Year of strong growth and solid profitability, successful execution in ISP segment
(Unless otherwise stated comparisons are made to the same period
one year ago. The currency is euro. The audited full year financial
report will be announced together with the Board proposals to the
annual general meeting on February 14, 2008)
Q4 Highlights
- Total revenue growth was 18% and resulted in an all-time high
quarterly revenue of 26.0m
- ISP business growth was 7% quarter over quarter, and 38% year
over year, reaching revenues of 10.1m
- EBIT increased to 5.5m, 21% of revenues (0.7m negative)
- Cash flow positive 5.2m (5.4m positive)
- Customer satisfaction survey result 4.1 (scale 1-5)
2007 Highlights
- Total revenue growth was 20% and resulted in an all-time high
annual revenue of 96.8m
- ISP business growth was 38% year over year, reaching revenues
of 35.9m
- EBIT increased by 120% to 19.5m, 20% of revenues
- Cash flow positive 17.6m (5.4m positive)
- EPS EUR 0.10 (EUR 0.05)
Business at the Group level during the full year of 2007
(unaudited figures)
For the full year 2007 total revenues were 96.8m (80.7m),
representing 20% growth. EBIT was 19.5m (8.9m including the 4.8m
write-off of Network Control product)and 20% of revenues,
representing 120% growth. Cash flow was 17.6m positive (5.4m
positive). Deferred revenues were 31.9m at the end of the quarter
(29.1m at the end of 3Q2007).
The annual revenues were in line with the given guidance at the
beginning of 2007 (guidance 95m +-10%). The profitability was
better than guided at the beginning of 2007 (guidance 14-18% of
revenues).
The total costs were 70.6m (65.2m including the 4.8m write-off
of Network Control product), representing 8% 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% (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 in Q4 and 2007
Strong development in the Service Provider business continued
and a total of 7 new ISP partnerships were signed in Q4. The total
number of ISP partners was 166 operating in 36 countries at the end
of 2007. New service provider partnerships announced in Q4 include
Airtel India, Sify India and Irish Broadband.
In the fourth quarter of 2007, revenues through the Internet
Service Provider (ISP) partners were 10.1m (7.3m), representing 39%
of the total revenues (33%) and a growth of 38% from the previous
year. The quarter-over-quarter revenue growth was 7% (10% in
3Q2007). The quarterly growth was negatively affected by a
non-recurring billing correction caused by a historical reporting
error made by one of the Group’s ISP partners.
The annual revenues through the Internet Service Provider (ISP)
partners were 35.9m (26m), representing 37% of the total revenues
(32%) and a growth of 38% from the previous year.
The total number of the Group’s ISP partners is significantly
larger than with any other security service vendor. At the end of
2007 the Group’s ISP partners held approximately 37% (34%) market
share of total high-speed consumer connections in Europe,
approximately 10% (10%) in North America and approximately 9%
(n/a%) in APAC (Source: Dataxis and F-Secure).
Other channels in Q4 and 2007
The traditional sales channels, including Value Added Resellers,
IT Service Providers, Managed Security Service Providers, e-Store
and Retail channels performed below expectations during Q4.
Revenues were 15.9m (14.7m). This represented 61% of the total
revenues (67%) and a growth of 8% from the previous year.
The annual revenues through other channels during 2007 were
60.8m (54.7m) representing 63% of the total revenues (68%) and a
growth of 11% from the previous year.
Mobile security in Q4 and 2007
In the fourth quarter F-Secure started a long-term co-operation
with Sony Ericsson. Co-operation started with an integration
project that positively affected Q4 mobile revenues. The
co-operation with Sony Ericsson is also an important element in
enabling future mobile revenue streams. Mobile security revenues
were at the level of approximately 3% of the Group’s total revenues
in Q4 and approximately 2% in 2007. These revenues are included in
the above-mentioned channel revenues and the percentage figure is
shown as an indicator only.
Close co-operation with Nokia and Sony Ericsson together with
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. Co-operation
initiatives with other major mobile operators are also progressing
well.
F-Secure’s co-operation with Nokia continued strong. F-Secure
Mobile Anti-Virus continues to be available for majority of the
currently shipping or upcoming Nokia S60 3rd edition devices,
Nseries & Eseries.
