SSH COMMUNICATIONS SECURITY CORP. STOCK EXCHANGE RELEASE February 9, 2005, at 9:00 a.m. FINANCIAL STATEMENTS BULLETIN JANUARY 1-DECEMBER 31, 2004 - Reported net sales fell by 40.6 percent, to EUR 8.2 million (EUR 13.9 million in 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 3.1 percent on the previous year. - In the company’s main market area, the US, sales in US dollars from the Tectia business increased by 29.8 percent compared with 2003. - Operating loss for the fiscal year amounted to EUR –6.4 million (EUR +5.2 million in 2003). - SSH completed several exceptionally large development projects in sales, marketing and product development, to help ensure future growth and profitability. - In 2004, the company concluded 12 customer agreements, each worth over EUR 100,000, three of which were signed during the fourth quarter. - SSH was able to increase the size of its contracts in line with its strategy, and signed its largest ever contract with an American systems integrator during the second quarter. - As of the beginning of the year, SSH has applied the International Financial Reporting Standards (IFRS), instead of the Finnish Accounting Standards. More detailed information on the adoption of IFRS was given in a stock exchange release dated March 18, 2004. KEY FIGURES 10-12/ 10-12/ 1-12/ 1-12/ 2004 2003 2004 2003* Net sales, EUR million * 1.9 2.9 8.2 13.9 Net sales, change % -33.12 -35.2 -40.6 -17.6 Operating profit/loss, -1.7 9.3 -6.4 5.2 EUR million % of net sales -89.4 324.3 -77.2 37.5 Operating profit/loss, -118.4 524.0 -222.4 136.9 change % Profit/loss before -1.7 9.5 -5.8 5.5 extraordinary items and taxes, EUR million % of net sales -87.4 334.0 -70.7 40.0 Number of employees 105 104 105 104 at period-end Earnings per share, EUR -0.21 0.20 Shareholders’ 1.26 1.48 equity/share, EUR * = Due to the OEM business divestment, completed on November 18, 2003, net sales for 2003 are not comparable with those for 2004. NET SALES Consolidated net sales for the period totaled EUR 8.2 million (EUR 13.9 million), down by 40.6 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. The divested OEM business accounted for 40.1 percent of SSH’s net sales in 2003. Net sales from products based on the SSH Tectia solution grew by 3.1 percent, year on year, generating almost all of the company’s sales in 2004. A small fraction of net sales came from the SSH Certifier product whose further development SSH licensed to Instasec Oy in November 2004. During the fourth quarter, SSH continued the systematic implementation of its strategy based on its Tectia solution, primary target customer groups including large enterprises, financial institutions, and government agencies, almost all of its Q4 sales stemming from these customer segments. The 2004 fourth-quarter net sales came to EUR 1.9 million, showing a year-on-year fall of 33.2 percent (EUR 2.9 million). The US dollar’s depreciation against the euro had a major effect on consolidated net sales for the report period i.e., the US dollar average rate dropped by 8 percent from the previous year. Almost 80 percent of SSH’s invoicing is based on US dollars. Parent company net sales for the period came to EUR 4.4 million, showing a year-on-year fall of 49.1 percent (EUR 8.6 million). RESULTS AND EXPENSES Losses for the period were EUR –6.4 million (EUR +5.2 million), while showing a net loss of EUR –5.8 million (EUR +5.5 million). Fourth- quarter operating loss came to EUR –1.7 million (EUR +9.3 million) while the same period showed a net loss of EUR –1.7 million (EUR +9.5 million). For future earnings and cost structure, major investments in development programs attached to SSH Tectia’s sales, marketing and product development were particularly important in 2004, alongside a number of measures to enhance the company’s future cost structure. In 2004, the company’s cost structure included exceptional non- recurring expenses arising from the establishment of new offices in Germany and