Stonesoft Corporation stock exchange release, 26 April 2007 at 9.15 am
Stonesoft Corporation Interim Report January-March 2007
Stonegate sales increased by 12%, the growth is expected to accelerate in the
second quarter
The company's increased sales pipeline in 2006 started to show up as an increase
in the net sales figures during the first quarter of the year 2007. The sales of
the company's the main product portfolio, the StoneGate™ product line, increased
by 12% compared to previous year's corresponding period, while the net sales of
the whole group grew by 7%. The company expects the growth of the sales to
accelerate significantly as of the second quarter of the year.
The company's overall result was positive due to the income from the sales of
Embe Systems Oy. However, the comparable overall result remained negative
compared to the previous year's corresponding period due to the increased
investments in acceleration of sales. The comparable net result is expected to
improve in the second quarter of the year with the increase in sales.
January-March 2007 (later ”reporting period”, previous year's comparable figures
are in brackets and refer to the figures of continuing operations).
- The net sales for the reporting period totalled EUR 4.32 million (EUR 4.05
million), which shows comparable increase of 7% compared to the previous year's
corresponding period.
- The sales of the main product portfolio, StoneGate™, consisting of Firewall,
VPN and IPS (intrusion prevention and detection systems) were EUR 2.29 million
(EUR 2.06 million), an increase of 12%.
- The operating result was EUR -2.1 million (EUR -1.5 million).
- Earnings per share were EUR -0.04 (EUR -0,02). Earnings per share including
the profit from the sales of Embe Systems Oy were EUR 0.00.
- Shareholder's equity per share was EUR 0.17 (EUR 0.26).
- Liquid assets at the end of the reporting period totalled EUR 13.0 million
(EUR 15.9 million).
- The group's cash flow was EUR -1.9 million (EUR -1.6 million).
At the end of 2006, the company signed a sales contract to sell Embe Systems Oy
with a fixed purchase price of EUR 3.63 million while the total sales price can
be up to EUR 4.65 million at the maximum. The estimated sales profit was EUR 2.2
million and it was booked in January 2007. The result after taxes for the
accounting period including a non-recurring sales profit of EUR 2.2 million from
the sales of Embe Systems Oy, was EUR 0.2 million. Earnings per share including
the profit from the sales of Embe Systems Oy were EUR 0.00.
CEO Ilkka Hiidenheimo
The company continued to implement its new strategy and growth plan established
in 2006. The best success was reached in the company's main markets in Europe
and in the emerging markets. The operations in APAC are still in the development
phase, which led to a decrease of the net sales compared to the previous year.
The net sales in Americas decreased slightly compared to the previous year, but
we expect a clear positive development also in that area in the second quarter
of the year. The success in the growing emerging markets was exceptionally good.
The company's sales pipeline has continued to increase, which indicates
accelerating growth in sales for the second quarter of the year leading to
improving profitability.
The IPS (intrusion prevention and detection system) product line launched in
2006 has significantly increased the attractiveness of the company's product
offering and increased its sales pipeline. The StoneGate™ FW-5100 for fast 10
Gbps networks launched in the beginning of 2007 opens new markets for the
company in the most demanding environments. Through these two product areas we
have opened up access to larger sales projects than before.
By means of our new products and increased investments in marketing, we aim to
accelerate the sales growth during the year 2007. Our aim is to improve the
profitability of the company specifically through growth, while we will be able
to benefit from the investments in personnel and training made in the previous
quarters.
NET SALES AND PROFIT
January-March 2007
The group's net sales in the reporting period were EUR 4.32 million (EUR 4.05
million). The growth to the previous year's corresponding period was EUR 0.27
million, or 7%. The operating result was EUR -2.1 million (EUR -1.5 million) and
the result after taxes was EUR 0.2 million (EUR -1.2 million). The latter
includes a non-recurring sales profit of EUR 2.2 million for the sale of Embe
Systems Oy.
The sales of the main product portfolio StoneGate™ were EUR 2.3 million (EUR 2.1
million), an increase of 12% compared to previous year's corresponding quarter.
The geographical distribution of net sales was as follows: EMEA (Europe, Middle
East and Africa) 78% (79%), Americas (North and South America) 15% (13%) and
APAC (Asia-Pacific) 7% (8%).
Finance and investments
At the end of the reporting period, total assets were EUR 20.0 million (EUR 24.7
million). The equity ratio was 72% (77%) and gearing (the ratio of net debt to
shareholder's equity) was -1.29 (-1.08). Consolidated liquid assets of the group
at the end of the reporting period totaled EUR 13.0 million (EUR 15.9 million).
