5th Apr 2005 06:00
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 servicesthat improve the financial return from innovation and product developmentinvestments, announces its preliminary unaudited results for the year to 31December 2004, which are in line with expectations, and provides an update on2005. 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 Officƒ«le 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 strategycome through and translate into top line growth in our core business. We arefocused on the challenge of maintaining momentum into the first half of 2005,and we continue to strive for pipeline creation, extending business withexisting customers, and stepping up our partnership programmes. We are excitedby the potential of the next release of Accolade, which we believe willmaintain 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 010About SopheonSopheon (LSE:SPE) is an international provider of software and services thathelp organizations improve the business impact of product development. TheSopheon Accolade‚® product development system automates gate- or phase-basedproduct development (PD) processes and provides strategic decision support thatallows companies to improve innovation, cut product development spending wasteand shorten time to market. 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.IntroductionSopheon entered 2004 tightly focused on the market potential of its softwaresolutions, following the successful divestment of information managementdivisions in the USA and Germany. This left a core business with asubstantially reduced cost base, but an international presence geared to buildon the promise of our flagship product, the Accolade product portfolio andprocess management system. During the year we delivered substantialoperational, financial and strategic achievements. Revenues for the continuingsoftware business nearly doubled in dollar terms, EBITDA loss was reduced bymore than 70% and the balance sheet was strengthened. Our market presence interms of sales, industry recognition and partnership development continued togather pace. We are a recognized leader in a new enterprise software sectorthat is focused on helping organizations improve the business impact of productdevelopment.ResultsSopheon's consolidated turnover from continuing activities grew to ‚£4.3m (2003:‚£2.7m for the continuing software business and ‚£4.1m from businesses divestedin 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, inaddition to net interest of ‚£0.3m (2003: ‚£0.2m). After factoring in researchand development tax credits amounting to ‚£0.1m (2003 - ‚£0.3m) the retained lossfor the year was ‚£1.8m (2003: ‚£5.5m) reducing the loss per ordinary share to1.6p (2003: 6.3p). This continues the trend of improvement since 2001, when thegroup 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 significanteffect on reported turnover, but because a large portion of Sopheon's costs aredollar denominated, Sopheon's EBITDA performance was in line with brokerforecasts.Viewed broadly, Sopheon's revenue mix in 2004 was 60:20:20 among license,maintenance and consulting services respectively. The management team is veryconscious of the importance of building the recurring revenue base ofmaintenance contracts, and Sopheon enters 2005 with an annualized run rate ofmore than ‚£1m in such revenue.Sopheon implemented a controlled expansion in R&D resources in the final weeksof 2004, recruiting into our Denver development center. Other overheadsremained stable during the year and our plans for 2005 include limitedexpansion of sales and services resources, dependent on performance. Incentivepayments for staff as a whole also remain tightly linked to achieving financialobjectives.FinancingCash resources as of 31 December 2004 totalled ‚£1.2m (2003 - ‚£0.9m) and netcurrent assets amounted to ‚£1.1m (2003: ‚£0.1m). The trebling of trade debtorscompared to 2003 appears high relative to total turnover, but is due to thesubstantial license sales achieved in December.In 2003 Sopheon concluded an agreement for a ¢â€š¬10 million equity line of creditfacility with GEM Global Yield Fund Limited by securing access to a source ofequity-based funding over which the company retains a substantial degree ofcontrol. GEM's obligation to subscribe for shares is subject to certainconditions linked to the prevailing trading volumes and prices of Sopheonshares on the Euronext stock exchange. More than 90% of the equity linefacility, the term of which extends to 23 December 2005, remains available. Theboard is considering whether to seek an extension to the instrument. During2004 the company raised ‚£2.4m in cash through private equity placement. Of thatsum, ‚£0.6m was secured through the equity line.In June 2004, as set out in more detail in the notes to this statement, theboard secured a resolution from holders of the group's ‚£2.6 million 6%Convertible Loan Stock to reconstitute the instrument such that it has beenreclassified as equity shareholders' funds in the balance sheet. These actions,coupled with the improved trading performance, enabled Sopheon to end 2004 withconsolidated net assets of ‚£1.2m compared to a net deficit of ‚£1.9m at the endof 2003.MarketOverall, we continued to see high rates of adoption of Accolade within ourinstalled base, with the largest single client implementation at 2200 seats. Wealso signed our first contracts extending the use of Accolade to automate andimprove business processes beyond the area of product development. Anotherpriority in 2004 was to generate additional business with existing customers.BASF is an excellent example. Developed as a customer through one of Sopheon'sdistribution partners, BASF began implementation of Accolade a year ago. Ourrelationship with this chemicals industry leader has grown rapidly since then,and BASF is now one of four Sopheon clients that have contracted for 2000 ormore Accolade seat-licenses. Another market development of note was expansionof the Accolade platform to use by hospitals in the management of clinicaltrials. 