Interim Results
EMBARGOED RELEASE 0700 HRS 31 August 2006
SOPHEON PLC
RESULTS FOR THE 6 MONTHS TO 30 JUNE 2006
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 2006
together with a business review and outlook. These results and the 2005
comparatives are reported under International Financial Reporting Standards
(IFRS) as adopted for use in the EU.
Highlights:
* Financial performance reflects over 50% growth in revenue compared to the
first half of 2005, with LBITDA approaching breakeven.
* Turnover: £3.0m (2005: £1.9m)
Loss for the period: £0.2m (2005: £0.9m)
LBITDA: £0.0m (2005: £0.7m)
* Recurring maintenance revenues are up 40% compared to a year ago, standing
at £1.7 million annualized. At the mid year point, revenue visibility for
2006 was already £4.1 million, almost 90% of the total revenues recorded in
2005.
* Further penetration of our established markets in the chemicals, paper and
food & beverage industries, in addition to signing major new clients in the
consumer packaged goods sector. This includes the signing of Electrolux,
our second major sale in Scandinavia. We also closed our first license
sales in France and Israel.
* Introduction of Accolade® Accelerators that expand the capabilities of our
core Accolade system, and encourage use of the solution by additional user
communities both inside and outside of product development.
Sopheon's Chairman, Barry Mence said:
"The underlying fundamentals of our business continued to show great progress
in the first half of 2006 leading to significant improvement in our financial
results. In our annual report on 2005 we said that we knew what we had to do,
and we believed that Sopheon was on the right track. This is as true today as
it was then, and we continue to look to the future with optimism."
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) 205 754 010
About Sopheon
Sopheon (LSE: SPE) is an international provider of software and services that
help organizations improve the business impact of product innovation. The
Sopheon Accolade® product innovation process and portfolio management system
automates gate- or phase-based product development processes and provides
strategic decision support that allows companies to increase revenue and
profits from new products. 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
Financial
Consolidated revenues for the period amounted to £3 million (2005: £1.9
million) representing growth of over 50%. This performance reflects the
successful conversion of major license opportunities, particularly in Europe.
Of the total revenues reported in the period, the ratio between license,
service and maintenance was 4:3:2 which is broadly consistent with the prior
year taken as a whole, but reflects a substantially higher proportion of
revenues attributable to license sales than in the first half of 2005.
Gross margin, which is arrived at after charging direct costs such as payroll
for client services staff, was 76% for the period, similar to the first half of
2005. We will continue to deploy both internal resources and those of our
service partners as appropriate, which will cause some continued small
fluctuation in margins depending on the mix.
In spite of the substantial revenue growth tight cost controls have held
administrative, sales and R&D overheads to approximately £2.5 million (2005: £
2.4 million). As a consequence the loss for the period improved to £0.2 million
(2005: £0.9 million). The loss includes interest, depreciation and amortisation
costs amounting to approximately £0.2 million. The LBITDA result, which does
not include these elements, was close to zero for the first six months of 2006
(2005: £0.7 million).
The results discussed above have been prepared under International Financial
Reporting Standards (IFRS) as adopted for use in the EU, further details of
which are set out in Note 2 hereto, and in Sopheon's 2005 annual report. In
this report, we have restated the 30 June 2005 comparative figures, originally
published under UK accounting standards, to reflect the adoption of IFRS.
Trading
The first half of 2006 has produced good continued development in all aspects
of our business. In addition to generating revenues in our established
territories, we were pleased to sign our second major Accolade sale in
Scandinavia, and to close our first sales in France and Israel. Our teams in
the US and Europe have been able to generate almost 50% more implementation and
consulting services revenue than in the same period last year, thanks in part
to management actions taken in the second half of last year. Our recurring
maintenance revenues now stand at £1.7 million annualized compared to £1.2
million in June 2005. The step up in service and maintenance revenues, along
with the new license wins booked in the period, have put the overall business
on course to significantly improve on 2005. At the mid year point, revenue
visibility for 2006 was already £4.1 million, almost 90% of the total revenues
recorded in 2005.
