14th Sep 2005 07:01
SDL PLC14 September 2005 14 September 2005 SDL PLC Interim Results for the six months ended 30 June 2005 Record sales and operating profits achieved 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 2005. 6 months to 6 months to 30 June 2005 30 June 2004 % £'000 £'000 ChangeIncome Statement:Revenue 34,080 30,670 +11% Earnings before interest, taxation, depreciationand amortisation of intangibles (EBITDA) 3,848 2,491 +54%Operating profit before amortisation ofintangible assets 3,364 1,973 +71%Profit before tax 3,103 1,622 +91% Earnings per ordinary share - basic (pence) 3.21 2.07 +55%Adjusted earnings per ordinary share - basic (pence) 3.90 2.77 +41% Balance Sheet:Total equity 40,324 35,867Cash and cash equivalents 12,950 7,757 Operational highlights • Significant revenue and operating profits growth during flat market • Over 20 new installations of SDL Translation Management System, including Hasbro, Le Meridien, Linde, Philips DAP, Plantronics, Qualcomm, Regus, Sony and Texas Instruments • Selection of the SDL Knowledge-based Translation System by Tweddle Litho and successful deployment for DaimlerChrysler and Best Western International • Acquisition of Lingua Franca extends footprint in Middle East Post period end • Acquisition of TRADOS: • Establishes SDL as global market leader • Allows SDL to provide technology and infrastructure to enable effective global information management Commenting on the interim results Mark Lancaster, Chairman and Chief Executiveof SDL, said: "We are continuing to see the benefits of our long-term investments in both thelocal geographic infrastructure and software solutions, which we anticipate willmaintain the trend of revenue growth and increased profit contribution for theGroup. We believe our technology investments and acquisitions now position SDLas the leader in delivering enterprise software solutions to the globalinformation management market. "The market has matured enormously in the past 18 months, we now have over100,000 desktop translation products in the market and our enterprise softwarehas reached more than 100 installations. The larger Language Service Providersare adopting server based Translation Management to leverage their translationsolutions and the corporate market for enterprise technology is moving fromearly adoption to that of market maturity. There is now a very clear technologystandard in the market place. Freelancers and smaller agencies are able to adoptthe desktop technology with the comfort they are able to integrate with theenterprise technology of their corporate clients, creating a smooth ecosystemallowing upward compatibility and upgrade opportunity at considerably less costthan has been afforded in the past. We consider this technology ecosystem willbe the catalyst for considerable market growth." For further information please contact: SDL plc On 14 September 2005 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 plc: SDL plc (London Stock Exchange: 'SDL') is the world's leading provider of globalinformation management (GIM) solutions that empower organizations to improve thequality and accelerate the delivery of 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 Statement of Changes in Equity Unaudited Consolidated Cash Flow Statement Notes to the Unaudited Interim Results Implementation of International Financial Reporting Standards Chairman's Statement Summary Performance The first half of 2005 saw SDL achieve record sales and operating profits. Thisperformance was achieved in highly competitive markets with slowing worldwideeconomies. We have also witnessed an increase in demand for enterprise softwaresolutions in the mid-size and large enterprise customers. We believe this demandis fueled by companies looking for solutions to grow their global markets tostimulate their top line growth. We attribute this success to our long-term strategy of investment in technologyand our integrated network office infrastructure. SDL's long term strategy hasimproved the quality and consistency of our language services, raised ourproductivity levels and increased revenues and profits from software sales.Through the creation of local language production centres, low cost productionunits and main stream hubs SDL has become a central vendor to customers such asAdobe, Bosch, Microsoft, Case New Holland and HP, by being able to offeradvanced solutions to their evolving needs. Our Technology 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. New Advances creating a Technology Ecosystem The first half of 2005 saw several major product enhancements and theintroduction of innovative products. • 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 investments intechnology and services infrastructure. Significant contract wins include: • Tweddle Litho's selection of the SDL Knowledge-based Translation System for automotive owners and service documentation, which has already successfully been deployed for DaimlerChrysler • Over 20 new installations of SDL Translation Management System, including Hasbro, Le Meridien, Linde, Philips DAP, Plantronics, Qualcomm, Regus, Sony and Texas Instruments • Early adoption of SDL AuthorAssistant from Kodak, Siebel and Getty Images Services Infrastructure We have continued our progressive 2 year investment program to align networkoffice infrastructure and low cost centre hubs, increasing customer value andadding to profitability. The value of our worldwide office infrastructure hasbecome more significant as technology automates more of the translation processand the focus will move towards network office resourcing, whilst the process ismanaged by technology. To this end, in April 2005 we acquired Lingua