Half-yearly Report
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 services
that 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 Labâ„¢, 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 are
disappointed that wider economic conditions in the first half of this year
affected the Group's historical pattern of growth. Nevertheless, we continue to
work hard at closing business, and believe that our considerable pipeline of
new sales opportunities will enable us to return to growth in the second half
of 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) 205 754 010
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, General Motors, 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.
CHAIRMAN'S STATEMENT
Trading Performance
Following landmark growth in 2008, consolidated revenues for the first half of
2009 were £4.1m compared to £4.3m in the first half of 2008. As noted in the
AGM statement released on 16 June, the reduction can be attributed largely to
delays in closing new license orders. This is borne out by the overall revenue
mix 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 extension
license orders, in addition to a number of consultancy and services contracts.
In spite of the weak economy, renewals of license rental, maintenance and
hosting contracts have held up well, and our annualised base of such recurring
business stands at £4.1m.
We have consistently noted our business dependency on a small number of
relatively large deals, any of which can materially impact the revenue recorded
in a particular period. When combined with current market conditions, this has
resulted in deferment of a number of opportunities that we had expected to
close in the second quarter. Several of these prospects attributed the delays
to more stringent approval processes imposed due to market uncertainty. The
majority of the affected prospects remain in active sales cycles and closures
to 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 view
of the forward sales pipeline, we continue to expect that we will close several
of the delayed opportunities in the second half of the year, in addition to
winning new business which was originally identified for the third and fourth
quarters. This will be a major challenge, but one we will embrace with vigour.
From a geographical perspective, approximately two-thirds of revenues during
the 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. The
Alignent business acquired in June 2007 accounted for 13% of total revenues
recorded in the first half of 2009 compared to 12% for the comparable period
last year. Gross profit, which is arrived at after charging direct costs such
as payroll for client services staff, was £2.8m compared to £3.2m the year
before, representing a fall in the gross margin percentage from 75% to 67%.
This reflects the relatively fixed nature of such costs. We expect the gross
margin percentage to continue to fluctuate from period to period, in line with
variation in our revenue mix.
Operating Costs and Results
The fall in the value of Sterling has resulted in reported costs being
considerably higher across all parts of our business, since the majority of our
staff are based outside the UK. Looking beyond this apparent overall increase,
we have adjusted the staffing mix during the period. Total staff count at the
end of 2008 was 105, up from 96 at the end of June 2008. Coming into 2009, to
sustain a position of product leadership in the market, we recruited additional
staff into our product development team. This was offset by a reduction of
staff in other operational groups, implemented in April. The combination of
these changes resulted in a total staff count at the end of June of 100. The
financial benefit of the staff reductions will feed through in the second half
of 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 include
interest on debt taken on to finance the Alignent acquisition, the final loss
before tax reported for the period is £990,000 (2008: profit of £54,000). This
result includes interest, depreciation and amortisation costs amounting to £
658,000 (2008: £479,000). The majority of this increase is connected with the
higher relative value of the US dollar, which has translated into higher
reported costs in Sterling. The EBITDA result for the first half of 2009, which
does not include these elements, was a loss of £330,000 (2008: profit of £
533,000).
Corporate and Balance sheet
Net assets at the end of the period stood at £3.1m (2008: £3.5m). Gross cash
resources at 30 June 2009 amounted to £1.6m (2008: £2.1m). Approximately £0.4m
was 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. This
includes (i) £2.3m being the net book value of capitalised research and
development (2008: £1.5m) and (ii) £1.9m (2008: £2.2m) being the net book value
of Alignent intangible assets acquired in 2007. Due to amortisation and
impairment charges, the underlying dollar value of these assets has lowered
since last year. However, the movement in Sterling does not reflect this fully
due 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"). The
debt is being repaid in 48 equal monthly instalments and is secured by a
debenture and guarantee from Sopheon plc. BlueCrest also offered the enlarged
group an additional two-year $750,000 revolving credit facility secured on
accounts receivable. This has been renewed for a further year at a higher
facility limit of $1,250,000. At 30 June 2009, the balances outstanding on the
medium-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 company
to one with a product family. This has been accomplished through a combination
of strategic investment, partnership activity and an unremitting focus on
product development. Our first milestone in this expansion in scope was in 2007
with the acquisition of Alignent Software, bringing its Vision Strategistâ„¢
roadmapping solution into our product set. This was followed last year with the
pivotal release of version 7.0 of our core Accolade® platform.
