2022 Annual Report
Empowering
organizations
to change
the world
TM
3
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.......................................................... 18
Board committee reports.................................................... 19
Directors' report.....................................................................22
Statement of directors' responsibilities.......................... 28
Financial information
Auditors' report..................................................................... 29
Consolidated financial statements................................... 36
Notes to the financial statements....................................40
Sopheon, Accolade, Acclaim and Empowering organizations to change the world are trademarks
or registered trademarks of Sopheon plc. All other trademarks are the property of their
respective owners.
Table of contents
4
InnovationOps
drives innovation at scale
Innovation is critical for organizations to grow revenue and profitability, increase
competitiveness, adapt to marketplace changes, and increase productivity.
Yet many organizations are challenged with innovating predictably, achieving
alignment, and taking innovations through their lifecycle, from strategic intent to
discovery through their end of life. Companies need a synchronized system that
keeps them coordinated as they drive innovation.
Driving innovation at scale requires four areas to come together:
• A full range of innovation management disciplines
• A common set of processes
• A coordinated hierarchy of personnel
• An involved organization
InnovationOps ensures everyone is operating in a consistent manner.
Synchronized
system
Organizations
Personnel
Processes
Jobs
Problem Space
Solution Space
5
What is InnovationOps?
It’s a combination of cultural philosophies, practices, people, and software that
increases an organization’s ability to deliver innovation at high velocity while
lowering risk.
How Sopheon delivers
We’ve helped companies innovate for more than 20 years. Sopheon offers a
full range of InnovationOps products and expertise that empowers executives,
leaders, and team members to successfully drive innovation and new product
development in their businesses.
* Across all SaaS companies, median gross retention is 91 percent. Source: SaaS Capital Insights Research Brief 26: Retention, Q1 2022.
ARR
$15.9m
2019
$18.0m
2020
2021
$20.7m
2022
$24.3m
$30.3m
2019
$30.0m
2020
2021
$34.4m
2022
$36.8m
Revenue
Gross retention*
2019
2020
2021
2022
94%
91%
92%
95%
Summary results and trends
30%
faster time-
to-market
50%
more successful
product initiatives
20%
savings in
efficiency
75%
increase in
portfolio value
Sopheon customers report achieving these key results:
6
A message from
the chairman
1 Markets and Markets Innovation Management Market Analysis, Global Forecast to 2026; Verified Market Research Global Idea Management
Software Market Size By Product, By Application, Forecast to 2027; Verified Market Research Global Product Management and Roadmapping
Tool Professional Survey Report 2022, Forecast to 2027; Mordor Intelligence, Project Management Software Market 2021 – 2027.
2 ARR is the annual value of all ongoing contracts for SaaS, hosting and maintenance in force at the measurement date including pending
renewals but excluding confirmed terminations.
3 Adjusted EBITDA is defined in Note 5.
Sopheon delivered solid growth with record ARR
last year, and acquisitions and new products
tripled our multi-billion-dollar addressable market.
Andy Michuda
Executive Chairman
Chairman's statement
6
The global economy entered tremendous turmoil in 2022
with conflict, inflation and stagnation. In this chaotic
environment, all companies face an accelerating and
insatiable demand to deliver innovation – the products and
experiences that delight customers, drive revenues and
loyalty, and secure market share.
In one of the most chaotic business environments I’ve seen
in my career, the opportunity for Sopheon has never been
greater. Our InnovationOps software reduces the chaos
and inefficiencies of innovation operations, harmonizing the
discovery, design and delivery of new products and services.
Our customers increase the speed, and reduce the risks and
costs, of bringing innovative products to market. The very
products that expand market opportunities and modernize
brands for the future.
Sopheon exited 2022 with two successful acquisitions and
grew from a single product company to a family of four
products, tripling Sopheon’s addressable market to almost
$3 billion¹. Sopheon’s combined family of InnovationOps
solutions offer a compelling and unique value proposition for
companies: automate and provide a single source of truth to
eliminate the innovation stalls, stumbles and failures that are
completely avoidable in even the most chaotic of times.
Our financial performance illustrates the initial success
of our efforts. Annual recurring revenue (ARR²) increased
17.4 percent to $24.3m (2022) compared to $20.7m
(2021). Top line revenue rose to $36.8m compared to
$34.4m in 2021. At constant currency, revenue would have
exceeded $38m, representing 10 percent organic growth.
Total contract value (“TCV”) of all sales closed in the year
exceeded $30m, up 35 percent year over year – with the
exceptional outperformance attributable to signing the
largest single deal in our history with the US Navy. Adjusted
EBITDA³ improved by almost 12 percent, rising to $6.9m
(2022: $6.2m) while taking a $1.6m write down in respect of
technology investments superseded by the acquisitions.
More than 90 percent of our new customers signed SaaS
contracts in 2022, and our installed base continues to
convert from perpetual to SaaS subscriptions. We intend
to sell all new customers on a SaaS basis and continue
converting existing customers to this model. Although we
expect perpetual license sales to fall in 2023 and 2024,
this will be offset by growth in ARR. This will naturally slow
revenue and profit development in 2023 but is expected
to accelerate more predictable ARR growth in subsequent
years. We expect this to come through clearly as we enter
2024, delivering higher growth and profitability from that
point forward.
Doug Collins, Managing Consultant
7
Chairman's statement
I look ahead with both excitement and confidence,
anticipating continued delivery this year alongside
rising velocity in our business.
Executive Leadership Team
Front row: Greg Coticchia, Chief Executive Officer; Mark Meakins, Vice President, Infrastructure; Heather MacIntosh, Chief
Marketing Officer; Arif Karimjee, Chief Financial Officer; Mike Bauer, Chief Product Officer; Derald Kopren, Vice President,
Global Presales.
Back row: John Beischer, Senior Vice President, Sales, Americas; Peter Loerincs, Vice President, Enterprise; Andy Michuda,
Executive Chairman; Steve Alexander, Vice President, Global Consulting; Pieter Leijten, Vice President, Sales, EMEA.
Our ambition is for Sopheon to then double run-rate
revenue every three to four years, with world class margin
and retention metrics. This will require a contribution from
acquisitions, on top of accelerated organic growth, plus
constant improvements in structure, policies, processes,
and systems. A proactive acquisition strategy will continue
to add earnings-enhancing benefits to investors, but also
product depth and breadth as Sopheon moves into a phase
of controlled and sustainable growth.
We have an incredible team of employees, and you'll see
many of them in this report. Our SaaS solution revenue
continues to grow, and our balance sheet remains very
strong to fuel additional acquisition and investment.
Our recent appointment of Barney Kent, former COO of
Ideagen plc, as a non-executive Director underlines our
commitment to both organic growth and M&A activities.
We start 2023 with a strong foundation of ARR, a stable of
new products, and a growing sales pipeline. I look ahead with
both excitement and confidence, anticipating continued
delivery this year alongside rising velocity in our business.
Approved by the board and signed on its behalf by:
Andy Michuda
Executive Chairman
22 March 2023
8
A year of progress and resilience
2022 was a year of demonstrated resilience and
accomplishment for Sopheon. The company significantly
advanced many of the key aspects of its business. Internally,
we continued to deliver against our stated plans to expand
our products and services, through both acquisition and
organically, while significantly progressing to become an
enterprise SaaS/cloud company focused on innovation
management and product development. The company
also responded well to the many external global impacts:
the ‘Great Resignation’ in which companies globally felt
the impact of increased departure rates in the wake of
the COVID-19 pandemic; the Russian-Ukraine War and its
effects commercially; customers who experienced major
supply-chain chokepoints; climate-exacerbated natural
disasters and political upheavals in many countries where
we do business; and the significant rise of inflation after 40
years at rest.
Despite these challenges, throughout 2022 Sopheon
stayed committed and focused on our strategy and
goals. We continued to deliver value to our existing blue-
chip customers and added new premium customers
globally. Companies continued to invest in innovation
products and processes to deliver on their goals of
growth, efficiency, productivity, and competitiveness.
As a result, Sopheon delivered on both growth and
profitability with a significant increase in ARR and adjusted
EBITDA, exceeding expectations. These impressive
financial results were achieved alongside major strategic
accomplishments. We launched three new products — two
derived from acquisitions absorbed in the year, and the
third developed organically. This enabled us to expand
our end-to-end capability to operationalize innovation,
offering immediate value to both corporate executives as
well as their supporting cross-functional teams. We call
this InnovationOps which is described further below. As a
business that has focused on the business of innovation
Chief executive statement
8
Chief executive
statement
Sopheon’s differentiated family of software
and services enables companies to deploy
InnovationOps across the organization with a
synchronized system to deliver innovation at scale.
Greg Coticchia
CEO
since our start, Sopheon is uniquely positioned to deliver on
the promise of InnovationOps.
During the year we continued several key themes that I
outlined in our 2021 annual report:
Growth: We exceeded our goals for both
ARR and adjusted EBITDA growth while
achieving 7 percent revenue growth.
More: We added to our family of products
and services through both acquisition and
internal development. Two acquisitions
and new internally developed products and
services help us deliver more value to current
customers and serve new customers in a
significantly expanded addressable market.
Aaron Slater, Acclaim Marketing Manager; Charlie Widdows,
Acclaim Business Development Manager; Peter Vickers,
Brand and UX Designer (aka The Bristol Boys)
9
Speed: We improved our product
development velocity and decreased time to
value for new customers.
Visibility: Increased investment is paying
dividends as we are becoming better-known
in our primary market and as we expand into
new markets with a broadened product set.
People: We have kept a substantial number
of long-standing key contributors while
attracting new talent in all areas of the
company.
How were we able to achieve these results?
• Focused on SaaS/cloud sales of our flagship
product Accolade. Our global sales and services
teams targeted existing on-premise customers to
move to our cloud offering. Generally, this is mutually
beneficial, as most enterprises have preferred
cloud hosting and the SaaS model since 2016. This
transition to SaaS/cloud increases predictability of
revenues, offers better growth potential and delivers
greater lifetime value to displace acquisition costs.
Ultimately, this is about better quality of revenue
overall, and is reflected in our 17.5 percent increase in
ARR. Thirteen existing Accolade customers moved to
a SaaS model, and most Accolade customers are now
SaaS or cloud hosted. All new products introduced in
2022 – Acclaim Ideas, Acclaim Products and Acclaim
Projects – are native multi-tenant SaaS offerings.
• Broadened our offerings through acquisition and
internal development. Throughout 2022, we filled
out our portfolio of products which was critical for us
strategically and competitively. Accolade continues
to offer unique, differentiated value to customers
looking to add needed governance to their innovation
processes, manage their strategy/execution
processes, and maximize value from their portfolio
of products. As we committed to in 2021, we wanted
to expand value for our current clients and gain
new customers through multiple market offerings.
We achieved that in 2022. With the acquisition of
ROI Blueprints, now Acclaim Projects, we address
a long-standing competitive opportunity that lets
us deepen our relationship with existing customers
and win more net new business. With Acclaim Ideas,
formerly Solverboard, we address another long-
standing market need of managing the discovery
process at the front end of innovation. This allows us
access to more prospects earlier in their innovation
journey. Finally, with Acclaim Products we address
an enormous complementary market in product
management, a role often responsible for innovation
initiatives. For the first time, we have an offering for
product managers as individuals. The Acclaim product
family provides Sopheon a new and differentiated go
to market in 2023.
• Introduced new pricing models. Continuing to
modernize our business practices, we simplified our
pricing to allow easier selection and consumption
of our Accolade and Acclaim Projects software,
streamlining the buying journey and easing sales
processes. We also introduced usage-based pricing, a
consumption-based pricing model in which customers
are charged to the extent they use a product or
service, rather than on an arbitrary number of
individual users. Our new models are based on the
number of products or projects a customer manages
and have proved popular for customers who want to
reduce surprises associated with user-based pricing.
In addition, for Acclaim Products and Acclaim Ideas
product-led software, we display our pricing on our
website and allow online purchasing. Today's B2B
buyer is habituated to transparency. Most buyers want
to understand price as part of their self-discovery
journey, and as a result we want to have a frictionless
experience for these end-user offerings.
