Stock Exchange Release
January 29, 2009 at 9.00
F-Secure Corporation Interim Report January 1 - December 31, 2008
Strong year-end performance, good revenue growth and strong profitability,
excellent cash flow, SP growth accelerated
Highlights in Q4
- Total revenue growth was 18%, and resulted again in all-time high quarterly
revenues of 30.6 million (26.0m)
- Revenues from the Internet Service Provider
(ISP) business grew by 10% from the previous quarter, and 33% from Q407,
reaching revenues of 13.5 million (10.1m)
- EBIT reached a record of 7.2 million
(including the gain from the sale of network control technology of 0.8m),
representing 24% of revenues (5.5m)
- Earnings per share were EUR 0.05
(EUR 0.04)
- Cash flow was 8.3 million positive excluding the capital repayment of
35.7million in November (5.2m positive)
- Capital repayment of EUR 0.23 per share in November
- Q408 financial performance within the given guidance;
revenues 29.5-31.5m and costs below 22m.
Highlights in 2008
- Total revenue growth was 17%, and resulted in all-time high revenues of
113 million (96.8m)
- Revenue growth from the ISP business was 35%, reaching
revenues of 48.4 million, (35.9m)
- EBIT was 24.3 million, an increase of 25%,
representing 22% of revenues (19.5m)
- Earnings per share increased to EUR 0.13
(EUR 0.10)
- Cash flow was 23.5 million positive, excluding the dividends of
10.9m paid in April and the capital repayment of 35.7m in November. (Cash flow
20.7 m positive excluding the dividends of 3.1m)
- New innovative Internet
Security solutions and value-added services launched; portfolio expansion
including unlimited on-line backup service for Internet Service Providers
launched during Q2
- 2008 financial performance within the given guidance;
revenues 112-114 million and EBIT 20-23%
(This report is unaudited. Unless otherwise stated the comparisons refer to the
corresponding period a year ago. The currency is euro. The Board proposals to
the annual general meeting will be announced on Feb. 12, 2009)
Key figures 2008 2007 2008 2007
€m 10-12 10-12 12m 12m
Revenues 30.6 26.0 113.0 96.8
Operating result 7.2 5.5 24.3 19.5
% of net sales 24 % 21 % 22 % 20 %
Profit before taxes 8.0 6.9 26.4 21.4
Deferred revenue 37.2 31.9
Change in cash flow -27.4 5.2 -23.1 17.6
EPS 0.05 0.04 0.13 0.10
ROI% 52 36
ROE% 36 25
Equity ratio% 71 82
Gearing -148 -125
Personnel, end of period 718 566
CEO Kimmo Alkio: “We are pleased with our performance for both the fourth
quarter and the year 2008 as a whole. Our pursuit and results for market share
expansion are a result of a committed partner network and the quality of service
we have been able to deliver to our customers. During the year we have expanded
our leadership position with the global ISP partner network of more than 180
partners and now serve an addressable market of over 50 million consumer
customers. This market position coupled with new innovations, such as the
recently launched on-line backup services, provides a good starting point both
for the year 2009 and for long term sustainable growth”.
F-Secure business at the group level in 2008
For 2008 the total revenues were 113 million (2007: 96.8m), representing growth
of 17%. This growth was especially strong in the Internet Service Provider
business. EBIT was 24.3 million (19.5m), 22% of revenues, and an increase of 25%
from the previous year. This includes the gain from the sales of network control
technology, 0.8 million, in October. Cash flow from operations was 23.5 million
positive (20.7m) excluding the dividends of 10.9 million paid in April (3.1m)
and a capital repayment of a total of EUR 35.7 million paid in November. The
Group deferred revenues were 37.2 million at the end of December (31.9 million
at the end of September 2008).
The financial results for 2008 were in line with the guidance given in October
(revenues 112 - 114 million, EBIT 20-23%).
The Group total costs were 81 million (70.5m), 15% higher than in 2007. The
Group also capitalized some of its R&D expenses according to accounting rules,
totaling approximately 0.5 million in 2008.
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 represented close to 100% of
the total revenues.
