TIDMSDL
RNS Number : 6788Y
SDL PLC
07 March 2017
7 March 2017
SDL PLC
Preliminary results for the year ended 31 December 2016
Transformation delivering results - 2016 foundations laid, 2017
the year of execution
SDL plc ("SDL", "the Group" or the "Company"), the global
innovator in language translation technology, services and content
management, announces its audited results for the year ended 31
December 2016.
12 months to 31 12 months to 31
December 2016 December 2015
Continuing Discontinued Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Income Statement
Revenue 264.7 25.2 289.9 240.4 26.5 266.9
Adjusted PBTA(1) 27.0 (24.5) 2.5 24.2 (3.6) 20.6
Profit/(loss) before
tax 11.0 (26.8) (15.8) (2.9) (22.3) (25.2)
Earnings per ordinary
share
basic (pence) 10.18 (32.47) (22.29) (10.17) (27.75) (37.93)
Adjusted Earnings
per ordinary
Share - basic (pence)(2) 26.58 (4.20) 22.38 21.17 (5.04) 16.13
1 Adjusted PBTA is profit before tax adjusted for the impact of
amortisation and one-off items. One-off items are items that in
management's judgement should be disclosed separately by virtue of
their size, nature or incidence to provide a better understanding
of the financial performance of the Group. These items are
disclosed in more detail in the Operating and Financial Review and
note 4 to the preliminary financial information.
2 Adjusted earnings per share is based on the Group's loss for
the year adjusted for the post tax impact of the loss on disposal
of the Campaign business, amortisation and one-off items.
Financial highlights
-- Revenue from Continuing Operations up 10% at GBP264.7 million
(2015: GBP240.4 million), including some benefit from foreign
exchange tailwinds.
-- Adjusted PBTA for Continuing Operations of GBP27.0 million
(2015: GBP24.2 million), Total GBP2.5 million (2015: GBP20.6
million)
-- One-off items of GBP13.1 million incurred to implement the
new strategy, structure and branding (2015: GBP39.1 million
including impairment charge of GBP33.3 million)
-- Adjusted Continuing Operations earnings per share of 26.58 pence (2015: 21.17 pence)
-- Strong cash generation from operations of GBP18.6 million
(2015: GBP12.0m) and year-end net cash increased to GBP21.3 million
(2015: GBP12.4 million)
-- Proposed full year dividend of 6.2p, double that of 2015
-- As expected, reduced Language Services Adjusted PBTA margin
of 11.4% due to planned investments
-- Language Technologies Adjusted PBTA margin up from 2.7% to
9.7% following strong licence sales in the year
-- Significant turnaround in Global Content Technologies with
Adjusted PBTA margin up to 7.0% from -9.4% following new licence
wins and cost control
Operational highlights
-- Implementation of previously announced new strategy and
organisational structure to enhance customer focus, improve agility
and pursue key strategic aims
-- Key appointments made to strengthen the Group's leadership
team to complement the existing team, including CEO, Adolfo
Hernandez
-- Non-Core business disposals: Campaign complete, Fredhopper
scheduled to complete during the week commencing 6 March 2017 and
Social Intelligence sale process is ongoing
-- Diversified client base, no single customer accounts for more than 5% of total revenue
-- We secured 60 new enterprise customers with world leading brands
-- Translation Productivity secured over 580 new corporate
customers and expanded its presence in over 680 existing corporate
accounts
-- Sales into premium sectors progressing well: 8 new Life Sciences clients added
Commenting on the business and the results, Adolfo Hernandez,
CEO of SDL, said:
"2016 has been a successful year for SDL both financially and
operationally. With a clear plan, revamped processes to improve
operational efficiency, and a focus on injecting technology into
the organisation, we are working hard to create a more scalable
platform and, in turn, help our customers go global faster.
2017 is the year of execution. There is still work to do but
with a new go-to-market model in place, the right leadership team,
strategy and portfolio of products and services to further develop
our market position, the Board remains confident of another year of
profitable growth which is reflected in the proposed realignment of
our dividend."
For further information please contact:
SDL plc Tel: 01628 410
127
Adolfo Hernandez, Chief Executive
Officer
Dominic Lavelle, Chief Financial
Officer
FTI Consulting LLP Tel: 020 3727
1000
Edward Bridges / Emma Appleton
About SDL
SDL (LSE: SDL) is the global innovator in language translation
technology, services and content management. For more than 20
years, SDL has transformed business results by enabling nuanced
digital experiences with customers across the globe so they can
create personalised connections anywhere and on any device. Are you
in the know? Find out more at SDL.com and follow us on Twitter,
LinkedIn and Facebook.
CHAIRMAN'S REVIEW
Looking back on the last year, 2016 was pivotal in our
transformation, and it positioned SDL to take full advantage of the
opportunities available to us.
The most important development was the recruitment of Adolfo
Hernandez as Chief Executive Officer in early April 2016. Adolfo
brings a wealth of experience and leadership capabilities, which I
believe are critical in ensuring SDL achieves its full potential in
an expanding market opportunity. He refocused our strategic plans
and has built an Executive Team with a deep understanding of the
relevant trends at the intersection of globalisation and digital
transformation and with the requisite skills and experience to
deliver results. The Executive Team has been assembled with a
healthy mix of people with many years of experience within SDL,
carefully supplemented by the recruitment of leaders with the
necessary experience of building businesses to market leadership
positions.
Furthermore, in July 2016, we restructured our business so we
can help our customers accelerate the global transformations of
their businesses using the full portfolio of SDL's capabilities. To
help convey our mission and vision, we launched a new brand
identity which was well received by both customers and employees
alike. The speed of delivery and the impact we were able to achieve
with these initiatives is a testimony to the skills and experience
of the new Executive Team.
Operational Review
Despite big changes within the executive leadership of SDL, I am
pleased to report that we have been able to grow both revenue and
profit. This growth in itself is a credit to all employees within
our business. Their ability to continue to focus on delivering to
the needs of our customers has been critical to the achievement of
our goals. On behalf of the Board, I would like to record my thanks
to all our employees for their dedication, professionalism and hard
work during a time of considerable change.
As part of the operational review we undertook at the end of
2015, we decided to refocus our business and as a result decided to
divest certain Non-Core businesses. Those businesses continued to
deliver good results despite the distraction of the sale processes.
We have successfully concluded the sale of our Campaign business
and the completion of the sale of our Fredhopper business is
expected during the week commencing 6 March 2017; I am sure the
businesses will continue to perform well under their new ownership.
The sale process for the Social Intelligence business is
ongoing.
Our Board
In addition to welcoming Adolfo Hernandez to the Board in April
2016, Christopher Humphrey joined the Board as a non-executive
Director in June 2016. I would like to formally welcome Chris to
the Board. He brings extensive experience to our discussions,
having recently retired as the CEO of Anite plc. We have already
benefitted from his relevant and valuable insight.
At the Annual General Meeting in April 2017, Chris Batterham
will not stand for re-election as a Director of our Company. Having
joined the Board in October 1999 and seen the Company through
significant periods of growth and change we will miss his
contributions as a Director and friend of SDL. His wise and
thoughtful counsel to myself, the rest of the Board and my
predecessors has been hugely valued.
Dividend
The financial results and our confidence in the future
performance of the business have resulted in the Board recommending
that we realign our dividend through a doubling of last year's
payment. Therefore we are recommending a full year dividend of
6.2p, a 100% increase. It is the Board's intention to follow a
progressive dividend policy in the future.
Outlook
We believe that we have the right leadership team, strategy and
portfolio of products and services to continue growing and further
develop our market position. There is much work still to be done
before we can say that SDL has reached its potential. As we
continue into the next phase of our journey and execute on our
strategic plan, the Board remains confident of another year of
profitable growth.
David Clayton
Chairman
CEO REVIEW
The vast quantity and diversity of content created and delivered
through global companies is the challenge our global customers are
grappling with. It includes everything from marketing collateral,
user guides, to community generated content.
