TIDMSDL
RNS Number : 7703G
SDL PLC
06 March 2018
6 March 2018
SDL PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2017
A YEAR OF ROOT AND BRANCH TRANSFORMATION
SDL plc ("SDL", "the Group" or the "Company"), a leader in
global content management and language translation software and
services, announces its preliminary results for the twelve months
ended 31 December 2017.
Financial Summary
2017 2016
Group Revenue GBP287.7m GBP289.9m
Revenue from Continuing GBP285.7m GBP264.7m
Operations
Profit/(loss) before tax GBP29.9m (GBP15.8)m
Adjusted profit before GBP22.0m GBP27.0m
tax from Continuing Operations1
Adjusted basic earnings
per share from Continuing
Operations 18.9p 26.6p
Adjusted diluted earnings
per share from Continuing
Operations2 18.8p 26.3p
Net Cash GBP22.7m GBP21.3m
Dividend per share 6.2p 6.2p
Financial highlights
-- Revenue from Continuing Operations up 7.9% to GBP285.7m
(2016: GBP264.7m), +3.2% at constant currency3
-- Language Services revenue up 11.6% to GBP184.5m, +7.1% at constant currency
-- Language Technologies revenue up 7.0% to GBP48.6m,+1.6% at constant currency
-- Global Content Technologies revenue contracted 2.6% to
GBP52.6m (down 7.4% at constant currency), with strong prior period
perpetual licence deal
-- Adjusted profit before tax of GBP22.0m (2016: GBP27.0m)
excludes GBP2.5m of research and development expenditure which has
been capitalised in the year (2016: GBPnil)
-- The disposal of the Fredhopper and Social Intelligence
business realised a profit on disposal of GBP20.6m and net cash
proceeds of GBP22.2m
Strategic transformation
-- Helix automation programme is on track
-- Strong traction in premium verticals, particularly Life Sciences and Marketing Solutions
-- Increased number of Connectors to over 100, enabling more
customers to have automated and integrated access to content and
services
-- Undertook restructuring activity in the second half of the
year to reduce headcount and costs in specific areas of the
business and to structure the business with clearer lines of
accountability
-- Key product launches, including Neural Machine Translation
and SDL Trados Studio, with the latter being the most successful
release to date
-- Machine Translation ("MT") available in Amazon Marketplace
Operational highlights and KPIs
-- Good progress across our operational KPIs
-- 259 cross-sell and up-sell deals (2016: 228)
-- Premium Services revenue up by 78% to GBP40.1m (2016: GBP22.5m)
-- Language Services RRR (Repeat Revenue Rate4) of 93% (2016: 93%)
-- Technology ARR (Annual Recurring Revenue5) up 4.8% to
GBP63.4m at 31 December 2017 (2016: GBP60.5m);
1 Adjusted profit before tax is calculated before amortisation
of intangibles and exceptional items.
2 Adjusted earnings in the earning per share calculation is
based on profit after tax and before amortisation of intangibles
and exceptional items (net of tax) and before tax exceptional
items. A reconciliation of the adjusted earnings per share
calculation is set out in Note 7 to the preliminary financial
information.
3 Constant currency movements are calculated by applying 2017
monthly exchange rates to the corresponding 2016 monthly results.
Average rates for the year for the Group's two principal foreign
currencies are set out in the Interim Chief Financial Officer's
Review
4 Current year revenue earned from prior year customers as a
percentage of current year revenue; the difference between RRR and
total revenue is revenue from new customers
5 Annualised revenue from existing contracts which includes term
licence fees, SaaS licence fees, support and maintenance and
hosting.
Commenting on the results, Adolfo Hernandez, CEO said:
"2017 was a period of operational heavy-lifting and it is
frustrating that, as we drove our transformation, we were not able
to perform consistently in financial terms in all areas of the
business. Our financial results were impacted by weak gross margins
in Language Services in the first half and by software deal
slippage towards the end of the period. In each case, we initiated
detailed recovery plans. Furthermore we continue to modernise our
business systems, processes and structure to create a more robust
and forecastable business. More positively, SDL took a number of
significant strategic steps forward in 2017, most notably the major
investment in our automation programme ("Helix"), the divestment of
non-core businesses, the launch of neural Machine Translation and
the strong growth of our premium verticals."
Commenting on the outlook for 2018, Adolfo Hernandez, CEO
said:
"As expected, we enter 2018 with another packed agenda. We will
be rolling out Helix to our Language Services business and we
expect to see the benefits of productivity and margin gains in the
second half of the year. We will continue to focus on sustainable
sales growth, through account management and by extending our
premium solutions strategy. In our technology businesses, we have a
number of key launches and we will continue to make the investment
required to modernise our platforms and products. Operationally, we
are focused on improving our infrastructure and Business
Intelligence and we will monitor the cost base and drive
efficiencies where we can. We have a sound strategy to take SDL
forward and a significant market opportunity to pursue. We are
highly cognisant of the need to balance growth, investment and
profitability through this period of transformation."
For further information please contact:
SDL plc 01628 410100
Adolfo Hernandez, CEO
Xenia Walters, Interim
CFO
FTI Consulting LLP 0203 727 1000
Edward Bridges
Emma Hall
About SDL PLC
SDL (LSE:SDL) is the global innovator in language translation
technology, services and content management. Over the past 25 years
we've helped companies deliver transformative business results by
enabling powerful, nuanced digital experiences with customers
around the world.
SDL will host a presentation for analysts and investors at
9.30am on Tuesday 6 March 2018 at the offices of FTI at 200
Aldersgate, London, EC1A 4HD.
Cautionary statement
Certain statements in this announcement constitute, or may be
deemed to constitute, forward looking statements (including beliefs
or opinions). Any statement in this announcement that is not a
statement of historical fact including, without limitation those
regarding the Company's future expectations, operations, financial
performance, financial condition and business is a forward looking
statement. Such forward looking statements are subject to risks and
uncertainties that may cause actual results to differ materially.
These risks and uncertainties include, among other factors,
changing economic, financial, business or other market conditions.
These and other factors could adversely affect the outcome and
financial effects of the plans and events described in this
announcement. As a result, you are cautioned not to place reliance
on such forward looking statements. Except as is required by the
Listing Rules, Disclosure and Transparency Rules and applicable
laws, no undertaking is given to update the forward looking
statements contained in this announcement, whether as a result of
new information, future events or otherwise.
Nothing in this announcement should be construed as a profit
forecast. This announcement has been prepared for the Group as a
whole and therefore gives greater emphasis to those matters which
are significant to SDL plc and its subsidiary undertakings when
viewed as a whole.
Chairman's Introduction
If we purely look at the financial results for 2017, it would be
all too simple to describe the year as disappointing in terms of
our performance. Of course, we are rightly judged by the financial
results and the outcome has been below the expectations of our
shareholders, the Board and the employees at SDL. The impact of our
financial underperformance has been felt throughout the
company.
However, there are also other ways to interpret our performance
in 2017. On our other measures of progress, I believe we can
describe 2017 as an important year in the achievement of our
strategic goals. As I wrote in the interim statement earlier this
year, we have been undertaking a business transformation with
considerable skill and resilience. Although the year has exposed
some shortcomings in terms of both our infrastructure and our
delivery capabilities - only being partially through their
transformation - we have not allowed short-term issues to de-rail
us from our long-term goals.
Although those short-term issues have been frustrating for all
of us, I believe that, on reflection, they have not caused us to
defer any of the strategic moves we had planned. 2017 demonstrated
that, with the right focus, SDL can drive its top line. We have
continued the rollout of our automation ("Helix") project on time
and according to our plans. We have successfully completed the
divestment of non-core assets. We have completed the restructuring
of our content management businesses and we have successfully
delivered against our customer engagement plans, as our growth in
revenue demonstrates.
We made considerable investment in our own back office
infrastructure during 2017 in order to improve delivery
capabilities through our language network offices. We ended 2017 in
a far better place in terms of our business readiness than we were
at this time last year.
The Board is recommending a maintained dividend of 6.2p per
share, reflecting the strength of our balance sheet and our
confidence in the prospects and opportunities for SDL.
In the year ahead, we will maintain our attention on our market
offerings, especially in Language Technologies. Our market leading
position in translation productivity solutions, when combined with
our offerings in neural Machine Learning solutions give us a unique
opportunity to transform our market with the application of
Artificial Intelligence to the ever-growing volume of content to be
translated.
SDL will continue to review strategically sound acquisitions
that may help us accelerate the delivery of our plans in the future
and market commentators often talk about consolidation within the
highly fragmented Language Services market. However, knowing just
how fragmented this market is, and the fact that content providers
favour multi-vendor solutions, we believe that the benefits of
consolidation for scale alone are doubtful and difficult to
achieve. At SDL, we believe we can also contribute to this
necessary market consolidation through our establishment of market
standards in technology, such as we have already achieved with SDL
Trados.
Whilst our financial performance has been frustrating to our
shareholders amongst others, the consistency that those core
shareholders have shown through 2017 suggests a good understanding
of the opportunity available to SDL. We look forward to delivering
on the confidence you have shown in us.
Finally, I am and my Board colleagues are acutely aware of the
commitment of Adolfo Hernandez, his executive team and all the
employees of SDL to achieving our strategic goals. We are committed
to improving our processes, modernising our systems and becoming
more efficient with greater automation and believe that the rewards
for that commitment will come as we deliver the full potential of
our business.
We begin 2018 with our market opportunity remaining as
attractive as ever. Our business is better prepared to take
advantage of those opportunities than has previously been the case.
While, there is still much work to be done, the Board has
confidence in our strategy and leadership to ensure that SDL
continues to progress in 2018, towards achieving our long term
goals.
