RNS Number:9107Y
SDL PLC
22 July 2002
For Immediate Release 22 July 2002
SDL plc
Interim Results
For the Six Months Ended 30 June 2002
SDL plc ("SDL" or "the Group"), the globalisation products and solutions
company, is pleased to announce its results for the six months to 30 June 2002.
Operational Highlights:
• Turnover up 68% to £28.1m (interim period 2001: £16.7m)
• EBITDA of £1.1m (2001: loss of £1.02m) due to successful rationalisation
of the business
• Operating profit before goodwill of £0.3m (2001: operating loss of £1.5m)
• Alpnet Inc ("Alpnet") now break-even and successfully integrated
considerably ahead of plan
• Net cash resources of £5m
• New clients wins include Cisco, William Hill, Philips and Computer
Associates
Commenting on the results Mark Lancaster, Chairman and Chief Executive of SDL
said:
"These results reflect the success of the long term strategy of investing in the
latest technologies for localisation services. Though such a strategy has held
back the short-term profitability of SDL, it has always been our intention to
grow, both organically and through acquisition, into a dominant player in this
rapidly developing sector. The strength of the financial performance in the
worst market conditions that we have experienced since the business commenced in
1992 is an indication of the considerable potential of SDL, particularly in
these times where a corporates' ability to reach beyond its own domestic market
in the right language has never been more important."
For further information, please contact:
Mark Lancaster / Alastair Gordon Tel: 01628 410127
SDL plc
Bobby Morse/Louise Bolton Tel: 020 7466 5000
Buchanan Communications Tel: 07802 875227
CHIEF EXECUTIVE'S REPORT
Summary
SDL has performed well above expectations in the first half of 2002 with
revenues of £28.1 million, an increase of 68% over the corresponding period in
2001. More importantly, we have returned to profitability in this period, with
positive EBITDA of £1.1 million (2001 - negative EBITDA £1.0 million) and an
operating profit before goodwill of £0.3 million (2001 - loss £1.5 million).
Our growth is ahead of the sector average, despite the continuing generally
difficult trading conditions in the sector and the US economy that have
persisted since the same time last year. The acquisition of Alpnet has enhanced
the Group's revenues with five months contribution, but the underlying SDL
revenues also grew by 3% in the first half. This latter growth has been
achieved from the Group's strong customer base and by the addition of key blue
chip customers such as Canon and Computer Associates. SDL has continued to
control costs, keeping the business stable, while maintaining measured
investment in technology and the development of software products. The Group's
net cash resources were £5.0 million as at 30 June 2002.
Strategic Overview
SDL's strategy of investing in the development of technology products has played
a key role in winning new business and providing our customers with a complete
localization offering. Technology and service solutions have played a major part
in key project wins such as William Hill and Cisco. Although the investment in
software development is extensive, the ability to offer our customers seamless
solutions gives significant benefit both in time to market and productivity
gains.
It is the Group's belief that technology not yet released, but based on
knowledge based translation, will be another significant step in the growth of
the market in general, opening up the possibility of cost effective translations
to companies where in the past it has been cost prohibitive.
As global connectivity continues to grow, customers will require more efficient
translation from one language to another, whether the medium be the intranet,
email, web or more traditional documentation. The range of SDL's product and
service offerings now covers the complete spectrum of needs for translation from
technical translation requiring quality human translation through to instant
machine translation where the recipient only needs to ascertain the "gist" of
the message and the combination of the two technologies.
This approach to providing full solutions comprising both product and service
offerings continues to be unique in the industry. The move to a more complete
solution for globally based industries is expected to become a major trend in
these global industries, involving a mix of both machine-related techniques and
human translation. SDL believes that the combination of human translation with
knowledge-based translation systems and real-time (or machine) translation with
customised dictionaries gives a powerful solution to the customers'
requirements. This is beginning to be reflected in the interest being shown by
major existing and prospective clients as they work with SDL to develop their
businesses.
