www.sdl.com
Annual Report
2015
2015
has been an important
year in the evolution
of our company.
Contents
Strategic Report
Governance
Financial Statements
4
Executive Chairman’s Review
28
Board of directors
65
Independent Auditor’s Report
6
Our Markets
13
Principal risks and uncertainties
16
Operating and Financial Review
20
Corporate Social responsibility
People
Foundation
Environment
30
Corporate governance report
Corporate governance statement
Audit Committee
Nomination Committee
42
Directors’ remuneration report
Statement by the Chairman of the
Remuneration Committee
Annual report on remuneration
Policy report
59
Director’s report
68
Consolidated financial
statements and related notes
100 Company financial statements
and related notes
110 Five Year Summary
111 Corporate Information
3
Strategic ReportStrategic Report
Executive Chairman’s Review
2015 has been an important year in the evolution of our company.
1
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Our in-house translators working in our network office
structure across 38 countries are valued by clients
because direct access to this in-house, in-country
organisation enhances quality. It also enables local
management of any freelancer usage, meaning
tighter control and lower cost to SDL.
We have many global enterprise Language Services
and Technology customers across diverse end-
markets with high
levels of recurring revenues.
Our high penetration and repeat business of our
Translation Management System strategically embeds
SDL within our customer workflow processes and
our Translation Productivity platform is used by over
225,000 translators and localisation project managers
worldwide.
Our brand is best known for its language related offers
with a reputation for high-quality and both Trados
and Tridion are strong brands within their market
segments.
Our global content technologies build upon our
language DNA and provide scalable and secure
solutions which are unique in their ability to deal
with the complexity associated with managing and
delivering content on a global scale.
Our loyal staff who embrace change and are willing to
respond to challenges and seize opportunities.
To deliver substantial growth in our chosen markets it is
important that we concentrate our investments in these areas.
As a result of our decision to refocus the business around
a language centric strategy, we have concluded that some
of our existing businesses may be more successful under
different ownership. Consequently there are a number of
good businesses within SDL that serve growth markets but are
non-core to our future strategy. These businesses, Fredhopper,
Social Intelligence, and Campaign & Analytics, will be sold.
Dividend
The financial results for the year and confidence in the future
have enabled the Board to recommend a full year dividend of
3.1 pence, an increase of 24% on last year.
Our board
In October 2015, our founder and CEO, Mark Lancaster, stepped
down from the Board. Since founding the business in 1992,
Mark and his team led the Company through an extraordinary
period of growth to a global market leadership position. The
Board would like to thank Mark for his vision and leadership in
building the business.
2015 performance
2015 has been an important year in the evolution of our
company.
Our Language Services business has further
consolidated its position as one of the leading players in
the Global Localisation market. Indeed, our profitability has
reached record levels as a result of our excellent customer
satisfaction and our exceptional quality. Repeat business is at
very high levels and our business model, utilising our unique
network of local offices and people, is enabling us to deliver
extremely strong, profitable, growth.
Since the acquisition of Alterian plc in early 2012 we have
been investing in both technology and sales and marketing
in order to access the global market for Customer Experience
Management, CXM. Whilst considerable progress has been
made we have been disappointed in the overall results. This
was due to SDL’s focus of investing in and selling consolidated
integrated platforms whereas the market continues to favour
the purchase of specialist point solutions. As a result, our CXM
strategy has failed to gain traction, resulting in a significant
decline in new technology bookings in our CXM business, with
a commensurate increase in losses from these products.
Operational review
Following my appointment as Executive Chairman in October
2015 the Board has conducted a thorough operational review
of the Group’s activities. We have concluded that the business
should refocus around a language centric strategy, helping
brands to manage, translate and deliver localised content on
a global scale.
The Board also concluded that we have a number of significant
areas of strength and opportunity which will form the building
blocks of this future strategy:
4
Annual Report 2015 As a result, I was appointed to the interim role of Executive
Chairman whilst a thorough search takes place for a new CEO.
CEO succession is a critical issue and the Nomination Committee
is currently working with an international Executive search firm
to find the candidate with the right talents, experience and
skills required to lead SDL’s future growth.
Outlook
In conclusion, we are excited by the growth potential for
SDL. Global market expansion coupled with the explosion of
digital content and growing consumer expectations provide
the opportunity for SDL to become a more strategic vendor
to our customers. We must ensure that SDL fully maximises
this opportunity to become a trusted advisor for brands and
businesses looking to expand their global reach in today’s
digital world. In the short term we will continue to drive
efficiency within our business in order to invest in the platforms
we need for future growth.
As a result, the Board remain confident of another year of profit
growth.
David Clayton
Executive Chairman
Executive Chairman's Review
Revenue
£266.9 million
( 2014: £260.4 million at
reported currency)
Profit before tax,
amortisation and one-offs
£20.6 million
( 2014: £16.5 million)
Adjusted Earnings
per share of
16.13 pence
(2014: 15.10 pence)
Dividend
per share of
3.1 pence
(2014: 2.5 pence per share)
5
Strategic ReportStrategic Report
Our Markets
Perhaps the most important conclusion that we drew
from the operational review, was to reinforce both the
attractiveness of the global Localization market and the
strength of SDL’s position within it. Our strategic focus for
the past few years has been on building out our Customer
Experience Management technology solutions and focussing
our language business to deliver enhanced profitability
rather than growth. As a result we have under-invested in
and under-delivered on our core language opportunity.
The continuing growth in digital content and the need to deliver
this rapidly across international markets provides significant
opportunity for technology driven language solutions that can
accelerate global content delivery.
With our unique combination of language services and
translation technology, coupled with our global content
technologies, we see huge opportunity for SDL to manage,
translate and deliver localised content on a global scale and
capitalise on what is a large and growing global market.
Language Services
The language services market remains a diverse and attractive
market with high potential opportunity for growth and
development. The market was estimated in 2015 to have been
worth $38bn; with a current estimated addressable market
for SDL of c. £4bn. The language services market is currently
growing at 6-8% per annum and is estimated to grow to $43bn
by the end of 2019.
SDL offers a full range of language services including translation,
media services, iMT (Machine Translation (“MT”) post-editing),
global Search Engine Optimisation and software localisation
and testing. These are delivered by 1000+ in-house, in-country
translation experts and powered by our language technology.
There are a number of key factors that continue to drive
expansion and the need for innovation in the language
services market:
1. Global market expansion
The removal of global trade barriers, technological
advancements and an expanding digital economy
is leading organisations in all sectors to expand their
international operations and open up new global
markets. This has led to an increase in the need for new
and existing language support.
2. Digital content explosion
The rise of new digital content and disciplines such as
multimedia use, digital and content marketing, online
documentation, self-serve help and support drives a
growing volume of content needing to be delivered to
international audiences.
3. Growing consumer expectations
The need to deliver instant access to relevant, personalised
local
information, across all channels and devices,
language requires quicker time to market.
in
4. Delivering a relevant customer experience
Customer experience is now a key differentiator for many
organisations. Delivering content consistently across
languages and cultures, whilst maintaining brand control
and local relevance is now a priority in engaging global
audiences.
5. International regulatory requirements
Taking products and services to international markets
requires compliance with local regulations and laws.
In highly regulated industries this includes meeting
stringent rules for providing timely information in local
languages.
2020
40 –
35 –
30 –
25 –
20 –
15 –
10 –
50 –
0 –
6
$38.16
billion market
in 2015
6.46% in 2015
6.13% in 2014
INDUSTRY SUPPORTED BY DRAMATIC TRENDS ($ in trillions)
• Global international trade grew by ~19% in 2010 and ~18% in 2011 as
5.13% in 2013
economies began to stabilize following the global recession
Increased global trade drives growing localisation needs
Expected to grow at a 7.3% CAGR from 2014-2020
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Annual Report 2015
These market forces will continue to grow and SDL’s unique
combination of technology and language services gives us exciting
opportunities. Technology plays a crucial role in managing the
increase in volume, variety and velocity of local language content
needed to do business in today’s global markets.
SDL’s technology-enabled language services drive efficiency in
the speed and cost of translation, whilst maintaining consistency
and quality. Translation memory allows for the reuse of previously
translated content while machine translation is integrated for
increased automation. Our translation management solution
integrates into content systems and allows organisations to
handle the growing complexity in both the content landscape
and in operationalising international content creation.
Although there is widespread demand for language services
across all industries and geographies, there are a number of areas
where we believe there is significant additional opportunity for
SDL:
a
Expansion of our transcreation services for marketing
professionals. (Delivering high quality cultural adaptation of
messages from one language to another while maintaining
intent, style, tone and context)
b
Continued expansion of our commercial operations in Asia,
particularly in support of Asia to Asia commerce
c
d
Building out our vertical strategy launched in 2015, focusing
on the regulated industries
Expansion of our operations to provide enterprise level
translation capabilities to companies of all sizes
AccorHotels is a world leading hotel operator and the market leader
in Europe, operating in 92 countries with 180,000 employees, 290
million visitors and 2m Facebook fans.
“ As we cement our leadership in Europe and swiftly develop our
presence in emerging countries, we need to tailor our brands
to suit local preferences – we only have seconds to capture a
customer’s attention. Working with SDL allows us to deliver a
more unique and personalized online experience for each guest.
We are now translating over 20 million words into 18 languages
and can launch a new language in under two and half months!”
Jean-Francois Collignon, Expert and Quality Unit Director,
AccorHotels
Our language services operating model is possibly the best in our
industry. This is evidenced by our customer retention statistics and
by our industry leading levels of profitability.
Customer Satisfaction Survey 2015
94%
OVERALL SATISFACTION
I am very satisfied or satisfied with
SDL’s translation services
98%
CUSTOMER RETENTION
I plan to continue my relationship
with SDL
Unlike many of our competitors who exclusively use freelance
translators to deliver their content, SDL operates a global
network of 55 offices in 38 countries, employing 1000+
translators within our business. Whilst our in-house, in-
country model is supplemented by the freelance market to
offer additional capacity and expertise, the opportunity for
customers to engage directly with translators in local markets
is seen as a real additional value in partnering with SDL.
www.thebrandusa.com
The company
Brand USA, the destination marketing organization for
the United States, selected SDL’s Language solutions
to enhance the quality and consistency of brand
messages to tourists across the globe.
The challenge
Brand USA relies on SDL Language Cloud to centralize
and automate the translation workflow initiated by
numerous agency partners. Following the technology
implementation, Brand USA was able to translate
370,000 words into nine languages in the first three
months, while benefiting from translation memory
leverage and consistency across departments and
multiple ad agencies. In addition, Brand USA benefits
from SDL’s translation services for 11 languages, SEO,
video localization and transcreation, ensuring the
very highest possible quality of the local language
marketing content.
The solution
“ At Brand USA, we need to reach people all over the
world and encourage them to come explore the many
diverse travel experiences throughout the United
States. Essential to our mission is to communicate
to international travellers in their native language, to
convey our brand message and tone with maximum
emotional impact. By consolidating our language
technology under SDL, we’ve not only increased our
output and efficiency, we’ve also improved the quality
and consistency of content.”
Mark Lapidus, Director of Digital, Brand USA.
The results
370,000
words translated into nine languages in the first three
months following the technology implementation.
7
Our MarketsStrategic ReportStrategic Report
Language Technology
SDL provides a complete language technology platform that
spans the entire translation ecosystem. Whilst the markets
for these technologies are relatively small compared to our
services business, technology is a key differentiator for SDL
and is a strategic part of our portfolio to meet the future needs
of the language market. Our portfolio can be divided into 3
product areas:
1. Machine Translation, MT:
We estimate the MT market to be £200m - £300m per annum
with a growth rate of 15+%. Whilst SDL has a 5-7% market
share, we are unique amongst our language services peers in
having our own statistical based machine translation engine.
In the pure MT market our ability to customise our MT engines
to meet the individual needs of vertical markets and specific
customer requirements means we can out-perform other MT
providers. This technology, which we acquired in 2010 and
have been developing ever since, allows us to offer a full range
of translation solutions, depending upon the content type. By
matching content to the right translation method; human,
machine translation or post-edited machine translation we can
provide the most time and cost effective solution.
The maturing of MT as a technology is contributing significantly
to the growth in translated content volumes. MT is becoming
an increasingly valuable option in areas where language is
repetitive, predictable or well structured. As well as being a
cost effective solution for the translation of user generated
content such as social media, blogs, community forums and
chat, which would previously not have been cost-effective to
translate, MT is also achieving success in more challenging
industries such as financial services.
MT has also been adopted by our own language services group
to increase translation productivity for our clients and is utilised
in 32% of translation projects. In addition, we are beginning to
develop new markets in enabling other software companies to
embed our MT and translate their own user generated content.
2. Translation Productivity, TP:
This is a market which is estimated to be worth around
£35m – 40m per annum and has similar growth trends to the
overall language industry of around 6-8% per annum with the
associated growth of translator volumes.
SDL Trados is the market leading Translation Productivity
platform with c. 70% penetration, chosen by over 225,000
translators and
localization project managers worldwide.
It is used by corporations, government institutions, other
Language Service Providers as well as our own in-house
translators and the global freelance community. SDL Trados
significantly enhances a translator’s productivity through
its use of translation memories and terminology glossaries
which accelerates localization and time to market, improving
translation quality and reducing costs.
The Translation Productivity set of software is not only the
standard choice for translation but offers a wide range of project
management features that enable thousands of localization
teams to manage, outsource, cost and review projects
supporting the localization of billions of words every month.
www.salesforce.com
The company
A great example is Salesforce.
The challenge
Everyday Salesforce customers see a huge volume of
valuable content pass through its platform, but many
colleagues are unable to read it due to language
barriers. These language barriers can slow down
the optimization of global content and customer
information.
The solution
SDL’s MT solution is now integrated with Salesforce,
bridging this language gap with real-time multilingual
collaboration for global sales, marketing and support
teams. It unlocks global account knowledge for a
single view of opportunities and customer accounts,
allows instant collaboration between colleagues with
on-demand translation in more than 100 languages,
and enables service agents to triage cases raised in
any language and route them appropriately. This
integration leverages SDL Language Cloud, relied on
by some of the world’s leading brands.
The results
Instant
collaboration between colleagues
100+
languages translated on-demand
8
Our MarketsAnnual Report 2015 To accelerate growth and expand into additional markets,
we are piloting programmes which enable us to tap into the
potentially huge market of part time translators and bilingual
people, estimated to be worth up to £10 million revenue per
annum.
3. Translation Management Systems, TMS:
This market is estimated to be £35-45 million revenue per
annum, benefiting from the same growth trends as the overall
language industry and the need for Language Service Providers
(“LSPs”) and clients to embed translation into a systematic
workflow tool.
SDL’s Translation Management products (SDL TMS and SDL
WorldServer) are the number one and two most adopted
solutions in the market. They enable both SDL and our customers
to effectively manage complex, large-scale translation work.
This includes workflow, resource management, estimating,
billing, checking and verifying. Although our translation
management products are well placed in the enterprise
market we see opportunity for a more entry level solution to
capture a growing mid-market segment. Increased global
connectivity is allowing companies to expand internationally
much earlier in their development. Our SDL Language Cloud
Managed Translation solution empowers businesses of all sizes
to efficiently translate and manage global content delivery
and benefit from enterprise class translation technology with
reduced overhead and complexity.
language capabilities
into the software that
Embedding
content authors and managers use every day is a key strategy
for driving language technology adoption and ease of use.
We have a number of integrations with leading content
management solutions, including deep integration with SDL
Web and SDL Knowledge Center. We will continue to expand
our integration strategy with the aim of making language
capabilities available to all.
Collectively our Language Technology solutions provide an
integrated platform serving the entire translation ecosystem.
From client through to LSP to translator our language platform
unites the entire supply chain and provides efficiencies
through streamlined workflows, ease of file and asset sharing
and collaboration.
• SDL Trados and MT
Combining MT with SDL Trados creates the ideal
environment for post-editing, driving additional efficiency
in translation. Upcoming technology will enable mass and
instant customisation of MT engines delivering an entirely
new way of working between translation and MT.
• SDL Trados and TMS
Using a TMS and Computer Aided Translation solution that
share documents, translation memories and terminologies
ensures seamless integration and efficiency.
• MT and TMS
Existing translation memory and terminology stored within
a translation management solution can be used to train
company-specific MT engines for higher quality output.
With feedback from post-editing the MT can be used to
train and improve the MT output.
www.skf.com
The company
For over 100 years, SKF has led the way as a global
provider of technology. Representing 40 industries
across 32 countries – from motoring to marine,
railways and aerospace to medical, metals and food
– the company needed a single, global online face to
engage with its diverse customer base that spanned a
300,000+ product range.
The challenge
Following recent acquisitions and organic global
growth, SKF was running 10 company websites as
well as many disjointed country sites around the
world. With the help of SDL Web for centralized
web content management and SDL’s Translation
Management solution for localization, SKF was able
to efficiently consolidate the 10 main websites into a
single company site in just 18 months. As a next phase,
SKF then launched 60 localized sites, representing 37
languages in just 12 months – 6 months faster than
expected.
The solution
As well as achieving its goal of presenting one face to
the customer through an integrated digital marketing
ecosystem, SKF also achieved 15% more customer
inquiries per year; 50% increase in local site traffic;
significant costs savings by reusing 50% of translated
content, and one centralized web content master for
300 content managers.
The results
15%
more customer inquiries per year
20% to 70%
increase in local site traffic
50%
of translated content reused, resulting in significant
costs savings
9
Our MarketsStrategic ReportStrategic Report
Technology is having a huge impact on the evolution of
the localization market. More content can now be cost-
effectively translated. SMEs can now translate marketing
materials, contracts and websites to enable them to expand
internationally earlier in their development as businesses.
Marketers are becoming more demanding
in requiring
local language versions of content to not only be translated
accurately, but also to retain the same nuance and sentiment
as language and cultural barriers are crossed.
to
respond
SDL’s network offices and technology leaves our business
these challenges and
ideally placed
opportunities. An inevitable extension of the requirements of
marketers to produce local language versions of their content,
is the requirement to deliver web sites in local language, whilst
retaining some element of central control for efficiency.
to
Global Content Technologies
In today’s digital era, delivery of multi-site, multi-channel,
and multi-lingual experiences remain top priorities for global
organisations. The challenge though is striking a balance
between global control on the one hand – to ensure brand
consistency, scale, compliance, and time to market – and
regional autonomy and innovation on the other hand – to
ensure that web sites, mobile experiences, and marketing
campaigns are localized for maximum relevance and impact.
SDL’s global content technologies build upon our language
DNA, and have been architected from the ground up to
support these requirements, enabling companies to manage
all their marketing and technical content, translate it in context,
and personalise the delivery of it across multiple channels.
Our Web Content Management and Technical Content
Management solutions are complementary to our Language
Services and Language Technology products, with a strong
degree of customer overlap and cross-selling opportunities.
While there are many content management vendors in the
market place today, our solutions are unique in their ability
to deal with the complexity associated with managing and
delivering content on a global scale. Leveraging the integration
with our language technologies, we will continue to capitalise
on the trend towards globalisation by helping organisations to
go global faster. SDL has begun re-aligning the cost base of its
Global Content Technologies business in order to bring focus
and efficiencies to this segment.
1. Web Content Management, WCM:
The market for Web Content Management solutions
is
estimated at £1bn, growing at 10-15% per annum with the
majority of growth coming from upsell and replacement of
older generation systems.
SDL Web, powered by Tridion, is our web content management
platform that sits at the heart of the digital ecosystem, enabling
businesses to manage a complex environment of web
properties whilst ensuring brand and message consistency.
SDL Web is unique in its ability to address the complexity of
managing content across multiple brands, languages and
channels, thanks to its BluePrinting® capabilities.
is driven by organisations that want to deliver
Growth
content globally, while retaining brand control and local
www.blackboard.com
The company
Blackboard, long known as a leader in the Education
Technology space, and a pioneer of the Learning
Management System (LMS) industry, has 19,000
clients in 190 countries. Blackboard has actively
evolved to meet the needs of the education industry
and expanded its business with new solutions that
inspire the world to learn.
The challenge
“We wanted to deliver a web experience that would
meet the needs of both existing and prospective
customers, highlighting the solutions specific to their
market needs, in whatever geographical region they
lived, in whatever language they spoke, and from
whatever device they used.”
Jon Gold, Director, Web Strategy & Design, Blackboard.
The solution
implementing SDL Web, Blackboard quickly
After
increased conversion by 14% in the first year, lowered
its bounce rate by 20% and experienced an 8%
increase in engagement on its mobile friendly site.
Blackboard now delivers a consistent, scalable global
web experience to all visitors.
The results
14%
conversion increase in the first year
20%
lower bounce rate
8%
increase in engagement on its mobile friendly site
10
Our MarketsAnnual Report 2015 market flexibility, improve operational efficiency and decrease
mounting costs. Many organisations that have grown with
multiple content management systems or that have created
custom systems are currently under pressure to decrease costs
by unburdening themselves from legacy systems. In addition,
few organisations have the agility to respond to changing
internal structures due to acquisitions or changes in their
business portfolios.
Significant market potential exists for organisations that need
to ensure localization efficiency. This process alone can be
incredibly complex with distributed teams translating content,
managing these translations in spreadsheets with multiple
in-house and agency translators and copying and pasting
translated content into various distribution channels. Needless
to say, frequently these processes are less than optimised and
result in difficulty in just getting content to market and creating
a level of complexity in terms of coordinated campaigns and
messaging. The integration of SDL’s translation management
technologies with SDL Web ensure that these process
inefficiencies are addressed and that translated content has a
much faster time to market.
2. Technical Content Management:
The market for technical content management is estimated to
be £240 million per annum with a growth rate of 7%.
In
today’s digital era, users are expecting product
documentation and technical content online, available on
the web as well as mobile devices, and in the language of
their choice. Producing quality documentation and technical
content is complex though, as it must be informative, relevant
and consistent. This complexity requires structure through the
use of XML.
SDL Knowledge Center stores, organises and manages all
structured technical content in any language so it can be easily
reused, shared, filtered and delivered to the appropriate channel.
It also eliminates the complexity of XML for non-technical
content creators. SDL Knowledge Center is the most powerful
solution available for delivering multi-lingual technical content
to customers. Integration with our language technology
solutions combined with out of the box automated publishing
ensures cost effective delivery in multiple languages.
Our customers’ priorities are usability of content authoring &
management functionality; advanced content delivery is not
widely used yet, but is expected to be required in the next 5
years. Our product supports technical content creators in
creating, managing, editing, reviewing and delivering highly-
structured content. It is well-rated and has strong customer
relationships.
www.hach.com
The company
With a history dating back to 1947, and 22 subsidiaries,
Hach manufactures analytical instruments that are used
by experts globally to ensure the safety and quality of
water for millions of people. Hach must produce high-
quality documentation that is technically accurate, up
to date and available in 27 languages. With the speed
and number of product releases increasing and the
number of supported global markets expanding, Hach
needed to move away from its traditional, cumbersome
processes for localization and technical writing.
The challenge
Hach selected a combined solution of SDL Translation
Management System and SDL Knowledge Center.
SDL Translation Management System allowed them
to take control of the localization process, eliminating
the cost of reviewing already translated sentences and
reducing desktop publishing costs. SDL Knowledge
Center provided a content management system that
supported multi-lingual content, provided an easy-to-
use environment, was cost-effective and offered strong
DITA support.
The solution
This combined SDL solution decreased translation
cycles from three months to 15-30 days; reduced
translation costs by 60%; cut translation time by 40%
and increased employee happiness by 80%.
The results
60%
reduction in translation costs
40%
cut in translation time
80%
increase in employee happiness
11
Our MarketsStrategic ReportStrategic Report www.informatica.com
The company
Informatica, a pioneer in enterprise data integration
technology, set out with the goal of improving time
to global markets and efficiency
localization.
Informatica’s traditional book-based documentation
and localization processes - involving writing highly
technical content, publishing it in various formats and
translating it into some of the world’s most complex
written languages – had become cumbersome and
frustrating, adversely affecting budgeting and slowing
time to market.
in
The challenge
Informatica introduced SDL Translation Management
System to manage the translation process and centralise
translation assets and expanded on the efficiencies
achieved by extending upstream into the authoring
and content development process. Informatica moved
to a structured authoring and publishing process
using SDL Knowledge Center, supporting DITA, to
streamline the process and reduce the costs associated
with preparing technical documentation for global
customers.
in
resulted
The solution
The combined solution
faster time
to market
for global products; enterprise-wide
improved customer experience;
consistency and
improved reuse of content across multiple product
lines; reduced global translation costs, and improved
quality and consistency of translation management in
a multilingual environment.
The results
Faster
time to market for global products
Improved
customer experience
Reduced
global translation costs
12
Our MarketsAnnual Report 2015 Principal risks and uncertainties
The Group recognises the importance of identifying and
actively managing the financial and non-financial risks facing
the business. The Board is responsible for setting the levels of
acceptable risk and they participate in regularly reviewing the
risks and controls to ensure that the appropriate mitigations
are in place. Whilst the Board retains overall responsibility, the
Audit Committee, Executive Committee and all employees
have a part to play. Managing risk is embedded in our culture
and how we conduct our day-to-day business activities.
Approach to managing risk
The Group’s risk management process is built around the risk
register. The Board has carried out a robust assessment of
the principal risks facing the Group. Throughout the year the
Board, via the Audit and Executive Committees, reviews and
evaluates the major risks faced by the Group and the controls
and mitigation plans in place. The Risk Register is reviewed
and updated by the Executive Committee with risks added,
amended or removed as appropriate and relevant mitigation
strategies identified. The Risk Register is then presented to
the Board for discussion, approval and re-rating of risks where
necessary. Alongside this, the Audit Committee review the
controls framework and the effectiveness of the mitigations
identified to manage the risks.
RISK FRAMEWORK
The Audit Committee formally reviews the system of internal
control and risk management annually. Throughout the year
ending 31 December 2015 and to date, the Group has operated
a system of internal control that provides reasonable assurance
of effective operations covering all controls, including financial
and operational controls and compliance with laws and
regulations. Processes are in place for identifying, evaluating
and managing the principal risks facing the Group.
Principal risks
The Group faces many risks and uncertainties and the system is
designed to manage and provide reasonable assurance against
material misstatement or loss. No risk management process
can fully eliminate risk but the Board believes that it has an
effective framework that will recognise, minimise and mitigate
the effect of the risk should it occur. Set out over the following
pages are the principal risks and uncertainties which we believe
could adversely affect the SDL Group. This list is not exhaustive
and the list will change as something that seems immaterial
today assumes greater importance tomorrow. In the following
section, we outline those items we currently consider to be our
most important risks.
Board
Audit Committee
Executive Committee
Sets strategic objective and agrees
acceptable risk profile.
Monitors risk management policies and
procedures against strategic objectives.
Delegates authority.
Receives and reviews risk register.
Regular review of operational and
strategic risk: identification/analysis/
evaluation/mitigation.
Reporting to the Board and the
Audit Committee.
Approves Group policies and procedures.
Challenges and assesses risk register.
13
Strategic ReportStrategic Report Principal risks and uncertainties
STRATEGIC RISKS
Description
Risk
Mitigation
Competition strategy – services
Revenue (and profitability) reduction.
Services business fails to sustain
competitive advantage.
Competition strategy – technology
Revenue reduction and technical
obsolescence leading to loss of market
share and early mover advantage.
Competition from existing localisation
industry participants and increasing
interest from other industries.
Maintain multilingual and network office
structure and continue introduction and
development of technology into translation
process. Continually assess reasons behind
lost sales opportunities. Keep abreast
of industry trends and ensure services
investment keeps SDL competitively
positioned. Continue to provide customers
with a high quality and differentiated service
at a price that they believe is good value.
Maintain controlled development strategy
and innovation with regular review of spend,
competition offering and new entrants.
Product integration strategy.
OPERATIONAL RISKS
Description
Risk
Mitigation
Divestment process and separation
execution
Divesting non-core businesses:
– divestment strategy
– road map to carve businesses out
from continuing operations.
Project and support teams led by specialist.
Risks and rewards associated with each
option assessed independently.
Identify, document and quantify:
– operational dependencies and linkages to
the core business;
– consider the need for licence agreements,
transition service arrangements etc.
Human resources
Company dependent upon the ability
and experience of certain key employees
in key functions.
Executive Chairman assumed role of CEO in
October 2015. Aim to split the role in the
next 6-12 months.
Cyber risk
Data privacy and protection - financial
loss, disruption or damage to the Group’s
reputation from failure of its information
technology systems.
Information security
Legislation/Client requirements:
Fail to respond to emerging security
legislation;
Backup of disaster recovery processes
and IT security does not match customer
requirements.
Three new Executive team members have
been appointed, two from within the Group.
A talent management process is in place
which identifies potential successors for key
roles.
IT Security: Handled within the IT risk
management framework and security teams.
Data Security Officer appointed in 2015.
Data Privacy: Data Privacy Officer appointed
in 2015 - currently addressing compliance
requirements for 2018 EU regulations
including IT infrastructure, penetration
testing and employee training.
ISO27001 certification process includes
audit and review of external providers’
capabilities. Deficiencies are assessed as part
of procurement processes.
PCI guidelines are monitored and security
upgrades implemented as appropriate.
14
Annual Report 2015 Principal risks and uncertainties
FINANCIAL RISKS
Description
Risk
Mitigation
Economic downturn
Sharp decline in business performance.
Currency movements
Trading patterns and/or intercompany
trading / loan patterns expose the Group
to foreign exchange risk.
Careful management of internal vs external
sourcing of services.
Monthly reviews of activity and forecasts.
Clear reporting to the Board that sets out
currency impacts on performance.
Controlled program of intercompany balance
settlement in place and balance sheet
exposure reduced.
The Group’s wide geographical and sector diversification
helps minimise the risk of serious business interruption or
catastrophic reputational damage. Furthermore, our business
model is structured so that the Group is not overly reliant on
a small customer base. Our largest customer constitutes only
4% of Group sales and our top 20 clients account for less than
22% of Group sales.
Based on the results of this analysis, the Directors have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
three-year period of their assessment.
Viability statement
In accordance with provision C.2.2 of the 2014 revision of the
UK Corporate Governance Code, the Directors have assessed
the prospects of the Group over a longer period than the 12
months required by the ‘Going Concern’ provision.
The Board conducted this review for a period of three years,
taking into account the Group’s current position and the
potential impact of the principal risks and uncertainties set out
above.
Based on this assessment, the Directors confirm that they have
a reasonable expectation that the company will be able to
continue in operation and meet its liabilities as they fall due
over the period to December 2018.
This is the period focussed on by the Board during the strategic
planning process and the Group’s customers do not typically
contract for a term in excess of this period. Whilst the Directors
have no reason to believe the Group will not be viable over
a longer period, given the inherent uncertainty involved
we believe this presents users of the Annual Report with a
reasonable degree of confidence while still providing a longer-
term perspective.
The Board also considers the ability of the Group to raise finance
and deploy capital. The results take account of the availability
and likely effectiveness of the mitigating actions that could
be taken to avoid or reduce the impact or occurrence of the
underlying risks.
The review has considered all the principal risks identified
by the Group and although not considered principal risks,
the following were focussed on for enhanced stress testing:
Group’s cash flows and debt requirements, banking covenant
headroom and dividend cover over the period. These metrics
are subject to sensitivity analysis which involves flexing a
number of the main assumptions underlying the forecast both
individually and in unison.
15
Strategic ReportStrategic Report Operating and Financial Review
Summary Performance
2015 has been a been a year of differing progress with excellent
margin performance in our Language Services business, but
disappointing new bookings performance in our Technology
businesses.
Revenues for 2015 were £266.9 million (2014: £260.4 million).
Profit before taxation, amortisation of intangible assets and
one-off costs (“PBTA”) was £20.6 million (2014: £16.5 million). The
loss after tax amounted to £30.7 million, after an impairment
charge of £33.3 million and other one-off costs of £5.8 million
(2014: profit after tax, £6.6 million)
ROW
Gross cash in the business at the year-end was £17.2 million
(2014: £22.1 million) and net cash after borrowings was £12.4
million (2014: £13.1 million).
Canada
Revenue in the year increased by 2%. Geographically, Asia grew
by 20%, North America by 8% and Europe was down by 3%.
USA
Language Services continues to deliver revenue growth
and increased margins with significant progress in gross and
operating margins. This segment delivered gross margins of
47.3% (2014: 45.5%) and PBTA margin of 19.9% (2014: 16.4%).
Europe
Total bookings
disappointing year, down 5% at constant currency.
from our technology segments had a
UK
Cash generated from operations was £12.0 million (2014: £22.2
million). Cash generation in the year has been impacted by
cash outflows associated with the restructuring programme
and 2014 staff incentive payments. Capital expenditure was
£2.7 million (2014: £2.4 million). Tax paid was £5.8 million (2014:
£3.9 million).
The business 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 prior year
with the 20 largest customers contributing 22% (2014: 26%) of
revenue in 2015. No single customer contributes more than 4%
of Group revenues. Our largest customer was Microsoft, but we
lost the majority of this account towards the end of 2015 due
to unattractive pricing.
Performance by Segment
Following the operational review, the Group has four operating
segments; Language Services, Language Technology, Global
Content Technologies and the Non-Core businesses. During the
year the Group has revised its internal revenue and cost recharge
and allocation methodologies to better reflect how services and
costs are consumed by each segment. The impact of this change
has been to recognise additional internal revenue recharges
of £3.8 million and to reallocate costs of £1.3 million between
Language Services and Language Technology segments in 2015.
In accordance with IFRS8, the operating segments and internal
recharges for the comparative period have been restated to
provide consistent and meaningful information.
