Helsinki, Finland -
August 1, 2001
INTERIM REPORT JANUARY 1 - JUNE 30, 2001
GROWTH IN FIRST HALF 80 % - ORDER POSTPONEMENTS IN THE SECOND
SSH´s net sales in the first six months of 2001 were 10.5 Meur. The increase over the corresponding period last year is 79,5%. The operating result in the first half of the year was -2.3 Meur (-0.3 Meur) and net income -1.3 Meur (-0.1 Meur). At the end of the second quarter a significant number of contracts were postponed to future quarters. Marketing of the SSH Complete VPN product, launched in March in Europe´s main markets, is in progress. The first memorandum of understanding was concluded with the Kolumbus Oy part of Elisa Communications Group. The SSH Certifier (PKI-system) launched in April was well received on the market and the first customer agreements were concluded during the summer. SSH signed significant OEM-agreements with Compaq and Hitachi Systems & Services. During the second quarter the representative office in Dusseldorf (Germany) was opened MARKETS Uncertainty persisting in the markets for data security and telecommunications equipment, coupled with the strongly cyclical nature of these markets resulted in a larger than anticipated postponement of new license agreements at the end of the second quarter. This postponement of orders at the end of the reporting period was particularly marked in the US, but it also applied to Europe. Postponements were recorded for Secure Shell as well as IPSec-toolkit products. The Companys new products, SSH Sentinel, SSH Certifier and SSH Complete VPN were favourably received on the market, however, and deliveries of these new products to customers started in the period. Demand for SSHs end-user and OEM products remains strong, and the level of new customer evaluations has increased. However, a significant number of end user and OEM customers have postponed their procurements because of market uncertainties. Many of these customers have informed SSH that they prefer SSHs products, but that they plan to carry out procurement later than originally intended. The launch of the SSH Complete VPN product, announced in March, continued as planned in the second quarter. The Kolumbus Oy part of Elisa Communications Group signed a significant memorandum of understanding with SSH in June. According to the memorandum of understanding between the parties, Kolumbus Oy offers the SSH Complete VPN to its customers to secure telecommunications between their premises and remote users over the open Internet. Customer field tests are continuing during the summer and the final agreement is expected to be signed in August 2001. Marketing of the new system has commenced in Europe, and the system will be launched in the US and Japan later this year. NET SALES SSH net sales in the first half of 2001 were 10.5 Meur, growing 79.5% over the corresponding period last year. Net sales in the second quarter grew to 4.1 Meur, 35.6% over the same period last year. The company concluded a total of 43 license agreements with a value exceeding 50,000 euros each in the first half of the year. Of these agreements, 21 were concluded in the first quarter and 22 in the second quarter. In the first quarter of the year 7 single-payment contracts were concluded and in the second quarter the corresponding number was 10. Of the net sales of the first half of the year 48.1% came from royalties, maintenance payments and down-payments on royalty agreements. In the second quarter the corresponding share was 55.7%. RESULTS The operating result for the first half of the year was -2.3 Meur and the net income -1.3 Meur. In the same period last year, the operating result was -0.3 Meur and net income -0.1 Meur. R & D expenses in the first half of the year were 4.0 Meur (3.0 Meur in the first half of 2000), sales and marketing expenses were 4.8 Meur (2.0 Meur) and administrative expenses 2.2 Meur (0.9 Meur). The operating result for the second quarter was -2.2 Meur (- 0.9 Meur) and the net income -2.0 Meur (-0.8 Meur). In the second quarter R & D expenses (2.0 Meur) held steady at the level of the first quarter (2.1 Meur). The growth of sales and marketing expenses in the second quarter (2.6 Meur) in comparison with the first quarter (2.3 Meur) was mainly due to the expanded sales and marketing activities for the new products. Administrative expenses grew to 1.1 Meur in the second quarter, from the 1.0 Meur of the first quarter. According to the cooperation agreement with F-Secure SSH pays license fees on its own Secure Shell sales to F-Secure. These expenses are