Humanising the
Digital World
Annual Report 2016
i
ii
1
The Digital
World in 2017
How the digital world
changed in 2016 and
why organisations need
to adapt.
page 20
Chief Executive
Officer’s Review
A snapshot of 2016
performance and where
we go from here.
page 10
challenge opportunity
2
Growth
Markets
Growth strategies
in an Age of
Understanding.
page 48
25 Years
of SDL
Our lasting legacy
in global business.
page 32
challenge opportunity
3
Stepping onto a brand-new path is
difficult, but not more difficult than
remaining in a situation.
Maya Angelou
4
Table of Contents
Strategic Report
Governance
Chairman’s Introduction
Chief Executive Officer’s Review
Asterisk – Not Business Risk
The Digital World in 2017
25 Years of SDL
Relaunching SDL
8
10
16
20
32
36
38
Ten Principles
40 What We Do
48
56
63
66
68
People Strategy
Building Our Capacity for Growth
Chief Financial Officer's Review
Principal Risks and Uncertainties
Corporate Responsibility
Directors’ Report
Board of Directors
Chairman’s Introduction
Corporate Governance Report
76
77
81
85
90
Audit Committee Report
94 Nomination Committee Report
96 Directors’ Remuneration Report
121
Statement of Directors’ Responsibilities
in Respect of the Annual Report and the
Financial Statements
Financial Statements
124
Independent Auditor's Report
129 Consolidated Financial Statements
and Related Notes
167 Company Financial Statements and
Related Notes
177 Five Year Group Summary
178 Corporate Information
5
6
SDL Annual Report Strategic Report
Chairman’s Introduction
Chief Executive Officer’s Review
Asterisk – Not Business Risk
The Digital World in 2017
25 Years of SDL
Relaunching SDL
8
10
16
20
32
36
38
Ten Principles
40 What We Do
48
56
63
66
68
People Strategy
Building Our Capacity for Growth
Chief Financial Officer's Review
Principal Risks and Uncertainties
Corporate Responsibility
7
STRATEGIC REPORT
SDL Annual Report
Chairman’s Introduction
David Clayton
Looking back on the last
year, 2016 was pivotal in our
transformation, and it positioned
SDL to take full advantage of the
opportunities available to us.
2016 Achievements
The most important development was the
recruitment of Adolfo Hernandez as Chief Executive
Officer in early April 2016. Adolfo brings a wealth
of experience and leadership capabilities, which I
believe are critical in ensuring SDL achieves its full
potential in an expanding market opportunity. He
refocused our strategic plans and built an Executive
Team with a deep understanding of the relevant
trends at the intersection of globalisation and digital
transformation and with the requisite skills and
experience to deliver results. The Executive Team
has been assembled with a healthy mix of people
with many years of experience within SDL, carefully
supplemented by the recruitment of leaders with
the necessary experience of building businesses to
market leadership positions.
Furthermore, in July 2016, we restructured our
business so we can help our customers accelerate
the global transformations of their businesses using
the full portfolio of SDL’s capabilities. To help convey
our mission and vision, we launched a new brand
identity which was well received by both customers
and employees alike. The speed of delivery and the
impact we were able to achieve with these initiatives
is a testimony to the skills and experience of the new
Executive Team.
8
Operational Review
Dividend
The financial results and our confidence in the future
performance of the business have resulted in the
Board recommending that we realign our dividend
through a doubling of last year’s payment. Therefore
we are recommending a full year dividend of 6.2p, a
100% increase. It is the Board’s intention to follow a
progressive dividend policy in the future.
Outlook
We believe that we have the right leadership team,
strategy and portfolio of products and services to
continue growing and further develop our market
position. There is much work still to be done before
we can say that SDL has reached its potential. As
we continue into the next phase of our journey and
execute on our strategic plan, the Board remains
confident of another year of profitable growth.
Despite big changes within the Executive leadership
of SDL, I am pleased to report that we have been able
to grow both revenue and profit. This growth in itself
is a credit to all employees within our business. Their
ability to continue to focus on delivering to the needs
of our customers has been critical to the achievement
of our goals. On behalf of the Board, I would like
to record my thanks to all our employees for their
dedication, professionalism and hard work during a
time of considerable change.
As part of the operational review we undertook at
the end of 2015, we decided to refocus our business
and as a result decided to divest certain Non-Core
businesses. Those businesses continued to deliver
good results despite the distraction of the sale
processes. We have successfully concluded the sale
of our Campaign business and the completion of the
sale of our Fredhopper business is expected during
the week commencing 6 March 2017; I am sure
the businesses will continue to perform well under
their new ownership. The sale process for the Social
Intelligence business is ongoing.
Our Board
In addition to welcoming Adolfo Hernandez to the
Board in April 2016, Christopher Humphrey joined
the Board as a non-executive Director in June 2016.
I would like to formally welcome Chris to the Board.
He brings extensive experience to our discussions,
having recently retired as the CEO of Anite plc. We
have already benefitted from his relevant and valuable
insight.
At the Annual General Meeting in April 2017, Chris
Batterham will not stand for re-election as a Director
of our Company. Having joined the Board in October
1999 and seen the Company through significant
periods of growth and change we will miss his
contributions as a Director and friend of SDL. His
wise and thoughtful counsel to myself, the rest of the
Board and my predecessors has been hugely valued.
David Clayton
Chairman
9
STRATEGIC REPORT Chief Executive Officer’s Review
Adolfo Hernandez
The vast quantity and diversity of
content created and delivered through
global companies is the challenge our
global customers are grappling with.
It includes everything from marketing
collateral, user guides, to community
generated content.
Market Opportunity
As a company that pioneered both managing and
translating this wide array of content, I see how our
business has a dramatic impact on every interaction
a customer has with a product or service. And from
what we can see, the amount of content delivered to
worldwide customers continues to expand rapidly. About
15 years ago, Eric Schmidt of Google calculated the
amount of content created from the beginning of time,
and it came to 2.5 million terabytes. This same volume of
content is now generated every two days.
As our world continues to transform into a more
integrated global economy, the need to manage
content and convey it in a meaningful way to worldwide
audiences continues to grow. For SDL, this means helping
companies take their digital content global, delivering it
in locally relevant ways. We do this by helping companies
author, manage, translate and distribute content. We
also have the know-how and knowledge to help these
customers go global faster and more efficiently. On
top of all of this, we are adding a more robust layer of
information security and confidentiality, which is growing
in importance continually.
Adolfo Hernandez, Chief Executive Officer
With deep commitment, Adolfo values foresight,
vigilance, execution and teamwork as the keys to
success. CEO of SDL since April 2016, his career
demonstrates his leadership: from international
software and services leadership positions in
companies like IBM and Sun Microsystems, to EVP of
Global Software, Services & Solution Group at Alcatel-
Lucent. He then spent two years as CEO in private
equity-backed Acision (Xura), where a successful exit
was delivered by way of a merger.
10
SDL Annual Report STRATEGIC REPORT
70% Source: “Remove Translation Barriers That Obstruct Digital Experience Success”,
of global companies still don’t have
integrated content management
translation processes
Forrester Research, Inc, November 2016
We recently commissioned Forrester Research to
evaluate the shift toward global web and content
operations. Forrester conducted in-depth surveys
with 151 business and IT professionals in the US and
their efforts revealed that more than 92 percent
of enterprises still struggle with localisation. The
traditional process is filled with inefficiencies and less
than optimal quality. Additionally, many enterprises
are still trying to come to terms with even basic
global rollouts, let alone fully synchronised content
to the different channels that individuals in local
markets prefer and use.
SDL is uniquely positioned in the market with its
breadth and depth of content and language assets.
Our market will stay strong despite the increasing risk
of protectionism – companies will continue to sell
to a global marketplace and will continue to deliver
digital content to a borderless world in multiple
languages and formats. And they need to control the
process to get the content translated and managed
efficiently.
With language and content at its core, SDL is well
positioned to take advantage of these opportunities –
the opportunities for SDL are here to stay.
Business Strategy
Over the past year, the Board and the Executive
Team examined our model and approach to global
content by taking the time to speak with and
understand the needs of our customers. We learned
that although we have all the ingredients to help our
customers go global successfully, we need a more
integrated approach to serve them better – one
that brings together all of the pieces of the content
globalisation puzzle.
The most fundamental change made in the last year
is the way in which we have embraced our core
content management and translation strengths and
built around them. We recognised the diversity and
breadth of the technology and services we have and
created a strategy to bring everything together to
solve real customer problems.
Forrester’s research on Building a Global Operational
Model indicates that 70 percent of global companies
still don’t have integrated content management
and translation processes. Our mission is to help
our customers go global faster by addressing
this challenge. We help facilitate understanding
between companies and their customers through
our range of translation services and consulting,
content management systems that deliver content
dynamically, and unparalleled translation technology
that addresses the entire translation supply chain.
By focusing on both content and language, global
expansion and local relevance, human and machine
translation, our portfolio of offerings helps companies
humanise the digital world by making the content
they offer more relevant and personal. Herein lies our
competitive differentiation: we can integrate content
and language processes and stakeholders together,
reach global audiences through local execution, and
combine software and machine learning with a great
team of services professionals around the world.
One of our most significant strategic shifts is a refocus
on our customers: understanding where they are and
what they need to succeed. We spent significant time
sharing SDL’s new strategy and ambition to work with
them for our mutual success. Over the coming year,
our ability to cross-sell continues to be fundamental:
building our relationship with happy customers who
want to expand into the full range of products and
services we sell.
And to keep up with the pace of the rapidly changing
digital landscape, we must be committed to
prioritising our investments in technology. From a
technology perspective, we are focused on building
software tools to automate global content creation,
content management and translation processes,
simplifying the content lifecycle for our clients.
Our customers benefit from these integrated
solutions so we are extending the integration of our
technology portfolio throughout all of our software
and services to deliver even greater value – from
machine translation to predictive analytics, and from
translation productivity to suggestion engines.
11
We remain committed
to content management
technology with an
emphasis on unifying
content delivery.
12
Global Content Technologies
We continue to focus on content management technology
with an emphasis on unifying content delivery, so that
all digital touch points are relevant and personal. By
expanding our portfolio of connectors, we will bridge
any source content with our translation capabilities to
simplify the user experience across the content lifecycle.
Our continued investment in the cloud for our content
and language technologies will ensure that any company
in the world, no matter what size, can access the content
management and translation solutions they need.
Furthermore, we have made it a priority to make sure
that our software technology is fully integratable and
integrated. As an example, we are embedding translation
management functionality directly within SDL Web
to enable streamlined review and editing capabilities
throughout the content development lifecycle. The
resulting innovative integrated solution provides translators
with greater context for how their work will appear in the
final website, and content owners can apply last minute
edits to web pages without sacrificing translation quality
or consistency. Not only do our customers benefit from
this type of solution, but we are extending the integration
of our extensive portfolio of technology capabilities –
from machine translation, predictive analytics, translation
productivity, suggestion engines – throughout all of our
software and services to deliver value to our customers
quicker and more efficiently.
Language Technologies
We continue to build on our position of strength in
Language Technologies. Our translation productivity
leadership prevails with new versions of SDL Trados
Studio and SDL Trados GroupShare. With SDL Trados
Studio, we are focused on driving the translation industry
forward through technology that improves a translator’s
quality, accuracy and speed. Combined with SDL Trados
GroupShare, which secures collaboration between internal
and external translators and teams, translators work faster
and smarter.
SDL has been at the forefront of machine translation (MT)
since 2005 with the introduction of the first Statistical
MT technology, and this is one of the most exciting areas
of innovation I see within SDL. This year, in our latest
release of SDL Trados Studio, we delivered AdaptiveMT.
This innovative technology works with and not against the
translator: AdaptiveMT tracks and learns from the delta
between standard machine translation and personal edits,
drastically speeding up translation time, improving quality
and increasing usability.
We now see Neural MT as a new disruptive wave for
our market, and we are significantly investing in this
SDL Annual Report exciting technology. Even in its current nascent form,
Neural MT offers significant quality improvements and
a radically different modelling paradigm that enables
new opportunities for innovation in the fields of Natural
Language Processing.
Our renewed focus to commercialise MT allowed SDL to
secure large wins in government entities, big enterprises
and more recently even other Language Service Providers.
Language Services
To meet the demands of our customers, SDL translates
over 100 million words per month through our 1,100
in-house linguists in 38 countries and our vast network
of freelance translators. To maintain our status as an
ISO-certified translation company, all of our in-house and
freelance translators must pass the strict guidelines and
tests required by this international standard.
In 2016 we also segmented the Language Services market
in terms of needs and attractiveness. As a result, we
started to shift our services efforts to premium segments
where high value, creative and secure content is generated
at scale. For the more standard market, we have embarked
on a journey to fully automate the process to deliver time
and cost savings at scale.
This year, to continue to deliver high quality 24/7 service
we integrated all our service delivery teams into a single
global organisation, sharing best practices and resources
across the globe. Our newly launched Localisation Process
Consulting offering helps our global customers implement
these industry best-practices based on our 25 years of
experience in localising and managing global content. And
to support our growth into premium verticals, we built out
dedicated delivery teams that specialise in delivering to
premium segments including life sciences and marketing
transcreation.
Humans alone are not enough to translate all the content
in the world, and SDL has always played a pioneering role
in technology that increases human productivity – from
the adoption of translation memory technology in 2000
to introducing machine translation paired with human
post editing in 2003. Since then, we have focused on
continuously training our MT engines and combined this
with professional post editing to deliver optimal quality
for each customer. The AdaptiveMT I mentioned earlier
is expected to deliver an additional 20% productivity
increase.
With our investment in machine learning and services
automation, we continue to push human productivity as far
as possible, combining the power of humans and machines
and optimising the mix to deliver the greatest efficiency
and value for our customers and our business.
We are on a mission to enable
organisations to establish
a personal connection with
customers worldwide. We seek to
eliminate language as a barrier
to communication and help the
world connect.
13
STRATEGIC REPORT Our Customers
As a company focused on globalisation, we have
a great base of global customers and our success
relies heavily on our local presence in 55 offices in
38 countries around the world. Moving forward we
will continue to gain a deeper understanding of our
existing customers, how they use SDL solutions, what
we can improve and how we can further enable
and expand customer success and adoption of SDL
products and services.
By analysing our customer data, we understand where
we win and where we have opportunities to cross-sell.
To build on our current successes, we are bringing
our value proposition to market by industry vertical,
executing an aligned target-selling and account-based
marketing strategy within identified accounts in which
we have a right to win.
We are also investing in adjacent opportunities
that will enable us to grow our customer footprint,
including life sciences, marketing solutions, machine
learning, and connectors. Our global but local strategy,
combined with human services and technology within
a content and language focus will enable us to deliver
transformative business results to our customers.
Financial Performance
Financially, SDL had many positives in 2016,
including significant technology deals across all its
products, the return to profitability of our Global
Content Technologies segment, the significant
revenue growth in Machine Technology, excellent
Translation Productivity performance, a turn-around
in Professional Services profitability and a diversity
of business from different regions, industries and
customers. These are significant achievements
in a year where we went through a substantial
transformation.
SDL closed out the year with revenue from Continuing
Operations up 10% at £264.7 million. An 8% increase
in our Language Services business, 24% increase in
our Language Technologies business and 6% increase
in our Global Content Technologies business drove
this growth. Adjusted PBTA for Continuing Operations
was £27.0 million (margin 10.2%) (2015: Group £20.6
million, Continuing Operations £24.2 million, margin:
14
10.0%). Machine Translation technologies grew by
72%, increasing to £9.7 million in 2016 from 2015
revenue of £5.6 million as we begin to monetise this
activity more proactively.
The Group finished the year with cash balances of
£21.3 million and no debt.
Looking Forward
Whilst events like Brexit and the worldwide changing
political climate are expressed in a challenge to
globalisation, in the end, our enterprise customers
will continue to market their goods and services
globally (even if they produce more goods in their
own countries). Thanks to the internet, the majority
of profits for many global businesses come from
outside the country where those organisations are
headquartered. These enterprises need support to
take these products (and associated content) globally
faster and while there is a climate of uncertainty,
we see no other major impact to our business. We
might even experience some benefits as we can own
some global execution programmes on behalf of our
customers.
For SDL, 2016 was about assessing the business,
setting the strategy and stabilising the business. 2017
is the year of execution. With a new go-to-market
model in place, we will focus on key accounts and
cross-selling while becoming a more agile company
through our people, processes and systems. We will
also focus on integrating and automating translation
capabilities wherever content is managed and
complete the convergence of our software stacks in
the cloud.
In 2017, we continue to focus on technology
innovations like machine learning, and also push the
boundaries of how people use technology moving
towards technology-enabled services. To ensure
visibility and focus on execution and delivery of our
strategy, we have deployed cascading goals and
balanced scorecards across the organisation. With
an aligned plan of execution, revamped processes
to improve operational efficiency, and a focus on
injecting technology into the organisation, we are
working hard to create a more scalable platform.
We have the foundations in place to transform our
business and, in turn, help our customers go global
faster.
Adolfo Hernandez
Chief Executive Officer
SDL Annual Report STRATEGIC REPORT
SDL Three-Year Plan
2016
Wave 1: Assess & Form
2017
Wave 2: Norm & Transform
2018
Wave 3: Perform
Complete divestments
Accelerate revenue
✔ Detailed business
review
✔ Strategy and
accountabilities set
✔ Org model
implemented
✔ Transformation
programme developed
✔ Focus on our
customers’ needs
Optimise org and team
Monitor new go-to-
market strategy
Increase quality of
revenues
Revenue growth from
premium verticals
(especially Life Science
and Marketing)
✔ New go-to-market
Drive cross-selling
strategy
✔ SDL brand relaunch
✔ P&L managed and
stabilised
✔ Divestments under way
✔ Financial plan
developed
Implement MT
commercial strategy
Transformation
programme:
implementation & quick
wins
Technology convergence
✔ Investments prioritised
Maintain cash
stewardship
✔ KPIs set
Build scalable platform
for sustainable revenue
and EPS growth
growth
Drive operational
leverage
Exploit full benefits
of transformation
programme and
investments
Extend leadership
in MT and premium
verticals (Life Science
and Marketing)
Further premium
vertical expansion
Continue to review
uses of cash, including
acquisitions
15
Asterisk – Not Business Risk
Going global faster. This is the goal of many
companies and the potential return on investment
is huge. However this goal comes with major risks
if you don’t address the following trends.
The cloud’s the thing
In the rightscale.com Annual Cloud Compu ng Trends Survey, 77% of
surveyed enterprise users said they were adopting private clouds
in 2016, which is up from 63% in 2015.
It is no longer a ques on of whether
your company will move data to the
cloud, it is a ques on of when and
what mixture of public and private
cloud you will use.
77%
63%
$70b
$141b
2015
2016
2019
Worldwide spending on public cloud services will grow from nearly $70 billion in 2015 to
more than $141 billion in 2019.
(source: Forbes Magazine)
More traffic,
more opportunities
Over the past five years Internet
traffic has increased fivefold
according to Cisco.
2012
2013
2014
2015
2016
16
Global Internet traffic will surpass 1 ze(cid:11)abyte (1 billion terabytes),
and will be connected to the internet through different devices.
24 billion
connected devices
2020
Business Insider predicts by 2020 there will be 10 billion tradi onal
compu ng devices (like computers, smartphones and tablets) and
24 billion other smart devices connected to the Internet.
Asterisk – Not Business Risk
Going global faster. This is the goal of many
companies and the potential return on investment
is huge. However this goal comes with major risks
if you don’t address the following trends.
Security and
your content
When moving to the cloud, companies face a lack of resources, experience and security.
Areas of concern include:
How secure is the transport mechanism for your content?
How secure are the systems that store your content?
How secure is the methodology used for transla(cid:1)on of your content?
What mechanisms/processes are in place to ensure your
translated content is yours and cannot be used to benefit others?
The cloud’s the thing
In the rightscale.com Annual Cloud Compu ng Trends Survey, 77% of
surveyed enterprise users said they were adopting private clouds
in 2016, which is up from 63% in 2015.
Essential technologies that will impact our world:
It is no longer a ques on of whether
your company will move data to the
cloud, it is a ques on of when and
what mixture of public and private
cloud you will use.
77%
63%
$70b
$141b
2015
2016
2019
Worldwide spending on public cloud services will grow from nearly $70 billion in 2015 to
more than $141 billion in 2019.
(source: Forbes Magazine)
More traffic,
more opportunities
Over the past five years Internet
traffic has increased fivefold
according to Cisco.
2012
2013
2014
2015
2016
24 billion
connected devices
2020
Business Insider predicts by 2020 there will be 10 billion tradi onal
compu ng devices (like computers, smartphones and tablets) and
24 billion other smart devices connected to the Internet.
Internet of Things:
Network of objects – devices, vehicles,
etc. – embedded with sensors, so…ware,
network connec(cid:1)vity and compute
capability that can collect and exchange
data over the Internet.
3D Printing:
Addi(cid:1)ve manufacturing techniques
used to create three-dimensional
objects based on digital models by
layering or “prin(cid:1)ng” successive
layers of materials.
Artificial Intelligence:
So…ware algorithms that are capable of
performing tasks that normally require
human intelligence, such as visual
percep(cid:1)on, speech recogni(cid:1)on,
decision-making and language transla(cid:1)on.
(source: DOMO study Data Never Sleeps 4.0)
Global Internet traffic will surpass 1 ze(cid:11)abyte (1 billion terabytes),
and will be connected to the internet through different devices.
Content is exploding
More data has been created in the
past two years
than in the en(cid:1)re previous
history of the human race.
By the year 2020 about
1.7 megabytes
of new informa(cid:1)on will be
created every second for every
human being on the planet.
1.7 MB
1.7 MB
1.7 MB
Begining of
human history
2015/2016
2020
(source: Forbes.com)
17
Your growth opportunities may not be where you think they are
90%
74%
50%
of the world’s
popula(cid:2)on is now
connected to the
Internet.
90%
of the US
popula(cid:2)on is
connected and
74%
of Europe's
popula(cid:2)on have
internet access.
46%
29%
Areas of growth:
Africa where only 29%
of the popula(cid:2)on is connected
and Asia where 46%
of the popula(cid:2)on is connected.
(source: www.internetworldstats.com)
People want their content personal and relevant
Of the companies surveyed for the Forrester Report “Digital Experience
Technology and Delivery Priori(cid:2)es, 2016“, 68% of respondents stated their
highest priority for their web and mobile ini(cid:2)a(cid:2)ve was
delivering personalised experiences.
68%
18
Nearly three-quarters of online customers
get frustrated with web sites where content appears
that has nothing to do with their interests.
(source: CMO)
90%
of the US
popula(cid:2)on is
connected and
74%
of Europe's
popula(cid:2)on have
internet access.
46%
90%
74%
50%
of the world’s
popula(cid:2)on is now
connected to the
Internet.
29%
Areas of growth:
Africa where only 29%
of the popula(cid:2)on is connected
and Asia where 46%
of the popula(cid:2)on is connected.
(source: www.internetworldstats.com)
Of the companies surveyed for the Forrester Report “Digital Experience
Technology and Delivery Priori(cid:2)es, 2016“, 68% of respondents stated their
highest priority for their web and mobile ini(cid:2)a(cid:2)ve was
delivering personalised experiences.
68%
Your growth opportunities may not be where you think they are
Personalisation includes language
Most people prefer reading
in their own language.
72%
...of people surveyed by Common
Sense Advisory said they are more
likely to buy a product with
informa(cid:6)on in their own language.
56%
...said the ability to obtain
informa(cid:6)on in their na(cid:6)ve
language is more important
than price.
Choosing the right languages is not as easy as you might think
The top 10
languages used on
the web will reach
78%
of the world’s
Internet users.
78%
One would expect the current language specific
content to have similar propor(cid:6)ons to the number
of Internet users for that language but that is not
the case. For example the popula(cid:6)ons of English,
Chinese and Spanish speakers represents 54.8% of
the Internet users of the world.
(source: Web Technology Surveys)
People want their content personal and relevant
Maintaining your brand
By 2017
51%
Nearly three-quarters of online customers
get frustrated with web sites where content appears
that has nothing to do with their interests.
(source: CMO)
51% of companies will
have an execu(cid:6)ve in their
organisa(cid:6)on responsible for
overall content strategy.
This is because 68% of brand managers
find it difficult to ensure brand consistency on
a global scale. Your content is only as good as
its ability to represent your company.
(source: Curata)
19
The Digital World in 2017
Human and Digital: Humanising Content
in a Digital World
The more plentiful a commodity, the less it’s usually
worth. But when it comes to content, the opposite seems
to be true. Content is the driving force behind the digital
tidal wave every business is riding. What makes it so
valuable when there’s so much of it?
20
SDL Annual Report STRATEGIC REPORT
The global content explosion dovetails with an
overarching consumer demand for increased
personalisation – the human touch. In this customer-
centric market, the brand differentiation that caters to
this desire is the lifeblood of successful enterprises.
While products and services can only be personalised
to a certain extent, content has the versatility to
create a targeted impact on any number of customer
segments at a fraction of the cost and effort of
traditional marketing methods.
21
The Digital World in 2017: Human and Digital
There is far more ROI and brand-building potential in
content than most businesses are aware. 47% of B2B
buyers are willing to consider vendor-related content
as trustworthy. Content, counter to typical rules of
supply and demand, is therefore a veritable treasure
trove for the people and businesses that create it. The
time, energy, and money that go into creating quality
content does not have to be – and in fact, should
never be – a sunk cost.
That’s because content can forge human connections
on a large-scale and ongoing basis. You can reach 90%
of the internet using only 21 languages, but the bulk
of companies only reach a handful of these markets.
For companies already using content marketing
tactics, this is a major opportunity. Going global
doesn’t present the same daunting challenge it did a
decade ago. As more businesses expand across the
world, the expectation of quality content available at
all times in the customer’s language increases.
This absolute accessibility is the game changer for
businesses, which matters when globalisation is about
more than just finance, goods and services but about
cross-border data. Even with state-driven efforts by
some countries to control access to information, by
the end of 2016, it is estimated that cross-border data
increased 20 times more than it did in 2008. Add in
the dimension of Big Data – an industry expected to
hit $102B by 2019 – and it’s clear that brands and
customers want to know and share everything with
one another. Combined with emerging technologies
like 3-D printing, it means that goods can be produced
locally by sending data directly to the consumer,
without ever having to touch a shipping container.
In a borderless digital world, protectionism will
place an even higher demand for content and digital
experiences as the only way to foster customer
relationships and demand and preserve global
revenue streams.
Content, as plentiful as it is, serves companies by
facilitating a personal relationship with consumers.
But like raw diamonds, content requires extensive
and expert handling to derive the full value. Unlike a
physical commodity, content is boundless in terms of
location, language, time and use cases. We are only
beginning to scratch the surface of what’s possible
when we put content to intelligent, and authentically
human, use.
The flow of digital
information around the
world has more than
doubled between 2013
and 2015.
Source: McKinsey Global Institute
140.8
Total cross-border
bandwidth used in
thousands of gigabits
per second.
Source: Telegeography:
McKinsey Global
Institute
97.9
67.5
70.5
48.8
33.3
2012
2013
2014
Intraregional
Interregional
22
SDL Annual Report Putting the
Customer First
Customer Story – China Airlines
China Airlines is Taiwan’s flagship
airline. It is one of the top ten airlines
in the world, with routes to 143
destinations in 29 countries.
“Putting the customer first” in China Airline’s digital
experience meant understanding where the traveller
was, delivering what they needed across any channel
they chose, all while keeping them connected to their
social networks.
Until recently, China Airline’s websites were
comprised of numerous agency-driven websites,
which were run independently, making it impossible
for the airline to share content or maintain brand
consistency. With the help of SDL, China Airlines
launched its new US website in just 16 weeks.
The website now displays content tailored to the
traveller’s location, and the destination a visitor
searches for. The hero banner uses personalisation
features to improve visitor experience while
its personalised interface provides an optimal
experience across PC, mobile and tablet devices and
connects to social media (Facebook, Weibo, WeChat,
YouTube and Instagram).
Delivering a personal experience wherever their
customer is around the world has led to significant
payoffs for China Airlines: “It took just 16 weeks
to launch the US website. Following its launch, the
amount of traffic doubled, and conversion rates
increased by 90%.” Jenny Tsao, VP of Passenger
Marketing.
STRATEGIC REPORT
It took just 16 weeks to
launch the US website.
Following its launch, the
amount of traffic doubled,
and conversion rates
increased by 90%.
Jenny Tsao
VP of Passenger Marketing
China Airlines
www.china-airlines.com
23
SDL Annual Report
The Digital World in 2017
Global and Local: Scaling Without
Losing the Local Advantage
This global marketplace is fast-paced,
highly demanding and always on. Speed of
communication and constant connectedness
can work against companies just as easily.
24
SDL Annual Report STRATEGIC REPORT
Customers around the world are online
every minute of every day, searching for
relevant content, information and answers
to their questions. The question is: who
will reach them first?
25
If business competition is a race to achieve face-time
with customers, then both speed and strategy are
needed. Companies must provide consistency, both
in terms of brand and customer experience. This
requires centralised and localised content that can be
delivered in any format across any channel.
What happens when a company needs to launch
simultaneous global campaigns? Before, it was
an unpredictable chain reaction of manual
communication and decentralised translations. But
when content is properly managed, it can easily be
disseminated, accessed, translated and amplified.
By investing in a global strategy up front, companies
can decide how best to leverage the changing
commercial landscape. Whilst speed, efficiency, and
consistency are key benefits, the winning formula
always comes down to what serves your customers
best. A global strategy takes this into account,
prioritising local relevance as much as scale.
In this race to global customers, the first to get there
also has to be the most relevant. Anything less than
relevant content is, in effect, invisible to the market
segment you serve.
21
languages are
needed to reach
90% of online
audiences
The Digital World in 2017: Global and Local
By investing in a global
strategy up front, companies
can decide for themselves how
best to leverage the changing
commercial landscape.
How many languages does it take to reach
90% of online audiences?
1. English
2. Japanese
3. German
4. Spanish
5. French
6. Simplified
Chinese
7. Italian
8. Portuguese
9. Dutch
10. Korean
11. Arabic
12. Russian
13. Swedish
14. Traditional
Chinese
15. Norwegian
16. Polish
17. Turkish
18. Danish
19. Finnish
20. Persian
21. Hebrew
Source: ROI Lifts the Long Tail of Languages in
2012, Common Sense Advisory, 26 June, 2012
26
SDL Annual Report STRATEGIC REPORT
SDL leveraged its superior
local human resources to
provide us with services to
operate our website and
optimise content for 14
countries.
Qian Jinsong
Senior Manager
Huawei EBG Sales and Marketing
Deliver a Local Experience
Around the World
Customer Story – Huawei
Huawei is a leading provider of global
information and communication
technology solutions. Operating in 170
countries, its solutions reach over a
third of the world’s population.
Huawei needed to create content and convey
messages that resonated across languages and
cultures. Delivering digital marketing experiences on
a global scale, maintaining brand consistency, whilst
still delivering regionally nuanced understanding
is complex and requires in-country knowledge to
be successful. Huawei leveraged SDL’s marketing
services located in 37 countries, to deliver a local
experience around the world.
