2016 Annual Report
(FPO - will be replaced with hi-res, retouched photo)
olio O p ti
rtf
o
P
P
r
o
c
M
e
s
a
s
n
&
a
g
e
m
a
m iz
ti o n
Innova
ti
o
n
P
l
a
n
n
i
n
g
Enterprise
Innovation
Management
e a/Concept
e v elopment
I d
D
e
Project
nt
Summary Results and Trends
Chairman's Statement
Strategic Report
Financial Report
Directors and Advisors
Report on Directors’ Remuneration
Directors’ Report
Statement of Directors’ Responsibilities
5
6
7
13
16
17
20
22
Auditors’ Report
Consolidated Income Statements
and Consolidated Statements of
Comprehensive Income
Consolidated and Company Balance Sheets
Consolidated and Company
Cash Flow Statements
Consolidated and Company Statements
of Changes in Equity
Notes to the Financial Statements
23
25
26
27
28
29
Sopheon and Accolade are registered trademarks of Sopheon plc.
Microsoft, Excel, SharePoint and PowerPoint are registered trademarks 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.
Sopheon’s mission is to help our customers
achieve exceptional long-term growth and
profitability through sustainable innovation.
We do this by providing software, services and best practices that help companies
reduce complexity and increase their return on R&D and broader innovation
investments. We provide transparency and insight to improve decision making,
connect the organization, embed industry-proven innovation processes, and enable
corporate speed, agility and adaptability.
The Sopheon solution was designed from the start to keep business strategy front
of mind and continuously aligned with execution throughout the innovation life cycle,
ensuring market success and relevance in the long term.
Strategic
Innovation
Planning &
Roadmapping
Strategy
Execution
Idea/
Concept
Development
Innovation
Process &
Program
Management
Portfolio
Optimization
& Resource
Management
REVENUE
EBITDA
NEW CUSTOMERS
2016
2015
$23.2m
2014
$18.3m
$20.9m
2014
$1.2m
2016
$5.2m
2015
$4.1m
2016
17
2015
14
2014
11
EBITDA in 2016 was $5.6m if exceptional
exchange gains are included.
First to introduce smart
technologies and PPT
on a single click
First to embed
graphical “product
life cycle” stages
PPT
XLS
DOC
MPP
First to implement
enterprise-wide,
fully-integrated
Innovation Planning
and Roadmapping
First to embed
30 years of
best-practice
know-how
First to introduce
integrated roadmapping,
planning, execution,
ideation and portfolio
in one solution
First to
automate
Stage-Gate®
First and only to provide a
genetic (learning) algorithm to
assist with portfolio alignment
(smart optimization)
High-Tech Electronics
Aerospace & Defense
Chemicals
Food & Beverage
Consumer Goods
Industrial Manufacturing
VESUVIUS: black 85%VESUVIUS: white 6
CHAIRMAN'S STATEMENT
7
C H A I R M A N ' S S T A T E M E N T
It gives me great pleasure to report another year of excellent financial and operational
progress, as we solidify our strategy of being the world’s leading solution provider of
enterprise-class innovation management software solutions. We grew revenues to
$23.2m from $20.9m in 2015 and $18.3m in 2014, and we are reporting another
substantial rise in profitability, with EBITDA1 rising to $5.2m before foreign exchange
gains ($5.6m inclusive of exchange gains) from $4.1m the prior year, which was itself
more than triple the 2014 performance. Profit before tax has risen to $3.0m from $1.2m in
2015. In 2016 we initiated a degree of recognition of our substantial deferred tax asset,
which has resulted in a profit after tax of $4.3m. Net assets have nearly doubled to $10.4m from $5.5m in 2015.
The revenue growth was underpinned by a rise to 49 license transactions from 42 the year before, of which 17
were new customers, up from 14 in 2015. We continued to gain traction with the two elements of our go-to-
market strategy – both the global end-to-end enterprise solution, and the “out-of-the-box” Accolade Express
solution for quicker time to value. Our market strength in the consumer products industry was again recognized
with Sopheon being voted a “top ten software vendor” for the seventh consecutive year by the CGT magazine
readership. In addition to this progress, we also saw strong traction in the aerospace and defense and
chemicals sectors. The strengthening recurring base, along with a strong Q4 in sales bookings, has carried work
over to 2017. Encouragingly, this has resulted in revenue visibility2 for the company of $14.5m as compared to
$12m a year ago.
Sopheon’s commercial success is being achieved in parallel with strategic and operational initiatives aimed at
underpinning our continued growth for the next three to five years. We maintained our rapid pace of product
development, with another three Accolade releases in 2016, strengthening our platform for enterprise utilization
and flexibility. This continued investment supports our growth strategy in two areas. One is to capitalize on
existing client demand to expand their Accolade investment beyond product innovation to support Enterprise
“Initiative Management” tracking and decision making. This market opportunity has been validated by Gartner’s
2016 Market Guide for Strategy Execution Software and their recognition of Sopheon as a representative vendor
in this emerging space. The second growth area we are actively researching is industry expansion. As an
example, we were recently awarded the business to provide a global insurance company with their Enterprise
Innovation Management platform. We are partnering with such new customers to understand the value
proposition Accolade can bring to vertical markets that are new to Sopheon, and to determine if these represent
further new growth opportunities.
Following several years of clarifying our debt, equity and listing structure, 2016 was a relatively quiet year for
corporate activity, other than extension of the maturity of our debt facilities to January 2019.
I am delighted to report a truly excellent set of results; the board looks forward to building on these results
to deliver continued positive development in the strategic and financial performance of our company in 2017
and beyond. The challenge we face, like any growth business, is to introduce new efficiencies, learnings and
capabilities that help us scale on a sustainable basis while delivering both momentum and profitability. In 2017,
we are investing in both process and product, and we are also driving recruitment in a number of critical areas
for this purpose. I was very pleased to meet a number of our new employees at our annual sales kick-off event
in Denver this January. These additional investments in new members of our team are another key piece of
our strategy to move our business forward and capture the opportunity that we have long believed was coming.
Sopheon has a market-leading solution, global reach, solid financials, a clear corporate structure, an accelerating
market, and most importantly great people – a real platform for growth.
Barry Mence
Executive Chairman
22 March 2017
1 EBITDA is defined and reconciled in Note 4 to the financial statements.
2 Revenue visibility comprises revenue expected from (i) closed license orders, including those which are contracted but
conditional on acceptance decisions scheduled later in the year; (ii) contracted services business delivered or expected to
be delivered in the year; and (iii) recurring maintenance, hosting, SaaS and rental streams. The visibility calculation does not
include revenues from new sales opportunities expected to close during the remainder of the year.
6
STRATEGIC REPORT
7
S T R A T E G I C R E P O R T
In this report, our CEO Andy Michuda provides more details on Sopheon’s mission,
differentiation, and principal growth strategies. A summary of the principal risk areas facing
the business is set out in the Directors’ Report. Further analysis of Sopheon’s financial
results during the year, including a review of the business, the financial position at the end
of the year, key indicators and an overview of key corporate developments are set out in
the Financial Report that follows this report.
What We Do
Sopheon’s mission is to help our customers achieve exceptional long-term growth and profitability through
sustainable innovation. We accomplish this by providing software and services that align and connect
organizations, embed best-practice innovation processes, and enable corporate speed, agility and adaptability.
Many market-leading corporations are challenged to compete in today’s fast-moving environment due to the
complex infrastructure they have built up over time; a multitude of stand-alone systems have been put in place
to support functional groups, resulting in isolated pockets of information. These silo-based systems prevent
organizations from quickly and easily responding to external market changes with sound, fact-based decisions.
By delivering an end-to-end decision-making platform that links the strategic ambition of the organization to the
execution activities required to realize that strategy, Sopheon's software solutions enable three transformational
corporate capabilities:
1. The ability to shift from a static annual planning cadence to dynamic and iterative planning.
2. Improved performance of strategic initiatives compared to the historically low success rate of strategic
realization.
3. The transition from siloed knowledge workers to interconnected, cross-functional work streams that are
performed and shared in context of the strategic objectives and result in increased employee engagement
Three Operational Business Transformations
Global
Digitization
Power of the
Consumer
1010101010101
10101010101010
1010101010101
1. Annual planning becomes dynamic and iterative
2. Strategic initiatives must be realized at a higher rate
3. Work streams must be cross-functional and “connected”
At the same time, the digital movement is fundamentally changing the face of corporate innovation, forcing a
shift away from the decades-long, narrow focus on research and development (R&D) management to a broader,
interconnected Enterprise Innovation Management (EIM) competency.
EIM allows companies to cut through the complexity of ever-changing market needs by improving and increasing
the rate of innovation. New technologies, products and services are strategically aligned with long-term growth
goals, market requirements, industry regulations, and supplier competencies. The CEO's strategic direction can
be driven, propagated, managed, tracked and realized with a velocity that cannot be accomplished without an
EIM platform in place.
8
STRATEGIC REPORT
9
Sopheon clients benefit from any or all of four distinct and tightly-linked offerings enabled from a single EIM
platform, depending on their level of Innovation maturity.
• Strategic planning and alignment of long-term Innovation Plans, engaging teams from marketing,
research and development, supply chain, sales and manufacturing to all work collaboratively in the
common interest of the corporate strategy.
• Generation and development of higher-value Ideas and Concepts to fill key gaps relevant to achieving
strategic initiatives.
• Improved Process and Project Management that enables and tracks key decisions, focused on
evaluating projects associated with innovation initiatives, and accelerating productivity and velocity of
development efforts through better execution, communication and collaboration.
• Data management, analytics and integrity tools improve Portfolio Optimization to ensure the best return
on innovation investments.
How do we get more
from our portfolio?
Is our portfolio achieving
our performance goals?
Should this initiative move
forward for launch?
Should this initiative move
into development?
olio O p ti
rtf
o
P
P
r
o
c
M
e
s
a
s
n
&
a
g
e
m
What plans do we create to
achieve business objectives?
Which strategies
will we pursue?
a
m iz
ti o n
Innova
ti
o
n
P
l
a
n
n
i
n
g
Enterprise
Innovation
Management
e
Project
nt
e a/Concept
e v elopment
I d
D
Which ideas/concepts support
our strategic objectives?
Which ideas/concepts
are viable initiatives?
The following value has been derived by Sopheon customers following implementation of Sopheon’s EIM
software:
• Reduced Time to Market: One customer reduced cycle time by over 30% through process efficiencies
and sharing information, while significantly reducing the average team size.
• Improved Success Rate: Another customer reduced its new product failure rate by over 55%, and a
continued focus on list of “top ten” new product projects ensures they continue to meet success criteria.
• Increased Portfolio Value: Parker Hannifin reduced the number of projects in their portfolio by 50% and
increased the portfolio value by 500%.
• Increased Throughput: One customer increased the revenue from new products released to the market
by 25% without additional resources.
What Makes Sopheon Different
Sopheon’s history is rooted in innovation management; our Mission has never wavered. This conviction and
passion has earned Sopheon a unique position of differentiation in our target markets. 100 percent of our
efforts − from product to support to consulting training − have been directed to advancing our experience and
competency in innovation management. Sopheon clients enjoy, for the first time, a 'single source of truth', a
centralized system of record that connects strategy with execution. Cross-functional teams both contribute
information to and extract insight out of the same system, improving the speed and quality of the decision-
making cadence. World leaders like PepsiCo, Parker, P&G, BASF, Tetra Pak, Honeywell and many others
have put their trust in partnership with Sopheon as they navigate the industry threats of digitization, consumer
power and other external market disrupters. Sopheon’s success in working with world leaders has provided
unique learning and experience to our people, process and technology. In addition, Sopheon’s ecosystem of
global innovation leaders has grown to be a differentiator from which our clients benefit through collaboration,
sharing and learning.
