TIDMSDL
RNS Number : 4116T
SDL PLC
20 March 2019
20 March 2019
SDL plc
Final Results for the year ended 31 December 2018
Results in-line with expectations
Transformational and financial progress
SDL plc ("SDL", "the Group" or "the Company"), a leader in
global content management and language translation software and
services, announces its audited results for the twelve months ended
31 December 2018.
Financial Highlights
Audited 12 months Audited 12 months
to 31 December to 31 December 2017
GBPm unless stated 2018 (restated(1) )
Revenue 323.3 287.2
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Operating Profit 18.9 17.0
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Adjusted Operating Profit (2) 29.0 24.0
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Profit before Tax 18.4 17.0
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Basic Earnings per Share (p) 17.2p 18.9p
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Adjusted Basic Earnings per
Share (p) (3) 24.7p 20.1p
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Net Cash 14.4 22.7
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Dividend per share (p) 7.0p 6.2p
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Adjusted Operating Cash flow(4) 45.6 14.2
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-- Revenues up 12.6% to GBP323.3m (2017: GBP287.2m)
-- Organic constant currency revenue growth of 4.5%
-- Organic Language Services Gross Margin for the year of 42.5% (2017: 40.5%)
-- Adjusted Operating Profit up 20.8% to GBP29.0m (2017:
GBP24.0m); inclusive of GBP6.5m net capitalised research and
development (2017: GBP2.5m)
-- Total R&D cash spend increased from GBP21.0m in 2017 to
GBP25.2m in 2018, reflecting increased investment in our product
portfolio
-- Acquired Donnelley Language Solutions (DLS) which contributed
revenues of GBP27.8m and Adjusted Operating Profit of GBP1.8m in
the period from 23 July to 31 December 2018
-- Exceptional costs of GBP7.7m (2017: GBP3.0m), primarily
restructuring and acquisition-related costs
-- Basic Earnings Per Share (EPS) contracted 9% to 17.2p (2017:
18.9p) due to an increase in exceptional costs and the impact of
the equity issue to finance the DLS acquisition
-- Adjusted Basic EPS increased by 23% to 24.7p
-- Adjusted Cash Flow from Operations was GBP45.6m (2017:
GBP14.2m), representing cash flow to Adjusted EBITDA conversion of
133%
-- Net cash at 31 December 2018: GBP14.4m (2017: GBP22.7m),
following the acquisition of DLS for $77.8m (GBP59.4m) and an
equity raise of GBP35.0m, net of fees
1. The Group has applied IFRS 15 using the fully retrospective
method and as a result, the comparative information has been
restated. 2017 Adjusted Operating Profit has been restated by
GBP2.0m from GBP22.0m to GBP24.0m.
2. Adjusted Operating Profit is Group Operating Profit from
Continuing Operations, before amortisation of acquired intangibles
and exceptional items
3. Adjusted Basic Earnings per share is calculated based on
Adjusted Operating Profit as defined above
4. Adjusted Operating Cash flow is statutory operating cash flow
pre the cash costs of exceptional items which amounted to GBP6.8m
in 2018 ( 2017: GBP10.7m)
Operational Highlights:
Substantial progress was made against our transformation plan
and strategic objectives in the period:
-- Completion of the acquisition of DLS in July 2018, to
accelerate our growth in premium, regulated industries. Integration
on track and the business has performed to expectations
-- Premium Services revenues were GBP63.5m (2017: GBP40.1m),
including Financial Services, Life Sciences, Marketing Solutions
and Legal Services and equated to 29.1% of Language Services
revenue (2017: 21.7%)
-- Continued focus on growing existing accounts: 220 cross-sell
and up-sell deals were completed.
-- High levels of recurring or repeat revenues were maintained,
with Repeat Recurring Revenue (RRR) in SDL services of 97% and
Annual Recurring Contract Value (ARCV) from technology of
GBP68.5m
-- Linguistic utilisation December exit rate rose to 57%
(December 2017: 53%), due to the implementation of Helix, our
Language Services automation programme and other productivity
tools
-- Investment in significant technology innovations continues in
Neural Machine Translation (NMT), Linguistic Artificial
Intelligence (AI), Tridion DX, Trados and Language Cloud
-- Cost saving initiatives delivered annualised savings of
c.GBP10m at a cost of GBP6.2m, of which GBP4.1m was incurred in
2018 and GBP2.1m in 2017. Approximately GBP7.0m of these savings
crystallised in 2018.
Commenting on the results, CEO Adolfo Hernandez said:
"I am pleased to report a solid improvement in the Group's
financial performance compared to 2017, with all divisions
performing well. Adjusted Operating Profit grew 21% to GBP29.0m and
Adjusted Basic EPS grew by 23% to 24.7 pence; including a
five-month contribution from DLS. The actions we took during 2017
helped to deliver this positive outcome. Strategically, we worked
at pace to transform our business through the implementation of our
Language Services automation programme and investment in technology
and services innovation, the benefits of which will also be seen in
future periods."
Commenting on the outlook, CEO Adolfo Hernandez said:
"The enlarged SDL group is performing in line with our
expectations and we look forward to another year of progress
against our strategic targets and financial goals of revenue,
profit and margin growth. Much of the transformational
heavy-lifting has now been completed. Our key programmes for 2019
include the optimisation of the Helix automation programme; further
integration of DLS, innovation in Language Cloud and Linguistic AI;
building our premium services and solutions and streamlining our
back-office operations. Although uncertainty remains as to the
outcome of the Brexit negotiations between the UK and EU, the Group
has adopted an approach that we believe will allow us to manage the
risks and opportunities that Brexit brings."
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 27 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 90 of the top 100 global companies work with and trust us
on SDL.com. Follow us on Twitter, LinkedIn and Facebook.
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 Report
I am pleased to report on a year of good progress at SDL towards
achieving our long-term aim of building the global leader in
language and content management solutions.
The markets we serve remain attractive, as the challenge of
communicating effectively in a personalised way is embraced by more
of the world's companies. Whilst a key part of this personalised
communication involves translation, the requirements of our
customers are about far more than just changing words.
Our transformation journey
Three years ago, we embarked upon a journey to significantly
improve the operational performance and scalability of SDL, such
that we had the best possible products, systems, processes, data
and people to ensure that we could deliver the best within our
chosen markets. In 2017, whilst we made significant operational
progress towards our goals, the complexity of re-engineering our
business resulted in SDL not being able to achieve its financial
targets at the same time.
I am pleased to say that the lessons learned enabled us both to
deliver further progress in achieving our operational goals and to
meet the financial expectations of our various stakeholders and
ourselves. This is reflected in an improved financial performance
in 2018.
Our markets
Our markets continue to present us with lots of opportunities
and we have been successful in keeping the business focused on the
areas where SDL has a clear competitive advantage
We believe that the inevitable consolidation of our highly
fragmented industry will not necessarily be achieved by business
combinations but by the establishment of standard platform-based
solutions that will allow seamless interoperability across the
localisation and content supply chain. We have embarked on this
strategy in 2018 from a position of considerable strength, although
the full realisation of our vision is some years away.
DLS acquisition
Having said that we do not necessarily see industry
consolidation through business combinations, we are constantly
alert to finding opportunities which will act as strategic
accelerators to our long-term plans. In this regard, our business
combination with DLS during the summer was a significant milestone
for our two businesses.
I would like to use this report to welcome our new colleagues
from DLS and to say that the team have already established
themselves as significant contributors to accelerating the delivery
of our strategic plans. I have no doubt that the technology
solutions that the core SDL business can bring to DLS will enhance
the overall customer delivery experience. However, just as
importantly, the skills and experience DLS has in operating in
highly regulated markets will enhance the overall capabilities of
SDL.
People
I have been inspired by the tenacity and resilience our
employees and leadership have shown to deliver the excellent
results in 2018. On behalf of the Board, I would like to thank all
our employees for that dedication and inspiration to keep our
business moving forward.
Whilst much of this is down to individual efforts, I have no
doubt that the clear and inspirational leadership given by our CEO,
Adolfo Hernandez and his senior leadership team is a key factor.
When Adolfo joined our business in April 2016, he quickly
established our strategic objectives and defined the culture he
wanted to create within the business. A key factor in our improving
performance has been the clarity and consistency of those messages.
In this regard our culture is a key part of what defines SDL. As a
global business of over 4,100 employees operating in 39 countries,
we have to ensure that diversity is the fabric of our business.
This diversity extends to our Board where I remain pleased with
the balance of skills and experience my fellow Directors bring to
our deliberations. For example, among the non-executive Directors,
we have extensive software industry experience, retail and
marketing services skills, combined with strong financial and
operational capabilities.
Long-term shareholder value
We have invested significantly in SDL's technology solutions and
in our underlying technology infrastructure in recent years. This
investment, when combined with the growing opportunities being
presented by our chosen markets, gives us confidence that we have
the right ingredients to create long-term shareholder value.
That being said, we are acutely aware of the potential
macro-economic risks that a slowdown in global growth or a
post-Brexit recession may have on the demand environment for our
solutions. Whilst some of our demand is a function of structural
changes within the end markets for many of our customers, there are
parts of our business that see demand swings based upon specific
end market conditions. Therefore, it is important that we manage
expansion carefully and that we build on the natural operational
leverage within our business.
Having funded the acquisition of DLS with a mix of cash and
shares, and seen strong operating cash flow during the year, we end
2018 with a strong balance sheet. Notwithstanding some
macro-economic uncertainty, we have confidence in the outlook and
propose to maintain our progressive dividend policy by recommending
an increase in our dividend by 13% to 7.0p.
David Clayton, Chairman SDL plc
Chief Executive Officer's Review
SDL's Addressable Markets
Large, growing markets driven by macro trends
SDL has operated in its markets for 27 years. We sell language
and content services, technology and solutions to solve the
challenges of creating, translating and delivering content
globally. We estimate our addressable markets to be worth over
GBP18 billion, of which the largest market is Language Services at
over GBP16 billion. All our markets are growing but customer
demands are changing as they seek to communicate effectively with
their stakeholders across different channels and touchpoints and in
different languages, in ways that are manageable, consistent,
relevant and accessible.
