Helsinki, Finland -
April 19, 2006
SSH interim report for January 1 - March 31, 2006
- Net sales for January-March totaled EUR 2.0 million, up +27 percent
year on year (EUR 1.6 million in Q1/2005)1.
- Operating loss for January-March amounted to EUR -0.6 million (a
loss of -1.9 million in Q1/2005), loss EUR -0.4 million (-1.9
million). The profitability improvement was a result of the growth of
sales and the decrease of expenses.
- During the period, the company concluded agreements with a number of
new customers, the most significant for this quarter being a major
German manufacturing company now using SSH Tectia to secure their IBM
mainframe infrastructure.
- Thanks to growth in tenders, new customers and active new product
evaluations, the year 2006 is expected to continue to show a markedly
better performance compared to 2005.
KEY FIGURES
1-3/ 1-3/ 1-12/
2006 2005 2005
Net sales (MEUR) 2.0 1.6 9.3
Net sales, change % 27.4 -3.8 13.0
Operating profit/loss -0.6 -1.9 -2.6
(MEUR)
% of net sales -31.9 -116.2 -28.5
Operating profit/loss, 65.0 12.3 58.7
change %
Profit/loss before -0.4 -1.9 -2.0
extraordinary items and
taxes (MEUR)
% of net sales -17.8 -115.8 -21.8
Number of employees 82 89 75
at period end
Earnings per share (EUR) -0.01 -0.07 -0.07
Shareholders equity per 0.88 1.20 0.90
share (EUR)
NET SALES
Consolidated net sales for January-March totaled EUR 2.0 million (EUR
1.6 million), up by 27.4% percent, year on year.
During the report period, SSH continued the systematic implementation
of its strategy based on the SSH Tectia solution. SSH Tectia is a data
security 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.
The majority of SSHs invoicing is based on the U.S. dollar. During
the report period, the U.S. dollars average exchange rate was
approximately 9 percent stronger than during the same period a year
ago.
RESULTS AND EXPENSES
Operating loss for January-March amounted to EUR -0.6 million
(Q1/2005: a loss of EUR -1.9 million), with net loss totaling EUR -0.4
million (a loss of EUR -1.9 million).
SSHs fixed costs reported for the period continued their year-on-year
decline, as evidenced by the reduction of approximately EUR 0.8
million in fixed costs from the January-March 2005 level. Payroll
costs were cut by 23 percent and other operating expenses by 22
percent.
Research and development expenses for the report period totaled EUR
0.9 million (EUR 1.0 million), while sales and marketing expenses came
to EUR 1.3 million (EUR 1.9 million) and administrative expenses EUR
0.5 million (EUR 0.5 million).
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 March 31, 2006
stood at EUR 27.7 million (EUR 36.4 million), of which liquid assets
accounted for EUR 24.6 million (EUR 32.9 million), or 89.1 percent of
the balance sheet total. The company has no long-term liabilities.
On March 31, 2006, gearing, or the ratio of net liabilities to
shareholders equity, was -98.7 (-96.9) and the equity ratio stood at
95.3 percent (94.5 percent).
The reported gross capital expenditure for the period totaled EUR 0.1
million (EUR 0.0 million). Reported financial income came mainly from
capital gains on fund shares. Financial income and expenses totaled
EUR +0.3 million, compared with EUR 0.0 million a year ago.
During January-March, SSH reported a positive cash flow of EUR 2.0
million from business operations, whereas investments showed a
positive cash flow of EUR 0.2 million. Cash flow from financing was
zero. Cash flow from operations, investments and financing resulted in
the company showing a positive total cash flow of EUR 2.3 million
during the period.
MARKET DEVELOPMENTS
Legislative reforms concerning data confidentiality and secure data
communication continue causing positive near- and long-term effects in
the markets of our products in the United States, Japan and Europe.
Customers are facing an ever greater challenge in information security
management due to deperimeterization, or the gradual disappearance of
boundaries between companies internal and external information
networks. Large enterprises continue finding it more difficult to
protect their networks and businesses from sophisticated worms and
backdoor-based network attacks, while at the same time the
legislation, industry & inter-company agreements are enforcing much
higher liabilities for data security and risk management.
The SSH Tectia solutions features and management capabilities align
well with these trends and can help the customers to cope with these
rising requirements now and in future.
SSH is confident that legislative reforms, new data security
standards, as well as many new industry and company level data
security development programs will continue to drive the demand
favorably for SSH Tectia.