Geographical analysis of external revenue by destination:
by destination %
by destination £m
12%
16%
5%
15%
15%
5%
2015
32%
33%
33%
34%
£31.2m
£41.7m
£13m
£39.9m
£39.4m
£14.3m
2015
£86.3m
£87.1m
£85.9m
£88.5m
2014
2014
USA
UK
Canada
Europe
ROW
16
Annual Report 2015 Operating and Financial Review
Language Services
(contributing £152.8 million or 57% of total revenue and £30.4
million of PBTA) (2014: £146.8 million or 56% of total revenue and
£24.1 million of PBTA).
2015 saw a solid performance within Language Services
achieving a 4% increase in revenue. PBTA margin increased
3.5% to 19.9% (2014: 16.4%).
Customers remain at the heart of everything we do. The division
achieved a 94% customer satisfaction rate in 2015, matching
that achieved in 2014. Repeat revenues (revenue earned from
existing customers) increased by 3.5% at constant currency.
In 2015, we continued our ongoing investment in people,
as we continue to build a highly skilled and experienced
workforce with particular emphasis on project management
training and vertical market expertise. This supported a new
vertical market strategy introduced during 2015, which saw
the soft launch of 8 vertical language technology platforms
with particular focus on the Life Sciences and Travel industries.
This investment, which will continue in 2016, has resulted in a
number of strategic new account wins in 2015 which will build
revenue in 2016 and beyond.
Operational efficiency remains a core focus in driving margin
performance and we increased our utilisation of low cost
centres of excellence for back office and support functions. We
also continued our “Technology Enabled Services” program to
continue to automate and optimise processes with the rollout
of SDL Groupshare. These initiatives helped drive an increase
in gross margin rate.
Good progress in our regional operations has also been
achieved:
• New leadership and a restructuring of sales in North
America led to 152% new business growth and over 90 new
customer wins which drove revenue up by 18%.
• APAC continued to experience strong growth with an
overall revenue increase of 9%. This was driven by a 7%
increase in the growth of existing business and a 19%
increase in new revenue generation.
•
The EMEA market experienced some price pressure from
legacy customers and high inflation in Southern and Eastern
European countries resulting in a revenue contraction of
3%. Despite these economic challenges, the gross margin
was maintained.
New client wins include ADAMA, Akami, Actoz Soft, Huawei,
Incheon Airport, I-ON Communications, Kaeser Kompressoren
SE, Mitsubishi Electric, Office Depot, Polaris Office and Tetra Pak
Korea.
Language Technology
(contributing £36.7 million or 14% of revenue and £1.3 million
PBTA) (2014: contributing £37.4 million or 14% of revenue and £5.1
million PBTA).
Our Language Technology total bookings increased 3% at
constant currency. Renewal bookings grew 6% which helped
drive annual recurring revenue up by 5% at constant currency.
Reported revenue fell 2%. PBTA margin fell 10.0% to 3.5%
(2014: 13.5%).
Although our Translation Management products group
increased revenue by 8%, we did see a down-turn in our US
Government business. This was partly planned as we refocused
our Machine Translation research group activities on increasing
the quality of output from our Machine Translation products for
our core customers and away from external research projects.
Underlying performance was also below expectations and this
business underwent a restructuring at the end of 2015.
SDL’s Translation Productivity tools are used by 70% of the
world’s professional translators and we are very pleased
17
Strategic ReportStrategic Report Operating and Financial Review
that our product commitment scores for SDL Trados Studio
increased by 37% in 2015. Investment in new market entry also
began to show dividends in 2015 with new sales in India and
Singapore and sales growth in South Korea. Overall revenue
was up 8% but was impacted by instability in the Eurozone and
geopolitical issues in the Middle East and Russia.
2015 saw the launch of 5 major product and technology
releases: SDL Language Cloud Managed Translation, XMT, SDL
WorldServer 11, SDL TMS 11 and SDL Trados Studio 2015. Each
of these followed a theme of improved User Experience and
Connectivity, feeding into our strategy of making language
technology capabilities more easily accessible than ever
before. We also established a number of strategic partnerships
including embedding our machine translation capabilities
into salesforce.com and establishing connectors to a number
of leading content solutions including WordPress, Drupal
and Adobe Experience Manager as well as strengthening
integration with our own SDL Web and SDL Knowledge Centre
content platforms.
New client wins include Brand USA, Kaspersky Lab, Next IT,
Office Depot, PayPal, Inc., Rentalcars.com, Symantec and
YarnTree.
Global Content Technologies
(contributing £50.9 million or 19% of revenue and losses of £1.5
million PBTA) (2014: contributing £51.4 million or 20% of revenue
and losses of £1.5 million PBTA).
Our Global Content Technologies total bookings fell 10% at
constant currency. Renewal bookings grew by 20% following
good new licence bookings performance in 2014. However,
2015 new license bookings were down 47% which led to
restructuring and refocusing of the sales and marketing teams
in July and in early 2016. Annual recurring revenue was flat at
constant currency.
Reported revenue fell 1%. Loss before tax, amortisation and
one-off costs was in line with last year at £1.5 million (2014:
£1.5 million).
In 2015, we released new versions of SDL Web, SDL Knowledge
Center and SDL Contenta Publishing Suite and we have
continued to
integration of our Language
Technology into all our GCT products. Key new product
developments included:
improve the
•
•
•
SDL Web developments introduce a site launch wizard,
simplified
into e-commerce systems, new
cloud capabilities and the product achieved ISO 27001
certification.
integration
SDL Knowledge Center now integrates 3rd party taxonomy
solutions, makes content from disparate sources more
accessible from one self-service experience and increases
the relevance of technical communications.
SDL Contenta Publishing Suite developments now allow
users to master the creation, management and delivery of
content for companies using the S1000D aerospace and
defense specification.
18
New client wins include Alfa Laval AB, Canon, China Airlines,
Cymer Inc, DAF Trucks NV, Folksam AB, and Philips Medical
Systems Nederland BV.
Non-Core businesses
(contributing £26.5 million or 10% of revenue and losses of £9.6
million PBTA) (2014: contributing £24.8 million or 10% of revenue
and losses of £11.2 million PBTA).
Our Non-Core businesses include our Fredhopper, Campaign &
Analytics and Social Intelligence businesses. These businesses
operate in fast growing markets (20-35% annual growth)
but these businesses are not closely related to our future
language centric strategy. As such, the Board has announced
our intention to sell these businesses to owners better able to
invest in and support their future growth.
In 2015, total bookings fell 6% at constant currency. Renewal
bookings increased by 1% and 2015 new bookings were
down 23%. Annual recurring revenue was up 1% at constant
currency.
Reported revenue grew 7%, principally driven by our
Fredhopper business which grew 15% in 2015. Loss before tax,
amortisation and one-off costs remained high at £9.6 million
(2014: £11.2 million).
New client wins include Bakker Hillegom BV, Eight Dragons
Digital, Hillarys Blinds, Kikki.K Pty Ltd, Kurt Geiger, Missguided,
Snowleader and The Association of Mature American Citizens.
Gross Margin
The Group’s gross margin was in line with last year at 56.2%
(2014: 56.6%).
Administrative Expenses
Administrative costs excluding intangibles amortisation and
one-off costs decreased in 2015 to £129.3 million (2014: £130.7
million).
Research and development costs of £26.9 million (2014:
£27.6 million) are included in administrative expenses. During
the year, the Group issued 13 product releases with greater
functionality being deployed. In addition, we have adopted a
continuous release programme for our SaaS products which
improves our customers’ experience by delivering releases
quicker and more effectively than in prior years.
Development costs have been reviewed and the Board remains
of the opinion that capitalisation criteria under International
Accounting Standard (IAS) 38 are not met. Consequently no
development costs are capitalised on the balance sheet.
Average headcount during the year increased to 3,504 (2014:
3,245). The Group has continued to recruit employees in low
cost locations to optimise operational efficiencies. Employee
related costs remain the most significant component of Group
costs, amounting to 69% of Group overheads (2014: 66%)
excluding amortisation of intangibles and one-off costs.
Annual Report 2015 Intangible assets ascribed to certain of the Group’s software and
customer relationships arising from acquisitions are amortised
over periods of between 5 and 10 years and the carrying value
is formally reviewed on an annual basis to assess whether there
are indicators of impairment. The intangible asset amortisation
charge in 2015 was £6.7 million (2014: £7.1 million).
One-off items
Intangible assets and goodwill were allocated to six Cash
Generating Units (“CGU”) namely Language Services, Language
Technology, Global Content Technologies and the three Non-
Core businesses. Following the poor new licence bookings
performance of the Group’s technology CGUs and the Group’s
operational review, the 2015 impairment review resulted in an
impairment of £33.3 million across the Language Technology
and Non-Core CGUs (2014: nil).
In addition to this impairment, the Group has incurred £5.8
million of other one-off costs in the year. These costs relate
to: redundancy and retention costs associated with the
reorganisation of the Group in 2015; professional fees and
related charges associated with the operational review;
corporate consolidation exercises carried out in the year; and
provision for one-off tax liabilities.
Earnings Per Share
Basic earnings per share when adjusted for one-off costs and
amortisation of intangibles (“adjusted EPS”) increased by 7% to
16.13 pence (2014: 15.10 pence). Basic earnings per share was a
loss of 37.93 pence (2014: profit of 8.03 pence).
Financing Costs
Interest costs in 2015 were £0.1 million (2014: £0.4 million).
At the start of the year, drawn borrowings were £9.0 million.
During 2015, we repaid these borrowings to Royal Bank of
Scotland and drew down £4.8 million under the Group’s new 5
year banking facility with HSBC plc.
Cash flow
The Group generated £12.0 million from operations during the
year (2014: £22.2 million). This cash inflow was net of £3.8 million
of exceptional cash outflows arising from our restructuring
activities and 2014 staff incentive payments.
Surplus cash, after deducting net income tax paid of £5.8 million
(2014: £3.9 million) and investing activities of £2.9 million
(2014: £2.6 million), has been used to reduce the Group’s bank
borrowings by £4.2 million and pay a dividend of £2.0 million to
shareholders. The Group’s bank borrowings of £4.8 million have
been fully repaid in 2016.
As a result net cash reduced slightly to £12.4 million at year end
(2014: £13.1 million).
Borrowing Facilities
During the year, the Group signed a new £25 million committed
revolving credit facility with HSBC plc, expiring in August 2020.
Operating and Financial Review
The agreement also includes a £25m uncommitted Accordian
facility.
Pricing of this £25 million borrowing facility is between 1.15%
and 1.9% above LIBOR dependent upon the ratio of the
Group’s total net debt to its adjusted earnings before interest,
tax, depreciation and amortisation. Under the credit facility
agreement, SDL is subject to certain financial covenants which
are required to be tested quarterly. These covenants relate to
Adjusted EBITDA: Net Finance Charges and Total Net Debt:
Adjusted EBITDA.
Derivatives and other Financial Instruments
The Group has cash and short-term deposits of varying
durations to fund its working capital needs and other financial
assets and liabilities such as trade receivables and trade
payables arising directly from its operations. The Group’s
policy is that no active trading in financial instruments will be
undertaken within the operating units and all decisions on use
of financial instruments will be taken at Group level under the
direction of the Chief Financial Officer.
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. A detailed analysis of the taxation
charge is included in note 5 to the preliminary financial
information.
The tax charge for the year is £5.5 million (2014: £2.8 million).
This charge includes tax credits associated with amortisation,
deferred tax and tax on one-off costs. The underlying current
effective tax rate during the year was 36.2% (2014: 35.8%)
as a result of unrelieved tax losses arising in a number of
jurisdictions.
Trados Litigation update
The Group has settled the litigation related to the Trados
acquisition. A payment of $1.85 million was made in February
2016 in full and final settlement of all claims.
Dividend
A final dividend for the year ended 31 December 2015 of
3.1 pence per share will be proposed at the Annual General
Meeting, an increase of 24% on the prior year.
Dominic Lavelle
Chief Financial Officer
19
Strategic ReportStrategic Report Corporate Responsibility
People
Our people are central to the delivery of every aspect of our
Group strategy. It is important that we attract, develop and
engage them.
Our strategy for developing a strong culture of capable,
motivated employees is in the following sections.
People are our greatest assets and we are committed to
providing a high quality working environment which is not
only productive and rewarding, but also enjoyable. Our people
programme is designed to ensure that our employees are
informed, listened to, develop skills and open up rewarding
career opportunities.
Culture and Communication
During 2015, SDL continued to roll out company-wide global
business applications and invested in key areas of the business
which underpin SDL’s commitment to its people strategy:
• Monthly company update presentations by the Executive
Chairman to all employees;
• Monthly newsletter sharing company-wide programmes
as well as local initiatives and employee news with all
employees;
• Company Intranet, the ‘Hub’, created to enable employees to
connect more easily with colleagues and share information
including access to SDL’s policies;
• Yammer, a social networking tool for the business, where
employees can set up groups to discuss particular topics,
post questions and help answer each other’s queries. Since
the launch in August 2015, 180 yammer groups have been
created and 7,752 messages posted;
•
Site Leaders, appointed to lead every SDL office cascade
messages at a local level and solicit feedback;
• Works councils, round table and other employee forums to
enable discussions of performance and other issues;
• A whistleblowing policy
in place which enables
is
employees to bring matters of concern to the attention of
the Senior Independent Director in confidence. No matters
were raised via this route in 2015. The Board are reviewing
the current procedures and practices for dealing with
whistleblowing claims to ensure that potential issues are
captured and addressed as early as possible; and
•
SDL supports overseas assignments or secondment to
enable employees to benefit from a period overseas.
We have also seen continued movement of employees
across different operating segments, which is effective
in transferring best practice and sustaining culture. In
2015 we had 21 employees transfer to a different office
location compared with 9 employees in 2014. Most of
these employees were engineers, sales representatives,
consultants and project managers.
Employment Policies
The SDL Code of Conduct, applicable to all employees and
those who work for or on behalf of SDL, sets out the standards of
behaviour expected in relation to areas such as insider dealing,
bribery and raising concerns through the whistleblowing
process. Our employment policies are developed to reflect
local legal, cultural and employment requirements whilst
complying with Group principles of integrity.
The Chief Financial Officer has ultimate responsibility for Health
and Safety. Specific tasks are delegated to local office managers
and suitably trained individuals in the organisation. The Group
rejects all forms of discrimination and actively encourages an
equal opportunities policy. We expressly prohibit discrimination
on grounds such as sex, race, religion or belief, age or perceived
age, sexual orientation or disability.
Employees
2014
3,245 Employees
2015
3,504 Employees
20
Annual Report 2015 Talent and development
In order to drive substantial growth in our language and global
content technologies businesses and become the unrivalled
global leader in a competitive global market we seek to retain
and build the best skills and knowledge in the market.
We are working towards achieving this ambitious goal by
providing a variety of ways to develop at SDL—eLearning,
instructor-led training, feedback, coaching and mentoring, and
various on-the-job experiences. Our focus and commitment is
on helping employees perform at their very best and achieve
their full potential.
Our learning and development strategy includes:
• Performance Management:
Employees are encouraged to engage in frequent dialogue
with their manager throughout the year to understand
how their work aligns with the goals of their department
and to gain feedback and coaching on their performance;
• Learning:
In 2015 SDL launched MyLX (My Learning Experience),
a learning management system that serves as our one
source for all internal learning. The online platform enables
employees to learn what they want, when they want,
wherever they are. Employees have access to a variety of
learning assets, including product training, professional
development courses, business applications
training
and over 2,000 desktop video courses through Skillsoft.
Additional Skillsoft content is provided to people within
certain roles, along with learning plans that are aligned to
the business needs;
• Leadership Development
Our Management Development Programme (MDP) was
consolidated and updated in 2015, creating a compact
and agile programme. Overall, a total of 88 Managers from
31 locations worldwide have taken part during the last 12
months. Since its inception, this programme has helped
nearly 600 SDL managers develop their capability as leaders,
with plans to continue to expand its reach during 2016. To
reinforce concepts learned in MDP, we also provide leaders
with targeted leadership videos, courses from Skillsoft and
internally developed programmes on key topic areas, such
as Giving Feedback;
SDL’s Project Management Pathways Programme:
Based on the Project Management Body of Knowledge
(PMBOK® Guide) and fully ISO compliant, this programme
was further extended in 2015 to include a combination
of classroom and Skillsoft eLearning programs, delivered
via MyLX. 174 people completed Pathways during 2015.
In addition, SDL was very proud to be nominated for The
Project Management Institute’s Continuing Professional
Education Product of the Year Award for our Pathways
Intermediate Programme. This nomination, recognised
our ongoing commitment to the quality, applicability and
relevance of project management training delivery; and
• SDL Quality, Processes & Systems
was recognised by the Project Management Institute
(PMI®), the world’s largest project management member
Corporate Responsibility : People
association, as a provider of project management training
known as a Registered Education Provider (R.E.P.) and is pre-
approved by PMI to issue Professional Development Units
(PDUs) for all classroom training courses.
The Group continues to develop progressive relationships
with several language facilities of universities in the countries
in which it operates and supports translation as a profession.
This serves as a way for the Group to develop the translation
profession as well as providing a valuable potential career
outlet for students and a source of potential future employees.
The SDL University Partner Programme supports universities
and lecturers in the teaching of translation software worldwide
and offers training, free certification programmes and advice
to students that are on-the-way to becoming language/
translation professionals. The programme saw growth during
2015 adding 18 new universities as education partners bringing
the total to over 350 worldwide in 68 countries.
launch of SDL Trados Studio 2015 we have
With the
equipped our partner universities with the latest software
and certification material for their language labs and student
computers and we have helped lecturers stay up-to-date with
the latest developments in the translation industry. Work has
also started on a dedicated Graduate Programme, which is
an extension of the University Partner Programme, to ensure
that language graduates also have access to certifications,
software and training, once they leave University. Sharing our
knowledge about Computer Assisted Translation tools and
enabling graduates to develop the skills they need to start their
professional career is an integral part of our commitment to
further develop the people, technology and best practices in
the language industry.
The Group also actively collaborates with universities and
research centres to promote research, solutions and assist
with recruitment for the language and technology areas of the
business.
•
•
•
SDL Research continued
its collaboration with the
University of Southern California, University of Colorado
and the Linguistic Data Consortium to design and develop
a semantic representation of language, Abstract Meaning
Representation (AMR), aimed at advancing state-of-the-art
language technologies and applications;
internships
SDL Research offers annual summer
for
outstanding Ph.D. students in the field of Machine Learning
and Natural Language Processing. Previous interns joined
SDL Research from competitive programmes at top
universities such as Carnegie Mellon University, University
of Southern California, John Hopkins University, University
of Cambridge, Heidelberg University and University of
Sheffield;
SDL began a public-private partnership project with
Centrum Wiskunde & Informatica (CWI), as part of the
overall EU project called ‘Envisage’, to improve cloud based
software for marketing purposes. In this joint project both
CWI and SDL contribute to the research budget. The goal
of the current research project is to develop an automatic
monitoring system for cloud applications to support the
decision process for allocating server space from the cloud
21
Strategic ReportStrategic Report Corporate Responsibility : People
Gender Breakdown
Senior Management
41%
All Employees
50%
59%
50%
We believe in treating all employees equally and offer equal
opportunities in all aspects of employment and advancement
regardless of race, nationality, gender, age, marital status, sexual
orientation, disability, religion or political beliefs.
Corporate citizenship
SDL is committed to being a good corporate citizen in the
communities in which it operates, conducting business in a
socially and ethically responsible manner. SDL recognises the
value it gets from its continuing programme of Corporate Social
Responsibility (CSR), both from the employee’s perspective of
being an employer for whom staff can feel proud to work, and
from the perspective of clients who increasingly prefer to work
with companies who demonstrate core ethical values.
Our corporate citizenship framework continues to target three
primary areas:
• We support communities through the SDL Foundation,
which aims to promote sustainable development;
• We promote and facilitate employee
involvement
in
charitable endeavours; and
• We are committed to reducing our environmental impact.
In 2015, many SDL offices participated in charitable endeavours
to help people or organisations in their local communities.
You can see activities on the CSR page of our website –
www.sdl.com.
to applications;
•
•
SDL’s relationship with the University of Bristol and the
University of the West of England is entirely focussed on
internship programmes, where the research areas and goals
of the internship are determined on a per-case basis; and
SDL maintains an ongoing relationship with the Babes-
Bolyai University and Technical University of Cluj to help
support internship and graduate support programmes,
covering both the technical and linguistic domain.
Equality and diversity
A diverse workforce helps us achieve our goals by helping us
better understand and meet the needs of our customers. We
are both a multinational and a multicultural company.
Gender diversity is a key goal for us. Over the SDL Group we
employ equal numbers of men and women. The proportion
of women in senior management is slightly below this ratio
(female senior managers: 41%, male senior managers: 59%).
SDL values applications from disabled or handicapped persons
and our policy is to always consider employment applications
from disabled or handicapped persons where that person can
perform the job requirements.
Where existing employees become disabled, it is the Group’s
policy, wherever practicable to provide continuing employment
under normal terms and conditions and disabled people are
afforded the same training and development opportunities for
personal growth as other employees within the organisation.
Under no circumstance will discrimination due to disability
either direct or implied be tolerated.
22
Annual Report 2015 Corporate Responsibility : People
pupils to graduate from University and use their educational
skills to give back to the community and contribute to Kenya’s
growing economy. As a result of this work 100% of Hatua’s
high school graduates qualified for University with academic
results significantly above the local and national averages. The
dedication of the young people was demonstrated by the fact
that 36% of students ranked in the top 10% of their class.
Food for the Hungry – the SDL Foundation has been working
alongside Food for the Hungry, in Kenya, on a 10 year project
to turnaround the impoverished community of Maisa Bora.
Great strides have been made over the last 2 years with the
village elders and community leaders who have been taking
responsibility for developing income generating projects and
driving attendance at the local schools and improving results.
The Foundation’s funds have been specifically used by the
community to successfully establish small businesses.
Santa Maria Education Fund – this small fund based in
Paraguay and founded by the mother of a Maidenhead
employee, has relied on volunteers to carry out life changing
educational and vocational scholarship support to the
teenagers of impoverished families. The SDL Foundation
funding will enable SMEF to employ its first full time resource
for up to 3 years to concentrate on arranging more teaching
volunteers and establishing industry relationships to create
more employment opportunities enabling the students to
significantly improve their lives and those of their wider families.
SDL Foundation
2015 was another excellent year for the SDL Foundation. It
continued to partner with charities to support projects in
disadvantaged communities across the world, helping them
to become self-sufficient. These aspects are at the heart of the
SDL Foundation as it seeks causes and charities that mirror its
objectives of supporting structural and sustainable projects.
The Foundation enables recipients to better their own and
their family’s future through income generating activities or
educational and vocational training assisting them to achieve
full-time employment and improve their quality of life.
It also continued to put a strong emphasis on employee
engagement and collaborated with SDL’s (CSR) programme
to enhance awareness of the SDL Foundation and increase
employee involvement from SDL’s global offices in CSR activities.
This was demonstrated in May 2015 as the SDL Foundation
celebrated its 5 year anniversary. SDL offices across the globe
participated, held fundraising activities and developed new
ways to get involved with both the SDL Foundation and
charities and initiatives local to the offices.
Projects in 2015 include:
Hatua Likoni – the SDL Foundation’s funding helped Hatua
Likoni to sponsor over 250 children in 2015, 150 in high school
and 100 in university. The students come from disadvantaged
families in an extremely deprived area of Mombasa, Kenya.
Hatua Likoni also provides them with out-of-school mentoring,
such as decision making,
life skills building and career
development, and internship opportunities, which enables the
23
Strategic ReportStrategic Report Corporate Responsibility : People
Employee Engagement
Wherever possible the SDL Foundation seeks to support
projects where SDL employees are able to participate in the
projects as well as organise fundraising events to complement
the funds provided by the SDL Foundation. The following
examples highlight key employee-led endeavours supported
by the SDL Foundation:
•
•
•
The SDL Foundation renewed its partnership with the
Prince’s Trust by providing funding for a further 4 years. SDL
employees in the UK have embraced this charity by using
their skill sets and life experience to help underprivileged
teenagers to move into vocational positions and the
employment market. In 2015, 28 volunteers carried out
11 CV and Interview Skills workshops and their great work
earned SDL a runner up award in the Volunteering category
for the Prince’s Trust 2015 Corporate Awards;
The SDL Foundation’s collaboration with BeadforLife,
initiated by the office in Colorado, has been extended
into funding for the Beads to Business training programme
which helps women to set up small local businesses over
and above bead manufacturing. It gives them the tools
they need to survive and thrive in their own local economy,
which will help them provide for their families and send
their children to school. In December 2015, 9 SDL offices
took part in a Global Bead Sale, selling handmade beads
made out of colourful recycled paper, to support women
in Uganda. The money raised helps to provide training and
coaching to help the women expand their business and
oxen and ploughs to increase farming income; and
The SDL Foundation continued to work with the St Wilfrid’s
Centre in Sheffield, enabling the homeless to re-establish
themselves and re-join the labour market. The Centre has
benefitted hugely over the past 3 years from the close and
enthusiastic involvement of the local SDL office, through
employees using their skill sets to help members at the
Centre and through a number of innovative fundraising
exercises.
24
Annual Report 2015 Corporate Responsibility
Environment
Measuring and reporting energy efficiency, carbon and greenhouse gases (GHG)
SDL is a software and professional services company and, whilst
our carbon emissions are low compared to some other sectors,
they’re still our biggest environmental impact. Therefore, we
work to improve our environmental impacts across the Group
which result primarily from travel and energy use in buildings.
In 2015, SDL complied with the Energy Savings and
Opportunities Scheme (ESOS). This scheme, mandated in the
UK under an EU Directive, required businesses to measure their
total energy consumption and identify cost-effective savings
opportunities for their UK operations to improve energy
efficiency and profitability. SDL worked with Carbon Clear to
conduct energy efficiency audits and act as its external Lead
Assessor to comply with the requirements of the scheme.
The footprint covers the period of the 12 months ending
31 December 2015 and is presented alongside the data for
the previous year (2014) for comparison. The footprint was
calculated by Carbon Clear Limited using data provided by SDL
and was conducted in line with the ISO-14064-1:2006 standard
for organisational carbon footprinting.
included
Under an operational control approach, all SDL’s operations
in the footprint. Activity data was
have been
collected from SDL’s UK Head office in Maidenhead and five
other major office sites and emissions then uplifted for all of
SDL’s remaining offices based on revenue, giving an emissions
total for SDL’s entire global operations. This has been done in
order to comply with Mandatory Green House Gas Emissions
reporting regulations.
2015 Headline Results
The analysis shows that SDL’s carbon emissions for the six
offices during this period amounted to 4,357 tonnes of CO2e
(Figure 1).
The largest source of emissions was commuting (27%), followed
by business travel (26%) and electricity consumption (25%).
The Maidenhead office accounted for 36% of the six offices’
total emissions. The uplifted total for the global operations is
8,811 tonnes of CO2e.
Year on Year Analysis
When compared with 2014 (Figure 2), the total footprint has
decreased by 14.8% (755 tonnes CO2e). The movement in
emissions year on year is summarised below:
•
Emissions from business travel have decreased significantly
by 18.2% (251 tonnes CO2e). This can be attributed to a
21.9% (290 tonnes CO2e) reduction in air travel (which is
carbon intensive), attributable to sites such as Superior USA
which reduced its air mileage by 47%. This site had a high
Figure 1: Carbon emissions summary by activity for 2015 for six sampled sites
1200
1000
800
600
400
200
0
Commuting
Business
Travel
Electricity
Additional
Upstream
Services
Other
Gas
and Fuels
25
Strategic ReportStrategic Report Corporate Responsibility : Environment
level of air travel during 2014 due to travel requirements to
our off-shore office in Mumbai, India.
Global Footprint
•
•
•
Emissions related to direct electricity consumption have
also decreased by 126.1 tonnes CO2e, or 10.2%. In addition
to this the gas consumption has continued to drop with a
0.7% (0.6 tonnes CO2e) drop this year.
There has been a significant decrease in the emissions from
staff commuting (20.2% reduction, 293 tonnes CO2e). It is
noted that a larger number of responses were received
for 2015. This increase in sample size would increase the
accuracy of commuting calculations.
There has been a significant increase in the area of business
travel by car, with a 133.6% (37.1 tonnes CO2e) increase
in emissions. This increase can be partly attributed to a
reduction in other business travel options.
The results show that GHG emissions in the period were 8,811.4
tonnes of CO2e, comprised of the following;
Scope 1 & 2 – Combustion of fuels & operation of facilities.
• Direct Emissions (Scope 1) were 193.2 tonnes of CO2e or
•
2% of the total.
Indirect Emissions (Scope 2) were 2,238.9 tonnes of CO2e
or 25% of the total.
Scope 3 – Additional Activity Data Reported
• Other, Indirect Emissions (Scope 3) were 6,379.3 tonnes of
CO2e or 72% of the total.
The table on page 27 gives a more detailed breakdown of the
emissions by activity and a year on year analysis.
Figure 2: Carbon emissions year on year comparison (tonnes CO2e)
3000
2500
2000
1500
1000
500
0
Key
2015 tCO2e
2014 tCO2e
Commuting
Business
Travel
Electricity
Additional
Upstream Activities
Other
Natural Gas
and Fuels
Refrigerants
Note: The 2014 footprint has been recalculated with actual and updated data from November and December 2014. Previously for 2014 analysis, only data from
January to October 2014 was provided with extrapolation method used for the remaining two months (November and December). Methodologies have also been
refined and aligned to ensure a like-for-like comparison between reporting periods.
26
Annual Report 2015 Corporate Responsibility : Environment
Types of Emissions
Activity
2014 tonnes CO2e
2015 tonnes CO2e
Gas
Diesel
Direct (Scope 1)
Pool Cars / Company Cars
Refrigerant
Subtotal
Indirect Energy (Scope 2)
Purchased Electricity
Subtotal
Business Travel
Flights
Car (Staff owned)
Other
Commuting
Car
Other
159.0
18.0
177.0
2,371.6
2,371.6
2,650.4
2,553.1
53.3
44.0
2,788.8
2,590.5
198.4
Additional Upstream Activities
1,385.5
Electricity T&D
WTT**
Other
Waste
Water
Deliveries
Stationery
Printed Materials
Postage
Hotel
Subtotal
Indirect Other (Scope 3)
Total Emissions
176.5
1,209.0
457.9
128.1
7.9
113.2
9.2
2.8
0.3
196.6
7,282.7
9,831.3
166.1
0.0
11.3
15.7
193.2
2,238.9
2,238.9
2,279.6
2,096.9
131.0
51.7
2,341.3
2,153.7
187.6
1,268.0
169.3
1,098.7
490.4
47.4
10.0
143.4
8.1
3.2
0.6
277.5
6,379.3
8,811.4
** Well-to-tank (WTT) emissions are those emissions associated with the upstream processes of extracting, refining, and transporting raw fuel to the vehicles, asset or
process under scrutiny
Note: The 2014 footprint has been recalculated with actual and updated data from November and December 2014. Previously for 2014 analysis, only data from January
to October 2014 was provided with extrapolation method used for the remaining two months (November and December). Methodologies have also been refined and
aligned to ensure a like-for-like comparison between reporting periods.
Intensity metrics of SDL’s global operations based on Full Time Employees (FTE):
Year
2015
2014
Tonnes CO2e
Revenue (£m)
Tonnes CO2e/£m
8,811.4
9,831.3
267.0
260.3
33.0
37.8
FTE
3,345
3,425
Tonnes CO2e/FTE
2.6
3.0
This Strategic Report is approved by the Board of Directors and signed on its behalf by
Dominic Lavelle
Director
15 March 2016
27
Strategic ReportStrategic Report Governance
Board of Directors
28
David Clayton
Executive Chairman
Tenure: 6 years (appointed December 2009)
Board Committees: Nomination
David Clayton was appointed Executive Chairman of SDL PLC on 1 October
2015. He previously served as non-executive Chairman of SDL PLC from
July 2013. He joined SDL as a Non-Executive Director in December 2009
and has served as the Senior Independent Director.
After a career in senior executive roles at a number of international
technology companies he joined BZW where, after its merger with CSFB
in 1997, he was Managing Director and Head of European Technology
Research until 2004. David Clayton joined The Sage Group plc Board in
June 2004 as a Non-Executive Director and took up his executive role as
Director of Strategy and Corporate Development from October 2007 to
February 2012.
Dominic Lavelle
Chief Financial Officer
Tenure: 2 years (appointed November 2013)
Board Committees: None
Dominic Lavelle is a qualified Chartered Accountant who joined SDL in
November 2013. Previously, Dominic has held CFO roles within a number
of private and publicly traded companies including Mothercare plc, Alfred
McAlpine plc, Allders plc and Oasis plc where his roles have encompassed
commercial, operational and strategic responsibilities.
Chris Batterham
Non-executive director
Tenure: 16 years (appointed October 1999)
Board Committees: None
Chris Batterham is a Chartered Accountant with significant experience in
the business services sector. He was finance director of Unipalm plc, the
first internet company to float on the London Stock Exchange, and, latterly,
Chief Financial Officer of Searchspace Group until 2005. He currently
holds a number of non-executive directorships including NCC Group plc,
Toumaz Holdings Ltd, Iomart plc and is Chairman of Eckoh plc.
