SDL FY2019 Financial Results and Final Dividend
Results announcement
29 August 2019
Results for announcement to the market
Name of issuer Solution Dynamics Limited
Reporting Period 12 months to 30 June 2019
Previous Reporting Period 12 months to 30 June 2018
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$25,155 +10.7%
Total Revenue $25,155 +10.7%
Net profit/(loss) from
continuing operations
$670 -49.7%
Total net profit/(loss) $670 -49.7%
Interim/Final Dividend
Amount per Quoted Equity
Security
$ 0.02778
Imputed amount per Quoted
Equity Security
$0.02000
Record Date 20/09/2019
Dividend Payment Date 27/09/2019
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$0.39235 $0.40021
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Please read this in conjunction with the attached results release
and audited financial statements for the 12-months ended 30
June 2019
Authority for this announcement
Name of person authorised
to make this announcement
Chris Veale
Contact person for this
announcement
Chris Veale
Contact phone number +64 21 855142
Contact email address chrisve@solutiondynamics.com
Date of release through MAP 29/08/2019
Audited financial statements accompany this announcement.
---
Distribution Notice
29 August 2019
Section 1: Issuer information
Name of issuer Solution Dynamics Limited
Financial product name/description Final Dividend
NZX ticker code SDL
ISIN (If unknown, check on NZX
website)
NZSDLE0001S8
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year X Quarterly
Half Year Special
DRP applies
Record date 20 September 2019
Ex-Date (one business day before the
Record Date)
19 September 2019
Payment date (and allotment date for
DRP)
27 September 2019
Total monies associated with the
distribution
1
$293,000
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution
2
$0.02777800
Total cash distribution
3
$0.02000000
Excluded amount (applicable to listed
PIEs)
n/a
Supplementary distribution amount n/a
1
Continuous issuers should indicate that this is based on the number of units on issue at the date of the form
2
“Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of
Resident Withholding Tax (RWT).
3
“Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT.
This should include any excluded amounts, where applicable to listed PIEs.
Section 3: Imputation credits and Resident Withholding Tax
4
Is the distribution imputed Fully imputed
If fully or partially imputed, please
state imputation rate as % applied
100%
Imputation tax credits per financial
product
$0.00777800
Resident Withholding Tax per
financial product
$0.00138890
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
n/a
Start date and end date for
determining market price for DRP
n/a n/a
Date strike price to be announced (if
not available at this time)
n/a
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
n/a
DRP strike price per financial product
n/a
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
n/a
Section 5: Authority for this announcement
Name of person authorised to make
this announcement
Chris Veale
Contact person for this
announcement
Chris Veale
Contact phone number +64 21 855142
Contact email address chrisve@solutiondynamics.com
Date of release through MAP 29/08/2019
4
The imputation credits plus the RWT amount is 33% of the gross distribution for the purposes of this form. If the distribution is fully
imputed the imputation credits will be 28% of the gross distribution with remaining 5% being RWT. This does not constitute advice
as to whether or not RWT needs to be withheld.
---
Annual Report 2019
Simplifying Business
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ANNUAL
SHAREHOLDERS
MEETING
will be held at
10.30am
Wednesday 23 October 2019
in the
Jupiter Meeting Room
Solution Dynamics Limited
18 Canaveral Drive
Albany
Auckland
2019 KEY POINTS
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Net profit after tax down
49.7% to $0.67 million
Dividend per share of 4.0
cents (prior year 7.5 cents)
Revenue up 10.7% to
$25.2 million
US and European revenue
doubled to $8.2 million
EBITDA down 39.6%
to $1.37 million
Net cash on hand
$1.18 million
Significant contract wins
expected to generate
strong earnings growth
over the next two years
Forecasting a strong
rebound in earnings for
FY2020
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CONTENTS
2019 Key Points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Management Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Consolidated Financial Statements for the Year Ended 30 June 2019
> Consolidated Statement of Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
> Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
> Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
> Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
> Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
> Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Statement of Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Company Directory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
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MANAGEMENT DISCUSSION AND ANALYSIS
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Solution Dynamics Limited
FY2019 Retrospective
It was the best of times, it was the worst of times... (with apologies to Charles Dickens
1
) . FY2019 was a year of
change – both positive and negative – for Solution Dynamics Limited (“SDL” or the “Company”) .
Dealing with the negative issues first; these manifested in the domestic print and mailhouse sector, still the largest
individual component of the Company’s revenue and earnings . SDL lost three medium sized contracts, all the result
of customers moving their print volumes to a single source supplier . In each case, the majority of each customer’s
requirement was offset printing; SDL only undertakes digital printing and was not able to provide the full range
of print services each customer required . A further factor was NZ Post’s postage price hike on 1 July 2018 . This
resulted in many customers accelerating the rate at which they were migrating from paper to electronic delivery,
particularly transactional mail customers (about half SDL’s domestic volume is transactional mail, as opposed
to direct or promotional mail) . The combination of these factors – along with the inevitable lag in reducing costs
following the volume declines – meant pressure on margins in New Zealand operations .
On the positive side, FY2019 was a year when international sales began to gain increasing traction, helped by
a step up in North America following the acquisition of DigitalToPrint Inc (“DTP”) in late FY2018 . While DTP has
incurred greater than expected losses in the short term, and fell well short of meeting first year earn out targets, it
now forms an essential component of SDL’s technology platform and assisted in winning several substantial pieces
of new business . These new business wins had limited impact in FY2019, will provide some lift during FY2020 and
should contribute sizeable gains thereafter . Additionally, expansion into the US market has seen the Company’s
sales pipeline grow very significantly (SDL is achieving successful conversion from pipeline into sales, although
sales cycles into large corporate customers are typically longer) .
SDL has historically been an “old economy” company with a predominantly New Zealand-based business
consisting mainly of print and mail services . It additionally had an emerging growth software technology business,
mostly in international markets . But the past financial year has seen the Company take a step change in its
metamorphosis towards becoming mainly a provider of software technology that enables customers to more
efficiently communicate (whether via print or electronically) . It is notable that Europe and North America accounted
for 32 .5% of total SDL revenue in FY2019 (versus 17 .7% for FY2018) . And while the inevitable lags of new business
onboarding and client volume ramp up means that this step change had minimal effect on FY2019 earnings results,
the benefits should progressively appear in strong earnings growth over the coming two years .
Particular mention should be made of SDL’s staff . FY2019 was a difficult year in the domestic market as the
Company’s volumes dropped, which necessitated restructuring and cost cutting . These are never easy exercises
and the Directors would like to thank staff for their assistance during these processes . Furthermore, as the scope
and span of SDL’s international business has expanded, the time zone differences of dealing with increasing
numbers of UK/Europe and US clients has meant NZ staff have frequently had to go well beyond regular work
hours to provide the service levels that SDL prides itself on . Again, the Directors thank staff, including international
staff, who have had to regularly work the “wee hours” .
FY2019 Result Overview
SDL has produced an audited net profit after tax of $0 .67 million for FY2019 . This is approximately half the profit
earned in FY2018 with the decline primarily stemming from pressure on revenue and margins in the domestic
print and mail business . This was coupled with additional costs relating to investing to support and accelerate
international expansion . Key points from the result are:
• revenue growth of 10 .7% to $25 .2 million
• revenue from the UK and Europe rose 29 .7% to $5 .1 million and US revenue was $3 .0 million, partly from the
acquisition of DTP but also from new US customers won by SDL
• EBITDA declined 39 .6% to $1 .37 million
• acquisitions were a modest, but largely expected, net drag on EBITDA of $0 .04 million
• acquisition add back to earnings of unearned earn out payments of $0 .28 million
• amortisation rose 115 .5% to $0 .35 million (mainly acquisition related for customer contracts and software)
• net cash on hand at 30 June balance date was $1 .18 million (no bank debt)
• the Directors have declared a final, fully imputed dividend of 2 .0 cents per share (FY2018: 3 .5 cents), taking the
total dividend for FY2019 to 4 .0 cents per share (FY2018: 7 .5 cents), a decrease of 46 .7% .
1. Opening words from A Tale of Two Cities.
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MANAGEMENT DISCUSSION AND ANALYSIS
Business Overview
SDL 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 (itself separated into digital print & document handling services, outsourced services and
scanning); and
• Software & Technology .
Services includes digital print and mail house processing for two categories of mail items: transactional
mail, such as invoices and statements; and direct marketing mail such as promotional material . These are
then distributed through New Zealand Post’s (“NZ Post”) mail delivery system . A number of the components
included in this service, such as envelopes and postage, form part of outsourced service revenues . This service
differs from traditional printing in that each document printed is typically personalised and unique . Revenue
from Scantech is included in Services (for New Zealand scanning operations), while consulting and software
revenues that are related to Scantech’s software technology are included in the Software & Technology revenue
stream .
