The structure of the group and the financial administration has been set up with
the aim to prevent malpractice, among others, through clear internal guidelines
and definition of authorizations. In addition, all sales are made in the name of
the parent company and local payment transactions of subsidiary companies and
sales offices concern generally only local salaries and other minor expenses.
FUTURE OUTLOOK
According to the research company Infonetics, the enterprise network equipment
and software market is estimated to grow by 4% during 2011.
Stonesoft's products protect large and critical network environments that
require advanced network security. The company has launched security solutions
that meet the capacity needs of 10 Gbps networks. Large enterprises are
currently making a transition to 10 Gbps networks, which will fulfill their
needs today and in the near future. Large network environments are under
constant change pressures, because companies strive for increasingly efficient
operations and at the same time need to adapt to rapidly changing competitive
situations. This sets special demands to the flexibility and manageability of
security solutions. Many traditional security companies and products are too
static to adapt to these changes fast enough. Stonesoft has always stood out as
a company and with its product through its flexibility and ability to quickly
meet dynamic security challenges and its customers' changing needs.
The strong growth of MSSP (Managed Security Service Provider)-, virtualization,
SAAS (Software as a Service) and cloud services as well as the spreading of
social media services have continued to create a need for ensuring network
security and business continuity also in new environments. In addition, illicit
acquisition of confidential data to obtain financial benefits has to a large
extent surpassed non-professional operations. The management features of
StoneGate, the scalability of the appliance based product family and the
excellent suitability of the product for virtual environments offer an optimal
system for these environments.
As security threats in the public sector increase, a growing number of
government organizations have started improving their protection against network
attacks and cyber espionage. The amount of confidential material that is handled
in the net such as patient data and juridical documents is constantly growing.
In addition, various interest groups, political extremist groups and
governmental intelligence agencies are searching for information more and more
from the net. StoneGate products offer a comprehensive, centrally managed
protection and are ideally suited for the needs of the public sector. Currently
Stonesoft's network security solutions are used by more than 50 government
departments at five continents around the world.
The relative importance of the operationality and availability of data networks
to business is continuously increasing. This had led to the growth of the
demands to network security design and to the need to achieve a comprehensive
overview of the state of the network and data communications. This strengthens
Stonesoft's competitive position. We are specialized in delivering comprehensive
network security solutions, which meet also the exceptionally high demands of
critical network environments and enable increased efficiency and flexibility.
Advanced evasion techniques
In the stock exchange release published on 4 October 2010 Stonesoft Corporation
announced it has discovered a new network security threat category. More
detailed information was given in the stock exchange release and press release
published on 18 October, which announced the threat is about the so-called
advanced evasion techniques (AET), which are capable of bypassing current
network security systems without leaving a trace. Advanced Evasion Techniques
can also transport to the IT systems already known malware or phishing programs,
worms and viruses, which otherwise would be detectable and stoppable by network
security systems.
Stonesoft has reported the threat posed by these advanced evasion techniques to
the national computer security incident team of Finland, CERT-FI for
vulnerability coordination, and ICSA Labs, a US-based security product testing
and certification laboratory has confirmed the severity of the discovery. The
subject has received a lot of coverage in global media.
In addition to testing their own network security solutions, Stonesoft has
extended their research to cover also solutions by other leading vendors in the
field. The test results show that most of current network security solutions do
not detect attacks that utilize advanced evasion techniques.
The most efficient protection against the threat posed by advanced evasions
techniques is provided by flexible software-based systems, which can detect
advanced evasion techniques and are remotely updated and centrally managed.
Stonesoft's network security solutions fulfill these criteria.
More information about advanced evasion techniques and how to protect against
them is available at www.antievasion.com.
Based on Stonesoft's view, the above mentioned issues will open new business
opportunities for the company, have a positive effect on its net sales and
profitability and strengthen its competitiveness and market position as general
understanding and knowledge about advanced evasion techniques grow. In 2011,
Stonesoft aims for faster-than-market growth of net sales and improved
profitability.
