SPE.L Regulatory News (SPE)

1 Sep 2005 06:00

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 servicesthat improve the return from innovation and product development investments,announces its unaudited interim results for the six months ended 30 June 2005together 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 closingcertain key contracts in June. However, these have either closed or are in theprocess of doing so, and we remain confident in the underlying direction of ourbusiness. Current levels of field activity, market reaction to the latestversion of Accolade, and the emerging impact of our partner relationships areencouraging. There are good indications that our sales pipeline will deliverrevenue growth and a positive financial contribution from operations in thesecond 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 010About SopheonSopheon (LSE: SPE) is an international provider of software and services thathelp organizations improve the business impact of innovation. The SopheonAccolade‚® product portfolio and process management system automates gate- orphase-based product development (PD) processes and provides strategic decisionsupport that allows companies to cut product development spending waste andgenerate more revenue from new products. Sopheon is listed on the AIM market ofthe London Stock Exchange and on the Euronext in the Netherlands. For moreinformation, please visit www.sopheon.com. CHAIRMAN'S STATEMENT Financial OverviewConsolidated revenues for the period amounted to ‚£1.9 million (2004: ‚£2.1million). Maintenance and services revenues for the period were both 50% higherthan such revenues during the first half of 2004, reflecting greater stabilityin the revenue base of the business. However, this was offset by delays inclosing certain license transactions. Of the total revenues reported in theperiod, the ratio between license, service and maintenance was 1:1:1. We expectthis ratio to return to our historic 3:1:1 shape in the second half of theyear.Taking into account new orders and recurring maintenance streams, and includingcontracted license revenue conditional on acceptance decisions, visibility of2005 revenues stands today at ‚£3.1 million, over 70% of the total revenuesrecorded in 2004.Gross margin, which is arrived at after charging direct costs such as royaltiesand payroll for client services staff, stood at 76% for the period compared to81% in 2004, reflecting the relatively fixed costs of our services business.Going forward, although we expect our service business to continue its patternof steady growth, operating margins will be impacted by the engagement ofrecently trained service partners who are beginning to provide implementationsupport.The overall loss for the period improved to ‚£0.9m (2004: ‚£1.3m) due to therestructuring of the group's loan note, which eliminated interest costs, anddue 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 inLondon, increasing cash resources to more than ‚£2 million and arming Sopheon totake timely advantage of possible new opportunities for business expansion.Examples of this are market research we have commissioned in respect of the UShealthcare 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 ‚£1.6million excluding goodwill at 30 June 2004.TradingAs previously announced, the Company was endeavoring to close on severaltransactions prior to the end of June. A number of sales were concludedfollowing Sopheon's Annual General Meeting held on 17 June, bringing the countfor the first half of the year to eleven new and extension license sales amonga total of twenty sales transactions. Of the three licenses that were verballycommitted and identified in our announcement of 15 July, one has completed, thesecond is fully negotiated awaiting final signature, and the third has Accoladechosen as the preferred solution, but remains in contract discussions. Thefourth license opportunity identified in our July announcement has been removedfrom our pipeline due to budgetary issues in the customer's current fiscalyear.As we have previously noted, a new development in 2004 was the signing oflarger transactions (ranging from two to four times the historical $250,000average) and which are more complex in scope (enterprise wide instead of asingle department). Sopheon is currently working on seven opportunities thathave this potential. Of these, one has signed a license order, and three havealready engaged Sopheon to deliver proof of concept services - one of which hasalready contracted for its license, subject to an acceptance decision due inthe fourth quarter. The remaining three have identified Accolade as theirpreferred solution and are working through their contracting process. Althoughthe added complexity of such opportunities can slow our sales cycles, they havethe potential to significantly increase the scale of license revenues in thesecond 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 licensedcustomers, and Accolade is now being used in 48 countries around the globe.Business DevelopmentWe have noted in earlier communication that Sopheon is actively developingpartnerships to bolster both our strategic and channel strength in thischanging competitive landscape. We have recently hired a partnership programdirector who is focusing his attention on partner relationship development.The alignment of Accolade with Microsoft technology is a key example ofpartnership efforts, and the benefits have come through firmly in the latestrelease of our solution. Accolade Version 6.0 was a landmark release, supportedby Microsoft