TIDMSPE
RNS Number : 2610X
Sopheon PLC
27 August 2020
Embargoed release: 07:00hrs Thursday 27 August 2020
SOPHEON PLC
("Sopheon", the "Company" or the "Group")
RESULTS FOR THE 6 MONTHS TO 30 JUNE 2020
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 2020 together with a business review and outlook statement for
the second half of the year.
Highlights:
-- Revenue: $13.9m (2019: $13.7m)
Adjusted EBITDA(1) : $2.6m (2019: $2.8m )
Net cash: $21.9m ( 2019 : $18.7m)
ARR(2) : $16.5m (2019: $15.3m)
-- Revenue ahead of 2019 in spite of the challenging environment
due to the coronavirus pandemic.
-- Total pipeline value and activity has held up with four $1m
plus orders signed since the start of the year. The value of new
customer sales bookings has doubled year on year, and all new
customer licenses were SaaS. Revenue visibility(3) for full-year
2020 is now at $25.5m (2019: $25.4m).
-- Gross retention at 94 percent following some recent attrition
as customers retrench (2019: 97 percent); more than offset by new
orders taking ARR today to $16.5m (2019: $15.3m).
-- Strong balance sheet and cash of $21.9m, a reported high, provide a platform for growth.
Sopheon's Chairman, Barry Mence said: "Several of Sopheon's
vertical markets - food, beverage and consumables; chemicals;
defense - continue to show resilience to the crisis. However, our
customer base is not immune to the difficulties faced by the
general markets. Like many others, we withdrew market guidance in
May, and in view of the traditional fourth quarter weighting in our
business, we believe this remains a prudent approach. Nevertheless,
our solutions remain highly attractive to new and existing
customers. This is evidenced by revenues slightly ahead of last
year, and by continuing sales traction with a doubling of new
customer booking value, including major commitments like our
recently announced win at Mondelēz International. This also
underlines that our SaaS transition is well underway. Visibility
for full year 2020 is $25.5m, underpinned by ARR at $16.5m, net
cash at $21.9m and a substantial, active sales pipeline - even in
the toughest environment in decades, these positive metrics give us
a solid platform from which to proceed with our strategy."
For further information contact:
Barry Mence, Chairman + 44 (0) 1276
Arif Karimjee, CFO Sopheon plc 919 560
Carl Holmes / Giles Rolls (corporate
finance) + 44 (0) 20 7220
Alice Lane / Sunila de Silva(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
CHAIRMAN'S STATEMENT
Trading Performance
First half revenue was $13.9m compared to $13.7m last year, in
spite of the pandemic. As in past years, we look for an
acceleration in sales in the second half of the year and our
traditional fourth quarter weighting, provided the global
circumstances do not take a further turn for the worse. We closed
13 software transactions in the period with 2 from new customers
(2019: 18 and 7 respectively). This compares to 7 new customers
last year, but with smaller deal sizes. Since the end of June, we
have closed another 8 software deals, including a further 2 new
customers. All new customers this year have opted for multi-year
Software as a Service (SaaS) contracts, in line with our expected
shift to a more recurring model. Three of these had total deal
value above $1m - in total, the value of new customer sales
bookings is over twice what it was last year. A further services
order from an existing customer also exceeded $1m. The bulk of the
existing customer base continues to represent a perpetual licensing
model, and extensions from the base will continue to drive a degree
of perpetual licensing for the foreseeable future, though we are
also implementing strategies to convert existing licensees to our
cloud-based model. Further analysis of revenue is given in Note
3.
Since our last trading update in May, we have seen some increase
in customer non-renewal notices or user reduction notices, and our
annual recurring revenue ("ARR") retention rate now stands at
approximately 94 percent on a gross basis. In our view this is a
respectable outcome in light of the COVID situation. Reasons for
non-renewal included budget cuts and M&A. We have more than
offset this with new orders, adding $1.5m in new ARR since the
start of the year. This means our ARR now stands at $16.5m compared
to $15.9m at the start of this year and $15.3m last June. Our net
promoter score - a measure of customer satisfaction - remains
steady at 40 based on year to date surveys, considered a high score
for B2B. We draw a dual conclusion from these data points - our
customer base is not immune to the difficulties faced by the
broader market, however our solutions remain highly valuable to new
and existing customers through the recent turbulent conditions.
In addition to license orders, we continued to sign substantial
service extensions alongside delivery of a range of implementation
and upgrade projects. The geographical split of revenue remains
roughly two-thirds North America and one-third Europe reflecting
historical metrics.
