Stonesoft Corporation Stock Exchange Release 22 April 2008 CORRECTION TO STONESOFT CORPORATION'S INTERIM REPORT FOR JANUARY-MARCH 2008 There is a correction to the Interim Report of Stonesoft Corporation published on 22 April 2008. The Income Statement, Balance Sheet and Statement of changes in equity were missing in the tables. The corrected Interim Report: STONEGATE SALES GREW BY 37%, TOTAL NET SALES BY 22% Stonesoft's total net sales continued to increase during the first quarter of 2008. The sales of the StoneGate product family were the second highest in the company's history. The sales grew by 37% compared to the corresponding period in the previous year. The highest sales in StoneGate's history were reached during the previous quarter. SUMMARY The comparable figures from the corresponding period in the previous year are in brackets and refer to the figures of continuing operations. January-March 2008 - Net sales EUR 5,3 (4,3) million, growth 22% - Stonesoft's core business, the sales of the StoneGate product family, EUR 3,1 (2,3) million, growth 37% - Operating result EUR -1,2 (-2,1) million - Operating result as percentage of net sales -24% (-48%) - Earnings per share EUR -0,02 (-0,04) - Equity per share EUR 0,08 (0,17) - Cash flow EUR -1,1 (-1,4) million. The total cash flow, including the last part of the selling price of Embe Systems Oy, EUR 0.8 million, was EUR -0.3 million euros - Liquid assets at the end of the period EUR 7,9 (13,0) million Changes in the segment reporting The segment reporting of Stonesoft Group is based on geographical area division. Earlier this division consisted of three geographical areas: EMEA, Americas and APAC. Due to a strong growth of net sales in certain areas, Stonesoft has decided to amend its segment reporting starting from January 1, 2008 in such a way that EMEA area will be divided into Europe and Emerging Market. Emerging Markets mean Russia, Northern Africa and Middle East. The comparable figures have been adjusted to correspond to the new division. No amendments in reporting have been made for Americas and APAC areas. CEO Ilkka Hiidenheimo Our main target in 2008 is to have a strong growth of net sales generating improved profitability. Our net sales increased by 22% and the sales of StoneGate products by 37% during the first quarter, compared to the corresponding period in the previous year. Also the cash flow developed positively, operating result improved and we managed to reduce the previous year's comparable loss close to half. This development as a whole strengthens our insight that we have chosen the right strategy to reach our target. During 2007, the change of Stonesoft's position from a network security provider to a provider of integrated network security and business continuity was confirmed. The company aims to further strengthen this position by launching new StoneGate products, among others, to MSPs (managed service providers) and MSSPs (managed security service provider), whose market position is still growing strongly. During this year, we will accelerate our business through efficient use of scalable business models. These include the increased use of the MSSP channel, opening a digital marketplace for software-based solutions and expanding our business operations based on OEM deals. We are among the first to bring new products to the VMware virtual environment, as an answer to the demand created by the strong growth of virtualization of IT systems. Virtual firewall products are already available and the virtual IPS solution for securing internal networks will be launched later in 2008. The comparable cash flow and the operating result of the company have developed positively during the two last quarters. Consequently, the company does not need additional funding at present. In case the situation changes, additional funding can be arranged, because the main shareholders of the company have reconfirmed their readiness to invest at least three (3) million Euros in the company in form of a convertible bond, if needed. NET SALES AND RESULT January-March 2008 (hereinafter 'reporting period') The group's net sales totaled EUR 5,3 (4,3) million. The growth compared to the corresponding period in the previous year was EUR 0,9 million, or 22%. The operating result (EBIT) was EUR -1,2 (-2,1) million and the result after taxes was EUR -1,1 (0,2) million. The group's core business, the sales of the main portfolio StoneGate, which comprises of firewall, VPN, SSL VPN and IPS (intrusion detection and prevention system), totaled EUR 3,1 (2,3) million, an increase of 37% compared to previous year's corresponding quarter. The geographical distribution of net sales was as follows: Europe 59% (65%), Emerging Markets (Russia, North Africa and Middle East) 17% (13%) Americas (North and South America) 19% (15%) and APAC (Asia-Pacific) 5% (7%). Finance and investments At the end of reporting period, the group's total assets were EUR 15,7 (20,0) million. The equity ratio was 51% (72%) and gearing (the ratio of net debt to shareholder's equity) -1,77 (-1,29). Consolidated liquid assets of the group at the end of reporting period totaled EUR 7,9 (13,0) million. Investments in tangible and intangible assets were EUR 0,1 (0,1) million. The comparable cash flow has developed positively during the past two quarters. In order to strengthen the company's capital structure with an additional cash reserve and to ensure the continuance of the positive development in the future in line with the company's strategy and growth plan, the main shareholders of the company have informed the company of their readiness to invest at least three (3) million Euros in the company in form of convertible bond. According to the assessment of the Board of Directors, the company does not need additional funding at present due to the positive development of the cash flow. Furthermore, the arrangement would, especially in the current situation of the financial market, cause additional costs to the company. For these reasons, the Board of Directors decided to propose to the Annual General Meeting (AGM) to be held in April 23, 2008, that, instead of issuing a directed convertible bond, the AGM would grant to the Board of Directors an authorization that would enable the arrangement of additional funding through issuing of a directed convertible bond, if needed. Accordingly, the main shareholders have confirmed that their commitment given earlier in October is in force until the end of the AGM in 2009. DEVELOPMENT OF BUSINESS OPERATIONS Main business events in the fiscal period - Stonesoft introduced a new StoneGate security solution especially for the needs of high capacity networks. StoneGate IPS-6100 intrusion detection and prevention system and FW-5100 firewall appliances offer managed service providers (MSPs) and large organizations flexibility, high performance and cost-efficiency. - Stonesoft announced that it has become a member of the Technology Alliance Partner (TAP) program of VMware, the world`s leading provider of virtualization solutions. The cooperation brings Stonesoft among the first providers to launch security solutions for virtual environments and strengthens its position as a leading expert in network security. REVIEW OF MAJOR RESEARCH AND DEVELOPMENT ACTIVITIES Stonesoft continued its strong investments in R&D. Ivestments during the reporting period totaled EUR 1,4 (1,4) million. This represented 23% (23%) of operating expenses. R&D employed 68 (66) persons at the end of the reporting period. SHARE CAPITAL AND STOCK OPTION PROGRAMS At the end of the fiscal period, Stonesoft's share capital recorded in the Trade Register totaled EUR 1 146 054.64 euros. The number of shares was 57 302 732. The share capital remained unchanged. Stock option programs The company has one valid stock option program, Stock Option Program 2004-2010, the subscription price of which is EUR 0.56. During the fiscal period no subscriptions were made on the basis of the stock option programs for the key personnel of the company. DEVELOPMENT OF SHARE PRICES AND TURNOVER In the beginning of the fiscal period the price of Stonesoft share was EUR 0.29. At the end of the fiscal period the price was EUR 0.27. The highest price was EUR 0.34 and the lowest EUR 0.24. During the year the total turnover