SDL.L Regulatory News (SDL)

2 August 2016

SDL plc

Interim results for the six months ended 30 June 2016

Results in line with management expectations

SDL plc ("SDL", "the Group" or the "Company"), a leader in global content management and language translation software and services, announces its unaudited interim results for the six months ended 30 June 2016.

* £15.1m cash on balance sheet £0.1m disclosed in Assets held for sale

Financial highlights

· Revenue from Continuing Operations £120.4 million (2015: £120.7 million)

· Profit before tax, amortisation and one-off items (PBTA) for Continuing Operations £11.6 million, Total £9.5 million (2015: Total £9.3 million, Continuing Operations £11.4 million)

· One-off items of £5.9 million (2015: £nil)

· Profit after tax £0.5 million (2015: £3.9 million)

· Adjusted Continuing Operations earnings per share of 12.10 pence (2015: 11.05 pence)

· Cash generated from operations of £6.4 million (2015: £2.8m); period-end net cash increased to £13.3 million (2015: £8.2 million)

· As expected, reduced Language Services PBTA margins of 11.7% due to planned investments which were slightly higher than initially planned

· Language Technologies and Global Content Technologies bookings up 6%, new bookings up 16%

· Global Content Technologies PBTA margins up to +9% from -16% following new licence wins and reorganisation activity over the past 12 months

· SDL top 10 clients increased revenue by 23% in H1 2016

Operational highlights

· Implementation of (previously announced) new strategy and organisational structure to enhance customer focus, improve agility and pursue key strategic aims

· Key appointments made to the Group's leadership team in the first half including CEO, Adolfo Hernandez

· Disposal of non-core businesses progressing

· Diversified client base, no one customer accounts for more than 5% of total revenue

· We secured 32 new enterprise customers with world leading brands

· Translation Productivity secured over 200 new corporate customers and expanded presence in over 300 existing corporate accounts

· Secured 19 new Life Sciences clients (mix of new logos and new divisions within existing customers)

Commenting on the business and the results, Adolfo Hernandez, CEO of SDL, said:

"Since joining SDL three months ago, I can see that we have tremendous opportunities to drive long-term sustainable growth and shareholder value. Much work has been done to more clearly understand our clients' needs and how to better align our product and services offering to them. In the short-term I believe there are areas where we can improve productivity and efficiency but there remains a lot of work to do to take full advantage of the opportunities in our chosen markets.

We are working hard to create a more scalable platform to compete even more effectively as one of the leaders in our industry. SDL has the right strategy in place and I am excited about the opportunity ahead of us. We have started executing our strategic plan and as we enter the second half, we are confident of the outlook for the current financial year and beyond."

Chairman's Statement

The first six months of 2016 has been a period of significant strategic progress for the Group. We began the year with three key goals and I am pleased to say that we have achieved all of them. Firstly, we completed the situational analysis phase of our strategic planning. This resulted in our decision to re-focus our business around its heritage of market leadership in technology-enabled Language capabilities. As a consequence we decided to divest three Non-Core businesses and this process is progressing.

Secondly, we have recruited a first class Chief Executive Officer. Adolfo Hernandez joined us at the end of the first quarter and he has already had a significant impact on the business. Following a period of transition of my Executive responsibilities, I have now been able to return to my role of Non-Executive Chairman. Adolfo has inherited the strategic work we began in October, and accelerated the development of the strategy which we believe will serve SDL for the foreseeable future. This has resulted in some changes to our organisational structure and the arrival of new members of the leadership team.

Adolfo's experience in leading global businesses has already proved vital in ensuring that SDL can attract the highest quality talent to take our business forward. Furthermore, he has spent much of the last three months visiting our many locations and also consulting with colleagues, customers and partners. I believe this has accelerated our understanding of our potential and Adolfo is now in a position to lead the next phase of our development as a global leader in our chosen market segments.

The third goal we set at the beginning of 2016 was to ensure that we continued to deliver for our various stakeholders at a time of considerable change for our business. I am pleased to say that the first half results were in line with our expectations at the headline level, albeit the mix was slightly different than we expected. The Global Content Technologies business has benefitted more than we anticipated from the restructuring we undertook at the beginning of the year. As we foresaw, Language Services has responded to some market and operational issues, which fully justify our decision to invest in order to reverse their impact. However, we won't begin to see the benefits of these investments until later. I continue to be grateful for the dedication and focus of our people in continually producing the right outcome for our customers and partners during a time of change.

