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REG - Sopheon PLC - Interim Results

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RNS Number : 9855W  Sopheon PLC  24 August 2022

 

SOPHEON PLC

("Sopheon", the "Company" or the "Group")

 

INTERIM RESULTS FOR THE 6 MONTHS TO 30 JUNE 2022

 

Sopheon, 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 2022 ("H1") together with a business
review and outlook statement for the second half of the year.

 

Highlights:

 

·       Full year 2022 revenue visibility(1) is now at an encouraging
$34.1m (last year at this time: $31.2m). This includes revenue to be
recognized in 2022 from the recently announced US Navy agreement concluded in
July.  Year to date TCV(2), also including the US Navy agreement is now at
$22m, almost equal to 2021's full year TCV and over 60% higher than at this
time last year.

·       H1 revenue was $15.7m compared to $16.5m in H1 2021, with
materially more multi-year SaaS versus perpetual license and service contracts
leading to deferral in relative revenue recognition. 8 new customers were
signed, and all were SaaS in line with our transition strategy.

·       SaaS ARR(2) of $9.3m at 30 June (30 June 2021: $7.6m, 31 Dec
2021 $7.9m) representing 22% year over year growth. Total ARR including SaaS
and maintenance of $21.9m at 30 June (30 June 2021: $19.5m, 31 Dec 2021
$20.8m) representing 12% year over year growth. Gross ARR retention for the
six months at 98% (H1 2021: 97%).

·       Currency movements have had a material impact on reported
performance due to the sharp rise in US dollar against Euro and Sterling in
2022. At prior year currency rates, H1 2022 revenue would have been $16.2m.
Similarly, at 2021 currency rates SaaS ARR would have been $9.6m and total ARR
$22.5m at 30 June - constant currency growth of 26% and 15% respectively.

·       Adjusted EBITDA(4) of $2.9m (H1 2021: $2.8m).

·       Net cash at 30 June of $23.5m after funding M&A and
dividends (30 June 2021: $24.1m) and the Group is debt free.

·       Acquisition of Solverboard for initial consideration of $0.9m,
a UK based SaaS business specializing in the front-end of innovation
management - a second transaction less than six months after the acquisition
of ROI Blueprints, a US based SaaS business specializing in project
management.

 

Sopheon's Executive Chairman, Andy Michuda said: "I am pleased to report
revenue visibility already approaching 2021's full year results with most of
H2 still ahead of us. We continue to show good ARR growth especially in SaaS,
supported by high levels of retention. Commercial traction is also building,
with both a faster pace of net new sales and the signing of the largest single
deal in our history with the US Navy - underpinning future performance. Our
strategic initiatives are broadly on track and in a time of continued global
uncertainty, our substantial cash reserves provide additional confidence for
execution both in terms of organic initiatives, and to move quickly if further
acquisition opportunities arise. Recent acquisitions have rounded out our
product roadmap, and we are on the cusp of introducing a new go-to-market
approach that significantly expands our addressable market and competitive
advantage. This is one of the most exciting periods in my time at Sopheon,
with both momentum and opportunity in equal measure."

 

 

For further information contact:

 Andy Michuda, Executive Chairman                 Sopheon plc  + 44 (0) 1276 919 560

Arif Karimjee, CFO
 Carl Holmes / Edward Whiley (corporate finance)  finnCap Ltd  + 44 (0) 20 7220 0500

 Alice Lane / Sunila de Silva (ECM)

 

About Sopheon. Sopheon (LSE: SPE) partners with customers to provide complete
enterprise innovation management
(https://www.sopheon.com/?utm_source=PressRelease&utm_medium=Press&utm_campaign=PR-Gen)
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
(https://www.sopheon.com/?utm_source=PressRelease&utm_medium=Press&utm_campaign=PR-Gen)

CHAIRMAN'S STATEMENT

 

Trading Performance

 

Revenue in the first half of 2022 was $15.7m compared to $16.5m in the first
half of 2021. This dip does not reflect the underlying performance of the
business which is delivering on our strategy of prioritizing SaaS sales and
associated ARR, as opposed to one-off perpetual license sales and consultancy
sales. The progress and impact of this transformation is clear in the make-up
of first half revenues compared to the prior year and summarized in the table
below, extracted from Note 3:

