Annual Report • Mar 8, 2013
Annual Report
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Data-in-Transit Secure Shell
Awareness & DLP Enablement for Encrypted Networks
Content
Centralized SSH Key Management
& Access Identity Governance
| SSH COMMUNICATIONS SECURITY IN BRIEF | 4 |
|---|---|
| YEAR 2012 IN BRIEF | 5 |
| CEO LETTER 2012 | 8 |
| BOARD OF DIRECTORS | 10 |
| EXECUTIVE MANAGEMENT TEAM | 11 |
| REPORT OF THE BOARD OF DIRECTORS FOR 1 JAN – 31 DEC 2012 | 14 |
| CONSOLIDATED FINANCIAL STATEMENTS | 21 |
| Consolidated Comprehensive Income Statements | 22 |
| Consolidated Balance Sheet | 23 |
| Consolidated Cash Flow Statements | 25 |
| Statement of Changes in Consolidated Equity | 26 |
| Notes to the Consolidated Financial Statements | 27 |
| PARENT COMPANY FINANCIAL STATEMENTS | 46 |
| Parent Company Income Statement | 47 |
| Parent Company Balance Sheet | 48 |
| Parent Company Cash Flow Statement | 50 |
| Notes to the Parent Company Financial Statements | 51 |
| SIGNATURES TO THE BOARD OF DIRECTORS REPORT | |
| AND FINANCIAL STATEMENTS | 55 |
| AUDITOR'S REPORT | 56 |
| CORPORATE GOVERNANCE | 57 |
| INFORMATION FOR SHAREHOLDERS | 58 |
| CONTACT INFORMATION | 59 |
| 2012 | 2011 | |||
|---|---|---|---|---|
| Net sales | KEUR | 11,920 | 8,059 | |
| Operating profit/loss | KEUR | 1,083 | -2,036 | |
| % of net sales | % | 9.1 | -25.3 | |
| Profit / loss before taxes | KEUR | 1,130 | -2,173 | |
| Earnings per share | EUR | 0.04 | -0.07 | |
| Gearing | % | -105 | -230 | |
| Equity ratio | % | 70 | 36 | |
| Personnel (year end) | 70 | 52 | ||
Yearly Development 2008–2012 (m€)
Quarterly Development 2012 (m€)
Regional Net Sales Split (m€)
Personnel 2012 (as of 31 Dec)
Year 2012 showed significant improvement in contrast to 2011. The year focused on achieving three primary targets: identify and acquire the first user key management customers, re-establish connection and clean contractual arrangements for maintenance contracts with customers via the Deloitte license compliance program, and rebuild the US organization and customer base relations for an aggressive growth push in 2013. The combined effects of the license compliance program together with Deloitte and the successful acquisition of the first customers for Universal SSH Key Manager provided a good foundation for future growth, and resulted in a strong contribution to the overall 48% revenue growth achieved in 2012.
The first major delivery of Universal SSH Key Manager to a global financial institution began in September and will bring an estimated EUR 2.0 million through 2014. In addition to the strong start with Universal SSH Key Manager, which opened a new, potential, and exciting services channel, the license compliance program together with the strong and growing maintenance revenues, provided good growth in sales. Complementary to this, Tectia SSH Server for IBM z/OS provided good support to the overall growth, as two major enterprise deals were closed with major insurance companies.
The company continues working in a mixed sales model dependent upon the region. In EMEA, it runs primarily in a channel partner model, working with key integrator and value added resellers that have experience in the identity access governance and secure file transfer space and customer bases in the financial services sector. APAC works fully in a channel model via key distributors, value added resellers, and integrators to reach its key target focus markets. The Americas organization runs via a direct model for enterprise sales. It works with channel partners as required for fulfillment purposes and specialized partners for the company's mainframe offering, as well as for the government sector.
An additional channel for potential revenue growth is the professional services. Due to the unique technical skills required to manage SSH key remediation delivery projects, many customers are interested in outsourcing the service components to third party organizations that have the expertise in access management project deliveries.
SSH Communications Security develops and sells network security solutions, and our vision is to develop solutions that protect the integrity of enterprise information pathways with a focus on data-in-transit encryption, perimeter security, and internal security management controls.
Customer focus is seen across the organization all the way to the research and development. We want to develop and deliver solutions that solve real customer security challenges of today and tomorrow, not just compliance without security. Solutions we develop must provide real value for our customers by simultaneously reducing cost, eliminating risk, and driving compliancy while also being minimally invasive, and easy to deploy and integrate into existing infrastructures and security and management solutions.
During 2012, the company released an LTS (Long Term Support) version for Tectia SSH Client and Server, an enterprise-grade Secure Shell solution deployed to majority of the global Fortune 1000 companies. LTS version will help our enterprise customers to unify their installation base, minimize the required upgrades and maintenance, and to fit upgrade schedules and versions to their enterprise platform roadmaps.
The company also announced two new products during the year. Universal SSH Key Manager, announced in February 2012, is a centralized management platform providing enterprises a full lifecycle management of SSH keys and key access, including environment discovery and monitoring, access and process enforcement, and automation. Universal SSH Key Manager will further develop into next generation centralized management platform for SSH and related access management.
CryptoAuditor, announced in July 2012, is a centrally managed network security enforcement appliance that enables customers to inspect, audit, and control encrypted enterprise dataflows, and provide enterprise-wide real-time visibility and preventative security measures through IPS (intrusion prevention system), DLP (data loss prevention), and SIEM (security information and event management) integration. Integration of centralized management, security enforcement, auditing, and access management modules to a single SSH Information Assurance Platform provides the company a unique positioning in the growing identity and access governance space.
The company has positioned itself well for further sales growth in 2013 with the basis of its Information Assurance Platform, including Universal SSH Key Manager and CryptoAuditor. These products provide the company a unique entry point to the identity and access governance space with specialized and targeted area of expertise around SSH identity access management.
The company seeks to educate the market, related to the issue concerning the unique business risks due to poor SSH key management which has plagued organizations for years. It seeks to achieve this through influencing regulation and compliance drivers in both the commercial and federal space. The company recognizes in the markets a unique combination of compliance drivers, need to reduce business risks and operational costs. A complementary area of focus for 2013 is CryptoAuditor which provides unique functional capabilities and operational benefits to customers in area of monitoring and controlling encrypted communications and data transfers. CryptoAuditor has already raised interest among the financial services and telecommunication sectors. With both Universal SSH Key Manager and CryptoAuditor being available in portfolio in the beginning of the year, the company finds itself in a unique position to continue its growth path into 2013.
SSH Communications Security achieved record results in 2012. Revenue growth accelerated to 81% in Q4 (48% for the full year), with 9% profit margin, positive operative cash flow, and 31% return on equity for the year. We were the best performing stock on the NASDAQ OMX Helsinki market in 2012.
The company focuses on managing complex enterprise information technology (IT) systems, particularly in relation to the ubiquitous SSH protocol that I invented 18 years ago. Today, the SSH protocol is used on every Linux and Unix computer as well as most telecommunications and networking equipment, and serves critical roles in the global information infrastructure.
As IT systems grow, more and more aspects of their operation are automated. This includes systems management, automated data transfers, application integration, and management of user accounts. Increasingly, computers automatically perform operations on other computers. This has reached a point that, in the case of one major banking customer, over 1.5 million credentials were found granting automated access to their production servers (about ten times as many as they have employees).
Automated access is changing the whole identity and access management landscape, and is becoming a necessity to address. It has a deep impact on internal security barriers between systems and defense in depth. This is opening significant new business opportunities that the company is uniquely positioned to exploit as the inventor and primary commercial source of the SSH and SFTP protocols that are widely used for automated access.
The company introduced two new products for managing complex IT systems. The Universal SSH Key Manager product manages SSH keys for automated access and was successfully deployed on critical production servers in one of the world's top ten banks and some other large enterprises. The CryptoAuditor product enables controlling encrypted communications and encrypted SFTP file transfers within enterprises, providing auditability for system administration and inspection of encrypted data transfers exiting the organization.
Existing Tectia SSH client/server solution saw good demand driven by synergies with key management and control of encrypted connections, and two of the top ten insurance companies in the United States deployed the products throughout their IBM mainframe infrastructure. Mainframes are an important component of the IT systems of many larger enterprises, and securing mainframe file transfers and key management are essential for many organizations.
Finally, sales of Tectia MobileID, two-factor authentication solution, grew 191% with solid profit. This is due to the market's realization that passwords alone provide inadequate security and they are a frequent target of attacks and malware-based password capture tools.
The company is working with government and industry representatives to develop best practice standards for managing automated access. This cooperation is important, because automated access and SSH keys have been ignored for too long, and somebody must take responsibility for properly managing them before any disaster happens.
The company has invested substantially in patenting throughout its history. It holds several patents believed to be essential
for key security protocols, and has filed a number of new patent applications around its new product concepts.
The company is well funded, profitable, growing fast, and has interesting products that meet key emerging trends in IT security. This is something to build on going forward!
I thank our employees, partners, and customers for making this happen.
Tatu Ylönen, CEO
The Annual General Meeting held on 28 March 2012, elected Päivi Hautamäki (Chairman), Sami Ahvenniemi, and Tatu Ylönen as members of the Board of Directors.
Päivi Hautamäki has extensive experience of more than 15 years in energy, IT, and industrial field. She is the General Counsel at Eltel Group. Prior to joining the company in 2012, she was the General Counsel at Winwind Ltd, a wind turbine manufacturer, the General Counsel at F-Secure Corporation, an anti-virus and computer security and computer software company, and the Legal Counsel at Fortum Oyj, a Finnish energy company. She is also a member of the IPR committee of the Board of Central Chamber of Commerce in Finland and a Member of the Board of Finnish Industrial Lawyers. Ms. Hautamäki does not own any SSH shares.
Sami Ahvenniemi is Co-Founder & Partner at Conor Venture Partners, an early stage Nordic technology venture capital company. He has 15 years experience in working with technology companies having held executive positions both in Finland and in the United States. Prior to starting his venture career in 2002, he held several executive positions at SSH Communications Security between 1998 and 2002 and was, among other positions, the first founding CEO of its operation in the United States in 1998. He holds several board memberships in international growth companies, such as Neo Technology (California), Sensinode (California/Finland), and Behaviometrics (Sweden). Mr. Ahvenniemi does not own any SSH shares.
Tatu Ylönen developed the Secure Shell technology for remote access and founded SSH Communications Security in 1995. He is an internationally respected network security expert and has founded many other companies. He is a member of the IEEE (Institute of Electrical and Electronics Engineers), ACM (Association for Computing Machinery), the AFCEA (Armed Forces Communications and Electronics Association), and ACL (Association for Computational Linguistics). He has authored several articles in national and international journals and periodicals. Mr. Ylönen owns 17,727,698 SSH shares directly and through his company Clausal Computing Oy.
The majority of the Board members have no dependence on the company. Päivi Hautamäki and Sami Ahvenniemi are deemed to be independent Board members. Tatu Ylönen directly and through his company Clausal Computing Oy owns 57.65% of the total number of SSH shares and is therefore classified as not independent Board member of the company.
Tatu Ylönen developed the Secure Shell technology for remote access and founded SSH Communications Security in 1995. He is an internationally respected network security expert and has founded many other companies. He is a member of the IEEE (Institute of Electrical and Electronics Engineers), ACM (Association for Computing Machinery), the AFCEA (Armed Forces Communications and Electronics Association), and ACL (Association for Computational Linguistics). He has authored several articles in national and international journals and periodicals. Mr. Ylönen owns 17,727,698 SSH shares directly and through his company Clausal Computing Oy.
Matthew McKenna is responsible for sales and marketing globally. Prior to joining the company, Mr. McKenna served as a member of executive management team of ADP Dealer Services Nordic and Automaster Oy where he was responsible for international channel operations and manufacturer relations. In addition, he was responsible for key accounts including Mercedes Benz, General Motors, and Scania CV. Mr. McKenna owns 25,000 SSH shares directly, 7,000 SSH shares through holding of interest parties, and has 200,000 option rights.
Jyrki Lalla is responsible for financial management, treasury, human resources, corporate development, and corporate governance. He also acts as Secretary to the Board of Directors. Prior to joining the company in February 2012, Mr. Lalla held several senior financial management positions at Nokia Corporation and Nokia Siemens Networks. Mr. Lalla owns 100,000 SSH shares and has 100,000 option rights.
Kalle Jääskeläinen is responsible for Research and Development and Customer Services globally. He has previously held several key management positions in product management and has over ten years of experience in the information security and communications network industry. Mr. Jääskeläinen owns 10,000 SSH shares and has 100,000 option rights.
| Consolidated Comprehensive Income Statements | 22 |
|---|---|
| Consolidated Balance Sheet | 23 |
| Consolidated Cash Flow Statements | 25 |
| Statement of Changes in Consolidated Equity | 26 |
| Notes to the Consolidated Financial Statements | 27 |
| PARENT COMPANY FINANCIAL STATEMENT | 46 |
|---|---|
| Parent Company Income Statement | 46 |
|---|---|
| Parent Company Balance Sheet | 47 |
| Parent Company Cash Flow Statement | 49 |
| Notes to the Parent Company Financial Statements | 50 |
| AND FINANCIAL STATEMENTS | 54 |
|---|---|
| AUDITOR'S REPORT | 55 |
| NET SALES EUR million |
10–12/ 2012 |
7–9/ 2012 |
4–6/ 2012 |
1–3/ 2012 |
1–12/ 2012 |
10–12/ 2011 |
1–12/ 2011 |
|---|---|---|---|---|---|---|---|
| GEOGRAPHICAL SEGMENT | |||||||
| Americas (AMER) | 1.8 | 1.6 | 1.5 | 1.1 | 6.0 | 1.1 | 4.8 |
| Asia and the Pacific (APAC) | 0.4 | 0.5 | 0.5 | 0.3 | 1.6 | 0.4 | 1.3 |
| Europe and the rest of the world (EROW) | 1.5 | 0.8 | 0.9 | 1.2 | 4.3 | 0.5 | 1.9 |
| SSH Communications Security Group total | 3.6 | 2.8 | 2.9 | 2.6 | 11.9 | 2.0 | 8.1 |
| BY OPERATION | |||||||
| License sales | 1.4 | 1.2 | 1.4 | 1.2 | 5.0 | 0.7 | 2.8 |
| Consulting | 0.6 | 0.6 | |||||
| Maintenance | 1.6 | 1.7 | 1.5 | 1.4 | 6.3 | 1.3 | 5.3 |
| Total | 3.6 | 2.8 | 2.9 | 2.6 | 11.9 | 2.0 | 8.1 |
SSH Communications Security estimates its revenue to grow significantly from 2012 driven by strong need for its products and services. The company continues to invest heavily in products, sales, and marketing, which will impact profitability in the first half of the year 2013. Nevertheless, the company estimates the year 2013 to be profitable.
