25 Mar 2010 07:00
Embargoed Release: 07:00hrs Thursday 25th March 2010
SOPHEON PLC ("Sopheon", the "Group" or the "Company") PRELIMINARY AUDITED RESULTS FOR THE YEAR TO 31 DECEMBER 2009
Sopheon plc, the international provider of software and services that improve the financial return from innovation and product development investments, announces its results for the year ended 31 December 2009 together with an outlook for the current year.
Highlights:
* Revenue for the year was £8.3m (2008: £9.3m and 2007: £6.3m). Full year
revenue visibility for 2010 currently stands at £4.8m. * EBITDA result for the year was a loss of £0.2m (2008: profit £1.1m). * 48 new and extension license orders secured during the year.
* Grew our customer base to 168 licensees for our core software platforms.
* Recurring revenue base coming into 2010 held up at £3.7 million, the same
as for 2009. Existing customers contributed 70% of non-recurring sales
during the year.
* Maintained investment in product and marketing during the course of a very
tough 2009.
* Achievements during the year include the launch of Accolade® Idea Labâ„¢, a
major new version of Accolade Vision Strategistâ„¢, and significant
enhancements to the capabilities of the core Accolade Process Managerâ„¢
platform.
Barry Mence, Chairman, commented: "2009 posed a number of difficult challengesto overcome. Having a profitable fourth quarter shows that we reactedappropriately to balancing investment with cost containment. Our currentpipeline, coupled with our unique solution set and the continued maturing ofour chosen market, continue to give me confidence in our quest to improveshareholder value. Whilst we continue to adopt a prudent stance, we remainexcited about our recent developments, and about the year ahead."
For further information contact:
Barry Mence, Chairman Sopheon plc Tel : + 44 (0) 1483 685
735 Arif Karimjee, CFO Sopheon plc Tel : + 44 (0) 1483 685 735 Justine James / Kirsty Hansard Communications Tel : + 44 (0) 207 245 1100Corcoran Floor van Maaren Citigate First Financial Tel : + 31 (0) 205 754 010 Catherine Leftley / Seymour Pierce Corporate Tel : +44 (0) 20 7107 8000 Jonathan Wright Finance About SopheonSopheon is an international provider of software and services thathelp organisations improve the business impact of product innovation. Sopheon'ssolutions automate and govern the innovation process, enabling companies toincrease revenue and profits from new products. Sopheon's solutions are used byindustry leaders throughout the world, including BASF, Cadbury, Corning,Electrolux, Honeywell, Motorola and SABMiller. Sopheon is listed on the AIMMarket of the London Stock Exchange and on the Euronext in the Netherlands. Formore information, please visit www.sopheon.com.
Accolade®, Vision StrategisttmIdea Labtmand Process Managertmare trademarksof Sopheon.
Stage-Gate® is a trademark of the Product Development Institute.
Revenue visibility is defined in Note 5.
CHAIRMAN'S STATEMENT
Introduction
Much in line with the majority of businesses across the world, 2009 was a toughyear for Sopheon with revenues of £8.3m. This compares to £9.3m in 2008, and £6.3m in 2007. After reporting growth approaching 50% the year before, this fallof 11% was clearly disappointing. The impact on our bottom line was marked,with an EBITDA loss of £0.2m compared to £1.1m profit the year before, and aloss after tax of £1.5m compared to a breakeven position for 2008. In responseto these shifts in performance, we took decisive cost actions during 2009, andhave reduced staffing from 105 to 85 over the year.In our half year results for 2009 we signalled the challenging nature of thebusiness environment, but in the latter part of the year we noted some evidenceof improvement, with the potential for a good recovery in the final quarter of2009. This proved to be the case, with 21 new and extension license orders inthe fourth quarter, compared to a total of 27 for the first three quarters. Inaddition to the improvement in sales, the careful adjustments that we made toour cost base earlier in 2009 contributed to a positive EBITDA result for thesecond half of the year.Total license transactions including extension orders were 48 in 2009 comparedto 53 in 2008. We entered 2009 with a licensee base of 157 companies, and grewthis to 168 by the end of the year. Total business from existing customersrepresented 85% of revenues in 2009 compared to 65% in 2008; this underlinesthe strength of our customer base and the value that our customers ascribe totheir Sopheon solutions.From a geographical standpoint, the relative importance of the US rose from 64%to 69%, with Dollar strength playing a role in the increase. Reseller partnersaccounted for 9% of revenues, down from 11% the year before. Accolade® VisionStrategistâ„¢ contributed approximately 12% of total revenues during 2009compared to 13% in 2008. Many of our customers were affected by the economicdifficulties, and we did experience some terminations of maintenance and rentalcontracts during the year. However, when offset by new orders received, thebase of recurring revenue remained steady at £3.7m coming into 2010, the sameas in 2009. By comparison, we entered 2008 with recurring revenues totaling £2.6m.
