SDL PLC. Interim results for the six months ended 30 June Overall, a solid first half performance

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1 4 August SDL PLC Interim results for the six months ended Overall, a solid first half performance SDL plc ( SDL, the Group or the Company ), a leader in Customer Experience Management solutions, announces its unaudited interim results for the six months ended. Income Statement: Revenue Profit before tax and amortisation of intangible assets Profit before tax Earnings per ordinary share - basic (pence) Adjusted* earnings per ordinary share basic (pence) Statement of Financial Position: Total equity Cash and cash equivalents Interest bearing loans and borrowings (3.0) (15.0) *before amortisation First half highlights Group revenues 133.9m, up 4% Group profit before amortisation and tax ( PBTA ) 9.3m vs last year of 6.7m, up 39% Language Services revenue growth of 4%, with net contribution margin up 5.6% New Language Services clients in the period include Acurian UK, ADAMA, and Akamai Technologies, Huawei and Mitsubishi Electric. Technology revenue growth of 3% Technology Annual Recurring Revenue ( ARR ) up 1% at constant currency vs December Technology bookings down 6% at constant currency Customers who bought our technology solutions during the period include Abbott Laboratories, Canon, DAF Trucks NV, RCM Technologies Inc, Royal Mint and Tetrapak Group. Introduced key innovations including: o SDL s Digital Experience Accelerator (DXA), designed to reduce website implementation time from weeks to days, drastically reducing operating costs o The next generation of machine translation technology ( XMT ), a core component of the Language pillar within SDL Customer Experience Cloud ( CXC ) Mark Lancaster, Chief Executive Officer, commented: The Group has delivered a solid first half performance with strong revenue and profit performance from Language Services, ahead of our expectations. This area of our business continues to see strong momentum with a good outlook. Within our Technology segment ARR has continued to grow, but new bookings have been disappointing and we have made some proactive changes within the segment. We expect to see growth for the year as a whole, as our pipeline converts and our sales force continues to bed in. As we enter the second half with a solid pipeline, our expectations for the Group remain unchanged and the Board remains confident in the Company s vision, strategy and ability to deliver shareholder value in the longer term. 1

2 For further information please contact: SDL plc Tel: Mark Lancaster, Chief Executive Officer Dominic Lavelle, Chief Financial Officer FTI Consulting Tel: Edward Bridges / Emma Appleton About SDL SDL (LSE: SDL) is the leader in global customer experience. With a completely integrated cloud solution for content management, analytics, language and documentation, SDL solves the complexity of managing your brand s digital footprint as it grows across multiple languages, cultures, websites, devices and channels. Seventy-nine of the top 100 global companies trust SDL to help them create authentic, in-context customer experiences that drive demand and loyalty. SDL brings your brand to the world, and the world to your brand. Learn more at SDL.com. Follow SDL on Facebook and Twitter. 2

3 Chairman s Statement The first six months of has seen the Group achieve results in line with our expectations in terms of revenue and ahead of expectations in terms of profitability. As is normal for a business such as ours, some parts of our business have performed better than we expected whilst other parts have disappointed. Our Language Services business has confirmed its world class status, not only benefiting from improving market demand but also leveraging our best in class technology to capitalise on the opportunities open to us. The result is that in this area of the business we are achieving better revenue growth than the market at levels of profitability well in excess of any peer in the sector. Within our Technology business, our language technology offerings continue to achieve good success in the market. However, our Customer Experience Management ( CXM ) related products have not performed to our expectations. Investors will be aware that we have made significant investments in both Research and Development and in Sales and Marketing. Feedback from industry analysts and customers indicates that our R&D investments have been targeted well. However, execution issues in Sales suggest that we are yet to see a good return on investments in this area. Our conclusion is that this is largely a matter of timing. However, we have made some proactive changes during the period to our structure which we believe will contribute to improving sales execution. The underpinning of the Group s profitability by our Language offerings has allowed us the opportunity to be patient regarding timing of delivery by our CXM products. The executive team continues to work tirelessly to ensure that the Group takes full advantage of the substantial opportunities our marketplace is offering us. David Clayton Chairman 3

