F-SECURE CORPORATION Interim Report
Translation from Finnish
April 23, 2008 at 9.00am
Solid overall growth, ISP channel strong as expected, good profitability
(Unaudited figures. Unless otherwise stated comparisons are made to the same
period one year ago. The currency is euro.)
Highlights
- Total revenue growth was 15% and resulted in an all-time high quarterly
revenue
of 26.6m
- ISP business growth was 8% quarter over quarter, and 41% year over year,
reaching revenues of 10.9m
- EBIT was 5.3m, 20% of revenues (4.1m)
- Cash flow positive 6.1m
Business at the Group level
For the first quarter of 2008 total revenues were 26.6m (23.1m), representing
15% growth. EBIT was 5.3m (4.1m) and 20% of revenues, representing 31% growth.
Cash flow was 6.1m positive (1Q07 cash flow 8m positive before dividend).
Deferred revenues were 33.7m at the end of the quarter (31.9m at the end of
4Q2007).
The total costs were 19.5m (17.4m), representing 12% growth. The Group
capitalizes some of its development expenses according to the accounting rules.
This had no material impact on the cost level.
The results were in line with the given guidance (revenues 26m-28m, costs not
exceeding 20m).
The geographical breakdown of the business was as follows: Nordic Countries 40%
(39%), Rest of Europe 43% (44%), North America 8% (8%) and Rest of the World 9%
(9%). Anti-virus and intrusion prevention represented close to 100% of the total
revenues.
ISP channel
Strong development in the Service Provider business continued and a total of 6
new ISP partnerships were signed in Q1. Two partner operators merged into
existing partners without loss of business for the Group. The total number of
ISP partners was 169 operating in 38 countries at the end of the quarter.
New service provider partnerships signed in Q1 include Cabovisao (Portugal),
Comstar-Direct (Russia), and Ziggo (The Netherlands).
In the first quarter of 2008, revenues through the Internet Service Provider
(ISP) partners were 10.9m (7.8m), representing 41% of the total revenues (34%)
and a growth of 41% from the previous year. The quarter-over-quarter revenue
growth was 8% (7% in 4Q2007).
The total number of the Group's ISP partners is significantly larger than with
any other security service vendor. At the end of 2007 the Group's ISP partners
held approximately 37% (34%) market share of total high-speed consumer
connections in Europe, approximately 10% (10%) in North America and
approximately 9% (n/a%) in APAC (Source: Dataxis and F-Secure).
Other channels
The traditional sales channels, including Value Added Resellers, IT Service
Providers, Managed Security Service Providers, e-Store and Retail channels grew
by 2% from the previous year. Revenues were 15.7m (15.4m) and represented 59% of
the total revenues (66%).
F-Secure Protection Service for Businesses, which was launched during 4Q 2007,
has continued to gain significant interest among Value Added Reseller partners
and the business customers.
Mobile security
Mobile security revenues were at the level of approximately 3% of the Group's
total revenues in Q1. These revenues are included in the above-mentioned channel
revenues and the percentage figure is shown as an indicator only.
In the first quarter F-Secure signed a partnership with Toshiba Information
Systems (UK) Mobile Communications Division to provide F-Secure Mobile
Anti-Virus for Toshiba's Windows Mobile smart devices throughout Europe. The
Group also launched a partnership with CSL, Hong Kong's largest mobile operator,
to provide an integrated mobile security service.
Close co-operation with Nokia and Sony Ericsson together with operator
partnerships, such as Orange UK, Orange Switzerland, T-Mobile Germany, T-Mobile
UK, Swisscom, TeliaSonera and Elisa, is the prime vehicle to make mobile
security applications available to a large number of end users. Co-operation
initiatives with other major mobile operators and handset manufacturers are also
progressing well.
Products & Services
Key product announcements in Q1 include F-Secure Health Check for Service
Providers, Protection Service for Business, and a new version of F-Secure
Anti-Virus for Windows Servers.
After the reporting period the Group announced F-Secure Mobile Security for
Windows Mobile, combining real time anti-virus and anti-spyware with a firewall
for this mobile platform.
Competitive situation
There were no significant changes in the competitive landscape during the
quarter. However, compared to the situation one year ago, competition in the
traditional corporate channel has become tougher resulting in negative price
development in some countries. The Group's competitive position in the ISP
channel has remained strong.
