TIDMSPE
RNS Number : 6247Y
Sopheon PLC
23 August 2018
Embargoed release: 07:00hrs Thursday 23 August 2018
SOPHEON PLC
("Sopheon", the "Company" or the "Group")
RESULTS FOR THE 6 MONTHS TO 30 JUNE 2018
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 2018 together with a business review and outlook statement for
the second half of the year.
Highlights:
-- Revenue: $15.9m (2017: $12.5m)
EBITDA(1) : $4.1m (2017: $3.0m)
Profit before tax: $2.8m (2017: $1.8m)
Net cash: $15.5m (2017: $6.6m)
-- Reporting 27% growth in revenue, and 62% growth in profit
before tax, the business maintains its positive strategic and
financial trajectory.
-- Momentum from 2017 customer wins was boosted by 29 license
events in the period (2017: 28). These orders included 9 new
customer wins (2017: 6) as both the market, and our reputation and
position, continue to advance.
-- Revenue visibility(2) for full-year 2018 at $27.2m (2017: $20.3m).
-- Further success in extending the use of Accolade beyond our
innovation roots. We continue to make advancements in applying our
software to link corporate strategy to operational execution,
enabling customers to accomplish swift pivots to realize new
strategic ambitions with speed.
-- Diluted EPS rose to 25 cents (2017: 18 cents) per share.
Maiden dividend of 2.5p per share has been paid in July.
Sopheon's Chairman, Barry Mence said: "Alongside ensuring
strategic progress and position, we remain focused on our revenue
and profit objectives. This is underlined by our record first half
performance for revenue and profit, our record revenue visibility
of $27.2m, our record cash balances, and our maiden dividend
declaration. The final quarter has always had a strong weighting on
the overall results for the year, and as we move through the summer
our commercial teams remain highly active. Noting this, the Board
in turn remains confident that the Group is trading comfortably in
line with market expectations."
For further information contact:
Barry Mence, Chairman + 44 (0) 1276
Arif Karimjee, CFO Sopheon plc 919 560
Carl Holmes / Giles Rolls (corporate
finance)
Alice Lane / Camille Gochez + 44 (0) 20 7220
(ECM) finnCap Ltd 0500
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
About Sopheon. Sopheon (LSE: SPE) partners with customers to
provide complete enterprise innovation management solutions
including software, expertise, and best practices, that enable them
to achieve exceptional long-term revenue growth and profitability.
Sopheon's Accolade solution provides unique, fully-integrated
coverage for the entire innovation management and new product
development lifecycle, including strategic innovation planning,
roadmapping, idea and concept development, process and project
management, portfolio management and resource planning. Sopheon's
solutions have been implemented by over 250 customers with over
60,000 users in over 50 countries. Sopheon is listed on AIM,
operated by the London Stock Exchange. For more information, please
visit www.sopheon.com
(1) EBITDA is defined in Note 3. (2) Revenue visibility is
defined in Note 5.
Sopheon(R) and Accolade(R) are trademarks of Sopheon.
CHAIRMAN'S STATEMENT
Trading Performance and Results
With 27 percent growth in revenues to $15.9m, the first half of
2018 continues a trend of rising first half performance building on
$12.5m in 2017, $11.5m in 2016 and $8.4m in 2015. As previously
reported we entered the period with a strong visibility tailwind
thanks to a standout performance in the traditionally strong final
quarter the year before. Delivery of this business made a
substantial contribution to first half revenues, but commercial
success also accelerated during the first half, with 29 license
transactions including 9 new customers (2017: 28 and 6
respectively).
