Accounting principles

The consolidated financial statements of WithSecure Corporation of 2023 have been prepared in accordance with IFRS (International Financial Reporting Standards) accounting standards, applying the IAS and IFRS accounting standards as well as SIC and IFRIC interpretations that were in force and had been approved by the EU by 31 December 2023.

In accordance with the European Single Electronic Format (ESEF) reporting requirements, WithSecure has published the Board of Directors’ report and the financial statements as an XHTML file. In line with the ESEF requirements, the primary statements of the consolidated financial statements have been labelled with XBRL tags, and the notes to the financial statements with XBRL block tags. XBRL tags are not audited.

Principles of consolidation

The consolidated financial statements incorporate the financial statements of WithSecure Corporation and entities controlled by WithSecure 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.

Discontinued operations

WithSecure completed the separation of its Consumer security business into an independent company F-Secure through a partial demerger on 30 June 2022, according to the plan first announced on 17 February 2022 by the Board of Directors. In these financial statements, WithSecure is presenting consumer security business until its demerger as Discontinued operations under IFRS 5.

WithSecure has applied the requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations in classifying, presenting and accounting for the demerger in financial reporting. Result from discontinued operations is reported separately from continuing operations’ income and expenses in the consolidated income statement. Comparative periods have been restated accordingly. At the completion of the demerger on 30 June 2022, the assets and liabilities related to the discontinued operations were distributed to F-Secure. Balance sheet before demerger has not been restated.

Discontinued operation’s financial information is presented in note 11. Information includes discontinued operations’ income statement, statement of financial position and cash flow. Statement of financial position represents assets and liabilities related to Consumer security business right before the demerger on 30 June 2022. Income statement for discontinued operations include revenue and operating expenses which directly derived from Consumer security business and discontinued for continuing business after the demerger. Certain costs related to supporting F-Secure during transition period and costs of premises sub-leased to F-Secure after demerger are not included in Discontinued operations.

Transactions in foreign currency

The consolidated financial statements are presented in euros, which is WithSecure 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 accounting standards that are effective for 2023

During 2023 there were no changes in the Group’s accounting principles.

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 3.8 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 considerations from divestments: The sales price of the UK public sector consulting team divested in December 2021 as well as the sales price of the South African subsidiary divested in February 2022 include deferred considerations which are measured at discounted fair value on each reporting date. Management judgment is used to forecast the future performances of the divested businesses which are the basis for determining the deferred consideration.
  

• Deferred tax assets: The Group has recognized deferred tax assets from tax losses and from temporary differences. The amount of deferred tax assets is based on management estimation about future profits and the recoverability of the tax losses. Majority of the deferred tax assets are booked from temporary differences generated by the parent company (EUR 7.4 million) and from losses generated by the Danish (EUR 0.6 million) and US (EUR 0.4 million) subsidiaries.
  

• Expected credit losses: Provision for expected credit losses in Group’s balance sheet is EUR 2.1 million. Management uses judgment in defining the expected credit losses taking into account also the potential changes in economic environment.
  

• Share-based payments: The Group’s share-based incentives programs are mainly tied to market-based conditions. Management uses external valuations in determining the fair value of the shares granted under these incentive programs. The method for the valuation is Monte Carlo Simulation.

Revenue recognition

Group’s revenue includes cyber security products, managed services, and cyber security consulting. In 2022 WithSecure started to classify revenue in three categories: Cloud-based security products, On-premise security products and Cyber security consulting. Cloud revenue includes the Elements platform cloud-based products, Managed Detection and Response (MDR) and Cloud Protection for Salesforce (CPSF) revenue. On-premise revenue includes the Elements portfolio on-premise product (Endpoint protection). Consulting revenue includes the cyber security consulting services.

Cloud-based security products are sold as Security-as-a-Service. On-premise security products are sold by granting the customer access to use the intellectual property during the license period. WithSecure 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. Cyber security consulting services are recognized as revenue based on the delivery of the work.

Cloud-based security products and on-premise security products are provided either as a continuous service or for a fixed term. Continuous services are invoiced on a monthly basis and fixed term fully upfront or monthly, quarterly or annually upfront. Cyber security consulting services are invoiced as agreed with the customer. The standard payment term within the Group is 30 days.