The key macro trends that our business seeks to benefit from
are:
-- The growth of global selling
Our customers operate in many countries and want to get to their
audiences faster and more effectively, as doing so creates real
competitive advantage. Digital platforms are the foundation of this
change. SDL's technologies and services help businesses communicate
with customers and stakeholders all around the world, in over 180
languages.
-- The explosion of digital content
It has never been easier to create and disseminate content but
with more content creators, repositories, formats and channels,
harnessing the power of content is a challenge - even more so
across all business departments and in all target languages. SDL
helps businesses create, translate and deliver their content at
scale across multiple channels.
-- Digital transformation
Enterprises are undertaking digital transformation programmes to
re-engineer business processes centred on the digital customer
journey. The global content lifecycle is a key pillar of digital
transformation, requiring once-siloed processes to be managed
holistically. SDL works with its customers to optimise their global
content operating models.
Our Customer Base
SDL served over 20,000 customers in 2018. This includes 4,500
Corporate and Enterprise customers, over 1,500 Language Service
Providers and over 14,000 freelance translators. The majority of
our revenues are derived from large enterprises, including 90 of
the world's top 100 brands.
SDL has a diversified customer base across many sectors,
including information technology, automotive and manufacturing,
retail and travel, life sciences, financial services and others.
Since 2016, we have increased our focus on regulated industries,
where we are able to add more value through specialist services and
solutions. Of these, financial services, life sciences and legal
services account for over 30% of the language services market. In
2018, we derived 29% of our Language Services revenues from our
'premium' services sectors, also including Marketing Solutions,
compared to 22% in 2017.
Our combined services and technology approach is a compelling
one, that is highly valued by some of the world's largest
businesses and brands. SDL currently counts amongst its customers
the top 11 consumer electronics companies, top 14 IT/Software
companies, 19 of the top 20 banks, 19 of the top 20 medical device
companies and 19 of the top 20 pharmaceutical companies.
Competitive Dynamics
The Language Services market is highly fragmented with a small
number of larger Language Services Providers (LSPs) and a long tail
of smaller vendors. On a pro forma revenue basis for 2018, SDL
ranks in the top 3 LSPs globally. Although the competitive dynamics
have not changed materially in the last year, we see trends such as
consolidation and an increasing focus on premium content. SDL
increased its focus on regulated industries in 2018 with the
acquisition of DLS.
In our technology markets, we are leaders in language
technologies, including Translation Management Systems and
Translation Productivity, and in structured content. We are
building on those positions by innovating in the areas of our
language and content platforms and Linguistic Artificial
Intelligence (Linguistic AI). Our NMT is highly competitive and
will further benefit from SDL's unique language data sets. The Web
Content Management market, served by SDL Tridion Sites, is our most
competitive technology market and we compete with a number of very
large technology companies. The launch of SDL Tridion DX in the
second half of 2018 has been an important step in positioning the
product for the future, building on our strengths in the enterprise
division of web content and our leading position in structured
content. We were pleased to be ranked as the number 2 Web Content
Management system by Ars Logica in Q1 2019.
We believe we have a unique combination of services and
technologies compared to our competitors across the language and
content markets. Although we integrate with a large technology
ecosystem, we believe that owning key technologies is a competitive
advantage for SDL and will deliver long-term financial
benefits.
Our Strategy
SDL's strategy is to become the 'Content Globalisation Leader'
by deploying our global services and technology platforms to help
customers create, translate and deliver their content globally. We
have six long-term Strategic Objectives to that support this aim.
These are:
1. Build deep relationships with our customers
SDL works with many of the world's largest companies and we
believe there are significant opportunities to grow our revenues by
deepening our strategic relationships with these customers. Through
a focus on account management, in 2018, we grew our top 10 customer
accounts in the organic SDL business by 9% to a total of GBP74m and
we completed 220 cross-selling or up-selling deals. In 2019, we
remain focused on strategic account management and taking a
collaborative approach to working with our customers.
2. Be the world's best Language Service Provider
In our view, leadership in the Language Services industry will
depend on scale, quality and technology-enabled innovation. In
2018, SDL was the number 3 LSP by pro forma revenues. We added
further expertise and geographic coverage through our acquisition
of DLS and we invested in our business automation platform and
translation tools. In 2019, we will bring further innovation to the
market, focusing on data-powered decisions and the industry trend
towards 'continuous localisation', supporting our customers'
demanding requirements for fast turnaround times and high
quality.
3. Be a leader in Language & Content technologies
In 2018, we invested in modernising our language and content
technology platforms, with key launches in the year including SDL
Tridion DX, SDL NMT 2.0 platform and SDL Trados Studio 2019. In
2019, our primary focus is on the release of SDL Language Cloud,
our next generation, AI-enabled end-to-end localisation platform.
We will also be building applications on our Linguistic AI
platform, such as SDL Content Assistant.
4. Be the leader in content solutions in our target premium sectors
We believe there is a significant growth opportunity in offering
content solutions in our target sectors, which include financial
services, life sciences, legal services and marketing. These
solutions combine SDL's specialist services and delivery model with
our language and content technologies. In 2018, we sold and
launched a number of such solutions, including SDL Multilingual
eDiscovery and SDL Multilingual Website solutions and SDL
Accessibility Solution. In 2019, we plan to launch further packaged
solutions for regulated markets.
5. Enable our people to be their best
Located in 59 offices around the world, over 4,100 SDL employees
provide the fuel that propels the execution of our strategy. In
2018, we strengthened our leadership and training programmes,
aligned employees and performance around our strategic objectives
and introduced agile working practices. In 2019, we will continue
to invest in developing a culture which is diverse, inclusive, open
and socially-responsible and one which allows our employees to
reach their potential.
6. Achieve our target operating model
Since 2016, we have been re-engineering SDL's operations across
Language Services, sales and marketing and our back office. Our
goal is a modern, streamlined, scalable and flexible operating
platform. Starting in Q4 2017, we undertook a cost restructuring
that delivered annualised cost savings of GBP10m. We plan to reduce
administrative costs by at least GBP8m on an annualised basis by
the end of 2019. Our long-term goal is to reduce total operating
costs to 40% of revenues (2018: 43%).
Our financial goals
By achieving our strategic objectives, we aim to build a
business with sustainable competitive advantage and to transform
the financial performance of the business. We are seeking to
increase annual revenue growth to high single digits and to
increase adjusted operating margins by approximately 1-2 percentage
points each year by balancing efficiency gains with re-investment
in our innovation programmes and sales activities. We seek to
generate good operating cash flow conversion, maintain net debt to
EBITDA below 1.5x and pay a progressive dividend.
Business & Divisional Performance (Continuing
Operations)
GBPm Year ended 31 December 2018 Year ended 31 December 2017
( Restated for IFRS15)
Language Language Content Total Language Language Content Total
Services Technologies Technologies Services Technologies Technologies
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Revenue 218.2 49.8 55.3 323.3 184.5 49.0 53.7 287.2
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Gross Profit 91.7 38.8 38.3 168.8 74.8 39.0 36.7 150.5
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Gross Profit
% 42.0% 77.9% 69.3% 52.2% 40.5% 79.6% 68.4% 52.4%
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Divisional
adjusted
operating
profit 23.0 9.5 14.9 47.4 18.9 10.2 10.0 39.1
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Corporate
Costs (18.4) (15.1)
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Adjusted
Operating
Profit 29.0 24.0
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Adj Op Profit
% 10.5% 19.1% 26.9% 9.0% 10.2% 20.8% 18.6% 8.4%
---------- ------------- ------------- ------- ---------- ------------- ------------- -------
Language Services
Language Services Financial Performance
Language Services delivered constant currency organic revenue
growth of 5.2% to GBP190.8m and total revenues, including the
acquired business, of GBP218.2m (2017: GBP184.5m). Organic Gross
Margins rose to 42.5% (2017: 40.5%), and exited the year at 45.2%
primarily driven by productivity gains. Combined Gross Margins were
42.0%. Organic Adjusted Operating Profit for the period was
GBP21.2m (2017: GBP18.9m) and total Adjusted Operating Profit
including DLS was GBP23.0m, representing a margin of 10.5% (2017:
10.2%).
Language Services Automation & Productivity
We took a number of actions throughout 2018 to improve operating
efficiencies, the impact of which is principally seen in an
improved organic gross margin. These actions included greater use
of project management resources in lower cost regions, control of
external supplier costs and higher in-sourcing and use of NMT.
We rolled out 'Helix', our business process automation platform,
which is designed to reduce the administrative burden of project
and translation processes and to improve real-time data insights.
By the end of the year, 60% of our addressable accounts were on the
Helix platform. Our Linguistic Utilisation improved to exit the
year at 57% (2017 exit rate: 53%).
In 2019, our focus in Language Services is on increasing our
penetration of our existing customer base; cementing our growth in
regulated industries and optimising productivity, automation and
business insights. We will start to integrate parts of former DLS's
delivery model with SDL's operating platform, to leverage our
in-house translators and our automation and insights platforms.
Although subject to variables such as customer and regional mix, we
would expect to see further gross margin improvements in Language
Services in 2019.
Language Technologies
Language Technologies Financial Performance
Language Technologies delivered organic, constant currency
revenue growth of 1.7% to GBP49.4m and total revenues, including
DLS, of GBP49.8m. Organic Gross margins reduced to 78.5% (2017:
79.6%) due to the sales mix, and total Gross Margins were 77.9%.
Adjusted Operating Profit for the period was GBP9.5m (2017:
GBP10.2m), representing a margin of 19.1% (2017: 20.8%), including
net capitalised R&D of GBP3.2m (2017: GBP0.7m). The division
includes three product groups: Translation Management Systems,
Translation Productivity and Machine Translation. The Multi Trans
product acquired as part of the DLS acquisition is included in the
Translation Management System product group. R&D spend in this
division included GBP7.2m of investment in MT and AI, of which
GBP1.3m was capitalised.
Translation Productivity
Translation Productivity sales rose by 4.5% at constant
currency. In 2018, our key goals were to revitalise growth in some
of our established parts of the business, accelerate sales in some
new territories and continue to establish our cloud footprint.
We successfully grew Germany, our most established market, by 4%
and saw strong growth in new markets including Korea, India and
China. We delivered a number of major product launches, including
SDL Trados Studio 2019 and a significant upgrade to SDL Trados
GroupShare. At the end of the year, we introduced next-generation
Language Cloud Terminology, which enables the creation, editing and
sharing of terminology online. In, 2019 we will be expanding our
cloud capabilities and perfecting our on-premise products while
maintaining a keen focus on our customer base and their needs.
