(Interim report and comparison data is in accordance with IFRS
standards. Unless otherwise stated comparisons are made to the same
period one year ago)
Q1 Highlights
- Total revenues increased by 28% to a record level of
13.3m
- Anti-virus and intrusion prevention revenues increased
by 39% to a record level of 12.5m
- Corporate business increased by 13% to 7.3m
- Service provider business increased by 102% to 3.2m
- Consumer business increased by 150% to 1.9m
- Two significant mobile operator partnerships launched
- EBIT increased by 17% to 0.8m (0.7m)
- Deferred revenues increased by 1.1m to 19.5m
- Cash flow 2.2m positive
Business at the Group level
Steady and profitable growth continued in Q1 across all business
segments in anti-virus and intrusion prevention. Revenues were
13.3m (10.4m), representing 28% growth. EBIT was 0.8m (0.7m). Cash
flow was 2.2m positive (3.7m) and deferred revenues were 19.5m at
the end of the quarter (16.2m).
The geographical breakdown of the business was as follows:
Nordic Countries 38% (34%), Rest of Europe 44% (44%), North America
10% (12%) and Rest of the World 9% (10%). Anti-virus and intrusion
prevention represented 93% of the business (85%), encryption 6%
(14%) and other products less than 1% (1%).
Anti-virus and intrusion prevention business grew by 39%. The
gradual exit from the encryption business continued steadily and
encryption revenues declined by 45%. In anti-virus and intrusion
prevention growth was strong overall, but particularly strong in
the ISP and consumer segments.
The development is fully in line with the Group’s communicated
strategy to strengthen its position in the key European markets and
to focus on the anti-virus and intrusion prevention business.
The total fixed costs were 11.4m (9.2m). The Group now activates
some of its development costs according to IFRS rules. This
decreases costs by approximately 0.2m. The increase of costs
reflects the Group’s strategy to prioritize growth over
profitability for the short term and invest into achieving a strong
sustainable position in the fast growing security service
provisioning market. The cost increase was due to new product
development and increasing sales resources in the field.
The Group has maintained a strong focus on improving its
customer advocacy processes and systematically following customer
satisfaction. Customer satisfaction stayed at traditional good
levels
Business in different segments
Corporate customer revenues through resellers and IT services
companies were 7.3m (6.5m), representing 59% of the anti-virus and
intrusion prevention business. Competitive solutions and a strong
focus on supporting the reseller channel generated 13% growth in
the segment. Business on the Linux platform represented 12% of the
overall corporate business, up from 10% in 4Q04.
Growth in the corporate reseller channel declined from 4Q04, but
remained well above market growth, which is expected to be slightly
below 10% for the segment. The Group is maintaining a high level of
effort in new reseller recruitment and in activating current
resellers.
Revenues through the service provider channel were 3.2m (1.6m),
representing 26% of the anti-virus and intrusion prevention
business. Annual growth in this segment was 102%.
The consumer revenues were 1.9m (0.8m), representing 15% of the
anti-virus and intrusion prevention business. Revenue growth rate
continued strong, 150% from previous year. Sales were boosted by a
large number of new retail and reseller partners, positive press
visibility through review wins and increased web sales.
Handheld and wireless security revenues represented less than 1%
of the anti-virus and intrusion prevention business. Visibility on
future business opportunities has further improved during the
quarter and interest in the Group’s solutions has increased among
phone vendors, mobile operators and corporate customers.
Antivirus and intrusion prevention market and competitive
situation
In the Consumer segment, the growth is driven by an increasing
number of high-speed Internet connections and continuously growing
threat awareness. Based on various market analyses, The Group
estimates that less than 40% of home PCs in Europe are currently
protected and up-to-date against viruses, hackers and malicious
code. The estimated overall market growth in this segment is
expected to be approximately 30% annually until 2008.
In the Small and Medium Business segment approximately 70% are
up-to-date with proper protection and annual market growth is
expected to be 10-15% until 2008. The large Enterprise segment is
over 95% satisfactorily protected and new business comes mostly
from replacements, either from switching vendors or buying security
as a service. Competitive situation in the anti-virus and intrusion
prevention business has remained unaltered and price levels have
remained relatively stable.
Security as a Service
During Q1 the Group launched three major ISP partnerships in
Western Europe and one in early Q2. In addition to the larger ISP
relationships, the group signed deals with a number of smaller
players. The number of ISP partners is currently 48. The Group is
clearly the leading vendor in Europe in this category. The ISP
channel represents an easy way to buy anti-virus and intrusion
prevention for consumer customers.
