SSH Communications Security

Annual Report (ESEF) • Mar 15, 2022

Untitled SSH Communications Security Oyj Financial Statements and Report of the Board of Directors 2021 2 SSH Communications Security Group TABLE OF CONTENTS TABLE OF CONTENTS 2 REPORT OF THE BOARD OF DIRECTORS FOR 1 JAN – 31 DEC 2021 3 CONSOLIDATED FINANCIAL STATEMENTS 15 CONSOLIDATED COMPREHENSIVE INCOME STATEMENT 16 CONSOLIDATED BALANCE SHEET 17 CONSOLIDATED BALANCE SHEET 18 CONSOLIDATED CASH FLOW STATEMENT 19 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 PARENT COMPANY FINANCIAL STATEMENTS 53 PARENT COMPANY INCOME STATEMENT 54 PARENT COMPANY BALANCE SHEET 55 PARENT COMPANY BALANCE SHEET 56 PARENT COMPANY CASH FLOW STATEMENT 57 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 58 DIVIDEND PROPOSAL AND SIGNATURES 67 SSH Communications Security Oyj Helsinki Public limited company Finland Karvaamokuja 2 B, 00380 Helsinki Finland Computer programming activities SSH Communications Security Oyj SSH Communications Security Oyj 1.1.2021-31.12.2021 3 SSH Communications Security Group Report of the Board of Directors for 1 Jan – 31 Dec 2021 NET SALES EUR million 10-12/ 2021 7-9/ 2021 4-6/ 2021 1-3/ 2021 1-12/ 2021 10-12/ 2020 1-12/ 2020 BY GEOGRAPHICAL SEGMENT AMERICAS 1.8 1.7 1.3 1.7 6.6 1.4 5.9 APAC 0.7 0.3 0.4 0.3 1.7 0.5 2.1 EMEA 3.5 1.9 1.6 0.6 7.7 1.0 3.2 Total 6.0 3.9 3.3 2.6 15.9 3.0 11.3 BY OPERATION Subscription sales 1.7 1.6 1.1 0.2 4.7 0.2 0.8 License sales 1.7 0.4 0.4 0.5 3.1 0.6 2.2 Maintenance sales 2.2 1.8 1.7 1.8 7.6 1.7 7.8 Professional services & others 0.3 0.1 0.1 0.0 0.6 0.4 0.4 Total 6.0 3.9 3.3 2.6 15.9 3.0 11.3 Consolidated net sales for January–December totaled EUR 15.9 million (2020: EUR 11.3 million), an increase of 41.6 %, year on year. The majority of SSH Communications Security’s invoicing is U.S. dollar based. During the financial year, the average exchange rate of the U.S. dollar against the euro declined by 3.7 % compared to 2020. With comparable exchange rates, the net sales increase in 2021 would have been 44.3% compared to 2020. PROFIT AND PROFITABILITY TRENDS Operating loss for the financial year amounted to EUR -1.5 million (2020: EUR -2.5 million), with net loss totaling EUR -2.3 million (2020: EUR -3.1 million). Selling, marketing, and customer support expenses amounted to EUR -8.6 million (2020: EUR -6.7 million), while research and development expenses totaled EUR -5.8 million (2020: EUR -5.0 mil- lion) and administrative expenses EUR -4.1 million (2020: EUR -2.7 million). Operating expenses increased by 28.8 % compared to the previous year. BALANCE SHEET AND FINANCIAL POSITION The financial position of SSH Communications Security was adequate during the financial year. The consolidated balance sheet total on December 31, 2021 stood at EUR 35.9 million (31 Dec 2020: EUR 18.6 million), of which liquid assets accounted for EUR 8.2 million (31 Dec 2020: EUR 8.5 million), or 22.8 % of the balance sheet total. Interest-bearing debts were EUR 3.4 million at the end of the financial year (31 Dec 2020: EUR 1.3 million). Interest-bearing liabilities increased by EUR 2.1 million from December 31, 2020 mainly due to raising a premium loan from ELO mu- tual pension insurance company. Interest-bearing liabilities include a subordinated loan of EUR 4 SSH Communications Security Group 0.6 million (December 31, 2020: 0.6 million) taken out from the non-controlling interest holder, State Security Networks Group Finland, and a premium loan from ELO mutual pension insurance company for EUR 2.2 million. On December 31, 2021, gearing, or the ratio of net liabilities to shareholders’ equity, was -39.8 % (31 Dec 2020: -85.3 %) and the equity ratio stood at 44.6 % (31 Dec 2020: 69.7 %). The capital and interest of the subordinated loan, which Kyberleijona Oy has taken out from the non-controlling interest holder State Networks Group Finland, can only be repaid in circum- stances permitted by Chapter 12 of the Finnish Limited Liability Companies Act. The capital of the subordinated loan can only be repaid to the extent the unrestricted shareholders’ equity and the total amount of the subordinated loan, at the time of the repayment, exceeds the loss that is to be confirmed for the company’s latest financial year, or is included in the balance sheet of more recent financial statements. The annual interest for the loan, three per cent (3 %), has been rec- ognized as expense. The reported gross capital expenditure for the period totaled EUR 2.0 million (2020: EUR 2.1 mil- lion). Financial income and expenses totaled EUR -0.3 million (2020: EUR -0.6 million), which con- sisted mainly of exchange rate gains or losses and interest expenses from sales and leasing con- tracts. The Group had a cash flow of EUR 2.8 million (2020: EUR -0.2 million) from business operations, and investments showed a cash flow of EUR -4.9 million (2020: EUR -1.5 million). Cash flow from investments include the acquisition of Deltagon Oy for EUR -4.6 million, and government grants of EUR 1.8 million (2020: EUR 0.6 million). Cash flow from financing totaled EUR 1.5 million (2020: EUR -1.3 million). Cash flow from financing includes the payment of the hybrid instrument inter- est of EUR -1.4 million (EUR -0.9 million) and a change in debt of EUR 2.2 million. Total cash flow from operations, investments, and financing was EUR -0.6 million (EUR -3.0 million). RESEARCH AND DEVELOPMENT Research and development expenses totaled EUR -5.8 million (2020: EUR -5.0 million), the equiv- alent of 36.6 % of net sales (2020: 44.9 %). During the reporting period, R&D cost capitalizations totaled EUR 1.4 million (2020: EUR 1.3 million). Capitalized product development expenses were reduced by the amount of EUR 0.4 million, received as funding from EU (2020: EUR 0.4 million). Depreciation from R&D capitalization assets was EUR -1.2 million (2020: EUR -1.3 million). RISKS AND UNCERTAINTIES The ongoing COVID-19 pandemic remains a macro-level risk which, if prolonged, may affect SSH Communications Security through challenges it poses on new license sales. The most substantial risks that might otherwise affect the profitability of the company have remained the same as in the previous reporting period and are listed below. The largest risks are: • Uncertainty of the macroeconomic environment, such as the impact of COVID-19 pan- demic • Refinancing risk/liquidity risk such as being unable to pay obligations due to insufficient liquidity or difficulties in raising financing • Cybercrime, including, e.g., ransomware 5 SSH Communications Security Group • Delays in product development and closing new business as well as phasing of new busi- ness cases • Ability to execute the strategy • Due to the global shortage in semiconductors hinder supply of hardware components and indirectly initiation of customer IT project • Ability to retain and recruit key personnel • Maintaining the ability to innovate and develop the product portfolio including intellec- tual property rights (IPR) • IPR litigation and utilization of the patent portfolio • A large portion of the company revenue is invoiced in USD currency, and possible signifi- cant fluctuation in USD currency rates during 2021 could have unpredictable effects on profitability. The company decides on hedging USD-based contracts case by case. The principles and organization of risk management of SSH Communications Security can be read from the company’s website www.ssh.com. HUMAN RESOURCES AND ORGANIZATION SSH Communications Security Group had 123 (2020: 94) employees at the end of December, up by 29 persons or 30.9 % from the previous year. The average age among employees was 41 years (2020: 43 years). Approximately 15.7 % (2020: 15.8 %) of the employees were women and 84.3 % (2020: 84.2 %) men. At the end of the period under review, 38.2 % (2020: 33.0 %) of the em- ployees worked in sales, marketing, and customer services, 52.8 % (2020: 51.1 %) in research and development, and 8.9 % (2020: 16.0 %) in corporate administration. At the end of the financial period, the parent company had 81 (2020: 73) employees on its payroll. On average, the parent company had 76 (2020: 66) employees during the period under review. Parent company salaries, bonuses, and other personnel expenses during the financial period to- taled EUR 6.6 million (2020: 5.7 million). BOARD OF DIRECTORS AND AUDITORS The Annual General Meeting of SSH Communications Security Oyj was held on March 25, 2021. Henri Österlund, Kai Tavakka, Sampo Kellomäki, and Christian Fredrikson (new member) were elected as directors of the company's Board of Directors. At the inaugural meeting of the Board of Directors, Henri Österlund was elected as the Chairman. Authorized Public Accountants Ernst & Young Oy was re-elected as the auditor of the company with Erkka Talvinko, authorized public accountant, as principal auditor. GROUP MANAGEMENT TEAM At the end of 2021, the Group Management Team consisted of three members: Teemu Tunkelo, Chief Executive Officer Niklas Nordström, Chief Financial Officer Rami Raulas, Head of EMEA Region 6 SSH Communications Security Group PRINCIPAL PROVISIONS OF THE ARTICLES OF ASSOCIATION According to the Articles of Association, the highest decision-making power in the company is wielded by the shareholders at the shareholders’ meeting. The Annual General Meeting (AGM) 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 Cor- poration share conveys one vote at the shareholder’s meeting. Under the Articles of Association, the CEO is appointed by the Board of Directors. CORPORATE GOVERNANCE SSH Communications Security abides by its Articles of Association as well as principles of trans- parent and responsible corporate governance, and high ethical standards in its governance and decision-making. The company complies with the Finnish company and securities market legisla- tion, including the market abuse regulation, rules of Nasdaq Helsinki and Finnish Corporate Gov- ernance Code 2020 adopted by the Securities Market Association. For more information see our Corporate Governance Statement that is published annually as a separate report and can be found at SSH’s website. RESPONSIBILITY AND BUSINESS ETHICS SSH Communications Security is committed to systematically maintain and develop the responsi- bility and sustainability of business through its strategy, operations and actions. Company is com- mitted to operate in socially and ethically responsible way. The company’s ethical principles emphasize values that are important to SSH, such as antibribery, position and treatment of employees, and safety and behavioral culture within workplaces. SSH Communications Security is responsible employer and treats all employees equally. Company does not approve harassment or discrimination in any form and for that the company has created internal guideline and organized training. Company constantly develops the safety and comfort of its workplaces as well as the management of work-related stress and coping with the workload. The company’s headquarters in Helsinki moved to new, modern premises during spring 2020. In addition, the company offers its employees physical, cultural and other benefits. SSH Communications Security regards the diversity of its personnel as essential strength and en- courages the appraisal and adoption of diversity throughout the organization including top man- agement. The company has a separate Anti-Bribery and Anti-Corruption Policy as well as equality plan fo- cusing on equal and fair treatment of its employees. The company has also a whistleblowing policy in place to ensure that employees and third parties, if they wish, can report anonymously suspected serious deficiencies, abuses and crimes within the SSH Group. 