Interim Results

RNS Number : 3973Q

SDL PLC

03 August 2010

 

3 August 2010

 

SDL PLC

 

Interim results for the six months ended 30 June 2010

 

Global Information Management strategy builds

further momentum - strong growth in revenue and operating profit

 

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 2010.

 

	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	% Change
Income Statement:
Revenue	94,500	83,293	+13%
Profit before tax and amortisation of intangible assets	16,332	14,519	+12%
Profit before tax	12,856	11,779	+9%
Earnings per ordinary share - basic (pence)	12.44	11.41	+9%
Adjusted earnings per ordinary share - basic (pence)	15.67	14.02	+12%
Statement of Financial Position:
Total equity	179,480	154,658
Cash and cash equivalents	55,482	32,919
Interest bearing loans and borrowings	-	-

 

 

Highlights:

·; Strong performance in revenue and Profit Before Taxation and Amortisation - ahead of expectations

·; Constant currency growth in all divisions:

o Language Services - headline revenue growth 9% (12% at constant currency)

o Language Technologies - headline revenue growth flat (2% at constant currency)

o Content Management Technologies - headline revenue growth 43% (19% at constant currency excluding acquisition impact)

·; Momentum and Pipeline building

o Recovery in Language Services demand

o Licence revenue ahead (11% at constant currency) in Language Technologies

o Strong growth in Content Management Technologies after well executed integration phase

·; Stable profit before taxation and amortisation margin

o Accelerated investment in growth, particularly R&D

·; Cash flow remains strong - on track for maiden dividend

·; Two new innovations LiveContent and SmartTarget introduced to market

·; Two acquisitions completed so far in 2010

o Language Weaver - global authority in Statistical Machine Translation

o Xopus - extends reach of content management solutions to non technical authors

 

 

Mark Lancaster, Chairman and Chief Executive of SDL, commented:

 

I am delighted to report strong performance for the first half of 2010 significantly ahead of the prior year, at record levels, and ahead of market expectations for both revenue and operating profit.

 

During the period we have made good progress in revenue delivery for Content Management Technologies, and whilst Language Technologies revenues were flat compared to 2009, we experienced solid growth in licence sales and acceleration of progress in the second quarter following the implementation of focused marketing initiatives. We have seen continued steady recovery in demand from 2009 levels in Language Services, underpinned in part by growth in the less mature accounts.

 

Recent customer wins and the level of adoption of our technology in key customers supports our strategy of best in class integrated end to end solution capabilities for our clients.

 

Strategically, we have been very pleased to complete two acquisitions this year. By moving to take significant early market share in key strategic growth areas we are confident that these acquisitions will cement SDL's leadership in Global Information Management as we move into the future digital age.

 

The scope of our Global Information Management solutions has further expanded and become more integrated. We feel confident moving into the second half of 2010 and beyond that our strategy and execution will continue to deliver growth and stability.

 

For further information please contact:

 

SDL plc	Tel: 01628 410 127
Mark Lancaster, Chief Executive John Hunter, Chief Financial Officer
Financial Dynamics	Tel: 020 7831 3113
Edward Bridges /Juliet Clarke /Emma Appleton/ Haya Herbert-Burns

 

 

About SDL

SDL is the leader in Global Information Management solutions. SDL's solutions increase business agility to enterprises by accelerating the delivery of high-quality multilingual content to global markets. The company's integrated Web Content Management, eCommerce, Structured Content and Language Technologies, combined with its Language Services drive down the cost of content creation, management, translation and publishing. SDL solutions increase conversion ratios and customer satisfaction through targeted information that reaches multiple audiences around the world through different channels.

 

Global industry leaders who rely on SDL include ABN-Amro, Bosch, Canon, CNH, FICO, Hewlett-Packard, KLM, Microsoft, NetApp, Philips, SAP, Sony and Virgin Atlantic. SDL has over 1500 enterprise customers, has deployed over 170,000 software licenses and provides access to on-demand portals for 10 million customers per month. It has a global infrastructure of more than 50 offices in 34 countries. For more information, visit www.sdl.com.

