27 Aug 2009 07:00
Embargoed release: 07:00hrs Thursday 27 August 2009
SOPHEON PLC ("Sopheon" or the "Group") RESULTS FOR THE 6 MONTHS TO 30 JUNE 2009 BUSINESS REVIEW AND OUTLOOK
Sopheon plc ("Sopheon") the international provider of software and servicesthat improve the return from innovation and product development investments,announces its unaudited interim results for the six months ended 30 June 2009(the "period") together with a business review and outlook.
Highlights:
* Revenue: 4.1m (2008: 4.3m) EBITDA loss: 0.3m (2008: EBITDA profit 0.5m) Loss before tax: 1.0m (2008: profit 0.1m) * Seventeen license transactions including extension sales completed. A
number of opportunities expected to close during the first half of the year
were delayed but remain in active sales cycles.
* Revenue visibility now stands at 7.0m for full-year 2009 performance, up
from 6.2m reported in mid June at the AGM. The licensee base now stands at
163.
* Gross cash at 30 June stood at 1.6m. We have renegotiated our debtor-based
revolving credit facilities from $750,000 to $1,250,000, though only
$700,000 was drawn at 30 June.
* We introduced Idea Lab(TM), our new idea development software for the front
end of the product innovation process. Sopheon now offers the first
software suite in the industry to provide all-in-one support for strategic
product planning, ideation and execution.
Sopheon's Chairman, Barry Mence said: "After our great progress in 2008, we aredisappointed that wider economic conditions in the first half of this yearaffected the Group's historical pattern of growth. Nevertheless, we continue towork hard at closing business, and believe that our considerable pipeline ofnew sales opportunities will enable us to return to growth in the second halfof the year."
For further information contact:
Barry Mence, Chairman Sopheon plc Tel : + 44 (0) 1483 685735 Arif Karimjee, CFO Vikki Krause Hansard Communications Tel : + 44 (0) 207 245 1100 Sarah Jacobs Seymour Pierce Corporate Tel: +44 (0) 20 7107 8000 Finance Claire Verhagen Citigate First Financial Tel : + 31 (0) 205 754 010About 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, General Motors, Honeywell, Motorola and SABMiller. Sopheon islisted on the AIM Market of the London Stock Exchange and on the Euronext inthe Netherlands. For more information, please visit www.sopheon.com.
CHAIRMAN'S STATEMENT
Trading Performance
Following landmark growth in 2008, consolidated revenues for the first half of2009 were 4.1m compared to 4.3m in the first half of 2008. As noted in theAGM statement released on 16 June, the reduction can be attributed largely todelays in closing new license orders. This is borne out by the overall revenuemix between license, maintenance and services, which was 30:26:44 respectively,compared to 47:27:26 for the same period last year.Sales performance during the six-month period included 17 new and extensionlicense orders, in addition to a number of consultancy and services contracts.In spite of the weak economy, renewals of license rental, maintenance andhosting contracts have held up well, and our annualised base of such recurringbusiness stands at 4.1m.We have consistently noted our business dependency on a small number ofrelatively large deals, any of which can materially impact the revenue recordedin a particular period. When combined with current market conditions, this hasresulted in deferment of a number of opportunities that we had expected toclose in the second quarter. Several of these prospects attributed the delaysto more stringent approval processes imposed due to market uncertainty. Themajority of the affected prospects remain in active sales cycles and closuresto date have resulted in an increase in full-year revenue visibility from the 6.2m reported at the time of our AGM to 7.0m today. Based on our current viewof the forward sales pipeline, we continue to expect that we will close severalof the delayed opportunities in the second half of the year, in addition towinning new business which was originally identified for the third and fourthquarters. This will be a major challenge, but one we will embrace with vigour.From a geographical perspective, approximately two-thirds of revenues duringthe first half of the year were generated in the US, and one third in Europe.This balance of distribution is generally consistent with prior periods. TheAlignent business acquired in June 2007 accounted for 13% of total revenuesrecorded in the first half of 2009 compared to 12% for the comparable periodlast year. Gross profit, which is arrived at after charging direct costs suchas payroll for client services staff, was 2.8m compared to 3.2m the yearbefore, representing a fall in the gross margin percentage from 75% to 67%.This reflects the relatively fixed nature of such costs. We expect the grossmargin percentage to continue to fluctuate from period to period, in line withvariation in our revenue mix.