of Stonesoft shares amounted to EUR 0.9 million. Based on the share price at the end of the fiscal period, Stonesoft's market value was EUR 15.5 million. NOTICES IN CHANGE OF OWNERSHIP The company gave no notices in change of ownership during the fiscal period. ACQUISITIONS AND CHANGES IN GROUP STRUCTURE No acquisitions were made and no other changes in the group structure were implemented during the fiscal period. PERSONNEL At the end of the fiscal period, the group's personnel totaled 185 (183). AUTHORIZATIONS OF THE BOARD OF DIRECTORS The Annual General Meeting held on March 21, 2007 authorized the Board of Directors to issue new shares in one or several issues and to grant option and other special rights. 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 stock 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 was authorized to decide 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 Annual General Meeting. The granted authorization was not used. The company does not own its shares and the Board of Directors does not have an authorization to acquire its own shares. CORPORATE GOVERNANCE Stonesoft complies with the Corporate Governance Recommendation for listed companies issued by the OMX Nordic Stock Exchange Helsinki, as described on the web pages of the company. SHORT-TERM RISKS AND BUSINESS UNCERTAINTIES In the current fiscal period, 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 as well as to the fact that the general economic uncertainty has increased. There have been no significant changes in these risks and business uncertainties in comparison to what has been announced earlier. FUTURE OUTLOOK According to the Research Institute Infonetics, the Firewall/VPN and IPS Intrusion detection and prevention market will grow globally roughly by 8% in 2008. The market will continue to be dynamic. Companies will continue to network with their partners and subcontractors, and this development will create even higher requirements for network security and availability. At the same time, the demand for outsourcing solutions and services will grow. Managed service providers (MSPs) have a growing need to provide their customers with the possibility to track the status of their network security while maintaining an overview of their own data network. According to the company's view 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 2008 growth plan, since these are the cornerstones in StoneGate Management Center's functionality. The strong growth of virtualization has created a demand for ensuring network security and business continuity also in virtual environments. StoneGate products are better suited for virtual environments than the competitors' products because they are based on software solutions. Stonesoft will continue its decisive and persistent efforts to increase its net sales and to improve the profitability of the company. The company's main target in 2008 is to have a strong growth of net sales generating improved profitability. By extension of the product portfolio and improved competitiveness, we aim to win even larger individual deals. Based on the extension of the product portfolio, intensification of sales efforts and the present sales pipeline, the company expects to have an annual total net sales of roughly EUR 24 million (+/- 10%) while the comparable net sales figure during the previous financial year was EUR 19.0 million. Through increased sales and cost control, the annual operating result (EBIT) is expected to improve by EUR 2.5 - 4.5 million compared to the previous year. Also the cash flow is expected to develop positively. With regard to the development of the turnover and the operating 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. TABLES Stonesoft Group Income Statement 1.1-31.3.2008 1.1-31.3.2007 1.1-31.12.2007 (1000 Euro) Continuing operations Net sales 5 259 4 320 19 020 Other operating income 293 177 1 144 Materials and services -950 -547 -3 064 Personnel expenses -3 551 -3 537 -14 218 Depreciation -111 -117 -449 Other operating expenses -2 177 -2 385 -8 946 Operating result -1 237 -2 089 -6 514 Financial income and expenses 23 114 202 Result