Helsinki, Finland -
July 31, 2002
SSH INTERIM REPORT January 1 - June 30, 2002
- Net sales were EUR 8.5 million, change -19.2% (EUR 10.5 million).
- Due to the companys large-scale re-structuring, a total of EUR 4.8
million of non-recurring expenses is included in the operating loss
- Thus the net operating loss came to EUR -9.7 million (a loss of EUR
2.3 million).
- During the second quarter, the company concluded 32 license and
maintenance agreements exceeding EUR 50,000.
- Arto Vainio was appointed as the new Chief Executive Officer.
- The company made several important product launches.
KEY FIGURES
Q2/02 Q2/01 1-6/02 1-6/01 2001
Net sales, EUR million 4.1 4.1 8.5 10.5 19.9
Net sales, growth % 0.0 35.8 -19.2 79.5 27.6
Operating loss, EUR million-6.9* -2.3 -9.7 -2.3 -6.7
% of net sales -168.4 -54.5 -115.0 -22.2 -33.8
Operating loss, growth % -210.1 -357.3 -317.8 -783.7 -302.4
Profit before extraordinary items
and taxes, EUR million -7.4 -1.7 -9.8 -1.3 -4.1
% of net sales -178.9 -40.7 -115.9 -12.0 -20.8
Personnel,
period-end 166 181 166 181 181
Earnings per share, EUR -0.35 -0.04 -0.15
Equity per share, EUR 1.45 1.92 1.82
* = The operating loss includes a total of EUR 4.8 million of non-
recurring expenses, which are listed in more detail in the Net Sales
and Operating Result chapter.
NET SALES AND OPERATING RESULT
Net sales in January-June were EUR 8.5 million (EUR 10.5 million),
showing a year-on-year decrease of -19.2 percent. The net sales of
the second quarter of 2002 was at the level of the second quarter of
2001, at EUR 4.1 million.
The net sales of the second quarter were affected by the continued
slowdown in the economy and the consequent uncertainty in the IT
market, postponing investment decisions in SSHs main market areas,
the United States and Europe, also during the second quarter of 2002.
When reviewing SSHs net sales, it should be noted that net sales
were modified to comply with the IAS standards, which had a negative
impact of EUR 0.3 million on the companys net sales during the
report period.
SSHs operating loss for January-June was EUR -9.7 million
(EUR -2.3 million), while net result totaled EUR -9.8 million (EUR -
1.3 million). The result was burdened by business development costs,
credit losses, and recruitment expenses for hiring key new sales
personnel, resulting in a total cost of approximately EUR 0.7
million, of which EUR 0.5 million were recorded during the second
quarter.
The operating loss for the second quarter was EUR -6.9 million (EUR -
2.4 million), while net result totaled EUR -7.4 million (EUR -1.7
million). The second quarter result was burdened by non-recurring
expenses of EUR 1.6 million incurred by the companys decision to
discontinue the development of VPN devices. The expenses include
valuing inventory to its market value and write-downs of capitalized
R&D costs.
Non-recurring expenses of EUR 0.8 million to adjust companys human
resources to the market situation were included in the second-quarter
results. The second quarter result is also burdened by an provision
of EUR 1.7 million. This due to the difference between the likely
rent paid by the subtenant of the unused office space in SSHs United
States office and the rent paid by SSH until the lease expires.
Research and Development expenses for January-June totaled EUR 5.0
million (EUR 4.0 million). Sales and Marketing expenses totaled EUR
8.5 million (EUR 4.8 million). Investing in sales and marketing
follows the company strategy and is in line with the companys long
term goals. The Group reinforced its sales personnel both in Europe
and the United States. During the second quarter, SSHs sales network
was expanded and made more efficient by, among other things, opening
a sales office in the UK and recruiting experienced sales personnel
on the east coast of the United States. Administrative expenses for
the period totaled EUR 2.6 million (EUR 2.2 million).
Research and Development expenses for the second quarter totaled EUR
3.0 million, whereas a year ago they amounted to EUR 1.9 million.
Sales and marketing expenses for the second quarter amounted to EUR
5.3 million (EUR 2.6 million). Administrative expenses totaled EUR
1.2 million (EUR 1.2 million).
The second-quarter fixed costs were reduced to EUR 6.4 million (EUR
6.6 million). SSH has systematically improved its operations since
early 2002. Among other things, this has included redesigning and
optimizing the companys internal processes. The cost savings
achieved by the re-structuring will be seen during the second half of
the year.