7 SSH Communications Security Group SSH has established a Code of Conduct for responsible and transparent activities, employee sat- isfaction and ethics for all employees worldwide. DISCLOSURE ACCORDING TO THE EU TAXONOMY REGULATION Companies that have less than 500 employees are exempt from the requirements to disclose information according to Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 (the “Taxonomy Regulation”). Therefore, SSH has not dis- closed Taxonomy Regulation information in the reports of fiscal year 2021. SHARES, SHAREHOLDING, AND CHANGES IN GROUP STRUCTURE The reported trading volume of SSH Communications Security Corporation totaled 8,572,278 shares (valued at EUR 21,658,793). The highest quotation was EUR 3.48 and the lowest EUR 1.60. The trade-weighted average share price for the period was EUR 2.51 and the share closed at EUR 3.01 (December 31, 2021). Accendo Capital is the largest shareholder of SSH, with 28.8% of the company shares and votes. Tatu Ylönen is the second largest shareholder of SSH with 17.8%, and Juha Mikkonen holds di- rectly 5.1% of the company's shares. More information about the shareholding can be obtained from the company's web site www.ssh.com. The company has the following subsidiaries: • SSH Communications Security, Inc. and SSH Government Solutions, Inc. in the USA • SSH Communications Security Ltd. in Hong Kong, • SSH Communications Security UK Ltd. in the UK • SSH Operations Ltd., Kyberleijona Ltd., SSH Technology Ltd., and Deltagon Ltd. in Finland. SSH Operations Ltd. has a branch in Germany. Deltagon Ltd has branches in Sweden and in Norway. State Security Networks Group Finland (Suomen Erillisverkot Oy) became a non-controlling inter- est holder of Kyberleijona Oy on August 14, 2018 with 35 % ownership. SSH Communications Security Oyj owns 65 % of the shares in Kyberleijona Oy. On January 29, 2021, SSH announced the acquisition of Deltagon Oy through its subsidiary Kyber- leijona Oy. The transaction was closed on April 26, 2021. During the review period, no dividend or return of capital have been distributed. 8 SSH Communications Security Group INFORMATION ON SHAREHOLDERS Distribution of ownership by sector Type of sector Number of shares Percentage of shares and votes, % Households and private individuals 18,291,050 46.57 % Financial and insurance institutions 3,543,795 9.02 % Public sector organizations 3,184,157 8.11 % Companies 2,414,267 6.15 % Foreign shareholders 11,845,530 30.16 % Non-profit organizations 100 0.00 % Total 39,278,899 100.00 % DISTRIBUTION OF HOLDINGS BY NUMBER OF SHARES Shares Number of sharehold- ers Percentage of shareholders, % Number of shares Percentage of shares, % 1−100 1,994 38.99 % 99,206 0.25 % 101−500 1,431 27.98 % 415,752 1.06 % 501−1,000 617 12.07 % 498,376 1.27 % 1,001−5,000 763 14.92 % 1,799,402 4.58 % 5,001−10,000 136 2.66 % 1,025,479 2.61 % 10,001−50,000 132 2.58 % 2,877,711 7.33 % 50,001−100,000 20 0.39 % 1,347,532 3.43 % 100,001−500,000 11 0.22 % 2,504,516 6.38 % 500,001−999,999,999 10 0.20 % 28,710,925 73.10 % Total 5,114 100.00 % 39,278,899 100.00 % of which nominee-regis- tered 9 15,155,598 38.59 % The ten largest shareholders Dec 31, 2021, excluding nominee-registered except Accendo Capital Percentage of shares, % Number of shares Accendo Capital 28.85 % 11,330,000 Ylönen Tatu 17.79 % 6,987,123 Mikkonen Juha Taneli 5.09 % 2,000,000 Elo Mutual Pension Insurance Company 3.96 % 1,555,258 Gaselli Group Oy 2.41 % 948,087 Ilmarinen Mutual Pension Insurance Company 2.22 % 873,599 Varma Mutual Pension Insurance Company 1.92 % 755,300 Syrjälä Timo Kalevi 1.33 % 523,011 Kettunen Risto Juhani 1.19 % 468,000 Syrjänen Eva Annika Elisabeth 0.88 % 347,059 Total 65.64 % 25,787,437 9 SSH Communications Security Group SHARE CAPITAL AND BOARD AUTHORIZATIONS The registered share capital of SSH Communications Security Corporation on December 31, 2021 was EUR 1,178,366.97 consisting of 39,278,899 shares. In 2021, share capital increased by EUR 14,300 through subscription of stock options. Stock op- tions were exercised in financial year 2021 with 476,666 shares. In 2020 there were no share subscriptions made with the warrants of the stock option programs. The Annual General Meeting approved the Board of Directors’ proposal to authorize the Board of Directors to decide upon the issuing of a maximum of 6,000,000 shares as a share issue against payment or by giving stock options or other special rights entitling to shares, in accordance with Chapter 10 Section 1 of the Finnish Companies Act, either according to the shareholders’ pre- emptive right to share subscription or deviating from this right, in one or more tranches. Based on the authorization, it can be either issuing of new shares or transfer of own shares, which the company possibly has in its possession. Based on the authorization, the Board of Directors shall have the same rights as the Annual Gen- eral Meeting to decide upon the issuing of shares against payment and special rights (including stock options) in accordance with Chapter 10 Section 1 of the Finnish Companies Act. Thereby, the authorization to be given to the Board of Directors includes, inter alia, the right to deviate from the shareholders’ pre-emptive rights with directed issues providing that the company has a weighty financial reason for the deviation in respect of the share issue against payment. Furthermore, the authorization includes the Board of Directors’ right to decide upon who are entitled to the shares and/or stock options or special rights in accordance with Chapter 10 Section 1 of the Finnish Companies Act as well as upon the related compensation, subscription and pay- ment periods and upon the registering of the subscription price into the share capital or invested non-restricted equity fund within the limits of the Finnish Companies Act. The authorization will be valid until the next Annual General Meeting but will however expire at the latest on June 30, 2022. The Annual General Meeting approved the Board of Directors’ proposal to authorize the Board of Directors to decide upon acquisition of a maximum of 2,000,000 own shares of the company with assets belonging to the company’s non-restricted equity, which amounts to approximately 5.1 percent of the company’s total shares. The shares can also be acquired otherwise than in propor- tion to the holdings of the existing shareholders. The maximum compensation to be paid for the acquired shares shall be the market price at the time of purchase, which is determined in the public trading. The Board of Directors proposes that the authorization for the acquiring of the company’s own shares would be used, inter alia, in order to strengthen the company's capital structure, to finance and realize corporate acquisitions and other arrangements, to realize the share-based incentive programs of the company or otherwise to be kept by the company, to be transferred for other purposes or to be cancelled. The acquisition of shares reduces the company’s distributable non- restricted equity. Decision concerning the acquiring of own shares cannot be made so that the combined amount 10 SSH Communications Security Group of the own shares, which are in the possession of, or held as pledges by, the company or its sub- sidiaries exceeds one-tenth of all shares. The Board of Directors shall decide upon all other mat- ters related to the acquisition of shares. The authorization will be valid until the next Annual General Meeting but will however expire at the latest on June 30, 2022. SHARE-BASED PAYMENTS The share-based payments of SSH Communications Security are stock options. Stock option pro- grams have been in effect in the reporting period or in the comparison year. During 2021 no new stock option programs have been decided. The Board of Directors decided on January 20, 2020 on a new stock option program 2020 A. The maximum number of stock op- tions is 980,000. The share subscription period will be from December 1, 2022 to March 31, 2024. The share subscription price for the shares is EUR 0.93. 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 com- mence as soon as the increase in the share capital has been registered in the Trade Register. More information on stock option plans is given in note 19 in the consolidated financial statements. RELATED PARTY TRANSACTIONS During the reporting period, there have not been any significant transactions with related parties. EVENTS AFTER THE BALANCE SHEET DATE There have been no material events after the balance sheet date. DIVIDEND AND OTHER DISTRIBUTION OF ASSETS The parent company’s distributable funds are EUR -728,533.23, of which the profit for the finan- cial year is EUR 1,917,403.65. The Board of Directors proposes to the Annual General Meeting on March 25, 2022 that no dividend or return of capital shall be distributed. It is proposed that the profit of the financial year shall be entered to the retained earnings in the shareholders’ equity. 11 SSH Communications Security Group FINANCIAL INDICATORS 2021 2020 2019 Net sales EUR 15,929,489 11,251,214 14,378,011 Operating profit/loss EUR -1,530,119 -2,486,221 -1,207,515 % of net sales % -9.6 -22.1 -8.4 EBITDA EUR 1,119,334 -392,982 862,821 % of net sales % 7.0 -3.5 6.0 Profit/loss before taxes EUR -1,794,364 -3,090,264 -1,339,130 % of net sales % -11.3 -27.5 -9.3 Return on equity % -22.6 -30.0 -11.3 Return on investments % -14.2 -27.3 -9.8 Net interest-bearing debt EUR -4,788,959 -7,220,926 -11,112,723 Gearing % -39.8 -85.3 -92.3 Equity ratio % 44.6 69.7 78.0 Gross investments in tangible and intangible assets EUR 1,976,713 2,115,884 2,005,264 % of net sales % 12.4 18.8 13.9 Research and development costs EUR -5,836,431 -5,047,946 -4,893,415 % of net sales % 36.6 44.9 34.0 Average number of personnel 114 88 88 Number of personnel 31 Dec 123 94 90 Salaries and fees EUR -10,958,262 -8,125,559 -8,315,829 12 SSH Communications Security Group INDICATORS PER SHARE 2021 2020 2019 Earnings per share EUR -0.10 -0.11 -0.06 Earnings per share, diluted EUR -0.10 -0.11 -0.06 Equity per share EUR 0.31 0.22 0.31 Dividends EUR 0 0 0 Dividends per share EUR 0.00 0.00 0.00 Dividend payout ratio % 0 0 0 Effective dividend yield % 0 0 0 Return of capital EUR 0 0 0 Return of capital per share EUR 0 0 0 Adjusted average number of shares during the period 1,000 38,927 38,802 38,802 Adjusted number of shares at the end of the pe- riod 1,000 39,279 38,802 38,802 Adjusted average number of shares considering dilution effect 1,000 40,843 41,529 41,228 Price per earnings ratio (P/E) neg. neg. neg. Market capitalization 31 Dec mEUR 118.2 65.8 40.2 1 Earnings per share is impacted by unpaid interest of hybrid capital securities. Share performance at Nasdaq Helsinki 2021 2020 2019 Average price EUR 2.51 1.28 1.34 Share price, year end EUR 3.01 1.70 1.04 Lowest quotation EUR 1.60 0.65 0.97 Highest quotation EUR 3.48 1.97 1.97 Volume of shares traded millions 8.6 19.4 5.3 Volume of shares traded, % of total number % 21.8 50.1 10.2 Value of shares traded mEUR 21.7 24.9 4.0 13 SSH Communications Security Group ALTERNATIVE PERFORMANCE MEASURE SSH Communications Security presents an alternative performance measure, which is not defined by IFRS standards. Alternative performance measure should not be considered as substitute for performance measures in accordance with the IFRS. From the first quarter of 2020 onwards, SSH Communications Security has introduced the following new alternative performance measure: EBITDA = Operating profit/loss + depreciation, amortization, and impairment The following table presents the reconciliation of EBITDA to the operating profit/loss. kEUR 2021 2020 EBITDA 1 119 -393 Depreciation, amortization, and impairment -2 649 -2 093 Operating profit/loss -1 530 -2 486 14 SSH Communications Security Group CALCULATION OF FINANCIAL RATIOS Return on Equity, % (ROE) = Profit/loss for the financial year x 100 Equity (average during the financial year) Return on Investment, % (ROI) = Profit/loss before taxes + Interest and other financial costs x 100 Balance sheet total - Non-interest-bearing debts (average dur- ing the financial period) Equity Ratio, % = Equity x 100 Balance sheet total - Advance payments received Earnings Per Share (EPS) = Profit/loss for the financial period - Interest on hybrid capital securities Average number of outstanding shares during the financial period Diluted Earnings Per Share (EPS) = Profit/loss for the financial period - Interest on 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, % = Dividend per share x 100 Earnings per share Equity Per Share = Equity x 100 Number of outstanding shares on the financial statement date, adjusted for share issue Gearing, % = Interest-bearing debt - Liquid assets x 100 Equity 15 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS 16 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED COMPREHENSIVE INCOME STATEMENT EUR Note 1 Jan-31 Dec 2021 1 Jan-31 Dec 2020 NET SALES 3 15 929 489 11 251 214 Cost of goods sold 31 325 -283 797 GROSS MARGIN 15 960 815 10 967 417 Other operating income 4 1 111 266 987 464 Sales and marketing costs 5, 6 -8 644 687 -6 698 629 R&D costs 5, 6 -5 836 431 -5 047 946 Administrative costs 5, 6 -4 121 081 -2 694 526 OPERATING PROFIT/LOSS -1 530 119 -2 486 221 Finance income 7 172 611 631 Finance costs 8 -436 856 -604 675 PROFIT/LOSS BEFORE TAXES -1 794 364 -3 090 264 Income tax expense 9 -524 030 12 162 PROFIT/LOSS FOR THE YEAR -2 318 394 -3 078 102 Proft/loss attributable to: Owners of the parent company -2 057 540 -2 834 022 Non-controlling interests -260 854 -244 081 TOTAL -2 318 394 -3 078 102 OTHER COMPREHENSIVE INCOME Items that may be reclassified subsequently to profit or loss: Translation differences -142 858 266 038 TOTAL COMPREHENSIVE INCOME FOR THE YEAR -2 461 252 -2 