Final Results
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 Lab™, 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 challenges
to overcome. Having a profitable fourth quarter shows that we reacted
appropriately to balancing investment with cost containment. Our current
pipeline, coupled with our unique solution set and the continued maturing of
our chosen market, continue to give me confidence in our quest to improve
shareholder value. Whilst we continue to adopt a prudent stance, we remain
excited 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 1100
Corcoran
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 Sopheon
Sopheon (LSE: SPE) is an international provider of software and services that
help organisations improve the business impact of product innovation. Sopheon's
solutions automate and govern the innovation process, enabling companies to
increase revenue and profits from new products. Sopheon's solutions are used by
industry leaders throughout the world, including BASF, Cadbury, Corning,
Electrolux, Honeywell, Motorola and SABMiller. Sopheon is listed on the AIM
Market of the London Stock Exchange and on the Euronext in the Netherlands. For
more information, please visit www.sopheon.com.
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 tough
year 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 fall
of 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 a
loss after tax of £1.5m compared to a breakeven position for 2008. In response
to these shifts in performance, we took decisive cost actions during 2009, and
have reduced staffing from 105 to 85 over the year.
In our half year results for 2009 we signalled the challenging nature of the
business environment, but in the latter part of the year we noted some evidence
of improvement, with the potential for a good recovery in the final quarter of
2009. This proved to be the case, with 21 new and extension license orders in
the fourth quarter, compared to a total of 27 for the first three quarters. In
addition to the improvement in sales, the careful adjustments that we made to
our cost base earlier in 2009 contributed to a positive EBITDA result for the
second half of the year.
Total license transactions including extension orders were 48 in 2009 compared
to 53 in 2008. We entered 2009 with a licensee base of 157 companies, and grew
this to 168 by the end of the year. Total business from existing customers
represented 85% of revenues in 2009 compared to 65% in 2008; this underlines
the strength of our customer base and the value that our customers ascribe to
their 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 partners
accounted for 9% of revenues, down from 11% the year before. Accolade® Vision
Strategistâ„¢ contributed approximately 12% of total revenues during 2009
compared to 13% in 2008. Many of our customers were affected by the economic
difficulties, and we did experience some terminations of maintenance and rental
contracts during the year. However, when offset by new orders received, the
base of recurring revenue remained steady at £3.7m coming into 2010, the same
as 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 quarter
showed positive signs of a return to better times. However, our business
performance remains subject to the timing and size of relatively small number
of transactions. This ongoing challenge, combined with the continuing economic
uncertainties 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, a
reduction of 11%. From a geographical standpoint, the fall was more pronounced
in our European markets, although the reduction in US performance was offset to
a 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 2009
compared to 64% in 2008.
Total license transactions including extension orders were 48 in 2009 compared
to 53 in 2008, a reduction of 9%. License transactions included 10 relating to
the Accolade Vision Strategist solution, acquired with the Alignent business in
June 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 mix
Overall, in 2009 our business delivered a 32:42:26 ratio of license,
maintenance, service respectively compared to 45:28:27 in the prior year. The
maintenance category also includes revenue derived from hosting services. In
addition to the small drop in volumes year over year, the average value of each
transaction fell, further contributing to the relative fall in the proportion
of revenues derived from license sales. The smaller size of each transaction
also impacted services revenues, which rose slightly as a proportion of total
revenues, but fell in absolute terms.
An important factor in such tough economic times is the strength of customer
relationships, and approximately 70% of the value of orders (excluding
recurring revenues) in 2009 was derived from our existing customers. Indeed,
services revenue from existing customers went up during the year from £1.3m in
2008 to £1.6m in 2009. We continue to expect that in time, services will
moderate as a proportion of our total revenues by the effect of license
business coming through partners, for which associated services work is
unlikely to be performed by Sopheon.
Notwithstanding these strong customer relationships, some of our customers did
terminate maintenance or rental contracts during the year, typically due to
unprecedented internal budget pressures coupled with staff changes or merger
activity. Nevertheless, thanks to the new licenses signed during the year, the
base of recurring revenue has remained steady at £3.7m coming into 2010, the
same as in 2009. The majority of this income is represented by maintenance
services, but also includes hosting services and license rentals.
