Interim Results
EMBARGOED RELEASE 0700 HRS 1 September 2005
SOPHEON PLC
RESULTS FOR THE 6 MONTHS TO 30 JUNE 2005
BUSINESS REVIEW AND OUTLOOK
Sopheon plc ('Sopheon') 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 2005
together with a business review and outlook.
Highlights:
* Turnover: £1.9m (2004: £2.1m)
Loss for the period: £0.9m (2004: £1.3m)
LBITDA: £0.8m (2004: £0.7m)
* Twenty transactions were closed in the first half of 2005, comprising 11
new or extension license sales and 9 proof-of-concept and consulting
assignments. Offsetting the delayed closure of certain key license orders
in June, maintenance and services revenues both increased by 50% over the
same period in 2004, reflecting our growing client base of more than 60
licensed customers. Including other closed business, revenue visibility
from signed orders and maintenance run rates for full year 2005 now stands
at £3.1m, over 70% of reported 2004 revenues.
* Sopheon's pipeline mix has a growing proportion of sales opportunities that
are individually larger in potential value and complexity than the historic
average. These opportunities generate revenue volatility, but also raise
the potential for significant growth. Since the half year point Sopheon has
been working on seven such opportunities, one of which has signed its
license order, three have engaged Sopheon in a proof of concept project,
and the other three have identified Accolade as their preferred solution.
* Microsoft continued to demonstrate a commitment to its strategic
partnership with Sopheon by supporting a new release of Sopheon's software
both through R&D investment and through marketing activity in Europe and
America. Accolade version 6.0, which features integration of core Microsoft
technologies, was introduced in the second quarter.
* In the period Sopheon raised £1 million in new equity, increasing cash
resources to more than £2 million and arming Sopheon to take timely
advantage of possible new opportunities for business expansion, maintain
investment in product development and market research, and protect and
extend its established lead in its chosen markets.
Sopheon's Chairman, Barry Mence said:
'As we reported in July, we were disappointed with the delays in closing
certain key contracts in June. However, these have either closed or are in the
process of doing so, and we remain confident in the underlying direction of our
business. Current levels of field activity, market reaction to the latest
version of Accolade, and the emerging impact of our partner relationships are
encouraging. There are good indications that our sales pipeline will deliver
revenue growth and a positive financial contribution from operations in the
second half of the year.'
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
Floor van Maaren Citigate First Financial Tel : + 31 (0) 205 754 010
About Sopheon
Sopheon (LSE: SPE) is an international provider of software and services that
help organizations improve the business impact of innovation. The Sopheon
Accolade® product portfolio and process management system automates gate- or
phase-based product development (PD) processes and provides strategic decision
support that allows companies to cut product development spending waste and
generate more revenue from new products. 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
Consolidated revenues for the period amounted to £1.9 million (2004: £2.1
million). Maintenance and services revenues for the period were both 50% higher
than such revenues during the first half of 2004, reflecting greater stability
in the revenue base of the business. However, this was offset by delays in
closing certain license transactions. Of the total revenues reported in the
period, the ratio between license, service and maintenance was 1:1:1. We expect
this ratio to return to our historic 3:1:1 shape in the second half of the
year.
Taking into account new orders and recurring maintenance streams, and including
contracted license revenue conditional on acceptance decisions, visibility of
2005 revenues stands today at £3.1 million, over 70% of the total revenues
recorded in 2004.
Gross margin, which is arrived at after charging direct costs such as royalties
and payroll for client services staff, stood at 76% for the period compared to
81% in 2004, reflecting the relatively fixed costs of our services business.
Going forward, although we expect our service business to continue its pattern
of steady growth, operating margins will be impacted by the engagement of
recently trained service partners who are beginning to provide implementation
support.
The overall loss for the period improved to £0.9m (2004: £1.3m) due to the
restructuring of the group's loan note, which eliminated interest costs, and
due to the elimination of the remaining goodwill in the prior year. The LBITDA,
which does not include these elements, increased moderately to £0.8 million
(2004: £0.7million).
During the period the group raised £1 million by way of an equity placing in
London, increasing cash resources to more than £2 million and arming Sopheon to
take timely advantage of possible new opportunities for business expansion.
Examples of this are market research we have commissioned in respect of the US
healthcare industry, and a proposed investment in our Australasian reseller.
