20th Feb 2007 07:01
SDL PLC20 February 2007 20 February 2007 SDL PLC Preliminary Results for the Year ended 31 December 2006 SDL plc ("SDL" or "the Group"), a leader in the emerging market for GlobalInformation Management (GIM) solutions, is pleased to announce its unauditedpreliminary results for the year ended 31 December 2006. 2006 2005 % £'000 £'000 ChangeIncome Statement:Revenue 94,711 78,479 +21% Profit before tax and amortisation of intangibles 12,241 7,169 +71%Profit before tax 9,376 5,217 +80% Earnings per ordinary share - basic (pence) 9.91 4.87 +103%Adjusted earnings per ordinary share - basic (pence) 14.52 8.20 +77% Balance Sheet:Total equity 54,506 49,594 +10%Cash and cash equivalents 7,978 6,976 +14% Interest bearing loans and borrowings 11,656 19,092 -39% Operational Highlights: • Results ahead of upgraded market expectations • Solid growth in market share with 40 new enterprise software installations in 2006 • Global Information Management gaining in recognition • Gross margins increased to 49% in 2006 from 47% in 2005 • Significant new business wins include Dell, BMC, Avaya, Salesforce.com and Intel Commenting on the preliminary results Mark Lancaster, Chairman and ChiefExecutive of SDL, said: "This excellent 2006 performance is as a result of SDL continuing to increaseits lead in Global Information Management technology, combined with increasedutilisation of technology to leverage service margins, and an effective hedgingstrategy to manage currency fluctuations. We expect to see continued strong financial returns from our investment inGlobal Information Management, both from the services and the technology sidesof the business. The understanding and awareness of Global InformationManagement continues to be the number one challenge to the growth of ourbusiness. We do however expect to see a considerable uplift in awareness of thecomplexities of creating and managing global content from companies that tradeglobally. This will in part be driven by our increased investment in marketingduring 2007, but increasingly by the realisation of companies that language isnow a major competitive differentiator in winning and retaining market-shareacross the globe. As the investments SDL has made into Knowledge-basedTranslation continue to give increased returns, we expect to see more contentflow though this automated translation technology in 2007, which ultimatelybrings higher margins to the group. In summary we believe that our efficientservices infrastructure and technology systems will offset the increase ininvestment in marketing and the potential continued dollar weakness to provideanother year of growth in 2007.'' For further information please contact: SDL plc On 20 February 2007 tel: 020 7831 3113 Thereafter tel: 01628 410 127Mark Lancaster, Chief Executive Financial Dynamics Tel: 020 7831 3113Edward Bridges/Juliet Clarke Background information About SDL International SDL International (London Stock Exchange: 'SDL') is the leader in globalinformation management (GIM) solutions that empower organizations to acceleratethe delivery of high-quality multilingual content to global markets. Itsenterprise software and services integrate with existing business systems tomanage global information from authoring to publication and throughout thedistributed localization supply chain. Global industry leaders rely on SDL to provide enterprise software or hostedservices for their GIM processes, including Audi, Bayer, Best Western, Bosch,Canon, Deutsche Bank, Kodak, Microsoft, Morgan Stanley, Reuters and SAP. SDL hasimplemented more than 150 enterprise GIM solutions, has deployed over 130,000software licenses across the GIM ecosystem and provides access to on-demandtranslation portals for 10 million customers per month. Over 1000 serviceprofessionals deliver consulting, implementation and language services throughits global infrastructure of more than 50 offices in 30 countries. For moreinformation, visit www.sdl.com. Summary Performance The second half of 2006 saw SDL again achieve record operating profits which aresignificantly ahead of our upgraded market expectations. The prime drivers forthe increase over the upgraded expectations were the faster uptake of productreleased towards the year end and stronger than anticipated sales and relatedmargins from certain service customers in December. Revenues for 2006 were up21% at £94.7 million (2005: £78.5 million) with approximately half of thisrevenue growth being organic and half contributed by a