Interim Results

14 August 2012

SDL PLC

Interim results for the six months ended 30 June 2012

Good first half performance with strong organic revenue growth and good progress in integrating the acquired Alterian business

SDL plc ("SDL" or "the Group"), a leader in the emerging market for Global Information Management (GIM) solutions, is pleased to announce its unaudited interim results for the six months ended 30 June 2012. 

Highlights:

·;    Good first half 2012, with both revenue and profit before taxation and amortisation in-line with expectations

·; Headline revenue growth of 20%, with 8% organic and 12% attributable to the Alterian acquisition

·; Strong revenue growth in Language Services (14%)

·; Several key new customer wins in the period with major global brands

·; Alterian integrating well into the group and performed somewhat ahead of expectations

·; Robust performance at the group level due to broad geography and sector coverage and the mix of technology and services across the group

·; Our products continue to lead the world in innovation and our strategy is synchronised with market needs, with SDL continuing to outperform industry leading names

Mark Lancaster, Executive Chairman, commented:

"The global macro-economic outlook remains uncertain with the structural weakness in Europe remaining unresolved. This in turn has created a degree of caution in some of the markets we operate in. Despite this we do see growth opportunities in both the USA and Asia.

SDL has a well-diversified and broad portfolio of solutions and through new client wins and a strong focus on execution we believe the Group will continue to show growth. We will maintain our investments to implement our long term vision and strategy to create best of breed technology and service solutions." 

For further information please contact:

About SDL

SDL enables global businesses to engage with their customers in the language, the media and at the moment they choose. We help businesses manage their brands, drive global revenues, accelerate speed to market and enrich their customers' experience. SDL's enterprise-ready innovative technology and service solutions span the entire customer journey and include social listening and marketing analytics, campaign management, language management and services, video and written content creation, web content management, dynamic technical documentation publication and eCommerce. SDL solutions drive global reach across multiple languages, cultures, channels and media. SDL has over 1,500 enterprise customers, 400 partners and a global infrastructure of 70 offices in 38 countries. For more information, visit www.sdl.com.

All trademarks are the property of their respective owners.

Executive Chairman's Statement

Summary Performance

I am pleased to report a good group performance for the first half of 2012, ahead of the prior year, and in line with our expectations for both revenue and operating profit.

Revenue for the first half of 2012 was £133.6 million (2011: £111.5 million) and profit before taxation and amortisation of intangible assets ("PBTA") was £20.4 million (2011: £18.7 million) with profit before taxation of £16.4 million (2011: £15.8 million). Net debt at the end of the period amounted to £5.5 million (31 December 2011 net cash: £70.4 million). Significant outflows in the period included the acquisition of Alterian at £69.7m and payment of the final dividend for 2011 of £4.6 million or 5.8p per share.

Headline revenue growth was 20%, which comprised 8% organic revenue growth in the former SDL businesses and 12% attributable to the Alterian business. Currency had negligible impact on revenue. Overall PBTA margin was 15.3% (2011: 16.7%), reflecting the anticipated first year dilutive effect from Alterian. PBTA margin for the former SDL business was 16.6%.

We made excellent progress in our Services division, with 14% organic growth, whilst our technology division was broadly flat, the former confirming SDL's strong growth characteristics in a challenging macro-economic climate. We grew revenue both in established accounts as well as it being an extremely strong half for new client wins which offset economic weakness in Europe. Demand for cross-leveraged solutions continued to grow as our clients seek more integrated, innovative solutions that manage the end-to-end customer experience across borders, languages and cultures.

Cash generated from operations before one-off Alterian acquisition related outflows was £9.5 million (2011: £18.8 million). Cash flow is lower year on year partially due to the effect of settling acquisition related costs and historic liabilities in Alterian. We also had good H1 exit activity levels in the business creating high work in progress that will be converted in the following half year. We expect SDL to be back to historic levels of cash generation as we move through 2013 with Alterian fully embedded into the business.

Alterian Acquisition

The Alterian acquisition adds marketing analytics, social media monitoring and campaign management solutions to SDL's Global Information Management (GIM) platform. It performed ahead of our expectations in the half sustaining good renewal rates and delivering pro-forma six-month revenues of £16.0 million. The acquisition enhances our GIM solution by allowing our clients to analyse their customers' behaviours and interactions, significantly enhancing web and multi-channel engagement. Good integration progress has been achieved, with planned activities completed to schedule in the period. Operational cost savings have allowed for further investment in future growth and the augmentation of the organisation, particularly in product development.

