RNS Number:3195S
SDL PLC
4 March 2002
FOR IMMEDIATE RELEASE Monday 4 March 2002
SDL PLC
Preliminary Results for the Year ended 31 December 2001
SDL plc ("SDL" or "the Group"), the globalization products and solutions
company, is pleased to announce its unaudited preliminary results for the twelve
months to 31 December 2001.
Highlights:
• Turnover up over 13% to £33.7m (2000: £29.7m)
• EBITDA losses of £1.4 m (2000: profits of £2.9m) including software
development costs of £3.2m, which are written off as incurred
• Pre tax loss (before amortisation of goodwill and intangibles) of £2.0m
(2000: profit of £2.6m)
• Loss per share of 11.56p per share (2000: earnings of 1.00p per share)
• Gross margin at 46% (2000: 49%) reflecting the prevailing poor market
conditions during the period
• Acquisition of Alpnet, Inc. ("Alpnet") for £4.7m and a Placing raising
£7.2m since the year end, consolidating SDL's position as one of the world's
largest globalization/localisation companies.
• Restructuring of Alpnet continues ahead of schedule
• Following the acquisitions of machine translation technology
(TranscendRTtm) and Alpnet, SDL can now offer its customers the full range
of globalization services and software
• Cash at year-end was £9.0m (2000: £13.1m) excluding the share Placing in
January 2002
Commenting on the preliminary results Mark Lancaster, Chairman and Chief
Executive of SDL, said:
"Despite a very heavy recession in most of our key markets, particularly in
America, SDL has demonstrated another year of progress through organic and
acquisitional growth. The poor market conditions have continued into the
current financial year yet SDL continues to dominate a sector that is beginning
to show signs of a slow recovery. Following the acquisitions in the last two
years and Alpnet in January this year, SDL now has the critical mass, global
infrastructure and the required technology to grow the business organically.
The restructuring of Alpnet is continuing ahead of schedule and we have been
successful in reducing the ongoing costs."
For further information please contact:
Mark Lancaster During the morning - Tel: 020 7466 5000
Chairman & Chief Executive Thereafter - Tel: 01628 410127
Bobby Morse/Louise Bolton Tel: 020 7466 5000
Buchanan Communications Bobbym@buchanan.uk.com
Background information
About SDL:
SDL (http://www.sdlintl.com) is a leading provider of globalization solutions
comprising products such as SDLWebFlow(tm), SDLX(tm) and TranscendRT(tm) combined with
localisation, engineering and project management services. SDL has offices
throughout USA, Asia and Europe, providing B2B global solutions with
state-of-the-art technology and a full-range of in-house translation services.
Clients include multinational companies such as Oracle, Dun & Bradstreet,
Hewlett Packard, eBay, Microsoft, Sony, Sun Microsystems, Adobe and 3Com.
Attached: Chairman's statement
Unaudited Consolidated Profit and Loss Account
Unaudited Consolidated Balance Sheet
Unaudited Consolidated Cash Flow Statement
Notes to the unaudited Financial Statements
STATEMENT OF CHAIRMAN AND CHIEF EXECUTIVE
OVERVIEW
2001 proved to be an extremely difficult year for a number of the markets that
SDL operates in, particularly the US. Despite these economic conditions, the
Group achieved revenue growth of 13% in the financial year. SDL's business
strategy remains focused on clients operating in international markets.
The two acquisitions early in 2001 (a division of Sykes Enterprises and a
division of Transparent Language) have been fully integrated into the Group and
enable SDL to offer a comprehensive globalization solution, not only to some of
the world's largest companies but also to smaller and medium-sized businesses.
As a result of our technology acquisitions and their integration into the
existing SDL product base, the Group is now the world-wide leader in fully
integrated multilingual-enabling technology. To help achieve this, SDL incurred
research and development costs of £3.17 million during the year (2000 - £1.61
million).
SDL's strategy is unchanged: we will continue to further consolidate the Group's
position of being the pre-eminent provider of globalization solutions to
international businesses. While trading conditions have remained difficult, the
financial resources of the Group have enabled us to continue this strategy, and
we are seeing signs of increasing adoption of multilingual system solutions.
