TIDMSDL
RNS Number : 8521W
SDL PLC
06 August 2018
6 August 2018
SDL plc
Half Year results for the six months ended 30 June 2018
Delivering our transformation
Unaudited Results 2018 2017 (restated1)
Six months to 30 June
Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm
Revenue 143.1 139.2 2.0 141.2
Adjusted EBITA2 12.0 8.3 (3.1) 5.2
Profit before tax 7.8 6.0 14.9 20.9
Basic earnings per share 6.8p 4.8p 18.1p 22.9p
Adjusted diluted earnings
per share3 10.8p 7.0p (3.8p) 3.2p
Net cash 22.5 26.1
Free cash flow4 10.5 (1.5)
Free cash flow conversion5 78% (16)%
Financial highlights from Continuing Operations
-- Revenue up 2.8% to GBP143.1m (H1 17: GBP139.2m), constant currency revenue growth6 of 6.0%
-- Group Gross profit margin improved to 52.9% (H1 17: 50.5%)
-- Adjusted EBITA grew 45% to GBP12.0m (H1 17: GBP8.3m),
inclusive of GBP2.8m (net) capitalised research and development
expenditure (H1 17: GBPnil)
-- Profit before tax increased 30% to GBP7.8m (H1 17: GBP6.0m)
-- Basic earnings per ordinary share up 42% to 6.8p (H1 17: 4.8p)
-- Adjusted diluted earnings per share grew 54% to 10.8p (H1 17: 7.0p)
Operational highlights
-- Good progress against our transformation plan and stated strategic objectives
-- Sharpened focus on higher value premium services content has
positioned the Group for H2 growth
-- Helix programme showing ongoing momentum and delivering
benefits - on track with business case
-- Investment in new products delivering largest ever pre-sales
orders for our updated product - Studio 2019 launched last
month
Subsequent events
-- The Group completed the acquisition of Donnelley Language
Services for $77.5m on 22 July 2018. This acquisition gives SDL
greater exposure to the premium growth verticals and creates
significant opportunity for revenue and cost efficiencies. The
acquisition is expected to be earnings accretive in 2019
Adolfo Hernandez, SDL Chief Executive, said:
"I am pleased to report that SDL has had a good start to the
year. Importantly, we have been able to balance underlying
operational progress, on-boarding customers onto our Helix
platform, the evolution of our go-to-market strategy and investment
in innovation with good financial results showing revenue growth,
gross margin expansion and cost discipline. I expect these
initiatives to continue to bear fruit in the second half of 2018
and beyond. Furthermore, the acquisition of Donnelley Language
Solutions accelerates parts of our premium services strategy and
provides the opportunity to apply the same operational improvement
initiatives to the acquired business over time. The outlook for the
full year is in line with management expectations."
For further information please contact:
SDL plc 01628 410100
Adolfo Hernandez, CEO
Xenia Walters, CFO
FTI Consulting LLP 0203 727 1000
Edward Bridges
Darius Alexander
Kwaku Aning
About SDL PLC
SDL (LSE: SDL) is the global leader in content creation,
translation and delivery. For over 25 years we've helped companies
communicate with confidence and deliver transformative business
results by enabling powerful experiences that engage customers
across multiple touchpoints worldwide. Are you in the know? Find
out why 85 of the top 100 global companies work with and trust us
on SDL.com. Follow us on Twitter, LinkedIn and Facebook.
1 Prior year numbers have been restated to reflect the adoption
of IFRS 15: Revenue from Contracts with Customers. Further details
are provided in Note 11.
2 Adjusted EBITA: Operating profit from Continuing Operations
(H1 18: GBP7.8m, H1 17: GBP6.0m) before acquisition related
amortisation (H1 18: GBP0.5m, H1 17: GBP2.3m) and Exceptional items
(H1 18: GBP3.7m, H1 17: GBPnil)
3 Adjusted earnings: Profit after tax before the impact of
exceptional items, acquisition related amortisation and profit on
disposal of discontinued businesses
4 Free cash flow: Cash generated from operations after interest
and tax costs, maintenance capital expenditure and capitalised
Research and Development expenditure.
5 Free cash flow conversion: Free cash flow generated from /
(used by) the business expressed as a % of adjusted EBITDA from
Continuing Operations.
6 Constant currency revenue growth: Calculated by applying 2018
monthly exchange rates to the 2017 monthly results. Average rates
for the Group's two principal foreign currencies (USD and EUR) are
set out in the CFO review.
Segmental, operational and financial performance
Segmental performance
--------------------------------------------------------------------------------------------------------
Language Services Language Technologies Global Content Technologies
------------- ---------------------------- -------------------------- -------------------------------
H1 18 H1 17 change H1 18 H1 17 change H1 18 H1 17 change
------------- -------- -------- -------- -------- -------- ------ --------- --------- ---------
Revenues GBP91.8m GBP89.5m 2.6% GBP24.0m GBP22.5m 6.6% GBP27.3m GBP27.2m 0.4%
------------- -------- -------- -------- -------- -------- ------ --------- --------- ---------
Gross Profit
Margin 41.8% 38.4% 3.4% 77.1% 79.1% (2.0)% 68.9% 66.6% 2.3%
------------- -------- -------- -------- -------- -------- ------ --------- --------- ---------
EBITA GBP9.9m GBP9.5m 4.2% GBP3.7m GBP2.6m 42.3% GBP7.5m GBP4.2m 78.6%
------------- -------- -------- -------- -------- -------- ------ --------- --------- ---------
Corporate costs of GBP9.1m (H1 17: GBP8.0m)
Strategic, operational and financial H1 18 H1 17
KPIs
Continuing Operations - constant currency
revenue growth 6.0% 4.9%
---------- ---------
Technology Annual Recurring Contract GBP64.4m GBP62.7m
Value (ARCV) - Term licences included
(pre IFRS15)
---------- ---------
Technology Annual Recurring Revenue (ARR) GBP58.8m GBP58.7m
-
Term licences excluded (post IFRS15)
---------- ---------
Language Services Repeat Revenue Rate
(RRR) 94% 93%
---------- ---------
Premium Services revenue GBP18.6m GBP20.1m
---------- ---------
Number of Upsell and Cross-Sell deals 88 99
---------- ---------
Machine Translation, Marketing Solutions
and Life Science Wins 34 21
---------- ---------
Linguistic utilisation (H1 average) 54.3% 51.2%
---------- ---------
Linguistic utilisation (June exit rate) 55.7% 51.6%
---------- ---------
The definitions of strategic and operational KPIs are set out in
the Appendix.
Chairman's Statement
The first half of 2018 has been a period of steady progress. I
feel that the impact of the changes we have been making over the
last two years are finally beginning to show through in our
results, particularly in the latter weeks of the first half, when
we have seen a more efficient and operationally robust organisation
beginning to deliver.
The extent of the changes Adolfo Hernandez and his team have
undertaken should not be underestimated. Embedding these into our
day-to-day operations, across 4,000 plus colleagues, in 39
countries, has taken time to feed through into our results.
The changes we have been making have created more opportunities
to increase our delivery efficiency and, in time, improve our
operating margins. Xenia Walters, our new CFO, is playing the key
leadership role in driving these initiatives forward.
After the period end, we were very pleased to complete the
acquisition of Donnelley Language Solutions. We believe that the
acquisition will help us accelerate the delivery of our strategy
particularly in the area of premium vertical market solutions. More
specifically, Donnelley Language Solutions has advanced skills and
experience in serving the needs of customers operating in highly
regulated industries. We are delighted to welcome our new
colleagues to SDL.
We enter the second half of the year with our market opportunity
remaining as attractive as ever. Whilst there is still much work
still to be done, we feel that our plans are beginning to deliver
their expected results. We expect a further period of solid
progress in the second half of the year.
David Clayton
Chairman
CEO Review
Financial Summary
After two years of root and branch transformation, I am pleased
to report that SDL has delivered a stabilised performance in the
first half of the year, as a result of the improved processes, the
talent recruited and management capabilities put in place across
the business in 2017. Group revenues grew 3% (6% at constant
currency) and adjusted EBITA increased to GBP12.0m. Language
Services revenues grew 3% (6% at constant currency) and its gross
profit margin improved to 42% (H1 17: 38%). Technology revenues
grew 3% (6% at constant currency), with the majority of slipped
deals by value from Q4 2017 signed in the first half, and ahead of
a number of product launches in the second half of 2018.