Upside possibilities include patent revenue and better than expected customer demand. Downside risks include delays in product development and closing new business, competition, and macroeconomic challenges.
Consolidated net sales for January-December totaled EUR 11.9 million (EUR 8.1 million), up by 47.9%, year on year.
The majority of SSH Communications Security's invoicing is U.S. dollar based. During the reporting period, the U.S. dollar's average exchange rate to euro strengthened approximately +4.1% compared to the same period a year ago. With comparable exchange rates, 2012 net sales growth would have been +42.1% compared with 2011 corresponding period.
Operating profit for January–December amounted to EUR 1.1 million (EUR -2.0 million), with net profit totaling EUR 1.1 million (EUR -2.2 million).
Sales, marketing, and customer support expenses for the January-December reporting period amounted to EUR -5.9 million (EUR -5.4 million), while research and development expenses totaled EUR -2.7 million (EUR -2.5 million), and administrative expenses EUR -1.4 million (EUR -2.0 million).
Non-recurring items during January-December were EUR -0.4 million (EUR -1.1 million) due to moving the office in Helsinki, costs caused to the company due to the public tender offer of all SSH Communications Security Oyj shares, and due to the personnel related changes.
The financial position of SSH Communications Security improved clearly during the reporting period. The consolidated balance sheet total on 31 December, 2012 stood at EUR 12.5 million (EUR 6.4 million), of which liquid assets accounted for EUR 6.6 million (EUR 2.4 million), or 52.9% of the balance sheet total. On 31 December, 2012, gearing, or the ratio of net liabilities to shareholders' equity, was -105.2% ( -230.0%) and the equity ratio stood at 70.0% (36.2%). Balance sheet was strengthened by hybrid capital securities in December as announced on 21 December, 2012.
The reported gross capital expenditure for the period totaled EUR 1.2 million (EUR 0.7 million). The reported financial income and expenses consisted mainly of interest on deposits and exchange rate gains or losses. Financial income and expenses totaled EUR +0.0 million (EUR -0.1 million).
During January-December, SSH Communications Security reported a positive cash flow of EUR 1.3 million (EUR -0.8 million) from business operations, and investments showed a negative cash flow of EUR -1.2 million (EUR -0.7 million). Cash flow from financing totaled EUR 4.1 million (EUR 2.5 million). Total cash flow from operations, investments, and financing was EUR 4.2 million (EUR 0.9 million) during the period.
Research and development expenses for January-December totaled EUR -2.7 million (EUR -2.5 million), the equivalent of 22.7% of net sales (31.3%).
In the reporting period, the research and development cost capitalizations amount to EUR 1.1 million (EUR 0.6 million).
The largest risks that might impact the profitability of the company are listed below. Other risks, which are currently either unknown or considered immaterial to the company may, however, become material in the future. The largest risks:
Principles and organization of risk management of SSH Communications Security can be read from the company´s website: www.ssh.com.
The group had 70 (52) employees as at the end of December, up by 18 persons or 34.6% on the previous year. Of the employees, 45 were based in Finland, 19 in the USA, and 6 in Hong Kong.
The average age of the employees was 39.4 years. 21% of the employees were women and 79% men. At the end of the period under review, 46% of the employees worked in research and development, 41% in sales, marketing, and customer support, and 13% in corporate administration.
Tatu Ylönen is the CEO. As separately announced by the company on 10 February 2012, Jyrki Lalla, M.Sc. (Econ.), was appointed the new CFO of the company as of 1 April 2012.
At the end of the reporting period, the parent company had 45 (35) employees on its payroll, on average 40 (44) employees during the period under review. Parent company salaries, bonuses, and other personnel expenses during the financial period totaled EUR 3.4 million (3.8 million).
The Annual General Meeting (AGM) on 28 March 2012 elected Päivi Hautamäki, Sami Ahvenniemi, and Tatu Ylönen as the members of the Board of Directors of the company. Päivi Hautamäki was elected as the Chairman of the Board of Directors in the board's organizing meeting.
The Authorized Public Accountants KPMG Oy Ab was reelected as the auditor of the company, with Kirsi Jantunen, authorized public accountant, as the principal auditor.
According to the Articles of Association, the highest decisionmaking power in the company is wielded by the shareholders at the shareholders' meeting. The Annual General Meeting is held within six months of the completion of the company's financial period, at a time decided by the Board. The AGM decides the number of members of the Board of Directors and elects them. Additionally, under the Finnish Limited Liability Companies Act, the AGM has the authority to amend the company's Articles of Association, adopt the financial statements, approve the amount of dividend, and select the company's auditors. Each SSH Communications Security share convey one vote at the shareholder's meeting. Under the Articles of Association, the CEO is appointed by the Board of Directors.
SSH Communications Security complies with NASDAQ OMX Helsinki Ltd, and the joint recommendations of the NASDAQ OMX Helsinki Ltd, the Helsinki Chamber of Commerce, and the Confederation of Finnish Industries regarding corporate governance of publicly listed companies.
More information on corporate governance is available on the company website at www.ssh.com, together with a description of the corporate governance system.
The reported trading volume of SSH Communications Security Corporation shares totaled 6,366,775 (valued at EUR 3,202,446). The highest quotation was EUR 0.90 and the lowest EUR 0.30. The trade-weighted average share price for the period was EUR 0.50 and the share closed at EUR 0.76 (28 December 2012).
As announced on 4 May 2012, Tatu Ylönen´s Clausal Computing Oy acquired with public tender offer about 10.3% of all shares and votes.
The company's principal owner Tatu Ylönen holds directly and through his company, Clausal Computing Oy, now 57.7% of the company's shares, Assetman Oy holds 13.0% and SSH Management Investment Corp 4.7%. More information about the shareholding can be obtained from the company's website.
The company has the subsidiaries SSH Communications Security Inc. in the USA, SSH Communications Security Ltd in Hong Kong, and SSH Communications Security Operations Oy and SSH Communications Security Solutions Oy in Finland. SSH Communications Security Operations Oy has a branch in Germany. Two Group companies were closed during the financial period: SSH Communications Security Licensing S.A R.L (Luxembourg) and SSH Communications Security Operations Oy branch in the United Kingdom.
SSH Management Investment Corp is part of the SSH Communications Security Group consolidated financial statements according to its shareholder agreement. More information on related party transactions concerning this arrangement is available in note 29 in the consolidated financial statements.
| Type of sector | No. of shares |
Percentage of shares and votes, % |
|---|---|---|
| Companies | 11,563,831 | 37.61 |
| Financial and insurance institution | 223,279 | 0.73 |
| Households and private individuals | 18,820,662 | 61.20 |
| Non-profit organizations | 80,500 | 0.26 |
| Foreign shareholders | 62,711 | 0.20 |
| Total | 30,750,983 | 100.00 |
| Shares | No. of shareholders |
Percentage of shareholders, % |
Total no. of shares |
Percentage of shares, % |
|---|---|---|---|---|
| 1–100 | 1,377 | 43.91 | 78,020 | 0.25 |
| 101–500 | 656 | 20.94 | 201,450 | 0.66 |
| 501–1,000 | 342 | 10.92 | 291,081 | 0.95 |
| 1,001–5,000 | 521 | 16.63 | 1,288,001 | 4.19 |
| 5,001–10,000 | 114 | 3.64 | 7,886,858 | 2.56 |
| 10,001–50,000 | 98 | 3.13 | 1,500,767 | 4.88 |
| 50,001–100,000 | 9 | 0.29 | 543,225 | 1.77 |
| 100,001–500,000 | 10 | 0.32 | 1,242,524 | 4.04 |
| 500,001–999,999,999 | 6 | 0.19 | 24,818,657 | 80.71 |
| Total | 3,133 | 100.00 | 30,750,983 | 100.00 |
| of which nominee-registered | 5 | 171,503 | 0.56 |
| % | Shares | |
|---|---|---|
| Ylönen Tatu | 45.26 | 13,919,048 |
| Assetman Oy | 13.01 | 4,000,000 |
| Clausal Computing Oy | 12.39 | 3,808,650 |
| SSH Management Investment Oy | 4.66 | 1,433,750 |
| Gaselli Capital Oy | 3.74 | 1,150,000 |
| Siltanet Oy | 1.65 | 507,209 |
| Autocarrera Oy Ab | 1.07 | 330,115 |
| Nordea Bank Finland Plc | 0.52 | 158,629 |
| Poutanen Jukka Tapani | 0.49 | 150,000 |
| Altonen Manu Veikko | 0.44 | 136,400 |
| Total | 83.23 | 25,593,801 |
| Nominee-registered | 0.56 | 171,503 |
The registered share capital of SSH Communications Security Corporation as of 31 December 2012 was EUR 922,529, divided into 30,750,983 shares.
| 2012 | 2011 | |
|---|---|---|
| I/1999 option plan class C option certificates | 250 | |
| I/1999 option plan class D option certificates | 250 | |
| I/1999 option plan class E option certificates | 375 | |
| I/1999 option plan class F option certificates | 1,525 | 500 |
| I/1999 option plan class G option certificates | 1,650 | |
| I/1999 option plan class H option certificates | 925 | |
| Total | 4,475 | 1,000 |
The stock option subscriptions led to an increase of EUR 134.25 (EUR 30.00) in share capital.
The Annual General Meeting approved the Board of Directors' proposal to authorize the Board of Directors to decide upon the issuing of in total 5,500,000 shares, in one or more tranches, as share issues against payment or by giving stock options or other special rights entitling to shares, as defined in Chapter 10 Section 1 of the Finnish Companies Act, either in accordance with the shareholders' pre-emptive right to share subscription or deviating from this right. The authorization will be valid until the next Annual General Meeting, but will expire on 30 June 2013 at the latest. The Board of Directors decided on 27 July 2012 an option plan I/2012 of maximum 2,000,000 options, each of which entitles to subscribe one share at a price of EUR 0.65. The Board of Directors decided on 4 December 2012, upon a share issue directed to personnel, from which 197,300 shares were subscribed increasing the shareholder´s equity with EUR 5,919.
The Annual General Meeting approved the Board of Directors' proposal to authorize the Board of Directors to decide upon the acquiring of a maximum of 2,000,000 of the company's own shares, in one or more tranches, with assets belonging to the company's non-restricted equity. This amount corresponds approximately to 6.55% of all shares of the company. The compensation to be paid for the acquired shares shall be determined on the date of acquisition on the basis of the trading rate determined for the company's share in the public trading arranged by NASDAQ OMX Helsinki Ltd. The authorization to acquire the shares will be valid at most for eighteen (18) months after the decision of the Annual General Meeting.
The share-based payments of SSH Communications Security are stock options. Stock option programs have been in effect in the reporting period or in the comparison year from the years 1999, 2000, 2002, and 2012.
Each option gives the right to subscribe to one new share at a price and at a time specified in the terms of the stock option plan. The option rights will be canceled in case the employee leaves the company before the subscription time has begun. There are no other conditions to the beginning of the option rights.
The shares subscribed with the granted option rights include the rights to any dividend payable for the reporting period during which the shares were subscribed. Other shareholder rights commence as soon as the increase in the share capital has been registered in the Trade Register. The stock option plan (I/1999) class G and H certificates are also traded on the NASDAQ OMX Helsinki.
More information on stock option plans is given in note 20 in the consolidated financial statements.
Clausal Computing Oy, a wholly-owned company of SSH Communications Security Corporation's CEO Tatu Ylönen, has delivered the company mainly R&D services valued in total EUR 0.4 million during January-December 2012. As announced on 21 December 2012, hybrid capital securities were subscribed by Tatu Ylönen. During the reporting period, there has not been any other significant transactions with related parties.
The company management is not aware of any significant transactions after the reporting period.