The acquisition of Alpnet in February 2002 is a further indication of the
Group's strategy to remain at the forefront of the industry. The resultant
approximate doubling of the Group's size provides significant market profile and
financial stability, whilst also enabling SDL to leverage its development
expenditures and spread these costs over a broader services revenue base.
FINANCIAL PERFORMANCE
The Group's turnover increased from £29.73 million to £33.66 million, an
increase of 13%. Acquisitions contributed £3.12 million, with organic growth
from the existing businesses contributing £0.81 million, an increase of 3%.
Although lower than previous years, our organic growth in a temporarily static
market was created from wider industry recognition of SDL, created by the
establishment of the Group's complete product and service solution. Products
and product-related sales contributed £1.14 million (2000 - £2.14 million; the
prior year figures include a one-off product-related services contract amounting
to £1.46 million).
SDL's gross margin percentage fell from 49% to 46%, reflecting the difficult
trading conditions and some pricing pressure within the market. The Group
restricted the negative effect of the declining gross margin by a constant
review of the direct costs of production, and by continuing to maintain a tight
rein on external vendors. The continued profitability of the service business
enabled the Group to maintain its commitment to developing globalisation
solutions technology. Earnings before interest, depreciation and amortisation
(EBITDA) was a loss of £1.44 million (2000 - profit of £2.89 million). The
operating loss was £5.54 million (2000 - profit of £0.52 million) and the loss
before tax was £5.10 million (2000 - profit of £1.06 million).
The loss per share for 2001 was 11.56p (2000 - earnings per share 1.00p) and the
Group completed the year with cash resources of £9.00 million (2000 - £13.08
million). Acquisitions and related expenditures accounted for £2.79 million of
the reduction in the net cash resources.
ACQUISITIONS
The consolidation in the globalization industry, both in respect of service and
technology, continued through 2001 and into the current year. SDL supports
strategic investments in both these areas and seeks to enhance shareholder value
through acquisition, as well as organic growth. In January 2001, SDL acquired
the localisation business of Sykes Technologies, Inc. for £0.37 million (US$0.56
million). Sykes had three locations based in Belgium, Edinburgh and Boulder,
Colorado. This latter location provided SDL with a production and service
capability within the US, an essential component in our infrastructure for
handling certain customer requirements in the North American markets.
On 15 February 2001 the Group completed the acquisition of the Automatic
Real-Time Translation division of Transparent Language, Inc. for a total
consideration of £6.18 million (US$9.0 million), satisfied by £1.02 million in
cash and through the issue of £5.16 million in Ordinary shares. The assets
acquired included the intellectual property rights to certain automated
translation technology and related products, including Transcend and the
Enterprise Translation Server. The latter provides instant translation of
e-mail, web pages, instant messaging, documents, spreadsheets and presentations.
This technology has been integrated into SDL's other product offerings and is
dealt with in more detail in the Products section below.
In December 2001, the Group launched a tender offer to acquire all the share
capital of Alpnet, one of SDL's major competitors in the globalization industry.
Alpnet has a strong customer base in countries and vertical industry sectors
where SDL does not yet have a significant presence. In particular the Alpnet
group has significant businesses in Canada and Germany, as well as substantial
Asian production facilities and a material share of the automotive sector. The
Directors of SDL believe that this latter sector is an example of an industry
that lends itself to greater automation of the localisation process and hence
represents a beneficial target for the enlarged Group's technology focus.
The acquisition of Alpnet for £4.72 million (US$6.83 million) plus the
assumption of £5.70 million (US$8.04) million of debt was successfully completed
on 1 February 2002. The associated tender and open offer was successful,
resulting in a placing of 11.28 million shares with existing and new
institutional shareholders and raising £6.07 million after expenses. This money
will be used to fund certain restructuring initiatives, to repay a portion of
the Alpnet debt and to provide working capital for the enlarged Group.