Operational Overview
The past 6 months have seen significant improvements in the scaling up of the
operations at SDL. We have completed the second phase roll out of a more
sophisticated global financial system to ensure accurate financial management
across a now complex and geographically spread Group. This system will
interface with the Project management system, which allows accurate management
and tracking of projects and resources company-wide. Both these systems allow
the Group to scale up rapidly, integrating new staff into the group quickly and
cost effectively.
Probably the most important aspect to the way SDL is structured and managed is,
however, the divisional structure. This has allowed the rapid integration of
the Alpnet operations into the Group well ahead of schedule and with reduced
integration costs. The majority of the Alpnet integration was completed in mid
June, with all the major decisions having been taken.
In the past 3 years we have been strengthening the management at SDL, and
coupled with some of the key managers that came with the Alpnet acquisition, we
feel we have a strong senior and mid management team many of whom have several
years of experience at SDL and in the industry.
Product Development
In line with the Board's strategy outlined above, the Group has continued to
work on the integration of the technologies developed and acquired over the past
several years. These developments are closely allied to the service and
solutions side of the business and this linkage has been enhanced by the
consulting, technical authoring and internationalisation skills acquired with
Alpnet. Work is well advanced on the combination of real-time translation and
translation memory and initial testing has been carried out using the Group's
in-house service resources. A detailed review has been conducted of the
technology acquired with the Alpnet group and this has resulted in a number of
enhancements being built into the existing workflow processes that operate with
our enterprise products. This has not only saved future expenditure but has
also sped up the processes of development. All the remaining development
activity in Alpnet has been terminated.
Integration of Acquisitions
The Group acquired Alpnet Inc on 1 February 2002 for £4.74 million and the
assumption of bank, loan holder debt and lease financing totalling a further
£7.15 million. Careful and focused time has been applied to integrating the
various geographic businesses into SDL and rationalising their processes and
cost bases. As a result of both our operational efforts and the restructuring
programme that Alpnet had themselves commenced prior to the acquisition, the
integration of Alpnet is significantly ahead of the pre-acquisition plan and at
the half year all the substantial changes have been made. The loss making UK,
Irish and US operations have been closed and the projects successfully
integrated into other production units. In Asia the SDL and Alpnet operations
in each of China and Japan have been merged, resulting in savings in both
production and overhead costs. The German operations have been streamlined and
merged creating significant cost savings and the Canadian operations have
continued to perform strongly with few changes being required to date.
The overall result is that the Alpnet group reached break-even within three
months of the acquisition. The Sales operations have been integrated in both
North America and Europe, creating a powerful world-wide sales force,
specifically strengthening the European arm. The consulting and software
development expense has been significantly reduced and successfully integrated
into SDL, bringing considerably more complementary technology to SDL than was
anticipated, so speeding up SDL's software development process. The consultancy
expertise Alpnet has brought to SDL is also a significant addition for the
future solutions strategy.
Already the combination of the two companies is providing our customers with
significant advantages in terms of process improvements, technology enhancements
and consultancy solutions, for such companies such as Hewlett Packard and
Oracle.
In addition to the above changes, SDL has introduced its processes and controls
to the Alpnet businesses. This has ranged from productivity and utilisation
processes and tools, to the introduction of the SDL outsourcing model and highly
qualified freelancer database and the use of SDL developed technology to
leverage the ex-Alpnet localisation work. From an overall Group perspective
this has resulted in a gross margin in the first half of 44% against a proforma
combined margin in 2001 of 38%. This is an area that management will continue
to work on but, as experienced with previous large acquisitions, the effects of
an acquisition and its absorption into the business can take up to two years
before the full benefits are realised.
These changes are being embraced by both the new employees to the SDL Group and
also, equally importantly, the customers. An important feature of the
integration has been the fact that there has been minimal customer loss and very
real evidence that certain customers were only retained as a result of the
positive approach of the newly enlarged Group, despite pricing and other
pressures from SDL's competitors. The senior management team in the Group has
been enhanced by the retention of key Alpnet management.