With regard to the development of the turnover and the operating result,
variation is expected between the quarters in comparison to the corresponding
quarter during the previous year as well as to the previous quarter as a
consequence of, among others, long sales cycles, a relatively big impact of
individual deals, and the variation between the quarters in the previous year.
Stonesoft Group
Income Statement 10-12/2010 10-12/2009 1-12/2010 1-12/2009
(1000 Euros)
Continuing operations
Net sales 7 510 6 510 24 341 23 597
Other operating income 227 276 847 969
Materials and services -1 310 -854 -3 640 -3 539
Personnel expenses -4 098 -3 660 -14 744 -14 004
Depreciation -112 -113 -437 -454
Other operating expenses -2 905 -2 068 -9 052 -7 616
Operating result -688 90 -2 685 -1 048
Financial income and expenses -106 36 217 316
Result before taxes -794 126 -2 468 -731
Taxes -111 -125 -221 -240
Result for the accounting period -905 1 -2 689 -971
Other comprehensive income
Exchange differences on translating
foreign operations 0 -3 -15 15
Total other comprehensive income 0 -3 -15 15
Total comprehensive income -905 -2 -2 704 -956
Basic earnings per share (EUR),
continuing operations -0,01 0,00 -0,04 -0,02
Diluted earnings per share (EUR),
continuing operations -0,01 0,00 -0,04 -0,02
Stonesoft Group
Balance Sheet (1000 Euros) 31.12.2010 31.12.2009
ASSETS
Non-Current Assets
Tangible assets 649 494
Intangible assets 112 176
Other investments 10 10
Total 771 680
Current assets
Inventories 953 673
Trade and other receivables 10 106 8 383
Prepayments 69 67
Marketable securities 0 5 240
Cash and cash equivalents 8 016 970
Total 19 144 15 333
Total assets 19 915 16 013
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
company
Share capital 1 151 1 146
Issue of shares 0 0
Share premium account 76 603 76 821
Conversion differences -951 -936
Reserve for invested unrestricted equity fund 4 751 0
Retained earnings -76 986 -74 346
Total 4 567 2 685
Long-term liabilities
Provisions 0 0
Prepayments *) 2 976 2 606
Total 2 976 2 606
Short-term liabilities
Trade and other payables 4 571 3 943
Prepayments *) 7 687 6 660
Tax liability 76 81
Provisions 37 37
Short-term interest bearing liabilities 0 0
Total 12 372 10 722
Total liabilities 15 348 13 328
Total equity and liabilities 19 915 16 013
*) Prepayments contain customers advance
payment of support and maintenance contracts 10 663 9 267
Stonesoft
Group
Statement of
changes in
equity
(1000 Euros)
Reserve
Issue for invested
Share of Share Conversion unrestricted Retained
capital shares premium differences equity fund earnings Total
Shareholders'
equity at
1.1.2009 1 146 0 76 821 -951 0 -73 473 3 543
Comprehensive
income 0 0 0 15 0 -971 -956
Share premium
termination 0 0 0 0 0 0 0
Directed share
issue 0 0 0 0 0 0 0
Transaction
costs from
equity 0 0 0 0 0 0 0
Stock options
exercised 0 0 0 0 0 0 0
Stock option
expenses 0 0 0 0 0 98 98
Shareholders'
equity at
31.12.2009 1 146 0 76 821 -936 0 -74 346 2 685
Reserve
Issue for invested
Share of Share Conversion unrestricted Retained
capital shares premium differences equity fund earnings Total
Shareholders'
equity at
1.1.2010 1 146 0 76 821 -936 0 -74 346 2 685
Comprehensive -2
income 0 0 0 -15 0 -2 689 704
Share premium
termination 0 0 -338 0 338 0 0
Directed share
issue 0 0 0 0 4 560 0 4 560
Transaction
costs from
equity 0 0 -3 0 -172 0 -175
Stock options
exercised 5 0 122 0 25 0 152
Stock option
expenses 0 0 0 0 0 49 49
Shareholders'
equity at
31.12.2010 1 151 0 76 603 -951 4 751 -76 986 4 567
Stonesoft Group
