Proha Plc Stock Exchange Bulletin May 13, 2004 at 9.00 a.m.
INTERIM REPORT OF PROHA PLC FOR THE PERIOD JANUARY 1 - MARCH 31, 2004
- The Proha Group's net sales for January 1 - March 31, 2004 were
EUR 16.9 million (EUR 22.1 million for January 1 - March 31, 2003).
- The decline in volume of sales compared to the corresponding period
in 2003 was caused by the completion of some consulting
agreements after the corresponding period and major software license
sales recognzed as revenue during the first months of 2003.
The appreciation of the euro also has a declining effect on the
net sales.
- Earnings before interest, taxes and amortization (EBITA) totaled
EUR -2.1 million (EUR 0.6 million).
- The Group result was adversely affected by the restructuring
at the Artemis subgroup, that were substantially completed
during the first quarter of 2004.
- The result includes approximately EUR 1.0 million of non-recurring
reorganization charges.
- The new management of Artemis started at the end of January.
- Proha's operations in Norway have developed as estimated.
- After the first quarter of 2004 Proha Plc decided to acquire its
subsidiary Dovre International AS in Norway to the Group's full
ownership.
- The cost level of Artemis has been adjusted to a level that enables
the Proha Group to achieve profitability during the second quarter
of 2004.
BUSINESS PERFORMANCE
In accordance with its strategy, Proha focuses on international
portfolio and project management software and service business. The
Proha Group includes the subgroup Artemis (which constitutes
68% of the net sales of the Group) and project management operations
in Norway, which mainly serve the oil and gas sector and represent
32% of the net sales of the Group. Proha is the world leader in
enterprise-level project and portfolio management software solutions.
Proha's management estimates that the Group's market position has
remained strong during the first quarter.
In the Artemis subgroup, the development of net sales has been uneven
in different countries. After the decline during the second quarter of
2003, the business volume has continued in line with normal quarterly
fluctuations. The sale of new licenses has not advanced as planned in
the United Kingdom and the United States. During the period, about
16,000 new Artemis licenses were sold (20,000).
Patrick Ternier was appointed new President and CEO of the Artemis
subgroup as of January 23, 2004. The adjustments of Artemis' cost
structure are mainly conducted during the first quarter of 2004.
Artemis introduced two new industry-specific solutions, which are
designed for energy industry and the public sector. In Europe, the
portfolio and program management solution for the public sector has
been well received.
Improved support for Far Eastern scripts has opened significant
new markets for Artemis' products especially in the pharmaceutical
industry in Japan. The Artemis management is confident that the
positive trend will continue in the area.
The operations in Norway have developed as estimated. The slight
decline in the euro-denominated net sales is caused by the
approximately 10% appreciation of the euro vis-a-vis the Norwegian
krone in comparison with the first quarter of 2003.
NET SALES
The Group's net sales for the period January 1 - March 31, 2004 were
EUR 16.9 (22.1) million, showing a decrease of EUR 5.2 million
compared to the corresponding period in 2003.
The decline in volume of sales compared to the corresponding period
in 2003 was caused by the completion of some consulting
agreements after the corresponding period and major software license
sales recognized as revenue during the first months of 2003.
The appreciation of the euro also has a declining effect on the
net sales. The U.S. service sales decreased during the second
quarter of 2003 and remained on a lower level during the first
quarter of 2004.
In the first quarter of 2004, 64% of the Group's net
sales originated from outside the euro zone. The appreciation of the
euro vis-á-vis the main invoicing currencies (US dollar, British
pound, Japanese yen and Norwegian krone) reduced the euro-denominated
net sales for the period by 7% or EUR 1.5 million compared to the
first quarter of 2003.