 

 

Chairman's Statement

 

Summary Performance

 

I am delighted to report strong performance for the first half of 2010 significantly ahead of the prior year, at record levels, and ahead of market expectations for both revenue and operating profit.

 

During the period we have made good progress in revenue delivery for Content Management Technologies, and whilst Language Technologies revenues were flat compared to 2009, we experienced solid growth in licence sales and acceleration of progress in the second quarter, following the implementation of focused marketing initiatives. We have seen continued steady recovery in demand from 2009 levels in Language Services, underpinned in part by growth in the less mature accounts.

 

Whilst we continue to believe economic recovery has some fragility to it, and we continue to act with a degree of appropriate caution, our pace of investment in growth has accelerated in the first half of 2010 as we continue to execute our strategy to capitalise on strong growth opportunities in the Technologies businesses. I am also delighted that we have committed to opening an office in Turkey in the second half of 2010, which will further build our infrastructure in Language Services, allowing us to deliver scale and quality in a significant growth market. We continue to be committed to providing leading Technology and Service solutions in the content industry. Recent customer wins and the level of adoption of our technology in key customers supports our strategy of providing best in class integrated end to end solutions.

 

Strategically, we have been very pleased to complete two acquisitions this year. The acquisition of Xopus, a leading provider of a user friendly online XML editor, addresses the adoption of structured authoring for non-technical writers and will be fully integrated within our suite of Content Management Technologies. The acquisition of Language Weaver Inc, a pioneer in Statistical Machine Translation, delivers a best-of-breed machine translation technology that helps enterprises and governments translate the large volumes of content in today's increasingly online world. This addition creates a compelling combination of SDL's leadership in content and language technology solutions with Language Weaver's authority in machine translation technology. By moving to take significant early market share in key strategic growth areas we are confident that these acquisitions will cement SDL's leadership in Global Information Management as we move into the future digital age and create outstanding value for our clients and investors.

 

Revenue for the first half of 2010 was £94.5 million (2009: £83.3 million) and profit before taxation and amortisation of intangible assets ("PBTA") for the period was £16.3 million (2009: £14.5 million) with profit before taxation of £12.9 million (2009: £11.8 million). Net cash in the business at the end of the period was £55.5 million (End December 2009: £46.2 million) after spending £1.0 million on the Xopus acquisition in June 2010.

 

Headline revenue growth of 13% comprised a 5% contribution from acquisitions (XyEnterpise and Fredhopper are not included in prior year first half comparatives); a 3% adverse impact from currency and 11% organic growth at constant currency. All three operating segments delivered constant currency revenue growth in the first half of 2010, validating the improvements in pipeline we saw at the end of 2009 and in early 2010. We also continue to make excellent progress in cross leveraging our solutions. Overall PBTA margin was stable year on year at 17.3% (2009 17.4%), as we moved to accelerate strategic investment in growth, particularly in research and development.

 

The business retained its strong cash generation characteristics in H1 2010. Cash generated from operations stood at £13.2 million (2009: £16.8 million). Whilst we did not see a repeat of the working capital inflow we saw in 2009, our receivables collection progress has been sustained in the first half of 2010 and we continued to place high priority on free cash generation. Given the stability of our cash flow we remain on track to initiate a maiden dividend payment for the 2010 financial year, providing a return to those investors who value income as well as growth.

 

Content Management Technologies (contributing £20.9 million or 22% revenue to the Group and £3.4 million or 21% of the PBTA) (2009: contributing £14.7 million or 18% revenue to the Group and £2.9 million or 20% of the PBTA)

 

The division comprises Web Content Management Solutions, Structured Content Technologies and eCommerce Technologies, and was strengthened by the acquisitions of Fredhopper in December 2009 and Xopus in June 2010.

 

Content Management Technologies continued to drive forward significantly with headline revenue growth of 43% in the first half of 2010 which was derived 28% from acquisition, a negative impact of 4% due to currency and with 19% organic growth at constant currency. The acquisition of Fredhopper and growth investment in SDL LiveContent™ during the period reduced margins by approximately 2%. Overall licence revenues were ahead of the prior year following completion of a well executed integration of XyEnterprise into SDL and hence reflecting strong cross selling in the Structured Content Management business.