Translation Management Systems
Organic Translation Management sales rose by 1.9% at constant
currency. The DLS acquisition added a further GBP0.4m of revenue in
the year. During 2018, we continued to execute on the key themes of
integration, convergence, security and user experience across all
areas of the product portfolio.
In 2018, there were releases of SDL TMS, SDL WorldServer and SDL
Managed Translation, focused on extending support for GDPR and
other security-related standards, including HiTrust (for health
information). In most of our products releases, we incorporated new
SDL Language Cloud capabilities such as cloud editing and
terminology management.
In 2018, we announced and demonstrated our first, true
'born-in-the-cloud' Translation Management solution, SDL Language
Cloud. This will be released in 2019 and will meet market demands
for reporting and dashboards, new workflow capability and provide
access to SDL's innovations in NMT and AI. In tandem, SDL Trados
Studio will be integrated with SDL Language Cloud, enabling secure,
real-time translation of cloud-based projects. We are excited at
the opportunities that SDL Language Cloud will afford our clients
in 2019 and beyond.
Machine Translation and Artificial Intelligence ("AI")
MT sales contracted by 7.9% at constant currency. The key goal
for 2018 was the productisation of the latest advancements in NMT
for the enterprise and the adoption and introduction of NMT engines
in our Language Offices. During the year we developed our NMT 2.0
platform, achieving an average 62% quality improvement across all
language combinations and setting the standard in Russian-English.
In total, 82 NMT language pairs were released and NMT 2.0 is now
available in both our on-premise and cloud products. Furthermore,
towards the end of the year we announced the convergence of our MT
products using the 'edge-cloud' architecture, which allows greater
flexibility of deployment, security and cost and is a unique
differentiator in the market.
In many ways, Neural MT for the enterprise is a new product, not
an extension of earlier flavours of Machine Translation. Therefore,
although it is disappointing that sales declined in 2018, this is
partly a result of this market transition. We have been working at
pace to reduce barriers to adoption for these new platforms by
offering flexible consumption and deployment models, reducing the
cost of hardware and adapting our sales model for new regions and
use cases. This work continues in 2019, alongside further quality
improvements and introductions such as intelligent adaptation
features.
Our investments in NMT have enabled us to build broader
capabilities in what we call Linguistic AI, which is the
application of machine learning to other language-based tasks that
include such use cases as content analysis through to content
production. In November 2018, we announced the first beta product
in this area, SDL Content Assistant, which uses AI to identify and
extract themes, patterns, key information and quotes from source
documents and automatically produces high quality content variants
at speed. SDL Content Assistant has applications in a number of
sectors, including marketing and financial services.
Content Technologies
Content Technologies Financial Performance
Content Technologies delivered constant currency growth of 4.8%
to GBP55.3m. Gross margins improved to 69.3% (2017: 68.4%) due to
sales mix. Adjusted Operating Profit was GBP14.9m (2017: 10.0m),
representing a margin of 26.9% (2017: 18.6%), including net
capitalised R&D of GBP3.3m (2017: GBP1.8m). The division
includes two product groups: Tridion and Contenta/XPP.
SDL Tridion
SDL Tridion Sites and SDL Tridion Docs sales grew by 3.2% at
constant currency. In 2018, SDL Tridion DX (Digital Experience)
became a reality, delivering the market's first seamless and
blended marketing and post-sales content experience. We secured our
first set of reference customers and drove significant interest
from the regulated industries sectors and in key growth regions
such as China. In 2019, we are focused on two key areas: usability
and personalisation. We are improving our user experience with a
simpler, more intelligent and collaborative content creation
environment and we will be enabling the delivery of more
personalised content to any touchpoint. As part of our "best of
breed" strategy, we will also release connectors to popular
third-party CRM and marketing automation software platforms,
allowing our customers to deliver a more centralised, contextually
rich experience to their audiences.
SDL Contenta/XPP
Revenue grew by 13.7% at constant currency. In 2018, we focused
on enhancing security assurance for all our products in the SDL
Contenta Publishing Suite and on furthering capabilities for the
financial services industry in the SDL XPP product line. SDL
Contenta Publishing Suite is targeted at the Aerospace &
Defence market and we released security enhancements enabling our
products to be readily integrated into highly secure US Department
of Defense and enterprise IT environments. Our latest SDL XPP
release delivered more controls and automation for rapid production
of high quality financial services content. All these enhancements
have been positively received by customers. In 2019, we will be
continuing to evolve our products, with a focus on business
insights, reporting and cloud enablement.
Conclusion
SDL is now nearly three years into a root-and-branch
transformation. Much heavy lifting has been done operationally,
allowing us to increase our current focus on optimisation,
innovation and building deeper relationships with our customers, as
One SDL. It is pleasing that we were able to deliver a
much-improved financial performance in 2018 but our margins were
still reflective of a business in transformation mode.
We are positioned well in large, growing markets and with a
unique set of technologies, services and solutions to meet our
customers' evolving needs. I remain convinced that achievement of
our strategic objectives will create significant value for all our
stakeholders and achieve our financial goals.
SDL's growth strategy is primarily organic but with the
potential to be complemented by M&A. Consolidation is a feature
of our markets and we will look at businesses that accelerate our
strategic objectives.
Finally, I would like to thank all my colleagues at SDL for
their energy and commitment during 2018.
Adolfo Hernandez, CEO SDL plc
Chief Financial Officer's Review
SDL has made significant organisational changes to create a
strong global business and we have started to realise the benefits
of these changes in 2018. I am excited by the prospects for 2019
and beyond as we realise the opportunities in front of us. 2018 was
a year of solid financial performance for the Group, reflecting the
positive impact of the DLS acquisition and continued organic growth
within the existing SDL business.
Revenue
Group revenues grew by 12.6% to GBP323.3m and organic revenues
increased by 4.5% at constant currency.
GBPm 2018 2017 Reported growth Organic growth
@ actual rates @constant currency
Language Services 218.2 184.5 +18.3% +5.2%
------ ------ ---------------- --------------------
Language Technologies 49.8 49.0 +1.6% +1.7%
------ ------ ---------------- --------------------
Content Technologies 55.3 53.7 +3.0% +4.8%
------ ------ ---------------- --------------------
Revenue from Continuing
Operations 323.3 287.2 +12.6% +4.5%
------ ------ ---------------- --------------------
Annual Recurring Revenue (ARR) for our technology businesses
consists of SaaS license, hosting and support and maintenance
revenues. ARR of GBP61.9m improved 2% on prior year. As previously
reported, the ARR calculation has been restated for IFRS 15 and
therefore excludes the licence element of term contracts. Given a
number of our term licenses are contracted over 3 to 5 years and
fees are paid over the lifetime of the contract, we also measure
ARCV (Annual Recurring Contract Value) which includes cash flows
arising from Term licence fees. In 2018, like for like ARCV was
GBP68.5m which represents a 4% increase on 2017.
Geographical revenue analysis
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 in line with the prior year, with the 10
largest customers contributing 25% of organic SDL revenues in 2018.
Our biggest customer accounts for 7% of the Group's revenue.
Geographical analysis of our external revenues by destination
(location of customer) is as follows (2017 includes revenues from
the discontinued business of GBP2.0m) :
GBPm 2018 % of total 2017 % of total
UK 36.7 11% 37.4 13%
===== ========== ===== ==========
EMEA (exc UK) 68.2 21% 59.6 21%
===== ========== ===== ==========
USA 129.3 40% 111.1 38%
===== ========== ===== ==========
Americas (exc
USA) 10.4 3% 12.6 4%
===== ========== ===== ==========
Asia Pacific 78.7 25% 68.5 24%
===== ========== ===== ==========
Group revenues 323.3 100% 289.2 100%
===== ========== ===== ==========
Gross Profit Margin
Gross Profit margin from Continuing Operations of 52.2% was in
line with the prior year due to the improvement in Language
services margin being offset by margin dilution from the acquired
business, mix of licence fees in our technology businesses and year
on year increases in variable compensation. Gross Profit margin
within our largest division, Language Services, improved from 40.5%
in 2017 to 42.0% in 2018, including the impact of the DLS
acquisition. Excluding the impact of DLS the gross margin would be
42.5% and the December 2018 exit rate was 45.2%. The year on year
improvement reflects the launch of our business process automation
platform (Helix), optimisation of the resourcing model, continued
strong usage of machine translation and better controls over
freelancer expenditure. These initiatives have led to a reduction
in the use of external linguists and improved productivity from our
internal operations which is evidenced by the increase productivity
among our linguistic community where utilisation has increased to
an exit rate at December 2018 of 57% (Dec 2017: 53%). The
acquisition of DLS had a dilutive impact on gross margin as a
result of a using a delivery model which focuses on outsourced
linguistic services. Integration activities in 2019 will focus on
applying the existing SDL operating model to DLS to drive gross
margin expansion. This will be achieved through the application of
technology, namely Helix and machine translation and utilising
SDL's in-house resourcing pool of 1,300 linguists.
Gross Profit margin within Language Technologies of 77.9% was
lower than prior year of 79.6%, while Content Technologies improved
from 68.4% to 69.3%. The margin variation is driven by the mix of
licence revenues between SaaS, perpetual and term licenses.
Administrative Expenses GBPm 2018 2017
Group administrative expenses 149.9 133.5
===== =====
Amortisation of acquired intangible
assets (2.4) (4.0)
===== =====
Exceptional items (7.7) (3.0)
===== =====
Adjusted Administrative expenses
from Continuing Operations 139.8 126.5
===== =====
Adjusted administrative expenses from Continuing Operations
increased by GBP13.3m to GBP139.8m. Incremental administrative
expenses relating to DLS amounted to GBP8.6m, with the remaining
increase in costs driven by increases in variable compensation
offset by savings from our 2018 headcount restructuring plan.
Adjusted administrative expenses as a percentage of revenue were
43% (2017: 44%). Staff costs make up a large proportion of this
cost base accounting for approximately 70% of total administrative
expenses. This percentage flexes in line with movements in variable
staff compensation.
A functional and divisional analysis of adjusted administrative
expenses for the Continuing Operations is set out below.
