Helsinki, Finland -
February 13, 2002
FINANCIAL STATEMENTS BULLETIN JANUARY 1 - DECEMBER 31, 2001
- Net sales grew 27.6 % to EUR 19.9 million from EUR 15.6 million
- Operating loss for the period was EUR -6.7 million (EUR -1.7
million in 2000)
- The number of new license and maintenance agreements concluded in
the fourth quarter, worth more than EUR 50,000 each, was 23. Out of
these 14 were one-time fees
- In December a new version of the popular SSH Secure Shell product
was announced and the sales of its mobile device version started
- In December an expansion of Nokia Networks SSH IPSEC Express
Toolkit license was also announced. Nokia is using SSHs technology
to protect its wireless networks.
KEY FIGURES
Q4/01 Q4/00 2001 2000
Net sales, EUR million 4.9 5.3 19.9 15.6
Net sales, growth % -8.1 20.2 27.6 185.3
Operating result, EUR million -2.3 -0.7 -6.7 -1.7
% of net sales -47.5 -13.2 -33.8 -10.7
Operating result, growth % -276.5 -4.5 -302.4 -177.2
Profit before extraordinary
items and taxes, EUR million -1.3 -0.2 -4.1 -0.9
% of net sales -26.7 -4.2 -20.8 -5.8
Personnel, period-end 181 172 181 172
Earnings per share, EUR -0.15 -0.04
NET SALES AND RESULTS
SSH Communications Security Groups consolidated net sales for the
financial year 2001 rose to EUR 19.9 million (EUR 15.6 million in
2000), representing a year-on-year growth of 27.6%. Particularly
strong sales registered by the companys Secure Shell product family
helped drive the growth. The parent companys net sales for the
financial period 2001 totaled EUR 14.6 million (EUR 12.9 million),
representing a 13,1% increase. The financial period 2001 fourth-
quarters net sales developed favorably compared to the third-quarter
net sales of EUR 4.5 million, amounting to EUR 4.9 million (EUR 5.3
million).
Continuing uncertainty in information technology markets in the USA
and Europe, SSHs main market areas, significantly affected the
overall development of the companys net sales for the financial
period 2001. The recession in the global economy, as well as
customers feelings of uncertainty about the future, began to be felt
in SSHs operations beginning in the second quarter of 2001. The
companys sales weakened appreciably compared to previous forecasts as
customers postponed their IT investments.
The SSH Groups net sales for the first quarter of 2001 exceeded
expectations, growing by 128.6% over the previous year to EUR 6.4
million. This favorable trend did not however continue during the
second quarter as net sales dropped to EUR 4.1 million. Third-quarter
net sales recovered slightly to EUR 4.5 million and the net sales of
EUR 4.9 million for the fourth quarter demonstrated that the growth is
continuing.
The SSH Groups operating result for the financial period was EUR -6.7
million (EUR -1.7 million) while the net result was EUR -4.1 million
(EUR -2.5 million). The parent companys operating result was EUR -6.5
million (EUR -2.2 million). The fourth-quarters operating result was
EUR -2.3 million (EUR -0.6 million) and the net result was
equivalently EUR -1.8 million (EUR -0.2 million).
The development of the SSH Groups cost structure was closely
controlled during the financial period. Particular attention was paid
to operational profitability and the adjustment of Group expenses to
meet the changing market situation. In 2001, the Group continued its
cautious recruitment policy, which helped keep costs under control.
SSHs fixed expenses during the financial year 2001 were EUR 23.1
million, compared to EUR 15.8 million for the previous year. Expenses
remained at a fairly consistent level in different quarters, ranging
between the first quarters EUR 5.4 million and the fourth quarters
EUR 6.5 million. The fourth quarter expenses included over EUR 0.5
million of one-time expenses related to the re-organization of
businesses, credit losses from US operations and tightening of credit
controls.
R&D expenses for the financial period were EUR 8.1 million (EUR 6.7
million) and EUR 2.0 million (EUR 1.9 million) for the fourth quarter.
During the current financial year, R&D spending consistently accounted
for approximately 40% of net sales.
Sales and marketing expenses for the financial period totaled EUR 10.0
million (EUR 6.5 million). Administrative expenses for the financial
period 2001 totaled EUR 5.0 million (EUR 2.6 million).
The return on investment was (ROI) was -7.06% (-2.35%) and the return
on equity (ROE) was -7.93% (-2.51%). Earnings per share were EUR -0.15
(loss of EUR -0.04) and the equity per share on December 31, 2001 was
EUR 1.82 (EUR 1.96).