• Strengthened executive leadership. We
strengthened our leadership in two key areas:
product development and marketing. During
2022 we added Peter Loerincs to head software
development and Heather MacIntosh as our Chief
Marketing Officer. Peter has held many roles in his
successful career: he has been a software consultant,
developer, development manager, leader of product
management and development, solution architect
and business consultant, with much of this experience
directly related to the New Product Development
(NPD) and Innovation space we serve. And different
from many in engineering or development roles, he
has been customer-facing, and with some of the most
recognized companies globally. Similarly, Heather
MacIntosh brings to the CMO role at Sopheon
a diversity of career experience, including sales,
business development, partner marketing, corporate
marketing, product management and more. Heather
has served in senior leadership roles most of her
career, helping various technology organizations with
complex offerings successfully scale their businesses.
Benji Pollock,
Consultant;
Zachary Gioia,
Account Executive;
Kelly Cusack,
Account Executive
Chief executive statement
10
Chief executive statement
• Continued customer centricity. As a company,
Sopheon values three attributes: entrepreneurial
innovation, team empowerment, and customer
enthusiasm. In this last pillar of our values, customer
service plays a critical role, especially as we continue
to move to a SaaS/cloud organization. SaaS
customers can switch more easily to competitive
offerings, and it is only through customer success
that retention and expansion can occur. In 2022, we
achieved a Net Promoter Score of 34, which is in the
“great” zone and well within industry norms. Sopheon
had a Net Retention rate of 112 percent, indicating
growth above the 100 percent industry median. In
addition, we achieved a Gross Retention Rate (GRR)1
of 92 percent compared to an industry benchmark of
91 percent2. Organizationally, we have moved all our
post-sales activities including consulting, services
support, and success under one roof with one leader,
for a seamless and optimized customer journey.
Sopheon succeeded in 2022 despite the challenges we
faced externally and the continued changes we made
internally. We did this by being disciplined and staying
focused on executing our stated strategy. As the great
management consultant Peter Drucker stated, “The best
way to predict the future is to create it.” Sopheon
continued to create that future in 2022 and has built a
foundation for future success as it goes to market in 2023
with new products, new services, experienced leadership,
flexible pricing models, and new go to market execution.
Why is successful innovation elusive?
As the external forces we saw in 2022 continue and market
focus returns to profitable growth, innovation and new
product development are even more important for long-
term competitiveness and financial performance. However,
after decades of organizational attention, and with global
R&D spending reaching $2.47 trillion in 20222, the following
sad truths remain:
• 40-50 percent of innovation and new product
initiatives fail4
• 90 percent of executives are disappointed with their
company’s innovation performance5.
The late Clayton Christensen, who was known for his focus
on innovation as a business consultant and academic, wrote
in his book, The Innovator’s Solution:
“More than 60 percent of all new product development
efforts are scuttled before they ever reach the market. Of
the 40 percent that do see the light of day, 40 percent fail
to become profitable and are withdrawn from the market.”
This means that 76 percent
of all NPD efforts fail to
make it to market or become
profitable. Similar findings
underscore the same level of
risk and failure in innovation.
Companies waste a lot of
resources and effort for little
or no return. With companies
facing an economic
crisis caused by a global
pandemic, any failure rate
above 50 percent is just not
acceptable. So, if a company
wants to navigate the crisis
and emerge stronger, what should they do? How can they
minimize their failure rate?
And most importantly, why does this continue to be a real,
consistent, and significant problem that must be addressed
by businesses that value innovation and its benefits of
growth, efficiency and profitability?
In a recent best practice report, the Product Development
Management Association (PDMA) points to what makes
innovation difficult to achieve: “Firms must continually
evolve their new product development (NPD) capabilities
just to ‘stay in the game’ as the business and technology
Marisa DiNunno, Customer Success Manager; Nancy Green,
Account Executive; Stacy Rossetti, Senior Business
Development Solutions Architect; Deanne Kulke, Senior
Director of Strategic Accounts
Mike Bauer,
Chief Product Officer
1 GRR (Gross Revenue Retention) is the percentage of ARR retained at the end of the year from the customer base at the start of the year,
not counting revenue from new customers, upsells or price increases. Source: SaaS Capital Insights Research Brief 26: Retention, Q1 2022
2 Statista: Total global R&D spending 1996-2022
3 George Castellion & Stephen K. Markham, Journal of Product Innovation & Management pp. 976-979 (2013)
4 McKinsey & Company, Global Innovation Survey
5 IDC: Worldwide Spending on ESG Business Services Is Forecast to Reach $158 Billion in 2025, According to IDC
11
Chief executive statement
"
I am proud to be part of the team that
helps Sappi drive organizational change
and maximize innovation outcomes. With
Sopheon, Sappi can now confidently and
consistently tie strategy, execution, and
governance together to ensure sustainability
and their customer is at the forefront of
their innovation and R&D initiatives."
Danny Schuurman
Account Executive
environments change. No one single practice is required
for greater innovation performance. Rather, the best firms
are better at employing and skillfully combining a variety
of NPD capabilities and practices.”
We agree with PDMA’s point of view and see organizations
still struggle with challenges that cause chaos and prevent
them from achieving their innovation goals. The following
challenges waste trillions of dollars a year in investment and
shareholder value:
• Organizational misalignment
• Disconnected efforts
• Strategy not driving execution down to the individual
team member
• Ad hoc tools
• Limited governance to responsibly manage business
and commercial risk
Adding to the challenge of successful innovation are three
current market trends that continue to have a profound
effect on companies. These trends make it even more
difficult for companies to reign in the turmoil and get their
innovation and product programs on the right track:
Digitalization
Digital transformation is essential if businesses want to
remain relevant, competitive, and productive in an age
defined by technology and data. Digital transformation
is not a one-time event. It’s an ongoing process — a
constant tweaking, fine-tuning, upgrading, and adapting
over extended periods of time. This has been going on
for years, with the COVID-19 pandemic escalating the
pace. We see this consistently with Sopheon prospects,
who in many cases, are still using manual processes with
spreadsheets supported by islands of digitized data
and disconnected individual processes, and who want
to automate these processes to improve innovation
outcomes.
12
Chief executive statement
The innovation market defines InnovationOps as:
The combination of cultural philosophies, practices,
people, and tools that increase an organization's ability
to deliver innovation at scale.
For decades, we have been saying that, to perform
innovation at scale, an organization must operationalize
innovation by bringing together the following three areas:
• The people – from team members to executives –
across the organization
• The tasks that the people perform across the
organization
• The processes that people performing tasks use to
ensure repeatability and predictability
As a result of Sopheon’s investment over the past several
years, we have rolled out a differentiated family of
software and services that enables companies to deploy
InnovationOps across the organization and enables the
synchronized system to deliver innovation at scale.
Each offering is focused on specific innovation tasks that,
when brought together with the people and processes
across the organization, make InnovationOps a reality.
Sustainability
In the last decade,
competitive and
consumer demands
have moved
sustainability –
the requirement
to meet our own
needs without
compromising the
ability of future
generations to
meet theirs – from
a nice to have
to a corporate
imperative with a
spend of over $58
billion⁵. Corporations
large and small in every industry continue to look for
simple, practical ways to show the attention being
given to this topic. Infusing sustainability has forced a
change to the way companies think about products,
technologies, processes, and business models and
has added to the chaos in achieving predictable and
repeatable corporate innovation.
Continuous evolution of customer needs
Software continues to eat the world. It’s ubiquitous – so
much so that it has spawned a new word, “phygital”,
to describe the integration between the physical
and digital worlds. This has radically changed the
expectations of people who both use and buy products,
not only for consumers but also corporate users across
the spectrum. For companies across all industries and
sizes, it adds a new dimension to how they innovate and
bring products, services, and innovations to market.
Despite the chaos, predictable and repeatable innovation is
not an oxymoron. Sopheon has been working with clients of
all sizes and across a wide range of industries over the last
20 years to address the turbulence, including helping them
to successfully embrace these current market trends.
The road ahead
Companies are realizing that managing innovation,
mandating innovation, or separating innovation into a
stand-alone group doesn’t generate the breakthrough to
incremental innovations needed for long term growth and
profitability. They see that in leading corporations like 3M,
Hershey and Honeywell, innovation permeates all parts of
the organization. To achieve this, companies must learn
what it takes to operationalize innovation, just as they have
learned from the success of software development and
product management organizations as they operationalize
their environments through DevOps and ProductOps.
Companies see that those same principles can be applied
to Innovation through InnovationOps.
InnovationOps
Organizations
Personnel
Processes
Jobs
Phil Atherton,
General Manager, Acclaim
13
Chief executive statement
These essential tasks are to:
• Manage strategy,
portfolio, and governance
Driving innovation at scale means constantly placing
“bets” and then understanding the performance of
those bets over time. Executives and leaders need to
do this in a predictable and controlled way.
• Manage discovery
Determining whether an innovation is a radical
breakthrough or an incremental discovery – that’s
often the starting point when deciding what to bring
to market. Discovery is more than idea collection and
management, which is a common misconception.
• Manage products
Product innovation people have a large responsibility
to identify the right levers and when to pull them to
drive their product’s success.
• Mange projects
and resources
The many projects necessary to move a product or
innovation from ideation to launch and growth creates
a tapestry of complexity.
From individual team members to the CEO, we cover the full
spectrum of the tasks that product, innovation, and project
professionals must accomplish to drive innovation across
their companies. And the result? For any company that
values their investment in innovation, Sopheon can provide
all the benefits of InnovationOps: a set of products, that
together, creates efficiency that in turn gives innovators
better visibility to mitigate uncertainty, reduce risk and make
better decisions. It's the essence of the benefit Sopheon
has delivered for years with Accolade and that is now
extended through our new Acclaim offerings.
So, let's go back to where I started – innovation results
are elusive. Failure rates are unacceptably high. And it is
that way for so many industries. But it doesn't have to
be. And while there is no ‘silver bullet’ that eliminates all
the uncertainty or risk, with InnovationOps, we can help
companies greatly improve their results.
Any innovation involves a leap into the unknowable. That’s
whether it's an incremental innovation such as new product
enhancement or feature, or disruptive innovation such as
a never seen before capability brought to market. That
unknown – and the risk associated with innovation – is a
fact any company needs to accept and to manage if they
want to stay competitive and grow. But the riskiness of an
innovation depends on the choices organizations make,
and the more informed and conscious their choices are, the
lower the risk will be. Sopheon’s product set and associated
services allow for those better decisions. That's a bet worth
taking and that all the blue-chip customers of Sopheon
have already taken. Each has benefitted in their innovation
investments. We help customers make better decisions,
reducing the unknowable risk and uncertainty associated
with it.
Sopheon does not differ
from our customers. We
have also recognized the
trends that affect our
business. And we too
want to continue to be
more competitive and
grow. And so, we have
made investments in
the last two years in our
own company offerings
and business model to
meet the demands of the
growing marketplace in
which we compete. As a
result, this last year we
launched a new SaaS
product, completed two
SaaS acquisitions, and
created new ways to deliver value, and more. We didn't just
make an investment in these innovations – they are already
producing results as evidenced in this report – forming the
foundation of our InnovationOps strategy.
With InnovationOps we will deliver the solutions our
customers, specifically innovation and product people,
need to succeed by giving them the ability to make better
decisions. Our integrated SaaS products combined with our
deep innovation expertise, will uniquely help the customers
that choose Sopheon as they take risks to change the world
through innovation. Armed with this, we remain confident
in our growth trajectory, working passionately to seize the
unique market opportunities ahead.
Approved by the board and signed on its behalf by:
Greg Coticchia
CEO
22 March 2023
Ana Afonso, Solutions Consultant;
Steve Alexander, Vice President, Global Consulting
Nigel Cordery,
Account Executive;
Pieter Leijten,
Vice President, Sales, EMEA
14
Financial report
14
Financial report
The Board considers ARR as the driver for
long term growth and shareholder value, and
therefore this is our primary growth metric
and focus.