Presentation 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 WithSecure Group’s pension arrangements are defined contribution plans in accordance with local statutory requirements. Contributions to defined contribution plans are recognized in the income statement in the period to which the contributions relate.

Leases

Group as lessee

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. WithSecure’s incremental borrowing rate varies between 2,45 % and 9,15 % depending on the geographical location of the leased asset, lease period and guarantees.

WithSecure’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 0.5 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.

Group as lessor

After the demerger, Group acts as a lessor in sub-lease agreements signed with F-Secure. The sub-lease arrangements have been accounted for as finance leases. According to IFRS 16, the Group has derecognized the right-of-use assets related to the sub-lease arrangements and recognized a receivable for the net investment in the lease. Net investment in the lease is calculated as the net present value of the future payments under the sub-lease. The Group does not have operating lease arrangements.

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 the Group can demonstrate:

• The technical feasibility of completing the intangible asset so that it will be available for use or sale.
  

• Its intention to complete and its ability to use or sell the asset.
  

• How the asset will generate future economic benefits.
  

• The availability of resources to complete the asset.
  

• The ability to reliably measure the expenditure during development

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:

The estimated useful life and amortization method are assessed at each reporting date and updated if necessary.

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:

The estimated useful life and amortization method are assessed at each reporting date and updated if necessary.

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:

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.

The estimated useful life and amortization method are assessed at each reporting date and updated if necessary.

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, 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.

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

WithSecure provides incentives to employees in the form of equity-settled share-based instruments. Currently the Company has share-based programs.

WithSecure’s share-based incentive programs are targeted to the Group’s key personnel. The programs are equity-settled and valued at fair value at grant date. The expense is recognized evenly in the income statement over the vesting period with the counter-entry in retained earnings.

All current programs include market-based conditions, which are taken into consideration when the fair value of equity-based instrument is determined by utilizing commonly used valuation techniques. Equity-based payments that are settled net of taxes are considered in their entirety as equity-settled share-based payment transactions. The cumulative expense recognized at the grant date is based on the Group’s estimate of the number of shares that will vest at the end of the vesting period times the fair value of equity-based instruments at the grant date. If a person leaves the company before vesting, the reward is forfeited. The Group revives its estimate of the non-market conditions and number of equity-based instruments that are expected to vest at the end of vesting period each reporting date. The impact of revision of original estimates is recognized in the income statement.

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, sales and marketing, research and development, and administration.

1 Segment information

The Group has one segment: security. Segment reporting is consistent with the internal reporting submitted to the chief operating decision-maker. The Leadership Team has been appointed as 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 disclosure 2. Revenue.

2 Revenue

Principles of revenue recognition are stated in accounting principles to consolidated financial statements, section Revenue recognition.

Disaggregation of revenue

Assets and liabilities from contracts with customers

Satisfied performance obligations from contracts with customers that have not yet been invoiced on the reporting date are presented in the balance sheet as Accrued income included in trade and other receivables. The balances relate to products and services which have been delivered to customers and recognized as revenue but not invoiced. 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. Prior year current deferred revenue is recognized as revenue in the current period. Remaining performance obligations from contracts with customers represent contracted revenue that has not yet been recognized. These balances are presented as Deferred revenue and relate to obligations to provide software subscription services or managed services in contracts with a duration of multiple years.

Transaction price allocated to all fully or partially unsatisfied performance obligations amounted to 66,897 thousand euros at the end of the year. 69 % of the amount is expected to be recognized as revenue during 2024. The Group total revenue will also include new orders, renewals and contract extensions/expansions which are not known at reporting date and thus are excluded from these figures.

Increases in deferred revenue resulting from billing were EUR 44,745 thousand. Decreases in deferred revenue resulting from satisfying performance obligations were EUR 46,446 thousand.

3 Other operating income

Capital gains from sales of operations includes revision of fair value of deferred consideration from divestment of UK public sector consulting team in December 2021.

Government grants consist mainly from grants from Business Finland and European Union related to R&D activities. The grants are recognized as income over those periods in which the corresponding expenses arise.

4 Leases

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 17. Financial assets and liabilities.