“SDL leveraged its superior local human resources to
provide us with services to operate our website and
optimise content for 14 countries,” says Qian Jinsong,
senior manager, Huawei EBG Sales and Marketing.
“They’ve become part of Huawei’s globalised
marketing strategy. The solution has significantly
increased responsiveness to the needs of frontline
sales and marketing managers. We’ve also seen this
solution foster an increase in traffic and conversion
rates in all markets.”
In less than one year, the number of visits, retention
time and conversion rate for the Huawei Enterprise
global website increased by more than 10 percent,
and in some countries by as much as 20 percent,
whilst the Huawei brand was unified globally.
www.huawei.com
27
The Digital World in 2017
Clear and Complex: Solving for
Complex Content Challenges
In today’s world, content is part of the customer
journey, driving consumers from awareness
to advocacy. Global brands no longer have the
capacity to hand-hold customers through each
step.
28
SDL Annual Report STRATEGIC REPORT
Scale has required content to step in and take over
care and tending to global customers. When done well,
content is a potent force that propels customers along
their journey. When done without consideration to
understanding, content is no more than wasted effort
and can actually hurt the brand.
29
The Digital World in 2017: Clear and Complex
Understanding each type of
content and its unique needs
sets brands up for a clearer, more
straightforward, and ultimately
more strategic approach.
This is because each movement along this journey is
an opportunity for the customer to continue on, or to
fall off. Businesses are at their most vulnerable when
bridging these gaps, which is why creating strong,
understandable content is so important.
The value of content increases the further it reaches,
but only if it’s relevant to end users. This is why
translation is so vital – it’s a way of deriving the
greatest benefit out of each piece of content. Complex
as it may seem to accomplish this at scale, machine
translation and natural language processing, though
not perfected yet, are fast becoming a practical
way to transform large volumes of text quickly. By
combining Language Technologies with a centralised
infrastructure and team, businesses can ensure that
their efforts to keep customers moving closer to
purchase no matter where they are in the world.
What Types of Content Does Your
Organisation Currently Localise?
Product content
Marketing messaging
71%
70%
Marketing and sales collateral
68%
Brand content
59%
Email & other customer comms
58%
30
Adding to the complexity is the growing trend of
serving consumers content before they request
it. From weather forecasts to driving directions,
technology is poised to anticipate a significant portion
of consumer behaviour. What this means for content
is that “instant” won’t always be good enough.
Relevance trumps speed when so much content is
available. As such, machine learning and translation
are expected to grow rapidly in the coming years as
the demand for instantaneous, high-quality content
grows.
With the potential to create relevant, personalised
experiences for customers anywhere in the world,
the question becomes: where will enterprises prefer
to invest – in creating more content, or in maximising
the worth of content they’ve already produced? With
the thousands of ads and volumes of information
customers process each day, personalised content
seems to be the only logical choice for cutting through
the noise. Until companies can guarantee that what
they produce will be read, pushing more content to
the world will not likely produce meaningful results.
Localised Content is Predominantly
Marketing and Product Focused
Base: 151 managers responsible for global
digital experiences in US enterprises.
Source: A commissioned study conducted
by Forrester Consulting on behalf of SDL,
August 2016
SDL Annual Report A Global Approach to a
Personalised Experience
Customer Story – NetApp
Throughout the world, leading
organisations rely on NetApp for
software, systems and services to
manage and store their mission-critical
data and applications. With offices in
over 150 locations worldwide, and in
excess of 12,000 employees, NetApp is
a truly global organisation.
The nature of NetApp’s business demands a global
approach to content creation. But the speed of its
growth and the increasing frequency of product
releases meant that its established methods for
creating content and localising were no longer
scalable. According to Anna Schlegel, Senior Director
Globalisation and Information Engineering:
“There is so much information in the world that the
only way to capture people’s attention is to make
the information that’s most relevant to them easily
accessible. What’s important is that you have the
ability to pick and choose what content gets served to
a person when they visit your brand whatever device
they’re on.”
With the help of SDL’s solutions, NetApp adopted
a new, integrated approach to content creation
and localisation to send content globally as quickly
as possible, whilst giving customers a personalised
experience.
STRATEGIC REPORT
There is so much
information in the world
that the only way to capture
people’s attention is to make
the information that’s most
relevant to them easily
accessible.
Anna Schlegel
Senior Director Globalisation
and Information Engineering
NetApp
www.netapp.com
31
25 Years of
Company founded by
Mark and Cris(cid:3)na
Lancaster in
Maidenhead, UK
SDL shares sold on the
London Stock
Exchange
1994
2000
1992
1999
Trados workbench
introduced to the
transla(cid:3)on industry
Launched cloud-based
transla(cid:3)on management
system
and over
200+ peer-reviewed scien(cid:16)fic
publica(cid:16)ons through our 10+years of
research in machine learning
41 patents
32
25 Years of
SDL powers...
...the top 14 automo(cid:7)ve
companies
....the top 11 consumer
electronics companies
Company founded by
Mark and Cris(cid:3)na
Lancaster in
Maidenhead, UK
SDL shares sold on the
London Stock
Exchange
Implemented machine
transla(cid:14)on + human
post edi(cid:14)ng
Launched web content
management solu(cid:14)on
1994
2000
2000
2005
2008
1992
1999
2003
2007
Trados workbench
introduced to the
transla(cid:3)on industry
Launched cloud-based
Launched cloud-based
transla(cid:14)on management
transla(cid:3)on management
system
system
Pioneered sta(cid:14)s(cid:14)cal
machine transla(cid:14)on
technology
Launched DITA-based
technical documenta(cid:14)on
management solu(cid:14)on
and over
200+ peer-reviewed scien(cid:16)fic
publica(cid:16)ons through our 10+years of
research in machine learning
20 billion words
machine translated per month
1100 in-country, in-house linguists
8500+ freelance translators
41 patents
100 million words
400+ so(cid:10)ware testers
professionally translated each month
33
6 of the top 7
banking companies
... the top 3 life
sciences companies
...the top 12 IT/so(cid:157)ware
companies
27 of the top 37
eCommerce/retail companies
Expanded SDL Trados
Studio with integrated
terminology and
collabora(cid:23)on
Nominated for European
Inventor Award for
pioneering Machine
Transla(cid:23)on research
2012
2014
2009
2013
Expanded SDL
Knowledge Center with
collabora(cid:23)on and
dynamic delivery
Launched Language
Cloud
31% savings in content
development costs
31%
93% Services RRR
350 universi(cid:23)es use SDL Technology to
prepare students for future careers
34
6 of the top 7
banking companies
... the top 3 life
sciences companies
Financial Highlights (2016 figures)
Linguis(cid:6)c U(cid:6)lisa(cid:6)on
49%
Wins in Life Sciences
8 of 9 global RFPs
...the top 12 IT/so(cid:157)ware
companies
27 of the top 37
eCommerce/retail companies
Technology ARR
£62m
MT Bookings
won 38 accounts
Services RRR
93%
Premium Revenue
£9.4m
Expanded SDL Trados
Studio with integrated
terminology and
collabora(cid:23)on
Nominated for European
Inventor Award for
pioneering Machine
Transla(cid:23)on research
Launched Adap(cid:6)ve MT
which integrates ar(cid:6)ficial
intelligence with
machine transla(cid:6)on
Delivers So(cid:127)ware and
Services for Human
Understanding for 78 of
the top 100 global brands
2012
2014
2016
2009
2013
2015
today
Expanded SDL
Knowledge Center with
collabora(cid:23)on and
dynamic delivery
Launched Language
Cloud
Launched Content Cloud
for unified content and
transla(cid:6)on management
in the cloud
31% savings in content
development costs
31%
350 universi(cid:23)es use SDL Technology to
prepare students for future careers
93% Services RRR
93% Services RRR
£265 million in
annual revenues with
10% annual growth rate
35
Relaunching SDL
2016 was our year to assess and form
our strategy to build our capacity
for growth. We are now well-poised
for transformation having divested
some of our non-core products and
reinvested our resources into several
key strategic areas. To this end, we
overhauled our story, our messaging
and our logo, and relaunched the new
brand in the Autumn of 2016 to the
world.
36
The angle of the asterisk balances the word mark and
symbol. This angle must always be 14°.
Pantone 7544
RGB (93, 110, 127)
C27, M13, Y0, K50
#5d6e7f
Pantone 7481
RGB (37, 189, 89)
C68, M0, Y85, K0
#25BD59
The SDL brand continues
to acknowledge the
legacy and equity we’ve
built with our green.
We have paired it with
a slate blue, furthering
the strength of the word
mark/asterisk union.
Blue and green are
particularly well-suited
as tonal counterparts.
SDL Annual Report We are on a mission to enable
organisations to establish a personal
connection with customers worldwide.
We seek to eliminate language as a
barrier to communication and help the
world connect.
Our Vision
Every person, regardless of the language they speak,
can participate in the global and local conversation.
We are the partner for companies with global
ambitions, and we will push the boundaries of
enterprise translation and content management,
allowing businesses to maintain richer conversations,
develop deeper customer loyalty and foster
more nuanced understanding in their particular
marketplace.
Our Mission
We commit to making our vision a reality. Online
and digital are fast becoming the main spheres for
human connection, and we believe in the importance
of understanding through better communication,
not just information. We are on a mission to enable
organisations to establish a personal connection
with customers worldwide. We seek to eliminate
language as a barrier to communication and help
the world connect. We will deliver the solutions and
technologies that allow companies to understand
customers. Customers to understand brands. And
people to understand each other.
Our Purpose
At the heart of our brand is our purpose. It’s why SDL
exists. We help the world communicate with each
other and understand how to overcome the challenges
of going global. We strive to capture all the levels of
meaning and multiply it across all languages, cultures
and mediums, structuring and delivering the entire
content life cycle that allow our clients to navigate
even extreme complexity.
To get to the level of sophistication that now exists
in today’s digital experiences required a pantheon of
visionary technology companies and their innovations:
Intel’s microprocessor, Cisco’s network, Amazon’s
ecommerce, and even Facebook’s digital friendships.
The next advancement requires connecting all of the
world’s information to people, and that this is vital for
modern business. This is why SDL is proud to honour
its legacy and excited to embrace our future.
Peggy Chen, Chief Marketing Officer
MIT master’s graduate and former Oracle Product Marketing Director,
Peggy strives to combine the art and science of marketing SDL’s
products and services for its global customer base. She thrives on
solving the complexity of creating a strategy that impacts immediate
effectiveness and long-term goals for SDL.
37
STRATEGIC REPORT Ten Principles
To align our
business and
execute on our
vision and mission,
we designed 10
principles.
1.
Content and language: We take
accountability for our customers’ global
content from creation, generation,
localisation, integration and delivery, in
the cloud, on premise, on time.
2.
Best people: We will
deliver value to the
business and our customers
by using innovative and
proven approaches for
identifying and hiring the
best talent in the market
and inspiring, engaging and
enabling everyone at SDL
to be their best.
3.
Internally efficient:
We will be as efficient
as possible through
automation to deliver
faster, at higher quality,
more predictably and
at better cost.
4.
Leveraging technology: We will use our extensive tooling – machine
translation, predictive analytics, translation productivity, suggestion
engine – throughout our software and services to deliver value to
the customer quicker and more efficiently.
5.
Continuous innovation: We will continue
to innovate and bring new techniques,
tools, ideas and business models to bear
on our clients’ problems.
38
SDL Annual Report 6.
Security: We take
confidentiality seriously
and ensure security
through all content
management and
translation solutions.
7.
Specialisation: We will
deliver high-value premium
solutions, particularly for
premium industry markets.
8. Dynamic Ecosystem: We will deliver best-of-breed solutions that
interoperate with the best ecosystems built by our technology partners.
10. Customer satisfaction:
We will deliver the best
customer experience and
satisfaction with fruitful
commercial benefits for
both of us.
9.
Automated software
tools: We will build
software tools to
automate the global
content creation
process and simplify
this for our clients.
Azad Ootam, Chief Transformation Officer
Azad’s career has been committed to transforming
organisations with a straightforward and respectful approach.
He values his ability to impact the whole of SDL by aligning
growth potential with organisational transformation.
39
STRATEGIC REPORT What We Do
At SDL, we focus on solving the complex
business problem of creating and
managing global content with our
unique combination of software and
services. We have an impressive set
of language software tools like our
machine translation technology, SDL
Trados Studio (the most widely used
translation software) and sophisticated
translation management technology.
But we go further than simply tackling the translation
part of the equation. We ensure that any content can
be easily and tightly integrated with the translation
process. We also provide solutions that help our
customers create and manage web, multimedia and
technical content. Lastly, SDL manages the delivery
and experience of the resulting global content across
all channels.
All SDL translators must meet the
strict requirements necessary for
SDL to continue to be an ISO 17100
certified company.
Language Services and Consulting
25 years ago, SDL began as a language services and
consulting company. As a Language Service Provider,
we provide high quality, consistent translations to the
biggest global brands.
Translation is a requirement for global audiences, but
it is also about more than just converting text into
another language. Professional translation contributes
essential linguistic, cultural and subject matter
expertise to the transformation of content, and it
leads to a better-finished product. All SDL translators
must meet the strict requirements necessary for SDL
to continue to be an ISO-17100 certified company. We
provide a wide range of specific services including:
• Translation
• Post-editing
• Transcreation
•
Interpretation
• Document localisation
• Software localisation
• Website localisation
• Multimedia localisation
• Product testing
Massimo Ghislandi, EVP Translation Productivity
Multilingual Massimo thrives on working with other cultures and
spends much of his time on the ground in SDL’s global offices in
which its Translation Productivity teams are based. Massimo spent
a decade in various marketing positions at Wandel Goltermann, ITT
Cannon and Avery Dennison before joining SDL in 2006.
40
SDL Annual Report STRATEGIC REPORT
Content and Translation Technology
Content
creators
Authoring &
Management
Translation &
Localisation
Distribution
& Delivery
Content
consumers
• Authoring
• Management
• Workflow
• Connectors
• Translation
Management
• Translation
Productivity
• Machine
Translation
• Delivery
• Personalisation
• Targeting
•
Integrations
Knowledge Center
Language Cloud
Knowledge Center
Web
Trados Studio
Web
XPP
SDL Content Cloud
Contenta
Publishing Suite
41
SDL Annual Report
42
Language is the Core of Everything We Do
To deliver a truly personal digital experience to a customer,
it is vital to speak the customer’s language. Brands must also
deliver relevant content that matters to the individual. We
offer content management solutions that help brands navigate
the complexity of providing customers with personal content
to across languages, channels and devices. Finally, we support
our customers’ continuous needs with connectors, secure
solutions, industry and local expertise, as well as partners and
professional services.
SDL Localisation Process Consulting promises reliable
results. Through our 25 years providing translation
services, SDL has developed localisation best practices
applicable to a variety of industries and company
cultures. SDL helps companies plan and execute,
intelligent localisation strategies, avoiding potential
problems. Our consulting services spans a wide range
of disciplines, including:
• Global content operations
• Web content management
• Knowledge delivery management
• Translation management
• Terminology management
• Best practices for in-country review of content
• Planning for the best results from machine
translation
• Authoring training for documentation as well as
multimedia
• Multilingual search engine optimisation
• Quality benchmarking and key performance
indicators for translation
•
Internationalisation to prepare content for
translation
• Structured content migration
• Global content and marketing solutions
Translation Productivity
The professional translation community has relied
on our technology for decades to assist them in their
work and increase their productivity. Quality and
efficiency are both key concerns for translators. Our
translation productivity tools ensure the right balance
between these seemingly conflicting requirements.
In addition, integrated machine translation and
terminology management are now a mainstream
requirements for translator efficiency.
With our most recent release of SDL Trados Studio,
we transformed our translation memory capabilities
by including expert machine translation capabilities
through UpLIFT and added additional efficiencies with
AdaptiveMT.
The entire suite of translation productivity products
will continue to assist freelance translators, language
service providers and localisation departments.
SDL provides tools optimised for different translation
requirements such as documentation, websites and
software.
• SDL Trados Studio
• SDL Trados GroupShare
• SDL MultiTerm
• SDL Passolo
Silke Zschweigert, Chief Delivery Officer
With a love of languages from an early age, multilingual Silke’s role
is about ensuring SDL has the best processes and systems in place.
Her organisation is the largest in the business and is comprised of our
in-house linguists, localization process consultants, project managers
and other producers that our customers work with.
STRATEGIC REPORT We have the talent and data
to commercialise MT
45 Patents
200+ Scientific Publications
Pioneers of Statistical
MT Since 2005
Leading Research
on Neural MT
Translating 20+ Billion
Words Per Month
Human + Machine
Better Together
44
Translation Management
Companies with large, complicated translation
requirements need technology to improve the ongoing
localisation process. They turn to SDL for the translation
management software that streamlines the entire
process and delivers quality translations reliably.
SDL WorldServer solutions are for companies that
require highly customised solutions that integrates with
other content repositories within a customer's content
ecosystem. For companies who just need workflow
management for their translations, we provide SDL
Translation Management system (TMS).
Both products leverage previously translated content,
allowing our customers to effectively manage project
costs. No deadlines are missed since these tools can
apply automation and customisable workflows to
translation projects and communication between project
managers, translators, Language Service Providers (LSP’s)
and reviewers. In addition, our customers can track
quality metrics and real performance data to improve
budgeting and planning.
Our translation management software grows alongside
global expansion. Companies can increase the number of
supported languages, incorporate machine translation,
add new translation vendors and integrate with key
business systems, all within the same platform.
Machine Translation
SDL leads the industry with more than a decade of
research and development in machine translation (MT).
SDL pioneered the use of statistical engines, rather than
rules-based engines, for machine translation in 2005.
A talented research team and a unique data set
SDL researchers have been nominated by the European
Patent office for the prestigious European Inventor
Award for their their revolutionary approach to machine
translation. With more than 200 scientific papers and
40 patents, we are now heavily engaged in Neural MT
research and have built an infrastructure that translates
more than 20 billion words a month.
In addition, we have built a unique data set that has
learned to translate using industry specific terminology.
Our Travel MT engine continuously improves the quality
of its output because we have continuously trained the
engine. In addition – as with many AI applications – we
combine the power of machines and human finesse. And
our machine translation technology is integrated with our
translation productivity tools for a complete solution. For
example, by including our AdaptiveMT feature within SDL
Trados Studio, we improve baseline translation engines
at individual level by instantly personalising the results
based on the human translator changes.
SDL Annual Report Web Content Management
Every business needs a website. But global businesses
need to manage and distribute content on digital
experiences that support multiple channels, formats
and languages. SDL Web (formerly known as SDL
Tridion) is designed for organisations that recognise
the importance of global digital content but struggle
to deal with its complexity.
It combines web content management with digital
media management, targeting, testing, personalisation
and localisation to enable businesses to deliver high-
impact digital experiences. SDL Web makes it possible
for businesses to fulfill the demands placed on their
multi-brand, multilingual content in a way that really
engages audiences while providing marketing teams
with the tools they need to get the job done.
In Forrester Research’s latest Web Content
Management systems evaluation, The Forrester
Wave™: Web Content Management Systems, Q1
2017, they write that, “SDL Web 8 is ideally suited
for large companies that need strong multisite and
multilanguage tools to support global operations.”
These benefits are powered by SDL’s unique
BluePrinting® technology, which provides a way to
manage, reuse and synchronise content, multimedia
files, functionality and brand elements across websites
easily – component by component, versus the entire
page and site at once.
SDL Web also helps deliver relevant online experiences
by understanding who the audience is. It leverages
customer profiles and delivers richly personalised
content using real-time, predictive modeling that
adapts to visitors’ online behaviour.
We know that creating global impact is about being
personal. With SDL Web, content translation is built
in allowing you to manage, automate and distribute
translated content across channels, so your customers
have a locally relevant experience.
SDL Web is designed for organisations
that recognise the importance of
global digital content but struggle to
deal with its complexity.
Technical Content Management
Today, customers don’t want to download a hard-to-
read PDF on their mobile device. They want content
in their language, personalised to their specific needs
and rendered for the device they are currently using.
They might even want to watch a video tutorial
instead of reading online help.
Early on, SDL saw the need for a better experience
with technical documentation. We addressed this
need with SDL Knowledge Center (formerly known as
SDL LiveContent), an enterprise solution for creating,
managing and delivering high-quality structured
content for technical documentation and self-service
support.
This award-winning product has been highlighted
by KMWorld on multiple occasions for its impact
on knowledge management and is the most
popular content management system for technical
documentation as ranked in the Technical
Communication Benchmarking Survey by The Content
Wrangler in both 2012 and 2016.
Peter-Paul Houtman, EVP Technology and Product Management
Peter-Paul directs SDL’s product portfolio using his background as a
software engineer and business consultant to ensure that all technology
and product management operations are aligned with the commercial
strategy. He sees SDL’s use of technology to address the nuance of
language as its key differentiator.
45
STRATEGIC REPORT Security is crucial for our
customers’ businesses and we
now provide an unprecedented
level of security and control
for the industries that need the
highest level of protection.
SDL Knowledge Center provides product release
tracking, XML authoring, automated publishing
and support for content variations. Writers and
subject matter experts can work together in an
easy-to-use browser-based content review and
editing environment. Integration with translation
management systems provides single-click translation
processes and automated status updates during the
translation process.
Multimedia Management
Video and rich media are now an integral part of
today’s online experience. Our approach to digital
media management is a centralised tool with which
companies can store, manage, optimise, analyse and
deliver media assets across all distribution channels.
SDL Media Manager provides automatic device
detection alongside multimedia transcoding to deliver
content in the best possible format. Additionally,
video and image overlays with links, forms, and
download buttons convert multimedia into interactive
and engaging experiences. Finally, our approach
to multimedia management obviously focuses on
localisation. We reduce the cost of post-production
cycles of multilingual multimedia with integrated
access to machine translation and localised backslides,
overlays, subtitles and voice overs from a single source
video file.
Experience Management
Experience management is an emerging response
to the challenge of delivering relevant content. Not
only do companies need to close the divide between
technical and marketing content, so that relevant
technical specs can be integrated into marketing web
experiences, they must also deliver better support in
the post-sale experience to meet increasing customer
expectations. Companies may also want to take
advantage of upsell and cross-sell opportunities based
on the customer journey.
46
We focus not only on managing the delivery of
relevant content, but also on blending it with content
from other repositories to create a unified experience.
This is why we are unifying content delivery across
our content management systems. This change allows
us to marry marketing and technical content so SDL
customers can use a single delivery stack regardless
of the unique management requirements for different
types of content.
Gone are the days of sub-par support experiences,
static PDFs, and inadequate knowledge base articles.
This unified delivery layer is built on top of our latest
SDL Web technology, which has an extremely robust
and mature experience management and content
delivery stack. Now we are extending this to SDL
Knowledge Center.
Security
We worked closely with many highly regulated
industries over many years and saw strict security
requirements continue to evolve. SDL is now
redefining security standards within the translation
industry with the launch of SDL Secure Translation
Solution. It provides companies with the ability to
control how, and by whom, their data is accessible
from either on-premise technology or using SDL
Language Cloud.
SDL Secure Translation provides our customers with
full traceability and access control with secure end-to-
end translations. This cost-effective, easily deployable
and scalable solution combines high-quality
translation output and allows our customers to meet
regulatory requirements with full compliance.
Sensitive documents are sent to SDL's secure
environment for translation, which can only be
accessed by client-defined translators.
Translators access the data using an on-premise
technology solution or SDL Language Delivery Service.
Within the secure environment, translation memory,
terminology management, translation tools and
machine translation are all available. Data cannot be
stored locally, copied and pasted, printed or added to
any unauthorised translation memory.
The latest innovation allows our customers to
deliver highly sensitive information to SDL’s secure
environment virtually and provides the added
safeguard of industry-leading standards. We know that
security is crucial for our customers’ businesses and
we now provide an unprecedented level of security
and control for the industries that need the highest
level of protection. SDL is proud to provide a solution
in this area.
SDL Annual Report Nielsen
When global performance management company Nielsen
was looking for a dynamic business partner to help meet its
ambitious global customer experience objectives, it turned
to SDL. More than a decade later the partnership is stronger
than ever. Nielsen relies on SDL solutions to deliver an
effective globalisation strategy that keeps clients around the
world coming back. The company has seen both time and
cost efficiencies rise year after year.
The Government of Greenland
Greenland has language challenges unlike any other country
in the world. While most its inhabitants speak Greenlandic,
many of the country’s senior government officials are
Danish and are deployed to work on the island for
between 6 months and five years. In 2011, the Greenland
government purchased a central license for SDL Translation
Management System to help localise large volumes of
content, consistently and efficiently. The results have
been staggering: each translator has almost doubled their
average translation output and as a team they translate
over 5 million words annually. Additionally, the close
collaboration with SDL has been a key factor of the team’s
success. “The way we work together is why SDL Translation
Management is a success for the Greenland Government,”
according to Kim Christiansen, Project Manager at the
Government of Greenland. Another key factor for success
has been the ongoing support Kim and the team have
received from SDL. Kim explains “It’s one of the best
support departments I have ever worked with.”
Building Customers for Life
SDL embraces a holistic attitude of creating value
for our customers as their needs evolve. It is our
commitment to innovation and to understanding
the complexity of global content requirements that
allows us to anticipate a customer’s needs before
they do. This allows us to be well-positioned to help
our customers deliver deeper understanding and
connection to their audience.
The biggest value we can create for our customers is
in connecting disparate content systems and filling
the gaps in their content lifecycle. But understanding
the gaps in a complex content ecosystem in a large
organisation takes time, which is why a meaningful
partnership is crucial.
Some of the ways we achieve this include a
comprehensive plan of ongoing customer
communications and regular touchpoints so that
we can quickly respond to our customers’ needs.
We work cross-functionally to coordinate ongoing
communication and to deliver important information
to our customers so that they are always up to date.
We want to make sure they always have the latest
information about technology developments and
best practices so that they get the most out of their
investment in SDL.
To facilitate a two-way ongoing dialogue with our
global customers we provide the SDL Community –
which now has more than 12,000 visitors per month
– as well as several user groups that cater to various
SDL solution areas.
Our goals are to continue to drive customer initiatives
across SDL solutions, build value and enable our
customers to achieve their business objectives. We
are proud of the lasting impact we have had with our
customers such as Nielsen and the Government of
Greenland.
Betsy Fallon, EVP Global Client Services and Professional Services
In her role overseeing global client services at SDL, Betsy ensures
her colleagues are committed to enhancing the customer
experience and creating programs and services that drive customer
success and satisfaction. Prior to joining SDL Betsy held senior
leadership roles in marketing and customer development at Context
Media and Idiom Technologies.
47
STRATEGIC REPORT Building Our Capacity for Growth
without checking out the user reviews? When was
the last time you tried to solve a setup problem with
a new product without checking out an online video
first?
The new stars of online reviews are the Unboxers
– people who broadcast their entire customer
experience from unboxing the new product to using
it for the first time. Is the grammar perfect? NO. Are
the subtitles spelled correctly? NO. Does it influence
online purchases? ABSOLUTELY.
This content cannot be ignored and must be
translated. Therein lies the SDL advantage. Our
technologies continuously learn the customer’s
language and refines it for future translation projects.
In doing so, costs and schedules are reduced while
translation quality improves.
Managing Content
Across all of this content, whether premium, standard,
or even user-generated, one constant business
challenge remains – the need to manage content
effectively. Companies struggle to extract the value
out of the content they produce either because
they can’t deliver it at scale globally or they fail to
adequately reach their customers with a relevant and
personal message.
At SDL, we have focused our content management
technologies on two major bodies of content that we
believe have the most global impact and represent
the largest volume, namely websites and technical
documentation. By delivering sophisticated content
management capabilities for these specific areas, we
ensure a much deeper integration with translation and
contextual delivery for two very important customer
touchpoints. This allows us to deliver on the promise
of globalisation by maximising content value.
As you can see, the content ecosystem is complex with
competing and sometimes conflicting requirements.
For some content types, human translation is non-
negotiable because quality requirements are high,
but it is clear that there are not enough professional
linguists to translate the volume that is coming in.
Companies must balance the value of the content
they produce with the resources they expend to
ensure that content value is maximised across global
markets. What we provide is a cost effective and
scalable process that accelerates the speed by which
a customer can go-to-market regardless of the type of
content they produce.
Defining the Market for Content
and Language
Over the last 25 years, SDL has met
the demands for global business with
services and technologies that optimise
content and language delivery. As
content has evolved into a complex
ecosystem with diverging quality and
volume requirements, SDL has evolved
its go-to-market strategy to match.
Premium Content
Content that influences the purchase cycle is
considered premium content, and requires the most
domain knowledge to translate. This typically consists
of marketing material, developed and designed to
influence the buyer. Creating this content is highly
labour intensive as are the translation requirements,
which must use in-country translators to get the right
meaning, nuance and impact. SDL’s in-country model
delivers this level of premium service to its customers,
enabling them to increase their global reach without
increasing headcount in each locale.
Standard Content
Much of the content created in the world does not
require the level of personalisation and regional
consideration that premium content requires.
However, standard content must still be accurate and
relevant content, whatever the language.
SDL’s technologies and services allow us to scale to a
customer’s content growth and ensure the right level
of accuracy and consistency. From the translators who
localise the content using SDL Trados, to the project
managers who manage these large and complex global
enterprise content strategies through our translation
management systems, to the cutting edge machine
translation engines we train with terminology specific
to our customers’ industries… all of our solutions work
hand in hand. By combining our technologies with our
people, we balance quality and cost with time-to-
market and volume.
User-Generated Content
User-generated content from online reviews to status
updates is driving the content explosion we are all
seeing. When was the last time you bought something
48
SDL Annual Report STRATEGIC REPORT
Driving Growth Through Asset Re-Use and Maximisation
Low Content Volume
High Content Volume
Premium
Content
Market size
c.£6-7bn
1100
linguistic
specialists
Standard
Content
Market size
c.£7-8bn
10k+ freelancers
& our vertically
trained MT
User-Generated
Content
Market size
c.£200-300m
Trained customer
specific MT engines
Machine Translation
with Human Post-edit
Support websites
Software user interface
Human Translation
Machine Translation
FAQ
Alerts
Notifications
User forums
Advertising
Documentation and manuals
SMS
Legal and contracts
User guides
User reviews
Marketing content
Knowledge base
Newsletters
HR documents
Product desciptions
Help
Marketing websites
Email support
Email
Wikis
Blogs
IM
Low Content Volume
High Content Volume
49
SDL Annual Report
Combining Language
and Content
Customer Story – Akamai
As the global leader in Content
Delivery Network services, Akamai
makes the Internet fast, reliable
and secure for its customers. They
revolutionise how businesses optimise
the delivery of consumer, enterprise
and entertainment experiences for
any device, and their web presence
is instrumental in demonstrating the
value of its services.
Aiming to streamline web marketing across all
sites, Akamai turned to SDL. The company selected
SDL’s web content management and translation
management technologies to create an end-to-end
content ecosystem. SDL’s technology streamlines the
processes of creating marketing content, translating
it for global audiences and publishing it to the global
web properties.