before taxes -1 214 -1 975 -6 312 Taxes -51 -54 -213 Result from continuing operations -1 265 -2 029 -6 525 Result from discontinued operations 186 2 217 2 312 Result for the accounting period -1 079 189 -4 212 Basic earnings per share (EUR), continuing operations -0,02 -0,04 -0,11 Diluted earnings per share (EUR), continuing operations -0,02 -0,04 -0,11 Basic earnings per share (EUR), discontinued operations 0,00 0,04 0,04 Diluted earnings per share (EUR), discontinued operations 0,00 0,04 0,04 Stonesoft Group Balance Sheet (1000 Euro) 31.3.2008 31.3.2007 31.12.2007 ASSETS Non-Current Assets Tangible assets 707 614 709 Intangible assets 79 113 82 Other investments 10 0 0 Deferred tax assets 1 2 1 Total 797 729 793 Current assets Inventories 848 597 1 069 Trade and other receivables 6 171 5 603 7 498 Prepayments 62 113 97 Marketable securities 6 815 12 310 7 571 Cash and cash equivalents 1 056 697 640 Total 14 951 19 321 16 874 Total assets 15 748 20 049 17 666 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 1 146 1 146 1 146 Share premium account 76 980 76 901 76 981 Conversion differences -1 001 -871 -927 Retained earnings -72 701 -67 221 -71 622 Total 4 424 9 956 5 579 Long-term liabilities Provisions 50 121 56 Interest bearing liabilities 0 43 0 Other long-term liabilities 1 783 1 366 1 722 Total 1 833 1 530 1 779 Short-term liabilities Trade and other payables 9 285 8 303 10 018 Tax liability 32 131 85 Provisions 118 24 131 Short-term interest bearing liabilities 54 106 75 Total 9 490 8 564 10 309 Total liabilities 11 324 10 094 12 088 Total equity and liabilities 15 748 20 049 17 666 Stonesoft Group Statement of changes in equity (1000 Euro) Share Share Conversion Retained capital premium differences earnings Total Shareholders' equity at 1.1.2007 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 31.3.2007 1 146 76 901 -871 -67 221 9 956 Share Share Conversion Retained capital premium differences earnings Total Shareholders' equity at 1.1.2008 1 146 76 981 -927 -71 622 5 579 Conversion differences -74 -74 Result for the period -1 079 -1 079 Total recognized income and expense for the period -74 -1 079 -1 153 Stock options exercised -1 -1 Shareholders' equity at 31.3.2008 1 146 76 980 -1 001 -72 701 4 424 Stonesoft Group Cash flow statement (1000 Euro) 1.1.-31.3.2008 1.1.-31.3.2007 1.1.-31.12.2007 Cash flow from operating activities Operating Result -1 237 -2 089 -6 514 Adjustments 123 127 417 Change in net working capital 265 625 687 Taxes paid -50 -54 -212 Net cash flow from operating activities continuing operations -899 -1 390 -5 622 Net cash flow from operating activities discontinued operations 0 0 0 Total cash flow from operating activities -899 -1 390 -5 622 Cash flow from investing activities Investments in tangible assets -99 -94 -463 Investments in intangible assets -6 -5 -32 Investments in affiliated company 0 0 -1 Investments in in other shares -10 0 0 Net cash flow investing activities continuing operations -115 -99 -496 Net cash flow investing activities discontinued operations 761 -448 -448 Total cash flow investing activities 646 -547 -944 Cash flow from financing activities Payments of financial leasing liabilities -20 -21 -95 Total cash flow from financing activities -20 -21 -95 Change in cash and cash equivalents Cash and cash equivalents at beginning of period 8 210 14 370 14 370 Conversion differences -74 -4 -60 Changes in the market value of investments 9 107 69 Discontinued operations 0 492 492 Total cash and cash equivalents at end of period *) 7 871 13 007 8 210 *) Total cash and cash equivalents at end of the period contains pledged securities 263 281 281 Stonesoft Group Geographical segments 1.1.-31.3.2008 1.1.-31.3.2007 1.1.-31.12.2007 (1000 Euro) Net sales Europe 3 096 2 807 12 075 Emerging Market 909 554 2 004 Americas 973 663 3 906 APAC 280 295 1 036 Total net sales 5 259 4 320 19 020 Operating profit Europe -665 -1 442 -4 119 Emerging Market -158 -46 -231 Americas -375 -553 -2 038 APAC -39 -48 -126 Total operating profit -1 237 -2 089 -6 514 Stonesoft Group Contingent liabilities 1.1.-31.3.2008 1.1.-31.3.2007 1.1.