(Unless otherwise stated comparisons are made to the same period
one year ago. The currency is euros.)
Q3 Highlights
- Total revenue growth accelerated to 21% to a record level of
24.3m
- ISP business growth at a sustained strong level of 10%
quarter over quarter, and 42% year over year, reaching a volume
of 9.4m
- EBIT increased by 63% to 6.2m, 26% of revenues
- Cash flow positive 1.5m (4.5m positive)
Business at the Group level during the first nine months of
2007
For the first nine months of 2007 total revenues were 70.8m
(58.6m), representing 21% growth. EBIT was 14m (9.6m), representing
46% growth. Cash flow was 12.4m positive (zero). Deferred revenues
were 29.1m at the end of the quarter (30.2m at the end of
2Q2007).
The total costs were 51.6m (44.5m), representing 16% growth.
Cumulative cost increase slowed down during 3Q07 due to seasonality
and vacation period, but was also impacted by delayed recruitments
and lower marketing activities than anticipated. 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% (44%), North America
9% (10%) and Rest of the World 9% (9%). Anti-virus and intrusion
prevention represented 99% of the total revenues.
ISP channel during Q3
In the third quarter of 2007, revenues through the Internet
Service Provider (ISP) partners were 9.4m (6.7m), representing 39%
of the total revenues (33%) and a growth of 42% from the previous
year. The quarter-over-quarter revenue growth remained strong at
10% (11% in 2Q2007).
Strong development in the Service Provider business continued
and a total of 9 new ISP partnerships were signed. The total number
of ISP partners was 159 operating in 35 countries at the end of Q3.
With such a strong base of partners worldwide F-Secure emphasizes
end-user subscription growth through close collaboration with the
service providers and strengthened account management practises.
New service provider partnerships announced in Q3 and early Q4
include DIRECTV (USA), Aster (Poland) and Orange UK (security
services for SMB customers).
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 Q3
Other channels, including Value Added Resellers, IT Service
Providers, Managed Security Service Providers, e-Store and Retail
channels showed an improvement from the previous quarter. Revenues
were 14.9m (13.4m). This represented 61% of the total revenues
(67%) and a growth of 11% from the previous year.
Mobile security during Q3
The third quarter showed an increased interest in smartphone
security trial usage. The perceived malware risk level for
smartphone users continues to be fairly low, and consequently
revenues for this business area increase at a slow pace, now
representing ca. 2% 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, is 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
During Q3 F-Secure introduced new solutions both to consumer and
business customer segments. The consumer flagship product F-Secure
Internet Security 2008 was launched in September and a new version
of Client Security for business was released in September.
Competitive situation
There were no significant changes in the competitive landscape
nor in the pricing levels during the period.
Customer satisfaction
The Group is in the process of renewing its customer
satisfaction survey to be more in line with current channel
structures and end-customer segments. The timing of the annual
survey is also shifted to the end of each year in order to
correspond better to actual business and product cycles. The next
annual survey is conducted during the fourth quarter of 2007.
Personnel and Organization
The Group's personnel numbered 543 at the end of the Q3
(464).
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), Mr. Trond Neergaard (Vice President, Marketing),
Mr. Pirkka Palomäki (Senior 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 September 30, 2007, was 81% (81%). Financial income
for first nine months was 0.5m (0.4m).
During the first nine months the cash flow was 12.4m positive
(zero). The market value of the liquid assets of the Group on
September 30, 2007 was 79.9m (61.9m).
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 nine months 2007
were 1.6m (2.8m). These consisted mainly of IT hardware, software
and capitalization of development expenses.
Shares, Shareholders' Equity, and Option
Programs
During Q3, A total of 18,020 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
180.20 has been registered in the Finnish Trade Register.
As a result of the increases in Q3, the share capital of
F-Secure currently is EUR 1,550,563.38 and the total number of
shares is 155,056,338. F Secure received as additional
shareholders' equity a total of EUR 10,821. The corresponding
number of shares fully diluted would be 161,464,443 including all
stock option programs.
It was decided in the latest AGM on March 20, 2007 to decrease
share premium by 36m. During the reporting period the F-Secure
Corporation share premium has been decreased and the amount (FAS
36,000,000 €, IFRS 33,582,113 €) transferred to the company's
distributable equity.
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. As noted in the previous
interim report, 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.
Future Outlook
The Group’s first priority is to drive strong growth. The core
growth driver 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 quarter-over-quarter growth rate in the ISP business is
expected to remain at a good level, around 10%, during Q4 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.
Based on the performance of the first nine months and the
current outlook, the management expects full year 2007 revenues to
be between 96m and 98m and an EBIT between 18% and 21% of revenues.
Guidance given at the end of the second quarter for the full year
was; revenues 94-100m and EBIT of 16-19% (original guidance in
January for the full year was; revenues 95m +/- 10% and EBIT of
14%-18% of revenues).
In the 3-5-year horizon the Group aims to exceed market growth
rates in revenues and seeks an EBIT level around 25%.
The fourth quarter 2007 revenues are estimated to be between
25.5m and 27.5m. 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 1.40. Fixed costs are
estimated to be around 19m in Q4.
Financial Reporting
A press and analyst conference will be arranged today, October
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 in investor
pages.