BALANCE SHEET AND FINANCING
The balance sheet total on December 31, 2001 was EUR 57.4 million (EUR
59.3 million), of which liquid assets accounted for EUR 44.6 million
(EUR 51.0 million), or 77.7% of the balance sheet total. The parent
companys balance sheet total on December 31, 2001 was EUR 56.0
million (EUR 58.8 million). The Group has no long-term liabilities
other than the subordinated loan of EUR 0.2 million granted by the
National Technology Agency (TEKES). The loan is showed in
shareholders equity.
The Groups ratio of net liabilities to shareholders equity (gearing)
remained essentially at the same level during the entire financial
period at -89.0% (-94.2%) on December 31, 2001. Apart from the
subordinated loan, the company has no interest-bearing debt. The
equity-to-asset ratio on December 31, 2001 was 90.1% (93.0%).
The Groups gross capital expenditure for the financial period totaled
EUR 1.4 million, including mainly machinery and equipment
procurements. Financial income, consisting of interest income from
bank accounts and investment income from commercial paper, and net
financial items in the Group reached EUR 2.6 million (EUR 0.9
million). The parent companys net financial income and expenses for
the period under review were EUR 2.7 million, compared to EUR 0.8
million for the previous year.
During the financial period, a total of EUR 1.2 million of product
development funding, coming mostly from the National Technology Agency
(TEKES) was entered as other income from business operations. The
Group has two TEKES projects underway.
MARKETS AND MARKET POSITION
The general uncertainty evident in global data security and
information technology markets persisted after the first three months
of 2001 and their economic development remained extremely
unpredictable during the latter part of the year. The terrorist
attacks in the USA and the subsequent feeling of insecurity they
provoked have however stimulated an increased interest in Internet
security and its related services.
In general, SSHs potential customers are well aware of the
significance of data security. Nevertheless, the purchasing behavior
of equipment manufacturers, service providers and end-user companies
changed due to market uncertainties, particularly during the latter
half of 2001. That trend has continued similarly during the year
2002s first weeks. The pervasive sense of uncertainty could be seen
among SSHs clientele as a more careful consideration of IT
investments and slowdowns in decision-making processes.
In 2001 SSH concentrated on serving its North American, German,
Japanese and Scandinavian market areas. Out of these, the first three
are the worlds largest regional data security markets. Although the
USA is still SSHs largest and most important market, the most
substantial percentage increase in sales was registered in Japan.
In 2001 Internet Protocol Security (IPSec) and Secure Shell product
families were the companys main products and for their part sustained
SSHs position as the leading provider. Regarding the competitive
situation and the companys competitive position, no significant
changes affecting IPSec and Secure Shell products and technologies
took place in any market areas in 2001. During the financial period,
the new Virtual Private Network (VPN) and Public Key Infrastructure
(PKI) products had not yet solidified their positions nor generated
any substantial sales revenue to the company.
SSHs role in the value chain as a technology supplier became
increasingly oriented towards end users and service providers during
the financial period and the company geared up its product development
to serve these customer groups even more effectively. As a result of
the rapidly fluctuating market situation the construction of new sales
and distribution channels however progressed more slowly than had been
anticipated.
SALES DEVELOPMENT
Despite the weaker-than-expected market conditions, SSHs sales grew
in 2001. During the first quarter the demand for products targeted at
end-users and OEM equipment manufacturers remained strong and SSHs
sales developed more positively than had been expected despite the
gradually weakening market situation. As the market situation however
deteriorated during the second quarter, a sizeable number of end-users
and OEM customers postponed their acquisition decisions. Thus the
sales of the second quarter did not reach the expected level. During
the third and fourth quarters the market situation continued to be
extremely difficult.
New agreements were concluded as the sales of the fourth quarter
progressed according to adjusted forecasts and a sales target of about
EUR 5 million. During the fourth quarter SSH concluded a total of 23
license and maintenance agreements, each of which exceeding EUR
50,000. Of these 14 were one-time payments.
In 2001 SSH concluded a total of 93 license and maintenance agreements
whose worth exceeded EUR 50,000. Of these 41 were one-time payments.
The share of royalties, related down payments and maintenance charges
increased to 46.9% of the companys net sales during the year 2001.
This is according to the companys long term strategy.
Geographically, the USA remained SSHs main market area during the
entire report period. The USA, Finland, the rest of Europe and other
market areas such as Japan accounted for 49.7% (46.3%), 21.6% (26.8%),
15.9% (23.2%) and 12.8% (3.7%) of net sales respectively.
