100 Service Provider Partners Reached
(Unless otherwise stated comparisons are made to the same period
one year ago.)
Q1 Highlights
- Total revenue increased by 41% to a record level of
18.8m
- Corporate business increased by 22% to 9m
- Service provider business increased by 80% to 5.8m
- 100th ISP signed
- Consumer business increased by 80% to 3.4m
- Other revenues 0.7m
- EBIT increased over 270% to 2.9m (0.8m); 16% of revenues
- Deferred revenues increased by 1.9m to 25.1m during Q1
- Cash flow 3.9m positive
Business at the Group level
The first quarter of 2006 presented another quarter of
sequential growth for the Group. The business advanced steadily in
all areas.
Total revenues were 18.8m (13.3m), representing 41% growth. EBIT
increased over 270% to 2.9m (0.8m) Cash flow was 3.9m positive
(2.2m) and deferred revenues were at the end of the quarter at
25.1m (19.5m).
Highlights of the quarter were the continuing strong development
in Security as a Service, continuing the establishment of a strong
foothold in Asia, and the signing of the 100th Service Provider
partnership. Mobile security showed steadily increasing sales
traction.
The Group has now finalized its strategy to exit from the
encryption business and will not report encryption revenues
separately any more. The tail-end encryption revenues will be filed
in the “other products” category from now on.
The total fixed costs were 14.3m (11.4m), representing 25%
growth. The Group’s short-term strategy continues to be to
prioritize growth over profitability. Above all, investments into
achieving a strong sustainable position in the fast growing
security service market are seen as vital for the Group’s future
growth. The Group capitalizes some of its development expenses
according to the IFRS rules. This decreases costs by approximately
0.4m.
The geographical breakdown of the business was as follows:
Nordic Countries 38% (38%), Rest of Europe 44% (44%), North America
9% (10%) and Rest of the World 9% (9%). Anti-virus and intrusion
prevention represented 98% of the total revenues.
According to the latest global survey made in the autumn of 2005
customer satisfaction has stabilized at good levels. Overall
satisfaction was 4.27 (4.30) on a scale of 1 to 5. Relentless focus
on customer satisfaction is one of the Group’s core philosophies.
Our target remains to reach 4.50 in customer satisfaction.
Business in different segments in Q1
In the first quarter of 2006, revenues in the corporate customer
segment through resellers and IT services companies were 9m (7.3m),
representing 49% of the anti-virus and intrusion prevention
business and growth of 22% from the previous year. Competitive
solutions, a strong focus on partners and support continued to
contribute to the growth in this segment.
Revenues through the service provider channel were 5.8m (3.2m),
representing 32% of the anti-virus and intrusion prevention
business and growth of 80% from the previous year. Service-like
security is the prime F-Secure way to deliver value to its
customers.
Consumer revenues were 3.4m (1.9m), representing 19% of the
anti-virus and intrusion prevention business. Revenue growth rate
continued strong, 80% from previous year. Successfully launched new
comprehensive products along with continuing successes in channel
recruitment and online sales were key contributors to growth.
Mobile security revenues represented 1% of the anti-virus and
intrusion prevention business. The interest in the Group’s
solutions among phone vendors, mobile operators and corporate
customers was at a high level. F-Secure Mobile Anti-Virus showed a
clear increase in consumer and corporate channel sales.
Competitive situation
There have been signs of increasing price competition in some
countries while other countries have maintained the status quo. The
Group has successfully flanked pricing attacks through offering a
premium product with richer functionality and better service.
Especially the Group’s outstanding response times to virus
outbreaks have received a lot of positive attention and even opened
new opportunities in traditionally difficult markets, such as North
America.
Security as a Service
The Group sees that there is an ongoing, fundamental change in
customers’ buying behaviour. Consumers and businesses will prefer
to purchase security as a subscription service to all other
alternatives. The Group has been a leader in supporting this change
with a dedicated Service Platform offering for different target
audiences: Enterprises, Businesses, Consumers, Gateways, Mobile
Phones and Operator Networks.
During the quarter, the total number of ISP partners exceeded
100 and is currently 101 in 27 countries. The Group is clearly the
global market leader in providing security as a service solutions
through ISPs. The Group’s strength in the ISP market is clear:
leading market share globally, excellent partner retention track
record and fastest speed of signing new partners.
A partnership was signed with Wind Telecommunications in Italy
to provide total Internet security through their portal libero.it.
New World Telecom in Hong Kong was a groundbreaking Service
Platform for Businesses deal in Asia. A2Z in Belgium signed a
Service Platform for Enterprises partnership.
In Q2 the Group launched a partnership with Reliance
Communications in India (Service Platform for Consumers).
Significant partnerships were signed in early Q2 and will be
announced in the near future.