At the date of this report, full-year 2010 revenue visibility incorporating booked revenue, contracted services business and the run rate of recurring contracts already stands at £4.8m. Revenue visibility is more fully defined in Note 5.
Clearly, our growth was interrupted in 2009. We believe that the fourth quartershowed positive signs of a return to better times. However, our businessperformance remains subject to the timing and size of relatively small numberof transactions. This ongoing challenge, combined with the continuing economicuncertainties lead us to adopt a prudent stance in planning our operations.
Trading Performance
Sopheon's consolidated revenue in 2009 was £8.3m compared to £9.3m in 2008, areduction of 11%. From a geographical standpoint, the fall was more pronouncedin our European markets, although the reduction in US performance was offset toa degree by the relative strengthening of the US Dollar compared to Sterling.As a proportion of overall revenue, the US markets accounted for 69% in 2009compared to 64% in 2008.Total license transactions including extension orders were 48 in 2009 comparedto 53 in 2008, a reduction of 9%. License transactions included 10 relating tothe Accolade Vision Strategist solution, acquired with the Alignent business inJune 2007. Overall, the former Alignent business contributed approximately 12%of total revenues during 2009 compared to 13% in 2008.
The annualised average growth of the business since the launch of Accolade is approximately 29%.
Business mixOverall, in 2009 our business delivered a 32:42:26 ratio of license,maintenance, service respectively compared to 45:28:27 in the prior year. Themaintenance category also includes revenue derived from hosting services. Inaddition to the small drop in volumes year over year, the average value of eachtransaction fell, further contributing to the relative fall in the proportionof revenues derived from license sales. The smaller size of each transactionalso impacted services revenues, which rose slightly as a proportion of totalrevenues, but fell in absolute terms.An important factor in such tough economic times is the strength of customerrelationships, and approximately 70% of the value of orders (excludingrecurring revenues) in 2009 was derived from our existing customers. Indeed,services revenue from existing customers went up during the year from £1.3m in2008 to £1.6m in 2009. We continue to expect that in time, services willmoderate as a proportion of our total revenues by the effect of licensebusiness coming through partners, for which associated services work isunlikely to be performed by Sopheon.Notwithstanding these strong customer relationships, some of our customers didterminate maintenance or rental contracts during the year, typically due tounprecedented internal budget pressures coupled with staff changes or mergeractivity. Nevertheless, thanks to the new licenses signed during the year, thebase of recurring revenue has remained steady at £3.7m coming into 2010, thesame as in 2009. The majority of this income is represented by maintenanceservices, but also includes hosting services and license rentals.Overall gross margins have fallen to 71% (2008: 75%) which can be largelyattributed to the fall in the relative proportion of license revenues. Infuture, license margins may also be slightly affected by decisions to embed,rather than build, certain third party components or methods of working intoour software. During the year we have been quick to control margins in ourprofessional services team, taking difficult decisions during the year toreduce permanent headcount in both territories, to reflect the reduction inservices revenues. As and when markets pick up again, our expectation is tomaintain flexibility by initially relying on subcontracted resources, prior toshifting back into recruitment of permanent staff.
