AI assistant
F-Secure Oyj Annual Report 2020
3268_rns_2021-02-10_66bfb1c2-78fa-45bb-b299-a0c4576b56cb.pdf
Annual Report
Open in viewerOpens in your device viewer
F-Secure 2020
Board of Directors' Report
Financial statement
Corporate responsibility
Corporate governance
ANNUAL REPORT 2020
F-Secure
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
Our purpose
WE EXIST TO BUILD TRUST IN SOCIETY AND TO KEEP PEOPLE AND BUSINESSES SAFE
WE CREATE TRUST WITH OUR VALUES
Our INTEGRITY is beyond compromise.
We conquer challenges through COMMITMENT.
We exceed expectations with EXCELLENCE.
F-Secure 2020 Board of Directors' Report Financial statements Corporate responsibility Corporate governance
<-->
F-SECURE 2020
CONTENTS
F-SECURE 2020
Key figures 2020 ... 02
Business model:
Scalable software complemented by services . 03
F-Secure’s way of operating ... 04
Products and services ... 05
CEO letter ... 06
BOARD OF DIRECTORS' REPORT
Board of Directors’ Report 2020 ... 08
Key figures ... 14
Calculation of key ratios ... 15
FINANCIAL STATEMENTS
F-SECURE CONSOLIDATED ... 18
Statement of comprehensive income ... 18
Statement of financial position ... 19
Statement of cash flows ... 20
Statement of changes in equity ... 21
Notes to the Financial Statements ... 22
F-SECURE CORPORATION ... 40
Income statement ... 40
Balance sheet ... 41
Cash flow statement ... 42
Notes to the
parent company Financial Statements ... 43
Auditor’s Report ... 53
NON-FINANCIAL INFORMATION
Statement of Corporate responsibility ... 58
CORPORATE GOVERNANCE
F-Secure’s Corporate Governance Statement ... 67
Board of Directors ... 71
Leadership team ... 73
Remuneration report ... 76
INFORMATION FOR SHAREHOLDERS
Information for shareholders ... 81
Nobody knows cyber security like F-Secure. For three decades, F-Secure has driven innovations in cyber security, defending over 100,000 companies and millions of people. With unsurpassed experience in endpoint protection as well as detection and response, F-Secure shields enterprises and consumers against everything from advanced cyber attacks and data breaches to widespread ransomware infections.
F-Secure’s sophisticated technology combines the power of machine learning with the human expertise of its world-renowned security labs. F-Secure’s security experts perform incident response and forensic investigations on four continents, and its products are sold all over the world by around 200 broadband and mobile operators and thousands of resellers.
Founded in 1988, F-Secure is listed on the Nasdaq Helsinki.
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
KEY FIGURES 2020
Revenue & profitability
Revenue
220
MEUR
Adjusted EBITDA
36
MEUR
Adjusted EBITDA margin
16%
55% of revenue from corporate security, MEUR
Corporate security revenue
Consumer security revenue
Revenue split by business, %
Revenue split by region, %
Key figures
100+
countries with sales
30+
years in the business
1,700
employees
三
F-SECURE 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
F-SECURE 2020
BUSINESS MODEL: SCALABLE SOFTWARE COMPLEMENTED BY SERVICES
| CORPORATE SECURITY PRODUCTS | CYBER SECURITY CONSULTING | CONSUMER SECURITY | |
|---|---|---|---|
| Endpoint Protection for Businesses | Managed Detection and Response | ||
| Holistic Endpoint Protection Suite | |||
| Pure-play software detection and response | |||
| Cloud Protection – securing content exchanged e.g. on Salesforce | F-Secure Countercept – a top-of-the-class solution for detecting and responding to the most demanding cyber threats | Industry leading consulting organization with rare expertise to overcome unprecedented cyber attacks | Comprehensive protection for consumers' digital lives |
| Endpoint protection complemented by identity and router protection | |||
| Software Business | Software Business | Service Business | Software Business |
| 24/7 Service Center |
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
F-SECURE2020
F-SECURE'S WAY OF OPERATING
Corporate Security Products
100,000+ companies
- Endpoint products for businesses that utilize an extensive network of more than 6,000 reseller partners worldwide
- F-Secure Countercept, Managed Detection and Response solution, relies on F-Secure experts and industry-leading technology
Cyber Security Consulting
300+ enterprises
- F-Secure Consulting is a multi-disciplinary organization operating on four continents and is well-known for its research-led methodology
Consumer Security Products
Tens of millions of consumers
- A strong and scalable consumer business supported by a global network of around 200 telecommunication operators
F-Secure combines award winning cyber security solutions for businesses and consumers with industry-leading consulting expertise.
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\rightarrow
F-SECURE 2020
PRODUCTS AND SERVICES
Corporate security
In corporate security F-Secure provides a broad range of cyber security products, managed detection and response solutions and cyber security consulting to companies globally with a focus on the mid-market and local enterprises.
Detection & Response solutions (EDR & MDR)
MDR: F-Secure Countercept – Advanced threat hunting and continuous response capabilities against targeted attacks delivered as a managed service. Provides 24/7 monitoring, alerts within minutes, and gives clear guidance on how to respond
EDR: F-Secure Rapid Detection & Response – Customer- or partner-managed software solution for detecting and responding to targeted attacks
Prevention solutions
F-Secure Protection Service for Business – Cloud-hosted endpoint security
F-Secure Business Suite – On-site deployed endpoint security
F-Secure Cloud Protection for Salesforce – Content level security for Salesforce's customers
F-Secure Cloud Protection for Microsoft Office 365 – Advanced protection for online exchange of content
Prediction solutions
F-Secure Radar – Vulnerability scanning and management platform
phishd – Anti-phishing behavior management platform
Cyber security services
F-Secure provides premium consultancy services for all areas of cyber security on four continents, including services such as:
- F-Secure Cyber Incident & Resilience Services
- F-Secure Security Assessments
- F-Secure Red Team Testing
- F-Secure Cyber Risk Management
Consumer security
In consumer security the company provides a comprehensive range of endpoint protection, privacy and password management solutions, and security for all the connected devices at home, both separately and as a bundled premium offering (F-Secure TOTAL). The majority of consumer sales comes from the sale of endpoint protection products through the operator channel, but the company also sells consumer products through various retail partners, as well as the company's own web shop.
F-Secure SAFE – Easy to use antivirus and internet security, including Family rules to let you set healthy boundaries for your children's device use.
F-Secure FREEDOME – VPN that hides your online activity to ensure anonymous and secure internet browsing.
F-Secure KEY – A light and easy password manager, allowing you to store your passwords securely and access them from any device.
F-Secure SENSE – A software-based solution integrated in operators' broadband routers to secure all devices and the entire connected home against online threats.
F-Secure ID PROTECTION –
Combines personal information monitoring against data breaches with password manager to create strong passwords.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
CEO LETTER
SOFTWARE BUSINESSES SHOWED THEIR RESILIENCE
The past year was characterized by the COVID-19 pandemic, which disrupted the lives and operations of both people and organizations alike. F-Secure's first priority was to ensure the health and safety of our employees, along with ensuring full business continuity to our customers. The transition to remote work was smooth and all cyber security operations protecting our customers remained unaffected.
During the pandemic our software businesses for both corporate customers and consumers showed their resilience, whereas our consulting business experienced a clear negative impact from the challenging operating environment. As a result, the group revenue remained at the previous year's level at EUR 220.2 million (217.3m), while adjusted EBITDA improved significantly to EUR 35.7 million (23.2m) which translates to a margin of 16%. The profitability increase comes from lower activity levels influenced by the COVID-19 pandemic and prudent cost management.
Cyber criminals took advantage of the increased attack surface after the COVID-19 outbreak
Cyber criminals moved quickly to capitalize on the COVID-19 breakout with a rapid rise of pandemic-related malicious domains and phishing campaigns. The explosion of remote working and boost in digitalization due to the pandemic also increased attacks that looked for ways to exploit vulnerabilities brought on by this shift. The frequency and scope of attacks targeting critical infrastructure, the healthcare sector, major corporations and governments grew significantly. In the year 2020 some of such developments included: large ransomware attacks against major corporations, increased attacks against cloud infrastructure, and attacks targeting the COVID-19 vaccine research.
The majority of cyber attacks are financially motivated, even though the most damaging ones are orchestrated by state-sponsored threat actors. A good example is the supply chain attack against SolarWinds at the end of last year, which according to multiple public officials was backed by a nation-state actor. This attack had an impact on both governmental organizations, as well as many companies globally.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
CEO LETTER
Top results in external evaluations highlight F-Secure's technological capability in fighting the most advanced threats and securing the digital lives of individuals
F-Secure holds a broad portfolio of solutions to secure businesses and the digital lives of consumers. The common denominator is F-Secure's ability to innovate, whether it means deploying software products with the latest technology or fighting the most advanced persistent threats.
Our abilities have been yet again proven by recognitions in the field of detection and response in the MITRE ATT&CK evaluation by Forrester Research and in endpoint protection by achieving high scores throughout the year in various AV-test.org evaluations. The top scores achieved in these independent tests are a testimony to the high-quality research and development work done by F-Secure, setting us apart from the competition.
All businesses are set for a successful year 2021 to come
F-Secure is now a well-established player in the MDR (Managed Detection and Response) market. Despite the prolonged sales cycles due to the pandemic, F-Secure Countercept won tens of new deals around the globe within industry verticals that are the most targeted by hackers. These customers place their faith in our hands with multiyear deals highlighting the great growth opportunity for us.
The year 2020 in endpoint protection for businesses was characterized by the order intake growing clearly faster than revenue. This was especially noticeable within our cloud native solutions, which is a sign of good and developing momentum among the channel partners.
In consumer security we saw an increase in activation rates and a solid renewal performance in our core solutions, including both the operator and direct channels. The future of this business line looks better than for years, as we came to win new operator deals – including our latest solutions: F-SECURE ID PROTECTION and SENSE.
For consulting the year ended with a positive sentiment, even though this business was clearly hit by the pandemic during the year. In the long term the market remains attractive for profitable growth.
F-Secure builds trust in society and keeps people and businesses safe
Since I joined the company in November, I have been excited to learn that the company has developed some of the most sought after technology and employs many of the greatest talents in the cybersecurity industry. In order to protect our customers, it is pivotal to have visibility into the most challenging real-life attacks worldwide. I have been impressed to see how we utilize the combination of our expertise and the company's deep roots in technology.
Given the changes in the business environment, F-Secure's mission of building trust in society and keeping people and business safe is more important than ever.
In order to protect our customers it is pivotal to have visibility into the most challenging real-life attacks worldwide.
08
10
2020
30
40
50
60
70
80
90
100
2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
BOARD OF DIRECTORS' REPORT 2020
In 2020 the COVID-19 pandemic impacted the whole business environment and ways of working. Throughout the year F-Secure ensured safety of its employees and business continuity to its customers. F-Secure's scalable software businesses showed their resilience, whereas consulting was impacted by the pandemic. From a financial standpoint, the positive profitability development carried on resulting in an adjusted EBITDA of EUR 35.7 million (EUR 23.2m).
In endpoint security for businesses, the new order growth characterized the year of 2020, yet the revenue remained at the previous year's level. The notable development in orders sows the seed for revenue growth. The sales performance stems from close cooperation with channel partners, as well as from the enhancements made to the unified management interface, which are valued by F-Secure's end customers and partners.
Consumer security had the largest revenue growth in 2020. Compared to recent years, the overall sentiment regarding the business has improved due to the good sales performance of F-Secure's conventional product offering. In addition, F-Secure managed to secure new deals for the latest consumer solutions, F-Secure SENSE and ID PROTECTION, which demonstrate growth potential in the longer term.
One of F-Secure's main growth areas, Managed Detection and Response (MDR), experienced the effects from the global pandemic as sales cycles were prolonged. Despite of market uncertainties, F-Secure was able to gain many new customers around the globe. F-Secure Countercept's technological competitiveness was once again highlighted by its impressive scores in a third-party evaluation.
Cyber security consulting was impacted by the COVID-19 pandemic, which led to a reduction of 8% in revenue. The pandemic has complicated the short-term predictability of the business, however in the long term the market remains attractive for profitable growth.
09
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
BOARD OF DIRECTORS' REPORT
Financial performance and key figures
Total revenue in January–December remained at the previous year's level, and was EUR 220.2 million (217.3m). Corporate security represented 55% (56%) of all revenue and consumer security 45% (44%).
Corporate security
Revenue from corporate security remained at the previous year's level, and was EUR 120.1 million (122.5m).
Products
Revenue from Endpoint Protection (EPP) solutions increased from the previous year's level, excluding the effect from discontinued products. The renewal performance with the existing EPP installations remained on a good level. The growth of new orders outpaced revenue growth clearly throughout the year. There is increasing demand for solutions that are sold adjacent to traditional EPP such as Cloud Protection products. Also, the sales of Endpoint Detection and Response (EDR) increased although majority of the business still emerges from traditional EPP. Over the previous quarters there has been a rise in contract duration, meaning that the revenue impact of new orders is spread over a longer time period.
Revenue from Managed Detection and Response (MDR) solutions (F-Secure Countercept) increased compared to the previous year's level although it was negatively impacted by the extended sales cycles caused by COVID-19. Renewal performance was good throughout the year. Several new deals were won around the world in demanding customer verticals, such as media, critical infrastructure and finance.
Cyber security consulting
Revenue from cyber security consulting decreased by 8% to EUR 45.8 million (50.0m) as the business was hit by the COVID-19 pandemic. The pandemic outbreak caused a slowdown in sales, blocked physical access to some customer sites, and made customers evaluate more cautiously how much to spend on cyber security. Low utilization rates were countered in impacted countries with furloughs. In the Nordics, a particularly large project is in its finalization phase, which meant a reduction in scope when compared to the previous year. By the end of the year the development was positive due to organizations adjusting to the situation.
Consumer security
Revenue from consumer security increased by 6% to EUR 100.1 million (94.8m). Revenue from both operator channel and direct business grew. The reported revenue growth contains a slight positive impact related to one-off items.
Operators
The operator channel revenue grew from the previous year's level which stems mainly from the sales of our core endpoint protection solutions. The close cooperation with global operator partner network and boost in digitalization since the pandemic outbreak have generated an increase in product activation and usage rates. The negative impact from COVID-19 pandemic is mainly related to the prolonging of F-Secure SENSE and ID PROTECTION sales cycles and launch timelines.
Direct sales
Revenue from the direct sales to consumers grew from the previous year's level, and it was driven by the positive performance of our bundled solution, F-Secure TOTAL. The overall renewal performance was on a good level throughout the year. Especially ecommerce sales performed well.
Gross margin
Gross margin increased by 3% to EUR 172.2 million (166.8m), or 78% of revenue (77%). Relative gross margin increased compared to the previous year as cyber security consulting's share of all revenue decreased.
Operating expenses
Operating expenses excluding depreciation, amortization and impairment and IAC items decreased by EUR 6.6 million to EUR 138.5 million (145.1m) especially due to lower sales and marketing activity driven by the COVID-19 pandemic.
Depreciation and amortization decreased by EUR 8.0 million and was EUR 16.0 million (24.0m). PPA amortization from acquisitions was EUR 3.2 million (4.1m). Impairment of goodwill EUR 6.0 million was booked during the comparative period.
Profitability
Adjusted EBITDA was EUR 35.7 million and 16.2% of revenue (23.2m, 10.7%) and adjusted EBIT was EUR 22.9 million and 10.4% of revenue (9.6m, 4.4%). Profitability improved due to lower operating expenses and revenue growth from the consumer security.
EBITDA was EUR 35.7 million and 16.2% of revenue (31.1m, 14.3%). EBIT was EUR 19.7 million and 8.9% of revenue (7.2m, 3.3%) including EUR 3.2 million of PPA amortization.
Cash flow
Cash flow from operating activities before financial items and taxes improved significantly, and was EUR 48.3 million (19.0m). Group result excluding non-cash flow impacting items, such as adjustments to PPA, improved from the previous year generating higher cash flow. High order intake with upfront payments resulted in improved net working capital. In total, changes in net working capital increased cash flow by 17.4 million. Cash flow from operations was EUR 46.7 million (18.5m).
Acquisitions and financing arrangements
F-Secure did not carry out acquisitions during 2020.
Company did not enter new financing agreements during 2020. Bank loan repayments were made according to the schedule. Total repayments for term loan during 2020 were EUR 6.0 million. Company's financing agreement includes a committed revolving credit facility (RCF) of EUR 23.0 million to decrease short-term
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←
→
BOARD OF DIRECTORS' REPORT
liquidity risk. Remaining bank loans at the end of the financial year were EUR 30.0 million of which RCF represents EUR 5.0 million. During next 12 months EUR 6.0 million of remaining term loan will be paid according to the financing agreement.
The financing agreement includes conventional loan covenants related to ratio of net debt to EBITDA and equity ratio. F-Secure complied with the covenants throughout the reporting period.
Changes in group structure
Following changes have occurred in the Group structure during the financial year:
On 31 December 2020 F-Secure Polska S.A. and F-Secure Cyber Security Sp. z.o.o. merged with F-Secure Sp z.o.o. After the merger F-Secure operates only one legal entity, F-Secure Sp. z.o.o., in Poland.
F-Secure SDC SAS in France and F-Secure PTE Ltd in Singapore were liquidated during last quarter of 2020.
Capital structure
F-Secure's financial position remained solid. At the end of the year F-Secure's cash and cash equivalents totaled EUR 51.4 million (25.5 million). Equity ratio on 31 December 2020 was 52.5% (49.0%) and gearing ratio was -14.1% (20.8%).
Capital expenditure
Capital expenditure was EUR 14.3 million (12.8 million). Capitalized development expenses were EUR 5.5 million (6.2 million).
Research and development
F-Secure's research and development expenditure amounted to EUR 41.9 million in 2020, representing 19% of revenue (EUR 39.6m, 18%). Capitalized development expenses were EUR 5.5 million (EUR 6.2 million).
F-Secure has consistently earned top marks in third-party technology evaluations for providing the best protection, advanced detection & effective response capabilities and high
customer satisfaction. This speaks for the company's superior ability to understand the security attack landscape and to innovate by drawing meaningful conclusions from versatile sources of data. F-Secure collects and combines security data derived from different sensor types; servers, endpoints such as desktops or mobile devices, and cloud platforms. This data is analyzed in real time utilizing artificial intelligence and results in rapid, high fidelity detections and security analytics. The threat detection is augmented with tailored and expert driven threat hunting activities which combined lead to industry-leading solutions.
F-Secure's Detection and Response solutions achieved excellent scores also in the second round of MITRE ATT&CK evaluation highlighting the efficiency and accuracy of F-Secure Countercept. F-Secure is developing one core XDR (Extended Detection and Response) technology platform for its customers. The transfer of MDR (Managed Detection and Response) customers to the new platform began in 2020 and will continue in 2021. The development of the underlying technology continues e.g. by enhancing the solution on different operating systems and cloud platforms.
In 2020, F-Secure's endpoint products for businesses were further strengthened by introducing a new solution to the cloud-based technology suite – Cloud Protection for Microsoft Office 365. In addition, the development of the suite's unified management interface for business customers continued. The aforementioned improvements result in enhanced usability that make us a preferred vendor for channel partners. F-Secure's ability to offer best-in-class protection for both businesses and consumers was again highlighted by receiving industry-leading scores for Windows antivirus software at AV-test.org evaluations throughout the year.
In consumer security the latest solutions, F-Secure SENSE and ID PROTECTION, were developed further and unification of the user experience continued in 2020. Development of F-Secure SENSE is done in cooperation with operator partners and router manufacturers to enable e.g. the product's deployment over various different router architectures. Important milestone for
F-Secure ID PROTECTION was launching the product also in direct sales channel. In addition, the development work around combined user experience aims at making the use of F-Secure's consumer product portfolio as seamless as possible.
Organization and leadership
Personnel
At the end of the year, F-Secure had 1,678 employees, which shows a net decrease of 18 employees (-1%) since the beginning of the year (1,696 on 31 December 2019).
Leadership team
At the end of the year, the composition of the Leadership Team was the following:
Juhani Hintikka (CEO & President), Eriikka Söderström (CFO), Jyrki Tulokas (Security Research & Technologies), Antti Hovila (Strategy, Brand & Communications), Kristian Järnefelt (Consumer Security), Juha Kivikoski (Business Security), Edward Parsons (Cyber Security Consulting), Tim Orchard (Managed Detection & Response) Jari Still (Information & Business Services) and Eva Tuominen (People Operations & Culture).
Juhani Hintikka was appointed President and CEO of F-Secure Corporation, effective 1 November, 2020.
In February 2021, Ari Väntinen started as Chief Marketing Officer. Consequently, Antti Hovila is now Executive Vice President, Strategy & Portfolio.
Shares, Shareholders' Equity, Own Shares
The total number of company shares is currently 158,798,739. The company's registered shareholders' equity is EUR 1,551,311.18. The company held 607,108 of its own shares at the end of the year.
In 2020, under the authorization held by the Board of Directors, F-Secure transferred a total of 362,530 treasury shares to its employees and members of the Leadership Team, as settlement under F-Secure's share based incentive plans. The shares were
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←
→
BOARD OF DIRECTORS' REPORT
transferred without consideration and in accordance with the plan rules.
In accordance with the decision by the Annual General Meeting, 40% of the fees paid to the Members of the Board of Directors in 2020 were paid in F-Secure shares. In total, 42,106 of F-Secure treasury shares were transferred to the Members of the Board.
Information on the authorizations held by the Board of Directors in 2020 to issue shares and special rights entitling to shares, to transfer shares and repurchase own shares, is available in the section on the Annual General Meeting.
Risks and uncertainties
The following risks and uncertainties can adversely impact F-Secure's sales, profitability, financial condition, market share, reputation, share price or the achievement of the company's short- and long-term objectives. The matters described here should not be construed as exhaustive list. The most significant risks are:
COVID-19 pandemic
Cyber security consulting and the new sales of Managed Detection and Response (MDR) service are negatively affected by the COVID-19 pandemic. Further slowdown in the new sales of software products and Managed Detection and Response (MDR) solutions may occur if the situation prolongs.
Goodwill is tested for impairment annually and whenever there is indication that it might be impaired. The impacts of the pandemic on cyber security consulting can be seen as such indication, and an additional impairment testing of consulting goodwill was carried out during the second quarter based on updated long-term forecasts. Yearly impairment tests of Consulting and MDR goodwill were carried out at the end of the year. None of them resulted in impairment, although long-term forecasts include higher level of uncertainty due to prolonged pandemic. Management continues to assess the need for updated testing regularly.
Under the pandemic an increase in credit losses and delayed customer payments may occur. During the financial year
significant risks have not realized, but as the impacts of the pandemic on customers may arise in longer term, management has reassessed the provision for expected credit losses under IFRS 9 and a slight increase has been booked during the financial year to address increased risk.
Cyber security incident
Cyber security attacks threaten the confidentiality, integrity and availability of F-Secure's products, services and the enterprise. F-Secure builds cyber resilience by continually improving its capability to identify, protect, detect and respond to relevant threats.
Endpoint protection market disruption
Endpoint security market is highly competitive. Operating system manufacturers have increased their focus to built-in security features and at the same time new vendors and technologies have emerged. F-Secure has to succeed in maintaining in-depth understanding of cyber security threat landscape, hacker techniques and technologies used as well as continue to innovate in defense technologies.
Market consolidation
The cyber security market is consolidating due to economies of scale. F-Secure has to succeed in finding the right acquisition targets, as well as successfully integrating the target companies.
Risks relating to launch of new technologies
In a rapidly evolving industry it is vital to keep the products and services relevant to the customers while introducing new technologies to the market on-time. F-Secure is driving technology simplification and R&D effectivization initiatives as well as investments to artificial intelligence to ensure a competitive product portfolio.
Attracting and retaining talent
Competition for capable personnel is increasing and there is structural undersupply of talent in the cyber security industry.
F-Secure is continuously developing and adopting new ways of recruitment, building its own talent and knowledge pools and investing to training and development of personnel.
Geopolitical risks
F-Secure operates globally in different countries, and local regulation is exposing the company to geopolitical risks, including, for instance, unfavorable tax matters or export controls. Changes in regulations or their application, applicable to current or new technologies or services, may adversely affect F-Secure's business operations.
