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SDL’s Executive Chairman, David Clayton: “Our CXM strategy has failed”

Last Tuesday March 8th, UK-based content management and language translation company, SDL transparently announced its audited financial results for the full year. The results demonstrates that in 2015, the pre-tax loss widened to GBP 2.5 million ($35.67 million) from a GBP 9.4 million ($13.3 million) profit in 2014 after booking an impairment of GBP 33.3 million and GBP 5.8 million in one-off costs related to the company's restructuring. As a result, SDL reported a full-year loss after tax of GBP 30.7 million (2014: profit after tax GBP 6.6M).


David Clayton, Executive Chairman admitted: “Our CXM strategy has failed to gain traction, resulting in a significant decline in new technology bookings in our CXM business, with a commensurate increase in losses from these products.” 


Also, in our most recent CMS Insider segment, our expert analyst, Scott Liewehr, provided some alluring insight about SDL’s announcement and that they plan to divest parts of their marketing suite:



He also shared these thoughts on his blog post: “The question, in my mind, is whether or not they will stick with their core competence in globalization. Globalization is a problem that pains many content teams to no end, and it’s a pain that SDL solves really well. Unfortunately for SDL, globalization / localization has become just another check-box on the RFP, and they have not been able to educate the market enough to appreciate their sophisticated differentiation.”

The company announced it is now looking to sell its Fredhopper, Social Intelligence and Campaign & Analytics businesses, which are considered non-core.

Although Clayton admits that the results have not been what they have wanted, he speaks in a very positive way about the major strategy shift. He stated: “In conclusion, we are excited by the growth potential for SDL. Global market expansion coupled with the explosion of digital content and growing consumer expectations provides the opportunity for SDL to become a more strategic vendor to our customers. We must ensure that SDL fully maximizes this opportunity to become a trusted advisor for brands and businesses looking to expand their global reach in today's digital world. In the short term we will continue to drive efficiency within our business in order to invest in the platforms we need for future growth”.  On the other hand, he points out where the company has failed: “SDL’s focus of investing in and selling consolidated integrated platforms whereas the market continues to favor the purchase of specialist point solutions.”
Related post: The Endless Debate: Best-in-Suite vs Best-in-Breed?

Language Services Saves the Day

 

The company divides its operational segments into four sections as Language Services, Language Technology, Global Content Technologies and the Non-Core businesses. When the performance by each segment is examined, it is a solid achievement that Language Services saw a 4% increase in revenue.

Here is a look at SDL’s performance by segment:

  1. Language Services contributed £152.8 million (57%) of total revenue and £30.4 million of PBTA (Profit Before Taxation and Amortization).  That means there was a 4% increase in revenue and a 3.5% increase in PBTA which was reported 19.9% for 2015.
  2. Language Technology contributed £36.7 million (14%) of revenue and £1.3 million of PBTA. Equaling a 2% drop in revenue and a 10% drop in PBTA which was reported 3.5% for 2015.
  3. Global Content Technologies contributed £50.9 million (19%) of total revenue and losses of £1.5 million PBTA (Profit Before Taxation and Amortization). Totaling a 1% drop in revenue and PBTA was in line with last year at £1.5 million.
  4. Non-Core businesses contributed £26.5 million (10% of revenue) and losses of £9.6 million PBTA which means a 7% increase in revenue, thanks to the Fredhopper business, and a 14% drop in PBTA which remained at £9.6 million.

As a result, The Group's gross margin was in line with last year at 56.2% (2014: 56.6%).
 

Majority of SDL’s Revenue Comes from North America

 

Revenue was £266.9 million, compared to £260.4 million, last year, therefore it increased by 2% overall. Geographically, Asia grew by 20%, North America by 8% and Europe was down by 3%.

According to Dominic Lavelle, Chief Financial Officer at SDL, new leadership and restructuring of sales in North America led to 152% new business growth and over 90 new customers which drove revenue up by 18%.  The Asia-Pacific market grew with an overall revenue increase of 9% which is being driven by a 19% increase from new revenue generation. The company globally acquired new clients including Huawei, Mitsubishi Electric, PayPal, Symantec, Kaspersky Lab, Alfa Laval, Canon, China Airlines, DAF and Philips Medical System, while losing the majority of its Microsoft account which was their largest customer, toward the end of 2015 “due to unattractive pricing.”

Lavelle also pointed out the reasons to fail are higher in Southern and Eastern Europe due to high inflation in the region and price pressure from legacy customers.

Searching for a New CEO

 

Clayton also indicated that the Nomination Committee is currently working with an international executive search firm to find the candidate with the right talents, experience and skills required to lead SDL's future growth. On this note, SDL settled its longstanding litigation over the acquisition of Trados. In February 2016, SDL paid $1.85 million in “full and final settlement of all claims” in order to open a new, clean page for the upcoming CEO.
 

What Does SDL’s Future Look Like?

 
As Scott Liewehr expressed in the CMS Insider segment, SDL focused so hard on becoming just like their competitors, Adobe or Sitecore that they missed the mark on focusing on their niche and strength.  However, the company seems to realized and admitted the reasons behind their failure and agreed to refocus around a language centric strategy, helping brands to manage, translate and deliver localized content on a global scale. It will be interesting to see what dollar value SDL will recieve from the sales of its non-core businesses and who will buy those units. Another intriguing area will be the stock market especially after seeing the positive move with shares in SDL as they rose 5% just after the announcement.  


 

Venus Tamturk

Venus Tamturk

Venus is the Media Reporter for CMS-Connected, with one of her tasks to write thorough articles by creating the most up-to-date and engaging content using B2B digital marketing. She enjoys increasing brand equity and conversion through the strategic use of social media channels and integrated media marketing plans.