Market opportunity
As a Company that pioneered both managing and translating this
wide array of content, I see how our business has a dramatic impact
on every interaction a customer has with a product or service. And
from what we can see, the amount of content delivered to worldwide
customers continues to expand rapidly. About 15 years ago, Eric
Schmidt of Google calculated the amount of content created from the
beginning of time, and it came to 2.5 million terabytes. This same
volume of content is now generated every two days.
As our world continues to transform into a more integrated
global economy, the need to manage content and convey it in a
meaningful way to worldwide audiences continues to grow. For SDL,
this means helping companies take their digital content global,
delivering it in locally relevant ways. We do this by helping
companies author, manage, translate and distribute content. We also
have the know-how and knowledge to help these customers go global
faster and more efficiently. On top of all of this, we are adding a
more robust layer of information security and confidentiality,
which is growing in importance continually.
We recently commissioned Forrester Research to evaluate the
shift toward global web and content operations. Forrester conducted
in-depth surveys with 151 business and IT professionals in the US
and their efforts revealed that more than 92 percent of enterprises
still struggle with localisation. The traditional process is filled
with inefficiencies and less than optimal quality. Additionally,
many enterprises are still trying to come to terms with even basic
global rollouts, let alone fully synchronised content to the
different channels that individuals in local markets prefer and
use.
SDL is uniquely positioned in the market with its breadth and
depth of content and language assets. Our market will stay strong
despite the increasing risk of protectionism - companies will
continue to sell to a global marketplace and will continue to
deliver digital content to a borderless world in multiple languages
and formats. And they need to control the process to get the
content translated and managed efficiently.
With language and content at its core, SDL is well positioned to
take advantage of these opportunities - the opportunities for SDL
are here to stay.
Business strategy
Over the past year, the Board and the Executive Team examined
our model and approach to global content by taking the time to
speak with and understand the needs of our customers. We learned
that although we have all the ingredients to help our customers go
global successfully, we need a more integrated approach to serve
them better - one that brings together all of the pieces of the
content globalisation puzzle.
The most fundamental change made in the last year is the way in
which we have embraced our core content management and translation
strengths and built around them. We recognised the diversity and
breadth of the technology and services we have and created a
strategy to bring everything together to solve real customer
problems.
Forrester's research on Building a Global Operational Model
indicates that 70 percent of global companies still don't have
integrated content management and translation processes. Our
mission is to help our customers go global faster by addressing
this challenge. We help facilitate understanding between companies
and their customers through our range of translation services and
consulting, content management systems that deliver content
dynamically, and unparalleled translation technology that addresses
the entire translation supply chain.
By focusing on both content and language, global expansion and
local relevance, human and machine translation, our portfolio of
offerings helps companies humanise the digital world by making the
content they offer more relevant and personal. Herein lies our
competitive differentiation: we can integrate content and language
processes and stakeholders together, reach global audiences through
local execution, and combine software and machine learning with a
great team of services professionals around the world.
One of our most significant strategic shifts is a refocus on our
customers: understanding where they are and what they need to
succeed. We spent significant time sharing SDL's new strategy and
ambition to work with them for our mutual success. Over the coming
year, our ability to cross-sell continues to be fundamental:
building our relationship with happy customers who want to expand
into the full range of products and services we sell.
And to keep up with the pace of the rapidly changing digital
landscape, we must be committed to prioritising our investments in
technology. From a technology perspective, we are focused on
building software tools to automate global content creation,
content management and translation processes, simplifying the
content lifecycle for our clients.
Our customers benefit from these integrated solutions so we are
extending the integration of our technology portfolio throughout
all of our software and services to deliver even greater value -
from machine translation to predictive analytics, and from
translation productivity to suggestion engines.
Global Content Technologies
We continue to focus on content management technology with an
emphasis on unifying content delivery, so that all digital touch
points are relevant and personal. By expanding our portfolio of
connectors, we will bridge any source content with our translation
capabilities to simplify the user experience across the content
lifecycle. Our continued investment in the cloud for our content
and language technologies will ensure that any company in the
world, no matter what size, can access the content management and
translation solutions they need.
Furthermore, we have made it a priority to make sure that our
software technology is fully integratable and integrated. As an
example, we are embedding translation management functionality
directly within SDL Web to enable streamlined review and editing
capabilities throughout the content development lifecycle. The
resulting innovative integrated solution provides translators with
greater context for how their work will appear in the final
website, and content owners can apply last minute edits to web
pages without sacrificing translation quality or consistency. Not
only do our customers benefit from this type of solution, but we
are extending the integration of our extensive portfolio of
technology capabilities - from machine translation, predictive
analytics, translation productivity, suggestion engines -
throughout all of our software and services to deliver value to our
customers quicker and more efficiently.
Language Technologies
We continue to build on our position of strength in Language
Technologies. Our translation productivity leadership prevails with
new versions of SDL Trados Studio and SDL Trados GroupShare. With
SDL Trados Studio, we are focused on driving the translation
industry forward through technology that improves a translator's
quality, accuracy and speed. Combined with SDL Trados GroupShare,
which secures collaboration between internal and external
translators and teams, translators work faster and smarter.
SDL has been at the forefront of machine translation (MT) since
2005 with the introduction of the first Statistical MT technology,
and this is one of the most exciting areas of innovation I see
within SDL. This year, in our latest release of SDL Trados Studio,
we delivered AdaptiveMT. This innovative technology works with and
not against the translator: AdaptiveMT tracks and learns from the
delta between standard machine translation and personal edits,
drastically speeding up translation time, improving quality and
increasing usability.
We now see Neural MT as a new disruptive wave for our market,
and we are significantly investing in this exciting technology.
Even in its current nascent form, Neural MT offers significant
quality improvements and a radically different modelling paradigm
that enables new opportunities for innovation in the fields of
Natural Language Processing.
Our renewed focus to commercialise MT allowed SDL to secure
large wins in government entities, big enterprises and more
recently even other Language Service Providers.
Language Services
To meet the demands of our customers, SDL translates over 100
million words per month through our 1,100 in-house linguists in 38
countries and our vast network of freelance translators. To
maintain our status as an ISO-certified translation company, all of
our in-house and freelance translators must pass the strict
guidelines and tests required by this international standard.
In 2016 we also segmented the Language Services market in terms
of needs and attractiveness. As a result, we started to shift our
services efforts to premium segments where high value, creative and
secure content is generated at scale. For the more standard market,
we have embarked on a journey to fully automate the process to
deliver time and cost savings at scale.
This year, to continue to deliver high quality 24/7 service we
integrated all our service delivery teams into a single global
organisation, sharing best practices and resources across the
globe. Our newly launched Localisation Process Consulting offering
helps our global customers implement these industry best-practices
based on our 25 years of experience in localising and managing
global content. And to support our growth into premium verticals,
we built out dedicated delivery teams that specialise in delivering
to premium segments including life sciences and marketing
transcreation.
Humans alone are not enough to translate all the content in the
world, and SDL has always played a pioneering role in technology
that increases human productivity - from the adoption of
translation memory technology in 2000 to introducing machine
translation paired with human post editing in 2003. Since then, we
have focused on continuously training our MT engines and combined
this with professional post editing to deliver optimal quality for
each customer. The AdaptiveMT I mentioned earlier is expected to
deliver an additional 20% productivity increase.
With our investment in machine learning and services automation,
we continue to push human productivity as far as possible,
combining the power of humans and machines and optimising the mix
to deliver the greatest efficiency and value for our customers and
our business.
Our Customers
As a company focused on globalisation, we have a great base of
global customers and our success relies heavily on our local
presence in 55 offices in 38 countries around the world. Moving
forward we will continue to gain a deeper understanding of our
existing customers, how they use SDL solutions, what we can improve
and how we can further enable and expand customer success and
adoption of SDL products and services.
By analysing our customer data, we understand where we win and
where we have opportunities to cross-sell. To build on our current
successes, we are bringing our value proposition to market by
industry vertical, executing an aligned target-selling and
account-based marketing strategy within identified accounts in
which we have a right to win.
We are also investing in adjacent opportunities that will enable
us to grow our customer footprint, including life sciences,
marketing solutions, machine learning, and connectors. Our global
but local strategy, combined with human services and technology
within a content and language focus will enable us to deliver
transformative business results to our customers.