812 064 Total comprehensive income attributable to: Owners of the parent company -2 200 135 -2 567 983 Non-controlling interests -261 117 -244 081 TOTAL -2 461 252 -2 812 064 Earnings per share Basic earnings per share (EUR) 10 -0,10 -0,11 Diluted earnings per share (EUR) 10 -0,10 -0,11 17 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET ASSETS EUR Note 31 Dec 2021 31 Dec 2020 NON-CURRENT ASSETS Property, plant and equipment 11 159 654 142 859 Right-of-use assets 12, 22 569 349 686 405 Intangible assets 13 21 872 947 5 447 999 Investments 11 000 11 000 Total non-current assets 22 612 950 6 288 263 CURRENT ASSETS Inventories 36 196 33 406 Trade receivables 14, 16 4 253 848 2 961 250 Other receivables 15 463 513 492 525 Prepaid expenses and accrued expenses 352 379 341 785 Total current assets 5 105 937 3 828 965 Cash and cash equivalents 8 207 229 8 517 698 TOTAL CURRENT ASSETS 13 313 166 12 346 663 TOTAL ASSETS 35 926 116 18 634 926 18 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET EQUITY AND LIABILITIES EUR Note 31 Dec 2021 31 Dec 2020 EQUITY ATTRIBUTABLE TO THE PARENT COMPANY SHAREHOLD- ERS Share capital 17 1 178 367 1 164 067 Translation differences -1 314 013 -1 171 419 Unrestricted invested equity fund 23 702 088 22 720 156 Hybrid capital securities 12 000 000 12 000 000 Retained earnings -29 561 871 -26 603 569 Equity attributable to the parent company shareholders 6 004 570 8 109 235 Non-controlling interests 6 021 169 355 791 Total equity 12 025 739 8 465 026 NON-CURRENT LIABILITIES Non-current interest-bearing liabilities 18 2 327 000 582 000 Lease liabilities 18, 22 219 479 385 355 Other non-current liabilities 3 911 513 Advances received and deferred revenue 14 1 211 205 756 043 Deferred tax liabilities 1 578 841 Total non-current liabilities 9 248 038 1 723 398 CURRENT LIABILITIES Trade and other payables 20 6 009 743 2 377 051 Current interest-bearing liabilities 500 000 Lease liabilities 18, 22 371 791 329 417 Advances received and deferred revenue 14 7 770 804 5 740 034 Total current liabilities 14 652 338 8 446 502 TOTAL LIABILITIES 23 900 376 10 169 900 TOTAL EQUITY AND LIABILITIES 35 926 116 18 634 926 19 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT EUR Note 1 Jan-31 Dec 2021 1 Jan-31 Dec 2020 Cash flows from operating activities Receipts from customers 3, 14 17 307 901 12 235 754 Payments to suppliers and employees 5, 20 -14 135 079 -12 400 181 Cash flows from operating activities before financial items and taxes 3 172 822 -164 427 Interest paid and payments on other financial costs -86 074 -73 456 Interest received and other financial income 964 631 Income taxes paid -300 208 9 373 Net cash flows from operating activities 2 787 504 -227 878 whereof change in working capital 4 289 028 1 143 491 Cash flows from investing activities Investments in tangible and intangible assets 11, 13 -1 976 713 -2 115 884 Acquisition of a subsidiary, net of cash acquired 25 -4 637 770 Receipt of government grants 4 1 757 784 612 255 Net cash flows from investing activities -4 856 698 -1 503 628 Cash flows from financing activities Change of non-current debt 1 745 000 Change in current debt 500 000 Interest paid on hybrid capital securities -1 380 000 -900 000 Proceeds from shares subscribed with option rights 996 232 Principal portion of finance lease payments 21 -386 328 -374 466 Net cash flows from financing activities 1 474 904 -1 274 466 Change in cash and cash equivalents -594 290 -3 005 973 Cash and cash equivalents in beginning of period 8 517 698 11 968 885 Exchange rate effect 283 821 -445 214 Change in cash and cash equivalents -594 290 -3 005 973 Cash and cash equivalents at end of period 8 207 229 8 517 698 20 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN CONSOLIDATED EQUITY Attributable to the owners of the Company EUR Note Share capital Hybrid capi- tal securi- ties Transla- tion differ- ences Unrestricted invested eq- uity fund Retained earnings Total Non-con- trolling in- terests Total equity Equity 1 Jan 2020 17 1 164 067 12 000 000 -1 437 458 22 720 156 -23 000 578 11 446 187 599 872 12 046 059 Comprehensive profit/loss Profit/loss for the year -2 834 022 -2 834 022 -244 081 -3 078 102 Other comprehensive items Translation differences 266 038 266 038 266 038 Comprehensive profit/loss for financial period, total 0 0 266 038 0 -2 834 022 -2 567 983 -244 081 -2 812 064 Hybrid capital securities -900 000 -900 000 -900 000 Share-based payment plans 131 031 131 031 131 031 Transactions with shareholders 0 0 0 0 -768 969 -768 969 0 -768 969 Equity 31 Dec 2020 1 164 067 12 000 000 -1 171 419 22 720 156 -26 603 569 8 109 235 355 791 8 465 026 21 SSH Communications Security Group Attributable to the owners of the Company EUR Note Share cap- ital Hybrid cap- ital securi- ties Transla- tion differ- ences Unre- stricted in- vested eq- uity fund Retained earnings Total Non-control- ling interests Total eq- uity Equity 1 Jan 2021 17 1 164 067 12 000 000 -1 171 419 22 720 156 -26 603 569 8 109 235 355 791 8 465 026 Comprehensive profit/loss Profit/loss for the year -2 057 540 -2 057 540 -260 854 -2 318 394 Other comprehensive items Translation differences -142 594 -142 594 -264 -142 858 Comprehensive profit/loss for financial period, total 0 0 -142 594 0 -2 057 540 -2 200 135 -261 117 -2 461 252 Hybrid capital securities -1 380 000 -1 380 000 -1 380 000 Share-based payment plans 479 238 479 238 479 238 Shares subscribed on option rights 14 300 981 932 996 232 996 232 Acquisition of a subsidiary 5 926 495 5 926 495 Transactions with shareholders 14 300 0 0 981 932 -900 762 95 470 5 926 495 6 021 965 Equity 31 Dec 2021 1 178 367 12 000 000 -1 314 013 23 702 088 -29 561 871 6 004 570 6 021 169 12 025 739 22 SSH Communications Security Group CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION SSH Communications Security Corporation helps organizations access, secure and control their digital core – their critical data, applications and services. In the rapidly growing global data econ- omy, secure access that enables digital transformation at business velocity is the new competitive advantage. Our thousands of customers include Fortune 500 companies, the world’s largest financial institu- tions, and major organizations in all verticals. Our solutions guard against the rapidly changing threat landscape that includes both internal and external actors. We generate shareholder value from a combination of our world-leading expertise, proven en- terprise-class solutions, professional services, support offering, and from our strong IP portfolio and well-established licensing operations. The SSH Communications Security Group consists of SSH Communications Security Corporation and its subsidiaries. SSH Communications Security Corporation (corporate id 1035804-9) is dom- iciled in Helsinki, Finland and is a publicly traded company, whose share is quoted on NASDAQ Helsinki Oy (SSH1V). SSH Communications Security Corporation has its registered office at address Karvaamokuja 2B, 00380 Helsinki, Finland. The SSH Communications Security Board of Directors approved this financial statement for pub- lication at its meeting on 23 February 2022. Under the Finnish Limited Liability Companies Act, the shareholders can accept or reject the financial statement at the AGM held after its publica- tion. 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 com- pany website www.ssh.com. The iXBRL tagging of ESEF consolidated financial statements have not been audited. SSH Communications Security Corporation has one reportable segment, the software business. 2. ACCOUNTING PRINCIPLES Basis of Preparation The consolidated financial statements have been prepared in compliance with the International Financial Reporting Standards (IFRS). The aforementioned standards are the standards and inter- pretations thereof approved for use in the EU pursuant to Regulation (EC) No. 1606/2002 imple- mented in the Finnish Accounting Act and legislation based thereon. The notes to the consoli- dated financial statements are also compliant with Finnish accounting and company legislation. 23 SSH Communications Security Group 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. New and amended standards and interpretations The Group has adopted the new standards and interpretations that took effect during the ac- counting period and are relevant to its operations. The IFRS standards and the amendments that entered into force in 2021 had no impact on the Group’s result, the financial position, or the presentation of the financial statements. Changes that become effective later The Group will adopt new and amended standards and interpretations as of the effective date or, if the date is other than the first day of the financial year, from the beginning of the subsequent financial year. The changes are not expected to have a material impact on SSH Communications Security’s consolidated financial statements. Subsidiaries The consolidated accounts include the parent company SSH Communications Security Corpora- tion and all its subsidiaries. Subsidiaries are companies in which the Group has a controlling in- terest. A controlling interest is created when the Group has power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the Group’s returns. In practice, controlling in- terest is established when the Group owns more than half of the votes in a company. Group-internal share ownership is eliminated using the purchase method. Subsidiaries are con- solidated from the date on which control is transferred to the Group and are no longer consoli- dated from the date on which that control ceases. All Group-internal transactions, receivables and debts, unrealized profit, and profit distribution have been eliminated. The share of the non-controlling interests of the subsidiaries’ profits and equity is presented as a separate item in the consolidated income statement, comprehensive income statement, state- ment of changes in equity, and in the balance sheet. Converting Foreign Currency Transactions 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 consol- idated financial statements are presented in euros, which is the functional and reporting currency of the parent company. Transactions in Foreign Currency 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 differences are recorded in 24 SSH Communications Security Group the income statement. Exchange rate gains and losses on financing are included in financing in- come and costs. Translation of Financial Statements of Foreign Subsidiaries The comprehensive income statements and cash flow statements of subsidiaries whose func- tional currency is other than EUR are translated into euros using the exchange rate of the trans- action dates. In practice, the translations are done once a month using the monthly average ex- change 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 differ- ent 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 subsidi- aries and translation of equity items accrued after acquisition are recognized under other com- prehensive 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. Revenue Recognition SSH Communications Security net sales derive mainly from software license sales and subscrip- tions, related support and maintenance fees, and consulting fees. Net sales comprise the invoiced value for the sale of goods and services adjusted with any discounts given, sales taxes, and ex- change 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 con- tract, the amount of revenue can be measured reliably, and it is probable that the economic ben- efits associated with the transaction will accrue to the Group. Control is transferred to the buyer at the point of time. Maintenance sales, or revenue from support and maintenance contracts, 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 Group. Revenue from subscription contracts is recognized evenly on an accrual basis throughout the contract period. The revenue of royalties from licenses is recognized according to the actual content of the con- tract at the point of time. The Group customarily receives short-term advance payments from customers, but also from time to time substantial long-term advance payments for subscription or support and mainte- nance fees. In these cases, the financing component is accounted for and interest expenses are recorded for the duration of the advance payment. Government Grants Grants received from the government for 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 25 SSH Communications Security Group income over the life of a depreciable asset by way of a reduced depreciation. Government grants that are intended to compensate for costs are recognized as income over the same period as the related costs are recognized. These government grants are presented under other operating in- come. Property, Plant, and Equipment The property, plant, and equipment of Group companies are measured in the balance sheet at cost less accumulated straight-line 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 cap- italized and any remaining book value is written off. Expenses incurring later 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. • Machinery and equipment: 5 years from month of acquisition. • Computer hardware: 3-5 years from month of acquisition. • Leasehold improvements of rental premises: According to the lease term, 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 nec- essary, 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 accord- ance 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. Intangible Assets Research and Development Costs Research costs are recognized as costs in the income statement. Development costs (related to the design and testing of new or improved products) from incomplete projects are recognized as intangible assets if capitalization criteria are fulfilled, to the extent of their probable economic benefits to the company. 