S O P H E O N
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A N N U A L R E P O R T
Where innovation means business™
Sopheon partners with customers to provide complete
Enterprise Innovation Performance solutions including software,
expertise, and best practices to achieve exceptional long-term
revenue growth and profitability.
Summary Results and Trends ................................. 5
Auditors’ Report .....................................................24
Statement from the Chairman and
Chief Executive Officer ........................................... 6
Financial and Operating Review ............................ 8
Market and Solution Overview ...........................11
Interest Directors and Advisors ..........................17
Report on Directors’ Remuneration .................18
Directors’ Report ...................................................21
Statement of Directors’ Responsibilities ...........23
Consolidated Income Statements .......................26
Consolidated and Company
Balance Sheets .........................................................27
Consolidated and Company
Cash Flow Statements ...........................................28
Consolidated and Company Statements
of Changes in Equity ..............................................29
Notes to the Financial Statements .....................30
Sopheon’s software, expertise, and best practices enables our
customers to improve innovation and new product development
performance for sustainable, profitable revenue growth.
Summary Results and Trends
2012
2011
2010
2009
2008
2007
Revenue
EBITDA
Profit before tax
Earnings per share
£'000 12, 663
1,803
£'000
281
£'000
0.19
pence
10,276
1,491
104
0.07
10,537
1,510
171
0.10
8,260
(195)
(1,494)
(1.03)
9,304
1,120
44
0.02
6,332
113
(443)
(0.32)
Pre financing cashflow £'000
1,070
151
1,320
(1,276)
896
(551)
Net assets
Gross cash
Working capital
Long-term liabilities
£'000
£'000
£'000
£'000
3,264
3,880
4,315
(2,121)
3,082
2,941
3,289
(1,663)
3,008
3,358
4,145
(2,290)
2,685
1,624
2,001
(1,222)
4,268
2,586
3,068
(1,105)
3,310
2,053
2,140
(1,195)
Working capital is calculated as net current assets after adding back deferred income.
In 2012 we saw a strong return to growth after a relatively flat performance the year before.
Business from new customers picked up sharply, amounting to 51% of new orders compared
to 21% the year before. Customers headquartered in China and the Middle East made a major
contribution to this. The balance sheet was also improved with new funds from long-term
investors to underpin ongoing growth strategies.
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180
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120
100
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40
20
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2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
In 2012, we grew our customer base to 203 licensees.
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14000
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2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Recurring
Revenues
Extensions
Annualized average growth since the launch of Accolade remains at 25%. As the
business rebalanced towards new customer acquisition, we saw a total of 49 license
orders in 2012, of which 31 were extensions. We expect today's new customers
to drive further extension business in the future. Average license revenue per
transaction was up on 2011, as is the maintenance base.
6
STATEMENT FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ST A T E M E N T F R O M ThE C hA I R M A N
A N D C hI E F E xE CuT IvE OF F I C E R
Performance
Last year represented solid progress on a number of fronts and this is particularly evident in our financial performance.
Revenues were up 23 percent, from £10.3m in 2011 to £12.7m in 2012, and we are also pleased to report improvement
in profitability. The EBITDA result was a profit of £1.8m compared to £1.5m in 2011. We are also very pleased to report
further improvement to profit after tax, which rose to £0.3m (2011: £0.1m). Since 2010, we have steadily extended our
resourcing and investment in key operational areas, as part of our ongoing growth strategy, and it is particularly pleasing to
see these measures pay off in the context of improving financial performance.
We entered 2012 with plans to improve our acquisition rate of new clients and are glad to report that revenue from new
clients generated 51 percent of our 2012 revenue, as compared to 21 percent in 2011.
Total license transactions including extension orders were 49 in 2012 (2011: 54). License revenues grew by 20 percent
and reflected a higher average deal size, validating our expectation that smaller initial orders from the previous year
would generate larger extensions in 2012. Growth in consulting and implementation services was even more marked and
approached 50 percent.
From a geographical standpoint, customers headquartered in new territories such as China and the Middle East made a
major contribution to the year. Our core innovation solution, Accolade® Process Manager™, continued to account for the
majority of revenues at 91 percent compared to 84 percent in 2011.
At the date of this report, full-year 2013 revenue visibility incorporating booked revenue, contracted services business and
the run rate of recurring contracts stands at £6.4m, compared to £6.0m at the same time last year. Revenue visibility is
more fully defined in Note 4.
Strategy and Product
We have previously stated that Sopheon’s growth strategies for 2012 and beyond center on three key objectives:
•
Increase our rate of growth by deploying vertical-specific marketing strategies. Coming into 2012 we
realigned sales, product and marketing initiatives around target growth industries. We revised our marketing approach to
be a more vertical-specific, integrated mix of tactics including digital, web-based and social media methods as well as more
traditional approaches such as conferences and direct mail. Target sectors included consumer goods, food and beverage,
chemical, high-tech and aerospace and defense. Although we have seen significant success in the majority of these sectors,
aerospace and defense has been held back by well publicized uncertainties around government procurement.
• Broaden the use of our solutions within existing accounts. We continue to expand the range of our innovation
solutions to enable expansion within our customers. An example is our recent release of Accolade 8.2, which introduces
a new module Accolade Innovation Planner™ to assist companies in creating strategic enterprise innovation plans. As
reported last year, we also invested in our client growth strategy by focusing account management resources and
marketing programs on growing within our customer base.
• Expand direct and indirect distribution channels to acquire new accounts. During 2011 we hired new sales
people to expand our direct distribution channel. At the start of 2013, we underpinned our position in Germany through
the acquisition of our reseller partner. We also continued to build our relationships with consulting partners. Evidence
Accolade is a registered trademark of Sopheon plc.
Process Manager and Innovation Planner are trademarks of Sopheon plc.
STATEMENT FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
7
of progress during 2012 included our first sale into China, through a partner, and the announcement of a joint product
and service offering with Kalypso, a major consulting firm in the innovation market. In addition we won our second
Saudi Arabia based customer and expect to expand into this region going forward.
Our investment in these strategic objectives started in 2011 and as we predicted, commercial results have started to
come through in 2012. On the product front, in 2011 we completed a full refresh of the technology platform upon which
our core software offerings are built to make them Microsoft® .net based. We also introduced a new Agile development
methodology designed to build products faster and do a better job of ensuring that they are in step with real customer
needs. In 2012, these changes resulted in a number of customer-focused releases, culminating in the landmark release of
Accolade 8.2 at the start of 2013. With this release, Sopheon continues to extend the market leadership of the Accolade
solution with expanded functionality for innovation users and business processes.
As Sopheon grows, our solutions and market position also continue to evolve. With the recent expansion of our solution
footprint we have also evolved our market position. Sopheon partners with customers to provide complete Enterprise
Innovation Performance solutions including software, expertise, and best practices 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. For the first time, businesses can access a single source of the truth
across strategic innovation planning, roadmapping, idea and concept development, process and project management, and
portfolio and in-market management.
Our decision to sustain internal product development investment despite the ongoing economic uncertainty is serving us
well in the present and will continue to fortify our business performance and potential in the days ahead.
People
Sopheon is differentiated in the market by its reputation for deep domain expertise in innovation management. That know-
how is embodied in our people, whose best-practice understanding and experience have been developed through many
years of helping top businesses achieve innovation success. We are very proud of the commitment that our people have
shown in lifting Sopheon to a position of leadership in this area.
Sopheon continues to recruit, grow and develop our people. In 2011, as previously communicated, we identified that a
key barrier to our ability to scale for growth was a lack of formal onboarding and certification training. During 2012,
we recruited a dedicated training specialist to close this gap. We held our first formal training events during the year,
which enjoyed excellent feedback. Our goal is to reduce the ramp-up time for new employees, and in turn, improve our
ability to scale our organization with growth while maintaining customer satisfaction. This priority continues to have
high visibility inside our company. In addition, as part of our Accolade version 8 roll out programs we offered customers
packaged training classes at Sopheon facilities for the first time. The feedback and value received from our clients was
overwhelmingly positive. We will expand this program in 2013.
Building on steps taken in 2011 to restructure and strengthen Sopheon’s executive management team, we were pleased to
round out our executive team with the recruitment of Mike Frichol to spearhead global marketing. Mike has a great deal
of experience with emerging high-growth software companies, and has held a number of senior positions in the industry at
companies such as Great Plains Software, Infor, and Microsoft.
The Sopheon plc board is made up of three executive directors, augmented by three non-executive directors who bring a
wealth of knowledge and experience to our business. Details about each board member can be found at the back of this
report.
Outlook
We are delighted that revenues and profits for 2012 exceeded market expectations. In parallel with this positive financial
performance, Sopheon continued to make strategic advances during the year. We announced major new product releases
that further embed our leadership in enterprise innovation management. We started 2013 with the acquisition of a long-
standing business partner in Germany, a key regional market. Through 2012 and also coming into 2013, we have continued
our steady expansion of resources to keep pace with our growth plans. Nevertheless, market conditions remain hard to
predict, and we continue to watch the cost base closely.
On the corporate front, we secured an additional £1.1m of convertible debt finance, giving us the confidence to continue
execution of our expansion strategy. We moved our Amsterdam listing to the Alternext exchange, better suited to a
company of our size. Separately, we shared our intent to undertake a corporate restructuring to reduce the accumulated
deficit on the profit and loss account, and to consolidate shares. Precise details remain under review and we expect to
request authorities for these changes at our 2013 annual general meeting.
Sopheon enters 2013 having made substantial progress on financial, operational and corporate fronts. We will continue our
efforts in all areas and are excited by the opportunities ahead.
Barry Mence
Executive Chairman
20 March 2013
Andy Michuda
Chief Executive Officer
Microsoft is a registered trademark of the Microsoft Corporation in the United States and/or in other countries.
8
FINANCIAL AND OPERATING REVIEW
FI N A N C I A L A N D OP E R A T I N G REvI E W
Trading Performance
Sopheon’s consolidated turnover in 2012 was £12.7m, compared to £10.3m in 2011, an increase of 23 percent. Both
regions showed good growth. Much of the EMEA region growth is attributable to substantial business sold into new
territories in Asia and the Middle East. The overall shape of the business continues to be approximately one-third Europe
and two-thirds North America. Currency effects had limited impact in 2012.
Total license transactions including extension orders were 49 in 2012 compared to 54 in 2011, a reduction of 9 percent.
however, average revenue per transaction rose, which resulted in higher license revenues overall. historically, our license
performance in the fourth quarter has tended to be very strong and to provide a substantial boost to overall annual
revenues. In 2012, for the second year running, this fourth quarter spike did not come through and our strongest license
quarter in the year was the second quarter.
Business Mix
The annualized average growth of the business since the launch of Accolade remains at 25 percent. Within this overall
picture, maintenance revenues were broadly flat but license and services delivered increases of 20 percent and 50 percent
respectively. It is particularly satisfying to see a return to license growth after a pause in 2011. Over the years we have
frequently referred to the sensitivity of our license results to individual sales events. In 2011 this was compounded by an
evolution of buying patterns whereby customers preferred extended validation phases, pilot projects and phased license
orders as opposed to making substantial up-front orders as in the past. We expected this buying behavior to result in
better license performance in 2012 and this came through as customers made extension orders. however, 2012 also
saw a welcome improvement in the share of revenues from new customers as compared to existing customers, and this
is a large part of the growth achieved. In 2012 just over 50 percent of the value of new business (excluding maintenance
and hosting renewals) was derived from new customers, compared to 21 percent in 2011, and 38 percent in 2010. This
improvement is due in part to rising market interest in our solutions but also to actions taken to reorganize and improve
the focus on winning new customers, without compromising our existing customer relationships. We are very conscious
that we need to continue to focus on both add-on business from existing customers as well as signing new clients; each
customer represents an extended business opportunity for Sopheon to deliver value and grow revenue.
Similar to prior years certain customers reorganized and rationalized in reaction to the economic conditions, resulting in
termination of their maintenance contracts. We did, however, see overall growth in the base of recurring business, which
is almost £4.5m coming into 2013 compared to £4.1m coming into 2012, and £3.9m coming into 2011. This is a more
substantial rise than in prior years due in part to the additional maintenance revenues brought on with the acquisition of
our German business partner in January 2013. The majority of recurring income is represented by maintenance services,
but also includes hosting services and license rentals. Overall, in 2012 our business delivered a 28:31:41 ratio of licenses,
maintenance, and services respectively compared to 29:38:33 in the previous year.
Overall gross margins have fallen to just over 71 percent (2011: 73 percent), which can be largely attributed to the
growth in service compared to license revenues and the associated higher costs. Within this overall picture, we did
incur approximately £0.45m of third-party software costs (2011: £0.3m). As we have noted in prior annual reports, we
anticipated that license margins will be affected by decisions to embed, rather than build, certain third-party components
or methods of working into our software. This is expected to continue going forward. In the services area, the higher
revenues resulted in a substantial rise in the overall cost of service resources. While subcontractor costs increased, the
majority of this rise was due to actual staffing.
Research and Development Expenditure
We have continued our gradual expansion of investment in product development since 2010. This policy has resulted in
actual expenditures in research and development being approximately £0.4m higher in 2012 than in 2011. In addition, this
increase was boosted by the effect of providing for bonuses. The headline R&D reported in the income statement adjusts
this basic expenditure for the effects of capitalization and amortization of development costs. The amount of 2012
research and development expenditure that met the criteria of IAS38 for capitalization was £1.2m (2011: £1.1m) offset by
amortization charges of £1m (2011: £0.8m). These capitalized costs are largely attributable to the group’s investment in
the Accolade 8.0, 8.1 and 8.2 releases.
FINANCIAL AND OPERATING REVIEW
9
As in prior years, the effect of capitalization was not completely offset by amortization, however by only £0.2m in 2012
compared to £0.3m in 2011. Accordingly, headline research and development expenditures reported in the income
statement rose to £2.7m, compared to £2.2m in 2011, an overall net increase of £0.5m. A further £0.3m of amortization
and impairment charges relating to acquired intangible assets (2011: £0.2m) has been charged to distribution costs.
Including these costs, the overall effect of capitalization, amortization and impairment was to increase costs reported in
the income statement by £0.1m.
Sopheon remains committed to product leadership, with excellence in research and software development as a critical
core competency of the group. Since 2001 Sopheon’s reported research and development costs each year have been at
least 20 percent of revenues reported in that year. For 2012, this metric was 21 percent (2011: 21 percent).
Operating Costs
Coming into 2012 Sopheon had 95 staff members. As noted elsewhere, during the year we steadily expanded resources
in line with revenue growth, and by the end of the year the total staff count stood at 109. In addition to the impact of
expanded staffing, all cost areas were affected by the fact that the improved 2012 performance led to a bonus award
being made to all members of the company that participate in the corporate bonus scheme. The corporate bonus
scheme covers the majority of the group’s executives and employees, with the principal exception of the sales teams for
whom incentives are tied to individual or territory results. The costs of the bonus have been allocated to the relevant
categories of the income statement. The group’s 2011 performance did not achieve the benchmarks required for bonus
payment under the corporate scheme.
Detailed comments regarding professional services and research and development costs are noted above. headline sales
and marketing costs have risen to £4.2m in 2012 compared to £3.5m in 2011. As noted above, £0.1m of this increase
represents higher amortization and impairment of acquired intangible assets, leaving an actual spend increase of £0.6m.
Increase in staffing is responsible for a third of this increase, reflecting the recruitment of staff in both Europe and
America, and the remaining two thirds from higher commission and bonus costs linked to higher sales.
headline administration costs have risen by £0.1m. This follows a fall of £0.1m from 2010 to 2011. underlying
administration costs and resourcing have remained broadly constant, as they have since 2007. The increase last year
can be attributed to a blend of factors including limited expansion in resources, higher bonus costs and an increase in
legal and professional fees. This last area was partly due to the company’s move to the Alternext exchange. Although
administration costs will continue to be managed tightly as the group expands operational resources, we do anticipate
some increase in this area in 2013 as we start to build out the group’s infrastructure to handle growth.
Results
The combined effect of the revenue and cost performance discussed above has resulted in Sopheon’s EBITDA (Earnings
before Interest, Tax, Depreciation and Amortization) performance for 2012 rising to £1.8m, compared to £1.5m 2011.
