TIDMSPE
RNS Number : 6670J
Sopheon PLC
25 August 2021
Embargoed release: 07:00hrs Wednesday 25 August 2021
SOPHEON PLC
("Sopheon", the "Company" or the "Group")
RESULTS FOR THE 6 MONTHS TO 30 JUNE 2021
Sopheon plc, the international provider of software and services
for Enterprise Innovation Management solutions, announces its
unaudited half-yearly financial report for the six months ended 30
June 2021 together with a business review and outlook statement for
the second half of the year.
Highlights:
-- Revenue up 19% over prior year - $16.5m vs $13.9m in H1 2020
-- ARR(1) of $19.8m (H1 2020: $16.5m) demonstrating strong progress on SaaS transition goals
-- Gross ARR retention for the year to date at 97% (H1 2020: 94%)
-- Full year 2021 revenue visibility(2) is now at $31.2m (last year at this time: $25.5m)
-- TCV(3) of signed contract bookings in the first half of the
year were 1.3X the comparable prior year period, and TCV of SaaS
bookings 1.5X
-- Adjusted EBITDA(4) of $2.8m (H1 2020: $2.6m)
-- New senior leadership in product, marketing and sales, with
increased investments in product and marketing initiatives
planned
-- Net cash of $24.1m (H1 2020: $21.9m) and the Group is debt free
Sopheon's Executive Chairman, Andy Michuda said: "Last year we
embarked on a strategy to migrate to a recurring revenue model by
prioritizing SaaS contracts for new customers and encouraging
existing customers to convert. It is very rewarding to report
rising commercial traction across our core performance metrics -
with revenue, TCV, ARR, retention, and current year visibility all
showing significant progress and in many cases at historical highs,
underpinning our expectations for the year. As expected, profit
levels are rising more slowly through the SaaS transition period,
reflecting the switch of revenue model and the rising investment in
the business. Our key financial metrics and progress against
strategic initiatives, coupled with our substantial cash reserves
give us confidence that we are on the right path to deliver strong
long term shareholder value."
For further information contact:
Andy Michuda, Executive Chairman + 44 (0) 1276
Arif Karimjee, CFO Sopheon plc 919 560
Carl Holmes / Edward Whiley
(corporate finance)
Alice Lane / Sunila de Silva + 44 (0) 20 7220
(ECM) finnCap Ltd 0500
About Sopheon. Sopheon (LSE: SPE) partners with customers to
provide complete enterprise innovation management solutions
including software, expertise, and best practices, that enable them
to achieve exceptional long-term revenue growth and profitability.
Sopheon's Accolade solution provides unique, fully-integrated
coverage for the entire innovation management and new product
development lifecycle, including strategic innovation planning,
roadmapping, idea and concept development, process and project
management, portfolio management and resource planning. Sopheon's
solutions have been implemented by over 250 customers with over
60,000 users in over 50 countries. Sopheon is listed on AIM,
operated by the London Stock Exchange. For more information, please
visit www.sopheon.com
(1) ARR is the value of the group's recurring revenue including
SaaS, maintenance and hosting normalized for a single calendar
year
(2) Revenue visibility is defined in Note 5.
(3) TCV is total contract value of sales bookings in the
period
(4) Adjusted EBITDA is defined in Note 3
Sopheon(R) and Accolade(R) are trademarks of Sopheon plc
CHAIRMAN'S STATEMENT
Trading Performance
First half revenue was $16.5m compared to $13.9m last year,
almost 19% higher, and partially due to the impact of our ARR
growth from prior years. Another step up was achieved in the TCV of
total sales bookings, and will similarly contribute to future
revenue growth. During the period we closed 35 software
transactions - this compares to 13 for the same period last year,
but with a lower average deal size. Overall, three customers
exceeded $1m in booking value in the first half of this year,
including service orders, compared to four in the first half of
2020. As last year, all our new customers opted for SaaS,
underpinning our move to the recurring revenue model, and total
SaaS bookings for the half year increased by 48%. In spite of our
continued transition to a SaaS revenue model, extensions from the
base will continue to drive a degree of perpetual licensing for the
foreseeable future. Perpetual license and service bookings were
also up period to period - leading to total TCV being up by 28%.
