RNS Number:2344R
SDL PLC
14 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 global
information management (GIM) solutions, is pleased to announce its unaudited
interim results for the six months ended 30 June 2005.
6 months to 6 months to
30 June 2005 30 June 2004 %
#'000 #'000 Change
Income Statement:
Revenue 34,080 30,670 +11%
Earnings before interest, taxation, depreciation
and amortisation of intangibles (EBITDA) 3,848 2,491 +54%
Operating profit before amortisation of
intangible 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 35,867
Cash 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 Executive
of SDL, said:
"We are continuing to see the benefits of our long-term investments in both the
local geographic infrastructure and software solutions, which we anticipate will
maintain the trend of revenue growth and increased profit contribution for the
Group. We believe our technology investments and acquisitions now position SDL
as the leader in delivering enterprise software solutions to the global
information management market.
"The market has matured enormously in the past 18 months, we now have over
100,000 desktop translation products in the market and our enterprise software
has reached more than 100 installations. The larger Language Service Providers
are adopting server based Translation Management to leverage their translation
solutions and the corporate market for enterprise technology is moving from
early adoption to that of market maturity. There is now a very clear technology
standard in the market place. Freelancers and smaller agencies are able to adopt
the desktop technology with the comfort they are able to integrate with the
enterprise technology of their corporate clients, creating a smooth ecosystem
allowing upward compatibility and upgrade opportunity at considerably less cost
than has been afforded in the past. We consider this technology ecosystem will
be the catalyst for considerable market growth."
For further information please contact:
SDL plc On 14 September 2005 tel: 020 7831 3113
Thereafter tel: 01628 410 127
Mark Lancaster, Chief Executive
Financial Dynamics Tel: 020 7831 3113
Edward Bridges/Juliet Clarke
Background information
About SDL plc:
SDL plc (London Stock Exchange: 'SDL') is the world's leading provider of global
information management (GIM) solutions that empower organizations to improve the
quality and accelerate the delivery of multilingual content to global markets.
Its enterprise software and services integrate with existing business systems to
manage global information from authoring to publication and throughout the
distributed 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 to
provide enterprise software or full outsourcing for their GIM processes. SDL has
implemented more than 100 enterprise GIM solutions, has over 100,000 software
licenses deployed across the GIM ecosystem and its global services
infrastructure 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. This
performance was achieved in highly competitive markets with slowing worldwide
economies. We have also witnessed an increase in demand for enterprise software
solutions in the mid-size and large enterprise customers. We believe this demand
is fueled by companies looking for solutions to grow their global markets to
stimulate their top line growth.
We attribute this success to our long-term strategy of investment in technology
and our integrated network office infrastructure. SDL's long term strategy has
improved the quality and consistency of our language services, raised our
productivity levels and increased revenues and profits from software sales.
Through the creation of local language production centres, low cost production
units and main stream hubs SDL has become a central vendor to customers such as
Adobe, Bosch, Microsoft, Case New Holland and HP, by being able to offer
advanced solutions to their evolving needs.
Our Technology
Our technology continues to be a key driver in the market, with our enterprise
technology becoming increasingly important to accelerate time to market, at
reduced cost. The SDL Knowledge-based Translation System ("SDL KbTS") which
combines automated translation, translation memory and terminology technologies
with highly-skilled human resources to increase translation throughput, has
achieved the success that we predicted for its initial customers, and remains a
key strategic focus for SDL. Our customers have seen the time to market halved
and 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 the
introduction 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 in
technology 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 network
office infrastructure and low cost centre hubs, increasing customer value and
adding to profitability. The value of our worldwide office infrastructure has
become more significant as technology automates more of the translation process
and the focus will move towards network office resourcing, whilst the process is
managed by technology. To this end, in April 2005 we acquired Lingua Franca, to
form a Middle Eastern hub. SDL now has 50 offices in 30 countries, providing
extensive local language coverage for our customers.
