SSH COMMUNICATIONS SECURITY CORP STOCK EXCHANGE RELEASE October 20, 2004, at 9:00 a.m. SSH'S INTERIM REPORT FOR JANUARY 1 - SEPTEMBER 30, 2004 - Net sales for January-September totaled EUR 6.3 million, down 42.5 percent year on year (EUR 11.0 million in Q1-Q3/2003). 2004 net sales are not comparable with the 2003 figure, due to the divestment of the OEM business. - The SSH Tectia business grew by 4.8 percent on a year earlier. - The SSH business increased its third-quarter net sales by almost 30 per cent over the previous year. - Operating loss for January-September amounted to EUR -4.6 million (a loss of EUR -4.1 million). - During January-September, the company concluded 9 customer agreements, each worth over EUR 100,000, 3 of which were signed during the third quarter. - During the second quarter, SSH concluded its largest ever agreement with a US systems integrator. KEY FIGURES 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ 2004 2003 2004 2003 2003 Net sales, EUR million 2.1 3.3 6.3 11.0 13.9 Net sales, change % -37.06 -14.1 -42.5 -11.2 -17.6 Operating profit/loss, -0.9 -0.8 -4.6 -4.1 5.2 EUR million % of net sales -41.1 -25.0 -73.5 -36.9 37.5 Operating profit/loss, -3.2 61.5 -14.5 -65.9 136.9 change % Profit/loss before -0.6 -0.9 -4.1 -4.0 5.5 extraordinary items and taxes, EUR million % of net sales -30.3 -25.5 -65.6 -36.2 40.0 Number of employees 102 131 102 131 104 at period-end Earnings per share, EUR -0.15 -0.14 0.20 Equity per share, EUR 1.33 1.16 1.48 NET SALES Consolidated net sales for January-September totaled EUR 6.3 million (EUR 11.0 million), down by 42.5 percent, year on year. The 2004 net sales are not comparable with those reported for the same period a year ago, due to the divestment of the OEM business in 2003 based on an agreement signed by SSH and SafeNet Inc, a US company, in October 2003. Products based on the SSH Tectia solution generated net sales of EUR 6.3 million during the report period, up 4.8 percent over the figure reported a year ago (EUR 6.0 million). During Q3, SSH continued the systematic implementation of its strategy based on the SSH Tectia solution. The company's primary target groups range from large corporations and financial institutions to government agencies, with most of SSH's sales for the third quarter stemming from these customer segments. The 2004 third-quarter net sales came to EUR 2.1 million, showing a year-on-year fall of 37.1 percent (EUR 3.3 million). Products based on the Tectia solution generated net sales of EUR 2.1 million in the third quarter of 2004, compared to EUR 1.6 million posted a year earlier, a year-on-year improvement of 28.8 percent. The US dollar's depreciation against the euro had a substantial effect on consolidated net sales for the report period, i.e. the US dollar average rate dropped by 10 percent from the previous year's corresponding rate. SSH's invoicing is mostly based on US dollars. RESULTS AND EXPENSES Operating loss for January-September amounted to EUR -4.6 million (a loss of EUR -4.1 million), with net loss coming to EUR -4.1 million (a loss of EUR -4.0 million). The establishment of new offices in Germany and the UK coupled with the related recruitment incurred exceptional non-recurring expenses in the company's cost structure during the first half of the year. In July, the company recorded a provision, which in September was EUR 0.1 million, as required by IAS standards regarding its so-called unprofitable contract. SSH's US subsidiary moved to smaller and more affordable premises. At the same time, the company subleased its Palo Alto office, but this rental income does not fully cover rental expenses. However, as a result of the sublease contract, the subsidiary's recurring expenses fell considerably, with a favorable impact on the company's cash flow. Operating loss for the third quarter amounted to EUR -0.9 million (a loss of EUR -0.8 million), while net loss totaled EUR -0.6 million (a loss of EUR -0.9 million). SSH's reported fixed costs for the report period declined year on year. The first-half results for 2003 were still burdened by the costs resulting from the Kuopio office and its closure, as well as those stemming from the OEM business. Year on year, fixed costs for the report period decreased by around EUR 2.0 million, divided between payroll