Cash generation improved significantly. Cash generated from
continuing operations (before exceptional items) was GBP16.2m (H1
17: GBP1.6m) and, after the payment of the full year dividend,
restructuring costs and capital expenditure, SDL's cash balance as
at 30 June 2018 was GBP22.5m.
In July 2018, SDL announced the acquisition of Donnelley
Language Solutions for a cash consideration of $77.5m, on a
cash-free, debt-free basis. The acquisition has been funded through
a mix of cash balances, new debt facilities and new equity of
GBP36.2m. The acquisition is expected to be earnings enhancing in
2019.
At the time of the acquisition, we also announced a further cost
transformation project that we are undertaking to bring SG&A
costs, which were 36.8% of revenue in H1 17 and 38.2% in H1 18,
more closely into line with industry benchmarks.
Customer update
Our focus on key account management is bearing fruit, delivering
good growth amongst our top 20 clients (12% at reported rates). The
last Net Promoter Score survey reported an increase from 20% to
25%. The Language Service team in North America delivered a record
sales result and in EMEA, we saw solid repeat business, underpinned
by innovative MT Post-Editing services for a large online travel
customer. In Asia, we have delivered positive margin improvements
through automation and improved account management and we have a
good pipeline for the second half, particularly relating to
Marketing Solutions activities.
In the Life Sciences vertical, we are ramping up several
customers which we expect to accelerate services revenue in the
second half and we won a number of software deals with
pharmaceutical companies for both language technology and
structured content technology.
We also continue to build our software partner strategy, which
we hope will become a major lever of growth in the long term. Over
half of the software deals in the first half were
partner-influenced. We were pleased to add Nuance (speech
recognition) and Veeva (Life Sciences) as strategic partners in the
first half.
Overall, our second half pipeline is healthy and in line with
our plan.
We are excited to be joined by the Donnelley Language Solutions
team in the second half. DLS brings a customer team of
approximately 100 staff, with specialist skills in premium markets.
They will continue to operate under their current structure for the
remainder of the year. However, we are already working together to
identify and incentivise cross and upselling opportunities where
appropriate. We are very positive about the growth opportunities
for the enlarged business.
Strategy and operating update
In the Half year, SDL has continued to make good progress on the
four pillars of its strategy, which are: Language Services
automation, premium solutions, technology innovation and
organisational modernisation. The aims of this strategy are to
provide leadership in global content solutions and to do this on a
more agile, modernised operating model that will enable SDL to
scale effectively and drive towards its medium term Group operating
margin targets of mid to high teens.
Language Services Automation
-- Helix On Track with much improved Business Intelligence
The Helix programme continues to make good progress. A
significant proportion of our client work flows through this and is
already making a positive impact on how we execute. A key change
that Helix is enabling is more efficient "follow-the-sun"
workflows, enabling greater continuous localisation. It has also
significantly enhanced the vendor on-boarding processes through our
Workzone portal.
Additionally, the data we are generating from Helix is now being
used to train custom Machine Learning engines to route work
automatically and intelligently to the most appropriate resources.
This will address one of the industry's greatest challenges:
creating the immediate localisation capacity to meet clients' often
complex and immediate needs.
SDL made excellent progress through the first half to build out
the Business Intelligence strategy initiated in 2017. The aim of
this strategy is to provide accurate, up to date, detailed and
actionable information in our Language Services business that we
can use internally and share with customers.
-- Returns on Investment
SDL has invested a total of GBP8.0m capital expenditure in Helix
since the end of 2016, including GBP2.1m in H1 18, with a further
GBP2m anticipated in H2 18. The Helix business case is predicated
on increasing 'linguistic utilisation', defined as the percentage
of working hours spent on billable translation work rather than
administration and other activities, and reducing project
management costs. In July 2018, 9m words a week were being
processed through Helix. These savings will be primarily recognised
in the Language Services gross margin and, as previously disclosed,
SDL's target remains to drive exit-rate gross margins to over 45%
for SDL by the end of 2018 (FY 17: 40.2%), excluding Donnelley
Language Solutions.
Premium Services and Solutions
Premium services are focused on higher value content, which is
typically found in regulated industries or marketing organisations.
For reporting simplicity, SDL currently classifies its Premium
Services as those services revenues generated from Life Sciences
and Marketing Solutions. In H1 18, Premium Services revenues
contracted slightly to GBP18.6m (H1 17: GBP20.1m), which reflects
the timing of certain programmes of two significant customers which
started later in the period.
Premium Services often come with associated complex workflows
that are particular to a customer or industry. SDL is increasingly
leveraging its language and content technology portfolio to
automate and manage such workflows. An example of this is SDL's
Multilingual Submission Management ("MSM") platform, which is based
on our collaboration platform SDL GroupShare. MSM enables the
global automation of marketing authorisation applications to
regulatory authorities in over 100 languages and markets. SDL aims
to create more solutions that will move SDL up the value chain and
offer the opportunity for sustainable differentiation and deeper
client relationships.
As part of this strategy, in July 2018, SDL was delighted to
announce the acquisition of Donnelley Language Solutions, a
specialist language services business, focused on regulated
industries. This acquisition bolsters SDL's service revenues in
Financial Services and Life Sciences, which together accounted for
approximately 70% of Donnelley Language Solutions' 2017 revenues.
Donnelley Language Solutions brings a blue chip customer base and
many years' experience of offering services tailored to these
demanding markets. From the second half onwards, SDL will also
report Financial Service revenues as part of Premium Service
revenues.
Technology Innovation
-- Language Technologies
SDL continues to drive innovation across its portfolio of
market-leading language technologies, from client-side translation
management software to the tools and platforms used by translators
and project managers and to Neural Machine Translation. We continue
to add new capabilities and features but also to invest in next
generation, cloud-first architectures.
Translation Productivity delivered a stable performance in the
first half of the year, ahead of the release of Studio 2019 in July
2018. Our collaboration solution, SDL GroupShare, grew strongly and
the pre-launch of Studio 2019 has been the most successful to date
of the world's most popular Computer Aided Translation
software.
During the first half of this year, SDL Language Technology
continued to make good progress on its key themes of integration,
convergence, customer satisfaction, security and user experience
across all areas of the product portfolio. The strategy of
developing features on SDL's Language Cloud platform and surfacing
those features in the current products continued to bear fruit. SDL
Language Technology also focused on ensuring our products were
integrated with SDL's internal systems to help optimise day-to-day
operations and project management efficiency as well as ensuring we
have technology that supports SDL's premium vertical solutions.
The second half of the year will see continued focus on this
strategy of sourcing development on SDL's Language Cloud platform
as it means the existing products can benefit from SDL's latest
technology R&D while, at the same time, ensuring the products
converge to a unified way of working.
Machine Translation is used as a productivity tool by SDL's
translators and is sold to enterprises and governments around the
world. We made good progress on our Neural Machine Translation
(NMT) development in the first half, with 63 NMT language pairs now
released. We also released SDL NMT 2.0 platform, which unlocked an
extra 25% quality improvement and we showcased Russian to English
NMT, where our technology showed the best quality in the market.
Japanese, Chinese, Korean and Arabic are also showing promising
results, languages which have historically been both difficult for
MT and high growth areas.
-- Global Content Technologies
SDL's Global Content Technologies portfolio is focused on the
complex content management needs of enterprises and institutions,
in the context of rising digital content volumes, regulation and
the demands of consumers for a consistent digital experience.
The first half saw growing momentum for our DITA-based
structured content solution, SDL Tridion Docs, as a growing range
of business types attempt to solve the complexity of creating,
managing and distributing in-depth product content and technical
documentation at scale.
In the second half, SDL will be releasing a next version of SDL
Tridion DX (Digital Experience), which combines SDL Tridion Sites 9
and SDL Tridion Docs. SDL Tridion DX enables organisations to build
'continuity of experiences' across its digital and organisational
silos, solving the fragmentation that is seen today, for example,
between marketing material and customer support pages.
-- Application of Machine Learning
To date, SDL's application of Machine Learning has focused on
the complex task of translation. However, with the advent of neural
machine learning, we are now able to apply the technology to a
range of 'Linguistic AI' use-cases that have the potential to
accelerate content-related processes and workflows. Some of these,
such as document content analysis and smart-routing, will have
application within SDL's automation programme; others will be used
to enhance SDL's language and content technology offerings. We look
forward to sharing more information on these developments in the
coming months.