TRADOS acquisition
With 90% of global businesses only partially translating their global content
due to the complexity and effort it takes to translate and maintain, there is
considerable lost opportunity in global markets. The acquisition of TRADOS in
early July 2005 confirms SDL's position as the leader in providing multilingual
technology into the market. The enlarged group allows us to provide technology
and infrastructure to enable effective Global Information Management (GIM) of
companies' assets within the GIM ecosystem.
The integration of TRADOS and SDL has progressed ahead of schedule, allowing us
to start focussing on our advanced new technology platform to manage
multilingual content. We are able to take the best of both companies technology
and provide a solid framework for our customers. We are aligning the products in
both companies to provide a fully integrated suite of products from the desktop
to the enterprise. This ecosystem of technology modules enables our customers to
build up their own technology ecosystem knowing they can fully integrate the
technology modules to provide customised solutions for their specific
requirements.
Vision and strategy for Global Information Management
SDL's investments and acquisitions over the last 5 years have resulted in SDL
owning the technology framework required to effectively manage translation
process efficiently. This, combined with the offices infrastructure, positions
SDL well to further execute its vision to maximise value for our customers and
shareholders
The market has matured enormously in the past 18 months, we now have over
100,000 desktop translation products in the market and our enterprise software
has reached 100 installations. The larger Language Service Providers are
adopting server based Translation Management to leverage their translation
solutions and the corporate market for enterprise technology is moving from
early adoption to that of market maturity. There is now a very clear technology
standard in the market place. Freelancers and smaller agencies are able to adopt
the desktop technology with the comfort that they are able to integrate with the
enterprise technology of their corporate clients, creating a smooth ecosystem
allowing upward compatibility and upgrade opportunity at considerably less cost
than has been afforded in the past. We consider this technology ecosystem will
be the catalyst for considerable market growth.
Financial Summary
For the first half of 2005 operating profit before amortisation of intangible
assets has increased by 71% to #3.4 million (H1 2004: #2.0 million). Revenues
were up 11% at #34.1 million (H1 2004: #30.7 million) and the Group's cash and
cash equivalents at 30 June 2005 were up 67% to #12.9 million (H1 2004: #7.8
million).
Outlook
We are continuing to see the benefits of our long-term investments in both the
local geographic infrastructure and software solutions, which we anticipate will
maintain the trend of strong revenue growth and increased profit contribution
for the Group. We believe our technology investments and acquisitions now
position SDL as the leader in delivering multilingual enterprise software
solutions to the content management market. In the latter months of 2005 we
expect to complete the resource and systems integration of Trados. We also
expect to see continued closure on some of the large strategic opportunities,
coupled with a continued increase in standalone software solutions sales. As a
result of the combined research and development organisations we will launch a
new technology platform, comprised of integrated software modules allowing our
customers to build their own technology ecosystem. We expect to see the revenue
and 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 our
investments in software solutions and infrastructure continue to generate
significant competitive advantages in the market by reducing costs and providing
more effective tailored solutions to the customer. We will review minor
strategic acquisitions activity for geographical leverage and potential
technology 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 for
the six months ended 30 June 2005, which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Statement of Changes in
Equity, Consolidated Cash Flow Statement, and the related notes 1 to 8. We have
read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by the law, we do not
accept 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, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority. As discussed in note 1 the next
financial statements of the group will be prepared in accordance with those IFRS
adopted for use by the European Union. The accounting policies are consistent
with 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 Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a lower
level of assurance than an audit. Accordingly we do not express an audit
opinion on the financial information.