The SSH Communications Security Board of Directors will propose to the AGM that no dividend or return of capital be distributed. It is proposed that the profit for the financial period shall be entered under equity in the balance sheet.
| 1 Jan 2012– 31 Dec 2012 |
1 Jan 2011– 31 Dec 2011 |
1 Jan 2010– 31 Dec 2010 |
|
|---|---|---|---|
| Net sales, EUR | 11,919,987 | 8,058,571 | 9,099,750 |
| Operating profit/loss, EUR | 1,083,333 | -2,036,349 | -717,676 |
| % of net sales | 9.1 | -25.3 | -7.9 |
| Profit/loss before taxes, EUR | 1,130,209 | -2,172,958 | -454,391 |
| % of net sales | 9.4 | -27.0 | -5.0 |
| Return on equity, % | 30.9 | -110.0 | -12.8 |
| Return on investments, % | 28.1 | -99.6 | -10.5 |
| Net interest-bearing debt, EUR | -6,577,651 | -2,495,335 | -3,995,216 |
| Gearing, % | -105.2 | -230.0 | -121.0 |
| Equity ratio, % | 70.0 | 36.2 | 69.1 |
| Gross investments in tangible and intangible assets, EUR | 1,185,655 | 709,944 | 97,800 |
| % of net sales | 10.0 | 8.8 | 1.2 |
| Research and development costs, EUR | 2,703,540 | 2,518,805 | 2,314,400 |
| % of net sales | 22.7 | 31.3 | 25.2 |
| Research and development costs without investments, EUR | 3,646,148 | 3,092,979 | 2,314,400 |
| % of net sales | 30.5 | 38.3 | 25.2 |
| Personnel on average | 61 | 61 | 68 |
| Personnel at the end of the period | 70 | 52 | 70 |
| Salaries and fees, EUR | 4,338,157 | 5,040,780 | 4,890,580 |
| 1 Jan 2012– 31 Dec 2012 |
1 Jan 2011– 31 Dec 2011 |
1 Jan 2010– 31 Dec 2010 |
|
|---|---|---|---|
| Earnings per share, EUR | 0.04 | -0.07 | -0.02 |
| Earnings per share, considering dilution effect, EUR | 0.04 | -0.07 | -0.02 |
| Equity per share, EUR | 0.20 | 0.03 | 0.10 |
| Dividends, EUR | 0 | 0 | - |
| Dividends per share, EUR | 0.00 | 0.00 | 0.00 |
| Dividend pay-out ratio, % | - | - | - |
| Effective dividend yield, % | 0.0 | 0.0 | 0.0 |
| Return of capital, EUR | 0.0 | 0.0 | 1,494,922 |
| Return of capital per share, EUR | 0.00 | 0.00 | 0.05 |
| Adjusted average number of shares during the period, 1,000 | 30,552 | 30,549 | 29,900 |
| Adjusted average number of shares at the end of the period, 1,000 | 30,751 | 30,549 | 30,548 |
| Adjusted average number of shares considering dilution effect, 1,000 | 30,754 | 30,563 | 30,585 |
| Price per earnings ratio (P/E) | 19.5 | -4.2 | -52.1 |
| Market capitalization at the end of the period, EUR million | 23.4 | 9.2 | 24.8 |
| 1 Jan 2012– | 1 Jan 2011– | 1 Jan 2010– |
| 31 Dec 2012 | 31 Dec 2011 | 31 Dec 2010 | |
|---|---|---|---|
| Share performance on the Helsinki Stock Exchange, EUR | |||
| Average price | 0.50 | 0.51 | 0.91 |
| Share price, year end | 0.76 | 0.30 | 0.83 |
| Lowest quotation | 0.30 | 0.29 | 0.76 |
| Highest quotation | 0.90 | 0.89 | 1.15 |
| Volume of shares traded, millions | 6.4 | 2.3 | 4.5 |
| Volume of shares traded, % of total number | 20.7 | 7.5 | 15.1 |
| Volume of shares traded, EUR million | 3.2 | 1.2 | 4.1 |
| CALCULATION OF FINANCIAL RATIOS | Return on Equity, % (ROE) | Profit / loss for the financial period | |
|---|---|---|---|
| Equity (average during the financial period) | x100 | ||
| Return on Investment, % (ROI) | Profit / loss before taxes + interest and other financial costs | x100 | |
| Balance sheet total - non - interest bearing debts (average during financial period) |
|||
| Equity Ratio, % | Equity | x100 | |
| Balance sheet total - advance payments received | |||
| Earnings Per Share (EPS) | Profit / loss for the financial period | ||
| Average number of outstanding shares during the financial period | |||
| Diluted EPS | Profit / loss for the financial period - interest from hybrid capital securities | ||
| Adjusted average number of shares considering dilution effect | |||
| Dividend Per Share | Dividend | ||
| Number of outstanding shares during the financial period | |||
| Dividend Pay-out Ratio, % | Divident per share | ||
| Earnings per share | x100 | ||
| Equity Per Share | Equity | ||
| Number of outstanding shares on the financial statement date, | |||
| adjusted for share issue | |||
| Gearing, % | Interest bearing debt - liquid assets | x100 | |
| Equity | |||
| EUR | Note* | 1 Jan–31 Dec 2012 | 1 Jan–31 Dec 2011 |
|---|---|---|---|
| NET SALES | 4 | 11,919,987 | 8,058,572 |
| Cost of goods sold | 939,873 | 139,772 | |
| GROSS MARGIN | 10,980,113 | 7,918,800 | |
| Other operating income | 5 | 1,169 | 1,536 |
| Sales and marketing costs | 6, 7 | 5,885,169 | 5,418,678 |
| R&D costs | 6, 7 | 2,703,540 | 2,518,805 |
| Administrative costs | 6, 7 | 1,309,240 | 2,019,202 |
| OPERATING PROFIT/LOSS | 1,083,333 | -2,036,349 | |
| Financial income | 8 | 187,330 | 71,154 |
| Financial costs | 9 | 140,454 | 207,815 |
| PROFIT/LOSS BEFORE TAXES | 1,130,209 | -2,173,010 | |
| Income tax | 10 | 7,635 | 21,234 |
| PROFIT/LOSS FOR THE FINANCIAL PERIOD | 1,122,574 | -2,194,244 | |
| OTHER COMPREHENSIVE INCOME/COSTS | |||
| Translation differences | - 133,644 | 73,170 | |
| COMPREHENSIVE PROFIT/LOSS FOR THE FINANCIAL PERIOD | 988,930 | -2,121,074 | |
| Profit/loss for the financial period attributable to: | |||
| equity holders of the parent company | 1,135,036 | -2,177,230 | |
| non-controlling interest | -12,462 | -17,014 | |
| Comprehensive profit/loss for the financial period attributable to: | |||
| equity holders of the parent company | 1,001,392 | -2,104,060 | |
| non-controlling interest 1) | -12,462 | -17,014 | |
| Earnings per share (undiluted) | 11 | 0.04 | -0.07 |
| Earnings per share (diluted) | 11 | 0.04 | -0.07 |
| EUR | Note* | 31 Dec 2012 | 31 Dec 2011 |
|---|---|---|---|
| ASSETS | |||
| NON-CURRENT ASSETS | |||
| Tangible assets | 12 | ||
| Machinery & equipment | 128,465 | 141,367 | |
| Other tangible assets | 153 | 1,090 | |
| Tangible assets, total | 128,618 | 142,457 | |
| Intangible assets | 13 | ||
| Immaterial rights | 2,054,548 | 1,302,701 | |
| Intangible assets, total | 2,054,548 | 1,302,701 | |
| Investments | |||
| Other shares | 11,000 | 14,467 | |
| Investments, total | 11,000 | 14,467 | |
| NON-CURRENT ASSETS, TOTAL | 2,194,165 | 1,459,626 | |
| CURRENT ASSETS | |||
| Short-term receivables | |||
| Accounts receivable | 14 | 3,109,627 | 2,090,774 |
| Other receivables | 15 | 391,701 | 332,557 |
| Prepaid expenses and accrued income | 16 | 199,836 | 59,826 |
| Current receivables, total | 3,701,164 | 2,483,157 | |
| Cash and cash equivalents | 17 | 6,613,742 | 2,414,681 |
| CURRENT ASSETS, TOTAL | 10,314,907 | 4,897,838 | |
| ASSETS, TOTAL | 12,509,073 | 6,357,464 |
* The notes constitute an essential part of the financial statement.
EUR Note* 31 Dec 2012 31 Dec 2011 SHAREHOLDERS' EQUITY AND LIABILITIES EQUITY ATTRIBUTABLE TO THE PARENT COMPANY SHAREHOLDERS Share capital 922,529 916,476 Fair value and other reserves 225,058 151,682 Translation differences -1,314,739 -1,181,095 Unrestricted invested equity fund 4,561,663 4,429,472 Other fund 85,000 85,000 Other equity fund 3,974,346 - Fund for own shares -980,240 -980,240 Retained earnings -1,441,689 -2,576,725 6,031,928 844,570 NON-CONTROLLING INTEREST Non-controlling interest 1) 221,738 234,200 EQUITY, TOTAL 18 6,253,666 1,078,770 NON-CURRENT LIABILITIES Financial liabilities 21 130,082 121,652 NON-CURRENT LIABILITIES, TOTAL 130,082 121,652 CURRENT LIABILITIES Capital loan 36,091 115,688 Advances received 22 3,579,281 3,373,604 Accounts payable 23 546,382 496,253 Accrued expenses 24 1,410,626 906,263 Tax liabilities 24 29,320 32,084 Other liabilities 25 523,625 233,149 CURRENT LIABILITIES, TOTAL 6,125,325 5,157,041 LIABILITIES, TOTAL 6,255,407 5,276,003 EQUITY AND LIABILITIES, TOTAL 12,509,073 6,357,464
| EUR | Note* | 1 Jan–31 Dec 2012 | 1 Jan–31 Dec 2011 |
|---|---|---|---|
| Cash flow from business operations | |||
| Sales revenue | 4,14,22 | 10,907,655 | 8,623,700 |
| Revenue from other business operations | 1,169 | 1,536 | |
| Costs of business operations | 6,7,23,24,25 | -9,595,805 | -9,348,864 |
| Interest and payments on other financial costs of business operations | -124,888 | -117,049 | |
| Interest and other financial revenue from business operations | 167,309 | 6,401 | |
| Taxes paid | -6,556 | -5,604 | |
| Cash flow from business operations | 1,348,885 | -839,880 | |
| Cash flow from investing activities | |||
| Investments in tangible and intangible assets | 12,13 | -1,208,605 | -693,897 |
| Cash flow from investing activities | - 1,208,605 | -693,897 | |
| Cash flow from financing activities | |||
| Proceeds from short-term financial investments | 4,000,000 | 2,452,744 | |
| Paid liabilities | -79,597 | - | |
| Proceeds from issuance of share capital | 134 | 30 | |
| Personnel share issue | 20 | 138,244 | - |
| Cash flow from financing activities | 4,058,781 | 2,452,744 | |
| Change in liquid assets | 4,199,061 | 918,997 | |
| Liquid assets at beginning of period | 19 | 2,414,681 | 1,495,684 |
| Exchange rate adjustment | |||
| Change in liquid assets | 4,199,061 | 918,997 | |
| Liquid assets at end of period | 19 | 6,613,742 | 2,414,681 |
* The notes constitute an essential part of the financial statement.
| EUR | Note | Share capital |
Fair value and other reserves |
Other fund |
Other equity fund |
Translation differences |
Unrestricted invested equity fund |
Fund for own shares |
Retained earnings |
Non controlling interest |
Equity total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity 1 Jan 2011 | 916,446 | 139,150 | 85,000 | -1,254,265 | 4,429,472 | -980,240 | -399,496 | 251,214 | 3,187,282 | ||
| Comprehensive profit/loss | |||||||||||
| Profit/loss for the period | -2,177,230 | -17,014 | -2,194,244 | ||||||||
| Other comprehensive items | |||||||||||
| Translation differences | 73,170 | 73,170 | |||||||||
| Comprehensive profit/loss for financial period, total |
73,170 | -2,177,230 | -17,014 | -2,121,287 | |||||||
| Shares subscribed on option rights | 20 | 30 | 30 | ||||||||
| SSH Management Investment Oy | 12,532 | 12,532 | |||||||||
| Transactions with shareholders, total | 30 | 12,532 | 12,562 | ||||||||
| Equity 31 Dec 2011 | 916,476 | 151,682 | 85,000 | -1,181,055 | 4,429,472 | -980,240 | -2,576,725 | 234,200 | 1,078,770 | ||
| Equity 1 Jan 2012 | 916,476 | 151,682 | 85,000 | -1,181,095 | 4,429,472 | -980,240 | -2,576,725 | 234,200 | 1,078,770 | ||
| Comprehensive profit/loss | |||||||||||
| Profit/loss for the period | 1,135,036 | -12,462 | 1,122,574 | ||||||||
| Other comprehensive items | |||||||||||
| Translation differences | -133,644 | -133,644 | |||||||||
| Comprehensive profit/loss for the financial period, total |
0 | 0 | 0 | -133,644 | 0 | 0 | 1,135,036 | -12,462 | 988,930 | ||
| Hybrid capital securities | 3,974,346 | 3,974,346 | |||||||||
| Shares subscribed on option rights | 20 | 134 | 134 | ||||||||
| Share issue | 5,919 | 132,191 | 138,110 | ||||||||
| SSH Management Investment Oy | 73,376 | 73,376 | |||||||||
| Transactions with shareholders, total | 6,053 | 73,376 | 0 | 132,191 | 0 | 0 | 4,185,966 | ||||
| Equity 31 Dec 2012 | 922,529 | 225,058 | 85,000 | 3,974,346 | -1,314,739 | 4,561,663 | -980,240 | - 1,441,689 | 221,738 | 6,253,666 |
SSH Communications Security Corporation (formerly Tectia Corporation) is the company that invented the SSH protocol – the gold standard protocol for data-in-transit security solutions. Today, over 3,000 customers across the globe, including 7 of the Fortune 10, trust our Information Assurance Platform to secure the path to their information assets. We enable and enhance business for thousands of customers in multiple industries in the private and public sectors around the world with our core SSH technology, key management, and auditing solutions. SSH Communications Security solutions are sold as licensed software with maintenance and support agreements.
The SSH Communications Security Group consists of SSH Communications Security Corporation and its wholly-owned subsidiaries. SSH Communications Security Corporation is domiciled in Helsinki, Finland and is a publicly traded company. The subsidiaries of SSH Communications Security are SSH Communications Security Inc. (USA), SSH Communications Security Ltd. (Hong Kong), SSH Communications Security Solutions Oy, and SSH Communications Security Operations Oy, which has operations in Finland and Germany. SSH Communications Security Corporation has its registered office at address Takomotie 8, 00380 Helsinki, Finland.
