2012-02-01 08:00:00 CET
2012-02-01 08:00:07 CET
REGULATED INFORMATION
F-Secure Oyj - Interim report (Q1 and Q3)
F-Secure Corporation - Interim Report January 1 - December 31,2011
Stock exchange release
February 1, 2012 at 9.00
F-Secure Corporation - Interim Report January 1 - December 31, 2011
Strong year-end, revenue growth accelerated driven by the operator channel
Highlights in Q4
-- Total revenues grew by 16% reaching record level of 40.0 million (Q42011:
34.4m)
-- Operator channel continued excellent performance; growth accelerated to 32%
reaching revenues of 24.3 million (18.4m); revenue growth was driven by
healthy security and content cloud sales
-- EBIT was 6.5 million representing 16% of revenues (3.6m, 10% of revenues/
5.6m, 15% excl. re-structuring costs)
-- Earnings per share was EUR 0.03 (EUR 0.02)
-- Cash flow from operations was 7.1 million positive (7.2m)
-- Christian Fredrikson started as CEO as of January 16, 2012 (as announced on
November 15, 2011)
Highlights in 2011
-- Total revenues grew by 12% to 146.0 million (2010: 130.1m)
-- Operator channel performed very well; growth accelerated to 26%, reaching
revenues of 84.8 million (67.1m)
-- EBIT was 23.6 million representing 16% of revenues (19.8m, 15% of revenues/
21.8m, 17% excl. re-structuring costs)
-- Earnings per share was EUR 0.11 (EUR 0.10)
-- Cash flow from operations was 20.8 million positive (23.2m)
-- Company's good performance in content cloud business supported the strong
revenue growth in operator channel together with well performing security
sales
-- Financial performance was in line with management's estimation for the
year.
Outlook for 2012 - management estimation for the year
-- Annual revenue growth is expected to be around 10% and EBIT expected to be
around 15% of revenues
-- The Company continues to prioritize growth over short term profitability
and plans to invest the majority of the improved earnings back to growth
opportunities in its core business. Approximately 7 million of cost
increase is coming from the end of development activations of new platforms
and increased depreciations.
(This report is unaudited. Unless otherwise stated the comparisons refer to the
corresponding period a year ago. The currency is euro. The content cloud
business is included in the Operator channel figures.)
Key figures 2011 2010 2011 2010
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(Eur Million) 10-12 10-12 12m 12m
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Revenues 40.0 34.4 146.0 130.1
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Operating profit 6.5 3.6 23.6 19.8
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% of revenues 16% 10% 16 % 15 %
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Profit before taxes 6.6 3.7 23.5 19.9
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Earnings per share (Eur) 0.03 0.02 0.11 0.10
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At the end of period: 38.3 37.2 38.3 37.2
Deferred revenues
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Equity ratio, % 68% 69% 68% 69%
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Debt-to-equity ratio, % -47% -63% -47% -63%
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Personnel 942 812 942 812
----------------------------------------------------
President and CEO Christian Fredrikson:
“We are pleased with our overall 2011 financial performance and especially with
accelerating revenue growth that was at the upper end of our estimations. The
strong revenue growth was driven by our well performing operator business.
Operator revenue growth accelerated in Q4 to 32% YoY and annually 26% YoY
demonstrating robust demand for both security and content cloud services.
Our success is based on our strong operator channel and stable license
business. Our entry into the content cloud business looks promising and offers
great growth opportunity. By helping operators to establish local, secure and
trustworthy Internet services F-Secure enhances its position as operators'
long-term partner. We help operators compete with Internet players and device
manufacturers for consumers' share of mind. We are aiming for continuous
revenue growth in the operator channel in the future.
I am excited to join F-Secure and to work with highly committed people. Despite
the challenges in the world economy I can see opportunities to drive high
growth over the longer term. The Company is financially solid and we continue
to invest in our future competitiveness. I will use time to meet customers and
ensure strong execution of the Company's growth strategy. We will continue to
focus on delivering higher revenue growth and improving profitability. Finally,
I want to thank Pirkka (acting CEO) and all personnel for the good work in
2011.”
F-Secure business during January - December 2011
Total revenues for 2011 were 146.0 million (130.1m), representing growth of
12%. Revenue growth through the operator channel remained strong with 26%
growth from the previous year totaling 84.8 million (67.1m). Revenues through
other channels were, as anticipated, down by 3% totaling 61.2 million (63m).
EBIT was 23.6 million (19.8m/21.8m excl. re-structuring costs in Q410),
representing 16% of revenues (15%/17%). Earnings per share were EUR 0.11 (EUR
0.10). Cash flow from operations was 20.8 million positive (23.2m positive).
Deferred revenues were 38.3 million at the end of December (37.2m) due to good
sales in the license business.
Total fixed costs were 115.9 million (103.2m), 12% higher than in the previous
year. F-Secure capitalized some of its R&D expenses according to accounting
rules, totaling 7.8 million (2.3m) and booked write-offs of 1 million related
to prior R&D investments. The cost increases were allocated to well progressing
geographic expansion in Latin America, content cloud project deliveries and R&D
to increase the competitiveness of PC and mobile device (e.g. iOS, Android,
Windows) solutions and content cloud development.
In 2011 the geographical breakdown of revenues was as follows: Finland and
Scandinavia 32% (33%), Rest of Europe 45% (46%), North America 11% (9%) and
Rest of the World 12% (12%).