Overall gross margins have fallen to 71% (2008: 75%) which can be largely
attributed to the fall in the relative proportion of license revenues. In
future, license margins may also be slightly affected by decisions to embed,
rather than build, certain third party components or methods of working into
our software. During the year we have been quick to control margins in our
professional services team, taking difficult decisions during the year to
reduce permanent headcount in both territories, to reflect the reduction in
services revenues. As and when markets pick up again, our expectation is to
maintain flexibility by initially relying on subcontracted resources, prior to
shifting back into recruitment of permanent staff.
Research & Development expenditure
Sopheon's investment and progress in product development during the course of
2009 reflect our goal of continued leadership of our chosen markets. We
launched Accolade® Idea Lab™ in May, and completed a major new version of our
Accolade Vision Strategist roadmapping software in October. We also made
significant changes to our core innovation process management software. Further
details of these developments can be found elsewhere in this report. Sopheon is
committed to product leadership with excellence in research and development a
core competency of the group; since 2001 Sopheon has maintained research and
development costs above 20% of revenues. Our decision to maintain this level of
investment in spite of the tough economic conditions, resulted in this ratio
rising 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 and
impairment charges associated with research and development in 2009 was to
reduce the reported expenditure by £0.1m (2008: £nil) and accordingly, the
apparent increase in operating terms year on year was actually £0.3m. The
majority of our development resources are based in the USA and this increase
can largely be attributed to the relative strength of the US Dollar; the
underlying spend in dollars was relatively flat. The amount of 2008 research
and development expenditure that met the criteria of IAS38 for capitalisation
rose to £0.9m (2008: £0.8m).
Operating costs
Overall staff costs have increased by £0.6m. The apparent increase is entirely
due to the impact of Sterling weakness against the US Dollar and the Euro; most
of our staff are located outside the UK. Using constant exchange rates, staff
costs actually fell by £0.4m. This can in turn be largely attributed to the
fact that the majority of group's employees did not earn a bonus in 2009, due
to the financial performance during the year. Average staffing levels appear
constant at 99 in 2009 compared to 98 in 2008; this disguises an increase from
92 to 105 in the course of 2008, which was then reduced to 85 by the end of
2009. As noted above the majority of the reduction has been implemented in
professional services. Other areas affected were sales and marketing, and
product development; the former in the early part of 2009, and the latter
towards the end of the year. This profile reflects our decision to maintain
investment 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 in
2009. To a degree this reflects lower amortisation and impairment charges for
the intangible customer assets acquired with Alignent in 2007. However, as
noted before, the effect of currency exchange factors on the reported figures
disguises a fall in the underlying costs in US Dollar and Euro, due primarily
to lower commission payments. Average headcount in sales and marketing remained
relatively constant.
Headline administration costs have risen by £0.3m. As we noted in the 2008
report, that year recorded substantial exchange gains relating to the foreign
currency cash balances held in Sopheon plc, which did not recur in 2009. The
apparent increase is due to the higher Sterling impact of such costs in our US
and Netherlands operations. The underlying administration costs and resourcing
have 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 annual
performance using EBITDA (Earnings before Interest, Tax, Depreciation and
Amortisation) which the board believes provides a useful indicator of the
operating performance of our business by removing the effect on earnings of
tax, capital spend and financing. EBITDA is further defined and reconciled to
the profit before tax in Note 4. Our calculation of EBITDA is stated after
charging (i) share based payments of £0.1m (2008: £0.1m); (ii) impairment
charges of acquired intangible assets of £0.2m (2008: £0.3m); and (iii)
exchange losses of £31,000 (2008: £0.2m gain) but excludes depreciation and
amortisation charges for the year of £1.1m (2008: £0.9m) and net finance costs
of £0.2m (2008: £0.2m).
Including the effect of interest, depreciation and amortisation, the group
reported a loss before tax for the year of just under £1.5m (2008: £44,000
profit). There is no tax provision in the year, compared to a charge of £15,000
for 2008 which reduced retained profit after tax to £29,000 that year. The loss
per ordinary share was 1.03p (2008: 0.02p profit).
The better revenue performance in the closing months of 2009, coupled with cost
adjustments made earlier in the year, led to a profitable final quarter at both
EBITDA and retained profit levels.
Financing and balance sheet
The effect of exchange rates on the income statement is quite different to the
impact on the balance sheet. As noted above, the former is characterised by
Sterling being weaker on average during 2009 compared to 2008, relative to the
US Dollar and the Euro. The latter is characterised by Sterling being stronger
at 31 December 2009 compared to 31 December 2008, relative to the US Dollar and
the Euro.