Distribution of net sales by product type:
Net sales by EUR Percentage EUR Percentage
product Million of net sales Million of net sales
type 1-3/2004 1-3/2003
One-time
license revenue 2.6 15.4% 4.4 19.9%
Recurring
license revenue 3.8 22.5% 4.2 19.0%
Services 10.5 62.1% 13.5 61.1%
Total 16.9 100.0% 22.1 100.0%
The emphasis of net sales was still on services, which constituted
EUR 10.5 million (13.5 million) or 62.1% (61.1%) of net sales. The
services include Dovre's project management consulting and the
consulting, training, implementation and support services of Artemis'
software solutions.
License proceeds amounted to EUR 6.4 million (8.6 million), accounting
for 37.9% (38.9%) of net sales. The proceeds from one-time licenses
were EUR 2.6 million (4.4 million) and that of recurring licenses
EUR 3.8 million (4.2 million).
During the first quarter of 2004, the Group's customers purchased
16,000 (20,000) new Artemis end-user licenses. The total number of
Artemis licenses sold worldwide is over 570,000. The number of
licenses sold in the first quarter of 2004 is not fully comparable
to the first quarter of 2003 because license sales of 2004 were
focused on products with richer feature sets.
Distribution of net sales by country:
1-3/2004 1-3/2003
EUR Percentage EUR Percentage
million of net sales million of net sales
Great Britain 1.7 10% 3.2 14%
Italy 1.6 10% 1.6 7%
Japan 1.1 6% 1.5 7%
Norway 5.4 32% 6.4 29%
France 1.4 9% 2.0 9%
Germany 0.8 5% 0.8 4%
Singapore 0.4 2% 0.4 2%
Finland 2.1 13% 2.4 11%
United States 2.4 14% 3.8 17%
Total 16.9 100% 22.1 100%
PROFITABILITY
Earnings before interest, taxes and amortization (EBITA) totaled
EUR -2.1 million (0.6 million).
Operating result (EBIT) was EUR -2.5 million (0.1 million), amounting
to -15.1% (0.3%) of net sales.
The Group's performance was adversly affected by lower than expected
sales and result of Artemis sub-group. The result for the first
quarter of 2004 was still affected by significant legal
and auditing costs, which originated from Artemis operating as a
publicly held company in the United States.
The operating result included EUR 1.0 million (0.0) of non-recurring
reorganization charges. The charges include employment termination
costs of EUR 0.8 million and other operating expenses of
EUR 0.2 million.
The result of Norwegian operations was on estimated level.
The result before appropriations and taxes was EUR -2.4 million
(-0.3 million). The result for the period was EUR -2.9 million
(-0.7 million).
Earnings per share amounted to EUR -0.054 (-0.013). Return on
investment (ROI) was -47.6% (1.1%) and return on equity
(ROE) was -117.1% (-11.1%).
FINANCING AND INVESTMENTS
At the end of the first quarter, cash and cash equivalents totaled
EUR 6.5 million (12.8 million), showing a decrease of EUR 6.3 million
from the corresponding period in 2003 and a decrease of 0.5 million
from the previous quarter. In the first quarter, cash flow from
operating activities was EUR -3.8 million, mainly due to the losses
from Artemis'operations.
In August 2003, Proha's subsidiary, Artemis International Solutions
Corporation, agreed on a line of credit up to USD 5 million
with Laurus Master Fund Ltd to finance its business operations.
At the end of the first quarter, interest-bearing liabilities amounted
to EUR 11.1 million (8.0 million), accounting for 25.5% (15.2%) of the
Group's capital and reserves, provisions, and creditors' total. Of the
interest-bearing liabilities, EUR 4.2 million (5.3 million) were
non-current liabilities and EUR 6.9 million (2.7 million) current
liabilities.
The Group's Quick Ratio was 1.0 (1.2).
Capital expenditure was EUR 0.2 million (0.03 million).
The balance sheet total on March 31, 2004 was EUR 43.9 million
(53.6 million). Equity to assets ratio was 18.5% (34.1%) and gearing
was 59.4% (-29.0%).
