Helsinki, Finland -
February 8, 2006
SSH Financial Statements Bulletin January 1 -December 31, 2005
- Net sales for January-December totaled EUR 9.3 million, up 13.0
percent year on year (EUR 8.2 million in 2004).
- Fourth-quarter net sales came to EUR 4.1 million, up +74.6 percent
on the previous quarter and +115.86 percent on a year earlier.
- Operating loss for January-December amounted to EUR 2.67 million (a
loss of EUR 6.4 million). Fourth-quarter operating profit was EUR 1.0
million, while net profit totaled EUR 1.0 million.
- New data security regulations concerning large enterprises helped
increase the sales of SSH Tectia products during the second half of
2005 and made the expected breakthrough to profitability.
- Thanks to growth in tenders, new customers and new products, the
year 2006 is expected to show a markedly better performance compared
to 2005
Key figures
10-12/ 10-12/ 1-12/ 1-12/
2005 2004 2005 2004
Net sales, EUR million 4.1 1.9 9.3 8.2
Net sales, change % 115.8 -33.1 13.0 -40.6
Operating profit/loss, EUR 1.0 -1.7 -2.6 -6.4
million
% of net sales 25.3 -90.0 -28.5 -77.8
Operating profit/loss, 160.7 -118.4 58.6 -223.7
change %
Profit/loss before 1.0 -1.7 -2.0 -5.9
extraordinary items and
taxes, EUR million
% of net sales 24.8 -88.0 -21.7 -71.2
Number of employees 75 105 75 105
at period-end
Earnings per share, EUR -0.07 -0.21
Shareholders 0.90 1.26
equity/share, EUR
NET SALES
Consolidated net sales for January-December totaled EUR 9.3 million
(EUR 8.2 million), up by 13.0 percent, year on year.
Fourth-quarter net sales were EUR 4.1 million, showing a year-on-year
improvement of 115.8 percent.
During the report period, SSH continued the systematic implementation
of its strategy based on the SSH Tectia solution, primarily aimed at
large enterprises, financial institutions, and government agencies,
with almost all of its sales reported for the period stemming from
these customer categories.
Since the majority of SSHs invoicing is based on the U.S. dollar, the
dollars exchange rate has a fundamental effect on consolidated net
sales. During 2005, the U.S. dollars average exchange rate had no
significant difference to the year 2004.
RESULTS AND EXPENSES
Operating loss for January-December amounted to EUR 2.6 million (2004:
a loss of EUR 6.4 million), with net loss totaling EUR 2.0 million (a
loss of EUR 5.9 million).
Operating profit for the fourth quarter amounted to EUR 1.0 million (a
loss of EUR 1.7 million), while net profit improved to EUR 1.0 million
(a loss of EUR 1.7 million).
SSHs fixed costs reported for the period continued their year-on-year
decline, as evidenced by the reduction of approximately about EUR 2.7
million in fixed costs from the January-December 2004 level. About 30
percent of this overall reduction resulted from cuts in payroll costs
and 70 percent from decreases in other operating expenses. The
relocation of the companys headquarters from Helsinki city center to
Pitäjänmäki reduced annual rental costs by EUR 0.3 million beginning
in the third quarter.
Research and development expenses for the report period totaled EUR
3.4 million (EUR 3.8 million), while sales and marketing expenses came
to EUR 6.7 million (EUR 8.5 million) and administrative expenses EUR
1.9 million (EUR 2.4 million).
Fourth-quarter research and development expenses totaled EUR 0.8
million, compared with EUR 0.9 million a year earlier. Sales and
marketing expenses in Q4 came to EUR 1.9 million (EUR 2.2 million),
and administrative expenses totaled EUR 0.4 million (EUR 0.6 million).
Since January 1, 2005, SSH has applied IFRS 2 (Share-based Payment) to
its stock options, which were granted after November 7, 2002, and had
not vested prior to January 1, 2005. IFRS 2s effect on the 2004
comparatives is insignificant.