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. Capitalized assets are tested annually for impairment. After initial recognition, capitalized devel- opment costs are measured at cost less accumulated depreciation and impairment losses. Capi- talized development costs are depreciated on a straight- line basis over their economic lifetime, estimated at 5 years. Software 26 SSH Communications Security Group 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 indi- cate 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. Other Immaterial Rights Immaterial rights include obtained technology patents, trademarks, customer registers, and tech- nology rights. These 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 is generally 5 to 10 years. Goodwill Acquisitions are accounted for using the acquisition method. Goodwill represents the excess of acquisition cost over the fair values of identified acquired assets and liabilities of acquired com- panies. Goodwill is stated at historical cost less any accumulated impairment losses. Goodwill represents the value of the acquired market share, business knowledge and the synergies ob- tained in connection with the acquisition. The carrying amount of goodwill is not amortized, but is tested for impairment annually or more frequently f any indication of impairment exists. The Group assesses the carrying amount of goodwill annually or more frequently if any indication of impairment exists. Goodwill is allocated to the cash generating units (CGUs) of the Group, which are identified according to the country of operation and business unit at the level at which goodwill is monitored for internal management purposes. The recoverable amount of a CGU is determined by value-in-use calculations. In assessing the recoverable amount, estimated future cash flows are discounted to their present value. Cash flow estimates are based on operative managerial estimates. The discount rate is the weighted average cost of capital (WACC) for the main currency area in the location of the CGU (country or business area), which reflects the mar- ket assessment of the time value of money and the risks specific in SSH Communications Secu- rity’s business. Any impairment loss of goodwill is recognized immediately as an expense and is not subsequently reversed. Impairment of Tangible and Intangible Assets 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 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 state- ment. 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 period for an asset other than goodwill will be reversed if there is a change in the estimates that have been used in as- sessing the recoverable amount of that asset. 27 SSH Communications Security Group Inventories Inventories are valued at cost or at a net realizable value, whichever is lower. Inventories com- prise finished goods for sale or for use in producing a service. Financial Assets and Liabilities Financial assets The Group has classified its financial assets into the following categories: financial assets at fair value through profit of loss, financial assets at fair value through comprehensive income state- ment, and financial assets at amortized value. The assets are classified at initial recognition; the classification is based on the business model used in managing the financial assets and contractual terms of the cash flows. 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 through profit or 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 trans- ferred outside the Group. All asset purchases and sales are recognized on the date of the trans- action. Financial assets through profit or loss include derivatives unless they are designated as effective hedging instruments or warrants such as currency derivatives, and fund investments. Changes in fair values of derivative financial instruments and realized and unrealized gains and losses are recognized in the income statement during the period when they incur. The Group did not have any derivatives during 2021 or 2020. Loans and receivables are valued at cost at the time of acquisition and they are measured at amortized acquisition cost using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents include cash on hand, short-term deposits at banks, and other short- term liquid investments. Assets classified as cash and cash equivalents have a maturity of three months or less at the time of acquisition. Impairment of financial assets The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. Credit losses are recognized in the income statement in other operating expenses. The Group assesses at each balance sheet date whether an individual financial asset or group of financial assets is impaired. The Group recognizes an impairment loss on trade receivables when it is expected that the receivable will not be recovered in full. 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 re- ceivables. 28 SSH Communications Security Group Financial liabilities The Group’s financial liabilities are classified into financing liabilities recognized at fair value through profit/loss or other financial liabilities (financing liabilities recognized at amortized acqui- sition 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 through profit/ loss include the derivative instruments which do not fulfill the criteria for hedging account- ing, and which are not warrants (currency derivatives). Unrealized and realized gains/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. The Group did not have any derivative contracts during 2021 or 2020. Other financial liabilities (financing liabilities recognized at amortized cost) include, most signifi- cantly, trade payables. 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. Leases The Group leases mainly offices. Rental contracts are typically made for fixed periods from two to three years but may have extension options. Extension options have not been included in the lease liability, because the Group could replace the asset without significant cost or business dis- ruption. The lease term is reassessed if the option is exercised. Leases are recognized in the balance sheet as a right-of-use asset and a corresponding financial liability at the date at which the lease asset is available for the use by the Group. Each lease pay- ment is allocated between the liability and finance cost. The finance cost is recognized in the income statement over the lease period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. The right-of-use assets are also subject to impairment. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not read- ily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset. Lease liabilities are included in interest-bearing loans and borrowings. The Group applies the short-term lease recognition exemption to the leases of 12 months or less and the lease of low-value assets recognition exemption. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term. 29 SSH Communications Security Group Earnings per share Earnings per share Earnings per share is calculated by dividing the net profit/ loss for the financial year attributable to the owners by the weighted average number of ordinary shares outstanding during the finan- cial year. Earnings per share is impacted by unpaid interest of hybrid capital securities. Diluted earnings per share 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. Diluted earnings per share is impacted by unpaid interest of hybrid capital securities. Share capital Share capital consists of ordinary shares of the parent company classified as equity. Dividends paid on ordinary shares are deducted from equity in the period during which the decision to dis- tribute dividends is made in the Annual General Meeting. Share issue costs Costs directly related to an issue of new shares, other than costs attributable to a business com- bination, are deducted, net of tax, from the proceeds recognized under equity. Own shares If SSH Communications Security Corporation or its subsidiaries purchase parent company SSH Communications Security Corporation’s shares, the compensation paid, including any related in- cremental 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. The Group companies held no shares in the parent company on De- cember 31, 2021 or December 31, 2020. Hybrid capital securities Hybrid capital securities is an instrument that is subordinated to the Company’s other debt obli- gations and is treated as equity in the Group balance sheet. Unpaid interest is cumulated but presented in the financial statements only after Board of Directors’ interest payment decision. Gross Margin Gross margin is equal to net sales less the acquisition costs of directly related materials and ser- vices. Operating Profit/Loss IAS 1 Presentation of Financial Statements does not define operating profit/loss. The Group uses the following definition: operating profit/loss is equal to earnings before interest and taxes. 30 SSH Communications Security Group Income tax 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 (and tax laws) effective in each country, adjusted for any tax from previous periods. Deferred taxes are calculated on temporary differences between the book value and taxable value. The largest temporary differences arise from unused tax losses which are deductible later. Deferred taxes are calculated using the statutory tax bases with confirmed content announced by the closing date or with generally accepted tax bases. 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. Employee Benefits Pensions The Group’s pension schemes comply with the relevant regulations and practices in each relevant country. Pension security for the 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 contributions cannot discharge its pension payment obligations. Contri- butions under the defined contribution plan are recognized in the income statement for the fi- nancial period during which the contributions were made. Share-based payments Option rights have been issued to the Group management 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 de- termined using the Black-Scholes pricing model. The non-market criteria are not included in the fair value of the option but considered 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 re- ceived, net of any transaction costs, are recognized under share capital and unrestricted invested equity fund. Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a re- sult 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 31 SSH Communications Security Group 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 unavoid- able 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. Use of estimates Preparation of the consolidated financial statements in accordance with IFRS requires manage- ment to make estimates and assumptions affecting the reported amounts of assets, liabilities, income and expenses, as well as the disclosure of contingent assets and liabilities. The estimates and assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, which form the basis of making the judgments about carry- ing values. These estimates and assumptions are reviewed on an ongoing basis and possible ef- fects of changes in estimates and assumptions are recognized during the period they are changed. The estimates and assumptions that have a significant risk of causing adjustment to the carrying value of assets within next financial year relate to restructuring plans, impairment testing, claims, onerous contracts, pending patent litigations, and the probability of deferred tax assets being recovered against future taxable profits. 