Cash flow statement (1000 Euros) 1.1.-31.12.2010 1.1.-31.12.2009
Cash flow from operating activities
Operating Result -2 685 -1 048
Adjustments
Non-cash transactions 58 644
Financial expenses -96 -129
Financial incomes 464 336
Change in net working capital 481 -226
Taxes paid -221 -210
Total cash flow from operating activities -1 999 -632
Cash flow from investing activities
Investments in tangible assets -537 -202
Investments in intangible assets -30 -126
Investments in other shares 0 0
Total cash flow investing activities -566 -328
Cash flow from financing activities
Proceeds from issue of share capital 4 391 0
Stock options exercised 146 0
Payments of financial leasing
liabilities 0 -2
Total cash flow from financing activities 4 537 -2
Change in cash and cash equivalents
Cash and cash equivalents at beginning of
period 6 210 7 048
Conversion differences -17 15
Changes in the market value of investments -148 109
Total cash and cash equivalents at end of period
*) 8 016 6 210
*) Total cash and cash equivalents at end of the
period contains pledged securities 477 452
Stonesoft Group
Geographical segments 1.1.-31.12.2010 1.1.-31.12.2009
(1000 Euros)
Net sales
Europe 14 599 15 182
Emerging Markets 4 255 3 162
Americas 4 525 4 605
APAC 961 648
Total net sales 24 341 23 597
Operating profit
Europe -661 546
Emerging Markets -169 -327
Americas -1 479 -1 180
APAC -375 -87
Total operating profit -2 685 -1 048
Stonesoft Group
Contingent liabilities 1.1.-31.12.2010 1.1.-31.12.2009
(1000 Euros)
Contingent off-balance sheet
Non-cancellable other leases 2 327 2 541
Contingent liabilities for the Company 94 117
Stonesoft Group
Quarterly development Q4 / Q3 / Q2 / Q1 / Q4 / Q3 / Q2 / Q1 /
(Euro Millions) 2010 2010 2010 2010 2010 2009 2009 2009 2009 2009
Software 0,5 0,4 0,3 0,3 1,5 0,6 0,4 0,3 0,4 1,6
Security appliances 3,9 2,5 1,9 2,9 11,2 3,1 2,9 3,1 2,0 11,0
Services 3,1 2,8 2,8 2,8 11,6 2,8 2,7 2,7 2,6 10,9
Other products 0,0 -0,1 0,1 0,1 0,0 0,0 0,0 0,0 0,1 0,1
Net sales continuing
operations 7,5 5,6 5,1 6,2 24,3 6,5 6,0 6,0 5,1 23,6
Change-% from
previous year 15 -6 -16 21 3 -6 2 -5 -3 -3
Sales margin 6,2 4,7 4,4 5,3 20,7 5,7 5,1 4,9 4,4 20,1
Sales margin % 83 84 88 86 85 87 85 81 86 85
Operative expenses 7,1 5,4 5,9 5,7 24,2 5,8 4,7 5,8 5,7 22,0
Operating profit
(EBITA) -0,7 -0,6 -1,2 -0,2 -2,7 0,1 0,5 -0,6 -1,1 -1,0
% of net sales -9 -10 -25 -3 -11 1 9 -9 -22 -4
Result before taxes -0,8 -0,4 -1,2 0,0 -2,5 0,1 0,7 -0,5 -1,0 -0,7
% of net sales -11 -7 -24 -1 -10 2 11 -8 -20 -3
Stonesoft Group
Key ratios 1.1.-31.12.2010 1.1.-31.12.2009
(1000 Euros)
Net sales, continuing operations 24 341 23 597
Net sales change-% 3 -3
Operating result, continuing operations -2 685 -1 048
% of net sales -11 -4
Operating result before taxes -2 468 -731
% of net sales -10 -3
ROE - %, annualized, continuing operations -74 -31
ROI - %, annualized -65 -19
Equity ratio-% 49 40
Net gearing -1,75 -2,31
Total Assets 19 915 16 013
Capital expenditure 566 328
Capital disposals 0 19
R&D costs 5 639 4 918
% of net sales 23 21
Number of employees (weighted average) 191 178
Number of employees (end of the period) 201 174
Share Specific Ratios
Earnings per share, continuing operations -0,04 -0,02
Equity per share 0,07 0,05
Dividend 0,00 0,00
Dividend per share (EUR) 0,00 0,00
Dividend / Profit-% 0 0
Calculation of indicators
Return on equity (ROE) % = (Profit before taxes - income taxes) x 100 /
Shareholders' equity + minority interest
(average)
(Profit before extraordinary items+interest
