Solid overall growth, ISP channel strong as expected, good profitability
(Unaudited figures. Unless otherwise stated comparisons are made
to the same period one year ago. The currency is euro.)
Highlights
- Total revenue growth was 15% and resulted in an all-time high
quarterly revenue of 26.6m
- ISP business growth was 8% quarter over quarter, and 41% year
over year, reaching revenues of 10.9m
- EBIT was 5.3m, 20% of revenues (4.1m)
- Cash flow positive 6.1m
Business at the Group level
For the first quarter of 2008 total revenues were 26.6m (23.1m),
representing 15% growth. EBIT was 5.3m (4.1m) and 20% of revenues,
representing 31% growth. Cash flow was 6.1m positive (1Q07 cash
flow 8m positive before dividend). Deferred revenues were 33.7m at
the end of the quarter (31.9m at the end of 4Q2007).
The total costs were 19.5m (17.4m), representing 12% growth. The
Group capitalizes some of its development expenses according to the
accounting rules. This had no material impact on the cost
level.
The results were in line with the given guidance (revenues
26m-28m, costs not exceeding 20m).
The geographical breakdown of the business was as follows:
Nordic Countries 40% (39%), Rest of Europe 43% (44%), North America
8% (8%) and Rest of the World 9% (9%). Anti-virus and intrusion
prevention represented close to 100% of the total revenues.
ISP channel
Strong development in the Service Provider business continued
and a total of 6 new ISP partnerships were signed in Q1. Two
partner operators merged into existing partners without loss of
business for the Group. The total number of ISP partners was 169
operating in 38 countries at the end of the quarter.
New service provider partnerships signed in Q1 include Cabovisao
(Portugal), Comstar-Direct (Russia), and Ziggo (The
Netherlands).
In the first quarter of 2008, revenues through the Internet
Service Provider (ISP) partners were 10.9m (7.8m), representing 41%
of the total revenues (34%) and a growth of 41% from the previous
year. The quarter-over-quarter revenue growth was 8% (7% in
4Q2007).
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
The traditional sales channels, including Value Added Resellers,
IT Service Providers, Managed Security Service Providers, e-Store
and Retail channels grew by 2% from the previous year. Revenues
were 15.7m (15.4m) and represented 59% of the total revenues
(66%).
F-Secure Protection Service for Businesses, which was launched
during 4Q 2007, has continued to gain significant interest among
Value Added Reseller partners and the business customers.
Mobile security
Mobile security revenues were at the level of approximately 3%
of the Group’s total revenues in Q1. These revenues are included in
the above-mentioned channel revenues and the percentage figure is
shown as an indicator only.
In the first quarter F-Secure signed a partnership with Toshiba
Information Systems (UK) Mobile Communications Division to provide
F-Secure Mobile Anti-Virus for Toshiba’s Windows Mobile smart
devices throughout Europe. The Group also launched a partnership
with CSL, Hong Kong’s largest mobile operator, to provide an
integrated mobile security service.
Close co-operation with Nokia and Sony Ericsson together with
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 and handset manufacturers are also
progressing well.
Products & Services
Key product announcements in Q1 include F-Secure Health Check
for Service Providers, Protection Service for Business,
and a new version of F-Secure Anti-Virus for Windows Servers.
After the reporting period the Group announced F-Secure Mobile
Security for Windows Mobile, combining real time anti-virus and
anti-spyware with a firewall for this mobile platform.
Competitive situation
There were no significant changes in the competitive landscape
during the quarter. However, compared to the situation one year
ago, competition in the traditional corporate channel has become
tougher resulting in negative price development in some countries.
The Group’s competitive position in the ISP channel has remained
strong.
Customer satisfaction
F-Secure updated its annual customer satisfaction survey at the
end of 2007. The overall satisfaction was healthy at a level
of 4.1 on a scale from 1 to 5.
Personnel and Organization
The Group's personnel numbered 602 at the end of the Q1
(514).
The Group has been successful in pursuing its strategy to
reinforce above all its global sales and marketing
organization.
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
Business), 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 March 31, 2008, was 71% (79%). The equity ratio
would have been 81% if the dividends had been paid in
March. Financial income for the first quarter was 0.3m (0.2m).
During the first quarter cash flow was 6.1m positive (8m
positive before dividend paid in March 2007).