Arif Karimjee
CFO
Sopheon delivered both strategic and financial progress in
2022, in the face of tough global economic conditions as
well as the short-term pressure from our own strategy to
migrate our business model to a more recurring revenue
basis for higher growth and predictability in future. The
Board considers ARR as the driver for long term growth and
shareholder value, and therefore this is our primary growth
metric and focus. Revenue recognition timing differences
between recurring and perpetual license sales inevitably
means revenue and profit are compressed in the short term,
but contribute stronger and more predictable performance
in the medium term as the book of ARR builds and improves
forward visibility. 2022 saw an acceleration in ARR growth,
including 13 existing perpetual customers converting to a
SaaS model.
Following are the key financial performance indicators which
we prioritize and track to run the business to achieve our
stated business strategy. We are pleased with the positive
development in these metrics, and I discuss them in more
detail in the rest of my report.
Revenue metrics above are focused on our corporate software business, which in 2022 was primarily Accolade and associated
consulting. TCV metrics quoted above include first year maintenance only for perpetual transactions, but the full multi-year
committed value of any SaaS transactions. It is important to note the significant impact of the very large order with the US
Navy, discussed further below, on TCV performance in 2022.
2022
2021
2020
Annual Recurring Revenue (“ARR”) at year end
$24.3m
$20.7m
$18.0m
ARR growth year over year
17.4%
14.7%
13.8%
Gross Revenue Retention¹ (“GRR”) for the year
92%
95%
91%
Net Revenue Retention¹ (“NRR”) for the year
112%
108%
103%
Reported revenue
$36.8m
$34.4m
$30.0m
New customer signings
16
10
10
Total Contract Value (“TCV”) signed in the year
$30.1m
$22.2m
$21.2m
SaaS TCV signed in the year
$12.7m
$7.6m
$6.6m
Gross margin
75%
73%
70%
Adjusted EBITDA
$6.9m
$6.2m
$5.9m
Cash (utilization)/generation before financing activities
($0.9m)
$3.9m
$2.6m
Cash at year end
$21.1m
$24.2m
$21.7m
1 Gross Revenue Retention (GRR), which we have reported for many years, is the percentage of ARR retained at the end of the year from the
customer base at the start of the year, not counting revenue from new customers, upsells or price increases. Net Revenue Retention (NRR)
is the percentage of ARR retained at the end of the year from the customer base at the start of the year, not counting revenue from new
customers but including upsells and price increases. With GRR, the focus is on how well a business retains customers. With NRR, the focus is
on how well it upsells those customers.
15
Financial report
Trading performance
Overall revenue on a constant currency basis grew to $38.1m
(2021: $34.4m). Due to strong US dollar appreciation
against other currencies, our reported revenues were
$36.8m. As set out in note 4 to the financial statements,
this comprises $5.5m of perpetual license (2021: $3.9m),
$8.8m of consulting services (2021: $10.4m) and $22.5m
of recurring SaaS and maintenance (2021: $20.0m). A
comparatively quiet year for consulting following delivery
of a substantial deployment with LG in 2021, this was
almost exactly offset by a stronger perpetual performance,
largely driven by a contract signed with the US Navy. These
events disguise the very real operational progress that is
demonstrated by the growth in the recurring line and more
importantly by the very strong growth in ARR by year end.
The US Navy is structured as an enterprise perpetual
license together with long term maintenance and consulting
commitments, with the payment profile spread evenly
across the five–year period. Of the total deal value,
approximately $4.1m was recognized as perpetual license
fees in 2022 and the majority of this amount remains in
receivables. A further $4.1m of maintenance, $2.7m of
consulting and $0.3m of notional interest will be recognized
over the five-year period. Even if the US Navy order were
excluded, total TCV booked matched the previous year
and the amount of SaaS nearly doubled. Our strategy is to
accelerate and deepen this trend and, looking forward, we
intend that all new license sales will be SaaS where possible.
Conversions to SaaS increasingly include customers that
already use Sopheon for hosting, who wish to access
new SaaS only solutions such as Acclaim Projects, or to
access new pricing models. In most cases, such orders are
accompanied by an uplift in ARR as the customers expand
the footprint of our software in their business. During
the year, 13 customers moved from perpetual to SaaS,
compared to six in 2021 and four in 2020. This pattern is
underlined by the steady improvement in our NRR metric,
which we are exposing for the first time this year.
A 2022 report by SaaS Capital² indicates that median GRR
and NRR for B2B vendors selling larger ticket enterprise
software are 95 percent and 105 percent respectively.
Sopheon performs well on both counts and shows a rising
NRR trend, key to future growth dynamics.
Product, seasonality and geography
We continue to expect the sensitivity of revenue to
calendarization to come down as our recurring revenue rises
more steeply. However, due to the impact of the US Navy
perpetual transaction this was not the case in 2022, with
the second half of the year accounting for 58 percent of
revenues (2021: 52 percent and 2020: 54 percent).
Revenues to customers in our core markets of North
America and Europe, addressed by our direct sales teams,
were 68 percent and 28 percent of total respectively
(2021: 60 percent and 31 percent) again reflecting the impact
of the Navy transaction. After relatively strong years for
perpetual and consulting business in the Asia-Pacific region
in 2020 and 2021, revenues outside our core regions fell back
to 4 percent (2021: 9 percent). Our activities in the Pacific
region continue to be managed through partnership channels.
The revenue performance disguises some new SaaS signings
in the territory, and we believe this region represents a growth
opportunity for Sopheon.
The vast majority of revenue continues to come from the
Accolade solution. However, as noted in the Chairman’s
statement, Acclaim Projects was instrumental in concluding
nine transactions in 2022, representing TCV signed in excess of
$4m, and is playing a key role in our forward pipeline.
Gross margin
Gross margin was 75 percent, compared to 73 percent in
2020, itself an increase over the year before. 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. As before, the change in margin last year
was driven largely by the dynamics of our services organization.
Lower revenues meant that consulting represents a smaller
proportion of the overall margin mix; furthermore, not all
departing staff were replaced.
Research and development expenditure
Headline R&D expense shows a large jump from $7.3m to
$10.6m. However, this includes two non-operational items
being (i) a $1.6m write down of previously capitalized costs,
as further described below; and (ii) $0.6m in amortization
of intangible assets added through the ROI Blueprints
acquisition. Excluding these items, and factoring in the impact
of capitalization, actual spend on R&D rose from $8.6m to
$10.2m or from 25 percent to just under 28 percent of revenue.
These are undoubtedly high by historic standards but reflect
the major investment being made in the Acclaim product
family alongside continuous improvements to Accolade as well
as upward cost pressure. Average headcount in this area has
remained broadly flat but has been supplemented extensively
by subcontracted resources. Full details of capitalization and
amortization of R&D expenses are described in Note 14.
Sopheon had embarked on the development of a next-
generation platform for new cloud-based applications prior
to our recent M&A transactions. In light of both acquisitions
and other factors, the group revisited its original approach.
As a consequence, a 100 percent impairment has been
made against the capitalized costs associated with the
cloud platform development, amounting to $1.6m, included
in research and development expense and subtracted from
adjusted EBITDA.
2 SaaS Capital Insights Research Brief 26: Retention, Q1 2022
16
Financial report
The amount of 2022 research and development expenditure
that met the criteria of IAS 38 for capitalization was
$5.2m (2021: $4.3m) offset by amortization charges of
$3.4m (2021: $3.0m) and an impairment of $1.6m (2021:
$nil). Capitalized costs in 2022 are largely attributable
to the group’s investment in the Accolade 14.2, 14.3, 15.0
and 15.1 versions, as well as the more nascent Acclaim
solutions, in particular the former ROI Blueprints offering,
Acclaim Projects, which has had a positive impact on sales
performance as noted above.
Other operating costs
Staff 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. We ended
2022 with 178 staff and 18 full time offshore subcontracting
resources (2021: 167 and 18). In addition, further R&D
offshoring was conducted on a project deliverable basis,
mainly to support one of the Acclaim solutions. Salary
pressures continued during 2022, and we experienced
significant staff churn as the “Great Resignation” impacts
continued. While this contributed to cost savings against
plan, the majority of leavers were replaced by year end, and
we have seen this pressure fall off as we closed the year.
Average headcount for the year was 172 compared to 167
the year before. In 2021 we had 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 adjusted EBITDA; the ratio was increased
in 2022, and was fully achieved. In spite of these upward
pressures, compounded by increases in individual pay
requirements in technical roles, staff costs were broadly flat
year over year thanks mainly to the impact of the strong
USD on the reported costs of our European employees.
Overall non-payroll costs increased by approximately $1m
before exchange, interest, tax, and depreciation. There
were three main components of the increase being travel
and related costs, expanding marketing programs, and
infrastructure costs associated with the SaaS migration and
Acclaim investments.
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 look flat on a headline basis but this would
have shown an increase due to higher marketing program
spend, were it not for strong USD rates. Administration
costs – which include infrastructure costs – have reduced by
approximately $0.5m. This area includes all other overheads,
office costs, regulatory and compliance costs, depreciation,
and operational exchange movements, as well as the full
impact of the notional charge for share option grants, which
is allocated entirely to this caption. The majority of the fall
came from exchange gains in Sopheon plc arising from GBP
weakness, as well as lower rental costs due to reduced office
footprints, offset by higher infrastructure costs.
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 USD
driven, while revenues
remain roughly two thirds
USD and one third EUR/
GBP. This has led to a
build-up of EUR balances pending a reversal of the current
USD strength.
Results and corporate tax
Adjusted EBITDA 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 2022 rising to $6.9m, from $6.2m in 2021.
The increase in profit before tax was more muted at just over
$0.1m, due mainly to the incidence of higher amortization
charges, rising to $1.3m (2021: $1.2m).
The tax charge of $2.2m (2021: $0.4m) reported in the income
statement is made up of $1.9m (2021: $nil) of deferred tax
movements arising mainly from the impact of legislation that
has accelerated consumption of accumulated tax losses in
the USA as further described in Note 10, and $0.3m (2021:
$0.4m) of actual current tax. The movement in deferred tax
has reduced the group’s recognized deferred tax asset to
$0.6m (2021: $2.6m) of a potential total asset of $8.9m (2021:
$11.7m).
Altogether this leads to a loss after tax of $0.9m (2021: $0.8m
profit). This has also resulted in loss per ordinary share on a
fully diluted basis of 8.28 cents (2021: 7.47 cents profit).
Dividend
The board is pleased to maintain Sopheon’s dividend at 3.25
pence per share for the year ended 31 December 2022 (2021:
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
Jack Hamilton,
Senior Managing Consultant
17
Financial report
shareholders at the annual general meeting scheduled for 8
June 2023, the dividend will be paid on 7 July 2023 with a
record date of 9 June 2023.
Cash, facilities and assets
Net cash at 31 December 2022 amounted to $21.1m (2020:
$24.2m). Approximately $4.7m was held in USD, $14.3m
in EUR and $2.1m in GBP (2021: $5.6m, $15.4m and $3.2m
respectively). The reduction in net cash is due to several
factors:
a) Cash utilization before financing was $0.9m (2021:
generation of $3.9m) primarily reflecting a significant
increase in receivables due to two factors. The
majority of this increase can be explained by the
extended payment terms associated with the US
Navy enterprise agreement leading to $3.6m being
included within the $4.1m contract asset recorded
within receivables, as detailed in note 17. Second,
our recurring contract renewal dates concentrate
in the final quarter of the year and the success in
adding more SaaS agreements this year has further
accentuated this issue, also leading to a higher trade
receivable balance at year end than in the past.
b) Investing activities including M&A, capitalized
development costs and equipment was $0.3m
higher than the year before, and net financing costs
including dividends, interest and share issue proceeds
was $0.2m higher.
c) As noted above Sopheon holds considerable EUR
as well as GBP cash balances, which due to currency
movements, fell in value by approximately $1m in USD
terms over the course of the year.
The group has no debt (excluding notional debt from the
adoption of IFRS 16). However, we maintain our good
relationships with our financing partners, with potential
established for funding arrangements in connection with
corporate activity if required.
Intangible assets stood at $13.1m (2021: $12.0m) at the end
of the year. This includes (i) $8.3m being the net book value
of capitalized research and development (2021: $8.1m) (ii)
the net book value of acquired technology and IPR of $1.7m
arising on the acquisition of ROIB (2021: $2.3m); and (iii)
an additional $3.1m (2021: $1.6m) being goodwill arising on
acquisitions, including $0.6m for ROIB arising in 2021 and
$1.5m for Solverboard arising in 2022.
