Interim Results
EMBARGOED RELEASE 0700 HRS 27 August 2004
SOPHEON PLC
('Sopheon')
RESULTS FOR THE 6 MONTHS TO 30 JUNE 2004
BUSINESS REVIEW AND OUTLOOK
Sopheon plc, the international provider of software and services that improve
the return from innovation and product development investments, announces its
unaudited interim results for the six months ended 30 June 2004 together with a
business review and outlook.
Highlights:
* Turnover : £2.1m (2003 : £1.3m plus £3.8m in divested or terminated
business).
LBITDA : £0.7m (2003 : £2.2m)
* Revenues in the core continuing software business were more than 75% higher
than revenues for the same period in 2003. At 30 June 2004, revenue
visibility from booked orders and maintenance run rates for full year 2004
is already at 100% of full year 2003 revenues for the continuing software
business.
* Sopheon's software solutions continue to garner market recognition from
customers, partners and analysts, and this continues to contribute to
orders. Twenty-eight transactions were closed in the first half of 2004,
comprising 10 proof-of-concept and consulting assignments, 12 new license
sales and 6 extension orders to existing implementations.
* Sopheon achieved Gold partner certification with Microsoft, introduced
hosting for clients and signed its first financial services sector client.
Also, for the first time a single user installation exceeded 1500 seats.
* The restructuring activities initiated in 2003 were brought to conclusion.
The revenue growth, together with the full year effect of the cost
reductions, dramatically narrowed losses. Further funding of £2.4 million
was secured through market placing activity and the €10 million GEM equity
line of credit, of which facility over 90% remains untapped. The
convertible loan was reconstituted into a mandatory convertible and is now
classified as equity. This has resulted in a closing net asset position
improvement to a positive £1.8 million, compared with negative equity of £
1.9 million reported at 31 December 2003.
Sopheon's Chairman, Barry Mence said:
'The last 12 months has seen major change and progress for Sopheon. We have
executed on our strategy to restructure and focus our business on the promise
that Accolade represents, as a recognized and highly referenceable best of
breed solution in a rapidly evolving market. We look forward with excitement to
the twin growth challenges of managing greater demands on our operations, and
of maintaining our competitive lead.'
For further information contact:
Barry Mence, Chairman Sopheon plc Tel : + 44 (0) 1483 685
735
Arif Karimjee, CFO
Adam Reynolds Hansard Communications Tel : + 44 (0) 207 245
1100
Andrew Tan
+ 44 (0) 7957 203 685
Barbara Jansen Citigate First Financial Tel : + 31 (0) 205 754 010
About Sopheon
Sopheon (LSE: SPE) is an international provider of software and services. The
Sopheon Accolade product development system automates gate- or phase-based
product development processes and provides strategic decision support that
allows companies to improve innovation, cut product development spending waste
and shorten time-to-market. Sopheon's Monitor software operates as a 'reading
robot' that automatically reviews, filters, analyzes and pushes relevant
content to healthcare and engineering professionals to enable effective
compliance with protocols, standards and regulations. Sopheon is listed on the
AIM Market of the London Stock Exchange and on the Euronext in the Netherlands.
For more information, please visit www.sopheon.com
CHAIRMAN'S STATEMENT
Financial Overview
The period to the end of June 2004 was Sopheon's first reporting period
completely independent of the effect of the divested non-core businesses that
formed part of the 2003 results, and reflected the significant operational
progress made during the restructuring and our focus on our core software
business.
Consolidated revenues for the period amounted to £2.1 million (2003: £1.3
million for the continuing core business in addition to £3.8 million from
information management and bespoke development businesses that were divested or
terminated later in 2003). The scale of progress is further enhanced by
adjusting for the effect of the weaker dollar that depressed revenue
performance by around 8%. Allowing for this factor, and comparing results for
the first six months of 2004 with the same period in 2003, revenue from
Sopheon's core business grew by more than 75%.
Taking into account new orders and recurring maintenance streams, and including
revenue not booked from contracts conditional on acceptance decisions,
visibility of 2004 revenues at the mid-year point stood at £2.7 million,
already at 100% of the total revenues recorded in 2003 for the continuing
software business.
