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 full year results, released on 22 August 2024:

FY2024 Result Overview

Solution Dynamics Limited (“SDL” or “Company”) recorded a net profit after tax of $2.82 million for FY2024, a 17.7% decline on the profit of $3.42 million the prior financial year, but still the second highest net profit the Company has ever produced. FY2024 earnings per share was 19.2 cents, down 17.6% from 23.3 cents the prior year.

Three factors account for the majority of the decline in earnings:

• costs related to several areas of staff restructuring;
• one-off higher customer non-recoverable costs; and
• timing of a sizeable order around year end that moved into FY2025 (this is an annual order that was included in the FY2023 result).

The Company’s revenue declined slightly to $38.7 million (down 4.6% from $40.6 million). SDL’s New Zealand operations made significant progress, Postal Address Solution Dynamics Limited PO Box 301248, Albany Auckland 0752, New Zealand Physical Addres 18 Canaveral Drive Albany Auckland 0632 gaining share in a declining local print and mail market and continuing to pick up new work from local councils.

International operations generated only modest new business, with SDL placing significant focus on key existing client retention. Ongoing weakness in the US mortgage market driven by high interest rates continued to negatively impact results, along with the timing of a large order, and somewhat lower customer volumes from the weakening global economy, resulted in a 12.0% reduction in SDL’s Software & Technology revenue to $25.1 million.

Earnings before interest, tax, depreciation and amortisation (“EBITDA”) dropped 15.4% to $4.84 million (FY2023 $5.71 million). Gross Profit declined 8.1%, with the benefit of higher pricing at the start of FY2024 more than offsetting the effects of lower revenue and higher non-recoverable costs to ensure customer satisfaction and deliver new value. Selling, General and Administration expenses were effectively controlled, declining 4.1% due to SDL’s improved operational efficiency. This cost saving is despite one-off costs relating to staff changes and the impact of inflation-driven wage increases.