Most recently, we introduced Idea Lab, an Accolade module designed specifically
for use in generating, nurturing and developing new product ideas. The new
solution is the result of a partnership between Sopheon and Hype
Softwaretechnik GmbH, a German-based supplier of idea management software. Idea
Lab has received feature coverage from IT research and advisory firms such as
AMR Research, ARC Advisory and Tech-Clarity. The new offering expands
Accolade's capacity to strengthen the entire product innovation process. At the
front end of the innovation cycle, Accolade's Vision Strategist delivers
automated support for the development of strategic product plans. The plans are
socialised, fleshed out and enhanced in Idea Lab. The most promising strategic
concepts migrate from Idea Lab into the user's Accolade-supported gate or
phase-based innovation processes, reducing the time it takes to turn ideas into
products.
Our software belongs to a major class of applications called product lifecycle
management ("PLM") solutions that help companies develop and execute their
product strategies. The PLM market is comprised of multiple submarkets. Sopheon
is 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 of
project portfolio management solutions that have historically focused their
software and go-to-market strategies on the project management needs of
corporate information technology organisations continue to step up their
attempts to migrate toward the PPM space. However, several analysts have
labelled Accolade as best-of-breed among solutions in the product portfolio
management sub-class, with AMR Research stating that it is the most mature and
has the greatest traction. Moreover, we believe that our software can bring
immediate value to recession-plagued companies that need to reduce costs
without undercutting their prospects for long-term growth. Our solutions help
them maximise returns from available resources, while also supporting their
development of programs and strategies that will enable them to accelerate out
of the downturn and emerge with increased competitive strength.
Outlook
Our sales pipeline remains strong, with good lead generation and high levels of
activity. Our challenge is to convert this activity into signed contracts. This
task has been made more difficult by current economic conditions, as customers
prolong their investment decisions. Our first-half performance reflects the
impact of this slowing of our sales cycles. We continue to evaluate both our
cost base and our balance sheet, however the board is committed to maintaining
its investment in product and its ability to service customers effectively.
Accordingly, any cost adjustments will be carefully thought through and
balanced 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 that
now includes 163 licensees, the majority of which are global brands. With the
launch of Idea Lab, Sopheon offers the first software suite in the industry to
provide all-in-one support that encompasses innovation strategy, ideation and
execution. We remain convinced that this represents a highly differentiated
value proposition, and are encouraged by strong interest from the market and
influential, positive affirmation from the business analyst community.
Our immediate operational focus is on short-term improvements in revenue and
profitability, but we will continue to drive for strategic progress, and will
maintain this balanced approach as we plan for 2010.
Barry Mence
Chairman
27 August 2009
Visibility
Visibility at any point in time 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 2009.
EBITDA
EBITDA is defined as earnings before interest, tax, depreciation and
amortisation and can be arrived at by adding back these charges, which amount
to £658,000 (2008: £479,000), to the loss for the period of £990,000 (2008:
profit of £54,000).
Trademarks
Accolade®, Idea Lab™ and Vision Strategist™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, 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 give no assurance
that any forward-looking statements will prove correct.
CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED
30 JUNE 2009 (UNAUDITED)
2009 2008
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'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
£'000 £'000 £'000 £'000 £'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 is
that of the holding company and all of its subsidiaries (the Group). It has
been prepared in accordance with the recognition and measurement requirements
of International Financial Reporting Standards as adopted for use in the EU
(IFRSs). The accounting policies applied by the Group in this financial
information are the same as those applied by the Group in its financial
statements for the year ended 31 December 2008 and which will form the basis of
the 2009 financial statements, except as described below. A number of new and
amended standards become effective for periods beginning on or after 1 January
2009. 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 revised
standard has introduced a number of terminology changes (including revised
titles for the condensed financial statements) and has resulted in a number of
changes in presentation and disclosure. There has been no effect on the
reported 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 been
delivered to the Registrar of Companies. The Group's Independent Auditors'
report on those accounts drew attention by way of emphasis to going concern
without qualifying their report and did not contain a statement under section
237(2) or 237(3) of the Companies Act 1985. The financial information for the
half 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 extending
at least 12 months from the date of approval of this information and have
considered both the forecast performance for the next 12 months and the cash
and financing facilities available to the group.