Continued focus on driving modernisation and operational
efficiencies
Having recently announced how overheads are applied across our
business segments in a more relevant and meaningful way, a project
is now underway, in partnership with PwC, to review our overhead
performance. We believe that there are savings to be made and over
the coming months we will be working with them on a benchmarking
exercise to ensure that our overheads are more closely aligned with
peers and the needs of the business.
Acquisition of Donnelley Language Solutions
The acquisition of Donnelley Language Solutions completed on 22
July and so had no effect on SDL's financial performance in the
first half.
Both businesses have much to share and to learn from each other.
Over time, we believe that the acquired business will also be able
to benefit from elements of SDL's operating model, such as the use
of in-house translators, Machine Translation and Helix, to drive
its services gross margin towards levels delivered by SDL's premium
services.
We are delighted to be joined by the former Donnelley Language
Solutions team at this exciting time in SDL's journey and
integration work has already started with a focus on customers and
employees on-boarding and back-office integration.
Outlook
We look forward to the second half of the year, as we drive the
financial benefits of the Helix automation programme and a number
of new products releases. We expect the outturn for the full year
to be in line with management expectations. We expect the
acquisition of Donnelley Language Solutions to be earnings
accretive from next year.
Adolfo Hernandez
Chief Executive Officer
CFO Review
We delivered a successful first half performance growing
revenue, margin and profit and making good progress towards the
goals we set for the 2018 financial year.
Measuring our Financial Performance
In addition to the operational KPIs detailed above (page 3 in
this document), the Board also monitors financial KPIs from
Continuing Operations being Revenue, Adjusted EBITA and Free Cash
Flow. Specifically, these KPIs exclude the impact of exceptional
items, acquisition-related amortisation and profits or losses
relating to the discontinued 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.
Income Statement
H1 18 H1 17
Language Services 91.8 89.5
========= =========
Language Technologies 24.0 22.5
========= =========
Global Content Technologies 27.3 27.2
========= =========
Revenues from Continuing Operations 143.1 139.2
========= =========
Revenues from Discontinued Operations - 2.0
========= =========
Group revenues 143.1 141.2
========= =========
Gross profit from Continuing Operations 75.7 70.3
========= =========
Gross profit margin from Continuing
Operations (%) 52.9% 50.5%
========= =========
Administrative expenses excluding acquisition
amortisation and exceptional items
from Continuing Operations (63.7) (62.0)
========= =========
Segmented Adjusted EBITA
========= =========
Language Services 9.9 9.5
========= =========
Language Technologies 3.7 2.6
========= =========
Global Content Technologies 7.5 4.2
========= =========
Corporate costs (9.1) (8.0)
========= =========
Adjusted EBITA from Continuing Operations 12.0 8.3
========= =========
Adjusted EBITA margin from Continuing
Operations (%) 8.4% 6.0%
========= =========
Exceptional items (3.7) (2.6)
========= =========
Adjusted EBITA from Discontinued Operations - (3.1)
========= =========
Group EBITA 8.3 2.6
========= =========
Amortisation of acquired intangibles (0.5) (2.3)
========= =========
Profit on disposal of Discontinued
Operations - 20.6
========= =========
Profit before taxation 7.8 20.9
========= =========
Taxation charge (2.2) (2.2)
========= =========
Profit after taxation 5.6 18.7
========= =========
Overview
Revenue from Continuing Operations increased 2.8% to GBP143.1m
(H1 17: GBP139.2m), with constant currency revenue growth of 6.0%.
Adjusted EBITA from Continuing Operations improved 44.6% to
GBP12.0m (H1 17: GBP8.3m) and Profit before Taxation increased to
GBP7.8m (H1 17: GBP6.0m).
Revenue
Revenue from Continuing Operations of GBP143.1m was driven by a
2.6% increase in Language Service revenues, a 6.6% increase in
Language Technology revenues and a 0.4% increase in Global Content
Technology revenues. Group revenues showed constant currency growth
of 6.0%, and Language Services, Language Technology and Global
Content Technology showed constant currency growth of 5.9%, 7.7%
and 5.1% respectively. Our Annual Recurring Contract Value (ARCV)
for our technology businesses grew 2.7% to GBP64.4m. (H1 17:
GBP62.7m). Our ARR, which excludes the licence element of term
licences following the adoption of IFRS15, was GBP58.8m (H1 17:
GBP58.7m).
The Group continues to benefit from a broad customer base and no
single customer contributes more than 7% of group revenue. Our top
10 customers accounted for 24% of H1 18 group revenue.
Gross Profit Margin
Gross profit margin from Continuing Operations grew 2.4% to
52.9% (H1 17: 50.5%) driven by improved margins in Language
Services and Global Content Technology offset by reduced margin in
Language Technology.
Performance by Segment
Language Services
Language Services contributed 64% of first half revenues at
GBP91.8m (H1 17: GBP89.5m). This represented a 2.6% year-on-year
increase, with constant currency growth of 5.9%. RRR was at 94% (H1
17: 93%).
Revenues from premium verticals of GBP18.6m were marginally down
due the timing of certain programmes of two significant customers
which started later in the period.
Language Services gross profit margin increased to 41.8% (H1 17:
38.4%) driven by the optimization of processes, increased use of
machine translation and an increased proportion of work being
performed in house.
Segment Adjusted EBITA margin improved to 10.8% (H1 17: 10.6%).
Gross margin has increased to 41.8% (H1 17: 38.4%) due to
efficiency improvements being realised in our delivery model which
includes increased use of machine translation (H1 18: 33.8%, H1 17:
15.2%), greater control of external freelancer spend and the
benefits of Helix starting to materialise. Helix and process
improvements have helped linguistic utilisation improve to 55.7% by
the end of June 2018 (June 2017: 51.6%).
Further margin expansion is expected in the second half as
process changes become fully embedded and more words are processed
through the Helix platform.
Investment in Helix will continue in 2018 and the expectation is
that this will deliver further productivity improvements and
greater margins in the second half and beyond.
Language Technologies
Language Technologies revenues of GBP24.0m contributed 17% of H1
18 revenues (H1 17: GBP22.5m). This represented a 6.6% year-on-year
increase and constant currency growth of 7.7%. ARCV increased to
GBP26.3m (H1 17: GBP24.6m) and ARR increased to GBP24.0m (H1 17:
GBP23.1m).
Constant currency revenue growth was driven by a 16% increase in
Translation Management revenues and a 13% increase in Machine
Translation revenues. Translation Productivity delivered another
good first half with H1 18 revenue on par with last year; the prior
period revenues benefitting from the Studio 2017 product release in
late 2016. The second half of this year will benefit from the
release of Studio 2019 which has had the largest presale orders of
any Studio release to date.
Language Technologies gross profit margin contracted 2.0% to
77.1% (H1 17: 79.1%) due to the mix of perpetual license and SaaS
sales.
In the six months to 30 June 18, customer renewal rate was 93%
(FY 17: 92%)
Segment Adjusted EBITA increased to GBP3.7m (H1 17: GBP2.6m).
This is primarily driven by an increase in revenues and net
capitalisation of R&D spend of GBP1.0m offset by the slippage
of some perpetual and term deals into the second half of this
year.
Global Content Technologies
Global Content Technologies revenues contributed 19% of H1 18
revenues at GBP27.3m (H1 17: GBP27.2m). This represented a 0.4%
year-on-year increase and constant currency growth of 5.1%. ARCV of
GBP38.1m was in line with last year and ARR fell to GBP34.8m (H1
17: GBP36.0m).
The 5.1% constant currency revenue growth was driven by a 22%
increase in Tridion Docs and a 4% increase in Contenta products.
Tridion Sites revenues were in line with H1 17.
Global Content Technologies gross profit margin increased to
68.9% (H1 17: 66.6%) due to the mix of perpetual license and SaaS
sales.
In the six months to 30 June 18, customer renewal rate was 91%
(FY 17: 89%)
Segment Adjusted EBITA increased to GBP7.5m (H1 17: GBP4.2m).