David Clayton
Chief Executive Officer's Review
2017 was a period of operational heavy-lifting and it is
frustrating that, as we drove our transformation, we were not able
to perform consistently in financial terms in all areas of the
business. However, in those cases where we underperformed, we
initiated detailed recovery plans and furthermore we continue to
modernise our business systems, processes and structure to create a
more robust and forecastable business. More positively, SDL took a
number of significant steps forward in 2017, most notably the major
investment in our automation programme ("Helix"), the divestment of
non-core businesses, the launch of neural MT and the growth of our
premium verticals which have done well in both top line and margin.
In order to capitalise on the growth opportunities, SDL increased
investment in developing our premium solutions in fast-growing
verticals, such as Life Sciences and Marketing Solutions which we
believe is key to our future success. Whilst we faced some
challenges in our financial performance, I remain convinced that
SDL has a sound strategy and a substantial market opportunity to
pursue, as we describe below. In retaining our ambition and
long-term goals, we are nevertheless highly cognisant of the need
to balance growth, investment and profitability through this period
of transformation.
Market opportunity
Our enterprise customers know that it is content that drives
their own customers' digital journeys. However, they face a set of
increasing challenges in managing the right content across many
formats, channels, repositories, markets and languages, whilst also
delivering to higher consumer expectations and internal
requirements for measurement and compliance. Managing content on a
global scale, across multiple languages requires a new approach, a
'Global Content Operating Model', which combines technology,
processes and services across the entire content supply chain, from
creation through to translation and delivery. However, this can
only be achieved by technology playing a greater part, leveraging
smart workflows, light but enterprise-grade cloud solutions,
Artificial Intelligence, security and local teams all over the
world working as part of a global team serving global
customers.
SDL starts from a position of strength. We are already able to
demonstrate the positive benefits of using a full suite of our
solutions. According to a recent Forrester Consulting study on "The
Total Economic Impact of SDL Tridion DX Content Management and
Language Technology and Services", customers can expect a three
year return on investment of 112%, as well as 'ease of expansion,
improved quality and improved consistency of sites.'
SDL is already serving over 1,500 enterprise customers at scale.
We are one of the largest language service providers (LSPs)
globally, delivering complex projects in hundreds of languages
across our world-wide network. We are the market leaders in
translation management workflow software and translation
productivity software, with 71% market penetration in the worldwide
translator community. We are also leaders in technical content and
web content management software, enabling customers to store,
manage and distribute their global content. Finally, we are
innovators in Machine Translation and Natural Language Processing.
In total, the markets in which we operate today are worth
approximately GBP17 billion and they continue to grow.
Our clients are at different stages in their understanding of
these emerging operating models. The adoption and maturation of
Global Content Operating Models will be a multi-year process,
alongside the broader digital transformation agenda. SDL too must
advance its offering, as we go on to describe. Nevertheless, there
is a clear opportunity for us to lead these changes in our
industry.
Business Strategy
SDL's vision is to be the leader in global content creation,
translation and delivery, enabling our customers' digital
transformation efforts. We believe this will create significant
value for our shareholders in the long term. Since 2016, we have
been working on strengthening a number of the pillars of our
strategy.
The first pillar is to create the most advanced, global
localisation and content services delivery business in the
industry. To achieve this, SDL has been investing in its automation
programme, whereby its Helix platform has been designed to reduce
significantly the administrative overhead associated with project
management and the translation process. This programme will also
provide other business benefits including greater data insights and
follow-the-sun delivery. SDL expects to exploit the first major
benefits of our automation programme in the second half of 2018 and
expects to see ongoing improvements in future years. This platform
will be the foundation upon which we will be building more
offerings and intelligence, in order for us to scale
efficiently.
Secondly, we continue to invest in our technology products and
have an exciting roadmap for the future. The key elements of this
roadmap include convergence of our technology products, a migration
to cloud-first architectures, deeper integrations with the content
supply chain ecosystem and continued investment in Artificial
Intelligence, leveraging our neural Natural Language Processing
technology. SDL is uniquely positioned in the ecosystem, being a
market leading supplier of both content management and language
translation technologies, including translator productivity tools,
client-side translation management software and Machine
Translation. We believe our next-generation platforms will be
transformative for the way we deliver services and how the industry
operates.
Thirdly, we will continue to build Premium Solutions. These
solutions leverage our services platform and our existing product
portfolio but are tailored for specific industry requirements. They
provide an opportunity to add a higher level of value,
differentiate and build deep client relationships. In 2017, we
focused on developing our Life Sciences and Marketing Solutions
verticals. We also developed a Secure Translation Supply Chain
solution for clients who require their content to be secured during
the translation process, which is of particular importance as the
European Union's General Data Protection Regulations (GDPR) comes
into force in May 2018 and we deepen and broaden these
relationships, particularly within the financial services
vertical.
Finally, enabled by many of the changes introduced in 2016 and
2017, SDL can now focus on optimising our corporate operations. We
are improving processes, systems and Business Intelligence across
the organisation and continue to seek opportunities for
streamlining. Our goal is a modern, global business platform that
is scalable, flexible and cost effective.
We have a number of priorities and actions for 2018. We are
focusing on the successful roll-out of our automation programme
into our Language Services business. We will continue to make
improvements to our operations and sales processes, with a
particular focus on account management and software sales. We are
investing in our technology convergence programmes and
next-generation platforms and we will expand our channel strategy
to deliver new go-to-market solutions with key partners. At the
same time, we will be seeking to balance investment and
profitability, as well as cash generation.
Language Services
SDL's Language Services business delivered a respectable revenue
performance in 2017, driven by our push into industry verticals
such as Life Sciences and Marketing Solutions. Both of these
premium verticals have substantial further opportunity, focusing on
the specialised requirements of their customers, which include the
clinical and regulatory labelling markets in Life Sciences and
delivering culturally relevant 'transcreation' at scale in
Marketing Solutions. In 2018, we will continue to focus on
broadening and deepening our existing customer base, extending our
account management programmes and focus on new growth opportunities
in our target verticals. We have strengthened our operational
capabilities in Asia in order to exploit the high growth
opportunities in the region and make sure that as we win new
customers, we also generate attractive margins.
As expected, gross margins in the Language Services business
recovered well in the second half of 2017 compared to the first
half, as we took actions around a small number of customer
contracts and drove our internal productivity key performance
indicators, which include reducing external freelancer spend and
increasing the use of post-edited Machine Translation. At the end
of 2017, SDL had 1,200+ internal linguists, which enabled us to
provide a differentiated service in the market.
Building on the foundations established in 2017, productivity
and automation are at the centre of our focus for 2018. Our aims
are to increase our capabilities for service delivery, reduce time
spent by our translators and project managers on cumbersome
administration, efficiently delivery our new premium services and
continue to extend our coverage to newly in-demand languages.
Language Technologies
In Language Technologies, we made good progress in the year with
our key technology themes of cloud, convergence and connectors. We
continue to work on unifying our core technology capabilities in
SDL Language Cloud so that they can be used in our existing product
portfolio and form the basis of new innovations for specific market
verticals, such as our launch of SDL Multilingual Submission
Management for Life Sciences, which is based on SDL Trados
GroupShare. The cloud-based SDL Managed Translation ("Mantra")
solution saw strong growth, and SDL also delivered a significant
increase in the number of connectors that SDL ships with its
Language Technologies products - now totalling more than 100
connectors - enabling the deployment of solutions that make it easy
for SDL clients to connect their content with SDL's translation
services.
Our Translation Productivity offerings continued to grow across
all markets at a robust pace. The innovative SDL Trados Studio
2017, which focuses on enhancing translation productivity,
improving leverage of translation assets and simplifying popular
tasks, had its most successful release ever with the fastest
upgrade uptake compared to any previous version. The new features
of a much expanded SDL Trados GroupShare, now featuring online
editing capabilities, have received positive market feedback and
put us in an excellent position to accelerate adoption of this
collaborative technology.
Following our decision to invest in Neural Machine Translation
("NMT"), we successfully launched the neural version of SDL
Enterprise Translation Server, combining increased quality with
scalability and security. Our research and innovation in neural
technologies also enabled us to explore new opportunities in the
broader field of Natural Language Processing and we demonstrated
the concept of a Copywriting Assistant at our SDL Connect customer
event. We also launched the brand "Hai" regrouping our current and
future AI products and solutions as we expect to continuously
innovate in this field.
Global Content Technologies
Having stabilised this business unit during 2016 and 2017, SDL
has now turned to offer customers an integrated approach to the
content management landscape. The numerous integrations with other
solutions in the market and the combination with our language
solutions offering provide a further point of differentiation in
many of these markets, as will our Natural Language Processing
technology.
In 2017, SDL announced the launch of SDL Tridion DX, which
integrates our flagship Web Content Management product (now SDL
Tridion Sites) and SDL Knowledge Center (now SDL Tridion Docs) to
enable content publishing for all audiences across the entire
customer journey, pre- and post-sale, in any location, language and
at any touchpoint. Both marketing and in-depth product content can
be created, managed and delivered to eliminate the disconnects that
characterise digital experiences ("DX") today and provide a
consistent brand experience.
For the aerospace and defence industry, we added multi-language
support to SDL Contenta Publishing Suite, and SDL XPP 9.2 now
features an elegant mechanism for streamlining the production of
PDFs for Universal Accessibility. In 2017, we focused on our
partner channel to scale our growth, resulting in partner
contribution in 80% of all SDL Tridion Docs revenue. We also added
new resell or OEM partners in all core SDL regions and delivered
our first Machine Translation platform solution in cooperation with
Amazon Marketplace.
Financial Performance
In a year of a root and branch transformation, I am pleased to
see the business growing; SDL delivered total revenue growth from
Continuing Operations of 7.9% to GBP285.7m. This growth was driven
by an 11.6% increase in our Language Services business, 7.0%
increase in our Language Technologies business and 2.6% decrease in
our Global Content Technologies business. Particularly pleasing was
the strength of our Premium Services revenues, which grew 78% to
GBP40.1m and accounted for 22% of our Language Services
revenue.
