F-Secure Oyj - Interim report (Q1 and Q3)

F-SECURE CORPORATION - INTERIM REPORT JANUARY 1 – MARCH 31, 2015

 F-Secure Corporation, Stock Echange Release, April 23, 2015 at 9.00  (EEST)

FOCUSING ON SECURITY,
SOLID FINANCIAL PERFORMANCE

As of the beginning of 2015, F-Secure's personal cloud storage business, which
was sold to Synchronoss Technologies in February for the sale price of USD 60
million, is reported as discontinued operations. The net profit for the
business sale is also recognized in the discontinued operations. As a result of
the disposal, comparison figures related to the statement of income have been
restated to represent continuing security operations only. Unless otherwise
stated the comments in the text part of this interim report refer to continuing
operations only and the comparison figures refer to the corresponding period of
the previous year. The currency is Euro. This interim report is unaudited. 



Highlights in January-March

  -- Revenues for continuing operations were EUR 35.9 million (EUR 34.0 m)
     showing an increase of 6%
  -- EBIT for continuing operations was EUR 5.0 million, representing 14% of
     revenues (EUR 4.4 m, excluding non-recurring items, 13% of revenues)
  -- Earnings per share for continuing operations was EUR 0.04 (EUR 0.02) and
     EUR 0.11 (EUR 0.01) for the Group including discontinued operations
  -- Cash flow from operations (including discontinued operations) was EUR 4.6
     million (6.1m); change in liquid assets EUR 47.3 million (EUR 4.9m), and
     liquid assets at the end of the period EUR 110.2m
  -- Deferred revenues for continuing operations grew to EUR 44.9 million (EUR
     39.9 m) as a result of strong licence and renewal sales
  -- F-Secure sold its personal cloud storage business to Synchronoss
     Technologies in February for a cash consideration of USD 60 million; the
     overall net profit from the disposal in 2015 is EUR 18.6 million
  -- Following the sale of the personal cloud storage business, F-Secure is
     again focusing fully on security and sees increasing growth opportunities
     in corporate cyber security and in securing the growing variety of
     connected home devices (Internet of Things);

Outlook for 2015

  -- Management anticipates security revenues to grow slightly in 2015 (2014:
     EUR 137.4 million)
  -- Operating profit for continuing operations is estimated to be around 15% of
     revenues (excluding the profit from the sale of the personal cloud storage
     business).
  -- Approximately EUR 6 million in revenue from services sold to Synchronoss
     Technologies is anticipated to be recognized in discontinued operations

Key figures (Eur million)                            2015  % change  2014   2014
                                                            y-o-y               
--------------------------------------------------------------------------------
Period                                                1-3             1-3   1-12
--------------------------------------------------------------------------------
Revenues                                             35.9     6      34.0  137.4
--------------------------------------------------------------------------------
Operating profit*                                     5.0     13      4.4   23.3
--------------------------------------------------------------------------------
% of revenues*                                        14              13    17  
--------------------------------------------------------------------------------
Profit before taxes*                                  7.1     56      4.6   24.4
--------------------------------------------------------------------------------
Earnings per share(Eur)**                            0.11            0.01   0.10
--------------------------------------------------------------------------------
Earnings per share for continuing operations         0.04            0.02   0.12
 (Eur)**                                                                        
--------------------------------------------------------------------------------
Deferred revenues at the end of period               44.9            39.9   43.0
--------------------------------------------------------------------------------
ROI%                                                  56              14    27  
--------------------------------------------------------------------------------
Equity ratio, %                                       74              73    75  
--------------------------------------------------------------------------------
Debt-to-equity ratio, %                              -112             -71   -77 
--------------------------------------------------------------------------------
Personnel                                             841     -11     941   921 
--------------------------------------------------------------------------------

*Excludes non-recurring costs  booked in Q1 2014 and in Q4 2014.
**Based on the average adjusted number of shares during the period 155,797,724 .



President and CEO Christian Fredrikson:

Our overall security sales continued to grow during the first quarter of 2015.
Among operators, the success of our multi-device offering, F-Secure SAFE, has
more than offset the declining sales of our traditional PC security product,
resulting in slight net growth. Our corporate security business performed well
driven by sales of Protection Service for Business, but also by growing
traditional license sales to new customers. Regionally France, Germany and
Japan showed particularly good corporate sales development. Direct to consumer
security business continued to grow as well. Overall, we continued to show
strong cash flow and maintained a solid operating profit. 

