26th Feb 2008 07:01
SDL PLC26 February 2008 26 February 2008 SDL PLC Preliminary results for the year ended 31 December 2007 SDL reports strong progress with revenue and PBTA ahead of expectations and a positive outlook 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 2007. 2007 2006 % £'000 £'000 ChangeIncome Statement:Revenue 117,409 94,711 +24% Profit before tax and amortisation of intangibles 17,019 12,241 +39%Profit before tax 12,725 9,376 +36% Earnings per ordinary share - basic (pence) 13.07 9.91 +32%Adjusted earnings per ordinary share - basic (pence) 19.19 14.52 +32% Balance Sheet:Total equity 113,016 54,506Cash and cash equivalents 21,511 7,978Interest bearing loans and borrowings 6,055 11,656 Highlights: • Results ahead of market expectations • Gross Margin up 4% points to 54% • Strengthening of SDL's leadership position in the GIM and Web Content Management market with the successful acquisition and integration of Tridion and Passolo • Strong progress across all of the Group's divisions: • SDL Tridion achieves triple digit revenue growth in the US • SDL Trados achieves 26% increase in new licence growth • Significant new business wins: • TomTom, Gulf Bank, GLA (SDL Tridion) • Cisco, Deloitte, FIFA (SDL Trados) • Citrix, VMWare, Fujitsu - Siemens (SDL Enterprise Products) Post Period End: • Acquisition of Idiom in February 2008 for £11.1m plus the assumption of debt of £2.5m: • Further strengthens SDL's leadership position as a leading provider of GIM solutions • Adds a number of blue chip customers to SDL's customer base • Combines SDL's and Idiom's technology solutions to provide better efficiencies of scale and shared intellectual property Commenting on the preliminary results Mark Lancaster, Chairman and ChiefExecutive of SDL, said: "I am delighted to report a continued strong performance in the year, reflectingthe encouraging fundamentals of the Group. Our performance, which was ahead ofmarket expectations, was driven by organic and acquisitive growth and asustained demand for our technology and services solutions, despite theweakening dollar. During the year we successfully completed the acquisition of Tridion, a WebContent Management company, and Passolo, which strengthened our software productoffering. The recent acquisition of Idiom, one of the leading providers of "Software as a Service" translation management systems further strengthens theGroup's position and we believe enables SDL to further its strategic aims andestablish itself as a global leader in GIM solutions. At present we are continuing to see positive trading in almost all of our globalmarkets across both the services and technology business units. Whilstglobalisation is a long term trend for most businesses, we must acknowledge thecurrent macro-economic uncertainty, and therefore our approach to managing thebusiness in 2008 will be appropriately cautious. We are, however, fortunate that70% of our revenue is derived from localisation services, and this revenuestream has proven in the past to be fairly robust and resistant to localisedeconomic downturns. It is also important to note that Asia continues to be avibrant market and that as companies anticipate challenges in their localeconomy they tend to look toward their global markets to fill revenue shortfallsthat they are experiencing in their home markets. Creating and managing globalcontent is SDL's business, so even in the technology sector, global web contentmanagement remains a high priority for global business. We have seen anencouraging start to 2008 with a healthy services order book and a strongpipeline for technology." For further information please contact: SDL plc Tel: 01628 410 127Mark Lancaster, Chief Executive Alastair Gordon, Finance Director Financial Dynamics Tel: 020 7831 3113Juliet Clarke/Edward Bridges/Haya Chelhot About SDL SDL (London Stock Exchange: 'SDL') is the leader in Global InformationManagement (GIM) solutions that empower organisations to accelerate the deliveryof high-quality multilingual content to global markets. Its enterprise softwareand services integrate with existing business systems to manage globalinformation from authoring to publication and throughout the distributedlocalisation 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 400 enterprise GIM solutions, has deployed over 150,000software licenses across the GIM ecosystem and provides access to on-demandtranslation portals for 10 million customers