 

 Six months to 30 June                           2022                              2021
                                                       $'000                                $'000

 Perpetual licenses                                           529                           1,430
 Consulting and implementation services                   4,403                             5,423
 SaaS, maintenance and hosting                   10,746                                     9,678

                                                        15,678                            16,531

 

The rise in total recurring revenue is reflected in ARR growing from $19.5m a
year ago to $21.9m at 30 June 2022, an increase of 12%. Focusing on the
strategic subsection of ARR relating to SaaS and hosting business, this rose
from $7.6m to $9.3m - an increase of 22%. At 31 December 2021, total ARR was
$20.8m and SaaS ARR was $7.9m. Retention levels continue to improve with our
ARR gross retention rate at 98% year to date, up from 97% at this time last
year. During the six-month period we also added 8 new customers, more than
double last year's H1 count. Average deal size per initial net-new sale was
consistent with our long-term benchmark of approximately $0.4m.

 

Currency movements have had a material impact on reported performance due to
the sharp rise in US dollar against Euro and Sterling in 2022. At prior year
currency rates, H1 2022 revenue would have been $16.2m. Similarly, at 2021
currency rates SaaS ARR would have been $9.6m and total ARR $22.5m at 30 June
- constant currency growth of 26% and 15% respectively.

 

As last year, all our new customers opted for SaaS, underpinning our move to
the recurring revenue model. We expect a declining level of perpetual business
over the next few years, primarily from existing accounts signing extension
orders. Our consulting business will also continue to generate project based
billable revenue which remains an important element of our revenue goals
during the transition journey. Just under half our customers are still
licensed under an on-premise perpetual model and we continue to work with them
to transition to SaaS through our cloud lift program, which will take some
time. We have also had initial sales successes for ROI Blueprints, acquired at
the end of 2021, to both new and existing customers. As anticipated, the ROI
Blueprints software has assisted with our competitive position in pursuing new
customers. Revenue from new cloud products, including Solverboard acquired in
May 2022, is expected to start to contribute in the second half of the year.

 

As separately announced last week, expanding on our previous partnership with
NAVSEA we were delighted to conclude a five-year, $11.2m enterprise agreement
with the US Navy in July, the largest single booking in our history which
paves the way for further expansion of our government business. This
transaction is structured as an enterprise perpetual license together with
long term maintenance and consulting commitments, with the payment profile
spread broadly evenly across the five-year period. Of the total deal value,
approximately $4.1m will be recognized as perpetual license fees in the
current year. The balance of $4.1m of maintenance, $2.7m of consulting and
$0.3m of notional interest will be recognized over the five-year period.

 

In addition to the US Navy agreement, since the end of June we have continued
to book business from new and existing customers, and we are pleased to report
that revenue visibility today stands at $34.1m compared to $31.2m at this time
last year. Today and including the US Navy agreement, total TCV of sales
closed year to date is over $22m, more than 60% higher than this time last
year.

 

Margin, Operations and Results

 

Gross margin for the period held at 71% (2021: 71%). 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.

 

Competition for staff during the post-pandemic era has become increasingly
fierce, and costs of employment continue to accelerate especially in the
technical area. This has been further pressured by the high-inflation
environment we currently find ourselves in. While we have been successful in
bringing in a substantial number of excellent new recruits, we have also
experienced some staff turnover. Accordingly, average headcount for the first
half of the year was 171 (H1 2021: 169). We have continued to increase
subcontracting especially in the product development area where we continue to
leverage growing partnerships with India based firms. Underlying overhead
costs are approximately $0.2m higher overall, with a reduced incentive
provision and exchange gains recorded in Sterling books offset by higher costs
in research and development, marketing expense, IT and travel. The areas that
have increased all reflect focus on strategic or commercial priorities. Much
of the higher research development costs were capitalized, however, this was
matched by higher amortization and impairment charges. From a functional
perspective this is reflected in lower headline numbers for sales and
administration, but higher in research and development.

 

Prior to entering into M&A activities, Sopheon had embarked on the
development of a next-generation platform for new cloud-based applications. In
light of both acquisitions and other factors, the Group is revisiting its
original approach. As a consequence, a 50% impairment provision has been made
against the capitalized costs associated with the cloud platform development,
amounting to $0.8m, included in research and development expense. A full
evaluation will be completed by year end.