8
STRATEGIC REPORT
9
Sopheon’s unique experience and success was recognized in 2016 not only by our record financial
performance but also by third-party industry thought leaders. Recent market recognition of Sopheon’s progress
follows:
• Gartner recognized favorable market movement and named Sopheon as a market leading vendor in
its 2016 Market Guide for Strategy Execution Software. This research defines the ‘must have’ feature
requirements of any software implemented for execution of corporate strategy, and included a limited list of
the vendors they believe offer these capabilities.
• Sopheon was voted a Top 10 technology solution provider for new product development and introduction
for the seventh consecutive year by readers of Consumer Goods Technology magazine.
• Sopheon has been invited repeatedly to share its vision and thought leadership through participation in
cutting-edge government and industry sponsored research initiatives. These include among others the
joint France-Netherlands MEDUSA and EDAFMIS research projects, both led by medical device innovator
Philips Healthcare, dealing with market disrupters such as Internet of Things, real-time decision support
and advanced analytics embedded into business process. In 2016 Sopheon was invited to participate
in a new project called Medolution, the objective of which is to research and develop “Smart Patient
Environments.” Sopheon’s role in the partnership is focused on continuous and real-time decision support
contributing to individualized and context-specific patient care.
We are very proud of the recent industry recognition, which is the result of
hard work, focus and investment in our people, our product and in delivering
client value. Our clients expect Sopheon to provide domain expertise to
assist them in improving their innovation performance, a competency that
has been uniquely learned and created in the deployment of our solution
to market leaders for some 15 years. We continue to develop our
consultancy depth and competency to support our continued growth, and
expect our enduring focus and investment in our people to continue to
separate Sopheon from the competition through 2017 and beyond.
Our ongoing product investment resulted in a larger number of global
enterprise deployments in 2016, with more clients expanding their investment
to leverage the full Accolade Enterprise Innovation Management suite of
capabilities.
"Dynamic communication
and dataflow through divisions
into business units and across
operations teams is something
Entegris views as vital to innovation.
Increasing the visibility of plans and
decisions is just one of the ways
that Accolade is supporting our
organization’s aspirations."
The combination of deep domain knowledge of Sopheon’s people with
the increased operational value that Accolade delivers is resonating with
global industry leaders as they turn to Sopheon for partnership.
Dr. Steven Moskowitz,
Senior Principal of Strategic Technology,
Innovation Management, Entegris Inc.
Sopheon’s solutions have been implemented by over 250 customers with over 60,000 users in over 50
countries.
Industry Trends
We see a continuing convergence of the business, economic and market trends that play directly into
Sopheon’s market position, solutions and investments. There is a market factor at work representing
considerable growth opportunities for Sopheon. We are seeing some of the most successful companies in the
world recognizing the need for urgent transformation to continue their relevance in the market.
Statistics suggest that 75% of the S&P 500 will no longer be on the list by 2027.3 We are witnessing increased
behavioral change and urgency at the executive and board levels of many companies to do everything possible
to ensure their company remains relevant through this time of massive market disruption and change.
1 0
STRATEGIC REPORT
1 1
The primary challenge for these market leaders is to transform their operating
model from what once served their success, to a new operating model that
leverages the strength of their assets and capabilities while at the same
time allowing them to operate with the nimbleness and flexibility of
small start-ups. Below are several examples of this trend, quoting
directly from public websites: 4
• “[P&G is] putting strategies and capabilities into place to
transform P&G into a faster-growing, more profitable
and far simpler company.” 5
• “[Conagra Brands is] transforming the way
we operate to fulfill what consumers and
customers want, in a smart, simple way.
We’re modernizing our iconic food brands,
leveraging fresh opportunities and adapting
to a changing landscape – all with a culture
that’s ready to capture growth and drive shareholder value.” 6
Startups More Able to Raise $1B+ to Challenge Incumbents
Source: Innovation Leader, 2016
• “[PepsiCo is] constantly pushing ourselves to transform, because in a world defined by increased volatility,
complexity and speed, it is the only way to succeed.” 7
• “A sizable and growing customer segment is looking for organic and natural products, and as a result,
packaged food companies are facing a relevance problem. One company that has done well in this difficult
and changing environment is General Mills…General Mills was able to gain relevance in this important
growth segment for one reason: They saw a relevance challenge early and responded with acquisitions,
investments in products and programs, and a sense of direction powered by their mission and values.” 8
• “[Speed] is everything – including the speed at which we learn, the speed at which we execute, and the
speed at which we pivot. To that end, we have prioritized speed and agility in our people, in our processes,
and in the tools we use to iterate with our customers and partners.… [We] can’t succeed by creating speed
and agility in a vacuum – our transformation roadmap must bring the entirety of GE into the digital world.” 9
We believe that Sopheon’s Enterprise Innovation Management platform remains
"Leveraging digital
technologies is more than just
good business—it’s crucial to
staying relevant and profitable.
Companies lagging in this area
risk losing ground to newer
entrants and business models
that are poised to disrupt
markets with innovative
products and services."
uniquely positioned to leverage this trend. At the core of the urgent need for
corporations to stay relevant is the need to digitize strategy execution and
innovation management. By digitizing enterprise innovation, market
leaders will be able to innovate with the pace of small companies, while
leveraging the scale advantages of a larger organization.
At the same time, they will be able to balance the pull between
‘responsible, safe, secure’ and ‘speed, ease of use, smart’ as they
compete in today’s fast-moving digital market. As a result, they are able
to quickly move operationally from Vision to Execution to Performance.
Homegrown systems and siloed tools like Microsoft® Excel®, SharePoint®,
and PowerPoint® no longer support the needs of the cross-functional,
agile enterprise. To successfully navigate these times of constant market
disruption, these market leaders require an Enterprise Innovation
Management platform to ensure continued relevancy.
Boston Consulting Group
Growth Strategy
Sopheon’s growth strategy is to enable corporations to execute on their new operational models that will ensure
corporate relevance into the future. Our focus requires Sopheon to:
• Expand the application of our software and services to a broader definition of innovation: Sopheon
has been a specialist in new product development for over 15 years. Over the last few years we have seen
the maturity of the innovation space expand beyond product development to what we have been calling
Enterprise Innovation Management. As the market continues to mature, we see many new applications that
could benefit from our best-practice decision support and process platform.
1 0
STRATEGIC REPORT
1 1
• Increase industry-specific domain knowledge and solutions: We have always believed that different
vertical markets, while sharing core functionality needs, have differing pain points and best practice needs.
In 2016 we continued our objective to dominate in our chosen core verticals of chemicals, aerospace,
consumer products, food and beverage, and high technology. Sopheon’s long history and experience
in these verticals enables us to operate as an industry connector for our clients, introducing them to one
another to jointly learn and advance their competency and success. We will continue to invest in industry-
specific expertise and solutions.
• Introduce new offerings to leverage growth from our customer base: Sopheon’s roster of customer
names is a Who’s Who of the world’s leading companies. In 2016 Sopheon continued to expand the range
of our innovation solutions, providing the opportunity for us to extend our footprint within our customers
across their enterprise, to deliver considerably higher value for their investment in Accolade. Client
expansion in 2016 was markedly strong, with revenue from expansion at existing clients continuing to
represent the cornerstone of our commercial performance.
• Expand the partner ecosystem: Sopheon continues to invest in and develop additional distribution
channels, in particular with market-leading management consultancies. In 2016 we continued to deploy
Accolade around the world, introducing Accolade to more partners through our clients. We made progress
through corporate level introductions and have started to nurture relationships with a handful of partners in
the innovation space. These partnership programs take time to mature but we feel they are critical to our
ability to scale for future growth. We will continue to evolve and strengthen these relationships as we grow.
Our reseller partners in Asia successfully deployed Accolade at Shanghai Huayi, a large chemical company
in China. This deployment represents another advancement in our Chinese reseller partnership. We will
further test and develop our reseller partnership network during the course of this year.
People, Process & Platform
People & Process
As stated above, Sopheon is differentiated in the market by its industry-leading
reputation for deep domain expertise in the product development and innovation
management arena. That know-how is instituted in our methodologies, our
best practices and our substantial experience developed through many years
of helping top businesses achieve innovation success.
Like our clients, Sopheon must continue to change and iterate to maintain
our leadership position. We have made several new hires to support
our growth ambitions, and will be diligent in our ongoing search for
additional talent to strengthen our corporate culture of respect, integrity and
continuous learning. Investment in training and professional development
will be expanded as part of our focus on the growth and development of our
people. Our aim is to further deepen our domain expertise, client engagement
methodology and value based engineering competency, all of which are
strategic capabilities for us to achieve our next phase of growth.
We are very proud of the commitment that our people have shown to the
company, to our clients and to these changes.
Platform
"In many ways, I view
the advances of the last
few Accolade releases as the
best since we teamed up with
Sopheon in 2009. New releases
have the end user firmly in
mind, and there are a number
of key features we are
excited to use."
Dan Miller, General Manager of Applied
Research & Package Development,
Hormel Foods Corporation
Over the years Sopheon has made significant investments in product development as a commitment to
maintaining our leadership of a market we helped to create, through our own innovation. Our Product
Development organization operates using an Agile methodology, which drives greater customer interaction and
feedback directly into the development process.
1 2
STRATEGIC REPORT
1 3
It allows maximum flexibility to respond to market needs, while at the same time supporting strategic needs.
It is Sopheon’s commitment to deliver three major releases a year. We have now been delivering on this
schedule for long enough that the majority of our clients expect and plan for our new releases. In 2016 we
released Accolade 10.2, 10.3 and 11.0 in January, May and November respectively. Since the end of the
year we released Accolade 11.1 in February 2017. The development focus in 2016 has been on enhancing
capabilities specific to our enterprise expansion strategy; this strategy has been created in partnership with
a number of our strategic clients, for which we are thankful. Such guidance and input is essential to our
continued relevance to these strategic customer accounts.
Accolade® Solution
Innovation
Planning
Roadmapping
Idea
Development
Process
Management
Portfolio
Optimization
Sopheon’s Accolade solution provides integrated support for innovation planning, roadmapping, idea and concept
development, process, project, program portfolio, resource and in-market management.
Beyond the market and customer inputs, at the strategic level we continue to track five key product roadmap
drivers—social, mobile, software-as-a-service (SaaS), information and user engagement. These drivers mesh
with global trends that are facing the majority of software companies today and we are focused on ensuring
that new releases keep pace with market expectations in these areas.
One example of progress in this area is the increased attention on employee engagement. There is broad
recognition globally of the growing percentage of millennials in the work force. It has been a focus of our
development team to update our user experience to match the consumer-grade software experience this
group has come to expect, and to continue to increase user engagement by communicating the “why” for team
members, making it easy for them to see how their work fits into the broader corporate strategy, thereby making
their work more meaningful and impactful.
Another example of progress in this area is our continued investment to achieve industry certifications that offer
client confidence by reducing client IT risk. Accomplishments in 2016 include ISO 27001 information security
certification, and award of the Skyhigh Enterprise-Ready™ certification, which satisfies security requirements
developed in conjunction with the Cloud Security Alliance.
A summary of the principal risks areas facing the business is set out in the Directors' Report.
Approved by the board on 22 March 2017 and signed on its behalf by:
Andy Michuda
CEO
3 Richard Foster, Yale School of Management
4 Sopheon makes no claim to any formal working relationship with the companies quoted
5 http://www.pginvestor.com/Company-Strategy/Index?KeyGenPage=208821
6 http://www.conagrabrands.com/our-company/overview
7 https://www.greenbiz.com/article/conversation-pepsico-chairman-and-ceo-indra-nooyi-how-do-you-promote-transformation
8 https://www.prophet.com/thinking/2015/08/243-general-mills-gains-relevance-through-products-and-acquisition/
9 https://www.ge.com/digital/blog/digital-industrial-transformation
1 2
FINANCIAL REPORT
1 3
FINANCIAL REPORT
In this report, our CFO Arif Karimjee provides further analysis of Sopheon’s financial results
during 2016, our financial position at the end of the year, and an overview of key corporate
developments.
