Preliminary Results
Embargoed: 0700hrs BST 5 April 2005
SOPHEON PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2004
UPDATE ON FIRST QUARTER OF 2005
Sopheon plc ('Sopheon'), the international provider of software and services
that improve the financial return from innovation and product development
investments, announces its preliminary unaudited results for the year to 31
December 2004, which are in line with expectations, and provides an update on
2005. Sopheon shares are traded on AIM in London and on the Euronext Amsterdam.
Highlights:
* Revenue for the year grew to £4.3m (2003: £2.7m for continuing business).
In US Dollar terms, revenues almost doubled. The EBITDA loss for the year
again reduced significantly, to £1.1m (2003: £4.1m)
* Accolade demonstrated ability to scale, with the largest user at 2200
seats. The year saw entry into the financial services market as well as
initiation of hosted and subscription-based services. Four customers have
placed Accolade orders with license values totalling US$600,000 or more
each. Two of these came through in December.
* Sopheon joined Microsoft's Collaborative Product Development initiative in
October, leading to cooperation and investment in the development and
promotion of integrated Sopheon and Microsoft technologies.
* After record sales at the end of last year, in the first quarter of 2005 we
focused on refilling sales funnels, extending our footprint with existing
clients, training sales and implementation partners, and working on the
next release of Accolade due out in Q2. In addition to ongoing services,
three new Accolade licenses and seven extension orders contributed to
revenue in the quarter.
* The restructuring activities begun in 2003 were concluded. In addition to
substantially lower operating losses, £2.4 million of further equity
funding was secured, and the convertible loan was reconstituted and
consequently reclassified as equity. Following integration of the Euro.NM
Amsterdam with the Officële Markt, Sopheon was elevated to the Eurolist and
is now a component of the Amsterdam Small Cap Index (AScX).
Sopheon's Chairman, Barry Mence said: 'It is satisfying to see our strategy
come through and translate into top line growth in our core business. We are
focused on the challenge of maintaining momentum into the first half of 2005,
and we continue to strive for pipeline creation, extending business with
existing customers, and stepping up our partnership programmes. We are excited
by the potential of the next release of Accolade, which we believe will
maintain its best of breed status.'
For further information contact:
Barry Mence, Chairman Sopheon plc Tel : + 44 (0) 1483 685735
Arif Karimjee, CFO
Adam Reynolds Hansard Communications Tel : + 44 (0) 207 2451100
Ben Simons + 44 (0) 7713 090 135
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 development. The
Sopheon Accolade® product development system automates gate- or phase-based
product development (PD) processes and provides strategic decision support that
allows companies to improve innovation, cut product development spending waste
and shorten time to market. 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.
Introduction
Sopheon entered 2004 tightly focused on the market potential of its software
solutions, following the successful divestment of information management
divisions in the USA and Germany. This left a core business with a
substantially reduced cost base, but an international presence geared to build
on the promise of our flagship product, the Accolade product portfolio and
process management system. During the year we delivered substantial
operational, financial and strategic achievements. Revenues for the continuing
software business nearly doubled in dollar terms, EBITDA loss was reduced by
more than 70% and the balance sheet was strengthened. Our market presence in
terms of sales, industry recognition and partnership development continued to
gather pace. We are a recognized leader in a new enterprise software sector
that is focused on helping organizations improve the business impact of product
development.
Results
Sopheon's consolidated turnover from continuing activities grew to £4.3m (2003:
£2.7m for the continuing software business and £4.1m from businesses divested
in the year) and the consolidated EBITDA loss was reduced to £1.1m (2003: £
4.1m). Goodwill charges amounted to £0.4m (2003: £4.6m) for the year, in
addition to net interest of £0.3m (2003: £0.2m). After factoring in research
and development tax credits amounting to £0.1m (2003 - £0.3m) the retained loss
for the year was £1.8m (2003: £5.5m) reducing the loss per ordinary share to
1.6p (2003: 6.3p). This continues the trend of improvement since 2001, when the
group recorded a retained loss of £34.6m.
Revenues in Sopheon's core software business almost doubled in US Dollar terms,
and grew over 70% in Pound Sterling terms. The weakening dollar had significant
effect on reported turnover, but because a large portion of Sopheon's costs are
dollar denominated, Sopheon's EBITDA performance was in line with broker
forecasts.
