22nd Feb 2006 07:01
SDL PLC22 February 2006 22 February 2006 SDL PLC Preliminary Results for the Year ended 31 December 2005 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 2005. 2005 2004 % £'000 £'000 ChangeIncome Statement:Revenue 78,479 62,690 +25% Profit before tax and amortisation of intangibles 7,169 5,202 +38%Profit before tax 5,217 4,432 +18% Earnings per ordinary share - basic (pence) 4.87 5.42 -10%Adjusted earnings per ordinary share - basic (pence) 8.20 6.81 +20% Balance Sheet:Total equity 49,594 38,562 +29%Cash and cash equivalents 6,976 11,452 -39% Interest bearing loans and borrowings 19,092 - n/a Operational Highlights: • Successful integration of TRADOS acquisition ahead of schedule. TRADOS was acquired in July 2005 for £35.0 million and leaves SDL well positioned to be the leader in Global Information Management • Gross margins increased from 41% in 2004 to 47% in 2005 • Significant 2005 new business wins - AMD, Best Buy, Chrysler Group, Emerson, France Telecom, GSK, Honda, Le Meridien, Regus, Siemens Medical, SMS Demag, TI and many more Commenting on the preliminary results Mark Lancaster, Chairman and ChiefExecutive of SDL, said: "Our growth drivers remain compelling. International businesses are facingburgeoning demand from both within their businesses and externally fromcustomers and other stakeholders, to provide multilingual content. It is clearfrom our customers' experience that satisfying this demand generatesconsiderable value in terms of return on investment. Having made this initialinvestment corporations then need cost effective and efficient software systemsand services, in order to maintain and improve this content on an ongoing basis. "Following many years of investment and the recent acquisition of TRADOS, SDL isideally positioned to help businesses, large and small, to create real valuethrough effective Global Information Management. We therefore remain excitedabout the future prospects for the business." For further information please contact: SDL plc On 22 February 2006 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: SDL plc (London Stock Exchange: 'SDL') is a leader in the emerging market forglobal information management (GIM) solutions that empower organizations toaccelerate the delivery of high-quality multilingual content to global markets.Its enterprise software and services integrate with existing business systems tomanage global information from authoring to publication and throughout thedistributed localization supply chain. Global industry leaders such as Audi, Bayer, Best Western, Bosch, Canon,Deutsche Bank, Kodak, Microsoft, Morgan Stanley, Reuters, and SAP rely on SDL toprovide enterprise software or full outsourcing for their GIM processes. SDL hasimplemented more than 100 enterprise GIM solutions, has over 100,000 softwarelicenses deployed across the GIM ecosystem and its global servicesinfrastructure spans more than 50 offices in 30 countries. Attached: Chairman's statement Unaudited Consolidated Income Statement Unaudited Consolidated Balance Sheet Unaudited Consolidated Cash Flow Statement Notes to the unaudited Financial Statements CHAIRMAN'S STATEMENT Summary Performance 2005 has been a year of significant strategic development for SDL and strongfinancial performance that exceeded market consensus expectations. Ourextensive portfolio of products and services now enables us to offer ourcustomers better value than ever before. This has already been proven as aresult of important wins with some of the world's leading companies, includingThe Chrysler Group, GlaxoSmithKline, AMD, Honda and Emerson. The successful integration of SDL and TRADOS has created a clear market leaderthat now offers a complete Global Information Management (GIM) solution to themarket place. This is achieved through the combination of extensive multilingualtechnology and worldwide service offerings, integrated across the company'sglobal footprint. The GIM solution enables companies to manage theirmultilingual content across their entire global enterprise. Our product and service solutions now appeal to a more senior level of decisionmaker within target organisations, with recognition at board level that GIM isan important factor in determining their company's future success. We have beeninvesting, and will continue to invest, in sales and marketing in order toensure that we are reaching these decision makers. A number of our service customers have shown