F-Secure publishes restated information on 2017 financials as a result of adoption of the IFRS 15 and revision of Cost of Revenue
F-Secure Corporation, Stock exchange release, 3 May 2018, 12:00 EEST
F-Secure publishes restated information on 2017 financials as a result of adoption of the IFRS 15 Accounting Standard and revision of Cost of Revenue. First quarter result for 2018 will be published on May 4th, 2018.
Summary
Due to the adoption of IFRS 15 Accounting Standard as of 1 January 2018, revenue and EBIT of the Group for 2017 increased by EUR 0.1 million and EUR 0.4 million respectively attributable to this restatement. The tables in the attachement provide the key financial indicators on a restated basis with description of the transition approach and details of the impact.
Together with analyzing the IFRS 15 impacts F-Secure has also revised the allocation of costs between Cost of Revenue (CoR) and Operating Expenses (OPEX). As a result Cost of Revenue for 2017 increased by EUR 18.4 million and Operating Expenses decreased respectively (Sales and marketing -18.0 MEUR and Research and development -0.4 MEUR). The impact of revised CoR to 2017 financials and a description of the revision is presented in the attachment.
The restated financial information includes restated opening balance as at 1 January 2017 and provides comparative information for quarterly results released later.
The restated financial information included here within is unaudited.
Below is the restated income statement. More information is available in the attached tables.
Income statement for 2017
| Restated | Reported | |
1-12/2017 | 1-12/2017 | |
| Revenue | 169.8 | 169.7 |
| Cost of revenue | -25.0 | -6.6 |
| Gross margin | 144.8 | 163.1 |
| Other operating income | 1.9 | 1.9 |
| Sales and marketing | -86.7 | -105.0 |
| Research and development | -34.1 | -34.5 |
| Administration | -14.3 | -14.3 |
| EBIT | 11.5 | 11.1 |
| Financial net | 0.8 | 0.8 |
| Result before taxes | 12.3 | 11.9 |
| Income taxes | -1.3 | -1.2 |
| Result for the period | 11.1 | 10.8 |
| Other comprehensive income | ||
| Exchange differences on translating foreign operations | -0.8 | -0.8 |
| Available-for-sale financial assets | -0.1 | -0.1 |
| Income tax relating to components of other comprehensive income | 0.0 | 0.0 |
| Total comprehensive income (parent company owners) | 10.2 | 9.8 |
Transition to IFRS 15
F-Secure reviewed the historical contracts with customers and has recalculated the revenue recognition of those based on IFRS 15 standard. The cumulative impact of all previous years on the balance of deferred revenue has been presented as an adjustment on the opening balance of retained earnings in the beginning of 2017.
Review of the contracts and analysis of the sales and products established that F-Secure products and services are to be treated as one performance obligation. According to IFRS 15 these shall be recognized over time throughout the duration of the contract. Contracts with point in time recognition in consumer business and consulting have been identified. IFRS15 had little to no impact on these cases.
Impact of the IFRS 15 standard
IFRS 15 Revenue from Customer Contracts requires that revenue is recognized when an entity satisfies performance obligations towards its customers. It has been concluded that the revenue from customer contracts shall mainly be recognized over time, as the nature of the performance obligation is such that F-Secure satisfies it throughout customer contract duration. The analysis has concluded that cyber security software and services are, by large, considered as one performance obligation that is satisfied over time.
The implementation of the new standard impacts mostly corporate and consumer security contracts of which a portion of the revenue was recognized upfront. Majority of the contracts have already been recognized as revenue over time prior to application of IFRS 15. The impact of the new standard on revenue is low due to offsetting effect of the historical recognized revenue and deferral of the new sales. Operator contracts are not impacted.
The new standard has also impacted the recognition of the incremental costs of obtaining contracts with customers, and therefore F-Secure has deferred the recognition of sales commissions. Impact of sales commissions deferral on 2017 restated financials is low as historical costs recognized were compensated by deferral of the new costs.
An impact of the new standard to retained earnings in opening balance as at 1 January 2017 is EUR 0.8 million. The increase of equity is divided between an increase in result before taxes of EUR 1.1 million and a increase in income taxes of EUR 0.2 million. Of the total EUR 1.1 million impact, EUR 4.7 million was due to decreased revenue and EUR 5.8 million due to decrease of sales commissions.
The restatement of revenue and sales commissions had in aggregate of EUR 1.1 million impact on Group's retained earnings in opening balance as at 1 January 2018. Deferring revenue and sales commissions in 2017 financials increased net result by EUR 0.3 million divided between increase in result before taxes of EUR 0.4 million and increase in income taxes of EUR 0.1 million.
Revenue impact on Corporate Security was a reduction of recognized revenue by EUR 0.3 million. Deferred historical revenue brought in an additional EUR 1.9 million, whereas the deferral of 2017 contracts to future period caused a reduction of EUR 2.2 million. Impact on Consumer Security was an increase in revenue by EUR 0.3 million.
The restatement impacted following items in balance sheet: Deferred revenue (non current and current), Trade and other payables, Deferred tax assets and liabilities and Equity. Impacts on key economic indicators were minor.
Impact of revision of cost of revenue
F-Secure has revised the allocation of costs between Cost of Revenue (CoR) and Operating Expenses (OPEX). The impact for 2017 financial statements is a decrease of Gross Margin from 96 % to 85 %. The revision aimed at identifying costs directly linked to the delivery of F-Secure's software products and services and reporting a Gross Margin that is more comparable in content with other similar companies in the industry and worldwide.
In previous reporting, F-Secure's Materials and Services included mainly Royalties, Freights and Material. The revised Gross Margin captures in addition costs of providing cloud-based services to customers, customer support and cyber security services related direct expenses.
All figures in the following tables are EUR million unless otherwise stated. The figures are subject to rounding which may cause some inaccuracies in aggregate column and row totals.
The terminology used in financial statements has been revised to describe the items more accurately. Net sales is called Revenue and Materials & Services is called Cost of Revenue. The content of revenue remains the same. Changes in the content of the item Cost of Revenue has been described above.
More information:
More information is available in the attachment.
Eriikka Söderström,
CFO, F-Secure
eriikka.soderstrom@f-secure.com
+358 40 669 1844
Tapio Pesola,
IR Manager, F-Secure
investor-relations@f-secure.com
+358 44 3734693
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