Since the time the acquisition was completed, the management team has been
reviewing all aspects of the Alpnet Group with a view to its restructuring and
integration into SDL. A significant amount of insight was gained through the
due diligence process and this, together with the experience gained by our
successfully integrating ITP's business in 2000, has already had a positive
effect in the short period of time since the deal's completion. The duplicated
facilities in the UK and USA have been closed down at lower than expected cost,
and Alpnet's clients are being integrated into SDL's production facilities.
Management has also negotiated the earlier and lower settlement of certain of
Alpnet's liabilities assumed at the time of the transaction. The integration to
date has been encouraging, with restructuring running ahead of plan and below
budget, as has the response from both Alpnet's employees and customers.
In October 2001, a smaller transaction was completed to acquire Language
Partners International (LPI), a reseller and distributor of desktop applications
for the localisation industry and related service sectors. Until the time of
the transaction LPI had concentrated on selling competitive products to SDL's,
but is now concentrating on the full SDL Localization Suite, particularly in the
North American market
PRODUCTS
SDL's Enterprise Products comprise SDLWebFlow, SDLWorkFlow (a new extension of
our SDLWebFlow core technology) and the Enterprise Translation Server ("ETS").
The strategy behind this is to provide product solutions for the large potential
markets where human translation on its own is too expensive or not timely
enough. There is a growing demand for this capability in many markets, such as
the financial sector for more instantaneous translation of information and
research with a valuable but short lifespan.
During 2001 the Group has continued to pursue dual sales and marketing
strategies aimed at creating strong partnerships while at the same time
deploying a direct sales force targeted at vertical industry sectors. On the
partnership front the Group has linked up with such content management
specialists as Gauss and Obtree and announced the integration of SDLWebFlow with
the Microsoft Content Management Server. In September SDL signed an agreement
with ICL for the latter to resell SDLWebFlow. The direct sales force has been
successful in selling ETS into a wider variety of industry sectors than our
traditional localisation solution offering. This has included customers such as
Belga (The Belgian Press Agency), GMAC (the commercial mortgage arm of General
Motors), NCR, Sybase and Compendium (Trias Politica Online, for procurement and
supply chain management).
While our Enterprise product technologies provide major steps forward in
providing globalization solutions, the Desktop products are continuing to
provide cost and efficiency opportunities for companies and individuals working
in the localisation industry. In August 2001 the Group released SDL
Localization Suite, a comprehensive set of products giving localisation agencies
a seamless set of products to assist in the translation and QA process for
software and document translation, and for editing through to test validation.
The important factor here is that in addition to offering a "one-stop shop" to
the localisation industry, the Localization Suite is assisting in raising the
quality and profile of the localisation industry and is enhancing returns on
investment for SDL and its Desktop customers. These developments also have the
added advantage of enabling the Group to enhance gross margins in its own
service divisions.
SERVICES
The services element of the globalization solutions offered by the Group has
benefited on two fronts during the year: the association with the marketing and
selling of technology and with the acquisition of a number of additional
production locations. This will be further enhanced by the integration of the
Alpnet Group in the first half of 2002. The cash flow generation of the
services business remains an integral part of SDL's overall business strategy
and provides a solid platform to further develop the Enterprise and Desktop
Products divisions.
While the underlying organic growth in the service business in 2001 was well
below that of earlier years, the Board believes that this growth rate has been
in advance of the rest of the industry. As a result of the economic slowdown, a
number of major clients scaled back on their product changes and offerings, or
reduced the number of languages being localised, or both. The above
difficulties in the industry as a whole were mitigated in part by the strength
of the Group's repeat business from its larger clients. These include Adobe,
Avaya, Hewlett-Packard, Iomega, Kodak, Lexmark, Lotus, Microsoft, Oracle, Siebel
Systems, Sony, Sun Microsytems and 3Com. While no one customer provided for
more than 10% of the turnover, there were a number of strong contributors in the
3%-5% range that provided the Group with consistent and good-margin business.
This, combined with a close watch on utilisation and headcount, enabled the
Group to maintain strong gross margins despite the industry slowdown.
