Interim Results
TransEDA PLC
13 March 2003
TransEDA PLC
Interim results for the six months ending 31 December 2002
For the six months ended 31 December 2002.
Highlights
• Revenues in the period of £1.8m (2001 Interim: £3.5m).
• Operating loss, before goodwill impairment and amortisation and
restructuring costs, of £182,000 (2001 Interim: £70,000 profit).
• Restructuring costs of £225,000 (2001 Interim: Nil).
• Goodwill has been written off in full in the period resulting in a charge
to the profit and loss account of £4,687,000 .
• Net loss for the period of £5,143,000 (2001 Interim: £273,000 loss).
• Significant restructuring of the business in the period with major
management changes and overall headcount reduced from 52 to 36.
• Ongoing administration costs have been reduced to £2.0m (2001 £3.5m).
• The first release of VN Property, our new formal verification tool has
been launched and the first sale has been booked.
Commenting on the results, Bob Quinn, Chairman said:
'While our financial performance has been disappointing, we are beginning to see
the benefit of the aggressive action we are taking to restore the Company to
health. Considerable challenges remain, but I am encouraged in particular by the
early response to our recent new product introduction. '
____________________________________________________________________________________
Enquiries:
TransEDA
Gordon Whelan, Finance Director 02380 683500
Beattie Financial 020 7398 3300
Ann Marie Wilkinson
Gemma Smith
Chairman's Report
Significant progress has been made during a very difficult period for the
Company over the last six months ended 31 December 2002.
TRADING REVIEW
Sales for the period dropped to £1.8m from £3.5m for the corresponding period in
2001, a decline of 49%. However, it is important to note that this reflects the
fact that the comparable period last year included £1.1m of revenues arising
from the acquisition of iModl Inc. in March 2001. The contribution from iModl
products in 2002 has been disappointing and, if they are excluded from the
comparison, the actual decline in revenues from core products is 25%.
As reported at the time of our Annual Report in 2002, the difficult economic
climate has continued to affect our business. In all of our major markets our
customers continue to operate tight budgetary controls and are postponing
investment and buying decisions. We have seen little indication of a relaxation
of this policy in the period, with pressure on both new sales and maintenance
renewals.
There have been significant changes to the management team during the period,
with the departure of Chris Wright, Ellis Smith and Gus Orchard, respectively
the Chairman, Chief Executive and Finance Director. Gordon Whelan was promoted
to Finance Director and, after assisting for a period as Interim Chief
Executive, I have assumed the role of Chairman. I was succeeded as CEO in
September by Udo Muerle, formerly International VP of Sales but regrettably must
announce that Udo has now decided to leave the company. Udo has resigned from
the Board today but will continue with the company for three months to ensure a
smooth handover of his responsibilities.
TransEDA continues to face a number of challenges in what remains a difficult
operating environment, but your Board sees reason for cautious optimism for the
potential for the Company's products and technology. We have recently appointed
Sigma Technology Management to support us in the management and development of
the business. We have already taken a number of clear steps to reduce costs
further and to ensure tight financial management over all areas of the business.
Administration costs excluding goodwill charges and restructuring costs for
the period were £1,978,000, a significant reduction over the prior period. This
figure is net of a write back of £160,300 in respect of a write back against a
contract with a major customer which is no longer required.
Exceptional costs of £4,784,000 have been recorded in the period. These comprise
redundancy and restructuring costs of £225,000, a goodwill impairment charge of
£4,514,000 and a loan write off of £45,000. Headcount has been reduced from 52
to 36 personnel at the period end. In June 2002 we carried out an impairment
review of the goodwill arising on the acquisitions of Dualsoft LLC and iModl
Inc. This resulted in a write down in the carrying value of goodwill of
£4,813,000. We have conducted a further review of goodwill at the period end and
have decided to take the most prudent approach available to us and write off the
remaining value of goodwill in this period. This has resulted in a charge to the
profit and loss account in the period of £4,514,000. We have also written off in
full the shares held by the Company's Employee Share Ownership Trust, resulting
in an additional charge to the profit and loss account of £45,000. Neither of
these items impacts on the Group's cash or trading position.