The parent company has recognized an impairment loss at EUR 4.5
million of its receivables from SSH Inc, a wholly owned subsidiary.
The entry has no effect in the consolidated financial statements.
BALANCE SHEET AND FINANCIAL POSITION
The financial position of SSH remained at a healthy level during the
report period. The consolidated balance sheet total on December 31,
2005 stood at EUR 29.1 million (EUR 38 million), of which liquid
assets accounted for EUR 22.5 million (EUR 33.9 million), or 77
percent of the balance sheet total. The group has no long-term
liabilities.
In May 2005, SSH paid out EUR 8.1 million in dividends.
On December 31, 2005, gearing, or the ratio of net liabilities to
shareholders equity, was -88.4 (-94.8) and the equity ratio stood at
92.8 percent (94.8 percent).
The reported gross capital expenditure for the period totaled EUR 0.1
million (EUR 0.5 million), consisting mainly of equipment purchases.
Reported financial income came mainly from capital gains on fund
shares. Financial income and expenses totaled EUR 0.6 million,
compared with EUR 0.5 million a year ago.
During January-December, SSH reported a negative cash flow of EUR 3.2
million from business operations, whereas investments showed a
positive cash flow of EUR 10.3 million. Cash flow from operations,
financing, and the EUR -8.2 million comprised dividends paid in May,
resulted in the company showing a negative total cash flow of EUR 1.0
million during the period.
MARKET DEVELOPMENTS
The number of invitations to tender from, and projects pending among,
SSHs customers - large enterprises, financial institutions and
government agencies - continued significant growth in the report
period.
Legislative reforms concerning data confidentiality and secure data
communication are occurring in the United States, Japan and Europe.
Customers are facing an ever greater challenge in terms of information
security management due to deperimeterization, or the gradual
disappearance of boundaries between companies internal and external
information networks. Recent surveys conclude that large enterprises
are finding it more difficult to protect their networks and businesses
from sophisticated worms and backdoor-based network attacks, while at
the same time, new regulations and audit requirements increase
significantly companies and their officers responsibilities for data
security and risk management.
SSH Tectias features and management capabilities align well with
these trends and resulting requirements. SSH is confident that both
customers own internal data security programs and legislative reforms
will continue driving the growth of demand for all SSH Tectia
products.
We have noticedbelieve that the data security models and policies of
our largest customers in the USA will start spreading in phases to
Europe and Asia, expanding in this way the demand for our products in
all markets. Secure remote management of the IT infrastructure, secure
file transfers and protection of critical business applications will
continue demanding significant new investments in 2006 and coming
years all over the world.
The IETF (Internet Engineering Task Force), the body that governs the
Internet standardization, recently announced that Secure Shell
protocol specifications have reached Proposed Standard status. SSH is
the original developer of the Secure Shell technology. This is a
significant milestone for us, as SSH Tectia is based on the Secure
Shell technology, and the standardization promotes much wider use for
all product based on Secure Shell.
In SSHs main market area, North America, demand focused primarily on
solutions for secure remote management of network servers and various
kinds of data communication equipment. SSH Tectia Manager is now
included in practically all new major SSH Tectia installations and
upgrades of earlier installations. In addition, rules in Section 404
of the Sarbanes-Oxley Act in the U.S. have begun to increase SSHs
target customers data security plans and the related investment plans
and budgets.
From SSHs viewpoint, the European customers continue to pursue a very
cautious investment policy, although the pressures of the new data
security regulations and risks became visible in the growing active
sales case base during the second half of 2005. Product launches made
by SSH in early 2005 have attracted growing interest in the SSH Tectia
solution in Europe, with Germany, the U.K., and the Nordic countries
continuing to be the most promising market areas for SSH.
In Japan, a new law on the distribution and storage of personal data
is expected to increase both public and private sector investments in
data security.
There were no major changes in competition in the market for secure
remote management solutions during the report period.