Throughout 2017, we sought to balance investment in our
transformation and profitability. All three of our businesses
operated profitably. However, the level of Group profit we were
able to report was reduced by temporary decline in Language
Services gross margins in the first half and, in our technology
businesses, by a faster than expected shift to subscription licence
fees and some licence deal slippage. Adjusted PBTA from Continuing
Operations was GBP22.0m (margin6 7.7%) (2016: GBP27.0m, margin:
10.2%). Group profit before tax was GBP29.9m (2016: loss
GBP15.8m).
At the end of the year we announced a restructuring programme to
reduce costs, particularly in the areas of general and
administrative costs. Exceptional charges of GBP5.7m (2016:
GBP13.1m) were recognised in 2017, GBP3.0m (2016: GBP10.8m)
relating to Continuing Operations.
The Group finished the year with cash balances of GBP22.7m
(2016: GBP21.3m) and no debt (2016: GBPnil).
6 Margin represents the percentage of the relevant profit figure
divided by the relevant revenue figure
Our Customers
Our mission is to enable organisations to establish a personal
connection with customers worldwide. And I'm proud to say we help
79 of the top 100 brands do just that. By eliminating language as a
barrier to communication, our customers are delivering products
simultaneously into multiple markets and geographies faster than
ever before, launching global campaigns that resonate with each
distinct local market, all while streamlining content and
localisation operations to gain efficiencies and win in today's
digital world.
This year, we focused on understanding our customers better and
helping them optimise their content supply chains. We launched SDL
Ideas to capture user feedback through the SDL Community and our
Voice of the Customer program gives customers a direct line of
feedback into the organisation. Moving forward, we will continue to
focus on gaining a deeper understanding of customers' challenges,
addressing how we can improve, and supporting their advancement
through adoption of SDL products and services.
To enhance our value proposition to our customer base in a large
number of industries, we aligned our go-to-market strategy by
vertical, focusing on our key target accounts where we have a right
to win. Going forward, we will deepen our expertise in key vertical
markets, continue to expand our footprint within existing accounts
and grow our presence in each market.
Leveraging our connector strategy, we continue to help
organisations integrate their content management systems with our
translation management tools and services. As shown in our Global
Content Operating Model, the tighter the integration between the
people, processes and technology involved, the greater the benefit.
Our global and local expertise, coupled with our technology and
services, will enable us to guide customers through each stage of
the Global Content Operating Model, to deliver transformative
business results.
Looking Forward
As expected, we enter 2018 with another packed agenda. We will
be rolling out Helix to our language services business and we
expect to see the benefits of productivity and margin gains in the
second half of the year. We will continue to focus on sustainable
sales growth, through account management and extending our premium
solutions strategy. In our technology businesses, we have a number
of key launches and we will continue to make the investment
required to modernise our platforms and products. Operationally, we
are focused on improving our infrastructure and Business
Intelligence and we will monitor the cost base and drive
efficiencies where we can. We have a sound strategy to take SDL
forward and a significant market opportunity to pursue. We are
highly cognisant of the need to balance growth, investment and
profitability through this period of transformation.
Adolfo Hernandez
Chief Executive Officer
6 March 2018
Interim Chief Financial Officer's Review
Despite some positive progress in the year, SDL's financial
performance was below our expectations in 2017. There were two
primary reasons for this. In the first half, gross margins in the
Language Services business were below target, principally the
result of a small number of less profitable contracts in Asia. We
took action and Language Services gross margins improved in the
second half. The second driver of our underperformance was the
slippage of a number of technology deals, plus a faster than
forecast shift from perpetual deals to SaaS which has the impact of
re-phasing revenues from the current year to future years. Since I
joined as interim CFO in June, I have been focusing on simplifying,
standardising and automating core processes, improving the quality
and timeliness of management information, cost discipline and cash
management. This work continues into 2018.
Measuring our performance
The Board reviews a number of operational Key Performance
Indicators (KPIs) to monitor and assess performance of the Group's
continuing operations. Each of the KPIs also helps the Board assess
progress against its strategic objectives.
KPI Definition 2017 2016
--------------------- ----------------------------------- --------- ------------
Technology Annual recurring revenue GBP63.4m GBP60.5m
Annual Recurring from contracts in force
Revenue (ARR) at the year end which includes
term licence, SaaS licence,
support and maintenance
and hosting fees. ARR is
stated at constant currency,
current and prior period
balances being translated
at December 2017 rates
--------------------- ----------------------------------- --------- ------------
Current year Language Services
revenue earned from prior
year customers as a percentage
of current year Language
Services revenue; the difference
between RRR and total revenue
Language Services Language Services is Language
Repeat Revenue Services revenue from new
Rate (RRR) customers 93% 93%
--------------------- ----------------------------------- --------- ------------
Premium revenue Revenue from Life Sciences GBP40.1m GBP22.5m(1)
and Marketing Solutions
--------------------- ----------------------------------- --------- ------------
Number of incremental sales
Number of Upsell of existing products to
deals existing customers 213 176
--------------------- ----------------------------------- --------- ------------
Number of incremental sales
Number of Cross of new products to existing
sell deals customers 46 52
--------------------- ----------------------------------- --------- ------------
Machine Translation Number of new Machine Translation
Wins contracts 53 38
--------------------- ----------------------------------- --------- ------------
Wins in Life Number of new Life sciences
Sciences contracts 25 8
--------------------- ----------------------------------- --------- ------------
Average percentage of time
Linguistic in house linguists spend
utilisation on billable work across
(FY avg) the financial year 51.7% 50.0%(2)
--------------------- ----------------------------------- --------- ------------
Linguistic
utilisation Percentage of time in house
(December linguists spend on billable
exit rate)(3) work in December 53.1% 50.2%
--------------------- ----------------------------------- --------- ------------
1 - This comparative has been restated to include revenue from
existing customers' life sciences divisions, previously recorded in
other industry sectors
2 - This definition has been refined to exclude time of central
translation management teams and more accurately reflect the
utilisation of linguists' time exclusively. The comparative has
been restated in line with this definition.
3 - The month end linguistic utilisation KPI has been added in
the year to monitor progress of the Group's operational efficiency
initiatives including Helix.
In addition to the above, the Board also monitors financial
KPIs, being Revenue, Gross Profit, Adjusted PBTA and Free Cash
Flow, in each case from Continuing Operations. The Board considers
that these are the most meaningful financial indicators of medium
and long term business performance.
Specifically, these KPIs exclude the impact of exceptional
costs, acquisition-related amortisation and profits or losses
relating to the Non-Core businesses. Such items arise from events
which are exceptional by their incidence or size, and while they
may generate substantial income statement amounts, do not relate to
ongoing operational performance that underpins long-term value
generation.
Free Cash Flow is defined as being cash generated from
operations after interest costs, maintenance capital expenditure
and capitalised Research and Development (R&D) expenditure.
Maintenance capital expenditure is the recurring level of capital
expenditure required for the business to operate in its current
form in the medium term and excludes non recurring investment in
capitalised system and infrastructure costs.
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.
Income statement
GBPm ( unless stated otherwise) 2017 2016
-------------------------------------- -------- --------
Language Services 184.5 165.3
-------------------------------------- -------- --------
Language Technologies 48.6 45.4
-------------------------------------- -------- --------
Global Content Technologies 52.6 54.0
-------------------------------------- -------- --------
Revenues from Continuing Operations 285.7 264.7
-------------------------------------- -------- --------
Revenues from Discontinued
Operations 2.0 25.2
-------------------------------------- -------- --------
Total Group revenues 287.7 289.9
-------------------------------------- -------- --------
Gross profit from Continuing
Operations 149.0 144.0
-------------------------------------- -------- --------
Gross profit margin from Continuing
Operations (%) 52.2% 54.4%
-------------------------------------- -------- --------
Administrative expenses excluding
amortisation and exceptional
items from Continuing Operations (127.0) (117.0)
-------------------------------------- -------- --------
Language Services 9.5 18.8
-------------------------------------- -------- --------
Language Technologies 4.9 4.4
-------------------------------------- -------- --------
Global Content Technologies 7.6 3.8
-------------------------------------- -------- --------
Adjusted PBTA from Continuing
Operations GBPm 22.0 27.0
-------------------------------------- -------- --------
Adjusted PBTA margin from Continuing
Operations (%) 7.7% 10.2%
-------------------------------------- -------- --------
Exceptional items (5.7) (13.1)
-------------------------------------- -------- --------
Adjusted PBTA from Discontinued
Operations (3.0) (3.5)
-------------------------------------- -------- --------
Group PBTA7 13.3 10.4
-------------------------------------- -------- --------
Amortisation of acquired intangibles (4.0) (5.2)
-------------------------------------- -------- --------
Profit / (loss) on disposal
of Discontinued Operations 20.6 (21.0)
-------------------------------------- -------- --------
Profit / (loss) before taxation 29.9 (15.8)
-------------------------------------- -------- --------
Taxation charge (1.4) (2.3)
-------------------------------------- -------- --------
Profit / (loss) after taxation 28.5 (18.1)
-------------------------------------- -------- --------
7 Profit before tax, amortisation of acquired intangibles and
profit/(loss) on disposal of Discontinued Operations.
Overview
Revenue from Continuing Operations increased 7.9% to GBP285.7m
(2016: GBP264.7m); however the Group delivered an Adjusted PBTA
from Continuing Operations of GBP22.0m which was 18.5% lower than
the previous year and an increase in profit before taxation to
GBP29.9m (2016: GBP15.8m loss). At 31 December 2017, the Group had
net cash of GBP22.7m and no debt (2016: GBP21.3m). The Board has
recommended a dividend of 6.2p (2016: 6.2p).