per month. Over 1,000 serviceprofessionals deliver consulting, implementation and language services throughits global infrastructure of more than 50 offices in 30 countries. For moreinformation, visit www.sdl.com. CHAIRMAN'S STATEMENT Summary Performance I am pleased to report that SDL recorded another impressive year in 2007, withboth revenue and operating profits ahead of market expectations, despite thenegative effect of the weak US dollar during the year. The prime drivers for theincrease over the upgraded expectations for 2007 were the strong contributionsfrom both Global Information Management (GIM) technology and SDL Tridion, whichwas acquired in May 2007. Revenues for 2007 were up 24% at £117.4 million(2006: £94.7 million) with approximately 8% of this revenue growth being organicand 16% contributed by the seven months of trading in SDL Tridion. Profit beforetax and amortisation of intangible assets has increased by 39% to £17.0 million(2006: £12.2 million) while profit before taxation has increased by 36% to £12.7million (2006: £9.4 million). Strong cash flow from operations of £16.0 million(2006: £9.9 million) has contributed to transforming net debt of £3.7 million asat 31 December 2006 to net cash of £15.5 million at 31 December 2007. Technology SDL Tridion (global Web Content Management business unit) The acquisition of Tridion was well timed from an industry perspective and ithas subsequently been integrated successfully into the SDL business. SDLTridion achieved record results in terms of its revenue and profitability in2007 with: • triple digit revenue growth in the US in 2007 • over half of the licence revenues derived from new customers • continued investment in expansion into US and Asia Pacific SDL Tridion's focus on enabling customers to deliver consistent and persuasivecustomer experiences in multiple languages across multiple Web sites andchannels has led to significant global customer expansion. The substantialnumber of new customers in 2007 includes TomTom, Fortis ASR, NXP Semiconductors,State of Minnesota, Gulf Bank, Philippine Airlines, Greater London Authority andDisneyland Resort Paris. Many existing customers have also extended their SDLTridion installations. With these encouraging results, SDL Tridion has confirmed its position as one ofthe most profitable vendors in the public enterprise class Web ContentManagement (WCM) sector. SDL Tridion is now the fastest growing publicenterprise class WCM vendor. SDL Trados Technology and SDL Translation Management Systems The SDL Enterprise Products business has experienced an increase in new namelicence sales of 70% during 2007, adding customers such as Citrix, VMWare,Fujitsu-Siemens and Alcatel Lucent to its portfolio of leading globalbusinesses. SDL Trados Technologies, a business unit which focuses onproductivity software for the translation supply chain, has witnessed a doubledigit revenue increase and a 26% increase in new licence growth. Both businessunits attribute their strong demand to our customers' increasing need to unifyprocesses across the entire localisation supply chain, creating significantefficiencies and quicker time-to-market by utilising a common platform forlocalisation. In addition SDL Trados Technologies announced major new wins atblue chip companies including Cisco Systems, Deloitte, Drager Medical and FIFA. Localisation Services What has been most encouraging in 2007 is the scaling of the regional productioncentres, enabling them to increase their revenue throughput by upwards of 27%,whilst only increasing internal headcount by 10%. It is the unique mix oftechnology, infrastructure and process that allows us to scale to our largercustomers' needs. The localisation services side of the business, which nowoperates in over 30 countries, continues to benefit from the global reach, scaleand leveraging of our technology. The structure and integrated nature of ourregional offices allows considerable scaling and resource capacity which, whencoupled with our Knowledge-based Translation solutions, have transformed thelandscape for translation, speeding up time to market and reducing costs for ourclients. We continue to increase the quantity of words that flow through ourKnowledge-based Translation systems, a technology SDL considers is crucial forthe future. One of the other important trends that we saw in the latter half of2007 was a marked increase in business process outsourcing