From the Alpnet balance sheet perspective there has been a significant reduction
in the levels of debt and the assets and liabilities have been fair valued. As
at 30 June 2002 the combined debt assumed of £7.15 million has been reduced to
£4.4 million. This has been achieved by a combination of paying off the more
expensive facilities, negotiations to terminate lease commitments and loan deals
early and the swapping of SDL equity for loan note debt. In addition SDL
management has negotiated reduced payment terms on a number of old outstanding
supplier contracts and balances.
The main features of the fair valuing of the Alpnet balance sheet are the
elimination of capitalised development expenditure of £3.9 million and the
writing off of goodwill arising from Alpnet's own acquisitions in the past. The
former adjustment brings Alpnet into line with SDL's accounting policy on
development expenditure. In addition SDL has conducted a detailed review of the
remaining assets and liabilities of the business as a whole. This overall fair
valuing, which SDL management considered necessary to reflect the true state of
the Alpnet business as at the beginning of the year, results in additional
goodwill on the SDL Group balance sheet of £13.5 million, which will be written
off over 8 years in accordance with Group policy.
Outlook
Trading since the half year is in line with the immediately preceding months.
While the US and European economic situations will continue to affect most
global markets, we are seeing new industries wanting to invest in localizing
their products. Our technology fits exactly with these emerging needs for cost
effective real-time translation work flow solutions.
Our strategy for the past 4 years has been to invest in technology and products
that allow companies to sell into the global market place more cost effectively.
It is evident from the first half results that this investment, although
having an impact on short term profitability, will in the Board's view allow us
to dominate the localization market in the coming years, and is considered key
to the performance of the Group in 2003 and 2004.
The product technology has continued to be adopted by both large and small
companies giving them significant savings using products like SDLWorkFlow(TM)
and SDLX(TM). Companies that had previously acquired these systems have
increasingly utilised SDL's services as a result of the productivity and cost
saving gains arising from the technology. In the period we have added William
Hill, Philips and Sony to the list of successful installations. The real-time
translation tools have been acquired by the likes of GE, Belga and International
Paper.
SDL is a well funded and well managed business. Our stable and growing customer
base, the rationalisation of our industry and our continued investment in
technology place us in a strong position in our market place.
Mark Lancaster
19 July 2002
FINANCE DIRECTORS' REPORT
Overview
• Debt reduced to £4.4 million, comprising of bank debt of £1.3 million,
loan notes of £2.2 million and finance leases of £0.9 million
• Development spend reduced to 5% of the revenue (2001 - 9%)
• EBITDA £1.1 million (2001 - loss £1.0 million)
• Operating profit before goodwill £0.3 million (2001 - loss £1.5
million)
• Cash in the bank £5.0 million
• Bank lines of £2 million of which £0.6 million undrawn
Results
Revenues for the 6 months ended 30 June 2002 were £28.1 million, a 68% increase
on the first 6 months of 2001. The revenue from the Group's existing business
prior to acquisitions was £17.2 million, an increase of 3% over the prior year,
with the acquired businesses contributing £10.9 million. This overall increase
has been achieved despite the weakening of the US dollar. The strength of SDL's
existing client base helped it maintain growth in a period when new
globalization solutions business was difficult to win. In the period to June
2002 87% of the business won was from existing clients against 85% in the prior
year.
The gross margin achieved in the period amounted to 44% (2001 - 46%). On a
stand alone basis the gross margin of the original SDL Group before the
consolidation of the Alpnet figures was 48%.
The level of development costs, including direct costs and overheads, was £1.49
million (2001 - £1.49 million) in the period as resources were applied to the
continued development and integration of translation memory, real-time
translation and related workflow processes. In addition the technology acquired
with Alpnet has been part of this integration. The Board anticipates that these
levels of development expenditure will be maintained through the rest of the
financial year but this controlled development spend is being spread over the
significantly increased level of revenue after the Alpnet integration. The
levels of development spend are anticipated to decrease through 2003.