considerable interest in ourcombined services/technology GIM solution. This has led to our divisions,particularly in Belgium and Germany, proactively assisting customers tounderstand the tangible value of SDL's GIM solutions, through seminars, webinarsand careful account management. This has resulted in additional sales to manyexisting customers in the year, including Bosch, Homag, Linde, Philips andWeidmuller. This success has been reflected in the financial performance of the business in2005. As indicated in our trading update in December 2005, the business hasperformed ahead of market expectations and the Board is pleased to reportrevenues of £78.5 million, up 25% on 2005 with TRADOS, acquired in July 2005,contributing £9.2 million of revenues in the period, driving the operatingmargins in the business to new levels. Profit before taxation and amortisationincreased by 38% to £7.2 million, while profit before taxation increased to £5.2million (2004: £4.4 million). The basic earnings per share, however, decreased by 10% as a result of anincrease in amortisation, following the acquisition of TRADOS, and a highereffective tax rate. Vision and Strategy for Global Information Management SDL's investments and acquisitions over the last 5 years have resulted in thecompany owning the technology framework required to effectively manage contentin a global business environment. This, combined with the worldwide officeinfrastructure, positions SDL strongly to further execute its vision to maximisevalue for our customers and shareholders. The market has developed enormously in the past 18 months, as we now have over100,000 desktop translation products in the market and our enterprise softwarehas exceeded 100 installations. The larger Language Service Providers areadopting the server-based Translation Management software supplied by SDL toleverage their translation solutions. The corporate market for enterprisetechnology is moving from early adoption to that of broader market growth andthis is demonstrated by the fact that of the large scale new business won in2005, 80% has incorporated an enterprise software component. There is now aclear technology standard in the market place in the form of SDL TRADOS. New Advances creating a Technology Ecosystem We believe that with the continued importance of controlling and managing globalcontent in a multinational business, our GIM solution is instrumental. The maindifferentiator between 2004 and 2005 is that our technology now covers thecomplete supply chain ("ecosystem") for creating multilingual content seamlesslyand efficiently. Freelancers and smaller agencies are able to easily adopt thedesktop technology, with the comfort that they are able to integrate with theenterprise technology of their corporate clients. This creates a seamlessecosystem, allowing valuable upward compatibility and upgrade opportunity atconsiderably less cost than has been afforded in the past. We consider thistechnology ecosystem will be the catalyst for considerable market growth in thefuture. Our technology continues to be a key driver in the market, with our enterprisetechnology becoming increasingly important to accelerate time to market, atreduced cost. The SDL Knowledge-based Translation System ("SDL KbTS"), whichcombines automated translation, translation memory and terminology technologieswith highly-skilled human resources to increase translation throughput, hasachieved the success that we predicted for its initial customers, and remains akey strategic focus for SDL. Our customers have seen the time to market halvedand realised significant cost savings as a result of SDL KbTS managed projects. 2005 saw the following important product enhancements and innovations. • SDL KbTS has now been installed and is returning significant benefits to all of the pilot installations of 2004/2005, saving those customers on average 40% in cost and reducing time to market by typically 50% or more. 2005 saw SDL KbTS deliver £2 million of revenues. • SDL Translation Management System 2005 provides a framework for global information management enabling organisations to deliver global information faster, improve quality and consistency and achieve rapid return-on-investment • SDL PhraseFinder 2005 leverages patent-pending technology to quickly and effectively identify terminology being used by an organisation • SDL AuthorAssistant 2005 is innovative new technology that dramatically advances the