The geographical footprint of the new customers was widespread,
with wins in Japan, Germany, USA, UK and the Benelux, and in
several industry sectors including automobile and vehicle
manufacturing, food, diversified industrial manufacturing, and
aerospace and defense. While the majority of license transactions
were perpetual, we did sign a number of Software-as-a-Service
(SaaS) deals and extensions including a major new win, overall
adding $0.6m in annual SaaS business during the period. In total
the recurring revenue base has risen to $13.7m from $10.5m a year
ago. In addition to new license business, we were pleased to sign
substantial service extensions alongside delivery of a range of
implementation and upgrade projects. Overall, revenue mix between
license, service and maintenance/hosting was 30:32:38 respectively,
compared to 27:34:39 in the first half of last year, a relatively
stable spread. Looking at the business holistically, we are
encouraged by the more consistent blend of recurring revenue,
delivery of previous period signed business and the impact of new
signings. This perspective is underlined by the fact we now have
revenue visibility of $27.2m for 2018, compared to $23.5m at the
time of our annual general meeting, and compared to $20.3m for 2017
at this time last year.
Sourcing quality people is a continuing challenge for Sopheon as
it is for many other technology companies, and hiring of new staff
has lagged our plans. Nevertheless, we have made some good progress
and we had 144 staff at the end of the period, compared to 132 at
the end of December, and 123 at the end of the previous June.
During the year preceding this report, staff have been added in all
areas, but in particular delivery and development as we position
the Company to ensure continued market leadership and customer
satisfaction. This includes hiring Steve Alexander, a very
experienced executive based in the USA to lead our global service
delivery team. Maximizing lifetime revenue is a rising theme within
the Group that guides many of our strategic decisions and annual
initiatives. To support this we have ambitious hiring plans for the
remainder of 2018, and recruitment will continue through to the end
of the period. Alongside new people, we have steadily been adding
to office facilities and other supporting infrastructure.
Gross margin for the period was consistent at 71 percent
compared to 72 percent in 2017. Direct costs include costs for
license and support for certain OEM components of our solution,
costs of our hosting operations, and certain indirect taxes; but
the main component is the cost of our delivery teams and associated
subcontractors. This has of course risen overall with rising
delivery demand, but remains broadly consistent as a proportion of
services revenue. Sales and marketing costs have also increased to
$4.1m from $3.5m last year, reflecting both higher staff levels and
stronger commissions on the back of the higher sales productivity.
The effect of the new hires offset by capitalization has resulted
in higher net R&D expense in the income statement of $2.4m
compared to $2.1m last year. The effect of capitalization and
amortization of product development costs was negligible, with
$1.2m capitalized in the period compared to $1.0m last year, offset
by $1.1m of amortization (2017: $1.1m). Finally, administrative
expenses (which includes all other overheads, office costs,
regulatory and compliance costs, and depreciation) show an overall
increase to $1.9m from $1.6m last year.
Profit before tax reported for the half-year period was $2.8m
(2017: $1.8m). This result includes interest, depreciation and
amortization costs amounting to $1.3m (2017: $1.3m). The EBITDA
result for the first half of 2018, which does not include these
elements, was $4.1m (2016: $3.0m). No adjustment has been recorded
to the deferred tax asset, however provision has been made for
approximately $0.2m in current tax for the US and German entities
giving a final profit after tax of $2.6m compared to $1.8m the year
before. Basic and diluted EPS have both risen to 26.34 and 24.99
cents respectively (2017: 24.10 and 18.01) and this in the context
of a higher number of shares in issue.
Balance sheet and Corporate
Net assets at 30 June 2018 have grown to $21.6m (30 June 2017:
$12.3m), with net cash after borrowings at the end of the period
rising to $15.5m (30 June 2017: $6.6m), further evidence of the
solid corporate progress over the past 12 months and underpinning
execution of our plans for the business. Much of the increase stems
from collection of the traditionally high year-end receivables
balances, in turn linked to the very strong fourth quarter
performance as well as the high number of recurring revenue
renewals at that time of year.
Of the cash balance, approximately $7.1m was held in US Dollars,
$6.7m in Euros and the balance of $1.7m in Sterling (30 June 2016:
$5.6m $3.2m, and debt of $2.2m respectively). With recent rises in
USD deposit interest rates to meaningful levels, with the help of
Silicon Valley Bank we have also implemented a cash sweep program
to invest our USD balances into overnight treasuries. Intangible
assets at 30 June 2018 stood at $5.9m (30 June 2017: $5.4m). This
includes (i) $4.9m being the net book value of capitalized research
and development (30 June 2016: $4.4m) and (ii) $1.0m (30 June 2016:
$1.0m) being the net book value of acquired intangible assets.