 

Loss before tax reported for the half-year period was $0.8m (H1 2021: profit
of $0.5m).  This result includes net interest, depreciation and amortization,
the impairment charge referenced above, and share-based payment costs totaling
$3.7m (H1 2021: $2.3m). The Adjusted EBITDA result for the first half of 2022,
which does not include these elements, was broadly flat at $2.9m (H1 2021:
$2.8m). Provision has been made for approximately $0.3m in tax, primarily for
German corporation tax where we do not benefit from historic losses (H1 2020:
$0.1m), giving a final loss after tax of $1.2m compared to a profit of $0.4m
the year before.

 

Balance sheet

 

Net assets at 30 June 2022 stood at $29.3m (30 June 2020: $30.8m / 31 December
2021: $31.3m), with cash at the end of the period standing at $23.5m (30 June
2020: $24.1m / 31 December 2021: $24.2m). We note that the fall in these key
balance sheet items is after funding initial consideration for two
acquisitions, the dividend payments made in both 2021 and 2022, and the
significant rise in the US dollar compared to Euro and Sterling in which
currencies the Group has substantial balances. The Group has no borrowings.
Intangible assets at 30 June 2021 stood at $13.2m (30 June 2021: $8.7m / 31
December 2021: $12.0m).  The total includes (i) $8.6m being the net book
value of capitalized research and development (30 June 2021: $7.6m) and (ii)
$4.5m (30 June 2021: $1.0m) being the net book value of acquired intangible
assets and goodwill. This includes $2.5m in respect of ROI Blueprints, and
$0.9m in respect of Solverboard as further detailed below.

 

The acquisition of Solverboard was structured as a business and asset
purchase. Initial consideration comprised £500,000 in cash and £250,000 in
shares issued at £6 per share. An additional, contingent deferred earn-out of
up to £1.55 million is payable over the next two years, linked to ARR targets
and to be satisfied by up to £900,000 in shares issued at £6 per share, with
the balance in cash. As at the date of this report, due to the early-stage
nature of the Solverboard business and post-acquisition activities, no value
has been ascribed for the earn-out and accordingly, goodwill of $0.9m has been
provisionally recorded. This assessment will be refined and revisited at the
end of the year.

Strategic Progress

 

As described in our 2021 annual report our growth plans are built around an
integrated three-point strategy, and we continue to make significant progress
in all areas:

 

·    SaaS / ARR growth - As noted earlier in this report, we continue to
build commercial traction in our transition to a recurring revenue model, with
all new customers this year being SaaS, along with conversions of our existing
perpetual base leading to strong SaaS ARR growth over 20%. In addition, both
recent acquisitions are SaaS businesses.

 

·    Fill out the product roadmap - We have considerably strengthened the
breadth of the Sopheon offering through the acquisitions of ROI Blueprints and
Solverboard, which address project and idea problem solving respectively in a
much deeper way than Accolade which has a product and portfolio focus. In
parallel we have continued and accelerated the pace of development for
Accolade itself, with four releases in the last 12 months. As noted above we
also embarked on the development of cloud-native, multi-tenant applications in
specific innovation related areas encompassing product, project and idea
problem solving. The first of these is already in market testing. The other
two are based on ROI Blueprints and Solverboard respectively and are at
different stages of their market launch journeys.

 

·    New go-to-market strategies to expand market reach - Accolade has
historically been sold to major corporations using an enterprise sale,
vertical market approach focused primarily on food and beverage, other
consumer products, chemical, defense and industrial manufacturing. Solving the
innovation governance needs of corporations with Accolade, in such markets,
will remain a core focus and growth driver for Sopheon. In support of
expanding our addressable market and faster growth, we now see a major
opportunity to expand distribution with new cloud-native applications directly
targeting individual contributors within the corporate setting (also known as
the product led or PLG approach). Such users will in turn feed our enterprise
sales teams, ultimately offering lead generation for Accolade.  In addition,
marketing investments have been stepped up in anticipation of this new
channel, as well as building the Accolade pipeline. Our market reach and
engagement metrics continue to advance accordingly.