the UK as well as recruiting and training key staff for these offices. In July, the company recorded a provision for an unprofitable lease agreement. At the end of December, the provision came to EUR 0.1 million. SSH’s US subsidiary moved to smaller and significantly lower cost premises. At the same time, the subsidiary subleased its Palo Alto office, but this rental income does not fully cover rental expenses. Problems related to incorrectly reported and paid royalties between F- Secure Corporation and Nokia Corporation may incur costs to SSH. SSH has had no possibility whatsoever to verify this. F-Secure claims excess royalties paid to SSH for 2001-2004. SSH has entered the royalties for 2004 as net sales adjustments. The total amount under dispute of the royalty repayment claim is approximately EUR 180,000, for which SSH has recorded a provision of EUR 90,000 at the end of December. SSH will continue talks with F-Secure on the amount and fairness of the royalty repayment. SSH’s US subsidiary, SSH Communications Security, Inc., received a claim for recovery from the bankruptcy estate of its US customer, Global Crossing Ltd, on the refund of USD 50,000 concerning a license fee from 2002. The company entered into negotiations over an amicable settlement with Global Crossing Ltd’s bankruptcy estate during 2004 and, offered to pay USD 30,000 to the bankruptcy estate. The company expensed this amount in December 2004. Research and development expenses for the period totaled EUR 3.8 million (EUR 5.2 million), while sales and marketing expenses came to EUR 8.6 million (EUR 9.7 million). Administrative expenses were EUR 2.4 million (EUR 2.6 million). Fourth-quarter R&D expenses totaled EUR 0.9 million, while a year ago they were EUR 1.2 million. Sales and marketing expenses for the same period amounted to EUR 2.2 million (EUR 2.8 million) while administrative expenses totaled EUR 0.6 million (EUR 0.5 million). Parent-company operating loss came to EUR –5.7 million (EUR +5.6 million) and net loss totaled EUR –5.3 million (EUR +6.5 million). In the 2003 results, the divestment of the OEM business was recorded almost entirely in the parent company’s accounts. SSH signed a new lease on its Finnish premises in December 2004. The new lease will substantially reduce the company’s lease expenses in Finland as of May 1, 2005. BALANCE SHEET AND FINANCIAL POSITION SSH’s financial position remained at a healthy level during the report period. Consolidated balance sheet total on December 31, 2004 stood at EUR 38.0 million (EUR 43.8 million), of which the liquid assets accounted for EUR 33.9 million (EUR 36.8 million), or 89.1 percent of the balance sheet total. Except for the subordinated loan of EUR 0.2 million granted by the National Technology Agency (Tekes), the company has no other long-term liabilities. Gearing, or the ratio of net liabilities to shareholders’ equity, was –94.8 (-88.7 percent) at the end of the financial year. Equity ratio on December 31, 2004 stood at 94.8 percent (94.7 percent). The reported gross capital expenditure for the period totaled EUR 0.5 million (EUR 0.8 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, whereas a year ago they were EUR 0.3 million. Since SSH, under IAS 39, classifies financial assets and other marketable securities as available-for-sale assets, it recognizes any unrealized 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 value of EUR 0.07 million under shareholders’ equity. In connection with the sale of the OEM business in November 2003, part of the sales price, USD 2.8 million, was transferred to an escrow account for 12 months. SSH has received the balance in full to the extent that USD 0.8 million remained in the escrow account at the end of December. Since this amount was transferred to SSH’s account at the very beginning of January, it was stated under other receivables on the balance sheet. SSH’s business operations and investments showed a negative cash flow of EUR –2.6 