Trading Performance
Sopheon’s consolidated turnover in 2016 was $23.2m, compared to $20.9m in 2015. The
proportion of revenues from customers in North America increased slightly at 71 percent (2015: 69 percent)
with the remainder primarily generated from customers in Europe, but also from a small but important foothold
in Asia, Australia and the Middle East. Total license transactions, including extension orders, were up to 49 in
2016, compared to 42 the previous year. Revenue per license transaction did fall back somewhat, but overall
remains well above $100,000 in license fees – and overall this combination led to license revenues around
11 percent higher than the prior year. Both services and maintenance were higher as well, with services
showing a particularly strong uptick at 16 percent. Overall, revenues grew by 11 percent. The impact of the
strong dollar on revenue was relatively muted this year as much of its rise against other global currencies had
already happened in 2015; on a constant currency basis, year on year growth would have been 12 percent.
A key difference to the prior year was the flatter revenue profile from a calendar perspective; in 2015 we had a
quiet first half offset by a very strong second half. In 2016, the revenue profile reverted to a more even spread
with peaks in the second and fourth quarters – though as always, the fourth quarter was particularly strong.
Over the years we have frequently referred to the sensitivity of our license results to individual sales events and
while this effect is reducing as we grow the business, it does remain a factor to bear in mind. During 2016, we
were pleased to book at least one substantial order in each quarter of the year. Services work was in fact more
concentrated in the first half of 2016, thanks in part to the strong fourth quarter of 2015 leading to a substantial
backlog coming into 2016. This in turn led to busy times for our services team in the first half of the year, with
more of a lull in the third quarter then picking up again in the final quarter. Though not quite as marked as last
year, when coupled with initial orders this year, we are starting 2017 with a similarly strong backlog of service
activity.
The group’s base of recurring business rose to approximately $9.9m compared to $8.2m coming into 2016. This
comprises maintenance, hosting and cloud services, and some initial Software as a Service (SaaS) contracts.
The vast majority of our license revenue remains perpetual in nature, but we are seeing growing interest in
SaaS options, in particular from prospects in our less traditional verticals such as high-tech. We are also seeing
growing interest in our hosting service from perpetual customers, and this has been underpinned during the year
by achievement of ISO 27001 security certification, alongside securing the award of the Skyhigh CloudTrust™
Enterprise-Ready rating, based on criteria developed with the Cloud Security Alliance. Attrition of recurring
revenue remained at excellent levels, at 94 percent retention by value for the second year in succession. We
continue to focus on this metric as we believe that building recurring revenue is a key goal for Sopheon, and we
have invested in customer satisfaction programs alongside regular service and account management processes
to maximize value for our customers in this area. Overall, in 2016 our business delivered a 29:37:34 ratio of
licenses, maintenance, and services respectively compared to 29:38:33 in the previous year. This marks a
further year of solid license revenue as a cornerstone of our business model, driven by both volume and size of
deals as noted in the previous paragraph.
Gross margin is just over 70 percent, broadly comparable to the 72 percent achieved last year and reflective
of the slightly higher and more front-end loaded services mix. Costs of the professional services organization
are included in costs of sales, alongside the costs of our hosting activities and some license royalties for OEM
partners. We recruited a number of new consultants coming into the year, and on average we had 12 percent
more staff in the services team than the year before. However services revenue was 16 percent higher, and as
noted below this led to product development staff contributing to delivery of certain customer projects.
Encouragingly, coming into 2017 and following some early sales bookings at the start of the year, revenue
visibility for the year already stands at $14.5m compared to just over $12m a year ago.
1 4
FINANCIAL REPORT
1 5
Research and Development Expenditure
Overall expenditure in product development resources decreased by approximately $0.2m to $3.8m in 2016;
however, this is after recognizing $0.4m of costs to services cost of sales, as we used product development
resources to assist with peaks of service demand that arose during the year. Therefore, the actual cost of the
development team rose by $0.2m overall. This movement can be compared to the headline R&D reported
in the income statement showing a reduction from $4.3m to $3.9m; the difference is due to the effects of
capitalization and amortization of development costs. The amount of 2016 research and development
expenditure that met the criteria of IAS38 for capitalization was $1.9m (2015: $2.1m) offset by amortization
charges of $2.0m (2015: $2.4m). These capitalized costs are largely attributable to the group’s investment in
the Accolade 10.2, 10.3, 11.0 and 11.1 product releases.
Other Operating Costs
As a knowledge intensive business, almost 80 percent of Sopheon’s costs are related to its people. Sopheon
has a relatively mature and highly qualified blend of staff, reflecting the professional and intellectual demands
of our chosen market. Over the last five years, Sopheon has held staffing between 100-115 depending on
requirements and natural movement of people in and out of the business. Our focus is on securing the right
mix of people rather than targeting a headcount number, however as revenue growth has progressed over
recent years we have sought to match this with a growing level of resources. Consequently, we ended the year
with 115 staff compared to 100 a year ago; however, the majority of the staff increase was later in the year and
we had in fact targeted a greater number of hires in our plan – a factor which contributed to the outperformance
in profitability in 2016. We have continued to add staff in early 2017, and still have a number of incremental
staff to add in our forward planning as we seek to support the positive trajectory of the business.
The average headcount during 2016 was 110, compared to 105 the year before, leading to higher overall wage
costs as reported in the financial statements. Payroll costs in both 2015 and 2016 were also elevated due to
achievement of our ambitious EBITDA goals, leading to full award of the corporate bonus scheme for which all
non-sales staff in the company are eligible. This has contributed to a higher payables balance at each year
end, since the bonuses are not paid until the following year. Bonus costs in a given year are allocated to the
relevant categories of the income statement based on employee department.
Specific comments regarding service operations and research and development costs are noted above.
Resources in the sales and marketing area remained relatively constant following a substantial increase in
2014, and accordingly, sales and marketing costs increased relatively modestly by approximately $0.1m year
on year. Headline administration costs have fallen by approximately $0.3m, but this is largely due to the impact
of exchange gains captured following the UK’s referendum decision to leave the European Union. In fact,
underlying costs in this area are modestly higher as we ensure that our IT infrastructure in particular keeps
pace with our growth demands, for example the security certifications noted above. More generally, our income
statement benefits from a natural hedge due to local currency revenues and costs both being recorded within
each entity. Although the Group’s policy is not to hedge currency cash holdings, we do try to keep currencies
local and to time currency purchases so as to minimize negative impacts on the income statement.
Results
In common with other technology businesses, Sopheon reports EBITDA (Earnings before Interest, Tax,
Depreciation and Amortization) as a key indicator of the underlying performance of our business. EBITDA
is further defined and reconciled to profit before tax in Note 4. The combined effect of the revenue and cost
performance discussed above has resulted in Sopheon’s EBITDA performance for 2016 rising very strongly
to $5.6m, from $4.1m in 2015 and $1.2m in 2014. The 2016 performance does include approximately $0.3m
of exceptional foreign exchange gains as described above; stripping these out still gives an EBITDA result of
$5.2m, a significant increase on the prior year.
1 4
FINANCIAL REPORT
1 5
Including the effect of interest, depreciation and amortization, the group reported a profit before tax for the year
of $3.0m (2015: $1.2m) or $2.7m if the foreign exchange gains are deducted. Although Sopheon benefits from
accumulated tax losses in a number of jurisdictions this is not universal and accordingly a small current tax
charge of approximately $0.1m was incurred in each of 2016 and 2015. However, due to the rising profit trend
of the group, in consultation with our advisers we have started recognition of the substantial deferred tax asset
owned by the business, as further detailed in Note 10. This has led to initial recognition of $1.3m (2015: $Nil)
in the current year, of a total potential asset of approximately $16m (2015: $19m). Altogether this leads to a
profit after tax of $4.3m (2015: $1.1m). In line with this substantial increase, profit per ordinary share has also
risen sharply to 59 cents (2015: 15.5 cents).
Facilities and Assets
In early 2014 the group established new bank facilities with the London branch of Silicon Valley Bank,
comprising a term loan of $0.5m, and a $3.0m revolving line of credit. Last year these facilities were renewed
and refinanced for a further three year period through January 2019, reflecting the growing maturity of the
Sopheon business. Both facilities bear interest at rates of 2.75 percent over Wall Street Prime, resulting in a
current effective rate of 6.5 percent. The facilities are subject to covenants based on working capital ratios.
The drawdown mechanics and interest rates are also subject to working capital ratios.
In 2009 and 2011, the company issued a total of £2.0m of convertible unsecured loan stock (the “Loan Stock”)
to a group of investors including key members of the board and senior management team. The maturity of the
Loan Stock has been extended on several occasions, most recently in April 2016, and now extends to January
2019. The conversion price is 76.5 pence per share. During the year, one of the investors exercised £0.01m
of loan stock, leading to a net remaining amount due of £1.99m.
Consolidated net assets at the end of the year stood at $10.4m (2015: $5.5m), an increase of $4.9m. Over
$3.1m of this increase is attributable to an improvement in the net current asset position excluding taxes,
itself arising from the strong operational performance in 2016. A further $1.3m relates to the recognition of
the deferred tax asset, leaving $0.4m due to other factors. Within the net current asset position, gross cash
resources at 31 December 2016 amounted to $10.0m (2015: $7.0m). Approximately $7.3m was held in US
Dollars, $2.4m in Euros and $0.3m in Sterling.
Intangible assets stood at $5.5m (2015: $5.6m) at the end of the year. This includes (i) $4.5m being the net
book value of capitalized research and development (2015: $4.6m) and (ii) an additional $1.0m (2015: $1.0m)
being goodwill arising on acquisitions completed in previous years.
Approved by the board on 22 March 2017 and signed on its behalf by:
Arif Karimjee
CFO
1 6
DIRECTORS AND ADVISORS
1 7
D I R E C T O R S A N D A D V I S O R S
Directors
Barry K. Mence
Andrew L. Michuda
Arif Karimjee ACA
Stuart A. Silcock FCA
Daniel Metzger
Executive Chairman
Chief Executive Officer
Chief Financial Officer
Non-executive Director
Non-executive Director
Secretary
Arif Karimjee
Registered Office
Registered Name and Number
Dorna House One
50 Guildford Road
West End, Surrey GU24 9PW
Sopheon plc.
Registered in England and Wales
No. 3217859
Silicon Valley Bank
Alphabeta
14-18 Finsbury Square
London EC2A 1BR
Commerzbank
Rheinstrasse 14
64283 Darmstadt
Germany
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
Registrars
BDO LLP
55 Baker Street
London W1U 7EU
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
United States
Rabobank Amsterdam
Van Baerlestraat 102-106
1071 BC Amsterdam
The Netherlands
Squire Patton Boggs
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
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0LA
1 6
REPORT ON DIRECTORS’ REMUNERATION
1 7
R E P O R T O N D I R E C T O R S ’ R E M U N 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
two non-executive directors, D. Metzger and S.A. Silcock, together with B.K. Mence, other than in respect of his
own remuneration. 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. From time to time, the remuneration committee may take advice from appropriate remuneration
consultants, or 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 US Dollars at the average rate for the period. Mr. Mence’s remuneration is largely fee-based and
therefore subject to fluctuations from period to period. 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
D. Metzger
Pay and Fees
2016
$
Bonus
2016
$
Benefits
2016
$
Total
2016
$
Total
2015
$
205,017
301,683
169,042
90,872
146,000
62,932
6,914
9,588
4,077
302,803
457,271
236,051
317,782
441,746
254,441
29,839
29,839
_______
735,420
_______
_______
-
-
_______
299,804
_______
_______
-
-
_______
20,579
_______
_______
29,839
29,839
_______
1,055,803
_______
_______
30,580
30,580
_______
1,075,129
_______
_______
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 2015 and 2016 these objectives were set with regard to EBITDA performance. 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 2016 contributions of $8,138, $5,935 and $8,436 (2015: $10,172, $4,120 and $8,385) were paid
respectively to the pension schemes of B.K. Mence, A.L. Michuda and A. Karimjee.