Operator channel and its performance in Q4
The Operator channel, which includes Internet service providers, mobile
operators and cable operators, is the main channel through which F-Secure
services are delivered. F-Secure has more than 200 partners in over 40
countries with an addressable market of over 250 million fixed and mobile
broadband customers. The total number of F-Secure's operator partners is
significantly larger than that of any other security service vendor.
F-Secure provides, through Operators, security and content cloud services that
are easy and intuitive to use for mainstream consumers. This channel utilizes
Operators' presence and brand to reach millions of consumers in a cost
efficient and scalable way. F-Secure provides its Operator partners with
services that enable them to compete with other Internet players. By selling
and offering security and content cloud services, the Operator can improve its
ARPU (average revenue per user) and margins and reduce churn.
F-Secure currently generates a majority of its revenues from the Security as a
Service business where Operators sell security service subscriptions to protect
their customers against Internet threats. The revenues are shared by F-Secure
and the Operator. Revenue growth in this area has been driven by increasing
security subscriber numbers within the existing and new operator partner
customer base. This has been supported by the growth of fixed and mobile
broadband connections, natural demand for security services as well as
relatively low take-up rates. Internet security services for smartphones and
tablet devices currently generate a small portion of F-Secure and market wide
volumes. The mobile security landscape has started to change recently due to
smartphone and tablet sales growth.
Content cloud services, for example cloud-based storage, sharing and
synchronization, are expected to become a major business opportunity for the
software industry. The use of social media is increasing and people seek
services for sharing, storing and organizing their personal data. In the
future, nearly every device that creates or stores data, including desktop and
laptop computers, tablets, smartphones and digital cameras, will be backed up
over the Internet. The overall interest in content cloud services among
Operators is prominent as they have realized the business opportunity. To
compete with other Internet players, Operators are looking for services that
match the demand. Operators' advantage is their ability to manage the
continuously diverging multi-device, multi-OS environment. Also, they are able
to bring services to the masses and provide support for these services.
F-Secure's entry into content cloud services has strengthened the Company's
position as a strategic partner to the Operators. Overall interest in the
content cloud business among Operators is high. Currently, F-Secure has tens of
Operators that are offering content cloud services, mostly standard on-line
backup. In addition, with regard to more advanced cloud services like file
synchronization and sharing, F-Secure has several prospects in the pre-sales
phase. This business model is evolving. Usually the Operator offers limited
capacity for free to the end user and charges for premium services. F-Secure
charges the Operator a per-user fee for subscribers to the services. In
addition to subscriber based revenues, additional revenue streams originate
from optional features and functionalities, capacity usage, project deliveries
and related customizations. F-Secure's revenues from content cloud subscriber
services is at a relatively low level, but the management expects revenues to
gradually increase as a growing number of operators will offer content cloud
services to their customers together with increasing take-up rates.
F-Secure has increased its investments, mostly in the content cloud business
but also in security services. In addition to new mainstream operating systems,
such as Android, iOS and Windows, the Company is investing in platform
development. These investments ensure the scalability and competiveness of
these services and allow Operators to offer F-Secure services, both PC and
mobile, to a wide subscriber base.
The co-operation with AT&T in the area of content cloud services has proceeded
very well. During Q4 the Company successfully delivered a new version of the
content cloud platform. The public launch date for the service has not yet been
communicated by AT&T. Q4 financials include revenues from AT&T project
deliveries and initial commitment of subscriber revenues. User based subscriber
revenues are expected to grow after the public launch of services.
As informed in the previous interim release, F-Secure has entered into
partnerships with Telefonica and several other operators in Latin America, one
of the fastest growing Internet user markets. These long term regional
partnerships enable F-Secure to reach major wireless and mobile broadband
markets with its Internet protection and storage related services. These
partnerships are already contributing to revenue growth and are expected to
increase gradually. The first launch with an Operator took place in Q2 2011.
During the quarter, the Company extended its collaboration with Telefonica in
Latin America. Additional operator partner launches in several Latin America
countries are expected to take place in the upcoming quarters.
In the fourth quarter of 2011, sales through Operator business partners
continued remained buoyant and totaled 24.3 million (18.4m), representing 61%
of F-Secure's total revenues (53%). Revenue growth was 32% compared to the
corresponding quarter in 2011 and 13% to the previous quarter. The growth was
driven by good security sales and increases in subscriber numbers, supported by
content cloud revenues, including the AT&T project delivery and initial license
commitment.
Annual revenues showed growth of 26% and totaled 84.8 million (67.1m), and 61%
(52%) of the Company's total revenues.
Other channels in Q4
Other channels consist mainly of traditional license sales to consumers through
eStore and retail, i.e. new licenses and renewals of Internet security and
online backup for PCs and mobile devices. The other channels business also
includes a wide range of Internet security services to corporate customers
through the global reseller network.
During the fourth quarter, revenues were 15.7 million (16.0m), showing a
decline of 2% from the corresponding quarter in 2011. These other channels
represented 39% of F-Secure's total revenues (47%). The earthquake in Japan in
March impacted negatively on sales for the whole year. Japan is a major market
for F-Secure in the other channels business.
In other countries, sales in traditional channels continued well as expected.
Customer satisfaction in security services continued at a high level, which was
visible in healthy license renewal sales.
