October 21, 2008 at 9.00 am
F-SECURE GROUP INTERIM REPORT JANUARY 1 - SEPTEMBER 30, 2008
Solid revenue growth continued, strong profitability
(Unaudited. Unless otherwise stated the comparisons refer to the corresponding
period a year ago. The currency is euro.)
Highlights in Q3
- Total revenue growth was 18%, and resulted again in an all-time high quarterly
revenues
of 28.6m (24.3m)
- The ISP (Internet Service Provider) business growth was 6% from the previous
quarter, and 31% from 2007, reaching revenues of 12.3m (9.4m)
- EBIT reached an all-time high of 7.1m, 25% of revenues (6.2m)
- Cash flow from operations was strong at 5.3m positive (1.5m)
- New product launches progressed well
- Guidance for Q4: Group revenues and profit in line with the previously
announced guidance, SP growth estimate 34-37% (previous 35-40%)
The Group business during January-September 2008
For January-September 2008 total revenues were 82.4m (70.8m), representing 16%
growth. EBIT was 17.1m (14m), 21% of revenues, representing 22% growth. Cash
flow was 4.3m positive after a dividend of 10.9m in April (12.4m). The Group
deferred revenues were 33.7m at the end of September (33.9m at the end of June
2008).
The Group total costs were 59.5 (51.6m), 15% higher than in 2007. The Q3 cost
level was seasonally low due to the vacation period. The Group has also
capitalized some of its development expenses of approximately 0.2m according to
accounting rules.
The financial results for the first nine months of 2008 were in line with the
guidance given in July (revenues 81.3m-83.3m, costs below 60.2m).
The geographical breakdown of the revenues was as follows: Nordic Countries 39%
(39%), Rest of Europe 43% (43%), North America 9% (9%) and Rest of the World 9%
(9%). Anti-virus and intrusion prevention products for the Internet represented
close to 100% of the total revenues.
ISP channel in Q3
The solid development in the Group's Internet Service Provider (ISP) business
continued as anticipated. A total of five new ISP partnerships were signed
during Q3. The total number of ISP partners at the end of Q3 was 178 operating
in 42 countries.
In the third quarter of 2008, the revenues through the Internet Service Provider
(ISP) partners were 12.3m (9.4m), representing 43% of the total revenues (39%)
and a growth of 31% compared to 2007. The revenue growth compared to the
previous quarter was 6%.
New service provider partnerships announced in Q3 comprise Tele2 (Netherlands)
and UnityMedia (Germany). Additionally, TDC (Denmark) has signed partnership
with F-Secure, covering the protection of both PC and mobile subscribers.
At the end of Q2, F-Secure successfully launched a new service offering for its
ISP partners, the Online back-up services for broadband users. The new service
offering has been well received among customers and the first contracts are
already signed in Italy (WIND-Infostrada) and Germany (UnityMedia). This new
service complements F-Secure's existing portfolio of data security services, and
further strengthens the company's strategy of offering value added services
through Internet Service Providers.
Other channels in Q3
The traditional sales channels, including Value Added Resellers, IT Service
Providers, Managed Security Service Providers, e-Store and Retail channels
continued to perform solidly. The channel revitalization program for delivering
solid growth in sales through the traditional channels has progressed well.
Revenues were 16.3m (14.9m). This represented 57% of the Group's total revenues
(61%), growth of 10% from the previous year.
Mobile security in Q3
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, CSL Hong Kong, TeliaSonera and Elisa, is the prime vehicle to make
mobile security applications available to a large number of end users.
During Q3, F-Secure signed new contracts with KPN in the Netherlands and Netia
in Poland to deliver mobile security to their subscribers. Additionally, TDC
(Denmark) signed a partnership with F-Secure, covering the protection of both PC
and mobile subscribers.
The Group signed the Global Frame Agreement with Vodafone in Q2, on the delivery
of mobile security for major handset platforms to Vodafone customers. During Q3
Vodafone UK was the first Vodafone operating company to launch the service.
Mobile security revenues were at the level of approximately 3% of the Group's
total revenues in Q3. These revenues are included in the above-mentioned channel
revenues and the percentage figure is shown as an indicator only.
Products & Services in Q3
In September, F-Secure launched a new Internet Security 2009 for the protection
against new online threats. By using the F-Secure DeepGuard™ 2.0 technology it
recognizes both safe and malicious software instantaneously using a real-time
protection network. In addition to providing quality of protection, F-Secure
Internet Security 2009 also includes performance improvements, for example easy
automatic installation and faster boot-up, scanning and disinfection times.
Internet Security 2009 has gained excellent results in tests (e.g. AV-Test
GmbH., an independent testing organization specializing in security solutions).
Internet Security 2009 belongs to a product family called Wellbeing 2009, which
includes F-Secure Internet Security 2009, F-Secure Anti-Virus 2009, F-Secure
Home Server Security 2009 and F-Secure Health Check.
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.
Personnel and Organization
The Group's personnel totaled 710 at the end of September (543). The Group has
pursued its strategy to further reinforce 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.
