Helsinki, Finland -
July 26, 2006
SSH interim report for January 1 – June 30, 2006
SSH COMMUNICATIONS SECURITY CORP STOCK EXCHANGE RELEASE
July 26, 2006, at 9:00 a.m.
SSH INTERIM REPORT FOR JANUARY 1 - JUNE 30, 2006
- Net sales for January-June totaled EUR 4.4 million, up 54.4 percent
year on year (EUR 2.8 million in Q1-Q2/2005).
- Second-quarter net sales came to EUR 2.3 million, up 89.6% on a year
earlier (EUR 1.2 million in Q2/2005).
- Operating loss for January–June amounted to EUR -0.9 million (a loss
of -3.5 million in Q1-Q2/2005), loss EUR -0.5 million (-3.1 million).
Second-quarter operating loss was EUR -0.3 million and net loss was
EUR -0.2 million.
- During the second quarter three major banks and a very large retail
chain chose SSH Tectia for wide deployment and concluded multi-year
frame agreements with SSH.
- Thanks to growth in tenders, new customers, and new products, SSH
expects 2006 sales and results to be better than those of the previous
year.
KEY FIGURES
4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2006 2005 2006 2005 2005
Net sales (MEUR) 2.3 1.2 4.4 2.8 9.3
Net sales, change % 89.6 -52.1 54.4 -33.1 13.0
Operating profit/loss -0.3 -1.6 -0.9 -3.5 -2.6
(MEUR)
% of net sales -12.5 -134.8 -21.5 -124.2 -28.5
Operating profit/loss, 82.5 2.3 73.2 7.9 58.7
change %
Profit/loss before -0.2 -1.2 -0.5 -3.1 -2.0
extraordinary items and
taxes (MEUR)
% of net sales -8.0 -100.8 -12.6 -109.4 -21.8
Number of employees 85 81 85 81 75
at period end
Earnings per share (EUR) -0.02 -0.11 -0.07
Shareholders’ equity per 0.88 0.86 0.90
share (EUR)
NET SALES
Consolidated net sales for January-June totaled EUR 4.4 million (EUR
2.8 million), up by 54.4% percent, year on year. Net sales for the
second quarter totaled EUR 2.3 million, an increase of 89.6% compared
to the corresponding quarter for year 2005.
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 SSH’s invoicing is based on the U.S. dollar. During
the report period, the U.S. dollar’s average exchange rate was
approximately 4 percent weaker than during the same period a year ago.
RESULTS AND EXPENSES
Operating loss for January–June amounted to EUR –0.9 million (Q1-
Q2/2005: a loss of EUR –3.5 million), with net loss totaling EUR –0.5
million (a loss of EUR –3.1 million). Operating loss for the second
quarter totaled EUR –0.3 million (a loss of EUR –1.6 million), with
net loss amounting to EUR –0.2 million (a loss of EUR –1.2 million).
SSH’s fixed costs reported for the period continued their year-on-year
decline, as evidenced by the reduction of approximately EUR 1.0
million in fixed costs from the January–June 2005 level. Payroll costs
were cut by 13 percent and other operating expenses by 19 percent.
Research and development expenses for the report period totaled EUR
1.7 million (EUR 1.9 million), while sales and marketing expenses came
to EUR 2.9 million (EUR 3.5 million) and administrative expenses EUR
0.8 million (EUR 1.1 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 June 30, 2006
stood at EUR 27.6 million (EUR 26.3 million), of which liquid assets
accounted for EUR 23.9 million (EUR 23.3 million), or 86.5 percent of
the balance sheet total. The company has no long-term liabilities.
On June 30, 2006, gearing, or the ratio of net liabilities to
shareholders’ equity, was –96.4 (-95.8) and the equity ratio stood at
95.2 percent (94.9 percent).
The reported gross capital expenditure for the period totaled EUR 0.1
million (EUR 0.1 million). Reported financial income came mainly from
capital gains on fund shares. Financial income and expenses totaled
EUR +0.4 million, compared with EUR +0.4 million a year ago.
