Regulatory Story
Go to market news section View chart   Print
RNS
SDL PLC   -  SDL   

Half-year Report

Released 07:00 06-Aug-2019

RNS Number : 9747H
SDL PLC
06 August 2019
 

6 August 2019

 

SDL plc

("SDL" or the "Group")

Half Year results for the six months ended 30 June 2019

Successful strategic and financial execution

SDL plc (LSE: SDL), the global innovator in language translation technology, services and content management, today announces its half year results for the six months ended 30 June 2019.

Financial Highlights

Unaudited Results

1H19

1H184

Change

Six months to 30 June

£m

£m

 

 

 

 

 

Revenue

182.5

143.1

+28%

Proforma1

 

 

+6%

 

 

 

 

Operating profit

11.9

7.8

+53%

 

 

 

 

Adjusted operating profit2

16.1

12.0

+34%

 

 

 

 

Profit before tax

10.9

7.8

+40%

 

 

 

 

Basic earnings per share

8.9p

6.8p

+31%

 

 

 

 

Diluted earnings per share

8.7p

6.7p

+30%

 

 

 

 

Adjusted diluted earnings per share3

12.3p

10.8p

+14%

1 Proforma is used for illustrative purposes based on unaudited management accounts of the pre-acquisition period of DLS

2 Adjusted operating profit: Operating profit before acquisition related amortisation and exceptional items (as reconciled on the income statement)

3 Adjusted earnings: Profit after tax before the impact of exceptional items and acquisition related amortisation (as reconciled in note 5)

4 1H18 results have not been restated for the impact of IFRS 16 - Leases (see note 1)

 

·     Revenue benefited from Pound Sterling to US Dollar exchange rate

·     Before IFRS 16 adjustments, adjusted operating profit was £15.5m

·     Group gross margin of 51.5% (1H18: 52.9%), reflecting increased contribution to total revenue from Language Services

·     Net cash5 at 30 June 2019 was £1.1m (31 December 2018: £14.4m). At 31 July 2019, the Group's net cash balance was £11.0m

 

 

Operational Highlights

·     The acquisition of Donnelley Language Solutions ("DLS") (acquired in July 2018) has performed very well, accelerating SDL's strategy and receiving positive feedback from customers and employees

·     Positive momentum from sales and marketing strategy, delivering growth in premium regulated services, strategic accounts, machine translation and new customer wins

·     Strong growth in premium services6 revenues to £52.0m (1H18: £18.6m), accounting for 40% of Language Services revenues (1H18: 20%)

·     Improved productivity in Language Services resulting in higher gross margin at 42.1% (1H18: 41.8%), including presently lower margin DLS

·     Further progress with the Language Services automation programme, with 80% of addressable clients on Helix in June 2019. Linguistic Utilisation7 increased to 57.6% for the first half (1H18: 54.3%)

·     Actions on corporate overheads and synergies on track to deliver £8m of annualised savings by year end

·     Investment into market-leading innovations, including the industry's first end-to-end, AI-enabled translation platform, SDL Language Cloud, which will be launched in September

5 Net cash: Net cash comprises cash and cash equivalents and external borrowings

6 Premium Services revenue: Comprises Regulated Language Services (Finance, Legal, Life Sciences) plus Marketing Solutions

7 Linguistic Utilisation: The percentage of time in-house linguists spent on billable work across the financial period 

 

Adolfo Hernandez, CEO of SDL plc, said:

"We are pleased to have delivered a good start to the year, which resulted in a 14% increase in adjusted diluted EPS over the prior year, benefiting from the acquisition of DLS and strong growth in key areas such as premium services and machine translation. During the first half, we continued to deliver on our transformation strategy, including the roll out of our automation programme, Helix, and completed the development of our next generation end-to-end translation platform, SDL Language Cloud, ahead of its launch in September. We enter the traditionally stronger second half with good sales momentum and a healthy sales pipeline. This, alongside the actions that we are taking on productivity, gives us confidence of delivering improved profitability for the full year, in line with management expectations."

 

Enquiries

SDL plc

01628 410100

Adolfo Hernandez, CEO

Xenia Walters, CFO

 

 

 

Luther Pendragon

0207 618 9100

Harry Chathli, Claire Norbury, Alexis Gore

 

 

 

 

 

Analyst Presentation

Adolfo Hernandez, Chief Executive Officer, and Xenia Walters, Chief Financial Officer, will be holding an analyst presentation at 9.00am today at Investec, 30 Gresham Street, London, EC2V 7QP.

 

About SDL

SDL (LSE: SDL) is the global leader in content creation, translation and delivery. For over 25 years we've helped companies communicate with confidence and deliver transformative business results by enabling powerful experiences that engage customers across multiple touchpoints worldwide. 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.

 

Operational review

SDL achieved a good start to the year, with adjusted operating profit (pre-IFRS 16) growth of 29% and sales growth of 28%, benefiting from the acquisition of DLS in July 2018 and favourable exchange rates. On a proforma basis, revenues increased by 6%.  

The Group increased its penetration of target 'premium' sectors of financial services, life sciences, legal services and marketing. This has been achieved both organically and through the acquisition of DLS, which has proven to be an excellent fit. Premium services revenues accounted for 40% of Language Services revenues in the period, up from 20% in 1H18. The business has continued to focus on driving cross-selling across its extensive enterprise customer base, as well as improving the new client win rate. Machine Translation sales grew 10% year-on-year. SDL enters the second half with a healthy pipeline of services and technology deals.

Operationally, SDL remains focused on increasing customer satisfaction, improving the productivity and margins of the Language Services business, reducing Group operating overheads that relate to legacy processes, delivering the synergies from the acquisition of DLS and making SDL a great place to work. Language Services gross margin, which is the key indicator of productivity in the segment, improved slightly to 42.1% in the first half, but included DLS, which presently reports lower gross margins due to its outsourced model. The integration of DLS is on track and should deliver benefits in areas such as linguistic insourcing, which was commenced towards the end of the first half. Finally, the necessary steps have been taken to deliver corporate and back-office savings and the Group is on track to deliver the anticipated £8m of annualised gross cost savings and synergies by the end of the year, which will allow re-investment in innovation.