year of full trading inTrados which was acquired in July 2005. Profit before tax and amortisation ofintangible assets has increased by 71% to £12.2 million (2005: £7.2 million).The major contributors to the over performance in 2006 are SDL continuing toincrease its lead in Global Information Management technology, combined withincreased utilisation of technology to leverage service margins, and aneffective hedging strategy to manage currency fluctuations. Our Technology The successful integration of Trados into SDL has led to a considerableimprovement in gross margins, now at 49%, which has in turn improved theunderlying operating performance of the Group. We have seen interest in GlobalInformation Management technology increase considerably in 2006, particularlyfor our hosted offerings accessed over the internet by our clients. This hasresulted in both strong service and software sales. We have experienced solidgrowth in market share in both the desktop and the enterprise software marketswith over 140,000 installed units of desktop products and having added more than40 installations of enterprise product into the market with such customers asDell, BMC and Avaya. We launched SDL Trados Synergy at the end of the thirdquarter of 2006 resulting in a positive impact on our year end result, with theuptake in this product being greater than we had anticipated. This isencouraging feedback from the market as we will be launching major new releasesof our new platform technology throughout 2007. These major innovations intechnology will provide completely integrated technology across the translationsupply chain, enabling all parties, from freelance translators through languageservice providers to corporations in the supply chain, to benefit from smoothfile integration and effective translation logistics management. We believethese advancements in technology will further accelerate the trend forenterprise content to be translated and tailored for local markets. The start ofthis trend is already evidenced by companies such as Salesforce.com, Linde,Bosch and Intel investing in Global Information Management technology to speedup the translation of content for local markets. Services Infrastructure The services side of the business, which now operates in over 30 countries,continues to benefit from the global reach, scale and leveraging of ourtechnology. The structure and integrated nature of our regional offices allowsconsiderable scaling and resource capacity which, when coupled with ourKnowledge-based Translation solutions, have transformed the landscape fortranslation, speeding up time to market and reducing costs for our clients. Wecontinue to increase the quantity of words that flow through our Knowledge-basedTranslation systems, for enterprise customers such as HP, Microsoft and DaimlerChrysler. As well as the increased adoption of Knowledge-based Translation, 30%of SDL's major clients have their content flowing through SDL's enterprisetranslation management technology, driving internal operational efficiencies andbringing scalability to our services offering. Vision and strategy for Global Information Management In a world that is moving closer together through ever more effective andimmediate communications infrastructure, trading effectively in global marketsis not an option for large corporations, it is a necessity. However, thestarting point to allow a business to trade in local markets is to speak to themin their own language. The enormity and complexity of translating andmaintaining millions of words of global content into multiple languages in aworld where communications needs to be instant is a major challenge for anybusiness. Content is now delivered in multiple formats through many channelsfrom the web to hard copy. Press releases, marketing collateral, supportknowledge bases, not to mention a company's products and documentation, shouldall share common wording and messaging to support a companies brand. Thecreation and management of multiple language content is currently not addressedby the content management technology available on the markets today. SDL's Global Information Management technology accelerates the delivery ofglobal content into local markets, ensures the operational consistency ofbranding and reduces the costs to translate content into multiple languages. Inorder to provide comprehensive global content management the complete supplychain of those involved in the creation and maintenance of global content mustbe included