Pirkka Palomäki, (Chief Technology Officer), Mr. Antti Reijonen, (Vice
President, Strategy), Mr. Taneli Virtanen (Chief Financial Officer) and Mr.
Seppo Ruotsalainen (Senior Vice President, Sales and Geographical Operations).
Financing
The Group's financial position remained strong. The Group's equity ratio on
September 30, 2008, was 83% (81%). Financial income for the first nine months of
2008 was 1.3m (0.5m). Cash flow from operations for the first nine months of
2008 was 4.3m positive (12.4m).
The market value of the liquid assets of the Group on September 30, 2008 was
88.9m (79.9m).
The change in the USD-EUR exchange has had some positive effect on revenues and
results.
Capital Expenditures
The Group's capital expenditure during the first nine months of 2008 was 2.4m
(1.6m). This consisted mainly of IT hardware, software and capitalization of
some development expenses.
Shares, Shareholders' Equity, and Option Programs
During Q3, a total of 15,000 F-Secure shares were subscribed for with the A1/A2
warrants, total of 17,000 F-Secure shares were subscribed for with the B1/B2/B3
warrants and the total of 66,774 F-Secure shares were subscribed for with the
C1/C2/C3 warrants attached to the F-Secure 2002 Warrant Plan.
In aggregate the number of shares was increased by 98,774. The corresponding
increase in the share capital was registered in the Finnish Trade Register on
August 27, 2008. F-Secure received as subscription price a total amount of EUR
131,138.40, which will be recorded in the fund for company's distributable
equity.
As a result of the registering the total number of shares is 155,301,612. The
trading with the new shares commenced on August 28, 2008. The corresponding
number of shares fully diluted would be 161,464,443 including all stock option
programs.
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
The Group has not seen any material changes to the risks and uncertainties
during the reporting period. The current situation in the financial markets has
not had an impact on F-Secure's businesses.
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, 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 requirements and
the overall development of value added security solutions in the Service
Provider and mobile operator market.
Capital management and invitation for an extraordinary general meeting
F-Secure has in its review for 2007 stated that the objective of the Group's
capital management is to aim at an efficient capital structure that ensures the
functioning of business operations and promotes the increase of shareholder
value. The Annual General Meeting 2007 decided to decrease the share premium
fund and transfer the decreased amount to distributable equity fund.
In October, the Board made a proposal regarding the returning of equity to
shareholders of EUR 0.23 per share and on the consequent changes to subscription
price of the Group's option programs. The Board proposes to the general meeting
that the returned amount would be a total of EUR 35,719,370.76 for a total of
155,301,612 shares (EUR 0.23 per share). The Board has called an extraordinary
general meeting of shareholders on October 28, 2008. The details concerning the
extraordinary general meeting are published in a stock exchange release on
October 8, 2008.
Events after Q3
In October, F-Secure divested some of its network control technology. The sale
will improve the operating profit for Q4 by approximately 0.8m.
Changes in the Group's financial position after Q3
No other major changes regarding the Group's business or financial position have
materialized after the end of September 30, 2008.
Future Outlook
The Group's first priority is to drive strong growth. The core growth driver is
the ISP channel. The growth is driven by a combination of security services and
new value added services (such as online backup). 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 the IT 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 between 34% and
37%, with accelerated growth at the end of the year. The revenue growth estimate
in the previous interim report was between 35% and 40% annual growth. During
second half of 2008 the online backup service launch with ISPs has taken longer
than anticipated.
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.
The fourth quarter 2008 revenues are estimated to be between 29.5m and 31.5m.
Fixed costs are estimated to be below 22m. 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 1.40. The current uncertainty in the
global economy is not anticipated to impact F-Secure's businesses during Q4.
The Management expects the full year revenue to be between 112 and 114 million
and full year EBIT between 20 and 23%. The guidance given for full year 2008 at
the beginning of the full year was the following: revenues to be between 110 and
120 million and 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%.
News conference today at 11 am
A news conference for the press and analysts will be arranged today, October
21st, at 11 am Finnish time at the Group Headquarters, address: Tammasaarenkatu
7 (Ruoholahti), Helsinki. A conference call for international investors and
analysts will be arranged at 15.30 Finnish time (14.30 CET, 1.30 pm UK time).
Instructions how to attend can be found on the investor pages of the Group's web
site.
The financial results for Q4 and 2008 will be published on January 29, 2009. The
audited annual accounts for the full year 2008 will be announced during the week
beginning February 9 and the Annual Report will be published in mid-March, 2009.
The Annual General Meeting will be held on March 26, 2009.
Quarterly reports for 2008 will be published on April 23 (Q1), July 28 (Q2) and
October 22 (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
Additional information:
F-Secure Corporation
Kimmo Alkio, President and CEO tel. +358 9 2520 0700
Taneli Virtanen, CFO tel. +358 9 2520 5655
Mervi Pohjoisaho, IR tel. +358 40 535 8989
This interim report is prepared in accordance with IAS 34 standard and with
accounting principles stated in the annual report 2007.
