TIDMSPE
RNS Number : 5073T
Sopheon PLC
21 March 2019
SOPHEON PLC
("Sopheon", the "Group" or the "Company")
AUDITED RESULTS STATEMENT FOR THE YEAR TO 31 DECEMBER 2018
Rising Maturity
Sopheon plc, the international provider of software, expertise,
and best practices for Enterprise Innovation Performance, is
pleased to announce its results for the year ended 31 December
2018, comfortably in line with already upgraded market
expectations, together with an outlook for the current year.
Highlights:
-- Revenue: $33.9m (2017: $28.5m)
EBITDA: $8.9m (2017: $8.0m)
PBT: $6.4m (2017: $5.1m)
Net cash: $16.7m (2017: $9.5m)
-- Financial outperformance underlines continuing momentum in the business.
-- 18 new customer wins (13 in the prior year).
-- Full year 2019 revenue visibility of $20.6m (2017: $19.3m).
-- Mentioned in 22 research reports from leading industry voices
such as Gartner and Forrester Research. Vision extended from
innovation to helping major enterprises achieve their strategic
goals, dramatically expanding horizons and potential.
-- Dividend proposed of 3.25p per share (2017: 2.5p).
Barry Mence, Chairman, commented: "With a large diversified
blue-chip client base, a comprehensive software platform and deep
sector expertise, we have a unique opportunity to advance our
category leader status. Strategically, now is the time to
accelerate investment and solidify our leadership position ...
Visibility already stands at $20.6m and our sales pipeline includes
a number of large opportunities; furthermore, in parallel with
organic investments, we will continue to assess corporate paths to
accelerate our progress. I would like to close this statement by
announcing a proposal to increase our dividend from 2.5p to 3.25p
per share. I am delighted to be following through on the commitment
made last year to maintain a progressive dividend policy, which the
board believes underlines our maturity as a business."
For further information contact:
Barry Mence (Chairman) + 44 (0) 1276 919
Arif Karimjee (CFO) Sopheon plc 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(R) 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.
Sopheon and Accolade are registered trademarks of Sopheon
plc.
Chairman's Statement
I am pleased to report another year of solid strategic and
financial progress for Sopheon. In recent years I have described
how we have broadened our mission from one that helps R&D
organizations to improve innovation, to one that helps major
enterprises achieve their strategic goals. This extension of our
vision into what some are beginning to call a third major pillar of
the enterprise stack - alongside ERP and CRM - 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 help
and add significant value to our customers. The potential
addressable market for this opportunity is very substantial.
Sopheon continues to benefit from increased market recognition
through industry business analyst leaders Gartner and Forrester
Research having been named in 22 research reports in 2018.
While executing on our growth strategy, we continued to
strengthen our financial performance. Once again, revenues,
EBITDA(1) and other profit measures in 2018 all exceeded market
expectations, and resulted in two upward revisions. Revenues rose
to $33.9m from $28.5m in 2017. EBITDA reached $8.9m, up from $8m.
Substantial realignment of our debt position in 2017 has fed
through into an even larger increase in profit before tax, to $6.4m
compared to $5.1m the year before. Our balance sheet is now very
strong indeed, with net assets rising to $25.6m from $18.6m the
year before, and net cash rising to $16.7m from $9.5m; 100% of this
growth has been generated organically.
New customer acquisition increased by 39 percent, rising from 13
to 18 new license wins. At the same time, we are proud of our very
strong and increasingly enterprise-focused customer relationships -
over two-thirds of our annual revenues come from existing
customers. Five of our new license deals were for software as a
service (SaaS) transactions. When combined with further increases
in maintenance and hosting, this has led to Sopheon closing the
year with a total recurring revenue run rate of $15m, compared to
$12m the year before. Together with a solid backlog of services
business coming out of 2018, coupled with a few early-reported
sales in 2019, current year revenue visibility(2) now stands at
$20.6m as compared to $19.3m at this time last year.
We continue to focus on and refine our three core growth
strategies - to extend our footprint in existing customers with an
enterprise platform approach, to target new business with an
unambiguously vertical focus, and to develop a partnership
ecosystem. These are described in more detail later in this
statement. These core strategies, along with our tremendous staff
and unique culture, have been at the root of our consistent and
solid financial performance. In the context of financial
performance, I want to come back to the theme of recurring revenue.
We are very proud of our strong customer relationships, repeat
business and growing $15m recurring revenue base. Approximately $3m
of this is SaaS and hosting. Looking forward, our strong sales
pipeline includes a number of larger opportunities, validating the
strategic evolution I described earlier. As always with a mostly
perpetual, on-premises model, such deals can have a big revenue
effect on the period in which they close. However, as noted above,
customer preference for perpetual rather than SaaS licensing in our
market is beginning to shift. With our balance sheet strong, we are
assessing how to accelerate this migration to an even higher
recurring revenue model.
Outlook
With a large diversified blue-chip client base, a comprehensive
software platform and deep sector expertise, we have a unique
opportunity to advance our category leader status. Strategically,
now is the time to accelerate investment and solidify our
leadership position. Once again, we have ambitious plans, many of
which depend on bringing in the right people in the coming year.