1 8
REPORT ON DIRECTORS’ REMUNERATION
1 9
Performance Graph
The following graph shows the company’s share price performance on AIM since January 2012, in UK pence, 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 group’s. Historical share prices have been adjusted to reflect the net 20:1 share consolidation performed by the
group during 2013.
4
3.5
3
2.5
2
1.5
1
0.5
0
Sopheon Share Price
AIM All-Share Rebase
03/01/2012
03/01/2013
03/01/2014
03/01/2015
03/01/2016
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
2016
2015
2016
2015
2016
2015
B.K. Mence
A.L. Michuda
A. Karimjee
S.A. Silcock
S.A. Silcock*
D. Metzger
24,250
215,000
63,350
-
-
-
24,250
199,880
57,500
-
-
-
1,447,576
30,000
50,000
274,627
4,000
5,000
1,371,576
30,000
30,000
250,627
4,000
5,000
£640,000 £640,000
£45,000 £45,000
£27,000 £27,000
£200,000 £200,000
-
-
-
-
Of the 1,447,576 ordinary shares mentioned above, B.K. Mence beneficially owns and is the registered holder of
1,447,076 ordinary shares. His wife, Mrs. M.T. Mence, beneficially owns 500 ordinary shares. The holding of
A. Karimjee of £27,000 nominal of convertible loan stock is beneficially owned by his wife, Mrs. F.J. Karimjee.
1 8
REPORT ON DIRECTORS’ REMUNERATION
1 9
The following table provides information for each of the directors who held office during the year and held options to
subscribe for Sopheon ordinary shares. All options were granted without monetary consideration.
Date of
Grant
Exercise
Price
At 31
December
2015
Granted
During
Year
Expired
During
Year
At 31
December
2016
B.K. Mence
B.K. Mence
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
29 September 2012
5 December 2013
27 August 2010
29 September 2012
5 December 2013
8 April 2016
27 August 2010
29 September 2012
5 December 2013
8 April 2016
105p
85p
6,125
18,125
12,500
150p
138,380
105p
49,000
85p
-
87.5p
150p 7,500
23,125
105p
26,875
85p
-
87.5p
-
-
-
-
-
15,120
-
-
-
5,850
6,125
-
18,125
-
- 12,500
138,380
-
49,000
-
15,120
-
7,500
-
23,125
-
26,875
-
5,850
-
None of the directors exercised any share options during the year. Vesting of all of the above share options which were
outstanding at 31 December 2016 is in three equal tranches on the first, second and third anniversaries of the date of
grant and all such options expire on the tenth anniversary of the date of grant. The mid-market price of Sopheon ordinary
shares at 31 December 2016 was 350p. During the financial year the mid-market price of Sopheon ordinary shares
ranged from 61.5p to 375p. 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 22 March 2017 and signed on its behalf by:
Arif Karimjee
Director
2 0
DIRECTORS’ REPORT
2 1
D I R E C T O R S ’ R E P O R T
The group’s principal activities during the year continued to focus on the provision of software and services for complete
Enterprise Innovation Management solutions. A review of the development of the business during the year is given in the
Chairman’s Statement on page 6. These also include reference to the group’s future prospects. In view of the fact that two-
thirds of the group’s revenues and staff are based in the USA, the group’s financial statements are presented in US Dollars.
The group’s result for the year ended 31 December 2016 is a profit after tax of $4.3m (2015: profit $1.1m). The directors do
not intend to declare a dividend.
Directors
The directors who served during the year are disclosed in the Report on Directors' Remuneration.
Corporate Governance
The Sopheon board is committed to high standards of corporate governance and aims to follow appropriate governance
practice, although as a company listed on AIM the company is not subject to the requirements of the UK Corporate
Governance Code. The board currently comprises three executive directors and two 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 2016, all directors attended all quarterly 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 17.
Post Balance Sheet Events
There are no post balance sheet events that warrant disclosure in the financial statements.
Research and Development
A summary of research and development activities and the key benefits and enhancements to the Sopheon Accolade
solution is set out in the Strategic Report. A summary of the expenditure incurred and the accounting treatment thereof is set
out in the Financial Report.
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 are emerging and this means that Sopheon's growth may be erratic. The broad market for Sopheon’s
software products continues to emerge and evolve, and the timing and size of individual sales can have a substantial impact
on performance in a given period. Sopheon has formalized processes for soliciting input to product strategy from analysts
and customers, while also capitalizing on the group’s leadership in key market areas. Sopheon also seeks to improve
revenue predictability by introducing specific initiatives to balance efforts between new customer acquisition, and meeting the
needs of existing customers.
Sopheon’s prospects of achieving sustained and growing profitability are dependent on correctly aligning investments with
sales. Sopheon’s ability to continue to finance its investments at the optimal pace is dependent on the group maintaining
profitability and sales growth alongside its investment strategy, or having appropriate financial resources in place to invest
with confidence. Sopheon has sought to focus its resources on the sub-segments that it believes offer the best opportunities
for growth. Sopheon management carefully monitors short- and medium-term financing requirements and has regularly
raised additional funding resources to meet requirements.
2 0
DIRECTORS’ REPORT
2 1
Some of Sopheon’s competitors and potential competitors have greater resources than Sopheon. Sopheon remains a
relatively small organization by global standards. Its resources are small compared to those of many larger companies
that are capable of developing competitive solutions and it can be 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. Sopheon’s use of an Agile development methodology with
deep customer involvement is a key plank in this approach.
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 remained challenging. 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 modest 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 excellent development methodologies, its contract terms and insurance policies. Sopheon has never had any
such claims.
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
22 to the financial statements.
Substantial Shareholdings
The directors are aware of the following persons who as at 22 March 2017 were interested directly or indirectly in
3 percent or more of the company’s issued ordinary shares:
Name
S.A. Silcock (director)
B.K. Mence (director)
Rivomore Limited and Myrtledare Corp.
No. of
% Issued
Ordinary Shares Ordinary Shares
278,627
1,447,576
1,608,500
3.8
19.7
21.9
S.A. Silcock also holds £200,000 nominal of 8% convertible loan stock. B.K. Mence also holds £640,000 nominal of
8% convertible loan stock. Rivomore Limited and Myrtledare Corp. also hold £640,000 nominal of 8% convertible loan
stock. The convertible loan stock is convertible at the rate of 76.5p per ordinary share.
S.A. Silcock’s and B.K. Mence’s interests represent direct beneficial holdings as well as those of their families.
Approved by the board on 22 March 2017 and signed on its behalf by:
A. Karimjee
Director
2 2
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
2 3
S T A T E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S I N
R E S P E C T O F T H E F I N A N C I A L S T A T E M E N T S
The directors are responsible for preparing the annual report and financial statements in accordance with applicable law
and regulations.
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.
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 2
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
2 3
I N D E P E N D E N T A U D I T O R S ’ R E P O R T T O T H E M E M B E R S O F
S O P H E O N P L C
We have audited the financial statements of Sopheon plc for the year ended 31 December 2016 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 Financial Reporting Council’s (FRC’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 FRC’s website at
www.frc.org.uk/auditscopeukprivate
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 2016 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 Strategic Report and the Directors’ Report for the financial year for which
the financial statements are prepared is consistent with the financial statements and the Strategic Report and
Directors’ Report have been prepared in accordance with applicable legal requirements. Based on our knowledge
and understanding of the company and its environment obtained during the course of the audit we have identified no
material misstatements in the Strategic Report or the Director’s Report.
2 4
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
22 March 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
2 4
FINANCIAL STATEMENTS
2 5
C O N S O L I D A T E D I N C O M E S T A T E M E N T
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6
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 credit/(expense)
Profit for the year
Earnings per share
Basic (US cents)
Fully diluted (US cents)
Notes
2016
$’000
2015
$’000
3
23,203
(6,872)
_______
20,886
(5,748)
_______
16,331
15,138
(6,565)
(3,881)
(2,562)
(6,481)
(4,261)
(2,850)
_______
_______
3,323
1,546
8
9
1
(290)
_______
4
(354)
_______
3,034
1,196
10
1,275
_______
(65)
_______
5
4,309
_______
_______
1,131
_______
_______
12
12
59.05c
_______
_______
15.54c
_______
_______
44.35c
_______
_______
13.90c
_______
_______
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 E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6
Profit for the year
Other comprehensive expense
Exchange differences on translation of foreign operations
Total comprehensive income for the year
2016
$’000
2015
$’000
4,309
1,131
336
_______
43
_______
4,645
_______
_______
1,174
_______
_______
2 6
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 H E E T S A T
3 1 D E C E M B E R 2 0 1 6
Group
Company
Notes
2016
$’000
2015
$’000
2016
$’000
2015
$’000
Assets
Non-current Assets
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Deferred tax asset
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
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 profits
Total equity
13
14
15
10
16
241
5,469
-
1,338
19
––––––––
7,067
––––––––
181
5,579
-
-
19
––––––––
5,779
––––––––
-
-
7,528
-
-
––––––––
7,528
––––––––
17
18
9,696
10,061
––––––––
19,757
––––––––
26,824
7,609
7,046
––––––––
14,655
––––––––
20,434
45
1,197
––––––––
1,242
––––––––
8,770
19
20
4,428
3,167
6,224
––––––––
13,819
––––––––
20
2,648
––––––––
2,648
––––––––
16,467
––––––––
10,357
––––––––
––––––––
4,142
3,147
4,628
––––––––
11,917
––––––––
2,986
––––––––
2,986
––––––––
14,903
––––––––
5,531
––––––––
––––––––
516
-
-
––––––––
516
––––––––
2,448
––––––––
2,448
––––––––
2,964
––––––––
5,806
––––––––
––––––––
-
-
9,069
-
-
––––––––
9,069
––––––––
23
1,627
––––––––
1,650
––––––––
10,719
536
-
-
––––––––
536
––––––––
2,963
––––––––
2,963
––––––––
3,499
––––––––
7,220
––––––––
––––––––
23
24
2,375
5,843
333
1,806
––––––––
10,357
––––––––
––––––––
2,354
5,751
(3)
(2,571)
––––––––
5,531
––––––––
––––––––
2,375
5,843
(2,199)
(213)
––––––––
5,806
––––––––
––––––––
2,354
5,751
(994)
109
––––––––
7,220
––––––––
––––––––
As permitted by Section 408 of the Companies Act 2006, the income statement of the parent company is not presented as
part of these financial statements. The loss dealt with in the financial statements of the parent company for the year ended
31 December 2016 was $390,000 (2015: profit of $760,000).
Approved by the board and authorized for issue on 22 March 2017.