Products & Services
Key announcements in Q4 include the launch of the security as a
service concept to business customers (Protection Service for
Businesses 3.0/3.1) and F-Secure Mobile Anti-Virus 4.0 for Windows
Mobile. F-Secure Health Check to Service Providers was pre-released
in Q4 and followed by a public launch in January 2008.
During the year F-Secure continued to introduce new solutions
and versions to both business and consumer customer segments,
including F-Secure Client Security (for Businesses) and F-Secure
Protection Service for Consumers. The consumer flagship product
F-Secure Internet Security 2008 was launched in September.
F-Secure continued its good co-operation with Microsoft. The
Group was announced the first security partner for Microsoft’s
Windows Home Server platform. Earlier in the year F-Secure Internet
Security 2007 2nd Edition added support for the Microsoft Vista
operating system for consumer customers.
Competitive 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.
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 like user experience.
New survey and method provides F-Secure more accurate and detailed
information in the following areas: customer demography, overall
satisfaction, purchasing experience, support services, F-Secure
web, detailed product satisfaction, and user experience.
The overall satisfaction was at good level of 4.1 on a scale
from 1 to 5.
Personnel and Organization
The Group's personnel numbered 566 at the end of the Q4
(479).
The Group has re-organized its operations at the beginning of
the year 2008. The current Executive Team consists of the following
persons: Mr. Ari Alakiuttu (Vice President, Human Resources), Mr.
Kimmo Alkio (President and CEO), Mr. Trond Neergaard (Vice
President, ISP Operations), Mr. Pirkka Palomäki, (Chief Technology
Officer), 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 December 31, 2007, was 82% (80%). Financial income
for 2007 was 1.9m (1.5m).
During 2007 cash flow was 17.6m positive after paid dividend of
3.1m (5.4m positive after paid dividend of 10.8m). The market value
of the liquid assets of the Group on December 31, 2007 was 84.1m
(66.7m).
The change in the USD-EUR exchange has had some negative effect
on revenues and results.
Capital Expenditures
The Group’s capital expenditures during 2007 were 2.2m (3.7m).
These consisted mainly of IT hardware, software and capitalization
of development expenses.
Shares, Shareholders' Equity, and Option Programs
On October 31, the 2002 C3-warrants of F-Secure Corporation
were consolidated into 2002 C1/C2-warrants. After that
the name of the warrants is F-Secure Corporation 2002 C1/C2/C3
warrants and their ISIN-code is F10009610190.
During Q4, no shares were subscribed for with F-Secure
warrants.
After the reporting period, a total of 68,880 F-Secure shares
were subscribed for with the A1/A2 warrants and a total of 5,900
F-Secure shares were subscribed for with the B1/B2/B3 warrants
attached to the F-Secure 2002 Warrant Plan.
In aggregate the number of shares was increased by 74,780. The
corresponding increase in the share capital, in total EUR 747.80
was registered in the Finnish Trade Register on January 7, 2008. As
a result of the increase, the share capital of F-Secure currently
is EUR 1,551,311.18 and the total number of shares is 155,131,118.
F-Secure received as additional shareholders' equity a total of EUR
46,638. The corresponding number of shares fully diluted would be
161,464,443 including all stock option programs.
The Annual General Meeting decided to decrease share premium by
36m on March 20, 2007. F-Secure Corporation share premium was
decreased during the third quarter 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.
In the beginning of 2008, the Board has decided to establish an
Audit Committee and an Executive Committee (nomination and
remuneration topics). It has nominated Mr. Pertti Ervi to chair the
Audit Committee and Ms. Sari Baldauf to chair the Executive
Committee.
Risks and Uncertainties in the Near Future
The Group has not seen any material changes to the risks and
uncertainties during the reporting period.
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 element 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 strong, around 10% as a quarterly average in
2008. However, for the first quarter of 2008 the growth rate is
expected to be below the planned quarterly average of the year.
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.
Management expects full year 2008 revenues to be between 110 and
120 million and full year 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%.
The first quarter 2008 revenues are estimated to be between
26m and 28m. Fixed costs are estimated not to exceed 20m in Q1.
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 1.45.
Financial Reporting
A press and analyst conference will be arranged today, January
30th, 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 on the investor
pages of the Group’s web site.