entered in the cost item materials and services. In the second quarter the company continued its restrictive hiring practices, and succeeded in its objective to hold back cost increases. Overall operating costs grew by 5.4% in the second quarter as compared with the first quarter. Other operating income includes a 0.5 Meur product development grant from The Finnish Foundation for the Promotion of Technology. BALANCE SHEET AND FINANCING The balance sheet total at the end of the first half of 2001 was 58.3 Meur (17.0 Meur). The personnel share issue carried out in 2000 and the listing at the Helsinki Exchanges at the end of last year boosted the financial assets and equity/assets ratio of the Group considerably. The equity/assets ratio at the end of the first half was 94.8%. Cash and cash equivalents were 48.6 Meur (12 Meur) i.e. 83.4% of the balance sheet total. The Group has no other long-term debt, other than the capital loan from The Finnish Foundation for the Promotion of Technology entered under equity. PERSONNEL Growth in the number of personnel was very modest during the first half of 2001. At the end of June 2001 the total personnel was 181. In the first half of 2001, the average number of personnel was 180 as compared with 95 in the corresponding period last year. PRODUCT DEVELOPMENT AND LAUNCHES The company continued its focused investments in the development of new data security technology and expansion of its product range. In the first half of the year the R & D expenses were 4.0 Meur, 38.3% of net sales. Seven new patent applications were filed in the first half. The company holds 2 patents granted and has totally 27 patents applications pending. The SSH Complete VPN was a significant new launch that makes the deployment of secure data communications connections considerably easier for telecommunications operators and companies. The new product family also marks a significant step for SSH towards systems for service providers and end- users. The product includes many new innovations and technologies that provide secure seamless and strong data security from the terminal forward. The first agreement (memorandum of understanding) concerning the new product was concluded with the Kolumbus Oy part of Elisa Communications Group in June. In the second quarter, new versions of corporate SSH IPSEC Express, SSH Secure Shell and SSH Certifier systems were launched. The new versions focus on the implementation of PKI (Public Key Infrastructure) support and enable product sales as one entity. In April SSH announced the SSH Secure Shell for Handhelds data security program. This is the first SSH Secure Shell application for wireless equipment platforms. The new program takes the protection of passwords and data all the way to hand- held computers and mobile phones. At the same time SSH also announced its cooperation with Symbian for the development of data security programs for wireless terminals. SHARES AND OWNERSHIP The strong decline of stock prices for IT-companies continued in the first six months of 2001. In the first half of the year a total of 5,021,163 company shares were traded (value 47,571,451 euros) which meant that 18.2% of the shares changed hands. The highest quotation for the period was 15.99 euros and the lowest 5.75 euros. The weighted average quotation was 8.62 euros and on the last trading day of the period (June 29, 2001) the quotation was 6.23 euros. There were no material changes in the ownership of SSH Communications Security Corp. in the first half of the year. Applied Computing Research (ACR) Ltd still holds over 63% of the shares of the company. Authorizations The AGM authorized the Board to decide on an increase of the share capital in a new share issues and/or granting of option rights or by issuing option- or convertible bonds so, that the share capital may increase by a maximum of 108,000 euros as a result of the action. The authorization is valid until April 19,2002. Warrant program The AGM approved the new warrant program that makes it possible to grant a total maximum of one million warrants to personnel. Each warrant entitles to the subscription of one SSH Communications Security Corp share with a nominal value of three cents. The subscription periods start in several stages depending on the type of warrant, on May 1, 2002, May 1, 2003, May 1, 2004, May 1, 2005 and end within two years from the start of each stage. The subscription price is the average of the closing price of the companys share on trading days in Helsinki Exchanges during February 1, 2001 - April 12, 2001. i.e. 7.63 euros. The share capital may increase in total a maximum of 30,000 euros due to the share subscriptions based on warrants. OUTLOOK SSH´s operations in the second quarter were strongly influenced by the uncertainty prevailing in the telecommunications markets and customers postponement of IT procurements. Market feedback indicates that many customers have already in fact decided to acquire SSH data security solutions, but have postponed procurements originally intended for the second quarter. Despite the very sudden change in the market situation, SSH will continue its focused development of new products and new technologies in order to ensure its technology leadership and to take advantage of a market revival on a worldwide basis. Because of the market situation the estimates for the final half of the year include major uncertainties and risks. The company considers that it is feasible to reach net sales of 25 Meur for the full year. The investments into R&D and particularly R&D and marketing investments into the new products will be kept on the planned level, which at a sales level of 25 Meur would result in a negative net profit. INTERIM FINANCIAL STATEMENTS INCOME STATEMENT (Meur) 1-6/2001 1-6/2000 1-12/2000 NET SALES 10.5 5.9 15.6 Materials and supplies -2.3 -0.4 -1.8 GROSS MARGIN 8.2 5.5 13.9 R & D expenses -4.0 -3.0 -6.7 Sales & marketing expenses-4.8 -2.1 -6.5 Administrative expenses -2.2 -0.9 -2.6 Other operating expenses +0.5 +0.1 +0.3 OPERATING RESULT -2.3 -0.3 -1.7 Financial income and expenses +1.1 +0.3 +0.8 RESULT BEFORE EXTRA- ORDINARY ITEMS -1.3 +0.0 -0.9 Extraordinary items 0.0 0.0 -1.6 INCOME BEFORE TAXES -1.3 +0.0 -2.5 Taxes *) 0.0 0.0 0.0 NET INCOME FOR THE PERIOD -1.3 +0.0 -2.5 Taxes are proportionate to the net income for the period. BALANCE SHEET (Meur) 30.6.2001 30.6.2000 31.12.2000 ASSETS FIXED ASSETS Intangible assets 0.6 0.0 0.7 Tangible assets 2.4 0.8 1.4 FIXED ASSETS TOTAL 3.0 0.8 2.1 CURRENT ASSETS Short-term receivables 6.7 4.0 6.1 Cash and cash equivalents 48.6 11.9 51.1 CURRENT ASSETS TOTAL 55.3 16.2 57.2 ASSETS TOTAL 58.3 17.0 59.3 SHAREHOLDERS´ EQUITY AND LIABILITIES EQUITY 53.4 14.9 54.3 Short-term liabilities 4.9 2.2 5.1 LIABILITIES TOTAL 4.9 2.2 5.1 SHAREHOLDERS´ EQUITY AND LIABILITIES TOTAL 58.3 17.0 59.3 KEY RATIO 1-6/2001 1-6/2000 1-12/2000 PER SHARE DATA Earnings/share, euros (undiluted)-0.05 0.0 -0.04 Earnings/share, euros (diluted) -0.04 Equity/share, euros 1.92 0.64 1.96 P/E -429 FINANCIAL INDICATORS 1-6/2001 1-6/2000 1-12/2000 Net sales, Meur 10.5 5.8 15.6 Operating result, Meur -2.3 -0.3 -1.7 Operating result, % of net sales -22.2 -5.8 -10.7 Income before extraordinary items and taxes -1.3 0.0 -0.9 Income before extraordinary items and taxes, % of net sales -12.0 -1.1 -5.5 Income before taxes, Meur -1.3 0.0 -2.5 Income before taxes, % of net sales -12.0 -1.1 -16.1 Return on equity, % -2.5 Return on investment,% -2.4 Interest-bearing net debt, Meur -48.3 -11.7 -50.9 Net gearing,% -90.9 -79.8 -94.2 Equity/assets ratio, % 94.8 93.0 93.0 Gross investment in fixed assets, Meur 2.8 0.9 2.4 Gross investment in fixed assets, % of net sales 26.5 15.4 15.6 R & D expenses, Meur 4.0 3.0 7.1 R & D expenses, % of net sales 38.3 50.7 45.2 R & D expenses, % of net sales(incl. investments) 44.1 50.7 42.9 Personnel, on average 180 95 130 Personnel, end of period 181 126 172 Shares, 1,000, average*) 27,587 22,902 24,083 Shares, 1,000, end of period *) 27,620 22,910 27,578 *) adjusted number of shares The order-backlog is not material information in the business operations of SSH CONTINGENT LIABILITIES (Meur) 30.6.2001 30.6.2000 31.12.2000 Assets pledged: Rent liabilities 1.2 1.2 1.2 Leasing liabilities 0.2 0.4 0.2 The social overhead expense on option rights exercisable in the future would be 48 keur as computed on the basis of the share quotation for the company´s share on June 30, 2001 (6.23 euros). The figures are un-audited. The Interim Report for January-September will be published on October 31, 2001. Helsinki, August 1, 2001 SSH COMMUNICATIONS SECURITY CORP Board of Directors Markku Kangas President & CEO Distribution: Helsinki Exchanges The Main Media The company arranges a presentation of 2Q financial statements in its own office at the address Fredrikinkatu 42 A, Helsinki, 7th floor on Wednesday August 2 at 12 a.m. The hosts are Markku Kangas, Tatu Ylönen and Johanna Lamminen.
CEO
Arto Vainio
Tel: +358 20 500 7400
Investor Relations/CFO
Mika Peuranen
Tel: +358 20 500 7419
E-mail: 
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