The Group has progressed well in creating solutions to provide
Security as a Service for the SMB and Enterprise segments. In these
segments, the partners are facilities management and outsourcing
companies and various types of service providers. Handheld and
wireless security
Two new mobile operator partnerships were launched in Q1 with
T-Mobile (Germany) and Swisscom (Switzerland). In April, a solution
was also launched with TeliaSonera (Finland). The Group’s ambition
in capturing a large market share from the operator market is
starting to realize with a current track record of having made over
half of the seven deals announced so far globally in the
domain.
The key vendor partner is Nokia. The Group provides anti-virus
and intrusion prevention for Nokia’s S/60 operating system based
product line.
Product Leadership
In March, the Group announced the F-Secure BlackLight™ Rootkit
Elimination Technology for Host based Intrusion Prevention (HIPS).
It is aimed against the use of advanced stealth techniques called
rootkits. The Group is so far the only antivirus vendor that has
launched protection against rootkits.
F-Secure has now restructured its product portfolio to offer
new, more dynamic solutions for businesses under increasing threat
from online criminals and other malware authors. F Secure is now
able to offer total protection for customers extending from small
and medium sized companies all the way through to global
corporations.
F-Secure Anti-Virus Enterprise Suite extends F-Secure’s existing
product suite offering while F-Secure Anti-Virus Corporate Suite
replaces F-Secure Anti-Virus Total Suite. F-Secure also continues
to offer a solution suite designed for smaller companies, the
F-Secure Small Business Suite.
Personnel and Organization
The Group's personnel numbered 336 at the end of Q1 (284).
Pekka Kuusela started as EVP of Sales and Marketing on March
1st. Kimmo Alkio, former COO of the Group, has joined Nokia
Corporation. The Group’s Executive Team consists of the following
persons: Risto Siilasmaa (President and CEO), Pekka Kuusela
(Executive Vice President, Sales and Marketing), Pirkka Palomäki
(Executive Vice President, Research and Development), Aki Mänttäri
(Director, Human Resources) and Taneli Virtanen (Chief Financial
Officer). Financing
The Group’s financial position remained strong throughout the
year. The Group’s equity ratio on March 31, 2005, was 84% (78%).
Financial income was 0,5m for Q1 (0.4m).
Cash flow was 2.2m positive (3.7m). The liquid assets of the
Group were 52.2m on March 31, 2005 (43.5m).
The change in the USD-EUR exchange rate has had a negative
effect on both revenues and results.
Investments
The Group’s investments were 0.6m (0.2m). The investments
consisted mainly of IT hardware, software and activation of
development costs.
Shares, Shareholders' Equity, and Option Programs
In the first quarter, a total of 131,190 F-Secure shares were
subscribed for with the C warrants attached to the F-Secure 1998
Warrant Plan. A total of 30,598 F-Secure shares were subscribed for
with the 2001B warrants, with the 2001D warrants and with the 2002B
warrants attached to the F-Secure 1999 II Warrant Plan. In
aggregate the number of shares was increased by 161,788. The
corresponding increase in the share capital, in total EUR 1,617.88
was registered in the Finnish Trade Register on January 12,
2005.
After the reporting period in April, A total of 1,310,304 F
Secure Corporation's shares have been subscribed with the warrants
attached to the F-Secure 1998, 1999 II and 2002 Warrant Plans.
As a result of the increases, the share capital of F-Secure
currently is EUR 1,509,817.42 and the total number of shares is
150,981,742. The corresponding number of shares fully diluted would
be 163,185,050, including all stock option programs.
IFRS Reporting
F-Secure publishes interim reports and annual financial
statement in accordance with the IFRS standards for 2005. The group
has published on February 15,2005 its IFRS impacts and comparison
data for 2004.
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.
Future Outlook
After having achieved the fastest growth in the world in the
anti-virus and intrusion prevention business in 2004, the Group’s
key goal is to continue to grow its anti-virus and intrusion
prevention business significantly faster than the industry. This
will be achieved through growing channel in the key European
markets and an increasingly comprehensive product offering.
2005 is expected to be a breakthrough year for Security as a
Service, both with consumer and corporate end customers. The Group
is well positioned to benefit from the development of Security as a
Service trend with a comprehensive, leading product offering and an
ever-stronger position with service providers in Europe and North
America. The Asian market will be targeted in the second half of
the year.
The visibility in mobile security business is improving
constantly through increased operator awareness in mobile security
issues and increased vendor interest. We expect to see the number
of mobile malware continue growing steadily throughout the year
increasing the value of an up-to-date security solution for
smartphone and PDA users.
The Group’s highly competitive consumer offering is expected to
keep the revenue growth for this market segment at a high
level.