Before these exceptional items and amortisation of £173,000 the loss before tax
for the period was £186,000 (2001 Interim: £90,000 profit). This is in line with
our expectations for the half year and given the significant internal changes
and the difficult trading circumstances the Board is satisfied with this
performance.
Control of cashflow has been of central importance to the business over the past
six months. Cash in hand at the end of December was £529,000. Borrowing
facilities have also been put in place in the UK and US to assist with working
capital requirements, but these can only be drawn at agreed ratios against
debtors. The movement in net funds in the period shows a cash outflow of
£286,000 (2001: £1,221,000).
No dividend is proposed.
PROSPECTS
The cost savings we have made have not affected our ability to deliver new
product developments and an ongoing investment in research and development is
fundamental to the future strategy of the business. We are pleased to announce
that a new product, VN Property was released in March of this year and our first
sale of this product has already been made. This is the first of our new Formal
Verification tools incorporating technology exclusively licensed under our
previously announced agreement with SRI International that are planned for
release over the next eighteen months. We have received favourable reactions
from our customers who have been using the product on a trial basis and we
believe that it will be well received by the marketplace. Early reactions to VN
Property at its official launch at DATE a key industry tradeshow were very
positive.
The Directors are assuming that there will be no change in the difficult
economic conditions in the second half of the year. However, the steps taken in
the first half of the year have left the company in a stronger position to trade
through the difficult challenges of the next six months. We expect to achieve
revenue of approximately £750,000 in the third quarter and there are signs of a
stabilisation in demand. Financial resources nevertheless remain very tight and,
while the financial statements have been prepared on a going concern basis, the
Company has continued to incur losses and remains exposed to any downturn in
sales. In view of this the Company is conducting a strategic review with Sigma
to assess further opportunities to reduce cost, ensure the ongoing viability of
the business and maximise the potential from the Company's products and
technology. We will make an announcement to update shareholders by the end of
April.
To assist with cashflow Sigma have agreed to receive approximately half of their
fee in equity, and accordingly we will be allotting 2,500,000 shares to them at
a price of 2.5p per share. As an additional expression of confidence I have
agreed to receive half of my remuneration as Chairman in the form of shares in
the company, and these will also be allotted at the same price.
Finally, I would like to thank the employees of the group for their performance
over the past six months. Their commitment and loyalty to TransEDA during a
difficult period gives the Board confidence in the future of the business.
Bob Quinn, Chairman
12 March 2003
Sigma Technology Management is a specialist technology advisory and investment
business. The Sigma team will be led by Keith Monserrat, the Chief Technology
Officer at Sigma. He previously served on the executive boards of Scottish
Telecom plc and Kingston Communications plc and was a founding non-executive
director of Colt Communications. He currently serves as a non-executive
director at TenisonEDA, a semiconductor EDA tools company based in Cambridge.
He has had previous experience in the semiconductor industry whilst working at
BT, and has a doctorate in semiconductor physics.