Further details of both these initiatives are given below. At the period end,
consolidated net assets stood at a positive £1.4 million, compared with £1.6
million excluding goodwill at 30 June 2004.
Trading
As previously announced, the Company was endeavoring to close on several
transactions prior to the end of June. A number of sales were concluded
following Sopheon's Annual General Meeting held on 17 June, bringing the count
for the first half of the year to eleven new and extension license sales among
a total of twenty sales transactions. Of the three licenses that were verbally
committed and identified in our announcement of 15 July, one has completed, the
second is fully negotiated awaiting final signature, and the third has Accolade
chosen as the preferred solution, but remains in contract discussions. The
fourth license opportunity identified in our July announcement has been removed
from our pipeline due to budgetary issues in the customer's current fiscal
year.
As we have previously noted, a new development in 2004 was the signing of
larger transactions (ranging from two to four times the historical $250,000
average) and which are more complex in scope (enterprise wide instead of a
single department). Sopheon is currently working on seven opportunities that
have this potential. Of these, one has signed a license order, and three have
already engaged Sopheon to deliver proof of concept services - one of which has
already contracted for its license, subject to an acceptance decision due in
the fourth quarter. The remaining three have identified Accolade as their
preferred solution and are working through their contracting process. Although
the added complexity of such opportunities can slow our sales cycles, they have
the potential to significantly increase the scale of license revenues in the
second half of 2005. In addition to pursuing these significant opportunities,
Sopheon continues to work on several transactions at normal order values,
including a number of extension orders expected from existing customers.
Including other new business, Sopheon's customer base counts over 60 licensed
customers, and Accolade is now being used in 48 countries around the globe.
Business Development
We have noted in earlier communication that Sopheon is actively developing
partnerships to bolster both our strategic and channel strength in this
changing competitive landscape. We have recently hired a partnership program
director who is focusing his attention on partner relationship development.
The alignment of Accolade with Microsoft technology is a key example of
partnership efforts, and the benefits have come through firmly in the latest
release of our solution. Accolade Version 6.0 was a landmark release, supported
by Microsoft both in terms of R&D investment and marketing activity in Europe
and America, and has been very well received by market analysts. Having
selected Sopheon in late 2004 as a supplier participant in its Collaborative
Product Development pilot program, Microsoft has judged the initiative to be a
business success and is now taking steps to implement it on a global scale.
Microsoft also continues to introduce potential partners to Sopheon.
Sopheon's drive to sign up resellers and consultancy partners has resulted in
agreements with Deloitte & Touche in South Africa, Inogate in Portugal, Team
Progress in New Zealand and Australia, ASI in South Korea, and Tata Consultancy
Services of India. Second quarter revenues included our first sale in
Australia, a license transaction completed by Team Progress. Other potential
consultancy partners are actively supporting our initial work with global sales
opportunities. We will provide further details of these relationships in due
course.
As demand continues to escalate, Sopheon has also begun developing partnerships
to help it scale in its provision of implementation support to new clients.
Based on these efforts, we now have an expanding infrastructure of trained
implementation partners capable of delivering on-demand service support to
Sopheon customers around the globe. For instance, Tata Consultancy Services
Limited, one of the world's leading information technology consulting and
services companies, is expanding its Sopheon team to eight professionals over
the third quarter. Partners are currently providing service support at a number
of our newest accounts.
New markets represent another area of emerging opportunity. We have begun
implementing a strategy to sell Accolade to discrete manufacturers, a move that
is being facilitated by our relationships with a number of partners who are
already established suppliers to this market. These efforts are benefiting from
the fact that prominent discrete manufacturers such as Parker Hannifin, the
world leader in the production of motion control systems can serve as
references. We are in discussion with additional, prospective partners who are
focused on discrete markets, and have sought and received advice from industry
experts regarding alignments that would yield the greatest strategic and
near-term business development benefit.
In a further initiative we have commissioned an independent authority in the
healthcare industry to conduct research aimed at determining the feasibility
and advisability of building on our European healthcare business to pursue the
application of Accolade into the U.S. healthcare market. The project is
scheduled for completion late in the third quarter. Key to this exploration is
determining how we can take advantage of the potential opportunity without
interrupting our progress in core vertical markets.