Software & Technology develops and markets SDL’s own software products related to a) multi-channel
marketing communications, which includes: a) digital asset management, communication templates and
campaign management, b) document archiving, c) document composition, d) desktop mail solutions, e)
scanning and scanning workflow, and f) international cross-border print-on-demand management software .
A range of further technology services are also offered relating to SDL’s own software and the management
of client data around the formatting, electronic output and archiving of customer communications . The US
business, DTP, acquired by SDL in May 2018 is wholly included in Software & Technology .
Despite the ongoing erosion of transactional mail volumes in particular, (anecdotal evidence suggests direct
marketing mail is seeing less erosion and is estimated to be reasonably static), the Directors believe that
SDL’s key point of difference is in offering integrated solutions incorporating both physical print and digital
technology . Some communications are better suited to print and will likely remain so for the foreseeable future .
In other cases, use of software technology such as DéjarMail (SDL’s desktop mail solution) can improve the
handling efficiency, management and cost of physical mail . The Company’s integrated range of print and
software technologies means it is able to offer a holistic and distribution channel/platform-agnostic approach to
managing its customers’ communications needs .
The Company operates from leased premises in the UK, USA and Albany, Auckland .
Acquisitions Update
SDL made two acquisitions late in the FY2018 financial year, Scantech in April 2018 and DTP in May 2018 .
While neither acquisition met its earnout target, and in aggregate they operated for FY2019 at only a modest
EBITDA profit (with additional charges for amortisation), both are nevertheless adding greater business value
than FY2019 results infer .
Scantech saw weaker than expected domestic scanning revenue as the historic usual flow of one-off back
scan jobs ran at a much lower level than usual in the last year . However, there is significant consulting and
scanning software opportunities in the UK where privacy and data disclosure requirements mean organisations
are increasingly required to scan and archive physical documents . This is seeing print companies entering
scanning and Scantech is now consulting and selling its scanning software and services to establish scanning
bureaus in that market .
DTP was unprofitable when acquired and remained so during FY2019 . However, the cross-border distributed
printing opportunity and the toe-hold into the US market have already opened significant opportunities for
SDL that are not reflected in the historic earnings result . DTP’s Jupiter platform has been a key component
(combined with other SDL software) of two client wins in the US, one part way through the year and one that
commenced a pilot trial early in FY2020 . As both these annualise (the second one will only be trialling during
FY2020 and, assuming no issues during the pilot trials, only becomes fully operational in FY2021) they will
contribute material gains to revenue and earnings, particularly in FY2021 .
Additionally, the sales pipeline in the US is sufficiently strong that further resource has been added with the
appointment of Pat Brand as President – SDL North America . Pat’s most recent role was with Pitney Bowes
where he was President of Document Messaging Technologies (now BlueCrest) . He was also President of
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
Solution Dynamics Limited
Pitney Bowes’ Small and Medium Business (SMB) - North America division and retired from Pitney Bowes in
2018 to become founder of an independent business consulting firm . Pat’s remit is to accelerate profitable
growth in North America across the Enterprise and SMB (small to medium business) market sectors, through
both direct and partner channels .
Accounting rules require intangible assets acquired through acquisition to be allocated to items such as
intellectual property (e .g . software) and the value of customer contracts . These intangibles must be written off
by amortisation through the Income Statement and SDL is opting to write down acquired intangibles over a four
to five year period . This means the Company incurred a non-cash amortisation charge against profit of $0 .23
million in FY2019 (and will incur this charge annually for each year for the next three years) .
Description and Review of Revenue Streams
SDL Services
SDL Services predominantly provides mail house operations to high-volume postal mail users, mainly those in
the business-to-consumer sector . DéjarMail has expanded the market for SDL’s print and post service down to
the SME (small to medium enterprise) sector although the Company does not sell directly to SMEs but reaches
this market through channel partners .
SDL Services operates leased, high-speed digital colour and monochrome printers . In addition to digital
printing, Services also provides the usual ancillary document handling operations such as automated envelope
inserting and flowrap .
Services revenue also includes a variety of outsourced functions or components such as postage, offset
printing, freight, paper and envelopes . The Company has an access agreement with NZ Post which provides
bulk mail discounts off NZ Post’s retail rates, subject to SDL meeting minimum volumes requirements over a
twelve month period . SDL continues to exceed NZ Post’s minimum volumes under this agreement . The profit
margins on many of these outsourced components, especially postage, are slim .
With general mail volumes continuing to decline, SDL’s FY2019 mail lodgement volumes fall accelerated to
15 .1% from 8 .6% the prior year . The Company’s digital print volumes also fell, dropping by 19 .2% . Both of
these declines were exacerbated by the loss of three medium sized contracts during the year . In each case, the
customer put their entire print volumes out for competitive tender with the aim of consolidating to a single print
supplier; SDL was unable to compete as it does not offer offset printing and for each of the three customers the
majority of their print requirement was offset print .
On the digital communications side, SDL’s volume of customer emails rose 12 .0% .
Note that the growth in Outsourced Services revenue in the following table is a combination of both very low
margin postage and the outsourced printing for part of DéjarMail volumes in the UK .
SDL Services Revenue Breakdown Percentage
(all figures $000) FY2019 FY2018 Change
Digital Printing and Document Handling 5,561 6,773 -17 .9%
Outsourced Services 11,270 9,907 13 .8%
Total Services Revenue 16,831 16,680 0.9%
The decline in digital printing was from erosion of print to electronic communications and client losses as noted
above . Digital printing revenue in FY2020 will see the headwind of the full annualised effect of the client losses,
although the earnings impact will be more muted as the Company is currently implementing a cost savings
programme .
SDL Software & Technology
Digital tools and the ensuing digital transformation mean communication channels and the customer
engagement model in most businesses has needed to adapt and become nimble and personalised .
Organisations increasingly need to employ more “pull” marketing tactics, drawing people in to their brands
with interesting, informative and engaging content . Communication channels are no longer “one size fits all”;
customers can receive messaging through an omni-channel or multi-media approach . SDL treats every form
of communication – whether a customer email, an invoice or account statement, or a piece of marketing
collateral – as a means to enrich and deepen the personalised relationships that our customers have with their
customers .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
SDL Software has six software engines or platforms that are used to develop customer solutions:
Déjar is a digital archival system that provides the
ability to efficiently store and retrieve electronic
documents created from most formatting tools .
Déjar allows users to exactly reproduce the original
document and access these via a browser over the
local network or via the Internet . The reproduced
document can be printed, faxed or emailed and
Déjar’s security and history features ensure every
document created and subsequent access event is
recorded by User ID and date/time stamp .
Composer is SDL’s electronic document
creation software . It is flexible and allows
customised documents to be built on the fly,
based on information retrieved from databases .
Based on templates it automatically creates
templates, documents and letters with dynamic,
customised content, formatted to each customer’s
requirements . Composer allows companies to
easily standardise corporate documentation
formats for all users, including regional and
legal variations . Templates, documents, emails,
letters and newsletters created by Composer are
automated, ready to archive, print, publish online, or
electronically distribute to customers in one step .
Bremy is an integrated, multi-channel publishing
and distribution solution for businesses across a
broad spectrum of industries . It manages the work
flow of digital assets, from document creation
and revision, to final email or print-ready files and
distribution through multiple channels, including
print, email, web, digital signage and mobile . It
helps streamline and provides integrity to document
proofing and integrates with data sources to
produce complex documents such as online
or physical catalogues . It also has a Campaign
Manager module to assist companies in creating
and managing specific advertising programmes .
DéjarMail is a web browser-based desktop mail
management solution which allows customers to
route mail correspondence, by file transfer or web
browser portal (Post On Demand), to SDL or any
other service provider for printing and delivery
via post or any other medium . This delivers costs
savings for smaller businesses and for larger
companies’ ad hoc mail .
Jupiter
Jupiter, acquired as part of the DTP acquisition,
is a global print and mail solution that benefits
Postal Administrators, senders and recipients, all
via a “Managed Print and Mail Solution” . Jupiter
provides a technology platform which links together
customer communication origin points such as ERP,
transactional and marketing output with production
and fulfilment on a globally distributed basis .
Closely integrated with over 300 service providers
globally, customers can use a highly flexible web
service API to achieve simultaneous concurrent
fulfilment across five continents, all while retaining
visibility and control of the process via an intuitive
and mobile friendly, web portal .