The SSH Communications Security Board of Directors approved this financial statement for publication at its meeting on 13 February 2013. Under the Finnish Limited Liability Companies Act, the shareholders can accept or reject the financial statement at the AGM held after its publication. The AGM is also entitled to alter the financial statement. A copy of the financial statements is published as a part of the company's annual report. The annual report is available on the company website at www.ssh.com, or at the head office of SSH Communications Security Corporation. All stock exchange bulletins are available on the company website.
The consolidated financial statements have been prepared in compliance with the International Financial Reporting Standards (IFRS) including the International Accounting Standard (IAS) and International Financial Reporting Standards (IFRS) as well as the interpretations by Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC) in force as of 31 December 2012. The aforementioned standards are the standards and interpretations thereof approved for use in the EU pursuant to Regulation (EC) No. 1606/2002 implemented in the Finnish Accounting Act and legislation based thereon. The notes to the consolidated financial statements are also compliant with Finnish accounting and company legislation.
The consolidated financial statements are based on original acquisition costs unless otherwise noted in the accounting principles. The consolidated financial statements are presented in full euros unless otherwise stated.
In November 2009, the former Management Group and former CEO of the Group set up a company named SSH Management Investment Oy (SMI), through which the management incentive scheme has been implemented. The company owns 1,433,750 shares in the parent company. This arrangement is explained in more detail under note 29 'Group companies and related party transactions' to the consolidated financial statement. The parent company holds a controlling interest in SSH Management Investment Oy pursuant to the terms and conditions of the shareholders' agreement, and accordingly the company is incorporated in the consolidated financial statements. The shares in the parent company held by SSH Management Investment Oy are deducted from the Group's unrestricted equity. The deduction from equity is recognized under the fund for own shares. The investments made in the company by the shareholders of SSH Management Investment Oy are recognized as non-controlling interest in the consolidated balance sheet.
The consolidated accounts include the parent company SSH Communications Security Corporation and all its subsidiaries. Subsidiaries are companies in which the Group has a controlling interest. A controlling interest is created when the Group owns more than half of the votes in a company or the Group otherwise exercises control over a company. Potential voting powers are also taken into account when evaluating a controlling interest if the instruments in which the potential voting powers are vested are realizable at the time of analysis. A controlling interest means having the right to issue orders concerning a company's finances and business principles in order to benefit from its operations.
Group-internal share ownership is eliminated using the purchase method. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date on which that control ceases. All Groupinternal transactions, receivables and debts, unrealized profit, and profit distribution have been eliminated.
Items of each subsidiary included in the consolidated financial statements are measured using the currency of the operating environment of that subsidiary ('functional currency'). The consolidated financial statements are presented in euros, which is the functional and reporting currency of the parent company.
Foreign currency denominated transactions are recognized at the exchange rate of the functional currency on the transaction date. In practice, the exchange rate used is approximately the rate of the transaction date. Outstanding receivables and liabilities in foreign currencies are measured using the exchange rates on the balance sheet date. Exchange rate gains and losses on financing are included in financing income and costs.
The comprehensive income statements of subsidiaries whose functional currency is other than EUR are translated into euros using the exchange rate of the transaction dates. In practice, the translations are done once a month using the monthly average exchange rate. Balance sheet items are translated into euros with the exchange rate of the balance sheet date. The translation of the comprehensive profit/loss for the financial period using different exchange rates in the comprehensive income statement on the one hand and in the balance sheet on the other causes a translation difference recognized under Group equity under other comprehensive profit/loss items. Translation differences generated through elimination of the acquisition costs of foreign subsidiaries and translation of equity items accrued after acquisition are recognized under other comprehensive profit/loss items. When a subsidiary is sold, accumulated translation differences are recognized in the income statement as part of the gain or loss on the sale.
SSH Communications Security net sales derive mainly from software license sales and maintenance fees. Net sales comprise the invoiced value for the sale of goods and services adjusted with any discounts given, sales taxes, and exchange rate differences.
The revenue from product sales is recognized at the time when significant risks and rewards of the product or the right of use of the product have been transferred to the buyer and there is a binding contract between the parties, the delivery has taken place in accordance with the contract, the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will accrue to the company.
Maintenance agreements are recognized evenly on an accrual basis throughout the contract period. Revenues from services are recognized when the service has been delivered and it is probable that the economic benefits associated with the transaction will accrue to the company.
Government grants, for example, grants received from the government for a purchase of tangible assets, are entered as a deduction of the book value of the asset when there is reasonable assurance that the company will receive the grant and will comply with the conditions attaching to the grant. Grants are recognized as income over the life of a depreciable asset by way of a reduced depreciation. Government grants that are intended to compensate costs are recognized as income over the same period as the related costs are recognized. These government grants are presented under other operating income. The company has an R&D capital loan from TEKES (the Finnish Funding Agency for Technology and Innovation) which was transferred as part of the Siltanet business operations transaction in 2010. This loan is not of a significant magnitude.
The property, plant, and equipment of Group companies are measured in the balance sheet at cost less accumulated straightline depreciation and eventual impairment losses. When a part of a current assets item is treated as a separate asset, expenses related to its replacement are capitalized and any remaining book value is written off. Expenses incurring at a later date are included in the class of property, plant, and equipment only if it is probable that the property will provide future economic benefits to the Group and that the acquisition cost can be reliably determined. Other repair and maintenance expenses are recognized in profit/loss as and when incurred.
Depreciation is calculated on a straight-line basis to reduce the purchase value of each asset item to its residual value over its estimated useful life.
• Major renovations of rental premises: According to length of the rental agreement, though no more than 7 years from year of acquisition.
The residual value and useful life of assets are reviewed for each financial statement and, if necessary, adjusted to indicate changes expected in the assets' economic benefits.
The depreciation on property, plant, and equipment is ceased when the asset is classified as held for sale in accordance with standard IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Capital gains and losses are determined by comparing proceeds received with the book value of sold assets. Impairment losses incurred through transfer are recognized under other operating costs.
Research costs are recognized as costs in the income statement. Development costs (related to the design and testing of new or improved products) are recognized as intangible assets if capitalization criteria are fulfilled and if it is probable that their economic benefits will accrue to the company pursuant to IAS 38. The most significant development costs to be capitalized constitute R&D personnel costs and sub-contracting costs. Other development costs are recognized directly as costs. Development costs once recognized as costs are not capitalized in subsequent financial periods.
Depreciation begins when an asset is ready for use. Incomplete assets are tested annually for impairment. After initial recognition, capitalized development costs are measured at cost less accumulated depreciation and impairment losses. Capitalized development costs are depreciated on a straightline basis over their economic lifetime, estimated at 3–5 years.
Software includes acquired software licenses. These assets are entered in the balance sheet at cost and depreciated on a straight-line basis over their economic lifetime. The residual value and useful life of assets are reviewed for each financial statement and, if necessary, adjusted to indicate changes expected in the assets' economic benefits. The economic lifetime does not generally exceed 5 years. The depreciation period for software acquired for internal use is 3–5 years.
Immaterial rights include obtained technology patents, trademarks, customer registers, and technology rights. These are entered in the balance sheet at cost and depreciated on a straightline basis over their economic lifetime. The residual value and useful life of assets are reviewed for each financial statement and, if necessary, adjusted to indicate changes expected in the assets' economic benefits. The economic lifetime does not generally exceed 5 years.
The Group will review on each balance sheet date whether there is any indication of an impaired asset. Whenever indicators of impairment exist, the book value of such an asset is compared with its recoverable amount. The recoverable amount is the fair value of the asset less the costs of its sale, or its value in use, whichever is the higher. The value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. The discount rate used to calculate the above is pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
Whenever the book value of an asset exceeds its recoverable amount, an impairment loss will be recognized for that asset. The impairment loss is recognized immediately in the income statement. After the recognition of an impairment loss, the economic lifetime of an asset subject to depreciation is re-evaluated. An impairment loss recognized in prior periods for an asset other than goodwill will be reversed if there is a change in the estimates that have been used in assessing the recoverable amount of that asset.
The Group has classified its financial assets into the following categories: investments held to maturity, and loans and receivables. The assets are classified when originally acquired. The assets are initially recognized at fair value. Transaction costs are included in the original book value of an asset if the asset is not to be recognized at fair value in profit/loss. Financial assets are written off from the balance sheet when the contractual right to cash flows from an asset included in financial assets ends or when the significant risks and rewards related to the asset are transferred outside the Group. All asset purchases and sales are recognized on the date of the transaction.
Investments held to maturity are financial assets other than derivative assets whose payments are made according to a fixed plan, which mature on a defined date and which the Group can and intends to keep until they mature. These are measured at amortized acquisition cost and recognized under current assets.
Loans and other receivables are assets other than derivative assets and with a fixed or definite series of payments. These assets are unlisted and not held for trading. They are measured at amortized acquisition cost. They are recognized under current or non-current financial assets in the balance sheet depending on their nature: assets expiring in more than 12 months are recognized under non-current assets.
Cash and cash equivalents include cash balances, short-term deposits with banks, and other short-term liquid investments with maturity up to 3 months at the time of acquisition.
The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is, the impairment will immediately be entered in the income statement. If an impairment on an interest instrument is later reversed, this will be recognized in profit/loss.
The Group recognizes an impairment loss on trade receivables when there is objective evidence that a receivable is not fully collectible. Significant financial difficulties, likelihood of bankruptcy, neglect of payments or delay of payment by more than 90 days on part of a debtor may be considered to constitute such evidence for an impairment loss on trade receivables. The impairment loss recognized in the income statement is the difference between the book value and current value of estimated future cash flows of a receivable discounted at the effective interest rate. If impairment loss is decreased during any later period and the basis for this can objectively be related to an event occurred after the original impairment, the reversal will be recognized in profit/loss in the income statement.
The Group's financial liabilities are classified into financing liabilities recognized at fair value in profit/loss and other financial liabilities (financing liabilities recognized at amortized acquisition cost). A financial liability is classified as current if the Group does not have the absolute right to postpone repayment to at least 12 months from the end of the period under review. A financial liability (or part thereof) will not be written off the balance sheet until it has ceased to exist, i.e., when the obligation specified in the agreement has been discharged or reversed and its period of validity has expired.
In the SSH Communications Security Group, financial liabilities recognized at fair value in profit/loss includes the derivative instruments which do not fulfill the criteria for hedging accounting and which are not warrants (currency derivatives). Unrealized and realized profits/losses due to changes in the fair value of these derivatives are recognized in profit/loss in the financial period during which they are generated.
Other financial liabilities (financing liabilities recognized at amortized cost) include, most significantly, the Group's finance leasing liabilities and accounts payable. They are initially recognized at fair value. After the original recognition, other financial liabilities are measured at amortized acquisition cost using the effective interest rate method.
Lease liabilities on tangible assets which expose the Group to significant risks and rewards inherent in holding such assets are classified as finance leases. Finance leasing agreements are capitalized at the beginning of the lease at the fair value of the leased asset or the current value of the minimum lease payments, whichever is lower. An asset based on a finance leasing agreement will be depreciated over its useful life or within the lease term, whichever is shorter. Lease payments are apportioned between the finance charge and repayment on the outstanding liability over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. Rental obligations are included in interest-bearing liabilities.
Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as other operating leases. Payments made under operating leases, included in other operating expenses, are recognized in the income statement on a straightline basis over the period of the lease.
The undiluted earnings per share is calculated by dividing the net profit/loss for the financial year by the weighted average number of ordinary shares outstanding during the financial year. Treasury shares held by the Group are not included in the number of outstanding shares. A dilutive effect caused by stock options exists when the subscription price of a share is lower than the fair value of the share. In the calculation of diluted earnings per share, stock options are only considered dilutive when their conversion to ordinary shares would decrease earnings per share or increase the loss per share from continuing operations. In other words, when the Group declares a loss, no dilutive effect will be calculated.
Ordinary shares are presented as share capital. Dividends paid on ordinary shares are deducted from equity in the period during which the decision to distribute dividends is made.
Costs directly related to an issue of new shares, other than costs attributable to a business combination, are deducted, net of tax, from the proceeds recognized under equity. Share issue costs directly attributable to business combinations are included in acquisition costs.
If SSH Communications Security Corporation or its subsidiaries purchase SSH shares, the compensation paid, including any related incremental external costs, net of tax, is deducted from total equity as own shares until the shares are canceled or transferred. If own shares are subsequently sold, any compensation received will be recognized under equity.
Gross margin is equal to net sales less the acquisition costs of materials and services.
Operating profit/loss is equal to earnings before interest and taxes.
Tax expenses in the income statement comprise tax based on taxable income for the period and deferred tax. Income tax is recognized in the income statement except for taxes related to items recognized under comprehensive profit/loss or directly under equity, in which case the tax impact will be incorporated in the aforementioned items. Tax based on taxable income for the period is calculated using the corporate income tax rate effective in each country, adjusted for any tax from previous periods.
Deferred taxes are calculated on all temporary differences between the book value and taxable value. The largest temporary differences arise from the financial leasing agreements and unused tax losses which are deductible at a later date. Company didn´t have significiant financial leasing agreements in 2012 and 2011.
Deferred taxes are calculated using the statutory tax bases or the tax bases whose confirmed content has been announced by the closing date. Deferred tax assets are recognized to the extent that it is probable that taxable income against which the temporary difference can be applied will materialize in the future. Deferred tax liabilities are recognized at full value in the balance sheet.
The Group's pension schemes comply with the relevant regulations and practices in each relevant country. Pension security for Group personnel is handled through external pension insurance companies. The Group applies defined-contribution pension plans, in which the Group pays fixed contributions to an outside unit. The Group has no obligation to make additional payments in case the recipient of the aforementioned contributions cannot discharge its pension payment obligations. Contributions under the defined-contribution plan are recognized in the income statement for the financial period during which the contributions were made.