million and EUR –0.4 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 –2.8 million during the period. MARKET DEVELOPMENTS In 2004, the number of invitations to tender, and projects pending among SSH’s customers showed a marked upward trend. Project negotiation times until the final delivery stage continued to take a relatively long time. Data security remained high on the agenda of companies’ and public-sector organizations’ IT investments. Major 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 deperimeterization, or 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 align well 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 SSH Tectia data security solutions increased in significantly 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 towards the end of the year. For SSH, the most interesting markets in Europe include Germany, the UK and the Nordic countries, with SSH taking a major 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 continued to constitute the most important customer segment for SHH during the report year. 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 change is expected to continue the fierce price competition in the US, Europe and Asia. SALES PERFORMANCE SSH’S NET SALES EUR million 10-12/ 7-9/ 4-6/ 1-12/ 10-12/ 1-12/ 2004 2004 2004 2004 2003 2003 BY SEGMENT* AMER 1.4 1.4 2.0 5.7 1.6 6.5 APAC 0.2 0.1 0.1 0.6 0.5 2.2 EROW 0.3 0.6 0.5 2.0 0.8 5.1 SSH Group total 1.9 2.1 2.6 8.2 2.9 13.9 SSH TECTIA BUSINESS Net sales**/*** 1.9 2.1 2.6 8.2 2.3 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 earlier versions of SSH products now enhanced and integrated as part of the SSH Tectia solution. *** The net sales of SSH Tectia solution business for the fiscal year 2004 is not fully comparable with that for 2003, when SSH Certifier product was still included in SSH Tectia solution. Net sales from products based on the SSH Tectia generated almost all of the company’s sales in 2004. A tiny fraction of net sales for the period came from the SSH Certifier product. Most of SSH’s net sales for 2004 came from the US, with the US Government, large banks, and large enterprises as SSH’s major customers. Sales of SSH Tectia in US dollars grew by almost 30 percent in its main market while the US dollar continued to weaken against the euro. Net sales on products based on the SSH Tectia solution showed a global growth of 3.1 percent year-on-year. During the fourth quarter, net sales were not at satisfactory levels. Sales were particularly affected by the fact that several customers SSH had predicted would buy at the end of 2004 postponed their purchases, with end-of-year budgetary decisions. Although the sales process of a system-level product for major customers continues to be a long one, average customer invoicing continued to grow in line with SSH’s long-term strategy during the last quarter. The Americas, Asia Pacific, Europe and Rest of the World accounted for 69.1 percent (47.3 percent), 7.0 percent (15.5 percent) and 23.9 percent (37.2 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 proceeded more slowly than expected. During the report period, SSH concluded 12 customer agreements each worth more than EUR 100,000, three of which were signed during the fourth quarter. SSH’s ten largest customers accounted for 39.8 percent of reported net sales, with the largest single customer accounting for 14.6 percent. PRODUCTS AND MARKETING During the report period, SSH focused its sales and marketing efforts on large corporations, financial institutions and government agencies in the US, 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. 