2016-04-29 08:05:12 CEST
2016-04-29 08:05:12 CEST
REGULATED INFORMATION
F-Secure Oyj - Interim report (Q1 and Q3)
F-Secure's Interim Report 1 January – 31 March 2016
CORPORATE SECURITY IN HIGH DEMAND
F-Secure Corporation, Interim Report, 29 April 2016 at 09.03 EEST
Highlights in January-March
-- Revenues from continuing operations increased by 5% year-on-year to EUR
37.8 million (35.9 m)
-- Revenues from corporate security increased by 27% totaling EUR 14.6 million
(11.6 m); the growth was driven by good progress in reseller channel and
increasing contribution by cyber security services
-- Revenues from consumer security decreased by 5% totaling EUR 23.2 million
(24.4m); the decline was largely attributable to operator business in Latin
America and the impact is anticipated to be mainly seen in the first
quarter only
-- EBIT (IFRS) was EUR 3.2 million, representing 8% (5.0 m, 14%) of revenues
and reflecting investments in sales growth and product development
-- Earnings per share (EPS) for continuing operations was EUR 0.01 (0.04) and
EUR 0.02 (0.11) for the Group including discontinued operations
-- F-Secure’s full-year guidance on profitability remains unchanged despite
the decline in profitability seen in the first quarter
-- Deferred revenues increased by 11% and amounted to EUR 49.7 million (44.9m)
at the end of the quarter as a result of growth in license and renewal
sales
-- Cash flow from operations was EUR -1.1 million (4.6 m), reflecting the
repayment of foreign tax credits on withholding taxes from 2009-2011 based
on debit decisions by the Finnish tax authority; F-Secure has appealed the
debit decisions with the Tax Administration’s Board of Adjustment
The reporting currency is Euro. This interim report is unaudited. F-Secure
acquired nSense in June 2015 and has consolidated it into the F-Secure Group
accounts since Q2 2015. F-Secure’s personal cloud storage business (younited)
was sold to Synchronoss Technologies in February 2015 and is reported as
discontinued operations.
Outlook for 2016
The Company’s outlook for 2016 is unchanged.
-- F-Secure anticipates its overall security revenues to grow in 2016 compared
to the year before (2015: EUR 148 million).
-- EBIT for continuing operations is estimated to be EUR 17-21 million (2015:
EUR 20 million).
Key figures
Key figures 2016 2015 Y-o-Y 2015
Change
--------------------------------------------------------------------------------
(Eur million) 1-3 1-3 1-12
--------------------------------------------------------------------------------
Revenues 37.8 35.9 +5% 147.6
--------------------------------------------------------------------------------
Operating profit (IFRS) 3.2 5.0 -36% 20.0
--------------------------------------------------------------------------------
% of revenues (IFRS) 8 14 14
--------------------------------------------------------------------------------
Profit before taxes 2.9 7.1 20.7
--------------------------------------------------------------------------------
Earnings per share (Eur)* 0.02 0.11 0.14
--------------------------------------------------------------------------------
Earnings per share for continuing operations 0.01 0.04 0.08
(Eur)*
--------------------------------------------------------------------------------
Depreciation 1.3 1.6 5.9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At the end of period:
--------------------------------------------------------------------------------
Deferred revenues 49.7 44.9 48.1
--------------------------------------------------------------------------------
Liquid assets, total 93.0 110.2 94.3
--------------------------------------------------------------------------------
ROI% 18.6 56.4 52.1
--------------------------------------------------------------------------------
Equity ratio, % 68.9 73.5 64.1
--------------------------------------------------------------------------------
Debt-to-equity ratio, % -116.2 -112.4 -122.4
--------------------------------------------------------------------------------
Personnel 950 841 926
--------------------------------------------------------------------------------
*Based on the average adjusted number of shares during the period 155,802,690.
CEO Christian Fredrikson:
In the first quarter of 2016, F-Secure continued to invest in growth to support
the Company’s ambition to become the leading European cyber security company.
In a market driven by the increasing prevalence of cyber attacks and corporate
customers’ need for more comprehensive security solutions, F-Secure is
well-positioned to take advantage of the rising opportunities. To do this, we
are improving our go-to-market capabilities as well as broadening our product
and service offering to corporate clients.
