For chief executive Adolfo Hernandez, SDL (SDL) has met a “bump in the road” on its three-year strategic programme, reflected by higher contract servicing costs incurred in the first half that weighed on margins. For the market, this bump was more of a brick wall: SDL’s shares plummeted by almost a quarter.
The language translation technology specialist made good progress on its plan to boost sales, growing revenues by 5 per cent at constant currency. However, it lacked the “operational efficiencies” necessary to manage such growth and resorted to employing freelancers, including in its life sciences segment. The group’s overall gross margin fell from 53.8 per cent to 50.5 per cent, and management does not expect SDL to catch up in the second half.
Language services in the Asia-Pacific region saw sales growth of 40 per cent at fixed currencies to £13m. But, the gross margin here was driven down 0.8 per cent on freelancer costs and the relative complexity of using machine translation for Asian languages. Mr Hernandez advises that good progress is now being made with machine translation of Japanese. And SDL is nine months into a general automation programme – designed to “support a structural improvement in margins”.
Analysts at Investec forecast pre-tax profits of £23.1m and EPS of 20.3p for the year to December 2017, down from £27.0m and 26.6p respectively in 2016.
| SDL (SDL) | ||||
| ORD PRICE: | 503p | MARKET VALUE: | £ 412m | |
| TOUCH: | 500p-510p | 12-MONTH HIGH: | 675p | LOW: 412p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | na | |
| NET ASSET VALUE: | 219p* | NET CASH: | £26.1m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p)** |
| 2016 | 133.7 | 0.9 | 5.60 | nil |
| 2017 | 141.1 | 20.6 | 4.65 | nil |
| % change | +6 | +2189 | -17 | nil |
| Ex-div: | na | |||
| Payment: | na | |||
*Includes intangible assets of £147m, or 179p per share **SDL does not pay an interim dividend | ||||