The market value of the liquid assets of the Group on March 31,
2008 was 90.3m (72.4m).
A dividend of EUR 0.07 per share was paid after the reporting
period, on April 8, 2008, representing a total of 10.9m for all
outstanding shares.
The change in the USD-EUR exchange has had some negative effect
on revenues and results.
Capital Expenditures
The Group’s capital expenditures during the first quarter were
1.0m (0.6m). These consisted mainly of IT hardware, software and
capitalization of development expenses.
Shares, Shareholders' Equity, and Option Programs
Trading with the A-warrants of F-Secure Corporation 2005 Stock
Option Plan commenced on March 3, 2008.
During Q1, 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.
Annual General Meeting
The Annual General Meeting of F-Secure Corporation was held on
March 26, 2008. The Meeting confirmed the financial statements for
the fiscal year 2007. The members of the Board and the President
& CEO were granted a discharge from liability. In addition, the
Annual General Meeting made the following decisions:
It was decided to distribute a dividend of EUR 0.07 per share to
be paid to registered shareholders on the record date of March 31,
2008. The dividend was paid on April 8, 2008.
It was decided that the annual compensation for the chairman is
EUR 55,000, for the chairmen of Executive and Audit Committee EUR
40,000 and for members EUR 30,000. Approximately 40% of the annual
remuneration will be paid as company shares.
It was decided that the number of Board members would be six.
The following members were re-elected: Mr. Marko Ahtisaari, Ms.
Sari Baldauf, Mr. Pertti Ervi, Mr. Risto Siilasmaa, and Mr. Alex
Sozonoff. Mr. Juho Malmberg was elected as a new member.
In the first meeting of the Board Mr. Risto Siilasmaa was
elected Chairman. The Board nominated Ms. Sari Baldauf as the
chairman of the Executive Committee and Mr. Pertti Ervi as the
chairman of the Audit Committee.
It was decided that auditor’s fee would be paid against an
approved invoice. Ernst & Young Oy was elected the Group’s
auditors. APA, Mr. Erkka Talvinko is acting as responsible
partner.
The Board was authorized to decide on directed share issues and
their terms. The authorization is valid for the period of one year.
The maximum cumulative number of issued new shares is 40,000,000.
The unused portion of the authorization given by the Shareholders’
meeting on the March 20, 2007, will be cancelled simultaneously
with the registration of the new authorization.
It was decided that the total amount of the subscription prices
paid for new shares issued after the date of the Annual General
Meeting, based on stock options under the F-Secure Stock Option
Plans 2002 and 2005, be recorded in company’s distributable
equity.
It was decided that the Board may pass a resolution to purchase
a maximum of 15,513,111 shares of the Company. The amount
represents approximately 10% of all the shares issued by the
Company. The authorization is valid for one year.
It was decided that the Board may decide on a transfer of a
maximum of 15,513,111 own shares of the Company either against
consideration or without payment. The authorization is valid for
one year. The Board of Directors is authorized to transfer the
shares in deviation from the shareholders’ pre-emptive rights
(directed transfer) subject to the provisions of the applicable
law.
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.
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, database update process quality, and the overall
development of value added security solutions in the Service
Provider and mobile operator market.
Disputes
Helsinki Court of Appeal announced its decision on the dispute
between F-Secure Corporation and SRV Viitoset Oy. F-Secure was
sentenced to pay EUR 793 230,53 and the costs of the trial plus
interest to SRV Viitoset Oy. F-Secure considers applying for leave
to appeal for Supreme Court. F-Secure has already accrued payments
based on the verdict by Helsinki District Court. The financial
impact pursuant to this claim is periodized for the duration of the
rental period starting from September 2005 until the end of
2010.
Based on an agreement by and between the parties, Diagnostic
Systems Corporation dismissed their patent infringement claim of
December, 2006.
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 annual growth rate in the ISP business is expected to be
approximately 40% in 2008.
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 second quarter 2008 revenues are estimated to be between
26.5m and 28.5m. Fixed costs are estimated to be below 21m in
Q2.
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 1.55.
Financial Reporting
A press and analyst conference will be arranged today, April
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 on the investor
pages of the Group’s web site.