Currency fluctuations
Increased amount of operations and sites outside the Eurozone in different currencies exposes F-Secure to an increased risk related to currency fluctuations.
The Annual General Meeting
The Annual General Meeting of F-Secure Corporation was held on 12 May 2020. The Meeting confirmed the financial statements for the financial year 2019. The members of the Board and the President and CEO were discharged from liability. The Annual General Meeting decided to distribute no dividend for year 2019.
It was decided that the annual remuneration of the Board of Directors remains unchanged: EUR 80,000 for the Chairman of the Board of Directors, EUR 48,000 for the Committee Chairmen, EUR 38,000 for the members of the Board of Directors, and EUR 12,667 for a member of the Board of Directors belonging to the personnel of the Company. Approximately 40% of the remuneration will be paid as the Company's shares.
It was decided that the number of Board members is seven (7).
The following current Board members were re-elected: Tuomas Syrjänen, Pertti Ervi, Bruce Oreck, Päivi Rekonen and Risto Siilasmaa. Keith Bannister and Robert Bearsby, who belongs to the personnel of F-Secure Corporation, were elected as new members of the Board of Directors. The Board elected Risto Siilasmaa as
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←
⇒
BOARD OF DIRECTORS' REPORT
the Chairman of the Board. The Board nominated Siilasmaa as the Chairman of the Personnel Committee and Bruce Oreck and Päivi Rekonen as members of the Personnel Committee. Pertti Ervi was nominated as the Chairman of the Audit Committee and Tuomas Syrjänen, Keith Bannister and Robert Bearsby were nominated as members of the Audit Committee.
It was decided that the remuneration to the Auditor will be paid in accordance with the approved invoice. PricewaterhouseCoopers Oy was elected as the Company's auditor. Mr. Janne Rajalahti, APA, acts as the Responsible Auditor.
The Annual General Meeting authorized the Board of Directors to decide upon the repurchase of a maximum of 10,000,000 of the Company's own shares in one or several tranches and with the Company's unrestricted equity. The authorisation entitles the Board of Directors to decide on the repurchase also in deviation from the proportional holdings of the shareholders (directed repurchase). The authorisation comprises the repurchase of shares either on a regulated market on Nasdaq Helsinki Ltd in accordance with its rules and guidelines in which case the repurchase price is determined on the basis of the stock exchange price at the time of repurchase, or with a purchase offer to the shareholders in which case the repurchase price must be the same for all shareholders. The Company's own shares shall be repurchased to be used for carrying out acquisitions or implementing other arrangements related to the Company's business, for improving the Company's financing structure, as part of the implementation of the Company's incentive scheme or otherwise to be transferred further or cancelled. The authorisation includes the right of the Board of Directors to decide on all other terms related to the repurchase of the Company's own shares. The authorisation is valid until the next Annual General Meeting, in any case until no later than 30 June 2021, and it terminates the authorisation given to the Board of Directors by the Annual General Meeting of year 2019 concerning the repurchase of the Company's own shares.
The Annual General Meeting authorized the Board of Directors to decide on the issuance of a maximum of 31,000,000 shares
through a share issue as well as by issuing options and other special rights entitling to shares pursuant to Chapter 10, Section 1 of the Companies Act in one or several tranches. The maximum number of the shares corresponds to 19.5% of the Company's registered number of shares. The authorisation concerns both the issuance of new shares and the transfer of treasury shares held by the Company. The authorisation entitles the Board of Directors to decide on all terms related to the share issue as well as the issuance of options and other special rights entitling to shares. The issuance of shares may be carried out in deviation from the shareholders' pre-emptive subscription right (directed issue). The authorisation may be used for carrying out potential acquisitions or other transactions or share-based incentive schemes or otherwise for purposes decided by the Board of Directors. The Board of Directors is also entitled to decide on the sale of treasury shares on a regulated market on Nasdaq Helsinki Ltd in accordance with its rules and guidelines. The authorisation is valid until the next Annual General Meeting, in any case until no later than 30 June 2021, and it terminates the authorisation given to the Board of Directors by the Annual General Meeting of year 2019 concerning the share issue and the issuance of special rights entitling to shares.
Market overview
The growing number and variety of connected devices as well as digital services continues to create security challenges for both businesses and individuals. Combined with the increasing complexity of IT systems, tightening regulation and increasing significance of geopolitics, these trends are driving demand for security products and services. While advanced cyber-attacks are becoming more common and persistent, criminals are targeting companies of all sizes along with consumers by taking advantage of vulnerabilities in popular software, both traditional and new connected devices as well as online services. Apart from pure criminal activity, governments and hacktivists use vulnerabilities and malware for things including espionage and surveillance.
Attacks against corporations often go undetected for months. As most companies lack relevant capabilities for detection and
response, it is estimated that the demand for both Endpoint Detection and Response (EDR) solutions and Managed Detection and Response (MDR) will continue to increase rapidly. The new detection and response capabilities are supplementing existing endpoint protection solutions (EPP), causing the EPP market to be in transition. Overall, as organizations are increasingly adopting cloud services, they seek managed security services and cloud-based delivery to help them maintain control of their security.
The consumer security software market continues to be impacted by the changing device landscape, app stores and online sales overall. On the whole, the number of connected smart home devices is growing very rapidly, and as a result, telecommunication operators are investing heavily in upgrading connectivity and introducing new security related services into their offerings. As consumers become increasingly aware of the threats to their privacy and security, they seek to buy more comprehensive solutions to secure their digital lives. This creates opportunities for innovative new security products.
Outlook
F-Secure's financial outlook for 2021 is:
- Revenue from corporate security products is expected to grow at a high single-digit rate.
- Revenue from cyber security consulting is expected to grow but uncertainty remains due to the COVID-19 pandemic.
- Revenue from consumer security is expected to grow approximately at the same rate as in 2020.
- Adjusted EBITDA is expected to remain approximately at the previous year's level (EUR 35.7 million).
The COVID-19 pandemic continues to impact the predictability of cyber security consulting and can also impact the new sales of software solutions. The related risks are described in this Annual Report 2020.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
BOARD OF DIRECTORS' REPORT
Dividend proposal
The company's dividend policy is to pay approximately half of its profits as dividends. On December 31, 2020, F-Secure Oyj's distributable funds totaled EUR 74.6 million, EUR 14.8 million of which was the net profit for the period. No material changes have taken place in the company's financial position after the balance sheet date.
F-Secure's Board of Directors proposes that a dividend of EUR 0.04 per share which totals EUR 6.4 million in dividends, be paid on the basis of the balance sheet to be adopted for the financial year that ended December 31, 2020. The dividend shall be paid to shareholders who are registered in the company's shareholder register maintained by Euroclear Finland Oy on the record date for the dividend payment, March 26, 2021. The Board of Directors proposes that the dividend will be paid on Thursday, 8 April 2021.
Events after period-end
No other material changes regarding the Company's business or financial position have occurred after the end of the year.
Helsinki, 9 February 2021
F-Secure Corporation
Board of Directors
Risto Siilasmaa
Pertti Ervi
Bruce Oreck
Päivi Rekonen
Tuomas Syrjänen
Keith Bannister
Robert Bearsby
President and CEO
Juhani Hintikka
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
KEY FIGURES
F-Secure has applied new IFRS16 standard from January 1, 2019 onwards with modified approach and comparatives are not restated. IFRS 15 and IFRS 9 standards have been applied from January 1, 2018 onwards and 2017 financials are restated retrospectively. Figures for 2016 are not restated and thus not fully comparable.
| Economic indicators | IFRS 2020 | IFRS 2019 | IFRS 2018 | IFRS 2017 | IFRS 2016 |
|---|---|---|---|---|---|
| Revenue (MEUR) * | 220.2 | 217.3 | 190.7 | 169.8 | 158.3 |
| Revenue growth % | 1% | 14% | 12% | 7% | 7% |
| EBIT (MEUR) * | 19.7 | 7.2 | 4.5 | 11.5 | 19.2 |
| % of revenue | 8.9% | 3.3% | 2.4% | 6.8% | 12.1% |
| Result before taxes * | 16.5 | 4.2 | 1.7 | 12.4 | 20.8 |
| % of revenue | 7.5% | 2.0% | 0.9% | 7.3% | 13.1% |
| ROE (%) | 16.2% | 4.7% | 1.2% | 15.0% | 19.9% |
| ROI (%) | 18.5% | 4.5% | 7.9% | 20.0% | 28.6% |
| Equity ratio (%) | 52.5% | 49.0% | 42.7% | 61.9% | 66.7% |
| Investments (MEUR) | 14.3 | 12.8 | 99.8 | 9.3 | 6.9 |
| % of revenue | 6.5% | 5.9% | 52.3% | 5.5% | 4.4% |
| R&D costs (MEUR) * | 41.9 | 39.6 | 35.7 | 34.1 | 28.4 |
| % of revenue | 19.0% | 18.2% | 18.7% | 20.1% | 17.9% |
| Capitalized development (MEUR) | 5.5 | 6.2 | 4.7 | 3.9 | 3.2 |
| Gearing % | -14.1% | 20.8% | 13.9% | -127.8% | -122.1% |
| Wages and salaries (MEUR) | 103.7 | 104.4 | 84.9 | 70.1 | 61.8 |
| Personnel on average | 1,691 | 1,701 | 1,364 | 1067 | 981 |
| Personnel on Dec 31 | 1,678 | 1,696 | 1,666 | 1104 | 1,026 |
- For 2016 only continuing operations.
| Adjusted number of shares | IFRS 2020 | IFRS 2019 | IFRS 2018 | IFRS 2017 | IFRS 2016 |
|---|---|---|---|---|---|
| average during the period | 158,082,324 | 157,719,368 | 157,224,137 | 156,502,983 | 156,022,774 |
| average during the period, diluted | 158,082,324 | 157,719,368 | 157,224,137 | 156,502,983 | 156,022,774 |
| Dec 31 | 158,798,739 | 158,798,739 | 158,798,739 | 158,798,739 | 158,798,739 |
| Dec 31, diluted | 158,798,739 | 158,798,739 | 158,798,739 | 158,798,739 | 158,798,739 |
| Key ratios | IFRS 2020 | IFRS 2019 | IFRS 2018 | IFRS 2017 | IFRS 2016 |
| --- | --- | --- | --- | --- | --- |
| Earnings / share (EUR) | 0.08 | 0.02 | 0.01 | 0.07 | 0.10 |
| Earnings / share (EUR) continuing operations | 0.08 | 0.02 | 0.01 | 0.07 | 0.10 |
| Earnings / share diluted | 0.08 | 0.02 | 0.01 | 0.07 | 0.10 |
| Earnings / share diluted continuing operations | 0.08 | 0.02 | 0.01 | 0.07 | 0.10 |
| Shareholders' equity per share | 0.52 | 0.48 | 0.42 | 0.45 | 0.49 |
| Dividend per share * | 0.04 | 0.00 | 0.00 | 0.04 | 0.12 |
| Dividend per earnings (%) | 50.0% | 0.0% | 0.0% | 57.1% | 122.8% |
| Effective dividends (%) | 1.0% | 0.0% | 0.0% | 1.0% | 3.4% |
| P/E ratio | 47.1 | 142.7 | 431.4 | 55.2 | 35.6 |
| Share price, lowest (EUR) | 2.04 | 2.19 | 2.18 | 3.17 | 2.19 |
| Share price, highest (EUR) | 4.14 | 3.40 | 4.24 | 4.84 | 3.60 |
| Share price, average (EUR) | 3.10 | 2.68 | 3.03 | 3.94 | 2.87 |
| Share price Dec 31 | 3.84 | 3.05 | 2.32 | 3.89 | 3.48 |
| Market capitalization (MEUR) | 609.0 | 483.5 | 367.6 | 617.7 | 552.6 |
| Trading volume (millions) | 22.8 | 26.5 | 33.7 | 27.8 | 35.9 |
| Trading volume (%) | 14.33% | 16.70% | 21.2% | 17.5% | 22.6% |
- Board proposal
Turnover and average share price per month 2020
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
CALCULATION OF KEY RATIOS
| Equity ratio, % | Total equity | × 100 |
|---|---|---|
| Total assets – advance payments received | ||
| ROI, % | Result before taxes + financial expenses | × 100 |
| Total assets – non-interest bearing liabilities (average) | ||
| ROE, % | Result for the period | × 100 |
| Total equity (average) | ||
| Gearing, % | Interest bearing liabilities – cash and bank and financial asset through profit and loss | × 100 |
| Total equity | ||
| Earnings per share, EUR | Profit attributable to equity holders of the company | |
| Weighted average number of outstanding shares | ||
| Shareholders' equity per share, EUR | Equity attributable to equity holders of the company | |
| Number of outstanding shares at the end of period | ||
| P/E ratio | Closing price of the share, end of period | |
| Earnings per share | ||
| Dividend per earnings, % | Dividend per share | × 100 |
| Earnings per share | ||
| Effective dividends, % | Dividend per share | × 100 |
| Closing price of the share, end of period | ||
| Operating expenses | Sales and marketing, research and development and administration costs | |
| EBITDA | EBIT + depreciation, amortization and impairment |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
Reconciliation between adjusted EBITDA, EBITDA, adjusted EBIT and EBIT
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Adjusted EBITDA | 35.7 | 23.2 |
| Adjustments to EBITDA | ||
| Change in fair value of contingent consideration | 12.5 | |
| Restructuring | 0.0 | -4.6 |
| EBITDA | 35.7 | 31.1 |
| Depreciation, amortization and impairment losses | -16.0 | -24.0 |
| EBIT | 19.7 | 7.2 |
| Adjusted EBIT | 22.9 | 9.6 |
| Adjustments to EBIT | ||
| Change in fair value of contingent consideration | 12.5 | |
| PPA amortization | -3.2 | -4.1 |
| Impairment | -6.3 | |
| Restructuring | 0.0 | -4.6 |
| EBIT | 19.7 | 7.2 |
Classification of adjusted costs in operating expenses
| Operating Expenses 2020 | Restructuring | Expenses for adjusted EBIT | Depreciation | Impairment | PPA amortization | Operating Expenses for Adjusted EBITDA 2020 | |
|---|---|---|---|---|---|---|---|
| Sales and marketing | -95.6 | -95.6 | 6.2 | -89.4 | |||
| Research and development | -41.8 | -41.8 | 5.9 | -35.9 | |||
| Administration | -17.1 | 0.0 | -17.1 | 0.8 | 3.2 | -13.2 | |
| Operating expenses | -154.5 | 0.0 | -154.5 | 12.9 | 3.2 | -138.5 | |
| Operating Expenses 2019 | Restructuring | Expenses for adjusted EBIT | Depreciation | Impairment | PPA amortization | Operating Expenses for Adjusted EBITDA 2019 | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Sales and marketing | -106.0 | -106.0 | 6.6 | -99.4 | |||
| Research and development | -39.6 | -39.6 | 6.3 | -33.2 | |||
| Administration | -28.1 | 4.6 | -23.5 | 0.7 | 6.3 | 4.1 | -12.4 |
| Operating expenses | -173.7 | 4.6 | -169.1 | 13.6 | 6.3 | 4.1 | -145.1 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
Shares and shareholders
Shares and share ownership distribution, 31 Dec 2020
| Shares | Number of shareholders | % of shareholders | Total shares | % of shares |
|---|---|---|---|---|
| 1–100 | 6,566 | 25.26% | 332,744 | 0.21% |
| 101–1,000 | 15,180 | 58.39% | 5,678,191 | 3.58% |
| 1,001–50,000 | 4,174 | 16.06% | 16,043,829 | 10.10% |
| 50,001–100,000 | 33 | 0.13% | 2,327,304 | 1.47% |
| 100,001– | 44 | 0.17% | 134,416,671 | 84.65% |
| Total | 25,997 | 100.00% | 158,798,739 | 100.00% |
| Shareholders by category, 31 Dec 2020 | Total shares | % of shares | ||
| --- | --- | --- | --- | |
| Corporations | 4,936,245 | 3.11% | ||
| Financial and insurance institutions | 51,627,250 | 32.51% | ||
| General government | 17,172,033 | 10.81% | ||
| Non-profit organizations | 558,896 | 0.35% | ||
| Households | 83,148,678 | 52.36% | ||
| Other countries and international organizations | 1,355,637 | 0.85% | ||
| Total | 158,798,739 | 100.00% |
Largest shareholders and administrative register
| Owner | Shares | % of shares | % of votes |
|---|---|---|---|
| Risto Siilasmaa | 60,003,037 | 37.79% | 37.93% |
| Nordea Bank Abp | 14,868,129 | 9.36% | 9.40% |
| Skandinaviska Enskilda banken AB | 10,425,582 | 6.57% | 6.59% |
| Nordea Nordic Small Cap Fund | 9,796,976 | 6.17% | 6.19% |
| Mandatum Life Insurance Company | 6,945,150 | 4.37% | 4.39% |
| Elo Mutual Pension Insurance Company | 4,914,612 | 3.09% | 3.11% |
| Ilmarinen Mutual Pension Insurance Company | 4,167,860 | 2.62% | 2.63% |
| The State Pension Fund | 3,500,000 | 2.20% | 2.21% |
| Varma Mutual Pension Insurance Company | 3,470,660 | 2.19% | 2.19% |
| Nordea Finland Fund | 1,973,996 | 1.24% | 1.25% |
| Administrative register | Shares | % of shares | % of votes |
| --- | --- | --- | --- |
| Nordea Pankki Suomi Oyj | 14,868,129 | 9.36% | 9.40% |
| Skandinaviska Enskilda Banken | 10,425,582 | 6.57% | 6.59% |
| Other registers | 908,899 | 0.57% | 0.57% |
| Other shareholders | 37,216,730 | 23.44% | 23.53% |
| Total | 158,191,631 | 99.62% | 100.00% |
| Own shares F-Secure Corporation | 607,108 | 0.38% | |
| Total | 158,798,739 | 100.00% |
Ownership of management
| Board of Directors | Shares | % of shares |
|---|---|---|
| Risto Siilasmaa | 60,003,037 | 37.79% |
| Pertti Ervi | 62,921 | 0.04% |
| Tuomas Syrjänen | 21,622 | 0.01% |
| Bruce Oreck | 23,865 | 0.02% |
| Päivi Rekonen | 18,572 | 0.01% |
| Keith Bannister | 5,467 | 0.00% |
| Robert Bearsby | 1,822 | 0.00% |
| Total | 60,137,306 | 37.87% |
| Executive team | Shares | % of shares |
| --- | --- | --- |
| Jari Still | 139,013 | 0.09% |
| Eriikka Söderström | 61,804 | 0.04% |
| Kristian Järnefelt | 38,356 | 0.02% |
| Jyrki Tulokas | 34,162 | 0.02% |
| Juha Kivikoski | 11,804 | 0.01% |
| Ed Parsons | 5,348 | 0.01% |
| Juhani Hintikka | ||
| Eva Tuominen | ||
| Antti Hovila | ||
| Tim Orchard | ||
| Total | 290,487 | 0.18% |
Ownership of management
The Board of Directors owned a total of 60,137,306 shares on December 31, 2020. This represents 37.9 percent of the Company's shares and 38.0 percent of votes.
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME JAN 1–DEC 31, 2020
| EUR 1,000 | Note | Consolidated, IFRS 2020 | Consolidated, IFRS 2019 |
|---|---|---|---|
| REVENUE | (2) | 220,204 | 217,338 |
| Cost of revenue | (6) | -47,996 | -50,549 |
| GROSS MARGIN | 172,208 | 166,789 | |
| Other operating income | (3) | 2,108 | 14,049 |
| Sales and marketing | (4, 5, 6) | -95,625 | -105,988 |
| Research and development | (4, 5, 6) | -41,891 | -39,568 |
| Administration | (4, 5, 6) | -17,120 | -28,122 |
| EBIT | 19,680 | 7,160 | |
| Financial income | (8) | 2,443 | 1,424 |
| Financial expenses | (8) | -5,666 | -4,337 |
| PROFIT (LOSS) BEFORE TAXES | 16,457 | 4,247 | |
| Income tax | (9) | -3,581 | -882 |
| RESULT FOR THE FINANCIAL YEAR | 12,875 | 3,365 | |
| Other comprehensive income | |||
| Exchange difference on translation of foreign operations | -7,361 | 5,081 | |
| COMPREHENSIVE INCOME FOR THE YEAR | 5,514 | 8,446 | |
| Result of the financial year is attributable to: | |||
| Equity holders of the parent | 12,875 | 3,365 | |
| Comprehensive income for the year is attributable to: | |||
| Equity holders of the parent | 5,514 | 8,446 | |
| Earnings per share | |||
| - basic and diluted | (10) | 0.08 | 0.02 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION DEC 31, 2020
| EUR 1,000 | Note | Consolidated, IFRS 2020 | Consolidated, IFRS 2019 | EUR 1,000 | Note | Consolidated, IFRS 2020 | Consolidated, IFRS 2019 |
|---|---|---|---|---|---|---|---|
| ASSETS | |||||||
| NON-CURRENT ASSETS | SHAREHOLDERS' EQUITY AND LIABILITIES | ||||||
| Tangible assets | (4, 13) | 14,064 | 15,594 | Share capital | 1,551 | 1,551 | |
| Intangible assets | (13) | 34,016 | 36,519 | Share premium | 165 | 165 | |
| Goodwill | (11, 12, 13) | 81,944 | 88,398 | Treasury shares | -1,288 | -2,141 | |
| Deferred tax assets | (21) | 3,954 | 3,072 | Translation differences | -4,116 | 3,245 | |
| Other receivables | (16) | 579 | 573 | Reserve for invested unrestricted equity | 6,464 | 6,173 | |
| Total non-current assets | 134,557 | 144,156 | Retained earnings | 79,554 | 67,166 | ||
| CURRENT ASSETS | Equity attributable to equity holders of the parent | 82,330 | 76,158 | ||||
| Inventories | (14) | 74 | 107 | NON-CURRENT LIABILITIES | |||
| Accrued income | (16) | 3,398 | 3,451 | Interest bearing liabilities, non-current | (4, 19, 20) | 23,929 | 29,451 |
| Trade and other receivables | (15, 16) | 47,462 | 53,857 | Deferred tax liabilities | (21) | 1,294 | 2,463 |
| Income tax receivables | (16) | 872 | 2,301 | Other non-current liabilities | (22) | 25,338 | 19,490 |
| Financial asset at FVTPL | (15) | 61 | 66 | Provisions | (22) | 3,041 | |
| Cash and bank accounts | (15, 20) | 51,380 | 25,427 | Total non-current liabilities | 50,560 | 54,445 | |
| Total current assets | 103,246 | 85,210 | |||||
| TOTAL ASSETS | CURRENT LIABILITIES | ||||||
| 237,803 | 229,366 | Interest bearing liabilities, current | (4, 19, 20) | 15,937 | 11,877 | ||
| Trade and other payables | (20, 22) | 26,088 | 28,998 | ||||
| Income tax liabilities | (22) | 5,656 | 1,522 | ||||
| Other current liabilities | (22) | 57,232 | 56,365 | ||||
| Total current liabilities | 104,913 | 98,763 | |||||
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 237,803 | 229,366 |
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
STATEMENT OF CASH FLOWS JAN 1–DEC 31, 2020
| EUR 1,000 | Consolidated, IFRS 2020 | Consolidated, IFRS 2019 | EUR 1,000 | Consolidated, IFRS 2020 | Consolidated, IFRS 2019 |
|---|---|---|---|---|---|
| Cash flow from operations | Cash flow from investments | ||||
| Result for the financial year | 12,875 | 3,365 | Investments in intangible and tangible assets | -8,139 | -8,634 |
| Adjustments | Proceeds from sale of intangible and tangible assets | 238 | 123 | ||
| Depreciation and amortization | 16,020 | 23,988 | Other investments | 6 | -8 |
| Profit / loss on sale of fixed assets | 58 | 57 | Acquisition of subsidiaries, net of cash acquired | -3,681 | |
| Other adjustments | 1,783 | -5,626 | |||
| Financial income and expenses | 3,224 | 2,913 | |||
| Income taxes | 3,581 | 882 | Cash flow from investments | -11,575 | -8,519 |
| Cash flow from operations before change in working capital | 37,542 | 25,579 | Cash flow from financing activities | ||
| Change in net working capital | Proceeds from interest-bearing liabilities | 10,000 | |||
| Current receivables, increase (-), decrease (+) | 6,164 | -1,531 | Repayments of interest-bearing liabilities | -11,000 | -6,000 |
| Inventories, increase (-), decrease (+) | 33 | 288 | Repayments of lease liabilities | -7,251 | -6,457 |
| Non-interest bearing debt, increase (+), decrease (-) | 5,069 | -5,353 | Cash flow from financing activities | -8,251 | -12,457 |
| Provisions, increase (+), decrease (-) | -500 | Change in cash | 26,854 | -2,485 | |
| Cash flow from operations before financial items and taxes | 48,307 | 18,982 | Cash and bank at the beginning of the period | 25,427 | 27,806 |
| Interest expenses paid | -536 | -636 | Effects of exchange rate changes | -902 | 107 |
| Interest income received | -4 | 70 | |||
| Other financial income and expenses | -1,017 | -930 | |||
| Income taxes paid | -70 | 1,005 | |||
| Cash flow from operations | 46,680 | 18,490 |
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Attributable to the equity holders of the parent
| EUR 1,000 | Share capital | Share premium fund | Treasury shares | Translation differences | Unrestricted equity reserve | Retained earnings | Total equity |
|---|---|---|---|---|---|---|---|
| Equity December 31, 2018 | 1,551 | 165 | -2,772 | -1,838 | 6,082 | 63,092 | 66,279 |
| Result of the financial year | 3,365 | 3,365 | |||||
| Translation difference | 5,081 | 5,081 | |||||
| Total comprehensive income for the year | 5,081 | 3,365 | 8,446 | ||||
| Cost of share based payments | 631 | 91 | 709 | 1,431 | |||
| Equity December 31, 2019 | 1,551 | 165 | -2,141 | 3,245 | 6,172 | 67,166 | 76,158 |
| Result of the financial year | 12,875 | 12,875 | |||||
| Translation difference | -7,361 | -7,361 | |||||
| Total comprehensive income for the year | -7,361 | 12,875 | 5,514 | ||||
| Cost of share based payments | 853 | 291 | -486 | 659 | |||
| Equity December 31, 2020 | 1,551 | 165 | -1,288 | -4,116 | 6,464 | 79,554 | 82,330 |
More information in note 17. Shareholders' equity
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Basic information
F-Secure provides cyber security products and services globally for consumers and businesses.
