Interim Results

TransEDA PLC 13 March 2003 TransEDA PLC Interim results for the six months ending 31 December 2002 For the six months ended 31 December 2002. Highlights • Revenues in the period of £1.8m (2001 Interim: £3.5m). • Operating loss, before goodwill impairment and amortisation and restructuring costs, of £182,000 (2001 Interim: £70,000 profit). • Restructuring costs of £225,000 (2001 Interim: Nil). • Goodwill has been written off in full in the period resulting in a charge to the profit and loss account of £4,687,000 . • Net loss for the period of £5,143,000 (2001 Interim: £273,000 loss). • Significant restructuring of the business in the period with major management changes and overall headcount reduced from 52 to 36. • Ongoing administration costs have been reduced to £2.0m (2001 £3.5m). • The first release of VN Property, our new formal verification tool has been launched and the first sale has been booked. Commenting on the results, Bob Quinn, Chairman said: 'While our financial performance has been disappointing, we are beginning to see the benefit of the aggressive action we are taking to restore the Company to health. Considerable challenges remain, but I am encouraged in particular by the early response to our recent new product introduction. ' ____________________________________________________________________________________ Enquiries: TransEDA Gordon Whelan, Finance Director 02380 683500 Beattie Financial 020 7398 3300 Ann Marie Wilkinson Gemma Smith Chairman's Report Significant progress has been made during a very difficult period for the Company over the last six months ended 31 December 2002. TRADING REVIEW Sales for the period dropped to £1.8m from £3.5m for the corresponding period in 2001, a decline of 49%. However, it is important to note that this reflects the fact that the comparable period last year included £1.1m of revenues arising from the acquisition of iModl Inc. in March 2001. The contribution from iModl products in 2002 has been disappointing and, if they are excluded from the comparison, the actual decline in revenues from core products is 25%. As reported at the time of our Annual Report in 2002, the difficult economic climate has continued to affect our business. In all of our major markets our customers continue to operate tight budgetary controls and are postponing investment and buying decisions. We have seen little indication of a relaxation of this policy in the period, with pressure on both new sales and maintenance renewals. There have been significant changes to the management team during the period, with the departure of Chris Wright, Ellis Smith and Gus Orchard, respectively the Chairman, Chief Executive and Finance Director. Gordon Whelan was promoted to Finance Director and, after assisting for a period as Interim Chief Executive, I have assumed the role of Chairman. I was succeeded as CEO in September by Udo Muerle, formerly International VP of Sales but regrettably must announce that Udo has now decided to leave the company. Udo has resigned from the Board today but will continue with the company for three months to ensure a smooth handover of his responsibilities. TransEDA continues to face a number of challenges in what remains a difficult operating environment, but your Board sees reason for cautious optimism for the potential for the Company's products and technology. We have recently appointed Sigma Technology Management to support us in the management and development of the business. We have already taken a number of clear steps to reduce costs further and to ensure tight financial management over all areas of the business. Administration costs excluding goodwill charges and restructuring costs for the period were £1,978,000, a significant reduction over the prior period. This figure is net of a write back of £160,300 in respect of a write back against a contract with a major customer which is no longer required. Exceptional costs of £4,784,000 have been recorded in the period. These comprise redundancy and restructuring costs of £225,000, a goodwill impairment charge of £4,514,000 and a loan write off of £45,000. Headcount has been reduced from 52 to 36 personnel at the period end. In June 2002 we carried out an impairment review of the goodwill arising on the acquisitions of Dualsoft LLC and iModl Inc. This resulted in a write down in the carrying value of goodwill of £4,813,000. We have conducted a further review of goodwill at the period end and have decided to take the most prudent approach available to us and write off the remaining value of goodwill in this period. This has resulted in a charge to the profit and loss account in the period of £4,514,000. We have also written off in full the shares held by the Company's Employee Share Ownership Trust, resulting in an additional charge to the profit and loss account of £45,000. Neither of these items impacts on the Group's cash or trading position. Before these exceptional items and amortisation of £173,000 the loss before tax for the period was £186,000 (2001 Interim: £90,000 profit). This is in line with our expectations for the half year and given the significant internal changes and the difficult trading circumstances the Board is satisfied with this performance. Control of cashflow has been of central importance to the business over the past six months. Cash in hand at the end of December was £529,000. Borrowing facilities have also been put in place in the UK and US to assist with working capital requirements, but these can only be drawn at agreed ratios against debtors. The movement in net funds in the period shows a cash outflow of £286,000 (2001: £1,221,000). No dividend is proposed. PROSPECTS The cost savings we have made have not affected our ability to deliver new product developments and an ongoing investment in research and development is fundamental to the future strategy of the business. We are pleased to announce that a new product, VN Property was released in March of this year and our first sale of this product has already been made. This is the