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 newofferings: hosting services for our license customers, and subscriptions forour Monitor system. The former offers a low total-cost-of-ownership model tolicense customers and attracted attention from both small and large prospects.To date, four Accolade customers have contracted for a hosted environment. TheMonitor subscription is underpinned by a business partnership with Siemens.Supported by Airbus and Boeing, this partnership centers on introducing aweb-based application to the aviation industry to promote standardizationaround Radio Frequency Identification (RFID) use.Sopheon made important progress in 2004 in positioning itself for the longerterm by securing distribution partners in geographical areas outside theCompany's existing sphere of operations and strategic alliances in key markets.The first area is a key priority for further expansion in 2005, augmentingexisting partner presence in continental Europe and the Asia Pacific. Thesecond bore fruit in the final quarter of 2004, when we announced that we hadbecome part of Microsoft's Collaborative Product Development (CPD) initiative,building significantly on our existing Gold Partnership status. The CPDinitiative is designed to help companies leverage investments in Microsofttechnology by using it to improve product development success rates. Microsoftand Sopheon are teaming to develop, promote and deliver solutions based onintegrated technologies. Other CPD participants include Hewlett Packard, UGS,and Dassault Systems.Product developmentIn conjunction with the launch of the Microsoft CPD initiative, Sopheonannounced that it would integrate Microsoft Project Server 2003 and SharePointPortal Server 2003 into Accolade, to further enhance collaborative,information-sharing and enterprise deployment capabilities. During the firstquarter of 2005, with support from Microsoft, resources have been expanded toaccelerate these developments. Accolade is built on Microsoft technology andsince inception, has leveraged tools such as Office, NetMeeting and Project tofacilitate information sharing, ease-of-use and fast implementation. Theexpanded integration of Microsoft technologies will increase Accolade'scapacity to leverage work repositories and will strengthen its ability to scaleto enterprise-wide implementation.At Parker Hannifin Corporation, Sopheon assisted with the rollout of Accoladeunder an enterprise-wide license agreement concluded in June. Parker reviewedthree lifecycle management software solutions and selected Accolade based onsuch considerations as its ease-of-use, speed of deployment, built-inbest-practices content, capacity to scale, and ability to further leverageMicrosoft technologies already prevalent in their business - a good example ofthe 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 threeareas benefit from US patent protection. In line with our vision ofunderpinning complex business processes such as product development withrelevant knowledge management tools we have applied much of this intellectualproperty in Sopheon's healthcare compliance solutions in the Netherlands, andlook to integrate such technologies into our Accolade roadmap whereappropriate.Board of Directors and Management teamSopheon's group management and governance structure is divided between aSopheon plc board of directors and an executive management board responsiblefor business operations. The Sopheon plc board remains unchanged with fournon-executive directors, and three executive directors, being the executivechairman, the CEO and the CFO. The executive management board is a team offive, which includes the three executive directors.Update on First Quarter of 2005In the wake of record license sales at the end of 2004, the operational focusin the first quarter of 2005 was on refilling of sales funnels and on deliveryof implementation services to new licensees. In addition to ongoing services,three new Accolade licenses, and seven extension orders with existing customersfor additional user licenses, consultancy or hosting services, contributed torevenue in the quarter. The extensions included a license that will allow onecurrent client to extend the use of Accolade beyond product development intoSix Sigma management.As part of the effort to generate new prospects for the sales pipeline, Sopheonparticipated in a number of commercial marketing events consisting of webinars,conference activity and seminars in both America and Europe. Such eventsincluded four Microsoft sponsored innovation seminars, which in addition totheir marketing value, provided venues for critical networking andcollaboration between field representatives of both organizations. A number ofmajor Accolade sales opportunities targeted for closure in the second quarterof 2005 involve such collaboration between Sopheon and Microsoft. Release of anew version of Accolade, which as noted above will feature tighter integrationwith Microsoft technologies, is planned for the second quarter and has been amajor focus for our recently expanded product development team. The technicaladvances and added differentiation being incorporated