In common with other technology businesses, the board believes EBITDA provides a useful indicator of the underlying
performance of our business by removing the effect on earnings of tax, capital spend and financing. EBITDA is further
defined and reconciled to profit before tax in Note 4. Our calculation of EBITDA is stated after charging (i) share-based
payments of £38,000 (2011: £39,000); (ii) impairment charges of acquired intangible assets of £175,000 (2011: £66,000);
and (iii) exchange losses of £36,000 (2011: gains of £55,000 ) but excludes depreciation and amortization charges for the
year of £1.2m (2011: £1.0m) and net finance costs of £0.3m (2011: £0.4m).
Including the effect of interest, depreciation and amortization, the group reported a profit before tax for the year of
£281,000 (2011: £104,000). No tax has been provided. The profit per ordinary share was 0.19p (2011: 0.07p).
Balance Sheet and Corporate
Consolidated net assets at the end of the year stood at £3.3m (2011: £3.1m). Gross cash resources at 31 December
2012 amounted to £3.9m (2011: £2.9m). Approximately £1.7m was held in uS Dollars, £1.6m in Euros and £0.6m in
Sterling.
Intangible assets stood at £3.5m (2011: £3.7m) at the end of the year. This includes (i) £2.8m being the net book value of
capitalized research and development (2011: £2.7m) and (ii) an additional £0.7m (2011: £1.0m) being the net book value
of Alignent intangible assets acquired in 2007. The carrying value of the Alignent intangibles has been impacted by both
1 0
FINANCIAL AND OPERATING REVIEW
amortization and impairment charges. Further details are set forth in Note 14.
In June 2007, the group entered into a $3.5m, 48-month mezzanine term loan with BlueCrest Capital Finance
(“BlueCrest”), in connection with its acquisition of Alignent Software Inc. This term loan was repayable in equal monthly
installments through to July 2011. In December 2010 the company signed an agreement with BlueCrest to refresh the
mezzanine term loan back up to $3.5m, for a new 39-month term, repayable in equal monthly installments of $90,000
plus interest through March 2014. The loan bears interest at 13 percent per annum. No warrants were issued to
BlueCrest in connection with the transaction.
In addition to the term loan, for a number of years the group has had access to a revolving line of credit with BlueCrest,
secured against the trade receivables of Sopheon’s North American business and with a maximum draw capacity of
$1.25m. The facility is periodically renewable and the next renewal date is 31 May 2013. As announced previously, the
group has been advised that a change in ownership of BlueCrest Capital Finance may lead to uncertainty over future
renewals of the facility.
To mitigate this risk, and to underpin the group’s expansion strategy, in October 2009 the company issued £0.85m of
convertible unsecured loan stock (the “Loan Stock”) to a group of investors including key members of the board and
senior management team. On 15 May 2012, the holders of the existing Loan Stock unanimously agreed to extend the
maturity date of the Loan Stock by two years to 31 January 2015. This amendment was coupled with modification of the
conversion price of the Loan Stock to 5p per share. On 23 August 2012, the investors subscribed for a further £1.15m
of Loan Stock with the same maturity date of 31 January 2015 and conversion price of 5 pence per share. In accordance
with the AIM Rules for Companies, Daniel Metzger, having consulted with the company’s Nominated Adviser, finnCap
Limited, acted as independent director with respect to the amendment to the terms of the Loan Stock and further
subscription of Loan Stock and considered that these were fair and reasonable insofar as the company’s shareholders are
concerned.
Sopheon has an equity line of credit facility with GEM Global Yield Fund Limited ("GEM") was last renewed for a two-
year term expiring on 23 December 2013. The facility, which has been renewed on a number of previous occasions, has
been used to raise working capital once, in March 2004. This leaves approximately 90 percent of the original €10m facility
available under the extended agreement. Drawings under the GEM equity line of credit are subject to conditions relating
inter alia to trading volumes in Sopheon shares.
The principal risks and uncertainties facing the group are further described in the Directors’ Report on pages 21 to 22.
MARKET AND SOLUTION OVERVIEW
1 1
MA R K E T A N D S O LuT I O N O vE R
vI E W
How Sopheon Creates Value for Customers
Sopheon partners with customers to provide complete Enterprise Innovation Performance solutions including
software, expertise, and best practices 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. This enables our customers to improve innovation and new product
development performance for sustainable, profitable revenue growth.
For the first time, businesses can access a single source of the truth across:
• Strategic Innovation Planning and Roadmapping
• Idea and Concept Development
• Process and Project Management
• Portfolio, Resource and In-Market Management
Sopheon’s solutions have been implemented by over 200 customers with over 60,000 users in over 50 countries.
Research indicates that on average, only 50 percent of new products achieve their desired business objectives.
We have helped customers implement effective innovation management processes to dramatically increase this success
rate, with some as high as 85 percent.
A common innovation and new product development challenge companies face is coordinating resources to bring
products to market. We help improve throughput efficiency, enabling 15-30 percent more products to be
brought to market for the same investment.
Companies can increase the value of their portfolios by 75-100 percent or more, by connecting innovation
planning to business objectives, developing better initiatives in the innovation funnel, more effectively managing processes,
and optimizing portfolios with our Accolade solution.
Market Trends and Conditions
We see a confluence of several business, economic and market trends that play directly into Sopheon’s market position,
solutions and investments. We believe that Sopheon is uniquely positioned to leverage these trends with our proven
solutions, services, expertise and best practices. This unique position and belief was recently confirmed in two separate
briefings with different Gartner analysts.
The following are major trends we are seeing with our customers, in the market, and from research sources where
businesses are applying innovation beyond traditional product-related initiatives:
• Business Transformation – Companies are exploring innovative options to transform their business models
for increased competitiveness, disruptive operating models, and greater connectedness with customers, and other
strategic initiatives. Sopheon provides these companies with solutions to undertake these high-risk/high-reward
initiatives with structured planning, governance and performance measurement that greatly improve success
probabilities.
• Increased Operating Plan Cadence – Most companies are realizing that the traditional annual operating plan
(AOP) done in spreadsheets and presentations is not effective and does not systematically drive relevant action,
results and alignment in innovation initiatives. Sopheon’s solutions provide companies with the means to increase
their operating plan cadence to quarterly, with integration that directly drives and connects monthly and daily
operational activities with a feedback and performance loop. This condensed cadence enables the customers to
operate with agility in responding to market conditions faster than the competition. Companies face increasing
disruptive and unplanned events from their markets which requires an ability to quickly assess a situation, make fact-
based informed decisions, and then implement appropriate actions and/or initiatives to respond in a timely or speedy
manner to take advantage of market shifts. Sopheon’s solutions can be deployed across the enterprise to facilitate
agility and manage the action plans for optimal results.
1 2
MARKET AND SOLUTION OVERVIEW
• Increased Rate of Services Innovation – Companies are increasingly turning their attention to services
innovation for competitive differentiation, product augmentation, additional revenue opportunities and increasing
profits. Sopheon’s solutions are designed from the ground up for flexibility to equally support product and/or
service innovation.
• Enterprise Innovation – Customers, prospective buyers and industry analysts see the ‘top-down’ approach across
the enterprise for driving innovation and managing portfolios that Sopheon has promoted for several years, as a
key solution requirement to support and connect strategies and initiatives through and across the enterprise. This
means that a CEO-level objective can be driven, propagated, managed and tracked through all areas and levels of
the enterprise by Sopheon’s solutions. This trend calls for the enterprise to improve innovation process to gain
productivity, efficiency and performance results. The flexibility with which Sopheon’s solutions can be applied
uniquely supports this enterprise process need.
“In an increasingly volatile and uncertain world, competitive advantage is proving elusive. Knowing how to
manage innovation, where to focus for maximum benefit, and where to develop holistic, forward-looking insight
into the complex interactions between trends as they coalesce and mature are essential to success.”
— Gartner, 2012
Sopheon’s Solutions
Sopheon made significant investments in our products that paid off in 2012 and will continue to generate increasing
returns going forward. In 2011 we completed a multi-year effort to replace our core product platform with Microsoft
.net technology – a modern software framework with increased design flexibility and an industry standard technology
platform that brought new levels of efficiency to the software development process.
In 2011 we also began the journey to transition our product development process to an Agile software development
methodology, which enables consistent product delivery cycles to meet customer and market needs faster and more
efficiently. Our adoption of Agile also drives greater customer interaction and feedback directly into the development
process. Our objective with the Agile methodology at that time was to deliver new product releases every four months.
This objective was achieved in 2012. Sopheon, like most business software vendors, used to deliver new releases
every 12-18 months on a particular product. Another benefit to our clients is that our Accolade 8 platform (see next
paragraph) offers the flexibility to choose the timing of applying their upgrade cadence, which involves an easier and faster
upgrade and installation path.
In our 2011 Annual Report we stated “Sopheon expects to introduce three significant new product releases in 2012”. We
are pleased to report that we achieved our plan:
1.
2.
3.
In April 2012 we released Accolade 8.0 – the new .net-based platform with several product enhancements including
Innovation Planning, Accolade Mobile, Microsoft SharePoint® integration, and more. We also released FEI Optimizer
based on Accolade Idea Lab™ as a joint solution with our partner, Kalypso for the front end of innovation, targeting
consumer goods companies.
In July 2012 we released Accolade 8.1 with significant enhancements and additions for integrated innovation across
all processes in the innovation and new product development lifecycle.
In December 2012 we released Accolade 8.2 with a new Accolade Portfolio Center™ that significantly expands our
portfolio management, prioritization and optimization capability. The new Accolade Innovation Planner module for
strategic enterprise planning and various enhancements to Stage-Gate® automation and other functionality were
also included.
Feedback from customers on these 2012 releases has been very positive and while our new release cycle cadence
requires customers to adjust past practices, they view this as a positive change to gain additional value from their
investments in Sopheon’s solutions.
Idea Lab, Vision Strategist and Portfolio Center are trademarks of Sopheon plc.
SharePoint is a registered trademark of the Microsoft Corporation in the United States and/or in other countries.
Stage-Gate is a registered trademark of the Product Development Institute, Inc.
MARKET AND SOLUTION OVERVIEW
1 3
Following is the current Accolade suite of offerings as we enter 2013:
Sopheon’s Accolade solution provides integrated support for innovation planning, roadmapping, idea and concept
development, process, project, portfolio, resource and in-market management.
"One of Philips central business strategies is to drive profitable growth through meaningful innovation…
Accolade’s new features have given us the ability to model projects in a very dynamic manner and alter them
quickly in response to shifts in market opportunities and needs…. We believe that these capabilities will help
shorten our Idea to Market processes."
— Paul de Wit
Director of Idea-to-Market Processes, Consumer Lifestyle Business
Philips
Growth Initiatives
We have previously stated that Sopheon’s growth strategies for 2012 and beyond center on three key objectives:
Invest in industry-specific vertical solutions
Introduce new offerings to grow our existing customer base
1.
2.
3. Expand our direct and indirect distribution channels to grow new customer acquisition
1. Invest in industry-specific vertical solutions
Last year we realigned sales, product and marketing initiatives around target growth industries. We revised our marketing
approach to be more vertical-specific, and integrated a mix of tactics including digital, web-based and social media methods
as well as more traditional approaches such as conferences and direct mail. Target sectors included consumer goods,
food and beverage, chemical, aerospace & defense, and high-tech. During the fourth quarter of 2012 we made significant
changes and investments in our global marketing organization to develop our markets and generate demand for our
solutions through multiple channels including more focus on digital marketing methods, vertical industry marketing and
establishing a greater presence for Sopheon in our target markets.
With Accolade release 8.2 we can now offer buyers multiple points of entry, to start in whichever area is of immediate
concern—e.g. planning, portfolio, ideation, process management—and expand the solution footprint and usage as their
needs evolve and capabilities mature. Buyers have additional flexible purchase options to buy only what they need to start,
and to add user licenses and functionality as the solution usage and adoption expands.
Sopheon offers customers additional purchase and deployment flexibility with software rental options and Accolade Cloud
hosting services.
2. Introduce new offerings to grow our existing customer base
We continue to expand the range of our innovation solutions to enable expansion within our customers. With Accolade
8.2 we can now align our solution with the innovation maturity of our customers, supporting everything from beginner to
world class innovator. Accolade is designed so that different modules and functionality can be turned on and off depending
on the need of the customer. This allows Sopheon to engage in long-term relationships with our customers as we work
together to improve their innovation maturity and the corresponding business performance.
An example of our advancement in this regard is our recent introduction of Accolade Innovation Planner which assists
companies in creating strategic enterprise innovation plans. This is a new offering never before available to our customer
base. We have also started to create ‘customer only’ marketing programs to inspire cross-learning among our clients.
Several such marketing events are scheduled for 2013 expanding on the success of our 2012 experience.
1 4
MARKET AND SOLUTION OVERVIEW
3. Expand our direct and indirect distribution channels to grow new customer acquisition
During 2012 we hired new salespeople to expand our direct distribution channel in the united States and Europe. In
addition, at the start of 2013 we expanded our position in Germany through the acquisition of our reseller partner.
We also have our first sale into China through a new partner as part of our strategy to expand into Asia. Further, our
expansion into Saudi Arabia has resulted in a second direct sale providing for a foundation in that part of the world for us
to grow.
“Companies [are] making a conscious effort to pursue innovation. A sense that change is all around drives
an orientation toward innovation in strategy and execution. This is a belief that surfaced again and again
throughout the survey and interviews.”
— Research from Forbes Insights and BMO Harris Bank
Harnessing Innovation to Jumpstart Growth
September 2012
Customer and Buyer Business Challenges Addressed by Sopheon Solutions
In September 2011, Sopheon commissioned a research study done by Consumer Goods Technology (CGT) magazine
to determine the common challenges companies face with their innovation and new product development initiatives.
The results of this research not only validated Sopheon’s approach and value proposition, it has also provided insights
for constructive consultative engagement with buyers during the sales process and on a continuing basis with customers.
Some of the key insights from this study are:
• Only 50 percent of companies report that new product launches meet profit objectives.
• 79 percent of companies launch products too or late to market.
• Only 6 percent of companies report that there is no gap in alignment between short-term product development
activities and long-term growth strategies.
• 74 percent indicated that in general their front-end innovation ideas do not support their business strategies.
• Ideas at 82 percent of companies get stuck in development to some moderate or greater degree.
• 85 percent of companies lack data regarding the feasibility and risk associated with innovation and new product
development projects.
• 82 percent of companies can't tell whether their portfolio is aligned with strategic targets.
• 85 percent of companies make investment decisions based on politics rather than data.
Several important overriding themes from this study are apparent, primarily that companies lack the processes, functional
integration and tools to make decisions and track meaningful performance. Sopheon’s Accolade solution is designed to
support integrated decision-making throughout the entire innovation and new product development lifecycle.
How do we get more
from our portfolio?
What plans do we create to
achieve business objectives?
Is our portfolio achieving
our performance goals?
Which strategies
will we pursue?
Should this initiative
move forward for launch?
Which ideas/concepts support
our strategic objectives?
Should this initiative
move into development?
Which ideas/concepts
are viable initiatives?
As illustrated above, Accolade’s integrated support for the entire lifecycle enables critical decision-making at every step to
help companies achieve significant innovation performance improvements across the enterprise.
MARKET AND SOLUTION OVERVIEW
1 5
“Our goal is to translate market trends and ideas from the scientific community into tangible innovations for our
customers. Accolade provides us with a flexible backbone for managing our innovation projects, and it allows
our senior management to have complete visibility of the projects in our innovation portfolio. Now we can
prioritize our work more effectively and get our best new products to market faster.”
— Manfred Hauptreif
Manager, Science Relations & Innovation Management
BASF
Services
2012 was a busy year for our services organizations. We have gone through a major transformation organizationally in
preparation for the next ‘step change’ in operating level required to support our continued growth plans.
Client Services
This organization is responsible for the business alignment between the Accolade solution and our customer needs. They
deliver and configure the software, and provide rollout and training services for successful customer usage and adoption
of the solutions.
We have transitioned from a regionally-based organization providing support around the world to a single global service
delivery organization. Most of our customers operate globally and expect Sopheon to match their operating models. We
now have a single global leader of our Customer Services organization supported by a number of global operating teams.