Some office premises were subleased to F-Secure on the demerger date. Right of use assets related to these offices were derecognized on 30 June 2022.

5 Depreciation, amortization, and impairment

6 Personnel expenses

Employee benefits of the management are stated in disclosure 23. Related party transactions.

Share-based payments are stated in disclosure 16. Share-based payment transactions.

7 Audit fees

In 2022 PricewaterhouseCoopers Oy provided non-audit services to entities of WithSecure Group for total 2.3 million euros, which mainly related to services provided during demerger process.

The Finnish Patent and Registration Office Auditor Oversight has granted to PricewaterhouseCoopers Oy upon its request an exemption from the maximum amount of fees for non-audit services referred to in Chapter 5, section 4 of the Finnish Auditing Act (1141/2015).

8 Financial income and expenses

9 Income tax

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%):

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.

Earnings per share has been recalculated for comparative periods using average weighted share amount after share issues.

The weighted average number of shares takes into account the effect of change in treasury shares.

11 Discontinued operations

On 17 February 2022, WithSecure announced a plan to pursue towards the separation of the company's consumer security business (F-Secure) through a partial demerger. Demerger was completed on 30 June 2022. Following information includes impacts of discontinued operations on reported income statement and cash flow. Statement of financial position represents assets and liabilities related to Consumer security business right before the demerger on 30 June 2022. Income statement for discontinued operations include revenue and operating expenses which directly derive from Consumer security business and will discontinue for continuing business after the demerger. Certain costs related to supporting F-Secure during transition period and costs of premises which will be sub-leased to F-Secure are not included in Discontinued operations.

12 Goodwill

For impairment testing goodwill is allocated to cash-generating units (CGUs). The carrying amount of goodwill EUR 78 058 thousand is allocated to two CGUs:

WithSecure tested goodwill valuation already in third quarter deviating from the annual cycle due to lowering revenue estimates. Due to the lower revenue forecast, as well as the impact of increasing interest rates, the carrying value of consulting-related goodwill was higher than its recoverable value, based on a value in use calculation using future cashflows. WithSecure recorded an impairment of the consulting-related goodwill of EUR 6.2 million. Goodwill test was updated at the normal annual cycle.

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. Forecast period used in the calculations is five years. Discount rate for Consulting is 12.2 % (9.9 %) before taxes and for MDR 15.6 % (15.6%) before taxes.

Cash flows beyond forecast period have been extrapolated using steady 2 % (2 %) per annum growth rate for both CGUs. Revenue growth % in average during forecast period for Consulting is 12% (14%) and MDR 22% (44%).

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. The table below shows the required change in a single assumption that the recoverable amount would fall below the carrying amounts.

Sensitivity analyses assume a change in only one key variable while all other variables in the forecasts remain unchanged. In WithSecure's analyses sensitivity is tested by assuming a similar change in the tested assumption throughout the forecast period. In reality, it is highly unlikely that such change in the cash flows would occur as the management has means to react in case there is a change to the expected business performance.

During 2023 sensitivity of Consulting goodwill has remained at the same level as in 2022 despite the impairment in September 2023. Management considers the headroom for Consulting goodwill to be adequate and no additional impairment is needed.

Headroom for MDR remains high and the management believes that no reasonably possible change in any of the key variables would lead to the recoverable amount to fall below the carrying amount.

14 Shareholder's Equity

A share has no nominal value. All issued shares are fully paid and listed on Nasdaq Helsinki.

On 23 March 2022, WithSecure issued 15,800,000 new shares in an accelerated book-built offering deviating from the shareholders’ pre-emptive subscription rights. Based on resolution of the Extraordinary General Meeting, WithSecure Corporation reduced its share capital by EUR 1,471,311.18 to EUR 80,000 in relation to the demerger. Liability for the assets transferring in the demerger at fair value was recognized after resolution of the Extraordinary General Meeting. Impact of the liability recognition offset the impact of distribution gain through income statement in Company's equity.

Share premium fund

Based on resolution of the Extraordinary General Meeting, WithSecure Corporation dissolved the share premium fund in relation to the demerger in 2022.