Recent improvements to our hiring practices are leading to rising
traction with recruitment. Visibility already stands at $20.6m and
our sales pipeline includes a number of large opportunities;
furthermore, in parallel with organic investments, we will continue
to assess corporate paths to accelerate our progress. In this
respect, as well as driving partnerships and reassessing our SaaS
strategy, we remain open to M&A opportunities, provided they
align with our strategic priorities. I would like to close this
statement by announcing a proposal to increase our dividend from
2.5p to 3.25 p per share, which we will put to shareholders at the
next annual general meeting. I am delighted to be following through
on the commitment made last year to maintain a progressive dividend
policy, which the board believes underlines our maturity as a
business.
(1) EBITDA is defined and reconciled in Note 5 to this
report.
(2) Revenue visibility 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,
SaaS and rental streams. The visibility calculation does not
include revenues from new sales opportunities expected to close
during the remainder of the year.
Strategy and Market
Sopheon's mission is to help our customers achieve exceptional
long-term growth and profitability through sustainable innovation.
We do this by digitalizing enterprise innovation with software,
services and best practices that help companies operate with
success. Our solutions connect people, systems and information,
helping companies better execute on business strategy and improve
the return on their investments into initiatives such as
transformational change, enterprise innovation, product
development, supply chain efficiencies and cost reduction. These
solutions are designed to keep strategy visible and continuously
aligned with operational execution throughout the initiative life
cycle, ensuring long-term market success. The transparency and
insight they provide support speed, agility and adaptability - all
critical enterprise capabilities in the digital era - and enable
decision-making that drives better business outcomes.
Learnings from 2018
1. Our vision is solid. Sopheon's historical mission continues
to be very relevant to senior leadership and board level executives
in our target markets.
2. Accolade is an adaptable platform. During the course of the
year we learned that our Accolade platform is used as a solution
for 14 different business applications, each offering a distinct
value proposition.
3. New and unique differentiation. Accolade, while a very
advanced offering satisfying the IT architecture, governance and
complex access control needs of global companies, is at the same
time providing a consumer-grade user experience.
4. Beyond product to mission critical. A number of clients have
begun to use Accolade to improve alignment, visibility and
transparency between corporate strategic initiatives and the
operational execution activities, turning Accolade into a more
strategic enterprise platform; we will embrace this movement and
invest to make Accolade a mission-critical enterprise pillar.
5. New client acquisition is scalable. We increased new client
acquisition through more targeted marketing and additional
investment into sales efforts. The rise in new client acquisition
is also a sign of business momentum, market reputation and growing
market need.
6. Innovation ecosystems are maturing. We are on the front end
of understanding how Accolade can operate as a common governance
system for business partner ecosystems.
Tapping into Digital Transformation
Research shows that over 40% of companies on the S&P 500
will no longer exist within 10 years due to their inability to
operate with agility and speed in today's hyper paced changing
markets. Executing on digital transformation strategies and
initiatives is becoming an imperative for these organizations. This
new emerging market represents considerable addressable target
market size as a subset of the overall digital transformation
market, estimated at $445 billion.
Many companies suffer from operating with outdated and
"disconnected" tools in a market that is moving faster than they
are, putting them at risk of finding themselves on the wrong side
of what research refers to as a growing digital divide separating
winners and losers.
Sopheon believes companies cannot implement strategic changes or
pivots with speed - an ability required to win in today's
fast-paced economy - without "connecting" strategic initiatives
with operational work activities. We see this as a unique
opportunity for Sopheon to digitalize corporate strategic
initiatives, innovation investments and portfolios in a single
platform creating a digital operating model designed to navigate
the new world order of digital disruption.
Accolade digitalizes this emerging operating model enabling a
CEO to achieve his or her strategic direction with a velocity that
cannot be accomplished without the support of an enterprise
innovation management platform.
Continued Industry Focus
We continued to concentrate on our core industries with the
objective of growing market share where we hold preferred positions
due to strong core competency in our product, best-practice content
and expertise of our people. I am proud to share that 100% of our
2018 Net New sales came from our target verticals, proof of our
team's dedication to executing on our strategy. In parallel, we are
exploring additional industries for expansion. On the back of the
success in signing market leader Denso and others in 2018, we will
be investing in targeted marketing programs to the Automotive &
Transportation sector in the coming years.
Client Partnership
Sopheon is extremely proud of the quality of our blue-chip
customer base. Legendary brands to join the Sopheon fold during
2018 include The Nature's Bounty Company, The Hershey Company and
Doosan Bobcat. These market leaders provide a strong revenue stream
from ongoing maintenance renewals, plus the nature of the
relationships offers huge potential for expanding our user base and
application of our software into new areas of their business. The
power of this customer base is made apparent by the number of new
prospects proactively reaching out to Sopheon based on a referral
from an existing Accolade user or when Accolade users change roles
or change jobs and introduce us into their new company.
Sopheon's solutions have been implemented by over 250 customers
with over 60,000 users in over 50 countries. Our client base of
global innovation leaders has grown to be an additional
differentiator for us as our clients increasingly benefit through
collaboration, sharing and learning across this ecosystem. This
value is shared by longstanding clients and new clients coming into
the Sopheon network alike.