Option rights have been issued to the Group management (excluding the CEO) and personnel. Option rights are issued with a fixed subscription price determined in the terms and conditions of the option plan.
Option rights are measured at fair value on their date of issue and recognized as a cost in the income statement on a straight-line basis over the vesting period. The expense determined at the time of issuing the stock options is based on the Group's estimate of the number of stock options to which it is assumed that rights will vest by the end of the vesting period. The fair value is determined using the Black-Scholes pricing model. The non-market criteria are not included in the fair value of the option but taken into account in the number of stock options that are assumed to vest at the end of the vesting period. On the date of each financial statement, the Group updates its estimate of the final amount of the stock options that will vest, and changes in this estimate are recognized in the income statement. When the option rights are exercised, the proceeds received, net of any transaction costs, are recognized under share capital and the share premium account.
Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, when it is probable that expenditure will be required to settle the obligation, and when a reliable estimate of the amount can be made. If the Group expects an obligation to be partly reimbursed by a third party, the reimbursement is recognized as a separate asset but only when the reimbursement is certain in practical terms. The Group recognizes a provision on loss-making agreements when the expected benefits of an agreement are less than the unavoidable costs of meeting the obligations under the agreement.
Provisions are measured at the current value of the costs required to discharge the obligation. The discount rate is determined to reflect current market assessments of the time value of money and the risks specific to the obligation.
The following standards, interpretations, and amendments that entered into force during the 2012 financial period did not have a substantial impact on the Group's financial statement:
• Amendments to IFRS 7 Financial Instruments: Disclosures (effective for financial periods beginning on or after 1 July 2011): Enhancing disclosures about transfers of financial assets, disclosures about fair value and liquidity risk, and their impact on a company's financial position, especially in the case of securitization of financial assets. The changes have impact on the notes of the Group's financial statements.
The following, already published new or amended by IASB, standards and interpretations have not yet been applied by SSH Communications Security. The Group will introduce these as of the effective date of each standard or interpretation or, if the effective date is not the first day of the financial period, from the beginning of the financial period following the effective date. * = This amendment has not yet been accepted for application in the EU.
tive for financial periods beginning or after 1 January 2013): The Annual improvements procedure gathers all minor and less urgent amendments into one collection implemented once a year. The amendments concern five standards and vary by standard, but they do not have substantial impact.
• Amendments to IFRS 7 Financial Instruments: Disclosures (effective for financial periods beginning on or after 1 January 2013): The revised standard requires disclosure of any information related to the impact of offsetting arrangements in the balance sheet. The notes required by these amendments must be presented retroactively. The changes are not estimated to have an impact on the Group's consolidated financial statements.
and the former proportionate consolidation is no longer permitted. The new standard is not estimated to have a substantial impact on the Group's consolidated financial statements.
(effective for financial periods beginning on or after 1 January 2014): These amendments clarify the requirements pursuant to regulation of offsetting financial assets and liabilities in the balance sheet. The amended standard must be applied retroactively. The changes are not estimated to have an impact on the Group's consolidated financial statements.
• IFRS 9 Financial Instruments* and amendments thereto (the effective date from 1 January 2013 to 1 January 2015): The new standard is intended to replace the existing IAS 39 Financial Instruments: Recognition and Measurement and will be published in three stages. Amendments in the first stage (published in March 2009) have to do with the classification, recognition, and measurement of financial assets and liabilities. Different measurement methods are retained but they have been simplified. Financial assets are divided into two classifications based on their measurement: financial assets measured at amortized cost and financial assets measured at fair value. The classification (published in October 2010) depends on the company's business model and the contractual provisions of the instrument. Regarding financial liabilities, the majority of the provisions of IAS 39 have been incorporated in the new standard without changes. The incomplete amendments of IFRS 9 are related to depreciations of financial assets and to hedge accounting. In addition, IASB considers certain amendments to classification and valuation principles of the financial assets. The part concerning macro hedge accounting has been differentiated to a separated project from IFRS 9. Because IFRS 9 amendments are still not complete, no estimates on the impacts on the Group's consolidated financial statements can be given at this point.
When preparing the financial statement, the Group management has to make estimates and assumptions influencing the content of the financial statement. The management must also exercise its judgment regarding the application of accounting policies. These estimates are based on the management's best knowledge of current events and actions at the time. Potential effects of changes in estimates and assumptions are recorded in the income statement and balance sheet for the financial period during which these estimates and assumptions are adjusted, and also in all subsequent financial periods.
The most important of these estimates and assumptions are related to business combination of business, R&D activations, the credit risk of trade receivables, and the utilization of deferred tax assets.
The Group has three segments which are reported as operating segments. These segments are defined as geographical areas. They are based on the Group's internal structure and internal financial reporting. The company's highest operative executive is the CEO. Assessing the profitability of these segments is mainly based on operating profit/loss and gross margin. The nature of the market and its risks are different in each segment.
Segment assets are items which are used by the segment in its business or which can be allocated to the segment. Unallocated items include items shared by the Group. Net sales and equity of segements are based on location of customers and operations.
The Group's operating segments are:
The Group operates globally with the same operating model, so that products and services are delivered same way in all operating segments.
| Segment | 2012 | 2011 |
|---|---|---|
| Finland | 1,086,374 | 351,303 |
| EROW (excl. Finland) | 3,222,660 | 1,579,671 |
| AMERICAS | 6,034,700 | 4,812,710 |
| APAC | 1,576,253 | 1,314,888 |
| Total | 11,919,987 | 8,058,572 |
| 2012 | EROW | AMERICAS | APAC | Unallocated costs* | Group total |
|---|---|---|---|---|---|
| NET SALES | 4,309,034 | 6,034,700 | 1,576,253 | 11,919,987 | |
| Cost of goods sold | -804,809 | -135,065 | 0 | -939,873 | |
| GROSS MARGIN | 3,504,225 | 5,899,635 | 1,576,253 | 10,980,113 | |
| Other operating income | 1,169 | 1,169 | |||
| Segment costs and depreciations | -251,950 | -3,491,660 | -756 ,673 | -5,397,665 | -9,897,948 |
| OPERATING PROFIT/LOSS | 3,252,275 | 2,407,974 | 819,580 | -5,396,496 | 1,083,333 |
| Financial income | 187,996 | ||||
| Financial costs | -140,454 | ||||
| PROFIT/LOSS BEFORE TAXES | 1,130,209 | ||||
| Income tax | -7,635 | ||||
| PROFIT/LOSS FOR THE FINANCIAL PERIOD | 1,122,574 | ||||
| Segment assets | 965,122 | 2,360,551 | 437,388 | 8,746,012 | 12,509,073 |
| 2011 | EROW | AMERICAS | APAC | Unallocated costs* | Group total |
| NET SALES | 1,930,974 | 4,812,710 | 1,314,888 | 8,058,572 | |
| Cost of goods sold | -139,772 | -139,772 | |||
| GROSS MARGIN | 1,791,202 | 4,812,710 | 1,314,888 | 7,918,800 | |
| Other operating income | 1,536 | ||||
| Segment costs and depreciations | -833,198 | -2,797,994 | -498,240 | -5,827,252 | -9,956,685 |
| OPERATING PROFIT/LOSS | 958,003 | 2,104,716 | 816,647 | -5,827,252 | -2,036,348 |
| Financial income | 71,154 | ||||
| Financial costs | -207,815 | ||||
| PROFIT/LOSS BEFORE TAXES | -2,172,958 | ||||
| Income tax | -21,234 | ||||
| PROFIT/LOSS FOR THE FINANCIAL PERIOD | -2,194,244 | ||||
| Segment assets | 512,981 | 1,846,362 | 417,727 | 3,580,394 | 6,357,464 |
Revenue share of any customer was less than 10%.
* Group-level costs consist mainly of Group R&D and Group administration costs.
| 2012 | 2011 | |
|---|---|---|
| Income from license sales | 4,867,537 | 2,738,064 |
| Income from maintenance | 6,381,896 | 5,272,267 |
| Consulting and other income | 670,553 | 48,239 |
| Total | 11,919,986 | 8,058,572 |
| 2012 | 2011 | |
|---|---|---|
| Sales of fixed assets | 1,169 | 1,536 |
| Total | 1,169 | 1,536 |
| 2012 | 2011 | |
|---|---|---|
| Wages and salaries | 4,854,008 | 5,028,248 |
| Pensions, defined | ||
| contribution plan | 548,852 | 502,896 |
| Other ancillary personnel costs | 234,941 | 257,528 |
| Stock options issued | 73,375 | 12,532 |
| Total | 5,711,176 | 5,801,204 |
| 2011 | |
|---|---|
| 61 | 61 |
| 70 | 52 |
| 2012 |
| 2012 | 2011 | |
|---|---|---|
| Sales, marketing, and customer support | 29 | 22 |
| Research and development | 32 | 24 |
| Administration | 9 | 8 |
| Total | 70 | 52 |
| recognized as costs, EUR | 2012 | 2011 |
|---|---|---|
| Total | 2,703,540 | 2,518,805 |
| Other operating costs, EUR | 2012 | 2011 |
| External services | 2,132,259 | 1,464,192 |
|---|---|---|
| Other costs | 2,690,264 | 579,343 |
| Total | 4,822,523 | 2,034,625 |
Auditor's fees by service category in 2012 were as follows:
| 2012 | 2011 | |
|---|---|---|
| On machinery and equipment | 48,580 | 33,243 |
| On financial leasing assets | 0 | 49,182 |
| On other tangible assets | 940 | 865 |
| On software | 186,828 | 182,093 |
| On capitalized development costs | 234,247 | 45,791 |
| Total | 470,597 | 311,175 |
| 2012 | 2011 | |
|---|---|---|
| Sales and marketing costs | 136,404 | 179,623 |
| Research and development costs | 303,652 | 49,001 |
| Administrative costs | 30,541 | 82,550 |
| Total | 470,597 | 311,175 |
SSH recognized no impairments in 2012 or 2011.
| 2012 | 2011 | |
|---|---|---|
| Interest revenue | 9,291 | 48,178 |
| Exchange rate gains, loans, | ||
| and other receivables | 178,039 | 22,975 |
| Total | 187,330 | 71,154 |
| 2012 | 2011 | |
|---|---|---|
| Interest costs on financial leasing, | ||
| amortized liabilities | 11,450 | 1,752 |
| Changes in value, currency derivatives | 0 | 70,210 |
| Exchange rate losses, loans, | ||
| and other receivables | 124,888 | 129,517 |
| Other interest costs | 4,116 | 6,337 |
| Total | 140,454 | 207,815 |
| 2012 | 2011 | |
|---|---|---|
| Income tax | 7,635 | -21,234 |
| Total | 7,635 | -21,234 |
The Group's unrecognized tax losses on deferred tax assets are EUR 17.5 million (EUR 20.6 million). EUR 10.1 million (EUR 13.6 million) of the tax losses are in Finland, and EUR 7.0 million (EUR 7.0 million) in the USA. The tax losses expire in Finland between the years 2013-2018, and in the USA between the years 2020-2029. The amount of unrecognized deferred tax assets from the tax losses is EUR 5.4 million (EUR 6.4 million).
The Group's subsidiaries do not have earnings that would cause tax consequences when repatriated.
Comparison of taxes based on the valid tax rate in Finland with those recognized in the income statement:
| 2012 | 2011 | |
|---|---|---|
| Profit/income before taxes | 1,122,574 | -2,172,958 |
| Tax at 24.5% | -275,184 | 564,969 |
| Effect of foreign subsidiaries' | ||
| differing tax rates | - 45,125 | 26,104 |
| Expenses not deductible | ||
| for tax purposes | 143 | 2,836 |
| Tax-free revenue | 0 | -329,896 |
| Use of previously unrecognized | ||
| tax losses | 265,106 | 37,445 |
| Tax assets not recognized | ||
| for reported losses | -38,982 | -269,361 |
| Impact of change in Finnish tax rate | 0 | |
| Other taxes | 3,843 | -1,123 |
| Tax in income statement | 7,635 | -21,234 |
Corporate tax in Finland changed from 26% to 24.5% from 1 January 2012 onwards.