Financial Performance
Financially, SDL had many positives in 2016, including
significant technology deals across all its products, the return to
profitability of our Global Content Technologies segment, the
significant revenue growth in Machine Technology, excellent
Translation Productivity performance, a turn-around in Professional
Services profitability and a diversity of business from different
regions, industries and customers. These are significant
achievements in a year where we went through a substantial
transformation.
SDL closed out the year with revenue from Continuing Operations
up 10% at GBP264.7 million. An 8% increase in our Language Services
business, 24% increase in our Language Technologies business and 6%
increase in our Global Content Technologies business drove this
growth. Adjusted PBTA for Continuing Operations was GBP27.0 million
(margin 10.2%) (2015: Group GBP20.6 million, Continuing Operations
GBP24.2 million, margin: 10.0%). Machine Translation technologies
grew by 72%, increasing to GBP9.7 million in 2016 from 2015 revenue
of GBP5.6 million as we begin to monetise this activity more
proactively.
The Group finished the year with cash balances of GBP21.3
million and no debt.
Looking Forward
Whilst events like Brexit and the worldwide changing political
climate are expressed in a challenge to globalisation, in the end,
our enterprise customers will continue to market their goods and
services globally (even if they produce more goods in their own
countries). Thanks to the internet, the majority of profits for
many global businesses come from outside the country where those
organisations are headquartered. These enterprises need support to
take these products (and associated content) globally faster and
while there is a climate of uncertainty, we see no other major
impact to our business. We might even experience some benefits as
we can own some global execution programmes on behalf of our
customers
For SDL, 2016 was about assessing the business, setting the
strategy and stabilising the business. 2017 is the year of
execution. With a new go-to-market model in place, we will focus on
key accounts and cross-selling while becoming a more agile company
through our people, processes and systems. We will also focus on
integrating and automating translation capabilities wherever
content is managed and complete the convergence of our software
stacks in the cloud.
In 2017, we continue to focus on technology innovations like
machine learning, and also push the boundaries of how people use
technology moving towards technology-enabled services. To ensure
visibility and focus on execution and delivery of our strategy, we
have deployed cascading goals and balanced scorecards across the
organisation. With an aligned plan of execution, revamped processes
to improve operational efficiency, and a focus on injecting
technology into the organisation, we are working hard to create a
more scalable platform. We have the foundations in place to
transform our business and, in turn, help our customers go global
faster.
Adolfo Hernandez
Chief Executive Officer
OPERATING AND FINANCIAL REVIEW
Summary Performance
2016 has been a positive year for our Continuing Operations. In
line with our plan, we have begun investing in the transformation
of our Language Services business after several years of
underinvestment and our Language Technologies and Global Content
Technologies businesses have both delivered material increases to
profitability this year.
Revenue from our Continuing Operations were up 10% at GBP264.7
million (2015: GBP240.4 million). This growth was driven the
positive benefit of foreign exchange tailwinds by an 8% increase in
our Language Services business, a 24% increase in our Language
Technologies business and a 6% increase in our Global Content
Technologies business. Technology Annual Recurring Revenue grew 7%
to GBP61.8 million. Total Group revenue increased by 9% to GBP289.9
million (2015: GBP266.9 million).
The business continues to benefit from a diverse mix of regions,
industry verticals and customers, limiting the Group's exposure to
adverse economic conditions in certain countries and sectors.
Customer concentration is broadly in line with the prior year, with
the 20 largest customers contributing 24% (2015: 22%) of revenue in
2016. No single customer contributes more than 5% of Group
revenue.
Adjusted PBTA for Continuing Operations was GBP27.0 million
(2015: Group GBP20.6 million, Continuing Operations GBP24.2
million). Language Technologies and Global Content Technologies
combined profitability increased by GBP12.0 million in 2016 which
more than offset the impact of planned investments in the Language
Services business. The Group loss after tax amounted to GBP18.1
million, after one-off costs of GBP13.1 million and the loss on
sale of the Campaigns business of GBP21.0 million (2015: loss after
tax, GBP30.7 million, after an impairment charge of GBP33.3 million
and other one-off costs of GBP5.8 million).
Gross cash in the business at the year-end was GBP21.3 million
with no external borrowings (2015: Gross cash GBP17.2 million; net
cash after borrowings GBP12.4 million). Cash generated from
operations was GBP18.6 million (2015: GBP12.0 million). Cash
generation in the year has been impacted by the Group's improved
underlying profitability and cash outflows associated with the
restructuring programme. Capital expenditure was GBP2.3 million
(2015: GBP2.7 million) and the net cash impact of the disposal of
the Campaigns business was an outflow of GBP1.6 million. Tax paid
was GBP6.5 million (2015: GBP5.8 million).
Key performance indicators
The Board reviews a number of key performance indicators (KPIs)
to monitor and assess performance on an on-going basis. These KPIs
include:
-- Revenue growth
-- Gross margin
-- Adjusted PBTA and margin, and
-- Cash generated from operations
The Group's performance against these KPIs in the current and
prior year are included within this report. The Board believes that
monitoring Adjusted PBTA and margin is the most appropriate profit
measure to review because it is the most meaningful indicator of
medium and long term business performance. Specifically, this
profit measure excludes the impact of:
-- one-off costs incurred over the past two years associated
with the reorganisation of the Group; these costs are not expected
to recur and these are explained in more detail below
-- amortisation, a non-cash charge based on acquisition
decisions taken a number of years ago, which has no impact on
future performance and business valuation, and
-- profits or losses arising on the sale of Non-Core businesses
which, whilst material, do not reflect the future operating
potential of the business.
In addition to these core metrics, the Group is now monitoring
and reporting a number of additional KPIs to measure whether it is
successfully executing its new strategy. These additional KPIs are
set out and defined as follows:
-- Technology Annual Recurring Revenue (ARR), GBP61.8 million
(2015: GBP57.6 million): Annual Recurring Revenue is annualised
revenue from existing contracts which includes term, SaaS and
support and maintenance revenue streams. Annual Recurring Revenue
current and prior year amounts are all translated at the 2016 year
end foreign exchange rates
-- Language Services Repeat Revenue Rate (RRR), 93%: Language
Services Repeat Revenue Rate is calculated as current year revenue
earned from prior year customers as a percentage of current year
revenue; the difference between RRR and total revenue is current
year revenue from new customers
-- Premium revenue, GBP9.4 million: revenue arising from the
sale of premium content such as Life Sciences and Transcreation;
the difference between total Language Services revenue and premium
revenue is non premium revenue
-- Upsell deals, 176: number of further sales of existing products to existing customers
-- Cross-sell deals, 52: number of sales of new products to existing customers
-- Wins in Life Sciences, 8 out of 9 Global RFPs: the number of
new Life Science customer wins achieved in the year
-- Machine Translation wins, 38: the number of new Machine Translation contracts
-- Linguistic utilisation, 48.5%: the percentage of time in
house linguists are translating content and not performing other
tasks such as administration of files
The ARR KPI has been measured in prior years and hence
comparatives have been presented. Other strategic KPIs have only
started to be calculated and reviewed in the later part of 2016 and
hence comparatives are not available.
The revenue basis for RRR and premium revenue is calculated in
line with Generally Accepted Accounting Principles ("GAAP"). The
remaining strategic KPIs set out above have no direct reference to
any GAAP measure and hence cannot be reconciled to the Group's
financial statements. ARR is an annualised measure of contracts at
a point in time and hence cannot be reconciled into revenue
recognised during the year.
The Group is no longer reporting bookings performance as a
separate KPI as the Board believes revenue growth and ARR are
highly correlated to bookings performance and thus it is not
considered that the separate bookings KPI provides material
additional insight to the user of the financial information.
Performance by Segment
Following the announcement in January 2016 of the intention of
the Group to dispose of its Campaign, Fredhopper and Social
Intelligence businesses, these businesses have been designated as
assets held for sale and their activities have been reported as
Discontinued Operations. The Group's segmental disclosures have
been adjusted so that Discontinued Operations results do not
include proportionate allocations of shared costs. The impact of
this change has been to reduce the costs attributed to the Non-Core
segment in 2015 by GBP6.0 million and to increase costs attributed
to the Language Services, Language Technologies and Global Content
Technologies segments by GBP2.4 million, GBP0.3 million and GBP3.3
million respectively.
