Final Results

Sopheon PLC 30 March 2001 30 March 2001 SOPHEON PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2000 UPDATE AND OUTLOOK ON 2001 Sopheon plc ('Sopheon'), the international knowledge management software, services and content group, announces its unaudited preliminary results for the year to 31 December 2000 and provides an update and outlook for 2001. Sopheon has operations in the UK, USA and the Netherlands; its shares are traded on AIM in London and on the Euronext Amsterdam. Highlights : * Revenues increase five-fold to £7.8m (1999: £1.5m). EBITDA losses for the year were £6.8m (1999: loss of £1.7m) after research and development expenses of £3.2m (1999: £0.6m). Pro forma revenues including Teltech were £ 15.2m, in line with revised broker expectations. * Completion of the £26m acquisition of Teltech Resource Network Corporation, a leading US business-to-business research portal and provider of knowledge management services coupled with £20m share placing to support acquisition strategy and accelerate business development on both sides of the Atlantic. * Management organisation strengthened including the appointment of Andy Michuda as CEO, Chris Hawver as head of marketing and Bernard Al as a non-executive director. * Three major organisations sign up launching customer projects for Accolade and several more under negotiation with a strong pipeline developing. * Four affiliate partners sign up to link Intota into their portals with more in the pipeline. * Global business development alliance signed with Hewlett Packard. * Proposed acquisition announced yesterday of an operating division of Aventis Research and Technology GmbH will enhance Sopheon's position in Continental Europe and extends both the customer base and expertise in life sciences. Chairman, Barry Mence said; 'Sopheon has made much progress during 2000. Accolade, our first combined offering from the merged companies has received excellent feedback from the market resulting in three substantial organisations signing up as launching clients in Q1. This early success together with our firm footprints in both the European and US markets leads us to have excellent expectations for 2001 and beyond.' For further information contact : Barry Mence, Chairman Sopheon plc Tel : + 44 (0)1483 883000 Arif Karimjee, CFO Sopheon plc Tel : + 44 (0)1483 883000 Steve Liebmann Buchanan Communications Tel : + 44 (0)207 4665000 Barbara Jansen First Financial Tel : + 31 (0)205 754 080 Communications CHAIRMAN'S STATEMENT Introduction The year to date has been eventful with substantial progress made towards our objective of becoming a major global company in the emerging knowledge management market. During the first half year, AppliedNet, acquired in late November 1999, was successfully integrated into the group. In early March, the proposed acquisition of Teltech Resource Network Corporation ('Teltech') was announced; this transaction was completed on 15 September 2000 following filing of Sopheon's registration statement with the Securities Exchange Commission at the end of August. In the last fifteen months Sopheon has developed beyond recognition. From a small research and development business in late 1999 with a base in Amsterdam, 40 people and revenues under £1m, Sopheon ended the year 2000 with significant operations in the UK, the Netherlands and Minnesota and Colorado in the USA, 250 staff and a pro forma turnover of £15.2m for 2000. Results and Finance In line with revised expectations, Sopheon's consolidated revenues show a five-fold increase over 1999 rising from £1.5m to £7.8m. This includes a contribution of £3.2m from Teltech Resource Network Corporation (now trading as Sopheon-Teltech) for the three and a half months after completion of the acquisition. Our consolidated EBITDA losses have increased from £1.7m to £ 6.8m, reflecting the very significant investment being made in product development, sales and marketing and the implementation capability required to get our solutions rapidly accepted in the market. On a pro-forma basis, revenue stood at £15.2m and EBITDA was a loss of £8.4m. Close on the heels of our £8m acquisition of AppliedNet and the associated £8m fundraising in November 1999, in March 2000 £20m was raised through the placing of 2.6m shares and the proposed acquisition of Sopheon-Teltech. The total cost recorded for the acquisition of Sopheon-Teltech was £26m in cash and shares. In addition to rapidly increasing critical mass, our customer base and the geographic reach of the group's activities, we are now a leading provider of content, research and on-demand expertise. This new dimension provides a stable revenue stream based on outsourcing and subscription models for information services. We would have hoped for even more substantial development within the business last year. However, as indicated in previous announcements, as a consequence of softness in the application development and consulting markets together with product and commercial integration delays arising from the extended completion of the Teltech acquisition, 2000 pro forma growth was restricted. Significantly, the information services business acquired with Sopheon-Teltech continued to give strong recurring revenue, underlining the value of this acquired business. On the back of our corporate developments we have created our integrated content-software-services strategy, described below in the business development section, building on the strengths of our component businesses and concentrating on clear market opportunities for our combined solutions. The first products arising from our investment effort are Accolade for new product development and our new portal Intota.com which provides on-line access to Sopheon-Teltech's unique expert network. 