SDL has invested across its technology portfolio. A significant focus in the half has been on the development of SDL Language Cloud ahead of its launch in September. This is the industry's first, cloud-based, end-to-end AI-enabled translation platform. Also in the area of AI, further important strides have been made in the areas of Neural Machine Translation and Natural Language Processing, which are being deployed across all of SDL's business segments. These investments will enable SDL and its customers to meet the challenges of content volume and velocity that are becoming the new norm in the industry.

 

Segment performance

SDL helps customers create, translate and deliver content globally, at scale, on time and at the right quality, by deploying market-leading services, technologies and solutions.

 

Language Services

Language Technologies

Content Technologies

 

1H19

1H18

 

1H19

1H18

 

1H19

1H18

 

Revenue

£128.4m

£91.8m

+40%

£25.6m

£24.0m

+7%

£28.5m

£27.3m

+4%

Gross profit margin

42.1%

41.8%

+0%

78.3%

77.1%

+1%

69.9%

68.9%

+1%

Adj. Operating Profit

£12.0m

£9.9m

+21%

£5.2m

£3.7m

+41%

£7.2m

£7.5m

-4%

 

Language Services

SDL is one of the world's largest Language Service Providers, with more than 1,400 in-house translators and a pool of over 17,000 freelancers and vendors. It provides a full suite of services to localise content and make it relevant for global audiences.

Language Services revenue grew by 40%, aided by DLS, with a repeat revenue rate of 96%. The repeat revenue rate is defined as revenues earned from prior year customers as a percentage of current year Language Services revenue.

Language Technologies

SDL is the market leader in Translation Management and Translation Productivity software and is a pioneer of Natural Language Processing Artificial Intelligence, which is applied in its Machine Translation and Linguistic AI platforms. The technologies are licensed to generate revenues as well as being used internally to improve the profitability of SDL's Language Services.

Language Technologies revenue grew by 7%, with recurring revenue also increasing by 7%. Sales of SDL Machine Translation grew by 10% year-on-year.

Content Technologies

SDL uses content technologies to enable enterprise-level content management. Its Structured Content and Web Content Management Systems are designed to meet the challenges of operating in a global business environment. 

Content Technologies revenue grew by 4%, with recurring revenue also increasing by 4%, including a strong performance by Contenta Publishing Suite, an integrated publishing solution for technical content.

 

Delivering on strategy

The Group's commercial focus in 2019 is on increasing penetration of existing customers, through cross-selling and account management, increasing revenues in higher-growth premium sectors and increasing new customer wins. Operationally, the focus is on improving productivity - particularly through the Helix automation programme - and progressing the integration of DLS.     

Deepening client relationships

In the first half, on a proforma basis, the Group's top 10 customers grew revenues by 20% over the same period last year, with 145 cross-sell and up-sell deals compared with 88 in 1H18. This growth is the result of factors such as the increasing demand for Language Services driven by globalisation and international trade, the trend towards digitisation and greater use of technology, and outsourcing by corporates of all or part of their translation, localisation and linguistic processes. SDL's leading position and reputation in premium regulated sectors and the ability to broaden and deepen client relationships through the sale of additional products and services has driven organic growth and cross-selling. On a day-to-day basis, customers demand high levels of service and technical support, but more customers are also recognising SDL's ability to work with them strategically and bring a solutions approach to a broad range of content challenges. Furthermore, SDL is pleased to report that its Net Promoter Score in June 2019 rose to 39 (Dec 2018: 30).

Premium segment growth

Penetration of SDL's target premium sectors of financial services, life sciences, legal services and marketing, has increased, with sales growing from £18.6m in 1H18 to £52.0m in 1H19. This has been achieved organically and through the acquisition of DLS. Premium services revenues accounted for 40% of Language Services revenues in the period, up from 20% in the first half of the prior year. Specifically, financial services revenues benefited from the DLS acquisition, good levels of market activity and SDL's competitive differentiators such as security and 24/7 coverage. In Life Sciences, the consolidation of the former SDL and DLS business units further strengthened global sales and delivery capabilities, and SDL is bringing differentiated solutions to sectors such as Clinical Research Organisations and Managed Care. SDL Marketing Solutions, which provides global content production services, is gaining significant traction, with wins both via direct sales and via agency relationships. Finally, there are encouraging opportunities in the legal sector, where there is a strong fit for SDL solutions in areas such as litigation and legal digitalisation. The good performance in these premium areas offset some weakness in certain segments and geographies, notably automotive, manufacturing and related segments in the UK and Europe, which have been impacted by macro-economic factors.

Increasing new customer wins

In addition to growing the existing base, significant effort has been applied to increase the pipeline of new business, particularly in EMEA and APAC. In the first half, Language Services revenues from new business rose significantly and 60% of the closed pipeline in Language Services in these regions were from new customers, some of which will ramp up in the second half.

Improving productivity

Operationally, SDL remains focused on improving the productivity and margins of the Language Services business, reducing Group operating overheads that relate to legacy processes and delivering the synergies from the acquisition of DLS. Language Services gross margin, which is the key indicator of productivity in the segment, improved slightly to 42.1% in the period (1H18: 41.8%), but included DLS, which presently reports lower gross margins due to its outsourced model.

The Helix automation programme continues to make good progress with 80% of addressable clients being onboarded onto Helix. To date, over 24,000 vendor applicants have been processed through SDL's WorkZone portal, enabling SDL to continually refresh its vendor community in an efficient manner whilst improving vendors' experience of the process. SDL's recently created Global Language Office is underpinned by the platform as was the quick and efficient integration of DLS into SDL's Language Services business. 

SDL continues to execute its data strategy with increasing sophistication in the Group's Business Intelligence. Project cost controls, customer profitability, work-mix and skills-required analysis are significantly improved. Analytics to predict the size of work by client, in order to 'pre-load' the delivery pipeline, are also in the early stages of development.

