22nd Feb 2005 07:01
SDL PLC22 February 2005 22 February 2005 SDL PLC Preliminary Results for the Year ended 31 December 2004 SDL plc ("SDL" or "the Group"), the world's leading provider of translationservices and technology solutions, is pleased to announce its unauditedpreliminary results for the year ended 31 December 2004. Highlights: • Turnover at £62.7m (2003: £64.4m) up 2% at constant exchange rates • Pre-tax profit ahead of expectations at £5.3m, before amortisation of goodwill and intangibles (2003: £4.1m), an increase of 29% • Pre-tax profit of £0.5m, after amortisation of goodwill and intangibles (2003: loss £0.8m) • EBITDA profit up 10% at £6.3m (2003: £5.7m) after software development costs of £2.5m (2003: £2.6m), which are written-off as incurred • Adjusted diluted earnings per share (before amortisation of goodwill and intangibles of £4.9m) of 9.21p (2003: 7.22p), an increase of 28% • Basic and diluted loss per share (after amortisation of goodwill and intangibles of £4.9m) of 1.77p (2003: loss 3.30p) • Net funds of £11.4m (2003: £7.2m) Commenting on the preliminary results Mark Lancaster, Chairman and ChiefExecutive of SDL, said: "Revenue growth has continued, at constant exchange rates, and our marked risein profitability has been a function of our investment in structure and theapplication of our translation management software and systems. OurKnowledge-based Translation System (KbTS), launched in 2004, has been wellreceived and achieved some early benefits for SDL and its customers in itsapplication on new business with Case New Holland and Best Western Hotels. Ourinvestment in technology and our global footprint now leave SDL well positionedin what is a growing but competitive market. As a result of the aboveinvestment we are able to provide cost effective, high quality localizationservices to our customers. In the final quarter of the year we were able to announce that SDL is now apremier supplier to Microsoft, which should provide significant revenues in thecurrent year and thereafter. We expect to see continuing strategic opportunities to emerge in 2005 as largeand medium sized enterprises apply Business Process Outsourcing to theirlocalization requirements. The focus for 2005 is on leveraging the investmentmade to date in software and infrastructure to drive sales forward, but moreimportantly profits. We therefore expect to see solid revenue growth andcontinued growth in profits in the current year. For further information please contact: SDL plc On 22 February 2004 tel: 020 7831 3113 Mark Lancaster, Chief Executive Thereafter tel: 01628 410 127 Financial Dynamics Tel: 020 7831 3113 Edward Bridges/Juliet Clarke Background information About SDL: SDL International (London Stock Exchange: 'SDL') is the world's leading providerof translation services and technology solutions. Employing over 1300 staffworldwide, its comprehensive and integrated offerings include translationmemory, adaptive machine translation, a full range of localization services andthe world's first knowledge-based translation system. Whether insourcing or outsourcing, organizations benefit from enhancedtranslation productivity through SDL's commitment to continuous innovation insoftware and service delivery. Its customers span consumer, SME and enterprisemarkets, including global industry leaders Adobe, Bayer, Bosch, Canon, DAF,Kodak, Microsoft, Morgan Stanley, Reuters and SAP. SDL International isheadquartered in the UK and has over 40 offices across North America, Asia andEurope. For more information, visit www.sdl.com. Attached: Chairman's statement Unaudited Consolidated Profit and Loss Account Unaudited Consolidated Balance Sheet Unaudited Consolidated Cash Flow Statement Notes to the unaudited Financial Statements STATEMENT OF CHAIRMAN AND CHIEF EXECUTIVE Financial Highlights 2004 has proved to be another solid year for SDL. Reported profit beforetaxation and goodwill amortisation increased by 29% to £5.3 million (2003: £4.1million) despite a 3% reduction in Group revenues to £62.7 million (2003: £64.4million). Revenue in 2004 at constant exchange rates was up 2%. The apparentdecline of 3% was due in part to exchange rate losses, primarily on the weak USdollar, which accounted for 4%, with price erosion accounting for a further 3%.The actual increase in translation volume was 5%. The Group's increase inprofits was primarily due to the utilisation of our technology, infrastructureefficiencies and increased software license sales of our desktop technology. The Group's net funds were £11.4 million as at 31 December 2004 (2003: £7.2million). Business Process Outsourcing - a growing trend in the localisation market Translation is becoming a higher priority for global companies, as theyconsolidate vendors and centralise spend. We are seeing new industries requiringhigher levels of translation. There are also notable changes in the revenue mix,with a move away from the traditional IT dominated sector to that ofpharmaceutical, automotive and financial service verticals. This shift to otherindustries brings with it different needs and a different way of thinking whenworking