 

Sopheon's vision, strategy and strong performance is recognized by key
industry analysts with our inclusion in 14 current Gartner reports - 12 since
August 2021 - including their hype cycles for life science discovery research,
consumer goods and strategic portfolio management - as well as several earlier
Gartner and Forrester reports from 2020 and earlier in 2021.

 

Outlook

 

I am pleased to report revenue visibility already approaching 2021's full year
results with most of H2 still ahead of us. We continue to show good ARR growth
especially in SaaS, supported by high levels of retention. Commercial traction
is also building, with both a faster pace of net new sales and the signing of
the largest single deal in our history with the US Navy - underpinning future
performance. Our strategic initiatives are broadly on track and in a time of
continued global uncertainty, our substantial cash reserves provide additional
confidence for execution both in terms of organic initiatives, and to move
quickly if further acquisition opportunities arise. Recent acquisitions have
rounded out our product roadmap, and we are on the cusp of introducing a new
go-to-market approach that significantly expands our addressable market and
competitive advantage. This is one of the most exciting periods in my time at
Sopheon, with both momentum and opportunity in equal measure.

 

 Andy Michuda         23 August 2022

Executive Chairman

(

)

( )

CONSOLIDATED INCOME STATEMENT FOR THE

SIX MONTHS ENDED 30 JUNE 2022 AND 30 JUNE 2021

 

 

                                                                                                                                                                                      30 June                      30 June
                                                                                                                                                                                           2022                         2021
                                                                                                                                                                                          $'000                        $'000
 Note                                                                                                                                                                               (unaudited)                  (unaudited)

 Revenue                                                                                                                                                                                15,678                       16,531
 3
 Cost of sales                                                                                                                                                                           (4,571)                      (4,775)

 Gross profit                                                                                                                                                                           11,107                       11,756
 Sales and marketing expense                                                                                                                                                             (5,082)                      (5,424)
 Research and development expense                                                                                                                                                        (4,461)                      (3,265)
 Administrative expense                                                                                                                                                                  (2,307)                      (2,498)

 Operating (loss)/profit                                                                                                                                                                    (743)                         569
 Finance income (including negative interest income)                                                                                                                                          (13)                         (20)
 Finance expense                                                                                                                                                                              (35)                         (31)

 (Loss)/profit for the period before tax                                       3                                                                                                            (791)                         518

 
 Income tax charge                                                                        7                                                                                                 (259)                        (148)

 (Loss)/profit for the period                                                                                                                                                            (1,050)                          370

 (Loss)/earnings per share - basic in                                                                                                                                                   (9.94c)                        3.57c
 cents
 4
 (Loss)/earnings per share - fully diluted in                                                                                                                                           (9.94c)                        3.46c
 cents                          4

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE

SIX MONTHS ENDED 30 JUNE 2022 AND 30 JUNE 2021

 

                                                                   2022                   2021
                                                                  $'000                  $'000
                                                            (unaudited)            (unaudited)

 (Loss)/profit for the period                                    (1,050)                    370

 Amounts that may be recycled in future periods
 Exchange differences on translation of foreign operations       (1,550)                   (239)

 Total comprehensive (loss)/profit for the period                (2,600)                    131

attributable to the owners

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2022, 31 DECEMBER 2021 AND 30 JUNE 2021

 

                                                                                                             30 June                                  31 Dec                               30 June
                                                                                                                  2022                                   2021                                   2021
                                                                                                                 $'000                                  $'000                                  $'000
 Note                                                                                                      (unaudited)                            (audited)                              (unaudited)

 Assets

 Non-current assets
 Property, plant and equipment                                                                                      617                                    605                                    590
 Right-of-use assets                                                                                                633                                    752                                 1,039
 Intangible                                                                                                    13,178                                 11,950                                   8,586
 assets
 6
 Deferred tax                                                                                                    2,557                                  2,557                                  2,569
 asset
 7
 Other receivable                                                                                                     19                                     19                                     19

                                                                                                               17,004                                 15,883                                 12,803
 Current assets
 Trade and other receivables                                                                                     8,591                                13,182                                   9,621
 Cash and cash equivalents                                                                                     23,517                                 24,193                                 24,066

                                                                                                               32,108                                 37,375                                 33,687