As stated above in our discussion of research and
development costs, capitalization and amortization have
historically been broadly in balance; however, recently
capitalization has accelerated as we have expanded our
range of product offerings, and amortization has yet to
catch up. Nevertheless, due to the $1.6m impairment
noted above booked against the capitalized costs associated
with internal cloud platform development prior to our
recent acquisitions, in 2022 the net total of capitalization,
amortization and impairment was broadly in balance.
With respect to the acquisition of Solverboard, as detailed
in Note 14 we have estimated approximately 29 percent of
the contingent consideration will become payable during the
earnout period, resulting in a total net acquisition cost being
recorded of $1.5m which is all treated as goodwill.
As described in Note 1, 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 $0.5m
(2021: $0.8m) and corresponding lease liabilities of $0.5m
(2021: $0.8m) at 31 December 2021. Notional amortization
and interest charges in connection with the above recognized
in the income statement were approximately $0.5m (2021:
$0.7m).
Consolidated net assets at the end of the year stood at
$29.6m (2021: $31.3m), a decrease of $1.7m and including net
current assets of $15.6m (2021: $15.7m).
Approved by the board and signed on its behalf by:
Arif Karimjee
CFO
22 March 2023
18
Directors and advisors
Directors
Andrew L. Michuda
Executive Chairman
Gregory M. Coticchia
Chief Executive Officer
Arif Karimjee ACA
Chief Financial Officer
Barry K. Mence
Non-executive Director
Stuart A. Silcock FCA
Non-executive Director
Daniel Metzger
Non-executive Director
Barnaby L. Kent
Non-executive Director
(appointed 6 February 2023)
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
Dorna House One
50 Guildford Road
West End, Surrey GU24 9PW
Registered name and number
Sopheon plc
Registered in England and Wales
No. 03217859
Auditors
BDO LLP
City Place
Gatwick RH6 0PA
Principal bankers and financiers
Silicon Valley Bridge Bank N.A.
HSBC
3003 Tasman Drive
Alphabeta
Santa Clara, CA 95054
14-18 Finsbury Square
United States
London EC2A 1BR
Rabobank
Commerzbank
Van Baerlestraat 102-106
Rheinstrasse 14
1071 BC Amsterdam
64283 Darmstadt
The Netherlands
Germany
Solicitors and attorneys
Squire Patton Boggs
Briggs and Morgan
Premier Place
2200 IDS Center, 80 South 8th Street
2 & A Half Devonshire Square
Minneapolis, MN 55402
London EC2M 4UJ
United States
Loyens & Loeff
Parnassusweg 300
1081 LC Amsterdam
The Netherlands
AIM nominated adviser and broker
finnCap Limited
One Bartholomew Close
London EC1A 7BL
Registrars
Link Asset Services
65 Gresham Street
London EC2V 7NQ
Governance
19
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 of that year. Mr.
Mence became a non-executive director on the same date.
Pay and
Pay and
fees
Bonus
Benefits
Total
fees
Bonus
Benefits
Total
2022
2022
2022
2022
2021
2021
2021
2021
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Executive Directors
A.L. Michuda
349
169
14
532
349
147
12
508
G.M Coticchia
270
108
-
378
260
93
-
353
A. Karimjee
201
75
5
281
222
73
6
301
Non-executive Directors
B.K Mence
66
-
12
78
112
23
11
146
S.A. Silcock
34
-
-
34
37
-
-
37
D. Metzger
34
-
-
34
37
-
-
37
954
352
31
1,337
1,017
336
29
1,382
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. For
both 2022 and 2021, the incentive goals were tied to a combination of Adjusted EBITDA and 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.
Governance
20
In addition to the amounts disclosed above, pension contributions are made to individual directors’ personal pension schemes.
During 2022 contributions of $4,000, $6,000, $9,000 and $nil (2021: $2,000, $7,000, $10,000 and $2,000) were paid
respectively to the pension schemes of Andy Michuda, Greg Coticchia, Arif Karimjee and Barry Mence.
Performance graph
The following graph shows the company’s share price performance on AIM since December 2016, 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.
Directors’ interests
The interests of the directors, who held office at the end of the year, in the share capital of the company were as follows:
Share Options
Ordinary Shares
At 31 December
2022
2021
2022
2021
A.L. Michuda
320,000
320,000
64,120
64,120
G.M Coticchia
100,000
100,000
5,100
-
A. Karimjee
93,000
93,000
70,000
70,000
B.K. Mence
-
-
1,895,958
1,895,958
S.A. Silcock
-
-
279,490
279,490
D. Metzger
-
-
5,000
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 15,825, 8,875 and 20,000 ordinary shares each. Accordingly, at the year end the personal interest of Barry
Mence was in 1,880,133 ordinary shares, Stuart Silcock in 270,615 ordinary shares and Arif Karimjee in 50,000 ordinary shares.
Governance
Jul 22
Jan 23
Jan 17
Jul 17
Jan 18
Jul 18
Jan 19
Jul 19
Jan 20
Jul 20
Jan 21
Jul 21
Jan 22
1600
1400
1200
1000
800
600
400
200
0
Jan 17
Jul 16
21
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
Exercise
At 31
Granted
Exercised
At 31
Grant
Price
December
During
During
December
2021
Year
Year
2022
A.L. Michuda
15 February 2017
467.5p
25,000
-
-
25,000
A.L. Michuda
11 February 2018
565p
50,000
-
-
50,000
A.L. Michuda
4 July 2018
900p
50,000
-
-
50,000
A.L. Michuda
13 July 2020
775p
30,000
-
-
30,000
A.L. Michuda
14 May 2021
900p
165,000
-
-
165,000
G. Coticchia
19 October 2020
785p
20,000
-
-
20,000
G. Coticchia
14 May 2021
845p
80,000
-
-
80,000
A. Karimjee
15 February 2017
467.5p
11,650
-
-
11,650
A. Karimjee
11 February 2018
565p
15,000
-
-
15,000
A. Karimjee
4 July 2018
900p
15,000
-
-
15,000
A. Karimjee
13 July 2020
775p
8,000
-
-
8,000
A. Karimjee
14 May 2021
900p
43,350
-
-
43,350
Vesting of all of the above share options which were outstanding at 31 December 2022 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 2022 was 585p. During the financial year the mid-market price of Sopheon ordinary shares ranged from
505p to 960p. 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 auditor independently if required.
Approved by the board on 22 March 2023 and signed on its behalf by:
A. Karimjee
Director
Governance
22
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 2022 of 3.25 pence per share (2021: 3.25 pence per share), amounting to £345,000 (2021: £342,000).
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
23
Governance
QCA principle
1.
Establish a strategy and
business model which
promote long-term value
for shareholders
2. Seek to understand and
meet shareholder needs
and expectations
3. Take into account wider
stakeholder and social
responsibilities and their
implications for long-
term success
4. Embed effective risk
management, considering
both opportunities and
threats, throughout
the organization
5. Maintain the board
as a well-functioning,
balanced team led by the
chair
6. Ensure that between
them the directors have
the necessary up-to-date
experience, skills and
capabilities
7.
Evaluate board
performance based
on clear and relevant
objectives, seeking
continuous improvement
8. Promote a corporate
culture that is based
on ethical values and
behaviors
9. Maintain governance
structures and processes
that are fit for purpose
and support good
decision-making by the
board
10. Communicate how the
company is governed
and is performing by
maintaining a dialog with
shareholders and other
relevant stakeholders
Sopheon adoption
Sopheon’s mission is to help our customers achieve exceptional long-term growth and
profitability through sustainable innovation. Our guiding philosophy is to balance aggressive
growth strategies with a focus on profitability, while also ensuring long-term financial
stability. We believe the combination of these three factors will maximize long-term value for
shareholders. Full information on the group’s strategy and business model can be found in the
Strategic Report on pages 5 to 17.
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.
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.
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 25.
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 two
non-executive directors are mature, experienced and independent persons who have each
succeeded in their own businesses and are not dependent upon income from the group. They
have developed a strong and detailed understanding of the business, and are prepared and
able to intervene and challenge the executive directors.
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, two
industry specialists, a general business specialist. All four have experience of working in a
public company environment and an international market.
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.
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.
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 reflect the
principles of the QCA Code and are available online.
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.
24
Statement of Compliance with Section 172 of the Companies Act 2006
Legislation requires that directors include a separate statement in the annual report that explains how they have had regard to
wider stakeholder needs when performing their duty under Section 172(1) of the Companies Act 2006. This duty requires that a
director of a company must act in the way he or she considers, in good faith, would be most likely to promote the success of the
company for the benefit of its members as a whole and in doing so have regard (amongst other matters) to:
a) the likely consequences of any decision in the long term;
b) the interests of the company's employees;
c) the need to foster the company's business relationships with suppliers, customers and others;
d) the impact of the company's operations on the community and the environment;
e) the desirability of the company maintaining a reputation for high standards of business conduct; and
f) the need to act fairly as between members of the company.
Guidance recommends that in connection with its statement, the board describe in general terms how key stakeholders, as well
as issues relevant to key decisions, are identified, and also the processes for engaging with key stakeholders and understanding
those issues. Within Sopheon the Board fulfils its duties partly through operation of a governance framework that appropriately
delegates day-to-day decision making to the employees of the company, while recognizing that such delegation needs to
be part of a robust governance structure, which covers our values, how we engage with our stakeholders, and how the Board
assures itself that the governance structure and systems of controls continue to be robust.
In addition, the views of stakeholders are regularly communicated to the Board by management and via direct engagement
with stakeholders, for example via an annual planning event involving the board and an extended management team, scheduled
attendances at Board meetings and investor interactions. We summarize key engagement below, and note that this statement
should be read in accordance with the strategic report, the corporate governance statement above, and the corporate
governance web pages on our website.
Employees. People are the lifeblood and key resource of our group and we take great pains to ensure we understand our
employees’ perspectives and needs, and that they understand the group’s goals. We have a flat organization with few tiers of
management. The extended management team, comprising almost 20 people meets quarterly to review financial, operational
and strategic progress against our plans and to discuss hot topics. In addition, the executive directors and senior management
hold a formal meeting at least once a month, and the senior leadership team conducts daily and weekly operations meetings.
The quarterly meetings are immediately followed by a Board meeting. Members of the management team are encouraged to
debrief with their departmental staff following these sessions. Furthermore, the company arranges monthly online all-hands
meetings to brief all staff on recent developments and deal with any questions that have arisen. Employees are encouraged to
approach the CEO directly with questions. These mechanisms and channels allow for very broad discussion and engagement
with staff as a whole. Very early in the Covid Pandemic, Sopheon took prompt action to ensure the health and safety of staff,
introducing an immediate work from home policy and travel restrictions supported by well-defined virtual working practices
leveraging cloud services.
Customers. Customer engagement is vital to ensure that we are responsive and market sensitive. In addition to our customer
support and account management relationships, customers are invited to attend annual user forum events in both the Americas
and Europe which allow for two way communication regarding their needs, our business and our solutions. In addition, certain key
customers are invited to join a customer panel to provide more direct and specific input to our strategy and product roadmap.
Broader market engagement is also achieved through close relationships with well-known technology sector business analysts
such as Gartner and Forrester. Sopheon is positioned well in their reports, and has been named in over 50 Gartner research
notes in recent years.
Suppliers. Sopheon is primarily a people business but we do have key suppliers that are important to enable us to deliver high
quality products and services to our customers. We aim to treat all our suppliers fairly, including paying them within agreed
timelines. When selecting and monitoring suppliers we pay close attention to their compliance ethos and reputation for integrity,
including specific consideration of their stance on employee rights, IT security and privacy matters.
Community and environment. As a knowledge business we have limited impact on the environment, however we have embarked
on a project to measure our Scope 1 & 2 carbon footprint and to consider mitigation activities. We are also very conscious of
and grateful to the communities in which we are located. All our staff and offices are encouraged to dedicate working time to
an activity that contributes to the community and are given time off to do so. In the past, staff from one of our offices spent
a morning at a women’s shelter and carried out extensive redecorations, and another office participated in a Toys for Tots
drive, collecting gifts for needy children in the community. These group activities have been curtailed due to the pandemic and
rising remote working, so we encourage staff to volunteer locally, and have also introduced a charitable contribution matching
program.