Revenue
Revenue from Continuing Operations of GBP285.7m was 7.9% higher
year-on-year (2016: GBP264.7m). This growth was driven by an 11.6%
increase in Language Service revenues, a 7.0% increase in Language
Technologies revenues offset by a 2.6% decline in Global Content
Technologies revenues.
Our Annual Recurring Revenue (ARR) for our technology businesses
grew 4.8% to GBP63.4m.
Revenue diversity
The Group 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 10 largest customers contributing 26% (2016: 24%) of revenue in
2017. No single customer contributes more than 5% of Group
revenue.
Geographical analysis of our external revenues (total Group) by
destination is as follows:
Geographical analysis of our external revenues
(total Group) by destination
------------------------------------------------------------------
2017 (GBPm) 2017 (%) 2016 (GBPm) 2016 (%)
---------------- ------------ --------- ------------ ---------
UK 37.1 12.9% 39.8 13.7%
---------------- ------------ --------- ------------ ---------
USA 109.8 38.2% 113.9 39.3%
---------------- ------------ --------- ------------ ---------
Germany 19.9 6.9% 20.3 7.0%
---------------- ------------ --------- ------------ ---------
Netherlands 19.6 6.8% 19.0 6.6%
---------------- ------------ --------- ------------ ---------
Rest of World 101.3 35.2% 96.9 33.4%
---------------- ------------ --------- ------------ ---------
Group revenues 287.7 100% 289.9 100%
---------------- ------------ --------- ------------ ---------
Gross Profit Margin
The Group's Gross Profit margin from Continuing Operations of
52.2% was 2.2% lower year-on-year due to the contraction in
Language Services margin in H1 2017. This was driven by a number of
factors including increased specialist freelancer costs arising
from the complexity and language mix of work received, dilutive
customer contracts in Asia and strategic investments in building
out premium verticals. These factors had a dilutive effect on the
Language Services gross profit margin reducing it from 44.2% in
2016 to 41.1% this year.
The Gross Profit margin within Language Services improved from
39.3% in H1 to 42.9% in H2 and 41.1% FY 2017 (2016: 44.2%8). This
improvement was driven by a reduction in the use of external
linguists and improved productivity from our internal
operations.
The Gross Profit margin within Language Technologies improved
from 75.3% in 2016 to 78.4% in 2017 driven by the improved
profitability of our Professional Services team.
The Gross Profit margin within Global Content Technologies
reduced to 66.6% (2016: 68.1%) as a result of a shift towards SaaS
licence deals and a lower value of perpetual licence deals in 2017
GBP4.1m compared to 2016: GBP8.8m.
8 2016 gross profit has been restated to show the cross charge
between Language Services and Language Technologies for use of
Machine Translation software in administrative expenses as opposed
to Cost of Sales
Administrative Expenses
Administrative expenses from Continuing Operations excluding
amortisation and exceptional items increased by GBP10.0m to
GBP127.0m (2016: GBP117.0m).
Administrative expenses 2017 2016
- GBPm
------------------------------------ ------ -------
Administrative expenses
of Continuing Operations 134.0 133.0
------------------------------------ ------ -------
Amortisation of intangible
assets (4.0) (5.2)
------------------------------------ ------ -------
Exceptional items (3.0) (10.8)
------------------------------------ ------ -------
Adjusted Administrative
expenses of Continuing Operations 127.0 117.0
------------------------------------ ------ -------
The Group's adjusted administrative costs from Continuing
Operations increased by GBP10.0m at reported rates and by GBP5.3m
at constant currency. The major increases were driven by headcount
and additional infrastructure costs.
Staff costs make up a large proportion of this cost base
accounting for approximately 70-80% of total administrative
expenses. This percentage flexes in line with movements in variable
staff compensation.
An analysis of adjusted Administrative expenses for the
Continuing Operations is set out below.
GBPm 2017 2016 Change
----------------------------- -------- -------- -------
Direct costs 40.5 40.3 0.2
----------------------------- -------- -------- -------
Shared costs 86.5 76.7 9.8
----------------------------- -------- -------- -------
Total costs 127.0 117.0 10.0
----------------------------- -------- -------- -------
Research and Development 26.4 25.9 0.5
----------------------------- -------- -------- -------
Sales and Marketing 46.0 40.2 5.8
----------------------------- -------- -------- -------
General Administration 54.6 50.9 3.7
----------------------------- -------- -------- -------
Total cost by type 127.0 117.0 10.0
----------------------------- -------- -------- -------
Language Services 66.4 54.2 12.2
----------------------------- -------- -------- -------
Language Technologies 33.2 29.8 3.4
----------------------------- -------- -------- -------
Global Content Technologies 27.4 33.0 (5.6)
----------------------------- -------- -------- -------
Total cost by segment 127.0 117.0 10.0
----------------------------- -------- -------- -------
Administrative headcount
for Continuing Operations
(number) 1,168 1,049 119
----------------------------- -------- -------- -------
Direct headcount 643 628 15
----------------------------- -------- -------- -------
Shared headcount 525 421 104
----------------------------- -------- -------- -------
Research and Development ("R&D") costs of GBP26.4m (2016:
GBP25.9m) exclude GBP2.5m of R&D expenditure capitalised in the
year.
Sales and Marketing of GBP46.0m (2016: GBP40.2m) includes direct
costs for specific sales teams (e.g. product specific teams) as
well as general sales and marketing costs which are allocated
across the segments.
General Administration expenses of GBP54.6m (2016: GBP50.9m)
encompass all of our Group, regional and local support
functions.
Shared costs of GBP86.5m (2016: GBP76.7m) are group, regional
and local costs of operating our global footprint. It includes
property costs, corporate functions and regional and local costs
which support our segment operations. The absolute year-on-year
increase of GBP9.8m is due to changes in the organisational
structure which is driving less siloed working and more
cross-functional and business segment collaboration. These costs
are allocated on a revenue or headcount based methodology that is
consistent with previous years. The allocation methodology results
in better performing segments bearing more of the shared costs if
we allocate on a revenue basis. This has a slight distorting effect
at the operating profit level, which is why we tend to focus on
gross margin as the more relevant indicator of profitability in
Language Services in 2017.
Management will be exercising strong cost control in 2018 to
streamline the operating model, but maintaining adequate levels of
spend in R&D and sales capabilities to ensure that we can
execute our strategy and grow sales over the medium to long term.
In addition, a review of cost allocations is being undertaken in
the first half of this year to improve the visibility and
accountability of costs and derive divisional profitability that
better reflects the performance of each of our segments.
Research and Development Costs
R&D costs of GBP28.9m includes GBP26.4m (2016: GBP25.9m)
expensed within administrative costs and GBP2.5m (2016: GBPnil)
capitalised on the balance sheet. Capitalised R&D costs are to
be amortised over the expected useful lives of the development
projects concerned, being approximately 3 years.
The Group has invested in its development processes and
governance during the year. The Group now operates the SAFe
methodology across its development streams and, as a consequence,
development work is now carried out on an agile basis. The
strengthening of these processes and governance means that the
Group is able to demonstrate technical and commercial feasibility
of development activities and consequently is now required to
capitalise development spend under IAS 38 'Intangible assets'.
These processes have been rolled out by product family over the
year on a product by product basis. The majority of product
families have only begun capitalisation of costs during the latter
part of 2017 and the amount capitalised this year is only a
proportion of the amount expected to be capitalised on a full year
basis. The Group expects to capitalise approximately GBP6-8m per
annum in future years.
Adjusted Profit before Tax and Amortisation (PBTA)
Adjusted PBTA from Continuing Operations reduced by 18.5% to
GBP22.0m (2016: GBP27.0m). Adjusted PBTA from Continuing Operations
excludes GBP2.5m of R&D expenditure which has been capitalised
in the year.
The Adjusted PBTA margin from Continuing Operations for the year
declined from 10.2% to 7.7%, with the H2 margin of 9.5% improving
over H1 of 5.7%.
Performance by Segment
Language Services
The business contributed FY17 revenue of GBP184.5m (2016:
GBP165.3m) which represented an 11.6% year-on-year increase and
equates to 65% of Revenues from Continuing Operations. After
charging GBP66.4m (2016: GBP54.2m) of direct and shared
administrative costs, segment Adjusted PBTA was GBP9.5m (2016:
GBP18.8m). The increase in administrative costs was mainly driven
by a GBP10.1m increase in the allocation of shared costs to the
Language Services segment. This increased allocation in shared
costs has impacted the relative performance of this segment.
On a constant currency basis, revenue growth was 7.1% and RRR
was maintained at 93% (2016: 93%) with new business accounting for
7%.
Revenues in premium verticals increased from GBP22.5m to
GBP40.1m, led by the Life Sciences vertical.
Revenues in the Americas have grown year-on-year by 20.6% to
GBP74.3m, Asia has grown by 28.5% to GBP25.7m whilst trading in
EMEA has been flat on last year due to some customers operating
lower activity cycles. We continue to maintain a broad customer
base with the top 30 customers representing 55.2% of Language
Services revenues (2016: 51.4%).
Segment Adjusted PBTA margin reduced from 11.4% in 2016 to 5.1%
in 2017. The contraction in margin in H1 2017 was driven by a
number of factors including:
-- Increased specialist freelancer costs arising from the
complexity and language mix of work received
-- Dilutive customer contracts in Asia
-- Strategic investments in building out premium verticals
Significant work was undertaken in the second half of 2017 to
isolate and tackle the underperformance and address the operational
inefficiencies experienced in the first half of 2017. Improved
controls around the use of external freelancers, transition to off
shore project managers, increased use of machine translation
(adoption rates rising from 14.3% in 2016 to 30.2% by the end of
2017), increased linguistic utilisation (rising to 53.1% in
December 2017 versus 50.2% in December 2016) and renegotiation of
contracts, where required, have improved Language Services gross
margins from 39.3% in the first half to 42.9% in the second
half.