expenses and other operating expenses on a fifty-fifty basis. Research and development expenses for January-September totaled EUR 3.0 million (EUR 4.0 million), while sales and marketing expenses came to EUR 6.3 million (EUR 6.9 million). Administrative expenses were EUR 1.8 million (EUR 2.2 million). Research and development expenses for the third quarter came to EUR 0.8 million, compared with the EUR 1.1 million posted a year ago. Sales and marketing expenses totaled EUR 1.9 million (EUR 2.0 million). Administrative expenses were EUR 0.5 million (EUR 0.6 million). BALANCE SHEET AND FINANCIAL POSITION SSH's financial position remained solid and strong during the report period. The consolidated balance sheet total on September 30, 2004 stood at EUR 39.6 million (EUR 35.6 million), of which liquid assets accounted for EUR 37.8 million (EUR 33.5 million), or 95.6 percent of the balance sheet total. The company has no long-term liabilities other than the subordinated loan of EUR 0.2 million granted by the National Technology Agency (Tekes). Gearing, or the ratio of net liabilities to shareholders' equity, was -88.0 (-89.5) at the end of the third quarter. Equity ratio on September 30, 2004 stood at 95.5 percent (95.2 percent). The reported gross capital expenditure for the period totaled EUR 0.4 million (EUR 0.7 million), consisting mainly of software investments. Reported financial income consisted of interest income and capital gains on fund units. Financial income and expenses totaled EUR 0.5 million, compared with EUR 0.1 million in the previous year. Since SSH, under IAS 39, classifies financial assets and other marketable securities as available-for-sale assets, it recognizes changes in their value under shareholders' equity. Only after the sale of an asset does the company recognize interest income in the income statement. During the report period, SSH recognized an increase of EUR 0.04 million in the value of its financial and other marketable securities. Business operations and investments showed a negative cash flow of EUR 3.5 million and EUR 0.3 million, respectively. Cash flow from financing, EUR 0.1 million, was generated by share subscriptions, based on the employee stock-option scheme. The company showed a negative total cash flow of EUR 3.7 million during the period. MARKET DEVELOPMENTS As in the preceding quarters, the third quarter was characterized by cautious signs of recovery in IT investments. Similarly, the number of invitations to tender, and projects pending among SSH's customers - large corporations, financial institutions and government agencies - increased, although the conclusion of actual contracts was a slow process. Legislative reforms on data confidentiality and secure data communication are taking place both in the US and Europe. Customers are facing an ever-greater challenge in terms of information security management due to the gradual disappearance of boundaries between companies' internal and external information networks, with recent surveys suggesting that large corporations are finding it more difficult to protect their intranets and businesses from sophisticated worms and back doors. The SSH Tectia solution's features are well in line with this trend, and SSH is confident that reforms will have favorable effects in terms of customers planning secure remote management of their information systems and solutions for protecting their business applications. The number of companies actively testing new data security solutions increased in North America, SSH's main market area, with demand mainly focusing on solutions for secure remote management of network servers and various kinds of data communication equipment. Currently, SSH Tectia Manager is included in practically all major SSH Tectia installations. In Europe, the SSH Tectia solution attracted growing interest, especially among financial institutions and government organizations. Customers' interest in securing their business applications grew slightly during the third quarter. For SSH, the most interesting countries in Europe were still Germany, the UK and the Nordic countries, with SSH taking a huge step forward in the UK during the third quarter when a major UK bank selected the SSH Tectia solution for secure remote management. In Asia, financial institutions