REVIEW CONCLUSION
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 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 5,104
Amortisation of intangible assets (386) (385) (770)
OPERATING PROFIT (3) 2,978 1,588 4,334
Finance costs (9) (12) (30)
Finance income 134 46 128
PROFIT BEFORE TAX 3,103 1,622 4,432
Tax on profit (4) (1,295) (491) (1,443)
PROFIT FOR THE PERIOD
ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT 1,808 1,131 2,989
Pence Pence Pence
Earnings per ordinary share
- basic (pence) (5) 3.21 2.07 5.42
Earnings per ordinary share
- diluted (pence) (5) 3.09 1.97 5.19
Adjusted earnings per ordinary share
- basic (pence) (5) 3.90 2.77 6.81
Adjusted 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 #'000
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 2,613 2,671 2,631
Intangible assets (6) 23,668 24,047 23,662
Deferred tax 1,136 1,175 1,113
Rent deposits 254 283 217
27,671 28,176 27,623
CURRENT ASSETS
Trade and other receivables 15,244 13,024 13,019
Cash and cash equivalents 12,950 7,757 11,452
28,194 20,781 24,471
TOTAL ASSETS 55,865 48,957 52,094
LIABILITIES
CURRENT LIABILITIES
Trade 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 LIABILITIES
Deferred 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
EQUITY
Share capital 566 555 561
Share premium 44,339 43,953 44,165
Shares to be issued 238 210 213
Retained earnings (5,004) (8,846) (6,909)
Foreign exchange difference 185 (5) 532
TOTAL EQUITY 40,324 35,867 38,562
The Interim Financial Information presented in this Interim Report was approved
by 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) - - 291
Net profit for the period - - - 1,131 - 1,131
Share based payments - - - 50 - 50
Deferred taxation on share
based payments - - - 137 - 137
Currency translation
differences on foreign
currency net investments - - - - 208 208
Currency translation
differences on loans to
foreign subsidiaries
treated as part of net
investments - - - - (213) (213)
At 30 June 2004 555 43,953 210 (8,846) (5) 35,867
Arising on share issues 6 212 3 - - 221
Net profit for the period - - - 1,858 - 1,858
Share based payments - - - 87 - 87
Deferred taxation on
share based payments - - - (8) - (8)
Currency difference on
translation of net assets
of subsidiary
undertakings - - - - 502 502
Currency translation
differences on loans to
foreign subsidiaries
treated as part of net
investments - - - - 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 38,562
Arising on share issues 5 174 25 - - 204
Net profit for the period - - - 1,808 - 1,808
Share based payments - - - 74 - 74
Deferred taxation on
share based payments - - - 23 - 23
Currency difference on
translation of net assets
of subsidiary undertakings - - - - (189) (189)
Currency translation
differences on loans to
foreign subsidiaries
treated as part of net
investments - - - - (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 #'000
Profit before tax 3,103 1,622 4,432
Depreciation 484 518 1,085
Amortisation of intangible assets 386 385 770
Finance costs 9 12 30
Finance income (134) (46) (128)
Share based options (74) (50) (137)
Loss on disposal of tangible fixed assets 7 - 2
Increase in debtors (2,103) (671) (626)
Increase/(decrease) in creditors and
provisions 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 ACTIVITIES
Payments to acquire tangible fixed assets (499) (528) (1,064)
Receipts from sale of tangible fixed assets 19 20 62
Purchase of subsidiary undertakings (213) (123) (123)
Net cash acquired with subsidiary
undertakings 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 #'000
FINANCING ACTIVITIES
Net proceeds from issue of ordinary
share capital 70 291 512
Repayment of short term and long
term loans - (18) (17)
Capital element of finance lease
rental payments - (46) (50)
Interest paid (9) (1) (5)
Finance lease interest - (11) (25)
NET CASH FLOWS FROM FINANCING ACTIVITIES 61 215 415
INCREASE IN CASH IN CASH AND CASH EQUIVALENTS 1,656 471 4,192
MOVEMENT IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of period 11,452 7,223 7,223
Increase in cash and cash equivalents 1,656 471 4,192
Cash outflow from decrease in debt
and lease financing - 63 67
Translation difference (158) - (30)
Net cash and cash equivalents at
end 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 of
International Financial Reporting Standards'. These have been consistently
applied in arriving at the financial information set out in this report, except
for IAS32/39 where UK GAAP was adopted in the comparative period. The
accounting policies adopted assume that all existing standards in issue from the
IASB will be fully endorsed by the EU. These are subject to ongoing amendment
by the IASB and subsequent endorsement by the EU and are therefore subject to
possible 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 by
geographical 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 62,690
Total operating profit from primary
business 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 #'000
Is stated after charging:
Research and development expenditure 1,310 1,389 2,538
Depreciation of owned and leased assets 484 518 1,085
Amortisation 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 #'000
UK Corporation Tax:
UK Current Tax on income for the period 1,055 164 585
Adjustments in respect of prior periods (150) (90) (42)
Tax credit for share options taken to 150 - -
equity
1,055 74 543
Foreign Tax:
Current Tax on income for the period 215 471 994
Adjustments in respect of prior periods - - (94)
215 471 900
Total Current Taxation 1,270 545 1,443
Deferred Taxation:
Origination and reversal of timing
differences 25 122 374
Adjustments 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 23
tax credit for share options exercised is recorded in equity. For the 6 months
ended 30 June 2005 this has the effect of increasing the effective tax rate by
around 4%.