Barry K. Mence
Director
Arif Karimjee
Director
2 6
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 C A S H F L O W S T A T E M E N T S
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6
Group
Company
Notes
2016
$’000
2015
$’000
2016
$’000
2015
$’000
Operating Activities
Profit/(loss) for the year
4,309
1,131
(390)
760
Adjustments for:
Finance income
Finance costs
Depreciation of property, plant and equipment
Amortization and impairment of intangible assets
Share-based payment expense
Deferred tax credit
Operating cash flows before movements in working capital
Intra-group credits and charges
Decrease/(increase) in provisions against intra-group loans
(Increase)/decrease in receivables
Increase/(decrease) in payables
Net cash generated from/(used in) operating activities
(1)
290
189
2,043
62
(1,338)
––––––––
5,554
-
-
(2,208)
2,070
––––––––
5,416
––––––––
(4)
354
200
2,368
114
-
––––––––
4,163
-
-
(991)
1,028
––––––––
4,200
––––––––
-
221
-
-
62
-
––––––––
(107)
(529)
83
(22)
(20)
––––––––
(595)
––––––––
-
250
-
-
114
-
––––––––
1,124
(498)
(1,341)
29
44
––––––––
(642)
––––––––
Investing Activities
Finance income
Purchases of property, plant and equipment
Development costs capitalized
Advance of loans to group companies
Repayment of loans by group companies
Net cash (used in)/generated from investing activities
Financing Activities
Issues of shares
Drawdown/(repayment) of borrowings
Increase in line of credit
Interest paid
Net cash (used in)/generated 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
1
(250)
(1,933)
-
-
––––––––
(2,182)
––––––––
4
(124)
(2,058)
-
-
––––––––
(2,178)
––––––––
-
-
-
(919)
955
––––––––
36
––––––––
-
-
-
(1,194)
2,961
––––––––
1,767
––––––––
107
177
-
(290)
-
(167)
1,021
(354)
107
-
-
(221)
––––––––
(6)
––––––––
3,228
––––––––
500
––––––––
2,522
––––––––
(114)
––––––––
(673)
7,046
(213)
4,735
(211)
––––––––
10,061
––––––––
––––––––
––––––––
7,046
––––––––
––––––––
1,627
243
––––––––
1,197
––––––––
––––––––
-
-
-
(248)
––––––––
(248)
––––––––
877
789
(39)
––––––––
1,627
––––––––
––––––––
2 8
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 C H A N G E S
I N E Q U I T Y F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 6
Group
At 1 January 2015
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
At 1 January 2016
Profit for the year
Exchange differences on translation
of foreign operations
Total comprehensive income for the year
Issues of shares
Recognition of share-based payments
Lapsing or expiry of share options
At 31 December 2016
Share
Capital
$’000
Capital Translation
Reserve
$’000
Reserves
$’000
Retained
Profits/
(Losses)
$’000
2,354
-
5,654
-
(46)
-
(3,719)
1,131
-
––––––––
-
––––––––
-
-
––––––––
2,354
-
-
––––––––
-
––––––––
21
-
-
––––––––
2,375
––––––––
––––––––
-
––––––––
-
––––––––
114
(17)
––––––––
5,751
-
-
––––––––
-
––––––––
98
62
(68)
––––––––
5,843
––––––––
––––––––
43
––––––––
43
––––––––
-
-
––––––––
(3)
-
336
––––––––
336
––––––––
-
-
-
––––––––
333
––––––––
––––––––
-
––––––––
1,131
––––––––
-
17
––––––––
(2,571)
4,309
-
––––––––
4,309
––––––––
-
-
68
––––––––
1,806
––––––––
––––––––
Total
$’000
4,243
1,131
43
––––––––
1,174
––––––––
114
-
––––––––
5,531
4,309
336
––––––––
4,645
––––––––
119
62
-
––––––––
10,357
––––––––
––––––––
The translation reserve represents accumulated differences on the translation of assets and liabilities of foreign
operations. Full details of capital reserves are set out in Note 24.
Company
Share
Capital
$’000
Capital Translation
Reserve
$’000
Reserve
$’000
Retained
Losses
$’000
At 1 January 2015
Profit and total comprehensive income for the year
Recognition of share-based payments
Lapsing or expiry of share options
At 1 January 2016
Profit and total comprehensive income for the year
Issues of shares
Recognition of share-based payments
Lapsing or expiry of share options
At 31 December 2016
2,354
-
-
-
––––––––
2,354
-
21
-
-
––––––––
2,375
––––––––
––––––––
5,654
-
114
(17)
––––––––
5,751
-
98
62
(68)
––––––––
5,843
––––––––
––––––––
(560)
(434)
-
-
––––––––
(994)
(1,205)
-
-
-
––––––––
(2,199)
––––––––
––––––––
(668)
760
-
17
––––––––
109
(390)
-
-
68
––––––––
(213)
––––––––
––––––––
Total
$’000
6,780
326
114
-
––––––––
7,220
(1,595)
119
62
-
––––––––
5,806
––––––––
––––––––
2 8
NOTES TO THE FINANCIAL STATEMENTS
2 9
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 16. The principal activities of the company and its subsidiaries are
described in Note 3. The financial statements have been presented in US Dollars 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. The impact of IFRS 15 Revenues
from Contracts with Customers, which will apply from reporting periods beginning on or after 1 January 2018, is still being
assessed. The directors note that IFRS 15 contains detailed guidance in relation to, among other things, sales contracts
that involve multiple elements and the contract assets/receivables with any associated deferred revenues which should be
presented net until the earlier of the contractual due date of any invoice raised or the delivery of the service. The areas
noted may impact on how the group recognises revenue and presents items in its balance sheet. IFRS 16, which will apply
from reporting periods beginning on or after 1 January 2019, will result in the majority of the group’s operating leases being
brought onto the balance sheet through recognition of right of use asset and any associated liability. Under IFRS 9, the
expected loss impairment model may lead to accelerated recognition of impairment losses. The directors are intending to
undertake a detailed assessment in good time to identify if there is any need to update procedures or policies. None of the
other new standards, amendments and interpretations in issue but not yet effective are expected to have a material effect
on the financial statements.
While the functional currency of the parent company is Sterling, the group’s financial statements have been presented in
US Dollars. The directors believe this better reflects the underlying nature of the business. Approximately three-quarters of
the group’s revenue and over two-thirds of the group’s operating costs are denominated in US Dollars. The exchange rates
used for translation of Sterling amounts are 1.2303 US Dollars to British Pounds Sterling as at 31 December 2016, and
1.3563 US Dollars to British Pounds Sterling as the average rate prevailing during 2016.
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 2019.
During 2016, the group achieved revenues of $23.2m and a profit before tax of $3.0m. This follows a strong performance
in 2015, itself a dramatically improved performance compared to the previous year. The directors believed the 2014
performance was a temporary pause in the development of the business and this view continues to be supported by
ongoing performance. Coming into 2017, the group’s sales pipeline remains active, and accordingly, the directors remain
positive about the prospects for the business.
In addition to growing cash resources, the group has bank facilities with the London branch of Silicon Valley Bank
comprising a term loan of $0.5m repayable in 36 equal monthly instalments, and a $3m revolving line of credit, currently
for a three year period through January 2019. The facilities are subject to covenants based on working capital ratios.
The drawdown mechanics and interest rates are also subject to working capital ratios. In addition, the group has $1.99m
convertible loan outstanding to key investors including members of the board and management. The current terms of the
loan call for repayment or conversion by 31 January 2019.
Notwithstanding the group’s strong funding position, the time-to-close and the order value of individual sales continues to
be subject to variation. 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. However the directors 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.
3 0
NOTES TO THE FINANCIAL STATEMENTS
3 1
Basis of Preparation
The consolidated financial statements incorporate the financial statements of the parent company Sopheon plc and the
financial statements of the subsidiaries controlled by the group as defined by IFRS 10 Consolidated Financial Statements,
as shown in Note 15. Where the company has control over an investee, it is classified as a subsidiary. The company
controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect those variable returns. The financial statements
of all the group companies are prepared using uniform accounting policies. All intra-group transactions, balances, income
and expenses are eliminated on consolidation.
Business Combinations
The acquisition of subsidiaries is accounted for within the consolidated financial statements using the purchase method.
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, with there being no
business combinations since 1 January 2013. The identifiable assets, liabilities and contingent liabilities of the entity being
acquired that meet the conditions for recognition are recognized at their fair values on 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 licenses are recognized once no significant obligations remain owing to the customer in connection with
such license sale. Such significant obligations could include giving a customer a right to return the software product without
any preconditions, or if the group is unable to deliver a material element of the software product by the balance sheet date.
Revenues relating to maintenance, hosting and post-contract support agreements 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 with the corresponding liability to the lessor recognized as a
finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation.
Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the
relevant lease.
3 0
NOTES TO THE FINANCIAL STATEMENTS
3 1
Interest on Borrowings
All interest on borrowings is recognized in the income statement using the effective interest rate method.
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 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 US Dollars 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. The same approach is used to translate the financial
statements of the company on a stand-alone basis from Sterling to US Dollars. The equity of the company and group is
retranslated into the presentational currency at its historic rate.
Deferred Tax
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements
and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet
liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets
are recognized only to the extent that the level and timing of taxable profits can be measured and it is probable that these
will be available against which deductible temporary differences can be utilized.
Deferred tax is calculated at tax rates that have been enacted or substantively enacted at the balance sheet date, and that
are expected to apply in the period when the liability is settled or the asset realized. Deferred tax is charged or credited to
profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
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.
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
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.
3 2
NOTES TO THE FINANCIAL STATEMENTS
3 3
Internally Generated Intangible Assets (Research and Development Expenditure)
Development expenditure on internally developed software products is capitalized if it can be demonstrated that:
• it is technically feasible to develop the product;
• adequate resources are available to complete the development;
• there is an intention to complete and sell the product;
• the group is able to sell the product;
• sales of the product will generate future economic benefits; and
• expenditure on the product can be measured reliably.
Development costs not satisfying the above criteria and expenditure on the research phase of internal projects are
recognized in the income statement as incurred. Capitalization of a particular activity commences after proof of concept,
requirements and functional concept stages are complete.
Capitalized development costs are amortized over the period over which the group expects to benefit from selling the
product developed. This has been estimated to be four years from the date of code-finalization of the applicable software
release. The amortization expense in respect of internally generated intangible assets is included in research and
development costs.
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.
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 23, the group has also issued warrants to certain financing institutions which are also treated as equity-
settled share-based payments.
Financial Instruments
1. Financial Assets
Unless otherwise indicated, the carrying values of the group’s financial assets are a reasonable approximation of their fair
values.
3 2
NOTES TO THE FINANCIAL STATEMENTS
3 3
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.
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
the group considers its capital to comprise its ordinary share capital, special reserve and equity reserve less its accumulated
retained loss.
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. The impact of changes in estimates on carrying values of intangible assets is discussed in
more detail in Note 14. Where sales contracts involve multiple elements, the entire fee is allocated to each of the individual
elements based on management's best estimate of each element's fair value. In assessing the fair value management
consider factors such as what the individual elements would be sold at on a stand-alone basis and the cost of satisfying a
performance obligation plus an appropriate margin.
3 4
NOTES TO THE FINANCIAL STATEMENTS
3 5
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 2016 and 2015 was derived from the design,
development and marketing of software products with associated implementation and consultancy services, as more
particularly described in the Strategic and Financial Reports. For management purposes, the group is organized
geographically across two principal operating segments. The first segment is North America, and the second Europe.
Information relating to these two segments is given below.
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 2016
Income Statement
External revenues – by location of operations
Operating profit/(loss) before interest and tax
Profit/(loss) before tax
Finance income
Finance expense
Depreciation and amortization
EBITDA
Balance Sheet
Fixed asset additions
Capitalization of internally generated development costs
Total assets
Total liabilities
Year ended 31 December 2015
Income Statement
External revenues – by location of operations
Operating profit/(loss) before interest and tax
Profit/(loss) before tax
Finance income
Finance expense
Depreciation and amortization
EBITDA
Balance Sheet
Fixed asset additions
Capitalization of internally generated development costs
Total assets
Total liabilities
North
America
$’000
Europe
$’000
Total
$’000
17,172
4,136
4,072
-
(64)
(2,191)
6,327
––––––––
6,031
(813)
(1,188)
1
(226)
(41)
772
––––––––
23,203
3,323
3,034
1
(290)
(2,232)
5,555
––––––––
214
1,933
22,211
(11,046)
––––––––
––––––––
36
-
4,613
(5,421)
––––––––
––––––––
250
1,933
26,824
(16,467)
––––––––
––––––––
North
America
$’000
Europe
$’000
Total
$’000
15,676
2,804
2,703
-
(101)
(2,524)
5,328
––––––––
5,210
(1,258)
(1,507)
4
(253)
(44)
(1,214)
––––––––
114
2,058
16,540
9,198
––––––––
––––––––
10
-
3,894
5,705
––––––––
––––––––
20,886
1,546
1,196
4
(354)
(2,568)
4,114
––––––––
124
2,058
20,434
14,903
––––––––
––––––––
One customer, located in North America, accounted for approximately 20 percent of the group’s revenues in 2016. The
same customer accounted for approximately 11 percent of the group’s revenues in 2015.