Mobile security
The Group’s long-term pioneering investment to raise awareness
in mobile security issues continued to yield results.
The sales of F-Secure Mobile Anti-Virus increased clearly during
the quarter signaling increased end user awareness of security
threats.
The Group partnered with Orange to offer an automatic antivirus
service in Switzerland, to be downloaded and updated directly to a
user’s mobile phone from the mobile Internet portal Orange
World.
F-Secure continued close cooperation with Nokia. F-Secure Mobile
Anti-Virus was announced to be available for the recently announced
devices based on S60 3rd edition. In Nokia N71 and N80, F-Secure
Mobile Anti-Virus will be distributed as the default antivirus
application in the standard device sales package and in the Nokia
E60, E61 and E70 devices, the antivirus client will be available
through Nokia Catalogs service.
Product Leadership
The key launch in Q1 was F-Secure Messaging Security Gateway™
P-Series for large enterprises and service partners against spam,
viruses, phishing, denial of service attacks and directory
harvesting attacks. The appliance also helps enterprises and
service partners to enforce outbound email policies, defend against
leakages of confidential information and comply with email-related
regulations.
A new version of F-Secure Network Control was released as the
first fully in-house developed version of the product acquired
through Rommon Oy late last year.
Personnel and Organization
The Group's personnel numbered 410 at the end of the quarter
(336).
The Group’s Executive Team consists of the following persons:
Pekka Kuusela (Executive Vice President, Sales and Marketing), Aki
Mänttäri (Director, Human Resources), Pirkka Palomäki (Executive
Vice President, Research and Development), Risto Siilasmaa
(President and CEO), Taneli Virtanen (Chief Financial Officer) and
Travis Witteveen (Executive Vice President, Products &
Services).
Financing
The Group’s financial position remained strong. The Group’s
equity ratio on March 31, 2006, was 67% (84%). The equity ratio
would have been 79% if the dividends were paid already in March.
Financial income for Q1 was 0.2m (0.5m) including SRV accrual for
interest.
During Q1 cash flow was positive 3.9m(2.2m). The market value of
the liquid assets of the Group was on March 31, 2006
65.4m(52.2m).
The change in the USD-EUR exchange rate has had some positive
effect on revenues and slightly on results.
Capital Expenditures
The Group’s capital expenditures for the quarter were
1.2m(0.6m). These consisted mainly of IT hardware, software,
capitalization of development expenses.
Shares, Shareholders' Equity, and Option Programs
In Q1, A total of 53,150 F-Secure shares were subscribed for
with the A1/A2 warrants and a total of 7,250 F-Secure shares were
subscribed for with the B1/B2 warrants attached to the F-Secure
2002 Warrant Plan.
In aggregate the number of shares was increased by 60,400. The
corresponding increase in the share capital, in total EUR 604 was
registered in the Finnish Trade Register on January 9, 2006. F
Secure received as additional shareholders' equity a total of EUR
38,415.
After the reporting period, a total of 64,600 F-Secure shares
were subscribed for with the A1/A2 warrants and a total of 39,050
F-Secure shares were subscribed for with the B1/B2 warrants
attached to the F-Secure 2002 Warrant Plan.
In aggregate the number of shares was increased by 103,650. The
corresponding increase in the share capital, in total EUR 1,036.50
was registered in the Finnish Trade Register on April 4, 2006. F
Secure received as additional shareholders' equity a total of EUR
73,905.
As a result of the increases, the share capital of F-Secure
currently is EUR 1,548,758.68 and the total number of shares is
154,875,868. 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 HEX Plc,
the Central Chamber of Commerce of Finland and the Confederation of
Finnish Industry and Employers as explained on company’s web
pages.
Future Outlook
The Group’s three key goals in 2006 are closely to follow the
track implemented during the recent years:
1) To continue to grow the anti-virus and intrusion prevention
business significantly faster than the industry. The recent
estimates (gathered by F-Secure) for market growth vary between
10-15% in the corporate segment and between 25-30% in the consumer
segment.
The prime vehicle for the Group’s future growth is Security as a
Service. This growth will also be pursued through systematically
growing various channels in the key European markets, an
increasingly comprehensive product offering, impeccable service and
a carefully increased geographical scope. The Group sees tangible
business opportunities in North America and Asia.
Key opportunities to be pursued in the consumer business are
new, innovative channel models, as was showcased in early 2006 with
an announcement with Barclays Internet Bank. On the corporate side,
extra leverage is expected to come from security appliances, i.e.
F-Secure Messaging Security Gateway.
2) To continue capitalizing on the Group’s industry leadership
in Security as a Service, both with consumer and corporate end
customers.
Partnership recruitment will continue vigorously in all service
platform segments and the Group is well positioned to benefit from
the development of Security as a Service trend with a
comprehensive, leading product offering and an ever-stronger
position with service providers in Europe, North America and Asia.