Annual revenues in the other channels business were as anticipated, showing a
decline of 3% and totaled 61.2million (63.0m), which is 39% (48%) of the
Company's total revenues. Deferred revenues at the end of December were 38.3
million (37.2m).
Products, services and technologies
F-Secure develops and sells Internet security and content cloud services that
support personal computers, servers and an increasing set of major smartphoneand tablet operating systems. Services include broad security suites like
anti-virus, browsing protection and parental control as well as content cloud
services like on-line back-up, synching and sharing.
F-Secure is investing further in the content cloud business and in security
services. In addition to mainstream operating systems, such as Android, iOS and
Windows, the Company is investing in platform development. These investments
ensure the scalability and competiveness of services and allow Operators to
offer F-Secure services, both PC and mobile, to a wide subscriber base.
Cloud computing has for the past few years been at the center of the company's
technology strategy and choices. F-Secure uses cloud for two purposes: for
Real-time Protection Network and for content cloud. Real-time Protection
Network moves certain processing and memory intensive functions from the
end-user device to the cloud, making the client software one of the fastest in
the industry. Furthermore, by harnessing the collective intelligence of client
systems, the real-time protection network is able to detect and react to new
emerging threats a magnitude faster, and to provide protection to different
device categories, such as smartphones. This technology provides reputations of
files, sites and URLs and is utilized broadly in F-Secure solutions.
F-Secure has made significant investments in content cloud technology.
F-Secure's carrier-grade cloud storage platform gives F-Secure the scalability
and flexibility to tackle even the most complex requirements of the largest
operators in the world, while at the same time making small deployments
feasible to enable new solutions to be trialed in a fast and incremental
manner.
The combination of security and content cloud-based technologies will in the
future allow F-Secure to create new and innovative solutions for personal
computers, smartphones and other devices.
F-Secure puts emphasis on user experience design when developing services. User
experience designers, marketers and developers utilize consumer research, focus
groups and usability tests to explore consumer needs and validate new product
and service prototypes with consumers, thereby ensuring that they are appealing
and usable when introduced to the public. User experience along with technical
performance are crucial for the commercial success of solutions and services.
During 2011 the key product announcements were as follows:
In December, F-Secure introduced a new version of F-Secure Online Backup, which
automatically makes backup copies of pictures, music and other important
content saved on the computer and stores these backups on secure servers on the
Internet. Backup occurs automatically whenever the computer is connected to the
Internet and users can easily restore files, either automatically or by
selecting the files they need.
In December, F-Secure introduced F-Secure Mobile Backup, which offers a
worry-free way to back up a user's mobile specific content such as contacts,
sms's, photos and videos. The solution can also be used to ease swapping from
one phone to another and it only takes a couple of clicks to share content
stored on the device with friends and family. The solution supports Android,
Symbian, iOS and Blackberry operating systems. It can be provided by operators
as a stand-alone or bundled service. F-Secure Mobile Backup will be first
available through selected F-Secure's operator partners and in 2012 through
other consumer channels.
In November, F-Secure unveiled a new version of Mobile Security, F-Secure
Mobile Security 7.5, which features improved cloud based security and a number
of new features for Parental Control, such as Safe Applications, Safe Contacts
and an End User Web Portal for managing the Anti-Theft functionalities. Safe
Applications employs a simple tick-in-a-box system that makes it easy for
parents to select the types of applications that cannot be used on a mobile
device. Safe Contacts enables the user or parents to define a list of Safe
Contacts and to control the calls, text messages and multi-media messages
received. The End User Web Portal provides access the product's Anti-Theft
features, in addition to using the existing SMS commands. The portal is
accessible via web and mobile browsers, allowing users to launch key anti-theft
operations like Remote Lock, Wipe, Locate, Alarm and Unlock from an intuitive
web interface.
As an addition to the list of supported operating systems, Android, Symbian and
Windows Mobile, F-Secure Mobile Security introduced its BlackBerry Anti-Theft
client for F-Secure's operator partners, making available an even more
comprehensive line of security solutions.
In November, F-Secure broadened its Security as a Service offering to cover
also resellers. F-Secure is the first security vendor to offer its complete
business portfolio as a service. The portfolio covers security for desktops,
laptops, mobile devices, servers, email and web filtering solutions. It
provides security management for all devices and includes automated security
and software updates.
In October, F-Secure announced a new version of its flagship internet security
service, F-Secure Internet Security™ 2012. F-Secure Internet Security 2012 is
based on new technology architecture and offers extraordinary ease-of-use, with
multi-layered protection and fast performance for computers.
In June, F-Secure introduced a new version of its mobile security product,
F-Secure Mobile Security 7. F-Secure Mobile Security 7 is a complete security
solution for smartphones and tablet computers. It provides safe web browsing
with parental control, protects confidential content, and makes it possible to
locate your device if it is lost or stolen. Mobile Security identifies which
websites are safe to enter and which you should avoid.
In May, F-Secure launched F-Secure Anti-Virus for Mac for home users and
businesses. The product has been designed with performance in mind, making it
easy and fast to use. It gives real-time protection against all Mac-based
threats, automatically detecting and removing any malware.
F-Secure's automatic updates ensure protection for Macs in today's rapidly
changing threat landscape.
In May, F-Secure launched F-Secure Protection Service for Email, which is an
effective and hassle-free email security service for small and medium
enterprises. F-Secure Protection Service for Email is a cloud-based offering
powerful real-time protection for email against unwanted content, viruses and
spyware, as well as spam control. F-Secure Protection Service for Email has 99%
spam detection accuracy.