Internet Service Provider channel in Q4 and 2008
The solid development in the Group's Internet Service Provider (ISP) business
continued as anticipated. The total number of ISP partners at the end of Q4 was
183 operating in 43 countries.
In the fourth quarter of 2008, the revenues through the ISP business partners
totaled 13.5 million (Q407: EUR 10.1 million), representing 44% of the total
revenues (39%) and a growth of 33% compared to 2007. The revenue growth
accelerated from the previous quarter and was 10%. The annual revenues were
48.4m (35.9m), representing 43% of the total revenues (37%) and a growth of 35%
compared to 2007.
The new service provider partnerships comprise Vodafone (New Zealand).
The growth of online back-up services, complementing the F-Secure existing
portfolio of data security services, has progressed well and it is expected to
continue. For Online Backup, there are currently a total of 7 partners in 6
countries.
The Online Backup services are expected to further strengthen the company's
strategy of offering value added services through Internet Service Providers.
However, as stated in the Q32008 report, bringing this new product to market has
taken longer than anticipated.
The total number of the Group's ISP partners is significantly larger than that
of any other security service vendor. At the end of 2008 the Group's ISP
partners held approximately 39% (37%) market share of total broadband consumer
connections in Europe, approximately 10% (10%) in North America and
approximately 13% (9%) in APAC excluding China (Source: estimates by Dataxis and
F-Secure).
Other channels in Q4 and 2008
The traditional sales channels, including Value Added Resellers, IT Service
Providers, Managed Security Service Providers, e-Store and Retail channels
continued to perform well as anticipated. The channel revitalization program for
delivering solid growth in sales through the traditional channels has progressed
well.
Revenues through these channels were 17.1 million in Q4 (15.9 million). This
represented 56% of the Group's total revenues (61%), growth of 8% from the
previous year. Revenues in 2008 were 64.6 million (2007: 60.8m), which
represents 57 % of the Group total revenues (63%), growth of 6% from the
previous year.
Mobile security in Q4 and in 2008
Close co-operation with major handset manufacturers, including Nokia, progressed
well throughout the year. The Group announced several new mobile operator
partnerships during 2008 including Global Frame Agreement with Vodafone Global.
Operator announcements included KPN, TDC, Netia, Vodafone UK and CSL.
Co-operation with the operators T-Mobile International, TeliaSonera Group,
Orange, Swisscom and Elisa continued as planned.
In Q4, the Group launched its first non-anti malware mobile security
functionality, adding lock & wipe capabilities to its Mobile Security product.
In 2008, the revenues generated by the mobile security services were at the
level of approximately 3% of the Group's total revenues (2% in 2007), while the
number of trial customers continues to increase consistently.
Products & Services
F-Secure launched new products and services during the Q4. F-Secure Client
Security 8, launched in October, provides highly effective protection for
corporate workstations and laptops by using the F-Secure DeepGuard™ 2.0
technology, which recognizes both safe and malicious software instantaneously
using a real-time protection network.
In November, F-Secure launched a new version of its security solution for
smartphones, Mobile Security 5, which has an anti-theft feature including easy
remote lock and wipe of confidential data if the phone is lost or stolen.
In September, F-Secure announced Internet Security 2009 for protection against
new online threats using the F-Secure DeepGuard™ 2.0 technology. The Wellbeing
2009 product family includes F-Secure Internet Security 2009, F-Secure
Anti-Virus 2009, F-Secure Home Server Security 2009 and F-Secure Health Check.
F- Secure's Online Backup solution, launched in July, features unlimited online
backup services for broadband users on a subscription basis. Online Backup is
initially available through ISP partners.
The sale of network control technology
In October, F-Secure divested some of its network control technology. The sale
improved the operating profit for Q4 by approximately 0.8 million.
Customer satisfaction
F-Secure updated its annual customer satisfaction survey in Q4. Survey was
updated to cover customer and product satisfaction in more detail and it was
extended to new areas such as user experience. The new survey and methodology
provides F-Secure with more accurate and detailed information in the following
areas: customer demographics, overall satisfaction, purchasing experience,
support services, the web, detailed product satisfaction, and user experience.