into this upcomingrelease are expected to reinforce Accolade's best-of-breed position in ourchosen 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 ofgrowth. This training took place in our facilities in Amsterdam and Denver,enabling participation by partners from all new geographies now covered by ourgrowing global network of partners.Following integration of the Euro.NM Amsterdam with the Officƒ«le Markt, Sopheonhas been elevated to the Eurolist from Euronext and is now a component of theAmsterdam Small Cap Index (AScX).OutlookThe past year was earmarked by steady improvements in the performance of ourbusiness and significant progress in key areas of strategy. Revenues in ourbusiness do however continue to be sensitive to the timing and value ofindividual sales events, which are challenging to predict with precision.Accordingly we continue to exercise balance and caution in our planningapproach. Our cost base remains under tight control, and the board continues tobelieve in the importance of not disrupting the high degree of focus achievedin the business since our divestiture activity in 2003. Accolade is generatingstrong interest, has an expanding installed client base, and enjoys increasedvalidation by the market. It has demonstrated, consistently, that it is avaluable solution in which clients are prepared to invest, reflected in thefact that four of our customers have each made license investments ofUS$600,000 or more. Overall, we are encouraged by the direction, focus andmomentum 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) NOTESPrincipal Accounting PoliciesAccounting convention and basis of preparationThe financial statements are prepared under the historical cost convention andin accordance with applicable accounting standards, and on the going concernbasis.During 2004 the group's revenues from continuing operations grew by 60%, whichtogether with the cost restructuring and divestments completed in 2003 reducedits total losses on an EBITDA (earnings before interest, tax, depreciation andamortisation) 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 issecured against the trade debtors of Sopheon Corporation Minnesota. At 31December 2004, $207,000 (‚£108,000) was drawn against this facility. Thefacilities with Silicon Valley Bank have been in place since 1999, and arerenewable annually in October.The directors are encouraged by the direction, focus and momentum of thebusiness and believe that this, together with the group's resources provide itwith adequate funding to support its activities through to the point at whichthey anticipate that trading will become cash generative on a sustained basis.This is in turn dependent on the group maintaining the substantial sales growthachieved in 2004.Should this not be the case, or should the group require additional funding forother operational or investment purposes, Sopheon continues to have access toits equity line of credit facility from GEM Global Yield Fund Limited ("GEM")for an aggregate of ¢â€š¬10 million over the two year life of the instrument, whichcomes to an end on 22 December 2005. GEM's obligation to subscribe for sharesis subject to certain conditions linked to the prevailing trading volumes andprices of Sopheon shares on the Euronext stock exchange. In March 2004, Sopheonmade a first call on the equity line of credit facility, raising just under ¢â€š¬1million before expenses and accordingly, leaving ¢â€š¬9 million available under theinstrument. The directors are considering whether it is appropriate to seek anextension to the life in order to provide continued access to the facility forthe foreseeable future.The directors believe that together, the points above will enable the group tocontinue as a going concern. However, uncertainties remain as to theachievement of the expected sales growth and the continued availability offacilities to the group. The financial statements do not reflect anyadjustments which would be required if the going concern assumption was notappropriate. The precise extent and quantification of such adjustments has notbeen determined but these could include the reclassification of any unconvertedelement of the group's convertible unsecured loan stock to creditors fallingdue within one year, and provision for additional liabilities. The auditorshave indicated that they will issue an unqualified audit report, but consistentwith prior years, will draw attention to the uncertainty over going concern.Tangible fixed assetsTangible fixed assets are stated at historical cost, less accumulateddepreciation. Tangible fixed assets are depreciated on a straight-line basis atrates ranging from 20% to 33% per annum on cost over their expected usefullives.Research and developmentResearch and development expenditure is written off as incurred. The costs ofregistering patents and trademarks are written off as incurred.NOTESPrincipal Accounting PoliciesGoodwillGoodwill arising on consolidation is capitalised and amortised on astraight-line basis over its estimated useful economic life, which is threeyears in all cases. Goodwill is reviewed for impairment at the end of the firstfull financial year after acquisition and in other periods if events or changesin circumstances indicate that carrying values may not be recoverable. If asubsidiary, associate or business is subsequently sold or closed, any goodwillarising on acquisition that has not been amortised is taken into account indetermining the profit or loss on sale or closure.Deferred taxationDeferred tax is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents that result in an obligation to pay