The scope for integration of the SDL product set
with Jupiter’s global fulfilment network opens the
door to expansion of the markets that the range of
SDL solutions can apply to .
Scantech’s suite of software solutions include
scanning applications to digitise physical
documents, automated extraction of data from
documents (both physical and digital) including
workflows for the processing of this data and
the automation of business processes such as
accounts payable and accounts receivable . These
are also integrated into SDL products, such as Déjar
for archival and retrieval .
The Company’s history in mailhouse and fulfilment means we fully understand the importance of data accuracy,
timely delivery, and cost efficiency . The ongoing investment in software and technology demonstrates the SDL’s
commitment to making the most of the digital transformation opportunities available to our clients .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
Solution Dynamics Limited
Software & Technology revenue is earned from three sources .
SaaS (Software as a Service) is an alternative to the traditional, now largely defunct, licensing of software
(although SDL did sell one licence in FY2019) . Under SaaS, rather than pay an upfront fee, customers opt to
run SDL’s software on a pay-as-you-go model, typically by way of a per-document or per-electronic transaction
charge . Under this model, SDL will usually host the software (using third party hosting infrastructure, such as
Amazon Web Services) and related data on behalf of the client . While SDL forgoes the benefit of any large
up-front licence revenue, the SaaS approach does build an annuity revenue base that then generates value
over a longer term and typically results in “stickier” clients . The trend in recent years has been for customers to
prefer SaaS rather than acquiring a software licence, to the point where the Company no longer expects to sell
licences .
Secondly, the company offers bespoke software development services where this is related to a customer
using SDL’s software . An example is a customer requiring a front end, web-based access portal to allow its
clients to access the underlying data being stored or managed by SDL’s software .
The third is the provision of programming, consulting, business analysis and design services that help clients to
manage essential and marketing communications both by mail and electronic transfer .
Software encompasses all international software revenue and all revenue from all of our software products and
services . It also includes Déjar revenue in New Zealand for digital document archival and management for SDL
Services’ customers . Note that a significant part of the revenue from DéjarMail is generated in SDL Services (as
part of Outsourced Service revenue) from the postage component of the service .
In addition to New Zealand and Australia, both Déjar and Composer are sold internationally, mainly in the
UK and Europe . Bremy is predominantly a New Zealand product, with several Australian and UK customers
and the Company sees potential for ongoing and potentially strong growth in the UK, albeit from a low base .
DéjarMail is continuing to see solid growth in the UK and given the early-stage client base in that region we
expect this will be a secular growth trend that will run for a number of years . SDL expects the growth in the UK
to be mirrored in the US and an initial client aimed at the SME market is gaining traction and expected to show
significant volume gains in FY2020 .
In the UK, SDL has continued to add further sales and support personnel as business has grown, and will
incur the full annualised impact on profitability from these costs during FY2020 . As noted previously, additional
sales personnel are being added in the US to support what the Company views as a very significant market
opportunity, and one where some success has already been achieved . As part of this growth initiative, SDL
has secured a market development grant from NZ Trade and Enterprise (“NZTE”) to assist with the costs of this
expansion . The NZTE grant covers 40% of applicable costs and is to a maximum of $0 .6 million or for three
years, which comes first .
Software & Technology generated revenue of $8 .32 million in FY2019, an increase of 37 .5% on the prior
year’s revenue of $6 .05 million (and an acceleration of growth from 19 .5% the prior year), largely the result of
DéjarMail growth in both the UK and USA . There was one medium-sized, one-off licence deal booked late in
the year . Software development activity ran at a lower than expected rate and SDL’s key driver of growth –
SaaS revenues – continued to build steadily aided by expansion into the USA with the DTP acquisition plus
securing a sizeable new DejarMail customer mid-way through the financial year .
Financial Performance
Revenue growth in FY2019 was generated by both Software and Technology, and Outsourced Services,
while Digital Imaging and Document Handling fell by around 18% . Outsourced Services revenue gains are
predominantly the effect of printing for DéjarMail volumes in the UK . Postage margins remain very low and New
Zealand Post has disbanded the Postal Network Access Committee, with zonal pricing now in effect (this is
neutral to perhaps modestly positive given SDL’s mail volume emphasis in Auckland) .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
Summary Financial Performance Percentage
(all figures $000) FY2019 FY2018 Change
Total Revenue 25,155 22,732 10 .7%
Less: Cost of Goods Sold 16,827 14,315 17 .5%
Gross Margin 8,328 8,417 -1.0%
Gross Margin (%) 33 .1% 37 .0%
Less: Selling, General & Admin 6,955 6,144 13 .2%
EBITDA 1,373 2,273 -39.6%
EBITDA margin (%) 5 .5% 10 .0%
Depreciation 238 208 14 .4%
Amortisation 347 161 115 .5%
EBIT 788 1,904 -58.6%
Net Interest (4) (5) n .m .
Income Tax 122 577 -78 .9%
Net Profit after Tax 670 1,332 -49.7%
Tax rate 15 .4% 30 .2%
FY2019 earnings were reduced by the loss of digital print and mail customers as noted .
The other main effect came from acquisitions . First, SDL’s amortisation charge increased from the amortisation
of acquired intangibles for the value of software and customer contracts; this amounted to an additional $0 .23
million of amortisation . Secondly, the accounting for acquisitions required SDL to estimate, at the time of
purchase, the likely earn out that would be paid . In the event, only a partial earn out for Scantech was paid
and the requirements to pay the balance for Scantech and all of DTP were not met . Accordingly, the residual
earn out amount that was allowed for in the accounts in FY2018 was written back to earnings in FY2019 . This
amount was $0 .283 million (there was no tax liability on this write back) and this was a credit against Selling,
General & Administration costs . SG&A was reported as $6 .96 million, an increase of 13 .2%; removing the earn
out credit to give a like-for-like comparison would see SG&A as $7 .24 million or an increase of 17 .8%, although
part of the SG&A increase was a result of additional staff through the acquisitions of Scantech and DTP .
SDL’s effective tax rate was 15 .4% for FY2019 . This is predominantly from the impact of the acquisition write
back to profit and ring fenced losses in the US which could not be grouped for tax purposes . These losses are
not material and the Company expects that new business already won in the US will see the tax losses utilised
and the US market turn to profitability in FY2020 .
The change in mix of revenue towards a greater component of low margin, outsourced services is causing
SDL’s percentage Gross Margin to continue compressing, although the dollar Gross Margin held broadly flat
for the year (down 1 .0%) . This trend of Gross Margin percentage pressure should persist in the coming year as
DéjarMail’s offshore revenue grows at a faster rate than the rest of the Company’s business . SDL’s is continuing
with the addition to sales and support staff in offshore markets, particularly the UK, and also had additional
overhead from Scantech and DTP .
The following table highlights first and second half performance for the last two financial years . Both years
contain net EBITDA losses from the acquisitions combined but these are not material amounts .
SDL Half Financial Years
(all figures $000) 2H 2H Percent 1H 1H Percent
FY2019 FY2018 Change FY2019 FY2018 Change
Total Revenue 12,429 11,440 8 .6% 12,726 11,292 12 .7%
EBITDA 791 949 -16 .6% 582 1,324 -56 .0%
EBITDA margin 6 .4% 8 .3% 4 .6% 11 .7%
Tax rate 2 .2% 32 .2% 36 .6% 28 .9%
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
Solution Dynamics Limited
Balance Sheet, Liquidity and Debt
Capital expenditure in FY2019 was $0 .36 million . The capex spend mainly related to specialised booklet
equipment, upgrading older inserting equipment and finalising the upgrade of SDL’s accounting and print job
management systems .
The Company’s net cash (i .e . cash net of interest bearing debt) position declined to $1 .18 million . The lower
than usual conversion to earnings to cash was the result of two main factors . The first was the non-cash write
back to earnings of the $0 .28 million of unearned acquisition earn out . The second was from several larger
software contracts and associated setup revenues occurring in June, causing year end accounts receivable to
be somewhat higher than expected and the cash received subsequent to balance date .
At balance date the Company’s sole remaining bank facility was an unused overdraft arrangement from ANZ
Bank with a $0 .20 million limit .
Selected Balance Sheet and Cashflow Figures
(all figures $000) FY2019 FY2018 Change
Net Bank Cash/(Debt & Borrowings) 1,182 1,956 (774)
Non-Current Assets 2,696 2,895 (199)
Net Other Liabilities 56 (840) 896
Net Assets 3,934 4,011 (77)
Cashflow from Trading 1,236 1,677 (441)
Movement in Working Capital (880) (55) (825)
Cash Inflow from Operations 356 1,622 (1,266)
Cash dividends paid 804 1,042 (235)
Net Assets includes goodwill related to the original purchases of the software products Déjar and Bremy .