 

As part of our continued investment in innovation we launched SDL LiveContent™, a dynamic publishing solution for technical documentation that addresses the evolving demands of Internet and Smartphone users who expect on-demand, personalized, interactive technical documentation rather than in static PDF and print format. This next generation product integrates with the SDL Trisoft™ Component Document Content Management solution, empowering companies to transform static documentation managed as publications into rich interactive, web-based information with animated graphics, sophisticated search for easy navigation and analytics that allow companies to understand how customers are using their content.

 

We also launched SDL SmartTarget, an integration of the SDL Fredhopper technology into the SDL Tridion product suite, enhancing the reach and functionality of our Web Content Management solutions into the targeting and personalisation arena, a technology that we consider will play a key role in the future of Web Content Management.

 

Language Technologies (contributing £14.6 million or 15% revenue to the Group and £1.3 million or 8% of the PBTA) (2009: contributing £14.7 million or 18% revenue to the Group and £1.7 million or 11% of the PBTA)

 

Headline Language Technologies revenues were flat compared to the first half of 2009 and slightly ahead of the second half of 2009. Constant currency revenues were 2% above 2009 for the period. Overall licence sales saw good recovery from 2009 and were ahead by 9% (approximately 11% in constant currency), with lower services activity lagging from 2009 demand offsetting this licence growth. We saw acceleration in demand in the second quarter following new initiatives on desktop adoption and focussed marketing approaches in Europe and Asia. We see a degree of regional contrast in performance with the North American Enterprise business moving forward strongly, offset by a slower demand environment for Enterprise products in Europe.

 

We continued to invest significantly in building our Language Technologies business, investing further into our enhanced integrated language platform. We have also strengthened our organization in China following the strong adoption of SDL Trados® Studio and SDL Translation Memory Server, our entry level translation management system. Our SaaS offering in the enterprise space is also generating significant client interest.

 

Language Services (contributing £59.0 million or 63% of group revenue and £11.8 million or 72% of PBTA). (2009: contributing £54.0 million or 64% of group revenue and £10.0 million or 69% of PBTA).

 

In the Language Services segment, headline revenue grew by 9% in the first half of 2010, with constant currency revenues 12% ahead of prior year. We are very pleased to see continued recovery of the demand environment and pipeline strengthening in this business, with activity levels continuing to rise, led by North American and Asian demand. This consisted of both increases in our base business and acceleration in momentum from new wins consolidating into our revenue base. We are very pleased with how the business is positioned at this stage in the economic recovery and in the absence of further economic decline we expect this improvement in momentum to be sustained. The resilience of the profit model continues to be very strong and effort on sourcing strategy, network development and optimisation and process efficiency using SDL technology, as targeted in 2009, has further strengthened profitability.

 

Our Vision and Strategy for Global Information Management

We have continued to move forward with the execution of our strategy in the first half of 2010; strengthening our capability to offer clients the best technology and service solutions possible, to manage their key global information and content needs. We are accelerating investment to provide solutions for the new digital age, and it is exciting to see our portfolio further strengthened by the addition of Xopus, which extends the provision of structured content management solutions to non technical authors; and Language Weaver, which brings best in class Statistical Machine Translation capability to the SDL portfolio and further extends the breadth and reach of our language solutions. It also gives us pleasure to see the launch of the SDL LiveContent™ product to strengthen our graphical, interactive and electronic delivery of structured content solutions. We further invest in our language technology platform integration towards an industry leading open and scalable platform. Our commitment to be the innovator who makes trends, rather the follower who reacts to them, remains undiminished. It is also fantastic to see the launch of SDL SmartTarget, an integration of the SDL Fredhopper technology into our Web Content Management product, SDL Tridion. We are seeing an increasing number of our key accounts purchase multiple integrated solutions of technology and services from SDL. 2010 has seen an acceleration of multiple offerings into clients such as Emirates, Alcatel-Lucent, Intel, Micro Focus, Cisco, Philips, Dell, TomTom, Mandarin Oriental Hotel Group and Yamaha. We look forward to continuing to innovate and evolve our solutions to help our clients maximise revenue potential across their increasingly global customer bases. We will continue to focus on providing the solutions to manage global digital content from creation to publishing.