During January-June, SSH reported a positive cash flow of EUR 1.2
million from business operations, whereas investments showed a
negative cash flow of EUR -1.3 million. Cash flow from financing was
zero. Cash flow from operations, investments and financing resulted in
the company showing a negative total cash flow of EUR -0.1 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 solution’s 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 SSH’s main market area, North America, rules in Section 404 of the
Sarbanes-Oxley Act in the U.S. continue to impact SSH’s target
customers’ data security plans and investment budgets. Other important
regulations that impact the demand for SSH’s 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, a growing number of major enterprise and government
customers are evaluating SSH Tectia for the product’s new uses, such
as secure access and file transfers to IBM Mainframe environments
using the new Tectia for z/OS products, enhanced file transfer
applications as well as security of enterprise applications.
In Europe Germany, the U.K., and the Nordic countries continue to be
the most promising market areas, and Japan respectively in Asia.
During January-June, the competitive landscape in the company’s
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
SSH’S NET SALES
EUR million 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-12/
2006 2006 2005 2005 2005 2005
BY SEGMENT
AMER 1.4 1.2 3.3 1.8 0.8 6.8
APAC 0.3 0.2 0.1 0.2 0.1 0.7
EROW 0.7 0.6 0.7 0.3 0.3 1.8
SSH Group total 2.3 2.0 4.1 2.4 1.2 9.3
SSH TECTIA BUSINESS
Net sales / license 1.4 1.2 3.5 1.7 0.8 6.9
Sales
Net sales / 0.9 0.9 0.6 0.7 0.5 2.4
maintenance
SSH Tectia total 2.3 2.0 4.1 2.4 1.2 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 59.5 percent (60.0 percent), 11.2
percent (10.6 percent) and 29.3 percent (29.4 percent) of reported net
sales, respectively.
During the report period, SSH concluded a number of new customer
agreements, five of which were each worth more than EUR 100,000. The
ten largest customers accounted for 29 percent of reported net sales,
with the largest single customer accounting for approximately 5
percent.
During the reporting period the largest single customer in revenue was
one of the world’s biggest banks, which continued deploying SSH Tectia
for its global enterprise IT infrastructure.
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 have also generated
good responses from target customers in Germany and the U.K, and other
markets.
The company’s new Tectia Secure Shell product for the IBM mainframe
environment made SSH Tectia the most extensive integrated Secure
Shell–based solution on the market.
RESEARCH AND DEVELOPMENT
Research and development expenses for January-June totaled EUR 1.7
million (EUR 1.9 million), the equivalent of 38.8 percent of net sales
(66.1 percent).
At the end of June, the company held 11 patents, and 12 were pending.
HUMAN RESOURCES AND ORGANIZATION
At the end of June, the Group had 85 employees on its payroll, up 4
from the previous year, an increase of 4.9 percent.
At the end of the period, 44.7 percent of the employees worked in R&D,
40.0 percent in sales and marketing, and 15.3 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 company’s 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 7,571,711 (valued at EUR 13,004,325.47); i.e. 26.76
percent of the shares changed hands. The highest quotation was EUR
2.40 and the lowest EUR 1.24. The trade-weighted average share price
for the period was EUR 1.71, and the share closed at EUR 1.70 (June
30, 2006).
SSH Communications Security Corp has received a notification in
accordance with the Securities Market Act 2:9, according to which the
total of Assetman Oy’s (business code 0748885-4) shares in SSH
Communications Security Corp has on March 17, 2006 risen above one
twentieth part (1/20) of the total of all shares and related voting
rights. There were no other 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
company’s shares, and Kivinen holds 6.6 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 company’s registered share capital on June 30, 2006 was EUR
848,794.38, consisting of 28,293,146 shares. During the report period,
SSH increased its share capital once, based on subscription to
the new shares under SSH’s stock-option plan. In total, 5,000 new
SSH shares were subscribed to under the I/1999 stock-option plan and
19,333 shares under the I/2003 stock-option plan, respectively. With
these subscriptions the company’s share capital was increased by EUR
729.99.
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 company’s
Web site (www.ssh.com).
