A transformational year 2005 has been a year of improving clarity on our corporate strategic priorities. F-Secure has always had a strong focus on long-term success. During 2005 we had a strong focus on doing things that increase our competitiveness in the long term, even at the cost of short-term profits. Realizing that this sounds simplistic, the most important thing a company’s management can aspire to accomplish is to achieve sustainable competitive advantages for the company. Self-evident, you say. Maybe so, but ask any executive how many percent of her day she spends focused on long term competitive advantages, and the answer will most likely be an ashamed ‘too little’. Companies operate with an increasingly short-term focus, partially created by the stock market with its quarterly tunnel vision. We worry too much about putting out small fires today, while we should be more focused on setting the entire industry ablaze tomorrow.

Market leaders have a lot going for them. Their competitive advantages typically include, at least, strong brands, high market shares and significant control of distribution channels. Their strength is also their biggest weakness as market leaders have too much to loose for them to truly think out-of-the-box while challengers find it easier to, well, challenge.

F-Secure is a challenger. We have always been innovative with technology. For the last five years we have been quite focused on being innovative with business models and the way we partner as well. The results have been quite good and not just for the past years, but especially for the forthcoming years, as much of what we have done was designed to create ongoing momentum.

Our key focus has been to do things that are very difficult for the incumbents to copy quickly and which, if we are left free to operate long enough, create significant challenges to any players to replicate later on. In essence, doing things that create sustainable competitive advantages for F-Secure.

We started offering security as a service through consumer ISPs during the year 2000. Initially the concept was too difficult to accept for the conservative industry. We had less than 10 ISPs working with us at the beginning of 2003, after almost three years of work. A year later we had 23 ISP partners. We started the year 2005 with 48 and, at the beginning of 2006, we had 85 consumer ISP partners.

Revenues from the ISP channel have continued to grow at, or close to, 100% annually. What is more important, however, is that we have never yet lost a single ISP partner to a competitor after launching the service. What we have apparently built is a business model that scales well and creates positive stickiness between our partners and us.

And what great partners! ISPs are the ideal service providers for security as they benefit from the service almost as much as their customers. Our ISP partners have experienced strengthening brands, decreased churn, better ability to resist price erosion and, very importantly, high margins on fast growing revenues from the security services.

Progressing in an orderly fashion we have expanded in two directions from the original Nordic consumer ISP focus. Geographically we stepped up our ISP operations in Europe, entered the North-American market two years ago and finally, in the autumn of 2005, started operations in Asia. We have also expanded our customer offerings. After starting with a consumer offering we have added mobile operator solutions, enterprise service provider solutions and, early 2006, an operator centric SMB solution.

At the beginning of 2005 we told the financial markets that we would prioritize growth over profitability. We started an aggressive recruiting campaign and added roughly 30% more people to the company and asked them to build the Service Provider Platform for Businesses (SPB) and the Service Provider Platform for Enterprises (SPE). Progress was rapid and we just launched the SPB commercially in early February with successful launches already accomplished in Finland, Italy, Hong Kong and UK.

While working with the Service Platforms for Businesses and Enterprises we also continued to develop the Service Platform for Mobile Operators (SPM). With the constant increase of new mobile malware, and very significant growth of operator attention, we achieved steady progress in the area. At the same time, we had expected the mobile operators to move even faster and cannot be completely satisfied with our progress.

Focusing on being the best security vendor to partner with for all types of service providers also lead us to close the second acquisition of F-Secure’s history. In early December we announced the acquisition of Rommon Oy, a very innovative and successful Finnish start-up. Through the acquisition we were able to announce F-Secure Network Control, which completely automates the process of detecting and quarantining rogue PCs in a large network. This is an invaluable tool to any organization that manages a large and diverse network.

With the combination of our great track record in the consumer ISP and mobile operator spaces and the introduction of new platforms for the SMB and Enterprise markets, we have created the foundation for continued development of a business that provides good long-term visibility and is well protected against competitors.

2005 was a successful year. We achieved and exceeded the goals we set ourselves in the beginning of the year.

In 2005 we had our 10th consecutive quarter of faster growth than any of our publicly reporting competitors. Our competitiveness even increased during the year. In Q4 the contrast was especially striking as our growth in the antivirus business improved from 44% in Q3 to 52% in Q4 while the volume weighted average growth of our competitors dropped from roughly 20% to less than 10%.

While investing up to 30% of our revenues into R&D in order to achieve long-term competitive advantages we have been also able to improve profitability. For 2006 we are aiming at raising our EBIT to close to 20%.

Our key value is reliability. That is the number one thing I hope to hear when I ask a partner or customer how they would describe us. Reliability is also reflected in our company slogan: Be Sure. Our success is best measured by customer satisfaction that, unfortunately, dropped a little bit from 4.30 to 4.27 on a scale from one to five. This means that one-third of our customers rate us excellent while two-thirds rate us very good. Our target remains to raise customer satisfaction levels to 4.5.

I would like to take this opportunity to congratulate all the wonderful men and women who worked very hard to make all this happen. Once again, it was a pleasure and a privilege to work alongside you during 2005!

Overall, 2005 was a successful year. From my point-of-view the industry leading growth we achieved was less important than the strong work we did for longer-term competitiveness. Great companies are not about quarters, but rather about decades and it feels good to have been able to do a lot for the next decade already during 2005.

Risto Siilasmaa