Gross margin, which is arrived at after charging direct costs such as royalties
and payroll for client services staff, improved from just over 30% to 80%. The
EBITDA loss was reduced to £0.7 million (2003: £2.2 million) reflecting both
the revenue improvement and the full effect of the cost restructuring activity
taken in 2003.
Following the reconstitution of convertible loan stock announced at the 2004
Annual General Meeting, consolidated net assets stood at a positive £1.8
million compared with a net deficit of £1.9 million reported at 31 December
2003, resolving the negative equity position we announced earlier this year.
Restructuring
The recent reconstitution of the convertible loan has marked the conclusion of
the restructuring programme the board embarked on in early 2003 and which began
with the divestment of the group's North American Information Management (IM)
business to Find/SVP of New York. This was followed by the sale of Sopheon's
German subsidiary, and migration of business development activity for software
solutions in Germany to third party representation. Implementation of further
cost reductions was undertaken in North America, the Netherlands and the UK.
As indicated in the 2003 Annual Report, the board had been considering a range
of options to propose to the holders of the group's £2.6 million convertible
loan in the event that some or all of it remained unconverted at the time of
maturity in June 2005. As announced at the Annual General Meeting on 25 June
2004, the holders of the convertible loan stock have agreed to reconstitute the
instrument such that it has become a mandatory instrument and may be classified
as equity rather than debt in the balance sheet. Further details of the changes
and the accounting implications are provided in Note 1 to this report.
In addition, in December 2003 Sopheon concluded an agreement for a €10 million
equity line of credit facility with GEM Global Yield Fund Limited, securing
access to a source of equity-based funding over which the company retains a
substantial degree of control. In the first half of 2004 the group raised £2.4m
of new funding before expenses, of which over £0.6m was raised in March through
the equity line. The board is well aware of shareholder concerns over potential
dilution arising from use of the equity line and will remain controlled in its
use of the instrument.
Trading and Market
Twenty-eight transactions were closed in the first half of the year, comprising
10 proof-of-concept and consulting assignments, 12 new license sales and 6
extension orders to existing implementations. Three of the license sales
represent conversion from the proof-of-concept and consulting activity.
This has already been a year of substantial strategic development, including
our advancement to one of the top tiers of Microsoft's partner network through
qualification for 'Gold' status, initiation of an application hosting service
for Accolade customers, and winning our first customer in the financial
services sector. Overall, we continue to see high rates of adoption of Accolade
within our installed base, where our largest single client implementation now
uses 1500 seats. We have also signed our first contracts extending the use of
Accolade to automate and improve business processes beyond the area of product
development.
In addition to its partnership activity with Siemens Business Services and
Microsoft, Sopheon continues to actively recruit international distribution
capability and is in the process of supplementing its existing German and Asian
relationships with partners in other EU countries and the Pacific Rim. It is
expected that these new relationships will begin to make a meaningful
contribution to Sopheon's performance in 2005.
The business opportunity for Sopheon continued to be affirmed as industry
analysts predicted that the fastest growing sector of the product life cycle
management market would be for software that supports the management of product
innovation and product portfolios. Sopheon's Accolade is a recognized
best-of-breed solution that is aligned with a rich opportunity in the
marketplace. Predictably, this opportunity is attracting, and will continue to
attract, the attention of a growing number of potential competitors. Sopheon's
strategies to maintain its lead in this rapidly evolving environment are
sustained by a range of differentiating advantages, such as Accolade's
ease-of-use, its embedded best-practices content, and its rapid and low risk
implementation. This differentiation has contributed directly to our highly
referenceable installed customer base, which will support us moving forward.
Outlook
The board believes that prospects for the company are positive in the current
year and beyond, and that we are well positioned to continue to advance toward
our goal of becoming a leading international supplier of software and services
that improve the financial return on innovation and product development
investments.
Accolade has demonstrated consistently that it is a valuable solution in which
clients are prepared to invest. Continued success remains dependent upon
meeting sales targets, and accordingly we continue to exercise balance and
caution in our planning approach. The cost base remains under tight control,
and the board is striving to protect the high degree of focus that our
divestment strategy has achieved.
