4th Sep 2006 07:01
SDL PLC04 September 2006 4 September 2006 SDL PLC Interim Results for the six months ended 30 June 2006 Revenue up 34% and adjusted EPS up 45% SDL plc ("SDL" or "the Group"), the world's leading provider of globalinformation management (GIM) solutions, is pleased to announce its unauditedinterim results for the six months ended 30 June 2006. Financial Highlights: Unaudited Unaudited 6 months to 6 months to 30 June 30 June 2006 2005 % £'000 £'000 ChangeIncome Statement:Revenue 45,566 34,080 +34% Earnings before interest, taxation, depreciation andamortisation of intangibles (EBITDA) 6,163 3,848 +60%Profit before tax and amortisation of intangible assets 5,070 3,489 +45%Profit before tax 3,627 3,103 +17% Earnings per ordinary share - basic (pence) 3.32 3.21 +3%Adjusted earnings per ordinary share - basic (pence) 5.65 3.90 +45% Balance Sheet:Total equity 51,609 40,324Cash and cash equivalents 6,157 12,950Interest bearing loans and borrowings relating to the acquisition of Trados Inc (16,605) - Operational Highlights: • Record revenue and profits, ahead of market expectations • New enterprise customer agreements with AGCO, Dell and FedEx • Desktop software market share increased to over 90% of translation industries' professionals, with over 130,000 installations • Successful integration of Trados • Knowledge-based Translation Solution customer wins include HP, Computer Associates and Microsoft Mark Lancaster, Chief Executive and Chairman, said: "The first half of the year has seen strong growth for SDL. The integration ofTrados and its technology into SDL has already proved successful in deliveringGlobal Information Management solutions for major global corporations, as wellas leading to a considerable improvement in gross margins for the group. We expect to see continued strong financial returns from our investment inGlobal Information Management, both from the services and the technology sidesof the business. We anticipate that the adoption of enterprise technology willincrease as we introduce new platform technologies into the market place and thelarger corporations continue to evolve their global content strategies. Theunderstanding and awareness of Global Information Management continues to be thenumber one challenge to the growth of our business. However both our researchand that of third parties emphasises that Global Information Management isbecoming increasingly important as corporations continue to globalize.Accordingly we expect the company to show continued growth in both profits andrevenue." For further information please contact: SDL plc On 4 September 2006 tel: 020 7831 3113Mark Lancaster, Chief Executive Thereafter tel: 01628 410 127 Financial Dynamics Tel: 020 7831 3113Edward Bridges/Juliet Clarke Background information About SDL plc: SDL International (London Stock Exchange: 'SDL') is the leader in globalinformation management (GIM) solutions that empower organizations to acceleratethe delivery of high-quality multilingual content to global markets. Itsenterprise software and services integrate with existing business systems tomanage global information from authoring to publication and throughout thedistributed localization supply chain. Global industry leaders rely on SDL to provide enterprise software or hostedservices for their GIM processes, including Audi, Bayer, Best Western, Bosch,Canon, Deutsche Bank, Kodak, Microsoft, Morgan Stanley, Reuters and SAP. SDL hasimplemented more than 150 enterprise GIM solutions, has deployed over 130,000software licenses across the GIM ecosystem and provides access to on-demandtranslation portals for 10 million customers per month. Over 1000 serviceprofessionals deliver consulting, implementation and language services throughits global infrastructure of more than 50 offices in 30 countries. For moreinformation, visit www.sdl.com. Chairman's Statement Summary Performance The first half of 2006 saw SDL again achieve record revenue and operatingprofits, ahead of market expectations. Revenues were up 34% at £45.6 million(H1 2005: £34.1 million) with 12% of this revenue growth being organic and thebalance contributed by the acquisition of Trados. Profit before tax andamortisation of intangible assets has increased by 45% to £5.1 million (H1 2005:£3.5 million). SDL is now the world leader in Global Information ManagementTechnology, providing in excess of 150 enterprise solutions to major businessessuch as Canon, HP, Dell, FedEx, GSK, DaimlerChrysler and Bosch. SDL alsoincreased its market share of desktop software to over 90% of the translationindustries' professionals, with over 130,000 installations of SDL desktoptechnology currently in the market place. Our Technology The successful integration of Trados into SDL has led