Research & Development expenditure
Sopheon's investment and progress in product development during the course of2009 reflect our goal of continued leadership of our chosen markets. Welaunched Accolade® Idea Labâ„¢ in May, and completed a major new version of ourAccolade Vision Strategist roadmapping software in October. We also madesignificant changes to our core innovation process management software. Furtherdetails of these developments can be found elsewhere in this report. Sopheon iscommitted to product leadership with excellence in research and development acore competency of the group; since 2001 Sopheon has maintained research anddevelopment costs above 20% of revenues. Our decision to maintain this level ofinvestment in spite of the tough economic conditions, resulted in this ratiorising to 27% of revenues in 2009, compared to 22% in 2008.Headline research and development expenditure rose by 11% from £2m to £2.2m.The net impact on these headline amounts of capitalisation, amortisation andimpairment charges associated with research and development in 2009 was toreduce the reported expenditure by £0.1m (2008: £nil) and accordingly, theapparent increase in operating terms year on year was actually £0.3m. Themajority of our development resources are based in the USA and this increasecan largely be attributed to the relative strength of the US Dollar; theunderlying spend in dollars was relatively flat. The amount of 2008 researchand development expenditure that met the criteria of IAS38 for capitalisationrose to £0.9m (2008: £0.8m).
Operating costs
Overall staff costs have increased by £0.6m. The apparent increase is entirelydue to the impact of Sterling weakness against the US Dollar and the Euro; mostof our staff are located outside the UK. Using constant exchange rates, staffcosts actually fell by £0.4m. This can in turn be largely attributed to thefact that the majority of group's employees did not earn a bonus in 2009, dueto the financial performance during the year. Average staffing levels appearconstant at 99 in 2009 compared to 98 in 2008; this disguises an increase from92 to 105 in the course of 2008, which was then reduced to 85 by the end of2009. As noted above the majority of the reduction has been implemented inprofessional services. Other areas affected were sales and marketing, andproduct development; the former in the early part of 2009, and the lattertowards the end of the year. This profile reflects our decision to maintaininvestment in product at high levels during 2009.
Detailed comments regarding professional services and research and development costs are noted above.
Headline distribution costs dipped slightly from £3.5m in 2008 to £3.4m in2009. To a degree this reflects lower amortisation and impairment charges forthe intangible customer assets acquired with Alignent in 2007. However, asnoted before, the effect of currency exchange factors on the reported figuresdisguises a fall in the underlying costs in US Dollar and Euro, due primarilyto lower commission payments. Average headcount in sales and marketing remainedrelatively constant.Headline administration costs have risen by £0.3m. As we noted in the 2008report, that year recorded substantial exchange gains relating to the foreigncurrency cash balances held in Sopheon plc, which did not recur in 2009. Theapparent increase is due to the higher Sterling impact of such costs in our USand Netherlands operations. The underlying administration costs and resourcinghave remained broadly constant, as they did from 2007 to 2008.
Results
The combined effect of the revenue and cost performance discussed above impacted Sopheon's EBITDA performance for 2009, which was a loss of £0.2m (2008: £1.1m profit).
In common with other businesses in our sector, Sopheon measures its annualperformance using EBITDA (Earnings before Interest, Tax, Depreciation andAmortisation) which the board believes provides a useful indicator of theoperating performance of our business by removing the effect on earnings oftax, capital spend and financing. EBITDA is further defined and reconciled tothe profit before tax in Note 4. Our calculation of EBITDA is stated aftercharging (i) share based payments of £0.1m (2008: £0.1m); (ii) impairmentcharges of acquired intangible assets of £0.2m (2008: £0.3m); and (iii)exchange losses of £31,000 (2008: £0.2m gain) but excludes depreciation andamortisation charges for the year of £1.1m (2008: £0.9m) and net finance costsof £0.2m (2008: £0.2m).Including the effect of interest, depreciation and amortisation, the groupreported a loss before tax for the year of just under £1.5m (2008: £44,000profit). There is no tax provision in the year, compared to a charge of £15,000for 2008 which reduced retained profit after tax to £29,000 that year. The lossper ordinary share was 1.03p (2008: 0.02p profit).The better revenue performance in the closing months of 2009, coupled with costadjustments made earlier in the year, led to a profitable final quarter at bothEBITDA and retained profit levels.