This was driven by a change in revenue mix to perpetual licenses
and GBP1.8m net capitalisation of R&D spend in H1 18 (H1 17:
Nil)
Administrative Expenses
Administrative Expenses - Continuing H1 18 H1 17
Operations
Administrative expenses 67.9 64.3
====== ======
Amortisation of acquired intangible
assets (0.5) (2.3)
====== ======
Exceptional items (3.7) -
====== ======
Adjusted Administrative expenses 63.7 62.0
====== ======
Adjusted Administrative expenses as
% of revenue 44.5% 44.6%
====== ======
Adjusted administrative expenses as a percentage of revenue were
at similar levels to the prior year.
Selling, general and administration (SG&A) costs amounted to
GBP54.7m (H1 17: GBP51.2m) being 38.2% of revenues (H1 17: 36.8%).
Costs increased in the period due to wage inflation, variable
compensation, higher IT infrastructure costs and Helix amortisation
which were offset in part by savings from the Group restructuring
programme. We have announced a further cost transformation project
that we are undertaking to bring SG&A costs more closely into
line with benchmarks.
R&D costs in the period amounted to GBP12.1m. This included
GBP9.0m (H1 17: GBP10.8m) expensed within administrative costs and
GBP3.1m (H1 17: GBPnil) capitalised as intangible assets on the
balance sheet. The Group has capitalized R&D costs as the
recognition criteria of IAS 38 has been met by the majority of
product line development teams. Development costs of approx. GBP4m
are expected to be capitalised in the second half.
Management continued to exercise strong cost control to
streamline the operating model, whilst maintaining adequate levels
of spend in R&D and sales to ensure that we can execute our
strategy and grow sales over the medium to long term.
Adjusted EBITA
Adjusted EBITA from Continuing operations increased by 45% to
GBP12.0m (H1 17: GBP8.3m). This includes GBP3.1m of R&D
expenditure which has been capitalised in the year offset by
R&D amortization of GBP0.3m. Excluding the impact of R&D
capitalisation in the period, Adjusted EBITA of GBP9.2m grew 10.8%
in the period (H1 17: GBP8.3m).
Corporate costs
Corporate costs of GBP9.1m (H1 17: GBP8.0m) are not segment
specific. These costs have increased due to incremental variable
compensation and segment agnostic IT infrastructure costs.
Exceptional items
Exceptional items amounted to GBP3.7m (H1 17: Continuing
Operations GBPnil, Discontinued Operations GBP2.6m).
Following the financial underperformance in 2017, management
began a restructuring programme to reduce costs in late 2017 and
streamlining operations to deliver a more scalable and efficient
operating model. Redundancy and related costs of GBP2.0m have been
incurred in 2018 relating to this restructuring. Further redundancy
costs, including related legal fees, amounting to GBP0.8m were
incurred with the departure of the former CFO as previously
announced. Other exceptional items relate to professional fees
incurred in relation to the acquisition of Donnelley Language
Solutions.
Exceptional costs have been separately disclosed in the income
statement to provide a better guide to underlying business
performance.
Group Profit Before Tax
Group profit before tax of GBP7.8m (H1 17: GBP20.9m) was lower
than the prior period due to the GBP20.6m profit on sale of the
discontinued businesses in 2017.
Taxation
The tax charge on Continuing Operations amounted to GBP2.2m (H1
17: GBP2.0m) and represents an effective tax rate of 24.7% before
the impact of exceptional items and the impact of acquisition
intangibles (FY 17: 29.7%).
The Group's effective tax rate going forward will be influenced
by the mix of profits generated from the Donnelley Language
Solutions including the availability of goodwill deductions and the
reducing impact of net R&D capitalisation.
Earnings per share
The Group's adjusted diluted earnings per share grew by 54% to
10.8p (H1 17: 7.0p). Basic earnings per share from Continuing
Operations grew by 42% to 6.8p (H1 17: 4.8p).
Cash flow statement
H1 18 H1 17
Adjusted EBITA from Continuing Operations 12.0 8.3
====== ======
Depreciation 1.4 1.5
====== ======
Adjusted EBITDA from Continuing Operations 13.4 9.8
====== ======
Working capital, share based payments and non
acquisition amortisation charges from continued
operations 2.8 (8.2)
====== ======
Adjusted operating cash flow(1) from Continuing
Operations 16.2 1.6
====== ======
Adjusted operating cash flow conversion from
Continuing Operations 121% 16%
====== ======
Maintenance capital expenditure (1.4) (1.9)
====== ======
Capitalised R&D costs (3.1) -
====== ======
Taxation paid (1.2) (1.2)
====== ======
Free cash flow from Continuing Operations 10.5 (1.5)
====== ======
Free cash flow conversion 78% (16)%
====== ======
Exceptional items (2.9) (4.7)
====== ======
Investment capital expenditure (2.4) (3.5)
====== ======
Cash consumed from Discontinued Operations - (3.0)
====== ======
Disposal proceeds - 22.3
====== ======
Dividends paid (5.1) (5.1)
====== ======
Other financing activities 0.2 0.6
====== ======
Net cash flow 0.3 5.1
====== ======
Opening net cash at 1 January 22.7 21.3
====== ======
FX on cash (0.5) (0.3)
====== ======
Closing net cash at 30 June 22.5 26.1
====== ======
(1) Adjusted operating cash flow is cash generated from
Continuing Operations before the cash impact of exceptional items
and income tax paid.
Adjusted operating cash flow from Continuing Operations before
tax was GBP16.2m (H1 17: GBP1.6m) principally due to higher
variable compensation paid out in H1 17.
Capital expenditure of GBP6.9m includes payments for investment
capital expenditure (GBP2.4m), maintenance capital expenditure
(GBP1.4m) and R&D (GBP3.1m). 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 GBP1.4m (H1 17: GBP1.9m) represents 1.0% of
revenues. We expect maintenance capital expenditure in FY18 to be
in line with our target of 1% of revenue.
Investment capital expenditure of GBP2.4m includes GBP2.1m on
our centralised Language Service delivery platform, Helix, which
will allow us to drive scale and efficiency improvements. In
addition, we incurred GBP0.3m on other IT related investment
capex.
Tax paid of GBP1.2m (H1 17: GBP1.2m) primarily relates to tax
paid in our US entities including an on account payment made in
respect of US transition tax liabilities.
The cash impact of exceptional items amounted to GBP2.9m (H1 17:
GBP4.7m). This includes GBP2.8m of severance payments in the
period.
Dividends of GBP5.1m were paid in the period (H1 17: GBP5.1m).
Other financing activities includes proceeds from the sale of own
shares of GBP0.2m (H1 17: GBP0.6m).
Funding and Capital Structure
The Group had cash balances at 30 June of GBP22.5m with no
external borrowings (30 June 2017: GBP26.1m net cash). As a result,
no interest costs were incurred in the period. At 30 June 2018, the
Group had a GBP25m committed revolving credit facility and a GBP25m
uncommitted Accordion facility expiring in August 2020.
On 15 July 2018, the Group entered into a new GBP70m committed
revolving credit facility, expiring in July 2023, which replaced
the Group's previous facility. The agreement includes a GBP50m
uncommitted Accordion facility.
Subsequent events
On 22 July 2018, the Group completed its acquisition of
Donnelley Language Solutions for $77.5m. This business is a growing
and profitable business and the acquisition is expected to be
earnings accretive in 2019.
The Group chose to fund the acquisition through a mix of cash
from corporate resources, an equity placing which raised GBP36.2m
and a debt draw of $25.6m (GBP19.8m).
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 Group's Strategic Report in its 2017 Annual
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 also given in the 2017 Annual Report.