BALANCE SHEET AND FINANCIAL POSITION
The balance sheet total on June 30, 2002 was EUR 46.7 million, of
which liquid assets accounted for EUR 36.7 million (EUR 48.6
million), or 78.9 percent of the balance sheet total. The Group has
no long-term liabilities other than the subordinated loan of EUR 0.2
million granted by the National Technology Agency (Tekes).
Gearing remained almost at last years level. It was -91.2 during the
first half. The companys equity to asset ratio per June 30, 2002 was
88.9 percent (94.8 percent).
Gross capital expenditure for the period totaled EUR 0.3 million,
comprising mainly investments in software, machinery and equipment.
The financial income for the period consisted of interest income.
Financial income and expenses for the report period amounted to EUR -
0.1 million, whereas a year ago it was EUR 1.1 million. The financial
income for the report period was also lowered by the exchange rate
losses and investments to instruments, whose income is not entered
before the instrument is realized.
A total of EUR 0.5 million of product development funding and
consultation fees were entered in other income from business
operations.
MARKET DEVELOPMENT
The cautiously positive signals in early 2002, suggesting a market
rebound towards the end of the year, were proven to be premature.
This has lead to delays in the investment expenditures and soft
demand by equipment manufacturers, service providers and end user
organizations.
The market situation has especially impacted the sales of IPSec and
Secure Shell toolkits targeted at hardware and software
manufacturers. Service providers are one of the key segments served
by companys OEM customers, and delays in their purchase decisions
are reflected in SSH.
Due to the slower-than-anticipated development in the OEM market, the
role of the end-user market in SSHs operations was enhanced even
further during the second quarter. Financial institutions in the USA
and Europe in particular were an important customer group.
No substantial changes took place in the competition or SSHs
competitive position during the second quarter. The company
maintained its position as the worlds leading developer of Internet
Protocol Security (IPSec) and Secure Shell technologies. IPSec
Toolkits based on the IPSec technology and the Secure Shell product
family remained SSHs main products. The SSH Sentinel(TM) VPN
software for creating secure remote connections has been well
received in the market, and its importance in SSHs product range is
steadily increasing. Competition in the VPN and PKI markets will,
however, remain keen.
SALES DEVELOPMENT
The situation in the IT market remained challenging during January-
June and impeded the positive development of SSH product sales.
Despite the low-key market situation, sales of the IPSec and Secure
Shell toolkit software to the OEM manufacturers remained almost at
the previous years level.
During the period, the sales of IPSec Toolkit products, Secure Shell
products and new products accounted for 44.4 percent, 49.7 percent
and 5.9 percent of net sales, respectively. A majority of the new
product sales consisted of sales of the SSH Sentinel VPN client.
During the second quarter, SSH announced a major new licensing
agreement for the SSH QuickSec(TM) Toolkit for SAN product concluded
with Adaptec, a world-leading American equipment manufacturer.
Additionally, the company concluded a distributor agreement for the
SSH Sentinel, SSH Secure Shell, and SSH Certifier(TM) products with
Quantiq, a Singapore based company. During the second quarter, a
total of 5 other new distributor agreements were concluded, of which
1 were in the USA, 2 in Europe, and 2 in Asia.
During the second quarter, SSH concluded a record 32 license and
maintenance agreements exceeding EUR 50,000. Eighteen of these were
one-time licenses. During the first half, SSH concluded 58 license
and maintenance agreements of over EUR 50,000. Of these, 35 were one-
time licenses. Royalties, related down payments, and maintenance
charges accounted for nearly 50 percent of consolidated net sales,
equaling the previous periods figures.
During the second quarter, sales remained focused on the USA,
Germany, Japan, and the Nordic countries. During the second quarter,
45.0 percent of SSHs net sales came from the USA, 17.6 percent from
Finland, 26.5 percent from the rest of Europe, and 10.9 percent from
the rest of the world, such as Japan. Compared to previous periods,
especially Europe and the rest of the world have increased their
share of net sales, while the share of the USA has decreased. This
development has been affected, on one hand, by the economic
development in the USA and, on the other hand, by active investments
in sales and marketing in Europe and Asia.
During the first half of 2002, SSH decided to focus on the
development of its software-based data security and management
products in the future. The company also decided to discontinue the
development of VPN hardware devices while still continuing the
development of VPN software. The licensing possibilities of VPN
device technology developed buy SSH are being mapped.