were the most important customer segment for SSH during the third quarter. Asian customers were primarily interested in the secure remote management of traditional network servers and various data communication equipment, as evidenced by an international bank, based in China (Hong Kong), selecting SSH Tectia for secure remote management. Competition in the market for secure remote management solutions took a new form in the third quarter when F-Secure, a Finnish company, entered into a strategic partnership with WRQ, a US firm, which became the global, exclusive distributor of F-Secure's SSH products. This is expected to maintain fierce price competition in both the US, Europe and Asia. SALES PERFORMANCE SSH'S NET SALES EUR million 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 1-12/ 2004 2004 2004 2003 2003 2003 BY SEGMENT * AMER 1.4 2.0 1.0 1.6 1.2 6.5 APAC 0.1 0.1 0.2 0.5 0.7 2.2 EROW 0.6 0.5 0.5 0.8 1.4 5.1 SSH Group total 2.1 2.6 1.7 2.9 3.3 13.9 SSH TECTIA BUSINESS Net Sales** 2.1 2.6 1.7 2.3 1.6 8.3 * The figures for 2003 by segment are not fully comparable with those for 2004 because they include the OEM business divested in Q4/2003. ** The SSH Tectia solution was launched during the last quarter of 2003. Net sales for previous quarters include net sales of the products integrated as part of the SSH Tectia solution. In line with its long-term strategy, SSH continued its strong sales and marketing efforts during the third quarter. Compared with the corresponding period in the previous year, net sales of products belonging to the SSH Tectia solution rose by 28.8 percent. However, the third-quarter sales performance is traditionally weaker than that of the second quarter, as evidenced by the third quarter's 17.5 percent decline in net sales over the previous quarter. Although the sales process for system-level products for major customers is still protracted, the average size of contract grew during the third quarter, in line with SSH's long-term strategy. The Americas, Asia Pacific, Europe and Rest of the World accounted for 67.9 percent (45.4 percent), 6.1 percent (15.3 percent) and 26.0 percent (39.3 percent) of reported net sales, respectively. Asia Pacific and Europe and Rest of the World saw a decrease in their year-on-year share of net sales, as a result of the divestment of the OEM business. SSH's measures to reinforce and train its sales organization to sell the SSH Tectia solution in these market areas have made good progress. During the report period, SSH concluded 9 customer agreements each worth more than EUR 100,000 and 3 of which were signed during the third quarter. SSH's ten largest customers accounted for 43.0 percent of reported net sales, with the largest single customer accounting for around 19 percent. As the average size of contract is still on the increase, individual contracts may also come to represent a considerable share of future net sales. PRODUCTS AND MARKETING In line with its long-term strategy, SSH continued to focus its sales and marketing efforts during the first half of 2004 on large corporations, financial institutions and government agencies in the US, Europe and Asia. The company strengthened its sales organization by reinforcing its partner network complementing the SSH Tectia solution. In addition, it was involved in major trade fairs and customer workshops in the US, Europe and Asia, while embarking on the launch of active, targeted marketing campaigns promoting secure remote management solutions. In August, SSH joined HP's partnership program and entered into a distributor partnership with SiegeWorks, a US company. In September, SSH announced that it had concluded an OEM licensing agreement with Cryptico A/S, enabling SSH to incorporate Cryptico's encryption and data authentication software into its SSH Tectia solution. High-performance cryptographic algorithms pave the way for new uses for SSH Tectia's managed security middleware solution. During the second quarter, SSH also launched a new version of the SSH Tectia data security solution. SSH Tectia is based on award-winning SSH Secure Shell technology, and the new version is much easier to integrate with various user data management systems. The SSH Tectia solution enables companies to replace conventional, insufficient authentication