Our "Cloud Lift" program, introduced last year, continues to
convert existing perpetual customers to a SaaS license, on the back
of a strong ROI offering. Four perpetual customers took advantage
of Cloud Lift during all of 2020, and a further five in the first
half of 2021. We believe this program will continue to gain
momentum due to a market-wide trend to remove corporate IT
infrastructure and shift this burden to vendors.
Retention levels have improved and our ARR gross retention rate
stands at 97% year to date up from 94% at this time last year.
Reasons for non-renewal included M&A and re-organization; we
are seeing less cost-control driven attrition in 2021 compared to
last year as confidence builds post pandemic. New orders
significantly exceed the attrition, and ARR now stands at $19.8m up
from $16.5m last June and compared to $18.0m at the start of this
year. We have continued to book orders from new and existing
customers since the period end, and we are pleased to report that
revenue visibility today stands at $31.2m compared to $25.5m at
this time last year. We expect some continued seasonality of sales,
which typically cluster in the fourth quarter however due to our
progress in migrating to SaaS contracts we expect the 2021 revenue
impact to be less marked than in the past. The geographical split
of revenue remains roughly two-thirds North America and one-third
Europe and rest of world - with the rest of world element
relatively active this year thanks mainly to new relationships in
the far east. Further analysis of revenue is given in Note 3 of the
financial statements.
Margin and Results
Gross margin for the period rose to 71% (2020: 67%) reflecting a
slightly lower proportion of consulting revenue. Direct costs
include costs for license and support for certain OEM components of
our solution, costs of our hosting operations, and movements in
indirect taxes; but the main component is the cost of our delivery
and support teams, and associated subcontractors. Following the
lull during the main peaks of the pandemic last year, competition
for technical staff in particular has returned to the market and
costs of employment in this area continue to accelerate. While we
have been successful in bringing in a substantial number of high
quality recruits, we have also experienced staff turnover.
Accordingly, average headcount for the first half of the year was
169 (H1 2020: 162) however we did increase subcontracting in all
areas which has compensated for the limited staff growth.
Operationally, our remote working methodologies have been very
successful, and the vast majority of staff continue to work from
home with minimal impact to the business.
P rimary expense categories are showing an increase compared to
the prior year. This is due to the following factors all of which
have been alluded to - greater and more senior headcount, continued
upward pressure on compensation costs, additional subcontracting,
and higher sales leading to higher variable pay. In particular,
based on the first half performance and unlike in 2020, the half
year point includes a full provision for incentive costs. The
Group's main bonus scheme is based on achievement of both EBITDA
and ARR goals. In addition to these operational points,
administrative expenses (which includes all other overheads, office
costs, regulatory and compliance costs, and depreciation) were
depressed in 2020 through a combination of exchange gains on our
substantial cash balances that have reversed in 2021, and also due
to COVID-related subsidies in the Netherlands that we have not
recorded in the current period.
Overall, profit before tax reported for the half-year period was
$0.5m (H1 2020: $0.5m). This result includes net interest,
depreciation and amortization and share-based payment costs
amounting to $2.3m (H1 2020: $2.1m). The Adjusted EBITDA result for
the first half of 2021, which does not include these elements, was
accordingly $2.8m (H1 2020: $2.6m). A modest adjustment has been
recorded to the deferred tax asset due to changes in UK tax rates,
and provision has been made for approximately $0.1m in current tax
for US state taxes and German corporation tax (H1 2020: $0.1m),
giving a final profit after tax of $0.4m compared to $0.3m the year
before. This has translated to basic and diluted EPS of 3.57 and
3.46 cents respectively (H1 2020: 3.23 and 3.10).
Balance sheet and Corporate
Net assets at 30 June 2021 stood at $30.8m (30 June 2020: $27.9m
/ 31 December 2020: $30.1m), with cash at the end of the period
rising to $24.1m (30 June 2020: $21.9m / 31 December 2020: $21.7m)
underlining the continued positive cash generation in the business.
Of the cash balance, approximately $7.8m was held in US Dollars,
$11.8m in Euros and the balance of $4.5m in Sterling. The Group has
no borrowings.