During the course of 2005 the encryption business is expected to
continue to decline as the group is gradually completing its exit
from the business.
The management estimates 2Q05 total revenues to be around 14m,
with an error margin of +-10%. The estimate is based on the sales
pipeline at the time of publishing, existing subscriptions and
support contracts, previous experience on purchasing patterns and a
EUR/USD exchange rate of 1.30.
Based on its strategy to prioritize growth over short term
profitability, the Group is investing in new sales and marketing
activities as well as in major new development efforts and new
projects expanding the Group’s offering to service providers and
facilities management companies. Fixed costs are estimated to be
somewhat over 12m in Q2.
This interim report is prepared in accordance with IFRS
standards. The change in accounting standards has been reported on
15th February 2005.
Key figures (unaudited):
Euro million
INCOME STATEMENT 2005 2004 Chge 2004
1-3 1-3 % 1-12
Revenues 13.3 10.4 28 47.3
Cost of revenues 1.3 0.8 64 3.7
Gross margin 12.0 9.6 25 43.5
Other operating income 0.2 0.2 -21 0.9
Sales and marketing 7.4 6.0 23 24.6
Research and development 3.2 2.4 33 10.7
Administration 0.8 0.7 12 2.7
Operating result 0.8 0.7 17 6.5
Financial net 0.5 0.4 1.2
Result before taxes 1.2 1.0 7.7
Income taxes -0.3 -0.2 5.8
Result for the period 1.0 0.9 13.5
Earnings per share,e 0.01 0.01 0.09
EPS,diluted,e 0.01 0.01 0.09
BALANCE SHEET
ASSETS 31/3/2005 31/3/2004 31/12/2004
Non-current
Intangible assets 2.6 0.7 2.4
Tangible assets 1.8 1.4 1.7
Other financial assets 6.5 0.6 6.6
Current
Other receivables 11.7 9.9 11.2
Available-for-sale
financial assets 46.8 34.4 42.4
Cash and bank accounts 5.6 9.2 7.8
Total 74.9 56.3 72.1
SHAREHOLDERS' EQUITY
AND LIABILITIES 31/3/2005 31/3/2004 31/12/2004
Equity 46.8 31.3 45.2
Non-current liabilities
Other non-current 0.3 0.2 0.4
Deferred revenues 3.0 1.3 2.7
Current liabilities
Other current 8.3 8.7 8.1
Deferred revenues 16.4 14.8 15.7
Total 74.9 56.3 72.1
>Cash flow statement 31/3/2005 31/3/2004 31/12/2004
Cash flow from operations 2.4 3.6 11.7
Cash flow from investments -0.6 -0.2 -2.8
Cash flow from financing
activities 0.4 0.2 1.0
Change in cash 2.2 3.7 9.9
Cash and bank at 1 Jan 50.1 39.8 39.6
Change in net fair value of
Available-for-sale -0.1 0.0 0.6
Cash and bank at 31 Mar 52.2 43.5 50.1
Statement of changes in shareholders’ equity
share
share premium transl. reval. retained
capital fund diff. reserve earnings total
Equity on
31.12.2004 1.5 28.6 0.0 0.5 14.7 45.2
Available-for-sale
financial asset, net 0.0 0.0
Translation diff. 0.0 0.0
Cost of share
based payments 0.1 0.1
Profit 1.0 1.0
Exercise of options 0.0 0.5 0.5
Equity on
31.3.2005 1.5 29.0 0.0 0.5 15.8 46.8
Key ratios 2005 2004 2004
3 m 3 m 12 m
Operating result,
% of revenues 5.8 6.4 13.8
ROI, % 11.5 14.1 21.3
ROE, % 8.5 11.6 35.9
Equity ratio, % 84.4 77.8 84.2
Debt-to-equity ratio, % -111.7 -139.2 -110.7
Earnings per share (EUR) 0.01 0.01 0.09
Earnings per share diluted 0.01 0.01 0.09
Shareholders' equity
per share, e 0.31 0.21 0.30
P/E ratio 71.3 58.0 19.8
Investments (Meuro) 0.6 0.2 2.9
Contingent liabilities (Me) 13.9 16.0 14.6
Personnel, average 321 283 291
Personnel, Mar 31 336 284 306
Segment information
The Group has one primary segment, data security.