Financing and balance sheet
The effect of exchange rates on the income statement is quite different to theimpact on the balance sheet. As noted above, the former is characterised bySterling being weaker on average during 2009 compared to 2008, relative to theUS Dollar and the Euro. The latter is characterised by Sterling being strongerat 31 December 2009 compared to 31 December 2008, relative to the US Dollar andthe Euro.Net assets at the end of the year stood at £2.7m (2008: £4.3m). Gross cashresources at 31 December 2009 amounted to £1.6m (2008: £2.6m). Approximately £0.8m was held in US Dollars, £0.4m in Euros and £0.4m in Sterling.Intangible assets stood at £4.0m (2008: £4.7m) at the end of the year. Thisincludes (i) £2.4m being the net book value of capitalized research anddevelopment (2008: £2.4m) and (ii) an additional £1.6m (2008: £2.3m) being thenet book value of Alignent intangible assets acquired in 2007. The apparentlyconstant level of the capitalized research and development, disguises anincrease in the underlying US Dollar value offset by a fall in the relativevalue of the US Dollar compared to Sterling at the balance sheet date. This hasalso caused part of the fall in carrying value of the Alignent intangibles, inaddition to amortisation and impairment charges.As part of the funding raised for the Alignent acquisition, Sopheon secured$3.5m of medium-term debt from BlueCrest Capital Finance LLC ("BlueCrest"). Thedebt is being repaid in 48 equal monthly instalments, and is secured by adebenture and guarantee from Sopheon plc. Since inception through the end of2009, $1.9m of the medium-term debt principal has been repaid.The group also had an additional $750,000 revolving credit facility fromBlueCrest, secured on accounts receivable. During 2009, this was renegotiatedto $1,250,000. At year end, short term borrowings connected with the group'srevolving facilities were £756,000 (2008: £522,000). This represents underlyingUS Dollar values of $1,220,000 (2008: $750,000).On 1 October 2009 the group issued £850,000 of convertible unsecured loan stockto a group of investors including key members of the Board and the seniormanagement team. The stock is convertible into ordinary shares at a conversionprice of £0.10 between 1 October 2010 and 30 September 2011, or earlier if theCompany undertakes an equity issue. Any portion of the stock which is notconverted will be redeemed at par on 30 September 2011. The stock carries anannual coupon rate of 8%. At any time up to 31 March 2010, investors maysubscribe for an additional one third of their initial stock value, with aconversion price set at a 30% premium to the conversion price applicable totheir original holding. If at any time after the date of issue of the stock andbefore the date of conversion, the Company undertakes a placing or other issueat a lower price then the conversion price for any outstanding stock will beadjusted to the placing price. All ordinary shares issued in relation to thestock are subject to lock-in arrangements. Fair value adjustments relating tothe conversion features have resulted in the carrying value of the stock at 31December 2009 being analyzed between host debt of £755,000 and an embeddedfinancial derivative of £95,000.Sopheon's equity line of credit facility with GEM Global Yield Fund Limited("GEM") was due to expire on 23 December 2009. During the year, GEM agreed toimplement a further two year extension at no cost to Sopheon, through to 23December 2011. The facility has been used to raise working capital once, inMarch 2004, leaving approximately 90% of the original €10m facility availableunder the extended agreement. Drawings under the GEM equity line of credit aresubject to conditions relating inter alia to trading volumes in Sopheon shares.
