2021 Annual Report
Single innovation system
Table of contents
Strategic report
Summary results and trends ........................................................................................................5
Chairman's statement ...................................................................................................................6
Chief executive statement ...........................................................................................................8
Financial report ............................................................................................................................. 14
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 solutions deliver an innovation
decision command center that gives
companies complete visibility, smarter
decision-making, and better time to value.
In these times of dramatic change, enterprises are prioritizing innovation and
product development initiatives that enable them to get and keep competitive
advantage. But identifying, evaluating, and successfully executing against the right
strategic priorities isn’t easily done.
Enriched by experience with hundreds of longstanding, blue-chip customers,
Sopheon provides the ability to more effectively and efficiently control and
manage innovation and new product development programs and pipelines.
Growth plans/
roadmaps
Idea/Concept
development
Business case
development
Portfolio
prioritization
Develop product/
process, validation,
launch planning
Launch/
Go to market
Post-launch
optimization
Innovation is about getting your most powerful ideas to market. That’s why we’re
here. Sopheon sets the standard in developing the tools you need to capture the
ideas in front of you that have the highest potential (value, adoption, impact), and
capitalize on them by efficiently and effectively getting them into customers’ hands.
Forever finding new ways forward is how even the most creative companies
keep achieving sustainable, profitable futures.
2018
$33.9m
2017
$28.5m
2019
2020
$30.3m
$30.0m
2021
$34.4m
2019
$15.9m
2018
$14.8m
2017
$12.1m
Summary results and trends
5
2021
2020
$20.7m
$18.0m
2017
95%
2018
97%
2019
94%
2020
91%
2021
95%
Revenue
ARR
Gross retention
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
Stage-Gate® is a registered trademark of Stage Gate Inc. – see www.stage-gate.com
6
6
Strategic report
Chairman's statement
Our 2021 performance was gratifying both for the strategic progress we made and for exceeding
our financial market expectations despite such an uncertain economic environment. It is very
pleasing to report revenue growth of 14.6 percent at $34.4m (2020: $30m) and adjusted
EBITDA1 of $6.2m (2020: $5.9m) along with 15 percent growth in ARR2 to $20.7m at the end
of the year (2020: $18.0m). Cash grew to $24.2m (2020: $21.7m).
In addition to our financial results, 2021 was a year of unusually high activity and change
for Sopheon. Our new CEO and newly added executive team wasted no time in moving
forward with the company’s growth strategy and agenda. As detailed in recent years, we have
continued pursuing our investment path for growth.
At the time of this report, revenue visibility3 stands at $25.1m (2020: $24.5m). The consulting services element of visibility
is lower than the year before, due to the nature of deals signed in recent months. As previously noted, ARR has grown
strongly. We are on a journey of transition from a traditional perpetual on-premise software license business to a higher-
quality recurring revenue business, with the goal of delivering more predictable and reliable growth over the medium
term and increased value to our shareholders. In the shorter term, this transition is naturally weighing on profits as we
accelerate go-to-market investment while simultaneously shifting software revenue recognition from an up-front to a
rateable model.
As announced through the year, along with Greg taking on the CEO role, we have also strengthened our leadership team
with appointments in key marketing, sales, and product areas. The team has introduced and driven three key programs to
support our strategic direction. As noted above, a core goal is to increase ARR; as a percentage of revenue, it now stands
at 60 percent of trailing annual revenue compared to 53 percent when we started this journey in 2019.
2021 was a year of new leadership, new processes,
new programs, and extensive organizational
change, together with solid financial outcomes
and an initial acquisition.
Two initiatives are driving this key program – first, moving our perpetual customer base to a Software-as-a-Service
(“SaaS”) through a targeted cloud uplift program; and second, we have completed the transition of our new sales go to
market approach to a SaaS first model. By value, almost 90 percent of our pipeline for new software opportunities is for
SaaS business.
The second key program, equally important to our growth strategy is the increased investment being made in product,
with the expectation to generate higher rates of growth. Last year, our development organization embraced fundamental
directional, and process change with expectations to step up the pace of product releases. We are also moving towards
a multi-product future, expanding beyond our enterprise Accolade solution. We have ambitious plans in the product
investment area which will take patience and time. Our goals here are to:
• Continue to advance our flagship Accolade enterprise solution and maintain our market leadership. During 2021,
three new versions were released, and we plan an ongoing pace of four per year going forward.
• Introduce new cloud-based applications providing value to individual and workgroup users in the corporate
ecosystem, alongside Accolade's enterprise value proposition. Initial market introduction of the first application is
planned for mid-2022. These applications are intended to be stand-alone solutions that solve individual productivity
needs in addition to creating future upsell opportunities for Accolade.
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7
• Rapidly integrate acquired products to support extension sales generated from acquisitions. This journey is very
active with the ROI Blueprints (“ROIB”) acquisition completed in December 2021, and already playing a material
role with both existing and new customer opportunities.
The third key program is our investment in go-to-market strategies and programs, with the expectation to expand our
market reach and generate higher growth rates. We have stepped up marketing programs significantly in 2021, tracking
metrics for market reach, prospect engagement and ultimately lead generation. We expect to see continued activity
and results in the coming year. We are also adjusting our strategy to reduce our reliance on a smaller number of large
customers and thereby improve scalability and predictability.
We have previously shared our intention to engage in M&A, so it was very pleasing to close our ROIB acquisition last
December. Integration is under way with focus on achieving key time-based milestones. We are actively researching
additional acquisition opportunities to improve time-to-realization for our transformation and growth ambitions.
2021 was a year of new leadership, new processes, new programs, and extensive organizational change, together with
solid financial outcomes and an initial acquisition.
With the initiation of change behind us and the organizational structure and leadership in place, 2022 is very much
focused on accelerating and operationalizing the effectiveness of this change. I believe that the future is bright for
Sopheon and for Sopheon shareholders.
Andy Michuda
Executive Chairman
23 March 2022
2021
$31.3m
2020
$30.2m
2021
$24.2m
2020
$21.7m
NET ASSETS
NET CASH
1 Adjusted EBITDA is defined and reconciled in Note 5 to the financial statements.
2 ARR is defined as annual recurring revenue at a point in time, being the value of recurring SaaS, maintenance and hosting
revenue streams normalized to a one-year period.
3 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 SaaS, maintenance, and hosting streams. The visibility calculation does not include
revenues from new sales opportunities expected to close during the remainder of the year.
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Strategic report
Chief executive statement
Both externally and internally, 2021 was a year of change for Sopheon. While I joined
Sopheon in late 2020, it was an honor to succeed Andy Michuda as CEO in early 2021 and
lead Sopheon’s continued success through these changes. At the time, the coronavirus
pandemic was continuing to affect all sectors of the economy. Despite the challenges
of a global pandemic and its impact on every business worldwide and on their related
investments in their businesses in many areas, Sopheon continued to gain net new
customers and expand our relationships with existing customers. Innovation expenditures,
even during times of crisis, proved to be resilient. Market spending in the innovation
management space was estimated to be over $1.026B and growing at a CAGR of 16.9 percent
(Markets and Markets, Innovation Management Market with COVID-19 Impact Analysis Global
Forecast to 2026, September 2021).
We started 2021 with several key objectives:
• to increase the pace with which we deliver new and unique value to our customers in both product and services.
• to accelerate our transition to a SaaS model for our flagship product, Accolade, while steadily extending the
company’s reach towards a more user-centric product, underpinned by cloud-native, multitenant delivery.
• and finally, to identify and integrate capabilities through acquired intellectual property.
We achieved all these goals while achieving our financial goals. How?
• Over the year, we continued the movement of customers to a cloud-hosted solution; all of our new customers were
SaaS or hosted, and an additional six existing on-premise customers were migrated, bringing us to 53 percent of
our customers in the cloud, and while also investing in a true cloud-native version of our product.
• We increased our scheduled development pace to four times a year, delivering three releases of our flagship
product Accolade on this new pace during 2021, along with 10 point releases and more than a dozen new features.
These new capabilities increase value to our customers and allow us to be more competitive in gaining new
customers.
• We defined a clear market strategy based on knowledge from customers, prospects, sales, and industry analysts,
and identified companies for licensing, partnering, and acquisition. As a result, we accomplished our first
acquisition in many years, ROI Blueprints, and initiated integration immediately.
Sopheon achieved its financial goals in 2021 despite the many economic challenges we faced during the pandemic,
and we also retooled the company to invest and prepare for the future. As the great economist and Harvard business
professor Ted Levitt stated: The purpose of a business is to get and keep a customer. Sopheon continued to do just that
in 2021, and will continue to do so with its people, processes, and products in the future.
Market trends
Sopheon is a company that continues to transform to meet the promise of the market it serves: innovation. That has
been our journey for the past year. We continue to understand that, as a provider of innovation solutions, we must also
innovate and even transform our business while building on our foundation of success. To this end, we have defined
and begun to execute on our updated three-year strategy for Sopheon. This strategy is informed by our customers, the
innovation market, and our people.
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99
Some of the most valuable ‘assets’ we have are the foundation of our well-recognized, brand-name customers across
many industries; our proven product; our ability to deliver our innovation and new product development expertise to make
customers successful; and the go-to-market operations that create awareness and relationships with customers. Moreover,
we have a wonderful team of people. At our core, all ‘Sopheonites’ (as we call ourselves) bring this strategy together and
drive towards the goals we set. Sopheon has been and will continue to be a proven and trusted partner for innovation.
It's not just us ‘telling us.’ It's the marketplace telling us. In a poll by MarketsandMarkets, a leading global market research and
consulting company, Sopheon was ranked number one in the innovation management marketplace. It's tough being number
one in any marketplace, but we are, and we are beating companies that are larger than us. With that said, we realize the new
norm is "constant change," and to continue our position of leadership and market relevance; we must continue to change. We
believe the best time to examine and adjust an organization's strategy is from a position of strength.