5. Earnings per share
6 months to 6 months to Year to
30 June 30 June 31 December
2005 2004 2004
#'000 #'000 #'000
Profit for the period attributable to
equity holders of the parent 1,808 1,131 2,989
m m m
Basic weighted average number of
shares (million) 56.3 54.7 55.2
Employee share options and shares
to be issued (million) 2.1 2.7 2.4
Diluted weighted average number
of shares (million) 58.4 57.4 57.6
Adjusted earnings per share:
6 months to 6 months to Year to
30 June 30 June 31 December
2005 2004 2004
#'000 #'000 #'000
Profit for the period attributable to
equity holders of the parent 1,808 1,131 2,989
Amortisation of intangibles 386 385 770
Adjusted profit for the period
attributable 2,194 1,516 3,759
to equity holders of the parent
m m m
Basic weighted average number
of shares (million) 56.3 54.7 55.2
Diluted weighted average number
of shares (million) 58.4 57.4 57.6
Pence Pence Pence
Adjusted earnings per ordinary share
- basic (pence) 3.90 2.77 6.81
Adjusted 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 initial
cash consideration of #213,000. In addition a total of 112,086 SDL shares are
to be issued by 18 April 2007. The net liabilities of Lingua Franca at the
date 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 Inc
for a cash consideration of $50 million (#28.6 million) and the issue of
4,542,957 Ordinary Shares in the Group with a market value of $10 million (#5.5
million). The cash consideration was funded from new bank facilities of $35
million (#20 million) and the balance from existing cash resources of the Group.
8. General notes
Comparative information previously published under UK GAAP has been restated
under International Financial Reporting Standards. Reconciliations of this
restatement may be found in Section 2 of this report.
The financial information in this interim statement does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985. The
financial information for the year ended 31 December 2004 is based on the
statutory accounts for the financial year ended 31 December 2004. Those
accounts, upon which the auditors issued an unqualified opinion, have been
delivered 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 with
International Financial Reporting Standards ("IFRS") from 1 January 2005. The
purpose of this section is to present the reconciliations between the previously
reported UK GAAP financial results and the restated financial results under
IFRS. These reconciliations include the Consolidated Income Statement for the
year ended 31 December 2004 and the half year ended 30 June 2004 and the Balance
Sheets for the years ended 31 December 2004 and 31 December 2003 and the half
year 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 the
first time as the basis for preparing its consolidated financial statements. In
general, the Group is required to determine its IFRS accounting policies and
apply these retrospectively to determine its opening balance sheet as at 1
January 2004 ("the transition date") under IFRS. The standard allows a number of
exemptions 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 a
charge to the income statement representing the fair value of outstanding share
options granted. The fair value of outstanding options granted has been
calculated using the Black Scholes model. The fair value is charged to income
over the relevant options vesting period, adjusted to reflect actual and
expected levels of vesting.
(b) Deferred taxation on share-based payments
A deferred tax asset is recognised for temporary differences on expected future
tax deductions on share-based payments. The deferred tax is recognized over
the vesting period concerned, subject to the usual criteria of recognising a
deferred tax asset.
(c) Intangible assets and goodwill capitalisation and amortisation
Under IFRS 3 goodwill is not amortised, but is subject to annual impairment
testing.
Under IAS 38 the Group is required to capitalise development expenditure
providing certain criteria laid out in IAS 38 are complied with. The intangible
assets is then amortised over an appropriate expected useful life from the point
that the resulting product is available for commercial sale or internal use.