With new data being collected in real-time, this data is already being shared with a number of SDL's largest customers as they seek to improve the two-way flow of information. Early implementations have proved to be valuable to both parties.

DLS integration

It is now a year since DLS was acquired and the business is now well embedded into the Group. Support functions have been fully integrated and facilities consolidated. Operations have been carefully aligned in order to leverage best practice, whilst minimising disruption. Helix has been integrated into DLS's delivery system and delivery platforms will be consolidated in the second half. Insourcing of projects to SDL's language offices has been initiated and will ramp up during the rest of the year.

Employee engagement

The team at SDL continues to maintain its relentless dedication to being the best it can be. This places huge demands on the Group's employees, and management is grateful for their tenacity and commitment. The feedback from SDL's latest employee survey is most encouraging and suggests that employees are very motivated from the results their efforts are delivering.

 

Investments in Innovation and Security

Following a period of investment in upgrading the Group's internal software platform, SDL is now able to shift a higher proportion of R&D spend towards innovation. 64% of R&D expense was dedicated to new feature development, a 25% increase on the prior year, whereas just 13% was spent on modernising existing architectures, a 50% reduction on last year. This is enabling SDL to further extend its competitive lead.

Language Technologies

The focus of the first half was the development of SDL Language Cloud - SDL's next-generation, end-to-end intelligent translation platform that is designed to combine best-in-class and enterprise-grade translation technologies and being adapted to new industry demands. These new demands include 'continuous localisation', machine-first, human-optimised workflows and rich data. SDL Language Cloud builds on years of market leadership in software across the whole translation supply chain and is the industry's first, cloud-based, end-to-end AI-enabled translation platform. The launch of SDL Language Cloud is expected in September and will be targeted at new customers. SDL will continue to support its other existing Translation Management software platforms.

In the second half of 2019, SDL will also release its new SDL Trados GroupShare server solution, adding powerful functionality including an enhanced online editor and project management streamlining. SDL Trados Studio will also see a major service release that will add, amongst other features, connectivity to SDL Language Cloud and integration with SDL MultiTrans.

SDL continues to invest and innovate in Neural Machine Translation and Linguistic AI and Natural Language Processing, which are being deployed across all of SDL's business segments. In June, the availability of 'Adaptable Language Pairs' in the next release of Enterprise Translation Server was announced, an innovation which enables enterprises to train their own language pairs for any project, department or industry in an easy and secure manner. In the first half, SDL won "Best Machine Translation Solution" from AI Breakthrough, a leading market intelligence organisation.

Content Technologies

In 1H19, the Group executed on its strategy for SDL Tridion DX to support customers as they navigate the content supply chain, focusing on areas such as post-purchase experience and sustaining quality customer relationships over time to improve customer lifetime value. In the second half of the year, development is focused on upcoming 2020 releases, which include authoring experience and collaboration tools and the Tridion connector framework, which will open up Tridion to new market segments.

In SDL's Contenta Publishing Suite, investments were made in cloud enablement and extending functionality for the complex and specialised demands of aerospace, defence, government and financial services customers. Although a standards-driven market segment, SDL is able to deliver high levels of differentiation and is seeing major customers standardise on SDL's technology.

Security

Security is of critical importance to SDL and the Group has been investing in building the highest level of compliance with regulations such as GDPR, PCI DSS, ISO27001 and SOC 2.

SDL's security is tailored to provide reliable services - maintaining high availability and quick recovery in the event of disruption. A particular area of focus is regulated industries such as financial services, life sciences and the legal sector: for example, SDL has provided an additional layer of security for these sectors by certifying its Translation Management System language product as HiTrust compliant. SDL cloud operations are ISO27001 certified for all hosted products and the Group has achieved 100% compliance with the controls and objectives of the SOC 2 Type 2 attestation. SDL intends to further enhance its security with certification of its cloud services in 2020.

 

Financial review

SDL delivered good progress in its financial performance in the first half of 2019.

Revenue

Group revenue grew by 28% to £182.5m, driven by organic growth and DLS, as well as currency tailwinds. SDL continues to benefit from a diverse mix of regions, industry verticals and customers. While the Group has achieved good growth in premium vertical industries, there has been some slowdown in the manufacturing and automotive industries within EMEA, which may continue into the second half.

Annual Recurring Revenue ("ARR") for SDL's technology businesses consists of SaaS licence, hosting and support and maintenance revenues. ARR of £62.7m improved 3% on 1H18. Given that a number of SDL's term licences are contracted over three to five years and fees are paid over the lifetime of the contract, SDL also measures Annual Recurring Contract Value ("ARCV"), which includes cash flows arising from term licence fees. In 1H19, ARCV was £69.9m, which represents a 5% increase on 1H18.

Gross profit margin

Gross profit margin of 51.5% is marginally below the prior year due to the dilutive impact of consolidating the DLS business into the Group results and the mix factor of Language Services being a relatively higher share of overall revenues compared with the proportion of technology revenues, which generate a higher gross margin. 

Gross profit margin within the Group's largest division, Language Services, improved from 41.8% in 1H18 to 42.1% in 1H19, including the impact of the DLS acquisition that was, and still is, margin dilutive. The year-on-year improvement reflects the adoption of the Group's business process automation platform (Helix), optimisation of SDL's 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 the Group's internal operations, which is evidenced by the increased productivity among its linguistic community where utilisation increased to 57.6% in 1H19 (1H18: 54.3%). Integration activities in 2019 are focused 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, in addition to utilising SDL's in-house resourcing pool of over 1,400 linguists.

Gross profit margin within Language Technologies of 78.3% was higher than the 77.1% of the prior year, while Content Technologies improved from 68.9% to 69.9%.

Overheads and cost savings programme

Reported overheads increased by £14.2m to £82.1m. Incremental costs relating to DLS amounted to £9.3m, with the remaining increase in costs driven by inflationary increases (£3.1m), incremental net R&D investment (£1.7m) and focused investment in SG&A to drive SDL's strategic objectives.

