SDL ANNUAL MEETING

PRESIDENT’S REMARKS

NOVEMBER 8, 1973

Information is so basic to every facet of our lives that we tend to take it for granted. Yet, more and more each day, we deal not in things but in information about things.

A recent article from The New York Times outlined the predicament of a father trying to explain to his son just what he did. He had taken his son to see his office building and the son, of course, asked what was produced there. His father lamely explained that, in fact, nothing was produced in that building and then went on to explain what he did do each day.

The description involved an amusing commentary on what most of us do – we dictate lengthy reports, we read other people’s reports and make angry marks on them, we shuffle figures about on a piece of paper, we try to convince someone that our figures are better than theirs, we exchange information endlessly on the telephone, or other media, but in fact we produce nothing! I sympathize with the father’s plight.

If you think of the core area of any large city, it is almost exclusively filled with huge buildings that produce nothing. What people in these buildings deal with is information. Information is SDL’s business. The Information Industry Information is not, however, an end in itself. Its real use comes in helping people to understand what they are doing and how to improve this. If one defines the business SDL is in, it is really helping other people to better understand their business, profession or organization, so they in turn can become more productive or more efficient. SDL is properly then, in any aspect of the creation, storage, processing, transmission or analysis of data to produce useful information.

We use the latest techniques – modern communication networks, the largest and smallest computers, the tools of mathematics. These techniques, together with an in-depth knowledge of the needs of other organizations, provide the background for the new growth industry of information technology.

This industry is destined to be one of the largest in the world, for the growth in the amount of information occurs at a greater rate than almost any other commodity with which man deals.

The Computer/Communications Task Force Report of the Department of Communications indicated that this industry would exceed $4 billion dollars in Canada alone by 1980, possibly outdistancing the petroleum and automobile industries, to become Canada’s largest.

Other countries are aware of this and Japan has, as one of its national aims, becoming an information-producing country. I believe in Canada we can do the same, for Canada’s greatest potential will clearly lie in service rather than manufacturing industries. Economy of scale does not apply to knowledge industries in the way it applies to manufacturing industries.

UNDERSTANDING SDL

SDL is one of the pioneer companies in the new information industry. Because the industry is so new, it may still be difficult to understand exactly what kind of services we provide. A few examples may help.

Earlier this year, we established the SDL Institute. This organization of highly-qualified professionals from various professions works with organizations to help them formulate their own long-range policies. It does this by assisting them with economic, technological or sociological forecasting against a background knowledge of demographic or other trends. To give just a few examples, the SDL Institute has recently been working on a study for the Organization for Economic Cooperation and Development (OECD) in Paris to determine what the water resource policy for Europe should be. Another example is work done for W.H. Smith & Sons, the worldwide booksellers, to help them determine what the effect will be on changing leisure patterns, and to suggest policy options the organization might undertake to ensure it will be a dynamic company in the coming decades.

Other projects undertaken by the Institute involve frontier fields of information processing, such as jurimetrics. This is basically a study of the information handling needs of the legal profession.

A study in this area is being undertaken for the Solicitor General’s Department in Canada. SDL has also established major programs within leading growth industries – for example, one area of concentration is in the health care service industry. Earlier this year, the firm of Shortliffe & Associates joined us, bringing a specialized knowledge of the administrative data processing needs of the health care industry. We now provide services through the Hospital Medical Records Institute to over 100 hospitals in Ontario and have every reason to believe this will expand to hospitals in other provinces in the coming year or so. Our services in the medical field range from British Columbia to New Brunswick, where we provide studies on the organization of Teaching Hospitals, the medical equipment needs of new hospitals, and similar projects. We work with medical schools as well, including such major institutions as the Duke Medical School.

Another industry, which will continue to involve a significant portion of our gross national product in the decades to come, is education. Here, we provide our planning and administrative systems for universities and community colleges across the United States, from Whittier College in California to New York State University. I recently attended a presentation made to the President and senior administrative and academic staff at Howard University in Washington on the results of a simulation model prepared for the University by our staff. There was no doubt in our minds or theirs that, by the end of that presentation, the group had gained a new understanding of the use and costs of resources in a major university. I am assured these insights will be of great assistance in formulating their future plans.

SDL has major programs in commercial and government fields, ranging from development of a Management Information Systems for Philips Electronics in Toronto, through such esoteric applications as running federal election results for the CTV network.

Although we believe our major expansion in the coming five years will be in North America, we are currently examining business potential in areas as far apart as North Africa, the Caribbean, and Australia. It is interesting that much of this work involves an on-going involvement by SDL in the customer’s information handling needs. Few of our projects are of a one-time nature. Many involve processing on our own computer network and, increasingly, we provide a major portion or all of a company’s information processing needs. Building on a base of repetitive revenue is the secret of a true growth company.

