July 25, 2007
SSH Interim Report for January 1 – June 30, 2007
- Net sales for January-June totaled EUR 4.1 million, down by 6
percent year on year (EUR 4.4 million in Q1-Q2/2006).
- Second-quarter net sales came to EUR 1.5 million, down by 34 percent
on a year earlier (EUR 2.3 million in Q2/2006).
- Operating loss for January–June amounted to EUR -1.1 million (a loss
of -0.9 million in Q1-Q2/2006), loss EUR -0.8 million (-0.5 million).
Second-quarter operating loss was EUR -1.1 million and net loss was
EUR -0.9 million.
- After the reporting period, the company signed its largest ever
agreement with one of world’s largest corporations headquartered in
the US. The total value of the agreement is about EUR 4.5 million, of
which licenses are about EUR 4 million and annual maintenance is about
EUR 0.5 million. Invoicing has been agreed to the 3rd quarter of 2007
after the final acceptance of the delivery.
KEY FIGURES
4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2007 2006 2007 2006 2006
Net sales (MEUR) 1.5 2.3 4.1 4.4 9.5
Net sales, change % -34.3 89.6 -5.9 54.4 1.7
Operating profit/loss -1.1 -0.3 -1.1 -0.9 -0.9
(MEUR)
% of net sales -71.5 -12.5 -27.6 -21.5 -9.4
Operating profit/loss, -277.1 82.5 -20.4 73.2 66.5
change %
Profit/loss before taxes -0.9 -0.2 -0.8 -0.5 -0.2
(MEUR)
% of net sales -58.9 -8.0 -18.8 -12.6 -2.0
Number of employees 80 85 80 85 80
at period end
Earnings per share (EUR) -0.03 -0.02 -0.01
Shareholders’ equity per 0.60 0.88 0.63
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 January-June totaled EUR 4.1 million (EUR
4.4 million), down by -5.9% percent, year on year. Net sales for the
second quarter totaled EUR 1.5 million, a decrease of -34.3% compared
to the corresponding quarter for year 2006.
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 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 8 percent weaker than during the same period a year ago.
RESULTS AND EXPENSES
Operating loss for January–June amounted to EUR –1.1 million (Q1-
Q2/2006: a loss of EUR –0.9 million), with net loss totaling EUR –0.8
million (a loss of EUR –0.5 million). Operating loss for the second
quarter totaled EUR –1.1 million (a loss of EUR –0.3 million), with
net loss amounting to EUR –0.9 million (a loss of EUR –0.2 million).
The fixed costs remained at the same level as in January-June, 2006.
Research and development expenses for the report period totaled EUR
1.8 million (EUR 1.7 million), while sales and marketing expenses came
to EUR 2.7 million (EUR 2.9 million) and administrative expenses EUR
0.9 million (EUR 0.8 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, 2007
stood at EUR 19.6 million (EUR 27.6 million), of which liquid assets
accounted for EUR 17.6 million (EUR 23.9 million), or 89.8 percent of
the balance sheet total. The company has no interest bearing
liabilities. On June 30, 2007, gearing, or the ratio of net
liabilities to shareholders’ equity, was –102.9 (-96.4) and the equity
ratio stood at 93.5 percent (95.2 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 0.7
million from business operations, whereas investments showed a
negative cash flow of EUR -0.1 million. Cash flow from financing
totaled EUR 0.0 million. Cash flow from operations, investments and
financing resulted in the company showing a positive total cash flow
of EUR 0.6 million during the period.
MARKET DEVELOPMENTS
Large enterprise, financial, and public sector organizations have a
growing need for improved data security in several ways. New and
existing data security risks, continuously evolving regulations, and
increasing security standards and models continue to create new needs,
to which we can respond with our versatile product offerings.
The demand for products and services for securing corporate-internal
information security has continued growing in the large North American
corporations, especially in recent months for securing file transfers
to IBM mainframes. A similar demand growth trend is expected to spread
in the next phase to the largest European and Asian enterprises.