These operating teams are customer-facing in their activities, relationships and service delivery. We have invested in the
required infrastructure support to speed up the knowledge transfer and develop deep domain knowledge expected by
our customers. Onboarding and transfer mentoring/training programs are now in place to expedite this learning process.
Customer Support
This organization provides on-demand customer support under our maintenance program. Similar to our Client Services
organization, Customer Support has completed its transition from a regionally-based model with multiple contacts across
our support organization, to a single global organization with people located across time zones to support local customer
requests. The location and service enablement is transparent to our customers no matter where they are located
providing consistent, high-quality service.
With the introduction of the Accolade 8 platform, our Customer Support organization led, facilitated and managed all
customer upgrades with customer and Sopheon teams. Great progress was made with this key initiative in 2012 and we
expect 2013 to be another very busy year for this team.
Sopheon introduced our first Customer Training Programs in 2012 which offered ongoing live training programs held at
Sopheon facilities. With our inaugural year behind us we had a number of customers participate in several sessions and
our customer surveys show they have been very pleased with the program. We will take customer suggestions to expand
our customer training programs further in 2013.
Partnerships
Reseller Partners
Our resellers made strategic progress in a few areas in 2012:
• New partnerships have opened the Asian market to Sopheon resulting in our first sale into China. We are now
working with our partner through the deployment and training process. We expect growth to take time in this
region but are excited with the foundation we are laying to grow over time.
• Our partner in Australasia continues to expand the Accolade presence with two new customers signed in 2012.
• Our UK-based roadmapping partner continues to grow their market, signing new license deals during the year and
also enjoying strong attendance at their annual conference.
1 6
MARKET AND SOLUTION OVERVIEW
Consulting Partners
2012 was a year in which we focused on growing our existing relationships with a core group of consulting services
organizations, including Arthur D. Little, Deloitte, Accenture, Kalypso, and Stage-Gate International. We continue to see
our ecosystem grow through relationships with such partners and have seen a good level of introduction activity. Our
partners have expanded their Accolade competency and have in some cases already trained their people on Accolade 8.
We anticipate we will continue to outsource services work to these partners as part of our scalability and growth plans.
We are also in discussions with a small number of potential new partners with whom we have done some initial work
in the market and feel there are opportunities to learn and expand from our initial experience. We expect to sign
additional consulting partners in 2013.
Sweden
NL
UK
Germany
France
Italy
Minnesota
Colorado
Israel
Korea
Saudi Arabia
India
Sopheon Locations
Resellers
Consulting Partners
Australia
New Zealand
Sopheon provides global coverage through our locations and/or certified Valued Industry Alliance partners.
INTEREST DIRECTORS AND ADVISORS
1 7
I N T E R E S T DI R E C T O R S A N D AD vI SOR S
Directors
Barry K. Mence
Andrew L. Michuda
Arif Karimjee ACA
Stuart A. Silcock FCA
Bernard P. F. Al
Daniel Metzger
Executive Chairman
Chief Executive Officer
Finance Director
Non-executive Director
Non-executive Director
Non-executive Director
Secretary
Arif Karimjee
Registered Office
Surrey Technology Centre
40 Occam Road, Surrey Research Park
Guildford, Surrey Gu2 7YG
Registered Name and Number
Sopheon plc.
Registered in England and Wales No. 3217859
Lloyds TSB Bank plc.
77 high Street
Southend-on-Sea
Essex SS1 1hT
Briggs and Morgan
2200 IDS Center, 80 South Eighth Street
Minneapolis, MN 55402
united States
Auditors
Principal Bankers and Financiers
Solicitors and Attorneys
AIM Nominated Adviser and Broker
Euronext Paying Agent
Registrars
BDO LLP
55 Baker Street
London W1u 7Eu
Silicon valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
united States
BlueCrest Capital Finance, LLC
225 West Washington, Suite 200
Chicago, IL 60606
united States
Squire Sanders
7 Devonshire Square
Cutlers Gardens
London EC2M 4Yh
Loyens & Loeff
Fred Roeskestraat 100
1076 ED Amsterdam
The Netherlands
finnCap Limited
60 New Broad Street
London EC2M 1JJ
Kempen & Co.
Beethovenstraat 300
1077 WZ Amsterdam
The Netherlands
Capita Registrars
Northern house
Woodsome Park
Fenay Bridge
huddersfield hD8 0LA
1 8
REPORT ON DIRECTORS’ REMUNERATION
RE P O R T O N DI R E C T O R S’ RE MuN E R A T I O N
The remuneration committee of Sopheon plc is responsible for oversight of the contract terms, remuneration and other
benefits for executive directors, including performance-related bonus schemes. The committee comprises all three
non-executive directors and is chaired by B.P.F. Al. B.K. Mence would typically attend meetings of the committee as a guest
by invitation. The committee makes recommendations to the board, within agreed parameters, on an overall remuneration
package for executive directors and other senior executives in order to attract, retain and motivate high quality individuals
capable of achieving the group’s objectives. The package for each director consists of a basic salary, benefits and pension
contributions, together with performance-related bonuses and share options on a case-by-case basis. Consideration is given
to pay and employment policies elsewhere in the group, especially when considering annual salary increases. During 2012,
the board granted a 3 percent pay increase to executive directors as of 1 March 2012. This was consistent with the pay
increase granted to the majority of the group’s employees. From time to time, the remuneration committee may take advice
from appropriate remuneration consultants or to consult benchmarking data.
Contracts
The service contract between the company and Mr. Michuda is terminable on up to three months’ notice, with an additional
twelve months’ salary in lieu of notice due by the company in the event of termination without cause. Service contracts
between the company and the other executive directors are terminable on six to nine months’ notice.
Fees for Non-executive Directors
The fees for non-executive directors are determined by the board. The non-executive directors are not involved in any
discussions or decisions about their own remuneration.
Directors’ Remuneration
Set out below is a summary of the fees and emoluments received by all directors during the year, translated where applicable
into Sterling at the average rate for the period. Mr. Mence’s remuneration is largely fee-based and therefore subject to
fluctuations from period to period. Mr. Michuda’s remuneration is payable in uS Dollars, the average exchange rate for
which changes year on year. Benefits primarily comprise healthcare insurance and similar expenses. Details of directors’
interests in shares and options are set out in the Directors’ Report.
Executive Directors
B.K. Mence
A.L. Michuda
A. Karimjee
Non-executive Directors
S.A. Silcock
B.P.F. Al
D. Metzger
Pay and Fees
2012
£
132,787
162,690
110,879
Bonus
2012
£
31,500
40,672
20,676
Benefits
2012
£
Total
2012
£
Total
2011
£
5,278
6,040
2,287
169,565
209,402
133,842
141,816
164,007
110,150
20,000
20,000
20,000
_______
466,356
_______
_______
-
-
-
_______
92,848
_______
_______
-
-
-
_______
13,605
_______
_______
20,000
20,000
20,000
_______
572,809
_______
_______
18,000
18,000
18,000
_______
469,973
_______
_______
The remuneration committee establishes the objectives that must be met for each financial year if a cash bonus is to be paid.
With the principal exception of members of Sopheon’s sales teams, for whom incentives are tied to individual or territory
results, the committee concluded that the cash incentive should be tied to the financial performance of the group as a whole,
and in 2011 and 2012 these objectives were set with regard to EBITDA performance. For 2012, these objectives were set
such that incentive started to accrue from EBITDA of £1,600,000, after providing for the costs of the bonus itself. These
measures were applied to all members of the executive board and management committee of the group, as well as the
majority of the group’s employees.
In addition to the amounts disclosed above, pension contributions are made to individual directors’ personal pension
schemes. During 2012 contributions of £4,875, £2,245 and £4,800 (2011: £4,875, £3,201 and £4,800) were paid respectively
to the pension schemes of B.K. Mence, A.L. Michuda and A. Karimjee.
REPORT ON DIRECTORS’ REMUNERATION
1 9
Performance Graph
The following graph shows the company’s share price performance on AIM since January 2006, compared with the
performance of the FTSE AIM All Share index, which has been selected for this comparison as it is a broad-based index
which the directors believe most closely reflects the performance of companies with similar characteristics as the company’s.
e
u
l
a
v
/
)
p
(
e
c
i
r
P
30
25
20
15
10
5
-
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
Sopheon
Aim All-Share (rebased to Sopheon)
Directors’ Interests
The interests of the directors, who held office at the end of the year, in the share capital of the company (all beneficially held
except those marked with an asterisk(*), which are held as trustee), were as follows:
Share Options
Ordinary Shares
8%
Convertible
Loan Stock
At 31 December
2012
2011
2012
2011
2012
2011
B.K. Mence
A.L. Michuda
A. Karimjee
S.A. Silcock
S.A. Silcock*
B.P.F. Al
D. Metzger
484,500
3,997,594
1,150,000
-
-
25,000
-
462,500
3,942,932
1,137,500
-
-
-
-
14,430,535
155,188
87,667
950,000
76,639
650,000
100,000
14,430,535
155,188
87,667
950,000
76,639
650,000
100,000
£640,000 £200,000
£45,000 £20,000
£27,000 £12,000
£200,000 £100,000
-
-
£60,000 £40,000
-
-
Of the 14,430,535 ordinary shares mentioned above B.K. Mence beneficially owns and is the registered holder of 10,129,715
ordinary shares. A further 2,300,820 ordinary shares are held by Inkberrow Limited, a company in which B.K. Mence is the
majority shareholder and in which S.A. Silcock is a minority shareholder. In addition B.K. Mence is, or his wife or children
are, potential beneficiaries under trusts holding an aggregate of 2,000,000 ordinary shares.
2 0
REPORT ON DIRECTORS’ REMUNERATION
The following table provides summary information for each of the directors who held office during the year and who held
options to subscribe for Sopheon ordinary shares. All options were granted without monetary consideration.
Date of
Grant
Exercise
Price
At 31
December
2011
Granted
During
Year
Expired
During
Year
B.K. Mence (1)
B.K. Mence (4)
B.K. Mence (6)
B.K. Mence (8)
B.K. Mence (8)
B.K. Mence (9)
A.L. Michuda (2)
A.L. Michuda (2)(3)
A.L. Michuda (4)
A.L. Michuda (6)
A.L. Michuda (7)
A.L. Michuda (4)(8)
A.L. Michuda (4)
A.L. Michuda (4)
A.L. Michuda (9)
A. Karimjee (1)
A. Karimjee (3)(5)
A. Karimjee (4)
A. Karimjee (6)
A. Karimjee 7)
A. Karimjee (4)(8)
A. Karimjee (4)
A. Karimjee (4)
A. Karimjee (9)
30 April 2002
15 April 2005
3 May 2006
29 June 2007
1 April 2008
29 September 2012
30 April 2002
5 November 2003
15 April 2005
3 May 2006
29 June 2007
1 April 2008
27 June 2008
27 August 2010
29 September 2012
30 April 2002
5 November 2003
15 April 2005
3 May 2006
29 June 2007
1 April 2008
27 June 2008
27 August 2010
29 September 2012
14.75p
25.25p
22p
19p
13.25p
5.25p
14.75p
16.25p
25.25p
22p
19p
13.25p
14p
7.5p
5.25p
14.75p
16.25p
25.25p
22p
19p
13.25p
14p
7.5p
5.25p
(100,000)
-
100,000
-
-
62,500
-
-
100,000
-
-
100,000
-
-
100,000
-
122,500
-
-
(487,932)
487,932
- (2,225,000)
2,225,000
-
-
150,000
-
-
100,000
-
-
250,000
-
-
250,000
-
230,000
-
-
250,000 -
2,767,594
-
(150,000)
-
(300,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
462,500
-
150,000
300,000
62,500
100,000
100,000
175,000
100,000
150,000
-
At 31
December
2012
-
62,500
100,000
100,000
100,000
122,500
-
-
150,000
100,000
250,000
250,000
230,000
250,000
2,767,594
-
-
62,500
100,000
100,000
175,000
100,000
150,000
462,500
None of the directors exercised any share options during the year.
(1) Exercisable between the third and tenth anniversary of the date of grant.
(2) One third of these options are exercisable from the date of grant, one third from the first anniversary of the date of
grant and one third from the second anniversary.
(3) vesting of a proportion of these options was subject to performance conditions relating to the achievement of positive
EBITDA in two successive quarters. The conditions were met. These options, which were due to expire in 2013, were
cancelled on 30 September 2012.
(4) One third of these options are exercisable from the first anniversary of the date of grant, one third from the second
anniversary, and the remainder from the third anniversary.
(5) 93,846 of these options are exercisable between the third and tenth anniversary of the date of grant and 206,154 options
are exercisable as to one third immediately and one third on each of the first and second anniversaries of the date of grant.
(6) vesting of one half of these options was subject to performance conditions based on the achievement of certain financial
objectives in 2006. The conditions were met.
(7) vesting of one half of these options was subject to performance conditions based on the achievement of certain financial
objectives in 2007. The conditions were met.
(8) vesting of one half of these options was subject to performance conditions based on the achievement of certain financial
objectives in 2008. The conditions were met.
(9) These options are replacement options for options which expired in 2011 and 2012 and options due to expire in 2013
which were cancelled during 2012. They vest evenly over the three year period following grant.
The mid-market price of Sopheon ordinary shares at 31 December 2012 was 7.21p. During the financial year the mid-
market price of Sopheon ordinary shares ranged from 5.5p to 8.45p.
Save as disclosed above, no director (or member of his family) or connected persons has any interest, beneficial or non-
beneficial, in the share capital of the company.
Approved by the board on 20 March 2013 and signed on its behalf by:
A. Karimjee
Director
DIRECTORS’ REPORT
2 1
DI R E C T O R S’ RE P O R T
The group’s principal activities during the year continued to focus on the provision of software and services that improve the
return on investment of product development, within the rapidly emerging product lifecycle management (PLM) market. A
review of the development of the business during the year is given in the Statement from the Chairman and Chief Executive
Officer on page xx and the subsequent Financial and Operating Review. This also includes reference to the group’s future
prospects. An overview of the group’s products and markets incorporating advances in research and development is provided
on page 6. The group’s result for the year ended 31 December 2012 is a profit after tax of £281,000 (2011: profit after tax of
£104,000). The directors do not intend to declare a dividend.
Corporate Governance
The Sopheon board is committed to high standards of corporate governance and aims to follow appropriate governance
practice, although as a company incorporated in the uK and listed on AIM and Alternext the company is not subject to
the requirements of the uK Corporate Governance Code or the Netherlands Tabaksblat Committee. The board currently
comprises three executive directors and three independent non-executive directors. Their biographies appear at the back of
this annual report, and demonstrate a range of experience and caliber to bring the right level of independent judgment to the
board.
The board is responsible for the group’s system of internal control and for reviewing its effectiveness. Such a system can
only provide reasonable, but not absolute, assurance against material misstatement or loss. The board believes that the group
has internal control systems in place appropriate to the size and nature of its business. The board is satisfied that the scale
of the group’s activities do not warrant the establishment of an internal audit function. The board is also responsible for
identifying the major business risks faced by the group and for determining the appropriate course of action to manage those
risks. Formal meetings are held quarterly to review strategy, management and performance of the group, with additional
meetings between those dates convened as necessary. During 2012, all directors attended all meetings either in person
or by conference call. The audit committee, which comprises all of the non-executive directors and is chaired by Stuart
Silcock, considers and determines actions in respect of any control or financial reporting issues they have identified or that
are raised by the auditors. The board has a formal schedule of matters specifically reserved to it for decision. Details of the
constitution of the remuneration committee are provided in the Report on Directors’ Remuneration on page 18.
Principal Risk Areas
As with any business at its stage of development, Sopheon faces a number of risks and uncertainties. The board monitors
these risks on a regular basis. The key areas of risk identified by the board are summarized below.
Sopheon’s markets continue to be at a relatively early stage of development and it is possible that Sopheon's products may not sell
in the quantities or at the prices required to achieve sustained profitability. The broad market for Sopheon’s software products
continues to emerge and evolve. Sopheon has sought to focus its resources on the sub-segments that it believes offer the
best short-term opportunity for growth, and on developing functionality which its research indicates customers in those
segments require. however, determining the potential size, growth rate and needs of a particular market segment remains
challenging. This risk has become particularly relevant in view of the economic turmoil that has affected the global economy.