 

Outlook and Current Trading

In the first half of 2010 we delivered excellent results, resumed constant currency growth in each of our businesses and accelerated our pace of execution. We have also completed two acquisitions so far this year. Our business continues to grow, with an excellent combination of growth potential as well as solid defensive characteristics. Our success in the first half was partially due to cross leveraging, where we expect to see continued momentum in H2 2010, and market stability, with growth in China and North America. We expect European economies to remain broadly flat in the second half of 2010, as was the case in the first half of 2010, with continued modest growth in the North American and Asian economies. We anticipate SDL will continue to outperform in our market sectors. The scope of our Global Information Management solutions has further expanded and become more integrated. We feel confident moving into the second half of 2010 and beyond, that our strategy and execution will continue to deliver growth and stability.

 

 

 

Mark Lancaster

Chairman and CEO

SDL plc

2 August 2010

 

 

SDL plc

Interim Condensed Consolidated Income Statement

 

	Notes	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
Continuing Operations
Sale of goods		14,379	12,221	25,363
Rendering of services		80,121	71,072	146,515
REVENUE	3	94,500	83,293	171,878
Cost of sales		(41,789)	(37,545)	(76,387)
GROSS PROFIT		52,711	45,748	95,491
Administrative expenses		(36,553)	(31,500)	(66,096)
OPERATING PROFIT BEFORE AMORTISATION OF INTANGIBLE ASSETS		16,158	14,248	29,395
Amortisation of intangible assets		(3,476)	(2,740)	(5,808)
OPERATING PROFIT	4	12,682	11,508	23,587
Finance revenue		174	271	426
PROFIT BEFORE TAX		12,856	11,779	24,013
Tax expense	5	(3,233)	(3,121)	(6,060)
PROFIT FOR THE PERIOD		9,623	8,658	17,953
Profit for the period attributable to equity holders of the parent		9,623	8,649	17,944
Non controlling interest		-	9	9
		9,623	8,658	17,953
		Pence	Pence	Pence
Earnings per ordinary share - basic (pence)	6	12.44	11.41	23.55
Earnings per ordinary share - diluted (pence)	6	12.05	10.98	22.79

 

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

 

 

SDL plc

Interim Condensed Statement of Comprehensive Income

 

		Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
Profit for the period		9,623	8,658	17,953
Currency translation differences on foreign operations		(7,154)	(21,812)	(13,549)
Currency translation differences on foreign currency equity loans to foreign subsidiaries		2,104	3,653	2,255
Income tax (charge)/ benefit on currency translation differences on foreign currency equity loans to foreign subsidiaries		(449)	-	847
Other comprehensive income		(5,499)	(18,159)	(10,447)
Total comprehensive income		4,124	(9,501)	7,506
Attributable to:
Equity holders of the parent		4,124	(9,510)	7,497
Non controlling interest		-	9	9
		4,124	(9,501)	7,506

 

 

SDL plc

Interim Condensed Consolidated Statement of Financial Position

 

	Notes	Unaudited 30 June 2010 £'000	Unaudited 30 June 2009 £'000	Audited 31 December 2009 £'000
ASSETS
NON CURRENT ASSETS
Property, plant and equipment		4,939	4,044	5,005
Intangible assets		132,875	131,183	137,624
Deferred income tax		5,751	4,189	5,621
Rent deposits		851	655	819
		144,416	140,071	149,069
CURRENT ASSETS
Trade and other receivables		40,281	34,135	39,454
Financial assets	9	-	44	-
Current tax asset		898	1,330	1,002
Cash and cash equivalents		55,482	32,919	46,160
		96,661	68,428	86,616
TOTAL ASSETS		241,077	208,499	235,685
LIABILITIES
CURRENT LIABILITIES
Trade and other payables		(43,548)	(39,268)	(45,504)
Current tax liabilities		(8,833)	(6,887)	(6,794)
Provisions		(1,310)	(38)	(1,102)
		(53,691)	(46,193)	(53,400)
NON CURRENT LIABILITIES
Interest bearing loans and borrowings	7	-	-	-
Other payables		(33)	(107)	(65)
Deferred income tax		(6,553)	(6,481)	(7,298)
Provisions		(1,320)	(1,060)	(1,817)
		(7,906)	(7,648)	(9,180)
TOTAL LIABILITIES		(61,597)	(53,841)	(62,580)
NET ASSETS		179,480	154,658	173,105
EQUITY
Share capital		778	760	770
Share premium		94,661	92,916	93,207
Shares to be issued		-	203	203
Retained earnings		60,833	39,784	50,218
Foreign exchange differences		23,208	20,995	28,707
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT		179,480	154,658	173,105

