(Unless otherwise stated comparisons are made to the same period
one year ago.)
Q2 Highlights
- Total revenue increased by 18% to a record level of
23.3m
- ISP business growth accelerated to 11% quarter over quarter,
and 37% year over year, to 8.6m
- EBIT increased by 31% to 3.7m, 16% of revenues
- Strong cash flow, 5.6m positive
Business at the Group level during the first half of
2007
For the first six months of 2007 total revenues were 46.5m
(38.6m), representing 20% growth. EBIT was 7.8m (5.8m),
representing 34% growth. Cash flow was 10.9m positive (4.5m
negative). Deferred revenues were 30.2m at the end of the quarter
(30.1m at the end of 1Q2007).
The total costs were 35.3m (29.8m), representing 18% growth. The
Group capitalizes some of its development expenses according to the
accounting rules. This had no material impact on the cost
level.
The geographical breakdown of the business was as follows:
Nordic Countries 39% (37%), Rest of Europe 43% (43%), North America
9% (11%) and Rest of the World 9% (9%). Anti-virus and intrusion
prevention represented 99% of the total revenues.
ISP channel during Q2
In the second quarter of 2007, revenues through the Internet
Service Provider (ISP) partners were 8.6m (6.2m), representing 37%
of the total revenues (32%) and a growth of 37% from the previous
year. The quarter-over-quarter revenue growth accelerated to 11%
(6% in 1Q2007).
Strong development in the Service Provider business continued
and a total of 7 new ISP partnerships were signed. The total number
of ISP partners was 150 operating in 35 countries at the end of
Q2.
Most significant new service provider partnerships in Q2 and
early Q3 were Optus (Australia), SingTel (Singapore) and
NextGenTel (Norway).
The Group’s overall share of the entire broadband ISP market is
strong. At the end of 2006 the Group’s partners held approximately
34% market share in Europe and approximately 10% in North America
(Source: Dataxis and F-Secure).
Other channels during Q2
Other channels, including Value Added Resellers, IT Service
Providers, Managed Security Service Providers, e-Store and Retail
channels performed at the lower end of the range of expectations
with a revenue of 14.8m (13.6m). This represented 63% of the total
revenues (68%) and a growth of 9% from the previous year.
Mobile security during Q2
The amount of trial users for F-Secure’s mobile solutions showed
a healthy and accelerating growth, indicating a growing interest in
the market.
Despite the growing amount of trial users, and the gradual
growth of sales the revenues for mobile security solutions were
still a small part, over 1% of the Group’s total revenues. They are
included in the above mentioned channel revenues and the percentage
figure is shown as an indicator only.
Close co-operation with Nokia and the current operator
partnerships, such as Orange UK, Orange Switzerland, T-Mobile
Germany, T-Mobile UK, Swisscom, TeliaSonera and Elisa, are the
prime vehicle to make mobile security applications available to a
large number of end users.
F-Secure’s co-operation with Nokia continued strong. F-Secure
Mobile Anti-Virus was the first antivirus software for the S60 3rd
edition operating systems and it will be available for majority of
the currently shipping or upcoming Nokia S60 3rd edition devices,
Nseries & Eseries.
Products & Services
The latest version of the primary platform product for ISP’s,
F-Secure Protection Service for Consumers 7, was launched during
Q2. It provides a comprehensive set of security applications,
including antivirus, antispam, antispyware, firewall and parental
control, to be offered as a service by ISPs. The new solution has
been well received by F-Secure’s ISP partners, and the launch has
progressed according to plan.
Another significant launch was the F-Secure Internet Security
2007 2nd Edition, which added support for the Microsoft Vista
operating system. F-Secure has also continued its co-operation with
Microsoft, and, for instance, the Group was announced the first
security partner for Microsoft’s upcoming Windows Home Server
platform.
Competitive situation
There were no major changes in the competitive situation during
the period. Price levels have remained relatively stable. The
latest analyst estimate for the antivirus market overall growth
rate is 11% (source: IDC).
Customer satisfaction
According to the latest annual global survey made during the
summer months of 2006 customer satisfaction has remained at strong
levels. Overall satisfaction was 4.26 (4.27) on a scale of 1 to 5.
High customer satisfaction is important for the Group.
