Earnings Release • Oct 23, 2014
Earnings Release
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January 1 – September 30, 2014
The original guidance forthe yearwasthe following:revenues are estimated to growfrom2013with a strongersecond half and profitability is estimated to be around 15%ofrevenues excluding one-off costs.
| 2014 | 2013 | 2014 | 2013 | 2013 | |
|---|---|---|---|---|---|
| (Eur Million) | 7-9 | 7-9 | 1-9 | 1-9 | 1-12 |
| Revenues | 37.9 | 38.3 | 115.6 | 115.1 | 155.1 |
| Operating profit* | 6.9 | 8.4 | 17 | 18.3 | 27.1 |
| %ofrevenues* | 18 | 22 | 15 | 16 | 17 |
| Profit before taxes* | 7.5 | 7.8 | 18 | 17.7 | 26.3 |
| Earnings pershare (Eur) | 0.04 | 0.03 | 0.07 | 0.08 | 0.11 |
| Atthe end of period: Deferred revenues |
38.3 | 36.2 | 38.7 | ||
| ROI% | 42 | 51 | 28 | 39 | 41 |
| Equity ratio,% | 76 | 74 | 74 | ||
| Debt-to-equity ratio,% | -68 | -58 | -66 | ||
| Personnel | 933 | 973 | 939 |
(Thisreportis unaudited.Unless otherwise stated the comparisonsreferto the corresponding period a year ago. The currency is euro.*1-9/14 excludes 2.9m of one-off costs booked inQ1)
"Our financial performance inQ3was belowour expectations. The Company's profitability and cash flowremained at a good level, butrevenues disappointed compared to our plans.Our personal cloud business progresswasweaker than anticipated.We still are very competitive inwinning newoperator partners, but younited subscriber growth, especially in the directto consumer channel, has been slowerthan expected.While sales oftraditional PC-centric security continued to slowly decline,the growth ofthe Company's core cloud security productsfor consumers and corporates compensated forthisin all channels,resulting in slightly positive totalsecurity sales.Our annualrevenue estimate for 2014 has been revised to reflectthe situation;the annualrevenue is estimated to remain at 2013levels, while the profitability estimation remains unchanged at around 15%ofrevenues.
Newsecurity and privacy threats,the decline of PC-centricity and the ever-growing use ofmobile devices continue to stir up the securitymarkets. Cloud-based security is disrupting theway protection is provided. Thistransition creates greatlong termbusiness opportunities.
I ampleased to see the progress of Freedome, our next-generation security productfully powered by the cloud, in app stores.Wewillsoon introduce a new, comprehensive version of Freedome that can be used on PCs and has even more profoundmobile security features.Our corporate security business, especially Protection Service for Business, is steadily gaining newcustomers andwe expectitto represent an increasing part of our businessin the future.Overall, oursecurity product portfolio is comprehensive andwell fulfillsthe needs of consumers and corporates.
Wewill be driving for efficienciesin the Company to be able to investin developing and bringing cloud-based productsto themarket. I have strong confidence in our cloud security strategy."
January – September 2014
Totalrevenues grewto 115.6million (115.1m). Revenuesthrough the operator channel decreased by 2%fromthe previous yearto 69.4million (70.5m),representing 60%(61%) of F-Secure'stotalrevenues. Revenuesthrough resellers and directto consumerincreased by 4%totaling 46.2million (44.6m). These channelsrepresented 40%of F-Secure's totalrevenues(39%).Deferred revenueswere 38.3million (36.2m) atthe end ofthe quarter.
EBITwas14.1million or17million excluding one-offs of 2.9million related to overallrestructuring costsinQ1(18.3m), representing 12%or15%(16%) ofrevenues. Earnings persharewere EUR 0.07 (EUR 0.08). Cash flowfromoperations was17.5million positive (19.1mpositive). The change of net cashwas3.8million positive including paid dividend of 9.3 million (6.2mpositive including paid dividend of 9.3m).
Total fixed costswere 97.8million or 94.9million excluding one-offs of 2.9million related to the Bordeaux reorganization and efficiency gains(93.6m), an increase of 4%or1%fromthe previous year. These increases are mainly related to investmentsin Sales andMarketing activitiesto core businesses and geographical expansions. Depreciations(R&Dactivations,software, hardware)increased to 6.9million (6.7m). The capitalized development expenseswere 1.6million (0.3m).