 

 

The Interim Financial Information presented in this Interim Report was approved by the Board of Directors on 2 August 2010.

 

 

SDL plc

Interim Condensed Consolidated Statement of Changes in Equity

 

	Share Capital		Share Premium			Shares to be Issued	Retained Earnings	Foreign Exchange Differences	Non Controlling interest	Total
	£'000		£'000			£'000	£'000	£'000	£'000	£'000
At 31 December 2008 (audited)	757		92,483			406	30,250	39,154	(21)	163,029
Profit for the period	-		-			-	8,649	-	9	8,658
Other comprehensive income	-		-			-	-	(18,159)	-	(18,159)
Total comprehensive income	-		-			-	8,649	(18,159)	9	(9,501)
Deferred taxation on share based payments	-		-			-	(13)	-	-	(13)
Arising on share issues	3		230			-	-	-	-	233
Arising on acquisition of Trisoft	-		-			-	-	-	12	12
Arising on acquisition of Passolo	-		203			(203)	-	-	-	-
Share-based payments	-		-			-	898	-	-	898
At 30 June 2009 (unaudited)	760		92,916			203	39,784	20,995	-	154,658
Profit for the period		-		-	-		9,295	-	-	9,295
Other comprehensive income		-		-	-		-	7,712	-	7,712
Total comprehensive income		-		-	-		9,295	7,712	-	17,007
Deferred taxation on share based payments		-		-	-		(207)	-	-	(207)
Tax credit for share options		-		-	-		635	-	-	635
Arising on share issues		10		303	-		-	-	-	313
Arising on share cancellation		-		(12)	-		-	-	-	(12)
Arising on acquisition of Trisoft		-		-	-		-	-	-	-
Share-based payments		-		-	-		711	-	-	711
At 31 December 2009 (audited)		770		93,207	203		50,218	28,707	-	173,105
Profit for the period		-		-	-		9,623	-	-	9,623
Other comprehensive income		-		-	-		-	(5,499)	-	(5,499)
Total comprehensive income		-		-	-		9,623	(5,499)	-	4,124
Deferred taxation on share based payments		-		-	-		(245)	-	-	(245)
Tax credit for share options		-		-	-		452	-	-	452
Arising on exercise of share options		8		1,251	-		-	-	-	1,259
Arising on acquisition of Trisoft		-		-	-		-	-	-	-
Arising on acquisition of Passolo		-		203	(203)		-	-	-	-
Share-based payments		-		-	-		785	-	-	785
At 30 June 2010 (unaudited)		778		94,661	-		60,833	23,208	-	179,480

 

These amounts are attributable to equity holders of the parent company with the exception of non controlling interest.

 

 

SDL plc

Interim Condensed Consolidated Statement of Cash Flows

 

		Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
Profit before tax		12,856	11,779	24,013
Depreciation of property, plant and equipment		1,057	903	1,980
Amortisation of intangible assets		3,476	2,740	5,808
Finance costs		-	-	-
Finance revenue		(174)	(271)	(353)
Share-based payments		785	898	1,609
Loss on disposal of fixed assets		82	-	-
Decrease/(increase) in trade and other receivables		(794)	11,828	6,997
(Decrease)/increase in trade and other payables and provisions		(2,680)	(9,403)	(3,981)
Exchange differences		(1,406)	(1,688)	587
CASH GENERATED FROM OPERATIONS		13,202	16,786	36,660
Income tax paid		(2,439)	(4,102)	(6,584)
NET CASH FLOWS GENERATED FROM OPERATING ACTIVITIES		10,763	12,684	30,076
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and equipment		(1,496)	(527)	(1,286)
Receipts from sale of property, plant and equipment		24	69	108
Payment to acquire subsidiaries		(1,000)	(9,159)	(14,182)
Net cash acquired with subsidiaries		298	1,287	1,427
Interest received		174	271	353
NET CASH FLOWS USED IN INVESTING ACTIVITIES		(2,000)	(8,059)	(13,580)