Investments in tangible and intangible assets totaled EUR 0.10 million (EUR 0.06
million).
DEVELOPMENT OF BUSINESS OPERATIONS
Main business events in the quarter
- In February, Swisscom Mobile chose StoneGate™ firewalls to protect their
network architecture.
- In February, Stonesoft extended its product offering to mobile users. The
company signed a cooperation agreement with Portwise AB, a Swedish company
specializing in a browser-based SSL VPN solution for mobile and remote use.
- In March, French LPG (gas) distributor Antargaz selected StoneGate™ firewalls
to protect their network architecture.
- Stonesoft launched the new members of the renewed StoneGate™ product line,
StoneGate™ IPS-6000 and FW-5100 products for large and demanding network
environments. StoneGate™ FW-5100 is designed for networks requiring a
performance of 10 Gbps and StoneGate™ IPS-6000 meets capacity requirements of 2
Gbps.
REVIEW OF MAJOR RESEARCH AND DEVELOPMENT ACTIVITIES
The group's R&D investments during the quarter totaled EUR 1.34 million (EUR
1.26 million).
R&D employed 66 (66) persons at the end of the quarter.
SHARE CAPITAL AND STOCK OPTION PROGRAMS
At the end of the reporting period, Stonesoft's share capital recorded in the
Trade Register totaled EUR 1.146.054,64. The number of shares was 57.302.732.
The share capital remained unchanged.
Stock option programs
During the reporting period no subscriptions were made on the basis of the stock
option programs for key personnel of the company.
The company's valid stock option programs and their subscription prices are as
follows:
- Stock Option program 2004-2010, subscription price EUR 0.56
DEVELOPMENT OF SHARE PRICES AND TURNOVER
During the reporting period, the average price of Stonesoft's share was EUR
0.51. The highest share price was EUR 0.56 and the lowest EUR 0.47. The official
closing price was EUR 0.52. During the reporting period, 5,432,114 shares were
traded, which is 9.5% of the total number of shares. From the beginning of 2007
until the end of March 2007, the Helsinki Stock Exchange (OMX) index rose by
7.1%, while the Information Technology Sector index rose by 10.1% during the
reporting period.
Based on the share price on 31 March 2007, Stonesoft's market capitalization was
EUR 29.8 million.
CHANGES IN OWNERSHIP
During the reporting period, the Group received two notices of changes in
ownership.
PERSONNEL
At the end of the reporting period, Stonesoft's personnel numbered 183 (180 in
continuing operations).
ANNUAL GENERAL MEETING AND CORPORATE GOVERNANCE
The Annual General Meeting (AGM) of Stonesoft Corp. held on March 21, 2007
adopted the financial statements of the fiscal year 1.1.2006-31.12.2006 and
granted release from liability for the Board of Directors and CEO. AGM decided
according to the proposal of the Board of Directors not to pay any dividend for
the fiscal year 1.1.2006-31.12.2006.
AGM confirmed the number of Board members to be five and elected Pertti Ervi,
Ilkka Hiidenheimo, Topi Piela, Hannu Turunen and Matti Viljo as Board members.
In its organizing meeting, the Board of Directors elected Pertti Ervi to
continue as the Chairman and Topi Piela as the Vice Chairman. Furthermore, the
Board of Directors decided not to establish any Board committees due to the size
of the Board of Directors and the size of the company.
Authorized public accountants Ernst & Young Oy was selected as the auditor of
the company, with authorized public accountant Pekka Luoma as main responsible
auditor.
AUTHORIZATIONS TO THE BOARD OF DIRECTORS
Authorization to issue new shares and to grant option and other special rights.
The Board of Directors is authorized to decide one or more share issues and to
grant option and other special rights so that the total number of shares or
rights to the shares issued may be 11.450.000 at the maximum.
The new shares to be issued in a new issue and/or the option or special rights
may be offered for subscription either according to the shareholders´
pre-emptive subscription rights or in deviation from the shareholders´
pre-emptive subscription right, in case the deviation is justified by a weighty
financial reason for the company, such as financing of an acquisition, enabling
of a joint venture transaction, providing of additional financial alternatives,
and/or an arrangement for incentive program directed to the company's personnel.
The Board of Directors is authorized to decide on other terms and conditions
related to the share issues and to the issuance of option or other special
rights. The authorization is in force until the end of the 2009 AGM.