The Board has considered the impact of the recent acquisition of
the Donnelley Language Solutions business. The Board believe that
the Group is well placed to manage its business risks successfully
going forward. 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
Chief Financial Officer
3 August 2018
SDL plc
Condensed Consolidated Income Statement
Unaudited
Unaudited 6 months to 30 June
6 months to 2017
30 June 2018 (restated)
Total Continuing Discontinued Total
Notes GBPm GBPm GBPm GBPm
Sale of goods 20.1 16.8 1.6 18.4
Rendering of services 123.0 122.4 0.4 122.8
-------- ----------- -------------- -------
REVENUE 2 143.1 139.2 2.0 141.2
Cost of sales (67.4) (68.9) (1.9) (70.8)
-------- ----------- -------------- -------
GROSS PROFIT 75.7 70.3 0.1 70.4
Administrative expenses (67.9) (64.3) (5.8) (70.1)
-------- ----------- -------------- -------
OPERATING PROFIT/(LOSS) 3 7.8 6.0 (5.7) 0.3
-------- ----------- -------------- -------
Operating profit
before amortisation
of acquired intangibles
and exceptional
items 12.0 8.3 (3.1) 5.2
Exceptional items 3 (3.7) - (2.6) (2.6)
Amortisation of
acquired intangibles 3 (0.5) (2.3) - (2.3)
OPERATING PROFIT/(LOSS) 7.8 6.0 (5.7) 0.3
------------------------------ ------ -------- ----------- -------------- -------
Profit on disposal
of non-core business - - 20.6 20.6
PROFIT BEFORE TAX 7.8 6.0 14.9 20.9
Tax expense 4 (2.2) (2.0) (0.2) (2.2)
PROFIT FOR THE PERIOD 5.6 4.0 14.7 18.7
-------- ----------- -------------- -------
EARNINGS PER SHARE
Basic 6.8p 4.8p 18.1p 22.9p
-------- ----------- -------------- -------
Diluted 6.7p 4.7p 17.8p 22.5p
-------- ----------- -------------- -------
Adjusted earnings per ordinary share (basic and diluted) are shown
in note 5.
The Group's 2017 comparatives have been restated for the adoption
of IFRS 15 Revenue from Contracts with Customers
SDL plc
Half year Condensed Consolidated Statement of Comprehensive
Income
Unaudited
Unaudited 6 months
6 months to
to 30 June
30 June 2017
2018 (restated)
GBPm GBPm
Profit for the period 5.6 18.7
---------- ------------
Currency translation differences on foreign
operations (0.7) 0.9
Currency translation differences on foreign
currency equity loans to foreign subsidiaries - (5.8)
Income tax credit on currency translation
differences on foreign currency equity
loans to foreign subsidiaries - 0.2
---------- ------------
Other Comprehensive Income (0.7) (4.7)
---------- ------------
Total Comprehensive Income 4.9 14.0
---------- ------------
All the total comprehensive income is attributable to equity
holders of the parent Company. A currency translation difference on
a foreign operation may be reclassified to the Income Statement
upon disposal of that operation.
The Group's 2017 comparatives have been restated for the
adoption of IFRS 15 Revenue from Contracts with Customers
SDL plc
Half year Condensed Consolidated Statement of Financial
Position
Unaudited Audited
Unaudited 30 June 31 December
30 June 2017 2017
2018 (restated) (restated)
GBPm GBPm GBPm
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 8.8 9.4 9.6
Intangible assets 158.4 146.9 152.9
Deferred income tax 10.1 6.9 11.2
Contract fulfilment assets 0.9 0.8 1.3
Rent deposits 1.6 2.0 1.9
179.8 166.0 176.9
---------- ------------ -------------
CURRENT ASSETS
Trade and other receivables 90.3 79.7 87.0
Corporation tax 1.9 3.2 2.6
Cash and cash equivalents 22.5 26.1 22.7
114.7 109.0 112.3
---------- ------------ -------------
TOTAL ASSETS 294.5 275.0 289.2
---------- ------------ -------------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables (83.9) (76.2) (78.0)
Current tax liabilities (9.9) (9.6) (10.6)
Provisions (1.2) (1.7) (1.6)
(95.0) (87.5) (90.2)
---------- ------------ -------------
NON CURRENT LIABILITIES
Other payables (0.9) (1.6) (0.7)
Deferred tax liability (1.6) (1.3) (1.6)
Provisions (2.9) (2.1) (2.9)
---------- ------------ -------------
(5.4) (5.0) (5.2)
---------- ------------ -------------
TOTAL LIABILITIES (100.4) (92.5) (95.4)
---------- ------------ -------------
NET ASSETS 194.1 182.5 193.8
---------- ------------ -------------
EQUITY
Share capital 0.8 0.8 0.8
Share premium 100.9 99.8 100.7
Retained earnings 68.6 57.6 67.8
Translation reserve 23.8 24.3 24.5
---------- ------------ -------------
TOTAL EQUITY ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT 194.1 182.5 193.8
---------- ------------ -------------
The Half year Financial Information presented in this Half year
Report was approved by the Board of Directors on 3 August 2018.
The Group's 2017 comparatives have been restated for the
adoption of IFRS 15 Revenue from Contracts with Customers
SDL plc
Half year Condensed Consolidated Statement of Changes in
Equity
Share Share Retained
Capital Premium Earnings Translation Reserve Total
GBPm GBPm GBPm GBPm GBPm
At 31 December 2016
(audited) 0.8 99.2 39.7 29.0 168.7
IRFS 15 restatement - - 3.1 - 3.1
At 31 December 2016
(restated) 0.8 99.2 42.8 29.0 171.8
Profit for the period - - 18.7 - 18.7
Other comprehensive income - - - (4.7) (4.7)
-------- -------- --------- ------------------- -----
Total comprehensive income - - 18.7 (4.7) 14.0
Dividend paid - - (5.1) - (5.1)
Deferred income taxation on share based payments* - - 0.4 - 0.4
Arising on share issues* - 0.6 - - 0.6
Share-based payments* - - 0.8 - 0.8
-------- -------- --------- ------------------- -----
At 30 June 2017
(restated) 0.8 99.8 57.6 24.3 182.5
-------- -------- --------- ------------------- -----
Profit for the period - - 11.4 - 11.4
Other comprehensive income - - - 0.2 0.2
-------- -------- --------- ------------------- -----
Total comprehensive income - - 11.4 0.2 11.6
Deferred income taxation on share based payments* - - (0.6) - (0.6)
Arising on share issues* - 0.9 - - 0.9
Share-based payments* - - (0.6) - (0.6)
-------- -------- --------- ------------------- -----
At 31 December 2017
(restated) 0.8 100.7 67.8 24.5 193.8
-------- -------- --------- ------------------- -----
Profit for the period - - 5.6 - 5.6
Other comprehensive income - - - (0.7) (0.7)
-------- -------- --------- ------------------- -----
Total comprehensive income - - 5.6 (0.7) 4.9
Dividend paid - - (5.1) - (5.1)
Deferred income taxation on share based payments* - - (0.1) - (0.1)
Arising on share issues* - 0.2 - - 0.2
Share-based payments* - 0.4 0.4
-------- -------- --------- ------------------- -----
At 30 June 2018 0.8 100.9 68.6 23.8 194.1
-------- -------- --------- ------------------- -----
*These amounts relate to transactions with owners of the Company
recognised directly in equity.The amounts above are attributable to
the equity of the parent Company.
The Group's 2017 comparatives have been restated for the
adoption of IFRS 15 Revenue from Contracts with Customers
SDL plc
Half year Condensed Consolidated Statement of Cash Flows
Unaudited
Unaudited 6 months
6 months to
to 30 June
30 June 2017
2018 (restated)
GBPm GBPm
Profit for the period 5.6 18.7
Tax expense 2.2 2.2
Profit before tax 7.8 20.9
Depreciation of property, plant and equipment 1.4 1.5
Amortisation of intangible assets 1.6 2.3
Share-based payments 0.4 0.8
Gain on disposal of discontinued businesses - (20.6)
(Increase) / decrease in trade and other
receivables (2.6) 4.2
Increase / (decrease) in trade and other
payables and provisions 5.7 (13.6)
Exchange differences (1.0) (1.6)
---------- ------------
CASH GENERATED FROM / (USED BY) OPERATIONS 13.3 (6.1)
Cash generated from continuing operations
before exceptional items 16.2 1.6
Cash used by discontinued operations - (3.7)
Cash outflows from exceptional items (2.9) (4.0)
CASH GENERATED FROM / (USED BY) OPERATIONS 13.3 (6.1)
Income tax paid (1.2) (1.2)
NET CASH FLOWS GENERATED FROM / (USED
BY) OPERATING ACTIVITIES 12.1 (7.3)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to acquire property, plant and
equipment (6.9) (5.4)
Receipt from disposal of subsidiaries - 22.3
NET CASH FLOWS USED IN INVESTING ACTIVITIES (6.9) 16.9
The Group's 2017 comparatives have been restated for the
adoption of IFRS 15 Revenue from Contracts with Customers
SDL plc
Half year Condensed Consolidated Statement of Cash Flows
(continued)
Unaudited
Unaudited 6 months
6 months to
to 30 June
30 June 2017
2018 (restated)
GBPm GBPm
FINANCING ACTIVITIES
Net proceeds from issue of ordinary share
capital 0.2 0.6
Dividend paid on ordinary shares (5.1) (5.1)
NET CASH FLOWS USED IN FINANCING ACTIVITIES (4.9) (4.5)
---------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 0.3 5.1
---------- ------------
MOVEMENT IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of
the period 22.7 21.3
Increase in cash and cash equivalents 0.3 5.1
Effect of exchange rates on cash and cash
equivalents (0.5) (0.3)
Cash and cash equivalents at end of the
period 22.5 26.1
---------- ------------
The Group has elected to present a statement of cash flows that
analyses all cash flows in total.