 Total assets                                                                                                  49,112                                 53,258                                 46,490

 Liabilities

 Current liabilities
 Contract liabilities                                                                                          13,348                                 13,505                                   9,624
 Lease liabilities                                                                                                  270                                    474                                    614
 Trade and other payables                                                                                        5,854                                  7,668                                  4,557
 Dividends                                                                                                               -                                      -                                 470
 payable
 8

                                                                                                               19,472                                 21,647                                 15,265
 Non-current liabilities
 Lease liabilities                                                                                                  376                                    305                                    452

                                                      Total liabilities                                        19,848                                 21,952                                 15,717

                                                      Net assets                                               29,264                                 31,306                                 30,773

                                                      Issued capital and reserves

attributable to the owners of the parent

                                                      Share capital                                              3,247                                  3,219                                  3,216
                                                      Capital reserves                                         11,326                                 10,500                                   9,965
                                                      Translation reserve                                       (1,582)                                     (32)                                  463
                                                      Retained earnings                                        16,273                                 17,619                                 17,129

                                                      Total equity                                             29,264                                 31,306                                 30,773

 

 

CONSOLIDATED CASH FLOW STATEMENT FOR THE

SIX MONTHS ENDED 30 JUNE 2022 AND 30 JUNE 2021

 

 

                                                                     2022                                     2021
                                                                    $'000                                    $'000
                                                                        (unaudited)            (unaudited)

 Operating Activities
 (Loss)/profit for the period                                      (1,050)                                370
 Finance income                                                          13                                       20
 Finance expense                                                         35                                       31
 Depreciation of property, plant and equipment                         213                                      145
 Depreciation of right-of-use assets                                   302                                      320
 Amortization and impairment of intangible assets                   2,636                                 1,443

 Share based payment expense                                           479                                 325
 Income tax charge                                                     259                                148

 Operating cash flows before movement in working capital            2,887                                 2,802
 Decrease in receivables                                            4,182                                    4,916
 Decrease in payables                                              (1,504)                                (2,781)

 Cash generated from operations                                     5,565                                  4,937
 Income taxes paid                                                      (90)                               (223)

 Net cash from operating activities                                 5,475                                4,714

 Investing Activities
 Finance income                                                         (13)                              (20)
 Purchases of property, plant and equipment                           (241)                               (213)
 Purchase of Sopheon shares for treasury                                (68)                                 -
 Capitalization of development costs                               (2,934)                             (2,166)
 Cash element of consideration for acquisition of businesses           (684)                                    -

 Net cash used in investing activities                             (3,940)                               (2,399)

 Financing Activities
 Exercise of share options                                             244                                632
 Lease payments                                                       (327)                                (351)
 Finance expense                                                        (23)                               (5)
 Dividends                                                            (408)                                     -

 Net cash from/(used in) financing activities                         (514)                               276

 Net increase in cash and cash equivalents                          1,021                                 2,591

 Cash and cash equivalents at the beginning of the period         24,193                                  21,718
 Effect of foreign exchange rate changes                           (1,697)                                (243)

 Cash and cash equivalents at the end of the period               23,517                                  24,066

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE

SIX MONTHS ENDED 30 JUNE 2022, 31 DECEMBER 2021 AND 30 JUNE 2021

 

 

                                                                                                                                                 Trans-

                                                                                    Share                    Capital                             lation                                      Retained

                                                                                 Capital                     Reserves                            Reserve                                     Earnings                           Total
                                                                                    $'000                         $'000                                $'000                                      $'000                         $'000
 Note

 At 1 January 2021 (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                                                                       -                           -                                           -                   (470)                                         (470)
 payable                                   8
 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

 Profit for the period                                                           -                           -                                           -                   457                                           457
 Other comprehensive income(1)                                                   -                                        -                              (495)               -                                             (495)
 Total comprehensive income                                                      -                           -                                           (495)               457                                           (38)
 Issues of shares                                                                3                           13                                          -                   -                                             16
 Share based payments                                                             -                          555                                         -                                -                                555
 Exercise of share options                                                        -                           (33)                                       -                   33                                            -

 At 31 December 2021 (audited)                                                        3,219                      10,500                                  (32)                   17,619                                     31,306