in the solution. SDL's technology automates the delivery of globalcontent in a controlled manner through this supply chain. As we continue torelease new vendor independent translation technology onto the market over thenext 12 months, we consider that the major advances that we have made in thetechnology will significantly enhance the productivity of the translation supplychain, stimulating growth in both the technology and the localization servicesindustry as a whole. SDL is also very well placed to take advantage of theconsolidation of the content management space, being the world leader in GlobalInformation Management, which is an integral part of content management that hasbeen previously overlooked. Outlook We expect to see continued strong financial returns from our investment inGlobal Information Management, both from the services and the technology sidesof the business. The understanding and awareness of Global InformationManagement continues to be the number one challenge to the growth of ourbusiness. We do however expect to see a considerable uplift in awareness of thecomplexities of creating and managing global content from companies that tradeglobally. This will in part be driven by our increased investment in marketingduring 2007, but increasingly by the realisation of companies that language isnow a major competitive differentiator in winning and retaining market-shareacross the globe. As the investments SDL has made into Knowledge-basedTranslation continue to give increased returns, we expect to see more contentflow though this automated translation technology in 2007, which ultimatelybrings higher margins to the group. In summary we believe that our efficientservices infrastructure and technology systems will offset the increase ininvestment in marketing and the potential continued dollar weakness to provideanother year of growth in 2007. Mark Lancaster SDL plcUNAUDITED CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2006 Notes 2006 2005 £'000 £'000 Sale of goods 10,190 7,425Rendering of services 84,521 71,054 REVENUE 2 94,711 78,479 Cost of sales (47,947) (41,475) GROSS PROFIT 46,764 37,004 Administrative expenses 3 (33,610) (29,288) OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS 13,154 7,716 Amortisation of intangible assets 3 (2,865) (1,952) OPERATING PROFIT 3 10,289 5,764 Finance costs (1,143) (761) Finance revenue 230 214 PROFIT BEFORE TAX 9,376 5,217 Tax expense 4 (3,213) (2,358) PROFIT FOR THE PERIOD ATTRIBUTABLETO EQUITY HOLDERS OF THE PARENT 6,163 2,859 Earnings per ordinary share - basic (pence) 5 9.91 4.87Earnings per ordinary share - diluted (pence) 5 9.53 4.68 Adjusted earnings per ordinary share - basic (pence) 5 14.52 8.20Adjusted earnings per ordinary share - diluted (pence) 5 13.97 7.87 SDL plc UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2006 Notes 2006 2005 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 3,104 2,746Intangible assets 6 58,381 63,583Deferred tax asset 2,005 1,640Rent deposits 313 353 63,803 68,322 CURRENT ASSETSTrade and other receivables 20,739 18,995Financial assets 474 -Cash and cash equivalents 7,978 6,976 29,191 25,971 TOTAL ASSETS 92,994 94,293 CURRENT LIABILITIESTrade and other payables (18,524) (17,925)Interest bearing loans and borrowings (2,000) (2,000)Financial liabilities - (120)Current tax liabilities (4,361) (4,068)Provisions (125) (500) (25,010) (24,613)NON CURRENT LIABILITIESInterest bearing loans and borrowings (9,656) (17,092)Other payables (456) -Deferred tax liability (2,981) (2,596)Provisions (385) (398) (13,478) (20,086) TOTAL LIABILITIES (38,488) (44,699) NET ASSETS 54,506 49,594 EQUITYShare capital 625 615Share premium account 51,096 50,629Shares to be issued 66 238Retained earnings 4,334 (2,893)Foreign exchange differences (1,615) 1,005 TOTAL EQUITY ATTRIBUTABLE TO EQUITYHOLDERS OF THE PARENT 54,506 49,594 SDL plc UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2005 Share Shares Retained Foreign Share Premium to be Earnings Exchange Capital Account Issued Differences Total £'000 £'000 £'000 £'000 £'000 £'000 1 January 2005 561 44,165 213 (6,909) 532 38,562Currency translation differences on foreign currency net investments and intangibles - - - - (33) (33)Currency translation differences on foreign currency equity loans to foreign subsidiaries - - - - 506 506Deferred income taxation on share based payments (Note 4) - - - 418 - 418Tax credit for shareoptions (Note 4) - - - 464 - 464 Total income and expense for the year recognised