| 2012 | 2011 | |
|---|---|---|
| Profit/loss attributable to shareholders | ||
| of the parent company | 1,135,036 | -2,117,230 |
| Weighted average number of | ||
| shares in issue (1,000) | 30,552 | 30,549 |
| Earnings per share (undiluted) | ||
| (EUR per share) | 0.04 | -0.07 |
| Adjusted average number of shares | ||
| considering dilution effect (1,000) | 30,754 | 30,563 |
| Earnings per share (diluted) | ||
| (EUR per share) | 0.04 | -0.07 |
| Machinery and equipment | 2012 | 2011 |
|---|---|---|
| Acquisition cost 1 Jan | 1,303,132 | 1,237,065 |
| Translation difference | 14,951 | 11,494 |
| Increase | 51,789 | 54,573 |
| Decrease | 27,927 | |
| Acquisition cost 31 Dec | 1,341,945 | 1,303,132 |
| Accumulated depreciation 1 Jan | 1,181,847 | 1,132,962 |
| Translation difference | 16,793 | 10,856 |
| Depreciation for the financial period | 48,580 | 38,029 |
| Translation difference on depreciation | ||
| for the financial period | 0 | 0 |
| Accumulated depreciation | ||
| on decrease | 0 | 0 |
| Accumulated depreciation 31 Dec 1,213 ,481 | 1,181,847 | |
| Book value 31 Dec | 128,465 | 121,286 |
| Other tangible assets | 2012 | 2011 |
| Acquisition cost 1 Jan | 4,492 | 7,954 |
| Translation difference | -87 | -3,462 |
| Decrease | 0 | 0 |
| Acquisition cost 31 Dec | 4,405 | 4,492 |
| Accumulated depreciation 1 Jan | 3,402 | 6,424 |
| Translation difference | -3,954 | |
| Depreciation for the financial period | 850 | 932 |
| Accumulated depreciation on decrease | 0 | 0 |
| Accumulated depreciation 31 Dec | 4,252 | 3,402 |
| Book value 31 Dec | 153 | 1,090 |
| Balance sheet value of | ||
| tangible assets 31 Dec | 128,618 | 142,457 |
| 2012 | 2011 | |
|---|---|---|
| Acquisition cost 1 Jan | 1,935,265 | 1,860,836 |
| Translation difference | -76,000 | 67,515 |
| Increase | -7,195 | 6,914 |
| Acquisition cost 31 Dec | 1,852,070 | 1,935,265 |
| Accumulated depreciation 1 Jan | 1,896,151 | 1,817,324 |
| Translation difference | -54,446 | 64,264 |
| Depreciation for | ||
| the financial period | 10,777 | 14,563 |
| Accumulated depreciation | ||
| on decrease | 0 | 0 |
| Accumulated depreciation 31 Dec | 1,830,928 | 1,896,151 |
| Book value 31 Dec | 21,141 | 39,114 |
| Immaterial rights |
| 2012 | 2011 | |
|---|---|---|
| Acquisition cost 1 Jan | 1,477,048 | 797,469 |
| Increase | 1,176,855 | 679,579 |
| Acquisition cost 31 Dec | 2,653,903 | 1,477,048 |
| Accumulated depreciation 1 Jan | 213,461 | 0 |
| Depreciation for | ||
| the financial period | 410,298 | 213,461 |
| Translation difference | -3,262 | |
| Accumulated depreciation 31 Dec | 620,497 | 213,461 |
| Book value 31 Dec | 2,033,406 | 1,263,587 |
| Balance sheet value of | ||
| intangible assets 31 Dec | 2,054,548 | 1,302,701 |
| 2012 | 2011 | |
|---|---|---|
| Accounts receivable | 3,109,627 | 2,090,774 |
| Accounts receivable by currency | ||
| EUR | 346,161 | 396,823 |
| USD | 2,951,903 | 1,406,093 |
| HKD | 0 | 3,404 |
| GBP | 188,396 | 403 |
| CHF | 352,199 | 284,051 |
| Total (EUR) | 3,109,627 | 2,090,774 |
| 2012 | 2011 | |
|---|---|---|
| Advances paid | 151,768 | 201,645 |
| VAT receivables | 109,866 | 114,326 |
| Other current receivables | 130,067 | 16,586 |
| Total | 391,701 | 332,557 |
| Accounts receivable by age, EUR |
2012 | Impairment losses |
Net value 2012 |
2011 | Impairment losses |
Net value 2011 |
|---|---|---|---|---|---|---|
| Non-matured | 1,892,849 | 0 | 1,892,849 | 1,630,879 | 0 | 1,630,879 |
| Matured | ||||||
| < 30 days | 983,485 | 0 | 983,385 | 369,456 | 0 | 369,456 |
| 30–60 days | 84,254 | 0 | 84,254 | 8,896 | 0 | 8,896 |
| > 60 days | 149,039 | 0 | 149,039 | 81,544 | 0 | 81,544 |
| Total | 3,109,627 | 0 | 3,109,627 | 2,090,774 | 0 | 2,090,774 |
| 2012 | 2011 | |
|---|---|---|
| Personnel-related | 127,971 | 0 |
| Other prepaid expenses | ||
| and accrued income | 71,866 | 59,826 |
| Total | 199,836 | 59,826 |
The table shows the book value for each financial assets and liabilities item; this is essentially similar to their fair value. Annual closing of 2012 does not include any financial assets and liabilities valued at fair value.
| 2011 | ||
|---|---|---|
| 6,613,742 | 2,414,681 | |
| 14,15 | 3,109,608 | 2,090,774 |
| 9,723,350 | 4,505 455 | |
| 19 | 0 | 5,964 |
| 36,091 | 115,688 | |
| 22,23 | 1,938,757 | 394,391 |
| 1,974,878 | 516,043 | |
| Note Finance leasing liabilities |
2012 |
According to the Articles of Association, SSH Communications Security Corporation has a minimum share capital of EUR 600,000 and a maximum share capital of EUR 2,400,000, within which limits the share capital may be raised or lowered without amending the Articles of Association. The nominal value of one share is EUR 0.03; hence, the minimum number of shares is 20 million and maximum number is 80 million. The company has one series of shares; each share entitles its holder to one vote at the shareholders' meeting. The share capital of the company, registered with the Trade Register and fully paid up as of 31 December 2012 was EUR 922,529 (EUR 916,476.24), and the number of shares was 30,750,983 (30,548,208). Balance sheet was strengthened by hybrid capital securities in December as announced on 21 December 2012.
| Number of shares | Share capital | |
|---|---|---|
| 31 Dec 2011 | 30,549,208 | 916,476 |
| Subscriptions under | ||
| stock option plan I/1999 | 4,475 | 134 |
| Subscriptions under share issue | 197,300 | 5,919 |
| 31 Dec 2012 | 30,750,983 | 922,529 |
The translation differences fund comprise the exchange rate differences arising from the translation of the financial statements of the foreign subsidiaries.
The item 'Fair value and other reserves' consists of three different funds: a fair value reserve for available-for-sale investments, a hedging reserve for changes in the fair value of cash flow hedging instruments, and a reserve for the costs of granted stock option rights. In the 2012 and 2011 financial periods, SSH Communications Security had no saleable financial assets and did not apply hedging.
The unrestricted equity fund consists of the dissolved share premium fund formed by share subscriptions under option rights and includes share subscription prices insofar as not registered as share capital.
The fund for own shares comprises the purchase cost of own shares eliminated in the group consolidation of SSH Management Investment Oy, the holding company of the Group management.
The item 'Other equity fund' is the conditional purchase price liability for the Siltanet acquisition.
Other fund includes the hybrid capital securities subscribed in December 2012.
The objective in managing Group capital is to secure the ability to continue operating. The structure of the capital can be managed, for instance, through decisions concerning dividends and other distribution of assets, purchase of the company's own shares and share issues.
Capital management concerns equity recognized in the balance sheet. There are no requirements imposed by outside parties on the Group's capital management.
The indicators depicting the capital structure are the equity ratio and gearing.
Balance sheet was strengthened by hybrid capital securities in December as announced on 21 December 2012.
| Gearing, EUR | 2012 | 2011 |
|---|---|---|
| Interest-bearing financial liabilities | 36,091 | 136,658 |
| Interest-bearing receivables | 0 | 0 |
| Cash and cash equivalents | 6,613,742 | 2,414,681 |
| Net Iiabilities | 6,577,651 | -2,279,023 |
| Equity total | 6,253,666 | 1,078,770 |
| Equity ratio | 70.0 | 36.2 |
| Gearing | -105.2 | -230.0 |
In the company's industry it is common practice internationally that incentives are provided to employees in the form of equitysettled share-based instruments, like options. Personnel of the company belongs to options plans . If not working any more for the company, one looses her/his options.
On the balance sheet date, SSH Communications Security had 2,007,126 stock options outstanding (65,875), representing 6.1% of shares and 6.1% of votes. The weighted average exercise price of outstanding stock options was EUR 0.67 (EUR 4.65). The weighted average of the remaining subscription period was 3.1 years (0.6). The exercise price varies from EUR 0.03 to EUR 13.87, and the remaining subscription period from 4 months to 4.7 years.
| Option plan | Option certificate |
Release date |
Subscription period |
Subscription price, EUR |
Options not exercised |
|
|---|---|---|---|---|---|---|
| Begin | End | |||||
| I/1999 | I/1999 G | 5 Aug 1999 | 1 May 2003 | 1 May 2013 | 0.03 | 1,951 |
| I/1999 H | 5 Aug 1999 | 1 Nov 2003 | 1 Nov 2013 | 0.03 | 1,675 | |
| 3,626 | ||||||
| II/2000 | II/2000D | 22 Mar 2001 | 1 May 2003 | 1 May 2013 | 13.87 | 875 |
| II/2000E | 22 Mar 2001 | 1 Nov 2003 | 1 Nov 2013 | 13.87 | 875 | |
| II/2000F | 22 Mar 2001 | 1 May 2004 | 1 May 2014 | 13.87 | 875 | |
| II/2000G | 22 Mar 2001 | 1 Nov 2004 | 1 Nov 2014 | 13.87 | 875 | |
| 3,500 | ||||||
| I/2012 | I/2012A | 27 Jul 2012 | 1 Jun 2014 | 1 Sep 2017 | 0.65 | 660,000 |
| I/2012B | 27 Jul 2012 | 1 Jun 2016 | 1 Sep 2017 | 0.65 | 660,000 | |
| I/2012C | 27 Jul 2012 | 1 Jun 2017 | 1 Sep 2017 | 0.65 | 680,000 | |
| 2,000,000 | ||||||
| 2012 | 2011 | ||||
|---|---|---|---|---|---|
| Weighted average exercise price, EUR |
Number of stock options |
Weighted average exercise price, EUR |
Number of stock options |
||
| At the beginning of the financial period | 4.65 | 65,875 | 0.65 | 230,615 | |
| Stock options granted | 0.65 | 1,450,000 | 0 | 0 | |
| Stock options forfeited | 0 | 0 | 0.03 | 0 | |
| Stock options canceled | 4.73 | 54,274 | 0.03 | 163,740 | |
| Stock options exercised | 0.03 | 4,475 | 0.03 | 1,000 | |
| At the end of the financial period | 0.67 | 2,007,126 | 4.65 | 65,875 | |
| Exercisable option rights at the end of the financial period |
0.67 | 2,007,126 | 4.65 | 65,875 | |
The weighted average price of SSH Communications Security shares in 2012 was EUR 0.50 (EUR 0.51).
| – minimum lease payments | ||
|---|---|---|
| 2012 | 2011 | |
| Within one year | 0 | 15,858 |
| Within more than one year | ||
| but no more than 5 years | 0 | 6,841 |
| Total | 0 | 22,699 |
| 2012 | 2011 | |
|---|---|---|
| Within one year | 0 | 13,826 |
| Within more than one year | ||
| but no more than 5 years | 0 | 5,964 |
| Total | 0 | 19,790 |
| Future financing costs | 0 | 2,652 |
| 2012 | 2011 | |
|---|---|---|
| Current | 0 | 13,826 |
| Non-current | 0 | 5,964 |
The Group has leased office and IT equipment under long-term agreements. The lease agreements for IT equipment contain renewal options and purchase options at market price. The other lease agreements do not contain renewal or purchase options. All rents are at a fixed rate.
2012 2011 3,579,281 3,373,604
| 2012 | 2011 |
|---|---|
| 546,382 | 496,253 |
| 2012 | 2011 | |
|---|---|---|
| Personnel-related | 960,098 | 599,546 |
| Restructuring provisions | 352 097 | |
| Accruals | 324,528 | |
| Other accrued liabilities | ||
| and deferred income | 126,000 | 8,435 |
| Deferred rental expense benefit | 0 | 61,873 |
| Total | 1,410,626 | 1,021,951 |
| Note | 2012 | 2011 | |
|---|---|---|---|
| Personnel-related | 108,681 | 98,665 | |
| Finance leasing liabilities | 0 | 43,220 | |
| VAT liabilities | 21 | 2,560 | 5,245 |
| Other current liabilities | 412,384 | 97,777 | |
| Total | 523,625 | 244,907 |
The Group is exposed to financial risks in its normal business. The purpose of the Group's risk management is to minimize negative impacts of changes on financial markets to Group income.
The Group operates internationally and is exposed to foreign exchange risk, the most significant currency being U.S. dollar. Transaction risks are managed based on the net position using, when required, forward contracts or options. During the period under review, the Group took action to hedge against exchange rate fluctuations against U.S. dollar. At the moment, the Group is not using hedging accounting. Any gains or losses realized through hedging actions are thus recognized in profit/loss.
Impact of U.S. dollar change on profits: +-10% = +-220/-220 EUR in thousands.
The Group has no interest-bearing debt from financial institutions and therefore no need for debt protection. The Group's money market investments expose its cash flow to interest-rate risks, but the exposure is not significant as a whole.
The Group's cash reserves have been invested in accordance with the policy approved by the Board of Directors. At the end of the financial reporting period, almost all the assets are invested in fixed income funds and cash in financial institutions with high credit ratings.
The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history.
The Group has no liquidity risks, since invested funds which are substantial compared to the Group's cash flows are available on a one-day notice.
The item 'Other rental agreements' includes lease agreements not classified as finance leasing agreements. SSH Communications Security Group acts as lessee, but is currently sub-letting its office facilities in Pasila.
| Non-terminable rental agreements for office facilities – minimum rents, EUR |
|||
|---|---|---|---|
| 2012 | 2011 | ||
| Within one year | 441,054 | 329,595 | |
| Within more than one year | |||
| but no more than 5 years | 102,819 | 347,245 | |
| Total | 543,873 | 677,020 |
| 2012 | 2011 | |
|---|---|---|
| Within one year | 14,177 | 97,035 |
| Within more than one year | ||
| but no more than 5 years | 9,451 | 50,979 |
| Total | 23,629 | 148,014 |
| Non-terminable rental agreements | |
|---|---|
| for vehicles – minimum rents, EUR |
| 2012 | 2011 | |
|---|---|---|
| Within one year | 6,228 | 32,006 |
| Within more than one year | ||
| but no more than 5 years | 0 | 21,170 |
| Total | 6,228 | 53,176 |
The Group rents the office facilities it uses. The duration of the rental agreements is usually 3 to 5 years, and normally the agreements include options to renew past the original termination date. The index, renewal, and other terms and conditions differ from agreement to agreement. The income statement for 2012 includes rents based on rental agreements totaling EUR 398,258 (EUR 337,224). The Group sub-let part of its office facilities in the 2012 financial period.