The 1-9/2014 geographical breakdown ofrevenuesis asfollows: Finland and Scandinavia 31%(30%), Rest of Europe 46%(45%),NorthAmerica 10%(12%) and Rest oftheWorld 13%(13%).
Security sales based on our cloud security strategy are steadily growing and compensating forthe decline in traditional PC security sales. The Company's core cloud businessesin security consist of SAFE (ourmulti-device offering for consumers), Protection Service for Business (our corporate offering), and Freedome, our next-generation security productfully powered by the cloud.
F-Secure continued gaining traction inQ3 among operators, especiallywith ourmulti-device offering SAFE. The Company hassigned newdeals and launched newsecurity serviceswith operators; for example Polkomtel(PL) and Claro (Brazil). Traditional PC-centric security sales continue to decline among operators aswell. The revenue growth in operatorsecuritywas driven by Europe and theNordics.
The Company's corporate security service, Protection Service for Business, continuesto gainmomentum. Thisservice is partially replacing the declining traditional clientsecurity sales among corporate customers. The Company's SMB focusinGermany, France and theUSAis progressingwell and hasled to the growth of ourreseller network and thusto growing sales.
F-Secure's directto consumersecurity businessis performing verywell.New2015 versions of F-Secure SAFE and Internet Security, launched to consumersin September, have received highly positive feedbackwith very good ratings. F-Secure isthe bestInternet Security company in tests over a five year period. The next generation security app, Freedome, also continuesto attractinterest among its audience and is generating conversionsfromfreemiumto paid customers.
The Company's personal cloud business, younited, is very competitive inwinning newoperator partners.With younited, F-Secure haswon around 30 operator partners, ofwhich over 20 are already in production. InQ3,the company launched e.g. KPN(NL), TDC (DK) and Polkomtel(PL).However, direct consumer personal cloud sales have developedweakerthan anticipated.Overallsubscriber growth has grown slowlywhile conversion ratesto premium customers have been low. The competition in the personal cloud businessis fiercewithmultiple international players. Younited for Business, launched inQ2, isstill in its early phase.
The Company's overallQ3 operatorrevenues continued to take a hit due to the phasing out ofthe first generation, legacy content cloud businesswith some operators. Revenueswere also impacted by delaysin personal cloud deliveries aswell as declining traditional PC-centric sales.Much ofthe declinewas compensated for by ourmultidevice offering SAFE;thusleading to stable total operatorsecurity sales. Revenuesfromthe operator channel declined by 6%to 22.1million (23.6m).Decline in the operator channelwas partially compensated for by growing security salesto corporate and directto consumers. These revenues grewby 7%to 15.8million (14.7m). In total, revenues declined by 1%inQ3.
The Company isinvesting in developing and bringing cloud-based productssuccessfully to themarket. Geographically,the Company continuesits expansion in LatinAmericawith Telefonica andAmericanMoviles. Anotherinvestment area is corporate focusinGermany, France and theUSA. The Company is also investigating new geographical entriesin theAPAC area.
F-Secure continued to investin security excellence and launched a newversion of F-Secure SAFE formulti-device security and Internet Security 2015. The productsincorporate advanced heuristic protection capabilities and security-in-the-cloud to provide 100%protection against zero-daymalware attacks and prevalentmalware as proven by independent certification organizations.Astablets and smartphones are becomingmore commonplace formobile banking, F-Secure expanded its Banking Protection capabilitiesto allmobile devicesto secure the ever growing need for online shopping andmobile banking.