In the first half of 2009, the group achieved revenues of £4.1m and incurred a
loss 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. The
Group's sales pipeline remains very active and accordingly, the directors
remain positive about the prospects for the business in the medium and longer
term. 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. Accordingly the directors are actively
considering the possibility of further reducing costs, having made an initial
adjustment in April. If the Group is not able to raise sales or lower costs to
a sufficient level, the Group's existing facilities may prove insufficient, and
the Group would need to raise additional finance. The directors are reviewing a
range of options to deal with this possibility.
At 30 June 2009, the Group reported net assets of £3m and gross cash resources
of £1.6m. The Group has a loan note from BlueCrest Capital Finance
("BlueCrest") which is repayable in equal monthly instalments of $90,000
through 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 with
BlueCrest which is secured against the trade receivables of Sopheon's North
American business. This has been renewed for an additional 12 month period
through 30 June 2010 and as part of this renewal, the facility limit has been
increased from $750,000 to $1,250,000. At 30 June 2009 $700,000 was drawn
against this revolving facility. 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 2009. The
facility originally expired in December 2005, and has since been extended
twice.
NOTES TO THE FINANCIAL STATEMENTS
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, raising just under €1m in March 2004.
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 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 issue
during the year. The reported diluted earnings per ordinary share for both 2009
and 2008 are the same as the basic earnings / loss per ordinary share in each
year. For 2009, it is because the exercise of share options would have the
effect of reducing the loss per ordinary share and was therefore not dilutive.
For 2008, this is because the dilutive effect of the exercise of potential
ordinary shares does not cause a material change in the resultant earnings per
share fraction.
5. Intangible Assets
In accordance with IAS 38 Intangible 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 £570,000 (2008: £319,000), and
amortisation of £330,000 (2008: £186,000) during the period. In addition,
amortisation of £170,000 (2008: £170,000) has been charged during the period
against 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's
Annual Report for the year ended 31 December 2008 remain valid. Other principal
risks and uncertainties of the Group for the remaining six months of the
current financial year are disclosed in the Chairman's Statement and the notes
to the condensed set of financial statements included in this half-yearly
report.
7. Statement of Directors Responsibilities
On behalf of the board we confirm that to the best of our knowledge (a) the
condensed set of financial statements included in this half-yearly report has
been prepared on the basis set forth in note 1, and gives a true and fair view
of the assets, liabilities, financial position and results of the Group; and
(b) this half-yearly report includes a fair review of the important events
during the first six months of the year, and a description of the principal
risks and uncertainties facing the Group.
Barry Mence Andy Michuda Arif Karimjee
Chairman Chief Executive Officer Chief Financial Officer
27 August 2009
Independent review report to Sopheon plc
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 June
2009 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 other
information contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the rules of
the London Stock Exchange for companies trading securities on the Alternative
Investment Market which require that the half-yearly report be presented and
prepared in a form consistent with that which will be adopted in the company's
annual accounts having regard to the accounting standards applicable to such
annual accounts.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our report has been prepared in accordance with the terms of our
engagement to assist the company in meeting the requirements of the rules of
the London Stock Exchange for companies trading securities on the Alternative
Investment Market and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon this report
by virtue of and for the purpose of our terms of engagement or has been
expressly authorised to do so by our prior written consent. Save as above, we
do not accept responsibility for this report to any other person or for any
other purpose and we hereby expressly disclaim any and all such liability
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ``Review of Interim Financial Information
Performed by the Independent Auditor of the Entity'', issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of 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 to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2009 is not prepared, in all
material respects, in accordance with the rules of the London Stock Exchange
for companies trading securities on the Alternative Investment Market and for
the rules governing listed securities on Euronext.
Going concern
In arriving at our review conclusion, we have considered the adequacy of the
disclosures made in Note 2 regarding the Group's ability to continue as a going
concern. As in prior periods, these disclosures identify certain factors that
indicate the existence of material uncertainties which may cast a significant
doubt over the group's ability to continue as a going concern. As discussed in
Note 2, the appropriateness of the going concern basis remains reliant on the
group achieving an adequate level of sales in order to maintain sufficient
working 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
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