20 March 2019

SDL plc

Final Results for the year ended 31 December 2018

Results in-line with expectations

Transformational and financial progress

SDL plc ("SDL", "the Group" or "the Company"), a leader in global content management and language translation software and services, announces its audited results for the twelve months ended 31 December 2018.

Financial Highlights

£m unless stated	Audited 12 months to 31 December 2018	Audited 12 months to 31 December 2017 (restated¹)
Revenue	323.3	287.2
Operating Profit	18.9	17.0
Adjusted Operating Profit ²	29.0	24.0
Profit before Tax	18.4	17.0
Basic Earnings per Share (p)	17.2p	18.9p
Adjusted Basic Earnings per Share (p)³	24.7p	20.1p
Net Cash	14.4	22.7
Dividend per share (p)	7.0p	6.2p
Adjusted Operating Cash flow⁴	45.6	14.2

· Revenues up 12.6% to £323.3m (2017: £287.2m)

· Organic constant currency revenue growth of 4.5%

· Organic Language Services Gross Margin for the year of 42.5% (2017: 40.5%)

· Adjusted Operating Profit up 20.8% to £29.0m (2017: £24.0m); inclusive of £6.5m net capitalised research and development (2017: £2.5m)

· Total R&D cash spend increased from £21.0m in 2017 to £25.2m in 2018, reflecting increased investment in our product portfolio

· Acquired Donnelley Language Solutions (DLS) which contributed revenues of £27.8m and Adjusted Operating Profit of £1.8m in the period from 23 July to 31 December 2018

· Exceptional costs of £7.7m (2017: £3.0m), primarily restructuring and acquisition-related costs

· Basic Earnings Per Share (EPS) contracted 9% to 17.2p (2017: 18.9p) due to an increase in exceptional costs and the impact of the equity issue to finance the DLS acquisition

· Adjusted Basic EPS increased by 23% to 24.7p

· Adjusted Cash Flow from Operations was £45.6m (2017: £14.2m), representing cash flow to Adjusted EBITDA conversion of 133%

· Net cash at 31 December 2018: £14.4m (2017: £22.7m), following the acquisition of DLS for $77.8m (£59.4m) and an equity raise of £35.0m, net of fees

1. The Group has applied IFRS 15 using the fully retrospective method and as a result, the comparative information has been restated. 2017 Adjusted Operating Profit has been restated by £2.0m from £22.0m to £24.0m.

2. Adjusted Operating Profit is Group Operating Profit from Continuing Operations, before amortisation of acquired intangibles and exceptional items

3. Adjusted Basic Earnings per share is calculated based on Adjusted Operating Profit as defined above

4. Adjusted Operating Cash flow is statutory operating cash flow pre the cash costs of exceptional items which amounted to £6.8m in 2018 ( 2017: £10.7m)

Operational Highlights:

Substantial progress was made against our transformation plan and strategic objectives in the period:

· Completion of the acquisition of DLS in July 2018, to accelerate our growth in premium, regulated industries. Integration on track and the business has performed to expectations

· Premium Services revenues were £63.5m (2017: £40.1m), including Financial Services, Life Sciences, Marketing Solutions and Legal Services and equated to 29.1% of Language Services revenue (2017: 21.7%)

· Continued focus on growing existing accounts: 220 cross-sell and up-sell deals were completed.

· High levels of recurring or repeat revenues were maintained, with Repeat Recurring Revenue (RRR) in SDL services of 97% and Annual Recurring Contract Value (ARCV) from technology of £68.5m

· Linguistic utilisation December exit rate rose to 57% (December 2017: 53%), due to the implementation of Helix, our Language Services automation programme and other productivity tools

· Investment in significant technology innovations continues in Neural Machine Translation (NMT), Linguistic Artificial Intelligence (AI), Tridion DX, Trados and Language Cloud

· Cost saving initiatives delivered annualised savings of c.£10m at a cost of £6.2m, of which £4.1m was incurred in 2018 and £2.1m in 2017. Approximately £7.0m of these savings crystallised in 2018.

Commenting on the results, CEO Adolfo Hernandez said:

"I am pleased to report a solid improvement in the Group's financial performance compared to 2017, with all divisions performing well. Adjusted Operating Profit grew 21% to £29.0m and Adjusted Basic EPS grew by 23% to 24.7 pence; including a five-month contribution from DLS. The actions we took during 2017 helped to deliver this positive outcome. Strategically, we worked at pace to transform our business through the implementation of our Language Services automation programme and investment in technology and services innovation, the benefits of which will also be seen in future periods."

Commenting on the outlook, CEO Adolfo Hernandez said:

"The enlarged SDL group is performing in line with our expectations and we look forward to another year of progress against our strategic targets and financial goals of revenue, profit and margin growth. Much of the transformational heavy-lifting has now been completed. Our key programmes for 2019 include the optimisation of the Helix automation programme; further integration of DLS, innovation in Language Cloud and Linguistic AI; building our premium services and solutions and streamlining our back-office operations. Although uncertainty remains as to the outcome of the Brexit negotiations between the UK and EU, the Group has adopted an approach that we believe will allow us to manage the risks and opportunities that Brexit brings."

For further information please contact:

SDL plc	01628 410100
Adolfo Hernandez, CEO Xenia Walters, CFO

FTI Consulting LLP	0203 727 1000
Edward Bridges
Darius Alexander
Kwaku Aning

About SDL PLC

SDL (LSE: SDL) is the global leader in content creation, translation and delivery. For over 27 years we've helped companies communicate with confidence and deliver transformative business results by enabling powerful experiences that engage customers across multiple touchpoints worldwide. Are you in the know? Find out why 90 of the top 100 global companies work with and trust us on SDL.com. Follow us on Twitter, LinkedIn and Facebook.

Cautionary statement

Certain statements in this announcement constitute, or may be deemed to constitute, forward looking statements (including beliefs or opinions). Any statement in this announcement that is not a statement of historical fact including, without limitation those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward looking statement. Such forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement. As a result, you are cautioned not to place reliance on such forward looking statements. Except as is required by the Listing Rules, Disclosure and Transparency Rules and applicable laws, no undertaking is given to update the forward looking statements contained in this announcement, whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to SDL plc and its subsidiary undertakings when viewed as a whole.

Chairman's Report

I am pleased to report on a year of good progress at SDL towards achieving our long-term aim of building the global leader in language and content management solutions.

The markets we serve remain attractive, as the challenge of communicating effectively in a personalised way is embraced by more of the world's companies. Whilst a key part of this personalised communication involves translation, the requirements of our customers are about far more than just changing words.

Our transformation journey

Three years ago, we embarked upon a journey to significantly improve the operational performance and scalability of SDL, such that we had the best possible products, systems, processes, data and people to ensure that we could deliver the best within our chosen markets. In 2017, whilst we made significant operational progress towards our goals, the complexity of re-engineering our business resulted in SDL not being able to achieve its financial targets at the same time.

I am pleased to say that the lessons learned enabled us both to deliver further progress in achieving our operational goals and to meet the financial expectations of our various stakeholders and ourselves. This is reflected in an improved financial performance in 2018.

Our markets

Our markets continue to present us with lots of opportunities and we have been successful in keeping the business focused on the areas where SDL has a clear competitive advantage

We believe that the inevitable consolidation of our highly fragmented industry will not necessarily be achieved by business combinations but by the establishment of standard platform-based solutions that will allow seamless interoperability across the localisation and content supply chain. We have embarked on this strategy in 2018 from a position of considerable strength, although the full realisation of our vision is some years away.

DLS acquisition

Having said that we do not necessarily see industry consolidation through business combinations, we are constantly alert to finding opportunities which will act as strategic accelerators to our long-term plans. In this regard, our business combination with DLS during the summer was a significant milestone for our two businesses.

I would like to use this report to welcome our new colleagues from DLS and to say that the team have already established themselves as significant contributors to accelerating the delivery of our strategic plans. I have no doubt that the technology solutions that the core SDL business can bring to DLS will enhance the overall customer delivery experience. However, just as importantly, the skills and experience DLS has in operating in highly regulated markets will enhance the overall capabilities of SDL.

People

I have been inspired by the tenacity and resilience our employees and leadership have shown to deliver the excellent results in 2018. On behalf of the Board, I would like to thank all our employees for that dedication and inspiration to keep our business moving forward.

Whilst much of this is down to individual efforts, I have no doubt that the clear and inspirational leadership given by our CEO, Adolfo Hernandez and his senior leadership team is a key factor. When Adolfo joined our business in April 2016, he quickly established our strategic objectives and defined the culture he wanted to create within the business. A key factor in our improving performance has been the clarity and consistency of those messages. In this regard our culture is a key part of what defines SDL. As a global business of over 4,100 employees operating in 39 countries, we have to ensure that diversity is the fabric of our business.

This diversity extends to our Board where I remain pleased with the balance of skills and experience my fellow Directors bring to our deliberations. For example, among the non-executive Directors, we have extensive software industry experience, retail and marketing services skills, combined with strong financial and operational capabilities.

Long-term shareholder value

We have invested significantly in SDL's technology solutions and in our underlying technology infrastructure in recent years. This investment, when combined with the growing opportunities being presented by our chosen markets, gives us confidence that we have the right ingredients to create long-term shareholder value.