4 CEO Review First half highlights Group revenues 133.9m, up 4% Group profit before amortisation and tax ( PBTA ) 9.3m vs last year of 6.7m, up 39% Language Services o revenue growth of 4% o gross margin 46.5%, (: 44.1%) o net contribution margin 21.6%, (: 16.0%) Technology o revenue growth of 3% o Technology Annual Recurring Revenue ( ARR ) up 1% at constant currency vs December o Technology bookings down 6% at constant currency o Net loss of 7.2m (: 5.0m) Key innovations o Introduction of SDL s Digital Experience Accelerator (DXA), designed to reduce website implementation time from weeks to days, drastically reducing operating costs o Introduction of the next generation of machine translation technology ( XMT ), a core component of the Language pillar within SDL Customer Experience Cloud ( CXC ) Summary of first half performance Overall, the Group has delivered a solid first half performance, beating our profit and meeting our revenue expectations. In Language Services, we believe we are taking market share from our competitors and increasing our margins through a combination of revenue growth and operational leverage. The demand for our Language Services offering continues to be driven by strong sector trends such as the globalisation of products and corporate strategies alongside increasing international trade and the multi-channel, multi-lingual marketing and customer services requirements of corporates. We are able to meet the ever present requirements of speed, accuracy and cost effectiveness combined with a deep appreciation of the complexities of running global businesses to meet the needs of our customers. In our Technology segment, we have seen increased cross sell and solid upsell, and ARR has continued to grow, however, we delivered a disappointing new bookings number that we believe is primarily due to the time it is taking to bed in our new sales force. However, the large number of our customers upgrading to our latest web and campaigns technology was most encouraging. We do still see companies purchasing point solutions, however reassuringly almost all are taking account of the CX umbrella solution and ability to integrate. Our ARR base is solid and we continue to build out our partner presence. We have executed a tuning of our sales and marketing organisation and go to market tactics and, as we move through the second half of, we will be focusing more on the specific business needs of the individual sales stakeholders, ensuring expertise of point solutions within the CX umbrella. We are also increasing our focus on partners and the development community as we see customers seeking more help with their CX strategies. Technology Comment We continue to lead the world with our language technology solutions and we see continued momentum with our knowledge base / document management offering. Although Web has had a disappointing first half, this has often been shown to be the case in the past with large transactions. Our ecommerce solutions continue to grow solidly, albeit a little slower than last year, with much of this growth coming from new customers. We have been very encouraged by our success in winning a significant deal for our social product line. We have seen increased partner engagement and interest in our customer analytics and campaign products. 4

5 Customer Experience Management Market Comment The market for digital experience platforms continues to heat up. Industry analysts believe that over the next five years the digital front office will become a huge investment area and a massive battleground for customers, partners, and the ecosystem. This is already happening. The market for digital experience platforms is simultaneously being disrupted by Software-as-a-Service (SaaS). We are seeing an increased need for CX solutions as businesses move into and navigate the digital world. When we use the combination of our pre-sales consultancy combined with the right sales execution and deep understanding of the clients need, we win. Leading Indicators Leading indicators remain very encouraging for the structural changes we have put in place over the last two years: Gartner: SDL is positioned in the Leader Quadrant for Web Content Management Language Services is growing well and we believe we are taking market share from competition Our language technology products are significantly ahead of anything in the market today and tightly integrated into our CX platform. According to our partners and customers, language is becoming one of the most important battle grounds of the digital market. We currently hold 72 patents on our technology, with most of these patents grouped in areas of cutting edge research that we have been investing in over the past five years and are yet to reach high penetration in the market We have had some solid customer wins across all our product lines. We enter the second half with a significantly stronger technology pipeline much stronger than it was 6 months ago. Innovation and Product Development Innovation and customer focus have always been at the heart of SDL and is the reason we now have a leading integrated CXM technology platform. We consider language management a crucial cornerstone in our strategy of becoming a world leading solutions provider for managing the Global Customer Experience and language remains a key differentiator for us in this space. In May we introduced Digital Experience Accelerator, a content management system as a service designed to allow users to deploy new micro sites in hours, but scalable being based on our Tridion web technology. Additionally, the open-source based architecture can be easily extended with other capabilities by both SDL and its partners, enabling organisations to deliver powerful customer experience solutions quicker than ever before. We have also introduced the next generation of machine translation technology ( XMT ), a core component of the Language pillar within SDL s Customer Experience Cloud. We believe this technology is an essential tool in bringing down the barriers of multilingual communication by providing a scalable infrastructure for the development and rapid deployment of real-time translation capabilities a necessity in today s multilingual world. Deployment of ground-breaking new MT capabilities, including SDL Language Learning, will bring artificial intelligence to machine translation through machine learning. Outlook As we enter the second half of the financial year, we see continued strong momentum in Language Services, with an outturn ahead of our expectations for the half year and a good outlook expected for the second half. Within the Technology segment, we expect to see growth for the year as a whole, as our pipeline converts and our sales force continues to bed in. We expect to see operating profit growth in line with our expectations as we move through the second half of. We remain committed to the vision for the Company which seeks to leverage the trends in global trade and meet the needs of the digital world. 5