activity. The Grouphas recorded a significant increase in interest in its outsourcing capabilities,which has created a strong pipeline at the start of 2008. Vision and Strategy for Global Information Management In a world that is shrinking through an ever more effective and immediatecommunications infrastructure, trading effectively in global markets is nolonger an option for large corporations, it is now a necessity. The startingpoint to enable a business to trade successfully in local markets is tocommunicate in the local language. The enormity and complexity of translatingand maintaining millions of words of global content in multiple languages, in aworld where communications must be instantaneous, is a major challenge for anybusiness. Content is now delivered in multiple formats, through many channelsfrom the web to physical hard copy. Press releases, marketing collateral,support knowledge databases, not to mention a company's products anddocumentation, should all share common wording and messaging to fully support acompany's brand. However, the creation and management of multiple languagecontent is currently not addressed by the content management technologyavailable on the markets today. SDL's GIM technology accelerates the delivery of global content into localmarkets, ensures the operational consistency of branding and reduces the coststo translate content into multiple languages. In order to provide comprehensiveglobal content management the complete supply chain of those involved in thecreation and maintenance of global content must be included in the solution.SDL's technology automates the delivery of global content in a controlled mannerthroughout this entire supply chain. It is estimated that over 90% of the Global1000 companies rely on SDL Technology products, creating a solid foundation forfuture growth in a world that increasingly communicates across political andcultural boundaries Idiom Acquisition The acquisition of Idiom for £11million announced on 11 February 2008consolidates SDL's leading position in delivering GIM systems to the market. Themain drivers behind the Idiom acquisition were: • the enhancement of SDL's GIM technology offering; • the addition of a number of key blue chip customers to SDL's customer base; • the combination of SDL's and Idiom's technology solutions, which will provide improved efficiencies of scale and shared intellectual property; • the provision of a smoother solution for managing the translation supply chain; • the increase in SDL's consultancy, sales and development expertise; and • the strengthening of SDL's position as a leading provider of GIM solutions The integration of Idiom into SDL's operation has many parallels to that of theTrados acquisition, one which has already delivered considerable long termbenefits to SDL. During 2008 we expect Idiom to be break even in terms ofoperating profit. However, moving into 2009 we expect to see a significantcontribution in terms of technology to the enlarged group. Outlook At present we are continuing to see positive trading in almost all of our globalmarkets across both the services and technology business units. Whilstglobalisation is a long term trend for most businesses, we must acknowledge thecurrent macro-economic uncertainty, and therefore our approach to managing thebusiness in 2008 will be appropriately cautious. We are, however, fortunate that70% of our revenue is derived from localisation services, and this revenuestream has proven in the past to be fairly robust and resistant to localisedeconomic downturns. It is also important to note that Asia continues to be avibrant market and that as companies anticipate challenges in their localeconomy they tend to look toward their global markets to fill revenue shortfallsthat they are experiencing in their home markets. Creating and managing globalcontent is SDL's business, so even in the technology sector, global web contentmanagement remains a high priority for global business. We have seen anencouraging start to 2008 with a healthy services order book and a strongpipeline for technology. Mark LancasterChairman and Chief Executive SDL plcUNAUDITED Consolidated INCOME STATEMENTfor the year ended 31 December 2007 Notes 2007 2006 £'000 £'000 Sale of goods 17,930 10,190Rendering of services 99,479 84,521 REVENUE 3 117,409 94,711 Cost of sales (54,521) (47,947) GROSS PROFIT 62,888 46,764 Administrative expenses 4 (45,695) (33,610) Operating