Net assets at the end of the year stood at £2.7m (2008: £4.3m). Gross cash
resources 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. This
includes (i) £2.4m being the net book value of capitalized research and
development (2008: £2.4m) and (ii) an additional £1.6m (2008: £2.3m) being the
net book value of Alignent intangible assets acquired in 2007. The apparently
constant level of the capitalized research and development, disguises an
increase in the underlying US Dollar value offset by a fall in the relative
value of the US Dollar compared to Sterling at the balance sheet date. This has
also caused part of the fall in carrying value of the Alignent intangibles, in
addition 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"). The
debt is being repaid in 48 equal monthly instalments, and is secured by a
debenture and guarantee from Sopheon plc. Since inception through the end of
2009, $1.9m of the medium-term debt principal has been repaid.
The group also had an additional $750,000 revolving credit facility from
BlueCrest, secured on accounts receivable. During 2009, this was renegotiated
to $1,250,000. At year end, short term borrowings connected with the group's
revolving facilities were £756,000 (2008: £522,000). This represents underlying
US Dollar values of $1,220,000 (2008: $750,000).
On 1 October 2009 the group issued £850,000 of convertible unsecured loan stock
to a group of investors including key members of the Board and the senior
management team. The stock is convertible into ordinary shares at a conversion
price of £0.10 between 1 October 2010 and 30 September 2011, or earlier if the
Company undertakes an equity issue. Any portion of the stock which is not
converted will be redeemed at par on 30 September 2011. The stock carries an
annual coupon rate of 8%. At any time up to 31 March 2010, investors may
subscribe for an additional one third of their initial stock value, with a
conversion price set at a 30% premium to the conversion price applicable to
their original holding. If at any time after the date of issue of the stock and
before the date of conversion, the Company undertakes a placing or other issue
at a lower price then the conversion price for any outstanding stock will be
adjusted to the placing price. All ordinary shares issued in relation to the
stock are subject to lock-in arrangements. Fair value adjustments relating to
the conversion features have resulted in the carrying value of the stock at 31
December 2009 being analyzed between host debt of £755,000 and an embedded
financial 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 to
implement a further two year extension at no cost to Sopheon, through to 23
December 2011. The facility has been used to raise working capital once, in
March 2004, leaving approximately 90% of the original €10m facility available
under the extended agreement. Drawings under the GEM equity line of credit are
subject 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 of
2009 reflect our goal of continued leadership of our chosen markets. In May, we
launched Accolade® Idea Lab™ in partnership with Hype GmbH, bringing to market
the first integrated solution that not only facilitates generation and
development of ideas, but makes it possible to seamlessly move those ideas into
product development for execution. During October, we completed a major new
version of our Accolade Vision Strategist roadmapping software. Principal
advances include greater ease of use, and increased support for collaboration
throughout the product planning process. We have also been making significant
changes to our core innovation process management software. These changes
include a number of product extensions fulfilling short term market
requirements that will not only benefit our existing client base but also
expand our differentiation, and deepen our value proposition.
In conjunction with product advancements, we have invested in new marketing
capabilities that leverage emerging channels such as social media. These new
practices have the promise to fundamentally transform the way in which we
identify, create and nurture relationships with existing and potential
customers. We have also worked hard to improve the strength of our partner
relationships through the tough economy, both at the reseller level and at the
strategic level. We expect this to bear fruit in 2010.
Major analyst organisations like Forrester, Gartner and IDC continue to see
traction and opportunity in our chosen market. In December 2009, Forrester
noted increasing interest and investment in project and portfolio management
tools for product development, and in the same month Gartner noted that
software that supports product strategy and planning is gaining attention as a
segment of the PLM (Product Lifecycle Management) software market. Forrester
also identified Sopheon as one of the clear market share leaders in the PPM
space.
People
One of Sopheon's proven market differentiations is the deep domain expertise
our people have gained around Innovation Governance. This knowledge and
experience has been created over many years from working with industry leading
companies on this emerging business process. We are very proud of the
commitment that our staff have shown in achieving leadership in this area, and
in maintaining it through the cost adjustments implemented during the last
year. We are confident that we have protected and continue to grow this very
important competency in our people, while also continuing to invest in our
internal 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 myself
serve on the team, and also act as executive directors. Our CTO Paul Heller,
and vice president of research Huub Rutten, complete the group. Executive
management is complemented by a strong operational management team that leads
the marketing, sales and professional services functions. The Sopheon plc board
is made up of the three executive directors, augmented by three non-executive
directors who bring a wealth of knowledge and experience to our business.