Customer satisfaction
F-Secure updated its annual customer satisfaction survey at the end of 2007. The
overall satisfaction was healthy at a level of 4.1 on a scale from 1 to 5.
Personnel and Organization
The Group's personnel numbered 602 at the end of the Q1 (514).
The Group has been successful in pursuing its strategy to reinforce above all
its global sales and marketing organization.
The current Executive Team consists of the following persons: Mr. Ari Alakiuttu
(Vice President, Human Resources), Mr. Kimmo Alkio (President and CEO), Mr.
Trond Neergaard (Vice President, ISP Business), Mr. Pirkka Palomäki, (Chief
Technology Officer), Mr. Antti Reijonen, (Vice President, Strategy), Mr. Taneli
Virtanen (Chief Financial Officer) and Mr. Travis Witteveen (Senior Vice
President, Sales and Geography Operations).
Financing
The Group's financial position remained strong. The Group's equity ratio on
March 31, 2008, was 71% (79%). The equity ratio would have been 81% if the
dividends had been paid in March. Financial income for the first quarter was
0.3m (0.2m).
During the first quarter cash flow was 6.1m positive (8m positive before
dividend paid in March 2007).
The market value of the liquid assets of the Group on March 31, 2008 was 90.3m
(72.4m).
A dividend of EUR 0.07 per share was paid after the reporting period, on April
8, 2008, representing a total of 10.9m for all outstanding shares.
The change in the USD-EUR exchange has had some negative effect on revenues and
results.
Capital Expenditures
The Group's capital expenditures during the first quarter were 1.0m (0.6m).
These consisted mainly of IT hardware, software and capitalization of
development expenses.
Shares, Shareholders' Equity, and Option Programs
Trading with the A-warrants of F-Secure Corporation 2005 Stock Option Plan
commenced on March 3, 2008.
During Q1, a total of 68,880 F-Secure shares were subscribed for with the A1/A2
warrants and a total of 5,900 F-Secure shares were subscribed for with the
B1/B2/B3 warrants attached to the F-Secure 2002 Warrant Plan.
In aggregate the number of shares was increased by 74,780. The corresponding
increase in the share capital, in total EUR 747.80 was registered in the Finnish
Trade Register on January 7, 2008. As a result of the increase, the share
capital of F-Secure currently is EUR 1,551,311.18 and the total number of shares
is 155,131,118. F-Secure received as additional shareholders' equity a total of
EUR 46,638. The corresponding number of shares fully diluted would be
161,464,443 including all stock option programs.
Annual General Meeting
The Annual General Meeting of F-Secure Corporation was held on March 26, 2008.
The Meeting confirmed the financial statements for the fiscal year 2007. The
members of the Board and the President & CEO were granted a discharge from
liability. In addition, the Annual General Meeting made the following decisions:
It was decided to distribute a dividend of EUR 0.07 per share to be paid to
registered shareholders on the record date of March 31, 2008. The dividend was
paid on April 8, 2008.
It was decided that the annual compensation for the chairman is EUR 55,000, for
the chairmen of Executive and Audit Committee EUR 40,000 and for members EUR
30,000. Approximately 40% of the annual remuneration will be paid as company
shares.
It was decided that the number of Board members would be six. The following
members were re-elected: Mr. Marko Ahtisaari, Ms. Sari Baldauf, Mr. Pertti Ervi,
Mr. Risto Siilasmaa, and Mr. Alex Sozonoff. Mr. Juho Malmberg was elected as a
new member.
In the first meeting of the Board Mr. Risto Siilasmaa was elected Chairman. The
Board nominated Ms. Sari Baldauf as the chairman of the Executive Committee and
Mr. Pertti Ervi as the chairman of the Audit Committee.
It was decided that auditor's fee would be paid against an approved invoice.
Ernst & Young Oy was elected the Group's auditors. APA, Mr. Erkka Talvinko is
acting as responsible partner.
The Board was authorized to decide on directed share issues and their terms. The
authorization is valid for the period of one year. The maximum cumulative number
of issued new shares is 40,000,000. The unused portion of the authorization
given by the Shareholders' meeting on the March 20, 2007, will be cancelled
simultaneously with the registration of the new authorization.
It was decided that the total amount of the subscription prices paid for new
shares issued after the date of the Annual General Meeting, based on stock
options under the F-Secure Stock Option Plans 2002 and 2005, be recorded in
company's distributable equity.