The Group's 2017 comparatives have been restated for the
adoption of IFRS 15 Revenue from Contracts with Customers
SDL plc
Notes to the Half year Condensed Consolidated Financial
Statements
1. Basis of preparation and accounting policies
Basis of preparation
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the EU. The Half year condensed consolidated
financial statements for the six months ended 30 June 2018 have
been prepared on a going concern basis in accordance with IAS 34
Half year Financial Reporting.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, this condensed set of Half year
financial statements has been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published consolidated financial statements for the
year ended 31 December 2017 with the exception of the adoption of
IFRS 15 - Revenue Contracts with Customers. The impact of this
restatement has been set out in Note 11 to this Half Year financial
information.
The preparation of condensed consolidated Half year financial
statements in conformity with IFRSs requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and reported amounts of assets and
liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and various other
factors that are believed to be reasonable under the circumstances,
the results for which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily
available from other sources. Actual results may differ from these
estimates.
The principal risks and uncertainties were disclosed in the
Group's annual report and financial statements for the year ended
31 December 2017 and remain broadly unchanged. SDL has an
established process both to manage risk and to seek to mitigate the
impact of risk as much as possible should it materialise.
Operational risks include management succession, system
interruption and business continuity, data protection, compliance,
contract management, integration of acquisitions, maintaining
technology leadership and intellectual property. Financial risks
include liquidity, counterparties, interest rates and financial
reporting.
Going Concern
In line with code requirements, the Directors have made
enquiries concerning the potential of the business to continue as a
going concern. Enquiries included a review of projected performance
over the next 12 months from the date of signing this report, 2018
annual plans, a review of working capital including the liquidity
position and a review of current indebtedness levels. The Directors
confirm they have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Given this expectation they have continued to
adopt the going concern basis in preparing the Half year financial
statements.
2. Segment information and revenue disclosures
The Group operates in the global content management and language
translation software and services industry. For management
reporting purposes, the Group is organised into business units
based on the nature of their products and services. The Group had
four reportable 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 and 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 and
services.
The Chief Operating Decision Maker monitors the operating
results of its business units separately for the purpose of making
decisions about resource allocation and performance assessment
prior to charges for tax and amortisation.
In line with the Group's strategic objective of operating as
'One SDL' and removing silos and overlaps across segments, the
Group's operating framework has evolved such that increasing
proportions of our activities, and hence cost base, influence
multiple segments. As such, the importance of shared cost
allocation methodologies has grown over the past 18 months or
so.
As previously announced the Group has concluded its shared cost
allocation review during the period and shared costs are now being
allocated on activity based methodologies. In prior years, shared
costs for segmental reporting purposes have generally been
apportioned to reporting segments either on a headcount or revenue
basis. In addition, management have also recognised that the Group
has a significant amount of corporate costs which are not segment
specific. These costs have therefore been excluded from segment
profitability and presented as a separate line below segment
profit. The H117 impact of these changes in methodology has been to
reduce Language Services, Language Technology and Global Content
Technologies segments costs by GBP4.1m, GBP1.8m and GBP2.1m
respectively.
Management have concluded that changing the shared cost
allocation methodologies and separately disclosing these corporate
costs gives a better representation of segment profitability.
Six months ended 30 June 2018 (unaudited)
Segment profit
before taxation,
acquisition related
External amortisation and
Revenue Depreciation exceptionals
GBPm GBPm GBPm
Continuing segments
Language Services 91.8 1.0 9.9
Language Technologies 24.0 0.2 3.7
Global Content Technologies 27.3 0.2 7.5
--------- ------------- ---------------------
Total Continuing Segments 143.1 1.4 21.1
--------- -------------
Corporate costs (9.1)
Exceptional items (3.7)
Acquisition related amortisation7 (0.5)
---------------------
Profit before taxation 7.8
=====================
7 In 2018, Group amortisation charges includes capitalised
software and research and development amounts which have been
charged to their respective segments above. Prior year amortisation
is entirely acquisition related.
Six months ended 30 June 2017 (unaudited - restated)
Segment profit/(loss)
before taxation,
acquisition related
External amortisation and
Revenue Depreciation exceptionals
GBPm GBPm GBPm
Continuing segments
Language Services 89.5 1.2 9.5
Language Technologies 22.5 0.2 2.6
Global Content Technologies 27.2 0.1 4.2
--------- ------------- ----------------------
Total continuing segments 139.2 1.5 16.3
--------- ------------- ----------------------
Discontinued Operations 2.0 - (3.1)
------------- ----------------------
Total 141.2 1.5 13.2
--------- -------------
Corporate costs (8.0)
Exceptional items (2.6)
Acquisition related amortisation (2.3)
Profit on disposal of discontinued
operations 20.6
----------------------
Profit before taxation 20.9
======================
Revenue by geographical destination was as follows:
Unaudited
Unaudited 6 months to
6 months to 30 June
30 June 2017
2018 (restated)
GBPm GBPm
United Kingdom 17.5 16.2
Rest of Europe 38.4 35.8
USA 62.2 59.0
Canada 5.4 6.2
Rest of the World 19.6 22.0
Discontinued operations - 2.0
------------- -------------
143.1 141.2
------------- -------------
Revenue by type was as follows:
Unaudited Unaudited
6 months to 6 months to
30 June 30 June
2018 2017
GBPm (restated)
GBPm
Services 98.6 97.0
Support and maintenance 20.1 21.6
Perpetual licences 11.8 10.2
Term licences 2.3 1.7
Software as a Service (SaaS) 9.1 7.7
Hosting services 1.2 1.0
Discontinued operations - 2.0
143.1 141.2
============================== ============= =============
3. Operating profit
Unaudited
6 months to
Unaudited 6 months to 30 June
30 June 2017
2018 (restated)
Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm
Is stated after charging
/ (crediting):
Research and development
expenditure 8.7 10.8 1.1 11.9
Bad debt charge/(credit) 0.6 (0.5) - (0.5)
Depreciation of owned
assets 1.4 1.5 - 1.5
Amortisation of internally
generated intangibles 1.1 - - -
Amortisation of acquired
intangible assets 0.5 2.3 2.3
Operating lease rentals
for plant and machinery 0.1 0.1 - 0.1
Operating lease rentals
for land and buildings 3.6 3.4 - 3.4
Net foreign exchange
differences (0.7) (0.1) - (0.1)
Share based payment charge 0.4 0.9 - 0.9
------------- ----------- ------------- ------
Following the capitalisation of research and development cost in
2017, the Group has changed the basis of research and development
cost disclosure of amounts charged to the profit and loss account
above. These costs are now disclosed on the basis of direct costs
only, in line with the capitalised costs basis. In prior years, the
costs were disclosed on a fully absorbed basis.
The impact of this change has been to reduce research and
development costs in 2017 from GBP15.9m to GBP10.8m for Continuing
Operations and from GBP17.0m to GBP11.9m for the total Group.
Management believe that the presentation of consistent research and
development disclosures provides more meaningful information to the
users of the Half year financial information.
Exceptional items
Unaudited
Unaudited 6 months to 30 June
6 months to 2017
30 June 2018 (restated)
Continuing Continuing Discontinued Total
GBPm GBPm GBPm GBPm
Severance costs 2.8 - 0.8 0.8
Acquisition costs 0.9 - 1.8 1.8
-------------- ----------- ------------- ------
Total exceptional items 3.7 - 2.6 2.6
-------------- ----------- ------------- ------
Following the Group's underperformance in 2017, management began
a restructuring programme to reduce costs. Redundancy costs of
GBP2.8m have been incurred in 2018 relating to this restructuring.