BOARD APPOINTMENT
As noted in my Interim Statement, John Matthews was appointed as a Non-Executive
Director on 15th June 2001. John has been Chairman of Crest Nicholson plc since
1996, is Chairman of Media Systems Group and also acts as an independent
director on the boards of three other listed companies. John has assumed the
chairmanship of SDL's Audit Committee and has already taken an active role in
the stewardship of the Company.
STRATEGY AND PROSPECTS
SDL is at the forefront in the development of product-based solutions for
assisting companies to reach a global audience. Significant investment
continued on plan throughout 2001 to develop software products for the future
global needs of international companies and to maintain the Group's leading
position in the industry. The combination of our products and services enables
clients to rapidly translate and maintain multilingual content, a key evolving
requirement for multinational companies to be successful in global markets. Our
products and solutions have been developed significantly over the past years by
both internal SDL resources and acquisitions of key technologies.
The evolution of the need for automation and workflow in globalization solutions
has been the cornerstone of SDL's strategy to be the major force in the
globalization industry. This has been the rationale behind the development of
software solutions and the Directors believe that our real-time translation
engine technology combined with computer-aided translation memory and workflow
solutions will provide the significant step forward that is needed in the field
of automated translation. The strength of the service side of the business and
our strong balance sheet has enabled the Group to maintain and enhance its
position in the industry.
The current financial year has started in line with our conservative
expectations and the Board anticipates that 2002 will continue to remain
somewhat soft. As noted above, the integration of Alpnet is going well and
according to plan, and there will be additional operational and financial
benefits arising from putting the two groups together. On the technology front,
interest continues to be shown in the products and solutions across a growing
number of industries and organisations.
Though the concept of globalization remains in its early stages, SDL continues
to benefit from significant demand for its services and products from
well-established high-tech and blue-chip customers. In order to best address a
more educated global market and to improve upon the significant lead of SDL's
technology, the Board will continue the investment in the development of
products, particularly with the launch of new generation translation technology
later in the year. However, with the advances made in 2001 and the acquisition
of Alpnet, the level of development expenditure is not expected to increase in
2002 and will be significantly reduced as a percentage of the overall revenues
of the enlarged Group.
As communication across countries and boundaries increases, and as electronic
commerce acts as a catalyst for this process, the market requirements for
instant and high quality translated material allowing corporations, governments
and other institutions to effectively communicate across these boundaries will
become more and more important. SDL's technology and localisation services
provide the fundamental building blocks for these needs.
Mark Lancaster
Chairman
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2001
Unaudited
Notes 2001 2000
£'000 £'000
TURNOVER
Continuing operations 30,543 29,730
Acquisitions 3,116 -
----- ----
GROUP TURNOVER (2) 33,659 29,730
Cost of sales (18,048) (15,105)
------ -----
GROSS PROFIT 15,611 14,625
Administrative expenses (21,150) (14,107)
------ -----
TOTAL operating (LOSS) /profit (3) (5,539) 518
Other interest receivable and similar income 461 564
Interest payable and similar charges (20) (23)
----- ----
(LOSS) /profit ON ORDINARY ACTIVITIES BEFORE
taxation (5,098) 1,059
Tax on (loss) /profit on ordinary activities (4) 262 (660)
----- ----
(LOSS) /profit on ordinary ACTIVITIES after
taxation (4,836) 399
Dividends - -
----- ----
retained (LOSS) /profit for the