F-Secure’s revenues in the first quarter grew by 5% compared to the year
before, and amounted to EUR 37.8 million. Revenue growth was driven by
corporate security owing to strong organic growth in the reseller channel and
the rapidly increasing contribution from cyber security services. In organic
revenues overall, we saw a flat quarter, but our organic order intake showed a
healthy increase.
Within corporate security, I was particularly pleased to see the best ever
first quarter revenues from the reseller business, which has now been growing
steadily for two years. We are achieving growth across the board in Europe,
while Japan continues its solid performance. Our investments in sales are now
covering Europe more broadly, and we are expanding our security offering to
selected corporate resellers by introducing our vulnerability scanning tool,
F-Secure Radar (previously Karhu), into the channel.
Cyber security services are delivering strong double-digit growth, with demand
remaining extremely high. We have won several major customers, some of them in
new markets, and successfully attracted cyber security experts in a very
competitive market. We also continue to invest in product development. By the
end of the second quarter, we look forward to launching our new Rapid Detection
Service for detecting and responding to advanced threats. As customer pilots
have progressed well and we have successfully established our new service
center, we are now very close to this exciting launch.
The revenues from consumer security declined in the first quarter due to a
decline in the operator business. We anticipate the decline, which is largely
attributable to business in Latin America, to be temporary, and we maintain our
outlook of operator revenues remaining largely flat in 2016. Meanwhile, our
direct-to-consumer revenues continued to grow, with positive contribution from
the steadily increasing sales of F-Secure Freedome. We are working together
with our operator and retailer partners to further expand our product offering,
as well as to increase take-up rates.
Our investments in recruiting and product development as well as the decrease
in operator channel revenues had an impact on our first quarter profitability,
which declined from last year’s level. However, we anticipate the operator
business to recover, and I am confident that the stronger consultancy and sales
teams along with new products will enable us to reach our stated goals during
the remainder of the year.
Financials
As of Q4 2015, F-Secure reports its revenue divided into consumer security
revenue (including operator and direct-to-consumer businesses) and corporate
security revenue (including corporate reseller and cyber security services
business).
Some minor re-allocation of revenues between consumer and corporate businesses
was made in Q1 2016; comparison figures from Q1 2015 have been restated to
reflect this.
JANUARY-MARCH
In the first quarter F-Secure’s overall revenues grew by 5% year-on-year,
totaling EUR 37.8 million (35.9 m). Organic revenues were flat year-on-year,
but organic order intake showed promising growth.
Revenues from corporate security increased by 27% totaling EUR 14.6 million
(11.6 m) and representing 39% (32%) of F-Secure’s total revenues. Growth was
driven by the strong growth in sales through the reseller channel. In addition,
the acquired cyber security services also contributed significantly to the
corporate security growth. Cyber security services revenue was also in strong
double-digit growth organically (pro forma) compared to the previous year.
Revenues from consumer security decreased by 5% and amounted to EUR 23.2
million (24.4m), representing 61% (68%) of F-Secure’s total revenues. The
decrease in the consumer security revenues year-on-year stemmed from the
operator channel and was partly a result of the substantial devaluation of the
Brazilian Real. The year-on-year comparison was also significantly impacted by
the recognition of substantial revenues from a Latin American client still in
Q1 2015. Full bad debt provisions for these receivables have been made in Q4
2015, and only limited revenues from said client have been recognized in Q2-Q3
2015. Hence, the impact on the year-on-year comparison is primarily limited to
the first quarter of 2016 only. Overall, revenues from the operator channel are
anticipated to remain largely flat in 2016 compared to the year before.
Direct-to-consumer sales continued to grow faster than the underlying market in
January-March, with positive contribution from the steadily increasing sales of
F-Secure Freedome.
Deferred revenues increased by 11% and amounted to EUR 49.7 million (44.9m) at
the end of the quarter as a result of growth in license and renewal sales.
Total fixed costs were EUR 33.9 million (30.7 m), an increase of 10% from the
previous year. The increase is mainly caused by personnel related expenses,
external services and costs incurred by the acquired nSense business.