Unrestricted equity reserve

On March 20, 2007, the shareholders’ meeting decided to decrease the share premium fund. The decreased amount of 33,582 thousand euros 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 Companys’ unrestricted equity reserve. Capital raised in the share issue on 23 March 2022 was booked in unrestricted equity reserve according to the resolution of the Extraordinary General Meeting.

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 2023 is that no dividend will be paid.

For financial year 2022 company decided to not pay any dividend.

Treasury shares

Treasury shares contains shares acquired from the market (71,795 shares) and shares from the direct share issue to company itself (154,325 shares). The cost of acquired shares is reported as a deduction in shareholders' equity. The shares have been acquired through public trading on Nasdaq 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 and incentive programs.

The total number of treasury shares was 226,120 at the end of 2023. This represents 0.13% of the Company's voting power on December 31, 2023.

15 Trade and other receivables

Aging of trade receivables and expected credit losses

Movements in the provision for expected credit losses

Material items included in prepaid expenses

16 Share-based payment transactions

During the period Group has had share-based incentive plans covering management and the key personnel of the Group and a share savings plan available to all employees as described below. The programs have been established as part of incentive and retention system within WithSecure. The programs offer the participants a possibility to receive WithSecure shares as an incentive reward if the financial targets set for the earning period have been achieved. No reward can be given to a participating employee whose employment has terminated before the end of the lock-up period. WithSecure’s current plans consist of Performance Share Plans, Restricted Share Plans, a Performance Matching Share Plan and an Employee Share Savings Plan.

Share-based incentive program 2020–2022

The share-based incentive program 2020-2022 was established in February 2020. The program's duration is five years and it comprises three earning periods: 2020-2022 with the grant date in April 2020, 2021-2023 with the grant date in April 2021 and 2022-2024 with the grant date in March 2022. Each earning period lasts for three years. The program ends on December 31, 2024. The value of the WithSecure share at grant date for the program were EUR 2.18 for the 2020-2022 earning period, EUR 3.42 for the 2021-2023 earning period, and EUR 5.12 for the 2022-2024 earning period. The rewards will be equity-settled. The original maximum total of shares to be given as reward were as follows: 3,400,000 shares on the basis of earning period 2020-2022; 2,600,000 shares on the basis of earning period 2021-2023, and 2,200,000 shares on the basis of earning period 2022-2024. The vesting of the rewards for all periods was conditional to the participant remaining in the service of WithSecure. In addition, the 2020-2022 earning period had a performance condition based on WithSecure's relative total shareholder return of WithSecure's share, and earning periods 2021-2023 and 2022-2024 have a performance condition based on the absolute shareholder return of WithSecure's share. The Board has approved the metrics, targets and participants on annual basis for each earning period.

After the demerger, share-based incentive program 2020-2022 was converted into new WithSecure shares by updating total amount of shares to be granted and the performance criteria. The Board has approved the new metrics, targets and amount of shares. IFRS2 modification accounting was applied in the conversion. In the modification, the fair value of the original reward and the fair value of the new reward was calculated to modification date August 12, 2022. Incremental expense from the modification is booked as cost for the remaining earning period. The converted maximum total of shares to be given as reward are as follows: 9,100,000 shares on the basis of earning period 2020-2022; 6,900,000 shares on the basis of earning period 2021-2023; 5,900,000 shares on the basis of 2022-2024 earning period, and 4,600,00 shares on the basis of 2023-2025 earning period.

In December 2022, WithSecure's Board of Directors decided on a new Performance Share Plan for years 2023-2025 within a share-based long-term incentive scheme first announced in February 2020. The plan is offered to the management and selected key employees. The performance criteria for the new plan is WithSecure's total shareholder return (TSR). The aggregate maximum number of shares to be paid based on the plan is approximately 4,700,000 shares. Expected total cost of the program is EUR 3.3 million, and the rewards have been granted to approximately 110 employees.

The expenses arising from the share-based incentive program in financial statements for 2023 are EUR 2,037 thousand (1,448 including reversed expense from forfeiture of F-Secure participants)

Restricted share plan

A Restricted share plan was established in February 2020. The program's duration is five years. The Restricted share plan complements the incentive programs and comprises of four earning periods: 2020-2021 with grant date in October 2020, 2021-2022 with grant date in August 2021, 2021-2023 with grant date in January 2021, and 2022-2024 with grant dates in March 2022, June 2022 and September 2022. The original maximum total shares to be given is as follows: 300,000 shares on the basis of the earning period 2020-2021; 500,000 shares on the basis of the earning period 2021-2022; 500,000 shares on the basis of earning period 2021-2023, and 500,000 shares on the basis of earning period 2022-2024. The vesting of the rewards for all periods is conditional on the participant remaining in service of WithSecure. The Board has approved the participants for each earning period.