Key figures (unaudited):
Euro million
INCOME STATEMENT 2008 2007 2008 2007 Chge 2007
7-9 7-9 1-9 1-9 % 1-12
Revenues 28.6 24.3 82.4 70.8 16 96.8
Cost of revenues 2.6 2.0 7.1 5.6 27 7.5
Gross margin 26.0 22.3 75.3 65.2 15 89.2
Other operating income 0.4 0.1 1.3 0.4 246 0.8
Sales and marketing 11.8 10.0 35.7 31.7 13 43.2
Research and development 6.1 5.0 18.8 15.6 21 21.2
Administration 1.4 1.3 5.0 4.3 14 6.2
Operating result 7.1 6.2 17.1 14.0 22 19.5
Financial net 0.4 0.1 1.3 0.5 1.9
Result before taxes 7.5 6.3 18.4 14.5 21.4
Income taxes -1.9 -1.7 -4.8 -3.8 -5.9
Result for the period 5.6 4.6 13.6 10.7 15.4
Earnings per share, e 0.09 0.07 0.10
EPS, diluted, e 0.09 0.07 0.10
BALANCE SHEET
ASSETS 30/9/2008 30/9/2007 31/12/2007
Intangible assets 3.7 4.0 3.8
Tangible assets 3.6 3.2 3.3
Other financial assets 0.7 0.8 0.9
Non-current assets total 8.0 8.0 8.0
Inventories 0.1 0.3 0.3
Other receivables 22.8 18.8 22.1
Available-for-sale
financial assets 77.4 68.2 71.6
Cash and bank accounts 11.6 11.8 12.7
Current asset total 111.9 99.2 106.6
Total 119.9 107.2 114.7
SHAREHOLDERS' EQUITY
AND LIABILITIES 30/9/2008 30/9/2007 31/12/2007
Equity 71.1 63.1 67.5
Other non-current 0.2 0.3 0.1
Provisions 1) 0.0 1.3 1.3
Deferred revenues 6.3 3.8 4.8
Non-current liabilities total 6.4 5.4 6.2
Other current 14.9 13.4 13.8
Deferred revenues 27.5 25.3 27.1
Current liabilities total 42.3 38.7 40.9
Total 119.9 107.2 114.7
Note 1) By decision of Helsinki Court of Appeal a payment was made concerning
dispute between F-Secure Corporation and SRV Viitoset Oy. F-Secure has applied
for leave to appeal for Supreme Court.
Cash flow statement 30/9/2008 30/9/2007 31/12/2007
Cash flow from operations 18.3 17.0 22.7
Cash flow from investments -3.3 -1.5 -2.1
Cash flow from financing
Activities 2) -10.7 -3.1 -3.0
Change in cash 4.3 12.4 17.6
Cash and bank at 1 Jan 84.3 66.6 66.4
Change in net fair value of
Available-for-sale 0.3 0.9 0.1
Cash and bank at 30 Sep 88.9 79.9 84.1
Note 2) dividends paid/increase in equity
Final dividend for year 2007 0.07 euro per share totaling 10,859,178.26 euro was
paid on 8th April 2008.
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 0.2 0.2
Translation diff. 0.0 0.0
Cost of share
based payments 0.5 0.5
Profit 13.6 13.6
Dividend -10.9 -10.9
Exercise of
options 0.0 0.0 0.2 0.2
30.9.2008 1.5 0.2 0.0 0.2 33.8 35.4 71.1
Key ratios 2008 2007 2007
9 m 9 m 12 m
Operating result,
% of revenues 20.8 19.8 20.1
ROI, % 36.9 33.9 36.3
ROE, % 26.2 24.3 25.4
Equity ratio, % 82.6 80.8 81.6
Debt-to-equity ratio, % -124.9 -126.6 -124.6
Earnings per share (EUR) 0.09 0.07 0.10
Earnings per share diluted 0.09 0.07 0.10
Shareholders' equity
per share, e 0.46 0.41 0.44
P/E ratio 19.8 26.2 24.6
Capitalized expenditures (Me) 2.4 1.6 2.2
Contingent liabilities (Me) 7.4 9.8 9.2
Personnel, average 636 519 528
Personnel, Sep 30 710 543 566
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/07 2/07 3/07 4/07 1/08 2/08 3/08
Revenues 23.1 23.3 24.3 26.0 26.6 27.2 28.6
Cost of revenues 1.9 1.8 2.0 2.0 2.1 2.4 2.6
Gross margin 21.3 21.6 22.3 24.0 24.5 24.7 26.0
Other operating income 0.1 0.1 0.1 0.4 0.3 0.6 0.4
Sales and marketing 10.6 11.1 10.0 11.5 11.5 12.4 11.8
Research and
development 5.3 5.3 5.0 5.7 6.3 6.5 6.1
Administration 1.4 1.6 1.3 1.8 1.8 1.7 1.4
Operating result 4.1 3.7 6.2 5.5 5.3 4.7 7.1
Financial net 0.2 0.3 0.1 1.4 0.3 0.6 0.4
Result before taxes 4.2 4.0 6.3 6.9 5.6 5.3 7.5
