2020 Annual Report
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Enterprise
Innovation
Management
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TABLE
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CONTENTS
STRATEGIC REPORT
Summary Results and Trends .............................................................................................5
Chairman's Statement .........................................................................................................6
Strategy and Market ............................................................................................................8
Financial Review ...............................................................................................................15
GOVERNANCE
Directors and Advisors ......................................................................................................20
Board Committee Reports .................................................................................................21
Directors' Report ................................................................................................................24
Statement of Directors' Responsibilities ............................................................................29
FINANCIAL INFORMATION
Auditors' Report .................................................................................................................30
Consolidated Financial Statements ...................................................................................37
Notes to the Financial Statements ....................................................................................41
Sopheon and Accolade are registered trademarks of Sopheon plc.
Microsoft is a registered trademark of the Microsoft Corporation.
All other trademarks are the property of their respective owners.
Sopheon’s mission is to help
our customers achieve exceptional
long-term growth and profitability
through sustainable innovation.
We do this by digitalizing enterprise innovation through software, services and
best practices that help companies operate with success.
Our solutions connect people, systems and information, helping companies
better execute on business strategy and improve the return on their investments
into initiatives such as transformational change, enterprise innovation, product
development, supply chain efficiencies and cost reduction.
These solutions are designed to keep strategy visible and continuously aligned
with operational execution throughout the initiative life cycle, ensuring long-term
market success. The transparency and insight they provide support speed, agility
and adaptability – all critical enterprise capabilities in the digital era – and enable
decision-making that drives better business outcomes.
Strategic
Innovation
Planning &
Roadmapping
Strategy
Execution
Idea/
Concept
Development
Innovation
Process &
Program
Management
Portfolio
Optimization
& Resource
Management
2017
2018
$33.9m
2016
$28.5m
$23.2m
2019
2020
$30.3m
$30.0m
2019
$15.9m
2018
$14.8m
2017
2020
$18.0m
2016
$12.1m
$9.9m
SaaS
2.74X
New
1.58X
Total
1.25X
REVENUE
ARR
TCV GROWTH
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)
First to embed proactive
knowledge discovery
6
CHAIRMAN'S
STATEMENT
I am very proud to report a growth in contractual bookings over the previous year in a
period of unpredictability and unparalleled disruption. We are reporting $30m revenue
in 2020, matching the prior year, and with several other indicators showing rising
commercial traction, even in the face of dual headwinds. Besides the global shock
caused by the pandemic, this was our first full year of prioritizing Software as a
Service (SaaS) contracts for our new customer engagements. Each of these factors
created downward pressure on revenues, highlighting the strength of our achievement.
The pandemic introduced new challenges to sales and retention; and our strategy to
make selling new SaaS contracts a priority reduces revenue recognition in the first year
compared to traditional perpetual licenses, trading this for a higher quality and predictable
ongoing recurring revenue stream in the future. Other key metrics, core to measuring the progress of our cloud
transition, are encouraging – Total Contract Value (TCV) of sales booked in the year was up a quarter, and we
nearly tripled the TCV of new SaaS contracts booked. Six of the new deals signed exceeded $1m in initial TCV,
and Annual Recurring Revenue (ARR) closed at $18m, an historic high up from $15.9m a year ago. Retention
did suffer during the initial stages of the pandemic, then rebounded later in the year. Furthermore, we achieved
all of this while continuing to deliver a solidly profitable and cash generative year, also reporting new highs in
cash balances and closing net assets.
Sopheon is a business in transition. As our CEO Andy Michuda explains in his report, we are embarking on the
development of new cloud-native products, which will contribute to the growth of our well-established enterprise
solution, Accolade®. These new cloud-based applications will bring value to personal and workgroup productivity
alongside the corporate value points we are well known for. This strategy and investment will lead to multiple
benefits. Our new applications will address needs of a work-from-home trend that is now unstoppable and will
introduce a low cost, high volume market “pull” sales model by targeting innovation professionals in our target
markets. This parallel sales model will produce upsell enterprise opportunities; and our strong enterprise brand
and reputation will in turn feed the cloud-based application sales funnel. Our cloud products will integrate
seamlessly with our current enterprise solution – and over time, we expect many existing enterprise customers
to adopt the cloud applications. In addition, we fully expect to add new cloud capability and market presence
through acquisitions. We will move rapidly when the right opportunity is identified.
In this context of transition, I have the bittersweet task of noting that this will be my last report as Chairman of
Sopheon. I have been in this role since inception of the company. It has been a privilege to lead such talented
employees, and to build a business that is making a real difference to so many major corporations. Yet, as we
embrace change in our own business, the time has come to pass the baton. I can think of no better person
to take on the Executive Chairman role and to steer Sopheon through the coming years than our CEO, Andy
We fully expect to add new cloud capability and market
presence through acquisitions. We will move rapidly
when the right opportunity is identified.
STRATEGIC REPORT
7
Michuda. As well as governance, Andy will focus on partnerships and acquisitions. He will be replaced as CEO by
Greg Coticchia who joined us in October 2020. We also welcome Greg to the board of the company. As we have
previously shared, Greg is a recognized entrepreneur, business leader, professor and author, with over thirty years’
experience in software products and services. He has great experience in leading the strategic transition we face
and is now fully embedded and supported by our senior leadership team. The board and I are delighted with these
two appointments. The changes I have described will take effect on 31 March 2021. My personal commitment to
Sopheon is undimmed, and I will remain a non-executive director and major shareholder in the company as we go
through this exciting new chapter in the Sopheon story.
Although SaaS will dominate new deals and represents our future, I should emphasize that we fully expect to
continue to sign some perpetual licenses, driven mainly by existing customers. Adding our year-to-date license
sales and consulting services backlog to ARR takes overall revenue visibility1 for 2021 to $24.5m at the time of this
report, compared to $21.2m a year ago. With this solid revenue base already in place for 2021, plus our strong
balance sheet, a superb customer base and a team of great people – I am confident that Sopheon has a great
future. We also continue to believe in sharing success with shareholders, and I am therefore pleased to announce
that we will again maintain our dividend at 3.25p per share.
Barry Mence
Executive Chairman
23 March 2021
2020
$30.0m
2019
$27.9m
2020
$21.7m
2019
$19.4m
NET ASSETS
NET CASH
1 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 and rental streams. The visibility calculation does not include
revenues from new sales opportunities expected to close during the remainder of the year.
8
STRATEGY
AND
MARKET
In this section, our CEO Andy Michuda explains 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 Review.
Our Mission
Sopheon was founded with a mission to provide our customers with world-class product solutions that contribute
to exceptional long-term growth and profitability through sustainable innovation. Our Accolade solution digitalizes
Enterprise Innovation and other strategic initiatives that provide competitive advantage in the age of digitalization.
LEARNINGS FROM 2020
Our Clients Entered the Journey to Migrate Their Accolade
Application to the Cloud
The R&D-intensive industries that Sopheon targets started to accept the cloud in
earnest in 2019. Sopheon entered 2020 with the introduction of new programs
to assist our clients in moving their data sensitive applications managed by
Sopheon’s product, Accolade, to the cloud. Customers have responded
favorably:
• We introduced a SaaS First program to interest new clients to favor SaaS
contracts over the traditional on-premise in perpetuity agreements. The
market was very receptive to the offering, resulting in over half of our net
new clients in 2020 signing SaaS contracts. We are confident this shift will
deepen into 2021.
• We introduced a SaaS Uplift program designed to assist active
maintenance-paying clients to transition to the cloud. Our offering reduces
cost to the client by removing the need for them to manage our software
in their environment. It also enables faster access to new features
and capabilities. Four clients converted to SaaS in 2020 as part of our
introduction program, validating our business case and ROI proposition.
With this success behind us we enter 2021 expecting to increase
momentum in this uplift program, targeting our substantial base of perpetual
on-premises clients.
STRATEGIC REPORT
STRATEGIC REPORT
9
9
Convergence of Physical and Software Innovation Has
Created a New Unmet Need
Software start-ups and high-tech leaders are disrupting every industry with
new operating models. This has forced traditional companies to invest in
software engineers to create “smart” products to compete. As a result, a new
challenge has emerged. Companies are struggling to manage the governance
between the physical and software aspects of their products to orchestrate the
cross-functional product development lifecycle and go-to-market activities. If
companies don’t adapt and introduce new agility they will struggle to compete.
We see this as a significant opportunity to Sopheon.
Accolade Offers Customers the Agility and Adaptability to
Handle Disruption
At the time of writing our annual report last year, we knew very little about
COVID-19 and its impacts on our business. What we know now is that while
many industries have been devastated by COVID-19, others have thrived. Some
of our target market segments were directly impacted, but the majority of our
client base was not hurt by COVID-19. Sopheon has fared well due to our target
focus on industries that were minimally affected, with several clients expanding
their use of our Accolade software to support their newly created virtual work
environment. As our CFO Arif Karimjee describes in the financial report, we
did however experience a lower than normal client retention rate in the first
half of 2020, as some customers took short-term cost actions. Retention rates
rebounded in the second half of the year and we expect this to continue.
While the COVID-19 disruption did delay a few buying cycles during 2020, Sopheon booked more in net new
contract value in 2020 than in 2019, which demonstrates the resiliency of Accolade’s value proposition during
times of market disruption. In addition, we successfully completed several new client deployments, including
Mondelez and Orion Engineered Carbons with entirely remote customer engagements and support activities.
Sopheon’s longstanding focus on specific verticals was evident again in 2020, with 100 percent of our ten net
new clients coming from our target industries of chemical, consumer goods, aerospace and defense, high-tech
and industrial manufacturing. New clients are well-known market leaders, among them DuPont, LG, Hochland,
Clif Bar and Mondelez. While our net new pipeline was very active and opportunities continued to move through
our sales process we did notice a slow down at the front of the pipeline (suspect development) through mid-2020
but that trend has since shifted in the fall and we exited 2020 with the strongest net new pipe in the history of the
company.
10
STRATEGIC REPORT
GROWTH STRATEGY
Our growth strategy focuses on three key areas.
1
Organic Growth through Strong Ecosystem Networks
Leverage blue-chip references to extend our Accolade software as the product of choice to
digitalize enterprise innovation in our target markets. Sopheon’s roster of customers is a Who’s
Who of the world’s leading companies creating a strong and influential ecosystem. The strong
brand of our solution is evidenced by the addition of new customers in food and beverage,
consumer goods, chemicals and defense sectors, even in the face of COVID-19. We have
continued to concentrate on our core industries to grow market share where we hold preferred positions due to
strong competency in our product, best-practice content and expertise of our people. I am proud to share that 100
percent of our new sales in 2020 came from these core verticals, proof of our team’s dedication to executing on our
strategy.
Sopheon’s long history and experience in these verticals allows us to operate as an industry connector for our
clients, introducing them to one another for mutual learning and to advance their competency and success. Despite
the strength in this area, we have not captured our share of these markets and will therefore invest efforts to do
so. In parallel, we continue to test additional industries for expansion such as the automotive and transportation
sectors.
Sopheon customers report the following value from digitalizing their innovation processes with Accolade:
^ 75%
15-30%
50%
10-20%
Increase
Portfolio Value
by 75-100%
Reduce
Time to Market
by 15-30%
Increase
Product/Initiative
Success
by up to 50%
Reduce
Costs
by 10-20%
Expansion from Product to Enterprise Innovation: We continue to see the use of Accolade expand to support
additional business needs such as strategic transformation and business innovation initiatives spanning supply
chain; smart, connected product innovation; and more. Our strengths were also recognized by Gartner in their
research reports on tools for innovation management1, product management and roadmapping2, software for
strategy execution management3 and technologies supporting a digital twin of the organization.4
We are in the midst of no ordinary business cycle, but rather one that requires a fundamental transformation by
businesses of all sizes and across all industries to operate with more agility and responsiveness. Organizations
unable to master this transition will disappear. The key driver of this disruption and resulting "digital revolution" is
the changing expectation of customers in the way they choose, buy, obtain and use products. Product innovation
is at the heart of our customers’ digital transformation and is, now more than ever, critical for business survival.
Executing on digital transformation strategies and initiatives has become an imperative for these organizations.
This emerging market represents a considerable addressable target market size as a subset of the overall digital
transformation market, which is estimated to exceed $2 trillion by 2025.5
We see this as a unique opportunity for Sopheon to digitalize corporate strategic initiatives, innovation investments
and portfolios in a single platform, creating a digital operating model designed to help organizations meet the
challenge of digital disruption and enabling a CEO to achieve his or her strategic direction with a velocity that
cannot be accomplished without the support of an enterprise innovation management platform.
STRATEGIC REPORT
11
2
Transformation to a SaaS Business
Transition the revenue model: The benefits of moving our revenue model from perpetual
License and Initial Maintenance (LIM) to one emphasizing Annual Recurring Revenue (ARR)
delivers higher predictability and is driving our investment in our cloud business strategy.
This transformation affects every aspect of our company and all cross-functional operations,
and will allow Sopheon to innovate more quickly, shorten the time to acquire new customers,
improve business predictability (through reducing license spikes and troughs, guaranteeing recurring revenue
and guaranteeing paid support), further improve the scalability and performance of our software, and reduce the
cost of service delivery. In addition, we will also better meet our customers’ preference for greater flexibility and
alignment of their investment with consumption of the software. We will continue the Cloud transition by further
executing on the programs introduced in 2020 – SaaS First selling and Cloud Uplift for on-premises clients.
