February 13, 2007
SSH´s financial statement bulletin 1 January - 31 December 2006
SSH COMMUNICATIONS SECURITY CORP STOCK EXCHANGE RELEASE
February 13, 2007, at 9:00a.m.
SSH´S FINANCIAL STATEMENT BULLETIN, 1 JANUARY – 31 DECEMBER 2006
- Net sales for 2006 totaled EUR 9.5 million, up 1.7 percent year on
year (EUR 9.3 million in 2005).
- Operating loss for 2006 amounted to EUR –0.9 million (EUR -2.6
million in 2005), loss EUR -0.2 million (EUR -2.0 million).
- Fourth-quarter operating profit was EUR 0.5 million and net profit
was EUR 0.7 million.
- The largest license orders were won from two leading finance sector
companies and a US retail chain, among the largest in the world. The
new retail sector customer has also issued a new significant expansion
order of 0.9 MEUR in early 2007.
KEY FIGURES
10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
Net sales (MEUR) 3.3 4.1 9.5 9.3
Net sales, change % -19.2 115.8 1.7 13.0
Operating profit/loss 0.5 1.0 -0.9 -2.6
(MEUR)
% of net sales 15.2 25.3 -9.7 -28.5
Operating profit/loss, -51.5 160.7 65.2 58.7
change %
Profit/loss 0.7 1.0 -0.2 -2.0
% of net sales 20.4 24.8 -2.4 -21.7
Number of employees 80 75 80 75
at period end
Earnings per share (EUR) -0.01 -0.07
Shareholders’ equity per 0.64 0.90
share (EUR)
SSH Communications Security is a world-leading provider of enterprise
security solutions and end-to-end communications security, and the
original developer of the Secure Shell protocol. The company’s SSH
Tectia solution addresses the most critical needs of large
enterprises, financial institutions and government agencies.
NET SALES
Consolidated net sales for 2006 totaled EUR 9.5 million (EUR 9.3
million), up by 1.7 percent, year on year. Net sales for the fourth
quarter totaled EUR 3.3 million.
The majority of SSH’s invoicing is based on the U.S. dollar. During
the reporting period, the U.S. dollar’s average exchange rate was
approximately 0.9 percent weaker than during the same period for 2005.
RESULTS AND EXPENSES
Operating loss for 2006 amounted to EUR –0.9 million (2005: a loss of
EUR –2.6 million), with net loss totaling EUR –0.2 million (a loss of
EUR –2.0 million). Operating profit for the fourth quarter totaled EUR
0.5 million (a profit of EUR 1.0 million), with net profit amounting
to EUR 0.7 million (a profit of EUR 1.0 million).
SSH’s fixed costs reported for the period continued their year-on-year
decline, as evidenced by the reduction of approximately EUR 1.4
million in fixed costs from the January–December 2005 level. Payroll
costs were cut by 11 percent and other operating expenses by 13
percent.
Research and development expenses for the report period totaled EUR
3.4 million (EUR 3.4 million), while sales and marketing expenses came
to EUR 5.7 million (EUR 6.7 million) and administrative expenses EUR
1.6 million (EUR 1.9 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 December 31,
2006 stood at EUR 21.3 million (EUR 29.1 million), of which liquid
assets accounted for EUR 16.7 million (EUR 22.5 million), or 78.3
percent of the balance sheet total. The company has no long-term
liabilities.
On December 31, 2006, gearing, or the ratio of net liabilities to
shareholders’ equity, was –92.9 (-88.4) and the equity ratio stood at
92.5 percent (92.8 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 +0.7 million, compared to EUR +0.6 million a year ago.
During 2006, SSH reported a positive cash flow of EUR 0.9 million from
business operations, and investments showed a cash flow of EUR 6.5
million. Cash flow from financing comprises the return of capital to
the shareholders and totaled EUR -7.0 million. Cash flow from
operations, investments and financing resulted in the company showing
a positive total cash flow of EUR 0.4 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.
New and existing data security risks, continuously evolving
regulations, security standards and models continue to create new
needs, to which we can respond with our versatile product offerings.
Such regulations include, for instance, the Sarbanes-Oxley Act (SOX),
Gramm-Leach-Bliley Act, HIPAA, as well as the PCI standards of the
major credit card companies. These regulations drive our customers to
implement security upgrade projects in their IT infrastructure against
internal and external threats. In practice this means audit rounds
that trigger technical projects, with execution in phases over a long
time.
The new tighter data security regulations now cause customers to re-
assess the risks and hidden costs of deploying non-commercial software
for security, driving many customers to start and/or increase phase-by-
phase migration programs to deploy fully commercially supported
products, such as SSH Tectia.
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 demand favorably for SSH
Tectia.