Outlook
We entered 2009 cautiously optimistic, but with tight operational plans that
made spending contingent on historic and forecasted revenue performance on a
quarter-by-quarter basis. As events turned out, our caution was well founded
and the second and third quarters of the year proved particularly challenging.
We made immediate cost adjustments, but have been very careful to preserve our
ability 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 are
persisting. Nevertheless, in this environment it is tough to predict growth
with accuracy. Accordingly we approach 2010 with the same mindset as 2009. We
recognise, as before, that this approach may restrict our growth trajectory in
the short term, but it will nevertheless underpin all hiring and expenditure
decisions.
Strategically, we believe Sopheon's position continues to strengthen.
Innovation remains a key priority at many corporations. We are the only vendor
that can offer customers a total solution for governance of innovation,
covering both strategy and execution, while fully integrating an ideation
platform. We have 168 customers under license, with strong representation from
our core target vertical markets of chemicals, food and beverage, consumer
products and defense. We are also gaining footholds in the high-technology and
medical device sectors. Our existing customers contributed 85% of revenues, and
70% 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 in
Sopheon's products.
Sales cycles continue to be extended, with an increased number of approvals
required to get each transaction concluded. However, revenue visibility for
2010 already stands at £4.8m and our sales pipeline remains resilient. Our
final quarter of last year saw a return to decent levels of business, and was
profitable. Accordingly, while we continue to adopt a prudent stance, we remain
excited 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) 1,723
activities
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 29 807
comprehensive
income for the
year
Share based - 128 - 23 151
payments
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 - 111 117
payments
At 31 December2009 7,279 73,633 381 (78,608) 2,685
The translation reserve represents accumulated differences on the translation
of assets and liabilities of foreign operations. Retained losses represent
accumulated trading losses, including amortisation and impairment charges in
respect of goodwill and intangible assets arising from past acquisitions.
Capital reserves represent share premium, merger reserve, capital redemption
reserve and share options reserve.
NOTES
1. Basis of preparation
The financial information set out in this document does not constitute the
company's statutory accounts for 2008 or 2009. Statutory accounts for the years
ended 31 December 2009 and 31 December 2008 have been reported on by the
Independent Auditors. The Independent Auditors' Report on the Annual Report and
Financial Statements for 2008 was unqualified, but consistent with prior years,
have drawn attention to an emphasis of matter due to the uncertainty over going
concern, and did not contain a statement under 237(2) or 237(3) of the
Companies Act 1985. The Independent Auditor's Report on the Annual Report and
Financial Statements for 2009 was unqualified, but consistent with prior years,
have drawn attention to an emphasis of matter due to the uncertainty over going
concern and did not contain a statement under 498(2) or 498(3) of the Companies
Act 2006.
Statutory accounts for the year ended 31 December 2008 have been filed with the
Registrar of Companies. The statutory accounts for the year ended 31 December
2009 will be delivered to the Registrar in due course and will be posted to
shareholders shortly and thereafter will be available from the Company's
registered 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 been
prepared using the recognition and measurement principles of International
Accounting Standards, International Financial Reporting Standards and
Interpretations adopted for use in the European Union (collectively Adopted
IFRSs). The accounting policies adopted in these preliminary results have been
consistently applied to all the years presented and are consistent with the
policies used in the preparation of the statutory accounts for the period ended
31 December 2009. Other than as indicated below, the principal accounting
policies adopted are unchanged from those used in the preparation of the
statutory accounts for the period ended 31 December 2008. The group has adopted
the following new standards, which have had an impact on the financial
statements:
* 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 group
to adopt a `management approach' in the identification of its operating
segments and its reporting on their financial performance in the consolidated
financial statements. The group now presents segmented information in respect
of two geographical areas, North America and Europe, Middle East and Africa
(EMEA). Previously segmented information was presented in respect of three
geographical 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. In
reaching their assessment, the directors have considered a period extending at
least 12 months from the date of approval of these financial statements and
have considered both the forecast performance for the next 12 months and the
cash 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 the
directors believe was caused primarily by delays in closing new sales, due to
the ongoing weakness in global economic conditions. The Group's sales pipeline
remains very active, and accordingly, the directors remain positive about the
prospects for the business. However, the time-to-close and the order value of
individual sales can vary considerably, factors which constrain the ability to
accurately predict short term revenue performance. The weakness in global
economic conditions is also likely to result in customers taking longer to pay
amounts owed to the group.