Product Competency
We continue to leverage our strength in product development
process automation that underpinned our initial product offering
when Sopheon was established. We have since expanded our
specialization to the portfolio management market and have more
recently stepped into a broader enterprise solution to support the
execution of corporate strategy. We are unique in our ability to
link corporate strategic initiatives with operational execution
activity for transparency and visibility. It is this ability, in
combination with Accolade's deepening capabilities with each
product release in curating data, managing business processes, and
providing insights and reporting, that has our clients increasingly
describing Accolade as being a mission critical system for
them.
Sopheon's product team has moved our product forward greatly,
updating legacy technology while making strategic advancements that
will provide market differentiation well into the future. Our
solution is unique in its end-to-end support of the innovation
lifecycle, and its configurability that enables support for such a
broad range of tangential business processes and use cases. We
continue to maintain a regular release cadence. Accolade 12.0,
released in March 2018, provided deeper connection and transparency
between decision making and knowledge work, making it easier and
quicker to make the best decisions and get work done and helping
organization to be more agile and adaptable in a hyper-competitive
market. Accolade 12.1, released in August 2018, boosted
time-to-insights and reporting efficiencies.
Market Coverage
Sopheon continued to enjoy increased coverage in industry
research by respected business analysts, with mentions in 22
reports in 2018. We were recognized in five of Gartner's Market
Guides for strategy and innovation markets, as well as its Magic
Quadrant for Project Portfolio Management; on the back of being
named a Leader in the Forrester Wave(TM) for Strategic Portfolio
Management in 2017, we continue to be named in research reports by
Forrester Research in the strategic portfolio management arena. We
are experiencing a clear correlation between this coverage and
increased inbound demand for our solutions from prospects via our
website and other venues.
Culture and People
As a company, and as individuals, we value integrity, honesty,
openness, personal excellence, continual self-improvement, and
mutual respect. These core values contribute to a culture that sets
us apart. At a time when technology companies are experiencing
unprecedented turnover, Sopheon is proud of our employee retention
of over 90 percent. The large number of employees whose tenure is
10 years or longer contributes in a unique and critical way to
instilling our cultural values into the mentoring of new
Sopheonites as they undergo on-boarding.
We have long-term partnerships with some of the most admired
innovators and domain experts in the world. This has provided us
the opportunity to learn, invest and continue to serve the needs of
such market leaders. It is this foundational expertise that has
differentiated Sopheon from others in the market.
Our clients tell us our people are caring, give them high marks
for domain knowledge and commitment to their success.
As we continue to grow and expand our teams, we are taking
measures to infuse both our culture and our domain experience into
how we work. We have kicked off a structured Value Assurance
Approach (VAA) program, "packaging" best practices from client
engagements into our consulting methodology. The VAA will introduce
new efficiencies and time to value for our clients by leveraging
accumulated learnings from working with clients. The VAA will
enable all new Sopheonites to learn more quickly from our
historical experience and impart that knowledge to our growing
client base.
Growth Strategy
We are confident that our fundamental corporate Mission, Vision
and Strategy have us on the right path. Our growth strategy has not
wavered, and we continue to be focused on the same four
cornerstones that have delivered our recent growth:
Leverage blue chip references to extend Accolade as the digital
platform of choice to digitalize corporate strategy and operational
execution. Sopheon's roster of customer names is a Who's Who of the
world's leading companies. We will continue to partner tightly with
our clients to gain insights and learnings to drive further
advancement and development in the Enterprise Innovation Management
market. We believe our Accolade platform extension strategy
represents a significant growth opportunity. In addition, the pace
of technology disruption in today's market requires companies to be
able to make strategic and often transformational pivots with
speed. We call this capability "enterprise adaptability." Our
clients are increasingly using Accolade as the platform to enable
these shifts and we believe this trend will continue. We therefore
anticipate further enterprise adaptability expansion in the
future.
Generate faster Net New logo growth in target industries through
deeper specialization and domain-specific expertise. We have always
believed that different vertical markets, while sharing core
functionality needs, have specific pain points and best-practice
needs. We will continue to focus our efforts on dominating our
chosen core vertical markets of chemicals, aerospace, consumer
products, food and beverage, and high technology. Sopheon's long
history and experience in these verticals allows us to operate as
an industry connector for our clients, introducing them to one
another to jointly learn and advance their competency and success.
We will continue to invest in industry- specific expertise and
solutions. Last year our exploration in the automotive and
transportation industry provided favorable results leading to the
addition of this vertical as a core industry in which we will
invest to gain market share. We will continue to explore additional
verticals in 2019.
Multiply our growth through developing and monetizing an
Accolade ecosystem of distribution partnerships - channel,
strategic and geographical. Our ecosystem has now matured to where
it makes sense to invest time in the development of a network of
partner relationships to expand the growth rate of the business.