SDL is a well-established global company with significant international presence and a global client base. Operationally we trade and resource in many parts of the world and with the vast majority of revenue outside the UK and we expect to remain very diversified from a geographic perspective. SDL products and services are compelling for those companies who do trade internationally and that will not change - Globalisation is here to stay.

As a Board, we have considered the operational implications of Brexit and it is our view that on balance, we do not expect a material impact on our business from an operational perspective albeit the short term macroeconomic and foreign exchange effects have yet to play out. Nevertheless, the outlook for the business remains solid and we look to the remainder of the financial year with confidence.

David Clayton

Chairman 

CEO Review

Summary Performance

The first half of 2016 has been a period of differing progress within our Continuing Operations. We are very pleased with the improved new bookings performance and profitability in Language Technology and Global Content Technologies (GCT) which demonstrates good progress in our software businesses which now represent £45.5 million of revenue and £2.8 million of PBTA in the period. This progress in software has been offset by slightly lower than expected margins in Language Services. Our Non-Core businesses have performed slightly ahead of our expectations.

Revenue from Continuing Operations was flat against the prior period at £120.4 million (2015: £120.7 million). Total bookings from our technology segments were up 6% at constant currency with a 16% increase in new bookings in the period. Total revenues were also flat vs the prior period at £133.7 million (2015: £133.9 million).

I'm pleased to report that we have secured new customers across the Group through a variety of sector verticals. Our focus on key target accounts in Language Services has resulted in SDL winning several new flagship accounts, major wins in our Translation Management products increased bookings and our Machine Translation business has performed particularly strongly during the half as a result of new contracts. Our SDL Language Cloud Managed Translation platform continues to gain momentum with new customer wins in both the Enterprise and SMB markets from both our direct sales and online channels.

Profit before taxation, amortisation of intangible assets and one-off items ("PBTA") from Continuing Operations and Total was £11.6 million and £9.5 million (2015: Total £9.3 million, Continuing Operations £11.4 million). 

The Group's profit after tax amounted to £0.5 million, after one-off items of £5.9 million (2015: profit after tax £3.9 million, one-off items £nil).

Gross cash in the business at the period-end was £15.2 million (2015: £11.2 million) and net cash after borrowings was £13.3 million (2015: £8.2 million).

Cash generated from operations was £6.4 million (2015: £2.8 million). Cash generation in the period has been impacted by cash outflows associated with the restructuring programme and 2015 staff incentive payments. Capital expenditure was £1.0 million (2015: £1.3 million). Tax paid was £4.2 million (2015: £2.8 million).

Operational and strategy update

Since I took up the helm at SDL in April, I have had three months of intense engagement with the organization, customers, investors and partners and I am very excited about the opportunities that we have for long-term profitable growth. Having now spent time with all the business lines and all the regions where we operate I am starting to see that there are a number of common themes that represent both the challenges we face and what we must address to take advantage of the opportunities.

I have been actively driving the operational review that David Clayton began towards the end of last year. Together, we have thoroughly evaluated every piece of the business, analysed our customers and our markets to ensure our strategy best positions us for future growth and global competitive advantage.

In January, the Board announced that SDL would be refocusing around its core strengths in language solutions and global content technologies, helping brands to manage, translate and deliver localised content on a global scale, which I absolutely believe was the right decision. It is this unique combination of language services and translation technology, coupled with our web and technical content management technologies, which gives us a huge opportunity for SDL to capitalise on what is a large and growing global market. Speaking to our customers, however, it's clear we need to address a number of areas to take advantage of this opportunity. In order to win we must adapt to:

· Become more agile;

· Become simpler to work with;

· Become more solutions focused and solve the needs of our customers in their industries; and

· Become a strategic partner to our customers.

Many of the fixes are for us to drive and we are already implementing solutions to address them as follows:

· We must address the immediate opportunities that we have around us.

We have identified many opportunities to improve the way we operate and serve our customers. Within our operations we have clearly identified internal processes and systems that are incurring unnecessary costs and creating business inertia.

We believe that we can reduce both through investment in automation in project management and administrative work streams where we would expect to be able to strike a balance between those services we perform in-house and those that are capable of being outsourced to drive down costs. We also see gains to be made in investment in business and resource planning.

Immediate actions in these areas are expected to result in a more agile business, improved productivity and, most importantly, improved margin and the scalability to support our growth ambitions - but there is much more to do. Azad Ootam, a seasoned transformation executive, has been appointed as Chief Transformation Officer to drive these initiatives.