In keeping with the Group's IT policy, the Group rents out network connections, virtual machines, harddrive capacity, software, and support and maintenance services.
The Group also rents out vehicles. Rents are at fixed rates, and the agreement period generally 3 to 4 years. The income statement for 2012 includes vehicle leasing costs totaling EUR 48,266 (EUR 76,236).
| 2012 | 2011 | |
|---|---|---|
| Rental guarantees (pledged) | 129,824 | 86,619 |
Board and CEO belongs to related party of the company. Group management team is not considered as part of related party as they do not have direct decision making authority.
The management holding company, SSH Management Investment Oy (SMI), owns 1,433,750 company shares. Of these, 1,100,000 shares were subscribed in a separate share issue directed at the holding company. Moreover, in December 2009 SSH Management Investment Oy acquired 337,500 company shares on the open market. The acquisition of SSH shares was financed with a capital investment of EUR 266,640 made by the Group management group and a loan of EUR 792,000 granted by the parent company of the Group. The shares will be held by the SMI until it is dissolved. The dissolvment of holding the SMI will be decided by 30 April 2013 as defined in share holder agreement. The interest rate on the loan granted by the parent company is the 12-month Euribor rate plus a margin of 0.65 percentage points. Interest is paid in case of dividend, otherwise interest is capitalized annually. The loan will be repaid by the date when the holding company is dissolved at the latest. The capital may be repaid in whole or in part at an earlier date. A repayment of EUR 72,000 on the loan was made after the capital return in March 2010. SSH Communications Security Corporation may call in the loan prematurely if SMI violates the terms of the loan agreement. The shares in the parent company held by the holding company form the security for the loan pursuant to the loan agreement. The AGM of SSH Communications Security Corporation on 3 March 2010 decided to authorize the Board of Directors to accept the company's own shares pledged as security.
| Group companies | Domicile | Group holding, % |
Votes, % |
|---|---|---|---|
| SSH Communications Security Corporation, Helsinki | Finland | ||
| SSH Communications Security Inc., Redwood City | USA | 100 | 100 |
| SSH Communications Security Operations Oy, Helsinki | Finland | 100 | 100 |
| SSH Communications Security Ltd, Hong Kong | Hong Kong | 100 | 100 |
| SSH Management Investment Oy, Helsinki * | Finland | 0 | 100 |
| SSH Communications Security Solutions Oy, Helsinki ** | Finland | 100 | 100 |
* SSH Communications Security Corporation holds a controlling interest in the company pursuant to the shareholders' agreement. ** SSH Communications Security Licensing S.A R.L. was closed in 2012.
| Salaries and Fees Paid to Management and Members of the Board of Directors, EUR |
2012 | 2011 |
|---|---|---|
| CEO / Tatu Ylönen (as of 26 Sep 2011) | 225,000 | 0 |
| CEO / Jari Mielonen (until 26 Sep 2011) | 162,990 | |
| - Severance benefits upon dismissal | 250,000 | |
| Board / Juhani Harvela (until 28 Mar 2012) | 7,500 | 24,000 |
| Board / Pyry Lautsuo (until 28 Mar 2012) | 6,300 | 25 800 |
| Chairman of the Board / Juho Lipsanen (until 28 Mar 2012) | 14,500 | 48,000 |
| Board / Tiia Tuovinen (until 28 Mar 2012) | 6,500 | 27,000 |
| Board / Juha Mikkonen (until 3 Mar 2011) | 6,000 | |
| Chairman of the Board / Päivi Hautamäki (as of 28 Mar 2012) | 18,000 | 0 |
| Board / Sami Ahvenniemi (as of 28 Mar 2012) | 13,500 | 0 |
| Board / Tatu Ylönen | 0 | 0 |
As of 31 December 2012, the CEO and members of the Board of Directors of SSH Communications Security owned 57.7% (45.7%) of the shares and votes in the company, either directly or indirectly through companies they own. The Board members and CEO have no option rights. The company does not have any specific pension arrangements for CEO or any other group management members.
Management group members apart from the CEO directly or indirectly held about 0.4% (1.5%) of company shares and have a total of 400,000 (0) option rights.
Salaries and fees paid to the management are also discussed in this annual report.
Clausal Computing Oy, a company wholly-owned by Tatu Ylönen, CEO of SSH Communications Security Corporation, supplied SSH Communications Security Corporation with R&D services worth EUR 0.4 million (EUR 0.1 million) in the course of the year 2012. As announced on 21 December 2012, hybrid capital securities were subscribed by Tatu Ylönen. There were no other essential related party transactions during the period under review.
The SSH Communications Security Board of Directors will propose to the AGM that no dividend or return of capital be distributed. It is proposed that the profit for the financial period shall be entered under equity in the balance sheet.
The company management does not know of any essential events after the balance sheet date that would have affected the financial situation of the company.
| Share and stock option holdings of Board members |
31 Dec 2012 Shares |
31 Dec 2012 Options |
31 Dec 2011 Shares |
31 Dec 2011 Options |
|---|---|---|---|---|
| Pyry Lautsuo (until 28 Mar 2012) | 12,500 | 0 | 12,500 | 0 |
| Juho Lipsanen (until 28 Mar 2012) | 21,865 | 0 | 21,865 | 0 |
| Tatu Ylönen (CEO) | 17,727,698 | 0 | 13,919,048 | 0 |
| Total | 17,762,063 | 0 | 13,953,413 | 0 |
| Share and stock option holdings of the management group |
31 Dec 2012 Shares |
31 Dec 2012 Options |
31 Dec 2011 Shares |
31 Dec 2011 Options |
|---|---|---|---|---|
| Tatu Ylönen | 17,727,698 | 0 | 13,919,048 | 0 |
| Kalle Jääskeläinen | 10,000 | 100,000 | 0 | 0 |
| Matthew McKenna | 25,000 | 200,000 | 0 | 0 |
| Jyrki Lalla | 100,000 | 100,000 | 0 | 0 |
| Mikko Karvinen* | 225,653 | 0 | ||
| Pekka Rauhala* | 245,653 | 7,500 | ||
| Total | 17,862,698 | 400,000 | 14,390,354 | 7,500 |
* Includes indirect ownership through SSH Management Investment Oy.
| EUR | Note | 1 Jan–31 Dec 2012 | 1 Jan–31 Dec 2011 |
|---|---|---|---|
| NET SALES | 1 | 6,619,939.35 | 4,094,453.36 |
| Purchasing and production costs | 878,670.73 | 139,771.60 | |
| GROSS MARGIN | 5,741,268.62 | 3,954,681.76 | |
| Research and development costs | 2,3,6 | 2,703,540.29 | 2,540,233.67 |
| Sales and marketing costs | 2,3,6 | 899,482.83 | 2,326,961.41 |
| Administrative costs | 2,3,6 | 1,309,240.00 | 1,587,410.80 |
| Other operating income and costs | 7 | -1,654.88 | -1,270,368.86 |
| OPERATING PROFIT/LOSS | 830,660.38 | -1,229,556.25 | |
| Financial income and costs | 8 | ||
| Interest revenue and other financing costs | 193,958.50 | 72,996.66 | |
| Interest costs and other financing costs | 136,128.07 | 118,171.09 | |
| Financial income and costs, total | 57,830.43 | -45,174.43 | |
| PROFIT/LOSS BEFORE EXTRAORDINARY ITEMS | 888,490.81 | -1,274,730.68 | |
| Extraordinary items | |||
| Extraordinary income | 9 | 759,000.00 | 255,093.97 |
| PROFIT/LOSS BEFORE APPROPRIATIONS AND TAXES | 1,647,490.81 | -1,019,636.71 | |
| PROFIT/LOSS BEFORE TAXES | 1,647,490.81 | -1,019,636.71 | |
| PROFIT/LOSS FOR THE FINANCIAL PERIOD | 1,647,490.81 | -1,019,636.71 | |
| EUR | Note | 31 Dec 2012 | 31 Dec 2011 |
|---|---|---|---|
| ASSETS | |||
| NON-CURRENT ASSETS | |||
| Intangible assets | 10 | ||
| Immaterial rights | 2,048,990.40 | 1,294,804.26 | |
| Intangible assets, total | 2,048,990.40 | 1,294,804.26 | |
| Tangible assets | 10 | ||
| Machinery and equipment | 78,488.13 | 105,235.81 | |
| Tangible assets, total | 78,488.13 | 105,235.81 | |
| Investments Shares in Group companies |
10 | 104,309.18 | 104,309.18 |
| Other shares | 11,000.00 | 11,000.00 | |
| Investments, total | 115,309.18 | 115,309.18 | |
| NON-CURRENT ASSETS, TOTAL | 2,242,787.71 | 1,515,349.25 | |
| Non-current receivables | |||
| Receivables from Group companies | 11 | 720,000.00 | 720,000.00 |
| Non-current receivables, total | 720,000.00 | 720,000.00 | |
| Current receivables | |||
| Accounts receivables | 226,901.97 | 102,027.09 | |
| Receivables from Group companies | 11 | 1,219,186.49 | 110,197.17 |
| Prepaid expenses and accrued income | 12 | 82,253.09 | 29,401.98 |
| Other receivables | 13 | 116,415.58 | 101,312.31 |
| Current receivables, total | 1,644,757.13 | 342,938.55 | |
| Financial instruments | 6,109,389.14 | 1,992,241.76 | |
| CURRENT ASSETS, TOTAL | 8,474,146.27 | 3,055,180.31 | |
| ASSETS, TOTAL | 10,716,933.98 | 4,570,529.56 | |
| EUR | Note | 31 Dec 2012 | 31 Dec 2011 |
|---|---|---|---|
| EQUITY AND LIABILITIES | |||
| EQUITY | 14 | ||
| Share capital | 922,529.49 | 916,476.24 | |
| Unrestricted invested equity fund | 6,204,663.35 | 6,072,472.35 | |
| Retained profit/loss | -4,035,631.40 | -3,015,994.69 | |
| Profit/loss for the financial period | 1,647,490.81 | -1,019,636.71 | |
| EQUITY, TOTAL | 4,739,052.25 | 2,953,317.19 | |
| LIABILITIES | |||
| Long-term liabilities | |||
| Other liabiltiies | 4,000,000.00 | 0.00 | |
| Current liabilities | |||
| Subordinated loans | 15 | 36,090.67 | 115,687.61 |
| Advances received | 173,757.29 | 82,638.11 | |
| Accounts payable | 296,210.96 | 431,082.82 | |
| Accrued expenses and deferred income | 16 | 1,346,240.70 | 914,699.90 |
| Other liabilities | 17 | 125,583.11 | 73,103.93 |
| Currents liabilities, total | 1,977,882.73 | 1,617,212.37 | |
| LIABILITIES, TOTAL | 5,977,882.73 | 1,617,212.37 | |
| EQUITY AND LIABILITIES, TOTAL | 10,716,934.98 | 4,570,529.56 |
| EUR | 1 Jan–31 Dec 2012 | 1 Jan–31 Dec 2011 |
|---|---|---|
| Cash flow from business operations | ||
| Sales revenue | 5,533,962.45 | 4,453,143.92 |
| Revenue from other business operations | 1,654.88 | 1,535.97 |
| Costs of business operations | -5,119,593.83 | -5,547,342.59 |
| Cash flow from business operations before financial items and taxes | 416,023.50 | -1,092,662.70 |
| Interest and payments on other financial costs of business operations | -113,988.20 | -20,179.26 |
| Interest and other financial revenue from business operations | 175,698.63 | -37,753.30 |
| Cash flow from business operations | 477,733.93 | 1,150,595.26 |
| Cash flow from investing activities | ||
| Investments in tangible and intangible assets | -1,178,367.61 | -733,562.62 |
| Repayment on loan receivables | - | 49,538.32 |
| Other investments | - | 3,467.43 |
| Cash flow from investing activities | - 1,178,367.61 | -687,491.73 |
| Cash flow from financing activities | ||
| Long-term loans raised | 4,000,000.00 | 1,752,744.34 |
| Capital loan repayment | -79,596.94 | 1,050,000.00 |
| Share subscriptions | 134.00 | 30.00 |
| Group contribution received | 759,000.00 | 220,074.80 |
| Payments received from share issue | 138,244.00 | 0.00 |
| Cash flow from financing activities | 4,817,781.06 | 3,022,849.14 |
| Change in liquid assets | 4,117,147.38 | 1,184,762.15 |
| Liquid assets at beginning of financial period | 1,992,241.76 | 807,479.61 |
| Change in liquid assets | 4,117,147.38 | 1,184,762.15 |
| Liquid assets at end of financial period | 6,109,389.14 | 1,992,241.76 |
The financial statement of the parent company, SSH Communications Security Corporation, is drawn up in accordance with the Finnish Accounting Standards. Figures are given to an accuracy of one cent (EUR 0.01). All items in the balance sheet are recognized at original acquisition cost. Information on financial risk management is presented in the consolidated financial statements.
Revenue is principally recognized in net sales once delivery has occurred or services have been rendered, an agreement has been signed with the customer or the customer has submitted a written order, and it has been assured that the customer is solvent.
Revenue from services rendered under maintenance agreements are amortized across the agreement period.
Costs are apportioned to functions according to the matching principle.
The parent company has rental and leasing agreements principally concerning IT services, vehicles, and other assets. Rents and leasing payments paid pursuant to these agreements are recognized as costs over the rental or leasing period under 'Other operating costs'. Assets leased under finance leasing agreements and liabilities derived from these are not recognized in the parent company balance sheet.