The parent company of the Group is F-Secure Corporation incorporated in Finland and domiciled in Helsinki. Company's registered address is Tammasaarenkatu 7, 00180 Helsinki. A copy of consolidated financial statements can be downloaded on www.f-secure.com or can be received from the parent company's registered address.
These financial statements were authorized for issue by the Board of Directors on 10 February 2021. According to the Finnish Companies Act, the Annual General Meeting can confirm or reject the consolidated financial statements after publication. The Annual General Meeting can also decide to change the financial statements.
ACCOUNTING PRINCIPLES
The consolidated financial statements of F-Secure Corporation of 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS), applying the IAS and IFRS standards as well as SIC and IFRIC interpretations that were in force and had been approved by the EU by 31 December 2020.
Principles of consolidation
The consolidated financial statements incorporate the financial statements of F-Secure Corporation and entities controlled by F-Secure Corporation. Consolidation is done using the acquisition method and begins when control over the subsidiary is obtained. The consolidation stops when the control ceases. The Group does not have any associated companies nor is there any non-controlling interest in the Group.
All intra-group transactions and balances, including unrealized profits arising from intra-group transactions, have been eliminated on consolidation. Where necessary, accounting policies of the
subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group.
Transactions in foreign currency
The consolidated financial statements are presented in euros, which is F-Secure Corporation's functional currency. At each reporting date for the purpose of presenting consolidated financial statements the income statements of foreign Group companies are translated at the average exchange rates for the reporting period and the balance sheets are translated using the European Central Bank's exchange rates prevailing on the reporting date. Translation differences are recognized in shareholders' equity and the change in other comprehensive income.
Foreign currency transactions are translated using the exchange rates prevailing at the dates of the transactions. On the reporting date, assets and liabilities denominated in foreign currencies are translated using the European Central Bank's exchange rates prevailing at that date. Exchange rate gains and losses are recognized in financial items in the income statement.
New and amended IFRS Standards that are effective for 2020
During 2020 there were no changes in the Group's accounting principles.
COVID-19 impacts on financial reporting during 2020
COVID-19 has impacted F-Secure's financial reporting and increased the amount of management judgment related to certain items in the financial statements. Operationally COVID-19 has had biggest impact on the cyber security consulting business, but due to prolonged sales cycles in Managed Detection and Response, also product revenue was impacted.
During second quarter of 2020 management assessed that COVID-19 impacts on consulting can be viewed as an indication of goodwill impairment and, thus, additional impairment testing of Consulting goodwill was carried out. As a result of the testing,
no impairment was detected. Management has continuously monitored any further indications of impairment. Annual impairment testings have been carried out at the end of the year. Testings did not result in impairment bookings.
During second quarter of 2020 management assessed that COVID-19 can impact liquidity of the Group's customers in short and longer term. Expected credit losses according to IFRS 9 were reassessed to include the increased risk caused by the pandemic. Although no significant risks realized during the financial year, prolonging of the pandemic can still impact customer's liquidity and therefore the provision for expected credit losses has been kept at slightly higher level.
COVID-19 impacts on the Group's cyber security consulting business has temporarily impacted profitability in certain locations leading to taxable losses in some of Group's subsidiaries. Management has assessed the capability to utilize the losses against future profits according to IAS 12 and deferred tax assets have been booked accordingly. Impacts of the pandemic on subsidiaries' profitability can be viewed as temporary.
Group's financing agreement includes a committed revolving credit facility (RCF) of EUR 23,000 thousand. In the beginning of the pandemic the management assessed that short term liquidity risk has increased and a withdrawal of EUR 10,000 thousand from the RCF was made to address the risk. As the cash position remained solid throughout the financial year, a repayment of EUR 5,000 thousand to the RCF was made in final quarter of the year.
Management judgment on significant accounting principles and use of estimates
The preparation of consolidated financial statements requires the use of estimates and assumptions as well as the use of judgment when applying accounting principles. These affect the contents of the financial statements and it is possible that actual results may differ from estimates.
Estimates made in connection with the preparation of financial statements are based on management's best knowledge at the
reporting date. Estimates build upon past experience as well as assumptions of the future development of the economic environment of the Group. Revisions in estimates and assumptions are recognized in the period they occur and in future periods if the revision affects both current and future periods.
Key sources where estimation uncertainty arises at the reporting date are: Impairment testing: Recoverable amount of goodwill from acquisitions is based on estimated future cash flows which are subject to management judgment.In addition to goodwill the intangible assets that are not yet ready for use (EUR 7.1 million) are tested annually for impairment. The recoverable amount of these assets is based on estimated future cash flows from sales and/or use of the asset.Deferred tax assets from tax losses: The Group has recognized deferred tax assets from tax losses. Biggest losses are in the UK where the deferred tax asset is EUR 2.9 million and in the US where the deferred tax asset is EUR 0.4 million. The amount of deferred tax assets is based on management estimation about future recoverability of these tax losses.Expected credit losses: Provision for expected credit losses in Group's balance sheet is EUR 2.5 million. Managements has used judgment especially in defining potential impacts of the COVID-19 pandemic on expected credit losses and provision has been adjusted accordingly.
Revenue recognition
Revenue is derived from corporate and consumer businesses. Corporate security business revenue includes cyber security products, managed services, and cyber security consulting. Cyber security products comprise endpoint protection solutions (Protection Service for Business, PSB; Business Suite, Cloud Protection for Salesforce, Cloud Protection for Microsoft Office 365), as well as solutions targeted at detecting and responding to advanced attacks (Rapid Detection and Response, RDR and F‐Secure Countercept) and vulnerability management (F‐Secure Radar and phishd). Consumer security business revenue comes through operator and direct consumer channels, and the main products include F‐Secure SAFE, F‐Secure FREEDOME, F‐Secure SENSE, F‐Secure KEY and F‐Secure ID PROTECTION.
Endpoint protection solutions and vulnerability management products
Endpoint protection security solutions (PSB, Business Suite for corporate and RDR) are sold to corporate customers by granting the customer access to use the intellectual property during the license period or as Security‐as‐a‐Service. F‐Secure delivers the product and provides continuous automated updates against new threats. The software and the accompanied services are highly interdependent and therefore treated as one performance obligation for which revenue is recognized over time on a straight‐line basis for the license period.
Consumer customer products and vulnerability management products for corporate customers (Radar and phishd) are treated as Security‐as‐a‐Service as they do not include a license of intellectual property. Revenue is accounted for as a single performance obligation and recognized over time on a straight‐line basis for the contract period.
When there is a hardware component to the solution (SENSE) the hardware is considered as a distinct performance obligation and revenue for hardware is recognized separately at point in time of delivery.
Cyber security consulting services and managed detection and response solutions
Cyber security consulting services are recognized as revenue based on the delivery of the work. For F‐Secure managed detection and response solution (F‐Secure Countercept) the software and the service are considered as single performance obligation. The customer is granted access to use the intellectual property and the service is provided by F‐Secure continuously throughout the contract period. Revenue for managed services is recognized on a straight‐line basis for the contract period.
Presenting of receivables and liabilities from contracts with customers
Receivables from contracts with customers are presented in the balance sheet as Accrued income. Liabilities from contracts with customers are presented in the balance sheet as Deferred revenue and included in Total non‐current liabilities or Total current liabilities depending on the duration of the liability.
Pensions
All of F‐Secure Group's pension arrangements are in accordance with local statutory requirements, and they are defined contribution plans. Contributions to defined contribution plans are recognized in the income statement in the period to which the contributions relate.
Leases
Leases which meet with IFRS 16 requirements are booked to balance sheet as right‐of‐use asset with corresponding lease liability. Right‐of‐use assets and lease liabilities are initially valued at the present value of the remaining lease payments. Incremental borrowing rate is applied in discounting the remaining payments. F‐Secure's incremental borrowing rate varies between 2.45% and 9.15% depending on the geographical location of the leased asset, lease period and guarantees.
F‐Secure's right‐of‐use assets comprise of rented office premises and leased cars. Short‐term contracts (remaining contract period 12 months or less) and low value assets are excluded from leases and lease expense is recognized on a straight‐line basis as permitted by IFRS 16.
Lease contracts for the Group's office premises are typically made for fixed periods of 3 to 6 years and they may contain extension options. Each office lease contract is negotiated individually and the contracts may contain wide range of different terms and conditions. Some of Group's office premises are leased with on‐going contracts where the ending date is not defined. The management assesses the probable duration for these contracts case‐by‐case and the lease liability is calculated accordingly.
Changes to the estimates are accounted for at each reporting date. Estimated duration for on-going contracts vary between 3 to 5 years and the total liability from on-going contracts is EUR 2.0 million.
In measuring the present value of the liabilities arising from leases any service related fees are excluded from the lease payment. The Group's lease contracts do not contain residual value guarantees or purchase options.
Income taxes
The income tax expense in income statement represents the sum of current taxes and deferred taxes. Current taxes are calculated on the taxable income for all Group companies in accordance with the local tax rules. Deferred taxes, resulting from temporary differences between the financial statement and the income tax basis of assets and liabilities, use the enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available. Deferred tax liabilities are recognized for all temporary differences.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to the same taxation authority and the Group intends to settle the assets and liabilities on a net basis.
Business combinations
Acquisition method is used for accounting the acquisitions of businesses. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group and liabilities incurred by the Group to the former owners of the acquiree. Contingent considerations related to business combinations are measured at fair value at acquisition date and included as part of the consideration transferred. Costs related to the acquisition are recognized in profit and loss statement.
The identifiable assets acquired and the liabilities assumed are recognized at fair value at the acquisition date except for deferred tax assets or liabilities which are measured in accordance with IAS 12 Income taxes. Goodwill is measured as the excess of the transferred consideration over the net amount of the acquired identifiable assets and assumed liabilities.
Changes in fair value of the contingent consideration that do not arise within one year from the acquisition from facts and circumstances that existed at the acquisition date are recognized in profit or loss.
Goodwill
Goodwill is initially recognized and measured in business combinations as set out above. Goodwill is not amortized but is instead tested for impairment at least annually and whenever there is an indication that it may be impaired. For the purpose of impairment testing goodwill has been allocated to cash generating units expected to benefit from the synergies of the combination. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit. If an impairment loss for goodwill is recognized it will not be reversed in the subsequent periods. Goodwill is recorded at historical cost less accumulated impairment losses.
Intangible assets
Research and development expenditure
Research expenditure is recognized as an expense at the time it is incurred. Development expenditure on new products or product versions with significant new features are recognized as intangible assets when they fulfill the requirements set out in IAS 38. Amortization is recorded on a straight-line basis over the estimated useful life, which is 3--8 years for these assets.
Intangible assets acquired in business combinations
Intangible assets acquired in business combinations and recognized separately from goodwill are initially recognized at fair value on the acquisition date. Subsequent to initial recognition these assets are reported at initial value less accumulated amortization and accumulated impairment losses.
Intangible assets acquired in business combinations include technology, trademarks and customer relationships, which all have a finite useful life. Initial valuation for technology and trademarks is done based on Relief from royalty method and for customer relationships based on Excess earnings method. The estimated useful lives for intangible assets acquired in business combinations are:
Other intangible assets
Other intangible assets include intangible rights and software licenses, all with a finite useful life. Other intangible assets are recorded at historical cost less accumulated amortization and possible impairment. Amortization is recorded on a straight-line basis over the estimated useful life of an asset. The estimated useful lives of other intangible assets are as follows:
Tangible assets
Tangible assets are recorded at historical cost less accumulated depreciation and possible impairment. Depreciation is recorded on a straight-line basis over the estimated useful life of an asset. The estimated useful lives of tangible assets are as follows:
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
Other tangible assets include renovation costs of rented office space.
Gains or losses on disposal of tangible assets are shown in other operating income or expense.
Impairment of assets
At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. The recoverable amount of goodwill and intangible assets that are not ready for use are estimated annually for regardless of whether any indication of impairment exists.
Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and the carrying amount is reduced to its recoverable amount. The recoverable amount is the fair value of an asset less costs of disposal or value in use, whichever is higher. An impairment loss is recorded in the income statement.
A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. The maximum reversal of an impairment loss amounts to no more than the carrying amount of the asset if no impairment loss had been recognized, net of depreciation. Impairment losses relating to goodwill cannot be reversed in future periods.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined by first-in first-out method. Net realizable value is the estimated selling price that is obtainable, less estimated costs of completion and the estimated costs necessary to make the sale.
FINANCIAL INSTRUMENTS
Financial assets
Financial assets are originally valued at fair value. Trade receivables are originally valued with transaction price and later with amortized cost reduced by expected credit loss for trade receivable. Trade receivables and other receivables are written off from the balance sheet as the rights to associated cash flows end or become transferred to the counterpart. An expected credit loss is recognized for trade receivables according to IFRS 9. The amount of expected credit loss is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The expected credit loss is estimated using a provision matrix where trade receivables are grouped based on historical credit loss experience and characteristics that depict the credit risk of receivables (e.g. geographical area and days past due).
Financial liabilities
F-Secure classifies loans from financial institutions, trade payables and other payables as other financial liabilities which are measured at amortized cost. Transaction costs, such as arrangement fees, are deferred over the maturity of the liability. Contingent considerations arising from acquisitions are classified as financial liabilities measured at fair value and changes in fair value are accounted through profit and loss. Contingent considerations are measured at fair value at the end of each reporting period. Financial liabilities are classified as current unless F-Secure has unconditional right to postpone their repayment by at least 12 months from the end date of the reporting period.
Derivative financial instruments and hedging
The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency fluctuations. Derivatives are valued at fair value. The fair value of forward currency contracts is calculated based on current forward exchange rates at the reporting date for contracts with similar maturity profiles. The gains and losses arising from the change of fair value are booked through the income statement as the Group does apply hedge accounting.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, the outflow of resources is probable, and a reliable estimate of the amount of the obligation can be made. The amount recognized is a best estimate of the consideration required to settle the obligation at each reporting date. Risks and uncertainties are taken into account when making the estimate.
Treasury shares
Parent company has acquired treasury shares in 2008–2011. The purchase price of the shares has been deducted from equity.
Share-based payment transactions
F-Secure provides incentives to employees in the form of equity-settled share-based instruments. Currently the Company has share-based programs.
F-Secure's share-based incentive programs are targeted to the Group's key personnel. The programs are divided into equity-settled and cash-settled part. The equity-settled part is valued at fair value at grant date, and the expense is recognized evenly in the income statement over the vesting period with the counter-entry in retained earnings. Fair value is determined using the market value of the share of F-Secure Corporation. The cash-settled part is initially valued at fair value at grant date. At each reporting date the cash-settled part is revalued to fair value and the expense is recognized in the income statement over the vesting period with the counter-entry in liabilities. The cumulative expense recognized at grant date is based on the Group's estimate of the number of shares that will ultimately vest at the end of the vesting period. If a person leaves the company before vesting, the reward is forfeited. The Group updates its estimate of the ultimate number of shares at each reporting date. These changes in the estimate are recorded in the income statement.
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
Presentation of expenses
Classification of the functionally presented expenses has been made by presenting direct expenses in their respective functions and by allocating other expenses to operations on the basis of average headcount in each function.
Operating result
IAS 1 Presentation of Financial Statements standard does not define the concept of Earnings before interest and taxes (EBIT). The Group has defined it as follows: EBIT is the net amount, which consists of revenue and other operating income less cost of revenue which is adjusted for changes in inventories, employee benefit costs, depreciation and amortization, possible impairment losses, and other operating expenses.
New standards and interpretations not yet effective
New or amended standards or interpretations are not expected to have an impact on the consolidated financial statements.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
1. SEGMENT INFORMATION
The Group has one segment, data security. Segment reporting is consistent with the internal reporting submitted to the chief operating decision-maker. The Leadership Team has been appointed the chief operating decision-maker, responsible for allocating resources and assessing performance as well as making strategic decisions. For the geographical information revenue is presented based on the location of the customer and the long-term assets based on the location of the assets.
Geographical information
Geographical information about revenue is presented in note 2.
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Long-term assets | ||
| Nordic countries | 31,907 | 30,022 |
| Europe excl. Nordics | 67,063 | 74,918 |
| North America | 902 | 1,512 |
| Rest of world | 34,685 | 37,704 |
| Total | 134,557 | 144,156 |
2. REVENUE
Principles of revenue recognition are stated in accounting principles to consolidated financial statements, section Revenue recognition.
Disaggregation of revenue
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Sales channels | ||
| Revenue from external customers | ||
| Consumer security | 100,106 | 94,844 |
| Corporate security | 120,098 | 122,495 |
| Products | 74,279 | 72,506 |
| Services | 45,819 | 49,987 |
| Total | 220,204 | 217,338 |
Geographical information
| Revenue from external customers | ||
|---|---|---|
| Nordic countries | 70,948 | 72,514 |
| Europe excl. Nordics | 98,893 | 96,180 |
| North America | 23,242 | 19,732 |
| Rest of world | 27,121 | 28,913 |
| Total | 220,204 | 217,338 |
3. OTHER OPERATING INCOME
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Adjustment of contingent consideration from acquisitions | 12,501 | |
| Government grants | 1,896 | 1,149 |
| Rental revenue | 18 | 102 |
| Other | 194 | 297 |
| Total | 2,108 | 14,049 |
Contingent consideration liability from MWR InfoSecurity acquisition was decreased by 12,501 thousand euros 2019 due to not achieving certain agreed business targets.
Government grants are recognized as income over those periods in which the corresponding expenses arise. Due to COVID-19 government grants have increased slightly in certain locations where governments have taken measures to support the local businesses.
Other operating income includes e.g. gain on sale of fixed assets and rent income.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
4. LEASES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Decrease in Cost of Revenue | 197 | 257 |
| Decrease in operating expenses (lease expenses) | 6,628 | 6,349 |
| Increase in right-of-use asset depreciation | -6,536 | -6,332 |
| Increase in EBIT | 288 | 274 |
| Increase in financial expenses | -324 | -340 |
| Profit / Loss for the period | -36 | -66 |
| Short-term leases booked as rent expense | 205 | 466 |
| Right of use assets and liabilities | ||
| Right of use assets | ||
| Buildings | 8,554 | 8,477 |
| Cars | 1,207 | 1,644 |
| Machinery | 143 | |
| Total | 9,761 | 10,264 |
| Lease liabilities | ||
| Buildings | 8,663 | 8,545 |
| Cars | 1,202 | 1,648 |
| Machinery | 135 | |
| Total | 9,865 | 10,329 |
| Repayments of lease liabilities | 7,278 | 6,457 |
Right of use assets related changes are stated in disclosure 13. Non-current assets.
Right of use assets related interest payments are stated in disclosure 8. Financial income and expenses.
Maturity of lease liabilities is stated in disclosure 19. Financial liabilities.
5. DEPRECIATION, AMORTIZATION, AND IMPAIRMENT
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Depreciation and amortization of non-current assets | ||
| Other intangible assets | -1,945 | -3,020 |
| Capitalized development | -4,992 | -5,894 |
| Intangible assets | -6,937 | -8,914 |
| Machinery and equipment | -1,627 | -1,752 |
| Right of use assets | -6,536 | -6,332 |
| Other tangible assets | -659 | -685 |
| Tangible assets | -8,823 | -8,770 |
| Impairment | ||
| Goodwill | -6,001 | |
| Capitalized development | -260 | -304 |
| Total impairment | -260 | -6,304 |
| Total depreciation and amortization | -16,020 | -23,988 |
| Depreciation and amortization by function | ||
| Sales and marketing | -6,138 | -6,580 |
| Research and development | -5,957 | -6,296 |
| Administration | -3,925 | -11,112 |
| Total depreciation and amortization | -16,020 | -23,988 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
- PERSONNEL EXPENSES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Personnel expenses | ||
| Wages and salaries | -103,747 | -104,399 |
| Pension expenses – defined contribution plan | -10,710 | -12,080 |
| Share-based payments | -801 | -2,169 |
| Other social expenses | -8,280 | -9,194 |
| Total | -123,538 | -127,842 |
Employee benefits of the management are stated in disclosure 24. Related party transactions.
Share-based payments are stated in disclosure 18. Share-based payment transactions.
| Average number of personnel | 1,691 | 1,701 |
|---|---|---|
| Personnel by function December 31 | ||
| Consulting and delivery | 476 | 540 |
| Sales and marketing | 480 | 516 |
| Research and development | 535 | 458 |
| Administration | 187 | 182 |
| Total | 1,678 | 1,696 |
- AUDIT FEES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Group auditor | ||
| Audit fees, PricewaterhouseCoopers | -308 | -299 |
| Audit related fees, PricewaterhouseCoopers | -22 | |
| Other consulting, PricewaterhouseCoopers | -38 | -27 |
| Total | -346 | -348 |
PricewaterhouseCoopers Oy has provided non-audit services to entities of F-Secure Group in total 30 thousand euros during the financial year 2020, which are related to other services.
| Other auditors | ||
|---|---|---|
| Audit fees | -58 | -91 |
| Total | -58 | -91 |
- FINANCIAL INCOME AND EXPENSES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Financial income | ||
| Interest income from loans and receivables | -4 | 70 |
| Exchange gains | 2,413 | 1,344 |
| Other financial income | 34 | 10 |
| Total | 2,443 | 1,424 |
| Financial expenses | ||
| Interest expense from loans and liabilities | -536 | -636 |
| Interest expense from lease liabilities | -324 | -340 |
| Exchange losses | -4,458 | -2,140 |
| Other financial expenses | -349 | -1,221 |
| Total | -5,666 | -4,337 |
Other financial expenses in comparative period 2019 include EUR 0.9 million from discounting MWR InfoSecurity deferred consideration to present value.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\leftrightarrow
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
9. INCOME TAX
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Current income tax for the year | -5,911 | -2,200 |
| Adjustments for current tax of prior periods | 267 | 492 |
| Change in deferred tax | 2,063 | 826 |
| Total | -3,581 | -882 |
A reconciliation of income tax expense in the income statement and income tax calculated at the parent company's country of residence income tax rate (20%):
| Result before taxes | 16,457 | 4,247 |
|---|---|---|
| Income tax at Finnish tax rate of 20% | -3,291 | -849 |
| Effect of overseas tax rates | -349 | -474 |
| Effect of changes in tax rates | 49 | |
| Non-deductible expenses/tax-exempt revenue | 19 | 671 |
| Recognised tax losses | -432 | |
| Unrecognised tax losses | -199 | -126 |
| Adjustments for prior period tax | 267 | 536 |
| Other | -27 | -256 |
| Total | -3,581 | -882 |
10. EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of dilutive options.
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Net profit attributable to equity holders from continuing operations | 12,875 | 3,365 |
| Weighted average number of ordinary shares (1,000) | 158,082 | 157,719 |
| Adjusted weighted average number of ordinary shares for diluted earning per share | 158,082 | 157,719 |
| Basic and diluted earnings per share (EUR/share), continuing operations | 0.08 | 0.02 |
The weighted average number of shares take into account the effect of change in treasury shares.