Last year we produced new sales through partnership with both
management consulting companies as well as further development of
our emerging reseller network. Our partner development strategy
calls for several varieties of partners, including expanded
distribution beyond our geographic reach with our own direct team;
consulting partners operating in the Enterprise Innovation
Management space who can both introduce and leverage our solution;
and strategic partners who have created great innovation
intellectual property (IP) and are looking for a platform to take
it to the broader markets.
Engage in M&A only if it propels the speed and competency
for Sopheon to achieve the above.
Financial Review
In 2018 we reported a 19 percent increase in consolidated
turnover to $33.9m, up from $28.5m in 2017. Around half of the rise
can be attributed to software related revenues - licenses and
maintenance - with the other half being service related, being
implementations and hosting.
Trading
With respect to the license activity, larger deal size was the
key driver of the increase, with a total license transaction count
including extension orders of 57 compared to 59 in 2017. This is
good evidence of our migration towards more enterprise deals, given
that 2017 had already benefited from two very substantial sales.
Underlining the increasingly enterprise-oriented nature of our
business, it is striking that over the past five years 31 customers
have each delivered over $1m in revenue to Sopheon.
Of the 57 transactions last year, 18 were new customers, a 39%
increase over the 13 booked in 2017. Both maintenance and services
rose well, driven by delivery both of the business sold in the
preceding year and new deals signed in 2018. Our services revenues
now exceed $10m revenue, a milestone for any consultancy business.
Our hosting revenues showed particular strength as further detailed
below. A breakdown of revenue in each year is given in Note 4 of
the financial statements.
It has become typical in our business to have a very strong
fourth quarter, which can lead to a lot of activity at the end of
the year; however, in 2018 we were fortunate in having a number of
substantial transactions complete at the end of the third quarter
and accordingly this proved to be our strongest quarter last year.
The overall calendarization pattern broadly held in 2018, with the
second half of the year accounting for 53 percent of revenues
(2017: 55 percent and 2016: 51 percent). Over the years, we have
frequently referred to the sensitivity of our results to individual
license sales and while this effect is reducing as we grow the
business, it does remain a factor to bear in mind while we continue
to operate with a largely perpetual license model - something we
are looking at strategically, as noted in the Chairman's Statement.
The seasonal profile of our services business is less predictable
as it is linked to timing of preceding license sales and the
individual scale of implementation projects, which can vary
tremendously depending on the maturity of each customer.
Maintenance and hosting revenue elements are more evenly spread as
would be expected from their accounting treatment.
Last year featured a particularly strong year for our European
business, with almost 39 percent of total revenues. As detailed in
Note 3, both the Americas and Europe grew revenues further in 2018
- indicative of the rising momentum across our developed markets -
but the emphasis shifted back to North America somewhat at 64
percent (2017: 61 percent).
Coming into 2019 and following some early sales bookings at the
start of the year, revenue visibility for the year already stands
at $20.6m compared to $19.3m at this time a year ago.
Gross margin was 71 percent, compared to 73 percent in 2017 but
ahead of the 70 percent achieved in 2016. Both 2018 and 2016 had
greater services intensity, which can have a small impact on
margins; costs of the professional services organization are
included in costs of sales, alongside the costs of our hosting
activities, license royalties for OEM partners and certain indirect
taxes. We expanded services resources again last year, as well as
adding new leadership, resulting in higher payroll and
subcontracting costs in this area. We believe that a strong
services capability is also key to long-term success and win rate,
and we will continue to recruit in this area as the business
expands while also ensuring that we make limited use of flexible
subcontracted resources as appropriate.
Recurring Revenue
As noted in the Chairman's Statement we recognize that recurring
revenue is both fundamental to our long-term growth and important
to the investor community, and we are actively considering ways to
further enhance the recurring profile of the business. The Group's
base of recurring business rose to $15m at the end of 2018,
compared to $12m the year before. Maintenance alone has a run rate
of $12m, with an additional $1.5m each in hosting services and
Software as a Service (SaaS) subscriptions. The majority of our
license revenue continues to remain perpetual in nature, but we
continue to see growing interest in SaaS options. During 2018 we
signed five new SaaS deals compared to three the year before,
demonstrating growing traction in this important area of corporate
development. We are also seeing further take-up of our hosting
service from new and existing perpetual customers, and we continue
to extend the scope of our security infrastructure to ensure this
service remains an attractive proposition. Over a quarter of our
active perpetual customers are hosted by Sopheon. Overall retention
of recurring revenue increased to 97 percent by value (2017: 95
percent). In this regard we continue to invest in customer
satisfaction programs alongside regular service and account
management processes to maximize value for our customers.
Complementing our focus on recurring revenue, our strong
customer relationships are key to the stability and potential of
our business as we extend our footprint in each customer in line
with our strategic goals described in the Strategy and Market
Review above. In this respect I have already commented on the
increasingly enterprise oriented nature of our business leading to
serious revenue generation from a wide range of customers; also of
note is the fact that 73 percent of our revenues were from existing
customers last year (2017: 69 percent).