In parallel with these developments, Sopheon has also given serious
consideration to a small number of potential M&A transactions. We previously
announced the signature of a letter of intent to augment our relationship with
Team Progress in Australasia through a financial investment in their Sopheon
reseller business. This initial investment will underpin a long-term objective
of establishing a Sopheon owned support centre in each major world time zone.
These discussions continue and are expected to conclude in the near term.
Outlook
With the rate of market change growing in speed and complexity, and the volume
of competitor activity steadily escalating, the board believes that Sopheon
must protect and extend its established lead in the market for product
portfolio and process management solutions and that this will require
continued, and in some cases accelerated, investment in resources. Therefore,
while the cost base remains tightly controlled, the recent strengthening of the
group's balance sheet will enable Sopheon to take timely advantage of possible
new opportunities for business expansion, as described above.
The board believes that prospects for the group remain positive. From product
and strategic positioning standpoints, it believes that Sopheon remains at the
forefront of a software segment that is attracting considerable corporate and
industry interest. Notwithstanding the headline reduction in revenues for the
period, there are good indications that our sales pipeline will deliver a
return to revenue growth, and a positive financial contribution from
operations, in the second half of the year.
Barry Mence 1 September 2005
Chairman
GROUP PROFIT AND LOSS ACCOUNT FOR THE 6 MONTHS TO 30 JUNE 2005 (UNAUDITED)
6 months to 6 months to
30 June 30 June 2004
2005
£'000 £'000
Turnover 1,909 2,083
Cost of sales (466) (389)
Gross profit 1,443 1,694
Administrative, research and (2,328) (2,435)
development and distribution
expenses
Operating loss before amortization (885) (741)
of goodwill
Amortization of goodwill - (251)
Operating loss (885) (992)
Bank interest receivable 33 13
Interest payable and similar (42) (282)
charges
Loss on ordinary activities (894) (1,261)
before and after taxation
Loss per share - basic and diluted (0.7p) (1.2p)
Loss on an EBITDA basis (838) (674)
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
(UNAUDITED)
6 months to 6 months to
30 June 30 June 2004
2005
£'000 £'000
Loss for the financial period (894) (1,261)
Exchange difference on 2 (48)
retranslation of net assets of
subsidiary undertakings
Total gains and losses recognised (892) (1,309)
relating to the period and since
the annual report
GROUP BALANCE SHEET AS AT 30 JUNE 2005
(UNAUDITED)
As at As at
30 June 2005 30 June 2004
£'000 £'000
Fixed assets
Goodwill and investments - 189
Tangible assets 97 138
97 327
Current assets
Debtors 1,142 1,675
Cash and short term deposits 2,106 1,955
3,248 3,630
Creditors: falling due within one 1,989 2,158
year
Net current assets 1,259 1,472
Total assets less current 1,356 1,799
liabilities
Creditors: falling due after more - -
than one year
1,356 1,799
Capital and reserves
Called up share capital 6,077 5,361
Shares to be issued 1,364 2,534
Share premium account and merger 67,759 66,283
reserve
Other reserves 4,157 4,164
Profit and loss account (78,001) (76,543)
Shareholders' funds (all equity 1,356 1,799
interests)
GROUP STATEMENT OF CASH FLOWS FOR THE 6 MONTHS TO 30 JUNE 2005
(UNAUDITED)
6 months to 6 months to
30 June 2005 30 June 2004
£'000 £'000
Net cash inflow/(outflow) from operating 23 (983)
activities
Return on investment and servicing of finance (9) (269)
Capital expenditure (18) (9)
Management of liquid resources (909) (1,066)
Financing 994 2,418
Increase in cash excluding short term deposits 81 91
Increasein short term deposits 909 1,066
Increase in cash including short term deposits 990 1,157
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 2004, as amended by the adoption of FRS25 (see note 4 below), prepared
under the historical cost convention and in accordance with applicable
accounting standards, and on the going concern basis.
Following a placing of new equity for £1,000,000 in May of this year, the
consolidated net current assets reported at 30 June 2005 are £1,259,000 and net
cash resources are £2,073,000. The group has access to a $1,000,000 (£522,000)
bank line of credit with Silicon Valley Bank, which is secured against the
trade debtors of Sopheon Corporation Minnesota. At 30 June 2005, $43,000 (£
24,000) was drawn against this facility. The facilities with Silicon Valley
Bank have been in place since 1999, and are renewable annually in October.