Viewed broadly, Sopheon's revenue mix in 2004 was 60:20:20 among license,
maintenance and consulting services respectively. The management team is very
conscious of the importance of building the recurring revenue base of
maintenance contracts, and Sopheon enters 2005 with an annualized run rate of
more than £1m in such revenue.
Sopheon implemented a controlled expansion in R&D resources in the final weeks
of 2004, recruiting into our Denver development center. Other overheads
remained stable during the year and our plans for 2005 include limited
expansion of sales and services resources, dependent on performance. Incentive
payments for staff as a whole also remain tightly linked to achieving financial
objectives.
Financing
Cash resources as of 31 December 2004 totalled £1.2m (2003 - £0.9m) and net
current assets amounted to £1.1m (2003: £0.1m). The trebling of trade debtors
compared to 2003 appears high relative to total turnover, but is due to the
substantial license sales achieved in December.
In 2003 Sopheon concluded an agreement for a €10 million equity line of credit
facility with GEM Global Yield Fund Limited by securing access to a source of
equity-based funding over which the company retains a substantial degree of
control. 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. More than 90% of the equity line
facility, the term of which extends to 23 December 2005, remains available. The
board is considering whether to seek an extension to the instrument. During
2004 the company raised £2.4m in cash through private equity placement. Of that
sum, £0.6m was secured through the equity line.
In June 2004, as set out in more detail in the notes to this statement, the
board secured a resolution from holders of the group's £2.6 million 6%
Convertible Loan Stock to reconstitute the instrument such that it has been
reclassified as equity shareholders' funds in the balance sheet. These actions,
coupled with the improved trading performance, enabled Sopheon to end 2004 with
consolidated net assets of £1.2m compared to a net deficit of £1.9m at the end
of 2003.
Market
Overall, we continued to see high rates of adoption of Accolade within our
installed base, with the largest single client implementation at 2200 seats. We
also signed our first contracts extending the use of Accolade to automate and
improve business processes beyond the area of product development. Another
priority in 2004 was to generate additional business with existing customers.
BASF is an excellent example. Developed as a customer through one of Sopheon's
distribution partners, BASF began implementation of Accolade a year ago. Our
relationship with this chemicals industry leader has grown rapidly since then,
and BASF is now one of four Sopheon clients that have contracted for 2000 or
more Accolade seat-licenses. Another market development of note was expansion
of the Accolade platform to use by hospitals in the management of clinical
trials. We have signed three such contracts in the past twelve months,
affording us an important opportunity to learn more about this market segment.
Our recurring maintenance base was reinforced during the past year by two new
offerings: hosting services for our license customers, and subscriptions for
our Monitor system. The former offers a low total-cost-of-ownership model to
license customers and attracted attention from both small and large prospects.
To date, four Accolade customers have contracted for a hosted environment. The
Monitor subscription is underpinned by a business partnership with Siemens.
Supported by Airbus and Boeing, this partnership centers on introducing a
web-based application to the aviation industry to promote standardization
around Radio Frequency Identification (RFID) use.
Sopheon made important progress in 2004 in positioning itself for the longer
term by securing distribution partners in geographical areas outside the
Company's existing sphere of operations and strategic alliances in key markets.
The first area is a key priority for further expansion in 2005, augmenting
existing partner presence in continental Europe and the Asia Pacific. The
second bore fruit in the final quarter of 2004, when we announced that we had
become part of Microsoft's Collaborative Product Development (CPD) initiative,
building significantly on our existing Gold Partnership status. The CPD
initiative is designed to help companies leverage investments in Microsoft
technology by using it to improve product development success rates. Microsoft
and Sopheon are teaming to develop, promote and deliver solutions based on
integrated technologies. Other CPD participants include Hewlett Packard, UGS,
and Dassault Systems.
Product development
In conjunction with the launch of the Microsoft CPD initiative, Sopheon
announced that it would integrate Microsoft Project Server 2003 and SharePoint
Portal Server 2003 into Accolade, to further enhance collaborative,
information-sharing and enterprise deployment capabilities. During the first
quarter of 2005, with support from Microsoft, resources have been expanded to
accelerate these developments. Accolade is built on Microsoft technology and
since inception, has leveraged tools such as Office, NetMeeting and Project to
facilitate information sharing, ease-of-use and fast implementation. The
expanded integration of Microsoft technologies will increase Accolade's
capacity to leverage work repositories and will strengthen its ability to scale
to enterprise-wide implementation.