After the demerger, the Restricted share plan was converted into new WithSecure shares by updating total amount of shares to be granted. The Board has approved the new amount of shares. IFRS2 modification accounting was applied in the conversion. In the modification, the fair value of the original reward and the fair value of the new reward was calculated to modification date August 12, 2022. Incremental expense from the modification is booked as cost for the remaining earning period. The converted maximum total shares to be given is 1,400,000 shared for each earning period 2021-2022, 2021-2023 and 2022-2024.

In December 2022, WithSecure's Board of Directors also decided on a new Restricted Share Plan for years 2023-2025 within a restricted share plan scheme first announced in September 2020. The plan is offered to selected key employees. The aggregate maximum number of shares to be paid based on the plan is approximately 1,100,000 shares.

The expenses arising from the Restricted share plan in financial statements for 2023 are EUR 1,007 thousand (2022 EUR 1,113 thousand including reversed expense from forfeiture of F-Secure participants.)

Performance Matching Share Plan

Performance Matching Share Plan was established in September 2022. The program consists of one 4-year performance period which started on September 1, 2022 and ends on November 30, 2026. In the plan, participants were given an opportunity to invest in WithSecure shares and earn WithSecure shares through a matching reward. The Board has approved participations in the plan. The company will match the participants' own investment based on WithSecure's market capitalization value. The maximum matching is 5 times the number of invested shares. In addition, the participants will receive a guaranteed matching of 0.5 times the initial investment, given that their employment continues without termination at the time of the payment.

Performance Matching Share Plan replaced Share-based incentive program's earning period 2022-2024 for participants. According to IFRS 2 modification accounting has been applied. In the modification, the fair value of the original reward and the fair value of the new reward was calculated to the modification date September 9, 2022. Expense from the original reward is booked as cost for the original earning period and the incremental expense from the modification is booked as cost for the performance period of the new reward.

The expenses arising from the Performance Matching Share Plan in financial statements for 2023 are EUR 0.2 thousand.

Employee Share Savings Plan

Employee share savings plan was established in August 2022. The plan consists of a 12-month savings period that is followed by a 2-year restriction period. In the plan, participants are given an opportunity to invest in WithSecure shares through monthly savings and earn WithSecure shares through a matching reward. After the restriction period, the participants will receive one guaranteed matching share for every two shares saved within the plan given that their employment continues without termination at the time of the reward payment.

In September 2023, WithSecure's Board of Directors decided to launch a new Plan period 2024-2026 within the ESSP for the employees of WithSecure Corporation and its subsidiaries.The maximum number of matching shares (gross number before taxes) for the plan period is approximately 1,000,000 shares.

The expenses arising from the Employee Share Savings Plan in financial statements for 2023 are EUR 2 thousand (2022 2 thousand).

Impacts of share-based payment transactions on financial statements

17 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

1. Interest bearing receivables include receivables related to premises subleased to F-Secure, receivables related to deferred consideration and receivables related to asset transfers in Group subsidiaries in relation to demerger.
2. On 31 December EUR 15 million of Group cash assets were invested in short term deposits for maturity of maximum 3 months. These deposits are included in the balance for Cash and cash equivalents, and their fair value is equivalent to their carrying value.

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.

The carrying amount of all financial assets and liabilities, carried at amortized cost is considered to provide a reasonable approximation of their fair value.

In September 2023, the company signed a new committed EUR 20 million revolving credit facility (RCF) with OP Corporate Bank. The facility will mature in three years from its signing. The new facility is subject to conventional covenants related to ratio of net debt to EBITDA and equity ratio. The facility remains unused at the end of the year.

Other loans are liabilities related to asset transfers in Group subsidiaries in relation to demerger.