Personnel and Organization
The Group had 540 employees at the end of Q2 (454).
The Group’s Executive Team consists of the following persons:
Mr. Ari Alakiuttu (Vice President, Products and Services), Mr.
Kimmo Alkio (President and CEO), Ms. Eila Mustala (Vice President,
Human Resources, as of April 26th), Mr. Trond Neergaard (Vice
President, Marketing), Mr. Pirkka Palomäki (Executive Vice
President, Research and Development), 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 June 30, 2007, was 79% (80%). Financial income for
1H2007 was 0.5m (0.3m).
During 1H2007 the cash flow was 10.9m positive (4.5m negative).
The market value of the Group’s liquid assets on June 30, 2007 was
78.1m (56.9m).
The change in the USD-EUR exchange has had some negative effect
on revenues and results.
Capital Expenditures
The Group’s capital expenditures during first six months 2007
were 1.2m (2.2m). These consisted mainly of IT hardware, software
and capitalization of some development expenses.
Shares, Shareholders' Equity, and Option
Programs
During Q2, A total of 4,400 F-Secure shares were subscribed for
with the A1/A2 warrants attached to the F-Secure 2002 Warrant
Plan.
The corresponding increase in the share capital, in total EUR
44.00 has been registered in the Finnish Trade Register.
As a result of the increases in Q2, the share capital of
F-Secure currently is EUR 1,550,383.18 and the total number of
shares is 155,038,318. F Secure received as additional
shareholders' equity a total of EUR 2,596. 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 Group’s web
pages.
Risks and Uncertainties in the Near Future
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 requirements and the overall development of value added
security solutions in the Service Provider and mobile operator
market.
During the first half of 2007, the Group did not identify
material changes in this area.
In December 2006, Diagnostic Systems Corporation filed a patent
infringement lawsuit against F-Secure, Inc. and six other
co-defendants in California, and a trial was recently scheduled to
October 2008. The Group strongly believes that these claims have no
merit and does not expect any material impact on the Group’s
financials.
Future Outlook
The Group’s first priority is to drive strong growth. The core
growth driver is the ISP channel. Based on 1H performance and
current outlook, the management expects full year 2007 revenues to
be between 94m and 100m and an EBIT between 16% and 19% of
revenues. Guidance given in January for the full year was
following; revenues 95m +/- 10% and EBIT of 14%-18% of
revenues.
The Group continues to invest in new sales and marketing
activities, technology innovation and new solutions to build
scalability for future growth especially for the service providers
and in the mobile segment.
The quarter-over-quarter growth rate in the ISP business is
expected to remain at a good level, around 10%, during 2H 2007. In
the mobile security business, revenue continues to grow, but slower
than anticipated at the beginning of the year. Mobile security is
expected to remain a small part of the Group’s revenues during
2007.
In the 3-5-year horizon the Group aims to exceed market growth
rates in revenues and seeks EBIT level around 25%.
The third quarter 2007 revenues are estimated to be between
23.5m and 25.5m. The estimates are based on the sales pipeline at
the time of publishing, existing subscriptions and support
contracts and a EUR/USD exchange rate of 1.35.
The actual cost level is still increasing. However, due to
seasonality cost level is traditionally lower during summer time.
Fixed costs are estimated to be below 17.5m in Q3.
Financial Reporting
A press and analyst conference will be arranged today, July
31st, 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 15.30 Finnish time
(14.30 CET, 1.30 pm UK time). Instructions can be found in investor
pages.