That being said, we are acutely aware of the potential macro-economic risks that a slowdown in global growth or a post-Brexit recession may have on the demand environment for our solutions. Whilst some of our demand is a function of structural changes within the end markets for many of our customers, there are parts of our business that see demand swings based upon specific end market conditions. Therefore, it is important that we manage expansion carefully and that we build on the natural operational leverage within our business.

Having funded the acquisition of DLS with a mix of cash and shares, and seen strong operating cash flow during the year, we end 2018 with a strong balance sheet. Notwithstanding some macro-economic uncertainty, we have confidence in the outlook and propose to maintain our progressive dividend policy by recommending an increase in our dividend by 13% to 7.0p.

David Clayton, Chairman SDL plc

Chief Executive Officer's Review

SDL's Addressable Markets

Large, growing markets driven by macro trends

SDL has operated in its markets for 27 years. We sell language and content services, technology and solutions to solve the challenges of creating, translating and delivering content globally. We estimate our addressable markets to be worth over £18 billion, of which the largest market is Language Services at over £16 billion. All our markets are growing but customer demands are changing as they seek to communicate effectively with their stakeholders across different channels and touchpoints and in different languages, in ways that are manageable, consistent, relevant and accessible.

The key macro trends that our business seeks to benefit from are:

· The growth of global selling

Our customers operate in many countries and want to get to their audiences faster and more effectively, as doing so creates real competitive advantage. Digital platforms are the foundation of this change. SDL's technologies and services help businesses communicate with customers and stakeholders all around the world, in over 180 languages.

· The explosion of digital content

It has never been easier to create and disseminate content but with more content creators, repositories, formats and channels, harnessing the power of content is a challenge - even more so across all business departments and in all target languages. SDL helps businesses create, translate and deliver their content at scale across multiple channels.

· Digital transformation

Enterprises are undertaking digital transformation programmes to re-engineer business processes centred on the digital customer journey. The global content lifecycle is a key pillar of digital transformation, requiring once-siloed processes to be managed holistically. SDL works with its customers to optimise their global content operating models.

Our Customer Base

SDL served over 20,000 customers in 2018. This includes 4,500 Corporate and Enterprise customers, over 1,500 Language Service Providers and over 14,000 freelance translators. The majority of our revenues are derived from large enterprises, including 90 of the world's top 100 brands.

SDL has a diversified customer base across many sectors, including information technology, automotive and manufacturing, retail and travel, life sciences, financial services and others. Since 2016, we have increased our focus on regulated industries, where we are able to add more value through specialist services and solutions. Of these, financial services, life sciences and legal services account for over 30% of the language services market. In 2018, we derived 29% of our Language Services revenues from our 'premium' services sectors, also including Marketing Solutions, compared to 22% in 2017.

Our combined services and technology approach is a compelling one, that is highly valued by some of the world's largest businesses and brands. SDL currently counts amongst its customers the top 11 consumer electronics companies, top 14 IT/Software companies, 19 of the top 20 banks, 19 of the top 20 medical device companies and 19 of the top 20 pharmaceutical companies.

Competitive Dynamics

The Language Services market is highly fragmented with a small number of larger Language Services Providers (LSPs) and a long tail of smaller vendors. On a pro forma revenue basis for 2018, SDL ranks in the top 3 LSPs globally. Although the competitive dynamics have not changed materially in the last year, we see trends such as consolidation and an increasing focus on premium content. SDL increased its focus on regulated industries in 2018 with the acquisition of DLS.

In our technology markets, we are leaders in language technologies, including Translation Management Systems and Translation Productivity, and in structured content. We are building on those positions by innovating in the areas of our language and content platforms and Linguistic Artificial Intelligence (Linguistic AI). Our NMT is highly competitive and will further benefit from SDL's unique language data sets. The Web Content Management market, served by SDL Tridion Sites, is our most competitive technology market and we compete with a number of very large technology companies. The launch of SDL Tridion DX in the second half of 2018 has been an important step in positioning the product for the future, building on our strengths in the enterprise division of web content and our leading position in structured content. We were pleased to be ranked as the number 2 Web Content Management system by Ars Logica in Q1 2019.

We believe we have a unique combination of services and technologies compared to our competitors across the language and content markets. Although we integrate with a large technology ecosystem, we believe that owning key technologies is a competitive advantage for SDL and will deliver long-term financial benefits.

Our Strategy

SDL's strategy is to become the 'Content Globalisation Leader' by deploying our global services and technology platforms to help customers create, translate and deliver their content globally. We have six long-term Strategic Objectives to that support this aim. These are:

1. Build deep relationships with our customers

SDL works with many of the world's largest companies and we believe there are significant opportunities to grow our revenues by deepening our strategic relationships with these customers. Through a focus on account management, in 2018, we grew our top 10 customer accounts in the organic SDL business by 9% to a total of £74m and we completed 220 cross-selling or up-selling deals. In 2019, we remain focused on strategic account management and taking a collaborative approach to working with our customers.

2. Be the world's best Language Service Provider

In our view, leadership in the Language Services industry will depend on scale, quality and technology-enabled innovation. In 2018, SDL was the number 3 LSP by pro forma revenues. We added further expertise and geographic coverage through our acquisition of DLS and we invested in our business automation platform and translation tools. In 2019, we will bring further innovation to the market, focusing on data-powered decisions and the industry trend towards 'continuous localisation', supporting our customers' demanding requirements for fast turnaround times and high quality.

3. Be a leader in Language & Content technologies

In 2018, we invested in modernising our language and content technology platforms, with key launches in the year including SDL Tridion DX, SDL NMT 2.0 platform and SDL Trados Studio 2019. In 2019, our primary focus is on the release of SDL Language Cloud, our next generation, AI-enabled end-to-end localisation platform. We will also be building applications on our Linguistic AI platform, such as SDL Content Assistant.

4. Be the leader in content solutions in our target premium sectors

We believe there is a significant growth opportunity in offering content solutions in our target sectors, which include financial services, life sciences, legal services and marketing. These solutions combine SDL's specialist services and delivery model with our language and content technologies. In 2018, we sold and launched a number of such solutions, including SDL Multilingual eDiscovery and SDL Multilingual Website solutions and SDL Accessibility Solution. In 2019, we plan to launch further packaged solutions for regulated markets.

5. Enable our people to be their best

Located in 59 offices around the world, over 4,100 SDL employees provide the fuel that propels the execution of our strategy. In 2018, we strengthened our leadership and training programmes, aligned employees and performance around our strategic objectives and introduced agile working practices. In 2019, we will continue to invest in developing a culture which is diverse, inclusive, open and socially-responsible and one which allows our employees to reach their potential.

6. Achieve our target operating model

Since 2016, we have been re-engineering SDL's operations across Language Services, sales and marketing and our back office. Our goal is a modern, streamlined, scalable and flexible operating platform. Starting in Q4 2017, we undertook a cost restructuring that delivered annualised cost savings of £10m. We plan to reduce administrative costs by at least £8m on an annualised basis by the end of 2019. Our long-term goal is to reduce total operating costs to 40% of revenues (2018: 43%).

Our financial goals

By achieving our strategic objectives, we aim to build a business with sustainable competitive advantage and to transform the financial performance of the business. We are seeking to increase annual revenue growth to high single digits and to increase adjusted operating margins by approximately 1-2 percentage points each year by balancing efficiency gains with re-investment in our innovation programmes and sales activities. We seek to generate good operating cash flow conversion, maintain net debt to EBITDA below 1.5x and pay a progressive dividend.

Business & Divisional Performance (Continuing Operations)

£m	Year ended 31 December 2018				Year ended 31 December 2017 ( Restated for IFRS15)
	Language Services	Language Technologies	Content Technologies	Total	Language Services	Language Technologies	Content Technologies	Total
Revenue	218.2	49.8	55.3	323.3	184.5	49.0	53.7	287.2
Gross Profit	91.7	38.8	38.3	168.8	74.8	39.0	36.7	150.5
Gross Profit %	42.0%	77.9%	69.3%	52.2%	40.5%	79.6%	68.4%	52.4%
Divisional adjusted operating profit	23.0	9.5	14.9	47.4	18.9	10.2	10.0	39.1
Corporate Costs				(18.4)				(15.1)
Adjusted Operating Profit				29.0				24.0
Adj Op Profit %	10.5%	19.1%	26.9%	9.0%	10.2%	20.8%	18.6%	8.4%

Language Services

Language Services Financial Performance

Language Services delivered constant currency organic revenue growth of 5.2% to £190.8m and total revenues, including the acquired business, of £218.2m (2017: £184.5m). Organic Gross Margins rose to 42.5% (2017: 40.5%), and exited the year at 45.2% primarily driven by productivity gains. Combined Gross Margins were 42.0%. Organic Adjusted Operating Profit for the period was £21.2m (2017: £18.9m) and total Adjusted Operating Profit including DLS was £23.0m, representing a margin of 10.5% (2017: 10.2%).

Language Services Automation & Productivity

We took a number of actions throughout 2018 to improve operating efficiencies, the impact of which is principally seen in an improved organic gross margin. These actions included greater use of project management resources in lower cost regions, control of external supplier costs and higher in-sourcing and use of NMT.