The audited financial report for the full year 2007 will be
announced together with Boards’ proposals to the AGM on February
14, 2008. 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
INCOME STATEMENT 2007 2006 2007 2006 Chge
10-12 10-12 1-12 1-12 %
Revenues 26.0 22.1 96.8 80.7 20
Cost of revenues 2.0 2.2 7.5 7.3 4
Gross margin 24.0 19.8 89.2 73.4 22
Other operating income 0.4 0.2 0.8 0.6 30
Sales and marketing 11.5 9.8 43.2 38.6 12
Research and development*) 5.7 9.8 21.2 22.5 -6
Administration 1.8 1.2 6.2 4.1 52
Operating result 5.5 -0.7 19.5 8.9 120
Financial net 1.4 1.0 1.9 1.5
Result before taxes 6.9 0.3 21.4 10.4
Income taxes -2.1 -0.5 -5.9 -3.1
Result for the period 4.8 -0.2 15.4 7.3
Earnings per share, e 0.10 0.05
EPS, diluted, e 0.10 0.05
*) 1-12/2006 includes impairment loss of 4.8
BALANCE SHEET
ASSETS 31/12/2007 31/12/2006
Intangible assets 3.8 4.5
Tangible assets 3.3 3.2
Other financial assets 0.9 0.9
Non-current assets total 8.0 8.7
Inventories 0.3 0.2
Other receivables 22.1 19.4
Available-for-sale
financial assets 71.6 54.7
Cash and bank accounts 12.7 12.2
Current asset total 106.6 86.4
Total 114.7 95.1
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/12/2007 31/12/2006
Equity 67.5 54.2
Other non-current 0.1 0.1
Provisions 1.3 1.2
Deferred revenues 4.8 4.4
Non-current liabilities total 6.2 5.7
Other current 13.8 12.1
Deferred revenues 27.1 23.2
Current liabilities total 40.9 35.2
Total 114.7 95.1
Cash flow statement 31/12/2007 31/12/2006
Cash flow from operations 22.7 19.5
Cash flow from investments -2.1 -3.5
Cash flow from financing
Activities* -3.0 -10.6
Change in cash 17.6 5.4
Cash and bank at 1 Jan 66.4 61.7
Change in net fair value of
Available-for-sale 0.1 -0.4
Cash and bank at 31 Dec 84.1 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 0.1 0.1
Translation diff. 0.0 0.0
Cost of share
based payments 0.9 0.9
Profit 15.4 15.4
Dividend -3.1 -3.1
Exercise of
options 0.0 0.1 0.1
Other change
Equity on -33.6 33.6 0.0
31.12.2007 1.5 0.2 0.0 0.0 33.6 32.2 67.5
Key ratios 2007 2006
12 m 12 m
Operating result,
% of revenues 20.1 11.0
ROI, % 36.3 19.3
ROE, % 25.4 13.1
Equity ratio, % 81.6 80.2
Debt-to-equity ratio, % -124.6 -123.2
Earnings per share (EUR) 0.10 0.05
Earnings per share diluted 0.10 0.05
Shareholders' equity
per share, e 0.44 0.35
P/E ratio 24.6 47.6
Capitalized expenditures (Me) 2.2 3.7
Contingent liabilities (Me) 9.2 11.2
Personnel, average 528 439
Personnel, Dec 31 566 479
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 4/07
Revenues 18.8 19.8 20.0 22.1 23.1 23.3 24.3 26.0
Cost of revenues 1.7 1.6 1.7 2.2 1.9 1.8 2.0 2.0
Gross margin 17.0 18.2 18.4 19.8 21.3 21.6 22.3 24.0
Other operating income 0.2 0.2 0.1 0.2 0.1 0.1 0.1 0.4
Sales and marketing 9.6 10.3 9.0 9.8 10.6 11.1 10.0 11.5
Research and
development 3.7 4.3 4.7 9.8 5.3 5.3 5.0 5.7
Administration 1.0 0.9 0.9 1.2 1.4 1.6 1.3 1.8
Operating result 2.9 2.8 3.8 -0.7 4.1 3.7 6.2 5.5
Financial net 0.2 0.1 0.1 1.0 0.2 0.3 0.1 1.4
Result before taxes 3.2 2.9 3.9 0.3 4.2 4.0 6.3 6.9
Additional information:
F-Secure Corporation
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