Introduce new cloud offerings for product-led growth: As we continue to invest in new cloud-native SaaS
capabilities, we will take advantage of opportunities to promote and sell these new capabilities as market
consumable applications using a product-led model that affords product trials, freemium usage and self-service
provisioning with no or low-cost implementation. This product-led approach represents a new go-to-market
channel and will create a “flywheel” effect to accelerate the rate of new customer acquisition, by providing a
base of new customers into which our direct sales teams can upsell larger enterprise SaaS deals. The cloud
applications will integrate seamlessly with our current enterprise solution – and over time, we expect many
existing enterprise customers to migrate.
3
Non-Organic Growth
Partnerships: Sopheon develops and maintains three types of partnerships.
Technology Partners provide enabling technologies and integrations that broaden our
solutions and reduce demands on our internal R&D effort. Microsoft® continues to be our
most important technology partner and in 2020 Sopheon released a deep integration between
Accolade and Microsoft Teams to enable customers to use the Teams platform for workstream collaboration
on product and enterprise innovation initiatives. This integration extends user adoption to new individuals and
workgroups across the enterprise and was recognized by Gartner as a model for all cloud software vendors in its
2020 report on effective remote working.6
Reseller Partners allow Sopheon to sell and support Accolade in regions that require specialized, local knowledge
and expertise. Our current reseller partners are Prodex Systems supporting Australia and New Zealand, PCITC
supporting China, and Roadmapping Technology supporting certain sectors in the United Kingdom.
Consulting Partners provide specialist innovation management expertise that support successful implementation
of our Enterprise Innovation Management solutions. We have worked with consulting partners including
Accenture, Deloitte, BCG, PWC, Atos, The Adept Group, and Stage-Gate, Inc.
M&A: We are actively researching opportunities for M&A. Our criteria are for businesses that could extend the
capabilities of our solutions as an alternative to internal R&D, expand our footprint within existing customers,
attract customers in new verticals, or extend geographic reach by de-risking the pitfalls of organic growth in new
territories. Targets will ideally offer cloud native technologies, contribute to ARR growth, fit into the innovation /
product management / strategy space we serve, and offer end-user value and an online sales channel alongside
our enterprise solution salesforce.
12
STRATEGIC REPORT
WHAT MAKES
SOPHEON DIFFERENT
Our Culture
As a company and as individuals we value integrity, honesty, openness, inclusion, personal excellence, continual
self-improvement and mutual respect. These core values contribute to a culture that sets us apart. At a time when
technology companies are experiencing unprecedented turnover, Sopheon is proud of our employee retention of
almost 90 percent. The many employees whose tenure is 10 years or longer contributes in a unique and critical way to
instilling our cultural values into the mentoring of new Sopheonites as they undergo onboarding.
“The work is challenging…
it doesn’t get dull!”
“We’re always upgrading
[technologically] and
playing with new tools.”
“It’s truly a team, you have
a voice and are heard.”
“[Sopheon is] the most
flexible and open company
I’ve worked for.”
“As long as your work gets
done, you have autonomy
and flexibility.”
“Good people who are energetic
and good to be around.”
Our People
Innovation Specialists with Deep Experience
We have long-term partnerships with some of the most admired innovators and domain experts in the world. This
has provided us the opportunity to learn, invest and continue to serve the needs of such market leaders. It is this
foundational expertise that has differentiated Sopheon from others in the market.
Our clients tell us our people are caring, give them high marks for domain knowledge and commitment to their
success.
• “Sopheon set itself apart with the promise of best-practice content embedded in its software to guide us in
defining our new processes, and its knowledgeable and highly responsive team.” (Endress+Hauser)
• “We have found in Sopheon a professional, trustworthy and flexible partner who not only meets the regulatory
requirements for hosting our sensitive project data but proved to have a deep understanding of our business
needs and processes." (innoEnergy)
• “You both have been extremely engaging and proactive in improving our environment.” (Fortune 500 consumer
goods firm)
STRATEGIC REPORT
13
Commitment to Delivering Customer Value
We have had solid uptake and market response to our Value Assurance Approach (VAA) program as a way to
streamline the path to customer value and mitigate implementation value risk. In addition to integrating learnings
and evolving the process and content, we’ve expanded the program to introduce a higher level of reuse in what is
delivered to customers with prescriptive deliverables and approaches. To further assure customer success, we have
begun developing an education and training structure to better enable customers to drive effective usage through
their organizations. Our focus on these areas in the past couple of years has created a solid foundation that will
allow us to continue to scale our ability to deliver customer value faster, grow our client base and increase client
satisfaction. Additional investment in a Customer Success organization is planned to further scale as we expand our
SaaS offerings to the market to assure that we not only acquire and lead customers to value quickly, but we are also
able to mature and retain those customers for the long term.
Our Product
Sopheon’s product team continued to steadily improve and grow Accolade’s ability to empower our customers’
innovation lifecycles while addressing the impact COVID-19 has had on their processes and innovation programs.
In addition to introducing new market-facing capabilities, we invested in our underlying technologies and
capabilities that support our cloud and product-led growth initiatives. In 2020 we maintained a regular release
cadence while also quickly bringing new and innovative capabilities to market to directly address the disruption
caused by COVID-19.
• Accolade Disruption Response Toolkit, released in April, introduced capabilities to view, assess and analyze
risks and opportunities based on impacts to consumer demand and available production capacity, supply chains,
distribution networks, workforce, and capital. Product and project portfolios can quickly and easily be assessed,
recommendations for actions collected, and multiple scenarios then presented for informed executive decision
making.
impacts of the disruption in this way. It gave me a fresh perspective on how we could be
“ When I saw this new toolkit, I realized that we simply hadn’t considered the
looking at this.”
– Heidi Akkerman
Senior Innovation Manager, Hormel Foods
• Accolade Disruption Offering with deep integration to Microsoft Teams, also released in April, streamlines
communication across dispersed innovation team members via Microsoft Teams chat, meetings and video calls.
Team members can easily initiate real-time and secure Microsoft Teams communications directly from within
Sopheon’s Accolade, thereby improving information flow within project teams and across all stakeholders.
• Accolade 13.1, released in May, was focused around three themes – engaging work groups, providing insights
and improving usability and administration – all of which continued to extend Accolade’s ability to empower
users to plan and execute complex product development programs. The release enabled even deeper controls
and visualizations for iterative planning and trend analysis for faster response to new market conditions.
• Accolade Connect for Microsoft 365, released in May along with Accolade 13.1, further extended the
Accolade 13.1 theme of Engaging Teams by empowering collaboration and team engagement directly through
synchronized data and content between Accolade and Microsoft Office 365 documents.
• Accolade 13.2, released in November, furthered our ability to help companies prioritize the most pressing issues
first while ignoring distraction. This was enabled through improved interactive data visualizations that enable
informed decision making by providing a faster path to uncovering critical insights.
14
STRATEGIC REPORT
2021 product investments are planned in support of our cloud strategy, and include the expansion of our product
management organization, creation of our Product Led Growth solutions and the building out of our cloud
infrastructure.
This will help both our business leaders and technical users gain immediate answers to
their questions, which will dramatically increase the speed to decisions. The value of this
“ The ability to engage interactively with our data and manipulate it in situ is exciting.
is enormous.”
– Dave MacAdam
Director of Innovation Strategy, Novelis
Our Clients
Sopheon is proud of the quality of our blue-chip customer base. Legendary brands to join the Sopheon fold in 2020
include Mondelez, DuPont, Orion Engineered Carbons, Huber, Hochland, J.R. Simplot, Clif Bar, LG and others.
These market leaders provide a strong revenue stream from ongoing maintenance renewals, plus the nature of
the relationship offers potential for expanding our user base and application of our software into new areas of their
business. Our client base of global innovation leaders has grown to be an additional differentiator for us as our
clients increasingly benefit through collaboration, sharing and learning across this ecosystem. This value is shared
by longstanding clients and by new clients coming into the Sopheon network.
Client Product Uptake and Satisfaction
Migration to current releases is strong
At the time of our Accolade 13.2 release in November 2020 over 94 percent of our clients were on
supported releases, up from last year’s reported 90 percent.
We remain confident in our growth trajectory and work with passion to achieve the unique market opportunity
ahead. Accelerated digital disruption across almost all industries presents a strong driver for Sopheon’s growth.
As legacy corporations adapt to new competition from digital start-ups and high-tech companies, they are forced
to increase the scope and pace of innovation in order to survive. Sopheon’s solutions solve for this challenge.
A summary of the principal risk areas facing the business is set out in the Directors' Report.
Approved by the board and signed on its behalf by:
Andy Michuda
CEO
23 March 2021
1 Gartner, Market Guide for Innovation Management Tools, 30 November 2020 (ID: G00729938)
2 Gartner, Market Guide for Product Management and Roadmapping Tools, 5 September 2020 (ID: G00727147)
3 Gartner, Market Guide for Strategy Execution Management Software, 25 November 2019 (ID: G00379060)
4 Gartner, Market Guide for Technologies supporting a DTO, 18 December 2019 (ID: G00464474)
5 Research and Markets, "Digital Transformation Market to 2025”
6 Gartner, To Enable Effective Remote Work, Build Collaboration Features Natively Into your Software Products, 27 July 2020
(ID: G00726943)
15
15
FINANCIAL
REVIEW
In this report, our CFO Arif Karimjee provides further analysis of Sopheon’s financial results
during 2020, our financial position at the end of the year, and an overview of key corporate
developments.
Trading Performance
As highlighted by Barry in the Chairman’s Statement, sales bookings increased while top
line performance for 2020 was broadly flat at $30.0m (2019: $30.3m) despite twin headwinds,
being the incidence of the coronavirus pandemic, and also the revenue impact of migrating the
business towards a SaaS model.
Total license order volume (including SaaS deals) remained solid at 43 (10 new) license transactions compared to
47 (18 new) the year before; however, the make-up of those deals changed sharply – 22 were SaaS compared to
9 the year before; and 8 (6 new) were at the $1m level or more compared to just 2 (1 new) the year before. Major
wins announced included Mondelez, LG, Orion Engineered Carbons and DuPont. These metrics demonstrate both
commercial traction with enterprise class accounts, and SaaS traction across the board.
The TCV of SaaS business almost tripled from $2.4m to $6.6m, contributing strongly to ARR growth and underpinning
the conversion of the business to a recurring model. Overall revenue recognized from recurring relationships –
maintenance, hosting and SaaS – rose to $17.3m from $15.5m in 2019, and ARR at the end of the year had risen to
$18.0m (2019: $15.9m). In tune with these trends, perpetual license recognition was $3.0m compared to $5.8m the
year before. Consulting services revenue, which is recognized as it is delivered, was $9.7m compared to $9.3m the
year before.
Stepping back from the detailed movements by category, the TCV of all contracts signed in 2020 rose by 25 percent
to $21.2m.
SaaS and ARR
As Andy has noted, we took two deliberate steps to accelerate SaaS signings in 2020. For new customers,
we successfully transitioned the sales team to a “SaaS First” approach where all new customers are encouraged to
adopt the SaaS model. For existing perpetual customers that do not host with Sopheon, we have developed a “Cloud
Lift” program to encourage them to upgrade their perpetual license to a SaaS license, delivering good ROI by taking
on hosting and certain managed services. Four perpetual customers took advantage of Cloud Lift during 2020. We
believe this program will gain market momentum due to a market-wide trend to remove corporate IT infrastructure and
shift this burden to vendors.
The TCV of SaaS business almost tripled from $2.4m to $6.6m, contributing
strongly to ARR growth and underpinning the conversion of the business
to a recurring model.
16
STRATEGIC REPORT
As highlighted by the metrics above, the conversion of Sopheon’s revenue model to SaaS accelerated during 2020
alongside the overall growth in bookings. ARR growth was held back by gross retention at 91.5 percent (2019:
94.2 percent). Although respectable by most standards, it was lower than we are used to but unsurprising given
the challenging market conditions for some of our customers. We do note however that two-thirds of the churn
value happened in the first half of the year, with a rebound to normal levels during the second half. Our customer
base reports they are generally satisfied, with our net promoter (“NPS”) surveys recording an overall NPS score
of 35 in 2020. Down on 2019’s score of 40, a score of 35 is still considered excellent for B2B enterprise software.
Our customers remain keen to take on new functionality, with 94 percent of them on Accolade versions 12 or 13,
the current supported releases. Further underlining the strength of customer relationships and the appeal of the
software, we note that there were 33 license orders from existing customers during the year.
Seasonality and Geography
The revenue calendarization pattern broadly held to experience with the second half of the year accounting for 54
percent of revenues (2019: 55 percent and 2018: 53 percent). As the business migrates to a more recurring model,
we expect this seasonality to decline in importance; however, looking at sales bookings rather than recognized
revenues, the final quarter continues to dominate with 44 percent of TCV signed (2019: 48 percent).
Though our core markets of the United States and Europe dominate revenues, we continue to see traction in other
locations with signings in Korea, Canada, Australia, Japan and Turkey. Our activities in the Pacific region continue
to be managed through partners while the broader Americas, Europe and Middle East markets are addressed by
our direct sales teams. Unlike 2019, which saw our performance overweight in the United States compared to
the past, 2020 was more balanced across the two main regions both in terms of overall revenues and major deal
signatures. Overall European revenues including recurring revenues were 37 percent of the total compared to 32
percent the year before.
Gross Margin
Gross margin was 69.8 percent, compared to 70.1 percent in 2019. This remains well within the historical range.
Gross margin is calculated after deducting the cost of our consulting organization – both payroll and subcontracted;
costs and charges associated our hosting activities, some license royalties due to OEM partners and costs and
credits relating to certain indirect taxes. As in previous years, we maintained use of subcontractors last year
alongside some new hires, allowing for greater flexibility.