Akamai also named SDL as their preferred translation
services provider, gaining access to SDL’s expert
project management team and network of in-
house, in-country translators to drive a high volume
of accurate, consistent translations. Additionally,
the company leverages SDL’s linguistic testing and
multimedia subtitling services.
Akamai has future plans to continue improving its
digital customer experience and content ecosystem.
The company plans to deploy SDL Web’s Experience
Optimisation capability to deliver personalised
experiences relevant to each visitor’s context.
Akamai also plans to integrate SDL Knowledge
Center structured content technology for technical
documentation, resulting in an end-to-end, global
dynamic content creation and delivery system.
www.akamai.com
50
Significant Growth in Addressable Opportunities
Adjacent
opportunities
Marketing
Expansion
Connectors
Vertical
prioritis-
ation
Target
account
lists
Life
sciences
Cross-sell to
install-base
Content and language
Account-based
marketing
Machine
learning
A More Targeted Approach
In 2016, we recognised that our investments in both content
and language, though successful in addressing real business
needs, did not reach the full potential market.
We embarked on a new approach to positioning our
offerings with account-based marketing and selling. This
required that we analyse our entire customer base to
determine where we found success in the past and where
we might find opportunities in the future.
Through a rigorous process, we organised our customer
data by vertical and other basic characteristics such as
size and global footprint. We examined the products they
purchased from us along with the ones they didn’t, and
determined where we had a right to win based on these past
experiences. Once identified, this sweet-spot criteria data
was used to create composite company characteristics, per
vertical, which we knew could benefit from our offerings.
This formed the basis for the assembly of a more focused
target account list, which has allowed marketing and sales
to be much more strategic, rather than opportunistic, in
our ongoing sales tactics. This means we can maximise our
revenue opportunities merely by expanding our existing
footprint across the customer base and existing vertical
presence.
Allan Hall, Chief Revenue Officer
From his background as an engineer, Allan brings analytical thinking
and a pragmatic approach to his role of CRO. He believes that to be
effective, sales requires deep technical knowledge and a thorough
understanding of what a customer really wants to achieve.
51
STRATEGIC REPORT Building Our Capacity for Growth
Expanding Our Footprint
Industry Prioritisation
With fresh target accounts that matched sweet-spot
criteria, SDL can further focus on vertical-specific
selling. This data-driven approach enables our
organisation to prioritise the verticals where we are
most successful to maximise our market penetration.
Through analysis, we know which value propositions
resonate best per vertical and can reorient our selling
approach to take this into account. Additionally, the
organisation has been organised cross-functionally
around key industries, including financial services,
high tech, manufacturing, automotive, retail & CPG,
travel & leisure, life sciences, aerospace & defense,
and government to ensure maximum specialisation
without negatively impacting our base offerings.
Growth and expansion in existing accounts
Cross-sell and Upsell
In the past, SDL typically won a customer with either
content or language needs. But we can already see
how the two are not separate issues, but are deeply
interconnected. This creates a natural opportunity
to cross-sell into our existing install base. By cross-
selling additional products, services and solutions into
accounts that need to distribute content efficiently, we
create tremendous market potential whilst minimising
risk. It results in higher profits and a faster sales
cycle than selling into new customers. In addition, by
delivering more of our capabilities to the customer, we
increase our value as a partner.
We have analysed our accounts and have identified
target customers that do not currently have our
full suite of solutions that could benefit from our
complete offering. Some examples of where we have
been successful in our cross-selling include:
China Airlines
Lindex
SDL Web, SDL Web Digital
Experience Accelerator and
SDL Language Services
SDL Web, SDL Translation
Management System and
SDL Language Services
Omron
SDL Web, SDL Language
Services and SDL Trados
Studio
NetApp
SDL Machine Translation,
SDL Translation
Management System, SDL
MultiTerm, SDL BeGlobal
and SDL Knowledge Center
Akamai
clarion
SKF
SDL Web, SDL Knowledge
Center, SDL WorldServer
and SDL Language Services
SDL Web, SDL WorldServer
and Language Services
SDL Web and SDL
Translation Management
System
Linde
SDL Translation
Management System, SDL
Knowledge Center and SDL
Trados Studio
52
SDL Annual Report More Holistic Content and Language Solutions
To make it even easier for our customers to achieve
their global ambitions, we are also integrating our
content and language solutions tightly together.
Many global organisations work with distributed
content teams who author, manage and translate
content. This frequently results in duplicated efforts
and lack of consistency in the quality of content
that is delivered to market. By combining content
management environments and translations in the
cloud, we address the business priorities of content
creators who want to achieve a faster time to market,
and of IT who wants to deliver secure, scalable and
stable solutions.
We know that content and language lie at the heart of
the customer experience, but for most organisations
this process is often siloed, inefficient and disjointed.
SDL now offers two cloud-based solutions for
managing the complete global content lifecycle.
These solutions bring together content management
and language management in the cloud and
streamline the content creation-to-delivery lifecycle.
SDL offers combined solutions for web content
management and technical content management.
SDL Global Digital Experience Solution combines
web content management and translation
management:
• Content marketers gain control over content
distributed across channels and devices
• Translation processes from creation to review to
delivery are managed and automated
• Translations are contextual
• Delivered content can be personalised and targeted
• SDL Web BluePrinting technology synchronises
global and local content
SDL Global Knowledge Delivery Solution combines
structured technical content management and
translation management:
• Simplified document information typing
architecture (DITA) content authoring in a what-
you-see-is-what-you-get (WYSIWYG) interface
• Direct access to advanced translation capabilities
using both machine and human translation
• Baselining and advanced versioning for long-term
structural integrity
• Collaborative content review
• Automated content publishing
Adjacent Opportunities
Going beyond our core focuses, we
have identified adjacent areas where
we believe increased investment can
capture even more opportunities.
Through white space analysis we determined where
we can create new offerings of interest to our target
accounts. Premium verticals are a good example as
our deep experience working closely with multiple
players in the same vertical gives us a competitive
advantage.
To build on and expand our existing vertical expertise,
we made some crucial changes within our sales and
delivery organisation. This means we’ll have a better
understanding of our customers and the ability to
provide solutions tailored to the vertical-specific
needs of our customers – a comprehensive approach
to content, translation and delivery that goes beyond
traditional offerings.
SDL Marketing Solutions
Studies show that a company’s brand is important
to its continued success. Because of this, it is not
sufficient to merely translate brand content. The
essence of the content has to be maintained for every
target market.
SDL Marketing Solutions includes the following
services:
• Managed Web Content Services – translation,
editing and omnichannel delivery services for
global site management and content publishing.
• Transcreation & Copywriting Services – a
complement to all forms of translation and
adaptation for creative local marketing.
• Content Production Services – image, video,
graphic, and animation localisation and
transcreation services.
SDL developed this offering to meet the market needs
that our customers have clearly articulated to us. It
combines our existing expertise, rich content services
and technology in a simple supply chain and operating
model that enables our customers to be more active
across channels.
53
STRATEGIC REPORT Building Our Capacity for Growth
85% win rate of all
global RFPs in the
last 14 months
Clinical Labelling for Life Sciences
SDL already has more than 83 life sciences customers.
Our newly formed life sciences business unit, Global
Life Sciences, is continuing to expand. And the market
has responded. We have already won 85% of global
RFPs we have received in the last 14 months.
This life sciences specialist service has a dedicated
delivery team that includes more than 185 in-house
translators, dedicated desktop publishing teams for
high-quality layout, a dedicated life sciences supply-
chain manager to focus on clinical trials and regulatory
affairs, and ongoing training for this specialised
content.
This customer-centric approach ensures that the
integrated product and service packaged solutions
we provide our customers fit their needs. From
translation and specialised vertical machine
translation, through to the expertise of our translators,
creatives, technology designers and support – all of
SDL will be firmly focused on meeting the specific
needs of our customers and the market they serve.
All of this amounts to SDL gaining a deeper
understanding of what our customers need to be
successful to ensure our own continued success as
well.
Machine Learning
An emerging and exciting technology area is Machine
Learning. We see use cases across a wide array of
industries.
For example:
• Our computers now use Facial Recognition for
authentication
• Email servers can detect and filter out spam based
on keywords and patterns
• eCommerce engines are capable of recommending
products based on user behaviour
54
• Doctors rely on computers to properly diagnose
patients
• The race is on right now between several
companies to bring self-driving cars to market
• Financial software use pattern recognition to
detect and prevent fraud
• Speech and Natural Language Processing
innovation is accelerating
We use the word “revolutionary” lightly these days,
but machine learning truly is revolutionary.
SDL has been at the forefront of machine translation
(MT) since 2005 with the introduction of the first
Statistical MT technology. We now see Neural MT
as a new disruptive wave for our market. Even in its
current nascent form, Neural MT offers:
• A significant overall quality boost (quality being the
main factor driving the technology adoption)
• Easier development of new Language Pairs
• A radically different modelling paradigm that
enables new opportunities for innovation in the
fields of Natural Language Processing (NLP)
SDL is uniquely positioned to succeed in Neural MT
and NLP thanks to two key ingredients: talent and
data.
Talent: SDL has one of the best research teams in the
industry, who published over 200 scientific papers
and acquired 45 patents in MT. We are now leading
research in Neural MT and have built an infrastructure
that translates over 20 billion words per month. In
an engineering feat, we have also delivered fully
on-premise machine translation, addressing the
privacy and security requirements of highly regulated
industries.
Data: As Andrew Ng wrote, "Among leading AI
teams, many can likely replicate others’ software in,
at most, 1–2 years. But it is exceedingly difficult to
get access to someone else’s data. Thus data, rather
than software, is the defensible barrier for many
businesses." Our 25 years’ experience in the Language
industry has helped us build a unique dataset far
superior to what can be found in the public domain.
Also, as proven in many AI applications, we know that
the combination of the power of machines and the
human finesse is vastly superior to either one alone.
That is why we have combined both with our Adaptive
MT: improving our MT engines with feedback data
from human translators.
SDL Annual Report This differentiates SDL from our competition as our
technology can tap into our customers’ existing IT
landscape, providing language and translation options
throughout an organisation.
Access to storage repositories and easy back-office
content transfer is now a core translation strategy.
We are committed to this strategy as demonstrated
with last year’s launch of our innovative SDL Instant
Translation connector. With this connector, we now
enable our customers to translate all critical customer
data directly from Salesforce.com platform, making
the information that was formally restricted by
language available to their entire workforce.
Going beyond the internal business benefits of our
connectors, we integrated machine translation into
one of the world leading travel portals, translating
billions of user-generated words every year.
We believe that this connector strategy will accelerate
the elimination of language as a barrier for more
effective internal operations as well as external
communication. We will continue to grow these
premium solutions for both verticals and content
types, providing value added for many different
technology vendors.
But Machine Translation is just the tip of the iceberg.
SDL’s research tackles every aspect of Natural
Language Processing: Synthetic Content Generation,
Syntactic Parsing, Language Modelling, Sentiment
Analysis, Topic Modelling, Information Retrieval, etc.
This investment will prove applicable far beyond
translation. We also see new opportunities to embed
machine learning in our content products, making
the predictive elements of a truly exceptional digital
experience an integrated reality.
Global Connectors
Our content connectors bring one-click translation
regardless of cloud or on-premise location. This
replaces the need for manual export and import
of content to and from these disparate systems.
Using our content connectors, customers get the
ability to transfer content easily, wherever it lives. The
connectors offer a solution to organisations looking to
scale their global reach.
Although we are proud of our cloud offerings and
integrations with our content management
technology, we understand that our customers have
technology ecosystems and different repositories that
house the many different valued content assets they
use both for internal and external communication. The
benefit of removing language as a barrier is clear.
To address this need, our connector strategy provides
one-click translation capability from more than 26
systems and includes a growing portfolio including
everything from digital asset management (DAM)
systems for multimedia connectors to taxonomy
systems as well as all primary content management
systems.
Thomas Labarthe, EVP Business & Corporate Development
Driven by a desire to learn, Thomas is well suited to helping
SDL grow. In addition to corporate development, he is in
charge of incubator opportunities and complex topics like
machine translation and machine learning.
55
STRATEGIC REPORT Chief Financial Officer's Review
Dominic Lavelle
Summary Performance
2016 has been a positive year for our
Continuing Operations. In line with
our plan, we have begun investing in
the transformation of our Language
Services business after several
years of under-investment and our
Language Technologies and Global
Content Technologies businesses have
both delivered material increases to
profitability this year.
Revenue from our Continuing Operations were up
10% at £264.7 million (2015: £240.4 million). This
growth was driven by the positive benefit of foreign
exchange tailwinds, an 8% increase in our Language
Services business, a 24% increase in our Language
Technologies business and a 6% increase in our Global
Content Technologies business. Technology Annual
Recurring Revenue grew 7% to £61.8 million. Total
Group revenue increased by 9% to £289.9 million
(2015: £266.9 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 broadly in line with the prior year,
with the 20 largest customers contributing 24%
(2015: 22%) of revenue in 2016. No single customer
contributes more than 5% of Group revenue.
Adjusted PBTA for Continuing Operations was £27.0
million (2015: Group £20.6 million, Continuing
Operations £24.2 million). Language Technologies and
Global Content Technologies combined profitability
increased by £12.0 million in 2016 which more than
offset the impact of planned investments in the
Language Services business. The Group loss after
tax amounted to £18.1 million, after one-off costs of
£13.1 million and the loss on sale of the Campaigns
business of £21.0 million (2015: loss after tax, £30.7
million, after an impairment charge of £33.3 million
and other one-off costs of £5.8 million).
Gross cash in the business at the year-end was
£21.3 million with no external borrowings (2015:
Gross cash £17.2 million; net cash after borrowings
£12.4 million). Cash generated from operations was
£18.6 million (2015: £12.0 million). Cash generation
in the year has been impacted by the Group’s
improved underlying profitability and cash outflows
associated with the restructuring programme. Capital
expenditure was £2.3 million (2015: £2.7 million) and
the net cash impact of the disposal of the Campaigns
business was an outflow of £1.6 million. Tax paid was
£6.5 million (2015: £5.8 million).
56
SDL Annual Report 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.
STRATEGIC REPORT
57
CFO Review
Key Performance Indicators
The Board reviews a number of key performance
indicators (KPIs) to monitor and assess performance
on an on-going basis. These KPIs include:
• Revenue growth
• Gross margin
• Adjusted PBTA and margin, and
• Cash generated from operations
The Group’s performance against these KPIs in the
current and prior year are included within this report.
The Board believes that monitoring Adjusted PBTA
and margin is the most appropriate profit measure
to review because it is the most meaningful indicator
of medium and long term business performance.
Specifically, this profit measure excludes the impact
of:
• One-off costs incurred over the past two years
associated with the reorganisation of the Group;
these costs are not expected to recur and these
are explained in more detail below
• Amortisation, a non-cash charge based on
acquisition decisions taken a number of years ago,
which has no impact on future performance and
business valuation, and
• Profits or losses arising on the sale of Non-Core
businesses which, whilst material, do not reflect
the future operating potential of the business.
In addition to these core metrics, the Group is now
monitoring and reporting a number of additional KPIs
to measure whether it is successfully executing its
new strategy. These additional KPIs are set out and
defined as follows:
• Technology Annual Recurring Revenue (ARR),
£61.8 million (2015: £57.6 million): Annual
Recurring Revenue is annualised revenue from
existing contracts which includes term, SaaS and
support and maintenance revenue streams. Annual
Recurring Revenue current and prior year amounts
are all translated at the 2016 year end foreign
exchange rates
• Language Services Repeat Revenue Rate (RRR),
93%: Language Services Repeat Revenue Rate is
calculated as current year revenue earned from
prior year customers as a percentage of current
year revenue; the difference between RRR and
total revenue is current year revenue from new
customers
58
• Premium revenue, £9.4 million: revenue arising
from the sale of premium content such as Life
Sciences and Transcreation; the difference
between total Language Services revenue and
premium revenue is non premium revenue
• Upsell deals, 176: number of further sales of
existing products to existing customers
• Cross-sell deals, 52: number of sales of new
products to existing customers
• Wins in Life Sciences, 8 out of 9 Global RFPs:
the number of new Life Science customer wins
achieved in the year
• Machine Translation wins, 38: the number of new
Machine Translation contracts
• Linguistic utilisation, 48.5%: the percentage of time
in house linguists are translating content and not
performing other tasks such as administration of
files
The ARR KPI has been measured in prior years and
hence comparatives have been presented. Other
strategic KPIs have only started to be calculated
and reviewed in the later part of 2016 and hence
comparatives are not available.
The revenue basis for RRR and premium revenue is
calculated in line with Generally Accepted Accounting
Principles (“GAAP”). The remaining strategic KPIs
set out above have no direct reference to any GAAP
measure and hence cannot be reconciled to the
Group’s financial statements. ARR is an annualised
measure of contracts at a point in time and hence
cannot be reconciled into revenue recognised during
the year.
The Group is no longer reporting bookings
performance as a separate KPI as the Board believes
revenue growth and ARR are highly correlated to
bookings performance and thus it is not considered
that the separate bookings KPI provides material
additional insight to the user of the financial
information.
Performance by Segment
Following the announcement in January 2016 of the
intention of the Group to dispose of its Campaign,
Fredhopper and Social Intelligence businesses, these
businesses have been designated as assets held
for sale and their activities have been reported as
Discontinued Operations. The Group’s segmental
disclosures have been adjusted so that Discontinued
Operations results do not include proportionate
allocations of shared costs. The impact of this change
SDL Annual Report has been to reduce the costs attributed to the Non-
Core segment in 2015 by £6.0 million and to increase
costs attributed to the Language Services, Language
Technologies and Global Content Technologies
segments by £2.4 million, £0.3 million and £3.3 million
respectively.
Language Services (contributing £165.3 million or
62% of revenue from Continuing Operations and
£18.8 million of Adjusted PBTA) (2015: £152.7 million
or 64% of revenue from Continuing Operations and
£28.0 million of Adjusted PBTA).
2016 saw a solid performance with Language Services
achieving an 8% increase in revenue at £165.3 million
(2015: £152.7 million). Underlying growth, adjusting
for the impact of the loss of the Group’s largest
customer (Microsoft) at the end of 2015, was 15%.
The Language Services RRR was 93%. The underlying
RRR, ignoring the loss of Microsoft, was 98%.
Revenue growth in year has benefitted from the
impact of foreign exchange and organic growth has
been primarily driven by increased activity within
large accounts in the US. The investment in customer
service and quality has led to improved relationships
with a number of existing customers.
The Language Services segment has won a number
of new clients in the year including Basware, PSA
Peugeot Citroen, Lindex, Konsberg and Yara. The
impact of recent successes in premium market
verticals including Life Sciences occurred late in the
year and have not materially impacted the results this
year.
The Language Services division in 2016 has been
investing in the development of capability in premium
market verticals, delivery and quality initiatives and
operational infrastructure after several years of
underinvestment. These planned investments have
reduced gross margins to 42.8% (2015: 47.3%) and the
Adjusted PBTA margin to 11.4% (2015: 18.4%). They
have, however, contributed to the Language Services
high Repeat Revenue Rate and significant recent wins
in premium verticals. These investments will continue
in 2017 as they are critical to the strategic positioning
of the business and will deliver increased sales and
improved margins in future years.
Language Technologies (contributing £45.4 million
or 17% of revenue from Continuing Operations and
£4.4 million Adjusted PBTA) (2015: contributing £36.7
million or 15% of revenue from Continuing Operations
and £1.0 million Adjusted PBTA).
Language Technologies revenue in the year increased
by 24% to £45.4 million, including the benefit from
the impact of foreign exchange. ARR increased 9% to
£23.4 million.
8%
Revenue Increase
Language Services
24%
Revenue Increase
Language
Technologies
6%
Revenue Increase
Global Content
Technologies
The Language Technologies revenue increase was
driven by a 72% increase in Machine Translation
revenue, a 20% increase in Translation Productivity
revenue and a 7% increase in Translation
Management revenue. The refocus of Machine
Translation investment last year towards increasing
output quality and the release of our on premise SDL
ETS 7.0 product has led to significant perpetual licence
sales in 2016. Material sales have been to government
customers seeking portable real time translation
capability and a commercial language service provider
requiring improved machine translation capability. SDL
ETS 7.0 delivers increased manageability, new features
and a significant improvement to the user experience.
Our Translation Productivity products have had
another strong year with revenue up 20%. The launch
of SDL Trados Studio 2017, SDL MultiTerm 2017 and
SDL Passolo 2016 at the end of the year delivers a step
change in translation memory productivity with our
ground breaking upLIFT technology, and offers the
AdaptiveMT technology directly accessible from the
SDL Trados Studio interface to our customers. These
releases had our highest ever pre-order volume and
the incorporation of AdaptiveMT capability has further
strengthened our competitive position.
Our Translation Management products achieved
more modest growth in 2016 after a strong 2015
performance. Strong renewals activity has led to a 5%
increase in ARR.
59
STRATEGIC REPORT CFO Review
During the year, our Translation Management
products were improved with significant point
releases. TMS releases delivered user interface and
usability improvement, translation quality metrics,
API improvements and deeper integration with
our SDL Trados Studio and SDL Web products. SDL
WorldServer 11.1 increased security and scalability,
improved usability by delivering key features like
multi-search, improved project creation tools and
import/export capabilities, and delivered a deep
integration with our SDL Language Cloud Machine
Translation services, the latest SDL Trados Studio
2017 release and the SDL Web in-context translation
preview functionality.
In 2016, we also started the execution of our
technology convergence program to align our
technologies and increase product innovation.
Alongside this convergence program, we released
a significant number of new capabilities on our
SDL Language Cloud platform ranging from
User Experience improvements and functional
enhancements, to entirely new offerings like the
Universal Editor and AdaptiveMT. In addition, a wide
range of connectors were released to tap directly into
our Language Cloud platform from customers’ existing
IT application landscape.
Adjusted PBTA margin increased 7.0% to 9.7% (2015:
2.7%). The margin increase has been driven by the
improved licence sales in Machine Translation and
Translation Productivity products.
New client wins for the segment include Accor Hotels,
AGCO, Alingo GmbH, Alticor, PSA Peugeot Citroen,
and Vanilla Air.
Global Content Technologies (contributing £54.0
million or 21% of revenue from Continuing Operations
and £3.8 million Adjusted PBTA) (2015: contributing
£50.9 million or 21% of revenue from Continuing
Operations and losses of £4.8 million Adjusted PBTA).
ARR was up 6% at £38.4 million.
Global Content Technologies revenue increased by
6% in 2016 including the benefit from the impact of
foreign exchange. This increase was driven by a 38%
increase in Technical Content Management revenue
following a material increase in perpetual licence sales
in the year. Our SDL Knowledge Center product has
gone through several update cycles with specific focus
on dynamic delivery scalability and performance. We
also released version 5.5 of the Contenta Publishing
Suite, improving the delivery of content on tablet
devices as well as delivering addition security, usability
and publishing enhancements.
Web Content Management software revenue fell
11% in the year due to a shift in sales from perpetual
licence contracts towards SaaS contracts and a
60
related reduction in professional services activity.
For SDL Web, we have significantly increased the
release pace for delivering new capabilities to the
cloud-based SDL Web offering and all of these new
innovations have been rolled up in the SDL Web 8.5
release, for on-premise deployment. This release
comes with significant improvements to workflow
capabilities, deployment automation, reduced total
cost of ownership, upgrade efficiency and numerous
new product features. This improved Web Content
Management offering helped drive new term and
SaaS licence sales and this helped drive a 2% increase
in Annual Recurring Revenue to £22.8 million.
Adjusted PBTA increased £8.6 million in 2016 to a
profit of £3.8 million (2015: Loss of £4.8 million). The
actions taken in the second half of 2015 and in early
2016 to right size sales and marketing resources has
transformed the profitability of the segment this year.
New client wins for the segment include AGCO,
Akamai, Appatura Data Communique, China Airlines,
EBSCO, Malvern Instruments Limited, Radiometer
Medical ApS United States Air Force KC46A Program
and Waters Corporation.
Non-Core businesses (contributing £25.2 million
of revenue and losses of £24.5 million Adjusted
PBTA including £21.0 million loss on disposal of the
Campaigns business) (2015: contributing £26.5 million
or 10% of Group revenue and losses of £3.6 million
Adjusted PBTA).
Our Non-Core businesses include the full year results
of our Fredhopper and Social Intelligence businesses
and the results of our Campaign business to the date
of its disposal on 2 November 2016. The businesses
performed well given the uncertainty created by the
announced disposal programme.
The Group disposed of its Campaign business to an
acquisition vehicle owned by affiliates of Allomer
Capital Group LLC for £2.4 million before purchase
price adjustments. Further details of this disposal
are provided in Note 3 of the preliminary financial
information and the Group recorded a loss of £21.0
million on disposal.
On 29 January 2017 the Group signed an agreement
to sell its Fredhopper business to ATTRAQT PLC for
£25 million subject to ATTRAQT PLC being readmitted
to the AIM market. This condition is expected to be
satisfied during the week commencing 6 March 2017.
The Group is expected to record a profit on disposal
of approximately £22 million and this will be recorded
in the Group’s 2017 financial statements.
The Group continues to pursue the sale of its Social
Intelligence business.
SDL Annual Report Gross Margin
The Group’s Continuing gross margin was slightly
below last year at 54.4% (2015: 55.9%).
Administrative Expenses
Administrative costs of Continuing operations
excluding intangibles amortisation and one-off costs
increased in 2016 to £117.0 million (2015: £110.1
million).
Research and Development costs of £25.9 million
(2015: £25.9 million) are included in administrative
expenses. In line with the prior year, the Group issued
approximately 100 product/service updates and
upgrades with greater functionality being deployed.
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 was up 2%
at 3,580 (2015: 3,504). Average headcount for
Continuing Operations was up 3% at 3,310. Employee
related costs remain the most significant component
of Group costs, amounting to 59% of Group overheads
(2015: 59%) excluding amortisation of intangibles and
one-off costs.
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 2016 was £5.2 million (2015:
£6.7 million).
One-off Costs
The Group has undergone a very significant
reorganisation over the past two years including
the departure of its then Chief Executive Officer
in October 2015, the completion of the Group’s
operational review in January 2016 (including the
announcement of the disposal of the Non Core
businesses) and the appointment of a new Chief
Executive Officer in April 2016. These events then
led to significant changes in senior personnel,
the development of the new strategy, corporate
rebranding and the reorganisation of operational
and corporate structures. In addition the Group has
incurred one-off tax charges over the past two years.
As a result, the Group has incurred significant one-off
costs over the past two year which are not expected
to recur and therefore have been separately disclosed
in the income statement to provide a better guide to
underlying business performance.
In 2016, the Group has incurred £13.1 million of one-
off costs (2015: £33.3 impairment write down and
other one-offs of £5.8 million). These one-off costs
comprise:
• Redundancy and retention costs due to the
reorganisation of the Group in 2016 (£6.5 million).
Redundancy costs of £4.8 million generated
annualised cost savings of £13.7 million (before
significant reinvestment);
• Professional fees and related charges associated
with the strategy development (£2.8 million);
• Costs of relaunching SDL which included the
costs of internal and external conferences to
communicate our new strategy and the global
relaunch of SDL’s brand and associated marketing
collateral (£2.1 million); and
• Other one-off costs includes provision for indirect
tax liabilities and corporate consolidation exercises
(£1.7 million).
As a result of the above, the Group now has the
right strategy, brand, leadership and organisational
structure to realise the full potential of our market
opportunities and deliver shareholder value.
Earnings Per Share
Adjusted EPS for Continuing Operations increased by
25.6% to 26.58 pence (2015: 21.17 pence). Adjusted
EPS for the Group increased to 22.38 pence (2015:
16.13 pence). Basic earnings per share was a loss of
22.29 pence (2015: loss of 37.93 pence).
Financing Costs and Borrowing
Facilities
Interest costs in 2016 were £nil (2015: £0.1 million).
At the start of the year, drawn borrowings were £4.8
million. During 2016, all borrowings were repaid such
that the Group was debt free at 31 December 2016.
The Group has a £25 million committed revolving
credit facility, expiring in August 2020. The agreement
also includes a £25 million uncommitted Accordian
facility.
61
STRATEGIC REPORT CFO Review
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 (“Adjusted EBITDA”). 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. Adjusted EBITDA is defined within the facility
agreement and is based on Adjusted PBTA.
Cash Flow
The Group generated £18.6 million from operations
during the year (2015: £12.0 million). This cash inflow
in the year was net of £11.1 million of cash outflows
arising from one-off items (2015 £3.8 million).
Surplus cash, after deducting net income tax paid
of £6.5 million (2015: £5.8 million) and investing
activities of £3.9 million (2015: £2.9 million), has
been used to reduce the Group’s bank borrowings
by £4.8 million and pay a dividend of £2.5 million to
shareholders. The Group’s bank borrowings have been
fully repaid in 2016.
As a result, net cash increased to £21.3 million at year
end (2015: £12.4 million).
The Group’s 2017 cash outflows will be impacted
by residual one-off cash costs and material capital
expenditure on the Group’s infrastructure and
efficiency investments.
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.
Foreign Currency Exchange Impact
We are a global business and we operate in 38
countries. The significant majority of Group revenue
and costs are denominated in non-sterling currencies.
Many of the Group’s global customers are US based
62
requiring translation into other worldwide languages.
As such, the Group has a net long US$ position which
is largely offset by short positions in other worldwide
currencies. Accordingly the impact of the sterling
devaluation during the year is not considered to have
had a material impact on the Group’s Adjusted PBTA
margin percentage, year on year.
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 Continuing Operations is £2.7
million (2015: Continuing Operations £5.3 million).
The group tax charge amounted to £2.3 million (2015:
£5.5 million).
These charges include tax credits associated with
amortisation, deferred tax and tax on one-off costs.
Excluding these impacts, the underlying effective
current tax rate for Continuing Operations was 27.3%.
This rate is impacted by unrelieved tax losses arising
in a number of jurisdictions and the utilisation of tax
losses in other territories. The underlying effective
current tax rate for Continuing Operations going
forward is expected to in the region of 27%.
Trados Litigation Update
As previously reported, 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
2016 of 6.2p pence per share will be proposed at the
Annual General Meeting, an increase of 100% on the
prior year.
Dominic Lavelle
Chief Financial Officer
SDL Annual Report Principal Risks and Uncertanties
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 Board has performed a robust assessment of
the principal risks facing the group, including those
that could threaten its business model, future
performance, solvency, liquidity and the Group’s
strategic objectives.
The Group’s risk management process is built around
the risk register. 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.
Risk Framework
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 development of mitigation
plans and actions to manage these risks is delegated
to the Executive Committee and other senior
management. The Executive Committee and their
teams are also responsible for the identification,
evaluation and management of local risks. Alongside
this, the Audit Committee review the controls
framework and the effectiveness of the mitigations
identified to manage the 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 & agrees
acceptable risk profile.
Monitors risk management policies and
procedures against strategic objectives.
Reviews risk register.
Regular review of operational, financial and
strategic risk: identification/analysis/evaluation/
mitigation.
Delegates authority.
Receives and reviews risk register.
Reporting to the Board and the Audit Committee.
Approves Group policies and
procedures.
Performs detailed reviews of
financial and other risks as appropriate.
