October 18, 2006
SSH interim report for January 1 - September 30, 2006
SSH COMMUNICATIONS SECURITY CORP STOCK EXCHANGE RELEASE, October 18, 2006, at 9:00 a.m.
SSH INTERIM REPORT FOR JANUARY 1 – SEPTEMBER 30, 2006
- Net sales for January-September totaled EUR 6.1 million, up 18.3
percent year on year (EUR 5.2 million in Q1-Q3/2005).
- Third-quarter net sales came to EUR 1.8 million, down 24.9 percent
on a year earlier (EUR 2.4 million in Q3/2005).
- Operating loss for January–June amounted to EUR –1.4 million (a loss
of -3.7 million in Q1-Q3/2005), loss EUR -0.9 million (-3.0 million).
Third-quarter operating loss was EUR -0.5 million and net loss was EUR
-0.4 million.
- Third quarter sales were below expected due to several US customer
orders that were moved forward. New long-term customer agreements were
closed with two large financial sector companies.
- SSH’s backlog of tenders has developed favorably. The full year
revenue and profitability will depend significantly on the sales
results of the last quarter.
KEY FIGURES
7-9/ 7-9/ 1-9/ 1-9/ 1-12/
2006 2005 2006 2005 2005
Net sales (MEUR) 1.8 2.4 6.1 5.2 9.3
Net sales, change % -24.9 11.9 18.3 -18.1 13.0
Operating profit/loss -0.5 -0.2 -1.4 -3.7 -2.6
(MEUR)
% of net sales -27.6 -7.8 -23.3 -71.2 -28.5
Operating profit/loss, -166.8 79.1 61.3 21.2 58.7
change %
Profit/loss before -0.4 0.0 -0.9 -3.0 -2.0
extraordinary items and
taxes (MEUR)
% of net sales -20.4 2.1 -14.8 -58.7 -21.8
Number of employees 78 79 78 79 75
at period end
Earnings per share (EUR) -0.03 -0.11 -0.07
Shareholders’ equity per 0.61 0.86 0.90
share (EUR)
NET SALES
Consolidated net sales for January-September totaled EUR 6.1 million
(EUR 5.2 million), up by 18.3% percent, year on year. Net sales for
the third quarter totaled EUR 1.8 million, down 24.9% 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 1.6 percent stronger than during the same period a year
ago.
RESULTS AND EXPENSES
Operating loss for January–September amounted to EUR –1.4 million (Q1-
Q3/2005: a loss of EUR –3.7 million), with net loss totaling EUR –0.9
million (a loss of EUR –3.0 million). Operating loss for the third
quarter totaled EUR –0.5 million (a loss of EUR –0.2 million), with
net loss amounting to EUR –0.4 million (a loss of EUR –0.0 million).
SSH’s fixed costs reported for the period continued their year-on-year
decline, as evidenced by the reduction of approximately EUR 1.2
million in fixed costs from the January–September 2005 level. Payroll
costs were cut by 11 percent and other operating expenses by 17
percent.
Research and development expenses for the report period totaled EUR
2.4 million (EUR 2.6 million), while sales and marketing expenses came
to EUR 4.1 million (EUR 4.9 million) and administrative expenses EUR
1.2 million (EUR 1.5 million).
BALANCE SHEET AND FINANCIAL POSITION
The financial position of SSH remained at a healthy level during the
report period even after the EUR 7.1 million return of capital to the
shareholders. The consolidated balance sheet total on September 30,
2006 stood at EUR 19.7 million (EUR 26.2 million), of which liquid
assets accounted for EUR 16.8 million (EUR 22.9 million), or 85.0
percent of the balance sheet total. The company has no long-term
liabilities.
On September 30, 2006, gearing, or the ratio of net liabilities to
shareholders’ equity, was –96.7 (-94.2) and the equity ratio stood at
94.0 percent (95.9 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 +0.5 million, compared with EUR +0.7 million a year ago.
During January-September, SSH reported a positive cash flow of EUR 1.0
million from business operations, whereas investments showed a cash
flow of EUR 6.6 million. Cash flow from financing was EUR -7.1
million. Cash flow from operations, investments and financing resulted
in the company showing a positive total cash flow of EUR 0.5 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.
In the U.S., rules in Section 404 of the Sarbanes-Oxley Act continue
to impact SSH’s target customers’ data security plans and 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 companies for card holder data security.
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
industry and company level data security development programs will
continue to drive the demand favorably for SSH Tectia.