The Group has also made good progress with its automation
programme, Helix. This investment will continue in 2018 and will
deliver increased productivity and improved margin from H2 2018
onwards.
Language Technologies
The business contributed FY17 revenue of GBP48.6m (2016:
GBP45.4m) which represented a 7.0% year-on-year increase and
equates to 17% of Revenues from Continuing Operations. After
charging GBP33.2m (2016: GBP29.8m) of direct and shared
administrative costs, segment Adjusted PBTA was GBP4.9m (2016:
GBP4.4m).
On a constant currency basis, revenue growth was 1.6% and ARR
increased 13.2% to GBP25.9m (2016: GBP22.9m)
The revenue growth was driven by a 16.6% increase in Translation
Management, 13.3% increase in Translation Productivity partially
offset by a 20.7% decrease in Machine Translation revenues.
Translation Management revenues experienced a 20.1% year-on-year
growth in SaaS software licence sales and a 35.1% increase in
professional services work.
Translation Productivity delivered another strong year with FY17
revenue growth of 13.3%.The launch of SDL Trados Studio 2017, SDL
MultiTerm 2017 at the end of last year delivered a step change in
translation memory productivity with our ground-breaking upLIFT
technology. In addition, our Adaptive MT technology is directly
accessible with the SDL Trados Studio interface. These 2017
releases have confirmed our competitive advantage and driven
increased revenues in our Corporate and Language Service Providers
(LSP) markets.
Machine Translation revenues contracted 20.7% on 2016 and this
was in part driven by deal slippages in our Government sector.
Development of our Neural MT capability has continued throughout
the year and results show significant improvements in translation
effectiveness. This, together with marketing and sales enablement
programmes, has improved our competitive position and our sales
pipeline has strengthened markedly during the year. These Neural
MT/AI developments will also increase the operational effectiveness
of our Language Services business and will assist other SDL product
developments.
Segment Adjusted PBTA margin increased 0.4% to 10.1% (2016:
9.7%) primarily driven by capitalisation of R&D spend offset by
the performance of our Machine Translation business.
Global Content Technologies
The business contributed FY17 revenue of GBP52.6m (2016:
GBP54.0m) which represented a 2.6% year-on-year decrease and
equates to 18% of Revenues from Continuing Operations. After
charging GBP27.4m (2016: GBP33.0m) of direct and shared
administrative costs, segment Adjusted PBTA was GBP7.6m (2016:
GBP3.8m).
On a constant currency basis, revenue declined 7.4% and ARR
stayed flat at GBP37.5m. This decrease was primarily driven by deal
slippage at the year end.
Revenues from Technical Content Management products (Knowledge
Centre and Contenta) reduced 8.1% year-on-year as a consequence of
strong perpetual licence sales in the prior year. Web Content
Management software revenue grew 1.5% in 2017, but declined 2.1% on
a constant currency basis. There has been a shift from perpetual
licence deals to SaaS. The revenue recognition treatment for SaaS
results in revenue being recognised over the term of the contract,
therefore building future revenue streams.
Segment Adjusted PBTA increased to GBP7.6m in FY17 (2016:
GBP3.8m). Actions taken to right-size sales and marketing resources
together with improved performance from the Professional Services
team and the capitalisation of R&D spend has improved the
profitability of the business in the current year.
Discontinued Non-Core Business
During 2017, the Group disposed of the Fredhopper and Social
Intelligence businesses in March and May 2017 respectively. A
profit on disposal of GBP20.6m and net cash proceeds of GBP22.2m
was reported in relation to the sale of these businesses.
Exceptional Items
Exceptional items amounted to GBP5.7m (2016: GBP13.1m), of which
GBP2.7m (2016: GBP2.3m) was in relation to discontinued operations
and GBP3.0m (2016: GBP10.8m) for continuing operations. The
reorganisation is focused on streamlining operations to deliver a
more scalable and efficient operating model.
Exceptional items - GBPm 2017 2016
---------------------------- ----- -----
Redundancy and other staff
costs 2.1 4.2
---------------------------- ----- -----
Strategy development - 2.8
---------------------------- ----- -----
Relaunch of SDL - 2.1
---------------------------- ----- -----
Other exceptional items 0.9 1.7
---------------------------- ----- -----
Continuing operations 3.0 10.8
---------------------------- ----- -----
Redundancy and other staff
costs 0.8 2.3
---------------------------- ----- -----
Other exceptional items 1.9 -
---------------------------- ----- -----
Discontinued operations 2.7 2.3
---------------------------- ----- -----
Group exceptional items 5.7 13.1
---------------------------- ----- -----
During 2016, the Group began to restructure the business under
the new leadership team focusing on improving the customer
experience, systems and processes and implementing changes to the
Group's organisational structure including investment in premium
verticals, namely Life Sciences and Marketing Solutions.
Following the Group's performance in H1 2017, the Group began a
further restructuring programme and this programme will be
completed in 2018. Redundancy costs associated with this programme
amounted to GBP2.1m in 2017. Further restructuring costs will be
incurred in FY18 and the expectation is for these to have a cash
impact of approximately GBP4m.
Other exceptional items of GBP0.9m primarily related to dual
running costs associated with relocation of the Group's two
principal UK offices in Maidenhead and Sheffield. Business-as-usual
severance costs and property relocations have been charged to the
income statement in administrative expenses.
Depreciation and Amortisation
Depreciation and amortisation expense decreased by GBP1.8m to
GBP6.9m. (2016: GBP8.7m).
Intangible assets include software and customer relationships
arising from acquisitions and are amortised over periods of between
5 and 10 years. Their carrying value is reviewed annually for signs
of impairment. The intangible asset amortisation charge in FY17 was
GBP4.0m (2016: GBP5.2m). Depreciation of GBP2.9m (2016: GBP3.5m)
relates to property, plant and equipment.
Going forward, amortisation on R&D and internally generated
intangibles (for example, Helix) will be reported as amortisation
but not added back in arriving at Adjusted PBTA.
Depreciation and amortisation 2017 2016
- GBPm
------------------------------------- ----- -----
Depreciation 2.9 3.5
------------------------------------- ----- -----
Amortisation of acquired
intangibles 4.0 5.2
------------------------------------- ----- -----
Group depreciation and amortisation 6.9 8.7
------------------------------------- ----- -----
Group profit before tax
The Group profit before tax rose to GBP29.9m driven by the
GBP20.6m gain on sale of the Fredhopper and Social intelligence
businesses (2016 - loss of GBP15.8m, driven by the GBP21.0m loss on
sale of the Campaign business).
Taxation
The tax charge for the year amounted to GBP1.4m (2016:
GBP2.3m).
GBPm 2017 2016
----------------------------------- ------ ------
Adjusted tax charge on Continuing
Operations 6.6 7.4
----------------------------------- ------ ------
Tax charge / (credit) relating
to Discontinued Operations 0.2 (0.4)
----------------------------------- ------ ------
Exceptional credit (4.6) (3.7)
----------------------------------- ------ ------
Deferred tax arising on
amortisation charge (0.8) (1.0)
----------------------------------- ------ ------
Tax charge 1.4 2.3
----------------------------------- ------ ------
Continuing operations adjusted
effective tax rate 29.7% 27.3%
----------------------------------- ------ ------
Recognised tax losses 10.4 7.1
----------------------------------- ------ ------
The Adjusted tax charge on Continuing Operations amounted to
GBP6.6m and represents an effective tax rate of 29.7%. This charge
is expected to reduce going forward as the reduction in the US
Federal tax rate from 35% to 21% takes effect.
The exceptional credit of GBP4.6m has arisen from the
recognition of previously unrecognised tax losses of GBP10.1m and
tax credits associated with exceptional items charged to operating
profit of GBP0.6m offset by a GBP2.8m transition tax charge arising
from the US tax reform enacted in December 2017 and a GBP3.3m
charge associated with the downwards revaluation of the Group's US
deferred tax asset following the reduction of the US federal tax
rate from 35% to 21%. The recognition of historical US tax losses
in the year has been facilitated by the completion of s382
exercises which have confirmed the availability of these historical
losses.
We exited the year with recognised carried forward tax losses of
GBP10.4m (2016: GBP7.1m)
The Group effective current tax rate going forward is expected
to be in the region of 25% to 27%.
Earnings per share
Adjusted earnings per share 2017 2016
from Continuing Operations
(p)
----------------------------- ------ ------
Basic 18.9p 26.6p
----------------------------- ------ ------
Diluted 18.8p 26.3p
----------------------------- ------ ------
Earnings per share (p) 2017 2016
------------------------ ------ --------
Basic 34.8p (22.3)p
------------------------ ------ --------
Diluted 34.7p (22.1)p
------------------------ ------ --------
Basic Adjusted EPS was 18.9p (2016: 26.6p) and basic EPS was
34.8p (2016: loss per share 22.3p). Fully diluted Adjusted EPS was
18.8p (2016: 26.3p) and earnings per share was 34.7p (2016: loss
per share 22.1p).