STATEMENT ON THE ADEQUACY OF THE GROUP'S ASSETS
On March 31, 2004, the Group's cash and cash equivalents amounted to
EUR 6.5 million (12.8 million). According to Proha's management,
this is sufficient to continue as a going concern.
RESEARCH AND DEVELOPMENT
The product development costs of strategic products were
EUR 1.9 million (2.1 million), representing 11% (10%) of net sales in
the first quarter.
Research and development costs are expensed in the year they are
incurred. The product development costs of regionally developed
tactical products are also expensed in full.
The accounting treatment of product development costs will be changed
to comply with the IFRS standards during the financial year 2004.
According to plan, the IFRS standards will be applied for the first
time during the period January 1 - June 30, 2004.
This means that part of the product development costs that are now
expensed will be capitalized and amortized over their expected useful
lives. The change in the accounting principles is estimated to have a
positive impact on the operating result of the company.
PERSONNEL
At the end of the first quarter of 2004, the Proha Group employed 591
(649) people. The number of employees in Finland was 99 (111), where
as 492 (538) worked abroad. The average number of personnel in the
first quarter was 598 (650).
Staff costs amounted to EUR 13.2 million (15.2 million), constituting
78% (69%) of net sales. The staff costs for the first quarter of 2004
include charges of EUR 0.8 million (0.0) caused by terminations of
employment.
IFRS TRANSITION PLAN
Proha will publish its first IFRS financial statements for the
financial year ending December 31, 2005. As of 2005, the interim
reports will also be prepared in accordance with the IFRS standards.
The company will follow the recommendations of the CERS when
announcing about the implementation of the IFRS standards.
The preparations for the adoption of the IFRS standards have proceeded
as planned. According to Proha's estimates, the main differences from
the Group's current accounting principles will concern the treatment
of product development costs (IAS 38). Part of the product development
costs that were previously expensed will be capitalized and amortized
over their expected useful lives. In addition, the IFRS standards may
significantly affect the treatment of employee benefits (IAS 19),
deferred tax assets and liabilities (IAS 12), and stock options
(ED 2).
In accordance with Proha's current accounting principles, research and
development costs are expensed in the year they are incurred. The
treatment of product development costs will be changed to comply the
IFRS standards during the financial year 2004. According to plan, the
IFRS standards will be applied for the first time during the period
January 1-June 30, 2004. The change in the accounting principle is
estimated to have a positive impact on the operating result of the
company.
CHANGES IN THE GROUP STRUCTURE
There were no changes in the Group's structure from January 1 to
March 31, 2004.
After the period on April 30, 2004, Proha's Board of Directors decided
to use its option and buy the remaining 60% of the shares of Dovre
International AS in Norway. Prior to the execution of the option, the
Proha Group owns 40% of Dovre through its fully-owned Norwegian
subsidiary Safran Software Solutions AS and has control over the
company based on the shareholder agreement. The share exchange
transaction is estimated to be executed on June 1, 2004. The number
of new Proha shares to be issued as purchase consideration will be
based on the share option agreement. The number of new shares is
estimated to be 10-14% of the total number of Proha shares after
the issue.
ARTEMIS INTERNATIONAL SOLUTIONS CORPORATION
Proha owns 80% of Artemis International Solutions Corporation (AISC).
Members of the AISC Board of Directors are:
Steven Yager (Chairman), Pekka Halonen, Ari Horowitz, Pekka Mäkelä,
Mike Murphy, Olof Ödman, Pekka Pere and Amos Barzilay.
After the first quarter, AISC introduced a new portfolio management
solution for product development in the pharmaceutical industry. The
Swiss Actelion Pharmaceuticals, specialized in biomedicine, adopted
the portfolio management solution Artemis 7.
PROHA'S ANNUAL GENERAL MEETING HELD ON APRIL 14, 2004
The Annual General Meeting held on April 14, 2004 confirmed the
Financial Statements of 2003. The CEO and the Board of Directors were
discharged from liability.