We took two deliberate steps to accelerate SaaS signings in 2020. For
new customers, we successfully transitioned the sales team to a “SaaS
First” approach where all new customers are encouraged to adopt the
SaaS model. For existing perpetual customers that do not host with
Sopheon, we have developed a “Cloud Lift” program to encourage them
to upgrade their perpetual license to a SaaS license, delivering good
ROI by taking on hosting and certain managed services.
Pipeline
Revenue visibility for the year now stands over $24.5m compared to $21.2m at this time a year ago. This is quite
a step up, supported by ARR growth already referenced. In addition, we have seen interesting development in
the sales pipeline. By the end of 2019, it was over 50 percent higher year on year. By June 2020, it had dipped a
little, but we saw a rebound in the second half of the year, and it ended 2020 up another 10 percent compared to
the 2019 closing level. Within the pipeline, we continue to show rising levels of SaaS opportunities and increasing
numbers of larger deals, all in line with the overall strategy.
STRATEGIC REPORT
17
Research and Development Expenditure
Overall expenditure in product development in 2020 increased again by approximately $0.5m to $6.9m. These
amounts can be compared to the headline research and development reported in the income statement showing an
increase from $5.7m to $5.9m; the differences are due to the effects of capitalization and amortization of development
costs.
This continued expansion of resources will permit Sopheon to embark on the cloud application development strategy
that Andy has described in his report. We are maintaining investment in our core enterprise Accolade solution, while
also developing cloud-native applications that will bring multiple benefits in the short and medium term. Overall, the
amount of 2020 research and development expenditure that met the criteria of IAS38 for capitalization was $3.7m
(2019: $3.0m) offset by amortization charges of $2.7m (2019: $2.3m). The higher capitalization rate reflects the
greater resources referred to above; the consequent impact on amortization will come through over time as the
products are released. Capitalized costs in 2020 are largely attributable to the group’s investment in the Accolade
13.1, 13.2 and 13.3 versions, and our first cloud-native release. The Accolade 13.1 and 13.2 releases were issued
during 2020; the other two will be released in 2021.
Other Operating Costs
Payroll costs continue to represent over three quarters of our cost base. Sopheon has a relatively mature and highly
qualified blend of staff, reflecting the professional and intellectual demands of our chosen market. Our original 2020
plans had ambitious hiring goals, but when the pandemic struck, we froze hiring for several months. Nevertheless,
we ended last year with 169 staff, compared to 162 at the end of 2019, many of whom were hired late in the year.
Average headcount for the year was 165 (2019: 160). Several recruits over the past year were senior. The higher
overall wage costs of $1.4m as reported in Note 7 of the financial statements reflects these additional staff, the annual
pay adjustment, and the cost of our corporate bonus scheme, for which all non-sales staff in the company are eligible.
The bonus is mainly linked to annual EBITDA goals, and is paid in the following year. In parallel, subcontracting costs
rose by approximately $0.4m. Historically, we held back from offshoring technical roles due to management and
productivity concerns linked to our smaller scale. This started to change in 2019, and we now have a team of ten
working in India through an outsourcing firm to support both consulting and development efforts, more than double the
year before. We made significant savings with non-payroll costs which were $1.1m lower thanks mainly to reduced
travel costs.
We have seen interesting development in the sales pipeline. By the end
of 2019, it was over 50 percent higher year on year. By June 2020, it had
dipped a little, but we saw a rebound in the second half of the year, and
it ended 2020 up another 10 percent compared to the 2019 closing level.
Switching to a functional view, specific comments regarding consulting operations and research and development
costs are noted above. Overall costs in the sales and marketing area increased by approximately $0.3m. This mainly
reflects increases in both product marketing and marketing communications and commercial leadership, offset by
lower commission and incentive payments in the sales area. Administration costs have fallen slightly by just over
$0.1m with higher staff costs in the IT area offset by lower overheads and share option charges. This area includes
all other overheads, office costs, regulatory and compliance costs, and depreciation, as well as the full impact of the
notional charge for share option grants, which is allocated entirely to this caption.
With regard to foreign exchange, the group aims to incorporate a natural hedge through broadly matching revenues
and costs within common currency entities, reducing the need for active currency management. In addition, it is not
the group’s policy to hedge currency cash holdings, but we do look to keep cash balances in local currency within an
entity and to time currency purchases so as to minimize impacts on the individual income statements.
18
STRATEGIC REPORT
Results and Corporate Tax
Adjusted EBITDA (Earnings before interest, tax, depreciation, amortization and employee share-based payment
charges) is a key indicator of the underlying performance of our business, commonly used in the technology sector.
It is also a key metric for management and the financial analyst community. This measure is further defined and
reconciled to profit before tax in Note 5. The combined effect of the revenue and cost performance discussed
above has resulted in Sopheon’s Adjusted EBITDA performance for 2020 moving to $5.9m, from $6.4m in 2019.
Profit before tax reduced to $1.7m (2019: $2.5m) with the larger movement due mainly to the higher amortization
associated with capitalized development costs.
The tax charge of $0.2m (2019: $0.4m credit) reported in the income statement comprises two main elements.
Although Sopheon benefits from accumulated tax losses in several jurisdictions including at the US federal level,
this is not universal, and accordingly a current tax charges of approximately $0.1m each was incurred in Germany
and for state taxes in the US. In addition, a $2.6m deferred tax asset is recognized at both 31 December 2019 and
2020, of a total potential asset of $11.1m (2019: $10.6m).
Altogether this leads to a profit after tax of $1.5m (2019: $2.0m). This has also resulted in profit per ordinary share
on a fully diluted basis of 14 cents (2019: 19 cents).
Although the impact of COVID-19 on Sopheon has been limited compared with many other organizations, we are
closely monitoring its effect on the business as the pandemic continues to affect the global economy. This includes
modelling the effects of various revenue scenarios with associated cash flow forecasts for a period in excess of
12 months. Assessment of the impact of COVID risks on the group going concern assumption are set forth in the
Directors’ Report and the Notes to the financial statements.
Statement of Compliance with Section 172 of the Companies Act 2006
Legislation requires that directors include a separate statement in the annual report that explains how they have had
regard to wider stakeholder needs when performing their duty under Section 172(1) of the Companies Act 2006.
This duty requires that a director of a company must act in the way he or she considers, in good faith, would be
most likely to promote the success of the company for the benefit of its members as a whole and in doing so have
regard (amongst other matters) to:
a) the likely consequences of any decision in the long term;
b) the interests of the company's employees;
c) the need to foster the company's business relationships with suppliers, customers and others;
d) the impact of the company's operations on the community and the environment;
e) the desirability of the company maintaining a reputation for high standards of business conduct; and
f) the need to act fairly as between members of the company.
Guidance recommends that in connection with its statement, the board describe in general terms how key
stakeholders, as well as issues relevant to key decisions, are identified, and also the processes for engaging with
key stakeholders and understanding those issues. It is the board’s view that these requirements are addressed
in the corporate governance disclosures we have made in the Directors’ Report, which are themselves more
extensively discussed on the company’s website.
Guidance also recommends that more detailed description is limited to matters that are of strategic importance in
order to remain meaningful and informative for shareholders. The board believes that two decisions taken during
the year fall into this category and engaged with internal and external stakeholders on this. These are:
• The decision to impose a travel ban and shift to a work-from-home model in early March 2020, before
governments encouraged or mandated such steps. We decided to act promptly in order to ensure the safety of
our people, and also because we were confident that we had the infrastructure and tools to ensure a seamless
shift. Of equal importance was our conviction that Sopheon’s culture would readily weather such a transition.
The board was proved right on all these measures.
• The decision to underpin the group’s shift to SaaS by investing in a cloud-native platform alongside our enterprise
Accolade solution. As described in the Chairman’s Statement and the Strategy & Market Review, a cloud
platform will enable more rapid product development velocity and be even more responsive to market needs, and
STRATEGIC REPORT
19
will open up a new sales channel that will also act as a lead generator for our enterprise sales. We are making
sure that our cloud products can integrate seamlessly with the enterprise solution. This decision adds to the coding
complexity and cost, but we believe is vital to greater long-term success and to enhance shareholder value.
Dividend
The board is pleased to maintain Sopheon’s dividend at 3.25 pence per share for the year ended 31 December
2020 (2019: 3.25p). We believe this level balances the group’s tighter bottom line last year, and the challenging
global economic environment, with the positive commercial traction, cash generation and balance sheet strength that
Sopheon nevertheless delivered. Subject to approval by the company’s shareholders at the annual general meeting
scheduled for 10 June 2021, the dividend will be paid on 9 July 2021 with a record date of 11 June 2021.
The board is pleased to maintain Sopheon’s dividend at 3.25 pence
per share for the year ended 31 December 2020. We believe this
level balances the group’s tighter bottom line last year, and the
challenging global economic environment, with the positive commercial
traction, cash generation and balance sheet strength that Sopheon
nevertheless delivered.
Facilities and Assets
As noted last year, the board allowed the group’s revolving line of credit facility with Silicon Valley Bank to lapse in
February 2020, in view of substantial net cash balances on hand. As detailed below cash levels rose further during
2020 in spite of the tough environment. Our relationship with Silicon Valley Bank remains strong with potential
established for funding arrangements in connection with M&A or other corporate activity.
Intangible assets stood at $7.9m (2019: $6.9m) at the end of the year. This includes (i) $6.9m being the net book
value of capitalized research and development (2019: $5.9m) and (ii) an additional $1.0m (2019: $1.0m) being
goodwill arising on acquisitions completed in previous years. As stated above in our discussion of research and
development costs, capitalization and amortization have been broadly in balance for a number of years; however,
capitalization has accelerated, and amortization has yet to catch up, as development resources have expanded over
the last couple of years. Our spend on tangible fixed assets was held to $0.4m last year (2019: $0.3m) and this
broadly equaled depreciation, resulting in net book value staying flat at $0.5m at the end of the year (2019: $0.5m).
As described in Note 1, the adoption of IFRS 16 in 2019 required lessees to recognize a lease liability that reflects
future lease payments and a "right-of-use asset" in all lease contracts within scope, with no distinction between
financing and operating leases. This has resulted in net book value of right-of-use assets of $1m (2019: $1.6m)
and corresponding lease liabilities of $1.1m (2019: $1.6m) at 31 December 2020. Notional amortization and interest
charges in connection with the above recognized in the income statement were approximately $0.7m (2019: $0.8m).
Consolidated net assets at the end of the year stood at $30.2m (2019: $27.9m), an increase of $2.3m and including
net current assets of $18.7m (2019: $17.2m). Within the net current asset position, net cash at 31 December 2020
amounted to $21.7m (2019: $19.4m). Approximately $9.1m was held in US Dollars, $10.2m in Euros and $2.4m in
Sterling. The group has no debt (excluding notional debt from the adoption of IFRS 16).
Approved by the board and signed on its behalf by:
Arif Karimjee
CFO
23 March 2021
20
GOVERNANCE
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
Finance Director
Non-executive Director
Non-executive Director
Please refer to the inside back cover of this report for details of the
professional background of each 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. 03217859
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
Link Asset Services
65 Gresham Street
London EC2V 7NQ
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 8th Street
Minneapolis, MN 55402
United States
GOVERNANCE
21
B O A R D C O M M I T T E E R E P O R T S
Remuneration Committee
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. Benefits primarily comprise healthcare insurance and similar
expenses. Details of directors’ interests in shares and options are set out in the Directors’ Report.
Pay and
Fees
2020
$’000
Bonus Benefits
2020
$’000
2020
$’000
Pay and
Fees
2019
$’000
Total
2020
$’000
Bonus
2019
$’000
Benefits
2019
$’000
Total
2019
$’000
Executive Directors
B.K. Mence
A.L. Michuda
A. Karimjee
Non-executive Directors
S.A. Silcock
D. Metzger
211
339
204
34
34
822
50
82
38
-
-
13
11
9
-
-
274
432
251
34
34
170
33
1,025
203
330
196
33
33
795
38
63
37
-
-
138
12
11
5
-
-
28
253
404
238
33
33
961
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 2019 and 2020 these objectives were set with regard to Adjusted 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 2020 contributions of $9,058, $6,269 and $9,563 (2019: $8,963, $3,599 and $9,187) were paid
respectively to the pension schemes of B.K. Mence, A.L. Michuda and A. Karimjee.
22
GOVERNANCE
Performance Graph
The following graph shows the company’s share price performance on AIM since January 2014, in British pounds
Sterling, 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.
16
14
12
10
8
6
4
2
0
Dec 14 June 15 Dec 15 June 16 Dec 16 June 17 Dec 17 June 18 Dec 18 June 19 Dec 19 June 20 Dec 20
Sopheon
Share Price
AIM All-Share
Rebase
Directors’ Interests
The interests of the directors, who held office at the end of the year, in the share capital of the company were as follows:
At 31 December
B.K. Mence
A.L. Michuda
A. Karimjee
S.A. Silcock
D. Metzger
Share Options
Ordinary Shares
2020
2019
2020
2019
24,250
320,000
85,500
-
-
24,250
290,000
85,000
-
-
2,228,537
84,155
82,493
520,318
5,000
2,228,537
84,155
82,493
520,318
5,000
With respect to the interests stated above for B.K. Mence, S.A Silcock and A. Karimjee, their respective spouses are
the beneficial owners of 15,575, 8,875 and 32,493 ordinary shares each. An additional 7,250 of the ordinary shares
disclosed for S.A. Silcock are held as trustee or executor for family members. Accordingly, the personal interest of
B.K. Mence is in 2,212,962, S.A. Silcock in 504,193 and A. Karimjee in 50,000 ordinary shares.