Here are the market drivers we are responding to as we transform our business:
• How customers want to buy has changed. Business to Business (B2B) buyers are self-educating about products
that interest them and demanding self-service where they experience the product with no assistance from the
company. They don't want to be informed from outbound marketing and set up an appointment with a salesperson to
get educated. At a minimum, it's happening much later in the sales process.
- According to a survey by the Corporate Executive Board, “On average – and with little variation among industries –
customers will contact a sales rep when they independently complete about 57 percent of the purchasing decision
process.”
• The person making the decision about what to buy is changing. Decision making – even enterprise decision
making – is moving rapidly from the executive buyer to the ‘end user’ as an initial purchasing step. The end-users want
to get their hands on the product immediately, either through a free trial or some type of "freemium" offering - the
product itself becomes the primary driver of customer acquisition ("product led growth" or "PLG").
- Since 2012, according to the OpenView 2020 SaaS Product Benchmarks Report, the number of US public software
companies operating on this model grew from one to 27.
• Customers want to purchase for very specific capabilities that solve more immediate problems. Customers
care about the quality and velocity with which you deliver useful product features and experiences through digital
means. The better you are at this, the more satisfied your customers will be.
-
In the article “The Death of Big Software,” while tightly bundled, standardized software made some sense back
in the day, it makes little or no sense in the era of digital transformation where disruptive business processes and
business models are seen as necessary paths to competitiveness.
" We achieved our goals: the three BUs work now in a single
consolidated, harmonized system. That is really added value for
our company, allowing us to speed-up time to market, especially
for cross-regional and cross-BU projects."
– Dr. Joachim Dohm
Former Global Vice President & Head of Innovation Process & Portfolio Management
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Strategic report
• And specifically in our market of innovation, two major trends are happening:
-
Innovation processes are changing. We have traditionally focused on automating the Stage-Gate process as a
core competency for our customers. However, we recognize that there is a bureaucracy governing Stage-Gate
processes that can impede speed and agility. Companies –even our traditional physical product customers
in consumer-packaged goods and chemicals—have discovered that newer ‘Agile’ methods lead to improved
project speed, decision-making, and communication. Stage-Gate has become less prominent as a process to
automate because speed is more important today. New digital tools have sped up innovation, the lessons of
Stage-Gate have been learned, and companies are now looking to make their innovation process faster and
less rigid.
- Digital/Software tools are coming into our market. All companies are becoming software companies. In 2011,
Marc Andreessen famously wrote a prescient claim that “software is eating the world.” His prediction
was that software companies would disrupt traditional industries, and since then, we've seen industries
transform, and companies fold in response to Amazon, Netflix, Airbnb, and more. We are seeing early-stage
companies with point products in product development coming into our markets and appearing at our
customers as they hire software developers to work in their businesses.
As the market leader, Sopheon recognizes these trends and is responding. We see many opportunities for us in these
changes to the innovation market.
Our response
So how do we respond to these?
Sopheon has put together the following three-point strategy, supported by five “action” themes.
1
2
3
SaaS/Annual
Recurring Revenue
Focus
Filling product
roadmap
opportunities
Pursuing new
go-to-market
strategies to expand
market reach
Our three-point strategy to meet the market needs is:
1
SaaS/annual recurring revenue focus
The SaaS model is an approach in which a business makes profits by offering cloud-based capabilities to
clients. Customers can access SaaS applications over an internet network remotely, from any device and place,
which can be more advantageous than traditional software business models. In these situations, the software
provider is responsible for building, installing, configuring, and updating the application. When using the SaaS
model, companies provide cloud applications to customers on a subscription payment basis. Organizations
follow a SaaS framework to reduce costs, increase accessibility, improve customer satisfaction, and expand
their financial success. Sopheon has transitioned 10 of its on-premise customers to the SaaS model, and we
have also completed the shift to go-to-market with Accolade foremost as a SaaS service for new customers.
Combined with a high gross retention rate of 95 percent and a high Net Promoter Score (NPS) of 45, we are
already starting to see the benefits from the SaaS business model of greater financial stability, high scalability,
and predictable revenue leading to better quality of earnings. This transition will continue in 2022.
Strategic report
11
2
Filling out the product roadmap
Last year, our development organization embraced fundamental directional and process change with
expectations to step up the pace of product releases while also moving the company towards a multi-product
future, reducing our reliance on Accolade alone. We have ambitious plans in the product investment area which
will take patience and time. Clearly, our flagship Accolade enterprise solution underpins our business, and we
will continue to invest and extend it, maintaining our market leadership. During 2021, three new versions of
Accolade were released, and we plan an ongoing pace of four releases per year going forward.
In parallel, we will introduce new cloud-based applications providing value to individual and workgroup users in
the corporate ecosystem, alongside Accolade's enterprise value proposition. Initial market introduction of the
first application is planned for mid-2022. Our gateway to the PLG approach, these applications are intended
to drive lead generation for Accolade, as well as being stand-alone solutions that solve individual productivity
needs. Integration with Accolade itself will be an essential element of these applications.
In addition, we have defined areas where licensing, partnering, or acquisition can strengthen our market
position, drive competitive differentiation, reduce customer acquisition costs, increase retention and customer
lifetime value, and create the opportunity for more revenue per customer. This past year we improved our
competitive position by acquiring ROI Blueprints. ROI Blueprints is a SaaS project and portfolio management
product enabling customers to manage project schedules, costs, resources, risks, and deliveries easily and
effectively. This has long been a capability that customers have asked for and a capability we would formerly
have to deliver through third-party integration. We expect that ROIB will add revenue and increase our overall
competitiveness. Finally, it also fits well into our plans for a future end-user-focused offering in this space.
3
Pursuing new go-to-market strategies to expand market reach
Sopheon has a well-defined marketing strategy for our industry-leading Accolade solution. We have grown
by focusing on key verticals such as Food & Beverage, Chemical, Aerospace & Defense, and Industrial
Manufacturing. Servicing these markets will continue to be a strength of ours moving forward. But we also see
an opportunity to grow beyond these verticals, as the market for innovation is growing at even a faster rate than
we have historically performed and faster than even market growth rates in innovation.
We have stepped up our investment in marketing communications, where we have historically been more
conservative, to ensure we are creating improved results in reach, engagement and leads required to continue
to grow our customer base. Also, these marketing activities will lay the foundation for connections with the
new individual and work group buyer of our software with our cloud-native PLG offering, in turn creating
upsell opportunities for our Accolade enterprise solution. Finally, we are also establishing new business and
technology partnerships. With more and better partnerships, we can expand our capabilities, benefitting
customers, differentiating from competitors, both without taking on the full costs.
Throughout its history, Sopheon has tackled the large innovation challenges of some of the world’s largest
companies. This experience has allowed us to prosper and gain many remarkable ‘blue chip’ customers. While
we focused on meeting many of their highly unique needs, we sacrificed building a product that could meet
a larger market need. Historically, this was not unusual in the enterprise software market; many Enterprise
Resource Planning (ERP) and Customer Relationship Management (CRM) products faced the same
challenges.
Given the stated Corporate Enterprise industry trends and shifts discussed above, we find ourselves in a unique
opportunity to introduce a product that not only continues to meet the Enterprise requirements but also
addresses the new market requirements.
" The beauty of this Accolade implementation is that we really
are creating one single source of truth, not only for having all our
products, but also for managing our portfolio resources in the same
location."
– Andre Dias Alves da Silva
Director Innovation I2M for Mondelèz International
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Strategic report
How we execute our plans
As we look to transform Sopheon and execute this strategy, we have created five themes to support the activity that
needs to take place for us to succeed. For Sopheonites, these themes are not just words on paper; they have been
turned into specific Objectives and Key Results (OKRs) – a collaborative goal-setting methodology used by teams and
individuals to set challenging, ambitious goals with measurable results – by each department leader with specific Key
Performance Indicators (KPIs) that will allow us to focus on achieving our goals.
They are:
Growth: Repeatable, scalable, profitable growth through increased net new customers and strong customer retention.
More: Broadening of product offerings and market solutions, company/technology acquisition, and delivering
differentiated value.
Speed: Faster time-to-value for our customers.
Visibility: Greater awareness of Sopheon and expressed interest for our products and services.
People: Attract, retain, and grow our employees to best accomplish our company’s goals.
Let’s take a deeper look at each one:
Growth: Sopheon will continue to focus on gaining more new customers and maintaining our high
retention rate. That's how we are measuring growth. We have energized our marketing and Americas
sales organization with new leadership and team members to generate more new accounts. We have
also started to build out a customer success organization to focus on customer health and ensure their
continued satisfaction with Sopheon.
More: We also know we can't get there selling just one product. It's why we have increased the pace
and delivery of our development organization, releasing three product releases last year with more than
twelve new capabilities and eighty enhancements. It’s also why acquisitions are essential to our strategy;
as we add more products, more prospects can find us, and customers can purchase from us. Finally, we
are broadening our service offerings to meet our customers’ needs, create closer relationships with our
customers, and deliver more value to them and their usage of Accolade.
Speed: Our customers are moving faster, and as a result, we need to do the same by delivering more
capabilities from our products and services every day. Our customers look to us to enable them in their
innovation speed and successful time to market. And they have shared with us they no longer have years
to deliver new product ideas and innovations, but just a few months at best. This ‘test and learn’ approach
to their innovations has been inspired by Agile methods and processes. Customers are requiring their key
partners like Sopheon to provide them speed in decision-making about new products, portfolio decisions,
strategy/execution processes, and more that will enable them to compete faster in their markets.
In addition to delivering more capabilities faster, we have also delivered better approaches to address
customer concerns. We introduced a “zero-based” approach to innovation in our product last year, which
was inspired by working closely with our customers to improve their innovation speed. Anywhere we can
decrease customer time-to-value, our products and services can create more value for our customers.
When customers can make innovation decisions faster, is a win for them and for us.
