Stock Exchange Release
Stonesoft Corporation Interim Report January-March 2007
Stonesoft Corporation Stock Exchange Release, 26 April 2007 at 9.15 am
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 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 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 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.
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.
Download the Interim Report in PDF format:
Stonesoft Corporation Interim Report January-March 2007 (PDF)Download presentation slides:
Stonesoft Interim Report Q1 2007 Analyst Meeting Slides (PDF)Distribution:
The Helsinki Stock Exchange
Main media
Thursday, April 26, 2007