with the customer. We have seen a significant number of these newcustomers consolidating their translation suppliers to a single vendor, a movebeing spearheaded by procurement departments in order to reduce costs. Mostimportantly the move by our clients towards consolidating vendors andoutsourcing more business process has enabled them to maximise efficiencies andbrought us larger longer-term contracts with companies such as Microsoft andAtlas Copco. Technology Innovation and Market Leadership An important trend in our business is the increasing sales of our Desktoptranslation software. Although our Desktop software is a small contributor ingroup revenue terms, the growth in revenue has been over 65% in the last yearand consequently we are expecting it to contribute to group profits in 2005. Wenow have over 30,000 units of our translation memory product in the marketplace, with our market share increasing from 7% in 2003 to 20% in 2004 andprojected to exceed 25% in 2005. We believe that this increase in adoption in2004 is primarily due to the advanced design and ease of use. Our translationmemory technology is a cornerstone of our enterprise technology, beingcompletely integrated into our enterprise translation management products. Ofthe new corporate client service business won in 2004, 50% of the revenue hasincorporated an enterprise software component providing clients such as Sony andPhilips with a full business process outsourcing model. We expect this trend tocontinue, as the value and real savings to the customer are significant. Efficiencies Through Global Infrastructure And Offshore Organisation Our ongoing investment in high quality local language production centres in keylocations around the world also fits well with the evolving customer needstowards business process outsourcing. Our recent investment in Central Europeanoffices located in Poland, Czech Republic, Slovenia, Croatia, Romania andHungary provides highly skilled, cultural translations for customers such asKodak and Hewlett Packard. Investing in local country offices has been one ofthe most important long term investments SDL has made over the last 5 years. SDLhas production offices in most of the key commercial regions across the world,comprising of local language experts that utilise common SDL process and systemscreating an integrated world wide structure. This provides customers with thehighest possible culturally sensitive translations in high volumes. Ourcontinued investment in low cost regions, such as Thailand and China, providesour customers with skilled resources at low cost, thereby offsetting pricingpressure. All of our 40 offices are integrated through our virtual privatenetwork, which is administered through our central Empower ManagementInformation System. The above investments, which were made in previous years,are now showing significant returns as they start to deliver solid profits in acompetitive market. Market Leaders In e-Business Growth Our online translation portals, FreeTranslation.com and Click2Translate.com havebecome a valuable business channel. FreeTranslation.com, a portal considered tobe the market leader in instant translation with over 2 million visitors perweek, and Click2Translate.com, which provides paid for translation services to abroad range of customers, have contributed $1m of high margin localizationbusiness in 2004, a three-fold increase over 2003. The revenue from theseportals is set to increase significantly in 2005. These public portals alsoprovide our customers with a smooth upgrade path to our private EnterpriseTechnology portals for ongoing high volume translation users. Innovation and Thought Leadership The SDL Knowledge-based Translation System "SDL KbTS" surpassed our expectationsin 2004 by delivering over $2m of high margin localization revenue and, moreimportantly, providing high quality low cost translations to our customers. Costsavings of 20% to 40% over traditional human translation and speed improvementsof 40% to 50% were achieved. We consider this to be a major breakthrough in thetranslation industry, allowing SDL to enter new market sectors and horizontalmarkets where conventional translation methods have not provided sufficientreturn on investment, speed and accuracy. We expect the technology to beparticularly useful for companies with high volumes of content and those thatrequire continual updating of perishable content such as news internet sites.This allows us to continue to de-couple increases in revenue from additionalheadcount requirements and provides the Group with an increased competitiveadvantage and margin enhancement. SDL already leads the translation industry in producing efficient ergonomictechnology that truly integrates the intelligent human activity with repetitiveproduction activities. In Q2 2005 SDL will be releasing an advanced TranslationManagement System. Based on our 2004 SDL WorkFlow system, it combines ourworkflow technologies with human activity to provide efficient management of thecomplete translation process. The product will provide further productivityenhancements on our integrated workflow