Return on invested capital (ROI)% = and other financial expenses) x100 /
Balance sheet total - non-interest bearing
debt (average)
Equity ratio % = (Equity + minority interest) x 100 /
Balance sheet total - advances received
Interest bearing net debt - cash in hand and
Net gearing = on deposit - marketable securities /
Equity + minority interest
Profit before taxes - minority interest -
Earning per share (EPS) = income taxes /
Average number of shares adjusted for
dilutive effect of options
Equity per share = Equity /
Number of shares at end of period
ACCOUNTING PRINCIPLES
The Group has on the 1.1.2010 separated prepayments related to its customers'
support and maintenance contracts from other items in the balance sheet.
Previously the support and maintenance payments were included in other
liabilities. Previous data has been corrected to correspond to this new booking
procedure. The impact of the change on long term prepayments in the balance
sheet 31.12.2009 is MEUR 2.6 and on short term prepayments MEUR 6.7. With this
change the Group's balance sheet gives a more accurate picture of the long and
short term liabilities as well as the prepayments.
This Financial Statements Release has been prepared in accordance with IAS 34
standard. The figures presented in this release are audited.
FORWARD-LOOKING STATEMENTS
This report contains statements concerning, among other things, Stonesoft's
financial condition and the results of operations that are forward-looking in
nature. Such statements are not historical facts, but rather represent
Stonesoft's future expectations. The company believes that the expectations
reflected in these forward-looking statements are based on reasonable
assumptions. However, these forward-looking statements involve inherent risks
and uncertainties, which could cause actual results or outcomes to differ
materially from those anticipated in the statements. These risks and
uncertainties may include, among other things, (1) changes in our market
position or in the Firewall/VPN and Intrusion detection and protection market in
general; (2) the effects of competition; (3) the success, financial condition,
and performance of our collaboration partners, suppliers and customers;(4) our
ability to source quality components without interruption and at acceptable
prices;(5) our ability to recruit, retain and develop appropriately skilled
employees;(6) exchange rate fluctuations, including, in particular, fluctuations
between the Euro, which is our reporting currency, and the US dollar;(7) other
factors related to sale of products, economic situation, business, competition
or legislation affecting the business of Stonesoft or the industry in general
and (8) our ability to control the variety of factors affecting our ability to
reach our targets and give accurate forecasts.
PRESS CONFERENCE
A press conference for analysts and investors will be held on 3 March, 2011 at
10.30 am at the Stonesoft headquarters, street address Itälahdenkatu 22 A,
00210 Helsinki.
For additional information, please contact:
Ilkka Hiidenheimo, CEO, Stonesoft Corporation
Tel. +358 9 476 711
E-mail: ilkka.hiidenheimo@stonesoft.com
Mikael Nyberg, CFO, Stonesoft Corporation
Tel. +358 9 476 711
E-mail: mikael.nyberg@stonesoft.com
Stonesoft Corporation
Ilkka Hiidenheimo
CEO
This stock exchange release and the presentation material related to this report
are also available at the Stonesoft web site www.stonesoft.com.
Distribution:
NASDAQ OMX Helsinki Ltd
www.stonesoft.com
[HUG#1494095]
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