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 February, SSH announced that it had joined the Entrust TrustedPartner Program, launched by Entrust, Inc., a US company. Through this strategic partnership with Entrust, Inc., the SSH Tectia product family will be reviewed for compatibility and interoperability with the Entrust PKI-based solutions, paving the way for SSH Tectia’s more effective sales and marketing using Entrust’s current broad customer base. In April, Swisscom Eurospot announced that the SSH Tectia client/server products had passed their compatibility tests along with Check Point and Nortel Networks products. In June, SSH announced that it had concluded a contract on sales and marketing cooperation with SAS Institute, a major supplier of business intelligence solutions in Finland. During the first contract period, product marketing cooperation will begin. During the second quarter, SSH also launched a new version of the SSH Tectia data security solution. Based on award-winning SSH Secure Shell technology, SSH Tectia is a data security solution for large enterprises. 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. In August, SSH joined HP’s partnership program and entered into a VAR (Value Added Reseller) 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 software into its SSH Tectia solution. High-performance cryptographic algorithms pave the way for new uses for SSH Tectia managed security middleware solution. The third quarter saw several 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. In October, SSH licensed the SSH Certifier PKI platform to Instasec Oy. This OEM licensing includes the transfer of existing SSH Certifier customer relationships to Instasec Oy. Furthermore, SSH introduced two new modules for its SSH Tectia solution, 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 solution designed to make powerful enterprise security more cost-effective for entry-level customers. For SSH’s business, the relevant data security markets can be roughly divided into two application areas: data communications encryption and secure remote administration. 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 analyses. RESEARCH AND DEVELOPMENT January-December R&D expenses totaled EUR 3.8 million (EUR 5.2 million), accounting for 46.4 percent of net sales (37.4 percent). This fall was due mainly to the divestment of the OEM business in October 2003. 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. SSH will continue to expense the majority of its R&D expenses. At the end of the report period, the company held nine patents with 18 pending. HUMAN RESOURCES AND ORGANIZATION During the report period, SSH reinforced its sales organization in particular, with the UK and German sales teams in Europe recruiting more staff, in addition to selected key new sales positions in the US. SSH reorganized its operations in December by bringing its product management, product marketing, product development and customer support under one organization. This new organization ensures that any views and further development proposals coming from the customer interface are conveyed to product management and development as soon as possible to be taken into the right new features for the next product versions. At the end of December, the Group had 105 employees on its payroll, one person more than a year earlier, when the headcount was 104. At the end of the period, 40.0 percent of the personnel worked in R&D, 44.0 percent in sales and marketing, and 16.0 percent in administration, with most of the staff changes affecting sales and marketing and administration. At the end of 2004, sales and marketing staff was 4 percent higher than a year earlier, whereas administrative staff was 2 per cent lower than at the end of 2003. 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, continued as a member of SSH’s Board of Directors. 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 totaled 9,344,794 (valued at EUR 15,834,404), i.e. 33.3 percent of the shares changed hands. The highest quotation was EUR 2.69 and the lowest EUR 1.18. The trade weighted average share price for the period amounted to EUR 1.69, and the share closed at EUR 1.28 on the last banking day (on December 30, 2004), when the trading was arranged in the period. 