quality and efficiency of global authoring processes Enterprise Software Customer Momentum Global organisations are recognising the value of SDL's continued investment intechnology and services infrastructure. Significant contract wins include thefollowing: • Significant success in the execution for the first pilot customers of SDL KbTS, creating higher levels of quality, time to market improvements and cost savings for its customers, including CNH, Best Western International, and DaimlerChrysler • Over 40 new installations of SDL Translation Management System, including AMD, EBSCO, Le Meridien, Novell, McDonalds, Open Text, Plantronics, TI • Growing momentum for SDL AuthorAssistant with customer wins at AGCO, Getty Images and Oce TRADOS Acquisition The integration of SDL and TRADOS has progressed ahead of schedule, allowing usto focus on our advanced new technology platform to manage multilingual content.We have been able to take the best of both companies' technology to provide afully integrated suite of products from the desktop to the enterprise. Thisecosystem of technology modules enables our customers to create customisedsolutions for their specific requirements. In the latter part of 2006, and early 2007 we will be releasing our new platformtechnology modules, taking multilingual asset management to new levels. We willredefine the way companies currently work, through advanced translation assetmanagement, integrated to provide knowledge-based GIM. All of this is beingbuilt on the Translation Memory, Terminology Management and TranslationManagement data formats we have in the market place. This new platform willprovide our customers with 100% forward compatibility with the current ecosystemthat exists in the market place today. The combination of TRADOS and SDL technologies and infrastructures has createdthe scale required to deliver an enhanced business model for success. With anannual investment of $8-10m into technology, the subsequent benefits derived byour customers allow them accelerated delivery of their multilingual content intothe global market place. Business Process Outsourcing and Longer Term Contracts through GIM The introduction of GIM has considerably increased our ability to win longerterm contracts. There are also notable changes in the revenue mix, with a moveaway from the traditional IT dominated sector to that of pharmaceutical,automotive, manufacturing and financial services 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 and more recently by the business functionwithin the organisation. Most importantly the move by our clients towardsconsolidating vendors and outsourcing more business processes has enabled themto maximise efficiencies and brought us larger longer-term contracts withcompanies such as Hewlett Packard, Microsoft, Philips, Kodak and CIBC. 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. Investing in local country offices hasbeen one of the most important long-term investments SDL has made over the last5 years. SDL has production offices in most of the key commercial regions acrossthe world, comprising local language experts that utilise common SDL process andsystems, creating an integrated worldwide structure. This provides customerswith culturally sensitive translations in high volumes. Our continued investmentin low cost regions, such as Thailand, Poland and China, provides our customerswith skilled resources at low cost, thereby offsetting pricing pressure. All ofour 50 offices are integrated through our virtual private network, which isadministered through our central Empower Management Information System. Theabove investments, coupled with technology, are now showing significant returnsas they start to deliver solid profits in a competitive market. Market Leaders in Translation-on-Demand Our online translation portals, FreeTranslation.com and Click2Translate.com,have become valuable business channels for SDL. FreeTranslation.com, a portalwidely considered to be the market leader in instant translation handling over2.5 million visitors per week, and Click2Translate.com, which provides paid fortranslation services to a broad range of customers, have contributed £1 millionof high margin localisation business in 2005. The revenue from these portals isset to increase significantly in 2006. These 'Translation-on-Demand' solutionsalso provide our customers with a smooth upgrade path to our private EnterpriseTechnology portals for ongoing high