directly inequity - - - 882 473 1,355Net profit for the year - - - 2,859 - 2,859 Total income andexpense for the year - - - 3,741 473 4,214Arising on share issues 9 376 (108) - - 277Arising on acquisition of Trados 45 6,088 - - - 6,133Lingua Franca deferred purchase consideration - - 133 - - 133Share basedpayments (Note 8) - - - 275 - 275 At 31 December 2005 615 50,629 238 (2,893) 1,005 49,594 SDL plc UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2006 Share Shares Retained Foreign Share Premium to be Earnings Exchange Capital Account Issued Differences Total £'000 £'000 £'000 £'000 £'000 £'000At 1 January 2006 615 50,629 238 (2,893) 1,005 49,594Currency translation differences on foreign currency intangibles and net investments - - - - (1,485) (1,485)Currency translation differences on foreign currency equity loans to foreign subsidiaries - - - - (1,135) (1,135)Deferred income taxation on share based payments (Note 4) - - - 179 - 179Tax credit for share options (Note 4) - - - 283 - 283 Total income and expense for the year recognised directly in equity - - - 462 (2,620) (2,158)Net profit for the year - - - 6,163 - 6,163 Total income and expense for the year - - - 6,625 (2,620) 4,005Arising on share options 6 299 - - - 305Arising on acquisition of Lomac 3 103 (106) - - -Arising on acquisitionof Lingua Franca 1 65 (66) - - -Share based payments (Note 8) - - - 602 - 602 At 31 December 2006 625 51,096 66 4,334 (1,615) 54,506 SDL plc UNAUDITED CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2006 Notes 2006 2005 £'000 £'000 PROFIT BEFORE TAX 9,376 5,217 Depreciation of property, plant and equipment 1,272 1,122Amortisation of intangible assets 2,865 1,952Finance costs 1,143 761Finance revenue (230) (214)Share based payments 602 275(Gains)/losses on disposal of property, plant& equipment (7) 24Increase in trade and other receivables (1,825) (2,640)Increase in trade and other payables 215 1,289Exchange differences (1,032) (123)Income tax paid (2,515) (1,956) NET CASH FLOWS FROM OPERATING ACTIVITIES 9,864 5,707 CASH FLOWS FROM INVESTING ACTIVITIESPayments to acquire property, plant & equipment (1,433) (1,010)Receipts from sale of property, plant & equipment 49 201Payments to acquire subsidiaries - (30,328)Net cash acquired with subsidiaries - 3,216Interest received 230 214 NET CASH FLOWS FROM INVESTING ACTIVITIES (1,154) (27,707) CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from issue of ordinary share capital 305 277Repayment of interest bearing loans and borrowings 9 (6,596) (2,385)Proceeds from new loans - 20,092Interest paid (1,143) (761) NET CASH FLOWS FROM FINANCING ACTIVITIES (7,434) 17,223 INCREASE /(DECREASE) IN CASH AND CASH EQUIVALENTS 1,276 (4,777) MOVEMENT IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the start of year 6,976 11,452Increase/(decrease) in cash and cash equivalents 9 1,276 (4,777)Effect of exchange rates on cash and cash equivalents 9 (274) 301NET CASH AND CASH EQUIVALENTS AT END OF YEAR 9 7,978 6,976 SDL plcNOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS These preliminary financial statements do not constitute statutory accountswithin the meaning of section 240 of the Companies Act 1985 and are unaudited.The accounting policies adopted in the preparation of the preliminary financialstatements are consistent with those followed in preparation of the Group'sannual financial statements for the year ended 31 December 2005. The financial statements for the year ended 31 December 2006 have yet to besigned by the auditors. 2. SEGMENT INFORMATION The Group operates in the translation and localisation industry. The primary reporting format is determined to be business segments, beingTranslation Services and Technology. The Translation Services segment is the provision of a translation service tocustomer's software products, documents, manuals and websites. As well astranslation of words, this incorporates desktop publishing, software engineeringand project management. The Technology segment is the sale of desktop and enterprise technologydeveloped and owned by the Group to freelance translators, translation serviceproviders and to corporate translation end users who may perform the servicethemselves. This includes both the sale of software licences and associatedsupport, maintenance and training services and more tailor made enterprisesolutions. The Group's geographical segments are based upon the geographical destination ofsales. Year ended 31 December 2006 Translation Services Technology Total £'000 £'000 £'000RevenueSales to external customers 77,852 16,859 94,711 Segment results 11,332 (1,043) 10,289Net finance costs (913) Profit before tax 9,376Tax expense (3,213) Net profit for the year 6,163 Assets and liabilities Segment assets 42,977 39,314 82,291Unallocated assets 10,703 Total assets 92,944 Segment liabilities 15,860 2,397 18,257Unallocated liabilities 20,231Total liabilities 38,488 Other segment information Capital expenditure 1,418 351 1,769Share based payments 494 108 602Depreciation 1,089 183 1,272Amortisation 770 2,232 2,865 Year ended 31 December 2005 Translation Services Technology Total £'000 £'000 £'000RevenueSales to external customers 66,657 11,822 78,479 Segment results 8,107 (2,343) 5,764 Net finance costs (547) Profit before tax 5,217 Tax expense (2,358) Net profit for the year 2,859 Assets and liabilities Segment assets 44,087 39,158 83,245Unallocated assets 11,048Total assets 94,293 Segment liabilities 11,467 2,955 14,422Unallocated liabilities 30,277Total liabilities 44,699 Other segment information Capital expenditure 962 48 1,010Share based payments 234 41 275Depreciation 1,025 97 1,122Amortisation 770 1,182 1,952 Year ended 31 December 2006 Rest of Rest of United Rest of North the Kingdom Europe USA America World TotalRevenue £'000 £'000 £'000 £'000 £'000 £'000Revenue from continuingoperations 7,307 34,121 36,823 9,704 6,756 94,711 Other segment informationSegment assets 25,823 33,747 17,728 2,884 2,109 82,291Unallocated assets 10,703Total assets 92,994 Capital expenditureProperty, plant and equipment 742 390 113 336 188 1,769 Year ended 31 December 2005 Rest of Rest of United Rest of North the Kingdom Europe USA America World TotalRevenue £'000 £'000 £'000 £'000 £'000 £'000Revenue from continuing operations 5,896 26,884 33,102 8,044 4,553 78,479 Other segment informationSegment assets 28,803 31,685 18,333 2,824 1,600 83,245Unallocated assets 11,048Total assets 94,293 Capital expenditureProperty, plant and equipment 355 414 45 63 133 1,010 3. OTHER REVENUE AND EXPENSES Group operating profit is stated after charging/(crediting): 2006 2005 £'000 £'000 Included in administrative expenses: Research and development expenditure 4,724 3,877Bad debt expense 11 13Depreciation of property, plant and equipment 1,272 1,122Amortisation of intangible fixed assets 2,865 1,952Operating lease rentals for plant and machinery 67 194Operating lease rentals for land and buildings 4,181 3,229Operating lease rentals received for land and buildings (150) (150)Net foreign exchange gains (1,256) (551) The net foreign exchange gains above arose due to movements in foreigncurrencies between the time of the original transaction and the realisation ofthe cash collection or spend, the benefits of foreign currency instruments oncertain transactions during the year, the valuation of foreign currencyinstruments at the end of the year and the retranslation of US Dollardenominated loans. Auditors' Remuneration Audit of the Group financial statements 154 133Other fees to auditors: Local statutory audits for subsidiaries 73 89 Other taxation services 102 76 Other services 24 21 In 2005 Ernst and Young received £291,000 as reporting accountants and advisorsin respect of the Group's acquisition of Trados in July 2005. 4. INCOME TAX (a) Income tax on profit: 2006 2005 £'000 £'000Current taxationUK Income tax charge/(credit)Current tax on income for the period 670 1,255Adjustments in respect of prior periods (242) (200)Tax credit for share options taken to equity 283 464 711 1,519 Foreign taxCurrent tax on income for the period 2,201 1,260Adjustments in respect of prior periods (72) (87) 2,129 1,173 Total current taxation 2,840 2,692 Deferred income taxationOrigination and reversal of temporary differences (277) (752)Adjustments in respect of prior periods 471 -Deferred tax credit for share options taken to equity 179 418Total deferred income tax 373 (334) Tax expense(see (b) below) 3,213 2,358 An aggregate tax credit in respect of share based compensation for current anddeferred taxation of £462,000 (2005: £882,000) has been recognised in equity inthe year. (b) Factors affecting current tax charge: The tax assessed on the profit on ordinary activities for the year is higherthan the standard rate of income tax in the UK of 30% (2005: 30%). Thedifferences are reconciled below: 2006 2005 £'000 £'000 Profit on ordinary activities before tax 9,376 5,217 Profit on ordinary activities at standard rate of tax inthe UK 30% (2005: 30%) 2,813 1,565 Expenses