Language Services (contributing GBP165.3 million or 62% of
revenue from Continuing Operations and GBP18.8 million of Adjusted
PBTA) (2015: GBP152.7 million or 64% of revenue from Continuing
Operations and GBP28.0 million of Adjusted PBTA).
2016 saw a solid performance with Language Services achieving an
8% increase in revenue at GBP165.3 million (2015: GBP152.7
million). Underlying growth, adjusting for the impact of the loss
of the Group's largest customer (Microsoft) at the end of 2015, was
15%. The Language Services RRR was 93%. The underlying RRR,
ignoring the loss of Microsoft, was 98%.
Revenue growth in year has benefitted from the impact of foreign
exchange and organic growth has been primarily driven by increased
activity within large accounts in the US. The investment in
customer service and quality has led to improved relationships with
a number of existing customers.
The Language Services segment has won a number of new clients in
the year including Basware, PSA Peugeot Citroen, Lindex, Konsberg
and Yara. The impact of recent successes in premium market
verticals including Life Sciences occurred late in the year and
have not materially impacted the results this year.
The Language Services division in 2016 has been investing in the
development of capability in premium market verticals, delivery and
quality initiatives and operational infrastructure after several
years of underinvestment. These planned investments have reduced
gross margins to 42.8% (2015: 47.3%) and the Adjusted PBTA margin
to 11.4% (2015: 18.4%). They have, however, contributed to the
Language Services high Repeat Revenue Rate and significant recent
wins in premium verticals. These investments will continue in 2017
as they are critical to the strategic positioning of the business
and will deliver increased sales and improved margins in future
years.
Language Technologies (contributing GBP45.4 million or 17% of
revenue from Continuing Operations and GBP4.4 million Adjusted
PBTA) (2015: contributing GBP36.7 million or 15% of revenue from
Continuing Operations and GBP1.0 million Adjusted PBTA).
Language Technologies revenue in the year increased by 24% to
GBP45.4 million including the benefit from the impact of foreign
exchange. ARR increased 9% to GBP23.4.
The Language Technologies revenue increase was driven by a 72%
increase in Machine Translation revenue, a 20% increase in
Translation Productivity revenue and a 7% increase in Translation
Management revenue. The refocus of Machine Translation investment
last year towards increasing output quality and the release of our
on premise SDL ETS 7.0 product has led to significant perpetual
licence sales in 2016. Material sales have been to government
customers seeking portable real time translation capability and a
commercial language service provider requiring improved machine
translation capability. SDL ETS 7.0 delivers increased
manageability, new features and a significant improvement to the
user experience.
Our Translation Productivity products have had another strong
year with revenue up 20%. The launch of SDL Trados Studio 2017, SDL
MultiTerm 2017 and SDL Passolo 2016 at the end of the year delivers
a step change in translation memory productivity with our ground
breaking upLIFT technology, and offers the AdaptiveMT technology
directly accessible from the SDL Trados Studio interface to our
customers. These releases had our highest ever pre-order volume and
the incorporation of AdaptiveMT capability has further strengthened
our competitive position.
Our Translation Management products achieved more modest growth
in 2016 after a strong 2015 performance. Strong renewals activity
has led to a 5% increase in ARR.
During the year, our Translation Management products were
improved with significant point releases. TMS releases delivered
user interface and usability improvement, translation quality
metrics, API improvements and deeper integration with our SDL
Trados Studio and SDL Web products. SDL WorldServer 11.1 increased
security and scalability, improved usability by delivering key
features like multi-search, improved project creation tools and
import/export capabilities, and delivered a deep integration with
our SDL Language Cloud Machine Translation services, the latest SDL
Trados Studio 2017 release and the SDL Web in-context translation
preview functionality.
In 2016, we also started the execution of our technology
convergence program to align our technologies and increase product
innovation. Alongside this convergence program, we released a
significant number of new capabilities on our SDL Language Cloud
platform ranging from User Experience improvements and functional
enhancements, to entirely new offerings like the Universal Editor
and AdaptiveMT. In addition, a wide range of connectors were
released to tap directly into our Language Cloud platform from
customers' existing IT application landscape.
Adjusted PBTA margin increased 7.0% to 9.7% (2015: 2.7%). The
margin increase has been driven by the improved licence sales in
Machine Translation and Translation Productivity products.
New client wins for the segment include Accor Hotels, AGCO,
Alingo GmbH, Alticor, PSA Peugeot Citroen, and Vanilla Air.
Global Content Technologies (contributing GBP54.0 million or 21%
of revenue from Continuing Operations and GBP3.8 million Adjusted
PBTA) (2015: contributing GBP50.9 million or 21% of revenue from
Continuing Operations and losses of GBP4.8 million Adjusted
PBTA).
ARR was up 6% at GBP38.4 million.
Global Content Technologies revenue increased by 6% in 2016
including the benefit from the impact of foreign exchange. This
increase was driven by a 38% increase in Technical Content
Management revenue following a material increase in perpetual
licence sales in the year. Our SDL Knowledge Center product has
gone through several update cycles with specific focus on dynamic
delivery scalability and performance. We also released version 5.5
of the Contenta Publishing Suite, improving the delivery of content
on tablet devices as well as delivering addition security,
usability and publishing enhancements.
Web Content Management software revenue fell 11% in the year due
to a shift in sales from perpetual licence contracts towards SaaS
contracts and a related reduction in professional services
activity. For SDL Web, we have significantly increased the release
pace for delivering new capabilities to the cloud based SDL Web
offering and all of these new innovations have been rolled up in
the SDL Web 8.5 release, for on premise deployment. This release
comes with significant improvements to workflow capabilities,
deployment automation, reduced total cost of ownership, upgrade
efficiency and numerous new product features. This improved Web
Content Management offering helped drive new term and SaaS licence
sales and this helped drive a 2% increase in Annual Recurring
Revenue to GBP22.8 million.
Adjusted PBTA increased GBP8.6 million in 2016 to a profit of
GBP3.8 million (2015: Loss of GBP4.8 million). The actions taken in
the second half of 2015 and in early 2016 to right size sales and
marketing resources has transformed the profitability of the
segment this year.
New client wins for the segment include AGCO, Akamai, Appatura
Data Communique, China Airlines, EBSCO, Malvern Instruments
Limited, Radiometer Medical ApS United States Air Force KC46A
Program and Waters Corporation.
Non-Core businesses (contributing GBP25.2 million of revenue and
losses of GBP24.5 million Adjusted PBTA including GBP21.0 million
loss on disposal of the Campaigns business) (2015: contributing
GBP26.5 million or 10% of Group revenue and losses of GBP3.6
million Adjusted PBTA).
Our Non-Core businesses include the full year results of our
Fredhopper and Social Intelligence businesses and the results of
our Campaign business to the date of its disposal on 2 November
2016. The businesses performed well given the uncertainty created
by the announced disposal programme.
The Group disposed of its Campaign business to an acquisition
vehicle owned by affiliates of Allomer Capital Group LLC for GBP2.4
million before purchase price adjustments. Further details of this
disposal are provided in Note 3 of the preliminary financial
information and the Group recorded a loss of GBP21.0 million on
disposal.
On 29 January 2017 the Group signed an agreement to sell its
Fredhopper business to ATTRAQT PLC for GBP25 million subject to
ATTRAQT PLC being readmitted to the AIM market. This condition is
expected to be satisfied during the week commencing 6 March 2017.
The Group is expected to record a profit on disposal of
approximately GBP22 million and this will be recorded in the
Group's 2017 financial statements.
The Group continues to pursue the sale of its Social
Intelligence business.
Gross Margin
The Group's Continuing gross margin was slightly below last year
at 54.4% (2015: 55.9%).
Administrative Expenses
Administrative costs of Continuing Operations excluding
intangibles amortisation and one-off costs increased in 2016 to
GBP117.0 million (2015: GBP110.1 million).