profit before amortisationof intangible assets 17,193 13,154 Amortisation of intangible assets 4 (4,294) (2,865) Operating profit 4 12,899 10,289 Finance revenue 489 230 Finance costs (628) (1,143) Share of loss of associate (35) - PROFIT BEFORE TAX 12,725 9,376 Tax expense 5 (3,555) (3,213) PROFIT for the YEAR 9,170 6,163 Earnings per ordinary share - basic (pence) 6 13.07 9.91Earnings per ordinary share - diluted (pence) 6 12.83 9.53 Adjusted earnings per ordinary share - basic (pence) 6 19.19 14.52Adjusted earnings per ordinary share - diluted (pence) 6 18.84 13.97 SDL plcUNAUDITED CONSOLIDATED BALANCE SHEETAs at 31 December 2007 Notes 2007 2006 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 3,240 3,104Intangible assets 7 102,300 58,381Investment in an associate 256 -Loan to associate 286 -Deferred tax asset 4,663 2,005Rent deposits 333 313 111,078 63,803 CURRENT ASSETSTrade and other receivables 33,687 20,739Financial assets - 474Cash and cash equivalents 21,511 7,978 55,198 29,191 TOTAL ASSETS 166,276 92,994 CURRENT LIABILITIESTrade and other payables (32,048) (18,524)Interest bearing loans and borrowings 8 (2,000) (2,000)Financial liabilities (793) -Current tax liabilities (5,948) (4,361)Provisions (58) (125) (40,847) (25,010)NON CURRENT LIABILITIESInterest bearing loans and borrowings 8 (4,055) (9,656)Other payables (215) (456)Deferred tax liability (7,541) (2,981)Provisions (602) (385) (12,413) (13,478) TOTAL LIABILITIES (53,260) (38,488) NET ASSETS 113,016 54,506 EQUITYShare capital 750 625Share premium account 91,866 51,096Shares to be issued 541 66Retained earnings 14,921 4,334Foreign exchange differences 4,938 (1,615) TOTAL EQUITY 113,016 54,506 SDL plcUNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2007 Share Shares Foreign Share Premium to be Retained Exchange Capital Account Issued Earnings 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 net investments and intangibles - - - - (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 5) - - - 179 - 179Tax credit for share options (Note 5) - - - 283 - 283Total income and expense for the year recognised directly in equity - - - 462 (2,620) (2,158)Net profit for the year - - - 6,163 - 6,163Total 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 acquisition of Lingua Franca 1 65 (66) - - -Share based payments (Note 9) - - - 602 - 602At 31 December 2006 625 51,096 66 4,334 (1,615) 54,506 SDL plcUNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2007 Share Shares Foreign Share Premium to be Retained Exchange Capital Account Issued Earnings Differences Total £'000 £'000 £'000 £'000 £'000 £'000At 1 January 2007 625 51,096 66 4,334 (1,615) 54,506Currency translation differences on foreign currency net investments and intangibles - - - - 5,573 5,573Currency translation differences on foreign currency equity loans to foreign subsidiaries - - - - 980 980Deferred income taxation on share based payments (Note 5) - - - (359) - (359)Tax credit for share options (Note 5) - - - 945 - 945Total income and expense for the year recognised directly in equity - - - 586 6,553 7,139Net profit for the year - - - 9,170 - 9,170Total income and expense for the year - - - 9,756 6,553 16,309Arising on share options 11 655 - - - 666Arising on acquisition of Lingua Franca 1 65 (66) - - -Arising on acquisition of Tridion 113 39,915 - - - 40,028Arising on acquisition of Passolo - 135 541 - - 676Share based payments (Note 9) - - - 831 - 831At 31 December 2007 750 91,866 541 14,921 4,938 113,016 SDL plcUNAUDITED consolidated CASH FLOW STATEMENTfor the year ended 31 December 2007 Notes 2007 2006 £'000 £'000PROFIT BEFORE TAX 12,725 9,376 Depreciation of property, plant and equipment 1,506 1,272Amortisation of intangible assets 7 4,294 2,865Finance revenue (489) (230)Finance costs 628 1,143Share of loss of associate 35 -Share based payments 831 602Losses/(gains) on disposal of property, plant & equipment 17 (7)Increase in trade and other receivables (7,967) (1,825)Increase in trade and other payables 4,114 215Exchange differences 2,684 (1,032)Income tax paid (2,373) (2,515)NET CASH FLOWS FROM OPERATING ACTIVITIES 16,005 9,864 CASH FLOWS FROM INVESTING ACTIVITIESPayments to acquire property, plant & equipment (1,425) (1,433)Receipts from sale of property, plant & equipment 46 49Payments to acquire subsidiaries (47,747) -Net cash acquired with subsidiaries 11,813 -Payment to acquire investment in associate (291) -Cash advances and