11. ACQUISITIONS
Group hasn't made acquisitions during 2019 or 2020.
12. GOODWILL
For impairment testing goodwill is allocated to cash-generating units (CGUs). The carrying amount of goodwill EUR 81,944 thousand is allocated to two CGUs:
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Consulting | 54,625 | 58,651 |
| MDR | 27,319 | 29,747 |
| 81,944 | 88,398 |
Goodwill is tested for impairment annually, or more frequently if there are indications that goodwill might be impaired. The recoverable amount for each CGU is determined based on a value in use calculation which uses cash flows for the period determined for the CGU. Cash flows are based on financial budgets and forecasts approved by the Board of Directors. For Consulting forecast period of five years is used and for MDR the forecast period covers following seven years during which the business is expected to achieve steady state. Discount rate for Consulting is 9.9% before taxes and for MDR 13.4% before taxes.
Cash flows beyond forecast period have been extrapolated using steady 2% per annum growth rate for both CGUs. Markets where CGUs operate are expected to grow significantly faster than the terminal growth rate used in impairment testing. Managed detection and response (MDR) market is expected to grow at 20% annually and Consulting at 10.4% annually by 2023.
Sensitivity analysis
The Group has prepared a sensitivity analysis of the impairment tests to changes in the key assumptions which are revenue, profitability, and discount rate. Any reasonably possible changes in the key assumptions in impairment tests would not cause the aggregate carrying amounts exceeding the recoverable amounts.
COVID-19 impacts on goodwill
During second quarter of 2020 the management assessed that due to the impacts of COVID-19 pandemic on cyber security consulting business there is indication that Consulting goodwill might be impaired. Additional impairment testing was carried out at the end of second quarter based on updated long-term forecasts approved by the Board of Directors. Testing resulted in no need for impairment but showed decreased sensitivity in the key assumptions. By the end of the year the sensitivity has returned close to December 2019 level. More frequent forecasting to identify any further indications of goodwill impairment in Consulting or MDR has taken place throughout the financial year.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
- NON-CURRENT ASSETS
| EUR 1,000 | INTANGIBLE ASSETS | TANGIBLE ASSETS | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Other intangible | Capitalized development | Goodwill | Advance payments & incomplete development | Total | Machinery & equipment | Right of use assets | Other tangible | Total | |
| Acquisition cost Dec 31, 2018 | 20,874 | 40,514 | 90,677 | 2,145 | 154,210 | 14,622 | 2,964 | 17,586 | |
| Impact of IFRS 16 | 12,774 | 12,774 | |||||||
| Acquisition cost Jan 1, 2019 | 20,874 | 40,514 | 90,677 | 2,145 | 154,210 | 14,622 | 12,774 | 2,964 | 30,360 |
| Translation difference | 338 | 976 | 3,968 | 5,282 | 144 | 151 | 89 | 384 | |
| Additions | 38 | 6,232 | 6,270 | 1,496 | 3,849 | 1,161 | 6,507 | ||
| Transfers | 2,799 | -2,799 | -1 | -1 | |||||
| Disposals | -770 | -6,246 | -7,016 | -1,481 | -48 | -506 | -2,035 | ||
| Acquisition cost Dec 31, 2019 | 20,481 | 44,289 | 88,399 | 5,579 | 158,747 | 14,780 | 16,727 | 3,708 | 35,215 |
| Translation difference | -445 | -1,215 | -6,455 | -8,115 | -310 | -482 | -190 | -982 | |
| Additions | 58 | 5,887 | 5,945 | 1,383 | 6,787 | 155 | 8,325 | ||
| Transfers | 3,967 | -3,967 | 172 | 172 | |||||
| Disposals | 4 | -520 | -517 | -266 | -981 | -75 | -1,322 | ||
| Acquisition cost Dec 31, 2020 | 20,098 | 46,520 | 81,944 | 7,499 | 156,061 | 15,759 | 22,051 | 3,597 | 41,407 |
| Acc. depreciation Jan 1, 2019 | -10,579 | -14,573 | -25,152 | -11,048 | -1,363 | -12,411 | |||
| Translation difference | -67 | -49 | -115 | -79 | -46 | -125 | |||
| Transfers | 1 | 1 | |||||||
| Depreciation for the period | -3,063 | -5,952 | -9,014 | -1,777 | -6,478 | -683 | -8,938 | ||
| Depreciation of disposals | 454 | 454 | 1,364 | 15 | 474 | 1,853 | |||
| Acc. depreciation Dec 31, 2019 | -13,254 | -20,574 | -33,828 | -11,540 | -6,464 | -1,617 | -19,620 | ||
| Translation difference | 189 | 182 | 371 | 196 | 158 | 85 | 439 | ||
| Transfers | -171 | -171 | |||||||
| Depreciation for the period | -1,932 | -4,973 | -6,905 | -1,616 | -6,418 | -647 | -8,681 | ||
| Depreciation of disposals | 1 | 260 | 261 | 208 | 433 | 50 | 692 | ||
| Acc. depreciation Dec 31, 2020 | -14,996 | -25,104 | -40,101 | -12,924 | -12,290 | -2,129 | -27,343 | ||
| Book value as at Dec 31, 2019 | 7,227 | 23,715 | 88,399 | 5,579 | 124,919 | 3,240 | 10,264 | 2,090 | 15,595 |
| Book value as at Dec 31, 2020 | 5,102 | 21,416 | 81,944 | 7,499 | 115,960 | 2,835 | 9,761 | 1,468 | 14,064 |
At the end of 2020 book value of right of use assets consists of buildings EUR 8.6 million (8.5m), cars EUR 1.2 million (1.6m) and machinery EUR 0.0 million (0.1m).
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
- INVENTORIES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Inventories | 74 | 107 |
- FINANCIAL ASSETS
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Cash at bank and in hand | 51,380 | 25,427 |
| Trade receivables | 38,088 | 44,222 |
| Loan receivables | 2 | 15 |
| Financial assets at FVTPL | 61 | 66 |
| Total | 89,531 | 69,730 |
Trade receivables
| Ageing of trade receivables | ||
|---|---|---|
| Not fallen due | 31,877 | 31,382 |
| 1–90 days past due | 7,343 | 9,855 |
| Over 90 days past due | 1,378 | 5,360 |
| Less provision for bad debt | -2,510 | -2,375 |
| Total | 38,088 | 44,222 |
Movements in the provision for impairment of trade receivables
| Book value as at Jan 1 | 2,375 | 2,603 |
|---|---|---|
| Change for the year | 806 | -153 |
| Receivables written off during the year | -670 | -76 |
| Book value as at Dec 31 | 2,510 | 2,375 |
COVID-19 can have an impact on F-Secure's customer's liquidity in short and long term. Although significant risks have not realized during the financial year, management has estimated that impacts may become visible only during longer period as the pandemic prolongs. Thus, expected credit losses under IFRS 9 have been reassessed during the financial year and provision increased slightly to address the increased risk.
Financial assets at FVTPL
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Fair value as at Jan 1 | 66 | 58 |
| Change in fair value | -5 | 8 |
| Fair value as at Dec 31 | 61 | 66 |
| Shares – unlisted | 26 | 26 |
| Funds | 35 | 40 |
| Fair value as at Dec 31 | 61 | 66 |
- OTHER RECEIVABLES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Non-current receivables | ||
| Other receivables | 579 | 573 |
| Current receivables | ||
| Other receivables | 1,250 | 1,614 |
| Prepaid expenses | 7,511 | 7,223 |
| Accrued income | 3,398 | 3,451 |
| Accrued income tax | 1,477 | 3,085 |
| Total | 13,636 | 15,373 |
| Material items included in prepaid expenses | ||
| Prepaid royalty | 2,765 | 2,826 |
| Grant receivables | -395 | -168 |
| Other prepaid expenses | 5,141 | 4,565 |
| Total | 7,511 | 7,223 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
17. SHAREHOLDERS' EQUITY
Issued and fully paid
| EUR 1,000 | Number of shares | Share capital | Share premium fund | Unrestricted equity reserve | Treasury shares |
|---|---|---|---|---|---|
| Dec 31, 2018 | 157,490,295 | 1,551 | 165 | 6,082 | -2,772 |
| Share based payments | 296,700 | 91 | 631 | ||
| Dec 31, 2019 | 157,786,995 | 1,551 | 165 | 6,172 | -2,141 |
| Share based payments | 404,636 | 291 | 853 | ||
| Dec 31, 2020 | 158,191,631 | 1,551 | 165 | 6,464 | -1,288 |
The share capital amounted to 1,551,311 euro and the number of shares was 158,798,739 (including own shares 607,108) at the end of 2020. A share has no nominal value. Accountable par value is EUR 0.01.
Share premium fund
Proceeds from exercised warrants were recognized under the share capital and share premium fund until March 26, 2008.
Unrestricted equity reserve
On March 20, 2007, the shareholders' meeting decided to decrease the share premium fund. The decreased amount of 33,582 thousand euro was transferred to unrestricted equity reserve. On March 26, 2008, the shareholders' meeting decided that the total amount of the subscription prices paid for new shares issued after the date of the meeting, based on stock options under the F-Secure Stock Option Plan 2005, be recorded in Company's unrestricted equity reserve.
Translation differences
The translation difference is used to record exchange difference arising from the translation of the financial statements of foreign subsidiaries.
Dividends proposed and paid
Proposed for approval at AGM for financial year 2020 is 0.04 euro per share. For financial year 2019 company decided to not to pay any dividend. For financial year 2018 company decided to not to pay any dividend.
Treasury shares
Treasury shares contains the purchase value of own shares owned by the Group. The cost of acquisition is reported as a deduction in shareholders' equity. The shares have been acquired through public trading on NASDAQ OMX Helsinki. The parent company has not acquired treasury shares during the period. During the financial year parent company's treasury shares have been used for board remuneration according to Annual General Meeting's decision, for incentive programs and for deferred payment of the 2017 acquisition.
The total number of acquired treasury shares was 607,108 at the end of 2020. This represents 0.4% of the Company's voting power on December 31, 2020.
18. SHARE-BASED PAYMENT TRANSACTIONS
During the period Group has had two incentive plans covering the key personnel of the Group. A matching share plan available for all employees came to an end during the period. During the year a restricted share plan was established as a complementary scheme targeted to individually selected key employees.
Share-based incentive programs
During the period the Group had two share-based incentive program. The share-based incentive programs have been established as part of the key employee incentive and retention system within F-Secure Group. The programs offer for the participants a possibility to receive shares of F-Secure Corporation as an incentive reward if the Company's financial targets set for the earning period have been achieved. No reward can be given to any participating employee, whose employment has terminated before the end of the lock-up period.
The share-based incentive program 2017-2019 has been established in October 2017. The program's duration is five years and it comprises three earning periods. Each earning period lasts for three years. The program ends on December 31, 2021. The rewards will be settled in two phases so that one part is settled as equity-settled payment and one part as cash-settled payment. On the basis of the program maximum total of 10,000,000 shares and a cash payment corresponding to the registration date value of the shares shall be given as reward. The Board approves the metrics, targets and participants on annual basis for each earning period.
A new share-based incentive program 2020-2022 was established in February 2020. The program's duration is five years and it comprises three earning periods. Each earning period lasts for three years. The program ends on December 31, 2024. The rewards will be settled as equity-settled payments. The Board approves the metrics, targets and participants on annual basis for each earning period.
A restricted share plan complementing the incentive programs comprises of three earning periods: 2020-2021, 2021-2022 and 2021-2023. On the basis of earning period for 2020-2021 maximum total of shares to be given is 300,000. Maximum total shares to be given is 500,000 on the basis of earning period for 2021-2022 and 500,000 on the basis of earning period for 2021-2023.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
The participating employee of a share-based incentive program shall be entitled to the shareholder rights of the reward shares (e.g. dividend) from the moment the shares have been entered into the participating employee's book-entry account.
Expense arising from the share-based payment transactions during the period was EUR 801 thousand (EUR 1,826 thousand euros in 2019). The costs of equity-settled transactions are measured by reference to the fair value of the F-Secure Corporation share at the date on which they are granted. Fair value for performance based programs is based on the F-Secure Corporation share price on the grant date. Fair value for market based programs is based on externally accepted valuation methods. The costs of cash-settled transactions are measured by reference to the market price of the F-Secure Corporation share on date of balance sheet. The Group updates the estimate of the number of equity instruments that will ultimately vest at each reporting date.
Matching share plan
During 2018 Group launched a matching share plan which is available to all employees. The first retention period began in February 2018 and the matching share plan was extended in November 2018 with a new retention period. Every participant was eligible to acquire shares worth maximum of 10,000 euros and after first quarter of 2020 F-Secure will give each participant one extra share for each two shares acquired through the plan.
Expense arising from matching share plan was fully booked by the end of 2019. The cost was measured by the fair value of F-Secure Corporation share at the date on which they were granted net of employee's tax obligation.
Impacts of share-based payment transactions on financial statements
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Booked as expense during the period | 801 | 1,826 |
| Booked in retained earnings during the period | 638 | 1,196 |
| Balance sheet liability at the end of the period | 1,412 | 1,670 |
19. FINANCIAL LIABILITIES
Interest-bearing liabilities
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Unsecured liabilities at amortized cost | ||
| Bank loans | 30,000 | 31,000 |
| Lease liabilities | 9,865 | 10,329 |
| Total | 39,865 | 41,329 |
| Total interest-bearing liabilities | 39,865 | 41,329 |
| Amount due for settlement within 12 months | 15,937 | 11,877 |
| Amount due for settlement after 12 months | 23,929 | 29,452 |
| Borrowings by currency | EUR | EUR |
| Bank loans | 30,000 | 31,000 |
| 30,000 | 31,000 |
Bank loan of EUR 37,000 thousand was withdrawn on July 2, 2018. Annual repayments according to the financing agreement are EUR 6,000 thousand. Financing agreement includes a Revolving Credit Facility (RCF) for EUR 23,000 thousand. During 2020 EUR 10,000 thousand withdrawal was made from RCF to address any unexpected liquidity challenges due to COVID-19 pandemic. As the Group's cash position remained solid, a repayment of EUR 5,000 thousand was made on the RCF which is presented in short term liabilities.
The bank loans carry variable interest rates. The weighted average interest rates paid during the year were as follows:
| Bank loans | 1.4% | 1.5% |
|---|---|---|
The financing agreement is subject to conventional loan covenants related to ratio of net debt to EBITDA and equity ratio. Group complied with the covenants throughout the reporting period.
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
Other financial liabilities
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Contingent consideration, current | 3,680 | |
| Total | 3,680 | |
| Contractual maturities of financial liabilities | Less than 1 year | 1 to 2 years |
| --- | --- | --- |
| Bank loans | 11,000 | 6,000 |
| Lease liabilities | 4,937 | 2,599 |
| Total financial liabilities | 15,937 | 8,599 |
Lease liabilities consists mainly of buildings (EUR 8.7 million). Cars are totalling to EUR 1.2 million and the maturity for them is mainly less than 2 years.
20. FINANCIAL ASSETS AND LIABILITIES
Classes and categories of financial assets and liabilities and their fair values
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable:
Level 1: Fair values of financial instruments are based on quoted prices in active markets for identical assets and liabilities
Level 2: Financial instruments are not subject to trading in active and liquid markets. The fair values of financial instruments can be determined based on quoted market prices and deduced valuation.
Level 3: Measurement of financial instruments is not based on verifiable market information, and information on other circumstances affecting the value of the instruments is not available or verifiable.
| Note | Carrying value | Fair value | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Financial assets | Financial liabilities | Total | Hierarchy level | Total | ||||||
| FVTPL | Amortized cost | FVTPL | Amortized cost | 1 | 2 | 3 | ||||
| Cash and bank | 15 | 51,380 | 51,380 | |||||||
| Financial assets at FVTPL | 15 | 61 | 61 | 61 | 61 | |||||
| Bank loans | 19 | 30,000 | 30,000 | 30,000 | 30,000 | |||||
| Trade and other payables | 22 | 4,182 | 4,182 | 4,182 | 4,182 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
General
The goal of risk management is to identify risks that may hinder the Group from achieving its business objectives. The responsibility for the Company's risk management lies with the CEO, the management and ultimately with the Board of Directors. The risks related to the Group's financial instruments are mainly related to credit risks, currency risk and interest rate risk.
Credit risk
The Group trades only with recognized, creditworthy third parties. Receivable balances are monitored and collected on an ongoing basis. The maximum exposure to credit risk at the reporting date is the carrying value of trade receivables. There are no significant concentrations of credit risk within the Group. See note 15. Financial assets.
Liquidity risk
Liquidity risk arises if the Group's existing liquidity reserves, net cash flows and available additional financing are not sufficient to cover commitments falling due within next 12 months. Group manages its liquidity risk by centralizing the management of cash and liquid assets and thereby optimizing the use of liquid funds for operational and refinancing needs. Group Treasury is responsible for monitoring cash balances and cash forecasts to keep liquidity risk at manageable level. The Group has not identified any significant concentrations of liquidity risks in sources of available financing.
Cash and bank balance was at solid level throughout 2020, and at the end of the reporting period the Group held EUR 51.4 million in its bank accounts (EUR 25.4 million euro in 2019). COVID-19 impacted the liquidity risk management during second quarter, and due to unforeseeable uncertainties regarding incoming cash flows the Group withdrew EUR 10 million from its Revolving Credit Facility (RCF) to strengthen short term liquidity. As the pandemic continued and liquidity remained at solid level, a repayment of EUR 5 million was done on the RCF in October. Repayments of the term loan according to the original financing agreement were EUR 6.0 million during 2020.
Foreign currency risk
The Group operates globally and is exposed to a currency risk arising from exchange rate fluctuations against its reporting currency euro. Transaction risk is related to foreign currency transactions in sales and expenses. Translation risk arises from the Group's net investments outside euro zone.
Transaction risk
Majority of sales is invoiced in Euros. Other main currencies for invoicing are GBP, USD and JPY. Currency risk arising from sales invoicing is notably diminished by operational expenses arising in same currencies as the sales invoicing. In order to minimize the impact of the fluctuation of the exchange rates, the Group uses forward currency contracts to eliminate the currency exposure of the estimated cash flow of these currencies. At the end of the reporting period the Group did not have any open currency forward contracts.
| Consolidated 2020 | Consolidated 2019 | |
|---|---|---|
| Sales in different currencies | % | % |
| EUR | 61 | 61 |
| GBP | 12 | 13 |
| USD | 12 | 10 |
| JPY | 7 | 6 |
| SEK | 3 | 3 |
| Other currencies | 5 | 6 |
| 100 | 100 | |
| Derivatives | Consolidated 2020 | Consolidated 2019 |
| --- | --- | --- |
| Currency instruments | ||
| Currency forward contract | ||
| Nominal value | 7,215 | |
| Fair value | -15 |
The carrying Euro amounts of the Group's financial assets and liabilities at the reporting date are as follows:
| Financial assets | Consolidated 2020 | % | Consolidated 2019 | % |
|---|---|---|---|---|
| EUR | 49,737 | 53 | 35,833 | 50 |
| JPY | 12,331 | 13 | 7,864 | 11 |
| GBP | 10,429 | 11 | 8,049 | 11 |
| USD | 9,709 | 10 | 9,640 | 13 |
| Other currencies | 11,601 | 13 | 10,531 | 15 |
| 93,808 | 100 | 71,917 | 100 | |
| Financial liabilities | Consolidated 2020 | % | Consolidated 2019 | % |
| --- | --- | --- | --- | --- |
| EUR | 32,903 | 96 | 40,432 | 82 |
| GBP | 915 | 3 | 5,564 | 11 |
| Other currencies | 552 | 1 | 3,136 | 6 |
| 34,370 | 100 | 49,133 | 100 |
The table below demonstrates how sensitive the Group's profit before taxes is to foreign exchange rate fluctuations when all other variables are held constant. The open exposure against USD, GBP and JPY arising from Group treasury, trade receivables and trade payables have an impact on Group's profit before taxes. In 2019 the contingent consideration from the acquisition of MWR InfoSecurity was also measured in GBP. The sensitivity calculation is based on a change of $10\%$ in the Euro exchange rate against the functional currencies the Group operates in.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
| EUR million | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| USD | +0.5/-0.4 | +/-0.3 |
| GBP | +/-0.1 | +/-0.1 |
| JPY | +/-0.1 | +/-0.1 |
Translation risk
Translation risk arises from the Group's net investments in foreign currencies. Most significant translation risks arise from goodwill generated in MWR InfoSecurity acquisition. Main currencies in goodwill are GBP and ZAR. Translation differences also arise from translating Group companies' balance sheets into euros using exchange rates prevailing on the reporting date. Internal loans are granted mainly in subsidiaries' home currencies. According to current policy F-Secure Corporation does not hedge investments made in its subsidiaries.
The table below demonstrates how sensitive the Group's equity is to foreign exchange rate fluctuations when all other variables are held constant. The sensitivity calculation is based on a change of 10% in the Euro exchange rate against the main functional currencies exposing the Group to translation risk.
| EUR million | Consolidated 2020 |
|---|---|
| GBP | +7.2/-5.9 |
| ZAR | +3.2/-2.6 |
| DKK | +1.0/-0.8 |
Interest rate risk
The Group is exposed to interest rate risk due to the term loan withdrawn in July 2018 to finance the acquisition of MWR InfoSecurity and due to Revolving Credit Facility withdrawn in June 2020 to decrease short-term liquidity risk under pandemic. The loans carry a variable interest rate. To manage the risk of interest rate changes the Group is regularly evaluating the need for hedging. The table below demonstrates the sensitivity of Group's profit before taxes to 1% change in interest rate when all other variables are held constant.
| EUR million | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Interest bearing liabilities, bank loans | +/-0.3 | +/-0.3 |
Capital management
The Group's shareholders' equity is managed as capital. Group's financing agreement has a covenant term related to equity ratio of the Group. The objective of the Group's capital management is to maintain an efficient capital structure that ensures the functioning of business operations, promotes shareholder value and meets with the requirements set in financing agreement. The Group's capital structure is reviewed regularly as a part of financial performance monitoring.
The capital structure can be adjusted among other things by distribution of dividends, share repurchase or capital repayment. The dividend policy of F-secure Corporation is to pay approximately half of its annual profit as dividend. Subject to circumstances, the Company may deviate from its policy.
21. DEFERRED TAX
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Deferred tax assets relate to following: | ||
| Fixed assets | 410 | 510 |
| Accruals and provisions | 4,493 | 3,247 |
| Tax losses carried forward | 3,961 | 2,893 |
| Total | 8,864 | 6,650 |
| Offset against deferred tax liabilities | -4,910 | -3,578 |
| Net deferred tax assets | 3,954 | 3,072 |
| Change in deferred tax assets: | ||
| Recognized in profit or loss | -2,214 | -380 |
| Deferred tax liabilities relate to the following: | ||
| Fixed assets | 3,404 | 4,306 |
| Accruals and provisions | 2,799 | 1,735 |
| Available-for-sale financial assets | ||
| Total | 6,203 | 6,041 |
| Offset against deferred tax assets | -4,910 | -3,578 |
| Net deferred tax liabilities | 1,294 | 2,463 |
| Change in deferred tax liabilities: | ||
| Recognized in profit or loss | -162 | 362 |
At December 31, 2020 the Group had EUR 19.2 million losses carried forward that are available to be offset against future taxable profits in the companies in which the losses have been generated.