In SSHs main market area, North America, rules in Section 404 of the
Sarbanes-Oxley Act in the U.S. continue to impact SSHs target
customers data security plans and investment budgets. Other important
regulations that impact the demand for SSHs products are the Gramm-
Leach-Bliley Act for customer financial data security, HIPAA for
patient health record security, as well as the PCI standards of the
major credit card organizations for card holder data security.
In North America, the demand is focused primarily on solutions for
secure remote management connections and file transfers within the
corporate IT infrastructure. A large number of Tectia product
evaluations are now also underway for secure access and file transfers
to IBM Mainframe environments using the new Tectia for z/OS products.
In the European and Asian markets, the new regulations and data
security risks started to become visible in the gradually growing
active sales case base during the second half of 2005. Germany, the
U.K., and the Nordic countries continue to be the most promising
market areas for SSH in Europe, and Japan respectively in Asia.
During January-March, the competitive landscape in the companys
markets continued to develop favorably for SSH Tectia. The new tighter
data security regulations caused customers to re-assess the risks and
hidden costs of their OpenSSH-based deployments, giving many customers
good new reasons to start and/or increase phase-by-phase migration
programs to deploy fully commercially supported products, such as SSH
Tectia.
SALES PERFORMANCE
SSHS NET SALES
EUR million 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 1-12/
2006 2005 2005 2005 2005 2005
BY SEGMENT
AMER 1.2 3.3 1.8 0.8 0.9 6.8
APAC 0.2 0.1 0.2 0.1 0.2 0.7
EROW 0.6 0.7 0.3 0.3 0.5 1.8
SSH Group total 2.0 4.1 2.4 1.2 1.6 9.3
SSH TECTIA BUSINESS
Net sales / license 1.2 3.5 1.7 0.8 1.0 6.8
Sales
Net sales / 0.9 0.6 0.7 0.5 0.6 2.5
maintenance
SSH Tectia total 2.0 4.1 2.4 1.2 1.6 9.3
The active sales case base has grown significantly compared to the
corresponding period a year ago.
The sales process for a system-level IT 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. With the sales processes with major
customers being particularly slow, coupled with 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 59.9 percent (55.9 percent), 11.7
percent (13.3 percent) and 28.4 percent (30.8 percent) of reported net
sales, respectively.
During the report period, SSH concluded a number of new customer
agreements, two of which were each worth more than EUR 100,000. The
ten largest customers accounted for 31 percent of reported net sales,
with the largest single customer accounting for approximately 6
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.
As several new regulations and related data security audits continue
to solidify our customers plans and requirements, SSH has been able
to develop and 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, and now also SAP in
Germany, have also generated good responses from target customers in
Germany and the U.K, and other markets.
SSH started to deliver the new-generation Secure Shell products 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. During the reporting period
the largest single order came from a large German industrial company,
and it comprised SSH Tectia for large IBM mainframe infrastructure.
RESEARCH AND DEVELOPMENT
Research and development expenses for January-March totaled EUR 0.9
million (EUR 1.0 million), the equivalent of 42.4 percent of net sales
(61.6 percent).
At the end of September, the company held 11 patents, and 12 were
pending.
HUMAN RESOURCES AND ORGANIZATION
At the end of March, the Group had 82 employees on its payroll, down 7
from the previous year, a decrease of 7.8 percent.
At the end of the period, 46.3 percent of the employees worked in R&D,
39.0 percent in sales and marketing, and 14.6 percent in corporate
administration.
BOARD AND AUDITORS
The Annual General Meeting (AGM) on March 21, 2006, 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 4,515,628 (valued at EUR 6,947,520.53); i.e. 15.97
percent of the shares changed hands. The highest quotation was EUR
1.71 and the lowest EUR 1.24. The trade-weighted average share price
for the period was EUR 1.54, and the share closed at EUR 1.71 (March
31, 2006).
There were no substantial changes in SSH Communications Security
Corp.s shareholding during the report period. Tatu Ylönen and Tero
Kivinen are the largest shareholders. The former holds, directly and
through his company, Tatu Ylönen Oy, 53.4 percent of the companys
shares, and Kivinen holds 6.7 percent. More information about the
shareholding can be obtained from the company´s Web site. There were
no changes in the group structure during the period.
SHARE CAPITAL AND BOARD AUTHORIZATIONS
The companys registered share capital on March 31, 2006 was EUR
848,064.39, consisting of 28,268,813 shares. During the report period,
no changes of share capital occurred.