· Take advantage of the market opportunities

Our markets are large, growing and rapidly changing but historically our inward focus has slowed our response to trends and hampered our ability to address the changing needs of our customers. To date, our business has been too regionally focused and not replicating success well enough. So we are now shifting our Go to Market strategy to drive growth in our most profitable industry verticals, leveraging our presence and, most importantly, our industry sector domain experience across our global footprint.

In addition, we are implementing a strategy to build presence outside of our traditional segments - for example, Life Sciences - where we see the opportunity for our combined language services and technology offer bringing significant value to highly complex customer needs and we have already had early successes around the world.

Our technology base has always been a key differentiator for SDL and I am excited about the untapped potential within our Language and GCT software offerings with a market leading deep-learning Machine Translation stack, the potential to evolve Language technologies to the Language Cloud, as well as the ability to better integrate our Web and Knowledge Centre software platforms into other solutions present in our customer environments.

However, historically we have invested in certain technologies and innovations (namely deep learning Machine Translation and Natural Language processing engines and connectors) that can and should be taken to market widely via initiatives such as an OEM and connector strategy. Our recently signed contract with leading CRM software provider, Salesforce, provides an example of how we can leverage this opportunity. Thomas Labarthe, formerly of Lookout, a leading mobile security software company, has been appointed as SVP of Business Development to drive this initiative, one we believe is capable of scaling significantly in the medium to long term.

· Increase Customer Focus

Despite our vision, our teams have been pursuing different priorities and our Go To Market approach has been fragmented, inefficient and we are not always speaking the "customers' language" nor are we reflecting the customers organisational structure.

To address this, we have implemented two key initiatives. First, we have created a single sales organisation and second, a single customer delivery organisation (under the leadership of SDL veterans Allan Hall and Silke Zschweigert respectively) which will be simpler, more agile, and properly aligned - in terms of objectives and management incentives to win and deliver profitable contracts - across both technology and services. This organisational change gives us a simpler more efficient Customer Engagement model and one we expect to result in greater sales momentum and higher customer satisfaction.

· We must reposition the SDL brand

We need to give clarity both internally and externally to who SDL is, what we do and why customers should care. Our brand story needs to account for our heritage and strengths, acknowledge the market needs and capture the strategic importance of our offerings as well as clearly show our vision and areas of investment going forward. Our new CMO, Peggy Chen is already driving this forward.

· We must execute our strategy

We are working to move SDL towards intelligently combining language services and technology offerings to create highly differentiated language/content-centric solutions that meet customers' needs. They need to support clients as they 'go Global' whilst differentiating SDL and providing significant competitive advantage.

We believe that SDL is the only company with the technology and services expertise to help world-class organisations master the complexity of delivering personalized digital experiences with global reach and 'go global faster'. In a business environment where country and regional GDP growth is sluggish, exploiting new markets is an important strategic priority.

In summary, our software and services are relevant across multiple industries and we know how to win in those markets. This is the base of our services business, we now need to do it in a more systemic, efficient, scalable aligned way. Similarly, we have a strong heritage in Service Delivery that must now be adapted to the new requirements in the market looking for efficiency, responsiveness and quality.

As our Chairman states, we are confident that we have strategically aligned our organisation to focus on future profitable growth, innovation and customer value and are confident we have the right strategy to be the unrivalled leader in our industry. We now have a new Executive team in place, that blends SDL veterans and new talent, which will be focusing on execution and increasing business performance.

Outlook

We offer the smartest solutions in the market and have deep domain expertise. We have done a lot of work to more fully understand our clients' needs and how to align our product and services offering to them. Our loyal staff are embracing change, recognising the significant opportunities that lay before us. There remains a lot of work to do and additional investment to make but we have aligned our organisation, product set and customer value proposition and are confident we have the right strategy in place to be the unrivalled leader in our industry and drive long term sustainable growth and shareholder value.

SDL is a well-diversified business both geographically and in terms of the industry sectors that we address. We serve a customer need that is driven by the inexorable trend towards the Globalisation of businesses. Despite the recent upheavals in Europe following the UK's decision to leave the European Union, we are confident of the outlook for the current financial year and beyond.

Adolfo Hernandez

Chief Executive Officer

Operating and Financial Review

Performance by Segment

Following the operational review undertaken last year, the Group has four operating segments; Language Services, Language Technology, Global Content Technologies and the Non-Core businesses. During the period, the Group has revised its cost allocation methodologies such that only costs directly attributable to discontinued operations are allocated to this latter segment. The impact of this change has been to reallocate costs of £3.2 million from discontinued operations to the Language Services, Language Technology and Global Content Technologies segments. In accordance with IFRS8, the internal recharges for the comparative period have been restated to provide consistent and meaningful information.