Franca, toform a Middle Eastern hub. SDL now has 50 offices in 30 countries, providingextensive local language coverage for our customers. TRADOS acquisition With 90% of global businesses only partially translating their global contentdue to the complexity and effort it takes to translate and maintain, there isconsiderable lost opportunity in global markets. The acquisition of TRADOS inearly July 2005 confirms SDL's position as the leader in providing multilingualtechnology into the market. The enlarged group allows us to provide technologyand infrastructure to enable effective Global Information Management (GIM) ofcompanies' assets within the GIM ecosystem. The integration of TRADOS and SDL has progressed ahead of schedule, allowing usto start focussing on our advanced new technology platform to managemultilingual content. We are able to take the best of both companies technologyand provide a solid framework for our customers. We are aligning the products inboth companies to provide a fully integrated suite of products from the desktopto the enterprise. This ecosystem of technology modules enables our customers tobuild up their own technology ecosystem knowing they can fully integrate thetechnology modules to provide customised solutions for their specificrequirements. Vision and strategy for Global Information Management SDL's investments and acquisitions over the last 5 years have resulted in SDLowning the technology framework required to effectively manage translationprocess efficiently. This, combined with the offices infrastructure, positionsSDL well to further execute its vision to maximise value for our customers andshareholders The market has matured enormously in the past 18 months, we now have over100,000 desktop translation products in the market and our enterprise softwarehas reached 100 installations. The larger Language Service Providers areadopting server based Translation Management to leverage their translationsolutions and the corporate market for enterprise technology is moving fromearly adoption to that of market maturity. There is now a very clear technologystandard in the market place. Freelancers and smaller agencies are able to adoptthe desktop technology with the comfort that they are able to integrate with theenterprise technology of their corporate clients, creating a smooth ecosystemallowing upward compatibility and upgrade opportunity at considerably less costthan has been afforded in the past. We consider this technology ecosystem willbe the catalyst for considerable market growth. Financial Summary For the first half of 2005 operating profit before amortisation of intangibleassets has increased by 71% to £3.4 million (H1 2004: £2.0 million). Revenueswere up 11% at £34.1 million (H1 2004: £30.7 million) and the Group's cash andcash equivalents at 30 June 2005 were up 67% to £12.9 million (H1 2004: £7.8million). Outlook We are continuing to see the benefits of our long-term investments in both thelocal geographic infrastructure and software solutions, which we anticipate willmaintain the trend of strong revenue growth and increased profit contributionfor the Group. We believe our technology investments and acquisitions nowposition SDL as the leader in delivering multilingual enterprise softwaresolutions to the content management market. In the latter months of 2005 weexpect to complete the resource and systems integration of Trados. We alsoexpect to see continued closure on some of the large strategic opportunities,coupled with a continued increase in standalone software solutions sales. As aresult of the combined research and development organisations we will launch anew technology platform, comprised of integrated software modules allowing ourcustomers to build their own technology ecosystem. We expect to see the revenueand profit contribution of software licenses continue to increase for the Group,leading to a healthy licence and service revenue mix. As we move into next year we expect 2006 to be a positive year for SDL as ourinvestments in software solutions and infrastructure continue to generatesignificant competitive advantages in the market by reducing costs and providingmore effective tailored solutions to the customer. We will review minorstrategic acquisitions activity for geographical leverage and potentialtechnology in fills. Mark Lancaster Chairman and CEO SDL plc 13 September 2005 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 2005, which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Statement of Changes inEquity, Consolidated Cash Flow Statement, and the related notes 1 to 8. We haveread 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 the 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. As discussed in note 1 the nextfinancial statements of the group will be prepared in accordance with those IFRSadopted for use by the European Union. The accounting policies are consistentwith those that the directors intend to use in their next financial statements. 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 and presentation have beenconsistently applied, unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with United Kingdom Auditing Standards and therefore provides a lowerlevel of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. 