not deductible for tax purposes 235 216Non deductible amortisation of intangibles 550 365Non taxable income - (91)Adjustments in respect of previous years 157 (287)Utilisation of tax losses brought forward (424) (304)Current tax losses not available for offset 55 1,157Effect of overseas tax rates (378) (249)Other 205 (14) Tax expense (see (a) above) 3,213 2,358 5. EARNINGS PER SHARE The calculation of basic earnings per ordinary share is based on a profit aftertax of £6,163,000 (2005: £2,859,000) and 62,159,156 (2005: 58,674,412) ordinaryshares, being the weighted average number of ordinary shares in issue during theperiod. The diluted earnings per ordinary share is calculated by including in theweighted average number of shares the dilutive effect of potential ordinaryshares related to committed share options as described in note 8. For 2006 thediluted ordinary shares were based on 64,641,295 ordinary shares that included2,482,139 potential weighted number of options. The following reflects the income and share data used in the basic, diluted andadjusted earnings per share computations: 2006 2005 £'000 £'000 Profit for the period attributable to equity holders of the parent 6,163 2,859Amortisation of intangible fixed assets 2,865 1,952 Adjusted profit for the period attributable to equity holdersof the parent 9,028 4,811 2006 2005 No. No.Weighted average number of ordinary shares for basicearnings per share 62,159,156 58,674,412Effect of dilution resulting from share options 2,482,139 2,473,434Weighted average number of ordinary shares adjustedfor the effect of dilution 64,641,295 61,147,846 2006 2005Adjusted earnings per ordinary share - basic (pence) 14.52 8.20Adjusted earnings per ordinary share - diluted (pence) 13.97 7.87 There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thefinancial statements. 6. INTANGIBLE ASSETS Intellectual Property Goodwill Total £'000 £'000 £'000 Cost:At 1 January 2005 6,270 32,758 39,028Acquisition of subsidiaries 13,615 28,038 41,653Currency adjustment 63 157 220 At 1 January 2006 19,948 60,953 80,901Currency adjustment (858) (1,616) (2,474) At 31 December 2006 19,090 59,337 78,427 Amortisation:At 1 January 2005 (3,163) (12,203) (15,366)Provided during the year (1,952) - (1,952) At 1 January 2006 (5,115) (12,203) (17,318)Provided during the year (2,865) - (2,865)Currency adjustment 137 - 137 At 31 December 2006 (7,843) (12,203) (20,046) Net book value:At 31 December 2006 11,247 47,134 58,381 At 1 January 2006 14,833 48,750 63,583 Intellectual property is written off on a straight-line basis over its estimateduseful life of between 5 and 15 years. As from 1 January 2004, the date oftransition to IFRS, goodwill was no longer amortised but is now subject toannual impairment testing. The group has not capitalised any development costsin the year (2005: £nil). 7. INTEREST BEARING LOANS AND BORROWINGS 2006 2005 £'000 £'000CurrentCurrent instalments due on bank loans 2,000 2,000 Non-currentNon - current instalments due on bank loans 9,656 17,092 Bank loans comprise the following: 2006 2005 £'000 £'000 US $3,006,926 variable rate secured term loan 1,534 3,122£6,400,000 variable rate secured term loan 6,400 10,900US $7,294,000 variable rate secured revolving credit facility 3,722 5,070 11,656 19,092Less current instalments due on bank loans (2,000) (2,000) 9,656 17,092 US $ variable rate secured term loan and £ variable rate secured term loan These loans are secured and combined are repayable in quarterly instalments of£500,000 with the final balance being repaid in 2010. The loans bear interestat LIBOR + 1.25%. US $ variable rate secured revolving credit facility This loan is secured and is drawn down under an available 5-year term revolvingcredit facility. Interest is charged at LIBOR + 1.25%. The loan isrepayable within 1 month of the balance sheet date but has been classified aslong term because the group expects to draw down under the 5 year revolvingcredit facility available to it. This facility is unconditional. Under the credit facility agreement, the Group is subject to certain financialcovenants relating to cash flow, gearing, interest rate cover and capitalexpenditure. The Group is also required to maintain a certain percentage of cashwithin those Group companies that are guarantors of the facility. Since enteringinto the facility agreement the Group has fully complied with these covenants. 