financial year (4,836) 399
-------- -------
Earnings per share - basic (pence) (5) (11.56) 1.00
Earnings per share - diluted (pence) (5) (11.56) 0.93
-------- -------
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited
2001 2000
£'000 £'000
(Loss)/profit for the financial year attributable to members
of the parent company (4,836) 399
Exchange difference on retranslation of net assets of
subsidiary undertakings (190) (45)
---- ----
Total recognised (losses) and gains relating to the year (5,026) 354
---- ----
UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2001
Unaudited
Notes 2001 2000
£'000 £'000
FIXED ASSETS
Intangible assets 19,817 16,601
Tangible assets 1,952 2,003
Investments - 23
------- -------
21,769 18,627
________ ________
CURRENT ASSETS
Debtors 7,735 6,418
Cash at bank and in hand 9,006 13,080
------- -------
16,741 19,498
CREDITORS: amounts falling due within one year (6,661) (6,467)
------- -------
NET CURRENT ASSETS 10,080 13,031
------- -------
TOTAL ASSETS LESS CURRENT LIABILITIES 31,849 31,658
PROVISIONS FOR LIABILITIES AND CHARGES (25) (103)
------- -------
31,824 31,555
------- -------
CAPITAL AND RESERVES
Called up share capital (6) 423 398
Share premium account (6) 36,517 31,247
Profit and loss account (6) (5,116) (90)
------- -------
SHAREHOLDERS' FUNDS - EQUITY INTERESTS 31,824 31,555
------- -------
UNAUDITED CONSOLIDATED CASHFLOW FOR THE YEAR ENDED
31 DECEMBER 2001
Notes Unaudited
2001 2000
£'000 £'000
NET CASH (OUTFLOW)/INFLOW FROM OPERATING
ACTIVITIES (7) (336) 2,414
_________ ________
RETURN ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 461 564
Interest paid (19) (22)
Finance lease interest (1) (1)
-------- -------
441 541
_________ ________
TAXATION (326) (47)
CAPITAL EXPENDITURE & FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (791) (1,172)
Payments to acquire intangible fixed assets (1,013) (90)
Loans advanced (824) -
Receipts from sale of tangible fixed assets 12 20
-------- -------
(2,616) (1,242)
_________ ________
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings (1,294) (14,951)
Net cash acquired with subsidiary undertakings (9) (2,417)
-------- -------
(1,303) (17,368)
-------- -------
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (4,140) (15,702)
_________ ________
FINANCING
Proceeds from issue of ordinary share capital (6) 69 21,461
Purchase of Preference shares (6) - (32)
Repayment of short term and long term loans - (380)
Capital element of finance lease rental payments (3) (7)
-------- -------
66 21,042
-------- -------
(REDUCTION)/INCREASE IN CASH (7) (4,074) 5,340
------ ------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRELIMINARY FINANCIAL STATEMENTS
These preliminary financial statements do not constitute statutory accounts
within the meaning of section 240 of the Companies Act 1985 and are
unaudited. The statements have been prepared on the same basis as set out in the
previous year's annual accounts.
Financial information for the 12 months ending 31 December 2000 has been
extracted from the statutory accounts which have been filed with the Registrar
of Companies. The auditor's report on those accounts was unqualified and did not
contain any statement under section 237 of the Companies Act 1985. The audit
report for the year ending 31 December 2001 has yet to be signed.
The preliminary financial statements for the year ending 31 December 2001 were
approved by the Board on 1 March 2002.
2. TURNOVER AND SEGMENTAL INFORMATION
Unaudited
2001 2000
£'000 £'000
Turnover by geographical destination was as follows:
Existing operations:
United Kingdom 3,636 4,229
Rest of Europe 5,095 5,783
United States 20,081 17,423
Rest of the World 1,731 2,295
------ ------
Total existing operations 30,543 29,730
------ ------
Acquisitions:
United Kingdom 12 -
Rest of Europe 606 -
United States 2,185 -
Rest of the World 313 -
------ ------
Total acquisitions 3,116 -
------ ------
Total continuing operations 33,659 29,730
----- -----
Turnover by area of activity:
Existing operations:
Globalization solution services 29,833 27,588
Globalization solution products & related services 710 2,142
_______ _______
30,543 29,730
_______ _______
Acquisitions:
Globalization solution services 2,684 -