On 26 February 2021, each of B.K. Mence, A.L. Michuda, S.A. Silcock and A. Karimjee respectively sold 356,829,
185,036, 166,500 and 48,343 shares to a number of financial institutions in an oversubscribed placing at a price of 900
pence per share, for the purposes of estate planning and to improve the liquidity in the Company’s shares. On the same
day, each of B.K. Mence, A.L. Michuda and A. Karimjee respectively exercised 24,250, 165,000 and 35,850 options.
GOVERNANCE
23
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
2019
Granted Exercised
During
Year
During
Year
At 31
December
2020
B.K. Mence
B.K. Mence
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
29 September 2012
5 December 2013
29 September 2012
5 December 2013
8 April 2016
15 February 2017
11 February 2018
4 July 2018
13 July 2020
27 August 2010
29 September 2012
5 December 2013
8 April 2016
15 February 2017
11 February 2018
4 July 2018
13 July 2020
105p
85p
105p
85p
87.5p
467.5p
565p
900p
775p
150p
105p
85p
87.5p
467.5p
565p
900p
775p
6,125
18,125
100,880
49,000
15,120
25,000
50,000
50,000
-
7,500
3,125
26,875
5,850
11,650
15,000
15,000
-
-
-
-
-
-
-
-
-
30,000
-
-
-
-
-
-
-
8,000
-
-
-
-
-
-
-
-
-
(7,500)
-
-
-
-
-
-
-
6,125
18,125
100,880
49,000
15,120
25,000
50,000
50,000
30,000
-
3,125
26,875
5,850
11,650
15,000
15,000
8,000
Vesting of all of the above share options which were outstanding at 31 December 2020 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 2020 was 790p. During the financial
year the mid-market price of Sopheon ordinary shares ranged from 490p to 955p. 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.
Audit Committee
The Audit Committee, which includes all of the non-executive directors and is chaired by Stuart Silcock, considers and
determines actions regarding any control or financial reporting issues they have identified, or that have been raised by
the auditors. During the year, the Audit Committee met twice, and the external auditor and executive directors were
invited to attend these meetings. Consideration was given to the external auditor’s post-audit reports and these provide
opportunities to review the accounting policies, internal control and financial information contained in both the annual and
interim reports, as well as the independence of the external auditor. The committee chair is also able to meet with the
auditors independently if required.
Approved by the board on 23 March 2021 and signed on its behalf by:
A. Karimjee
Director
24
GOVERNANCE
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. The Chairman’s Statement on page 6 includes reference to the group’s
future prospects. In view of the fact that approximately two-thirds of the group’s revenues and staff are based in the
United States, the group’s financial statements are presented in US Dollars. The board is pleased to recommend a
final dividend in respect of the year ended 31 December 2020 of 3.25 pence per share (2019: 3.25 pence per share),
amounting to £332,000 (2019: £331,000).
Directors
The directors who served during the year are disclosed in the Board Committee Reports.
Corporate Governance
The Sopheon board is committed to maintaining high standards of corporate governance. In accordance with AIM Rule
26, AIM quoted companies are required to adopt and give details of the corporate governance code which they have
adopted and to show how they are following it. In September 2018, the board adopted the Quoted Companies Alliance’s
(QCA) Corporate Governance Code for small and mid-size quoted companies (the “QCA Code”).
Of the recognized codes generally adhered to by AIM companies, the QCA Code has been drafted with smaller
businesses in mind, with a pragmatic and principles-based approach. It was therefore deemed by the board to be the
most suitable.
The board had previously established an internal project to update its internal risk management procedures with a new
enterprise risk framework based on the provisions proposed by COSO (Committee of Sponsoring Organizations of the
Treadway Commission) with a view to incorporating a formal risk review agenda point in each board meeting. Key
principles of the QCA Code have been incorporated into this risk management process.
Solid corporate governance is the foundation on which the business is managed, and this is supported by the range
of talents of the directors. Biographies of the directors appear inside the back cover and demonstrate a range of
experience and caliber to bring the right level of independent judgment to Sopheon’s business. Ensuring financial
strength alongside growth objectives is a key guiding principle, supported by an effort to ensure solid communication with
shareholders.
The chairman is responsible for leading the board and for its overall effectiveness in directing the group, and for ensuring
that the board implements, maintains and communicates effective corporate governance processes and for promoting a
culture of openness and debate designed to foster a positive governance culture throughout the group.
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 does 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 2020, all directors attended all
quarterly meetings either in person or by conference call.
The QCA Code identifies ten principles that focus on the pursuit of medium- to long-term value for shareholders without
stifling entrepreneurial spirit. Sopheon’s adoption of the QCA principles is summarized in the table below. Further details
are made available on our website at www.sopheon.com/board-governance.
GOVERNANCE
25
QCA Principle
Sopheon Adoption
1. Establish a strategy
and business model
which promote
long-term value for
shareholders
Sopheon’s mission is to help our customers achieve exceptional long-term growth
and profitability through sustainable innovation. Our guiding philosophy is to balance
aggressive growth strategies with a focus on profitability, while also ensuring long-term
financial stability. We believe the combination of these three factors will maximize long-
term value for shareholders. Full information on the group’s strategy and business
model can be found in the Strategic Report on pages 6 to 19.
2. Seek to understand
and meet shareholder
needs and expectations
The board engages with shareholders and the broader investment community via
a variety of channels and activities including the annual general meeting, updates
to shareholders via reporting and the regulatory news service, and institutional
presentations. The Chairman and CFO are the primary contacts for investor interaction
alongside finnCap, with the CEO ensuring availability to meet investors when visiting
Europe from his US base.
3. Take into account wider
stakeholder and social
responsibilities and
their implications for
long-term success
Sopheon’s culture is very open and this includes reaching out and seeking feedback
and insights from our various stakeholders. In addition to the investor outreach
described above, key practical elements of this philosophy for other stakeholders
include having a flat organization with few tiers of management, meeting regularly;
all-hands communications via web-meetings; customer engagement through account
management, satisfaction surveys and user forum events; and broader market
engagement through close relationships with sector analysts such as Gartner and
Forrester Research.
4. Embed effective
risk management,
considering both
opportunities and
threats, throughout
the organization
The board is responsible for identifying the major business risks faced by the group and
for determining the appropriate course of action to manage those risks. In 2017 the
board adopted a framework for the effective identification, assessment, and management
of risks to the achievement of corporate objectives. The risk management process is
managed in Accolade and is embedded in our quarterly meeting cycle. The risks that
the board consider to be principal risks to the group’s business are set out on page 26.
5. Maintain the board
as a well-functioning,
balanced team led by
the chair
The QCA Code requires that boards have an appropriate balance between executive
and non-executive directors and that each board should have at least two independent
directors. The board is made up of three executive directors and two non-executive
directors. The two non-executive directors are mature, experienced and independent
persons who have each succeeded in their own businesses and are not dependent
upon income from the group. They have developed a strong and detailed understanding
of the business, and are prepared and able to intervene and challenge the executive
directors.
6. Ensure that between
them the directors have
the necessary up-to-
date experience, skills
and capabilities
Details of the background and experience of the directors of the company are set out
inside the back cover of this report. These demonstrate that our team collectively has
the necessary skills and experiences, as well as the required caliber, to carry out the
group’s strategy and business model effectively. With regard to the non-executive
directors, one is a financial specialist and the other is an industry specialist, and both
have prior experience of working in a public company environment. Furthermore, one is
America based and the other Europe based, reflecting the geographical footprint of the
group.
7. Evaluate board
performance
based on clear and
relevant objectives,
seeking continuous
improvement
A board self-evaluation process led by the chairman takes place in July each year,
using a QCA-sponsored questionnaire and process. Low scoring or divergent scoring
responses are discussed, with gaps and actions for improvement identified. This was
last performed formally in 2019.
8. Promote a corporate
culture that is based
on ethical values and
behaviors
Sopheon’ core values statement and guiding principles, developed by the extended
management team, support the group’s culture with a strong footing in ethical values.
These are reinforced in the staff handbook and the staff appraisal and development
process, which formally embeds cultural and ethical considerations as part of each
employee’s self-evaluation.
9. Maintain governance
structures and
processes that are
fit for purpose and
support good decision-
making by the board
Formal board meetings are held quarterly to review strategy, management and
performance of the group, with additional meetings between those dates convened as
necessary. We have two board committees, the Audit Committee and the Remuneration
and Appointments Committee. The terms of reference of both these committees of the
board have been revised to reflect the principles of the QCA Code and are available
online.
10. Communicate how the
company is governed
and is performing by
maintaining a dialog
with shareholders
and other relevant
stakeholders
The group’s approach to investor and shareholder engagement is described under
Principle 2 above. Annual reports, Annual General Meeting notices, regulatory
announcements, trading updates and other governance-related materials since the year
2000 are available from the group’s website.
26
GOVERNANCE
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 Review of the Strategic 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 consistently growing recurring revenue base should also improve
revenue predictability.
Sopheon’s prospects for 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.
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 in connection with 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, should support and
maintenance service level agreements fail to meet agreed criteria, or should the security features of its software or hosting
services fail. Sopheon has sought to protect itself from such risks through excellent development methodologies and
high-quality operating procedures, its contract terms and insurance policies. Sopheon has never had any such claims.
GOVERNANCE
27
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.
Brexit
The United Kingdom (‘UK’) formally left the European Union (‘EU’) on 31 January 2020. This was followed by a
transition period until 31 December 2020, during which trade and border arrangements, citizens’ rights, and jurisdiction
on matters such as dispute resolution, remained broadly unchanged, in accordance with the UK-EU Withdrawal
Agreement and the EU (Withdrawal Agreement) Act 2020. Shortly before the expiry of the transition period, on
24 December 2020, the UK and the EU agreed upon a comprehensive Trade and Cooperation Agreement, which
incorporated a free trade agreement, a partnership for citizens’ security and a horizontal agreement on governance.
The directors currently deem that the effects of the UK’s withdrawal from the EU and entering into the Trade and
Cooperative Agreement with the EU will not have a significant impact on the group and company’s operations, due to the
global geographical footprint of the business and the nature of its operations. However, the directors and management
continue to monitor the situation to manage the risk of the return of volatility in the global financial markets and impact on
global economic performance.
COVID-19
The directors have continued to monitor and respond to the effects of the global COVID-19 pandemic on the group and
took rapid steps to ensure there was no material impact on the company’s operations and working capital. In particular,
in March of last year the board implemented an immediate work from home policy and travel restrictions, supported by
well-defined virtual working practices, as well as assuring continuity of business operations and cloud services through
co-location and Azure based infrastructure. This all went smoothly, and the group continues to operate virtually today.
Future working practices after the pandemic has receded are expected to include a blend of home and office working.
Some limited rationalization of office space has already been undertaken as leases permit, but we do not currently
anticipate a major reduction in the near future.
Going Concern
The board believes that the business is able to navigate through the continuing impact of the pandemic due to the
strength of its customer proposition, its statement of financial position and the net cash position of the group. As further
detailed in Note 2 to the financial statement, the group going concern assessment is based on forecasts and projections
of anticipated trading performance. The assumptions applied are subjective and management applies judgement in
estimating the probability, timing and value of underlying cash flows. The directors confirm that they have a reasonable
expectation that the group will have adequate resources to continue in operational existence for the next 12 months
from approval of these financial statements and accordingly these financial statements are prepared on a going concern
basis, with no material uncertainty over going concern.
Greenhouse Gas Emissions
The 2018 Regulations introduced requirements under Part 15 of the Companies Act 2006 for an enhanced group of
companies, which are defined as large by the Companies Act 2006, to disclose their annual energy use and greenhouse
gas emissions, and related information. The group is not currently defined as large, but it has chosen to apply the 2018
Regulations. Sopheon plc itself consumes less than 40MWh and therefore is a low energy user, which negates the need
to make detailed disclosures of its energy and carbon information. Furthermore and taking account of this, it has applied
the option permitted by the 2018 Regulations to exclude any energy and carbon information relating to its subsidiaries
where the subsidiary would not itself be obliged to include if reporting on its own account; this applies to all subsidiaries
within the group.
28
GOVERNANCE
Substantial Shareholdings
The directors are aware of the following persons who as at 23 March 2021 were interested directly or indirectly in
3 percent or more of the company’s issued ordinary shares:
Name
Rivomore Limited and Myrtledare Corp.
B.K. Mence (director)
Canaccord Genuity Wealth Group Limited
Universal-Investment-GmbH
S.A. Silcock (director)
Chelverton Asset Management Limited
No. of
Ordinary Shares
% Issued
Ordinary Shares
2,074,308
1,895,958
1,023,846
716,102
353,818
590,069
19.9
18.2
9.8
6.9
3.4
5.7
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 23 March 2021 and signed on its behalf by:
A. Karimjee
Director
GOVERNANCE
29
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) in conformity with the requirements of the Companies Act 2006. 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 in conformity with the requirements of the
Companies Act 2006, 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.
30
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
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
Opinion on the Financial Statements
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31
December 2020 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
• the parent company financial statements have been properly prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the
provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of Sopheon plc (the ‘parent company’) and its subsidiaries (the ‘group’) for
the year ended 31 December 2020 which comprise the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated statement of financial position, the company statement of financial position, the
consolidated cash flow statement, the company cash flow statement, the consolidated statement of changes in equity,
the company statement of changes in equity and notes to the consolidated financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act 2006 and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remain independent of the group and the parent company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Conclusions Relating to Going Concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and
the parent company’s ability to continue to adopt the going concern basis of accounting included:
• We assessed the appropriateness of the approach and model used by management when performing their going
concern assessment, including assessing and challenging the assumptions to determine whether there was adequate
support for the assumptions underlying the forecasts and performing sensitivity analysis to consider cash flow changes
if the level of revenue decreases or costs increase.