In 2001 IPSec Toolkit products, Secure Shell products and new VPN and
PKI products accounted for 41.7%, 54.3% and 4.0% of net sales
respectively. SSH believes that the demand for both IPSec Toolkit and
Secure Shell product families will continue to increase. Owing to the
strong market potential the company intends to continue the further
development of these products and solutions. Within a few years
however, the company expects that over half of its net sales will
derive from new VPN and PKI products introduced to the markets in
2001.
SSH launched several new products during the financial year. Besides
the SSH Certifier product family and the SSH Sentinel softwares end-
user version, SSH Secure Shell Toolkit software for integrating
network devices and enabling secure remote connections was introduced
to the market. The years most significant product innovation was
however the SSH Complete VPN solution, intended for service providers
and enabling secure connection services for local area networks,
launched in March of 2001.
SSHs new products were favorably received in the markets. The company
also received its first reference customers for all new products and
agreements were concluded in the USA, Europe and Japan, the companys
main market areas.
The financial years most significant agreements were the SSH Secure
Shell agreement concluded with Compaq, the IPSec Toolkit agreement
concluded with Hitachi Systems & Service and the SSH Complete VPN
agreement concluded with Kolumbus. All the aforementioned customer
companies, with their own operations, are important references for
SSH. They also function as footholds for new potential markets and
extended agreements. SSH also concluded agreements with a number of
Fortune 1000 companies. These companies cannot be named here because
many have a policy of not disclosing which security technologies they
have standardized on or use to secure their networks and Internet
access.
The ten largest customers accounted for 22.1% of the companys net
sales. Because no single customer accounted for more than 5% of net
sales, the company is not significantly dependent on a single
customers situation.
To boost sales and help achieve its long-term growth objectives, SSH
initiated substantial investments in the development of its sales and
marketing earlier than had been previously planned. Besides finding
good reference customers, SSH intends to find suitable strategic
partners capable of speeding up the delivery of the companys products
to the market and forming effective distribution channels.
R&D
SSHs strong commitment to R&D continued in 2001; the companys R&D
spending for the financial period accounted for 40.7% of net sales.
R&D expenses remained at a consistent level throughout the year.
Over half of R&D spending was allocated to the development of new
products such as SSH Sentinel, SSH Certifier and SSH Complete VPN.
Also, company intends to continue to invest strongly in R&D in the
future to ensure its future competitiveness and optimize its
exploitation of market potential.
At the end of December the company had 3 patents and 27 patents
pending. SSHs product development in 2002 will pay particular
attention to products ease of installation and management.
PERSONNEL
The SSH Groups period-end number of employees totaled 181, showing a
year-on-year increase of 5.2%, or 9 employees.
Mr. Tatu Ylönen, SSHs founder and Board Chairman, was appointed SSH
Communications Security Corps President and CEO as of September 21,
2001. Markku Kangas will continue as an advisor to the company. Ylönen
will act as the President and CEO until the company finds a suitable
CEO with the profile required for the companys next development
phase.
At the end of the third quarter SSH restructured its organization from
technology oriented to more product oriented. The new product family-
based organization is now divided into the Toolkit, Secure Shell and
Network Systems product lines. The Network Systems product line
incorporates the SSH Complete VPN, SSH Sentinel and SSH Certifier
products. Each product line has a well-defined total responsibility
for its operations product development and product marketing.
SSH also consolidated its sales, marketing and customer support
organizations; each function now has its own executive to whom market-
specific sales, marketing and customer support organizations report.
At the same time, SSH centralized its Group administration, enabling
it to function globally. These organizational changes will further
clarify areas of responsibility and accelerate product-related
decision-making processes.
The changes made in the companys management structure relate to SSHs
new development phase and its intent to be a global leader in the
development of network security solutions.
SSH BOARD AND AUDITORS
At SSH Communications Security Corps Annual General Meeting held on
April 19, 2001, George F. Adams, Bo Harald, Tapio Kallioja, Markku
Kangas, Arto T Karila, Tomi Laamanen and Tatu Ylönen were elected as
Board members. Tatu Ylönen functioned as Chairman of the Board of
Directors until September 21, 2001, after which Tomi Laamanen has
served as Chairman of the Board of Directors.
Markku Kangas relinquished his position as SSHs CEO and Member of the
Board in September 2001.
At the Annual General Meeting held on April 19, 2001, the Authorized
Public Accountants SVH Pricewaterhouse Coopers Oy, with Authorized
Public Accountant Henrik Sormunen in charge, were selected as the
companys auditors.