Markets & Products
Our investment and progress in both product and marketing during the course of2009 reflect our goal of continued leadership of our chosen markets. In May, welaunched Accolade® Idea Labâ„¢ in partnership with Hype GmbH, bringing to marketthe first integrated solution that not only facilitates generation anddevelopment of ideas, but makes it possible to seamlessly move those ideas intoproduct development for execution. During October, we completed a major newversion of our Accolade Vision Strategist roadmapping software. Principaladvances include greater ease of use, and increased support for collaborationthroughout the product planning process. We have also been making significantchanges to our core innovation process management software. These changesinclude a number of product extensions fulfilling short term marketrequirements that will not only benefit our existing client base but alsoexpand our differentiation, and deepen our value proposition.In conjunction with product advancements, we have invested in new marketingcapabilities that leverage emerging channels such as social media. These newpractices have the promise to fundamentally transform the way in which weidentify, create and nurture relationships with existing and potentialcustomers. We have also worked hard to improve the strength of our partnerrelationships through the tough economy, both at the reseller level and at thestrategic level. We expect this to bear fruit in 2010.Major analyst organisations like Forrester, Gartner and IDC continue to seetraction and opportunity in our chosen market. In December 2009, Forresternoted increasing interest and investment in project and portfolio managementtools for product development, and in the same month Gartner noted thatsoftware that supports product strategy and planning is gaining attention as asegment of the PLM (Product Lifecycle Management) software market. Forresteralso identified Sopheon as one of the clear market share leaders in the PPMspace.
People
One of Sopheon's proven market differentiations is the deep domain expertiseour people have gained around Innovation Governance. This knowledge andexperience has been created over many years from working with industry leadingcompanies on this emerging business process. We are very proud of thecommitment that our staff have shown in achieving leadership in this area, andin maintaining it through the cost adjustments implemented during the lastyear. We are confident that we have protected and continue to grow this veryimportant competency in our people, while also continuing to invest in ourinternal best practices and our knowledge sharing programs.Sopheon's executive management team, which has been in place for several years,consists of five members. Our CEO Andy Michuda, CFO Arif Karimjee and myselfserve on the team, and also act as executive directors. Our CTO Paul Heller,and vice president of research Huub Rutten, complete the group. Executivemanagement is complemented by a strong operational management team that leadsthe marketing, sales and professional services functions. The Sopheon plc boardis made up of the three executive directors, augmented by three non-executivedirectors who bring a wealth of knowledge and experience to our business.
Outlook
We entered 2009 cautiously optimistic, but with tight operational plans thatmade spending contingent on historic and forecasted revenue performance on aquarter-by-quarter basis. As events turned out, our caution was well foundedand the second and third quarters of the year proved particularly challenging.We made immediate cost adjustments, but have been very careful to preserve ourability to fully pursue our promising sales pipeline. This remains very active,and leads us to believe that the improvements in the final quarter of 2009 arepersisting. Nevertheless, in this environment it is tough to predict growthwith accuracy. Accordingly we approach 2010 with the same mindset as 2009. Werecognise, as before, that this approach may restrict our growth trajectory inthe short term, but it will nevertheless underpin all hiring and expendituredecisions.Strategically, we believe Sopheon's position continues to strengthen.Innovation remains a key priority at many corporations. We are the only vendorthat can offer customers a total solution for governance of innovation,covering