Sopheon continues to monitor market needs carefully, and has formalized processes for soliciting input to product strategy
from analysts and customers.
Sopheon’s prospects of achieving sustained profitability are dependent on meeting sales targets. Sopheon has in past years
experienced substantial net losses due, in part, to its investment in product development and marketing but also due to the
fact that the timing and size of individual sales can have a substantial impact on performance in a given period. Sopheon’s
ability to continue to finance its activities through to the point that its operations become cash generative on a sustained
basis is dependent on the group maintaining sales growth alongside its investment strategy, or in the absence of such growth,
its ability to secure funding through the company's facilities or other sources. Sopheon management carefully monitors short-
and medium-term financing requirements and has regularly raised additional funding resources to meet requirements. Details
of the resources available to Sopheon and the reasons why management consider that the company is able to continue as a
going concern are set out in Note 2 to the financial statements.
Some of Sopheon’s competitors and potential competitors have greater financial resources than Sopheon. Sopheon remains a
relatively small organization by global standards. Its resources are dwarfed by those of many larger companies that are
capable of developing competitive solutions and it is difficult to overcome the marketing engine of a large global firm.
Sopheon seeks to compete effectively with such companies by keeping its market communications focused, clear and
consistent with its product and market strategy, and working to deliver first class quality of execution so that referenceability
of the customer base is maximized.
2 2
DIRECTORS' REPORT
Sopheon is dependent upon skilled personnel, the loss of whom could have a material impact. While service agreements
have been entered into with key executives, retention of key members of staff cannot be guaranteed and departure of
such employees could be damaging in the short term. In addition the competition for qualified employees continues to
be difficult and retaining key employees has become accordingly more challenging and expensive. As a relatively small
business, Sopheon is more exposed to this risk than some of its larger competitors. Sopheon management checks staff
remuneration against recognized benchmarks and other industry sources, and seeks to maintain pay at competitive levels
appropriate to its business.
Sopheon will require relationships with partners who are able to market and implement its products. historically, Sopheon has
devoted substantial resources to the direct marketing of its products, and its strategy to enter into strategic alliances and
other collaborative relationships to widen the customer base and create a broad sales and implementation channel for its
products is not yet mature. The successful implementation of this strategy is crucial to Sopheon’s prospects and its ability
to scale effectively. however, Sopheon cannot be sure that it will select the right partners, or that the partners it does
select will devote adequate resources to promoting, selling and becoming familiar with Sopheon's products. Over the years
Sopheon has built up a network of both resellers and consulting partners, however this has yet to mature and the revenues
delivered through these relationships remain a relatively small part of the total.
Sopheon could be subject to claims for damages for errors in its products and services. Sopheon may be exposed to claims for
damages from customers in the event that there are errors in its software products or should support and maintenance
service level agreements fail to meet agreed criteria. Sopheon has sought to protect itself from such risks through its
development methodologies, its contract terms and insurance policies, and is not aware of any such claims at this time.
Share Option Schemes
Details of options granted are shown in Note 28 to the financial statements.
Supplier Payment Policy and Practice
It is the company’s policy that payments to suppliers are made in accordance with those terms and conditions agreed
between the company and its suppliers, provided that all trading terms and conditions have been complied with. At 31
December 2012 the company had approximately 35 days’ purchases outstanding (2011: 21 days).
Charitable and Political Donations
The group has made no charitable or political donations during the year.
Auditors
All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any
information needed by the company’s auditors for the purposes of their audit and to ensure that the auditors are aware
of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. A
resolution to reappoint BDO LLP as auditors will be put to the members at the Annual General Meeting.
Financial Instruments
Details of the group’s financial instruments and its policies with regard to financial risk management are given in Note 23
to the financial statements
Substantial Shareholdings
The directors are aware of the following persons who as at 20 March 2013 were interested directly or indirectly in 3
percent or more of the company’s issued ordinary shares:
Name
B.K. Mence (director)
Rivomore Limited
No. of
Ordinary Shares
% Issued
Ordinary Shares
14,430,535
16,191,260
9.9
11.1
B.K. Mence’s interest represents direct beneficial holdings as well as those of his family.
Approved by the board on 20 March 2013 and signed on its behalf by:
A. Karimjee
Director
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
2 3
ST A T E M E N T O F DI R E C T O R S’ RE S P O N S I B I L I T I E S
I N RE S P E C T O F
ThE FI N A N C I A L ST A T E M E N T S
Company law requires the directors to prepare financial statements for each financial year. under that law the directors
have elected to prepare the group and company financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European union. under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company
and of the profit or loss of the group for that period. The directors are also required to prepare financial statements in
accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment
Market and the rules of the NYSE Alternext Amsterdam Stock Exchange.
In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any
material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company
will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable
them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also
responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Website Publication
The directors are responsible for ensuring the annual report is made available on a website. Annual reports are
published on the company's website in accordance with legislation in the united Kingdom governing the preparation and
dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity
of the company's website is the responsibility of the directors. The directors' responsibility also extends to the ongoing
integrity of the annual reports contained therein.
2 4
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
IN D E P E N D E N T A uD I T O R S’ RE P O R T T O ThE
ME M B E R S O F SO PhE O N P L C
We have audited the financial statements of Sopheon plc for the year ended 31 December 2012 which comprise the
consolidated income statement, the consolidated statement of comprehensive income, the consolidated and company
balance sheets, the consolidated and company cash flow statements, the consolidated and company statements of changes
in equity, and the related notes. The financial reporting framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the European union and, as regards the parent
company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial
statements in accordance with applicable law and International Standards on Auditing (uK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/
scope/private.cfm
Opinion on Financial Statements
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31
December 2012 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European
union;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European union; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on Other Matters Prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
2 5
Matters on Which We are Required to Report by Exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Julian Frost (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
55 Baker Street
London W1u 7Eu
united Kingdom
20 March 2013
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
2 6
FINANCIAL STATEMENTS
CO N S O L I D A T E D IN C O M E ST A T E M E N T
F O R ThE YE A R EN D E D 3 1 DE C E M B E R 2 0 1 2
Revenue
Cost of sales
Gross profit
Sales and marketing expense
Research and development expense
Administrative expense
Operating profit
Finance income
Finance expense
Profit before tax
Income tax expense
Profit for the year
Earnings per share
Basic and fully diluted (pence)
Notes
2012
£’000
2011
£’000
3
12,663
(3,612)
_______
10,276
(2,731)
_______
9,051
7,545
(4,238)
(2,696)
(1,510)
_______
(3,533)
(2,173)
(1,377)
_______
607
462
8
9
9
(335)
_______
8
(366)
_______
281
104
10
-
_______
-
_______
281
_______
104
_______
12
0.19p
_______
_______
0.07p
_______
_______
C O N S O L I D A T E D S T A T E M E N T O F C O M P R EhE N S IvE
I N C O M E F O R ThE Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 2
Profit for the year
Other comprehensive income
Exchange differences on translation of foreign operations
Total comprehensive income for the year
2012
£’000
2011
£’000
281
104
(187)
_______
(58)
_______
94
_______
_______
46
_______
_______
FINANCIAL STATEMENTS
2 7
C O N S O L I D A T E D A N D C O M P A N Y B A L A N C E S hE E TS
A T 3 1 DE C E M B E R 2 0 1 2
Assets
Non-current Assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Other receivable
Total non-current assets
Current Assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current Liabilities
Trade and other payables
Borrowings
Obligations under finance leases
Deferred revenue
Total current liabilities
Non-current Liabilities
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Capital reserves
Translation reserve
Retained losses
Total equity
Group
Company
Notes
2012
£’000
2011
£’000
2012
£’000
2011
£’000
13
14
15
16
17
18
19
20
21
20
24
25
197
3,522
-
12
––––––––
3,731
––––––––
3,959
3,880
––––––––
7,838
––––––––
11,570
2,386
1,136
1
2,662
––––––––
6,185
––––––––
2,121
––––––––
2,121
––––––––
8,306
––––––––
3,264
––––––––
––––––––
166
3,748
-
12
––––––––
3,926
––––––––
3,265
2,941
––––––––
6,206
––––––––
10,132
1,467
1,448
2
2,470
––––––––
5,387
––––––––
1,663
––––––––
1,663
––––––––
7,050
––––––––
3,082
––––––––
––––––––
-
-
6,119
-
––––––––
6,119
––––––––
-
1,455
––––––––
1,455
––––––––
7,574
363
-
-
-
––––––––
363
––––––––
1,959
––––––––
1,959
––––––––
2,322
––––––––
5,252
––––––––
––––––––
7,279
55,619
175
(59,809)
––––––––
3,264
––––––––
––––––––
7,279
55,803
362
(60,362)
––––––––
3,082
––––––––
––––––––
7,279
55,619
-
(57,646)
––––––––
5,252
––––––––
––––––––
-
-
6,119
-
––––––––
6,119
––––––––
-
703
––––––––
703
––––––––
6,822
301
-
-
-
––––––––
301
––––––––
823
––––––––
823
––––––––
1,124
––––––––
5,698
––––––––
––––––––
7,279
55,803
-
(57,384)
––––––––
5,698
––––––––
––––––––
Approved by the board and authorized for issue on 20 March 2013.
Barry K. Mence
Director
Arif Karimjee
Director
2 8
FINANCIAL STATEMENTS
C O N S O L I D A T E D A N D C O M P A N Y C A Sh F L O W
S T A T E M E N T S F O R ThE Y E A R E N D E D
3 1 D E C E M B E R 2 0 1 2
Group
Company
Notes
2012
£’000
2011
£’000
2012
£’000
2011
£’000
Operating Activities
Profit for the year
Adjustments for:
Finance income
Finance costs
Depreciation of property, plant and equipment
Amortization and impairment of intangible assets
Share-based payment expense
Intra-group credits and charges
Provisions against intra-group loans
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
Increase/(decrease) in payables
Net cash generated from/(used in) operating activities
Investing Activities
Finance income
Purchases of property, plant and equipment
Development costs capitalized
Intra-group loans
Repayment of intra-group loans
Net cash from/(used in) investing activities
Financing Activities
Issue of convertible loan stock
Repayment of borrowings
(Decrease)/increase in lines of credit
Interest paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
18
281
104
(534)
42
(9)
335
98
1,273
38
-
-
––––––––
2,016
(744)
1,135
––––––––
2,407
––––––––
(8)
366
101
994
39
-
-
––––––––
1,596
855
(1,123)
––––––––
1,328
––––––––
-
132
-
-
38
(290)
115
––––––––
(539)
-
62
––––––––
(477)
––––––––
(1)
83
-
-
39
(250)
(270)
––––––––
(357)
(2)
(134)
––––––––
(493)
––––––––
9
(136)
(1,210)
-
-
––––––––
8
(125)
(1,060)
-
-
––––––––
-
-
-
(1,915)
2,091
––––––––
1
-
-
(803)
1,323
––––––––
(1,337)
––––––––
(1,177)
––––––––
176
––––––––
521
––––––––
1,150
(681)
(252)
(301)
––––––––
(84)
––––––––
986
2,941
(47)
––––––––
3,880
––––––––
––––––––
-
(673)
442
(342)
––––––––
(573)
––––––––
(422)
3,358
5
––––––––
2,941
––––––––
––––––––
1,150
-
-
(97)
––––––––
1,053
––––––––
752
703
-
––––––––
1,455
––––––––
––––––––
-
-
-
(59)
––––––––
(59)
––––––––
(31)
734
-
––––––––
703
––––––––
––––––––
FINANCIAL STATEMENTS
2 9
C O N S O L I D A T E D A N D C O M P A N Y S T A T E M E N T S O F
ChA N G E S I N E QuI T Y F O R ThE Y E A R E N D E D
3 1 D E C E M B E R 2 0 1 2
Group
At 1 January 2011
Profit for the year
Exchange differences on translation
of foreign operations
Total comprehensive income for the year
Recognition of share-based payments
Purchase of shares by Esot (Note 25)
Transfer of merger reserve to profit and loss
reserve (see Note 25)
At 1 January 2012
Profit for the year
Exchange differences on translation
of foreign operations
Total comprehensive income for the year
Recognition of share-based payments
Lapsing or expiry of share options
Equity element of convertible loan stock issued
At 31 December 2012
Share
Capital
£’000
7,279
-
Capital
Reserves
£’000
Translation
Reserve
£’000
73,719
-
420
-
Retained
Losses
£’000
(78,410)
104
Total
£’000
3,008
104
-
––––––––
-
––––––––
-
-
-
––––––––
-
––––––––
39
(11)
(58)
––––––––
(58)
––––––––
-
-
-
––––––––
104
––––––––
-
-
(58)
––––––––
46
––––––––
39
(11)
-
––––––––
7,279
-
-
––––––––
-
––––––––
-
-
-
––––––––
7,279
––––––––
––––––––
(17,944)
––––––––
55,803
-
-
––––––––
362
-
17,944
––––––––
(60,362)
281
-
––––––––
3,082
281
-
––––––––
-
––––––––
38
(272)
50
––––––––
55,619
––––––––
––––––––
(187)
––––––––
(187)
––––––––
-
-
-
––––––––
175
––––––––
––––––––
-
––––––––
281
––––––––
-
272
-
––––––––
(59,801)
––––––––
––––––––
(187)
––––––––
94
––––––––
38
-
50
––––––––
3,264
––––––––
––––––––
The translation reserve represents accumulated differences on the translation of assets and liabilities of foreign operations.
Retained losses represent accumulated trading losses, including amortization and impairment charges in respect of goodwill
and intangible assets arising from past acquisitions. Details and description of the capital reserves are set out in Note 25.
Company
At 1 January 2011
Profit and total comprehensive income for the year
Recognition of share-based payments
Purchase of shares by Esot (Note 25)
Transfer of merger reserve to profit and loss
reserve (see Note 25)
At 1 January 2012
Profit and total comprehensive income for the year
Recognition of share-based payments
Lapsing or expiry of share options
Equity element of convertible loan stock issued
At 31 December 2012
Share
Capital
£’000
7,279
-
-
-
-
––––––––
7,279
-
-
-
-
––––––––
7,279
––––––––
––––––––
Capital
Reserves
£’000
65,954
-
39
(11)
(10,179)
––––––––
55,803
-
38
(272)
50
––––––––
55,619
––––––––
––––––––
Retained
Losses
£’000
(67,605)
42
-
-
10,179
––––––––
(57,384)
(534)
-
272
-
––––––––
(57,646)
––––––––
––––––––
Total
£’000
5,628
42
39
(11)
-
––––––––
5,698
(534)
38
-
50
––––––––
5,252
––––––––
––––––––
3 0
NOTES TO THE FINANCIAL STATEMENTS
1 . G E N E R A L I N F O R M AT I O N
Sopheon plc ("the company") is a public limited company incorporated in England and Wales. The address of its registered
office and principal place of business is set out on page 17. The principal activities of the company and its subsidiaries are
described in Note 3. The financial statements have been prepared in Pounds Sterling and rounded to the nearest thousand.
2 . S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
The financial statements have been prepared in accordance with International Financial Reporting Standards and
Interpretations issued by the International Accounting Standards Board as adopted by the European union and those parts of
the Companies Act 2006 which apply to companies preparing their financial statements under IFRS. The principal accounting
policies are set out below. The policies have been applied consistently to all the years presented.
A number of new standards, amendments and interpretations to existing standards have been adopted by the group, but have
not been listed, since they have no material impact on the financial statements. None of the new standards, amendments and
interpretations in issue but not yet effective are expected to have a material effect on the financial statements.
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, including the potential of having
to repay convertible loan stock in January 2015.
During 2012, the group achieved revenues of £12.7m and a profit before tax of £281,000. This represents an improvement
compared to the previous year. The performance in 2011 was flat over 2010. Coming into 2013, the group’s sales pipeline
remains very active, and accordingly, the directors remain positive about the prospects for the business.