Intangible assets at 30 June 2021 stood at $8.6m (30 June 2020:
$7.3m / 31 December 2020: $7.9m). The total includes (i) $7.6m
being the net book value of capitalized research and development
(30 June 2020: $6.3m) and (ii) $1.0m (30 June 2020: $1.0m) being
the net book value of acquired intangible assets. In addition, as
further detailed in Note 6 of the financial statements, in prior
periods the Group recognized a $2.6m deferred tax asset, of a total
potential deferred tax asset of $10.6m. No change to the asset is
proposed at this time.
COVID notwithstanding, on the back of our continued strong
performance and substantial cash reserves, the Board decided to
maintain the Group's dividend at 3.25p per share ($0.4m in total).
This was approved by the shareholders in the Annual General Meeting
held on 10 June 2021, and paid on 9 July 2021.
Strategy & Operations
As described in our 2020 annual report, o ur growth strategy is
built around three core themes:
-- Organic growth through strong ecosystem networks - leveraging
our blue-chip references for new sales, and continuing expansion of
our solution from product to enterprise innovation. As noted above,
substantial marketing investments are being made to underpin this
broader opportunity.
-- Transition to a SaaS business - transitioning the revenue
model to a more recurring revenue model, and developing new cloud
offerings that will facilitate product-led go-to-market approaches.
The SaaS revenue model aspect of this has been proceeding very
successfully with both new and existing customers, and we look
forward to launching our first cloud-native modules at the end of
this year.
-- Non-organic growth - building on our technology, consulting
and reseller partnerships, and extending our capabilities and
footprint through disciplined M&A. During the period we have
engaged with over 20 potential targets. Many have been rejected for
a variety of reasons however, our pursuits to find a strategic and
financial match continue to be active.
We have ambitious investment plans in the second half of the
year - in both product development and marketing and communication
expenses. Given the successful ongoing transition of the business
to a SaaS model, and the strengthening market opportunities that we
reference below, we believe now is the time to pursue more
aggressive market visibility. Our view is that buyer behaviors have
changed permanently, and now rely much more on online research and
resources to identify and qualify suppliers. Accordingly, we are
launching several parallel initiatives covering PR, digital
presence and campaigns, messaging refresh and brand refresh. These
will be new and material investments for Sopheon during the second
half of the year and will continue into 2022 and we feel that our
healthy cash position gives us plenty of flexibility to pursue
this. The goal is to accelerate lead generation and top-line
growth.
To underline and deliver on the organic and transformational
initiatives, Greg Coticchia was appointed CEO earlier in the year,
giving Andy Michuda capacity to focus on the non-organic areas.
This was quickly followed by the appointments of Mike Bauer as
Chief Product Officer, John Beischer as Americas VP of Sales, and
Ann Marie Beasley as Chief Marketing Officer amongst others. Each
one of these appointees brought an impressive track record and
their experience, creativity, and drive are valuable assets to
Sopheon during this exciting period of transformation and
growth.
Alongside marketing and organizational change, we have continued
to drive product investments. A milestone was the launch of
Accolade(R) for Smart Products, the first innovation management
solution to bring together traditionally siloed software and
physical product development - a new SaaS-based solution that
enables companies to develop innovative digitally-enabled physical
products in a new collaborative and efficient way with speed. We
were also proud to earn Authority to Operate (ATO) from the US
Navy, meaning that Sopheon is now listed on the marketplace
maintained by the Federal Risk and Authorization Management Program
(FedRAMP) for cloud products and services, permitting dozens of
other departments to leverage the Navy's security authorization.
Most recently, we announced the release of Accolade 14.0, which
brought major advancements in third party integration and a richer
user experience alongside several other improvements.
In parallel, we have embarked on the development of new
cloud-native products, which will bring value to personal and
workgroup productivity alongside the corporate value points we are
well known for. Our cloud products will integrate seamlessly with
our current enterprise solution - and as their capabilities become
comprehensive over time, we expect many existing customers will
migrate to the cloud solution.
Sopheon's vision, strategy and strong performance is recognized
by key industry analysts with our inclusion in Gartner's 2021 Magic
Quadrant for Strategic Portfolio Management, 2020 Market Guide for
Innovation Management Tools, and 2020 Competitive Landscape:
Product Management Tools; as well as Forrester's 2020 Forrester
Wave: Innovation Management Platforms, and 2020 Planning and
Delivery Ecosystem: The Central Nervous System for Delivering
Business Strategy.