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 2005. Ernst & Young LLP Reading 13 September 2005 Unaudited Consolidated Income Statement 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 Notes £'000 £'000 £'000 Revenue (2) 34,080 30,670 62,690 Cost of sales (20,147) (17,635) (36,840)Gross profit 13,933 13,035 25,850 Non direct operating costs (10,569) (11,062) (20,746)OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS 3,364 1,973 5,104Amortisation of intangible assets (386) (385) (770) OPERATING PROFIT (3) 2,978 1,588 4,334Finance costs (9) (12) (30)Finance income 134 46 128PROFIT BEFORE TAX 3,103 1,622 4,432 Tax on profit (4) (1,295) (491) (1,443)PROFIT FOR THE PERIODATTRIBUTABLE TO EQUITYHOLDERS OF THE PARENT 1,808 1,131 2,989 Pence Pence PenceEarnings per ordinary share - basic (pence) (5) 3.21 2.07 5.42Earnings per ordinary share - diluted (pence) (5) 3.09 1.97 5.19Adjusted earnings per ordinary share - basic (pence) (5) 3.90 2.77 6.81Adjusted earnings per ordinary share - diluted (pence) (5) 3.76 2.64 6.53 Unaudited Consolidated Balance Sheet 30 June 30 June 31 December 2004 2005 2004 £'000 Notes £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 2,613 2,671 2,631Intangible assets (6) 23,668 24,047 23,662Deferred tax 1,136 1,175 1,113Rent deposits 254 283 217 27,671 28,176 27,623CURRENT ASSETSTrade and other receivables 15,244 13,024 13,019Cash and cash equivalents 12,950 7,757 11,452 28,194 20,781 24,471 TOTAL ASSETS 55,865 48,957 52,094 LIABILITIESCURRENT LIABILITIESTrade and other payables (11,987) (10,344) (10,989)Current tax liabilities (2,976) (1,606) (1,917) (14,963) (11,950) (12,906) NON CURRENT LIABILITIESDeferred tax (103) (76) (78)Provisions (475) (1,064) (548) (578) (1,140) (626)TOTAL LIABILITIES (15,541) (13,090) (13,532) NET ASSETS 40,324 35,867 38,562 EQUITYShare capital 566 555 561Share premium 44,339 43,953 44,165Shares to be issued 238 210 213Retained earnings (5,004) (8,846) (6,909)Foreign exchange difference 185 (5) 532TOTAL EQUITY 40,324 35,867 38,562 The Interim Financial Information presented in this Interim Report was approvedby the Board of Directors on 13 September 2005. Unaudited 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 1 January 2004 542 43,569 316 (10,164) - 34,263 Arising on share issues 13 384 (106) - - 291Net profit for the period - - - 1,131 - 1,131Share based payments - - - 50 - 50Deferred taxation on sharebased payments - - - 137 - 137Currency translationdifferences on foreigncurrency net investments - - - - 208 208Currency translationdifferences on loans toforeign subsidiariestreated as part of netinvestments - - - - (213) (213) At 30 June 2004 555 43,953 210 (8,846) (5) 35,867 Arising on share issues 6 212 3 - - 221Net profit for the period - - - 1,858 - 1,858Share based payments - - - 87 - 87Deferred taxation onshare based payments - - - (8) - (8)Currency difference ontranslation of net assetsof subsidiaryundertakings - - - - 502 502Currency translationdifferences on loans toforeign subsidiariestreated as part of netinvestments - - - - 35 35 At 31 December 2004 561 44,165 213 (6,909) 532 38,562 Shares Foreign Share Share to be Retained Exchange Capital Premium Issued Earnings Differences Total £'000 £'000 £'000 £'000 £'000 £'000 At 31 December 2004 561 44,165 213 (6,909) 532 38,562Arising on share issues 5 174 25 - - 204Net profit for the period - - - 1,808 - 1,808Share based payments - - - 74 - 74Deferred taxation onshare based payments - - - 23 - 23Currency difference ontranslation of net assetsof subsidiary undertakings - - - - (189) (189)Currency translationdifferences on loans toforeign subsidiariestreated as part of netinvestments - - - - (158) (158) At 30 June 2005 566 44,339 238 (5,004) 185 40,324 Unaudited Consolidated Cash Flow Statement 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000Profit before tax 3,103 1,622 4,432 Depreciation 484 518 1,085Amortisation of intangible assets 386 385 770Finance costs 9 12 30Finance income (134) (46) (128)Share based options (74) (50) (137)Loss on disposal of tangible fixed assets 7 - 2Increase in debtors (2,103) (671) (626)Increase/(decrease) in creditors andprovisions 817 (247) (167)Exchange differences (17) (98) 655 CASH FLOWS FROM OPERATING ACTIVITIES BEFORE TAX 2,478 1,425 5,916 Income tax paid (337) (584) (1,142) NET CASH FLOWS FROM OPERATING ACTIVITIES 2,141 841 4,774 INVESTING ACTIVITIESPayments to acquire tangible fixed assets (499) (528) (1,064)Receipts from sale of tangible fixed assets 19 20 62Purchase of subsidiary undertakings (213) (123) (123)Net cash acquired with subsidiaryundertakings 13 - -Interest received 134 46 128 NET CASH FLOWS FROM INVESTING ACTIVITIES (546) (585) (997) 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000FINANCING ACTIVITIESNet proceeds from issue of ordinaryshare capital 70 291 512Repayment of short term and longterm loans - (18) (17)Capital element of finance leaserental payments - (46) (50)Interest paid (9) (1) (5)Finance lease interest - (11) (25)NET CASH FLOWS FROM FINANCING ACTIVITIES 61 215 415INCREASE IN CASH IN CASH AND CASH EQUIVALENTS 1,656 471 4,192 MOVEMENT IN CASH AND CASH EQUIVALENTSCash and cash equivalents at start of period 11,452 7,223 7,223Increase in cash and cash equivalents 1,656 471 4,192Cash outflow from decrease in debtand lease financing - 63 67Translation difference (158) - (30)Net cash and cash equivalents atend of period 12,950 7,757 11,452 Notes to the Unaudited Interim Results 1. Basis of preparation The principal accounting policies are detailed in Section 2 - 'Implementation ofInternational Financial Reporting Standards'. These have been consistentlyapplied in arriving at the financial information set out in this report, exceptfor IAS32/39 where UK GAAP was adopted in the comparative period. Theaccounting policies adopted assume that all existing standards in issue from theIASB will be fully endorsed by the EU. These are subject to ongoing amendmentby the IASB and subsequent endorsement by the EU and are therefore subject topossible change. 