Annual Report 2015 Glenn Collinson
Non-Executive Director | independent
Tenure: 1 year (appointed June 2014)
Board Committees: Audit, Nomination and Chairman of Remuneration
In 1998 Glenn Collinson co-founded Cambridge Silicon Radio (CSR plc) as a
start-up project and was a member of the board of directors that managed
the growth of CSR through its listing as a public company in 2004 and up
until 2007, serving first as Marketing Director and then as Sales Director. Prior
to CSR plc, he held positions including Senior Engineer and then Marketing
Manager at Cambridge Consultants Ltd and held positions as a Design
Engineer and Marketing Manager at Texas Instruments. He is a member of
the Institution of Engineering and Technology and holds a B.Sc. in Physics and
a M.Sc. in Electronics from Durham University, as well as a MBA from Cranfield
University. Mr Collinson currently holds other non-executive director positions
within the technology sector.
Mandy Gradden
Non-Executive Director | independent
Tenure: 4 years (appointed January 2012)
Board Committees: Remuneration and Chairman of Audit
Mandy Gradden is an experienced corporate CFO with more than 20
years financial and senior management experience. She is CFO of the
media group Ascential plc which recently floated on the London Stock
Exchange. Previous roles include: CFO of the private-equity owned
Torex, the retail technology firm; CFO at the FTSE 250 business and
technology consultancy, Detica; Director of Corporate Development at
Telewest Communications; and Group Financial Controller at Dalgety. She
began her career at Price Waterhouse, where, in 1992, she qualified as a
Chartered Accountant.
Alan McWalter
Non-Executive Director | Senior independent director
Tenure: 2 years (appointed March 2014)
Board Committees: Audit, Remuneration and Chairman of Nomination
Alan McWalter is currently Chairman of Churchill China plc, and the
Senior Independent Director at Dignity Plc. He is also Chairman of
Belfield Furnishings Ltd. He has previously held Chairmanship and non
executive roles with numerous quoted and private companies. He was an
Executive Director of Marks & Spencer and Kingfisher Group companies
and in his earlier career held both marketing and general management
appointments with Thomson Consumer Electronics and Spillers Foods
having started his career with Unilever.
None of the directors have been accused of, or been reported as, acting in breach of professional conduct by any regulatory or statutory authority.
There have been a number of changes to the Board since last year which are described in the Executive Chairman’s Review (see page 4)
and the Corporate Governance report on pages 30 to 34.
29
GovernanceGovernanceGovernance Corporate Governance Report
Dear Shareholder,
One of my key responsibilities is to lead the Board and ensure that it exercises objective and informed
judgement to create sustainable, long-term shareholder value. This requires having the best team
in place to execute and closely monitor business performance and maintain a framework of prudent
and effective controls to mitigate risk. The Nomination Committee has clear plans for CEO and Non-
Executive succession which are set out below in the report from the Nomination Committee.
The SDL Group is undergoing a significant operational transformation as the Non-Core businesses
are divested. Your Board will continue to ensure the Group has the leadership and insights necessary
to achieve its ambitions.
The Board is committed to ensuring that high standards of governance, values and behaviours are
consistently applied throughout the Group. These elements are critical to business integrity and
maintaining investors’ trust in SDL.
David Clayton
Executive Chairman
30
Annual Report 2015Governance Corporate governance statement
The Board is responsible for overall Group strategy and for the
delivery of that strategy within a strong corporate governance
and corporate responsibility framework. That framework
is described in the following pages. The Board of Directors
is committed to the principles of corporate governance
contained in the UK Corporate Governance Code (‘Code’)
issued by the Financial Reporting Council (‘FRC’) in September
2014 and which is publicly available at www.frc.org.uk. From
January to September 2015, the Company complied with the
provisions of the Code. In October 2015, David Clayton was
appointed as Executive Chairman (an interim role combining
the roles of Chairman and CEO) following the resignation
of Mark Lancaster. This temporary non-compliance is being
addressed by the Board and a short list of candidates for the
vacancy has been drawn up.
The Board has carried out a robust assessment of the principal
risks facing the Group. Throughout the year the Board, via
the Audit and Executive Committees, reviews and evaluates
the major risks faced by the Group and the controls and
mitigation plans in place. The system of internal control and
risk management is reviewed annually. Throughout the year
ending 31 December 2015 and to date, the Group has operated
a system of internal control that provides reasonable assurance
of effective operations covering all controls, including financial
and operational controls and compliance with laws and
regulations. Processes are in place for identifying, evaluating
and managing the principal risks facing the Group.
Leadership
The Board of Directors is responsible for overall Group strategy,
for approving major agreements, transactions and other
financing matters and for monitoring the progress of the
Group against budget. All Directors receive sufficient relevant
Leadership framework
information on financial, business and corporate issues prior to
meetings and there is a formal schedule of matters reserved
for decision by the Board, which includes material asset
acquisitions and disposals, granting and varying authority levels
of the Chairman and the executive directors, determination
and approval of the Group’s objectives, strategy and annual
budget, investment decisions, corporate governance policies
and financial and dividend policies. From January to the end
of September 2015 the Board of Directors consisted of the
Chairman, two Executive Directors and four Non-Executive
Directors. From October 2015 to date one of the Executive
Directors resigned and the Chairman took up the interim role
of Executive Chairman. All the Directors bring to the Company
a broad and valuable range of experience and further details
of this together with additional biographical details are set
out above. There is a strong non-executive representation on
the Board, including the Senior Independent Director, Alan
McWalter. This provides effective balance and challenge.
Board committees
•
•
The Audit Committee, which during the major part of
the year consisted of Mandy Gradden (who chairs the
Committee), Glenn Collinson and Alan McWalter all of
whom are independent Non-Executive Directors. David
Clayton resigned from the Committee on 23 October 2015
on his appointment as Executive Chairman. The Board is
satisfied that all members of the Committee have recent
and relevant financial experience. The Committee meets at
least three times a year. Further information on the work of
the Audit Committee is given below.
The Nomination Committee consists of Alan McWalter (who
chairs the Committee), David Clayton and Glenn Collinson,
ensuring that a majority of the Committee’s members are
independent Non-Executive Directors. Further information
on the work of the Nomination Committee is given below.
Board
Executive
Management
Team
Operating
businesses
Board
Committees
Audit
Nomination
Remuneration
31
GovernanceGovernanceGovernance •
The Remuneration Committee consists of Glenn Collinson
(who chairs the Committee), Mandy Gradden and Alan
McWalter, all of whom are independent Non-Executive
Directors. Further
information on the work of the
Remuneration Committee is given below.
All Board committees operate within defined terms of
reference and sufficient resources are made available to them
to undertake their duties. The terms of reference of the Board
committees are available on the website (www.sdl.com) and
by request from the Company Secretary. The attendance of
individual Directors at the regular meetings of the Board and
its Committees in the year is set out below, with the number
of meetings each was eligible to attend shown in brackets.
Directors who are unable to attend meetings will receive the
papers and any comments will be reported to the relevant
meeting. Directors have attended a number of ad hoc meetings
during the year in addition to the regular Board meetings and
have contributed to discussions outside of the regular meeting
calendar. Directors also attended several strategy meetings
to enable further, more detailed, discussion of the Group’s
position and future development.
Director
Board
David Clayton, Executive Chairman
from 1 October 2015
Chris Batterham, NED
Glenn Collinson, NED
Mandy Gradden, NED
Mark Lancaster, CEO to 1 October 2015
Dominic Lavelle, CFO
Alan McWalter, SID
9(9)
7(9)
9(9)
8(9)
6(6)
9(9)
9(9)
* David Clayton also attended the October meeting by invitation.
Audit
Committee
2(2)*
–
3(3)
3(3)
–
–
3(3)
Nomination
Committee
Remuneration
Committee
3(3)
–
3(3)
–
–
–
3(3)
–
–
7(7)
7(7)
–
–
7(7)
Corporate governance highlights
Board focus during the year
During the year, the Board spent its time considering a wide range of matters.
These included:
•
in-depth operational analysis of key businesses;
• operational reports from business areas;
• budgets and long term plans for the Group;
• financial statements and announcements;
•
•
•
treasury and funding matters
corporate and social responsibility;
legal and governance matters
• board committee feedback
•
•
shareholder feedback and reports from brokers and analysts; and
risk management and controls.
In addition to its regular programme of activities the Board made a number of strategic decisions in the year, which
included:
•
•
•
•
refocused Group strategy towards language-centric activities;
identified non-core businesses for divestment;
reviewed and updated the Group’s remuneration structures to provide greater transparency to shareholders and
ensuring the business can attract the best skills in the market; and
succession planning for senior management.
The Directors are responsible for preparing the Annual Report and Financial Statements and consider that, taken as a
whole, the Annual Report and Financial Statements are fair, balanced and understandable and provide the necessary
information for shareholders to assess the Company’s performance, business model and strategy.
32
Annual Report 2015Governance
Effectiveness and Evaluation
All of the Non-Executive Directors are appointed for fixed
terms. They are kept fully informed of all relevant operational
and strategic issues and bring a strongly independent and
experienced judgement to bear on these issues. Since October
2015 and the appointment of David Clayton as Executive
Chairman, the Non-Executive Directors meet with him, from
time to time, without the presence of the other Executive
Director. Prior to October 2015 the Non-Executive Directors
met with David Clayton in his role as Chairman.
The Board considers that each of the Non-Executive Directors
are independent of the Group and free from any business or
other relationship which could materially interfere with the
exercise of their independent judgement. It was noted that
Chris Batterham has served for more than sixteen years as Non-
Executive Director and under the Code is no longer considered
to be independent. The Nomination Committee has considered
the matter carefully and believes that Chris Batterham continues
to demonstrate the qualities of independence in carrying out
his role, supporting the Board in an objective manner. His
length of service and resulting experience and knowledge
of the Company is of great benefit. Chris Batterham does not
serve on any Board Committees. The Nomination Committee
will keep his independence under review.
The Board, individual directors and the Board’s main committees
are reviewed annually, with this year’s review being externally
facilitated by Lintstock Limited. No issues arose that were
required to be addressed but the Board’s discussion of the
review’s output will help to shape the future development of
the Group’s risk profile.
of the Non-Executive Directors, identifying any development
opportunities or training needs.
Following any appointment to the Board, a tailored induction
is developed which includes a strategic and financial overview
as well as high level introductions to all divisions and functions
of the Group.
On-going development opportunities for all Directors will
be provided, as required. Any training will take account of
individual’s skill sets and be designed to meet the needs of
each Director as well as the collective requirements of the
Board and its Committees.
Re-election
All of the Directors holding office as at 31 December 2015 were
reappointed at the Annual General Meeting on 27 April 2015
and all of them have submitted themselves for re-election at
the forthcoming Annual General Meeting.
Professional Advice
All Directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for
ensuring that board procedures are complied with. Both the
appointment and removal of the Company Secretary are
matters for the Board as a whole.
All Directors are able to take independent professional advice
in the furtherance of their duties whenever it is considered
appropriate to do so and have access to such continuing
professional development opportunities as are identified as
appropriate in the Board appraisal process.
The Non-Executive Directors meet to review the performance
of the Chairman (or Executive Chairman). The performance of
the other Executive Director is appraised by the Chairman (or
Executive Chairman). The Chairman appraises the performance
Composition & Succession
The composition of the Board and its Committees is kept under
review, with the aim of ensuring that there is an appropriate
balance of power and authority between Executive and Non-
Diversity
Balance of Non-Executive Directors : Executive Directors
Executive Chairman
Executive Director
Male : Female
Non-Executive Directors
Length of tenure
0-4 years
6 years
16 years
33
GovernanceGovernanceGovernance Executive Directors and that the Directors collectively possess
the skills and experience necessary to direct the Company and
the Group’s business activities.
The Board is well-placed by the mixture of skills, experience and
knowledge of its Directors to act in the best interests of the
Company and its shareholders.
Relations with shareholders
The Board encourages communication with the Company’s
institutional and private investors.
The Annual General Meeting provides an opportunity for
Directors to report to investors on the Group’s activities, to
answer their questions and receive their views.
investors,
The Chairman, Senior
Independent Director, Committee
Chairs and CFO have a programme of meetings with
institutional
individual shareholder groups and
financial analysts during the course of the year to discuss the
business performance and strategy. Investors’ comments are
communicated to all members of the Board, enabling them to
develop an understanding of the major shareholders’ views of
the Group and these are considered in determining or varying
the Group’s approach to a particular matter.
From time to time, other presentations are made to institutional
investors and analysts to enable them to gain a greater
understanding of important aspects of the Group’s business.
The Chairman, Senior Independent Director and the Chairman
of the Remuneration Committee hold meetings with leading
shareholders to discuss remuneration policies and other
corporate governance matters and the comments received are
reported to the Board and considered by the Remuneration
Committee in determining or varying the Group’s approach to
executive compensation.
The independence of the Directors and whether there are
any potential conflicts of interest are assessed and kept
under review. It was concluded by the Board that all the Non-
Executive Directors were independent, notwithstanding the
case of Chris Batterham (who did not participate in the relevant
discussions) that he had served on the Board for more than nine
years. The Board considered the matter carefully and decided
that Chris Batterham continues to demonstrate the qualities
of independence and judgement in carrying out his role,
supporting the Executive Directors and senior management in
an objective manner.
More than 50% of the Board is made up of independent Non-
Executive Directors.
the Nomination Committee. Ultimately,
There is an established process for external appointments
the
through
appointment of any new Director is a matter for the Board
as a whole. Executive Director appointments are based upon
merit and business need. Non-Executive appointments are
based upon the candidates’ profiles matching those agreed by
the Nomination Committee. In all cases, the Board approves
the appointment only after careful consideration. Succession
planning for the Board has been reviewed and developed
during the year and further detail is provided in the Nomination
Committee report.
The Human Resources department has a wider succession
development plan for senior management roles across the
Group, to prioritise those roles which are likely to require
recruitment within the next five years. This data has been
considered against internally identified individuals, with high
potential and the capability to fulfil those roles as they become
vacant, to ensure that succession requirements can be met.
Internal individuals will be developed for future senior roles
and this will be complemented with external recruitment at
a senior level where necessary, to balance the required skills
and experience of the senior management team and ensure
continuing success in the future.
The letters of appointment of the Non-Executive Directors will
be available for inspection at the Annual General Meeting.
Diversity
Board candidates are considered on merit and against objective
criteria and with due regard for the benefits of diversity on the
Board, including gender.
No fixed quota is applied to decisions regarding recruitment,
rather
the Nomination Committee considers capability
and capacity to commit the necessary time to the role in
its recommendations to the Board. The intention is the
appointment of the most suitably-qualified candidate to
complement and balance the current skills, knowledge and
experience on the Board, seeking to appoint those who will be
best able to help lead the Company in its long-term strategy.
34
Annual Report 2015Governance Audit Committee
Membership in 2015
Mandy Gradden – Chairman
David Clayton – retired from the
committee on 23 October 2015
Alan McWalter
Glenn Collinson
Membership in 2016
Mandy Gradden – Chairman
Alan McWalter
Glenn Collinson
Dear Shareholder,
The year ended 31 December 2015 has seen continuing change, both in the Group’s businesses
and in the environment in which it operates. As a Committee, our responsibility is to ensure that
information published by the Group properly presents its activities to stakeholders in a changing
landscape, as well as overseeing the effective delivery of both external and internal audit services.
During the year the Committee met three times and its principal activities were as follows:
•
The review of the annual and half-yearly financial statements to ensure these properly present
the Group’s activities in accordance with accounting standards, law, regulations and market
practice. This includes ensuring that the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
¶ A review with management and the external auditors of material areas in which significant
judgements have been applied.
¶ Clarity of the disclosures in the Annual Report concerning one-off items including goodwill
impairment.
• A review of the impact of functional and presentational currencies used by the Group.
• A review of the effectiveness of the Group’s financial controls and risk management.
• Consideration of the Group’s readiness to address forthcoming accounting changes which will
affect it, principally IFRS 15 and the requirement to provide a viability statement in the Annual
Report.
Looking forward to 2016, the Committee will continue to:
• work with the Board providing advice on the assessment, management and mitigation of the
principal risks facing the Group;
• develop new non-audit fee policies and procedures to ensure the Group remains compliant with
the nature and proportion of non-audit work awarded to the Group’s auditors; and
• ensure the Group is ready to adopt new accounting policies when required e.g. IFRS 15.
Mandy Gradden
Audit Committee Chairman
35
GovernanceGovernanceGovernance
Committee role and responsibilities
The Committee is responsible for:
•
assessing the integrity of the Group’s financial reporting and
satisfying itself that any significant financial judgements
made by management are sound;
• evaluating the effectiveness of the Group’s internal controls,
including internal financial controls;
•
the activities and performance of
scrutinising
the
internal and external auditors, including monitoring their
independence and objectivity; and
• overseeing the adequacy of the Group’s whistleblowing
arrangements.
Membership
All the members of the Committee are independent Non-
Executive Directors, listed below. To preserve the independence
of the Committee, David Clayton stepped down in October
2015 when he took up the interim role of Executive Chairman.
Mandy Gradden has chaired the Committee since July 2013.
She is a Chartered Accountant and currently holds the position
of Group Chief Financial Officer of the media group Ascential
plc. The Board considers that Mandy Gradden has recent and
relevant financial experience, as required by the Code. All of
the Committee members have significant current executive
experience in various industries. This range and depth of
financial and commercial experience enables them to deal
Committee Meeting Date Key Agenda Items
5 March 2015
Annual results
Significant accounting issues,
key judgments & estimates
External auditor’s report
Review of preliminary results
and draft announcement
Draft Annual report
effectively with the matters they are required to address and
to challenge management when necessary. The Company
Secretary is secretary to the Committee.
The Chief Financial Officer, the Executive Chairman/Chief
Executive Officer, the KPMG
lead audit partner, other
representatives from KPMG and other senior management
attend meetings by invitation.
The Committee met three times during the year ended 31
December 2015. Attendance was as follows:
Number of
meetings eligible
to attend
Number of
meetings
attended
Mandy Gradden
- Chairman
David Clayton*
Glenn Collinson
Alan McWalter
3
3
3
3
3
3
3
3
*David Clayton resigned from the Committee on 23 October 2015.
Since the end of the year, the Committee has met once (10
March 2016) and all members attended.
Outside of the formal meetings described here, the Chairman
meets regularly with KPMG, the Chief Financial Officer and
other SDL senior management.
Review of Effectiveness of External Audit
Review of the Internal audit organisation
Non-audit fees
Review of corporate structure
27 July 2015
Interim results
Key Judgments
Significant accounting issues,
key judgments & estimates
External auditor’s interim report
Review of interim preliminary results
and draft announcement
Review of internal audit site visit findings
Annual review of internal controls
Treasury/Foreign exchange review
23 October 2015
External auditor Audit Strategy report
IRFS 15- New Revenue Standard
Group Tax matters review
with management
Internal audit report
10 March 2016
Annual results
Significant accounting issues,
key judgments & estimates
Viability statement review
External auditor’s report
Review of preliminary results
and draft announcement
36
Corporate structure update and
distributable reserves review
Draft Annual report
Non Audit fees
Distributable reserves review
External audit assessment
Annual Report 2015Governance Meetings and Activities in 2015
Only the members of the Committee have the right to
attend Committee meetings, however the Committee invites
the external auditor, KPMG LLP (“KPMG”) to every meeting.
Executive directors, senior members of management and
advisors are invited to attend meetings as appropriate. The
Committee considers that the presence of these attendees does
not influence or restrict the Committee’s open deliberation
of matters or the Committees’ independence, and finds that
their presence has the advantage of enabling the Committee
to raise questions directly of them and, where necessary, to
challenge them about matters under review. If the presence of
any attendee is inappropriate or might compromise discussion,
then the Committee would either not invite the attendee
concerned or request that they not attend part of the meeting.
The Committee regularly meets with KPMG in the absence of
executive management.
The Committee undertakes its duties in accordance with its
terms of reference which were reviewed during the year to
ensure that they remained fit for purpose and in line with best
practice guidelines. The terms of reference are available on the
Company’s website.
As part of the formal annual Board evaluation, the Committee’s
effectiveness was subject to external review in 2015/2016.
Details of the process can be found on page 33. The
Committee’s composition was reviewed and it has been
confirmed that there is sufficient expertise and resource to fulfil
its responsibilities effectively.
The significant judgments considered by the Committee in
relation to the 2015 accounts were:
Impairment of goodwill and intangibles: This is an area
of focus for the Committee given the materiality of the
Group’s goodwill and intangibles balances (£163.1 million
at 31 December 2015 (£202.6 million at 31 December 2014))
compared to the market capitalisation of the Group and the
inherent subjectivity in impairment testing.
In the final quarter of 2015 the Board carried out a strategic
in a
review of the Group’s operations which resulted
restructuring of the business. An impairment of £33.3 million
has been recorded against goodwill. Due to the inherent
uncertainty involved in forecasting and discounting future
cash flows, this was one of the key judgemental areas for
management and of focus for the external auditors.
The judgements in relation to goodwill impairment continue to
relate primarily to the assumptions underlying the calculation
of the value in use of the business, being:
•
•
the achievability of the long-term business plan;
the modelling assumptions underlying the valuation process
including revenue growth rates and discount rates applied.
See notes 9 and 11 “Intangible assets” and “Impairment Testing
of Goodwill” for further detail.
The Committee received detailed reporting from management
and challenged the appropriateness of the assumptions made
including:
•
•
•
the consistent application of management’s methodology;
the achievability of the business plans;
assumptions in relation to growth in the businesses; and
• discount rates.
A separate in-depth review on setting discount rates for
impairment purposes was also conducted in the year. This
remains an area of audit focus and KPMG provided detailed
reporting on these matters to the Committee including
sensitivity analysis.
The adequacy of the Group’s disclosures
in respect of
impairment testing was assessed and evaluated whether
the disclosures properly reflect the risks inherent in the key
assumptions and the requirements of relevant accounting
standards.
Technology Revenue Recognition: There is a key area
of judgment in the timing of this recognition and resulting
deferred revenue on licenced software and related services. This
judgement could materially affect the timing and quantum of
revenue and profit recognised in each period.
An in-depth review of revenue accounting was undertaken
by management and presented to the Committee during
the year. Management outlined the Group’s approach to
revenue recognition, particularly for more complex enterprise
transactions.
The Group has a detailed policy on revenue recognition for
each category of revenue: Services, Licence and Professional
Services. This includes the application of rules relating to the
allocation of fair values between these categories.
is comfortable that management have
The Committee
been appropriately balanced where contract clauses require
judgment and concluded that the timing of recognition
continues to be in line with IFRS requirements.
Internal control and risk management
The Board considers that the Group’s systems provide
information which is adequate to permit the identification
of key risks to its business and the proper assessment and
mitigation of those risks.
A review by the Audit Committee and the Board of the
effectiveness of the Group’s risk management and internal
control systems is monitored on an ongoing basis.
The Committee monitors, reviews and challenges the effective
operation of risk management and control processes, including
the results of audits and reviews undertaken by the Internal
Audit program (see below) on an ongoing basis as part of the
system of risk management and internal control.
The Audit Committee reviewed and challenged management’s
annual review of internal controls in July 2015. As part of this
review, management has reported to the Audit Committee
that it has not identified any weaknesses in controls that
would have a material effect on the Group’s business. The Audit
Committee has reviewed and accepted the processes adopted
by management in this respect and accepted its conclusions.
37
GovernanceGovernanceGovernance Key elements of the Group’s internal financial control framework
and procedures include:
Internal audit program: The Group Finance Director heads up
the internal audit function. Specific business units are selected
for audit of compliance risks and vulnerabilities in consultation
with the Audit Committee. Reports received from this program
summarised the audits undertaken during the period under
review, the key findings of those audits, any recommendations
to address the findings and the progress made by the site on
implementing the recommendations. The Committee agreed
to continue to resource the internal audit function internally.
At the beginning of the year the Committee considered and
approved the site visit program for 2015.
Tax risk reviews: The Committee received and considered
presentations from the management on the Group’s principal
tax risks and how these were managed. The Committee
approved the strategy and focused on potential risks associated
with the failure to deliver the tax strategy.
Foreign exchange review: The Committee received and
considered presentations from management on the Group
currency cash flows and net earnings exposures. The Committee
approved the Group’s foreign exchange policies and procedures.
Operational reviews: regular meetings of the executive team
with the executive directors to review operational aspects of
the business;
•
•
•
Financial reporting: a Group-wide system of financial
reporting, budgeting and cash forecasting and control
through which financial accounts are prepared and
submitted to the Board monthly;
Financial data verification: regular preparation and, when
appropriate, update of profit and cash flow forecasts, to
monitor actual against expected performance;
System reviews and transformation projects: regular
meetings of the Board and Audit Committee at which
financial information is reviewed and business risks are
reported upon and monitored.
Internal Audit
At the October 2015 Committee meeting, the need for and
potential scope of, an independent Internal Audit department
was reviewed. The Committee decided that the current
procedures and escalations on risk, control and governance
from the risk management framework together with the
external auditor, are sufficient assurance and no independent
internal audit
is required at this time. These
function
arrangements will be kept under review.
External Auditors and independence
KPMG have been auditors to the Group since 2010. The
Committee is satisfied with the auditor’s effectiveness and
independence and does not consider it necessary to undergo
a tender process at this time.
The Committee reviews the performance of the external
auditor taking into account their performance of the agreed
audit plan and any amendments, input from management and
responses to questions from the Committee and audit findings
reported to the Committee.
38
The Committee:
• met with key members of the KPMG audit team to discuss
the 2015 audit plan and agree areas of focus.
•
reviewed KPMG reports on the scope of the 2015 audit and
any material issues identified.
• was also briefed by KPMG on material accounting items,
where significant judgement is needed.
The Committee has concluded that the external audit process
operated effectively throughout 2015 and KPMG continue to
prove effective in their role as external auditor.
During the year, the Committee reviewed the processes that the
external auditor has in place to safeguard their independence,
and received a letter from the external auditor confirming that,
in their opinion, they remained independent. The external
auditor is permitted to undertake non-audit services. The
Committee approves all non-audit work greater than £20,000.
Such proposals must be justified and, if appropriate, be subject
to tender. Any ongoing non-audit services provided by the
auditors and the fees incurred are reviewed regularly.
Non-audit services provided by the auditor can, because of their
size or nature, give rise to threats to the auditor's objectivity
and independence. The auditors, however, may be engaged to
provide a non-audit service where:
•
•
•
The skills and experience of the auditor make them the
most suitable supplier of the non-audit service;
There are safeguards in place that eliminate or reduce to an
acceptable level any threat to objectivity and independence
in the conduct of the audit resulting from the provision of
the particular service by the auditor; and
The fees incurred, or to be incurred, for non-audit services
in aggregate (and for any substantial individual service)
relative to the audit fee would not be perceived by a
reasonable and informed third party as giving rise to loss of
independence on the part of the auditor.
In considering whether it was appropriate to engage the auditor
to provide the non-audit service, management considered
the extent of the threats, if any, to the auditor’s objectivity and
independence in the conduct of the audit. In 2015, the Group
has undertaken corporate rationalisation exercises in the United
States, the Netherlands, Belgium and France. In each case,
management considered which advisors were best placed to
provide the most efficient and effective services to the Group. In
the United States and Belgium, the Group considered that KPMG
were the most suitable supplier and that there was no significant
threat to their independence for the provision of these services.
Approval for this work to be awarded to KPMG was sought and
received from the Committee.
The Committee are aware of the EU and UK non-audit fee
restrictions coming into force in July 2016. The Committee
are awaiting the final interpretation of these regulations and
policies and procedures will be updated once this guidance
has been issued.
During the year, the
fees paid to the auditor were
£393,000 (2014: £354,000) for audit services and £621,000
(2014: £351,000) for non-audit services.
Annual Report 2015Governance Nomination Committee
Membership in 2015
Alan McWalter – Chairman
David Clayton
Glenn Collinson
Membership in 2016
Dear Shareholder,
On behalf of the Board, I am pleased to present the Nomination Committee Report for the year
ended 31 December 2015.
2015 was a significant and busy year for the Committee. The main activities of the Committee during
the year included:
• Review of the size and composition of the Board including necessary knowledge and experience.
• Considered succession planning for Directors and senior management.
•
Identified candidates for CEO and a new Non-Executive Director.
• Reviewed the time requirements of Non-Executive Directors.
• Reviewed the results of the Board performance evaluation.
Additional information on the activities of the Committee, including the details of the process
leading to the appointment of the new CEO and the services provided by Norman Broadbent and
Spencer Stuart, executive search agencies, are set out in this report.
There were three meetings held during the year and, after each Committee meeting, I reported to
the Board on the key issues discussed during the meeting. A number of informal discussions were
also held between the Committee members.
The Committee's terms of reference are available on the Company's corporate website www.sdl.com.
Alan McWalter
Nomination Committee Chairman
15 March 2016
39
GovernanceGovernanceGovernance
Role of the Nomination Committee
Principal Activities in 2015
The Committee focused on executive succession planning
following Mark Lancaster’s resignation and discussed this
topic with the Board and the Group HR Director and in
private sessions of the Committee. The Committee set out
the types of skills, attributes and experience required of a
new CEO, which it captured in its briefing to executive search
agency, Spencer Stuart, who identified potential candidates.
Committee members then interviewed candidates for the role
and after careful consultation with all Board members made
a recommendation on the appointment to the Board. The
process is now in its final stages.
Similarly, a search process was conducted for a Non-Executive
Director using the executive search agency, Norman Broadbent,
and this too is in its final stages.
There was a major operational review carried out in late 2015
and a strategy, refocused on core business, was approved
by the Board in January 2016. As part of this review a new
organisational structure was agreed based on three continuing
business units (Language Services, Language Technology and
Global Content Technologies) and, as a consequence, there
were a number of changes in senior management to support
and lead this new structure.
We were delighted to be able to promote two new senior
leaders from within the Group with significant industry relevant
experience and believe they will be pivotal in delivering our
strategy over the medium term.
The Committee
is responsible for considering the size,
structure and composition of the Board, the retirement and
appointment of additional Directors, and making appropriate
recommendations so as to maintain an appropriate balance of
skills and experience on the Board.
The Committee reviews the succession requirements of
the Board and senior management (including the need
for diversity) and makes recommendations to the Board as
appropriate. The table below sets out Committee membership
and meeting attendance.
Membership in 2015
The Committee consists of Alan McWalter (Chairman), David
Clayton and Glenn Collinson.
Only members of the Committee have the right to attend
meetings, however senior management as well as external
advisors may attend all or part of any meeting by invitation as
and when appropriate.
The Company Secretary is secretary to the Committee.
Membership in 2015
Alan McWalter (independent
Non-Executive Director) –
Chairman
David Clayton (Executive
Chairman) Non-Executive
Director up to 1 October 2015
when he took on the role of
Executive Chairman
Glenn Collinson (independent
Non-Executive Director)
March
2015
October
2015
December
2015
✓
✓
✓
✓
✓
✓
✓
✓
✓
Since the end of the year the Committee has met once (March
2016) and all members attended.
40
Annual Report 2015Governance Review of non-executive director
performance
Future plans
In the year ahead the Committee will continue to assess what
enhancements should be made to the Board’s and Committees’
composition and will continue to monitor developments
to ensure the Company remains at the forefront of good
governance practices.
Over the course of 2015, the Chairman held meetings with
the Non-Executive Directors to review their performance
and contribution to the Board. This covered attendance,
preparation for and contribution at meetings, their knowledge
and understanding of the business and any training and
development requirements. Following this review, it was
concluded that each Non-Executive Director continued to
make an effective contribution to the Board.
Diversity
The Committee and the Board have sought to ensure that
appointments are of the best candidates and are based on
merit, with due regard for the benefits of diversity on the Board
(while also meeting the requirements of the Equality Act 2013).
The Company does not currently publish specific diversity
targets but in practice, it has created a balanced Board and
Executive Management Team and continues to work to ensure
this is replicated across the entire business, in particular in
relation to gender diversity.
Further information regarding diversity can be found in the
Corporate Governance Report.
41
GovernanceGovernanceGovernance SDL PLC Year Ended 31 December 2015
Directors’ Remuneration Report
SDL PLC Year Ended 31 December 2015
This report covers the activities of the Remuneration Committee for the year ended 31 December 2015 and sets out
the remuneration policy and remuneration details for Executive and Non-Executive Directors. Below is the Annual
Statement from the Chair of the Remuneration Committee followed by the Remuneration Policy and the Annual Report
on Remuneration.
Our Remuneration Policy, set out on pages 44 to 52, will be put to shareholders for approval in a binding vote at the
AGM on 28 April 2016 at the same time as separate resolutions to approve a new Long Term Incentive Plan and a new
Deferred Share Bonus Plan, under which we intend to make awards from 2016. The Annual Report on Remuneration (set
out on pages 53 to 58) describes how this policy is planned to be implemented for the year ahead, together with details
of remuneration paid in the financial year. This report together with the Annual Statement will be subject to the usual
advisory vote at the 2016 AGM.
Annual statement
Dear Shareholders
I am pleased to present, on behalf of the Board, the Directors’
Remuneration Report for the year ended 31 December 2015,
which summarises the Group’s performance and the resulting
remuneration for the year.
2015 was a year of change in our Executive Board as Mark
Lancaster, founder of the Company in 1992, stepped down
as CEO on 1 October 2015 and ceased employment on 31
October 2015. As we continue our global search for a new CEO
to take the Company into the next phase of its development,
David Clayton has temporarily assumed the role of Executive
(from Non-Executive Chairman) and Dominic
Chairman
Lavelle’s role as Chief Financial Officer has taken on greater
ongoing prominence.
In this interim period, the need for continuity is of paramount
importance and, with this in mind, the Board is pleased that
executive responsibilities are currently being undertaken by
existing Directors.
David Clayton is working in a full-time capacity to ensure this
continuity and to lead the Company during this transition.
To reflect his strong contribution, his salary has been set at
£400,000 p.a. with an annual bonus of 50% on-target and
capped at 62.5% of base salary. Because a new, permanent CEO
is expected to be recruited during the course of the year, he is
not, however, eligible to an award under the Company’s Long
Term Incentive Plan.