Operating Costs and Results
The fall in the value of Sterling has resulted in reported costs beingconsiderably higher across all parts of our business, since the majority of ourstaff are based outside the UK. Looking beyond this apparent overall increase,we have adjusted the staffing mix during the period. Total staff count at theend of 2008 was 105, up from 96 at the end of June 2008. Coming into 2009, tosustain a position of product leadership in the market, we recruited additionalstaff into our product development team. This was offset by a reduction ofstaff in other operational groups, implemented in April. The combination ofthese changes resulted in a total staff count at the end of June of 100. Thefinancial benefit of the staff reductions will feed through in the second halfof the year.The overall operating result for the business during the period was a loss of 892,000 (2008: profit of 132,000). After net finance costs, which includeinterest on debt taken on to finance the Alignent acquisition, the final lossbefore tax reported for the period is 990,000 (2008: profit of 54,000). Thisresult includes interest, depreciation and amortisation costs amounting to 658,000 (2008: 479,000). The majority of this increase is connected with thehigher relative value of the US dollar, which has translated into higherreported costs in Sterling. The EBITDA result for the first half of 2009, whichdoes not include these elements, was a loss of 330,000 (2008: profit of 533,000).Corporate and Balance sheetNet assets at the end of the period stood at 3.1m (2008: 3.5m). Gross cashresources at 30 June 2009 amounted to 1.6m (2008: 2.1m). Approximately 0.4mwas held in US dollars, 0.6m in Euros and 0.6m in Sterling.Intangible assets stood at 4.2m (2008: 3.7m) at the end of the year. Thisincludes (i) 2.3m being the net book value of capitalised research anddevelopment (2008: 1.5m) and (ii) 1.9m (2008: 2.2m) being the net book valueof Alignent intangible assets acquired in 2007. Due to amortisation andimpairment charges, the underlying dollar value of these assets has loweredsince last year. However, the movement in Sterling does not reflect this fullydue to the sharp change in exchange rates year to year.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. BlueCrest also offered the enlargedgroup an additional two-year $750,000 revolving credit facility secured onaccounts receivable. This has been renewed for a further year at a higherfacility limit of $1,250,000. At 30 June 2009, the balances outstanding on themedium-term debt and revolving credit facility were $2m (2008: $2.8m) and$700,000 respectively (2008: $750,000). The equivalent figures in Sterling are 1.2m (2008: 1.4m) and 425,000 (2008: 377,000) respectively.
Market and Product
Over the last two years we have evolved Sopheon from a single product companyto one with a product family. This has been accomplished through a combinationof strategic investment, partnership activity and an unremitting focus onproduct development. Our first milestone in this expansion in scope was in 2007with the acquisition of Alignent Software, bringing its Vision Strategist(TM)roadmapping solution into our product set. This was followed last year with thepivotal release of version 7.0 of our core Accolade(R) platform.Most recently, we introduced Idea Lab, an Accolade module designed specificallyfor use in generating, nurturing and developing new product ideas. The newsolution is the result of a partnership between Sopheon and HypeSoftwaretechnik GmbH, a German-based supplier of idea management software. IdeaLab has received feature coverage from IT research and advisory firms such asAMR Research, ARC Advisory and Tech-Clarity. The new offering expandsAccolade's capacity to strengthen the entire product innovation process. At thefront end of the innovation cycle, Accolade's Vision Strategist deliversautomated support for the development of strategic product plans. The plans aresocialised, fleshed out and enhanced in Idea Lab. The most promising strategicconcepts migrate from Idea Lab into the user's Accolade-supported gate orphase-based innovation processes, reducing the time it takes to turn ideas intoproducts.Our software belongs to a major class of applications called product lifecyclemanagement ("PLM") solutions that help companies develop and execute theirproduct strategies. The PLM market is comprised of multiple submarkets. Sopheonis focused on an emerging submarket called Product Portfolio Management ("PPM")which addresses the business challenges associated with product innovation,including the management of innovation risk and reward. A number of vendors ofproject portfolio management solutions that have historically focused theirsoftware and go-to-market strategies on the project management needs ofcorporate information technology organisations continue to step up theirattempts to migrate toward the PPM space. However, several analysts havelabelled Accolade as best-of-breed among solutions in the product portfoliomanagement sub-class, with AMR Research stating that it is the most mature andhas the greatest traction. Moreover, we believe that our software can bringimmediate value to recession-plagued companies that need to reduce costswithout undercutting their prospects for long-term growth. Our solutions helpthem maximise returns from available resources, while also supporting theirdevelopment of programs and strategies that will enable them to accelerate outof the downturn and emerge with increased competitive strength.