The quarterly report for Q4 will be published on January 30,
2008. The audited annual report for the full year 2007 will be
announced during the week beginning February 11 and the Annual
Report will be published in mid March, 2008. The Annual General
Meeting will be held on March 26, 2008.
Quarterly reports for 2008 will be published on April 23 (Q1),
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
Euro million
INCOME STATEMENT 2007 2006 2007 2006 Chge 2006
7-9 7-9 1-9 1-9 % 1-12
Revenues 24.3 20.0 70.8 58.6 21 80.7
Cost of revenues 2.0 1.7 5.6 5.1 11 7.3
Gross margin 22.3 18.4 65.2 53.6 22 73.4
Other operating income 0.1 0.1 0.4 0.5 -18 0.6
Sales and marketing 10.0 9.0 31.7 28.8 10 38.6
Research and development*) 5.0 4.7 15.6 12.7 22 22.5
Administration 1.3 0.9 4.3 2.9 50 4.1
Operating result 6.2 3.8 14.0 9.6 46 8.9
Financial net 0.1 0.1 0.5 0.4 1.5
Result before taxes 6.3 3.9 14.5 10.0 10.4
Income taxes -1.7 -0.9 -3.8 -2.6 -3.1
Result for the period 4.6 3.0 10.7 7.5 7.3
Earnings per share, e 0.07 0.05 0.05
EPS, diluted, e 0.07 0.05 0.05
*) 1-12/2006 includes impairment loss of 4.8
BALANCE SHEET
ASSETS 30/9/2007 30/9/2006 31/12/2006
Intangible assets 4.0 9.5 4.5
Tangible assets 3.2 3.2 3.2
Other financial assets 0.8 2.2 0.9
Non-current assets total 8.0 14.9 8.7
Inventories 0.3 0.2 0.2
Other receivables 18.8 15.3 19.4
Available-for-sale
financial assets 68.2 49.4 54.7
Cash and bank accounts 11.8 12.7 12.2
Current asset total 99.2 77.6 86.4
Total 107.2 92.5 95.1
SHAREHOLDERS' EQUITY
AND LIABILITIES 30/9/2007 30/9/2006 31/12/2006
Equity 63.1 54.5 54.2
Other non-current 0.3 1.2 0.1
Provisions 1.3 1.2 1.2
Deferred revenues 3.8 4.1 4.4
Non-current liabilities total 5.4 6.5 5.7
Other current 13.4 10.8 12.1
Deferred revenues 25.3 20.7 23.2
Current liabilities total 38.7 31.6 35.2
Total 107.2 92.5 95.1
Cash flow statement 30/9/2007 30/9/2006 31/12/2006
Cash flow from operations 17.0 13.5 19.5
Cash flow from investments -1.5 -2.8 -3.5
Cash flow from financing
Activities* -3.1 -10.8 -10.6
Change in cash 12.4 0.0 5.4
Cash and bank at 1 Jan 66.6 61.7 61.7
Change in net fair value of
Available-for-sale 0.9 0.2 -0.4
Cash and bank at 30 Sep 79.9 61.9 66.7
* 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
31.12.2006 1.5 33.7 0.0 -0.1 0.0 19.0 54.2
Available-for-sale
financial asset, net 0.7 0.7
Translation diff. 0.0 0.0
Cost of share
based payments 0.7 0.7
Profit 10.7 10.7
Dividend -3.1 -3.1
Exercise of
options 0.0 0.0 0.0
Other change
Equity on -33.6 33.6 0.0
30.9.2007 1.5 0.1 0.0 0.6 33.6 27.2 63.1
Key ratios 2007 2006 2006
9 m 9 m 12 m
Operating result,
% of revenues 19.8 16.4 11.0
ROI, % 33.9 24.7 19.3
ROE, % 24.3 17.9 13.1
Equity ratio, % 80.8 80.5 80.2
Debt-to-equity ratio, % -126.6 -113.7 -123.2
Earnings per share (EUR) 0.07 0.05 0.05
Earnings per share diluted 0.07 0.05 0.05
Shareholders' equity
per share, e 0.41 0.35 0.35
P/E ratio 26.2 33.7 47.6
Capitalized expenditures (Me) 1.6 2.8 3.7
Contingent liabilities (Me) 9.8 11.5 11.2
Personnel, average 519 429 439
Personnel, Sep 30 543 464 479
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 3/07
Revenues 18.8 19.8 20.0 22.1 23.1 23.3 24.3
Cost of revenues 1.7 1.6 1.7 2.2 1.9 1.8 2.0
Gross margin 17.0 18.2 18.4 19.8 21.3 21.6 22.3
Other operating income 0.2 0.2 0.1 0.2 0.1 0.1 0.1
Sales and marketing 9.6 10.3 9.0 9.8 10.6 11.1 10.0
Research and
development 3.7 4.3 4.7 9.8 5.3 5.3 5.0
Administration 1.0 0.9 0.9 1.2 1.4 1.6 1.3
Operating result 2.9 2.8 3.8 -0.7 4.1 3.7 6.2
Financial net 0.2 0.1 0.1 1.0 0.2 0.3 0.1
Result before taxes 3.2 2.9 3.9 0.3 4.2 4.0 6.3
Additional information:
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