The Board of Directors is not authorized to purchase the company's own shares.
At the moment there are no shares in the company's possession.
CORPORATE GOVERNANCE
Stonesoft complies since 2004 with the Corporate Governance Recommendation for
listed companies issued by the Helsinki Stock Exchange. More information can be
found from Stonesoft's Website:
http://www.stonesoft.com/en/investor_relations/corporate_governance.
MAJOR EVENTS AFTER THE REPORTING PERIOD
- Stonesoft signed partner agreements with Qual and Network Defence to promote
and sell StoneGate™ products in England.
- Stonesoft launched the new members of the renewed StoneGate™ product line. The
new StoneGate™ firewalls FW-1200, FW-1050 and FW-1020 combined with StoneGate™
IPS-2000 adapt flexibly to growing business demands and changes in network.
- StoneGate™ was among the finalists for the best network security product in
the Secure Computing Magazine Excellence Awards 2007 competition.
RISKS AND BUSINESS UNCERTAINTIES
Risk management is organized to be part of the Stonesoft management system. The
Board of Directors approves the risk management policy that includes risk
management principles and processes. The CEO is responsible for organizing risk
management, and the CFO, as the coordinator of risk management, develops risk
management tools and establishes global insurance policies. The directors of the
business units are responsible for identifying and managing risks in their
units. The target of risk management is to ensure conditions for achieving the
strategic targets and the business continuity.
In the near future, the risks and business uncertainties relate to the
realization timetable of the sales projects and possible production disruption
of our subcontractors and suppliers.
Operational risks
Stonesoft constantly develops its sales processes and related control systems.
Product sales and the sales of related services are made mainly through a global
channel. The sales are supported by the legal department, which seeks to reduce
the legal risks related to business operations through continuously developing,
managing and giving guidance related to Stonesoft agreements, and by making
legal risk assessments for business plans before their implementation. The
company has worldwide insurances to cover operational risks. Stonesoft manages
and safeguards its critical business information by stringent internal policies
and processes. The company constantly reviews and updates its network
infrastructure and guarantees the safety of its business-critical information.
All critical components are duplicated and, in addition, the company has a
continuously updated back up system placed in another physical location.
Financial risks
The most significant currency in addition to Euro is US dollar. The company's
costs occur mostly in Euros. The company operates actively to minimize the
exchange rate risks.
The main principles of the treasury policy of the company 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 the selected risk level. The company's reserves are all
invested in interest-bearing low-risk instruments.
The company's operations and related costs are continuously controlled. The
company does not have a separate internal audit organization or a separate audit
committee.
FUTURE OUTLOOK
According to the Research Institute Infonetics, the Firewall/VPN and Intrusion
detection and protection market will grow globally by roughly ten percent in
2007. The market will continue to be dynamic.
In our view, companies will continue to network with their partners and
subcontractors, and this development will create even higher requirements for
network security and availability. We believe that combining security and high
availability, which is the cornerstone of StoneGate™ product design, will prove
its strength even better in this development.
The convergence of voice, video and data on IP-based networks will create more
demand for capacity and drive the adoption of 10 Gbps networks. The growing
demand for added bandwidth together with new protocols in the IP networks is
expected to increase the general demand for better reporting, monitoring and
analysis tools. This development will support Stonesoft in achieving its year
2007 growth plan, since these are the cornerstones in StoneGate™ Management
Center's functionality. Stonesoft will further strengthen its competitiveness by
introducing new products to complement its StoneGate™ product line.
Stonesoft will continue its decisive and persistent efforts to increase its net
sales and to improve the profitability of the company. The main target for 2007
is to have a strong growth of net sales generating also improved profitability.
By extension of the product portfolio and improved competitiveness, we aim to
win more deals of larger size.
Based on the extension of the product portfolio, intensification of sales
efforts and strong growth of the sales pipeline, the company expects to have an
annual overall net sales of roughly 25 million euros (+/- 10%) while the
comparable net sales figure during the previous financial year was 16,5 million
euros. The annual costs are expected to be 24,5 million euros (+/- 10 %). The
comparable cost during the previous financial year was 22,6 million euros. The
operating profit and the total result for the whole year is expected to develop
favourably.
With regard to the development of the turnover and the result, we expect a
significant variation 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.
This interim report is prepared in accordance with IAS 34 standard. The
presented figures are unaudited.