The next quarterly report will be published on October 23rd
(Q3). A Stock Exchange bulletin will be sent at 9am 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 2007 2006 2007 2006 Chge 2006
4-6 4-6 1-6 1-6 % 1-12
Revenues 23.3 19.8 46.5 38.6 20 80.7
Cost of revenues 1.8 1.6 3.6 3.4 8 7.3
Gross margin 21.6 18.2 42.8 35.2 22 73.4
Other operating income 0.1 0.2 0.2 0.4 -36 0.6
Sales and marketing 11.1 10.3 21.7 19.8 9 38.6
Research and development*) 5.3 4.3 10.6 8.0 32 22.5
Administration 1.6 0.9 3.0 1.9 55 4.1
Operating result 3.7 2.8 7.8 5.8 34 8.9
Financial net 0.3 0.1 0.5 0.3 1.5
Result before taxes 4.0 2.9 8.2 6.1 10.4
Income taxes -1.0 -0.8 -2.1 -1.7 -3.1
Result for the period 3.0 2.1 6.1 4.5 7.3
Earnings per share, e 0.04 0.03 0.05
EPS, diluted, e 0.04 0.03 0.05
*) 1-12/2006 includes impairment loss of 4.8
BALANCE SHEET
ASSETS 30/6/2007 30/6/2006 31/12/2006
Intangible assets 4.2 9.6 4.5
Tangible assets 3.3 3.2 3.2
Other financial assets 0.8 3.2 0.9
Non-current assets total 8.4 16.1 8.7
Inventories 0.4 0.2 0.2
Other receivables 17.0 15.9 19.4
Available-for-sale
financial assets 62.4 48.7 54.7
Cash and bank accounts 15.8 8.3 12.2
Current asset total 95.6 73.1 86.4
Total 104.0 89.2 95.1
SHAREHOLDERS' EQUITY
AND LIABILITIES 30/6/2007 30/6/2006 31/12/2006
Equity 58.0 50.9 54.2
Other non-current 0.2 1.2 0.1
Provisions 1.2 1.1 1.2
Deferred revenues 3.4 4.1 4.4
Non-current liabilities total 4.9 6.4 5.7
Other current 14.3 10.6 12.1
Deferred revenues 26.8 21.3 23.2
Current liabilities total 41.1 31.9 35.2
Total 104.0 89.2 95.1
Cash flow statement 30/6/2007 30/6/2006 31/12/2006
Cash flow from operations 15.1 8.4 19.5
Cash flow from investments -1.2 -2.1 -3.5
Cash flow from financing
Activities* -3.1 -10.8 -10.6
Change in cash 10.9 -4.5 5.4
Cash and bank at 1 Jan 66.6 61.8 61.7
Change in net fair value of
Available-for-sale 0.5 -0.4 -0.4
Cash and bank at 31 Jun 78.1 56.9 66.7
* dividends paid/increase in share capital
Statement of changes in shareholders’ equity
share
share premium transl. reval. retained
capital fund diff. reserve earnings total
Equity on
31.12.2006 1.5 33.7 0.0 -0.1 19.0 54.2
Available-for-sale
financial asset, net 0.4 0.4
Translation diff. 0.0 0.0
Cost of share
based payments 0.5 0.5
Profit 6.1 6.1
Dividend -3.1 -3.1
Exercise of options 0.0 0.0 0.0
Equity on
30.6.2007 1.5 33.7 0.0 0.3 22.4 58.0
Key ratios 2007 2006 2006
6 m 6 m 12 m
Operating result,
% of revenues 16.7 15.0 11.0
ROI, % 30.2 23.6 19.3
ROE, % 21.6 16.5 13.1
Equity ratio, % 78.7 79.7 80.2
Debt-to-equity ratio, % -134.5 -111.9 -123.2
Earnings per share (EUR) 0.04 0.03 0.05
Earnings per share diluted 0.04 0.03 0.05
Shareholders' equity
per share, e 0.37 0.33 0.35
P/E ratio 32.9 44.9 47.6
Capitalized expenditures (Me) 1.2 2.2 3.7
Contingent liabilities (Me) 10.0 11.8 11.2
Personnel, average 511 418 439
Personnel, Jun 31 540 454 479
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/06 2/06 3/06 4/06 1/07 2/07
Revenues 18.8 19.8 20.0 22.1 23.1 23.3
Cost of revenues 1.7 1.6 1.7 2.2 1.9 1.8
Gross margin 17.0 18.2 18.4 19.8 21.3 21.6
Other operating income 0.2 0.2 0.1 0.2 0.1 0.1
Sales and marketing 9.6 10.3 9.0 9.8 10.6 11.1
Research and
development 3.7 4.3 4.7 9.8 5.3 5.3
Administration 1.0 0.9 0.9 1.2 1.4 1.6
Operating result 2.9 2.8 3.8 -0.7 4.1 3.7
Financial net 0.2 0.1 0.1 1.0 0.2 0.3
Result before taxes 3.2 2.9 3.9 0.3 4.2 4.0