both in terms of R&D investment and marketing activity in Europeand America, and has been very well received by market analysts. Havingselected Sopheon in late 2004 as a supplier participant in its CollaborativeProduct Development pilot program, Microsoft has judged the initiative to be abusiness 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 inagreements with Deloitte & Touche in South Africa, Inogate in Portugal, TeamProgress in New Zealand and Australia, ASI in South Korea, and Tata ConsultancyServices of India. Second quarter revenues included our first sale inAustralia, a license transaction completed by Team Progress. Other potentialconsultancy partners are actively supporting our initial work with global salesopportunities. We will provide further details of these relationships in duecourse.As demand continues to escalate, Sopheon has also begun developing partnershipsto help it scale in its provision of implementation support to new clients.Based on these efforts, we now have an expanding infrastructure of trainedimplementation partners capable of delivering on-demand service support toSopheon customers around the globe. For instance, Tata Consultancy ServicesLimited, one of the world's leading information technology consulting andservices companies, is expanding its Sopheon team to eight professionals overthe third quarter. Partners are currently providing service support at a numberof our newest accounts.New markets represent another area of emerging opportunity. We have begunimplementing a strategy to sell Accolade to discrete manufacturers, a move thatis being facilitated by our relationships with a number of partners who arealready established suppliers to this market. These efforts are benefiting fromthe fact that prominent discrete manufacturers such as Parker Hannifin, theworld leader in the production of motion control systems can serve asreferences. We are in discussion with additional, prospective partners who arefocused on discrete markets, and have sought and received advice from industryexperts regarding alignments that would yield the greatest strategic andnear-term business development benefit.In a further initiative we have commissioned an independent authority in thehealthcare industry to conduct research aimed at determining the feasibilityand advisability of building on our European healthcare business to pursue theapplication of Accolade into the U.S. healthcare market. The project isscheduled for completion late in the third quarter. Key to this exploration isdetermining how we can take advantage of the potential opportunity withoutinterrupting our progress in core vertical markets.In parallel with these developments, Sopheon has also given seriousconsideration to a small number of potential M&A transactions. We previouslyannounced the signature of a letter of intent to augment our relationship withTeam Progress in Australasia through a financial investment in their Sopheonreseller business. This initial investment will underpin a long-term objectiveof establishing a Sopheon owned support centre in each major world time zone.These discussions continue and are expected to conclude in the near term.OutlookWith the rate of market change growing in speed and complexity, and the volumeof competitor activity steadily escalating, the board believes that Sopheonmust protect and extend its established lead in the market for productportfolio and process management solutions and that this will requirecontinued, and in some cases accelerated, investment in resources. Therefore,while the cost base remains tightly controlled, the recent strengthening of thegroup's balance sheet will enable Sopheon to take timely advantage of possiblenew opportunities for business expansion, as described above.The board believes that prospects for the group remain positive. From productand strategic positioning standpoints, it believes that Sopheon remains at theforefront of a software segment that is attracting considerable corporate andindustry interest. Notwithstanding the headline reduction in revenues for theperiod, there are good indications that our sales pipeline will deliver areturn to revenue growth, and a positive financial contribution fromoperations, 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 operatingactivities is presented in Note 5. NOTES 1. Basis of preparation of interim financial informationThe interim financial information has been prepared on the basis of accountingpolicies set out in the group's financial statements for the year ended 31December 2004, as amended by the adoption of FRS25 (see note 4 below), preparedunder the historical cost convention and in accordance with applicableaccounting standards, and on the going concern basis.Following a placing of new equity for ‚£1,000,000 in May of this year, theconsolidated net current assets reported at 30 June 2005 are ‚£1,259,000 and netcash 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 thetrade debtors of Sopheon Corporation Minnesota. At 30 June 2005, $43,000 (‚£24,000) was drawn against this facility. The facilities with Silicon ValleyBank have been in place since 1999, and are renewable annually in October.The directors believe that these cash resources supplemented by the additionalfacilities described above provide it with adequate funding to support itsactivities through to the point at which they anticipate that trading willbecome cash generative on a sustained basis.The ability of the group to become cash generative is dependent on the groupcontinuing to achieve year-on-year revenue