32 SSH Communications Security Group 3. NET SALES EUR 2021 2020 BY OPERATION Subscription sales 4 698 933 768 755 License sales 3 089 244 2 245 939 Maintenance sales 7 562 294 7 800 367 Professional services & others 579 018 436 153 Total 15 929 489 11 251 214 BY GEOGRAPHICAL SEGMENT AMERICAS 6 590 099 5 943 849 APAC 1 659 492 2 124 979 EMEA 7 679 898 3 182 386 Total 15 929 489 11 251 214 Information about major customers In 2021 or 2020, no customer’s revenue accounted for more than ten percent of the Group’s net sales. 4. OTHER OPERATING INCOME Other operating income includes EUR 1.1 million received government grants (2020: EUR 1.0 million). 5. OTHER OPERATING COSTS EUR 2021 2020 Employee benefit expenses Wages and salaries -10 542 722 -8 387 096 Pensions, defined contribution plan -1 156 592 -796 193 Other social security costs -525 221 -449 328 Stock options issued -479 238 -131 031 Total -12 703 773 -9 763 649 Information about remuneration of the key management personnel is presented in note 24. Re- lated party transactions and information on the options granted is presented in the note 19. Share-based payments. Number of personnel 2021 2020 Average during the financial period 114 88 At the end of the financial period 123 94 33 SSH Communications Security Group Personnel distribution by function on 31 Dec Sales, marketing, and customer support 47 31 Research and development 65 48 Administration 11 15 Total 123 94 Research and development costs recognized as costs EUR 2021 2020 Total -5 836 431 -5 047 946 Other operating costs EUR 2021 2020 External services -3 983 055 -3 016 512 Depreciation -2 649 452 -2 093 238 Other costs -1 002 783 -1 205 792 Total -7 635 290 -6 315 542 Auditor’s fees Auditor’s fees categorized into service groups were: EUR 2021 2020 Principal auditor Ernst & Young Oy Statutory auditing -63 425 -65 720 Other auditing -16 725 -5 625 Other services -2 352 -2 009 Other auditing firms: Statutory auditing -11 068 -7 050 Tax guidance -6 464 -15 158 Total -100 034 -95 562 34 SSH Communications Security Group 6. DEPRECIATIONS AND IMPAIRMENTS EUR 2021 2020 BY ASSET CATEGORY Machinery and equipment 81 193 76 136 Right-of-use assets 301 343 393 566 Software & other intangible assets 1 039 466 336 704 Capitalized development costs 1 227 450 1 286 832 Total 2 649 452 2 093 238 BY FUNCTION Sales and marketing 8 376 12 063 Research and development 1 672 072 1 501 520 Administration 969 005 579 655 Total 2 649 452 2 093 238 7. FINANCIAL INCOME EUR 2021 2020 Interest revenue 964 631 Exchange rate gains, loans, and other receivables 171 647 Total 172 611 631 8. FINANCIAL COSTS EUR 2021 2020 Exchange rate losses, loans and other receivables -133 940 -458 289 Interest arising from revenue contracts -40 842 -72 222 Interest on lease liabilities -61 385 -48 314 Other financial costs -200 689 -25 850 Total -436 857 -604 675 35 SSH Communications Security Group 9. INCOME TAXES EUR 2021 2020 Income taxes -524 030 12 162 Total -524 030 12 162 Reconciliation of income taxes and profit/loss before taxes EUR 2021 2020 Profit/loss before taxes -1 794 364 -3 090 264 Tax at parent company tax rate (20%) 358 873 618 053 Effect of foreign subsidiaries' differing tax rates 4 966 -7 877 Effect of deferred taxes 120 871 Non-deductible expenses -209 878 -19 351 Tax exempt revenue 18 031 72 299 Tax deductible hybrid loan interest expenses 276 000 180 000 Use of previously unrecognized tax losses 279 302 297 264 Tax assets not recognized for reported losses -177 333 -28 247 Tax assets not recognized for unused tax depreciations -824 839 -1 124 324 Income taxes from previous years -3 144 25 938 Other direct taxes -366 878 -1 593 Income taxes -524 030 12 162 The amount of Group’s unused tax losses, for which no deferred tax asset has been recognized based on the prudence principle, is EUR 8.6 million (2020: EUR 8.1 million). EUR 3.4 million (2020: EUR 2.8 million) of the tax losses are in Finland, and EUR 5.7 million (2020: EUR 5.2 mil- lion) in the USA. The tax losses expire in Finland between the years 2022–2030, and in the USA between the years 2022–2035. The amount of unrecognized deferred tax assets from the tax losses is EUR 1.9 million (2020: EUR 1.7 million). The figures include use of losses in 2021 which have not yet been confirmed in taxation. In addition, the parent company has EUR 38.5 million (2020: EUR 36.8 million) research and development expenses and depreciations not deducted in taxation and the amount of unrecog- nized deferred tax assets resulting from those is EUR 7.7 million (2020: EUR 7.3 million). The Group’s subsidiaries do not have earnings that would cause tax consequences when repat- riated. 36 SSH Communications Security Group 10. EARNINGS PER SHARE EUR 2021 2020 Profit/loss attributable to shareholders of the parent company -2 318 394 -2 834 022 Hybrid loan interest expense -1 380 000 -1 260 000 Weighted average number of shares in issue, 1,000 38 927 38 802 Earnings per share -0,10 -0,11 Adjusted average number of shares considering dilution effect, 1,000 40 843 41 529 Earnings per share, diluted -0,10 -0,11 11. PROPERTY, PLANT AND EQUIPMENT EUR 2021 2020 Machinery and equipment Acquisition cost 1 Jan 2 094 182 2 054 825 Exchange rate effect 20 177 -22 420 Increase 97 414 61 777 Acquisition cost 31 Dec 2 211 773 2 094 182 Accumulated depreciation 1 Jan 1 979 855 1 936 735 Exchange rate effect 19 843 -21 367 Depreciation for the financial period 69 608 64 486 Accumulated depreciation 31 Dec 2 069 306 1 979 855 Book value 31 Dec 142 467 114 327 EUR 2021 2020 Other tangible assets Acquisition cost 1 Jan 72 389 52 876 Exchange rate effect 4 039 -4 468 Increase 23 982 Acquisition cost 31 Dec 76 428 72 389 Accumulated depreciation 1 Jan 43 857 35 918 Exchange rate effect 3 798 -3 710 Depreciation for the financial period 11 586 11 650 Accumulated depreciation 31 Dec 59 241 43 857 Book value 31 Dec 17 187 28 532 Book value of tangible assets 31 Dec 159 654 142 859 37 SSH Communications Security Group 12. RIGHT-OF-USE ASSETS EUR 2021 2020 Acquisition cost 1 Jan 1 375 688 581 008 Exchange rate effect 31 823 -34 943 Increase 255 189 829 623 Decrease -25 004 Acquisition cost 31 Dec 1 637 695 1 375 688 Accumulated depreciation 1 Jan 689 283 318 870 Exchange rate effect 25 813 -23 153 Depreciation for the financial period 353 250 364 343 Impairment 29 223 Accumulated depreciation 31 Dec 1 068 347 689 283 Book value 31 Dec 569 349 686 405 Right-of-use assets include mainly leased offices and software. From the beginning of Septem- ber 2021 the company leased new office space to accommodate increase in headcount due to acquisition of Deltagon. The new lease contract is for the period of three years and added right- of-use assets and lease liabilities with EUR 0.1 million in 2021. More information on leases is presented in the note 22. Leases. 38 SSH Communications Security Group 13. INTANGIBLE ASSETS EUR 2021 2020 Software Acquisition cost 1 Jan 2 125 288 2 065 632 Exchange rate effect 15 347 1 401 Increase 2 535 58 255 Acquisition cost 31 Dec 2 143 170 2 125 288 Accumulated depreciation 1 Jan 2 067 033 2 057 842 Exchange rate effect 15 347 1 523 Depreciation for the financial period 9 991 7 667 Accumulated depreciation 31 Dec 2 092 371 2 067 033 Book value 31 Dec 50 799 58 255 EUR 2021 2020 Immaterial rights Acquisition cost 1 Jan 16 773 132 15 235 306 Increase 10 042 795 1 537 826 Acquisition cost 31 Dec 26 815 927 16 773 132 Accumulated depreciation 1 Jan 11 383 387 9 764 636 Depreciation for the financial period 2 205 017 1 618 751 Accumulated depreciation 31 Dec 13 588 404 11 383 387 Book value 31 Dec 13 227 522 5 389 744 Goodwill 8 594 625 Book value of intangible assets 31 Dec 21 872 947 5 447 999 On April 26, 2021, the group’s subsidiary Kyberleijona Oy acquired 100% of the voting shares of Deltagon Oy. The acquisition increased the group’s customer related and technology based intan- gible assets EUR 8.5 million and goodwill arising on acquisition EUR 8.6 million, the total increase as a result of the acquisition on the intangible assets being EUR 17.1 million. Customer related and technology based intangible assets are amortized over time, whereas goodwill has indefinite useful life. The estimated remaining useful life of customer related intangible assets is 10 years and technology based intangible assets five years. Goodwill Goodwill is not amortized but is tested at least annually for impairment. The group’s goodwill from acquisition is allocated to one the cash generating unit (CGU) which is Deltagon. The recov- erable amount from CGU is determined with a value in use method, using five-year cash flow projections, based on financial estimates prepared by the management. Cash flows for the period extending over the five-year planning period are calculated using the terminal value method. The key parameters applied in impairment testing are: increase in net sales during the next five years 10 %, steady growth rate in projecting terminal value 2 % and discount rate 19.0 %. The 39 SSH Communications Security Group discount rate is the weighted average pre-tax cost of capital (WACC). The components of the WACC are risk-free rate, market risk premium, company-specific risk premium (small stock pre- mium 11.2 %), industry specific equity beta, cost of debt and debt to equity ratio. Tested assets include goodwill, customer related and technology based intangible assets and net working capi- tal. An asset is impaired when its carrying amount exceeds its recoverable amount. On the basis of the impairment calculations made, there has been no need for impairment for the CGU for the period ended December 31, 2021. Sensitivity analyses of goodwill have been carried out for the valuation of CGU by making down- side scenarios for key parameters. If other parameters remain unchanged, increase in discount rate over 4.0 %, or 7.5 % decrease in growth assumptions would result in impairment. No goodwill impairment losses were recognized during the accounting period. Intangible assets At the end of the year, the company has tested the value of intangible assets using a moderate growth rate compared to year 2021 net sales and year 2021 cost structure. The cash flow forecasts of new products in the market are based on year 2022 budget. The discount rate used in the testing was 13 %. As a result of the testing, no impairment risk was detected. According to the sensitivity analyses carried out, even a significant change in key variables (net sales, profitability and discount rate) would not create a situation where the carrying value of an asset would exceed its recoverable amount. 40 SSH Communications Security Group 14. TRADE RECEIVABLES AND CONTRACT LIABILITIES EUR 2021 2020 Total trade receivables 4 253 848 2 961 250 EUR 2021 2020 Deferred revenue 8 659 315 6 361 348 Government grants received 322 693 134 729 Total advances received and deferred revenue 8 982 009 6 496 077 By currency EUR 2021 2020 EUR 2 876 388 417 572 USD 714 341 2 293 408 GBP 273 690 250 270 CHF 256 170 SEK 133 259 Total 4 253 848 2 961 250 By age EUR 2021 2020 Non-matured 3 452 357 1 431 762 Matured < 30 days 272 637 1 042 358 31−90 days 457 382 428 128 91-180 days 58 389 105 865 > 181 days 145 195 377 501 Impairment losses -132 111 -424 364 Total 4 253 848 2 961 250 The Group does not fully record impairment losses on receivables older than 90 days, as histori- cally credit losses have been very small. 15. OTHER RECEIVABLES EUR 2021 2020 VAT receivables 132 632 150 020 Deposits 147 949 157 669 Other current receivables 182 932 184 836 Total 463 513 492 525 41 SSH Communications Security Group 16. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES The book value of trade receivables and trade payables equals their fair value because the im- pact of discounting is not significant considering the maturity of these items. 17. NOTES TO EQUITY According to the Articles of Association, SSH Communications Security Corporation has a mini- mum 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 in the Trade Register and fully paid up as of 31 December 2021 was EUR 1,178,366.97 (2020: EUR 1,164,066.99), and the number of shares was 39,278,899 (2020: 38,802,233). Changes in the share capital Number of shares Share capital, EUR 31 Dec 2020 38 802 233 1 164 067 Subscriptions under stock option plan 476 666 14 300 Subscriptions under share issue 31 Dec 2021 39 278 899 1 178 367 DESCRIPTION OF THE EQUITY RESERVES: Share capital The share capital includes the share subscription prices from share issues and share subscriptions through options unless the conditions of the share issue stipulate that the subscription price shall be registered in the unrestricted invested equity fund. Expenses related to share issue are de- ducted from retained earnings. Translation differences The translation differences fund comprises the exchange rate differences arising from the trans- lation of the financial statements of the foreign subsidiaries. Fair value and other reserves The item ‘Fair value and other reserves’ consists of two different funds: a fair value reserve for available-for-sale investments and a hedging reserve for changes in the fair value of cash flow hedging instruments. In the 2021 and 2020 financial periods, SSH Communications Security had no available-for-sale financial assets and did not apply hedge accounting. Unrestricted invested equity fund The unrestricted equity fund consists of the dissolved share premium fund formed by share sub- scriptions under option rights and includes share subscription prices insofar as not registered as share capital based on a specific decision. 