EVENTS AFTER THE REPORTING PERIOD
The Finnish National Board of Patents and Registrations granted and
registered on July 14, 2006 its permission pursuant to the Companies
Act Section 6 (5) for the implementation of the decision of the Annual
Shareholders Meeting on March 21, 2006 regarding the decrease of the
company’s share premium fund of capital to the shareholders. After the
permission was registered, SSH Communications Security Corp’s Board of
Directors in its meeting confirmed the schedule. The record date was
set to July 19, 2006 and the payment date July 21, 2006. The amount
distributed was EUR 0.25 per share, totaling EUR 7,073,286.50.
PROSPECTS
Thanks to growth in tenders, new customers, and new products, SSH
expects 2006 sales and results to be better than those of the previous
year.
The large orders during the 2nd half of 2005 validated the suitability
of SSH Tectia for the most demanding target customers. Within the 1st
half of 2006 five more Fortune Global Top 500 class enterprises signed
multi-year frame agreements to begin using SSH Tectia broadly for
their network infrastructure security. These customers will be placing
additional orders in the coming quarters as they continue to expand
their use of SSH Tectia.
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 continue 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 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2006 2005 2006 2005 2005
Net sales 2.3 1.2 4.4 2.8 9.3
Purchasing and production 0.0 0.0 0.0 0.0 -0.1
costs
Gross profit 2.3 1.2 4.3 2.8 9.2
Other operating income 0.1 0.1 0.1 0.1 0.2
Expenses
Product development -0.8 -0.9 -1.7 -1.9 -3.4
Sales and -1.5 -1.6 -2.9 -3.5 -6.7
marketing
Administration -0.4 -0.5 -0.8 -1.1 -1.9
Operating profit/loss -0.3 -1.6 -0.9 -3.5 -2.6
Financial income and expenses 0.1 0.4 0.4 0.4 0.6
Profit/loss before taxes -0.2 -1.2 -0.5 -3.1 -2.0
a Taxes 0.0 0.0 0.0 0.0 0.0
Net profit/loss for the -0.2 -1.2 -0.5 -3.1 -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.
EARNINGS PER SHARE 1-6/ 1-6/ 1-12/
2006 2005 2005
Earnings per share (EUR) -0.02 -0.11 -0.07
Earnings per share, diluted -0.02 -0.11 -0.07
(EUR)
BALANCE SHEET
EUR million 6/30/ 6/30/ 12/31/
2006 2005 2005
ASSETS
Fixed and other non-current
assets
Tangible assets 0.1 0.3 0.2
Intangible assets 0.4 0.7 0.6
Deferred tax assets 0.2 0.2 0.2
Total fixed and other 0.8 1.3 1.0
non-current assets
Inventories and current
assets
Short-term receivables 2.9 1.8 5.6
Short-term investments 22.5 22.3 21.1
Cash and cash equivalents 1.4 1.0 1.4
Total inventories and current 26.8 25.1 28.1
assets
Total assets 27.6 26.3 29.1
LIABILITIES AND SHAREHOLDERS’
EQUITY
Shareholders’ equity 24.7 24.2 25.4
Long-term liabilities
Provisions 0.1 0.1 0.1
Long-term financial 0.0 0.1 0.0
liabilities
Total long-term liabilities 0.1 0.2 0.2
Short-term liabilities 2.8 1.9 3.5
Total liabilities and 27.6 26.3 29.1
shareholders’ equity
CASH FLOW STATEMENT
EUR million 1-6/ 1-6/ 1-12/
2006 2005 2005
Cash flow from business operations 1.2 -2.5 -3.5
Cash flow from investments -1.3 10.9 10.9
Cash flow from financing 0.0 -8.4 -8.4
Increase(+) / decrease (-) in -0.1 0.0 -1.0
liquid assets
Liquid assets at period start 1.4 2.4 2.4
Adjustment for translation -0.1 0.1 0.1
difference
