31st Aug 2006 07:00
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 servicesthat improve the return from innovation and product development investments,announces its unaudited interim results for the six months ended 30 June 2006together with a business review and outlook. These results and the 2005comparatives 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 progressin the first half of 2006 leading to significant improvement in our financialresults. 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 asit 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 010About SopheonSopheon (LSE: SPE) is an international provider of software and services thathelp organizations improve the business impact of product innovation. TheSopheon Accolade‚® product innovation process and portfolio management systemautomates gate- or phase-based product development processes and providesstrategic decision support that allows companies to increase revenue andprofits from new products. Sopheon is listed on the AIM Market of the LondonStock Exchange and on the Euronext in the Netherlands. For more information,please visit www.sopheon.com. CHAIRMAN'S STATEMENT FinancialConsolidated revenues for the period amounted to ‚£3 million (2005: ‚£1.9million) representing growth of over 50%. This performance reflects thesuccessful 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 prioryear taken as a whole, but reflects a substantially higher proportion ofrevenues attributable to license sales than in the first half of 2005.Gross margin, which is arrived at after charging direct costs such as payrollfor client services staff, was 76% for the period, similar to the first half of2005. We will continue to deploy both internal resources and those of ourservice partners as appropriate, which will cause some continued smallfluctuation in margins depending on the mix.In spite of the substantial revenue growth tight cost controls have heldadministrative, 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 amortisationcosts amounting to approximately ‚£0.2 million. The LBITDA result, which doesnot 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 FinancialReporting Standards (IFRS) as adopted for use in the EU, further details ofwhich are set out in Note 2 hereto, and in Sopheon's 2005 annual report. Inthis report, we have restated the 30 June 2005 comparative figures, originallypublished under UK accounting standards, to reflect the adoption of IFRS.TradingThe first half of 2006 has produced good continued development in all aspectsof our business. In addition to generating revenues in our establishedterritories, we were pleased to sign our second major Accolade sale inScandinavia, and to close our first sales in France and Israel. Our teams inthe US and Europe have been able to generate almost 50% more implementation andconsulting services revenue than in the same period last year, thanks in partto management actions taken in the second half of last year. Our recurringmaintenance revenues now stand at ‚£1.7 million annualized compared to ‚£1.2million in June 2005. The step up in service and maintenance revenues, alongwith the new license wins booked in the period, have put the overall businesson course to significantly improve on 2005. At the mid year point, revenuevisibility for 2006 was already ‚£4.1 million, almost 90% of the total revenuesrecorded in 2005.We define visibility for a period as being the total of (i) license ordersincluding those which are contracted but conditional on acceptance decisionsscheduled during the period; (ii) contracted services business expected to bedelivered in the period; and (iii) recurring maintenance streams. Visibilitydoes not include other potential license sales to customers who havecommissioned a proof of concept or who have verbally indicated a decision tomove forward. We would also underline that our performance in any reportingperiod can be materially affected by the signature date of individual deals.This factor will be a continuing consideration as we build the business, butone that should be increasingly offset by our growing maintenance base and thehigh rates of repeat business we are generating from our existing customerbase. Over 75 customers have licensed our software, and Accolade is now beingused in 56 countries around the world. Responding both to this growth in baseand to demand anticipated from new customers, we have continued to strengthenour customer service teams in Europe and North America.Market & ProductThe market for product life cycle management (PLM) applications continues toexpand, with analysts forecasting compound annual growth rates ranging from 8%to 14% from 2006 through 2010. More importantly, during the same period, thePLM submarket in which Accolade has been classified (Product Portfolio andProgram Management or "PPM") is projected to triple in size. During the firstsix months of 2006 we furthered our penetration of the chemicals, paper andfood & beverage industries, and they remain our principal targets. But we alsocontinued to enjoy major successes with new clients - such as Electrolux andTimex - in consumer