both strategy and execution, while fully integrating an ideationplatform. We have 168 customers under license, with strong representation fromour core target vertical markets of chemicals, food and beverage, consumerproducts and defense. We are also gaining footholds in the high-technology andmedical device sectors. Our existing customers contributed 85% of revenues, and70% of new orders during the year, validating the benefits of our solutions.During the year, organisations such as Novartis, PepsiCo, the U.S. Army,SABMiller, ConAgra, Bostik and Bell Helicopter extended their investment inSopheon's products.Sales cycles continue to be extended, with an increased number of approvalsrequired to get each transaction concluded. However, revenue visibility for2010 already stands at £4.8m and our sales pipeline remains resilient. Ourfinal quarter of last year saw a return to decent levels of business, and wasprofitable. Accordingly, while we continue to adopt a prudent stance, we remainexcited about our recent developments, and about our future.Barry Mence 24March 2010 Chairman CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED31 DECEMBER 2009 2009 2008 £'000 £'000 Revenue 8,260 9,304 Cost of sales (2,384) (2,304) Gross profit 5,876 7,000 Sales and marketing expense (3,379) (3,516) Research and development expense (2,210) (1,995) Administrative expense (1,560) (1,289) Operating (loss)/ profit (1,273) 200 Finance income 19 55 Finance expense (240) (211) (Loss) / profitbefore tax (1,494) 44 Income tax expense - (15)
(Loss) / profitfor the year (1,494)
29
(Loss) / earnings per share - basic and diluted (1.03p) 0.02p CONSOLIDATEDSTATEMENT OF COMPREHENSIVEINCOME FOR THE YEAR ENDED 31 DECEMBER 2009 2009 2008 £'000 £'000
(Loss)/profit for the period (1,494) 29
Other comprehensive income
Exchange differences on translation of foreign (206) 778
operations
Total comprehensive (loss)/income for the year (1,700) 807 CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2009 2008 2008 £'000 £'000 Assets Non-current assets Property, plant and equipment 151 235 Intangible assets 3,993 4,706 Non-current receivables 12 12 4,156 4,953 Current assets Trade and other receivables 2,905 3,568 Cash and cash equivalents 1,624 2,586 4,529 6,154 Total assets 8,685 11,107 Liabilities Current liabilities Short term borrowings 1,340 1,080 Deferred revenue 2,250 2,648 Trade and other payables 1,188 2,006 4,778 5,734 Non-current liabilities Borrowings 1,222 1,105 Total liabilities 6,000 6,839 Net assets 2,685 4,268 Equity Share capital 7,279 7,279 Other reserves 73,633 73,627 Profit and loss account and translation reserve (78,227) (76,638) Total equity 2,685 4,268 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2009 2009 2008 £'000 £'000
Operating Activities (Loss) / profit before and after taxation (1,494)
29
Adjustments for non-cash and financial items 1,596
1,551
Movements in working capital (404)
143
Net cash (used in) / generated from operating (302) 1,723activities Investing Activities Finance income 19 55
Purchases of property, plant and equipment (48)
(85) Development costs capitalized (945) (797) Net cash used in investing activities (974) (827) Financing Activities Proceeds from borrowings 850 - Repayment of borrowings (545) (469) Increase in lines of credit 301 - Finance expense (240) (211) Net cash generated from / (used in) financing 366 (680)activities
Net (decrease) / increase in cash and cash (910)
216
equivalents CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009 Share Capital Translation Retained Capital Reserves Reserve Losses Total £'000 £'000 £'000 £'000 £'000 At 1 January 2008 7,729 73,499 (191) (77,277) 3,310 Total - - 778 29 807comprehensive income for the year Share based - 128 - 23 151payments At 1 January 2009 7,279 73,627 587 (77,225) 4,268 Total - - (206) (1,494) (1,700)comprehensive income for the year Share based - 6 - 111 117payments At 31 December2009 7,279 73,633 381 (78,608) 2,685 The translation reserve represents accumulated differences on the translationof assets and liabilities of foreign operations. Retained losses representaccumulated trading losses, including amortisation and impairment charges inrespect of goodwill and intangible assets arising from past acquisitions.Capital reserves represent share premium, merger reserve, capital redemptionreserve and share options reserve.