SALES PERFORMANCE
SSH’S NET SALES
EUR million 10-12/ 7-9/ 4-6/ 1-3/ 1-12/ 10-12/ 1-12/
2006 2006 2006 2006 2006 2005 2005
BY SEGMENT
AMER 2.0 1.1 1.4 1.2 5.7 3.3 6.8
APAC 0.2 0.3 0.3 0.2 0.9 0.1 0.7
EROW 1.2 0.4 0.6 0.6 2.8 0.7 1.8
SSH Group total 3.3 1.8 2.3 2.0 9.5 4.1 9.3
BY OPERATION
License Sales 2.4 0.8 1.4 1.2 5.8 3.5 6.9
Maintenance 0.9 0.9 0.9 0.9 3.6 0.6 2.4
Total 3.3 1.8 2.3 2.0 9.5 4.1 9.3
For a system-level IT product, such as SSH Tectia, the sales process
is often long. With major customers, the timing of large 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 percent (73 percent), 10 percent
(8 percent) and 30 percent (19 percent) of reported net sales,
respectively.
During the report period, SSH concluded 8 new license agreements that
were worth more than EUR 100,000 each. The ten largest customers
accounted for 34 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 continued also developing its partner network in the same
focus markets.
The main themes of marketing were the company’s new Tectia product for
the IBM mainframe environment, and the new expanded uses of SSH Tectia
for secure, automated file transfers in large organization’s internal
networks. The company continued the development of the new third
generation architecture–based products. The company also made further
development of the productisation to provide higher value, new
features and expanded uses, as well as enabling easier purchasing for
the customers.
New applications, support of all essential enterprise OS platforms
including IBM mainframes, versatile integration capabilities, and
centralized management have made SSH Tectia the most extensive
integrated end-to-end communications security solution in the market.
RESEARCH AND DEVELOPMENT
Research and development expenses for January-December totaled EUR 3.4
million (EUR 3.4 million), the equivalent of 35.6 percent of net sales
(36.8 percent). No research and development expenses have been
capitalized.
At the end of December, the company held 11 patents, and 12 were
pending.
HUMAN RESOURCES AND ORGANIZATION
At the end of December the Group had 80 employees on its payroll, up
by 5 persons from the previous year, an increase of 6.7 percent.
At the end of the period, 48.8 percent of the employees worked in R&D,
37.5 percent in sales and marketing, and 13.8 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 13,858,965 (valued at EUR 19,911,632.67). The highest
quotation was EUR 2.40 and the lowest EUR 0.88. The trade-weighted
average share price for the period was EUR 1.43, and the share closed
at EUR 1.15 (December 29, 2006).
In March SSH Communications Security Corp 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 6.3 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, 53.1 percent
of the company’s shares, and Kivinen holds 6.5 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 December 31, 2006 was EUR
852,716.85, consisting of 28,423,895 shares. During the report period,
SSH increased its share capital three times. In total, 9,250 new
SSH shares were subscribed to under the I/1999 stock-option plan and
145,832 shares under the I/2003 stock-option plan, respectively. With
these subscriptions the company’s share capital was increased by EUR
4,652.46.
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 exercised this
authorization.
The Annual General Meeting also authorized the decrease of the
company’s share premium fund and the partial distribution of the funds
to the shareholders, as proposed by the Board of Directors. The
payment date was 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).
EVENTS AFTER THE BALANCE SHEET DATE
The company has won a significant additional order from a leading US
retail chain. The value of the new order is 0.9 MEUR and it is based
on the frame agreement signed at the end of the year.
PROSPECTS
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.
Our target markets are in different phases according to geography and
industry, enabling a good growth base for our company. We are set both
technically and in timing to a good position to utilize the trend of
internal enterprise data security, spreading from the USA and creating
growing demand for our products also in Europe and Asia. In the same
way we can leverage the experience we have gained in the finance and
government sectors, when the new practices and requirements spread to
other industries.
We believe in a phased diversification of our customer base so that
parallel to strong finance sector customers, for instance, we will see
new major customers in the retail, pharmaceutical, and high technology
sectors. Continuously expanding use of the products will also generate
growing software maintenance revenue for us.
Thanks to high volume of tenders, broad customer base, and new
products, the company is in a good position to continue improving its
financial results by growing sales and profitability. In 2007 SSH aims
to be a profitable company.
Due to the large size of individual orders and depending on timing of
customer projects, variation of the quarterly revenue may occur.
PROPOSAL OF THE BOARD OF DIRECTORS CONCERNING MEASURES RELATING TO THE
LOSS
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.