Research and Development Expenditure
Overall expenditure in product development increased by
approximately $0.9m to $5.5m in 2018. These amounts can be compared
to the headline research and development reported in the income
statement showing an increase from $4.3m to $5.1m; the differences
are due to the effects of capitalization and amortization of
development costs. The additional spend reflects the recruitment of
additional development resources during the year including design,
architecture and coding expertise and this has resulted in a
greater level of investment in line with Sopheon's product roadmap
as described elsewhere in this report - an expansion we first
started in 2017. We had in fact decided to accelerate hiring in
this area in 2018; as noted elsewhere there is a tight market in
particular for US software engineers. Accordingly, our costs in
this area were somewhat lower than expected, contributing to the
strong profit performance in the year. We have modified our
recruitment practices in this area and are now seeing rising
traction with bringing on new skilled people. Overall, the amount
of 2018 research and development expenditure that met the criteria
of IAS38 for capitalization was $2.6m (2017: $2.5m) offset by
amortization charges of $2.2m (2016: $2.2m). These capitalized
costs are largely attributable to the Group's investment in the
Accolade 12.0, 12.1, and 12.2 releases.
Other Operating Costs
Like any other software and services business, over three
quarters of Sopheon's costs are payroll and related costs. Sopheon
has a relatively mature and highly-qualified blend of staff,
reflecting the professional and intellectual demands of our chosen
market. Furthermore, we have made a strategic decision to onshore
our development team as we believe that until a certain scale is
reached, the cost benefits of offshoring are outweighed by
management and productivity concerns. Our focus remains on securing
the right mix of people rather than targeting a headcount number;
however, as revenue growth has progressed, since 2016 we have
steadily expanded staffing, ending 2018 with 147 staff. As
indicated above, we had intended to accelerate recruitment last
year, and we continue to target a large number of hires into 2019
to support the growth and strategic trajectory of the business.
The average headcount during 2018 was 142, compared to 125 the
year before, leading to higher overall wage costs as reported in
Note 7 of the financial statements. Payroll costs also include the
cost of our corporate bonus scheme, for which all non-sales staff
in the Group are eligible. The bonus is linked to the achievement
of our annual EBITDA goals and is paid in the following year. Bonus
costs in a given year are allocated to the relevant categories of
the income statement based on employee department.
Specific comments regarding service operations and research and
development costs are noted above. Overall costs in the sales and
marketing area increased by approximately $0.8m. Most of this
increase was attributable to additional staff, with a third linked
to higher commission and incentive payments linked to higher
revenue. As with other areas, we are looking to expand these teams
further during 2019.
Headline administration costs have risen by approximately $0.6m.
This area includes all other overheads, office costs, regulatory
and compliance costs, and depreciation - several of which expanded
to keep pace with our growth. It also includes the impact of the
notional charge for share option grants, which is allocated
entirely to this caption and has increased with the rising share
price.
With regard to foreign exchange, excluding the impact of one-off
events such as the UK referendum in 2016, the Group aims to
incorporate a natural hedge through broadly matching revenues and
costs within common currency entities, reducing the need for active
currency management. In addition, it is not the Group's policy to
hedge currency cash holdings, but we do look to keep cash balances
in local currency within an entity and to time currency purchases
so as to minimize impacts on the individual income statements.
Results
EBITDA (Earnings before Interest, Tax, Depreciation and
Amortization) is a key indicator of the underlying performance of
our business, commonly used in the technology sector. EBITDA is
further defined and reconciled to profit before tax in Note 5. The
combined effect of the revenue and cost performance discussed above
has resulted in Sopheon's EBITDA performance for 2018 rising
strongly again, to $8.9m, from $8.0m in 2017 and $5.6m in 2016.
As further described below, during the year the Group had
facilities with Silicon Valley Bank but these were largely undrawn,
resulting in a low finance expense compared to previous years. In
previous years the Group had convertible unsecured loan stock,
which was converted into equity in December 2017, a transaction
that included a compensatory payment of interest resulting in a
total interest charge in 2017 of $0.5m compared to $0.1m in 2018.
Furthermore, as dollar interest rates started to rise we were able
to capture around $0.1m of interest income in 2018 compared to a
negligible amount the year before. These positive changes in the
funding structure of the business means that profit before tax has
shown an even stronger improvement year on year, coming in at $6.4m
(2017: $5.1m).
The net tax credit of $0.5m (2017: $0.2m) reported in the income
statement is made up of three elements. First, although Sopheon
benefits from accumulated tax losses in a number of jurisdictions
this is not universal and accordingly a current tax charge of
approximately $0.2m was incurred in 2018 (2017: $0.4m) of which a
third arose in Germany and the balance were state taxes in the
United States. Second, due to the rising profit trend of the Group,
in 2016 we started recognition of the substantial deferred tax
asset owned by the business and, as further detailed in Note 10, we
have extended the scope of that recognition in subsequent years
resulting in added recognition of a further $0.5m (2017: $0.7m) in
2018, of a total potential asset of approximately $13m. Finally,
following reforms of the corporate alternative minimum tax (AMT)
regime in the USA, the Group is entitled to a refund of AMT paid in
previous years leading to recognition of a $0.2m credit.
Altogether this leads to a profit after tax rising to $6.9m
(2017: $5.4m). Profit per ordinary share on a fully diluted basis
has also risen to 65 cents (2017: 56 cents).