In March, F-Secure introduced a new Partner Portal for its resellers. The
portal provides advanced online tools for resellers that help them to react
quickly and efficiently to end-customers' needs, boosting sales and customer
service. The new Partner Portal makes life easier for resellers by bringing all
their end customer information to a single location where they can conveniently
manage accounts, calculate offers and find the full range of sales support
materials from F-Secure.
In March, F-Secure Policy Manager 10 was introduced to the corporate segment.
F-Secure Policy Manager 10 delivers a new level of effectiveness by automating
daily security operations. IT security management now requires less manual
work. F-Secure Policy Manager 10 automates daily operations like protecting new
computers and the removal of disconnected hosts. With the Policy Manager
centralized security management solution, security administrators can remotely
install, configure and monitor workstations, servers or even remote offices
from one location. The new version of Policy Manager also introduces several
features to boost productivity and performance.
In February, a new version of F-Secure's Protection Service for Mobile (PSM 7)
was introduced at the Mobile World Congress in Barcelona, Spain. The Protection
Service for Mobile enables operators to offer comprehensive protection and
parental control for their customers' mobile devices. PSM enables operators to
offer an end user service that makes Internet browsing, social networking and
mobile financial transactions safer by automatically identifying harmful web
sites, as well as keeping children safe from inappropriate and dangerous web
content. PSM also helps operators' customers to lock, locate and erase missing
devices and gives protection against harmful applications and viruses. PSM
supports multiple mobile platforms, and includes several customizable
alternatives for operators to offer mobile security as a service to their
customers.
In January 2011, F-Secure received the “Product of the Year” award issued by
AV-Comparatives, one of the major independent testing organizations in the
industry. The testing organization described Internet Security 2011 as a
well-designed product with a clear and easy-to-use interface.
Market situation
During the quarter the security space experienced no significant changes in the
competitive landscape or in pricing levels. Usual signs of price competition
are evident in some countries in the security market, especially in traditional
license business. Commercial interest in the content cloud business is picking
up with the introduction of new cloud services to the market. Many of
F-Secure's traditional competitors are also entering the content cloud
business.
F-Secure's competitive position in the Operator channel has remained strong.
The growth of fixed and mobile broadband access supports the position of
Operators in providing security and content cloud services.
Personnel and organization
F-Secure's personnel totaled 942 at the end of Q4 (812). The number of
personnel has continued to increase especially in sales and marketing, project
delivery and R&D in respect to content cloud business.
Currently, the Executive Team consists of the following persons: Christian
Fredrikson (President and CEO), Ari Alakiuttu (Vice President, Human
Resources), Tuomas Hyyryläinen (Vice President, Strategy and M&A), Samu
Konttinen (Vice President, Sales and Marketing), Maria Nordgren (Vice
President, Channels), Pirkka Palomäki (Chief Technology Officer), Kari Penttilä
(Vice President, R&D), Patrik Sallner (Vice President, Professional Services)
and Taneli Virtanen (Chief Financial Officer). Pirkka Palomäki was acting CEO
during November 1, 2011 - January 15, 2012.
President & CEO Christian Fredrikson started in his position in F-Secure on
January 16, 2012. Pirkka Palomäki continued in his previous position as CTO
based in the U.S., from January 16, 2012.
Financing and capital structure
F-Secure's financial position remained solid. F-Secure's equity ratio at the
end of year was 68% (69%) and gearing ratio was 47% negative (63% negative).
Cash flow from operations for the year was 20.8 million positive (23.2m
positive); lower than in the previous year mainly due to increased capex and
activations. Net financial income was slightly negative at 0.1m, impacted by
low interest income and exchange rates losses (0.0m).
The Company's cash position has developed according to the longer term
efficient capital management objectives. The market value on December 31, 2011
of the liquid assets of F-Secure was 28.1 million (32.8m).
Changes in exchange rates did not have material impact on sales and costs.
Capital expenditure
F-Secure's capital expenditure for the year was 18.7 million (10.4m),
consisting mainly of capitalization of development expenses for Operator
platforms and applications for both security and content cloud services.
Capital management and repurchase of own shares
The objective of F-Secure's capital management is to achieve an efficient
capital structure that ensures the functioning of business operations and
promotes the increase of shareholder value. During 2011, the Company continued
its share buy-back program, announced to start on May 31, 2011. In the
repurchase of own shares between June 8 and November 11, 2012, F-Secure bought
in a total of 700,000 shares.
The share buy-back program is based on the authorization of the Annual General
Meeting of March 30, 2011. The maximum number of shares to be repurchased is
2,000,000 shares, representing a maximum of approximately 1.3% of all shares
issued by the Company. The shares are purchased through public trading on the
NASDAQ OMX Helsinki Ltd. in accordance with its rules and at market price.
These own shares will be purchased in order to improve the Company's financial
structure, to be used as part of the incentive compensation plan, or to be used
for the purpose of making acquisitions or implementing other arrangements
related to the Company's business, or otherwise assigning or cancelling the
shares.
Including all shares bought, the total number of own shares held at the end of
December 2011 was 4,007,313 shares, corresponding to approximately 2.5% of the
Company's shares and voting rights.
In January 2012, the company assigned a total of 274,923 shares to the 21
participants of the F-Secure share-based incentive program as a reward payment.