42 SSH Communications Security Group Hybrid capital securities Hybrid capital securities is an instrument that is subordinated to the Company’s other debt obli- gations and does not have maturity date (i.e. it is perpetual). It is treated as equity in the IFRS financial statements. Hybrid capital securities do not confer to their holders any rights of share- holders and do not dilute the holdings of the current shareholders. The other equity fund consists of hybrid capital securities of EUR 12 million issued in March 2015, subscribed by institutional investors. The principal owner of the parent company, Mr. Tatu Ylönen, subscribed EUR 500,000 of the hybrid capital securities. The capital securities bear a fixed interest rate of 7.5 per cent until 30 March 2020, after which the interest rate will increase by four per- centage points to 11.5 per cent. The capital securities have no maturity date, but the issuer has the right to redeem them after 3 but before 5 years from the issue date, upon certain conditions, or after 5 years from the issue date. The investors had the right to convert the capital loan into the Company’s shares at EUR 4.76 per share until 30 March 2020. 18. CAPITAL MANAGEMENT The objective in managing Group capital is to secure the ability to continue operating. The struc- ture of the capital can be managed through decisions concerning, for instance, dividends and other distribution of assets, purchase of the company’s own shares, and share issues. Capital man- agement concerns equity recognized in the balance sheet. There are no requirements imposed by outside parties on the Group’s capital management. In March 2015 the Group issued hybrid cap- ital securities which are included in the Group’s equity. The indicators depicting the capital structure are the equity ratio and gearing. Net liabilities EUR 2021 2020 Interest-bearing liabilities 2 827 000 582 000 Lease liabilities 591 270 714 772 Cash and cash equivalents 8 207 229 8 517 698 Net liabilities -4 788 959 -7 220 926 Equity total 12 025 739 8 465 026 Equity ratio 44,63 % 69,70 % Gearing -39,82 % -85,30 % The interest-bearing liabilities consist of the subordinated loan EUR 0.6 million which Kyberleijona Oy has taken out from the non-controlling interest holder State Security Networks Group Finland, and a premium loan received from ELO mutual pension insurance company EUR 2.2 million. The capital and interest of the subordinated loan can only be repaid in circumstances permitted by Chapter 12 of the Finnish Limited Liability Companies Act. The capital of the subordinated loan can only be repaid to the extent the unrestricted shareholders’ equity and the total amount of the subordinated loan at the time of the repayment exceeds the loss that is to be confirmed for the company’s latest financial year or is included in the balance sheet of more recent financial statements. The annual interest for the subordinated loan, three per cent (3 %), has been recog- nized as expense. 43 SSH Communications Security Group 19. SHARE-BASED PAYMENTS In the company’s industry, it is common practice internationally that incentives are provided to employees in the form of equity settled share-based instruments, such as options. Personnel of the company belong to options plans. An employee leaving the company before the vesting of the options forfeits their options. On the balance sheet date, SSH Communications Security had 1,915,334 stock options outstand- ing (2020: 2,727,000), representing 4.6 % of shares and 4.6 % of votes. The weighted average exercise price of outstanding stock options was EUR 1.4 (2020: EUR 1.9). The weighted average of the remaining subscription period was 1.2 years (2020: 2.2 years). The exercise price varies from EUR 0.93 to EUR 2.09, and the remaining subscription period from 0.2 years to 2.3 years. A person holding option rights is entitled to subscribe shares if employed by SSH at the beginning of the subscription period. Information about option plans: Option plan Option certificate Release date Subscription period Subscription price, EUR Options not excercised Begin End 2018 2018 22 Feb 2018 1 Dec 2020 31 Mar 2022 2,09 503 334 2019 A 2019 A 18 Dec 2018 1 Dec 2021 31 Mar 2023 1,56 980 000 2020 A 2020 A 13 Feb 2020 1 Dec 2022 31 Mar 2024 0,93 980 000 Total 2 463 334 Changes in outstanding stock options: 2021 2020 At the beginning of the financial period 2 727 000 2 425 575 Stock options granted 218 000 1 688 000 Stock option forfeited 553 000 710 100 Stock options expired 676 475 Stock options exercised 476 666 At the end of the financial period 1 915 334 2 727 000 Exercisable option rights at the end of the financial period 1 915 334 2 727 000 44 SSH Communications Security Group The fair value is of option programs is determined at the time the options are granted and is recorded as an expense in the profit/loss during the period of inception. The fair value is deter- mined using the Black-Scholes pricing model. The parameters for options granted in 2021 are: 2021 Share price at grant, EUR 2,55 Share price at financial period end, EUR 3,01 Exercise price, EUR 1,43 Expected volatility 1 70,9 % Maturity, years 1,79 Risk-free rate -0,71 % Expected dividends, EUR 0,00 Valuation model Black-Scholes Fair value 31 Dec 2021, EUR 285 128 1 The expected volatility has been determined by calculating the historical volatility of the company’s shares using monthly observations over corresponding maturity. Share-based payments recognized as an expense, EUR 2021 2020 Share-based payments, equity-settled 479 238 131 031 Liability from share-based payments 31 Dec 0 0 20. TRADE AND OTHER PAYABLES EUR 2021 2020 Trade payables 567 519 398 156 Personnel related 2 808 350 1 559 165 Accruals 55 426 95 733 VAT liabilities 373 317 75 967 Other liabilities 2 205 131 248 029 Total 6 009 743 2 377 051 21. FINANCIAL RISK MANAGEMENT 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. Foreign Exchange Risk The Group operates internationally and is exposed to foreign exchange risk, the most significant currency being the U.S. dollar. The company reduces risk based on net position, using foreign exchange forwards or options. Currently the net position is not hedged. The company decides on 45 SSH Communications Security Group the hedging on case by case basis. Currently the Group is not using hedging accounting. Any gains or losses realized through hedging actions are thus recognized in profit/loss. A 10 % strengthening of the U.S. dollar against the Euro using with net position on 31 Dec 2021 would increase the pre-tax profit of the Group by 9,000 euros. Similarly, a 10 % weakening of the U.S. dollar against the Euro would decrease the pre-tax profit of the Group by 7,000 euros. Interest Rate Risk The interest-bearing debt of the Group at the end of the review period was EUR 2,827,000 and it consisted of a subordinated loan EUR 582,000 taken by a subsidiary company from a non-control- ling interest holder, and a premium loan taken from ELO mutual pension insurance company EUR 2,245,000. The annual interest of the subordinated loan is three per cent (3 %). The interest rate of the premium loan consists of reference interest rate and added margin 0,50 %. 21.6.2021 when loan was drawn the calculated annual rate of premium loan was 0,80 % The money market investments of the Group expose the cash flow to interest rate risk, but their impact is not material. Market Risk Related to Investments 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, all the assets are invested in cash in financial institutions with high credit ratings. Credit Risk The Group has no significant concentrations of credit risk. At the end of the financial year, the Group recorded impairment losses of EUR 0.1 million to cover doubtful receivables. The aging distribution of trade receivables is presented in note 14. Trade receivables. Liquidity Risk The Group’s cash and cash equivalents on 31 Dec 2021 were 8,207,229 euros (2020: 8,517,698 euros). 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 Group had trade payables and other short-term debts amounting 4,334,743 euros (2020: 2,377,051 euros). The outstanding installments from Deltagon acquisition and payments of pre- mium loan from ELO mutual pension insurance company maturing less than one year amount 2,170,000 euros. Agreements concerning credit facilities and loan guarantees include a covenant for the adequate liquidity and subordination of the hybrid loan interest payments to the credit facility guarantee. Non-compliance with the covenant would lead to deferral of the hybrid interest payment until such time the terms and conditions of the covenant would not restrict payment of the interest or when the credit facility is repaid. Breach of covenant would require material deterioration of the liquidity from the current. 46 SSH Communications Security Group The tables below present the Group’s maturity of the financial liabilities: 31 Dec 2021 EUR Less than 1 year 1 to 5 years Over 5 years Total Interest-bearing liabilities 500 000 1 745 000 582 000 2 827 000 Outstanding installments from Deltagon acqui- sition 1 670 000 3 166 096 - 4 836 096 Lease liabilities 371 791 219 479 - 591 270 Trade and other payables 4 334 743 - - 4 334 743 Total 6 876 534 5 130 575 582 000 12 589 109 31 Dec 2020 EUR Less than 1 year 1 to 5 years Over 5 years Total Interest-bearing liabilities - - 582 000 582 000 Lease liabilities 329 417 385 355 - 714 772 Trade and other payables 2 377 051 - - 2 377 051 Total 2 706 468 385 355 582 000 3 673 823 The tables below present changes in liabilities arising from financing activities: EUR 1 Jan 2021 Cash flows Foreign ex- change movement New leases Other 31 Dec 2021 Current lease liabilities 329 417 -386 328 9 742 92 248 326 711 371 791 Current interest-bearing borrowings 500 000 500 000 Other current liabilities 1 670 000 1 670 000 Non-current interest-bearing borrow- ings 582 000 1 745 000 2 327 000 Non-current lease liabilities 385 355 5 735 155 101 -326 711 219 480 Other non-current liabilities 3 166 096 3 166 096 Total liabilities from financing activi- ties 1 296 772 1 858 672 15 477 247 349 4 836 096 8 254 366 EUR 1 Jan 2020 Cash flows Foreign ex- change movement New leases Other 31 Dec 2020 Current lease liabilities 200 925 -374 466 -9 977 297 180 215 756 329 417 Non-current interest-bearing borrow- ings 582 000 - - - - 582 000 Non-current lease liabilities 73 237 -4 569 532 443 -215 756 385 355 Total liabilities from financing activi- ties 856 162 -374 466 -14 546 829 623 0 1 296 772 The column “Other” includes non-cash movements, such as reclassification from non-current to current. 47 SSH Communications Security Group 22. LEASES Leases in the balance sheet The Group has recognized the following amounts related to the leases in the balance sheet: Right-of-use assets EUR 2021 2020 Offices 429 062 554 973 Software 99 703 131 432 Other 40 583 Total 569 349 686 405 Lease liabilities EUR 2021 2020 Current 371 791 329 417 Non-current 219 479 385 355 Total 591 270 714 772 Additions to the right-of-use assets during 2021 were in total EUR 0.3 million (2020: EUR 0.8 million). Changes in right-of-use assets have been presented in note 12. Right-of-use assets. Leases in the income statement The Group has recognized the following amounts related to the leases in the income statement: EUR 2021 2020 Depreciation charge of right-of-use assets -379 064 -393 566 Interest expenses (included in financial costs) -61 385 -48 314 Expense relating to short-term leases (included in other oper- ating costs) -30 386 -59 131 Expense relating to leases of low-value assets (included in other operating costs) -7 886 -1 791 The cash outflow for leases in 2021 was in total EUR 0.4 million (2020: EUR 0.4 million). 