The Group has a loan note from BlueCrest Capital Finance ("BlueCrest") which is
repayable in equal monthly instalments of $91,000 through July 2011. The
balance remaining due on the note at 31 December 2009 was $1.6m. The Group also
has access to a revolving line of credit with BlueCrest which is secured
against the trade receivables of Sopheon's North American business. This was
renewed for an additional 12 month period through 30 June 2010, and as part of
this renewal, the facility limit was increased from $750,000 to $1,250,000. At
31 December 2009, $1,220,000 (£756,000) was drawn against this revolving
facility. 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 implemented
several 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 facilities
prove insufficient, the Group may need to raise additional finance. The Group
continues to have access to the debt and equity markets, and the directors have
demonstrated 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 Yield
Fund Limited ("GEM") for an aggregate of €10m, the current term of which
expires in December 2011. GEM's obligation to subscribe for shares is subject
to certain conditions linked to the prevailing trading volumes and prices of
Sopheon shares on the Euronext stock exchange. To date Sopheon has made one
call on the equity line of credit facility in March 2004, leaving a maximum €9m
potentially available.
The directors have concluded that the circumstances set forth above represent
material uncertainties, however they believe that taken as a whole, the factors
described above enable the Group to continue as a going concern for the
foreseeable future. The financial information does not include the adjustments
that would be required if the company or group were unable to continue as a
going concern.
3. Revenue
All of the Group's revenue in respect of the years ended 31 December 2009 and
2008 derived from continuing operations and from the design, development and
marketing of software products with associated implementation and consultancy
services.
4. EBITDA
The directors consider that EBITDA, which is defined as (loss)/earnings before
interest, tax, depreciation and amortisation, is an important measure, since it
is widely used by the investment community. It is calculated by adding back
depreciation 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 narrative
descriptions of the group's performance is revenue visibility. At any point in
time it comprises revenue expected from (i) closed license orders, including
those which are contracted but conditional on acceptance decisions scheduled
later in the year; (ii) contracted services business delivered or expected to
be delivered in the year; and (iii) recurring maintenance, hosting and rental
streams. The visibility calculation does not include revenues from new sales
opportunities expected to close during the remainder of the year.
6. Share Based Payments
In accordance with IFRS2 Share basedPayments, an option pricing model has been
used to work out the fair value of share options granted since November 2002,
with this being charged to the income statement over the expected vesting
period 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 to
carry forward by the Sopheon Group, arising from historic losses incurred. An
aggregate £20 million of these losses are subject to restriction under section
392 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 AMT
purposes, the offset of prior year tax losses is restricted to 90% of current
year 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 issue
during the year. The effect of all potential ordinary shares is anti-dilutive.
9. Intangible Assets
In accordance with IAS 38Intangible Assets, certain development expenditure
must be capitalised and amortised based on detailed technical criteria, rather
than automatically charging such costs in the income statement as they arise.
This has led to the capitalisation of £945,000 (2008: £797,000), and
amortisation of £642,000 (2008: £459,000) during the year. A further £327,000
(2008: £365,000) of amortisation was incurred during the year relating to
intangible assets acquired with Alignent. In addition, during 2009 and 2008 the
recurring income from the acquired Alignent customer base reduced, due to a mix
of factors including the conversion of certain rental licenses to perpetual,
changes in rental levels, and cancellations. The overall reduction exceeded the
rate of attrition of such recurring income estimated in the original valuation
exercise, leading to impairments in the carrying value of the acquired Alignent
intangible assets of £180,000 (2008: £324,000).
10. Cautionary Statement
Sopheon has made forward-looking statements in this press release, including
statements about the market for and benefits of its products and services;
financial results; product development plans; the potential benefits of
business relationships with third parties and business strategies. These
statements about future events are subject to risks and uncertainties that
could cause Sopheon's actual results to differ materially from those that might
be inferred from the forward-looking statements. Sopheon can make no assurance
that any forward-looking statements will prove correct.
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