Outlook
Last year we embarked on a strategy to migrate to a recurring
revenue model by prioritizing SaaS contracts for new customers and
encouraging existing customers to convert. 2020 was our first full
year implementing this strategy. Performance has remained solid in
the face of the pandemic, and downward revenue pressure caused by
the SaaS strategy itself - transition to SaaS reduces revenue
recognition in the first year compared to traditional perpetual
licenses, but in return secures a higher quality and predictable
ongoing recurring revenue stream. More recently, we have embarked
on transformation initiatives to more closely align our operations
and our offering, both in terms of how we intend to generate sales
leads, and of how we intend to leverage the cloud to increase the
appeal and adoption of our solutions at both individual and
corporate levels. Our new leadership, embedded in the last 12
months, is spearheading these new marketing and product strategies.
Finally and in parallel, we look to accelerate our business through
partnerships and M&A.
It is very rewarding to report rising commercial traction across
our core performance metrics - with revenue, TCV, ARR, retention,
and current year visibility all showing significant progress and in
many cases at historical highs, underpinning our expectations for
the year. As expected, profit levels are rising more slowly through
the SaaS transition period, reflecting the switch of revenue model
and the rising investment in the business. Our key financial
metrics and progress against strategic initiatives, coupled with
our substantial cash reserves give us confidence that we are on the
right path to deliver strong long term shareholder value.
Andy Michuda 24 August 2021
Executive Chairman
CONSOLIDATED INCOME STATEMENT FOR THE
SIX MONTHSED 30 JUNE 2021 AND 30 JUNE 2020
30 June 30 June
2021 2020
$'000 $'000
Note (unaudited) (unaudited)
Revenue 3 16,531 13,868
Cost of sales (4,775) (4,532)
--------------- --------------
Gross profit 11,756 9,336
Sales and marketing expense (5,424) (4,355)
Research and development expense (3,265) (2,692)
Administrative expense (2,498) (1,796)
Operating profit 569 493
Finance income - 40
Finance expense (51) (54)
--------------- --------------
Profit for the period before tax 3 518 479
Income tax charge 7 (148) (150)
--------------- --------------
Profit for the period 370 329
=============== ==============
Earnings per share - basic in cents 4 3.57c 3.23c
Earnings per share - fully diluted in cents
4 3.46c 3.10c
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE
SIX MONTHSED 30 JUNE 2021 AND 30 JUNE 2020
2021 2020
$'000 $'000
(unaudited) (unaudited)
Profit for the period 370 329
Amounts that may be recycled in future periods
Exchange differences on translation of foreign
operations (239) (229)
------------- -------------
Total comprehensive profit for the period
attributable to the owners 131 100
============= =============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2021, 31 DECEMBER 2020 AND 30 JUNE 2020
30 June 31 Dec 30 June
2021 2020 2020
$'000 $'000 $'000
Note (unaudited) (audited) (unaudited)
Assets
Non-current assets
Property, plant and equipment 590 528 482
Right-of-use assets 1,039 1,027 1,281
Intangible assets 6 8,586 7,863 7,273
Deferred tax asset 7 2,569 2,557 2,557
Other receivable 19 19 19
------------- --------------- -------------
12,803 11,994 11,612
------------- --------------- -------------
Current assets
Trade and other receivables 9,621 14,566 7,472
Cash and cash equivalents 24,066 21,718 21,889
------------- --------------- -------------
33,687 36,284 29,361
------------- --------------- -------------
Total assets 46,490 48,278 40,973
------------- --------------- -------------
Liabilities
Current liabilities
Contract liabilities 9,624 11,985 8,494
Lease liabilities 614 515 607
Trade and other payables 4,557 5,077 2,853
Dividends payable 8 470 - 410
------------- --------------- -------------
15,265 17,577 12,364
------------- --------------- -------------
Non-current liabilities
Lease liabilities 452 546 704
Total liabilities 15,717 18,123 13,068
------------- --------------- -------------
Net assets 30,773 30,155 27,905
============= =============== =============
Issued capital and reserves
attributable to the owners of the parent
Share capital 3,216 3,133 3,133
Capital reserves 9,965 9,398 9,227
Translation reserve 463 702 (220)
Retained earnings 17,129 16,922 15,765