 

 

SDL plc

Interim Condensed Consolidated Statement of Cash Flows

 

		Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
FINANCING ACTIVITIES
Net proceeds from issue of ordinary share capital		1,259	233	535
Repayment of interest bearing loans and borrowings		-	-	-
Proceeds from new loans		-	-	-
Interest paid		-	-	-
NET CASH FLOWS GENERATED FROM FINANCING ACTIVITIES		1,259	233	535
INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS		10,022	4,858	17,031
MOVEMENT IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of the period		46,160	31,227	31,227
Increase/(decrease) in cash and cash equivalents		10,022	4,858	17,031
Effect of exchange rates on cash and cash equivalents		(700)	(3,166)	(2,098)
Net cash and cash equivalents at end of the period		55,482	32,919	46,160

 

 

SDL plc

Notes to the Interim Condensed Consolidated Financial Statements

 

 

1. Basis of preparation and accounting policies

 

Basis of preparation

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

 

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 2009, except for the following change:

 

IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended)

The Group adopted the revised standards from 1 January 2010. IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after this date. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions no longer give rise to goodwill, nor give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes required by IFRS 3 (Revised) and IAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The change in accounting policy was applied prospectively and had no material impact on earnings per share or the results for the period ended 30 June 2010.

 

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 are consistent with those disclosed in preparation of the Group's annual financial statements for the year ended 31 December 2009.

 

 

2. Business Combinations

 

Acquisition of Xopus B.V.

 

On 29 June 2010 the Group acquired 100% of the share capital of Xopus B.V., an unlisted company based in the Netherlands. The principal activity of Xopus B.V. is the provision of online XML editing.

 

The total cost of the combination comprises €1.5 million (£1.2 million) and was funded from the Group's existing cash resources.

 

 

The provisional fair value of the identifiable assets and liabilities of Xopus B.V. as at the date of acquisition were:

	Book value	Provisional fair value to Group
	Unaudited
	£'000	£'000
Intangible assets	-	510
Property, plant and equipment	18	18
Cash and cash equivalents	298	298
Trade receivables	52	52
Other receivables	14	14
Trade payables	-	-
Other payables	(548)	(548)
Deferred tax liabilities	-	(128)
Net (liabilities) / assets	(166)	216
Provisional Goodwill arising on acquisition		1,015
		1,231

 

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.

 

 

Discharged by:		£'000
Fair value of deferred consideration		231
Cash paid to shareholders		1,000
Total cash payable		1,231
Cash outflow on the acquisition:
Net cash and cash equivalents acquired with the subsidiary		298
Total cash paid		(1,000)
Net cash outflow		(702)

The maximum deferred consideration is £1.6 million. The fair value has been calculated at £0.2 million and under IFRS 3 (revised) any re-measurement will be recognised in the income statement.

 

From the date of acquisition Xopus B.V. has contributed £nil of revenue and a profit of £nil 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 £9.6 million and revenue from continuing operations would have been £94.7 million. Included in the £1.0 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.

 

Provisional Fair value of XyEnterprise Inc. and Fredhopper B.V.

 

There have been no changes to the provisional fair value of the identifiable assets and liabilities of XyEnterprise Inc. during the reporting period. The 12 month period for making changes to provisional fair values elapsed in June 2010. There have been no changes to the provisional fair values of the identifiable assets and liabilities of Fredhopper Group B.V. during the reporting period. The 12 month period for making changes to provisional fair values remains open until December 2010.

 

 

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 three reportable operating segments as follows:

 

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

·; The Language Technologies segment is the sale of enterprise and desktop 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 and channels.