We rolled out 'Helix', our business process automation platform, which is designed to reduce the administrative burden of project and translation processes and to improve real-time data insights. By the end of the year, 60% of our addressable accounts were on the Helix platform. Our Linguistic Utilisation improved to exit the year at 57% (2017 exit rate: 53%).

In 2019, our focus in Language Services is on increasing our penetration of our existing customer base; cementing our growth in regulated industries and optimising productivity, automation and business insights. We will start to integrate parts of former DLS's delivery model with SDL's operating platform, to leverage our in-house translators and our automation and insights platforms. Although subject to variables such as customer and regional mix, we would expect to see further gross margin improvements in Language Services in 2019.

Language Technologies

Language Technologies Financial Performance

Language Technologies delivered organic, constant currency revenue growth of 1.7% to £49.4m and total revenues, including DLS, of £49.8m. Organic Gross margins reduced to 78.5% (2017: 79.6%) due to the sales mix, and total Gross Margins were 77.9%. Adjusted Operating Profit for the period was £9.5m (2017: £10.2m), representing a margin of 19.1% (2017: 20.8%), including net capitalised R&D of £3.2m (2017: £0.7m). The division includes three product groups: Translation Management Systems, Translation Productivity and Machine Translation. The Multi Trans product acquired as part of the DLS acquisition is included in the Translation Management System product group. R&D spend in this division included £7.2m of investment in MT and AI, of which £1.3m was capitalised.

Translation Productivity

Translation Productivity sales rose by 4.5% at constant currency. In 2018, our key goals were to revitalise growth in some of our established parts of the business, accelerate sales in some new territories and continue to establish our cloud footprint.

We successfully grew Germany, our most established market, by 4% and saw strong growth in new markets including Korea, India and China. We delivered a number of major product launches, including SDL Trados Studio 2019 and a significant upgrade to SDL Trados GroupShare. At the end of the year, we introduced next-generation Language Cloud Terminology, which enables the creation, editing and sharing of terminology online. In, 2019 we will be expanding our cloud capabilities and perfecting our on-premise products while maintaining a keen focus on our customer base and their needs.

Translation Management Systems

Organic Translation Management sales rose by 1.9% at constant currency. The DLS acquisition added a further £0.4m of revenue in the year. During 2018, we continued to execute on the key themes of integration, convergence, security and user experience across all areas of the product portfolio.

In 2018, there were releases of SDL TMS, SDL WorldServer and SDL Managed Translation, focused on extending support for GDPR and other security-related standards, including HiTrust (for health information). In most of our products releases, we incorporated new SDL Language Cloud capabilities such as cloud editing and terminology management.

In 2018, we announced and demonstrated our first, true 'born-in-the-cloud' Translation Management solution, SDL Language Cloud. This will be released in 2019 and will meet market demands for reporting and dashboards, new workflow capability and provide access to SDL's innovations in NMT and AI. In tandem, SDL Trados Studio will be integrated with SDL Language Cloud, enabling secure, real-time translation of cloud-based projects. We are excited at the opportunities that SDL Language Cloud will afford our clients in 2019 and beyond.

Machine Translation and Artificial Intelligence ("AI")

MT sales contracted by 7.9% at constant currency. The key goal for 2018 was the productisation of the latest advancements in NMT for the enterprise and the adoption and introduction of NMT engines in our Language Offices. During the year we developed our NMT 2.0 platform, achieving an average 62% quality improvement across all language combinations and setting the standard in Russian-English. In total, 82 NMT language pairs were released and NMT 2.0 is now available in both our on-premise and cloud products. Furthermore, towards the end of the year we announced the convergence of our MT products using the 'edge-cloud' architecture, which allows greater flexibility of deployment, security and cost and is a unique differentiator in the market.

In many ways, Neural MT for the enterprise is a new product, not an extension of earlier flavours of Machine Translation. Therefore, although it is disappointing that sales declined in 2018, this is partly a result of this market transition. We have been working at pace to reduce barriers to adoption for these new platforms by offering flexible consumption and deployment models, reducing the cost of hardware and adapting our sales model for new regions and use cases. This work continues in 2019, alongside further quality improvements and introductions such as intelligent adaptation features.

Our investments in NMT have enabled us to build broader capabilities in what we call Linguistic AI, which is the application of machine learning to other language-based tasks that include such use cases as content analysis through to content production. In November 2018, we announced the first beta product in this area, SDL Content Assistant, which uses AI to identify and extract themes, patterns, key information and quotes from source documents and automatically produces high quality content variants at speed. SDL Content Assistant has applications in a number of sectors, including marketing and financial services.

Content Technologies

Content Technologies Financial Performance

Content Technologies delivered constant currency growth of 4.8% to £55.3m. Gross margins improved to 69.3% (2017: 68.4%) due to sales mix. Adjusted Operating Profit was £14.9m (2017: 10.0m), representing a margin of 26.9% (2017: 18.6%), including net capitalised R&D of £3.3m (2017: £1.8m). The division includes two product groups: Tridion and Contenta/XPP.

SDL Tridion

SDL Tridion Sites and SDL Tridion Docs sales grew by 3.2% at constant currency. In 2018, SDL Tridion DX (Digital Experience) became a reality, delivering the market's first seamless and blended marketing and post-sales content experience. We secured our first set of reference customers and drove significant interest from the regulated industries sectors and in key growth regions such as China. In 2019, we are focused on two key areas: usability and personalisation. We are improving our user experience with a simpler, more intelligent and collaborative content creation environment and we will be enabling the delivery of more personalised content to any touchpoint. As part of our "best of breed" strategy, we will also release connectors to popular third-party CRM and marketing automation software platforms, allowing our customers to deliver a more centralised, contextually rich experience to their audiences.

SDL Contenta/XPP

Revenue grew by 13.7% at constant currency. In 2018, we focused on enhancing security assurance for all our products in the SDL Contenta Publishing Suite and on furthering capabilities for the financial services industry in the SDL XPP product line. SDL Contenta Publishing Suite is targeted at the Aerospace & Defence market and we released security enhancements enabling our products to be readily integrated into highly secure US Department of Defense and enterprise IT environments. Our latest SDL XPP release delivered more controls and automation for rapid production of high quality financial services content. All these enhancements have been positively received by customers. In 2019, we will be continuing to evolve our products, with a focus on business insights, reporting and cloud enablement.

Conclusion

SDL is now nearly three years into a root-and-branch transformation. Much heavy lifting has been done operationally, allowing us to increase our current focus on optimisation, innovation and building deeper relationships with our customers, as One SDL. It is pleasing that we were able to deliver a much-improved financial performance in 2018 but our margins were still reflective of a business in transformation mode.

We are positioned well in large, growing markets and with a unique set of technologies, services and solutions to meet our customers' evolving needs. I remain convinced that achievement of our strategic objectives will create significant value for all our stakeholders and achieve our financial goals.

SDL's growth strategy is primarily organic but with the potential to be complemented by M&A. Consolidation is a feature of our markets and we will look at businesses that accelerate our strategic objectives.

Finally, I would like to thank all my colleagues at SDL for their energy and commitment during 2018.

Adolfo Hernandez, CEO SDL plc

Chief Financial Officer's Review

SDL has made significant organisational changes to create a strong global business and we have started to realise the benefits of these changes in 2018. I am excited by the prospects for 2019 and beyond as we realise the opportunities in front of us. 2018 was a year of solid financial performance for the Group, reflecting the positive impact of the DLS acquisition and continued organic growth within the existing SDL business.

Revenue

Group revenues grew by 12.6% to £323.3m and organic revenues increased by 4.5% at constant currency.

£m	2018	2017	Reported growth @ actual rates	Organic growth @constant currency
Language Services	218.2	184.5	+18.3%	+5.2%
Language Technologies	49.8	49.0	+1.6%	+1.7%
Content Technologies	55.3	53.7	+3.0%	+4.8%
Revenue from Continuing Operations	323.3	287.2	+12.6%	+4.5%

Annual Recurring Revenue (ARR) for our technology businesses consists of SaaS license, hosting and support and maintenance revenues. ARR of £61.9m improved 2% on prior year. As previously reported, the ARR calculation has been restated for IFRS 15 and therefore excludes the licence element of term contracts. Given a number of our term licenses are contracted over 3 to 5 years and fees are paid over the lifetime of the contract, we also measure ARCV (Annual Recurring Contract Value) which includes cash flows arising from Term licence fees. In 2018, like for like ARCV was £68.5m which represents a 4% increase on 2017.