As announced last year, SDL has been taking actions to reduce operating costs by streamlining and optimising corporate overheads and delivering back-office and facilities synergies from the acquisition. To date, the Group has delivered annualised synergies and cost savings from the acquisition of £5.5m through actions such as facilities consolidation, simplifying and standardising business processes, and removing legacy and duplicate systems. In addition, corporate costs in 1H19 were reduced to £8.3m from £9.1m for the first half of the prior year.

SDL remains on track to deliver annualised gross cost savings of £8m by the end of 2019. Exceptional costs in the first half were £2.1m. A proportion of these underlying cost savings will be re-invested into growth areas, such as SDL Language Cloud.

Adjusted operating profit

Adjusted operating profit of £16.1m (1H18: £12.0m), with adjusted operating profit margin of 8.8% (1H18: 8.4%), is before exceptional items of £2.1m and amortisation of acquired intangibles of £2.1m. Pre IFRS 16, adjusted operating profit and margin were £15.5m and 8.5% respectively. 

Taxation

The 1H19 tax charge was £2.9m (1H18: £2.2m) and represents an adjusted effective tax rate of 25.3% (1H18: 24.7%). Total cash tax paid in 1H19 was £3.5m (1H18: £1.2m) with total tax cash paid in 2019 expected to be in the region of £10m - £11m as a result of resolving historical tax filings and has been provided for within these financial statements (see note 4). 

The Group's underlying effective current tax rate going forward is expected to be in the region of 23% to 25% (due to the proposed UK tax rate reduction from 19% to 17% from 1 April 2020, which will contribute to a lower Group ETR over the medium term).

Earnings per share

Adjusted diluted EPS increased 14% to 12.3p as a result of improved trading. Basic EPS was 8.9p, a 31% increase on the prior year, reflecting underlying profit growth and a reduction in exceptional costs. 

Cash flow, funding and net cash

Adjusted operating cash flow was £9.0m (1H18: £16.2m), with a £13.6m working capital outflow (1H18: £5.0m inflow) principally due to a £6.0m net outflow of variable compensation, a £7.8m increase in work-in-progress ("WIP") and a £1.3m increase in trade receivables. The increase in WIP is attributable to the nature of DLS customer projects, which are larger and longer term in nature and therefore drive an extended order to cash cycle.

Total capital expenditure of £5.3m includes payments for maintenance capital expenditure (£0.5m), R&D (£3.7m) and investment capital expenditure (£1.1m).

The cash impact of exceptional items amounted to £2.0m (1H18: £2.9m). Dividends of £6.3m paid in the period (1H18: £5.1m) comprised the dividend for 2018 of 7.0p per ordinary share.

The Group's cash balances at 30 June 2019 amounted to £13.1m with external borrowings of £12.0m (31 December 2018: £19.8m cash and £5.4m external borrowings; 30 June 2018: £22.5m cash and no external borrowings), resulting in net cash of £1.1m (31 December 2018: £14.4m net cash; 30 June 2018: £22.5m net cash). Post period, net cash increased to £11.0m as at 31 July 2019.

The Group's debt is sourced from a £120m syndicated multi-currency Revolving Credit Facility ('RCF'). The agreement also includes the provision of a £50m uncommitted Accordion facility and expires on 17 July 2023. Borrowings drawn down under the RCF are currently subject to interest at 1.15% over LIBOR. There is a leverage covenant limit of 4.0x which is measured quarterly. 

The Group signed a £1m unsecured overdraft facility on 31 July 2019. Prior to this date, no facility was in place. Borrowings on this facility are subject to interest at 1.75% over base rate and are repayable on demand.

Capital structure

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 organic growth, supported by targeted bolt-on acquisitions.

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 it believes will allow it to manage the risks and opportunities that Brexit brings.

Due to the already global nature of SDL's business and service capabilities across the globe, SDL does not currently consider that it will be materially impacted by the UK's departure from the EU, but notes that the Group has an exposure to UK manufacturing and automotive customers and is mindful of the impact of Brexit on these customers.

Accounting developments

IFRS 16 is the new lease accounting standard and has been implemented on 1 January 2019.  The most significant impacts of the new accounting standard are the recognition of operating lease liabilities on the balance sheet and the segmentation of the lease charge to depreciation and interest. 

As a result of the initial application of IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised £23.5m of right-of-use assets and £23.5m lease liabilities as at 1 January 2019. The Group has elected not to restate the 2018 comparatives in line with the transitional exemptions available. As a result of IFRS 16, the Group has recognised depreciation and interest costs instead of operating lease expense. During the six months ended 30 June 2019, the Group recognised £3.2m of depreciation charges and £0.6m of interest costs from these leases.

Going Concern Statement

The Group's business activities, performance and position, together with the factors likely to affect its future development, are set out in the Group's Strategic Report in its 2018 Annual Report. The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives. The processes in place for assessment, management and monitoring of risks are described in the 2018 Annual Report. Details of the financial risk management objectives and policies of the Group are also given in the 2018 Annual Report.

The Board believes that the Group is well placed to manage its business risks successfully going forward. The Board's assessment of prospects, together with its review of principal risks and the effectiveness of risk management procedures, show that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the financial statements. In forming their view, the Directors have considered the Group's prospects for a period exceeding 12 months from the date when the financial statements are approved.

 

Outlook

The Group continues to make progress in improving customer satisfaction and delivering on its business transformation. Many of the initiatives that the Executive team has been focused on over the past few years are now bearing fruit. The Group believes that the investments it has been making since 2016 across sales and marketing, business processes, people and infrastructure, and in its solutions will result in long-term growth, higher margins and greater competitive differentiation.

Successful mergers such as DLS will allow SDL to accelerate the delivery of its strategy, as demonstrated by these results. The Group continues to monitor the market for other non-organic opportunities that will similarly accelerate the achievement of its long-term goals.

The Group entered the second half, its traditionally stronger period, with good sales momentum and a healthy sales pipeline. The Pound Sterling to US Dollar exchange rate also is benefitting the Group and will continue to have a favourable impact on revenues and profits if current rates are maintained through the second half of this year.