We define visibility for a period as being the total of (i) license orders
including those which are contracted but conditional on acceptance decisions
scheduled during the period; (ii) contracted services business expected to be
delivered in the period; and (iii) recurring maintenance streams. Visibility
does not include other potential license sales to customers who have
commissioned a proof of concept or who have verbally indicated a decision to
move forward. We would also underline that our performance in any reporting
period can be materially affected by the signature date of individual deals.
This factor will be a continuing consideration as we build the business, but
one that should be increasingly offset by our growing maintenance base and the
high rates of repeat business we are generating from our existing customer
base. Over 75 customers have licensed our software, and Accolade is now being
used in 56 countries around the world. Responding both to this growth in base
and to demand anticipated from new customers, we have continued to strengthen
our customer service teams in Europe and North America.
Market & Product
The market for product life cycle management (PLM) applications continues to
expand, with analysts forecasting compound annual growth rates ranging from 8%
to 14% from 2006 through 2010. More importantly, during the same period, the
PLM submarket in which Accolade has been classified (Product Portfolio and
Program Management or "PPM") is projected to triple in size. During the first
six months of 2006 we furthered our penetration of the chemicals, paper and
food & beverage industries, and they remain our principal targets. But we also
continued to enjoy major successes with new clients - such as Electrolux and
Timex - in consumer packaged goods markets, expanding our sales and marketing
efforts to strengthen our focus on manufacturers in that sector.
In our 2005 annual report we noted the formation of an internal organization
called RAD (Research & Application Development). The group was chartered to
create new software applications built on the Accolade platform that would
extend the utility and value of the core offering. The first of those
applications have now been completed, and will be formally introduced to the
market shortly. The new applications include:
* Product Roadmapping and Planning Accelerator - Enables companies to enhance
their innovation processes by making it easier to develop and evaluate
long-term product plans. Eliminates potential bottlenecks in product
releases caused by dependencies among related projects, and helps create
contingency plans when a project is in trouble.
* Stage-Gate®Accelerator- Allows the adopting organization to put a new
innovation process in place more quickly and with less effort. Makes it
easier to track process execution and effect continuous improvement.
Supports management of a product's complete life, from the time it is
conceived as an idea, through its commercialization and until it is retired
from the market.
* Portfolio Management Accelerator -Providesa process model, including
complete "how to" guidelines, for portfolio management. Features
best-practice content and reports that aid advanced portfolio planning and
decision-making.
The Accelerator offerings are expected to begin contributing to revenues in the
fourth quarter. The overall value of these new modules is that they expand
Accolade's capabilities, and encourage use of the solution by additional user
communities both inside and outside of product development. There are
indications that our existing clients will be among the first to want to take
advantage of their availability. This is consistent with our strategies for
building and growing our client relationships, which accounted for a quarter of
non-recurring revenues during 2005. Our work on the Accelerators was conducted
in parallel with continued product development on the core Accolade
application.
In addition to the new applications being launched, we are evaluating a
subscription based sales model for our software, aimed in particular at
extending its appeal to mid-market companies. We will report on developments in
this area in due course.
Sopheon's partnership activity is building. A recent example was our Accolade
sale to Electrolux where we partnered with Arthur D Little. The importance of
Sopheon's ongoing relationship with Microsoft was raised to a new level with
our recent promotion to the elite status of "managed" partner. This advancement
entitles Sopheon to the support of a Microsoft business development manager
dedicated to ensuring that we receive maximum business benefit from access to
Microsoft's technical, sales and marketing resources.
Corporate Events
As previously announced, in June Sopheon filed a certification with the US
Securities and Exchange Commission ("SEC") on Form 15, to immediately suspend
its duty to file reports under the Securities Act of 1934. Sopheon will realize
cost savings by no longer making these filings. Sopheon's ordinary shares are
not traded in any US markets, and this change will have no effect on the
trading of Sopheon's shares on AIM and Euronext.
In our AGM statement we noted that Andrew Davis, a non-executive director, was
retiring from the board of Sopheon as from 30 June 2006, in order to focus on
other interests. This brings the overall size of the Sopheon board to six,
comprising three executive and three non-executive directors.