methods easily and cost-effectively with electronic certificates and strong two-factor authentication. The third quarter saw several smaller software update projects for SSH Tectia and the extension of operating system support into HP Itanium. At the same time, SSH sharpened its product strategy in such a way that the management of certificates will be integrated seamlessly with SSH Tectia. For SSH's business, the relevant data security markets can be roughly divided into two application areas: data communications encryption and secure remote management. SSH estimates that the size of its target market in 2004 is worth around EUR 180 million, this figure excluding the traditional PKI infrastructure market, which is no longer high on SSH's agenda, This estimate is based on reports by international market research firms and SSH's own estimates. RESEARCH AND DEVELOPMENT January-September R&D expenses totaled EUR 3.0 million (EUR 4.0 million), accounting for 46.7 percent of net sales (36.4 percent), with this fall due mainly to the divestment of the OEM business in October 2003. In addition, the closure of the Kuopio office in the first quarter of 2003, and the resulting relocation of R&D resources to Helsinki, also lowered expenses. In accordance with IAS, SSH capitalizes only product development expenses caused by the commercialization of new products at the end of R&D processes. Such R&D expenses incurred during the report period totaled EUR 0.3 million, with these expenses to be capitalized as part of the commercialization of the new SSH Tectia Manager solution. During the third quarter there were no capitalized R&D expenses. SSH will continue to expense the majority of its R&D expenses directly. At the end of September, the company held nine patents with 18 pending. HUMAN RESOURCES AND ORGANIZATION During the report period, SSH reinforced its sales organization, with the UK and German sales teams in Europe recruiting more staff, in addition to a few salespeople hired in the US. In June, Mr Juha Saksi, M.Sc. (Eng.) and eMBA, was appointed Vice President of Sales, Europe and Asia, and SSH Management Team Member. Prior to joining SSH, Juha Saksi held positions at F-Secure as Director of Wireless Security Business and at Okmetic as VP of Sales and Marketing. He was also a member of the management team in both companies. In his new position, Saksi is in charge of SSH Tectia sales in the European and Asian markets, and of sales development in cooperation with SSH's local partners. At the end of June, the Group had 102 employees on its payroll, down by 29 over the previous year (-22.1 percent). At the end of the period, 39.2 percent of personnel worked in R&D, 44.1 percent in sales and marketing, and 16.7 percent in administration. The company will follow a moderate policy in terms of any increase in its sales and R&D staff. BOARD AND AUDITORS Until the Annual General Meeting on April 27, 2004, SSH Communications Security Corp's Board of Directors consisted of Tapio Kallioja, Tomi Laamanen, Timo Ritakallio and Tatu Ylönen, who were all re-elected as Board members, with Tomi Laamanen re-elected as Chairman. The AGM re-elected PricewaterhouseCoopers Oy, an authorized public accountants firm, as the company's auditor, with Henrik Sormunen, an authorized public accountant, acting as the principal auditor. SHARES, SHAREHOLDING AND CHANGES IN THE GROUP STRUCTURE The reported trading volume of SSH Communications Security Corp shares for the period totaled 7,439,262 (valued at EUR 13,403,556.61), i.e. 26.5 percent of shares changed hands. The highest quotation for the period was EUR 2.69 and the lowest EUR 1.18. The trade-weighted average price for the period amounted to EUR 1.80, and the share closed at EUR 1.33 (Sept.30, 2004). There were no substantial changes in SSH Communications Security Corp's shareholding during the report period. Applied Computing Research (ACR) Oy holds 60.4 percent of the company's shares. In March, the company announced that the Board of Directors of SSH and Applied Computing Research (ACR) had signed a merger agreement whereby ACR would merge with SSH. Through the implementation of the merger, SSH would issue 16,942,487 new shares for ACR's shareholders, Mr. Ylönen and Mr. Kivinen, as a consideration of the merger. The number of these