This cost included an amount of GBP0.8m relating to the departure
of the former CFO.
Acquisition costs relate to due diligence and advisor fees
incurred in relation to the acquisition of Donnelley Language
Solutions.
Prior period exceptional items relate to professional fees and
onerous lease charges associated with the disposals of the
discontinued businesses (GBP1.8m) and redundancy costs associated
with employees that did not transfer with the discontinued
businesses (GBP0.8m).
These have been separately disclosed in the income statement to
provide a better guide to underlying business performance.
4. Taxation
Unaudited
Unaudited 6 months
6 months to
to 30 June
30 June 2017
2018 (restated)
GBPm GBPm
Total current taxation 1.1 2.0
---------- ------------
Unaudited
Unaudited 6 months
6 months to
to 30 June
30 June 2017
2018 (restated)
Deferred taxation: GBPm GBPm
Origination and reversal of timing differences 1.1 0.2
Total deferred taxation 1.1 0.2
---------- ------------
Tax expense 2.2 2.2
---------- ------------
A tax charge in respect of foreign currency translation
differences on foreign currency loans to foreign subsidiaries of
GBP0.2m was recognised in the statement of other comprehensive
income in H1 18 (H1 17: GBP0.2m credit).
A tax credit in respect of share based compensation for deferred
taxation of GBP0.1m (H1 17: GBP0.4m) has been recognised in the
statement of changes in equity in the period.
5. Earnings per share
Unaudited Unaudited
6 months 6 months
to to
30 June 30 June 2017
2018 (restated)
GBPm GBPm
Profit for the period attributable to
equity holders of the parent 5.6 18.7
Number Number
Basic weighted average number of shares
(million) 82.3 81.7
Employee share options and shares to
be issued (million) 1.5 1.2
---------- --------------
Diluted weighted average number of shares
(million) 83.8 82.9
---------- --------------
Unaudited
6 month Unaudited 6 months to 30 June
to 2017
30 June
2018 (restated)
Continuing Continuing Discontinued Total
GBPm GBPm GBPm GBPm
Profit for the period
attributable to equity
holders of the parent 5.6 4.0 14.7 18.7
Profit on disposal of
discontinued business - - (20.6) (20.6)
Amortisation of acquisition
related intangible fixed
assets 0.5 2.3 - 2.3
Exceptional items 3.7 - 2.6 2.6
Tax cost associated with
profit on disposal of
discontinued business - - 0.2 0.2
Deferred tax benefit associated
with amortisation of acquisition
related intangible fixed
assets (0.1) (0.5) - (0.5)
Tax benefit associated
with exceptional items (0.6) - - -
----------- ----------- ------------- -------
Adjusted profit for the
period attributable to
equity holders of the
parent 9.1 5.8 (3.1) 2.7
----------- ----------- ------------- -------
Adjusted earnings per share is shown as the Directors believe
that earnings before acquisition related amortisation and
exceptional items is reflective of the underlying performance of
the business.
Unaudited 6 month to 30 June
2017
Unaudited
6 month to
30 June 2018 (restated)
Continuing Continuing Discontinued Total
Adjusted earnings per
ordinary share - basic
(p) 11.0p 7.1p (3.8)p 3.3p
Adjusted earnings per
ordinary share - diluted
(p) 10.8p 7.0p (3.8)p 3.2p
6. Dividend per share
Dividends paid in H1 18 were GBP5.1m (H1 17: GBP5.1m). The
dividends paid in 2018 and 2017 amounted to 6.2p per share.
7. Interest-bearing loans
At 30 June 2018, the Group had a GBP25 million committed
facility and a GBP25 million uncommitted accordion facility with
HSBC Bank Plc. These facilities expire on 2 August 2020.
On 15 July 2018, the Group entered into a new GBP70m committed
banking facility with Lloyds Bank and HSBC replacing the former
facility. This new facility expires on 14 July 2023 and also
provides an additional uncommitted facility of GBP50 million.
8. Share-based compensation grants
On 16 April 2018, 1,386,712 Long Term Incentive Plan (LTIP)
shares were awarded to certain key senior executives and employees
of the SDL Group.
9. General notes
The comparative figures for the financial year ended 31 December
2017 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the registrar of companies. The report of the
auditor was (i) unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
10. Events after the statement of financial position date
On 22 July 2018, the Group completed the acquisition of the
Donnelley Language Solutions business for $77.5 million. The
acquisition was funded by internal cash resources, an equity
placing which raised GBP36.2m ( GBP35.1m net of fees) and a $25.6m
drawdown under its new banking facility (see note 7). The
provisional identification of the acquired assets and liabilities
is not presented due the proximity of the transaction to the
reporting date.
There are no other known events occurring after the statement of
financial position date that require disclosure.
11. Impact of adoption of IFRS 15 - Revenue from Contracts with
Customers
IFRS 15 - Revenue from Contracts with Customers (IFRS 15)
establishes a comprehensive framework for determining whether, how
much and when revenue is recognised. It has replaced existing
revenue recognition guidance, including IAS 18 Revenue, IAS 11
Construction Contracts and IFRIC 13 Customer Loyalty Programmes.
IFRS 15 is effective for annual periods beginning on or after 1
January 2018.
The Group has used the retrospective adoption approach under
which the Group has applied all of the requirements of IFRS 15 to
each comparative period presented and adjusted the 2017
comparatives within the 2018 consolidated Half year financial
information.
The Group has made opening balance sheet adjustments arising
from changes to the revenue recognition treatment of term licences
and the capitalisation of costs to obtain contracts. The impact of
the restatement on its 2017 accounts is set out below:
Unaudited results
Balance sheet
as at Profit and loss Balance sheet
31 December account as at
GBPm, Debit/(Credit) 2016 2017 30 June 2017
Term licences 1.4 (0.1) 1.5
Capitalised commission 2.5 (0.2) 2.7
Deferred tax (0.8) 0.2 (1.0)
-------------- ---------------- --------------
Total impact 3.1 (0.1) 3.2
-------------- ---------------- --------------
The Group's language services contracts provide for the Group to
be reimbursed for work as it is undertaken. Accordingly the Group
will continue to recognise revenue over time, on a percentage of
completion basis. The Group's professional services work carried
out either carried out on a time and materials basis, revenue
recognised at a point in time as work is performed or on a fixed
price basis where revenue is recognised over time, on a percentage
of completion basis.
The Group's software licences are either perpetual, term or
Software as a Service (SaaS) in nature.
Under IFRS 15, revenue on perpetual and term licences, where
there is no significant future vendor obligation, is recognised on
delivery, less an allowance for future costs. SaaS, support and
maintenance and hosting contracts have material ongoing future
performance obligations associated with them and hence revenue will
be recognised over time. These policies are in line with the
Group's current accounting policies with the exception of the
treatment of term licences.
Term licences
In circumstances where a considerable future vendor obligation
exists as part of a software licence and related services contract,
SDL currently recognise revenue over the period that the obligation
exists per the contract. Under IFRS 15, the provision of a licence
over a period of time is not, in itself, considered an additional
obligation on the vendor and therefore revenue for the licence
element of such contracts will be recognised in full on delivery to
the customer. The support and maintenance element of these
contracts will be carved out and recognised over the support and
maintenance and hosting (if applicable) service periods. The impact
on 2017, as the comparative period, in the 2018 accounts will be to
create a net accrued income balance sheet position of GBP1.4m at 31
December 2016 and GBP1.5m at 30 June 2017 and increase H1 2017
revenues by GBP0.1m.
Commissions
IFRS 15 requires the deferral of direct costs relating to the
sale of goods or services to be recognised in line with the revenue
for those contracts. The Group has determined that these direct
costs will be recognised over the contracted term of the contract,
as additional renewal commissions are payable for future contract
extensions. The impact on the Group's 2017 reported numbers, as the
comparative period in the 2018 accounts, will be to create
capitalised contract costs on the balance sheet of GBP2.5m at 31
December 2016 and GBP2.7m at 30 June 2017 and decrease H1 2017
profit and loss account commission costs by GBP0.2m.
Detailed primary statement restatements
Detailed primary statement restatements arising from the
adoption of IFRS 15 are set out below.