The SSH Annual General Meeting of March 21, 2006 authorized the Board
of Directors to decide by March 21, 2007, to increase the share
capital through a rights issue and/or convertible bonds and/or issue
share options, in such a way that the resultant share capital may
increase by a maximum of EUR 165,000. The Board has not yet exercised
this authorization.
The SSH Annual General Meeting also approved the proposal of the Board
of Directors for the reduction of the share premium fund and the
partial distribution of the amount to the shareholders. The reduction
will come into effect on the day of the authorization by the National
Board of Patents and Registration. After the permission has been
received, the Board of Directors is authorized to decide on the record
date of the distribution of the assets and the date of the payment.
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.
The execution of our SSH Tectia strategy has now a good start. The
large orders during the 2nd half of 2005 validated the suitability of
SSH Tectia for the most demanding target customers.
Our backlog of active large sales cases is now remarkably larger than
year ago. Reinforced by the large number of active customer
evaluations underway of our IBM Mainframe and other new 2005 products
introduced in 2005, good growth prospects are available to us in 2006.
As 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 our North American customers to increase their
investments in internal data security will gradually spread in phases
to our target customer base in Germany, the U.K. and Japan.
Due to the large size of individual orders and uncertainty of timing,
the actual quarterly revenue may vary substantially, although the
growth of the sales prospect base partially can help compensate the
impact of single large orders within a quarter.
INCOME STATEMENT
EUR million 1-3/ 1-3/ 1-12/
2006 2005 2005
Net sales 2.0 1.6 9.3
Purchasing and production 0.0 0.0 -0.1
costs
Gross profit 2.0 1.6 9.2
Other operating income 0.0 0.0 0.2
Expenses
Product development -0.9 -1.0 -3.4
Sales and -1.3 -1.9 -6.7
marketing
Administration -0.5 -0.5 -1.9
Operating profit/loss -0.6 -1.9 -2.6
Financial income and expenses 0.3 0.0 0.6
Profit/loss before taxes -0.4 -1.9 -2.0
a Taxes 0.0 0.0 0.0
Net profit/loss for the -0.4 -1.9 -2.0
period
a) Taxes are proportionate to the net profit for the period, and no
deferred tax assets are recorded for the accrued loss.
01-03/ 01-03/ 1-12/
2006 2005 2005
Earnings per share (EUR) -0.01 -0.07 -0.07
Earnings per share, diluted -0.01 -0.06 -0.07
(EUR)
BALANCE SHEET
EUR million 3/31/ 3/31/ 12/31/
2006 2005 2005
ASSETS
Fixed and other non-current
assets
Tangible assets 0.2 0.4 0.2
Intangible assets 0.5 0.8 0.6
Deferred tax assets 0.2 0.2 0.2
Total fixed and other 0.9 1.4 1.0
non-current assets
Inventories and current
assets
Short-term receivables 2.1 2.0 5.6
Short-term investments 20.9 31.1 21.1
Cash and cash equivalents 3.7 1.8 1.4
Total inventories and current 26.7 35.0 28.1
assets
Total assets 27.7 36.4 29.1
LIABILITIES AND SHAREHOLDERS
EQUITY
Shareholders equity 24.9 33.7 25.4
Long-term liabilities
Provisions 0.1 0.3 0.1
Long-term financial 0.0 0.3 0.0
liabilities
Total long-term liabilities 0.1 0.7 0.2
Short-term liabilities 2.6 2.0 3.5
Total liabilities and 27.7 36.4 29.1
shareholders equity
CASH FLOW STATEMENT
EUR million 1-3/ 1-3/ 1-12/
2006 2005 2005
Cash flow from business operations 2.0 -1.1 -3.5
Cash flow from investments 0.2 0.5 10.9
Cash flow from financing 0.0 0.0 -8.4
Increase(+) / decrease (-) in 2.3 -0.6 -1.0
liquid assets
Liquid assets at period start 1.4 2.4 2.4
Adjustment for translation 0.0 0.0 0.1
difference
Liquid assets at period end 3.7 1.8 1.4
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 0.8 24.4 15.1 -0.8 -4.2 35.4
equity
Jan. 1, 2005
Change 0.0 0.0 0.2 0.0 -1.9
Shareholders 0.8 24.4 15.3 -0.8 -6.1 33.7
equity
Mar. 31, 2005
Change 0.0 0.0 0.0 0.1 -8.3
Shareholders 0.8 24.4 15.3 -0.7 -14.4 25.4
equity
Dec. 31, 2005
Change 0.0 0.0 -0.1 0.0
Net loss -0.4
Shareholders 0.8 24.4 15.2 -0.7 -14.8 24.9
equity
Mar. 31, 2006
NET SALES BY SEGMENT
EUR million 1-3/ 1-3/ 1-12/
2006 2005 2005
AMER 1.2 0.9 6.8
APAC 0.2 0.2 0.7
EROW 0.6 0.5 1.8
SSH Group total 2.0 1.6 9.3
OPERATING PROFIT/LOSS
BY SEGMENT
EUR million 1-3/ 1-3/ 1-12/
2006 2005 2005
AMER 0.5 0.2 3.5
APAC 0.1 0.1 0.2
EROW 0.1 -0.3 -0.8
Common Group expenses* -1.4 -1.9 -5.5
SSH Group total -0.6 -1.9 -2.6
* Common Group expenses include Group administration expenses (e.g.,
management and finance) and product management and R&D expenses for
corporate headquarters.