Bremy accounts for around three quarters of the $1 .06 million carrying value of goodwill . An impairment test is
conducted against the carrying value of these assets each year and the Directors believe the current value of
these products remains comfortably in excess of their carrying values . Net assets also includes around $0 .77
million of intangibles for software and customers contracts from acquisitions; these will largely be amortised
over the coming three years (and were much of the amortisation expense in FY2019) .
While SDL’s balance sheet shows a positive net-cash position, the Company is also carrying leases on its
premises and much of its digital printing equipment . The annual cost of rentals and leases was $0 .68 million
in FY2019 ($0 .72 million in FY2018) and represents off balance sheet leverage . In FY2020 the accounting
standards relating to leases will change . Operating leases will be capitalised as a right to use asset and a
debt liability recognised, increasing the amount of debt on the balance sheet, as well as altering the Income
Statement by mandating that part of the lease payment be accounted for as a financing (i .e . interest cost)
charge and depreciation of the right to use asset .
Excluding the net cash balance from SDL’s working capital, the Company currently operates with a largely
neutral working capital balance . The Company adopts a positive view to this aspect of its balance sheet . It
means SDL can generally continue to grow revenue without particular requirement to fund additional working
capital needs .
Taxation and Dividends
Aside from minor timing issues and non-deductible expenses, the Company pays full New Zealand tax on
locally generated earnings . SDL is now paying UK tax at the full rate . The DTP business in the US is currently
making losses and has some residual tax losses available . These are effectively ring fenced within the US and
SDL is not able to group them to offset other profits . However, the extent of recent new contract wins in the US
means it likely that these losses will be fully utilised in FY2020 . As noted above, the tax rate in FY2019 was also
distorted by the non-cash write back of unearned acquisition earn out, on which no tax was payable . Further,
a portion (relating to customer contracts and some of the acquired software) of amortisation of acquired
intangibles is not tax deductible and this will bias the reported tax rate upwards until these are fully written
down .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
SDL only intends to pay dividends to the extent that it can fully impute them and also subject to SDL not
experiencing any one-off requirements for abnormal capital expenditure or any significant acquisition or
investment activity .
Percentage
Earnings and Dividends per Share FY2019 FY2018 Change
Shares on Issue (‘000) 14,640 14,560 0 .5%
Earnings per Share (cents)
(a)
4 .58 9 .15 -50 .0%
Adjusted Earnings per Share (cents)
(b)
6 .95 10 .25 -32 .2%
Dividend per Share (cents) 4 .00 7 .50 -46 .7%
Dividend Proportion Imputed 100 .0% 100 .0%
Dividend Payout ratio 87 .4% 82 .0%
Dividend Payout ratio on NPATA
(c)
57 .6% 73 .1%
(a) Earnings per share is calculated by dividing the net profit after tax by the number of ordinary shares outstanding at the end of the accounting
period.
(b) Adjusted earnings per share is a non-GAAP accounting measure that is calculated by adding back the costs and losses relating to SDL’s two
recent acquisitions. It is provided to provide investors with a more meaningful like-for-like comparison against the prior year earnings per share.
(c) Note that SDL’s FY2019 agreement with NZTE for market development funding for North America limits the Company to a maximum
dividend payout ratio of 75% of Net Profit after Tax plus Amortisation.
Shares on issue rose slightly (+0 .5%) over FY2019, entirely the result of SDL staff exercising Employee Share
Option Programme (“ESOP”) options that were issued in 2014 . A further tranche of ESOP options were granted
during the year to two key staff .
Operational Performance
The industry-wide decline in general mail volume is continuing and anecdotal industry comments suggest that
the rate of decline increased in FY2019, exacerbated by NZ Post postal pricing increases from 1 July 2018 .
While SDL has historically gained sufficient market share to offset industry-wide volume declines, this was not
the case in FY2019; SDL’s mail volumes dropped 15 .1% and digital print volumes were down 19 .2% on the
prior year . SDL’s print equipment has significant capacity, particularly from a high-speed, continuous printer
under the DMS agreement with FXNZ . The Company is continuing to transition a greater proportion of its print
jobs from cut sheet printers onto the continuous printer as this provides efficiency benefits .
New Zealand Postal Market
The domestic postal services market remains difficult . A substantial increase in the price of mail took effect
from 1 July 2018 with the price of a standard letter rising by 20 cents from $1 .00 to $1 .20, and bulk mail prices
also increased along with tighter conditions to achieve bulk pricing .
SDL experienced a step down in mail volumes from this (plus customer losses as noted), and estimates there
will be ongoing volume erosion from the lower base, albeit the rate of decline is unlikely to be as severe as in
FY2019 . SDL is seeing an accelerated move towards greater use of digital communications solutions from
some customers .
Nevertheless, as the Company’s customers opt to more rapidly switch towards greater electronic
communications, SDL will inevitably suffer margin loss from lower utilisation of its printing assets and any
revenue and margin gained from SDL Software & Technology will not be sufficient to offset all of this decline .
Risk Factors
The physical mail market will continue to decline in volume although we believe it is unlikely to be as steep as in
FY2019 . This has several industry-wide implications . First, excess printing capacity in the mail house physical
print sector, already a problem, will worsen from an already poor position . Secondly, increased competition
for lower volumes may spill over into pricing and margin pressure . The risk is partly mitigated by SDL’s ability
to add value through its technology offerings although excessive price discounting of printing services would
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
Solution Dynamics Limited
affect profitability across the entire industry and SDL would not be immune to this threat . Additionally, pressure
on marginal print operators is likely to cause industry rationalisation . While SDL has held discussions with
various participants in the print sector, these have not led anywhere to date .
SDL’s top five customers (both domestic and international) provided 38 .6% of the Company’s revenue in
FY2019 with the largest customer accounting for 12 .7% of revenue . Loss of one or more of those customers
could cause financial results to differ materially from those outlined in the FY2020 Outlook section below . This
risk is partly mitigated by having a number of these clients under contract, as well as the offset of expecting
revenue growth outside these clients, particularly from DéjarMail .
The Company’s software provides critical document management and storage functions for its clients . SDL
needs to ensure it continues to maintain adequate levels of software quality control . SDL also regards IT and
data security as a potential risk area and regularly reviews its IT and data security arrangements .
The Company operates a single site facility, albeit with an offsite for data and server backup . The Directors
are conscious of the operational risk a single site implies for digital imaging operations . SDL has investigated
reciprocal disaster recovery (“DR”) plans with other printers, and the Company has some capability with Fuji
Xerox DMS, however, in general, print capacity mismatches have meant there are few possible solutions . SDL
continues to explore DR options .
The Company relies on several third party distributors to market and support its software products, especially
in international markets . There is no certainty that these arrangements will be successful in meeting revenue
expectations and SDL may be required to devote more time and funds to support its existing international
distribution structures . The Company has been increasingly investing in its own direct sales channels to market
in the UK in recent years and is currently in the process of investing in sales infrastructure (i .e . people) in the
US .
Technology Innovation
SDL operates in both the old economy print/mail house business and the new economy document
management business . While there are many areas where printed mail is continuing to decline, some elements
(e .g . direct marketing) of print and mail remain reasonably resilient . Nevertheless, SDL is continuing to innovate
and develop its software offerings to ensure the Company is agnostic in the communication channels it is able
to offer its clients to communicate with their customers .
SDL has been progressively managing its portfolio of digital document software IP to ensure the Company
is capable of making this progressive transition towards the growing emphasis on digital customer
communications . This involves increasing internationalisation of SDL’s revenues, both through software
product development and acquisitions such as DTP, as well as the development of channel partners to build
distribution .
Migration to NZX Main Board Listing and Governance
Late in FY2019, SDL migrated its listing to the NZX main board, following NZX’s announcement that it
would close the NZAX board where SDL was historically listed . NZX provided a pathway to migration that
included various waivers . As part of the migration, SDL was obliged to update its Constitution and one of the
NZX waivers was that SDL could delay requiring shareholder approval of the new Constitution until its next
shareholders’ meeting . The Notice of Meeting that will be issued for the next Annual Meeting, scheduled for
23 October 2019, will contain the new Constitution and shareholders will be asked to vote to adopt it .
The Directors remain aware that the Company’s shares trade relatively infrequently . The predominant factor
for this is the high extent to which large blocks of SDL’s shares are held by parties who do not normally trade
them, reducing the effective free float . Additionally the lack of sharebroker research coverage means financial
advisors are somewhat precluded from discussing or recommending the stock with investing clients . The
Directors will review the extent to which the move to the main board listing assists with liquidity and then
contemplate what other actions may be possible .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
As part of the migration to the NZX main board, SDL has updated its Constitution to comply with more recent
NZX Listing Rules which it is now subject to . A formal Audit & Risk Committee has been established and a
range of governance and policy statements produced (available on the Company’s website) .