more, or a right to pay less, tax inthe future have occurred at the balance sheet date, with the followingexception. Deferred tax assets are recognised only to the extent that thedirectors consider that it is more likely than not that there will be suitabletaxable profits from which the future reversal of the underlying timingdifferences can be deducted. Deferred tax is measured on a non-discounted basisat the tax rates that are expected to apply in the periods in which timingdifferences reverse, based on tax rates and laws enacted or substantivelyenacted at the balance sheet date.Foreign currenciesThe assets and liabilities of the subsidiary undertakings are translated at therate of exchange ruling at the balance sheet date. The profit and loss accountis translated at the average rate of exchange. The exchange differences arisingon the retranslation of subsidiary undertakings are, together with differencesarising on the translation of long-term intra-group funding loans that are notintended to be repaid in the foreseeable future, taken directly to reserves.All other differences are taken to the profit and loss account.PensionsSopheon contributes to the personal pension arrangements of employees, thecosts of which are charged in the profit and loss account as incurred.LeasingRentals payable under operating leases are charged to the profit and lossaccount on a straight-line basis over the lease term.Basis of consolidationThe consolidated financial statements include the results of the company andits subsidiary undertakings. The results of Sopheon Teltech (the informationand research services division of Sopheon Corporation Minnesota) and SopheonGmbH (formerly the Technology and Information Services Division of AventisResearch & Technologies) have been included up to their dates of disposal,which were respectively 1 July 2003 and 15 August 2003.EBITDAEBITDA represents earnings before interest, tax, depreciation and amortisation,also excluding profits on disposal of operations and non-recurring equity-basedcosts incurred in connection with acquisitions. The expression "EBITDA loss"represents losses computed on the same basis.NOTESTurnoverTurnover is stated net of value added tax and comprises amounts derived fromthe Group's principal continuing activities which comprise ‚£4,323,000 (2003: ‚£2,669,000) from the design, development, production and marketing of softwareproducts together with associated implementation and consultancy services and ‚£nil (2003: ‚£4,065,000) from activities discontinued in 2003 comprising mainlyof the provision of information and research services by Sopheon GmbH andSopheon Teltech up to the relevant dates of disposal.Sales of software products are recognised on delivery, and when no significantvendor obligations remain. Revenues from implementation and consultancyservices are recognised as the services are performed. Revenues relating tomaintenance and post contract support agreements are deferred and recognisedover the period of the agreements. Revenues and associated costs under longterm contracts are recognised on a percentage basis as the work is completedand any relevant milestones are met, using latest estimates to determine theexpected duration and cost of the project.Earnings per shareThe 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) ordinaryshares, being the weighted average number of ordinary shares in issue duringthe year, including 8,085,249 ordinary shares representing the weighted averageeffect of the reconstitution of the group's convertible loan note. The effectof all potential ordinary shares is antidilutive.CreditorsCreditors 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 NoteIn 2004, the holders of the group's ‚£2.6 million 6% Convertible Loan Stockresolved to reconstitute the instrument such that, in return for a one-offpayment of 7% and subject to the Sopheon group continuing to meet key solvencytests, the Stock would automatically convert into ordinary shares rather thanbe repayable on maturity in December 2005. The solvency tests include theCompany being unable, for the purposes of Section 123 of the Insolvency Act1986, to pay its debts as they fall due; the appointment of an administrator,receiver, liquidator, trustee or similar officer; or the Company ceasing tocarry on business as a going concern. This change also eliminated the annualinterest coupon. Due to the modifications of the terms of the instrument, anamount of ‚£1,509,000 representing the nominal amount of the Stock outstandingat 31 December 2004 has been reclassified as equity.Annual ReportThe financial information set out above does not constitute the company'sstatutory financial statements as defined in section 240 of the UK CompaniesAct 1985 for the years ended 31 December 2004 or 2003. Statutory financialstatements for 2003 have been delivered to the registrar of companies and anunqualified audit opinion was issued thereon. The statutory financialstatements for 2004 will be delivered to the registrar of companies followingthe Company's annual general meeting. The Annual Report and FinancialStatements will be posted to shareholders shortly and thereafter will beavailable from the Company's registered office at 40 Occam Road, SurreyResearch Park, Guildford, Surrey GU2 7YG.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. Descriptions of some ofthe key risk factors that could negatively affect Sopheon's future performanceare contained in Sopheon's Form 20 - F Annual Report, on file with the U.S.Securities and Exchange Commission.ENDSOPHEON PLCRelated Shares:
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