2001 is clearly a significant year for Sopheon in terms of the growth we plan to drive from our recently combined organisation. In line with sound business practice we are taking active steps to manage our cost base and are looking to strengthen our balance sheet as the group evolves through 2001. Business Development Our strategy is to develop software applications integrated with specialized content and expert services, to help organizations manage specific knowledge intensive business processes. In practical terms this means: * Customers require business solutions to business problems, not technology for its own sake. This has been behind our drive from the outset to develop applications that map our customers' processes and information in a structured way with control over terminology and search. * Professionals are looking for tools that not only automate and leverage the knowledge and processes they have within their organisations, but also incorporate relevant content from outside their organisation whether that is literature, research or expertise. Our research analysts, our network of independent leading experts, and our information and research portals meet this need. * Enterprise level business critical applications need both strategic and IT consulting skills to facilitate sale and implementation. Our teams of knowledge management and integration experts on both sides of the Atlantic are there to serve this requirement. Bringing together these three elements is what makes Sopheon unique. Our new integrated product, Accolade, is the first example of this potential, built for the automation of New Product Development (NPD). Since the late 1980's - thanks largely to the development of the Stage Gate methodology authored by our business partners PDI and used by 60% of North American manufacturers, the NPD process has benefited from structure and formalisation; the next stage of development relates to automation. Accolade embodies the PDI process, builds in content both in terms of best practices, benchmarks and research portals, and can be mapped to and integrated with an organisation's existing infrastructure. We believe Accolade will increase speed to market, focus effort on winning products, and maximise use of distributed resources - in short, it should have a significant return on investment impact for customers. The market response is encouraging. Since announcing the launch of Accolade in October 2000 at the premier NPD exhibition in New Orleans, we are delighted to have signed up Penzoil, Cargill and SABIC as launching customers. We are currently pursuing 44 active leads with another 59 qualified into our pipeline. In June 2000, our research portal Teltech.com was awarded Chief Information Officer magazine's prestigious international Web Business 50/50 award as a premier online site. Version 2 is being released next week. Recently we have also launched Intota.com, a second-generation portal that delivers our expert network as an on-line resource for customers to find a specialist, and engage them on an assignment through the portal. To date, Sopheon has signed syndication agreements with eFunda.com, Yet2.com, enviroXchange.com, and BioSpace.com. Traffic is starting to build on the Intota website and we have a number of additional syndication agreements in the pipeline. Hewlett Packard has appointed Sopheon its preferred provider of knowledge management and business process solutions. This significant global relationship will drive a program of joint marketing activities for our products and services, which will be further described in a forthcoming press release. Our sales and marketing effort continues to gather pace, Sopheon is attending twenty conferences and trade shows in 2001, and will be the keynote speaker at seven of these. Product Development Our core technology capability in content creation, terminology management and advanced search is key to the successful development of business solutions based around knowledge intensive business processes. Increasingly, we can build applications on scaleable technology platforms to provide solutions in a variety of customisable forms. For example, Accolade will be available as either an enterprise solution, which would be resident inside a customer's firewall or as a secure online product accessible via the emerging ASP mechanism. New versions of our research portals will incorporate content capture and enhanced terminology management, and will make available transaction based payment mechanisms on the back of our Intota developments. Following customer demand, we extended our healthcare offering with an automated agent to read and forward relevant information to support evidence-based medicine. In these ways Sopheon is ensuring that its technology is capable of meeting the increasing demands from its customers as they adapt their businesses to meet the growing demands of a global e-business economy. We are also seeing an increasing number of opportunities to create more focused variants of Accolade for specific vertical markets. The most important of these markets is Life Sciences, which we expect to approach with more speed after we take on the Aventis team referred to below. Acquisition Strategy Our acquisitions of Lessenger and AppliedNet signalled our intent to move Sopheon decisively towards commercial maturity. Last year's acquisition of Teltech in the USA was our most substantial to date. It brought us a mature organisation with strong management and over 100 professionals, a customer base that includes half of the technology Fortune 500 companies, a substantial revenue base with a strong recurring element, and complementary technology in the form of the Teltech.com portal and related taxonomy structures. This together with our existing base in Denver gave us a firm footprint into the North American market, which we are building upon. In line with our objectives of developing our commercial focus and achieving global reach, we have continued to look for mature businesses to partner with or in the