• We evaluated the directors’ assessment of the group’s ability to continue as a going concern, including challenging
the underlying data and key assumptions, being the level of sales and staff costs, used to make the assessment and
comparing these to historical performance, post year-end information and the group's sales pipeline analysis.
• Additionally we reviewed and challenged the results of management’s stress testing to assess the reasonableness of
economic assumptions in light of the impact of COVID-19 and its effects on the group’s solvency and liquidity position.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
31
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorized for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Overview
Coverage1
Key audit matters
94.1% (2019: 86.2%) of group profit before tax
99.8% (2019: 99.8%) of group revenue
98.2% (2019: 95.1%) of group total assets
Revenue recognition
Intangible assets:
Development costs capitalization, amortization and impairment
2020
p
p
2019
p
p
Materiality
Group financial statements as a whole
$300,000 (2019: $302,000) based on 1% (2019: 1%) of revenue
An Overview of the Scope of our Audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including the group’s system
of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the
risk of management override of internal controls, including assessing whether there was evidence of bias by the directors
that may have represented a risk of material misstatement.
The group consists of seven entities based in Europe and North America. There are two entities based in the UK, one
being the holding company. Further to this there are two trading entities incorporated in Europe based in Germany and
the Netherlands, with the remaining three trading entities incorporated in the USA.
Based on our assessment of the group, we focused our group audit scope primarily over the significant components, being
Sopheon plc, Sopheon UK Limited, Sopheon GmbH and Sopheon Corporation, Minnesota. The significant components in
all territories were subject to full scope audits by the group audit team, with desktop reviews performed for the remaining
group entities.
At the parent entity level we also tested the consolidation process including consolidation adjustments and journals,
performed work on all key judgement areas and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not
subject to audit.
The figures in the table above demonstrates the coverage from our full scope audit work performed over the significant
components within the group for total assets and profit before tax. With regards to revenue, the coverage was obtained
through detail testing performed on each component within the group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
1 These are areas which have been subject to a full scope audit by the group engagement team
32
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
Key audit matter
Revenue Recognition
See accounting policy in
Note 2 on page 42 and
Revenue from contracts
with customers in Note
4 on page 48.
The group, as a software
business, generates
revenue primarily from the
sale of licenses, related
maintenance/support
contracts and service
income.
We considered there to
be a significant audit risk
arising from inappropriate
or incorrect recognition of
revenue.
The key audit matters
related to revenue
recognition are as follows:
• The risk of material
misstatement in relation
to revenue recognition
concerns the recognition
around the year-end,
particularly in relation
to license sales
and consulting and
implementation service
contracts. License sales
require a key code to be
provided to the customer,
which enables access to
the Accolade software.
This in turn provides
evidence of delivery to
the customer in relation
to the contractual
performance obligation.
• There is also a risk that
all revenue streams have
not been recognized in
line with the revenue
recognition policy, in
particular the unbundling
of any contracts in line
with their performance
obligations, to ensure
each revenue stream
had a standalone value
and that revenue is not
recorded inaccurately /
recognized prematurely.
How the scope of our audit
addressed the key audit matter
We have performed the following procedures:
• We assessed the appropriateness of the
revenue recognition policy, in line with the
requirements of applicable accounting
standards.
• In relation to license contract revenue, we
obtained support for a sample of binding
contracts that were entered into and
confirmed that the delivery of the license key
was before the year-end, and that revenue
was therefore recognized in the appropriate
period.
• For the maintenance, software subscriptions
and hosting services we selected a sample
of contracts and checked that the revenue
recognition was in line with the contractual
terms of the agreement with the customer.
This being the recognition of revenue over
the lifetime of the contract.
• We checked that for a sample of consulting
and implementation services, that an
appropriate methodology had been applied
in accounting for accrued and deferred
revenue on these contracts and that this
was in line with the stage of completion
based on the work performed as at year
end.
• Where a sales contract involves multiple
service obligations, we checked the
allocation of the transaction price has been
performed proportionally based on the
standalone selling price for each obligation.
Furthermore, we checked that management
assigned the selling price to each separate
performance obligation is based on the cost
of satisfying the performance obligation plus
an appropriate margin based on experience
of standalone sales.
• Cut-off procedures including testing
revenue recorded in December 2020 and
January 2021, verifying back to underlying
agreements, to check revenue is being
recognized within the period the service is
performed.
Key observations:
Based on the work performed we consider that
revenue has been recognized appropriately
and in accordance with the group’s revenue
recognition accounting policy.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
33
Key audit matter
Intangible Assets:
Development Costs
capitalization,
amortization and
impairment
See accounting policy
in Note 2 on page 44
and Intangible Assets in
Note 14 on page 55.
How the scope of our audit
addressed the key audit matter
We performed the following procedures in
connection with capitalized development costs:
• discussions were held with the group’s
technology team to understand the group’s
processes, procedures and projects in
relation to development costs;
• checked the accuracy of the contractor and
payroll data, on a sample basis, included
in the calculations for capitalized costs
to supporting documentation including
employment contracts and agreements with
contractors;
• considered the proportion of time allocations
for employees and contractor roles,
corroborating management’s explanations to
supporting evidence;
• assessed management’s estimate of the
amortization period applied to the asset by
considering relevant industry benchmarks
and specific knowledge of the client’s
product. Additionally considering whether
any indicators of impairment exist taking
account of any changes in usability of
amounts previously capitalized; and
• assessed the ability of the asset to generate
future economic benefits for the business,
which at least exceed its carrying value
by assessing the use of the technology
platforms in the performance of the group’s
obligations to customers.
Key observations:
Based on the procedures performed, we noted
no instances indicating that the accounting for
development costs, including the calculation
of the related amortization charge and the
evaluation of impairment, was inappropriate.
The group capitalizes
costs in relation to the
development of the software
provided to its clients, being
the Accolade platform as
described on page 8.
In accordance with the
requirements of the
applicable accounting
standard, management’s
policy is to capitalize
development expenditure
on internally developed
software products if the
costs can be measured
reliably and the resulting
asset meets the criteria per
the standard.
The key audit matters
related to this financial
statement area is as
follows:
• Development costs not
satisfying the above
criteria and expenditure
on the research phase of
internal projects are not
recognized in the income
statement as incurred.
Capitalized development
costs are amortized over
the period within which the
group expects to benefit
from selling the product
developed. This is deemed
to be four years.
• There is a risk that
the recognition criteria
outlined in the applicable
accounting standard
is not met and that
development costs are
incorrectly capitalized.
Further, a risk exists that
the assets estimated
useful life is inappropriate
or that assets not
available for use have
not been impaired as
required.
34
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
Our Application of Materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a
lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements
below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Group financial statements
Parent company financial statements
2020
2019
2020
2019
Materiality
$300,000
$302,000
$195,000
$196,000
Basis for determining
materiality
Rationale for the
benchmark applied
Performance
materiality
Basis for determining
performance
materiality
Component materiality
1% Revenue
1% Revenue
65% Group Materiality
We considered revenue to be the most
appropriate benchmark as this is the
primary KPI which is used to address
the performance of the group by the
board and an important performance-
based metric to the users of the
financial statements.
Materiality for the parent company was
set at 65%of group materiality paying
due consideration to aggregation risk
in relation to group materiality.
$210,000
$211,000
$136,500
$137,000
Performance materiality was set at
70% due to the facts that there are
multiple components within the group.
Additionally, there are a select number
of areas included in the accounts
which are subject to estimates.
Performance materiality was set
at 70% due to the fact there are a
select number of areas included in
the accounts which are subject to
estimates.
We set materiality for each component of the group based on a percentage of between 60 percent and 75 percent of
group materiality dependent on the size of the component. Component materiality ranged from $180,000 to $225,000.
In the audit of each component, we further applied performance materiality levels of 70 percent of the component
materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of $12,000
(2019: $12,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on
qualitative grounds.
Other Information
The directors are responsible for the other information. The other information comprises the information included in
the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
35
obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 Reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required
by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic Report
and Directors’
Report
Matters on which
we are required to
report by exception
In our opinion, based on the work undertaken in the course of the audit:
• 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 the Directors’ Report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and understanding of the group and parent company and
its environment obtained in the course of the audit, we have not identified material
misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which 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.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 29, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
36
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SOPHEON PLC
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and
determined that the most significant frameworks which are directly relevant to specific assertions in the financial
statements are those that relate to the reporting framework, rules of the London Stock Exchange for companies
trading securities on AIM, the Companies Act 2006 and relevant tax compliance regulations;
• We understood how the group is complying with those frameworks by making enquiries of management, those
responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries
through our review of board minutes and papers provided to the Audit Committee;
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud
might occur, by meeting with management from across the group to understand where they considered there was a
susceptibility to fraud;
• Our audit planning identified fraud risks in relation to management override and inappropriate or incorrect
recognition of revenue (revenue recognition assessed as a Key Audit Matter above). We obtained and
understanding of the processes and controls that the group has established to address risks identified, or that
otherwise prevent, deter and detect fraud; and how management monitors that processes and controls; and
• With regards to the fraud risk in management override, our procedures included journal transaction testing,
with a focus on large or unusual transactions based on our knowledge of the business. We also performed
an assessment on the appropriateness of key judgements and estimates, for example the capitalization of
development costs (the risks associated with the capitalization of development costs has been assessed as a
Key Audit Matter above), which are subject to managements’ judgement and estimation, and could be subject to
potential bias.
• We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team
members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout
the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognizing that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through
collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance
with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.
Use of Our Report
This report is made solely to the parent 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 parent 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 parent company and the parent
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Iain Henderson (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
23 March 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
FINANCIAL INFORMATION
37
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 2 0
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 charge
Profit for the year
Earnings per share
Basic (US cents)
Fully diluted (US cents)
Notes
3, 4
2020
$’000
2019
$’000
29,996
(9,057)
30,254
(9,043)
20,939
21,211
(9,092)
(5,894)
(4,178)
(8,806)
(5,682)
(4,305)
1,775
2,418
8
9
5
25
(93)
166
(127)
1,707
2,457
10
(211)
(409)
1,496
2,048
12
12
14.68c
20.16c
14.06c
19.20c
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 2 0
Profit for the year
Other comprehensive income/(expense)
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Total comprehensive income for the year
2020
$’000
1,496
2019
$’000
2,048
693
(41)
2,189
2,007
The notes on pages 41 to 68 form part of these financial statements.
38
FINANCIAL INFORMATION
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 O F F I N A N C I A L
P O S I T I O N A T 3 1 D E C E M B E R 2 0 2 0
Assets
Non-current Assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investments in subsidiaries
Deferred tax asset
Other receivables
Group
Company
Notes
2020
$’000
2019
$’000
2020
$’000
2019
$’000
13
21
14
15
10
16
528
1,027
7,863
-
2,557
19
510
1,553
6,874
-
2,557
123
-
-
-
8,353
-
16,793
-
-
-
8,084
-
14,793
Total non-current assets
11,994
11,617
25,146
22,877
Current Assets
Trade and other receivables
Cash and cash equivalents
17
18
14,566
21,718
13,000
19,433
109
4,547
Total current assets
36,284
32,433
4,656
105
2,636
2,741
Total assets
Liabilities
Current Liabilities
Trade and other payables
Lease liabilities
Contract liabilities
Total current liabilities
Non-current Liabilities
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Capital reserves
Translation reserve
Retained profits
Total equity
48,278
44,050
29,802
25,618
19
21
4
5,077
515
11,985
4,238
643
10,337
17,577
15,218
21
546
546
936
936
396
-
-
396
-
-
382
-
-
382
-
-
18,123
16,154
396
382
30,155
27,896
29,406
25,236
23
24
3,133
9,398
702
16,922
3,126
8,942
9
15,819
3,133
9,398
(1,361)
18,236
3,126
8,942
(1,802)
14,970
30,155
27,896
29,406
25,236
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 profit dealt with in the financial statements of the parent company for the year
ended 31 December 2020 was $3,659,000 (2019: profit of $8,323,000).
Approved by the board and authorized for issue on 23 March 2021.
Barry K. Mence
Director
Arif Karimjee
Director
The notes on pages 41 to 68 form part of these financial statements.
FINANCIAL INFORMATION
39
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 2 0
Operating Activities
Profit for the year
Group
Company
Notes
2020
$’000
2019
$’000
2020
$’000
2019
$’000
1,496
2,048
3,659
8,323
Adjustments for:
Finance income
Finance costs
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
Share-based payment expense
Income tax charge
8
9
13
21
14
Operating cash flows before movements in working capital
Intra-group credits and charges
Decrease in provisions against intra-group loans
(Increase)/decrease in receivables
Increase/(decrease) in payables
(25)
93
365
671
2,669
447
211
5,927
-
-
(1,258)
2,249
(166)
127
364
698
2,342
620
409
6,442
-
-
1,071
(141)
Net cash generated from/(used in) operating activities
Income taxes paid
6,918
(344)
7,372
(318)
-
3
-
-
-
79
-
3,741
(331)
(4,344)
(4)
13
(925)
-
-
4
-
-
-
620
-
8,947
(634)
(9,359)
(9)
(135)
(1,190)
-
Net cash from/(used in) operating activities
6,574
7,054
(925)
(1,190)
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
8
13
14
25
(367)
(3,658)
-
-
166
(345)
(3,010)
-
-
-
-
-
(2,369)
5,412
-
-
-
(1,940)
3,107
Net cash (used in)/generated from investing activities
(4,000)
(3,189)
3,043
1,167
Financing Activities
Issues of shares
Repayment of borrowings
Repayment of line of credit
Lease payments
Interest paid
Dividends paid
20
20
21
25
52
-
-
(664)
(93)
(429)
105
(29)
(325)
(672)
(127)
(430)
Net cash used in financing activities
(1,134)
(1,478)
52
-
-
-
(3)
(429)
(380)
Net increase/(decrease) in cash and cash equivalents
1,440
2,387
1,738
105
-
-
-
(4)
(430)
(329)
(352)
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
19,433
845
17,086
(40)
2,636
173
3,076
(88)
Cash and cash equivalents at the end of the year
18
21,718
19,433
4,547
2,636
The notes on pages 41 to 68 form part of these financial statements.