Depreciations (capitalized R&D, software, hardware) decreased to EUR 1.3
million (1.6 m). The capitalized development expenses for the quarter were EUR
0.4 million (0.5 m).
EBIT (IFRS) including the allocation of the nSense acquisition related costs
(earn-out and deferred payment) was EUR 3.2 million, representing 8% (5.0 m,
14%) of revenues.
Earnings per share (EPS) for continuing operations was EUR 0.01 (0.04) and EUR
0.02 (0.11) for the Group including discontinued operations.
Cash flow from operations was EUR -1.1 million (4.6 m), reflecting the
repayment of foreign tax credits on withholding taxes from 2009-2011 based on
debit decisions by the Finnish tax authority. F-Secure has appealed the
decisions with the Tax Administration's Board of Adjustment.
The geographical breakdown of revenues in the first quarter was as follows:
Finland and Scandinavia EUR 13.9 million (11.5 m), Rest of Europe EUR 15.4
million (16.2 m), North America EUR 3.6 million (3.0 m) and Rest of the World
EUR 4.9 million (5.2 m).
Financing and Capital Structure
On 31 March the market value of F-Secure’s liquid assets was EUR 93.0 million
(31 December 2015: 94.3 m).
In January-March the Company’s capital expenditure amounted to EUR 0.6 million
(1.1 m). The capitalized development expenses were EUR 0.4 million (0.5 m).
F-Secure’s financial position remained solid. The Company’s equity ratio on 31
March was 69% (74%) and its gearing ratio was 116% negative (112% negative).
Shares, Shareholders' Equity, Own Shares
The total number of Company shares is currently 158,798,739. The Company’s
registered shareholders’ equity is EUR 1,551,311.18. The Company currently
holds 2,996,049 of its own shares.
Acquisitions and disposals
F-Secure acquired nSense, a privately held Danish company providing security
consultation and vulnerability assessment services and products to large
enterprises, in June 2015. nSense has been consolidated into F-Secure Group
accounts as of the second quarter of 2015. For more information, see Note 3 in
the table section.
F-Secure sold its personal cloud storage business to Synchronoss Technologies
in February 2015. As of the beginning of 2015, the personal cloud storage
business is reported as discontinued operations. For more information, see Note
2 in the table section.
Market overview
The growing amount and variety of connected devices as well as digital services
continues to create security challenges for both businesses and individuals.
Combined with the increasing complexity of IT systems, these trends are driving
demand for security services.
With regard to businesses and governmental organizations, targeted attacks are
becoming more advanced and common. The number of reported security incidents
continued to grow faster than ever (+38% in 2015, PwC). Companies increasingly
seek for managed security services and cloud-based delivery to help them
maintain control of their security. Larger organizations are interested in
securing their mobile device fleets and the demand for incident detection and
response services remains very high.
The consumer security software market continues to be impacted by the changing
device landscape. PC sales declined by 9.6% during the first quarter of 2016
(Gartner, March 2016), which is anticipated to be reflected in the market for
security products, but there are nonetheless opportunities to capture market
share from the competition. At the same time, the amount of connected smart
home devices is growing rapidly. It is expected that there are over 1 billion
connected things in homes by 2018, which opens opportunities for new innovative
security products (Gartner, November 2015).
In 2015, the worldwide security software market was worth USD 22.1 billion
(Gartner, March 2016). The consumer security software market was worth USD 4.6
billion in 2015 (Gartner, March 2016), and it is expected to grow by 3.1%
annually in 2016-2019 (Gartner, February 2016). The security services market
for enterprises was worth USD 50.9 billion, and it is expected to grow 8.1 %
annually in 2016-2019 (Gartner, February 2016). Within this, the IT outsourcing
market including managed security services was worth USD 15.7 billion in 2015
and it is expected to grow by 14.7 % annually in 2016-2019 (Gartner, February
2016). All expected growth rates are in constant US dollars.