COVID-19 has impacted Group's consulting business in multiple countries generating negative taxable income temporarily in some of the subsidiaries. Management has assessed the capability to utilize the losses against future taxable profits according to the principles of IAS 12 and deferred tax asset has been booked if the criteria is met. As the impacts of COVID-19 can be viewed as temporary, the management expects the subsidiaries to return profitable in the near future and thus have the ability to utilize losses carried forward.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
- OTHER LIABILITIES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Non-current liabilities | ||
| Deferred tax liability | 1,294 | 2,463 |
| Deferred revenue | 23,788 | 17,560 |
| Other non-current liability | 1,550 | 1,930 |
| Provisions | 3,041 | |
| Total | 26,631 | 24,994 |
| Current liabilities | ||
| Deferred revenue | 57,232 | 56,365 |
| Trade payables | 4,182 | 4,124 |
| Contingent consideration | 3,680 | |
| Other liabilities | 9,080 | 5,158 |
| Accrued expenses | 12,826 | 16,036 |
| Income tax liabilities | 5,656 | 1,522 |
| Total | 88,976 | 86,885 |
| Material amounts shown under accrued expenses | ||
| Accrued personnel expenses | 9,120 | 8,873 |
| Deferred royalty | 239 | 511 |
| Other accrued expenses | 3,467 | 6,651 |
| Total | 12,826 | 16,036 |
| Provisions | ||
| Book value as at 1.1. | 3,041 | 1,173 |
| Arising during the year | 3,041 | |
| Used during the year | -3,041 | -1,173 |
| Book value as at 31.12. | 0 | 3,041 |
Provision booked in 2019 relates to company restructuring.
- CONTINGENT LIABILITIES
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Other liabilities | ||
| Others | 173 | 146 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
FINANCIAL STATEMENTS F-SECURE CONSOLIDATED
24. RELATED PARTY DISCLOSURES
The Group's related parties include Parent Company and subsidiaries, as well as members of the Board, CEO and members of the Leadership Team.
Compensation of key management personnel of the Group
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| Wages and other short-term employee benefits | 2,473 | 2,562 |
| Share-based payments | 357 | 303 |
| Total | 2,831 | 2,865 |
Wages and other short-term employee benefits
| EUR 1,000 | Consolidated 2020 | Consolidated 2019 |
|---|---|---|
| CEO | 541 | 388 |
| Leadership Team | 2,172 | 2,173 |
| Members of the Boards of Directors | 293 | 255 |
| 3,006 | 2,816 |
Board of Directors 2020 and Managing Director
| EUR 1,000 | Wages | Fees | Share-based payment |
|---|---|---|---|
| Juhani Hintikka, Managing Director (1 Nov 2020–) | 58 | ||
| Samu Konttinen, Managing Director (1 Jan–31 Oct 2020) | 366 | 117 | |
| Risto Siilasmaa, Chairman of the Board | 80 | ||
| Pertti Ervi | 48 | ||
| Päivi Rekonen | 38 | ||
| Bruce Oreck | 38 | ||
| Tuomas Syrjänen | 38 | ||
| Keith Bannister | 38 | ||
| Robert Bearsby | 13 | ||
| Total | 424 | 293 | 117 |
Share-based payments granted to the CEO are presented at the IFRS 2 expense of the share plans. The equity-settled part is measured at the fair value of the F-Secure Corporation share on the date it was granted and cash-settled part at the fair value of the share on the reporting date. The cost is recognized over the period in which the performance conditions are fulfilled (earning period).
The CEO's retirement age and the determination of his pension conform to the standard rules specified by Finland's Employee Pension Act (TYEL). The pension cost of the CEO during the period was 66 thousand euro (67 thousand euro in year 2019). The period of notice for the CEO is six (6) months both ways and CEO is entitled to severance payment equivalent of six (6) months' salary.
- SUBSIDIARIES
| Name | Country of incorporation | Group (%) |
|---|---|---|
| Parent F-Secure Corporation, Helsinki | Finland | |
| DF-Data Oy, Helsinki | Finland | 100 |
| F-Secure Inc., Palo Alto | United States | 100 |
| F-Secure (UK) Ltd, London | United Kingdom | 100 |
| F-Secure KK, Tokyo | Japan | 100 |
| F-Secure GmbH, Munich | Germany | 100 |
| F-Secure eStore GmbH, Munich | Germany | 100 |
| F-Secure SARL, Maisons-Laffitte | France | 100 |
| F-Secure BV, Heverlee-Leuven | Belgium | 100 |
| F-Secure AB, Stockholm | Sweden | 100 |
| F-Secure Srl, Milano | Italy | 100 |
| F-Secure SP z.o.o., Warsaw | Poland | 100 |
| F-Secure Corporation (M) Sdn Bhd, Kuala Lumpur | Malaysia | 100 |
| F-Secure Pvt Ltd, Mumbai | India | 100 |
| F-Secure B.V., Utrecht | The Netherlands | 100 |
| F-Secure Limited, Hong Kong | Hong Kong | 100 |
| F-Secure Pty Limited, Sydney | Australia | 100 |
| F-Secure Iberia SL, Barcelona | Spain | 100 |
| F-Secure do Brasil Tecnol. da Informacao Ltda, Sao Paulo | Brazil | 100 |
| F-Secure Informatica S de RL de CV, Mexico City | Mexico | 100 |
| F-Secure Software (Shanghai) Co Ltd, Shanghai | China | 100 |
| F-Secure Danmark A/S, Copenhagen | Denmark | 100 |
| F-Secure Cyber Security Services Oy, Helsinki | Finland | 100 |
| nSense Estonia OÜ, Tartu | Estonia | 100 |
| F-Secure Norge AS, Baerum | Norway | 100 |
| F-Secure Argentina S.R.L., Buenos Aires | Argentina | 100 |
| F-Secure Digital Assurance Consulting Ltd, London | United Kingdom | 100 |
| F-Secure Cyber Security Limited, Basingstoke | United Kingdom | 100 |
| F-Secure Consulting Pte. Ltd., Singapore | Singapore | 100 |
| F-Secure Cyber Security (Pty) Ltd, Johannesburg | South Africa | 100 |
| F-Secure Cyber Security Inc, Newark | United States | 100 |
| Bytegeist GmbH, Oldenburg | Germany | 100 |
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
INCOME STATEMENT
JAN 1–DEC 31, 2020
| EUR 1,000 | FAS 2020 | FAS 2019 | |
|---|---|---|---|
| REVENUE | (1) | 152,028 | 140,338 |
| Cost of revenue | (4) | -18,745 | -17,642 |
| GROSS MARGIN | 133,284 | 122,697 | |
| Other operating income | (2) | 9,517 | 3,705 |
| Sales and marketing | (3, 4) | -72,321 | -77,530 |
| Research and development | (3, 4) | -39,678 | -36,636 |
| Administration | (3, 4) | -11,181 | -14,068 |
| EBIT | 19,620 | -1,832 | |
| Financial income and expenses | (6) | -2,156 | 7,315 |
| PROFIT (LOSS) BEFORE APPROPRIATIONS AND TAXES | 17,464 | 5,483 | |
| Appropriations | (7) | 2 | 4,464 |
| Income taxes | (8) | -2,655 | -740 |
| RESULT FOR THE FINANCIAL YEAR | 14,810 | 9,207 |
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
BALANCE SHEET DEC 31, 2020
| EUR 1,000 | FAS 2020 | FAS 2019 | |
|---|---|---|---|
| ASSETS | |||
| NON-CURRENT ASSETS | |||
| Intangible assets | (9) | 17,564 | 16,042 |
| Tangible assets | (9) | 1,068 | 1,213 |
| Investments in group companies | (10) | 122,963 | 123,219 |
| Total non-current assets | 141,595 | 140,474 | |
| CURRENT ASSETS | |||
| Inventories | (12) | 74 | 107 |
| Long-term receivables | (13) | 5,330 | 6,609 |
| Short-term receivables | (13) | 46,901 | 53,374 |
| Deferred tax assets | (11) | 3 | 34 |
| Short-term investments | (14) | 26 | 26 |
| Cash and bank accounts | (15) | 35,085 | 13,553 |
| Total current assets | 87,420 | 73,703 | |
| TOTAL ASSETS | 229,015 | 214,177 | |
| EUR 1,000 | FAS 2020 | FAS 2019 | |
| --- | --- | --- | |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| SHAREHOLDERS' EQUITY (16, 17) | |||
| Share capital | 1,551 | 1,551 | |
| Share premium | 165 | 165 | |
| Treasury shares | -1,288 | -2,141 | |
| Reserve for invested unrestricted equity | 6,464 | 6,173 | |
| Retained earnings | 68,811 | 60,405 | |
| Profit for the financial year | 14,810 | 9,207 | |
| Total shareholders' equity | 90,513 | 75,359 | |
| APPROPRIATIONS | |||
| Depreciation reserve | 44 | 46 | |
| LIABILITIES | |||
| Long-term liabilities (19) | 50,911 | 46,949 | |
| Short-term liabilities (19) | 87,546 | 91,822 | |
| Total liabilities | 138,458 | 138,771 | |
| TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES | 229,015 | 214,177 |
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
CASH FLOW STATEMENT JAN 1–DEC 31, 2020
| EUR 1,000 | FAS 2020 | FAS 2019 | EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|---|---|---|
| Cash flow from operations | Cash flow from investments | ||||
| Result for the financial year | 14,810 | 9,207 | Investments in intangible and tangible assets | -6,421 | -6,726 |
| Adjustments | Investments in subsidiary shares | -3,681 | |||
| Depreciation and amortization | 5,044 | 5,837 | Proceeds from sale of intangible and tangible assets | 3 | 27 |
| Profit / loss on sale of fixed assets | -3 | -7 | Intercompany loans granted | -4,329 | -9,424 |
| Other adjustments | -1,597 | 317 | Intercompany loans repayments | 1,446 | 175 |
| Financial income and expenses | 2,156 | -7,315 | Dividends received | 2,938 | 8,321 |
| Income taxes | 2,655 | 740 | Proceeds from subsidiary liquidations | 740 | |
| Adjustments | 8,256 | -429 | |||
| Cash flow from operations before change in working capital | 23,066 | 8,778 | Cash flow from investments | -9,305 | -7,626 |
| Change in net working capital | Cash flow from financing activities | ||||
| Current receivables, increase (-), decrease (+) | 4,757 | 2,935 | Increase in interest-bearing liabilities | 5,000 | |
| Inventories, increase (-), decrease (+) | 33 | 288 | Decrease in interest-bearing liabilities | -6,000 | -6,000 |
| Non-interest bearing debt, increase (+), decrease (-) | 4,086 | -8,921 | Group contributions | 7,000 | |
| Provisions, increase (+), decrease (-) | -500 | Cash flow from financing activities | -1,000 | 1,000 | |
| Cash flow from operations before financial items and taxes | 31,442 | 3,082 | Change in cash | 21,621 | -3,105 |
| Interest expenses paid | -522 | -571 | Effect of exchange rate changes on cash | -88 | -31 |
| Interest income received | 362 | 329 | Cash and bank at the beginning of the period | 13,553 | 16,689 |
| Other financial income and expenses | -289 | -325 | |||
| Income taxes paid | 933 | 1,008 | Cash and bank at period end | 35,085 | 13,553 |
| Cash flow from operations | 31,926 | 3,521 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
FINANCIAL STATEMENTS F-SECURE CORPORATION
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
Basic information
F-Secure provides cyber security products and services globally for consumers and businesses.
F-Secure Corporation is the parent company of F-Secure Group, incorporated in Finland and domiciled in Helsinki. Company's registered address is Tammasaarenkatu 7, 00180 Helsinki. Copy of consolidated financial statements can be downloaded from www.f-secure.com or can be received from the Company's registered address.
ACCOUNTING PRINCIPLES
The financial statement of F-Secure Corporation has been prepared in accordance with Finnish Accounting Standards (FAS).
Foreign currency translation
Foreign currency transactions are translated using the exchange rates prevailing at the dates of the transactions. On the reporting date, assets and liabilities denominated in foreign currencies are translated using the European Central Bank's exchange rates prevailing at that date. Exchange rate gains and losses are recognized in financial items in the income statement.
Revenue recognition
Revenue is derived from corporate and consumer businesses. Corporate security business revenue includes cyber security products, managed services, and cyber security consulting. Cyber security products comprise endpoint protection solutions (Protection Service for Business, PSB; Business Suite, Cloud Protection for Salesforce, Cloud Protection for Microsoft Office 365), as well as solutions targeted at detecting and responding to advanced attacks (Rapid Detection and Response, RDR and F-Secure Countercept) and vulnerability management (F-Secure Radar and phishing). Consumer security business revenue comes through operator and direct consumer channels, and the main products include F-Secure SAFE, F-Secure FREEDOME, F-Secure SENSE, F-Secure KEY and F-Secure ID PROTECTION.
Endpoint protection solutions and vulnerability management products
Endpoint protection security solutions (PSB, Business Suite for corporate and RDR) are sold to corporate customers by granting the customer access to use the intellectual property during the license period or as Security-as-a-Service. F-Secure delivers the product and provides continuous automated updates against new threats. The software and the accompanied services are highly interdependent and therefore treated as one performance obligation for which revenue is recognized over time on a straight-line basis for the license period.
Consumer customer products and vulnerability management products for corporate customers (Radar and phishing) are treated as Security-as-a-Service as they do not include a license of intellectual property. Revenue is accounted for as a single performance obligation and recognized over time on a straight-line basis for the contract period.
When there is a hardware component to the solution (SENSE) the hardware is considered as a distinct performance obligation and revenue for hardware is recognized separately at point in time of delivery.
Cyber security consulting services and managed detection and response solutions
Cyber security consulting services are recognized as revenue based on the delivery of the work. For F-Secure managed detection and response solution (F-Secure Countercept) the software and the service are considered as single performance obligation. The customer is granted access to use the intellectual property and the service is provided by F-Secure continuously throughout the contract period. Revenue for managed services is recognized on a straight-line basis for the contract period.
Pensions
Pension arrangement is a local statutory arrangement, which is a defined contribution plan. Contributions to defined contribution plans are recognized in income statement in the period to which the contributions relate. The Company recognizes the disability commitment of TyEL pension plan when disability appears.
Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term. The Company has only operating leases.
Income taxes
Current income taxes are calculated in accordance with the local tax and accounting rules.
Tangible and intangible assets
Intangible assets include intangible rights and software licenses. Tangible and intangible assets are recorded at historical cost less accumulated depreciation, amortization, and possible impairment. Depreciation and amortization is recorded on a straight-line basis over the estimated useful life of an asset. The estimated useful lives of tangible and intangible assets are as follows:
| Machinery and equipment | 3–8 years |
|---|---|
| Capitalized development costs | 3–8 years |
| Intangible rights | 3–8 years |
| Intangible assets | 5–10 years |
Ordinary repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the assets' carrying amount when it is probable that the Company will derive future economic benefits in excess of the originally assessed standard or performance of the existing asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognized.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
FINANCIAL STATEMENTS F-SECURE CORPORATION
Research and development expenditure
Research expenditure is recognized as an expense at the time it is incurred. Development expenditures are capitalized as intangible assets.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined by first-in first-out method. Net realizable value is the estimated selling price that is obtainable, less estimated costs of completion and the estimated costs necessary to make the sale.
Financial assets and liabilities
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and other highly liquid short-term investments.
F-Secure classifies loans from financial institutions, trade payables and other payables as other financial liabilities which are measured at amortized cost. Financial liabilities are classified as current unless F-Secure has unconditional right to postpone their repayment by at least 12 months from the end date of the reporting period.
Treasury shares
The company has acquired treasury shares in 2008–2011. The purchase price of the shares has been deducted from equity.
Share-based payment transactions
F-Secure provides incentives to employees in the form of equity-settled share-based instruments. Currently the Company has share-based programs.
F-Secure's share-based incentive programs are targeted to the Group's key personnel. The programs are divided into equity-settled and cash-settled part. The cash-settled part is recognized in the income statement over the vesting period with the counter-entry in liabilities. Valuation is initially based on fair value at grant date. On each reporting date the cash-settled part is revalued to fair value and the expense is recognized in the income statement over the vesting period with the counter-entry in liabilities.
Fair value is determined using the market value of the share of F-Secure Corporation. The cumulative expense recognized at grant date is based on the company's estimate of the number of shares that will ultimately vest at the end of the vesting period. F-Secure updates estimated number of shares to be vested at each reporting date. If a person leaves the company before vesting, the reward is forfeited. Equity-settled part is recognized in the equity on vesting date.
Presentation of expenses
Classification of the functionally presented expenses has been made by presenting direct expenses in their respective functions and by allocating other expenses to operations on the basis of average headcount in each function.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←
→
FINANCIAL STATEMENTS F-SECURE CORPORATION
- REVENUE
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Geographical information | ||
| Nordic countries | 52,494 | 50,433 |
| Europe excl. Nordics | 75,256 | 72,219 |
| North America | 13,005 | 9,837 |
| Rest of the world | 11,273 | 7,850 |
| Total | 152,028 | 140,338 |
- OTHER OPERATING INCOME
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Rental revenue | 189 | 242 |
| Government grants | 1,574 | 1,149 |
| Other | 7,755 | 2,314 |
| Total | 9,517 | 3,705 |
Government grants are recognized as income over those periods in which the corresponding expenses arise.
Other operating income includes e.g. gain on sale of fixed assets and rental revenue.
Other operating income includes 1,804 thousand euro profit from liquidation of French subsidiary F-Secure SDC SAS
- DEPRECIATION, AMORTIZATION AND IMPAIRMENT
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Depreciation and amortization of non-current assets | ||
| Other intangible assets | -1,245 | -1,330 |
| Capitalized development | -3,009 | -3,821 |
| Intangible assets | -4,253 | -5,151 |
| Machinery and equipment | -531 | -686 |
| Tangible assets | -531 | -686 |
| Total depreciation | -4,784 | -5,837 |
| Reduction in value from non-current assets | ||
| Capitalized development | -260 | |
| Total reduction in value | -260 | |
| Total depreciation and amortization | -5,044 | -5,837 |
| Depreciation and amortization by function | ||
| Sales and marketing | -696 | -888 |
| Research and development | -3,954 | -4,559 |
| Administration | -394 | -390 |
| Total depreciation and amortization | -5,044 | -5,837 |
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
4. PERSONNEL EXPENSES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Personnel expenses | ||
| Wages and salaries | -40,206 | -42,344 |
| Pension expenses | -6,369 | -7,389 |
| Other social expenses | -1,421 | -1,316 |
| Total | -47,995 | -51,049 |
| Compensation of key management personnel | ||
| Wages and other short-term employee benefits | -2,450 | -2,299 |
| Wages and other short-term employee benefits | ||
| Managing Directors | -541 | -467 |
| Members of the Board of Directors | -293 | -255 |
Wages and other short-term employee benefits of the Board of Directors and Managing Director: see group disclosure 24. Related party disclosures.
The Managing Director's retirement age and the determination of his pension conform to the standard rules specified by Finland's Employee Pension Act (TYEL). The pension cost of the Managing Director over the period was 66 thousand euro (67 thousand euro in year 2019). The period of notice for the Managing Director is six (6) months both ways and Managing Director is entitled to severance payment equivalent of six (6) months' salary.
| FAS 2020 | FAS 2019 | |
|---|---|---|
| Average number of personnel | 627 | 625 |
| Personnel by function Dec 31 | ||
| Consulting and delivery | 68 | 67 |
| Sales and marketing | 156 | 197 |
| Research and development | 338 | 297 |
| Administration | 86 | 73 |
| Total | 648 | 634 |
5. AUDIT FEES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Audit fees, PricewaterhouseCoopers | -147 | -144 |
| Audit related fees, PricewaterhouseCoopers | -14 | |
| Other consulting, PricewaterhouseCoopers | -30 | -27 |
| Total | -177 | -185 |
6. FINANCIAL INCOME AND EXPENSES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Interest income | 362 | 328 |
| Interest expense | -522 | -571 |
| Other financial income | 18 | 2 |
| Dividends | 55 | 8,321 |
| Exchange gains and losses | -1,898 | -564 |
| Other financial expenses | -173 | -201 |
| Total | -2,156 | 7,315 |
7. APPROPRIATIONS
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Change in depreciation reserve | 2 | 464 |
| Group contribution | 4,000 | |
| Total | 2 | 4,464 |
8. INCOME TAXES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Income tax for the year | -2,995 | -1,007 |
| Adjustments for income tax of prior periods | 339 | 267 |
| Total | -2,655 | -740 |
| Result before appropriations and tax | 17,464 | 5,483 |
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
- NON-CURRENT ASSETS
| INTANGIBLE ASSETS | TANGIBLE ASSETS | |||||||
|---|---|---|---|---|---|---|---|---|
| Other intangible | Capitalized development | Incomplete development | Advance payments | Total | Machinery & equipment | Other tangible | Total | |
| Acquisition cost Jan 1, 2019 | 14,111 | 19,840 | 2,145 | 36,095 | 9,788 | 5 | 9,794 | |
| Additions | 88 | 6,232 | 6,320 | 406 | 406 | |||
| Transfers | 2,799 | -2,799 | ||||||
| Disposals | -19 | -19 | -399 | -399 | ||||
| Acquisition cost Dec 31, 2019 | 14,179 | 22,638 | 5,579 | 42,396 | 9,795 | 5 | 9,801 | |
| Additions | 149 | 5,465 | 422 | 6,036 | 385 | 385 | ||
| Transfers | 3,967 | -3,967 | ||||||
| Disposals | -520 | -520 | ||||||
| Acquisition cost Dec 31, 2020 | 14,328 | 26,084 | 7,077 | 422 | 47,911 | 10,180 | 5 | 10,186 |
| Acc. depreciation Jan 1, 2019 | -8,847 | -12,358 | -21,203 | -8,299 | -8,299 | |||
| Depreciation for the period | -1,330 | -3,821 | -5,151 | -686 | -686 | |||
| Acc. depreciation of disposals | 398 | 398 | ||||||
| Acc. depreciation Dec 31, 2019 | -10,177 | -16,179 | -26,354 | -8,587 | -8,587 | |||
| Depreciation for the period | -1,245 | -3,009 | -4,253 | -531 | -531 | |||
| Acc. depreciation of disposals | 260 | 260 | ||||||
| Acc. depreciation Dec 31, 2020 | -11,421 | -18,927 | -30,348 | -9,118 | -9,118 | |||
| Book value as at Dec 31, 2019 | 4,003 | 6,460 | 5,579 | 16,042 | 1,208 | 5 | 1,213 | |
| Book value as at Dec 31, 2020 | 2,907 | 7,158 | 7,077 | 422 | 17,564 | 1,063 | 5 | 1,068 |
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
- INVESTMENTS IN GROUP COMPANIES
| EUR 1,000 | Shares in group companies | Total |
|---|---|---|
| Book value as at Jan 1 | 123,219 | 123,219 |
| Additions | 44 | 44 |
| Decreases | -300 | -300 |
| Book value as at Dec 31 | 122,963 | 122,963 |
Decrease of book value in group companies relates liquidation of F-Secure SDC SAS (France).