-31.12.2007 (1000 Euro) Contingent off-balance sheet Non-cancelable other leases 4 323 5 257 4 624 Contingent liabilities for the Company 20 20 20 Contingent liabilities for inventories 0 0 0 Stonesoft Group Related party information 1.1.-31.12.2007 1.1.-31.3.2007 1.1.-31.12.2007 (1000 Euro) Consultation fees paid to the Board of Directors 0 0 73 Stonesoft Group Quarterly development Q1 / Q4 / Q3 / Q2 / Q1 / (Euro Millions) 2008 2007 2007 2007 2007 2007 Security software and appliances 3,2 3,7 2,0 2,7 2,3 10,7 Services 2,2 2,2 2,1 2,1 2,0 8,4 Other products -0,1 -0,1 0,0 0,0 0,0 -0,1 Net sales continuing operations 5,3 5,8 4,0 4,8 4,3 19,0 Change-% from previous year 22 35 -9 32 7 15 Net sales discontinuing operations 0,0 0,0 0,0 0,0 0,0 0,0 Change-% from previous year - - - - - - Net sales total 5,3 5,8 4,0 4,8 4,3 19,0 Change-% from previous year 22 0 -27 -4 -22 -13 Sales margin 4,3 4,7 3,4 4,1 3,8 16,0 Sales margin % 82 80 84 85 87 84 Operative expenses 5,8 6,2 5,4 5,8 6,0 23,4 Operating profit (EBITA) -1,2 -1,2 -1,6 -1,5 -2,1 -6,5 % of net sales -24 -21 -41 -32 -48 -34 Result before taxes -1,2 -1,2 -1,7 -1,4 -2,0 -6,3 % of net sales -23 -20 -43 -30 -46 -33 Stonesoft Group Key ratios 1.1.-31.3.2008 1.1.-31.3.2007 1.1.-31.12.2007 (1000 Euro) Net sales total 5 259 4 320 19 020 Net sales change-% 22 -22 -13 Net sales, continuing operations 5 259 4 320 19 020 Net sales change-% 22 7 15 Net sales, discontinued operations 0 0 0 Net sales change-% - - - Operating result total -1 237 -2 089 -6 514 % of net sales -24 -48 -34 Operating result, continuing operations -1 237 -2 089 -6 514 % of net sales -24 -48 -34 Operating result, discontinued operations 0 0 0 % of net sales - - - Operating result before taxes -1 214 -1 975 -6 312 % of net sales -23 -46 -33 ROE - %, annualized, continuing operations -101 -82 -85 ROI - %, annualized -90 -77 -78 Equity ratio-% 51 72 52 Net gearing -1,77 -1,29 -1,46 Total Assets 15 748 20 049 17 666 Capital expenditure 105 99 500 Capital disposals 0 0 -5 R&D costs 1 372 1 387 5 285 % of net sales 26 32 28 Number of employees (weighted average) 181 184 181 Number of employees (end of the period 185 183 181 Share Specific Ratios Earnings per share, continuing operations -0,02 -0,04 -0,11 Earnings per share, discontinued operations 0,00 0,04 0,04 Equity per share 0,08 0,17 0,10 Dividend 0,00 0,00 0,00 Dividend per share (EUR) 0,00 0,00 0,00 Dividend / Profit-% 0 0 0 Calculation of indicators Return on equity (ROE) % = (Profit before taxes - income taxes) x 100 / Shareholders' equity + minority interest (average) Return on invested capital (ROI)% (Profit before extraordinary items+interest 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 on Net gearing = deposit-marketable securities / Equity + minority interest Earning per Profit before taxes - minority interest - income share (EPS) = taxes / Average number of shares adjusted for dilutive effect of options Equity per share = Equity / Number of shares at end of period ACCOUNTING PRINCIPLES This interim report is prepared in accordance with IAS 34 standard. Stonesoft Group has changed its bookkeeping practice regarding consulting fees for consults working full time for Stonesoft sales and presales functions starting from January 1, 2008. According to the new practice these fees are counted to the personnel expenses. In the financial year 2007 these consulting fees were included in the other operating expenses. The figures of the previous year have been adjusted to be comparable with the new bookkeeping practice. In all other aspects the Group has adapted the same accounting principles and reporting standards as in the Financial Statements for 2007. 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. The presented figures are unaudited. PRESS CONFERENCE A press conference for analysts and investors will be held on April 22, 2008 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 release and the presentation material related to this report are also available on Stonesoft's web site at www.stonesoft.com. Distribution: OMX Nordic Exchange Helsinki www.stonesoft.com
CORRECTION TO STONESOFT CORPORATION'S INTERIM REPORT FOR JANUARY-MARCH 2008
| Source: Stonesoft