SSHS SHARES AND SHAREHOLDING
The reported trading volume of SSH Communications Security Corp shares
for the financial period totaled 8,411,792 shares (valued at EUR
59,425,168.66), meaning that 30.4% of the shares changed hands. The
highest quotation for the financial period was EUR 15.99 and the
lowest was EUR 2.30. The weighted average price during the entire year
was EUR 7.06 and the companys share closed at EUR 3.05 on the final
trading day of the year (December 31, 2001). The fourth quarters
trading volume totaled 1,531,045 shares (valued at EUR 5,121,565.96),
meaning that 5.5% of the shares changed hands at a low of EUR 2.90 and
a high of EUR 4.00.
There were no substantial changes in SSH Communications Security
Corps shareholding during the financial year. Applied Computing
Research Ltd (ACR) still holds 61.4% of the companys shares.
SSHS SHARE CAPITAL DEVELOPMENT
The companys registered share capital on December 31, 2001 was EUR
830,735.55, divided into 27,691,185 shares.
SSHs share capital was increased a total of six times during 2001.
Behind the increases in share capital were new shares subscribed
according to SSHs granted option rights. New SSH shares subscribed on
the basis of the year 1999s option rights totaled 113,061 shares.
Based on these subscriptions the companys share capital rose by EUR
3,391.83. New SSH shares subscribed on the basis of the year 2000s
option rights totaled 125 shares. Based on these subscriptions the
companys share capital rose by EUR 3.75.
SSHs Annual General Meeting of April 19, 2001 authorized the Board to
render a decision prior to April 19, 2002 regarding an increase in
share capital through a rights issue and/or granting of option rights,
or by issuing bonds with warrants or convertible bonds that would
increase the share capital by an amount not to exceed EUR 108,000 as a
consequence of the authorization. As of December 31, 2001, the
authorization had remained unused. The Board of Directors has the
right to depart from the shareholders right for subscription
privilege, if there is from the companys point of view a good
financial reason. Examples include expanding of ownership base,
strengthening of companys capital structure, financing of company
acquisitions and/or arrangements, or incentives for key personnel.
The Annual General Meeting also approved SSHs new stock-option plan,
enabling the company to offer Group personnel a maximum of one million
options. As a result of the share subscriptions based on option
rights, the companys share capital may be increased by a maximum of
EUR 30,000.
PROSPECTS
Economic development in most market areas weakened considerably in
2001. Global information technology markets performance in particular
was weaker than expected. Even if the current economic trend continues
for the time being at a slower rate than in previous years, positive
signs for a global economic recovery in 2002 were discernable at the
beginning of the year. The effects of any promising market activity
are still however extremely difficult to predict. In the company
managements view, the long-term prospects for SSHs products are
still favorable.
In 2002 SSH will invest substantially in boosting the efficiency of
its sales and marketing. The company will concentrate particularly on
the development of its own sales organization as well as selected
sales and distribution channels outside the company. Within a tough
competitive climate, the company is continuing to win over new
customers and continuing to strengthen its market position.
SSH expects the sales of the new products launched in 2001 to increase
noticeably during the year 2002. The companys management estimates
that SSHs net sales growth percentage during 2002 will at least
achieve the level attained in 2001. If markets clearly recover during
2002 and the companys new products obtain secure footholds in their
target markets, SSHs net sales growth could clearly exceed the growth
rate for the previous year. Substantial investments in sales and
marketing will however keep the companys profits negative.
BOARD PROPOSAL TO THE ANNUAL GENERAL MEETING
The company has no distributable earnings. The Board proposes that no
dividend be paid for the financial year 2001 and that the loss be
entered in retained earnings.
CONSOLIDATED INCOME STATEMENT
1-12/2001 1-12/2000
EUR million
Net sales 19.9 15.6
Materials and services -4.6 -1.8
Gross margin 15.2 13.9
Expenses
R&D -8.1 -6.7
Sales & marketing -10.0 -6.5
Administration -5.0 -2.6
Other operating income +1.2 +0.3
Operating result -6.7 -1.7
Financial income and expenses 2.6 0.8
Profit before extraordinary items -4.1 -0.9
Extraordinary items 0.0 -1.6
Profit before taxes -4.1 -2.5
Taxes *) 0.0 0.0
Net profit for the period -4.1 -2.5
* Taxes are proportionate to the net profit for the period.
