SDL anticipates “another year of progress”

The premium services segment sits within SDL’s largest language services business, which saw an 18 per cent rise in sales to £218m – or 5.2 per cent on an organic, constant currency basis. Encouragingly, organic gross margins here edged up from 40.5 per cent to 42.5 per cent, exiting the 12 months at 45.2 per cent.

Meanwhile, SDL’s language technologies business saw a much smaller 1.6 per cent improvement in revenues to £49.8m.  Organic gross margins here contracted from 78.5 per cent to 79.6 per cent, albeit as a consequence of sales mix. Within this division, machine translation sales declined by 7.9 per cent at constant currencies – a “disappointing” result, though the group notes that this is partly because of the transition towards ‘neural’ translation, which is by and large a new product rather than being an “extension of earlier flavours of Machine Translation”.

Overall, the group’s continuing gross margin of 52.2 per cent was flat year on year – additionally reflecting the dilutive impact of the DLS deal funded by a £36m placing at 440p. Further down SDL’s income statement, the equity issue implemented to finance this transaction had a dampening effect on EPS – as did a rise in exceptional costs from £3.3m to £7.0m, denoting both restructuring and acquisition-related expenses.

Operating cash flow (excluding the cash costs of exceptional items) came in at £45.6m – up considerably from £14.2m.  Focusing on cash collections in 2019 should “underpin positive translation of trading profit to cash conversion”.

Broker Numis expects adjusted pre-tax profits of £34.9m and EPS of 28.1p for 2019, against £28.5m and 24.1p in 2018.