48 SSH Communications Security Group 23. GUARANTEES GIVEN AND OTHER COMMITMENTS EUR 2021 2020 Rental guarantees (pledged) 147 949 157 669 Hybrid Loan, Interest 1 035 000 1 035 000 On April 26, 2021, the Group’s subsidiary Kyberleijona Oy acquired 100% of the voting shares of Deltagon Oy, an unlisted company based in Finland. The purchase price consideration of Deltagon Oy includes an earn-out consideration. The earn-out consideration is payable as one lump-sum payment at the latest on 10th business day after the financial statements for the ac- counting period ending on 31.12.2023 have been adopted by the Annual General Meeting of Kyberleijona Oy. Total amount of earn-out consideration will not exceed EUR 1,300,000. On 31 December 2021, the estimated earn out consideration of Deltagon acquisition is EUR 650,000. More information about Deltagon acquisition can be found on note 25. 49 SSH Communications Security Group 24. GROUP COMPANIES AND RELATED PARTY TRANSACTIONS SSH Communications Security Corporation, its subsidiaries, its CEO, and its Board members and companies controlled by them belong to related party of the Group. The Group management team is not considered as part of related party as they do not have direct decision-making authority. Group companies Dec 31 2021 Group company Domicile Group Votes, % holding, % SSH Communications Security Oyj, Helsinki Finland SSH Communications Security Inc., New York City USA 100 100 SSH Operations Oy, Helsinki Finland 100 100 SSH Communications Security Ltd., Hong Kong Hong Kong 100 100 Kyberleijona Oy, Helsinki Finland 65 65 Deltagon Oy Finland 100 100 SSH Government Solutions Inc., New York City USA 100 100 SSH Technology Oy, Helsinki Finland 100 100 SSH Communications Security UK Ltd, London United Kingdom 100 100 Employee benefits of the management The key management personnel of the Group are defined consisting of the CEO of the parent com- pany. The employee benefits of the CEO are presented in the table below. The sums of employee benefits are shown on an accrual basis. The CEO of SSH Communications Security Corporation has been Mr. Teemu Tunkelo as of 24 March 2020. Remuneration and fees - CEO EUR 2021 2020 Salary and other short-term employee benefits 262,703 284,978 Termination benefits 111,451 Total 262,703 396,429 Fees to Members of the Board of Directors EUR 2021 2020 Curry Sam (until 26 March 2020) 7 500 Fredrikson Christian (as of 25 March 2021) 18 435 Kellomäki Sampo (as of 26 March 2020) 24 000 18 000 Kiianmies Aino-Mari (until 25 March 2021) 6 000 18 000 Kiuru Sauli (until 26 March 2020) 7 500 Kuivala Petri (until 26 March 2020) 8 750 Tavakka Kai (as of 26 June 2020) 24 000 12 286 Syrjälä Timo (until 26 March 2020) 7 500 Ylönen Tatu (until 25 March 2021) 7 500 Zettlemoyer Anne Marie (until 26 March 2020) 7 500 Österlund Henri (as of 26 June 2020, Chairman of the Board) 28 800 14 743 Total 101 235 109 279 50 SSH Communications Security Group Share and stock option holdings of 31 Dec 2021 31 Dec 2020 of Board members Shares Options Shares Options Fredrikson Christian Kellomäki Sampo Tavakka Kai 5 480 Österlund Henri 119 627 61 060 Total 125 107 - 61 060 - Share and stock option holdings 31 Dec 2021 31 Dec 2020 of the key management Shares Options Shares Options Tunkelo Teemu (CEO as of 24 March 2020) 77 043 425 000 20 300 475 000 Nordström Niklas 4 619 279 000 370 000 Raulas Rami 50 000 Total 81 662 754 000 20 300 845 000 Compensation of the key management personnel of the group EUR 2021 2020 Wages and other short-term employee benefits 633 344 1 179 520 Share-based payments 38 280 - On 31 December 2021, the CEO and members of the Board of Directors of SSH Communications Security owned 0.5 % (2020: 18.2 %) of the shares and votes in the company, either directly or indirectly through companies they own. Management group members including the CEO directly or indirectly held about 0.2 % (2020: 0.1 %) of company shares and have a total of 754,000 (2020: 1,150,000) option rights. The key conditions of the option right arrangements are described in note 19. Share-based pay- ments. Related party transactions During the reporting period, there have not been any significant transactions with related parties. 25. BUSINESS COMBINATIONS 2021 On April 26, 2021, the Group’s subsidiary Kyberleijona Oy acquired 100% of the voting shares of Deltagon Oy, an unlisted company based in Finland that develops and sells secure messaging and transaction solutions to various industries, including finance and the public sector. A majority of Deltagon’s revenue is generated from the secure email messaging solution Sec@GW that has been certified by the National Cyber Security Authority at the Finnish Transport and 51 SSH Communications Security Group Communications Agency (NCSA-FI) for protecting classified information according to the Finnish national (FI) ST III and ST IV security requirements. The Group has acquired Deltagon because it complements SSH’s product and services portfolio and creates synergies in product development, developing future quantum resistance, and leveraging international sales and marketing chan- nels. The acquisition has been accounted for using the acquisition method. The consolidated fi- nancial statements include the results of Deltagon from the acquisition date April 26 until Decem- ber 31, 2021. Details of purchase consideration, the net assets acquired, and goodwill are as follows: EUR Purchase consideration Cash paid 5 000 000 Deferred purchase price 4 853 477 Considerations shares 5 390 000 Closing adjustments 1 532 844 Earnout consideration 650 000 Total purchase consideration 17 426 321 Assets Fair value recognised on acquisition Intangible assets Customer related intangible assets 8 138 079 Technology related intangible assets 360 485 Trade and other receivables 2 002 741 Cash 1 358 579 11 859 884 Liabilities Trade and other payables -1 328 476 Deferred tax liability -1 699 713 -3 028 189 Total identifiable net assets at fair value 8 831 696 Goodwill arising on acquisition 8 594 625 Purchase consideration transferred 17 426 321 Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) 1 358 579 Cash paid -5 996 349 Net cash flow on acquisition -4 637 770 The total purchase price was EUR 17.4 million. Cash component of EUR 5.0 million was paid at closing, EUR 1.0 million in July and EUR 5.4 million of consideration shares were recognized in equity. Deferred purchase price EUR 4.9 million consists of the present value of three additional installments of EUR 1.67 million paid in the years 2022, 2023, and 2024. The installments have been discounted at the estimated cost of debt (2.1%). A closing adjustment of EUR 1.5 million was based on the net cash position and net working capital adjustment on the closing date. 52 SSH Communications Security Group The goodwill recognized is attributed to the Deltagon’s profitably growing business with a strong position in the domestic messaging security market, new international business, and a wide cus- tomer base. Transaction costs were not significant and have been expensed and included in the administrative expenses in profit or loss. 2020 No acquisitions or divestments were closed in 2020. 26. EVENTS AFTER THE BALANCE SHEET DATE There have been no material events after the balance sheet date. 53 SSH Communications Security Group PARENT COMPANY FINANCIAL STATEMENTS 54 SSH Communications Security Group PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY INCOME STATEMENT EUR Note 1 Jan-31 Dec 2021 1 Jan-31 Dec 2020 NET SALES 1 9 638 427,83 7 006 767,78 Purchasing and production costs -2 004,75 -451,33 GROSS MARGIN 9 636 423,08 7 006 316,45 Other operating income 769 294,68 645 229,02 Research and development costs 2, 3, 6 -5 536 311,17 -5 159 333,65 Sales and marketing costs 2, 3, 6 -3 414 951,56 -2 615 628,82 Administrative costs 2, 3, 6 -2 950 521,47 -2 369 383,91 OPERATING PROFIT/LOSS -1 496 066,43 -2 492 800,91 Financial income 7 Interest revenue and other financing income 3 787 885,79 548 857,58 Interest costs and other financing costs -386 444,21 -465 899,39 PROFIT/LOSS BEFORE APPROPRIATIONS AND TAXES 1 905 375,15 -2 409 842,72 Appropriations 8 Group contribution received 12 028,50 16 864,78 PROFIT/LOSS BEFORE TAXES 1 917 403,65 -2 392 977,94 Taxes 0,00 0,00 PROFIT/LOSS FOR THE FINANCIAL PERIOD 1 917 403,65 -2 392 977,94 55 SSH Communications Security Group PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY BALANCE SHEET ASSETS EUR Note 31 Dec 2021 31 Dec 2020 NON-CURRENT ASSETS Intangible assets 9 Immaterial rights 3 191 018,02 3 162 965,59 Intangible assets, total 3 191 018,02 3 162 965,59 Tangible assets 9 Machinery & equipment 107 972,41 116 918,81 Tangible assets, total 107 972,41 116 918,81 Investments Shares in Group companies 9,19 14 896 037,61 3 889 689,01 Other shares 11 000,00 11 000,00 Investments, total 14 907 037,61 3 900 689,01 NON-CURRENT ASSETS, TOTAL 18 206 028,04 7 180 573,41 CURRENT ASSETS Current receivables Trade receivables 1 958 039,05 488 393,59 Receivables from Group companies 10 5 354 053,47 5 328 229,56 Prepaid expenses and accrued income 11 196 303,32 216 048,95 Other receivables 12 255 515,83 317 283,49 Current receivables, total 7 763 911,67 6 349 955,59 Cash and cash equivalents 2 369 368,20 2 744 865,26 CURRENT ASSETS, TOTAL 10 133 279,87 9 094 820,85 ASSETS, TOTAL 28 339 307,91 16 275 394,26 56 SSH Communications Security Group PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY BALANCE SHEET EQUITY AND LIABILITIES EUR Note 31 Dec 2021 31 Dec 2020 EQUITY 13 Share capital 1 178 366,97 1 164 066,99 Unrestricted invested equity fund 23 702 087,81 22 720 155,85 Hybrid capital securities 14 12 000 000,00 12 000 000,00 Retained profit/loss -24 183 082,79 -20 410 104,85 Profit/loss for financial period 1 917 403,65 -2 392 977,94 EQUITY, TOTAL 14 614 775,64 13 081 140,05 LIABILITIES NON-CURRENT LIABILITIES Pension loan 15 1 745 000,00 Payables to Group companies 15,16 3 340 000,00 NON-CURRENT LIABILITIES, TOTAL 5 085 000,00 CURRENT LIABILITIES Advances received 2 607 972,72 1 080 577,73 Trade payables 238 786,47 326 744,86 Payables to Group Companies 16 3 234 464,53 398 369,66 Accrued expenses and deferred income 17 1 647 035,42 1 219 070,76 Pension loan 500 000,00 Other liabilities 411 273,13 169 491,20 CURRENT LIABILITIES, TOTAL 8 639 532,27 3 194 254,21 LIABILITIES, TOTAL 13 724 532,27 3 194 254,21 EQUITY AND LIABILITIES, TOTAL 28 339 307,91 16 275 394,26 57 SSH Communications Security Group PARENT COMPANY FINANCIAL STATEMENTS PARENT COMPANY CASH FLOW STATEMENT EUR 1 Jan-31 Dec 2021 1 Jan-31 Dec 2020 Cash flow from business operations Receipts from customers 9 839 634,26 9 461 880,39 Payments to suppliers and employees -9 048 311,77 -9 001 780,48 Cash flow from business operations before financial items and taxes 791 322,49 460 099,91 Interest and other financial costs -103 151,06 -26 641,36 Interest and other financial revenue 3 207 999,07 507 457,58 Cash flow from business operations 3 896 170,50 940 916,13 Cash flow from investing activities Investments in tangible and intangible assets -1 570 947,88 -1 555 202,07 Investments in subsidiaries Receipt of government grants -5 996 348,60 1 417 532,20 271 188,17 Cash flow from investing activities -6 149 764,28 -1 284 013,90 Cash flow from financing activities Change of non-current debt 1 745 000,00 Change in current debt 500 000,00 Interest on hybrid capital securities -1 380 000,00 -900 000,00 Proceeds from shares subscribed with option rights 996 231,94 Group contribution received 16 864,78 8 154,97 Cash flow from financing activities 1 878 096,72 -891 845,03 Change in liquid assets -375 497,06 -1 234 942,80 Liquid assets in the beginning of period 2 744 865,26 3 979 808,06 Change in liquid assets -375 497,06 -1 234 942,80 Liquid assets at the end of period 2 369 368,20 2 744 865,26 58 SSH Communications Security Group PARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 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 accu- racy of one cent (EUR 0.01). All items in the balance sheet are recognized at original acquisi- tion cost. Information on financial risk management is presented in the consolidated financial statements (Note 21. Financial Risk Management). Principles of revenue recognition 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 eco- nomic benefits associated with the transaction will accrue to the Group. Control is transferred to the buyer at the point of time. Revenue from services rendered under maintenance agreements are amortized across the agreement period. Revenues from services are recognized when the service has been deliv- ered and it is probable that the economic benefits associated with the transaction will accrue to the Group. Revenue from subscription contracts are amortized across the agreement period. The revenue of royalties from licenses is recognized according to the actual content of the contract at the point of time. Apportioning of costs to functions Costs are apportioned to functions according to the matching principle. Leases The parent company has rental agreement for office premises at Karvaamokuja 2B, Helsinki and minor other assets. Leasing payments paid pursuant to these agreements are recognized as costs over the rental or leasing period under agreements. Income tax 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 tax losses of EUR 3.2 million (2020: EUR 2.7 million). In addition, the parent company has EUR 38.5 million (2020: EUR 36.8 million) research and de- velopment expenses and depreciations not deducted in taxation, whereof no deferred tax asset has been recognized. 