Challenges and assesses risk
register including detailed review
of key items.
63
STRATEGIC REPORT Principal Risks and Uncertanties
Strategic risks
Description
Risk
Mitigation
Competition strategy –
services
Revenue and profitability reduction.
Services business fails to sustain
competitive advantage.
Competition strategy -
technology
Reduction, loss of market share and
early mover advantage. Competition
from existing localisation industry
participants and increasing interest
from other industries.
Strategic change program has put in place new
multilingual and language office framework to
optimise delivery. Empowering local operations to
respond to local markets. Continued 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.
Maintain controlled development strategy
and innovation with regular review of spend,
competition offering and new entrants. Continue to
develop product integration strategy.
Operational risks
Description
Risk
Mitigation
Human resources
Company dependent upon the
ability and experience of certain key
employees in key functions.
A CEO with a strong technology background has
been appointed. The Chairman has returned to his
Non-Executive Chairman role.
Cyber risk
Data privacy and protection – financial
loss, disruption or damage to the
Group’s reputation from failure of its
information technology systems.
A new Non-Executive Director was appointed in
2016 to increase independent representation on
the Board.
A Group-wide talent management process has been
completed and reviewed by the Board.
IT/Data Security/Data Privacy: Handled within the IT
risk management framework and security teams.
Compliance requirements are being addressed for
2018 EU regulations including IT infrastructure,
penetration testing and employee training.
Group-wide IT systems monitoring is in place.
Information security
Legislation/Client requirements:
Fail to respond to emerging security
legislation.
ISO27001 certification process includes audit
and review of external providers’ capabilities.
Deficiencies are assessed as part of procurement
processes.
Backup of disaster recovery processes
and IT security does not match
customer requirements.
EU-US Privacy Shield registration completed.
PCI guidelines are monitored and security upgrades
implemented as appropriate.
Transformation
Planned returns from investment in
systems not realised.
Project teams and plans in place with strategic
objectives monitored regularly.
64
SDL Annual Report Financial risks
Description
Risk
Mitigation
Economic downturn
Sharp decline in demand from key
customers and verticals.
Careful management of internal vs external
sourcing of services.
Currency movements
Trading patterns and/or intercompany
trading/loan patterns expose the
Group to foreign exchange risk.
Brexit and the Economic
Environment
Potential changes to tax, trading and
other arrangements with European
countries/authorities.
Monthly reviews of activity and forecasts.
Periodic reporting and review of Group currency
exposures.
Controlled program of intercompany balance
settlement in place and balance sheet exposure
reduced.
Global nature of SDL’s presence. Ongoing dividend
repatriation to the UK.
Continued review of latest information available.
Location of the Group’s assets worldwide is kept
under review.
Taxation
Assessment by tax authorities results
in disallowance of intercompany or
other charges
Formal agreements in place. All intercompany
transactions take place at arms length.
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.
This is the period focused 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 whilst 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 focused 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.
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 25% 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 achieve the
objectives set out by CEO, Adolfo Hernandez, in the
three-year plan detailed in his review, and meet
its liabilities as they fall due over the period to 31
December 2019.
65
STRATEGIC REPORT People Strategy
Bray
Montreal
Chicago
Sea(cid:9)le
San Jose
Los Angeles
Superior
Plano
Turku
Oslo Stockholm
St Petersburg
Copenhagen
Amsterdam
Bydgoszcz
Kiev
Mechelen
Leuven
Hengelo
Hradec Králové
Ljubljana
Zagreb
Sofia
Cluj
Budapest
Bucharest
Stu(cid:9)gart
Munich
Sheffield
Maidenhead
Bristol
Paris
Granada
Rome
Istanbul
Athens
Kaslik
Seoul
Tokyo
Dalian
Beijing
Shanghai
Changsha
Shenzhen
Taipei
Mumbai
Bangalore
Bangkok
Hoi Chi Minh City
Singapore
São Paulo
San(cid:8)ago
Sydney
In the digital world, it’s the human
experience that matters. We are
passionate about this as a company and
we are equally committed to delivering
a uniquely personalised and dynamic
environment to our worldwide employees.
To execute our strategy with speed and precision
demands we have the best people who are inspired
to perform at their very best. To deliver on that, our
People Strategy is focused into five pillars: Leadership,
Alignment, Growth & Enablement, Recognition and
Employee Experience.
1. Leadership
To enable leaders to lead with clarity and help their
employees be more agile, adaptable and successful, we
have dedicated programs around executive coaching,
competency assessments, talent review & succession
management and leadership development programs.
2. Alignment
To ensure all parts of the organisation are aligned to the
corporate strategy, we have cascaded objectives and
balanced scorecards from the top to each department
and down to each team and individual. This promotes
line-of-sight between the work people are doing and the
high-level desired results, and ensures accountability at
each level.
66
Employee Headcount Overview:
2016: 3,580 employees in 38 countries
2015: 3,504 employees in 38 countries
3. Growth & Enablement
We continue to inject new talent into the organisation
as needed and provide continuous learning
opportunities to our employees through resources like
Skillsoft. In the community, 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 2016 adding 40
new universities as education partners bringing the
total to over 500 worldwide in 76 countries. SDL
Research also offers annual summer internships 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,
Johns Hopkins University, University of Cambridge,
Heidelberg University and University of Sheffield.
SDL Annual Report Montreal
Chicago
Sea(cid:9)le
San Jose
Los Angeles
Superior
Plano
Turku
Oslo Stockholm
St Petersburg
Sheffield
Bray
Maidenhead
Bristol
Copenhagen
Amsterdam
Bydgoszcz
Kiev
Mechelen
Hengelo
Cluj
Leuven
Hradec Králové
Budapest
Paris
Stu(cid:9)gart
Ljubljana
Bucharest
Munich
Zagreb
Sofia
Rome
Istanbul
Athens
Granada
Kaslik
Dalian
Beijing
Shanghai
Changsha
Shenzhen
Taipei
Mumbai
Bangalore
Bangkok
Hoi Chi Minh City
Singapore
São Paulo
San(cid:8)ago
Sydney
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. 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.
Whistleblowing Policy
A whistleblowing policy is in place which enables
employees to bring matters of concern to the
attention of the Senior Independent Director in
confidence. No matters were raised via this route in
2016. 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.
4. Recognition
When people’s contributions are recognised by the
organisation, it has a positive impact on how much
they value their employment relationship with SDL.
To this end, we have implemented an employee
nominated awards programme. This formal awards
programme recognises individuals for outstanding
performance at our annual kickoff meeting and
received over 250 submissions this year.
Seoul
Tokyo
5. Employee Experience
People will work in positive environments –
characterised by appealing environments, streamlined
infrastructures and positive culture – that breed
engagement and enable them to be their best.
In our annual employee survey, conducted in
April 2016, 2,521 people participated and there
was overwhelming support for SDL’s culture with
3948 positive comments versus 585 constructive
comments. SDL was praised for having a flexible,
open and friendly work environment which offers
challenges and opportunities for professional growth.
Regarding constructive feedback provided,
employees wished for more work/life balance and
recognition, which is now being addressed through
the people strategy. To continue fostering great work
environments, SDL has identified key offices which
will be improved or moved to a new facility, which
will enable us to create more modern and stimulating
work environments for our employees.
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 and employ people from
38 countries, with 68 nationalities making up the
workforce.
Gender diversity is a key goal for us. Over the SDL
Group we employ close to equal numbers of men
and women, with slightly more women (52%). The
proportion of women in senior management is slightly
below this ratio (female senior managers: 45%, male
senior managers: 55%).
Roddy Temperley, Chief HR Officer
Roddy is committed to engaging SDL’s workforce by providing the
right environment, opportunities and culture that enable people to
thrive. Having worked for SAP, Credit Suisse and PeopleSoft, Roddy is
well equipped to develop creative and effective people programs and
solutions that drive SDL’s culture and environment.
67
STRATEGIC REPORT Corporate Responsibility
SDL Foundation
2016 saw the SDL Foundation continue
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 the recipients of its funding
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.
The SDL Foundation also continued to put a strong
emphasis on employee engagement and collaborated
with SDL’s corporate social responsibility (CSR)
programme to enhance awareness of the SDL
Foundation and increase employee involvement from
SDL’s global offices in CSR activities. In addition to
providing funding for these collaborative initiatives,
the Foundation also promoted fund raising activities
within certain SDL offices in support of the charities
that the Foundation helps.
Projects in 2016 include:
Microloan Foundation (MLF)
The SDL Foundation has supported MLF for a number
of years, enabling the charity to make small loans
to women in Malawi and Zambia, which allow them
to set up and sustain small businesses. The success
of these businesses allow the families to provide for
themselves, improve health and attend school.
During 2016, the Foundation extended the
partnership by providing a significant sum to
enable MLF to start the process of registering and
establishing operations in Zimbabwe. As with the
previous countries the loans will be aimed at the
poorest rural areas where the Poverty Index and daily
incomes are below the national averages.
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 Maisha
Bora.
Over the past two years, great strides were made
with the village elders and community leaders who
are responsible for developing income-generating
projects, driving attendance at the local schools,
improving results and educating the community on
the importance of hygiene and good health. The
Foundation’s funds were specifically used by the
community to successfully establish small businesses
which are themselves providing employment for other
members of Maisha Bora.
Fancy Stitch. Ingwavuma
This is a remote community in South Africa that the
Foundation had previously supported marketing
initiatives to bring the products made by the women
to a wider audience enabling them to earn a better
income and provide for their families.
In this latest initiative, the SDL Foundation funding
supported the enclosure of storage buildings to
protect crops, provide water-capture equipment
to lengthen/protect the crop’s growing season and
provide accommodation for after-school teaching to
enable the local children to build on their language
and mathematics skills for a better chance in their
regular schooling.
68
SDL Annual Report 69
GOVERNANCE Employee Engagement
Employee engagement is at the cornerstone of
the SDL Foundation’s objectives and the Trustees
continue to work alongside the Corporate Social
Responsibility teams by encouraging the employees to
“get their hands dirty” by providing their time and skill
sets to the advantage of those less well off in society
and their local communities. The following examples
highlight key employee-led endeavours supported by
the SDL Foundation:
Blythswood
The SDL Romania office teamed up with Blythswood
to complete the construction of affordable
accommodation for young people emerging from
social care and into vocational training and first-time
employment roles. The affordable housing enables
these socially and economically disadvantaged
youngsters who have been abandoned by their
families find security and support as they take their
first adult steps into re-integrating with their local
communities. The SDL Foundation provided the
funding to support the Romanian office employees in
their task.
Habitat for Humanity (HfH)
At the tail end of 2015 the SDL Foundation made
a substantial donation to Habitat for Humanity to
enable them to construct affordable accommodation
for deserving families who want to better their lives.
The partnership with HfH then enabled employees
from the SDL offices in Boston, Denver and Bangalore
to be involved in the construction phases using the
“days in lieu” that SDL offers all employees provided
they use them for appropriate charitable causes.
Il Sole
Il Sole works with sexually abused children in Ethiopia,
most of whom are also rejected by their families. The
emphasis is on rebuilding their self-esteem, providing
them with education and vocational training and
helping them back into society with the ability to
provide for themselves. The SDL Italy office worked
closely with Il Sole for a number of years, with the
employees providing their translation skills pro bono
to enable fund raising and progress reports on the
children to be translated.
Corporate Responsibility
Being encouraged to
volunteer has helped
not only make my job
more meaningful, but
also proud to be part of
the SDL team.
Liesl Leary, SDL Employee
70
SDL Annual Report CSR at SDL
For more than 25 years, SDL has transformed not
only global businesses, but local charities as well. Our
commitment to developing personalised connections
across the globe means we are passionate about
giving back to our communities. That’s why all SDL
employees receive 5 paid leave days on top of annual
leave to do charitable work. See below some example
of charitable work carried out by our employees in
2016:
Bake Sales
• SDL Sheffield organised a donor recruitment drive
for stem cell donors for the blood cancer charity
DKMS, a cause very close to the hearts of the PMO
team. Many colleagues baked goodies of their own
to sell and in total the team registered 36 potential
stem cell donors and raised an impressive £600.
• SDL Maidenhead colleagues also baked a
wonderful spread of cakes and savouries to
raise money for Macmillan Cancer Support and
Endometriosis UK and raised £430 for the two
worthy charities.
Fitness First
• Eight SDL Leuven colleagues, took part in a 5-10km
run in Dilbeek, Belgium, to support a project that
raises funds to educate young students in the Lao
People’s Democratic Republic.
•
In many countries around the world people,
including small children, must walk miles to the
nearest source of water, which is often of very
poor quality or even dangerous to consume. SDL
colleague, Steve DeNeefe, decided to do his bit to
help by running the LA Marathon on St. Valentine’s
Day to raise money for communities in Africa.
Steve raised a very impressive $1,342 for World
Vision, the largest non-government provider of
clean water on the planet. The SDL Foundation
contributed to Steve’s total by donating an
additional $700.
• 18 colleagues from SDL Sheffield and Maidenhead
participated in the annual Palace to Palace cycle
ride – from Buckingham Palace to Windsor Castle,
a distance of 45 miles. This year, the team was led
by our CEO Adolfo Hernandez, and supported by
our Chairman, David Clayton.
Lending a Hand
• SDL Wakefield was honoured as a Gold Tier
supporter for the charitable work colleagues have
done over the past 12 months for the Boys and
Girls Club of Stoneham. Wakefield colleagues have
made sizable donations, both monetarily and with
their time, leading them to receive the highest
recognised support level.
22.7%
Decrease in total
C02 footprint
• SDL San Jose colleagues teamed up with LifeMoves,
a charity dedicated to providing interim housing
and supportive services to help homeless families
and individuals return to long-term self-sufficiency.
San Jose colleagues volunteered at the Commercial
Street Inn where they offer services for veterans,
single adults and homelessness prevention.
• Cluj colleague, Catalin Grigoriu, helped out in an
orphanage in the small village of Sauraha, in the
Himalayas, where he rose at first daylight every
day (5.30am) and worked until the sun set (7pm)
helping with all the daily tasks.
Environment
As a socially responsible organisation, we recognise
the importance of reducing our environmental impact
wherever possible. To enhance our environmental
leadership, we pledge to limit our contribution to
climate change by managing and counteracting our
greenhouse gas emissions. SDL retained Carbon Clear
to measure the organisational carbon footprint with
the following objectives:
• Calculate a detailed carbon footprint for the 9 main
office locations
• Enable SDL to comply with Mandatory Greenhouse
Gas Reporting regulations. This summary provides
details of the carbon footprint for SDL’s global
operations based on a sample of sites, including UK
Head Office in Maidenhead and eight other major
locations, in total accounting for >80% of global
revenue.
The footprint covers the period of the 12 months
ending 31st December 2016 and is presented
alongside the data for the previous period (2015) for
comparison. The footprint was calculated by Carbon
Clear using data provided by SDL and was conducted
in line with the ISO-14064-1:2006 standard for
organisational carbon foot printing with no material
emissions excluded.
This footprint has been uplifted for all of SDL’s
remaining offices based on revenue to give figures for
SDL’s global operations. As in previous years, we have
increased the number of sites from which primary
data is collected meaning the footprint is, once again,
more accurate and meaningful.
71
STRATEGIC REPORT Corporate Responsibility
Global Footprint
The results show that GHG emissions in the period
were 6,843.6 tonnes of CO2e, comprised of the
following; Scope 1 & 2 – Combustion of fuels &
operation of facilities.
• Direct Emissions (Scope 1) were 475.3 tonnes of
CO2e or 7% of the total.
•
Indirect Emissions (Scope 2) were 1,475.3 tonnes
of CO2e or 22% of the total. Scope 3 – Additional
Activity Data Reported
• Other, Indirect Emissions (Scope 3) were 4,893.0
tonnes of CO2e or 71% of the total. The table
below displays the year on year analysis for SDL’s
global footprint. Year on year comparison of global
carbon footprint 2016 vs. 2015
29% Decrease business
travel emissions
34% Decrease electricity
consumption emissions
13% Decrease staff
commuting emissions
33% Increase natural
gas consumption
Year on year comparison of global carbon footprint 2016 vs. 2015
2015
2016
Percentage
change
Type of Emissions
Activity
tonnes CO2e
tonnes CO2e
Direct (Scope 1)
Gas
Pool cars / company cars
Diesel
Refrigerant
Subtotal
Indirect energy (Scope 2)
Purchased electricity
Subtotal
Indirect other (Scope 3)
Business travel
Commuting
Additional upstream activities
Other
Subtotal
247
10.9
0
15.7
273.6
2,241.5
2,241.5
2,238.8
2,341.3
1,275.3
485.5
6,340.9
329.6
117.1
0
28.6
475.3
1,475.3
1,475.3
1,576.7
2,029.1
897.1
390.1
4,893.0
%
33.5
974.0
-70.5
82.2
73.7
-34.2
-34.2
-29.6
-13.3
-29.7
-19.6
-22.8
Total Emissions (t CO2e)
8,856.0
6,843.6
-22.7
72
SDL Annual Report
Year-on-Year Analysis
When compared with 2015 (Figure 2), the total
footprint has decreased by 22.7% (2,012.4 tonnes
CO2e). The movement in emissions year on year is
summarised below:
• Emissions from business travel have decreased
significantly by 29.6% (662.1 tonnes CO2e).
This can be attributed to a 30.6% (628 tonnes
CO2e) reduction in air travel (which is carbon
intensive), attributable to sites such as Superior
USA which reduced its emissions from air travel
by 18%.
• Emissions related to direct electricity
consumption have also decreased by 766.2
tonnes CO2e, or 34.2%. However natural gas
consumption has increased by 33.5% (82.6 tonnes
CO2e). This is primarily due to the additional sites
included in the calculations using natural gas.
• There was a significant decrease in the emissions
from staff commuting (13.3% reduction, 312.2 tonnes
CO2e). It is noted that a larger number of responses
to the commuting survey were received for 2016. This
increase in sample size would increase the accuracy of
commuting calculations.
• There has been a significant increase in the emissions
from pool cars and company cars with a 974.0%
(106.2 tonnes CO2e) increase in emissions.
Year on year comparison at all sites (tonnes CO2e)
2015
2016
2,500.0
2,000.0
1,500.0
1,000.0
500.0
0
Commuting
Business
Travel
Electricity
Additional
Upstream
Activities
Other
Natural gas
and fuels
Refrigerants
This Strategic Report is approved by the Board of
Directors and signed on its behalf by
Dominic Lavelle
Director
7 March 2017
73
STRATEGIC REPORT 74
SDL Annual Report Governance
Directors’ Report
Board of Directors
Chairman’s Introduction
Corporate Governance Report
76
77
81
85
90
Audit Committee Report
94 Nomination Committee Report
96 Directors’ Remuneration Report
121
Statement of Directors’ Responsibilities
in Respect of the Annual Report and the
Financial Statements
75
GOVERNANCE
Chairman’s Introduction
David Clayton
Dear Shareholder,
On behalf of the Board I am pleased to present the SDL PLC corporate governance report
for the year ended 31 December 2016.
The Company is committed to maintaining the highest standards of corporate governance.
It is a reflection of our value system, encompassing our culture, policies, and relationships
with our stakeholders. Integrity and transparency are key to our corporate governance
practices and performance to ensure that we gain and retain the trust of our stakeholders
at all times.
Our Code of Conduct applies to all employees worldwide and demands the highest
professional standards from everyone at SDL. The Company actively monitors compliance
and is ready to provide advice to all colleagues on understanding their role and duties,
creating a culture where individuals feel empowered to speak up and voice concerns.
The following pages set out our governance processes and explain how we have achieved
some of the changes we have made. We continue to strive towards excellent governance.
David Clayton
Chairman
David Clayton
Chairman
7 March 2017
76
SDL Annual Report Board of Directors
David Clayton
Chairman
Tenure: 7 years (appointed December 2009)
Board Committees: Nomination
David Clayton joined SDL as a Non-Executive Director in December 2009 and has
served as Senior Independent Director and, for 9 months through 2015/2016,
interim Executive Chairman.
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 an executive role as Director of Strategy and Corporate
Development from October 2007 to February 2012. He is currently Chairman
of Forensic and Compliance Systems, a Non-Executive Director of SwiftPage Inc
and Chairman of the Board of Trustees of the charity Changing Faces.
Adolfo Hernandez
Chief Executive Officer
Tenure: 1 year (appointed April 2016)
Adolfo Hernandez joined the Board of SDL as Chief Executive
Officer on 18 April 2016. Prior to joining SDL, he was CEO of Acision
Limited from July 2013 to August 2015, a privately held mobile
communications software company specialising in messaging
systems, prior to its merger with Comverse Inc in 2015 to form
Xura Inc. Before that Adolfo spent four years at Alcatel-Lucent,
with his most recent position being Executive Vice President,
Global Software Services and Solutions. Adolfo has also held senior
management roles at Sun Microsystems Inc and spent nine years
with IBM in London and Munich where he held a variety of sales
leadership positions in the areas of eBusiness and Open Systems.
77
GOVERNANCE Board of Directors
Dominic Lavelle
Chief Financial Officer
Tenure: 3 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: 17 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, Blue Prism plc, Frontier
Silicon Ltd, and is Chairman of Eckoh plc.
78
SDL Annual Report Glenn Collinson
Non-Executive Director – independent
Tenure: 2 years (appointed June 2014)
Board Committees: Audit, Nomination & 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: 5 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 FTSE 250
media group Ascential plc. 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.
79
GOVERNANCE Board of Directors
Christopher Humphrey
Non-Executive Director – independent
Tenure: 1 year (appointed June 2016)
Board Committees: Audit and Remuneration
Christopher Humphrey is a qualified accountant and has over 25
years’ experience managing engineering and technology companies.
He is a Non-Executive Director and Chairman of the Audit Committee
of Vitec Group plc. He is also a Non-Executive Director and Chairman
of the Audit Committee of Aveva Group plc. Christopher was Group
Chief Executive Officer of Anite plc from 2008 until August 2015 and
its Group Finance Director between 2003 and 2008. Prior to joining
Anite he was Group Finance Director at Critchley Group plc and held
senior positions in finance at Conoco and Eurotherm International plc.
Between 2011 and 2012 he was a Non-Executive Director of Alterian
plc. Christopher is a Chartered Management Accountant, a Fellow of
CIMA and has an MBA from Cranfield School of Management.
Alan McWalter
Non-Executive Director – Senior Independent Director
Tenure: 3 years (appointed March 2014)
Board Committees: Audit, Remuneration & 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.
80
SDL Annual Report Directors’ Report
Introduction
The Directors of SDL PLC present
their report together with the audited
consolidated financial statements for the
year ended 31 December 2016.
Other information which forms part of the directors’
report can be found below and by reference to the
following sections:
• Strategic report
• Board of Directors
• Corporate Governance
• Financial Statements
General Information
SDL PLC is the ultimate parent company of the SDL
Group which operates internationally. SDL PLC is
registered in England and Wales (company number
2675207). The principal activities of the Group and its
subsidiaries are described in the Strategic report on
pages 7 to 73.
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 Strategic report on pages 6 to 68 considers the
Group’s activities and outlines the developments taking
place in the markets for our products and services.
Strategic, operational and financial risks plus actions
taken for their mitigation are set out on pages 63 to 65.
The Group has a £25 million committed revolving credit
facility with HSBC plc, expiring in August 2020. The
agreement also includes a £25 million uncommitted
Accordian facility. The Group has no borrowings at 31
December 2016.
After reviewing performance in 2016, the Group’s
budget, forecasts and three year plans (to 2019),
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.
Corporate Governance Statement
The Company’s statement on corporate governance
can be found on page 85. The Corporate Governance
report forms part of this Directors’ report and is
incorporated into it by cross-reference.
Strategic Report
The Strategic report is set out on pages 6 to 68 and
is incorporated into this Directors’ Report by cross-
reference.
Directors
Brief biographical details of the Directors who have
served during the year, and up to the date of this
report, are set out on pages 77 to 80. Directors are
subject to annual re-election.
• Powers
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 28
April 2016 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. Copies are available for
inspection at the registered office of the Company
during business hours.
81
GOVERNANCE
Directors’ Report
• 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 2017 AGM will be held at 9:30am on Thursday 27
April 2017 at DLA Piper UK LLP, 1 London Wall, London
EC2Y 5EA. The notice of the 2017 AGM will be made
available to shareholders and will also be published on
the Group website www.sdl.com /About Us / Investor
Relations / AGM.
Results and Dividends
The Group’s Consolidated Income Statement appears
on page 129 and note 3 shows the contribution to
revenue and profits made by the different segments
of the Group’s business. The Group’s profit before
taxation, amortisation and one-off costs from
continuing operations was £27.0 million (2015 –
Group £20.7 million; continuing operations £24.2
million). The Directors are recommending that
shareholders declare a final dividend of 6.2 pence
per ordinary share in respect of the year ended 31
December 2016. If approved, the final dividend will be
paid on 9 June 2017 to shareholders on the Register
of Members at close of business on 12 May 2017.
Employee Share Schemes and 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.
82
Details of issues and purchases of the Company’s
shares made in the year to 31 December 2016 by
the Trust are to be found in note 18 to the accounts.
Since 31 December 2015, 10,175 shares have been
purchased by the Trust to satisfy employee awards
under The SDL Retention Share Plan. As at 31
December 2016 the Trust holds zero shares.
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 6 March 2017 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 105.
SDL Annual Report
Substantial shareholdings
All persons with a significant holding, along with the value of that holding are given in the table below (share price at 14
February 2017; 490 pence)
Schroder Investment Mgt
Artemis Investment Mgt
Aberforth Partners
RGM Capital
River & Mercantile Asset Mgt
Majedie Asset Mgt
JO Hambro Capital Mgt
Legal & General Investment Mgt
Invesco Perpetual Asset Mgt
Holding at
14 February 2017
% of issued
share capital
Value of Holding
(£000)
11,741,765
9,520,228
9,002,479
6,014,121
4,457,393
3,712,378
3,210,725
3,209,051
2,607,540
14.39
11.67
11.03
7.37
5.46
4.55
3.94
3.93
3.20
£57,535
£46,649
£44,112
£29,469
£21,841
£18,191
£15,733
£15,724
£12,777
Employees
Health and Safety
Information regarding our employees and their
involvement within the business, including the
Company’s policy towards discrimination and diversity
can be found on page 67.
Our employment policies are developed to reflect
local legal, cultural and employment requirements.
We ensure that there are equal opportunities for all
employees, irrespective of age, gender, ethnicity,
race, religion, sexual orientation or disability.
Applications for employment from disabled persons
are treated equally where the requirements of the job
may be adequately carried out by a disabled person.
Where existing employees become disabled it is our
policy, wherever practicable, to provide continuing
employment under normal terms and conditions and
to provide retraining if necessary.
We encourage the involvement of our employees
and significant matters are communicated through
regular updates from: the Chief Executive Officer; Site
Leaders; management meetings; the Group’s intranet;
a periodic digital magazine; discussion forums and
informal briefings. Employee involvement is an
essential element of the business.
The Chief Financial Officer has ultimate responsibility
for Health and Safety.
A Health and Safety Committee, chaired by the Chief
Financial Officer, meets twice a year to discuss health
and safety policy and review activities. Each location
in the Group has a Site Leader, responsible for day-
to-day health and safety activities. Specific tasks are
delegated to local managers and suitably trained
individuals within the organisation.
SDL’s policy on Health & Safety includes the following:
• 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.
No RIDDOR reports were submitted to the Health and
Safety Executive (2015: zero).
83
GOVERNANCE Directors’ Report
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.
Charitable donations amounting to £3,066 were made
to external charities and £205,527 (2015: £213,650)
was donated to The SDL Foundation.
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 information (namely, information
needed by the Company’s auditors in connection with
the preparation of their auditors’ 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.
• Particulars of events occurring after the balance
sheet date are described in note 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 ‘Employees’
• Disclosures concerning greenhouse gas emissions
are contained in the Environment section of the
Strategic report on pages 71 to 73.
COMPANY NUMBER
The Company number of SDL PLC is 2675207.
By order of the Board
Dominic Lavelle
Director
7 March 2017
84
SDL Annual Report Corporate Governance Report
Compliance with the UK Corporate
Governance Code
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 UK Corporate Governance Code (‘Code’) sets
out principles and specific provisions on how a
company should be directed and controlled to
achieve standards of good corporate governance.
The 2014 version of the Code (available at www.frc.
org.uk) applies to the Company for the year ended
31 December 2016. The following sections provide
an explanation of how it has applied the principles
in the Code and good governance principles of
accountability, transparency, and focus on the
sustainable success of the Company over the longer
term.
The Company has complied with the provisions of
the Code in this financial year, with the exception of
Rule A2.1 as the Company did not have a separate
Chairman and CEO for the first three months of 2016.
From January to June 2016 David Clayton served as
Executive Chairman. This temporary non compliance
with the Code was addressed by the Board and on
the 18 April 2016 Adolfo Hernandez was appointed
as CEO. David Clayton reverted to the role of Non-
Executive Chairman on the 1 July 2016 following a
full handover of his executive leadership role and
responsibilities to Adolfo Hernandez. The division of
responsibilities between the Chairman and CEO are
clearly established and agreed by the Board.
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 2016 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.
The Board and Executive management team operate
within a wider governance framework. This ensures
that decisions are taken at the right level of the
business by the people best placed to take them.
The framework allows us to run our business whilst
maintaining high standards of governance that
support our aim of trust and transparency. Having
delegated the detailed operation of the business to
the CEO and CFO, the Board holds them to account
for their responsibilities. In order to do this effectively,
the Board operates through a number of Committees,
each made up entirely of members of the Board. Each
Committee meets separately to the Board during the
year, providing time to focus in depth on the particular
key matters of audit, remuneration and nominations.
All Directors receive sufficient relevant 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.
The Board has responsibility for the long-term success
of the Group but the day-to-day management is
delegated to Adolfo Hernandez as CEO and Dominic
Lavelle as CFO. Adolfo Hernandez has an Executive
management team to support him in the day-to-day
operation of the Group, all members of which report
directly to him. Dominic Lavelle as CFO has a key role
on the Executive management team and has certain
financial responsibilities delegated to him by the
Board. The Chairman, CEO, CFO, Senior Independent
Director (‘SID’) and Non-executive Directors (‘NEDs’)
each have clearly defined roles in the operation of the
Board. Information on each member of the SDL PLC
Board, including details of their skills and experience
is set out in this report. The Board considers that
there is an appropriate balance of skills, experience,
independence and knowledge of the Company on
the Board and its Committees and that all Directors
are able to allocate sufficient time to the Company
to discharge their responsibilities effectively. There is
a strong non-executive representation on the Board
which provides effective balance and challenge.
85
GOVERNANCE Corporate Governance Report
The framework
Board
Board Committees
Executive Management
Team
Operating Businesses
Audit
Nomination
Remuneration
Board Committees
• The Audit Committee consists of Mandy Gradden
(who chairs the Committee), Glenn Collinson, Alan
McWalter and Christopher Humphrey (appointed
on 8 June 2016) all of whom are independent
Non- Executive Directors. 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.
• The Remuneration Committee consists of Glenn
Collinson (who chairs the Committee), Mandy
Gradden, Christopher Humphrey 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.