Impact on the Half year Condensed Consolidated Income
Statement
Unaudited 6 months to 30 June
2017
Amounts with
adoption of
As reported IFRS15 Restatement IFRS15
GBPm GBPm GBPm
Sale of goods 18.3 0.1 18.4
Rendering of services 122.8 - 122.8
------------- ------------------- -------------
REVENUE 141.1 0.1 141.2
Cost of sales (70.8) - (70.8)
------------- ------------------- -------------
GROSS PROFIT 70.3 0.1 70.4
Administrative expenses (70.3) 0.2 (70.1)
------------- ------------------- -------------
OPERATING PROFIT - 0.3 0.3
OPERATING PROFIT BEFORE
TAX, AMORTISATION AND
EXCEPTIONAL ITEMS 4.9 0.3 5.2
Amortisation of intangible
assets (2.3) - (2.3)
Exceptional items (2.6) - (2.6)
-------------
Operating profit - 0.3 0.3
------------------------------- ------------- -------------------
Profit on disposal of
non-core business 20.6 - 20.6
Finance income - - -
Finance costs - - -
------------- ------------------- -------------
PROFIT BEFORE TAX 20.6 0.3 20.9
Tax expense (2.0) (0.2) (2.2)
PROFIT FOR THE PERIOD 18.6 0.1 18.7
------------- ------------------- -------------
Impact on the Half year Condensed Consolidated Statement of
Financial Position
Reported Restated
Unaudited Unaudited
30 June 30 June
2017 IFRS15 Restatement 2017
GBPm GBPm GBPm
ASSETS
NON CURRENT ASSETS
Property, plant and equipment 9.4 - 9.4
Intangible assets 146.9 - 146.9
Deferred income tax 6.9 6.9
Contract fulfilment costs - 0.8 0.8
Rent Deposits 2.0 - 2.0
165.2 0.8 166.0
----------- ------------------- -----------
CURRENT ASSETS
Trade and other receivables 76.6 3.1 79.7
Corporation tax 3.2 - 3.2
Cash and cash equivalents 26.1 - 26.1
Assets held for sale - - -
----------- ------------------- -----------
105.9 3.1 109.0
----------- ------------------- -----------
TOTAL ASSETS 271.1 3.9 275.0
----------- ------------------- -----------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables (76.5) 0.3 (76.2)
Current tax liabilities (9.6) - (9.6)
Provisions (1.7) - (1.7)
Liabilities held for sale - - -
----------- ------------------- -----------
(87.8) 0.3 (87.5)
----------- ------------------- -----------
NON CURRENT LIABILITIES
Other payables (1.6) - (1.6)
Loans and overdraft - - -
Deferred tax liability (0.3) (1.0) (1.3)
Provisions (2.1) - (2.1)
----------- ------------------- -----------
(4.0) (1.0) (5.0)
----------- ------------------- -----------
TOTAL LIABILITIES (91.8) (0.7) (92.5)
----------- ------------------- -----------
NET ASSETS 179.3 3.2 182.5
----------- ------------------- -----------
EQUITY
Share capital 0.8 - 0.8
Share premium 99.8 - 99.8
Retained earnings 54.4 3.2 57.6
Translation reserve 24.3 - 24.3
----------- ------------------- -----------
TOTAL EQUITY ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT 179.3 3.2 182.5
----------- ------------------- -----------
Impact on the Half year Condensed Consolidated Statement of Cash
Flows
As a result of the adoption of IFRS 15, certain
reclassifications are required in relation to the recognition of
contract fulfilment assets and restated the trade and other
receivables account recorded in the balance sheet. Movements in the
operating cash flow reflect the relevant cash and non-cash
movements in reclassified line items. There has been no change in
the net cash generated from operations as a result of these
reclassifications or restatement of these balance sheet
accounts.
Impact on the Consolidated Statement of Changes in Equity
- Consolidated statement of changes in equity as at 1 January
2017: recognition of the restated retained earnings figure as
presented in the restated consolidated balance sheet as at this
date.
- Consolidated statement of changes in equity as at 30 June
2017: recognition of the restated profit for the period ended 30
June 2017 as presented in the restated consolidated income
statement for this year.
- Consolidated statement of changes in equity as at 30 June
2017: recognition of the restated profit for the period ended 31
December 2017 as presented in the restated consolidated income
statement for this year.
Impact on the Half year Condensed Consolidated Statement of
Comprehensive Income
No reconciliation of the restated consolidated statement of
comprehensive income is presented as the only changes to this
primary statement for the relevant period presented are as
follows:
- Consolidated statement of comprehensive income is the
recognition of the restated retained profit figure for the period
ended 30 June 2017 as presented in the consolidated income
statement.
Appendix - Key performance indicators
The Board reviews a number of key performance indicators (KPIs)
to monitor and assess performance on an on-going basis.
During the period, the Board has amended its KPIs as
follows:
-- The Board has reassessed its view of the most appropriate
profit performance measure in the period. The Board have concluded
that interest costs arising from acquisition funding decisions
should be excluded and hence Adjusted EBITA and margin is the most
appropriate profit measure for review. Specifically, this profit
measure also excludes the impact of exceptional items, acquisition
related amortisation and profits or losses arising on the sale of
discontinued 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.
The Board has updated its calculation of ARR to reflect the
adoption of IFRS15. The Group has included a new KPI, ARCV, to
include the impact of term contracts on recurring cash flows.
The KPIs, reviewed by the Board include revenue growth, gross
margin, Adjusted EBITA margin, and Free Cash Flow. Free cash flow
is defined as cash generated from operations after interest and tax
costs, maintenance capital expenditure and capitalised research and
development costs. Maintenance capital expenditure is the recurring
level of capital expenditure required for the business in its
current form to operate in medium term and excludes non-recurring
investment in capitalised system and infrastructure costs.
Definitions of the Group's other KPIs are set out below:
-- Technology Annual Recurring Revenue (ARR): Annual recurring
revenue arising from customer contracts in force at the period end
and includes SaaS, support and maintenance, and hosting revenue
streams. Annual Recurring Revenue current and prior year amounts
are all translated at 30 June 2018 foreign exchange rates.
Following the introduction of IFRS15, the calculation of this KPI
has been adjusted to recognise that the licence element of term
licences are now booked on delivery rather than over the contract
period.
-- Technology Annual Recurring Contract Value (ARCV): Annual
recurring value of customer commitments arising from contracts in
force at the period end. These include term, SaaS, support and
maintenance, and hosting cash flows. Annual recurring contract
value current and prior year amounts are all translated at 30 June
2018 foreign exchange rates.
-- Language Services Repeat Revenue Rate (RRR): 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 is current year Language
Services revenue from new customers
-- Premium revenue: revenue from Life Sciences and Marketing Solutions;
-- Upsell and cross-sell deals: number of incremental sales of
new and existing products to existing customers
-- Wins in Life Sciences, Marketing solutions and Machine
Translation: the number of new contract wins in the period.
-- Linguistic utilisation (FY average): the percentage of time
in house linguists spent on billable work across the financial
period
-- Linguistic utilisation (June exit rate): the percentage of
time in house linguists spent on billable work in June
o 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 and ARCV is an annualised measure of
contracts at a point in time and hence cannot be reconciled into
revenue recognised during the year.
-- Constant currency amounts represent prior year monthly
results from foreign operations retranslated at their respective
2018 monthly foreign exchange rates.
Responsibility Statement by the Management Board
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Half year Financial Reporting as adopted
by the EU;
-- the Half year management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
For and on behalf of the Board
Adolfo Hernandez
Chief Executive Officer
Xenia Walters
Chief Financial Officer
3 August 2018
INDEPENDENT REVIEW REPORT TO SDL PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which is comprised of the Half year
Condensed Consolidated Income Statement, Half year Condensed
Consolidated Statement of Comprehensive Income, Half year Condensed
Consolidated Statement of Financial Position, Half year Condensed
Consolidated Statement of Changes in Equity, Half year Condensed
Consolidated Statement of Cash Flows and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Half year Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of Half
year Financial Information Performed by the Independent Auditor of
the Entity issued by the Auditing Practices Board for use in the
UK. A review of Half year financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
The annual financial statements of the group are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Simon Haydn-Jones
for and on behalf of KPMG LLP
Chartered Accountants
Arlington Business Park
Reading
RG7 4SD
6 August 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SSUFWIFASEIA
(END) Dow Jones Newswires
August 06, 2018 02:00 ET (06:00 GMT)
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