Outlook
Our sales pipeline remains strong, with good lead generation and high levels ofactivity. Our challenge is to convert this activity into signed contracts. Thistask has been made more difficult by current economic conditions, as customersprolong their investment decisions. Our first-half performance reflects theimpact of this slowing of our sales cycles. We continue to evaluate both ourcost base and our balance sheet, however the board is committed to maintainingits investment in product and its ability to service customers effectively.Accordingly, any cost adjustments will be carefully thought through andbalanced against expected performance.As we face the current challenges, we are fortified by our recent achievements.Sopheon's strategic position continues to strengthen, with a customer base thatnow includes 163 licensees, the majority of which are global brands. With thelaunch of Idea Lab, Sopheon offers the first software suite in the industry toprovide all-in-one support that encompasses innovation strategy, ideation andexecution. We remain convinced that this represents a highly differentiatedvalue proposition, and are encouraged by strong interest from the market andinfluential, positive affirmation from the business analyst community.Our immediate operational focus is on short-term improvements in revenue andprofitability, but we will continue to drive for strategic progress, and willmaintain this balanced approach as we plan for 2010.Barry MenceChairman27 August 2009Visibility
Visibility at any point in time comprises revenue expected from (i) closedlicense orders, including those which are contracted but conditional onacceptance decisions scheduled later in the year; (ii) contracted servicesbusiness delivered or expected to be delivered in the year; and (iii) recurringmaintenance, hosting and rental streams. The visibility calculation does notinclude revenues from new sales opportunities expected to close during theremainder of 2009.
EBITDA
EBITDA is defined as earnings before interest, tax, depreciation andamortisation and can be arrived at by adding back these charges, which amountto 658,000 (2008: 479,000), to the loss for the period of 990,000 (2008:profit of 54,000).Trademarks
Accolade(R), Idea Lab(TM) and Vision Strategist(TM)are trademarks of Sopheon plc.
All other trademarks are the sole property of their respective owners.
Cautionary Statement
Sopheon has made forward-looking statements in this interim report, 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 give no assurancethat any forward-looking statements will prove correct. CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2009 (UNAUDITED) 2009 2008 GBP'000 GBP'000 Continuing operations Revenue 4,111 4,298 Cost of sales (1,339) (1,067) Gross profit 2,772 3,231 Sales and marketing expense (1,733) (1,489)
Research and development expense 1,004 775 Amortisation of acquired intangible assets 170 170
Other administrative expense 757 665 Total administrative expense (1,931) (1,610) Operating (loss)/profit (892) 132 Finance income 13 33 Finance expense (111) (111)
(Loss)/profit before and after taxation (990) 54
(Loss)/profit for the period (990) 54
(all attributable to equity holders of the parent
company)
(Loss)/earnings per share - basic and diluted in (0.68p) 0.04p
pence CONSOLIDATED STATEMENT OF COMPREHENSIVEINCOME FOR THE SIX MONTHS ENDED 30 JUNE 2009 (UNAUDITED) 2009 2008 GBP'000 GBP'000 (Loss)/profit for the period (990) 54 Other comprehensive income
Exchange differences on translation of foreign (261) 20
operations
Total comprehensive (loss)/income for the period, (1,251) 74 net of tax CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2009 (UNAUDITED) 2009 2008 GBP'000 GBP'000 Assets Non-current assets Property, plant and equipment 189 164 Intangible assets 4,167 3,689 Other receivable 10 10 4,366 3,863 Current assets Trade and other receivables 2,052 2,415 Cash and cash equivalents 1,590 2,054 3,642 4,469 Total assets 8,008 8,332 Liabilities Current liabilities Borrowings 968 778 Deferred revenue 2,201 1,746 Trade and other payables 1,107 1,367 4,276 3,891 Non-current liabilities Borrowings 654 986 Total liabilities 4,930 4,877 Net assets 3,078 3,455 Equity Share capital 7,279 7,279 Other reserves 73,688 73,570 Retained losses and translation reserve (77,889) (77,394) Total equity 3,078 3,455
(all attributable to equity holders of the parent
company) CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2009 (UNAUDITED) 2009 2008 GBP'000 GBP'000
Operating Activities: profit/(loss) before and after (990) 54
taxation
Adjustments for non-cash and financial items 721 551
Movements in working capital 408 (5)
Net cash from operating activities 139 600
Investing Activities Finance income 13 33
Purchases of property, plant and equipment (43) (28) Recognition of development costs (570) (318) Net cash used in investing activities (600) (313)
Financing Activities Repayment of borrowings (293) (185)