------------- --------------- -------------
Total equity 30,773 30,155 27,905
============= =============== =============
CONSOLIDATED CASH FLOW STATEMENT FOR THE
SIX MONTHSED 30 JUNE 2021 AND 30 JUNE 2020
2021 2020
$'000 $'000
(unaudited) (unaudited)
Operating Activities
Profit for the period 370 329
Finance income - (40)
Finance expense 51 54
Depreciation of property, plant and equipment 145 182
Depreciation of right-of-use assets 320 346
Amortization of intangible assets 1,443 1,280
Share based payment expense 325 268
Income tax charge 148 150
Operating cash flows before movement in working
capital 2,802 2,569
Decrease in receivables 4,916 5,544
Decrease in payables (2,781) (3,136)
Cash generated from operations 4,937 4,977
Income taxes paid (223) (181)
--------------- ----------------
Net cash from operating activities 4,714 4,796
Investing Activities
Finance income - 40
Purchases of property, plant and equipment (213) (150)
Capitalization of development costs (2,166) (1,679)
--------------- ----------------
Net cash used in investing activities (2,379) (1,789)
Financing Activities
Exercise of share options 632 51
Lease payments (351) (367)
Finance expense (25) (27)
--------------- ----------------
Net cash from/(used in) financing activities 256 (343)
Net increase in cash and cash equivalents 2,591 2,664
Cash and cash equivalents at the beginning
of the period 21,718 19,433
Effect of foreign exchange rate changes (243) (208)
--------------- ----------------
Cash and cash equivalents at the end of the
period 24,066 21,889
=============== ================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 JUNE 2021, 31 DECEMBER 2020 AND 30 JUNE 2020
Trans-
Share Capital lation Retained
Capital Reserves Reserve Earnings Total
$'000 $'000 $'000 $'000 $'000
Note
At 1 January 2020 (audited) 3,126 8,942 9 15,819 27,896
Profit for the period - - - 329 329
Other comprehensive
income(1) - - (229) - (229)
---------- -------------- ----------- ------------------ -------------
Total comprehensive
income - - (229) 329 100
Dividends payable 8 - - - (410) (410)
Issues of shares 7 44 - - 51
Share based payments - 268 - - 268
Exercise of share options - (27) - 27 -
At 30 June 2020 (unaudited) 3,133 9,227 (220) 15,765 27,905
========== ============== =========== ================== =============
Profit for the period - - - 1,148 1,148
Other comprehensive
income(1) - - 922 - 922
---------- -------------- ----------- ------------------ -------------
Total comprehensive
income - - 922 1,148 2,070
Issues of shares - 1 - - 1
Share based payments - 179 - - 179
Exercise of share options - (9) - 9 -
At 31 December 2020
(audited) 3,133 9,398 702 16,922 30,155
========== ============== =========== ================== =============
Profit for the period - - - 370 370
Other comprehensive
income(1) - - (239) - (239)
---------- -------------- ----------- ------------------ -------------
Total comprehensive
income - - (239) 370 131
Dividends payable 8 - - - (470) (470)
Issues of shares 83 549 - - 632
Share based payments - 325 - - 325
Exercise of share options - (307) - 307 -
At 30 June 2021 (unaudited) 3,216 9,965 463 17,129 30,773
========== ============== =========== ================== =============
1. Other comprehensive income comprises solely of exchange
differences arising on translation of foreign operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sopheon plc is a company domiciled in England. The interim
financial information of the Company for the six months ended 30
June 2021 comprise the Company and its subsidiaries (together
referred to as the "Group").
The Board of Directors approved this interim report on 24 August
2021.
2. PRINCIPAL ACCOUNTING POLICIES
Basis of preparation and accounting policies
These condensed consolidated financial statements have been prepared using accounting policies
based on International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued
by the International Accounting Standards Board ("IASB") in conformity with the requirements
of the Companies Act 2006. They do not include all disclosures that would otherwise be required
in a complete set of financial statements and should be read in conjunction with the 31 December
2020 Annual Report. The financial information for the half years ended 30 June 2021 and 30
June 2020 does not constitute statutory accounts within the meaning of Section 434 (3) of
the Companies Act 2006 and both periods are unaudited.