Outlook
The underlying fundamentals of our business continued to show great progress in
the first half of 2006 leading to significant improvement in our financial
results. Our revenue grew over 50% compared to the first half of 2005, and we
recorded an LBITDA result that approached breakeven. Our business is starting
to show signs of the scale and maturity which we have been striving for since
the launch of Accolade. This has twin benefits. First, the stability of our
revenue is improved by the growth in recurring maintenance fees, as well as by
repeat orders for both incremental license seats and supplemental services.
Second, our expanding base of customers - many of which are household names -
emphasizes to the market the high value and satisfaction that our solutions
bring. Our product development efforts will continue to focus both on extending
the features and functionality of Accolade, and on the manner in which it is
deployed and used by our customers. With over 75 licensees of our software and
with users in 56 countries, we believe that we are the leading vendor in our
chosen market segment. Accolade is in our view the only system designed from
the outset for the purpose of improving the governance of the innovation
process as a whole.
Implementing a system like Accolade is a serious commitment for any
organization and this continues to weigh on our sales cycles. However, as our
business matures in scale we believe that this area, which has always brought
unpredictability to our business, will show improvement. In our annual report
on 2005 we said that we knew what we had to do, and we believed that Sopheon
was on the right track. This remains as true today as it was then, and we
continue to look to the future with optimism.
Barry Mence 31 August 2006
Chairman
CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHSENDED
30 JUNE 2006(UNAUDITED)
2006 2005
£'000 £'000
Continuing Operations as restated
Revenue 2,954 1,909
Cost of sales (709) (466)
Gross profit 2,245 1,443
Administrative, research and development, and 2,486 2,352
distribution expenses
Operating loss (241) (909)
Finance revenue 19 33
Finance costs (24) (42)
Loss before and after taxation (246) (918)
Loss for the period (246) (918)
(all attributable to members of the parent company)
Loss per share - basic and diluted (pence) (0.2p) (0.7p)
LBITDA (27) (684)
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE SIX MONTHS ENDED 30 JUNE 2006 (UNAUDITED)
2006 2005
£'000 £'000
as restated
Exchange difference on translation of foreign (76) 2
operations
Net income/(expense) recognized directly in equity (76) 2
Loss for the financial period (246) (918)
Total recognized income and expense for the period (322) (916)
(all attributable to members of the parent company)
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2006 (UNAUDITED)
2006 2005
£'000 £'000
Assets as restated
Non-current assets
Property, plant and equipment 109 97
Intangible assets 792 729
Non-current receivables 10 10
911 836
Current assets
Trade and other receivables 1,961 1,132
Cash and cash equivalents 1,537 2,106
3,498 3,238
Total assets 4,409 4,074
Liabilities
Current liabilities
Short term borrowings 94 33
Trade and other payables 2,621 1,989
Total liabilities 2,715 2,022
Net assets 1,694 2,052
Equity and reserves
Share capital 6,674 6,077
Shares to be issued - 1,364
Other reserves 72,986 72,123
Retained losses and translation reserve (77,966) (77,512)
Total equity (all attributable to members of the 1,694 2,052
parent company)
CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED
30 JUNE 2006 (UNAUDITED)
2006 2005
£'000 £'000
as restated
Operating Activities: loss for the period (246) (918)
Adjustments for non-cash and financial items 237 300
Movements in working capital 136 897
Interest paid (24) (42)
Net cash from operating activities 103 237
Investing activities (285) (241)
Financing activities (251) 994
Net (decrease)/increase in cash and cash equivalents (433) 990
NOTES
1. Principal Accounting Policies
Basis of preparation
The interim financial information for all periods has been prepared on the
basis of the accounting policies set to be applied in the Group statutory
accounts for the period ended 31 December 2006, in accordance with
International Financial Reporting Standards (IFRS) as adopted for use in the
EU, and Interpretations issued by the International Accounting Standards Board
and those parts of the Companies Act 1985 which apply to companies preparing
their financial statements under IFRS. The six month figures to 30 June 2006
and 30 June 2005 are un-audited and do not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985. The principal accounting
policies are set out below. There is a possibility that the directors may
determine that some changes to those policies are required when preparing the
full annual financial statements, since the IFRS and IFRIC interpretations that
will be applicable and adopted for use in the European Union at 31 December
2006 are not known with certainty at the time of preparing this interim
financial information. The policies have been applied consistently to all the
periods presented, and on the going concern basis.