The overall satisfaction remained at the good level of 4.1 (4.1) on a scale from
1 to 5.
Market situation
There were no significant changes in the competitive landscape nor in the
pricing levels during the year. However, there have been occasional signs of
increasing price competition in some countries. The Group's competitive position
in the ISP channel has remained strong.
Personnel and organization
The Group's personnel totaled 718 at the end of the year (2007: 566). The
Group's number of personnel has increased compared to the previous year driven
by the business growth in mainly the global Sales and Marketing and in R&D
organizations. Given the rapid recruitment in the first 9 months of 2008 (144
persons), the Group slowed down its personnel growth in the fourth quarter, with
an increase of 8 persons.
The current Executive Team consists of the following persons: Ari Alakiuttu
(Vice President, Human Resources), Kimmo Alkio (President and CEO), Pirkka
Palomäki, (Chief Technology Officer), Antti Reijonen, (Vice President,
Strategy), Seppo Ruotsalainen (Senior Vice President, Sales and Geographical
Operations) and Taneli Virtanen (Chief Financial Officer).
Financing and capital structure
The Group's financial position was strong in Q4 and in 2008. The Group's equity
ratio after the capital repayment at the end of the year was 71% (82%), which
reflects the company's healthy capital structure. The gearing ratio was 148%
negative (125% negative).
Cash flow for 2008 was 23.5 million positive (20.7m) excluding the dividend of
EUR 10.9 million (3.1m) paid in April and the returning of equity of 35.7
million paid in November. The financial income for 2008 was 2 million (1.9m).
The market value of the liquid assets of the Group on December 31, 2008 was 61
million (84.1m).
The change in the USD-EUR exchange rate has not had material a effect on
revenues and results for 2008.
Capital expenditures
The Group's capital expenditure for 2008 was 3.1 million (2.2 m), consisting
mainly of IT hardware and software as well as capitalization of some research &
development expenses.
Capital management, EGM and repurchase of own shares
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 Board called an extraordinary general meeting on October 28 to decide on the
return of equity from the Company's invested unrestricted equity and on the
consequent changes affecting the subscription price of the Company's existing
option programs. The proposal was approved and the capital repayment of total
EUR 35.7 million or EUR 0.23 per share was paid to shareholders in November. The
subscription price of the stock options, which can be subscribed for and which
belong to the option programs 2002 and 2005, were lowered by EUR 0.23 per stock
option.
In October, the group announced the buy-back its own shares. The shares were
repurchased through public trading on NASDAQ OMX Helsinki in accordance with its
rules and at market price. The number of own shares at the end of December was
717,000. Based on the authorization, the maximum amount to be repurchased is
2.500.000 shares, representing 1.6% of all the shares issued by the Company. The
buy-back of own shares is based on the authorization of the Annual General
Meeting 2008 and is valid until the next Annual General Meeting.
Shares, shareholders' equity, and option programs
During Q4, a total of 29,291 F-Secure shares were subscribed for with the A1/A2
warrants, a total of 52,964 F-Secure shares were subscribed for with the
B1/B2/B3 warrants and a total of 693,294 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 775,549. The corresponding
increase in the share capital was registered in the Finnish Trade Register on
November 17, 2008.
As a result of the registering the total number of shares at the end of the year
was 156,077,161. The trading with the new shares will commence on November 18,
2008. The corresponding number of shares fully diluted would be 161.270.407. The
group received as subscription price a total amount of EUR 996,136.33, which was
recorded in the fund for company's distributable equity.
After the reporting period, a total of 3,333 F-Secure shares were subscribed for
with the A3 warrants, total of 171,340 F-Secure shares were subscribed for with
the A1/A2 warrants, a total of 162,650 F-Secure shares were subscribed for with
the B1/B2/B3 warrants and a total of 355,923 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 693,246. The corresponding
increase in the share capital was registered in the Finnish Trade Register on
January 7, 2009. The group received as a subscription price a total amount of
EUR 661,219.02, which was recorded in the fund for company's distributable
equity. As a result of the registering the total number of shares is currently
156,770,407.