Governance
25
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.
Strategic. The broad market for Sopheon’s solutions continues to evolve. 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’s
ability to continue to finance its product 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 or to
pursue and complete M&A opportunities. In this regard, Sopheon management is experienced in raising both debt and equity
funding to meet requirements. This is underpinned by considerable cash balances built up from several years of operational
success.
Economic. The economic climate has been impacted by several factors described in further detail elsewhere in this report,
including the COVID-19 pandemic, Brexit and the war in Ukraine. To date, the impact on Sopheon’s performance from these
major events has been limited, but as for any business external economic shocks have the potential to cause reduced spend on
innovation initiatives, software systems and services by customers.
Competitive. Sopheon remains a relatively small organization by global standards and compared to larger companies that are
capable of developing competitive solutions. It can also 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 along with offering a complete end-to-end set of solutions for innovation operations at both enterprise and
individual levels.
Personnel. 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 and it can also be easy for key personnel to become
overloaded. In addition, recent global events have increased competition for key technical skills that Sopheon needs to recruit to
achieve its goals. Sopheon management checks staff remuneration against recognized benchmarks and other industry sources
and seeks to maintain pay at competitive levels appropriate to its business.
Legal. 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.
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.
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.
Governance
26
Post balance sheet events
On Friday 10 March 2023, Silicon Valley Bank USA (“SVBUS”) and Silicon Valley Bank UK (“SVBUK”) had operations halted by
the California Department of Financial Protection and Innovation and the Bank of England respectively. Immediately prior to the
circumstances described above Sopheon had $23.7m in total cash reserves, of which $3.4m (14 percent) was held with SVBUS
and $5.9m (25 percent) was held with SVBUK, both of which have now been fully recovered thanks to swift interventions by
the respective governments. Sopheon proactively spreads cash deposits across several financial institutions, and the remaining
$14.4m cash reserves was held with well-known high street banks in the UK, Germany and the Netherlands and accordingly, the
Board believes that the group would have remained in a secure financial position even without the full recovery of the SVBUS
and SVBUK balances. There are no other post balance sheet events that warrant disclosure in the financial statements.
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.
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.
Brexit
The United Kingdom (‘UK’) formally left the European Union (‘EU’) on 31 January 2020, followed by a transition period until
31 December 2020. Shortly before the expiry of the transition period 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 ceased. This does not have any impact on the group's
ability to continue as a going concern.
Governance
27
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. Working practices following the easing of the pandemic include a blend of home and office working.
Rationalization of several office facilities has been undertaken as leases terminate, leading to some savings which are expected
to be offset by travel and infrastructure costs.
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.
Substantial shareholdings
The directors are aware of the following persons who as at 23 March 2023 were interested directly or indirectly in 3 percent or
more of the company’s issued ordinary shares:
No. of
Percent Issued
Ordinary Shares
Ordinary Shares
Name
Rivomore Limited and Myrtledare Corp.
2,074,308
19.5
B.K. Mence (director)
1,895,958
17.8
Canaccord Genuity Wealth Group Limited
1,324,070
12.3
Universal-Investment-GmbH
825,317
7.8
Chelverton Asset Management Limited
750,000
7.1
The interests of B.K. Mence represent direct beneficial holdings as well as those of his family.
Approved by the board on 22 March 2023 and signed on its behalf by:
A. Karimjee
Director
Governance
28
S t at em ent of d ire ctors' r e s p ons ib ilit ie s in re s p e c t
o f t h e fina ncia l sta te me nt 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 Accounting
Standards. 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 UK adopted International Accounting Standards 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.
Governance
29
I n depend e nt a ud itors’ rep ort t o t he m e m b e rs
o f S opheon p lc
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 2022 and of the Group’s loss 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 2022 which comprise the consolidated income statement, the consolidated statement of comprehensive
income, the consolidated and company statement 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 the Directors 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 the Directors' stress testing to assess the reasonableness of
economic assumptions in light of the ongoing impact of the Ukraine conflict and their effect on the Group’s solvency and
liquidity position.
Independent auditors' report to the members of Sopheon plc
30
Independent auditors' report to the members of Sopheon plc
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
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.
Based on our assessment of the Group, we focused our Group audit scope primarily over the significant components, being
Sopheon plc, United Kingdom; Sopheon Corporation, Minnesota; and Sopheon GmbH, Germany. These significant components
were subject to full scope audits by the Group engagement team.
The remaining four non-significant components were subject to analytical procedures performed by the Group engagement
team. Substantive 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 judgement areas.
The figures in the table above illustrates 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 substantive
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.
Coverage
Key audit matters
Materiality
99.6% (2021: 99.8%) of Group profit before tax
99.5% (2021: 99.1%) of Group revenue
99.9% (2021: 99.8%) of Group total assets
2022
2021
Revenue recognition
a
a
Intangible assets
a
a
Development costs – Capitalization and useful life
Group financial statements as a whole
$367,000 (2021: $344,000) based on 1.0% (2021: 1.0%) of revenue
31
Independent auditors' report to the members of Sopheon plc
Revenue Recognition
See accounting policy
in Note 2 on pages 41
and 42, and Revenue
from contracts with
customers in Note 4
on page 48.
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 checked the
revenue was recognized 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 SaaS contracts (being maintenance,
software subscriptions and hosting services) we
checked that the revenue was recognized 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 managements 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 recognized
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 recognized
in the correct period in line with the performance
obligations.
Key observations:
Based on the procedures performed, we did not identify
any matters to suggest that the recognition of revenue was
inappropriate.
Key audit matter
How the scope of our audit addressed the
key audit matter
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.
32
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:
Independent auditors' report to the members of Sopheon plc
Intangible Assets:
Development costs
– Capitalization and
useful life
See accounting policy
in Note 2 on page 44
and intangible assets
in Note 14 on pages 54
and 55.
Our procedures included the following:
• Discussions were held with management 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
capitalized 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 capitalization. We corroborated management’s
explanations to supporting evidence;
• Assessed management’s estimate of the amortization
period applied to the asset by considering relevant
industry benchmarks and specific knowledge of the
clients 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 capitalization and useful
life of the intangible assets were inappropriate.
How the scope of our audit
addressed the key audit matter
The Group capitalizes
costs in relation to the
development of the
software provided to its
clients, being the Accolade
platform as described on
page 54.
In accordance with the
requirements of the
applicable accounting
standard, management’s
policy is to capitalize
development expenditure
on internally developed
software products if the
costs can be measured
reliably and the resulting
asset meets the criteria
per the standard.
The key audit matters
related to this financial
statement area are as
follows:
• Development costs
satisfy the above
capitalization criteria
and are appropriately
recognized in the
Consolidated Statement
of Financial Position.
• The asset's estimated
useful life is
inappropriate.
Key audit matter
33
Component materiality
We set materiality for each component of the Group based on a percentage of between 65 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 $238,000 to $367,000. 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 (2021:
$14,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the 2022
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.
Independent auditors' report to the members of Sopheon plc
Group financial statements
Parent company financial statements
Materiality
Basis for
determining
performance
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 Group by the board and an important
performance based metric to the users of
the financial statements.
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.
Basis for
determining
materiality
Rationale for the
benchmark applied
Performance
materiality
2022
2021
$
$
367,000
344,000
1 percent of
1 percent of
revenue
revenue
2022
2021
$
$
238,000
240,000
257,000
241,000
166,000
168,000
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.
1 percent of
revenue restricted
to 70 percent of
Group materiality
65 percent of
revenue restricted
to 70 percent of
Group materiality
65 percent of
Group materiality
70 percent of
Group materiality
34
Independent auditors' report to the members of Sopheon plc
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.
Responsibilities of directors
As explained more fully in Statement of directors' responsibilities in respect of the financial statements, 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.
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:
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.
35
Independent auditors' report to the members of Sopheon plc
• We obtained an understanding of the legal and regulatory frameworks, by enquiry with management, that are applicable to
the Group and determined that the most significant laws and regulations 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 by component that management have 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 capitalization
of development costs (the risks associated with the capitalization of development costs has been assessed as a Key Audit
Matter above), which are subject to managements’ judgement and estimation, and could be subject to potential bias.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and
remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit. The engagement
partner has assessed and confirmed that the engagement team collectively had the appropriate competence and capabilities to
identify or recognize 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
22 March 2023
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
36
Financial information
Con sol i d a ted income stat e m e nt
for t he ye a r end e d 31 D ec e m b e r 2022
Notes
2022
2021
$’000
$’000
Revenue
3, 4
36,787
34,356
Cost of sales
(9,068)
(9,416)
Gross profit
27,719
24,940
Sales and marketing expense
(11,064)
(10,991)
Research and development expense1
(10,536)
(7,329)
Administrative expense
(4,787)
(5,293)
Operating profit
1,332
1,327
Finance income
8
79
(34)
Finance expense
9
(62)
(66)
Profit before tax
5
1,349
1,227
Income tax charge2
10
(2,226)
(410)
(Loss)/profit for the year
(877)
817
Earnings per share
Basic (US cents)
12
(8.28c)
7.82c
Fully diluted (US cents)
12
(8.28c)
7.47c
Con sol i d a ted sta te me nt of c om p re he ns ive inc om e
for t he ye a r end e d 31 D ec e m b e r 2022
2022
2021
$’000
$’000
(Loss)/profit for the year
(877)
817
Other comprehensive expense
Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
(1,562)
(734)
Total comprehensive (loss)/income for the year
(2,439)
83
1 Research and development expense in 2022 includes an exceptional $1.6m write down and a further $0.6m in acquisition related
amortization as set out in Note 14.
2 The 2022 tax charge includes $1.9m of deferred tax movements and $0.3m of actual current tax, as set out in Note 10.
37
C o n sol i dated a nd comp any s t a t e m e nt
o f fi n an c ia l p osition a t 31 De c e m b e r 2022
Group
Company
Notes
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Assets
Non-current Assets
Property, plant and equipment
13
584
605
-
-
Right-of-use assets
21
450
752
-
-
Intangible assets
14
13,073
11,950
-
-
Investments in subsidiaries
15
-
-
7,368
8,247
Deferred tax asset
10
625
2,557
-
-
Other receivables
16
19
19
16,793
16,793
Total non-current assets
14,751
15,883
24,161
25,040
Current Assets
Contract assets
4, 17
4,085
222
-
-
Trade and other receivables
17
14,788
12,960
83
137
Cash and cash equivalents
18
21,121
24,193
7,054
7,375
Total current assets
39,994
37,375
7,137
7,512
Total assets
54,745
53,258
31,298
32,552
Liabilities
Current Liabilities
Contract liabilities
4
16,501
13,505
-
-
Trade and other payables
19
7,606
7,668
496
477
Lease liabilities
21
271
474
-
-
Total current liabilities
24,378
21,647
496
477
Non-current Liabilities
Lease liabilities
21
193
305
-
-
Other payables
19
549
-
-
-
Total non-current liabilities
742
305
-
-
Total liabilities
25,120
21,952
496
477
Net assets
29,625
31,306
30,802
32,075
Equity
Share capital
23
3,248
3,219
3,248
3,219
Capital reserves
24
11,247
10,500
11,247
10,500
Translation reserve
(1,594)
(32)
(3,255)
(1,587)
Retained profits
16,724
17,619
19,562
19,943
Total equity
29,625
31,306
30,802
32,075
As permitted by Section 408 of the Companies Act 2006, the income statement of the parent company is not presented as
part of these financial statements. The loss dealt with in the financial statements of the parent company for the year ended 31
December 2022 was $363,000 (2021: profit of $1,827,000).
Approved by the board and authorized for issue on 22 March 2023.