Cash flow
GBPm 2017 2016
------------------------------------ ------- -------
Adjusted PBTA from Continuing
Operations 22.0 27.0
------------------------------------ ------- -------
Depreciation 2.9 3.5
------------------------------------ ------- -------
Adjusted PBTDA9 from Continuing
Operations 24.9 30.5
------------------------------------ ------- -------
Working capital and share
based payments charge from
continued operations (10.7) 3.5
------------------------------------ ------- -------
Adjusted operating cash
flow10 from Continuing Operations 14.2 34.0
------------------------------------ ------- -------
Maintenance capital expenditure (3.0) (2.3)
------------------------------------ ------- -------
Capitalised R&D costs (2.5) -
------------------------------------ ------- -------
Taxation (2.9) (6.5)
------------------------------------ ------- -------
Interest - (0.1)
------------------------------------ ------- -------
Free cash flow from Continuing
Operations 5.8 25.1
------------------------------------ ------- -------
Exceptional items (7.0) (11.0)
------------------------------------ ------- -------
Investment capital expenditure (10.4) -
------------------------------------ ------- -------
Cash consumed from Discontinued
Operations (3.7) (4.4)
------------------------------------ ------- -------
Disposal proceeds 22.2 (1.6)
------------------------------------ ------- -------
Dividends paid (5.1) (2.5)
------------------------------------ ------- -------
Other financing activities 1.2 (4.1)
------------------------------------ ------- -------
FX on cash (1.6) 2.6
------------------------------------ ------- -------
Net cash flow 1.4 4.1
------------------------------------ ------- -------
Opening net cash at 1 January 21.3 17.2
------------------------------------ ------- -------
Closing net cash at 31 December 22.7 21.3
------------------------------------ ------- -------
9 Adjusted PBTDA - profit before tax, depreciation, amortisation
and exceptional items
10 Adjusted operating cash flow is cash generated from
Continuing Operations before exceptional items and income tax
paid.
Cash generation
Net cash at 31 December was GBP22.7m compared to GBP21.3m at 31
December 2016.
Adjusted operating cash flow from Continuing Operations was
GBP14.2m (2016: GBP34.0m) with a GBP10.7m working capital outflow
(2016: GBP3.5m inflow) principally due to the reduced accrual of
variable compensation plan pay outs in respect of 2017
performance.
Capital expenditure of GBP15.9m includes payments for investment
capital expenditure (GBP10.4m), maintenance capital expenditure
(GBP3.0m) and R&D (GBP2.5m). These capitalised R&D costs
are regarded as normal spending by the business and included within
the definition of Free Cash Flow. Routine maintenance capital
expenditure of GBP3.0m (2016: GBP2.3m) represents 1% of revenues.
We expect maintenance capital expenditure in FY18 to be within our
target of 1% of revenue, excluding capitalised R&D.
Investment capital expenditure of GBP10.4m includes GBP5.9m on
our centralised Language Service delivery platform, Helix, which
will allow us to drive scale and efficiency improvements. In
addition, we incurred GBP3.1m in property relocation costs for our
Head Office in Maidenhead, UK and EMEA Regional Head Office in
Sheffield, UK and GBP1.4m on other IT related capex.
Tax of GBP2.9m (2016: GBP6.5m) primarily relate to tax paid in
our European entities. Last year's comparable tax payment was high
due to a number of catch-up adjustments and 2017 tax payments were
impacted by the high level of exceptional charges in 2016.
The cash impact of exceptional items amounted to GBP7.0m (2016:
GBP11.0m). This includes GBP3.4m of severance payments and GBP2.7m
in relation to the discontinued businesses. The latter also
consumed working capital of GBP3.7m in the first half of the year
(2016: GBP4.4m)
The net cash impact from the disposal of the Fredhopper and
Social Intelligence businesses was an inflow of GBP22.2m.
Dividends of GBP5.1m paid in the year (2016: GBP2.5m) comprised
the dividend for 2016 of 6.2p.
Other financing activities includes the sale of own shares of
GBP1.2m (2016: GBP0.7m) and repayment of borrowings in 2016 of
GBP4.8m (2017: GBPnil)
Balance Sheet
SDL continues to maintain a strong balance sheet and has no
debt. Net assets at 31 December 2017 were GBP189.1m compared to
GBP168.7m at 31 December 2016.
Non current assets increased to GBP175.6m (2016: GBP167.6m)
principally due to the capitalisation of Helix costs (GBP5.9m),
fit-out costs for our Head Office in Maidenhead and Regional Head
Office in Sheffield (GBP3.1m) and capitalised R&D
(GBP2.5m).
Working capital
Trade and other receivables at 31 December 2017 were GBP82.7m,
which is ahead of last year (2016: GBP81.0m) and reflects the
increased revenues year-on-year. Our average DSO (Days Sales
Outstanding) has improved from 68 days to 64 days with the second
half of 2017 delivering strong collections. The bad debt provision
of GBP1.7m at 31 December 2017 was similar to last year's provision
of GBP1.5m.
Trade and other payables of GBP78.3m (2016: GBP88.5m) include
deferred income of GBP37.6m (2016: GBP36.5m). Accruals of GBP21.0m
(2016: GBP34.5m) were lower than prior year primarily due to lower
accruals in respect of our variable compensation plans.
Funding and Capital Structure
The Group had cash balances at the year-end of GBP22.7m with no
external borrowings (2016: GBP21.3m cash and no year end external
borrowings). As a result, no interest costs were incurred in 2017
or 2016.
The Group has a GBP25m committed revolving credit facility,
expiring in August 2020. The agreement also includes a GBP25m
uncommitted Accordian facility.
Pricing of this 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 EBITDA (as defined by the Facility Agreement).
Under the credit facility agreement, SDL is subject to certain
financial covenants which are required to be tested quarterly. The
Group was in compliance with the terms of all its facilities,
including the financial covenants at 31 December 2017 and
throughout the year and expects to remain in compliance with the
terms going forward.
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
The Group's results are impacted by movements in foreign
currencies. During 2017, key individual currency exchange rates
have moved, as shown in the table below.
Average exchange Change Balance Sheet Change
rate * rate
------ ------------------- ------- ---------------- -------
2017 2016 2017 2016
------ --------- -------- ------- ------- ------- -------
USD 1.29 1.37 (5.8%) 1.34 1.22 9.8%
------ --------- -------- ------- ------- ------- -------
Euro 1.15 1.23 (7.2%) 1.13 1.17 (3.9%)
------ --------- -------- ------- ------- ------- -------
*Calculated as a simple average of month end rates across the
year
For most of 2017, sterling was weaker than the 2016 US dollar
("USD") and the Euro and Euro aligned currencies average exchange
rates. However, sterling strengthened against USD towards end of
the year.
When comparing 2017 and 2016, changes in currency exchange rates
had a net favourable impact of GBP12.2m on revenue and GBP0.6m on
Adjusted PBTA.
This mix of currency movements in the second half are estimated
to have had a negative impact on the group's Adjusted PBTA results
amounting to GBP1-1.5m.
New Accounting Standards
On 1 January 2018, the Group will adopt IFRS 15 - Revenue from
Contracts with Customers. The Group is well progressed in its
detailed exercise to assess and quantify the impact of this
standard on the reported results.
There are two primary impacts arising from the adoption of this
standard, namely
-- Term licence revenue will be recognised on delivery, after
appropriate deductions for services such as support and maintenance
and hosting which are amortised over the term of the contract. The
estimated impact of this would be to increase 2017 revenues by
GBP1.7m.
-- Sales commission costs are capitalised and amortised to match
the revenue stream. The estimated impact of this change of
treatment will be to decrease 2017 costs by GBP0.5m.
Accordingly, the estimated impact of adopting IFRS 15 on the
Group's 2017 results would have been to increase reported profit by
GBP2.2m.
The impact of profitability on the group's future results will
be driven by the mix of sales going forward (proportion of
perpetual/ term vs SaaS) and the contractual period of new deals
(impacting the amortisation period of commissions).
Dividend
A dividend for the year ended 31 December 2017 of 6.2p per share
(2016: 6.2p) will be proposed at the Annual General Meeting on 26
April 2018. SDL PLC has distributable reserves of GBP63.6m at 31
December 2017.
Going Concern Statement
The Group's business activities, performance and position,
together with the factors likely to affect its future development,
are set out in the Strategic Report. The Board is responsible for
determining the nature and extent of the principal risks it is
willing to take in achieving its strategic objectives. The
processes in place for assessment, management and monitoring of
risks are described in the 2017 Annual Report. Details of the
financial risk management objectives and policies of the Group are
given in the 2017 Annual Report.
The Directors believe that the Group is well placed to manage
its business risks successfully. The Board's assessment of
prospects and stress test scenarios, together with its review of
principal risks and the effectiveness of risk management
procedures, show that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly,
the Directors continue to adopt the going concern basis for the
preparation of the financial statements. In forming their view, the
Directors have considered the Group's prospects for a period
exceeding 12 months from the date when the financial statements are
approved.