The handover date for the shares was January 13, 2012. After the transfer,
F-Secure Corporation currently holds a total of 3,732,390 of its own shares.
Shares, shareholders' equity and option programs
In November, a total of 418,081 F-Secure shares were subscribed for with the C
warrants attached to the F-Secure 2005 Warrant Plan. In aggregate the number of
shares was increased by 418,081, which was registered in the Finnish Trade
Register on Dec 7, 2011. F-Secure received as subscription price a total amount
of EUR 618,759.88, which will be recorded in the fund for the Company's
distributable equity. As a result of the registering the total number of shares
is currently 158,798,739. Trading with the new shares commenced on Dec 8, 2011.
The subscription period for the 2005 C warrants began on March 1, 2010 and
ended on November 30, 2011.
In September, a total of 510,522 F-Secure shares were subscribed for with the C
warrants attached to the F-Secure 2005 Warrant Plan. The issue of the 2005
Warrant Plan was approved by the Annual General Meeting on March 23, 2005. In
aggregate the number of shares was increased by 510,522, which was registered
in the Finnish Trade Register on Sep 6, 2011. F-Secure received as subscription
price a total amount of EUR 755,572.56, which was recorded in the fund for the
Company's distributable equity. As a result of the registering the total number
of shares is 158,380,658. Trading in the new shares commenced on Sep 7, 2011.
In May, a total of 45,000 F-Secure shares were subscribed for with the C
warrants attached to the F-Secure 2005 Warrant Plan. The issue of the 2005
Warrant Plan was approved by the Annual General Meeting on March 23, 2005. In
aggregate the number of shares was increased by 45,000, which was registered in
the Finnish Trade Register on May 24, 2011. F-Secure received as subscription
price a total amount of EUR 66,600.00, which was recorded in the fund for the
Company's distributable equity. As a result of this registration the total
number of shares is 157,870,136. Trading in the new shares commenced on May 25,
2011.
In April, a total of 285,893 F-Secure shares were subscribed for with the C
warrants attached to the F-Secure 2005 Warrant Plan. The issue of the 2005
Warrant Plan was approved by the Annual General Meeting on March 23, 2005. In
aggregate the number of shares was increased by 285,893, which was registered
in the Finnish Trade Register on Apr 12, 2011. F-Secure received as
subscription price a total amount of EUR 423,121.64, which was recorded in the
fund for the Company's distributable equity. As a result of the registering the
total number of shares is 157,825,136. The trading in the new shares commenced
on Apr 13, 2011.
2005 D-warrants of F-Secure Corporation were listed on the NASDAQ OMX Helsinki
Ltd. and trading commenced on March 1, 2011. In connection with the 2005 Option
Plan, the maximum of 4.5 million warrants will be issued which are divided into
categories A, B, C and D. Each 2005 D-warrant entitles holders to subscribe to
one F-Secure share at a price of EUR 2.09. The subscription price of the stock
options shall, as per the dividend record date, be reduced by the amount of
dividend per share. The subscription time for 2005 D-warrants began on March 1,
2011 and will end on November 30, 2012. In aggregate the 2005 D-warrants
entitle holders to subscribe to 410,000 shares. The terms and conditions of
stock options were published as a stock exchange release on February 17, 2011.
The total number of Company shares is currently 158,798,739. The corresponding
number of shares diluted is 160,940,348 including all stock option programs.
The Company's registered shareholders' equity is EUR 1,551,311.18. More
information on the stock option programs is available on the Company's
investors web pages.
Share-based incentive program
In January 2012, F-Secure announced that the Board of Directors has established
for key employees a new share-based incentive program with earning period
2011-2013. The purpose of these programs is to support company´s strategy by
aligning the interests of shareholders and key employees in order to increase
the value of the company and to commit key employees to the company. The Board
determines the metrics of the share-based program and may change them according
to the terms and conditions of the program. Metrics for the earning period are
based on results in growth of new businesses, stock performance against peer
group and earnings per share against predefined objectives.
Participants in the share-based incentive program have the possibility to
receive a reward of F-Secure shares and cash to cover taxes. There shall be a
maximum total of 2,500,000 shares and a cash payment corresponding to the
registration date value of the shares. The participants in the share-based
incentive program are recommended not to sell more than 50% of the received
shares and to cumulate the shares from the incentive programs until the value
of the shares received from the share programs equals the annual gross base
salary of the employee.
F-Secure Board of Directors established a share-based incentive program, with
earning periods 2008-2010, for the company's key employees in 2008. Based on
this program, reward payment from 2008 period was executed on January 13, 2012.
The criteria set for the earnings period were Revenues and EBIT.
Corporate Governance
F-Secure complies with the Corporate Governance recommendations for public
listed companies published on June 15, 2011 by the Securities Market
Association, a body established by the Confederation of Finnish Industries EK,
the Central Chamber of Commerce and NASDAQ OMX Helsinki Ltd., as explained on
F-Secure's web pages. F-Secure will publish a corporate governance statement
for 2011 in the annual report and on the Company website in March 2012.
Risks and uncertainties
F-Secure has not seen material changes in risks and uncertainties during the
reporting period. Uncertainty in the economic environment may impact on the
growth of broadband connections and on Operators' willingness to invest in new
services. These may have negative impact on F-Secure's security and content
cloud sales. The Company continues to monitor closely the development in the
economic and financial markets.