Within the Content Management Technologies segment two operating segments have been aggregated to form the above reportable operating segment. The new acquisition, Xopus B.V., is included within one of these 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 2010 (unaudited)

 

	Language Services	Language Technologies	Content Management Technologies	Adjustments*	Total
	£'000	£'000	£'000	£'000	£'000
External revenue	58,987	14,567	20,946	-	94,500
Internal revenue	-	-	-	-	-
Total revenue	58,987	14,567	20,946	-	94,500
Depreciation	572	263	222	-	1,057
Segment profit before tax and amortisation	11,756	1,349	3,429	(202)	16,332
Amortisation					3,476
Profit before tax					12,856

 

*Deferred compensation relating to acquisitions

 

Six months ended 30 June 2009 (unaudited)

 

	Language Services	Language Technologies	Content Management Technologies	Total
	£'000	£'000	£'000	£'000
External revenue	53,970	14,664	14,659	83,293
Internal revenue	-	-	-	-
Total revenue	53,970	14,664	14,659	83,293
Depreciation	551	207	145	903
Segment profit before tax and amortisation	9,968	1,658	2,893	14,519
Amortisation				2,740
Profit before tax				11,779

 

 

Year ended 31 December 2009 (audited)

 

	Language Services	Language Technologies	Content Management Technologies	Total
	£'000	£'000	£'000	£'000
External revenue	109,612	29,103	33,163	171,878
Internal revenue	-	-	-	-
Total revenue	109,612	29,103	33,163	171,878
Depreciation	1,142	346	492	1,980
Segment profit before tax and amortisation	19,842	3,535	6,444	29,821
Amortisation				5,808
Profit before tax				24,013

 

 

Segment assets:

 

	Language Services	Language Technologies	Content Management Technologies	Adjustments and eliminations	Total
	£'000	£'000	£'000	£'000	£'000
At 30 June 2010	51,827	56,621	70,498	(1)62,131	241,077
At 30 June 2009 (restated)	44,841	58,572	66,648	(2)38,438	208,499
At 31 December 2009	48,266	58,312	76,324	(3)52,783	235,685

 

(1) Segment assets do not include cash (£55,482,000), Corporation Tax (£898,000) and Deferred Tax (£5,751,000).

(2) Segment assets do not include cash (£32,919,000), Corporation Tax (£1,330,000) and Deferred Tax (£4,189,000).

(3) Segment assets do not include cash (£46,160,000), Corporation Tax (£1,002,000) and Deferred Tax (£5,621,000).

 

The split between Language Technologies and Content Management Technologies segment assets for the period ended 30 June 2009 has been restated to reflect the split of segment assets determined at the end of December 2009 when three segments were reported for the first time.

 

Revenue by geographical destination was as follows:

 

	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
United Kingdom	8,327	6,218	14,029
Rest of Europe	32,955	33,292	67,000
USA	33,049	30,814	63,151
Rest of North America	9,042	6,415	14,306
Rest of the World	11,127	6,554	13,392
	94,500	83,293	171,878

 

 

4. Operating profit

 

	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
Is stated after charging/(crediting):
Research and development expenditure	6,381	4,774	11,043
Bad debt (credit) / charge	(102)	84	(374)
Depreciation of owned and leased assets	1,057	903	1,980
Amortisation of intangibles	3,476	2,740	5,808
Operating lease rentals for plant and machinery	440	319	912
Operating lease rentals for land and buildings	2,659	2,518	5,636
Operating lease rentals received for land and buildings	-	(75)	(75)
Net foreign exchange differences	(1,101)	(542)	838
Gain on foreign exchange derivatives	(337)	(226)	(352)

 

 

5. Taxation

 

	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
UK corporation tax:
UK current tax on income for the period	746	578	1,755
Adjustments in respect of prior periods	-	-	-
	746	578	1,755
Foreign tax:
Current tax on income for the period	3,283	2,212	4,714
Adjustments in respect of prior periods	-	-	123
	3,283	2,212	4,837
Total current taxation	4,029	2,790	6,592
Deferred taxation:
Origination and reversal of timing differences	(551)	344	(532)
Deferred tax (debit)/credit for share options taken to equity	(245)	(13)	-
Total deferred taxation	(796)	331	(532)
Tax Expense	3,233	3,121	6,060

 

A tax debit in respect of income tax charge on foreign currency translation differences on foreign currency loans to foreign subsidiaries was recognised in the statement of other comprehensive income of £449,000 in the six months to June 2010 (June 2009: £nil; December 2009 credit of £847,000).