INCOME STATEMENT
EUR million 10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
Net sales 3.3 4.1 9.5 9.3
Purchasing and production 0.0 0.0 -0.1 -0.1
costs
Gross profit 3.3 4.1 9.4 9.2
Other operating income 0.1 0.1 0.4 0.2
Expenses
Product development -0.9 -0.8 -3.4 -3.4
Sales and -1.6 -1.9 -5.7 -6.7
marketing
Administration -0.4 -0.4 -1.6 -1.9
Operating profit/loss 0.5 1.0 -0.9 -2.6
Financial income and expenses 0.2 0.0 0.7 0.6
Profit/loss before taxes 0.7 1.0 -0.2 -2.0
Taxes 0.0 0.0 0.0 0.0
Net profit/loss for the 0.7 1.0 -0.2 -2.0
period
EARNINGS PER SHARE 1-12/ 1-12/
2006 2005
Earnings per share (EUR) -0.01 -0.07
Earnings per share, diluted -0.01 -0.07
(EUR)
BALANCE SHEET
EUR million 12/31/ 12/31/
2006 2005
ASSETS
Fixed and other non-current
assets
Tangible assets 0.1 0.2
Intangible assets 0.3 0.6
Deferred tax assets 0.3 0.2
Total fixed and other 0.7 1.0
non-current assets
Inventories and current
assets
Short-term receivables 3.9 5.6
Short-term investments 15.0 21.1
Cash and cash equivalents 1.7 1.4
Total inventories and current 20.7 28.1
assets
Total assets 21.3 29.1
LIABILITIES AND SHAREHOLDERS’
EQUITY
Shareholders’ equity 18.0 25.4
Long-term liabilities
Provisions 0.0 0.1
Long-term financial 0.0 0.0
liabilities
Total long-term liabilities 0.1 0.2
Short-term liabilities 3.3 3.5
Total liabilities and 21.3 29.1
shareholders’ equity
CASH FLOW STATEMENT
EUR million 1-12/ 1-12/
2006 2005
Cash flow from business operations 0.9 -3.5
Cash flow from investments 6.5 10.9
Cash flow from financing -7.0 -8.4
Increase(+) / decrease (-) in 0.4 -1.0
liquid assets
Liquid assets at period start 1.4 2.4
Adjustment for translation -0.1 0.1
difference
Liquid assets at period end 1.7 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 -10.2
Shareholders’ 0.8 24.4 0.2 -0.7 0.6 25.4
equity
Dec. 31, 2005
Shareholders´ 0.8 24.4 0.2 -0.7 0.6 25.4
equity
Jan. 1, 2006
Change 0.0 -13.0 -0.1 -0.1
5.9
Net loss -0.2
Shareholders’ 0.8 11.5 0.2 -0.8 6.3 18.0
equity
Dec. 31, 2006
NET SALES BY SEGMENT
EUR million 10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
AMER 2.0 3.3 5.7 6.8
APAC 0.2 0.1 0.9 0.7
EROW 1.2 0.7 2.8 1.8
SSH Group total 3.3 4.1 9.5 9.3
OPERATING PROFIT/LOSS
BY SEGMENT
EUR million 10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
AMER 1.2 2.2 2.9 3.5
APAC 0.0 0.1 0.4 0.2
EROW 0.6 -0.1 0.6 -0.8
Common Group expenses* -1.3 -1.2 -4.8 -5.5
SSH Group total 0.5 1.0 -0.9 -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
1-12/ 1-12/
2006 2005
Net sales (MEUR) 9.5 9.3
Operating profit/loss (MEUR) -0.9 -2.6
Operating profit/loss, as % of -9.7 -28.5
net sales
Profit/loss before extraordinary -0.2 -2.0
items and taxes (MEUR)
Profit/loss before extraordinary -2.4 -21.8
items and taxes, as % of net
sales
Profit/loss before taxes (MEUR) -0.2 -2.0
Profit/loss before taxes, as -2.4 -21.8
% of net sales
Return on investment (%) -1.0 -6.4
Return on equity (%) -1.0 -6.6
Interest-bearing net liabilities -16.7 -22.5
(MEUR)
Equity ratio (%) 92.5 92.8
Gearing (%) -92.9 -88.4
Gross capital expenditure (MEUR) 0.1 0.1
% of net sales 1.2 0.9
R&D expenses (MEUR) 3.4 3.4
% of net sales 35.6 36.8
Personnel, period average 81 83
Personnel, period end 80 75
PER-SHARE DATA
1-12/ 1-12/
2006 2005
Earnings per share, undiluted -0.01 -0.07
(EUR)
Earnings per share, diluted -0.01 -0.07
(EUR)
Equity per share (EUR) 0.64 0.90
No. of shares at period end 28 424 28 269
(thousands)
Share performance (EUR)
Average price 1.43 1.23
Low 0.88 0.91
High 2.40 1.78
Share price, period end 1.15 1.23
Market capitalization, period 32.7 34.8
end (MEUR)
Volume of shares traded 13.9 11.4
(in millions)
Volume of shares traded, as 48.8 40.5
% of total
Value of shares traded, in 19.9 14.0
millions of euros
Price-to-earnings ratio (P/E) - -
CONTINGENT LIABILITIES
EUR million 12/31 12/31
2006 2005
Rental liabilities 0.2 0.2
Other contingent liabilities 0.0 0.7
Leasing commitments outside
the balance sheet
Maturing within 1 year 0.8 0.9
Maturing between 1 and 5 1.3 2.0
years
Currency derivatives (not
included in hedge accounting)
Fair value -0.0 0.0
Nominal value 0.7 6.0
FINANCIAL REPORTING
The company will hold a briefing on its interim report for equity
analysts and the media in Hotel Scandic Marski´s Neptun-cabinet, 2nd
floor, address Mannerheimintie 10, 00100 Helsinki on Tuesday, February
13, 2007, starting at 11:00 a.m.
SSH Communications Security Corp will release its next interim report
and financial statements for January 1–March 31, 2007 on April 25,
2007. Further information will be available on the company’s website
in due course.
Helsinki, on February 13, 2007
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: 