Going Concern
In the first half of 2006 the group's revenues from continuing operations grew
to £3 million and its LBITDA (loss before interest, tax, depreciation and
amortisation) basis fell to £27,000. At the period end the group reported net
assets of £1.7 million and gross cash resources of £1.5 million. The group has
access to a $1 million (£541,000) bank line of credit with Silicon Valley Bank,
which is secured against the trade debtors of Sopheon Corporation Minnesota. At
30 June 2006, $172,000 (£93,000) was drawn against this facility. The
facilities with Silicon Valley Bank have been in place since 1999, and are
renewable annually in October.
The directors remain positive about the direction, focus and momentum of the
business and believe that this, together with the group's existing resources
provide it with adequate funding to support its activities through to the point
at which they anticipate that trading will become cash generative on a
sustained basis. This is in turn dependent on the group continuing to deliver
substantial sales growth.
Should this not be the case, Sopheon continues to have access to its equity
line of credit facility from GEM Global Yield Fund Limited ("GEM") for an
aggregate of €10 million for a term expiring in December 2007. 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 €1 million in March 2004, leaving €9 million (£6
million) available.
While uncertainties remain as to the achievement of the expected sales growth
and the continued availability of facilities, the directors believe that
together, these factors 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.
NOTES
1. Principal Accounting Policies(continued)
Basis of consolidation
The consolidated financial statements include the results of the company and
its subsidiary undertakings.
Adoption of International Financial Reporting Standards
The adoption of IFRS has resulted in changes to the group's accounting policies
in the following areas that have resulted in restatement of certain amounts
previously reported under UK GAAP for the six month period ending 30 June 2005:
i. Under IFRS2, an option pricing model has been used to work out the fair
value of share options granted since November 2002, with this value being
charged to the profit and loss account over the expected vesting period and
leading to a charge of £75,000 for the first six months of 2005. The
equivalent impact on the first six months of 2006 is £35,000; and
ii. Under IAS 38, certain research and development ("R&D") expenditure must be
capitalised and amortised based on detailed technical criteria, rather than
automatically charging such costs in the profit and loss account as they
arise and this has led to the capitalisation of £256,000 for the first six
months of 2005, with amortisation of £178,000 being charged in that period.
This change also increased net assets at 30 June 2005 by £729,000. The
equivalent impacts for the period to 30 June 2006 are £271,000, £185,000
and £792,000 respectively.
The treatment and reporting of Sopheon's revenues have consistently applied the
principles of AICPA SOP 97-2, which is considered to be best practice in the
software industry. These principles are consistent with IAS 18 and were
therefore not affected by the adoption of IFRS.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts and sales related taxes. Sales
of software products are recognised on delivery, and when no significant vendor
obligations remain. Revenues from implementation and consultancy services are
recognised as the services are performed. Revenues relating to maintenance and
post contract support agreements are deferred and recognised over the period of
the agreements. Revenues and associated costs under long term contracts are
recognised on a percentage basis as the work is completed and any relevant
milestones are met, using latest estimates to determine the expected duration
and cost of the project.
Property, plant and equipment
Computer equipment and fixtures and fittings are stated at cost less
accumulated depreciation and any accumulated impairment losses. Depreciation is
charged so as to write off the costs of assets over their estimated useful
lives, using the straight-line method. Assets held under finance leases are
depreciated over their expected useful lives on the same basis as owned assets,
or, when shorter, over the term of the relevant lease. The gain or loss arising
on the disposal or retirement of an item of property, plant and equipment is
determined as the difference between the sale proceeds and the carrying amount
of the asset and is recognised in profit or loss.