During the quarter we again signed new operator contracts and launched products
with several operators. We also continued to support our operator partners in
boosting customer activation and in reducing churn. I'm especially pleased to
note that we have recently signed our first-ever operator deal for Freedome,
our online privacy and security application. We have now launched Freedome on
all major platforms and in all of our channels, for both corporate customers
and consumers. In March, we also introduced a new product, F-Secure Booster, a
tune-up tool for PC and Android devices. 

After selling our personal cloud storage business to Synchronoss Technologies
we are now fully focused on security, which has always been our core business.
Our competence in this key area was recently highlighted as we won our fourth
consecutive “Best Protection” award from AV-TEST. 

The level of sophistication in malware is increasing. At the same time advanced
tactics used in cyber-attacks are increasingly threatening the security of
corporations as well as the privacy of consumers. We see a growing need for new
high-end security and privacy products and continue to develop and bring new
products to the market to meet the demand. We especially see increasing growth
opportunities in corporate cyber security and in securing the growing variety
of connected devices at homes (Internet of Things) and are currently making
investments to prepare for related product launches. 

F-Secure Financials January-March

As of the beginning of 2015, the personal cloud storage business is reported as
discontinued operations. Consequently, the figures referred to in the text
below and relating to the statement of income represent continuing operations
only unless specifically otherwise stated. The corresponding comparison figures
have been restated to also represent continuing security operations only. 

The overall security revenues increased by 6% to 35.9 million (Q1/2014: 34.0
m). The revenue increase is partly attributable to large deferred revenues from
the year-end 2014 and fluctuation of exchange rates. Deferred revenues
increased to 44.9 million (39.9 m) at the end of the quarter as a result of
strong licence and renewal sales. 

Revenues through the operator channel increased by 3% from the previous year to
19.6 million (18.9 m), representing 54% (56%) of F-Secure's total revenues.
Revenues through resellers and direct to consumer increased by 9% totaling 16.4
million (15.1 m). These channels represented 46% (44%) of F-Secure's total
revenues. 

The geographical breakdown of revenues from the first quarter is as follows:
Finland and Scandinavia 11.5 million (12.2 million), Rest of Europe 16.2
million (15.3 million), North America 3.0 million (2.4 million) and Rest of the
World 5.2 million (4.1 million). 

Total fixed costs were 30.7 million (28.3 m), an increase of 8% from the
previous year. The increase is mainly related to investments in sales and
marketing activities to core businesses. Depreciations (R&D activations,
software, hardware) decreased to 2.1 million (2.3 m). The capitalized
development expenses were 0.5 million (0.5 m). 

EBIT was 5.0 million, representing 14% (EUR 4.4 m, excluding non-recurring
items, 13%) of revenues. Earnings per share for continuing operations was EUR
0.04 (EUR 0.02) and EUR 0.11 (EUR 0.01) for the Group including discontinued
operations.   Cash flow from operations was 4.6 million (6.1 m). 

Financing and Capital Structure January-March

The Company's liquid assets increased by 47.3 million (4.9m), mainly due to the
proceeds from the sale of the personal cloud storage business. The market value
of F-Secure's liquid assets  was 110.2 million (53.0 m) at the end of the
quarter. 

The Company's capital expenditure was 1.1 million (1.1 m). The capitalized
development expenses were 0.5 million (0.5m). F-Secure's financial position
remained solid. 

The Company's equity ratio at the end of the quarter was 74% (73%) and gearing
ratio was 112% negative (71% negative). 

Discontinued operations

In February F-Secure concluded the sale of its personal cloud storage business
to Synchronoss Technologies Inc (NASDAQ:SNCR). As part of the transaction, the
companies also agreed on certain intellectual property and patent rights. The
value of the transaction was USD 60 million in cash. Net profit from the
disposal in 2015 is EUR 18.6 million (with the exchange rates at closing),
calculated as the difference between sales price and sold assets and including
write-offs, transaction costs and impact of patent agreement. The sold cloud
storage business consists of F-Secure's younited, a cloud service for consumers
and companies to securely store and share photos, movies, documents and other
files. The transferred service will continue uninterrupted, and both companies
have agreed upon a transition plan for customers and partners. 

Due to the sale of the personal cloud storage business F-Secure has commenced
reporting the personal cloud business as discontinued operations. The
approximately EUR 6 million in revenues anticipated to be generated from the
sale of certain transition services to Synchronoss in 2015 are recognized as
part of the discontinued operations (see table “Discontinued operations”). 

Market Overview

The security software business continues to be in transition. The
Software-as-a-Service business model and cloud-based delivery are disrupting
the traditional way of doing business. Majority of the growth in new device
sales will come from post-PC mobile devices and Internet of Things. The growing
variety of connected devices and services creates increasing complexity for
both business and individuals. In addition to traditional malware, government
surveillance, espionage and targeted corporate cyber-attacks are a reality.
Since the Snowden revelations, consumers have become more aware that they may
be revealing the most intimate details of their lives through their connected
devices. The need for security has never been greater. 