KEY FIGURES AND RATIOS
1-3/ 1-3/ 1-12/
2006 2005 2005
Net sales (MEUR) 2.0 1.6 9.3
Operating profit/loss (MEUR) -0.6 -1.9 -2.6
Operating profit/loss, as % of -31.9 -116.2 -28.5
net sales
Profit/loss before extraordinary -0.4 -1.9 -2.0
items and taxes (MEUR)
Profit/loss before extraordinary -17.8 -115.8 -21.8
items and taxes, as % of net
sales
Profit/loss before taxes (MEUR) -0.4 -1.9 -2.0
Profit/loss before taxes, as -17.8 -115.8 -21.8
% of net sales
Return on investment (%) -6.4
Return on equity (%) -6.6
Interest-bearing net liabilities -24.6 -32.6 -22.5
(MEUR)
Equity ratio (%) 95.3 94.5 92.8
Gearing (%) -98.7 -96.9 -88.4
Gross capital expenditure (MEUR) 0.1 0.0 0.1
% of net sales 2.9 1.8 0.9
R&D expenses (MEUR) 0.9 1.0 3.4
% of net sales 42.4 61.6 36.8
Personnel, period average 78 94 83
Personnel, period end 82 89 75
PER-SHARE DATA
1-3/ 1-3/ 1-12/
2006 2005 2005
Earnings per share, undiluted -0.01 -0.07 -0.07
(EUR)
Earnings per share, diluted -0.01 -0.06 -0.07
(EUR)
Equity per share (EUR) 0.88 1.20 0.90
No. of shares at period end 28,269 28,107 28,269
(thousands)
Share performance (EUR)
Average price 1.54 1.37 1.23
Low 1.24 1.13 0.91
High 1.71 1.59 1.78
Share price, period end 1.71 1.55 1.23
Market capitalization, period 48.3 43.6 34.8
end (MEUR)
Volume of shares traded 4.5 3.7 11.4
(in millions)
Volume of shares traded, as 16.0 13.1 40.5
% of total
Value of shares traded, in 6.9 5.1 14.0
millions of euros
Price-to-earnings ratio (P/E) - - -
CONTINGENT LIABILITIES
EUR million 03/31 03/31 12/31
2006 2005 2005
Rental liabilities 0.2 0.2 0.2
Leasing liabilities 0.2 0.1 0.1
Other contingent liabilities 0.7 0.6 0.7
Currency derivatives (not
included in hedge accounting)
Fair value 0.0 0.0 0.0
Nominal value 0.0 0.7 6.0
This interim report has been compiled observing IAS 34 (Interim
Financial Reporting) accounting standard. The same accounting
principles have been used in the interim report as in the financial
statement for 2005. These data are based on unaudited figures.
FINANCIAL REPORTING
The company will hold a briefing on its interim report for equity
analysts and the media in World Trade Center´s meeting facilities, 2nd
floor, cabinet no. 5, address Aleksanterinkatu 17, 00100 Helsinki
on Wednesday, April 19, 2006, starting at 11:00 a.m.
SSH Communications Security Corp will release its next interim report
and financial statements for January 1-June 30, 2006 on 26 July 2006.
Further information will be available on the companys Web site
(http://www.ssh.com).
Helsinki, on April 19, 2006
SSH COMMUNICATIONS SECURITY CORP
Board of Directors
Arto Vainio
CEO
Investor Relations/CFO
Mika Peuranen
Tel: +358 20 500 7419
E-mail: 
© 2006 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.