loans made to associate (286) -Interest received 489 230NET CASH FLOWS FROM INVESTING ACTIVITIES (37,401) (1,154) CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from issue of ordinary share capital 40,829 305Repayment of interest bearing loans and borrowings (6,492) (6,596)Proceeds from new loans 1,023 -Interest paid (628) (1,143)NET CASH FLOWS FROM FINANCING ACTIVITIES 34,732 (7,434) INCREASE IN CASH AND CASH EQUIVALENTS 13,336 1,276 MOVEMENT IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the start of year 7,978 6,976Increase in cash and cash equivalents 10 13,336 1,276Effect of exchange rates on cash and cash equivalents 10 197 (274)NET CASH AND CASH EQUIVALENTS AT END OF YEAR 10 21,511 7,978 SDL plcnotes to the unaudited financial statements 1. BASIS OF ACCOUNTING These preliminary financial statements do not constitute statutory accountswithin the meaning of section 240 of the Companies Act 1985 and are unaudited.With the exception of the disclosure requirements of IFRS 7, the accountingpolicies adopted in the preparation of the preliminary financial statements areconsistent with those followed in preparation of the Group's annual financialstatements for the year ended 31 December 2006. The financial statements for the year ended 31 December 2007 have yet to besigned by the auditors. The consolidated financial statements of SDL plc and its subsidiaries have beenprepared in accordance with International Financial Reporting Standards asadopted by the EU as relevant to the financial statements of SDL plc. The Group adopted IFRS 7 'Financial Instruments' for the first time in the yearended 31 December 2007 and new disclosures have been included in the financialstatements. 2. BUSINESS COMBINATIONS Acquisition of Tridion Holding BV On 18 May 2007 the Group acquired 100% of the share capital of Tridion HoldingBV, a company based in the Netherlands. The total cost of the combination comprised €69 million (£49 million) and wasfunded through both the placing and open offer of 11.3m shares on the LondonStock Exchange, raising £40m net of expenses, and from the Group's existing cashresources. The fair value of the identifiable assets and liabilities of Tridion Holding BVas at the date of acquisition were: Book value Fair value to Group £'000 £'000 Intangible assets* - 17,727Property, plant and equipment 140 140Cash and cash equivalents 11,491 11,491Trade receivables 3,780 3,746Other receivables 714 714Trade payables (1,114) (1,114)Other payables (6,335) (6,369)Deferred tax assets - 3,177Deferred tax liabilities - (5,318)Net assets 8,676 24,194Provisional goodwill arising on acquisition 25,020 49,214 * Provisional Discharged by: £'000 Costs associated with the acquisition 2,075Cash paid 47,139Total 49,214 Cash outflow on the acquisition:Net cash and cash equivalents acquired with the subsidiary 11,491Cash paid (47,139)Net cash outflow (35,648) From the date of acquisition Tridion Holding BV has contributed £14,707,000 ofrevenue and £3,888,000 to the net profit before tax of the Group. If thecombination had taken place at the beginning of the year, the profit before taxand amortisation of intangible assets for the Group would have been £16,557,000and revenue from continuing operations would have been £123,630,000. Includedin the £25,020,000 of provisional goodwill recognised above are certainintangible assets that cannot be individually separated and reliably measuredfrom the acquiree due to their nature. These items include customer loyaltyand assembled workforce. The key assumptions applied in valuing the acquiredintangible are being validated and the amounts are therefore stated on aprovisional basis. Acquisition of PASS Process Automation Software Systems Engineering GmbH On 15 June 2007 the Group acquired the business of PASS Process AutomationSoftware Systems Engineering GmbH (Passolo), based in Bonn, Germany. The total cost of the combination comprised cash of €1,000,000 (£676,000), ofwhich €100,000 is held in escrow, and 160,728 ordinary shares, 32,146 of whichwere issued on completion. The total fair value of shares in the Group, bothissued on completion and to be issued in the future, was €1,000,000 (£676,000). The acquisition value is £4.21 per share, being the published price of theshares of SDL plc at the date of exchange. The fair value of the identifiable assets and liabilities of PASS ProcessAutomation Software Systems Engineering GmbH as at the date of acquisition