Research and Development costs of GBP25.9 million (2015: GBP25.9
million) are included in administrative expenses. In line with the
prior year, the Group issued approximately 100 product/service
updates and upgrades with greater functionality being deployed.
Development costs have been reviewed and the Board remains of
the opinion that capitalisation criteria under International
Accounting Standard (IAS) 38 are not met. Consequently no
development costs are capitalised on the balance sheet.
Average headcount during the year was up 2% at 3,580 (2015:
3,504). Average headcount for Continuing Operations was up 3% at
3,310. Employee related costs remain the most significant component
of Group costs, amounting to 59% of Group overheads (2015: 59%)
excluding amortisation of intangibles and one-off costs.
Intangible assets ascribed to certain of the Group's software
and customer relationships arising from acquisitions are amortised
over periods of between 5 and 10 years and the carrying value is
formally reviewed on an annual basis to assess whether there are
indicators of impairment. The intangible asset amortisation charge
in 2016 was GBP5.2 million (2015: GBP6.7 million).
One-off costs
The Group has undergone a very significant reorganisation over
the past two years including the departure of its then Chief
Executive Officer in October 2015, the completion of the Group's
operational review in January 2016 (including the announcement of
the disposal of the Non-Core businesses) and the appointment of a
new Chief Executive Officer in April 2016. These events then led to
significant changes in senior personnel, the development of the new
strategy, corporate rebranding and the reorganisation of
operational and corporate structures. In addition, the Group has
incurred one-off tax charges over the past two years.
As a result, the Group has incurred significant one-off costs
over the past two year which are not expected to recur and
therefore have been separately disclosed in the income statement to
provide a better guide to underlying business performance.
In 2016, the Group has incurred GBP13.1 million of one-off costs
(2015: GBP33.3 impairment write down and other one-offs of GBP5.8
million). These one-off costs comprise:
-- redundancy and retention costs due to the reorganisation of
the Group in 2016 (GBP6.5 million). Redundancy costs of GBP4.8
million generated annualised cost savings of GBP13.7 million
(before significant reinvestment);
-- professional fees and related charges associated with the
strategy development (GBP2.8 million);
-- costs of relaunching SDL which included the costs of internal
and external conferences to communicate our new strategy and the
global relaunch of SDL's brand and associated marketing collateral
(GBP2.1 million); and
-- other one-off costs includes provision for indirect tax
liabilities and corporate consolidation exercises (GBP1.7
million).
As a result of the above, the Group now has the right strategy,
brand, leadership and organisational structure to realise the full
potential of our market opportunities and deliver shareholder
value.
Earnings Per Share
Adjusted EPS for Continuing Operations increased by 25.6% to
26.58 pence (2015: 21.17 pence). Adjusted EPS for the Group
increased to 22.38 pence (2015: 16.13 pence). Basic earnings per
share was a loss of 22.29 pence (2015: loss of 37.93 pence).
Financing Costs and Borrowing Facilities
Interest costs in 2016 were GBP0.0 million (2015: GBP0.1
million). At the start of the year, drawn borrowings were GBP4.8
million. During 2016, all borrowings were repaid such that the
Group was debt free at 31 December 2016.
The Group has a GBP25 million committed revolving credit
facility, expiring in August 2020. The agreement also includes a
GBP25 million uncommitted Accordian facility.
Pricing of this GBP25 million borrowing facility is between
1.15% and 1.9% above LIBOR dependent upon the ratio of the Group's
total net debt to its adjusted earnings before interest, tax,
depreciation and amortisation ("Adjusted EBITDA"). Under the credit
facility agreement, SDL is subject to certain financial covenants
which are required to be tested quarterly. These covenants relate
to Adjusted EBITDA: Net Finance Charges and Total Net Debt:
Adjusted EBITDA. Adjusted EBITDA is defined within the facility
agreement and is based on Adjusted PBTA.
Cash flow
The Group generated GBP18.6 million from operations during the
year (2015: GBP12.0 million). This cash inflow in the year was net
of GBP11.1 million of cash outflows arising from one-off items
(2015 GBP3.8 million).
Surplus cash, after deducting net income tax paid of GBP6.5
million (2015: GBP5.8 million) and investing activities of GBP3.9
million (2015: GBP2.9 million), has been used to reduce the Group's
bank borrowings by GBP4.8 million and pay a dividend of GBP2.5
million to shareholders. The Group's bank borrowings have been
fully repaid in 2016.
As a result, net cash increased to GBP21.3 million at year end
(2015: GBP12.4 million).
The Group's 2017 cash outflows will be impacted by residual
one-off cash costs and material capital expenditure on the Group's
infrastructure and efficiency investments.
Derivatives and other Financial Instruments
The Group has cash and short-term deposits of varying durations
to fund its working capital needs and other financial assets and
liabilities such as trade receivables and trade payables arising
directly from its operations. The Group's policy is that no active
trading in financial instruments will be undertaken within the
operating units and all decisions on use of financial instruments
will be taken at Group level under the direction of the Chief
Financial Officer.
Foreign currency exchange impact
We are a global business and we operate in 38 countries. The
significant majority of Group revenue and costs are denominated in
non-sterling currencies. Many of the Group's global customers are
US based requiring translation into other worldwide languages. As
such, the Group has a net long US$ position which is largely offset
by short positions in other worldwide currencies. Accordingly the
impact of the sterling devaluation during the year is not
considered to have had a material impact on the Group's Adjusted
PBTA margin percentage, year on year.
Taxation
SDL is a global business and, as such, the Group's effective tax
rate is heavily influenced by the territorial mix of operating
profits earned together with management judgement of the extent to
which the Group's tax losses are likely to be utilised with
reasonable certainty. A detailed analysis of the taxation charge is
included in note 5 to the preliminary financial information.
The tax charge for Continuing Operations is GBP2.7 million
(2015: Continuing Operations GBP5.3 million). The group tax charge
amounted to GBP2.3 million (2015: GBP5.5 million).
These charges include tax credits associated with amortisation,
deferred tax and tax on one-off costs. Excluding these impacts, the
underlying effective current tax rate for Continuing Operations was
27.3%. This rate is impacted by unrelieved tax losses arising in a
number of jurisdictions and the utilisation of tax losses in other
territories. The underlying effective current tax rate for
Continuing Operations going forward is expected to in the region of
27%.
Trados Litigation update
As previously reported, the Group has settled the litigation
related to the Trados acquisition. A payment of $1.85 million was
made in February 2016 in full and final settlement of all
claims.
Dividend
A final dividend for the year ended 31 December 2016 of 6.2p
pence per share will be proposed at the Annual General Meeting, an
increase of 100% on the prior year.