F-Secure istheworld's firstsecurity vendorto embed its pioneeringAntibottechnology into endpointsecurity; i.e. F-Secure SAFE, and to create a unified security app tomeetthe network security demand.More aboutthe service http://www.f-secure.com/safe
Newversions ofthe younited service have been released at a steady pace inQ3.Newfunctionalitiesinclude, among otherfeatures, a timeline viewfor contentinmobile devices, Chromecast TV integration, customer value vouchers and a younitedAndroid app forJolla devices.More aboutthe service https://app.younited.com/
Acompletely renewed version of F-Secure Key,the passwordmanagerfor online servicesthat helpsthe user control their online identity safely,was published for bothAndroid and iOS devices. The improvementsfocus on usability and easiertake-in-to-use, both essential for non-tech users.More aboutthe app http://www.f-secure.com/key
In September, in tandemwith the Consumer Launch 2015, F-Secure released a new consumer website,which is also optimized formobile device visitorswith responsive design. The newweb andwhole product portfoliowasrebranded to the newbrand design and tone of voice. http://www.f-secure.com/
F-Secure'srisks and uncertainties are related to, among otherthings,the competitiveness of F-Secure's product portfolio, competitive dynamicsin the industry,market fluctuations, pricingmodels(e.g. free services, cost of content cloud services), FX changes, impact of changesin technology,timely and successful commercialization of complex technologies and newproducts and solutions,the ability to protectintellectual property (IPR)in F-Secure'ssolutions aswell asthe use ofthird party technologies on reasonable commercialterms,subcontracting relationships,regional developmentin newgrowthmarkets,sustainability of partnerrelationships, compromising stored personal data, service quality related penalties, and risk exposure fromincreasing contractual liability requirements and forming of the newbusiness areas.
F-Secure issued a stock exchange release onOctober16 related to lowered revenue guidance for 2014.
F-Secure's personneltotaled 933 atthe end ofthe quarter(973).
Currently,the Leadership Teamconsists ofthe following persons: Christian Fredrikson (President and CEO),Janne Juvonen (Customer andMarketOperations), Samu Konttinen (Consumer Security Business), Timo Laaksonen (Content Cloud Business), Johanna Orjatsalo (Human Resources & Facilities), Pirkka Palomäki(Chief Strategy Officer), Jari Still (R&DOperations), Pekka Usva (Corporate Security Business) and Taneli Virtanen (Chief Financial Officer).
Cash flowfromoperationswas17.5million positive (19.1mpositive). The change of net cashwas3.8million positive including paid dividend of 9.3million inApril(6.2mpositive including paid dividend of 9.3m).Net financial incomewas 1.0million positive (0.7mnegative).
Themarket value ofthe liquid assets of F-Secure atthe end ofthe quarterwas 51.6million (39.3m). Changesin exchange rates, especiallyUSD,JPY, SEK and BRL, decreased slightly sales and costs.
The Company's capital expenditurewas 5.1million (2.8m). The capitalized development expenseswere 1.6million (0.3m).
F-Secure's financial position remained solid. F-Secure's equity ratio atthe end ofthe quarterwas 76%(77%) and gearing ratiowas 68%negative (58%negative).
The total number of Company sharesis currently 158,798,739. The Company'sregistered shareholders' equity is EUR 1,551,311.18. Currently,the Company holds3,017,773 own shares.
F-Secure complieswith the CorporateGovernance recommendationsfor publicly listed companies published by the SecuritiesMarketAssociation, a body established by the Confederation of Finnish Industries EK,the Central Chamber of Commerce andNASDAQOMXHelsinki Ltd., as explained on F-Secure'sweb pages. F-Secure published its corporate governance statementfor 2013in theAnnual Report and on the Companywebsite.
The software businessisin transition. The Software-as-a-Service businessmodel and cloud-based delivery are rapidly disrupting the traditionalway of doing business. The Company has communicated itsrenewed strategy in the February,Q4 interimstock exchange release. The Company isfocusing on cloud-based initiativesto serve and protect the post-PCmulti-device environment.
During the strategy period 2014-2016,the Company aimsto growthe overallsubscriber base by tens ofmillions of users and seeks accelerating revenue growth.Asthe Company investsin growth,the relative profitability remains atits currentlevel and longer-termprofitability continuesto be driven by revenue growth and scalable operations.
Further details ofthemarket overviewand the strategy can be found in theQ4 interimrelease (February 5, 2014) and on the Company'sweb pages at http://www.f-secure.com/en/web/corporation_global/company/vision-andstrategy.