volume translation users. Outlook With the $2 billion - $3 billion high-end translation market only just startingto evolve into broader business demand, 2006 will be a year of strong investmentas we promote GIM in vertical markets. We will be investing heavily in sales andmarketing to continue to spread the GIM message to the market. We will also beinvesting in the technology division of the business, a proven and keydifferentiator from our competitors and a significant value enhancer to ourcustomers that are managing global information across their enterprises. We expect to see further important strategic opportunities emerge in 2006, as wecontinue to penetrate new markets and larger corporations move towards moreefficient business process outsourcing. In the latter half of the year we alsoexpect to see the initial benefits of GIM delivery to the market place. Thetangible benefits from the new technology platform will provide sustained growthmomentum through the latter half of 2006 and 2007, at which time we anticipateGIM to be firmly established and generating additional sales through BusinessProcess Outsourcing. Our growth drivers remain compelling. International businesses are facingburgeoning demand from both within their businesses and externally fromcustomers and other stakeholders, to provide multilingual content. It is clearfrom our customers' experience that satisfying this demand generatesconsiderable value in terms of return on investment. Having made this initialinvestment corporations then need cost effective and efficient software systemsand services, in order to maintain and improve this content on an ongoing basis. Following many years of investment and the recent acquisition of TRADOS, SDL isideally positioned to help businesses, large and small, to create real valuethrough effective Global Information Management. We are excited about thefuture prospects for the business. Mark LancasterChairman & Chief Executive21 February 2006 SDL plcUNAUDITED CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2005 Unaudited Notes 2005 2004 £'000 £'000 Sale of goods 7,425 982Rendering of services 71,054 61,708 REVENUE 78,479 62,690 Cost of sales (41,475) (36,840) GROSS PROFIT 37,004 25,850 Non direct operating costs (29,288) (20,746) OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS 7,716 5,104 Amortisation of intangible assets (1,952) (770) OPERATING PROFIT 2 5,764 4,334 Finance costs (761) (30) Finance revenue 214 128 PROFIT BEFORE TAX 5,217 4,432 Tax expense 3 (2,358) (1,443) PROFIT FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 2,859 2,989 Earnings per ordinary share - basic (pence) 4 4.87 5.42Earnings per ordinary share - diluted (pence) 4 4.68 5.19 Adjusted earnings per ordinary share - basic (pence) 4 8.20 6.81Adjusted earnings per ordinary share - diluted (pence) 4 7.87 6.53 SDL plcUNAUDITED CONSOLIDATED BALANCE SHEETat 31 December 2005 Unaudited Notes 2005 2004 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 2,746 2,631Intangible assets 6 63,583 23,662Deferred income tax 1,640 1,113Rent deposits 353 217 68,322 27,623 CURRENT ASSETSTrade and other receivables 18,995 13,019Cash and cash equivalents 6,976 11,452 25,971 24,471 TOTAL ASSETS 94,293 52,094 CURRENT LIABILITIESTrade and other payables (18,045) (10,989)Interest bearing loans and borrowings 7 (2,000) -Current tax liabilities (4,068) (1,917)Provisions (500) (112) (24,613) (13,018)NON CURRENT LIABILITIESInterest bearing loans and borrowings 7 (17,092) -Deferred income tax (2,596) (78)Provisions (398) (436) (20,086) (514) TOTAL LIABILITIES (44,699) (13,532) NET ASSETS 49,594 38,562 EQUITYShare capital 615 561Share premium 50,629 44,165Shares to be issued 238 213Retained earnings (2,893) (6,909)Foreign exchange difference 1,005 532 TOTAL EQUITY 49,594 38,562 SDL plcUNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYat 31 December 2005 Share Shares Foreign Share Premium to be Retained Exchange Capital Account Issued Earnings Differences Total £'000 £'000 £'000 £'000 £'000 £'0001 January 2004 542 43,569 316 (10,164) - 34,263Currency translationdifferences on foreigncurrency net investments - - - - 710 710Currency translationdifferences on foreigncurrency equity loansto foreign subsidiaries - - - - (178) (178)Deferred income taxation onshare based payments - - - 129 - 129Total income and expense forthe year recognised directlyin equity - - - 129 532 661Net profit for the year - - - 2,989 - 2,989Total