Dominic Lavelle’s role has significantly broadened since 1
October 2015 to include additional responsibilities such as
42
leading the restructuring announced on 20 January 2016.
Dominic’s overall importance to the Company at a time of
significant change has increased and the Board is particularly
pleased by the leadership he has shown since the change in
the Executive Board. Reflecting this, his salary was increased to
£310,000 effective from 1 October 2015 (previously £280,000).
His next salary review will be in late 2016, effective from
1 January 2017. Dominic’s maximum annual bonus in 2016
will remain unchanged at 150% of salary and his LTIP award for
2016 will be increased to 125% (previously 100%).
The Committee considers it essential that our executive
reward policy takes account of the Company's complexity
and global presence, that it appropriately rewards our senior
management team and remains fit for purpose in the context
of risk management and recruiting a new CEO. In this regard
it is important that our policy and, in particular, the individual
grant limit in our LTIP gives us sufficient flexibility to attract top
global leaders.
incorporated the views of
Having received and
leading
shareholders and shareholder bodies through an extensive
shareholder consultation process, we will be seeking approval
for a new remuneration policy at the 2016 AGM. The Committee
is conscious of good practice and therefore the structure of pay
will continue to be in line with UK norms and, going forward,
the policy will include additional good practice features such
as bonus deferral, a post-vesting holding period, recovery and
withholding provisions and a share ownership guideline.
Annual Report 2015Governance Remuneration policy and implementation for 2016
The key changes being proposed for Executive Directors are:
Annual bonus:
•
The annual bonus opportunity shall remain unchanged at
150% of salary. Any bonus above 100% of salary will need
to be deferred in shares and subject to a two-year holding
period.
• Greater flexibility will be available on the choice of
performance metrics each year subject to the majority
being on financial objectives. The 2016 metrics will be
revenue, profit before tax, amortisation and one-offs,
personal objectives.
• Recovery and withholding provisions will apply to both the
cash and deferred bonus elements.
Long-Term Incentive Plan:
•
•
•
It is proposed that the individual limit is increased from
150% to 250% of salary for the CEO, whilst retaining the
existing cap of 150% of salary for other Executive Directors.
The CFO will receive an award with a face value of 125% of
salary in 2016.
The Committee will very carefully review the LTIP
performance targets that will be set for each LTIP award, in
light of the increased LTIP award policy limits, to ensure that
they are appropriately stretching. For example, as described
below, the EPS growth targets for the 2016 LTIP award have
been significantly increased in comparison with recent
years’ awards.
• Greater flexibility on the choice of metrics will be introduced
in future years to support the Company’s medium term
strategy, with at least one third on relative TSR, although the
2016 award will continue to use TSR and EPS metrics, with
an equal weighting on each.
•
For the 2016 award, TSR will be measured against the
constituents of the FTSE Small Cap Index (excluding
Investment Trusts) over the period 2016-2018 inclusive, with
no vesting below the median of the index and 100% vesting
at the upper quartile (and above) of the index. Under the
EPS component, nothing will vest if 2018 adjusted EPS is
less than 27p; 25% will vest for 2018 adjusted EPS of 27p
rising up to full vesting for 2018 adjusted EPS of 39p. A post-
vesting holding period of 2 years will be introduced.
• Recovery and withholding provisions will be introduced.
Share ownership:
• A 200% of salary share ownership guideline will be
introduced, where it is expected that Executive Directors
build and maintain a holding of shares to the value of at
least 200% of salary within 5 years of the date of adoption
of the 2016 Remuneration Policy or on appointment where
later.
No change is proposed to Executives’ benefits or pension
arrangements.
Cognisant of investors’ continued focus on executive pay
restraint, the Committee has considered these proposals very
carefully and is well aware of the significant increase to the
LTIP award limit. However, the Committee considers that a
higher long term opportunity is essential, particularly in light
of the international search for a new CEO. When considered
in context of the addition of several best practice features we
believe the revised policy is fair and reasonable.
Performance and Remuneration for 2015
As described in the Strategic report, 2015 was a year of good
progress for our Language Services business with its strong
increase in profitability underpinning a 24.9% year-on-year
increase in overall Group profit before tax, amortisation
and one-offs. However, the performance of the technology
business did not meet expectations and meant that the sales
bookings growth target for the Group was missed.
Because of this, the multiplier on the annual bonus plan based
on sales bookings growth was zero, resulting in zero bonuses
as calculated from the revenue, profitability and sales bookings
growth targets. However, in the case of Dominic Lavelle, his
performance during 2015 was at such a high level that we
decided to exercise the discretion allowed in the policy in
exceptional situations where the calculation of annual bonus
does not reflect individual contribution. Having considered this
matter very carefully, we awarded Dominic a cash bonus for
2015 of £100,000. This bonus was around 23% of his maximum
opportunity or 65% of the cash bonus he received in 2014 and
we felt that this was within the range indicated as acceptable
during the consultation we had with leading shareholders.
The LTIP award in 2013 was assessed against its performance
conditions at the end of 2015. Because the TSR growth over the
3 year performance period was below the reference index, the
award lapsed in full for all recipients.
When Mark Lancaster resigned as CEO on 1 October 2015, the
Company agreed with him the compensation on leaving that
was announced on the Company’s website on 5 October 2015,
and is repeated below on page 55. Reflecting his founder status
and long service with the Company, the Committee treated
Mark as a good leaver for his outstanding LTIP awards. His 2013
award lapsed (as set out above) and, in line with good practice,
his other awards were tested for performance and time pro
rating was applied.
The Committee is satisfied that the incentive outcomes
detailed above are reflective of the Company’s performance.
Shareholders’ views
The Committee has carried out an extensive shareholder
consultation exercise on the proposed arrangements and is
pleased with the constructive feedback and the level of support
received. The Committee continues to take an active interest in
shareholders’ views and looks forward to maintaining an open
and transparent dialogue in the future.
The new policy will be put to a binding shareholder vote,
alongside separate resolutions to approve the new Long Term
Incentive Plan, a deferred share bonus plan and the usual
resolution to approve the Remuneration Report. I hope you will
be able to support our proposals at the 2016 AGM.
Glenn Collinson
Remuneration Committee Chairman
15 March 2016
43
GovernanceGovernanceGovernance Remuneration Policy Report
This part of the Directors' Remuneration Report sets out the
remuneration policy for the Company and has been prepared
in accordance with the Companies Act 2006 and on the basis
described in the Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendments) Regulations
2013 and the UKLA's Listing Rules. The policy has been
developed taking into account the principles of the UK
Corporate Governance Code and the voting guidelines of
major UK institutional investor bodies.
This Remuneration Policy will be put to a binding shareholder
vote at the AGM on 28 April 2016. If the revised Policy is
approved, it will take immediate effect and it is currently
intended that it will apply for the three year period following
approval.
result of the 2015 remuneration review, the key policy changes
being proposed to our remuneration policy for Executive
Directors are:
Annual bonus:
• Any bonus above 100% of salary will need to be deferred in
shares and subject to a two year holding period;
• Greater flexibility on the choice of performance metrics
each year will be introduced subject to the majority being
on financial objectives;
• Recovery and withholding provisions will be introduced
and will apply to both the cash and deferred bonus
elements.
Long-Term Incentive Plan:
Details of how the Company will implement the Policy are
provided in the Annual Report on Remuneration section
starting on page 53.
•
The individual limit is increased from 150% to 250% of
salary for the CEO, whilst retaining the existing cap of 150%
of salary for other executive directors;
Remuneration Policy objectives and
proposed changes
The objective of the remuneration policy is to provide
remuneration packages to each Executive Director that will:
• Align rewards with the interests of shareholders;
• Motivate and encourage superior performance;
• Allow the Group to retain the talent needed to execute its
business strategy;
•
•
Enable the Group to be competitive when recruiting
appropriately skilled and experienced management; and
Ensure that the overall package for each Director is linked to
strategic objectives of the Group.
The Committee is conscious of good UK governance and
practice and therefore believes the structure of pay should
include some additional features of market best practice. As a
• Greater flexibility on the choice of metrics each year will
be introduced to support the Company’s medium term
strategy, with at least one third on relative TSR;
• A post-vesting holding period of 2 years will be introduced;
• Recovery and withholding provisions will be introduced.
Share ownership:
• A 200% of salary share ownership guideline will be
introduced, where it is expected that Executive Directors
build and maintain a holding of shares to the value of at
least 200% of salary within 5 years of the date of adoption
of the 2016 Remuneration Policy or on appointment where
later.
44
Annual Report 2015Governance The remuneration policy for Directors
Our policy is designed to offer competitive, but not excessive, remuneration structured so that there is a significant weighting
towards performance-based elements. A significant proportion of our variable pay is delivered in shares with deferral and holding
periods being mandatory, and with appropriate recovery and withholding provisions in place to safeguard against overpayments in
the event of certain negative events occurring. The table below provides a full summary of the policy elements for the Company’s
Directors.
Framework used to
assess Performance
The Committee reviews the
salaries of Executive Directors
each year taking due account
of all the factors described
in how the salary policy
operates.
Element
Base salary
Purpose and
link to strategy
Operation
Maximum opportunity
Essential to
recruit and retain
executives of a high
calibre.
Salaries are paid monthly. They are
reviewed annually and normally
fixed for 12 months commencing
1 January.
Reflects an
individual's
experience, role and
performance.
In deciding appropriate levels, the
Committee takes into account:
•
•
•
The role, experience,
responsibility and
performance (individual and
Group);
increases applied to the
broader workforce; and
relevant market information
for similar roles in broadly
similar UK listed companies and
companies of a similar size.
Periodic account of practice in
comparable companies in terms of
size and complexity will be taken
(e.g. comparable technology sector
peers and pan-sector companies of
a broadly similar size).
The Committee considers the
impact of any salary increase on
the total remuneration package
prior to awarding any increases.
There is no prescribed
maximum.
Generally, the Committee is
guided by average increases
across the workforce. However,
higher increases (in percentage
of salary terms) may be
awarded on occasion, for
example (but not limited to):
• where an individual is
promoted or has been
recruited on a below
market rate,
•
in relation to a change
in size, scale or scope
of an individual’s role or
responsibilities or in the
size or complexity of the
business or where salaries
have fallen significantly
below mid-market levels.
n/a
There is no prescribed
maximum as costs may vary
in accordance with market
conditions.
HMRC tax-approved limits will
apply to all employee share
schemes.
Benefits
To provide
competitive
benefits to help
recruit and retain
executives.
Benefits include:
• Car or car allowance
Private medical insurance
•
•
Life assurance
• Health insurance
Executive Directors are also eligible
to participate in the all-employee
HMRC approved share schemes
on the same basis as other
employees.
Any reasonable business related
expenses (including tax thereon)
can be reimbursed if determined
to be a taxable benefit. Relocation
or related expenses may be
offered including tax equalisation
to ensure the executive is no
better or worse off.
Executive Directors may be offered
other benefits if considered
appropriate and reasonable by the
Committee.
45
GovernanceGovernanceGovernance Element
Pension
Annual bonus
Purpose and
link to strategy
To provide
retirement benefits
in line with the
overall Company
policy.
To motivate
executives and
incentivise the
achievement of
annual financial
and/or strategic
business targets.
To ensure further
alignment with
shareholders
through the
retention of
deferred equity.
46
Operation
Maximum opportunity
Framework used to
assess Performance
Directors are eligible to receive
employer contributions to the
Company's pension plan (which is
a defined contribution plan) or a
salary supplement in lieu of pension
benefits or a mixture of both.
Bonus payment is determined by
the Committee after the year end,
based on performance against
targets set prior to the start of
the year. Targets are reviewed
annually.
Bonuses up to 100% of salary will
be payable in cash. Any bonus
earned in excess of 100% of
salary will normally be deferred in
shares. Deferred shares vest after
two years subject to continued
employment but no further
performance targets.
A dividend equivalent provision
allows the Committee to pay
dividend equivalents on deferred
shares (in cash or shares) up to the
date of vesting. This may assume
the reinvestment of dividends on a
cumulative basis.
Bonus payments, including
deferred bonus awards, are subject
to recovery and withholding
provisions in the event of financial
misstatement, error or gross
misconduct.
Participation in the bonus plan,
and all bonus payments, are at the
discretion of the Committee.
12% of salary p.a.
n/a
The maximum award under
the annual bonus scheme is
150% of salary.
Performance metrics are
selected annually based on the
Company's strategic objectives.
The bonus will be based on the
achievement of an appropriate
mix of challenging financial,
strategic or personal targets.
Measures and weightings may
change each year to reflect
any year-on-year changes to
business priorities.
Financial measures will represent
the majority of bonus, with
clearly defined non-financial
targets representing the balance
(if any).
For financial metrics, a sliding
scale of targets is normally set
by the Committee, taking into
account factors such as the
business outlook for the year.
• Nothing is payable for
performance below
a minimum level of
performance.
• Up to 25% of this
part of the bonus is
payable for meeting a
demanding target with
maximum bonus payable
for achieving a more
demanding target.
• Where non-financial
targets operate, it may not
always be practicable to
set targets on a graduated
scale. Where these operate,
not more than 25% will be
payable for achieving the
threshold target.
The metrics, and proportion
of bonus that can be earned
against each metric, will
be disclosed in the Annual
Remuneration Report each
year for the following year.
The calculation of the annual
bonuses from the actual
performance achieved against
each bonus target will be
described retrospectively
each year in the Annual
Remuneration Report.
Annual Report 2015Governance Element
Purpose and
link to strategy
Operation
Maximum opportunity
The maximum annual award
that can be made in any given
financial year is 250% of salary
for the Chief Executive Officer
and 150% of salary for other
Executive Directors.
2016 Long-Term
Incentive Plan
Incentivises
selected employees
and Executive
Directors to
achieve successful
execution of
business strategy
over the longer
term.
Provides long-term
retention.
Aligns the interests
of the Executives
and shareholders.
Awards are normally granted
annually in the form of nil cost
options, conditional share
or forfeitable share awards.
Participation and individual award
levels will be determined annually
at the discretion of the Committee
within the policy.
Award levels will be subject to the
individual limit and will take into
account matters such as market
practice, overall remuneration, the
performance of the Company and
the Executive being granted the
award.
Awards normally vest after three
years subject to the achievement
of stretching performance
conditions and continued
employment.
Awards are subject to recovery
and withholding provisions in the
event of financial misstatement,
error or gross misconduct.
A holding period will apply under
which all participants are required
to retain their net of tax vested
awards for two years post vesting.
A dividend equivalent provision
allows the Committee to pay
dividend equivalents, at the
Committee's discretion, on vested
awards (in cash or shares) up to
the point of exercise or sale (but
no later than the expiry of the
holding period). This may assume
the reinvestment of dividends on a
cumulative basis.
Framework used to
assess Performance
A combination of financial
performance (amongst EPS
growth, EBITDA to cash
conversion, cash flow, return
on invested capital or any
other of the Company’s
Key Performance Indicators
which may change during
the policy window) and
relative total shareholder
return may be used to ensure
that rewards are linked
to long-term shareholder
value creation. The financial
metrics chosen from the
above list each year will be
those considered by the
Committee at the time of
each grant to be most likely
to support the Company's
long-term growth strategy.
The use of TSR aligns with
the Company’s focus on
shareholder value creation
and rewards management
for outperformance of sector
peers. At least one third of
an award will be subject to a
relative TSR measure each year.
No part of the award subject
to relative TSR will pay out until
the return is at least equal to
the median of the peer group.
Where EPS growth is used
it will continue to be
based on profit after share
based payment charges to
executives and employees
are deducted.
Performance below the
threshold target will result
in zero vesting for each
performance measure. No
more than 25% of the award
vests for achieving threshold
performance. 100% of the
award vests for maximum
performance. There is no
opportunity to retest.
In determining the target
range for a financial metric,
the Committee ensures it
is challenging by taking
into account current and
anticipated trading conditions,
the long-term business plan
and external expectations.
Performance periods will
normally start from the
beginning of the financial
year in which the award is
made.
See Note 1.
47
GovernanceGovernanceGovernance Element
Purpose and
link to strategy
Operation
Maximum opportunity
Framework used to
assess Performance
Maximum award of 150% of
salary.
Performance period is 3
years.
TSR – must at least match
that of the FTSE 250 index
over the performance period.
EPS – must increase by
at least inflation + 3%
per annum during the
performance period by
reference to the Consumer
Prices Index.
Neither the Non-Executive
Chairman nor the Non-
Executive Directors are
eligible for any performance
related remuneration.
There is no prescribed
maximum, however, any
increase to fees will be
considered in light of the
expected time commitment in
performing the roles, increases
received by the wider
workforce and market rates in
comparable companies.
2011 Long Term
Incentive Plan
To motivate and
incentivise delivery
of sustained
performance linked
to the Company’s
strategy; aligning
Executive Directors’
interests with those
of shareholders.
Non-Executive
Chairman and
Non-Executive
Directors’ fees
To attract and
retain a high quality
Chairman and
experienced Non-
Executive Directors.
The Company will make no future
grants under this plan if this
remuneration policy and the 2016
LTIP are approved by shareholders
at the 2016 AGM.
Awards of share-based incentives
are made annually, vesting over
3 years. Vesting is subject to
comparative Total Shareholder
Return and Earnings per Share
targets. The Remuneration
Committee has discretion to
decide whether and to what
extent targets have been met, and
if an exceptional event occurs that
causes the Committee to consider
that the targets are no longer
appropriate, the Committee may
adjust them.
The Non-Executive Chairman
receives a single fee covering all
his duties. The Non-executive
Directors receive a basic fee
and additional fees payable for
chairing the Audit, Nomination
and Remuneration Committees
and for performing the Senior
Independent Director role.
The Chairman and Non-Executive
Directors shall be entitled to
have reimbursed all expenses
that they reasonably incur in
the performance of their duties,
including those expenses that
have been deemed to be taxable
benefits by HMRC (or equivalent
body). This includes any personal
tax that may become due on
those expenses.
The level of fees of the Non-
Executive Directors reflects
the time commitment and
responsibility of their respective
roles. Their fees are reviewed
from time to time against broadly
similar UK listed companies and
companies of a similar size.
In exceptional circumstances,
additional fees may be payable
to reflect a substantial increase
in time commitment of the Non-
Executive Chairman and Directors.
Share
ownership
guidelines
To align the
interests of
management and
shareholders and
promote a long-
term approach to
performance.
Executive Directors are expected
to build and maintain a holding of
shares to the value of at least 200%
of base salary after five years from
the latter of appointment date or
approval date of this policy.
n/a
n/a
48
Annual Report 2015Governance Notes
1.
2.
In exceptional circumstances, the Committee may in its discretion allow participants to sell, transfer, assign or dispose of some or all of these awards before the end
of the holding period.
The Committee is made aware of pay structures across the wider Group when setting the remuneration policy for Executive Directors. The Committee considers the
general basic salary increase for the broader employee population when determining the annual salary review for the Executive Directors. Overall, the remuneration
policy for the Executive Directors is more heavily weighted towards variable pay than for other employees. This ensures that there is a clear link between the value
created for shareholders and the remuneration received by the Executive Directors given it is the Executive Directors who are considered to have the greatest potential
to influence Company value creation.
3.
For the avoidance of doubt, in approving the Policy Report, authority is given to the Company to honour any commitments entered into with current or former
Directors that have been disclosed previously to shareholders, for example the 2011 Long-Term Incentive Plan approved by Shareholders at the AGM on 20 April 2011.
49
GovernanceGovernanceGovernance Bonus Plan and LTIP discretions
The Committee will operate the annual bonus plan and LTIP
according to their respective rules and in accordance with the
Listing Rules and HMRC rules, where relevant. A copy of the
LTIP rules is available on request from the Company Secretary.
The Committee, consistent with market practice, retains
discretion over a number of areas relating to the operation
and administration of these plans. These include (but are
not limited to) the following (albeit with the level of award is
restricted as set out in the policy table above):
• Who participates in the plans;
•
•
The timing of grant of award and/or payment;
The size of an award and/or a payment;
• Discretion relating to the measurement of performance in
the event of a change of control or reconstruction;
• Determination of a good leaver (in addition to any specified
categories) for incentive plan purposes based on the rules
of each plan and the appropriate treatment chosen;
• Adjustments required in certain circumstances (e.g. rights
issues, corporate restructuring, on a change of control and
special dividends); and
•
The ability to adjust existing performance conditions for
exceptional events, including any M&A activity so that they
can still fulfil their original purpose whilst being no less
stretching.
Remuneration scenarios for Executive
Directors
The Company's policy results in a significant portion of
remuneration received by Executive Directors being dependent
on Company performance. The graph below illustrates how
the total pay opportunities for the Executive Directors for 2016
vary under three performance scenarios: below target, target
and maximum.
s
0
0
0
£
£1400
£1200
£1000
£800
£600
£400
£200
£–
£612
33%
£662
38%
£412
£360
£786
25%
29%
£1,212
32%
38%
100%
67%
62%
100%
46%
30%
Below Target
Target
Chairman
Maximum
Below Target
Maximum
Target
CFO
LTIP
Bonus
Fixed Pay
Assumptions
Below Target:
•
Executive Chairman: comprises fixed pay of 2016 basic
salary and the value of benefits in 2015; he does not
participate in the Company's pension plan.
Maximum:
•
Executive Chairman: comprises fixed pay and assumes
maximum payout of bonus of 62.5% of salary.
• CFO: fixed pay and assumes 150% of salary payout of
bonus and LTI vesting of 125% of salary.
• CFO: fixed pay of 2016 basic salary, the value of benefits
in 2015 and a 12% Company pension contribution.
No account has been taken of any changes in the
Company's share price.
Target:
•
Executive Chairman: comprises fixed pay and assumes
bonus payout of 50% of salary. The Chairman will not
receive any long term incentive awards in 2016.
• CFO: fixed pay and assumes bonus payout of 75% of
maximum and 50% of the LTIP vests (assuming a 125%
of salary grant).
50
Annual Report 2015Governance Recruitment and Promotion policy
The remuneration package for a new director will be established
in accordance with the Company's approved policy subject to
such modifications as are set out below.
Salary levels for Executive Directors will be set in accordance
with the Company's remuneration policy, taking into account
the experience and calibre of the individual and their existing
remuneration package. Where it is appropriate to offer a
lower salary initially, a series of increases to the desired salary
positioning may be made over subsequent years subject to
individual performance and development in the role. Benefits
will generally be provided in line with the approved policy, with
relocation or other related expenses provided for if necessary.
A pension contribution or cash in lieu of up to 12 per cent of
salary may be provided.
The structure of variable pay elements will be in accordance
with the Company's approved policy detailed above. The
maximum variable pay opportunity will be as set out in the
remuneration policy table, being 150% of salary under the
annual bonus plan and awards with a face value of up to 250%
of salary under the LTIP for a CEO role and 150% of salary for
other Executive Directors. Different performance measures
may be set initially for the annual bonus in the year of joining,
taking into account the responsibilities of the individual,
and the point in the financial year that he or she joined the
Board. The bonus will be pro-rated to reflect the proportion of
the financial year served. An LTIP award can be made shortly
following an appointment (assuming the Company is not in a
close period).
In the case of external recruitment, if it is necessary to buy
out incentive pay or benefit arrangements (which would
be forfeited on leaving the previous employer), this may be
provided, taking into account the form (cash or shares), timing
and expected value (i.e. likelihood of meeting any existing
performance criteria) of the remuneration being forfeited.
Replacement share awards, if used, may be granted using
the Company's existing share plans to the extent possible,
although awards may also be granted outside of these
schemes if necessary and as permitted under the LSE Listing
Rules. The aim of any such award would be to ensure that, as
far as possible, the expected value and structure of the award
will be no more generous than the amount forfeited.
In the case of an internal recruitment, any outstanding variable
pay awarded in relation to the previous role will be allowed
to pay out according to its terms of grant or adjusted as
considered desirable to reflect the new role.
Fees for a new Chairman or Non-Executive Director will be set
in line with the approved policy.
Service contracts and payments for loss of office
The Company's policy is to have service contracts for Executive
Directors that continue indefinitely unless determined by their
notice period. Under the Executive Directors' service contracts
and, in line with the policy for new appointments, no more than
12 months' notice of termination of employment is required by
either party. Service contracts are available for inspection at the
Company's registered office.
All Non-Executive Directors have letters of appointment with
the Company for an initial period of three years, subject to
annual re-appointment at the AGM. Appointments may be
terminated with three months' notice. The appointment letters
for the Chairman and Non-Executive Directors provide that no
compensation is payable on termination, other than accrued
fees and expenses. Letters of appointment are available for
inspection at the Company's registered office.
For the period David Clayton is acting as interim Executive
Chairman, he will be paid a salary and be eligible to participate in
the annual bonus plan (subject to a 62.5% of salary maximum).
He will not receive any pension or awards under the LTIP. He
will receive a car allowance and will remain on a three month
notice period, in line with his letter of appointment.
In accordance with the terms of the UK Corporate Governance
Code all Directors submit themselves for re-election at the
Annual General Meeting each year. Service contracts and
letters of appointment are available for inspection at the
Company's registered office. Details of the service contracts
with all Executive Directors and letters of appointment with
Non–Executive Directors are as follows:
Name
David Clayton
Dominic Lavelle
Chris Batterham
Glenn Collinson
Mandy Gradden
Alan McWalter
Contract date
Notice period
1 July 2013 as (Chairman)
18 November 2013
15 October 1999
1 June 2014
30 January 2012
1 March 2014
3 months
12 months
3 months
3 months
3 months
3 months
51
GovernanceGovernanceGovernance How shareholder views are taken into account
The Remuneration Committee is committed to ensuring an
open dialogue with our shareholders and therefore, where
changes are being made to the remuneration policy or
where there is a material change in the way we operate our
policy, we will consult with major shareholders in advance.
The Remuneration Committee adopted such an approach
in putting together this revised policy by consulting the
Company's largest shareholders and shareholder advisory
bodies beforehand.
In addition, the Committee considers shareholder feedback
received in relation to the AGM each year and guidance from
shareholder representative bodies more generally.
Consideration of employment conditions elsewhere in
the Group
Whilst the Committee does not consult directly with employees
on the Directors’ Remuneration Policy, the Committee does
increases and
receive periodic updates regarding salary
remuneration arrangements across the Group. This is borne
in mind when determining the remuneration policy for the
Executive Directors.
External Non-Executive Director appointments
Executive Directors are permitted to serve as Non-Executive
Directors of other companies where there is no competition
with the Company’s business activities and where these duties
do not interfere with the individual’s ability to perform his
duties for the Company.
For Executive Directors, the Company may, in its absolute
discretion, at any time after notice is served by either party,
terminate a Directors' contract with immediate effect by paying
an amount equal to base salary for the then unexpired period
of notice plus the fair value of contractual benefits subject to
the deduction of tax.
An Executive Director's service contract may be terminated
without notice for certain events such as gross misconduct
or a serious breach of contract. No payment or compensation
beyond salary (and the value of holiday entitlement) accrued
up to the date of termination will be made if such an event
occurs.
There are no special provisions relating to change of control.
The policy on termination is that the Group does not make
payments beyond
the
Committee ensures that there are no unjustified payments for
failure.
its contractual obligations and
Any statutory payments required by law will be made.
Treatment of incentives
illness,
(such as death,
There is no automatic or contractual right to a bonus payment.
At the discretion of the Committee, for certain good leaver
circumstances
injury, disability,
redundancy, retirement, his employing company ceasing to be
a Group Company or the undertaking business or division for
which he or she works being sold out of the Company's Group,
or any other circumstances at the discretion Committee), a
pro rata bonus may become payable at the normal payment
date for the period of employment and based on full year
performance. Should the Committee decide to make a
payment in such circumstances, the rationale would be fully
disclosed in the Annual Report on Remuneration.
The treatment of share-based incentives previously granted
to an Executive Director will be determined based on the plan
rules. The default treatment will be for outstanding awards
to lapse on cessation of employment. However, an executive
will be treated as a 'good leaver' under certain circumstances
such as death, illness, injury, disability, redundancy, retirement,
his employing company ceasing to be a Group Company
or the undertaking business or division for which he or she
works being sold out of the Company's Group, or any other
circumstances at the discretion of the Committee.
Under the Deferred Share Bonus Plan, if treated as a good
leaver, awards will normally vest on the original vesting date
and will not normally be subject to a pro rata reduction (unless
the Committee determines otherwise).
Under the LTIP, if treated as a good leaver, awards will vest
at the normal vesting date subject to the extent to which
performance targets have been achieved. The number of
LTIP awards that would normally vest will be reduced pro-
rata to reflect the proportion of the three year performance
period actually elapsed unless the Committee at its discretion
determines otherwise.
Vested awards that remain subject to a holding period are not
forfeitable.
52
Annual Report 2015Governance Annual Report on Remuneration
This Annual Report on Remuneration (and the Chairman's
Annual Statement) will be put to a single advisory shareholder
vote at the 2016 AGM. The information below includes out how
we intend to operate our revised policy in 2016 and the pay
outcomes in respect of the 2015 financial year. The information
from the single total remuneration figures for Directors on
page 54 has been audited. The remainder is unaudited.
Implementation of Remuneration Policy
in 2016
The Committee carried out a comprehensive review of
executive remuneration in the last quarter of 2015 instigated
by the process of changing our CEO. Whilst we continue the
search for a new CEO, David Clayton will continue to assume
the role of Executive Chairman. The departure of Mark
Lancaster has resulted in Dominic Lavelle’s role as CFO taking
on greater prominence on an ongoing basis and the changes
to his remuneration, as set out below, reflect this.
Subject to approval of the remuneration policy at the 2016
AGM, details of how we will operate the policy in 2016 are
provided below.
Salaries
David Clayton's fee was increased to £400,000 p.a. in October
2015 to reflect his interim executive role. This fee is £100,000 less
than the departing CEO’s salary. In 2016, David will continue to
be paid a fee of £400,000 p.a. until a new CEO is appointed.
Dominic Lavelle has performed very strongly in his role of
CFO since he joined us in November 2013. In the light of this
performance, the broadening of his role to include additional
responsibilities such as the re-alignment of the cost base and
the sale process for non-core assets announced in January
2016 and his overall importance and value to the Company, the
Committee decided to increase Dominic's salary to £310,000
(2015: £280,000) with effect from 1 October 2015. Dominic will
not receive an increase in 2016 and his next salary review will
be effective from 1 January 2017.
Pension and Benefits
The CFO will continue to receive a company pension
contribution of 12% of basic salary. The Executive Chairman will
not receive a pension contribution.
Benefits will be provided in line with the approved remuneration
policy.
Annual bonus
As described in the Policy Report, the maximum bonus
opportunity is capped at 150% of base salary. In accordance
with the new policy, any bonus payable in excess of 100% of
salary will be deferred in shares. The deferred shares will vest
after two years, subject to continued employment.
The metrics and their weightings for the year ending 31
December 2016 are:
Executive Chairman
Profit before tax,
amortisation and
one-offs
Revenue
Personal objectives
30%
30%
40%
CFO
37.5%
37.5%
25%
Profit before tax, amortisation and one-offs is the key financial
performance indicator at SDL and revenue ensures there is a
focus on top line growth.
Nothing will be payable for performance below the threshold
level of performance,.
For the Executive Chairman 15% of salary is payable for
achieving the bonus threshold, 50% of salary is payable for
achieving the bonus target and the maximum of 62.5% of
salary is payable for achieving the stretch levels of performance.
For the CFO 15% of salary is payable for achieving the bonus
threshold, 75% of salary is payable for achieving the bonus
target and the maximum of 150% of salary is payable for
achieving the stretch levels of performance.
The targets themselves are deemed to be commercially sensitive
and have not been disclosed prospectively. However, full
retrospective disclosure of the targets and performance against
them will be provided in next year's remuneration report.
Long-term incentives
The intention is to make awards under the 2016 LTIP to senior
executives in line with policy. The Executive Chairman will not
receive an award and the CFO’s award will be over nil-cost
options with a face value of 125% of salary.
Half of the awards will be subject to EPS growth targets and the
other half subject to a relative Total Shareholder Return measure.
Each element will be assessed independently of the other.
EPS Growth
The awards will vest according to the following schedule:
Adjusted, fully diluted EPS for
FY2018
Proportion of Awards subject
to EPS growth that vest
Less than 27p in 2018.
27p in 2018.
39p or higher
0%
25%
100%
Pro-rata vesting between the threshold and stretch performance
points
53
GovernanceGovernanceGovernance The Committee believes the above range is appropriately
stretching in light of internal and external forecasts.
TSR performance
Proportion of Awards subject
to TSR that vest
Relative TSR targets
The performance condition applying to the other half of
LTIP awards will be based on SDL’s Total Shareholder Return
performance over a measurement period running from 1
January 2016 to 31 December 2018.
The TSR of the Company will be compared to that of the
constituents of the FTSE Small Cap Index (excluding Investment
Trusts) over the performance period, and will vest according to
the following schedule:
Below Median
Median ranking
0%
25%
Upper Quartile ranking or higher
100%
Pro-rata vesting for performance between median and upper
quartile
For the 2016 award, vested awards will be subject to a post-
vesting holding period of two years. This requires Executive
Directors to hold on to the net of tax number of vested awards
for a period of two years following vesting.
Single total remuneration figure for Directors
Information subject to audit.
The following table presents a single total remuneration figure for 2015 for the Executive and Non-Executive Directors.