Visibility: Sopheon, in many ways, is a best-kept secret, and we have an opportunity to change that,
both with our new marketing leadership and the marketing investments we have made. Today’s B2B buyer
is savvier than ever before. They start their search for a product or service online. Not only do they check
a company’s website, but they search social media, reviews, and news stories about the business. With
increased market visibility activities and a strong social media presence – as well as credibility through
media stories about Sopheon – we reach more prospects interested in our products and services. These
activities benefit our current business and are essential for our nascent cloud-native business. We
have engaged our employees to help in this effort, which also aids in recruiting new talent. Finally, we
established the role of Chief Evangelist and elevated Paul Heller, a long-time Sopheon leader, and well-
known innovation market expert. He is the public face of Sopheon in this role. Paul hosts a weekly podcast
called InnovationTalks, where he talks innovation issues with other innovation market experts. In just a
year, Paul has hosted 65 episodes that have been listened to a total of 8,800 times and have helped drive
our market awareness, as demonstrated by a 65 percent growth in engagement in 2021 from 2022.
Strategic report
13
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.
“Our willingness to work together
and support each other”
“Belonging”
“A company that
can be trusted”
“Do whatever it takes to
succeed for our customer” “Going the extra mile
"Feel
empowered"
to help a customer”
“No egos. Everyone wants to help
with personal and customer success”
“Culture of sharing and helping”
“I know the company, my team, my boss
will be behind me ready to defend my
work and assist me when required”
People: Throughout the working world, a phenomenon called the “Great Resignation” has emerged. More
than ever before, people are voluntarily leaving their jobs. While some people have left the workforce
entirely, job security and better pay are top concerns for others. Sopheon is not immune from the realities
of the post-pandemic world, and like many corporations, we continue to navigate the ripple effects from
the pandemic.
As experienced professionals, we deeply understand and respect that the software business is all about
people and that innovation expertise is a ‘special sauce’ that our customers value and prospects see as
a differentiator. We have made significant changes to our work this past year with flexible work policies –
including “work from anywhere” – and by emphasizing our shared purpose and values so team members
can understand their contributions directly, ensure competitive compensation, and more. We believe that
by building a culture where employees know they are making a difference every day, and are rewarded for
it, yields retention and growth that benefits our customers and allows us to win in the market.
As you can read, we have a clear pathway forward.
• We recognize the market trends that impact our business now and, in the future.
• We have a structured framework and strategy to address these trends.
• We have built a set of objectives and goals around key themes that will allow us to achieve our strategy.
We remain confident in our growth trajectory and work with passion to achieve the unique market
opportunities ahead. We have recognized the trends that impact our business and understand how to convert
these into opportunities where we are uniquely positioned to benefit. We introduced significant change into
Sopheon in 2022 in anticipation of capitalizing on the unique opportunity we see in new market trends for
future success through the execution of our themes and OKR’s.
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:
Greg Coticchia
CEO
23 March 2021
14
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Strategic report
Financial report
In this report, our CFO Arif Karimjee provides further analysis of Sopheon’s financial results
during 2021, our financial position at the end of the year, and an overview of key corporate
developments.
Trading performance
Overall revenue grew strongly to $34.4m up from $30.0m the year before. This comprises
$24.0m of software revenue (2020: $20.3m) showing growth of 18 percent, and $10.4m
of consulting services (2020: $9.7m) representing growth of 7 percent. Behind this headline
performance, ARR grew to $20.7m, an increase of 15 percent compared to the prior year at $18.0m. This key aspect of
our migration continues to show good movement and is discussed in more detail below.
Total license order volume (including SaaS deals) grew substantially to 72 (10 new) license transactions compared to
43 (10 new) the year before; and moreover 39 were SaaS compared to 22 the year before. A higher volume was offset
by lower average deal value – we saw fewer million dollar deals signed in 2021, but we are reassured that overall a
higher volume of smaller orders is good evidence of market traction. SaaS naturally lends itself to smaller initial orders
followed by the promise of future expansion as reflected in the substantially higher volume of extension orders. The
combination of higher volume but lower deal value led to total TCV coming in modestly above 2020 levels. Within that,
the TCV of SaaS business rose to $7.3m (2020: $6.6m).
We entered 2022 with a lower consulting services backlog, due to the nature of deals signed in recent months.
Nevertheless, supported by our ARR transition, revenue visibility for the year now stands at $25.1m compared to
$24.5m at this time a year ago.
SaaS and ARR
As Andy and Greg have noted above, we continued to make progress on our two core steps to move the business
to SaaS first introduced in 2020. For new customers, the sales team now only offers SaaS unless, by exception, the
customer makes an explicit requirement for a perpetual license. As noted elsewhere, the make-up of the pipeline
has shifted. At the end of 2020, approximately 75 percent of our new license opportunity by value was SaaS
related. Today, this is almost 90 percent. For existing perpetual customers, in particular those 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 return on investment by taking on hosting and certain managed services, and we have
implemented this change for 10 customers so far. This is being further enhanced with new pricing models designed
to offer additional inducements for customers to switch to SaaS. In addition to the four perpetual customers that
took advantage of Cloud Lift during 2020, we added a further six in 2021. We believe this program will continue
to gain momentum as we progress through our transition and continue to improve the value of our cloud offering.
Furthermore, approximately 50 percent of the license transactions signed during 2021 were for SaaS contracts, and
the value of SaaS bookings was more than double that of perpetual contracts.
At the end of 2020, approximately 70 percent of
our new license opportunity by value was SaaS
related. Today, this is almost 90 percent.
Strategic report
15
15
As highlighted by the metrics above, the conversion of Sopheon’s revenue model to SaaS continued during the
year while delivering overall growth in revenues, highly unusual while going through this revenue transition. This was
also supported by a solid improvement in gross retention which returned to historic levels of 95 percent (2020: 91.5
percent). Our customer base continues to report high satisfaction levels, with our net promoter (“NPS”) surveys
recording an all-time high NPS score of 45 in 2021. A score of 45 is considered excellent for B2B enterprise software.
We continue to ensure that our customers are on new releases, with almost 80 percent of them on Accolade versions
13 and 14, the current supported releases.
Seasonality and geography
The sensitivity of revenue to calendarization has started to come down, which is something we expected to happen
as our recurring revenue began to rise more steeply. The second half of the year accounted for 52 percent of
revenues (2020: 54 percent and 2019: 55 percent). Unlike previous years, we also saw less seasonality in the booking
experience; while overall bookings were higher in 2021, whereas 2020 saw 44 percent of TCV signed in the final
quarter, in 2021 the final quarter represented 20 percent of the total.
Revenues to customers in our core markets of North America and Europe were 60 percent and 31 percent of total
respectively (2020: 61 percent and 32 percent). Following several signings in the Asia-Pacific region in 2020 and also
in 2021, revenues outside our core regions rose by $1m to make up the remaining 9 percent (2020: 7 percent). 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.
As highlighted by the metrics above, the conversion
of Sopheon’s revenue model to SaaS continued
during the year while delivering overall growth in
revenues, highly unusual while going through this
revenue transition. This was also supported by a
solid improvement in gross retention which returned
to historic levels of 95 percent (2020: 91.5 percent).
Gross margin
Gross margin was 72.6 percent, compared to 69.8 percent in 2020. 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 with our hosting activities, some license royalties due to OEM partners and costs and credits
relating to certain indirect taxes. The change in margin last year was driven largely by the dynamics of our services
organization. Although total consulting revenue rose in absolute terms, it both fell as a percentage of total revenues
and also improved its own gross margin largely through higher staff utilization and better hourly recovery rates.
Headcount in this area actually fell compared to 2020.
16
Strategic report
Research and development expenditure
Overall expenditure in product development in 2021 increased by approximately $1.7m to $8.6m. These amounts
can be compared to the headline research and development reported in the income statement showing an increase
from $5.9m to $7.3m; the differences are due to the effects of capitalization and amortization of development
costs. Headcount in this area went up by four on a yearly average basis, with significant strengthening in product
management in particular. In addition, we added eight offshore FTEs in the second half. This continued expansion of
resources supports the multi-product strategy mentioned in the Chairman’s statement. 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. Looking ahead, we will add investment in the ROIB solution. Greg explains the strategic
ambition that underpins these multiple product tracks in his report. As we note later, we offset delays in hiring staff
through the addition of greater subcontracting resources.
Overall, the amount of 2021 research and development expenditure that met the criteria of IAS 38 for capitalization
was $4.3m (2020: $3.7m) offset by amortization charges of $3.0m (2020: $2.7m). 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 2021 are largely attributable to the group’s investment in the Accolade
13.3, 14.0, 14.1 and 14.2 versions, as well as our foundation cloud-native platform. The first three releases were issued
during 2021; Accolade 14.2 in early 2022, and our first cloud native application is expected in 2022. This will initially be
marketed on a “freemium” model whereby users can download the application at no charge with the future option to
purchase higher subscription tiers to access greater functionality.
This continued expansion of resources supports the
multi-product strategy mentioned in the Chairman’s
statement. 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. Looking
ahead, we will add investment in the ROIB solution.
Other operating costs
Payroll costs continue to represent over 80 percent 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. In 2020, we
froze our previously ambitious hiring plans due to the onset of the pandemic. In 2021, we reintroduced recruitment
targets but were once again somewhat thwarted, this time by the incidence of higher staff churn as the impact of the
recovery and the “great resignation” took hold. Salary pressures have also been marked during 2021, consistent with
the rest of the technology sector. Accordingly, we ended last year with 167 staff, compared to 169 at the end of 2020.
Average headcount for the year was also 167 (2020: 164). Several recruits during 2020 were senior including several
new members of the management team. Excluding variable pay, staff costs as reported in Note 7 of the financial
statements increased by approximately $1.25m due to all these factors. A further $0.25m was due to currency effects.