At Parker Hannifin Corporation, Sopheon assisted with the rollout of Accolade
under an enterprise-wide license agreement concluded in June. Parker reviewed
three lifecycle management software solutions and selected Accolade based on
such considerations as its ease-of-use, speed of deployment, built-in
best-practices content, capacity to scale, and ability to further leverage
Microsoft technologies already prevalent in their business - a good example of
the combined value proposition of Accolade and Microsoft technology.
Sopheon holds patents relating to presentation of large domain search results,
profiling, and the application of IT to language-intensive processes. All three
areas benefit from US patent protection. In line with our vision of
underpinning complex business processes such as product development with
relevant knowledge management tools we have applied much of this intellectual
property in Sopheon's healthcare compliance solutions in the Netherlands, and
look to integrate such technologies into our Accolade roadmap where
appropriate.
Board of Directors and Management team
Sopheon's group management and governance structure is divided between a
Sopheon plc board of directors and an executive management board responsible
for business operations. The Sopheon plc board remains unchanged with four
non-executive directors, and three executive directors, being the executive
chairman, the CEO and the CFO. The executive management board is a team of
five, which includes the three executive directors.
Update on First Quarter of 2005
In the wake of record license sales at the end of 2004, the operational focus
in the first quarter of 2005 was on refilling of sales funnels and on delivery
of implementation services to new licensees. In addition to ongoing services,
three new Accolade licenses, and seven extension orders with existing customers
for additional user licenses, consultancy or hosting services, contributed to
revenue in the quarter. The extensions included a license that will allow one
current client to extend the use of Accolade beyond product development into
Six Sigma management.
As part of the effort to generate new prospects for the sales pipeline, Sopheon
participated in a number of commercial marketing events consisting of webinars,
conference activity and seminars in both America and Europe. Such events
included four Microsoft sponsored innovation seminars, which in addition to
their marketing value, provided venues for critical networking and
collaboration between field representatives of both organizations. A number of
major Accolade sales opportunities targeted for closure in the second quarter
of 2005 involve such collaboration between Sopheon and Microsoft. Release of a
new version of Accolade, which as noted above will feature tighter integration
with Microsoft technologies, is planned for the second quarter and has been a
major focus for our recently expanded product development team. The technical
advances and added differentiation being incorporated into this upcoming
release are expected to reinforce Accolade's best-of-breed position in our
chosen market.
A number of new sales and implementation partners were trained in the period,
underpinning the capacity of Sopheon's business to scale to the next level of
growth. This training took place in our facilities in Amsterdam and Denver,
enabling participation by partners from all new geographies now covered by our
growing global network of partners.
Following integration of the Euro.NM Amsterdam with the Officële Markt, Sopheon
has been elevated to the Eurolist from Euronext and is now a component of the
Amsterdam Small Cap Index (AScX).
Outlook
The past year was earmarked by steady improvements in the performance of our
business and significant progress in key areas of strategy. Revenues in our
business do however continue to be sensitive to the timing and value of
individual sales events, which are challenging to predict with precision.
Accordingly we continue to exercise balance and caution in our planning
approach. Our cost base remains under tight control, and the board continues to
believe in the importance of not disrupting the high degree of focus achieved
in the business since our divestiture activity in 2003. Accolade is generating
strong interest, has an expanding installed client base, and enjoys increased
validation by the market. It has demonstrated, consistently, that it is a
valuable solution in which clients are prepared to invest, reflected in the
fact that four of our customers have each made license investments of
US$600,000 or more. Overall, we are encouraged by the direction, focus and
momentum of our business, and look forward to a successful 2005.