 Loss for the period                                                             -                                        -                              -                   (1,050)                                       (1,050)
 Other comprehensive income(1)                                                   -                                        -                              (1,550)             -                                             (1,550)
 Total comprehensive income                                                      -                           -                                           (1,550)             (1,050)                                       (2,600)
 Dividends                                                                       -                           -                                           -                   (408)                                         (408)
 payable                                   8
 Issues of shares                                                                28                          527                                           -                 -                                             555

 Shares purchased for treasury                                                   -                                    (68)                               -                                -                                (68)
 Share based payments                                                            -                                    479                                -                                -                                479
 Exercise of share options                                                       -                           (112)                                       -                   112                                           -

 At 30 June 2022 (unaudited)                                                     3,247                       11,326                                      (1,582)             16,273                                        29,264

 
(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 2022 comprise the
Company and its subsidiaries (together referred to as the "Group").

 

The Board of Directors approved this interim report on 23 August 2022.

 

2. PRINCIPAL ACCOUNTING POLICIES

 

Basis of preparation and accounting policies

 

These condensed consolidated financial statements have been prepared in
accordance with UK adopted international accounting standards in accordance
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 2021 Annual
Report. The financial information for the half years ended 30 June 2022 and 30
June 2021 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 2021 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 2021 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 2021
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 2022 and will be adopted in the 2022 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 followed by the war in Ukraine have had
widespread economic impacts, with potential for causing delays in contract
negotiations and/or cancellation of anticipated sales, as well as uncertainty
over cash collection from certain customers. 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 such cash
restrictions is remote, and therefore not a realistic outcome to consider.
This assessment has 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 perpetual 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 recognized evenly over the term of the agreements, due to the
customer simultaneously receiving and consuming the benefits of the
contractual performance obligation over that term. 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. Where a
sales contract involves multiple service obligations, the allocation of the
transaction price is performed proportionally based on the standalone selling
price for each obligation.  The way in which management assigns the selling
price to each separate performance obligation is based on the cost of
satisfying the performance obligation plus an appropriate margin based on
experience of standalone sales.

 

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
2022 and 30 June 2021 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                                                                                             2022                      2021
                                                                                                                      $'000                        $'000

 Perpetual licenses                                                                                                         529                    1,430
 Consulting and implementation services                                                                                  4,403                     5,423
 SaaS, maintenance and hosting                                                                                     10,746                          9,678

                                                                                                                       15,678                    16,531

 

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 2022                                           N America                 Europe                          Total
                                                                            $'000                  $'000                              $'000

 External revenues                                                        10,333                      5,345                         15,678
 Loss before tax                                                              (784)                         (7)                         (791)
 Adjusted EBITDA                                                            2,582                        305                          2,887
 Total assets                                                             25,932                    23,180                          49,112

 

 Six months to 30 June 2021                                           N America             Europe                    Total
                                                                            $'000              $'000                        $'000

 External revenues                                                        10,069                  6,462                   16,531
 Profit / (loss) before tax                                                 1,832                (1,314)                       518
 Adjusted EBITDA                                                            3,547                   (745)                   2,802
 Total assets                                                             24,899                21,591                    46,490

 

Adjusted EBITDA is arrived at after adding back net finance costs,
depreciation, amortization, impairment and share-based payment expense
amounting to $3,678,000 (2021: $2,284,000) to the loss before tax. Details of
these amounts are set out in the reconciliation of operating cash flows before
movement in working capital, 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. Loss/profit before tax and EBITDA are stated after adjusting for an
estimate for intra-group charges.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

4. (LOSS) / EARNINGS PER SHARE

 

The calculation of basic (loss) / earnings per ordinary share is based on the
loss of $1,050,000 (2021:  earnings of $370,000) and on 10,564,081 ordinary
shares (2021: 10,376,214) being the 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 2022 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 2022 is 10,682,876 (2021: 10,698,799).
 However, with respect to 30 June 2022, since this would have the effect of
reducing the loss per ordinary share it is not dilutive and is therefore
ignored.

 

5. REVENUE VISIBILITY

 

Revenue visibility at any point in time comprises revenue expected during the
current year 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 later in the year.

