2007-10-23 08:00:00 CEST
2007-10-23 08:00:00 CEST
REGULATED INFORMATION
F-Secure Oyj - Quarterly report
F-SECURE GROUP JANUARY 1 - SEPTEMBER 30, 2007, FINANCIAL RESULTS
ISP business growth continued strong, total growth accelerated, very good
profitability
(Unless otherwise stated comparisons are made to the same period one year ago.
The currency is euros.)
Q3 Highlights
- Total revenue growth accelerated to 21% to a record level of 24.3m
- ISP business growth at a sustained strong level of 10% quarter over quarter,
and
42% year over year, reaching a volume of 9.4m
- EBIT increased by 63% to 6.2m, 26% of revenues
- Cash flow positive 1.5m (4.5m positive)
Business at the Group level during the first nine months of 2007
For the first nine months of 2007 total revenues were 70.8m (58.6m),
representing 21% growth. EBIT was 14m (9.6m), representing 46% growth. Cash flow
was 12.4m positive (zero). Deferred revenues were 29.1m at the end of the
quarter (30.2m at the end of 2Q2007).
The total costs were 51.6m (44.5m), representing 16% growth. Cumulative cost
increase slowed down during 3Q07 due to seasonality and vacation period, but was
also impacted by delayed recruitments and lower marketing activities than
anticipated. The Group capitalizes some of its development expenses according to
the accounting rules. This had no material impact on the cost level.
The geographical breakdown of the business was as follows: Nordic Countries 39%
(37%), Rest of Europe 43% (44%), North America 9% (10%) and Rest of the World 9%
(9%). Anti-virus and intrusion prevention represented 99% of the total revenues.
ISP channel during Q3
In the third quarter of 2007, revenues through the Internet Service Provider
(ISP) partners were 9.4m (6.7m), representing 39% of the total revenues (33%)
and a growth of 42% from the previous year. The quarter-over-quarter revenue
growth remained strong at 10% (11% in 2Q2007).
Strong development in the Service Provider business continued and a total of 9
new ISP partnerships were signed. The total number of ISP partners was 159
operating in 35 countries at the end of Q3. With such a strong base of partners
worldwide F-Secure emphasizes end-user subscription growth through close
collaboration with the service providers and strengthened account management
practises. New service provider partnerships announced in Q3 and early Q4
include DIRECTV (USA), Aster (Poland) and Orange UK (security services for SMB
customers).
At the end of 2006 the Group's partners held approximately 34% market share in
Europe and approximately 10% in North America (Source: Dataxis and F-Secure).
Other channels during Q3
Other channels, including Value Added Resellers, IT Service Providers, Managed
Security Service Providers, e-Store and Retail channels showed an improvement
from the previous quarter. Revenues were 14.9m (13.4m). This represented 61% of
the total revenues (67%) and a growth of 11% from the previous year.
Mobile security during Q3
The third quarter showed an increased interest in smartphone security trial
usage. The perceived malware risk level for smartphone users continues to be
fairly low, and consequently revenues for this business area increase at a slow
pace, now representing ca. 2% of the Group's total revenues. They are included
in the above mentioned channel revenues and the percentage figure is shown as an
indicator only.
Close co-operation with Nokia and the current operator partnerships, such as
Orange UK, Orange Switzerland, T-Mobile Germany, T-Mobile UK, Swisscom,
TeliaSonera and Elisa, is the prime vehicle to make mobile security applications
available to a large number of end users.
F-Secure's co-operation with Nokia continued strong. F-Secure Mobile Anti-Virus
was the first antivirus software for the S60 3rd edition operating systems and
it will be available for majority of the currently shipping or upcoming Nokia
S60 3rd edition devices, Nseries & Eseries.
Products & Services
During Q3 F-Secure introduced new solutions both to consumer and business
customer segments. The consumer flagship product F-Secure Internet Security 2008
was launched in September and a new version of Client Security for business was
released in September.
Competitive situation
There were no significant changes in the competitive landscape nor in the
pricing levels during the period.
Customer satisfaction
The Group is in the process of renewing its customer satisfaction survey to be
more in line with current channel structures and end-customer segments. The
timing of the annual survey is also shifted to the end of each year in order to
correspond better to actual business and product cycles. The next annual survey
is conducted during the fourth quarter of 2007.
Personnel and Organization
The Group's personnel numbered 543 at the end of the Q3 (464).
The Group's Executive Team consists of the following persons: Mr. Ari Alakiuttu
(Vice President, Products and Services), Mr. Kimmo Alkio (President and CEO),
Ms. Eila Mustala (Vice President, Human Resources), Mr. Trond Neergaard (Vice
President, Marketing), Mr. Pirkka Palomäki (Senior Vice President, Research and
Development), Mr. Antti Reijonen, (Vice President, Strategy), Mr. Taneli
Virtanen (Chief Financial Officer) and Mr. Travis Witteveen (Senior Vice
President, Sales and Geography Operations).
Financing
The Group's financial position remained strong. The Group's equity ratio on
September 30, 2007, was 81% (81%). Financial income for first nine months was
0.5m (0.4m).
