Sopheon: Preliminary results for the year to 31 December 2003; Update on first quarter 2004
Sopheon plc ("Sopheon"), the international provider of software and services that improve the financial return from innovation and product development investments, announces its preliminary unaudited results for the year to 31 December 2003 and provides an update on 2004. Sopheon shares are traded on AIM in London and on the Euronext Amsterdam.

Highlights :

LBITDA for the year more than halved to £4.1m (2002: £8.9m)
Revenue for the year including units divested in 2003 was £6.7m (2002: £12.4m).
Sopheon’s flagship Accolade software solution continues to garner market recognition from customers, partners and analysts, and this is translating into orders. Version 5.0 was released, and by the end of the year Sopheon had over 30 licensed software customers. Revenues associated with Sopheon’s proprietary software represented over 90% of continuing business compared to less than 10% before Accolade was launched.
During the year the group took positive steps to restructure and focus on the software business based around Accolade, with the divestiture of the North American and German Information Management divisions and further adjustments made to the continuing business in the second half of the year. The cost base was dramatically reduced, and further funding was secured through the divestment activity, market placing and negotiation of a Eur10m equity line of credit.
Sopheon was recognised by leading analyst firms such as Gartner, META Group, and AMR as a best-of-breed vendor in the product life cycle management (PLM) market. Sopheon’s intellectual property protection also improved, with core patents approved in the US and in Europe.
A further 14 transactions were closed in Q1 of 2004 comprising 7 proof-of-concept and consulting assignments, 4 new license sales and 3 extension orders to existing implementations.
Sopheon’s Chairman, Barry Mence said: "2003 was a defining year for Sopheon. We concluded the sale of our IM businesses, which raised additional finances and together with other restructuring activity contained operational costs in a difficult market. These steps, and other funding activities completed over the last year allowed us to substantially reduce our losses, sustain our international profile and focus exclusively on growing our exciting software business, which we believe is well positioned to capitalise on market developments."

RESULTS AND FINANCE
Sopheon’s consolidated revenues were £6.7m (2002: £12.4m) and the consolidated LBITDA was £4.1m (2002: £8.9m). The reported LBITDA does not include the profit on disposal of the divested businesses. Goodwill charges amounted to £4.6m (2002: £5.9m) for the year, offset by gains on divestment amounting to £3.6m (2002: £nil) and research and development tax credits amounting to £0.3m (2002: £0.1m). The resultant retained loss for the year was £5.5m (2002: £16.1m) reducing the loss per ordinary share to 6.3p (2002: 19.4p). This continues the trend of reduction from the 2001 retained loss of £34.6m.
In addition to securing funds from divestment activity, the company raised £1.5m during the year by way of private equity placing to meet ongoing working capital requirements and the costs of restructuring the group. In addition, the board secured approval for the extension of the maturity of the group’s £2.6m convertible loan to June 2005. At the year-end, after deducting the convertible loan, the group reported consolidated net liabilities of £1.9m. Net current assets stood at £41,000 and gross cash esources £878,000. The directors are considering a range of options to propose to the holders of the convertible loan in the event that some or all of it remains unconverted at the time of maturity. The loan note has a conversion price of 12p per ordinary share, compared with market prices of 16p and 35p on 31 December 2003 and 30 March 2004 respectively. Alternatives include further extension of the maturity date and redemption at par. A change to the terms of the loan stock instrument would
need to be put to a meeting of its holders. At this time it is not anticipated that the alternatives under consideration would require modification of the loan stock conversion price.
In addition, in December 2003 Sopheon concluded an agreement for a €10 million equity line of credit facility with GEM Global Yield Fund Limited, securing access to a source of equity-based funding over which the company retains a substantial degree of control. In the first quarter of 2004 £1.4m before expenses has been raised, with over £0.6m raised through the equity line in March, in addition to a market-driven placing for £0.8m in January. The board is well aware of shareholder concerns over potential dilution arising from use of the equity line and will remain controlled in its use of the instrument. Further issues of shares through the equity line facility may require shareholder approval for an increase in the directors' authority to issue and allot shares. This will be dependent on existing authorities held by the board at the time, the market price of Sopheon's shares and the amount being
raised.

UPDATE ON FIRST QUARTER OF 2004
Progress continued in Q1 with new business being won from both new and existing clients. Some of the business that was pushed out at the end of 2003 has closed. Some also continues to be delayed.
Notwithstanding the improving environment, accurate prediction of sales in an emerging market remains challenging. For this reason, and as previously mentioned, we strengthened our balance sheet with two further small share issues, one of which was through the GEM equity line. Specific aspects
of Sopheon’s business performance during the first quarter included the following:
• 14 transactions were closed in the first quarter comprising 7 proof-of-concept and consulting assignments, 4 new license sales and 3 extension orders to existing implementations. The proof-of-concept activity includes one for Sopheon’s Monitor solution introduced through Sopheon’s relationship with Siemens SBS, and another underpinned by a substantial order for Accolade, conditional upon acceptance targeted for the second quarter.
• The Accolade client base remained positive and showed opportunity for revenue growth in two areas. First, early success with initial roll-outs is resulting in expansion of Accolade use to new business units or new process areas within existing clients. Second, we are seeing clients building on their initial Accolade implementation through the deployment of additional modules and services.
• Of the three substantial opportunities delayed from the final quarter of 2003, one was signed and accepted during this first quarter of 2004. Of the other two, one now looks decreasingly likely to be successful, and the decision on the other has been deferred to the second half of the year.
• Established business partners in Singapore and Germany continue to be active and contributed to Q1 sales. Other partner relationships are continuing to develop with consulting firms starting to engage Sopheon in proposals for their customers.
Taking Sopheon’s maintenance and other recurring revenue streams together with other orders closed, including potential revenue from conditional contracts noted above, total 2004 revenues already visible at the end of the first quarter exceed 60% of the total revenues booked in 2003 for the continuing software business.
OUTLOOK
Our assessment of the economic environment for Sopheon’s products and services is more optimistic than in the past. Our products are generating good levels of interest, have an expanding installed and referenceable client base, and enjoy increased validation by the market. Accolade has demonstrated consistently that it is a valuable solution in which clients are prepared to invest. Success remains dependent upon meeting sales targets, and accordingly we continue to exercise balance and caution in our planning approach. The cost base remains under tight control, and the board is striving to protect the high degree of focus that our divestment strategy has achieved.
The board believes that prospects for the company are positive in the current year and beyond, and that we are well-positioned to continue to advance toward our goal of becoming a leading international supplier of software and services that improve the financial return on innovation and product development investments.
Overall, we are encouraged by the direction, focus and momentum of our business, and we look forward to a successful 2004.