Dividend
Following another successful year, the board is pleased to
continue Sopheon's progressive dividend policy and proposes a
dividend of 3.25 pence per share for the year ended 31 December
2018 (2017: 2.5p). Subject to approval by the Company's
shareholders at the annual general meeting scheduled for 13 June
2019, the dividend will be paid on 12 July 2019 with an ex-dividend
date of 13 June 2019.
Facilities and Assets
Several years ago the Group established bank facilities with the
London branch of Silicon Valley Bank, comprising a term loan of
$0.5m and a $3m revolving line of credit, and these currently
extend through April this year, with renewal being negotiated as we
go to press. Both facilities bear interest at rates of 2.75 percent
over the Wall Street Prime rate, resulting in a current effective
rate of 8.25 percent, rates that are expected to improve
substantially upon renewal. The facilities, drawdown mechanics and
interest rates are subject to covenants based on working capital
ratios. Although there is no immediate requirement for these
facilities, we view our developing relationship with Silicon Valley
Bank as an important one for the future.
In 2009 and 2011, the Company issued a total of GBP2m of
convertible unsecured loan stock ("Loan Stock") to a group of
investors including members of the board and senior management
team. The Loan Stock, which had been due to mature on 31 January
2019, was in fact fully converted the end of 2017, resulting in the
issue of approximately 2.5m new Ordinary Shares. This change
improved the profile of the Group's balance sheet and simplified
the capital structure, as well as eliminating a major element of
our interest charges.
Intangible assets stood at $6.2m (2017: $5.8m) at the end of the
year. This includes (i) $5.2m being the net book value of
capitalized research and development (2017: $4.8m) and (ii) an
additional $1.0m (2017: $1.0m) being goodwill arising on
acquisitions completed in previous years. As shown above in our
discussion of research and development costs, capitalization and
amortization have been broadly in balance for a number of years.
Our spend on tangible fixed assets is increasing in line with
staffing and revenues, and this resulted in net book value rising
to $0.5m at the end of the year (2017: $0.4m).
Consolidated net assets at the end of the year stood at $25.6m
(2017: $18.6m), an increase of $7m. Around $5.5m of this increase
is attributable to an improvement in the net current asset
position, on the back of another year of strong operational
performance. A further $0.2m relates to the elimination of
long-term debt, $0.7m to the increased recognition of the deferred
tax asset and AMT credit, with the remaining $0.5m due to the
increase in tangible and intangible fixed assets. Within the net
current asset position, gross cash resources at 31 December 2018
amounted to $17.1m (2017: $12.7m). Approximately $7.4m was held in
US Dollars, $8.0m in Euros and $1.7m in Sterling. Net cash, stated
after subtracting debt, rose from $9.5m the previous year to $16.7m
at the end of 2018.
CONSOLIDATED INCOME STATEMENT FOR THE YEARED 31 DECEMBER
2018
2018 2017
$'000 $'000
Revenue 33,922 28,534
Cost of sales (9,916) (7,591)
------------------ ------------------
Gross profit 24,006 20,943
Sales and marketing expense (8,552) (7,730)
Research and development expense (5,078) (4,266)
Administrative expense (3,995) (3,350)
Operating profit 6,381 5,597
Finance income 102 6
Finance expense (77) (468)
------------------ ------------------
Profit before tax 6,406 5,135
Income tax credit/(expense) 514 243
Profit for the year 6,920 5,378
================== ==================
Earnings per share - basic 68.60c 71.92c
Earnings per share - diluted 64.98c 55.92c
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2018
2018 2017
$'000 $'000
Profit for the year 6,920 5,378
Other comprehensive expense
Exchange differences on translation of foreign
operations (314) 31
----------------- -----------------
Total comprehensive income for the year 6,606 5,409
================= =================
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
2018
2018 2017
$'000 $'000
Assets
Non-current assets
Property, plant and equipment 532 417
Intangible assets 6,206 5,821
Deferred tax asset 2,557 2,010
Other receivables 227 19
------------------- -----------------
9,522 8,267
------------------- -----------------
Current assets
Trade and other receivables 13,997 15,387
Cash and cash equivalents 17,086 12,729
------------------- -----------------
31,083 28,116
------------------- -----------------
Total assets 40,605 36,383
Liabilities
Current liabilities
Trade and other payables 5,621 6,239
Borrowings 355 3,171
Deferred revenue 9,035 8,345
15,011 17,755
------------------- -----------------
Non-current liabilities
Borrowings - 28
Total liabilities 15,011 17,783
------------------- -----------------
Net assets 25,594 18,600
=================== =================
Equity
Share capital 3,118 3,079
Capital reserves 8,277 7,720
Profit and loss account and translation
reserve 14,199 7,801
------------------- -----------------
Total equity 25,594 18,600
=================== =================
CONSOLIDATED CONDENSED CASH FLOW STATEMENT FOR THE YEAR
ED 31 DECEMBER 2018
2018 2017
$'000 $'000
Operating activities
Profit for the year 6,920 5,378
Adjustments for non-cash and financing items 2,259 2,336
Movements in working capital 1,493 (2,048)
Net cash generated from operating activities 10,672 5,666
Investing activities
Finance income 102 6
Purchases of property, plant and equipment (420) (367)
Development costs capitalized (2,615) (2,519)
Net cash used in investing activities (2,933) (2,880)
Financing activities
Issue of shares 213 34
(Repayment)/drawdown of borrowings (170) (168)
Movement in lines of credit (2,674) -