Globalization solution products & related services 432 -
_______ _______
3,116 -
_______ _______
Total continuing operations 33,659 29,730
----- -----
3. OPERATING PROFIT/(LOSS)
Unaudited
This is stated after charging: 2001 2000
£'000 £'000
Auditors' remuneration - audit services 95 100
Auditors' remuneration - other services 102 63
Research and development expenditure 3,173 1,610
Depreciation of owned assets 1,006 845
Amortisation of intangible fixed assets 787 17
Amortisation of goodwill 2,303 1,512
Operating lease rentals for plant and machinery 22 47
Operating lease rentals for land and buildings 1,600 990
(Credit) Provision for NIC on Share Option Scheme (78) 67
---- ----
4. TAX ON PROFIT ON ORDINARY ACTIVITES
Unaudited
2001 2000
£'000 £'000
UK corporation tax charge
Current tax on income for the period (411) 426
Adjustments in respect of prior periods 113 (21)
_________ _________
(298) 405
Foreign tax
Current tax on income for the period 122 255
Adjustments in respect of prior periods (86) -
_________ _________
36 255
_________ _________
(262) 660
----- -----
5. (LOSS)/PROFIT PER ORDINARY SHARE
Unaudited
2001 2000
£'000 £'000
(Loss)/profit for the period (4,836) 399
Weighted average number of shares in the year:
Basic 41,834,872 39,566,232
Diluted 43,910,921 43,121,693
Basic (loss)/profit per share (11.56p) 1.00p
Diluted (loss)/profit per share (11.56p) 0.93p
6. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
Share Profit &
Share Premium Loss
Capital Account Account Total
£'000 £'000 £'000 £'000
At 1 January 2000 369 9,576 (444) 9,501
Arising on share issues 61 21,671 - 21,732
Buy back of preference shares (32) - - (32)
Retained profit for the year - - 399 399
Currency difference on translation of assets - - (45) (45)
------------- ------------- -------------- -------------
Restated at 31 December 2000 398 31,247 (90) 31,555
Arising on share issues 25 5,270 - 5,295
Retained loss for the year - - (4,836) (4,836)
Currency difference on translation of assets - - (190) (190)
------------- ------------- -------------- -------------
At 31 December 2001 423 36,517 (5,116) 31,824
------------- ------------- -------------- -------------
7. NOTES TO STATEMENT OF CASH FLOWS
(a) Reconciliation of operating (loss)/profit to net cash flow from
operating activities:
Unaudited
2001 2000
£'000 £'000
Operating (loss)/profit (5,539) 518
Depreciation 1,006 845
Amortisation of goodwill and intangible assets 3,090 1,529
Loss on disposal of tangible fixed assets 30 20
Decrease/(increase) in debtors 528 (1,529)
Increase in creditors and provisions 696 1,130
Share of (loss)/profit of associate 10 (5)
Write down investment in associate 13 -
Exchange gain on cash, liquid resources and loans (170) (94)
Net cash flow from operating activities (336) 2,414
---- ----
(b) Reconciliation of net cash flow to movement in net funds.
Unaudited
2001 2000
£'000 £'000
(Decrease)/Increase in cash (4,074) 5,340
Cash outflow from decrease in debt financing 3 387
----- -----
Change in net funds resulting from cash flows (4,071) 5,727
Finance leases acquired with subsidiaries - (18)
----- -----
Movement in net funds (4,071) 5,709
Net funds at start of year 13,069 7,360
----- -----
Net funds at end of year 8,998 13,069
----- -----
(c ) Analysis of net funds
Finance Lease Cash Overdraft Loans Total
£'000 £'000 £'000 £'000 £'000
At 1 January 2000 - 7,826 (86) (380) 7,360
Acquisition (18) - - - (18)
Cash flow 7 5,254 86 380 5,727
-------- -------- -------- -------- --------
At 31 December 2000 (11) 13,080 - - 13,069
Acquisition - - (9) - (9)
Cash flow 3 (4,074) 9 - (4,062)
-------- -------- -------- -------- --------
At 31 December 2001 (8) 9,006 - - 8,998
----- ---- ---- ---- ----
8. CONTINGENT LIABILITIES
There is a contingent liability in relation to SDL Global Solutions (Ireland)
Limited for agreements made in November 1997 with Enterprise Ireland to repay
employment grants amounting to IR£446,152 (£345,000) if certain circumstances
as set out in those agreements occur within 5 years of the agreement.
9. DIVIDEND
No dividend was paid and no dividend is proposed in respect of the year-ended 31
December 2001.
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