Consolidated Profit and Loss Account
For the six months ended 31 December 2002
31 Dec 2002 31 Dec 30 June
unaudited 2001 2002
£'000 unaudited audited
Notes £'000 £'000
Turnover 1,808 3,528 5,751
Cost of sales (12) (10) (27)
Gross profit 1,796 3,518 5,724
Administrative expenses
Impairment of goodwill 3 (4,514) - (5,039)
Amortisation of goodwill (173) (349) (697)
Restructuring costs 3 (225) - -
Other (1,978) (3,448) (7,155)
Total administration costs (6,890) (3,797) (12,891)
Operating loss (5,094) (279) (7,167)
Amounts written off investments (45) - (200)
Net interest (payable)/receivable and similar charges (4) 20 21
Loss on ordinary activities before taxation (5,143) (259) (7,346)
Tax (charge)/credit on loss on ordinary activities - (14) 101
Retained loss on ordinary activities (5,143) (273) (7,245)
after taxation
(Loss)/earnings per share: (in pence) 4
Basic (7.61p) (0.40p) (10.64)
Adjusted (0.28p) 0.11p (1.92)
Statement of Total Recognised Gains and Losses
Notes
31 Dec 31 Dec 2001 30 June
2002 unaudited 2002
unaudited £'000 audited
£'000 £'000
Loss for the period (5,143) (273) (7,245)
Exchange differences on foreign currency net 2 (27) 211
investments
Total recognised losses (5,141) (300) (7,034)
Consolidated Balance Sheet
As at 31 December 2002
31 Dec 31 Dec 30 June
2002 2001 2002
unaudited unaudited audited
Notes £'000 £'000 £'000
Fixed assets
Intangible assets 3 - 9,851 4,687
Tangible assets 102 203 161
Investments 3 - 266 45
102 10,320 4,893
Current assets
Debtors 1,042 2,609 1,532
Cash at bank and in hand 529 1,029 815
1,571 3,638 2,347
Creditors: amounts falling due within one year (1,611) (2,024) (2,027)
Net current (liabilities)/assets (40) 1,614 320
Total assets less current liabilities 62 11,934 5,213
Creditors: amounts falling due after more than one
year (18) (15) (28)
Net assets 44 11,919 5,185
Capital and reserves
Called up share capital 1,735 1,710 1,735
Share premium account 10,939 10,703 10,939
Capital redemption reserve 9 9 9
Shares to be issued - 261 -
Merger reserve (676) (676) (676)
Profit & loss account (11,963) (88) (6,822)
Shareholders' funds 44 11,919 5,185
Consolidated Cashflow Statement
For the 6 months ended 31 December 2002
Net cash outflow from operating activities (212) (575) (607)
Returns on investments and servicing of finance (4) 20 21
Taxation (9) (13) (83)
Capital expenditure and financial investment (6) (47) (90)
Acquisition of subsidiary company (549) (546)
Net cash outflow before management of liquid resources and (231) (1,164) (1,305)
financing
Management of liquid resources 266 1,230 1,282
Financing (25) (53) (86)
Increase/(decrease) in cash 10 13 (109)
Notes to the Cashflow Statement
RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
31 Dec 2002 31 Dec 2001 30 June 2002
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Operating Activities
Operating loss (5,094) (279) (7,167)
Depreciation 55 80 161
Amortisation of intangible fixed assets 173 349 697
Provision for impairment of goodwill 4,514 - 5,039
-
Shares in ESOT allocated at no consideration - - 23
Loss on disposal of tangible fixed assets 10 - -
Decrease/(increase) in debtors 491 (702) 441
(Decrease)/Increase in creditors (393) 2 115
Exchange differences 32 (25) 84
Net cash outflow from operating activities (212) (575) (607)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Increase/(Decrease) in cash in the period 10 13 (109)
Increase in liquid resources (266) (1,230) (1,282)
Change in net funds resulting from cashflows (256) (1,217) (1,391)
Foreign exchange differences (30) (4) (44)
Movement in net funds in the period (286) (1,221) (1,435)
Net funds at start of the period 815 2,250 2,250
Net funds at end of the period 529 1,029 815
Notes
For the six months ended 31 December 2002
1. The interim financial information of TransEDA PLC is for the six month period
to 31 December 2002, and has been prepared in accordance with the accounting
policies set out in, and consistent with, the audited financial statements
for the year ended 30 June 2002. The results for the year ended 30 June
2002 have been extracted from the audited financial statements for that
year. The audited financial statements have been filed with the Registrar of
Companies and the auditors' report on those accounts was unqualified.
The unaudited profit and loss account for the six month period to, and the
unaudited balance sheet as at 31 December 2002, do not amount to full accounts
within the meaning of section 240 of the Companies Act 1985 and have not been
delivered to the Registrar of Companies.