The Company added two directors ahead of the main board move: Andy Preece and Lee Eglinton . Andy has
extensive experience across a range or print-related and communications-related businesses and a proven
record of turning around businesses and delivering sustainable shareholder returns, along with experience
managing acquisition and divestment activities globally . Andy is an independent director and chairs the Audit
& Risk Committee . Lee has a broad range of experience across the technology, consumer electronics and
telecommunications sectors, and her executive roles have included General Manager Australia/NZ and NZ
Country Manager of an IT services and consulting business . Prior to that she spent eight years at IBM NZ
in a range of roles including Consulting Services, the company’s CRM practice, and business analytics and
optimisation . Lee is a member of the Audit & Risk Committee .
FY2020 Outlook
The outlook for FY2020 is for significant growth over FY2019 . The key factors that change in the coming year
are:
• the annualised negative effect of the FY2019 print and mail account losses in NZ;
• cost savings in the domestic business that should progressively be achieved during 1H FY2020;
• margin erosion as domestic physical print and mail volumes shift to digital delivery;
• revenue growth in North America from annualising software contract wins during FY2019;
• ongoing revenue growth in the UK, particularly from DéjarMail;
• addition of costs in North America and UK to build out sales efforts and channels; and
• offset to North American cost growth from NZTE market development funding .
A major contract with a multinational company that SDL won late in FY2019 will make a modest contribution
during FY2020 as it remains in pilot phase during the year . Subject to successful execution of the two pilot
programmes – we can report that the first phase has already been successfully completed – then the full
revenue and earnings effects will occur in FY2021 .
Additionally, SDL continues to have a significant pipeline of opportunities, especially in North America, and has
already seen successful conversion of some of those opportunities . The Company’s outlook has a degree of
expectation that this conversion of pipeline to contracts will continue .
The net outcome of the above factors is that SDL expects revenue growth for FY2020 of around 15% and
that operating earnings (EBITDA) is expected to recover significantly and be broadly in line with the FY2018
outcome . Amortisation charges have increased and will remain elevated as a result of writing down the
software and customer contract values from the DTP and Scantech acquisitions . As noted, the Company’s
forecast has the caveat that it includes some new business growth assumptions (especially in North America)
and is subject to the usual risks that the print and mail house markets remain extremely competitive and in
decline .
John McMahon Nelson Siva
Director (Chairman) Director (CEO)
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Grant Thornton New Zealand
Audit Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140
T +64 9 308 2570
F +64 9 309 4892
www.grantthornton.co.nz
Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages xx to
yy which comprise the consolidated statement of financial position as at 30 June 2018 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited and the entities it controlled as at 30 June 2018 and its financial
performance and cash flows for the year then ended in accordance with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements
section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation returns and advice. The firm has no other interests in the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
Grant Thornton New Zealand
Audit Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140
T +64 9 308 2570
F +64 9 309 4892
www.grantthornton.co.nz
Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages xx to
yy which comprise the consolidated statement of financial position as at 30 June 2018 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited and the entities it controlled as at 30 June 2018 and its financial
performance and cash flows for the year then ended in accordance with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements
section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation returns and advice. The firm has no other interests in the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
Grant Thornton New Zealand
Audit Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140
T +64 9 308 2570
F +64 9 309 4892
www.grantthornton.co.nz
Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages xx to
yy which comprise the consolidated statement of financial position as at 30 June 2018 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited and the entities it controlled as at 30 June 2018 and its financial
performance and cash flows for the year then ended in accordance with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements
section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation returns and advice. The firm has no other interests in the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
Grant Thornton New Zealand
Audit Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140
T +64 9 308 2570
F +64 9 309 4892
www.grantthornton.co.nz
Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages xx to
yy which comprise the consolidated statement of financial position as at 30 June 2018 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited and the entities it controlled as at 30 June 2018 and its financial
performance and cash flows for the year then ended in accordance with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements
section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation returns and advice. The firm has no other interests in the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages 17
to 44 which comprise the consolidated statement of financial position as at 30 June 2019, and the consolidated
statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited (the Company) as at 30 June 2019 and its financial performance
and cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial
Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards Board .
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Auditing and Assurance Standards Board . Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements section of our report . We are independent of the Group in accordance with Professional and Ethical
Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and
Assurance Standards Board, and we have fulfilled our other ethical responsibilities in accordance with these
requirements . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion .
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation advice and services . The firm has no other interest in the Group .
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the consolidated financial statements of the current period . These matters were addressed in the context of
our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters .
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KEY AUDIT MATTER
OUR PROCEDURES TO ADDRESS
THE KEY AUDIT MATTER
Carrying Value of Goodwill
The Group has significant goodwill of $1,061,000 arising
from historical acquisitions of businesses . Goodwill is
allocated across its software cash generating units . Any
risk of downturn in the macroeconomic environment
could result in an indicator of impairment in goodwill .
The inherent uncertainty involved in forecasting
and discounting future cash flows is one of the key
judgement areas that our audit is concentrated on . The
uncertainty is affected by a number of factors including
general market trends, the number of new customers
for the technology solutions and expectation of future
growth in demand for the software solutions, which form
the basis for the assessment of recoverability .
In this area our audit procedures included assessment
of the Group’s forecast and budgeting procedures as a
basis for value in use calculations . We also compared
the Group’s historical budget to actual performance and
its future projections compared to prior year actual and
testing reasonableness of forecasting assumptions . In
addition, we performed our own assessments in relation
to key inputs such as projected revenue growth, cost
and overhead inflation and discount rates . We used our
own valuation specialist to evaluate the assumptions
and methodologies used by the Group to derive a
discount rate when there have been changes to inputs,
methodology or assumptions . We also assessed whether
the Group’s disclosures about the sensitivity in key
assumptions fairly reflected the risks inherent in the
valuation of goodwill .
Accuracy of revenue
The Group recognises revenue of $24 .9 million
(2018: $22 .4 million) for the year ended 30 June
2019 comprising sale of goods and rendering of
services under contract . The principal risk associated
with commercial income relates to recognition and
recoverability including the first-time adoption of NZ
IFRS 15 ‘Revenue from Contracts with Customers’ this
reporting period . There are a number of factors that
could affect this balance including:
• Delivery may not have occurred before year end
which would allow the goods to be recorded as a
sale in line with the revenue recognition policy .
• Revenues recognised from contract sales of
products and services may be at a point in time or
over time with reference to the various performance
obligations with customers . Revenue may include
estimates and judgements that impact the amount
of revenue recognised .
In this area our audit procedures included evaluating
the Group’s recognition of revenue by assessing the
procedures and controls that the Group has in place
and that appropriate revenue recognition policies
have been applied which included as assessment of
the implementation of NZ IFRS 15 . In relation to sales
cut-off, we performed detailed substantive testing on
sales recognised or adjusted either side of year end to
substantiate that the appropriate terms of the relevant
contracts had been satisfied in line with contract
performance obligations .
Our audit work included assessing performance
obligations of any significant projects or contracts
including the delivery of the goods to ensure appropriate
revenue recognition .
For contracts recognised at a point in time we inspected
a sample of delivery notes, invoices raised and cash
receipts .
For contracts recognised over time we reperformed the
calculation of any material revenue to be recognised
at year end and agreed the assumptions used in
determining the various performance obligations to
supporting documentation .
Other Information
The directors are responsible for all other information included in the Group’s Annual Report . The other
information comprises the information included in the annual report, but does not include the consolidated
financial statements and our auditor’s report thereon .
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of audit opinion or assurance conclusion thereon
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated . If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact . We have nothing to report in this regard .
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Chartered Accountants
Member of Grant Thornton International Ltd
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates, as well as evaluating the overall presentation of the
consolidated financial statements.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it
controlled in the area of taxation advice. The firm has no other interest in Solution
Dynamics Limited and the entities it controlled.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the accompanying consolidated financial statements on pages 15 to 45
present fairly, in all material respects, the financial position of Solution Dynamics Limited
and the entities it controlled as at 30 June 2016 and their financial performance and cash
flows for the year then ended in accordance with New Zealand Equivalents to International
Financial Reporting Standards.