2. Revenue and segmental information The primary reporting format is business segment, being translation services.The secondary reporting format is geographical segments, being sales bygeographical destination of sales. 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000 Total revenue from primary segment 34,080 30,670 62,690Total operating profit from primarybusiness segment 2,978 1,588 4,334 3. Operating profit 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000Is stated after charging: Research and development expenditure 1,310 1,389 2,538Depreciation of owned and leased assets 484 518 1,085Amortisation of intangibles 386 385 770 4. Taxation 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000UK Corporation Tax:UK Current Tax on income for the period 1,055 164 585Adjustments in respect of prior periods (150) (90) (42)Tax credit for share options taken to 150 - -equity 1,055 74 543Foreign Tax:Current Tax on income for the period 215 471 994Adjustments in respect of prior periods - - (94) 215 471 900Total Current Taxation 1,270 545 1,443 Deferred Taxation:Origination and reversal of timingdifferences 25 122 374Adjustments in respect of prior periods - (176) (374)Total Deferred Taxation 25 (54) -Tax on profit 1,295 491 1,443 Due to the requirements of IAS 12, in conjunction with IFRS 2, the Schedule 23tax credit for share options exercised is recorded in equity. For the 6 monthsended 30 June 2005 this has the effect of increasing the effective tax rate byaround 4%. 5. Earnings per share 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000Profit for the period attributable toequity holders of the parent 1,808 1,131 2,989 m m mBasic weighted average number ofshares (million) 56.3 54.7 55.2Employee share options and sharesto be issued (million) 2.1 2.7 2.4Diluted weighted average numberof shares (million) 58.4 57.4 57.6Adjusted earnings per share: 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £'000 £'000 £'000Profit for the period attributable toequity holders of the parent 1,808 1,131 2,989Amortisation of intangibles 386 385 770Adjusted profit for the periodattributable 2,194 1,516 3,759to equity holders of the parent m m mBasic weighted average numberof shares (million) 56.3 54.7 55.2Diluted weighted average numberof shares (million) 58.4 57.4 57.6 Pence Pence PenceAdjusted earnings per ordinary share- basic (pence) 3.90 2.77 6.81Adjusted earnings per ordinary share- diluted (pence) 3.76 2.64 6.53 6. Intangible assets On 18 April 2005 the Group acquired the business of Lingua Franca for an initialcash consideration of £213,000. In addition a total of 112,086 SDL shares areto be issued by 18 April 2007. The net liabilities of Lingua Franca at thedate of acquisition were £46,000, giving total goodwill of £392,000. 7. Post balance sheet events On 7 July 2005 the Group acquired the whole of the share capital of Trados Incfor a cash consideration of $50 million (£28.6 million) and the issue of4,542,957 Ordinary Shares in the Group with a market value of $10 million (£5.5million). The cash consideration was funded from new bank facilities of $35million (£20 million) and the balance from existing cash resources of the Group. 8. General notes Comparative information previously published under UK GAAP has been restatedunder International Financial Reporting Standards. Reconciliations of thisrestatement may be found in Section 2 of this report. 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 2004 is based on thestatutory accounts for the financial year ended 31 December 2004. Thoseaccounts, upon which the auditors issued an unqualified opinion, have beendelivered to the registrar of companies. Implementation of International Financial Reporting Standards Section 2 Implementation of International Financial Reporting Standards SDL plc is required to report its financial results in accordance withInternational Financial Reporting Standards ("IFRS") from 1 January 2005. Thepurpose of this section is to present the reconciliations between the previouslyreported UK GAAP financial results and the restated financial results underIFRS. These reconciliations include the Consolidated Income Statement for theyear ended 31 December 2004 and the half year ended 30 June 2004 and the BalanceSheets for the years ended 31 December 2004 and 31 December 2003 and the halfyear ended 30 June 2004. IFRS 1, 'First time adoption of International Financial Reporting Standards',sets out the procedures that the Group must follow when it adopts IFRS for thefirst time as the basis for preparing its consolidated financial statements. Ingeneral, the Group is required to determine its IFRS accounting policies andapply these retrospectively to determine its opening balance sheet as at 1January 2004 ("the transition date") under IFRS. The standard allows a number ofexemptions to this general principle to assist groups in the transition to IFRS.The Group has taken the following exemptions: I. Business combinations: Business combinations prior to the transition date have not been restated on an IFRS basis. II. Share-based payments: IFRS 2 has been applied to all share options granted since 7 November 2002 still outstanding as at 1 January 2005. III. Financial instruments: Financial instruments in the comparative period (2004) have been accounted for and recorded under UK GAAP. IV. Exchange differences arising on consolidation: The Group has elected to deem the cumulative amount of exchange differences arising on consolidation of the net investments in subsidiaries at 1 January 2004 to be nil. The principal differences between UK GAAP and IFRS are as follows: (a) Share-based payments In accordance with IFRS 2 'Share-based payments' the Group has recognised acharge to the income statement representing the fair value of outstanding shareoptions