External revenues in 2016 exclude inter-segmental revenues which amounted to $1,715,000 (2015: $1,633,000) for
North America and $378,000 (2015: $627,000) for Europe.
Revenues attributable to customers in North America in 2016 amounted to $16,458,000 (2015: $14,407,000). Revenue
attributable to customers in the rest of the world amounted to $6,745,000 (2015: $6,478,000) of which $6,109,000
(2015: $5,219,000) was attributable to customers in Europe.
3 4
NOTES TO THE FINANCIAL STATEMENTS
3 5
4 . E B I T D A
The directors consider that EBITDA, which is defined as earnings before interest, tax, depreciation and amortization, is
an important measure, since it is widely used by the investment community. It is calculated as follows:
Profit for the year before tax
Interest payable
Interest receivable
Amortization of intangible assets
Depreciation of property, plant and equipment
EBITDA
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):
Net foreign exchange (gains)/losses
Research and development costs (excluding amortization)
Amortization of intangible assets
Depreciation of property, plant and equipment
Operating lease rentals – land and buildings
Operating lease rentals – other
2016
$’000
2015
$’000
3,034
1,196
290
(1)
2,043
189
––––––––
5,555
––––––––
––––––––
354
(4)
2,368
200
––––––––
4,114
––––––––
––––––––
2016
$’000
2015
$’000
(312)
1,838
2,043
189
551
96
––––––––
––––––––
22
1,893
2,368
200
555
106
––––––––
––––––––
Net foreign exchange gains or losses arise on the translation of cash and trade balances held in currencies other than
the functional currency of the entity concerned 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
the parent and 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
Audit of the financial statements of the UK subsidiary
Review of interim financial information
Tax compliance services
2016
$’000
2015
$’000
66
5
16
20
––––––––
––––––––
80
6
15
15
––––––––
––––––––
3 6
NOTES TO THE FINANCIAL STATEMENTS
3 7
7 . S TA F F C O S T S
Wages and salaries
Social security costs
Pension contributions
Employee benefits expense
2016
$’000
2015
$’000
12,590
991
269
850
–––––––
14,700
––––––––
––––––––
11,847
919
239
989
–––––––
13,994
––––––––
––––––––
Included within the above are staff costs capitalized as development expenditure amounting to $1,933,000 (2015:
$2,058,000). Included within wages and salaries are bonus and sales commission costs amounting to $2,094,000
(2015: $1,878,000).
The average monthly number of employees during the year was made up as follows:
Development and operations
Sales and management
2016
Number
2015
Number
71
39
–––––––
110
––––––––
––––––––
67
38
–––––––
105
––––––––
––––––––
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
2016
$’000
2015
$’000
1,056
23
––––––––
1,079
––––––––
––––––––
1,106
22
––––––––
1,128
––––––––
––––––––
No director exercised share options during the year (2015: None). Pension contributions are to personal defined
contribution schemes and have been made for three directors (2015: three) who served during the year.
Full details of directors’ remuneration are disclosed in the Report on Directors’ Remuneration on page 17.
Staff costs in the parent company amounted to $453,090 including bonuses (2015: $372,342). The average monthly
number of staff during the year included 1 full time and 2 part time (2015: 1 and 2).
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
2016
$’000
2015
$’000
1
––––––––
––––––––
4
––––––––
––––––––
2016
$’000
2015
$’000
(290)
––––––––
––––––––
(354)
––––––––
––––––––
3 6
NOTES TO THE FINANCIAL STATEMENTS
3 7
1 0 . I N C O M E TA X E X P E N S E
Income tax credit/(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 20% (2015: 20.25%)
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 transfer of development investments
Utilization of prior year losses
Current tax expense for the year
Recognition of deferred tax asset
Deferred tax income for the year
Total income tax credit/(expense) for the year
2016
$’000
2015
$’000
1,275
––––––––
––––––––
(65)
––––––––
––––––––
2016
$’000
2015
$’000
3,034
––––––––
––––––––
1,196
––––––––
––––––––
(607)
(428)
(50)
(242)
(239)
(64)
224
798
––––––––
(63)
––––––––
1,338
––––––––
1,338
––––––––
1,275
––––––––
––––––––
142
338
––––––––
(65)
––––––––
-
––––––––
-
––––––––
(65)
––––––––
––––––––
The current tax expense represents US Alternative Minimum Tax (“AMT”), which is payable by the group’s US
subsidiaries notwithstanding the availability of tax losses from prior years, and (in 2015 only) German corporation tax
payable by Sopheon GmbH.
The deferred tax income represents the recognition of a deferred tax asset arising from historic trading losses of the
group’s US subsidiaries.
There is no tax arising on other comprehensive income.
Deferred Tax Asset
The group has a potential deferred tax asset arising from its unrelieved trading losses, which has been partially
recognized during the year, but the remainder of which has not been recognized owing to uncertainty as to the level and
timing of taxable profits in the future.
The deferred tax asset which has been recognized in the financial statements is as follows:
Amount recognized during the year
Deferred tax asset at 31 December 2016
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 at 31 December 2016
2016
$’000
2015
$’000
1,338
––––––––
1,338
––––––––
––––––––
-
––––––––
-
––––––––
––––––––
2016
$’000
2015
$’000
146
176
(1,560)
17,448
––––––––
16,034
––––––––
––––––––
(1,599)
20,734
––––––––
19,311
––––––––
––––––––
3 8
NOTES TO THE FINANCIAL STATEMENTS
3 9
At 31 December 2016, tax losses estimated at $64m (2015: $70m) were available to carry forward by the Sopheon
group, arising from historic losses incurred. These losses have given rise to a deferred tax asset of $1.3m (2015: Nil)
and a further potential deferred tax asset of $17.4m (2015: $20.7m), based on the tax rates currently applicable in the
relevant tax jurisdictions.
Of these tax losses, an aggregate amount of $9.4m, representing $3.3m of the potential deferred tax asset, (2015:
$11.7m and $4.1m respectively) 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.
11 . ( L O S S ) / P R O F I T 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
P A 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 2016 was
$390,000 (2015: profit of $760,000). Advantage has been taken of Section 408 of the Companies Act 2006 not to
present an income statement for the parent company.
1 2 . E A R N I N G S P E R S H A R E
Basic earnings per share
Profit after tax
Weighted average number of ordinary shares for the purpose of basic earnings per share
Diluted earnings per share
Profit after tax
Reduction in interest expense in respect of convertible loan stock
Diluted profit after tax
Weighted average number of ordinary shares for the purpose of basic earnings per share
2016
$’000
2015
$’000
4,309
––––––––
––––––––
1,131
––––––––
––––––––
’000s
’000s
7,297
––––––––
––––––––
7,279
––––––––
––––––––
$’000
$’000
4,309
217
––––––––
4,526
––––––––
––––––––
1,131
245
––––––––
1,376
––––––––
––––––––
’000s
’000s
10,205
––––––––
––––––––
9,897
––––––––
––––––––
For the purpose of calculating the diluted earnings per ordinary share in 2016 and 2015, the profit attributable to
ordinary shareholders is adjusted on the assumption that the group’s convertible loan stock (details of which are set
out in Note 20) was converted into ordinary shares at 1st January in the relevant year, and that options to subscribe for
Sopheon shares at prices below the average share price prevailing during the year were exercised at that date (or, if
later, on the date of grant).
Diluted earnings per share are calculated in respect of the convertible loan stock, by adjusting earnings for the amount
of interest which would cease to be payable following conversion and by adjusting the number of shares in issue by the
number of shares which would fall to be issued on conversion.
In respect of outstanding 628,912 share options and 25,138 warrants to subscribe for Sopheon shares (details of
which are set out in Notes 23 and 27), the treasury stock method is used, assuming that the proceeds from exercise of
options at strike prices below the average market price for Sopheon shares during the year are reinvested in treasury
shares at the average price prevailing during the year.
3 8
NOTES TO THE FINANCIAL STATEMENTS
3 9
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 2015
Additions
Exchange differences
At 1 January 2016
Additions
Exchange differences
At 31 December 2016
Accumulated Depreciation
At 1 January 2015
Depreciation charge for the year
Exchange differences
At 1 January 2016
Depreciation charge for the year
Exchange differences
At 31 December 2016
Carrying Amount
At 31 December 2016
At 31 December 2015
Company
The company has no property, plant and equipment.
Computer
Equipment
$’000
Furniture
& Fittings
$’000
1,776
121
(17)
––––––––
1,880
245
(17)
––––––––
2,108
––––––––
1,564
171
(13)
––––––––
1,722
170
(15)
––––––––
1,877
––––––––
366
3
(9)
––––––––
360
5
(2)
––––––––
363
––––––––
313
29
(5)
––––––––
337
19
(3)
––––––––
353
––––––––
Total
$’000
2,142
124
(26)
––––––––
2,240
250
(19)
––––––––
2,471
––––––––
1,877
200
(18)
––––––––
2,059
189
(18)
––––––––
2,230
––––––––
231
––––––––
––––––––
158
––––––––
––––––––
10
––––––––
––––––––
23
––––––––
––––––––
241
––––––––
––––––––
181
––––––––
––––––––
4 0
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 2015
Additions (internally generated)
At 1 January 2016
Additions (internally generated)
At 31 December 2016
Amortization
At 1 January 2015
Charge for the year
At 1 January 2016
Charge for the year
At 31 December 2016
Carrying Amount
At 31 December 2016
At 31 December 2015
Development
Costs
(Internally
Generated)
$’000
Goodwill
$’000
Total
$’000
17,655
2,058
––––––––
19,713
1,933
––––––––
21,646
––––––––
12,788
2,368
––––––––
15,156
2,043
––––––––
17,199
––––––––
1,022
-
––––––––
1,022
-
––––––––
1,022
––––––––
-
-
––––––––
-
-
––––––––
-
––––––––
18,677
2,058
––––––––
20,735
1,933
––––––––
22,668
––––––––
12,788
2,368
––––––––
15,156
2,043
––––––––
17,199
––––––––
4,447
––––––––
––––––––
4,557
––––––––
––––––––
1,022
––––––––
––––––––
1,022
––––––––
––––––––
5,469
––––––––
––––––––
5,579
––––––––
––––––––
The amortization period for the internally generated development costs relating to the group’s software products is
four years. 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. The recoverable amount of the goodwill can be underpinned on a value in use basis
by the expected performance of the group’s operating segments, each of which is treated as a cash generating unit.
Goodwill primarily relates to the North American operating segment.
The valuation used for this purpose is based on cash flow projections for the next five years, and thereafter for an
indefinite period at a growth assumption of 3 percent. The discount rate used was 14.6 percent. Sensitivity analysis
performed on these projections demonstrates significant valuation headroom above the carrying value of goodwill. The
same discount and growth rates were used for the valuation conducted in respect of 2015.
Company
The company has no intangible assets.
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 cost less amounts provided
At 31 December 2015
Exchange difference
At 31 December 2016
Company
$’000
9,069
(1,541)
––––––––
7,528
––––––––
––––––––
4 0
NOTES TO THE FINANCIAL STATEMENTS
4 1
Details of the company’s subsidiaries at 31 December 2016 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. and Sopheon Corporation, Minnesota, USA are held by Sopheon Corporation, Delaware,
USA. The share capital of Sopheon Corporation, Delaware, USA and Sopheon GmbH are held by Sopheon NV.