Content Management Technologies (contributing £28.7 million or 21% revenue to the Group and £5.2 million or 25% of the PBTA) (2011: contributing £26.0 million or 23% revenue to the Group and £4.3 million or 23% of the PBTA)

This segment comprises Web Content Management Solutions, eCommerce Technologies and Structured Content Technologies and achieved headline revenue growth of 10% in the first half of 2012. However, this was achieved through a 13% increase from the web content management business acquired from Alterian, offset by a decline of 3% at constant currency against a very strong first half in 2011. Currency effects were negligible. PBTA margin was 18%. The Web Content Management business sustained its competitive momentum with performance stronger in North America and Asia but weaker in Europe. Web Content Management constant currency licence revenue growth was 8%. New wins in the period included VCE, MAPFRE and TenCate. We continued to invest significantly in innovation during the period with a new user interface launched for the SDL Tridion product, a significant innovation that enables full control over the digital ecosystem, spanning content creation, targeting, multi-channel, translation, social media interaction and site analytics. Structured Content Management revenues were lower against a very strong prior year. New wins included Electrolux and BDR Thermea.

Language Technologies(contributing £19.5 million or 15% revenue to the Group and £1.5 million or 8% of the PBTA) (2011: contributing £19.4 million or 18% revenue to the Group and £2.4 million or 13% of the PBTA)

Headline Language Technologies revenues were marginally ahead of the first half of 2011, a solid performance, with 1% organic growth at constant currency offset by a negative impact of 1% from currency movements. PBTA margin was 7.9%, a reduction of 4.3% against prior year first half, reflecting selective territory investment in growth markets, notably Asia, and our continued commitment to the development of leading statistical machine translation capability.

Sales increased in all product areas with the exception of US Government where activity levels were lower. New wins included ADP and GREE. We are pleased with the strong uptake of our leading Desktop translation product, Studio 2011. We continued to see a steady transition from perpetual licences to Software as a Service ("SaaS") models which will enhance the visibility of revenue going forward and is an important strategic growth driver. Cross sell activity in the period with other SDL businesses was also a significant contributor, with sales to Bose, Danish Oil & Natural Gas, Schneider Electric and Thermo Fisher. We completed several key investments in the period including expansion of our large scale data processing capability and the opening of a new R&D facility in Cambridge, UK. These investments will continue to drive our market-leading capabilities in machine translation.

Language Services(contributing £75.2million or 56% of group revenue and £14.2 million or 69% of PBTA) (2011: contributing £66.0 million or 59% of group revenue and £12.0 million or 64% of PBTA)

Headline revenue grew impressively by 14% in the first half of 2012, with negligible currency effects. We experienced very strong new win momentum, particularly in the USA. New wins in the period included MAN Diesel, Maersk, Jyske Bank, Bazaarvoice, Samsung Mobile, Tourism Australia and Yamaha Motor Europe. We are pleased with the development of our Asian business where our client base grew significantly, and as a result we further expanded our infrastructure in Japan, China, Korea and Singapore to match increasing demand. We also expanded our centres in Poland and India which are driving efficiencies across the Language Services business. Our opportunity pipeline remains strong.

PBTA margin was 18.8%, an increase of 0.6%, driven by increased volumes and improved efficiencies from the deployment of increasing numbers of intelligent Machine Translation post-edited solutions.

Campaign Management, Analytics & Social Intelligence (the main components of The Alterian acquisition) (contributed £10.2million or 8% of group revenue and £0.2million or 1% of PBTA) (not present in 2011 comparatives).

This segment comprises marketing analytics, campaign management and social intelligence technologies and is separately reported to enhance shareholder visibility on performance.

The segment performed somewhat ahead of our expectations in the first half of 2012, delivering good renewals. This, coupled with realised operating synergies has allowed us to increase our research and development investment thus enhancing the product platforms to deliver future growth. Operational and organisational capability has been significantly enhanced in the period and business performance has stabilised through effective execution of integration plans.

We had a number of excellent new wins in the period including Abbott Laboratories, Citrix Online, Newsmax, Princes Cruises and Camelot.

Efforts to drive cross sell with other SDL businesses are growing pipeline and opportunity for this segment. This segment is highly complementary to SDL's other businesses in providing a compelling solution to drive customer experience.

Strategy for Global Information Management

Our strategic focus is to deliver an industry leading solution for global customer experience management through our Global Information Management solution platform.