Adjusted Administrative Expenses for the Continuing Operations
GBPm
2018 2017 Restated(1)
======= ====================
Research and Development
(inclusive of amortisation
) 18.7 18.5
======= ====================
Sales and Marketing 52.8 46.0
======= ====================
General Administration 68.3 62.0
======= ====================
Total costs by function 139.8 126.5
======= ====================
Language Services 68.7 55.9
======= ====================
Language Technologies 29.3 28.8
======= ====================
Content Technologies 23.4 26.7
======= ====================
Corporate 18.4 15.1
======= ====================
Total costs by division 139.8 126.5
======= ====================
Note 1 - restated for IFRS 15 (capitalisation of commission
costs)
R&D expenditure includes GBP17.6m (2017: GBP18.5m) of cash
costs and amortisation of GBP1.1m (2017: Nil). R&D costs of
GBP7.6m (2017: GBP2.5m) have been capitalised in the year and are
amortised over the expected useful lives of the development
projects concerned, which is approximately three years.
Year on year cash R&D investment increased by GBP4.2m to
GBP25.2m
GBPm 2018 2017
R&D expensed (SDL) 17.1 18.5
----- -----
R&D amortisation (non 1.1 -
cash SDL)
----- -----
R&D expensed (DLS) 0.5 -
----- -----
R&D in P & L 18.7 18.5
----- -----
Capitalised in year 7.6 2.5
----- -----
R&D cash investment
(excludes amortisation) 25.2 21.0
----- -----
The Group's development processes and governance in relation to
R&D costs has now been fully implemented and the 2018
capitalised R&D costs reflect this. The Group expects to
capitalise R&D costs of approximately GBP7-8m per annum in the
mid-term. Capitalisation of R&D commenced in the third quarter
of 2017 and therefore 2018 includes a full year impact.
Sales and marketing costs of GBP52.8m (2017: GBP46.0m) 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 divisions.
General Administration expenses of GBP68.3m (2017: GBP62.0m)
include all of our Group, regional and local support functions. The
increase is as a result of acquired DLS costs, IFRS 2 charge
(Share-Based Payments), additional variable compensation offset by
headcount restructuring savings. The IFRS 2 charge is held
centrally and reported within the Corporate cost division.
Central Corporate Costs and Total Operating Costs
In 2018, SDL's central corporate costs rose to GBP18.4m (2017:
GBP15.1m), primarily as a result of Share Based Payment charges of
GBP1.8m (2017: GBP0.2m) and variable compensation pay for corporate
personnel of GBP1.2m (2017:Nil). After corporate costs, Adjusted
Operating Margins rose from 8.4% (restated for IFRS 15) in 2017 to
9.0% in 2018.
As we have undertaken our transformation, we have been seeking
to reduce costs associated with legacy organisational structures
and processes and to re-invest in areas that we believe will have a
higher return on investment. Starting in Q4 2017, we undertook a
cost restructuring that delivered annualised cost savings of
GBP10m, resulting in an exceptional cost of GBP6.2m of which
GBP4.1m was incurred in 2018. These cost savings were re-invested
across the business. Total adjusted administrative expenses in 2018
increased by GBP13.3m due to the acquisition of DLS, an increase in
variable compensation, wage inflation and the impact of foreign
exchange rate movements.
Improving operational efficiency in 2019
In 2018 we conducted detailed analysis which highlighted a
number of opportunities to improve operational efficiency and
reduce cost. Our vision is to create a more customer-centric
operating model which is more agile, quicker to react and more
effective. In doing so we will leverage technology to cut costs,
improve quality and transparency and build sustainable value. In
2019 we will continue to act on these and other opportunities which
focus on efficiency and strengthening our competitive position.
These initiatives are expected to deliver gross annualised
savings of at least GBP8m by 2020 for a cash cost in 2019 of
GBP2m-GBP3m. These savings are additional to the GBP10m annualised
cost savings achieved in 2018.
Amortisation and depreciation
Acquired intangible assets include software and customer
relationships arising from acquisitions. These are amortised over
periods of between 18 months and 15 years. The amortisation charge
relating to acquired intangibles in 2018 was GBP2.4m (2017:
GBP4.0m). The GBP1.6m reduction is due to some intangible assets
being fully amortised during the course of the year.
Amortisation on internally generated assets, namely R&D and
Helix is treated as an expense in arriving at Adjusted Operating
Profit of GBP29.0m. In general, capitalised R&D is amortised
over three years and Helix is amortised over 10 years. By 2020,
R&D capitalisation and amortisation are expected to be broadly
neutral.
GBPm 2018 2017
Acquired intangibles amortisation 2.4 4.0
==== ====
Internally generated intangibles:
R&D amortisation 1.1 -
==== ====
Internally generated intangibles:
Helix amortisation 1.1 -
==== ====
Depreciation on Tangible Fixed Assets 3.1 2.9
==== ====
Total 7.7 6.9
==== ====
Adjusted Operating Profit
Adjusted operating profit which is operating profit before
exceptional items and amortisation of acquired intangibles was
GBP29.0m (2017: GBP24.0m) and adjusted operating margin was 9.0%,
an improvement of 0.6% on 2017 for reasons already mentioned.
The Group Operating Profit for 2018 was GBP18.9m (2017:
GBP17.0m), representing an operating margin of 5.8%, which is
consistent with prior year.
Adjustments between Adjusted Operating Profit and Operating
Profit
Adjusted Operating Profit is Operating Profit before exceptional
items and amortisation of acquired intangibles. These adjustments
amounted to GBP10.1m in 2018 (2017: GBP9.7m for the Group, GBP7.0m
from Continuing Operations)
Exceptional Costs and amortisation 2018 2017
of acquired intangibles. GBPm
Headcount restructuring costs 4.1 2.1
----- -----
Acquisition related costs 2.8 -
----- -----
Other exceptional items 0.8 0.9
----- -----
From Continuing Operations 7.7 3.0
----- -----
Discontinued Operations 0.0 2.7
----- -----
Total exceptional costs 7.7 5.7
----- -----
Amortisation of acquired intangibles 2.4 4.0
----- -----
Adjustments to operating profit to
arrive at adjusted operating profit 10.1 9.7
----- -----
The Group incurred acquisition-related costs of GBP2.8m, which
included legal and professional fees for the acquisition of DLS as
well as integration costs.
Other exceptional costs of GBP0.8m relate to settlement costs
for historic tax issues.
Total exceptional items resulted in a GBP6.8m cash outflow in
the year (2017: GBP10.7m).
Taxation
The Group's tax charge for the year was GBP3.6m (2017: GBP1.6m)
representing a Statutory Tax Rate of 19.6% (2017: 9.4%).
The Adjusted Operating Profit tax charge on Continuing
Operations amounted to GBP7.3m (2017: GBP7.6m) and represents an
Effective Tax Rate of 25.2%. This tax charge is lower than prior
year, principally due to the reduction in the US Federal tax rate
from 35% to 21%. Following the completion of the group's s382
exercises in relation to prior year acquisitions together with
other deferred tax restatements, the Group has recognised an
exceptional tax credit of GBP2.1m (2017: GBP4.6m).
We exited the year with recognised carried forward tax losses of
GBP30.8m (2017: GBP51.1m).
The Group underlying effective current tax rate going forward is
expected to be in the region of 23% to 25% due to lower future tax
rates in the UK and US.
Corporation tax paid of GBP2.8m is in line with prior year. Tax
payable in 2019 is expected to be in the region of GBP10m as a
result of resolving historical tax filings.
Earnings per share
Adjusted Basic EPS increased 23% to 24.7p as a result of
improved trading. Basic EPS for Continuing Operations is 17.2p
which is a 9% reduction on prior year and is impacted by the
increase in exceptional items and the additional shares in issue to
finance the DLS acquisition.
Acquisition of Donnelley Language Solutions
In July 2018, SDL acquired DLS, a provider of Language Service
solutions. This acquisition strengthened our position within the
higher value premium content markets. The business was acquired for
a cash consideration of $77.8m (GBP59.4m) plus fees of GBP2.1m on
legal and due diligence services. The acquisition was facilitated
by a GBP36.2m share placing (GBP35.0m net of fees) at GBP4.40 and a
GBP19.6m draw down of debt. DLS has traded well since acquisition.
The results of that business have been incorporated into the
Language Services and Language Technologies divisions and details
on the provisional acquisition accounting are set out in note
11.
In the year to 31 December 2018, DLS contributed post
acquisition revenues and Adjusted Operating Profit of GBP27.8m and
GBP1.8m respectively. Looking ahead, we see opportunities to
increase the margin of the acquired business through cross-selling
of technology, sharing some of the benefits of SDL's operating
model, such as in-sourcing and automation and by reducing duplicate
back office and facilities costs.
In 2018, our priority was to provide continuity and a positive
experience for DLS customers, employees and suppliers and we
believe that we achieved a smooth transition. From the underlying
business we were able to save GBP1m of annualised cost from
integrating and optimising our facilities footprint. In 2019, our
focus is on cross-selling and solution development. We will take a
measured approach to operational integration, maintaining high
customer service standards.
Cash flow and net cash
Net Cash and Cash Flow - GBPm 2018 2017
Adjusted Operating Profit 29.0 24.0
======= =======
Depreciation and amortisation from non-acquired
intangibles 5.3 2.9
======= =======
Adjusted EBITDA(1) from Continuing Operations 34.3 26.9
======= =======
Working capital and share based payments
charge from continued operations ( exc
exceptionals ) 11.3 (12.7)
======= =======
Adjusted operating cash flow from Continuing
Operations before exceptional items 45.6 14.2
======= =======
Exceptional items and discontinued operations (6.8) (10.7)
======= =======
Operating cash flow from Continuing Operations 38.8 3.5
======= =======
Maintenance capital expenditure (2.2) (3.0)
======= =======
Capitalised R&D costs (7.6) (2.5)
======= =======
Interest and Taxation paid (4.2) (2.9)
======= =======
Investment capital expenditure (4.6) (10.4)
======= =======
Disposal proceeds - 22.2
======= =======
Dividends paid (5.1) (5.1)
======= =======
Payments to acquire DLS, net of cash acquired (59.2) -
======= =======
Proceeds from share issues 35.4 1.2
======= =======
Proceeds from borrowings 19.6 -
======= =======
Repayments of borrowings (14.4) -
======= =======
FX on cash 0.6 (1.6)
======= =======
Net cash (outflow)/inflow (2.9) 1.4
======= =======
Opening cash at 1 January 22.7 21.3
======= =======
Closing cash at 31 December 19.8 22.7
======= =======
(1) Adjusted EBITDA - profit before tax, interest, depreciation,
amortisation of acquired intangibles and exceptional items
Adjusted operating cash flow from Continuing Operations before
exceptional items was GBP45.6m (2017: GBP14.2m) with a GBP11.3m
working capital inflow (2017: GBP12.7m outflow) principally due to
an increase in the accrual of variable compensation in respect of
2018 performance. Continued focus on strong cash collections in
2019 will underpin positive translation of trading profit to cash
conversion.
