Annual Meeting 2017 – Chairman’s Address

26 October 2017
2017 Annual Meeting: Chairman’s Address
FY2017 Financial Result
The financial result for FY2017 was a net profit after tax of $1.31 million a 29% increase from the
prior financial year and the highest profit Solution Dynamics has ever recorded. Revenue was up
22.5% to $20.0 million for the year, also a record, although the bulk of this growth was from lower
margin outsourced services and postage revenue. Solution Dynamics’ profit was earned with only
modest one-off software licenses; our technology growth is increasingly from Software as a Service
(SaaS) revenues and we expect this trend of growing SaaS revenues to continue. The Company’s
revenues in the UK and Europe are continuing to ramp up and gained 107% to $2.9 million.
Solution Dynamics’ net cash on hand continues to grow and was $2.08 million at balance date. This
is equivalent to almost 15 cents per share. However, shareholders should keep in mind that much of
our printing and related equipment is financed under operating leases and consequently the
Company carries more financial leverage than is apparent from the balance sheet.
The Company had a couple of negatives during the year. Firstly, we are generally continuing to find
sales cycles for larger customers to be longer than anticipated, especially for larger domestic print
and mail house opportunities and growth in this area has been lower than initially expected. Also, as
mentioned in the annual report, one of our larger mail house customers changed its ERP system and
as a result now produces and archives its invoices in house, in addition to reducing the average
number of pages in its invoice mailings. This reduction in pages printed and loss of archival revenue
constrained FY2017 profit growth and will cause a further residual drag on FY2018 profitability.
Shareholders should also keep in mind that the steady erosion of print to electronic communications
means that – on average – Solution Dynamics’ print and mail volumes drop by around five percent
each year, meaning the Company needs to gain some market share just to stand still. While there is
benefit from processing the customer’s electronic communication, the absolute dollar margins
earned are much lower for electronic than for print and mail.
On the positive side the first new customer under our DMS arrangement with Fuji Xerox started to
utilise our high-speed continuous print machine during the year. And a UK customer utilising a
number of our software products was onboarded and is beginning to show strong growth, albeit still
from a low base.
Solution Dynamics' dividends totalled 6.75 cents per share, fully imputed, for FY2017, up 1.5 cents or
about 29% on the prior year. The Board reiterates its policy to pay dividends of around 70-75% of
earnings, subject to no abnormal internal requirements for unusual capital expenditure items or
acquisitions, as well as being able to fully impute any dividend. Capital expenditure for FY2017 was
around $200,000 which was mainly for IT hardware for backup and redundancy purposes plus a
licence for specialised print formatting software.

Strategy and Market Review
The Company’s strategy remains primarily on organic revenue growth as the optimal means of
continuing to add shareholder value. We believe our competitive edge is in how we bring our

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software technology together with print to provide combined digital and paper solutions for our
clients’ communication needs. Most organisations are seeking ways to improve their customer
interactions and therefore see the need for technology solutions as part of their overall
communications requirements. Nevertheless, in addition to organic growth, there are opportunities
for either bolt on acquisitions locally, or acquisitions that expand the Company’s technology base.
Given Solution Dynamics’ strong balance sheet, the directors have examined a number of acquisition
opportunities over the year and will continue to do so. Some of these opportunities remain works in
progress.
We continue to make inroads into the UK and European markets with the Company’s software
solutions. During FY2017 the Company added additional sales and support resources in the UK to
service that market and Europe. This was as a deliberate choice that resulted in a ramp up of costs
to provide local support and demonstrate our commitment to existing and prospective customers.
These additional costs had little impact on the FY2017 result, however, we will incur the full
annualised cost in FY2018. The Directors believe the scale of opportunities is sufficiently large to
warrant this additional overhead and in our view, the existing pipeline of opportunities fully justifies
this decision, although I caution there is an inevitable lag between incurring the costs and gaining
and ramping up new revenues.

2018 Outlook
In terms of Solution Dynamics’ outlook for FY2018, we have previously provided guidance for
expected growth in profit of around 15%. We are maintaining that guidance although note that
trading for the first three months of the current financial year is behind budget. During July we
noticed some slowdown in the level of domestic discretionary mail and development activity, which
has historically been a reasonably consistent and regular revenue stream. While it always has some
degree of month-to-month volatility, this slowdown has persisted to date. It is not clear whether
the cause has been a degree of pre-election caution, or is indicative of a broader weakening in
economic activity. Offsetting this, the Company has a solid pipeline of new business opportunities in
train and the risk bias for our full year result outturn is likely to reflect whether the weakness in
domestic discretionary spending persists versus the success and speed with which new customer
revenues ramp up. A further update to the Company’s full year outlook will be provided at the
interim result early in 2018.

For further information, please contact:
John McMahon Nelson Siva
Chairman Managing Director
+61-(0)410-411 806 +64-(0)21-415 027