F-Secure Network Control will present new opportunities in this
segment.
3) To advance in mobile security, and, as the market matures,
start turning leadership into revenues.
The visibility in mobile security business is improving
constantly through increased operator and corporate customer
awareness in mobile security issues. The Group expects to see the
number of mobile malware outbreaks continue growing steadily. This
will further underline the value of an up-to-date security solution
for handheld multimedia terminals and will gradually escalate the
uptake of mobile security solutions.
The management estimates the strong growth in anti-virus and
intrusion prevention to continue, especially in Security as a
Service businesses. 2006 total revenues are expected to be around
85m, with an error margin of +-10%.
Based on its strategy to prioritize growth over short term
profitability, the Group continues to invest in new sales and
marketing activities as well as in major new development efforts
and new projects expanding the Group’s offering to service
providers and facilities management companies. The management is
aiming at an EBIT slightly below 20% in 2006. The latter half of
2006 is expected to be stronger.
The estimation for Q206 revenues are 18-20m and cost level
around 15m. The estimate is based on the sales pipeline at the time
of publishing, existing subscriptions and support contracts and a
EUR/USD exchange rate of 1.19.
Annual General Meeting
The Annual General Meeting of F-Secure Corporation was held on
March 22, 2006. The Meeting confirmed the financial statements for
the fiscal year 2005. The members and the deputy member of the
Board of Directors and the managing director were granted a
discharge from liability.
In addition, the Annual General Meeting made the following
decisions:
Dividend
It was decided to distribute a dividend of EUR 0.07 per share, a
total of EUR 10,834,055.26 with the current number of shares, as
proposed by the Board of Directors. The dividend will be paid on
April 4, 2006 to shareholders registered in the company’s Register
of Shareholders held by Finnish Central Securities Depository Ltd
on the record date of March 27, 2006.
Members of the Board and Auditors
It was decided that the annual compensation is EUR 20,000 and
10,000 stock options for a member and EUR 30,000 and 15,000 share
options for the chairman. Members of the board that are employed by
the group will not be compensated.
It was decided that the number of Board members would be four.
The following members were elected: Mrs. Sari Baldauf, Mr. Pertti
Ervi, Mr. Risto Siilasmaa, and Mr. Alex Sozonoff. Ari Hyppönen was
re-elected deputy member. The Board elected Mr. Pertti Ervi
Chairman of the Board in its first meeting.
It was decided that auditor’s fee will be paid against approved
invoice. Ernst & Young Oy was elected the Group’s auditors.
APA, Mr. Tomi Englund is acting as responsible partner.
Authorizing the Board of Directors to increase the share
capital of the company
The Board was authorized to increase the share capital of the
Company as follows:
The authorization of Board of Directors to increase the share
capital of the company as follows:
- The duration of the authorization
The Board to be authorized during the period of one (1)
year from the date of the shareholders' meeting to decide on an
increase of the share capital of the company by one or more new
share issues or by launching one or more convertible bonds or
option rights. As a result of such share issues, option rights or
convertible loans, the share capital of the company may be
increased by a maximum of 280,000 Euros. The maximum number of
new shares to be issued is 28,000,000. To the extent the
authorization is used to create incentive systems for the
personnel of the group, the share capital may increase by a
maximum of 70,000 EUR, in which case a maximum amount of
7,000,000 shares may be issued.
- Deviation from subscription rights
The shares, convertible bonds or option rights may be
offered to be subscribed by deviating from the subscription
rights of the shareholders. This deviation from the subscription
rights is proposed for the purpose that the company may fund its
possible acquisitions which are of strategic importance by way of
share arrangements, or strengthen its financing and capital
structure, or create incentive programs for Group’s
employees.
- The determination of the subscription price
The subscription price for the shares issued in the share
capital increase and converted or subscribed on the basis of
convertible bonds or option rights will be determined by the
Board of Directors. At minimum, the subscription or conversion
price per share is the counter book value of the share. To the
extent the authorization is used to create incentive systems for
the personnel of the Group, the subscription price will be
determined by the Board of Directors so that it is based on the
market price of the share.
Payment of the subscription price
The Board may accept as payment also a set-off or provision
of other assets (in-kind contributions).
- Previous authorization
The proposal of the Board includes also that the unused
portion of the authorization given by the Shareholders’ meeting
on the March 23, 2005, will be cancelled simultaneously with the
registration of the new authorization.
Draft of terms of Rommon merger
It was decided to accept the draft of terms of merger according
to which fully owned subsidiary Rommon Oy shall merge into F-Secure
Corporation in order to achieve cost savings, as proposed by the
Board of Directors.
This interim report is prepared in accordance with IAS 34
standards.