The Board considers that no development expenditure incurred to date meets the
criteria for capitalisation under IAS 38 and therefore no costs have been
capitalised.
(d) Holiday accruals
As required by IAS 19 the Group has recorded a charge in the income statement to
represent holidays that have accrued to employees but not been taken as at the
relevant balance sheet date.
(e) Tax effect of holiday accruals
The tax effect for the adjustment for the holiday accrual is reflected in the
income statement and balance sheet.
Consolidated Income Statement UK IFRS IFRS
For 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) 26
OPERATING PROFIT BEFORE
AMORTISATION OF
INTANGIBLE ASSETS 1,129 3,975 5,104
Amortisation of intangible assets (770) - (770)
OPERATING PROFIT 359 3,975 4,334
Finance costs (30) - (30)
Finance income 128 - 128
PROFIT BEFORE TAX 457 3,975 4,432
Tax on profit (1,435) (e) (8) (1,443)
(LOSS)/PROFIT FOR THE
PERIOD ATTRIBUTABLE
TO EQUITY HOLDERS OF
THE PARENT (978) 3,967 2,989
Consolidated Balance Sheet UK IFRS IFRS
At 31 December 2004 GAAP Adjustments
#'000 #'000 #'000
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 2,631 - 2,631
Intangible assets 19,576 (c) 4,086 23,662
Deferred tax 510 (b) 603 1,113
Rent deposits 217 - 217
22,934 4,689 27,623
CURRENT ASSETS
Trade and other receivables 13,019 - 13,019
Cash and cash equivalents 11,452 - 11,452
24,471 - 24,471
TOTAL ASSETS 47,405 4,689 52,094
LIABILITIES
CURRENT LIABILITIES
Trade 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 LIABILITIES
Deferred tax (78) - (78)
Provisions (548) - (548)
(626) - (626)
TOTAL LIABILITIES (13,493) (39) (13,532)
NET ASSETS 33,912 4,650 38,562
EQUITY
Share capital 561 - 561
Share premium 44,165 - 44,165
Shares to be issued 213 - 213
Retained earnings (11,559) (c) 4,086 (6,909)
(b) 603
(d) (56)
(e) 17
Foreign exchange difference 532 - 532
TOTAL EQUITY 33,912 4,650 38,562
Consolidated Balance Sheet UK IFRS IFRS
At 31 December 2003 GAAP Adjustments
#'000 #'000 #'000
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 2,560 - 2,560
Intangible assets 24,423 - 24,423
Deferred tax 510 (b) 474 984
27,493 474 27,967
CURRENT ASSETS
Trade and other receivables 12,547 - 12,547
Cash and cash equivalents 7,295 - 7,295
19,842 - 19,842
TOTAL ASSETS 47,335 474 47,809
LIABILITIES
CURRENT LIABILITIES
Trade 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 LIABILITIES
Deferred 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
EQUITY
Share capital 542 - 542
Share premium 43,569 - 43,569
Shares to be issued 316 - 316
Retained earnings (10,581) (b) 474 (10,164)
(d) (82)
(e) 25
TOTAL EQUITY 33,846 417 34,263
Consolidated Income Statement UK IFRS IFRS
For 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 BEFORE
AMORTISATION OF
INTANGIBLE ASSETS 40 1,933 1,973
Amortisation of intangible assets (385) - (385)
OPERATING (LOSS)/PROFIT (345) 1,933 1,588
Finance 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 ATTRIBUTABLE
TO EQUITY HOLDERS OF THE PARENT (802) 1,933 1,131
Consolidated Balance Sheet UK IFRS IFRS
At 30 June 2004 GAAP Adjustments
#'000 #'000 #'000
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 2,671 - 2,671
Intangible assets 22,004 (c) 2,043 24,047
Deferred tax 564 (b) 611 1,175
Rent deposits 283 - 283
25,522 2,654 28,176
CURRENT ASSETS
Trade and other receivables 13,024 - 13,024
Cash and cash equivalents 7,757 - 7,757
20,781 - 20,781
TOTAL ASSETS 46,303 2,654 48,957
LIABILITIES
CURRENT LIABILITIES
Trade and other payables (10,285) (d) (59) (10,344)
Current tax liabilities (1,606) - (1,606)
(11,891) (59) (11,950)
NON CURRENT LIABILITIES
Deferred 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
EQUITY
Share capital 555 - 555
Share premium 43,953 - 43,953
Shares to be issued 210 - 210
Retained 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 accounting
policies that the directors anticipate will be complied with in the annual
financial statements. These policies are set out below. The accounting policies
adopted assume that all existing standards in issue from the IASB will be fully
endorsed by the EU. These are subject to ongoing amendment by the IASB and
subsequent endorsement by the EU and are therefore subject to possible change.