Variable pay also increased, reflecting higher commissions and bonuses tied to the stronger financial performance
during the year. We have modified the corporate bonus scheme, applicable to all non-sales staff in the company,
adding a material element of ARR goal to our historical focus on EBITDA. The bonus is paid in the following year. In
parallel, subcontracting costs rose by approximately $0.4m. This is primarily linked to increases in our offshore team
working in India, which rose by 8 for a total of 18 FTEs during the second half of 2021. The offshoring is achieved
through an outsourcing firm and supports both consulting and development efforts. Non-payroll costs, which fell in
2020, increased by approximately $0.9m before exchange, interest, tax and depreciation. The main components of the
increase were expanded marketing program costs; staff training and infrastructure costs associated with our transition
plans; and deal related expenses in connection with the acquisition of ROIB. These were offset to some degree by very
low travel costs.
Strategic report
17
Taking 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 $1.9m including variable
compensation. This mainly reflects the higher variable component, addition of new leadership, and the significantly
higher investment in marketing programs referenced earlier in this report. Administration costs – which include
infrastructure costs - have risen by approximately $1.1m. 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. Roughly half the increase came from higher share option costs as well as
exchange losses arising on stronger sterling; the balance reflecting additional resources in training and IT in line with
our transition investments, as well acquisition related expenses.
With regard to foreign exchange, historically the group has aimed to incorporate a natural hedge through broadly
matching revenues and costs within common currency entities, reducing the need for active currency management.
In recent years this has become somewhat less balanced as our cost base has become increasingly dollar driven, while
revenues remain roughly two thirds dollar and one third euro or sterling. This has led to a build-up of Euro balances.
Following the recent reversal of Euro strength, we are now gradually shifting this into dollars.
" Through our partnership with Sopheon, we can now quickly
implement and sustain systematic, best-practice approaches that
will accelerate the development and commercialization of new
products that the market is ready for."
– Kim Cunningham
Chief Commercial Officer of Mother Parkers
Results and corporate tax
Adjusted EBITDA (Earnings before Interest, Tax, Depreciation, Amortization and Share based payments) 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 2021 rising to $6.2m, from $5.9m in 2020. Due mainly to the incidence of
higher share based payment charges, as well as higher amortization, profit before tax reduced to $1.2m (2020: $1.7m).
The tax charge of $0.4m (2020: $0.2m) 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 $0.2m 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 2020 and 2021, of a total
potential asset of $11.7m (2020: $11.1m).
Altogether this leads to a profit after tax of $0.8m (2020: $1.5m). This has also resulted in profit per ordinary share on
a fully diluted basis of 7.47 cents (2020: 14.06 cents).
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.
18
Strategic report
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 three decisions taken during the
year fall into this category and engaged with internal and external stakeholders on this. These are:
• The decision to acquire ROI Blueprints alongside our own investments in a cloud-native platform. As described
in our announcements at the time of the acquisition, the board believes that integrating the ROIB solution with
Sopheon’s Accolade product will extend the value of Sopheon’s offering and expand market reach. It will also
further accelerate Sopheon’s migration towards cloud and SaaS. In addition to the cross-selling opportunities,
these attributes will further underpin the Group’s solid retention metrics.
• The decision to move the business decisively towards a full flexible working model, whereby staff are encouraged
to work at home or in the office as suits their personal preference. This decision following overwhelming support
for such a move from the staff in general, and in the face of very real risks to staff retention if mandatory office
working was reinstated once countries opened up following the pandemic. It reflects trends in the technology
industry; will expand the pool of candidates that we can recruit; and we believe it will enhance the well being of
staff. In parallel with this change of approach we have also introduced several other policies to underpin staff
development, well-being and culture under a more remote working model.
• The decision to significantly expand investment in marketing programs. As noted above our spend in this area
broadly doubled in 2021, and this level of spend will continue in 2022. The change last year was funded through
underspend in several areas notably travel costs as the pandemic continued to prevent movement. The board
believes that our shift towards SaaS and product led approaches, together with changes in corporate buying
behavior to a more self-research model, require new forms of lead generation that in turn rely on a bigger
marketing presence. We expect this to result in stronger lead generation with consequent impact on sales down
the line.
Dividend
The board is pleased to maintain Sopheon’s dividend at 3.25 pence per share for the year ended 31 December 2021
(2020: 3.25p). We believe this level strikes the right balance between a business going through a complex SaaS
transition, while still delivering positive revenue growth, cash generation and balance sheet strength. Subject to
approval by the company’s shareholders at the annual general meeting scheduled for 9 June 2022, the dividend will be
paid on 8 July 2022 with a record date of 10 June 2022.
The board is pleased to maintain Sopheon’s
dividend at 3.25 pence per share for the year ended
31 December 2021. We believe this level strikes the
right balance between a business going through
a complex SaaS transition, while still delivering
positive revenue growth, cash generation and
balance sheet strength.
Strategic report
19
Facilities and assets
We continued to be cash generative during 2021 in spite of the tough environment, with cash rising to $24.2m (2020:
$21.7m) as detailed below. This provides a strong platform for growth as well as M&A. Furthermore, our relationship
with Silicon Valley Bank remains strong, with potential established for funding arrangements in connection with
corporate activity if required.
Intangible assets stood at $11.9m (2020: $7.9m) at the end of the year. This includes (i) $8.1m being the net book
value of capitalized research and development (2020: $6.8m) (ii) acquired technology and intellectual property rights
of $2.3m arising on the acquisition of ROIB; and (iii) an additional $1.6m (2020: $1.0m) being goodwill arising on
acquisitions, including $0.6m for ROIB arising in 2021.
As stated above in our discussion of research and development costs, capitalization and amortization were broadly
in balance for a number of years; however, recently capitalization has accelerated, and amortization has yet to catch
up, as development resources have expanded over the last few years. Our spend on tangible fixed assets was held to
$0.4m last year (2020: $0.4m) whereas depreciation was approximately $0.3m (2020: $0.4m), resulting in net book
value rising to $0.6m at the end of the year (2020: $0.5m).
With respect to the acquisition of ROIB, as detailed in Note 14 we have estimated approximately 88 percent of the
contingent consideration will become payable during the earnout period, resulting in a total net acquisition cost of
$2.8m. Of this, $2.3m has been allocated to technology and intellectual property rights, with the balance being treated
as goodwill.
As described in Note 2, IFRS 16 requires 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 $0.8m (2020: $1.0m) and corresponding lease liabilities
of $0.8m (2020: $1.1m) at 31 December 2021. Notional amortization and interest charges in connection with the above
recognized in the income statement were approximately $0.7m (2020: $0.7m).
Consolidated net assets at the end of the year stood at $31.3m (2020: $30.2m), an increase of $2.1m and including net
current assets of $15.7m (2020: $18.7m). Within the net current asset position, net cash at 31 December 2021 amounted
to $24.2m (2020: $21.7m). Approximately $5.6m was held in US Dollars, $15.2m in Euros and $3.4m 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 2022
20
Governance
Directors and advisors
Directors
Andrew L. Michuda
Gregory M. Coticchia
Arif Karimjee ACA
Barry K. Mence
Stuart A. Silcock FCA
Daniel Metzger
Executive Chairman
Chief Executive Officer
Chief Financial Officer
Non-executive 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 ACA
Registered office
Registered name and number
Auditors
Principal bankers and financiers
Solicitors and attorneys
AIM nominated adviser and broker
Registrars
Dorna House One
50 Guildford Road
West End, Surrey GU24 9PW
Sopheon plc
Registered in England and Wales
No. 03217859
BDO LLP
City Place
Gatwick RH6 0PA
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
Board committee report
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 three non-
executive directors, Barry Mence, Daniel Metzger and Stuart Silcock, and is chaired by Barry Mence. 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
Service contracts between the company and the executive directors are terminable on three 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. Mr. Coticchia
was appointed to the board on 31 March 2021 but was employed by the group for the whole year and the remuneration
disclosed is for the whole year. Mr Mence became a non-executive director on the same date.
Pay and
Fees
2021
$’000
Bonus Benefits
2021
$’000
2021
$’000
Total
2021
$’000
Pay and
Fees
2020
$’000
Bonus
2020
$’000
Benefits
2020
$’000
Total
2020
$’000
Executive Directors
A.L. Michuda
G.M Coticchia
A. Karimjee
Non-executive Directors
B.K Mence
S.A. Silcock
D. Metzger
349
260
222
112
37
37
147
93
73
23
-
-
12
-
6
11
-
-
508
353
301
146
37
37
339
-
204
211
34
34
1,017
336
29
1,382
822
82
-
38
50
-
-
170
11
-
9
13
-
-
33
432
-
251
274
34
34
1.025
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. In 2020 these objectives were set with regard to Adjusted EBITDA performance. In 2021, three quarters
of the incentive remained tied to Adjusted EBITDA, with the remaining quarter tied to Annual Recurring Revenue. 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 2021 contributions of $2,000, $7,000, $10,000 and $2,000 (2020: $6,000, $Nil, $10,000 and $9,000)
were paid respectively to the pension schemes of Andy Michuda, Greg Coticchia, Arif Karimjee and Barry Mence.
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.
1600
1400
1200
1000
800
600
400
200
0
Dec 15 June 16 Dec 16 June 17 Dec 17 June 18 Dec 18 June 19 Dec 19 June 20 Dec 20
June 21 Dec 21
Directors’ interests
Sopheon
Share Price
AIM All-Share
Rebase
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
A.L. Michuda
G.M Coticchia
A. Karimjee
B.K. Mence
S.A. Silcock
D. Metzger
Share Options
Ordinary Shares
2021
2020
2021
2020
320,000
100,000
93,000
-
-
-
320,000
20,000
85,500
24,250
-
-
64,120
-
70,000
1,895,958
279,490
5,000
84,155
-
82,493
2,228,537
520,318
5,000
With respect to the interests stated above for Barry Mence, Stuart Silcock and Arif Karimjee, their respective spouses
are the beneficial owners of 13,825, 6,875 and 20,000 ordinary shares each. Accordingly, the personal interest of Barry
Mence is in 1,882,133 ordinary shares, Stuart Silcock in 272,615 ordinary shares and Arif Karimjee in 50,000 ordinary
shares.