were: Book value Fair value to Group £'000 £'000Intangible assets - 626Property, plant and equipment 21 21Cash and cash equivalents 322 322Trade receivables 77 77Other receivables 12 12Trade payables (2) (2)Other payables (135) (376)Deferred tax liabilities - (187)Net assets 295 493Goodwill arising on acquisition 905 1,398 Discharged by: £'000Costs associated with the acquisition 46Shares issued at fair value 135Shares to be issued at fair value 541Cash paid 608Cash held in escrow 68Total 1,398 Cash outflow on the acquisition:Net cash and cash equivalents acquired with the subsidiary 322Cash paid (608)Net cash outflow (286) From the date of acquisition PASS Process Automation Software SystemsEngineering GmbH has contributed revenue of £240,000 and a profit of £61,000 tothe net profit of the Group. If the combination had taken place at the beginningof the year, the profit before tax and intangible assets amortisation for theGroup would have been £17,143,000 and revenue from continuing operations wouldhave been £117,755,000. Included in the £905,000 of goodwill recognised aboveare certain intangible assets that cannot be individually separated and reliablymeasured from the acquiree due to their nature. These items include customerloyalty and assembled workforce. 3. 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 tothe customer'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 2007 Translation Services Technology Total £'000 £'000 £'000RevenueSales to external customers 84,178 33,231 117,409 Segment results 12,670 194 12,864 Net finance costs (139) Profit before tax 12,725 Tax expense (3,555) Net profit for the year 9,170 Assets and liabilities Segment assets 47,692 91,710 139,402Unallocated assets 26,874Total assets 166,276 Segment liabilities 15,726 15,997 31,723Unallocated liabilities 21,537Total liabilities 53,260 Other segment information Capital expenditure 1,059 527 1,586Depreciation 1,105 401 1,506Amortisation 771 3,523 4,294 Unallocated assets and liabilities include cash, loans, taxation andintercompany balances. The investment in and loss of the associate are bothincluded in the Technology segment above. 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) 10,289 Net finance costs (913) Profit before tax 9,376 Tax expense (3,213) Net profit for the year 6,163 Assets and liabilities Segment assets 42,977 39,314 82,291Unallocated assets 10,703Total assets 92,994 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 2,095 2,865 Year ended 31 December 2007 Rest of Rest United Rest of North of the Kingdom Europe USA America World TotalRevenue £'000 £'000 £'000 £'000 £'000 £'000 Revenue from continuing operations 11,148 46,368 41,229 10,437 8,227 117,409 Other segment informationSegment assets 25,359 74,839 33,823 3,026 2,355 139,402Unallocated assets 26,844Total assets 166,246 Capital expenditureProperty, plant and equipment 524 568 214 80 200 1,586 Year ended 31 December 2006 Rest of Rest United Rest of North of the Kingdom Europe USA America World TotalRevenue £'000 £'000 £'000 £'000 £'000 £'000Revenue from continuing operations 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 Unallocated assets and liabilities include cash, loans, taxation andintercompany balances. The investment in and loss of the associate are bothincluded in the Rest of Europe segment in 2007 above. 4. OTHER REVENUE AND EXPENSES Group operating profit is stated after charging/(crediting): 2007 2006 £'000 £'000 Included in administrative expenses: Research and development expenditure 5,374 4,724Bad debt 114 (216)Depreciation of property, plant and equipment 1,506 1,272Amortisation of intangible fixed assets 4,294 2,865Operating lease rentals for plant and machinery 69 67Operating lease rentals for land and buildings 3,737 3,252Operating lease rentals received for land and buildings (150) (150)Net foreign exchange losses/(gains) 644 (662)Loss/(gain) on derivatives 1,267 (594) The net foreign exchange losses 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. Included Auditor's remunerationAudit of the Group financial statements 235 222Other fees to auditors: Local statutory audits for 48 31subsidiaries Other taxation services* 170 92 Other services* 186 - * - Included within these two captions are fees amounting to £253,000 inrelation to the acquisitions in the year (2006: £nil) which have beencapitalised as opposed to charged through the profit and loss account. 