The operating profit prior to amortisation and development costs was £1.81
million against a loss of £0.05 million in 2001. The operating loss for the 6
months to 30 June 2002 was £1.94 million (2000 - operating loss of £3.04
million). Both periods reflect the Group's policy of amortising goodwill and
intangible assets over 8 years and the amortisation charge for 2002, totalling
£2.26 million (2001 - £1.51 million), is increased by the effect of the
acquisition of Alpnet adding £0.70 million in the period.
The loss per share for the period was 4.02p (2001 - loss per share of 6.50p),
with a diluted loss per share of 4.02p (2001 - loss per share of 6.50p). The
undiluted profit per share for the period before amortisation and NIC on
employee share options was 0.23p (2001 - undiluted loss per share of 2.51p).
As at 30 June 2002, the Group had shareholder funds of £36.42 million (2001 -
£33.99 million) and net cash balances of £5.0 million (2001 - £11.14 million).
The net cash outflow from operating activities amounted to £1.23 million (2001 -
net cash outflow of £107,000).
Accounting Policies
As indicated in Note 1 to the Unaudited Interim Results, the accounts for the
six month period have been prepared on a basis consistent with prior periods and
UK GAAP. In particular all development expenditure is written off as incurred,
software licence sales are only recognised in line with any commitments or
obligations that the Group has in relation to the installation and acceptance of
the software and maintenance fees are recognised over the relevant period of the
contract. All service projects are reviewed monthly with regard to profit
recognition and losses are recognised immediately.
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
notes £'000 £'000 £'000
NET TURNOVER
Existing operations 17,205 16,747 33,659
Acquisitions 8 10,926 - -
Total continuing operations 2 28,131 16,747 33,659
OPERATING PROFIT/(LOSS)
Total continuing operations before
amortisation 326 (1,534) (2,449)
Amortisation of goodwill and intangible
benefits (2,264) (1,507) (3,090)
(LOSS) ON ORDINARY ACTIVITIES BEFORE
INTEREST AND TAXATION (1,938) (3,041) (5,539)
Net interest receivable/(payable) and
similar charges (63) 271 441
(LOSS) ON ORDINARY
ACTIVITIES BEFORE TAXATION (2,002) (2,770) (5,098)
Tax on profit on ordinary activities 4 (138) 74 262
(LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION (2,140) (2,696) (4,836)
Minority interests - - -
(LOSS) ATTRIBUTABLE TO SHAREHOLDERS (2,140) (2,696) (4,836)
Dividends - - -
RETAINED (LOSS) FOR THE PERIOD (2,140) (2,696) (4,836)
Pence Pence Pence
Basic (loss)/earnings per share 5 (4.02) (6.50) (11.56)
Diluted (loss)/earnings per share 5 (4.02) (6.50) (11.56)
Unaudited Statement of Recognised Gains and 6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
notes £'000 £'000 £'000
(Loss) for the period (2,140) (2,696) (4,836)
Currency translation differences on foreign
currency net investments 7 (409) (82) (190)
Total gains and losses recognised in the
period (2,549) (2,778) (5,026)
UNAUDITED GROUP BALANCE SHEET
30 June 30 June 31 December
2002 2001 2001
notes £'000 £'000 £'000
FIXED ASSETS
Intangible Assets 31,065 21,170 19,817
Tangible Assets 3,547 2,207 1,952
Investments - 82 -
34,612 23,459 21,769
CURRENT ASSETS
Debtors 12,124 5,200 7,735
Cash at bank and in hand 6,368 11,146 9,006
18,492 16,346 16,741
CREDITORS: amounts falling due within one
year 6 (13,994) (5,767) (6,661)
NET CURRENT ASSETS 4,498 10,579 10,080
TOTAL ASSETS LESS CURRENT LIABILITIES 39,110 34,038 31,849
CREDITORS: amounts falling due after more
than one year (2,193) - -
PROVISIONS FOR LIABILITIES AND CHARGES (494) (40) (25)
36,423 33,998 31,824
CAPITAL AND RESERVES
Called up share capital 7 540 422 423
Share premium account 7 43,548 36,444 36,517
Profit and Loss Account 7 (7,665) (2,868) (5,116)
SHAREHOLDERS' FUNDS 7 36,423 33,998 31,824
Equity minority interests - - -
36,423 33,998 31,824
Equity interests 36,423 33,988 31,824