In December 2010 the group renegotiated its loan note from BlueCrest Capital Finance (“BlueCrest”) for a new principal
value of $3.5m, which brought in new working capital of approximately $2.7m. The principal is repayable in equal monthly
installments of $90,000, plus interest, through March 2014. The group also has access to a revolving line of credit with
BlueCrest which is secured against the trade receivables of Sopheon’s North American business. This facility is periodically
renewable, and the current term is to 31 May 2013. The facility limit is $1,250,000. At 31 December 2012, $800,000
(£495,000) was drawn against this revolving facility. In addition, during 2012 the group extended a convertible loan to key
investors from £850,000 to £2,000,000. The loan is repayable or convertible by 31 January 2015.
Notwithstanding the group’s stable funding and trading position, the time-to-close and the order value of individual sales
continues to vary considerably. When combined with the relatively low-volume and high-value nature of the group’s business,
these are factors which constrain the ability to accurately predict revenue performance. In addition, to meet its strategic
objectives, the group has expanded its staff levels. If sales fall short of expectations, there is a risk that the group’s facilities
may prove insufficient to cover both operating activities and the repayment of its debt facilities, which latter point could
be due to the regular repayment of the BlueCrest term loan, the possibility of non-renewal of the BlueCrest revolving line
of credit, or the possibility of having to repay in cash £2,000,000 of convertible loan stock on 31 January 2015. In such
circumstances, the group would be obliged to seek additional funding.
The directors have concluded that the circumstances set forth above represent uncertainties, however they believe that taken
as a whole, the factors described above enable the group to continue as a going concern for the foreseeable future. The
financial statements do not include the adjustments that would be required if the company or group were unable to continue
as a going concern.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of the company and entities controlled by the
company ("subsidiaries"). Control is achieved where the company has the power to govern the financial and operating
policies of an entity and to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
NOTES TO THE FINANCIAL STATEMENTS
3 1
Business Combinations
The acquisition of subsidiaries is accounted for within the consolidated financial statements using the purchase method,
as set out within IFRS 3 Business Combinations for acquisitions made on or before 1 January 2010. The cost of the
acquisition is measured at the aggregate of the fair values at the date of exchange, of assets given, liabilities incurred
or assumed, and equity instruments issued by the group in exchange for control of the entity being acquired, together
with any costs directly attributable to the business combination. The results of the acquired entities are included in the
consolidated income statement from the date on which effective control is obtained. The identifiable assets, liabilities and
contingent liabilities of the entity being acquired that meet the conditions for recognition are recognized at their fair values
of the date of acquisition.
Identifiable intangible assets are capitalized at fair value as at the date of acquisition. The useful lives of these intangible
assets are assessed and amortization is charged on a straight-line basis, with the expense taken to the income statement
within sales and marketing expense (in respect of customer relationships) and research and development expense (in
respect of IPR and technology). Intangible assets are tested for impairment when a trigger event occurs. useful lives are
also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of acquisition over the group’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary at the date of acquisition.
Goodwill is initially recognized at cost and is subsequently measured at cost less any accumulated impairment losses.
For the purposes of impairment testing, goodwill is allocated to those cash-generating units of the group expected to
benefit from the synergies of the business combination. Cash-generating units to which goodwill has been allocated
are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than the carrying value of the unit, the impairment loss is allocated
firstly to reduce the carrying cost of any goodwill allocated to the unit and then to any other assets of the unit pro rata to
the carrying value of each asset of the unit. An impairment loss recognized for goodwill is not reversed in a subsequent
period.
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 products are recognized on delivery, provided that no significant obligations remain owing to the
customer in connection with such product sale. Such significant obligations could include giving a customer a right to
return the software product without any preconditions, or if the group has failed to deliver an element of the software
product by the balance sheet date. Revenues relating to maintenance 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.
Leases
Assets held under finance leases are recognized as assets of the group at their fair value at the inception of the lease or, if
lower, at the net present value of the minimum lease payments. The corresponding liability to the lessor is included in the
balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
charged to the income statement.
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the
relevant lease.
3 2
NOTES TO THE FINANCIAL STATEMENTS
Interest on Borrowings
All interest on borrowings is recognized in the income statement in the period in which it is incurred.
Retirement Benefit Costs
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. The group does not
operate any defined benefit retirement benefit plans.
Foreign Currencies
The individual financial statements of each group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). In preparing the financial statements of the individual
entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at rates
approximating to the transaction rates. At each balance sheet date, monetary items denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in the income statement for the period.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreign operations
are expressed in Sterling using exchange rates prevailing on the balance sheet date. Income and expense items (including
comparatives) are translated at the average exchange rates for the period. Exchange differences arising (including exchange
differences on intra-group loans where there is no intention that these should be settled) are classified as equity and
transferred to the group’s translation reserve. Such translation differences are recognized in the income statement in the
period in which the foreign operation is disposed of.
On disposal of a foreign operation the cumulative exchange differences recognized in the foreign exchange reserve relating
to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal.
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, but deferred tax assets
are recognized only to the extent that it is probable that taxable profits 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.
Property, Plant and Equipment
Computer equipment and fixtures and fittings are stated at cost less accumulated depreciation and any accumulated
impairment losses. Depreciation is charged so as to write off the costs of assets over their estimated useful lives, using the
straight-line method.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or,
when shorter, over the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the
difference between the sale proceeds and the carrying amount of the asset and is recognized in the income statement.
The following rates are used for the depreciation of property, plant and equipment:
Computer equipment
Furniture and fittings
20-33 percent on a straight-line basis
20-25 percent on a straight-line basis
NOTES TO THE FINANCIAL STATEMENTS
3 3
Investments
Investments in subsidiaries within the company balance sheet are stated at cost less impairment. Impairment tests are
undertaken whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Where the carrying value of an investment exceeds its recoverable amount, the investment is written down accordingly.
Externally Acquired Intangible Assets
Externally acquired intangible assets are initially recognized at their fair values at the date of acquisition and are subsequently
amortized on a straight-line basis over their useful economic lives. The amortization expense in respect of externally
acquired technology and intellectual property (“IPR”) is included in research and development costs in the income
statement, and the amortization expense in respect of externally acquired customer relationships is included in sales and
marketing expense.
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.
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.
Development costs not satisfying the above criteria and expenditure on the research phase of internal projects are
recognized in the income statement as incurred.
Impairment of Tangible and Intangible Assets (Excluding Goodwill)
At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is
not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing the value in use, the
estimated future cash flows are discounted to their net present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying
amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized
immediately in the administrative expenses line item in the income statement.
Where an impairment loss subsequently reverses, the carrying value of the asset or cash-generating unit is increased to
the revised recoverable amount, but so that the increased carrying amount does not exceed the carrying amount which
would have been determined had no impairment loss been recognized in prior years. A reversal of an impairment loss is
recognized immediately in profit or loss.
3 4
NOTES TO THE FINANCIAL STATEMENTS
Financial Instruments
1. Financial Assets
The group’s financial assets fall into the category of loans and receivables. The group does not have any financial assets
in the categories of fair value through profit and loss or available for sale. The group has not classified any of its financial
assets as held to maturity.
unless otherwise indicated, the carrying values of the group’s financial assets are a reasonable approximation of their fair
values.
Loans and Receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise principally through the provision of goods and services (e.g. trade receivables) but also include cash and
cash equivalents and other types of contractual monetary asset. They are initially recognized at fair value plus transaction
costs that are directly attributable to the acquisition or issue and subsequently carried at amortized cost using the
effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not
considered material.
Impairment provisions are recognized when there is objective evidence (such as significant financial difficulties, default or
significant delay in payment on the part of the counter-party) that the group will be unable to collect all the amounts due
under the terms of the receivable, the amount of such provision being the difference between the net carrying amount and
the present value of the future expected cash flows associated with the receivable. For trade receivables, such provisions
are recorded in a separate allowance account with the loss being recognized within administrative expenses in the income
statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
2. Financial Liabilities
The group classifies its financial liabilities in the category of financial liabilities at amortized cost.
Financial liabilities measured at amortized cost include:
• Trade payables and other short-dated monetary liabilities, which are initially recognized at fair value and subsequently
carried at amortized cost using the effective interest rate method.
• Bank and other borrowings (including the host debt element of the convertible loan noted above), which are initially
recognized at fair value net of any transaction costs directly attributable to the acquisition of the instrument. Such
interest-bearing liabilities are subsequently measured at amortized cost using the effective interest rate method, which
ensures that the interest expense over the period to repayment is at a constant rate on the balance of the liability
carried in the balance sheet. Interest expense in this context includes initial transaction costs and premiums payable
on redemption, as well as any interest payable while the liability is outstanding.
unless otherwise indicated, the carrying values of the group’s financial liabilities measured at amortized cost represent a
reasonable approximation of their fair values.
3. Convertible Loan Stock
The host debt element of convertible loan stock is treated as a financial liability measured at amortized cost as further
described above. The equity component of convertible loan stock arising on issue is reclassified from debt to capital
reserves.
NOTES TO THE FINANCIAL STATEMENTS
3 5
4. Share Capital
Financial instruments issued by the group are treated as equity only to the extent that they do not meet the definition of a
financial liability. The group’s ordinary shares are classified as equity. For the purpose of the disclosures given in
Note 23(f) the group considers its capital to comprise its ordinary share capital, share premium and other capital reserves
less its accumulated retained loss.
Share-based Payments
The group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are
measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value
determined at the date of grant is expensed on a straight-line basis over the vesting period, based on the group’s estimate
of the shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
Fair value is measured by the binomial option-pricing model. The expected life used in the model had been adjusted, based
on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.
As set out in Note 24, the group has also issued warrants to certain financing institutions which are also treated as equity-
settled share-based payments.
Significant Accounting Estimates and Judgments
Management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Estimates and judgments adopted for property plant and
equipment, externally acquired intangible assets and internally generated intangible assets are dealt with in the accounting
policy notes set forth above that relate to these areas. Actual results may differ from these estimates, and accordingly they
are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is
revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
3 6
NOTES TO THE FINANCIAL STATEMENTS
3 . S E G M E N TA L A N A LY S I S
All of the group’s revenue in respect of the years ended 31 December 2012 and 2011 is 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, which can be expressed geographically. The first segment is North America, and the
second Europe, Middle East and Africa (EMEA). Information relating to these two segments is given below.
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 2012
Income Statement
External revenues – by location of operations
Operating profit before interest and tax
Finance income
Finance expense
Profit before tax
Depreciation, amortization and impairment charges
EBITDA
Balance Sheet
Fixed asset additions
Capitalization of internally generated development costs
Total assets
Total liabilities
Year ended 31 December 2011
Income Statement
External revenues – by location of operations
Operating profit before interest and tax
Finance income
Finance expense
Profit before tax
Depreciation, amortization and impairment charges
EBITDA
Balance Sheet
Fixed asset additions
Capitalization of internally generated development costs
Total assets
Total liabilities
North
America
£’000
7,792
139
-
(202)
(64)
(1,191)
1,330
––––––––
117
1,211
7,665
(4,804)
––––––––
––––––––
North
America
£’000
7,189
(139)
-
(281)
(420)
(1,090)
884
––––––––
100
1,060
7,701
(4,924)
––––––––
––––––––
EMEA
£’000
Total
£’000
4,871
469
9
(134)
345
(5)
473
––––––––
19
-
3,799
(3,437)
––––––––
––––––––
12,663
607
9
(336)
281
(1,196)
1,803
––––––––
136
1,211
11,464
(8,241)
––––––––
––––––––
EMEA
£’000
Total
£’000
3,087
601
8
(85)
524
(5)
607
––––––––
25
-
2,431
(2,126)
––––––––
––––––––
10,276
462
8
(366)
104
(1,095)
1,491
––––––––
125
1,060
10,132
(7,050)
––––––––
––––––––
One customer accounted for approximately 16 percent of the group’s revenues in 2012. A different customer accounted
for approximately 10 percent or more of the group’s sales in 2011.
External revenues in 2012 exclude inter-segmental revenues which amounted to £1,245,000 (2011: £793,000) for North
America and £215,000 (2011: £192,000) for EMEA.
Revenues attributable to customers in North America in 2012 amounted to £7,084,000 (2011: £6,565,000). Revenue
attributable to customers in the Rest of the World amounted to £5,579,000 (2011: £3,711,000) of which £2,920,000
(2011: £3,546,000) was attributable to customers in the Eu. The segmental analysis above has been presented using
information that is readily available to management.
NOTES TO THE FINANCIAL STATEMENTS
3 7
4 . E B I T D A A N D R E V E N U E V I S I B I L I T Y
EBITDA
The directors consider that EBITDA, which is defined as earnings/(loss) before interest, tax, depreciation and amortization, is
an important measure, since it is widely used by the investment community. It is calculated as follows:
Profit for the year after tax
Interest payable
Interest receivable
Amortization of intangible assets
Depreciation of property, plant and equipment
Income tax expense
EBITDA
Revenue Visibility
2012
£’000
2011
£’000
281
104
335
(9)
1,098
98
-
––––––––
1,803
––––––––
––––––––
366
(8)
928
101
-
––––––––
1,491
––––––––
––––––––
Another performance indicator used by the group and referred to in narrative descriptions of the group’s performance
is revenue visibility. At any point in time it 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 rental streams. The visibility
calculation does not include revenues from new sales opportunities expected to close during the remainder of the year.
5 . P R O F I T F O R T H E Y E A R
The profit for the year has been arrived at after charging/(crediting):
Continuing Operations
Net foreign exchange (gains)
Research and development costs (excluding amortization)
Amortization of intangible assets
Impairment of intangible assets
Depreciation of property, plant and equipment
Operating lease rentals – land and buildings
Operating lease rentals – other
2012
£’000
2011
£’000
36
1,698
1,098
175
98
319
74
––––––––
––––––––
(55)
1,363
928
66
101
328
80
––––––––
––––––––
Net foreign exchange losses or gains arise on the translation of certain cash and trade balances held in Euros and uS
Dollars and are accordingly included in administration expense.
6 . A U D I T O R S ’ R E M U N E R AT I O N
During the year the group obtained the following services from its auditors and associated firms. Fees for the audit of
subsidiaries pursuant to legislation are not segregated from those for the group and are included in the amounts disclosed.
Audit of the financial statements of the group
Review of interim financial information
Audit of uS pension plan
Tax services
2012
£’000
2011
£’000
50
10
5
24
––––––––
––––––––
50
10
5
35
––––––––
––––––––
3 8
NOTES TO THE FINANCIAL STATEMENTS
7 . S TA F F C O S T S
Wages and salaries
Social security costs
Pension contributions
Employee benefits expense
2012
£’000
2011
£’000
6,784
539
134
439
–––––––
7,896
––––––––
––––––––
5,662
453
123
509
–––––––
6,747
––––––––
––––––––
Included within the above are staff costs capitalized as development expenditure amounting to £1,210,000 (2011:
£1,060,000). Included within wages and salaries are bonus and sales commission costs amounting to £833,000 (2011:
£311,000).
The average monthly number of employees during the year was made up as follows:
Development and operations
Sales and management
2012
Number
70
32
–––––––
102
––––––––
––––––––
2011
Number
61
31
–––––––
92
––––––––
––––––––
The above staff costs and the numbers of employees during the year include the executive directors.
The remuneration of all directors was as follows:
Fees and emoluments
Pension contributions
2012
£’000
2011
£’000
573
12
––––––––
585
––––––––
––––––––
470
13
––––––––
483
––––––––
––––––––
No director exercised share options during the year (2011: None). Pension contributions are to personal defined
contribution schemes and have been made for three directors (2011: three) who served during the year.
Full details of directors’ remuneration are disclosed in the Report on Directors’ Remuneration on page 18.
8 . F I N A N C E I N C O M E
Income on financial assets measured at amortized cost
Interest income on bank deposits
9 . F I N A N C E E X P E N S E
Interest expense on financial liabilities measured at amortized cost
Interest on borrowings
2012
£’000
2011
£’000
9
––––––––
––––––––
8
––––––––
––––––––
2012
£’000
2011
£’000
(335)
––––––––
––––––––
(366)
––––––––
––––––––
NOTES TO THE FINANCIAL STATEMENTS
3 9
1 0 . I N C O M E TA X E X P E N S E
Income tax expense for the year – current tax
The charge for the year can be reconciled to the accounting profit as follows:
Profit before tax
Tax (charge) at the uK corporation tax rate of 24.5% (2011: 26.5%)
Adjustment for differing rates of corporate taxation in overseas jurisdictions
Tax effect of expenses that are not deductible in determining taxable losses
Temporary differences arising from the capitalization
and amortization of internally generated development costs
utilization of prior year losses
Income tax expense for the year
There is no tax arising on other comprehensive income.