Dominic Lavelle
Chief Financial Officer
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016
Notes 2016 2015
Continuing Discontinued Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Sale of goods 23.3 17.1 40.4 32.7 17.8 50.5
Rendering of
services 241.4 8.1 249.5 207.7 8.7 216.4
REVENUE 2 264.7 25.2 289.9 240.4 26.5 266.9
Cost of sales (120.7) (10.8) (131.5) (106.1) (10.8) (116.9)
GROSS PROFIT 144.0 14.4 158.4 134.4 15.6 150.0
Administrative
expenses 4 (133.0) (20.2) (153.2) (137.2) (37.9) (175.1)
----------- ------------- -------- ----------- ------------- --------
OPERATING PROFIT/(LOSS) 11.0 (5.8) 5.2 (2.8) (22.3) (25.1)
Operating profit/(LOSS)
before AMORTISATION
AND ONE-OFF
ITEMS 27.0 (3.5) 23.5 24.3 (3.6) 20.7
Amortisation
of intangible
assets 4 (5.2) - (5.2) (5.1) (1.6) (6.7)
One-off items 4 (10.8) (2.3) (13.1) (22.0) (17.1) (39.1)
--------
OPERATING PROFIT/(LOSS) 11.0 (5.8) 5.2 (2.8) (22.3) (25.1)
------------------------- ------ ----------- ------------- -------- ----------- ------------- --------
Loss on disposal
of Non-Core
business 3 - (21.0) (21.0) - - -
Finance cost - - - (0.1) - (0.1)
PROFIT/(LOSS)
BEFORE TAX 11.0 (26.8) (15.8) (2.9) (22.3) (25.2)
profit/(LOSS)
before TAX,
AMORTISATION
AND one-off
ITEMS 27.0 (24.5) 2.5 24.2 (3.6) 20.6
Amortisation
of intangible
assets 4 (5.2) - (5.2) (5.1) (1.6) (6.7)
One-off items 4 (10.8) (2.3) (13.1) (22.0) (17.1) (39.1)
--------
PROFIT/(LOSS)
BEFORE TAX 11.0 (26.8) (15.8) (2.9) (22.3) (25.2)
------------------------- ------ ----------- ------------- -------- ----------- ------------- --------
Tax expense 5 (2.7) 0.4 (2.3) (5.3) (0.2) (5.5)
PROFIT/(LOSS)
FOR THE YEAR
ATTRIBUTABLE
TO EQUITY HOLDERS
OF THE PARENT 8.3 (26.4) (18.1) (8.2) (22.5) (30.7)
=========== ============= ======== =========== ============= ========
Earnings per
ordinary share
- basic (pence) 7 10.18 (32.47) (22.29) (10.17) (27.75) (37.93)
Earnings per
ordinary share
- diluted (pence) 7 10.08 (32.16) (22.08) (10.17) (27.75) (37.93)
=========== ============= ======== =========== ============= ========
Adjusted earnings per ordinary share (basic and diluted) are
shown in note 7.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
Notes 2016 2015
GBPm GBPm
Loss for the period (18.1) (30.7)
------- -------
Currency translation differences
on foreign operations 21.7 (6.3)
Currency translation differences
on foreign currency quasi
equity loans to foreign
subsidiaries (0.5) 2.5
Income tax charge on currency
translation differences
on foreign currency quasi
equity loans to foreign
subsidiaries 5 (0.2) (0.7)
OTHER COMPREHENSIVE INCOME 21.0 (4.5)
------- -------
TOTAL COMPREHENSIVE INCOME 2.9 (35.2)
======= =======
All the total comprehensive income is attributable to equity
holders of the parent Company. Currency translation differences on
foreign operation including quasi equity loans and their related
tax impacts may all be reclassified to the Income Statement upon
disposal of that operation.
Consolidated STATEMENT OF FINANCIAL POSITION
At 31 December 2016
Notes 2016 2015
GBPm GBPm
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 5.3 6.3
Intangible assets 8 151.9 163.1
Deferred tax asset 8.4 6.0
Rent and other deposits 2.0 1.6
-------- --------
167.6 177.0
CURRENT ASSETS
Trade and other receivables 81.0 73.4
Corporation tax 0.9 2.8
Cash and cash equivalents 9 21.3 17.2
Assets held for sale 7.1 -
-------- --------
110.3 93.4
TOTAL ASSETS 277.9 270.4
-------- --------
CURRENT LIABILITIES
Trade and other payables (88.5) (81.7)
Current tax liabilities (7.4) (9.4)
Provisions (1.1) (2.9)
Liabilities held for sale (7.4) -
-------- --------
(104.4) (94.0)
NON CURRENT LIABILITIES
Other payables (1.6) (1.4)
Loans and overdraft 9 - (4.6)
Deferred tax liability (1.1) (3.1)
Provisions (2.1) (0.4)
-------- --------
(4.8) (9.5)
TOTAL LIABILITIES (109.2) (103.5)
-------- --------
NET ASSETS 168.7 166.9
======== ========
EQUITY
Share capital 0.8 0.8
Share premium account 99.2 98.5
Retained earnings 39.7 59.6
Foreign exchange differences 29.0 8.0
-------- --------
TOTAL EQUITY 168.7 166.9
======== ========
Approved by the Board of Directors on 7 March 2017
A Hernandez D Lavelle
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2016
Share Foreign
Share Premium Retained Exchange
Capital Account Earnings Differences Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2015 0.8 97.9 90.9 12.5 202.1
Loss for the period - - (30.7) - (30.7)
Other comprehensive
income - - - (4.5) (4.5)
---------- --------- ----------- ------------- --------
Total comprehensive
income - - (30.7) (4.5) (35.2)
Deferred income
taxation on share
based payments*
(Note 5) - - 0.1 - 0.1
Arising on share
issues* - 0.6 - - 0.6
Dividend paid* - - (2.0) - (2.0)
Share based payments* - - 1.3 - 1.3
---------- --------- ----------- ------------- --------
At 31 December
2015 0.8 98.5 59.6 8.0 166.9
========== ========= =========== ============= ========
Share Foreign
Share Premium Retained Exchange
Capital Account Earnings Differences Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2016 0.8 98.5 59.6 8.0 166.9
Loss for the period - - (18.1) - (18.1)
Other comprehensive
income - - - 21.0 21.0
---------- --------- ----------- ------------- --------
Total comprehensive
income - - (18.1) 21.0 2.9
Deferred income
taxation on share
based payments*
(Note 5) - - (0.2) - (0.2)
Arising on share
issues* - 0.7 - - 0.7
Dividend paid* - - (2.5) - (2.5)
Share based payments* - - 0.9 - 0.9
---------- --------- ----------- ------------- --------
At 31 December
2016 0.8 99.2 39.7 29.0 168.7
========== ========= =========== ============= ========
* These amounts relate to transactions with owners of the
Company recognised directly in equity.
The amounts above are all attributable to equity holders of the
parent company.
consolidated STATEMENT OF CASH FLOWS
for the year ended 31 December 2016
Notes 2016 2015
GBPm GBPm
LOSS FOR THE YEAR (18.1) (30.7)
Tax expense 2.3 5.5
LOSS BEFORE TAX (15.8) (25.2)
Depreciation of property,
plant and equipment 4 3.5 3.6
Amortisation of intangible
assets 4 5.2 6.7
Impairment losses on intangible
assets - 33.3
Loss on disposal of discontinued
operations 3 21.0 -
Finance costs - 0.1
Share based payments 0.9 1.3
Increase in trade and other
receivables (11.8) (3.9)
Increase in trade and other
payables 17.4 (1.4)
Foreign exchange gains (1.8) (2.5)
CASH GENERATED FROM OPERATIONS 18.6 12.0
Income tax paid (6.5) (5.8)
------- -------
NET CASH FLOWS FROM OPERATING
ACTIVITIES 12.1 6.2
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments to acquire property,
plant & equipment (2.3) (2.7)
Receipts from sale of property,
plant & equipment - 0.1
Payments to acquire intellectual
property and subsidiaries - (0.3)
Payments on disposal of discontinued
operations 3 (1.6) -
------- -------
NET CASH FLOWS FROM INVESTING
ACTIVITIES (3.9) (2.9)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from issue of
ordinary share capital 0.7 0.2
Proceeds from borrowings - 4.6
Repayment of borrowings (4.8) (9.0)
Dividends paid (2.5) (2.0)
Repayment of capital leases - (0.4)
Interest paid (0.1) (0.1)
NET CASH FLOWS FROM FINANCING
ACTIVITIES (6.7) (6.7)
INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS 1.5 (3.4)
======= =======
MOVEMENT IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents
at the start of year 17.2 22.1
Increase/(decrease) in cash
and cash equivalents 1.5 (3.4)
Effect of exchange rates
on cash and cash equivalents 2.6 (1.5)
------- -------
CASH AND CASH EQUIVALENTS
AT OF YEAR 9 21.3 17.2
------- -------
Notes to the accounts
for the year ended 31 December 2016
1 BASIS OF ACCOUNTING
Basis of preparation
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31
December 2016 or 2015. Statutory consolidated financial statements
for the Group for the year ended 31 December 2015, prepared in
accordance with adopted IFRS, have been delivered to the Registrar
of Companies and those for 2016 will be delivered in due course.
The auditors have reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to
which the auditors drew attention by way of any emphasis without
qualifying their opinion and (iii) did not contain a statement
under Section 498 (2) or (3) of the Companies Act 2006.
The financial information for the year ended 31 December 2016
has been prepared by the directors based upon the results and
position that are reflected in the consolidated financial
statements of the Group.