The Annual General Meeting approved the Board of Directors' proposal
according to which the result for the financial year 2003 is entered
in profit/loss brought forward, and no dividend is paid.
The following five members were elected to the Board of Directors of
Proha Plc:
Olof Ödman, Pekka Pere, Alec Gores, Carlo Boldi, and Pekka Mäkelä.
The Annual General Meeting decided that the members of the Board, who
are not employed by the Proha Group or the Gores Technology Group,
are paid a fee of EUR 18,000 per year.
Ernst & Young Oy was elected as the company's auditor, with
Ulla Nykky, APA, as the auditor in charge.
Stock option issue
The Annual General Meeting approved the Board of Directors' proposal
to issue a maximum of 850,000 stock options. However, according to
the proposal of the elected Board members, the Annual General Meeting
did not give stock options to the Board members or the CEO. In a
Board meeting on April 14, 2004, the Board also decided not to give
any stock options to the key personnel of the Proha Group.
Authorization to increase the share capital
The Annual General Meeting authorized the Board of Directors to
increase the company's share capital through an issue of new shares,
stock options, option warrants and/or convertible bonds deviating from
the shareholders pre-emptive subscription rights. Pursuant to this
authorization, the aggregate maximum number of new shares to be issued
or offered for subscription pursuant to stock options, option warrants
and/or convertible bonds shall not exceed 10,673,454 with a book value
of EUR 0.26 each, and the share capital of the company may be
increased by no more than EUR 2,775,098.04. This represents 20 per
cent of the currently registered share capital and of the votes that
can be cast in the General Meeting of Shareholders. This authorization
is valid for a period of one year beginning from the date of the
Annual General Meeting. The General Meeting decided that the
authorization given to the Board by the Annual General Meeting
on April 24, 2003 ends immediately.
SHARE CAPITAL AND AUTHORIZATIONS TO ISSUE SHARES
Proha Plc has one class of shares. The book value of the shares is
EUR 0.26 per share and each share entitles the shareholder to one
vote. Proha Plc shares are traded on the NM list of the Helsinki
Stock Exchange.
On January 1, 2003, the subscribed capital of Proha Plc was EUR
13,875,490.20 and the total number of shares was 53,367,270.
The Board of Directors has an authorization given by the Annual
General Meeting on April 14, 2004 to decide on the increase of the
company's share capital. Pursuant to this authorization, the share
capital of the company may be increased by no more than
EUR 2,775,098.04 by offering for subscription the maximum of
10,673,454 new shares which represents 20 percent of the registered
share capital. This authorization is valid for a period of one year
from the date of Annual General Meeting.
The Board decided on April 30, 2004 to use this authorization to buy
the remaining 60% of the share capital of Dovre International AS as
a share exchange. The final number of new Proha shares to be issued
as purchase consideration will be confirmed at the closing of the
purchase that is estimated to take place on June 1, 2004. The number
of new shares is estimated to be 10-14% of the total number of Proha
shares after the issue.
CONVERTIBLE LOAN
On December 20, 2002, Proha issued a convertible loan that was
offered for subscription to professional investors. A total of
EUR 2,810,000 of the loan was subscribed. The fixed interest rate of
the loan is 6.00% p.a. The loan matures on December 30, 2007.
The loan can be converted into a maximum of 4,496,000 new shares.
TRADING ON THE HELSINKI STOCK EXCHANGE
The number of registered shareholders of Proha Plc totaled 4023 on
March 31, 2004. During the period, the share price was EUR 0.66 at
its lowest and EUR 1.15 at its highest, the closing price on
31.03.04 being EUR 0.67. Market capitalization was approximately
EUR 35.7 million at the end of the period. The trading volume of the
Proha share on the NM list of the Helsinki Stock Exchange was over
EUR 7.4 million during the first quarter of 2004.