Movement in bank overdrafts and lines of credit (33) -
Finance expense (111) (111)
Net cash from financing activities (437) (296) Net decrease in cash and cash equivalents (898) (9) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2009 (UNAUDITED) Share Capital Translation Retained L Capital Reserves Reserve Losses Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 At 1 January 2008 7,729 73,499 (191) (77,277) 3,310 Share based - 71 - - 71 payments Comprehensive - - 20 54 74 income At 30 June 2008 7,279 73,570 (171) (77,223) 3,455 At 1 January 2009 7,279 73,627 587 (77,225) 4,268 Share based - 61 - - 61 payments Comprehensive - - (261) (990) (1,251) income At 30 June 2009 7,279 73,688 326 (78,215) 3,078
NOTESTO THE FINANCIAL STATEMENTS
1. Basis of Preparation
The financial information in these results for the 6 months to 30 June 2009 isthat of the holding company and all of its subsidiaries (the Group). It hasbeen prepared in accordance with the recognition and measurement requirementsof International Financial Reporting Standards as adopted for use in the EU(IFRSs). The accounting policies applied by the Group in this financialinformation are the same as those applied by the Group in its financialstatements for the year ended 31 December 2008 and which will form the basis ofthe 2009 financial statements, except as described below. A number of new andamended standards become effective for periods beginning on or after 1 January2009. The principal changes that are relevant to the group are:
-- IFRS 8 - Operating Segments: IFRS 8 is a disclosure standard only; there has been no effect on the recognition or measurement of results following the adoption of this standard
-- IAS 1 (revised 2007) - Presentation of Financial Statements: The revisedstandard has introduced a number of terminology changes (including revisedtitles for the condensed financial statements) and has resulted in a number ofchanges in presentation and disclosure. There has been no effect on thereported results or previous financial position of the Group.
None of the other new standards and amendments are expected to materially effect the group.
The Group's Annual Report for the year ended 31 December 2008 have beendelivered to the Registrar of Companies. The Group's Independent Auditors'report on those accounts drew attention by way of emphasis to going concernwithout qualifying their report and did not contain a statement under section237(2) or 237(3) of the Companies Act 1985. The financial information for thehalf years ended 30 June 2009 and 30 June 2008 are unaudited.
2. Going Concern
The interim financial information has been prepared on a going concern basis.In reaching their assessment, the directors have considered a period extendingat least 12 months from the date of approval of this information and haveconsidered both the forecast performance for the next 12 months and the cashand financing facilities available to the group.In the first half of 2009, the group achieved revenues of 4.1m and incurred aloss of 1.0m. This represents a weaker performance than for the previous year,which the directors believe is caused primarily by delays in closing new sales,linked largely to the current weakness in global economic conditions. TheGroup's sales pipeline remains very active and accordingly, the directorsremain positive about the prospects for the business in the medium and longerterm. However, the time-to-close and the order value of individual sales canvary considerably, factors which constrain the ability to accurately predictshort term revenue performance. Accordingly the directors are activelyconsidering the possibility of further reducing costs, having made an initialadjustment in April. If the Group is not able to raise sales or lower costs toa sufficient level, the Group's existing facilities may prove insufficient, andthe Group would need to raise additional finance. The directors are reviewing arange of options to deal with this possibility.At 30 June 2009, the Group reported net assets of 3m and gross cash resourcesof 1.6m. The Group has a loan note from BlueCrest Capital Finance("BlueCrest") which is repayable in equal monthly instalments of $90,000through July 2011. The balance remaining due on the note at 30 June 2009 was$2m. The Group also has access to a revolving bank line of credit withBlueCrest which is secured against the trade receivables of Sopheon's NorthAmerican business. This has been renewed for an additional 12 month periodthrough 30 June 2010 and as part of this renewal, the facility limit has beenincreased from $750,000 to $1,250,000. At 30 June 2009 $700,000 was drawnagainst this revolving facility. In addition, the Group has access to an equityline of credit facility from GEM Global Yield Fund Limited ("GEM") for anaggregate of EUR10m, the current term of which expires in December 2009. Thefacility originally expired in December 2005, and has since been extendedtwice.