Total capital expenditure of GBP14.4m includes payments for
maintenance capital expenditure (GBP2.2m), R&D (GBP7.6m) and
investment capital expenditure (GBP4.6m). 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 GBP2.2m (2017: GBP3.0m) is within guidance of 1% of
revenues. We expect future maintenance capital expenditure to be
within this range.
Investment capital expenditure of GBP4.6m (2017: GBP10.4m)
includes spend on our centralised Language Service delivery
platform, Helix, which will allow us to drive scale and efficiency
improvements. Further Helix enhancements will be delivered in 2019
at a cost of GBP2-3m.
The cash impact of exceptional items amounted to GBP6.8m (2017:
GBP10.7m). This includes GBP4.5m of restructuring payments and
GBP2.3m of acquisition related costs.
Dividends of GBP5.1m paid in the year (2017: GBP5.1m) comprised
the dividend for 2017 of 6.2p per ordinary share.
The DLS business was acquired for a cash consideration of $77.8m
(GBP59.4m), facilitated by a GBP36.2m share placing at GBP4.40
(GBP35.0m net of fees) and a GBP19.6m draw down of debt.
Balance Sheet
Net assets at 31 December 2018 increased by GBP51.8m to
GBP245.6m. Acquisition related intangibles arising from the DLS
acquisition amounted to GBP56.7m, being goodwill of GBP22.3m,
acquired customer relationships of GBP30.1m and acquired
intellectual property of GBP4.3m.
Working capital
Trade and other receivables at 31 December 2018 increased by
GBP22.9m to GBP108.3m. DLS trade and other receivables at 31
December 2018 amounted to GBP19.4m.
We have restated our Days' Sales Outstanding ('DSO') calculation
to reflect the number of days' billings in debtors as we believe
this provides a more accurate reflection of performance. DSO
calculated under this basis is 58 days (2017: 57 days).
Trade and other payables of GBP105.1m (2017: GBP78.0m) includes
deferred income of GBP39.8m (2017: GBP37.3m). Trade payables have
increased as a result of the acquisition. Supplier payment days
were 26 days (2017: 29 days). The addition of DLS freelancer vendor
payments which are paid on shorter payment terms has reduced
supplier payment days year on year. Accruals of GBP46.5m (2017:
GBP21.0m) were higher than the prior year primarily due to variable
compensation plans, increased accruals as a result of the DLS
acquisition and increases in other taxes and social security as a
result of increased headcount.
Funding and Capital Structure
The Group's cash balances at the year-end amounted to GBP19.8m
with external borrowings of GBP5.4m (2017: GBP22.7m cash and no
external borrowings).
On 20 July 2018, the Group signed a 5 year, GBP120m syndicated
bank multi-currency Revolving Credit Facility (RCF), expiring on 19
July 2023. The agreement includes the provision of a GBP50m
Accordian (uncommitted) facility. At 31 December 2018, GBP5.4m of
the RCF was drawn on the facility and these amounts have been fully
settled subsequent to the year end.
The Group was in compliance with the terms of all its
facilities, including the financial covenants at 31 December 2018
and throughout the year. The Group expects to remain in compliance
with the terms going forward.
Foreign exchange
The Group does not hedge foreign currency profit and loss
translation exposures and the statutory results are therefore
impacted by movements in exchange rates. The average rates used to
translate the consolidated income statement are as follows:
Average exchange
rates FY18 FY17
Euro (EUR) 1.13 1.15
----- -----
US Dollar ($) 1.34 1.29
----- -----
The principal exposures of the Group are to the US dollar and
Euro with approximately 50% of the Group's revenue being
attributable to the US dollar and 36% of the Group's costs being
Euro denominated.
Capital structure and dividend
The Board believes in maintaining an efficient but prudent
capital structure, whilst retaining the flexibility to make
value-enhancing acquisitions. The Board's main strategic priority
remains an acceleration of underlying revenue growth, supported by
targeted bolt-on acquisitions. The growth underpins the Board's
sustainable, progressive dividend policy. Consistent with this
policy, the Board is proposing a 13% increase in the total ordinary
dividend per share for the year to 7.0p (2017: 6.2p per share).
Brexit impact
Although uncertainty remains as to the outcome of the Brexit
negotiations between the UK and EU, the Group has adopted an
approach that we believe will allow us to manage the risks and
opportunities that Brexit brings. These could include changes in:
-
-- market access that impact how we transact intra-Group
operations, share data, manage tax and foreign exchange exposures
and manage our intellectual property
-- people-specific rules and regulations that could impact the
international mobility of our colleagues
-- market opportunities that impact which areas of our
international locations we will choose to grow
Due to the already global nature of our business and service
capabilities across the globe, we do not currently consider that we
will be materially impacted by the UK's departure from the EU.
Impact of new accounting standards
The Group adopted IFRS 15 and IFRS 9 with an effective date of 1
January 2017. The Group adopted the fully retrospective approach
which has resulted in the prior period comparatives being restated
to provide comparative information to the readers of the accounts.
There was no material impact on the reported results for the Group
as a result of the adoption of IFRS 9.
IFRS 15
The effect of adopting IFRS 15 has been to increase profit for
the year (net of tax) ended 31 December 2017 by GBP1.6m and to
increase net assets by GBP3.1m.
There are two primary impacts arising from the adoption of IFRS
15:
-- Term licence revenues are 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
impact has been to increase 2017 revenues by GBP1.5m.
-- 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's direct costs relate to sales
commission costs which are being capitalised and amortised to match
the revenue stream. The impact of this change has been to reduce
administrative costs by GBP0.5m in 2017.
Accordingly, the estimated impact of adopting IFRS 15 on the
Group's 2017 results was to increase reported profit before tax by
GBP2.0m. The tax impact of the actuals is to increase the tax
charge by GBP0.4m.
The Group's future results will be driven by the mix of sales
going forward and the proportion of perpetual, term and SaaS
contracts sold as well as the contractual period of new deals
impacting the amortisation period of commissions.
IFRS 16
The Group is required to adopt IFRS 16 'Leases' from 1 January
2019. The Group plans to apply IFRS 16 on 1 January 2019, using the
modified retrospective approach. Therefore, the cumulative effect
of adopting IFRS 16 will be recognised as an adjustment to the
opening balance of retained earnings at 1 January 2019, with no
restatement of comparative information. Based on the information
currently available, the Group estimates that it will recognise
right of use assets and corresponding lease liabilities of between
GBP27m and GBP30m as at 1 January 2019. We estimate the increase in
EBITDA to be in the range of GBP8.5m to GBP9.5m with a combined
increase in depreciation and interest in a similar range. The
impact of IFRS 16 for the year-ended 31 December 2018 will be
finalised and presented as a restatement along with the results for
the half year ending 30 June 2019.
Xenia Walters, CFO SDL plc
20 March 2019
Consolidated Statement of Profit or Loss for the Year Ended 31
December 2018
Restated
2018 20171
Note GBPm GBPm
Sale of goods 30.7 27.9
----- -------- ---------
Rendering of services 292.6 259.3
----- -------- ---------
Revenue 323.3 287.2
----- -------- ---------
Cost of sales (154.5) (136.7)
----- -------- ---------
Gross profit 168.8 150.5
----- -------- ---------
Administrative expenses (149.9) (133.5)
----- -------- ---------
Operating profit 3 18.9 17.0
----- -------- ---------
Adjusted operating profit 29.0 24.0
----- -------- ---------
Amortisation of acquired intangibles 3 (2.4) (4.0)
----- -------- ---------
Exceptional items 4 (7.7) (3.0)
----- -------- ---------
Operating profit 18.9 17.0
----- -------- ---------
Finance expense (0.5) -
----- -------- ---------
Profit before tax 18.4 17.0
----- -------- ---------
Tax charge (including an exceptional
credit of GBP2.1m, 2017: GBP4.6m) 5 (3.6) (1.6)
----- -------- ---------
Profit from continuing operations 14.8 15.4
----- -------- ---------
Profit from discontinued operations - 14.7
----- -------- ---------
Profit for the year attributable to
equity holders of the Parent 14.8 30.1
----- -------- ---------
Earnings per share (pence) 7
----- -------- ---------
Continuing operations
----- -------- ---------
- Basic 17.2 18.9
----- -------- ---------
- Diluted 16.9 18.9
----- -------- ---------
Continuing and discontinued operations
----- -------- ---------
- Basic 17.2 36.8
----- -------- ---------
- Diluted 16.9 36.7
----- -------- ---------
1. The Group has applied IFRS 15 using the fully retrospective
method and as a result the comparative information has been
restated.
Consolidated Statement of Comprehensive Income for the Year
Ended 31 December 2018
Restated
2018 20171
GBPm GBPm
Profit for the year 14.8 30.1
------ ---------
Other comprehensive income / (expense):
Items that may be reclassified subsequently
to profit or loss
------ ---------
Foreign exchange differences arising on the
translation of foreign operations 5.0 2.0
------ ---------
Foreign exchange differences arising on the
translation of foreign currency quasi equity
loans to foreign operations, net of tax (0.1) (7.8)
------ ---------
Income tax credit on currency translation
differences on foreign currency quasi equity
loans to foreign subsidiaries - 1.3
------ ---------
Total other comprehensive income / (expense) 4.9 (4.5)
------ ---------
Total comprehensive income for the year attributable
to equity holders of the Parent Company 19.7 25.6
------ ---------
1. The Group has applied IFRS 15 using the fully retrospective
method and as a result the comparative information has been
restated.