Geographical revenue analysis

The Group continues to benefit from a diverse mix of regions, industry verticals and customers, limiting the Group's exposure to adverse economic conditions in certain countries and sectors. Customer concentration is in line with the prior year, with the 10 largest customers contributing 25% of organic SDL revenues in 2018. Our biggest customer accounts for 7% of the Group's revenue. Geographical analysis of our external revenues by destination (location of customer) is as follows (2017 includes revenues from the discontinued business of £2.0m) :

£m	2018	% of total	2017	% of total
UK	36.7	11%	37.4	13%
EMEA (exc UK)	68.2	21%	59.6	21%
USA	129.3	40%	111.1	38%
Americas (exc USA)	10.4	3%	12.6	4%
Asia Pacific	78.7	25%	68.5	24%
Group revenues	323.3	100%	289.2	100%

Gross Profit Margin

Gross Profit margin from Continuing Operations of 52.2% was in line with the prior year due to the improvement in Language services margin being offset by margin dilution from the acquired business, mix of licence fees in our technology businesses and year on year increases in variable compensation. Gross Profit margin within our largest division, Language Services, improved from 40.5% in 2017 to 42.0% in 2018, including the impact of the DLS acquisition. Excluding the impact of DLS the gross margin would be 42.5% and the December 2018 exit rate was 45.2%. The year on year improvement reflects the launch of our business process automation platform (Helix), optimisation of the resourcing model, continued strong usage of machine translation and better controls over freelancer expenditure. These initiatives have led to a reduction in the use of external linguists and improved productivity from our internal operations which is evidenced by the increase productivity among our linguistic community where utilisation has increased to an exit rate at December 2018 of 57% (Dec 2017: 53%). The acquisition of DLS had a dilutive impact on gross margin as a result of a using a delivery model which focuses on outsourced linguistic services. Integration activities in 2019 will focus on applying the existing SDL operating model to DLS to drive gross margin expansion. This will be achieved through the application of technology, namely Helix and machine translation and utilising SDL's in-house resourcing pool of 1,300 linguists.

Gross Profit margin within Language Technologies of 77.9% was lower than prior year of 79.6%, while Content Technologies improved from 68.4% to 69.3%. The margin variation is driven by the mix of licence revenues between SaaS, perpetual and term licenses.

Administrative Expenses £m	2018	2017
Group administrative expenses	149.9	133.5
Amortisation of acquired intangible assets	(2.4)	(4.0)
Exceptional items	(7.7)	(3.0)
Adjusted Administrative expenses from Continuing Operations	139.8	126.5

Adjusted administrative expenses from Continuing Operations increased by £13.3m to £139.8m. Incremental administrative expenses relating to DLS amounted to £8.6m, with the remaining increase in costs driven by increases in variable compensation offset by savings from our 2018 headcount restructuring plan.

Adjusted administrative expenses as a percentage of revenue were 43% (2017: 44%). Staff costs make up a large proportion of this cost base accounting for approximately 70% of total administrative expenses. This percentage flexes in line with movements in variable staff compensation.

A functional and divisional analysis of adjusted administrative expenses for the Continuing Operations is set out below.

Adjusted Administrative Expenses for the Continuing Operations £m
	2018	2017 Restated¹
Research and Development (inclusive of amortisation )	18.7	18.5
Sales and Marketing	52.8	46.0
General Administration	68.3	62.0
Total costs by function	139.8	126.5
Language Services	68.7	55.9
Language Technologies	29.3	28.8
Content Technologies	23.4	26.7
Corporate	18.4	15.1
Total costs by division	139.8	126.5

^{Note 1 - restated for IFRS 15 (capitalisation of commission costs)}

R&D expenditure includes £17.6m (2017: £18.5m) of cash costs and amortisation of £1.1m (2017: Nil). R&D costs of £7.6m (2017: £2.5m) have been capitalised in the year and are amortised over the expected useful lives of the development projects concerned, which is approximately three years.

Year on year cash R&D investment increased by £4.2m to £25.2m

£m	2018	2017
R&D expensed (SDL)	17.1	18.5
R&D amortisation (non cash SDL)	1.1	-
R&D expensed (DLS)	0.5	-
R&D in P & L	18.7	18.5
Capitalised in year	7.6	2.5

R&D cash investment (excludes amortisation)	25.2	21.0

The Group's development processes and governance in relation to R&D costs has now been fully implemented and the 2018 capitalised R&D costs reflect this. The Group expects to capitalise R&D costs of approximately £7-8m per annum in the mid-term. Capitalisation of R&D commenced in the third quarter of 2017 and therefore 2018 includes a full year impact.

Sales and marketing costs of £52.8m (2017: £46.0m) includes direct costs for specific sales teams (e.g. product specific teams) as well as general sales and marketing costs which are allocated across the divisions.

General Administration expenses of £68.3m (2017: £62.0m) include all of our Group, regional and local support functions. The increase is as a result of acquired DLS costs, IFRS 2 charge (Share-Based Payments), additional variable compensation offset by headcount restructuring savings. The IFRS 2 charge is held centrally and reported within the Corporate cost division.

Central Corporate Costs and Total Operating Costs

In 2018, SDL's central corporate costs rose to £18.4m (2017: £15.1m), primarily as a result of Share Based Payment charges of £1.8m (2017: £0.2m) and variable compensation pay for corporate personnel of £1.2m (2017:Nil). After corporate costs, Adjusted Operating Margins rose from 8.4% (restated for IFRS 15) in 2017 to 9.0% in 2018.

As we have undertaken our transformation, we have been seeking to reduce costs associated with legacy organisational structures and processes and to re-invest in areas that we believe will have a higher return on investment. Starting in Q4 2017, we undertook a cost restructuring that delivered annualised cost savings of £10m, resulting in an exceptional cost of £6.2m of which £4.1m was incurred in 2018. These cost savings were re-invested across the business. Total adjusted administrative expenses in 2018 increased by £13.3m due to the acquisition of DLS, an increase in variable compensation, wage inflation and the impact of foreign exchange rate movements.

Improving operational efficiency in 2019

In 2018 we conducted detailed analysis which highlighted a number of opportunities to improve operational efficiency and reduce cost. Our vision is to create a more customer-centric operating model which is more agile, quicker to react and more effective. In doing so we will leverage technology to cut costs, improve quality and transparency and build sustainable value. In 2019 we will continue to act on these and other opportunities which focus on efficiency and strengthening our competitive position.

These initiatives are expected to deliver gross annualised savings of at least £8m by 2020 for a cash cost in 2019 of £2m-£3m. These savings are additional to the £10m annualised cost savings achieved in 2018.

Amortisation and depreciation

Acquired intangible assets include software and customer relationships arising from acquisitions. These are amortised over periods of between 18 months and 15 years. The amortisation charge relating to acquired intangibles in 2018 was £2.4m (2017: £4.0m). The £1.6m reduction is due to some intangible assets being fully amortised during the course of the year.

Amortisation on internally generated assets, namely R&D and Helix is treated as an expense in arriving at Adjusted Operating Profit of £29.0m. In general, capitalised R&D is amortised over three years and Helix is amortised over 10 years. By 2020, R&D capitalisation and amortisation are expected to be broadly neutral.

£m	2018	2017
Acquired intangibles amortisation	2.4	4.0
Internally generated intangibles: R&D amortisation	1.1	-
Internally generated intangibles: Helix amortisation	1.1	-
Depreciation on Tangible Fixed Assets	3.1	2.9
Total	7.7	6.9

Adjusted Operating Profit

Adjusted operating profit which is operating profit before exceptional items and amortisation of acquired intangibles was £29.0m (2017: £24.0m) and adjusted operating margin was 9.0%, an improvement of 0.6% on 2017 for reasons already mentioned.

The Group Operating Profit for 2018 was £18.9m (2017: £17.0m), representing an operating margin of 5.8%, which is consistent with prior year.

Adjustments between Adjusted Operating Profit and Operating Profit

Adjusted Operating Profit is Operating Profit before exceptional items and amortisation of acquired intangibles. These adjustments amounted to £10.1m in 2018 (2017: £9.7m for the Group, £7.0m from Continuing Operations)

Exceptional Costs and amortisation of acquired intangibles. £m	2018	2017
Headcount restructuring costs	4.1	2.1
Acquisition related costs	2.8	-
Other exceptional items	0.8	0.9
From Continuing Operations	7.7	3.0
Discontinued Operations	0.0	2.7
Total exceptional costs	7.7	5.7
Amortisation of acquired intangibles	2.4	4.0
Adjustments to operating profit to arrive at adjusted operating profit	10.1	9.7

The Group incurred acquisition-related costs of £2.8m, which included legal and professional fees for the acquisition of DLS as well as integration costs.

Other exceptional costs of £0.8m relate to settlement costs for historic tax issues.

Total exceptional items resulted in a £6.8m cash outflow in the year (2017: £10.7m).

Taxation

The Group's tax charge for the year was £3.6m (2017: £1.6m) representing a Statutory Tax Rate of 19.6% (2017: 9.4%).

The Adjusted Operating Profit tax charge on Continuing Operations amounted to £7.3m (2017: £7.6m) and represents an Effective Tax Rate of 25.2%. This tax charge is lower than prior year, principally due to the reduction in the US Federal tax rate from 35% to 21%. Following the completion of the group's s382 exercises in relation to prior year acquisitions together with other deferred tax restatements, the Group has recognised an exceptional tax credit of £2.1m (2017: £4.6m).

We exited the year with recognised carried forward tax losses of £30.8m (2017: £51.1m).

The Group underlying effective current tax rate going forward is expected to be in the region of 23% to 25% due to lower future tax rates in the UK and US.

Corporation tax paid of £2.8m is in line with prior year. Tax payable in 2019 is expected to be in the region of £10m as a result of resolving historical tax filings.

Earnings per share

Adjusted Basic EPS increased 23% to 24.7p as a result of improved trading. Basic EPS for Continuing Operations is 17.2p which is a 9% reduction on prior year and is impacted by the increase in exceptional items and the additional shares in issue to finance the DLS acquisition.