shares equals that of SSH shares currently held by ACR. The shares held by ACR will be transferred to SSH's ownership. The Annual General Meeting on April 27, 2004 approved ACR's and SSH's merger plan, the increase of share capital related to the merger consideration, and the merger of ACR with SSH, as proposed by the Board of Directors. The AGM also decided on the conditional invalidation of the SSH shares held by ACR to be transferred to SSH as a result of the merger, and on the reduction of shareholders' equity. In addition, the AGM decided to reduce the company's share premium fund by transferring a total of EUR 15,000,000 to unrestricted equity. The key objective of this merger is to streamline the corporate structure and enhance the transparency of SSH's shareholding. The plan is to implement the merger on October 31, 2004. SHARE CAPITAL AND BOARD AUTHORIZATIONS The company's registered share capital on September 30, 2004 came to EUR 842,691.78, consisting of 28,089,726 shares. During the report period, SSH increased its share capital twice, based on the subscription of the new shares under SSH's stock-option scheme. A total of 334,750 and 19,166 new SSH shares were subscribed under the 1999 and 2003 stock-option schemes, respectively, with the result that the company's share capital increased by EUR 10,617.48. SSH's Annual General Meeting of April 27, 2004 authorized the Board to decide by April 27, 2004 to increase share capital through a rights issue and/or grant stock options or issue bonds with warrants, or convertible bonds, in such a way that the resultant share capital may increase by a maximum of EUR 165,000. The authorization has not been exercised. On August 27, 2004, the Trade Register gave the green light for the reduction of the share premium fund by EUR 15,000,000. EVENTS AFTER THE REPORT PERIOD In September, SSH implemented a Tectia solution in the US, worth EUR 0.4 million, for one of the world's largest financial services companies. However, contrary to the related income recognition predicted for September, SSH recognized the deal for October since the customer had dated the order for then. This deal is a part of a large frame agreement, and the management expects to see more purchase orders based on this frame agreement in the future. After the report period, SSH and Instasec Oy signed a letter of intent regarding the transfer of the further development of the SSH Certifier PKI platform to Instasec Oy. This OEM licensing includes the transfer of existing SSH Certifier customer relationships to Instasec Oy. SSH introduced two new modules for its SSH Tectia solution, with the new versions of the SSH Tectia Server software enabling powerful, visible encryption for business applications, while protecting application server remote management. In addition, the company has adopted a new pricing model for its SSH Tectia, designed to make powerful enterprise security more cost-effective for entry-level customers. In early October, SSH appointed Timo Rinne, M.Sc. (CS), Chief Technology Officer responsible for the company's technology strategy and its application to product development and the SSH Tectia products. His predecessor, Tatu Ylönen, will continue as a member of SSH's product development team and Board of Directors, while concentrating on his doctoral dissertation at the Helsinki University of Technology. PROSPECTS During the fourth quarter, SSH will continue to place particular emphasis on expanding its SSH Tectia business and catering for the needs of its selected customer segments - large corporations, financial institutions and public-sector organizations. A number of legislative programs are underway both in the United States and Europe, which will have an impact on their data security and data systems. In the development of its SSH Tectia product concept, SSH has remained proactive in relation to the effects of these legislative initiatives so as to allow customers to adapt to the new requirements as easily as possible. SSH's management is confident that these legislative reforms will have a favorable effect on demand for the SSH Tectia solution. SSH sharpens its net sales forecast for 2004 to EUR 9-11 million. The company's management expects the SSH Tectia solution, including the SSH Tectia Manager and SSH Tectia