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
2020
Granted
During
Year
Exercised
During
Year
At 31
December
2021
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
A.L. Michuda
G. Coticchia
G. Coticchia
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
A. Karimjee
B.K. Mence
B.K. Mence
29 September 2012
5 December 2013
8 April 2016
15 February 2017
11 February 2018
4 July 2018
13 July 2020
14 May 2021
19 October 2020
14 May 2021
29 September 2012
5 December 2013
8 April 2016
15 February 2017
11 February 2018
4 July 2018
13 July 2020
14 May 2021
29 September 2012
5 December 2013
105p
85p
87.5p
467.5p
565p
900p
775p
900p
785p
845p
105p
85p
87.5p
467.5p
565p
900p
775p
900p
105p
85p
100,880
49,000
15,120
25,000
50,000
50,000
30,000
-
20,000
-
3,125
26,875
5,850
11,650
15,000
15,000
8,000
-
6,125
18,125
-
-
-
-
-
-
-
165,000
-
80,000
-
-
-
-
-
-
-
43,350
-
-
(100,880)
(49,000)
(15,120)
-
-
-
-
-
-
-
(3,125)
(26,875)
(5,850)
-
-
-
-
-
(6,125)
(18,125)
-
-
-
25,000
50,000
50,000
30,000
165,000
20,000
80,000
-
-
-
11,650
15,000
15,000
8,000
43,350
-
-
Vesting of all of the above share options which were outstanding at 31 December 2021 is in evenly over the three years
from 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 2021 was 935p. During the financial year the mid-market price of Sopheon
ordinary shares ranged from 790p to 985p. 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 2022 and signed on its behalf by:
A. Karimjee
Director
24
Governance
Directors’ report
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 2021 of 3.25 pence per share (2020: 3.25 pence per share),
amounting to £342,000 (2020: £332,000).
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. They ensure
that the board implements, maintains and communicates effective corporate governance processes and promotes 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 2021, 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 page 26.
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 three non-executive
directors. The 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. The non-executive directors comprise a
financial specialist, an industry specialist, and a general business specialist. All three have
experience of working in a public company environment. Furthermore, one is America
based and two 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 every three years,
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’s 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
the customer base is as referenceable as possible. 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 effects of the UK’s withdrawal from the EU and entering into the Trade and Cooperative Agreement with the EU
has not had 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.
War in Ukraine
In February 2022, Russia invaded Ukraine leading to a strong sanction response by many jurisdictions around the
world including by the UK, USA and EU. Sopheon is committed to honouring the sanctions imposed on Russia, named
individuals, and business entities. In addition, Sopheon, like many companies worldwide, has suspended all business
activity with Russian entities. Although Sopheon does not have any active customers in Ukraine or Russia, prior to the
invasion the group was involved in a small number of material sales opportunities within the territory, which have been
suspended. This is not expected to have any impact on the group's ability to continue as a going concern.
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 2020 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 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, and this is expected to
continue.
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 statements, the group’s 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 and settle
liabilities as they fall due for the next 12 months from approval of these financial statements. Accordingly these financial
statements are prepared on a going concern basis, with no material uncertainty over going concern.
28
Governance
Greenhouse gas emissions
The 2018 Regulations introduced requirements under Part 15 of the Companies Act 2006 for quoted companies to
disclose their annual energy use and greenhouse gas emissions, and related information. However, the group has applied
the option permitted to exclude any energy and carbon information relating to its subsidiaries which the subsidiaries
would not themselves be obliged to include if reporting on their own account. This applies to all subsidiaries within the
group. Sopheon plc itself consumed less than 40MWh during the reporting period, and therefore as a low energy user, it
is not required to make the detailed disclosures of energy and carbon information but is required to state, in its relevant
report, that its energy and carbon information is not disclosed for that reason.
Substantial shareholdings
The directors are aware of the following persons who as at 23 March 2022 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
Chelverton Asset Management Limited
No. of
Ordinary Shares
percent Issued
Ordinary Shares
2,074,308
1,895,958
1,121,193
927,586
670,238
19.7
18.0
10.6
8.8
6.4
Barry Mence’s interests represent direct beneficial holdings as well as those of his family.
Approved by the board on 23 March 2022 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 UK adopted International
Financial Reporting Standards (IFRSs). 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 2021 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK adopted international
accounting standards;
• the Parent Company financial statements have been properly prepared in accordance with UK adopted
international accounting standards 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 2021 which comprise the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated and company statements of financial position, the consolidated and company
cash flow statements, the consolidated and company statements of changes in equity, and notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and UK adopted
international accounting standards 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 challenged 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 results 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 ongoing impact of COVID-19 and the Ukraine conflict and their effect 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 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
authorised 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
99.8 percent (2020: 94.1 percent) of Group profit before tax
99.1 percent (2020: 99.8 percent) of Group revenue
99.8 percent (2020: 95.1 percent) of Group total assets
Revenue recognition
Intangible assets
Development costs, capitalisation, amortisation
and useful life
2021
2020
a a
a a
Materiality
Group financial statements as a whole
$344,000 (2020: $300,000) based on 1 percent (2020: 1 percent) 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 eight entities based in Europe and North America. There are three 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 and Sopheon Corporation, Minnesota. The significant components in all territories were subject to
full scope audits by the Group audit team, with the financial information of the remaining non-significant components
subject to analytical procedures performed by the Group audit team. Detailed testing was also performed over
material financial statement areas within each of the insignificant components.
At the parent entity level we also tested the consolidation process including consolidation adjustments and journals,
and performed work on all key judgements areas.
The figures in the table above illustrate 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 detailed testing performed on each component within the Group that had a material revenue
balance.
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.
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 either on
a perpetual licence basis
or under a Software-as-
a-Service ("SaaS") model,
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 around
the year end, particularly
in relation to license
sales and consulting
and implementation
service contracts due to
the level of judgement
involved in determining
the satisfaction of
performance obligations.
There is a risk revenue
could be recorded
inappropriately or
prematurely before the
distinct performance
obligation has been met.
How the scope of our audit
addressed the key audit matter
Our procedures included the following:
• We assessed the appropriateness of the revenue
recognition policy, in line with the requirements of
applicable accounting standards.
• In relation to perpetual license contract revenue, we
reviewed the terms of a sample of binding contracts
that were entered into during the year and tested
that the revenue was recognised in the correct
period by checking that the delivery of the licence
key, which provides the customer with access to the
Accolade software, occurred before year end.
• For a sample of recurring contracts (being
maintenance, software subscriptions and hosting
services) we tested that the revenue was recognised
in line with the contractual terms of the agreement
with the customer. This being the recognition of
revenue over the lifetime of the contract.
• For each contract selected we assessed, with
reference to the terms of the contract, whether the
customer had the right to access the software under
a SaaS arrangement or whether the customer had
the right to use and control the software meaning
it should be classed as a perpetual licence contract.
This was then compared against management's
treatment of the contract.
• For a sample of contracts involving multiple
performance obligations, we obtained management’s
assessment of the different performance
obligations and the allocation of the transaction
price against each distinct performance obligation.
We then reviewed the supporting contract and
calculations behind this assessment to verify that the
performance obligations were in line with the distinct
services outlined in the signed contract and that the
transaction price had been allocated correctly based
on appropriate measures. We also checked that
revenue was only being recognised when the distinct
performance obligations were satisfied by agreeing
to supporting documentation regarding the delivery
of the various performance obligations.
• We performed testing over revenue recorded for
a defined period before and after year end by
verifying back to underlying agreements and relevant
supporting documentation to check that revenue
was recognised in the correct period in line with the
performance obligations.
Key observations:
Based on the work performed did not identify any
matters to suggest that the recognition of revenue was
inappropriate.
Independent auditors' report to the members of Sopheon plc
33
Key audit matter
Intangible Assets:
Development
costs - capitalisation
and useful life
See accounting policy
in Note 2 on page 44
and intangible assets
in Note 14 on page 54.
How the scope of our audit
addressed the key audit matter
Our procedures included the following:
• Discussions were held with the Group’s technology
team to understand the Group’s processes,
procedures and projects in relation to development
costs.
• Tested the accuracy of the contractor and payroll
data, on a sample basis, included in the calculations
for capitalised costs to supporting documentation
including employment contracts and agreements
with contractors.
• Considered the proportion of time allocations
for employees and contractor roles to different
projects, capital and non-capital, to assess
the appropriateness of cost capitalisation. We
corroborated management's explanations to
supporting evidence.
• Assessed management’s estimate of the
amortisation period applied to the asset by
considering relevant industry benchmarks and
specific knowledge of the Group's product.
• 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 and management's
future forecasts for revenue generation.
Key observations:
Based on the procedures performed, we did not
identify any matters to suggest that the capitalisation
and useful life of the intangible assets were
inappropriate.
The Group capitalises
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 capitalise
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 are as
follows:
• Development costs not
satisfying the above
capitalisation criteria
and expenditure on
the research phase of
internal projects are
not recognised in the
income statement as
incurred.
• The asset's estimated
useful life is
inappropriate.
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
2021
$
2020
$
2021
$
2020
$
344,000
300,000
240,000
195,000
1 percent of
revenue
1 percent of
revenue
We considered revenue to be the most
appropriate benchmark as this is the primary
KPI which is used to assess the performance
of the Group by the board and an important
performance based metric to the users of
the financial statements.
1 percent of
revenue restricted
to 70% of Group
materiality
65 percent of
revenue restricted
to 70% of Group
materiality
We considered revenue to be the most
appropriate benchmark as this is the
primary KPI which is used to assess the
performance of the Parent Company by
the board and an important performance
based metric to the users of the financial
statements. Materiality was capped
at 90% of Group materiality given
the assessment of the component’s
aggregation risk.