59 SSH Communications Security Group Fixed assets Fixed assets are recognized in the balance sheet at acquisition cost less planned depreciation and any impairment. Planned depreciations are calculated on a straight-line basis according to the economic life of each asset category. The asset categories and their depreciation periods are: Machinery and equipment 5 years from month of acquisition Computer hardware 3 years from month of acquisition Immaterial rights 5 years from month of acquisition Development costs 5 years from month of capitalization Other capitalized expenditure 5 years from year of capitalization Leasehold approvements of rental premises Length of the rental agreement, though no more than 7 years, from year of capitalization Research and Development Costs 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 cri- teria have been met. Capitalized development expenses are depreciated systematically over their useful lives. Foreign currency transactions 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 under fi- nancing income and costs. Option rights 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 sub- scription 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. Hybrid capital securities Hybrid capital securities is an equity-related instrument that is presented as a separate item in equity. Interest payments on hybrid capital securities are decided by the Board. Unpaid interest accumulated at the balance sheet date is presented in note 18. Other commitments. 60 SSH Communications Security Group NOTES TO THE INCOME STATEMENT 1. NET SALES BY MARKET AREA EUR 2021 2020 Finland 2 065 274,68 2 432 052,63 Rest of Europe 4 491 819,81 1 214 151,04 Other 3 081 333,34 3 360 564,11 Total 9 638 427,83 7 006 767,78 2. OPERATING COSTS EUR 2021 2020 Other operating costs External services -2 549 757,72 -1 832 280,68 Depreciation -1 149 816,48 -1 221 521,35 Other -1 616 603,36 -1 766 820,27 Total -5 316 177,56 -4 820 622,30 Auditor’s fees EUR 2021 2020 Principal auditor (Ernst & Young Oy) Statutory auditing -50 400,00 -65 720,00 Other auditing -7 305,00 Other services -19 077,00 -329,00 Total -69 477,00 -73 354,00 3. PERSONNEL COSTS AND AVERAGE NUMBER OF EMPLOYEES EUR 2021 2020 Wages and salaries -6 393 514,17 -5 507 723,65 Pension costs -969 552,66 -765 499,67 Other ancillary personnel costs -238 760,99 -184 601,46 Total -7 601 827,82 -6 457 824,78 Average number of employees 2021 2020 76 66 61 SSH Communications Security Group 4. PERSONNEL DISTRIBUTION BY BUSINESS AREA AT THE END OF THE FINANCIAL PERIOD 2021 2020 Research and development 54 47 Sales and marketing 16 13 Administration 11 13 Total 81 73 5. SALARIES AND FEES PAID TO MANAGEMENT AND MEMBERS OF THE BOARD OF DIRECTORS See note 24 in the consolidated financial statements. 6. DEPRECIATION AND IMPAIRMENT EUR 2021 2020 Immaterial rights 249 395,50 195 229,45 Capitalized development costs 838 300,32 977 883,03 Machinery and equipment 62 120,66 48 408,87 Total 1 149 816,48 1 221 521,35 In 2021 or in 2020, the company did not record any impairments. 7. FINANCIAL INCOME AND COSTS EUR 2021 2020 Interest revenue 738 420,19 56 284,71 Received payments of impaired internal loan 2 755 580,05 492 572,87 Exchange rate gains and losses (net) 7 905,23 -460 208,29 Interest and other financial costs -100 464,16 -5 691,10 Total 3 401 441,31 82 958,19 In 2021, the company received a payment of an impaired internal loan EUR 2,755,580.05 from a group company. Interest income of the internal loan was EUR 697,087.59 and currency exchange loss EUR 285,980.05. In 2020, the company received payments of the impaired internal loan total EUR 492,572.86, interest income EUR 14,882.92 and recorded currency exchange loss EUR 27,714.26. 8. APPROPRIATIONS EUR 2021 2020 Group contribution from SSH Technology Oy 12 028,50 16 864,78 Total 12 028,50 16 864,78 62 SSH Communications Security Group NOTES TO THE BALANCE SHEET 9. INTANGIBLE AND TANGIBLE ASSETS AND LONG-TERM INVESTMENTS EUR 2021 2020 Immaterial rights Acquisition cost 1 Jan 14 846 432,33 13 806 553,00 Increase 1 115 748,25 1 039 879,33 Acquisition cost 31 Dec 15 962 180,58 14 846 432,33 Accumulated depreciation 1 Jan 11 683 466,74 10 507 472,19 Depreciation for the financial period 1 087 695,82 1 175 994,55 Accumulated depreciation 31 Dec 12 771 162,56 11 683 466,74 Book value 31 Dec 3 191 018,02 3 162 965,59 Machinery and equipment Acquisition cost 1 Jan 1 851 053,88 1 769 775,43 Increase 53 174,26 81 278,45 Acquisition cost 31 Dec 1 904 228,14 1 851 053,88 Accumulated depreciation 1 Jan 1 734 135,07 1 685 726,20 Depreciation for the financial period 62 120,66 48 408,87 Accumulated depreciation 31 Dec 1 796 255,73 1 734 135,07 Book value 31 Dec 107 972,41 116 918,81 Investments Book value 1 Jan 3 900 689,01 3 900 689,01 Increase 11 006 348,60 0,00 Book value 31 Dec 14 907 037,61 3 900 689,01 The parent company has granted a subordinated loan in total of EUR 1,080,000 (2020: EUR 1,080,000) to Kyberleijona Oy. The capital and interest of the subordinated loan can only be repaid in circumstances permitted by Chapter 12 of the Finnish Limited Liability Companies Act. The capital of the subordinated loan can only be repaid to the extent the unrestricted shareholders’ equity and the total amount of the subordinated loan at the time of the repayment exceeds the loss that is to be confirmed for the com- pany’s latest financial year or is included in the balance sheet of more recent financial statements. The annual interest for the loan is three per cent (3 %). As part of the cooperation agreement between SSH and State Security Networks Group Finland, SSH has strengthened the equity of Kyberleijona in 2018 by EUR 2,532,022.86. 63 SSH Communications Security Group 10. RECEIVABLES FROM GROUP COMPANIES EUR 2021 2020 Trade receivables 5 342 024,97 5 362 186,29 Group contribution receivable 12 028,50 16 864,78 Total 5 354 053,47 5 379 051,07 11. PREPAID EXPENSES AND ACCRUED INCOME EUR 2021 2020 Prepaid expenses 196 303,32 216 048,95 Total 196 303,32 216 048,95 12. OTHER RECEIVABLES EUR 2021 2020 Other receivables 255 515,83 317 283,49 Total 255 515,83 317 283,49 13. EQUITY EUR 2021 2020 Share capital 1 Jan 1 164 066,99 1 164 066,99 Increase in share capital 14 299,98 - Share capital 31 Dec 1 178 366,97 1 164 066,99 Unrestricted invested equity fund 23 702 087,81 22 720 155,85 Hybrid capital securities 12 000 000,00 12 000 000,00 Retained earnings -24 183 082,79 -20 410 104,85 Profit/loss for the financial period 1 917 403,65 -2 392 977,94 Total 14 614 775,64 13 081 140,05 Statement on Distributable Funds, EUR 2021 2020 Retained earnings -24 183 082,79 -20 410 104,85 Profit/loss for the financial period 1 917 403,65 -2 392 977,94 Unrestricted invested equity fund 23 702 087,81 22 720 155,85 Capitalised development costs -2 164 941,90 -2 025 684,59 Total -728 533,23 -2 108 611,53 64 SSH Communications Security Group 14. HYBRID CAPITAL SECURITIES/SHAREHOLDERS' EQUITY A hybrid capital security is an instrument that is subordinated to the Company’s other debt obli- gations and It does not have maturity date (i.e. it is perpetual). It is treated as equity in the finan- cial statements. Hybrid capital securities do not confer to their holders any shareholder rights and do not dilute the holdings of the current shareholders. Hybrid capital securities in the amount of EUR 12 million were issued in March 2015 and sub- scribed by institutional investors. The capital securities bear a fixed interest rate of 7.5 per cent until 30 March 2020, after which the interest rate will increase by four percentage points. The capital securities have no maturity date, but the issuer has the right to redeem them after 3 but before 5 years from the issue date, upon certain conditions, or after 5 years from the issue date. The investors had the right to convert the capital loan into the Company’s shares at EUR 4.76 per share until 30 March 2020. Paid interest from hybrid capital securities reduce the amount of retained earnings. Unpaid inter- est from hybrid capital securities is presented in note 18. Other commitments. Paid interest in the financial year 2021 was EUR 1,380,000 (2020: EUR 900,000). 15. NON-CURRENT LIABILITIES EUR 2021 2020 Pension loans payable Between one and five years 1 745 000,00 Pension loans, total 1 745 000,00 0,00 Liabilities to subsidiaries Between one and five years 3 340 000,00 Liabilities to subsidiaries, total 3 340 000,00 0,00 Non-current liabilities, total 5 085 000,00 0,00 In 2021, company received a premium loan from ELO mutual pension insurance company. Total amount of the loan on 31 December, 2021 is EUR 2,450,000 of which 1,745,000 is non-current. Non-current liabilities to subsidiaries consist of the company’s commitment to invest to Kyber- leijona Oy the outstanding installments of Deltagon acquisition. 16. LIABILITIES TO SUBSIDIARIES EUR 2021 2020 Non-current liabilities to subsidiaries Other liabilities 3 340 000,00 Non-current liabilities to subsidiaries, total 3 340 000,00 65 SSH Communications Security Group Current liabilities to subsidiaries Trade payables 1 545 703,61 398 369,66 Other liabilities 1 688 760,92 Current liabilities to subsidiaries, total 3 234 464,53 398 369,66 Liabilities to subsidiaries, total 6 574 464,53 398 369,66 Non-current other liabilities to subsidiaries consist of the company’s commitment to invest to Kyberleijona Oy the outstanding installments of Deltagon acquisition EUR 3,340,000. Current other liabilities to subsidiaries include current portion of outstanding installment of Deltagon ac- quisition EUR 1,670,000. 17. ACCRUED LIABILITIES AND DEFERRED INCOME EUR 2021 2020 Personnel related 1 645 742,29 1 159 848,13 Accruals 1 293,13 59 222,63 Total 1 647 035,42 1 219 070,76 18. OTHER COMMITMENTS EUR 2021 2020 Non-cancellable lease agreements for office facilities - future rent payments Within one year 246 268,06 203 510,56 Within more than one year but no more than 5 years 137 985,15 264 532,21 Commitments to group companies Within one year 1 670 000,00 Within more than one year but no more than 5 years 3 340 000,00 Other commitments Within one year 70 814,88 58 510,22 Within more than one year but no more than 5 years 46 815,54 97 517,03 Total 5 511 883,62 624 070,02 Commitments to group companies consist of the company’s commitment to invest to Kyber- leijona Oy the outstanding installments of Deltagon acquisition. Guarantees given and other commitments EUR 2021 2020 Rental guarantees (pledged) 128 127,90 130 696,90 Hybrid Loan, Interest 1 035 000,00 1 035 000,00 66 SSH Communications Security Group 19. GROUP COMPANIES Parent and subsidiary relationships of the Group 31 December 2021 Group companies Domicile Group holding, % Votes, % SSH Communications Security Oyj, Helsinki Finland SSH Communications Security Inc., New York City USA 100 100 SSH Operations Oy, Helsinki Finland 100 100 SSH Communications Security Ltd., Hong Kong Hong Kong 100 100 Kyberleijona Oy, Helsinki Finland 65 65 SSH Government Solutions Inc., New York City USA 100 100 SSH Technology Oy, Helsinki Finland 100 100 SSH Communications Security UK Ltd, London United Kingdom 100 100 67 SSH Communications Security Group DIVIDEND PROPOSAL AND SIGNATURES DIVIDEND PROPOSAL The parent company’s distributable funds are EUR -728,533.23, of which the profit for the finan- cial year is EUR 1,917,403.65. The Board of Directors proposes to the Annual General Meeting on 25 March, 2022 that no dividend or return of capital shall be distributed. It is proposed that the profit of the financial year shall be entered to the retained earnings in the shareholders’ equity. SIGNATURES FOR THE FINANCIAL STATEMENTS AND REPORT OF THE BOARD OF DIRECTORS Helsinki, 23 February 2022 Henri Österlund Chairman of the Board of Directors Sampo Kellomäki Christian Fredrikson Member of the Board of Directors Member of the Board of Directors Kai Tavakka Member of the Board of Directors Teemu Tunkelo Chief Executive Officer AUDITOR’S NOTE Our auditors’ report has been issued today. 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