F-Secure's risks and uncertainties are related to, among other things, the
competitiveness of F-Secure's product portfolio, competitive dynamics in the
industry, pricing models (e.g. free services, cost of content cloud services),
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 F-Secure'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, compromising stored personal data, service quality
related penalties, risk exposure from increasing contractual liability
requirements and forming of the new business areas.
Due to the longevity and complexity of project deliveries in the content cloud
business, project completion timelines and related revenues are more
unpredictable by nature than in the traditional security services business.
This may cause risks for delivery delay penalties and may cause more
variability in revenue forecasts.
The arbitration process in Finland on a dispute regarding a distributor
relationship in Brazil has been concluded. There was no material impact on the
Company's financials.
Market view
The long term market opportunities are attractive for F-Secure. The growth of
Internet users and Internet connected devices will drive demand for security
and content cloud services.
The number of Internet users is growing and has now passed 2 billion. Global
Internet penetration has kept growing and is now over 30%; in Asia 24%, in
Europe close to 60%, and in North America close to 80% (source: Internet World
Stats, U.S. Census Bureau, estimated in Mar. and Dec.2011). The growth of
smartphones and other Internet connected devices is expected to accelerate to
tens of billions during next 10 years (source: gigaom/ Ericson)
The global security software market keeps growing. The global security software
revenue grew 12% in 2010 and the worldwide security software revenue totaled
$16.5 billion in 2010 (Gartner Jun.2011). Growth across the security segments
varied greatly. The security market is undergoing rapid evolution in terms of
both new delivery models with Security as a Service showing increasing
popularity and new technologies being introduced (source: Gartner July 2011).
The volume of user generated digital content is expected to continue to
increase rapidly during coming years, driven by digital photos and music. The
use of social media is increasing and people look for services to share, store
and control of their personal data. Parks Associates forecasts that operators
providing security, storage and sharing value-added services have a revenue
opportunity of $1.03b 2012, increasing to $4.82b during 2015.
Based on industry analyst estimates, the Software as a Service business model
is expected to continue growing strongly and to gain more market share over
traditional license sales. For Operators the Software as a Service model is a
natural expansion to their other service offerings. The SaaS business offers
Operators the opportunity to replace revenues lost from the provision of
commoditized services and to increase loyalty in the face of competitive
threats from over-the-top providers and third parties.
Long term objectives and strategy summary for 2012 - 14
F-Secure's first priority is to drive growth and market expansion. F-Secure is
a pioneer in Security as a Service (SaaS) business with Operators. This channel
has been driving the Company's revenue growth over 10 years. Based on the
company's strong technology assets in security, cloud computing and content
cloud, F-Secure continues to create new innovative offerings to augment
traditional security services, especially in the content cloud space.
F-Secure works together with Operators by providing security and content cloud
services with which Operators can compete with Internet players. The Company's
large operator network covers over 200 operator partners in over 40 countries
with an addressable market of over 250 million fixed and mobile broadband
customers. In addition, F-Secure's close co-operation with major mobile phone
vendors and mobile phone operators provides good opportunities to benefit from
the growth of the mobile Internet.
F-Secure focuses on increasing the penetration within the current operator base
and continues to selectively seek partner expansion globally, especially in
emerging markets. The penetration rates vary by operator; overall penetration
levels are relatively low leaving substantial opportunity for growth.
The Company has revised its strategy for the next three years. The strategy
forms solid ground for continuous growth and improving profitability.
Operators, including Internet service providers, mobile operators and cable
operators, are the main channel for F-Secure services. F-Secure provides,
through Operators, security and content cloud services that are easy and
intuitive to use for mainstream consumers. This channel utilizes the presence
and brand of Operators to reach millions of consumers in a cost efficient and
scalable way.
Operators are competing with other Internet players and device manufacturers
for consumers' share of mind. Operators' advantage is their ability to manage
the continuously diverging multi-device, multi-OS environment. Also, they are
able to bring services to masses and are able to support them.
The sources of F-Secure's competitive advantage include the existing operator
and service provider network and relationships built over the years. Key assets
include security research, experience in service provisioning in the Operator
network environment and Operators' growing user base. Differentiation builds on
top of the ability to combine security into storage and the Operator channel at
large. By helping operators to establish local, secure and trustworthy Internet
services the Company enhances its position as Operators' long-term partner.
During the strategy period the Company is aiming for double digit revenue
growth (CAGR), driven by the Operator channel. The growth is expected to come
from the western world and some emerging markets like Latin America.
The Company will continue its investments in the content cloud business and
also in security services. In addition to mainstream operating systems, such as
Android, iOS and Windows, the Company is investing in platform development.
These investments ensure the scalability and competiveness of the services and
allow Operators to offer F-Secure services, both PC and mobile, to a wide
subscriber base. Profitability is expected to develop towards the 25% level at
the end of strategy period due to improving scalability in content cloud
business. F-Secure's longer term profitability level continues to be driven by
revenue growth and scalable operations.
Outlook for 2012
F-Secure's Operator channel business (SaaS) is expected to continue with
healthy growth rates driven by good security sales and content cloud projects
with subscriber based revenues. The traditional license business is expected to
continue to decline slightly as in 2011.
As overall uncertainty in the global economy and financial markets is expected
to continue, this may have impact on Operators' interest to invest in new
services, especially in new content cloud projects.