Name of Company
Registered Address
Nature of
Ownership
Proportion of
Voting Rights Held
Nature of Business
Sopheon Corporation
3001 Metro Drive
Bloomington, MN 55425, USA
Sopheon Corporation
6870 W 52nd Avenue
Arvada, CO 80002, USA
Alignent Software, Inc.
3001 Metro Drive
Bloomington, MN 55425, USA
Sopheon NV
Kantoorgebouw Officia 1
De Boelelaan 7, 1083 HJ
Amsterdam, The Netherlands
Sopheon UK Ltd
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
Sopheon GmbH
Lise-Meitner-Str. 10, D-64293
Darmstadt, Germany
Orbital Software Holdings plc
Saltire Court, 20 Castle Terrace
Edinburgh EH1 2EN, UK
Orbital Software Inc.†
3001 Metro Drive
Bloomington, MN 55425, USA
Sopheon Edinburgh Ltd†
Saltire Court, 20 Castle Terrace
Edinburgh EH1 2EN, UK
Orbital Software Europe Ltd†
Saltire Court, 20 Castle Terrace
Edinburgh EH1 2EN, UK
Network Managers (UK) Ltd*
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
AppliedNet Ltd*
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
Future Tense Ltd*
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
Polydoc Ltd
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
Applied Network Technology Ltd*
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
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%
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
Ordinary Shares
100%
Employee Share Ownership
Trust
4 2
NOTES TO THE FINANCIAL STATEMENTS
4 3
1 6 . O T H E R R E C E I VA B L E
Other receivable
Group
Company
2016
$’000
2015
$’000
2016
$’000
2015
$’000
19
––––––––
––––––––
19
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
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 VA B L E S
Trade receivables
Other receivables
Total receivables
Prepayments
Accrued income
Group
Company
2016
$’000
2015
$’000
2016
$’000
2015
$’000
8,655
50
––––––––
8,705
648
343
––––––––
9,696
––––––––
––––––––
6,656
26
––––––––
6,682
500
427
––––––––
7,609
––––––––
––––––––
-
42
––––––––
42
3
-
––––––––
45
––––––––
––––––––
-
15
––––––––
15
8
-
––––––––
23
––––––––
––––––––
Trade and other receivables are stated net of allowances totaling $Nil (2015: $Nil) 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 $48,386,000 (2015: $58,285,000) 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 C A S H E Q U I VA L E N T S
Cash at bank
Short-term bank deposits
Group
Company
2016
$’000
2015
$’000
2016
$’000
2015
$’000
9,253
808
––––––––
10,061
––––––––
––––––––
6,660
386
––––––––
7,046
––––––––
––––––––
1,197
-
––––––––
1,197
––––––––
––––––––
1,627
-
––––––––
1,627
––––––––
––––––––
Cash and cash equivalents 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 $30,000 (2015: $36,000) held by the group’s employee share
ownership trust.
4 2
NOTES TO THE FINANCIAL STATEMENTS
4 3
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
2016
$’000
2015
$’000
2016
$’000
2015
$’000
967
294
230
2,937
––––––––
4,428
––––––––
––––––––
853
254
300
2,735
––––––––
4,142
––––––––
––––––––
28
128
-
360
––––––––
516
––––––––
––––––––
29
156
-
351
––––––––
536
––––––––
––––––––
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 (non-current portion)
8% convertible loan stock 2019
Total non-current loans and borrowings
Total loans and borrowings
a) Line of Credit and Loan Notes
Group
Company
2016
$’000
2015
$’000
2016
$’000
2015
$’000
3,000
167
––––––––
3,167
3,000
147
––––––––
3,147
-
-
––––––––
-
-
-
––––––––
-
200
2,448
––––––––
2,648
––––––––
5,815
––––––––
––––––––
23
2,963
––––––––
2,986
––––––––
6,133
––––––––
––––––––
-
2,448
––––––––
2,448
––––––––
2,448
––––––––
––––––––
-
2,963
––––––––
2,963
––––––––
2,963
––––––––
––––––––
In February 2014 the group established new credit facilities with Silicon Valley Bank, which were renewed and extended
in March 2016. The facilities comprise a $3m revolving line of credit and a term loan of $0.5m repayable in equal
installments until maturity at the end of January 2019. Both facilities bear interest at rates of 2.75 percent above the WSJ
Prime Rate, resulting in a current effective rate of 6.50 percent. The facilities are subject to covenants based on operating
results, and in addition the drawdown mechanics and interest rates are subject to certain working capital ratios.
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.
b) 8 Percent Convertible Loan Stock 2019
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. On 23 August 2012 the company made
a further issue of loan stock in a nominal amount of £1,150,000. Following this issue, whereby the aggregate liability at
maturity of the loan stock increased from £850,000 to £2,000,000, the conversion price was 5p per ordinary share.
As a result of the capital reorganization approved by shareholders on 12 June 2013, and the reduction of capital which
was confirmed by the Court on 20 November 2013, the conversion terms were amended in accordance with the provisions
of the loan stock, such that the loan stock was convertible into ordinary shares of 20p each of the company at a rate of
100p per ordinary share.
4 4
NOTES TO THE FINANCIAL STATEMENTS
4 5
On 2 June 2014 the holders of the loan stock agreed to extend the maturity date of the loan stock to 31 January 2017
coupled with an amendment of the conversion price to 76.5p per share, representing the closing market price of Sopheon
shares immediately prior to such agreement. On 21 March 2016 the holders of the loan stock agreed a further extension of
the maturity date of the loan stock to 31 January 2019. The conversion price and interest rate of the loan stock remained
unchanged.
Holders may convert the loan stock into Sopheon ordinary shares at any time up to the extended maturity date of 31
January 2019, and any loan stock not converted is to be repaid at par on that date. On 15 September 2016 a holder of
£10,000 loan stock converted their loan stock resulting in the issue of 13,071 ordinary shares, leading to a net remaining
amount due of $1.99m.
2 1 . 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
2016
$’000
429
422
––––––––
851
––––––––
––––––––
Other
2016
$’000
77
168
––––––––
245
––––––––
––––––––
Land &
Buildings
2015
$’000
508
471
––––––––
979
––––––––
––––––––
Other
2015
$’000
90
133
––––––––
223
––––––––
––––––––
The group leases its office accommodation in the US, UK and the Netherlands and has operating leases for office
equipment and vehicles. Since the year end, an office lease agreement for one of the group’s US locations has been
renewed, which would add $768,000 to total commitments for land and buildings disclosed above and relates to the period
to June 2020.
Company
The company has no operating leases.
2 2 . 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
Notes
Group
Company
2016
$’000
2015
$’000
2016
$’000
2015
$’000
17
17
17
18
8,655
50
343
10,061
––––––––
19,109
––––––––
––––––––
6,656
26
427
7,046
––––––––
14,155
––––––––
––––––––
-
42
-
1,107
––––––––
1,149
––––––––
––––––––
-
23
-
1,627
––––––––
1,650
––––––––
––––––––
16
19
––––––––
––––––––
19
––––––––
––––––––
-
––––––––
––––––––
-
––––––––
––––––––
The group does not have any financial assets in any other categories.
4 4
NOTES TO THE FINANCIAL STATEMENTS
4 5
2. Financial Liabilities
Current Financial Liabilities
Trade payables
Other payables
Accruals
Loans and borrowings
Non-current Financial Liabilities
Loans and borrowings
8% convertible loan stock 2019
Group
Company
Notes
2016
$’000
2015
$’000
2016
$’000
2015
$’000
19
19
19
20
20
20
967
294
2,937
3,167
––––––––
7,365
––––––––
200
2,448
––––––––
2,648
––––––––
10,013
––––––––
––––––––
853
254
2,735
3,147
––––––––
6,989
––––––––
23
2,963
––––––––
2,986
––––––––
9,975
––––––––
––––––––
28
128
360
-
––––––––
516
––––––––
-
2,448
––––––––
2,448
––––––––
2,964
––––––––
––––––––
29
156
351
-
––––––––
536
––––––––
-
2,963
––––––––
2,963
––––––––
3,499
––––––––
––––––––
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,
while 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:
4 6
NOTES TO THE FINANCIAL STATEMENTS
4 7
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 2016, the largest single customer accounted for 20 percent of
group revenues (2015: 11 percent of group revenues in respect of the same customer).
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,
Rabobank Amsterdam, and Silicon Valley Bank.
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 two years ending 31 December 2016 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 where invoiced, and to make provision against the applicable receivable if collection is uncertain.
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:
Total
$’000
Current
$’000
Past Due
+30 Days
$’000
Past Due
+60 Days
$’000
At 31 December 2016
At 31 December 2015
8,655
1,851
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
6,021
6,656
1,765
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
3,871
783
–––––––––
–––––––––
1,020
–––––––––
–––––––––
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:
2016
$’000
Provision
$’000
Gross
Value
$’000
Carrying
Value
$’000
Gross
Value
2015
$’000
Provision
Trade receivables
North America
Europe
7,355
1,300
–––––––––
8,655
–––––––––
–––––––––
-
-
–––––––––
-
–––––––––
–––––––––
5,551
1,105
7,355
1,300
-
-
––––––––– ––––––––– –––––––––
-
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
6,656
8,655
$’000
Carrying
Value
5,551
1,105
–––––––––
6,656
–––––––––
–––––––––
The group records impairment losses on its trade receivables separately from the gross amounts receivable. No
impairment losses were recorded during 2016 or 2015. 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 and deposit accounts with leading UK, US and
European banking institutions.
4 6
NOTES TO THE FINANCIAL STATEMENTS
4 7
b) Liquidity Risk
Liquidity risk arises from the group’s management of working capital, and more particularly its ability to be consistently
cash generative after 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.
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 2016
Trade and other payables
Line of credit
Loan notes
Future interest – loan notes
Convertible loan stock
Future interest – convertible loan stock
Total financial liabilities
At 31 December 2015
Trade and other payables
Line of credit
Loan notes
Future interest – loan notes
Convertible loan stock
Future interest – convertible loan stock
Total financial liabilities
Company
At 31 December 2016
Trade and other payables
Convertible loan stock
Future interest – convertible loan stock
Total financial liabilities
On Demand
or Within
Six Months
$’000
1,261
3,000
86
11
-
98
–––––––––
4,456
–––––––––
–––––––––
On Demand
or Within
Six Months
$’000
4,142
3,000
83
5
-
119
–––––––––
7,349
–––––––––
–––––––––
On Demand
or Within
Six Months
$’000
490
-
98
–––––––––
588
–––––––––
–––––––––
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
-
-
86
8
-
98
-
-
171
8
-
196
-
-
28
-
2,448
16
––––––––– ––––––––– –––––––––
2,492
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
375
192
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
-
-
83
2
-
119
-
-
28
-
2,963
20
-
-
-
-
-
-
––––––––– ––––––––– –––––––––
-
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
3,011
204
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
-
-
98
-
-
196
- 4
2,448
16
––––––––– ––––––––– –––––––––
2,464
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
196
98
Total
$’000
1,261
3,000
371
27
2,448
408
–––––––––
7,515
–––––––––
–––––––––
Total
$’000
4,142
3,000
194
7
2,963
258
–––––––––
10,564
–––––––––
–––––––––
Total
$’000
90
2,448
408
–––––––––
3,346
–––––––––
–––––––––
4 8
NOTES TO THE FINANCIAL STATEMENTS
4 9
At 31 December 2015
Trade and other payables
Convertible loan stock
Future interest – convertible loan stock
Total financial liabilities
c) Market Risk
On Demand
or Within
Six Months
$’000
536
-
119
–––––––––
655
–––––––––
–––––––––
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
-
-
119
-
2,963
20
-
-
-
––––––––– ––––––––– –––––––––
-
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
2,983
119
Total
$’000
536
2,963
258
–––––––––
3,757
–––––––––
–––––––––
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 consist of the convertible loan stock with a nominal value of
₤1,990,000, which bears a fixed interest rate of 8 percent, and the US Dollar fixed interest term loan notes amounting
to $371,000 at 31 December 2016. These liabilities do not give rise to interest rate risk. The group also has a
revolving US Dollar line of credit, on which $3,000,000 in aggregate was outstanding at 31 December 2016, and which
bears interest at a margin of 2.75 percent above the WSJ Prime Rate, currently representing an effective rate of 6.50
percent. Should this rate have increased by 1 percent the annualized effect would have been to increase finance costs
by $30,000.