The company invested in both sales and marketing. Investments in
sales were also reflected in the hiring of experienced sales
personnel in the United States and Europe and the expansion of the
companys geographical range of operations. In order to improve its
operational efficiency, the companys marketing management focus was
shifted from the USA to Finland and some company operations were
outsourced.
RESEARCH AND DEVELOPMENT
During the period, research and development expenses accounted for
59.4 percent of net sales (44.1 percent). Research and development
costs for the second quarter were increased by the write-downs of the
development expenses that were capitalized during the development of
VPN devices during the previous quarters. These non-recurring write-
downs totaled approximately EUR 0.5 million.
A considerable share of the companys investments in research and
development continues to focus on the development of SSH Sentinel and
SSH Certifier software and the research of new products. In the
second quarter, SSH introduced two brand new toolkit products. The
companys SSH QuickSec Toolkit for SAN is a data security software
package especially targeted at the manufacturers of storage area
network (SAN) devices. SSH QuickSec Toolkit for Access Networks is a
software suite customized for the manufacturers of network equipment
containing small, embedded operating systems (so-called access or
edge devices). These two QuickSec products help customers easily
integrate the functionality required for secure, encrypted
communications into their own products. As the importance of data
security increases, such functionality is set to be a necessity in
many data communication devices. By licensing the necessary
technology from SSH, customers can significantly shorten their
product development cycles and concentrate their resources on their
core competence.
In April, the company also introduced a new version 5.0 of the SSH
IPSEC Express(TM) data security software designed for equipment and
software manufacturers, and a new 3.2 version of the award-winning
SSH Secure Shell product. These new versions are expected to further
strengthen the position of these products as leaders in their market
segments.
By the end of June, the company had three patents and 38 patents
pending. During the second quarter, four new patent applications were
filed.
HUMAN RESOURCES
SSH adjusted its cost structure to the prevailing market situation.
Thus the company initiated employer/employee negotiations with its
personnel. These negotiations were based on the employers proposal
made on April 24, 2002, and they covered the entire SSH Group. The
employer/employee negotiations were concluded in May 17, 2002. As a
result, the Groups workforce was reduced by 33, of which 22 were
from Finland and 11 from international offices.
The period-end number of employees totaled 166, showing a year-on-
year decrease of 15 (-8.2 percent). Of the employees, 50.0 percent
worked in research and development, 36.7 percent in sales and
marketing, and 13.3 percent in administration. The company increased
its sales and marketing resources during the period by hiring six
employees.
During the second quarter, SSH appointed Arto Vainio, BSc (Econ), as
the new Chief Executive Officer. Vainio assumed the duties of CEO on
July 3, 2002, having previously acted as the Marketing Director of
Tellabs. At the same time, the previous CEO and founder of SSH, Tatu
Ylönen, took over the development of the companys technology
strategy and its application in research and development as well as
products.
SSHS SHARES AND SHAREHOLDING
During the report period, the trading volume of SSH Communications
Security Corp shares was 1,745,276 (valued at EUR 4,756,568); i.e.,
6.3 percent of the share capital changed hands. The highest quotation
for the period was EUR 3.65 and the lowest EUR 1.69. During the
period, there were two days on which no trading was done with the
company shares. The weighted average price during the report period
was EUR 2.49, and the value of a share closed at EUR 1.90 on the
final trading day for the period (28 June 2002).
No substantial changes took place in the shareholding of SSH
Communications Security Corp during the second quarter. Applied
Computing Research (ACR) Oy holds 61.37 percent of the companys
shares.
SSH SHARE CAPITAL AND BOARDS AUTHORIZATION
SSHs Annual General Meeting of April 11, 2002 authorized the Board
to decide on increasing share capital through a rights issue and/or
granting stock option or issuing bonds with warrants or convertible
bonds to the extent that the resultant share capital may exceed by a
maximum of EUR 120,000.
The AGM approved SSHs new stock-option schemes. On the basis of the
stock-option scheme I/2002, the company may offer its personnel a
maximum total of two million stock options. Each stock option
entitles the holder to the subscription for one SSH Communications
Security Corp share with a nominal value of 3 cents. Depending on the
type of warrant, the subscription period will begin in several stages
on May 1, 2003, May 1, 2004, May 1, 2005, or May 1, 2006, and will
end on May 1, 2008, for all subscription rights. The share
subscription price is the closing price of an SSH share, as quoted in
continuous trading on the Helsinki Exchanges on March 19, 2002 (EUR
2.67), plus 30 percent, rounded upwards to the nearest ten cents. The
companys share capital may rise by a maximum of EUR 60,000.