We have continued to book orders from new and existing customers
in the third quarter, and can report that revenue visibility today
stands at $25.5m (2019: $25.4m). The 12-month forward sales
pipeline is holding broadly steady in terms of overall value since
the start of the year, which was in turn a big jump from the year
before. In line with comments above, the profile of opportunities
continues to skew towards SaaS as far as potential new customers
are concerned. The total number of opportunities with deal size
above $0.5m is up about 10 percent compared to last year. Our
commercial teams remain busy and we continue to see traction in our
sales efforts; what is less clear is speed to closure. However, we
are encouraged by the ongoing level of engagement and by the deals
booked as described above. Our partnership with Mondelēz
International, announced in early July, is a prime example.
We believe our strategy to transition to SaaS will increase
shareholder value over time by delivering a greater lifetime
revenue from each customer, and since first referring to this shift
in our 2018 annual report, it has become a key internal driver of
change. We have revised our standard pricing models, service
delivery models and commission plans, and a longer-term migration
of the software platform is underway. Year to date, 11 of our
license deals are SaaS compared to 5 at this point in 2019.
However, experience tells us that full conversion to SaaS will take
several years.
Margin and Results
COVID has caused organizations to face new and immediate
challenges and opportunities that require urgent, strategic and
effective responses. In terms of our own operations, we took early
action to ensure the health and safety of staff, introducing an
immediate work from home policy supported by well-defined virtual
working practices, and we also assured continuity of business
operations and cloud services through our co-location and
Azure-based infrastructure. This all went smoothly.
Gross margin for the period eased to 67 percent compared with 69
percent in the first half of 2019. 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. The small reduction this year
can be attributed to slightly higher headcount and the indirect tax
movement.
As noted in the update issued in May this year, we have held
back on our original recruitment plans for 2020, which means we had
163 people on staff at the end of June compared to 162 at the end
of last year. Average headcount for the period was 162 compared to
156 for the first half last year. Coming into the third quarter we
are cautiously hiring again, mainly in the development area as we
continue to invest in our cloud conversion strategy. The modest
increase in sales and marketing costs from $4.3m to $4.4m reflects
the slightly higher staff levels, offset by lower costs in travel
and commissions. Net R&D expense in the income statement has
risen to $2.7m compared to $2.5m last year. Capitalization of
product development costs was $1.7m compared to $1.6m the year
before, offset by $1.3m of amortization (2019: $1.1m); accordingly,
actual expenditure on R&D activities has increased by around
$0.2m. Finally, administrative expenses (which includes all other
overheads, office costs, regulatory and compliance costs, and
depreciation) reduced to $1.8m compared to $2.0m last year. The
reduction can largely be attributed to COVID-related subsidies
received in the Netherlands, in addition to exchange movements.
Reflecting the controlled cost increases referenced above,
profit before tax reported for the half-year period was $0.5m
(2019: $0.9m). This result includes net interest, depreciation and
amortization and share-based payment costs amounting to $2.1m
(2019: $1.9m). The Adjusted EBITDA result for the first half of
2020, which does not include these elements, was accordingly $2.6m
(2019: $2.8m). No adjustment has been recorded to the deferred tax
asset, however provision has been made for approximately $0.1m in
current tax for US state taxes and German corporation tax (2019:
$0.2m), giving a final profit after tax of $0.3m compared to $0.6m
the year before. This has translated to basic and diluted EPS of
3.23 and 3.10 cents respectively (2019: 6.33 and 5.98).
Balance sheet and Corporate
Net assets at 30 June 2020 stood at $27.9m (30 June 2019: $26.2m
/ 31 December 2019: $27.9m), with cash at the end of the period
rising to $21.9m from $19.4m at year end (30 June 2019: $18.7m / 31
December 2019 $19.4m) underlining the continued positive cash
generation in the business. Of the cash balance, approximately
$10.6m was held in US Dollars, $8.8m in Euros and the balance of
$2.4m in Sterling. The Group has no borrowings.
The Group's $3m revolving line of credit facility with Silicon
Valley Bank expired in February 2020 and as we have previously
noted was not renewed due to the substantial cash balances in the
business. Our relationship with the bank remains strong. The
facility was in any case only used on demand, and there were no
funds drawn at 30 June 2019 or 31 December 2019.