The good pipeline visibility and sales activity, alongside the actions being taken on productivity, gives the Group confidence that it will deliver improved profitability for the full year, in line with management expectations.

 

Cautionary statement

Certain statements in this interim management report constitute, or may be deemed to constitute, forward-looking statements (including beliefs or opinions). Any statement in this interim management report that is not a statement of historical fact including, without limitation those regarding the Group'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 risk 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 results 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 interim management report, whether as a result of new information, future events or otherwise.

Nothing in this interim management report should be construed as a profit forecast. This interim management report 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 whole.

This announcement is released by SDL plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 ("MAR"), encompassing information relating to trading for the Group's expected results for the financial year ending 31 December 2019, and is disclosed in accordance with the Group's obligations under Article 17 of MAR.

 

 

SDL plc

Condensed Consolidated Income Statement

 

 

Unaudited

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

 

Notes

£m

£m

Sale of goods

 

20.1

20.1

Rendering of services

 

162.4

123.0

REVENUE

2

182.5

143.1

 

 

 

 

Cost of sales

 

(88.5)

(67.4)

 

GROSS PROFIT

 

94.0

75.7

 

 

 

 

Administrative expenses

 

(82.1)

(67.9)

 

OPERATING PROFIT

3

11.9

7.8

 

 

 

 

Operating profit before exceptional items and amortisation of acquired intangibles

 

16.1

12.0

 

Exceptional items

3

(2.1)

(3.7)

 

Amortisation of acquired intangibles

3

(2.1)

(0.5)

 

OPERATING PROFIT

 

11.9

7.8

 

 

 

 

Finance expense

 

(1.0)

-

 

 

 

 

PROFIT BEFORE TAX

 

10.9

7.8

 

Tax expense

4

(2.9)

(2.2)

 

PROFIT FOR THE PERIOD

 

8.0

5.6

 

 

 

 

EARNINGS PER SHARE

 

 

 

 

Basic

 

8.9p

6.8p

 

Diluted

 

8.7p

6.7p

 

SDL plc

Condensed Consolidated Statement of Comprehensive Income

 

 

Unaudited

6 months to

30 June

2019

£m

Unaudited

6 months to

30 June

2018

£m

 

 

 

Profit for the period

8.0

5.6

 

 

 

Currency translation differences on foreign operations

(1.1)

(0.7)

Currency translation differences on foreign currency equity loans to foreign subsidiaries

(0.3)

-

Other Comprehensive Income

(1.4)

(0.7)

 

 

 

Total Comprehensive Income

6.6

4.9

 

 

 

 

 

Total comprehensive income is attributable to equity holders of the parent company. A currency translation difference on a foreign operation may be reclassified to the Income Statement upon disposal of that operation.

 

 

 

SDL plc

Condensed Consolidated Statement of Financial Position

 

 

 

Unaudited

30 June

2019

£m

Unaudited

30 June

2018

£m

Audited

31 December

2018

£m

ASSETS

 

 

 

 

NON-CURRENT ASSETS

 

 

 

 

Intangible assets

 

221.7

158.4

222.9

Property, plant and equipment

 

10.0

8.8

9.1

Right of use asset

 

19.8

-

-

Deferred tax assets

 

8.0

10.1

8.9

Other receivables

 

2.7

1.6

2.4

Capitalised contract assets

 

0.9

0.9

0.8

 

 

263.1

179.8

244.1

CURRENT ASSETS

 

 

 

 

Trade and other receivables

 

118.1

88.4

108.3

Capitalised contract assets

 

1.9

1.9

1.9

Tax assets

 

6.6

1.9

6.6

Cash and cash equivalents

 

13.1

22.5

19.8

 

 

139.7

114.7

136.6

TOTAL ASSETS

 

294.5

380.7

 

 

 

 

 

LIABILITIES

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Trade and other payables

 

(99.8)

(83.9)

(105.1)

Lease liabilities

 

(3.8)

-

-

Current tax liabilities

 

(10.1)

(9.9)

(11.2)

Provisions

 

(0.5)

(1.2)

(0.7)

 

 

(114.2)

(95.0)

(117.0)

 

NON-CURRENT LIABILITIES

 

 

 

 

Other payables

 

(0.7)

(0.9)

(0.7)

Lease liabilities

 

(16.6)

-

-

Borrowings

 

(12.0)

-

(5.4)

Deferred tax liabilities

 

(8.3)

(1.6)

(8.7)

Provisions

 

(2.9)

(3.3)

 

 

(5.4)

(18.1)

TOTAL LIABILITIES

 

(100.4)

(135.1)

NET ASSETS

 

247.4

194.1

245.6

 

EQUITY

 

 

 

 

Share capital

 

0.9

0.8

0.9

Share premium

 

136.0

100.9

136.0

Retained earnings

 

82.5

68.6

79.3

Translation reserve

 

23.8

29.4

TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

 

247.4

194.1

 

245.6

 

The Interim Financial Information presented in this interim report was approved by the Board of Directors on 6 August 2019.    

 

SDL plc

Condensed Consolidated Statement of Changes in Equity

 

 

Share

Capital

Share

Premium

Retained

Earnings

Translation Reserve

Total

 

£m

£m

£m

£m

£m

At 31 December 2017

(audited)

0.8

100.7

67.8

24.5

193.8

Profit for the period

-

-

5.6

-

5.6

Other comprehensive income

-

-

-

(0.7)

(0.7)

Total comprehensive income

-

-

5.6

(0.7)

4.9

Dividend paid

-

-

(5.1)

-

(5.1)

Share-based payments expense*

-

-

0.4

-

0.4

Share-based payments deferred tax*

-

-

(0.1)

-

(0.1)

Arising on share issues*

-

0.2

-

-

0.2

At 30 June 2018 (unaudited)

0.8

100.9

68.6

23.8

194.1

 

 

 

 

 

 