Business in January-March
CORPORATE SECURITY
In corporate security, the majority of revenues came from the sales of
end-point protection solutions through the reseller channel. Protection Service
for Business (PSB) was once again the fastest growing product and brought in
almost one third of all reseller revenues. During the first quarter, reseller
revenues increased in all significant markets, with several countries seeing
double-digit growth. Overall, revenues from the reseller channel reached an
all-time high for the first quarter.
F-Secure is currently growing faster than the market in the Company’s chosen
focus regions in the Nordics, Central Europe and Japan. F-Secure continues to
invest in developing the reseller channel and expanding its regional presence.
During the past two years, revenues have increased (year on year) every quarter
and new customer acquisition has almost doubled. To enable the Company to grow
faster, investments are now covering Europe more broadly.
The demand for cyber security services remained high during the first quarter,
and related revenues saw strong growth (pro forma). The Company won several
major customers, some of them in new markets, as well as successfully recruited
new cyber security experts and continues to actively recruit more. Still, the
very competitive recruiting market and limited availability of best talent
continues to challenge growth in the cyber security services.
F-Secure continues to develop it’s cyber security services offering, and is
preparing for the second-quarter launch of a new solution (Rapid Detection
Service) to detect and respond to advanced threats . To support the new
product, the Company has founded a new service center. Customer pilots with the
new solution continued successfully during the quarter.
Revenues from the Company’s vulnerability detection and management solution,
F-Secure Radar (formerly known as Karhu), developed favorably during the
quarter.
After period end, the Company signed a significant contract with Fujitsu
Finland to sell and deliver F-Secure Radar as a service to enterprise customers
in all Nordic countries. F-Secure Radar is the Company’s first cyber security
product to be delivered through the reseller channel.
CONSUMER SECURITY
In the operator channel, F-Secure SAFE delivers most of the revenue, but other
products (F-Secure KEY, F-Secure Freedome) are becoming an increasingly
significant part of the offering with both existing and new operator partners.
The roll-out of F-Secure SAFE (multi-device security solution) also continued
with operators, including TEO Lithuania (part of TeliaSonera Group) and
Telefonica Chile. Overall, F-Secure continues to cooperate closely with
operator partners to further expand product sales as well as increase take-up
rates and simplify sales processes to end-customers.
In the direct-to-consumer business, revenues continued to outpace the
underlying market. The majority of revenues in the direct-to-consumer channel
comes from F-Secure SAFE, but F-Secure Freedome’s (a privacy and security
product) contribution to revenue growth in the direct-to-consumer business was
significant.
With Freedome showing positive development, the Company continues to improve
the product’s commercial availability. During the first quarter, F-Secure
introduced new cross-selling features in F-Secure SAFE, which simplified
selling Freedome to operator partners. Also, the previously announced new
partnerships with significant global device manufacturers (ACER, Alcatel/TCL)
have now moved into the execution phase, and the first deliveries of mobile
devices with Freedome pre-installed took place during the quarter. The concrete
revenue impact of these new initiatives, which is subject to the conversion of
the pre-installations to paid subscriptions, will be seen later in the year.
The Company continued to prepare for the first deliveries of F-Secure Sense by
further optimizing the software and hardware features of the product and by
seeking customer feedback. To date, feedback on the product has been positive
and additional go-to-market options for Sense are being evaluated. However, due
to the continuing development measures being taken to ensure the high quality
and usability of the product, the first commercial deliveries of Sense are
being delayed, and are now expected to take place by the end of the year.
Product and services highlights
During the quarter, F-Secure continued to invest in security excellence,
go-to-market activities and product development for both consumer and corporate
products.
Updates for corporate products:
-- The Company’s vulnerability management solution was renamed as F-Secure
Radar (formerly known as Karhu) as the product was officially added to the
F-Secure corporate portfolio. A new contract signed with Fujitsu Finland
(after end of period, in April) made it the first cyber security solution
to be sold through the corporate reseller channel.
-- Protection Service for Business support was added for Windows 10 and El
Capitan (OS X), along with new features focusing on web security and
control. Additionally, the management portal has been completely redesigned
to provide faster and more intuitive management experience, which has been
warmly received among customers and partners alike.