40
FINANCIAL INFORMATION
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 2 0
Group
Share
Capital
$’000
Capital Translation
Reserve
$’000
Reserves
$’000
At 1 January 2019
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
Lapse or exercise of share options and warrants
Dividends paid in year
At 1 January 2020
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
Lapse or exercise of share options
Dividends paid in year
3,118
-
8,277
-
-
-
8
-
-
-
-
-
97
620
(52)
-
3,126
-
8,942
-
-
-
7
-
-
-
-
-
45
447
(36)
-
50
-
(41)
(41)
-
-
-
-
9
-
693
693
-
-
-
-
Retained
Profits
$’000
14,149
2,048
Total
$’000
25,594
2,048
-
(41)
2,048
2,007
-
-
52
(430)
105
620
-
(430)
15,819
1,496
27,896
1,496
-
693
1,496
2,189
-
-
36
(429)
52
447
-
(429)
At 31 December 2020
3,133
9,398
702
16,922
30,155
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
Profits
$’000
At 1 January 2019
Profit and total comprehensive income for the year
Issues of shares
Recognition of share-based payments
Lapse or exercise of share options
Dividends paid in year
At 1 January 2020
Profit and total comprehensive income for the year
Issues of shares
Recognition of share-based payments
Lapse or exercise of share options
Dividends paid in year
3,118
-
8
-
-
-
3,126
- -
7
-
-
-
8,277
-
97
620
(52)
-
8,942
45
447
(36)
-
(2,159)
357
-
-
-
-
(1,802)
441
-
-
-
-
7,025
8,323
-
-
52
(430)
14,970
3,659
-
-
36
(429)
Total
$’000
16,261
8,680
105
620
-
(430)
25,236
4,100
52
447
-
(429)
At 31 December 2020
3,133
9,398
(1,361)
18,236
29,406
The notes on pages 41 to 68 form part of these financial statements.
FINANCIAL INFORMATION
41
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 20. 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 accounting standards in conformity with
the requirements of the Companies Act 2006, and, as regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006. The principal accounting policies are set out below. The
policies have been applied consistently to both years presented.
A number of other new standards, amendments and interpretations to existing standards have been adopted by the
group, but have not been listed, since they have no material impact on the financial statements. None of the 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 two-thirds
of the group’s revenue and operating costs are denominated in US Dollars. The exchange rates used for translation of
Sterling amounts are 1.3649 US Dollars to British Pounds Sterling as at 31 December 2020 and 1.2940 US Dollars to
British Pounds Sterling as the average rate prevailing during 2020.
Going Concern
The consolidated financial statements have been prepared on a going concern basis. The directors have at the time of
approving the financial statements, a reasonable expectation that the company has adequate resources to continue in
operational existence for the foreseeable future. The COVID-19 pandemic has so far had limited impact on our business
and the board believes that the business is able to navigate through the continued impact of the pandemic due to the
strength of its customer proposition and business partnerships, statement of financial position and the net cash position
of the group.
The current economic conditions continue to create uncertainty, particularly over (a) the level of customer and potential
customer engagement; and (b) the level of new sales to new customers. The pandemic has had a widespread impact
economically, with potential for causing delays in contract negotiations and/or cancelling of anticipated sales and an
uncertainty over cash collection from certain customers. As a consequence, the group has carried out detailed forecast
stress testing in order to consider how much forecasts have to reduce by in order to cause cash constraints, and also to
consider the likelihood of this scenario occurring. This assessment has also included the group’s actual cash holdings as
of the date of the approval of these financial statements and financing alternatives available to the group. Overall, these
cash-flow forecasts, which cover a period of at least 12 months from the date of approval of the financial statements,
foresee that the group will be able to operate within its existing facilities. Nevertheless, there is a risk that the group will
be impacted more than expected by reductions in customer confidence. If sales and settlement of existing debts are
not in line with cash flow forecasts, the directors have the ability to identify cost savings if necessary, to help mitigate the
impact on cash outflows.
Having assessed the principal risks and the other matters discussed in connection with the going concern statement, the
directors have a reasonable expectation that the group has adequate resources to continue in operational existence for
the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the
financial information.
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.
42
FINANCIAL INFORMATION
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. 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.
There have been no business combinations in the period covered by this report.
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 perpetual software licenses are recognized once no significant obligations remain owing to the customer in
connection with such license sale. Such significant obligations could include giving a customer a right to return the
software product without any preconditions, or if the group is unable to deliver a material element of the software product
by the balance sheet date. Revenues relating to software subscription, maintenance, and hosting agreements are
deferred creating a contract liability at the period end, and recognized evenly over the term of the agreements, due to the
customer simultaneously receiving and consuming the benefits of the contractual performance obligation over that term.
Revenues from implementation and consultancy services are recognized as the services are performed, or in the case of
fixed price or milestone-based projects, on a percentage basis as the work is completed and any relevant milestones are
met, using latest estimates to determine the expected duration and cost of the project. Based on stage of completion and
billing arrangement, either a contract asset or a contract liability is created at the period end. Where the group is acting
as a principal, other income includes recoverable costs that have been incurred in the course of business including travel
expenses of employees and contractors.
Where a sales contract involves multiple service obligations, the allocation of the transaction price is performed
proportionally based on the standalone selling price for each obligation. The way in which management assigns the
selling price to each separate performance obligation is based on the cost of satisfying the performance obligation plus
an appropriate margin based on experience of standalone sales.
FINANCIAL INFORMATION
43
Leases
The group records its lease obligations in accordance with the principles for the recognition, measurement, presentation
and disclosure of leases set out in IFRS 16. The group adopted the standard with effect from 1 January 2019.
IFRS 16 requires lessees to recognize a lease liability that reflects the net present value of future lease payments and a
corresponding “right-of-use asset” in all lease contracts, although lessees may elect not to recognize lease liabilities and
right-of-use assets in respect of short-term leases or leases of assets of low value.
The company has elected not to recognize right-of-use assets and lease liabilities in respect of certain leases of office
equipment of low value or of short term. The lease payments associated with these leases are recognized as an
expense on a straight-line basis over the lease term.
At inception of a contract, the group assesses whether a contract is, or contains, a lease based on whether the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The group recognizes a right-of-use asset and a corresponding lease liability at the lease commencement date. The
lease liability is initially measured at the present value of the following lease payments:
• fixed payments;
• variable payments that are based on an index or rate;
• the exercise price of any extension or purchase option if reasonably certain to be exercised; and
• penalties for terminating the lease, if relevant.
The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the group’s incremental borrowing rate.
The right-of-use assets are initially measured based on the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs. The right-of-use assets are
depreciated over the period of the lease term, or, if earlier, the useful life of the asset, using the straight-line method.
The lease term includes periods covered by an option to extend, if the group is reasonably certain to exercise that
option. In addition, the right-of-use assets may during the lease term be reduced by impairment losses, if any, or
adjusted for certain re-measurements of the lease liability.
On 28 May 2020, the IASB issued final amendments to IFRS 16 related to COVID-19 rent concessions for lessees.
The amendments modify the requirements of IFRS 16 to permit lessees to not apply modification accounting to
certain leases where the contractual terms have been affected due to COVID-19 (such as rent holidays or other rent
concessions). The amendments are effective for periods beginning on or after 1 June 2020, with earlier application
permitted. The group did not adopt this standard as no such concessions were applicable.
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 prepared 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.
44
FINANCIAL INFORMATION
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 historical 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.
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.
FINANCIAL INFORMATION
45
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.
Segmental Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker of the group, which has been identified as the board of directors.
Share-based Payments
The group awards share options in the company, being the parent entity, to certain employees. These are treated as
equity-settled share-based payments and are measured at fair value (excluding the effect of non-market-based vesting
conditions) at the date of grant. This fair value is expensed 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. Where an
option vests in multiple instalments, each instalment is treated as a separate grant with its own vesting period. In the
consolidated financial statements, the entire expense is recognized within administrative expenses. At the individual
entity level, the expense is transferred to the employing subsidiary and in the company, the benefit transferred
is recognized as an increase in investment in subsidiaries, and this increase is then assessed for impairment in
accordance with the company’s accounting policy.
Financial Instruments
1. Financial Assets
Financial assets do not include prepayments. Management determines the classification of financial assets at initial
recognition.
Amortized Costs
These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also
incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash
flows and the contractual cash flows are solely payments of principal and interest. They are initially recognized at fair
value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at
amortized cost using the effective interest rate method, less provision for impairment.
Impairment provisions for current and non-current trade receivables are recognized based on the simplified approach
within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the
trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default
to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net,
such provisions are recorded in a separate provision account with the loss being recognized within cost of sales in the
consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the associated provision.
46
FINANCIAL INFORMATION
Financial assets held at amortized cost comprise trade and other receivables, contract assets, and cash and cash
equivalents in the consolidated statements of financial position.
2. Financial Liabilities
The group classifies its financial liabilities in the category of financial liabilities at amortized cost. All financial liabilities
are recognized in the statement of financial position when the company becomes a party to the contractual provision or
the instrument.
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, and lease liabilities 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. 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, its capital reserves (as set out in Note
24), and its retained earnings.
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. 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.
Depreciation and amortization: Estimates have been adopted for the depreciation and amortization periods relating to
property, plant and equipment, externally acquired intangible assets and internally generated intangible assets. These
are dealt with in the accounting policy notes set forth above that relate to these areas.
Discount rates: Judgement has been used to determine the assumed discount rate of 9 percent used for recoverability
assessment relating to intangible assets referred to in Note 14, and the discount rate of 3.75 percent used in respect
of the application of IFRS 16 further described in Note 21. The difference in rate selected reflects assessment of
the differing risk profile of the underlying assets. Judgement has also been used in determining that no provision
is required for credit losses on trade receivables and intercompany receivables, based on the quality of the group’s
customers and historical loss experience as further described in Note 17.
Multiple service obligations: Where the sales contract involves multiple service obligations the allocation of the
transaction price is performed proportionally based on the standalone selling price for each obligation. The way in
which management assigns the selling price to each separate performance obligation is based on the cost of satisfying
the performance obligation plus an appropriate margin.
Deferred taxation: In recognizing deferred tax assets and liabilities management makes judgements about likely future
taxable profits. The carrying values of current tax and deferred tax assets and liabilities are disclosed separately in the
consolidated statement of financial position.
FINANCIAL INFORMATION
47
Capitalization of development costs: Development costs are capitalized based on an assessment on whether they
meet the criteria specified in IAS 38 for capitalization. During each reporting period, an assessment is performed by
management to determine time spent developing the intangible assets as a proportion of total time spent in the year.
This represents an area of judgement and impacts the value of intangible costs capitalized.
Percentage completion of revenue: Consultancy service projects can span period ends. The group’s accounting
policies for these projects require revenue and costs to be allocated to individual accounting periods and the
consequent recognition at period end of contract assets or liabilities for projects still in progress. Management apply
judgement in estimating the total revenue and total costs expected on each project. Such estimates are revised as a
project progresses to reflect the current status of the project and the latest information available to management. The
service teams regularly review contract progress to ensure the latest estimates are appropriate. Further detail on
Contract assets and liabilities are reflected per Note 4.
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 2020 and 2019 was derived from the design,
development and marketing of software products with associated implementation and consultancy services, as more
particularly described in the Strategic Report. The business is seen as one cash-generating unit and operates as a
single operating segment. For management purposes, the group is organized geographically across two principal
territories, North America and Europe. Information relating to this geographical split is outlined below.
The information in the following table provides analysis by location of operations. Inter-segment revenues are priced on
an arm’s length basis.
Year ended 31 December 2020
Income Statement
External revenues
Operating profit before interest and tax
Profit before tax*
Finance income
Finance expense
Depreciation and amortization
Adjusted EBITDA*
Balance Sheet
Fixed asset additions
Capitalization of internally generated development costs
Total assets
Total liabilities
Year ended 31 December 2019
Income Statement
External revenues
Operating profit before interest and tax
Profit before tax*
Finance income
Finance expense
Depreciation and amortization
Adjusted EBITDA*
Balance Sheet
Fixed asset additions
Capitalization of internally generated development costs
Total assets
Total liabilities
North
America
$’000
Europe
$’000
Total
$’000
18,938
2,259
2,238
45
(66)
(3,306)
5,933
11,058
(484)
(531)
(20)
(27)
(399)
(6)
29,996
1,775
1,707
25
(93)
(3,705)
5,927
277
3,658
29,408
(11,672)
90
-
18,870
(6,451)
367
3,658
48,278
(18,123)
North
America
$’000
20,690
3,887
3,962
166
(91)
(2,991)
6,879
Europe
$’000
Total
$’000
9,564
(1,469)
(1,505)
-
(36)
(413)
(437)
30,254
2,418
2,457
166
(127)
(3,404)
6,442
243
3,010
29,052
(11,123)
102
-
14,998
(5,031)
345
3,010
44,050
(16,154)
48
FINANCIAL INFORMATION
*Reconciliation from profit before tax to adjusted EBITDA is detailed in Note 5.