Quarterly development
1/04 2/04 3/04 4/04 1/05
Revenues 10.4 11.6 12.8 12.6 13.3
Cost of revenues 0.8 1.0 1.0 1.0 1.3
Gross margin 9.6 10.6 11.8 11.6 12.0
Other operating income 0.2 0.2 0.2 0.3 0.2
Sales and marketing 6.0 6.0 5.9 6.6 7.4
Research and
development 2.4 2.6 2.7 3.0 3.2
Administration 0.7 0.6 0.6 0.8 0.8
Operating result 0.7 1.5 2.7 1.6 0.8
Financial net 0.4 0.1 0.3 0.4 0.5
Result before taxes 1.0 1.7 3.0 2.0 1.2
Annual General Meeting
The Annual General Meeting of F-Secure Corporation was held on
March 23, 2005. The Meeting confirmed the financial statements for
the fiscal year 2004. The members and the deputy member of the
Board of Directors and the managing director were granted a
discharge from liability. In addition, the Annual General Meeting
made the following decisions:
Dividend
The Board of Directors’ proposal not to issue a dividend was
accepted.
Members of the Board and Auditors
It was decided that the annual compensation for the member is
14,000 € and 10,000 stock options and for the chairman 21,000 € and
15,000 share options. Members of the board that are employed by the
group, will not be compensated.
It was decided that there would continue to be five Board
members. The following members were elected: Ms. Sari Baldauf, Mr.
Pertti Ervi, Mr. Risto Siilasmaa, Mr. Antti Vasara and Mr. Alex
Sozonoff. Mr.Ari Hyppönen was re-elected deputy member. The Board
elected in the first meeting Mr. Pertti Ervi as Chairman of the
Board.
It was decided that auditor’s fee will be paid against approved
invoice. Ernst & Young Oy was elected the Group’s auditors.
APA, Mr. Tomi Englund is acting as responsible partner.
Authorizing the Board of Directors to increase the share
capital of the company
The Board was authorized to increase the share capital of the
Company as follows:
- The duration of the authorization
The Board to be authorized during the period of one (1)
year from the date of the shareholders' meeting to decide on an
increase of the share capital of the company by one or more new
share issues or by launching one or more convertible bonds or
option rights. As a result of such share issues, option rights or
convertible loans, the share capital of the company may be
increased by a maximum of 280,000 Euros. The maximum number of
new shares to be issued is 28,000,000. To the extent the
authorization is used to create incentive systems for the
personnel of the group, the share capital may increase by a
maximum of 70,000 EUR, in which case a maximum amount of
7,000,000 shares may be issued.
- Deviation from subscription rights
The shares, convertible bonds or option rights may be
offered to be subscribed by deviating from the subscription
rights of the shareholders. This deviation from the subscription
rights is proposed for the purpose that the company may fund its
possible acquisitions which are of strategic importance by way of
share arrangements, or strengthen its financing and capital
structure, or create incentive programs for Group’s
employees.
- The determination of the subscription price
The subscription price for the shares issued in the share
capital increase and converted or subscribed on the basis of
convertible bonds or option rights will be determined by the
Board of Directors. At minimum, the subscription or conversion
price per share is the counter book value of the share. To the
extent the authorization is used to create incentive systems for
the personnel of the Group, the subscription price will be
determined by the Board of Directors so that it is based on the
market price of the share.
- Payment of the subscription price
The Board may accept as payment also a set-off or provision
of other assets (in-kind contributions).
- Previous authorization
The proposal of the Board includes also that the unused
portion of the authorization given by the Shareholders’ meeting
on the March 24, 2004, will be cancelled simultaneously with the
registration of the new authorization.
New option program to replace the options proposed to be
cancelled
The Annual General Meeting accepted Board’s proposal to create a
new option program (F-Secure Option program 2005). In the new
program, key personnel of F-Secure will be offered a total of 4.5
million stock options belonging into four series. The options
entitle to subscribe for a total of 4.5 million shares with a
counter book value of 0.01 euros. This refers to an increase of the
share capital of the company due to share subscriptions by a
maximum of 45.000 euros. The share subscription prices pursuant to
the options will be based on the market value of the F-Secure share
in public trading. The terms of the stock option program have been
published in a stock exchange release on February 15, 2005.
Cancellation of the unallocated option rights
The Annual General Meeting accepted Board’s proposal to cancel,
in connection with the new Stock Option Plan 2005, all stock
options having not been allocated from the Company Stock Option
Plan 1999/II, 1999III & 2002. About 4.7 million stock options
will be cancelled.
Financial Reporting
A press and analyst conference will be arranged today, April 26,
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 on our Investor pages.
The following quarterly reports for 2005 will be published on
August 2 (Q2) and October 25 (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
Additional information:
F-Secure Corporation
Risto Siilasmaa, President and CEO
tel.358 9 2520 5510
Taneli Virtanen, CFO
tel.358 9 2520 5655