to a considerableimprovement in gross margins, now at 50%, and hence improved the underlyingoperating performance of the Group. With the combination of technology assetsand the extensive services experience of Trados and SDL, we have been able topool successfully the expertise and assets to deliver a completely integratedsuite of technology solutions across the translation ecosystem. In the last sixmonths we have seen an increased number of major corporations adopt SDL's GlobalInformation Management Solutions, including leading players in their marketssuch as AGCO, Dell and FedEx. This is a positive message for SDL, confirming notonly the awareness of our solutions, but also the value they add to the leadingblue chip companies. We will be launching the first evolution of our newplatform technology 'SDL Trados Synergy' at the end of the third quarter of2006. 'SDL Trados Synergy' has been designed to radically enhance theperformance of both Language Service Providers and corporate customers byproviding advanced project management and workflow technology currently onlyincorporated into SDL's Enterprise products. This major advance in the industrywill provide completely integrated technology across the translation supplychain so that all parties in the chain can benefit from smooth file integrationand effective translation logistics management. Services Infrastructure The Services side of the Group continues to go from strength to strength. OurKnowledge-based Translation solutions have transformed the landscape fortranslation, speeding up time to market and reducing costs. We are very excitedto have introduced this solution to key players in the market such as HP, CA andMicrosoft in the past 6 months. As a direct result of our focused sales effortson larger perpetual contracts we are now seeing an increasing number of theselarger contracts being signed with related ongoing services revenue. In additionSDL now has arguably the most integrated and extensive local language officenetwork in the world, with a global infrastructure of language productionoffices situated in more than 30 countries. All of these offices are fullyintegrated with each other via SDL's Global Information Management Technologyand Management system, driving internal operational efficiencies and bringingscalability to our services offering. Vision and strategy for Global Information Management The goal of Global Information Management is to accelerate the delivery ofglobal content into local markets, maintain branding and reduce productioncosts. In order to provide comprehensive Global Information Management thecomplete supply chain of those involved in the creation and maintenance ofglobal content must be included in the solution. SDL's technology providesincreased integration across this supply chain. As we start to release newplatform technology onto the market over the next 12 months, we are confidentthat the major advances that we have made will significantly enhance theproductivity of the translation supply chain, stimulating growth in both thetechnology and the localization services industry as a whole. SDL is also verywell placed to take advantage of the consolidation of the content managementspace, being the world leader in Global Information Management, which is anintegral part of content management that has been overlooked up until recently. Outlook We expect to see continued strong financial returns from our investment inGlobal Information Management, both from the services and the technology sidesof the business. We anticipate that the adoption of enterprise technology willincrease as we introduce new platform technologies into the market place and thelarger corporations continue to evolve their global content strategies. Theunderstanding and awareness of Global Information Management continues to be thenumber one challenge to the growth of our business. However both our research*and that of third parties emphasises that Global Information Management isbecoming increasingly important as corporations continue to globalize.Accordingly we expect the company to show continued growth in both profits andrevenue. Mark LancasterChairman and CEOSDL plc4 September 2006 *see: http://www.sdl.com/company/press-releases-sdl/press-release-sdl.htm?id=66 SDL plcInterim Condensed Consolidated Income Statement Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December Notes 2006 2005 2005 £'000 £'000 £'000Continuing Operations Sale of goods 5,351 757 7,425Rendering of services 40,215 33,323 71,054 REVENUE (2) 45,566 34,080 78,479 Cost of sales (22,999) (20,147) (41,475) GROSS PROFIT 22,567 13,933 37,004 Administrative expenses (16,951) (10,569) (29,288)OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS 5,616 3,364 7,716Amortisation