Finance expense (77) (261)
Dividends paid (337) -
---------------- -----------------
Net cash (used in)/generated from financing
activities (3,045) (395)
Effect of foreign exchange rate changes (337) 277
Net increase in cash and cash equivalents 4,357 2,668
================ =================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARED
31 DECEMBER 2018
Share Capital Translation Retained
L
Capital Reserves Reserve Profits Total
$'000 $'000 $'000 $'000 $'000
At 1 January 2017 2,375 5,843 333 1,806 10,357
Total comprehensive
income - - 31 5,378 5,409
income for the
year
Issue of shares 704 1,986 - - 2,690
Share-based payments - (109) - 253 144
At 1 January 2018 3,079 7,720 364 7,437 18,600
Total comprehensive
income - - (314) 6,920 6,606
income for the
year
Issue of shares 39 174 - - 213
Share-based payments - 383 - 129 512
Dividends paid - - - (337) (337)
At 31 December
2018 3,118 8,277 50 14,149 25,594
============== ============== ============== ========== ============
NOTES
1. Basis of Preparation
The financial information set out in this document does not
constitute the Company's statutory accounts for the years ended 31
December 2017 or 2018. Statutory accounts for the years ended 31
December 2017 and 31 December 2018, which were approved by the
directors on 20 March 2019, have been reported on by the
Independent Auditors. The Independent Auditors' Reports on the
Annual Report and Financial Statements for each of 2017 and 2018
were unqualified, did not draw attention to any matters by way of
emphasis, and did not contain a statement under 498(2) or 498(3) of
the Companies Act 2006.
Statutory accounts for the year ended 31 December 2017 have been
filed with the Registrar of Companies. The statutory accounts for
the year ended 31 December 2018 will be delivered to the Registrar
in due course, and are available from the Company's registered
office at Dorna House One, Guildford Road, West End, Surrey GU24
9PW and are available today from the Company's website
www.sopheon.com.
The financial information set out in these results has been
prepared using the recognition and measurement principles of
International Accounting Standards, International Financial
Reporting Standards and Interpretations adopted for use in the
European Union (collectively Adopted IFRSs). The accounting
policies adopted in these results have been consistently applied to
all the years presented and are consistent with the policies used
in the preparation of the financial statements for the year ended
31 December 2017, except for those that relate to new standards and
interpretations effective for the first time for periods beginning
on (or after) 1 January 2018. New standards impacting the Group
that have be adopted in the annual financial statements for the
year ended 31 December 2018 are IFRS 9 Financial Instruments and
IFRS 15 Revenue from contracts with customers. Other new standards,
amendments and interpretations to existing standards, which have
been adopted by the Group have not been listed, since they have no
material impact on the financial statements.
Approximately two-thirds of the Group's revenue and operating
costs are denominated in US Dollars and accordingly the Group's
financial statements have been presented in US Dollars.
2. Going Concern
The 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
these financial statements. 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.
3. Segmental Analysis
All of the Group's revenue in respect of the years ended 31
December 2018 and 2017 derived from the design, development and
marketing of software products with associated implementation and
consultancy services, as more particularly described in the
Directors' Report. For management purposes, the Group is organized
geographically across two principal operating segments. The first
segment is North America, and the second Europe. Information
relating to these two segments is given below.
NOTES
3. Segmental Analysis (continued)
The information in the following table relating to external
revenues includes analysis both by location of customer and by
location of operations. The information relating to other items
provides analysis by location of operations only. Inter-segment
revenues are priced on an arm's length basis.
Year ended 31 December 2018 North
America Europe Total
$'000 $'000 $'000
Income Statement
External revenues - by location of operations 21,614 12,308
33,922
Operating profit before interest and tax 6,068 313 6,381
Profit before tax 6,100 306 6,406
Finance income 102 - 102
Finance expense (70) (7) (77)
Depreciation and amortization (2,464) (63) (2,527)
EBITDA 5,273 3,600 8,873
-------
------- -------
Balance Sheet
Fixed asset additions 272 148 420
Capitalization of internally generated development costs 2,615 -
2,615
Total assets 26,246 14,359 40,605
Total liabilities (10,041) (4,970) (15,011)
------- ------- -------
Year ended 31 December 2017 North
America Europe Total
$'000 $'000 $'000
Income Statement
External revenues - by location of operations 17,274 11,260
28,534
Operating profit before interest and tax 5,133 464 5,597
Profit before tax 5,077 58 5,135
Finance income 6 - 6
Finance expense (62) (406) (468)
Depreciation and amortization (2,326) (47) (2,373)
EBITDA 7,459 511 7,970
-------
------- -------
Balance Sheet
Fixed asset additions 254 112 366
Capitalization of internally generated development costs 2,519 -
2,519
Total assets 25,902 10,481 36,383
Total liabilities (12,217) (5,566) (17,783)
-------
------- -------
Revenues attributable to customers in North America in 2018
amounted to $20,985,000 (2017: $16,697,000). Revenue attributable
to customers in the rest of the world amounted to $12,937,000
(2017: $11,837,000) of which $11,555,000 (2017: $11,038,000) was
attributable to customers in Europe.