Restriction on use of our report
This report is made solely to the Company’s shareholders, as a body. Our audit work has
been undertaken so that we might state to the Company’s shareholders, as a body those
matters which we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinion we have formed.
Grant Thornton New Zealand Audit Partnership
Auckland, New Zealand
19 September 2016
Grant Thornton New Zealand
Audit Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140
T +64 9 308 2570
F +64 9 309 4892
www.grantthornton.co.nz
Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages xx to
yy which comprise the consolidated statement of financial position as at 30 June 2018 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited and the entities it controlled as at 30 June 2018 and its financial
performance and cash flows for the year then ended in accordance with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements
section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation returns and advice. The firm has no other interests in the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
Grant Thornton New Zealand
Audit Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140
T +64 9 308 2570
F +64 9 309 4892
www.grantthornton.co.nz
Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd
To the Shareholders of Solution Dynamics Limited
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Solution Dynamics Limited (the Group) on pages xx to
yy which comprise the consolidated statement of financial position as at 30 June 2018 and the consolidated
statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of
changes in equity and consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of Solution Dynamics Limited and the entities it controlled as at 30 June 2018 and its financial
performance and cash flows for the year then ended in accordance with New Zealand Equivalents to
International Financial Reporting Standards (NZ IFRS) issued by the New Zealand Accounting Standards
Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ))
issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the consolidated Financial Statements
section of our report. We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance
Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Our firm carries out other assignments for Solution Dynamics Limited and the entities it controlled in the area of
taxation returns and advice. The firm has no other interests in the Group.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of our
audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Independent Auditor’s Report
Directors’ responsibilities for the Consolidated Financial Statements
The Directors are responsible on behalf of the Group for the preparation and fair presentation of the
consolidated financial statements in accordance with New Zealand equivalents to International Financial
Reporting Standards issued by the New Zealand Accounting Standards Board, and for such internal control
as the Directors determine is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error .
In preparing the consolidated financial statements, the Directors are responsible on behalf of the Group for
assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so .
Auditor’s responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion . Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (NZ) will always detect a material misstatement when it exists .
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements .
A further description of the auditor’s responsibilities for the audit of the consolidated financial statements is
located on the External Reporting Board’s website at https://www .xrb .govt .nz/assurance-standards/auditors-
responsibilities/audit-report-1/
Restriction on use of our report
This report is made solely to the Company’s shareholders, as a body . Our audit work has been undertaken so
that we might state to the Company’s shareholders, as a body those matters which we are required to state to
them in an auditor’s report and for no other purpose . To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and its shareholders, as a body, for our audit work,
for this report or for the opinion we have formed .
Grant Thornton New Zealand Audit Partnership
K T Price
Partner
Auckland, New Zealand
29 August 2019
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CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 30 June 2019
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 30 June 2019
$000
$000
2012
2012
NOTE
$000
$000
$000
$000
Revenue 4 24,879 22,383
Other revenue 4 276 349
Total revenue 25,155 22,732
Expenses 5 23,782 20,459
Earnings before interest, tax, depreciation & amortisation (EBITDA) 1,373 2,273
Depreciation 17 238 208
Amortisation of intangible assets 18 347 161
Net interest income 7 (4) (5)
Profit before income tax 792 1,909
Income tax 8 122 577
Net profit after income tax 670 1,332
Cents Cents
Basic earnings per share 9 4 .6 9 .3
Diluted earnings per share 9 4 .5 9 .1
2018
2018
2019
2019
The accompanying notes on pages 21 - 44 form part of the consolidated financial statements .
Solution Dynamics Limited
Solution Dynamics Limited
Net profit after income tax 670 1,332
Items that may be reclassified subsequently to profit and loss:
Exchange gain on translation of foreign operations (7) (9)
Other comprehensive (loss) / income net of tax (7) (9)
Total comprehensive income for the year 663 1,323
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$000
2012
NOTE
$000 $000
20182019
The accompanying notes on pages 21 - 44 form part of the consolidated financial statements .
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2019
Solution Dynamics Limited
Current Assets
Cash and cash equivalents 10 1,182 1,956
Trade & other receivables 13 3,300 2,902
Inventories and work in progress 11 359 183
Prepayments 128 131
Total Current Assets 4,969 5,172
Current Liabilities
Trade creditors 1,706 1,871
Other current liabilities 14 635 838
Other non-financial liabilities 15 898 851
Employee benefit liabilities 16 484 472
Deferred tax liability 8 8 24
Total Current Liabilities 3,731 4,056
Working Capital 1,238 1,116
Non-Current Assets
Capital works in progress 146 61
Property, plant & equipment 17 629 594
Intangible assets 18 860 1,179
Goodwill 19 1,061 1,061
Total Non-Current Assets 2,696 2,895
Net Assets 3,934 4,011
Equity
Share capital 20 5,413 5,357
Employee share option plan 31 7 28
Foreign currency translation reserve (15) (8)
Accumulated losses 21 (1,471) (1,366)
Total Equity 3,934 4,011
For and on behalf of the Board who approved these financial statements for issue on 29 August 2019 .
John McMahon – Director (Chairman) Nelson Siva – Director (CEO)
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$000 $000 $000 $000 $000
ACCUMULATED
LOSSES
EMPLOYEE
SHARE PLAN
CURRENCY
TRANSLATION
RESERVE
SHARE
CAPITAL
TOTAL
EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2019
The accompanying notes on pages 21 - 44 form part of the consolidated financial statements .
Solution Dynamics Limited
Balance 30 June 2017 5,169 113 1 (1,764) 3,519
Exercise of employee share options 188 (108) - 108 188
Issue of shares to employees - 23 - - 23
Transactions with owners 188 (85) - 108 211
Profit for the year after tax - - - 1,332 1,332
Dividend paid - - - (1,042) (1,039)
Other comprehensive (loss) - - (9) - (9)
Total comprehensive income - - (9) 290 281
Balance 30 June 2019 5,357 28 (8) (1,366) 4,011
Exercise of employee share options 56 (29) - 29 56
Issue of shares to employees - 8 - - 8
Transactions with owners 56 (21) - 29 64
Profit for the year after tax - - - 670 670
Dividend paid - - - (804) (804)
Other comprehensive (loss) - - (7) - (7)
Total comprehensive income - - (7) (134) (141)
Balance 30 June 2019 5,413 7 (15) (1,471) 3,934
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The accompanying notes on pages 21 - 45 form part of the consolidated financial statements .
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2019
$000
2012
NOTE
$000 $000
Cash Flow From Operating Activities
Cash was provided from:
Receipts from customers 28,280 25,041
Other revenue 265 293
28,545 25,334
Cash was applied to:
Payments to suppliers 19,185 15,830
Payments to employees 7,759 6,621
GST paid to Inland Revenue 1,245 1,261
28,189 23,712
Net Cash Inflow From Operating Activities 23 356 1,622
Cash Flow From Investing Activities
Cash was applied to:
Purchase of property, plant and equipment & capital works in progress 358 120
Purchase of software & intangible assets 28 68
Payments for businesses acquired 33 - 712
386 900
Net Cash Outflow From Investing Activities (386) (900)
Cash Flow from Financing Activities
Cash was provided from:
Exercise of employee share options 56 188
Interest received 4 5
60 193
Cash was applied to:
Payment of dividends 804 1,039
804 1,039
Net Cash (Outflow) From Financing Activities (744) (846)
Net change in cash and cash equivalents (774) (124)
Add cash and cash equivalents held at beginning of year 1,956 2,080
Cash and cash equivalents at end of year 10 1,182 1,956
20182019
Solution Dynamics Limited
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1 . CORPORATE INFORMATION
The consolidated financial statements of Solution Dynamics Limited (SDL or Company) and its subsidiaries,
Solution Dynamics International Limited, Solution Dynamics Incorporated and Déjar International Limited
(collectively the Group) for the year ended 30 June 2019 were authorised for issue in accordance with a
resolution of directors on 29 August 2019 .
Solution Dynamics Limited is a public company incorporated and domiciled in New Zealand and is listed
with the New Zealand Stock Exchange on the NZX and is an FMC reporting entity under the Financial
Markets Conduct Act 2013 . The registered office is located at 18 Canaveral Drive, Albany in Auckland .
The Group offers a range of integrated solutions encompassing data management, electronic digital printing,
document distribution, web presentment and archiving, fulfilment, traditional print services, scanning, data
entry and document management .
2 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Statement of Compliance
The consolidated financial statements of the Group comply with New Zealand Equivalents to International
Financial Reporting Standards (NZ IFRS) .