first of our new Formal Verification tools incorporating technology exclusively licensed under our previously announced agreement with SRI International that are planned for release over the next eighteen months. We have received favourable reactions from our customers who have been using the product on a trial basis and we believe that it will be well received by the marketplace. Early reactions to VN Property at its official launch at DATE a key industry tradeshow were very positive. The Directors are assuming that there will be no change in the difficult economic conditions in the second half of the year. However, the steps taken in the first half of the year have left the company in a stronger position to trade through the difficult challenges of the next six months. We expect to achieve revenue of approximately £750,000 in the third quarter and there are signs of a stabilisation in demand. Financial resources nevertheless remain very tight and, while the financial statements have been prepared on a going concern basis, the Company has continued to incur losses and remains exposed to any downturn in sales. In view of this the Company is conducting a strategic review with Sigma to assess further opportunities to reduce cost, ensure the ongoing viability of the business and maximise the potential from the Company's products and technology. We will make an announcement to update shareholders by the end of April. To assist with cashflow Sigma have agreed to receive approximately half of their fee in equity, and accordingly we will be allotting 2,500,000 shares to them at a price of 2.5p per share. As an additional expression of confidence I have agreed to receive half of my remuneration as Chairman in the form of shares in the company, and these will also be allotted at the same price. Finally, I would like to thank the employees of the group for their performance over the past six months. Their commitment and loyalty to TransEDA during a difficult period gives the Board confidence in the future of the business. Bob Quinn, Chairman 12 March 2003 Sigma Technology Management is a specialist technology advisory and investment business. The Sigma team will be led by Keith Monserrat, the Chief Technology Officer at Sigma. He previously served on the executive boards of Scottish Telecom plc and Kingston Communications plc and was a founding non-executive director of Colt Communications. He currently serves as a non-executive director at TenisonEDA, a semiconductor EDA tools company based in Cambridge. He has had previous experience in the semiconductor industry whilst working at BT, and has a doctorate in semiconductor physics. Consolidated Profit and Loss Account For the six months ended 31 December 2002 31 Dec 2002 31 Dec 30 June unaudited 2001 2002 £'000 unaudited audited Notes £'000 £'000 Turnover 1,808 3,528 5,751 Cost of sales (12) (10) (27) Gross profit 1,796 3,518 5,724 Administrative expenses Impairment of goodwill 3 (4,514) - (5,039) Amortisation of goodwill (173) (349) (697) Restructuring costs 3 (225) - - Other (1,978) (3,448) (7,155) Total administration costs (6,890) (3,797) (12,891) Operating loss (5,094) (279) (7,167) Amounts written off investments (45) - (200) Net interest (payable)/receivable and similar charges (4) 20 21 Loss on ordinary activities before taxation (5,143) (259) (7,346) Tax (charge)/credit on loss on ordinary activities - (14) 101 Retained loss on ordinary activities (5,143) (273) (7,245) after taxation (Loss)/earnings per share: (in pence) 4 Basic (7.61p) (0.40p) (10.64) Adjusted (0.28p) 0.11p (1.92) Statement of Total Recognised Gains and Losses Notes 31 Dec 31 Dec 2001 30 June 2002 unaudited 2002 unaudited £'000 audited £'000 £'000 Loss for the period (5,143) (273) (7,245) Exchange differences on foreign currency net 2 (27) 211 investments Total recognised losses (5,141) (300) (7,034) Consolidated Balance Sheet As at 31 December 2002 31 Dec 31 Dec 30 June 2002 2001 2002 unaudited unaudited audited Notes £'000 £'000 £'000 Fixed assets Intangible assets 3 - 9,851 4,687 Tangible assets 102 203 161 Investments 3 - 266 45 102 10,320 4,893 Current assets Debtors 1,042 2,609 1,532 Cash at bank and in hand 529 1,029 815 1,571 3,638 2,347 Creditors: amounts falling due within one year (1,611) (2,024) (2,027) Net current (liabilities)/assets (40) 1,614 320 Total assets less current liabilities 62 11,934 5,213 Creditors: amounts falling due after more than one year (18) (15) (28) Net assets 44 11,919 5,185 Capital and reserves Called up share capital 1,735 1,710 1,735 Share premium account 10,939 10,703 10,939 Capital redemption reserve 9 9 9 Shares to be issued - 261 - Merger reserve (676) (676) (676) Profit & loss account (11,963) (88) (6,822) Shareholders' funds 44 11,919 5,185 Consolidated Cashflow Statement For the 6 months ended 31 December 2002 Net cash outflow from operating activities (212) (575) (607) Returns on investments and servicing of finance (4) 20 21 Taxation (9) (13) (83) Capital expenditure and financial investment (6) (47) (90) Acquisition of subsidiary company (549) (546) Net cash outflow before management of liquid resources and (231) (1,164) (1,305) financing Management of liquid resources 266 1,230 1,282 Financing (25) (53) (86) Increase/(decrease) in cash 10 13 (109) Notes to the Cashflow Statement RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 31 Dec 2002 31 Dec 2001 30 June 2002 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Operating Activities Operating loss (5,094) (279) (7,167) Depreciation 55 80 161 Amortisation of intangible fixed assets 173 349 697 Provision for impairment of goodwill 4,514 - 5,039 - Shares in ESOT allocated at no consideration - - 23 Loss on disposal of tangible fixed assets 10 - - Decrease/(increase) in debtors 491 (702) 441 (Decrease)/Increase in creditors (393) 2 115 Exchange differences 32 (25) 84 Net cash outflow from operating activities (212) (575) (607) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS Increase/(Decrease) in cash in the period 10 13 (109) Increase in liquid