The annual financial statements of Sopheon plc ('the Group') are
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. The
statutory Annual Report and Financial Statements for 2020 have been
filed with the Registrar of Companies. The Independent Auditors'
Report on the Annual Report and Financial Statements for the year
ended 31 December 2020 was unqualified, did not draw attention to
any matters by way of emphasis and did not contain a statement
under 498(2) - (3) of the Companies Act 2006.
The Group has applied the same accounting policies and methods
of computation in its interim consolidated financial statements as
in its 31 December 2020 annual financial statements, except for
those that relate to new standards and interpretations effective
for the first time for periods beginning on (or after) 1 January
2021 and will be adopted in the 2021 financial statements. There
are deemed to be no new and amended standards and/or
interpretations that will apply for the first time in the next
annual financial statements that are expected to have a material
impact on the Group.
Going Concern
The consolidated financial statements have been prepared on a
going concern basis. In reaching their assessment, the directors
have considered a period extending at least 12 months from the date
of approval of this half-yearly financial report. As is widely
understood and discussed in more detail in note 9 below, the
COVID-19 global pandemic has had a widespread impact economically,
with potential for causing delays in contract negotiations and/or
cancellation of anticipated sales, as well as uncertainty over cash
collection from certain customers. Since the start of the pandemic,
the Group proved to be resilient in the face of such pressures;
however, the directors have continued to perform detailed forecast
stress testing, assessing how much forecasts would need to reduce
by in order to cause cash constraints, and also to consider the
likelihood of this scenario occurring. The results of this analysis
continue to give the directors comfort that a scenario which would
cause these cash restrictions is remote, and therefore not a
realistic outcome to consider. This assessment has also included
the Group's actual cash holdings as of the date of the approval of
this report, and the financing alternatives available. The Group's
cashflows are projected to be at a sufficient level to allow the
Group to meet its obligations and liabilities as they fall due.
Thus, the directors of the Company continue to adopt the going
concern basis of accounting in preparing the financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods
and services provided in the normal course of business, net of
discounts and sales-related taxes.
Sales of software licenses are recognized once no significant
obligations remain owing to the customer in connection with such
license sale. Such significant obligations could include giving a
customer a right to return the software product without any
preconditions, or if the Group is unable to deliver a material
element of the software product by the balance sheet date.
Revenues relating to software subscription, maintenance and
hosting agreements are deferred creating a contract liability at
the period end, and then recognized evenly over the term of the
agreements.
Revenues from implementation and consultancy services are
recognized as the services are performed, or in the case of fixed
price or milestone-based projects, on a percentage basis as the
work is completed and any relevant milestones are met, using latest
estimates to determine the expected duration and cost of the
project. Based on stage of completion and billing arrangement,
either a contract asset or a contract liability is created at the
period end.
Deferred Tax
Deferred tax is recognized on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognized for all
taxable temporary differences. Deferred tax assets are recognized
only to the extent that the level and timing of taxable profits can
be measured and it is probable that these will be available against
which deductible temporary differences can be utilized.
Deferred tax is calculated at tax rates that have been enacted
or substantively enacted at the balance sheet date, and that are
expected to apply in the period when the liability is settled or
the asset realized. Deferred tax is charged or credited to profit
or loss, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
Internally Generated Intangible Assets (Research and Development
Expenditure)
Development expenditure on internally developed software
products is capitalized 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.
Development costs not satisfying the above criteria and
expenditure on the research phase of internal projects are
recognized in the income statement as incurred. Capitalization of a
particular activity commences after proof of concept, requirements
and functional concept stages are complete. Capitalized development
costs are amortized over the period over which the Group expects to
benefit from selling the product developed. This has been estimated
to be four years from the date of code-finalization of the
applicable software release. The amortization expense in respect of
internally generated intangible assets is included in research and
development costs.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. REVENUE, SEGMENTAL ANALYSIS AND EBITDA
All of the Group's revenues in respect of the six month periods
ended 30 June 2021 and 30 June 2020 derived from the design,
development and marketing of software products with associated
implementation and consultancy services. The following table
disaggregates revenue in accordance with the IFRS 15 requirement to
depict how the nature, amount, timing and uncertainty of revenue
and cash flows are affected by economic factors.