| Name | Country of incorporation | Share of ownership (%) |
|---|---|---|
| Parent F-Secure Corporation, Helsinki | Finland | |
| DF-Data Oy, Helsinki | Finland | 100 |
| F-Secure Inc., Palo Alto | United States | 100 |
| F-Secure (UK) Ltd, London | United Kingdom | 100 |
| F-Secure KK, Tokyo | Japan | 100 |
| F-Secure GmbH, Munich | Germany | 100 |
| F-Secure eStore GmbH, Munich | Germany | 100 |
| F-Secure SARL, Maisons-Laffitte | France | 98 |
| F-Secure BV, Heverlee-Leuven | Belgium | 100 |
| F-Secure AB, Stockholm | Sweden | 100 |
| F-Secure Srl, Milano | Italy | 100 |
| F-Secure SP z.o.o., Warsaw | Poland | 100 |
| F-Secure Corporation (M) Sdn Bhd, Kuala Lumpur | Malaysia | 100 |
| F-Secure Pvt Ltd, Mumbai | India | 100 |
| F-Secure B.V., Utrecht | The Netherlands | 100 |
| F-Secure Limited, Hong Kong | Hong Kong | 100 |
| F-Secure Pty Limited, Sydney | Australia | 100 |
| F-Secure Iberia SL, Barcelona | Spain | 100 |
| F-Secure Informática S. de R.L. de C.V, Mexico City | Mexico | 99 |
| F-Secure Danmark A/S, Copenhagen | Denmark | 100 |
| F-Secure Argentina SRL, Buenos Aires | Argentina | 100 |
| F-Secure Digital Assurance Consulting Ltd, London | United Kingdom | 100 |
| F-Secure CyberSecurity Limited, Basingstoke | United Kingdom | 100 |
- DEFERRED TAX
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Deferred tax assets | ||
| Accruals and provisions | 3 | 34 |
| Total | 3 | 34 |
- INVENTORIES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Other inventories | 74 | 107 |
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
- RECEIVABLES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Non-current | ||
| Receivables from group companies | ||
| Loan receivables | 5,330 | 6,609 |
| Total | 5,330 | 6,609 |
| Non-current receivables total | 5,330 | 6,609 |
| Current receivables | ||
| Trade receivables | 21,477 | 26,240 |
| Loan receivables | 0 | 6 |
| Other receivables | 72 | 88 |
| Prepaid expenses and accrued income | 6,398 | 7,523 |
| Total | 27,947 | 33,857 |
| Receivables from group companies | ||
| Trade receivables | 7,940 | 8,613 |
| Loan receivables | 9,507 | 5,345 |
| Other receivables | 1,507 | 5,559 |
| Total | 18,954 | 19,517 |
| Current receivables total | 46,901 | 53,374 |
| Material items included in prepaid expenses and accrued income | ||
| Prepaid royalty | 2,765 | 2,826 |
| Grant receivables | -395 | -169 |
| Other prepaid expenses | 3,486 | 4,396 |
| Accrued income | 542 | 469 |
| Total | 6,398 | 7,523 |
- SHORT-TERM INVESTMENTS
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Fair value as at Jan 1 | 26 | 26 |
| Fair value as at Dec 31 | 26 | 26 |
| Shares – unlisted | 26 | 26 |
| Fair value as at Dec 31 | 26 | 26 |
| Original purchase price as at Dec 31 | 26 | 26 |
- CASH AND SHORT-TERM DEPOSITS
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Cash at bank and in hand | 35,085 | 13,553 |
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←
→
FINANCIAL STATEMENTS F-SECURE CORPORATION
16. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Parent Company FAS
| EUR 1,000 | Share capital | Share premium fund | Treasury shares | Unrestricted equity reserve | Retained earnings | Total equity |
|---|---|---|---|---|---|---|
| Equity Dec 31, 2018 | 1,551 | 165 | -2,772 | 6,082 | 60,405 | 65,428 |
| Result of the financial year | 9,207 | 9,207 | ||||
| Other change | 631 | 91 | 723 | |||
| Equity Dec 31, 2019 | 1,551 | 165 | -2,141 | 6,173 | 69,613 | 75,359 |
| Result of the financial year | 14,810 | 14,810 | ||||
| Cost of share based payments | -801 | -801 | ||||
| Other change | 853 | 291 | 1,144 | |||
| Equity Dec 31, 2020 | 1,551 | 165 | -1,288 | 6,464 | 83,622 | 90,513 |
17. SHAREHOLDERS' EQUITY
The Company's share capital amounted to 1,551,311 euro and the number of shares was 158,798,739 at the end of the year 2020. See group disclosure 17. Shareholders' Equity.
Treasury shares
See group disclosure 17. Shareholders' Equity.
Distributable shareholders' equity on December 31, 2020
EUR 1,000
| Unrestricted equity reserve | 6,464 |
|---|---|
| Retained earnings | 67,524 |
| Result of the financial year | 14,810 |
| Less capitalized development expense | -14,235 |
| Distributable shareholders' equity on December 31, 2020 | 74,563 |
18. SHARE-BASED PAYMENT TRANSACTIONS
See group disclosure 18. Share-based payment transactions.
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
- LIABILITIES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Non-current liabilities | ||
| Deferred revenues | 16,026 | 13,036 |
| Interest bearing liabilities | 19,000 | 25,000 |
| Other liabilities | 1,490 | 2,083 |
| Total | 36,516 | 40,119 |
| Liabilities to the group companies | ||
| Cashpool | 12,744 | 5,245 |
| Other liabilities | 1,651 | 1,586 |
| Total | 14,395 | 6,831 |
| Total non-current liabilities | 50,911 | 46,949 |
| Current liabilities | ||
| Deferred revenues | 39,082 | 40,294 |
| Trade payables | 3,751 | 3,851 |
| Interest bearing liabilities | 11,000 | 6,000 |
| Other liabilities | 2,355 | 5,068 |
| Accrued expenses | 16,770 | 17,744 |
| Total | 72,958 | 72,957 |
| Liabilities to the group companies | ||
| Advance payments | 3,747 | 7,234 |
| Trade payables | 8,918 | 10,791 |
| Other liabilities | 1,924 | 840 |
| Total | 14,589 | 18,865 |
| Total current liabilities | 87,546 | 91,822 |
| Material amounts shown under accruals and deferred income | ||
| Accrued personnel expenses | 11,048 | 11,766 |
| Deferred royalty | 239 | 511 |
| Accrued expenses | 3,143 | 3,054 |
| Accrued tax | 2,339 | 488 |
| Restructuring | 1,925 | |
| Total | 16,770 | 17,744 |
- FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
See Group disclosure 20. Financial assets and liabilities.
- OPERATING LEASE COMMITMENTS
The Group has entered into commercial leases on office space and on motor vehicles. Motor vehicle leases have an average life of three years and office space between two and five years with renewal terms included in the contracts.
Future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:
As lessee
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Within one year | 2,843 | 2,902 |
| After one year but not more than five years | 1,310 | 1,788 |
| Total | 4,153 | 4,690 |
- CONTINGENT LIABILITIES
| EUR 1,000 | FAS 2020 | FAS 2019 |
|---|---|---|
| Guarantees for other group companies | 112 | 112 |
| Other liabilities | ||
| Others | 61 | 34 |
Derivatives see Group disclosure 20. Financial assets and liabilities
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
FINANCIAL STATEMENTS F-SECURE CORPORATION
Signatures of the Board of Directors
Helsinki, February 9, 2021
Risto Siilasmaa
Chairman
Pertti Ervi
TUOMAS SYRJÄNEN
Bruce Oreck
Keith Bannister
Päivi Rekonen
Robert Bearsby
Juhani Hintikka
Managing director
Auditors' note
Our auditors' report has been issued today.
Helsinki, February 9, 2021
PricewaterhouseCoopers Oy
Authorized Public Accountants
Janne Rajalahti
Authorized Public Accountant
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
AUDITOR'S REPORT
AUDITOR'S REPORT
To the Annual General Meeting of F-Secure Oyj
Report on the Audit of the Financial Statements
Opinion
In our opinion
- the consolidated financial statements give a true and fair view of the group's financial position and financial performance and cash flows in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU
- the financial statements give a true and fair view of the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements in Finland and comply with statutory requirements.
Our opinion is consistent with the additional report to the Audit Committee.
What we have audited
We have audited the financial statements of F-Secure Oyj (business identity code 0705579-2) for the year ended 31 December 2020. The financial statements comprise:
- the consolidated statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and notes, including a summary of significant accounting policies
- the parent company's balance sheet, income statement, cash flow statement and notes.
Basis for Opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under good auditing practice are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the parent company and of the group companies in accordance with the ethical requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, the non-audit services that we have provided to the parent company and to the group companies are in accordance with the applicable law and regulations in Finland and we have not provided non-audit services that are prohibited under Article 5(1) of Regulation (EU) No 537/2014. The non-audit services that we have provided are disclosed in note 7 to the Financial Statements.
Our Audit Approach
Overview
- Overall group materiality: €1,100,000, which represents 0.5% of consolidated revenue
- Audit scope: We have audited parent company and we have performed audit procedures related to three most significant subsidiaries. In addition, we have performed group level procedures over specific consolidated accounts and analytical procedures to assess unusual movements across all entities.
- Revenue recognition
- Valuation of goodwill
- Capitalization of R&D costs
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
AUDITOR'S REPORT
Overall group materiality €1,100,000 (previous year €1,100,000)
How we determined it
0.5% of consolidated revenue
Rationale for the materiality benchmark applied
The groups profitability has been volatile during the last years due to business combinations related integration costs and amortization, significant investments in both product development and go-to-market strategy. Therefore, we chose revenue as the benchmark because, in our view, it is the benchmark against which the performance of the Group is commonly measured by users and is a generally accepted benchmark. We chose 0.5% which is within the range of acceptable quantitative materiality thresholds in auditing standards.
How we tailored our group audit scope
We tailored the scope of our audit, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
Group operates globally through several legal entities. Group's sales are mainly generated by the parent company and we have audited the parent company as part of our audit of the consolidated financial statements. In addition, we have performed audit procedures related to the three most significant subsidiaries. We have considered that the remaining subsidiaries don't present a reasonable risk of material misstatement for consolidated financial statements and thus our procedures have been limited to targeted audit procedures over significant balances and to analytical procedures performed at Group level.
By performing the procedures above at legal entities, combined with additional procedures at the Group level, we have obtained sufficient and appropriate evidence regarding the financial information of the Group as a whole to provide a basis for our opinion on the consolidated financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
Key audit matter in the audit of the group
Revenue recognition
Refer to note 2 to the consolidated financial statements for the related disclosures.
Revenue is derived from corporate and consumer businesses. Corporate security business revenue includes cyber security products, managed services, and cyber security consulting. Consumer security business revenue comes through operator and direct consumer channels.
In the corporate and direct consumer businesses, license agreements consist of initial license agreements and periodic maintenance agreements. The software and the accompanied services are highly interdependent and therefore treated as one performance obligation for which revenue is recognized over time on a straight-line basis for the license period. In the operator business, most of the license sales are usage-based and booked based on usage reports, but there are also fixed price operator agreements. The terms of these agreements vary significantly, and their revenue recognition is therefore defined case-by-case.
Service revenue, including cyber security consulting and managed services, is recognized at the time of delivery of the service.
Due to materiality and judgment associated with the timing of revenue recognition we have considered timing of revenue recognition as key audit matter in the audit of the Group.
This matter is a significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014.
How our audit addressed the key audit matter
We evaluated the design and tested the operating effectiveness of certain controls over revenue recognition.
We tested sample of revenue recognized during the year.
We assessed appropriateness of the company's revenue recognition policy and tested sample of revenue agreements to ensure those have been recognized based on contractual terms and based on the company's revenue recognition policy. We have also tested deferred revenue on a sample basis to assess appropriateness of revenue recognition.
In addition, we tested sample of fixed priced agreements.
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
AUDITOR'S REPORT
Key audit matter in the audit of the group
Valuation of goodwill
Refer to note 12 to the consolidated financial statements for the related disclosures.
Goodwill is one of the most significant balance sheet items and amounted € 81,9 million at the balance sheet date. The determination and whether an impairment charge is required involves significant management judgement, including identifying on which cash generating unit level the goodwill is tested and estimating the future performance of the business and the discount rate applied to these future cash flows.
Due to materiality and judgment associated we have considered valuation of goodwill as key audit matter in the audit of the Group.
How our audit addressed the key audit matter
Our audit focused on assessing the appropriateness of management's judgment and estimates used in the goodwill impairment analysis through the following procedures:
We tested the methodology applied in the value in use calculation by comparing it to the requirements of IAS 36, Impairment of Assets, and we tested the mathematical accuracy of calculation;
We evaluated the process by which the future cash flow forecasts are drawn up, including comparing them to the latest Board approved targets and long-term plans
We tested the key underlying assumptions for the cash flow forecasts, including sales and profitability forecasts, discount rate used and the implied growth rates beyond the forecasted period
We compared the current year actual results included in the prior year impairment model to consider whether forecasts included assumptions that, with hindsight, had been optimistic.
We tested whether the sensitivity analysis performed by the management around key assumptions of the cash flow forecast are appropriate by considering the likelihood of the movements of these key assumptions.
Key audit matter in the audit of the group
Capitalization of R&D costs
Refer to note 13 to the consolidated financial statements for the related disclosures.
Company's research and development activities have increased due to focus on the development of new products and product amendments both for corporate and consumer customers.
Capitalization of R&D costs requires use of judgment as capitalization requires estimating technical and economical feasibility of the product developed. In addition, there is judgement involved in assessing recoverability of capitalized R&D costs as future cash flows generated by these intangible assets needs to be estimated.
Due to materiality and judgment associated with capitalization of R&D costs, we have considered capitalization of R&D as key audit matter in the audit of the Group.
How our audit addressed the key audit matter
We assessed appropriateness of the company's R&D capitalization policy.
We evaluated the design and operating effectiveness of controls over R&D capitalization.
We assessed whether capitalization criteria for R&D projects are met.
We tested a sample of invoices and personnel related costs capitalized during the year.
We evaluated the relevant assumptions used in the impairment testing of intangible assets, focusing on the reasonableness of the forecasted economic information.
We tested the accuracy of the management's earlier estimates by performing subsequent review.
We have no key audit matters to report with respect to our audit of the parent company financial statements.
There are no significant risks of material misstatement referred to in Article 10(2c) of Regulation (EU) No 537/2014 with respect to the parent company financial statements.
56
AUDITOR'S REPORT
F-Secure 2020 Board of Directors' Report Financial statements Corporate responsibility Corporate governance $\leftarrow \rightarrow \leftarrow$
Responsibilities of the Board of Directors and the Managing Director for the Financial Statements
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in accordance with the laws and regulations governing the preparation of financial statements in Finland and comply with statutory requirements. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the Managing Director are responsible for assessing the parent company's and the group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting. The financial statements are prepared using the going concern basis of accounting unless there is an intention to liquidate the parent company or the group or to cease operations, or there is no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with good auditing practice will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
-
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the parent company's or the group's internal control.
-
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
-
Conclude on the appropriateness of the Board of Directors' and the Managing Director's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the parent company's or the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the parent company or the group to cease to continue as a going concern.
-
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events so that the financial statements give a true and fair view.
-
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
57
AUDITOR'S REPORT
Other Reporting Requirements
Appointment
We were first appointed as auditors by the annual general meeting on 7 April 2016. Our appointment represents a total period of uninterrupted engagement of five years.
Other Information
The Board of Directors and the Managing Director are responsible for the other information. The other information comprises the report of the Board of Directors and the information included in the Annual Report but does not include the financial statements and our auditor's report thereon. We have obtained the report of the Board of Directors prior to the date of this auditor's report and the Annual Report is expected to be made available to us after that date.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. With respect to the report of the Board of Directors, our responsibility also includes considering whether the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
In our opinion
- the information in the report of the Board of Directors is consistent with the information in the financial statements
- the report of the Board of Directors has been prepared in accordance with the applicable laws and regulations.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Helsinki 9 February 2021
PricewaterhouseCoopers Oy
Authorised Public Accountants
Janne Rajalahti
Authorised Public Accountant (KHT)
58
2020 Board of Directors' Report Financial statements
Corporate responsibility Corporate governance
Statement of corporate responsibility
F-SECURE EXISTS TO BUILD TRUST IN SOCIETY AND TO KEEP PEOPLE AND BUSINESSES SAFE
In the digital and connected world we currently live in, targeted online attacks and cyber crime have the ability to seriously damage global businesses, result in losses of hundreds of millions of Euros, and even cause human suffering.
2020 was not only the year of COVID-19, but also the year of cyber attacks exploiting the pandemic. In addition to costing close to 2 million lives, the COVID-19 Pandemic devastated economies and reshaped how societies and institutions operate, and even how people and companies use technology. While the pandemic was disrupting lives and organizations' operations and remote working became the new normal, cyber criminals moved quickly to capitalize on the fear and confusion it spread with phishing and ransomware attacks.
As a cyber security company, F-Secure secures the world around us. For over 30 years, we have been committed to helping people and businesses fight cyber threats. We believe that by improving our customers' security, resilience, and the sustainability of their digital lives or businesses through our core business and everyday actions we play a vital role in ensuring the functioning of the modern society, and help to maintain trust between people and organizations.
At F-Secure, we want to do what is right. Trust ensures we will succeed in our mission. Trust is earned when action matches words. Everyone working for F-Secure has a critical role in building and maintaining the trust in the eyes of each other and earning the trust of our customers.
F-Secure's Code of Conduct reflects the company's business culture for highest standards of ethical conduct, sets clear expectations on the business conduct and provides guidance for critical risk areas. It guides us on everything we do. The Code of Conduct is available at F-Secure's webpages https://www.f-secure.com/en/investors/governance
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\rightarrow
STATEMENT OF CORPORATE RESPONSIBILITY
F-SECURE'S BUSINESS MODEL AND VALUE CREATION
By combining sophisticated technology with machine learning and human expertise, F-Secure provides a comprehensive offering of security products and cyber security services. For businesses, we offer vulnerability scanning and management solutions, endpoint protection products, detection and response solutions, as well as comprehensive security and risk assessment services for top management, and technical consulting. For consumers, we offer security and privacy solutions for all connected devices. As proven by several independent research institutions, our products and services provide our customers best-in-class security. E.g. F-Secure's Detection and Response solutions achieved excellent scores also in the second round of MITRE ATT&CK evaluation, and the endpoint protection products for consumers and businesses have regularly gotten highest scores in AV-Test's security tests.
We offer our products and services to defend thousands of companies and millions of people around the world through our network of about 200 telecommunication operators and thousands of IT service and retail partners. With our partner-led business model, trust has always been a cornerstone of all our operations.
In our industry, it is critical that appropriate care is taken when handling customer information. Respecting customer privacy is an integral part of our company culture. All F-Secure employees commit to protecting the confidentiality of customer data.
Protecting the digital world, our employees, and sustainable growth
The three focus areas for F-Secure's corporate responsibility are:
WE VALUE OUR EMPLOYEES
Securing the right competencies and constant development
Ensuring equality, equal opportunity and diversity
Ensuring the wellbeing of employees
WE SECURE TRUST IN DIGITALITY
Protecting people against cyber threats and supporting the fight against online crime
Taking action to enhance cybersecurity in society
Protecting personal data
WE RESPECT THE PLANET
Reducing energy consumption from IT operations
Reducing energy consumption and waste in our offices
Travelling sensibly
We have always put a strong emphasis on shared core values: integrity, commitment, and excellence. These values are also driving our Corporate Responsibility and its three focus areas. We are committed to continuously improving the wellbeing of our employees, decreasing our carbon footprint through energy efficiency and other sustainable practices, and ensuring technology is not turned against the society.
There are specific F-Secure guidelines and policies for each area. The foundation of all activities is our Code of Conduct; it guides everything we do, and reflects the company's culture for highest standards of ethical conduct. F-Secure suppliers and partners are also expected to act responsibly and comply with the principles set in the Code of Conduct.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
STATEMENT OF CORPORATE RESPONSIBILITY
SOCIAL RESPONSIBILITY AND TREATMENT OF EMPLOYEES:
We value our employees
Focus area key aspects
Securing the right competencies and constant development
Ensuring equality, equal opportunity and diversity
Ensuring the wellbeing of employees
F-Secure employs ca. 1,700 security experts, product developers, sales & marketing professionals and other experts globally. We recruit the best minds in the industry while focusing relentlessly on growing the next generation of cyber security professionals. Consultants, developers, engineers, researchers, specialists and everyone who shares our values is welcome to F-Secure. Our experts strive to disrupt the industry every day. Their research-led approach, victories in hacking contests, and key notes at conferences win respect around the globe. This gives us our edge over the competition and, more importantly, attackers.
F-Secure emphasizes the importance of fellowship and shared values. We strive to ensure employee wellbeing, a healthy work-life balance, and equality and equal opportunities for our people. In our rapidly evolving industry, the company must also be prepared to help its employees to continuously learn new skills.
People Operations & Culture team is responsible for developing people management processes, tools, and ways of working. To measure success, the company conducts a Fellow Survey, including an Employee Net Promoter Score (eNPS), among staff to measure employee loyalty, productivity and wellbeing biannually. The company's Leadership Team is responsible for following up on the results of the Fellow survey and ensuring corrective action plans are developed.
2020:
During the first half of 2020, F-Secure's overall Employee Net Promoter Score (eNPS) developed very positively (33). The Covid-19 pandemic had accelerated the adoption of several 2020 Future of Work initiatives related to more flexible working.
Key performance indicator for overall employee wellbeing
Employee Net Promoter Score
1) Key performance indicator of overall wellbeing. The Employee Net Promoter Score (eNPS) measures employee satisfaction by asking people how likely it is that they would recommend F-Secure as an employer. The score is derived by deducting the share of employees giving low scores (0 to 6, "detractors") from the share of employees giving high scores (9 to 10, "promoters"). Scores from 7 to 8 are considered neutral.
Securing the right competencies and continuous development
We constantly strive to attract candidates and retain fellows with the right skills and competences and enable professional development through on-the-job learning. We aim to create the best possible environment for our employees to thrive in regardless of whether they work at the office or remotely.
Successful talent acquisition is crucial for F-Secure's business. Our aim is to ensure that we hire the best professionals whose skills and competences that are in line with F-Secure's business objectives, culture and values. Our globally operating recruitment team guides managers to ensure consistency and equal treatment of candidates, as well as to always provide candidates a positive experience when applying for a job.
After recruitment, the responsibility for competence development lies both with the individual employees and their line managers, as well as with the management team of the employee's unit. Our
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\rightarrow
61
STATEMENT OF CORPORATE RESPONSIBILITY
internal development and training guidelines address the roles and responsibilities as well as practices related to learning and personal development.
F-Secure has a number of global and local learning and development programs available for both managers and employees including:
- Leadership and managerial work development modules
- Network mentoring and internal mentoring programs
- Cyber security competence development
- Education and development programs for sales
- Country specific Graduate programs
- Site-specific coaching and supporting services
2020:
Despite the challenges posed by the COVID-19 pandemic, F-Secure's Leading Performance reform has progressed as expected. The target of the process is to enable rolling objective setting and continuous feedback to create a high performance culture.
The 2020 annual voluntary attrition rate across F-Secure was 11.8%, which is on industry level both for consulting and technology companies. (13%).
Voluntary attrition rate
1) Voluntary attrition = Number of voluntary leavers over the period/average headcount over the period. In 2020, end of e.g. fixed-term contracts previously reported in "Voluntary" category were moved to a new category "Other"
Ensuring equality, equal opportunity and diversity
Treating every employee fairly and with respect is a fundamental part of the F-Secure company culture. Everyone is valued, supported and encouraged to participate. We embrace individuality and value characteristics that make people unique, without bias towards nationality, gender, age differences, sexual orientation or disabilities.
F-Secure is a very diverse workplace. We employed 74 different nationalities by the end of 2020, a significant part of which are also represented at the company headquarters.
We know that diverse mix of backgrounds, expertise and genders contribute to a more open working atmosphere, better discussion and decision making. We assess individuals based on competence, skills and achievements. Equality, non-discrimination and fairness are key principles in recruitment, compensation and advancement at F-Secure.
In South Africa's Broad-Based Black Economic Empowerment program (BBBEE), F-Secure is partnering with Masibambisane Empowerment Trust, and focusing on development projects with the Rays of Hope graduate programs on cyber and technical skills. To support gender equality in our industry, we support and promote initiatives to encourage women to pursue a career in technology and cyber security.
Share of women, of total employees
Share of women, of managers 1)
1) Including all line managers
2020:
At the end of 2020, the total headcount had decreased with 18 employees (1%) compared to year end 2019. The share and number of both female managers and female employees continued their increase; at the end of 2020, 24% of F-Secure's total workforce and 24% of managers were female.
A new global Diversity & Inclusion role was established at F-Secure, initially focusing on mapping the current situation and building a roadmap to ensure the right D&I principles are in place and aligned with F-Secure company culture.