packaged goods markets, expanding our sales and marketingefforts to strengthen our focus on manufacturers in that sector.In our 2005 annual report we noted the formation of an internal organizationcalled RAD (Research & Application Development). The group was chartered tocreate new software applications built on the Accolade platform that wouldextend the utility and value of the core offering. The first of thoseapplications have now been completed, and will be formally introduced to themarket 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 thefourth quarter. The overall value of these new modules is that they expandAccolade's capabilities, and encourage use of the solution by additional usercommunities both inside and outside of product development. There areindications that our existing clients will be among the first to want to takeadvantage of their availability. This is consistent with our strategies forbuilding and growing our client relationships, which accounted for a quarter ofnon-recurring revenues during 2005. Our work on the Accelerators was conductedin parallel with continued product development on the core Accoladeapplication.In addition to the new applications being launched, we are evaluating asubscription based sales model for our software, aimed in particular atextending its appeal to mid-market companies. We will report on developments inthis area in due course.Sopheon's partnership activity is building. A recent example was our Accoladesale to Electrolux where we partnered with Arthur D Little. The importance ofSopheon's ongoing relationship with Microsoft was raised to a new level withour recent promotion to the elite status of "managed" partner. This advancemententitles Sopheon to the support of a Microsoft business development managerdedicated to ensuring that we receive maximum business benefit from access toMicrosoft's technical, sales and marketing resources.Corporate EventsAs previously announced, in June Sopheon filed a certification with the USSecurities and Exchange Commission ("SEC") on Form 15, to immediately suspendits duty to file reports under the Securities Act of 1934. Sopheon will realizecost savings by no longer making these filings. Sopheon's ordinary shares arenot traded in any US markets, and this change will have no effect on thetrading of Sopheon's shares on AIM and Euronext.In our AGM statement we noted that Andrew Davis, a non-executive director, wasretiring from the board of Sopheon as from 30 June 2006, in order to focus onother interests. This brings the overall size of the Sopheon board to six,comprising three executive and three non-executive directors.OutlookThe underlying fundamentals of our business continued to show great progress inthe first half of 2006 leading to significant improvement in our financialresults. Our revenue grew over 50% compared to the first half of 2005, and werecorded an LBITDA result that approached breakeven. Our business is startingto show signs of the scale and maturity which we have been striving for sincethe launch of Accolade. This has twin benefits. First, the stability of ourrevenue is improved by the growth in recurring maintenance fees, as well as byrepeat 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 solutionsbring. Our product development efforts will continue to focus both on extendingthe features and functionality of Accolade, and on the manner in which it isdeployed and used by our customers. With over 75 licensees of our software andwith users in 56 countries, we believe that we are the leading vendor in ourchosen market segment. Accolade is in our view the only system designed fromthe outset for the purpose of improving the governance of the innovationprocess as a whole.Implementing a system like Accolade is a serious commitment for anyorganization and this continues to weigh on our sales cycles. However, as ourbusiness matures in scale we believe that this area, which has always broughtunpredictability to our business, will show improvement. In our annual reporton 2005 we said that we knew what we had to do, and we believed that Sopheonwas on the right track. This remains as true today as it was then, and wecontinue 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 NOTES1. Principal Accounting PoliciesBasis of preparationThe interim financial information for all periods has been prepared on thebasis of the accounting policies set to be applied in the Group statutoryaccounts for the period ended 31 December 2006, in accordance withInternational Financial Reporting Standards (IFRS) as adopted for use in theEU, and Interpretations issued by the International Accounting Standards Boardand those parts of the Companies Act 1985 which apply to companies preparingtheir financial statements under IFRS. The six month figures to 30 June 2006and 30 June 2005 are un-audited and do not constitute statutory accounts withinthe meaning of Section 240 of the Companies Act 1985. The principal accountingpolicies are set out below. There is a possibility that the directors maydetermine that some changes to those policies are required when preparing thefull annual financial