Xenia Walters
Interim Chief Financial Officer
6 March 2018
Consolidated INCOME STATEMENT
For the year ended 31 December 2017
Notes 2017 2016
Continuing Discontinued Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Sale of goods 26.4 1.6 28.0 23.3 17.1 40.4
Rendering of
services 259.3 0.4 259.7 241.4 8.1 249.5
REVENUE 2 285.7 2.0 287.7 264.7 25.2 289.9
Cost of sales (136.7) (1.9) (138.6) (120.7) (10.8) (131.5)
GROSS PROFIT 149.0 0.1 149.1 144.0 14.4 158.4
Administrative
expenses 4 (134.0) (5.8) (139.8) (133.0) (20.2) (153.2)
----------- ------------- -------- ----------- ------------- --------
OPERATING PROFIT/(LOSS) 15.0 (5.7) 9.3 11.0 (5.8) 5.2
Operating profit/(LOSS)
before AMORTISATION
AND EXCEPTIONAL
ITEMS 22.0 (3.0) 19.0 27.0 (3.5) 23.5
Amortisation
of intangible
assets 4 (4.0) - (4.0) (5.2) - (5.2)
Exceptional
items 4 (3.0) (2.7) (5.7) (10.8) (2.3) (13.1)
--------
OPERATING PROFIT/(LOSS) 15.0 (5.7) 9.3 11.0 (5.8) 5.2
------------------------- ------ ----------- ------------- -------- ----------- ------------- --------
Profit / (loss)
on disposal
of Non-Core
business 3 - 20.6 20.6 - (21.0) (21.0)
Finance cost - - - - - -
PROFIT/(LOSS)
BEFORE TAX 15.0 14.9 29.9 11.0 (26.8) (15.8)
profit/(LOSS)
before TAX,
AMORTISATION
AND exceptional
ITEMS 22.0 17.6 39.6 27.0 (24.5) 2.5
Amortisation
of intangible
assets 4 (4.0) - (4.0) (5.2) - (5.2)
Exceptional
items 4 (3.0) (2.7) (5.7) (10.8) (2.3) (13.1)
--------
PROFIT/(LOSS)
BEFORE TAX 15.0 14.9 29.9 11.0 (26.8) (15.8)
------------------------- ------ ----------- ------------- -------- ----------- ------------- --------
Tax (charge)
/ credit (including
exceptional
credit of GBP4.6m
relating to
continuing operations,
2016; GBPnil) 5 (1.2) (0.2) (1.4) (2.7) 0.4 (2.3)
PROFIT/(LOSS)
FOR THE YEAR
ATTRIBUTABLE
TO EQUITY HOLDERS
OF THE PARENT 13.8 14.7 28.5 8.3 (26.4) (18.1)
=========== ============= ======== =========== ============= ========
Earnings per
ordinary share
- basic (pence) 7 16.9 17.9 34.8 10.2 (32.5) (22.3)
Earnings per
ordinary share
- diluted (pence) 7 16.8 17.9 34.7 10.1 (32.2) (22.1)
=========== ============= ======== =========== ============= ========
Adjusted earnings per ordinary share (basic and diluted) are
shown in note 7.
Consolidated STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
Notes 2017 2016
GBPm GBPm
Profit / (Loss) for the period 28.5 (18.1)
------ -------
Currency translation differences
on foreign operations 2.0 21.7
Currency translation differences
on foreign currency quasi equity
loans to foreign subsidiaries (7.8) (0.5)
Income tax credit / (charge)
on currency translation differences
on foreign currency quasi equity
loans to foreign subsidiaries 5 1.3 (0.2)
OTHER COMPREHENSIVE (EXPENSE)
/ INCOME (4.5) 21.0
------ -------
TOTAL COMPREHENSIVE INCOME 24.0 2.9
====== =======
All the total comprehensive income is attributable to equity
holders of the parent Company. Currency translation differences on
foreign operations 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 2017
Notes 2017 2016
GBPm GBPm
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 9.6 5.3
Intangible assets 8 152.9 151.9
Deferred tax asset 11.2 8.4
Rent and other deposits 1.9 2.0
------- --------
175.6 167.6
CURRENT ASSETS
Trade and other receivables 82.7 81.0
Corporation tax 2.6 0.9
Cash and cash equivalents 9 22.7 21.3
Assets held for sale - 7.1
------- --------
108.0 110.3
TOTAL ASSETS 283.6 277.9
------- --------
CURRENT LIABILITIES
Trade and other payables (78.3) (88.5)
Current tax liabilities (10.6) (7.4)
Provisions (1.6) (1.1)
Liabilities held for sale - (7.4)
------- --------
(90.5) (104.4)
NON CURRENT LIABILITIES
Other payables (0.7) (1.6)
Loans and overdraft - -
Deferred tax liability (0.4) (1.1)
Provisions (2.9) (2.1)
------- --------
(4.0) (4.8)
TOTAL LIABILITIES (94.5) (109.2)
------- --------
NET ASSETS 189.1 168.7
======= ========
EQUITY
Share capital 0.8 0.8
Share premium account 100.7 99.2
Retained earnings 63.1 39.7
Foreign exchange differences 24.5 29.0
------- --------
TOTAL EQUITY 189.1 168.7
======= ========
Approved by the Board of Directors on 6 March 2018
A Hernandez
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2017
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
========= ========= ========== ============= =======
Share Foreign
Share Premium Retained Exchange
Capital Account Earnings Differences Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 0.8 99.2 39.7 29.0 168.7
Profit for the
period - - 28.5 - 28.5
Other comprehensive
income - - - (4.5) (4.5)
--------- --------- ---------- ------------- -------
Total comprehensive
income - - 28.5 (4.5) 24.0
Deferred income
taxation on share
based payments*
(Note 5) - - (0.2) - (0.2)
Arising on share
issues* - 1.5 - - 1.5
Dividend paid* - - (5.1) - (5.1)
Share based payments* - - 0.2 - 0.2
--------- --------- ---------- ------------- -------
At 31 December
2017 0.8 100.7 63.1 24.5 189.1
========= ========= ========== ============= =======
* 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 2017
Notes 2017 2016
GBPm GBPm
PROFIT / (LOSS) FOR THE YEAR 28.5 (18.1)
Tax expense 1.4 2.3
------- -------
PROFIT / (LOSS) BEFORE TAX 29.9 (15.8)
Depreciation of property,
plant and equipment 4 2.9 3.5
Amortisation of intangible
assets 4 4.0 5.2
(Profit) / loss on disposal
of discontinued operations 3 (20.6) 21.0
Share based payments 0.2 0.9
Increase in trade and other
receivables (1.7) (11.8)
(Decrease) / increase in trade
and other payables (11.4) 17.4
Foreign exchange loss / (gain) 0.2 (1.8)
Income tax paid (2.9) (6.5)
------- -------
CASH GENERATED FROM OPERATIONS 0.6 12.1
Cash generated from continuing
operations before exceptional
cost 11.3 27.5
Cash absorbed by discontinued
operations (3.7) (4.4)
Cash outflow from exceptional
items (7.0) (11.0)
------- -------
Cash generated from operations 0.6 12.1
--------------------------------- ------ ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments to acquire property,
plant & equipment (6.3) (2.3)
Payments to acquire intangible
assets (9.6) -
Receipts/(payments) on disposal
of discontinued operations 3 22.2 (1.6)
------- -------
NET CASH FLOWS FROM INVESTING
ACTIVITIES 6.3 (3.9)
CASH FLOWS FROM FINANCING
ACTIVITIES
Net proceeds from issue of
ordinary share capital 1.2 0.7
Repayment of borrowings - (4.8)
Dividends paid (5.1) (2.5)
Interest paid - (0.1)
NET CASH FLOWS FROM FINANCING
ACTIVITIES (3.9) (6.7)
INCREASE IN CASH AND CASH
EQUIVALENTS 3.0 1.5
======= =======
MOVEMENT IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents
at the start of year 21.3 17.2
Increase in cash and cash
equivalents 3.0 1.5
Effect of exchange rates on
cash and cash equivalents (1.6) 2.6
------- -------
CASH AND CASH EQUIVALENTS
AT OF YEAR 9 22.7 21.3
------- -------
Notes to the accounts
for the year ended 31 December 2017
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 2017 or 2016. Statutory consolidated financial statements
for the Group for the year ended 31 December 2016, prepared in
accordance with adopted IFRS, have been delivered to the Registrar
of Companies and those for 2017 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 2017
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 2016. 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 2017, 2018 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 Technologies 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, the Group's Chief Executive
Officer, 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
exceptionals.
Year ended 31 December 2017
Segment
Total Adjusted
Revenue Depreciation PBTA
GBPm GBPm GBPm
Language Services 184.5 1.7 9.5
Language Technologies 48.6 0.7 4.9
Global Content Technologies 52.6 0.5 7.6
Non-Core Businesses 2.0 - (3.0)
--------- ------------- ----------
Total 287.7 2.9 19.0
--------- -------------
Profit on disposal 20.6
Amortisation and exceptional
items (9.7)
----------
Profit before taxation 29.9
==========
Year ended 31 December 2016
Segment
Total Adjusted
Revenue Depreciation PBTA
GBPm GBPm GBPm
Language Services 165.3 2.0 18.8
Language Technologies 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 and exceptional
items (18.3)
----------
Loss before taxation (15.8)
==========
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
continue to be disclosed as discontinued operations in this year's
financial statements and prior periods show the results of
discontinued operation separately from continuing operations.
The Group completed the sale of its Fredhopper and Social
Intelligence businesses during the period
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 at 31 December
2016. As the disposal of the group's discontinued transaction
completed, there was 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.
The sale of the Fredhopper business resulted in a gain on
disposal of GBP21.3m and the sale of the Social Intelligence
business resulted in a GBP0.7m loss on disposal in the period.
Cash Flows generated from / (used in) discontinued
operations
2017 2016
Profit / (Loss) for the year 14.7 (26.4)
Tax charge / (credit) 0.2 (0.4)
------- -------
Profit / (Loss) before tax 14.9 (26.8)
(Profit) / Loss on disposal
of discontinued operations (20.6) 21.0
Movements in working capital 2.0 1.4
------- -------
Net cash from operating activities (3.7) (4.4)
Net cash from / (used in)
investing activities 22.2 (1.6)
Net cash flows for the period 18.5 (6.0)
------- -------
Net cash used in investing activities includes the cash impact
of the sale of businesses as set out below.
Effect of disposal on the financial position of the group
2017
Intangible assets 3.8
Trade and other receivables 2.7
Deferred income and other
payables (4.9)
------
Net assets 1.6
Net cash inflow 22.2
------
Profit on disposal of discontinued
operations 20.6
------
4 OTHER REVENUE AND EXPENSES
Group operating profit is stated after charging/
(crediting):
2017 2016
GBPm GBPm
Included in administrative expenses:
Research and development expenditure 26.4 25.9
Bad debt charge 0.2 0.2
Depreciation of property, plant
and equipment - owned assets 2.9 3.5
Amortisation of intangible assets 4.0 5.2
Operating lease rentals for
plant and machinery 0.1 0.2
Operating lease rentals for
land and buildings 6.9 7.0
Net foreign exchange losses
/(gains) 0.5 (1.8)
Share based payment charge 0.2 1.5
===== ======
The net foreign exchange losses/(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 costs
Management continually review research and development
expenditure to assess whether any costs meet the criteria for
capitalisation. In addition to the amounts charged to the income
statement shown above, the Group has capitalised GBP2.5m of
research and development costs in the year.