EVENTS FOLLOWING THE PERIOD
Proha to acquire full ownership of Dovre International AS
Proha Plc's Board decided to use its option to acquire full
ownership of Dovre International AS (Dovre) in Norway. Prior to the
execution of the option, the Proha Group owns 40% of Dovre through
its Norwegian subsidiary Safran Software Solutions AS and has control
over the company based on the shareholder agreement.
Based on Proha's control over Dovre it has been consolidated as a
subsidiary into Proha's financial statements. Consequently, the
acquisition has no impact on the Group's consolidated net sales and
no essential impact on the operating result.
The transaction will be conducted as a share exchange. The final
number of Proha shares to be issued as purchase consideration will
be based on the share option agreement. The number of new shares is
estimated to be 10-14% of the total number of Proha shares after the
issue. Of the shares to be issued two thirds (2/3) will be subject to
restriction of sales, which will expire in full within two years time.
The transaction is estimated to take place on June 1, 2004.
PROSPECTS FOR THE NEAR FUTURE
Proha's management expects the Group's result in 2004 to improve
compared to the previous year. The cost level at Artemis has been
adjusted to a level that enables the Group to achieve profitability
during the second quarter of 2004.
ARTEMIS FIRST QUARTER 2004 EARNINGS RELEASE
Artemis sub-group publishded its first quarter financial result
on May 12, 2004.
The Artemis SEC Filing (FORM 8-K) can be seen on the SEC
website www.sec.gov/edgar/searchedgar/companysearch.html with
the name Artemis International.
PRESS CONFERENCE
Proha Plc will hold a press conference for the media and financial
analysts on 13 May 2004 at 12.00 a.m. at the World Trade Center,
Aleksanterinkatu 17, Helsinki.
For more information please contact:
PROHA PLC
CEO Pekka Pere, tel. +358 (0)20 4362 000
pekka.pere@proha.com
www.proha.com
DISTRIBUTION:
Helsinki Stock Exchange
Major Media
The figures in this interim report are unaudited.
PROHA GROUP CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET
JANUARY 1-MARCH 31, 2004
INCOME STATEMENT 1/04-3/04 1/03-3/03 1/03-12/03
(EUR 1000) (EUR 1000) (EUR 1000)
Net sales 16 887 22 135 76 792
Share of associated companies' results 28 3 5
Other operating income 23 277 1 031
Materials and services -1 401 -2 037 -6 188
Staff costs -13 262 -15 237 -56 782
Depreciation, amortization and
value adjustments
Depreciation according to plan -155 -266 -1 133
Amortization of goodwill
on consolidation -469 -495 -1 982
Change in consolidation reserve 22 9 36
Depreciation, amortization and
value adjustments total -601 -752 -3 079
Other operating expenses -4 216 -4 321 -17 766
Operating profit/loss -2 543 67 -5 988
Financial income and expense 161 -379 141
Profit/loss before extraordinary items,
appropriations and taxes -2 382 -313 -5 847
Income taxes -337 -146 -978
Change in deferred tax liabilities 0 -13 -78
Profit (loss) before minority interest -2 718 -472 -6 902
Minority interest -181 -216 715
Profit/loss for the period -2 899 -688 -6 187
BALANCE SHEET
ASSETS
Non-current assets
Intangible assets 451 616 463
Goodwill on consolidation 11 951 13 902 12 420
Tangible assets 1 028 1 414 997
Investments 2 133 2 265 2 114
Non-current assets total 15 563 18 197 15 995
Current assets
Non-current receivables 427 416 448
Current receivables 21 327 22 119 21 120
Marketable securities 80 88 80
Cash and cash equivalents 6 505 12 804 7 058
