SDL plc (“SDL” or “the Group”), a leader in the emerging market for Global Information Management (GIM) solutions, is pleased to announce its unaudited preliminary results for the year ended 31 December 2006. 

Operational Highlights:

• Results ahead of upgraded market expectations
• Solid growth in market share with 40 new enterprise software installations in 2006
• Global Information Management gaining in recognition
• Gross margins increased to 49% in 2006 from 47% in 2005
• Significant new business wins include Dell, BMC, Avaya, Salesforce.com and Intel

Commenting on the preliminary results Mark Lancaster, Chairman and Chief Executive of SDL, said:

"This excellent 2006 performance is as a result of SDL continuing to increase its lead in Global Information Management technology, combined with increased utilisation of technology to leverage service margins, and an effective hedging strategy to manage currency fluctuations."

Chairman's Statement

Summary Performance

The second half of 2006 saw SDL again achieve record operating profits which are significantly ahead of our upgraded market expectations. The prime drivers for the increase over the upgraded expectations were the faster uptake of product released towards the year end and stronger than anticipated sales and related margins from certain service customers in December. Revenues for 2006 were up 21% at £94.7 million (2005: £78.5 million) with approximately half of this revenue growth being organic and half contributed by a year of full trading in Trados which was acquired in July 2005. Profit before tax and amortisation of intangible assets has increased by 71% to £12.2 million (2005: £7.2 million). The major contributors to the over performance in 2006 are SDL continuing to increase its lead in Global Information Management technology, combined with increased utilisation of technology to leverage service margins, and an effective hedging strategy to manage currency fluctuations.

Our Technology

The successful integration of Trados into SDL has led to a considerable improvement in gross margins, now at 49%, which has in turn improved the underlying operating performance of the Group. We have seen interest in Global Information Management technology increase considerably in 2006, particularly for our hosted offerings accessed over the internet by our clients. This has resulted in both strong service and software sales. We have experienced solid growth in market share in both the desktop and the enterprise software markets with over 140,000 installed units of desktop products and having added more than 40 installations of enterprise product into the market with such customers as Dell, BMC and Avaya. We launched SDL Trados Synergy at the end of the third quarter of 2006 resulting in a positive impact on our year end result, with the uptake in this product being greater than we had anticipated. This is encouraging feedback from the market as we will be launching major new releases of our new platform technology throughout 2007. These major innovations in technology will provide completely integrated technology across the translation supply chain, enabling all parties, from freelance translators through language service providers to corporations in the supply chain, to benefit from smooth file integration and effective translation logistics management. We believe these advancements in technology will further accelerate the trend for enterprise content to be translated and tailored for local markets. The start of this trend is already evidenced by companies such as Salesforce.com, Linde, Bosch and Intel investing in Global Information Management technology to speed up the translation of content for local markets.

Services Infrastructure

The services side of the business, which now operates in over 30 countries, continues to benefit from the global reach, scale and leveraging of our technology. The structure and integrated nature of our regional offices allows considerable scaling and resource capacity which, when coupled with our Knowledge-based Translation solutions, have transformed the landscape for translation, speeding up time to market and reducing costs for our clients. We continue to increase the quantity of words that flow through our Knowledge-based Translation systems, for enterprise customers such as HP, Microsoft and Daimler Chrysler. As well as the increased adoption of Knowledge-based Translation, 30% of SDL’s major clients have their content flowing through SDL’s enterprise translation management technology, driving internal operational efficiencies and bringing scalability to our services offering.

Vision and strategy for Global Information Management

In a world that is moving closer together through ever more effective and immediate communications infrastructure, trading effectively in global markets is not an option for large corporations, it is a necessity. However, the starting point to allow a business to trade in local markets is to speak to them in their own language. The enormity and complexity of translating and maintaining millions of words of global content into multiple languages in a world where communications needs to be instant is a major challenge for any business. Content is now delivered in multiple formats through many channels from the web to hard copy. Press releases, marketing collateral, support knowledge bases, not to mention a company’s products and documentation, should all share common wording and messaging to support a companies brand.

The creation and management of multiple language content is currently not addressed by the content management technology available on the markets today.

SDL’s Global Information Management technology accelerates the delivery of global content into local markets, ensures the operational consistency of branding and reduces the costs to translate content into multiple languages. In order to provide comprehensive global content management the complete supply chain of those involved in the creation and maintenance of global content must be included in the solution. SDL’s technology automates the delivery of global content in a controlled manner through this supply chain. As we continue to release new vendor independent translation technology onto the market over the next 12 months, we consider that the major advances that we have made in the technology will significantly enhance the productivity of the translation supply chain, stimulating growth in both the technology and the localization services industry as a whole. SDL is also very well placed to take advantage of the consolidation of the content management space, being the world leader in Global Information Management, which is an integral part of content management that has been previously overlooked.

Outlook

We expect to see continued strong financial returns from our investment in Global Information Management, both from the services and the technology sides of the business. The understanding and awareness of Global Information Management continues to be the number one challenge to the growth of our business. We do however expect to see a considerable uplift in awareness of the complexities of creating and managing global content from companies that trade globally. This will in part be driven by our increased investment in marketing during 2007, but increasingly by the realisation of companies that language is now a major competitive differentiator in winning and retaining market-share across the globe. As the investments SDL has made into Knowledge-based Translation continue to give increased returns, we expect to see more content flow though this automated translation technology in 2007, which ultimately brings higher margins to the group. In summary we believe that our efficient services infrastructure and technology systems will offset the increase in investment in marketing and the potential continued dollar weakness to provide another year of growth in 2007.

Mark Lancaster


For further information please contact:

SDL plc 
Mark Lancaster, Chief Executive 
On 20 February 2007
Tel: 020 7831 3113
Thereafter Tel: 01628 410 127
 
Financial Dynamics 
Edward Bridges/Juliet Clarke 
Tel: 020 7831 3113

Background information