Andrew Michuda
Arif Karimjee
Director
Director
Financial information
38
Financial information
Co n sol i d a ted a nd compa ny c a s h flow s t a t e m e nt s
for t he ye a r end e d 31 D ec e m b e r 2022
Group
Company
Notes
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Operating Activities
(Loss)/profit for the year
(877)
817
(363)
1,827
Adjustments for:
Finance income
8
(79)
34
-
-
Finance costs
9
62
66
4
4
Depreciation of property, plant and equipment
13
411
341
-
-
Depreciation of right-of-use assets
21
487
635
-
-
Amortization and impairment of intangible assets
14
5,564
2,997
-
-
Share-based payment expense
761
880
174
119
Income tax charge
2,226
410
-
-
Operating cash flows before movements in working capital
8,555
6,180
(185)
1,950
Intra-group credits and charges
-
-
35
118
Decrease in provisions against intra-group loans
-
-
(263)
(3,228)
(Increase)/decrease in receivables
(6,062)
1,244
54
(28)
Increase in payables
3,362
3,147
19
81
Net cash generated from/(used in) operating activities
5,855
10,571
(340)
(1,107)
Income taxes paid
(271)
(487)
-
-
Net cash from/(used in) operating activities
5,584
10,084
(340)
(1,107)
Investing Activities
Finance income
8
79
1
-
-
Purchases of property, plant and equipment
13
(401)
(435)
-
-
Development costs capitalized
14
(5,207)
(4,271)
-
-
Acquisitions of businesses
14
(753)
(1,450)
-
-
Purchases of shares by EBT
24
(155)
-
(155)
-
Advance of loans to group companies
-
-
(2,623)
(1,336)
Repayment of loans by group companies
-
-
2,369
5,220
Net cash (used in)/generated from investing activities
(6,437)
(6,155)
(409)
3,884
Financing Activities
Issues of shares
249
648
249
648
Lease payments
21
(522)
(685)
-
-
Interest paid
(38)
(56)
(4)
(4)
Dividends paid
25
(408)
(460)
(408)
(460)
Net cash (used in)/generated from financing activities
(719)
(553)
(163)
184
Net (decrease)/ increase in cash and cash equivalents
(1,572)
3,376
(912)
2,961
Cash and cash equivalents at the beginning of the year
24,193
21,718
7,375
4,547
Effect of foreign exchange rate changes
(1,500)
(901)
591
(133)
Cash and cash equivalents at the end of the year
18
21,121
24,193
7,054
7,375
39
Financial information
C on sol i date d a nd comp any s t a t e m e nt s of c ha ng e s
i n equ it y f or the y ea r end e d 31 De c e m b e r 2022
Group
Share
Capital
Translation
Retained
Capital
Reserves
Reserve1
Profits
Total
$’000
$’000
$’000
$’000
$’000
At 1 January 2021
3,133
9,398
702
16,922
30,155
Profit for the year
-
-
-
817
817
Exchange differences on translation of foreign operations
-
-
(734)
-
(734)
Total comprehensive income for the year
-
-
(734)
817
83
Issues of shares
86
562
-
-
648
Recognition of share-based payments
-
880
-
-
880
Lapse or exercise of share options
-
(340)
-
340
-
Dividends paid in year
-
-
-
(460)
(460)
At 31 December 2021
3,219
10,500
(32)
17,619
31,306
Loss for the year
-
-
-
(877)
(877)
Exchange differences on translation of foreign operations
-
-
(1,562)
-
(1,562)
Total comprehensive loss for the year
-
-
(1,562)
(877)
(2,439)
Issues of shares
29
531
-
-
560
Recognition of share-based payments
-
761
-
-
761
Lapse or exercise of share options
-
(390)
-
390
-
Purchase of shares for treasury
-
(155)
-
-
(155)
Dividends paid in year
-
-
-
(408)
(408)
At 31 December 2022
3,248
11,247
(1,594)
16,724
29,625
Company
Share
Capital
Translation
Retained
Capital
Reserve
Reserve1
Profits
Total
$’000
$’000
$’000
$’000
$’000
At 1 January 2021
3,133
9,398
(1,361)
18,236
29,406
Profit and total comprehensive income for the year
-
-
(226)
1,827
1,601
Issues of shares
86
562
-
-
648
Recognition of share-based payments
-
880
-
-
880
Lapse or exercise of share options
-
(340)
-
340
-
Dividends paid in year
-
-
-
(460)
(460)
At 31 December 2021
3,219
10,500
(1,587)
19,943
32,075
Loss and total comprehensive loss for the year
-
-
(1,668)
(363)
(2,031)
Issues of shares
29
531
-
-
560
Recognition of share-based payments
-
761
-
-
761
Lapse or exercise of share options
-
(390)
-
390
-
Purchase of shares for treasury
-
(155)
-
-
(155)
Dividends paid in year
-
-
-
(408)
(408)
At 31 December 2022
3,248
11,247
(3,255)
19,562
30,802
1 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.
40
Financial information
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 18. 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 1.2039 US Dollars to British Pounds Sterling as at 31 December 2022 and 1.2401 US Dollars to British Pounds Sterling as the
average rate prevailing during 2022.
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, Brexit 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,
statement of financial position and the net cash position of the group. However, these conditions continue to create uncertainty
and have 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 global economic sentiment deteriorates. 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.
41
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.
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 acquisitions of the business of ROI Blueprints LLC in December 2021 and of Solverboard in May 2022 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.
42
Financial information
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.
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.
43
Financial information
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.
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
20-33 percent on a straight-line basis
Furniture and fittings
20-25 percent on a straight-line basis
44
Financial information
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.
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.
45
Financial information
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.
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.
46
Financial information
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. or 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.
4. Dividends
Dividends to the Company’s shareholders are recognized as a liability and deducted from shareholders’ equity in the period in which the
shareholders’ right to receive payment is established.
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.
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.
Impairment of goodwill and intangible assets: Impairment of tangible and intangible assets: if there is an indication that an asset has
suffered an impairment loss, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss
(if any). 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.
47
Financial information
3. Segmental analysis
All of the group’s revenue in respect of the years ended 31 December 2022 and 2021 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 2022
North America
Europe
Total
$’000
$’000
$’000
Income Statement
External revenues
25,756
11,031
36,787
Operating profit before interest and tax
1,809
(477)
1,332
Profit before tax*
1,871
(522)
1,349
Finance income
95
(16)
79
Finance expense
(33)
(29)
(62)
Depreciation and amortization
(4,455)
(391)
(4,846)
Adjusted EBITDA*
6,914
25
6,939
Balance Sheet
Fixed asset additions
240
161
401
Capitalization of internally generated development costs
5,208
-
5,208
Total assets
30,780
23,965
54,745
Total liabilities
(17,108)
(8,012)
(25,120)
Year ended 31 December 2021
North America
Europe
Total
$’000
$’000
$’000
Income Statement
External revenues
21,088
13,268
34,356
Operating profit before interest and tax
3,092
(1,765)
1,327
Profit before tax*
3,055
(1,828)
1,227
Finance income
1
(35)
(34)
Finance expense
(38)
(28)
(66)
Depreciation and amortization
(3,543)
(430)
(3,973)
Adjusted EBITDA*
7,397
(1,217)
6,180
Balance Sheet
Fixed asset additions
304
131
435
Capitalization of internally generated development costs
4,271
-
4,271
Total assets
29,930
23,328
53,258
Total liabilities
(15,023)
(6,929)
(21,952)
*Reconciliation from profit before tax to adjusted EBITDA is detailed in Note 5.
Revenues attributable to customers in North America in 2022 amounted to $24,953,000 (2021: $20,434,000). Revenue
attributable to customers in the rest of the world amounted to $11,834,000 (2021: $13,922,000) of which $10,468,000
(2021: $10,765,000) was attributable to customers in Europe.
One customer based in the North American segment accounted for 15 percent of the group’s revenues in 2022 (2021: no
customers over 10 percent).
48
Financial information
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.
2022
2021
$’000
$’000
Perpetual software licenses
5,536
3,931
Consulting and implementation services
8,796
10,390
Maintenance, software subscriptions and hosting
22,455
20,035
36,787
34,356
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
Contract Liabilities
2022
2021
2022
2021
$’000
$’000
$’000
$’000
At 1 January
222
430
13,505
11,985
Transfers in the period from contract assets to trade receivables
(222)
(430)
-
-
Revenue recognized ahead of cash (or rights to cash)
4,085
222
-
-
Transfers in the period from contract liabilities to revenue
-
-
(13,505)
(11,985)
Cash (or rights to cash) received in advance of revenue recognition
-
-
16,501
13,505
At 31 December
4,085
222
16,501
13,505
49
Financial information
5. Profit for the year
The profit for the year has been arrived at after charging/(crediting):.
2022
2021
$’000
$’000
Net foreign exchange (gains)/losses
(629)
191
Research and development costs (excluding amortization and impairment)
4,972
4,332
Amortization of intangible assets
3,949
2,997
Impairment of intangible assets
1,615
-
Depreciation of property, plant and equipment
411
341
Depreciation of right-of-use assets
486
636
Employee share-based payments
761
880
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. It is calculated as follows:
2022
2021
$’000
$’000
Profit for the year before tax
1,349
1,227
Interest payable
62
101
Interest receivable
(79)
(1)
Amortization of intangible assets
3,949
2,997
Depreciation of property, plant and equipment
411
341
Depreciation of right-of-use assets
486
636
Employee share-based payments
761
880
Adjusted EBITDA
6,939
6,181
6. Auditors' Remuneration
2022
2021
$’000
$’000
Audit of the financial statements of the group
111
93
Review of interim financial information
29
23
Tax compliance services
19
23
50
Financial information
7. Staff costs
2022
2021
$’000
$’000
Wages and salaries
21,718
21,955
Social security costs
1,780
1,737
Pension contributions
463
515
Employee benefits expense
1,350
1,183
25,311
25,390
Included within the above are staff costs capitalized as development expenditure amounting to $5,207,000 (2021: $4,271,000).
Included within wages and salaries are bonus and sales commission costs amounting to $3,398,000 (2021: $3,695,000).
The average monthly number of employees during the year was made up as follows:
2022
2021
$’000
$’000
Development and operations
114
114
Sales and management
58
53
172
167
The above staff costs and the numbers of employees during the year include the executive directors.
The remuneration of all directors was as follows:
2022
2021
$’000
$’000
Fees and emoluments
1,337
1,382
Pension contributions
20
21
1,357
1,403
There were six directors during the year (2021: six). During the year no share options (2021: 225,100) were exercised by directors.
Pension contributions are to personal defined contribution schemes and have been made for three directors (2021: four) who
served during the year.
Full details of directors’ remuneration, including share option exercises, are disclosed in the Board Committee Reports on page 19.
Staff costs in the parent company amounted to $440,000 including bonuses (2021: $578,000). The average monthly number of
staff of the parent company during the year included one full time and two part time (2021: one and two).
8. Finance income
2022
2021
$’000
$’000
Income on financial assets measured at amortized cost
Interest income on bank deposits
94
1
Negative interest income on certain Euro bank balances
(15)
(35)
79
(34)
51
Financial information
9. Finance expense
2022
2021
$’000
$’000
Interest expense on financial liabilities measured at amortized cost
Interest on lease liabilities
(25)
(45)
Other interest and finance expense
(37)
(21)
(62)
(66)
10. Income tax charge
2022
2021
$’000
$’000
Income tax charge for the year – current tax
(294)
(410)
Income tax charge for the year – deferred tax
(1,932)
-
Total income tax expense for the year
(2,226)
(410)
Amendments to US Code Section 174 now require taxpayers to charge their research expenditures and software development
costs to a capital account. Capitalized costs are required to be amortized over five years (15 years for foreign costs). This has led
to a significant acceleration of the utilization of the US unrelieved trading losses in 2022, and also resulted in a change in timing
difference arising from the capitalization and transfer of development investments.
The charge for the year can be reconciled to the accounting profit as follows:
2022
2021
$’000
$’000
Profit before tax
1,349
1,227
Tax charge at the UK corporation tax rate of 19 percent (2021: 19 percent)
(256)
(233)
Adjustment for differing rates of corporate taxation in overseas jurisdictions
(132)
(72)
Tax effect of expenses that are not deductible in determining taxable profits
(327)
(231)
Temporary differences arising from the capitalization and transfer of development investments
(2,882)
242
Tax losses not relievable against current tax
(279)
(663)
Utilization and recognition of previously unrecognized losses
1,651
547
Total income tax expense for the year
(2,226)
(410)
The current tax expense represents German corporation tax payable by Sopheon GmbH and US state taxes payable by the group’s
US subsidiaries.