The income tax in the income statement comprises direct taxes based on the taxable profit for the financial period and adjustments to taxes on previous financial periods. The parent company does not recognize deferred tax receivables or liabilities in its financial statement. The parent company has confirmed losses of EUR 10,5 million (13.6 million) that have not been recognized as deferred tax receivables.
Fixed assets are recognized in the balance sheet at acquisition cost less planned depreciation and any impairments. Planned depreciations are calculated on a straight-line basis according to the economic life of each asset category.
| Machinery and equipment | 5 years from month of acquisition |
|---|---|
| Computer hardware | 3 years from month of acquisition |
| Immaterial rights | 5 years from year of acquisition |
| Research and development expenses |
5 years from year of capitalization |
| Other capitalized expenditure | 5 years from year of capitalization |
| Major renovations of rental premises |
Length of the rental agreement, though no more than 7 years, from year of capitalization |
Research and development costs are recognized as costs in the financial period in which they occurred except for those product development costs which are capitalized once certain criteria have been met. Capitalized development expenses are depreciated systematically over their useful lives.
Transactions denominated in foreign currencies are recognized at the exchange rate on the transaction date. Outstanding receivables and liabilities in foreign currencies are recognized using the exchange rates on the balance sheet date. Exchange rate gains and losses on actual business operations are considered sales adjustment items or adjustment items to materials and services. Exchange rate gains and losses on financing activities are recognized offset under income from and/or costs of financing activities.
Employees of the parent company and its subsidiaries have been granted option rights. The option rights entitle their holders to subscribe shares in the parent company at a fixed subscription price specified in the terms of the option plan. No costs are recognized in the income statement or balance sheet regarding the granting of option rights.
| 2012 | 2011 | |
|---|---|---|
| Finland | 1,086,374 | 377,521 |
| Rest of Europe | 2,256,289 | 844,393 |
| North America | 2,424,409 | 1,894,281 |
| Other | 852,867 | 978,258 |
| Total | 6,619,939 | 4,094,453 |
| 2012 | 2011 | |
|---|---|---|
| Other operating costs | ||
| External Services | 1,718,825.35 | 1,108,722.33 |
| Other | 583,608.55 | 508,606.82 |
| Total | 2,302,433.90 | 1,396,496.56 |
Auditor's fees by service category were as follows:
| 2012 | 2011 | |
|---|---|---|
| Wages and salaries | 2,805,036.96 | 3,119,733 |
| Pension costs | 548,852.74 | 504,979 |
| Other ancillary personnel costs 194,894.87 | 164,564 | |
| Total | 3,548,784.57 | 3,789,277 |
2012 2011 Average number of employees 40 44
| 2012 | 2011 | |
|---|---|---|
| Research and development | 31 | 24 |
| Sales and marketing | 7 | 6 |
| Administration | 7 | 5 |
| Total | 45 | 35 |
See note 29 in the consolidated financial statements.
| 2012 | 2011 | |
|---|---|---|
| On immaterial rights | 184,582.77 | 180,239 |
| On research and | ||
| development costs | 234,247.83 | 45,791 |
| On machinery and equipment | 32,098.55 | 25,196 |
| Total | 450,929.15 | 251,226 |
Other operating income for 2012 comprises an income item of EUR 1,654.88.
Other operating income for 2011 comprised rental income of EUR 1,536.
Other operating costs for 2011 included written-off bad debts from wholly-owned subsidiaries to a total of EUR 1,268,833.
| 2012 | 2011 | |
|---|---|---|
| Interest revenue | 16,409.31 | 18,425 |
| Revenue from financial securities | 4,284.18 | 42,770 |
| Exchange rate gains | ||
| and losses (net) | 53,321,02 | -102,804 |
| Interest costs | -16,184.03 | -3,566 |
| Total | 57,830.43 | -45,174 |
| 2012 | 2011 | |
|---|---|---|
| Group contribution, SSH Communications | ||
| Security Operations Oy | 759,000 | 255,093 |
| Immaterial rights | 2012 | 2011 |
|---|---|---|
| Acquisition cost 1 Jan | 3,401,169 | 2,713,422 |
| Increase | 1,176,856 | 687,747 |
| Decrease | -3,569 | 0 |
| Acquisition cost 31 Dec | 4,574,456 | 3,401,169 |
| Accumulated depreciation 1 Jan | 2,106,635 | 1,880,334 |
| Depreciation for | ||
| the financial period | 418,830 | 226,031 |
| Accumulated depreciation 31 Dec | 2,525,466 | 2,106,365 |
| Book value 31 Dec | 2,048,990 | 1,294,804 |
| Machinery and equipment | ||
| Acquisition cost 1 Jan | 1,177,654 | 1,127,672 |
| Increase | 20,285 | 49,982 |
| Decrease | -14,934 | 0 |
| Acquisition cost 31 Dec | 1,183,005 | 1,177,654 |
| Accumulated depreciation 1 Jan Depreciation for |
1,072,419 | 1,043,056 |
| the financial period | 32,098 | 29,363 |
| Accumulated depreciation 31 Dec | 1,104,517 | 1,072,419 |
| Book value 31 Dec | 78,488 | 105,236 |
| Investments | ||
| Book value 1 Jan | 115,309 | 111,842 |
| Increase | 0,00 | 3,467 |
| Book value 31 Dec | 115,309 | 115,309 |
| Total | 1,939,186.49 | 830,197 |
|---|---|---|
| Loan receivables | 720,000.00 | 720,000 |
| 2012 | 2011 | |
|---|---|---|
| Interest receivables | 39,255.00 | 28,561 |
| Personnel-related | 42,998.00 | 841 |
| Total | 82,253.00 | 29,402 |
| 2012 | 2011 | |
|---|---|---|
| Advances paid | 10,958.67 | 72,388 |
| VAT receivables | 0 | 28,812 |
| Other current receivables | 105,456.91 | 112 |
| Total | 116,415.58 | 101,312 |
| 2012 | 2011 | |
|---|---|---|
| Share capital 1 Jan | 916,476 | 916,446 |
| Increase in share capital | 6,053 | 30 |
| Share capital 31 Dec | 922,529 | 916,476 |
| Unrestricted invested | ||
| equity fund 1 Jan | 6,072,472 | 6,072,472 |
| Subscription from | ||
| personnel share issue | 131,191 | 0 |
| Unrestricted invested | ||
| equity fund 31 Dec | 6,204,663 | 6,072,472 |
| Retained earnings | -4,035,631 | -3,015,994 |
| Profit/loss for the financial period 1,647,490 | -1,019,637 | |
| Equity total | 4,739,052 | 2,953,317 |
| 2012 | 2011 | |
|---|---|---|
| Retained earnings | -4,035,631 | -3,015,994 |
| Profit/loss for the financial period 1,647,490 | -1,019,637 | |
| Unrestricted invested equity fund 6,204,663 | 6,072,472 | |
| Total | 3,816,522 | 2,036,841 |
Transferred as part of the Siltanet business operations transaction in 2010, the company has an R&D capital loan from TEKES (the Finnish Funding Agency for Technology and Innovation). The remaining value of the capital loan is EUR 36,090. In 2012, the interests for the capital loan were EUR 10,797. The terms of the loan correspond to the Companies Act's terms for subordinated loans.
| 2012 | 2011 | |
|---|---|---|
| Personnel-related | 789,485.99 | 829,700 |
| Accruals | 324,528.00 | 27,145 |
| Other accrued liabilities | ||
| and deferred income | 232,226.71 | 57,825 |
| Total | 1,346,240.70 | 914,670 |
| 2012 | 2011 | |
|---|---|---|
| Personnel-related | 108,543 | 70,305 |
| VAT liabilities | 17,040 | 2,799 |
| Total | 125,583 | 73,104 |
| – future rent payment | ||
|---|---|---|
| 2012 | 2011 | |
| Within one year | 313,510.72 | 202,654 |
| Within more than one year | ||
| but no more than 5 years | 60,843.00 | 241,990 |
| Total | 374,353.72 | 444,644 |
The earliest possible termination date for the rental agreement on the office facilities is 30 June 2013.
| 2012 | 2011 | |
|---|---|---|
| Within one year | 14,177.72 | 97,035 |
| Within more than one year | ||
| but no more than 5 years | 9,451.81 | 50,979 |
| Total | 23,629.53 | 148,014 |
| 2012 | 2011 | |
|---|---|---|
| Within one year | 0 | 13,826 |
| Within more than one year | ||
| but no more than 5 years | 0 | 5,964 |
| Total | 0 | 19,790 |
| Guarantees given | 2012 | 2011 |
|---|---|---|
| Rental guarantees (pledged) | 105,278 | 69,381 |
| Group companies | Domicile | Group holding,% |
Votes, % |
|---|---|---|---|
| SSH Communications Security Corporation, Helsinki | Finland | ||
| SSH Communications Security Inc., Redwood City | USA | 100 | 100 |
| SSH Communications Security Operations Oy, Helsinki | Finland | 100 | 100 |
| SSH Communications Security Ltd, Hong Kong | Hong Kong | 100 | 100 |
| SSH Management Investment Oy, Helsinki | Finland | 0 | 100 |
| SSH Communications Security Solutions Oy | Finland | 100 | 100 |
PÄIVI HAUTAMÄKI SAMI AHVENNIEMI Chairman of the Board of Directors Member of the board
TATU YLÖNEN CEO
We have today issued an auditors' report based on our audit. Helsinki 27 February 2013
KPMG Oy Ab
KIRSI JANTUNEN APA
List of accounting books and voucher types and method of storage
This document is an English translation of the Finnish auditor's report. Only the Finnish version of the report is legally binding.
We have audited the accounting records, the financial statement, the report of the Board of Directors, and the administration os SSH Communications Security Corporation for the year ended December 31, 2012. The financial statements comprise the consolidated balance sheet, comprehensive income statement, statement of changes in equity and cash flow statement, and notes to the consolidated financial statements, as well as the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements.
The Board of Directors and the Managing Director are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the preparation of financial statements and the report of the Board of Directors that give a true and fair view in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and the Managing Director shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
Our responsibility is to express an opinion on the financial statements, on the consolidated financial statements and on the report of the Board of Directors based on our audit. The Auditing Act requires that we comply with the requirements of professional ethics. We conducted our audit in accordance with good auditing practice in Finland. Good auditing practice requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the report of the Board of Directors are free from material misstatement, and whether the members of the Board of Directors of the parent company or the Managing Director are guilty of an act or negligence which may result in liability in damages toward the company or have violated the Limited Liability Companies Act or the articles of association of the company.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the report of the Board of Directors. The procedures selected depend on the auditor's judgement, incuding the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of financial statements and report of the Board of Directors that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the report of the Board of Directors.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted byt the EU:
In our opinion, the financial statements and the report of the Board of Directors give a true and fair view of both the consolidated and the parent company's financial performance and financial position in accordance with the laws and regulations governing the preparation of the financial statements and the report of the Board of Directors in Finland. The information in the report of the Board of Directors is consistent with the information in the financial statements.
Helsinki, 27 February 2013
KPMG OY AB
KIRSI JANTUNEN Authorized Public Accountant
SSH Communications Security abides by its Articles of Association, as well as principles of sound corporate governance and high ethical standards in its governance and decision-making. The company complies with the Finnish Companies Act and securities market legislation, the rules of NASDAQ OMX Helsinki, and the joint recommendations of NASDAQ OMX Helsinki, the Helsinki Chamber of Commerce, and the Confederation of Finnish Industries regarding Corporate Governance of publicly listed companies (Finnish Corporate Governance Code 2010). The Code entered in force on 1 October 2010 and is available at http://cgfinland.fi/en/
More information on governance practices of the company is available at http://www.ssh.com/index.php/investor-relations/ corporate-governance.html. Corporate Governance Statement 2013 is also published in the same page. The tasks of the Annual General Meeting and the Board of Directors are governed by the Finnish Companies Act, the Articles of Association of the Company, decisions of the General Meetings of Shareholders, legislation regarding accounting rules and IFRS as well as the Securities Market, and the rules of the NASDAQ OMX Helsinki Ltd., and other regulations.
All published investor information including annual reports, interim reports, as well as stock exchange and press releases are available on the company's website www.ssh.com-> About -> Investor Relations. All investor information is published in English. Subscriptions for the emailing list for stock exchange releases can be made by sending your contact details to [email protected]. The company observes a three-week silent period before the publishing of each quarterly report.
The company's Annual General Meeting will be held at Valimontie 8, Helsinki, Finland, on Wednesday, 20 March 2013 at 10:00 am. More information on how to attend as well as the documents for the meeting are available on the company's website www.ssh.com -> About -> Investor Relations.
The company will publish the following financial reports during 2013:
| Financial Statements Bulletin for 2012 | 14 February |
|---|---|
| Annual Report 2012 | During week 10 |
| Interim Report 1 January to 31 March 2013 | 25 April |
| Interim Report 1 January to 30 June 2013 | 24 July |
| Interim Report 1 January to 30 September 2013 | 23 October |
| Listing since 2000 | NASDAQ OMX Helsinki Ltd. |
|---|---|
| Trading symbol | SSH1V |
| Number of shares | 30,750,983 |
For any inquiries, please contact: [email protected]
FINLAND SSH Communications Security Corporation Takomotie 8 00380 Helsinki, Finland Tel. +358 20 500 7000 Fax. +358 20 500 7001
SSH Communications Security Inc. 20 William Street, Suite G35 Wellesley, MA 02481, USA Tel. +1 781 247 2100 Fax. +1 781 431 0864
SSH Communications Security Ltd. 51/F Hopewell Centre 183 Queen's Road East Wan Chai, Hong Kong Tel. +852 3602 3072 Fax. +852 3602 3052
Email: [email protected] Website: www.ssh.com
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