The Companywill drive for efficienciesto be able to investin bringing newcloud-based productsto themarket. Revenue growth is expected to come fromthe Company's core cloud businesses, consisting of converged PC and mobile security (SAFE), Protection Service for Business, personal cloud via operators(younited) and security from the cloud (Freedome). Traditional PC security sales are expected to be in decline.Geographically, LatinAmerica is expected to continue as a growth driver.
Slowerthan anticipated developmentin the personal cloud business combinedwith declining traditional PC-centric salesis estimated to impact negatively on revenuesin 2014. The Company hasrevised (see stock- exchange release onOctober16)its original guidance forthe year:the annualrevenue in 2014 is estimated to remain atthe level of 2013 (2013revenueswere 155.1million euros). The annual profitability estimate is unchanged at around 15%ofrevenues excluding one-off costs(2013 EBITwas 27.1million euros;17%ofrevenues).
The original guidancewasstated asfollows:revenue is estimated to growfrom2013with a strongersecond half and profitability is estimated to be around 15%ofrevenues excluding one-off costs.
One-off costs 2.9million related to efficiency improvements and reorganization in F-Secure SDC (France) has been recognized in theQ1 financials.
The revenue estimate is based on the sales pipeline atthe time of publishing, existing subscriptions and support contracts aswell as current exchange rates. The Company continuesto prioritize growth overshort-termprofitability and plansto investthemajority ofthe improved earningsin growth opportunitiesin its core business.
Anews conference for analysts and pressis arranged today,October 23rd, 2014 at11 amFinnish time at F-Secure's Headquarters, address: Tammasaarenkatu 7, Ruoholahti,Helsinki.Atthe news conference, President & CEOChristian Fredriksonwill presenttheQ3 financialresults.
An onlinemeeting forinternational investors and analystswill be held (in English) on the same day at 2.00 p.m.(EEST). To participate in the onlinemeeting, click on the link below:
https://meet.F-Secure.com/gia.forsman-harkonen/DNG04SF9
To participate in the onlinemeeting through phone, please dial in to +358975110100. Conference IDis3345794.
Thewebcastwill be organized through Lync to enable a better experiencewith video and presentation also forthe international investors and analysts. If you have not used Lync before, need to download and install it, or needmore advice on howto use it, please visit
http://r.office.microsoft.com/r/rlidOC10?clid=1033&p1=4&p2=1041&pc=oc&ver=4&subver=0&bld=7185&bldver=0
Itis possible to participate through the Lyncweb application, but please note thatthiswill not have sound and itis necessary to also call in to themeeting via phone.
TheQ3 financialresults presentationmaterial, including a videowhere Christian Fredriksonwill presenttheQ3results, will be available on ourInvestorsweb pages atwww.f-secure.comunderInvestors before the call begins: http:// www.f-secure.com
F-Secure Corporationwill publish its financial calendarfor 2015 laterthis autumn.
F-Secure Corporation Christian Fredrikson, President and CEO tel. +358 9 2520 0700
Taneli Virtanen, CFO tel. +358 9 2520 5655
This interim report is prepared in accordance with IAS 34 standard Interim Financial Reporting and with accounting principles stated in the annual report 2013 and with the IFRS 12 –standard effective as of 1 January 2014.