The new tighter data security regulations caused customers to re-
assess the risks and hidden costs of their non-commercial 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 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 1-12/
2006 2006 2006 2005 2005 2005
BY SEGMENT
AMER 1.1 1.4 1.2 3.3 1.8 6.8
APAC 0.3 0.3 0.2 0.1 0.2 0.7
EROW 0.4 0.6 0.6 0.7 0.3 1.8
SSH Group total 1.8 2.3 2.0 4.1 2.4 9.3
SSH TECTIA BUSINESS
Net sales / license 0.8 1.4 1.2 3.5 1.7 6.9
Sales
Net sales / 0.9 0.9 0.9 0.6 0.7 2.4
maintenance
SSH Tectia total 1.8 2.3 2.0 4.1 2.4 9.3
The interest to SSH’s products was reflected in the high volume of
submitted tenders and offers. For a system-level IT product, such as
SSH Tectia, the sales process is often long. With major customers, the
timings of largest orders will cause 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 61.5 percent (68.0 percent), 12.4
percent (10.2 percent) and 26.1 percent (21.9 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 27 percent of reported net sales,
with the largest single customer accounting for approximately 5
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 continued also developing its partner network in the same
focus markets.
As new regulations and related audits continue to solidify customers’
plans and requirements, SSH has been able to further develop its
product offerings with new competitive features. Successful
deployments of jointly developed new solutions with the largest US
customers have generated good responses from target customers in
Germany and the U.K, and other markets.
The main themes of marketing were company’s new Tectia Secure Shell
product for the IBM mainframe environment, and the new expanded uses
of SSH Tectia for secure, automated file transfers in large internal
enterprise networks.
New applications, support of all essential enterprise OS platforms,
versatile integration capabilities, and centralized management have
made SSH Tectia the most extensive integrated Secure Shell-based
solution in the market.
RESEARCH AND DEVELOPMENT
Research and development expenses for January-June totaled EUR 2.4
million (EUR 2.6 million), the equivalent of 39.8 percent of net sales
(50.5 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 78 employees on its payroll, down 1
from the previous year, a decrease of –1.3 percent.
At the end of the period, 48.7 percent of the employees worked in R&D,
37.2 percent in sales and marketing, and 14.1 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 8,955,937 (valued at EUR 15,008,535.53); i.e. 31.65
percent of the shares changed hands. The highest quotation was EUR
2.40 and the lowest EUR 1.20. The trade-weighted average share price
for the period was EUR 1.67, and the share closed at EUR 1.25
(September 29, 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. Assetman OY held 6.2 percent of the company´s shares at the
end of the period. 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 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.
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).
PROSPECTS
The full year sales and profitability remain highly dependent on the
sales results of the last quarter.
Thanks to high volume of tenders, customer base, and new products, the
company is in a good position to continue improving its financial
results by growing sales and profitability. Continuous development of
company’s products enables wider access to new, larger market segments
with the established and new customers.
As new data security regulations and risks continue driving our
customers to increase their investments for better data security we
expect to see new and 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 spread in
phases to our target customer base in Germany, the U.K. and Japan.
Our business model is based on long-term relations and multi-year
frame agreements with large enterprise and public sector customers.
Our business model enables growth by continuous adding of value with
SSH Tectia solution expansions, new features, as well as growing value
of the recurring software maintenance.
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 can in the future help compensate
the impact of single large orders within a quarter.
INCOME STATEMENT
EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/
2006 2005 2006 2005 2005
Net sales 1.8 2.4 6.1 5.2 9.3
Purchasing and production 0.0 0.0 0.0 -0.1 -0.1
costs
Gross profit 1.8 2.3 6.1 5.1 9.2
Other operating income 0.1 0.1 0.3 0.2 0.2