right circumstances where the strategic fit is compelling, to acquire. Yesterday we were delighted to announce that we have agreed in principle to purchase a profitable German business, currently a division of the Aventis Group, in an all paper transaction with a significant profit driven earn out element. The major attractions of the business to Sopheon are its synergistic product and service offerings, an impressive team of people rooted in the Life Sciences market who should accelerate Sopheon's planned penetration of that market, its relationship with Aventis and other substantial companies, its annual revenues of over £6m, and a balance sheet that will provide sufficient strength and working capital for an independent future outside the Aventis group. Further details of this proposed transaction will be announced in due course. Board of directors and executive management team Last year we divided our management structure into a Sopheon plc Board with at least half its directors being non-executive, and an Executive Management Board responsible for operations. It gave me great pleasure last year to announce the appointment of Andy Michuda of Teltech as our CEO and as an executive director of Sopheon plc. We have been delighted by the energy and vision Andy has brought to the role. As previously announced, we have a great team of people to lead our organisation on both sides of the Atlantic. Our only gap was in the marketing area, which we have filled with the appointment of Chris Hawver as our global VP of Marketing. Chris is a respected software executive with a successful track record in information technology businesses including Achieve Healthcare, Medical Documenting Systems and Data General. Most recently, we announced the appointment of Bernard Al, former CEO of Wolters Kluwer Netherlands as a non-executive director in January 2001. Bernard brings invaluable experience and perspective on the information services market and has a science and linguistics background which is a perfect match for Sopheon. Outlook With our combined strategy in implementation and the further acquisition announced yesterday, I believe that 2001 will be another year of substantial progress for Sopheon in our goal to become a profitable international company. With a growing customer base on both sides of the Atlantic and a product and service offering that we believe has a considerable 'first to market' advantage we have confidence that we are well positioned for considerable growth in a rapidly developing market. With the early success we have experienced with Accolade and the strong pipeline we are building for this new product, we are planning for a more significant transition in growth and revenue mix in the second half of 2001. In the meanwhile we are continuing to maintain emphasis on our component businesses, both in terms of their individual performance and to position them most effectively for the anticipated pull-through from Accolade implementations. The path before us is a challenging one, given the indication of a potential global economic slowdown. Our prospects and customers are dealing with many of the same influences and are looking for ways to reduce cost and accelerate speed to market to compete more effectively. Our products and services deliver rapid return on investment; they automate knowledge intensive processes and deliver relevant content effectively and economically. They are well positioned to benefit from this environment. Barry Mence 30 March 2001 Executive Chairman Cautionary Statement under U.S. Securities Laws. Sopheon has made forward-looking statements in this press release, including statements about the benefits of the acquisition of Teltech; 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. A description of the risk factors that could negatively affect Sopheon's future performance is contained in Sopheon's Form F - 4 Registration Statement on file with the U.S. Securities and Exchange Commission. SOPHEON PLC GROUP PROFIT AND LOSS ACCOUNT FOR THE YEAR TO 31 DECEMBER 2000 (UNAUDITED) 2000 1999 £'000 £'000 Turnover 7,763 1,510 Cost of sales (5,402) (983) Gross profit 2,361 527 Administrative, sales and marketing expenses (6,363) (1,657) Research and development costs (3,243) (563) Operating loss before amortisation of goodwill (7,245) (1,693) Amortisation of goodwill (5,561) (323) Operating loss (12,806) (2,016) Bank interest receivable 950 62 Interest payable and similar charges (89) (118) Loss on ordinary activities before and after taxation (11,945) (2,072) Loss per share-basic and diluted (33.4p) (10.1p) Loss on an EBITDA basis (6,836) (1,654) GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (UNAUDITED) 2000 1999 £'000 £'000 Loss for the financial year (11,945) (2,072) Exchange difference on retranslation of net assets of subsidiary undertakings 100 (45) Total recognised gains and losses relating to the year (11,845) (2,117) SOPHEON PLC GROUP BALANCE SHEET AS AT 31 DECEMBER 2000 (UNAUDITED) 2000 1999 £'000 £'000 Fixed assets Goodwill 31,205 7,605 Tangible assets 2,387 386 33,592 7,991 Current assets Debtors 4,610 1,362 Cash and short term deposits 7,925 7,751 12,535 9,113 Creditors: amounts falling due within one year (7,809) (3,570) Net current assets 4,726 5,543 Total assets less current liabilities 38,318 13,534 Creditors: amounts falling due after more than one year (22) (55) 38,296 13,479 Capital and reserves Called up share capital 4,816 4,491 Share premium account 51,260 17,960 Other reserves 3,047 10 Profit and loss account (20,827) (8,982) Shareholders' funds (all equity interests) 38,296 13,479 GROUP STATEMENT OF CASH FLOWS FOR THE YEAR TO 31 DECEMBER 2000 (UNAUDITED) 2000 1999 £'000 £'000 Net cash outflow from operating activities (8,763) (1,278) Return on investment and servicing of finance 861 (56) Capital expenditure and financial investment (954) (52) Acquisitions (12,281) 210 Management of liquid resources (267) (6,602) Financing 20,184 8,253 (Decrease)/increase in cash (1,220) 475 Increase in short term deposits 267 6,602 (Decrease)/increase in cash and liquid resources (953) 7,077 NOTES Principal Accounting Policies Accounting convention The accounts are prepared under the historical cost convention and in accordance with applicable accounting standards. Basis of consolidation The consolidated accounts include the results of the company and its subsidiary undertakings. The results of Teltech have been included using the acquisition method of accounting, since the date of acquisition on 15 September 2000. Tangible fixed assets Tangible fixed assets are stated at historical cost, less accumulated depreciation. The costs of developing of portals used to deliver products and services are capitalised as tangible fixed assets in line with UITF29. 