of intangible assets (1,443) (386) (1,952) OPERATING PROFIT (3) 4,173 2,978 5,764Finance costs (640) (9) (761)Finance revenue 94 134 214 PROFIT BEFORE TAX 3,627 3,103 5,217 UK tax expense (453) (1,080) (1,185)Foreign tax expense (4) (1,117) (215) (1,173) Tax expense (1,570) (1,295) (2,358) PROFIT FOR THE PERIOD ATTRIBUTABLETO EQUITY HOLDERS OF THE PARENT 2,057 1,808 2,859 Pence Pence PenceEarnings per ordinary share - basic (pence) (5) 3.32 3.21 4.87Earnings per ordinary share - diluted (pence) (5) 3.23 3.09 4.68Adjusted earnings per ordinary share - basic (pence) (5) 5.65 3.90 8.20Adjusted earnings per ordinary share - diluted (pence) (5) 5.51 3.76 7.87 SDL plc Interim Condensed Consolidated Balance Sheet Unaudited Unaudited Audited 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 2,985 2,613 2,746Intangible assets 61,610 23,668 63,583Deferred income tax 1,484 1,136 1,640Rent deposits 442 254 353 66,521 27,671 68,322CURRENT ASSETSTrade and other receivables 20,148 15,244 18,995Cash and cash equivalents 6,157 12,950 6,976 26,305 28,194 25,971 TOTAL ASSETS 92,826 55,865 94,293 LIABILITIESCURRENT LIABILITIESTrade and other payables (17,376) (11,987) (18,045)Interest bearing loans and borrowings (2,000) - (2,000)Current tax liabilities (4,013) (2,976) (4,068)Provisions (305) (38) (500) (23,694) (15,001) (24,613) NON CURRENT LIABILITIESInterest bearing loans and borrowings (14,605) - (17,092)Deferred tax (2,540) (103) (2,596)Provisions (378) (437) (398) (17,523) (540) (20,086) TOTAL LIABILITIES (41,217) (15,541) (44,699) NET ASSETS 51,609 40,324 49,594 EQUITYShare capital 623 566 615Share premium 50,953 44,339 50,629Shares to be issued 66 238 238Retained earnings (731) (5,004) (2,893)Foreign exchange differences 698 185 1,005 TOTAL EQUITY ATTRIBUTABLE TO 51,609 40,324 49,594EQUITY HOLDERS OF THE PARENT The Interim Financial Information presented in this Interim Report was approvedby the Board of Directors on 4 September 2006. SDL plc Interim Condensed Consolidated Statement of Changes in Equity Shares Foreign Share Share to be Retained Exchange Capital Premium Issued Earnings Differences Total £'000 £'000 £'000 £'000 £'000 £'000 At 31 December 2004 (audited) 561 44,165 213 (6,909) 532 38,562Currency translation differences onforeign currency intangibles andnet investments - - - - (189) (189)Currency translation differences onforeign currency equity loans toforeign subsidiaries - - - - (158) (158)Deferred taxation on sharebased payments - - - 23 - 23Tax credit for share options - - - - - - Total income and expense for theperiod recognised directly in equity - - - 23 (347) (324)Net profit for the period - - - 1,808 - 1,808 Total income and expensefor the period - - - 1,831 (347) 1,484Arising on share options 2 69 - - - 71Arising on acquisition of Lomac 3 105 (108) - - -Lingua Franca deferredpurchase consideration - - 133 - - 133Share-based payments - - - 74 - 74 At 30 June 2005(unaudited) 566 44,339 238 (5,004) 185 40,324 Currency translation differences onforeign currency intangibles andnet investments - - - - 156 156 Currency translation differences onforeign currency equity loans toforeign subsidiaries - - - - 664 664 Deferred taxation on sharebased payments - - - 395 - 395Tax credit for share options - - - 464 - 464 Total income and expense for theperiod recognised directly in equity - - - 859 820 1,679Net profit for the period - - - 1,051 - 1,051 Total income and expense forthe period - - - 1,910 820 2,730Arising on share options 4 202 - - - 206Arising on acquisition of TRADOS 45 6,088 - - - 6,133Share-based payments - - - 201 - 201 At 31 December 2005 (audited) 615 50,629 238 (2,893) 1,005 49,594 Interim Condensed Consolidated Statement of Changes in Equity (cont.) Shares to Foreign Share Share be Issued Retained Exchange Capital Premium Earnings Differences Total £'000 £'000 £'000 £'000 £'000 £'000 At 31 December 2005 615 50,629 238 (2,893) 1,005 49,594Currency translation differences onforeign currency intangibles andnet investments - - - - 121 121Currency translation differences onforeign currency equity loans toforeign subsidiaries - - - - (428) (428)Deferred taxation on share basedpayments - - - (156) - (156)Tax credit for share options - - - 111 - 111 Total income and expense for theperiod recognised directly in equity - - - (45) (307) (352)Net profit for the period - - - 2,057 - 2,057 Total income and expense forthe period - - - 2,012 (307) 1,705Arising on share options 4 156 - - - 160Arising on acquisition of Lomac 3 103 (106) - - -Arising on acquisition of LinguaFranca 1 65 (66) - - -Share-based payments - - - 150 - 150 At 30 June 2006(unaudited) 623 50,953 66 (731) 698 51,609 These amounts are attributable to equity holders of the parent. SDL plc Interim Condensed