Overall, we are encouraged by the direction, focus and momentum of our
business, and we look forward to a successful conclusion to the year.
Barry Mence 27 August 2004
Chairman
GROUP PROFIT AND LOSS ACCOUNT FOR THE 6 MONTHS TO 30 JUNE 2004 (UNAUDITED)
6 months to 6 months to
30 June 30 June 2003
2004
£'000 £'000
Turnover 2,083 5,123
Cost of sales (389) (3,511)
Gross profit 1,694 1,612
Administrative, research and (2,435) (4,295)
development and distribution
expenses
Operating loss before amortization (741) (2,683)
of goodwill
Amortization of goodwill (251) (2,961)
Operating loss (992) (5,644)
Bank interest receivable 13 59
Interest payable and similar (282) (133)
charges
Loss on ordinary activities (1,261) (5,718)
before and after taxation
Loss per share - basic and diluted (1.2p) (6.9p)
Loss on an EBITDA basis (674) (2,203)
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
(UNAUDITED)
6 months to 6 months to
30 June 30 June 2003
2004
£'000 £'000
Loss for the financial period (1,261) (5,718)
Exchange difference on (48) (65)
retranslation of net assets of
subsidiary undertakings
Total gains and losses recognised (1,309) (5,783)
relating to the period and since
the annual report
GROUP BALANCE SHEET AS AT 30 JUNE 2004
(UNAUDITED)
As at As at As at
30 June 2004 30 June 2003 30 June 2003
£'000 £'000 £'000
Pro-forma
Fixed assets
Goodwill and investments 189 2,075 1,964
Tangible assets 138 271 440
327 2,346 2,404
Current assets
Debtors 1,675 1,179 2,726
Cash and short term deposits 1,955 2,123 1,254
3,630 3,302 3,980
Creditors: falling due within one 2,158 2,867 6,149
year
Net current assets/(liabilities) 1,472 435 (2,169)
Total assets less current 1,799 2,781 235
liabilities
Creditors: falling due after more - 2,578 3,072
than one year
1,799 203 (2,837)
Capital and reserves
Called up share capital 5,361 4,392 4,373
Shares to be issued 2,534 - 465
Share premium account and merger 66,283 64,100 64,058
reserve
Other reserves 4,164 4,445 4,445
Profit and loss account (76,543) (72,734) (76,178)
Shareholders' funds (all equity 1,799 203 (2,837)
interests)
A reconciliation of the pro-forma balance sheet is presented in Note 2
GROUP STATEMENT OF CASH FLOWS FOR THE 6 MONTHS TO 30 JUNE 2004
(UNAUDITED)
6 months to 6 months to
30 June 2004 30 June 2003
£'000 £'000
Net cash outflow from operating activities (983) (2,187)
Return on investment and servicing of finance (269) (74)
Capital expenditure (9) (29)
Management of liquid resources (1,066) 1,640
Financing 2,418 539
Increase / (Decrease) in cash excluding short term 91 (111)
deposits
Increase / (Decrease)in short term deposits 1,066 (1,640)
Increase / (Decrease) in cash including short term 1,157 (1,751)
deposits
A reconciliation of the operating loss to the net cash outflow from operating
activities is presented in Note 5
NOTES
1. Basis of preparation of interim financial information
The interim financial information has been prepared on the basis of accounting
policies set out in the group's financial statements for the year ended 31
December 2003, prepared under the historical cost convention and in accordance
with applicable accounting standards, and on the going concern basis.
The audited financial statements of the group for the year ended 31 December
2003, issued on 5 April 2004, provided information on steps taken by management
to restructure the group in order to provide the group with adequate funding to
support its activities through to the point where they were forecast to become
cash generative, and to deal with its £2.6 million of convertible loan which
was repayable in June 2005. The financial statements also disclosed that if
such restructuring actions are not concluded, and if the group's sales targets
are not met, in the absence of other appropriate measures available to
management, the going concern basis of preparation of the financial statements
would cease to be appropriate.