Revenues attributable to customers in North America in 2020 amounted to $18,332,000 (2019: $20,003,000). Revenue
attributable to customers in the rest of the world amounted to $11,664,000 (2019: $10,245,000) of which $9,500,000
(2019: $8,762,000) was attributable to customers in Europe.
No individual customer accounted for more than 10 percent of the group’s revenues in 2020 or 2019.
4 . R E V E N U E F R O M C O N T R A C T S W I T H C U S T O M E R S
Disaggregation of Revenue
Revenue attributable to each of the group’s primary geographic markets is analyzed in Note 3 above. The following table
provides further disaggregation of revenue in accordance with the IFRS 15 requirement to depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic factors.
Perpetual software licenses
Consulting and implementation services
Maintenance, software subscriptions and hosting
2020
$’000
3,021
9,680
17,295
2019
$’000
5,401
9,355
15,498
29,996
30,254
Perpetual licenses are recognized at a point in time. Consulting and implementation services, and maintenance,
subscription and hosting services, are recognized over time. Further details of the revenue recognition approaches are
described in Note 2.
Contract Balances
Contract assets and contract liabilities arise because cumulative billings to customers at each balance sheet date do not
necessarily equal the amount of revenue recognized on the contracts. Contract assets, historically described as accrued
income, represent performance obligations that have been satisfied but not yet billed at the end of the reporting period.
Contract liabilities, historically described as deferred revenue, represent transaction price allocated to the performance
obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period. The group does not have any
instances where payment is received in advance for multi-year contracts, all invoicing is annual as per contract terms.
Contract Assets
2019
$’000
2020
$’000
Contract Liabilities
2019
2020
$’000
$’000
At 1 January
Transfers in the period from contract assets to trade receivables
Revenue recognized ahead of cash (or rights to cash)
Transfers in the period from contract liabilities to revenue
Cash (or rights to cash) received in advance of revenue recognition
397
(397)
430
-
-
1,109
(1,109)
397
-
-
10,337
-
-
(10,337)
11,985
9,035
-
-
(9,035)
10,337
At 31 December
430
397
11,985
10,337
FINANCIAL INFORMATION
49
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
Depreciation of right-of-use assets
Employee share-based payments
2020
$’000
(110)
3,225
2,669
365
671
447
2019
$’000
100
3,340
2,342
364
698
620
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.
Adjusted EBITDA, which is a company specific measure, defined as earnings before interest, tax, depreciation,
amortization, and employee share-based payment charges, is considered to be an important profit measure, since it is
widely used by the investment community. See page 18 for further information on the use of this measure. 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
Depreciation of right-of-use assets
Employee share-based payments
Adjusted EBITDA
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.
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
2020
$’000
2019
$’000
1,707
2,457
93
(25)
2,669
365
671
447
127
(166)
2,342
364
698
620
5,927
6,442
2020
$’000
2019
$’000
68
5
19
28
72
5
17
31
50
FINANCIAL INFORMATION
7 . S TA F F C O S T S
Wages and salaries
Social security costs
Pension contributions
Employee benefits expense
2020
$’000
19,208
1,610
483
1,060
2019
$’000
17,959
1,529
442
1,049
22,361
20,979
Included within the above are staff costs capitalized as development expenditure amounting to $3,658,000 (2019: $3,010,000).
Included within wages and salaries are bonus and sales commission costs amounting to $2,203,000 (2019: $2,108,000).
The average monthly number of employees during the year was made up as follows:
Development and operations
Sales and management
2020
Number
2019
Number
112
53
165
107
53
160
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
2020
$’000
1,025
25
1,050
2019
$’000
961
22
983
During the year 7,500 share options (2019: Nil) were exercised by directors. Pension contributions are to personal defined
contribution schemes and have been made for three directors (2019: three) who served during the year.
Full details of directors’ remuneration, including share option exercises, are disclosed in the Board Committee Reports on
page 21.
Staff costs in the parent company amounted to $600,000 including bonuses (2019: $513,000). The average monthly
number of staff of the parent company during the year included one full time and two part time (2019: one and two).
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
Negative interest income on certain Euro bank balances
2020
$’000
2019
$’000
45
(20)
25
166
-
166
FINANCIAL INFORMATION
51
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
Interest on lease liabilities
1 0 . I N C O M E TA X C R E D I T
Income tax charge 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 19% (2019: 19%)
Adjustment for differing rates of corporate taxation in overseas jurisdictions
Tax effect of expenses that are not deductible in determining taxable profits
Temporary differences arising from the capitalization
and transfer of development investments
Utilization of prior year losses
2020
$’000
2019
$’000
(34)
(59)
(93)
(60)
(67)
(127)
2020
$’000
2019
$’000
(211)
(409)
2020
$’000
1,707
(324)
(67)
(156)
188
148
2019
$’000
2,457
(467)
(139)
(192)
127
262
Total income tax expense for the year
(211)
(409)
The current tax expense represents German corporation tax payable by Sopheon GmbH and US state taxes payable by
the group’s US subsidiaries.
US corporate Alternative Minimum Tax (AMT) has been repealed in respect of tax years beginning on or after 1 January
2018. AMT paid by US corporations in respect of periods prior to that date is refundable over a four-year period to
December 2021. Of the $208,000 of refundable AMT credited in 2018, Sopheon’s US subsidiaries received $104,000 in
2019 and $104,000 in 2020.
There is no tax arising on other comprehensive income.
52
FINANCIAL INFORMATION
Deferred Tax Asset
The group has a potential deferred tax asset arising from its unrelieved trading losses, which has been partially recognized,
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:
Deferred tax asset at 1 January
Amount recognized during the year
Deferred tax asset at 31 December
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
2020
$’000
2,557
-
2,557
2019
$’000
2,557
-
2,557
2020
$’000
156
2019
$’000
156
(1,420)
8,539
(1,212)
8,027
7,275
6,971
At 31 December 2020, tax losses estimated at $54m (2019: $52m) were available to carry forward by the Sopheon
group, arising from historical losses incurred. These losses have given rise to a deferred tax asset of $2.6m
(2019: $2.6m) and a further potential deferred tax asset of $8.5m (2019: $8.0m), based on the tax rates currently
applicable in the relevant tax jurisdictions.
Of these tax losses, an aggregate amount of $8.8m, representing $1.8m of the potential deferred tax asset (2019: $8.8m
and $1.9m respectively) represents pre-acquisition tax losses of 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 . 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 profit dealt with in the financial statements of the parent company for the year ended 31 December 2020 was
$3,659,000 (2019: profit of $8,323,000). The parent company’s result includes a partial release of provisions against
long-term loans due to the parent company from subsidiaries of $4,344,000 (2019: $9,359,000). Further details of parent
company loans to subsidiaries appear in Note 16.
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
Earnings per share
Diluted earnings per share
Profit after tax
Diluted profit after tax
Weighted average number of ordinary shares for
the purpose of basic earnings per share
Diluted earnings per share
FINANCIAL INFORMATION
53
2020
$’000
2019
$’000
1,496
2,048
’000s
’000s
10,193
10,156
14.68c
20.16c
’000s
’000s
1,496
1,396
2,048
2,048
’000s
’000s
10,637
10,667
14.06c
19.20c
For the purpose of calculating the diluted earnings per ordinary share in 2020 and 2019, in respect of the outstanding
942,294 share options (details of which are set out in Note 28), the treasury stock method is used. This assumes
that options to subscribe for Sopheon shares at prices below the average share price prevailing during the year are
exercised on 1st January of the relevant year (or, if later, on the date of grant) and that the proceeds from exercise of
such options are reinvested in treasury shares at the average price prevailing during the year.
54
FINANCIAL INFORMATION
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 2019
Additions
Exchange differences
At 1 January 2020
Additions
Exchange differences
At 31 December 2020
Accumulated Depreciation
At 1 January 2019
Depreciation charge for the year
Exchange differences
At 1 January 2020
Depreciation charge for the year
Exchange differences
At 31 December 2020
Carrying Amount
At 31 December 2020
At 31 December 2019
Company
The company has no property, plant and equipment.
Computer
Equipment
$’000
Furniture
& Fittings
$’000
2,706
333
(4)
3,035
356
30
3,421
2,335
304
(2)
2,637
309
13
2,959
462
398
577
12
(3)
586
11
10
607
416
60
(2)
474
56
11
541
66
112
Total
$’000
3,283
345
(7)
3,621
367
40
4,028
2,751
364
(4)
3,111
365
24
3,500
528
510
1 4 . I N TA N G I B L E A S S E T S
Cost
At 1 January 2019
Additions (internally generated)
At 1 January 2020
Additions (internally generated)
At 31 December 2020
Amortization
At 1 January 2019
Charge for the year
At 1 January 2020
Charge for the year
At 31 December 2020
Carrying Amount
At 31 December 2020
At 31 December 2019
FINANCIAL INFORMATION
55
Development
Costs
(Internally
Generated)
$’000
Goodwill
$’000
Total
$’000
26,780
3,010
29,790
3,658
1,022
-
1,022
-
27,802
3,010
30,812
3,658
33,448
1,022
34,470
21,596
2,342
23,938
2,669
26,607
-
-
-
-
-
21,596
2,342
23,938
2,669
26,607
6,841
1,022
7,863
5,852
1,022
6,874
The amortization period for the internally generated development costs relating to the group’s software products is four
years. Goodwill that arose in prior periods is not amortized. The residual goodwill arising on the acquisition of Alignent
is attributable to the enhanced market position of the group, 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, which is seen as a single cash-generating unit.
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 (2019: 3 percent). The discount rate used was 9 percent
(2019: 9 percent). Sensitivity analysis has been performed on these projections, specifically changes in assumed annual
revenue growth, profit margin growth and terminal growth rate. This demonstrates significant valuation headroom above
the carrying value of goodwill.
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 2019
Exchange difference
At 31 December 2020
Company
$’000
8,084
269
8,353
56
FINANCIAL INFORMATION
Details of the company’s subsidiaries at 31 December 2020 are set out below. Companies marked with an asterisk (*) are
held via Sopheon UK Ltd. 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
Place of Incorporation
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
Applied Network Technology Ltd*
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
1 6 . O T H E R R E C E I VA B L E S
Other receivables
Tax refundable in future years
Amounts due from subsidiary undertakings
(net of provisions)
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%
Employee Share
Ownership Trust
Group
Company
2020
$’000
19
-
-
19
2019
$’000
19
104
2020
$’000
-
-
2019
$’000
-
-
-
16,793
14,793
123
16,793
14,793
The other receivable represents a deposit paid in respect of a property leased by the group.
The tax refundable represents US Alternative Minimum Tax refunded during the year, further details of which appear in
Note 10.
A partial credit loss provision of $19,491,000 (2019: $33,622,000) has been made against amounts totaling $36,284,000
(2019: $48,415,000) owed to the parent company by subsidiary undertakings, which are due after more than one year and
are subordinated to the claims of all other creditors.
FINANCIAL INFORMATION
57
The expected credit loss provision against amounts due to the parent company from subsidiary undertakings has been
assessed using a Stage 3 approach as detailed below.
At 1 January
Net repayments
Net management charges
Partial release of provision
Previously provided loans to dormant subsidiary undertakings written off
Exchange adjustments
At 31 December
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
2020
$’000
33,622
(3,043)
699
(2,000)
(11,209)
1,422
2019
$’000
41,315
(1,167)
634
(9,000)
-
1,840
19,491
33,622
Trade receivables
Other receivables
Total receivables
Prepayments
Contract assets
Group
Company
2020
$’000
13,163
13
13,176
960
430
2019
$’000
11,722
55
11,777
826
397
2020
$’000
2019
$’000
-
82
82
27
-
-
79
79
26
-
14,566
13,000
109
105
The carrying value of trade and other receivables classified at amortized cost approximates fair value.
The group has adopted the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected
credit loss provision for trade receivables and contract assets. As further detailed in Note 22, the group’s customers
almost exclusively comprise major international corporations of good credit standing mostly based in the USA and
the EU, and the group’s historical credit loss experience is negligible. Accordingly, the trade receivables and contract
assets are assessed as homogenous for the purposes of grouping for credit risk, and expected loss rate is expected to
be nil leading to no provision for impairment being recorded.
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
2020
$’000
9,708
12,010
2019
$’000
9,163
10,270
2020
$’000
4,547
-
21,718
19,433
4,547
2019
$’000
2,636
-
2,636
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 $69,000 (2019: $66,000) held by the group’s employee share
ownership trust.
58
FINANCIAL INFORMATION
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
2020
$’000
1,013
104
1,089
2,871
2019
$’000
821
124
597
2,696
5,077
4,238
2020
$’000
2019
$’000
43
134
-
219
396
44
132
-
206
382
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
The group had no borrowings at 31 December 2020 or at 31 December 2019. The group’s line of credit facility and all
loan notes due to Silicon Valley Bank were fully repaid during 2019.
2 1 . L E A S E S
Lease liabilities represent rental payments by the group for leased office properties and leased vehicles.