Fixed Pay
Pay for Performance
Salary
£000’s
Benefits(a)
£000’s
Pension
£000’s
Annual
Bonus(b)
£000’s
LTIP(c)
£000’s
Other(d)
£000’s
Total
Remuneration
£000’s
Chairman / Executive Chairman
David Clayton(e)
Executive Directors
Dominic Lavelle
Mark Lancaster(f )
Non–Executive Directors
Chris Batterham
Joe Campbell
Mandy Gradden
Alan McWalter
Glenn Collinson
John Matthews*
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
152.5
70.0
287.5
280.0
416.7
500.0
40.0
40.0
–
24.0
45.0
45.0
45.0
37.5
45.0
26.3
12.0
30.0
3.0
–
12.7
12.5
32.2
38.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34.5
33.6
53.4
64.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100.0
154.8
–
682.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
591.7
714.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
155.5
70.0
434.7
480.9
1,808.6
1,285.1
40.0
40.0
–
24.0
45.0
45.0
45.0
37.5
45.0
26.3
12.0
30.0
* consultant to the Board throughout 2015.
(a) Taxable benefits for the year included: Car allowance, Private medical insurance, Life assurance and Health insurance.
(b) Discretion was exercised to pay a cash bonus to Dominic Lavelle for his 2015 performance.
(c) See ‘Loss of office payments’ for details of LTIP vesting.
(d) Contractual loss of office payment see ‘Loss of office payments’ for details.
(e) David Clayton’s 2015 fees are split as follows: As Chairman (1 January to 31 September) £49,500; as Executive Chairman (1 October to 31 December) £103,000.
(f )
Mark Lancaster ceased employment on 31 October 2015; up until the date of cessation he received 10 months payment in respect of salary, pension contribution,
taxable benefits and holiday entitlements.
54
Annual Report 2015Governance 2015 annual bonus
The 2015 bonus was based on PBTA and revenue performance. Directors were eligible to an additional over-performance pay-out if
the Group over achieves on its target bookings. No bonus is payable if either of the PBTA or Bookings growth thresholds are not met.
PBTA
Revenue
Bookings growth
Threshold1
£22m
£265m
10%
Target 2
£25m
£290m
14%
Maximum 3
2015 Actual
£30m
£335m
24%
£13.9m
£266.9m
– 4.9%
1 40% of salary payable for threshold PBTA and 0% for threshold Revenue. A bonus multiplier of 0.2 applies for threshold bookings growth performance.
2 50% of salary payable for target PBTA and 50% for target Revenue. A bonus multiplier of 1.0 applies for target bookings growth performance.
3 75% of salary payable for maximum PBTA and 0% for maximum Revenue. A bonus multiplier of 2 applies for maximum (stretch) bookings growth performance.
As bookings growth and PBTA were below threshold, no bonus became payable. However, under the terms of the approved policy,
the Committee has used the discretion available to it in exceptional circumstances and has amended the bonus outcome to reflect
Dominic Lavelle’s exceptional contribution in 2015. In 2015, Dominic demonstrated exceptional performance and undertook
additional responsibilities which later included leading the restructuring that was announced in early 2016. Reflecting this strong
performance together with Dominic’s overall importance to the Company and the leadership he has shown since the change in the
Executive Board, the Committee decided to award Dominic a £100,000 bonus in respect of his exceptional contribution in 2015. The
Committee determined that it was appropriate to use this discretion as permitted under the policy.
David Clayton did not receive a bonus for the part of the year he was acting as interim Executive Chairman.
Outstanding Long-Term Incentive Plan awards
Details of the nil cost option awards, not yet vested and exercised, made under the LTIP are disclosed in the table below:
Director
Award
grant date
Share price
at grant
(pence)
As at
1 Jan 2015
Granted
during year
Lapsed
during year
Vested and
exercised
during year
As at
31 Dec 2015
Earliest date
shares can
be acquired
Latest date
shares can
be acquired
Dominic Lavelle
7 Apr 2014
333.5
83,958
0
17 Apr 2015 444.75
0
62,957
0
0
0
0
83,958
62,957
7 Apr 2017
7 Apr 2024
17 Apr 2018 17 Apr 2025
The 2014 and 2015 awards will vest subject to a relative TSR measured against the FTSE 250 Index and an EPS growth target measured
relative to the Consumer Price Index. The performance period for both awards will be measured over the three financial years ending
31 December 2015, 2016 and 2017 respectively.
•
•
TSR – No part of this award vests if performance is below the Index, 25 per cent vests for achieving performance in line with the
Index, with 100 per cent vesting for performance 2 x the Index performance with straight line vesting in between.
EPS - must increase by at least inflation + 3% per annum during the performance period (with inflation measured by reference
to the Consumer Prices Index).
If one or both of these minimum levels of performance are not achieved the 2015 award will lapse.
The 2015 award granted to Dominic Lavelle was based on 100% of salary grant and had a face value of £280,000.
Directors’ interest in shares
55
GovernanceGovernanceGovernance To align the interests of senior management with those of shareholders further, it is proposed that Executive Directors will be subject
to share ownership guidelines following the approval of this policy. Executive Directors will be required to accumulate a holding
of Ordinary Shares in the Company to the value of 200 per cent of their salary. Until the guideline is met, the Executive is expected
to retain 50 per cent of shares acquired under the Company's share plans (after allowing for tax and national insurance liabilities).
The interests of the Directors in the share capital of SDL PLC at 31 December 2015 are set out below.
Name of director
Owned
LTIP awards
SAYE
Total
% of salary
held under
Shareholding
Policy1
31.12.14
31.12.15
Unvested
Vested
Unvested
Vested
31.12.15
31.12.15
Executive Directors
Dominic Lavelle
David Clayton
30,000
40,000
Non-Executive Directors
30,000
146,915
113,950
Chris Batterham
86,895
100,000
Glenn Collinson
Mandy Gradden
Alan McWalter
Former Director
0
7,500
0
0
7,500
0
Mark Lancaster
1,381,187
1,381,187*
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
176,915
113,950
100,000
0
7,500
0
40%
119%
n/a
n/a
n/a
n/a
n/a
* Mark Lancaster left employment on 31 October 2015 and the closing 2015 value reflects his owned shares upon cessation of employment.
There has been no change in the interests set out above between 31 December 2015 and 15 March 2016.
1 The Directors’ interest guideline was introduced in 2016 and the Committee will review progress against the guideline going forward. Figures
above have been calculated using the share price as at 31 December 2015, 417p.
Loss of office payments
Mark Lancaster stepped down as CEO on 1 October 2015 and
ceased employment on 31 October 2015. He continued to
receive his contractual salary and benefits until his employment
ceased. In line with his contract, Mark received a payment in
lieu of notice, comprising:
• £458,333 in respect of 11 months' salary for the remainder
of his contractual notice period;
• £55,000 in respect of 11 months' pensions contribution for
the remainder of his contractual notice period;
• £35,479 in respect of 11 months' taxable benefits for the
remainder of his contractual notice period;
• £78,335 to settle any claim arising upon the cessation of his
employment; and
• £87,423 in lieu of accrued but not taken holiday entitlement
and expenses incurred.
•
Taking into account the Company's performance from the
commencement of the performance period to the cessation
of his employment, amongst other factors, including Mark's
individual performance discretion was applied to calculate
the vesting of outstanding LTIP awards and then a pro-
rating for the proportion of the performance period served
was applied such that:
¶ 2013 award - all 178,571 unvested awards will lapse
with effect from the cessation of his employment.
¶ 2014 award - the award shall vest as to 103,073
shares out of a total of 224,887 on the cessation of his
employment and the remainder shall lapse.
¶ 2015 award - the award shall vest as to 35,132 shares
out of a total of 168,634 on the cessation of his
employment and the remainder shall lapse.
¶ Under the settlement agreement signed with Mr
Lancaster, he shall be entitled to be treated in a
comparable manner with respect to bonus payments
in respect of the 2015 financial year that are awarded
to other Executive Directors.
56
Annual Report 2015Governance
Relative importance of spend on pay
The following table sets out the percentage change in dividends and overall spend of employee pay in the 2015 financial year
compared with the prior year.
Dividends
Total return to shareholders
Employee remuneration costs
Percentage change in CEO pay
2015
£m
2.5
2.5
145.0
2014
£m
2.0
2.0
141.3
% change
25
25
3
The table above shows the percentage year on year change in the value of salary, benefits and annual bonus for the Chief Executive
between the current and previous year compared to that of the average employee on a full time equivalent basis.
Chief Executive (£000s)
• Salary
• Benefits
• Bonus
Full time equivalent average UK employee (£)(1)
• Salary
• Benefits
• Bonus
2015
2014
% change
*519.7
32.2
0
49.2
1.7
10.0
**500.0
38.6
682.5
47.6
1.2
9.8
+3.9
– 8.8
-100.0
+3.4
+41.7
+1.8
*Mark Lancaster and David Clayton | **Mark Lancaster
(1) There are 515 UK employees at 31 December 2015 (31 December 2014: 506) , of which 26 (2014: 25) were part time.
Performance graph and single figure table
The following graph shows the Company's TSR performance over the last seven financial years against the FTSE 250 Index (excluding
investment trusts) and the FTSE SmallCap Index (excluding investment trusts). These indices have been chosen as they include
companies of a broadly comparable size to SDL PLC.
Total Shareholder Return
400
Source: Thomson Reuters
350
300
250
200
150
100
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
This graph shows the value, by 31 December 2015, of £100 invested in SDL on 31 December 2008 compared with the value of £100
invested in the FTSE 250 Index excluding Investment trusts and FTSE Small Cap Index excluding Investment trusts, on a yearly basis.
SDL
FTSE 250 Ex Investment Trusts
FTSE Small Cap Ex Investment Trusts
57
GovernanceGovernanceGovernance The table below shows the total remuneration figure for the CEO and Executive Chairmen roles over the same seven year period.
The total remuneration figure includes the annual bonus and LTIP awards with performance periods ending in or shortly after the
relevant year ends.
CEO single total figure of
remuneration (£000’s)
Bonus payout (%)
LTIP vesting (%)
2009
914
40
100
2010
954
44
100
2011
1,200
47
100
2012
729
24
71.5
2013
597
0
0
2014
1,285
53
0
2015
1,911
0
12013 = 0%
2014 = 46%
2015 = 21%
1 Vesting percentages of Mark Lancaster’s outstanding LTIP awards at time of resignation.
During the year, Towers Watson provided assistance with
market data and benchmarking executive rewards; advice on
market practice; and reward consultancy. Total fees charged in
the period were £50,248 + VAT and were charged on a time
spent basis.
PricewaterhouseCoopers LLP acted as independent assessors
for testing the vesting criteria (TSR and EPS) of share-based
incentives.
New Bridge Street was appointed by the Remuneration
Committee in 2016 to act as independent advisor to the
Committee and the Committee is satisfied that New Bridge
Street's advice is objective and independent. Advice has been
provided since January 2016 and therefore, no fees were
charged in the 2015 financial period.
Statement of shareholder voting at the AGM (Unaudited)
At
last year's AGM, the Directors' Remuneration Report
(Directors' Remuneration Policy and Annual Report on
Remuneration) received the following votes from shareholders:
Annual Report on Remuneration
For
Against
Abstentions
Total
Total number
of votes
% of
votes cast
52,308,243
15,528,077
1,147,464
68,983,784
77.1%
22.89%
n/a
On behalf of the Board
Glenn Collinson
Chairman of the Remuneration Committee]
15 March 2016
Membership of the Remuneration Committee
The Code requires that a Group of the size of SDL PLC has a
Remuneration Committee comprising a minimum of three
non-executives. The Committee is chaired by Glenn Collinson.
The other Committee members comprise Mandy Gradden and
Alan McWalter.
The Remuneration Committee members have no personal
financial interest, other than as shareholders, in matters to be
decided, no potential conflicts of interests arising from cross
directorships and no day to day involvement in running the
business. The Non-Executive Directors are not eligible for
pensions and do not participate in the Group’s bonus or share
schemes.
The Remuneration Committee determines and agrees with
the Board, within formal terms of reference, the framework and
policy of Directors’ and senior management’s remuneration
and its cost to the Group. The Committee considers the
performance of the Executive Directors as a prelude to
recommending their annual remuneration, bonus awards and
share awards to the Board for final approval.
The Committee met seven times during the year. At those
meetings basic salaries of Executive Directors and senior
managers were reviewed, the targets and quantum of annual
performance related bonuses for Directors were also agreed, as
were awards granted under the Group’s Long-Term Incentive
Plan. The meetings also approved the payment of the 2014
performance related bonus, dealt with the vesting of the
shares awarded in 2012 under the LTIP scheme and agreed
the arrangements for the departing CEO and incoming interim
Executive Chairman. In the last quarter of 2015, the Committee
carried out extensive work in forming a new remuneration
policy for approval by shareholders at the AGM in 2016.
The Committee also receives advice from several sources,
namely:
•
The Executive Chairman who attends the Remuneration
Committee by
invitation or when required and the
Company Secretary, attends meetings when required as
Secretary to the Remuneration Committee. The former
Chief Executive attended the meetings upon invitation. No
Executive Director takes part in discussions relating to their
own remuneration and benefits.
58
Annual Report 2015Governance Director’s Report
Introduction
Powers
The Directors of SDL PLC present their report together with the
audited consolidated financial statements for the year ended
31 December 2015.
The Company
SDL PLC is the ultimate parent company of the SDL Group
which operates internationally. SDL PLC is registered in England
and Wales with the registered number 2675207. The principal
activities of the Group and its subsidiaries are described in the
Strategic report on pages 4 to 27.
Responsibility Statement
As required under the Disclosure and Transparency Rules
(“DTR”), a statement made by the Board regarding the
preparation of the financial statements is set out following
this report which also provides details regarding the disclosure
of information to the Company’s auditor and management’s
report on internal control over financial information.
Going Concern
In line with UK Corporate Governance Code requirements the
Directors have made enquiries concerning the potential of the
business to continue as a going concern.
The Directors’ enquiries included a review of performance in
2015, 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 financial statements.
Corporate Governance Statement
The information required by the DTR can be found in the
Corporate Governance Report on pages 30 to 34.
Strategic Report
The Strategic Report is set out on pages 4 to 27 and is
incorporated into this Directors’ Report by reference.
Directors
Biographies
Biographies of the current Directors of the Company are given
on pages 28 and 29. The table on page 54 shows Directors who
served during the year to 31 December 2015. All those persons
holding office as a Director of the Company will retire and offer
themselves for re-election at the 2016 AGM.
The powers of the Directors are set out in the Company’s
Articles of Association, plus those granted by special resolution
at the AGM dated 27 April 2015 governing shares issuance.
Interests in contracts
As at the date of this report, there is no contract or arrangement
with the Company or any of its subsidiaries that is significant in
relation to the business of the Group as a whole in which a
Director of the Company is materially interested.
Indemnification
The Company has entered into deeds of indemnity with each
of its current Directors to the extent permitted by law and the
Company’s articles of association, in respect of all losses arising
out of, or in connection with, the execution of their powers,
duties and responsibilities, as Directors of the Company or
any of its subsidiaries. These indemnities are Qualifying Third-
Party indemnity provisions as defined in section 234 of the
Companies Act 2006 and copies are available for inspection at
the registered office of the Company during business hours.
Remuneration
Particulars of Directors’ remuneration are shown in the Directors’
Remuneration Report. Details of service contracts and how
a change of control will affect the service contracts of the
Executive Directors are also summarised within the Directors’
Remuneration Report. Executive Directors’ contracts do not
provide for extended notice periods or compensation in the
event of termination or a change of control.
Annual General Meeting
Our 2016 AGM will be held at 9:30am on Thursday 28 April
2016 at DLA Piper UK LLP, 1 London Wall, London EC2Y 5EA. The
notice of the 2016 AGM will be made available to shareholders
and will also be published on the Group website www.sdl.com
/About Us / Investor Relations / AGM.
The Directors consider that all the AGM resolutions are in
the best interests of the Company and they recommend
unanimously that all shareholders vote in favour, as they intend
to do in respect of their own shareholdings.
Results and Dividends
The Group’s Consolidated Income Statement appears on page
68 and note 3 shows the contribution to revenue and profits
made by the different segments of the Group’s business. The
Group’s profit (PBTA) for the year was £20.6 million (2014: £16.5
million). The Directors are recommending that shareholders
declare a final dividend of 3.1 pence per ordinary share in
respect of the year ended 31 December 2015. If approved, the
final dividend will be paid on 3 June 2016 to shareholders on
the Register of Members at close of business on 6 May 2016.
59
GovernanceGovernanceGovernance Employee Share Schemes & The SDL
Employee Benefit Trust (the Trust)
The Company operates a number of employee share schemes.
Under one of those schemes, ordinary shares may be held by
trustees on behalf of employees. Employees are not entitled
to exercise directly any voting or other control rights in respect
of any shares held by such trustees. The trustees may not vote
any shares in which they hold the beneficial interest. However,
where the trustees are holding shares in a nominee capacity,
the trustees must act on any voting instructions received from
the underlying beneficial owner of such shares.
Details of issues and purchases of the Company’s shares made
in the year to 31 December 2015 by the Trust are to be found in
note 19 to the accounts. Since 31 December 2015 no further
shares have been purchased by the Trust to satisfy employee
awards under The SDL Retention Share Plan.
All employees, who meet the necessary service criteria, in
Canada, the Netherlands, the UK and the USA including
Executive Directors may participate in the Company’s UK or
International Sharesave plan.
Employees also hold outstanding share options under
discretionary schemes, see note 19 to the accounts.
All of the Company’s share plans contain provisions relating to
a change of control. Outstanding awards and options would
normally vest and become exercisable on a change of control,
subject to the satisfaction of any performance conditions at
that time.
Share Capital and Control
As at 15 March 2016 the Company’s issued share capital
comprised a single class of ordinary shares. Details of the
structure of the Company's capital and the rights and
obligations attached to those shares are given in note 18 to
the accounts.
Each share carries the right to one vote at general meetings
of the Company and ordinary rights to dividends. The rights
and obligations attached to the shares are more fully set out
in the Articles of Association of the Company. There are no
restrictions on the transfer of securities of the Company other
than the following:
• Certain restrictions may, from time to time, be imposed by
laws and regulations (such as insider trading laws).
• Pursuant to the Listing Rules of the Financial Conduct
Authority, the Company requires certain employees to
seek the Company’s permission to deal in the Company’s
ordinary shares.
The Company is not aware of any agreements between
shareholders that may result in restrictions on the transfer of
shares and/or voting rights. There are no shareholdings which
carry special rights relating to control of the Company.
The agreements between the Company and its Directors
for compensation for loss of office are given in the Directors
Remuneration Report on page 42.
Substantial shareholdings
All persons with a significant holding, along with the value of that holding are given in the table below (share price at 24 February
2016; 430.75 pence)
Holding at
24 February 2016
% of issued
share capital
Value of Holding
(£000)
9,812,216
8,458,653
8,193,636
7,425,006
6,014,121
3,106,476
2,497,965
2,484,945
2,448,600
12.07
10.41
10.08
9.13
7.40
3.82
3.06
3.06
3.01
£42,266
£36,436
£35,294
£31,983
£25,906
£13,381
£10,760
£10,704
£10,547
Artemis Investment Mgt
Aberforth Partners
FIL Investment International
Schroder Investment Mgt
RGM Capital
Majedie Asset Mgt
Baillie Gifford & Co
Old Mutual Global Investors
Pyramis Global Advisors
60
Annual Report 2015Governance Employment policy
Information regarding our employees and their involvement
within the business, including the Company’s policy towards
discrimination and diversity can be found on page 20. Our
employment policies are developed to reflect local legal,
cultural and employment requirements.
Health & Safety
The Chief Financial Officer has ultimate responsibility for Health
and Safety. Specific tasks are delegated to local office managers
and suitably trained individuals within the organisation.
The Group recognises and accepts its responsibility as an
employer to provide safe and healthy working conditions for
all its employees. The Company commits to maintaining a
safe working office environment complying with relevant local
legislation and providing training where appropriate in matters
of health and safety.
information (namely, information needed by the Company’s
auditor in connection with the preparation of their auditor's
report) of which the auditor is unaware. Each Director has taken
all the steps a director might reasonably be expected to have
taken to be aware of relevant audit information and to establish
that the company’s auditor is aware of that information.
Information presented in other sections
of the Annual Report
Other information which is required to be included in a
Directors’ Report can be found in other sections of the Annual
Report, as described below. All of the information presented in
these sections is incorporated by reference into this Directors’
Report and is deemed to form part of this report.
• Commentary on the likely future developments in the
business of the Group is included in the Strategic Report.
• A description of the Group’s financial risk management
and its exposure to risks arising are set out in note 23 to
the accounts.
SDL’s policy on Health & Safety includes the following:
• Particulars of events occurring after the balance sheet
•
•
•
•
•
To provide information, training and supervision as is
necessary to ensure health and safety at work;
To provide and maintain safe equipment;
To comply with statutory requirements for health, safety
and welfare in each global office;
To maintain safe and healthy working conditions; and
To review and revise this policy as necessary at regular
intervals.
Contractual Relationships
There are no individual contracts which are considered to be
significant or critical to the overall business of the Group.
Political and Charitable Donations
During the year no political donations were made. A donation
of £213,650 was made to The SDL Foundation.
Internal controls
There has been a process for identifying, evaluating and
managing significant risks throughout the year to 31 December
2015 and up to the date of the approval of the financial
statements for that year. In respect of our financial reporting
process and the process for preparing our consolidated
accounts, management monitors the processes underpinning
the Group’s financial reporting systems through regular
reporting and review. Data for consolidation into the Group’s
financial statements are reviewed by management to ensure
that they reflect a true and fair view of the Group’s results in
compliance with applicable accounting policies.
•
•
date are described in notes 14 and 25 to the accounts and
discussed in the Strategic Report.
Information concerning Directors’ contractual
arrangements and entitlements under share based
remuneration arrangements is given in the Directors’
Remuneration Report .
Information concerning the employment of disabled
persons and the involvement of employees in the business
is given in ‘People’.
• Disclosures concerning greenhouse gas emissions are
contained in the Environment section of the Strategic
report on page 25.
Rule DTR 7.2.1 of the Disclosure and Transparency Rules
requires the Group’s disclosures on Corporate Governance to
be included in the Directors' Report - see pages 30 to 34. The
information in these sections is incorporated by reference into
this Directors’ Report and is deemed to form part of this report.
Rule DTR 4.1.5 of the Disclosure and Transparency Rules
requires that the annual report of a listed company contains a
management report containing certain prescribed information.
This Directors’ Report, including the other sections of the Annual
Report incorporated by reference, comprises a management
report for the Group for the year ended 31 December 2015, for
the purposes of the Disclosure and Transparency Rules.
COMPANY NUMBER
The Company number of SDL PLC is 2675207.
By order of the Board
Disclosure of relevant audit information
So far as the Directors who are in office at the time of the
approval of this report are aware, there is no relevant audit
Dominic Lavelle
Director
15 March 2016
61
GovernanceGovernanceGovernance Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company and the undertakings included in the
consolidation taken as a whole; and
the strategic report
fair review of the
includes a
development and performance of the business and the
position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s
position and performance, business model and strategy.
Dominic Lavelle
Director
15 March 2016
Statement Of Directors’ Responsibilities
in Respect of the Annual Report and the
Financial Statements
The Directors are responsible for preparing the Annual Report
and the group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare group and
parent company financial statements for each financial
year. Under that law they are required to prepare the group
financial statements in accordance with IFRSs as adopted by
the EU and applicable law and have elected to prepare the
parent company financial statements in accordance with UK
Accounting Standards, including FRS 101 Reduced Disclosure
Framework.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the group and parent
company and of their profit or loss for that period. In preparing
each of the group and parent company financial statements,
the Directors are required to:
•
select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
•
•
for the group financial statements, state whether they
have been prepared in accordance with IFRSs as adopted
by the EU;
for the parent company financial statements, state
whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the parent company financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the group
and the parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the group and to prevent and detect fraud and
other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
62
Annual Report 2015Governance Financial Statements
Financial Statement
63
Financial Statements 64
Annual Report 2015Financial Statements Financial Statements
Independent Auditor’s report
to the members of SDL plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements
is unmodified
We have audited the financial statements of SDL plc for the
year ended 31 December 2015 set out on pages 68 to 110. In
our opinion:
•
•
•
•
the financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at 31
December 2015 and of the Group’s loss for the year then
ended;
•
the Group financial statements have been properly
prepared
International Financial
Reporting Standards as adopted by the European Union;
in accordance with
the parent company financial statements have been
properly prepared in accordance with UK Accounting
Standards,
including FRS 101 Reduced Disclosure
Framework; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
Non-Core group of cash generating units. Goodwill and
intangibles are assessed for impairment using a discounted
cash flow model for a value in use (VIU) model. Due to
the
in forecasting and
discounting future cash flows for a VIU model, this is one of
the key judgemental areas that our audit concentrates on.
inherent uncertainty
involved
Our response – We utilised our internal valuation specialists
to assist in this area. Our procedures included testing the
budgeting procedures upon which the forecasts are based
and the principles and integrity of the Group’s discounted
cash flow model. We compared the input assumptions to
externally and internally derived data in considering the
reasonableness of key inputs such as current business
trends and pipeline, market performance, cost inflation,
projected long term economic growth, and discount
rates. In addition, we performed sensitivity analysis which
considered reasonably possible changes in assumptions
and their impact on the valuation and the resulting
impairment charge. Our assessment included consideration
of the potential risk of management bias and consideration
of the historical accuracy of the Directors’ forecasts.
2. Our assessment of risks of material
misstatement
In arriving at our audit opinion above on the financial statements
the risks of material misstatement that had the greatest effect on
our audit were as detailed below. We have performed procedures
over the recognition of deferred tax assets. However, following
increased certainty over the recoverability of deferred tax assets
as a result of changes to the Group’s structure introduced during
the year, we have not assessed this as one of the risks that had
the greatest effect on our audit and, therefore, it is not separately
identified in our report this year.
Impairment of goodwill and intangibles: £163.1m
carrying value and impairment charge £33.3m
(2014:£202.6m carrying value)
Refer to page 37 (Audit Committee statement), page 73
(accounting policy) and pages 86, 89-90 (financial disclosures).
•
The risk – The carrying value of goodwill and intangibles
are a significant part of the net assets of the Group and
are significant compared to the market capitalisation of
the Group. Following a slower than anticipated recovery
of aspects of the Group’s trading in 2015, the Directors are
undertaking a restructuring of the Group’s operations to
focus on its core product offerings. In light of the ongoing
change in the Group’s operations there is an increased
risk and level of judgement around impairment in the
Language Technology, Global Content Technologies and
We compared the sum of the discounted cash flows to the
Group’s market capitalisation by challenging whether the
Group’s assumptions are appropriate in the light of any different
assumptions used by investors.
We also assessed the adequacy of the Group’s disclosures in
respect of impairment testing and whether the disclosures
about the sensitivity of the outcome of the impairment
assessment to changes in key assumptions properly reflect the
risks inherent in the key assumptions and the requirements of
relevant accounting standards.
Technology revenue: £114.1m (2014:£113.6m)
Refer to page 37 (Audit Committee statement), page 74
(accounting policy) and pages 77-79 (financial disclosures).
•
The risk – Technology revenue includes licenced software
and related services in the Language Technology, Global
Content Technologies and Non-Core operating segments.
Technology revenue recognition is considered a significant
audit risk as there is often significant judgement required
in allocating the consideration receivable to each element
of the contract, which requires estimation of the fair value
of the delivered and undelivered elements of the contract.
This judgement could materially affect the timing and
quantum of revenue and profit recognised in each period.
• Our response –Our procedures included inspecting those
contracts contributing the highest levels of licence revenue,
and critically assessing:
65
Financial StatementsFinancial Statements ¶
¶
¶
¶
the appropriateness of the Directors’ judgements in
determining the fair value of each element of the
contract by reference to standalone selling prices,
day rates for consultancy and training, support and
maintenance rates and renewal rates;
the elements of the contract that have been delivered
by obtaining proof of delivery for all delivered elements;
the significance of undelivered elements, such as
professional services outstanding or upgrades or future
changes to products, to determine the potential impact
on revenue recognition; and
the appropriateness and consistent application of the
Group’s accounting policies.
We assessed the collection of receivables for any potential
impact on revenue recognition at the date of delivery, or date
of initial recognition of revenue if later, challenging whether
non-payment indicated that either obligations had not been
fulfilled. We did this by checking whether cash had been
received after the year end in respect of amounts owed to
the Group at the year end, or, where amounts remain unpaid,
we assessed the specific customer circumstances and related
contractual terms.
3. Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a whole was
set at £750,000 (2014: £750,000), determined with reference
to a benchmark of Group loss before taxation normalised
to exclude one-off items disclosed in note 4 of the Annual
Report (a normalised profit of £13.9m), of which it represents
approximately 5% (2014: approximately 6% of Group profit
before tax normalised to exclude one-off items and averaged
over the last three years to reduce the effect of volatility, of
£12.3m). In 2015 it was not considered necessary to use an
average profit measure over a number of years as profits
excluding one-off items are now less volatile year on year.
We reported to the Audit Committee all corrected and
uncorrected
identified misstatements exceeding £40,000
(2014: £40,000), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Of the Group’s 76 (2014: 88) reporting components, we
subjected 9 (2014: 9) to audits for group reporting purposes
and 9 (2014: 7) to specified risk-focused audit procedures. The
latter were not individually significant enough to require an
audit for group reporting purposes, but did present specific
individual risks that needed to be addressed.
The components within the scope of our work accounted for
the following percentages of the Group’s results:
Number of
Components
Group
Revenue
Group Loss
before Tax (1)
Group Total
Assets
Full-scope
Audit
Specified
Risk-focused
procedures(2)
Total (2015)
Total (2014)
9
9
18
16
61%
26%
87%
79%
68%
9%
77%
67%
79%
12%
91%
90%
(1) This is the total profits and losses as a percentage of the total profits
and losses that made up Group loss before tax
(2) Procedures were focused on key areas including revenue, payroll
costs, trade receivables, cash, accruals and provisions as applicable
for each reporting component.
The remaining 13% of total Group revenue, 23% of Group loss
before tax and 9% of total Group assets is represented by 58
reporting components, none of which individually represented
more than 4% of total Group revenue, Group loss before tax
or total Group assets. For these components, we performed
analysis at an aggregated group level to re-examine our
assessment that there were no significant risks of material
misstatement within these.
The Group team instructed component auditors as to the
significant areas to be covered, including the relevant risks
detailed above and the information to be reported back.
The Group team approved the component materialities,
which ranged from £100,000 to £600,000 (2014: £100,000 to
£600,000), having regard to the mix of size and risk profile of
the Group across the components. The work on 14 of the 18
components (6 audits and 8 specified procedures) (2014: 12 of
the 16 components) was performed by component auditors
and the rest by the Group team. The Group team performed
procedures on items excluded from normalised group loss
before tax.
The Group audit team visited ten components in the USA, UK
and Holland (2014: seven components in the UK and the USA).
Telephone conference meetings were also held with these
component auditors and all others that were not physically
visited. At these visits and meetings, the Group audit team
reviewed the audit files and the findings reported to the Group
audit team were discussed in more detail, and any further work
required by the Group audit team was then performed by the
component auditor.
4. Our opinion on other matters
prescribed by the Companies Act 2006
is unmodified
In our opinion:
•
the part of the Directors’ Remuneration report to be
66
Annual Report 2015Financial Statements Under the Listing Rules we are required to review:
•
•
the Directors’ statements, set out on page 59, in relation to
going concern and longer-term viability; and
the part of the Corporate Governance Statement on pages
31 to 34 relating to the company’s compliance with the
eleven provisions of the 2014 UK Corporate Governance
Code specified for our review.
We have nothing to report
responsibilities.
in respect of the above
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 62, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. A description of
the scope of an audit of financial statements is provided on
the Financial Reporting Council’s website at www.frc.org.uk/
auditscopeukprivate . This report is made solely to the company’s
members as a body and is subject to important explanations
and disclaimers regarding our responsibilities, published on
our website at www.kpmg.com/uk/auditscopeukco2014a,
which are incorporated into this report as if set out in full and
should be read to provide an understanding of the purpose of
this report, the work we have undertaken and the basis of our
opinions.
Simon Haydn-Jones (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
15 March 2016
audited has been properly prepared in accordance with the
Companies Act 2006; and
•
the information given in the Strategic Report and the
Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
5. We have nothing to report on the
disclosures of principal risks
Based on the knowledge we acquired during our audit, we
have nothing material to add or draw attention to in relation to:
•
•
the Directors’ Viability Statement on page 15, concerning
the principal risks, their management, and, based on that,
the Directors’ assessment and expectations of the Group’s
continuing in operation over the three years to December
2018; or
the disclosures in note 2 of the financial statements
concerning the use of the going concern basis of
accounting.
6. We have nothing to report in respect of
the matters on which we are required
to report by exception
Under ISAs (UK and Ireland) we are required to report to you
if, based on the knowledge we acquired during our audit, we
have identified other information in the annual report that
contains a material inconsistency with either that knowledge
or the financial statements, a material misstatement of fact, or
that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Group’s position and
performance, business model and strategy; or
•
the Audit Committee report does not appropriately address
matters communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
the parent company financial statements and the part of
the Directors’ Remuneration report to be audited are not
in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
67
Financial StatementsFinancial StatementsFinancial Statements Consolidated Income Statement
for the year ended 31 December 2015
Notes
3
4
4
4
4
4
4
4
4
5
7
7
2015
£m
50.5
216.4
2014
£m
50.6
209.8
266.9
260.4
(116.9)
(112.9)
150.0
147.5
(175.1)
(137.8)
(25.1)
9.7
20.7
(6.7)
(39.1)
(25.1)
–
16.8
(7.1)
–
9.7
0.1
(0.1)
(0.4)
(25.2)
9.4
20.6
(6.7)
(39.1)
(25.2)
16.5
(7.1)
–
9.4
(5.5)
(2.8)
(30.7)
6.6
(37.93)
(37.93)
8.03
7.97
Sale of goods
Rendering of services
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss/(profit)
Operating profit before tax, amortisation and one-off costs
Amortisation of intangible assets
One-off items
Operating loss/(profit)
Finance income
Finance cost
(Loss)/profit before tax
Profit before tax, amortisation and one-off costs
Amortisation of intangible assets
One-off items
(Loss)/profit before tax
Tax expense
(Loss)/profit for the year attributable to equity holders
of the parent
Earnings per ordinary share – basic (pence)
Earnings per ordinary share – diluted (pence)
Adjusted earnings per ordinary share (basic and diluted) are shown in note 7.