Regulations that currently influence the demand of our products are,
for instance, the Sarbanes-Oxley Act (SOX), HIPAA, as well as the PCI
standards of the major credit card companies. These regulations cause
data security audits, which drive our customers to implement security
upgrade programs for their IT infrastructure against internal and
external threats.
The new tighter data security regulations are now causing 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 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-12/
2007 2007 2006 2006 2006 2006
BY SEGMENT
AMER 1.0 1.8 2.0 1.1 1.4 5.7
APAC 0.2 0.2 0.2 0.3 0.3 0.9
EROW 0.3 0.5 1.2 0.4 0.6 2.8
SSH Group total 1.5 2.6 3.3 1.8 2.3 9.5
BY OPERATION
License sales 0.6 1.6 2.4 0.8 1.4 5.8
Maintenance 0.9 0.9 0.9 0.9 0.9 3.6
Total 1.5 2.6 3.3 1.8 2.3 9.5
The Americas, the Asia Pacific region, and the ‘Europe and Rest of the
World’ market area accounted for 68 percent (60 percent), 11 percent
(11 percent) and 21 percent (29 percent) of reported net sales,
respectively.
During the report period, SSH concluded one new license agreement that
was worth more than EUR 100,000. The ten largest customers accounted
for 41 percent of reported net sales, with the largest single customer
accounting for approximately 21 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 USA, Europe, and Asia, in line with its long-term strategy. The
company continued also developing its partner network in the same
focus markets.
The marketing focus was on the company’s new Tectia security solutions
of IBM mainframe environment and SSH Tectia’s enhanced file transfer
applications for large internal enterprise 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-June totaled EUR 1.8
million (EUR 1.7 million), the equivalent of 43.8 percent of net sales
(38.8 percent). During the report period SSH didn’t capitalize any
research and development expenses.
HUMAN RESOURCES AND ORGANIZATION
At the end of June, the Group had 80 employees on its payroll, down by
5 from the previous year, a decrease of –5.9 percent.
At the end of the period, 48.8 percent of the employees worked in R&D,
38.8 percent in sales and marketing, and 12.5 percent in corporate
administration.
BOARD AND AUDITORS
The Annual General Meeting (AGM) on March 29, 2007 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 8,118,462 (valued at EUR 12,129,155.60). The highest
quotation was EUR 1.75 and the lowest EUR 1.15. The trade-weighted
average share price for the period was EUR 1.49, and the share closed
at EUR 1.19 (June 29, 2007).
In February 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 shares in SSH Communications Security Corp
has on February 13, 2007 risen above one tenth part (1/10) of the
total of all shares and related voting rights. Assetman OY held 10.6
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 holds, directly and
through his company, Tatu Ylönen Oy, 53.1 percent of the company’s
shares, and Tero Kivinen holds 5.7 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 company’s registered share capital on June 30, 2007 was EUR
853,331.85, consisting of 28,444,395 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, 20,500 new
SSH shares were subscribed to under the I/2003 stock-option plan. With
these subscriptions the company’s share capital was increased by EUR
615.00.
On March 29, 2007, the Annual General Meeting decided, in accordance
with the proposal made by the Board of Directors to authorize the
Board of Directors to decide on issuing the maximum of 5.500.000
shares in one or more new share issues or on issuing special rights to
share subscription as defined in the Finnish Companies Act Chapter 10,
section 1, with or without subscription rights to shareholders.
This authorization is effective until the next Annual General
Meeting, but will expire June 30, 2008, at the latest. The Board has
not exercised this authorization.
CORPORATE GOVERNANCE
The company complies with the corporate governance recommendations for
listed companies issued by the Helsinki Stock Exchange, 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
In July, the company signed its largest ever agreement with one of
world’s largest corporations headquartered in the US. The total value
of the agreement is about EUR 4.5 million, of which licenses are about
EUR 4 million and annual maintenance is about EUR 0.5 million.
Invoicing has been agreed to the 3rd quarter of 2007 after the final
acceptance of the delivery.