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 cost of registering patents and trademarks are written off as incurred. Subsidies received from the European Eureka funding programme are credited to the profit and loss account over the period to which they relate. Goodwill Goodwill arising on consolidation is capitalised and amortised on a straight line basis over its estimated useful economic life, currently estimated at 3 years depending on circumstances. 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. Foreign currencies Company: Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward exchange contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. All differences are taken to the profit and loss account. Group: 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 re-translation of subsidiary undertakings are, together with differences arising on the translation of long term intra-group funding loans which 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. Long term contracts Profit on long term contracts is taken as the work is carried out if the outcome can be assessed with reasonable certainty. The profit included is calculated on a prudent basis to reflect the proportion of the work carried out at the year end, by recording turnover and related costs as contract activity progresses. Turnover is calculated as that proportion of total contract value which costs incurred to date bear to total expected costs for that contract. Revenues derived from variations on contracts are recognised only when the customer has accepted them. Full provision is made for losses on all contracts in the year in which they are first foreseen. 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 Assets held under finance leases, which are leases where substantially all risks and rewards of ownership of the assets have passed to the group are capitalised in the balance sheet and are depreciated over their useful lives. The capital elements of future obligations under financial leases are included as liabilities in the balance sheet. The interest element of the rental obligations are charged to the profit and loss account over the period of the lease and represent a constant proportion of the balance of capital repayments outstanding. Rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the lease term. Turnover Turnover (excluding valued added tax) represents the amounts derived from the group's principal activities which comprise £4,912,000 from the design, development, production and marketing of knowledge management software products together with associated implementation and consultancy services and £2,851,000 from the provision of information and research services. Sopheon has operations in three geographical markets, the Netherlands, the United Kingdom and the United States of America. Earnings per share The calculation of basic loss per ordinary share is based on a loss of £ 11,945,000 (1999 - loss of £2,072,000), and and 35,732,477 (1999 - 20,565,985) ordinary shares, being the weighted average number of ordinary shares in issue during the period. The effect of all potential ordinary shares is antidilutive. Placing On 3 March 2000 the Company announced the placing of 2,622,500 ordinary shares with institutions at a price of 800p per ordinary share, realising net proceeds of £20 million. Acquisition of Teltech The acquisition of Teltech Resources Network Corporation completed on 15 September 2001. The final net consideration recorded for the Teltech acquisition was £26m, being £11m in cash and costs, and £15m in equity being the allotment of 2.1 million shares and the grant of 0.75 million options. A further 0.1m shares may be issued to certain members of Sopheon- Teltech staff in September 2001, which are being recorded as compensation cost in line with UITF17. The dollar-sterling exchange rate and Sopheon share price on the date of completion were 1.41 and £5.65 respectively, compared to 1.45 and £5.49 used to compute the consideration under the deal terms. Goodwill totalling £ 29m has been recorded in respect of the acquisition and will be amortised over 3 years. Creditors Creditors within one year include lines of credit totalling £1,127,000 at 31 December 2000 (1999 - £nil) and deferred revenues of £2,436,000 (1999 - £ 279,000). Annual Report The financial information set out above does not constitute the company's statutory accounts as defined in section 240 of the UK Companies Act 1985 for the years ended 31 December 2000 or 1999, and is unaudited. Statutory accounts for 1999 have been delivered to the registrar of companies and an unqualified audit opinion was issued thereon. The statutory accounts for 2000 will be delivered to the registrar of companies following the Company's annual general meeting. The Annual Report and Accounts will be posted to shareholders in due course and thereafter will be available from the Company's registered office at Stirling House, Surrey Research Park, Guildford, Surrey GU2 5RF.

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