NOTES
4. Revenue
All of the Group's revenue in respect of the years ended 31
December 2018 and 2017 derived from continuing operations and from
the design, development and marketing of software products with
associated implementation and consultancy services. The following
table provides further disaggregation of revenue in accordance with
the IFRS9 requirement to depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic
factors.
2018 2017
$'000 $'000
Software licenses and subscriptions 10,391 9,332
Consulting and implementation services 10,770 8,869
Maintenance 10,822 9,159
Hosting 1,938 1,175
------- -------
33,922 28,534
------- -------
In assessing sales of software licenses, the licensing
application guidance in IFRS 15 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). The directors have
assessed that the methods currently used by the Group to determine
whether significant obligations remain are consistent with these
requirements. As regards maintenance, hosting and post-contract
support agreements, as well as implementation and consultancy
services and software-as-a-service contracts, the directors
consider that these performance obligations are satisfied over time
and that the methods previously used to measure progress continue
to be appropriate. These are separate distinct performance
obligations within each contract. In view of the above, the
application of IFRS 15 has not had a significant effect on the
reported financial performance of the Group. However, certain
classification requirements of the standard have had an impact on
the classification of receivables and payables as contract assets
and contract liabilities.
5. EBITDA
The directors consider that EBITDA, which is defined as earnings
before interest, tax, depreciation and amortization, is an
important measure, since it is widely used by the investment
community. It is calculated by adding back net interest receivable
of $25,000 (2017: $462,000 net payable), and depreciation and
amortization charges amounting to $2,527,000 (2017: $2,373,000) to
the profit before tax of $6,406,000 (2017: $5,135,000).
6. Share-Based Payments
In accordance with IFRS2 Share based Payments, an option pricing
model has been used to work out the fair value of share options
granted by the Group, with this being charged to the income
statement over the expected vesting period and leading to a charge
of $512,000 (2017: $173,000).
7. Income Tax
The current tax expense represents German corporation tax
payable by Sopheon GmbH and US state taxes payable by the Group's
US subsidiaries. US corporate Alternative Minimum Tax (AMT) has
been repealed in respect of tax years beginning on or after 1
January 2018. AMT paid by US corporations in respect of periods
prior to that date will be refundable over a four year period to
December 2021 and $0.2m in this regard is classified in other
receivables.
NOTES
7. Income Tax (continued)
At 31 December 2018, tax losses estimated at $53m (2017: $63m)
were available to carry forward by the Sopheon Group, arising from
historic losses incurred. These losses have given rise to a
deferred tax asset of $2.6m (2017: $2.0m) and a further potential
deferred tax asset of $8.2m (2017: $10.9m), based on the tax rates
currently applicable in the relevant tax jurisdictions. An
aggregate $8.8m (2017: $9.0m) of these losses are subject to
restriction under section 382 of the US Internal Revenue Code due
to historical changes 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 in 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.
8. Earnings per Share
The calculation of basic earnings per ordinary share is based on
a profit of $6,920,000 (2017: $5,378,000), and on 10,088,000 (2017:
7,478,000) ordinary shares, being the weighted average number of
ordinary shares in issue during the year. For the purpose of
calculating diluted earnings per ordinary share, adjustments are
made to both the profit and the number of ordinary shares to
reflect the impact of options, warrants and convertible loan stock
to the extent conversion or exercise prices are below the average
market price for Sopheon shares during the year. These adjustments
had no effect on the profit for 2018, but increased profit for the
purposes of calculating diluted earnings per ordinary share to
$5,777,000 for 2017, and to increase the number of ordinary shares
to 10,649,000 (2017: 10,331,000).
9. Intangible Assets
In accordance with IAS 38 Intangible Assets, certain development
expenditure must 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 $2,615,000 (2017: $2,519, 000), and amortization
of $2,230,000 (2017: $2,167,000) during the year.
10. Cautionary Statement
Sopheon has made forward-looking statements in this press
release, including statements about the market for and benefits of
its products and services; financial results; product development
plans; the potential benefits of business relationships with third
parties and business strategies. These statements about future
events are subject to risks and uncertainties that could cause
Sopheon's actual results to differ materially from those that might
be inferred from the forward-looking statements. Sopheon can make
no assurance that any forward-looking statements will prove
correct.
11. Annual Report
The annual report and financial statements are available on the
Company's website www.sopheon.com.
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2015.
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
FR LLFITVAIIFIA
(END) Dow Jones Newswires
March 21, 2019 03:00 ET (07:00 GMT)
Sopheon (LSE:SPE)
Historical Stock Chart
From Apr 2024 to May 2024
Sopheon (LSE:SPE)
Historical Stock Chart
From May 2023 to May 2024