The directors believe that these cash resources supplemented by the additional
facilities described above provide it with adequate funding to support its
activities through to the point at which they anticipate that trading will
become cash generative on a sustained basis.
The ability of the group to become cash generative is dependent on the group
continuing to achieve year-on-year revenue growth. During 2004 the group's
revenues from continuing operations grew by over 60%, which together with the
cost restructuring and divestments completed in 2003 reduced its total losses
on an EBITDA (earnings before interest, tax, depreciation and amortisation)
basis by over 70%. Revenues reported for the first half of 2005 were £1,909,000
compared to £2,083,000 for the same period in 2004. This reduction in revenue
is not considered to be indicative of the business ceasing to grow, and the
directors remain positive about the underlying direction, focus and momentum of
the group. The directors believe that there are good indications that in the
second half of the year, the sales pipeline will deliver a return to revenue
growth and there will be a positive financial contribution from operations.
Should this not be the case, or should the group require additional funding for
operational or investment purposes, Sopheon continues to have access to its
equity line of credit facility from GEM Global Yield Fund Limited ('GEM') for
an aggregate of €10 million over the two year life of the instrument, which
comes to an end on 22 December 2005. In March 2004, Sopheon made a first call
on the equity line of credit facility, raising just under €1 million before
expenses and accordingly, leaving €9 million available under the instrument.
The directors are considering whether it is appropriate to seek an extension to
the life of the instrument in order to provide continued access to the facility
for the foreseeable future.
The directors believe that together, the points above will enable the group to
continue as a going concern. However, uncertainties remain as to the
achievement of the expected sales growth and the continued availability of
facilities to the group. If the expected sales growth is not achieved and
facilities are not available, the going concern basis may cease to be
appropriate. The interim financial information does not reflect any adjustments
which would be required if this were the case. The precise extent and
quantification of such adjustments has not been determined but these could
include the reclassification of any unconverted element of the group's
convertible unsecured loan stock to creditors falling due within one year, and
provision for additional liabilities.
2. Earnings per share
The calculation of basic loss per ordinary share is based on a loss of £894,000
(2004: loss of £1,261,000) and 129,189,451 (2004: 101,284,981) ordinary shares,
being the weighted average number of ordinary shares in issue during the
period, including 11,998,200 ordinary shares, representing the weighted average
effect of the classification as equity of the group's Interest Free Mandatory
Convertible Loan Stock. The effect of all potential ordinary shares is
anti-dilutive in 2005 and 2004.
3. LBITDA
LBITDA represents loss before interest, tax, depreciation and amortisation of
goodwill.
4. Adoption of Financial Reporting Standard 25
'Shares to be issued' consists of the outstanding amount of the group's
Interest Free Mandatory Convertible Loan Stock (the 'Stock'). In accordance
with existing UK accounting standards, the Stock was classified as part of
equity shareholders' funds in the group's balance sheet as at 30 June 2004 and
31 December 2004. The convergence of UK and international accounting standards
has led to the introduction of Financial Reporting Standard 25 'Financial
Instruments: Disclosure and Presentation' ('FRS25'). The presentation
requirements of FRS25 are applicable to the group for reporting periods
beginning on or after 1 January 2005. At 1 January 2005, FRS25 requires an
entity to split a compound financial instrument into separate liability and
equity components. The group has accounted for the adoption of FRS 25 as a
change in accounting policy. However, the terms of the Stock are such that it
is only repayable in cash upon the occurrence of certain events relating to the
group's ability to continue in business, which the directors consider to be
very remote. Accordingly no fair value is attributable under FRS25 to the
liability component, and consequently the entire amount of the Stock remains
presented within equity shareholders' funds in the group's balance sheet.
5. Reconciliation of operating loss to net cash outflow from operating
activities
6 months to 6 months to
30 June 2005 30 June 2004
£'000 £'000
Operating loss (885) (992)
Depreciation 38 66
Amortization of goodwill - 251
(Increase)/decrease in debtors 759 (529)
Increase in creditors and provisions 111 221
Net cash inflow/(outflow) from operating 23 (983)
activities
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 2003 and
2004 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.
Wednesday, 15th May 2024
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