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 2016 was $808,000. During 2016
interest rates on money market deposits averaged at or below to 0.5 percent in respect of US Dollar, Euro and Sterling
deposits. The annualized effect of an increase 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 in the group’s and the company’s interest income of
$4,000.
The company had no interest bearing bank deposits at the balance sheet date.
e) Currency Risk
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, while 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 Sterling and the Euro against the US
Dollar had been higher or lower than those which actually applied during the year and at the year end.
4 8
NOTES TO THE FINANCIAL STATEMENTS
4 9
2016
2015
2016
2015
Increase/
(Decrease)
in Profit
After Tax
$’000
Increase/
(Decrease)
in Profit
After Tax
$’000
Effect on
Exchange Differences
on Translation of
Assets and Liabilities
of Foreign Operations
$’000
$’000
Strengthening of Sterling in US Dollar terms by 10c
Weakening of Sterling in US Dollar terms by 10c
Strengthening of Euro in US Dollar terms by 10c
Weakening of Euro in US Dollar terms by 10c
33
(33)
(10)
11
–––––––––
–––––––––
17
(16)
(80)
81
(172)
166
79
(85)
––––––––– –––––––––
––––––––– –––––––––
(118)
117
43
(44)
–––––––––
–––––––––
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.
2015
2016
Increase/(Decrease)
in Profit After Tax
$’000
$’000
Strengthening of Sterling in US Dollar terms by 10c
Weakening of Sterling in US Dollar terms by 10c
Strengthening of Euro in US Dollar terms by 10c
Weakening of Euro in US Dollar terms by 10c
(198)
(172)
172
53
(53)
––––––––– –––––––––
––––––––– –––––––––
f) Capital
The group considers its capital to comprise its share capital and its special reserve and equity reserve 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 share capital is all equity capital and is summarized in Note 23.
2 3 . S H A R E C A P I TA L
Issued and Fully Paid
Ordinary shares of 20 pence each
2016
Number
2016
$’000
2015
Number
2015
$’000
7,361,365
7,279,000
––––––––– ––––––––– –––––––––
––––––––– ––––––––– –––––––––
2,375
2,354
–––––––––
–––––––––
Throughout the year the company has had in issue one class of ordinary shares, which have at no time carried any
right to fixed income. During the year, 13,071 ordinary shares were issued in connection with the conversion of loan
stock at 76.5p per share, and 69,294 in connection with the exercise of options at exercise prices ranging from 55p to
175p.
At 31 December 2016 the company had outstanding 25,138 warrants to subscribe for ordinary shares of 20p each at
a price of 400p 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.
5 0
NOTES TO THE FINANCIAL STATEMENTS
5 1
2 4 . C A P I TA L R E S E R V E S
Group
At 1 January 2015
Recognition of share-based payments
Lapsing or expiry of share options
At 1 January 2016
Issues of shares
Recognition of share-based payments
Lapsing or expiry of share options
At 31 December 2016
Company
At 1 January 2015
Recognition of share-based payments
Lapsing or expiry of share options
At 1 January 2016
Issues of shares
Recognition of share-based payments
Lapsing or expiry of share options
At 31 December 2016
Share
Premium
$’000
Equity
Reserve
$’000
Special
Reserve
$’000
-
-
-
––––––––
-
98
-
-
––––––––
98
––––––––
––––––––
581
114
(17)
––––––––
678
-
62
(68)
––––––––
672
––––––––
––––––––
5,073
-
-
––––––––
5,073
-
-
-
––––––––
5,073
––––––––
––––––––
Share
Premium
$’000
Equity
Reserve
$’000
Special
Reserve
$’000
-
-
-
––––––––
-
98
-
-
––––––––
98
––––––––
––––––––
581
114
(17)
––––––––
678
-
62
(68)
––––––––
672
––––––––
––––––––
5,073
-
-
––––––––
5,073
-
-
-
––––––––
5,073
––––––––
––––––––
Total
$’000
5,654
114
(17)
––––––––
5,751
98
62
(68)
––––––––
5,843
––––––––
––––––––
Total
$’000
5,654
114
(17)
––––––––
5,751
98
62
(68)
––––––––
5,843
––––––––
––––––––
The equity reserve comprises 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 2019.
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 2016 and at 31 December 2015, the Esot held 7,000 ordinary shares of 20p each in the
company, which represents 0.1 percent of the company’s ordinary share capital. The equity reserve includes a
deduction of $17,000 (2015: $17,000) which represents the cost of the shares held by the Esot at 31 December 2016.
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 2016 and at 31 December 2015, 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.
The special reserve is a non-distributable reserve arising from a capital reorganization in 2013, which may be used,
amongst other purposes as approved by the court, for the same purposes as if it were a share premium reserve.
2 5 . 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 $269,000 (2015: $239,000) represents contributions paid to such plans
at rates specified in the rules of the plans.
5 0
NOTES TO THE FINANCIAL STATEMENTS
5 1
2 6 . 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
2016
$’000
2015
$’000
2,561
51
47
–––––––
2,659
–––––––
–––––––
2,616
52
87
–––––––
2,755
–––––––
–––––––
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 in respect of interest-free loans
Net management charges to subsidiaries
2016
$’000
2015
$’000
(36)
556
–––––––
–––––––
(1,767)
498
–––––––
–––––––
The amounts owed by subsidiary companies to the parent company at 31 December 2016 totaled $48,386,000 (2015:
$58,285,000). A full provision has been made against these amounts, which are unsecured and are subordinated to the
claims of all other creditors.
During 2016 and 2015 the company granted share options to employees of subsidiary companies. Details of grants of
share options are disclosed in Note 27.
Other Related Party Transactions
There were no other related party transactions during the year under review or the previous year.
2 7 . 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
5 2
NOTES TO THE FINANCIAL STATEMENTS
Details of the share options outstanding during 2015 and 2016 are as follows:
Number of
Share
Options
Outstanding at 1 January 2015
Options granted in 2015
Options lapsed in 2015
Outstanding at 31 December 2015
Options granted in 2016
Options exercised in 2016
Options lapsed in 2016
Outstanding at 31 December 2016
Exercisable at 31 December 2016
Exercisable at 31 December 2015
Weighted
Average
Exercise
Price
£
1.01
0.48
1.00
635,940
26,250
(40,020)
–––––––––
622,170
91,189
(69,294)
(19,919)
–––––––––
–––––––––
0.99
0.88
1.19
0.97
–––––––––
0.95
–––––––––
–––––––––
0.99
–––––––––
–––––––––
490,210 1.06
–––––––––
–––––––––
624,146
–––––––––
–––––––––
–––––––––
–––––––––
–––––––––
–––––––––
520,114
During the 2016, options were exercised over 69,294 ordinary shares at exercise prices ranging from 55p to 175p. No
share options were exercised during 2015. The options outstanding at the end of the year have a weighted average
contractual life of 6.2 years (2015: 7.1 years).
During the year share options were granted on 8 April 2016, when the exercise price of options granted was 87.5p and
the estimated fair value was 51.8p. During the preceding year share options were granted on 10 April 2015, when the
exercise price of options granted was 47.5p and the estimated fair value was 28.1p.
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
April
2016
April
2015
87.5p
87.5p
40%
5%
Nil
47.5p
47.5p
40%
5%
Nil
The expected contractual life of the options used was ten years. Expected volatility was determined by reference to the
historic volatility of the company’s share price in the period before the date of grant.
608,440
233,704
(231,204)
–––––––––
610,940
38,500
(13,500)
–––––––––
635,940
–––––––––
–––––––––
335,492
–––––––––
–––––––––
157,095
–––––––––
–––––––––
2.11
0.85
3.65
–––––––––
1.04
0.55
0.96
–––––––––
1.01
–––––––––
–––––––––
1.12
–––––––––
–––––––––
1.27
–––––––––
–––––––––
Details of the share options outstanding during the 2013 and 2014 are as follows:
D I R E C T O R S
Number of
Share
Options
Weighted
Average
Exercise
Price
£
Outstanding at 1 January 2013
Options granted in 2013 prior to capital reorganization
Options lapsed in 2013 prior to capital reorganization
Barry Mence, 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, Barry was the major shareholder and group managing director of the Rendeck Group of
Companies, a software and services group based in the Netherlands.
12,179,680
1,117,500
0.10
0.05
0.11
(1,128,300)
Share options outstanding immediately prior to capital
reorganization becoming effective
–––––––––
–––––––––
12,168,880
–––––––––
0.11
–––––––––
Share options outstanding immediately following the capital
reorganization becoming effective
Share options granted in 2013 subsequent to capital reorganization
Options lapsed or cancelled in 2013 subsequent to capital reorganization
Andrew Michuda, Chief Executive Officer. Andrew (Andy) Michuda was appointed chief executive officer
of Sopheon in 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. Prior to joining Sopheon, Andy
held senior leadership positions at Control Data.
Outstanding at 31 December 2013
Options granted in 2014
Options lapsed in 2014
Outstanding at 31 December 2014
Exercisable at 31 December 2014
Arif Karimjee, ACA, Chief Financial Officer. Arif Karimjee joined Sopheon as chief financial officer in 2000.
Arif served as an auditor and consultant with Ernst & Young in the United Kingdom and Belgium from 1988
until joining Sopheon.
Exercisable at 31 December 2013
No share options were exercised during the year (2013: Nil). The options outstanding at the end of the year have a
weighted average contractual life of 8.1 years (2013: 9.0 years).
During the year share options were granted on 19 September 2014, when the exercise price of options granted was
55p and the estimated fair value was 32.6p.
Stuart Silcock, FCA, Non-Executive Director. Stuart Silcock has served as a director of Sopheon since
its inception in 1993 when he was one of the founding members of the company. Since 1982 Stuart has
been a principal Partner in Lawford & Co chartered accountants. Stuart was a non-executive director of
Brown and Jackson plc for four years from 2001 and has held a number of other directorships in the United
Kingdom.
During 2013 share options were granted on 18 April 2013 (prior to the capital reorganization referred to in Note 23),
when the exercise price of options granted was 5.25p and the estimated fair value was 3.11p and on 5 December 2013
(after the capital reorganization) when the exercise price of options granted was 85p and the estimated fair value was
50.33p.
The fair values for options granted are calculated using the binomial option-pricing model. The principal assumptions
used were:
Daniel Metzger, Non-Executive Director. Dan Metzger was until 1998 Lawson Software’s EVP Marketing,
where he helped the company grow its revenues from $13m to $400m. Since then he has held similar
roles at Parametric Technologies, and also at auxilium and nQuire, subsequently sold to Parametric and
Siebel respectively. As a strategy consultant, Dan has helped numerous technology companies reach and
exceed their growth objectives. Dan is currently CEO of Oppsource Inc.
September
2014
December
2013
April
2013
Date of Grant
Share price at time of grant
Exercise price
Expected volatility
Risk-free rate
Expected dividend yield
55p
55p
40%
5%
Nil
85p
85p
40%
5%
Nil
5.25p
5.25p
40%
5%
Nil
The expected contractual life of the options used was ten years. Expected volatility was determined by reference to the
historic volatility of the company’s share price in the period before the date of grant.