Updates for consumer products:
-- F-Secure SAFE (a multi-device security solution) was added with new
cross-selling features to allow operators and retail partners to easily
sell F-Secure Freedome and F-Secure Key to their customers. A joint
initiative brought operator partners together with F-Secure to optimize the
product’s end-to-end customer journey covering service discovery,
purchasing, activation and usage.
-- F-Secure Freedome’s (a privacy and security product) new Tracker Mapper
tool was introduced also for mobile devices.
-- F-Secure KEY’s (a password manager) user interface was redesigned for
tablets. Fingerprint sensor support was added for Android and iOS devices.
Organization and leadership
F-Secure’s personnel has increased by 24 (3%) since December, in line with the
Company’s aim to hire over a hundred new employees in 2016. The number of
personnel totaled 950 at the end of the quarter (926 on 31.12.2015; 841 on
31.3.2015).
At the time of publication of this interim report the composition of the
Leadership Team is the following:
Christian Fredrikson (CEO), Mari Heusala (HR & Office Services), Kristian
Järnefelt (Consumer Security), Samu Konttinen (Corporate Security), Saila
Miettinen-Lähde (Finance & Supporting Services), Jari Still (Information &
Business Services), Mika Ståhlberg (Security Research & Technologies), Jens
Thonke (Cyber Security Services) and Jyrki Tulokas (Strategy & Corporate
Development).
Corporate Governance
F-Secure’s corporate governance practices comply with Finnish laws and
regulations, F-Secure’s Articles of Association, the rules of NASDAQ Helsinki
Oy and the Finnish Corporate Governance Code 2015 issued by the Securities
Market Association of Finland as explained on the Company website. The code is
publicly available at http://cgfinland.fi/en/. F-Secure’s Corporate Governance
Statement for 2015 as well as up-to-date information about the Company’s
governance are available on the Company website.
Risks and uncertainties
The most significant risks for F-Secure are related to the following factors:
-- Volatility of the economic environment and its potential impact on business
volumes
-- End-point security market transformation and changes in customer demand
-- Changes in the competitive environment
-- Potential loss of key customers and partnerships
-- Competitiveness of F-Secure’s product portfolio in the rapidly changing
market
-- Intellectual property (IPR) claims against F-Secure
-- Risk exposure from contractual liability requirements
-- Failure to successfully complete acquisitions or divestments
-- Success of new product launches
-- Potential security threats related to our products and services
-- Credit risk due to regional political or financial climate and regulation
-- Tax risk relating to changing laws and regulations and interpretations of
said regulations by the relevant authorities
Strategy 2016-18
F-Secure aims to capitalize on the next phase of the internet and connected
world. The Company’s strategy reflects the fast growing number of
internet-connected devices, the changes in the ways business is done amid the
increasing digitalization, and the concurrent increase in cybercrime. Execution
of the strategy will further speed up F-Secure’s transformation from an
end-point antivirus company to a broader provider of cyber security products
and services.
The key driver behind the strategy is F-Secure’s aspiration for growth.
F-Secure is continuing to increase its investments in the fastest growing
markets within corporate security. These include managed endpoint security
services sold through the reseller channel as well as the cyber security
services business. Investments in consumer security are continued at a level
that targets profitable growth.
F-Secure also aims to maximize the commercial impact of its technical expertise
and multiple sales channels for further growth in its chosen key market
segments. These include cyber security offerings to large enterprises in
Northern Europe and in selected verticals comprising financial industry, gaming
and gambling companies, aviation, defence, law enforcement, and certain global
brands. In corporate security the focus is on the reseller channel in Europe
and Japan. In consumer security, F-Secure continues with its existing sales
channels through operators, e-commerce and retail partners.
To enable execution of the growth strategy, F-Secure is actively recruiting
highly skilled security professionals, rising cyber security talents and
capable sales personnel. The Company also aims at growing through M&A.
The overall key strategic target for F-Secure is to become the leading European
cyber security company.
The Company has communicated its strategy in the Q4 interim stock exchange
release (5 February 2016). Further details of the strategy can be found on the
Company’s web pages at:
http://www.f-secure.com/en/web/corporation_global/company/vision-and-strategy
Outlook for 2016
The Company’s outlook for 2016 is unchanged.