 

A tax credit in respect of share based compensation for current taxation of £452,000 (June 2009: £nil; December 2009: £635,000) 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 £245,000 (June 2009: £13,000; December 2009: £220,000) has been recognised in the statement of changes in equity in the year.

 

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 2010 this has the effect of increasing the effective tax rate by approximately 1.6% (at 30 June 2009:-0.1%; at 31 December 2009: +1.7%).

 

 

6. Earnings per share

 

	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
Profit for the period attributable to equity holders of the parent	9,623	8,649	17,944
	m	m	m
Basic weighted average number of shares (million)	77.4	75.8	76.2
Employee share options and shares to be issued (million)	2.5	2.9	2.5
Diluted weighted average number of shares (million)	79.9	78.7	78.7
Adjusted earnings per share:
	Unaudited 6 months to 30 June 2010 £'000	Unaudited 6 months to 30 June 2009 £'000	Audited Year to 31 December 2009 £'000
Profit for the period attributable to equity holders of the parent	9,623	8,649	17,944
Amortisation of intangible fixed assets	3,476	2,740	5,808
Less: deferred tax benefit associated with amortisation of intangible fixed assets	(973)	(760)	(1,620)
Adjusted profit for the period attributable to equity holders of the parent	12,126	10,629	22,132
	m	m	m
Basic weighted average number of shares (million)	77.4	75.8	76.2
Diluted weighted average number of shares (million)	79.9	78.7	78.7
	Pence	Pence	Pence
Adjusted earnings per ordinary share - basic (pence)	15.67	14.02	29.05
Adjusted earnings per ordinary share - diluted (pence)	15.18	13.50	28.11

 

 

7. Interest-bearing loans

 

The Group met the cost of acquisition of Xopus B.V. of £1.2 million from existing cash reserves. The undrawn committed borrowing facility is £20.0 million (December 2009: £20.0 million).

 

8. Share-based payments

 

On 12 April 2010, 570,305 Long Term Incentive Plan (LTIP) shares were awarded and on 4 June 2010, 187,995 stock options were awarded to certain key senior executives and employees of the SDL Group. The exercise price of the options of 453.80 pence represents the mid market price on the day before grant.

 

 

9. Derivatives and other financial instruments

 

At 30 June 2010 the Group had no derivative financial instruments. At 30 June 2009, the Group had forward contracts to sell $2 million each month through to 28 August 2009 at between $1.6142 to $1.6152 to £1.00. As at 30 June 2009 the Group's hedging contracts were valued at an asset of £44,355. The exchange gains on these contracts were recognised in the income statement during the period as the hedging contracts do not qualify for hedge accounting.

 

 

10. General notes

 

The financial information in these interim statements does not constitute statutory accounts as defined in Section 404 of the Companies Act 2006. The financial information for the year ended 31 December 2009 is based on the statutory accounts for the financial year ended 31 December 2009. Those accounts, upon which the auditors issued an unqualified opinion in accordance with section 495 Companies Act 2006 and did not contain a statement under section 498 (2) or (3) Companies Act 2006, have been delivered to the registrar of companies. The interim financial statements were approved by the Board of Directors on 2 August 2010.

 

11. Events after the statement of financial position date

 

On 23 July 2010, the Group acquired 100% of Language Weaver (an unlisted company based in the United States of America) for $40.5 million (£26.9 million) funded from the Group's existing cash reserves. The principal activity of Language Weaver is the provision of machine translation based Language Technologies. The Chairman's statement describes the primary reasons for the business combination. Additional disclosures required under IFRS 3 (Revised) will be included in the 31 December 2010 annual financial statements once the initial accounting for the business combination has been finalised.

 

There are no other 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

 

John Hunter

 

 

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 2010 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 2010 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

 

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