Good growth, improved profitability, ISP growth as anticipated, traditional
sales better than expected
(Unless otherwise stated comparisons are made to the same period one year ago.)
Q1 Highlights
-Total revenue increased by 23% to a record level of 23.1m
-ISP business increased by 35% to 7.8m; quarter-over-quarter growth 6%
-EBIT increased by 38% to 4.1m, 18% of revenues
-Deferred revenues increased by 2.5m to 30.1m
-Strong cash flow; 5.3m positive after dividend
Business at the Group level
In the first quarter of 2007 total revenues were 23.1m (18.8m), representing 23%
growth. EBIT was 4.1m (2.9m), representing 38% growth. Cash flow was 5.3m
positive after dividend (3.9m). Deferred revenues were 30.1m at the end of the
quarter (27.6m at the end of 4Q2006).
The total costs were 17.4 m (14.3m), representing 22% growth. The Group
capitalizes some of its development expenses according to the accounting rules.
This decreases costs just slightly.
The geographical breakdown of the business was as follows: Nordic Countries 39%
(38%), Rest of Europe 44% (44%), North America 8% (9%) and Rest of the World 9%
(9%). Anti-virus and intrusion prevention represented 99% of the total revenues.
ISP channel
In the first quarter of 2007, revenues through the Internet Service Provider
(ISP) partners were 7.8m (5.8m), representing 34% of the total revenues (29%)
and a growth of 35% from the previous year. The quarter-over-quarter revenue
growth was 6% (10% in 4Q2006).
The strong development in Service Provider business continued and a total of 7
new ISP partnerships were signed. The total number of ISP partners was 143
operating in 34 countries at the end of Q1. In addition, the Group has some tens
of corporate security service provider partners and mobile operator partners.
The Group's overall share of the entire broadband ISP market remained strong. 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).
New service provider partnerships in Q1 include BT Italy, Canal Digital Norway,
Embarq (USA).
Other channels
Revenues through other channels, including Value Added Resellers, IT Service
Providers, Managed Security Service Providers, e-Store and Retail channels were
15.4m (13m). This represented 66% of the total revenues (71%) and a growth of
18% from the previous year
Mobile security
The visibility in mobile security business is improving constantly through
increased operator and corporate customer awareness in mobile security issues.
The value of up-to-date security solutions for smartphones will gradually
increase as a result of applications such as mobile email. Mobile security
solutions will be sold through device manufactures, resellers and operators.
Revenues for mobile security solutions continued to show steady growth and were
over 1% of the Group's revenues. Mobile revenue is included in the above
mentioned channel revenues and the percentage figure is shown as an indicator
only.
The current operator partnerships, such as Orange UK, Orange Switzerland,
T-Mobile Germany, T-Mobile UK, Swisscom, TeliaSonera and Elisa, are a prime
vehicle to make security applications available to a large number of end users.
F-Secure continued close cooperation with Nokia. F-Secure Mobile Anti-Virus was
the first antivirus software for the S60 3rd edition operating systems and it
will be available for a majority of the currently shipping or upcoming Nokia S60
3rd edition devices, Nseries & Eseries.
Products & Services
F-Secure Client Security 7, which offers deep proactive protection for the
corporate customers, was launched in Q1.
F-Secure Protection Service for Consumers 7 was pre-launched in Q1. It provides
a comprehensive set of security applications, including antivirus, antispam,
antispyware, firewall and parental control, to be offered as a service by ISPs.
Competitive situation
Competitive situation in the anti-virus and intrusion prevention business has
remained mostly unaltered and price levels have remained relatively stable. The
latest analyst estimate for the antivirus market overall growth rate is 11%
(source: IDC).
In the mobile segment some major industry players announced new comprehensive
suite offerings for corporate customers. The Group's presence at operators and
device vendors remained strong.
Microsoft's entry to the content security market has not so far presented any
major impact in the Group's key geographies and customer groups.
Customer satisfaction
According to the latest global survey made during the summer months of 2006
customer satisfaction has remained at strong levels. Overall satisfaction was
4.26 (4.27) on a scale of 1 to 5. High customer satisfaction is one of the
Group's core values.
Personnel and Organization
The Group's personnel numbered 514 at the end of the Q1 (410).