Directors’ Attendance at Meetings
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.
The Nominations Committee assesses the external
commitments of Board members to ensure that they
each have sufficient time and energy to devote to
their role with SDL.
Director
David Clayton, Chairman
Chris Batterham, NED
Glenn Collinson, NED
Mandy Gradden, NED
Adolfo Hernandez, CEO
Christopher Humphrey, NED
Dominic Lavelle, CFO
Alan McWalter, SID
Board
8 (8)
7 (8)
8 (8)
6 (8)
6 (6)
4 (5)*
9 (9)
9 (9)
Audit
committee
Nomination
committee
Remuneration
committee
4 (4)**
4 (4)**
4 (4)
4 (4)
3 (3)**
2 (3)*
4 (4)**
4 (4)
2 (2)
-
2 (2)
-
-
-
-
2 (2)
8 (8)**
3 (3)**
8 (8)
6 (8)
2 (2)**
4 (5)*
-
8 (8)
*Christopher Humphrey advised the Company, before his appointment, his availability to attend pre-scheduled meetings.
**Attended by invitation
The Chairman met with the Non-executive Directors, without the Executive Directors present, during the financial year.
86
SDL Annual Report Corporate Governance Highlights
Board focus during the year
The main focus of the Board’s agenda is currently
strategy, which reflects the fact that the Group is
currently in a period of transformation. In the future,
the agenda is expected to shift to having a balance of
short-term trading focus and more long-term issues
such as people development, branding, marketing and
business planning.
During the year, the Board spent its time considering a
wide range of matters.
• The CEO provided updates to the Board during
the year on business performance, progress
on divesting non-core businesses, investor
engagement, business priorities and operations as
well as corporate responsibility/compliance and
key metrics.
• Reports were also provided to the Board by the
CFO on the development of appropriate KPIs and
progress against these measures and updates on
the transformation project
• The Board received input from each of the Audit,
Nominations and Remuneration Committees
following Committee meetings. The Company
Secretary also provided reports on corporate and
regulatory updates and also routine corporate
approvals. Updates on litigation and investigations
were also provided.
• Updates were provided to the Board on tax, the
Group’s treasury position and approach to revenue
recognition. In addition, updates were provided
from the stockbrokers on the views of major
shareholders, share price changes and dividend
view. The Board also considered the results of the
EU referendum and its potential impact on the
Group.
• The Board reviewed the Annual Report and
Financial Statements for 2015 and the Interim
Results Statement, including the going concern
review. Discussions were also held on the approach
to viability under the Code requirements. In
addition, the Board received reports from the
external auditor.
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.
Effectiveness and Evaluation
Led by the Chairman, a comprehensive induction
programme is tailored for each new Director prior to
their appointment to the Board. The programme is
designed for each individual, taking account of their
existing knowledge of the business, specific areas of
expertise and proposed Committee appointments. For
Christopher Humphrey, meetings were arranged with
the Chairman, CEO and Senior Independent Director,
as well as senior members of management to ensure
he gained a thorough overview and understanding of
the business.
On-going development opportunities for all Directors
will be provided, as required. Any training will take
account of an 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.
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. The Non-Executive Directors
meet with the Chairman, from time to time, without
the presence of the other Executive Director.
Chris Batterham has served for more than seventeen
years as Non-Executive Director and under the Code
is no longer considered to be independent. He will not
seek re-election at April’s AGM.
The Non-Executive Directors meet to review the
performance of the Chairman. The performance of
the other Executive Directors is appraised by the
Chairman. The Chairman appraises the performance
of the Non-Executive Directors, identifying any
development opportunities or training needs.
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.
All Directors are supplied with information in an
appropriate format. They each have access to the
advice and services of the Company Secretary and are
able to arrange for independent professional advice
at the Company’s expense where they judge it is
necessary in order to discharge their responsibilities
as Directors. In addition, a Directors’ and Officers’
Liability Insurance policy is maintained for all of our
Directors and each Director has the benefit of a Deed
of Indemnity.
87
GOVERNANCE Corporate Governance Report
Diversity
Balance of Non-Executive Directors
Executive Directors
Non-Executive Directors
Chairman
Length of tenure
0-4 years
5-9 years
>9 years
Male: Female
Male
Female
88
Composition and Succession
Each Non-Executive Director is appointed for an initial
three-year term but they are all subject to annual
re-election by shareholders at the Annual General
Meeting. Provided each Director is re-elected by
shareholders every year, their appointment term
may be extended. Details of each Non-Executive
Director’s term of appointment is set out in their
letter of appointment, which are all available for
inspection on request. Length of tenure is a key factor
for the Board in determining whether a Non-Executive
Director is regarded as independent. Taking into
account all relevant factors as set out in the Code
and notwithstanding Chris Batterham who has served
more than nine years and will be stepping down
from the Board at the AGM in 2017, all of our Non-
Executive Directors are considered to be independent.
This is apart from the Chairman who, in accordance
with the Code, is not considered independent on
an ongoing basis although he was considered to be
independent on appointment.
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-Executive Directors and
that the Directors collectively possess the skills and
experience necessary, with no conflict of interest,
to direct the Company and the Group’s business
activities.
There is an established process for external
appointments through the Nomination Committee.
Ultimately, the 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.
SDL Annual Report 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.
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.
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 our investors
The Board encourages and conducts constructive
dialogue with institutional and private investors
to enable clear communication of the Company’s
objectives and to understand what is important to
shareholders.
Institutional shareholders
During the year, activities were undertaken to engage
with our institutional shareholders:
• the Chairman, SID, Chairman of the
Remuneration Committee, CEO and CFO held
meetings throughout the year with institutional
shareholders;
• investor roadshows were organised and
conferences attended in the UK and North
America;
• institutional shareholders were invited to attend
the Company’s full-year and half-year results
roadshows; and
• other presentations were made to institutional
investors and analysts to enable them to gain a
greater understanding of important aspects of the
Group’s business
The outcome of all shareholder interactions are
reported to the Board to ensure that all Non-executive
Directors develop an understanding of the view of
major shareholders. All Non-executive Directors
are able to attend scheduled meetings with major
shareholders.
89
GOVERNANCE Audit Committee Report
Dear Shareholder,
I’m pleased to present the Audit Committee report for the year ended 31 December 2016.
Composition and Governance
The Audit Committee is comprised of four Non-Executive Directors all of whom are considered
independent.
Membership in 2016:
Mandy Gradden – Chairman
Alan McWalter
Glenn Collinson
Christopher Humphrey (appointed on 8 June 2016)
I am a Chartered Accountant and currently serve as Chief Financial Officer of Ascential plc.
The Board considers both myself and Christopher Humphrey, who is Chairman of the Audit
Committee for Vitec Group plc and Aveva Group plc, to have relevant financial experience in
accordance with the UK Corporate Governance Code. All of the Committee members have
significant executive experience in various industries. This range and depth of financial and
commercial experience enables them to deal effectively with the matters they are required to
address and to challenge management when necessary. The Company Secretary is secretary to
the Committee. The Board evaluates the membership of the Committee on an annual basis.
The Chief Financial Officer, Chairman, Chief Executive Officer, senior representatives of the
external auditor, KPMG, and other senior management for example, the Chief Transformation
Officer, attend meetings by invitation.
As Chairman of the Committee, I report to the Board and meet with the external auditor, without
executive management present to discuss matters relating to its remit and any issues relating to
the audit. I also meet with the Chief Financial Officer and the external auditor outside of formal
meetings to ensure that any areas for discussion are dealt with on a timely basis.
Committee Meetings
The Committee met four times during the year ended 31 December 2016. Dates and attendance
are as follows:
Mandy Gradden – Chairman
Glenn Collinson
Christopher Humphrey
Alan McWalter
Number of meetings
eligible to attend
Number of
meetings attended
4
4
3*
4
4
4
3
4
*Christopher Humphrey joined the Committee on 8 June 2016.
Mandy Gradden
Audit Committee Chairman
7 March 2017
90
SDL Annual Report Since the end of the year, the Committee has met once (1 March 2017) 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.
Committee Meeting
Date
Key Agenda Items
10 March 2016
Annual results
• Significant accounting issues, key judgments & estimates, viability statement
• External auditor’s report
• Review of preliminary results and draft announcement
Draft Annual report
Review of the Internal audit organisation
Disclosure requirements of the Modern Slavery Act
22 July 2016
Interim results
• Significant accounting issues, key judgments & estimates
• External auditor’s interim report
• Review of interim preliminary results and draft announcement
Key Judgments
Review of internal audit site visit findings
Review of Effectiveness of External Audit
15 September 2016
External auditor Audit Strategy report
Internal audit report
Non-audit fees
IFRS 15- Revenue Standard
Committee’s Terms of Reference
2 November 2016
Review of corporate structure
Annual review of internal controls
Treasury/Foreign exchange review
Group Tax matters review with management
Risk Review including Cyber/Information Security
1 March 2017
Annual results
• Significant accounting issues, key judgments & estimates, viability statement
• External auditor’s report
• Review of preliminary results and draft announcement
Draft Annual report
Review of the future changes to accounting standards including IFRS15
Review proposed Modern Slavery Act statement
Risk review
Meetings and Activities in 2016
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. 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 that 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.
91
GOVERNANCE
Audit Committee Report
As part of the formal annual Board evaluation, the
Committee’s effectiveness was subject to external
review in 2016. 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 2016 accounts were:
Carrying value of goodwill:
This is an area of focus for the Committee given the
materiality of the Group’s goodwill balances (£146.7
million at 31 December 2016 (148.5 million at 31
December 2015)) and the inherent subjectivity in
impairment testing.
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.
The Committee received detailed reporting including
consideration of:
• the historical accuracy of management's forecasts
• benchmarking data supporting key assumptions
e.g. revenue growth
• sensitivity analysis in relation to possible changes
to key assumptions and their impact on valuation
• the overall group value in use calculation in
comparison with the groups externally determined
to market capitalisation
• the adequacy of the groups disclosures in respect
of impairment testing including whether the
disclosures properly reflect the risks inherent in the
key assumptions and the requirements of relevant
accounting standards.
See note 9 “Intangible assets” and note 11
"Impairment testing of goodwill" for further details.
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.
The Committee is comfortable that management
have been appropriately balanced where contract
clauses require judgment and concluded that the
timing of recognition continues to be in line with IFRS
requirements.
The Committee has also received analysis from
management on the introduction of the new revenue
recognition standard (IFRS 15). The Committee
has challenged the conclusions and reviewed the
disclosure in the Financial Statements, summarising
the impact of these changes for appropriateness.
Internal control and risk management
A review by the Audit Committee and the Board of
the effectiveness of the Group’s risk management
and internal control systems is undertaken at least
annually.
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
locations 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. In March 2017, the Committee
concluded that the Group would be best served
by having a dedicated internal audit function. This
recommendation was accepted by the Board and the
Committee will monitor the implementation of this in
2017 and beyond.
92
SDL Annual Report Tax risk reviews: received and considered
presentations from management on the key drivers
of the Group's effective tax rate, the status of the
Group's tax compliance filings and on going tax
enquiries and audits, the Group's principal tax risks
and how these were being managed.
Foreign exchange review: received and considered
presentations from management on the Group
currency cash flows, net earnings exposures and
mitigating controls. 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.
External Auditor and Independence
KPMG have been auditor 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. The Committee has
concluded that the external audit process operated
effectively throughout 2016 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. Accordingly, 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 auditor 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 auditor, however, may be engaged to provide
permitted non-audit services where:
• The skills and experience of the auditor makes
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 2016, the Group
has continued corporate rationalisation and the
divestment of non-core operations. In each case,
management considered which advisors were best
placed to provide the most efficient and effective
services to the Group.
The Committee acknowledges the EU and UK non-
audit service restrictions which came into force from
1 January 2017 with the FRC Ethical Standard. Policies
and procedures have been updated to ensure the
Group remains compliant with these rules. Non audit
services will be capped at 70% of the average fees
paid in the last three consecutive financial years for
the statutory audit.
During the year, the fees paid to the auditor were
£483,000 (2015: £393,000) for audit services and
£590,000 (2015: £621,000) for non-audit services.
93
GOVERNANCE Nomination Committee Report
Dear Shareholder,
On behalf of the Board, I am pleased to present the Nomination Committee Report for the
year ended 31 December 2016.
Key Responsibilities
The Committee is responsible for:
• ensuring the appropriate balance of Directors on the Board as the Group develops to
ensure that the business can compete in the marketplace;
• evaluating the balance of skills, knowledge, experience and diversity of the Board to
ensure the optimum mix;
• considering succession planning for Directors and other senior managers to ensure that
there is a pipeline of high calibre candidates; and
•
identifying and nominating, for the approval of the Board, candidates to fill Board
vacancies as and when they arise.
The Committee has terms of reference which are regularly reviewed and are published on the
Group’s website.
Main Activities of the Committee
The Committee has met twice during the year during the year to 31 December 2016 and the
matters considered at these meetings were:
Recruitment
Chief Executive Officer: Having been through a rigorous selection process, assisted by Spencer
Stuart an executive search agency, the Committee recommended the appointment of Adolfo
Hernandez for the role of CEO with a start date of 18 April 2016.
Non-Executive Director: As announced on 8 June 2016, Christopher Humphrey joined the
Board as a Non-Executive Director. He serves on the Audit and Remuneration Committees.
Board Composition
The Committee agreed that there was considerable advantage to retaining Chris Batterham
on the Board during this period of change. Although he had intended to stand down at the
AGM in April 2016, Chris Batterham agreed to remain in place as a Non-Executive Director. He
will not, however, seek re-election at the AGM in April 2017.
Board Evaluation
The Committee has made a thorough assessment of the Board of Directors based on: dialogue
with the Chairman to understand in detail the balance of skills, knowledge, experience and
diversity requirements; meetings with the largest shareholders; individual meetings with
members of the Board; and an independent Board evaluation.
Based on this assessment the Committee recommended that all Board members, apart from
Chris Batterham who does not seek re-election, stand for re-election at the April 2017 AGM.
In all cases the Directors who were subject to election or re-election were not present and did
not vote when proposals regarding their own position were discussed.
The Committee considered its own performance and terms of reference and concluded it
continued to operate effectively.
94
SDL Annual Report Membership and attendance in 2016
Alan McWalter – Chairman
David Clayton
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 2016
Number of meetings
eligible to attend
Number of meetings
attended
Alan McWalter (independent non-executive director)
– Chairman
David Clayton (Chairman of the Board)
Glenn Collinson (independent non-executive director)
2
2
2
2
2
2
Since the end of the year the Committee has met once (1 March 2017) and all members
attended.
Alan McWalter
Chairman of the Nomination Committee
7 March 2017
95
GOVERNANCE Directors’ Remuneration Report
This report covers the activities of the Remuneration Committee for
the year ended 31 December 2016 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 99 to 106 was approved in a binding vote at
the Annual General Meeting on 28 April 2016 at the same time as separate resolutions to
approve a new Long Term Incentive Plan (LTIP) and a new Deferred Share Bonus Plan. The
Remuneration Policy will continue to apply in 2017. The Annual Report on Remuneration
(set out on pages 107 to 120) describes how this policy will be implemented in 2017,
together with details of remuneration paid in the 2016 financial year. This report together
with the Annual Statement will be subject to a single advisory shareholder vote at the
2017 AGM.
Annual statement
Dear Shareholder,
I am pleased to present, on behalf of the Board, the Directors’ Remuneration Report for
the year ended 31 December 2016, which summarises the Group’s performance and the
resulting remuneration for the year.
Board changes
Following changes to the executive team in 2015, an extensive international search
process was undertaken and the Company was pleased to announce the appointment of
Adolfo Hernandez as Chief Executive on 18 April 2016. Mr Hernandez’s base salary was set
at £500,000 and, in line with the remuneration policy that was approved by shareholders
later that month, he participated in the bonus plan (pro-rated) for the year and received
an LTIP award upon joining.
David Clayton, who had held the position of Executive Chairman during the CEO transition
period, reverted to the role of Non-Executive Chairman following a full handover of his
executive role and responsibilities to Mr Hernandez.
Dominic Lavelle is the CFO and served throughout the whole year.
Performance and remuneration for 2016
2016 has been a positive year for SDL. We have begun investing in the transformation of
our Language Services business after many years of underinvestment and our Language
Technologies and Global Content Technologies businesses have both delivered material
increases to profitability this year.
Because of the Group’s overall positive performance, Executive Directors’ bonuses have
been paid for 2016. Full details of how these bonuses were calculated is set out on pages
110 to 114 of the Annual Report on Remuneration.
David Clayton’s bonus was based on his position of Executive Chairman including during
the CEO transition period up to 30 June 2016. After this date he reverted back to his
previous position of Non-Executive Chairman and, in line with our Remuneration Policy for
all non-executives, left the bonus plan. David Clayton’s maximum bonus opportunity was
62.5% of his base salary, split 60% measured on company financial performance and 40%
measured on a personal objective. The positive company financial performance versus
the bonus plan financial targets resulted in a bonus pay out for the company financial
performance element towards the upper end of the range. This element of the bonus was
96
SDL Annual Report then time pro-rated by 50% to reflect the time served as executive chairman. The personal
objective was predominantly to lead the search for and succeed in recruiting a new CEO
of the right calibre and was fully achieved ahead of expectations so that the personal
objective element of the bonus was paid in full. David Clayton’s bonus was therefore
£162,975, paid in cash.
Adolfo Hernandez’s bonus was based on his position of CEO from April 2016 through
the end of the year. His maximum bonus opportunity was 150% of his base salary. This
maximum opportunity was split 60% measured on company financial performance and
40% measured on personal objectives. The higher weighting than typical on personal
objectives reflected the Committee's desire for Mr Hernandez to focus on developing
the Company's strategic priorities and achievement against them. As all executives were
measured against the same company financial targets, the positive company financial
performance also resulted in a financial element bonus pay out for Adolfo towards the
upper end of the allowed range. The personal objectives were stretching and measureable
as shown on page 111. Adolfo’s performance was well ahead of expectations on all
the objectives and therefore the personal objectives element of the bonus was paid in
full. All of the bonus was then time pro-rated to reflect the time served as CEO. Adolfo
Hernandez’s bonus was therefore £472,312, paid in cash.
Dominic Lavelle’s maximum bonus opportunity was 150% of his base salary. This maximum
opportunity was split 87.5% measured on company financial performance and 12.5%
measured on personal objectives. In line with the other executives, the positive company
financial performance also resulted in a financial element bonus pay out for Dominic
towards the upper end of the allowed range. The personal objectives were stretching
and measureable as shown on page 112. Dominic’s performance was very close to full
expectations on all the objectives and therefore the personal objectives element of
the bonus was paid at 95% of full opportunity. Dominic Lavelle’s bonus was therefore
£350,261. £310,000 of this was paid in cash and £40,261 deferred in shares for two years.
The Long Term Incentive Plan (LTIP) award granted on 17 April 2013 under the Rules of the
LTIP reached the end of its performance period on 31 December 2015 and were subject to
a Total Shareholder Return (“TSR”) assessment and Earnings Per Share (“EPS”) condition.
As TSR performance was below the FTSE 250 index over the three year period and EPS was
below threshold, this award lapsed.
Dominic Lavelle received 83,958 awards under the LTIP on 7 April 2014 and these were
based on the same conditions as above, measured over the three year period ending
31 December 2016. The Company’s TSR performance of 57% was above the maximum
required (48%) and actual EPS of 26.35p was significantly ahead of the CPI + 3% p.a. target.
Accordingly these awards will vest in full on 7 April 2017.
An award under the newly approved 2016 LTIP plan and consistent with the newly
adopted Remuneration Policy was made during 2016 of 125% base salary for Dominic
Lavelle and of 250% base salary upon joining for Adolfo Hernandez. Because David
Clayton’s position as Executive Chairman was not expected to be a long term one, he did
not receive an LTIP award.
The Board is satisfied that the incentive outcomes are reflective of the Company’s
performance over the respective periods.
Implementation of policy in 2017
Adolfo Hernandez will not receive a salary increase in 2017. Dominic Lavelle will receive
a salary increase of 3.2% in 2017 bringing his new base salary to £320,000. The average
2017 salary increase percentage for employees in the UK is 3.8%.
The maximum annual bonus will remain at 150% of salary for both Adolfo Hernandez and
Dominc Lavelle.
97
GOVERNANCE Directors’ Remuneration Report
Adolfo Hernandez will receive an LTIP award equivalent to 250% base salary and Dominic
Lavelle will receive an award equivalent to 125% base salary. The 2017 LTIP performance
targets will be, as in 2016, 50% on EPS growth and 50% on relative Total Shareholder
Return (“TSR”). The EPS performance target (for performance over three years to FY 2019)
has been set at a threshold of 30p/share and a stretch goal of 42p / share. The relative TSR
targets will continue to be 25% vesting at a threshold for TSR ranked at the median of the
constituents of the FTSE Small Cap index excluding Investment trusts, rising on a straight
line to 100% full vesting for TSR ranked at or above the upper quartile of the comparator
group. A two-year holding period applies to vested LTIP awards.
David Clayton's fee as Non-Executive Chairman was reviewed during 2016 and was
increased to £110,000 after 1 July 2016. A review was conducted during the year of all of
the Non-Executive Directors’ fees.
The Board is satisfied that the implementation in 2017 is consistent with the policy and
provides a good balance between appropriately stretching targets and rewards.
Shareholder views
The Remuneration Committee was delighted that the 2016 Remuneration Policy received
99.95% support. This followed extensive consultation during Q4 2015 with a broad range
of shareholders.
The advisory vote received the support of 73.3% of shareholders. On going discussions
have revealed that the main reason for the dissenting votes was the use of Committee
discretion in paying a cash bonus to the CFO in 2015, despite the 2015 bonus plan not
paying out. 2015 was a time of exceptional change for the company with the Founder and
CEO leaving abruptly in the fourth quarter of the year. The Remuneration Committee and
the Board unanimously believe that in these particular circumstances the Remuneration
Committee made the right decision by seeking to align the CFO’s reward with the
exceptional contribution he has made at a time of significant change and uncertainty
at the Company. It did not take this decision lightly and considered the position over a
number of meetings and consulted both shareholders, the Investment Association and
Institutional Shareholder Services. The use of discretion in 2015 is not intended to create a
precedent for future years, but was used to address a particular anomaly arising as a result
of changes to the directorate.
The Committee understands the concerns raised and will continue to seek input on any
material changes to the way we operate our new policy. I do hope you will be able to
support the advisory vote on our remuneration report at the 2017 AGM.
Glenn Collinson
Remuneration Committee Chairman
7 March 2017
98
SDL Annual Report 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 was 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 was approved in a binding shareholder vote at the AGM on 28
April 2016, taking effect from that date for a three year period. It has been repeated again
in this report for clarity and transparency.
Details of how the Company intends to implement the Policy in 2017 are provided in the
Annual Report on Remuneration section starting on page 107.
Remuneration Policy objectives
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 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.
99
GOVERNANCE Remuneration Policy Report
Element
Base salary
Purpose and link to strategy
Operation
Maximum Opportunity
Framework Used to Assess Performance
Essential to recruit and
retain executives of a high
calibre.
Reflects an individual’s
experience, role and
performance.
Salaries are paid monthly. They are reviewed annually and normally fixed for 12
months commencing 1 January.
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.
The Committee reviews the salaries of Executive Directors each year taking due
account of all the factors described in how the salary policy operates.
Benefits
To provide competitive
benefits to help recruit and
retain executives.
Benefits include:
• Car or car allowance
• Private medical insurance
• Life assurance
• Health insurance
There is no prescribed maximum as costs may vary in
Not applicable
accordance with market conditions.
HMRC tax-approved limits will apply to all employee share
schemes.
Pension
Annual bonus
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.
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.
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.
Not applicable
The maximum award under the annual bonus scheme is
Performance metrics are selected annually based on the Company’s strategic
150% of salary.
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.
100
SDL Annual Report Element
Base salary
Essential to recruit and
retain executives of a high
calibre.
Reflects an individual’s
experience, role and
performance.
Purpose and link to strategy
Operation
Maximum Opportunity
Framework Used to Assess Performance
Salaries are paid monthly. They are reviewed annually and normally fixed for 12
There is no prescribed maximum.
months commencing 1 January.
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.
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.
The Committee reviews the salaries of Executive Directors each year taking due
account of all the factors described in how the salary policy operates.
Benefits
To provide competitive
benefits to help recruit and
retain executives.
Benefits include:
• Car or car allowance
• Private medical insurance
• Life assurance
• Health insurance
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.
Not applicable
Directors are eligible to receive employer contributions to the Company’s pension
12% of salary p.a.
Not applicable
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
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.
101
Pension
Annual bonus
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.
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.
plan (which is a defined contribution plan) or a salary supplement in lieu of pension
benefits or a mixture of both.
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
Participation in the bonus plan, and all bonus payments, are at the discretion of the
misconduct.
Committee.
GOVERNANCE Remuneration Policy Report
Element
Purpose and link to strategy
Operation
Maximum Opportunity
Framework Used to Assess Performance
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.
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.
Share
ownership
guidelines
To align the interests
of management and
shareholders and
promote a long-
term approach to
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
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
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.
employees are deducted.
no opportunity to retest.
See Note 1.
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.
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.
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.
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.
of salary
Maximum award of 150%
Performance period is 3 years.
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.
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.
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.
Not applicable
Not applicable
102
SDL Annual Report Element
Purpose and link to strategy
Operation
Maximum Opportunity
Framework Used to Assess Performance
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.
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.
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.
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.
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.
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.
Maximum award of 150%
of salary
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.
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.
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.
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
Not applicable
Not applicable
of at least 200% of base salary after five years from the latter of appointment date or
approval date of this policy.
Notes
1. 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.
2. 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.
103
GOVERNANCE Remuneration Policy Report
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 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 2017 vary under three
performance scenarios: below target, target and
maximum.
Assumptions:
Below Target:
• Comprises fixed pay of 2017 basic salary, the value
of benefits in 2016 and a 12% Company pension
contribution.
Target:
• Fixed pay as set out above
• Assumes bonus payout of 100% of salary for the
CEO and 75% of salary for the CFO
Assumes 50% of the LTIP vests (assuming a 250% of
salary grant for CEO and 125% of salary grant for CFO)
Maximum:
• Fixed pay
• Assumes maximum payout of bonus of 150% of
salary and LTIP vesting of 250% of salary for CEO
and 125% of salary for CFO.
No account has been taken of any changes in the
Company’s share price.
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£-
s
0
0
0
£
£2,592
48%
29%
23%
£1,717
39%
29%
37%
£580
100%
Below
Target
Target
CEO
Maximum
104
Fixed Pay
Bonus
LTIP
£786
25%
30%
46%
Target
CFO
£360
100%
Below
Target
£1,212
32%
38%
30%
Maximum
SDL Annual Report 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 was acting as interim
Executive Chairman (during 2016), he was paid a
salary and was eligible to participate in the annual
bonus plan (subject to a 62.5% of salary maximum).
He did not receive any pension or awards under the
LTIP. He received a car allowance and remained 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
Contract date
Notice period
(months)
David Clayton
1 July 2013
Adolfo Hernandez
18 April 2016
Dominic Lavelle
18 November 2013
Chris Batterham
15 October 1999
Glenn Collinson
1 June 2014
Mandy Gradden
30 January 2012
Alan McWalter
1 March 2014
3
12
12
3
3
3
3
105
GOVERNANCE Remuneration Policy Report
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 its contractual
obligations and the Committee ensures that there are
no unjustified payments for failure.
Any statutory payments required by law will be made.
Treatment of Incentives
There is no automatic or contractual right to a bonus
payment. At the discretion of the Committee, for
certain good leaver 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 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 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 be normally be subject to a
pro rata reduction (unless the Committee determines
otherwise).
106
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.
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 receive periodic updates regarding
salary increases and 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.
SDL Annual Report 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 2017 AGM.
The information below includes out how we intend to operate our revised policy in 2017 and the pay outcomes in
respect of the 2016 financial year. The information, where indicated, from the Single total remuneration figures for
Directors on page 109 has been audited.
Implementation of Remuneration Policy in 2017
Salaries
CEO
CFO
2016
2017
% increase
£500,000
£500,000
0%
£310,000
£320,000
3.2%
The average 2017 salary increase percentage for employees in the UK is 3.8%.
Pension and Benefits
The CEO and CFO will receive a company pension contribution of 12% of basic salary. Benefits will be provided in line
with the approved remuneration policy.
Annual bonus
As described in the Policy Report, the maximum bonus opportunity for 2017 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 2017 are:
Adjusted profit before tax, amortisation and one-offs
Revenue
Personal objectives
CEO
CFO
41.67%
43.75%
41.67%
43.75%
16.67%
12.50%
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
For 2017, awards are made under the 2016 LTIP to senior executives in line with policy. The CEO’s award will be over
nil-cost options with a face value of 250% of salary 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.
107
GOVERNANCE Annual Report on Remuneration
EPS Growth
The awards will vest according to the following schedule:
Adjusted, fully diluted EPS for FY2019
Proportion of Awards subject to EPS growth that vest
Less than 30p in 2019
30p in 2019
42p or higher in 2019
Pro-rata vesting between the threshold and stretch performance points
0%
25%
100%
The Committee believes the above range is appropriately stretching in light of internal and external forecasts.
Relative TSR targets
The performance condition applying to the other half of LTIP awards will be based on SDL’s total shareholder return
(“TSR”) performance over a measurement period running from 1 January 2017 to 31 December 2019.
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:
TSR performance
Below Median
Median ranking
Upper Quartile ranking or higher
Proportion of Awards subject to TSR that vest
0%
25%
100%
Pro-rata vesting for performance between median and upper quartile
Awards granted since 2016, to the extent they vest, 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.
108
SDL Annual Report Single Total remuneration Figure for Directors
Information subject to audit
The following table presents a single total remuneration figure for 2016 for the Executive and Non-Executive Directors.
Fixed Pay
Pay for Performance
Salary /
Fees
£000’s
Benefits(a)
£000’s
Pension
£000’s
Annual
Bonus
£000’s
LTIP
£000’s
Other
£000’s
Total
Remuneration
£000’s
Chairman
David Clayton(b)
Executive Directors
Adolfo Hernandez(c)
Dominic Lavelle
Non–Executive Directors
Chris Batterham
Mandy Gradden
Alan McWalter
Glenn Collinson
John Matthews*
Christopher Humphrey
2016
2015
255.0
152.5
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
352.6
-
310.0
287.5
43.8
40.0
52.5
45.0
54.8
45.0
54.8
45.0
-
12.0
28.3
6.0
3.0
15.2
-
12.6
12.7
-
-
-
-
-
-
-
-
-
-
-
-
-
42.3
-
37.2
34.5
-
-
-
-
-
-
-
-
-
-
-
163.0
-
472.3
-
350.3
100.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
365.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
424.0
155.5
882.4
-
1,075.8
434.7
43.8
40.0
52.5
45.0
54.8
45.0
54.8
45.0
-
12.0
28.3
*consultant to the Board throughout 2015.
(a) Taxable benefits for the year included: Car allowance, private medical insurance, life assurance and health insurance.
(b) David Clayton’s 2016 salary/fees are split as follows: As Executive Chairman (1 January to 30 June) £200,000; as Non-Executive
Chairman (1 July to 31 December) £55,000.