Profit for the period

-

-

9.2

-

9.2

Other comprehensive income

-

-

-

5.6

5.6

Total comprehensive income

-

-

9.2

5.6

14.8

Share-based payments expense*

-

-

1.5

-

1.5

Share-based payments deferred tax*

-

-

-

-

-

Arising on share issues*

0.1

35.1

-

-

35.2

At 31 December 2018 (audited)

0.9

136.0

79.3

29.4

245.6

 

 

 

 

 

 

Profit for the period

-

-

8.0

-

8.0

Other comprehensive income

-

-

-

(1.4)

(1.4)

Total comprehensive income

-

-

8.0

(1.4)

6.6

Dividend paid

-

-

(6.3)

-

(6.3)

Share-based payments expense*

 

-

1.6

-

1.6

Share-based payments deferred tax *

-

-

(0.1)

-

(0.1)

Arising on share issues*

-

-

-

-

-

 

At 30 June 2019 (unaudited)

0.9

136.0

82.5

28.0

247.4

 

*These amounts relate to transactions with owners of the Group recognised directly in equity. The amounts above are attributable to the equity of the parent company.

 

 

 

 

SDL plc

Condensed Consolidated Statement of Cash Flows

 

 

Unaudited

6 months to

30 June

2019

£m

Unaudited

6 months to

30 June

2018

£m

 

 

 

Profit for the period

8.0

5.6

Tax expense

2.9

2.2

 

Profit before tax

10.9

7.8

 

Depreciation of property, plant and equipment

4.7

1.4

Amortisation of intangible assets

4.4

1.6

Share-based payment expense

1.6

0.4

Interest expense

1.0

-

 

 

 

Increase in trade and other receivables

(9.4)

(2.6)

(Decrease) / Increase in trade and other payables and provisions

(5.7)

5.7

Exchange differences

(0.5)

(1.0)

 

CASH GENERATED FROM OPERATIONS

7.0

13.3

 

 

 

 

Cash generated from operations before exceptional items

9.0

16.2

Cash outflows from exceptional items

(2.0)

(2.9)

CASH GENERATED FROM OPERATIONS

7.0

13.3

 

 

 

 

 

 

Income tax paid

(3.5)

(1.2)

 

 

 

NET CASH FLOWS GENERATED FROM OPERATING ACTIVITIES

3.5

12.1

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

Acquisition of intangible assets

(4.8)

(3.1)

Payments to acquire property, plant and equipment

(0.5)

(3.8)

NET CASH FLOWS USED IN INVESTING ACTIVITIES

(5.3)

(6.9)

 

 

 

SDL plc

Condensed Consolidated Statement of Cash Flows (continued)

 

 

Unaudited

6 months to

30 June

2019

£m

Unaudited

6 months to

30 June

2018

£m

FINANCING ACTIVITIES

 

 

Net proceeds from borrowings

6.6

-

Interest paid

(0.7)

-

Lease liabilities paid

(3.8)

-

Net proceeds from issue of ordinary share capital

-

0.2

Dividend paid on ordinary shares

(6.3)

(5.1)

NET CASH FLOWS USED IN FINANCING ACTIVITIES

(4.2)

(4.9)

 

(DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS

(6.0)

0.3

 

 

 

MOVEMENT IN CASH AND CASH EQUIVALENTS

 

 

 

Cash and cash equivalents at start of the period

19.8

22.7

 

(Decrease) / increase in cash and cash equivalents

(6.0)

0.3

 

Effect of exchange rates on cash and cash equivalents

(0.7)

(0.5)

 

 

 

 

Cash and cash equivalents at end of the period

13.1

22.5

 

 

The Group has elected to present a statement of cash flows that analyses all cash flows in total.

 

 

 

 

SDL plc

Notes to the Half year Condensed Consolidated Financial Statements

 

 

1. Basis of preparation and accounting policies

 

Basis of preparation

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. The interim condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared on a going concern basis in accordance with IAS 34 Interim Financial Reporting.

 

As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, this condensed set of interim financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 December 2018 with the exception of the adoption of IFRS 16 - Leases. The impact of the adoption of IFRS 16 is set out in note 10.

 

The preparation of condensed consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results for which form the basis of making the judgements about carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

 

The principal risks and uncertainties were disclosed in the Group's annual report and financial statements for the year ended 31 December 2018 and remain broadly unchanged. SDL has an established process both to manage risk and to seek to mitigate the impact of risk as much as possible should it materialise. Operational risks include management succession, system interruption and business continuity, data protection, compliance, contract management, integration of acquisitions, maintaining technology leadership and intellectual property. Financial risks include liquidity, counterparties, interest rates and financial reporting.

 

IFRS 16

Details of the changes to the Group's accounting policies as a result of the adoption of IFRS 16 are set out below as accounted for from 1 January 2019 onwards.

 

Definition of a lease

Previously, the Group determined at contract inception whether an arrangement contained a lease under IFRIC 4. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions were leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as lease under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.

 

As a lessee

The Group leases commercial office space. The Group has elected not to recognise right of use assets and lease liabilities for some leases of low-value. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group presents right of use assets that do not meet the definition of investment property as a separate line item on the statement of financial position.

The Group recognises a right of use asset and lease liability at the lease commencement date.

The right of use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounting using the Group's incremental borrowing rate.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Group has applied judgement to determine the lease term for some lease contracts that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right of use assets recognised.

The Group applied the exemption not to recognise right of use assets and liabilities for leases with less than twelve months of lease term.

 

Going Concern

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 Group 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 2019; a review of the 2019 annual plan which includes cash flow forecasts to August 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.

 

 

2. Segment information and revenue disclosures

 

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

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 Board (Chief Operating Decision Maker) 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.