The Group has invested significantly in its development
processes and governance during the year. The Group now operates
the SAFe methodology (an industry standard approach developed by
Computer Associates) across its development streams and, as a
consequence, development work is now carried out on an agile basis.
The strengthening of these processes and governance means that the
Group is now able to demonstrate technical and commercial
feasibility of certain development activities at an earlier stage
of the development cycle and consequently meets the criteria for
capitalisation under IAS 38.
Exceptional Items
2017 2016
GBPm GBPm
Continuing operations
Redundancy and other staff costs 2.1 4.2
Strategy development - 2.8
Relaunch of SDL - 2.1
Other exceptional items 0.9 1.7
----- -----
3.0 10.8
Discontinued operations
Redundancy and other staff costs 0.8 2.3
Other exceptional items 1.9 -
2.7 2.3
5.7 13.1
===== =====
2017
As a consequence of the disappointing financial results during
2017, the Group has commenced a significant restructuring programme
to reduce costs. The programme will be completed in 2018 and
redundancy costs associated with this programme amounted to GBP2.1m
in 2017. Normal trading redundancy costs are charged to the income
statement as incurred.
Other exceptional costs of GBP0.9m primarily relate to dual
running costs associated with relocation of the Group's two
principal UK offices. Costs associated with normal property
relocations are charged to the income statement as incurred.
Discontinued exceptional items relate to redundancy costs
associated with employees that did not transfer with the Non-Core
businesses (GBP0.8m) and professional fees and onerous lease
charges associated with the disposals of the Non-Core businesses
(GBP1.9m).
These costs, excluding the finalisation of the redundancy
programme set out above in 2018, are not expected to recur and have
been separately disclosed in the income statement to provide a
better guide to underlying business performance.
2016
The Group underwent a very significant reorganisation in 2015/6
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 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 exceptional tax
charges over the past two years.
In 2016, the Group incurred GBP13.1m of exceptional costs. These
exceptional costs comprised:
-- Redundancy and retention costs due to the reorganisation of the Group in 2016 (GBP6.5m)
-- Professional fees and related charges associated with the strategy development (GBP2.8 m)
-- Cost 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
(GBP2.1m); and
-- Other exceptional costs includes provision for indirect tax
liabilities and corporate consolidation exercises (GBP1.7m).
These significant exceptional costs incurred in 2016 were not
expected to recur and therefore were separately disclosed in the
income statement to provide a better guide to underlying business
performance.
5 INCOME TAX
(a) Income tax on profit:
Consolidated income statement
2017 2016
GBPm GBPm
Current taxation
UK Income tax charge
Current tax on income for the
period - 0.8
Adjustments in respect of prior
periods - (0.4)
- 0.4
====== ======
Foreign tax
Current tax on income for the
period 5.6 5.3
US transition tax 2.8 -
Adjustments in respect of prior
periods (0.2) 0.6
------ ------
8.2 5.9
------ ------
Total current taxation 8.2 6.3
====== ======
Deferred income taxation
Origination and reversal of
temporary differences (6.8) (4.0)
Total deferred income tax (6.8) (4.0)
====== ======
Tax expense 1.4 2.3
====== ======
An exceptional credit of GBP4.6m has been recognised in 2017.
This credit has arisen from the recognition of previously
unrecognised tax losses of GBP10.1m and tax credits associated with
exceptional items charged to operating profit of GBP0.6m offset by
a GBP2.8m transition tax charge arising from the US tax reform
enacted in December 2017 and a GBP3.3m charge associated with the
reduction in the value of the Group's US deferred tax asset
following the reduction of the US federal tax rate from 35% to 21%.
The recognition of previously unrecognized tax losses in the year
has been driven by the completion of s382 tax loss analyses in the
US which have confirmed the availability of historic losses.
Consolidated statement of other comprehensive income
2017 2016
GBPm GBPm
Current taxation
UK Income tax charge
Income tax (credit) / charge
on currency translation differences
on foreign currency quasi equity
loans to foreign subsidiaries (1.3) 0.2
------ ------
Total current taxation (1.3) 0.2
====== ======
A tax debit in respect of share based compensation for deferred
taxation of GBP0.2m (2016: GBP0.2m credit) has been recognised in
the statement of changes in equity in the year.
6 DIVIDS
2017 2016
GBPm GBPm
Amounts recognised as distributions
to equity holders in the year:
Final dividend for the year
ended 31 December 2016 was 6.2
pence per share. (Year ended
31 December 2015: 6.2 pence
per share) 5.1 2.5
===== =====
A final dividend for the year ended 31 December 2017 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 profit after tax of GBP28.5m (2016: loss of GBP18.1m) and
81,947,503 (2016: 81,373,409) 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 2017, the diluted ordinary shares were based on
81,947,503 ordinary shares and 193,091 additional potential
ordinary.
The following reflects the income and share data used in the
calculation of adjusted earnings per share computations before
exceptional costs:
Continuing Discontinued 2017 Continuing Discontinued 2016
GBPm GBPm GBPm GBPm GBPm GBPm
Profit /
(Loss) for
the year 13.8 14.7 28.5 8.3 (26.4) (18.1)
Profit /
(Loss) on
disposal
of Non-Core
business - (20.6) (20.6) - 21.0 21.0
Exceptional
items charged
within operating
profit 3.0 2.7 5.7 10.8 2.3 13.1
Amortisation
of intangible
fixed assets 4.0 - 4.0 5.2 - 5.2
Less: tax
benefit associated
with the
amortisation
of intangible
fixed assets. (0.8) - (0.8) (1.0) - (1.0)
Less: Exceptional
tax credit
(see Note
5) (4.6) - (4.6) (1.6) (0.3) (1.9)
Adjusted
profit for
the year 15.4 (3.2) 12.2 21.7 (3.4) 18.3
=========== ============= ======= =========== ============= =======
Adjusted earnings per share is shown as the Directors believe
that earnings before amortisation, exceptional costs and associated
tax benefits is reflective of the underlying performance of the
business.
2017 2016
No. No.
Weighted average number of ordinary
shares for basic earnings per
share 81,947,503 81,373,409
Effect of dilution resulting
from share options 193,091 788,748
----------- -----------
Weighted average number of ordinary
shares adjusted for the effect
of dilution 82,140,594 82,162,157
=========== ===========
Continuing Discontinued 2017 Continuing Discontinued 2016
Adjusted earnings
per ordinary
share - basic
(pence) 18.9 (4.0) 14.9 26.6 (4.2) 22.4
Adjusted earnings
per ordinary
share - diluted
(pence) 18.8 (3.9) 14.9 26.3 (4.1) 22.2
=========== ============= ===== =========== ============= =====
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 Capitalised Software
Relationships Property Goodwill R&D Development Total
GBPm GBPm GBPm GBPm GBPm GBPm
Cost:
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 1 January
2017 18.6 60.6 212.6 - - 291.8
Additions - - - 2.5 7.1 9.6
Disposal of
Non-Core business (1.4) - - - - (1.4)
Currency adjustment (0.6) (1.4) (4.6) - - (6.6)
--------------- ------------- --------- ------------ ------------- --------
At 31 December
2017 16.6 59.2 208.0 2.5 7.1 293.4
=============== ============= ========= ============ ============= ========
Amortisation
and impairment
At 1 January
2016 (16.3) (50.1) (65.9) - - (132.3)
Provided during
the year (1.1) (4.1) - - - (5.2)
Disposal of
Non-Core business 2.1 4.2 - - - 6.3
Currency adjustment (2.0) (6.7) - - - (8.7)
At 1 January
2017 (17.3) (56.7) (65.9) - - (139.9)
Provided during
the year (0.9) (3.1) - - - (4.0)
Disposal of
Non-Core business 1.4 - - - - 1.4
Currency adjustment 0.6 1.4 - - - 2.0
--------------- ------------- --------- ------------ ------------- --------
At 31 December
2017 (16.2) (58.4) (65.9) - - (140.5)
=============== ============= ========= ============ ============= ========
Net book value:
At 31 December
2017 0.4 0.8 142.1 2.5 7.1 152.9
===============
At 1 January
2017 1.3 3.9 146.7 - - 151.9
=============== ============= ========= ============ ============= ========
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.
Management continually review research and development
expenditure to assess whether any costs meet the criteria for
capitalisation. The Group has capitalised GBP2.5m of research and
development costs in the year.
The Group has invested significantly in its development
processes and governance during the year. The Group now operates
the SAFe methodology (an industry standard approach developed by
Computer Associates) across its development streams and, as a
consequence, development work is now carried out on an agile basis.
The strengthening of these processes and governance means that the
Group is now able to demonstrate technical and commercial
feasibility of certain development activities at an earlier stage
of the development cycle and consequently meets the criteria for
capitalisation under IAS 38.
9 ADDITIONAL CASH FLOW INFORMATION
Analysis of Group net debt:
1 January Exchange 31 December
2017 Cash flow differences 2017
GBPm GBPm GBPm GBPm
Cash and cash equivalents 21.3 3.0 (1.6) 22.7
---------- ---------- ------------- ------------
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
========== ========== ============= ============
* - Loans and overdrafts are stated gross i.e. before the impact
of a GBP0.2m arrangement fee prepayment
10 EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
There are no 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 JFMTTMBTMMIP
(END) Dow Jones Newswires
March 06, 2018 02:01 ET (07:01 GMT)
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