Consolidated Statement of Financial Position at 31 December
2018
Restated
2018 20171
Note GBPm GBPm
Non current assets
----- -------- ---------
Intangible assets 8 222.9 152.9
----- -------- ---------
Property, plant and equipment 9.1 9.6
----- -------- ---------
Deferred tax assets 8.9 11.2
----- -------- ---------
Other receivables 2.4 1.9
----- -------- ---------
Capitalised contract costs 0.8 1.3
----- -------- ---------
244.1 176.9
----- -------- ---------
Current assets
----- -------- ---------
Trade and other receivables 108.3 85.4
----- -------- ---------
Capitalised contract costs 1.9 1.6
----- -------- ---------
Tax assets 6.6 2.6
----- -------- ---------
Cash and cash equivalents 9 19.8 22.7
----- -------- ---------
136.6 112.3
----- -------- ---------
Total assets 380.7 289.2
----- -------- ---------
Current liabilities
----- -------- ---------
Trade and other payables (105.1) (78.0)
----- -------- ---------
Current tax liabilities (11.2) (10.6)
----- -------- ---------
Provisions (0.7) (1.6)
----- -------- ---------
(117.0) (90.2)
----- -------- ---------
Non current liabilities
----- -------- ---------
Trade and other payables (0.7) (0.7)
----- -------- ---------
Borrowings (5.4) -
----- -------- ---------
Deferred tax liabilities (8.7) (1.6)
----- -------- ---------
Provisions (3.3) (2.9)
----- -------- ---------
(18.1) (5.2)
----- -------- ---------
Total liabilities (135.1) (95.4)
----- -------- ---------
Net assets 245.6 193.8
----- -------- ---------
Represented by:
----- -------- ---------
Share capital 0.9 0.8
----- -------- ---------
Share premium 136.0 100.7
----- -------- ---------
Retained earnings 79.3 67.8
----- -------- ---------
Translation reserve 29.4 24.5
----- -------- ---------
Total equity 245.6 193.8
----- -------- ---------
1. The Group has applied IFRS 15 using the fully retrospective
method and as a result the comparative information has been
restated.
Consolidated Statement of Changes in Equity for the Year Ended
31 December 2018
Share Share Retained Translation
capital premium earnings reserve Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 0.8 99.2 39.7 29.0 168.7
--------- --------- ---------- ------------ --------
IFRS 15 adjustment - - 3.1 - 3.1
--------- --------- ---------- ------------ --------
At 1 January 2017 (restated) 0.8 99.2 42.8 29.0 171.8
--------- --------- ---------- ------------ --------
Profit for the year - - 30.1 - 30.1
--------- --------- ---------- ------------ --------
Other comprehensive expense - - - (4.5) (4.5)
--------- --------- ---------- ------------ --------
Total comprehensive income
/ (expense) - - 30.1 (4.5) 25.6
--------- --------- ---------- ------------ --------
Arising on share issues - 1.5 - - 1.5
--------- --------- ---------- ------------ --------
Share-based payments - - 0.2 - 0.2
--------- --------- ---------- ------------ --------
Share-based payments deferred
tax - - (0.2) - (0.2)
--------- --------- ---------- ------------ --------
Dividend paid - - (5.1) - (5.1)
--------- --------- ---------- ------------ --------
At 31 December 2017 0.8 100.7 67.8 24.5 193.8
--------- --------- ---------- ------------ --------
Profit for the year - - 14.8 - 14.8
--------- --------- ---------- ------------ --------
Other comprehensive income - - - 4.9 4.9
--------- --------- ---------- ------------ --------
Total comprehensive income - - 14.8 4.9 19.7
--------- --------- ---------- ------------ --------
Issue of shares 0.1 35.3 - - 35.4
--------- --------- ---------- ------------ --------
Share-based payments expense - - 1.9 - 1.9
--------- --------- ---------- ------------ --------
Share-based payments deferred
tax - - (0.1) - (0.1)
--------- --------- ---------- ------------ --------
Dividends paid - - (5.1) - (5.1)
--------- --------- ---------- ------------ --------
At 31 December 2018 0.9 136.0 79.3 29.4 245.6
--------- --------- ---------- ------------ --------
The amounts above are all attributable to equity holders of the
Parent Company
Consolidated Statement of Cash Flows for the Year Ended 31
December 2018
Restated
2018 20171
Note GBPm GBPm
Cash flow from operating activities
----- ------- ---------
Profit for the year 14.8 28.5
----- ------- ---------
Tax expense 3.6 1.6
----- ------- ---------
Profit before tax 18.4 30.1
----- ------- ---------
Adjustments for:
----- ------- ---------
Depreciation of property, plant and
equipment 3.1 2.9
----- ------- ---------
Amortisation of intangible assets 8 4.6 4.0
----- ------- ---------
Gain on disposal of business operations - (20.6)
----- ------- ---------
Share-based payments expense 1.9 0.2
----- ------- ---------
Interest expense 0.5 -
----- ------- ---------
Foreign exchange (income) / expense (0.3) 0.2
----- ------- ---------
Cash generated from operations before
changes in working capital and provisions 28.2 16.6
----- ------- ---------
Trade and other receivables (8.2) (1.7)
----- ------- ---------
Trade and other payables 18.8 (11.4)
----- ------- ---------
Cash generated from continuing operations 38.8 3.5
----- ------- ---------
Income taxes paid (2.8) (2.9)
----- ------- ---------
Net cash flow from operating activities 35.9 0.6
----- ------- ---------
Investing activities
----- ------- ---------
Purchase of property, plant and equipment (2.2) (6.3)
----- ------- ---------
Acquisition of subsidiaries, net of
cash acquired 11 (59.2) -
----- ------- ---------
Expenditure on intangible assets (12.2) (9.6)
----- ------- ---------
Disposal of businesses net of cash
disposed of - 22.2
----- ------- ---------
Net cash flow from investing activities (73.6) 6.3
----- ------- ---------
Financing activities
----- ------- ---------
Proceeds from issue of shares, net
of costs 35.4 1.2
----- ------- ---------
Proceeds from external borrowings 19.6 -
----- ------- ---------
Repayment of external borrowings (14.4) -
----- ------- ---------
Dividends paid 6 (5.1) (5.1)
----- ------- ---------
Finance costs (1.4) -
----- ------- ---------
Net cash flow from financing activities 34.1 (3.9)
----- ------- ---------
(Decrease) / increase in cash and cash
equivalents (3.5) 3.0
----- ------- ---------
Cash and cash equivalents at 1 January 22.7 21.3
----- ------- ---------
Effect of exchange rate changes 0.6 (1.6)
----- ------- ---------
Cash and cash equivalents at 31 December 9 19.8 22.7
----- ------- ---------
1. The Group has applied IFRS 15 using the fully retrospective
method and as a result the comparative information has been
restated.
Notes to the Financial Statements for the Year Ended 31 December
2018
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 2018 or 2017. Statutory consolidated financial statements
for the Group for the year ended 31 December 2017, prepared in
accordance with adopted IFRS, have been delivered to the Registrar
of Companies and those for 2018 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 2018
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 2017 except as set out
below. 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.
The Directors have concluded that it has adequate financial
resources to continue in operation for a period of at least 12
months from the date of this report and can prepare its financial
statements on a going concern basis.
The Directors have prepared cash flow forecasts for a period of
(at least 12) months from the date of approval of these financial
statements which indicate that, taking account of reasonably
possible downsides, the Company will have sufficient funds, to meet
its liabilities as they fall due for that period.
In reaching this conclusion, the Directors have considered the
future prospects and performance of the Group, including: a review
of performance in 2018; a review of the 2019 annual plan which
includes cash flow forecasts to March 2020; a review of working
capital including the liquidity position; a review of current and
forecast financial covenant compliance and of current cash
levels.
Consequently, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with
Customers with a date of initial application of 1 January 2017. As
a result, the Group has changed its accounting policies and updated
its internal processes and controls relating to revenue
recognition.
The Group has applied IFRS 15 using the fully retrospective
method - i.e. applying IFRS 15 as though it had been in effect from
1 January 2017 resulting in a restatement of the comparative
information and recognising the effect of initially applying IFRS
15 at 1 January 2018 as an adjustment to the opening balance of
equity at 1 January 2017.
Opening balances
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:
Adjustment 1 - Term licences
The impact on 2017, as the comparative period, in the 2018
accounts has been to create an accrued income balance sheet
position of GBP3.0m at 31 December 2017, recognising an increase of
2017 revenues and pre -tax profits by GBP1.5m. This reflects the
recognition of term licences at a point in time rather than over
time.
Adjustment 2 - Capitalised commissions
The impact on the Group's 2017 reported numbers has been to
create capitalised contract costs on the balance sheet of GBP2.9m
at 31 December 2017 and decrease 2017 profit and loss account
commission costs by GBP0.5m.
Adjustment 3 - Deferred tax
This adjustment reflects the adjustments required to the
deferred tax liabilities and charges within the 2017 financial
statements.
IFRS 9 Financial Instruments
IFRS 9 applies a forward-looking impairment model that replaces
the current applicable incurred loss model. In contrast to the
complex and rules based approach of IAS 39, the new hedge
accounting requirements provide an improved link to risk management
and treasury operations and will be simpler to apply. The adoption
of IFRS 9 did not have a material impact on the Group's
consolidated results or financial position and does not require a
restatement of comparative figures. The fair value of each category
of the Group's financial instruments approximates to their carrying
value. Where financial assets and liabilities are measured at fair
values the measurement hierarchy, valuation techniques and inputs
used are consistent with those used at 31 December 2017. There were
no movements between different levels of the fair value hierarchy
in the year.
2 Segment Information
For internal management reporting purposes, the operating
segments are determined by product and service groupings and
referred to as divisions. The Group's operating segments are:
- Language Services
- Language Technologies
- Content Technologies
- Non-Core Businesses
Segment profits represent the profit earned by each segment
without allocation of central administration costs which are
presented as a separate line below segment profit. This is the
measure reported to the Chief Operating Decision Maker, the Chief
Executive Officer, and Senior Management Team for the purposes of
resource allocation and assessment of segment performance. Transfer
prices between segments are set on an arm's length basis in a
manner similar to transactions with third parties.
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 impact of these changes in methodology, in the year
ended 2017 has been to reduce segment cost by GBP15.1m. Management
have concluded that changing the shared cost allocation
methodologies and separately disclosing these corporate costs gives
a better representation of segment profitability.