Connector product, which met with a favorable reception in the market, to provide greater scope for increasing the average size of contracts while contributing to the achievement of the company's net sales target. The management estimates that SSH will show an operating loss for 2004 as a whole. INCOME STATEMENT EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ 2004 2003 2004 2003 2003 Net sales 2.1 3.3 6.3 11.0 13.9 Purchasing and production 0.0 -0.5 -0.1 -2.5 -2.5 costs Gross profit 2.1 2.8 6.2 8.5 11.3 Other operating income 0.2 0.2 0.2 0.5 11.3 Expenses Product development -0.8 -1.1 -3.0 -4.0 -5.2 Sales and marketing -1.9 -2.0 -6.3 -6.9 -9.6 Administration -0.5 -0.6 -1.8 -2.2 -2.6 Operating profit/loss -0.9 -0.8 -4.6 -4.1 5.2 Financial income and expenses 0.2 0.0 0.5 0.1 0.4 Profit/loss before taxes -0.6 -0.9 -4.1 -4.0 5.5 a Taxes* 0.0 0.0 0.0 0.0 0.0 Net profit/loss for the -0.6 -0.9 -4.1 -4.0 5.5 period a)* Taxes are proportionate to the net profit for the period, and no deferred tax assets are recorded for the period's accrued loss. 1-9/ 1-9/ 1-12/ 2004 2003 2003 Earnings per share, EUR -0.15 -0.14 0.20 Earnings per share (diluted), -0.15 -0.14 0.19 EUR BALANCE SHEET EUR million Sept. Sept. Dec. 30, 30, 31, 2004 2003 2003 ASSETS Fixed and non-current assets Tangible assets 0.5 0.7 0.5 Intangible assets 1.0 1.1 1.2 Deferred tax assets 0.2 0.2 0.2 Fixed and non-current assets 1.7 2.1 2.0 total Inventories and current assets Inventories 0.0 0.5 0.0 Short-term receivables 4.8 4.0 5.2 Short-term investments 31.4 23.0 33.8 Cash and cash equivalents 1.6 6.0 2.9 Total inventories and current 37.8 33.5 41.9 assets Total assets 39.6 35.6 43.8 LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity 37.1 32.2 41.1 Long-term liabilities Provisions 0.1 0.0 0.0 Long-term financial 0.4 0.2 0.2 liabilities Total long-term liabilities 0.5 0.2 0.2 Short-term liabilities 1.9 3.2 2.4 Total liabilities and 39.6 35.6 43.8 shareholders' equity STATEMENT ON CHANGES IN SHAREHOLDERS' EQUITY Share Issue Revaluat Transl Retained Total capital premium ion and ation earnings fund other differ funds ence EUR million Shareholders' 0,8 53,0 0,0 -0,3 -17,5 36,0 equity January 1, 2003 Change 0,0 -13,6 0,4 -0,2 9,7 Shareholders' 0,8 39,3 0,4 -0,5 -7,8 32,2 equity Sept. 30, 2003 Change 0,0 0,0 -0,4 0,2 9,1 Shareholders' 0,8 39,3 0,0 -0,4 1,3 41,1 equity December 31, 2003 Change 0,0 -14,9 15,0 0,0 Net loss -4,1 Shareholders' 0,8 24,4 15,0 -0,3 -2,8 37,1 equity Sept. 30, 2004 * Transfer to the retained loss account has resulted in a reduction in the issue premium fund. CASH FLOW STATEMENT EUR million 1-9/ 1-9/ 1-12/ 2004 2003 2003 Cash flow from business operations -3.5 -5.1 5.5 Cash flow from investments -0.3 -0.8 -1.0 Cash flow from financing 0.1 0.4 0.0 Change/increase(+), decrease (-) -3.7 -5.5 4.5 in liquid assets Liquid assets at period-start 36.7 34.7 34.7 Adjustment for translation 0.0 -0.2 -0.2 difference b Liquid assets at period-end 33.0 29.0 39.0 b) Liquid assets consist of cash and cash equivalents, as well as other marketable securities. NET SALES BY SEGMENT EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ 2004 2003 2004 2003 2003 AMER 1.4 1.2 4.3 5.0 6.5 APAC 0.1 0.7 0.4 1.7 2.2 EROW 0.6 1.4 1.6 4.3 5.1 SSH Group total 2.1 3.3 6.3 11.0 13.9 OPERATING PROFIT/LOSS BY SEGMENT EUR million 7-9/ 7-9/ 1-9/ 1-9/ 1-12/ 2004 2003 2004 2003 2003 AMER 0.4 -0.1 1.4 0.0 1.0 APAC 0.0 0.3 0.1 0.4 0.7 EROW 0.6 0.6 -0.1 1.5 11.3 Common Group expenses* -1.8 -1.7 -6.1 -6.0 -7.8 SSH Group total -0.9 -0.8 -4.6 -4.1 5.2 * Common Group expenses include the Group's administration expenses (e.g. Management, Finance) and headquarters' Product Management and R&D expenses. The capital gains on the divestment of the OEM business have been divided among these segments. KEY FIGURES AND RATIOS 1-9/ 1-9/ 1-12/ 2004 2003 2003 Net sales, MEUR 6.3 11.0 13.9 Operating profit/loss, MEUR -4.6 -4.1 5.2 Operating profit/loss, % of net -73.5 -36.9 sales 37.5 Profit before extraordinary -4.1 -4.0 5.5 items and taxes, EUR million Profit/loss before extraordinary -65.6 -36.2 40.0 items and taxes, % of net sales Profit/loss before taxes, MEUR -4.1 -4.0 5.5 Profit/loss before taxes,% of -65.6 -36.2 40.0 net sales Return on investment, % 16.6 Return on equity, % 14.6 Interest-bearing net -32.7 -28.8 