NOTES TO THE FINANCIAL STATEMENTS
GEM's obligation to subscribe for shares is subject to certain conditionslinked to the prevailing trading volumes and prices of Sopheon shares on theEuronext stock exchange. To date Sopheon has made one call on the equity lineof credit facility, raising just under EUR1m in March 2004.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 revenues in respect of the six month periods ended 30 June 2009 and 2008 are derived from the design, development and marketing of software products with associated implementation and consultancy services.
4. Earnings per share
The calculation of basic earnings per ordinary share is based on a loss of 990,000 (2008 - profit of 54,000) and on 145,579,027 ordinary shares (2008 -145,579,027) being the weighted average number of ordinary shares in issueduring the year. The reported diluted earnings per ordinary share for both 2009and 2008 are the same as the basic earnings / loss per ordinary share in eachyear. For 2009, it is because the exercise of share options would have theeffect of reducing the loss per ordinary share and was therefore not dilutive.For 2008, this is because the dilutive effect of the exercise of potentialordinary shares does not cause a material change in the resultant earnings
pershare fraction.5. Intangible AssetsIn accordance with IAS 38 Intangible 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 570,000 (2008: 319,000), andamortisation of 330,000 (2008: 186,000) during the period. In addition,amortisation of 170,000 (2008: 170,000) has been charged during the periodagainst the intangible assets originally acquired with Alignent, in June 2007.
6. Principal Risks and Uncertainties
The principal risks and uncertainties as disclosed on page 18 of the Group'sAnnual Report for the year ended 31 December 2008 remain valid. Other principalrisks and uncertainties of the Group for the remaining six months of thecurrent financial year are disclosed in the Chairman's Statement and the notesto the condensed set of financial statements included in this half-yearlyreport.
7. Statement of Directors Responsibilities
On behalf of the board we confirm that to the best of our knowledge (a) thecondensed set of financial statements included in this half-yearly report hasbeen prepared on the basis set forth in note 1, and gives a true and fair viewof the assets, liabilities, financial position and results of the Group; and(b) this half-yearly report includes a fair review of the important eventsduring the first six months of the year, and a description of the principalrisks and uncertainties facing the Group.Barry Mence Andy Michuda Arif KarimjeeChairman Chief Executive Officer Chief Financial Officer27 August 2009
Independent review report to Sopheon plc
Introduction
We have been engaged by the company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30 June2009 which comprises the consolidated statement of financial position;consolidated income statement; consolidated statement of comprehensive income;consolidated cash flow; and associated notes. We have read the otherinformation contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of financial statements.
Directors' responsibilities
The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the rules ofthe London Stock Exchange for companies trading securities on the AlternativeInvestment Market which require that the half-yearly report be presented andprepared in a form consistent with that which will be adopted in the company'sannual accounts having regard to the accounting standards applicable to suchannual accounts.Our responsibilityOur responsibility is to express to the company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Our report has been prepared in accordance with the terms of ourengagement to assist the company in meeting the requirements of the rules ofthe London Stock Exchange for companies trading securities on the AlternativeInvestment Market and for no other purpose. No person is entitled to rely onthis report unless such a person is a person entitled to rely upon this reportby virtue of and for the purpose of our terms of engagement or has beenexpressly authorised to do so by our prior written consent. Save as above, wedo not accept responsibility for this report to any other person or for anyother purpose and we hereby expressly disclaim any and all such liability
Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, ``Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity'', issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 30 June 2009 is not prepared, in allmaterial respects, in accordance with the rules of the London Stock Exchangefor companies trading securities on the Alternative Investment Market and forthe rules governing listed securities on Euronext.
Going concern
In arriving at our review conclusion, we have considered the adequacy of thedisclosures made in Note 2 regarding the Group's ability to continue as a goingconcern. As in prior periods, these disclosures identify certain factors thatindicate the existence of material uncertainties which may cast a significantdoubt over the group's ability to continue as a going concern. As discussed inNote 2, the appropriateness of the going concern basis remains reliant on thegroup achieving an adequate level of sales in order to maintain sufficientworking capital to support its activities, or if this objective is not met,being able to raise sufficient additional finance.
BDO Stoy Hayward LLP 27 August 2009
Chartered Accountants & Registered Auditors, London
vendor