(c) Adolfo Hernandez became CEO on 18 April 2016.
109
GOVERNANCE Annual Report on Remuneration
2016 Annual Bonus
Information not subject to audit
Maximum bonus opportunity by each target as % of base salary
The annual bonus for 2016 was based on a mix of company financial performance targets, split between Revenue
achievement, PBTA achievement and personal objectives as follows:
as % of salary
Profit before tax, amortisation and one-offs (PBTA)
Revenue
Personal objectives
Total (% of salary)
CEO
45%
45%
60%
150%
CFO
Executive Chairman
66.625%
66.625%
18.75%
150%
18.75%
18.75%
25%
62.5%
Performance versus each target as a percentage of maximum opportunity, time pro-rating and final bonus paid
Chief Executive Officer
CEO BASE SALARY = £500,000 pa, MAXIMUM BONUS OPPORTUNITY = 150% of BASE SALARY
Bonus Plan Targets
Bonus Achievement
Annualised
Bonus
Accrued
Time
Pro-Rating
Factor (1)
Time
Pro-Rated
Bonus
Gate
On-
Target
Maximum
Revenue £m
232.75
245.0
270.0
Revenue £m
264.7
2.50%
13.3%
30.0%
Bonus Payout % of
maximum
26.5%
£198,499
75%
£148,874
Bonus Payout % of
maximum bonus
PBTA £m
Bonus Payout % of
maximum bonus
Company Financial
Targets, Bonus
payout as % of
maximum bonus
Personal
Objectives, Bonus
payout as % of
maximum bonus
26.0
30.0
PBTA £m
27.0
25.0
0%
13.3%
30.0%
2.50%
26.7%
60.0%
0%
40.0%
17.5%
£131,250
75%
£98,438
43.97%
£329,749
75%
£247,312
40.0%
£300,000
75%
£225,000
Bonus Payout % of
maximum bonus
Company Financial
Targets, Bonus
payout as % of
maximum bonus
Personal
Objectives, Bonus
payout as % of
maximum bonus
– see Objectives
Score below
Total annual cash bonus paid in 2016
84% of Max Opportunity =
£472,312
(1) Adolfo Hernandez joined the company in April 2016 hence his bonus is time pro-rated by 75% for the 9 months
served during the year.
Part of the above bonus calculation was based on meeting the personal objectives score as follows:
110
SDL Annual Report Chief Executive (25% of salary)
Personal Objectives Score, CEO
Description
Measurement
Achievement Commentary
Weightings
Achieved
Personal
Objectives Score
‘Fast-start’ to SDL: quickly
meet, learn and get
acquainted with SDL key
people, locations, investors
and customers.
Meet the top 10 shareholders
within the first 120 days and
visit our largest 10 offices
around the world within the
first 100 days.
Complete, own and take SDL
Strategy from OC&C to the
Board to implementation with
the Executive team.
Drive SDL business, culture
and operation transformation
to implement strategy.
Agree the strategic plan with
the Board within the first 100
days.
Agree and communicate
executive structure to deliver
strategy within the first 100
days.
Hire, promote and move
executives to build best in
class executive team to deliver
on the strategy.
Evaluate senior leadership
team and supplement with
external hires as required. At
least 75% of the executive
team to consist of existing
executives.
Build and deliver the 5
year transformational plan
including the detailed 2017
Operational plan.
Deliver and obtain Board
approval for 2017 Financial
and Operating plan by 30
December 2016.
Met top 10 shareholders
within 30 days of starting.
Visited Maidenhead,
Sheffield, Wakefield, Boulder,
San Jose, Hengelo, Stuttgart,
Paris, Grenada, Tokyo,
Shanghai, Beijing, and Seoul
offices within first 80 days.
Presented and agreed
strategic plan with the Board
6 June, within 60 days of
starting.
Communicated strategy
and new company structure
on 1 July to the entire
organisation. Reorganisation
fully implemented by 1
September.
New Executive Team put in
place on 1 July. At inception
eight out of 11 members
were existing employees.
2017 Financial and Operating
plan presented to and
approved by the Board on 1
December. This formed the
basis of a successful capital
markets day delivered on 6
December.
20%
20%
20%
20%
20%
20%
20%
20%
20%
20%
Total
100%
100%
In light of the above performance, the Committee determined that a 100% achievement of personal objectives
was reached and therefore a bonus of £300,000 before time pro-rating should become payable in respect of Mr
Hernandez’s personal performance over the year.
111
GOVERNANCE Annual Report on Remuneration
Chief Financial Officer
CFO BASE SALARY = £310,000, MAXIMUM BONUS OPPORTUNITY = 150% of BASE SALARY
Bonus Plan Targets
Bonus Achievement
Bonus Paid
Gate
On-
Target
Maximum
Revenue £m
232.75
245.0
270.0
Revenue £m
264.7
Bonus Payout % of maximum
bonus
2.50%
18.75%
43.8%
Bonus Payout % of
maximum
38.44%
£178,792
PBTA £m
Bonus Payout % of maximum
bonus
Company Financial Targets,
Bonus payout as % of
maximum bonus
Personal Objectives,
Bonus payout as % of
maximum bonus
25.0
0%
26.0
66.6
PBTA £m
27.0
18.75%
43.8%
Bonus Payout % of
maximum bonus
2.50%
37.50%
87.50%
0%
12.50%
Company Financial Targets,
Bonus payout as % of
maximum bonus
Personal Objectives,
Bonus payout as % of
maximum bonus – see
Objectives Score below
25.00%
£116,250
63.45%
£295,042
11.88%
£55,219
Total annual cash bonus paid in 2016
74.8% of Max Opportunity =
£350,261
Part of the above bonus calculation was based on the personal objectives score as follows:
Personal Objectives Score, CFO
Description
Measurement
Achievement Commentary
Weightings
Achieved
Personal
Objectives Score
Develop and implement robust
KPI’s to manage SDL.
To be agreed and
implemented by 30
December 2016
Develop and implement new
pricing policy.
To be agreed and
implemented by 30
December 2016
Ensure appropriate
compliance policies are
developed and implemented
to professionally govern SDL.
To be agreed and
implemented by 30
December 2016
Build and deliver the 5
year transformational plan
including the detailed 2017
Operational plan.
To be signed off by the board
and executive team by 1
December 2016
Major KPIs announced at
SDL Capital Markets Day, 6
December 2016; Full list of
KPIs will be included in the
2016 annual report
New pricing policy agreed
with the leadership team and
roll out well under way at
year end
Complete review and re-issue
of compliance and control
policies completed on time
2017 Financial and operating
plan presented to and
approved by the Board on 1
December. This formed the
basis of a successful capital
markets day delivered on 6
December
30%
25.0%
20%
15.0%
20%
25%
30%
30%
Total
100%
95.0%
In light of the above performance, the Committee determined that a 95% achievement of personal objectives was
reached and therefore a bonus of £55,219 should become payable in respect of Mr Lavelle’s personal performance over
the year.
112
SDL Annual Report Executive Chairman
EXECUTIVE CHAIRMAN BASE SALARY = £400,000 pa, MAXIMUM BONUS OPPORTUNITY = 62.5% of BASE SALARY
Bonus Plan Targets
Bonus Achievement
Annualised
Bonus
Accrued
Time
Pro-Rating
Factor (1)
Time
Pro-Rated
Bonus
Gate
On-
Target
Maximum
Revenue £m
232.75
245.0
270.0
Revenue £m
264.7
6.00%
20.0%
30.0%
Bonus Payout % of
maximum
27.9%
£69,700
50%
£34,850
Bonus Payout % of
maximum bonus
PBTA £m
Bonus Payout % of
maximum bonus
Company Financial
Targets, Bonus
payout as % of
maximum bonus
Personal
Objectives,
Bonus payout as %
of maximum bonus
26.0
30.0
PBTA £m
27.0
25.0
0%
20.0%
30.0%
6.00%
40.0%
60.0%
0%
40.0%
22.5%
£56,250
50%
£28,125
50.4%
£125,950
50%
£62,975
40.0%
£100,000
100%
£100,000
Bonus Payout % of
maximum bonus
Company Financial
Targets, Bonus
payout as % of
maximum bonus
Personal
Objectives,
Bonus payout as %
of maximum bonus
– see Objectives
Score below
Total annual cash bonus paid in 2016
90.4% of Max Opportunity =
£162,975
(2) David Clayton served as Executive Chairman during 2016 from the beginning of the year to the end of June 2016.
This includes the three months transitional period after the new CEO joined in April 2016 to ensure operational
continuity. Time pro-rating of 50% is applied to financial element of bonus. In line with the intended operation of the
bonus arrangements for Mr Clayton, time pro-rating was not applied to the personal objective part of the bonus: As the
objective was to recruit a new CEO and therefore to end tenure as Executive Chairman, to do so would have potentially
created the wrong incentive to delay the recruitment of the new CEO in order to maximise bonus.
Part of the above bonus calculation was based on the personal objectives score as follows:
Personal Objectives Score, Executive Chairman
Description
Measurement
Achievement Commentary
Weightings
Achieved
Personal
Objectives Score
Full time commitment to
complete the operational
review and follow up
action plan whilst leading
the permanent CEO search
with the expectation that
the right CEO is in place by
the end of 2016.
Operational changes
announced before the
end of H1 2016 and the
new CEO on-board before
the end of 2016
Operational review completed ahead
of schedule and announcement
made on 20 January 2016 that
the sale process will begin on the
Social Intelligence, Campaigns and
SDL Fredhopper businesses. New
CEO recruited ahead of schedule:
announcement on 23rd March 2016
that the new CEO will commence on
18th April 2016
100%
100%
Total
100%
100%
In light of the above performance, the Committee determined that 100% achievement of personal objectives was
reached and therefore a bonus of £100,000 of salary should become payable in respect of Mr Clayton’s personal
performance over the year.
113
GOVERNANCE
Annual Report on Remuneration
Summary of bonuses paid including those deferred under the Annual Bonus Deferral Plan
The overall bonus outcomes for each director are shown below:
Actual bonus payable for 2016
(% of salary)
Actual cash bonus payable for
2016 (£000)
Actual bonus deferred in
shares for 2016 (£000)
Adolfo Hernandez
Dominic Lavelle
David Clayton
126.1%
113.1%
81.5%
2016 LTIP granted in the year
472.3
310.0
163.0
0.0
40.3
0.0
Basis of award
granted
Shares
awarded
Face value
of award
£000’s
Maximum
vesting
Vesting period
Percentage
vesting for
threshold
performance
Adolfo
Hernandez
250%
of salary
298,329
1,250
100%
25%
Dominic
Lavelle
125%
of salary
92,482
388
100%
25%
Performance
measured over the
three financial years
ending 31 December
2018.
Awards will vest on
the third anniversary
of grant subject
to continued
employment
Awards were granted on 8 June 2016 and will
vest subject to a relative TSR measure against the
constituents of the FTSE SmallCap Index (excluding
investment trusts) and EPS growth targets each with
an equal weighting. These targets will be assessed
independently of each other. The performance period
for the award is the three financial years ending
December 2018.
• TSR (50%) – No part of this award vests if
performance is below the median of the
comparator group, 25 per cent vests for achieving
performance at the median, with 100 per cent
vesting for TSR ranking at or above the upper
quartile of the comparator group with straight line
vesting in between.
• EPS (50%) – If EPS as disclosed in the Company’s
accounts for FY 2018 is less then 27p, no part of this
award vests, 25 per cent vests for EPS of 27p, with
100 per cent vesting for EPS of 39p or higher, with
straight line vesting in between.
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.
114
SDL Annual Report 2013 and 2014 LTIP vesting
The 2013 and 2014 LTIP awards were subject to TSR and EPS performance conditions. In order for an award to vest,
both criteria need to have been achieved. The TSR condition requires SDL's 3-year TSR performance to be equal to the
FTSE 250 index for 25% of the award to vest and 200% of the index return for full vesting. In addition, EPS in the third
year of the performance period must be equal to or greater than CPI + 3%p.a. over the EPS for the financial year prior
to grant.
The performance targets for the 2013 award which was based on a performance period over the three year period
ending 31 December 2016 were not achieved and therefore this award lapsed.
However, the award granted on 7 April 2014 will vest in full on its third anniversary as the performance criteria have
been met:
TSR measure
FTSE 250 index return
Maximum - Out performance of Index by 100%
SDL actual performance
Performance
Level of vesting
24%
48%
57%
25%
100%
100%
The average annual EPS growth comparing 2016 EPS with 2013 was 312% which significantly ahead of the CPI + 3%p.a.
requirement.
For reporting purposes, as the vesting date is after this report is being signed off, Dominic Lavelle's LTIP value in the
single figure table is based on the average share price over the last three months of the 2016 financial year (435.54
pence).
2014 LTIP vesting –
Dominic Lavelle
7 April 2014
% vesting
Number of
awards vesting
Value of awards
vesting (000s)
Number of awards
83,958
100%
83,958
£365.7
115
GOVERNANCE Annual Report on Remuneration
Information subject to audit
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
Adolfo
Hernandez
Dominic
Lavelle
Award
grant date
Share price
at grant
(pence)
As at
1 Jan 2016
Granted
during year
Lapsed
during year
Vested and
exercised
during year
8 Jun
2016 (b)
17 Apr
2014 (a)
17 Apr
2015 (a)
8 Jun
2016 (b)
419
-
298,329
333.5
83,958
444.75
62,957
-
-
419
-
92,482
-
-
-
-
-
-
-
-
As at
31 Dec 2016
298,329
83,958
62,957
92,482
Earliest date
shares can
be acquired
Latest date
shares can
be acquired
8 Jun
2021
7 Apr
2017
17 Apr
2018
8 Jun
2021
8 Jun
2026
7 Apr
2024
17 Apr
2025
8 Jun
2026
(a) The 2014 and 2015 awards will vest subject to a
relative TSR measure 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 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 awards will lapse.
As set out on page 115, the TSR and EPS criteria
attached to the 7 April 2014 awards were met in full
and therefore these will vest on 7 April 2017.
(b) Awards granted on 8 June 2016 will vest subject
to a relative TSR measure against the constituents of
the FTSE SmallCap Index (excluding investment trusts)
and EPS growth targets. These targets will be assessed
independently of each other. The performance period
for the award is the three financial years ending
December 2018.
• TSR – No part of this award vests if performance
is below the median of the comparator group, 25
per cent vests for achieving performance at the
median, with 100 per cent vesting for TSR ranking
at or above the upper quartile of the comparator
group with straight line vesting in between.
• EPS – If EPS as disclosed in the Company’s
accounts for FY 2018 is less then 27p, no part of
this award vests, 25 per cent vests for EPS of 27p,
with 100 per cent vesting for EPS of 39p or higher,
with straight line vesting in between.
Awards granted since 2016 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.
116
SDL Annual Report Information subject to audit
Directors’ interest in shares
Executive Directors are subject to a share ownership guideline. Executive Directors are expected 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 Directors are required 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 2016 are set out below.
Name of director
Owned
LTIP awards
SAYE
Total
% of salary
held under
Shareholding
Policy
31.12.15
31.12.16
Unvested
Vested
Unvested
Vested
31.12.16
31.12.16
Executive Directors
Adolfo Hernandez
-
50,000
298,329
Dominic Lavelle
30,000
45,000
239,397
Chairman
David Clayton
113,950
113,950
Non-Executive Directors
Glenn Collinson
-
12,000
Mandy Gradden
7,500
7,500
Alan McWalter
Christopher
Humphrey
-
-
-
15,000
Chris Batterham
100,000
100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
348,329
284,397
113,950
12,000
7,500
-
15,000
100,000
44%
64%
n/a
n/a
n/a
n/a
n/a
n/a
There has been no change in the interests set out above between 31 December 2016 and 7 March 2017.
Figures above have been calculated using the share price as at 31 December 2016, 442.75p. In assessing compliance against the share
ownership guideline, the Committee looks at the value of the shareholding at the year end and may take into account the price at the
time shares have been purchased or acquired.
During the year, Adolfo Hernandez purchased, through connected persons, 50,000 shares at a price of 435 pence and
Dominic Lavelle purchased 15,000 shares at an average price of 418.9 pence.
Information not subject to audit
Relative importance of spend on pay
The following table sets out the percentage change in dividends and overall spend of employee pay in the 2016 financial
year compared with the prior year.
Dividends
Total return to shareholders
Employee remuneration costs
2016
£m
2.5
2.5
156.5
2015
£m
2.0
2.0
145.0
%
change
25.0
25.0
7.9
117
GOVERNANCE
Annual Report on Remuneration
Percentage change in CEO pay
The table below 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
•
•
•
•
•
•
2016
2015
*552.6
63.5
635.3
51.9
1.9
10.3
**519.7
35.2
-
49.2
1.7
10.0
%
change
+6.3
+80.4
n/a
+5.5
+11.8
+3.0
* Adolfo Hernandez and David Clayton, **Mark Lancaster and David Clayton
(1) There are 408 UK employees at 31 December 2016 (31 December 2015:515), of which 26 (2015: 26) were part time.
Information not subject to audit
Performance graph and single figure history
The following graph shows the Company’s TSR performance over the last eight 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
Source: Datastream (Thomson Reuters)
)
d
e
s
a
b
e
R
(
)
£
(
e
u
a
V
l
400
350
300
250
200
150
100
50
0
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
SDL
FTSE 250 Index excluding invsetment trusts
FTSE SmallCap Index excluding invsetment trusts
This graph shows the value, by 31 December 2016, 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 SmallCap Index excluding
investment trusts on a daily basis.
118
SDL Annual Report
The table below shows the total remuneration figure for the CEO and Executive Chairmen roles over the same eight
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.
2009
2010
2011
2012
2013
2014
20152
20162
CEO single total figure of
remuneration (£000’s)
Bonus payout (%)
LTIP vesting (%)
914
40
100
954
1,200
729
597
1,285
1,911
1,252
44
100
47
100
24
71.5
-
-
53
-
-
12013 = 0%
2014 = 46%
2015 = 21%
84
n/a
The Committee also receives advice from several
sources, namely:
• The 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 Chief Executive attended the
meetings upon invitation. No Executive Director
takes part in discussions relating to their own
remuneration and benefits.
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. During the year, total
fees charged were £50,767 and this covered advice
on the new remuneration policy and assistance with
shareholder engagements, the recruitment terms
of the new Chief Executive, ad hoc advice on the
treatment of incentives, a market update to the
Committee on remuneration and governance trends,
assistance with drafting the remuneration report and
policy and commentary on legal drafting.
1 Vesting percentages of Mark Lancaster’s outstanding LTIP
awards at time of resignation.
2 The 2015 and 2016 figures include the values of the
Executive Chairman’s single figure of remuneration.
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 are Mandy Gradden, Alan McWalter and
Christopher Humphrey.
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 nine 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 (‘LTIP’).
The meetings also approved the payment of the 2015
performance related bonus, dealt with the vesting of
the shares awarded in 2013 under the LTIP scheme
and agreed the arrangements for the incoming CEO.
119
GOVERNANCE The Board noted that Resolution 3 to approve the
remuneration report received 26.7% of votes cast
against it (17,239,431 votes). The key issue brought
to the Board’s attention was the use of discretion
exercised when determining the bonus paid to the
CFO in 2015.
The Chairman of the Remuneration Committee
together with the Chairman of the Board and the
Senior Independent Director undertook an extensive
engagement programme with shareholders ahead of
the Annual General Meeting, contacting the holders
of around half our shares and the main proxy voting
agencies.
While a large majority of shareholders were
supportive of the Remuneration Committee’s use of
discretion, the Committee is conscious of the minority
who voted against the report. The Remuneration
Committee and the Board unanimously believe that
in these particular circumstances the Remuneration
Committee made the right decision by seeking to align
the CFO’s reward with the exceptional contribution
he has made at a time of significant change and
uncertainty at the Company. It did not take this
decision lightly and considered the position over a
number of meetings. The use of discretion in 2015 is
not intended to create a precedent for future years,
but was used to address a particular anomaly arising
as a result of changes to the directorate.
On behalf of the Board
Glenn Collinson
Remuneration Committee Chairman
7 March 2017
Annual Report on Remuneration
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:
2016 Remuneration Policy
For
Against
Abstentions
Total
Total number
of votes
65,354,576
29,581
38,147
65,422,304
% of
votes cast
99.95
0.05
n/a
Approval of new LTIP
Total number
of votes
% of
votes cast
For
Against
Abstentions
Total
64,963,990
458,314
0
65,422,304
99.30
0.7
n/a
Approval of new Deferred Share Bonus Plan
For
Against
Abstentions
Total
Total number
of votes
65,405,808
16,496
0
65,422,304
% of
votes cast
99.97
0.03
n/a
Annual Report on Remuneration
Total number
of votes
% of
votes cast
For
Against
Abstentions
Total
47,325,499
17,239,431
857,374
65,422,304
73.30
26.70
n/a
120
SDL Annual Report 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.
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 includes a fair review of the
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
7 March 2017
121
GOVERNANCE 122
SDL Annual Report Financial Statements
124
Independent Auditor's Report
129 Consolidated Financial Statements
and Related Notes
167 Company Financial Statements and
Related Notes
177 Five Year Group Summary
178 Corporate Information
123
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 2016 set out
on pages 129 to 176. 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
2016 and of the Group’s loss for the year then
ended;
— the Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards as
adopted by the European Union;
— 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.
Overview
Materiality:
group financial
statements as a
whole
Coverage
£1 million (2015:£0.75 million)
4.6% (2015: 3.9%) of continuing
profit before tax and one-off items
87% (2015: 77%) of absolute loss
before tax*
Risks of material misstatement vs 2015
Recurring risks
Impairment of goodwill
and intangibles
Technology revenue
◄►
◄►
* This is the total profits and losses as a percentage of
the total profits and losses that made up Group loss
before tax
124
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, in decreasing order of audit significance, were as follows (unchanged from 2015):
FINANCIAL STATEMENTS
Impairment of goodwill and
intangibles
(£151.9 million carrying value;
2015: £163.1 million carrying
value and impairment charge
£33.3 million)
Refer to page 92 (Audit
Committee Report), page 134
(accounting policy) and page 156
(financial disclosures).
The risk
Our response
Forecast-based valuation
Our procedures included:
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. Goodwill
and intangibles are assessed for
impairment using a discounted cash
flow model to calculate value in use
(VIU). Due to the inherent uncertainty
involved in forecasting and discounting
future cash flows for a VIU model, this
is one of the key judgemental areas
that our audit concentrates on.
– Control design and assessing methodology
We utilised our internal valuation specialists to
assist in this area. Our procedures included
assessing the budgeting process upon which
the forecasts are based and the principles and
integrity of the Group’s discounted cash flow
model;
– Benchmarking assumptions
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, we compared the input
assumptions to internally and where
appropriate, externally derived data;
– Sensitivity analysis
Performing sensitivity analysis which
considered reasonably possible changes in
assumptions and their impact on the valuation;
– Historical comparisons
Considering the historical accuracy of the
Directors’ forecasts;
– Comparing valuations
Challenging the appropriateness of the Group’s
assumptions compared to potentially different
assumptions used by investors, by comparing
the value in use to the Group’s market
capitalisation; and
– Assessing transparency
Assessing 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 meet the requirements of
relevant accounting standards.
125
SDL Annual Report
2. Our assessment of risks of material misstatement (continued)
Technology revenue
Subjective estimate
Our procedures included:
The risk
Our response
(£26.7 million; 2015: £22.8
million)
Refer to page 92 (Audit
Committee Report), page 135
(accounting policy) and page 142
(financial disclosures).
Technology revenue includes licensed
software and related services in the
Language Technologies, Global Content
Technologies and Non-Core operating
segments.
Technology revenue recognition is
considered a significant audit risk as
there can be 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 sector experience
We inspected those contracts contributing the
highest levels of licence revenue, and critically
assessed the fair value of undelivered
elements, such as professional services
outstanding or upgrades or future changes to
products, to determine the potential impact on
revenue recognition;
– Tests of details
We considered the appropriateness of the
Directors’ judgements in determining the fair
value of each element of the selected
contracts by reference to standalone selling
prices, day rates for consultancy and training,
support and maintenance rates and renewal
rates;
We agreed elements of the selected contracts
that have been delivered to proof of delivery;
– Assessing methodology
We considered the appropriateness of the
Group’s accounting policies compared to the
relevant accounting standards and the
consistent application of those policies; and
– Assessing transparency
We also assessed the adequacy of the Group’s
disclosures in respect of Technology licence
revenue as a significant judgement.
126
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 £1 million (2015: £0.75 million), determined with
reference to a benchmark of Continuing profit before tax and
one-off items (as disclosed in note 4), resulting in a profit of
£21.8 million, of which it represents approximately 5% (2015:
approximately 5% of Group profit before tax and one-off
items).
We reported to the Audit Committee all adjusted and
unadjusted identified misstatements exceeding £0.05 million
(2015: £0.04 million), in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Of the Group’s 71 (2015: 76) reporting components, we
subjected ten (2015: nine) to audits for group reporting
purposes and five (2015: nine) to specified risk-focused audit
procedures, including over revenue, deferred income, accrued
income, debtors, cash, accruals and payroll. 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 total group revenue, group profit before
taxation and group assets as indicated in the charts opposite.
The remaining 10% of total Group revenue, 13% of absolute
Group loss before tax and 10% of total Group assets is
represented by 56 reporting components, none of which
individually represented more than 3% of total Group revenue,
absolute 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 £0.1 million to £0.8 million (2015: £0.1 million to
£0.6 million), having regard to the mix of size and risk profile of
the Group across the components. The work on seven of the
15 components (10 audits and 5 specified procedures) (2015:
14 of the 18 components) was performed by component
auditors and the rest by the Group team. The Group team
performed procedures on items excluded from continuing
profit before tax and on one-off items.
The Group audit team visited nine components in the US, UK
and The Netherlands (2015: ten components in the UK, US and
The Netherlands), including to assess the audit risk and
strategy. 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.
Key:
Continuing profit before tax
and one-off items
£21.8 million (2015: £19.1
million)
FINANCIAL STATEMENTS
Materiality
£1 million (2015: £0.75 million)
£1 million
Whole financial
statements materiality
(2015: £0.75 million)
£0.8 million
Range of materiality at 15
components (£0.12 million -
£0.8 million)
(2015: £0.1 million to £0.6
million)
Continuing profit before tax
and one-off items
Group materiality
£0.05 million
Misstatements reported to the
audit committee (2015: £0.04
million)
Group revenue
Absolute group loss
before tax
11%
26%
90%
(2015 87%)
61%
79%
4%
9%
87%
(2015 77%)
68%
83%
Group total assets
5%
12%
90%
(2015 90%)
78%
85%
Full scope for group audit purposes 2016
Specified risk-focused audit procedures 2016
Full scope for group audit purposes 2015
Specified risk-focused audit procedures 2015
Residual components
127
SDL Annual Report
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
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 is consistent
with the financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the Strategic Report and the Directors’ Report:
— we have not identified material misstatements in those
reports; and
— in our opinion, those reports have been prepared in
accordance with the Companies Act 2006.
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’ statement of viability on page 65,
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 31 December 2019; 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:
— 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.
Under the Listing Rules we are required to review:
— the directors’ statements, set out on pages 81 and 65,
in relation to going concern and longer-term viability;
and
— the part of the Corporate Governance Statement on
page 85 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 in respect of the above
responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 121, 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
— 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
London
E14 5GL
7 March 2017
128
Consolidated Income Statement for the Year Ended
31 December 2016
Sale of goods
Rendering of services
REVENUE
Cost of sales
Notes
2016
Continuing
£m
2016 Dis-
continued
£m
23.3
241.4
17.1
8.1
2015
Continuing
£m
2015 Dis-
continued
£m
32.7
207.7
17.8
8.7
Total
£m
40.4
249.5
Total
£m
50.5
216.4
3
264.7
25.2
289.9
240.4
26.5
266.9
(120.7)
(10.8)
(131.5)
(106.0)
(10.9)
(116.9)
GROSS PROFIT
144.0
14.4
158.4
134.4
15.6
150.0
Administrative expenses
4
(133.0)
(20.2)
(153.2)
(137.2)
(37.9)
(175.1)
OPERATING PROFIT/(LOSS)
11.0
(5.8)
5.2
(2.8)
(22.3)
(25.1)
OPERATING PROFIT/(LOSS) BEFORE TAX,
AMORTISATION AND ONE-OFF ITEMS
Amortisation of intangible assets
One-off items
OPERATING PROFIT/(LOSS)
Loss on disposal of non core business
Finance cost
PROFIT/(LOSS) BEFORE TAX
PROFIT/(LOSS) BEFORE TAX,
AMORTISATION AND ONE-OFF ITEMS
Amortisation of intangible assets
One-off items
PROFIT/(LOSS) BEFORE TAX
Tax expense
PROFIT/(LOSS) FOR THE YEAR
ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT
Earnings per ordinary share – basic
(pence)
Earnings per ordinary share – diluted
(pence)
4
4
4
4
4
4
5
7
7
27.0
(3.5)
23.5
24.3
(3.6)
20.7
(5.2)
(10.8)
11.0
-
(2.3)
(5.8)
(5.2)
(13.1)
5.2
(5.1)
(22.0)
(2.8)
(1.6)
(17.1)
(22.3)
-
-
(21.0)
(21.0)
-
-
-
(0.1)
-
-
(6.7)
(39.1)
(25.1)
-
(0.1)
11.0
(26.8)
(15.8)
(2.9)
(22.3)
(25.2)
27.0
(24.5)
2.5
24.2
(3.6)
20.6
(5.2)
(10.8)
11.0
-
(2.3)
(26.8)
(5.2)
(13.1)
(15.8)
(5.1)
(22.0)
(2.9)
(1.6)
(17.1)
(22.3)
(6.7)
(39.1)
(25.2)
(2.7)
0.4
(2.3)
(5.3)
(0.2)
(5.5)
8.3
(26.4)
(18.1)
(8.2)
(22.5)
(30.7)
10.18
(32.47)
(22.29)
(10.17)
(27.75)
(37.93)
10.08
(32.16)
(22.08)
(10.17)
(27.75)
(37.93)
Adjusted earnings per ordinary share (basic and diluted) are shown in note 7.
129
Consolidated Statement of Comprehensive Income
for the Year Ended 31 December 2016
Loss for the period
Currency translation differences on foreign operations
Currency translation differences on foreign currency quasi equity loans to
foreign subsidiaries
Notes
2016
£m
(18.1)
21.7
(0.5)
2015
£m
(30.7)
(6.3)
2.5
Income tax charge on currency translation differences on foreign currency quasi
equity loans to foreign subsidiaries
5
(0.2)
(0.7)
OTHER COMPREHENSIVE INCOME
TOTAL COMPREHENSIVE INCOME
21.0
(4.5)
2.9
(35.2)
All the total comprehensive income is attributable to equity holders of the parent Company. Currency translation
differences on foreign operations including quasi equity loans and their related tax impacts may all be reclassified to the
Income Statement upon disposal of that operation.