Acquisition of Donnelley Language Solutions

In July 2018, SDL acquired DLS, a provider of Language Service solutions. This acquisition strengthened our position within the higher value premium content markets. The business was acquired for a cash consideration of $77.8m (£59.4m) plus fees of £2.1m on legal and due diligence services. The acquisition was facilitated by a £36.2m share placing (£35.0m net of fees) at £4.40 and a £19.6m draw down of debt. DLS has traded well since acquisition. The results of that business have been incorporated into the Language Services and Language Technologies divisions and details on the provisional acquisition accounting are set out in note 11.

In the year to 31 December 2018, DLS contributed post acquisition revenues and Adjusted Operating Profit of £27.8m and £1.8m respectively. Looking ahead, we see opportunities to increase the margin of the acquired business through cross-selling of technology, sharing some of the benefits of SDL's operating model, such as in-sourcing and automation and by reducing duplicate back office and facilities costs.

In 2018, our priority was to provide continuity and a positive experience for DLS customers, employees and suppliers and we believe that we achieved a smooth transition. From the underlying business we were able to save £1m of annualised cost from integrating and optimising our facilities footprint. In 2019, our focus is on cross-selling and solution development. We will take a measured approach to operational integration, maintaining high customer service standards.

Cash flow and net cash

Net Cash and Cash Flow - £m	2018	2017
Adjusted Operating Profit	29.0	24.0
Depreciation and amortisation from non-acquired intangibles	5.3	2.9
Adjusted EBITDA⁽¹⁾ from Continuing Operations	34.3	26.9
Working capital and share based payments charge from  continued operations ( exc exceptionals )	11.3	(12.7)
Adjusted operating cash flow from Continuing Operations before exceptional items	45.6	14.2
Exceptional items and discontinued operations	(6.8)	(10.7)
Operating cash flow from Continuing Operations	38.8	3.5
Maintenance capital expenditure	(2.2)	(3.0)
Capitalised R&D costs	(7.6)	(2.5)
Interest and Taxation paid	(4.2)	(2.9)
Investment capital expenditure	(4.6)	(10.4)
Disposal proceeds	-	22.2
Dividends paid	(5.1)	(5.1)
Payments to acquire DLS, net of cash acquired	(59.2)	-
Proceeds from share issues	35.4	1.2
Proceeds from borrowings	19.6	-
Repayments of borrowings	(14.4)	-
FX on cash	0.6	(1.6)
Net cash (outflow)/inflow	(2.9)	1.4
Opening cash at 1 January	22.7	21.3
Closing cash at 31 December	19.8	22.7

(1) Adjusted EBITDA - profit before tax, interest, depreciation, amortisation of acquired intangibles and exceptional items

Adjusted operating cash flow from Continuing Operations before exceptional items was £45.6m (2017: £14.2m) with a £11.3m working capital inflow (2017: £12.7m outflow) principally due to an increase in the accrual of variable compensation in respect of 2018 performance. Continued focus on strong cash collections in 2019 will underpin positive translation of trading profit to cash conversion.

Total capital expenditure of £14.4m includes payments for maintenance capital expenditure (£2.2m), R&D (£7.6m) and investment capital expenditure (£4.6m). Capitalised R&D costs are regarded as normal spending by the business and included within the definition of Free Cash Flow. Routine maintenance capital expenditure of £2.2m (2017: £3.0m) is within guidance of 1% of revenues. We expect future maintenance capital expenditure to be within this range.

Investment capital expenditure of £4.6m (2017: £10.4m) includes spend on our centralised Language Service delivery platform, Helix, which will allow us to drive scale and efficiency improvements. Further Helix enhancements will be delivered in 2019 at a cost of £2-3m.

The cash impact of exceptional items amounted to £6.8m (2017: £10.7m). This includes £4.5m of restructuring payments and £2.3m of acquisition related costs.

Dividends of £5.1m paid in the year (2017: £5.1m) comprised the dividend for 2017 of 6.2p per ordinary share.

The DLS business was acquired for a cash consideration of $77.8m (£59.4m), facilitated by a £36.2m share placing at £4.40 (£35.0m net of fees) and a £19.6m draw down of debt.

Balance Sheet

Net assets at 31 December 2018 increased by £51.8m to £245.6m. Acquisition related intangibles arising from the DLS acquisition amounted to £56.7m, being goodwill of £22.3m, acquired customer relationships of £30.1m and acquired intellectual property of £4.3m.

Working capital

Trade and other receivables at 31 December 2018 increased by £22.9m to £108.3m. DLS trade and other receivables at 31 December 2018 amounted to £19.4m.

We have restated our Days' Sales Outstanding ('DSO') calculation to reflect the number of days' billings in debtors as we believe this provides a more accurate reflection of performance. DSO calculated under this basis is 58 days (2017: 57 days).

Trade and other payables of £105.1m (2017: £78.0m) includes deferred income of £39.8m (2017: £37.3m). Trade payables have increased as a result of the acquisition. Supplier payment days were 26 days (2017: 29 days). The addition of DLS freelancer vendor payments which are paid on shorter payment terms has reduced supplier payment days year on year. Accruals of £46.5m (2017: £21.0m) were higher than the prior year primarily due to variable compensation plans, increased accruals as a result of the DLS acquisition and increases in other taxes and social security as a result of increased headcount.

Funding and Capital Structure

The Group's cash balances at the year-end amounted to £19.8m with external borrowings of £5.4m (2017: £22.7m cash and no external borrowings).

On 20 July 2018, the Group signed a 5 year, £120m syndicated bank multi-currency Revolving Credit Facility (RCF), expiring on 19 July 2023. The agreement includes the provision of a £50m Accordian (uncommitted) facility. At 31 December 2018, £5.4m of the RCF was drawn on the facility and these amounts have been fully settled subsequent to the year end.

The Group was in compliance with the terms of all its facilities, including the financial covenants at 31 December 2018 and throughout the year. The Group expects to remain in compliance with the terms going forward.

Foreign exchange

The Group does not hedge foreign currency profit and loss translation exposures and the statutory results are therefore impacted by movements in exchange rates. The average rates used to translate the consolidated income statement are as follows:

Average exchange rates

FY18

FY17

Euro (€)

1.13

1.15

US Dollar ($)

1.34

1.29

The principal exposures of the Group are to the US dollar and Euro with approximately 50% of the Group's revenue being attributable to the US dollar and 36% of the Group's costs being Euro denominated.

Capital structure and dividend

The Board believes in maintaining an efficient but prudent capital structure, whilst retaining the flexibility to make value-enhancing acquisitions. The Board's main strategic priority remains an acceleration of underlying revenue growth, supported by targeted bolt-on acquisitions. The growth underpins the Board's sustainable, progressive dividend policy. Consistent with this policy, the Board is proposing a 13% increase in the total ordinary dividend per share for the year to 7.0p (2017: 6.2p per share).

Brexit impact

Although uncertainty remains as to the outcome of the Brexit negotiations between the UK and EU, the Group has adopted an approach that we believe will allow us to manage the risks and opportunities that Brexit brings. These could include changes in: -

· market access that impact how we transact intra-Group operations, share data, manage tax and foreign exchange exposures and manage our intellectual property

· people-specific rules and regulations that could impact the international mobility of our colleagues

· market opportunities that impact which areas of our international locations we will choose to grow

Due to the already global nature of our business and service capabilities across the globe, we do not currently consider that we will be materially impacted by the UK's departure from the EU.

Impact of new accounting standards

The Group adopted IFRS 15 and IFRS 9 with an effective date of 1 January 2017. The Group adopted the fully retrospective approach which has resulted in the prior period comparatives being restated to provide comparative information to the readers of the accounts. There was no material impact on the reported results for the Group as a result of the adoption of IFRS 9.

IFRS 15

The effect of adopting IFRS 15 has been to increase profit for the year (net of tax) ended 31 December 2017 by £1.6m and to increase net assets by £3.1m.

There are two primary impacts arising from the adoption of IFRS 15:

· Term licence revenues are recognised on delivery, after appropriate deductions for services such as support and maintenance and hosting which are amortised over the term of the contract. The impact has been to increase 2017 revenues by £1.5m.

· IFRS 15 requires the deferral of direct costs relating to the sale of goods or services to be recognised in line with the revenue for those contracts. The Group's direct costs relate to sales commission costs which are being capitalised and amortised to match the revenue stream. The impact of this change has been to reduce administrative costs by £0.5m in 2017.

Accordingly, the estimated impact of adopting IFRS 15 on the Group's 2017 results was to increase reported profit before tax by £2.0m. The tax impact of the actuals is to increase the tax charge by £0.4m.

The Group's future results will be driven by the mix of sales going forward and the proportion of perpetual, term and SaaS contracts sold as well as the contractual period of new deals impacting the amortisation period of commissions.

IFRS 16

The Group is required to adopt IFRS 16 'Leases' from 1 January 2019. The Group plans to apply IFRS 16 on 1 January 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative information. Based on the information currently available, the Group estimates that it will recognise right of use assets and corresponding lease liabilities of between £27m and £30m as at 1 January 2019. We estimate the increase in EBITDA to be in the range of £8.5m to £9.5m with a combined increase in depreciation and interest in a similar range. The impact of IFRS 16 for the year-ended 31 December 2018 will be finalised and presented as a restatement along with the results for the half year ending 30 June 2019.