The Group's Executive Team consists of the following persons: Ari Alakiuttu
(Vice President, Products and Services), Kimmo Alkio (President and CEO), Eila
Mustala (Vice president, Human Resources, as of April 26th), Trond Neergaard
(Vice President, Marketing), Pirkka Palomäki (Executive Vice President, Research
and Development), Antti Reijonen, (Vice President, Strategy), Taneli Virtanen
(Chief Financial Officer) and Travis Witteveen (Senior Vice President, Sales and
Geography Operations).
Financing
The Group's financial position remained strong. The Group's equity ratio on
March 31, 2007, was 79% (67%). Financial income for 1Q2007 was 0.2m (0.2m).
During Q1 the cash flow was 5.3m positive (3.9m). A dividend of EUR 0.02 per
share was paid on March 30, 2007, representing a total of EUR 3.1m for all
outstanding shares.
The market value of the liquid assets of the Group was 72.4m (65.4m) on March
31, 2007.
The change in the USD-EUR exchange has had some negative effect on revenues and
results.
Capital Expenditures
The Group's capital expenditures in 1Q2007 were 0.6m (1.2m). These consisted
mainly of IT hardware, software and capitalization of development expenses.
Shares, Shareholders' Equity, and Option Programs
During Q1, A total of 52,200 F-Secure shares were subscribed for with the A1/A2
warrants and a total of 44,200 F-Secure shares were subscribed for with the
B1/B2/B3 warrants and a total of 1,050 F-Secure shares were subscribed for with
the C1/C2 warrants attached to the F-Secure 2002 Warrant Plan.
In aggregate the number of shares was increased by 97,450. The corresponding
increase in the share capital, in total EUR 974.50 has been registered in the
Finnish Trade Register.
As a result of the increases in Q1, the share capital of F-Secure currently is
EUR 1,550,339.18 and the total number of shares is 155,033,918. F Secure
received as additional shareholders' equity a total of EUR 72,780. The
corresponding number of shares fully diluted would be 161,464,443 including all
stock option programs.
Corporate Governance
F-Secure complies with the Corporate Governance recommendations for public
listed companies published in December 2003 by HEX Plc, the Central Chamber of
Commerce of Finland and the Confederation of Finnish Industry and Employers as
explained on company's web pages.
Risks and Uncertainties
The Group's risks and uncertainties are related to competitive dynamics in the
industry, subcontracting relationships, regional development of new growth
markets, sustainability of partner relationships, service quality levels and
overall development of value added security solutions in the Service Provider
market.
Annual General Meeting
The Annual General Meeting (AGM) of F-Secure Corporation was held on March 20,
2007. AGM decisions were announced as a Stock Exchange release on the same day
and they can be found on the Group's web site.
Future Outlook
The Group's first priority is to drive strong growth. The guidance given at the
beginning of the year for 2007 stated the revenues to be 95m +/- 10% for the
full year. Profitability percentage was anticipated to remain in line with 2006
levels with an EBIT of 14%-18% for the full year 2007.
The management expects the guidance still to be valid also in light of solid Q1
performance. The Group continues to invest in new sales and marketing
activities, technology innovation and new solutions to build scalability for
future growth especially for the service providers and in the mobile segment.
The quarter-over-quarter growth rate in the ISP business is expected to
accelerate towards the end of 2007. In the mobile security business, tangible
revenues are expected at the end of the year.
In the 3-5-year horizon the Group aims to steadily exceed market growth rates in
revenues and seeks EBIT level around 25%.
The second quarter 2007 revenues are estimated to be between 23m and 25m. 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 1.30.
The cost level due to recent and planned recruitments and other activities is
estimated to be around 18.5m in Q2.
Financial Reporting
A press and analyst conference will be arranged today, April 24, 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 at
http://www.europe.f-secure.com/investor-relations/
The next quarterly report will be published on July 31 (Q2). Q3 reporting date
has been moved one day earlier to October 23.
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
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
This interim report is prepared in accordance with IAS 34 standard.