Six months ended 30 June 2019 (unaudited)

 

 

External Revenue

Segment profit

before taxation, acquisition related amortisation and exceptionals

 

 

£m

£m

Language Services

 

128.4

12.0

Language Technologies

 

25.6

5.2

Content Technologies

 

28.5

7.2

Total

 

182.5

24.4

Corporate costs

 

 

(8.3)

Exceptional items

 

 

(2.1)

Acquisition related amortisation

 

 

(2.1)

Interest

 

 

(1.0)

Profit before taxation

 

 

10.9

 

 

Six months ended 30 June 2018 (unaudited)

 

 

External

Revenue

Segment profit

before taxation, acquisition related amortisation and exceptionals

 

 

£m

£m

Language Services

 

91.8

9.9

Language Technologies

 

24.0

3.7

Content Technologies

 

27.3

7.5

Total

 

143.1

21.1

Corporate costs

 

 

(9.1)

Exceptional items

 

 

(3.7)

Acquisition related amortisation

 

 

(0.5)

Profit before taxation

 

 

7.8

 

 

 

Revenue by geographical destination was as follows:

 

 

Unaudited

6 months to

30 June

2019

£m

Unaudited

6 months to

30 June

2018

£m

 

 

 

United Kingdom

20.7

18.0

Rest of Europe (excluding UK)

51.2

38.7

USA

75.7

62.0

NASA (excluding USA)

7.6

6.3

APAC

27.3

18.1

 

182.5

143.1

 

 

Revenue by type was as follows:

 

Unaudited

6 months to

30 June

2019

£m

Unaudited

6 months to

30 June

2018

£m

 

 

 

Services (including professional services)

137.5

98.6

Support and maintenance

21.0

20.1

Perpetual licences

11.2

11.8

Term licences

2.3

2.3

Software as a Service (SaaS)

9.0

9.1

Hosting services

1.5

1.2

 

182.5

143.1

 

 

3. Operating profit

 

Unaudited

6 months to

30 June

2019

Unaudited

6 months to

30 June

2018

 

£m

£m

Is stated after charging / (crediting):

 

 

 

 

 

Research and development expenditure

10.3

8.7

Provision for trade receivables

(0.3)

0.6

Depreciation of owned assets

4.7

1.4

Amortisation of internally generated intangibles

2.3

1.1

Amortisation of acquired intangible assets

2.1

0.5

Operating lease rentals for plant and machinery

0.1

0.1

Net foreign exchange differences

(0.5)

(0.7)

Share based payment charge

1.6

0.4

 

Exceptional items

 

Exceptional items are items of financial performance which the Group believes should be separately identified on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group.

 

The Group separately reports the cost of restructuring programmes, acquisition and disposal costs and other exceptional items along with their related tax effect as exceptional items:

 

 

Unaudited

6 months to

30 June 2019

Unaudited

6 months to

30 June 2018

 

Pre-tax

Tax impact

Total

Pre-tax

Tax impact

Total

 

£m

£m

£m

£m

£m

£m

Restructuring costs

1.7

(0.4)

1.3

2.8

(0.6)

2.2

Acquisition related costs

0.4

-

0.4

0.9

-

0.9

 

2.1

(0.4)

1.7

3.7

(0.6)

3.1

 

Restructuring costs

 

Restructuring costs relate to the costs of organizational change associated with the Group's transformation programme. Normal trading redundancy costs are charged to the income statement as incurred.

 

Restructuring costs include redundancy payments in relation to the transformation programme of £1.6m (1H18: £2.8m) and legal fees of £0.1m (1H18: £nil).

 

Acquisition related costs

 

Acquisition related costs include integration costs of £0.4m (1H18: £Nil).

 

Acquisition costs of £0.9m in the prior year include corporate activity-related items related to completed transaction costs and include advisory, legal, accounting, valuation and other professional or consulting services as well as acquisition-related remuneration and directly attributable integration costs.

4. Taxation

 

 

Unaudited

6 months to

30 June

2019

£m

Unaudited

6 months to

30 June

2018

£m

Total current taxation

2.5

1.1

 

 

Deferred taxation:

 

 

 

Origination and reversal of timing differences

0.4

1.1

Total deferred taxation

0.4

1.1

Tax expense

2.9

2.2

 

A tax charge in respect of foreign currency translation differences on foreign currency loans to foreign subsidiaries of £Nil was recognised in the statement of other comprehensive income in 1H19 (1H18: £0.2m).

A tax charge in respect of share-based compensation for deferred taxation of £0.1m (1H18: £0.1m) has been recognised in the statement of changes in equity in the period. 

 

 

5. Earnings per share

 

 

Unaudited

6 months to

30 June 2019

£m

Unaudited

6 months to

30 June 2018

£m

Profit for the period attributable to equity holders of the parent

8.0

5.6

 

 

 

Number

Number

Basic weighted average number of shares (million)

90.7

82.3

Employee share options and shares to be issued (million)

1.9

1.5

Diluted weighted average number of shares (million)

92.6

83.8

 

 

 

 

 

 

Unaudited 6 month to

30 June 2019

Unaudited 6 month to 30 June 2018

 

£m

£m

 

 

 

Profit for the period attributable to equity holders of the parent

8.0

5.6

Amortisation of acquisition related intangible fixed assets

2.1

0.5

Exceptional items

2.1

3.7

Deferred tax benefit associated with amortisation of acquisition related intangible fixed assets

(0.4)

(0.1)

Tax benefit associated with exceptional items

(0.4)

(0.6)

Adjusted profit for the period attributable to equity holders of the parent

 

11.4

 

9.1

 

Adjusted earnings per share is shown as the Directors believe that earnings before acquisition related amortisation and exceptional items is reflective of the underlying performance of the business.

 

 

 

 

 

 

Unaudited 6 month to 30 June 2019

 

Unaudited 6 month to 30 June 2018

 

 

 

 

Adjusted earnings per ordinary share - basic (p)

12.6p

11.0p

 

 

 

Adjusted earnings per ordinary share - diluted (p)

12.3p

10.8p

 

6. Dividend per share

 

Dividends paid in H1 19 were £6.3m (H1 18: £5.1m). The dividends paid in 2019 amounted to 7.0p per share (2018: 6.2p per share).

 

7. Interest-bearing loans

 

At 30 June 2019, the Group had a five year £120m syndicate revolving credit facility, expiring on 17 July 2023. The agreement includes a £50m Accordion (uncommitted) facility. At 30 June 2019, £12.0m was drawn on the facility (2018: £nil).