Six months to 30 June 2021 2020
$'000 $'000
Perpetual licenses 1,430 941
Consulting and implementation
services 5,423 4,731
SaaS, maintenance and
hosting 9,678 8,196
----------- ------------
16,531 13,868
=========== ============
For management purposes, the Group is organized across two
principal geographic operating segments, as used in the Group's
last annual financial statements. The first segment is North
America, and the second Europe. Information relating to these two
segments is given below.
Six months to 30 June N America Europe Total
2021
$'000 $'000 $'000
External revenues 10,069 6,462 16,531
Profit before tax 1,832 (1,314) 518
Adjusted EBITDA 3,547 (745) 2,802
Total assets 24,899 21,591 46,490
----------- ------------- ------------
Six months to 30 June N America Europe Total
2020
$'000 $'000 $'000
External revenues 8,976 4,892 13,868
Profit before tax 732 (253) 479
Adjusted EBITDA 2,327 242 2,569
Total assets 25,757 15,216 40,973
------------ ------------- ------------
Adjusted EBITDA is arrived at after adding back net finance
costs, depreciation, amortization and share-based payment expense
amounting to $2,284,000 (2020: $2,090,000) to the profit before
tax. Details of these amounts are set out in the consolidated cash
flow statement. Adjusted EBITDA is a key indicator of the
underlying performance of our business, commonly used in the
technology sector. It is also a key metric for management and the
financial analyst community.
All information provides analysis by location of operations. The
majority of revenue from customers in the rest of the world is
recorded in the Europe segment. Profit before tax and EBITDA are
stated after deducting an estimate for intra-group charges.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER SHARE
The calculation of basic earnings per ordinary share is based on
earnings of $370,000 (2020: $329,000) and on 10,376,214 ordinary
shares (2020: 10,178,929) being the effective weighted average
number of ordinary shares in issue during the period.
For the purpose of calculating the diluted earnings per ordinary
share, any options to subscribe for Sopheon shares at prices below
the average share price prevailing during the period are treated as
exercised at the later of 1 January 2021 or the grant date. The
treasury stock method is then used, assuming that the proceeds from
such exercise are reinvested in treasury shares at the average
market price prevailing during the period. The diluted number of
shares used at 30 June 2021 is 10,698,799 (2020: 10,611,854).
5. REVENUE VISIBILITY
Revenue visibility at any point in time comprises revenue
expected from (i) closed license orders, including those which are
contracted but conditional on acceptance decisions scheduled later
in the year; (ii) contracted services business delivered or
expected to be delivered in the year; and (iii) recurring
maintenance, hosting and license subscription streams. The
visibility calculation does not include revenues from new sales
opportunities expected to close during the remainder of 2021.
6. INTANGIBLE ASSETS
Certain development expenditure is required to be capitalized
and amortized based on detailed technical criteria (note 2) rather
than automatically charging such costs in the income statement as
they arise. This has led to the capitalization of $2,166,000 (2020:
$1,679,000), and amortization of $1,443,000 (2020: $1,280,000)
during the period.
7. TAXATION
The tax charge reflects certain US state taxes and German
corporate taxes. At 30 June 2021, income tax losses estimated at
$54m (2020: $52m) were available to carry forward by the Group,
arising from historic losses incurred at the US federal level and
also in the UK and the Netherlands. These losses have given rise to
a recognized deferred tax asset of $2.6m (2020: $2.6m) and a
further, but currently unrecognized, potential deferred tax asset
of $10.1m (2020: $8.0m), based on the tax rates currently
applicable in the relevant tax jurisdictions. Much of the increase
is due to the UK reverting to a 25% minimum tax rate. An aggregate
$9m (2020: $9m) of these tax losses are subject to restriction
under section 392 of the US Internal Revenue Code, whereby the
ability to utilize net operating losses arising prior to a change
of ownership is limited to a percentage of the entity value of the
corporation at the date of change of ownership.