Several restructuring and financing actions have been completed since the end
of 2003. During the first half of the year the group has raised £2,448,000
before expenses by placing a total of 10,251,163 new ordinary shares. Of this
total, approximately £620,000 was raised through the use of the group's equity
line of credit with GEM Global Yield Fund Limited.
In addition, on 25 June the group announced that it had received agreement from
the holders of a majority of its £2.6m of convertible loan stock to
reconstitute the instrument such that, subject to the group continuing to meet
key solvency tests, it is no longer repayable upon maturity but will
automatically convert into equity, and to eliminate the interest coupon on the
loan. An up-front payment equivalent to 7% of the face value of the convertible
loan has been paid as compensation for the loss of interest and repayment
rights. These modifications result in the instrument qualifying as equity
rather than debt in the balance sheet. Although the resolution to implement
these changes was passed on 14 July 2004, as of 30 June 2004 the group had
received irrevocable commitments from holders of the required majority of the
loan stock to ensure that the resolution, which had already been put by way of
circular, would be passed. Accordingly, the impact of these changes has been
reflected in the balance sheet at 30 June 2004, with the loan stock
reclassified as shares to be issued, and the 7% compensation payment accrued
through the interest payable category in the profit and loss account.
2. Pro forma reconciliation as at 30 June 2003
The pro forma balance sheet at 30 June 2003 is provided for illustrative
purposes, and shows the pro forma effect on the consolidation balance sheet of
Sopheon plc, incorporating the disposals of the North American Information
Management business to FINDS/SVP and of Sopheon GmbH, the group's German
subsidiary. A reconciliation between the actual and pro forma net assets/
(liabilities) at 30 June 2003 is set out below:
Divestments Net assets
£'000 £'000
Consolidated net liabilities at 30 June 2003 - (2,837)
Actual
Sale of division to Find/SVP
Cash received net of expenses 1,862
Find/SVP stock issued to Sopheon plc 30
Net liabilities transferred 1,012
Contingent consideration 121
Sale of Sopheon GmbH
Net assets transferred (96)
Release of negative goodwill 111
3,040
Consolidated net assets at 30 June 2003 - Pro 203
forma
3. Earnings per share
The calculation of basic loss per ordinary share is based on a loss of £
1,261,000 (2003: loss of £5,718,000) and 101,284,981 (2003: 83,323,107)
ordinary shares, being the weighted average number of ordinary shares in issue
during the period. The effect of all potential ordinary shares is anti-dilutive
in 2004 and 2003.
4. LBITDA
LBITDA represents loss before interest, tax, depreciation and amortisation of
goodwill.
5. Reconciliation of operating loss to net cash outflow from operating
activities
6 months to 6 months to
30 June 2004 30 June 2003
£'000 £'000
Operating loss (992) (5,644)
Depreciation 66 479
Amortization of goodwill 251 2,961
Increase in debtors (529) (62)
Increase in creditors and provisions 221 79
Net cash outflow from operating activities (983) (2,187)
6. Interim Report
This Interim Report is available from Sopheon's registered office at Surrey
Technology Centre, 40 Occam Road, Guildford, Surrey GU2 7YG and from the
company's website at www.sopheon.com.
7. Financial information
The financial information set out above does not constitute the group's
financial statements as defined in section 240 of the UK Companies Act 1985 and
is unaudited. Financial statements for the years ended 31 December 2002 and
2003 have been delivered to the registrar of companies and an unqualified audit
opinion was issued thereon.
8. Cautionary Statement
Sopheon has made forward-looking statements in this press release, including
but not limited to statements about the benefits of our products and services;
our acquisitions and divestments; financial results; product development plans
and achievements; the potential benefits of business relationships with third
parties and business strategies. These statements about future events are
subject to risks and uncertainties that could cause Sopheon's actual results to
differ materially from those that might be inferred from the forward-looking
statements. Sopheon can make no assurance that any forward-looking statements
will prove correct. Descriptions of some of the key risk factors that could
negatively affect Sopheon's future performance are contained in Sopheon's Form
20 - F Annual Report, on file with the U.S. Securities and Exchange Commission.
Tuesday, 14th May 2024
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