The entire F-Secure 2002 warrant plan expired December 31, 2008.
Corporate Governance
The group complies with the Corporate Governance recommendations for public
listed companies published in October 2008 by the Securities Market Association,
a body established by the Confederation of Finnish Industries EK, the Central
Chamber of Commerce, and NASDAQ OMX Helsinki Ltd., as explained on the Group's
web pages.
Risks and uncertainties
Despite the current economic conditions, the Group has not seen material changes
to the risks and uncertainties during the reporting period. The current
situation in the global economy has not had a major impact on F-Secure's
businesses during Q408. However, as the uncertainty in the economic environment
has increased, the Group is closely monitoring the developments in the economic
and financial markets.
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.
In December 2008, F-Secure Inc. the U.S. subsidiary of F-Secure Corporation, was
named as a defendant in a patent infringement lawsuit filed in a state court in
the U.S. F-Secure is investigating the claims and will defend itself
accordingly. The Group does not expect any material impact on its financials
from this lawsuit.
Events after the period-end
In January, the Group announced a subscription of shares based on the option
programs F-Secure 2002 Warrant plan. The details of this subscription are in
explained this release under the section shares, shareholders' equity, and
option programs.
Long-term objectives
The demand for Internet Security and other related services continues to
increase, along with the growing number of Internet broadband connections and
the expansion of Internet. The long term endpoint security market compound
annual growth rate is expected to be around 10% between 2007-2012. Furthermore
in 2009 the endpoint security market growth is anticipated to be around 8% over
the prior year. (Source: IDC, Worldwide Security Products 2008-2012 Forecast:
Postcrisis, Doc # 215745, December 2008).
The Group's first priority is to drive strong growth. The core growth driver is
the ISP channel where the Group has a strong foothold globally. The Group's
target is to be the leader in providing security and other related services to
consumers through Service Providers. In addition, the Group is developing its
operations in other channels, e.g. electronic sales, to drive long term growth.
The Group pursues investments in new value added services for both PC and mobile
users to augment the existing security services. The Group continues to drive
innovation also in the traditional IT security, enabling the secure use of
internet.
During the next three years, the Group aims to continue to exceed the average
market growth rates in revenues. The company seeks the EBIT level to be around
25%.
Short-term outlook
In Q408, the prevailing economic conditions had little, if any, impact on the
Group's business. During the year 2009 the Group seeks to continue to exceed the
average market growth.
The Group revenues for the first quarter of 2009 are estimated to be between
29.5 million and 31.5 million. Costs level is estimated to be below 22.5
million.
The revenue estimate is based on the sales pipeline at the time of publishing,
existing subscriptions and support contracts and current EUR/USD exchange rate
of 1.35.
News conference today at 11 am
A news conference for the press and analysts will be arranged today, January 29,
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 at http://www.f-secure.com/f-secure/investor_relations/.
The audited annual accounts for the full year 2008 together with the Board's
proposals to the annual general meeting will be announced on February 12. The
Annual Report will be published in mid-March, 2009. The Annual General Meeting
will be held on March 26, 2009.
The interim 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
10-12 10-12 1-12 1-12 %
Revenues 30.6 26.0 113.0 96.8 17
Cost of revenues 3.1 2.0 10.3 7.5 36
Gross margin 27.4 24.0 102.7 89.2 15
Other operating income 1.3 0.4 2.6 0.8 226
Sales and marketing 13.0 11.5 48.6 43.2 13
Research and development 6.7 5.7 25.5 21.2 20
Administration 1.9 1.8 6.8 6.2 11
Operating result 7.2 5.5 24.3 19.5 25
Financial net 0.7 1.4 2.0 1.9
Result before taxes 8.0 6.9 26.4 21.4
Income taxes -2.1 -2.1 -6.9 -5.9
Result for the period 5.9 4.8 19.6 15.4
Earnings per share, e 0.13 0.10
EPS, diluted, e 0.12 0.10
BALANCE SHEET
ASSETS 31/12/2008 31/12/2007
Intangible assets 3.5 3.8
Tangible assets 3.5 3.3
Other financial assets 1.1 0.9
Non-current assets total 8.1 8.0
Inventories 0.1 0.3
Other receivables 25.5 22.1
Available-for-sale
financial assets 47.1 71.6
Cash and bank accounts 14.1 12.7
Current asset total 86.8 106.6
Total 94.9 114.7
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/12/2008 31/12/2007
Equity 41.1 67.5
Other non-current 0.0 0.1
Provisions 1) 0.0 1.3
Deferred revenues 7.5 4.8
Non-current liabilities total 7.5 6.2
Other current 16.5 13.8
Deferred revenues 29.7 27.1
Current liabilities total 46.2 40.9
Total 94.9 114.7
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 did not
receive a leave to appeal for Supreme Court.