Expenses
Product development -0.7 -0.7 -2.4 -2.6 -3.4
Sales and -1.2 -1.4 -4.1 -4.9 -6.7
marketing
Administration -0.4 -0.4 -1.2 -1.5 -1.9
Operating profit/loss -0.5 -0.2 -1.4 -3.7 -2.6
Financial income and expenses 0.1 0.2 0.5 0.7 0.6
Profit/loss before taxes -0.4 0.0 -0.9 -3.0 -2.0
a Taxes 0.0 0.0 0.0 0.0 0.0
Net profit/loss for the -0.4 0.0 -0.9 -3.0 -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 1-9/ 1-9/ 1-12/
2006 2005 2005
Earnings per share (EUR) -0.03 -0.11 -0.07
Earnings per share, diluted -0.03 -0.11 -0.07
(EUR)
BALANCE SHEET
EUR million 9/30/ 9/30/ 12/31/
2006 2005 2005
ASSETS
Fixed and other non-current
assets
Tangible assets 0.1 0.2 0.2
Intangible assets 0.4 0.7 0.6
Deferred tax assets 0.2 0.2 0.2
Total fixed and other 0.7 1.1 1.0
non-current assets
Inventories and current
assets
Short-term receivables 2.2 2.2 5.6
Short-term investments 14.8 21.0 21.1
Cash and cash equivalents 1.9 2.0 1.4
Total inventories and current 19.0 25.1 28.1
assets
Total assets 19.7 26.2 29.1
LIABILITIES AND SHAREHOLDERS’
EQUITY
Shareholders’ equity 17.3 24.3 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 2.3 1.8 3.5
Total liabilities and 19.7 26.2 29.1
shareholders’ equity
CASH FLOW STATEMENT
EUR million 1-9/ 1-9/ 1-12/
2006 2005 2005
Cash flow from business operations 1.0 -3.0 -3.5
Cash flow from investments 6.6 10.9 10.9
Cash flow from financing -7.1 -8.4 -8.4
Increase(+) / decrease (-) in 0.5 -0.5 -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 1.9 2.0 1.4
STATEMENT ON CHANGES IN
SHAREHOLDERS’ EQUITY
EUR million Share Issue Fair Transl Retained Total
capital premium value ation earnings
fund reserves differ and free
ence reserves
Shareholders’ 0.8 24.4 0.1 -0.8 10.8 35.4
equity
Jan. 1, 2005
Change 0.0 0.0 -0.1 0.1 -11.1
Shareholders’ 0.8 24.4 0.1 -0.7 -0.4 24.3
equity
Sep. 30, 2005
Change 0.0 0.0 0.2 0.0 1.0
Shareholders’ 0.8 24.4 0.3 -0.7 0.6 25.4
equity
Dec. 31, 2005
Change 0.0 -13.0 -0.1 -0.1
5.9
Net loss -0.9
Shareholders’ 0.8 11.5 0.2 -0.8 5.6 17.3
equity
Sep. 30, 2006
NET SALES BY SEGMENT
EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/
2006 2005 2006 2005 2005
AMER 1.1 1.8 3.8 3.5 6.8
APAC 0.3 0.2 0.8 0.5 0.7
EROW 0.4 0.3 1.6 1.1 1.8
SSH Group total 1.8 2.4 6.1 5.2 9.3
OPERATING PROFIT/LOSS
BY SEGMENT
EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/
2006 2005 2006 2005 2005
AMER 0.4 1.0 1.7 1.3 3.5
APAC 0.1 0.1 0.4 0.1 0.2
EROW -0.1 -0.1 0.0 -0.7 -0.8
Common Group expenses* -1.0 -1.2 -3.5 -4.5 -5.5
SSH Group total -0.5 -0.2 -1.4 -3.7 -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
1-9/ 1-9/ 1-12/
2006 2005 2005
Net sales (MEUR) 6.1 5.2 9.3
Operating profit/loss (MEUR) -1.4 -3.7 -2.6
Operating profit/loss, as % of -23.3 -71.2 -28.5
net sales
Profit/loss before extraordinary -0.9 -3.0 -2.0
items and taxes (MEUR)
Profit/loss before extraordinary -14.8 -58.7 -21.8
items and taxes, as % of net
sales
Profit/loss before taxes (MEUR) -0.9 -3.0 -2.0
Profit/loss before taxes, as -14.8 -58.7 -21.8
% of net sales
Return on investment (%) -6.4
Return on equity (%) -6.6
Interest-bearing net liabilities -16.7 -22.9 -22.5
(MEUR)
Equity ratio (%) 94.0 95.9 92.8
Gearing (%) -96.7 -94.2 -88.4
Gross capital expenditure (MEUR) 0.1 0.1 0.1
% of net sales 1.2 1.9 1.0
R&D expenses (MEUR) 2.4 2.6 3.4
% of net sales 39.8 50.5 36.8
Personnel, period average 81 86 83
Personnel, period end 78 79 75
PER-SHARE DATA
1-9/ 1-9/ 1-12/
2006 2005 2005
Earnings per share, undiluted -0.03 -0.11 -0.07
(EUR)
Earnings per share, diluted -0.03 -0.11 -0.07
(EUR)
Equity per share (EUR) 0.61 0.86 0.90
No. of shares at period end 28 293 28 204 28 269
(thousands)
Share performance (EUR)
Average price 1.67 1.30 1.23
Low 1.20 0.97 0.91
High 2.40 1.78 1.78
Share price, period end 1.25 0.98 1.23
Market capitalization, period 35.4 27.6 34.8
end (MEUR)
Volume of shares traded 9.0 7.4 11.4
(in millions)
Volume of shares traded, as 31.7 26.3 40.5
% of total
Value of shares traded, in 15.0 9.6 14.0
millions of euros
Price-to-earnings ratio (P/E) -
CONTINGENT LIABILITIES
EUR million 09/30 09/30 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 0.3 1.0 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, October
18, 2006, starting at 11:00 a.m.
SSH Communications Security Corp will release its next interim report
and financial statements for January 1–December 31, 2006 in February
2007. Further information will be available on the company’s website
in due course.
Helsinki, on October 18, 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: 