NOVEMBER 15, 1974
In last year’s Annual Report, I quoted Peter Drucker as saying “one risk an innovative organization cannot afford is the risk of aiming too low” his has certainly not been a problem at SDL. Even for a company with our track record of growth, we attempted a great deal during last year.
By any criteria, except the bottom line, our continued growth was impressive. Revenues rose from $9.9 million to $14 million dollars which is a 40% increase. The number of employees grew from 350 to 520. The number of clients grew to over 600. This growth was in line with our long range plan for corporate development. This plan saw us expanding our Computer Services into a number of specialized industry areas where we could provide solutions to our clients’ problems which are more than just faster processing using yesterday’s approaches. We recognized that unique opportunities to move into new areas existed during 1973-74 as a number of companies were available to SDL through acquisition. Also, we had a buoyant stock market. We were successful in capitalizing on many of these opportunities, although the results on the bottom line were clearly less than we had expected. We were able to expand in the Education market with the acquisition of Anathon Computer & Educational Systems, Inc. of New York. In the medical and health care field, we acquired the very necessary industry knowledge through the acquisition of Shortliffe & Associates. We expanded in Quebec City with the purchase of Informatel, Inc.
Our biggest disappointment came from our attempted acquisition of Ottawa Cablevision Limited. This was not allowed by the Canadian Radio-Television Commission on the grounds that such a move by a company in our industry would be premature. However, by that time, the declining stock market conditions had made this deal less attractive than it had been originally, although we were fully prepared to live up to our commitment had the CRTC approval been received by June 30th, 1974. In general, last year was one of high activity in which we created our plan, chose the industries in which we wanted to make acquisitions, put the plan into action, and then assessed the results. I believe the approach was correct, but the short-range results in profitability was less than we had hoped. It should be remembered that we were not aiming at becoming a conglomerate. It was our intention to expand within the information industry by broadening the base of services we could provide. We quickly discovered that it was not feasible to acquire organizations with similar skills, albeit servicing different industries, and then not integrate these into the rest of the organization. This integration was a difficult procedure, even with the best of intentions by all parties.
The integration of the various acquired organizations is now virtually complete – the only exception being Anathon Computer & Educational Systems in the United States. The link to all these organizations is the computer based processing of data. We have now established a single marketing organization which handles our complete product line and this, we believe, is a most important step for the future development of the company. The changes involved not only the winding up of nearly all of the subsidiaries and the creation of a uniform and integrated organization, but also the reassessment of the senior management needs of the company. This process, which took place between March and September of 1974, led to the reduction in the number of officers from fourteen to six. I should point out that this change is no reflection on those senior officers who are no longer with SDL, but rather a recognition that an integrated organization does not require the same skills and number of senior people as does a diversified company composed mostly of subsidiaries.
THE CONTINUED CORPORATE DEVELOPMENT PLAN
Our approach for the coming period will be based on internal growth and development rather than acquisition. We will build on the base of new knowledge and expertise acquired through acquisitions, as well as the already strong and competent staff we have built up over the years.
Surprisingly, the five year projected growth rate, which we believe can be generated with this approach, is hardly less dramatic than that at which we had originally aimed. I believe it is still reasonable to expect that SDL could grow at a rate nearly double that of the computer industry as a whole, which has often been quoted at 15-16%.
To judge whether this is possible, one should assess SDL as it is today.
SDL AFTER FIVE YEARS
SDL has demonstrated it can sustain a strong growth in revenue. As I mentioned, the sales last year were $14 million dollars and already, during the first quarter, we are operating at a rate of over $19 million dollars. Our first quarter is usually our slowest.
SDL is the only company of significant size in the Canadian-owned computer services industry in Canada that has consistently produced profits from operations for eleven consecutive quarters.
SDL is the only large computer service organization in Canada that is not controlled or owned by another organization.
SDL has the most diversified customer base of any company in our industry in Canada.
SDL has not only the largest staff of any Canadian computer service organization, but also one with the highest reputation for technical excellence and marketing proficiency.
SDL is conservatively and adequately financed to carry it through the forthcoming development period.
Finally, I maintain my belief in the future of the industry in which we operate, and the likelihood that it can weather successfully whatever economic conditions we may face.
THE QUARTERLY RESULTS
If the base which we now have is sound, what of the performance?
The first quarter showed a remarkable increase in revenue from $2.9 million for the first quarter last year to $4.8 million in the quarter ended September 30, 1974. This is a 65% growth.
The profit for the quarter fully taxed was $126,000, or on a fully diluted basis, 5 cents per share.
The profit, including the provision for loss carry forward was $252,000. This was about $75,000 over our budgeted profit before tax for the period and about $250,000 over our budgeted sales.
In general, we are pleased with the progress.
OTHER CORPORATE DEVELOPMENTS
We are particularly pleased to welcome Mr. W.V. Moore to our Board of Directors. Mr. Moore was formerly President of IBM Canada and is currently Chairman of Consolidated Computer. His valued advice at our Board meetings will be most appreciated.
The installation of the IBM 370/16 8 in August significantly increased our revenue-earning capacity. This installation was very smooth and was, in fact, transparent to our users. This was a technical feat of some magnitude, as we had to integrate this new system with the Model 85 so that both worked as a unit.
We elected to face squarely any problems our expansion program caused and take rapid corrective action. I believe we have demonstrated the strength of the corporation by coming through a difficult year with a sound organization of dedicated people, continued growth in sales and good prospects for growing profitability for the rest of this year and the years to come.