The Alterian acquisition enhances this capability by adding compelling capability to listen, analyse and orchestrate effective marketing. At our core we enable global businesses to engage with their customers, manage their brands and drive global revenues, by providing enterprise-ready solutions for managing the end-to-end customer experience.

The fundamental growth drivers of the business remain unchanged: globalisation of business, growth of the internet, especially in fast growing economies where English is not the native language, and exponential growth in digital content.

We operate in a world where, for companies to thrive globally, the future is about delivering the right content at the right time to a plethora of mobile devices. Language and simplicity remains a core differentiator of SDL's products and services.

Outlook and Current Trading

The global macro-economic outlook remains uncertain with the structural weakness in Europe remaining unresolved. This in turn has created a degree of caution in some of the markets we operate in. Despite this we do see growth opportunities in both the USA and Asia. SDL has a well-diversified and broad portfolio of solutions and through new client wins and a strong focus on execution we believe the Group will continue to show growth. We will maintain our investments to implement our long term vision and strategy to create best of breed technology and service solutions.

Mark Lancaster

Executive Chairman

SDL plc

14 August 2012

SDL plc

Interim Condensed Consolidated Income Statement

Adjusted earnings per ordinary share (basic and diluted) are shown in note 6.

SDL plc

Interim Condensed Consolidated Statement of Comprehensive Income

All the total comprehensive income is attributable to equity holders of the parent company.

SDL plc

Interim Condensed Consolidated Statement of Financial Position

The Interim Financial Information presented in this Interim Report was approved by the Board of Directors on 14 August 2012.

SDL plc

Interim Condensed Consolidated Statement of Changes in Equity

These amounts are attributable to equity holders of the parent company.

SDL plc

Interim Condensed Consolidated Statement of Cash Flows

SDL plc

Interim Condensed Consolidated Statement of Cash Flows

SDL plc

Notes to the Interim Condensed Consolidated Financial Statements

1. Basis of preparation and accounting policies

Basis of preparation

The annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. The interim condensed consolidated financial statements for the six months ended 30 June 2012 have been prepared on a going concern basis in accordance with IAS 34 Interim Financial Reporting.

As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2011.

The preparation of condensed consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results for which form the basis of making the judgements about carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

The principal risks and uncertainties were disclosed in the Group's annual report and financial statements for the year ended 31 December 2011 and remain broadly unchanged. SDL has an established process both to manage risk and to seek to mitigate the impact of risk as much as possible should it materialise. Operational risks include management succession, system interruption and business continuity, data protection, compliance, contract management, integration of acquisitions, maintaining technology leadership and intellectual property. Financial risks include liquidity, counterparties, interest rates and financial reporting. Managing the risks associated with the successful integration of Alterian has been an area of focus for management during the period and this will continue to be a focus in the second half of the year.

Going Concern

In line with code requirements the Directors have made enquiries concerning the potential of the business to continue as a going concern. Enquiries included a review of performance in 2012, 2012 annual plans, a review of working capital including the liquidity position and a review of current indebtedness levels. The Directors confirm they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Given this expectation they have continued to adopt the going concern basis in preparing the accounts.

2. Business Combinations

Acquisition of Alterian plc Group

On 27 January 2012 the Group acquired 100% of the share capital of Alterian plc, a listed company based in the United Kingdom. The principal activity of the Alterian plc group is the provision of marketing analytics, social media monitoring and campaign management.

The total cost of the combination was £73.2 million. £20 million of the cost of the acquisition was funded by draw down of the Group facility and the remainder was funded from the Group's existing cash resources.

The provisional fair value of the identifiable assets and liabilities of the Alterian plc group as at the date of acquisition were:

All fair values included in the above analysis are provisional fair values which are based upon management's best estimate at the date of preparation of the financial statements. The fair values are only provisional due to the proximity of the acquisition to the date of the reporting period.

From the date of acquisition Alterian plc group has contributed £13.7 million of revenue and a profit of £0.7 million to the net profit after tax of the Group. If the combination had taken place at the beginning of the year, the profit for the Group would have been £12.6 million and revenue from continuing operations would have been £135.9 million. Included in the £74.9 million of goodwill recognised above are certain intangible assets that cannot be individually separated and reliably measured from the acquiree due to their nature. These items include assembled workforce and buyer specific synergies.

Provisional Fair value of Calamares Holding B.V.

There have been no changes to the provisional fair value of the identifiable assets and liabilities of Calamares Group B.V. during the reporting period. The 12 month period for making changes to provisional fair values elapsed in May 2012.