There is no tax arising on other comprehensive income.
Deferred tax
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 group has a deferred tax liability arising from the capitalization of internally generated development costs. Following the recent
changes in US tax legislation this liability has been recognized.
52
Financial information
The deferred tax which has been recognized in the financial statements is as follows:
2022
2021
$’000
$’000
Deferred tax asset/(liability) at 1 January
2,557
2,557
Amount recognized during the year
(1,932)
-
Deferred tax asset/(liability) at 31 December
625
2,557
The unrecognized deferred tax asset is made up as follows:
2022
2021
$’000
$’000
Shortfall of tax depreciation compared to book depreciation
174
171
Effect of timing differences arising from capitalization of internally generated development costs
-
(1,704)
Unrelieved trading losses
8,691
9,105
Unrecognized deferred tax asset at 31 December
8,865
7,572
At 31 December 2022, tax losses estimated at $46.2m (2021: $54.2m) 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 1.4m (2021: $2.6m), offset by a deferred tax
liability arising from capitalization of internally generated development costs of $0.7m (2021: $nil) and a further potential deferred tax
asset of $8.7m (2021: $9.1m), based on the tax rates currently applicable in the relevant tax jurisdictions.
Of these tax losses, an aggregate amount of $8.1m, representing $1.7m of the potential deferred tax asset (2021: $8.7m 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 loss dealt with in the financial statements of the parent company for the year ended 31 December 2022 was $363,000 (2021:
profit of $1,827,000). The parent company’s result includes a partial release of provisions against long-term loans due to the parent
company from subsidiaries of $263,000 (2021: $3,228,000). 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
2022
2021
$’000
$’000
Basic earnings per share
(Loss)/profit after tax
(877)
817
Weighted average number of ordinary shares for the purpose of basic earnings per share
10,594
10,442
Earnings per share
(8.28c)
7.82c
53
Financial information
2022
2021
$’000
$’000
Diluted earnings per share
(Loss)/profit after tax
(877)
817
Diluted (loss)/profit after tax
(877)
817
Weighted average number of ordinary shares for the purpose of diluted earnings per share
10,594
10,939
Diluted earnings per share
(8.28c)
7.47c
The profit attributable to ordinary share holders and the weighted average number of shares for the purpose of calculating the
diluted earning per ordinary share are the same as those used for calculating the basic earnings per share for 2022. This is because
the 840,887 share options to subscribe for ordinary shares (details of which are set out in Note 28) would have the effect of
reducing the loss per share.
For the purpose of calculating the diluted earnings per ordinary share in 2021, 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
Computer
Furniture &
Equipment
Fittings
Total
$’000
$’000
$’000
Cost
At 1 January 2021
3,421
607
4,028
Additions
404
31
435
Exchange differences
(47)
(15)
(62)
At 1 January 2022
3,778
623
4,401
Fully depreciated items written off
(1,839)
(346)
(2,185)
Additions
399
2
401
Exchange differences
(41)
(10)
(51)
At 31 December 2022
2,297
269
2,566
Accumulated Depreciation
At 1 January 2021
2,959
541
3,500
Depreciation charge for the year
299
42
341
Exchange differences
(34)
(12)
(46)
At 1 January 2022
3,224
571
3,795
Fully depreciated items written off
(1,839)
(346)
(2,185)
Depreciation charge for the year
381
30
411
Exchange differences
(30)
(9)
(39)
At 31 December 2022
1,736
246
1,982
Carrying Amount
At 31 December 2022
561
23
584
At 31 December 2021
554
52
606
At the end of 2022 the group took the decision to write off assets acquired prior to 1 January 2016 that have been fully depreciated.
Company
The company has no property, plant and equipment.
54
Financial information
14. Intangible assets
Group
Development
Costs
(Internally
Technology
Generated)
& IPR
Goodwill
Total
$’000
$’000
$’000
$’000
Cost
At 1 January 2021
33,448
-
1,022
34,470
Additions (internally generated)
4,271
-
-
4,271
Acquisition of business
-
2,250
563
2,813
At 1 January 2022
37,719
2,250
1,585
41,554
Additions (internally generated)
5,207
-
-
5,207
Acquisition of business
-
-
1,480
1,480
At 31 December 2022
42,926
2,250
3,065
48,241
Amortization and impairment
At 1 January 2021
26,607
-
-
26,607
Amortization charge for the year
2,997
-
2,997
At 1 January 2022
29,604
-
-
29,604
Amortization charge for the year
3,386
563
-
3,949
Impairment charge for the year
1,615
-
-
1,615
At 31 December 2022
34,605
563
-
35,168
Carrying Amount
At 31 December 2022
8,321
1,687
3,065
13,073
At 31 December 2021
8,115
2,250
1,585
11,950
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 (2021: 3 percent). The discount rate used was 9 percent (2021: 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 future performance. 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 is being amortized over 4 years.
On 18 May 2022 the group announced the acquisition of Solverboard, a cloud-based business, based in the UK and specializing
in the front-end of innovation management. Initial consideration comprised £500,000 in cash and £250,000 in shares issued at
£6 per share. An additional, contingent deferred earn-out of up to £1.55 million may be payable over two years, linked to Annual
Recurring Revenue ("ARR") targets. The contingent deferred consideration may be satisfied by the issue of up to £900,000 in
shares issued at £6 per share, with the balance in cash. The initial consideration of £750,000 ($931,000) has been allocated to
goodwill. The contingent deferred consideration has been assessed at a fair value of £445,000 ($549,000) and has also been
allocated to goodwill. No separately identifiable technology was identified as part of the acquisition.
55
Financial information
Prior to the acquisition of ROI Blueprints and Solverboard, the group had embarked on its own development of a next-generation
platform for new cloud-based applications. In the light of both acquisitions and other factors, the group has revisited its original
approach. As a consequence, a full impairment provision has been made against capitalized historic development costs associated
with the group’s own cloud platform development, amounting to $1.6m, which is included in research and development expense.
Company
The company has no intangible assets.
15. Investment in subsidiaries
Company
$’000
At cost less amounts provided
At 31 December 2021
8,247
Exchange difference
(879)
At 31 December 2022
7,368
Details of the company’s subsidiaries at 31 December 2022 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
Nature of
Proportion of
Nature of Business
Place of Incorporation
Ownership
Voting Rights Held
Sopheon Corporation
Common Stock
100 percent
Software sales and services
7900 International Drive
Bloomington, MN 55425, USA
Sopheon Corporation
Common Stock
100 percent
Software development and sales
6870 W 52nd Avenue
Arvada, CO 80002, USA
Alignent Software, Inc.
Common Stock
100 percent
Software sales and services
7900 International Drive
Bloomington, MN 55425, USA
Sopheon NV
Ordinary Shares
100 percent
Software sales and services
Kantoorgebouw Officia 1
De Boelelaan 7, 1083 HJ
Amsterdam, The Netherlands
Sopheon UK Limited
Ordinary Shares
100 percent
Software sales and services
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
Sopheon GmbH
Ordinary Shares
100 percent
Software sales and services
Lise-Meitner-Str. 10, D-64293
Darmstadt, Germany
Applied Network Technology Ltd*
Ordinary Shares
100 percent
Employee Share Ownership Trust
Dorna House One, 50 Guildford Road
West End GU24 9PW, UK
Sopheon plc has given a guarantee under S479C of the Companies Act 2006 to Sopheon UK Limited and that entity is included in
the group's consolidated financial statements. Accordingly, no statutory audit will be performed in respect of Sopheon UK Limited
for 2022 (2021: No statutory audit).
56
Financial information
16. Other receivables
Group
Company
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Other receivable
19
19
-
-
Amounts due from subsidiary undertakings (net of provisions)
-
-
16,793
16,793
19
19
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 $12,239,000 (2021: $15,962,000) has been made against amounts totaling $29,032,000 (2021:
$32,755,000) 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.
2022
2021
$’000
$’000
At 1 January
15,962
19,491
Net repayments
(254)
(3,884)
Net management charges
552
643
Partial release of provision
-
Exchange adjustments
(4,021)
(288)
At 31 December
12,239
15,962
17. Trade and other receivables
Group
Company
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Trade receivables
13,570
11,802
-
-
Other receivables
90
26
61
97
Total receivables
13,750
11,828
61
97
Prepayments
1,128
1,132
22
40
14,788
12,960
83
137
Contract assets
4,085
222
-
-
18,873
13,182
83
137
The carrying value of trade and other receivables classified at amortized cost approximates fair value. Contract assets includes $3.1m
that is due in more than one year.
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 negligible leading to no provision for impairment being recorded.
57
Financial information
18. Cash and cash equivalents
Group
Company
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Cash at bank
17,434
18,261
7,054
7,375
Short-term bank deposits
3,687
5,932
-
-
21,121
24,193
7,054
7,375
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 $61,000 (2021: $68,000) held by the group’s employee share ownership
trust.
19. Trade and other payables
Group
Company
2022
2021
2022
2021
$’000
$’000
$’000
$’000
Current liabilities
Trade payables
1,099
858
30
26
Other payables
1,266
1,340
156
138
Tax and social security costs
1,509
1,753
-
-
Accruals
3,732
3,717
310
313
7,606
7,668
496
477
Non-current liabilities
Other payables
549
-
-
-
8,155
7,668
496
477
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. Included in other payables are
amounts representing the fair value of deferred contingent consideration of $1,125,000 in respect of the acquisition of the business
of ROI Blueprints LLC and of $549,000 in respect of the acquisition of the business of Solverboard. 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 2022 or at 31 December 2021.
58
Financial information
21. Leases
Lease liabilities represent rental payments by the group for leased office properties and leased vehicles.
Right-of-use assets
Leased
Leased
Buildings
Vehicles
Total
$’000
$’000
$’000
At 1 January 2021
794
233
1,027
Additions and lease extensions in year
245
162
407
Depreciation
(522)
(113)
(635)
Exchange differences
(26)
(21)
(47)
At 1 January 2022
491
261
752
Additions and lease extensions in year
207
12
219
Depreciation
(399)
(88)
(487)
Exchange differences
(17)
(17)
(34)
At 31 December 2022
282
168
450
Lease liabilities
Leased
Leased
Buildings
Vehicles
Total
$’000
$’000
$’000
At 1 January 2021
825
236
1,061
Additions in year
245
162
407
Interest expense
35
10
45
Lease payments
(566)
(119)
(685)
Exchange differences
(27)
(22)
(49)
At 1 January 2022
512
267
779
Additions in year
206
12
218
Interest expense
18
7
25
Lease payments
(428)
(94)
(522)
Exchange differences
(17)
(19)
(36)
At 31 December 2022
291
173
464
The maturity of the lease liabilities is as follows:
Carrying
Contractual
Less than
One to
Two to
Amount
Cash-Flow
One Year
Two Years
Five Years
At 31 December 2022
$’000
$’000
$’000
$’000
$’000
Leased buildings
291
305
202
69
34
Leased vehicles
173
181
84
78
19
Total
464
486
286
147
53
Carrying
Contractual
Less than
One to
Two to
Amount
Cash-Flow
One Year
Two Years
Five Years
At 31 December 2021
$’000
$’000
$’000
$’000
$’000
Leased buildings
512
560
436
124
-
Leased vehicles
267
280
96
85
99
Total
779
840
532
209
99
59
Financial information
Leased Buildings
Buildings are leased for office space under leases which typically run for a period of 1-5 years and lease payments are at fixed
amounts. Some leases for office buildings include extension options exercisable up to one year before the end of the cancellable
lease term.
Leased Vehicles
The group leases vehicles for qualifying employees with a standard lease term of 4 years with fixed lease payments. The group
does not purchase or guarantee the future value of leased vehicles.
Leased Equipment
The group has a small number of leases of office equipment. The group considers these leases to be of low value or short term in
nature and therefore no right-of-use assets or lease liabilities are recognized for these leases.