It was decided that the Board may pass a resolution to purchase a maximum of
15,513,111 shares of the Company. The amount represents approximately 10% of all
the shares issued by the Company. The authorization is valid for one year.
It was decided that the Board may decide on a transfer of a maximum of
15,513,111 own shares of the Company either against consideration or without
payment. The authorization is valid for one year. The Board of Directors is
authorized to transfer the shares in deviation from the shareholders'
pre-emptive rights (directed transfer) subject to the provisions of the
applicable law.
Corporate Governance
F-Secure complies with the Corporate Governance recommendations for public
listed companies published in December 2003 by OMX Nordic Exchange Helsinki, the
Central Chamber of Commerce of Finland and the Confederation of Finnish Industry
and Employers as explained on the Group's web pages.
Risks and Uncertainties in the Near Future
The Group has not seen any material changes to the risks and uncertainties
during the reporting period.
The Group's risks and uncertainties are related to, among other things, the
competitiveness of the Group's product portfolio, competitive dynamics in the
industry, the impact of changes in technology, timely and successful
commercialization of complex technologies as new products and solutions, the
ability to protect own intellectual property (IPR) in the Group's solutions as
well as the use of third party technologies on reasonable commercial terms,
subcontracting relationships, regional development in new growth markets,
sustainability of partner relationships, service quality level, database update
process quality, and the overall development of value added security solutions
in the Service Provider and mobile operator market.
Disputes
Helsinki Court of Appeal announced its decision on the dispute between F-Secure
Corporation and SRV Viitoset Oy. F-Secure was sentenced to pay EUR 793 230,53
and the costs of the trial plus interest to SRV Viitoset Oy. F-Secure considers
applying for leave to appeal for Supreme Court. F-Secure has already accrued
payments based on the verdict by Helsinki District Court. The financial impact
pursuant to this claim is periodized for the duration of the rental period
starting from September 2005 until the end of 2010.
Based on an agreement by and between the parties, Diagnostic Systems Corporation
dismissed their patent infringement claim of December, 2006.
Future Outlook
The Group's first priority is to drive strong growth. The core growth element is
the ISP channel.
The Group continues to invest in new sales and marketing activities to build
scalability for future growth especially for the service providers and in the
mobile segment. The Group continues to pursue innovations in security related
technologies as well as in new services related to the online wellbeing of
Internet users.
The annual growth rate in the ISP business is expected to be approximately 40%
in 2008.
In the mobile security business revenues are expected to grow steadily. However,
it is expected to remain a small part of the Group's revenues during 2008.
Management expects full year 2008 revenues to be between 110 and 120 million and
full year EBIT between 19 and 23% of revenues.
In the 2-4-year horizon the Group aims to continue to exceed the average market
growth rates in revenues and seeks an EBIT level around 25%.
The second quarter 2008 revenues are estimated to be between 26.5m and 28.5m.
Fixed costs are estimated to be below 21m in Q2.
The revenue estimates are based on the sales pipeline at the time of publishing,
existing subscriptions and support contracts and a EUR/USD exchange rate of
1.55.
Financial Reporting
A press and analyst conference will be arranged today, April 23rd, at 11 am
Finnish time at the Group's Headquarters, Tammasaarenkatu 7, Helsinki. A
conference call for international investors and analysts will be arranged at
1530 Finnish time (1430 CET, 1.30 pm UK time). Instructions can be found on the
investor pages of the Group's web site.
The next quarterly reports for 2008 will be published on July 29 (Q2) and
October 21 (Q3). A Stock Exchange bulletin will be sent at 9 am Finnish time to
the Helsinki Exchanges, a press and analyst conference will be arranged at 11 am
Finnish time in Helsinki, and an international conference call will be arranged
in the afternoon. Full details will be provided later on the Group's web site.
F-Secure Corporation
Board of Directors
This interim report is prepared in accordance with IAS 34 standard.