Liquid assets at period end 1.4 2.5 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 0.0 0.1 -11.3
Shareholders’ 0.8 24.4 15.1 -0.7 -15.5 24.2
equity
Jun. 30, 2005
Change 0.0 0.0 0.2 0.0 1.1
Shareholders’ 0.8 24.4 15.3 -0.7 -14.4 25.4
equity
Dec. 31, 2005
Change 0.0 0.0 -0.1 -0.1
Net loss -0.5
Shareholders’ 0.8 24.4 15.2 -0.8 -14.9 24.7
equity
Jun. 30, 2006
NET SALES BY SEGMENT
EUR million 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2006 2005 2006 2005 2005
AMER 1.4 0.8 2.7 1.7 6.8
APAC 0.3 0.1 0.5 0.3 0.7
EROW 0.6 0.3 1.2 0.8 1.8
SSH Group total 2.3 1.2 4.4 2.8 9.3
OPERATING PROFIT/LOSS
BY SEGMENT
EUR million 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2006 2005 2006 2005 2005
AMER 0.7 0.1 1.3 0.3 3.5
APAC 0.1 -0.1 0.2 0.0 0.2
EROW 0.0 -0.4 0.1 -0.7 -0.8
Common Group expenses* -1.1 -1.2 -2.5 -3.1 -5.5
SSH Group total -0.3 -1.6 -0.9 -3.5 -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
1-6/ 1-6/ 1-12/
2006 2005 2005
Net sales (MEUR) 4.4 2.8 9.3
Operating profit/loss (MEUR) -0.9 -3.5 -2.6
Operating profit/loss, as % of -21.5 -124.2 -28.5
net sales
Profit/loss before extraordinary -0.5 -3.1 -2.0
items and taxes (MEUR)
Profit/loss before extraordinary -12.6 -109.4 -21.8
items and taxes, as % of net
sales
Profit/loss before taxes (MEUR) -0.5 -3.1 -2.0
Profit/loss before taxes, as -12.6 -109.4 -21.8
% of net sales
Return on investment (%) -6.4
Return on equity (%) -6.6
Interest-bearing net liabilities -23.9 -23.2 -22.5
(MEUR)
Equity ratio (%) 95.2 94.9 92.8
Gearing (%) -96.4 -95.8 -88.4
Gross capital expenditure (MEUR) 0.1 0.1 0.1
% of net sales 1.4 2.3 1.0
R&D expenses (MEUR) 1.7 1.9 3.4
% of net sales 38.8 66.1 36.8
Personnel, period average 81 89 83
Personnel, period end 85 81 75
PER-SHARE DATA
1-6/ 1-6/ 1-12/
2006 2005 2005
Earnings per share, undiluted -0.02 -0.11 -0.07
(EUR)
Earnings per share, diluted -0.02 -0.11 -0.07
(EUR)
Equity per share (EUR) 0.88 0.86 0.90
No. of shares at period end 28,293 28,111 28,269
(thousands)
Share performance (EUR)
Average price 1.71 1.37 1.23
Low 1.24 1.00 0.91
High 2.40 1.78 1.78
Share price, period end 1.70 1.07 1.23
Market capitalization, period 48.1 30.1 34.8
end (MEUR)
Volume of shares traded 7.6 6.0 11.4
(in millions)
Volume of shares traded, as 26.8 21.2 40.5
% of total
Value of shares traded, in 13.0 8.2 14.0
millions of euros
Price-to-earnings ratio (P/E) -17.1
CONTINGENT LIABILITIES
EUR million 06/30 06/30 12/31
2006 2005 2005
Rental liabilities 0.2 0.2 0.2
Leasing liabilities 0.2 0.1 0.1
Other contingent liabilities 0.6 0.7 0.7
Currency derivatives (not
included in hedge accounting)
Fair value 0.0 0.0 0.0
Nominal value 0.0 0.0 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 Hotel Scandic Simonkenttä´s Lönkka-cabinet,
1st floor, address Simonkatu 9, 00100 Helsinki on Wednesday, July 26,
2006, starting at 11:00 a.m.
SSH Communications Security Corp will release its next interim report
and financial statements for July 1–September 30, 2006 on 18 October
2006. Further information will be available on the company’s Web site
(http://www.ssh.com).
Helsinki, on July 26, 2006
SSH COMMUNICATIONS SECURITY CORP
Board of Directors
Arto Vainio
CEO
CEO
Arto Vainio
Tel: +358 20 500 7400
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.