2012
£’000
2011
£’000
-
––––––––
––––––––
-
––––––––
––––––––
2012
£’000
2011
£’000
281
––––––––
––––––––
104
––––––––
––––––––
(69)
(12)
(99)
(28)
(22)
(98)
52
128
––––––––
-
––––––––
––––––––
79
69
––––––––
-
––––––––
––––––––
The group has an unrecognized deferred tax asset arising from its unrelieved trading losses, which has not been recognized
owing to uncertainty as to the level and timing of taxable profits in the future. The unrecognized deferred tax asset is
made up as follows:
Shortfall of tax depreciation compared to book depreciation
Effect of timing differences arising from capitalization
of internally generated development costs
unrelieved trading losses
unrecognized deferred tax asset
2012
£’000
2011
£’000
165
165
(994)
13,448
––––––––
12,619
––––––––
––––––––
(1,100)
14,457
––––––––
13,522
––––––––
––––––––
At 31 December 2012, tax losses estimated at £44m were available to carry forward by the Sopheon group, arising from
historic losses incurred. These losses represent a potential deferred tax asset of £13.4m, based on the tax rates currently
applicable in the relevant tax jurisdictions.
Of these tax losses, an aggregate amount of £8.5m (representing £3.0m of the potential deferred tax asset) represents
pre-acquisition tax losses of Sopheon Corporation (Minnesota) and Alignent Software, Inc. The future utilization of these
losses may be restricted under Section 382 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.
1 1 . L O S S D E A LT W I T H I N T H E F I N A N C I A L S TAT E M E N T S O F T H E
PA R E N T C O M PA N Y
The loss dealt with in the financial statements of the parent company for the year ended 31 December 2012 was £534,000
(2011: profit of £42,000). Advantage has been taken of Section 408 of the Companies Act 2006 not to present an income
statement for the parent company.
4 0
NOTES TO THE FINANCIAL STATEMENTS
1 2 . E A R N I N G S P E R S H A R E
Profit after tax
Weighted average number of ordinary shares for
the purpose of basic earnings per share
2012
£’000
2011
£’000
281
––––––––
––––––––
104
––––––––
––––––––
’000s
’000s
145,579
––––––––
––––––––
145,579
––––––––
––––––––
The profit attributable to ordinary shareholders and the weighted average number of ordinary shares for the purpose
of calculating the diluted earnings per ordinary share are the same as those used for calculating the basic earnings per
ordinary share in both 2012 and 2011. This is (i) because the exercise of conversion rights attaching to the convertible
loan stock (details of which are set out in Note 20), would have the effect in each year of increasing earnings per ordinary
share (by virtue of the saving of loan stock interest, which would otherwise be payable, and of interest receivable on
subscription proceeds), and are therefore not dilutive; and (ii) because the warrants to subscribe for 502,790 ordinary
shares and the 12,739,930 share options to subscribe for ordinary shares (details of which are set out in Notes 24 and 28),
either have a strike price above the average market price for the year, or have an immaterial impact.
1 3 . P R O P E R T Y, P L A N T A N D E Q U I P M E N T
Group
Cost
At 1 January 2011
Additions
Exchange differences
Amounts written off
At 1 January 2012
Additions
Exchange differences
At 31 December 2012
Accumulated Depreciation
At 1 January 2011
Depreciation charge for the year
Exchange differences
Amounts written off
At 1 January 2012
Depreciation charge for the year
Exchange differences
At 31 December 2012
Carrying Amount
At 31 December 2012
At 31 December 2011
Computer
Equipment
£’000
Furniture
& Fittings
£’000
2,260
97
10
(1,559)
––––––––
808
127
(35)
––––––––
900
––––––––
2,129
95
9
(1,559)
––––––––
674
91
(29)
––––––––
736
––––––––
164
––––––––
––––––––
134
––––––––
––––––––
434
28
3
(279)
––––––––
186
9
(8)
––––––––
187
––––––––
424
6
3
(279)
––––––––
154
7
(7)
––––––––
154
––––––––
33
––––––––
––––––––
32
––––––––
––––––––
Total
£’000
2,694
125
13
(1,838)
––––––––
994
136
(43)
––––––––
1,087
––––––––
2,553
101
12
(1,838)
––––––––
828
98
(36)
––––––––
890
––––––––
197
––––––––
––––––––
166
––––––––
––––––––
The net carrying amount of property, plant and equipment includes £1,000 (2011: £2,000) in respect of assets held under
finance leases.
Company
The company has no property, plant and equipment.
NOTES TO THE FINANCIAL STATEMENTS
4 1
1 4 . I N TA N G I B L E A S S E T S
Cost
At 1 January 2011
Additions (internally generated)
Exchange differences
At 1 January 2012
Additions (internally generated)
Exchange differences
At 31 December 2012
Amortization
At 1 January 2011
Charge for the year
Exchange differences
At 1 January 2012
Charge for the year
Exchange differences
At 31 December 2012
At 1 January 2011
Impairment losses in year
Exchange differences
At 1 January 2012
Impairment losses in year
Exchange differences
At 31 December 2012
Carrying Amount
At 31 December 2012
At 31 December 2011
Development Technology
Customer
and IPR Relationships
Goodwill
Total
£’000
£’000
£’000
£’000
Costs
(Internally
Generated)
£’000
6,307
1,060
121
––––––––
7,488
1,210
(348)
––––––––
8,350
––––––––
3,894
764
78
––––––––
4,736
998
(224)
––––––––
5,510
––––––––
-
-
-
––––––––
-
-
-
––––––––
-
––––––––
891
-
11
––––––––
902
-
(40)
––––––––
862
––––––––
575
46
10
––––––––
631
-
(28)
––––––––
603
––––––––
268
-
3
––––––––
271
-
(12)
––––––––
259
––––––––
2,840
––––––––
––––––––
2,752
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
1,670
-
21
––––––––
1,691
-
(74)
––––––––
1,617
––––––––
652
118
13
––––––––
783
100
(35)
––––––––
848
––––––––
473
66
8
––––––––
547
175
(27)
––––––––
695
––––––––
74
––––––––
––––––––
361
––––––––
––––––––
627
-
8
––––––––
635
-
(27)
––––––––
608
––––––––
-
-
-
––––––––
-
-
-
––––––––
-
––––––––
-
-
-
––––––––
-
-
-
––––––––
-
––––––––
608
––––––––
––––––––
635
––––––––
––––––––
9,495
1,060
161
––––––––
10,716
1,210
(489)
––––––––
11,437
––––––––
5,121
928
101
––––––––
6,150
1,098
(287)
––––––––
6,961
––––––––
741
66
11
––––––––
818
175
(39)
––––––––
954
––––––––
3,522
––––––––
––––––––
3,748
––––––––
––––––––
The amortization period for the internally generated development costs relating to the group’s software products is four
years. The amortization periods for (a) technology & IPR and (b) customer relationships, arising from the acquisition of
Alignent Software, Inc. in June 2007, are four years and eight years respectively. Goodwill is not amortized. The residual
goodwill arising on the acquisition of Alignent is attributable to the enhanced market position of each of the group’s
operating segments, due to the completeness of the solution that Sopheon can offer the market, in addition to the ability to
penetrate wholly new markets such as aerospace and defense for the overall product set. The recoverable amount of the
goodwill can be underpinned on a value in use basis by the expected performance of each of the group’s operating segments.
The valuation used for this purpose is based on cash-flow projections for the next two years, then extrapolated using a
pre-tax discount rate of 14.6 percent and an annual growth assumption of 20 percent for four years, and thereafter for an
indefinite period at a growth assumption of 3 percent. Sensitivity analysis performed on these projections demonstrates
significant valuation headroom above the carrying value of goodwill even if the growth rate for the four year period is
reduced to 5 percent. The annualized average growth of the business since the launch of the group’s core Accolade solution
is approximately 25 percent.
The initial valuation of the intangible assets acquired with Alignent relating to technology and IPR, and to customer
relationships, used an income-based approach. The recurring income from certain acquired Alignent customer base has or
is expected to fall, due to a mix of factors including the conversion of certain rental licenses to perpetual, changes in rental
levels, and cancellations. The overall reduction exceeds the rate of attrition of such recurring income estimated in the
original valuation exercise, leading to impairments in the carrying value of the acquired Alignent customer relationships of
£175,000 (2011: £66,000).
All other assumptions of the original valuation have been retained in the impairment review. The valuation exercise, and the
recoverable amount of the intangible assets and goodwill, are based on value in use with a pre-tax discount rate of
14.6 percent. The remaining amortization period for the acquired Alignent customer relationships is 3.5 years.
Company
The company has no intangible assets.
4 2
NOTES TO THE FINANCIAL STATEMENTS
1 5 . I N V E S T M E N T I N S U B S I D I A R I E S
At 31 December 2011 and at 31 December 2012
Cost
Less: Amounts provided
Carrying amount
Company
£’000
41,560
(35,441)
––––––––
6,119
––––––––
––––––––
Details of the company’s subsidiaries at 31 December 2012 are set out below. Companies marked with an asterisk(*) are held
via Sopheon uK Ltd and those with an obelus(†) are held via Orbital Software holdings plc. The common stock of Alignent
Software, Inc. is held by Sopheon Corporation, Delaware, uSA.
Name of Company
Place of Incorporation
Sopheon Corporation
Minnesota, uSA
Sopheon Corporation
Delaware, uSA
Alignent Software, Inc.
California, uSA
Sopheon Nv
The Netherlands
Sopheon uK Ltd
united Kingdom
Orbital Software holdings plc
united Kingdom
Orbital Software Inc.†
Delaware, uSA
Sopheon Edinburgh Ltd†
united Kingdom
Orbital Software Europe Ltd†
united Kingdom
Network Managers (uK) Ltd*
united Kingdom
AppliedNet Ltd*
united Kingdom
Future Tense Ltd*
united Kingdom
Polydoc Ltd
united Kingdom
Nature of Ownership
Interest
Proportion of
Voting Rights Held
Nature of Business
Common Stock
100%
Software sales and services
Common Stock
100%
Software development and sales
Common Stock
100%
Software sales and services
Ordinary Shares
100%
Software sales and services
Ordinary Shares
100%
Software sales and services
Ordinary Shares
100%
holding company
Common Stock
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Ordinary Shares
100%
Dormant
Applied Network Technology Ltd*
united Kingdom
Ordinary Shares
100%
Employee Share Ownership
Trust
NOTES TO THE FINANCIAL STATEMENTS
4 3
1 6 . O T H E R R E C E I V A B L E
Other receivable
Group
Company
2012
£’000
2011
£’000
2012
£’000
2011
£’000
12
––––––––
––––––––
12
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
The other receivable represents a deposit paid in respect of a property leased by the group.
1 7 . T R A D E A N D O T H E R R E C E I V A B L E S
Trade receivables
Other receivables
Total receivables
Prepayments
Accrued income
Group
Company
2012
£’000
2011
£’000
2012
£’000
2011
£’000
3,547
4
––––––––
3,551
290
118
––––––––
3,959
––––––––
––––––––
3,103
5
––––––––
3,108
145
12
––––––––
3,265
––––––––
––––––––
-
-
––––––––
-
-
-
––––––––
-
––––––––
––––––––
-
-
––––––––
-
9
-
––––––––
9
––––––––
––––––––
Trade and other receivables are stated net of allowances totaling £24,000 (2011: £30,000) for estimated irrecoverable
amounts. The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
A full provision has been made against amounts totaling £40,015,000 (2011: £40,191,000) owed to the company by
subsidiary undertakings, which are due after more than one year and are subordinated to the claims of all other creditors.
1 8 . C A S H A N D S H O R T- T E R M B A N K D E P O S I T S
Cash at bank
Short-term bank deposits
Group
Company
2012
£’000
2011
£’000
2012
£’000
2011
£’000
3,129
751
––––––––
3,880
––––––––
––––––––
1,824
1,117
––––––––
2,941
––––––––
––––––––
1,398
57
––––––––
1,455
––––––––
––––––––
133
570
––––––––
703
––––––––
––––––––
Cash and short-term bank deposits comprise cash held by the group, bank current accounts and short-term bank deposit
accounts with maturities of three months or less and bearing interest at variable rates. The carrying amount of these
assets represents a reasonable approximation to their fair value.
Included in cash at bank of the group is an amount of £23,000 (2011: £23,000) held by the group’s employee share
ownership trust.
4 4
NOTES TO THE FINANCIAL STATEMENTS
1 9 . T R A D E A N D O T H E R PAYA B L E S
Trade payables
Other payables
Tax and social security costs
Accruals
Group
Company
2012
£’000
2011
£’000
2012
£’000
2011
£’000
717
113
231
1,325
––––––––
2,386
––––––––
––––––––
344
114
221
788
––––––––
1,467
––––––––
––––––––
29
107
-
227
––––––––
363
––––––––
––––––––
24
103
-
174
––––––––
301
––––––––
––––––––
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs.
The directors consider that the carrying amounts of trade and other payables represent a reasonable approximation to
their fair values.
2 0 . B O R R O W I N G S
Current Loans and Borrowings
Line of credit
Loan notes (current portion)
Total current loans and borrowings
Non-current Loans and Borrowings
Loan notes
8% convertible loan stock 2015
Total non-current loans and borrowings
Total loans and borrowings
a) Line of Credit
Group
Company
2012
£’000
2011
£’000
2012
£’000
2011
£’000
495
776
-
-
641
––––––––
1,136
672
––––––––
1,448
-
––––––––
-
-
––––––––
-
162
1,959
––––––––
2,121
––––––––
3,257
––––––––
––––––––
840
823
––––––––
1,663
––––––––
3,111
––––––––
––––––––
-
1,959
––––––––
1,959
––––––––
1,959
––––––––
––––––––
-
823
––––––––
823
––––––––
823
––––––––
––––––––
The line of credit is denominated in uS Dollars and bears interest at a variable rate currently 10.95 percent. The
line of credit is a revolving facility limited to the lesser of $1,250,000 and 75 percent of the eligible trade receivables
of the group’s uS subsidiaries, which at 31 December 2012 amounted to $3,865,000 (£2,391,000) (2011: $3,483,000
(£2,252,000)). At 31 December 2012 $800,000 (£495,000) was drawn down under the line of credit facility
(2011: $1,200,000 (£776,000)).
b) Loan Notes
The loan notes are denominated in uS Dollars and represent mezzanine loan finance provided by BlueCrest Capital
Finance LLC (“BlueCrest”). The loan notes were issued in June 2007 for an initial principal amount of $3,500,000 repayable
in equal installments over the four-year period to July 2011 bearing interest at a fixed rate of 11.03 percent.
On 8 December 2010 the group entered into a new mezzanine loan with BlueCrest, for an amount of $3,500,000, equal to
the principal amount of the original loan. Part of the proceeds after expenses were applied in repayment of the remaining
balance outstanding on the original mezzanine loan, with the balance to provide additional working capital of approximately
$2.7m for the group. The new mezzanine loan is repayable in 39 monthly installments of $90,000, together with interest at
a fixed rate of 13 percent per annum, over the period to March 2014.
NOTES TO THE FINANCIAL STATEMENTS
4 5
The mezzanine loan and the line of credit, which is also provided by BlueCrest, are secured by a debenture and guarantee
provided by Sopheon plc. The company has estimated the risk of this guarantee being called at 5 percent of the carrying
value of the loan, and in its financial statements has included a provision for this amount within other payables.
The directors consider that the carrying amounts for loan notes, and the line of credit, represent a reasonable
approximation of the financial instruments’ fair values.
c) 8 Percent Convertible Loan Stock 2015
The convertible loan stock is denominated in Sterling and bears interest at a fixed rate of 8 percent per annum. The loan
stock was issued at par in a nominal amount of £850,000 on 1 October 2009 with a maturity date of 30 September 2011.