growth. During 2004 the group'srevenues from continuing operations grew by over 60%, which together with thecost restructuring and divestments completed in 2003 reduced its total losseson an EBITDA (earnings before interest, tax, depreciation and amortisation)basis by over 70%. Revenues reported for the first half of 2005 were ‚£1,909,000compared to ‚£2,083,000 for the same period in 2004. This reduction in revenueis not considered to be indicative of the business ceasing to grow, and thedirectors remain positive about the underlying direction, focus and momentum ofthe group. The directors believe that there are good indications that in thesecond half of the year, the sales pipeline will deliver a return to revenuegrowth and there will be a positive financial contribution from operations.Should this not be the case, or should the group require additional funding foroperational or investment purposes, Sopheon continues to have access to itsequity line of credit facility from GEM Global Yield Fund Limited ("GEM") foran aggregate of ¢â€š¬10 million over the two year life of the instrument, whichcomes to an end on 22 December 2005. In March 2004, Sopheon made a first callon the equity line of credit facility, raising just under ¢â€š¬1 million beforeexpenses and accordingly, leaving ¢â€š¬9 million available under the instrument.The directors are considering whether it is appropriate to seek an extension tothe life of the instrument in order to provide continued access to the facilityfor the foreseeable future.The directors believe that together, the points above will enable the group tocontinue as a going concern. However, uncertainties remain as to theachievement of the expected sales growth and the continued availability offacilities to the group. If the expected sales growth is not achieved andfacilities are not available, the going concern basis may cease to beappropriate. The interim financial information does not reflect any adjustmentswhich would be required if this were the case. The precise extent andquantification of such adjustments has not been determined but these couldinclude the reclassification of any unconverted element of the group'sconvertible unsecured loan stock to creditors falling due within one year, andprovision for additional liabilities.2. Earnings per shareThe 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 theperiod, including 11,998,200 ordinary shares, representing the weighted averageeffect of the classification as equity of the group's Interest Free MandatoryConvertible Loan Stock. The effect of all potential ordinary shares isanti-dilutive in 2005 and 2004.3. LBITDALBITDA represents loss before interest, tax, depreciation and amortisation ofgoodwill.4. Adoption of Financial Reporting Standard 25'Shares to be issued' consists of the outstanding amount of the group'sInterest Free Mandatory Convertible Loan Stock (the "Stock"). In accordancewith existing UK accounting standards, the Stock was classified as part ofequity shareholders' funds in the group's balance sheet as at 30 June 2004 and31 December 2004. The convergence of UK and international accounting standardshas led to the introduction of Financial Reporting Standard 25 'FinancialInstruments: Disclosure and Presentation' ("FRS25"). The presentationrequirements of FRS25 are applicable to the group for reporting periodsbeginning on or after 1 January 2005. At 1 January 2005, FRS25 requires anentity to split a compound financial instrument into separate liability andequity components. The group has accounted for the adoption of FRS 25 as achange in accounting policy. However, the terms of the Stock are such that itis only repayable in cash upon the occurrence of certain events relating to thegroup's ability to continue in business, which the directors consider to bevery remote. Accordingly no fair value is attributable under FRS25 to theliability component, and consequently the entire amount of the Stock remainspresented within equity shareholders' funds in the group's balance sheet.5. Reconciliation of operating loss to net cash outflow from operatingactivities 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 ReportThis Interim Report is available from Sopheon's registered office at SurreyTechnology Centre, 40 Occam Road, Guildford, Surrey GU2 7YG and from thecompany's website at www.sopheon.com.7. Financial informationThe financial information set out above does not constitute the group'sfinancial statements as defined in section 240 of the UK Companies Act 1985 andis unaudited. Financial statements for the years ended 31 December 2003 and2004 have been delivered to the registrar of companies and an unqualified auditopinion was issued thereon.8. Cautionary StatementSopheon has made forward-looking statements in this press release, includingbut not limited to statements about the benefits of our products and services;our acquisitions and divestments; financial results; product development plansand achievements; the potential benefits of business relationships with thirdparties and business strategies. These statements about future events aresubject to risks and uncertainties that could cause Sopheon's actual results todiffer materially from those that might be inferred from the forward-lookingstatements. Sopheon can make no assurance that any forward-looking statementswill prove correct. Descriptions of some of the key risk factors that couldnegatively affect Sopheon's future performance are contained in Sopheon's Form20 - F Annual Report, on file with the U.S. Securities and Exchange Commission.ENDSOPHEON PLC