Consolidated Cash Flow Statement Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Profit before tax 3,627 3,103 5,217 Depreciation of property, plant and equipment 547 484 1,122Amortisation of intangible assets 1,443 386 1,952Finance costs 640 9 761Finance revenue (94) (134) (214)Share-based payments 150 74 275Loss on disposal of property, plant and equipment - 7 24Increase in debtors (1,610) (2,103) (2,640)(Decrease)/increase in current liabilities and provisions (1,165) 817 1,289Exchange differences 4 (165) (123)Income tax paid (1,202) (337) (1,956) NET CASH FLOWS GENERATED FROMOPERATING ACTIVITIES 2,340 2,141 5,707 CASH FLOWS FROM INVESTING ACTIVITIESPayments to acquire property, plant and equipment (486) (499) (1,010)Receipts from sale of property, plant and equipment - 19 201Purchase of Trados Inc (76) (213) (30,328)Net cash acquired with subsidiaries - 13 3,216Interest received 94 134 214 NET CASH FLOWS USED IN INVESTINGACTIVITIES (468) (546) (27,707) Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000FINANCING ACTIVITIESNet proceeds from issue of ordinary share capital 160 70 277Repayment of interest bearing loans and borrowings (2,162) - (2,385)Proceeds from new loans - - 20,092Interest paid (640) (9) (761) NET CASH FLOWS GENERATEDFROM FINANCING ACTIVITIES (2,642) 61 17,223 (DECREASE)/INCREASE IN CASH ANDCASH EQUIVALENTS (770) 1,656 (4,777) MOVEMENT IN CASH AND CASH EQUIVALENTSCash and cash equivalents at start of the period 6,976 11,452 11,452(Decrease)/increase in cash and cash equivalents (770) 1,656 (4,777)Effect of exchange rates on cash and cash equivalents (49) (158) 301 Net cash and cash equivalents at end of the period 6,157 12,950 6,976 SDL plc Notes to the Interim Condensed Consolidated Financial Statements 1. Basis of preparation and accounting policies Basis of preparation The interim condensed consolidated financial statements for the six months ended30 June 2006 have been prepared in accordance with IAS 34 Interim FinancialReporting. The interim condensed consolidated financial statements do not include all theinformation and disclosures required in the annual financial statements, andshould be read in conjunction with the Group's annual financial statements as at31 December 2005. Significant accounting policies The accounting policies adopted in the preparation of the interim condensedconsolidated financial statements are consistent with those followed inpreparation of the Group's annual financial statements for the year ended 31December 2005. 2. Segment information The Group operates in the Global Information Management industry. The primaryreporting format is determined to be business segments, being TranslationServices and Technology. The Translation Services segment is the provision of a translation service tocustomer's multilingual content. The Technology segment is the sale of desktop and enterprise technologydeveloped to help automate and manage the creation of multilingual assets. The Group's geographical segments are based on the geographical destination ofrevenues. Prior to 30 June 2005 the Translation Services segment was the only businesssegment in the primary reporting format. Six months ended 30 June 2006 (unaudited) Translation Technology Total Services £'000 £'000 £'000 Revenue 36,818 8,748 45,566 Segment results 4,803 (630) 4,173Unallocated expenses (546) Profit before tax 3,627 The Technology segment result before amortisation of intangible assets is aprofit of £428,000. Year ended 31 December 2005 (audited) Translation Technology Total Services £'000 £'000 £'000 Revenue 66,657 11,822 78,479Segment results 8,107 (2,343) 5,764Unallocated expenses (547)Profit before tax 5,217 The Technology segment result before amortisation of intangible assets is a lossof (£1,161,000). Revenue by geographical destination was as follows: Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 United Kingdom 3,371 2,357 5,896Rest of Europe 15,880 11,407 26,884USA 18,595 14,779 33,102Rest of North America 4,460 3,872 8,044Rest of the World 3,260 1,665 4,553 45,566 34,080 78,479 3. Operating profit Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000Is stated after charging/(crediting): Research and development expenditure 2,372 1,310 3,877Depreciation of owned and leased assets 547 484 1,122Amortisation of intangibles 1,443 386 1,952Net foreign exchange differences (424) (617) (551) 4. Taxation Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000UK corporation tax:UK current tax on income for the period 399 1,055 1,255Adjustments in respect of prior periods - (150) (200)Tax credit for share options taken to equity 111 150 464 510 1,055 1,519Foreign tax:Current tax on income for the period 1,117 215 1,260Adjustments in respect of prior periods - - (87) 1,117 215 1,173Total current taxation 1,627 1,270 2,692 Deferred taxation:Origination and reversal of timing 99 25 (752)differencesDeferred tax (debit)/credit for share options taken to equity (156) - 418Total deferred taxation (57) 25 (334)Tax on profit 1,570 1,295 2,358 Due to the requirements of IAS 12, in conjunction with IFRS 2, the Schedule 23tax credit for share options exercised is largely recorded in equity. For the 6months ended 30 June 2006 this has the effect of increasing the effective taxrate by around 2.2% (at 30 June 2005: 4%). 