The original terms provided that the loan stock was convertible into Sopheon ordinary shares at a conversion price of 10p
per share, and contained provisions for the amendment of the conversion price in the case of any subsequent equity issues
by the company at a price per share lower than the conversion price.
On 8 December 2010, the holders of the loan stock unanimously agreed to extend the maturity date by a further sixteen
months to 31 January 2013 and to amend the conversion price to 7.75p. At the same time, the provisions for future
amendment of the conversion price were removed, and the carrying value of the equity component represented by the
conversion rights attaching to the loan stock, which amounted at that date to £51,000, was reclassified from debt to equity
in the financial statements. On 15 May 2012 the maturity of the loan stock was extended by a further two years to 31
January 2015 and the conversion price was amended to 5p per share (representing a premium of 0.25p over the closing
mid-market price of 4.75p for Sopheon shares on 14 May 2012).
On 23 August 2012 the company made a further issue of loan stock in a nominal amount of £1,150,000 bearing the same
interest rate, and with the same maturity date and conversion price, as the existing loan stock. The closing mid-market
price of Sopheon shares on 22 August 2012 was 5p. Following this issue, the aggregate liability at maturity of the loan
stock increased from £850,000 to £2,000,000. This transaction has resulted in an increase of £50,000 in the carrying
value of the equity component represented by the conversion rights attaching to the loan stock, and this amount has been
transferred from debt to equity in the financial statements. As set out below, of the total investment in further issue of
£1,150,000, members of the board and management or their families subscribed for £665,000.
Barry Mence, Chairman
Stuart Silcock, Non-executive Director
Bernard Al, Non-executive Director
Andrew Michuda, Chief Executive Officer
Arif Karimjee, Chief Financial Officer
Other Members of Sopheon Management
External Investors
Total
Initial
£’000
Further
£’000
Total
£’000
200
100
40
20
12
43
435
––––––––
850
––––––––
––––––––
440
100
20
25
15
65
485
––––––––
1,150
––––––––
––––––––
640
200
60
45
27
98
930
––––––––
2,000
––––––––
––––––––
Of the £485,000 of Further Loan Stock being subscribed by external investors, £440,000 was subscribed by Rivomore
Limited, an existing Significant Shareholder that was also interested in £200,000 of Initial Loan Stock. holders may convert
the loan stock into Sopheon ordinary shares at any time up to the extended maturity date of 31 January 2015, and any
loan stock not converted will be repaid at par on that date.
4 6
NOTES TO THE FINANCIAL STATEMENTS
2 1 . O B L I G AT I O N S U N D E R F I N A N C E L E A S E S
The present value of future lease payments is analyzed as:
Current liabilities
Non-current liabilities
Group
Company
2012
£’000
2011
£’000
2012
£’000
2011
£’000
1
-
––––––––
1
––––––––
––––––––
2
-
––––––––
2
––––––––
––––––––
-
-
––––––––
-
––––––––
––––––––
-
-
––––––––
-
––––––––
––––––––
The group leases a telephone system with a net carrying value at 31 December 2012 of £1,000 (2011: £2,000).
Future lease payments are due as follows:
At 31 December 2012
Within one year
Due in one to five years
At 31 December 2011
Within one year
Due in one to five years
Minimum
Lease
Payments
£’000
1
-
––––––––
1
––––––––
––––––––
Minimum
Lease
Payments
£’000
2
-
––––––––
2
––––––––
––––––––
Interest
£’000
-
-
––––––––
-
––––––––
––––––––
Interest
£’000
-
-
––––––––
-
––––––––
––––––––
Present
Value
£’000
1
-
––––––––
1
––––––––
––––––––
Present
Value
£’000
2
-
––––––––
2
––––––––
––––––––
2 2 . O P E R AT I N G L E A S E A R R A N G E M E N T S
At the balance sheet date the group had outstanding commitments under operating leases in respect of which the total
future minimum lease payments were due as follows:
Due within one year
Due after one year and within five years
Land &
Buildings
2012
£’000
337
74
––––––––
411
––––––––
––––––––
Other
2012
£’000
54
76
––––––––
130
––––––––
––––––––
Land &
Buildings
2011
£’000
345
279
––––––––
624
––––––––
––––––––
Other
2011
£’000
52
18
––––––––
70
––––––––
––––––––
The group leases its office accommodation in the uS, uK and the Netherlands and has operating leases for office
equipment and vehicles.
Company
The company has no operating leases.
NOTES TO THE FINANCIAL STATEMENTS
4 7
2 3 . F I N A N C I A L I N S T R U M E N T S
Categories of Financial Assets and Liabilities
The following table sets out the categories of financial instruments held by the group. All of the group’s financial assets are
in the category of loans and receivables, and all of its financial liabilities are in the category of financial liabilities measured
at amortized cost.
1. Financial Assets
Current Financial Assets
Trade receivables
Other receivables
Accrued income
Cash and cash equivalents
Non-current Financial Assets
Other receivable
Group
Company
Notes
2012
£’000
2011
£’000
2012
£’000
2011
£’000
17
17
17
18
3,547
4
118
3,880
––––––––
7,549
––––––––
––––––––
3,103
5
12
2,941
––––––––
6,061
––––––––
––––––––
-
-
-
1,455
––––––––
1,455
––––––––
––––––––
-
-
-
703
––––––––
703
––––––––
––––––––
16
12
––––––––
––––––––
12
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
The group does not have any financial assets in any other categories.
2. Financial Liabilities
Current Financial Liabilities
Trade payables
Other payables
Accruals
Loans and borrowings
Obligations under finance lease
Non-current Financial Liabilities
Loans and borrowings
8% convertible loan stock 2015
Group
Company
Notes
2012
£’000
2011
£’000
2012
£’000
2011
£’000
19
19
19
20
21
20
20
717
113
1,325
1,136
1
––––––––
3,292
––––––––
162
2,000
––––––––
2,162
––––––––
5,454
––––––––
––––––––
344
114
788
1,448
2
––––––––
2,696
––––––––
840
823
––––––––
1,663
––––––––
4,359
––––––––
––––––––
29
107
227
-
-
––––––––
363
––––––––
-
2,000
––––––––
2,000
––––––––
2,363
––––––––
––––––––
24
103
174
-
-
––––––––
301
––––––––
-
823
––––––––
823
––––––––
1,124
––––––––
––––––––
The amounts shown in respect of the 8% convertible loan stock 2015 represent the nominal value of the instrument.
As set out in Note 20 the carrying value of the instrument at the balance sheet date reflects a deduction for the
reclassification of the fair value of conversion rights into equity.
4 8
NOTES TO THE FINANCIAL STATEMENTS
Financial Instrument Risk Exposure and Management
The group is exposed to risks that arise from its use of financial instruments. This note describes the group’s objectives,
policies and processes for managing those risks and the methods used to measure them.
There have been no changes in the group’s exposure to financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods, unless otherwise disclosed in this note.
Principal Financial Instruments
The principal financial instruments used by the group, from which financial instrument risk arises, are as follows:
• Trade and other receivables
• Cash and cash equivalents
• Trade and other payables
• Loan notes
• Bank line of credit
• Convertible loan stock
General Objectives, Policies and Processes
The board has overall responsibility for the determination of the group’s risk management objectives and policies and,
whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that
ensure the effective implementation of the objectives and policies to the group’s finance function. The board receives
quarterly reports from the group finance director through which it reviews the effectiveness of the processes put in place
and the appropriateness of the objectives and policies it sets. The group’s risk management procedures are also reviewed
periodically by the audit committee.
The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the
group’s competitiveness and flexibility. Further details regarding these policies are set out below:
a) Credit Risk
Credit risk arises principally from the group’s trade receivables, other receivables and accrued income. It is the risk that
the counterparty fails to discharge its obligations in respect of the instrument.
The group’s software is principally marketed at major international corporations of good credit standing, and the group’s
historical bad debt experience is very low. Due to the potentially large size of certain individual sales, in a particular
year one customer can account for a substantial proportion of revenues recorded. however, such concentrations rarely
persist for multiple years and therefore the directors do not believe that the group is systematically exposed to credit risk
concentration in respect of particular customers. In 2012, the largest single customer accounted for 16 percent of group
revenues (2011:10 percent).
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. At the year end
the group was holding a proportion of its deposits and bank balances with each of Lloyds Banking Group plc, Royal Bank of
Scotland plc, and Silicon valley Bank.
The group does not enter into derivatives to manage credit risk.
The group's customers are major international corporations of high credit standing and therefore the group does not
typically obtain credit ratings for individual customers. Nevertheless, current economic conditions have resulted in such
major corporations slowing down payments and this is reflected in the ageing profile of the group’s receivables. however,
impairment of trade receivables is very rare, and in the three years ending 31 December 2012 provisions or write offs
against customer receivables amounted in total to less than 0.5 percent of revenues. Such impairments do not arise from
credit defaults, but principally from disagreements with a very small number of former customers over their responsibility
for renewal fees for maintenance or hosting contracts. Sopheon's policy is to pursue collection of such fees but to make
provision against the applicable receivable if collection is uncertain.
NOTES TO THE FINANCIAL STATEMENTS
4 9
The following is an analysis of the group’s trade receivables identifying the totals of trade receivables which are current and
those which are past due but not impaired:
At 31 December 2012
At 31 December 2011
Total
£’000
Current
£’000
Past Due
+30 Days
£’000
Past Due
+60 Days
£’000
3,547
–––––––––
–––––––––
2,843
–––––––––
–––––––––
382
–––––––––
–––––––––
322
–––––––––
–––––––––
3,103
–––––––––
–––––––––
2,726
–––––––––
–––––––––
167
–––––––––
–––––––––
210
–––––––––
–––––––––
The following is an analysis of the group’s provisions against trade receivables, analyzed between the geographical segments
in which the group’s operations are located:
2012
£’000
Provision
£’000
Gross
Value
£’000
Carrying
Value
£’000
Gross
Value
2011
£’000
Provision
£’000
Carrying
Value
Trade receivables
North America
united Kingdom
Rest of Europe
2,391
264
916
–––––––––
3,571
–––––––––
–––––––––
-
24
-
–––––––––
24
–––––––––
–––––––––
2,391
240
916
–––––––––
3,547
–––––––––
–––––––––
2,282
463
388
–––––––––
3,133
–––––––––
–––––––––
30
-
-
–––––––––
30
–––––––––
–––––––––
2,252
463
388
–––––––––
3,103
–––––––––
–––––––––
The group records impairment losses on its trade receivables separately from the gross amounts receivable. The
movements on this allowance during the year are summarized below:
Opening balance
utilization of provisions
New provisions
Closing balance
2012
£’000
2011
£’000
30
(30)
24
–––––––––
24
–––––––––
–––––––––
28
(28)
30
–––––––––
30
–––––––––
–––––––––
The main factors used in assessing the impairment of the group’s trade receivables are the age of the balances and the
circumstances of the individual customer.
The company provides in full for amounts due from subsidiaries. The company is exposed to credit risk in respect of its
cash and cash equivalents, which are held in the form of current account and money market balances with leading uK, uS
and European banking institutions.
b) Liquidity Risk
Liquidity risk arises from the group’s management of working capital, and more particularly its ability to reach a point
where its trading is cash generative, together with the finance charges and principal repayments on its debt instruments. It
is the risk that the group will encounter difficulties in meeting its financial obligations as they fall due.
The group’s policy is to maintain significant cash balances, short-term bank deposits and facilities with a view to having
sufficient cash to meet its liabilities when they become due. The board annually approves budgets including cash flow
projections for each of the operating companies within the group and receives regular information as to cash balances
held and progress against budget. Attention is particularly drawn to the detailed discussion of the factors which enable the
group to continue as a going concern for the foreseeable future in the section headed “Going Concern” in Note 2 to the
financial statements.
5 0
NOTES TO THE FINANCIAL STATEMENTS
The following table sets out an analysis of the contractual maturity of the group’s and the company’s financial liabilities that
must be settled gross, based on exchange rates prevailing at the relevant balance sheet date.
Group
At 31 December 2012
Trade and other payables
Line of credit
Loan notes
Future interest – loan notes
Convertible loan stock
Future interest – convertible loan stock
Finance lease
Total financial liabilities
At 31 December 2011
Trade and other payables
Line of credit
Loan notes
Future interest – loan notes
Convertible loan stock
Future interest – convertible loan stock
Finance lease
Total financial liabilities
Company
At 31 December 2012
Trade and other payables
Convertible loan stock
Future interest – convertible loan stock
Total financial liabilities
At 31 December 2011
Trade and other payables
Convertible loan stock
Future interest – convertible loan stock
Total financial liabilities
On Demand
or Within
Six Months
£’000
Within
One Year
£’000
Within
Two Years
£’000
Within
Five Years
£’000
2,386
495
333
45
-
80
1
–––––––––
3,340
–––––––––
–––––––––
-
-
333
23
-
80
-
–––––––––
436
–––––––––
–––––––––
-
-
166
4
-
160
-
–––––––––
330
–––––––––
–––––––––
-
-
-
2,000
14
-
–––––––––
2,014
–––––––––
–––––––––
On Demand
or Within
Six Months
£’000
Within
One Year
£’000
Within
Two Years
£’000
Within
Five Years
£’000
1,444
776
336
92
-
34
1
–––––––––
2,683
–––––––––
–––––––––
-
-
336
70
-
34
1
–––––––––
441
–––––––––
–––––––––
-
-
672
72
850
6
-
–––––––––
1,600
–––––––––
–––––––––
23
-
168
3
-
-
-
–––––––––
194
–––––––––
–––––––––
Total
£’000
2,386
495
832
72
2,000
334
1
–––––––––
6,120
–––––––––
–––––––––
Total
£’000
1,467
776
1,512
237
850
74
2
–––––––––
4,918
–––––––––
–––––––––
On Demand
or Within
Six Months
£’000
363
-
80
–––––––––
443
–––––––––
–––––––––
On Demand
or Within
Six Months
£’000
301
-
34
–––––––––
335
–––––––––
–––––––––
Within
One Year
£’000
-
-
80
–––––––––
80
–––––––––
–––––––––
Within
Two Years
£’000
-
-
160
–––––––––
160
–––––––––
–––––––––
Within
Five Years
£’000
-
2,000
14
–––––––––
2,014
–––––––––
–––––––––
Total
£’000
363
2,000
334
–––––––––
2,697
–––––––––
–––––––––
Within
One Year
£’000
-
-
34
–––––––––
34
–––––––––
–––––––––
Within
Two Years
£’000
-
850
6
–––––––––
856
–––––––––
–––––––––
Within
Five Years
£’000
-
-
-
–––––––––
-
–––––––––
–––––––––
Total
£’000
301
850
74
–––––––––
1,225
–––––––––
–––––––––
NOTES TO THE FINANCIAL STATEMENTS
5 1
c) Market Risk
Market risk arises from the group’s use of interest-bearing and foreign currency financial instruments. It is the risk that the
future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign
exchange rates (currency risk). The group does not have any financial instruments that are publicly traded securities and is not
exposed to other price risk associated with changes in the market prices of such securities.
d) Interest Rate Risk
The group’s fixed rate interest bearing liabilities comprise loan notes with a carrying value at 31 December 2012 of £803,000,
which bear a fixed interest rate of 13 percent, and convertible loan stock with a carrying value of £2,000,000, which bears a
fixed interest rate of 8 percent. These liabilities do not give rise to interest rate risk. The group also has a line of credit, on
which £495,000 was outstanding at 31 December 2012, and which bears a variable interest rate based on a margin of 1.25
percent above the lender’s Prime Rate. Should this rate vary by 1 percent the annualized effect would be to increase or
reduce finance costs by £5,000.
The company’s interest bearing liabilities consist of its convertible loan stock which bears a fixed rate of interest of 8 percent,
which does not give rise to interest rate risk.