Intangible assets at 30 June 2020 stood at $7.3m (30 June 2019:
$6.6m / 31 December 2019: $6.8m). The total includes (i) $6.3m
being the net book value of capitalized research and development
(30 June 2019: $5.6m) and (ii) $1.0m (30 June 2019: $1.0m) being
the net book value of acquired intangible assets. In addition, as
further detailed in Note 7 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. The Group adopted IFRS 16 last year, which
requires lessees to recognize a lease liability that reflects
future lease payments and a "right-of-use asset" in all lease
contracts within scope, with no distinction between financing and
operating leases. This has resulted in recognition at 30 June 2020
of right-of-use assets totaling $1.28m (30 June 2019: $1.75m / 31
December 2019: $1.55m) and total lease liabilities of $1.31m (30
June 2019: $1.77m / 31 December 2019: $1.58m).
COVID notwithstanding, on the back of the strong historic
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 11 June 2020, and paid on 10 July 2020.
Strategy and Product
For many of our customers, our Accolade solution offers
visibility and speed to decisions in times of crisis; accordingly
our vision for the market and our position remains broadly
unchanged. Our broadened mission - from a business that helps
R&D organizations to improve innovation, to one that helps
major enterprises achieve their strategic goals - has dramatically
expanded our horizons and potential. In an increasingly digital
world, organizations are challenged to operate with more agility
and velocity to survive and thrive; this is where Sopheon can add
significant value to our customers. The potential addressable
market for this opportunity is very substantial. Our vision and
ability to execute is noted by leading analyst group Gartner in
their 2019 Magic Quadrant for Project & Portfolio Management,
2019 Market Guide for Strategy and Innovation Roadmapping Tools,
2019 Market Guide for Innovation Management and 2019 Market Guide
for Strategy Execution Management Software. Gartner most recently
called out the deep integration we announced in May of our Accolade
software with Microsoft(R) Teams as an example of what the market
needs today in the July 2020 research note "To Enable Effective
Remote Work, Build Collaborative Features Natively into Your
Software Tools." Within this context, we continue to focus on and
refine our growth strategies as noted in our annual report:
-- Leverage our impressive roster of blue-chip references to
extend Accolade as the digital platform of choice to digitalize
corporate strategy and operational execution.
-- Generate faster net-new logo growth in target vertical
industries through deeper specialization and domain-specific
expertise.
-- Multiply our growth through developing and monetizing an
Accolade ecosystem of distribution partnerships - channel,
strategic and geographical.
-- Engage in M&A only if it propels the speed and competency
for Sopheon to achieve the above.
-- Transform to a cloud business.
Clearly, we have seen some interruptions due to the pandemic,
but also see continuing opportunity. We have maintained investment
in all the above areas - including starting to take a more
structured look at M&A opportunities - while also maintaining
our rapid pace of new releases for the Accolade platform. We
released Accolade version 13.0 at the end of last year, and 13.1 in
May - incorporating our new Accolade Connect for Microsoft(R)
Teams, a cloud-only offering considered by analysts to offer a
uniquely deep integration as mentioned above - and we are now busy
with the next release. As we migrate our business towards the
cloud, we are also encouraging existing perpetual customers to move
their Accolade instance into our hosting centers, via a compelling
cloud-lift offering intended to provide high value to them, and
increased recurring revenue to Sopheon.
Outlook
Several of Sopheon's vertical markets - food, beverage and
consumables; chemicals; defense - continue to show resilience to
the crisis. However, our customer base is not immune to the
difficulties faced by the general markets. Like many others, we
withdrew market guidance in May, and in view of the traditional
fourth quarter weighting in our business, we believe this remains a
prudent approach. Nevertheless, our solutions remain highly
attractive to new and existing customers. This is evidenced by
revenues slightly ahead of last year, and by continuing sales
traction with a doubling of new customer booking value, including
major commitments like our recently announced win at Mondelēz
International. This also underlines that our SaaS transition is
well underway. Visibility for full year 2020 is $25.5m, underpinned
by ARR at $16.5m, net cash at $21.9m and a substantial, active
sales pipeline - even in the toughest environment in decades, these
positive metrics give us a solid platform from which to proceed
with our strategy.