5. INCOME TAX (a) Income tax on profit: 2007 2006 £'000 £'000Current taxationUK Income tax charge/(credit)Current tax on income for the period - 670Adjustments in respect of prior periods (131) (242)Tax credit for share options taken to equity 945 283 814 711Foreign taxCurrent tax on income for the period 3,311 2,201Adjustments in respect of prior periods (36) (72) 3,275 2,129Total current taxation 4,089 2,840 Deferred income taxationOrigination and reversal of temporary differences (104) (277)Adjustments in respect of prior periods (71) 471Deferred tax credit for share options taken to equity (359) 179Total deferred income tax (534) 373 Tax expense (see (b) below) 3,555 3,213 An aggregate tax credit in respect of share based compensation for current anddeferred taxation of £586,000 (2006: £462,000) has been recognised in equity inthe year. (b) Factors affecting 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% (2006: 30%). Thedifferences are reconciled below: 2007 2006 £'000 £'000 Profit on ordinary activities before tax 12,725 9,376 Profit on ordinary activities at standard rate of tax in the UK 30% (2006: 30%) 3,818 2,813 Expenses not deductible for tax purposes 201 235Non deductible amortisation of intangibles 230 550Non taxable income (101) -Adjustments in respect of previous years (238) 157Utilisation of tax losses brought forward (112) (424)Current tax losses not available for offset 241 55Effect of overseas tax rates (572) (378)Other 88 205 Tax expense (see (a) above) 3,555 3,213 6. EARNINGS PER SHARE The calculation of basic earnings per ordinary share is based on a profit aftertax of £9,170,000 (2006: £6,163,000) and 70,157,960 (2006: 62,159,156) 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 9. For 2007 thediluted ordinary shares were based on 71,474,309 ordinary shares that included1,316,349 potential weighted number of options. The following reflects the income and share data used in the basic, diluted andadjusted earnings per share computations: 2007 2006 £'000 £'000Profit for the year 9,170 6,163Amortisation of intangible fixed assets 4,294 2,865Adjusted profit for the year 13,464 9,028 The tax benefit associated with the amortisation of the intangible fixed assetsof £1,016,000 (2006: £592,000) has not been adjusted in the calculation ofadjusted profit for the year outlined above. 2007 2006 No. No.Weighted average number of ordinary shares for basic earnings per share 70,157,960 62,159,156Effect of dilution resulting from share options 1,316,349 2,482,139Weighted average number of ordinary shares adjusted for the effect of dilution 71,474,309 64,641,295 2007 2006Adjusted earnings per ordinary share - basic (pence) 19.19 14.52Adjusted earnings per ordinary share - diluted (pence) 18.84 13.97 There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thefinancial statements. 7. INTANGIBLE ASSETS Intellectual Property Goodwill Total £'000 £'000 £'000Cost:At 1 January 2006 19,948 60,953 80,901Currency adjustment (858) (1,616) (2,474)At 1 January 2007 19,090 59,337 78,427Acquisition of subsidiaries 18,353 25,925 44,278Currency adjustment 1,599 2,555 4,154At 31 December 2007 39,042 87,817 126,859 Amortisation:At 1 January 2006 (5,115) (12,203) (17,318)Provided during the year (2,865) - (2,865)Currency adjustment 137 - 137At 1 January 2007 (7,843) (12,203) (20,046)Provided during the year (4,294) - (4,294)Currency adjustment (219) - (219)At 31 December 2007 (12,356) (12,203) (24,559) Net book value:At 31 December 2007 26,686 75,614 102,300 At 1 January 2007 11,247 47,134 58,381 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 (2006: £nil). 8. INTEREST BEARING LOANS AND BORROWINGS 2007 2006 £'000 £'000CurrentCurrent instalments due on bank loans 2,000 2,000 Non-currentNon - current instalments due on bank loans 4,055 9,656 Bank loans comprise the following: 2007 2006 £'000 £'000US variable rate secured term loan - 1,534£3,900,000 variable rate secured term loan 3,900 6,400US $4,294,000 variable rate secured revolving credit facility 2,155 3,722 6,055 11,656Less current instalments due on bank loans (2,000) (2,000) 4,055 9,656 £3,900,000 variable rate secured term loan This loan is secured and repayable in quarterly instalments of £500,000 with thefinal balance being repaid in 2010. The loan bears interest at LIBOR + 1.25%. US $4,294,000 variable rate secured revolving credit facility This loan is secured on the net assets of the Group companies held in thesecurity group and is drawn down under an available 5-year term revolving creditfacility up to the equivalent of £5 million. Interest is charged at LIBOR +1.25%. The loan is repayable within 1 month of the balance sheet date but hasbeen classified as long term because the Group expects to draw down under the 5year revolving credit facility available to it. This facility isunconditional. 