During the period and as in prior years, capitalization costs were
broadly offset by amortization charges.
The Group has longstanding bank facilities with the London
branch of Silicon Valley Bank. These comprise a term loan of $0.5m
repayable in 36 equal monthly instalments, and a $3m revolving line
of credit, only used on demand. At 30 June 2017 the Group's total
liability in relation to these loans was $0.4m (2017: $2.4m). The
current term of the facilities is through to January 2019 and
renewal options are under consideration. Both facilities bear
interest at rates of 2.75 percent over Wall Street Prime, resulting
in a current effective rate of 7.25 percent. The facilities are
subject to covenants and drawdown mechanics based on working
capital ratios.
Until its conversion into equity on 22 December 2017, the Group
also had a GBP2m convertible unsecured loan stock instrument
outstanding, held by a group of investors including key members of
the Board and senior management team and which was reflected in the
balance sheet at 30 June 2017.
Following several years of clarifying our debt, equity and
listing structure, other corporate activity has been relatively
quiet in the first half of the year with the exception of the
declaration of the Group's maiden dividend of 2.5p per share
($0.33m in total), approved by the shareholders in the annual
general meeting held on 7 June 2018 and paid on 6 July 2018.
Strategy and Product
Sopheon's strategy is progressing, supported by additional
momentum and market validation, to help our customers achieve
exceptional long-term growth and profitability through sustainable
innovation - while helping them navigate ongoing disruption in
their markets. Our growing momentum is evidenced by the 50% higher
number of new client wins secured over last year at this time, as
referenced above.
From the market standpoint, we see increased evidence of
corporations suffering from the multitude of stand-alone systems
built over time, resulting in isolated pockets of information silos
in different functional areas. This operational disconnect prevents
organizations from responding with speed to external market
changes. Sopheon has created a software solution that connects the
disconnected parts of these global enterprises, delivering an
end-to-end, cross-functional decision-making platform that links
the strategic ambitions of the corporation to the execution
activities required to achieve those ambitions.
In the first half of this year, we made further progress in
expanding our "lifetime value" opportunities across a number of our
blue chip clients, by extending the business application areas
addressed by our solution. We continue to advance our vision in
partnership with our strategic clients, leveraging sound advice and
learnings to pave the way for our ecosystem to increase the value
received from our software.
Sopheon is not alone in reporting this growth in the enterprise
innovation market. The business analyst community continues to
expand coverage of the emerging components that make up the market
which Sopheon occupies. Sopheon was mentioned by analysts in 20
individual reports in 2017, and we are on course to exceed that in
2018. The sources of such reports include Gartner, Forrester
Research, and others. Sopheon's leadership position was also
validated in March by Consumer Goods Technology magazine through a
customer-based evaluation that voted Sopheon the number one
supplier of new product development and introduction solutions.
Our firm commitment to invest in advancing our product as a
cornerstone of our business is unwavering, and we are on track to
achieve our aggressive release schedule again in 2018. We released
Accolade version 12.0 earlier in the year, and will be releasing
version 12.1 shortly.
In our latest software releases we have continued to enhance the
user experience with both improved look and feel, a new mobile app,
and enhanced usability through simplification and role-focused
workflows. In addition, we continue to make advancements in linking
the corporate strategy to operational execution, enabling customers
to accomplish swift pivots to realize new strategic ambitions with
speed. We have also stepped up the pace of capturing and sharing
Sopheon best-practice content, and innovation methodology, and
expect to continue doing so into 2019, thereby driving further
differentiation from alternative solutions.
Outlook
As described above, our growing success can be attributed to
both a rapidly evolving market for what we offer, and also to the
way we have chosen to address that market. Several years ago we
shifted our vision from providing a process automation tool for
research and development, to offering an enterprise platform for
innovation and strategy responsive to the needs of large
corporates. We have also consistently adopted an overtly vertical
orientation to the market, and to the configuration and expertise
embedded in our solution. In our view these principles continue to
position us very well, and the rising momentum and market
recognition testify to that view.