Barry Mence 26 August 2020
Chairman
CONSOLIDATED INCOME STATEMENT FOR THE
SIX MONTHSED 30 JUNE 2020 AND 30 JUNE 2019
30 June 30 June
2020 2019
$'000 $'000
Note (unaudited) (unaudited)
Revenue 3 13,868 13,686
Cost of sales (4,532) (4,194)
-------------- ---------------
Gross profit 9,336 9,492
Sales and marketing expense (4,355) (4,256)
Research and development expense (2,692) (2,453)
Administrative expense (1,796) (1,953)
Operating profit 493 830
Finance income 40 89
Finance expense (54) (64)
-------------- ---------------
Profit for the period before tax 3 479 855
Income tax charge 7 (150) (213)
-------------- ---------------
Profit for the period 329 642
============== ===============
Earnings per share - basic in cents 4 3.23c 6.33c
Earnings per share - fully diluted in cents
4 3.10c 5.98c
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE
SIX MONTHSED 30 JUNE 2020 AND 30 JUNE 2019
2020 2019
$'000 $'000
(unaudited) (unaudited)
Profit for the period 329 642
Amounts that may be recycled in future periods
Exchange differences on translation of foreign
operations (229) 5
------------- --------------
Total comprehensive profit for the period
attributable to the owners 100 647
============= ==============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2020, 31 DECEMBER 2019 AND 30 JUNE 2019
30 June 31 Dec 30 June
2020 2019 2019
$'000 $'000 $'000
Note (unaudited) (audited) (unaudited)
Assets
Non-current assets
Property, plant and equipment 482 510 577
Right-of-use assets 1,281 1,553 1,750
Intangible assets 6 7,273 6,874 6,648
Deferred tax asset 7 2,557 2,557 2,557
Other receivable 19 123 227
------------- --------------- -------------
11,612 11,617 11,759
------------- --------------- -------------
Current assets
Trade and other receivables 7,472 13,000 8,144
Cash and cash equivalents 21,889 19,433 18,715
------------- --------------- -------------
29,361 32,433 26,859
------------- --------------- -------------
Total assets 40,973 44,050 38,618
------------- --------------- -------------
Liabilities
Current liabilities
Contract liabilities 8,494 10,337 7,951
Lease liabilities 607 643 669
Trade and other payables 2,853 4,238 2,262
Dividends payable 8 410 - 420
------------- --------------- -------------
12,364 15,218 11,302
------------- --------------- -------------
Non-current liabilities
Lease liabilities 704 936 1,097
Total liabilities 13,068 16,154 12,399
------------- --------------- -------------
Net assets 27,905 27,896 26,219
============= =============== =============
Issued capital and reserves
attributable to the owners of the parent
Share capital 3,133 3,126 3,122
Capital reserves 9,227 8,942 8,653
Translation reserve (220) 9 55
Retained earnings 15,765 15,819 14,389
------------- --------------- -------------
Total equity 27,905 27,896 21,219
============= =============== =============
CONSOLIDATED CASH FLOW STATEMENT FOR THE
SIX MONTHSED 30 JUNE 2020 AND 30 JUNE 2019
2020 2019
$'000 $'000
(unaudited) (unaudited)
Operating Activities
Profit for the period 329 642
Finance income (40) (89)
Finance expense 54 64
Depreciation of property, plant and equipment 182 182
Depreciation of right-of-use assets 346 350
Amortization of intangible assets 1,280 1,108
Share based payment expense 268 318
Income tax charge 150 213
Operating cash flows before movement in working
capital 2,569 2,788
Decrease in receivables 5,544 5,837
Decrease in payables (3,136) (4,305)
Cash generated from operations 4,977 4,320
Income taxes paid (181) (324)
--------------- ---------------
Net cash from operating activities 4,796 3,996
Investing Activities
Finance income 40 89
Purchases of property, plant and equipment (150) (228)
Capitalization of development costs (1,679) (1,551)
--------------- ---------------
Net cash used in investing activities (1,789) (1,690)
Financing Activities
Exercise of share options 51 80
Repayment of borrowings - (29)
Movement in amounts drawn under lines of
credit - (325)
Lease payments (367) (371)
Finance expense (27) (27)
--------------- ---------------
Net cash used in financing activities (343) (672)
Net increase in cash and cash equivalents 2,664 1,634
Cash and cash equivalents at the beginning
of the period 19,433 17,086
Effect of foreign exchange rate changes (208) (5)
--------------- ---------------
Cash and cash equivalents at the end of the
period 21,889 18,715
=============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 JUNE 2020, 31 DECEMBER 2019 AND 30 JUNE 2019
Trans-
Share Capital lation Retained
Capital Reserves Reserve Earnings Total
$'000 $'000 $'000 $'000 $'000
Note
At 1 January 2019 (audited) 3,118 8,277 50 14,149 25,594
Profit for the period - - - 642 642
Other comprehensive
income(1) - - 5 - 5
---------- -------------- ------------- ------------------ -------------
Total comprehensive
income - - 5 642 647
Dividends payable 8 - - - (420) (420)
Issues of shares 4 76 - - 80
Share based payments - 318 - - 318
Exercise of share options - (18) - 18 -
At 30 June 2019 (unaudited) 3,122 8,653 55 14,389 26,219
========== ============== ============= ================== =============
Profit for the period - - - 1,396 1,396
Other comprehensive
income(1) - - (46) - (46)
---------- -------------- ------------- ------------------ -------------
Total comprehensive
income - - (46) 1,396 1,350
Issues of shares 4 21 - - 25
Share based payments - 302 - - 302
Exercise of share options - (34) - 34 -
At 31 December 2019
(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
========== ============== ============= ================== =============
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 2020 comprise the Company and its subsidiaries (together
referred to as the "Group").