On the basis of the II/2002 stock-option scheme, SSH may offer its
personnel in the USA a maximum total of 94,000 stock options. Each
stock option entitles the holder to the subscription for one SSH
Communications Security Corp share with a nominal value of 3 cents.
Depending on the type of warrant, the subscription period will begin
in several stages on June 6, 2002, May 6, 2003, May 6, 2004 or May 6,
2005, and will end on April 11, 2012, for all subscription rights.
The share subscription price is the closing price of an SSH share, as
quoted in continuous trading on the Helsinki Exchanges on May 6, 2002
(EUR 2.00), and the companys share capital may rise by a maximum of
EUR 2,820.
At the end of the report period on March 31, 2002, SSHs share
capital was EUR 830,885.55, and it was divided into 27,696,185 shares
with a nominal value of EUR 0.03.
EVENTS AFTER THE REPORT PERIOD
The Board of SSH Communications Security Corp has decided, as
distinct from the shareholders pre-emption right, to grant stock
options to the management and employees of the companys subsidiary
in the USA, SSH Communications Security, Inc., as a part of the
Groups incentive scheme (option scheme III/2002). A maximum of
114,498 stock options will be granted, entitling the subscription of
a maximum of 114,498 new company shares with a nominal value of 3
cents. The share subscription price is, in line with the terms of
the stock options, the closing price of the companys share in
continuous trading on the Helsinki Exchanges on July 10, 2002 (EUR
1.90). The subscriptions may raise the companys share capital by a
maximum of EUR 3,434.94.
After the report period, the company has made five licensing
agreements of over EUR 50,000, with their total value of over EUR 0.4
million.
OUTLOOK
The recovery of demand in the data security market appears slower
than anticipated. However, general interest in data security products
has remained favorable in SSHs main market areas in the USA, Europe,
and Asia. For the time being, it is impossible to say when the market
rebounds and the general interest is reflected in increased sales.
Long-term growth prospects for data security solutions offered by SSH
will remain favorable.
The companys management estimates that the net sales of SSH will
grow by 6 to 16 percent in 2002. The companys net sales for 2002
would then hover at EUR 21-23 million. SSH foresees a possible
favorable development in the second-half net sales, because the
company has significantly increased the level and quality of active
sales prospects compared to those of the years start. The
investments made and the strengthened sales personnel in the new
market areas, the United States east coast, the UK, and Germany are
also expected to pay dividends already in the second half of the year.
SSH expects that the companys performance will improve during the
latter half of the year as a result of the increased operational
efficiency and the personnel reductions. Due to these measures the
fixed costs for the second half of the year will remain lower than
during the first half of the year. The company will show a loss for
the year 2002 as a whole.
INCOME STATEMENT
1-6/2002 1-6/2001 1-12/2001
EUR million
Net sales 8.5 10.5 19.9
Materials and supplies -2.6 -2.3 -4.6
Gross margin 5.9 8.2 15.2
Expenses
R&D -5.0 -4.0 -8.1
Sales & marketing -8.5 -4.8 -10.0
Administration -2.6 -2.2 -5.0
Other income from
Business operations +0.5 +0.5 +1.2
Operating result -9.7 -2.3 -6.7
Financial income and
expenses -0.1 1.1 2.6
Profit before extraordinary items
and taxes -9.8 -1.3 -4.1
Profit before taxes -9.8 -1.3 -4.1
Taxes* 0.0 0.0 0.0
Net profit for the period -9.8 -1.3 -4.1
* Taxes have been calculated from the periods result and the
calculated tax receivable has not been recorded from the accumulated
losses.