granted. The fair value of outstanding options granted has beencalculated using the Black Scholes model. The fair value is charged to incomeover the relevant options vesting period, adjusted to reflect actual andexpected levels of vesting. (b) Deferred taxation on share-based payments A deferred tax asset is recognised for temporary differences on expected futuretax deductions on share-based payments. The deferred tax is recognized overthe vesting period concerned, subject to the usual criteria of recognising adeferred tax asset. (c) Intangible assets and goodwill capitalisation and amortisation Under IFRS 3 goodwill is not amortised, but is subject to annual impairmenttesting. Under IAS 38 the Group is required to capitalise development expenditureproviding certain criteria laid out in IAS 38 are complied with. The intangibleassets is then amortised over an appropriate expected useful life from the pointthat the resulting product is available for commercial sale or internal use.The Board considers that no development expenditure incurred to date meets thecriteria for capitalisation under IAS 38 and therefore no costs have beencapitalised. (d) Holiday accruals As required by IAS 19 the Group has recorded a charge in the income statement torepresent holidays that have accrued to employees but not been taken as at therelevant balance sheet date. (e) Tax effect of holiday accruals The tax effect for the adjustment for the holiday accrual is reflected in theincome statement and balance sheet. Consolidated Income Statement UK IFRS IFRSFor the year ended 31 December 2004 GAAP Adjustments £'000 £'000 £'000 Revenue 62,690 - 62,690 Cost of sales (36,840) - (36,840)Gross profit 25,850 - 25,850 Non direct operating costs (24,721) (a) (137) (20,746) (c) 4,086 (d) 26OPERATING PROFIT BEFOREAMORTISATION OFINTANGIBLE ASSETS 1,129 3,975 5,104 Amortisation of intangible assets (770) - (770) OPERATING PROFIT 359 3,975 4,334Finance costs (30) - (30)Finance income 128 - 128PROFIT BEFORE TAX 457 3,975 4,432 Tax on profit (1,435) (e) (8) (1,443)(LOSS)/PROFIT FOR THEPERIOD ATTRIBUTABLETO EQUITY HOLDERS OFTHE PARENT (978) 3,967 2,989 Consolidated Balance Sheet UK IFRS IFRSAt 31 December 2004 GAAP Adjustments £'000 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 2,631 - 2,631Intangible assets 19,576 (c) 4,086 23,662Deferred tax 510 (b) 603 1,113Rent deposits 217 - 217 22,934 4,689 27,623CURRENT ASSETSTrade and other receivables 13,019 - 13,019Cash and cash equivalents 11,452 - 11,452 24,471 - 24,471 TOTAL ASSETS 47,405 4,689 52,094 LIABILITIESCURRENT LIABILITIESTrade and other payables (10,933) (d) (56) (10,989)Current tax liabilities (1,934) (e) 17 (1,917) (12,867) (39) (12,906) NON CURRENT LIABILITIESDeferred tax (78) - (78)Provisions (548) - (548) (626) - (626)TOTAL LIABILITIES (13,493) (39) (13,532) NET ASSETS 33,912 4,650 38,562 EQUITYShare capital 561 - 561Share premium 44,165 - 44,165Shares to be issued 213 - 213Retained earnings (11,559) (c) 4,086 (6,909) (b) 603 (d) (56) (e) 17Foreign exchange difference 532 - 532TOTAL EQUITY 33,912 4,650 38,562 Consolidated Balance Sheet UK IFRS IFRSAt 31 December 2003 GAAP Adjustments £'000 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 2,560 - 2,560Intangible assets 24,423 - 24,423Deferred tax 510 (b) 474 984 27,493 474 27,967CURRENT ASSETSTrade and other receivables 12,547 - 12,547Cash and cash equivalents 7,295 - 7,295 19,842 - 19,842 TOTAL ASSETS 47,335 474 47,809 LIABILITIESCURRENT LIABILITIESTrade and other payables (10,660) (d) (82) (10,742)Current tax liabilities (1,578) (e) 25 (1,553) (12,238) (57) (12,295) NON CURRENT LIABILITIESDeferred tax (78) - (78)Finance lease commitments (19) - (19)Provisions (1,154) - (1,154) (1,251) - (1,251)TOTAL LIABILITIES (13,489) (57) (13,546) NET ASSETS 33,846 417 34,263 EQUITYShare capital 542 - 542Share premium 43,569 - 43,569Shares to be issued 316 - 316Retained earnings (10,581) (b) 474 (10,164) (d) (82) (e) 25TOTAL EQUITY 33,846 417 34,263 Consolidated Income Statement UK IFRS IFRSFor the six months ended 30 June 2004 GAAP Adjustments £'000 £'000 £'000 Revenue 30,670 - 30,670 Cost of sales (17,635) - (17,635)Gross profit 13,035 - 13,035 Non direct operating costs (12,995) (a) (51) (11,062) (c) 2,043 (d) (59)OPERATING PROFIT BEFOREAMORTISATION OFINTANGIBLE ASSETS 40 1,933 1,973 Amortisation of intangible assets (385) - (385) OPERATING (LOSS)/PROFIT (345) 1,933 1,588Finance costs (12) - (12)Finance income 46 - 46(LOSS)/PROFIT BEFORE TAX (311) 1,933 1,622 Tax on (loss)/profit (491) - (491)(LOSS)/PROFIT FOR THE PERIOD ATTRIBUTABLETO EQUITY HOLDERS OF THE PARENT (802) 1,933 1,131 Consolidated Balance Sheet UK IFRS IFRSAt 30 June 2004 GAAP Adjustments £'000 £'000 £'000ASSETSNON CURRENT ASSETSProperty, plant and equipment 2,671 - 2,671Intangible assets 22,004 (c) 2,043 24,047Deferred tax 564 (b) 611 1,175Rent deposits 283 - 283 25,522 2,654 28,176CURRENT ASSETSTrade and other receivables 13,024 - 13,024Cash and cash equivalents 7,757 - 7,757 20,781 - 20,781 TOTAL ASSETS 46,303 2,654 48,957 LIABILITIESCURRENT LIABILITIESTrade and other payables (10,285) (d) (59) (10,344)Current tax liabilities (1,606) - (1,606) (11,891) (59) (11,950) NON CURRENT LIABILITIESDeferred tax (76) - (76)Provisions (1,064) - (1,064) (1,140) - (1,140)TOTAL LIABILITIES (13,031) (59) (13,090) NET ASSETS 33,272 2,595 35,867 EQUITYShare capital 555 - 555Share premium 43,953 - 43,953Shares to be issued 210 - 210Retained earnings (11,441) (b) 611 (8,846) (c) 2,043 (d) (59)Foreign exchange difference (5) (5)TOTAL EQUITY 33,272 2,595 35,867 SDL plc Accounting Policies Basis of accounting The financial statements have been prepared in accordance with accountingpolicies that the directors