SOPHEON PLC
GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR TO 31 DECEMBER 2004
(UNAUDITED)
2004 2003
£'000 £'000
Turnover - continuing and discontinued activities 4,323 6,734
Cost of sales (993) (4,117)
Gross profit 3,330 2,617
Administrative, sales and marketing expenses (3,699) (6,019)
Research and development costs (890) (1,237)
Operating loss before amortisation of goodwill (1,259) (4,639)
Amortisation of goodwill (440) (4,586)
Operating loss (1,699) (9,225)
Profit on disposal of operations - 3,568
Bank interest receivable 83 76
Interest payable and similar charges (348) (225)
Loss on ordinary activities before taxation (1,964) (5,806)
Taxation - research and development tax credit 143 305
Retained loss for the year (1,821) (5,501)
Loss per share - basic and diluted (1.6p) (6.3p)
EBITDA loss (1,140) (4,066)
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
(UNAUDITED)
2004 2003
£'000 £'000
Loss for the financial year (1,821) (5,501)
Exchange difference on retranslation of net assets (61) 88
of subsidiary undertakings
Total recognised gains and losses relating to the (1,882) (5,413)
year
SOPHEON PLC
GROUP BALANCE SHEET AS AT 31 DECEMBER 2004
(UNAUDITED)
2004 2003
£'000 £'000
Fixed assets
Goodwill - 440
Tangible assets 110 195
110 635
Current assets
Debtors 1,901 1,159
Cash and short term deposits 1,211 878
3,112 2,037
Creditors: amounts falling due within one year (1,978) (1,996)
Net current assets 1,134 41
Total assets less current liabilities 1,244 676
Creditors: amounts falling due after more than one
year
Convertible loan note - (2,561)
- (2,561)
1,244 (1,885)
Capital and reserves
Called up share capital 5,794 4,821
Share premium account, merger reserve and shares to 68,402 64,364
be issued
Other reserves 4,157 4,164
Profit and loss account (77,109) (75,234)
Shareholders' funds/(deficit) (all equity interests) 1,244 (1,885)
GROUP STATEMENT OF CASH FLOWS FOR THE YEAR TO 31 DECEMBER 2004
(UNAUDITED)
2004 2003
£'000 £'000
Net cash outflow from operating activities (1,813) (4,332)
Return on investment and servicing of finance (265) (149)
Taxation 62 305
Capital expenditure and financial investment (42) (27)
Acquisitions and disposals - 1,031
(Increase)/decrease in short term deposits (271) 1,934
Financing 2,426 1,480
Increase/(decrease) in cash 97 242
Increase/(decrease) in short term deposits 271 (1,934)
Increase/(decrease) in cash and liquid resources 368 (1,692)
NOTES
Principal Accounting Policies
Accounting convention and basis of preparation
The financial statements are prepared under the historical cost convention and
in accordance with applicable accounting standards, and on the going concern
basis.
During 2004 the group's revenues from continuing operations grew by 60%, which
together with the cost restructuring and divestments completed in 2003 reduced
its total losses on an EBITDA (earnings before interest, tax, depreciation and
amortisation) basis by over 70%.
At the year end the group reported consolidated net current assets of £
1,134,000 and gross cash resources of £1,211,000. The group has access to a
$1,000,000 (£522,000) bank line of credit with Silicon Valley Bank, which is
secured against the trade debtors of Sopheon Corporation Minnesota. At 31
December 2004, $207,000 (£108,000) 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 are encouraged by the direction, focus and momentum of the
business and believe that this, together with the group's 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 maintaining the substantial sales growth
achieved in 2004.
Should this not be the case, or should the group require additional funding for
other operational or investment purposes, 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 over the two year life of the instrument, which
comes to an end on 22 December 2005. 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. In March 2004, Sopheon
made a first call on the equity line of credit facility, raising just under €1
million before expenses and accordingly, leaving €9 million available under the
instrument. The directors are considering whether it is appropriate to seek an
extension to the life in order to provide continued access to the facility for
the foreseeable future.
The directors believe that together, the points above will enable the group to
continue as a going concern. However, uncertainties remain as to the
achievement of the expected sales growth and the continued availability of
facilities to the group. The financial statements do not reflect any
adjustments which would be required if the going concern assumption was not
appropriate. The precise extent and quantification of such adjustments has not
been determined but these could include the reclassification of any unconverted
element of the group's convertible unsecured loan stock to creditors falling
due within one year, and provision for additional liabilities. The auditors
have indicated that they will issue an unqualified audit report, but consistent
with prior years, will draw attention to the uncertainty over going concern.
Tangible fixed assets
Tangible fixed assets are stated at historical cost, less accumulated
depreciation. Tangible fixed assets are depreciated on a straight-line basis at
rates ranging from 20% to 33% per annum on cost over their expected useful
lives.
Research and development
Research and development expenditure is written off as incurred. The costs of
registering patents and trademarks are written off as incurred.