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 then held by ACR. The shares held by ACR will be transferred to SSH’s ownership. The Annual General Meeting on April 27, 2004 approved the 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 cancellation 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. The key objective of the merger was to streamline the corporate structure and enhance the transparency of SSH’s shareholding, in addition to observing the Corporate Governance recommendation for listed companies, issued by HEX Helsinki Exchanges. SSH applied for the shares to be issued as merger consideration to be admitted for public trading on the main list of the Helsinki Stock Exchange as of November 1, 2004, under the same class of shares as its existing shares. In connection with this application, SSH published a prospectus on 25 October 2004. The merger was implemented according to plan on October 31, 2004, leading to changes in holdings as referred to in the Securities Markets Act (Chapter 2, Section 10), thus causing a significant change in SSH’s ownership. As a result, Tatu Ylönen held 53.77 percent and Tero Kivinen 9.25 percent of the company. 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. This transfer required the approval of the Trade Register. On 27 August, 2004, the Trade Register gave the green light for the reduction of the share premium fund by EUR 15,000,000. SHARE CAPITAL AND BOARD AUTHORIZATIONS The company’s registered share capital on December 31, 2004 came to EUR 843,046.26, consisting of 28,101,542 shares. During the report period, SSH increased its share capital four times, based on the subscription of the new shares under SSH’s stock-option scheme. A total of 334,750 and 30,982 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 10,971.96. SSH’s Annual General Meeting of April 27, 2004 authorized the Board to decide by April 27, 2005 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 Board did not exercise this authorization by December 31, 2004. EVENTS AFTER THE REPORT PERIOD At the beginning of January 2005, SSH revised its net sales estimate for 2004 because a number of contracts and related income recognition predicted for the fourth quarter of 2004 had been postponed. SSH received and delivered four of these orders in early 2005. In January, the company launched a major new SSH Tectia data security solution, SSH Tectia Server, which is the first Secure Shell product for IBM mainframe environment. The new product introduces the Secure Shell data security protocol developed by SSH to IBM’s z/OS operating system. According to market reports, more than 90 percent of Fortune 1,000 companies use such mainframe environments for their business applications, and more than 70 percent of business data is stored on mainframe computers. PROSPECTS FOR 2005 SSH has concluded a period of reorganization and major development investments, which took over two years. The company’s management expects to reach a major turning point during 2005, both in terms of sales and profitability. SSH’s sales will grow by 10-30 percent during 2005, thanks to several legislative changes underway both in the US and Europe as well as the new sales offices SSH launched in Germany and the UK in 2004. In 2004, the company also expanded its partner network, expecting this new co- operation to increase the recognition of SSH Tectia solutions. Continuous development of the SSH Tectia solution and new product applications will expand the target market both from the viewpoint of current and new customers. SSH’s management is confident that these factors will have a favorable effect on demand for the SSH Tectia solution. SSH’s net sales forecast for 2005 is EUR 9-11 million. The company’s management expects the SSH Tectia solution, including the SSH Tectia Manager and SSH Tectia Connector products, which met with a favorable reception in the market, will increase the average size of contracts while contributing to the achievement of the