The group invests its surplus cash in bank deposits denominated in uS Dollars, Euros or Sterling, which bear interest based
on short-term money market rates, and in doing so exposes itself to fluctuations in money market interest rates. The group’s
surplus cash held in the form of bank deposits at 31 December 2012 was £737,000. During 2012 interest rates on money
market deposits averaged around 0.5 percent in respect of Sterling and uS Dollar deposits and 0.75 percent in respect of Euro
deposits. The annualized effect of a movement of 0.5 percent in the average interest rate received on the group’s bank deposits
at the balance sheet date would result in an increase or decrease in the group’s and the company’s interest income of £4,000.
The company’s interest bearing deposits at the balance sheet date amounted to £57,000. The effect of a 0.5 percent changes in
the rate of interest would be immaterial
e) Currency Risk
The following is an analysis of the group’s financial assets and liabilities, analyzed by the currency in which they are denominated:
At 31 December 2012
Financial Assets
Receivables and accrued income
Cash and cash equivalents
Total financial assets
Financial Liabilities
Trade and other payables
Borrowings
Total financial liabilities
At 31 December 2011
Financial Assets
Receivables and accrued income
Cash and cash equivalents
Total financial assets
Financial Liabilities
Trade and other payables
Borrowings
Total financial liabilities
US Dollars
£’000
2,402
1,640
–––––––––
4,042
–––––––––
–––––––––
1,283
1,299
–––––––––
2,582
–––––––––
–––––––––
US Dollars
£’000
2,264
1,777
–––––––––
4,041
–––––––––
–––––––––
693
2,290
–––––––––
2,983
–––––––––
–––––––––
Sterling
£’000
Euro
£’000
Total
£’000
356
1,638
–––––––––
1,994
–––––––––
–––––––––
337
2,000
–––––––––
2,337
–––––––––
–––––––––
923
602
–––––––––
1,525
–––––––––
–––––––––
535
-
–––––––––
535
–––––––––
–––––––––
3681
3,880
–––––––––
7,561
–––––––––
–––––––––
2,155
3,299
–––––––––
5,454
–––––––––
–––––––––
Sterling
£’000
Euro
£’000
Total
£’000
473
219
–––––––––
692
–––––––––
–––––––––
237
823
–––––––––
1,060
–––––––––
–––––––––
394
945
–––––––––
1,339
–––––––––
–––––––––
316
-
–––––––––
316
–––––––––
–––––––––
3,132
2,941
–––––––––
6,073
–––––––––
–––––––––
1,246
3,113
–––––––––
4,359
–––––––––
–––––––––
The amount shown in respect of Sterling borrowings at December 31, 2012 represents the nominal value of the instrument.
As set out in Note 20 the carrying value of the instrument at the balance sheet date reflects a deduction for the
reclassification of the fair value of conversion rights into equity.
5 2
NOTES TO THE FINANCIAL STATEMENTS
The group’s policy is, where possible, to allow group entities to settle liabilities denominated in the functional currency
with cash generated from their own operations in that currency. The group also maintains cash and bank deposits in the
currencies which are the functional currencies of its operating entities, which are the uS Dollar, the Euro and Sterling.
The group is exposed to currency risk in respect of foreign currency denominated bank deposits and bank loans. Taking
into account the fact that a large proportion of the group’s income and expenditure arise in uS Dollars and, to a lesser
extent, in Euros, the group’s policy is not to seek to hedge such currency risk.
Foreign currency risk also arises where individual group entities enter into transactions denominated in currencies other
than their functional currency, with fluctuations in exchange rates giving rise to gains or losses in the income statement.
Where the foreign currency risk to the group is significant, consideration is given to hedging the risk through the forward
currency market and, whilst this would be an economic hedge of the cash-flow risk, the group does not employ hedge
accounting.
The following table shows the effects, all other things being equal, of changes to exchange rates on the group’s profit after
tax and on the exchange differences on retranslation of the assets and liabilities of foreign operations which is recognized
directly in equity. It illustrates the effects if the exchange rates for the uS Dollar and the Euro had been higher or lower
than those which actually applied during the year and at the year end.
Weakening of uS Dollar by 10c
Strengthening of uS Dollar by 10c
Weakening of Euro by 10c
Strengthening of Euro by 10c
2012
2011
2012
2011
Increase/
(Decrease)
in Profit
After Tax
£’000
Increase/
(Decrease
in Profit
After Tax
£’000
Effect of
Exchange Differences
on Translation of
Assets and Liabilities
of Foreign Operations
£’000
£’000
167
(76)
(77)
91
–––––––––
–––––––––
(10)
3
-
(26)
(193)
214
(5)
7
––––––––– –––––––––
––––––––– –––––––––
(118)
134
(57)
67
–––––––––
–––––––––
The company holds certain assets, mainly bank deposits, and liabilities denominated in the functional currencies of its
principal operating subsidiaries, which are the uS Dollar, the Euro and Sterling. The following table shows the effects, all
other things being equal, of changes to exchange rates at the year end on the profit after tax of the company. It is based
on the company’s assets and liabilities at the relevant balance sheet date.
Weakening of uS Dollar by 10c
Strengthening of uS Dollar by 10c
Weakening of Euro by 10c
Strengthening of Euro by 10c
f) Capital
2012
2011
(Increase)/Decrease
in Profit After Tax
£’000
£’000
(18)
21
(46)
54
–––––––––
–––––––––
(19)
22
(22)
25
–––––––––
–––––––––
The group considers its capital to comprise its share capital and share premium and other capital reserves less the
accumulated retained losses. The group is not subject to any externally imposed capital requirements. In managing its
capital, the group’s primary objective is to support the development of the group’s activities through to the point where
they are cash generative on a sustained basis.
The group’s capital is all equity capital and is summarized in Note 24.
NOTES TO THE FINANCIAL STATEMENTS
5 3
2 4 . S H A R E C A P I TA L
Issued and Fully Paid
Ordinary shares of 5p each
2012
Number
2012
£’000
2011
Number
2011
£’000
145,579,027
–––––––––
–––––––––
7,279 145,579,027
–––––––––
–––––––––
–––––––––
–––––––––
7,279
–––––––––
–––––––––
The company has one class of ordinary shares, which carry no right to fixed income.
At 31 December 2012 the company had outstanding 502,790 warrants to subscribe for ordinary shares at a price of 20p per
share, which were issued in June 2007 to BlueCrest Capital Finance LLC in connection with the financing of the acquisition of
Alignent Software, Inc. The warrants have a 10 year life.
2 5 . C A P I TA L R E S E R V E S
Group
Share
Premium
£’000
Merger
Reserve
£’000
At 1 January 2011
Recognition of share-based payments
Purchase of shares by Esot
Transfer of merger reserve to profit and loss reserve
At 1 January 2012
Recognition of share-based payments
Lapsing or expiry of share options
Equity component of convertible loan stock
At 31 December 2012
Company
At 1 January 2011
Recognition of share-based payments
Purchase of shares by Esot
Transfer of merger reserve to profit and loss reserve
At 1 January 2012
Recognition of share-based payments
Lapsing or expiry of share options
Equity component of convertible loan stock
At 31 December 2012
Capital
Redemption
Reserve
£’000
2,884
-
-
-
––––––––
2,884
-
-
-
––––––––
2,884
––––––––
––––––––
Capital
Redemption
Reserve
£’000
2,884
-
-
-
––––––––
2,884
-
-
-
––––––––
2,884
––––––––
––––––––
Equity
Reserve
£’000
795
39
(11)
-
––––––––
823
38
(272)
50
––––––––
639
––––––––
––––––––
Equity
Reserve
£’000
795
39
(11)
-
––––––––
823
38
(272)
50
––––––––
639
––––––––
––––––––
Total
£’000
73,719
39
(11)
(17,944)
––––––––
55,803
38
(272)
50
––––––––
55,619
––––––––
––––––––
Total
£’000
65,954
39
(11)
(10,179)
––––––––
55,803
38
(272)
50
––––––––
55,619
––––––––
––––––––
52,096
-
-
-
––––––––
52,096
-
-
-
––––––––
52,096
––––––––
––––––––
17,944
-
-
(17,944)
––––––––
-
-
-
-
––––––––
-
––––––––
––––––––
Share
Premium
£’000
Merger
Reserve
£’000
52,096
-
-
-
––––––––
52,096
-
-
-
––––––––
52,096
––––––––
––––––––
10,179
-
-
(10,179)
––––––––
-
-
-
-
––––––––
-
––––––––
––––––––
5 4
NOTES TO THE FINANCIAL STATEMENTS
Share premium represents the premium arising on the issue of shares and its use is governed by the provisions of the
Companies Act 2006.
The merger reserve is a non-statutory reserve representing the premium on the issue of shares pursuant to certain past
business combinations which meet specified criteria. The carrying values of such investments have since been subject to
impairment charges exceeding the amount of the merger reserve, and accordingly the full amount of the merger reserve
has been transferred to profit and loss reserve.
The capital redemption reserve is a non-distributable reserve arising from the cancellation in 2001 of deferred shares.
The equity reserve comprises the deemed value of outstanding share options granted in connection with the acquisition
of Orbital Software holdings plc in 2001, together with the fair value of share-based payments to employees pursuant to
the group’s share option schemes, the fair value of warrants to subscribe for Sopheon shares issued to BlueCrest Capital
Finance LLC, and the equity component of the group’s 8 percent convertible loan stock 2015.
In addition, investment by the group’s employee share ownership trust (the “Esot”) in the company’s shares is deducted
from equity in the consolidated balance sheet as if they were treasury shares, by way of deduction from the equity reserve.
At 31 December 2012, the Esot held 185,244 (2011: 185,244) ordinary shares in the company, which represents 0.1
percent (2011: 0.1 percent) of the company’s ordinary share capital. The reserve of £11,000 (2011: £11,000) represents the
cost of these shares held by the Esot at 31 December 2012.
The purpose of the Esot is to facilitate the company’s policy of offering participation in the ownership of its shares to
employees for reward and incentive purposes. At 31 December 2012 and at 31 December 2011, no shares held by the
Esot were under option or had been gifted to any employees. Arrangements for the distribution of benefits to employees
will be made at the Esot’s discretion in such manner as the Esot considers appropriate. Administration costs of the Esot
are accounted for in the profit and loss account of the company as they are incurred.
2 6 . R E T I R E M E N T B E N E F I T P L A N S
The group operates defined contribution retirement benefit plans which employees are entitled to join. The total expense
recognized in the income statement of £134,000 (2011: £123,000) represents contributions paid to such plans at rates
specified in the rules of the plans.
2 7 . R E L AT E D PA R T Y T R A N S A C T I O N S
Details of transactions between the group and related parties are disclosed below.
Compensation of Key Management Personnel
Details of directors’ remuneration are given in Note 7. The total remuneration of executive directors and members of the
group’s operating and executive management committees during the year was as follows:
Emoluments and benefits
Pension contributions
Share-based payments
2012
£’000
2011
£’000
1,111
30
27
–––––––
1,168
–––––––
–––––––
1,006
30
24
–––––––
1,060
–––––––
–––––––
Subscriptions by members of the board and management to convertible loan stock are disclosed in Note 20.
NOTES TO THE FINANCIAL STATEMENTS
5 5
Transactions with Related Parties who are Subsidiaries of the Company
The following is a summary of the transactions of the company with its subsidiaries during the year:
Net amounts repaid by subsidiaries by way of interest-free loans
Net management charges to subsidiaries
2012
£’000
2011
£’000
176
290
–––––––
521
250
–––––––
The amounts owed by subsidiary companies to the parent company at 31 December 2012 totaled £40,015,000
(2011: £40,191,000). A full provision has been made against these amounts, which are unsecured and are subordinated to
the claims of all other creditors.
During 2012 and 2011 the company granted share options to employees of subsidiary companies. Details of grants of
share options are disclosed in Note 28.
Other Related Party Transactions
There were no other related party transactions during the year under review or the previous year.
2 8 . S H A R E - B A S E D PAY M E N T S
Equity-settled Share Option Schemes
The group has a number of share option schemes for all employees. Options are exercisable at a price equal to the
market price on the date of grant. The normal vesting periods are as set out below.
Vesting
Sopheon plc (uSA) stock option plan
Sopheon uK approved share option scheme
Sopheon uK unapproved share option scheme
Sopheon Nv share option scheme
In three equal tranches between the first and third anniversary of grant
On third anniversary of grant
Immediate or as per uSA plan
Immediate or as per uSA plan
Details of the share options outstanding during the year are as follows:
Outstanding at the beginning of the year
Granted during the year
Lapsed, expired or cancelled during the year
Outstanding at the end of the year
Exercisable at the end of the year
Number of
Share
Options
2012
Weighted
Average
Exercise
Price
2012
£
Number of
Share
Options
2011
Weighted
Average
Exercise
Price
2011
£
13,193,054
0.16
5,465,598 0.05
0.17
(6,478,972)
–––––––––
–––––––––
0.10
12,179,680
–––––––––
–––––––––
–––––––––
–––––––––
12,504,924
880,000
(191,870)
–––––––––
13,193,054
–––––––––
–––––––––
5,815,545
–––––––––
–––––––––
0.15
–––––––––
–––––––––
10,801,432
–––––––––
–––––––––
0.17
0.09
0.63
–––––––––
0.16
–––––––––
–––––––––
0.17
–––––––––
–––––––––
5 6
NOTES TO THE FINANCIAL STATEMENTS
No share options were exercised during the year (2011: Nil). The options outstanding at the end of the year have a
weighted average contractual life of 6.8 years (2011: 4.6 years).
During the year share options were granted on 20 April 2012, when the exercise price of options granted was 5p and the
estimated fair value was 2.96p, and on 29 September 2012, when the exercise price of options granted was 5.25p and the
estimated fair value was 3.11p. During 2011, share options were granted on 26 April 2011 and on 28 September 2011, on
both of which dates the exercise price was 8.75p and the estimated fair value was 5.2p.
The fair values for options granted are calculated using the binomial option-pricing model. The principal assumptions used
were:
Date of Grant
Share price at time of grant
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
September
2012
April
2012
April &
September
2011
5.25p
5.25p
40%
5%
Nil
5p
5p
40%
5%
Nil
8.75p
8.75p
40%
5%
Nil
The expected contractual life of the options used was either five or ten years depending on the particular scheme rules.
Expected volatility was determined by reference to the historic volatility of the company’s share price in the period before
the date of grant.
The group and company recognized total expenses of £38,000 (2011: £39,000) relating to equity-settled share-based
payments during the year.
DI R E C T O R S
Barry Mence, Executive Chairman. Barry Mence has served as executive chairman and as a director
and substantial shareholder of Sopheon since its inception in 1993 when he was one of the founding
members. From 1976 to 1990, Mr. Mence was a major shareholder and group managing director of the
Rendeck Group of Companies, a software and services group based in the Netherlands.
Andrew Michuda, Executive Director. Andrew Michuda was appointed chief executive officer of Sopheon
in September 2000. From 1997 to 2000 he served as chief executive officer and an executive director
of Teltech Resource Network Corporation, which was acquired by Sopheon. he earlier held senior
leadership positions at Control Data, including general manager of the business that evolved into
Decision Data, the world's largest independent computer services provider.
Arif Karimjee, ACA, Executive Director. Arif Karimjee has served as chief financial officer of Sopheon
since February 2000. Mr. Karimjee was previously an auditor and consultant with Ernst & Young in
London, Brussels and Reading, from August 1988 until joining Sopheon.
Stuart Silcock, FCA, Non-executive Director. Stuart Silcock has served as a director of Sopheon from
its inception in 1993. Since 1982, Mr Silcock has been a principal partner of Lawford & Co, chartered
accountants and until 2010 a director of Lawfords Ltd. also chartered accountants. Mr. Silcock was a
non-executive director of Brown & Jackson plc. for four years from June 2001 to July 2005 and currently
holds a number of other directorships in the united Kingdom.
Bernard Al, Non-executive Director. Bernard Al was appointed as director of Sopheon in January 2001.
he is a former chief executive officer of Wolters Kluwer in the Netherlands and has a background in
science and linguistics.
Daniel Metzger, Non-executive Director. Daniel Metzger was until 1998 an executive vice president
of Lawson Software, a leading ERP provider, where he was responsible for corporate strategy and
marketing. Since then he has held similar roles at Parametric Technologies, where he led the business
strategy and marketing around collaborative product development technologies, and at nQuire Software,
which was subsequently sold to Siebel.
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