Language Services (contributing £74.9 million or 62% of Continuing Operations revenue and £8.8 million of PBTA) (2015: £76.1 million or 63% of Continuing Operations revenue and £15.1 million of PBTA).

Revenue in 2016 was £74.9 million, 2% down on the prior period, following the loss of the majority of the Microsoft account at the end of last year. If Microsoft revenues are excluded, total and repeat revenues were up 5% and 2% respectively on the prior period.

PBTA margin fell from 19.9% to 11.7% in 2016 primarily due to planned investments in customer acquisition, sales and infrastructure, plus a slightly higher than expected investment in delivery and quality resources to enhance our service to customers (which impacted PBTA margin by c-0.8%).

In 2016, we have continued to focus on our core market segments, namely Life Science, Retail & Consumer, Auto & Manufacturing, Hi Tech, Finance, Travel & Tourism, and Government. Our focus on key target accounts resulted in many new account wins including Basware, PSA Peugeot Citroen, Lindex AB, Konsberg, and Yara.

In the first half of 2016, we focused on operational excellence, investing in new systems and technology integrated with the use of our own tools, including SDL Groupshare, MT usage and SDL Trados Studio, to deliver world-class services to our clients.

Language Technology (contributing £19.4 million or 16% of Continuing Operations revenue and £0.5 million PBTA) (2015: contributing £17.9 million or 15% of Continuing Operations revenue and £0.5 million PBTA).

Language Technology total bookings increased 9% at constant currency, with new bookings growing 4% at constant currency and renewal bookings growing by 12%.

Revenue in 2016 was £19.4m, 8% up on the prior period. Machine translation revenues increased 44% and Translation Productivity revenues increased by 6%. Annual Recurring Revenue ("ARR") increased by 4% to £22.1 million during the period to June 2016.

PBTA margin was 2.6%, a fall of 0.2% in the period. Margins have remained substantially at prior period levels due to increased sales, marketing and development costs and the impact of increased SaaS bookings.

Our Translation Productivity tools are used by 70% of the world's professional translators and in the first half of 2016 our position continued to grow.

Our Translation Management products increased bookings with major wins including Alticor (Amway North America), Vanilla Air, PSA Peugeot Citroen, RCI Europe, Toyota Industries and Waters.

Our Machine Translation business has performed particularly strongly during this period with major wins including Wolf Oil Corp, Peugeot Citroen Automobiles and Lindex. Revenue and bookings were both significantly up and volumes passed a major milestone, exceeding 20 billion words being translated each month by SDL MT engines. We plan a major new focus on the commercial MT market later this year with the launch of SDL ETS 7.0, the first major new release targeting this important market.

The first half of 2016 also saw the official launch of SDL Global Team for Salesforce on the AppExchange as well as the launch of a proof of concept for Oracle. New wins include DC Adapco.

Our SDL Language Cloud Managed Translation platform continues to gain momentum with new customer wins in both the Enterprise and SMB markets from both our direct sales and online channels. New client wins include DDI, Reach Local, Pyramid Analytics, SABA and Witt-Gruppe.

Global Content Technologies (contributing £26.1 million or 22% of Continuing Operations revenue and £2.3 million of PBTA) (2015: contributing £26.7 million or 22% of Continuing Operations revenue and losses of £4.2 million PBTA).

Global Content Technologies total bookings were up 5% at constant currency. New bookings increased 30% on the prior period following the closure of two material deals in the period. ARR increased by 5% to £36.0 million during the period to June 2016.

PBTA increased by £6.5 million, from losses of £4.2 million in the prior period, to £2.3 million. This increase was driven by the material increase in new bookings together with a reduced cost base following the reorganisations in mid-2015 and early 2016 which refocused the segment's sales and marketing activities.

New customer wins include Omron, Red Roof Inn, Lindex, EBSCO, Data Communiqué, and several large US government contracts.

In the first half of 2016, we released continuous updates to our portfolio of content management technologies - SDL Web, SDL Knowledge Center, SDL Contenta Publishing Suite - focused on usability, helping our clients master the complexity of managing and delivering content, and building out strategic partnerships and integrations. Key new product developments included:

- SDL Web updates to our cloud offering, an enhanced Digital Experience Accelerator and a brand new eCommerce Framework enabling interoperability with the larger digital marketing ecosystem, and continued collaboration with the larger technical SDL Web community.

