6 days ago
March 25, 2020
SDL Cuts Costs in Anticipation of Revenue Decline
On March 24, 2020, UK-listed language service provider (LSP) SDL released a trading update for the financial year ended December 31, 2019.
With estimated 2019 revenues of around USD 488m, SDL finished the year with a net cash balance of GBP 26.3m (USD 31m). In a bid to assure investors in light of ongoing market dislocations, SDL also stressed that it “has bank facilities of GBP 120m (of which GBP 70m committed).” Moreover, the LSP said it has “continued to generate cash since the start of the year.”
As stock markets crashed over the past few weeks, companies rushed to reassure markets about the strength of their balance sheets and cash position.
SDL had previously expected to share its full-year results in March 2020. However, in the March 24, 2020 update, the company confirmed it is delaying the release of these results at the request of the UK Financial Conduct Authority (FCA), which has asked companies to observe a two-week moratorium on publishing preliminary results.
Press Releases
In line with SDL’s commitment to the FCA moratorium, the update did not contain full-year revenue figures. However, SDL did provide estimated percentage revenues by geography and by industry for 2019.
SDL generated 40% of revenues from US customers in 2019, while Asia Pacific accounted for nearly a quarter of the company’s top-line. By vertical, high-tech customers were the biggest contributors, responsible for a little over a third of revenues; and the next largest vertical, life sciences, accounted for around half as much.
Cost Cuts
In addition to using the update to reassure investors, SDL also laid out its plans for mitigating any impact of the global Covid-19 outbreak on revenues.
In a first phase, SDL plans to cut costs in the current financial year by GBP 8m (USD 9.4m). Much of that initial cutting will likely be done by driving down the cost of sales (i.e., optimizing spend on translation and localization production, typically the largest variable cost and easiest to cut immediately).
RFP Center
SDL said it is focusing on the “prioritisation of in-sourcing to reduce linguistic outsourcing costs,” as well as “cutting non-essential expenses.” The decision to increase the use of SDL’s internal linguists for translation activities will likely see individuals divert time away from project management tasks, which would have minimal operational impact if orders are down.
“There are signs of slower decision-making”
On the client front, SDL said it had indeed observed “signs of slower decision-making” from customers. Moreover, although the company is somewhat cushioned by its high recurring revenues and the “sticky” nature of its software products business, it would be “prudent to anticipate a reduction in constant currency revenues across SDL’s Language Services and technology businesses.”
Strategy Package
SDL also outlined a number of operational changes it is making in response to Covid-19. These include modifying sales and marketing activities for the current climate. Most of its 4,300-strong workforce is already working from home, the LSP said.
In a recent tweet, SDL CEO Adolfo Hernandez detailed his own working-from-home regime, which, although packed with N+? calls, still allows sufficient time in the schedule for that well-earned Friday evening G&T.
Shares in SDL plc are down around 33% since the start of 2020, falling 2.5% on the day of the trading update.
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