6 Financial Review Summary Performance Revenues were million (: million), up 4% on the prior year. Profit before taxation and amortisation of intangible assets ("PBTA") was 9.3 million (: 6.7 million), up 39%. Gross cash in the business at the end of half year was 11.2 million ( : 22.1 million) and net cash after borrowings was 8.2 million ( : 13.1 million). Performance by Segment The Group has two reportable segments: Language Services contributing 76.1 million or 57% of total revenue and 16.5 million of PBTA (: contributing 72.9 million or 56% of total revenue and 11.7 million of PBTA). Segment revenue grew by 4% in the period. Revenue growth has been strongest in the Americas region which grew at 10% as new and existing customers increased their volumes in the period. The APAC region also performed strongly in the first half but their growth has been offset by currency translation movements. The strong margin performance seen in has continued into. Gross margins increased to 46.5% in the first half (: 44.1%) due to the full benefits of operational initiatives including expanded use of automated translation technology, new workflow efficiency tooling and use of low cost production centres being realised and currency impacts. Segment PBTA margin increased to 21.6% (: 16.0%). The PBTA margin has been driven by gross margin improvements, tight control of overheads and currency gains in the first half. The full year net contribution percentage is expected to revert closer to 20% as the benefit of currency gains is equalised over the full year. New Language Services clients in the period include Acurian UK, ADAMA, and Akamai Technologies, Huawei and Mitsubishi Electric. Technology contributing 57.8 million or 43% of revenue and losses of 7.2 million PBTA (: contributing 56.2 million or 44% of revenue and losses of 5.0 million PBTA). Segment revenue increased by 3% in the period, whilst costs rose in line with planned levels of investment. The performance of the business in the first half has led to a tuning and refocusing of its sales, marketing and operations teams to improve performance in the second half. Key commercial measures for the business in the first half include: Bookings in the period were 51.3 million, a reduction of 6% on ( 54.3 million) at constant currency The new bookings pipeline for the second half is healthy in comparison to forecast new bookings, with the pipeline being significantly stronger than it was six months ago At the end of June, Annual Recurring Revenue ( ARR ) from SaaS and perpetual support and maintenance contracts was 68.7 million, an increase of 1% on December ( 68.0 million), at constant currency Customers who bought our technology solutions during the period include Abbott Laboratories, Canon, DAF Trucks NV, RCM Technologies Inc, Royal Mint and Tetrapak Group. Cashflow Cash generated from operations was 2.8 million (: 7.1 million). Compared to, cash conversion in the period has been impacted by unrealised foreign exchange gains, reduced staff incentive accruals and increased trade receivables in line with revenue growth. Capital expenditure in the period was 1.3 million (: 1.3 million), tax paid was 2.8 million (: 1.5 million) and a dividend of 2.0m was paid in June (: nil). 6