Key figures (unaudited):
Euro million
INCOME STATEMENT 2007 2006 Chge 2006
1-3 1-3 % 1-12
Revenues 23.1 18.8 23 80.7
Cost of revenues 1.9 1.7 6 7.3
Gross margin 21.3 17.0 25 73.4
Other operating income 0.1 0.2 -32 0.6
Sales and marketing 10.6 9.6 11 38.6
Research and development*) 5.3 3.7 45 22.5
Administration 1.4 1.0 42 4.1
Operating result 4.1 2.9 38 8.9
Financial net 0.2 0.2 1.5
Result before taxes 4.2 3.2 10.4
Income taxes -1.2 -0.9 -3.1
Result for the period 3.0 2.3 7.3
Earnings per share, e 0.02 0.01 0.05
EPS, diluted, e 0.02 0.01 0.05
*) 1-12/2006 includes impairment loss of 4.8
BALANCE SHEET
ASSETS 31/3/2007 31/3/2006 31/12/2006
Intangible assets 4.4 9.6 4.5
Tangible assets 3.2 3.0 3.2
Other financial assets 0.8 3.6 0.9
Non-current assets total 8.4 16.2 8.7
Inventories 0.3 0.1 0.2
Other receivables 18.4 15.6 19.4
Available-for-sale
financial assets 59.2 56.6 54.7
Cash and bank accounts 13.3 8.9 12.2
Current asset total 91.2 81.2 86.4
Total 99.6 97.4 95.1
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/3/2007 31/3/2006 31/12/2006
Equity 54.6 48.5 54.2
Other non-current 0.2 1.2 0.1
Provisions 1.2 1.1 1.2
Deferred revenues 2.5 3.8 4.4
Non-current liabilities total 3.9 6.2 5.7
Other current 13.5 21.4 12.1
Deferred revenues 27.6 21.3 23.2
Current liabilities total 41.1 42.7 35.2
Total 99.6 97.4 95.1
Cash flow statement 31/3/2007 31/3/2006 31/12/2006
Cash flow from operations 8.6 5.0 19.5
Cash flow from investments -0.6 -1.2 -3.5
Cash flow from financing
Activities* -2.7 0.1 -10.6
Change in cash 5.3 3.9 5.4
Cash and bank at 1 Jan 66.6 61.8 61.7
Change in net fair value of
Available-for-sale 0.4 -0.3 -0.4
Cash and bank at 31 Mar 72.4 65.4 66.7
* dividends paid/increase in share capital
Statement of changes in shareholders' equity
share
share premium transl. reval. retained
capital fund diff. reserve earnings total
Equity on
31.12.2006 1.5 33.7 0.0 -0.1 19.0 54.2
Available-for-sale
financial asset, net 0.3 0.3
Translation diff. 0.0 0.0
Cost of share
based payments 0.2 0.2
Profit 3.0 3.0
Dividend -3.1 -3.1
Exercise of options 0.0 0.0 0.0
Equity on
31.3.2007 1.5 33.7 0.0 0.2 19.1 54.6
Key ratios 2007 2006 2006
3 m 3 m 12 m
Operating result,
% of revenues 17.5 15.7 11.0
ROI, % 32.6 24.9 19.3
ROE, % 22.2 17.4 13.1
Equity ratio, % 78.6 67.1 80.2
Debt-to-equity ratio, % -132.5 -134.7 -123.2
Earnings per share (EUR) 0.02 0.01 0.05
Earnings per share diluted 0.02 0.01 0.05
Shareholders' equity
per share, e 0.35 0.31 0.35
P/E ratio 25.5 51.1 47.6
Capitalized expenditures (Me) 0.6 1.2 3.7
Contingent liabilities (Me) 10.4 12.2 11.2
Personnel, average 496 400 439
Personnel, Mar 31 514 410 479
Segment information
The Group has only one primary segment; data security.
Quarterly development
1/06 2/06 3/06 4/06 1/07
Revenues 18.8 19.8 20.0 22.1 23.1
Cost of revenues 1.7 1.6 1.7 2.2 1.9
Gross margin 17.0 18.2 18.4 19.8 21.3
Other operating income 0.2 0.2 0.1 0.2 0.1
Sales and marketing 9.6 10.3 9.0 9.8 10.6
Research and
development 3.7 4.3 4.7 9.8 5.3
Administration 1.0 0.9 0.9 1.2 1.4
Operating result 2.9 2.8 3.8 -0.7 4.1
Financial net 0.2 0.1 0.1 1.0 0.2
Result before taxes 3.2 2.9 3.9 0.3 4.2