NOTES
Principal Accounting Policies
Goodwill
Goodwill arising on consolidation is capitalised and amortised on a
straight-line basis over its estimated useful economic life, which is three
years in all cases. Goodwill is reviewed for impairment at the end of the first
full financial year after acquisition and in other periods if events or changes
in circumstances indicate that carrying values may not be recoverable. If a
subsidiary, associate or business is subsequently sold or closed, any goodwill
arising on acquisition that has not been amortised is taken into account in
determining the profit or loss on sale or closure.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more, or a right to pay less, tax in
the future have occurred at the balance sheet date, with the following
exception. Deferred tax assets are recognised only to the extent that the
directors consider that it is more likely than not that there will be suitable
taxable profits from which the future reversal of the underlying timing
differences can be deducted. Deferred tax is measured on a non-discounted basis
at the tax rates that are expected to apply in the periods in which timing
differences reverse, based on tax rates and laws enacted or substantively
enacted at the balance sheet date.
Foreign currencies
The assets and liabilities of the subsidiary undertakings are translated at the
rate of exchange ruling at the balance sheet date. The profit and loss account
is translated at the average rate of exchange. The exchange differences arising
on the retranslation of subsidiary undertakings are, together with differences
arising on the translation of long-term intra-group funding loans that are not
intended to be repaid in the foreseeable future, taken directly to reserves.
All other differences are taken to the profit and loss account.
Pensions
Sopheon contributes to the personal pension arrangements of employees, the
costs of which are charged in the profit and loss account as incurred.
Leasing
Rentals payable under operating leases are charged to the profit and loss
account on a straight-line basis over the lease term.
Basis of consolidation
The consolidated financial statements include the results of the company and
its subsidiary undertakings. The results of Sopheon Teltech (the information
and research services division of Sopheon Corporation Minnesota) and Sopheon
GmbH (formerly the Technology and Information Services Division of Aventis
Research & Technologies) have been included up to their dates of disposal,
which were respectively 1 July 2003 and 15 August 2003.
EBITDA
EBITDA represents earnings before interest, tax, depreciation and amortisation,
also excluding profits on disposal of operations and non-recurring equity-based
costs incurred in connection with acquisitions. The expression 'EBITDA loss'
represents losses computed on the same basis.
NOTES
Turnover
Turnover is stated net of value added tax and comprises amounts derived from
the Group's principal continuing activities which comprise £4,323,000 (2003: £
2,669,000) from the design, development, production and marketing of software
products together with associated implementation and consultancy services and £
nil (2003: £4,065,000) from activities discontinued in 2003 comprising mainly
of the provision of information and research services by Sopheon GmbH and
Sopheon Teltech up to the relevant dates of disposal.
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.
Earnings per share
The calculation of basic loss per ordinary share is based on a loss of £
1,821,000 (2003 - £5,501,000), and on 114,882,751 (2003 - 87,274,941) ordinary
shares, being the weighted average number of ordinary shares in issue during
the year, including 8,085,249 ordinary shares representing the weighted average
effect of the reconstitution of the group's convertible loan note. The effect
of all potential ordinary shares is antidilutive.
Creditors
Creditors within one year include overdrafts and lines of credit totalling £
112,000 (2003 - £157,000) and deferred revenues of £392,000 (2003 - £254,000).
Convertible Loan Note
In 2004, the holders of the group's £2.6 million 6% Convertible Loan Stock
resolved to reconstitute the instrument such that, in return for a one-off
payment of 7% and subject to the Sopheon group continuing to meet key solvency
tests, the Stock would automatically convert into ordinary shares rather than
be repayable on maturity in December 2005. The solvency tests include the
Company being unable, for the purposes of Section 123 of the Insolvency Act
1986, to pay its debts as they fall due; the appointment of an administrator,
receiver, liquidator, trustee or similar officer; or the Company ceasing to
carry on business as a going concern. This change also eliminated the annual
interest coupon. Due to the modifications of the terms of the instrument, an
amount of £1,509,000 representing the nominal amount of the Stock outstanding
at 31 December 2004 has been reclassified as equity.
Annual Report
The financial information set out above does not constitute the company's
statutory financial statements as defined in section 240 of the UK Companies
Act 1985 for the years ended 31 December 2004 or 2003. Statutory financial
statements for 2003 have been delivered to the registrar of companies and an
unqualified audit opinion was issued thereon. The statutory financial
statements for 2004 will be delivered to the registrar of companies following
the Company's annual general meeting. The Annual Report and Financial
Statements 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.
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. Descriptions of some of
the key risk factors that could negatively affect Sopheon's future performance
are contained in Sopheon's Form 20 - F Annual Report, on file with the U.S.
Securities and Exchange Commission.
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