F-Secure Group Reports Strong Growth in 1999

Espoo, Finland - March 3, 2000 -

F-Secure Corporation, a leading provider of centrally-managed, widely distributed security solutions, today announced the Annual Report 1999.

The revenues of the Group rose by 91 % during 1999 and were EUR 23.3 million (12.2 in the previous year). A total of 60 % of the revenues (65 %) were from anti-virus products and 40 % (35 %) from cryptography products. Revenues from North America accounted for 33 %, Scandinavia for 33 %, the rest of Europe for 26 %, and the rest of the world for 8 %.

The operating result was EUR 4.0 million negative  (0.0) for the year. The operating income is a result of the Group's strategy of significant investments into product development and the growth of the sales and marketing organization. Personnel growth continued vigorously and was up to 302 (140). Personnel growth was 116 %.

The Group also continued to recruit powerful systems integration and distribution partners such as Siemens in Germany, Newlink in France, and Bay Data Consulting in the United States. The number of countries with channel partners grew to 93.

High demand for Anti-Virus products in the fourth quarter

The revenues of the fourth quarter exceeded the analysts’ expectations (averaging at below 5 million Euros) significantly. Revenues during the fourth quarter rose by 88% compared to the previous year, to EUR 7.9 million (4.2).

This was a result of a very high demand for Anti-Virus products before the year-end, which more than balanced the loss of business resulting from the postponement by many companies of large encryption related projects. However, Anti-Virus sales are not expected to be as significant during the first months of the year 2000. The encryption related projects are expected to restart at the latest after the scrutiny and corrective actions related to the handling of the leap year problem have been completed.

The operating result for the fourth quarter of the year was EUR 1.9 million negative (-0.1).

Liquid assets going up

The Group's financing position was good throughout the period under consideration. Financing income for the Group was EUR 0.9 million (0.6). The liquid assets of the Group at December 31, 1999, were EUR 52.8 million (3.8).

Providing incentives to employees in the form of stock options is a common practice in the Group’s industry. The Group’s option program is widely distributed and covers the whole personnel. As the market price of the Group’s share has risen significantly, the value of the warranty program has risen accordingly. This will generate taxable income to the personnel when the options are executed.

In certain countries, including Finland, the employer must pay social security charges based on the taxable income triggered by the execution of the stock options. The Group has booked a provision of 2.5 MEUR for this contingent liability to provide for the social security charges estimated to be paid in the future relating to all the granted stock options as of December 31, 1999.

The costs of the Initial Public Offering, EUR 3.4 million, were booked as extraordinary items.

Establishing architectural leadership

During 1999 the group established architectural leadership in the next generation security solutions. A new architecture and new products were built with the following customer requirements in mind: employee mobility, seamless integration of various security applications, centralized policy-based management of security, and the ability to make security a service-like function. The goal is pervasive security covering all key corporate platforms, including traditional LANs and PCs and modern mobile devices.

The significant growth of the revenues was based on new, highly competitive products, integrated security applications enabled by the unique Policy Manager architecture, the launch of the FSecure brand in the markets, on the continuing ramp-up of FSecure's own sales and marketing organization and on the continuing strengthening of the Partner channel. FSecure’s new, central business concept, Security as a Service™, started gaining mind share amongst service providers and corporate IT management.

The most significant step so far for the future of the Group was taken in August when the FSecure Framework security management architecture was launched. FSecure Framework offers customers information security scalability, centralized management and seamless integration and scalability of applications.

The Group’s first comprehensive integrated security package, which seamlessly integrates the FSecure Anti-Virus, FSecure FileCrypto and FSecure VPN+ products under a common policy-based management, was launched in July.

Security as a Service™ (SaaS) is a new, central business concept for FSecure. For the user, SaaS means transparent, automatic and reliable security, which is policy-based and strictly controlled by the administrator. This service may be provided by the IT department of a company as an internal service with better tools than before, or by an outside service provider who, for a monthly fee, maintains his customers' information security. Sonera in Finland and Digital Island in the United States, among others, are SaaS partners. In November, the Group launched a “New Technologies” R&D team to focus fully on emerging handheld PDAs (Personal Digital Assistants) and wireless platforms.

The Group invests heavily into building a distribution channel suitable for selling security as a service. The launch and distribution of the integrated and policy-managed products as well as the expansion of the sales and marketing organization during the year is expected to strengthen the Group's market position worldwide.

Based on positive customer and partner feedback for the Group’s strategy of focusing on Security as a Service™ and the security needs of the increasingly mobile workforce, the Group has actually intensified both its R&D and sales & marketing efforts to maximize the benefit of its pioneering position in this emerging market. As a result of these significant investments the operating income will be negative in the short term.

Split of the counter-book value of the share

The General Shareholders’ meeting will be held on April 12, 2000. The Board of Directors proposes not to issue dividend for year 1999. The Board of Directors also proposes that the share capital will be increased by a scrip issue from the share premium fund after which the amount of shares will be multiplied by 5.

Company Description

F-Secure Corporation is a leading developer of centrally managed, widely distributed security solutions for the mobile, distributed enterprise. The company offers a full range of award-winning, integrated anti-virus, file encryption and VPN solutions for workstations, servers and gateways.

F-Secure products are uniquely suited for delivery of Security as a Service™ by enterprise IT departments as well as a wide range of partners including ISPs, outsourcing firms and ASPs. For the end-user, Security as a Service is invisible, automatic, reliable, always-on, and up-to-date. For the administrator, Security as a Service means policy-based management, instant alerts, and centralized management of a widely-distributed user base. 

Founded in 1988, F-Secure is listed on the Helsinki Stock Exchange [HEX: FSC]. The company is headquartered in Espoo, Finland with North American headquarters in San Jose, California, as well as offices in Canada, Germany, China, France, Japan, Sweden and the United Kingdom. F-Secure is supported by a network of VARs and Distributors in over 90 countries around the globe.

For more information, please contact
F-Secure Corporation
Jukka Kotovirta, Director         tel.358 9 2520 5542

Income statement	1999	1998	Change
(Meur)	12 m	12 m	%
Net sales	23.3	12.2	91
Cost of revenues	3.6	2.2	64
Gross margin	19.7	10.0	97
Sales & Marketing	13.6	4.9	178
Research & Development	8.2	4.0	105
General & Administration	2.3	1.2	92
Other operating income	0.4	0.1
Operating result	-4.0	0.0
Financial items	0.9	0.6
Result before extraordinary
items and taxes	-3.1	0.6
Extraordinary items*	-5.9	-3.3
Result before taxes	-9.0	-2.70
Taxes	-0.3	0.60
Result for the period	-9.3	-2.10

* The extraordinary items of the year 1998 are resulted from the change in revenue recognition policy.