7 Borrowing facilities In the first half of the year, the Group has repaid a further 6 million of its borrowings. At, the Group had 3 million of drawn borrowings (; 15 million). On 3 August the Group signed a new facility agreement which provides the Group with a 25 million revolving credit facility and a 25 million accordion facility. The facility will expire on 31 July Taxation SDL is a global business and, as such, the Group s effective tax rate is heavily influenced by the territorial mix of where operating profits are earned together with the utilisation of tax losses in certain jurisdictions. The tax charge for the half year is 2.1 million (: 1.2 million). The effective tax rate of 35% (: 39%) includes the impact of deferred tax on amortisation charged in the period. Earnings Per Share Basic earnings per share when adjusted for amortisation of intangibles ( adjusted EPS ) increased by 41% to 8.06 pence. Basic earnings per share was 4.76 pence (: 2.30 pence). 7

8 SDL plc Interim Condensed Consolidated Income Statement Year to m Notes Continuing Operations Sale of goods Rendering of services REVENUE Cost of sales (57.8) (56.1) (112.9) GROSS PROFIT Administrative expenses (70.0) (69.8) (137.8) OPERATING PROFIT OPERATING PROFIT BEFORE TAX AND AMORTISATION Amortisation of intangible assets (3.3) (3.6) (7.1) OPERATING PROFIT Finance income Finance costs (0.1) (0.1) (0.4) PROFIT BEFORE TAX PROFIT BEFORE TAX, AMORTISATION AND ONE-OFF COSTS Amortisation of intangible assets (3.3) (3.6) (7.1) PROFIT BEFORE TAX Tax expense 4 (2.1) (1.2) (2.8) PROFIT FOR THE PERIOD Pence Pence Pence Earnings per ordinary share - basic (pence) Earnings per ordinary share - diluted (pence) Adjusted earnings per ordinary share (basic and diluted) are shown in note 5. 8

9 SDL plc Interim Condensed Consolidated Statement of Comprehensive Income Year to Profit for the period Currency translation differences on foreign operations (12.5) (4.6) (5.3) Currency translation differences on foreign currency equity loans to foreign subsidiaries Income tax charge on currency translation differences on foreign currency equity loans to foreign subsidiaries (0.7) (0.2) (1.1) Other comprehensive income (10.1) (4.2) (2.3) Total comprehensive income (6.2) (2.3) 4.3 All the total comprehensive income is attributable to equity holders of the parent Company. A currency translation difference on a foreign operation may be reclassified to the Income Statement upon disposal of that operation. There are no other items included in Other Comprehensive Income that may be reclassified to the Income Statement in the future. 9

10 SDL plc Interim Condensed Consolidated Statement of Financial Position ASSETS NON CURRENT ASSETS Property, plant and equipment Intangible assets Deferred income tax Rent deposits CURRENT ASSETS Trade and other receivables Corporation tax Cash and cash equivalents TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Trade and other payables (76.0) (73.7) (84.0) Loans and overdraft (3.0) (15.0) (9.0) Current tax liabilities (7.3) (7.6) (6.7) Provisions (2.2) (2.0) (2.8) (88.5) (98.3) (102.5) NON CURRENT LIABILITIES Other payables (0.8) (1.5) (1.3) Deferred tax liability (3.7) (5.2) (4.4) Provisions (0.6) (1.0) (0.5) (5.1) (7.7) (6.2) TOTAL LIABILITIES (93.6) (106.0) (108.7) NET ASSETS EQUITY Share capital Share premium Own shares - (0.3) - Retained earnings Foreign exchange differences TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT The Interim Financial Information presented in this Interim Report was approved by the Board of Directors on. 10