Xenia Walters, CFO SDL plc

20 March 2019

Consolidated Statement of Profit or Loss for the Year Ended 31 December 2018

	Note	2018 £m	Restated 20171 £m
Sale of goods		30.7	27.9
Rendering of services		292.6	259.3
Revenue		323.3	287.2
Cost of sales		(154.5)	(136.7)
Gross profit		168.8	150.5
Administrative expenses		(149.9)	(133.5)
Operating profit	3	18.9	17.0
Adjusted operating profit		29.0	24.0
Amortisation of acquired intangibles	3	(2.4)	(4.0)
Exceptional items	4	(7.7)	(3.0)
Operating profit		18.9	17.0
Finance expense		(0.5)	-
Profit before tax		18.4	17.0
Tax charge (including an exceptional credit of £2.1m, 2017: £4.6m)	5	(3.6)	(1.6)
Profit from continuing operations		14.8	15.4
Profit from discontinued operations		-	14.7
Profit for the year attributable to equity holders of the Parent		14.8	30.1
Earnings per share (pence)	7

Continuing operations
- Basic		17.2	18.9
- Diluted		16.9	18.9
Continuing and discontinued operations
- Basic		17.2	36.8
- Diluted		16.9	36.7

1. The Group has applied IFRS 15 using the fully retrospective method and as a result the comparative information has been restated.

Consolidated Statement of Comprehensive Income for the Year Ended 31 December 2018

	2018 £m	Restated 20171 £m
Profit for the year	14.8	30.1
Other comprehensive income / (expense): Items that may be reclassified subsequently to profit or loss

Foreign exchange differences arising on the translation of foreign operations	5.0	2.0
Foreign exchange differences arising on the translation of foreign currency quasi equity loans to foreign operations, net of tax	(0.1)	(7.8)
Income tax credit on currency translation differences on foreign currency quasi equity loans to foreign subsidiaries	-	1.3

Total other comprehensive income / (expense)	4.9	(4.5)
Total comprehensive income for the year attributable to equity holders of the Parent Company	19.7	25.6

1. The Group has applied IFRS 15 using the fully retrospective method and as a result the comparative information has been restated.

Consolidated Statement of Financial Position at 31 December 2018

	Note	2018 £m	Restated 20171 £m
Non current assets
Intangible assets	8	222.9	152.9
Property, plant and equipment		9.1	9.6
Deferred tax assets		8.9	11.2
Other receivables		2.4	1.9
Capitalised contract costs		0.8	1.3
		244.1	176.9
Current assets
Trade and other receivables		108.3	85.4
Capitalised contract costs		1.9	1.6
Tax assets		6.6	2.6
Cash and cash equivalents	9	19.8	22.7
		136.6	112.3
Total assets		380.7	289.2

Current liabilities
Trade and other payables		(105.1)	(78.0)
Current tax liabilities		(11.2)	(10.6)
Provisions		(0.7)	(1.6)
		(117.0)	(90.2)
Non current liabilities
Trade and other payables		(0.7)	(0.7)
Borrowings		(5.4)	-
Deferred tax liabilities		(8.7)	(1.6)
Provisions		(3.3)	(2.9)
		(18.1)	(5.2)
Total liabilities		(135.1)	(95.4)

Net assets		245.6	193.8

Represented by:
Share capital		0.9	0.8
Share premium		136.0	100.7
Retained earnings		79.3	67.8
Translation reserve		29.4	24.5
Total equity		245.6	193.8

1. The Group has applied IFRS 15 using the fully retrospective method and as a result the comparative information has been restated.

Consolidated Statement of Changes in Equity for the Year Ended 31 December 2018

	Share capital £m	Share premium £m	Retained earnings £m	Translation reserve £m	Total £m
At 1 January 2017	0.8	99.2	39.7	29.0	168.7
IFRS 15 adjustment	-	-	3.1	-	3.1
At 1 January 2017 (restated)	0.8	99.2	42.8	29.0	171.8
Profit for the year	-	-	30.1	-	30.1
Other comprehensive expense	-	-	-	(4.5)	(4.5)
Total comprehensive income / (expense)	-	-	30.1	(4.5)	25.6
Arising on share issues	-	1.5	-	-	1.5
Share-based payments	-	-	0.2	-	0.2
Share-based payments deferred tax	-	-	(0.2)	-	(0.2)
Dividend paid	-	-	(5.1)	-	(5.1)
At 31 December 2017	0.8	100.7	67.8	24.5	193.8
Profit for the year	-	-	14.8	-	14.8
Other comprehensive income	-	-	-	4.9	4.9
Total comprehensive income	-	-	14.8	4.9	19.7
Issue of shares	0.1	35.3	-	-	35.4
Share-based payments expense	-	-	1.9	-	1.9
Share-based payments deferred tax	-	-	(0.1)	-	(0.1)
Dividends paid	-	-	(5.1)	-	(5.1)
At 31 December 2018	0.9	136.0	79.3	29.4	245.6

The amounts above are all attributable to equity holders of the Parent Company

Consolidated Statement of Cash Flows for the Year Ended 31 December 2018

	Note	2018 £m	Restated 20171 £m
Cash flow from operating activities
Profit for the year		14.8	28.5
Tax expense		3.6	1.6
Profit before tax		18.4	30.1
Adjustments for:
Depreciation of property, plant and equipment		3.1	2.9
Amortisation of intangible assets	8	4.6	4.0
Gain on disposal of business operations		-	(20.6)
Share-based payments expense		1.9	0.2
Interest expense		0.5	-
Foreign exchange (income) / expense		(0.3)	0.2
Cash generated from operations before changes in working capital and provisions		28.2	16.6
Trade and other receivables		(8.2)	(1.7)
Trade and other payables		18.8	(11.4)
Cash generated from continuing operations		38.8	3.5
Income taxes paid		(2.8)	(2.9)
Net cash flow from operating activities		35.9	0.6

Investing activities
Purchase of property, plant and equipment		(2.2)	(6.3)
Acquisition of subsidiaries, net of cash acquired	11	(59.2)	-
Expenditure on intangible assets		(12.2)	(9.6)
Disposal of businesses net of cash disposed of		-	22.2
Net cash flow from investing activities		(73.6)	6.3

Financing activities
Proceeds from issue of shares, net of costs		35.4	1.2
Proceeds from external borrowings		19.6	-
Repayment of external borrowings		(14.4)	-
Dividends paid	6	(5.1)	(5.1)
Finance costs		(1.4)	-
Net cash flow from financing activities		34.1	(3.9)

(Decrease) / increase in cash and cash equivalents		(3.5)	3.0
Cash and cash equivalents at 1 January		22.7	21.3
Effect of exchange rate changes		0.6	(1.6)
Cash and cash equivalents at 31 December	9	19.8	22.7

1. The Group has applied IFRS 15 using the fully retrospective method and as a result the comparative information has been restated.

Notes to the Financial Statements for the Year Ended 31 December 2018

1 Basis of Accounting

Basis of preparation

The financial information set out above does not constitute the Group's statutory financial statements for the years ended 31 December 2018 or 2017. Statutory consolidated financial statements for the Group for the year ended 31 December 2017, prepared in accordance with adopted IFRS, have been delivered to the Registrar of Companies and those for 2018 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of any emphasis without qualifying their opinion and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The financial information for the year ended 31 December 2018 has been prepared by the Directors based upon the results and position that are reflected in the consolidated financial statements of the Group.

The consolidated financial statements of SDL plc and its subsidiaries have been prepared in accordance with International Financial Reporting Standards as adopted by the EU as relevant to the financial statements of SDL plc.

Significant accounting policies

The accounting policies adopted in the preparation of the condensed consolidated financial information are consistent with those followed in preparation of the Group's annual financial statements for the year ended 31 December 2017 except as set out below. Planned disposals of separate major lines of business are classified as discontinued operations and net assets reclassified as held for sale following the announcement of such divestments. In such instances, current and prior year results of the discontinued operations are disclosed separately from continuing operations.

The Directors have concluded that it has adequate financial resources to continue in operation for a period of at least 12 months from the date of this report and can prepare its financial statements on a going concern basis.

The Directors have prepared cash flow forecasts for a period of (at least 12) months from the date of approval of these financial statements which indicate that, taking account of reasonably possible downsides, the Company will have sufficient funds, to meet its liabilities as they fall due for that period.

In reaching this conclusion, the Directors have considered the future prospects and performance of the Group, including: a review of performance in 2018; a review of the 2019 annual plan which includes cash flow forecasts to March 2020; a review of working capital including the liquidity position; a review of current and forecast financial covenant compliance and of current cash levels.

Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

IFRS 15 Revenue from Contracts with Customers

The Group has adopted IFRS 15 Revenue from Contracts with Customers with a date of initial application of 1 January 2017. As a result, the Group has changed its accounting policies and updated its internal processes and controls relating to revenue recognition.

The Group has applied IFRS 15 using the fully retrospective method - i.e. applying IFRS 15 as though it had been in effect from 1 January 2017 resulting in a restatement of the comparative information and recognising the effect of initially applying IFRS 15 at 1 January 2018 as an adjustment to the opening balance of equity at 1 January 2017.