Our forward growth strategy remains simple and consistent - to
continue to build on our current operational momentum, and execute
on our three over-arching initiatives as outlined in our annual
report: (i) capitalize on existing blue chip client relationships
to extend Accolade as the digital platform of choice to empower
enterprise adaptability across a global organization; (ii) increase
new client acquisition investment in target verticals through
deeper specialization and domain-specific expertise; and (iii)
expand commercial reach through distribution partnerships -
channel, strategic and geographical - to develop and monetize an
Accolade ecosystem. In order to deliver on these growth strategies,
we have ambitious investment plans for 2018 involving product,
people and processes and we will continue to press forward with
these plans on all fronts. As we have stated, we will also consider
targeted M&A opportunities where they are aligned with our
strategic goals.
Alongside ensuring strategic progress and position, we remain
focused on our revenue and profit objectives. This is underlined by
our record first half performance for revenue and profit, our
record revenue visibility of $27.2m, our record cash balances, and
our maiden dividend declaration. The final quarter has always had a
strong weighting on the overall results for the year, and as we
move through the summer our commercial teams remain highly active.
Noting this, the Board in turn remains confident that the Group is
trading comfortably in line with market expectations.
Barry Mence 22 August 2018
Chairman
CONSOLIDATED INCOME STATEMENT FOR THE
SIX MONTHSED 30 JUNE 2018 AND 30 JUNE 2017
2018 2017
$'000 $'000
Note (unaudited) (unaudited)
Revenue 3 15,930 12,505
Cost of sales (4,605) (3,494)
-------------- ---------------
Gross profit 11,325 9,011
Sales and marketing expense (4,113) (3,470)
Research and development expense (2,423) (2,073)
Administrative expense (1,933) (1,580)
Operating profit 2,856 1,888
Finance income 37 -
Finance expense (45) (135)
-------------- ---------------
Profit for the period before tax 3 2,848 1,753
Income tax (charge)/credit 7 (203) 27
-------------- ---------------
Profit for the period 2,645 1,780
============== ===============
Earnings per share - basic in cents 4 26.34c 24.10c
Earnings per share - fully diluted in cents
4 24.99c 18.01c
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE
SIX MONTHSED 30 JUNE 2018 AND 30 JUNE 2017
2018 2017
$'000 $'000
(unaudited) (unaudited)
Profit for the period 2,645 1,780
Amounts that may be recycled in future periods
Exchange differences on translation of foreign
operations (42) (19)
-------------- --------------
Total comprehensive profit for the period 2,603 1,761
============== ==============
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2018 AND 30 JUNE 2017
30 June 31 Dec 30 June
2018 2017 2017
$'000 $'000 $'000
Note (unaudited) (audited) (unaudited)
Assets
Non-current assets
Property, plant and equipment 526 417 327
Intangible assets 6 5,906 5,821 5,441
Deferred tax asset 7 2,010 2,010 1,366
Other receivable 19 19 19
--------------- ------------- -------------
8,461 8,267 7,153
--------------- ------------- -------------
Current assets
Trade and other receivables 9,664 15,387 7,877
Cash and cash equivalents 15,990 12,729 11,486
--------------- ------------- -------------
25,654 28,116 19,363
--------------- ------------- -------------
Total assets 34,115 36,383 26,516
--------------- ------------- -------------
Liabilities
Current liabilities
Borrowings 441 3,171 2,271
Contract liabilities 7,536 8,345 5,773
Trade and other payables 4,559 6,239 3,561
--------------- ------------- -------------
12,536 17,755 11,605
--------------- ------------- -------------
Non-current liabilities
Borrowings - 28 2,634
Total liabilities 12,536 17,783 14,239
--------------- ------------- -------------
Net assets 21,579 18,600 12,277
=============== ============= =============
Equity
Share capital 3,115 3,079 2,398
Capital reserves 8,060 7,720 5,891
Translation reserve 322 364 314
Retained earnings 10,082 7,437 3,674
--------------- ------------- -------------
Total equity 21,579 18,600 12,277