F-Secure took part in the Plan International's global Girls Takeover campaign as one of the eight invited institutions and companies from Finland whose work can help promote equality in technology. The 2020 campaign highlighted the impact of technology on the position and future of girls.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\rightarrow
62
STATEMENT OF CORPORATE RESPONSIBILITY
Ensuring the wellbeing of employees
We want to ensure the wellbeing of each employee and aim to continuously improve our culture where all our employees can work to their full potential, both in mind and body.
- In most countries we provide at least basic health care services to employees, but practices vary locally depending on the market practices. In certain regions, employees are provided with additional sports benefits, and extended health care services according to local practices. Also, in some locations there are additional benefits such as the possibility for massage or for arranging a caretaker for a sick child.
- In ensuring the wellbeing of employees, F-Secure emphasizes the importance of good leadership in addition to a preventative approach to health care. F-Secure supports flexible working hours and the possibility of working remotely, and offer voluntary wellbeing lectures and training for both employees and managers.
2020:
The COVID-19 pandemic had a big impact on how we work at F-Secure. The whole company quickly transitioned to remote working in March 2020. To reduce the physical burden of working from home, ergonomic guidance was provided and employees were able to take their work equipment, such as monitors, to their home offices.
A special employee wellbeing survey to map the effect on Covid-19 and remote work was conducted in May 2020. 84% of respondents stated their productivity had stayed the same or increased while working remotely, and 66% responded their stress levels had either stayed the same or decreased. Long term remote working can also cause wellbeing related problems. In 2020 we organized webinar series around wellbeing at work, and will keep monitoring the effects of long term remote working on our employees regularly.
F-Secure closely monitors employee sick leaves. In case of longer sick leaves, the company supports employees, and assists them in returning back to work.
2020:
The relative sick leave percentage* (3%) was about the same as in 2019 and on an industry average in Finland. Number of short sick leaves decreased dramatically: 1–3 days by 26% and 4–10 days by around 30%. The number of long, unpaid sick leaves increased significantly, but the reasons for leaves varied. Focused actions have subsequently been taken to actively support both physical and mental employee wellbeing.
- Sick leave percentage is the average amount of sick days per employee. The figure includes personnel in Finland only, which represents 41% of total employees.
2020:
Wellbeing from helping others. F-Secure has traditionally supported local societies with various charity initiatives. In addition to annual donations, in 2020 we launched a global initiative where all F-Secure employees were given the opportunity to help others and spend up to one working day in a selected charity.
Focus area key policies and guidelines
- Code of conduct
- Recruitment Policy
- Leading performance framework
- Development and training guidelines
- Equality plan
- Harassment prevention policy
Protecting people's security and privacy with integrity
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
STATEMENT OF CORPORATE RESPONSIBILITY
←
PROTECTING HUMAN RIGHTS AND SUPPORTING THE FIGHT AGAINST ONLINE CRIME:
Securing trust in digitality
Key aspects
- Protecting people against cyber threats and supporting the fight against online crime
- Taking action to enhance cyber security in society
- Protecting personal data
Humanity is faced with unprecedented challenges. To solve the root causes of these challenges radical technological innovation is needed. F-Secure has driven innovations in cyber security for over three decades. We secure thousands of businesses, and millions of people wake up every day knowing they can rely on our high standards and uncompromised integrity. The world's top financial institutions count on us to battle cyber-attacks. We secure factories, power grids, and vital telecommunication infrastructure.
Our sophisticated technology combines the power of machine learning with the human expertise of our world-renowned security labs. From decades of experience stopping advanced cyber-attacks, we've developed a passion for taking on the world's most potent cyber threats. This teaches us how attackers defeat defenders. With these insights, we've pioneered threat hunting and been at the forefront of the movement away from traditional forensics to continuous real-time response.
Protecting people and businesses from cyber attacks
Cyber criminals never let a global crisis go to waste. Every world event is the perfect storm when trying to create a context to trap user with the purpose of extortion or theft. COVID-19 was no exception with so many countries impacted and so much information being produced on the subject while companies were challenged to rapidly and securely enable remote work for as many employees as possible. During 2020 we witnessed COVID-19 related phishing scams, elaborate ransomware campaigns against major corporations, increased attacks against cloud infrastructure and attacks targeting COVID-19 vaccine research.
During the lockdown period in spring we also saw an increase in stalkerware, a worrying trend we want to combat. Therefore, we joined the "Coalition against Stalkerware" where we provide insights and malware analysis to advocacy groups, software developers, security firms, media and victims working to eliminate this new threat. We also provided free threat intelligence to help authorities and the healthcare sector fighting cyber attacks and
offered journalists during World Press Freedom Day free F-Secure FREEDOME VPN licenses to support the freedom of the press.
F-Secure Labs invests yearly thousands of man-days to provide free research and tools to improve products' security and businesses cyber resilience. Our research led to e.g. Microsoft implementing detection controls in Azure in direct response to a tool we published, the UK Government awarded us a research grant for autonomous vehicle security and we were invited to participate in several industry forums as well as collaborating with national authorities.
Protecting people's security and privacy with integrity
F-Secure applies strict security measures to protect the personal data of the users of our solutions. We seek to protect our users' privacy, not to sell it. All F-Secure products and services are produced independent of governmental direction.
We recognize that there is an imbalance between the defenders of fair practices and human rights, and online criminality and the offensive capabilities of nation state threat actors. To level the playing field, F-Secure refuses to introduce backdoors in our products and will detect malware no matter what the source is.
In 2020, both the first court and court of appeal in Finland made a ruling in favor of F-Secure regarding how the police can request FREEDOME data from F-Secure. Both court instances confirmed our interpretation of the law; F-Secure has helped and will continue helping law enforcement to fight against serious crimes, but will request police authorities to follow the legal way through a court warrant to obtain data. We want to protect our customers' right for privacy and protect them against illegal surveillance and are committed to our law-abiding customers – whether normal citizens, human rights activists or investigative journalists.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\leftrightarrow
STATEMENT OF CORPORATE RESPONSIBILITY
Operating with highest ethical standards
F-Secure exists to build trust in society and to keep people and businesses safe. Trust is earned only when action matches words. We offer our products and services to defend thousands of companies and millions of people around the world through our network of around 200 telecommunication operators and thousands of IT service and retail partners. With our partner-led business model, trust has always been a cornerstone of all our operations.
F-Secure works responsibly with malware and offensive techniques:
- Clear criteria for categorizing threats and classifying potential unwanted applications.
- Strict rules for handling and analyzing malicious content.
- Cooperation with authorities to ensure the safety of the general public, assisting investigations into online crime that bring criminals into justice.
- Security assessments are conducted only with customers' permission and within agreed scope.
- In our work, we may create offensive code, but only do so with the intention to secure and benefit our customers and digital safety of the society.
- Coordinated vulnerability disclosure policy and a vulnerability reward program.
Everyone at F-Secure must apply the highest standards of ethical conduct.
- We do not make or accept any bribes or other improper payments.
- We never engage in fraudulent practices.
- We do not give or accept gifts or hospitality over the appropriate limits.
- We do not endorse or provide financial support to individual political parties.
- When conducting business with any governmental body, we carefully abide by all applicable regulations and ethical standards.
- We do not tolerate any form of bribery, corruption or fraudulent practices by our partners or any parties acting on our behalf.
The Code of Conduct guides everyone at F-Secure to ethical conduct. We have also issued a specific Anti-Bribery Policy that applies to all employees. It defines the rules to be applied related to gifts, hospitality, travelling and accommodation, specific terms concerning governmental officials, as well as the process for escalation as needed. Ethical business practices are also emphasized in contracts and the company engages in continuing dialogue with relevant stakeholders.
2020:
F-Secure published a statement based on the UK Modern Slavery Act, setting a clear signal against slavery and servitude, forced or compulsory labor and human trafficking in its value chain.
Focus area key policies and guideline include:
Code of conduct
Cyber Security Principles
Risk Management Principles
Lifecycle security Policy
Personal data policy
Vulnerability Reward Program
Export Control Policy
Anti-Bribery policy
Modern Slavery Statement
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\leftrightarrow
65
STATEMENT OF CORPORATE RESPONSIBILITY
ENVIRONMENTAL MATTERS:
Respect for the planet
Key aspects:
- Reducing energy consumption from IT operations
- Reducing energy consumption and waste in our offices
- Travelling sensibly
F-Secure acknowledges climate change and other environmental impacts are both global as well as local concerns, and strive to minimize our environmental footprint. We are committed to working in an environmentally responsible and efficient manner, and expect our partners and suppliers to do the same.
As stated in the F-Secure Code of Conduct, our approach to environmental challenges emphasizes the importance of precaution.
- We aim to continuously increase the energy efficiency of the company as well as to reduce the amount of waste and emissions produced by our operations.
- We encourage the use of environmentally friendly technologies, tools and services in the research and development of our products and services.
- We aim to reduce the environmental impact of our global operations by connecting people from different locations through technology and choosing environmentally friendly means of travelling.
- We provide local guidelines and support for employees to move from private cars to public transportation and bicycles for their commute.
As F-Secure's business activities involve the development, production and delivery of software and professional services, our environmental footprint derives primarily from the use of electricity for office activities as well as the use of electricity from IT operations.
To evaluate our success in limiting our environmental impact, F-Secure conducts an annual energy review to estimate our total direct consumption of electricity at company level.
Reducing the energy consumption of IT operations
F-Secure uses both private servers and third-party cloud platforms to develop and run its services. With third-party cloud platforms, F-Secure mainly partners with Amazon Web Services (AWS) as well as Microsoft Azure.
The transition to third-party provided servers increased the company's overall energy efficiency and lower total consumption, as third-party providers are running the more energy-efficient servers. Consumption data for these is not available, as electricity costs are part of the overall service contract. Our main service partners Microsoft Azure and AWS have publicly committed to reducing their carbon footprints; both are committed to operating in the most environmentally friendly way possible, and estimate achieving 100% renewable energy usage in 2025.
In co-location facilities, we are able to directly measure our electricity consumption on a monthly basis. F-Secure utilizes server hardware with good energy efficiency (Energy Star), and some of the server facilities were already operating on 100% renewable energy in 2020. In 2020, the energy consumption of our servers in Finland dropped by 27% compared to 2019.
2020:
F-Secure continued outsourcing the company's server activity globally as planned, further decreasing the company's energy consumption compared to using its own servers. By the end of the year, the outsourcing was at 80% of the target level.
Reducing energy consumption and waste in our offices
F-Secure has offices in 25 locations globally. The majority of operations are concentrated in Helsinki in Finland, London in the UK, Kuala Lumpur in Malaysia, Poznan in Poland and Johannesburg in South Africa.
The company rents office facilities from local real estate providers. Typically a lease agreement includes service charges for electricity and heating, as well as handling of a limited amount of waste generated by office activities. All waste is primarily recycled according to local practices. Hazardous waste consists solely of batteries, which are disposed of at suitable recycling points. Electronic waste is recycled carefully and, as appropriate, with careful attention to ensuring that confidential waste is
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
STATEMENT OF CORPORATE RESPONSIBILITY
specifically managed. Confidential paper waste is also managed with special care.
2020:
F-Secure continued to roll out the environmental impact improvement program. In 2020, the annual office energy consumption decreased by 33%, one contributing factor being the increase in remote working.
Electricity consumption, MWh
- Co-location servers 1)
- Offices 2)
1) The electricity consumption includes F-Secure servers in Finland
2) The electricity consumption includes vast majority of F-Secure's offices globally. Increase in electricity consumption in 2019 was due to the fact that for the fiscal year 2019 all acquisition related offices from MWR InfoSecurity were been fully taken into account, whereas in 2018 due to the timing of the acquisition, consumption of these premises was included only for H2-2018.
Travelling sensibly
F-Secure's Travel policy aims to reduce the environmental impact of travelling, and minimizing energy consumption and emissions by choosing environmentally friendly means of travelling. The policy requires a pre-approval of employee travels, and encourages employees to use online conferencing tools when collaborating with our internal and external stakeholders. CO2 emissions from work related travelling are tracked across all European offices, covering a clear majority of the company's employees. We aim to include data from more offices as it becomes available, and look into for carbon compensation options with selected airlines in 2021.
2020:
F-Secure reacted swiftly to the COVID-19 pandemic and shifted to remote working in March 2020. Virtually all travel was also suspended. This had an immediate effect on emissions for 2020, which dropped to 413,598 Carbon CO2e (DEFRA) (kg/unit), a quarter of the 2019 level.
Focus area key policies and guidelines
- Code of conduct
- Travel policy
- Recycling policy
- Environmental friendly, country specific transportation policies
Helsinki, 9 February 2021
F-Secure Corporation
Board of Directors
Risto Siilasmaa
Pertti Ervi
Bruce Oreck
Päivi Rekonen
Tuomas Syrjänen
Keith Bannister
Robert Bearsby
President and CEO
Juhani Hintikka
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
CORPORATE GOVERNANCE
F-SECURE'S CORPORATE GOVERNANCE STATEMENT 2020
Corporate Governance at F-Secure
F-Secure's corporate governance practices are based on applicable Finnish laws, the rules of Helsinki Stock Exchange (NASDAQ Helsinki Oy) and the regulations and guidelines of Finnish Financial Supervisory Authority as well as with the company's Articles of Association. This statement has been prepared in accordance with the Finnish Corporate Governance Code 2020 (publicly available at http://cgfinland.fi/en/) issued by the Securities Market Association of Finland.
Up-to-date information about F-Secure's governance is available on the company's website at https://www.f-secure.com/en/investors.
Governing bodies
F-Secure's highest decision-making body is the General Meeting of Shareholders which elects the members of the Board of Directors. The Board of Directors is responsible for the administration of F-Secure Corporation and appropriate organization of its operations. The Board of Directors appoints the CEO. The CEO, assisted by the Leadership Team, is responsible for managing the company's business and implementing its strategic and operational targets.
General Meeting of Shareholders
Under the Limited Liability Companies Act, shareholders exercise their decision-making power at the General Meeting.
The General Meeting is normally held once a year as an Annual General Meeting (AGM). The AGM decides on matters stipulated by the Articles of Association and the Limited Liability Companies Act, including:
- adoption of the Financial Statements
- distribution of profit for the year
- discharging the members of the Board of Directors and the CEO from liability
- selection of members of the Board the decision on the remuneration of the Board members
- approval of the Remuneration Policy and the Remuneration Report
- election of the auditor and the decision on the auditor's remuneration, and
- other proposals submitted to General Meeting
Each share carries one vote in the General Meeting.
A shareholder may propose items to be included on the agenda provided they are within the authority of the meeting, and the Board of Directors has received the request in advance in accordance with the set schedule. The invitation to the AGM is
published as a stock exchange release and is made available on the company's website.
2020:
The AGM was held on 12 May 2020 in the company's headquarters in Helsinki.
The resolutions and the meeting minutes of the AGM are available on F-Secure's website.
Board of Directors
The Board of Directors is responsible for the administration of F-Secure Corporation and appropriate organization of its operations. The Board's operations, responsibilities and duties are based on the Finnish Companies Act and other applicable legislation and are supplemented by the Board Charter. These cover the following main areas:
- approving the strategy of F-Secure, overseeing its operations and annual budgets
- appointing and dismissing the CEO
- approving any major investments, acquisitions, changes in corporate structure or other matters that are significant or far-reaching
- ensuring that the supervision of the company's accounting and financial management is duly organized
- ensuring that internal control and risk management systems are in place
- approving personnel policies and rewards systems
- preparing matters to be handled at the General Meeting
The Board of Directors meets as frequently as necessary and according to the Board Charter at least five times during its term. The Board of Directors has quorum when more than half of the members are present. An annual self-assessment is carried out by the Board to evaluate its operations. The Board of Directors primarily strives at unanimous decisions. If a decision cannot be made unanimously, the decision will be made by voting and
External control
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
CORPORATE GOVERNANCE
Members of the Board of Directors and the Committees
| Members | Independence of the company | Independence of major shareholders | Board (Meeting attendance) | Audit Committee (Meeting attendance) | Personnel Committee (Meeting attendance) |
|---|---|---|---|---|---|
| Risto Siilasmaa | Yes | No^{1)} | Chairman (15/15) | Chairman/Member^{3)} (4/4) | |
| Pertti Ervi | Yes | Yes | Member (15/15) | Chairman (5/5) | |
| Bruce Oreck | Yes | Yes | Member (14/15) | Member (3/4) | |
| Päivi Rekonen | Yes | Yes | Member (15/15) | Member (2/2)^{4)} | Chair/Member^{3)} (4/4) |
| Tuomas Syrjänen | Yes | Yes | Member (14/15) | Member (4/5) | |
| Keith Bannister (as of 12 May 2020) | Yes | Yes | Member (10/10) | Member (3/3) | |
| Robert Bearsby (as of 12 May 2020) | No^{2)} | Yes | Member (10/10) | Member (3/3) | |
| Matti Aksela (until 12 May 2020) | No^{2)} | Yes | Member (5/5) | Member (2/2) |
1) Risto Siilasmaa is the founder of F-Secure and on 31 December 2020 owned 37,79% of F-Secure shares.
2) Robert Bearsby was elected from among F-Secure Corporation's personnel, according to the process described above in 2020.
3) Matti Aksela was elected from among F-Secure Corporation's personnel, according to the same process in 2019.
4) Päivi Rekonen was a member of the Audit Committee until 12 May 2020.
5) Päivi Rekonen has been the Chair to the Personnel Committee starting from the meeting held in November 2020.
with single majority. If the votes are even, the Chairman's vote is decisive.
In accordance with F-Secure's Articles of Association, the Board of Directors comprises three to seven members, who are elected at the Annual General Meeting for a period of office that extends to the subsequent AGM. The Board of Directors represents all shareholders.
Diversity is an essential part of F-Secure's success. According to Diversity Principles established by the Board of Directors, an optimal mix of diverse backgrounds, expertise and experience strengthens the Board's performance and promotes creation of long-term shareholder value. The Diversity Principles of the Board of Directors aim to strive towards appropriately balanced gender distribution. Both genders are represented in the Board of Directors.
To create openness, one member of the Board of Directors is elected from among F-Secure's personnel. An election is arranged annually for F-Secure personnel and each permanent F-Secure employee is eligible to stand as a candidate. The Personnel Committee interviews three persons who have obtained the highest number of votes in the elections, and chooses a candidate
from amongst them to be proposed for election as a member of the Board by the Annual General Meeting. Robert Bearsby was appointed to the Board of Directors through this process in 2020.
The majority of Board members are independent from the company and from its major shareholders. For a detailed description of the members of the Board of Directors and their shareholdings see the end of this statement.
2020:
In 2020 the Board of Directors convened 15 times, Audit Committee 5 times and Personnel Committee 4 times.
Board Committees
In 2020, the Board established two committees: Audit Committee and Personnel Committee (nomination and remuneration matters). The Board of Directors appoints from among itself the members and the Chairman of the committee. Each committee must have at least three members. The Board of Directors confirms the main duties and operating principles of each committee. The duties of each committee are defined in the committee charters which are available on F-Secure's website at https://www.f-secure.com/en/investors.
Audit Committee
The Audit Committee monitors and evaluates risk management, internal controls, IT strategy and practices, financial reporting as well as auditing of the accounts. The Audit Committee also prepares a proposal for the election of auditor to the Board of Directors and regularly considers the need for a separate internal audit function. Members of the Audit Committee must have broad business knowledge, as well as an adequate expertise and experience with respect to the committee's area of responsibility and the mandatory tasks relating to auditing. The majority of members of the Audit Committee shall be independent from F-Secure Corporation and at least one member shall be independent of the company's significant shareholders. The Audit Committee calls in experts to its meetings when necessary for the issues to be discussed. Materials of the Audit Committee meetings are made available for all members of the Board of Directors.
The Audit Committee convenes at least four (4) times a year as notified by the Chairman of the Committee. Members of the Audit Committee are listed in the table above.
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
CORPORATE GOVERNANCE
Personnel Committee
The Personnel Committee prepares material and instructs with issues related to the composition of the Board of Directors and compensation of the company's management as well as remuneration and incentives of key personnel. The Committee also prepares the proposals for the Board composition and remuneration for the Annual General Meeting of Shareholders. The Personnel Committee calls in experts to its meetings when necessary for the issues to be discussed. Materials of Personnel Committee meetings are made available for all members of the Board of Directors.
The Personnel Committee convenes at least two (2) times a year as notified by the Chairman of the Committee. Members of the Personnel Committee are listed in the table above.
President and CEO
The Board of Directors appoints and may dismiss the CEO and decides upon the CEO's remuneration and other benefits in accordance with the Remuneration Policy. The CEO is responsible for the day-to-day management of the company. The CEO's main duties include:
- managing the business according to the instructions issued by the Board of Directors
- presenting the matters to be handled in the Board of Directors' meetings
- implementing the decisions made by the Board of Directors
- other duties determined in the Limited Liability Companies Act
2020:
In 2020, Samu Konttinen acted as F-Secure's President and CEO until 31 October 2020. Juhani Hintikka was appointed as the President and CEO of F-Secure, effective 1 November 2020.
The biographical details of the CEO including the shareholdings are specified later in this report. The remuneration of the CEO is specified in F-Secure's Remuneration Policy and Report.
Leadership Team
The Leadership Team supports the CEO in the daily operative management of the company.
2020:
Current information on the F-Secure Leadership Team can be found on our website: https://www.f-secure.com/en/investors.
For descriptions of all members of the Leadership Team during 2020 and their roles, respective membership periods and shareholdings, see the end of this statement.
Internal control and risk management
Risk Management
Risk management and internal control processes at F-Secure seek to ensure that risks related to the business operations of the company are properly identified, evaluated, monitored and reported in compliance with the applicable regulations.
F-Secure's Board of Directors defines the principles of risk management and internal controls which are followed within the company. The Audit Committee assists the Board in the supervision of F-Secure's risk management function. The CEO is accountable for ensuring that the risk management principles are implemented and applied constantly and consistently across the organization.
The primary goal of F-Secure's risk management principles is to empower the organization to identify and manage risks more effectively. The potential negative impact and probability of different situations arising from our business operations on the company, its customers, or its partners are monitored as part of the risk management process.
F-Secure promotes continuous risk evaluation by the company's personnel. The relevant operational risks identified through the risk management process are regularly reviewed by the CEO and Leadership Team and the company's statutory auditor. Risk Management is an integrated part of F-Secure's governance and management, and the risk management process is aligned with the ISO-31000 standard. The Audit Committee regularly evaluates the effectiveness of the risk management system.
Internal Control
The purpose of Internal Control is to ensure that operations are effective and aligned with the strategy, and that financial reporting and management information is reliable and in compliance with applicable regulations and operating principles.
Internal control consists of all the guidelines, policies, processes, practices and relevant information about organizational structure that help ensure that the business conduct is in compliance with all applicable regulations. The purpose of internal control is also to ensure that accounting and financial information provides a true and accurate reflection of the activities and financial situation of the company. Actual performance is monitored against sales and cost targets by operative reporting systems on a daily, weekly, or monthly basis.
The company constantly monitors its key financial processes linked to sales, revenue, costs and profitability as well as incoming and outgoing payment transactions. If any inconsistencies appear, the issues are handled without delay. The company's finance department is responsible for the consistency and reliability of internal control methods. The finance team works in close cooperation with the CFO and businesses, providing relevant data for business planning purposes and sales estimates. The team also regularly assesses and monitors the reliability of estimates and revenue recognition.
Internal audit
Audit Committee considers the need for and appropriateness of a separate Internal Audit function on a regular basis. To date, the Audit Committee has concluded that, due to the size, organizational structure and largely centrally controlled financial management of the company, a separate Internal Audit function is not necessary.
In the absence of an Internal Audit function, attention is paid to periodical review of the written guidelines and policies concerning accounting, reporting, documentation, authorization, risk management, internal control and other relevant matters in all departments. Related controls are also tested from time to time. The guidelines and policies are coordinated by the company's finance department with active involvement by the legal department.
The absence of a separate Internal Audit function is considered when defining the scope of the company's external audit. Where necessary, the Internal Audit services will be purchased from an external service provider.