The consolidated financial statements of SDL plc and its
subsidiaries have been prepared in accordance with International
Financial Reporting Standards as adopted by the EU as relevant to
the financial statements of SDL plc.
Significant accounting policies
The accounting policies adopted in the preparation of the
condensed consolidated financial information are consistent with
those followed in preparation of the Group's annual financial
statements for the year ended 31 December 2015 with the addition of
an accounting policy for discontinued operations. Planned disposals
of separate major lines of business are classified as discontinued
operations and net assets reclassified as held for sale following
the announcement of such divestments. In such instances, current
and prior year results of the discontinued operations are disclosed
separately from continuing operations
In line with UK Corporate Governance Code requirements, the
Directors have made enquiries concerning the potential of the
business to continue as a going concern.
Enquiries included a review of performance in 2016, 2017 annual
plans, the Group's 3 year long term plan, a review of working
capital including the liquidity position, financial covenant
compliance and a review of current cash levels. The Group continues
to be cash generating and is debt free with no concerns over future
cash requirements. As a result, the Directors have a reasonable
expectation that the group has adequate resources to continue in
operational existence for a 12 month period from the date of
approval of these financial statements. Given this expectation,
they have continued to adopt the going concern basis in preparing
the financial statements.
2 SEGMENT INFORMATION
The Group operates in the global content management and language
translation industries. For management purposes, the Group is
organised into business units based on the nature of their products
and services. The Group has four operating segments as follows:
-- The Language Services segment is the provision of a
translation service for customers' multilingual content in multiple
languages.
-- The Language Technology segment is the sale of enterprise,
desktop and statistical machine translation technologies together
with associated consultancy services.
-- The Global Content Technologies segment is content management
and knowledge management technologies together with associated
consultancy services.
-- The Non-Core Businesses segment includes the sale of campaign
management, social media monitoring and marketing analytic and
Fredhopper technologies together with associated consultancy
services.
The Chief Operating Decision Maker monitors the results of the
operating segments separately for the purpose of making decisions
about resource allocation and performance assessment prior to
charges for tax, amortisation and one-offs.
Following the announcement of the intention of the Group to
dispose of its Non-Core business segment, which includes the
Fredhopper and Social Intelligence businesses, these businesses
have been designated as assets held for resale and their activities
have been disclosed as discontinued operations. On 2 November 2016
the Group's campaign business was disposed. The Group's segmental
disclosures have been adjusted to reflect the fact that
discontinued operations results do not attract proportionate
allocations of shared costs. The impact of this change has been to
reduce the central costs attributed to the Non-Core segment by
GBP5.9 million and to increase costs attributed to the Language
Services, Language Technology and Global Content Technology
segments by GBP2.3 million, GBP0.3 million and GBP3.3 million
respectively.
Year ended 31 December 2016
Segment
profit/
(loss)
before
External taxation
Revenue Depreciation and amortisation
GBPm GBPm GBPm
Language Services 165.3 2.0 18.8
Language Technology 45.4 0.5 4.4
Global Content Technologies 54.0 0.5 3.8
Non-Core Businesses 25.2 0.5 (3.5)
--------- ------------- ------------------
Total 289.9 3.5 23.5
--------- -------------
Loss on disposal (21.0)
Amortisation, one-off costs
& finance costs (18.3)
------------------
Loss before taxation (15.8)
==================
Year ended 31 December 2015 - restated
Segment
profit/(loss)
before
External taxation
Revenue Depreciation and amortisation
GBPm GBPm GBPm
Language Services 152.8 2.0 28.0
Language Technology 36.7 0.5 1.0
Global Content Technologies 50.9 0.5 (4.8)
Non-Core Businesses 26.5 0.5 (3.6)
--------- ------------- ------------------
Total 266.9 3.5 20.6
--------- -------------
Amortisation & One-off costs (45.8)
------------------
Loss before taxation (25.2)
==================
3 DISCONTINUED OPERATIONS
The board announced its decision to sell the Non-Core
Businesses, which represents a separate major line of business, in
January 2016. The results of the Non-Core Businesses segment have
therefore been disclosed as discontinued operations in this year's
financial statements and prior periods have been restated to show
the results of discontinued operation separately from continuing
operations.
The Group completed the sale of its Campaigns business on 2
November 2016 and has signed a conditional agreement to sell its
Fredhopper business to ATTRAQT PLC. It is expected that the
Fredhopper sale will complete during the week commencing 6 March
2017. The sale of the Social Intelligence business is ongoing.
Following the impairment charged against the Group's Non-Core
segment in 2015, the proceeds of the Non-Core disposals were
expected to be in line with the net book value of the related net
assets and accordingly no impairment losses were recognised on
classification of these operations as held for sale. As the
disposal of the group's discontinued operations has progressed, the
sales process has developed into three separate transactions. As a
result, as each transaction completes, there is a gain or loss on
disposal arising from the difference between the consideration
received and the carrying value of assets in each business,
including the allocation of goodwill to each business. Goodwill
allocated to each business being disposed of is based upon the
goodwill arising in the original business combination, reduced by
specific impairments recorded in prior periods. Goodwill attributed
to the different businesses at 31 December 2015 was Campaign
GBP16.9 million, Fredhopper GBP3.8 million and Social Intelligence
GBPnil.
The sale of the Campaigns business resulted in a GBP21.0 million
loss on disposal in the period. The sale of the Fredhopper business
due to complete in March 2017 is expected to result in a gain on
disposal of approximately GBP22m.
Cash Flows from / (used in) discontinued operations
2016 2015
Loss for the year (26.4) (22.5)
Tax (credit)/expense (0.4) 0.2
------- -------
Loss before tax (26.8) (22.3)
Loss on disposal of discontinued
operations 21.0 -
Movements in working capital 5.8 22.3
------- -------
Net cash from operating activities - -
Net cash used in investing activities (1.6) -
Net cash used in financing activities - -
------- -------
Net cash flows for the period (1.6) -
------- -------
Movements in working capital includes Group funding to cover
working capital requirements. Net cash used in investing activities
includes the cash impact of the sale of the Campaigns business as
set out below. In addition to the GBP1.6m net cash outflow recorded
in 2016, the Group expects to receive a cash inflow of GBP0.3
million in future following the expiry of the contractual retention
period. These funds are currently held in escrow and are recorded
in Other Debtors.
Effect of disposal on the financial position of the group
2016
Intangible assets 21.9
Tangible fixed assets 0.4
Trade and other receivables 2.2
Deferred income and other payables (4.8)
-------
Net assets 19.7
Net cash outflow (1.3)
-------
Loss on disposal (21.0)
-------
Financial position of assets and liabilities held for sale
The assets and liabilities held for sale consist of:
2016
Property, plant and equipment 0.1
Intangible assets 3.8
Trade and other receivables 3.2
Cash and cash equivalents -
Trade and other payables (7.4)
------
Net assets and liabilities (0.3)
------
4 OTHER REVENUE AND EXPENSES
Group operating profit is stated after charging/(crediting):
2016 2015
GBPm GBPm
Included in administrative expenses:
Research and development expenditure 25.9 25.9
Bad debt charge 0.2 0.2
Depreciation of property, plant
and equipment - owned assets 3.5 3.5
Depreciation of property, plant
and equipment - leased assets - 0.1
Amortisation of intangible assets 5.2 6.7
Operating lease rentals for plant
and machinery 0.2 0.5
Operating lease rentals for land
and buildings 7.0 6.5
Net foreign exchange gains (1.8) (3.8)
Share based payment charge 1.5 1.5
====== ======
The net foreign exchange gains above arose due to movements in
foreign currencies between the time of the original transaction and
the realisation of the cash collection or spend, and the
retranslation of foreign currency denominated intra-group balances.
Research and development expenditure: 2015 amount has been restated
to ensure consistency with 2016 calculation.