8. SHARE-BASED PAYMENT PLANS On 1 December 1999 the company adopted the SDL Share Option Scheme (1999). Itcomprises two parts, namely the SDL Approved Share Option Scheme (1999)("Approved Part") and the SDL Unapproved Share Option Scheme (1999) ("UnapprovedPart"). The Approved Part has been approved by the Board of the Inland Revenueunder the provisions of the Income and Corporation Taxes Act 1988. TheUnapproved Part has not been approved by the Inland Revenue and it is notintended to apply for approval in respect of it. On 27 April 2006 a long term incentive plan (LTIP) was formally approved by theshareholders at an EGM. The award of any LTIP shares is made at nil costs to thedirectors or employees at the end of a three year holding period providedstringent performance targets have been met. On 25 May 2006 500,228 LTIP shares were granted to the executive directors andcertain senior management employees at a market price of £1.895 with aperformance period of three years from date of grant. A further 428,574 and 40,000 LTIP shares were issued on 18 July 2006 and 1 September 2006, at marketprices of £1.955 and £2.05 respectively, to managers and technical staffconsidered important to the future of the SDL Group. The expense recognised for all share-based payments in respect of employeeservices received during the year to 31 December 2006 is £602,000 (2005:£275,000). SDL Share Option Scheme The table below sets out the number and weighted average exercise prices (WAEP)of, and movements in, the SDL Share Options Scheme during the year: 2006 2006 2005 2005 No. WAEP No. WAEP Outstanding at the beginning of the year 3,846,729 £0.70 3,786,433 £0.68Granted during the year 371,667 £2.18 702,000 £1.19Forfeited during the year (33,001) £1.17 (20,417) £1.11Exercised during the year (679,227) £0.45 (502,377) £0.53Expired during the year (83,750) £1.79 (118,910) £3.90Outstanding at the end of the year 3,422,418 £0.87 3,846,729 £0.70Exercisable at 31 December 2,061,418 £0.56 2,400,891 £0.56 The weighted average share price at the date of exercise for the optionsexercised is £2.10 (2005: £1.57). For the share options outstanding as at 31 December 2006, the weighted averageremaining contractual life is 6.57 years (2005: 6.88 years). The fair value of equity settled share options granted under the SDL ShareOption Scheme is estimated as at the date of grant using the Black Scholesmodel. The following table lists the inputs to the model: 2006 2005 Weighted average share price (pence) 218 119Expected volatility 35% 55%Option life 5 years 5 yearsExpected dividends 1% 1%Risk-free interest rate 5% 5% The range of exercise prices for options outstanding at the end of the year was£0.01-£3.60 (2005: £0.01-£3.60). 2006 2005 Date of Grant Exercise Period Number Number £0.01 - £0.50 01/01/92-16/04/03 10 years after grant date 1,134,244 1,549,367£0.51 - £1.00 15/10/99-12/12/03 10 years after grant date 636,531 771,862£1.01 - £1.50 02/04/04-04/04/05 10 years after grant date 1,290,276 1,471,750£1.51 - £2.00 07/04/01 10 years after grant date 9,250 14,750£2.01 - £2.50 22/03/06-03/10/06 10 years after grant date 321,117 -£3.01 - £3.60 12/05/00 10 years after grant date 31,000 39,000 Total 3,422,418 3,846,729 SDL Long Term Incentive Plan The fair value of equity-settled shares granted under the SDL Long TermIncentive Plan is estimated as at the date of grant using a Monte-Carlo model,taking into account the terms and conditions upon which the options weregranted. The following table lists the inputs to the model used for the yearsended 31 December 2006. 2006Expected volatility 35%Expected life 3 yearsExpected dividends 0%Risk-free interest rate 5% 2006 2006 No. WAEPOutstanding at the beginning of the year - -Granted during the year 968,802 -Forfeited during the year (33,167) -Exercised during the year - -Expired during the year - -Outstanding at the end of the year 935,635 -Exercisable at 31 December Nil - All LTIPs are exercisable at nil cost to the individual. 9. ADDITIONAL CASH FLOW INFORMATION Analysis of group net debt: 1 January Cash Exchange 31 December 2006 flow differences 2006 £'000 £'000 £'000 £'000 Cash and cash equivalents 6,976 1,276 (274) 7,978Loans (19,092) 6,596 840 (11,656) (12,116) 7,872 566 (3,678) 1 January Cash Exchange Non cash 31 December 2005 flow differences movement 2005 £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents 11,452 (4,777) 301 - 6,976Loans - (17,707) - (1,385) (19,092) 11,452 (22,484) 301 (1,385) (12,116) The non cash movement in 2005 is the debt acquired with Trados in July 2005. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L