3. Segment information

The Group operates in the Global Information Management industry. For management purposes the Group is organised into business units based on their products and services and has four reportable operating segments as follows:

·; The Language Services segment is the provision of a translation service to customer's multilingual content in multiple languages.

·; The Language Technologies segment is the sale of enterprise, desktop and statistical machine translation technology developed to help automate and manage multilingual assets together with associated consultancy and other services.

·; The Content Management Technologies segment is the sale of content management technologies developed to help automate and manage content to deliver a consistent, interactive and personalised customer experience, in multiple languages, across websites, documentation, multiple media and channels.

·; The Campaign Management, Analytics and Social Intelligence segment is the sale of campaign management, social media monitoring and marketing analytic technology together with associated consultancy and services.

Within the Content Management Technologies segment three operating segments have been aggregated to form the above reportable operating segment. The new acquisition, Alterian plc, is split between the Content Management Technologies and Campaign Management, Analytics and Social Intelligence segments.

Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment prior to charges for tax and amortisation.

Six months ended 30 June 2012 (unaudited)

* Acquisition related costs

Six months ended 30 June 2011 (unaudited)

* Net deferred consideration/ contingent consideration on acquisitions

Twelve months ended 31 December 2011 (audited)

*Deferred compensation relating to acquisitions

Segment assets:

(1) Segment assets do not include cash (£16,717,000), Corporation Tax (£1,106,000) and Deferred Tax (£7,192,000).

(2) Segment assets do not include cash (£53,411,000), Corporation Tax (£1,463,000) and Deferred Tax (£6,755,000).

(3) Segment assets do not include cash (£70,408,000), Corporation Tax (£509,000) and Deferred Tax (£4,976,000).

Revenue by geographical destination was as follows:

4. Operating profit

5. Taxation

A tax credit in respect of income tax credit on foreign currency translation differences on foreign currency loans to foreign subsidiaries of £150,000 was recognised in the statement of other comprehensive income in the six months to June 2012 (June 2011: £236,000; December 2011: £110,000).

A tax credit in respect of share based compensation for current taxation of £355,000 (June 2011: £523,000; December 2011: £523,000) has been recognised in the statement of changes in equity in the year. A tax charge in respect of share based compensation for deferred taxation of £180,000 (June 2011: £334,000; December 2011: £821,000) has been recognised in the statement of changes in equity in the period.

Due to the requirements of IAS 12, in conjunction with IFRS 2, the Schedule 23 tax credit for share options exercised and deferred taxation on unexpired options have partly been recorded in equity. For the 6 months ended 30 June 2012 this has the effect of increasing the effective tax rate by approximately +1.1% (at 30 June 2011:+1.2%; at 31 December 2011: -0.9%).

6. Earnings per share

7. Dividend per share

Dividends paid in the six months ending 30 June 2012 were £4,637,540 (six months ending June 2011: £4,328,495; twelve months ending December 2011: £4,328,495). The dividend paid amounted to 5.8 pence per ordinary share (2011: 5.5 pence per share).

8. Interest-bearing loans

On the acquisition of Alterian plc group the Group utilised the £20 million existing facility to partly fund the acquisition. The Group subsequently replaced the £2 million of overdraft that existed in Alterian at the acquisition date with a £2 million loan from a new facility of £7 million. These amounts are recorded in the balance sheet as liabilities.

9. Share-based payments

On 10 April 2012, 667,356 Long Term Incentive Plan (LTIP) shares were awarded and 164,049 stock options were awarded to certain key senior executives and employees of the SDL Group. The exercise price of the options of 748 pence represents the mid market price on the day before grant.

10. Derivatives and other financial instruments

At 30 June 2012, 30 June 2011 and 31 December 2011 the Group had no derivative financial instruments.

11. General notes

The comparative figures for the financial year ended 31 December 2011 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

12. Events after the statement of financial position date

There are no known events occurring after the statement of financial position date that require disclosure.

Responsibility Statement by the Management Board

We confirm that to the best of our knowledge:

·; the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·; the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

For and on behalf of the Board

Matthew Knight

Chief Financial Officer

Independent Review Report to SDL plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 which comprises the Interim Condensed Consolidated Income Statement, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Statement of Cash Flows, and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

P Gresham

for and on behalf of KPMG Audit Plc

Chartered Accountants

8 Salisbury Square

London

EC4Y 8BB

14 August 2012