241,000
211,000
168,000
136,500
Performance materiality was set at 70
percent 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
percent due to the fact there are a select
number of areas included in the accounts
which are subject to estimates.
Materiality
Basis for
determining
materiality
Rationale for the
benchmark applied
Performance
materiality
Basis for
determining
performance
materiality
Component materiality
We set materiality for each component of the Group based on a percentage of between 75 percent and 100 percent of
Group materiality dependent on the size and our assessment of the risk of material misstatement of that component.
Component materiality ranged from $240,000 to $344,000. 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 $14,000
(2020: $12,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on
qualitative grounds.
Independent auditors' report to the members of Sopheon plc
35
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 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, 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 laws and regulations 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
charged with governance, 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 an
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 these 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, by agreeing to the supporting
documentation. We also performed an assessment on the appropriateness of key judgements and estimates, for
example the capitalisation of development costs (the risks associated with the capitalisation 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. The engagement partner has assessed and confirmed that the engagement team collectively had the appropriate
competence and capabilities to identify or recognise non-compliance with laws and regulations.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising 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.
Michael Philp (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Gatwick, UK
23 March 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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 1
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)
Financial information
37
Notes
3, 4
2021
$’000
2020
$’000
34,356
(9,416)
29,996
(9,057)
24,940
20,939
(10,991)
(7,329)
(5,293)
(9,092)
(5,894)
(4,178)
1,327
1,775
8
9
5
(34)
(66)
25
(93)
1,227
1,707
10
(410)
(211)
817
1,496
12
12
7.82c
14.68c
7.47c
14.06c
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 1
Profit for the year
Other comprehensive (expense)/income
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Total comprehensive income for the year
2021
$’000
2020
$’000
817
1,496
(734)
83
693
2,189
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 1
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
2021
$’000
2020
$’000
2021
$’000
2020
$’000
13
21
14
15
10
16
605
752
11,950
-
2,557
19
528
1,027
7,863
-
2,557
19
-
-
-
8,247
-
16,793
-
-
-
8,353
-
16,793
Total non-current assets
15,883
11,994
25,040
25,146
Current Assets
Trade and other receivables
Cash and cash equivalents
17
18
13,182
24,193
14,566
21,718
Total current assets
37,375
36,284
137
7,375
7,512
109
4,547
4,656
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
53,258
48,278
32,552
29,802
19
21
4
21
7,668
474
13,505
5,077
515
11,985
21,647
17,577
305
305
546
546
477
-
-
477
-
-
396
-
-
396
-
-
21,952
18,123
477
396
31,306
30,155
32,075
29,406
23
24
3,219
10,500
(32)
17,619
3,133
9,398
702
16,922
3,219
10,500
(1,587)
19,943
3,133
9,398
(1,361)
18,236
31,306
30,155
32,075
29,406
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 2021 was $1,827,000 (2020: profit of $3,659,000).
Approved by the board and authorized for issue on 23 March 2022.
Andrew Michuda
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 1
Operating activities
Profit for the year
Group
Company
Notes
2021
$’000
2020
$’000
2021
$’000
2020
$’000
817
1,496
1,827
3,659
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
Decrease/(increase) in receivables
Increase in payables
34
66
341
635
2,997
880
410
6,180
-
-
1,244
3,147
(25)
93
365
671
2,669
447
211
5,927
-
-
(1,258)
2,249
Net cash generated from/(used in) operating activities
Income taxes paid
10,571
(487)
6,918
(344)
-
4
-
-
-
119
-
1,950
118
(3,228)
(28)
81
(1,107)
-
Net cash from/(used in) operating activities
10,084
6,574
(1,107)
Investing activities
Finance income
Purchases of property, plant and equipment
Development costs capitalized
Acquisition of business
Advance of loans to group companies
Repayment of loans by group companies
8
13
14
14
1
(435)
(4,271)
(1,450)
-
-
25
(367)
(3,658)
-
-
-
-
-
-
-
(1,336)
5,220
-
3
-
-
-
79
-
3,741
(331)
(4,344)
(4)
13
(925)
-
(925)
-
-
-
-
(2,369)
5,412
Net cash (used in)/generated from investing activities
(6,155)
(4,000)
3,884
3,043
Financing activities
Issues of shares
Lease payments
Interest paid
Dividends paid
21
25
648
(685)
(56)
(460)
52
(664)
(93)
(429)
648
-
(4)
(460)
Net cash used in financing activities
(553)
(1,134)
184
Net increase in cash and cash equivalents
3,376
1,440
2,961
52
-
(3)
(429)
(380)
1,738
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
21,718
(901)
19,433
845
4,547
(133)
2,636
173
Cash and cash equivalents at the end of the year
18
24,193
21,718
7,375
4,547
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 1
Capital
Reserves
$’000
Translation
Reserve
$’000
Retained
Profits
$’000
Group
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 and warrants
Dividends paid in year
At 1 January 2021
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
Share
Capital
$’000
3,126
-
-
-
7
-
-
-
8,942
-
-
-
45
447
(36)
-
3,133
-
9,398
-
-
-
86
-
-
-
-
-
562
880
(340)
-
Total
$’000
27,896
1,496
693
2,189
52
447
-
(429)
15,819
1,496
-
1,496
-
-
36
(429)
16,922
817
30,155
817
-
817
-
-
340
(460)
(734)
83
648
880
-
(460)
9
-
693
693
-
-
-
-
702
-
(734)
(734)
-
-
-
-
At 31 December 2021
3,219
10,500
(32)
17,619
31,306
Company
Share
Capital
$’000
Capital Translation
Reserve
Reserve
$’000
$’000
Retained
Profits
$’000
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
At 1 January 2021
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
3,126
-
7
-
-
-
3,133
-
86
-
-
-
8,942
-
45
447
(36)
-
9,398
-
562
880
(340)
-
(1,802)
441
-
-
-
-
(1,361)
(226)
-
-
-
-
14,970
3,659
-
-
36
(429)
18,236
1,827
-
-
340
(460)
Total
$’000
25,236
4,100
52
447
-
(429)
29,406
1,601
648
880
-
(460)
At 31 December 2021
3,219
10,500
(1,587)
19,943
32,075
The group translation reserve represents accumulated differences on the translation of assets and liabilities of foreign
operations. The company translation reserve arises due to the company’s functional currency being different to the
presentation currency. Full details of capital reserves are set out in Note 24.
The notes on pages 41 to 68 form part of these financial statements.
Financial information
41
1. General information
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. Significant accounting policies
The financial statements have been prepared in accordance with UK adopted international accounting standards in
accordance 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 and company's financial statements have
been presented in US Dollars. The directors believe this better reflects the underlying nature of the group's operations.
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 1.3477 US Dollars to British Pounds Sterling as at 31 December 2021 and 1.3735
US Dollars to British Pounds Sterling as the average rate prevailing during 2021.
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 and the war in Ukraine have so far had limited
impact on our business, and the board believes that the business is able to navigate through the continued challenges of
these events 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 and geopolitical 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 and settle liabilities as they fall due. 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 a business, whether as a subsidiary through the acquisition of a corporate entity or as the acquisition
of the assets and liabilities of a business, 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 business being
acquired, together with any costs directly attributable to the business combination. The results of the acquired business is
included in the consolidated income statement from the date on which effective control is obtained. The identifiable assets,
liabilities and contingent liabilities of the business 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.
Details of the acquisition of the business of ROI Blueprints LLC appear in Note 14.
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 at a point in time once no significant obligations remain owing to the
customer in connection with such license sale, in particular that the license does not give the customer significant rights
to upgrades and enhancements in the future unless separately contracted. Such significant obligations could also 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
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.
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.
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.
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.
44
Financial information
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.
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.
Financial information
45
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
The group classifies its financial assets in the category of financial assets at amortized cost. Financial assets do not include
prepayments.
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.
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.
46
Financial information
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.
Credit Loss Provisions: Judgement has also been used in determining that no provision is required for credit losses on trade
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.
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.
Financial information
47
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.
Classification of asset acquisitions: Certain acquisitions of assets qualify as a business combination if the assets collectively
include an input and a substantive process that together significantly contribute to the ability to create outputs. Assets that
qualify are accounted for in accordance with the accounting policy for business combinations set forth above.
3. Segmental analysis
All of the group’s revenue in respect of the years ended 31 December 2021 and 2020 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 2021
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 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
North
America
$’000
Europe
$’000
Total
$’000
21,088
3,092
3,055
1
(38)
(3,543)
7,397
304
4,271
29,930
(15,023)
North
America
$’000
18,938
2,259
2,238
45
(66)
(3,306)
5,933
277
3,658
29,408
(11,672)
13,268
(1,765)
(1,828)
(35)
(28)
(429)
(1,217)
131
-
23,328
(6,929)
34,356
1,327
1,227
(34)
(66)
(3,973)
6,180
435
4,271
53,258
(21,952)
Europe
$’000
Total
$’000
11,058
(484)
(531)
(20)
(27)
(399)
(6)
90
-
18,870
(6,451)
29,996
1,775
1,707
25
(93)
(3,705)
5,927
367
3,658
48,278
(18,123)
48
Financial information
*Reconciliation from profit before tax to adjusted EBITDA is detailed in Note 5.
Revenues attributable to customers in North America in 2021 amounted to $20,434,000 (2020: $18,332,000). Revenue
attributable to customers in the rest of the world amounted to $13,922,000 (2020: $11,664,000) of which $10,765,000
(2020: $9,500,000) was attributable to customers in Europe.
No individual customer accounted for more than 10 percent of the group’s revenues in 2021 or 2020.