company’s net sales target. The management estimates that SSH will have a possibility to reach profitability in 2005. BOARD PROPOSAL TO THE ANNUAL GENERAL MEETING SSH’s total profit from sold of its OEM business during 2003 was over EUR 10 million. SSH Group's distributable assets total of EUR 8,189,362 (parent company EUR 16,147,696). The Board of Directors proposes to the Annual General Meeting of Shareholders that a dividend of EUR 0.29 per share be paid for 2004, which total about EUR 8,149,930. INCOME STATEMENT EUR million 10-12/ 10-12/ 1-12/ 1-12/ 2004 2003 2004 2003 Net sales 1.9 2.9 8.2 13.9 Purchasing and production -0.1 0.0 -0.1 -2.5 costs Gross profit 1.9 2.8 8.1 11.3 Other operating income 0.1 10.8 0.3 11.3 Expenses Product development -0.9 -1.2 -3.8 -5.2 Sales and marketing -2.2 -2.8 -8.5 -9.7 Administration -0.6 -0.5 -2.4 -2.6 Operating profit/loss -1.7 9.3 -6.4 5.2 Financial income and expenses 0.0 0.3 0.5 0.4 Profit/loss before taxes -1.7 9.5 -5.8 5.5 a Taxes 0.0 0.0 0.0 0.0 Net profit/loss for the -1.7 9.5 -5.8 5.5 period a)Taxes are proportionate to the net profit for the period, and no deferred tax assets are recorded for the accrued loss. 1-12/ 1-12/ 2004 2003 Earnings per share, EUR -0.21 0.20 Earnings per share (diluted), -0.21 0.19 EUR BALANCE SHEET EUR million 31 Dec. 31 Dec. 2004 2003 ASSETS Fixed and non-current assets Tangible assets 0.4 0.5 Intangible assets 0.9 1.2 Deferred tax assets 0.2 0.2 Fixed and non-current assets 1.6 2.0 total Inventories and current assets Inventories 0.0 0.0 Short-term receivables 2.6 5.2 Short-term investments 32.3 33.8 Cash and cash equivalents 1.5 2.9 Total inventories and current 36.4 41.9 assets Total assets 38.0 43.8 LIABILITIES AND SHAREHOLDERS’ EQUITY Shareholders’ equity 35.4 41.1 Long-term liabilities Provisions 0.2 0.0 Long-term financial 0.3 0.2 liabilities Total long-term liabilities 0.6 0.3 Short-term liabilities 2.0 2.4 Total liabilities and 38.0 43.8 shareholders’ equity STATEMENT ON CHANGES IN SHAREHOLDERS’ EQUITY EUR million Share Issue Revalua Transl Retained Total capital premium tion ation earnings fund* and differ other ence funds Shareholders’ 0.8 53.0 0.0 -0.3 -17.5 36.0 equity Jan. 1, 2003 Change 0.0 -13.6 0.0 -0.4 19.2 Shareholders’ 0.8 39.3 0.0 -0.7 1.7 41.1 equity Dec. 31, 2003 Shareholders’ 0.8 39.3 0.0 -0.7 1.7 41.1 equity Jan. 1, 2004 Change 0.0 -14.9 15.1 -0.1 Net loss -5.8 Shareholders’ 0.8 24.4 15.1 -0.8 -4.2 35.4 equity Dec. 31, 2004 * Transfer to the retained loss account has resulted in a reduction in the share premium fund. CASH FLOW STATEMENT EUR million 1-12/ 1-12/ 2004 2003 Cash flow from business operations -2.6 3.3 Cash flow from investments -0.4 -1.0 Cash flow from financing 0.1 0.0 Change/increase(+), decrease (-) -2.8 2.3 in liquid assets Liquid assets at period-start 36.7 34.7 Adjustment for translation 0.0 -0.2 difference b Liquid assets at period-end 33.9 36.7 b)Liquid assets consist of cash and cash equivalents, as well as other marketable securities. NET SALES BY SEGMENT EUR million 10-12/ 10-12/ 1-12/ 1-12/ 2004 2003 2004 2003 AMER 1.4 1.6 5.7 6.5 APAC 0.2 0.5 0.6 2.2 EROW 0.3 0.8 2.0 5.1 SSH Group total 1.9 2.9 8.2 13.8 OPERATING PROFIT/LOSS BY SEGMENT EUR million 10-12/ 10-12/ 1-12/ 1-12/ 2004 2003 2004 2003 AMER 0.7 1.0 2.1 1.0 APAC 0.1 0.3 0.2 0.7 EROW -1.5 9.8 -1.6 11.3 Common Group Expenses* -0.9 -1.8 -7.1 -7.8 SSH Group total -1.7 9.3 -6.4 5.2 * Common Group Expenses include Group’s administration expenses (e.g. Management, Finance) and headquarters’ Product Management and R&D expenses. Capital gains on the OEM business divestment have been divided among these segments. KEY FIGURES AND RATIOS 1-12/ 1-12/ 2004 2003 Net sales, MEUR 8.2 13.9 Operating profit/loss, MEUR -6.4 5.2 Operating profit/loss, % of net -77.2 37.5 sales Profit/loss before extraordinary -5.8 5.5 items and taxes, MEUR Profit/loss before extraordinary -70.7 40.0 items and taxes, % of net sales Profit/loss before taxes, MEUR -5.8 5.5 