Cash flow statement 31/12/2008 31/12/2007
Cash flow from operations 26.3 22.7
Cash flow from investments -3.2 -2.1
Cash flow from financing
Activities 2) -46.2 -3.0
Change in cash -23.1 17.6
Cash and bank at 1 Jan 84.3 66.4
Change in net fair value of
Available-for-sale -0.2 0.1
Cash and bank at 31 Dec 61.0 84.1
Note 2) Cash flow from financing
Increase in equity by exercise of options 1,845,127 euro.
Final dividend for year 2007 0.07 euro per share totaling 10,859,178.26 euro was
paid on 8th April 2008. Capital repayment 0.23 euro per share totaling
35,719,370.76 euro was paid on 7th November 2008.
Statement of changes in shareholders' equity
share fair unres-
share premium treasury transl. value tricted retained
capital fund shares diff. reserve reserve earnings total
Equity on
31.12.2007 1.5 0.2 0.0 0.0 0.0 33.6 32.2 67.5
Available-for-sale
financial asset, net -0.1 -0.1
Translation diff. -0.4 -0.4
Cost of share
based payments 0.7 0.7
Profit 19.6 19.6
Dividend -10.9 -10.9
Capital repayment -35.7 -35.7
Other change 2.4 -2.4
Exercise of
options 0.0 0.0 1.8 1.9
Aquisition of
treasury shares -1.5 -1.5
Equity on
31.12.2008 1.5 0.2 -1.5 -0.4 -0.1 2.1 39.2 41.1
Key ratios 2008 2007
12 m 12 m
Operating result,
% of revenues 21.5 20.1
ROI, % 51.5 36.3
ROE, % 36.0 25.4
Equity ratio, % 71.3 81.6
Debt-to-equity ratio, % -148.5 -124.6
Earnings per share (EUR) 0.13 0.10
Earnings per share diluted 0.12 0.10
Shareholders' equity
per share, e 0.26 0.44
P/E ratio 14.9 24.6
Capitalized expenditures (Me) 3.1 2.2
Contingent liabilities (Me) 7.8 9.2
Personnel, average 652 528
Personnel, Dec 31 718 566
Segment information
The Group has only one segment; data security.
Quarterly development
1/07 2/07 3/07 4/07 1/08 2/08 3/08 4/08
Revenues 23.1 23.3 24.3 26.0 26.6 27.2 28.6 30.6
Cost of revenues 1.9 1.8 2.0 2.0 2.1 2.4 2.6 3.1
Gross margin 21.3 21.6 22.3 24.0 24.5 24.7 26.0 27.4
Other operating income 0.1 0.1 0.1 0.4 0.3 0.6 0.4 1.3
Sales and marketing 10.6 11.1 10.0 11.5 11.5 12.4 11.8 13.0
Research and
development 5.3 5.3 5.0 5.7 6.3 6.5 6.1 6.7
Administration 1.4 1.6 1.3 1.8 1.8 1.7 1.4 1.9
Operating result 4.1 3.7 6.2 5.5 5.3 4.7 7.1 7.2
Financial net 0.2 0.3 0.1 1.4 0.3 0.6 0.4 0.7
Result before taxes 4.2 4.0 6.3 6.9 5.6 5.3 7.5 8.0