| INCOME STATEMENT | 2014 | 2013 | 2014 | 2013 | Change | 2013 |
|---|---|---|---|---|---|---|
| (EUR million) | 7-9 | 7-9 | 1-9 | 1-9 | % | 1-12 |
| Revenues | 37.9 | 38.3 | 115.6 | 115.1 | 0 | 155.1 |
| Cost ofrevenues | 2.0 | 1.5 | 5.8 | 5.0 | 16 | 7.0 |
| Grossmargin | 35.9 | 36.8 | 109.8 | 110.1 | 0 | 148.1 |
| Other operating income | 0.6 | 0.3 | 2.0 | 1.8 | 14 | 2.7 |
| Sales andmarketing | 19.5 | 17.8 | 62.4 | 56.0 | 12 | 73.6 |
| Research and development | 8.6 | 9.5 | 29.9 | 31.3 | -4 | 41.7 |
| Administration | 1.6 | 1.5 | 5.4 | 6.3 | -14 | 8.4 |
| Operating result | 6.9 | 8.4 | 14.1 | 18.3 | -23 | 27.1 |
| Financial net | 0.6 | -0.6 | 1.0 | -0.7 | -0.7 | |
| Result before taxes | 7.5 | 7.8 | 15.1 | 17.7 | 26.3 | |
| Income taxes | -1.4 | -2.5 | -3.8 | -5.8 | -9.9 | |
| Resultforthe period | 6.1 | 5.4 | 11.3 | 11.9 | 16.5 |
| INCOME STATEMENT | 2014 | 2013 | 2014 | 2013 | Change | 2013 |
|---|---|---|---|---|---|---|
| (EUR million) | 7-9 | 7-9 | 1-9 | 1-9 | % | 1-12 |
| Exchange diff. on translating foreign operations |
0.3 | -0.1 | 0.3 | 0.0 | -0.1 | |
| Available-for-sale fin. assets | -0.5 | 0.1 | 0.0 | -0.1 | 0.1 | |
| Income tax rel.to components of other comprehensive income |
0.1 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Total compr. income (owners) | 6.0 | 5.4 | 11.5 | 11.8 | 16.5 | |
| Earnings pershare EUR | 0.04 | 0.03 | 0.07 | 0.08 | 0.11 | |
| EPS diluted, EUR | 0.04 | 0.03 | 0.07 | 0.08 | 0.11 |
| ASSETS | 30/9/2014 | 30/9/2013 | 31/12/2013 |
|---|---|---|---|
| Intangible assets | 14.7 | 18.0 | 16.8 |
| Tangible assets | 8.2 | 8.7 | 8.3 |
| Goodwill | 19.4 | 19.4 | 19.4 |
| Other financial assets | 3.8 | 4.5 | 4.4 |
| Non-current assetstotal | 46.1 | 50.5 | 49.0 |
| Inventories | 0.1 | 0.3 | 0.3 |
| Otherreceivables | 40.2 | 35.1 | 39.5 |
| Available-for-sale financial assets | 35.0 | 23.5 | 25.7 |
| Cash and bank accounts | 16.7 | 15.9 | 22.2 |
| Current assettotal | 92.0 | 74.8 | 87.7 |
| Total | 138.1 | 125.3 | 136.6 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | 30/9/2014 | 30/9/2013 | 31/12/2013 |
|---|---|---|---|
| Equity | 75.6 | 68.1 | 72.8 |
| Other non-current | 0.4 | 0.4 | 0.4 |
| Provisions1) | 1.0 | 0.0 | 0.0 |
| Deferred revenues | 7.3 | 8.5 | 9.2 |
| Non-currentliabilitiestotal | 8.7 | 9.0 | 9.5 |
| Other current | 22.8 | 20.5 | 24.8 |
| Deferred revenues | 31.0 | 27.7 | 29.6 |
| Currentliabilitiestotal | 53.8 | 48.2 | 54.3 |
| Total | 138.1 | 125.3 | 136.6 |
| 30/9/2014 | 30/9/2013 | 31/12/2013 | |
|---|---|---|---|
| Cash flowfromoperations | 17.5 | 19.1 | 28.5 |
| Cash flowfrominvestments | -4.6 | -3.2 | -4.0 |
| Cash flowfromfinancing activites 2) | -9.3 | -9.3 | -9.3 |
| Change in cash | 3.5 | 6.6 | 15.2 |
| Cash and bank at1Jan | 48.1 | 32.7 | 32.4 |
| Change in netfair value ofAvailable-for-sale | 0.0 | -0.1 | 0.1 |
| Cash and bank at end of period | 51.6 | 39.3 | 47.7 |
| Share capital |
Share prem. fund |
Unrestr. equity reserve |
Treasury shares |
Retained earnings |
Assets avail. f.sale |
Tranl.diff | Total | |
|---|---|---|---|---|---|---|---|---|
| Equity on:31.12.2013 | 1.6 | 0.2 | 5.1 | -7.8 | 73.5 | 0.3 | -0.1 | 72.8 |
| Total comprehensive income forthe year |
11.3 | 0.3 | 11.5 | |||||
| Dividend | -9.3 | -9.3 | ||||||
| Cost ofshare based payments |
0.1 | 0.7 | -0.1 | 0.7 | ||||
| Equity on 30.9.2014 | 1.6 | 0.2 | 5.1 | -7.0 | 75.3 | 0.3 | 0.2 | 75.6 |
1)The one-offs due to restructuring ofthe French subsidiary.