Depreciation Adjusted operating
2018 - GBPm Revenue and Amortisation profit
Language Services 218.2 3.2 23.0
-------- ------------------ -------------------
Language Technologies 49.8 1.0 9.5
-------- ------------------ -------------------
Content Technologies 55.3 1.1 14.9
-------- ------------------ -------------------
Segment total 323.3 5.3 47.4
-------- ------------------ -------------------
Central costs (18.4)
-------- ------------------ -------------------
Group adjusted
operating profit 29.0
-------- ------------------ -------------------
Exceptional items (7.7)
-------- ------------------ -------------------
Profit on disposal -
-------- ------------------ -------------------
Amortisation on
acquired intangibles (2.4)
-------- ------------------ -------------------
Finance costs (0.5)
-------- ------------------ -------------------
Profit before
taxation 18.4
-------- ------------------ -------------------
Depreciation Adjusted operating
2017 - GBPm (1) Revenue and amortisation profit
Language Services 184.5 1.7 18.9
-------- ------------------ -------------------
Language Technologies 49.0 0.7 10.2
-------- ------------------ -------------------
Content Technologies 53.7 0.5 10.0
-------- ------------------ -------------------
Non-core businesses 2.0 - (3.0)
-------- ------------------ -------------------
Segment total 287.2 2.9 36.1
-------- ------------------ -------------------
Central costs (15.1)
-------- ------------------ -------------------
Group adjusted
operating profit 21.0
-------- ------------------ -------------------
Exceptional items (5.7)
-------- ------------------ -------------------
Profit on disposal 20.6
-------- ------------------ -------------------
Amortisation on
acquired intangibles (4.0)
-------- ------------------ -------------------
Finance costs -
-------- ------------------ -------------------
Profit before
taxation 31.9
-------- ------------------ -------------------
(1) Restated for the impact of IFRS 15.
3 Profit on ordinary activities
Operating profit before tax is stated after Restated
charging - GBPm 2018 2017(1)
Research and development expenditure 17.6 18.5
----- ---------
Depreciation of property, plant and equipment 3.1 2.9
----- ---------
Amortisation of acquired intangible assets 2.4 4.0
----- ---------
Amortisation of other intangible assets 2.2 -
----- ---------
Operating lease rentals for plant and machinery 0.1 0.1
----- ---------
Operating lease rentals for land and buildings 8.3 6.9
----- ---------
Net foreign currency differences 0.5 0.5
----- ---------
Share-based payments expense 1.9 0.2
----- ---------
(1) Restated for the impact of IFRS 15.
4 Exceptional items
Accounting policy
Exceptional items are those items that in management's judgement
should be disclosed separately by virtue of their size, nature or
incidence, in order to provide a better understanding of the
underlying financial performance of the Group. In determining
whether an event or transaction is exceptional, management
considers qualitative as well as quantitative factors such as
frequency or predictability of occurrence.
2018
2018 Tax 2018 2017 2017 2017
GBPm Pretax impact Total Pretax Tax impact Total
Restructuring costs 4.1 (1.0) 3.1 2.1 (0.4) 1.7
-------- -------- ------- -------- ------------ -------
Acquisition related costs 2.8 (0.1) 2.7 - - -
-------- -------- ------- -------- ------------ -------
Other exceptional items 0.8 - 0.8 0.9 (0.2) 0.7
-------- -------- ------- -------- ------------ -------
Continuing operations 7.7 (1.1) 6.6 3.0 (0.6) 2.4
-------- -------- ------- -------- ------------ -------
Discontinued operations
-------- -------- ------- -------- ------------ -------
Restructuring costs - - - 0.8 (0.2) 0.6
-------- -------- ------- -------- ------------ -------
Other exceptional items - - - 1.9 - 1.9
-------- -------- ------- -------- ------------ -------
Discontinued operations - - - 2.7 (0.2) 2.5
-------- -------- ------- -------- ------------ -------
Total 7.7 (1.1) 6.6 5.7 (0.8) 4.9
-------- -------- ------- -------- ------------ -------
Restructuring costs
Restructuring costs relate to the costs of organisational change
associated with the Group's transformation programme concluded in
2018. Normal trading redundancy costs are charged to the income
statement as incurred. Payments made in relation to the exit of the
former CFO, Dominic Lavelle amounted to GBP0.9m (2017: GBPnil).
Acquisition related costs
Acquisition related costs of GBP2.8m include GBP2.3m of due
diligence, legal, accounting, valuation and other professional
services as well as GBP0.5m of acquisition-related integration
costs.
Other exceptional items
Other exceptional costs of GBP0.8m relate to settlement costs
for historic tax issues. The prior year charge of GBP0.9m primarily
relates to dual running costs associated with relocation of the
Group's two principal UK offices.
Discontinued exceptional items
Discontinued exceptional in the prior year 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
Business operations (GBP1.9m)
5 Taxation
UK corporation tax for the year ended 31 December 2018 is
calculated at 19% (2017: 19.25%) of the estimated assessable loss
for the period.
Restated
GBPm 2018 2017(1)
Current tax:
------ ---------
UK corporation tax at 19.0% (2017: 19.25%) 1.5 -
------ ---------
Overseas current tax (credit) / charge (0.3) 8.4
------ ---------
Adjustment in respect of previous years - (0.2)
------ ---------
Total current tax charge 1.2 8.2
------ ---------
Deferred tax:
------ ---------
Origination and reversal of temporary differences 2.4 0.4
------ ---------
Changes in tax rates - 3.3
------ ---------
Adjustments to estimated amounts arising in
prior periods - (10.1)
------ ---------
Total deferred tax charge / (credit) 2.4 (6.4)
------ ---------
Total tax charge as per the income statement
(2017; continuing GBP1.6m, discontinued GBP0.2m) 3.6 1.8
------ ---------
Tax in other comprehensive income - -
------ ---------
Tax in equity (0.1) -
------ ---------
Tax attributable to the Group 3.5 1.8
------ ---------
In 2018, the Group finalised its last s382 calculation in
respect of prior US acquisitions. The completion of this exercise
together with other deferred tax adjustments has given rise to an
exceptional deferred tax credit of GBP2.1m. This is included within
the origination and reversal of temporary differences. The charge
for the year can be reconciled to profit for the year before
taxation per the Consolidated Statement of Profit or Loss as
follows:
Restated
GBPm 2018 2017(1)
Profit for the year before taxation (2017:
Continuing GBP17.0m, discontinuing GBP14.9m) 18.4 31.9
------ ---------
Profit for the year before taxation multiplied
by the standard rate of corporation tax in
the UK of 19% (2017: 19.25%) 3.5 6.1
------ ---------
Effects of :
------ ---------
Expenses not deductible for tax purposes 1.3 0.6
------ ---------
Adjustments in respect of previous years - (0.4)
------ ---------
Recognition of previously unrecognised trading
losses / timing differences (2.1) (6.2)
------ ---------
Utilisation of tax losses brought forward previously
not recognised (0.4) (0.5)
------ ---------
Current tax losses not available for offset - 0.2
------ ---------
US transition tax - 2.8
------ ---------
Impact of reduction in US federal tax rate - 3.3
------ ---------
Higher/ (lower) tax rates on overseas earnings 0.6 (2.1)
------ ---------
Disposal of sale of Non-Core Businesses - (3.7)
------ ---------
Other movements 0.7 1.7
------ ---------
Tax charge as per the income statement 3.6 1.8
------ ---------
Effective tax rate 20% 5%
------ ---------
(1) Restated for the impact of IFRS 15.
6. Dividends
GBPm 2018 2017
Final ordinary dividend for the year ended
31 December 2017 was 6.2 pence per share. (Year
ended 31 December 2016: 6.2 pence per share) 5.1 5.1
----- -----
The Company is to recommend to its shareholders at the annual
general meeting, to be held on 7 May 2019, that a final dividend,
for the year ended 31 December 2018, of 7 pence per ordinary share
be declared. If approved by shareholders, the dividend will be
payable on 10 June 2019 to shareholders on the register on 26 April
2019, with an ex-dividend date of 25 April 2019.
7 Earnings per share
Restated
(1)
Restated
continuing Discontinued (1)
2018 2017 2017 2017
GBPm GBPm GBPm GBPm
Profit for the year 14.8 15.4 14.7 30.1
----------- ------------ ------------- -----------
Exceptional items charged
within operating profit 7.7 3.0 2.7 5.7
----------- ------------ ------------- -----------
Profit on disposal of non-core
businesses - - (20.6) (20.6)
----------- ------------ ------------- -----------
Amortisation on acquired intangibles 2.4 4.0 - 4.0
----------- ------------ ------------- -----------
Tax effect of the above (1.6) (1.4) (0.2) (1.6)
----------- ------------ ------------- -----------
Exceptional tax credit (2.1) (4.6) - (4.6)
----------- ------------ ------------- -----------
Adjusted profit for the year 21.2 16.4 (3.4) 13.0
----------- ------------ ------------- -----------
Number Number Number Number
----------- ------------ ------------- -----------
Weighted average number of
ordinary shares 86,147,916 81,947,503 81,947,503 81,947,503
----------- ------------ ------------- -----------
Effects of dilution from share
options 1,657,337 193,091 193,091 193,091
----------- ------------ ------------- -----------
Weighted average number of
ordinary shares adjusted for
the effect of dilution 87,805,253 82,140,594 82,140,594 82,140,594
----------- ------------ ------------- -----------
Pence Pence Pence Pence
----------- ------------ ------------- -----------
Basic EPS 17.2 18.9 17.9 36.8
----------- ------------ ------------- -----------
Diluted EPS 16.9 18.9 17.8 36.7
----------- ------------ ------------- -----------
Adjusted basic EPS 24.7 20.1 (4.2) 15.9
----------- ------------ ------------- -----------
Adjusted diluted EPS 24.2 20.1 (4.2) 15.9
----------- ------------ ------------- -----------
(1) Restated for the impact of IFRS 15.