anticipate will be complied with in the annualfinancial statements. These policies are set out below. The accounting policiesadopted assume that all existing standards in issue from the IASB will be fullyendorsed by the EU. These are subject to ongoing amendment by the IASB andsubsequent endorsement by the EU and are therefore subject to possible change. The consolidated financial statements have been prepared on a historical costbasis except for certain items which have been measured at fair value, asdiscussed in the accounting policies below. The consolidated statements for the year ended 31 December 2005 will be theGroup's first full IFRS financial statements. The date of transition to IFRSis 1 January 2004. Basis of preparation of consolidated financial statements The consolidated financial statements comprise the financial statements of theCompany and all subsidiary undertakings for the full year or from the date ofacquisition if later. Subsidiaries are all entities over which the Group hascontrol such that it can govern the financial and operating policies.Subsidiaries are fully consolidated from the date on which control istransferred to the Group. The Group has elected not to apply IFRS 3retrospectively to business combinations that took place before 1 January 2004.As a result, all prior business combination accounting has been frozen at thetransition date. This includes goodwill that was previously amortised. The Groupuses the acquisition method of accounting to account for the acquisition ofsubsidiaries. The cost of an acquisition is measured as the fair value of theassets acquired, equity instruments issued and liabilities incurred or assumedat the date of exchange, plus costs directly attributable to the acquisition.Identifiable assets and liabilities acquired and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets acquired is recorded as goodwill. If the cost ofacquisition is less than the fair value of the net assets of the subsidiaryacquired, the difference is recognised directly in the income statement. Intangible assets: Goodwill Goodwill is initially measured at cost being the excess of the fair value of theconsideration given over the fair value of the identifiable net assets acquired.Following initial recognition, goodwill is measured at cost less anyaccumulated impairment losses. Goodwill is reviewed for impairment annually, ormore frequently if events or changes in circumstances indicate that the carryingvalue may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of thecash generating units expected to benefit from the combination's synergies. Acash generating unit is the smallest identifiable group of assets that generatecash inflows that are largely independent of the cash inflows from other assets.Impairment is determined by assessing the recoverable amount of thecash-generating unit, to which the goodwill relates. Where the recoverableamount of the cash-generating unit is less than the carrying amount, animpairment loss is recognised. Goodwill arising on acquisitions pre 1 January 2004 was capitalised andamortised over its useful economic life, which was presumed to be 8 years. Anygoodwill remaining on the balance sheet at 1 January 2004 is not amortised after1 January 2004, but is also subject to annual impairment reviews. Intangibles assets: Other Acquired both separately and from a business combination Intangible assets acquired separately are capitalised at cost and from abusiness acquisition are capitalised at fair value as at the date ofacquisition. Following initial recognition, intangible assets are held at costless accumulated amortisation. Intangible assets are amortised on astraight-line basis over their useful economic lives. The useful lives of theseintangible assets are assessed over the expected period that benefits accrue tothe Group. Amortisation is charged as a separate line item in the incomestatement. Research and development costs Research costs are expensed as incurred. Development expenditure incurred on anindividual project is carried forward when its future recoverability canreasonably be regarded as assured. Following the initial recognition of thedevelopment expenditure the cost model is applied requiring the asset to becarried at cost less any accumulated amortisation and accumulated impairmentlosses. Any expenditure carried forward is amortised over the period of expectedfuture sales from the related project. The carrying value of development costsis reviewed for impairment annually when the asset is not yet in use, or morefrequently when an indicator of impairment arises during the reporting yearindicating that the carrying value may not be recoverable. Development costs that are subject to amortisation are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountmay not be recoverable. Intangible assets: Impairment of assets An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. The recoverable amount is the higher ofan asset's fair value less costs to sell and its value in use, where value inuse is calculated as the present value of the future cash flows expected to bederived from the asset. For the purpose of assessing impairment, assets aregrouped at the lowest levels for which there are separately identifiable cashflows (cash generating units). Property, plant and equipment Property plant and equipment is stated at historical cost less depreciation andany impairment in value. Historical cost includes the expenditure that isdirectly attributable to the acquisition of the assets. Subsequent costs areincluded in the asset's carrying amount or recognised as a separate asset, asappropriate, only when the costs provide enhancement, it is probable that