CONSOLIDATED BALANCE SHEET
Dec. 31, 2001 Dec. 31, 2000
EUR million
ASSETS
Fixed assets
Intangible assets 1.7 0.7
Tangible assets 1.0 1.4
Inventories and current assets
Inventories 1.1 0.0
Current assets
Short-term receivables 8.9 6.1
Cash and cash equivalents 44.6 51.1
Total assets 57.4 59.3
SHAREHOLDERS EQUITY AND LIABILITIES
Shareholders Equity
Share capital 0.8 0.8
Premium fund 54.6 54.6
Retained earnings -1.4 1.1
Net income for the period -4.1 -2.5
Subordinated loans 0.3 0.3
Shareholders Equity total 50.2 54.3
Liabilities
Short-term liabilities
Liabilities total 7.2 5.1
Total Shareholders Equity and
Liabilities 57.4 59.3
CONSOLIDATED CASH FLOW STATEMENT
EUR million
1-12/2001 1-12/2000
Cash flow from operations -4.9 -3.8
Cash flow from investments -1.6 -2.4
Cash flow before financing -6.5 -6.2
Cash flow from financing 0.0 +41.6
Cash flow after financing -6.5 +35.3
FINANCIAL INDICATORS
1-12/2001 1-12/2000
Net sales, EUR million 19.9 15.6
Operating result, EUR million -6.7 -1.7
% of net sales -33.9 -10.7
Profit before extraordinary
items and taxes, EUR million -4.1 -2.5
% of net sales -20.8 -16.0
Return on investment, % -7.1 -2.4
Return on equity, % -7.9 -2.5
Interest-bearing net
liabilities, EUR million -44.4 -50.9
Equity-to-assets ratio, % 90.1 93.0
Net gearing, % -89.0 -94.2
Gross capital expenditure,
EUR million 1.4 2.4
% of net sales 7.0 15.6
Investments, EUR million, 1.6 2.8
% of net sales 8.0 18.4
R&D expenses, EUR million, 8.1 7.1
% of net sales 40.7 45.2
Personnel, on average 182 130
Personnel, period-end 181 172
PER-SHARE DATA
1-12/2001 1-12/2000
Earnings per share,
EUR (undiluted) -0.15 -0.04
Equity per share, EUR 1.82 1.96
Number of shares, average,
during period, 000 27,379 24,101
Number of shares, period-end,
000 27,691 27,578
Share performance, EUR
Average price 7.06 15.84
Lowest 2.30 14.17
Highest 15.99 18.30
Share price, period-end 3.05 15.40
Market capitalization,
period-end, EUR million 84.5 424.7
Volume of shares traded,
million 8.4 2.8
Volume of shares traded,
% of share capital 30.4 10.3
Value of shares traded,
EUR million 59.4 44.7
Price-earnings ratio (P/E) -20.5 -429
CONTINGENT LIABILITIES
Dec. 31, 2001 Dec. 31, 2000
EUR million
Assets pledged
Rental liabilities 1.2 1.2
Leasing liabilities 0.2 0.2
The social expenses from option rights exercised during the financial
period have been registered in the income statement. The potential
social expenses on option rights exercisable in the future would be
EUR 25 910 calculated on the closing price of the companys share at
EUR 3.07. These potential future social expenses have not been
included in the income statement or in the balance sheet.
The figures are unaudited.
SHAREHOLDERS
The companys ten largest shareholders, excluding nominee-registered
shares, on December 31, 2001 were as follows:
Applied Computing Research (ACR) Ltd 61.4%
Mutual Pension Insurance Company Varma-Sampo 2.9%
Kaukonen Kalle 2.5%
Ylönen Tatu 1.9%
Nixu Oy 1.9%
Mutual Pension Insurance Company Ilmarinen 1.7%
Promotion Capital I Ky 1.7%
Mattila Samuli 1.0%
Kivinen Tero 1.0%
Markula Jussi 0.9%
Total 77.0%
Nominee-registered shares 0.2%
FINANCIAL INFORMATION
A briefing on this financial bulletin for analysts and the media will
be presented at the auditorium of SSHs headquarters on the 1st floor,
Fredrikinkatu 42, Helsinki, on Wednesday, February, 2002 at 11:00 a.m.
Entrance at the corner of Fredrikinkatu and Malminkatu.
Interim Report, First quarter April 24, 2002
Interim Report, First two quarters July 31, 2002
Interim Report, First three quarters October 23, 2002
Helsinki, February 13, 2002
SSH COMMUNICATIONS SECURITY CORP
Board of Directors
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.