In addition to income taxes, the Group is also subject to sales
and value added tax in the various jurisdictions in which it
operates.
8. DIVID
The Board has proposed a final dividend in respect of the year
ended 31 December 2020 of 3.25p per share (2019: 3.25p per share).
This was approved by the shareholders in the annual general meeting
held on 11 June 2021 and an amount of $470,000 is shown within
current liabilities in the statement of financial position as at 30
June 2021.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of the financial year and could cause actual
results to differ materially from expected and historical results.
The directors do not consider that the principal risks and
uncertainties have changed since the publication of the annual
report for the year ended 31 December 2020, which contains a
detailed explanation of the risks relevant to the Group on page 26,
and is available at www.sopheon.com . Since the 2020 Annual Report,
the Board have continued to monitor and mitigate the effects of the
following international events on the Group's business:
COVID-19
In March 2020, the World Health Organization declared a global
pandemic due to the COVID-19 virus that spread across the globe,
causing different governments and countries to enforce restrictions
on people movements, a stop to international travel, and other
precautionary measures. This has had a widespread impact
economically and has resulted in difficulties in certain industries
and a more general need to consider whether budgets and targets
previously set are realistic, with potential for delays or
cancellation of anticipated sales and possible uncertainty over
cash collection. The Board believes that Sopheon has navigated
through the impact of COVID-19 well due to the strength and
flexibility of its service proposition, its strong balance sheet
and cash position, and expects this to continue for the foreseeable
future.
Brexit
The UK formally left the EU on 30 January 2020. Following a
transition period, on 31 December 2020 the UK and the EU entered
into a Trade and Cooperation Agreement governing future trade
arrangements between the parties. As the Group operates
subsidiaries in many countries, there are several channels
available to us to continue business with the same customers,
should the need arise, with little to no effect from Brexit
changes. As such, while the Directors are closely monitoring the
situation, they currently deem that the effects of Brexit do not
have a significant impact on the Group's operations.
Other principal risks and uncertainties of the Group for the
remaining six months of the current financial year are disclosed in
the Chairman's Statement and the notes to the interim financial
information included in this half-yearly financial report.
10. CAUTIONARY STATEMENT
This report contains certain forward-looking statements with
respect to the financial condition, results of operations and
businesses of Sopheon plc. These statements are made by the
directors in good faith based on the information available to them
up to the time of their approval of this report. However, such
statements should be treated with caution as they involve risk and
uncertainty because they relate to events and depend upon
circumstances that will occur in the future. There are a number of
factors that could cause actual results or developments to differ
materially from those expressed or implied by these forward-looking
statements. Nothing in this announcement should be construed as a
profit forecast.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED IN
ARTICLE 7 OF THE MARKET ABUSE REGULATION EU NO. 596/2014, AS
RETAINED AND APPLICABLE IN THE UK PURSUANT TO S3 OF THE EUROPEAN
UNION (WITHDRAWAL) ACT 2018 ("MAR").
Introduction
We have been engaged by Sopheon plc (the "Company") to review
the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2021 which
comprises the consolidated income statement; consolidated statement
of comprehensive income; consolidated statement of financial
position; consolidated cash flow statement; consolidated statement
of changes in equity; and associated notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial information.
Directors' Responsibilities
The interim financial report, including the financial
information contained therein, is the responsibility of and has
been approved by the directors. The directors are responsible for
preparing the interim financial report in accordance with the rules
of the London Stock Exchange for companies trading securities on
AIM, which require that the financial information must be presented
and prepared in a form consistent with that which will be adopted
in the Company's annual financial statements having regard to the
accounting standards applicable to such annual financial
statements.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the
rules of the London Stock Exchange for companies trading securities
on AIM and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon
this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorized to do so by our prior
written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we
hereby expressly disclaim any and all such liability.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity', issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with the rules of the London Stock Exchange for companies whose
shares are admitted to trading on AIM.
BDO LLP
Chartered Accountants & Registered Auditors, London, United
Kingdom
24 August 2021
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
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END
IR BIGDIDUDDGBS
(END) Dow Jones Newswires
August 25, 2021 02:01 ET (06:01 GMT)
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