2.2 Basis of Preparation
2.2.1 Basis of Preparation
The consolidated financial statements have been prepared on the historical cost basis but modified, where
applicable, by the measurement of fair value of selected financial assets and financial liabilities . Accounting
policies are selected and applied in a manner which ensures that the resulting financial information satisfies
the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions
or other events is reported . The principal accounting policies are set out below .
2.2.2 Basis of Consolidation
The financial statements have been prepared in compliance with generally accepted accounting practice
in New Zealand (NZ GAAP), the requirements set out in Part 7 of the Financial Markets Conduct Act 2013,
the Main Board Listing Rules of the NZX, the Companies Act 1993, and other authoritative pronouncements
issued by the New Zealand Accounting Standards Board (NZ ASB) . For the purposes of complying with NZ
GAAP the Group is a for-profit entity that has followed the Tier 1 for – profit reporting requirements set out by
the External Reporting Board, in its “Accounting Standards Framework .”
All subsidiaries have a 30 June reporting date and consistent accounting policies are applied .
The acquisition method is used to prepare the consolidated financial statements, which involves adding
together like items of assets, liabilities, income and expenses on a line-by-line basis . All transactions and
balances between Group companies are eliminated on consolidation, including unrealised gains and losses
on transactions between Group companies .
The consolidated financial statements have been prepared under the assumption that the Group operates as
a going concern .
2.2.3 Rounding of Amounts
Amounts in the consolidated financial statements have been rounded off to the nearest $000 unless
otherwise specified .
2.2.4 Changes in Accounting Policies and Disclosures
Except as described below, the accounting policies and disclosures are consistent with those of the previous
year .
The Group adopted the standards detailed below from 1 July 2018 . This has not given rise to any
requirement to restate comparative information .
2.2.5 NZ Equivalent to International Financial Reporting Standard 15: Revenue from
Contracts with Customers
NZ IFRS 15: Revenue from Contracts with customers replaces NZ IAS 18: Revenue and related
interpretations and applies to all revenue arising from contracts with customers . The new standard
establishes a five-step model to account for revenue arising from contracts with customers .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2019
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
Under NZ IFRS 15 revenue is apportioned to individual performance obligations within customer contracts
based on their relative stand-alone selling price . Based on certain criteria, revenue is then recognised either
over time, or at a point in time consistent with when those performance obligations are satisfied . For SDL
this is generally over time . The new standard has been applied using the full retrospective method without
restatement .
2.2.6 NZ Equivalent to International Financial Reporting Standard 9: Financial Instruments.
NZ IFRS 9; Financial Instruments replaces NZ IAS 39: Financial Instruments: Recognition and Measurement .
It makes major changes to the previous guidance on the classification and measurement of financial assets
and introduces an ‘expected credit loss’ model for the impairment of financial assets . The Group applied
a simplified model of recognising lifetime expected credit losses as their trade receivables do not have a
significant financing component . Management have completed an impact assessment and have determined
that there was no financial impact on transition to the new accounting standard . The new standard has been
applied using the full retrospective method without restatement .
SPECIFIC ACCOUNTING POLICIES
The following specific accounting policies, which significantly affect the measurement of financial performance,
financial position and cash flows, have been applied .
2.3 Foreign Currency
2.3.1 Functional and Presentation Currency
Items included in the consolidated financial statements are measured using the currency of the primary
economic environment in which the entity operates (the ‘functional currency’) . The consolidated financial
statements are presented in New Zealand dollars, which is the Group’s functional and presentational currency
and expressed in $000’s .
2.3.2 Transaction and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions . Monetary assets and liabilities denominated in foreign currencies at the reporting
date are retranslated to the functional currency at the exchange rate at that date . Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation of period end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated
Statement of Profit or Loss .
2.4 Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable . Revenue is reduced for
estimated customer returns, rebates and other similar allowances .
2.4.1 Sale of Goods and Services
To determine whether to recognise revenue at a point in time or over time, an assessment has been
undertaken using the 5-step process set out in NZ IFRS 15:
1 . Identifying the contract with a customer
2 . Identifying the performance obligations
3 . Determining the transaction price
4 . Allocating the transaction price to the performance obligations
5 . Recognising revenue when and as its performance obligation(s) are satisfied .
The Group often enters into transactions involving a range of the Group’s products and services, for example
the delivery of mailing services involves a blend of physical material (paper stock and envelopes) along with
the provision of data and other services to process and deliver the finished job for lodgement to NZ Post .
In all cases, the total transaction price for a contract is allocated amongst the various stages of the project
based on their relative stand-alone selling prices . The transaction price for a contract excludes any amounts
collected on behalf of third parties . However, these constitute one performance obligation due to them being
highly integrated and non-distinct .
Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance
obligations by transferring the promised goods or services to its customers .
To depict the progress by which SDL transfers control of the products and services to the customer, and to
establish when and to what extent revenue can be recognised, SDL measures its progress towards complete
satisfaction of the performance obligation by measuring outputs completed to date . This basis provides the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
most faithful depiction of the transfer of goods and services to each customer due to SDL’s ability to accurately
measure the units produced and delivered to the customer .
Items where revenue is recognised as arising at the time of delivery include the sale of goods, usually envelopes
and paper, and the sale of right to use licences . In both cases title and the risks and rewards of ownership
have been transferred to the customer . No revenue is recognised if there are significant uncertainties regarding
recovery of the consideration due, associated costs or the possible return of goods, or where there is continuing
management involvement with the goods when the performance obligation has been satisfied . No revenue is
recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs
or the possible return of goods, or where there is continuing management involvement with the goods when the
performance obligation has been satisfied .
2.4.2 Interest Revenue
Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest
rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset’s net carrying amount .
2.4.3 Government Grants
Government grants are recognised as revenue when the conditions attached to the grant have been met . Where
there are unfilled conditions attaching to the grant, the amount relating to the unfilled condition is recognised as
a liability and released to revenue as the conditions are met .
2.5 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee . All other leases are classified as operating leases .
2.5.1 The Group as Lessee
Assets held under finance leases are initially recognised as assets of the Group at their fair value at the inception
of the lease or, if lower, at the present value of the minimum lease payments . The corresponding liability to the
lessor is included in the Consolidated Statement of Financial Position as a finance lease obligation .
Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve
a constant rate of interest on the remaining balance of the liability . Finance charges are charged directly to the
Consolidated Statement of Profit or Loss .
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed .
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as
a liability . The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line
basis, except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed .
2.6 Employment Benefits
The Group recognises liabilities for benefits accruing to employees in respect of wages and salaries, annual
leave, long service leave and sick leave when it is probable that settlement will be required, and they are capable
of being measured reliably .
Provisions made in respect of employee benefits expected to be settled within 12-months of each reporting date
are measured at their nominal values using the remuneration rate expected to apply at the time of settlement .
Provisions made in respect of employee benefits which are not expected to be settled within 12-months of each
reporting date are measured as the present value of the estimated future cash outflows to be made by the Group
in respect of services provided by employees up to the reporting date .
2.7 Share-based Payments
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at
the grant date . Details regarding equity settled share-based transactions is set out in note 31 .
The fair value determined at the grant date of the equity settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will
eventually vest . At each reporting date, the Group revises its estimate of the number of equity instruments
expected to vest .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
The impact of the revision of the original estimates, if any, is recognised in the Consolidated Statement of Profit
or Loss over the remaining period, with a corresponding adjustment to the equity-settled employee benefits
reserve .
2.8 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax .
2.8.1 Current Tax
The tax currently payable is based on the taxable profit for each reporting period . The taxable income or loss
differs from the amount as reported in the Consolidated Statement of Profit or Loss because it excludes items
of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible . The Group’s liability for current tax is calculated using tax rates that have been enacted or
substantively enacted by the financial year end, and any adjustment to tax payable in respect of previous years .
2.8.2 Deferred Tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit and is accounted for
using the liability method . Deferred tax liabilities are generally recognised for all taxable temporary differences,
and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it
is probable that taxable profits will be available against which those deductible temporary differences can be
utilised . Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit .
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in
subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in the foreseeable future . Deferred tax assets
arising from deductible temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the
benefits of the temporary differences and they are expected to reverse in the foreseeable future .
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered .
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted at each reporting date . The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to
recover or settle the carrying amount of its assets and liabilities .
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis .
2.8.3 Current and Deferred Tax for Each Reporting Period
Current and deferred tax are recognised as other revenue or an expense within the Consolidated Statement of
Profit or Loss, except when they relate to items credited or debited directly to equity, in which case the tax is
also recognised directly in equity, or where they arise from the initial accounting for a business combination . In
the case of a business combination, the tax effect is taken into account in calculating goodwill or in determining
the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities over the cost of the business combination .