Lease liabilities consists mainly of buildings (EUR 9.2 million). Cars are totalling to EUR 1.0 million and the maturity for them is mainly less than 2 years.

18 Management of financial risks

General

The goal of risk management is to identify risks that may hinder the Group from achieving its business objectives. The Group may be exposed to a variety of financial risks: market risk (including currency risk, interest rate risk and commodity risk), credit risk and liquidity risk. The responsibility for the Group's risk management lies with the CEO, the management and ultimately with the Board of Directors. The operative management of the treasury activities are centralized into Group Treasury. The Treasury Policy, which has been approved by the Board of Directors, defines the principles for measuring and managing liquidity risk, interest rate risk, currency risks and counter-party risk of the Group.

Credit risk

Credit risk is managed on Group level in line with the Group Credit policy. Credit risk derives from financial investments, derivative contracts and customer-related assets, such as accounts receivable. The Group trades only with recognized, creditworthy third parties and requires a credit review to be performed for any new customers. Advance payments or short payment terms can be used to reduce credit risk, especially with significant contracts. 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 due to its diversified customer portfolio operating in different regions. See note 15. Trade and other receivables

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 2023, and at the end of the reporting period the Group held EUR 21.6 million in its bank accounts and EUR 15.0 million in short trem deposits with maturity of less than three months. In total, Group's cash and cash equivalents were EUR 36.6 million (EUR 55.1 million euro in 2022). The Group also holds a revolving credit facility (RCF) of EUR 20 million which remains unused at the end of the year. The management and the Board of Directors monitors Group's liquidity through a regular cash forecast on a monthly basis.

Market risk

The Group invests liquidity in excess of operative requirement according to Investment Policy approved by the Board of Directors. Assets available for investing are determined based on cash and liquidity forecasts. The objective is to generate stable positive returns and at minimum ensure that the invested nominal amounts can be redeemed. Market risk arising from investments is managed by defining neutral allocation per asset class complemented by minimum and maximum limits. The Board of Directors approves allowed counterparties and issuers for the Group's investments

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 can use forward currency contracts to eliminate the currency exposure of the estimated cash flow of these currencies.

Group has forward contracts to hedge internal loan receivable in USD. As of 31 December 2023, the nominal value of the forward contracts was EUR 7 million and the market value was EUR -1 thousand.

The carrying Euro amounts of the Group's financial assets and liabilities at the reporting date are as follows:

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. The sensitivity calculation is based on a change of 10% in the Euro exchange rate against the functional currencies the Group operates in.

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 EUR. In the divestment of the South African subsidiary, ZAR based goodwill was reallocated to GBP and EUR. 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, WithSecure does not hedge equity 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.

Interest rate risk

The Group repaid its bank loans in June 2022 which reduced exposure to interest rate risk. Interest rate risk is limited to interest bearing liabilities in subsidiaries from asset transfers related to the demerger (EUR 3.6 million).

Capital management

The Group's shareholders' equity is managed as capital. The objective of the Group's capital management is to maintain an efficient capital structure that ensures the functioning of business operations and promotes shareholder value. After June 2022, the Group has not had external financing. 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 WithSecure is to pay approximately half of its annual profit as dividend. Subject to circumstances, the Company may deviate from its policy.

19 Deferred tax

On December 31, 2023 the Group had EUR 76.6 million losses carried forward that are available to be offset against future taxable profits in the companies in which the losses have been generated. Deferred tax asset has been recognized for losses in total of EUR 27.8 million.

20 Provisions

Provision is related to restructuring in Q4 2023 and is expected to be used in 2024.

21 Other liabilities

22 Contingent liabilities

23 Related party disclosures

The Group's related parties include members of the Board, CEO and members of the Leadership Team as well as their close family members and entities where the aforementioned persons have either control or shared control.

Compensation of key management personnel of the Group

Wages and other short-term employee benefits incl. share-based payments

Board of Directors 2023 and Managing Director

Share-based payments granted to the CEO are presented at the IFRS 2 expense of the share plans. The share-based payments are equity-settled and are measured at the fair value of the WithSecure Corporation share on the date they were granted. The cost is recognized over the period in which the performance conditions are fullfilled (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 81 thousand euro (88 thousand euro in year 2022). 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.

24 Subsidiaries