 

On drawing the funds under the £70m committed revolving credit facility, the Group elects the repayment period to effect the interest on the loan but the funds are repayable at the Group's discretion subject to the wider terms of the facility. 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.

 

8. Share-based compensation grants

 

On 17 April 2019, 1,148,984 Long Term Incentive Plan (LTIP) shares were awarded to certain key senior executives and employees of the SDL Group.

 

9. General notes

 

The comparative figures for the financial year ended 31 December 2018 are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Group's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

10. Impact of adoption of IFRS 16 - Leases

 

The results for the year ending 31 December 2018 and the half year ending 30 June 2018 have not been restated for the initial application of IFRS 16 and as a result there is no impact on equity or reserves.

 

The impact of adopting IFRS 16 at 1 January 2019 was to recognise a right of use asset of £23.5m and a lease liability of £23.5m. The accounting policy that the Group has elected to use in respect of IFRS 16 is included within note 1 to the interim financial statements.

 

In adopting IFRS 16 the Group has taken advantage of the practical expedients that are applicable. These include:

 

-     Applying a single discount rate to portfolio of leases with similar characteristics.

-     The Group has also relied on its previous assessment of whether leases are onerous or not immediately before initial application.

-     Leases with a term ending within 12 months of 1 January 2019 have been classified as short term leases and expensed through the administrative expenses.

-     Initial direct costs have been excluded from the measurement of the right of use asset at the date of application

 

11. Subsequent events

 

The Group signed a £1m unsecured overdraft facility on 31 July 2019.  Prior to this date no overdraft facility was in place.  Borrowings on this facility are 1.75% over base rate and is repayable on demand.

 

12. Business combinations completed in prior periods

On 23 July 2018, the Group acquired the Donnelley Language Solutions (DLS) business for cash consideration of $77.8m. As disclosed in last year's Annual Report, the value of the identifiable net assets of DLS had only been determined on a provisional previously reported basis. Had the valuation been finalised in the 2018 financial statements, these would have differed to those previously reported. Details of the final fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

Fair value of identifiable net assets acquired

Final fair value

 

£m

 

 

Property, plant and equipment

0.4

Intangible assets - customer relationships

30.1

Intangible assets - intellectual property

4.3

Trade and other receivables

15.1

Cash and cash equivalents

0.2

Trade and other payables

(6.6)

Deferred tax

(5.3)

 

38.2

 

 

Goodwill

21.2

 

 

Total consideration

59.4

 

 

Appendix - Alternative performance measures  

The Board reviews a number of key performance indicators (KPIs) to monitor and assess performance on an on-going basis.   

 

During the period, the Board has amended its KPIs as follows: 

 

·      The Board has reassessed its view of the most appropriate profit performance measure in the period. The Board have concluded that adjusted operating profit and margin is the most appropriate profit measure for review.  Specifically, this profit measure also excludes the impact of exceptional items and acquisition related amortisation. Such items arise from events which are exceptional by their incidence or size, and while they may generate substantial income statement amounts, do not relate to ongoing operational performance that underpins long term value generation.   

 

The KPIs, reviewed by the Board include revenue growth, gross margin, adjusted operating profit margin, and Free Cash Flow.  Free cash flow is defined as cash generated from operations after interest and tax costs, maintenance capital expenditure and capitalised research and development costs.  Maintenance capital expenditure is the recurring level of capital expenditure required for the business in its current form to operate in medium term and excludes non-recurring investment in capitalised system and infrastructure costs.   

 

Definitions of the Group's other KPIs are set out below:  

 

·      Technology Annual Recurring Revenue (ARR): Annual recurring revenue arising from customer contracts in force at the period end and includes SaaS, support and maintenance, and hosting revenue streams. Annual Recurring Revenue current and prior year amounts are all translated at 30 June 2019 foreign exchange rates.  

·      Technology Annual Recurring Contract Value (ARCV): Annual recurring value of customer commitments arising from contracts in force at the period end.  These include term, SaaS, support and maintenance, and hosting cash flows. Annual recurring contract value current and prior year amounts are all translated at 30 June 2019 foreign exchange rates.   

·      Language Services Repeat Revenue Rate (RRR): Current year Language Services revenue earned from prior year customers as a percentage of current year Language Services revenue; the difference between RRR and total revenue is current year Language Services revenue from new customers  

·      Premium revenue: revenue from Life Sciences and Marketing Solutions;  

·      Upsell and cross-sell deals: number of incremental sales of new and existing products to existing customers 

·      Linguistic utilisation: the percentage of time in-house linguists spent on billable work across the financial period  

·      The revenue basis premium revenue is calculated in line with Generally Accepted Accounting Principles ("GAAP"). The remaining strategic KPIs set out above have no direct reference to any GAAP measure and hence cannot be reconciled to the Group's financial statements. ARR and ARCV is an annualised measure of contracts at a point in time and hence cannot be reconciled into revenue recognised during the year. 

·      Net cash: Net cash comprises cash and cash equivalents and external borrowings. Net cash excludes lease liabilities.

 

Responsibility Statement by the Management Board

 

We confirm that to the best of our knowledge:

 

·     the condensed set of financial statements has been prepared in accordance with IAS 34 Half year Financial Reporting as adopted by the EU;

 

·     the Half year management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

 

For and on behalf of the Board

 

 

Adolfo Hernandez

Chief Executive Officer

 

 

Xenia Walters

Chief Financial Officer

 

 

6 August 2019

INDEPENDENT REVIEW REPORT TO SDL PLC 

Conclusion 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises of the Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Statement of Financial Position, Condensed Consolidated Statement of Changes in Equity, Half year Condensed Consolidated Statement of Cash Flows and the related explanatory notes. 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").   

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.  

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

The annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU.  The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU. 

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

 

William Smith

for and on behalf of KPMG LLP 

 

Chartered Accountants

Arlington Business Park

Reading

RG7 4SD

United Kingdom

 

6 August 2019


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
IR SSMFUIFUSEIA
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Half-year Report - RNS