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 60% of cash within thoseGroup companies that are guarantors of the facility. Since entering into thefacility agreement the Group has fully complied with these covenants. 9. SHARE-BASED PAYMENT PLANS 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: 2007 2007 2006 2006 No. WAEP No. WAEPOutstanding at the beginning of the year 3,422,418 £0.87 3,846,729 £0.70Granted during the year 680,000 £3.75 371,667 £2.18Forfeited during the year (82,250) £1.10 (33,001) £1.17Exercised during the year (1,139,160) (£0.58) (679,227) £0.45Expired during the year - - (83,750) £1.79Outstanding at the end of the year 2,881,008 £1.65 3,422,418 £0.87Exercisable at 31 December 1,559,761 £0.77 2,061,418 £0.56 The weighted average share price at the date of exercise for the optionsexercised is £3.73 (2006: £2.10). For the share options outstanding as at 31 December 2007, the weighted averageremaining contractual life is 6.44 years (2006: 6.57 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: 2007 2006Weighted average share price (pence) 218 218Expected volatility 35% 35%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-£3.745 (2006: £0.01-£3.60). Date of Grant Exercise Period 2007 2006 Number Number £0.01 - £0.50 01/01/92-16/04/03 10 years after grant date 538,753 1,134,244£0.51 - £1.00 15/10/99-12/12/03 10 years after grant date 481,693 636,531£1.01 - £1.50 02/04/04-04/04/05 10 years after grant date 882,812 1,290,276£1.51 - £2.00 07/04/01 10 years after grant date 4,250 9,250£2.01 - £2.50 22/03/06-03/10/06 10 years after grant date 272,500 321,117£3.01 - £3.50 12/05/00-1/6/00 10 years after grant date 17,000 31,000£3.51 - £4.00 16/10/00-23/5/07 10 years after grant date 684,000 -Total 2,881,008 3,422,418 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 2007. 2007 2006Expected volatility 35% 35%Expected life 3 years 3 yearsExpected dividends 0% 0%Risk-free interest rate 5% 5% 2007 2007 2006 2006 No. WAEP No. WAEPOutstanding at the beginning of the year 935,635 - - -Granted during the year 321,074 - 968,802 -Forfeited during the year (65,995) - (33,167) -Outstanding at the end of the year 1,190,714 - 935,635 -Exercisable at 31 December Nil - Nil - On 23 February 2007 321,074 LTIP shares were granted to the executive directorsand certain senior management employees at a market price of £3.336 with aperformance period of three years from date of grant. All LTIPs are exercisable at nil cost to the individual. 10. ADDITIONAL CASH FLOW INFORMATION Analysis of group net debt: 1 January Cash Exchange 31 December 2007 flow differences 2007 £'000 £'000 £'000 £'000 Cash and cash equivalents 7,978 13,336 197 21,511Loans (11,656) 5,469 132 (6,055) (3,678) 18,805 329 15,456 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) 11. POST BALANCE SHEET EVENTS a. Acquisition of Idiom Technologies Inc On 11 February 2008, the Company announced the acquisition of Idiom TechnologiesInc, one of the leading providers of "Software as a Service" translationmanagement systems, for a consideration of $21.7m (£11.1m) plus the assumptionof debt and working capital of $4.9m (£2.5m). The acquisition was financed inpart by the drawdown of £9.5m from a new £20m revolving credit facility (see (b)below) and in part from the Company's own cash resources. b. £20m Revolving Credit Facility Since the year end the Company has entered into a £20m Revolving Credit Facilitywith The Royal Bank of Scotland. This new facility replaces the Term Loan andRevolving Credit Facility entered into in 2005, the balance of which at 31December 2007 is set out in Note 8. This facility is available until February2012 and is on a margin of between 85 and 140 basis points above LIBOR,depending on the performance of the Company against certain covenants. On 7February 2008, the Company drew down £9.5m of this facility as part of thefunding of the acquisition of Idiom Technologies Inc. Repayment of the facilitydoes not commence until February 2011 when the facility reduces to £15m. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L