130
SDL Annual Report
Consolidated Statement of Financial Position
at 31 December 2016
Notes
2016
£m
2015
£m
ASSETS
NON CURRENT ASSETS
Property, plant and equipment
Intangible assets
Deferred tax asset
Rent and other deposits
CURRENT ASSETS
Trade and other receivables
Corporation tax
Cash and cash equivalents
Assets held for sale
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Current tax liabilities
Provisions
Liabilities held for sale
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
8
9
5
12
13
14
17
15
16
5
17
18
5.3
151.9
8.4
2.0
167.6
81.0
0.9
21.3
7.1
110.3
6.3
163.1
6.0
1.6
177.0
73.4
2.8
17.2
-
93.4
277.9
270.4
(88.5)
(7.4)
(1.1)
(7.4)
(104.4)
(1.6)
-
(1.1)
(2.1)
(4.8)
(81.7)
(9.4)
(2.9)
-
(94.0)
(1.4)
(4.6)
(3.1)
(0.4)
(9.5)
(109.2)
(103.5)
168.7
166.9
0.8
99.2
39.7
29.0
0.8
98.5
59.6
8.0
168.7
166.9
Approved by the Board of Directors on 7 March 2017
A. Hernandez
Director
D. Lavelle
Director
131
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity for the
Year Ended 31 December 2016
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
At 1 January 2016
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 2016
Share
Capital
£m
0.8
-
-
-
-
-
-
-
0.8
Share
Capital
£m
0.8
-
-
-
-
-
-
-
0.8
Share
Premium
Account
£m
97.9
-
-
-
-
0.6
-
-
98.5
Share
Premium
Account
£m
98.5
-
-
-
-
0.7
-
-
99.2
Retained
Earnings
£m
90.9
(30.7)
-
(30.7)
0.1
-
(2.0)
1.3
59.6
Foreign
Exchange
Differences
£m
12.5
-
(4.5)
(4.5)
-
-
-
-
8.0
Retained
Earnings
Foreign
Exchange
Differences
£m
59.6
(18.1)
-
(18.1)
(0.2)
-
(2.5)
0.9
39.7
£m
8.0
-
21.0
21.0
-
-
-
-
29.0
Total
£m
202.1
(30.7)
(4.5)
(35.2)
0.1
0.6
(2.0)
1.3
166.9
Total
£m
166.9
(18.1)
21.0
2.9
(0.2)
0.7
(2.5)
0.9
168.7
* 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
132
SDL Annual Report
Consolidated Statement of Cash Flows
for the Year Ended 31 December 2016
LOSS FOR THE YEAR
Tax expense
LOSS BEFORE TAX
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment losses on intangible assets
Loss on disposal of discontinued operations
Finance costs
Share based payments
Increase in trade and other receivables
Increase/(decrease) 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
Payments on disposal of discontinued operations
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
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at the start of year
Increase/(decrease) in cash and cash equivalents
Effect of exchange rates on cash and cash equivalents
CASH AND CASH EQUIVALENTS AT END OF YEAR
Notes
8
9
3
20
2016
£m
(18.1)
2.3
(15.8)
3.5
5.2
-
21.0
-
0.9
(11.8)
17.4
(1.8)
18.6
(6.5)
12.1
(2.3)
-
-
(1.6)
(3.9)
0.7
-
(4.8)
(2.5)
-
(0.1)
(6.7)
1.5
17.2
1.5
2.6
21.3
2015
£m
(30.7)
5.5
(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
133
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended
31 December 2016
1. Corporate Information
The consolidated financial statements of SDL plc (the
‘Group’) for the year ended 31 December 2016 were
authorised for issue in accordance with a resolution
of the Directors on 7 March 2017. 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 167 to 176. 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 2016, 2017 annual plans, the Group’s
3 year long term plan, a review of working capital
including the liquidity position, financial covenant
compliance and a review of current cash levels. The
group continues to be cash generating and is debt free
with no concerns over future cash requirements. As
a result, the Directors have a reasonable expectation
that the group has adequate resources to continue
in operational existence for a 12 month period from
the date of approval of these accounts. 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.
134
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 disposal, from the date
control is transferred from 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
SDL Annual Report goodwill is monitored for internal reporting purposes.
This is usually the relevant operating segment within
the Group.
prices at the balance sheet date of property, plant and
equipment over their estimated useful economic lives
as follows:
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.
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 reported 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
Leasehold improvements
Computer equipment
Fixtures & fittings
Motor vehicles
-
-
-
-
The lower of ten years or the
lease term straight line
4-5 years straight line
20% reducing balance
20% reducing balance
Useful economic lives and residual values are assessed
annually.
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.
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:
• Multi element arrangements
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.
135
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
Professional services and consulting revenue, where
provided on a ‘time and expense’ basis, is recognised
as the service is performed and on a percentage of
completion basis where provided on a fixed price
basis.
• 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.
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 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 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
136
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.
Borrowing costs
Borrowing costs are recognised as an expense in the
period in which they are incurred, unless they relate
to capitalised assets.
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 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
SDL Annual Report 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
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.
• 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.
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
137
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
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 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.
Discontinued Operations
Planned disposals of separate major lines of
business are classified as discontinued operations
and net assets reclassified as held for sale following
the announcement of such divestments. In such
instances the comparative results are reclassified
to present continuing and discontinued results. The
board announced its decision to sell the Non-Core
Businesses, which represents a separate major line
of business, in January 2016 and the net assets of
the impacted businesses were classified as held for
sale. Results of the Non-Core Business segments have
been disclosed as discontinued operations in this
138
year’s financial statements and prior periods have
been restated to show the results of discontinued
operations separately from continuing operations.
Share based payments
Employees (including Directors) of the Group 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 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 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 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.
SDL Annual Report 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 is
provided.
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.
Further details of one-off costs can be found in note 4.
Segment reporting
Segment results are 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
A number of new standards and amendments to
standards are effective for annual periods beginning
after 1 January 2016 and earlier application is
permitted; however the Group has not early adopted
the following new or amended standards in preparing
these consolidated financial statements.
IFRS 15 – Revenue from contracts with customers
IFRS 15 establishes a comprehensive framework
for determining whether, how much and when
revenue is recognised. It replaces existing revenue
recognition guidance, including IAS 18 Revenue, IAS 11
Construction Contracts and IFRIC 13 Customer Loyalty
Programmes. IFRS 15 is effective for annual periods
beginning on or after 1 January 2018, with early
adoption permitted.
The Group has completed an initial assessment of the
potential financial impact of the adoption of IFRS 15
on its consolidated statements.
The Group expects opening balance sheet adjustments
to arise from changes to the revenue recognition
treatment of term licences and the capitalisation
of certain commission costs. The basis of these two
revenue recognition differences is set out below.
The majority of the Group’s software licences are
either perpetual or Software as a Service (SaaS)
in nature. The majority of the Group’s revenue
contracts also do not extend for more than 12
months and hence the Group does not expect that
the implementation of IFRS 15 will lead to material
differences in profit on an ongoing basis.
Term licences
In circumstances where a considerable future vendor
obligation exists as part of a software licence and
related services contract, SDL currently recognise
revenue over the period that the obligation exists per
the contract. Under IFRS 15, the provision of a licence
over a period of time is not, in itself, considered an
additional obligation on the vendor and therefore
revenue for the licence element of such contracts will
be recognised in full on delivery to the customer. The
support and maintenance element of these contracts
will be carved out and recognised over the support
and maintenance and hosting (if applicable) service
periods.
Commissions
IFRS 15 requires the deferral incremental costs of
obtaining a contract to be recognised in line with
the revenue for those contracts. The Group has
determined that these costs will be recognised over
the initial contractual term as additional commission
139
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
is paid on contract renewals and extensions and
therefore the initial commission only relates to the
initial term. The Group is expecting to take advantage
of the practical expedient not to defer such costs
related to contracts less than 12 months in length.
Transition plan
The Group plans to adopt IFRS 15 in its consolidated
financial statements for the year ending 31 December
2018, using the retrospective approach. As a result,
the Group will apply all of the requirements of IFRS
15 to each comparative period presented with a
cumulative adjustment to the opening balance sheet
at 1 January 2017.
The Group's detailed assessment is ongoing and
it expects to disclose quantitative information in
advance of issuing the 2018 Annual report.
The following new standards are not expected to have
a material impact on the Group’s financial statements:
•
IFRS 16 Leases, effective for periods beginning on
or after 1 January 2019
IFRS 16 introduces a single, on-balance sheet
accounting model for lessees. A lessee recognises
a right-of-use asset representing its right to use the
underlying asset and a lease liability representing
its obligation to make lease payments.
The group has started an initial assessment to identify
the impact and whilst there will be an impact on the
balance sheet presentation, there is not expected to
be a material profit impact.
• Disclosure initiative (Amendments to IAS 7),
effective for periods beginning on or after 1
January 2017
•
•
IFRS Recognition of Deferred Tax Assets for
Unrealised Losses (Amendments to IAS 12),
effective for periods beginning on or after 1
January 2017
IFRS 9 Financial Instruments, effective for periods
beginning on or after 1 January 2018
The actual impact of adopting IFRS 9 on the
Group’s consolidated financial statements in 2018
is not known and cannot be reliably estimated
because it will be dependent on the financial
instruments that the Group holds and economic
conditions at that time as well as accounting
elections and judgements that it will make in
the future. However, given current financial
instruments in place it is not expected to have a
significant impact on SDL’s financial statements.
Significant critical accounting judgements, estimates
and assumptions
The preparation of the Group’s consolidated
financial statements requires management to make
judgements, 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 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. Perpetual licence
revenue in the year amounted to £26.7 million in 2016
(2015: £22.8 million).
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.
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
140
SDL Annual Report revenue recognised accurately reflects the proportion
of the work done at the balance sheet date. Services
work is generally invoiced on completion and the
amount of year end work in progress amounted to
£12.8 million (2015: £7.9 million).
Taxes
Uncertainties exist with respect to the interpretation
of complex tax regulations, including transfer pricing,
and the amount and timing of future taxable income.
Given the nature of the Group’s operating model
(which necessitates intercompany transactions of
approximately £200 million per annum), 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. The Group has four operating segments
as follows:
• The Language Services segment is the provision
of a translation service for customers’ multilingual
content in multiple languages.
• The Language Technologies segment is the sale
of enterprise, desktop and statistical machine
translation technologies together with associated
consultancy 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
services.
The Board (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 announcement of the intention of the
Group to dispose of its Non-Core business segment,
which includes the Fredhopper and Social Intelligence
businesses, these businesses have been designated
as assets held for resale and their activities have
been disclosed as discontinued operations. On 2
November 2016 the Group’s campaign business was
disposed. The Group’s segmental disclosures have
been adjusted to reflect the fact that discontinued
operations results do not attract proportionate
allocations of shared costs. The impact of this change
has been to reduce the central costs attributed
to the Non-Core segment by £5.9 million and to
increase costs attributed to the Language Services,
Language Technology and Global Content Technology
segments by £2.3 million, £0.3 million and £3.3 million
respectively.
141
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
Year ended
31 December 2016
Language Services
Language Technologies
Global Content Technologies
Non Core Businesses
Total
Loss on disposal
Amortisation, one-off costs & finance costs
Loss before taxation
Year ended
31 December 2015 – restated
Language Services
Language Technologies
Global Content Technologies
Non Core Businesses
Total
Amortisation & One-off Costs
Loss before taxation
External
Revenue Depreciation
£m
£m
165.3
45.4
54.0
25.2
289.9
2.0
0.5
0.5
0.5
3.5
Segment profit/(loss)
before taxation &
amortisation
£m
18.8
4.4
3.8
(3.5)
23.5
(21.0)
(18.3)
(15.8)
External
Revenue Depreciation
£m
£m
152.8
36.7
50.9
26.5
266.9
2.1
0.5
0.5
0.5
3.6
Segment profit/(loss)
before taxation &
amortisation
£m
28.0
1.0
(4.8)
(3.6)
20.6
(45.8)
(25.2)
Shared costs represent total central costs which are allocated to segments in each year.
Geographical analysis of external revenues by country
of domicile is as follows:
A Geographical analysis of external revenues by
destination is as follows
UK
USA
Republic of Ireland
Netherlands
Canada
Belgium
Germany
Rest of World
2016
£m
59.6
92.9
26.5
23.7
17.2
16.4
15.5
38.1
2015
£m
69.8
77.4
22.2
20.1
12.7
14.8
13.1
36.8
289.9
266.9
UK
USA
Netherlands
Canada
Belgium
Germany
Rest of World
Geographical analysis of non-current assets excluding deferred tax is as follows:
UK
USA
Rest of World
142
2016
£m
39.8
113.9
19.0
13.3
5.4
20.3
78.2
2015
£m
38.8
88.9
19.1
14.0
5.2
17.8
83.1
289.9
266.9
2016
£m
41.1
63.0
55.1
2015
£m
67.2
55.8
48.0
159.2
171.0
SDL Annual Report
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.
Discontinued Operations
The board announced its decision to sell the Non-Core Businesses, which represents a separate major line of business,
in January 2016. The results of the Non-Core Businesses segment have therefore been disclosed as discontinued
operations in this year’s financial statements and prior periods have been restated to show the results of discontinued
operation separately from continuing operations.
The Group completed the sale of its Campaigns business on 2 November 2016 and has signed a conditional agreement
to sell its Fredhopper business to ATTRAQT PLC. It is expected that the Fredhopper sale will complete in March 2017.
The sale of the Social Intelligence business is ongoing.
Following the impairment charged against the Group’s Non Core segment in 2015, the proceeds of the Non Core
disposals were expected to be in line with the net book value of the related net assets and accordingly no impairment
losses were recognised on classification of these operations as held for sale. As the disposal of the group’s discontinued
operations has progressed, the sales process has developed into three separate transactions. As a result, as each
transaction completes, there is a gain or loss on disposal arising from the difference between the consideration received
and the carrying value of assets in each business, including the allocation of goodwill to each business. Goodwill
allocated to each business being disposed of is based upon the goodwill arising in the original business combination,
reduced by specific impairments recorded in prior periods. Goodwill attributed to the different businesses at 31
December 2015 was Campaign £16.9 million, Fredhopper £3.8 million and Social Intelligence £nil.
The sale of the Campaigns business resulted in a £21.0 million loss on disposal in the period. The sale of the Fredhopper
business due to complete in March 2017 is expected to result in a gain on disposal of approximately £22m. .
Cash Flows from / (used in) discontinued operations
Loss for the year
Tax (credit)/expense
Loss before tax
Loss on disposal of discontinued operations
Movements in working capital
Net cash from operating activities
Net cash used in investing activities
Net cash used in financing activities
Net cash flows for the period
2016
£m
(26.4)
(0.4)
(26.8)
21.0
5.8
-
(1.6)
-
(1.6)
2015
£m
(22.5)
0.2
(22.3)
-
22.3
-
-
-
-
Movements in working capital includes Group funding to cover working capital requirements. Net cash used in investing
activities includes the cash impact of the sale of the Campaigns business as set out below. In addition to the £1.6m net
cash outflow recorded in 2016, the Group expects to receive a cash inflow of £0.3 million in future following the expiry
of a contractual retention period. These funds are currently held in escrow and are reported in Other Debtors.
Effect of disposal on the financial position of the group
Intangible assets
Tangible Fixed Assets
Trade and other receivables
Deferred income and other payables
Net assets
Net cash outflow
Loss on disposal
2016
21.9
0.4
2.2
(4.8)
19.7
(1.3)
(21.0)
143
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
Financial position of assets and liabilities held for sale
The assets and liabilities held for sale consist of:
Property, plant and equipment
Intangible assets
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Net assets and liabilities
4. Other revenue and expenses
Group operating profit is stated after charging/(crediting):
Included in administrative expenses:
Research and development expenditure (restated)
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
2016
0.1
3.8
3.2
-
(7.4)
(0.3)
2015
£m
25.9
0.2
3.5
0.1
6.7
0.5
6.5
(3.8)
1.5
2016
£m
25.9
0.2
3.5
-
5.2
0.2
7.0
(1.8)
1.5
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 2016 (2015: £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.
2015 balances have been restated to ensure consistency with 2016 calculations.
Auditor’s remuneration
Audit of the Group financial statements
Other fees to auditors:
Local statutory audits for subsidiaries
Taxation compliance services
Other services
144
2016
£m
0.4
0.1
0.4
0.2
2015
£m
0.4
0.1
0.3
0.4
SDL Annual Report
Staff costs
Wages and salaries
Social security costs
Pension costs (included in administrative expenses)
Expense of share based payments
2016
£m
133.5
16.7
4.8
1.5
156.5
2015
£m
123.4
15.5
4.6
1.5
145.0
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 £4.8 million (2015: £4.6 million).
The average number of employees during the year, including Executive Directors, was made up as follows:
Administration and sales
Production
Finance costs
Bank loans
One-off items
Redundancy and other staff costs
Strategy development
Relaunch of SDL
Impairment charge
Other one-off items
2016
Number
1,234
2,346
3,580
2016
£m
-
-
2016
£m
6.5
2.8
2.1
-
1.7
13.1
2015
Number
1,276
2,228
3,504
2015
£m
0.1
0.1
2015
£m
3.5
0.7
-
33.3
1.6
39.1
The Group has undergone a very significant reorganisation over the past two years including the departure of its then
Chief Executive Officer in October 2015, the completion of the Group’s operational review in January 2016 (including
the announcement of the disposal of the Non Core businesses) and the appointment of a new Chief Executive Officer
in April 2016. These events then led to significant changes in senior personnel, the development of the new strategy,
corporate rebranding and the reorganisation of operational and corporate structures. In addition the Group has
incurred one-off tax charges over the past two years.
As a result, the Group has incurred significant one-off costs over the past two years which are not expected to recur
and therefore have been separately disclosed in the income statement to provide a better guide to underlying business
performance.
In 2016, the Group has incurred £13.1 million of one-off costs (2015: £33.3 impairment write down and other one-offs of
£5.8 million). These one-off costs comprise:
• redundancy and retention costs due to the reorganisation of the Group in 2016 (£6.5 million).
145
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
• professional fees and related charges associated with the strategy development (£2.8 million);
• costs of relaunching SDL which included the costs of internal and external conferences to communicate our new strategy
and the global relaunch of SDL’s brand and associated marketing collateral (£2.1 million); and
• other one-off costs includes provision for indirect tax liabilities and corporate consolidation exercises (£1.7 million).
As a result of the above, the Group now has the right strategy, brand, leadership and organisational structure to realise
the full potential of our market opportunities and deliver shareholder value.
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
2016
£m
2015
£m
0.8
(0.4)
0.4
5.3
0.6
5.9
6.3
(4.0)
(4.0)
1.9
0.1
2.0
4.9
0.5
5.4
7.4
(1.9)
(1.9)
Tax expense (see (b) below)
2.3
5.5
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
2016
£m
2015
£m
0.2
0.2
0.7
0.7
A tax credit in respect of share based compensation for deferred taxation of £0.2 million (2015: £0.1 million debit) has been
recognised in the statement of changes in equity in the year.
146
SDL Annual Report
(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
20.0% (2015: 20.3%). The differences are reconciled below:
Loss on ordinary activities before tax
2016
£m
(15.8)
2015
£m
(25.2)
Loss on ordinary activities at standard rate of tax in the UK 20.0% (2015: 20.3%)
(3.2)
(5.1)
Expenses not deductible for tax purposes
Impairment of goodwill
Adjustments in respect of previous years
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
Loss on disposal on sale of Non-Core business
Other
Tax expense (see (a) above)
2.1
-
0.2
(2.9)
-
1.4
(1.1)
4.3
1.5
2.3
1.2
6.7
0.6
(1.7)
(0.6)
2.6
0.6
-
1.2
5.5
(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.
A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was 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, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September
2016. This will reduce the Company’s future current tax charge accordingly.
In common with other multinational organisations, there are a number of transactions that occur between the Group’s
entities. These transactions include charges for translation and professional services, management and support services
and intellectual property fees. The group operates in 38 countries around the world and is subject to ongoing tax audits and
reviews and is consequently exposed to potentially material, adverse tax outcomes. 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.
147
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
(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
2016
£m
Unrecognised
2016
£m
Recognised
2015
£m
Unrecognised
2015
£m
0.4
(0.2)
7.1
7.3
-
-
34.7
34.7
0.5
(2.3)
4.7
2.9
-
-
35.6
35.6
Deferred tax assets have not been recognised where there is considered to be material uncertainty as to the availability
of losses in future years. The Group has unrecognised tax losses in net terms of £34.7 million (2015: £35.6 million). These
unrecognised losses exclude the Group’s estimate of time barred losses which will not be available for offset in future years
£18.6 million (2015: £11.8 million). These estimates are primarily dependent upon change of control assumptions and
goodwill valuations under US tax regulations. The unrecognised tax losses disclosed include tax losses amounting to £21.6
million which, following the disposal of the trade and assets of the Campaign business and the expected sale of the Social
Intelligence business, are not expected to be available to offset profits arising from the Group’s Continuing Operations.
1. Included within other short term temporary differences are deferred tax assets in respect of potential Schedule 23 tax
benefits of £0.5 million (2015: £0.4 million) and a deferred tax liability in respect of the amortisation of certain intangible
assets acquired of £2.0 million (2015: £2.9 million).
2. The Group has recognised deferred tax assets on losses of £7.1 million (2015: £4.7 million). The amounts recognised are
based on the historical profitability and the forecast future taxable profits of the relevant entities.
3. At 31 December 2016, the net deferred income tax position is represented by a deferred income tax asset of £8.4 million
(2015: £6.0 million) and a deferred income tax liability of £1.1 million (2015: £3.1 million).
(e) Reconciliation of movement on deferred tax liability:
At 1 January
Retranslation of opening balances
Reversal of temporary differences arising on the amortisation of intangibles
Other temporary differences arising in the period
Write off of intangibles on disposal
Deferred tax liability at 31 December
(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
2016
£m
3.1
0.2
(1.0)
(0.2)
(1.0)
1.1
2016
£m
6.0
0.6
1.6
0.2
-
8.4
2015
£m
4.4
-
(1.3)
-
-
3.1
2015
£m
5.3
0.1
0.7
(0.1)
-
6.0
The deferred tax asset of £8.4 million (2015: £6.0 million) and liability of £1.1 million at 31 December 2016 (2015: £3.1
million) have been calculated based on the rate of 19% which was substantively enacted at the balance sheet date or local
tax rates as applicable in overseas territories.
148
SDL Annual Report 6. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 December 2015 was 3.1 pence per share. (Year ended 31
December 2014: 2.5 pence per share)
2016
£m
2015
£m
2.5
2.0
A final dividend for the year ended 31 December 2016 of 6.2 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 £18.2 million (2015: loss of £30.7 million)
and 81,373,409 (2015: 81,101,706) 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 2016, the diluted ordinary
shares were based on 82,162,157 ordinary shares that included 788,748 potential ordinary shares.
The following reflects the income and share data used in the calculation of adjusted earnings per share computations before
one-off costs:
Loss for the year
Loss on disposal of Non-Core business
One-off items (including impairment loss in 2015)
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
2016
£m
(18.2)
21.0
13.1
5.2
(1.0)
(1.9)
18.2
2015
£m
(30.7)
-
39.1
6.7
(1.3)
(0.6)
13.2
Adjusted earnings per share is shown as the Directors believe that earnings before amortisation and one-off costs is reflective
of the underlying performance of the business.
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
2016
number
2015
number
81,373,409
81,101,706
788,748
722,199
82,162,157
81,823,905
Adjusted earnings per ordinary
share – basic (pence)
Adjusted earnings per ordinary
share – diluted (pence)
26.58
(4.20)
26.32
(4.16)
22.38
22.17
Continuing
Discontinued
2016
Continuing
Discontinued
21.17
(5.04)
2015
16.13
21.17
(5.04)
16.13
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.
149
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
8. Property, plant and equipment
Cost:
At 1 January 2015
Additions
Disposals
Currency adjustment
At 1 January 2016
Additions
Disposals
Disposals of Non-Core business
Assets classified as held for sale
Currency adjustment
At 31 December 2016
Accumulated depreciation:
At 1 January 2015
Provided during the year
Disposals
Currency adjustment
At 1 January 2016
Provided during the year
Disposals
Disposals of Non-Core business
Assets classified as held for sale
Currency adjustment
At 31 December 2016
Net book value
At 31 December 2016
At 1 January 2016
Leasehold
Improvements
£m
Computer
Equipment
£m
Fixtures
& Fittings
£m
2.0
0.4
-
0.3
2.7
-
(0.4)
-
-
0.3
2.6
22.0
2.1
(1.2)
3.6
26.5
1.9
(0.3)
(4.6)
(1.3)
4.5
26.7
3.8
0.2
(0.3)
(0.5)
3.2
0.1
(0.8)
-
(0.2)
0.2
2.5
Leasehold
Improvements
£m
Computer
Equipment
£m
Fixtures
& Fittings
£m
(1.3)
(0.2)
-
(0.4)
(1.9)
(0.3)
0.4
-
-
(0.1)
(1.9)
0.7
0.8
(16.4)
(3.2)
1.1
(3.6)
(22.1)
(3.0)
0.4
4.2
1.2
(3.5)
(22.8)
3.9
4.4
(2.7)
(0.2)
0.3
0.5
(2.1)
(0.2)
0.7
-
0.2
(0.4)
(1.8)
0.7
1.1
Total
£m
27.8
2.7
(1.5)
3.4
32.4
2.0
(1.5)
(4.6)
(1.5)
5.0
31.8
Total
£m
(20.4)
(3.6)
1.4
(3.5)
(26.1)
(3.5)
1.5
4.2
1.4
(4.0)
(26.5)
5.3
6.3
Included in property, plant and equipment are assets held under finance lease of £Nil at 31 December 2016 (2015: £0.1
million).
150
SDL Annual Report
9. Intangible assets
Cost
At 1 January 2015
Acquisitions
Currency adjustment
At 1 January 2016
Acquisitions
Disposal of Non-Core business
Reclassification to assets held for sale
Currency adjustment
At 31 December 2016
Amortisation and impairment
At 1 January 2015
Provided during the year
Impairment loss
Currency adjustment
At 1 January 2016
Provided during the year
Impairment loss
Disposal of Non-Core business
Currency adjustment
At 31 December 2016
Net book value
At 31 December 2016
At 1 January 2016
Customer
Relationships
£m
Intellectual
Property
£m
Goodwill
£m
20.2
-
0.1
20.3
-
(3.7)
-
2.0
18.6
(14.5)
(1.9)
-
0.1
(16.3)
(1.1)
-
2.1
(2.0)
(17.3)
1.3
4.0
60.6
0.3
(0.2)
60.7
-
(7.6)
-
7.5
60.6
(45.2)
(4.8)
-
(0.1)
(50.1)
(4.1)
-
4.2
(6.7)
(56.7)
3.9
10.6
214.1
-
0.3
214.4
-
(16.9)
(3.8)
18.9
212.6
(32.6)
-
(33.3)
-
(65.9)
-
-
-
-
(65.9)
146.7
148.5
Total
£m
294.9
0.3
0.2
295.4
-
(28.2)
(3.8)
28.4
291.8
(92.3)
(6.7)
(33.3)
-
(132.3)
(5.2)
-
6.3
(8.7)
(139.9)
151.9
163.1
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).
151
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
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:
SDL France SARL
SDL Software Technology
(Shenzhen) Co Ltd
SDL Poland Sp zoo
SDL do Brazil Global
Solutions Ltda
SDL Nominees Ltd
SDL Global Holdings Ltd
SDL Multilingual
Solutions Private Ltd
SDL Turkey Translation
Services & Commerce Ltd
SDL Chile SA
SDL Portugal Unipessoal
LDA
Registered
Address of
business
Country of
Incorporation
Holding
Proportion
of Voting
Rights
Primary
nature of
Business
36 avenue du Général de Gaulle,
Paris 93170, France
Room 309, Floor 3, Resources-
Tech-Building, Songping
ShanRoad, High-tech Industrial
Park, Nanshan District, Shenzhen
City, Guandong, PRC
Ul. Fordonska 246, 85 766
Bydgoszcz
Rua Barao do Trinfo 73, Rooms
63-67, Brooklin Paulista, Sao
Paolo
France
Ordinary
100%
Language Services
China
Ordinary
100%
Language Services and
Technology
Poland
Ordinary
100%
Language Services
Brazil
Ordinary
100%
Language Services
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
England &
Wales
England &
Wales
Ordinary
100%
Holding Company
Ordinary
100%
Holding company
1319, 13th Floor, Bldg A1, Rupa
Solitaire, Sector 1, Millenium
Business Park, Mahape, Navi
Mumbai, 400 710, India
Camlica Street Muhurdar Cikmazi
(cul de sac) No:2 Beylerbeyi
Uskudar 34676 Istanbul
Avenida Holanda 00 Oficina
1002 Providencia, Region
Metropolitana, Santiago 7510021
Chile
Rua Julio Dinis, no. 826, 4o Dt.,
freguesia Cedofeita, Ildefonso, Se,
Nicolau, Vitoria, Porto, Portugal
India
Ordinary
100%
Language Services
Turkey
Ordinary
100%
Language Services
Chile
Ordinary
100%
Language Services
Portugal
Ordinary
100%
Language Services
152
SDL Annual Report Registered
Address of
business
Country of
Incorporation
Holding
Proportion
of Voting
Rights
Primary
nature of
Business
Name of Company
Held indirectly:
SDL Sheffield Limited
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Automated Language
Processing Services Ltd
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Bemoko Consulting
Limited
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
Globe House, Clivemont Road,
Maidenhead, SL6 7DY
SDL Tridion Ltd
Interlingua Group Ltd
XyEnterprise Ltd
Fredhopper Ltd
Alterian Holdings Ltd
Alterian Technology Ltd
Intrepid Consultants Ltd
Alpnet UK Ltd
Computype Ltd
Mediasurface Ltd
SDL (Poole) Ltd
SDL (Newbury) Ltd
SDL Minorities Ltd
SDL Sweden AB
SDL Tridion AB
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
England &
Wales
Ordinary
100%
Language Services
Ordinary
100%
Holding Company
Ordinary
100%
Technology
Ordinary
100%
Technology
Ordinary
100%
Holding Company
Ordinary
100%
Technology
Ordinary
100%
Technology
Ordinary
100%
Holding Company
Ordinary
100%
Technology
Ordinary
100%
Holding Company
Ordinary
100%
Holding Company
Ordinary
100%
Holding Company
Ordinary
100%
Holding Company
Ordinary
100%
Holding Company
Ordinary
100%
Holding Company
Ordinary
100%
Holding Company
Fatbursgatan 1, Stockholm, S-118
28 Sweden
Fatbursgatan 1, Stockholm, S-118
28 Sweden
Sweden
Ordinary
100%
Language Services
Sweden
Ordinary
100%
Technology
SDL Global Solutions
(Ireland) Limited
La Vallee House, Upper Dargle
Road, Bray, Co Wicklow
Ireland
Ordinary
100%
Language Services and
Technology
SDL Belgium NV
SDL Inc
SDL XyEnterprise LLC
Vital Decosterstraat 44, 3000
Leuven, Belgium
201 Edgewater Drive,
Wakefield, MA 01880-1296
201 Edgewater Drive,
Wakefield, MA 01880-1296
Belgium
Ordinary
100%
Language Services
United States
of America
United States
of America
Ordinary
100%
Technology
Ordinary
100%
Language Services and
Technology
153
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
Name of Company
Registered
Address of
business
Country of
Incorporation
Holding
Proportion
of Voting
Rights
Primary
nature of
Business
Held indirectly:
SDL Japan KK
SDL Tridion K.K.