Current assets total 28 339 35 427 28 706
ASSETS TOTAL 43 902 53 624 44 701
LIABILITIES
Capital and reserves
Subscribed capital 13 875 13 485 13 875
Share premium account 2 964 3 906 2 964
Profit/loss brought forward -7 529 -2 415 -796
Profit/loss for the period -2 899 -688 -6 187
Capital loan 0 187 0
Capital and reserves total 6 411 14 475 9 857
Minority interest 1 231 2 608 1 081
Consolidation reserve 245 281 254
Provisions 212 430 88
Creditors
Non-current creditors 4 400 5 389 4 317
Current creditors 31 402 30 440 29 104
Creditors total 35 802 35 829 33 421
LIABILITIES TOTAL 43 902 53 624 44 701
KEY RATIOS OF THE PROHA GROUP
1/04-3/04 1/03-3/03 1/03-12/03
Net sales (EUR 1000) 16 887 22 135 76 792
EBITDA* -1 941 819 -2 909
% of net sales -11.5% 3.7% -3.8%
EBITA** -2 096 553 -4 042
% of net sales -12.4% 2.5% -5.3%
EBIT*** -2 543 67 -5 988
% of net sales -15.1% 0.3% -7.8%
Profit/loss before extraordinary
items, appropriations and taxes -2 382 -313 -5 847
% of net sales -14.1% -1.4% -7.6%
Profit/loss for the period -2 899 -688 -6 187
% of net sales -17.2% -3.1% -8.1%
* Earnings before interest, taxes, depreciation and amortization
** Earnings before interest, taxes and amortization
*** Operating result
Research and development costs,
EUR 1000 1 862 2 135 7 920
% of net sales 11.0% 9.6% 10.3%
Personnel at the end of
the period 591 649 619
Average personnel 598 650 642
1) Weighted number of shares 53 367 270 51 867 270 52 615 215
1) Earnings per share, EUR -0.05 -0.013 -0.12
2) Weighted number of shares
diluted by stock options 55 649 910 52 072 361 53 128 712
2) Earnings per share, EUR *) *) *)
*) The key ratio Earnings per share, adjusted by the dilution effect,
is not presented because it would be better than the undiluted
figure
3) Number of shares at the
end of the period 53 367 270 51 867 270 53 367 270
3) Equity per share, EUR 0.12 0.28 0.19
Net sales by geographical area
1/04-3/04 1/03-3/03 1/03-12/03
United States 14% 17% 18%
Finland 13% 11% 10%
Rest of Europe 66% 63% 64%
Asia 7% 9% 8%
Total 100% 100% 100%
Net sales by product type
One-time license revenue 15% 20% 16%
Recurring license revenue 23% 19% 21%
Services 62% 61% 63%
Total 100% 100% 100%
CASH FLOW STATEMENT 1.1.-31.3.2004 1.1.-31.12.2003
Cash flow from operating activities
Operating profit/loss -2 543 -5 988
Adjustments
Depreciation, amortization
and value adjustments 601 3 079
Profits and losses on sale
of fixed assets and shares 0 -121
Other adjustments 110 -385
Change in net working capital -1 580 -363
Financial income and expense, net 259 236
Income taxes -619 -748
Cash flow from operating activities -3 772 -4 290
Cash flow from investing activities
Investments in tangible and
intangible assets -172 -493
Cash flow from acquisition of
subsidiaries and associated companies -3 0
Cash flow from disposal of
subsidiaries and associated companies 0 150
Other paid cash flows -9 0
Other received cash flows 0 63
Cash flow from investing activities -184 -280
Cash flow from financing activities
Share issue 0 938
Proceeds from short-term loans 3 556 5 379
Repayments of short-term loans -19 -5 972
Proceeds from long-term loans 0 151
Repayments of long-term loans -135 -1 030
Repayments of capital loans 0 -102
Dividends paid 0 -401
Cash flow from financing activities 3 402 -1 037
Change in cash and cash equivalents -553 -5 608
Cash and cash equivalents Jan. 1 -7 058 -12 666
Cash and cash equivalents Mar. 31 6 505 7 058
Change in cash and cash equivalents -553 -5 608
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