income and expensefor the year - - - 3,118 532 3,650Arising on share issues 19 596 (103) - - 512Share based payments - - - 137 - 137At 31 December 2004 561 44,165 213 (6,909) 532 38,562 Share Shares Foreign Share Premium to be Retained Exchange Capital Account Issued Earnings Differences Total £'000 £'000 £'000 £'000 £'000 £'000At 1 January 2005 561 44,165 213 (6,909) 532 38,562Currency translationdifferences on foreigncurrency intangiblesand net investments - - - - (33) (33)Currency translationdifferences on foreigncurrency equityloans to foreign subsidiaries - - - - 506 506Deferred income taxation onshare based payments - - - 418 - 418Tax credit for share options - - - 464 - 464Total income and expense forthe year recognised directlyin equity - - - 882 473 1,355Net profit for the year - - - 2,859 - 2,859Total income and expensefor the year - - - 3,741 473 4,214Arising on share options andLomac deferred purchaseconsideration 9 376 (108) - - 277Arising on acquisition ofTRADOS 45 6,088 - - - 6,133Lingua Franca deferredpurchase consideration - - 133 - 133Share based payments - - - 275 - 275At 31 December 2005 615 50,629 238 (2,893) 1,005 49,594 All amounts are attributable to equity holders of the parent. SDL plcUNAUDITED CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2005 Unaudited Notes 2005 2004 £'000 £'000PROFIT BEFORE TAX 5,217 4,432 Depreciation of property, plant and equipment 1,122 1,085Amortisation of intangible assets 1,952 770Finance costs 761 30Finance revenue (214) (128)Share based payments 275 137Loss on disposal of tangible fixed assets 24 2Increase in debtors (2,640) (626)Increase/(decrease) in creditors and provisions 1,289 (167)Exchange differences (123) 399Income tax paid (1,956) (1,167)NET CASH FLOWS FROM OPERATINGACTIVITIES 5,707 4,767 CASH FLOWS FROM INVESTING ACTIVITIESPayments to acquire tangible fixed assets (1,010) (1,064)Receipts from sale of tangible fixed assets 201 69Purchase of subsidiaries (30,328) (123)Net cash acquired with subsidiaries 3,216 -Interest received 214 128NET CASH FLOWS FROMINVESTING ACTIVITIES (27,707) (990) CASH FLOWS FROM FINANCING ACTIVITIESNet proceeds from issue of ordinary share capital 277 512Repayment of interest bearing loans and borrowings (2,385) (17)Capital element of finance lease rental payments - (50)Proceeds from new loans 20,092 -Interest paid (761) (30)NET CASH FLOWS FROM FINANCINGACTIVITIES 17,223 415 (DECREASE)/INCREASE IN CASHAND CASH EQUIVALENTS (4,777) 4,192 MOVEMENT IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the start of year 11,452 7,295(Decrease)/increase in cash and cash equivalents 9 (4,777) 4,192Effect of exchange rates on cash and cash equivalents 9 301 (35) Net cash and cash equivalents at end of year 6,976 11,452 SDL plcNOTES TO THE UNAUDITED FINANCIAL STATEMENTSfor the year ended 31 December 2005 1 BASIS OF PRELIMINARY FINANCIAL STATEMENTS These preliminary financial statements do not constitute statutory accountswithin the meaning of section 240 of the Companies Act 1985 and are unaudited. 2 OTHER REVENUE AND EXPENSES Group operating profit is stated after charging/(crediting): Unaudited 2005 2004 £'000 £'000Included in administrative expenses:Auditors' remuneration - audit services 256 190Auditors' remuneration - other services 149 88Research and development expenditure 3,877 2,538Depreciation of owned assets 1,122 1,079Depreciation of leased assets - 6Amortisation of intangible fixed assets 1,952 770Operating lease rentals for plant and machinery 194 123Operating lease rentals for land and buildings 3,229 2,608Net foreign exchange differences (551) 411Provision for NIC on Share Option Scheme - 7IFRS 2 Share Based Payments 275 137 3 INCOME TAX (a) Income tax on profit: Unaudited 2005 2004 £'000 £'000Current taxationUK income tax charge/(credit)Current tax on income for the period 1,255 585Adjustments in respect of prior periods (200) (42)Tax credit for share options taken to equity 464 - 1,519 543Foreign taxCurrent tax on income for the period 1,260 994Adjustments in respect of prior periods (87) (94) 1,173 900Total current taxation (see (b) below) 2,692 1,443 Deferred income taxationOrigination and reversal of temporary differences (752) 245Adjustments in respect of prior periods - (374)Deferred tax credit for share options taken to equity 418 129Total deferred income tax (334) - Tax expense 2,358 1,443 An aggregate tax credit in respect of share based compensation for current anddeferred