During 2005 development of the competition in the markets developed
favorably for SSH Tectia. The new tighter data security regulations
caused many customers to re-assess the risk and hidden costs of their
OpenSSH -based deployments. This gave reasons to many customers to
start phase-by-phase migration programs to deploy fully commercially
supported products, such as SSH Tectia.
SALES PERFORMANCE
SSHS NET SALES
EUR million 10-12/ 7-9/ 4-6/ 1-12/ 10-12/ 1-12/
2005 2005 2005 2005 2004 2004
BY SEGMENT
AMER 3.3 1.8 0.8 6.8 1.4 5.7
APAC 0.1 0.2 0.1 0.7 0.2 0.6
EROW 0.7 0.3 0.3 1.8 0.3 2.0
SSH Group 4.1 2.4 1.2 9.3 1.9 8.2
total
SSH TECTIA
BUSINESS
Net sales / 3.5 1.7 0.8 6.8 1.4 6.2
license
Sales
Net sales / 0.6 0.7 0.5 2.5 0.5 2.0
maintenance
SSH Tectia total 4.1 2.4 1.2 9.3 1.9 8.2
The sales process for a system-level product for major customers is a
long one. In line with its strategy, SSH aims at a major increase in
the average size of contracts. Due to sales processes with major
customers being particularly slow and substantial growth occurring in
the size of future contracts, the future is likely to see major
fluctuations in sales from quarter to quarter.
The Americas, the Asia Pacific region, and the Europe and Rest of the
World market area accounted for 73 percent (70 percent), 8 percent (7
percent) and 19 percent (23 percent) of reported net sales,
respectively.
During the report period, SSH concluded a number of new customer
agreements, ten of which were each worth more than EUR 100,000, with
three completed in the fourth quarter. The ten largest customers
accounted for 4135 percent of reported net sales, with the largest
single customer accounting for approximately 22 percent.
PRODUCTS AND MARKETING
During the report period, SSH focused its sales and marketing efforts
on large enterprises, financial institutions, and government agencies
in the U.S., Europe, and Asia, in line with its long-term strategy.
The company strengthened its sales organization by reinforcing its
partner network complementing the SSH Tectia solution.
During the year 2005, as several new regulations began to solidify our
customers plans and requirements, SSH was able to execute several
specific marketing and product programs to satisfy the needs of the
growing demand. Successfully validated new product deployments by our
largest US customers have also generated good responses from target
customers in Germany and the U.K.
SSH started to deliver the new-generation Secure Shell products
launched early in 2005. The companys new Tectia Secure Shell product
for the IBM mainframe environment made SSH Tectia the most extensive
integrated Secure Shell-based solution on the market. In September,
SSH secured the first major deal comprising the new IBM mainframe
products, and by the end of the year received additional orders from
four different customers for the IBM mainframe products.
2005 marked the 10th anniversary of the Secure Shell technology
developed by SSH - Tatu Ylönen launched the first version of the
Secure Shell protocol on July 12, 1995. The Secure Shell protocol is
the basis of the SSH Tectia solution.
RESEARCH AND DEVELOPMENT
Research and development expenses for January-December totaled EUR 3.4
million (EUR 3.8 million), the equivalent of 36.8 percent of net sales
(46.4 percent).
R&D expenses capitalized during the report period totaled EUR 0.09
million. These expenses related to the commercialization of the SSH
Tectia Server (M) solution.
At the end of September, the company held 11 patents and 12 were
pending.
HUMAN RESOURCES AND ORGANIZATION
At the end of December, the Group had 75 employees on its payroll,
down by 30 from the previous years number, a decrease of 28.6
percent.
At the end of the period, 44.0 percent of the employees worked in R&D,
41.3 percent in sales and marketing, and 14.7 percent in corporate
administration.