Non-equity interests - - -
36,423 33,988 31,824
The Interim Financial Information presented in this Interim Report was approved
by the Board of Directors on 19 July 2002
UNAUDITED GROUP CASH FLOW STATEMENT
6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
notes £'000 £'000 £'000
NET CASH (OUTFLOW) FROM OPERATING
ACTIVITIES (1,193) (107) (336)
RETURN ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received 122 285 461
Interest paid (182) (13) (19)
Finance lease Interest (3) (1) (1)
(63) 271 441
TAXATION
Overseas and UK tax (paid)/received (273) (279) (326)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets (583) (445) (791)
Payments to acquire intangible fixed assets - - (1,013)
Loans advanced - - (824)
Receipts from sale of tangible fixed assets - 2 12
(583) (443) (2,616)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings 8 (5,562) (1,439) (1,294)
Net overdrafts acquired with subsidiary
undertakings (1,976) - (9)
(7,538) (1,439) (1,303)
NET CASH OUTFLOW BEFORE FINANCING (9,650) (1,997) (4,140)
Proceeds from issue of ordinary share
capital 7,148 65 69
Repayment of short term and long term loans (1,226) - -
Capital element of finance lease rental
payments (235) (2) (3)
5,687 63 66
(DECREASE) IN CASH IN THE PERIOD (3,963) (1,934) (4,074)
UNAUDITED GROUP CASH FLOW RECONCILIATIONS
6 months to 30 6 months to Year to
June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
(a) Reconciliation of operating (loss)/profit to net cash inflow/(outflow)
from operating activities
Operating (loss) (1,938) (3,041) (5,539)
Depreciation 749 511 1,006
Amortisation of goodwill and intangible assets 2,264 1,507 3,090
(Profit)/loss on disposal of tangible fixed assets - (2) 30
Decrease in debtors 2,246 1,381 528
Increase/(decrease) in creditors (2,455) (345) 711
Decrease in provisions (1,670) (63) (15)
Share of loss of associate - 10 10
Write down investment in associate - - 13
Exchange gain on cash, liquid resources and loans (389) (65) (170)
Net cash (outflow) from operating activities (1,193) (107) (336)
(b) Reconciliation of net cash flow to movement in net funds
(Decrease) in cash (3,963) (1,934) (4,074)
Cash outflow from decrease in debt and lease
financing 1,460 2 3
Change in net funds resulting from cashflows (2,503) (1,932) (4,071)
Debt and finance leases acquired with subsidiaries (4,558) - -
Movement in net funds (7,061) (1,932) (4,071)
Net funds at start of period 8,998 13,069 13,069
Net funds at end of period 1,937 11,137 8,998
(c) Reconciliation of net funds to Balance Sheet
Cash at bank 6,368 11,146 9,006
Current borrowing (1,325) - -
Current net cash 5,043 11,146 9,006
Finance leases (892) (9) (8)
Debt (2,214) - -
Net funds at end of period 1,937 11,137 8,998
NOTES TO THE UNAUDITED INTERIM RESULTS
1. Basis of preparation
The interim financial information has been prepared on the basis of the
accounting policies set out in the Group's financial statements for the year
ended 31 December 2001, as amended by the adoption of FRS 19 "Deferred Tax". No
adjustment to prior year results has been required on the adoption of FRS 19.
2. Turnover and segmental information
6 months to 6 months to Year to
30 June 30 June 31 December
Globalization solutions: 2002 2001 2001
£'000 £'000 £'000
Continuing operations 17,205 16,747 33,659
Acquisitions 10,926 - -
Total continuing operations 28,131 16,747 33,659
6 months to 6 months to Year to
30 June 30 June 31 December
Geographic: 2002 2001 2001
£'000 £'000 £'000
United Kingdom 1,670 1,857 3,648
Rest of Europe 2,254 2,819 5,701
North America 12,501 11,307 22,266
Rest of the World 780 769 2,044
Total existing operations 17,205 16,752 33,659
United Kingdom 91 - -
Rest of Europe 6,183 - -
North America 4,100 - -
Rest of the World 552 - -
Total acquisitions 10,926 - -
Total continuing operations 28,131 16,747 33,659
Further analysis of turnover, profit and net assets by geographical segment is
not disclosed because the directors consider such disclosure would be
prejudicial to the business.
