Q3 Interim Management Statement

Maidenhead, UK
10/15/2013 10:41:25 AM

SDL plc ("SDL": LSE: SDL), a leader in Customer Experience Management solutions, today provides an Interim Management Statement incorporating the period from 1 July 2013 to 30 September 2013, as required by the UK's Listing Authority disclosure Rules, and an update on trading for the current financial year.

Performance for the third quarter of 2013 is below management expectations, and as a result, the Board has lowered its outlook for the current financial year. Profit before Tax, Amortisation and before one-off costs* ("profit") is now expected to be in the order of £8 million in 2013 (2012: £35.5 million).

*Historic Trados litigation costs and current year restructuring

Investments in automation technologies and process efficiency have yielded profitability improvements in Q3 as planned.

Accordingly, Language Services has shown significant gross and net margin recovery. Whilst below management expectations, sequential revenue growth over Q2 2013 has been achieved. Although volumes are expected to increase in Q4 we do not expect to make up for the Q3 shortfall resulting in a revenue shortfall for the year. This has been due to delays in orders from existing clients and slower scaling up of volumes at new clients than previously anticipated. We are pleased with new client wins where we expect to grow revenues towards the end of the year and into 2014. We remain confident in the medium to long term outlook for this segment.

Technology bookings in Q3 are weaker than expected and we envisage a license revenue shortfall for the year. However our sales pipeline continues to increase as we start to benefit from the sales and marketing investments we have made and we expect these will begin to deliver discernible benefits towards the end of this year and beyond. We have merged our Social Intelligence and Campaign Management & Analytics divisions to achieve greater economies of scale and to accelerate the technical integration of our Customer Experience Management products and solutions. We are creating significant cost savings and a stronger and more efficient Language Solutions division by combining the expertise of Language Services and Language Technology.

SDL also announces today: The appointment of Dominic Lavelle to the Board of the Company as Chief Financial Officer, on 25th November 2013.

Until February 2013, Mr Lavelle was Interim CFO at Mothercare plc and prior to that held the CFO role within a number of private and publicly traded companies, the latter including Oasis plc, Allders plc and Alfred McAlpine plc. His roles have extended into commercial, operational and strategic change, experience that SDL expects to leverage as the Company seeks to return to a growth path.

The appointment of Jean-Pierre Dekker as Chief Operating Officer, immediate appointment. Jean-Pierre joins SDL from HgCapital where he served as Director of the Portfolio Management Team. He delivered operational excellence projects in areas such as Pricing, Sales Effectiveness, Marketing, Efficiency Improvement and Customer Loyalty. Prior to HgCapital, Jean-Pierre worked for GE, where he was responsible for developing and implementing strategic growth projects across a range of businesses and headed up European Cross-Selling.

As SDL’s Chief Operating Officer, Jean-Pierre will be responsible for ensuring effective execution of Sales and Support, optimising structures, processes, execution and measurement. His first area of focus will be the Sales life cycle, Sales execution and methodology, tracking and measurement.

We have almost completed our sales and marketing hiring objectives for the year and expect to see meaningful impacts from these investments during 2014.

New systems for human resources, staff expenses and group financial reporting have been successfully implemented during the period. Pipeline reporting processes have been overhauled and harmonised across the organisation.

Besides headcount reductions, through the divisional restructuring process we expect to realise additional savings in office facilities and IT infrastructure. Total savings in 2014 arising from these restructuring activities are expected to be in the order of £6 million.

The Court of Chancery in the State of Delaware has ruled in favour of the former Trados Directors that there was no breach of fiduciary duty in the sale of Trados to the Company. The judgement allows for the plaintiff to seek recovery of some of their legal costs from the defendants on the grounds that certain aspects of the defence was given in bad faith. There is also the possibility the Plaintiff appeals the decision. We estimate the exposure to SDL is £0.5 million, there is also potential reimbursement of funds from the Trados directors to SDL of between £1-2 million.

Although 2013 has been a very disappointing year for SDL in terms of financial performance, we feel the sales and marketing, R&D investments that have been made in the business combined with the recent cost savings brought through restructuring will deliver significant long term returns. The services business is now back to delivering healthier profits and in the technology division the necessary investments and restructuring savings have been made to deliver strong growth and profitability. The Board remains confident in the Group’s growth prospects and long term potential to deliver profitable growth and shareholder returns.

Commenting on the IMS, Mark Lancaster said today:

"Whilst the expected outcome for the financial year is significantly below what we had hoped and is therefore disappointing, we have built a high quality executive leadership team, strengthened our sales and marketing, aligned costs with revenue potential and provided an infrastructure to deliver our Customer Experience Management vision.

We remain focused on the operational changes required to deliver momentum in the business and to achieve a fully integrated product offering. We remain confident that the strong foundations we are putting in place will drive performance during 2014 and beyond. The Board believes that the strategy is the right one and that the actions taken to date, along with those planned for the coming months, will drive the long term success of the business."
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