statements, since the IFRS and IFRIC interpretations thatwill be applicable and adopted for use in the European Union at 31 December2006 are not known with certainty at the time of preparing this interimfinancial information. The policies have been applied consistently to all theperiods presented, and on the going concern basis.Going ConcernIn the first half of 2006 the group's revenues from continuing operations grewto ‚£3 million and its LBITDA (loss before interest, tax, depreciation andamortisation) basis fell to ‚£27,000. At the period end the group reported netassets of ‚£1.7 million and gross cash resources of ‚£1.5 million. The group hasaccess 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. At30 June 2006, $172,000 (‚£93,000) was drawn against this facility. Thefacilities with Silicon Valley Bank have been in place since 1999, and arerenewable annually in October.The directors remain positive about the direction, focus and momentum of thebusiness and believe that this, together with the group's existing resourcesprovide it with adequate funding to support its activities through to the pointat which they anticipate that trading will become cash generative on asustained basis. This is in turn dependent on the group continuing to deliversubstantial sales growth.Should this not be the case, Sopheon continues to have access to its equityline of credit facility from GEM Global Yield Fund Limited ("GEM") for anaggregate of ¢â€š¬10 million for a term expiring in December 2007. GEM's obligationto subscribe for shares is subject to certain conditions linked to theprevailing trading volumes and prices of Sopheon shares on the Euronext stockexchange. To date Sopheon has made one call on the equity line of creditfacility, raising just under ¢â€š¬1 million in March 2004, leaving ¢â€š¬9 million (‚£6million) available.While uncertainties remain as to the achievement of the expected sales growthand the continued availability of facilities, the directors believe thattogether, these factors enable the group to continue as a going concern for theforeseeable future. The financial information does not include the adjustmentsthat would be required if the company or group were unable to continue as agoing concern.NOTES1. Principal Accounting Policies(continued)Basis of consolidationThe consolidated financial statements include the results of the company andits subsidiary undertakings.Adoption of International Financial Reporting StandardsThe adoption of IFRS has resulted in changes to the group's accounting policiesin the following areas that have resulted in restatement of certain amountspreviously 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 theprinciples of AICPA SOP 97-2, which is considered to be best practice in thesoftware industry. These principles are consistent with IAS 18 and weretherefore not affected by the adoption of IFRS.Revenue recognitionRevenue is measured at the fair value of the consideration received orreceivable and represents amounts receivable for goods and services provided inthe normal course of business, net of discounts and sales related taxes. Salesof software products are recognised on delivery, and when no significant vendorobligations remain. Revenues from implementation and consultancy services arerecognised as the services are performed. Revenues relating to maintenance andpost contract support agreements are deferred and recognised over the period ofthe agreements. Revenues and associated costs under long term contracts arerecognised on a percentage basis as the work is completed and any relevantmilestones are met, using latest estimates to determine the expected durationand cost of the project.Property, plant and equipmentComputer equipment and fixtures and fittings are stated at cost lessaccumulated depreciation and any accumulated impairment losses. Depreciation ischarged so as to write off the costs of assets over their estimated usefullives, using the straight-line method. Assets held under finance leases aredepreciated 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 arisingon the disposal or retirement of an item of property, plant and equipment isdetermined as the difference between the sale proceeds and the carrying amountof the asset and is recognised in profit or loss.Share based paymentsThe group issues equity-settled share-based payments to certain employees.Equity-settled share-based payments are measured at fair value (excluding theeffect of non-market-based vesting conditions) at the date of grant. The fairvalue determined at the date of grant is expensed on a straight-line basis overthe vesting period, based on the group's estimate of the shares that willeventually vest and adjusted for the effect of non-market-based vestingconditions. Fair value is measured by the binomial option pricing model. Theexpected life used in the model had been adjusted, based on management's bestestimate, for the effects of non-transferability, exercise restrictions andbehavioural considerations.NOTES1. Principal Accounting Policies(continued)Research and developmentIn accordance with IAS 38, development expenditure on internally developedsoftware 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 costsnot satisfying the above criteria, and expenditure on the research phase ofinternal projects, are recognised in profit or loss as incurred.Deferred taxationDeferred tax is recognised on differences between the carrying amounts ofassets and liabilities in the financial statements and the corresponding taxbases used in the computation of taxable profit, and it is accounted for usingthe balance sheet liability method. Deferred tax liabilities are generallyrecognised for all taxable temporary differences, but deferred tax assets arerecognised only to the extent that it is probable that taxable profits will beavailable against which deductible temporary differences can be utilised.Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset realised. Deferred tax ischarged or credited to profit or loss, except when it relates to items chargedor credited directly to equity, in which case the deferred tax is also dealtwith in equity.Treatment of foreign currencies for consolidationFor the purpose of presenting consolidated financial statements the assets andliabilities of the group's foreign operations (including comparatives) areexpressed in sterling using exchange rates prevailing on the balance sheetdate. Income and expense items (including comparatives) are translated at ratesapproximating to those ruling when the transactions took place. Exchangedifferences arising (including exchange differences on intra-group loans) areclassified as equity and transferred to the group's translation reserve. Suchtranslation differences are recognised in profit or loss in the period in whichthe foreign operation is disposed of.Retirement benefit costsPayments to defined contribution retirement benefit plans are charged as anexpense as they fall due. The group does not operate any defined benefitretirement benefit plans.LeasingAssets held under finance leases are recognised as assets of the group at theirfair value at the inception of the lease or, if lower, at the net present valueof the minimum lease payments. The corresponding liability to the lessor isincluded in the balance sheet as a finance lease obligation. Lease payments areapportioned between finance charges and reduction of the lease obligation so asto achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged to profit or loss. Rentals payable underoperating leases are charged to profit or loss on a straight-line basis overthe term of the relevant lease.LBITDALBITDA represents loss before charging or crediting interest, tax, depreciationand amortisation.NOTES2. TurnoverAll of the group's revenue in respect of the periods ended 30 June 2006 and2005 derived from continuing operations and from the group's single businesssegment, the design, development and marketing of software products withassociated implementation and consultancy services.3. Earnings per shareThe 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 - 129,189,451including 11,998,200 ordinary shares representing the weighted average effectof the classification as equity of the group's Interest Free MandatoryConvertible Loan Stock), being the weighted average number of ordinary sharesin issue during the year. The loss attributable to ordinary shareholders andthe weighted average number of ordinary shares for the purpose of calculatingthe diluted loss per ordinary share are identical to those used for calculatingthe basic loss per ordinary share in both 2006 and 2005. This is because theexercise of share options would have the effect of reducing the loss perordinary 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 outstandingamount of the group's Interest Free Mandatory Convertible Loan Stock (the"Stock"). The terms of the Stock were modified during 2004 such that it wasonly repayable in cash upon the occurrence of certain events relating to thegroup's ability to continue in business. Accordingly, no fair value isattributable to the liability component under IAS 32 and the entire amount ofthe Stock is presented within equity shareholders' funds in the group's balancesheet at 30 June 2005. During the second half of 2005 the whole of theremaining Stock was converted into Sopheon ordinary shares, either pursuant tothe exercised of conversion rights or automatically upon maturity on 23December 2005.5. Cautionary StatementSopheon has made forward-looking statements in this press release, includingstatements about the market for and benefits of its products and services;financial results; product development plans; the potential benefits ofbusiness relationships with third parties and business strategies. Thesestatements about future events are subject to risks and uncertainties thatcould cause Sopheon's actual results to differ materially from those that mightbe inferred from the forward-looking statements. Sopheon can make no assurancethat any forward-looking statements will prove correct.6. TrademarksAccolade‚® is a registered trademark of Sopheon.Stage-Gate‚® is a registered trademark of the Product Development Institute. ENDSOPHEON PLCRelated Shares:
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