NOTES
1. Basis of preparation
The financial information set out in this document does not constitute thecompany's statutory accounts for 2008 or 2009. Statutory accounts for the yearsended 31 December 2009 and 31 December 2008 have been reported on by theIndependent Auditors. The Independent Auditors' Report on the Annual Report andFinancial Statements for 2008 was unqualified, but consistent with prior years,have drawn attention to an emphasis of matter due to the uncertainty over goingconcern, and did not contain a statement under 237(2) or 237(3) of theCompanies Act 1985. The Independent Auditor's Report on the Annual Report andFinancial Statements for 2009 was unqualified, but consistent with prior years,have drawn attention to an emphasis of matter due to the uncertainty over goingconcern and did not contain a statement under 498(2) or 498(3) of the CompaniesAct 2006.Statutory accounts for the year ended 31 December 2008 have been filed with theRegistrar of Companies. The statutory accounts for the year ended 31 December2009 will be delivered to the Registrar in due course and will be posted toshareholders shortly and thereafter will be available from the Company'sregistered office at 40 Occam Road, Surrey Research Park, Guildford, Surrey,GU2 7YG and from the Company's website www.sopheon.com.The financial information set out in these preliminary results has beenprepared using the recognition and measurement principles of InternationalAccounting Standards, International Financial Reporting Standards andInterpretations adopted for use in the European Union (collectively AdoptedIFRSs). The accounting policies adopted in these preliminary results have beenconsistently applied to all the years presented and are consistent with thepolicies used in the preparation of the statutory accounts for the period ended31 December 2009. Other than as indicated below, the principal accountingpolicies adopted are unchanged from those used in the preparation of thestatutory accounts for the period ended 31 December 2008. The group has adoptedthe following new standards, which have had an impact on the financialstatements:
* Amendments to IAS 1: Presentation of Financial Statements: A Revised
Presentation.
As a result of the application of this amendment the group has elected to present an income statement and a statement of comprehensive income. In addition, a statement of changes in equity is now presented as a primary statement where previously the information was included in a note. The Amendment does not change the recognition or measurement of transactions and balances in the financial statements.
* Adoption of IFRS 8: Operating Segments.
The group has adopted IFRS 8 as a mandatory requirement that requires the groupto adopt a `management approach' in the identification of its operatingsegments and its reporting on their financial performance in the consolidatedfinancial statements. The group now presents segmented information in respectof two geographical areas, North America and Europe, Middle East and Africa(EMEA). Previously segmented information was presented in respect of threegeographical areas, North America, United Kingdom and Europe.
Other new standards, amendments and interpretations to existing standards, which have been adopted by the group, have not been listed, since they have no material impact on the financial statements.
2. Going Concern
The financial statements have been prepared on a going concern basis. Inreaching their assessment, the directors have considered a period extending atleast 12 months from the date of approval of these financial statements andhave considered both the forecast performance for the next 12 months and thecash and financing facilities available to the group.During 2009, the group achieved revenues of £8.3m and incurred a loss of £1.5m.This represents a weaker performance than for the previous year, which thedirectors believe was caused primarily by delays in closing new sales, due tothe ongoing weakness in global economic conditions. The Group's sales pipelineremains very active, and accordingly, the directors remain positive about theprospects for the business. However, the time-to-close and the order value ofindividual sales can vary considerably, factors which constrain the ability toaccurately predict short term revenue performance. The weakness in globaleconomic conditions is also likely to result in customers taking longer to payamounts owed to the group.The Group has a loan note from BlueCrest Capital Finance ("BlueCrest") which isrepayable in equal monthly instalments of $91,000 through July 2011. Thebalance remaining due on the note at 31 December 2009 was $1.6m. The Group alsohas access to a revolving line of credit with BlueCrest which is securedagainst the trade receivables of Sopheon's North American business. This wasrenewed for an additional 12 month period through 30 June 2010, and as part ofthis renewal, the facility limit was increased from $750,000 to $1,250,000. At31 December 2009, $1,220,000 (£756,000) was drawn against this revolvingfacility. In addition, during the year the group secured a convertible loan for£850,000, repayable or convertible by 30 September 2011. At 31 December 2009,the Group reported net assets of £2.7m and gross cash resources of £1.6m.In addition to funding activities, during 2009 the directors implementedseveral actions to reduce costs, leading to a lower cost base in 2010. However,if sales fall short of expectations, or if the Group's existing facilitiesprove insufficient, the Group may need to raise additional finance. The Groupcontinues to have access to the debt and equity markets, and the directors havedemonstrated the ability to raise funds during the previous year. In addition,the Group has access to an equity line of credit facility from GEM Global YieldFund Limited ("GEM") for an aggregate of €10m, the current term of whichexpires in December 2011. GEM's obligation to subscribe for shares is subjectto certain conditions linked to the prevailing trading volumes and prices ofSopheon shares on the Euronext stock exchange. To date Sopheon has made onecall on the equity line of credit facility in March 2004, leaving a maximum €9mpotentially available.The directors have concluded that the circumstances set forth above representmaterial uncertainties, however they believe that taken as a whole, the factorsdescribed above enable the Group to continue as a going concern for theforeseeable future. The financial information does not include the adjustmentsthat would be required if the company or group were unable to continue as agoing concern.