PROSPECTS
The large EUR 4.5 million licensing and support agreement signed in
July significantly increases our confidence in our near-term growth
prospects. The company’s strong backlog of agreements and tenders
provides a solid basis for substantial growth of the full year
revenue. In 2007, SSH aims to be a profitable company.
Our target markets are in different network security adoption phases
according to geography and industry, enabling a good long-term growth
base for our company. We are set both technically and in timing to a
good position to utilize the trends and regulations 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.
Due to the large size of individual orders and depending on timing of
customer projects, variation of the quarterly revenue may occur.
INCOME STATEMENT
EUR million 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2007 2006 2007 2006 2006
Net sales 1.5 2.3 4.1 4.4 9.5
Purchasing and production 0.0 0.0 0.0 0.0 -0.1
costs
Gross profit 1.5 2.3 4.1 4.3 9.4
Other operating income 0.0 0.1 0.1 0.1 0.4
Expenses
Product development -0.9 -0.8 -1.8 -1.7 -3.4
Sales and -1.3 -1.5 -2.7 -2.9 -5.7
marketing
Administration -0.4 -0.4 -0.9 -0.8 -1.6
Operating profit/loss -1.1 -0.3 -1.1 -0.9 -0.9
Financial income and expenses 0.2 0.1 0.4 0.4 0.7
Profit/loss before taxes -0.9 -0.2 -0.8 -0.5 -0.2
Taxes 0.0 0.0 0.0 0.0 0.0
Net profit/loss for the -0.9 -0.2 -0.8 -0.5 -0.2
period
EARNINGS PER SHARE 1-6 1-6/ 1-12/
/ 2006 2006
2007
Earnings per share (EUR) -0.03 -0.02 -0.01
Earnings per share, diluted -0.03 -0.02 -0.01
(EUR)
BALANCE SHEET
EUR million 6/30/ 6/30/ 12/31/
2007 2006 2006
ASSETS
Fixed and other non-current
assets
Tangible assets 0.1 0.1 0.1
Intangible assets 0.2 0.4 0.3
Deferred tax assets 0.2 0.2 0.2
Total fixed and other 0.6 0.8 0.7
non-current assets
Inventories and current
assets
Short-term receivables 1.4 2.9 3.9
Short-term investments 15.3 22.5 15.0
Cash and cash equivalents 2.3 1.4 1.7
Total inventories and current 19.1 26.8 20.7
assets
Total assets 19.6 27.6 21.3
LIABILITIES AND SHAREHOLDERS’
EQUITY
Shareholders’ equity 17.1 24.7 18.0
Long-term liabilities
Provisions 0.0 0.1 0.0
Long-term financial 0.0 0.0 0.0
liabilities
Total long-term liabilities 0.0 0.1 0.1
Short-term liabilities 2.5 2.8 3.3
Total liabilities and 19.6 27.6 21.3
shareholders’ equity
CASH FLOW STATEMENT
EUR million 1-6/ 1-6/ 1-12/
2007 2006 2006
Cash flow from business operations 0.7 1.2 0.9
Cash flow from investments -0.1 -1.3 6.5
Cash flow from financing 0.0 0.0 -7.0
Increase(+) / decrease (-) in 0.6 -0.1 0.4
liquid assets
Liquid assets at period start 1.7 1.4 1.4
Adjustment for translation 0.0 -0.1 -0.1
difference
Liquid assets at period end 2.3 1.4 1.7
STATEMENT ON CHANGES IN
SHAREHOLDERS’ EQUITY
EUR million Share Share Fair Trans- Unrest- Retain- Total
Capi- Premi- value lation ricted ed
tal um reser- diff. equity Ear-
ves funds nings
Shareholders’ 0.8 24.4 0.2 -0.7 0.0 0.6 25.4
equity
Jan. 1, 2006
Change 0.0 0.0 -0.1 -0.1 -0.5