Dividend for year 2013 0.06 euro pershare totaling 9,345,749.70 eurowas paid on 15thApril 2014.In 2013 paid dividend totaled 9,322,974.24 euro.
| 2014 | 2013 | 2013 | |
|---|---|---|---|
| 12.2 | 15.9 | 17.5 | |
| Operating result%ofrevenues | 27.9 | 38.5 | 40.9 |
| ROI% | 20.2 | 24.8 | 24.9 |
| ROE% | 75.8 | 76.5 | 74.3 |
| Equity ratio,% | -68.2 | -57.7 | -65.6 |
| Debt-to-equity ratio% | 0.07 | 0.08 | 0.11 |
| Earnings pershare, EUR | 0.07 | 0.08 | 0.11 |
| Earnings pershare diluted. EUR | 0.48 | 0.43 | 0.46 |
| Shareholders' equity pershare. EUR | 25.8 | 17.7 | 17.6 |
| P/E ratio | 5.1 | 2.8 | 3.7 |
| Capitalized expenditures,MEUR | 10.9 | 15.8 | 12.2 |
| Contingentliabilities,MEUR | 940 | 950 | 949 |
| Personnel average | 933 | 973 | 939 |
| Personnel end of period | 933 | 973 | 939 |
The Group has only one segment; data security.
| Quarterly development |
1/13 | 2/13 | 3/13 | 4/13 | 1/14 | 2/14 | 3/14 |
|---|---|---|---|---|---|---|---|
| Revenues | 38.4 | 38.4 | 38.3 | 40.0 | 39.1 | 38.6 | 37.9 |
| Cost ofrevenues | 1.7 | 1.8 | 1.5 | 2.1 | 2.0 | 1.8 | 2.0 |
| Grossmargin | 36.7 | 36.6 | 36.8 | 37.9 | 37.2 | 36.8 | 35.9 |
| Other operating income |
0.8 | 0.7 | 0.3 | 0.9 | 0.8 | 0.6 | 0.6 |
| Sales andmarketing | 18.4 | 19.8 | 17.8 | 17.6 | 22.1 | 20.8 | 19.5 |
| Research and development |
10.7 | 11.1 | 9.5 | 10.4 | 11.5 | 9.8 | 8.6 |
| Administration | 2.5 | 2.4 | 1.5 | 2.1 | 2.0 | 1.8 | 1.6 |
| Operating result | 5.9 | 4.0 | 8.4 | 8.8 | 2.3 | 5.0 | 6.9 |
| Financial net | 0.1 | -0.2 | -0.6 | -0.1 | 0.1 | 0.2 | 0.6 |
| Result before taxes | 6.0 | 3.8 | 7.8 | 8.7 | 2.4 | 5.2 | 7.5 |
| Result before taxes | 6.0 | 3.8 | 7.8 | 8.7 | 2.4 | 5.2 | 7.5 |
| Revenue | 7-9/2014 | 7-9/2013 | 1-9/2014 | 1-9/2013 |
|---|---|---|---|---|
| Nordic countries | 11.7 | 12.2 | 36.1 | 34.5 |
| Rest of Europe | 17.4 | 16.5 | 53.7 | 52.3 |
| NorthAmerica | 3.6 | 4.7 | 11.4 | 13.5 |
| Rest oftheworld | 5.2 | 4.9 | 14.4 | 14.8 |
| Total | 37.9 | 38.3 | 115.6 | 115.1 |
The carrying amounts of the Group's financial instruments are equivalent to fair values.
| Assets measured at fair value | Total | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|
| Available-for-sale financial assets30.9.2014 | 35.0 | 34.9 | 0.1 | |
| Available-for-sale financial assets30.9.2013 | 23.5 | 23.4 | 0.1 | |
| Available-for-sale financial assets31.12.2013 | 25.7 | 25.6 | 0.1 |
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