futureeconomic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. All other repairs and maintenance arecharged to the income statement during the financial period in which they areincurred. Depreciation is provided to write off the cost less the estimatedresidual value of property, plant and equipment over their estimated usefuleconomic lives as follows: Leasehold improvements - The lower of ten years or the lease term straight lineEquipment - 4 years straight lineFixtures & fittings - 20% reducing balanceMotor vehicles - 20% reducing balanceSoftware - 3 years straight line An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected to arise from the continued use of theasset. Any gain or loss arising on the derecognising of the asset (calculatedas the difference between the net disposal proceeds and the carrying amount ofthe item) is included in the income statement in the year the item isderecognised. Revenue Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be measured reliably. Thefollowing specific recognition criteria must also be met before revenue isrecognised: Rendering of services Revenue on long-term contracts is recognised only when their outcomes can beforeseen with reasonable certainty and is based on the percentage stage ofcompletion of the contracts, calculated on the basis of costs incurred. Accruedand deferred revenue arising on long-term contracts is included in debtors asaccrued income and creditors as deferred income as appropriate. Interest Revenue is recognised as the interest accrues to the net carrying amount of thefinancial asset. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchangeruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated using the rate of exchangeruling at the balance sheet date and the gains or losses on translation areincluded in the Income Statement with the exception of differences on foreigncurrency borrowing that provide a hedge against a net investment in a foreignentity. These are taken directly to equity until the date of disposal of the netinvestment, at which time they are recognised in the consolidated incomestatement. The assets and liabilities of overseas subsidiary and branch undertakings aretranslated at the closing exchange rate. Income Statements of such undertakingsare consolidated at the average rate of exchange during the year. Gains andlosses arising on these translations are taken to reserves. As permitted by IFRS1 SDL has elected to deem the cumulative amount of exchange differences arisingon consolidation of the net investments in subsidiaries at 1 January 2004 to benil. The Group uses derivative financial instruments such as foreign currencycontracts and interest rate contracts to hedge its risks associated withinterest rate and foreign currency fluctuations. Such derivative financialinstruments are stated at fair value. The fair value of forward exchangecontracts is calculated by reference to current forward exchange rates forcontracts with similar maturity profiles. The fair value of interest ratecontracts is determined by reference to market values for similar instruments.For the purpose of hedge accounting, hedges are classified as either fair valuehedges when they hedge the exposure to changes in the fair value of a recognisedasset or liability; or cash flow hedges where they hedge exposure to variabilityin cash flows that is either attributable to a particular risk associated with arecognised asset or liability or a forecasted transaction. In relation to cash flow hedges (forward foreign currency contracts) to hedgefirm commitments which meet the conditions for special hedge accounting, theportion of the gain or loss on the hedging instrument that is determined to bean effective hedge is recognised directly in equity and the ineffective portionis recognised in net profit or loss. When the hedged firm commitment results in the recognition of an asset or aliability, then, at the time the asset or liability is recognised, theassociated gains or losses that had previously been recognised in equity areincluded in the initial measurement of the acquisition cost or other carryingamount of the asset or liability. For all other cash flow hedges, the gains orlosses that are recognised in equity are transferred to the income statement inthe same year in which the hedged firm commitment affects the net profit andloss, for example when the future sale actually occurs. For derivatives that do not qualify for hedge accounting, any gains or lossesarising from changes in fair value are taken directly to net profit or loss forthe year. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated or exercised, or no longer qualifies for hedge accounting. At thatpoint in time, any cumulative gain or loss on the hedging instrument recognisedin equity is kept in equity until the forecasted transaction occurs. If a hedgedtransaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to net profit or loss for the year. AnIFRS 1 exemption has been taken which permits financial instruments in thecomparative period to be accounted for and recorded under UK GAAP. Gains andlosses arising on these transactions have been taken to the income statement inthe period in which they complete. Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at call withbanks. For the purpose of the Consolidated Cash Flow Statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts. Leases Finance leases, which transfer to the Group substantially all the risks andbenefits incidental to ownership of the leased item, are capitalised at theinception of the lease at the fair value of the leased property or, if lower, atthe present value of the minimum lease payments. Lease payments areapportioned between the finance charges and reduction of the lease liability soas to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are charged directly against income. Operating lease payments are recognised as an expense in the income statement ona straight-line basis over the lease term. Pension cost The company contributes to a Group personal pension scheme for qualifyingemployees whereby it makes defined contributions to independently administeredpersonal pension schemes. The company does not control any of the assets orhave any ongoing liabilities with regard to the performance of and payments fromthese individual personal schemes. SDL Global Solutions (Ireland) Limitedoperates a separate defined contribution scheme whose assets are held separatelyfrom the company. The pension cost charge for both schemes representscontributions payable during the period. Taxation Deferred income tax is provided, using the liability method, on temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporarydifferences except: - where the deferred income tax liability arises from the initialrecognition of an asset or liability in a transaction that is not a businesscombination and, at the time of the transaction, affects neither the accountingprofit nor taxable profit or loss; and - in respect of taxable temporary differences associated withinvestments in subsidiaries, associates and interests in joint ventures, exceptwhere the timing of the reversal of the temporary differences can be controlledand it is probable that the temporary differences will not reverse in theforeseeable future. Deferred income tax assets are recognised for all deductible temporarydifferences, carry-forward of unused tax assets and unused tax losses, to theextent that it is probable that taxable profit will be available against whichthe deductible temporary differences, and the carry-forward of unused tax assetsand unused tax losses can be utilised, except: - where the deferred income tax asset relating to the deductibletemporary difference arises from the initial recognition of an asset orliability in a transaction that is not a business combination and, at the timeof the transaction, affects neither the accounting profit nor taxable profit orloss; and - in respect of deductible temporary differences associated withinvestments in subsidiaries, associates and interests in joint ventures,deferred tax assets are only recognised to the extent that it is probable thatthe temporary differences will reverse in the foreseeable future and taxableprofit will be available against which the temporary differences can beutilised. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the deferredincome tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply to the year when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity are recognised inequity and not in the income statement. Revenues, expenses and assets are recognised net of the amount of VAT except: • where the VAT incurred on a purchase of goods and services is notrecoverable from the taxation authority, in which case the VAT is recognised aspart of the cost of acquisition of the asset or as part of the expense item asapplicable; and • trade receivables and payables are stated with the amount of VATincluded. The net amount of VAT recoverable from, or payable to, the taxation authority isincluded as part of receivables or payables in the balance sheet. Share based payments Employees (including directors) of the Group receive remuneration in the form ofshare-based payment transactions, whereby employees render services in exchangefor shares or rights over shares ('equity-settled transactions'). The cost ofequity-settled transactions with employees is measured by reference to the fairvalue at the date at which they are granted. The fair value is determined byusing the Black Scholes model. The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, ending on the date on which the relevantemployees become entitled to the award ('vesting date'). The cumulative expenserecognised for equity settled transactions at each reporting date until thevesting date reflects the extent to which the vesting period has expired and thenumber of awards that, in the opinion of the directors of the Group at thatdate, based on the best available estimate of the number of equity instrumentsthat will ultimately vest. No expense is recognised for awards that do not ultimately vest. Where the terms of an equity-settled award are modified an expense is recognisedfor any increase in the value of the transaction as a result of themodification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any expense not yet recognised for the award isrecognised immediately. However, if a new award is substituted for the cancelledaward, and designated as a replacement award on the date that it is granted, thecancelled and new awards are treated as if they were a modification of theoriginal award, as described in the previous paragraph. The Group has taken advantage of the transitional provisions of IFRS 2 inrespect of equity-settled awards and has applied IFRS 2 only to equity-settledawards granted after 7 November 2002 that had not vested at 1 January 2005. Corporate Information Directors Mark Lancaster (Chairman and Chief Executive)Alastair Gordon (Chief Financial Officer)Cristina Lancaster (Chief Operations Officer)Keith Mills (Chief Technical Officer) Christopher Batterham*John Matthews* * Non-executive directors Company Secretary John Adams Registered Office Globe HouseClivemont RoadMaidenheadBerkshireSL6 7DYRegistered in England No. 2675207 Registrars Capita RegistrarsThe Registry34 Beckenham RoadBeckenhamKentBR3 4TU This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L