To facilitate transparency and exchange of information on Internal Audit related matters, the financial management team has frequent meetings with the auditors. The Audit Committee also meets regularly with the auditors.
The company has taken into use a whistleblowing line for any employees to notify the Board and Leadership Team of any compliance concerns.
Related party transactions
The Audit Committee defines the principles for monitoring and assessing F‐Secure's related party transactions. The definition of the related parties is based on IAS 24 standard. F‐Secure collects information about its related parties on regular basis. The Board of Directors decides on related party transactions that are not conducted in the ordinary course of business of the company or are not implemented under arm's‐length terms. Related party transactions are disclosed as part of financial statements according to the applicable legislation.
Insider management
F‐Secure complies with the applicable legislation, including EU Market Abuse Regulation (MAR), the regulations of the Finnish Financial Supervisory Authority as well as Nasdaq Helsinki's Guidelines for Insiders. F‐Secure has established its own insider policy to complement the regulation and guidelines above.
F‐Secure maintains a list of all persons who have regular access to company's financial data. Due to the sensitive nature of financial information, persons having access to financial information before publication of an interim financial report or a year‐end report shall be subject to a thirty (30) day trading restriction prior to publication of such report.
In addition, F‐Secure maintains a project‐specific insider list of any projects and events which, if realized, would be likely to have a significant effect on the value of F‐Secure's shares or other financial instruments, and which have been subject to delaying of disclosure in accordance with MAR.
F‐Secure has decided not to include any persons as permanent insiders. All persons with inside information regarding a project will be included in the project specific insider list.
Persons discharging managerial responsibilities comprise the Board of Directors, the CEO and other members of the Leadership Team. These persons have a duty to notify F‐Secure and the Finnish Financial Supervisory Authority of every transaction in their own account relating to Financial Instruments of F‐Secure within three business days. The company publishes these notifications as a stock exchange release, as specified by MAR. All releases published on managers' transactions are available on the company's website.
Auditors
The auditor is elected by the Annual General Meeting for a term of service ending at the close of the next Annual General Meeting. The auditor is responsible for auditing the consolidated and parent company financial statements and accounting. The auditor reports to the Board of Directors or the Audit Committee at least once a year.
F‐Secure has been audited by PricewaterhouseCoopers with Janne Rajalahti, Authorized Public Accountant, as the responsible auditor.
F‐Secure paid the auditor EUR 147,000 in audit fees (2019: EUR 144,000), and EUR 30,000 (2019: EUR 41,000) for non‐audit services.
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\leftrightarrow
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
In this section are the biographies of the Members of the Board of Directors during 2020. Shareholdings are listed as of 31 December 2020 unless otherwise stated.
RISTO SIILASMAA
Chairman of the Board of Directors since 2006
Born 1966, M.Sc. (Engineering)
Main employment history:
Founder, President and CEO, Member of the Board, F-Secure Corporation, 1988-2006
Chairman of the Board 2012-2020, Member of the Board 2008-2012, Interim CEO 2013-2014, Nokia Corporation
Member of the Board 2007-2019, Chairman of the Board 2016-2018, Vice-Chairman of the Board 2013-2015, The Federation of Finnish Technology Industries
Current board memberships and public duties:
Chairman, Ministry of Finance - Technology Advisory Board, 2020-
Member of the Board, Picosun Oy, 2020-
Member of the Board, Futurice Corporation, 2018-
Senior Advisor, Boston Consulting Group, 2020-
Member, International Advisory Board IESE, 2020-
Member, Global Advisory Board of Yonsei University School of Business, 2020-
Member, Komatsu International Advisory Board, 2020-
Member, Global Tech Panel, an initiative of EU High Representative Federica Mogherini, 2018-
Holdings: number of shares 60,003,037, holding 37.79%
PERTTI ERVI
Board member since 2003
Chairman of the Audit Committee
Born 1957, B.Sc. (Electronics)
Main employment history:
Currently an independent management consultant and professional board member
Chairman of the Board 2017-2020, Member of the Board 2009-2017, Teleste Corporation
Co-CEO, Member of the Executive Board, Computer 2000 AG, 1995-2000
Co-founder, Managing Director, Computer 2000
Finland Corporation, 1983-1995
Current board memberships and public duties:
Chairman of the Board 2011-, Member of the Board 2008-, Efecte Corporation
Chairman of the Board, Mintly, 2017-
Holdings: number of shares 62,921
BRUCE ORECK
Board member since 2016
Born 1953, LL.M. (Taxation)
Main employment history:
CEO, The Train Factory Oy, 2018-
Executive in Residence, Aalto University, 2016-
Ambassador to Finland, United States, 2009-2015
Founding and managing partner, Oreck, Bradley, Crighton, Adams & Chase, 2005-2009
Executive Vice-President and General Counsel, Oreck Corporation, 1993-2003
Holdings: number of shares 23,865
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
PÄIVI REKONEN
Member of the Board since 2017
Chair to the Personnel Committee
Born 1969, M.Sc. (Economics), M.Sc. (Social Sciences)
Main employment history:
Independent strategy advisor and professional board member, 2018-
Managing Director, Group Technology, UBS, 2014–2018
Senior Vice President, Global Head of Digital Strategy, Adecco Group, 2011–2012
Head of IT, Credit Suisse, 2007–2009
Various leadership positions, Cisco Systems, 1998–2007
Various leadership positions, Nokia Corporation, 1990–1998
Current board memberships and public duties:
Chair to the Board of Directors, SEBA Bank AG, 2020–
Member of the Board, Alma Media Corporation, 2018–
Member of the Board, Efecte Corporation, 2018–
Member of the Board, Konecranes Corporation, 2018–
Member of the Strategy Advisory Board, UNOPS, 2018–
Holdings: number of shares 18,572
TUOMAS SYRJÄNEN
Member of the Board since 2019
Born 1976, M.Sc. (Engineering)
Main employment history:
CEO, Futurice Corporation, 2008–2018
Head of Business Unit, Futurice Corporation, 2003–2008
Business Development, Futurice Corporation, 2001–2002
Current board memberships and public duties:
Member of the Board, Vaisala Corporation, 2019–
Member of the Board, Futurice Corporation, 2018–
Member of the Board, Aito Intelligence Corporation, 2018–
Member of the Board, Taaleri Corporation, 2017–
Member of the Board, Fira Group Corporation, 2015–
Holdings: number of shares 21,622
KEITH BANNISTER
Board member since 2020
Born 1966, B.Sc. (Hons) (Mathematics and Computer Science)
Chartered Accountant (Fellow of ICAEW)
Non-Executive Director – FT Advanced Professional Diploma
Main employment history:
KPMG LLP, London UK, 1987–2018
KPMG LLP, Partner, 2000–2018
Current board memberships and public duties:
Member of the Board of Governors, Bridewell Royal Hospital, 2020–
Holdings: number of shares 5,467
ROBERT BEARSBY
Board member since 2020
Born 1988, B.Sc. (Audio & Music Technology)
Main employment history:
Senior Security Consultant, F-Secure Consulting, 2019–
Security Consultant, MWR InfoSecurity / F-Secure Consulting 2018–2019
Junior Security Consultant, MWR InfoSecurity 2016–2018
Holdings: number of shares 1,822
NON-CURRENT MEMBERS
MATTI AKSELA
Board member since March 2019 until May 2020
Holdings: number of shares 15,054
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
CORPORATE GOVERNANCE
LEADERSHIP TEAM
In this section are the biographies of all the members of the Leadership Team during 2020. Shareholdings are listed as of 31 December 2020 unless otherwise stated.
JUHANI HINTIKKA
President and Chief Executive Officer
Born 1966, M.Sc. (Technology)
Member of the Leadership Team since 2020
Main employment history:
President and CEO, F-Secure, 2020–
Investor, advisor, 2018–2020
President and CEO, Comptel Corporation, 2011–2017
Various leadership positions, Nokia Networks and Nokia Siemens Networks, 1999–2010
Various leadership positions, Konecranes Corporation, 1993–1999
Holdings: number of shares 0
JUHA KIVIKOSKI
Executive Vice President, Business Security
Born 1970, M.Sc. (Econ.)
Member of the Leadership Team since 2018
Main employment history:
EVP, Business Security, F-Secure, 2019–
EVP, Enterprise & Channel Sales, F-Secure, 2018–2019
Managing Director, Dustin Finland, 2015–2017
Vice President, Sales, McAfee/Intel Security, 2013–2015
Chief Operating Officer, Stonesoft, 2009–2013
Vice President, Stonesoft, 2004–2008
Holdings: number of shares 11,804
KRISTIAN JÄRNEFELT
Executive Vice President, Consumer Security
Born 1965, M.Sc. (Economics)
Member of the Leadership Team since 2016
Main employment history:
EVP, Consumer Security, F-Secure, 2016–
Director, Sales, Fujitsu Finland Corporation, 2014–2015
CEO and partner, Miradore Corporation, 2010–2014
CEO and partner, Concilio Networks Corporation, 2006–2009
Various leadership positions, Hewlett-Packard, 1994–2006
Holdings: number of shares 38,356
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
EDWARD PARSONS
Executive Vice President, Cyber Security Consulting
Born 1981, B.Sc. (History)
Member of the Leadership Team since 2020
Main employment history:
EVP, Cyber Security Consulting, F-Secure, 2020–
Managing Director, F-Secure Consulting (UK), 2018–2020
Director, MWR InfoSecurity, 2016–2018
Senior Manager, KPMG, 2013–2016
Civil Servant, 2006–2013
Consultant, Accenture, 2003–2006
Holdings: number of shares 5,348
TIM ORCHARD
Executive Vice President, Managed Detection & Response
Born 1976, B.Sc. (Psychology)
Member of the Leadership Team since 2019
Main employment history:
EVP, Managed Detection & Response, F-Secure, 2019–
Chief Operating Officer, Countercept, 2018–2019
Various leadership positions, BAE Systems
Applied Intelligence, 2012–2018
Technical Director, Activity Info Management Ltd., 2007–2012
Holdings: number of shares 0
ERIKKA SÖDERSTRÖM
Chief Financial Officer
Born 1968, M.Sc. (Econ.)
Member of the Leadership Team since 2017
Main employment history:
CFO, F-Secure, 2017–
CFO, KONE Corporation, 2013–2016
CFO, Vacon Corporation, 2009–2012
CFO, Nautor Corporation, 2008
Various finance leadership positions, Nokia Networks and Nokia Siemens Networks, 1994–2007
Current Board memberships:
Member of the Board, Bekaert, 2020–
Member of the Board, Valmet Corporation, 2017–
Chairman of the Audit Committee, Valmet Corporation, 2018–
Holdings: number of shares 61,804
JARI STILL
Chief Information Officer
Born 1965, B.Sc. (Information processing science)
Member of the Leadership Team since 2012
Main employment history:
CIO, F-Secure, 2016–
Vice President, R&D Operations, F-Secure, 2012–2016
Head of R&D, Mobile Business Unit, F-Secure, 2000–2012
CEO and Co-founder, Modera Point Corporation, 1991–2000
Current Board Memberships:
Member of the Board, Dimecc Oy, 2020–
Member of the Board, Oulu Chamber of Commerce, 2019–
Member, Innovation Working Group, The Federation of Finnish Technology Industries, 2018–
Holdings: number of shares 139,013
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
JYRKI TULOKAS
Chief Technology Officer
Born 1975, M.Sc. (Economics)
Member of the Leadership Team since 2016
Main employment history:
CTO, F-Secure, 2019–
EVP, Cyber Security Products & Services, F-Secure, 2018–2019
EVP, Strategy and Corporate Development, F-Secure, 2016–2018
Various leadership positions in product management, marketing, strategy and business development, F-Secure, 2007–2016
Head of Business Development, Suunto Corporation, 2005–2007
Holdings: number of shares 34,162
ANTTI HOVILA
Executive Vice President; Strategy, Brand & Communications
Born 1981, M.Sc. (Technology), MBA
Member of the Leadership Team since 2019
Main employment history:
EVP, Strategy, Brand & Communications, F-Secure, 2019–2021
EVP, Strategy and Corporate Development, F-Secure, 2019
Associate Director, Strategy & Planning, Fidelity International, 2017–2019
Equity Research Analyst, Fidelity International, 2010–2017
Business Development Manager, Nokia Corporation, 2006–2008
Management Consultant, McKinsey & Company, 2005–2006
Holdings: number of shares 0
EVA TUOMINEN
Executive Vice President, People Operations & Culture
Born 1976, M.Sc. (Econ.)
Member of the Leadership Team since 2019
Main employment history:
EVP, People Operations & Culture, F-Secure, 2019–
Director, Human Capital Consulting, Deloitte Finland, 2014–2019
Consulting Director, Nordic Region, NGA Human Resources, 2010–2014
Business Unit Manager, NGA Human Resources, 2003–2010
Holdings: number of shares 0
CHANGES IN LEADERSHIP TEAM COMPOSITION AFTER PERIOD-END
In February 2021, Ari Vänttinen started as Chief Marketing Officer. Consequently, Antti Hovila is now Executive Vice President, Strategy & Portfolio.
NON-CURRENT MEMBERS
SAMU KONTTINEN
President and CEO – until end of October 2020
IAN SHAW
Executive Vice President, Cyber Security Consulting – until end of October 2020
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\leftrightarrow
REMUNERATION STATEMENT
REMUNERATION REPORT
Introduction
The reporting and transparency requirements for listed companies increased as the new EU Shareholder Rights Directive (SHRD) and Finnish Corporate Governance Code 2020 were implemented. F-Secure's Remuneration Policy was renewed to comply with these regulations, and it was approved in the Annual General Meeting in May 2020. The Remuneration Report is now updated in accordance with the SHRD and Finnish Corporate Governance Code and it provides a comprehensive picture of the remuneration of the company's governing bodies for the financial year 2020.
Remuneration principles at F-Secure
According to F-Secure's Remuneration Policy, the company's remuneration is designed to promote the business objectives and long-term profitability of the company. The company's objective is to reward for performance and competencies. The remuneration is designed to be competitive compared to the relevant peer groups, increase commitment and work engagement and to be consistent across the organization. These principles have been taken into account in the company's remuneration in the financial year 2020.
The President and CEO's remuneration follows the same principles as for all other employees. A significant portion of the President and CEO's remuneration package is based on performance, on target level the short-term and long-term incentives comprise 57% of the total remuneration. The short- and long-term incentive plans are based on company's financial performance to ensure a strong link between company's performance and CEO remuneration. The President and CEO is also expected to build and maintain a shareholding corresponding to at least one year's base salary in the company to align management's interests with those of shareholders.
Remuneration in 2020
The Personnel Committee regularly reviews executive remuneration in F-Secure compared to the peer groups to ensure competitiveness and alignment with market practices. During 2020, the Committee conducted a benchmark study to analyze CEO compensation against peer companies. The study showed that the President and CEO's base salary is at market median, while the short-term and long-term incentive earning opportunities are slightly above the market median.
During 2020, F-Secure renewed the long-term incentive plans and introduced a Performance Share Plan as the main share-based long-term incentive plan and a Restricted Share Plan as a complementary plan. The purpose of all share-based long-term incentive plans are to retain, motivate and reward individually selected key employees as well as to align their interests with those of the Company's shareholders by creating a long-term equity interest for these individuals.
In November 2020, Juhani Hintikka was appointed as the new President and CEO, and due to this change in leadership, an exception to the Remuneration Policy was done as a one-time allocation of restricted shares was granted to the new President and CEO under the Restricted Share Plan. According to F-Secure's Remuneration Policy, the Board of Directors may temporarily deviate from the Remuneration Policy in exceptional circumstances, such as in connection with the appointment of a new CEO. There are no financial performance criteria attached to the Restricted Share Plan and the shares vest after the three-year restriction period in 2024, given that the employment continues without interruption until the payment. The annual base salary was defined to be EUR 350,000 for the President and CEO. Otherwise,
the pay mix and the target and maximum levels of short- and long-term incentives for the President and CEO continue as they have been defined in the Remuneration Policy.
For President and CEO Samu Konttinen, total earned remuneration in 2020 was EUR 482,863 (EUR 466,780 in 2019), of which EUR 172,442 (EUR 171,192 in 2019) was in the form of variable pay. For Juhani Hintikka total earned remuneration in 2020 was EUR 58,374.
At the end of 2020, the President and CEO Juhani Hintikka held no F-Secure's shares.
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\rightarrow
0
REMUNERATION STATEMENT
Remuneration of the Executives
F-Secure has been focusing on growth in the past years which is visible in the company's revenue development since 2016. The COVID-19 affected the markets heavily during 2020 and as a result, the revenue growth slowed down. At the same time, the company's profitability has improved significantly during 2019 and 2020.
Over the same period, the compensation of executives has developed modestly. The remuneration of Board of Directors was brought closer to market median levels in 2018 and it has stayed on the same level since. The total remuneration of the President and CEO has varied year over year as a significant part of the remuneration is tied to company's financial performance.
| Average annual remuneration (EUR) | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| President and CEO 1) | 630,912 | 407,070 | 616,361 | 466,780 | 482,863 |
| Chairman of the Board | 69,000 | 55,000 | 80,000 | 80,000 | 80,000 |
| Other Board Members 2) | 40,400 | 32,000 | 40,500 | 40,500 | 40,000 |
| Average employee 2) | 65,521 | 69,860 | 62,279 | 62,650 | 61,832 |
1) Paid remuneration during the calendar year, including base salary as well as short- and long-term incentives.
2) Average of the remuneration paid to the Board Members, excluding the employee representative.
3) The total paid wages and salaries during the calendar year / average headcount during the year in all countries.
Revenue development 2016–2020
- Revenue, MEUR
- Revenue development, year over year %
Value of theoretical investment of 100 EUR done in 2016
Share price development, paid dividends re-invested to share
- F-Secure
- OMX TECH
- HACK
Source: FactSet
Adjusted EBITDA development 2016–2020
- Adjusted EBITDA, MEUR
- EBITDA Development, year over year %
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
REMUNERATION STATEMENT
Remuneration of the Board of Directors
The Annual General Meeting on 12 May 2020 decided that the Board of Directors be paid fixed annual compensation for the term ending at the end of the next Annual General Meeting. Approximately 40% of the annual remuneration is paid in F-Secure's shares. No additional meeting fees are paid to members of the Board of Directors. The company will pay any applicable asset transfer tax arising from remuneration paid in shares on Board Members' behalf.
For Members of the Board of Directors, changes in the holdings of the company shares and rewards paid in shares are reported according to the Market Abuse Regulation. Related stock exchange releases are available on the company's web pages.
The fixed annual fee for Chairman of the Board is EUR 80,000, for the Committee Chairmen EUR 48,000, for Members of the Board EUR 38,000 and for Board Member belonging to the personnel of the company EUR 12,667.
The travel expenses and other costs directly related to the board work of the members of the Board of Directors are paid in accordance with the company's compensation policy in force at any given time. In addition, the Chairman of the Board of Directors is offered assistant and administrative services.
The Board of Directors Remuneration in 2020
| Member | Remuneration paid in cash | Remuneration paid in shares, EUR | Remuneration paid in shares, pcs | Total |
|---|---|---|---|---|
| Risto Siilasmaa | EUR 47,772 | EUR 32,228 | 11 510 | EUR 80,000 |
| Pertti Ervi | EUR 28,663 | EUR 19,337 | 6 906 | EUR 48,000 |
| Bruce Oreck | EUR 22,692 | EUR 15,308 | 5 467 | EUR 38,000 |
| Päivi Rekonen | EUR 22,692 | EUR 15,308 | 5 467 | EUR 38,000 |
| Tuomas Syrjänen | EUR 22,692 | EUR 15,308 | 5 467 | EUR 38,000 |
| Keith Bannister 1) | EUR 22,692 | EUR 15,308 | 5 467 | EUR 38,000 |
| Robert Bearsby 1) | EUR 7,565 | EUR 5,102 | 1 822 | EUR 12,667 |
| Total | EUR 174,770 | EUR 117,897 | 42,106 | EUR 292,667 |
1) Since 12 May 2020
日
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
←→
REMUNERATION STATEMENT
Remuneration of the President and CEO in 2020
Salaries and financial benefits paid in and accrued based on 2020 are described in the table below.
President and CEO Samu Konttinen
| Payments in 2020 | Accrued based on 2020 | |
|---|---|---|
| Base salary, including fringe benefits | EUR 310,421 | – |
| Supplement Pension / Other financial benefits | – | |
| Short-term incentive (STI) | ||
| Earning period 2019 | EUR 13,303 | |
| Earning period 2020 | EUR 41,874 | EUR 91,503 |
| Long-term incentive (LTI) EUR/shares | ||
| LTI 2017–2019 | EUR 117,265 | |
| LTI 2018–2020 | 21,600 shares | |
| Total | EUR 482,863 | EUR 91,503 / 21,600 shares |
President and CEO Juhani Hintikka
| Payments in 2020 | Accrual based on 2020 | |
|---|---|---|
| Base salary, including fringe benefits | EUR 58,374 | – |
| Pension / Other financial benefits | – | – |
| Short-term incentive (STI) | ||
| Earning period 2019 | – | – |
| Earning period 2020 | – | EUR 25,083 |
| Long-term incentive (LTI) €/shares | ||
| LTI 2017–2019 | – | – |
| LTI 2018–2020 | – | – |
| Total | EUR 58,374 | EUR 25,083 |
CEO and President Samu Konttinen
Paymix, 2020 actual payments
- Base salary
- STI
- LTI
CEO and President Juhani Hintikka
Paymix, 2020 actual payments
- Base salary
三
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
\leftrightarrow
\leftrightarrow
REMUNERATION STATEMENT
Rolling structure of long-term incentive plans
Short-term incentive payments are done bi-annually. The short-term incentive rewards paid in 2020 comprise of the reward for the 2nd half of 2019 and the reward for the 1st half of 2020. The STI Plan 2019 for the President and CEO Samu Konttinen was based on F-Secure's revenue growth with 70% weight and adjusted EBITDA with 30% weight of total. The overall performance for these two criteria in the 2nd half of 2019 was 33,0% and the corresponding reward was paid in March 2020.
The STI Plan 2020 for the President and CEO Samu Konttinen was based on F-Secure's revenue with 60% weight and adjusted EBITDA with 40% weight of total. The overall performance for these two criteria was 86.0% and the corresponding reward is paid in two instalments in August 2020 and February 2021.
The STI Plan 2020 for the President and CEO Juhani Hintikka was based on F-Secure's revenue with 60% weight and adjusted EBITDA with 40% weight of total. The overall performance for these two criteria was 86.0% and the corresponding reward is paid in February 2021. The reward is pro-rated according to the employment time with the company.
Long-term incentive paid in 2020 was based on the LTI Plan 2017-2019. The performance criterion for this plan was F-Secure Revenue in 2019 and the achievement was 56.7% and the corresponding reward was paid to the President and CEO Samu Konttinen in April 2020 partly in shares and partly in cash.
The LTI Plan 2018-2020 will be paid in 2021 and the performance criterion for this plan was F-Secure Revenue in 2020. The achievement for this plan is estimated to be 30.0% and the corresponding gross reward of 21,600 shares will be paid to the former President and CEO Samu Konttinen in March 2021 partly in shares and partly in cash.
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
INFORMATION FOR SHAREHOLDERS
Contact information
Eriikka Söderström, CFO, F-Secure
Henri Kiili, Investor Relations and Corporate Finance Director, F-Secure
+358 40 840 5450
[email protected]
Financial calendar
During the year 2021, F-Secure Corporation will publish financial information as follows:
- Interim report January–March 2021, April 29, 2021
- Half year financial report January–June 2021, July 15, 2021
- Interim report January–September 2021, October 21, 2021
Annual General Meeting
The Annual General Meeting is scheduled for
Wednesday, March 24, 2021 at 14:00 EET. More information is available at
https://www.f-secure.com/en/investors/governance?a=annual-general-meeting.
content F-Secure
design and layout Kreab
photographs F-Secure
F-Secure 2020
Board of Directors' Report
Financial statements
Corporate responsibility
Corporate governance
F-Secure
F-Secure Corporation
Tammasaarenkatu 7
P.O. Box 24, 00181 Helsinki
Tel. +358 9 2520 0700
[email protected]
www.f-secure.com