=============== ============= =============
CONSOLIDATED CASH FLOW STATEMENT FOR THE
SIX MONTHSED 30 JUNE 2018 AND 30 JUNE 2017
2018 2017
$'000 $'000
(unaudited) (unaudited)
Operating Activities
Profit for the period 2,645 1,780
Finance income (37) -
Finance expense 45 135
Depreciation of property, plant and equipment 136 83
Amortization of intangible assets 1,129 1,068
Share based payment expense 188 75
Deferred tax credit - (27)
-------------- ---------------
Operating cash flows before movement in working
capital 4,106 3,114
Decrease in receivables 5,688 1,979
(Decrease) in payables (2,403) (1,610)
Net cash from operating activities 7,391 3,483
Investing Activities
Finance income 37 -
Purchases of property, plant and equipment (245) (160)
Capitalization of development costs (1,213) (1,040)
-------------- ---------------
Net cash used in investing activities (1,421) (1,200)
Financing Activities
Exercise of share options 188 21
Repayment of borrowings (85) (85)
Movement in amounts drawn under lines of
credit (2,674) (900)
Finance expense (46) (135)
-------------- ---------------
Net cash used in financing activities (2,617) (1,099)
Net increase in cash and cash equivalents 3,353 1,184
Cash and cash equivalents at the beginning
of the period 12,729 10,061
Effect of foreign exchange rate changes (92) 241
-------------- ---------------
Cash and cash equivalents at the end of the
period 15,990 11,486
============== ===============
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
SIX MONTHSED 30 JUNE 2018 AND 30 JUNE 2017
Trans-
Share Capital lation Retained
Capital Reserves Reserve Earnings Total
$'000 $'000 $'000 $'000 $'000
At 1 January 2017
(audited) 2,375 5,843 333 1,806 10,357
Issues of shares 23 61 - - 84
Share based
payments - 75 - - 75
Lapsing or expiry
of
share options - (88) - 88 -
Profit for the
period
before tax - - - 1,753 1,753
Deferred tax
credit - - - 27 27
Other
comprehensive
income - - (19) - (19)
At 30 June 2017
(unaudited) 2,398 5,891 314 3,674 12,277
============== ============== ============== ================== ===================
Issues of shares 681 1,925 - - 2,606
Share based
payments - 98 - - 98
Lapsing or expiry
of
share options - (2) - 2
Purchase of
shares by
Esot - (29) - - (29)
Transfer of
equity
conversion
reserve
reserve - (163) - 163 -
Profit for the
period
before tax - - - 2,953 2,953
Deferred tax
credit - - - 645 645
Other
comprehensive
income - - 50 - 50
At 31 December
2017
(audited) 3,079 7,720 364 7,437 18,600
============== ============== ============== ================== ===================
Issues of shares 36 152 - - 188
Share based
payments - 188 - - 188
Profit for the
period
before tax - - - 2,848 2,848
Tax charge - - - (203) (203)
Other
comprehensive
income - - (42) - (42)
At 30 June 2018
(unaudited) 3,115 8,060 322 10,082 21,579
============== ============== ============== ================== ===================
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 2018 comprise the Company and its subsidiaries (together
referred to as the "Group").
The Board of Directors approved this interim report on 22 August
2018.
2. PRINCIPAL ACCOUNTING POLICIES
Basis of preparation and accounting policies
These interim 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 2017 Annual
Report. The financial information for the half years ended 30 June
2018 and 30 June 2017 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 comparative financial information for the year ended 31
December 2017 included within this report does not constitute the
full statutory Annual Report for that period. The statutory Annual
Report and Financial Statements for 2017 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 2017 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 2017 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 2018, and will
be adopted in the 2018 financial statements. New standards
impacting the Group that will be adopted in the annual financial
statements for the year ended 31 December 2018 are IFRS 9 Financial
Instruments which has given rise to a change in the Group's
accounting policies, and IFRS 15 Revenue from Contracts with
Customers which has not impacted the Group's accounting policies.