taxation of £882,000 (2004: £129,000) 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% (2004: 30%). Thedifferences are reconciled below: Unaudited 2005 2004 £'000 £'000 Profit on ordinary activities before tax 5,217 4,432 Profit on ordinary activities at standard rate of tax in theUK 30% (2004: 30%) 1,565 1,330 Expenses not deductible for tax purposes 216 235 Non deductible amortisation of intangibles 365 231 Non taxable income (91) - Adjustments in respect of previous years (287) (136) Utilisation of tax losses brought forward (304) (430) Current tax losses not available for offset 1,157 233 Effect of overseas tax rates (249) 27 Other (14) (47) Tax expense (see (a) above) 2,358 1,443 4 EARNINGS PER SHARE The calculation of basic earnings per ordinary share is based on a profit aftertax of £2,859,000 and 58,674,412 ordinary shares, being the weighted averagenumber of ordinary shares in issue during the period. 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. For 2005 the diluted ordinary shareswere based on 61,147,846 ordinary shares that included 2,473,434 potentialweighted number of options. The following reflects the income and share data used in the basic, diluted andadjusted earnings per share computations: 2005 2004 £'000 £'000Net profit attributable to ordinary equity holders of the parent 2,859 2,989Amortisation of intangible fixed assets 1,952 770Adjusted net profit attributable to ordinary equityholders of the parent 4,811 3,759 2005 2004 No. No.Weighted average number of ordinary shares for basicearnings per share 58,674,412 55,192,501Effect of dilution resulting from share options 2,473,434 2,379,241Weighted average number of ordinary shares adjustedfor the effect of dilution 61,147,846 57,571,742 There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thefinancial statements. 5 BUSINESS COMBINATIONS Acquisition of TRADOS Inc On 7 July 2005 the Group acquired 100% of the share capital of TRADOS Inc, acompany based in the US. The total cost of the combination comprised $50 million (£28.5 million) and theissue of 4,542,957 ordinary shares in the Group with a fair value of $10 million(£6.1 million). The acquisition value is £1.35 per share, being the publishedprice of the shares of SDL plc at the date of acquisition. The fair value of the identifiable assets and liabilities of TRADOS Inc as atthe date of acquisition were: Book value Fair value to Group £'000 £'000Intangible assets 2,375 13,615Property, plant and equipment 494 402Cash and cash equivalents 3,203 3,203Trade receivables 2,909 2,820Other receivables 313 324Trade payables (899) (899)Loans (1,318) (1,385)Other payables (5,537) (6,735)Deferred tax - (2,743)Net assets 1,540 8,602Goodwill arising on acquisition 27,646 36,248 Discharged by: £'000Shares issued at fair value 6,133Costs associated with the acquisition settled in cash 1,639Cash paid 28,476Total cash paid 30,115Total 36,248 Cash outflow on the acquisition:Net cash and cash equivalents acquired with the subsidiary 3,203Cash paid (30,115)Net cash outflow (26,912) From the date of acquisition TRADOS Inc has contributed £506,000 to the netprofit before tax of the Group. If the combination had taken place at thebeginning of the year, the profit before tax and amortisation of intangibles forthe Group would have been £6,480,000 and revenue from continuing operationswould have been £85,266,000. Included in the £23,027,000 of goodwillrecognised above are certain intangible assets that cannot be individuallyseparated and reliably measured from the acquiree due to their nature. Theseitems include customer loyalty and assembled workforce. Acquisition of Lingua Franca On 18 April 2005 the Group acquired the business of Lingua Franca, based inDubai. The total cost of the combination comprised cash of $400,000 (£213,000)and 112,086 ordinary shares to be issued in the Group with a fair value of$250,000 (£133,000). The acquisition value is £1.19 per share, being thepublished price of the shares of SDL plc at the date of exchange. The fairvalue of the identifiable assets and liabilities of Lingua Franca as at the dateof acquisition were: Book value Fair value to Group £'000 £'000 Property, plant and equipment 16 16Cash and cash equivalents 13 13Trade receivables 13 13Other receivables 21 21Trade payables (3) (3)Other payables (62) (62)Loans (44) (44)Net liabilities (46) (46)Goodwill arising on acquisition 392 346 Discharged by: £'000Shares issued at fair value 133Cash paid 213Total 346 Cash outflow on the acquisition:Net cash and cash equivalents acquired with the subsidiary 13Cash paid (213)Net cash outflow (200) From the date of acquisition Lingua Franca has contributed a loss of £28,000 tothe net profit of the Group. If the combination had taken place at thebeginning of the year, the profit before tax and intangible amortisation for theGroup would have been £7,207,000 and revenue from continuing operations wouldhave been £78,499,000. Included in the £392,000 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. 