Opening balances

The Group has made opening balance sheet adjustments arising from changes to the revenue recognition treatment of term licences and the capitalisation of costs to obtain contracts. The impact of the restatement on its 2017 accounts is set out below:

Adjustment 1 - Term licences

The impact on 2017, as the comparative period, in the 2018 accounts has been to create an accrued income balance sheet position of £3.0m at 31 December 2017, recognising an increase of 2017 revenues and pre -tax profits by £1.5m. This reflects the recognition of term licences at a point in time rather than over time.

Adjustment 2 - Capitalised commissions

The impact on the Group's 2017 reported numbers has been to create capitalised contract costs on the balance sheet of £2.9m at 31 December 2017 and decrease 2017 profit and loss account commission costs by £0.5m.

Adjustment 3 - Deferred tax

This adjustment reflects the adjustments required to the deferred tax liabilities and charges within the 2017 financial statements.

IFRS 9 Financial Instruments

IFRS 9 applies a forward-looking impairment model that replaces the current applicable incurred loss model. In contrast to the complex and rules based approach of IAS 39, the new hedge accounting requirements provide an improved link to risk management and treasury operations and will be simpler to apply. The adoption of IFRS 9 did not have a material impact on the Group's consolidated results or financial position and does not require a restatement of comparative figures. The fair value of each category of the Group's financial instruments approximates to their carrying value. Where financial assets and liabilities are measured at fair values the measurement hierarchy, valuation techniques and inputs used are consistent with those used at 31 December 2017. There were no movements between different levels of the fair value hierarchy in the year.

2 Segment Information

For internal management reporting purposes, the operating segments are determined by product and service groupings and referred to as divisions. The Group's operating segments are:

- Language Services

- Language Technologies

- Content Technologies

- Non-Core Businesses

Segment profits represent the profit earned by each segment without allocation of central administration costs which are presented as a separate line below segment profit. This is the measure reported to the Chief Operating Decision Maker, the Chief Executive Officer, and Senior Management Team for the purposes of resource allocation and assessment of segment performance. Transfer prices between segments are set on an arm's length basis in a manner similar to transactions with third parties.

As previously announced, the Group has concluded its shared cost allocation review during the period and shared costs are now being allocated on activity based methodologies. In prior years, shared costs for segmental reporting purposes have generally been apportioned to reporting segments either on a headcount or revenue basis. In addition, management have also recognised that the Group has a significant amount of corporate costs which are not segment specific. These costs have therefore been excluded from segment profitability and presented as a separate line below segment profit. The impact of these changes in methodology, in the year ended 2017 has been to reduce segment cost by £15.1m. Management have concluded that changing the shared cost allocation methodologies and separately disclosing these corporate costs gives a better representation of segment profitability.

2018 - £m	Revenue	Depreciation and Amortisation	Adjusted operating profit
Language Services	218.2	3.2	23.0
Language Technologies	49.8	1.0	9.5
Content Technologies	55.3	1.1	14.9
Segment total	323.3	5.3	47.4
Central costs			(18.4)
Group adjusted operating profit			29.0
Exceptional items			(7.7)
Profit on disposal			-
Amortisation on acquired intangibles			(2.4)
Finance costs			(0.5)
Profit before taxation			18.4

2017 - £m ¹	Revenue	Depreciation and amortisation	Adjusted operating profit
Language Services	184.5	1.7	18.9
Language Technologies	49.0	0.7	10.2
Content Technologies	53.7	0.5	10.0
Non-core businesses	2.0	-	(3.0)
Segment total	287.2	2.9	36.1
Central costs			(15.1)
Group adjusted operating profit			21.0
Exceptional items			(5.7)
Profit on disposal			20.6
Amortisation on acquired intangibles			(4.0)
Finance costs			-
Profit before taxation			31.9

¹ Restated for the impact of IFRS 15.

3 Profit on ordinary activities

Operating profit before tax is stated after charging - £m	2018	Restated 2017¹

Research and development expenditure	17.6	18.5
Depreciation of property, plant and equipment	3.1	2.9
Amortisation of acquired intangible assets	2.4	4.0
Amortisation of other intangible assets	2.2	-
Operating lease rentals for plant and machinery	0.1	0.1
Operating lease rentals for land and buildings	8.3	6.9
Net foreign currency differences	0.5	0.5
Share-based payments expense	1.9	0.2

¹ Restated for the impact of IFRS 15.

4 Exceptional items

Accounting policy

Exceptional items are those items that in management's judgement should be disclosed separately by virtue of their size, nature or incidence, in order to provide a better understanding of the underlying financial performance of the Group. In determining whether an event or transaction is exceptional, management considers qualitative as well as quantitative factors such as frequency or predictability of occurrence.

£m	2018 Pretax	2018 Tax impact	2018 Total	2017 Pretax	2017 Tax impact	2017 Total
Restructuring costs	4.1	(1.0)	3.1	2.1	(0.4)	1.7
Acquisition related costs	2.8	(0.1)	2.7	-	-	-
Other exceptional items	0.8	-	0.8	0.9	(0.2)	0.7
Continuing operations	7.7	(1.1)	6.6	3.0	(0.6)	2.4

Discontinued operations
Restructuring costs	-	-	-	0.8	(0.2)	0.6
Other exceptional items	-	-	-	1.9	-	1.9
Discontinued operations	-	-	-	2.7	(0.2)	2.5
Total	7.7	(1.1)	6.6	5.7	(0.8)	4.9

Restructuring costs

Restructuring costs relate to the costs of organisational change associated with the Group's transformation programme concluded in 2018. Normal trading redundancy costs are charged to the income statement as incurred. Payments made in relation to the exit of the former CFO, Dominic Lavelle amounted to £0.9m (2017: £nil).

Acquisition related costs

Acquisition related costs of £2.8m include £2.3m of due diligence, legal, accounting, valuation and other professional services as well as £0.5m of acquisition-related integration costs.

Other exceptional items

Other exceptional costs of £0.8m relate to settlement costs for historic tax issues. The prior year charge of £0.9m primarily relates to dual running costs associated with relocation of the Group's two principal UK offices.

Discontinued exceptional items

Discontinued exceptional in the prior year relate to redundancy costs associated with employees that did not transfer with the Non-Core Businesses (£0.8m) and professional fees and onerous lease charges associated with the disposals of the Non-Core Business operations (£1.9m)

5 Taxation

UK corporation tax for the year ended 31 December 2018 is calculated at 19% (2017: 19.25%) of the estimated assessable loss for the period.

£m	2018	Restated 2017¹
Current tax:
UK corporation tax at 19.0% (2017: 19.25%)	1.5	-
Overseas current tax (credit) / charge	(0.3)	8.4
Adjustment in respect of previous years	-	(0.2)
Total current tax charge	1.2	8.2

Deferred tax:
Origination and reversal of temporary differences	2.4	0.4
Changes in tax rates	-	3.3
Adjustments to estimated amounts arising in prior periods	-	(10.1)
Total deferred tax charge / (credit)	2.4	(6.4)
Total tax charge as per the income statement (2017; continuing £1.6m, discontinued £0.2m)	3.6	1.8
Tax in other comprehensive income	-	-
Tax in equity	(0.1)	-
Tax attributable to the Group	3.5	1.8

In 2018, the Group finalised its last s382 calculation in respect of prior US acquisitions. The completion of this exercise together with other deferred tax adjustments has given rise to an exceptional deferred tax credit of £2.1m. This is included within the origination and reversal of temporary differences. The charge for the year can be reconciled to profit for the year before taxation per the Consolidated Statement of Profit or Loss as follows:

£m	2018	Restated 2017¹
Profit for the year before taxation (2017: Continuing £17.0m, discontinuing £14.9m)	18.4	31.9
Profit for the year before taxation multiplied by the standard rate of corporation tax in the UK of 19% (2017: 19.25%)	3.5	6.1
Effects of :
Expenses not deductible for tax purposes	1.3	0.6
Adjustments in respect of previous years	-	(0.4)
Recognition of previously unrecognised trading losses / timing differences	(2.1)	(6.2)
Utilisation of tax losses brought forward previously not recognised	(0.4)	(0.5)
Current tax losses not available for offset	-	0.2
US transition tax	-	2.8
Impact of reduction in US federal tax rate	-	3.3
Higher/ (lower) tax rates on overseas earnings	0.6	(2.1)
Disposal of sale of Non-Core Businesses	-	(3.7)
Other movements	0.7	1.7
Tax charge as per the income statement	3.6	1.8
Effective tax rate	20%	5%

¹Restated for the impact of IFRS 15.

6. Dividends

£m

2018

2017

Final ordinary dividend for the year ended 31 December 2017 was 6.2 pence per share. (Year ended 31 December 2016: 6.2 pence per share)

5.1

The Company is to recommend to its shareholders at the annual general meeting, to be held on 7 May 2019, that a final dividend, for the year ended 31 December 2018, of 7 pence per ordinary share be declared. If approved by shareholders, the dividend will be payable on 10 June 2019 to shareholders on the register on 26 April 2019, with an ex-dividend date of 25 April 2019.