68
Annual Report 2015Financial Statements
Consolidated Statement
of Comprehensive Income
for the year ended 31 December 2015
Loss/(profit) for the period
Currency translation differences on foreign operations
Notes
2015
£m
2014
£m
(30.7)
6.6
(6.3)
(5.3)
Currency translation differences on foreign currency quasi equity loans to foreign subsidiaries
2.5
4.1
Income tax charge on currency translation differences on foreign currency
quasi equity loans to foreign subsidiaries
5
(0.7)
(1.1)
Other comprehensive income
Total comprehensive income
(4.5)
(2.3)
(35.2)
4.3
All the total comprehensive income is attributable to equity holders of the parent Company. Currency translation differences on
foreign operation including quasi equity loans and their related tax impacts may all be reclassified to the Income Statement upon
disposal of that operation.
69
Financial StatementsFinancial StatementsFinancial Statements
Consolidated Statement
of Financial Position
at 31 December 2015
Assets
Non current assets
Property, plant and equipment
Intangible assets
Deferred tax asset
Rent deposits
Current assets
Trade and other receivables
Corporation tax
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Loans and overdraft
Current tax liabilities
Provisions
Non current liabilities
Other payables
Loans and overdraft
Deferred tax liability
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Retained earnings
Foreign exchange differences
Total equity
Approved by the Board of directors on 15 March 2016
D Clayton
Director
70
D Lavelle
Director
Notes
8
9
5
12
13
14
16
17
15
16
5
17
18
2015
£m
6.3
163.1
6.0
1.6
177.0
73.4
2.8
17.2
93.4
2014
£m
7.4
202.6
5.3
1.7
217.0
69.4
2.3
22.1
93.8
270.4
310.8
(81.7)
-
(9.4)
(2.9)
(84.0)
(9.0)
(6.7)
(2.8)
(94.0)
(102.5)
(1.4)
(4.6)
(3.1)
(0.4)
(9.5)
(1.3)
-
(4.4)
(0.5)
(6.2)
(103.5)
(108.7)
166.9
202.1
0.8
98.5
59.6
8.0
0.8
97.9
90.9
12.5
166.9
202.1
Annual Report 2015Financial Statements
Consolidated Statement
of Changes in Equity
for the year ended 31 December 2015
At 1 January 2014
Profit for the period
Other comprehensive income
Total comprehensive income
Arising on share issues*
Share based payments*
At 31 December 2014
At 1 January 2015
Loss for the period
Other comprehensive income
Total comprehensive income
Deferred income taxation on share based
payments* (Note 5)
Arising on share issues*
Dividend paid*
Share based payments*
At 31 December 2015
Share
Capital
£m
0.8
–
–
–
–
–
0.8
Share
Capital
£m
0.8
–
–
–
–
–
–
–
0.8
Share
Premium
Account
£m
97.4
–
–
–
0.5
–
97.9
Share
Premium
Account
£m
97.9
–
–
–
–
0.6
–
–
98.5
Retained
Earnings
£m
83.5
6.6
–
6.6
–
0.8
90.9
Retained
Earnings
£m
90.9
(30.7)
–
(30.7)
0.1
–
(2.0)
1.3
59.6
Foreign
Exchange
Differences
£m
14.8
–
(2.3)
(2.3)
–
–
12.5
Foreign
Exchange
Differences
£m
12.5
–
(4.5)
(4.5)
–
–
–
–
8.0
* These amounts relate to transactions with owners of the Company recognised directly in equity.
The amounts above are all attributable to equity holders of the parent company
Total
£m
196.5
6.6
(2.3)
4.3
0.5
0.8
202.1
Total
£m
202.1
(30.7)
(4.5)
(35.2)
0.1
0.6
(2.0)
1.3
166.9
71
Financial StatementsFinancial StatementsFinancial Statements Consolidated Statement
of Cash Flows
at 31 December 2015
(Loss)/profit before tax
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment losses on intangible assets
Finance income
Finance costs
Share based payments
Increase in trade and other receivables
(Decrease) / increase in trade and other payables
Foreign exchange gains
Cash generated from operations
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Payments to acquire property, plant & equipment
Receipts from sale of property, plant & equipment
Payments to acquire intellectual property and subsidiaries
Interest received
Net cash flows from investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Repayment of capital leases
Interest paid
Net cash flows from financing activities
(Decrease)/increase in cash and cash equivalents
Movement in cash and cash equivalents
Cash and cash equivalents at the start of year
(Decrease)/increase in cash and cash equivalents
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at end of year
72
Notes
8
9
20
2015
£m
(25.2)
3.6
6.7
33.3
-
0.1
1.3
(3.9)
(1.4)
(2.5)
12.0
(5.8)
6.2
(2.7)
0.1
(0.3)
-
(2.9)
0.2
4.6
(9.0)
(2.0)
(0.4)
(0.1)
(6.7)
(3.4)
22.1
(3.4)
(1.5)
17.2
2014
£m
9.4
4.7
7.1
-
(0.1)
0.4
0.8
(2.0)
3.6
(1.7)
22.2
(3.9)
18.3
(2.4)
-
(0.3)
0.1
(2.6)
0.4
-
(11.0)
-
(0.3)
(0.4)
(11.3)
4.4
18.2
4.4
(0.5)
22.1
Annual Report 2015Financial Statements
Notes to the Accounts
for the year ended 31 December 2015
1 Corporate information
The consolidated financial statements of SDL plc (the ‘Group’)
for the year ended 31 December 2015 were authorised for
issue in accordance with a resolution of the directors on 15
March 2016. SDL plc is a public limited company incorporated
and domiciled in England whose shares are publicly traded
on the London Stock Exchange. The consolidated financial
statements of SDL plc and its subsidiaries have been prepared
in accordance with International Financial Reporting Standards
(as adopted by the European Union).
The principal activities of the Group are described in Note 3.
2 Accounting policies
Basis of accounting
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. The
Company has elected to prepare its parent company financial
statements in accordance with FRS 101 and these are presented
on pages 139 to 153. The consolidated financial statements
are prepared on a historical cost basis, except for derivative
financial instruments that have been measured at fair value.
The consolidated financial statements are presented in UK
sterling and all values are rounded to the nearest hundred
thousand except where otherwise indicated.
Going Concern
In line with UK Corporate Governance 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 2015, 2016 annual plans, a review
of working capital including the liquidity position, financial
covenant compliance and a review of current cash levels. As
a result, the Directors 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 financial statements.
Changes in accounting policy
The accounting policies adopted are consistent with those
of the previous financial year. During the year, the Group has
adopted the following new and revised standards:
•
•
Annual Improvements to IFRSs – 2010-2012 Cycle.
Annual Improvements to IFRSs – 2011-2013 Cycle.
The adoption of these standards has had no impact on the
Group’s results and balance sheets in the current or prior years.
Basis of preparation of consolidated
financial statements
The consolidated financial statements include the results of the
Company and all its subsidiaries for the full year or, in the case of
acquisitions, from the date control is transferred to the Group.
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity.
Business combinations
The Group has elected not to apply IFRS 3 retrospectively to
business combinations that took place before the date of 1
January 2004. As a result, goodwill recognised as an asset at
31 December 2003 is recorded at its carrying amount and is
not amortised. The purchase method of accounting is used to
account for the acquisition of subsidiaries by the Group. The
cost of an acquisition is measured as the fair value of the assets,
equity instruments issued and liabilities incurred or assumed at
the date of exchange. Identifiable assets and liabilities acquired
and contingent liabilities assumed in a business combination
are measured initially at their fair values at the acquisition
date, irrespective of the extent of any non-controlling interest.
The excess of the cost of acquisition over the fair value of the
Group’s share of the identifiable net assets acquired is recorded
as goodwill. Transaction costs are expensed as incurred. If the
cost of acquisition is less than the fair value of the net assets
of the subsidiary acquired, the difference is recognised directly
in the income statement. If the business combination allows
for a provision of deferred or contingent consideration, this
will be provided in the accounts at the fair value. Any changes
to the fair value of deferred or contingent consideration are
recognised in profit or loss. If the business combination allows
for deferred compensation this will be recognised in the income
statement over the service period.
Intangible assets: Goodwill
Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses. Goodwill is reviewed for
impairment annually or more frequently if events or changes
in circumstances indicate that the carrying value may be
impaired. As at the acquisition date, any goodwill acquired is
allocated to each of the cash generating units (CGUs) expected
to benefit from the combination’s synergies.
A CGU is the smallest identifiable group of assets that generate
cash inflows that are largely independent of the cash inflows
from other assets. For the purpose of impairment testing, CGUs,
to which goodwill has been allocated, are aggregated so that
the level at which impairment is tested reflects the lowest level
at which goodwill is monitored for internal reporting purposes.
This is usually the relevant operating segment within the Group.
Impairment
is determined by assessing the recoverable
amount of the CGU or group of CGUs, to which the goodwill
relates. Where the recoverable amount of the CGU or group
of CGUs is less than the carrying amount, an impairment loss
is recognised.
73
Financial StatementsFinancial StatementsFinancial Statements Goodwill arising on acquisitions pre 1 January 2004 was
capitalised and amortised over its useful economic life, which
was presumed to be 8 years. Any goodwill remaining on the
balance sheet at 1 January 2004 is not amortised after 1 January
2004, but is also subject to annual impairment reviews.
Intangible assets: Other
Intangible assets acquired separately are capitalised at cost and
from a business acquisition are capitalised at fair value as at the
date of acquisition. Following initial recognition, intangible
assets are held at cost less accumulated amortisation and
provision for impairment. Intangible assets are amortised on a
straight-line basis over their useful economic lives, which are
reassessed annually together with any assessment of residual
value. The useful lives of these intangible assets are assessed
over the expected period that benefits accrue to the Group.
Amortisation is charged as a separate line item on the income
statement.
Customer relationship intangible assets are amortised on a
straight-line basis over their estimated useful life of between
5 and 7 years. Intellectual property assets are amortised on a
straight-line basis over their estimated useful life of between 5
and 10 years.
Intangible assets: Impairment of assets
An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less
costs to sell and its value in use, where value in use is calculated
as the present value of the future cash flows expected to
be derived from the asset. For the purpose of assessing
impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (CGUs).
Property, plant and equipment
Property, plant and equipment are stated at historical cost
less depreciation and any impairment in value. Historical cost
includes the expenditure that is directly attributable to the
acquisition of the assets. All other repairs and maintenance are
charged to the income statement during the financial period in
which they are incurred. Depreciation is provided to write off
the cost less the estimated residual value based on prices at the
balance sheet date of property, plant and equipment over their
estimated useful economic lives as follows:
Leasehold improvements – The lower of ten years or the
lease term straight line
Computer equipment –
4-5 years straight line
Fixtures & fittings –
20% reducing balance
Motor vehicles –
20% reducing balance
Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can
be measured reliably. The following specific recognition criteria
must also be met before revenue is recognised:
•
For multiple element arrangements, revenue is allocated to
each element based on fair value regardless of any separate
prices stated within the contract. The portion of the revenue
allocated to an element is recognised when the revenue
recognition criteria for that element have been met.
• Rendering of services
Revenue on service contracts is recognised only when their
outcomes can be foreseen with reasonable certainty and
is based on the percentage stage of completion of the
contracts, calculated on the basis of costs incurred. Accrued
and deferred revenue arising on contracts is included in
trade receivables as accrued income and in trade and other
payables as deferred income as appropriate.
Support and maintenance contracts are invoiced in advance
and normally run for periods of 12 months with automatic
renewal on the anniversary date. Revenue in respect of
support and maintenance contracts is recognised evenly
over the contract period.
Managed services (hosting) fees are recognised over the
term of the hosting contract on a straight-line basis.
Professional services and consulting revenue, which is
provided on a ‘time and expense’ basis, is recognised as the
service is performed.
For multiple element arrangements, revenue is allocated to
each element based on fair value regardless of any separate
prices stated within the contract. The portion of the revenue
allocated to an element is recognised when the revenue
recognition criteria for that element have been met.
•
Sale of goods
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of the goods.
Revenue on software licenses and upgrades is recognised
on delivery, when there are no significant vendor
obligations remaining and the collection of the resulting
receivable is considered probable. In circumstances where
a considerable future vendor obligation exists as part of a
software licence and related services contract, revenue is
recognised over the period that the obligation exists per
the contract.
Useful economic lives and residual values are assessed annually.
Foreign currencies
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain
or loss arising on derecognising the asset (calculated as the
difference between the net disposal proceeds and the carrying
amount of the item) is included in the income statement in the
year the item is derecognised.
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the rate of exchange ruling at the balance sheet date and
the gains or losses on translation are included in the income
statement. The assets and liabilities of overseas subsidiaries and
branches are translated at the closing exchange rate. Income
statements of such undertakings are translated at the average
rate of exchange during the year. Gains and losses arising on
these translations are recognised in Other Comprehensive
74
Annual Report 2015Financial Statements Income and accumulated in a separate component of equity.
As permitted by IFRS 1, SDL has elected to deem the cumulative
amount of exchange differences arising on translation of the
net investments in subsidiaries at 1 January 2004 to be nil.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction.
Intra-company loans for which settlement is neither planned
nor likely to occur in the foreseeable future are defined as quasi-
equity loans. Currency translation differences on retranslation
of these loans at the balance sheet date are recognised in
the Statement of Comprehensive Income. On disposal, the
associated currency translation differences are reclassified from
equity to profit and loss on disposal of the net investment in
the subsidiary.
Hedge accounting
Where the Group uses derivative financial instruments such as
foreign currency and interest rate contracts to hedge its risks
associated with interest rate and foreign currency fluctuations,
such derivative financial instruments are stated at fair value.
The fair value of forward exchange contracts is calculated
by reference to current forward exchange rates for contracts
with similar maturity profiles. The fair value of interest rate
contracts is determined by reference to market values for
similar instruments. Where derivatives do not qualify for hedge
accounting, any gains or losses arising from changes in fair
value are taken directly to the profit or loss account for the
period.
and payments from these individual personal schemes. SDL
Global Solutions (Ireland) Limited operates a separate defined
contribution scheme whose assets are held separately from
the company. The pension cost charge for both schemes
represents contributions payable during the period.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the
effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects, where
appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
Financial instruments
• Non-derivative financial instruments
Non-derivative financial instruments comprise investments
in equity and debt securities, trade and other receivables,
cash and cash equivalents, loans and borrowings, and trade
and other payables.
•
Trade and other receivables
Trade and other receivables are recognised initially at fair
value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest method, less
any impairment losses.
•
Trade and other payables
Borrowing costs
Borrowing costs are recognised as an expense in the period in
which they are incurred, unless they relate to capitalised assets.
Trade and other payables are recognised initially at fair
value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest method.
Leases
Finance leases, which transfer to the Group substantially all the
risks and benefits incidental to ownership of the leased item,
are capitalised at the inception of the lease at the fair value of
the leased asset or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned between
the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of
the liability. Finance charges are recognised directly within the
Income Statement.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in
the income statement on a straight-line basis over the lease term.
Incentives received from landlord
The aggregate benefit of incentives is recognised as a credit to
the income statement over the life of the lease on a straight-
line basis.
Pension cost
The company contributes to a group personal pension
scheme for qualifying employees whereby it makes defined
contributions to independently administered personal pension
schemes. The company does not control any of the assets or
have any ongoing liabilities with regard to the performance of
• Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. Bank overdrafts that are repayable on demand
and form an integral part of the Group’s cash management
are included as a component of cash and cash equivalents
for the purpose only of the cash flow statement.
•
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated at
amortised cost using the effective interest method, less any
impairment losses.
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the
contract that gives rise to it is settled, sold, cancelled or expires.
Where an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such as exchange
or modification, it is treated as a derecognition of the original
liability and the recognition of the new liability, such that the
difference in the respective carrying amounts together with
any costs or fees incurred are recognised in the profit or loss.
75
Financial StatementsFinancial StatementsFinancial Statements Taxation
The charge for current taxation is based on the results for
the year as adjusted for items which are non-assessable or
disallowed, based on tax rates that are enacted or substantively
enacted at the balance sheet date.
Deferred income tax is provided, using the liability method, on
temporary differences at the balance sheet date between the
tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable
temporary differences except:
• where the deferred income tax liability arises from the initial
recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction,
affects neither the accounting profit or loss nor taxable
profit or loss; and
•
in respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal
of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in
the foreseeable future.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and
unused tax losses can be utilised, except:
• where the deferred income tax asset relating to the
deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction,
affects neither the accounting profit or loss nor taxable
profit or loss; and
•
in respect of deductible temporary differences associated
with investments in subsidiaries, deferred tax assets are
only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the
temporary differences can be utilised.
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred income tax asset
to be utilised.
In the United Kingdom, the Group is entitled to a tax deduction
for amounts treated as remuneration on exercise of certain
employee share options. As explained under ‘Share based
payments’ below, a remuneration expense is recorded in the
consolidated income statement over the period from the grant
date to the vesting date of the relevant options. As there is a
temporary difference between the accounting and tax bases,
a deferred tax asset may be recorded. The deferred tax asset
arising on share option awards is calculated as the estimated
amount of tax deduction to be obtained in the future (based
on the Group’s share price at the balance sheet date) pro-
rated to the extent that the services of the employee have
been rendered over the vesting period. If this amount exceeds
the cumulative amount of the remuneration expense at the
76
statutory rate, the excess is recorded directly in equity, against
retained earnings. Similarly, current tax relief in excess of the
cumulative amount of the remuneration expense at the
statutory rate is also recorded in retained earnings.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset
is realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
balance sheet date.
Income tax relating to items recognised directly in equity is
recognised in equity and not in the income statement.
Revenues, expenses and assets are recognised net of the
amount of VAT except:
• where the VAT incurred on a purchase of goods and services
is not recoverable from the taxation authority, in which case
the VAT is recognised as part of the cost of acquisition of the
asset or as part of the expense item as applicable; and
•
trade receivables and payables are stated with the amount
of VAT included.
The net amount of VAT recoverable from, or payable to, the
taxation authority is included as part of receivables or payables
in the balance sheet.
Share based payments
(including directors) of
Employees
receive
remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or
rights over shares (‘Equity-settled transactions’).
the Group
Equity-settled transactions
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date at which
they are granted and is recognised as an expense over the
vesting period, which ends on the date on which the relevant
employees become fully entitled to the award. Fair value is
determined by using an appropriate option pricing model. In
valuing equity-settled transactions, no account is taken of any
vesting conditions, other than conditions linked to the price of
the shares of the company (market conditions). The volatility in
the models is calculated by reference to historical share price.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, on a cumulative
straight line basis over the term from the date of grant to the
date on which the relevant employees become entitled to the
award (‘vesting date’). The cumulative expense recognised for
equity settled transactions at each reporting date until the
vesting date reflects the number of awards that, in the opinion
of the directors of the Group at that date, are expected to vest.
No expense is recognised for awards that do not ultimately
vest, except for awards where vesting is conditional upon a
market condition, which are treated as vesting irrespective of
whether or not the market condition is satisfied, provided that
all other performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as
a minimum an expense is recognised as if the terms had not
been modified. In addition, an expense is recognised over the
remainder of the vesting period for any increase in the fair value
Annual Report 2015Financial Statements of the transaction as a result of the modification, as measured
at the date of modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense
not yet recognised for the award is recognised immediately.
However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is
granted, the cancelled and new awards are treated as if they
were a modification of the original award, as described in the
previous paragraph.
The Group has taken advantage of the transitional provisions of
IFRS 2 in respect of equity-settled awards and has applied IFRS
2 only to equity-settled awards granted after 7 November 2002
that had not vested at 1 January 2005.
National Insurance on Share Option Grants: The anticipated
National Insurance charge on gains made by employees over
the period from date of grant of the option to the end of the
performance period has been provided for.
Research and development costs
Research costs are expensed as
incurred. Development
expenditure incurred on an individual project is capitalised
when its future recoverability can reasonably be regarded
as assured and technical feasibility and commercial viability
can be demonstrated. Where these criteria are not met the
expenditure is expensed to the income statement. Following
the initial capitalisation of the development expenditure the
cost model is applied, requiring the asset to be carried at
cost less any accumulated amortisation and accumulated
impairment losses. Any expenditure capitalised is amortised
over the period of expected future sales from the related
project. The carrying value of development costs is reviewed
for impairment annually when the asset is not yet in use or
more frequently when an indicator of impairment arises during
the reporting year indicating that the carrying value may not
be recoverable.
Development costs that are subject to amortisation are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable.
One-off items
One-off items are those items that in management judgement
should be disclosed separately by virtue of their size, nature or
incidence to provide a better understanding of the financial
performance of the Group. In determining whether an event
or transaction is one-off, management considers qualitative as
well as quantitative factors such as frequency or predictability
of occurrence. One-off items include significant costs of
restructuring and other costs that are considered to be non-
recurring.
Segment reporting
Segment results that those reported to the Chief Operating
Decision Maker for the purpose of making decisions about
allocating resources to segments and assessing performance.
These results include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis.
New standards and interpretations not applied
The following EU Endorsed IFRSs have been issued but have not
been applied by the Group in these financial statements. Their
adoption is not expected to have a material effect on the financial
statements unless otherwise indicated:
•
•
•
IFRS 9 Financial Instruments (effective date to be confirmed).
IFRS 14 Regulatory Deferral Accounts (effective date to be
confirmed).
IFRS 15 Revenue from Contract with Customers (effective
date to be confirmed). The Group continues to review the
impact of this Standard. Key implementation issues under
review include the acceleration of revenue recognised
on the licence element of term licence contracts and the
deferral of commission payments.
• Accounting for Acquisitions of Interests in Joint Operations
– Amendments to IFRS 11 (effective date to be confirmed).
• Clarification of Acceptable Methods of Depreciation and
Amortisation – Amendments to IAS 16 and IAS 38 (effective
date to be confirmed).
• Agriculture: Bearer Plants – Amendments to IAS 16 and IAS
41 (effective date to be confirmed).
•
•
Equity Method
Amendments to IAS 27 (effective date to be confirmed).
in Separate Financial Statements –
Sale or Contribution of Assets between and Investor and its
Associate or Joint Venture – Amendments to IFRS 10 and
IAS 28 (effective date to be confirmed).
• Annual Improvements to IFRSs – 2012-2014 Cycle (effective
date to be confirmed).
•
Investment entities: Applying the Consolidation Exception
– Amendments to IFRS 10, IFRS 12 and IAS 28 (effective date
to be confirmed).
• Disclosure Initiative – Amendments to IAS 1 (effective date
to be confirmed).
Significant critical accounting judgements, estimates and
assumptions
Judgements
the Group’s consolidated financial
The preparation of
judgements,
statements requires management to make
estimates and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities, and the disclosure
of contingent liabilities, at the end of the reporting period.
However, uncertainty about these estimates and assumptions
could result in outcomes that require a material adjustment to
the carrying amount of the asset or liability affected in future
periods.
In the process of applying the Group’s accounting policies,
management has made the following judgements, which have
the most significant effect on the amounts recognised in the
consolidated financial statements:
Revenue - technology revenue
Technology revenue includes licenced software and related
services. Where software is sold as a perpetual licence, revenue
is typically recognised on delivery. Support and maintenance
and other services generally form part of the contract and the
revenue is recognised as the services are performed. In these
77
Financial StatementsFinancial StatementsFinancial Statements cases often significant judgement is required in allocating
the consideration receivable to each element of the contract,
which requires estimation of the fair value of the delivered and
undelivered elements of the contract. This judgement could
materially affect the timing and quantum of revenue and profit
recognised in each period.
Estimates and assumptions
The key assumptions and estimates concerning the future and
other key sources of estimation uncertainty at the reporting
date, that have significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the next
financial year are discussed below:
Impairment
The determination of whether or not goodwill has been
impaired requires an estimate to be made of the value in
use of the cash generating unit or group of cash generating
units to which goodwill has been allocated. The value in use
calculation includes estimates about the future financial
performance of the cash generating units, management’s
estimates of discount rates, long-term operating margins
and long-term growth rates (note 11). If the results of
the cash generating unit in a future period are materially
adverse to the estimates used for the impairment testing, an
impairment charge may be triggered.
Other estimates and assumptions
Revenue - rendering of services
Management makes estimates of the total costs that will be
incurred by SDL on a contract by contract basis. Management
reviews the estimate of total costs on each contract on an ongoing
basis to ensure that the revenue recognised accurately reflects
the proportion of the work done at the balance sheet date.
Share based payments
The Group measures the cost of equity-settled transactions with
employees by reference to the fair value of the equity instruments
at the date at which they are granted. Estimating fair value for
share-based payment transactions requires determining the
most appropriate valuation model, which is dependent on the
terms and conditions of the grant. This estimate also requires
determining the most appropriate inputs to the valuation
model including the expected life of the share option, volatility
and dividend yield and making assumptions about them. The
assumptions and models used for estimating fair value for share-
based payment transactions are disclosed in Note 19.
Taxes
Uncertainties exist with respect to the
interpretation of
complex tax regulations and the amount and timing of future
taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of
existing contractual agreements, differences arising between
the actual results and the assumptions made, or future changes
to such assumptions, could necessitate future adjustments
to tax income and expense already recorded. Differences of
interpretation may arise on a wide variety of issues depending
on the conditions prevailing in the respective Group company’s
domicile.
Deferred tax assets are recognised for all unused tax losses
to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Management
judgement is required to determine the amount of deferred
tax assets that can be recognised, based upon the likely timing
and the level of future taxable profits together with future tax
planning strategies. Further details on taxes are disclosed in
Note 5.
3 Segment information
The Group operates in the global content management and language translation industries. For management purposes, the
Group is organised into business units based on the nature of their products and services. Following the completion of the Group’s
operational review, the Group has four reportable operating segments as follows:
•
•
•
•
The Language Services segment is the provision of a translation service for customer’s 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 results of the operating segments separately for the purpose of making decisions
about resource allocation and performance assessment prior to charges for tax, amortisation and one-offs.
Following the completion of the Group’s 2015 operational review, the Group has also revisited its internal recharge allocation
methodologies during the year to better reflect how services and costs are consumed by each segment. The impact has been to
recognise additional internal revenue recharges of £3.8 million and to reallocate costs of £1.3 million between Language Services
and Language Technology segments. In accordance with IFRS8, the operating segments and internal recharges for the comparative
period have been restated to provide consistent and meaningful information.
78
Annual Report 2015Financial Statements Year ended
31 December 2015
External
Revenue
Internal
Revenue
Total
Revenue
Shared
Costs
Depreciation
£m
152.8
36.7
50.9
26.5
266.9
£m
–
5.5
–
–
5.5
£m
£m
152.8
42.2
50.9
26.5
272.4
24.0
7.5
11.5
8.5
51.5
£m
1.3
1.3
0.4
0.6
3.6
Language Services
Language Technology
Global Content Technologies
Non Core Businesses
Total
Amortisation & One-off Costs
Profit before taxation
Year ended
31 December 2014 - restated
External
Revenue
Internal
Revenue
Total
Revenue
Shared
Costs
Depreciation
£m
146.8
37.4
51.4
24.8
260.4
£m
–
5.5
–
–
5.5
£m
146.8
42.9
51.4
24.8
265.9
£m
22.6
7.0
10.3
7.2
47.1
Language Services
Language Technology
Global Content Technologies
Non Core Businesses
Total
Amortisation
Profit before taxation
Shared costs represent total central costs which are allocated to segments each year.
Geographical analysis of external revenues by country of domicile is as follows:
UK
USA
Republic of Ireland
Netherlands
Belgium
Germany
Canada
Rest of World
£m
1.6
1.6
0.6
0.9
4.7
2015
£m
69.8
77.4
22.2
20.1
14.8
13.1
12.7
36.8
Segment profit/(loss)
before taxation
and amortisation
£m
30.4
1.3
(1.5)
(9.6)
20.6
(45.8)
(25.2)
Segment profit/(loss)
before taxation
and amortisation
£m
24.1
5.1
(1.5)
(11.2)
16.5
(7.1)
9.4
2014
£m
70.0
72.1
22.1
20.9
17.2
15.2
10.9
32.0
A Geographical analysis of external revenues by destination is provided in the Operational Review on page 16.
Geographical analysis of non-current assets excluding deferred tax is as follows:
266.9
260.4
UK
USA
Rest of World
2015
£m
67.2
55.8
48.0
171.0
2014
£m
84.6
75.3
51.8
211.7
Goodwill and intangibles recognised on consolidation are included in the country which initially acquired the business giving rise
to the recognition of goodwill and intangibles.
79
Financial StatementsFinancial StatementsFinancial Statements 4 Other revenue and expenses
Group operating profit is stated after charging/(crediting):
Included in administrative expenses:
Research and development expenditure
Bad debt charge
Depreciation of property, plant and equipment – owned assets
Depreciation of property, plant and equipment – leased assets
Amortisation of intangible assets
Operating lease rentals for plant and machinery
Operating lease rentals for land and buildings
Net foreign exchange gains
Share based payment charge
2015
£m
26.9
0.2
3.5
0.1
6.7
0.5
6.5
(3.8)
1.5
2014
£m
27.6
0.3
4.5
0.2
7.1
0.5
6.8
(2.2)
1.4
The net foreign exchange gains above arose due to movements in foreign currencies between the time of the original transaction
and the realisation of the cash collection or spend, and the retranslation of foreign currency denominated intra-group balances.
Research and development costs
Management continually review research and development expenditure to assess whether any costs meet the criteria for
capitalisation. There have been no costs capitalised in 2015 (2014: £nil) with the primary criteria for non capitalisation being technical
and commercial feasibility not being achieved until very late in the development cycle for new product releases.
Auditor’s remuneration
Audit of the Group financial statements
Other fees to auditors:
Local statutory audits for subsidiaries
Taxation compliance services
Other services
Staff costs
Wages and salaries
Social security costs
Pension costs (included in administrative expenses)
Expense of share based payments
2015
£m
0.4
0.1
0.3
0.4
2015
£m
123.4
15.5
4.6
1.5
145.0
2014
£m
0.3
0.1
0.2
0.1
2014
£m
120.1
15.5
4.3
1.4
141.3
The Company operates a personal pension scheme for qualifying employees. Other Group companies contribute to defined
contribution type arrangements for their qualifying members. The pension cost charge for the year represents contributions payable
by the group to these schemes and amounted to £4.6 million (2014: £4.3 million).
The average number of employees during the year, including Executive Directors, was made up as follows:
Administration and sales
Production
80
2015
Number
1,276
2,228
3,504
2014
Number
1,201
2,044
3,245
Annual Report 2015Financial Statements
Finance costs
Bank loans
Other interest paid
Finance income
Bank interest receivable
One-off items
Impairment charge
Redundancy and other staff costs
Other one-off items
2015
£m
0.1
–
0.1
2015
£m
–
2015
£m
33.3
3.5
2.3
39.1
2014
£m
0.3
0.1
0.4
2014
£m
0.1
2014
£m
–
0.5
(0.5)
–
One-off items relate to a number of non recurring items that arose during the year.
Following a disappointing trading year in 2015 for the Group’s technology operating segments and the completion of the 2015
operational review, the group has determined that the carrying value of goodwill in its Language Technology and Non-Core
Businesses operating segments were impaired by £33.3 million. Further details are provided in Note 11.
The Group began to right size technology sales, marketing and operations teams in the second half of 2015. These actions, together
with the departure of the Group CEO, to non recurring redundancy costs of £3.0m being incurred in the year. The Group also sought
to retain key employees during this time of change within the organisation and hence retention packages have been provided to
these individuals. The 2015 charge represents the time based cost of these incentive packages in 2015 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
£0.5 million.
Other one-off items relate to professional and related fees associated with the Group’s operational review and corporate
consolidations carried out in 2015 and non recurring indirect tax liabilities. The Group has grown through acquisition over the past
10 years and inherited a complex and costly group structure. Major corporate consolidation projects have occurred in the United
States, the Netherlands, Belgium and France in 2015. Some further costs will be incurred in 2016 associated with the completion of
this simplification exercise.
These have been separately disclosed in the income statement to provide a better guide to underlying business performance.
81
Financial StatementsFinancial StatementsFinancial Statements
5 Income tax
(a) Income tax on profit:
Consolidated income statement
Current taxation
UK Income tax charge
Current tax on income for the period
Adjustments in respect of prior periods
Foreign tax
Current tax on income for the period
Adjustments in respect of prior periods
Total current taxation
Deferred income taxation
Origination and reversal of temporary differences
Total deferred income tax
Tax expense (see (b) below)
Consolidated statement of other comprehensive income
Current taxation
UK Income tax charge
Income tax charge on currency translation differences
on foreign currency quasi equity loans to foreign subsidiaries
Total current taxation
2015
£m
2014
£m
1.9
0.1
2.0
4.9
0.5
5.4
7.4
(1.9)
(1.9)
0.9
0.1
1.0
5.0
(0.1)
4.9
5.9
(3.1)
(3.1)
5.5
2.8
2015
£m
2014
£m
0.7
0.7
1.1
1.1
A tax credit in respect of share based compensation for current taxation of £nil (2014: £nil) has been recognised in the statement of
changes in equity in the year.