Share based payments
The group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value (excluding the
effect of non-market-based vesting conditions) at the date of grant. The fair
value determined at the date of grant is expensed on a straight-line basis over
the vesting period, based on the group's estimate of the shares that will
eventually vest and adjusted for the effect of non-market-based vesting
conditions. Fair value is measured by the binomial option pricing model. The
expected life used in the model had been adjusted, based on management's best
estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations.
NOTES
1. Principal Accounting Policies(continued)
Research and development
In accordance with IAS 38, development expenditure on internally developed
software products is capitalised if it can be demonstrated that:
* it is technically feasible to develop the product;
* adequate resources are available to complete the development;
* there is an intention to complete and sell the product;
* the group is able to sell the product;
* sales of the product will generate future economic benefits; and
* expenditure on the product can be measured reliably
Capitalised development costs are amortised over four years. Development costs
not satisfying the above criteria, and expenditure on the research phase of
internal projects, are recognised in profit or loss as incurred.
Deferred taxation
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and it is accounted for using
the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences, but deferred tax assets are
recognised only to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited to profit or loss, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt
with in equity.
Treatment of foreign currencies for consolidation
For the purpose of presenting consolidated financial statements the assets and
liabilities of the group's foreign operations (including comparatives) are
expressed in sterling using exchange rates prevailing on the balance sheet
date. Income and expense items (including comparatives) are translated at rates
approximating to those ruling when the transactions took place. Exchange
differences arising (including exchange differences on intra-group loans) are
classified as equity and transferred to the group's translation reserve. Such
translation differences are recognised in profit or loss in the period in which
the foreign operation is disposed of.
Retirement benefit costs
Payments to defined contribution retirement benefit plans are charged as an
expense as they fall due. The group does not operate any defined benefit
retirement benefit plans.
Leasing
Assets held under finance leases are recognised as assets of the group at their
fair value at the inception of the lease or, if lower, at the net present value
of the minimum lease payments. The corresponding liability to the lessor is
included in the balance sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease obligation so as
to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged to profit or loss. Rentals payable under
operating leases are charged to profit or loss on a straight-line basis over
the term of the relevant lease.
LBITDA
LBITDA represents loss before charging or crediting interest, tax, depreciation
and amortisation.
NOTES
2. Turnover
All of the group's revenue in respect of the periods ended 30 June 2006 and
2005 derived from continuing operations and from the group's single business
segment, the design, development and marketing of software products with
associated implementation and consultancy services.
3. Earnings per share
The calculation of basic loss per ordinary share is based on a loss of £246,000
(2005 - £918,000), and on 133,350,885 ordinary shares (2005 - 129,189,451
including 11,998,200 ordinary shares representing the weighted average effect
of the classification as equity of the group's Interest Free Mandatory
Convertible Loan Stock), being the weighted average number of ordinary shares
in issue during the year. The loss attributable to ordinary shareholders and
the weighted average number of ordinary shares for the purpose of calculating
the diluted loss per ordinary share are identical to those used for calculating
the basic loss per ordinary share in both 2006 and 2005. This is because the
exercise of share options would have the effect of reducing the loss per
ordinary share and is therefore not dilutive.
4. Shares to be issued
'Shares to be issued' at 30 June 2005 included £1,364,000 being the outstanding
amount of the group's Interest Free Mandatory Convertible Loan Stock (the
"Stock"). The terms of the Stock were modified during 2004 such that it was
only repayable in cash upon the occurrence of certain events relating to the
group's ability to continue in business. Accordingly, no fair value is
attributable to the liability component under IAS 32 and the entire amount of
the Stock is presented within equity shareholders' funds in the group's balance
sheet at 30 June 2005. During the second half of 2005 the whole of the
remaining Stock was converted into Sopheon ordinary shares, either pursuant tothe exercised of conversion rights or automatically upon maturity on 23
December 2005.
5. 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.
6. Trademarks
Accolade® is a registered trademark of Sopheon.
Stage-Gate® is a registered trademark of the Product Development Institute.
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