4. Revenue from contracts with customers
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
2021
$’000
3,931
10,390
20,035
2020
$’000
3,021
9,680
17,295
34,356
29,996
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
2021
$’000
2020
$’000
Contract Liabilities
2020
2021
$’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
430
(430)
222
-
-
397
(397)
430
-
-
11,985
-
-
(11,985)
13,505
10,337
-
-
(10,337)
11,985
At 31 December
222
430
13,505
11,985
Financial information
49
5. Profit for the year
The profit for the year has been arrived at after charging/(crediting):
Net foreign exchange losses/(gains)
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
2021
$’000
191
4,332
2,997
341
636
880
2020
$’000
(110)
3,225
2,669
365
671
447
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 17 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. Auditors' Remuneration
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
2021
$’000
2020
$’000
1,227
1,707
101
(1)
2,997
341
636
880
93
(25)
2,669
365
671
447
6,181
5,927
2021
$’000
2020
$’000
93
-
23
23
68
5
19
28
The company has given a guarantee under S479C of the Companies Act 2006 to Sopheon UK Limited in respect of 2021
and that entity is included in the group's consolidated financial statements. Accordingly no audit has been performed in
respect of Sopheon UK Limited for 2021.
50
Financial information
7. Staff costs
Wages and salaries
Social security costs
Pension contributions
Employee benefits expense
2021
$’000
21,955
1,737
515
1,183
2020
$’000
19,208
1,610
483
1,060
25,390
22,361
Included within the above are staff costs capitalized as development expenditure amounting to $4,271,000
(2020: $3,658,000). Included within wages and salaries are bonus and sales commission costs amounting to $3,695,000
(2020: $2,203,000).
The average monthly number of employees during the year was made up as follows:
Development and operations
Sales and management
2021
Number
2020
Number
114
53
167
112
53
165
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
2021
$’000
1,382
21
1,403
2020
$’000
1,025
25
1,050
There were six directors during the year (2020: five). During the year 225,100 share options (2020: 7,500) were exercised
by directors. Pension contributions are to personal defined contribution schemes and have been made for four directors
(2020: 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 $578,000 including bonuses (2020: $600,000). The average monthly
number of staff of the parent company during the year included one full time and two part time (2020: one and two).
8. Finance income
Income on financial assets measured at amortized cost
Interest income on bank deposits
Negative interest income on certain Euro bank balances
2021
$’000
2020
$’000
1
(35)
(34)
45
(20)
25
Financial information
51
9. Finance expense
Interest expense on financial liabilities measured at amortized cost
Interest on lease liabilities
Other interest and finance expense
10. Income tax charge
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 percent (2020: 19 percent)
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
Tax losses not relievable against current tax
Utilization of prior year losses
Total income tax expense for the year
2021
$’000
2020
$’000
(45)
(21)
(66)
(59)
(34)
(93)
2021
$’000
2020
$’000
(410)
(211)
2021
$’000
1,227
(233)
(72)
(231)
242
(663)
547
(410)
2020
$’000
1,707
(324)
(67)
(156)
188
(176)
324
(211)
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.
An amount of $208,000 of refundable AMT credited in 2018 has been received by Sopheon’s US subsidiaries in two equal
instalments of $104,000.
There is no tax arising on other comprehensive income.
Deferred tax asset
The group has a potential deferred tax asset arising from its unrelieved trading losses, which has been partially recognized, 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
2021
$’000
2,557
-
2,557
2020
$’000
2,557
-
2,557
52
Financial information
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
2021
$’000
2020
$’000
171
156
(1,704)
9,105
(1,420)
8,539
7,572
7,275
At 31 December 2021, tax losses estimated at $54.2m (2020: $53.1m) 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 (2020: $2.6m) and a
further potential deferred tax asset of $9.1m (2020: $8.5m), based on the tax rates currently applicable in the relevant tax
jurisdictions.
Of these tax losses, an aggregate amount of $8.7m, representing $1.8m of the potential deferred tax asset (2020: $8.8m
and $1.8m 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. Profit dealt with in the financial statements of the parent company
The profit dealt with in the financial statements of the parent company for the year ended 31 December 2021 was $1,827,000
(2020: profit of $3,659,000). The parent company’s result includes a partial release of provisions against long-term loans
due to the parent company from subsidiaries of $3,228,000 (2020: $4,344,000). 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.
12. Earnings per share
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
2021
$’000
2020
$’000
817
1,496
’000s
’000s
10,442
10,193
7.82c
14.68c
’000s
’000s
817
817
1,496
1,496
’000s
’000s
10,939
10,637
7.47c
14.06c
Financial information
53
For the purpose of calculating the diluted earnings per ordinary share in 2021 and 2020, in respect of the outstanding
940,942 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.
13. Property, plant and equipment
Group
Cost
At 1 January 2020
Additions
Exchange differences
At 1 January 2021
Additions
Exchange differences
At 31 December 2021
Accumulated depreciation
At 1 January 2020
Depreciation charge for the year
Exchange differences
At 1 January 2021
Depreciation charge for the year
Exchange differences
At 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
Company
The company has no property, plant and equipment.
Computer
Equipment
$’000
Furniture
& Fittings
$’000
3,035
356
30
3,421
404
(47)
3,778
2,637
309
13
2,959
299
(33)
3,225
553
462
586
11
10
607
31
(15)
623
474
56
11
541
42
(12)
571
52
66
Total
$’000
3,621
367
40
4,028
435
(62)
4,401
3,111
365
24
3,500
341
(45)
3,796
605
528
54
Financial information
14. Intangible assets
Cost
At 1 January 2020
Additions (internally generated)
At 1 January 2021
Additions (internally generated)
Acquisition of business
At 31 December 2021
Amortization
At 1 January 2020
Charge for the year
At 1 January 2021
Charge for the year
At 31 December 2021
Carrying amount
At 31 December 2021
Development
Costs
(Internally Technology
& IPR
$’000
Generated)
$’000
Goodwill
$’000
Total
$’000
29,790
3,658
33,448
4,271
-
37,719
23,938
2,669
26,607
2,997
29,604
-
-
-
-
2,250
2,250
-
-
-
-
1,022
-
1,022
-
563
1,585
-
-
-
-
-
30,812
3,658
34,470
4,271
2,813
41,554
23,938
2,669
26,607
2,997
29,604
8,115
2,250
1,585
11,950
At 31 December 2020
6,841
-
1,022
7,863
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 historic acquisitions is attributable
to the enhanced market position of the group, and 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 (2020: 3 percent). The discount rate used was 9 percent (2020: 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.
On 20 December 2021 the group announced the acquisition of the business and certain assets and liabilities of ROI
Blueprints LLC, a cloud-based project and portfolio SaaS solution designed to help organizations drive operational execution
management of corporate initiatives. The initial consideration of $1,500,000 comprised cash of $1,460,000 (of which $10,000
was deferred) with the balance satisfied by the assumption of current assets with a fair value of $36,000 and contract
liabilities with a fair value of $76,000. Further contingent consideration of up to $1,500,000 is payable pursuant to an earn-
out which has been estimated at $1,312,500 based on expectations of performance at the date of this report. The technology
and intellectual property rights (“IPR”) acquired with the acquisition have been recorded at a fair value of $2,250,000 and the
balance of the excess of the consideration over the fair value of the net liabilities acquired of $563,000 has been allocated
to goodwill comprising expected synergies and other intangible assets that do not qualify for separate recognition. The
technology and IPR will be amortized over 4 years.
Company
The company has no intangible assets.
15. Investment in subsidiaries
At cost less amounts provided
At 31 December 2020
Exchange difference
At 31 December 2021
Financial information
55
Company
$’000
8,353
(106)
8,247
Details of the company’s subsidiaries at 31 December 2021 are set out below. Companies marked with an asterisk (*) are
held via Sopheon UK Limited. 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
7900 International 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 Limited
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
Common Stock
100 percent
Software sales and services
Common Stock
100 percent
Software development and sales
Common Stock
100 percent
Software sales and services
Ordinary Shares
100 percent
Software sales and services
Ordinary Shares
100 percent
Software sales and services
Ordinary Shares
100 percent
Software sales and services
Ordinary Shares
100 percent
Employee Share Ownership Trust
Under section 479A of the Companies Act 2006 the Group is claiming exemption from audit for its subsidiary company
Sopheon UK Limited, registered number 01940849. The parent undertaking, Sopheon plc, registered number 3217859,
guarantees all outstanding liabilities to which the subsidiary company is subject at the end of the financial year (being the
year ended 31 December 2021 for Sopheon UK Limited). The guarantee is enforceable against the parent undertaking by
any person to whom the subsidiary company is liable in respect of those liabilities.
56
Financial information
16. Other receivables
Other receivables
Amounts due from subsidiary undertakings
(net of provisions)
Group
Company
2021
$’000
2020
$’000
19
-
19
19
-
19
2021
$’000
-
2020
$’000
-
16,793
16,793
16,793
16,793
The other receivable represents a deposit paid in respect of a property leased by the group.
A partial credit loss provision of $15,962,000 (2020: $19,491,000) has been made against amounts totaling $32,755,000
(2020: $36,284,000) 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.
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
17. Trade and other receivables
2021
$’000
19,491
(3,884)
643
-
-
(288)
2020
$’000
33,622
(3,043)
699
(2,000)
(11,209)
1,422
15,962
19,491
Trade receivables
Other receivables
Total receivables
Prepayments
Contract assets
Group
Company
2021
$’000
11,802
26
11,828
1,132
222
2020
$’000
13,163
13
13,176
960
430
13,182
14,566
2021
$’000
2020
$’000
-
97
97
40
-
137
-
82
82
27
-
109
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.
18. Cash and cash equivalents
Cash at bank
Short-term bank deposits
Financial information
57
Group
Company
2021
$’000
18,261
5,932
2020
$’000
12,010
9,708
24,193
21,718
2021
$’000
7,375
-
7,375
2020
$’000
4,547
-
4,547
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 $68,000 (2020: $69,000) held by the group’s employee share
ownership trust.