 

6. INTANGIBLE ASSETS & GOODWILL

 

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 $2,934,000 (2021: $2,166,000), and amortization of
$1,541,000 (2021: $1,443,000) during the period. In addition, a 50% impairment
provision has been made against the capitalized costs associated with the
cloud platform development, amounting to $814,000 (2021: $nil). Amortization
of $281,000 (2021: $nil) has also been charged in respect of technology and
intellectual property rights acquired pursuant to the acquisition of ROI
Blueprints LLC in 2021. A provisional amount of goodwill of $931,000 has been
recorded in respect of the acquisition of the business and assets of
Solverboard, to be revisited and retrospectively adjusted at year end, to
reflect new information obtained about facts and circumstances that existed as
of the acquisition date.

 

7. TAXATION

 

The tax charge reflects certain US state taxes and German corporate taxes. At
30 June 2022, income tax losses estimated at $51m (2021: $54m) 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 (2021: $2.6m) and a further,
but currently unrecognized, potential deferred tax asset of $8.8m (2021:
$10.1m), based on the tax rates currently applicable in the relevant tax
jurisdictions.  An aggregate $9m (2021: $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. DIVIDEND

 

The Board proposed a final dividend in respect of the year ended 31 December
2021 of 3.25p per share (2020: 3.25p per share). This was approved by the
shareholders in the annual general meeting held on 9 June 2022 and paid to
shareholders on the register at the close of business on 10 June 2022.

 

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 these have
changed since the publication of the annual report for the year ended 31
December 2021, which contains a detailed explanation of the risks relevant to
the Group on page 26, and is available at www.sopheon.com
(http://www.sopheon.com) . Other risks and uncertainties of the Group are
disclosed in the Chairman's Statement and the notes to the interim financial
information included in this half-yearly financial report. In addition, the
Board have continued to monitor and mitigate the effects of the following
international events on the Group's business:

 

COVID-19

The directors have continued to monitor and respond to the effects of the
global COVID-19 pandemic on the Group.  From the start, the board implemented
an immediate work from home policy and travel restrictions, supported by
well-defined virtual working practices, as well as assuring continuity of
business operations and cloud services. This went smoothly, and the Group
continues to operate mostly virtually today, with a blend of home and office
working expected.  Some rationalization of office space has already been
undertaken as leases permit, and this is expected to continue.

 

Brexit

The effects of the UK's withdrawal from the EU has not had a significant
impact on the Group, due to the global geographical footprint of the business
and the nature of its operations.  However, the directors and management
continue to monitor the situation to manage the risk of the return of
volatility in the global financial markets and impact on global economic
performance.

 

War in Ukraine

In February 2022, Russia invaded Ukraine leading to a strong sanction response
by many jurisdictions around the world including by the UK, USA and EU.
Sopheon is committed to honoring the sanctions imposed on Russia, named
individuals, and business entities. In addition, Sopheon, like many companies
worldwide, has suspended all business activity with Russian entities. Although
Sopheon does not have any active customers in Ukraine or Russia, prior to the
invasion the Group was involved in a small number of material sales
opportunities within the territory, which have been suspended. This is not
expected to have any impact on the Group's ability to continue as a going
concern.

 

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").

 

 

INDEPENDENT REVIEW REPORT TO SOPHEON PLC

 

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 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the London Stock Exchange AIM Rules for Companies.

 

We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the consolidated income statement, consolidated
statement of comprehensive income, consolidation statement of financial
position, consolidated cash flow statement, consolidated statement of changes
in equity and associated notes.

 

Basis for conclusion

 

We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). 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.

 

As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, Interim Financial Reporting.

 

Conclusions relating to going concern

 

Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.

 

Responsibilities of directors

 

The directors are responsible for preparing the half-yearly financial report
in accordance with the London Stock Exchange AIM Rules for Companies which
require that the half-yearly report be presented and prepared in a form
consistent with that which will be adopted in the Company's annual accounts
having regard to the accounting standards applicable to such annual accounts.

In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.

 

 

 

 

Auditor's responsibilities for the review of the financial information

 

In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.

 

Use of our report

 

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 AIM Rules for Companies 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 authorised to do so by our prior written
consent.  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.

 

 

BDO
LLP

Chartered Accountants & Registered Auditors

Gatwick, UK

 

23 August 2022

 

BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).

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