A tax debit in respect of share based compensation for deferred taxation of £0.1 million (2014: £nil) has been recognised in the
statement of changes in equity in the year.
(b) Factors affecting tax charge:
The tax assessed on the profit on ordinary activities for the year is higher than the standard rate of income tax in the UK of 20.3%
(2014: 21.5%). The differences are reconciled below:
Consolidated income statement
(Loss) / profit on ordinary activities before tax
(Loss) / profit on ordinary activities at standard rate of tax in the UK 20.3% (2014: 21.5%)
Expenses not deductible for tax purposes
Impairment of goodwill
Adjustments in respect of previous years
Depreciation in excess of capital allowances
Recognition of tax losses brought forward previously not recognised
Utilisation of tax losses brought forward previously not recognised
Current tax losses not available for offset
Effect of overseas tax rates
Other
Tax expense (see (a) above)
82
2015
£m
(25.2)
2014
£m
9.4
(5.1)
1.2
6.7
0.6
0.3
(1.7)
(0.6)
2.6
0.6
0.9
5.5
2.0
0.4
–
0.1
–
(2.1)
(1.6)
3.6
0.3
0.1
2.8
Annual Report 2015Financial Statements
(c) Factors that may affect future tax charges:
The Group may claim a Schedule 23 tax credit in respect of certain share based compensation benefits. Due to the requirements of
IAS 12, in conjunction with IFRS 2, the amount of benefit that can be recognised in the income statement has been restricted in the
current year and may also be restricted in future periods. Any surplus tax credit will be recorded in equity.
There are temporary differences which arise in relation to unremitted earnings of overseas subsidiaries. Since the Group is able to
control dividend distributions from these companies it is unlikely that further UK tax on repatriation of these earnings will be payable
in the foreseeable future. Consequently no deferred tax liability has been provided.
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were
substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015. This will reduce the company’s future current tax charge accordingly.
(d) Deferred income tax:
The amounts recognised and unrecognised for deferred income tax are set out below:
Depreciation in advance of capital allowances
Other short-term temporary differences
Tax losses
Net deferred income tax asset
Recognised
2015
£m
Unrecognised
2015
£m
Recognised
2014
£m
Unrecognised
2014
£m
0.5
(2.3)
4.7
2.9
–
–
35.6
35.6
0.5
(3.5)
3.9
0.9
–
–
34.4
34.4
The Group has unrecognised tax losses in net terms of £35.6 million (2014: £34.4 million) that may be available for use by offset
against future taxable profits in the companies in which the losses arose.
Deferred tax assets have not been recognised in companies where either there is a history of losses or the Group cannot foresee
profitability with sufficient certainty. The unrecognised losses disclosed above excluded the Group’s estimate of time barred losses
which will not be available for offset in future years.
Included within other short term temporary differences are deferred tax assets in respect of potential Schedule 23 tax benefits of
£0.4 million (2014: £0.5 million) and a deferred tax liability in respect of the amortisation of certain intangible assets acquired of £2.9
million (2014: £4.2 million).
The Group has recognised deferred tax assets on losses of £4.7 million (2014: £3.9 million). The amounts recognised are based on the
historical profitability and the forecast future taxable profits of the relevant entities.
At 31 December 2015, the net deferred income tax position is represented by a deferred income tax asset of £6.0 million (2014: £5.3
million) and a deferred income tax liability of £3.1 million (2014: £4.4 million).
(e) Reconciliation of movement on deferred tax liability:
At 1 January
Retranslation of opening balances
Deferred tax liability arising on intangible assets acquired
Reversal of temporary differences arising on the amortisation of intangibles
Other temporary differences arising in the period
Deferred tax liability at 31 December
2015
£m
4.4
–
–
(1.3)
–
3.1
2014
£m
6.0
–
–
(1.4)
(0.2)
4.4
83
Financial StatementsFinancial StatementsFinancial Statements
(f ) Reconciliation of movement on deferred tax asset:
At 1 January
Retranslation of opening balances
Temporary differences arising in the period
Deferred income tax asset arising on share based payments recorded in statement of changes in equity
Other temporary differences arising in the period
Deferred tax asset at 31 December
2015
£m
5.3
0.1
0.7
(0.1)
–
6.0
2014
£m
3.7
0.1
1.5
–
–
5.3
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and to 20% (effective 1 April 2015) were
substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective from 1 April
2020) were substantively enacted on 26 October 2015. This will reduce the company’s future current tax charge accordingly. The
deferred tax asset of £6.0 million (2014: £5.3 million) and liability of £3.1 million at 31 December 2015 (2014: £4.4 million) have been
calculated based on the rate of 20% which was substantively enacted at the balance sheet date or local tax rates as applicable in
overseas territories.
6 Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2014 was 2.5 pence per share.
(Year ended 31 December 2013: Nil)
2015
£m
2.0
2014
£m
–
A final dividend for the year ended 31 December 2015 of 3.1 pence per share will be proposed at the Annual General Meeting and
has not been included as a liability in the financial statements.
7 Earnings per share
The calculation of basic earnings per ordinary share is based on a loss after tax of £30.7 million (2014: profit of £6.6 million) and
81,101,706 (2014: 80,758,772) ordinary shares, being the weighted average number of ordinary shares in issue during the period.
The diluted earnings per ordinary share is calculated by including in the weighted average number of shares the dilutive effect of
potential ordinary shares related to committed share options as described in note 19. For 2015, the diluted ordinary shares were
based on 81,823,905 ordinary shares that included 722,199 potential ordinary shares.
The following reflects the income and share data used in the calculation of adjusted earnings per share computations before one-off items:
(Loss) / profit for the year
One-off costs (including impairment loss)
Amortisation of intangible fixed assets
Less: tax benefit associated with the amortisation of intangible fixed assets
Tax benefit associated with one-off items
Adjusted profit for the year
2015
£m
(30.7)
39.1
6.7
(1.3)
(0.6)
13.2
2014
£m
6.6
–
7.1
(1.4)
–
12.3
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.
84
Annual Report 2015Financial Statements Weighted average number of ordinary shares for basic earnings per share
Effect of dilution resulting from share options
Weighted average number of ordinary shares adjusted for the effect of dilution
Adjusted earnings per ordinary share – basic (pence)
Adjusted earnings per ordinary share – diluted (pence)
2015
No.
2014
No.
81,101,706
80,758,772
722,199
614,620
81,823,905
81,373,392
2015
16.13
15.99
2014
15.10
14.98
There have been no material transactions involving ordinary shares or potential ordinary shares between the reporting date and the
date of completion of the financial statements.
8 Property, plant and equipment
Cost:
At 1 January 2014
Additions
Disposals
Currency adjustment
At 1 January 2015
Additions
Disposals
Currency adjustment
At 31 December 2015
Accumulated depreciation:
At 1 January 2014
Provided during the year
Disposals
Currency adjustment
At 1 January 2015
Provided during the year
Disposals
Currency adjustment
At 31 December 2015
Net book value
At 31 December 2015
At 1 January 2015
Leasehold
Improvements
£m
Computer
Equipment
£m
Fixtures
& Fittings
£m
Motor
Vehicles
£m
1.9
0.2
(0.1)
–
2.0
0.4
–
0.3
2.7
22.3
1.7
(2.5)
0.5
22.0
2.1
(1.2)
3.6
26.5
3.6
0.5
(0.2)
(0.1)
3.8
0.2
(0.3)
(0.5)
3.2
0.1
–
(0.1)
–
–
–
–
–
–
Leasehold
Improvements
£m
Computer
Equipment
£m
Fixtures
& Fittings
£m
Motor
Vehicles
£m
(1.2)
(0.2)
0.1
–
(1.3)
(0.2)
–
(0.4)
(1.9)
0.8
0.7
(14.3)
(4.2)
2.5
(0.4)
(16.4)
(3.2)
1.1
(3.6)
(22.1)
4.4
5.6
(2.7)
(0.3)
0.2
0.1
(2.7)
(0.2)
0.3
0.5
(2.1)
1.1
1.1
(0.1)
–
0.1
–
–
–
–
–
–
–
–
Total
£m
27.9
2.4
(2.9)
0.4
27.8
2.7
(1.5)
3.4
32.4
Total
£m
(18.3)
(4.7)
2.9
(0.3)
(20.4)
(3.6)
1.4
(3.5)
(26.1)
6.3
7.4
Included in property, plant and equipment are assets held under finance lease of £0.1 million at 31 December 2015 (2014: £0.1 million).
85
Financial StatementsFinancial StatementsFinancial Statements 9 Intangible assets
Cost
At 1 January 2014
Currency adjustment
At 1 January 2015
Acquisitions
Currency adjustment
At 31 December 2015
Amortisation and impairment
At 1 January 2014
Provided during the year
Currency adjustment
At 1 January 2015
Provided during the year
Impairment loss
Currency adjustment
At 31 December 2015
Net book value
At 31 December 2015
At 1 January 2015
Customer
Relationships
£m
Intellectual
Property
£m
Goodwill
£m
20.1
0.1
20.2
–
0.1
20.3
(12.3)
(2.3)
0.1
(14.5)
(1.9)
–
0.1
(16.3)
4.0
5.7
60.6
–
60.6
0.3
(0.2)
60.7
(40.3)
(4.8)
(0.1)
(45.2)
(4.8)
–
(0.1)
(50.1)
10.6
15.4
Total
£m
294.2
0.7
294.9
0.3
0.2
295.4
(85.2)
(7.1)
–
(92.3)
(6.7)
(33.3)
–
(132.3)
213.5
0.6
214.1
–
0.3
214.4
(32.6)
–
–
(32.6)
–
(33.3)
–
(65.9)
148.5
163.1
181.5
202.6
Customer relationships and intellectual property are amortised on a straight-line basis over their estimated useful lives of between
5 and 10 years. As from 1 January 2004, the date of transition to IFRS, goodwill is no longer amortised but is now subject to annual
impairment testing (see note 11).
86
Annual Report 2015Financial Statements
10 Investments in subsidiaries
Details of the investments in which the Group or Company holds more than 20% of the nominal value of ordinary share capital are
as follows:
Name of Company
Held directly:
Country of
Incorporation
Holding
Proportion of
Voting Rights
Primary nature of Business
SDL Sheffield Limited
England & Wales
Ordinary
SDL France SARL
SDL Sweden AB
SDL Global Solutions (Ireland) Limited
SDL International Belgium NV
SDL Software Technology
(Shenzhen) Co Ltd
SDL Inc
SDL Poland Sp zoo
SDL Japan KK
SDL Holdings BV
France
Sweden
Ireland
Belgium
China
United States
of America
Poland
Japan
Netherlands
SDL do Brazil Global Solutions Ltda
Brazil
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
SDL Nominees Ltd
England & Wales
Ordinary
SDL Multilingual Solutions Private Ltd
SDL Hellas MEPE
Automated Language
Processing Services Ltd
SDL Turkey Translation Services
& Commerce Ltd
SDL Chile SA
Alterian Ltd
India
Greece
Ordinary
Ordinary
England & Wales
Ordinary
Turkey
Chile
Ordinary
England & Wales
Ordinary
Bemoko Consulting Limited
England & Wales
Ordinary
SDL Global Limited
England & Wales
Ordinary
SDL Portugal Unipessoal LDA
Portugal
Ordinary
Held indirectly:
SDL Passolo GmbH
SDL Italia Unipersonale Srl
Software Documentation
Localization Spain, S.L.
SDL International (Canada) Inc
SDL Netherlands BV
Germany
Italy
Spain
Canada
Netherlands
SDL Multilingual Services GmbH & Co KG
Germany
SDL Multi-Lingual Solutions
(Singapore) PTE Ltd
Singapore
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
SDL Magyaror szaj szolgaltato Kft
Hungary
Ordinary
SDL CZ sro
SDL Traduceri SRL
SDL Zagreb doo
SDL doo Ljubljana
Trados GmbH
SDL Tridion Development Centre LLC
Czech Republic
Ordinary
Romania
Croatia
Slovenia
Germany
Ukraine
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
Language Services and Technology
100%
100%
100%
100%
100%
100%
Language Services
Language Services
Language Services
Language Services and Technology
Language Services
Language Services and Technology
100%
100%
100%
100%
100%
100%
100%
100%
Language Services
Language Services and Technology
Holding company
Language Services
Holding Company
Language Services
Language Services
Holding company
Ordinary
100%
Language Services
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Language Services
Holding company
Technology
Holding company
Language Services
Technology
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Language Services
Technology
Technology
87
Financial StatementsFinancial StatementsFinancial Statements Name of Company
SDL Tridion GmbH
Tridion AB
SDL Tridion Hispania SL
SDL Tridion Ltd
SDL Tridion KK
Interlingua Group Ltd
SDL Multilingual Service GmbH
SDL Multilingual Services Verwaltungs
GmbH
ZAO SDL Rus
XyEnterprise LLP
XyEnterprise Ltd
SDL Fredhopper BV
SDL Fredhopper Ltd
Spring Technologies Ltd
SDL Xopus BV
Language Weaver SRL
SDL Media Manager BV
Alterian Holdings Ltd
Alterian Technology Ltd
Country of
Incorporation
Germany
Sweden
Spain
Holding
Ordinary
Ordinary
Ordinary
England & Wales
Ordinary
Japan
Ordinary
England & Wales
Ordinary
Germany
Germany
Russia
United States
of America
Ordinary
Ordinary
Ordinary
Ordinary
England & Wales
Ordinary
Netherlands
Ordinary
England & Wales
Ordinary
Bulgaria
Netherlands
Romania
Netherlands
Ordinary
Ordinary
Ordinary
Ordinary
England & Wales
Ordinary
England & Wales
Ordinary
SDL Technologies India PVT Ltd (formerly
Alterian Technologies India PVT Ltd)
India
Ordinary
Intrepid Consultants Ltd
England & Wales
Ordinary
SDL Technologies (Australia) Pty Ltd
Australia
Alterian do Brazil Software e Servicos Ltda
Brazil
Alterian Pte Ltd
Alterian Vietnam Co Ltd
Alterian Holdings Inc
Alterian Inc
SDL Government Inc
Singapore
Vietnam
United States
of America
United States
of America
United States
of America
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Proportion of
Voting Rights
Primary nature of Business
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Technology
Technology
Technology
Technology
Technology
Holding company
Holding company
Holding company
Language Services
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Holding company
Technology
Technology
Technology
Technology
Technology
Technology
Technology
Holding company
Ordinary
100%
Technology
Ordinary
100%
Technology
Alpnet UK Ltd
England & Wales
Ordinary
Computype Ltd (England)
England & Wales
Ordinary
MediaSurface Ltd
Alterian (Poole) Ltd
Alterian (Newbury) Ltd
Alterian Minorities Ltd
Trados Belgium
Trados GmbH Swiss Branch
Trados Ireland Ltd
Idiom Technology Benelux BV
England & Wales
Ordinary
England & Wales
Ordinary
England & Wales
Ordinary
England & Wales
Ordinary
Belgium
Switzerland
Ireland
Netherlands
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Holding Company
Technology
Holding Company
Holding Company
Holding Company
The proportion of voting rights held is as shown above. SDL Global Limited was incorporated on 25 February 2016.
88
Annual Report 2015Financial Statements 11 Impairment testing of goodwill and intangibles with indefinite lives
The Group has goodwill that has been acquired through business
combinations but does not hold any intangible assets that have
indefinite lives ascribed to them.
The approach of the Group is to test impairment at the cash
generating unit level or group of cash generating units where
these represent the lowest level at which goodwill is monitored
for internal reporting purposes.
Following the Group’s operational review in 2015 which has led
to changes in the organisational structure and management of
the business, the Board has determined that there are six CGUs
and four operating segments. These CGUs have been aggregated
into groups of CGUs for testing as follows; Language Services,
Language Technology, Global Content Technologies and Non-
Core Businesses which are consistent with the Group’s operating
segments. The Group’s operating segments are disclosed in
Note 3. The Non-Core Businesses segment includes the Group’s
Campaign, Social Intelligence and Fredhopper CGUs and is the
lowest level of unit at which the Group is effectively able to monitor
goodwill for these CGUs. The prior year Technology CGU has been
disaggregated to create the Language Technology, Global Content
Technologies and Non-Core Businesses CGU comparatives.
The goodwill has been allocated for impairment testing purposes
to these operating segments and full attribution of overheads
and group costs has been made to each of the units in testing
impairment. The valuation is performed on a value in-use basis
and this is compared against the respective operating segments’
expected realisable value.
In order to evaluate the recoverable amounts relating to the
operating segments, the following key information should be noted.
The recoverable amounts have been determined using the
detailed projections from the 2016 annual plan projected for a
further four year period and subsequently into perpetuity, with a
discount rate applied.
Carrying amount of goodwill allocated to operating segments:
Language Services
Language Technology
Global Content Technologies
Non-Core Businesses
Sensitivity to changes in assumptions
The discount rate has been calculated as the weighted average
cost of capital. Differential post-tax discount rates were used
reflecting a different risk weighting based on relative maturity and
size of the different cash generating units with 10.6% applied to
Language Services (2014: 10.4%), 11.6% to Language Technology
and Global Content Technologies and 14.5% to the Non Core
Businesses (2014: Technology 11.1%). These discount rates reflect
the relative maturity of the businesses and the risk associated
with the respective operating segment forecasts. In aggregate,
these discount rates approximate a group cost of capital of 11.4%
for 2015 (2014: 10.8%). Pre-tax discount rates were 14.4% for
Language Services, 15.5% for Language Technology, 15.3% for
Global Content Technologies and 18.3% for Non-Core Businesses.
(2014:12.9% to 13.4%). Budgets have been prepared at the cash
generating unit level based on historical trends adjusted for
expected events. These individual budgets have been aggregated
as the basis for the 2016 Group annual plan.
This methodology places strong emphasis on early year cash flows
and revenue growth assumptions in evaluating impairment. A
common 2% perpetual growth rate has been used for all operating
segments reflecting the relative maturity, penetration and profile
of the operating segments (2014: 2% Language Services and 3%
Technology operating segments respectively). Differential growth
rates have been applied to the different operating segments
beyond the budget period. These are 6% (2014: 5%) for Language
Services, 6.5% for Language Technology, 8% for Global Content
Technologies and 27% for the Non Core Businesses (2014: 9% for
Technology operating segments).
Following a disappointing trading year in 2015 for the Group’s
technology operating segments and the completion of the 2015
operational review, the group has determined that the carrying
value of goodwill in its Language Technology and Non-Core
Businesses operating segments were impaired by £33.3 million.
This amount was recognised in the income statement in 2015 (see
note 4).
2015
£m
21.1
48.0
59.2
20.2
2014
£m
21.1
64.1
59.0
37.3
148.5
181.5
Management has identified three key assumptions which significantly impact the impairment amounts of the Language Technology
and Non-Core Businesses operating segments. The following table shows the absolute amount by which the impairment would
change for unfavourable movements in these assumptions.
Change to the recoverable amount
(£m)
Discount Rate (0.5%)
Perpetuity growth rate (1%)
Revenue growth (1%)
Language
Technology
Non Core
Businesses
(2.7)
(3.5)
(3.1)
(1.3)
(1.6)
(1.3)
89
Financial StatementsFinancial StatementsFinancial Statements The recoverable amount of the Global Content Technologies operating segment exceeds it carrying amount by £9.3 million. The
change in the assumptions above required for the recoverable amount of the Global Content Technologies operating segment to
equal its carrying amount would be a 3.0% reduction in revenue assumptions or a 1.3% increase in the discount rate. The elimination
of the perpetuity growth rate alone would not lead to the recoverable amount being less than or equal to the operating segment
carrying value.
Having performed its impairment test on the Language Services operating segment and having analysed the various sensitivities to
this test, management believe that no reasonably possible change in any of the above key assumptions would cause the carrying
value of the Language Services operating segment to exceed its recoverable amount.
Next impairment test
The next impairment tests will be performed at the 2016 year end. However, management continues to monitor the performance
of its operating segments closely and should it believe a significant event has occurred which deteriorates the forward operating
prospects of the business it will bring forward these tests.
12 Trade and other receivables (current)
Trade receivables
Prepayments and accrued income
2015
£m
56.4
17.0
73.4
2014
£m
52.8
16.6
69.4
All amounts are due within one year. Trade receivables are non-interest bearing and on average have thirty to sixty day settlement
terms. Accrued income is the value of unbilled work recognised on projects in accordance with the accounting policy outlined in
Note 2.
As at 31 December 2015, trade receivables at nominal value of £1.5 million (2014: £1.4 million) were impaired and provided for.
Movements in the provision for impairment of receivables were as follows:
At 1 January 2014
Charge for the year
Utilised in the year
Currency adjustment
At 31 December 2014
Charge for the year
Utilised in the year
Currency adjustment
At 31 December 2015
As at 31 December, the ageing analysis of trade receivables, net of impairment, is as follows:
2015
2014
Total
£m
56.4
52.8
Not past due
£m
<30 days
£m
45.2
42.7
6.7
6.2
Past due
30-60 days
£m
0.6
1.6
The majority of the impairment provision is recorded in amounts greater than 60 days in 2015 and 2014.
£m
2.0
0.2
(0.8)
–
1.4
0.2
(0.1)
–
1.5
>60 days
£m
3.9
2.3
90
Annual Report 2015Financial Statements
13 Cash and cash equivalents
Cash at bank and in hand
2015
£m
17.2
2014
£m
22.1
Where cash at bank and in hand earns interest, interest accrues at floating rates based on daily bank deposit rates. The fair value of
cash and cash equivalents is £17.2 million (2014: £22.1 million).
At 31 December 2015, the Group had available £20.2 million (2014: £21 million) of undrawn committed borrowing facilities.
For the purposes of the cash flow statement, cash and cash equivalents comprise the amounts shown above.
14 Trade and other payables (current)
Trade payables
Other taxes and social security costs
Other payables
Accruals and deferred income
The terms and conditions of the above financial liabilities are as follows:
Trade payables are non-interest bearing and are normally settled within 45 days;
Other taxes and social security costs are non-interest bearing and have an average term of 1 month;
Other payables, generally, are non-interest bearing and have an average term of 2 months.
15 Trade and other payables (non-current)
Other payables
Deferred income
2015
£m
6.1
3.0
6.8
65.8
81.7
2014
£m
7.1
3.7
5.9
67.3
84.0
2015
£m
–
1.4
1.4
2014
£m
0.1
1.2
1.3
Other payables include amounts payable under finance lease arrangements for purchase of property, plant and equipment.
The amounts payable under finance leases are set out below:
Future
minimum
lease
payments
2015
£m
0.1
–
0.1
Interest
2015
£m
–
–
–
Present value
of minimum
lease
payments
2015
£m
Future
minimum
lease
payments
2014
£m
0.1
–
0.1
0.4
0.1
0.5
Interest
2014
£m
–
–
–
Within one year
After one year but not more than
five years
Present value
of minimum
lease
payments
2014
£m
0.4
0.1
0.5
91
Financial StatementsFinancial StatementsFinancial Statements 16 Loans and overdraft
Current liabilities
Instalments due on bank loans
Non-current liabilities
Instalments due on bank loans
2015
£m
–
2015
£m
4.6
2014
£m
9.0
2014
£m
–
During the year, the Group repaid its borrowings from Royal Bank of Scotland. On 3 August 2015, the Group signed a new 5 year
£25 million revolving credit facility with HSBC plc, expiring on 2 August 2020. The agreement includes the provision of a £25 million
Accordian (uncommitted) facility. The Group drew down £4.8 million of new borrowings and the balance sheet amount is stated
net of £0.2m arrangement and related fees.
Draw downs under the £25 million 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 1.9% depending on
the ratio of the Group’s total net debt to its adjusted earnings before interest, tax, depreciation and amortisation. The Company and
a number of subsidiaries have entered into cross guarantee arrangements to secure the drawings under this facility.
17 Provisions
At 1 January 2015
Arising during the year
Released during the year
Utilised
At 31 December 2015
Current 2015
Non-current 2015
Current 2014
Non-current 2014
Property leases
Property
Leases
£m
0.8
–
–
(0.2)
0.6
0.2
0.4
0.6
0.3
0.5
0.8
Other
£m
2.5
0.5
(0.1)
(0.2)
2.7
2.7
–
2.7
2.5
–
2.5
Total
£m
3.3
0.5
(0.1)
(0.4)
3.3
2.9
0.4
3.3
2.8
0.5
3.3
The provision for property leases is in respect of leasehold premises, from which the Group no longer trades, but is liable to fulfil
rent and other property commitments up to the lease expiry date. Obligations are payable within a range of 1 to 7 years. Amounts
provided are management’s best estimate of the likely future cash outflows. The provision has been discounted using market
interest rates. The undiscounted provision is £0.7 million (2014: £0.9 million).
Other
Other provisions include a number of employee, legal, tax and product related amounts. Obligations are expected to be payable
within 1 year. Included in the above is a provision for £1.4 million (2014: £1.4 million) for ongoing litigation related to a former Trados
shareholder’s claim of breach of fiduciary duty by the former Trados Directors on the sale of Trados to SDL in 2005. This liability has
been settled in February 2016.
92
Annual Report 2015Financial Statements
18 Share capital
Allotted, called up and fully paid
Ordinary shares of 1p each
At 1 January
Issued on exercise of share options
Issued on exercise of LTIPS
Issued as payment of contingent consideration
At 31 December
The following movements in the ordinary share capital of the company
occurred during the year:
1.
101,571 ordinary shares of 1p each were allotted under the SDL Share
Option Scheme (1999), SDL Share Option Scheme (2010) and earlier
Unapproved Option Schemes at a price range of 119 pence to 375
pence per share for an aggregate consideration of £264,321.
2.
138,205 ordinary shares of 1p each were allotted under the SDL LTIP
2011 Scheme.
19 Share-based payment plans
2015
millions
2014
millions
2015
£m
2014
£m
81.0
0.1
0.1
0.1
81.3
80.4
0.3
0.2
0.1
81.0
0.8
–
–
–
0.8
0.8
–
–
–
0.8
3.
4.
2,844 ordinary shares of 1p each were allotted under the SDL Save
As You Earn Schemes for an aggregate consideration of £7,997.
In March 2015, 87,068 ordinary shares of 1p each were allotted to
four former shareholders of Bemoko Consulting Limited as final
payment of the contingent consideration due as a result of the
acquisition of Bemoko Consulting Limited by the group in 2013.
Included within administrative expenses is a charge of £1.5 million relating to the Group’s employee share schemes (2014: charge of
£1.4 million). Details of the Group’s employee share schemes are set out below.
SDL Share Option Scheme
On 23 April 2010, following shareholder approval, the “SDL Share Option Scheme (2010)” was adopted. This replaced the “SDL Share
Option Scheme (1999)” for which options are still exercisable. The SDL Share Option Scheme (2010) permits the granting of both
options approved by HM Revenue and Customs within the statutory £30,000 limit and unapproved options, subject to performance
conditions. From 2010 onwards, all options have been granted in accordance with these rules.
The table below sets out the number and weighted average exercise prices (WAEP) of, and movements in, the SDL Share Options
Scheme during the year:
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at the end of the year
Exercisable at 31 December
2015
No.
883,674
517,000
(528,999)
(102,590)
769,085
145,585
2015
WAEP
£4.03
£3.77
£4.27
£2.61
£3.87
£2.84
2014
No.
1,175,018
227,500
(224,476)
(294,368)
883,674
248,175
2014
WAEP
£3.83
£3.34
£5.76
£1.26
£4.03
£2.74
The weighted average share price at the date of exercise for the options exercised is £3.87 (2014: £3.11).
For the share options outstanding as at 31 December 2015, the weighted average remaining contractual life is 7.77 years (2014: 6.98
years).
The fair value of equity settled share options granted under the SDL Share Option Scheme is estimated as at the date of grant using
the Black Scholes model. The following table lists the inputs and key output to the model:
Weighted average share price (pence)
Weighted average fair value at grant date (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2015
387
110
38%
3 years
0.57%
0.71%
2014
335
90
38%
3 years
0%
1.11%
93
Financial StatementsFinancial StatementsFinancial Statements
The range of exercise prices for options outstanding at the end of the year was £2.79-£4.45 (2014: £1.19-£7.48).
Exercise price
Date of Grant
Exercise Period
£1.01 - £1.50
£2.01 - £2.50
£2.51 - £3.00
£3.01 - £3.50
£3.51 - £4.00
£4.01 - £4.50
£7.01 - £7.50
Total
02/04/04-04/04/05
10 years after grant date
22/03/06-03/10/06
10 years after grant date
28/02/08-02/03/09
10 years after grant date
07/04/14
23/05/07
10 years after grant date
10 years after grant date
17/04/13-17/04/15
10 years after grant date
10/04/12
10 years after grant date
2015
Number
–
–
145,585
185,500
–
438,000
–
769,085
2014
Number
7,500
23,700
211,775
216,500
5,200
298,343
120,656
883,674
SDL Long Term Incentive Plan
The SDL Long Term Share Incentive Plan, which was approved by shareholders in April 2006 (“the 2006 plan”), expired for the
purposes of new awards in April 2011. No further awards could be made after the expiry date but existing awards will remain
protected although they will only vest to the extent that the related performance conditions are met.
The 2006 plan has been replaced with the SDL Long Term Share Incentive Plan (2011) (“the 2011 Plan”) which received approval from
shareholders in April 2011. The 2011 Plan is broadly similar in construction. It has been updated to reflect current law and market
practice and the proposed performance conditions are designed to be more closely aligned to the company’s current business
strategy and objectives.
On 17 April 2015, 767,206 shares were granted under the 2011 Plan to the Executive Directors based on a market price of £4.37, with
a performance period of three years from date of grant.
The fair value of equity-settled shares granted under the SDL Long Term Incentive Plan is estimated as at the date of grant using a
Monte-Carlo model, taking into account the terms and conditions upon which the options were granted. The following table lists
the inputs and key output to the model used in the year of grant:
Expected volatility
Weighted average fair value at grant date (pence)
Expected life
Expected dividends
Risk-free interest rate
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2015
38%
385
3 years
0.57%
0.71%
2014
No.
1,913,838
1,149,547
(74,454)
(870,882)
2,118,049
Nil
2014
39%
221
3 years
0%
1.00%
2014
WAEP
£0.01
£0.01
£0.01
£0.01
£0.01
–
2015
No.
2,118,049
767,206
(138,205)
(1,841,007)
906,043
Nil
2015
WAEP
£0.01
£0.01
£0.01
£0.01
£0.01
–
All LTIPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
Retention Share Plan
In recognition of the fact that there will be three consecutive years in which the LTIP and Option awards are unlikely to meet the
performance criteria required to vest, the Board approved, in 2013, a share-based discretionary award which was made to a small
targeted group of executives (excluding Executive Directors). Awards are based on a percentage of salary and vest in equal tranches,
any unvested portion of a tranche lapses. The Board believes that this Retention Share Plan (RSP) will provide benefit to the Group by
creating appropriate performance incentives and facilitating the long-term retention of employees who add significant value. The
Remuneration Committee has the discretion to settle any awards that vest in cash or via shares.
The RSP was not approved by shareholders and therefore any shares required to satisfy vesting are either purchased by the Employee
Benefit Trust or cash settled. The funding of the trust is by way of a loan to the trustees.
94
Annual Report 2015Financial Statements On 27 April 2015, 280,430 shares were granted under the RSP to a small group of senior management excluding Executive Directors.
This plan is due to vest on the anniversary of the grant date i.e. April 2016.
The fair value of equity-settled shares granted under the SDL Retention Share Plan is estimated as at the date of grant using a Black
Scholes model, taking into account the terms and conditions upon which the options were granted. The following table lists the
inputs and key output to the model used in the year of grant:
Expected volatility
Weighted average fair value at grant date (pence)
Expected life
Expected dividends
Risk-free interest rate
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2015
29.8%
464
1 year
0.5%
0.37%
2015
No.
168,500
280,430
(147,000)
(26,216)
275,714
19,000
2014
43.9%
343
1 year
0%
0.22%
2014
No.
678,196
52,000
(135,500)
(426,196)
168,500
21,500
All RSPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
SDL Save As You Earn Scheme
On 24 April 2008 a Save As You Earn (SAYE) scheme was formally approved by the shareholders at the AGM. Following the success
of the UK and Netherlands SAYE schemes, in 2012 an extension to the international version was rolled out to SDL PLC’s subsidiary
companies in the United States and Canada. The rules are based on those of the UK in that employees must be eligible and there
is a monthly savings contract over a 3 year period. In 2015, 2014, 2013 and 2012, options were granted to UK, Netherlands, Canada
and United States scheme participants at 80% of the prevailing market price. The market price is taken the day prior to the date of
invitations to apply for an option. There are no performance conditions attached to the exercise of these options. These options may
be exercised within a fixed six-month period, three years from the date of grant or being made redundant.
The table below sets out the number and movements in, the SDL Save As You Earn Scheme during the year:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at 31 December
2015
No.
633,342
117,454
(2,844)
(74,827)
673,125
Nil
2014
No.
391,447
432,141
(1,106)
(189,140)
633,342
Nil
For the SAYE shares outstanding as at 31 December 2015, the weighted average remaining contractual life is 1.5 years (2014: 2.18 years).
The fair value of equity settled share options granted under the SDL SAYE Scheme is estimated as at the date of grant using the Black
Scholes model. The following table lists the inputs and key output to the model in the year of grant:
Weighted average share price (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2015
435
37.5%
3.2 years
0.57%
0.93%
2014
317
37%
1.6 years
0%
1.27%
For all Share Based payment models, the volatility is calculated from compounded daily logs of normal returns of the company share
price over a historic period commensurate with the expected life of the incentive.