Details of the impact of these two standards are given below. Other
new and amended standards and interpretations issued by the IASB
that will apply for the first time in the next annual financial
statements are not expected to have a material impact on the
Group.
IFRS 9 Financial Instruments
IFRS 9 has replaced IAS 39 Financial Instruments: Recognition
and Measurement, and has had an effect on the Group as follows. The
impairment provision on financial assets measured at amortized cost
(such as trade and other receivables) have been calculated in
accordance with IFRs 9's expected credit loss model, which differs
from the incurred loss model previously required by IAS 39. This
has not resulted in a material change to the impairment provision
at 1 January 2018 or prior periods.
IFRS 15 Revenue from Contract with Customers
IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction
Contracts as well as various Interpretations previously issued by
the IFRS Interpretations Committee. The Company has adopted the
modified retrospective approach, and there is no material impact on
any revenue stream for the Group, noting the following as it
relates to the Group's revenue streams.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of preparation and accounting policies (continued)
The core principle of IFRS 15 is that an entity should recognize
revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange. Under IFRS 15, the
entity recognizes revenue when (or as) a performance obligation is
satisfied, which occurs when control of the goods or services
underlying the relevant performance obligation is transferred to
the customer.
Revenue from sales of perpetual software licenses is recognized
once no significant obligations remain owing to the customer in
connection with such license sale and are therefore recognized at a
point in time. Sales of software subscription contracts, sometimes
known as software-as-a-service contracts, are deferred and
recognized over the period of the agreements. The foregoing
approaches are consistent with the licensing application guidance
in IFRS 15, which is to determine whether the license grants
customers a right to use the underlying intellectual property
(which would result in transfer of control at a point in time) or a
right to access the intellectual property (which would result in
transfer of control over time). Revenues relating to maintenance,
hosting and post-contract support agreements are deferred and
recognized over the period 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. The foregoing approaches are consistent with the
requirement in IFRS 15 that the revenue is recognized as the
performance obligation is satisfied. Finally, in addition to the
principles relating to revenue recognition described above, the
adoption of IFRS 15 also requires certain contract liabilities
(previously described as deferred revenue) to be offset from
receivables.
Standards effective for periods beginning subsequent to 31
December 2018
There are a number of standards and interpretations which have
been issued by the International Accounting Standards Board that
are effective for periods beginning subsequent to 31 December 2018
(the date on which the company's next annual financial statements
will be prepared up to) that the Group has decided not to adopt
early. The most significant of these is IFRS 16 Leases (mandatorily
effective for periods beginning on or after 1 January 2019).
Adoption of IFRS 16 will result in the Group recognizing right
of use assets and lease liabilities for all contracts that are, or
contain, a lease. For leases currently classified as operating
leases, under current accounting requirements the Group does not
recognize related assets or liabilities, disclosing instead the
total commitment in its annual financial statements. At 31 December
2017 the commitment disclosed was $2,159,000, which is not
materially different to the position at 30 June 2018 or the amount
which is expected to be disclosed at 31 December 2018. Assuming the
Group's lease commitments remain at this level, the effect of
discounting those commitments might be expected to result in
right-of-use assets and lease liabilities of approximately $2.2m
being recognized on 1 January 2019. Instead of recognizing an
operating expense for its operating lease payments, the Group would
instead recognize interest on its lease liabilities and
amortization on its right of use assets. This would increase the
reported EBITDA by the amount of its current operating lease cost
(which for 6 months ended 30 June 2018 was approximately
$340,000).
Since the Group last reported, the Board has decided to apply
the modified retrospective method when the standard is first
adopted in its financial statements for the year ended 31 December
2019. Therefore, there will be no impact on any comparative
accounting period (interim or annual) up to and including 31
December 2018, with any leases recognized on balance sheet on the
date of initial application of IFRS 16 (1 January 2019). In
applying the modified retrospective approach the Board has further
decided to measure right of use assets by reference to the amount
at which lease liabilities are measured on 1 January 2019.