BOARD AND AUDITORS
The Annual General Meeting (AGM) on April 26, 2005, re-elected Tapio
Kallioja, Tomi Laamanen, Timo Ritakallio and Tatu Ylönen to SSH
Communications Security Corp.s Board of Directors, with Laamanen re-
elected as chairman.
The AGM again elected to have PricewaterhouseCoopers Oy, authorized
public accountants, as the companys auditor, with Henrik Sormunen,
authorized public accountant, acting as the principal auditor.
SHARES, SHAREHOLDING AND CHANGES IN GROUP STRUCTURE
The reported trading volume of SSH Communications Security Corp.
shares totaled 11,446,877 (valued at EUR 14,006,051.89); i.e. 40.49
percent of the shares changed hands. The highest quotation was EUR
1.78 and the lowest EUR 0.91. The trade-weighted average share price
for the period was EUR 1.23, and the share closed at EUR 1.23
(December 30, 2005).
There were no substantial changes in SSH Communications Security
Corp.s shareholding information during the report period. Tatu Ylönen
and Tero Kivinen are the largest shareholders. The former holds,
directly and through his company, Tatu Ylönen Oy, 53.5 percent of the
companys shares, and Kivinen holds 6.8 percent. Further information
on the shares and shareholding can be found at www.ssh.com. There were
no changes in the group structure during the period.
SHARE CAPITAL AND BOARD AUTHORIZATIONS
The companys registered share capital on December 31, 2005 was EUR
848,064.39, consisting of 28,268,813 shares. During the report period,
SSH increased its share capital five times, based on subscription to
the new shares under SSHs stock-option plan. In total, 126,750 new
SSH shares were subscribed to under the I/1999 stock-option plan,
39,521 shares under the I/2003 stock-option plan, and 1,000 shares
under the II/2003 stock-option plan, respectively. With these
subscriptions the companys share capital was increased by EUR
5,018.13.
The SSH Annual General Meeting of April 26, 2005 authorized the Board
of Directors to decide by April 26, 2006, to increase the share
capital through a rights issue and/or convertible bonds, in such a way
that the resultant share capital may increase by a maximum of EUR
165,000. The Board did not exercise this authorization.
CORPORATE GOVERNANCE
The company complies with the corporate governance recommendations for
listed companies issued by HEX Ltd., the Central Chamber of Commerce
of Finland, and the Confederation of Finnish Industry and Employers.
More information on corporate governance is available on the companys
Web site (www.ssh.com).
PROSPECTS
Thanks to growth in tenders, new customers and new products, the year
2006 is expected to show a markedly better performance compared to
2005. SSH aims to be a profitable company in 2006. Thanks to growth in
tenders, new customers and new products, SSH expects good financial
results in the year 2006.
The large initial development programs for the execution of our new
strategy to create the new SSH Tectia business have now been
essentially completed. The execution of our new SSH Tectia strategy in
has now a good start. With the growth of sales in the second half of
2005, we are beginning the profitable growth phase of our new
business. The recent large orders in the US and Europe mark the
validation of the SSH Tectia breakthrough to profitability and verify
the suitability of the solution for the most demanding large target
customers.
Our backlog of active large sales cases is now remarkably larger than
year ago and continues to grow. Accordingly, good growth prospects are
available to us in 2006 and beyond. As the new regulations and risks
continue driving our customers to increase their investments for
better data security, we expect to see continued growth of the demand
in all markets. We also believe that the trends driving the need for
increasing internal data security in large enterprises will continue
to grow, and will spread in phases to all our target customers in USA,
Germany, the U.K. and Japan.
SSH aims to clearly profitable financial results from its business
operations in 2006. This will be achieved by growing SSH Tectia sales
and managing costs in line with the turnaround achieved during the
second half of 2005.
Due to the large size of individual orders and uncertainty of timing,
the actual quarterly revenue may vary substantially, although the
management of the active sales prospect base will help compensate for
the impact of single large orders within a quarter.