Stonesoft Group
Income Statement 1.1-31.3.2007 1.1-31.3.2006 1.1-31.12.2006
(1000 Euro)
Continuing operations
Net sales 4 320 4 053 16 479
Other operating income 177 183 766
Materials and services -547 -488 -1 915
Personnel expenses -3 484 -3 166 -13 135
Depreciation -117 -138 -512
Other operating expenses -2 438 -1 910 -8 292
Operating result -2 089 -1 467 -6 608
Financial income and expenses 114 95 382
Result before taxes -1 975 -1 372 -6 226
Taxes -54 -48 -262
Result from continuing
operations -2 029 -1 421 -6 488
Profit from discontinued
operations 2 217 180 40
Result for the accounting
period 189 -1 241 -6 448
Basic earnings per share
(EUR), continuing operations -0.04 -0.02 -0.11
Diluted earnings per share
(EUR), continuing operations -0.04 -0.02 -0.11
Basic earnings per share
(EUR), discontinued operations 0.04 0.00 0.00
Diluted earnings per share
(EUR), discontinued operations 0.04 0.00 0.00
Stonesoft Group
Balance Sheet (1000 Euro) 31.3.2007 31.3.2006 31.12.2006
ASSETS
Non-Current Assets
Tangible assets 614 734 608
Intangible assets 113 182 137
Deferred tax assets 2 2 2
Total 729 917 747
Current assets
Inventories 597 448 912
Trade and other receivables 5 603 4 124 5 522
Prepayments 113 184 98
Marketable securities 12 310 15 610 13 755
Cash and cash equivalents 697 311 616
Total 19 321 20 677 20 902
Asset held for sale 0 3 097 2 859
Total assets 20 049 24 691 24 507
EQUITY AND LIABILITIES
Equity attributable to equity
holders of the parent company
Share capital 1 146 1 146 1 146
Share premium account 76 901 76 848 76 897
Conversion differences -871 -853 -867
Retained earnings -67 221 -62 202 -67 410
Total 9 956 14 939 9 767
Long-term liabilities
Provisions 121 116 112
Interest bearing liabilities 43 135 62
Other long-term liabilities 1 366 952 1 296
Total 1 530 1 203 1 470
Short-term liabilities
Trade and other payables 8 303 7 478 12 041
Tax liability 131 102 116
Provisions 24 38 84
Short-term interest bearing
liabilities 106 169 107
Total 8 564 7 786 12 348
Liabilities held for sales 0 764 922
Total liabilities 10 094 9 753 14 740
Total equity and
liabilities 20 049 24 691 24 507
Stonesoft Group
Statement of changes in equity
(1000 Euro) Share Share Conversion Retained Total
capital premium difference earnings
account
Shareholders' equity
at 01.01.2006 1 146 76 845 -849 -60 961 16 181
Conversion differences -5 -5
Result for the period -1 241 -1 241
Total recognized
income and expense
for the period -5 -1 241 -1 246
Stock options exercised 3 3
Shareholders' equity
at 31.03.2006 1 146 76 848 -853 -62 202 14 939
Share Share Conversion Retained Total
capital premium difference earnings
account
Shareholders' equity
at 01.01.2007 1 146 76 897 -867 -67 410 9 767
Conversion differences -4 -4
Result for the period 189 189
Total recognized
income and expense
for the period -4 189 185
Stock options exercised 4 4
Shareholders' equity
at 31.03.2007 1 146 76 901 -871 -67 221 9 956
Stonesoft Group
Cash flow state 1.1-31.3.2007 1.1-31.3.2006 1.1-31.12.2006
(1000 Euro)
Cash flow from operating
activities
Operating Result -2 089 -1 467 -6 608
Adjustments 127 182 984
Change in net working capital 625 -796 -1 240
Taxes paid -54 -49 -261
Net cash flow from operating
activities continuing
operations -1 390 -2 130 -7 125
Net cash flow from operating
activities discontinued
operations 0 -132 114
Total cash flow from operating
activities -1 390 -2 262 -7 011
Cash flow from investing
activities
Investments in tangible
assets -94 -64 -216
Investments in intangible
assets -5 0 -50
Investments in affiliated
company 0 0 3 631
Net cash flow investing
activities continuing
operations -99 -63 3 365
Net cash flow investing
activities discontinued