11 SDL plc Interim Condensed Consolidated Statement of Changes in Equity Share Share Own Retained Translation Capital Premium Shares Earnings Reserve Total At 2013 (audited) Profit for the period Other comprehensive income (4.2) (4.2) Total comprehensive income (4.2) (2.3) Own shares acquired - - (0.3) - - (0.3) Arising on share issues* Share-based payments* At (unaudited) (0.3) Profit for the period Other comprehensive income Total comprehensive income Own shares acquired Share-based payments* (0.2) - (0.2) At (audited) Profit for the period Other comprehensive income (10.1) (10.1) Total comprehensive income (10.1) (6.2) Dividend paid (2.0) - (2.0) Arising on share issues* Share-based payments* At (unaudited) *These amounts relate to transactions with owners of the Company recognised directly in equity. The amounts above are attributable to the equity of the parent Company. 11

12 SDL plc Interim Condensed Consolidated Statement of Cash Flows Year to Profit before tax Depreciation of property, plant and equipment Amortisation of intangible assets Finance income - - (0.1) Finance costs Share-based payments Decrease / (increase) in trade and other receivables (2.0) (Decrease) / increase in trade and other payables and provisions (8.7) (7.0) 3.6 Exchange differences (2.9) - (1.7) CASH GENERATED FROM OPERATIONS Income tax paid (2.8) (1.5) (3.9) NET CASH FLOWS GENERATED FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Payments to acquire property, plant and equipment (1.3) (1.3) (2.4) Receipts from sale of property, plant and equipment Payment to acquire subsidiaries (0.3) (0.3) (0.3) Interest received NET CASH FLOWS USED IN INVESTING ACTIVITIES (1.6) (1.6) (2.6) 12

13 SDL plc Interim Condensed Consolidated Statement of Cash Flows (continued) Year to FINANCING ACTIVITIES Net proceeds from issue of ordinary share capital Repayment of borrowings (6.0) (5.0) (11.0) Dividend paid on ordinary shares (2.0) - - Repayment of finance leases (0.2) (0.1) (0.3) Interest paid (0.1) (0.1) (0.4) NET CASH FLOWS USED IN FINANCING ACTIVITIES (8.1) (4.8) (11.3) DECREASE IN CASH AND CASH EQUIVALENTS (9.7) (0.8) 4.4 MOVEMENT IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at start of the period (Decrease)/ increase in cash and cash equivalents (9.7) (0.8) 4.4 Effect of exchange rates on cash and cash equivalents (1.2) (0.5) (0.5) Cash and cash equivalents at end of the period

14 SDL plc Notes to the Interim Condensed Consolidated Financial Statements 1. Basis of preparation and accounting policies Basis of preparation The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. The interim condensed consolidated financial statements for the six months ended have been prepared on a going concern basis in accordance with IAS 34 Interim Financial Reporting. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, this condensed set of interim financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended. The preparation of condensed consolidated interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results for which form the basis of making the judgements about carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates. The principal risks and uncertainties were disclosed in the Group s annual report and financial statements for the year ended and remain broadly unchanged. SDL has an established process both to manage risk and to seek to mitigate the impact of risk as much as possible should it materialise. Operational risks include management succession, system interruption and business continuity, data protection, compliance, contract management, integration of acquisitions, maintaining technology leadership and intellectual property. Financial risks include liquidity, counterparties, interest rates and financial reporting. Going Concern In line with code requirements the Directors have made enquiries concerning the potential of the business to continue as a going concern. Enquiries included a review of performance in, annual plans, a review of working capital including the liquidity position and a review of current indebtedness levels. The Directors confirm they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Given this expectation they have continued to adopt the going concern basis in preparing the interim financial statements. 2. Segment information The Group operates in the Customer Experience Management industry. For management reporting purposes, the Group is organised into business units based on the nature of their products and services. Following the completion of the Group s reorganisation in, the Group has two reportable operating segments as follows: The Language Services segment is the provision of a translation service for customers multilingual content in multiple languages. The Technology segment is the sale of enterprise, desktop and statistical machine translation technologies, content management technologies, campaign management, social media monitoring and marketing analytic technologies together with associated consultancy and other services. The Chief Operating Decision Maker monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment prior to charges for tax and amortisation. 14