7 Earnings per share

	2018 £m	Restated ¹ continuing 2017 £m	Discontinued 2017 £m	Restated ¹ 2017 £m
Profit for the year	14.8	15.4	14.7	30.1
Exceptional items charged within operating profit	7.7	3.0	2.7	5.7
Profit on disposal of non-core businesses	-	-	(20.6)	(20.6)
Amortisation on acquired intangibles	2.4	4.0	-	4.0
Tax effect of the above	(1.6)	(1.4)	(0.2)	(1.6)
Exceptional tax credit	(2.1)	(4.6)	-	(4.6)
Adjusted profit for the year	21.2	16.4	(3.4)	13.0

	Number	Number	Number	Number
Weighted average number of ordinary shares	86,147,916	81,947,503	81,947,503	81,947,503
Effects of dilution from share options	1,657,337	193,091	193,091	193,091
Weighted average number of ordinary shares adjusted for the effect of dilution	87,805,253	82,140,594	82,140,594	82,140,594
	Pence	Pence	Pence	Pence
Basic EPS	17.2	18.9	17.9	36.8
Diluted EPS	16.9	18.9	17.8	36.7
Adjusted basic EPS	24.7	20.1	(4.2)	15.9
Adjusted diluted EPS	24.2	20.1	(4.2)	15.9

¹Restated for the impact of IFRS 15.

8 Intangible assets

£m	Customer relationships	Intellectual property	Goodwill	Capitalised R&D	Software	Total
Cost
At 1 January 2017	18.6	60.6	212.6	-	-	291.8
Disposals	(1.4)	-	-	-	-	(1.4)
Additions	-	-	-	2.5	7.1	9.6
Effect of movements in exchange rates	(0.6)	(1.4)	(4.6)	-	-	(6.6)
At 1 January 2018	16.6	59.2	208.0	2.5	7.1	293.4
Additions	-	-	-	7.6	4.6	12.2
Acquired on business combination	30.1	4.3	22.3	-	-	56.7
Disposals	-	-	-	-	(0.4)	(0.4)
Effect of movements in exchange rates	1.6	1.4	5.0	-	-	8.0
At 31 December 2018	48.3	64.9	235.3	10.1	11.3	369.9

Amortisation:
At 1 January 2017	(17.3)	(56.7)	(65.9)	-	-	(139.9)
Charge for the year	(0.9)	(3.1)	-	-	-	(4.0)
Disposals	1.4	-	-	-	-	1.4
Effect of movements in exchange rates	0.6	1.4	-	-	-	2.0
At 1 January 2018	(16.2)	(58.4)	(65.9)	-	-	(140.5)
Charge for the year	(0.9)	(1.5)	-	(1.1)	(1.1)	(4.6)
Disposals	-	-	-	-	0.4	0.4
Effect of movements in exchange rates	(1.4)	(0.9)	-	-	-	(2.3)
At 31 December 2018	(18.5)	(60.8)	(65.9)	(1.1)	(0.7)	(147.0)

Net book value
At 31 December 2018	29.8	4.1	169.4	9.0	10.6	222.9
At 31 December 2017	0.4	0.8	142.1	2.5	7.1	152.9

9 Cash and borrowings

£m

2018

2017

Cash at bank

19.8

22.7

The fair value of cash and cash equivalents is £19.8m (2017: £22.7m). Restricted cash at 31 December 2018 was £0.3m (2017: £0.1m).

Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

Net cash £m	2018	2017
Cash and cash equivalents	19.8	22.7
Borrowings	(5.4)	-
Net cash	14.4	22.7

Borrowings

On 3 August 2015, the Group signed a five year £25m revolving credit facility, expiring on 2 August 2020. This facility was cancelled on 20 July 2018 and on the same day, the Group signed a five year £120m syndicate revolving credit facility, expiring on 19 July 2023. The agreement includes a £50m Accordian (uncommitted) facility. At 31 December 2018, £5.4m was drawn on the facility (2017: £nil). This amount was fully settled subsequent to the year end.

Draw downs under the £70m committed revolving credit facility are repayable in one, three and six month instalments and amounts can be redrawn at any time as long as covenant and other conditions are met. Accordingly drawdowns under this facility have been categorised as non current. The loan bears interest at LIBOR+ margin, the margin varying between 1.15% and 2.15% depending on the ratio of the Group's total net debt to its adjusted earnings before interest, tax, depreciation and amortisation.

10 Events after the Statement of Financial Position date

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

11 Acquisition of Donnelley Language Solutions

On 23 July 2018, the Group acquired the Donnelley Language Solutions (DLS) business for cash consideration of $77.8m. The acquisition was funded by internal cash resources, an equity placing which raised £36.2m (£35.0m net of fees) and a £19.6m ($25.6m) drawdown under the Group's new banking facility.

Acquisition-related costs

The Group incurred acquisition-related costs of £2.3m on legal fees and due diligence costs.

	£m
Total consideration	59.4
Cash included in undertaking acquired	0.2
Net cash consideration in cash flow statement	59.2

Identifiable assets acquired and liabilities assumed

The table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.

Fair value of identifiable net assets acquired		£m
Property, plant and equipment		0.4
Intangible assets - customer relationships		30.1
Intangible assets - intellectual property		4.3
Trade and other receivables		14.0
Cash and cash equivalents		0.2
Trade and other payables		(6.6)
Deferred tax		(5.3)
37.1

Goodwill		22.3


Total consideration		59.4
Satisfied by cash		59.4

The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the assembled workforce of the acquired entity, the Company's ability to attain new customers going forwards and the value of intangible assets beyond their estimated useful lives.

For the five months ended 31 December 2018, DLS contributed revenue of £27.8m and adjusted profit before tax of £1.8m to the Group's results.

If the acquisition had occurred on 1 January 2018, management estimates that revenue would have been £61.0m, and profit before tax would have been £1.3m. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on 1 January 2018.

Measurement of fair values

The fair value of DLS's intangible assets (technology intellectual property and customer relationships) has been measured by an independent valuer.

Trade receivables comprise gross contractual amounts due of £9.5m, of which £0.8m was expected to be uncollectable at the date of acquisition and has been provided within these financial statements.

Accrued income assets relate to rights to consideration for work completed but not billed at the reporting date for language and professional services. A provision for impairment of £0.1m against these balances at the date of acquisition has been recognised.

An adjustment to recognise a holiday pay accrual, in line with Group policy, of £0.4m has been recognised at the date of acquisition. Deferred income has been restated to its fair value of the Group's services obligation at the date of acquisition.

Acquired assets and liabilities remain provisional pending the final determination of sale and purchase agreement mechanisms in relation to the fair value of liabilities acquired.

Alternative Performance Measures (APMs)

The Group presents various APMs as the Directors believe that these are useful for the users of the financial statements in helping to provide a balanced view of, and relevant information on, the Groups financial performance.

Measure / description

Why we use it

Adjusted

Adjusted measures are adjusted to exclude items which would distort the understanding of the performance for the year or comparability between periods:

- Amortisation of acquired intangible assets;

- Exceptional items that in management's judgement should be disclosed separately (see note 4) by virtue of their size, nature or incidence.

Adjusted measures allow management and investors to compare performance without exceptional items or non-operational items.

Constant currency

Prior period underlying measures, including revenue are retranslated at the current year exchange rates to neutralise the effect of currency fluctuations.

Constant currency measures allow management and investors to compare performance without the potentially distorting effects of foreign exchange movements.

Organic

In addition to the adjustments made for adjusted measures, organic measures exclude the contribution from discontinued operations and acquired businesses during the period and the impact of foreign exchange.

Organic measures allow management and investors to understand the like-for-like revenue and current period margin performance of the continuing business.

Adjusted operating profit

Defined as operating profit excluding exceptional items and amortisation of acquired intangibles. A reconciliation of adjusted profit to operating profit is provided on the consolidated statement of profit or loss.

As a measure of operating profit excluding major non-cash items.

Free cash flow

Cash flow from adjusted operating activities less maintenance capital expenditure, research and development costs, cash interest and cash tax paid.

As an indicator of the ability of the company to turn revenue into cash and therefore the quality of revenue.

Adjusted EPS

The adjusted EPS is EPS adjusted for the impact of disposals by excluding current and prior period disposals, exceptional items, the impact of amortisation on acquired intangibles and the impact of exceptional tax charges or credits. A reconciliation of adjusted EPS to EPS is provided in note 7.

The adjusted EPS measure allows management and investors to compare performance without the distorting effects arising from significant acquisitions, disposals and the impact of exceptional tax charges or credits.

Annual Recurring Revenue (ARR)

Annualised recurring revenue (ARR) is the normalised reported recurring revenue in the last month of the reporting period, annualised.

ARR for our technology businesses consists of SaaS licence, hosting and support and maintenance revenues. The ARR calculation has been restated for IFRS 15 and excludes the licence element of term contracts.

As a forward looking revenue measure that represents the annualised value of that part of the current revenue base will be carried into future periods.

Annual Recurring Contract Value (ARCV)

Annual Recurring Contract Value (ARCV) is the amount of revenue recognised in the last month of the reporting period annualised and generated from technology related subscription contracts (SaaS, hosting and support and maintenance) and term contracts.

As a measure of new recurring bookings that can be compared across different contract durations (monthly, annual, multi-year) and types (maintenance and subscription).