and translation management technologybeing used by companies such as Computer Associates, Sun and Morgan Stanley,providing additional cost savings of between 20-30%. Outlook We expect to see continuing strategic opportunities emerge in 2005, as wecontinue to penetrate new markets and larger corporations move towards moreefficient business process outsourcing. This combined with the business winslate last year should create solid sales growth in 2005. We anticipate that themultinationals will continue to look for cost savings through business processoutsourcing, which fits well with our size and infrastructure. Knowledge-basedTranslation will also play a key role in 2005, providing our strategic customerswith immediate returns on investment for translated content. We expecte-business revenue to continue to grow significantly in 2005, fuelling the needfor web sites to be translated and the need for our technology to managemultilingual web site content efficiently. Pricing pressure will continue to bepresent as larger companies move to a more mature business process outsourcingmodel. However our technology and infrastructure should offset this, whilstproviding SDL with a competitive advantage in the translation market. Wetherefore expect to see solid revenue growth and continued growth in profits inthe current year. There is potential for more consolidation in the localization industry, both inthe service and technology arenas. SDL will participate in M&A activity onlywhen it is appropriate, primarily when it improves our strategic position andprovides long term value to SDL. Mark Lancaster UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 DECEMBER 2004 Unaudited Notes 2004 2003 £'000 £'000GROUP TURNOVER (2) 62,690 64,378 Cost of sales (36,840) (37,705) ----- -----GROSS PROFIT 25,850 26,673 Administrative expenses (25,491) (27,321) ----- ----- TOTAL OPERATING PROFIT/(LOSS) (3) 359 (648) Operating profit excluding amortisation of goodwill andintangible fixed assets 5,215 4,261Amortisation of goodwill and intangible fixed assets (4,856) (4,909) Other interest receivable and similar income 128 66Interest payable and similar charges (30) (222) ----- -----PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORETAXATION 457 (804) Tax on profit/(loss) on ordinary activities (4) (1,435) (984) ----- -----LOSS ON ORDINARY ACTIVITIES AFTERTAXATION (978) (1,788) Dividends (9) - - ----- -----RETAINED LOSS FOR THEFINANCIAL YEAR (978) (1,788) ----- ----- Loss per share - basic and diluted (pence) (5) (1.77) (3.30)Adjusted diluted earnings per share (pence) (5) 9.21 7.22 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Notes Unaudited 2004 2003 £'000 £'000 Loss for the financial year attributable to membersof the parent company (6) (978) (1,788) Exchange difference arising on retranslation of net assets ofsubsidiary undertakings (6) 532 278 ---- ----Total recognised losses relating to the year (446) (1,510) ---- ---- UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 Unaudited Notes 2004 2003 £'000 £'000FIXED ASSETSIntangible assets 19,576 24,423Tangible assets 2,631 2,560 ---- ---- 22,207 26,983 ________ ________CURRENT ASSETSDebtors 13,746 13,057Cash at bank and in hand 11,452 7,295 ---- ---- 25,198 20,352 CREDITORS: amounts falling due within one year (12,945) (12,316) ---- ----NET CURRENT ASSETS 12,253 8,036 ---- ----TOTAL ASSETS LESS CURRENT LIABILITIES 34,460 35,019 CREDITORS: amounts falling due after one year - (19) PROVISIONS FOR LIABILITIES AND CHARGES (8) (548) (1,154) ---- ---- 33,912 33,846 ---- ----CAPITAL AND RESERVESCalled up share capital (6) 561 542Share premium account (6) 44,165 43,569Shares to be issued (6) 213 316Profit and loss account (6) (11,027) (10,581) ---- ----SHAREHOLDERS' FUNDS - ALL EQUITY INTERESTS 33,912 33,846 ---- ---- UNAUDITED CONSOLIDATED CASHFLOW FOR THE YEAR ENDED31 DECEMBER 2004 Unaudited Notes 2004 2003 £'000 £'000 NET CASH INFLOW FROM OPERATING ACTIVITIES (7) 5,916 4,470 ________ ________RETURN ON INVESTMENTS AND SERVICINGOF FINANCEInterest received 128 66Interest paid (5) (184)Finance lease interest (25) (38) ---- ---- 98 (156) ________ ________ TAXATION (1,142) (479) CAPITAL EXPENDITUREPayments to acquire tangible fixed assets (1,064) (1,363)Receipts from sale of tangible fixed assets 62 351 ---- ---- (1,002) (1,012) ________ ________ACQUISITIONS AND DISPOSALSPurchase of subsidiary undertakings (123) (822)Net cash acquired with subsidiary undertakings - 623 ---- ---- (123) (199) ---- ---- NET CASH INFLOW BEFORE FINANCING 3,747 2,624 ________ ________ FINANCINGProceeds from issue of ordinary share capital (6) 512 21Repayment of short term and long term loans (17) (1,437)Capital element of finance lease rental payments (50) (557) ---- ---- 445 (1,973) ---- ----INCREASE IN CASH (7) 4,192 651 ---- ---- NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. BASIS OF PRELIMINARY FINANCIAL STATEMENTS These preliminary financial statements do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and are unaudited. The statements have been prepared on the same basis as set out in the previous year's annual accounts. Financial information for the year ended 31 December 2003 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain any statement under section 237 of the Companies Act 1985. The audit report for the year ended 31 December 2004 has yet to be signed. Certain comparatives have been restated to be consistent with the current year presentation of costs. Staff costs of £1 million previously recorded as administrative expenses in 2003 have been reclassified as cost of sales. The preliminary financial statements for the year ended 31 December 2004 were approved by the Board on 21 February 2005. 