15 Six months ended (unaudited) External Revenue Total Revenue Depreciation Segment profit /(loss) before taxation and amortisation Language Services Technology (7.2) Total Amortisation (3.3) Profit before taxation 6.0 Six months ended (unaudited) External Revenue Total Revenue Depreciation Segment profit / (loss) before taxation and amortisation Language Services Technology (5.0) Total Amortisation (3.6) Loss before taxation 3.1 Twelve months ended (audited) External Revenue Total Revenue Depreciation Segment profit / (loss) before taxation and amortisation Language Services Technology (9.8) Total Amortisation (7.1) Loss before taxation 9.4 Revenue by geographical destination was as follows: Year to United Kingdom Rest of Europe USA Canada Rest of the World

16 3. Operating profit Is stated after charging / (crediting): Year to Research and development expenditure Bad debt charge Depreciation of owned assets Depreciation of leased assets Amortisation of intangibles Operating lease rentals for plant and machinery Operating lease rentals for land and buildings Net foreign exchange differences (3.0) (0.1) (2.2) Share based payment charge Taxation Year to UK corporation tax: UK current tax on income for the period Adjustments in respect of prior periods Foreign tax: Current tax on income for the period Adjustments in respect of prior periods - (0.1) (0.1) Total current taxation Year to Deferred taxation: Origination and reversal of timing differences (0.7) (2.2) (3.1) Total deferred taxation (0.7) (2.2) (3.1) Tax expense A tax charge in respect of foreign currency translation differences on foreign currency loans to foreign subsidiaries of 0.7m was recognised in the statement of other comprehensive income in the six months to June (June : 0.2m charge; December : 1.1m charge). A tax credit in respect of share based compensation for deferred taxation of 0.1m (June : nil; December : nil) has been recognised in the statement of changes in equity in the period. 16

17 5. Earnings per share Year to Profit for the period attributable to equity holders of the parent Number Number Number Basic weighted average number of shares (million) Employee share options and shares to be issued (million) Diluted weighted average number of shares (million) Adjusted earnings per share: Year to Profit for the period attributable to equity holders of the parent Amortisation of intangible fixed assets Less: deferred tax benefit associated with amortisation of intangible fixed assets (0.7) (0.8) (1.4) Adjusted profit for the period attributable to equity holders of the parent Number Number Number Basic weighted average number of shares (million) Diluted weighted average number of shares (million) Pence Pence Pence Adjusted earnings per ordinary share basic (pence) Adjusted earnings per ordinary share diluted (pence) Dividend per share Dividends paid in the six months ending were 2.0m (June : nil; December : nil). The dividend paid in amounted to 2.5 pence per share. 7. Interest-bearing loans During the period, the Group repaid 6.0 million. At, the Group had a 30 million facility with Royal Bank of Scotland and had drawn down 3.0m of the facility. On 3 August the Group signed a new 5 year facility agreement which provides the Group with a 25 million revolving credit facility and a 25 million accordion facility. 17

18 8. Share-based compensation grants On 17 April 752,255 Long Term Incentive Plan (LTIP) shares and 517,000 stock options were awarded to certain key senior executives and employees of the SDL Group. The exercise price of the options was pence, representing the mid-market price on the day before grant. On 27 April 280,432 Retention Share Plan (RSP) were awarded to certain key senior executives and employees of the SDL Group 9. General notes The comparative figures for the financial year ended are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act Events after the statement of financial position date There are no known events occurring after the statement of financial position date that require disclosure, other than refinancing the Company s interest bearing loans set out in note 7. 18

19 Responsibility Statement by the Management Board We confirm that to the best of our knowledge: the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; the interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. For and on behalf of the Board Dominic Lavelle Chief Financial Officer 19

20 INDEPENDENT REVIEW REPORT TO SDL PLC Introduction We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended which comprises the Interim Condensed Consolidated Income Statement, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Statement of Cash Flows, and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ( the DTR ) of the UK s Financial Conduct Authority ( the UK FCA ). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. Directors responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. Simon Haydn-Jones (Senior Statutory Auditor) For and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL 4 th August 20