GROWTH – BUT WHERE?

As you can gather from what I have described, SDL has built a solid base from which to expand.

•  we start a second five years with a sound base of revenue and over 400 customers

•  we have a highly-regarded group of marketing and technical staff who also number over 400

•  we had a strong cashflow of over $3 million dollars last year we have a growth-oriented management determined to build on our record of achievements to date. In developing our second Five Year Plan, we examined all these factors and many others. We also looked at what sectors of the world economy we felt would grow most rapidly and, hence, would have the greatest information needs. Of thirty, major areas examined, we chose four principal ones. You can expect to see major corporate activity in the next 12-18 months in all of these areas, as SDL moves to become the leading information company in these major industries.

I have already mentioned education as one area of significant thrust for SDL. I would expect that in the coming months, you will see a number of announcements regarding projects in this field. These will likely involve acquisitions or development projects built around administrative systems for public and high schools, or frontier projects in new forms of education. This latter field could have particular significance in what we believe is the major expansion area in the education field – the process of continuing education throughout one’s life. To do this, society must find better ways of delivering education to where people are, rather than requiring people to travel to the more conventional ‘bricks and mortar’ type of educational institutions. In the health care field, we are already developing better systems for hospital administration. Even newer fields of health care involve the concept of health maintenance rather than just active treatment. This will take us into such areas as multi-phasic screening and will certainly lead to more emphasis on the use of clinics rather than active treatment hospitals. The information needs in this rapidly-growing industry are enormous.

Aspects of the communications industry tie in very closely with both the above. If we are going to provide a full information service, we must also consider how to deliver these services to the user. There has been a great deal of discussion about the concept of a ‘Wired City’ where broadband cables can carry any variety of services to the home or office. We believe this industry has potential beyond anything else we have looked at. Estimates are that, in North America, the information industry alone, built around cable communications, could exceed $20-billion dollars within the next fifteen years.

At SDL, we believe it makes sense to supplement our computer power with a distribution network and are closely examining possibilities in this field. It has often been said that the computer is like an electrical generator. If this is the case, the ‘Wired City’ is a necessary part of providing the proper distribution network.

A fourth area is that of financial and retail services built around many aspects of the often-discussed ‘Cashless Society’. We believe that banks and financial institutions will play major roles themselves, as will communications companies in the area described above. But, this field is so large that specialized areas offer great potential to a company such as SDL. All tie into communications.

Some of the activity in the above fields will involve acquisitions, for in some cases we will be rounding out our capabilities by acquiring specialized industry knowledge. Some will be based on our large computer network and some will involve the use of mini-computers which may themselves be tied to a large central computer over a communications network. All this is aimed at producing results for the client. The fact that we have singled out four major fields for expansion certainly does not preclude other activity.

In October, we announced we had undertaken a major expansion in the Province of Quebec and had merged a highly-regarded organization in the computer services field – Informatel Inc – with SDL Informatique, to form a new organization in Quebec with a staff of over 70. Clearly, this indicates we plan to expand geographically, as well as on an industry basis.

Within the context of the information processing field, we are looking at more advanced applications which may lead us to new and profitable operations. Information comes in many languages and we believe that the computer translation field is finally maturing to the point where useful results can be obtained. We are examining such things as mechanized trademark searching and similar fields that hold exciting potential.

GROWTH MUST MEAN PROFIT

All of this growth must be staged so that there is growth in profitability as well as in revenue. As part of our Five Year Plan, we set an objective of obtaining a 20% before-tax return on sales. You will have already noted from the Annual Report that we achieved about 16% in our first full year of profitable operation. We are also aware of the need to keep earnings-per-share growing steadily and are, therefore, very sensitive to the need to keep dilution in outstanding shares to a minimum. While we believe we can, and must, continue our expansion into new areas of information processing, we do not want to risk the success we have had to date. Our intention is to stay within the information industry. We do not intend to become a conglomerate. However, some of our expansion will clearly be by acquisition and here we are pioneering new methods of associating ourselves with other companies. These methods are aimed at maximizing the upside potential for SDL while minimizing the downside risk in new ventures.

We are also exploring management techniques which involve a decentralized approach which should retain the flavour of entrepreneurship at SDL and the companies that become associated with it. Profit sharing will form a major part of these management advances.

I described this management approach in the Annual Report when I wrote “that our job at SDL is to manage change.”

SUMMARY

The information industry clearly has the potential to allow SDL to develop into the largest Canadian-based organization doing business on a multi-national basis. This is our aim. I know we are in the right industry. I am confident we have the resources. I know we have the desire.