The next quarterly reports for 2008 will be published on 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 2008 2007 Chge 2007
1-3 1-3 % 1-12
Revenues 26.6 23.1 15 96.8
Cost of revenues 2.1 1.9 11 7.5
Gross margin 24.5 21.3 15 89.2
Other operating income 0.3 0.1 115 0.8
Sales and marketing 11.5 10.6 8 43.2
Research and development 6.3 5.3 17 21.2
Administration 1.8 1.4 25 6.2
Operating result 5.3 4.1 31 19.5
Financial net 0.3 0.2 1.9
Result before taxes 5.6 4.2 21.4
Income taxes -1.4 -1.2 -5.9
Result for the period 4.1 3.0 15.4
Earnings per share, e 0.03 0.02 0.10
EPS, diluted, e 0.03 0.02 0.10
BALANCE SHEET
ASSETS 31/3/2008 31/3/2007 31/12/2007
Intangible assets 3.9 4.4 3.8
Tangible assets 3.4 3.2 3.3
Other financial assets 0.9 0.8 0.9
Non-current assets total 8.3 8.4 8.0
Inventories 0.2 0.3 0.3
Other receivables 20.7 18.4 22.1
Available-for-sale
financial assets 78.2 59.2 71.6
Cash and bank accounts 12.2 13.3 12.7
Current asset total 111.3 91.2 106.6
Total 119.5 99.6 114.7
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/3/2008 31/3/2007 31/12/2007
Equity 60.9 54.6 67.5
Other non-current 0.1 0.2 0.1
Provisions 0.0 1.2 1.3
Deferred revenues 5.3 2.5 4.8
Non-current liabilities total 5.4 3.9 6.2
Other current 24.8 13.5 13.8
Deferred revenues 28.4 27.6 27.1
Current liabilities total 53.2 41.1 40.9
Total 119.5 99.6 114.7
Cash flow statement 31/3/2008 31/3/2007 31/12/2007
Cash flow from operations 8.0 8.6 22.7
Cash flow from investments -1.9 -0.6 -2.1
Cash flow from financing
Activities* 0.0 -2.7 -3.0
Change in cash 6.1 5.3 17.6
Cash and bank at 1 Jan 84.1 66.6 66.4
Change in net fair value of
Available-for-sale 0.1 0.4 0.1
Cash and bank at 31 Mar 90.3 72.4 84.1
* 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
31.12.2007 1.5 0.2 0.0 0.0 33.6 32.2 67.5
Available-for-sale
financial asset, net 0.1 0.1
Translation diff. -0.1 -0.1
Cost of share
based payments 0.2 0.2
Profit 4.1 4.1
Dividend -10.9 -10.9
Exercise of
options 0.0 0.0 0.0
31.3.2008 1.5 0.2 -0.1 0.1 33.6 25.6 60.9
Key ratios 2008 2007 2007
3 m 3 m 12 m
Operating result,
% of revenues 20.0 17.5 20.1
ROI, % 37.1 32.6 36.3
ROE, % 25.6 22.2 25.4
Equity ratio, % 71.0 78.6 81.6
Debt-to-equity ratio, % -148.2 -132.5 -124.6
Earnings per share (EUR) 0.03 0.02 0.10
Earnings per share diluted 0.03 0.02 0.10
Shareholders' equity
per share, e 0.39 0.35 0.44
P/E ratio 23.8 25.5 24.6
Capitalized expenditures (Me) 1.0 0.6 2.2
Contingent liabilities (Me) 8.3 10.4 9.2
Personnel, average 584 496 528
Personnel, Mar 31 602 514 566
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/07 2/07 3/07 4/07 1/08
Revenues 23.1 23.3 24.3 26.0 26.6
Cost of revenues 1.9 1.8 2.0 2.0 2.1
Gross margin 21.3 21.6 22.3 24.0 24.5
Other operating income 0.1 0.1 0.1 0.4 0.3
Sales and marketing 10.6 11.1 10.0 11.5 11.5
Research and
development 5.3 5.3 5.0 5.7 6.3
Administration 1.4 1.6 1.3 1.8 1.8
Operating result 4.1 3.7 6.2 5.5 5.3
Financial net 0.2 0.3 0.1 1.4 0.3
Result before taxes 4.2 4.0 6.3 6.9 5.6
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