During the first nine months the cash flow was 12.4m positive (zero). The market
value of the liquid assets of the Group on September 30, 2007 was 79.9m (61.9m).
The change in the USD-EUR exchange has had some negative effect on revenues and
results.
Capital Expenditures
The Group's capital expenditures during first nine months 2007 were 1.6m (2.8m).
These consisted mainly of IT hardware, software and capitalization of
development expenses.
Shares, Shareholders' Equity, and Option Programs
During Q3, A total of 18,020 F-Secure shares were subscribed for with the A1/A2
warrants attached to the F-Secure 2002 Warrant Plan.
The corresponding increase in the share capital, in total EUR 180.20 has been
registered in the Finnish Trade Register.
As a result of the increases in Q3, the share capital of F-Secure currently is
EUR 1,550,563.38 and the total number of shares is 155,056,338. F Secure
received as additional shareholders' equity a total of EUR 10,821. The
corresponding number of shares fully diluted would be 161,464,443 including all
stock option programs.
It was decided in the latest AGM on March 20, 2007 to decrease share premium by
36m. During the reporting period the F-Secure Corporation share premium has been
decreased and the amount (FAS 36,000,000 €, IFRS 33,582,113 €) transferred to
the company's distributable equity.
Corporate Governance
F-Secure complies with the Corporate Governance recommendations for public
listed companies published in December 2003 by OMX Nordic Exchange Helsinki, the
Central Chamber of Commerce of Finland and the Confederation of Finnish Industry
and Employers as explained on the Group's web pages.
Risks and Uncertainties in the Near Future
The Group has not seen any material changes to the risks and uncertainties
during the reporting period. As noted in the previous interim report, the
Group's risks and uncertainties are related to, among other things, the
competitiveness of the Group's product portfolio, competitive dynamics in the
industry, the impact of changes in technology, timely and successful
commercialization of complex technologies as new products and solutions, the
ability to protect own intellectual property (IPR) in the Group's solutions as
well as the use of third party technologies on reasonable commercial terms,
subcontracting relationships, regional development in new growth markets,
sustainability of partner relationships, service quality level requirements and
the overall development of value added security solutions in the Service
Provider and mobile operator market.
Future Outlook
The Group's first priority is to drive strong growth. The core growth driver is
the ISP channel.
The Group continues to invest in new sales and marketing activities to build
scalability for future growth especially for the service providers and in the
mobile segment. The Group continues to pursue innovations in security related
technologies as well as in new services related to the online wellbeing of
internet users.
The quarter-over-quarter growth rate in the ISP business is expected to remain
at a good level, around 10%, during Q4 2007. In the mobile security business,
revenue continues to grow, but slower than anticipated at the beginning of the
year. Mobile security is expected to remain a small part of the Group's revenues
during 2007.
Based on the performance of the first nine months and the current outlook, the
management expects full year 2007 revenues to be between 96m and 98m and an EBIT
between 18% and 21% of revenues. Guidance given at the end of the second quarter
for the full year was; revenues 94-100m and EBIT of 16-19% (original guidance in
January for the full year was; revenues 95m +/- 10% and EBIT of 14%-18% of
revenues).
In the 3-5-year horizon the Group aims to exceed market growth rates in revenues
and seeks an EBIT level around 25%.
The fourth quarter 2007 revenues are estimated to be between 25.5m and 27.5m.
The estimates are based on the sales pipeline at the time of publishing,
existing subscriptions and support contracts and a EUR/USD exchange rate of
1.40. Fixed costs are estimated to be around 19m in Q4.
Financial Reporting
A press and analyst conference will be arranged today, October 23rd, at 11 am
Finnish time at the Group's Headquarters, Tammasaarenkatu 7, Helsinki. A
conference call for international investors and analysts will be arranged at
1530 Finnish time (1430 CET, 1.30 pm UK time). Instructions can be found in
investor pages.
The quarterly report for Q4 will be published on January 30, 2008. The audited
annual report for the full year 2007 will be announced during the week beginning
February 11 and the Annual Report will be published in mid March, 2008. The
Annual General Meeting will be held on March 26, 2008.
Quarterly reports for 2008 will be published on April 23 (Q1), July 29 (Q2) and
October 21 (Q3). A Stock Exchange bulletin will be sent at 9 am Finnish time to
the Helsinki Exchanges, a press and analyst conference will be arranged at 11 am
Finnish time in Helsinki, and an international conference call will be arranged
in the afternoon. Full details will be provided later on the Group's web site.
F-Secure Corporation
Board of Directors
This interim report is prepared in accordance with IAS 34 standard.