Overall, the security software market is worth USD 21.4 billion (Gartner, March
2015). According to Gartner (January 2015), the consumer security software
market is growing to be a USD 6.3 billion market by 2018 (USD 5.3 billion in
2014). 

Further details of the market overview can be found on the Company's web pages
at
http://www.f-secure.com/en/web/corporation_global/company/vision-and-strategy. 

F-Secure Business in January-March

Overall security sales grew in January-March despite the decline in traditional
PC security. The sales growth was driven by core security products SAFE
(multidevice offering for consumers) and Protection Service for Business (the
corporate offering). 

Among operators, F-Secure's security sales grew slightly in January-March. The
success of the multi-device offering, F-Secure SAFE, has offset declining sales
of the traditional PC security products. The Company signed its first operator
deal in Vietnam with Viettel and launched several partners who upgraded PC
Security to SAFE, including Kabel Deutschland / Vodafone (Germany), NextGenTel
(Norway), AMIS (Slovenia), GVT (Brazil) and CTBC (Brazil). DNA (Finland) became
the first operator partner to launch Freedome. 

The Company's corporate security business performed well in January-March, with
sales growth driven by Protection Service for Business. Traditional client
security sales among corporate customers grew as well. The Company's focused
investments in Germany and France have continued to grow the reseller network
and increased sales. Japan, one of the most significant corporate markets, has
continued to show particularly strong growth. Overall, corporate sales have
been increased by the growing number of active resellers as well as new
successful sales models. 

F-Secure's direct to consumer security business continued to grow, driven by
the new 2015 version of F-Secure SAFE. Freedome continued to perform well and
its multi-device version is now available at F-Secure eStore. Additionally, the
Company signed its first retail and online retail partners to distribute
Freedome, including Amazon (Germany),Verkkokauppa.com (Finland) and the first
significant retail chain in North America. 

Product Announcements

The Company continued to invest in security excellence and go-to-market
activities as well as enhancing the user experience of its products: 

F-Secure Booster, a new product for PC and Android devices was launched in
March. F-Secure Booster is a tune-up solution that takes care of difficult and
time-consuming maintenance tasks, such as freeing disc space for personal
content and files, tuning the operating system to improve the performance and
optimizing processes that drain the battery life from phones and laptops.
Booster can also keep consumer devices' software and drivers up-to-date, which
is a critical factor in preventing cyber-attacks that take advantage of
vulnerabilities in out-dated software. More about Booster:
https://www.f-secure.com/en/web/home_global/booster 

F-Secure Router Checker was introduced in March. Router Checker allows users to
easily check their Internet set-up to make sure traffic is connecting to a safe
server. The site received close to 100,000 visits during the week after it
launched. More about Router Checker:
https://campaigns.f-secure.com/router-checker/ 

F-Secure SAFE 3 was introduced for operator partners in February. The new
version allows consumers to easily share the security service with their family
and friends, which is expected to drive license sales. The new family
protection features also create new business opportunities for F-Secure
operator partners to take the service to the market, for example, launching the
service under a family plan. More about the SAFE service:
https://www.f-secure.com/en/web/home_global/safe 

The PC version of Freedome was fully launched in January and the product was
also extended to Amazon Kindle Fire devices in March.  Launch for Mac OS X is
expected in Q2. Freedome for Business was launched in April as part of
Protection Service for Business. Freedome is now available on all major devices
both for consumers and corporate customers. The service is sold through
operator partners, retail and etail partners, and the F-Secure eStore. Three
new service nodes were added: Japan, Belgium and Poland. More about Freedome:
https://www.f-secure.com/en/web/home_global/freedome 

In February, corporate product F-Secure Client Security won the Best Protection
2014 award granted by the independent testing organization AV-TEST. The same
technology is behind F-Secure SAFE for consumers. F-Secure become the only
vendor in the history of the prestigious award to win the honor four years in a
row. 

Risks and uncertainties

The most significant risks for F-Secure are related to the following factors:
instability in the economic climate, changes in the competitive environment and
customer demand affecting the volume of business and price levels,
competitiveness of F-Secure's product portfolio in the changing market
situation, the ability to protect the intellectual property (IPR) in F-Secure's
solutions, risk exposure from increasing contractual liability requirements,
regional development in new growth markets, sustainability of partner
relationships, development of new business areas, and potential security
threats targeted at these services 

Personnel and Organization

F-Secure's personnel totaled 841 at the end of the quarter (941). As a result
of the sale of the Company's personal cloud storage business to Synchronoss, 50
F-Secure employees became employees of Synchronoss Technologies as of 25
February 2015. 