Key figures (not audited):
Euro million
INCOME STATEMENT 2006 2005 Chge 2005
1-3 1-3 % 1-12
Revenues 18.8 13.3 41 61.8
Cost of revenues 1.7 1.3 30 5.9
Gross margin 17.0 12.0 42 55.9
Other operating income 0.2 0.2 -2 0.8
Sales and marketing 9.6 7.4 30 31.6
Research and development 3.7 3.2 15 14.7
Administration 1.0 0.8 22 3.1
Operating result 2.9 0.8 278 7.4
Financial net 0.2 0.5 1.9
Result before taxes 3.2 1.2 9.3
Income taxes -0.9 -0.3 -2.7
Result for the period 2.3 1.0 6.6
Earnings per share, e 0.01 0.01 0.04
EPS, diluted, e 0.01 0.01 0.04
BALANCE SHEET
ASSETS 31/3/2006 31/3/2005 31/12/2005
Intangible assets 9.6 2.6 8.9
Tangible assets 3.0 1.8 3.0
Other financial assets 3.6 6.5 4.3
Non-current assets total 16.2 10.9 16.2
Inventories 0.1 0.0 0.1
Other receivables 15.6 11.7 15.8
Available-for-sale
financial assets 56.6 46.8 53.5
Cash and bank accounts 8.9 5.6 8.5
Current asset total 81.2 64.0 77.8
Total 97.4 74.9 94.0
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/3/2006 31/3/2005 31/12/2005
Equity 48.5 46.8 57.1
Other non-current 1.2 0.2 1.3
Provisions 1.1 0.1 1.1
Deferred revenues 3.8 3.0 3.8
Non-current liabilities total 6.2 3.3 6.2
Other current 21.4 8.3 11.3
Deferred revenues 21.3 16.4 19.4
Current liabilities total 42.7 24.8 30.7
Total 97.4 74.9 94.0
Cash flow statement 31/3/2006 31/3/2005 31/12/2005
Cash flow from operations 5.0 2.4 14.4
Cash flow from investments -1.2 -0.6 -5.8
Cash flow from financing
activities 0.1 0.4 3.5
Change in cash 3.9 2.2 12.1
Cash and bank at 1 Jan 61.8 50.1 50.2
Change in net fair value of
Available-for-sale -0.3 -0.1 -0.4
Cash and bank at 31 Dec 65.4 52.2 61.8
Statement of changes in shareholders’ equity
share
share premium transl. reval. retained
capital fund diff. reserve earnings total
Equity on
31.12.2005 1.5 33.5 0.0 0.2 21.8 57.1
Available-for-sale
financial asset, net -0.2 -0.2
Translation diff. 0.0 0.0
Cost of share
based payments 0.1 0.1
Profit 2.3 2.3
Dividend -10.8 -10.8
Exercise of options 0.0 0.1 0.1
Equity on
31.3.2006 1.5 33.6 0.0 0.0 13.4 48.5
Key ratios 2006 2005 2005
3 m 3 m 12 m
Operating result,
% of revenues 15.7 5.8 11.9
ROI, % 24.9 11.5 19.0
ROE, % 17.4 8.5 12.9
Equity ratio, % 67.1 84.4 80.6
Debt-to-equity ratio, % -134.7 -111.7 -108.2
Earnings per share (EUR) 0.01 0.01 0.04
Earnings per share diluted 0.01 0.01 0.04
Shareholders' equity
per share, e 0.31 0.31 0.37
P/E ratio 51.1 71.3 46.9
Capitalized expenditures (Me) 1.2 0.6 8.3
Contingent liabilities (Me) 12.2 13.9 12.7
Personnel, average 400 321 354
Personnel, Dec 31 410 336 390
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/05 2/05 3/05 4/05 1/06
Revenues 13.3 14.7 15.7 18.1 18.8
Cost of revenues 1.3 1.3 1.2 2.1 1.7
Gross margin 12.0 13.4 14.5 16.0 17.0
Other operating income 0.2 0.3 0.2 0.2 0.2
Sales and marketing 7.4 7.7 7.4 9.1 9.6
Research and
development 3.2 3.6 3.7 4.2 3.7
Administration 0.8 0.8 0.6 0.8 1.0
Operating result 0.8 1.5 3.0 2.1 2.9
Financial net 0.5 0.3 -0.1 1.2 0.2
Result before taxes 1.2 1.8 2.9 3.3 3.2
Financial Reporting
A press and analyst conference will be arranged today, April 26,
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 at
http://www.f-secure.com/investor-relations/
Quarterly reports for 2006 will be published on August 1 (Q2)
and October 24 (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.
For further information, please contact:
F-Secure Corporation
Risto Siilasmaa, President and CEO
tel.358 9 2520 5510
Taneli Virtanen, Chief Financial
Officer
tel.358 9 2520 5655