BOARD PROPOSALS TO THE ANNUAL GENERAL MEETING
BOARD PROPOSALS FOR PROFIT/LOSS AND DISTRIBUTION OF CAPITAL TO
SHAREHOLDERS
The board of directors proposes to the annual general meeting that no
dividend be distributed. It is proposed that the loss of the financial
year shall be entered to the shareholders equity. The board will also
give a proposal to decrease the share premium fund and distribute the
funds partly to the shareholders. The entire proposals of the board of
directors will be issued as a separate announcement.
INCOME STATEMENT
EUR million 10-12/ 10-12/ 1-12/ 1-12/
2005 2004 2005 2004
Net sales 4.1 1.9 9.3 8.2
Purchasing and production 0.0 -0.1 -0.1 -0.1
costs
Gross profit 4.1 1.9 9.2 8.1
Other operating income 0.1 0.1 0.2 0.3
Expenses
Product development -0.8 -0.9 -3.4 -3.8
Sales and -1.9 -2.2 -6.7 -8.5
marketing
Administration -0.4 -0.6 -1.9 -2.4
Operating profit/loss 1.0 -1.7 -2.6 -6.4
Financial income and 0.0 0.0 0.6 0.5
expenses
Profit/loss before taxes 1.0 -1.7 -2.0 -5.9
a Taxes 0.0 0.0 0.0 0.0
Net profit/loss for the 1.0 -1.7 -2.0 -5.9
period
a) Taxes are proportionate to the net profit for the period, and no
deferred tax assets are recorded for the accrued loss.
1-12/ 1-12/
2005 2004
Earnings per share (EUR) -0.07 -0.21
Earnings per share, diluted -0.07 -0.21
(EUR)
BALANCE SHEET
EUR million 12/31/ 12/31/
2005 2004
ASSETS
Fixed and other non-current assets
Tangible assets 0.2 0.4
Intangible assets 0.6 0.9
Deferred tax assets 0.2 0.2
Total fixed and other 1.0 1.6
non-current assets
Inventories and current assets
Short-term receivables 5.6 2.6
Short-term investments 21.1 32.3
Cash and cash equivalents 1.4 1.5
Total inventories and current assets 28.1 36.4
Total assets 29.1 38.0
LIABILITIES AND SHAREHOLDERS EQUITY
Shareholders equity 25.4 35.4
Long-term liabilities
Provisions 0.1 0.2
Long-term financial 0.0 0.3
liabilities
Total long-term liabilities 0.2 0.6
Short-term liabilities 3.5 2.0
Total liabilities and shareholders equity 29.1 38.0
STATEMENT ON CHANGES IN
SHAREHOLDERS EQUITY
EUR million Share Issue Fair Transl Retained Total
capital premium value ation earnings
fund* and differ
other ence
reserves
Shareholders 0.80.8 39.339.3 0.00.0 -0.7- 1.71.7 41.14
equity 0.7 1.1
Jan. 1, 2004
Change 0.0 -14.9 15.1 -0.1 -5.9
Shareholders 0.8 24.4 15.1 -0.8 -4.2 35.4
equity
Dec. 31, 2004
Shareholders 0.8 24.4 15.1 -0.8 -4.2 35.4
equity
Jan. 1, 2005
Change 0.0 0.0 0.1 0.1 -8.1
Net loss -2.0
Shareholders 0.8 24.4 15.2 -0.8 -14.4 25.4
equity
Dec. 31, 2005
* Transfer to the retained loss account has resulted in a reduction in
the issue premium fund.
CASH FLOW STATEMENT
EUR million 1-12/ 1-12/
2005 2004
Cash flow from business operations -3.2 -2.6
Cash flow from investments 10.3 -2.6
Cash flow from financing -8.2 0.1
Increase(+) / decrease (-) in -1.0 -5.1
liquid assets
Liquid assets at period start 2.4 7.6
Adjustment for translation 0.1 0.0
difference
b Liquid assets at period end 1.5 2.4
b)bbbb) Classifications in the cash flow statement have been changed
in such a way that investment in interest-bearing funds is no longer
reported in liquid assets. Comparatives have been amended accordingly.