The consolidated financial statements have been prepared on a historical cost
basis except for certain items which have been measured at fair value, as
discussed in the accounting policies below.
The consolidated statements for the year ended 31 December 2005 will be the
Group's first full IFRS financial statements. The date of transition to IFRS
is 1 January 2004.
Basis of preparation of consolidated financial statements
The consolidated financial statements comprise the financial statements of the
Company and all subsidiary undertakings for the full year or from the date of
acquisition if later. Subsidiaries are all entities over which the Group has
control such that it can govern the financial and operating policies.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. The Group has elected not to apply IFRS 3
retrospectively to business combinations that took place before 1 January 2004.
As a result, all prior business combination accounting has been frozen at the
transition date. This includes goodwill that was previously amortised. The Group
uses the acquisition method of accounting to account for the acquisition of
subsidiaries. The cost of an acquisition is measured as the fair value of the
assets acquired, equity instruments issued and liabilities incurred or assumed
at the date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets and liabilities acquired and contingent liabilities assumed
in a business combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest. The
excess of the cost of acquisition over the fair value of the Group's share of
the identifiable net assets acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the net assets of the subsidiary
acquired, 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 the
consideration given over the fair value of the identifiable net assets acquired.
Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is reviewed for impairment annually, or
more frequently if events or changes in circumstances indicate that the carrying
value may be impaired.
As at the acquisition date, any goodwill acquired is allocated to each of the
cash generating units expected to benefit from the combination's synergies. A
cash generating unit is the smallest identifiable group of assets that generate
cash inflows that are largely independent of the cash inflows from other assets.
Impairment is determined by assessing the recoverable amount of the
cash-generating unit, to which the goodwill relates. Where the recoverable
amount of the cash-generating unit is less than the carrying amount, an
impairment loss is recognised.
Goodwill arising on acquisitions pre 1 January 2004 was capitalised and
amortised over its useful economic life, which was presumed to be 8 years. Any
goodwill remaining on the balance sheet at 1 January 2004 is not amortised after
1 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 a
business acquisition are capitalised at fair value as at the date of
acquisition. Following initial recognition, intangible assets are held at cost
less accumulated amortisation. Intangible assets are amortised on a
straight-line basis over their useful economic lives. The useful lives of these
intangible assets are assessed over the expected period that benefits accrue to
the Group. Amortisation is charged as a separate line item in the income
statement.
Research and development costs
Research costs are expensed as incurred. Development expenditure incurred on an
individual project is carried forward when its future recoverability can
reasonably be regarded as assured. Following the initial recognition of the
development expenditure the cost model is applied requiring the asset to be
carried at cost less any accumulated amortisation and accumulated impairment
losses. Any expenditure carried forward is amortised over the period of expected
future sales from the related project. The carrying value of development costs
is reviewed for impairment annually when the asset is not yet in use, or more
frequently when an indicator of impairment arises during the reporting year
indicating that the carrying value may not be recoverable.
Development costs that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
Intangible assets: Impairment of assets
An impairment loss is recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of
an asset's fair value less costs to sell and its value in use, where value in
use is calculated as the present value of the future cash flows expected to be
derived from the asset. For the purpose of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units).
