Solution Dynamics Limited Analysis

Overview

Solution Dynamics Limited operates in the Customer Communications market (essential mail, interactive marketing communications and on-demand communications). The Company's products and services are represented by two revenue streams:

• Services, includes digital print and mail house processing for mail items such as invoices, statements and promotional material.
• Software & Technology, develops and markets SDL's own software products related to marketing communications, document archiving, document composition and desktop mail solutions.

Solution Dynamics Limited was formed in November 2001 and had its origins in a company called Marketing Data Services Ltd, which was established in 1996. It is listed on NZAX since July 2004 under the code of "SDL". The company has successfully completed a Renounceable Rights Issue in 2011.

Performance

The following information was extracted from Solution Dynamics Limited's Half year results, released 27 February 2025:

Solution Dynamics Limited (“SDL” or “Company”) produced a 5.2% decline in unaudited net profit after tax of $2.34 million for the FY2025 half year (1H FY2024

$2.47 million). This represents undiluted earnings per share of 15.9 cents.

As usual, the first half of FY2025 reflects a high concentration of large international customer jobs, along with usual seasonal 1H strength in the New Zealand operations. The global environment generally remains difficult. In particular, North American longer-term interest rates remained high, preventing recovery in US mortgage market communications activity.

First half earnings included a number of one-off items relating to restructuring following the outcome of the request for proposal (RFP) from SDL’s largest customer. Restructuring provisions were around $0.2 million and partly offset by some incentive and accrual write-backs.

In the NZ print and mail house market, SDL continued to gain share, growing mail lodgements 1%. This is a strong result, relatively speaking, given the NZ market remains in structural decline.

Cash flow from operations was $5.19 million (1H FY2024 $2.34 million) with cash flow from trading improving 6.2% to $2.98 million. Notably, a large customer receipt from 1H billings was received in December with associated costs not paid until January. This inflated the combined closing cash and short-term cash deposits position at 31 December to $12.41 million (1H FY2024 $8.29 million). Adjusting for this timing difference, the underlying cash position was nearer $10–$11 million (and was $11.4 million at end January 2025).

Operating revenue rose 14.6% to $26.09 million. International revenue increased 8.6% although much of that was one large print/logistics job that fell into early 1H rather than late FY2024. Revenue growth in New Zealand was solid, with core printing and document handling up 9.0%, from a combination of market shares gains and selected price adjustments. While Outsourced Services rose 40.3% to $5.98 million this was mainly the result of greater postage volumes and the impact of NZ Post’s price rises – both of these are very low margin revenue so there was only modest earnings gain.

The success in growing NZ was driven by a combination of new customers, price adjustments and obtaining additional work from existing customers, an ongoing feature of SDL’s efforts, particularly in the Councils market. SDL remains the undisputed leader for Council communications in NZ. NZ sales efforts remain focused on “digital first” communications as part of a complete multi-channel communications approach. This was reflected in email volumes in New Zealand increasing around 15% year-on-year with print volumes rising around 3%.

Internationally, in addition to the positive effect from timing of one large job, growth occurred across a range of clients although the ongoing mortgage market slump in the US means there has been no recovery in mortgage-related communications as yet.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) declined 7.1% to $3.72 million (1H FY2024 $4.00 million) on sales revenue that rose 14.6%.