operations -448 -53 -131
Total cash flow investing
activities -547 -117 3 233
Cash flow from financing
activities
Payments of financial
leasing liabilities -21 -32 -166
Total cash flow from financing
activities
Change in cash and cash
equivalents
Cash and cash equivalents
at beginning of period 14 370 18 097 18 097
Conversion differences -4 -5 -18
Changes in the market
value of investments 107 54 -39
Discontinued operations 492 186 274
Total cash and cash
equivalents at end of
period 13 007 15 921 14 370
Stonesoft Group
Geographical segments 1.1-31.3.2007 1.1-31.3.2006 1.1-31.12.2006
(1000 Euro)
Net sales
EMEA 3 362 4 366 16 938
AMER 663 716 3 571
APAC 295 426 1 370
Total net sales 4 320 5 508 21 879
Operating profit
EMEA -1 488 -795 -4 131
AMER -553 -378 -2 040
APAC -48 -111 -366
Total operating profit -2 089 -1 284 -6 536
Stonesoft Group
Contingent liabilities 31.3.2007 31.3.2006 31.12.2006
(1000 Euro)
Contingent off-balance sheet
Non-cancelable other leases 5 257 7 230 6 103
Contingent liabilities
for the Company 20 131 323
Pledged shares 0 0 585
Stonesoft Group
Quarterly development Q1 / Q4 / Q3 / Q2 / Q1 /
(Euro Millions) 2007 2006 2006 2006 2006 2006
Security software
and appliances 2.3 2.3 2.3 1.7 2.1 8.5
Services 2.0 2.1 2.0 2.0 2.0 8.1
Other products 0.0 -0.1 0.1 0.0 0.0 -0.1
Net sales continuing operations 4.3 4.3 4.4 3.7 4.1 16.5
Change-% from previous year 7 -2 24 -20 4 0
Net sales discontinuing
operations - 1.5 1.1 1.4 1.5 5.4
Change-% from previous year - 4 -3 -13 -12 -7
Net sales total 4.3 5.8 5.5 5.0 5.5 21.9
Change-% from previous year -22 1 17 -18 -1 -2
Sales margin 3.8 5.3 5.0 4.6 5.0 20.0
Sales margin % 87 91 90 92 91 91
Operative expenses 6.0 7.5 6.4 6.8 6.5 27 2
Operating profit (EBITA) -2.1 -2.0 -1.3 -2.0 -1.3 -6.5
% of net sales -48 -34 -23 -39 -23 -30
Result before taxes -2.0 -1.9 -1.2 -1.9 -1.2 -6.2
% of net sales -46 -33 -22 -37 -22 -28
Stonesoft Group
Key ratios 31.3.2007 31.3.2006 31.12.2006
(1000 Euro)
Net sales total 4 320 5 508 21 879
Net sales change-% -22 -1 -2
Net sales continuing
Operations 4 320 4 053 16 479
Net sales change-% 7 4 0
Net sales continued operations - 1 455 5 400
Net sales change-% - -12 -7
Operating result total -2 089 -1 284 -6 536
% of Net sales 48 -23 -30
Operating result continuing
operations -2 089 -1 467 -6 608
% of net sales -48 -36 -40
Operating result discontinued
operations - 183 72
% of net sales - 13 1
Operating result before
taxes -1 975 -1 189 -6 170
% of net sales -46 -22 -28
ROE - %, annualized,
continuing operations -82 -32 -50
ROI - %, annualized -77 -30 -46
Equity ratio-% % 72 77 66
(Net gearing ) -1.29 -1.08 -1.50
Total Assets 20 049 24 691 24 507
Capital investments 99 117 381
% of net sales 2 2 2
R&D costs 1 338 1 262 4 804
% of net sales 31 23 22
Number of employees
(weighted average) 184 245 251
Number of employees
(end of the period) 183 248 254
Share Specific Ratios
Earnings per share,
continuing operations -0.04 -0.02 -0.11
Earnings per share,
discontinued operations 0.04 0.00 0.00
Equity per share (EUR) 0.17 0.26 0.17
Dividend 0.00 0.00
Dividend per share (EUR) 0.00 0.00
Dividend / Profit-% 0 0
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 prevention 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.
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 Corp.
Ilkka Hiidenheimo
CEO
PRESS CONFERENCE
A press conference for analysts and investors will be held today, 26 April 2007
at 10:30 AM at the Stonesoft headquarters, street address Itälahdenkatu 22 A,
00210 Helsinki.
This release and the presentation material related to this report are also
available on Stonesoft's web site at http://www.stonesoft.com
Distribution:
The Helsinki Stock Exchange
Main media