Key figures (unaudited):
Euro million
INCOME STATEMENT 2008 2007 Chge 2007
1-3 1-3 % 1-12
Revenues 26.6 23.1 15 96.8
Cost of revenues 2.1 1.9 11 7.5
Gross margin 24.5 21.3 15 89.2
Other operating income 0.3 0.1 115 0.8
Sales and marketing 11.5 10.6 8 43.2
Research and development 6.3 5.3 17 21.2
Administration 1.8 1.4 25 6.2
Operating result 5.3 4.1 31 19.5
Financial net 0.3 0.2 1.9
Result before taxes 5.6 4.2 21.4
Income taxes -1.4 -1.2 -5.9
Result for the period 4.1 3.0 15.4
Earnings per share, e 0.03 0.02 0.10
EPS, diluted, e 0.03 0.02 0.10
BALANCE SHEET
ASSETS 31/3/2008 31/3/2007 31/12/2007
Intangible assets 3.9 4.4 3.8
Tangible assets 3.4 3.2 3.3
Other financial assets 0.9 0.8 0.9
Non-current assets total 8.3 8.4 8.0
Inventories 0.2 0.3 0.3
Other receivables 20.7 18.4 22.1
Available-for-sale
financial assets 78.2 59.2 71.6
Cash and bank accounts 12.2 13.3 12.7
Current asset total 111.3 91.2 106.6
Total 119.5 99.6 114.7
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/3/2008 31/3/2007 31/12/2007
Equity 60.9 54.6 67.5
Other non-current 0.1 0.2 0.1
Provisions 0.0 1.2 1.3
Deferred revenues 5.3 2.5 4.8
Non-current liabilities total 5.4 3.9 6.2
Other current 24.8 13.5 13.8
Deferred revenues 28.4 27.6 27.1
Current liabilities total 53.2 41.1 40.9
Total 119.5 99.6 114.7
Cash flow statement 31/3/2008 31/3/2007 31/12/2007
Cash flow from operations 8.0 8.6 22.7
Cash flow from investments -1.9 -0.6 -2.1
Cash flow from financing
Activities* 0.0 -2.7 -3.0
Change in cash 6.1 5.3 17.6
Cash and bank at 1 Jan 84.1 66.6 66.4
Change in net fair value of
Available-for-sale 0.1 0.4 0.1
Cash and bank at 31 Mar 90.3 72.4 84.1
* dividends paid/increase in share capital
Statement of changes in shareholders' equity
share unres-
share premium transl. reval. tricted retained
capital fund diff. reserve reserve earnings total
Equity on
31.12.2007 1.5 0.2 0.0 0.0 33.6 32.2 67.5
Available-for-sale
financial asset, net 0.1 0.1
Translation diff. -0.1 -0.1
Cost of share
based payments 0.2 0.2
Profit 4.1 4.1
Dividend -10.9 -10.9
Exercise of
options 0.0 0.0 0.0
31.3.2008 1.5 0.2 -0.1 0.1 33.6 25.6 60.9
Key ratios 2008 2007 2007
3 m 3 m 12 m
Operating result,
% of revenues 20.0 17.5 20.1
ROI, % 37.1 32.6 36.3
ROE, % 25.6 22.2 25.4
Equity ratio, % 71.0 78.6 81.6
Debt-to-equity ratio, % -148.2 -132.5 -124.6
Earnings per share (EUR) 0.03 0.02 0.10
Earnings per share diluted 0.03 0.02 0.10
Shareholders' equity
per share, e 0.39 0.35 0.44
P/E ratio 23.8 25.5 24.6
Capitalized expenditures (Me) 1.0 0.6 2.2
Contingent liabilities (Me) 8.3 10.4 9.2
Personnel, average 584 496 528
Personnel, Mar 31 602 514 566
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/07 2/07 3/07 4/07 1/08
Revenues 23.1 23.3 24.3 26.0 26.6
Cost of revenues 1.9 1.8 2.0 2.0 2.1
Gross margin 21.3 21.6 22.3 24.0 24.5
Other operating income 0.1 0.1 0.1 0.4 0.3
Sales and marketing 10.6 11.1 10.0 11.5 11.5
Research and
development 5.3 5.3 5.0 5.7 6.3
Administration 1.4 1.6 1.3 1.8 1.8
Operating result 4.1 3.7 6.2 5.5 5.3
Financial net 0.2 0.3 0.1 1.4 0.3
Result before taxes 4.2 4.0 6.3 6.9 5.6
Additional information:
F-Secure Corporation
Kimmo Alkio, President and CEO tel. +358 9 2520 0700
Taneli Virtanen, CFO tel. +358 9 2520 5655
Jukka Kotovirta, IR tel. +358 40 5883 933