5. Earnings per share Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000Profit for the period attributable to equity holders of the parent 2,057 1,808 2,859 m m mBasic weighted average number of shares (million) 61.9 56.3 58.6Employee share options and shares to be issued (million) 1.6 2.1 2.5Diluted weighted average number of shares (million) 63.5 58.4 61.1 Adjusted earnings per share: Unaudited Unaudited Audited 6 months to 6 months to Year to 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000Profit for the period attributable to equity holders of the parent 2,057 1,808 2,859Amortisation of intangibles 1,443 386 1,952Adjusted profit for the period attributable to equity holders of the parent 3,500 2,194 4,811 m m mBasic weighted average number of shares (million) 61.9 56.3 58.6Diluted weighted average number of shares (million) 63.5 58.4 61.1 Pence Pence PenceAdjusted earnings per ordinary share - basic (pence) 5.65 3.90 8.20Adjusted earnings per ordinary share - diluted (pence) 5.51 3.76 7.87 6. Interest-bearing loans On 31 March 2006 the Group repaid $1,491,000 of a secured bank loan bearing aninterest rate of LIBOR + 1.75%. On 30 June 2006 the Group repaid £500,000 of asecond secured bank loan also bearing an interest rate of LIBOR + 1.75%. Inaddition on 30 June 2006 the Group repaid $1,400,000 of a secured revolvingcredit facility bearing an interest rate of LIBOR + 1.875%. Subsequent to 30 June 2006 the interest rates relating to the secured bank loansand the secured revolving credit facility have been reduced to LIBOR + 1.25%. 7. Share-based payments On 22 March 2006 236,667 stock options were issued. The exercise price of theoptions of 220.75 pence is equal to the market price of the shares on the dateof issue. In addition 566,101 awards were granted on 25 May 2006 under the long termincentive program approved by the shareholders at the EGM on 27 April 2006. Theexercise price of these awards is £nil. 8. Derivatives and other financial instruments - hedges At 30 June 2006 the Group had certain forward and forward plus contracts tohedge future cash flows totalling $12 million through to December 2006 at ratesof $1.7355 and $1.7855 and totalling $6m at rates of $1.7350 and $1.7650 betweenJanuary and March 2007. There were no such contracts in place at 30 June 2005and at 31 December 2005 the Group held contracts totalling $14 million throughJuly 2006 at a rate of $1.8115. As at 30 June 2006 the Group recognised anunrealised gain of £538,000 in relation to the above hedge (30 June 2005 - £nil,31 December 2005 - unrealised loss of £67,000). 9. Antitrust Division of U.S. Department of Justice enquiry re acquisition ofTrados Inc During the period the Company announced that the Antitrust Division of the U.S.Department of Justice had closed its investigation into the Company'sacquisition of Trados Inc. 10. General notes The financial information in this interim statement does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. Thefinancial information for the year ended 31 December 2005 is based on thestatutory accounts for the financial year ended 31 December 2005. Thoseaccounts, upon which the auditors issued an unqualified opinion, have beendelivered to the registrar of companies. 11. Events after the balance sheet date There are no known events occurring after the date of this report that requiredisclosure. Independent Review Report to SDL plc INTRODUCTION We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Consolidated Statement of Changes in Equity, and the related notes 1 to 11. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. DIRECTORS' RESPONSIBILITIES The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. REVIEW WORK PERFORMED We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies have been applied, unless otherwisedisclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with International Standards onAuditing (UK and Ireland) and therefore provides a lower level of assurance thanan audit. Accordingly we do not express an audit opinion on the financialinformation. REVIEW CONCLUSION On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Ernst & Young LLPReading4 September 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L