6 INTANGIBLE ASSETS Intellectual Property Goodwill Total31 December 2004 £'000 £'000 £'000Cost at 1 January 2004, net of accumulatedamortisation 3,877 20,546 24,423Additions - 9 9Amortisation (770) - (770) At 31 December 2004 3,107 20,555 23,662 Intellectual Goodwill Total Property31 December 2005 £'000 £'000 £'000Cost at 1 January 2005, net of accumulated amortisation 3,107 20,555 23,662Acquisition of subsidiaries (Note 5) 13,615 28,038 41,653Amortisation (1,952) - (1,952)Currency adjustment 63 157 220At 31 December 2005 14,833 48,750 63,583 At 1 January 2004Cost 6,270 32,749 39,019Accumulated amortisation and impairment (2,393) (12,203) (14,596) Net carrying amount 3,877 20,546 24,423 At 1 January 2005Cost 6,270 32,758 39,028Accumulated amortisation and impairment (3,163) (12,203) (15,366) Net carrying amount 3,107 20,555 23,662 At 31 December 2005Cost 19,885 60,796 80,681Accumulated amortisation and impairment (5,115) (12,203) (17,318)Currency adjustment 63 157 220Net carrying amount 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 (2004: £nil). 7 INTEREST BEARING LOANS AND BORROWINGS Unaudited 2005 2004 £'000 £'000CurrentCurrent instalments due on bank loans 2,000 - Non-currentNon - current instalments due on bank loans 17,092 - Bank loans comprise the following: 2005 2004 £'000 £'000US$5,388,650 variable rate secured term loan 3,122 -£10,900,000 variable rate secured term loan 10,900 -US$8,750,000 variable rate secured revolving credit facility 5,070 - 19,092 -Less current instalments due on bank loans (2,000) - 17,092 - US$5,388,650 variable rate secured term loan and £10,900,000 variable ratesecured term loan These loans are secured and combined are repayable in quarterly instalments of£500,000 with a bullet payment of £4.5 million in December 2010. The loans bearinterest at LIBOR + 1.75%. US$8,750,000 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 + 1.875%. 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. The conditions precedent had been met at 31 December 2005. 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. The expense recognised for share-based payments in respect of employee servicesreceived during the year to 31 December 2005 is £275,000 (2004: £137,000). Thetable below sets out the number and weighted average exercise prices (WAEP) of,and movements in, share options during the year. Unaudited Unaudited 2005 2005 2004 2004 No. WAEP No. WAEPOutstanding at the beginning of the year 3,786,433 £0.68 4,711,017 £0.48Granted during the year 702,000 £1.19 860,000 £1.18Forfeited during the year (20,417) £1.11 (50,000) £1.18Exercised during the year (502,377) £0.53 (1,612,030) £0.33Expired during the year (118,910) £3.90 (122,554) £0.97Outstanding at the end of the year 3,846,729 £0.70 3,786,433 £0.68Exercisable 2,400,891 £0.56 2,214,729 £0.44 The weighted average share price at the date of exercise for the optionsexercised is £1.57 (2004: £1.38). For the share options outstanding as at 31 December 2005, the weighted averageremaining contractual life is 1.42 years (2004: 1.53 years). The fair value of equity settled share options granted is estimated as at thedate of grant using the Black Scholes model. The following table lists theinputs to the model: 2005 2004Weighted average exercise price (pence) 102 92Expected volatility 70% 70%Option life 5 years 5 yearsExpected dividends 1% 1%Risk-free interest rate 5% 5% 9 ADDITIONAL CASH FLOW INFORMATION Analysis of group net debt: 1 January Cash Exchange 31 December 2005 flow differences 2005 £'000 £'000 £'000 £'000Cash and cash equivalents 11,452 (4,777) 301 6,976Loans - (19,092) - (19,092) 11,452 (23,869) 301 (12,116) 1 January Cash Exchange 31 December 2004 flow differences 2004 £'000 £'000 £'000 £'000Cash and cash equivalents 7,295 4,192 (35) 11,452Loans (18) 17 1 -Finance leases (54) 50 4 - 7,223 4,259 (30) 11,452 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L