Profit/loss before taxes, -70.7 40.0 % of net sales Return on investment, % -13.5 16.6 Return on equity, % -15.1 14.6 Interest-bearing net -33.5 -36.5 liabilities, MEUR Equity ratio, % 94.8 94.7 Gearing,% -94.8 -88.7 Gross capital expenditure, MEUR 0.5 0.8 % of net sales 5.6 6.2 R&D expenses, MEUR 3.8 5.2 % of net sales 46.4 37.4 Personnel, on average 105 131 Personnel, period-end 105 104 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 1-12/ 1-12/ 2004 2003 Earnings per share, -0,21 0.20 EUR (undiluted) Earnings per share, EUR -0,21 0.19 (diluted) Equity/share, EUR 1,26 1.48 No. of shares at period-end, 28 102 27,736 1,000 Share performance, EUR Average price 1,69 1.31 Low 1,18 0.61 High 2,69 2.36 Share price, period-end 1,28 1.70 Market capitalization, period- 36,0 47.2 end, MEUR Volume of shares traded, 9,3 7.6 million Volume of shares traded, 33,3 27.5 % of total Value of shares traded, MEUR 15,8 10.0 Price-earnings ratio (P/E) 8.4 CONTINGENT LIABILITIES EUR million 31 Dec. 31 Dec. 2004 2003 Rental liabilities 0.1 0.2 Leasing liabilities 0.1 0.2 Other contingent liabilities 0.6 2.3 Currency derivatives (not 0.7 2.0 included in the hedging calculations) These data are based on unaudited figures. NOTES TO THE CONSOLIDATED ACCOUNTS 1. ACCOUNTING PRINCIPLES This financial statements bulletin 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 10-12/ 10-12/ 1-12/ 1-12/ 2003 2003 2003 2003 Net sales 2.9 2.9 13.9 13.9 Purchasing and 0.0 0.0 -2.5 -2.5 production costs Gross profit 2.8 2.8 11.3 11.3 Other operating income 10.8 10.8 11.3 11.3 Operating expenses -4.3 -0.1 -4.4 -17.4 -0.1 -17.5 Operating profit/loss 9.3 -0.1 9.3 5.3 -0.1 5.2 Total financial income 0.3 0.3 0.4 0.4 and expenses Net profit/loss for 9.6 -0.1 9.5 5.6 -0.1 5.5 the period Earnings per share, 0.0 0.20 0.20 EUR Earnings per share 0.0 0.20 0.19 (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 31 Dec. 31 Dec. 2003 2003 Long-term assets Tangible assets 0.3 0.3 0.5 Intangible assets 1.6 -0.4 1.2 Deferred tax assets 0.0 0.2 0.2 Total long-term assets 1.8 2.0 Short-term assets Deferred tax assets 0.2 -0.2 0.0 Inventories 0.0 0.0 Short-term receivables 5.2 5.2 Available-for-sale 32.2 32.2 assets 4.6 4.6 Liquid assets 42.1 41.9 Total short-term assets 0.2 -0.2 0.0 Total assets 43.9 43.8 LIABILITIES AND SHAREHOLDERS’ EQUITY Shareholders’ equity Share capital 0.8 0.8 Share premium fund 41.0 -1.6 39.3 Revaluation reserve 0.0 Retained profit/loss -0.6 1.5 1.0 Subordinated loan 0.2 -0.2 Shareholders’ equity 41.5 -0.3 41.1 total Long-term liabilities Long-term financial 0.0 0.2 0.2 liabilities Total long-term 0.0 0.3 liabilities Short-term liabilities 2.4 2.4 Total liabilities 43.9 43.8 More detailed information on the transition can be found in a press release dated March 18, 2004. SHAREHOLDERS On December 31, 2004, the company’s 10 largest shareholders, excluding nominee-registered shares, were as follows: Ylönen Tatu Juhani 52.4% Kivinen Tero Tapani 8.6% Assetman Oy 5.0% Jaakonsaari Markus 1.8% Ilmarinen Mutual Pension Insurance Company 1.7% Promotion Capital I Ky 1.7% Tatu Ylönen Oy 1.3% Grahn Juha Kalevi 1.3% Pohjola Finland 1.3% Kaukonen Kalle 1.0% Total 76.1% FINANCIAL REPORTING A briefing on the financial statements for analysts and the media will be held in SSH’s head office on the 7th floor at Fredrikinkatu 42, Helsinki, on Wednesday, February 9, 2005, starting at 11:00 a.m. SSH Communications Security Corp will release its next interim report for January 1–March 31, 2005 on April 19, 2005. Further information on the company’s financial reporting is available on the company’s website (http://www.ssh.com). Helsinki, February 9, 2005 SSH COMMUNICATIONS SECURITY CORP Board of Directors Arto Vainio CEO For further information, please contact: Arto Vainio, CEO tel. +358 20 500 7400 Johanna Lamminen, CFO tel. +358 20 500 7419 Company’s Investor Relations website in the Internet: http://www.ssh.com/investors/ Distribution: Helsinki Exchanges Major media