Therefore there will be no immediate impact on net assets as a
result of adopting the standard on that date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. This assessment
has included consideration of the forecast performance of the
business for the foreseeable future, the cash and financing
facilities available to the Group, and the repayment terms in
respect of the Group's borrowings.
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 maintenance, hosting and post-contract
support agreements, and software subscription contracts, are
deferred and recognized over the period 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.
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
3. SEGMENTAL ANALYSIS AND EBITDA
All of the Group's revenues in respect of the six month periods
ended 30 June 2018 and 2017 derived from the design, development
and marketing of software products with associated implementation
and consultancy services. 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 and is stated before
intra-group charges.
Six months to 30 June N America Europe Total
2018
$'000 $'000 $'000
External revenues 10,850 5,080 15,930
Profit before tax 1,706 1,142 2,848
EBITDA 2,954 1,168 4,122
Total assets 23,043 11,072 34,115
------------ ------------ ------------
Six months to 30 June N America Europe Total
2017
$'000 $'000 $'000
External revenues 7,644 4,861 12,505
Profit before tax 330 1,423 1,753
EBITDA 1,495 1,544 3,039
Total assets 19,432 7,084 26,516
------------- ------------ ------------
EBITDA is arrived at after adding back net finance costs,
depreciation and amortization amounting to $1,274,000 (2017:
$1,286,000) to the profit before tax. Details of these amounts are
set out in the consolidated cash flow statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER SHARE
The calculation of basic earnings per ordinary share is based on
earnings of $2,645,000 (2017: $1,780,000) and on 10,041,292
ordinary shares (2017: 7,386,373) being the effective weighted
average number of ordinary shares in issue during the year.
For the purpose of calculating the diluted earnings per ordinary
share, any options and warrants 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 2018 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 2018 is 10,586,497 (2017:
9,888,290)
In respect of the period to 30 June 2017 the Group's convertible
loan stock was treated as converted at 1 January 2017, with
earnings adjusted for the amount of interest that would have been
saved, and the number of shares adjusted by the number issued on
such conversion. All of the Company's Convertible Loan Stock was
converted into share capital on 22 December 2017.
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 2018.
6. INTANGIBLE ASSETS
Certain development expenditure is required to be capitalized
and amortized based on detailed technical criteria, rather than
automatically charging such costs in the income statement as they
arise. This has led to the capitalization of $1,213,000 (2017:
$1,040,000), and amortization of $1,129,000 (2017: $1,068,000)
during the period.
7. TAXATION
At 30 June 2018, income tax losses estimated at $63m (2017:
$65m) were available to carry forward by the Group, arising from
historic losses incurred. These losses have given rise to a
recognized deferred tax asset of $2.0m (2017: $1.4m) and a further,
but currently unrecognized, potential deferred tax asset of $10.9m
(2017: $16.2m), based on the tax rates currently applicable in the
relevant tax jurisdictions. An aggregate $9.0m (2017: $9.4m) of
these 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. Recent developments US case law, as well as audits by
authorities have highlighted the complex sales tax compliance
requirements associated with individual US states. The Group is
undertaking an exercise to review its procedures in this regard.
Contractually, the Group's policy is to ensure that liability for
sales tax is a customer liability.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS
Prior to 22 December 2017 GBP1 million nominal (equivalent to
$1.3m) of the Company's Convertible Loan Stock was held by
directors and management. All of the Company's Convertible Loan
Stock was converted into Sopheon shares on that date. Except for
the foregoing, there were no related party transactions required to
be disclosed in any period. Transactions between the Company and
its subsidiary undertakings, which are related parties, have been
eliminated on consolidation and are not disclosed in this note.
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 2017, which contains a
detailed explanation of the risks relevant to the Group on page 20,
and is available at www.sopheon.com. 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 the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 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 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 report in accordance with the rules of the London Stock
Exchange for companies trading securities on AIM, which require
that the interim 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.
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 2018 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 22 August 2018
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EAFPAAEAPEAF
(END) Dow Jones Newswires
August 23, 2018 02:00 ET (06:00 GMT)
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