Right-of-Use Assets
At 1 January 2019
Additions in year
Amortization
Exchange differences
At 1 January 2020
Additions and lease extensions in year
Amortization
Lease reassessments
Exchange differences
Leased
Buildings
$’000
Leased
Vehicles
$’000
1,911
-
(590)
(13)
1,308
79
(571)
(58)
36
187
170
(108)
(4)
245
68
(100)
4
16
Total
$’000
2,098
170
(698)
(17)
1,553
147
(671)
(54)
52
At 31 December 2020
794
233
1,027
FINANCIAL INFORMATION
59
Leased
Buildings
$’000
Leased
Vehicles
$’000
1,911
-
61
(627)
(13)
1,332
79
53
(618)
(57)
36
187
170
6
(112)
(4)
247
68
6
(105)
4
16
Total
$’000
2,098
170
67
(739)
(17)
1,579
147
59
(723)
(53)
52
825
236
1,061
Carrying
Amount
$’000
Contractual
Cash-Flow
$’000
Less than
One Year
$’000
One to
Two Years
$’000
Two to
Five Years
$’000
825
236
862
251
1,061
1,113
474
75
549
271
57
328
117
119
236
Carrying
Amount
$’000
Contractual
Cash-Flow
$’000
Less than
One Year
$’000
One to
Two Years
$’000
Two to
Five Years
$’000
1,332
247
1,579
1,406
264
1,670
487
103
690
426
54
480
393
107
500
Lease Liabilities
At 1 January 2019
Additions in year
Interest expense
Lease payments
Exchange differences
At 1 January 2020
Additions in year
Interest expense
Lease payments
Lease reassessments
Exchange differences
At 31 December 2020
The maturity of the lease liabilities is as follows:
At 31 December 2020
Leased buildings
Leased vehicles
Total
At 31 December 2019
Leased buildings
Leased vehicles
Total
Leased Buildings
Buildings are leased for office space under leases which typically run for a period of 1-5 years and lease payments are
at fixed amounts. Some leases for office buildings include extension options exercisable up to one year before the end
of the cancellable lease term.
Leased Vehicles
The group leases vehicles for qualifying employees with a standard lease term of 4 years with fixed lease payments.
The group does not purchase or guarantee the future value of leased vehicles.
Leased Equipment
The group has a small number of leases of office equipment. The group considers these leases to be of low value or
short term in nature and therefore no right-of-use assets or lease liabilities are recognized for these leases.
60
FINANCIAL INFORMATION
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 financial assets measured at amortized cost, 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
Amounts due from subsidiary companies
Contract assets
Cash and cash equivalents
Group
Company
Notes
2020
$’000
2019
$’000
2020
$’000
2019
$’000
17
17
16
17
18
13,163
13
-
430
21,718
11,722
55
-
397
19,433
-
82
14,793
-
4,547
-
79
14,793
-
2,636
35,324
31,607
19,422
17,508
Non-current Financial Assets
Other receivables
16
19
123
-
-
The group does not have any financial assets in any other categories.
2. Financial Liabilities
Current Financial Liabilities
Trade payables
Other payables
Accruals
Loans and borrowings
Lease liabilities
Non-current Financial Liabilities
Loans and borrowings
Lease liabilities
Group
Company
Notes
2020
$’000
2019
$’000
2020
$’000
2019
$’000
19
19
19
20
21
20
21
1,013
104
2,871
-
515
821
124
2,696
-
643
4,503
4,284
-
546
546
-
936
936
43
134
219
-
-
396
-
-
-
44
132
206
-
-
382
-
-
-
5,049
5,220
396
382
FINANCIAL INFORMATION
61
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
• Loans and borrowings
• Lease liabilities
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:
a) Credit Risk
Credit risk arises principally from the group’s trade receivables, other receivables and contract assets. 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 negligible. 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 2020 no individual customer accounted for more than 10
percent of group revenues (2019: None).
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.
A feature of recent years is that major corporations have slowed down payments or insist on long credit terms, and this
is reflected in the ageing profile of the group’s receivables. However, as noted above the group’s bad debts experience
is negligible. Impairments that do arise are not 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 contractually enforceable, but to derecognize
revenue if collection is uncertain.
62
FINANCIAL INFORMATION
The following is an analysis of the group’s trade receivables identifying the totals of trade receivables that are current
and those that are past due but not impaired:
At 31 December 2020
At 31 December 2019
Total
$’000
Current
$’000
13,163
11,110
11,722
10,653
Past Due
+30 Days
$’000
Past Due
+60 Days
$’000
479
195
1,574
874
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:
Trade receivables
North America
Europe
$’000
Gross
Value
8,735
4,428
13,163
2020
$’000
Provision
-
-
-
$’000
Carrying
Value
8,735
4,428
$’000
Gross
Value
8,918
2,809
13,163
11,727
2019
$’000
Provision
$’000
Carrying
Value
-
-
-
8,918
2,809
11,727
The group records impairment losses on its trade receivables separately from the gross amounts receivable. No
impairment losses were recorded during 2020 or 2019. 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 has recognized a proportion of the amounts due to it from its US subsidiaries, taking into account their
current profitability and cash holdings. Full details are set out in Note 16 and 27. The company has provided in full for
the remaining 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.
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.
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.
FINANCIAL INFORMATION
63
Group
At 31 December 2020
On Demand
or Within
Six Months
$’000
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
Trade and other payables
Lease liabilities – contractual cash-flow
Total financial liabilities
1,117
306
1,423
-
243
243
-
328
328
-
236
236
At 31 December 2019
On Demand
or Within
Six Months
$’000
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
Trade and other payables
Lease liabilities – contractual cash flow
Total financial liabilities
945
370
1,315
-
320
320
-
480
480
-
500
500
Company
At 31 December 2020
On Demand
or Within
Six Months
$’000
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
Trade and other payables
Total financial liabilities
177
177
-
-
-
-
-
-
At 31 December 2019
Trade and other payables
Total financial liabilities
c) Market Risk
On Demand
or Within
Six Months
$’000
Within
One Year
$’000
Within
Two Years
$’000
Within
Five Years
$’000
176
176
-
-
-
-
-
-
Total
$’000
1,117
1,113
2,230
Total
$’000
945
1,670
2,615
Total
$’000
177
177
Total
$’000
176
176
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 has no borrowings, other than lease liabilities, in respect of which lease payments are fixed and do not carry
interest rate risk.
The group invests its surplus cash in bank deposits denominated in US Dollars, Euros or Sterling, which bear interest
based on short-term money market rates, and in doing so exposes itself to fluctuations in money market interest rates.
The group’s surplus cash held in the form of bank deposits at 31 December 2020 was $12,010,000. During 2020
interest rates on money market deposits averaged at or below 0.5 percent in respect of Euro and Sterling deposits and
at around 2 percent in respect of US Dollar deposits. The annualized effect of an increase or decrease of 0.5 percent in
the average interest rate received on the group’s bank deposits at the balance sheet date would result in an increase or
reduction in the group’s interest income of $60,000.
64
FINANCIAL INFORMATION
The group’s cash balances held in bank current accounts do not attract interest, with the exception of certain Euro
bank balances on which negative interest rates currently apply. An increase of 0.5 percent in the negative interest rate
applicable to these balances at the balance sheet date would result in an increase in negative interest income of $26,000.
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 that 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 that 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 that actually applied during the year and at the year-end.
2020
2019
2020
2019
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
(75)
25
75
(24)
149
170
(148) (170)
365
(366)
466
(467)
258
(260)
493
(495)
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
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.
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
2019
2020
Increase/(Decrease)
in Profit After Tax
$’000
$’000
159
(159)
161
(161)
86
(86)
95
(95)
FINANCIAL INFORMATION
65
f) Capital
The group considers its capital to comprise its share capital, its capital reserves (as set out in Note 24) and its retained
earnings. 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
2020
Number
2020
$’000
2019
Number
Ordinary shares of 20 pence each
10,202,888
3,133 10,174,038
2019
$’000
3,126
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, 28,850 ordinary shares were issued in connection with the exercise of options at exercise
prices ranging from 55p to 150p.
2 4 . C A P I TA L R E S E R V E S
Group
At 1 January 2019
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
At 1 January 2020
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
Share
Premium
$’000
Equity
Reserve
$’000
Special
Reserve
$’000
2,258
97
-
-
2,355
45
-
-
946
-
620
(52)
1,514
-
447
(36)
5,073
-
-
-
5,073
-
-
-
Total
$’000
8,277
97
620
(52)
8,942
45
447
(36)
At 31 December 2020
2,400
1,925
5,073
9,398
Company
At 1 January 2019
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
At 1 January 2020
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
Share
Premium
$’000
Equity
Reserve
$’000
Special
Reserve
$’000
2,258
97
-
-
2,355
45
-
-
946
-
620
(52)
1,514
-
447
(36)
5,073
-
-
-
5,073
-
-
-
Total
$’000
8,277
97
620
(52)
8,942
45
447
(36)
At 31 December 2020
2,400
1,925
5,073
9,398
66
FINANCIAL INFORMATION
The equity reserve comprises the fair value of share-based payments made to employees pursuant to the group’s
share option schemes, offset by credits from the expiry, lapsing or exercise options.
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 2020, the Esot held 36,472 ordinary shares of 20p each in the company (2019: 36,472)
which represents 0.4 percent (2019: 0.4 percent) of the company’s ordinary share capital. The equity reserve includes
a deduction of $46,000 (2019: $46,000) which represents the cost of the shares held by the Esot at 31 December 2020.
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 2020 and at 31 December 2019, 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 . D I V I D E N D S
Dividends paid in year
Final dividend for 2019 of 3.25p per share paid in July 2020
2020
$’000
2019
$’000
429
430
The directors are proposing a final dividend of 3.25 pence per share in respect of the year ended 31 December 2020
amounting to £332,000 ($453,000).
2 6 . R E T I R E M E N T B E N E F I T P L A N S
The group operates defined contribution retirement benefit plans which employees are entitled to join. The total
expense recognized in the income statement of $483,000 (2019: $442,000) represents contributions paid to such plans
at rates specified in the rules of the plans.
2 7 . R E L AT E D PA R T Y T R A N S A C T I O N S
Details of transactions between the group and related parties are disclosed below.
Compensation of Key Management Personnel
Details of directors’ remuneration are given in Note 7. The total remuneration of executive directors and members of
the group’s operating and executive management committees during the year was as follows:
Emoluments and benefits
Pension contributions
Share-based payments
2020
$’000
2,792
73
382
2019
$’000
2,541
67
478
3,247
3,086
FINANCIAL INFORMATION
67
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
Net management charges to subsidiaries
2020
$’000
2019
$’000
(3,043)
699
(1,167)
634
The amounts owed by subsidiary companies to the parent company at 31 December 2020 totaled $36,284,000
(2019: $48,415,000). An amount of $16,793,000 (2019: $14,793,000), due from the group’s US and Dutch subsidiary
companies, has been recognized in the parent company balance sheet, the balance of amounts due from subsidiaries
remaining subject to full provision. Amounts owed by subsidiary companies to the parent company are unsecured and
are subordinated to the claims of all other creditors.
During 2020 and 2019, the company granted share options to employees of subsidiary companies. Details of grants of
share options are disclosed in Note 28.
Other Related Party Transactions
There were no other related party transactions during the year under review or the previous year.
2 8 . S H A R E - B A S E D PAY M E N T S
Equity-settled Share Option Schemes
The group has a number of share option schemes for all employees. Options are exercisable at a price equal to the
market price on the date of grant. The normal vesting periods are as set out below.
Vesting
Sopheon plc (USA) stock option plan
Sopheon UK approved share option scheme
Sopheon UK unapproved share option scheme
Sopheon NV share option scheme
In three equal tranches between the first and third anniversary of grant
On third anniversary of grant
Immediate or as per USA plan
Immediate or as per USA plan
Details of the share options outstanding during 2020 and 2019 are as follows:
Outstanding at 1 January 2019
Options granted in 2019
Options exercised in 2019
Options lapsed in 2019
Outstanding at 1 January 2020
Options granted in 2020
Options exercised in 2020
Options lapsed in 2020
Outstanding at 31 December 2020
Exercisable at 31 December 2020
Exercisable at 31 December 2019
Number of
Share
Options
875,821
30,000
(30,272)
(7,155)
868,394
105,000
(28,850)
(2,250)
Weighted
Average
Exercise
Price
£
3.57
7.20
2.68
5.07
3.72
7.77
1.42
8.17
942,294 4.23
812,531
3.66
712,583
2.97
68
FINANCIAL INFORMATION
During 2020, share options were exercised over 28,850 ordinary shares at exercise prices ranging from 55p to 150p.
During 2019, share options were exercised over 30,272 ordinary shares at exercise prices ranging from 85p to 900p.
The options outstanding at the end of the year have a weighted average contractual life of 5.6 years (2019: 5.9 years).
During the year share options were granted on 13 July 2020 when the exercise price of options granted was 775p and
the estimated fair value was 459p and on 19 October 2020, when the exercise price of options granted was 785p and
the estimated fair value was 465p. During the preceding year share options were granted on 14 October 2019, when the
exercise price of options granted was 720p and the estimated fair value was 426p.
The fair values for options granted are calculated using the Black-Scholes 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
July
2020
775p
775p
40%
5%
0.4%
October
2020
October
2019
785p
785p
40%
5%
0.4%
720p
720p
40%
5%
0.5%
The expected contractual life of the options used was five to ten years. Expected volatility was determined by reference
to the historical volatility of the company’s share price in the period before the date of grant.
71
D I R E C T O R S
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.
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.
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.
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.
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.
Greg Coticchia, President. Greg Coticchia joined Sopheon as President in 2020, and will be
appointed a director shortly following publication of this report. He is a recognized entrepreneur,
business leader and author with over thirty years’ experience in software products and services.
Most recently Greg established the Master’s Program in Product Management at Carnegie Mellon
University. He has held executive roles in a number of organizations ranging from startups to $1bn
revenue where he has been responsible for driving both organic and acquisition-led growth.
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