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
Group
Company
2022
2021
2022
2021
Notes
$’000
$’000
$’000
$’000
Current financial assets
Trade receivables
17
13,570
11,802
-
-
Other receivables
17
90
26
61
97
Amounts due from subsidiary companies
16
-
-
16,793
16,793
Contract assets
17
4,085
222
-
-
Cash and cash equivalents
18
21,121
24,193
7,054
7,375
38,866
36,243
23,908
24,265
Non-current financial assets
Other receivable
16
19
19
-
-
The group does not have any financial assets in any other categories.
60
Financial information
2. Financial liabilities
Group
Company
2022
2021
2022
2021
Notes
$’000
$’000
$’000
$’000
Current financial liabilities
Trade payables
19
1,099
858
30
26
Other payables
19
1,266
1,340
156
138
Accruals
19
3,732
3,717
310
313
Lease liabilities
21
271
474
-
-
6,368
6,389
496
477
Non-current financial liabilities
Lease liabilities
21
193
305
-
-
Other payables
19
549
-
-
-
742
305
-
-
7,110
6,694
496
477
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 2022 one individual customer accounted for 16 percent of group revenues (2021: None more than 10 percent).
61
Financial information
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 (See Note 29).
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.
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:
Past Due
Past Due
Total
Current
+30 days
+60 days
$’000
$’000
$’000
$’000
At 31 December 2022
13,570
12,977
217
376
At 31 December 2021
11,802
9,577
1,715
510
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:
2022
2021
Gross
Carrying
Gross
Carrying
Value
Provision
Value
value
Provision
Value
$’000
$’000
$’000
$’000
$’000
$’000
Trade receivables
North America
9,991
-
9,991
8,911
-
8,911
Europe
3,579
-
3,579
2,891
-
2,891
13,570
-
13,570
11,802
-
11,802
The group records impairment losses on its trade receivables separately from the gross amounts receivable. No impairment losses
were recorded during 2022 or 2021. 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 short-term deposit accounts with leading UK, US and European banking institutions (See Note 29).
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.
62
Financial information
On Demand
or Within
Within
Within
Within
Six Months
One Year
Two Years
Five Years
Total
At 31 December 2022
$’000
$’000
$’000
$’000
$’000
Trade and other payables
1,240
562
1,112
-
2,914
Lease liabilities – contractual cash flow
158
128
147
53
486
Total financial liabilities
1,398
690
1,259
53
3,400
On Demand
or Within
Within
Within
Within
Six Months
One Year
Two Years
Five Years
Total
At 31 December 2022
$’000
$’000
$’000
$’000
$’000
Trade and other payables
989
500
625
188
2,302
Lease liabilities – contractual cash flow
363
169
209
99
840
Total financial liabilities
1,352
669
834
287
3,142
On Demand
or Within
Within
Within
Within
Six Months
One Year
Two Years
Five Years
Total
At 31 December 2022
$’000
$’000
$’000
$’000
$’000
Trade and other payables
186
-
-
-
186
Total financial liabilities
186
-
-
-
186
On Demand
or Within
Within
Within
Within
Six Months
One Year
Two Years
Five Years
Total
At 31 December 2022
$’000
$’000
$’000
$’000
$’000
Trade and other payables
164
-
-
-
164
Total financial liabilities
164
-
-
-
164
c) Market risk
Market risk arises from the group’s use of interest-bearing and foreign currency financial instruments. It is the risk that the future
cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk) or foreign exchange rates
(currency risk). The group does not have any financial instruments that are publicly traded securities and is not exposed to other
price risk associated with changes in the market prices of such securities.
d) Interest rate risk
The group 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 2022 was $3,668,000. During 2022 interest rates on money market
deposits rose in line with central bank rate setting. 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 $18,000.
63
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 applied during part of the year.
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.
2022
2021
2022
2021
Effect on
Increase/
Increase/
Exchange Differences
(Decrease)
(Decrease)
on Translation of
in Profit
in Profit
Assets and Liabilities
After Tax
After Tax
of Foreign Operations
$’000
$’000
$’000
$’000
Strengthening of Sterling in US Dollar terms by 10c
(54)
60
582
429
Weakening of Sterling in US Dollar terms by 10c
54
(59)
(580)
(430)
Strengthening of Euro in US Dollar terms by 10c
222
158
847
642
Weakening of Euro in US Dollar terms by 10c
(221) (157)
(847)
(643)
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.
2022
2021
Increase/(Decrease)
in Profit After Tax
$’000
$’000
Strengthening of Sterling in US Dollar terms by 10c
180
237
Weakening of Sterling in US Dollar terms by 10c
(180)
(237)
Strengthening of Euro in US Dollar terms by 10c
324
301
Weakening of Euro in US Dollar terms by 10c
(324)
(301)
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.
64
Financial information
23. Share capital
Issued and fully paid
2022
2022
2021
2021
Number
$’000
Number
$’000
Ordinary shares of 20 pence each
10,624,354
3,248
10,512,216
3,219
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 70,471 ordinary shares were issued in connection with the exercise of options at exercise prices ranging
from 85p to 468p and 41,667 ordinary shares were issued in connection with the acquisition of Solverboard at a price of £6 per
share.
24. Capital reserves
Group
Share
Equity
Special
Premium
Reserve
Reserve
Total
$’000
$’000
$’000
$’000
At 1 January 2021
2,400
1,925
5,073
9,398
Issues of shares
562
-
-
562
Recognition of share-based payments
-
880
-
880
Lapsing or exercise of share options
-
(340)
-
(340)
At 1 January 2022
2,962
2,465
5,073
10,500
Issues of shares
531
-
-
531
Recognition of share-based payments
-
761
-
761
Lapsing or exercise of share options
-
(390)
-
(390)
Purchase of shares by EBT
-
(155)
-
(155)
At 31 December 2022
3,493
2,681
5,073
11,247
Company
Share
Equity
Special
Premium
Reserve
Reserve
Total
$’000
$’000
$’000
$’000
At 1 January 2021
2,400
1,925
5,073
9,398
Issues of shares
562
-
-
562
Recognition of share-based payments
-
880
-
880
Lapsing or exercise of share options
-
(340)
-
(340)
At 1 January 2022
2,962
2,465
5,073
10,500
Issues of shares
531
-
-
531
Recognition of share-based payments
-
761
-
761
Lapsing or exercise of share options
-
(390)
-
(390)
Purchase of shares by EBT
-
(155)
-
(155)
At 31 December 2022
3,493
2,681
5,073
11,247
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 Benefit Trust (the “EBT”) 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 2022, the
EBT held 56,834 ordinary shares of 20p each in the company (2021: 36,472) which represents 0.5 percent (2021: 0.4 percent) of
the company’s ordinary share capital. The equity reserve includes a deduction of $201,000 (2021: $46,000) which represents the
cost of the shares held by the EBT at 31 December 2022. The additional shares purchased by the EBT were acquired at an average
price of 597p per share.
65
Financial information
The purpose of the EBT 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 2022 and at 31 December 2021, no shares held by the EBT were under option or
had been gifted to any employees. Arrangements for the distribution of benefits to employees will be made at the EBT’s discretion
in such manner as the EBT considers appropriate. Administration costs of the EBT 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
2022
2021
$’000
$’000
Dividends paid in year
Final dividend for 2021 of 3.25p per share paid in July 2022
408
460
The directors are proposing a final dividend of 3.25 pence per share in respect of the year ended 31 December 2022 amounting to
£345,000 (equivalent to $416,000 at year end exchange rate).
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 $463,000 (2021: $515,000) 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:
2022
2021
$’000
$’000
Emoluments and benefits
2,902
3,612
Pension contributions
48
66
Share-based payments
707
786
3,657
4,464
There group’s executive management committee reduced in size in 2022.
66
Financial information
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:
2022
2021
$’000
$’000
Net amounts advanced to/(repaid by) subsidiaries
254
(3,884)
Net management charges to subsidiaries
552
643
The amounts owed by subsidiary companies to the parent company at 31 December 2022 totaled $29,032,000 (2021: $32,755,000).
An amount of $16,793,000 (2021: $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 2022 and 2021, 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
In three equal tranches between the first and third anniversary of grant
Sopheon UK approved share option scheme
On third anniversary of grant
Sopheon UK unapproved share option scheme
Immediate or as per USA plan
Sopheon NV share option scheme
Immediate or as per USA plan
Details of the share options outstanding during 2021 and 2020 are as follows:
Weighted
Average
Number of
Exercise
Share
Price
Options
£
Outstanding at 1 January 2021
942,294
4.23
Options granted in 2021
318,350
8.83
Options exercised in 2021
(309,328)
1.51
Options lapsed in 2021
(10,374)
8.27
Outstanding at 1 January 2022
940,942
6.63
Options granted in 2022
74,416
7.78
Options exercised in 2022
(70,471)
2.73
Options lapsed in 2022
(104,000)
7.77
Outstanding at 31 December 2022
840,887
6.92
Exercisable at 31 December 2022
639,783
6.46
Exercisable at 31 December 2021
625,762
5.64
67
Financial information
During 2022, share options were exercised over 70,471 ordinary shares at exercise prices ranging from 85p to 775p. During 2021,
share options were exercised over 309,328 ordinary shares at exercise prices ranging from 85p to 775p. The options outstanding at
the end of the year have a weighted average contractual life of 6.4 years (2021: 7.0 years).
During the year share options were granted on 13 February 2022 when the exercise price of options granted was 890p and the
estimated fair value was 527p and on 28 October 2022 when the exercise price of options granted was 550p and the estimated fair
value was 326p. During the preceding year share options were granted on 14 May 2021, when the exercise prices of options granted
were 845p and 900p and the estimated fair values were 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.
The fair values for options granted are calculated using the Black-Scholes option-pricing model. The principal assumptions used
were:
Date of grant
February
October
May
May
June
2022
2022
2021
2021
2021
Share price at time of grant
890p
550p
845p
845p
875p
Exercise price
890p
550p
845p
900p
875p
Expected volatility
40%
40%
40%
40%
40%
Risk-free rate
5%
5%
5%
5%
5%
Expected dividend yield
0.4%
0.6%
0.4%
0.4%
0.4%
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.
29. Post balance sheet events
On Friday 10 March, Silicon Valley Bank USA (“SVBUS”) and Silicon Valley Bank UK (“SVBUK”) had operations halted by the
California Department of Financial Protection and Innovation and the Bank of England respectively. Immediately prior to the
circumstances described above Sopheon had $23.7m in total cash reserves, of which $3.4m (14 percent) was held with SVBUS
and $5.9m (25 percent) was held with SVBUK, both of which have now been fully recovered thanks to swift interventions by the
respective governments. Sopheon proactively spreads cash deposits across several financial institutions, and the remaining $14.4m
cash reserves was held with well-known high street banks in the UK, Germany and the Netherlands and accordingly, the Board
believes that the group would have remained in a secure financial position even without the full recovery of the SVBUS and SVBUK
balances. There are no other post balance sheet events that warrant disclosure in the financial statements.
68
69
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.
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.
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.
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 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.
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.
Barnaby Kent, Non-Executive Director. Prior to its recent $1.3 billion acquisition by a London-
based private equity firm in 2022, Barnaby (Barney) Kent spent nearly a decade at Ideagen plc,
a software company supplying regulatory, compliance and collaboration solutions to over 10,000
organizations around the world. In his role as COO, Kent led Ideagen to unprecedented growth and
financial delivery. Kent has more than 20 years’ experience within the technology sector and was
previously CEO of Plumtree Group prior to joining Ideagen.
Directors
info@sopheon.com
United States
Sopheon Corporation
7900 International Dr
Bloomington, MN 55425
Sopheon Corporation
6870 West 52nd Avenue
Arvada, CO 80002
United Kingdom
Sopheon plc
Dorna House One
Guildford Road
West End GU24 9PW
Sopheon UK Limited
Dorna House One
Guildford Road
West End GU24 9PW
Sopheon UK Limited
Unit 1.9 Paintworks
Bath Road
Bristol BS4 3EH
The Netherlands
Sopheon NV
Kantoorgebouw Officia 1
De Boelelaan 7
1083 HJ Amsterdam
Sopheon NV
OffiCenter
Gelissendomein 8-10/92
6229 GJ Maastricht
Germany
Sopheon GmbH
Lise-Meitner-Str. 10
D-64293 Darmstadt