95
Financial StatementsFinancial StatementsFinancial Statements 20 Additional cash flow information
Analysis of Group net debt:
1 January 2015
Cash flow
Cash and cash equivalents
Loans and overdrafts*
£m
22.1
(9.0)
13.1
£m
(3.4)
4.2
0.8
Cash acquired
on acquisition
£m
Exchange
differences
£m
31 December
2015
£m
–
–
–
(1.5)
–
(1.5)
17.2
(4.8)
12.4
* Loans and overdrafts are stated gross i.e. before the impact of a £0.2m arrangement fee prepayment
Cash and cash equivalents
Loans and overdrafts
1 January 2014
Cash flow
£m
18.2
(20.0)
(1.8)
£m
4.4
11.0
15.4
Cash acquired
on acquisition
£m
Exchange
differences
£m
–
–
–
(0.5)
–
(0.5)
31 December 2014
£m
22.1
(9.0)
13.1
21 Commitments and contingencies
The Group has entered into commercial leases on certain properties used as offices. The future minimum rentals payable under non-
cancellable operating leases as at 31 December are as follows:
Within one year
After one year but
not more than five years
More than five years
Land and buildings
Other
Total
2015
£m
4.3
10.3
0.3
14.9
2014
£m
4.3
11.9
0.5
16.7
2015
£m
0.6
0.6
–
1.2
2014
£m
0.2
0.2
–
0.4
2015
£m
4.9
10.9
0.3
16.1
2014
£m
4.5
12.1
0.5
17.1
The future minimum rentals receivable under non-cancellable operating leases as at 31 December 2015 were £0.2 million (2014:
£0.2 million).
The Group operates in 40 countries around the world and, in common with other multinational organisations, is subject to ongoing
tax audits and reviews. The Group operates in line with local and global regulations and maintains provisions where any deviations
from these regulations are identified. The nature of tax compliance is inherently subject to interpretation and hence additional
liabilities or exposures could arise.
22 Related party disclosures
Compensation of key management personnel of the Group
Short term employee benefits
Post employment benefits
Total compensation paid to key management personnel
2015
£m
2.4
0.1
2.5
2014
£m
2.2
0.1
2.3
Full details of the Directors’ remuneration is included in the Directors’ Remuneration Report on pages 42 to 58.
Transactions between group companies, which are related parties, have been eliminated on consolidation and have not been
included in this note. The key management personnel are the Executive Directors of the Group.
96
Annual Report 2015Financial Statements
23 Financial risk management objectives and policies
An explanation of the Group’s financial risk management objectives, policies and strategies are set out in the Strategic Report on
pages 4 to 27.
Interest Rate Risk: Net cash has decreased from £13.1 million in 2014 to £12.4 million cash in 2015. Borrowings amounted to £4.6
million at December 2015 (see note 16) which bears interest at LIBOR+ margin, the margin varying between 1.15% and 1.9%
depending on the ratio of the Group’s total net debt to its adjusted earnings before interest, tax, depreciation and amortisation.
The Board remains of the opinion that operating with low levels of debt is appropriate in the current economic environment, whilst
maintaining sufficient debt facility headroom to finance normal investment activities.
To ensure adequate working capital the Group maintains cash deposits and these deposits are affected by any movements in rates
of interest generally. These cash deposits are generally receiving interest income at LIBOR (or USD, EURO equivalent) plus a margin.
The Group seeks to place all cash surplus to operational requirements in secure money market funds. To enhance the interest
earning capacity of the Group, processes have been put in place to ensure that cash balances held by subsidiary companies are kept
as low as operationally possible. With regard to relative interest rates, adequate cash is retained in key operating currencies to fund
the operational needs of the Group.
The following table demonstrates the sensitivity to a 1 percent change in the UK £ interest rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
The following table demonstrates the sensitivity to a 1 percent change in the Euro interest rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
The following table demonstrates the sensitivity to a 1 percent change in the US$ interest rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
2015
£m
–
–
2015
£m
–
–
2015
£m
–
–
2014
£m
(0.1)
0.1
2014
£m
–
–
2014
£m
0.1
(0.1)
Liquidity Risk: The Group’s objective is to optimise the funds
currently available to it in order to maintain the lowest
operational borrowing profile necessary. At the end of 2015,
the Group had net cash of £12.4 million which comprised
of cash balances of £17.2 million and loans of £4.8 million.
Underpinning this philosophy are processes to manage
operating cash flow, with a focus on approvals policy for
significant cash outlays and credit control. The Group’s existing
loan facility expires on 2 August 2020.
Foreign Currency Risk: A significant amount of business is done
with customers in both the USA and Continental Europe with
approximately 47% of total invoicing done in US Dollar and
26% in Euro. The most significant sensitivity is to the US Dollar
as illustrated below. This overseas client base gives rise to short-
term debtors and cash balances in both US Dollars and Euros.
Consequently, the movements in the US Dollar/Sterling and
Euro/Sterling exchange rates affect the Group Balance Sheet, as
well as the Consolidated Income Statement. The Group seeks
to manage this risk in the first instance by looking to a natural
hedge and ensuring where possible currency needs in the USA
are funded from the settlement of US Dollar denominated
debtors. After a review of effectiveness the Group has not
entered into any new US Dollar hedges since 2008. At the end of
2015, the Group has no hedges outstanding.
In addition, the Group has exposure on the Balance Sheet to the
movements in US Dollar/Sterling and Euro/Sterling exchange
rates as a result of intangible assets held in non functional
currency, the retranslation of US and continental European
overseas subsidiaries net assets into UK Sterling for consolidation
purposes and finally intercompany loan and trading relationships
held in non functional currency. In the case of the latter, this can
have an impact on net profitability where the intercompany
relationships are not treated for accounting purposes as equity
loans.
Income Statement
is also affected by
The Consolidated
movements in the US Dollar/Sterling and Euro/Sterling exchange
rates when sales to customers are converted to Sterling at the
date of the sales transaction, as this will vary from month to
month. This is partially offset by the effect of retranslating US
Dollar and Euro denominated costs into UK Sterling from month
to month.
97
Financial StatementsFinancial StatementsFinancial Statements The following table demonstrates the sensitivity to a 1 percent change in the US Dollar exchange rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
Statement of Financial Position* increase/(decrease) in net assets
+ 1 %
– 1 %
The following table demonstrates the sensitivity to a 1 percent change in the Euro exchange rate:
Profit before tax gain/(loss)
+ 1 %
– 1 %
Statement of Financial Position* increase/(decrease) in net assets
+ 1 %
– 1 %
* Based on the Statement of Financial Position at 31 December
Economic Conditions - Credit Control Risk: - SDL continues to
benefit from a diverse list of major clients of which no client
contributes more than 5% of sales. The Group is however
continuing to place emphasis on sound application of credit
control processes given the continuing difficult macro-
economic conditions. The Group has made provision against
trade receivables to reflect specific collection risks identified.
Capital Management: The Board monitors the total equity, cash
and cash equivalents and borrowing balances in considering its
24 Financial instruments
2015
£m
(0.9)
0.9
(0.8)
0.8
2015
£m
(0.2)
0.2
(0.7)
0.7
2014
£m
(0.8)
0.8
(0.7)
0.7
2014
£m
–
–
(1.3)
1.3
retained capital and when and how a return of capital to
shareholders is appropriate. The Group maintains a strong capital
base so as to maintain employee, customer, market, investor
and creditor confidence in the business and to ensure that it
continues to operate as a going concern. The Board operates a
progressive dividend policy whereby dividends are set based on
the evolution of the Group’s profits. The Board is recommending
a final dividend in respect of the year end ended 31 December
2015 of [3.1] pence per share. Neither the Company nor the
Group is subject to externally imposed capital requirements.
Interest rate risk profile of financial assets and liabilities
The interest rate profile of the financial assets and liabilities of the Group as at 31 December is as follows:
Year ended 31 December 2015
Floating rate
Cash
Borrowings
2015
£m
1.1
(4.6)
Maturity of financial liabilities
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2015:
Trade and other payables
Long term loans
Finance lease liability
98
Less than 12
months
£m
Over 12
months
£m
39.1
–
0.1
–
4.6
–
39.2
4.6
2014
£m
2.4
(9.0)
Total
£m
39.1
4.6
0.1
43.8
Annual Report 2015Financial Statements
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2014:
Trade and other payables
Short term loans
Finance lease liability
Less than 12
months
£m
Over 12
months
£m
39.8
9.0
0.4
49.2
0.1
-
0.1
0.2
Total
£m
39.9
9.0
0.5
49.4
The above tables exclude deferred income and state tax creditors.
The future contractual cash outflows related to the Group’s financial liabilities is not materially different from its carrying amount.
Borrowing facilities
The Group maintains a £25 million facility with HSBC Bank PLC which expires on 2nd August 2020. The amount drawn at 31
December 2015 was £4.8 million.
Credit risk
The maximum credit risk exposure related to financial assets is £68.6 million (2014: £64.0 million) represented by the carrying value
of trade debtors and other receivables excluding prepayment and cash.
Fair values of financial assets and liabilities
The carrying value of financial assets and liabilities approximate their fair value. Fair values of assets and liabilities are based on their
carrying values. The Directors consider that there were no material differences between the book values and fair values of all the
Group’s financial assets and liabilities at each year-end. The fair values have been calculated using the market interest rates where
applicable.
There are no hedging arrangements in place as at 31 December 2015 (2014: None).
The interest rate risk on the borrowings at 31 December 2015 is directly linked to the 1, 3 month and 6 month LIBOR and is set out
in note 16. The interest rates that the Group would pay under the facilities are linked directly to these LIBOR rates.
25 Events after the statement of financial position date
There are no other known events occurring after the statement of financial position date that require disclosure.
99
Financial StatementsFinancial StatementsFinancial Statements
Company Balance Sheet
at 31 December 2015
Notes
2
3
4
5
6
6
7
8
9
2015
£m
0.7
149.9
0.1
150.7
105.7
1.0
106.7
2014
£m
0.8
199.9
0.1
200.8
68.6
3.6
72.2
(120.9)
-
(120.9)
(132.0)
(9.0)
(141.0)
(14.2)
(68.8)
136.5
132.0
(4.6)
(0.4)
(5.0)
(2.4)
129.1
0.8
98.5
29.8
129.1
-
(0.5)
(0.5)
(2.8)
128.7
0.8
97.9
30.0
128.7
D Lavelle
Director
Fixed assets
Tangible assets
Investment in subsidiaries
Rent deposits
Current assets
Debtors
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Interest bearing loans and borrowings
Net Current Assets / (Liabilities)
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Interest bearing loans and borrowings
Other payables
Provisions for liabilities and charges
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Total equity
Approved by the Board of directors on 15 March 2015
D Clayton
Director
100
Annual Report 2015Financial Statements
Company Statement of Changes in Equity
For the year ended 31 December 2015
At 1 January 2014
Profit for the period
Currency translation differences on net investments
Arising on share issues
Share based payments
At 1 January 2015
Profit for the period
Dividend paid
Currency translation differences on net investments
Arising on share issues
Share based payments
At 31 December 2015
Share
Capital
£m
0.8
–
–
–
–
0.8
–
–
–
–
0.8
Share
Premium
Account
£m
Profit &
Loss
Account
£m
97.4
–
–
0.5
–
97.9
–
–
0.6
–
98.5
18.5
10.2
0.1
–
1.2
30.0
0.6
(2.0)
(0.1)
–
1.3
29.8
Total
£m
116.7
10.2
0.1
0.5
1.2
128.7
0.6
(2.0)
(0.1)
0.6
1.3
129.1
101
Financial StatementsFinancial StatementsFinancial Statements
Notes to the Accounts
for the year ended 31 December 2015
1 Accounting policies
The principal accounting policies that have been consistently
applied in arriving at the financial information set out in this
report are:
• Certain disclosures
IFRS 13 Fair Value
required by
Measurement and the disclosures required by IFRS 7
Financial Instrument Disclosures.
•
The Company proposes to continue the reduced disclosure
framework of FRS 101 in its next financial statements.
Basis of preparation
Fixed assets and depreciation
The financial statements are prepared under the historical
cost convention as modified for certain items which have
been measured at fair value, namely financial instruments.
These financial statements were prepared in accordance
with Financial Reporting Standard 101 Reduced Disclosure
Framework (“FRS 101”). The amendments to FRS 101 (2014/15
Cycle) issued in July 2015 and effective immediately have been
applied.
In preparing these financial statements, the Company applies
the recognition, measurement and disclosure requirements of
International Financial Reporting Standards as adopted by the
EU (“Adopted IFRSs”), but makes amendments where necessary
in order to comply with Companies Act 2006 and has set out
below where advantage of the FRS 101 disclosure exemptions
has been taken.
Under section s408 of the Companies Act 2006 the company
is exempt from the requirement to present its own profit and
loss account.
In the transition to FRS 101, the Company has applied IFRS 1
whilst ensuring that its assets and liabilities are measured in
compliance with FRS 101. An explanation of how the transition
to FRS 101 has affected the reported financial position of the
Company is provided in note 12.
In these financial statements, the company has applied the
exemptions available under FRS 101 in respect of the following
disclosures:
•
a Cash Flow Statement and related notes;
Fixed assets are stated at cost less accumulated depreciation
and accumulated impairment losses.
Where parts of an item of fixed assets have different useful
lives, they are accounted for as separate items of tangible fixed
assets.
Depreciation is provided to write off the cost less the estimated
residual value of tangible fixed assets over their estimated
useful economic lives as follows:
Leasehold improvements – The lower of ten years or the
lease term straight line
Computer equipment
– 4-5 years straight line
Fixtures & fittings
– 20% reducing balance
Motor vehicles
– 20% reducing balance
Depreciation methods, useful lives and residual values are
reviewed at each balance sheet date.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the rate of exchange ruling at the balance sheet date and
the gains or losses on translation are included in the profit and
loss account.
The currency translation differences on retranslation of the
foreign branches at the balance sheet date are recognised
directly in equity.
• Comparative period reconciliations
for share capital,
tangible fixed assets and investments in subsidiaries;
Financial instruments
• Disclosures in respect of transactions with wholly owned
subsidiaries;
• Disclosures in respect of capital management;
•
The effects of new but not yet effective IFRSs;
• An additional balance sheet for the beginning of the earliest
comparative period for the reclassification of items in the
financial statements (see note 12); and
• Disclosures
in respect of the compensation of Key
Management Personnel.
As the consolidated financial statements include the equivalent
disclosures, the Company has also taken the exemptions under
FRS 101 available in respect of the following disclosures:
•
IFRS 2 Share Based Payments in respect of group settled
share based payments; and
102
The Company considers the use of forward foreign currency
contracts and interest rate swaps to reduce exposure to foreign
exchange and interest rates. Where such instruments are taken
out, they are stated at fair value. Gains and losses arising from
changes in fair value are taken to the profit and loss account in
the period.
Non derivative financial instruments comprise debtors, cash at
bank and in hand, interest bearing loans and borrowings and
creditors.
Debtors
Debtors are recognised initially at fair value. Subsequent to
initial recognition they are measured at amortised cost using
the effective interest method, less any impairment losses.
Annual Report 2015Financial Statements Creditors
Trade and other creditors are recognised initially at fair value.
Subsequent to
initial recognition they are measured at
amortised cost using the effective interest method.
Interest bearing loans and borrowings
Interest bearing borrowings are recognised initially at fair
value
less attributable transaction costs. Subsequent to
initial recognition, interest bearing borrowings are stated at
amortised cost using the effective interest method, less any
impairment losses.
Cash
Cash in bank represents cash in hand and deposits repayable
with any qualifying institution.
Leases
Operating lease rentals are charged to the profit and loss
account on a straight-line basis over the period of the lease.
Operating lease income is credited to the profit and loss
account on a straight-line basis over the period of the lease.
Incentives received from landlord
The aggregate benefit of incentives is recognised as a credit to
the profit and loss account. The benefits of the incentives are
allocated over the life of the lease on a straight line basis.
Pension cost
The Company contributes to a group personal pension
scheme for qualifying employees whereby it makes defined
contributions to independently administered personal pension
schemes. The Company does not control any of the assets or
have any ongoing liabilities with regard to the performance
of and payments from these individual personal schemes.
Obligations for contributions to defined contribution pension
plans are recognised as an expense in the profit and loss
account in the periods during which services are rendered by
employees.
Research and development
Research costs are expensed as
incurred. Development
expenditure incurred on an individual project is capitalised
when its future recoverability can reasonably be regarded
as assured and technical feasibility and commercial viability
can be demonstrated. Where these criteria are not met the
expenditure is expensed to the income statement.
Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Company and the revenue
can be measured reliably. The following specific recognition
criteria must also be met before revenue is recognised:
• Rendering of services
Revenue on service contracts is recognised only when their
outcomes can be foreseen with reasonable certainty and is
based on the percentage stage of completion of the contracts,
calculated on the basis of costs incurred. Accrued and deferred
revenue arising on contracts is included in debtors as accrued
income and creditors as deferred income as appropriate.
Support and maintenance contracts are invoiced in advance
and normally run for periods of 12 months with automatic
renewal on the anniversary date. Revenue in respect of
support and maintenance contracts is recognised evenly over
the contract period.
Managed services (hosting) fees are recognised over the term
of the hosting contract on a straight-line basis.
Professional services and consulting revenue, which
is
provided on a ‘time and expense’ basis, is recognised as the
service is performed.
For multiple element arrangements revenue is allocated to
each element on fair value regardless of any separate prices
stated within the contract. The portion of the revenue allocated
to an element is recognised when the revenue recognition
criteria for that element have been met.
• Sale of goods
Revenue from the sale of goods is recognised when the
significant risks and rewards of ownership of the goods
have passed to the buyer, usually on delivery of the goods.
Revenue on software licenses and upgrades is recognised
on delivery, when there are no significant vendor
obligations remaining and the collection of the resulting
receivable is considered probable. In circumstances where
a considerable future vendor obligation exists as part of a
software licence and related services contract, revenue is
recognised over the period that the obligation exists per
the contract.
Taxation
The charge for current taxation is based on the results for the year
as adjusted for items which are non-assessable or disallowed,
based on tax rates that are enacted or substantively enacted at
the balance sheet date.
Deferred income tax is provided, using the liability method, on
temporary differences at the balance sheet date between the
tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred income tax liabilities are recognised for all taxable
temporary differences except:
• where the deferred income tax liability arises from the initial
recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction,
affects neither the accounting profit or loss nor taxable
profit or loss; and
•
in respect of taxable temporary differences associated with
investments in subsidiaries, where the timing of the reversal
of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in
the foreseeable future.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and
unused tax losses can be utilised, except:
• where the deferred income tax asset relating to the
deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction,
103
Financial StatementsFinancial StatementsFinancial Statements affects neither the accounting profit or loss nor taxable
profit or loss; and
•
in respect of deductible temporary differences associated
with investments in subsidiaries, deferred tax assets are
only recognised to the extent that it is probable that the
temporary differences will reverse in the foreseeable future
and taxable profit will be available against which the
temporary differences can be utilised.
An impairment loss is recognised for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The
recoverable amount is the higher of an asset’s fair value less
costs to sell and its value in use, where value in use is calculated
as the present value of the future cash flows expected to be
derived from the asset. For the purpose of assessing impairment,
assets are grouped at the lowest levels for which there are
separately identifiable income streams (cash generating units).
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be
available to allow all or part of the deferred income tax asset
to be utilised.
In the United Kingdom, the Company is entitled to a tax
deduction for amounts treated as remuneration on exercise
of certain employee share options. As explained under ‘Share
based payments’ below, a remuneration expense is recorded
in the income statement over the period from the grant
date to the vesting date of the relevant options. As there is a
temporary difference between the accounting and tax bases,
a deferred tax asset may be recorded. The deferred tax asset
arising on share option awards is calculated as the estimated
amount of tax deduction to be obtained in the future (based
on the Company’s share price at the balance sheet date)
pro-rated to the extent that the services of the employee
have been rendered over the vesting period. If this amount
exceeds the cumulative amount of the remuneration expense
at the statutory rate, the excess is recorded directly in equity,
against retained earnings. Similarly, current tax relief in excess
of the cumulative amount of the remuneration expense at the
statutory rate is also recorded in profit and loss account.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset
is realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
balance sheet date.
Income tax relating to items recognised directly in equity is
recognised in equity and not in the income statement.
Revenues, expenses and assets are recognised net of the amount
of VAT except:
• where the VAT incurred on a purchase of goods and services
is not recoverable from the taxation authority, in which case
the VAT is recognised as part of the cost of acquisition of the
asset or as part of the expense item as applicable; and
•
trade receivables and payables are stated with the amount
of VAT included.
The net amount of VAT recoverable from, or payable to, the
taxation authority is included as part of receivables or payables
in the balance sheet.
Investments in subsidiaries
Investments denominated in foreign currency are recorded
using the rate of exchange at the date of acquisition.
Investments in subsidiaries and associates are stated at cost
less any provision for impairment in value. Investments are
reviewed annually for evidence of impairment.
104
Provisions
Provisions are recognised when the Company has a present
obligation as a result of a past event and management believe
it to be probable that the Company will be required to settle
that obligation. Provisions are measured at management’s best
estimate of the expenditure required to settle the obligation at
the balance sheet date and are discounted to net present value
where this is deemed to be material.
Share based payments
Employees (including directors) of the company receive
remuneration in the form of share-based payment transactions,
whereby employees render services in exchange for shares or
rights over shares (‘equity-settled transactions’).
Equity-settled transactions
Share-based payment arrangements in which the Company
receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based
payment transactions, regardless of how the equity instruments
are obtained by the Company.
The grant date fair value of share-based payments awards
granted to employees is recognised as an employee expense,
with a corresponding increase in equity, over the period in
which the employees become unconditionally entitled to
the awards. The fair value of the awards granted is measured
using an option valuation model, taking into account the
terms and conditions upon which the awards were granted.
The amount recognised as an expense is adjusted to reflect
the actual number of awards for which the related service and
non-market vesting conditions are expected to be met, such
that the amount ultimately recognised as an expense is based
on the number of awards that do meet the related service and
non-market performance conditions at the vesting date. For
share-based payment awards with non-vesting conditions, the
grant date fair value of the share-based payment is measured
to reflect such conditions and there is no true-up for differences
between expected and actual outcomes.
The Company took advantage of the option available in IFRS
1 to apply IFRS 2 only to equity instruments that were granted
after 7 November 2002 and that had not vested by transition
date.
Where the Company grants options over its own shares to
the employees of its subsidiaries it recognises, in its individual
financial statements, an increase in the cost of investment in
its subsidiaries equivalent to the equity-settled share-based
payment charge recognised
its consolidated financial
statements with the corresponding credit being recognised
directly in equity. Amounts recharged to the subsidiary are
recognised as a reduction in the cost of investment in subsidiary.
in
Annual Report 2015Financial Statements 2 Tangible fixed assets
Leasehold
Improvements
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Depreciation
At 1 January 2015
Provided during the year
Disposals
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
£m
0.6
–
–
0.6
(0.5)
–
–
(0.5)
0.1
0.1
Computer
Equipment
£m
Fixtures
& Fittings
£m
1.6
0.3
(0.4)
1.5
(1.0)
(0.4)
0.4
(1.0)
0.5
0.6
0.4
–
(0.2)
0.2
(0.3)
–
0.2
(0.1)
0.1
0.1
Total
£m
2.6
0.3
(0.6)
2.3
(1.8)
(0.4)
0.6
(1.6)
0.7
0.8
3 Investments in subsidiaries
Details of the investments in which the Company holds more than 20% of the nominal value of ordinary share capital are given in
Note 10 of the Group financial statements.
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Impairment
At 1 January 2015
Charge for the year
At 31 December 2015
At 31 December 2015
At 31 December 2014
£m
220.3
4.8
(2.0)
223.1
(20.4)
(52.8)
(73.2)
149.9
199.9
Additions in the year include share options granted to employees of subsidiary companies.
Following a disappointing trading year in 2015 for the Company’s technology businesses, the Company has completed its 2015
operational review. The Company has determined that the carrying value of one of its subsidiaries is fully impaired by £52.8 million.
This amount was recognised in the Company’s income statement in 2015.
105
Financial StatementsFinancial StatementsFinancial Statements 4 Debtors
Debtors: Amounts falling due within one year
Trade debtors
Amounts owed by Group undertakings
Corporation Tax
Deferred income tax asset
Prepayments and accrued income
Debtors: Amounts falling due after more than one year
Amounts owed by Group undertakings
2015
£m
6.8
81.2
0.8
1.2
3.7
93.7
2015
£m
12.0
12.0
2014
£m
7.2
55.1
0.8
1.2
4.3
68.6
2014
£m
10.1
10.1
Accrued income is the value of unbilled work recognised on projects per the accounting policy outlined in Note 1.
The amounts recognised and unrecognised for deferred income tax are set out below:
Recognised
2015
£m
Unrecognised
2015
£m
Recognised
2014
£m
Unrecognised
2014
£m
Depreciation in advance of capital allowances
Other short-term temporary differences
Share based payments
Tax losses
Net deferred income tax asset
0.6
0.1
0.5
–
1.2
–
–
–
–
–
Reconciliation of movement on deferred tax asset:
At 1 January
Deferred tax asset at 31 December
0.6
0.1
0.5
–
1.2
2015
£m
1.2
1.2
–
–
–
–
–
2014
£m
1.2
1.2
The Company has tax losses in net terms of £nil (2014: £nil) that may be available for use by offset against future taxable profits.
Deferred tax assets have not been recognised in respect of these losses as the company cannot foresee profitability with sufficient
certainty.
5 Creditors
Creditors: amounts falling due within one year
Trade creditors
Amounts owed to Group undertakings
Corporation tax
Other taxes and social security costs
Other creditors
Accruals and deferred income
106
2015
£m
1.5
107.4
1.6
0.4
0.5
9.5
2014
£m
1.9
120.6
0.7
0.3
0.5
8.0
120.9
132.0
Annual Report 2015Financial Statements 6 Interest bearing loans and borrowings
Creditors: amounts falling due within one year
Instalments due on bank loans
Creditors: amounts falling due after one year
Instalments due on bank loans
2015
£m
–
2015
£m
4.6
2014
£m
9.0
2014
£m
–
During the year, the Company repaid its borrowings from Royal Bank of Scotland. On 3 August 2015, the Group signed a new 5 year
£25 million revolving credit facility with HSBC plc, expiring on 2 August 2020. The agreement includes the provision of a £25 million
Accordian (uncommitted) facility. The Group drew down £4.8 million of new borrowings and the balance sheet amount is stated net
of £0.2 million arrangement and related fees.
Draw downs under the £25 million 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 1.9% depending on
the ratio of the Group’s total net debt to its adjusted earnings before interest, tax, depreciation and amortisation. The Company and
a number of subsidiaries have entered into cross guarantee arrangements to secure the drawings under this facility.
2015
£m
0.4
0.4
2015
£m
0.3
2.1
2.4
2014
£m
0.5
0.5
2014
£m
0.3
2.5
2.8
7 Creditors
Creditors: amounts falling due after more than one year
Other creditors
8 Provisions for liabilities and charges
Property leases
Other
Movement in provisions:
Property leases
Other
Provision 1
January 2015
£m
Arising during
the year
£m
Released during
the year
£m
Utilised during
the year
£m
Provision 31
December 2015
£m
0.3
2.5
2.8
–
(0.2)
(0.2)
–
(0.1)
(0.1)
–
(0.1)
(0.1)
0.3
2.1
2.4
Property leases
The provision for property leases is in respect of leasehold premises, from which the Company no longer trades, but is liable to fulfil
rent and other property commitments up to the lease expiry dates. Obligations are payable within a range of one to seven years.
Amounts provided are management’s best estimate of the likely future cash outflows. The provision has been discounted using
market interest rates. The undiscounted provision is £0.3 million (2014: £0.4 million).
Other
Other provisions include a number of employee and legal amounts. Included in the above is a provision for £1.4 million (2014: £1.4
million) for ongoing litigation related to a former Trados shareholder’s claim of breach of fiduciary duty by the former Trados Directors
on the sale of Trados to SDL in 2005. The Company paid $1.85 million in full and final settlement of this litigation on February 2016.
107
Financial StatementsFinancial StatementsFinancial Statements
9 Share capital
Allotted, called up and fully paid
Ordinary shares of 1p each
At 1 January 2015
Issued on exercise of share options
Issued on exercise of LTIPS
Issued as payment of contingent consideration
At 31 December 2015
millions
£m
81.0
0.1
0.1
0.1
81.3
0.8
–
–
–
0.8
The following movements in the ordinary share capital of the
company occurred during the year:
1.
101,571 ordinary shares of 1p each were allotted under
the SDL Share Option Scheme (1999), SDL Share Option
Scheme (2010) and earlier Unapproved Option Schemes at
a price range of 119 pence to 375 pence per share for an
aggregate consideration of £264,321.
2.
138,205 ordinary shares of 1p each were allotted under the
SDL LTIP 2011 Scheme.
3.
4.
2,844 ordinary shares of 1p each were allotted under the SDL
Save As You Earn Schemes for an aggregate consideration
of £7,997.
In March 2015, 87,068 ordinary shares of 1p each were
allotted to four former shareholders of Bemoko Consulting
Limited as final payment of the contingent consideration
due as a result of the acquisition of Bemoko Consulting
Limited by the group in 2013.
10 Commitments and contingencies
The future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:
Within one year
After one year but not more than five years
More than five years
All amounts are attributable to equity holders of the parent.
Land and Buildings
2014
£m
2015
£m
1.0
4.1
0.2
5.3
1.0
4.2
1.2
6.4
108
Annual Report 2015Financial Statements
11 Share based payment plans
During 2015, the total share based payment charge amounted to £1.5 million (2014: £1.2 million). Of this amount, £0.3 million
(2014: £0.9 million) has increased the cost of investment in subsidiaries as the relevant share based payments were granted to
the employees of the subsidiaries. Total share based payments recharged to subsidiaries was £0.7 million (2014: £nil). Equivalent
disclosures are made in the consolidated financial statements.
12 Explanation of transition to FRS 101 from old UK GAPP
As stated in note 1, these are the Company’s first financial statements prepared in accordance with FRS 101.
The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended 31 December
2015 and the comparative information presented in these financial statements for the year ended 31 December 2014.
In preparing its FRS 101 balance sheet, the Company has not adjusted amounts reported previously in financial statements prepared
in accordance with its old basis of accounting (UK GAAP) as the transition from UK GAAP to FRS 101 has not affected the Company’s
financial position.
Amounts owed to group undertakings of £23.7million (2014: £24.8million) previously included in creditors: amounts falling due
after more than one year were reclassified to creditors: amounts falling due within one year. This has affected the financial statement
captions but not the financial statement position.
13 Profit attributable to members of the parent company
The profit dealt with in the financial statements of the parent Company is £0.6 million (2014: profit of £10.2 million). No profit and
loss account is presented for the Company as permitted by Section 408 of the Companies Act 2006.
14 Post balance sheet events
There are no other known events occurring after the statement of financial position date that require disclosure.
109
Financial StatementsFinancial StatementsFinancial Statements Five year group summary
Year Ended 31 December:
Turnover (notes 1, 2 and 3)
Growth in revenue
Operating profit before one-offs,
depreciation and amortisation
Operating profit / (loss)
Profit / (loss) before tax
Profit / (loss) after tax
Non-current assets
Cash and cash equivalents
Net current assets less current liabilities
Total assets less current liabilities
Equity interests
Average number of employees (thousand)
Earnings per share – basic
(adjusted for movements in capital)
(notes 1, 2, and 3 )
Adjusted earnings per share (before one-offs,
depreciation and amortisation)
Notes:
(1) 2011 – Acquisition of Calamares Holding BV Group
(2) 2012 – Acquisition of Alterian plc Group
(3) 2013- Acquisition of Bemoko Consulting Limited
IFRS
2015
£m
266.9
2%
24.3
(25.1)
(25.2)
(30.7)
169.4
17.2
(0.6)
176.4
166.9
3.5
(37.93)p
IFRS
2014
£m
260.4
-2%
21.5
9.7
9.4
6.6
210.0
22.1
(8.7)
208.3
202.1
3.2
8.03p
IFRS
2013
£m
266.1
-1%
13.3
(24.0)
(24.4)
(27.9)
218.6
18.2
(17.9)
206.0
196.5
3.2
IFRS
2012
£m
269.3
18%
41.0
27.7
27.4
20.9
243.3
28.5
(10.3)
239.0
227.8
2.8
IFRS
2011
£m
229.0
13%
42.5
33.5
33.8
25.7
161.6
70.4
58.9
226.3
217.8
2.3
(34.78)p
26.12p
32.72p
16.13p
15.10p
2.57p
35.41p
38.23p
110
Annual Report 2015Financial Statements Company Information
Directors
David Clayton
(Executive Chairman)
Dominic Lavelle
(Chief Financial Officer)
Chris Batterham
Mandy Gradden
Alan McWalter
Glenn Collinson
Secretary
Pamela Pickering
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Bankers
HSBC Bank PLC
Apex Plaza
Reading
RG1 1AX
Solicitors
DLA Piper
3 Noble Street
London
EC2V 7EE
Registrars
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Stockbrokers
Investec Henderson Crosthwaite Corporate Finance
(a division of Investec Bank (UK) Limited)
2 Gresham Street
London
EC2V 7QP
N+1 Singer Capital Markets Ltd
One Hanover Street
London
W1S 1YZ
Registered office
Globe House
Clivemont Road
Maidenhead
Berkshire
SL6 7DY
Registered in England and Wales Number 2675207
www.sdl.com
111
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Registered in England and Wales Number 2675207
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