-- F-Secure anticipates its overall security revenues to grow in 2016 compared
to the year before (2015: EUR 148 million).
-- EBIT for continuing operations is estimated to be EUR 17-21 million (2015:
EUR 20 million).
In 2015 F-Secure gave its profitability guidance as EBIT (non-IFRS), in which
the cost impact of the deferred payment and earn-out elements of the nSense
acquisition were excluded. In 2016, the EBIT guidance includes an estimated EUR
3 million cost impact from these elements, hence the guided figure is not
directly comparable to that given in 2015.
Revenue growth is expected to continue especially in the Company's cyber
security services, corporate security products (in particular Protection
Service for Business) sold through the reseller channel, and direct-to-consumer
sales of F-Secure’s multi-device security offering SAFE and the privacy product
Freedome. Sales of consumer security through the operator channel are expected
to remain largely flat. The revenue outlook is based on the sales pipeline at
the time of this outlook, existing subscriptions and contracts, as well as
current exchange rates.
F-Secure is actively investing in the development and commercialization of
several new products. The cost of development as well as expenses relating to
commercial launches are likely to have an impact on the Company’s overall
profitability in the short to medium term while the revenues from new products,
including Sense for the protection of smart homes and Rapid Detection Service
for enterprises, are difficult to estimate and may remain low. This cost impact
has been taken into account in the Company’s profitability guidance and is in
line with the Company’s principle to prioritize growth over short-term
profitability.
Events after period end
ANNUAL GENERAL MEETING
The Annual General Meeting of F-Secure Corporation was held on 7 April 2016.
The Meeting confirmed the financial statements for the financial year 2015. The
members of the Board and the President and CEO were granted discharge from
liability.
The AGM re-elected the following members to the Board of Directors: Mr. Jussi
Arovaara, Mr. Pertti Ervi, Mr. Matti Heikkonen, Ms. Anu Nissinen and Mr. Risto
Siilasmaa. Mr. Bruce Oreck and Mr. Janne Pirttilahti were elected as new
members of the Board. The Board elected in its organizational meeting Mr.
Siilasmaa as the Chairman of the Board. The Board nominated Mr. Siilasmaa as
the Chairman of the Executive Committee and Mr. Heikkonen and Ms. Nissinen as
members of the Executive Committee. Mr. Ervi was nominated as the Chairman of
the Audit Committee and Mr. Arovaara, Mr. Oreck and Mr. Pirttilahti were
nominated as members of the Audit Committee.
The Annual General Meeting decided to distribute a dividend of EUR 0.06 per
share and an extra dividend of EUR 0.06 per share to be paid to those
shareholders that on the record date of 11 April 2016 were registered in the
Register of Shareholders held by Euroclear Finland Ltd. The dividend was paid
on 19 April 2016.
The AGM approved all proposals made by the Board as described in the Notice to
the AGM published on 10 March 2016. The resolutions of the AGM can be found in
the Company’s stock exchange release of 7 April 2016 and on the Company web
site.
News conference and webcast
A news conference for analysts and media will be held (in Finnish) at the
Company's headquarters (address: Tammasaarenkatu 7, 00180 Helsinki) on Friday
29 April 2016 at 11.00-12.00 a.m. (EEST).
A webcast for international investors and analysts will be held (in English) on
the same day at 14.30 p.m. (EEST).
To participate in the online meeting via web, please click on the link:
https://meet.f-secure.com/tapio.pesola/SQKVN74K
To join via phone, please dial in to +358975110100. The conference ID is
5228027. The presentation material including live video is only available via
the online webcast.
The material will be available at the company's website before the call begins:
www.f-secure.com/investors.
F-Secure Corporation
Additional information
CONTACT INFORMATION
Christian Fredrikson
CEO, F-Secure Corporation
+358 9 2520 0700
Saila Miettinen-Lähde
CFO, F-Secure Corporation
+358 9 2520 0700
Tapio Pesola
IR Manager, F-Secure Corporation
+358 44 3734693
FINANCIAL CALENDAR
F-Secure Corporation will publish its interim reports during 2016 as follows:
-- Q2/2016: 4 August 2016
-- Q3/2016: 3 November 2016
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