Key figures (unaudited):
Euro million
INCOME STATEMENT 2007 2006 2007 2006 Chge 2006
7-9 7-9 1-9 1-9 % 1-12
Revenues 24.3 20.0 70.8 58.6 21 80.7
Cost of revenues 2.0 1.7 5.6 5.1 11 7.3
Gross margin 22.3 18.4 65.2 53.6 22 73.4
Other operating income 0.1 0.1 0.4 0.5 -18 0.6
Sales and marketing 10.0 9.0 31.7 28.8 10 38.6
Research and development*) 5.0 4.7 15.6 12.7 22 22.5
Administration 1.3 0.9 4.3 2.9 50 4.1
Operating result 6.2 3.8 14.0 9.6 46 8.9
Financial net 0.1 0.1 0.5 0.4 1.5
Result before taxes 6.3 3.9 14.5 10.0 10.4
Income taxes -1.7 -0.9 -3.8 -2.6 -3.1
Result for the period 4.6 3.0 10.7 7.5 7.3
Earnings per share, e 0.07 0.05 0.05
EPS, diluted, e 0.07 0.05 0.05
*) 1-12/2006 includes impairment loss of 4.8
BALANCE SHEET
ASSETS 30/9/2007 30/9/2006 31/12/2006
Intangible assets 4.0 9.5 4.5
Tangible assets 3.2 3.2 3.2
Other financial assets 0.8 2.2 0.9
Non-current assets total 8.0 14.9 8.7
Inventories 0.3 0.2 0.2
Other receivables 18.8 15.3 19.4
Available-for-sale
financial assets 68.2 49.4 54.7
Cash and bank accounts 11.8 12.7 12.2
Current asset total 99.2 77.6 86.4
Total 107.2 92.5 95.1
SHAREHOLDERS' EQUITY
AND LIABILITIES 30/9/2007 30/9/2006 31/12/2006
Equity 63.1 54.5 54.2
Other non-current 0.3 1.2 0.1
Provisions 1.3 1.2 1.2
Deferred revenues 3.8 4.1 4.4
Non-current liabilities total 5.4 6.5 5.7
Other current 13.4 10.8 12.1
Deferred revenues 25.3 20.7 23.2
Current liabilities total 38.7 31.6 35.2
Total 107.2 92.5 95.1
Cash flow statement 30/9/2007 30/9/2006 31/12/2006
Cash flow from operations 17.0 13.5 19.5
Cash flow from investments -1.5 -2.8 -3.5
Cash flow from financing
Activities* -3.1 -10.8 -10.6
Change in cash 12.4 0.0 5.4
Cash and bank at 1 Jan 66.6 61.7 61.7
Change in net fair value of
Available-for-sale 0.9 0.2 -0.4
Cash and bank at 30 Sep 79.9 61.9 66.7
* dividends paid/increase in share capital
Statement of changes in shareholders' equity
share unres-
share premium transl. reval. tricted retained
capital fund diff. reserve reserve earnings total
Equity on
31.12.2006 1.5 33.7 0.0 -0.1 0.0 19.0 54.2
Available-for-sale
financial asset, net 0.7 0.7
Translation diff. 0.0 0.0
Cost of share
based payments 0.7 0.7
Profit 10.7 10.7
Dividend -3.1 -3.1
Exercise of
options 0.0 0.0 0.0
Other change
Equity on -33.6 33.6 0.0
30.9.2007 1.5 0.1 0.0 0.6 33.6 27.2 63.1
Key ratios 2007 2006 2006
9 m 9 m 12 m
Operating result,
% of revenues 19.8 16.4 11.0
ROI, % 33.9 24.7 19.3
ROE, % 24.3 17.9 13.1
Equity ratio, % 80.8 80.5 80.2
Debt-to-equity ratio, % -126.6 -113.7 -123.2
Earnings per share (EUR) 0.07 0.05 0.05
Earnings per share diluted 0.07 0.05 0.05
Shareholders' equity
per share, e 0.41 0.35 0.35
P/E ratio 26.2 33.7 47.6
Capitalized expenditures (Me) 1.6 2.8 3.7
Contingent liabilities (Me) 9.8 11.5 11.2
Personnel, average 519 429 439
Personnel, Sep 30 543 464 479
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/06 2/06 3/06 4/06 1/07 2/07 3/07
Revenues 18.8 19.8 20.0 22.1 23.1 23.3 24.3
Cost of revenues 1.7 1.6 1.7 2.2 1.9 1.8 2.0
Gross margin 17.0 18.2 18.4 19.8 21.3 21.6 22.3
Other operating income 0.2 0.2 0.1 0.2 0.1 0.1 0.1
Sales and marketing 9.6 10.3 9.0 9.8 10.6 11.1 10.0
Research and
development 3.7 4.3 4.7 9.8 5.3 5.3 5.0
Administration 1.0 0.9 0.9 1.2 1.4 1.6 1.3
Operating result 2.9 2.8 3.8 -0.7 4.1 3.7 6.2
Financial net 0.2 0.1 0.1 1.0 0.2 0.3 0.1
Result before taxes 3.2 2.9 3.9 0.3 4.2 4.0 6.3
Additional information:
F-Secure Corporation
Kimmo Alkio, President and CEO tel. +358 9 2520 0700
Taneli Virtanen, CFO tel. +358 9 2520 5655
Jukka Kotovirta, IR tel. +358 40 5883 933
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