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Stock Exchange Release

STONESOFT CORP.'S INTERIM REPORT FOR JANUARY-SEPTEMBER 2005

SUMMARY

January-September

  • Net sales for the reporting period totalled EUR 16.4 million, which was 2% more than in the previous year's corresponding period.
  • Stonesoft´s core business, sales of StoneGate™ product family that includes firewall, VPN and Intrusion Protection and Detection System products, increased to EUR 6.0 million, an increase of 35% compared to corresponding period of the previous year.
  • The operating loss was EUR 4.3 million. The comparable loss in the previous year's corresponding period was EUR 7.6 million.
  • Earnings per share were EUR -0.07, compared with EUR -0.14 for the last year's corresponding period.
  • Equity per share was EUR 0.31 (EUR 0.47).
  • Liquid assets totalled EUR 20.1 million at the end of the period (EUR 22.9).
  • The group’s cash flow was EUR -2.1 million. Cash flow in the previous year's corresponding period was EUR -5.3 million.

"The sales of the third quarter were behind the target on several market areas. However we are convinced that the sales strategy chosen is the right one”, says Ilkka Hiidenheimo, CEO of the company.

July-September

  • Net sales for the quarter were EUR 4.7 million, which was 11% less than in the previous year's corresponding quarter.
  • The group’s main product line is StoneGate product family, for which product sales decreased to EUR 1.6 million, a decrease of 4% compared to corresponding quarter of the previous year.
  • The operating loss was EUR 1.5 million. The comparable loss in the previous year's corresponding quarter was EUR 2.4 million.
  • Earnings per share were EUR -0.02, compared with EUR -0.04 for the last year's corresponding quarter.
  • The group’s cash flow was EUR -0.6 million. Cash flow in the previous year's corresponding quarter was EUR -1.9 million.

NET SALES AND RESULT

January-September 2005

Stonesoft group's net sales in January-September were EUR 16.4 million (EUR 16.1 million). Compared with the previous year's corresponding period, there was an increase of EUR 0.3 million, or 2%. The operating loss for the review period was EUR 4.3 million (EUR -7.6 million).

The net sales were distributed by the geographical segments as follows: Europe, Middle East and Africa 72% (72%), North and South America 20% (21%), and Asia-Pacific 8% (7%).

The group’s operating result was up EUR 3.3 million compared to the corresponding period in the previous year. The loss for the reporting period after taxes was EUR 4.2 million. The previous year's loss was EUR 7.9 million.

July-September

Stonesoft group's net sales in July-September were EUR 4.7 million (EUR 5.3 million). Compared with the previous year's corresponding quarter, there was a decrease of EUR 0.6 million, or 11%. The operating loss for the quarter was EUR 1.5 million (EUR -2.4 million).

Finance and investments

At the end of the quarter, the group's total assets were EUR 27.0 million (EUR 36.1 million). The equity ratio was 80% (85%) and gearing (the ratio of net debt to shareholders' equity) was -1,09 (-0.82). The group’s liquid assets at the end of the quarter totalled EUR 20.1 million (EUR 22.9 million). Investments in tangible and intangible assets totalled EUR 0.05 million (EUR 0.11 million).

DEVELOPMENT OF BUSINESS OPERATIONS

Markets

Network security markets are expected to grow steadily in the coming years. The growth of both the firewall/VPN markets and the IDS/IPS markets is expected to continue at an annual rate of about 20%. (Sources: IDC, Datamonitor).

Main business events in the quarter

  • Stonesoft released large FW/VPN appliance SG-4000 for data centers and large network central sites. The new SG-4000 appliance is designed to cost-efficiently meet the performance and scalability requirements of demanding, high-value and business-critical networks like data centers and large network central sites.
  • Siemens Business Services signed a partnership agreement with Stonesoft. The partnership covers Sweden, Norway and Denmark in Scandinavia, Germany, Belgium and Luxembourg in Central Europe. According to the agreement Siemens Business Service is offering Stonesoft’s security products, solutions and services to their customers as a part of their global offering.
  • IBM Global Services and Stonesoft extended their relationship. The companies renewed their existing EMEA and USA sale partnership agreement and extended its territory to cover Canada as well.
  • Stonesoft received a European patent for a fail-safe method of updating remotely a configuration of a firewall. The patent called "a method of managing a network device, a management system, and a network device" (patent number EP 1259028) removes the risk that an error in a firewall configuration may lead to a situation making the network management center no longer able to connect to the firewall node in question, which could only be solved by making a costly visit to the site where the firewall node is located.
  • In July Stonesoft received a U.S. patent for the VPN (virtual private network) component of the Multi-Link™ technology, an integral element of its StoneGate™ 2005 solution. The patent called "Data Transmission Control Method" (patent number 6,912,200) covers the VPN component of the Multi-Link™ functionality and the connection selection method when both ends of communication are protected by the StoneGate™ platform.

REVIEW OF THE SCOPE OF R&D ACTIVITIES

The group's R&D investments in the quarter totalled EUR 1,0 million (EUR 1.2 million).

R&D employed 65 (72) persons at the end of the quarter.

SHARE CAPITAL AND STOCK OPTION PROGRAMS

Stock option programs

During the quarter no subscriptions were made on the basis of the stock option programs for key personnel of the company.

At the end of the quarter Stonesoft's share capital entered in the Trade Register was EUR 1,146,054.64. The number of shares was 57,302,732 and the counter book value per share was EUR 0.02. No changes took place in the share capital.

The company's valid stock option programs and their subscription prices are as follows:

  • Stock Option program 2000-2006, subscription price EUR 14.16
  • Stock Option program 2001-2006, subscription price EUR 2.43
  • Stock Option program 2004-2010, subscription price EUR 0.56

PERSONNEL

At the end of the quarter, Stonesoft's personnel numbered 253(252).

MAJOR EVENTS AFTER THE QUARTER

Stonesoft released in October four enhanced StoneGate™ small and mid-range appliances to meet the future security needs. StoneGate™ SG-250e, SG-500e-50, SG-500e-100, and SG-570e are now available globally.

FUTURE OUTLOOK

Stonesoft restates its earlier estimate according to which Stonesoft believes that the expected growth of the sales of StoneGate™ products in the last quarter will be at size range of 10 - 30 percent compared with the corresponding period in the previous year. However, due to evolving process of a new sales model including large amount of new sales resources in different regions combined with uncertainty of timing for larger deals this growth rate may also be bigger than this estimate.

Please see the full interim report (PDF) for financial figures.

For additional information, please contact:
Ilkka Hiidenheimo, CEO, Stonesoft Corp.
Tel. +358 9 476 711
E-mail: ilkka.hiidenheimo@stonesoft.com

Mikael Nyberg, CFO, Stonesoft Corp.
Tel. +358 9 476 711
E-mail: mikael.nyberg@stonesoft.com

Stonesoft Corp.
Ilkka Hiidenheimo
CEO

This release and the presentation material related to the Interim Report are also
available on Stonesoft's web site at http://www.stonesoft.com.

Friday, October 28, 2005