BALANCE SHEET June 30, 2002 June 30, 2001 Dec. 31, 2001
EUR million
Fixed and other non-current assets
Intangible assets 0.5 0.6 1.7
Tangible assets 1.4 2.4 1.0
Inventories and current assets
Inventories 0.8 0.0 1.1
Current assets
Short-term receivables 7.2 6.7 8.9
Securities 20.0 0.0 0.0
Cash and cash equivalents16.8 48.6 44.6
Total assets 46.7 58.3 57.4
Shareholders equity 40.3 53.4 50.2
Provision 1.7 0.0 0.0
Liabilities 4.7 4.9 7.2
Total liabilities and
shareholders equity 46.7 58.3 57.4
FINANCIAL INDICATORS
1-6/2002 1-6/2001 1-12/2001
Net sales, EUR million 8.5 10.5 19.9
Operating profit,EUR million -9.7 -2.3 -6.7
Operating result,% of net sales-115.0 -22.2 -33.9
Profit before extraordinary items
and taxes, EUR million -9.8 -1.3 -4.1
Profit before extraordinary items
and taxes, % of net sales -116.0 -12.0 -20.8
Profit before taxes, EUR million -9.8 -1.3 -4.1
Profit before taxes,
% of net sales -116.0 -12.0 -20.8
Return on investment, % -7.1
Return on equity, % -7.9
Interest-bearing net liabilities,
EUR million -36.5 -48.3 -44.4
Equity-to-assets ratio, % 88.9 94.8 90.1
Net gearing,% -91.2 -90.9 -89.0
Gross capital expenditure,
on fixed assets, EUR million 0.3 2.8 1.4
% of net sales 3.1 26.5 7.0
Investments, EUR million 0.3 1.6
% of net sales 3.1 8.0
R&D expenses, EUR million 5.0 4.0 8.1
% of net sales 59.4 38.3 40.7
Personnel, on average 175 180 182
Personnel, period-end 166 181 181
PER-SHARE DATA
1-6/2002 1-6/2001 1-12/2001
Earnings per share, EUR
(undiluted) -0.35 -0.05 -0.15
Earnings per share, EUR
(diluted) -0.35 -0.04 -0.15
Equity per share, EUR 1.45 1.92 1.82
Number od shares
period-end, 1000 27.696 27.620 27.691
Share performance, EUR
Average price 3.00 9.82 7.06
Lowest 1.69 5.75 2.20
Highest 3.65 15.99 15.99
Share price, period-end 1.90 6.23 3.05
Market capitalization,
period-end, EUR million 52.6 172.1 84.5
Volume of shares traded,
million 1.7 5.0 8.4
Volume of shares traded,
% of total 6.3 18.1 30.4
Value of shares traded,
EUR million 4.8 47.6 59.4
Price-earnings ratio(P/E) -20.5
CONTINGENT LIABILITIES
June 30, 2002 June 30,2001 Dec. 31, 2001
EUR million
Assets pledged
Rental liabilities 1.2 1.2 1.2
Leasing liabilities 0.2 0.2 0.2
The social overhead expense on option rights exercisable in the
future would be EUR 19,886 calculated on the closing price of the
companys share at EUR 1.90.
The provision from the United States office space is EUR 3.0 million.
The figures in this interim report are unaudited.
The revenue figures from the year 2002 and 2001 are not fully
comparable because the revenue in the year 2002 does conform to IAS.
SHAREHOLDERS
The companys ten largest shareholders, excluding nominee-registered
shares, were as follows on June 30, 2002:
Applied Computing Research (ACR) Oy 61.37%
Mutual Pension Insurance Company Varma-Sampo 2.36%
Kaukonen Kalle 2.36%
Ylönen Tatu 1.90%
Nixu Oy 1.88%
Mutual Pension Insurance Company Ilmarinen 1.75%
Promotion Capital I Ky 1.73%
Mattila Samuli 1.05%
Kivinen Tero 0.96%
Markula Jussi 0.95%
Total 76.31%
Nominee-registered shares 0.22%
FINANCIAL INFORMATION
A briefing on this interim report for analysts and the media will be
presented at the auditorium of SSHs headquarters on the 1st floor,
Fredrikinkatu 42, Helsinki, on Wednesday, July 31, 2002, starting at
11:00 a.m. Entrance at the corner of Fredrikinkatu and Malminkatu.
SSH Communications Security Corp will release its next interim report
and the results for January 1 -September 30, 2002 on October 23,
2002. Further information will be available on the companys Web
pages in due course.
Helsinki, July 31, 2002
SSH COMMUNICATIONS SECURITY CORP
Board of Directors
Arto Vainio
Chief Executive Officer
Distribution:
Helsinki Exchanges
Major Media
CEO
Arto Vainio
Tel: +358 20 500 7400
Investor Relations/CFO
Mika Peuranen
Tel: +358 20 500 7419
E-mail: 
© 2002 SSH Communications Security Corp. All rights reserved. ssh® is a registered trademark of SSH Communications Security Corp in the United States and in certain other jurisdictions. All other names and marks are property of their respective owners.