2. TURNOVER AND SEGMENTAL INFORMATION Unaudited 2004 2003 £'000 £'000Turnover by geographical destination was as follows: United Kingdom 5,177 5,177Rest of Europe 23,540 23,349USA 23,624 26,636Rest of North America 6,707 5,919Rest of the World 3,642 3,297 ---- ----Total continuing operations 62,690 64,378 ---- ---- 3. OPERATING PROFIT/(LOSS) UnauditedThis is stated after charging/(crediting): 2004 2003 £'000 £'000 Auditors' remuneration - audit services 190 189Auditors' remuneration - other services 88 87Research and development expenditure 2,538 2,642Depreciation of owned assets 1,085 1,281Depreciation of leased assets 6 134Amortisation of intangible fixed assets 770 784Amortisation of goodwill 4,086 4,125Operating lease rentals for plant and machinery 123 216Operating lease rentals for land and buildings 2,608 2,625Increase in/(release of) provision for NIC on Share Option Scheme 7 (9) 4. TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITES Unaudited 2004 2003 £'000 £'000Current TaxationUK corporation tax charge/(credit)Current tax on income for the period 577 180Adjustments in respect of prior periods (42) (85) _________ _________ 535 95 Overseas tax charge/(credit)Current tax on income for the period 994 1,169Adjustments in respect of prior periods (94) 152 _________ _________ 900 1,321 _________ _________Total Current Taxation 1,435 1,416 _________ _________ Deferred Taxation Current period 374 79Adjustments in respect of prior periods (374) (511) _________ _________Total Deferred Taxation - (432) _________ _________Tax on profit/(loss) on ordinary activities 1,435 984 ----- ----- 5. LOSS PER ORDINARY SHARE Unaudited 2004 2003 £'000 £'000 Loss for the period (978) (1,788) Weighted average number of shares in the year: No. No.Basic 55,192,501 54,133,105Diluted 57,714,260 56,847,906 Basic loss per share (1.77p) (3.30p) Diluted loss per share (1.77p) (3.30p) Adjusted diluted earnings per share 9.21p 7.22p 6. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Share Shares Profit & Share Premium to be Loss Capital Account Issued Account Total £'000 £'000 £'000 £'000 £'000 At 1 January 2003 541 43,549 - (9,071) 35,019Arising on share issues 1 38 - - 39Fees relating to placement - (18) - - (18)Shares to be issued - - 316 - 316Retained loss for the year - - - (1,788) (1,788)Currency difference on translation ofnet assets of subsidiary undertakings - - - 278 278 ------------- ----------- ---------- ---------- -------- At 31 December 2003 542 43,569 316 (10,581) 33,846Arising on share issues 19 596 (103) - 512Retained loss for the year - - - (978) (978)Currency difference on translation ofnet assets of subsidiary undertakings - - - 532 532 ------------- ----------- ---------- ---------- --------At 31 December 2004 561 44,165 213 (11,027) 33,912 ------------- ----------- ---------- ---------- -------- 7. NOTES TO STATEMENT OF CASH FLOWS (a) Reconciliation of operating loss to net cash inflow from operating activities: Unaudited 2004 2003 £'000 £'000 Operating profit/(loss) 359 (648)Depreciation 1,085 1,415Amortisation of goodwill and intangible assets 4,856 4,909Loss on disposal of tangible fixed assets 2 57Increase in debtors (626) (1,794)(Decrease)/increase in creditors and provisions (166) 231Exchange differences 406 300 _______ _______Net cash inflow from operating activities 5,916 4,470 ---- ---- (b) Reconciliation of net cash flow to movement in net funds: Unaudited 2004 2003 £'000 £'000 Increase in cash 4,192 651 Cash outflow from decrease in debt financing 67 1,994 ----- -----Change in net funds resulting from cash flows 4,259 2,645Translation difference (30) (22) ----- -----Change in net funds 4,229 2,623 Net funds at start of year 7,223 4,600 ----- ----- Net funds at end of year 11,452 7,223 ----- ----- (c) Analysis of net funds: Finance Leases Cash Overdraft Loan Notes Total £'000 £'000 £'000 £'000 £'000 At 1 January 2003 (589) 6,721 (221) (1,311) 4,600Movement on exchange (22) 137 7 (144) (22)Cash flow 557 437 214 1,437 2,645 -------- -------- -------- -------- -------- At 31 December 2003 (54) 7,295 - (18) 7,223Movement on exchange 4 (35) - 1 (30)Cash flow 50 4,192 - 17 4,259 -------- -------- -------- -------- -------- At 31 December 2004 - 11,452 - - 11,452 ----- ---- ---- ---- ---- 8. PROVISIONS FOR LIABILITIES AND CHARGES At 31 December 2004 £0.5m was held as a provision in respect of onerous leasecommitments. 9. DIVIDEND No dividend was paid and no dividend is proposed in respect of the year-ended 31December 2004. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L