The turnover on the face of the profit and loss account has been analysed
between the existing operations and the acquisitions during the period. However,
due to the ongoing integration of the businesses it is not possible to give a
meaningful split between existing operations and the acquisitions as relates to
the operating profit.
3. Operating profit/(loss)
6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
Is stated after charging:
Research and development expenditure 1,490 1,487 3,173
Depreciation of owned assets 749 511 1,006
Amortisation of goodwill and intangibles 2,264 1,507 3,090
Provision for NIC on Share Option Scheme - (62) (78)
4. Taxation
6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
UK Corporation Tax:
UK Current tax on income for the period - (212) (411)
Adjustments in respect of prior periods - - 113
- (212) (298)
Foreign Tax:
Current tax on income for the period 138 115 122
Adjustments in respect of prior periods - 23 (86)
138 138 36
138 (74) (262)
5. Earnings per share
6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
m m m
Basic weighted average number of shares 53.3 41.4 41.8
Employee share options 1.7 2.4 2.1
Diluted weighted average number of shares 55.0 43.8 43.9
Note that where the effect of share options is anti-dilutive the diluted
earnings per share will be the same as the basic.
6. Creditors: Amounts falling due within one year
6 months to 6 months to Year to
30 June 30 June 31 December
2002 2001 2001
£'000 £'000 £'000
Trade creditors 4,132 1,145 1,274
Bank overdrafts 1,325 - -
Loan notes 471 - -
Obligations under finance lease controls 441 10 8
Other creditors and accruals 7,625 4,612 5,379
13,994 5,767 6,661
7. Equity shareholders' funds
Share Capital Share Premium Profit & Loss Total
£'000 £'000 £'000 £'000
At 31 December 2001 423 36,517 (5,116) 31,824
Shares issued 117 7,031 - 7,148
Loss for the period - - (2,140) (2,140)
Currency realignment - - (409) (409)
At 30 June 2002 540 43,548 (7,665) 36,423
8. Acquisitions
On 1 February 2002 the Group acquired the whole of the issued share capital of
Alpnet Inc. for a consideration of £4.74 million, the assumption of bank and
other debt facilities of approximately £5.70 million and finance lease
commitments of £1.45 million. At the same time a placing of 11.28 million shares
was made with existing and new institutional shareholders raising £6.07 million
after expenses. This money has been used to fund certain restructuring
initiatives, to repay a portion of the Alpnet group debt and to provide working
capital for the enlarged Group.
A summary analysis of the acquisition of Alpnet Inc is as follows:
£'000
Net assets at the date of acquisition 1,907
Accounting adjustment to reflect SDL group policy relating to the expensing of all
development expenditure as incurred (3,854)
Fair value adjustments arising on a review of the assets and liabilities of the Alpnet Inc
group (844)
Write-off of goodwill arising on acquisitions made by Alpnet inc (5,140)
Revised net liabilities (7,931)
Goodwill arising on acquisition 13,487
5,556
Discharged by:
Cash 4,736
Costs associated with the acquisition 820
5,556
Goodwill arising on the acquisition has been capitalised and is being amortised
over 8 years in line with Group policy. The investment has been included in the
Group's balance sheet at its fair value at the date of acquisition.
9. Results for 2001
The accounts in this statement do not comprise full accounts within the meaning
of section 240 of the Companies Act 1985. The figures for the year ended 31
December 2001 have been extracted from the 2001 Annual Report but do not
comprise statutory accounts for that period. The audited financial statements
have been delivered to the Registrar of Companies. The Auditors made an
unqualified report on those accounts and their report did not contain any
statement under section 237(2) or (3) of the Companies Act 1985.
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