resources (266) (1,230) (1,282) Change in net funds resulting from cashflows (256) (1,217) (1,391) Foreign exchange differences (30) (4) (44) Movement in net funds in the period (286) (1,221) (1,435) Net funds at start of the period 815 2,250 2,250 Net funds at end of the period 529 1,029 815 Notes For the six months ended 31 December 2002 1. The interim financial information of TransEDA PLC is for the six month period to 31 December 2002, and has been prepared in accordance with the accounting policies set out in, and consistent with, the audited financial statements for the year ended 30 June 2002. The results for the year ended 30 June 2002 have been extracted from the audited financial statements for that year. The audited financial statements have been filed with the Registrar of Companies and the auditors' report on those accounts was unqualified. The unaudited profit and loss account for the six month period to, and the unaudited balance sheet as at 31 December 2002, do not amount to full accounts within the meaning of section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies. 2. The interim results have been prepared on a going concern basis, which assumes that the company and its subsidiaries will continue in operational existence for the foreseeable future. In view of existing cash resources and their plans to reduce costs further the directors believe that this assumption is appropriate, although it depends on maintaining or increasing the current level of sales and implementing the plan to bring the cash costs of the business in line with such sales. Any shortfall would need to be funded from existing resources, debt or new investment and the Board is actively exploring the options available to the Company to achieve this, if a shortfall were to arise. The results do not include any adjustments that might result if additional support is required but cannot be secured. 3. As noted in the Chairman's statement action has been taken to restructure the business. This has resulted in exceptional costs in the period of £225,000. These costs consist of redundancy costs and related personnel costs of £184,000 and other costs of £41,000. Intangible assets represent the goodwill on the acquisitions of DualSoft, LLC and iMODL, Inc. In June 2002 an impairment review of goodwill resulted in a write down in the carrying value of goodwill by £5,039,000. The directors believe that the assumptions behind that review have now changed and have conducted a further review after the period end. Following this review, it was decided to write off goodwill in full in the period resulting in an impairment charge to the profit and loss account of £4,514,000. Investments represent own shares held by the Company's employee Share Ownership Trust. The shares are to be used by the Trustees to satisfy offers of shares made to eligible employees under the Company's All Employee Share Ownership Plan. At the period end the Trust held 816,000 ordinary shares of 2.5p each with a nominal value of £20,400 and the market value of those shares at the period end was £24,480. A further provision has been made to write off the carrying value of the investment. This has resulted in a charge to the profit and loss account of £45,000. 4. Earnings/(loss) per share a) Basic losses per share for the six months ended 31 December 2002 have been calculated on losses (after deduction of taxation) of £5,143,000, (2001 Interim: £273,000 loss and 2002 final: £7,245,000 loss) and on Ordinary Shares of 67,574,469 (2001 Interim: 67,744,509 and 2002 final: 68,085,000) being the weighted average number of Ordinary Shares in issue during the period. b) FRS14 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease net profit or increase net loss per share. For a loss making company with outstanding share options, net loss per share would only be increased by the exercise of out-of-the-money options. Since it seems inappropriate to assume that option holders would act irrationally, no adjustment has been made to diluted EPS for out-of-the-money share options. c) Adjusted earnings/(losses) per share have been calculated after adjusting the loss for the period to add back the impairment and amortisation of goodwill, the restructuring costs and the amounts written off investments to give £186,000 loss, £76,000 profit and £1,309,000 loss respectively. The weighted average number of Ordinary Shares is the same as for the basic earnings /(loss) per share calculation. References to adjusted earnings/(losses) reflect the Directors' view that this is an important measure for their own, and shareholders' assessment of the Group's underlying performance. 5. Copies of this interim report have been sent to shareholders and will be available to the public from the Company's registered office. Details are also available on our website INDEPENDENT REVIEW REPORT TO TRANSEDA PLC Introduction We have been instructed by the company to review the financial information for the six months ended 31 December 2002 which comprises the profit and loss account, the consolidated balance sheet, the cash flow statement and notes 1 to 5, together with the notes to the cash flow statement. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company, in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are also responsible for ensuring that the accounting polices and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Uncertainty relating to Going Concern In arriving at our review conclusion, we have considered the disclosures made in note 2 of the financial information concerning the appropriateness of preparing the Interim Statement on a going concern basis. In view of the significance of this uncertainty, we consider that it should be drawn to your attention. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 December 2002. Deloitte & Touche Chartered Accountants Southampton 12 March 2003 -------------------------- This information is provided by RNS The company news service from the London Stock Exchange
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