Property, plant and equipment
Property plant and equipment is stated at historical cost less depreciation and
any impairment in value. Historical cost includes the expenditure that is
directly attributable to the acquisition of the assets. Subsequent costs are
included in the asset's carrying amount or recognised as a separate asset, as
appropriate, only when the costs provide enhancement, it is probable that future
economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. All other repairs and maintenance are
charged to the income statement during the financial period in which they are
incurred. Depreciation is provided to write off the cost less the estimated
residual value of property, plant and equipment over their estimated useful
economic lives as follows:
Leasehold improvements - The lower of ten years or the lease term
straight line
Equipment - 4 years straight line
Fixtures & fittings - 20% reducing balance
Motor vehicles - 20% reducing balance
Software - 3 years straight line
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on the derecognising of the asset (calculated
as the difference between the net disposal proceeds and the carrying amount of
the item) is included in the income statement in the year the item is
derecognised.
Revenue
Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be measured reliably. The
following specific recognition criteria must also be met before revenue is
recognised:
Rendering of services
Revenue on long-term contracts is recognised only when their outcomes can be
foreseen with reasonable certainty and is based on the percentage stage of
completion of the contracts, calculated on the basis of costs incurred. Accrued
and deferred revenue arising on long-term contracts is included in debtors as
accrued income and creditors as deferred income as appropriate.
Interest
Revenue is recognised as the interest accrues to the net carrying amount of the
financial asset.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the Income Statement with the exception of differences on foreign
currency borrowing that provide a hedge against a net investment in a foreign
entity. These are taken directly to equity until the date of disposal of the net
investment, at which time they are recognised in the consolidated income
statement.
The assets and liabilities of overseas subsidiary and branch undertakings are
translated at the closing exchange rate. Income Statements of such undertakings
are consolidated at the average rate of exchange during the year. Gains and
losses arising on these translations are taken to reserves. As permitted by IFRS
1 SDL 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 Group uses derivative financial instruments such as foreign currency
contracts and interest rate contracts to hedge its risks associated with
interest rate and foreign currency fluctuations. Such derivative financial
instruments are stated at fair value. The fair value of forward exchange
contracts is calculated by reference to current forward exchange rates for
contracts with similar maturity profiles. The fair value of interest rate
contracts is determined by reference to market values for similar instruments.
For the purpose of hedge accounting, hedges are classified as either fair value
hedges when they hedge the exposure to changes in the fair value of a recognised
asset or liability; or cash flow hedges where they hedge exposure to variability
in cash flows that is either attributable to a particular risk associated with a
recognised asset or liability or a forecasted transaction.
In relation to cash flow hedges (forward foreign currency contracts) to hedge
firm commitments which meet the conditions for special hedge accounting, the
portion of the gain or loss on the hedging instrument that is determined to be
an effective hedge is recognised directly in equity and the ineffective portion
is recognised in net profit or loss.
When the hedged firm commitment results in the recognition of an asset or a
liability, then, at the time the asset or liability is recognised, the
associated gains or losses that had previously been recognised in equity are
included in the initial measurement of the acquisition cost or other carrying
amount of the asset or liability. For all other cash flow hedges, the gains or
losses that are recognised in equity are transferred to the income statement in
the same year in which the hedged firm commitment affects the net profit and
loss, for example when the future sale actually occurs.
For derivatives that do not qualify for hedge accounting, any gains or losses
arising from changes in fair value are taken directly to net profit or loss for
the year.
Hedge accounting is discontinued when the hedging instrument expires or is sold,
terminated or exercised, or no longer qualifies for hedge accounting. At that
point in time, any cumulative gain or loss on the hedging instrument recognised
in equity is kept in equity until the forecasted transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss
recognised in equity is transferred to net profit or loss for the year. An
IFRS 1 exemption has been taken which permits financial instruments in the
comparative period to be accounted for and recorded under UK GAAP. Gains and
losses arising on these transactions have been taken to the income statement in
the period in which they complete.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with
banks. For the purpose of the Consolidated Cash Flow Statement, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts.
Leases
Finance leases, which transfer to the Group substantially all the risks and
benefits incidental to ownership of the leased item, are capitalised at the
inception of the lease at the fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments are
apportioned between the finance charges and reduction of the lease liability so
as to achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly against income.
Operating lease payments are recognised as an expense in the inco
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