The Board of Directors approved this interim report on 26 August
2020.
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") as adopted for
use in the EU. 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 2019 Annual
Report. The financial information for the half years ended 30 June
2020 and 30 June 2019 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 IFRS as adopted by the European Union.
The statutory Annual Report and Financial Statements for 2019 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 2019 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 2019 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
2020 and will be adopted in the 2020 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 10 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. As a consequence, the Group has
carried out 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 have given 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. Accordingly, 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 2020 and 2019 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 2020 2019
$'000 $'000
Perpetual licenses 941 1,092
Consulting and implementation
services 4,731 4,854
SaaS, maintenance and
hosting 8,196 7,740
------------ -----------
13,868 13,686
============ ===========
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.
All information provides analysis by location of operations.
Profit before tax and EBITDA are stated after deducting an estimate
for intra-group charges.
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
------------ ------------- ------------
Six months to 30 June N America Europe Total
2019
$'000 $'000 $'000
External revenues 8,521 5,165 13,686
Profit before tax 1,121 (266) 855
Adjusted EBITDA 2,514 275 2,789
Total assets 24,185 14,433 38,618
----------- ------------- ------------
Adjusted EBITDA is arrived at after adding back net finance
costs, depreciation, amortization and share-based payment expense
amounting to $2,090,000 (2019: $1,933,000) 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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER SHARE
The calculation of basic earnings per ordinary share is based on
earnings of $329,000 (2019: $642,000) and on 10,178,929 ordinary
shares (2019: 10,146,617) 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 2020 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 2020 is 10,611,854 (2019: 10,726,181)
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 2020.
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 $1,679,000 (2019:
$1,551,000), and amortization of $1,280,000 (2019: $1,108,000)
during the period.
7. TAXATION
The tax charge reflects certain US state taxes and German
corporate taxes. At 30 June 2020, income tax losses estimated at
$52m (2019: $53m) 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 (2019: $2.6m) and a
further, but currently unrecognized, potential deferred tax asset
of $8.0m (2019: $8.2m), based on the tax rates currently applicable
in the relevant tax jurisdictions. An aggregate $9m (2019: $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 2019 of 3.25p per share (2018: 3.25p per share).
This was approved by the shareholders in the annual general meeting
held on 11 June 2020 and an amount of $410,000 is shown within
current liabilities in the statement of financial position as at 30
June 2020.
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 2019, which contains a
detailed explanation of the risks relevant to the Group on page 28,
and is available at www.sopheon.com . Since the 2019 Annual Report,
the Board have been monitoring and mitigating 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 has 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 is well positioned
to be able to navigate through the impact of COVID-19 due to the
strength and flexibility of its service proposition, its strong
balance sheet and cash position. The only COVID-related subsidies
receivable by the group are in the Netherlands, being a
contribution to payroll costs based on estimated reduction in
turnover of the Dutch subsidiary in May, June and July 2020. An
advance of $0.3m was received in the period, being 80% of the total
potential subsidy, and the group has recognized two thirds of this
amount being the period relating to May and June.
Brexit
The UK formally left the EU on 30 January 2020. The UK is now in
a transition period, being an intermediary arrangement covering
matters like trade and border arrangements, citizens' rights and
jurisdiction on matters including dispute resolution. The
transition period is currently due to end on 31 December 2020 and
negotiations are ongoing to determine and conclude a formal
agreement. 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 will 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.
The information communicated in this announcement is inside
information for the purposes of
Article 7 of Regulation 596/2014 of the European Parliament and
of the Council of 16 April 2014 on market abuse.
Independent review report to Sopheon plc
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 2020 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 2020 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
26 August 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
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END
IR BIGDILXDDGGL
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