The management estimates annual revenue growth to be around 10%. The Company
continues to prioritize growth over short term profitability and plans to
invest a majority of the improved earnings back to growth opportunities in its
core business.
Approximately 7 million of cost increase is arising from the end of development
activations of new platforms and increased depreciations. The actual
operational cost increases are fairly limited and are targeted to drive product
portfolio competitiveness, build the scalability of the content cloud services
and geographical expansion.
Annual profitability is expected to be around 15% of revenues and is expected
to follow the usual seasonality with a better second half. The revenue estimate
is based on the sales pipeline at the time of publishing, existing
subscriptions and support contracts as well as current exchange rates.
News conference today at 11 am
A news conference for analysts and press is arranged today, on February 1, at
11 am Finnish time at F-Secure's Headquarters, address: Tammasaarenkatu 7,
Ruoholahti, Helsinki. In the news conference, President & CEO Christian
Fredrikson will present the Q4 financial results. Acting CEO until January 15,
Pirkka Palomäki, will join the news conference for possible questions. A
conference call for international investors and analysts is arranged at 14.00
Finnish time (13.00 CET, 12.00 UK time). To participate in the call, please
dial in and register 5-10 minutes prior to the event through the following
number: +44 20 7162 0077, password: F-Secure. The Q4 financial results
presentation material will be available on our Investors web pages at
www.f-secure.com under About F-Secure, Investors before the call begins.
Financial calendar for 2012
F-Secure will publish the interim report for the first quarter of 2012 on April
27, 2012. Quarterly interim reports in 2012 will be published on July 25 (Q2)
and October 25 (Q3). On the publication date a stock exchange release will be
sent at 9 am Finnish time to the NASDAQ OMX Helsinki Ltd., 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. The Annual
General Meeting is scheduled to be held on April 3, 2012 and the annual report
will be published in the beginning of March, latest on week 11.
F-Secure Corporation
Additional information
F-Secure Corporation
Christian Fredrikson, President and CEO
tel. +358 9 2520 0700
Taneli Virtanen, CFO
tel. +358 9 2520 5655
Mervi Pohjoisaho, IR
tel. +358 40 535 8989
This interim report is prepared in accordance with IAS 34 standard Interim
Financial Reporting and with accounting principles stated in the Annual Report
2010.
Key figures (unaudited):
----------------------------------------------------------
Euro million
----------------------------------------------------------
INCOME STATEMENT 2011 2010 2011 2010 Chge
----------------------------------------------------------
10-12 10-12 1-12 1-12 %
----------------------------------------------------------
Revenues 40.0 34.4 146.0 130.1 12
----------------------------------------------------------
Cost of revenues 2.2 2.0 8.0 8.1 -2
----------------------------------------------------------
Gross margin 37.8 32.4 138.1 122.0 13
----------------------------------------------------------
Other operating income 0.4 0.3 1.4 1.0 42
----------------------------------------------------------
Sales and marketing 18.0 15.9 64.7 59.6 9
----------------------------------------------------------
Research and development 10.5 10.2 39.3 34.5 14
----------------------------------------------------------
Administration 3.1 3.0 11.9 9.1 31
----------------------------------------------------------
Operating result 6.5 3.6 23.6 19.8 19
----------------------------------------------------------
Financial net 0.1 0.2 -0.1 0.0 0
----------------------------------------------------------
Result before taxes 6.6 3.7 23.5 19.9
----------------------------------------------------------
Income taxes -2.0 -0.5 -7.1 -4.6
----------------------------------------------------------
Result for the period 4.6 3.3 16.4 15.2
----------------------------------------------------------
Other comprehensive income:
--------------------------------------------------------------------------------
Exchange diff. on translating 0.0 0.1 0.0 0.1
foreign operations
--------------------------------------------------------------------------------
Available-for-sale fin. assets 0.1 -0.2 0.1 0.0
--------------------------------------------------------------------------------
Income tax rel. to components of other comprehensive 0.0 0.0 0.0 0.0
income
--------------------------------------------------------------------------------
Total compr. income (owners) 4.7 3.2 16.5 15.4
--------------------------------------------------------------------------------
Earnings per share, e 0.03 0.02 0.11 0.10
--------------------------------------------------------------------------------
EPS diluted, e 0.03 0.02 0.10 0.10
--------------------------------------------------------------------------------
BALANCE SHEET 31/12/2011 31/12/2010
ASSETS
-----------------------------------------------------------
Intangible assets 25.3 16.0
-----------------------------------------------------------
Tangible assets 9.1 7.5
-----------------------------------------------------------
Goodwill 19.4 19.4
-----------------------------------------------------------
Other financial assets 5.5 6.0
-----------------------------------------------------------
Non-current assets total 59.2 48.8
-----------------------------------------------------------
Inventories 0.4 0.4
-----------------------------------------------------------
Other receivables 37.9 29.7
-----------------------------------------------------------
Available-for-sale financial assets 16.0 16.8
-----------------------------------------------------------
Cash and bank accounts 12.2 16.2
-----------------------------------------------------------
Current asset total 66.4 63.1
-----------------------------------------------------------
Total 125.7 111.9
-----------------------------------------------------------
SHAREHOLDERS' EQUITY 31/12/2011 31/12/2010
AND LIABILITIES
-----------------------------------------------------
Equity 59.6 51.4
-----------------------------------------------------
Other non-current 1.6 2.2
-----------------------------------------------------
Deferred revenues 8.4 7.8
-----------------------------------------------------
Non-current liabilities total 10.1 10.0
-----------------------------------------------------
Other current 26.2 21.1
-----------------------------------------------------
Deferred revenues 29.8 29.4
-----------------------------------------------------
Current liabilities total 56.0 50.4
-----------------------------------------------------
Total 125.7 111.9
-----------------------------------------------------
CASH FLOW STATEMENT 31/12/2011 31/12/2010
----------------------------------------------------------------------
Cash flow from operations 20.8 23.2
----------------------------------------------------------------------
Cash flow from investments -16.7 -11.5
----------------------------------------------------------------------
Cash flow from financing -9.1 -13.2
activities 1)
----------------------------------------------------------------------
Change in cash -5.0 -1.5
----------------------------------------------------------------------
Cash and bank at 1 Jan 32.9 34.3
----------------------------------------------------------------------
Change in net fair value of Available-for-sale 0.1 0.0
----------------------------------------------------------------------
Cash and bank at end of period 28.1 32.8
----------------------------------------------------------------------
Statement of changes in shareholders' equity
Share Share Un-restrict Trea-su Retaine Assets Transl Total
capi-t prem-i -ed equity- ry d avail. .