19. Trade and other payables
Trade payables
Other payables
Tax and social security costs
Accruals
Group
Company
2021
$’000
858
1,340
1,753
3,717
2020
$’000
1,013
104
1,089
2,871
7,668
5,077
2021
$’000
2020
$’000
26
138
-
313
477
43
134
-
219
396
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. Included in other
payables is an amount of $1,312,500 representing the fair value of deferred contingent consideration in respect of the
acquisition of the business of ROI Blueprints LLC. Tax and social security costs include amounts repayable to the Dutch
government in connection with COVID related subsidies received.
The directors consider that the carrying amounts of trade and other payables represent a reasonable approximation to
their fair values.
20. Borrowings
The group had no borrowings at 31 December 2021 or at 31 December 2020.
58
Financial information
21. Leases
Lease liabilities represent rental payments by the group for leased office properties and leased vehicles.
Right-of-use assets
At 1 January 2020
Additions and lease extensions in year
Depreciation
Lease reassessments
Exchange differences
At 1 January 2021
Additions and lease extensions in year
Depreciation
Exchange differences
At 31 December 2021
Lease liabilities
At 1 January 2020
Additions in year
Interest expense
Lease payments
Lease reassessments
Exchange differences
At 1 January 2021
Additions in year
Interest expense
Lease payments
Exchange differences
At 31 December 2021
Leased
Buildings
$’000
Leased
Vehicles
$’000
1,308
79
(571)
(58)
36
794
245
(522)
(26)
491
245
68
(100)
4
16
233
162
(113)
(21)
261
Leased
Buildings
$’000
Leased
Vehicles
$’000
1,332
79
53
(618)
(57)
36
825
245
35
(566)
(27)
512
247
68
6
(105)
4
16
236
162
10
(119)
(22)
267
Total
$’000
1,553
147
(671)
(54)
52
1,027
407
(635)
(47)
752
Total
$’000
1,579
147
59
(723)
(53)
52
1,061
407
45
(685)
(47)
779
Financial information
59
The maturity of the lease liabilities is as follows:
At 31 December 2021
Leased buildings
Leased vehicles
Total
At 31 December 2020
Leased buildings
Leased vehicles
Total
Leased Buildings
Carrying
Amount
$’000
Contractual
Cash-Flow
$’000
Less than
One Year
$’000
One to
Two Years
$’000
Two to
Five Years
$’000
513
268
781
560
280
840
436
96
532
124
85
209
-
99
99
Carrying
Amount
$’000
Contractual
Cash-Flow
$’000
Less than
One Year
$’000
One to
Two Years
$’000
Two to
Five Years
$’000
825
236
1,061
862
251
1,113
474
75
549
271
57
328
117
119
236
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
22. Financial instruments
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
2021
$’000
2020
$’000
2021
$’000
2020
$’000
17
17
16
17
18
11,802
26
-
222
24,193
13,163
13
-
430
21,718
-
97
16,793
-
7,375
-
82
14,793
-
4,547
36,243
35,324
24,265
19,422
Non-current Financial Assets
Other receivables
16
19
19
-
-
The group does not have any financial assets in any other categories.
2. Financial liabilities
Current Financial Liabilities
Trade payables
Other payables
Accruals
Lease liabilities
Non-current Financial Liabilities
Lease liabilities
Group
Company
Notes
2021
$’000
2020
$’000
2021
$’000
2020
$’000
19
19
19
21
21
858
1,340
3,717
474
1,013
104
2,871
515
6,389
4,503
305
305
546
546
26
138
313
-
477
-
-
43
134
219
-
396
-
-
6,798
5,049
477
396
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 2021 no individual customer accounted for more than 10 percent of
group revenues (2020: 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 2021
At 31 December 2020
Total
$’000
Current
$’000
11,802
9,577
13,163
11,110
Past Due
+30 Days
$’000
Past Due
+60 Days
$’000
1,715
479
510
1,574
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
8,911
2,891
11,802
2021
$’000
Provision
-
-
-
$’000
Carrying
Value
8,911
2,891
$’000
Gross
Value
8,735
4,428
11,802
13,163
2020
$’000
Provision
-
-
-
$’000
Carrying
Value
8,735
4,428
13,163
The group records impairment losses on its trade receivables separately from the gross amounts receivable. No
impairment losses were recorded during 2021 or 2020. 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 2021
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
989
363
1,352
500
169
669
625
209
834
188
99
287
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
Company
At 31 December 2021
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
164
164
-
-
-
-
-
-
At 31 December 2020
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
177
177
-
-
-
-
-
-
Total
$’000
2,302
840
3,142
Total
$’000
1,117
1,113
2,230
Total
$’000
164
164
Total
$’000
177
177
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 2021 was $4,800,000. During 2021 interest rates on money
market deposits were zero or negative in respect of Sterling and Euro deposits, and below 0.5 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 $24,000.
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 $56,000.
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.
2021
2020
2021
2020
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
60
(59)
158
(157)
25
(24)
149
(148)
429
(430)
642
(643)
365
(366)
466
(467)
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
2020
2021
Increase/(Decrease)
in Profit After Tax
$’000
$’000
237
(237)
301
(301)
159
(159)
161
(161)
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.
23. Share capital
Issued and Fully Paid
2021
Number
2021
$’000
2020
Number
Ordinary shares of 20 pence each
10,512,216
3,219
10,202,888
2020
$’000
3,133
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, 309,328 ordinary shares were issued in connection with the exercise of options at exercise
prices ranging from 85p to 775p.
24. Capital reserves
Group
At 1 January 2020
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
At 1 January 2021
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
Share
Premium
$’000
Equity
Reserve
$’000
Special
Reserve
$’000
2,355
45
-
-
2,400
562
-
-
1,514
-
447
(36)
1,925
-
880
(340)
5,073
-
-
-
5,073
-
-
-
Total
$’000
8,942
45
447
(36)
9,398
562
880
(340)
At 31 December 2021
2,962
2,465
5,073
10,500
Company
At 1 January 2020
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
At 1 January 2021
Issues of shares
Recognition of share-based payments
Lapsing or exercise of share options
Share
Premium
$’000
Equity
Reserve
$’000
Special
Reserve
$’000
2,355
45
-
-
2,400
562
-
-
1,514
-
447
(36)
1,925
-
880
(340)
5,073
-
-
-
5,073
-
-
-
Total
$’000
8,942
45
447
(36)
9,398
562
880
(340)
At 31 December 2021
2,962
2,465
5,073
10,500
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 2021, the Esot held 36,472 ordinary shares of 20p each in the company (2020: 36,472) which represents
0.4 percent (2020: 0.4 percent) of the company’s ordinary share capital. The equity reserve includes a deduction of
$46,000 (2020: $46,000) which represents the cost of the shares held by the Esot at 31 December 2021.
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 2021 and at 31 December 2020, 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.
25. Dividends
Dividends paid in year
Final dividend for 2020 of 3.25p per share paid in July 2021
2021
$’000
2020
$’000
460
429
The directors are proposing a final dividend of 3.25 pence per share in respect of the year ended 31 December 2021
amounting to £342,000 ($460,000).
26. Retirement benefit plans
The group operates defined contribution retirement benefit plans which employees are entitled to join. The total expense
recognized in the income statement of $515,000 (2020: $483,000) represents contributions paid to such plans at rates
specified in the rules of the plans.
27. Related party transactions
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 executive management committee during the year was as follows:
Emoluments and benefits
Pension contributions
Share-based payments
2021
$’000
3,612
66
786
2020
$’000
2,792
73
382
4,464
3,247
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
2021
$’000
(3,884)
643
2020
$’000
(3,043)
699
The amounts owed by subsidiary companies to the parent company at 31 December 2021 totaled $32,755,000 (2020:
$36,284,000). An amount of $16,793,000 (2020: $16,793,000), 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 2021 and 2020, 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.
28. Share-based payments
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 2021 and 2020 are as follows:
Outstanding at 1 January 2020
Options granted in 2020
Options exercised in 2020
Options lapsed in 2020
Outstanding at 1 January 2021
Options granted in 2021
Options exercised in 2021
Options lapsed in 2021
Outstanding at 31 December 2021
Exercisable at 31 December 2021
Exercisable at 31 December 2020
Number of
Share
Options
Weighted
Average
Exercise
Price
£
868,394
105,000
(28,850)
(2,250)
942,294
318,350
(309,328)
(10,374)
940,942
3.72
7.77
1.42
8.17
4.23
8.83
1.51
8.27
5.49
625,762
5.64
812,531
3.66
68
Financial information
During 2021, share options were exercised over 318,350 ordinary shares at exercise prices ranging from 85p to 775p. During
2020, share options were exercised over 28,850 ordinary shares at exercise prices ranging from 55p to 150p. The options
outstanding at the end of the year have a weighted average contractual life of 7.0 years (2020: 5.6 years).
During the year share options were granted on 14 May 2021, when the exercise prices of options granted were 845p and
900p and the estimated fair value was 500p and 491p respectively, and were also granted on 2 June 2021, when the
exercise price of options granted was 875p and the estimated fair value was 518p. During the preceding 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.
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
May
2021
May
2021
June
2021
July
2020
October
2020
845p
845p
785p
845p
785p
900p
40 percent 40 percent
40 percent 40 percent
5 percent
5 percent
5 percent
0.4 percent 0.4 percent 0.4 percent 0.4 percent 0.4 percent
875p
875p
40 percent
5 percent
775p
775p
5 percent
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.
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Directors
Andrew Michuda, Executive Chairman. Andy Michuda was appointed chief executive officer of
Sopheon in 2000 and then took the role of executive chairman in 2021, handing over the CEO
role to Greg Coticchia. 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.
Greg Coticchia, Chief Executive Officer. Greg Coticchia joined Sopheon as President in 2020, and
was appointed CEO and director in 2021. 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.
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.
Barry Mence, Non-Executive Director. Barry Mence served as executive chairman of Sopheon
since co-founding it in 1993, handing over the chairman role to Andy Michuda in 2021 and reverting
to a non-executive role. He remains a and substantial shareholder of the company. 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.
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.
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