2. The interim results have been prepared on a going concern basis, which
assumes that the company and its subsidiaries will continue in operational
existence for the foreseeable future. In view of existing cash resources
and their plans to reduce costs further the directors believe that this
assumption is appropriate, although it depends on maintaining or increasing
the current level of sales and implementing the plan to bring the cash costs
of the business in line with such sales. Any shortfall would need to be
funded from existing resources, debt or new investment and the Board is
actively exploring the options available to the Company to achieve this, if
a shortfall were to arise. The results do not include any adjustments that
might result if additional support is required but cannot be secured.
3. As noted in the Chairman's statement action has been taken to restructure the
business. This has resulted in exceptional costs in the period of £225,000.
These costs consist of redundancy costs and related personnel costs of
£184,000 and other costs of £41,000.
Intangible assets represent the goodwill on the acquisitions of DualSoft, LLC
and iMODL, Inc. In June 2002 an impairment review of goodwill resulted in a
write down in the carrying value of goodwill by £5,039,000. The directors
believe that the assumptions behind that review have now changed and have
conducted a further review after the period end. Following this review, it was
decided to write off goodwill in full in the period resulting in an impairment
charge to the profit and loss account of £4,514,000.
Investments represent own shares held by the Company's employee Share Ownership
Trust. The shares are to be used by the Trustees to satisfy offers of shares
made to eligible employees under the Company's All Employee Share Ownership
Plan. At the period end the Trust held 816,000 ordinary shares of 2.5p each with
a nominal value of £20,400 and the market value of those shares at the period
end was £24,480. A further provision has been made to write off the carrying
value of the investment. This has resulted in a charge to the profit and loss
account of £45,000.
4. Earnings/(loss) per share
a) Basic losses per share for the six months ended 31 December 2002 have
been calculated on losses (after deduction of taxation) of £5,143,000, (2001
Interim: £273,000 loss and 2002 final: £7,245,000 loss) and on Ordinary Shares
of 67,574,469 (2001 Interim: 67,744,509 and 2002 final: 68,085,000) being the
weighted average number of Ordinary Shares in issue during the period.
b) FRS14 requires presentation of diluted EPS when a company could be
called upon to issue shares that would decrease net profit or increase net loss
per share. For a loss making company with outstanding share options, net loss
per share would only be increased by the exercise of out-of-the-money options.
Since it seems inappropriate to assume that option holders would act
irrationally, no adjustment has been made to diluted EPS for out-of-the-money
share options.
c) Adjusted earnings/(losses) per share have been calculated after
adjusting the loss for the period to add back the impairment and amortisation of
goodwill, the restructuring costs and the amounts written off investments to
give £186,000 loss, £76,000 profit and £1,309,000 loss respectively. The
weighted average number of Ordinary Shares is the same as for the basic earnings
/(loss) per share calculation. References to adjusted earnings/(losses) reflect
the Directors' view that this is an important measure for their own, and
shareholders' assessment of the Group's underlying performance.
5. Copies of this interim report have been sent to shareholders and will be
available to the public from the Company's registered office. Details
are also available on our website www.transeda.com
INDEPENDENT REVIEW REPORT TO TRANSEDA PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 December 2002 which comprises the profit and loss
account, the consolidated balance sheet, the cash flow statement and notes 1 to
5, together with the notes to the cash flow statement. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the company, in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
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 also responsible for ensuring that the accounting polices and presentation
applied to the interim figures are consistent with those applied in preparing
the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Uncertainty relating to Going Concern
In arriving at our review conclusion, we have considered the disclosures made in
note 2 of the financial information concerning the appropriateness of preparing
the Interim Statement on a going concern basis. In view of the significance of
this uncertainty, we consider that it should be drawn to your attention.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2002.
Deloitte & Touche
Chartered Accountants
Southampton
12 March 2003
--------------------------
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