3. Revenue
All of the Group's revenue in respect of the years ended 31 December 2009 and2008 derived from continuing operations and from the design, development andmarketing of software products with associated implementation and consultancyservices.4. EBITDAThe directors consider that EBITDA, which is defined as (loss)/earnings beforeinterest, tax, depreciation and amortisation, is an important measure, since itis widely used by the investment community. It is calculated by adding backdepreciation and amortisation charges amounting to £1,078,000 (2008: £920,000)to the operating loss of £1,273,000 (2008: profit of £200,000).
5. Revenue visibility.
Another performance indicator used by the group and referred to in narrativedescriptions of the group's performance is revenue visibility. At any point intime it comprises revenue expected from (i) closed license orders, includingthose which are contracted but conditional on acceptance decisions scheduledlater in the year; (ii) contracted services business delivered or expected tobe delivered in the year; and (iii) recurring maintenance, hosting and rentalstreams. The visibility calculation does not include revenues from new salesopportunities expected to close during the remainder of the year.
6. Share Based Payments
In accordance with IFRS2 Share basedPayments, an option pricing model has beenused to work out the fair value of share options granted since November 2002,with this being charged to the income statement over the expected vestingperiod and leading to a charge of £117,000 (2008: £151,000).
7. Income Tax
At 31 December 2009, tax losses estimated at £65 million were available tocarry forward by the Sopheon Group, arising from historic losses incurred. Anaggregate £20 million of these losses are subject to restriction under section392 of the US Internal Revenue Code due to historical changes of ownership.Notwithstanding the availability of tax losses, Alternative Minimum Tax ("AMT")was payable on the profits of our US subsidiaries arising in 2008. For AMTpurposes, the offset of prior year tax losses is restricted to 90% of currentyear taxable profits, with AMT chargeable on the remainder at a rate of 20%.
8. Earnings per Share
The calculation of basic loss per ordinary share is based on a loss of £1,494,000 (2008: profit of £29,000), and on 145,579,000 (2008: 145,579,000)ordinary shares, being the weighted average number of ordinary shares in issueduring the year. The effect of all potential ordinary shares is anti-dilutive.
9. Intangible Assets
In accordance with IAS 38Intangible Assets, certain development expendituremust be capitalised and amortised based on detailed technical criteria, ratherthan automatically charging such costs in the income statement as they arise.This has led to the capitalisation of £945,000 (2008: £797,000), andamortisation of £642,000 (2008: £459,000) during the year. A further £327,000(2008: £365,000) of amortisation was incurred during the year relating tointangible assets acquired with Alignent. In addition, during 2009 and 2008 therecurring income from the acquired Alignent customer base reduced, due to a mixof factors including the conversion of certain rental licenses to perpetual,changes in rental levels, and cancellations. The overall reduction exceeded therate of attrition of such recurring income estimated in the original valuationexercise, leading to impairments in the carrying value of the acquired Alignentintangible assets of £180,000 (2008: £324,000).
10. Cautionary Statement
Sopheon has made forward-looking statements in this press release, includingstatements about the market for and benefits of its products and services;financial results; product development plans; the potential benefits ofbusiness relationships with third parties and business strategies. Thesestatements about future events are subject to risks and uncertainties thatcould cause Sopheon's actual results to differ materially from those that mightbe inferred from the forward-looking statements. Sopheon can make no assurancethat any forward-looking statements will prove correct.
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