Shareholders’ 0.8 24.5 0.2 -0.8 0.0 0.1 24.7
equity
Jun. 30, 2006
Change 0.0 -13.0 0.0 0.0 5.9 0.3
Shareholders´ 0.9 11.5 0.1 -0.8 5.9 0.4 18.0
equity
Dec. 31, 2006
Change 0.0 0.0 0.0 -0.1 0.0
Net profit -0.8
Shareholders’ 0.9 11.5 0.1 -0.9 5.9 -0.4 17.1
equity
Jun. 30, 2007
NET SALES BY SEGMENT
EUR million 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2007 2006 2007 2006 2006
AMER 1.0 1.4 2.8 2.7 5.7
APAC 0.2 0.3 0.4 0.5 0.9
EROW 0.3 0.6 0.9 1.2 2.8
SSH Group total 1.5 2.3 4.1 4.4 9.5
OPERATING PROFIT/LOSS
BY SEGMENT
EUR million 4-6/ 4-6/ 1-6/ 1-6/ 1-12/
2007 2006 2007 2006 2006
AMER 0.3 0.7 1.4 1.3 2.9
APAC 0.1 0.1 0.2 0.2 0.4
EROW -0.1 0.0 0.0 0.1 0.6
Common Group expenses* -1.4 -1.2 -2.7 -2.6 -4.8
SSH Group total -1.1 -0.3 -1.1 -0.9 -0.9
* 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/
2007 2006 2006
Net sales (MEUR) 4.1 4.4 9.5
Operating profit/loss (MEUR) -1.1 -0.9 -0.9
Operating profit/loss, as % of -27.6 -21.5 -9.4
net sales
Profit/loss before extraordinary -0.8 -0.5 -0.2
items and taxes (MEUR)
Profit/loss before extraordinary -18.8 -12.6 -2.0
items and taxes, as % of net
sales
Profit/loss before taxes (MEUR) -0.8 -0.5 -0.2
Profit/loss before taxes, as -18.8 -12.6 -2.0
% of net sales
Return on investment (%) -8.5 -4.2 -0.8
Return on equity (%) -8.8 -4.4 -1.0
Interest-bearing net liabilities -17.6 -23.9 -16.7
(MEUR)
Equity ratio (%) 93.5 95.2 92.4
Gearing (%) -102.9 -96.4 -93.0
Gross capital expenditure (MEUR) 0.1 0.1 0.1
% of net sales 1.2 2.1 1.2
R&D expenses (MEUR) 1.8 1.7 3.4
% of net sales 43.8 38.8 35.5
Personnel, period average 80 81 81
Personnel, period end 80 85 80
PER-SHARE DATA
1-6/ 1-6/ 1-12/
2007 2006 2006
Earnings per share, undiluted -0.03 -0.02 -0.01
(EUR)
Earnings per share, diluted -0.03 -0.02 -0.01
(EUR)
Equity per share (EUR) 0.60 0.88 0.63
No. of shares at period end 28 444 28 293 28 424
(thousands)
Share performance (EUR)
Average price 1.49 1.71 1.43
Low 1.15 1.24 0.88
High 1.75 2.40 2.40
Share price, period end 1.19 1.70 1.15
Market capitalization, period 33.8 48.1 32.7
end (MEUR)
Volume of shares traded 8.1 7.6 13.9
(in millions)
Volume of shares traded, as 28.5 26.8 48.8
% of total
Value of shares traded, in 12.1 13.0 19.9
millions of euros
Price-to-earnings ratio (P/E) - - -
CONTINGENT LIABILITIES
EUR million 6/30 6/30 12/31
2007 2006 2006
Rental liabilities 0.2 0.2 0.2
Leasing commitments outside
the balance sheet
Maturing within 1 year 0.7 0.9 0.8
Maturing between 1 and 5 0.9 1.6 1.3
years
Currency derivatives (not
included in hedge accounting)
Fair value 0.0 0.0 -0.0
Nominal value 0.4 0.0 0.7
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 25,
2007, starting at 11:00 a.m.
SSH Communications Security Corp will release its next interim report
and financial statements for January 1–September 30, 2007 on 24
October 2007. Further information will be available on the company’s
website in due course.
Helsinki, on July 25, 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: 