SDL Hellas MEPE
SDL Holdings BV
SDL Netherlands BV
Fredhopper BV
SDL Media Manager BV
SDL Passolo GmbH
Nakameguro GT Tower 4f,
2-1-1, Kamimeguro Meguro
Tokyo 153-0051 Japan
Nakameguro GT Tower 4f,
2-1-1, Kamimeguro Meguro
Tokyo 153-0051 Japan
Philippou 6, Metamorfosi,
Athens 144 51, Greece
Hoogoorddreef 60, 1101 BE
Amsterdam, The Netherlands
Hoogoorddreef 60, 1101 BE
Amsterdam, The Netherlands
Hoogoorddreef 60, 1101 BE
Amsterdam, The Netherlands
Hoogoorddreef 60, 1101 BE
Amsterdam, The Netherlands
Waldburgstrasse 21, 70563,
Stuttgart
SDL Multilingual Services
GmbH & Co KG
Waldburgstrasse 21, 70563,
Stuttgart
Trados GmbH
SDL MLS GmbH
Waldburgstrasse 21, 70563,
Stuttgart
Waldburgstrasse 21, 70563,
Stuttgart
SDL Multilingual Services
Verwaltungs GmbH
Waldburgstrasse 21, 70563,
Stuttgart
SDL Italia Srl Unipersonale Via Stradella 165, Roma 00124,
Italy
Software Documentation
Localization Spain, S.L.
Avenida Constitucion, no 20
Edificio La Piramide, Oficina 206,
18012 Granada
SDL International (Canada)
Inc
SDL Multi-Lingual
Solutions (Singapore)
PTE Ltd
Alterian Pte Ltd
1155 Metcalfe St, Suite 1200,
Montreal, Quebec, Canada,
H3B 2V6
138, Cecil Street, #15-00 Cecil
Court, Singapore 069538
138, Cecil Street, #15-00 Cecil
Court, Singapore 069538
SDL Magyaror szaj
szolgaltato Kft
Arboc u. 6 III., Budapest,
H-1702
SDL CZ sro
SDL Traduceri SRL
Nerudova 198 Hradec Kralove
500 02 Czech Republic
Str. Mendeleev nr. 28-30,
et. 3, Sector 1, cod postal
010365, Bucharest, Romania
J40/5123/2000
Japan
Ordinary
100%
Language Services and
Technology
Japan
Ordinary
100%
Technology
Greece
Ordinary
100%
Language Services
Netherlands
Ordinary
100%
Holding Company
Netherlands
Ordinary
100%
Language Services
Netherlands
Ordinary
100%
Technology
Netherlands
Ordinary
100%
Technology
Germany
Ordinary
100%
Technology
Germany
Ordinary
100%
Language Services
Germany
Ordinary
100%
Technology
Germany
Ordinary
100%
Holding Company
Germany
Ordinary
100%
Holding Company
Italy
Ordinary
100%
Language Services
Spain
Ordinary
100%
Language Services
Canada
Ordinary
100%
Language Services
Singapore
Ordinary
100%
Language Services
Singapore
Ordinary
100%
Technology
Hungary
Ordinary
100%
Language Services
Czech Republic Ordinary
100%
Language Services
Romania
Ordinary
100%
Language Services
SDL Zagreb doo
Bednjanska 14/II, 10 000 Zagreb
Croatia
SDL doo Ljubljana
Stegne 21C, Ljubljana
Slovenia
Ordinary
Ordinary
100%
100%
Language Services
Language Services
154
SDL Annual Report Name of Company
Held indirectly:
LLC SDL Ukraine
SDL Tridion GmbH
SDL Tridion Hispania SL
LLC SDL Rus
Registered
Address of
business
Country of
Incorporation
Holding
Proportion
of Voting
Rights
Primary
nature of
Business
Business center SP Hall Office
604, 28 A (letter G) Stepana
Bandery avenue Kiev, Ukraine
04073
Balanstrassse 49 81669 Munich
Germany
Lopez de Hoyos 35, 1a Planta,
28002 Madrid, Spain
Ul Zastavskaya Street, 22, “A”,
196084 St Petersburg, Russia
Ukraine
Ordinary
100%
Technology
Germany
Ordinary
100%
Technology
Spain
Ordinary
100%
Technology
Russia
Ordinary
100%
Language Services
Spring Technologies Ltd
17A Hadji Dimitar Str, 1000 Sofia,
Bulgaria
Bulgaria
Ordinary
100%
Technology
SDL Xopus BV
Koninginnegracht 12 B-13
Netherlands
Ordinary
Romania
Ordinary
100%
100%
Technology
Technology
Language Weaver SRL
SDL Technologies India
PVT Ltd
24 Constanta Street, fl. 2-4,
Cluj-Napoca Romania, 400157,
Romania
Building 4, Block A, 7th Floor, 77
Town Centre, Yemalur Main Road,
Off Old Airport Road, Bangalore
– 560 037
SDL Technologies
(Australia) Pty Ltd
Nexia Sydney Pty Ltd, Level 16, 1
Market Street, Sydney, NSW 2000
Fredhopper (Australia)
Pty Ltd
Nexia Sydney Pty Ltd, Level 16, 1
Market Street, Sydney, NSW 2000
Avenida Presidente Wilson No.
231, 23rd andar, Rio de Janerio,
Brasil
14th Floor, REE Tower, No. 9 Doan
Van Bo Street, ward 12, district 4,
Ho Chi Minh City
India
Ordinary
100%
Technology
Australia
Ordinary
100%
Technology
Australia
Ordinary
100%
Technology
Brazil
Ordinary
100%
Technology
Vietnam
Ordinary
100%
Technology
135 South LaSalle Street, Suite
2500, Chicago, IL 60603
United States of
America
Ordinary
100%
Technology
Corporation Trust Center,
1209 Orange Street, City of
Wilmington, Country of New
Castle
Corporation Trust Center,
1209 Orange Street, City of
Wilmington, Country of New
Castle
27 Avenue de l’Opera 75001
Paris, France
Neuer Wall 63, 2nd & 3rd Floor,
Hamburg 20354, Germany
United States of
America
Ordinary
100%
Technology
United States of
America
Ordinary
100%
Holding company
France
Ordinary
100%
Technology
Germany
Ordinary
100%
Technology
Alterian do Brazil
Software e Servicos Ltda
SDL Technologies
(Vietnam) Co Ltd
Alterian Inc
SDL Government Inc
Alterian Holdings Inc
Fredhopper SARL
Fredhopper GmbH
The proportion of voting rights held is as shown above.
155
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
11. Impairment Testing of Goodwill
The Group has goodwill that has been acquired
through business combinations and 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.
The group’s CGUs are unchanged from 2015 and are;
Language Services, Language Technologies, 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. Following the disposal of the Campaigns business
during the year the Non-Core Businesses segment
continues to include the Group’s 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.
Note that the non-core businesses are classified
as assets held for sale at 31 December 2016 and
therefore goodwill and other assets and liabilities are
measured at the lower of original carrying value or
recoverable amount. Therefore, no further disclosure
is included in this note, refer to note 3 for further
information.
Goodwill has been allocated for impairment testing
purposes to these CGUs 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 2017 annual
plan projected for a further four year period and
subsequently into perpetuity, with a discount rate
applied.
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 10.1% applied to
Language Services (2015: 10.6%), 11.1% to Language
Technologies and Global Content Technologies and
14.0% to the Non-Core Businesses (2015: Language
Technologies and Global Content Technologies 11.6%,
Non-Core businesses 14.5%). 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 10.8% for 2016
(2015: 11.4%). Pre-tax discount rates were 13.1% for
Language Services, 15.2% for Language Technologies
and 14.3% for Global Content Technologies. (2015:
14.4% to 18.3%). Budgets have been prepared at the
cash generating unit level based on historical trends
adjusted for expected future events. These individual
budgets have been aggregated as the basis for the
2017 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 (2015: 2%). Differential
growth rates have been applied to the different
operating segments beyond the budget period
consistent with 2015. These are 6% for Language
Services, 6.5% for Language Technologies and 8% for
Global Content Technologies.
As a result of this review and, following a successful
year for SDL, no impairment has been identified.
Carrying amount of goodwill allocated to operating segments:
Language Services
Language Technologies
Global Content Technologies
Non-Core Businesses
2016
£m
21.2
60.1
65.4
-
2015
£m
21.1
48.0
59.2
20.2
146.7
148.5
Goodwill associated with the Group’s Fredhopper business is included within assets held for resale (see note 3).
156
SDL Annual Report Sensitivity to changes in assumptions
Management has identified three key assumptions which could significantly impact the impairment test: post-tax
discount rate, perpetuity growth rate and revenue growth.
The change in the assumptions above required for the recoverable amount of the Global Content Technologies and
Language Technologies operating segments to equal their carrying amounts are shown below:
Recoverable amounts exceeds carrying amounts by
Reduction in revenue growth
Increase in post-tax discount rate
Reduction in perpetuity growth rate
Language
Technologies
Global Content
Technologies
£19.6m
£10.4m
4.1%
2.6%
n/a*
2.4%
1.3%
1.8%
*removal of the perpetuity rate entirely does not result in an impairment for the segment
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 2017 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
Accrued income
2016
£m
59.1
9.0
12.9
81.0
2015
£m
56.4
9.1
7.9
73.4
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 2016, trade receivables at nominal value of £1.6 million (2015: £1.5 million) were impaired and
provided for. Movements in the provision for impairment of receivables were as follows:
At 1 January 2015
Charge for the year
Utilised in the year
Currency adjustment
At 31 December 2015
Charge for the year
Utilised in the year
Transfer to assets held for sale
Currency adjustment
At 31 December 2016
£m
1.4
0.2
(0.1)
-
1.5
0.2
(0.1)
(0.2)
0.2
1.6
157
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
As at 31 December, the ageing analysis of trade receivables, net of impairment, is as follows:
2016
2015
Total
£m
59.1
56.4
Not past due
£m
43.2
45.2
Past due
<30 days
£m
7.7
6.7
Past due
30-60 days
£m
2.5
0.6
Past due
>60 days
£m
5.7
3.9
The majority of the impairment provision is recorded in amounts greater than 60 days in 2016 and 2015 . As a result of
the Group's collection history no additional impairment provision is deemed necessary.
13. Cash and Cash Equivalents
Cash at bank and in hand
2016
£m
21.3
2015
£m
17.2
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 £21.3 million (2015: £17.2 million).
At 31 December 2016, the Group had available £25 million (2015: £20.2 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
Deferred income
2016
£m
7.2
2.5
7.8
34.5
36.5
88.5
2015
£m
6.1
3.0
6.8
25.8
40.0
81.7
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. There are no longer any
amounts payable under finance leases included within this balance (2015: £0.1 million).
15. Trade and Other Payables (Non-Current)
Deferred income
158
2016
£m
1.6
1.6
2015
£m
1.4
1.4
SDL Annual Report
16. Loans and Overdraft
Non-current liabilities
Instalments due on bank loans
2016
£m
-
2015
£m
4.6
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. At 31st December 2016 all
amounts had been repaid (2015: £4.6m, net of prepaid arrangement 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 2016
Arising during the year
Utilised
At 31 December 2016
Current 2016
Non-current 2016
Current 2015
Non-current 2015
Property leases
Property
Leases
£m
0.6
0.1
(0.1)
0.6
0.3
0.3
0.6
0.2
0.4
0.6
Other
£m
2.7
1.4
(1.5)
2.6
0.8
1.8
2.6
2.7
-
2.7
Total
£m
3.3
1.5
(1.6)
3.2
1.1
2.1
3.2
2.9
0.4
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 one
to five 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 £0.6 million (2015: £0.7 million).
Other
Other provisions include a number of employee, legal, indirect tax and product related amounts. The largest element
of the other provisions relate to disputes regarding indirect tax in a number of locations where the Group operates. The
Group has settled the litigation related to the Trados acquisition and a payment of $1.85 million was made in February
2016 in full and final settlement of all claims.
Current obligations are expected to be payable within 1 year and non current liabilities are expected to be paid out after
more than one year.
159
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
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
2016
millions
2015
millions
2016
£m
2015
£m
81.3
0.2
-
-
81.5
81.0
0.1
0.1
0.1
81.3
0.8
-
-
-
0.8
0.8
-
-
-
0.8
The following movements in the ordinary share capital of the company occurred during the year:
1. 12,492 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 278.92 pence to 290.5 pence per share for an
aggregate consideration of £35,182
2. 157,145 ordinary shares of 1p each were allotted under the SDL Save As You Earn Schemes for an aggregate
consideration of £480,780.
3. In March 2016, 40,622 ordinary shares of 1p each were allotted to Gype BV as the first payment of the contingent
consideration due as a result of the acquisition of Gype BV in 2015.
19. Share-Based Payment Plans
Included within administrative expenses is a charge of £1.5 million relating to the Group’s employee share schemes
(2015: charge of £1.5 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
2016
No.
769,085
457,500
(114,242)
(16,992)
1,095,351
128,593
2016
WAEP
£3.87
£4.19
£4.23
£2.81
£3.99
£2.84
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
The weighted average share price at the date of exercise for the options exercised is £3.99 (2015: £3.87).
For the share options outstanding as at 31 December 2016, the weighted average remaining contractual life is 7.75 years
(2015: 7.77 years).
160
SDL Annual Report
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 to the model:
Weighted average share price (pence)
Expected volatility
Expected option life
Expected dividends
Risk-free interest rate
2016
2015
399
36%
3 years
0.75%
0.45%
387
38%
3 years
0.57%
0.71%
The weighted average fair value at grant date is £0.95 (2015: £1.10)
The range of exercise prices for options outstanding at the end of the year was £2.79-£4.45 (2015: £2.79-£4.45).
Exercise price
Date of Grant
Exercise Period
£2.51 - £3.00
£3.01 - £3.50
£4.01 - £4.50
Total
28/02/08-02/03/09
10 years after grant date
07/04/14
10 years after grant date
17/04/15-08/06/16
10 years after grant date
2016
Number
128,593
168,758
798,000
1,095,351
2015
Number
145,585
185,500
438,000
769,085
SDL Long Term Incentive Plans
The SDL Long Term Share Incentive Plan, which was approved by shareholders in April 2011 (“the 2011 plan”), expired
for the purposes of new awards in April 2016. 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 2011 plan has been replaced with the SDL Long Term Share Incentive Plan (2016) (“the 2016 Plan”) which received
approval from shareholders in April 2016 . The 2016 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. The shares granted under the 2016 plan are dependent on
either EPS or TSR performance conditions.
On 8 June 2016, 764,081 shares were granted under the 2016 Plan based on a market price of £4.19, 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 dependent on the performance criteria within the plan. The 2011 Plan uses a Monte-Carlo model whereas the
2016 plan uses a different valuation for each performance criteria as most appropriate. This results in a Monte Carlo
model being used for the grants issued with a TSR performance criteria and a Black Scholes model for the grants issued
with an EPS performance criteria, taking into account the terms and conditions upon which the options were granted.
The following table lists the key inputs to and the key output from 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
2016
Monte Carlo
2016
Black Scholes
36%
266
3 years
0.75%
0.37%
36%
403
3 years
0.75%
0.45%
2015
38%
385
3 years
0.57%
0.71%
161
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
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
2016
No.
906,043
764,081
-
(273,020)
1,397,104
Nil
2016
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 would 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) provided benefit to the Group by creating appropriate performance incentives and facilitated
the long-term retention of employees who added 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.
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. No grants were made during 2016.
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
2016
n/a
n/a
n/a
n/a
n/a
2016
No.
275,714
-
(160,368)
(51,634)
63,712
31,003
2015
29.8%
464
1 year
0.5%
0.37%
2015
No.
168,500
280,430
(147,000)
(26,216)
275,714
19,000
All RSPs are exercisable at nil cost to the individual (with the exception of the 1p nominal value of each share awarded).
162
SDL Annual Report
20. Additional Cash Flow Information
Analysis of Group net debt:
Cash and cash equivalents
Loans and overdrafts
Cash and cash equivalents
Loans and overdrafts*
1 January 2016
£m
17.2
(4.8)
12.4
Cash flow
£m
Exchange
differences
£m
31 December
2016
£m
1.5
4.8
6.3
2.6
-
2.6
21.3
-
21.3
1 January 2015
Cash flow
£m
22.1
(9.0)
13.1
£m
(3.4)
4.2
0.8
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
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
2016
£m
4.2
7.3
-
11.5
2015
£m
4.3
10.3
0.3
14.9
2016
£m
0.4
0.3
-
0.7
2015
£m
0.6
0.6
-
1.2
2016
£m
4.6
7.6
-
12.2
2015
£m
4.9
10.9
0.3
16.1
The future minimum rentals receivable under non-cancellable operating leases as at 31 December 2016 were £0.2
million (2015: £0.2 million).
Post year end the Company has signed agreements under which the Company will relocate to a new Head Office in
Maidenhead and be released from its existing rental commitments on their current head office building. £3.0 million of
the commitments disclosed above are in relation to the current Head Office.
As detailed in note 5, the nature of global tax compliance is inherently subject to interpretation and hence additional
liabilities or exposures could arise.
163
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
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
Full details of the Directors’ remuneration is included in
the Directors’ Remuneration Report on pages 96 to 120.
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
who have responsibility for planning, directing and
controlling the activities of the Group. In line with IAS
24, included in short term employee benefits above
is £0.3 million charged to the P&L relating to key
management personnel LTIP charges for the year.
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 8 to 73.
Interest Rate Risk: Net cash has increased from £12.6
million in 2015 to £21.3 million in 2016. Borrowings
were £nil at December 2016 (see note 16). The Group
has access to a committed facility of £25 million which
bears interest at LIBOR+ margin when drawn, 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.
164
2016
£m
1.5
0.1
1.6
2015
£m
2.4
0.1
2.5
Due to the lack of debt within the group and the
limited amount of cash surplus to operational
requirements, there is no material sensitivity to a
change in interest rates.
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 2016, the Group had net cash of £21.3 million
with no loans balances. Underpinning this philosophy
are processes to manage operating cash flow, with a
focus on approvals policies 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 46% of total
invoicing done in US Dollar and 32% 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
between the Group non sterling revenues and costs
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 2016, 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 the net assets of any non sterling
functional currency subsidiaries 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.
SDL Annual Report The Consolidated Income Statement is also affected
by 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.
The following table demonstrates the sensitivity to a 1
percent change in the US Dollar exchange rate.
Profit before tax gain/(loss)
+ 1 %
– 1 %
2016
£m
(0.7)
0.7
2015
£m
(0.9)
0.9
Statement of Financial Position* increase/(decrease)
in net assets
+ 1 %
– 1 %
2016
£m
(0.5)
0.5
2015
£m
(0.8)
0.8
Capital Management: The Board monitors the total
equity, cash and cash equivalents and borrowing
balances in considering its 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 2016 of 6.2 pence per share.
Neither the Company nor the Group is subject to
externally imposed capital requirements.
24. Financial Instruments
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 2016
Floating rate
The following table demonstrates the sensitivity to a 1
percent change in the Euro exchange rate:
Profit before tax gain/(loss)
Cash
Borrowings
2016
£m
0.9
-
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 2016:
Trade and other
payables
Less than
12 months
£m
Over 12
months
£m
40.5
40.5
-
-
Total
£m
40.5
40.5
+ 1 %
– 1 %
2016
£m
(0.3)
0.3
2015
£m
(0.2)
0.2
Statement of Financial Position* increase/(decrease)
in net assets
+ 1 %
– 1 %
2016
£m
(0.7)
0.7
2015
£m
(0.7)
0.7
* 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.
165
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
The table below summarises the maturity profile of
the Group’s financial liabilities at 31 December 2015:
Trade and other
payables
Short term loans
Finance lease
liability
Less than
12 months
£m
Over 12
months
£m
39.1
-
0.1
39.2
-
4.6
-
4.6
Total
£m
39.1
4.6
0.1
43.8
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
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. At 31st December 2016 all amounts had been
repaid (2015: £4.6 million, net of prepaid arrangement
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.
Credit risk
The maximum credit risk exposure related to
financial assets is £78.6 million (2015: £68.6 million)
represented by the carrying value of trade debtors
and other receivables excluding prepayments 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 2016 (2015: None).
The interest rate risk on the borrowings at 31
December 2016 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
The Group announced, on 29 January 2017, an
agreement to sell its Fredhopper business to ATTRAQT
PLC for £25 million subject to ATTRAQT PLC being
readmitted to the AIM market. This condition is
expected to be satisfied during the week commencing
6 March 2017. The Group is expected to record a
profit on disposal of approx. £22 million on disposal
and this will be recorded in the Group’s 2017 financial
statements.
There are no other known events occurring after
the statement of financial position date that require
disclosure.
166
SDL Annual Report Company Balance Sheet at 31 December 2016
Notes
2
3
4
5
6
7
8
9
2016
£m
1.0
222.6
223.6
124.2
4.0
128.2
2015
£m
0.7
149.9
150.6
105.8
1.0
106.8
(154.2)
(154.2)
(120.9)
(120.9)
(26.0)
(14.1)
197.6
136.5
-
(0.1)
(0.1)
(0.3)
197.2
0.8
99.2
97.2
197.2
(4.6)
(0.4)
(5.0)
(2.4)
129.1
0.8
98.5
29.8
129.1
Fixed assets
Tangible assets
Investment in subsidiaries
Current assets
Debtors
Cash at bank and in hand
Current liabilities
Creditors: amounts falling due within one year
Net Current 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 7 March 2017
A. Hernandez
Director
D. Lavelle
Director
167
FINANCIAL STATEMENTS
Company Statement of Changes in Equity For the Year
Ended 31 December 2016
At 1 January 2015
Profit for the period
Dividend Paid
Currency translation differences on net investments
Arising on share issues
Share based payments
At 1 January 2016
Profit for the period
Dividend paid
Currency translation differences on net investments
Arising on share issues
Share based payments
At 31 December 2016
Share
Capital
£m
Share
Premium
Account
£m
Profit &
Loss
Account
£m
0.8
97.9
-
-
-
-
-
0.8
-
-
-
-
-
0.8
-
-
-
0.6
-
98.5
-
-
-
0.7
-
99.2
30.0
0.6
(2.0)
(0.1)
-
1.3
29.8
67.9
(2.5)
1.0
-
1.0
97.2
Total
£m
128.7
0.6
(2.0)
(0.1)
0.6
1.3
129.1
67.9
(2.5)
1.0
0.7
1.0
197.2
168
SDL Annual Report Notes to the Accounts for the Year Ended
31 December 2016
1. Accounting policies
The principal accounting policies that have been
consistently applied in arriving at the financial
information set out in this report are:
Basis of preparation
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”).
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 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;
• Comparative period reconciliations for share capital,
tangible fixed assets and investments in subsidiaries;
• Disclosures in respect of transactions with wholly
owned subsidiaries;
• Disclosures in respect of capital management;
• The Company proposes to continue to use the
reduced disclosure framework of FRS 101 in its next
financial statements.
Fixed assets and depreciation
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.
• The effects of new but not yet effective IFRSs and;
Financial instruments
• 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
• Certain disclosures required by IFRS 13 Fair Value
Measurement and the disclosures required by IFRS 7
Financial Instrument Disclosures.
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.
169
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
Debtors
Revenue
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.
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.
170
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.
SDL Annual Report 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 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.
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
171
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
for which there are separately identifiable income
streams (cash generating units). Where in future years
the recoverable amount exceeds the carrying amount,
impairment losses previously recognised are reversed
through the P&L account.
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
2. Tangible fixed assets
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 in 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.
Leasehold
Improvements
£m
Computer
Equipment
£m
Fixtures
& Fittings
£m
0.6
-
0.6
(0.5)
-
(0.5)
0.1
0.1
1.5
1.2
2.7
(1.0)
(0.9)
(1.9)
0.8
0.5
0.2
-
0.2
(0.1)
-
(0.1)
0.1
0.1
Total
£m
2.3
1.2
3.5
(1.6)
(0.9)
(2.5)
1.0
0.7
Cost
At 1 January 2016
Additions
At 31 December 2016
Depreciation
At 1 January 2016
Provided during the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
172
SDL Annual Report
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 2016
Additions
Disposals
At 31 December 2016
Impairment
At 1 January 2016
Reversal of prior year impairments
Charge for the year
At 31 December 2016
At 31 December 2016
At 31 December 2015
The reversal of prior year impairments arose following the transfer of a number of group subsidiaries to a direct
subsidiary, SDL Global Holdings Limited, which meant that its carrying value is now fully supported.
4. Debtors
Debtors: Amounts falling due within one year
Trade debtors
Amounts owed by Group undertakings
Corporation Tax
Deferred tax asset
Prepayments
Accrued income
Rent and other deposits
Debtors: Amounts falling due after more than one year
Amounts owed by Group undertakings
Total Debtors
2016
£m
7.2
93.8
1.3
2.3
3.3
1.4
0.4
109.7
2016
£m
14.5
124.2
£m
223.1
0.1
(0.6)
222.6
(73.2)
73.2
-
-
222.6
149.9
2015
£m
6.8
81.2
0.8
1.2
2.3
1.4
0.1
93.8
2015
£m
12.0
105.8
Accrued income is the value of unbilled work recognised on projects per the accounting policy outlined in note 1.
173
FINANCIAL STATEMENTS Notes to the Accounts for the Year Ended 31 December 2016
The amounts recognised and unrecognised for deferred income tax are set out below:
Recognised
2016
£m
Unrecognised
2016
£m
Recognised
2015
£m
Unrecognised
2015
£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
1.1
2.3
-
-
-
-
-
Reconciliation of movement on deferred tax asset:
At 1 January
Temporary differences arising in the period
Deferred tax asset at 31 December
The Company has no unrecognised tax losses.
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
Deferred income
6. Interest bearing loans and borrowings
Creditors: amounts falling due after one year
Instalments due on bank loans
0.6
0.1
0.5
-
1.2
2016
£m
1.2
1.1
2.3
2016
£m
2.9
137.4
-
0.4
0.4
9.0
4.1
-
-
-
-
-
2015
£m
1.2
-
1.2
2015
£m
1.5
107.4
1.6
0.4
0.5
6.1
3.4
154.2
120.9
2016
£m
-
2015
£m
4.6
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. At 31st December 2016 all
amounts had been repaid (2015: £4.6m drawdown net of 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.
174
SDL Annual Report
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.
2016
£m
0.1
0.1
2016
£m
0.3
-
0.3
2015
£m
0.4
0.4
2015
£m
0.3
2.1
2.4
7. Creditors
Creditors: amounts falling due after more than one year
Other payables
Other creditors
8. Provisions for liabilities and charges
Property leases
Other
Movement in provisions:
Property leases
Other
Property leases
Provision 1
January 2016
£m
Arising during
the year
£m
Released during
the year
£m
Utilised during
the year
£m
Provision 31
December 2016
£m
0.3
2.1
2.4
-
-
-
-
(0.7)
(0.7)
-
(1.4)
(1.4)
0.3
-
0.3
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 five 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 (2015: £0.3 million).
Other
The Group has settled the litigation related to the Trados acquisition and a payment of $1.85 million was made in
February 2016 in full and final settlement of all claims.
9. Share capital
Allotted, called up and fully paid
Ordinary shares of 1p each
At 1 January 2016
Issued on exercise of share options
At 31 December 2016
millions
£m
81.3
0.2
81.5
0.8
-
0.8
175
FINANCIAL STATEMENTS
Notes to the Accounts for the Year Ended 31 December 2016
The following movements in the ordinary share capital of the company occurred during the year:
1. 12,492 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 278.92 pence to 290.5 pence per share for an
aggregate consideration of £35,182
2. 157,145 ordinary shares of 1p each were allotted under the SDL Save As You Earn Schemes for an aggregate
consideration of £480,780.
3. In March 2016, 40,622 ordinary shares of 1p each were allotted to Gype BV as the first payment of the contingent
consideration due as a result of the acquisition of Gype BV in 2015.
10. Commitments and contingencies
The future minimum rentals payable under non-cancellable operating leases as at 31 December are as follows:
Land and Buildings
Within one year
After one year but not more than five years
More than five years
2016
£m
1.0
3.3
-
4.3
2015
£m
1.0
4.1
0.2
5.3
Post year end the Company has signed agreements under which the Company will relocate to a new Head Office in
Maidenhead and be released from its existing rental commitments on their current head office building. £3.0 million of
the commitments disclosed above are in relation to the current Head Office.
11. Share based payment plans
During 2016, the total share based payment charge amounted to £1.3 million (2015: £1.5 million). Of this amount, £0.2
million (2015: £0.3 million) has increased the cost of investment in subsidiaries as the relevant share based payments
were granted to the employees of the subsidiaries. As the consolidated financial statements of SDL plc include the
equivalent disclosures, the Company has also taken the exemptions under FRS 101 available in respect of disclosures
relating to IFRS 2 Share Based Payments in respect of group settled share based payments.
12. Profit attributable to members of the parent company
The profit dealt with in the financial statements of the parent Company is £67.9 million (2015: profit of £0.6 million).
No profit and loss account is presented for the Company as permitted by Section 408 of the Companies Act 2006.
13. Post balance sheet events
There are no other known events occurring after the statement of financial position date that require disclosure.
176
SDL Annual Report Five Year Group Summary Year Ended 31 December
Turnover (notes 1 and 2)
Continuing turnover
Growth in total revenue
Operating profit before one-offs, depreciation
and amortisation
Continuing 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 and 2)
IFRS
2016
£m
289.9
264.7
9%
23.5
IFRS
2015
£m
266.9
240.5
2%
20.7
27.0
24.3
5.2
(15.8)
(18.1)
167.6
21.3
5.9
173.5
168.7
3.6
(25.1)
(25.2)
(30.7)
177.0
17.2
(0.6)
176.4
166.9
3.5
(22.29)p
(37.93)p
IFRS
2014
£m
IFRS
2013
£m
IFRS
2012
£m
260.4
266.1
269.3
n/a
-2%
21.5
n/a
9.7
9.4
6.6
210.0
22.1
(8.7)
208.3
202.1
3.2
8.03p
n/a
-1%
13.3
n/a
(24.0)
(24.4)
(27.9)
218.6
18.2
(17.9)
206.0
196.5
3.2
n/a
18%
41.0
n/a
27.7
27.4
20.9
243.3
28.5
(10.3)
239.0
227.8
2.8
(34.78)p
26.12p
Notes:
(1) 2012 – Acquisition of Alterian plc Group
(2) 2013 – Acquisition of Bemoko Consulting Limited
n/a – not available
177
FINANCIAL STATEMENTS Corporate Information
Directors
David Clayton (Chairman)
Adolfo Hernandez (Chief Executive Officer)
Dominic Lavelle (Chief Financial Officer)
Chris Batterham
Glenn Collinson
Mandy Gradden
Christopher Humphrey
Alan McWalter
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 Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
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
178
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