At the time this report is published, the Leadership Team consists of the
following persons: Christian Fredrikson (President and CEO), Janne Juvonen
(Customer and Market Operations), Samu Konttinen (Consumer Security Business),
Johanna Orjatsalo (Human Resources & Facilities), Jari Still (R&D Operations),
Pekka Usva (Corporate Security Business) and Saila Miettinen-Lähde (Chief
Financial Officer). 

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 own shares. 

Corporate Governance

F-Secure's corporate governance practices comply with Finnish laws and
regulations, F-Secure's Articles of Association, the rules of NASDAQ OMX
Helsinki and the Finnish Corporate Governance Code issued by the Securities
Market Association of Finland in 2010. The code is publicly available at
http://cgfinland.fi/en/. 

F-Secure published its corporate governance statement for 2014 in the Annual
Report and on the Company website. 

Long-term objectives and strategy 2015-17

F-Secure is focusing on security. During the strategy period of 2015-2017, the
Company's target towards the end of the period is to grow the overall
subscriber base by tens of millions of users while seeking double digit revenue
growth. As the Company invests in growth, the proportional profitability will
remain at the current level and longer-term profitability continues to be
driven by revenue growth and scalable operations. 

The company has communicated its strategy in the Q4 interim stock exchange
release (4 February 2015). 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 2015

Management's estimation for the year remains unchanged: Overall security
revenues for continuing operations are anticipated to grow slightly in 2015
(2014: EUR 137.4 million). Operating profit for continuing operations is
estimated to be around 15% of revenues (excluding the profit from the sale of
the personal cloud storage business). Approximately EUR 6 million in revenues
from services sold to Synchronoss is anticipated to be recognized in
discontinued operations and hence not included in the revenue and EBIT guidance
for the continuing operations. 

Events after period-end

Annual General Meeting 2015

The Annual General Meeting (AGM) of F-Secure was held on 8 April 2015. The
Meeting confirmed the financial statements for the financial year 2014 and
granted the members of the Board and the President and CEO discharge from
liability. 

The AGM resolved to re-elect the following current members to the Board of
Directors: Jussi Arovaara, Pertti Ervi, Juho Malmberg, Anu Nissinen, Matti
Heikkonen and Risto Siilasmaa. In its organizational meeting the Board elected
Risto Siilasmaa as Chairman of the Board and Chairman of the Executive
Committee. The other members of the Executive Committee are Juho Malmberg and
Anu Nissinen. Pertti Ervi was elected Chairman of the Audit Committee, and
Jussi Arovaara and Matti Heikkonen were elected  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 0.10 per share to be paid to those
shareholders that on the record date of 10 April 2015 were registered in the
Register of Shareholders held by Euroclear Finland Ltd. The dividend was paid
on April 21, 2015. 

The AGM approved all proposals made by the Board as described in the Notice to
the AGM published on 10 March 2015. The resolutions of the AGM can be found in
the Company's stock exchange release of 8 April 2015 and on the Company web
site. 

News conference today at 11 am

A news conference for analysts and media will be held (in Finnish) in the
Company's headquarters (address: Tammasaarenkatu 7, 00180 Helsinki) on Thursday
23 April 2015 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 15.00 p.m. (EEST). To participate in the online meeting, click: 

https://meet.f-secure.com/tapio.pesola/TSHT2RBQ

To participate in the webcast via phone, please dial in to +358975110100.
Conference ID is 998038.   The webcast will be organized via Lync to enable a
better experience with video and presentation also for the international
investors and analysts.   If you do not have Lync available, it is possible to
participate via Lync web application by following the instructions here: 

https://support.office.com/en-us/article/Join-a-Skype-for-Business-Lync-Meeting-
from-Skype-for-Business-Lync-Web-App-a8c911e2-9f3a-4bc5-8b3d-30567bcb10f3 

The presentation material will be available also at the company's website
before the call begins: www.f-secure.com/investors. 

Financial calendar

F-Secure Corporation will publish its interim reports during 2015 as follows:

  -- Interim Report for Q2/2014 - July 23, 2015 
  -- Interim Report for Q3/2014 - October 22, 2015   

F-Secure Corporation


Additional information

F-Secure Corporation

Christian Fredrikson, President and CEO
tel. +358 9 2520 0700

Saila Miettinen-Lähde, CFO
tel. +358 9 2520 0700

Attachments:

Interim-report_Q1_final.pdf