- SDL Knowledge Center focused on improving content editor capabilities and dynamic delivery scalability. Further, a new partnership with SmartLogic builds upon last year's introduction of 3rd party taxonomy integration capability.

- SDL Contenta Publishing Suite now provides extended XML editor support and added integration flexibility for logistics, learning and training. Contenta now supports multiple content configurations. LiveContent improved its dynamic viewing capabilities. XPP enhanced productivity, automation and typographic.

Non-Core businesses (contributing £13.3 million of revenue and losses of £2.1 million PBTA) (2015: contributing £13.2 million of revenue and losses of £2.1 million PBTA).

Our Non-Core businesses include our Fredhopper, Campaign & Analytics and Social Intelligence businesses. We announced in January 2016 our decision to dispose of these Non-Core businesses and these processes are progressing.

Despite the announcement of the decision to divest these businesses, the Non-Core businesses have traded slightly ahead of management's expectations in the period. Revenue at £13.3m was up 1% and bookings were down 1% on the prior period.

One-off items

The Group has incurred £5.9 million of one-off items in the period (2015: £nil). These costs relate to: redundancy and retention costs associated with the Group's reorganisations in mid-2015 and 2016; professional fees and related charges associated with the operational review; corporate consolidation exercises carried out in the period; and provision for one-off tax liabilities.

Earnings Per Share

Basic earnings per share when adjusted for one-off items and amortisation of intangibles ("adjusted EPS") increased by 13% to 9.11 pence (2015: 8.06 pence). The adjusted EPS for continuing operations increased 10% to 12.10 pence (2015: 11.05 pence). Basic earnings per share was 0.64 pence (2015: 4.76 pence).

Cash flow

The Group generated £6.4 million from operations after £5.9m of cash payments on one-off items during the period (2015: £2.8 million).

Surplus cash, after deducting net income tax paid of £4.2 million (2015: £2.8 million) and investing activities of £1.0 million (2015: £1.3 million), has been used to reduce the Group's bank borrowings by £2.9 million (£4.8 million repaid in period with further drawdowns totalling £1.9 million outstanding at the period end) and pay a dividend of £2.5 million (2015: £2.0 million).

As a result, net cash increased to £13.3 million at the period end (2015: £8.2 million).

Foreign currency exchange impact

We are a global business and we operate in nearly 40 countries. Our non-£ revenues and costs are reasonably naturally hedged; we estimate that the impact of foreign exchange movements in the period was to increase revenues and costs by circa 4% against the prior period.

Borrowing Facilities

The Group has a £25 million committed revolving credit facility with HSBC plc, expiring in August 2020. The agreement also includes a £25 million uncommitted Accordian facility. The Group has undrawn committed borrowing of £23.1 million at 30 June 2016.

Taxation

SDL is a global business and, as such, the Group's effective tax rate is heavily influenced by the territorial mix of operating profits earned together with management judgement of the extent to which the Group's tax losses are likely to be utilised with reasonable certainty.

The tax charge for the period is £0.4 million (2015: £2.1 million). This charge includes tax credits associated with amortisation, deferred tax and tax on one-off items. The reported effective tax rate during the period was 44.6% (2015: 35.4%) as a result of deferred tax charges for loss utilisation not being offset by the recognition of new deferred tax assets in the period. The effective tax rate for continuing operations before the impact of amortisation is forecast to be 24%.

Dividend

A final dividend for the year ended 31 December 2015 of 3.1 pence per share was paid on 3 June 2016.

Dominic Lavelle

Chief Financial Officer

SDL plc

Interim Condensed Consolidated Income Statement

SDL plc

Interim Condensed Consolidated Income Statement (continued)

Adjusted earnings per ordinary share (basic and diluted) are shown in note 6.

SDL plc

Interim Condensed Consolidated Statement of Comprehensive Income

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.

SDL plc

Interim Condensed Consolidated Statement of Financial Position

The Interim Financial Information presented in this Interim Report was approved by the Board of Directors on 2nd August 2016.

SDL plc

Interim Condensed Consolidated Statement of Changes in Equity

\* 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.

SDL plc

Interim Condensed Consolidated Statement of Cash Flows

The Group has elected to present a statement of cash flows that analyses all cash flows in total. Amounts related to discontinued operations are disclosed in Note 4 (A).

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 30 June 2016 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 31 December 2015.

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 31 December 2015 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 2016, 2016 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 global content management and language translation software and services industry. For management reporting purposes, the Group is organised into business units based on the nature of their products and services. The Group has four reportable operating segments as follows:

· The Language Services segment is the provision of a translation service for customers' multilingual content in multiple languages.