8 Intangible assets
Customer Intellectual Capitalised
GBPm relationships property Goodwill R&D Software Total
Cost
--------------- ------------- --------- ------------ --------- --------
At 1 January 2017 18.6 60.6 212.6 - - 291.8
--------------- ------------- --------- ------------ --------- --------
Disposals (1.4) - - - - (1.4)
--------------- ------------- --------- ------------ --------- --------
Additions - - - 2.5 7.1 9.6
--------------- ------------- --------- ------------ --------- --------
Effect of movements in
exchange rates (0.6) (1.4) (4.6) - - (6.6)
--------------- ------------- --------- ------------ --------- --------
At 1 January 2018 16.6 59.2 208.0 2.5 7.1 293.4
--------------- ------------- --------- ------------ --------- --------
Additions - - - 7.6 4.6 12.2
--------------- ------------- --------- ------------ --------- --------
Acquired on business
combination 30.1 4.3 22.3 - - 56.7
--------------- ------------- --------- ------------ --------- --------
Disposals - - - - (0.4) (0.4)
--------------- ------------- --------- ------------ --------- --------
Effect of movements in
exchange rates 1.6 1.4 5.0 - - 8.0
--------------- ------------- --------- ------------ --------- --------
At 31 December 2018 48.3 64.9 235.3 10.1 11.3 369.9
--------------- ------------- --------- ------------ --------- --------
Amortisation:
--------------- ------------- --------- ------------ --------- --------
At 1 January 2017 (17.3) (56.7) (65.9) - - (139.9)
--------------- ------------- --------- ------------ --------- --------
Charge for the year (0.9) (3.1) - - - (4.0)
--------------- ------------- --------- ------------ --------- --------
Disposals 1.4 - - - - 1.4
--------------- ------------- --------- ------------ --------- --------
Effect of movements in
exchange rates 0.6 1.4 - - - 2.0
--------------- ------------- --------- ------------ --------- --------
At 1 January 2018 (16.2) (58.4) (65.9) - - (140.5)
--------------- ------------- --------- ------------ --------- --------
Charge for the year (0.9) (1.5) - (1.1) (1.1) (4.6)
--------------- ------------- --------- ------------ --------- --------
Disposals - - - - 0.4 0.4
--------------- ------------- --------- ------------ --------- --------
Effect of movements in
exchange rates (1.4) (0.9) - - - (2.3)
--------------- ------------- --------- ------------ --------- --------
At 31 December 2018 (18.5) (60.8) (65.9) (1.1) (0.7) (147.0)
--------------- ------------- --------- ------------ --------- --------
Net book value
--------------- ------------- --------- ------------ --------- --------
At 31 December 2018 29.8 4.1 169.4 9.0 10.6 222.9
--------------- ------------- --------- ------------ --------- --------
At 31 December 2017 0.4 0.8 142.1 2.5 7.1 152.9
--------------- ------------- --------- ------------ --------- --------
9 Cash and borrowings
GBPm 2018 2017
Cash at bank 19.8 22.7
----- -----
The fair value of cash and cash equivalents is GBP19.8m (2017:
GBP22.7m). Restricted cash at 31 December 2018 was GBP0.3m (2017:
GBP0.1m).
Cash at bank earns interest at floating rates based on daily
bank deposit rates. Short-term deposits are made for varying
periods of between one day and three months, depending on the
immediate cash requirements of the Group, and earn interest at the
respective short-term deposit rates.
Net cash GBPm 2018 2017
Cash and cash equivalents 19.8 22.7
------ -----
Borrowings (5.4) -
------ -----
Net cash 14.4 22.7
------ -----
Borrowings
On 3 August 2015, the Group signed a five year GBP25m revolving
credit facility, expiring on 2 August 2020. This facility was
cancelled on 20 July 2018 and on the same day, the Group signed a
five year GBP120m syndicate revolving credit facility, expiring on
19 July 2023. The agreement includes a GBP50m Accordian
(uncommitted) facility. At 31 December 2018, GBP5.4m was drawn on
the facility (2017: GBPnil). This amount was fully settled
subsequent to the year end.
Draw downs under the GBP70m committed revolving credit facility
are repayable in one, three and six month instalments and amounts
can be redrawn at any time as long as covenant and other conditions
are met. Accordingly drawdowns under this facility have been
categorised as non current. The loan bears interest at LIBOR+
margin, the margin varying between 1.15% and 2.15% depending on the
ratio of the Group's total net debt to its adjusted earnings before
interest, tax, depreciation and amortisation.
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.
11 Acquisition of Donnelley Language Solutions
On 23 July 2018, the Group acquired the Donnelley Language
Solutions (DLS) business for cash consideration of $77.8m. The
acquisition was funded by internal cash resources, an equity
placing which raised GBP36.2m (GBP35.0m net of fees) and a GBP19.6m
($25.6m) drawdown under the Group's new banking facility.
Acquisition-related costs
The Group incurred acquisition-related costs of GBP2.3m on legal
fees and due diligence costs.
GBPm
Total consideration 59.4
-----
Cash included in undertaking acquired 0.2
-----
Net cash consideration in cash flow statement 59.2
-----
Identifiable assets acquired and liabilities assumed
The table summarises the recognised amounts of assets acquired
and liabilities assumed at the date of acquisition.
Fair value of identifiable net assets
acquired GBPm
Property, plant and equipment 0.4
------
Intangible assets - customer relationships 30.1
------
Intangible assets - intellectual property 4.3
------
Trade and other receivables 14.0
------
Cash and cash equivalents 0.2
------
Trade and other payables (6.6)
------
Deferred tax (5.3)
------
37.1
Goodwill 22.3
------
Total consideration 59.4
------
Satisfied by cash 59.4
------
The main factors leading to the recognition of goodwill are the
presence of certain intangible assets, such as the assembled
workforce of the acquired entity, the Company's ability to attain
new customers going forwards and the value of intangible assets
beyond their estimated useful lives.
For the five months ended 31 December 2018, DLS contributed
revenue of GBP27.8m and adjusted profit before tax of GBP1.8m to
the Group's results.
If the acquisition had occurred on 1 January 2018, management
estimates that revenue would have been GBP61.0m, and profit before
tax would have been GBP1.3m. In determining these amounts,
management has assumed that the fair value adjustments, determined
provisionally, that arose on the date of acquisition would have
been the same if the acquisition had occurred on 1 January
2018.
Measurement of fair values
The fair value of DLS's intangible assets (technology
intellectual property and customer relationships) has been measured
by an independent valuer.
Trade receivables comprise gross contractual amounts due of
GBP9.5m, of which GBP0.8m was expected to be uncollectable at the
date of acquisition and has been provided within these financial
statements.
Accrued income assets relate to rights to consideration for work
completed but not billed at the reporting date for language and
professional services. A provision for impairment of GBP0.1m
against these balances at the date of acquisition has been
recognised.
An adjustment to recognise a holiday pay accrual, in line with
Group policy, of GBP0.4m has been recognised at the date of
acquisition. Deferred income has been restated to its fair value of
the Group's services obligation at the date of acquisition.
Acquired assets and liabilities remain provisional pending the
final determination of sale and purchase agreement mechanisms in
relation to the fair value of liabilities acquired.
Alternative Performance Measures (APMs)
The Group presents various APMs as the Directors believe that
these are useful for the users of the financial statements in
helping to provide a balanced view of, and relevant information on,
the Groups financial performance.
Measure / description Why we use it
------------------------------------------------------------- --------------------------------------------
Adjusted
Adjusted measures are adjusted Adjusted measures allow management
to exclude items which would distort and investors to compare performance
the understanding of the performance without exceptional items or
for the year or comparability non-operational items.
between periods:
* Amortisation of acquired intangible assets;
* Exceptional items that in management's judgement
should be disclosed separately (see note 4) by virtue
of their size, nature or incidence.
------------------------------------------------------------- --------------------------------------------
Constant currency
Prior period underlying measures, Constant currency measures allow
including revenue are retranslated management and investors to compare
at the current year exchange rates performance without the potentially
to neutralise the effect of currency distorting effects of foreign
fluctuations. exchange movements.
------------------------------------------------------------- --------------------------------------------
Organic
In addition to the adjustments Organic measures allow management
made for adjusted measures, organic and investors to understand the
measures exclude the contribution like-for-like revenue and current
from discontinued operations and period margin performance of
acquired businesses during the the continuing business.
period and the impact of foreign
exchange.
------------------------------------------------------------- --------------------------------------------
Adjusted operating profit
Defined as operating profit excluding As a measure of operating profit
exceptional items and amortisation excluding major non-cash items.
of acquired intangibles. A reconciliation
of adjusted profit to operating
profit is provided on the consolidated
statement of profit or loss.
------------------------------------------------------------- --------------------------------------------
Free cash flow
Cash flow from adjusted operating As an indicator of the ability
activities less maintenance capital of the company to turn revenue
expenditure, research and development into cash and therefore the quality
costs, cash interest and cash of revenue.
tax paid.
------------------------------------------------------------- --------------------------------------------
Adjusted EPS
The adjusted EPS is EPS adjusted The adjusted EPS measure allows
for the impact of disposals by management and investors to compare
excluding current and prior period performance without the distorting
disposals, exceptional items, effects arising from significant
the impact of amortisation on acquisitions, disposals and the
acquired intangibles and the impact impact of exceptional tax charges
of exceptional tax charges or or credits.
credits. A reconciliation of adjusted
EPS to EPS is provided in note
7.
------------------------------------------------------------- --------------------------------------------
Annual Recurring Revenue (ARR)
Annualised recurring revenue (ARR) As a forward looking revenue
is the normalised reported recurring measure that represents the annualised
revenue in the last month of the value of that part of the current
reporting period, annualised. revenue base will be carried
into future periods.
ARR for our technology businesses
consists of SaaS licence, hosting
and support and maintenance revenues.
The ARR calculation has been restated
for IFRS 15 and excludes the licence
element of term contracts.
------------------------------------------------------------- --------------------------------------------
Annual Recurring Contract Value
(ARCV) As a measure of new recurring
Annual Recurring Contract Value bookings that can be compared
(ARCV) is the amount of revenue across different contract durations
recognised in the last month of (monthly, annual, multi-year)
the reporting period annualised and types (maintenance and subscription).
and generated from technology
related subscription contracts
(SaaS, hosting and support and
maintenance) and term contracts.
------------------------------------------------------------- --------------------------------------------
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
FR JMMATMBITMRL
(END) Dow Jones Newswires
March 20, 2019 03:01 ET (07:01 GMT)
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