One-off items
2016 2015
GBPm GBPm
----- -----
Redundancy and other staff costs 6.5 3.5
Strategy development 2.8 0.7
Relaunch of SDL 2.1 -
Impairment charge - 33.3
Other one-off items 1.7 1.6
13.1 39.1
===== =====
The Group has undergone a very significant reorganisation over
the past two years including the departure of its then Chief
Executive Officer in October 2015, the completion of the Group's
operational review in January 2016 (including the announcement of
the disposal of the Non-Core businesses) and the appointment of a
new Chief Executive Officer in April 2016. These events then led to
significant changes in senior personnel, the development of the new
strategy, corporate rebranding and the reorganisation of
operational and corporate structures. In addition the Group has
incurred one-off tax charges over the past two years.
As a result, the Group has incurred significant one-off costs
over the past two years which are not expected to recur and
therefore have been separately disclosed in the income statement to
provide a better guide to underlying business performance.
In 2016, the Group has incurred GBP13.1 million of one-off costs
(2015: GBP33.3 impairment write down and other one-offs of GBP5.8
million). These one-off costs comprise:
-- redundancy and retention costs due to the reorganisation of
the Group in 2016 (GBP6.5 million);
-- professional fees and related charges associated with the
strategy development (GBP2.8 million);
-- costs of relaunching SDL which included the costs of internal
and external conferences to communicate our new strategy and the
global relaunch of SDL's brand and associated marketing collateral
(GBP2.1 million); and
-- other one-off costs includes provision for tax liabilities
and corporate consolidation exercises (GBP1.7 million).
As a result of the above, the Group now has the right strategy,
brand, leadership and organisational structure to realise the full
potential of our market opportunities and deliver shareholder
value.
5 INCOME TAX
(a) Income tax on profit:
Consolidated income statement
2016 2015
GBPm GBPm
Current taxation
UK Income tax charge
Current tax on income for the period 0.8 1.9
Adjustments in respect of prior
periods (0.4) 0.1
0.4 2.0
====== ======
Foreign tax
Current tax on income for the period 5.3 4.9
Adjustments in respect of prior
periods 0.6 0.5
------ ------
5.9 5.4
------ ------
Total current taxation 6.3 7.4
====== ======
Deferred income taxation
Origination and reversal of temporary
differences (4.0) (1.9)
Total deferred income tax (4.0) (1.9)
====== ======
Tax expense 2.3 5.5
====== ======
Consolidated statement of other comprehensive income
2016 2015
GBPm GBPm
Current taxation
UK Income tax charge
Income tax charge on currency translation
differences on foreign currency
quasi equity loans to foreign subsidiaries 0.2 0.7
------ ------
Total current taxation 0.2 0.7
====== ======
6 DIVIDS
2016 2015
GBPm GBPm
Amounts recognised as distributions
to equity holders in the year:
Final dividend for the year ended
31 December 2015 was 3.1 pence per
share. (Year ended 31 December 2014:
2.5 pence per share) 2.5 2.0
===== =====
A final dividend for the year ended 31 December 2016 of 6.2
pence per share will be proposed at the Annual General Meeting and
has not been included as a liability in the financial
statements.
7 EARNINGS PER SHARE
The calculation of basic earnings per ordinary share is based on
a loss after tax of GBP18.2 million (2015: loss of GBP30.7 million)
and 81,373,409 (2015: 81,101,706) ordinary shares, being the
weighted average number of ordinary shares in issue during the
period.
The diluted earnings per ordinary share is calculated by
including in the weighted average number of shares the dilutive
effect of potential ordinary shares related to committed share
options. For 2016, the diluted ordinary shares were based on
82,162,157 ordinary shares that included 788,748 potential ordinary
shares.
The following reflects the income and share data used in the
calculation of adjusted earnings per share computations before
one-off costs:
2016 2015
GBPm GBPm
Loss for the year (18.2) (30.7)
Loss on disposal of Non-Core business 21.0 -
One-off items (including impairment
loss in 2015) 13.1 39.1
Amortisation of intangible fixed
assets 5.2 6.7
Less: tax benefit associated with
the amortisation of intangible fixed
assets. (1.0) (1.3)
Tax benefit associated with one-off
costs (1.9) (0.6)
------- -------
Adjusted profit for the year 18.2 13.2
======= =======
Adjusted earnings per share is shown as the Directors believe
that earnings before amortisation and one-off costs is reflective
of the underlying performance of the business.
2016 2015
No. No.
Weighted average number of ordinary
shares for basic earnings per share 81,373,409 81,101,706
Effect of dilution resulting from
share options 788,748 722,199
----------- -----------
Weighted average number of ordinary
shares adjusted for the effect of
dilution 82,162,157 81,823,905
=========== ===========
Continuing Discontinued 2016 Continuing Discontinued 2015
Adjusted earnings
per ordinary
share - basic
(pence) 26.58 (4.20) 22.38 21.17 (5.04) 16.13
Adjusted earnings
per ordinary
share - diluted
(pence) 26.32 (4.16) 22.17 21.17 (5.04) 16.13
=========== ============= ====== =========== ============= ======
There have been no material transactions involving ordinary
shares or potential ordinary shares between the reporting date and
the date of completion of the financial statements.
8 INTANGIBLE ASSETS
Customer Intellectual
Relationships Property Goodwill Total
GBPm GBPm GBPm GBPm
Cost:
At 1 January 2015 20.2 60.6 214.1 294.9
Acquisitions - 0.3 - 0.3
Currency adjustment 0.1 (0.2) 0.3 0.2
--------------- ------------- --------- --------
At 1 January 2016 20.3 60.7 214.4 295.4
Acquisitions - - - -
Disposal of Non-Core
business (3.7) (7.6) (16.9) (28.2)
Reclassification to
assets held for sale - - (3.8) (3.8)
Currency adjustment 2.0 7.5 18.9 28.4
--------------- ------------- --------- --------
At 31 December 2016 18.6 60.6 212.6 291.8
=============== ============= ========= ========
Amortisation and impairment
At 1 January 2015 (14.5) (45.2) (32.6) (92.3)
Provided during the
year (1.9) (4.8) - (6.7)
Impairment loss - - (33.3) (33.3)
Currency adjustment 0.1 (0.1) - -
At 1 January 2016 (16.3) (50.1) (65.9) (132.3)
Provided during the
year (1.1) (4.1) - (5.2)
Impairment loss - - - -
Disposal of Non-Core
business 2.1 4.2 - 6.3
Currency adjustment (2.0) (6.7) - (8.7)
--------------- ------------- --------- --------
At 31 December 2016 (17.3) (56.7) (65.9) (139.9)
=============== ============= ========= ========
Net book value:
At 31 December 2016 1.3 3.9 146.7 151.9
===============
At 1 January 2016 4.0 10.6 148.5 163.1
=============== ============= ========= ========
Customer relationships and intellectual property are amortised
on a straight-line basis over their estimated useful lives of
between 5 and 10 years. As from 1 January 2004, the date of
transition to IFRS, goodwill is no longer amortised but is now
subject to annual impairment testing (see note 11).
9 ADDITIONAL CASH FLOW INFORMATION
Analysis of Group net debt:
1 January Exchange 31 December
2016 Cash flow differences 2016
GBPm GBPm GBPm GBPm
Cash and cash equivalents 17.2 1.5 2.6 21.3
Loans and overdrafts (4.8) 4.8 - -
---------- ---------- ------------- ------------
12.4 6.3 2.6 21.3
========== ========== ============= ============
1 January Exchange 31 December
2015 Cash flow differences 2015
GBPm GBPm GBPm GBPm
Cash and cash equivalents 22.1 (3.4) (1.5) 17.2
Loans and overdrafts* (9.0) 4.2 - (4.8)
13.1 0.8 (1.5) 12.4
========== ========== ============= ============
* - Loans and overdrafts are stated gross i.e. before the impact
of a GBP0.2 million arrangement fee prepayment
10 EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
The Group announced, on 29 January 2017, an agreement to sell
its Fredhopper business to ATTRAQT PLC for GBP25 million subject to
ATTRAQT PLC being readmitted to the AIM market. This condition is
expected to be satisfied during the week commencing 6 March 2017.
The Group is expected to record a profit on disposal of
approximately GBP22 million on disposal and this will be recorded
in the Group's 2017 financial statements.
There are no other known events occurring after the statement of
financial position date that require disclosure.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JFMBTMBIMTBR
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March 07, 2017 02:01 ET (07:01 GMT)
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