liabilities, MEUR -36.5 Equity ratio, % 95.5 95.2 94.7 Gearing, % -88.0 -89.5 -88.7 Gross capital expenditure, MEUR 0.4 0.7 0.8 % of net sales 6.3 6.3 6.2 R&D expenses, MEUR 3.0 4.0 5.2 % of net sales 46.7 36.4 37.4 Personnel, on average 106 136 131 Personnel, period-end 102 131 104 For the company's line of business, the value of outstanding orders is not a significant reference stated in the notes to the accounts. PER-SHARE DATA 1-9/ 1-9/ 1-12/ 2004 2003 2003 Earnings per share -0.15 -0.14 0.20 EUR (undiluted) Earnings per share, EUR -0.15 -0.14 0.19 (diluted) Equity/share, EUR 1.33 1.16 1.48 No. of shares at period-end, 28,090 27,730 27,736 1,000 Share performance, in EUR Average price 1.80 1.13 1.31 Low 1.18 0.61 0.61 High 2.69 2.36 2.36 Share price, period-end 1.33 1.91 1.70 Market capitalization, period- 37.4 53.0 47.2 end, MEUR Volume of shares traded, 7.4 5.3 million 7.6 Volume of shares traded, 26.5 19.1 % of total 27.5 Value of shares traded, MEUR 13.4 5.9 10.0 Price-earnings ratio (P/E) 8.4 CONTINGENT LIABILITIES EUR million Sept. 30, Sept. Dec. 2004 30, 31, 2003 2003 Rental liabilities 0.2 1.2 0.2 Leasing liabilities 0.2 0.2 0.2 Other contingent liabilities 2.4 0.0 2.4 Currency derivatives (not 1.6 0.0 2.0 included in the hedging calculations) These data are based on unaudited figures. NOTES TO THE CONSOLIDATED ACCOUNTS 1. ACCOUNTING PRINCIPLES This interim report has been prepared in accordance with the IAS 34 standard (Interim Reports). 2. RECONCILIATION OF NET PROFIT/LOSS EUR million FAS CHANGE IFRS FAS CHANGE IFRS 7-9/ 7-9/ 1-9/ 1-9/ 2003 2003 2003 2003 Net sales 3.3 3.3 11.0 11.0 Purchasing and -0.5 -0.5 -2.5 -2.5 production costs Gross profit 2.8 2.8 8.5 8.5 Other operating income 0.2 0.2 0.5 0.5 Operating expenses -3.8 -3.8 -13.1 -13.1 Operating profit/loss -0.8 -0.8 -4.0 -4.1 Total financial income 0.0 0.0 0.1 0.1 and expenses Net profit/loss for -0.8 -0.9 -4.0 -4.0 the period Earnings per share, -0.14 -0.14 EUR Earnings per share -0.14 -0.14 (diluted), EUR The reconciliation of net profit/loss for the entire fiscal year, 2003, is presented in the interim report for the first quarter of 2004, dated April 20, 2004. 3. RECONCILIATION OF BALANCE SHEET EUR million FAS CHANGE IFRS Sept.30, Sept. 30, 2003 2003 Long-term assets Tangible assets 1.5 -0.8 0.7 Intangible assets 0.3 0.8 1.1 Deferred tax assets 0.0 0.2 0.2 Total long-term assets 1.8 0.2 2.1 Short-term assets Deferred tax assets 0.2 -0.2 0.0 Inventories 0.5 0.5 Short-term receivables 4.0 4.0 Available-for-sale 22.6 0.4 23.0 assets Liquid assets 6.0 6.0 Total short-term assets 33.4 33.5 Total assets 35.2 35.6 LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Share capital 0.8 0.8 Issue premium fund 41.0 -1.6 39.3 Revaluation reserve 0.0 0.4 0.4 Retained profit/loss -10.0 1.6 -8.4 Subordinated loan 0.2 -0.2 0.0 Shareholders' equity 32.1 32.2 total Long-term liabilities Long-term 0.0 0.2 0.2 financial liabilities Total long-term 0.0 0.2 liabilities Short-term liabilities 3.2 3.2 Total liabilities 35.2 35.6 More detailed information on the transition can be found in a press release dated March 18, 2004. SHAREHOLDERS On September 30, 2004, the company's ten largest shareholders, excluding nominee-registered shares, were as follows: Applied Computing Research (ACR) Oy 60.3% Assetman Oy 5.0% Ilmarinen Mutual Pension Insurance Company 1.7% Promotion Capital I Ky 1.7% Jaakonsaari Markus 1.6% Ylönen Tatu 1.4% Tatu Ylönen Oy 1.3% Pohjola Finland 1.3% Kaukonen Kalle 1.2% Adams George 1.2% Total 76.7% FINANCIAL REPORTING A briefing on this interim report for analysts and the media will be presented in the auditorium of SSH's head office on the 1st floor at Fredrikinkatu 42, Helsinki, Wednesday, on October 20, 2004, starting at 11:00 a.m. Entrance can be gained from the corner of Fredrikinkatu and Malminkatu. SSH Communications Security Corp will release its next interim report and financial statements for January 1-December 31, 2004 in February 2005. Further information will be available on the company's website in due course. Helsinki, October 19, 2004 SSH COMMUNICATIONS SECURITY CORP Board of Directors Arto Vainio CEO For further information, please contact: Arto Vainio, CEO tel. +358 (0)20 500 7400 Johanna Lamminen, CFO tel. +358 (0)20 500 7419 Distribution: Helsinki Exchanges Major Media