· The Language Technology segment is the sale of enterprise, desktop and statistical machine translation technologies together with associated consultancy and services.

· The Global Content Technologies segment is content management and knowledge management technologies together with associated consultancy services.

· The Non-Core Businesses segment includes the sale of campaign management, social media monitoring and marketing analytic and Fredhopper technologies together with associated consultancy and 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.

During the period, the Group has revised its cost allocation methodologies such that only costs directly attributable to discontinued operations are allocated to this latter segment. The impact of this change has been to reallocate costs of £3.2 million from discontinued operations to the Language Services, Language Technology and Global Content Technologies segments. In accordance with IFRS8, the internal recharges for the comparative period have been restated to provide consistent and meaningful information.

Six months ended 30 June 2016 (unaudited)

Six months ended 30 June 2015 (unaudited) - restated

Revenue by geographical destination was as follows:

3. Operating profit

One-off items

One-off items relate to a number of non-recurring items that arose during the period.

Following the completion of the Group's operational review, the Group has reorganised its organisational structures. These actions have led to non-recurring redundancy costs of £2.2 million being incurred in the period. The Group also sought to retain key employees during this time of change within the organisation and hence retention packages have been provided to certain individuals. A one-off charge of £0.9 million representing the time based cost of these incentive packages has been recognised in the period and further costs will be incurred in 2016 as the service periods elapse. The total charge for non-recurring retention and staff related costs in the year was £3.1 million.

Other one-off items relate to professional and related fees associated with the Group's operational review, corporate reorganisations carried out in 2016 and non-recurring indirect tax liabilities.

These have been separately disclosed in the income statement to provide a better guide to underlying business performance.

4. Discontinued operations

The board decided to sell the Non-Core Businesses early in 2016, following a strategic decision to place greater focus on the Group's key competencies, being Language Services, Language Technology and Global Content Technologies. The Group is in the process of selling its Non-Core Businesses and the disposals are expected to complete in 2016.

The proceeds of disposal are expected to exceed the book value of the related net assets and accordingly no impairment losses have been recognised on classification of these operations as held for sale. Any gain or loss on disposal will depend on the change in net current assets arising from subsequent trading activities and the final consideration.

The Non-Core Businesses segment was not previously classified as held for sale or as a discontinued operation. In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations', the disposal group has been classified as discontinued and prior periods have been restated to show the discontinued operation separately from continuing operations.

Disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. When an operation is classified as a discontinued operation, the comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.

A. Cash flows from/(used in) discontinued operation

B. Financial position of assets and liabilities held for sale

The assets and liabilities held for sale consist of:

Liabilities

5. Taxation

A tax charge in respect of foreign currency translation differences on foreign currency loans to foreign subsidiaries of £0.4m was recognised in the statement of other comprehensive income in the six months to June 2016 (June 2015: £0.7m charge)

A tax charge in respect of share based compensation for deferred taxation of £nil (June 2015: £0.1m) has been recognised in the statement of changes in equity in the period.

6. Earnings per share

Adjusted earnings per share is shown as the Directors believe that earnings before amortisation and one-off items is reflective of the underlying performance of the business.

7. Dividend per share

Dividends paid in the six months ending 30 June 2016 were £2.5m (June 2015: £2.0m; December 2015: £2.0m). The dividend paid in 2016 amounted to 3.1 pence per share.

8. Interest-bearing loans

During the period, the Group repaid £2.9 million. At 30 June 2016, the Group had a £25 million committed facility with HSBC Bank Plc and had drawn down £1.9 million of the facility. The Group also has a £25 million uncommitted accordion facility with HSBC Bank Plc. These facilities expire on 2 August 2020.

9. Share-based compensation grants

On 8 June 2016, 904,893 Long Term Incentive Plan (LTIP) shares and 457,500 stock options were awarded to certain key senior executives and employees of the SDL Group. The exercise price of the options was 419 pence, representing the mid-market price on the day before grant.

10. General notes

The comparative figures for the financial year ended 31 December 2015 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 2006.

11. Events after the statement of financial position date

There are no known events occurring after the statement of financial position date that require disclosure.

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

Adolfo Hernandez

Chief Executive Officer

Dominic Lavelle

Chief Financial Officer

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 30 June 2016 which comprises the Interim Condensed Consolidated Income Statement, Interim Condensed 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 30 June 2016 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

2nd August 2016