al um fund reserve shares earnin f.sale diff.
gs
--------------------------------------------------------------------------------
Equity 1.6 0.2 3.2 -7.5 54.1 0.0 -0.2 51.4
on:
31.12.20
10
--------------------------------------------------------------------------------
Total 16.4 0.1 16.5
comprehe
nsive
income
for the
year
--------------------------------------------------------------------------------
Dividend -9.3 -9.3
--------------------------------------------------------------------------------
Other
change
--------------------------------------------------------------------------------
Exercise 1.9 1.9
of
options
--------------------------------------------------------------------------------
Treasury -1.5 -1.5
shares
--------------------------------------------------------------------------------
Cost of 0.6 0.6
share
based
payment
s
--------------------------------------------------------------------------------
Equity 1.6 0.2 5.1 -9.0 61.8 0.1 -0.2 59.6
on
31.12.20
11
--------------------------------------------------------------------------------
NOTES
1. Cash flow from financing
Dividend for year 2010 0.06 euro per share totaling 9.253.915,80 euro was paid
on 12th April 2011. In 2010 paid dividend totaled 9.310.086,12 euro. The
company has bought own shares by 1.508.967 euros.
Key ratios 2011 2010
---------------------------------------------
12 m 12 m
---------------------------------------------
Operating result. % of revenues 16.2 15.2
---------------------------------------------
ROI, % 44.3 42.5
---------------------------------------------
ROE, % 29.5 30.3
---------------------------------------------
Equity ratio, % 68.2 69.1
---------------------------------------------
Debt-to-equity ratio, % -47.1 -63.2
---------------------------------------------
Earnings per share (EUR) 0.11 0.10
---------------------------------------------
Earnings per share diluted 0.10 0.10
---------------------------------------------
Shareholders' equity 0.38 0.33
per share, e
---------------------------------------------
P/E ratio 18.9 23.1
---------------------------------------------
Capitalized expenditures (Me) 18.7 10.4
---------------------------------------------
Contingent liabilities 18.7 17.6
---------------------------------------------
Personnel, average 878 835
---------------------------------------------
Personnel, end of period 942 812
---------------------------------------------
Segment information
The Group has only one segment; data security.
Quarterly development 1/10 2/10 3/10 4/10 1/11 2/11 3/11 4/11
----------------------------------------------------------------------
Revenues 31.4 32.3 32.0 34.4 34.1 35.3 36.6 40.0
----------------------------------------------------------------------
Cost of revenues 2.0 1.9 2.2 2.0 1.8 1.9 2.0 2.2
----------------------------------------------------------------------
Gross margin 29.4 30.4 29.9 32.4 32.3 33.4 34.6 37.8
----------------------------------------------------------------------
Other operating income 0.3 0.2 0.2 0.3 0.4 0.4 0.2 0.4
----------------------------------------------------------------------
Sales and marketing 14.4 15.4 13.9 15.9 14.8 16.2 15.8 18.0
----------------------------------------------------------------------
Research and 7.8 8.3 8.2 10.2 9.4 9.9 9.4 10.5
development
----------------------------------------------------------------------
Administration 1.9 2.1 2.1 3.0 3.0 3.0 2.8 3.1
----------------------------------------------------------------------
Operating result 5.5 4.9 5.9 3.6 5.5 4.6 6.9 6.5
----------------------------------------------------------------------
Financial net -0.1 0.2 -0.4 0.2 -0.2 0.0 0.0 0.1
----------------------------------------------------------------------
Result before taxes 5.5 5.2 5.5 3.7 5.3 4.6 7.0 6.6
----------------------------------------------------------------------
Geographical information
Revenue 10-12/2011 10-12/2010 10-12/2011 1-12/2010
----------------------------------------------------------------
Nordic countries 12.6 11.4 47.3 43.1
----------------------------------------------------------------
Rest of Europe 17.3 15.1 65.1 59.3
----------------------------------------------------------------
North America 5.2 3.7 16.4 12.1
----------------------------------------------------------------
Rest of the world 4.9 4.2 17.2 15.6
----------------------------------------------------------------
Total 40.0 34.4 146.0 130.1
----------------------------------------------------------------
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