NET SALES BY SEGMENT
EUR million 10-12/ 10-12/ 1-12/ 1-12/
2005 2004 2005 2004
AMER 3.3 1.4 6.8 5.7
APAC 0.1 0.2 0.7 0.6
EROW 0.7 0.3 1.8 2.0
SSH Group total 4.1 1.9 9.3 8.2
OPERATING PROFIT/LOSS BY
SEGMENT
EUR million 10-12/ 10-12/ 1-12/ 1-12/
2005 2004 2005 2004
AMER 2.2 0.7 3.5 2.1
APAC 0.1 0.1 0.2 0.2
EROW -0.1 -1.5 -0.8 -1.6
Common Group expenses* -1.2 -1.0 -5.5 -7.1
SSH Group total 1.0 -1.7 -2.6 -6.4
* Common Group expenses include group administration, and product
management and R&D expenses at the corporate headquarters.
KEY FIGURES AND RATIOS
1-12/ 1-12/
2005 2004
Net sales (MEUR) 9.3 8.2
Operating profit/loss (MEUR) -2.6 -6.4
Operating profit/loss, as % of -28.5 -77.8
net sales
Profit/loss before extraordinary -2.0 -5.9
items and taxes (MEUR)
Profit/loss before extraordinary -21.7 -71.2
items and taxes, as % of net
sales
Profit/loss before taxes (MEUR) -2.0 -5.9
Profit/loss before taxes, as -21.7 -71.2
% of net sales
Return on investment (%) -6.4 -13.6
Return on equity (%) -6.6 -15.4
Interest-bearing net liabilities -22.5 -33.5
(MEUR)
Equity ratio (%) 92.8 94.8
Gearing (%) -88.4 -94.8
Gross capital expenditure (MEUR) 0.1 0.5
% of net sales 1.0 5.6
R&D expenses (MEUR) 3.4 3.8
% of net sales 37.0 46.7
Personnel, period average 83 105
Personnel, period end 75 105
PER-SHARE DATA
1-12/ 1-12/
2005 2004
Earnings per share, undiluted -0.07 -0.21
(EUR)
Earnings per share, diluted -0.07 -0.21
(EUR)
Equity per share (EUR) 0.90 1.26
No. of shares at period end 28 269 28 102
(thousands)
Share performance (EUR)
Average price 1.23 1.69
Low 0.91 1.18
High 1.78 2.69
Share price, period end 1.23 1.28
Market capitalization, period 34.8 36.0
end (MEUR)
Volume of shares traded 11.4 9.3
(in millions)
Volume of shares traded, as 40.5 33.3
% of total
Value of shares traded, in 14.0 15.8
millions of euros
Price-to-earnings ratio (P/E) -17.2 -6.1
CONTINGENT LIABILITIES
EUR million 12/31/ 12/31/
2005 2004
Rental liabilities 0.2 0.1
Leasing liabilities 0.1 0.1
Other contingent liabilities 0.7 0.6
Currency derivatives (not
included in hedge accounting)
Fair value 0.0 0.0
Nominal value 6.0 2.2
FINANCIAL REPORTING
The company will hold a briefing on its financial statements for
analysts and the media today starting at 11:00 am, in Hotel Scandic
Marski, meeting room Filip 1, 2nd floor, address Mannerheimintie 10,
00100 Helsinki.
SSH Communications Security Corp will release its next interim report
for January 1-March 31, 2006 on April 19, 2006. Further information on
the companys financial reporting is available on the companys
website (http://www.ssh.com).
Helsinki, on February 8th, 2006
SSH COMMUNICATIONS SECURITY CORP
Board of Directors
Arto Vainio
CEO
Investor Relations/CFO
Mika Peuranen
Tel: +358 20 500 7419
E-mail: 
© 2005 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.