2.9 Goods and Services Tax (GST)
Revenue, expenses, assets and liabilities are recognised net of the amount of goods and service tax (GST),
except:
• where the amount of GST incurred is not recovered from the taxation authority, it is recognised as part of the
cost of acquisition of an asset or as part of an item of expense; or
• for receivables and payables which are recognised inclusive of GST .
The net amount of GST recoverable from, or payable to, Inland Revenue is included as part of receivables or
payables .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
2.10 Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses, if any . Cost includes all expenditure that is directly attributable to the acquisition of the asset . Software
that is integral to the functionality of the related equipment is capitalised as part of the asset .
Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-
line method . The estimated useful lives, residual values and depreciation method are reviewed at the end of
each reporting period, with the effect of any changes in estimate accounted for on a prospective basis .
The principal depreciation rates used in the reporting periods are:
• Leasehold Improvements 6 .5 – 7 .8%
• Furniture and Fittings 8 .5 – 39 .6%
• Plant and Machinery 7 .0 - 30 .0%
• Computer Equipment 20 .0 – 36 .0%
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets or, where shorter, the term of the relevant lease .
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined
as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the
Consolidated Statement of Profit or Loss .
2.11 Intangible Assets
2.11.1 Intangible Assets Acquired with a Finite Life
Intangible assets with a finite life, acquired separately are reported at cost less accumulated amortisation and
accumulated impairment losses . Amortisation is charged on a straight-line basis over their estimated useful
lives . The estimated useful life and amortisation method are reviewed at the end of each annual reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis .
2.11.2 Internally-Generated Intangible Assets with a Finite Life
Expenditure on research activities is recognised as an expense in the Consolidated Statement of Profit or Loss
in the period in which it is incurred .
An internally-generated intangible asset arising from development (or from the development phase of an
internal project) is recognised if, and only if, all of the following have been demonstrated:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
• the availability of adequate technical, financial and other resources to complete the development and to
use or sell the intangible asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development .
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the recognition criteria listed above . Where no internally
generated intangible asset can be recognised, development expenditure is charged as an expense to the
Consolidated Statement of Profit or Loss in the period in which it is incurred .
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately .
Amortisation is charged on a straight-line basis over the estimated useful lives of internally generated intangible
assets . The estimated useful life and amortisation method are reviewed at the end of each annual reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis .
2.11.3 Subsequent Measurement
All intangible assets, including capitalised internally developed software, are accounted for using the cost
model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives, as
these assets are considered finite . Residual values and useful lives are reviewed at each reporting date . In
addition, they are subject to impairment testing as described in Note 2 .13 . The following useful lives are
applied:
• Software 3-5 years .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
2.11.4 Intangible Assets Acquired in Business Combination
Intangible assets acquired in a business combination are identified and recognised separately from goodwill
where they satisfy the definition of an intangible asset, are identifiable and their fair values can be measured
reliably . The cost of such intangible assets is their fair value at the acquisition date .
Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost
less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets
acquired separately . The following useful lives are applied:
• Customer contracts 3–4 years .
2.12 Goodwill
Goodwill arising on the acquisition of a “business” as defined in NZ IFRS 3 Business Combinations
represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the
identifiable assets and liabilities of the business recognised at the date of acquisition . Goodwill is initially
recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment
losses .
2.13 Impairment of Assets
At each reporting date, the Group reviews the carrying amounts of its tangible and finite life intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss . If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any) . Where it is not possible to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs .
Intangible assets with indefinite useful lives, goodwill and intangible assets not yet available for use are
tested for impairment annually, and whenever there is an indication that the asset may be impaired .
Recoverable amount is the higher of fair value less costs to sell and value in use . In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted .
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount .
An impairment loss is recognised immediately as an expense within the Consolidated Statement of Profit or
Loss .
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating
unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognised for the asset (or cash-generating unit) in prior years . Any impairment loss associated with
goodwill will not be reversed in a subsequent reporting period .
2.14 Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short
term, highly-liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value .
2.15 Inventories
Inventories are stated at the lower of cost and net realisable value . Costs are assigned to inventories by the
method most appropriate to the particular class of inventory, with the majority being valued on a first-in-first-
out basis . Net realisable value represents the estimated selling price for inventories less all estimated costs
of completion and costs necessary to make the sale .
2.16 Financial Instruments
2.16.1 Recognition and Derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual
provisions of the financial instrument .
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset
expire, or when the financial asset and substantially all the risks and rewards are transferred . A financial
liability is derecognised when it is extinguished, discharged, cancelled or expires .
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27
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
2.16.2 Financial Assets
Financial assets principally consist of the Group’s cash and cash equivalents and trade and other
receivables . After initial recognition, these are measured at amortised cost using the effective interest
method . Discounting is omitted where the effect of discounting is immaterial .
Refer to note 28 .1 for approach in accounting for expected credit losses .
2.16.3 Financial Liabilities
As the accounting for financial liabilities remains largely the same under NZ IFRS 9 compared to NZ IAS
39, the Group’s financial liabilities were not impacted by the adoption of NZ IFRS 9 . The Group’s financial
liabilities include trade and other payables .
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs
unless the Group designated a financial liability at fair value through profit or loss . Subsequently, financial
liabilities are measured at amortised cost using the effective interest method .
All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit
or loss are included within finance costs or finance income .
2.16.4 Impairment of Financial Assets
NZ IFRS 9 Financial Instruments (NZ IFRS 9) replaces NZ IAS 39 Financial Instruments Recognition and
Measurement (NZ IAS 39) . It makes changes to the previous guidance on the classification and measurement
of financial assets and introduces an “expected credit loss” model for the impairment of financial assets . The
Group applied a simplified model of recognising lifetime expected credit losses as trade receivables do not
have a financing component . Management have completed an impact assessment and determined that there
is no financial impact on the transition to the new standard . The new standard has been applied using the full
retrospective method without restatement .
For financial assets carried at amortised cost, the amount of the impairment is the difference between the
asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial
asset’s original effective interest rate .
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets
with the exception of trade and other receivables, where the carrying amount is reduced through the use
of an allowance for credit losses . When trade and other receivables are considered uncollectible, they are
written off against the allowance account . Subsequent recoveries of amounts previously written off are
credited against the allowance account . Changes in the carrying amount of the allowance account are
recognised as an expense in the Consolidated Statement of Profit or Loss .
2.17 Share Capital
Ordinary shares are classified as equity . Incremental costs directly attributable to the issue of new shares or
options are shown in equity as a deduction from the proceeds, net of tax .
2.18 Trade Payables and Other Current Liabilities
These amounts represent liabilities for goods and services provided to the Group prior to the end of the
annual reporting period which are unpaid . The amounts are unsecured and are usually paid within 60 days
of recognition . These are measured initially at fair value net of transaction costs, subsequently at amortised
cost using the effective interest rate method .
2.19 Statement of Cash Flows
The following terms are used in the Statement of Cash Flows:
Operating activities: are the principal revenue producing activities of the Group and other activities that are
not investing or financing activities .
Investing activities: are the acquisition and disposal of long-term assets and other investments not included
in cash equivalents .
Financing activities: are activities that result in changes in the size and composition of the contributed
equity and borrowings of the entity .
Non-cash financing and investing activities: There were no transactions which have had a material effect
on assets and liabilities that did not involve cash flows and are disclosed in the statement of cash flows .
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28
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
2.20 New IFRS standards and interpretations issued but not yet adopted
At the date of authorisation of these financial statements, certain new standards and interpretations to existing
standards have been published but not yet effective and have not been adopted early by the Group .
Management anticipates that all pronouncements will be adopted in the first accounting period beginning on
or after the effective date of the new standard . Information on new standards, amendments and interpretations
that are expected to be relevant to the Group financial statements is provided below . Certain other new
standards and interpretations issued but not yet effective, that are not expected to have a material impact on
the Group financial statements have not been disclosed .
(a) NZ IFRS 16 – Leases (effective date from 1 January 2019)
In February 2016 the New Zealand Accounting Standards Board approved the issue of NZ IFRS 16 Leases .
NZ IFRS 16 changes the relevant information to be reported by lessors and lessees with a view to faithful
representation of information to the users of financial statements so they can assess the effect leases have
on cash flow, financial performance and the financial position of the entity . The standard requires the lessee
to recognise assets and liabilities for the rights and obligations created by those leases . Lessors reporting
requirements are similar to the previous standard NZ IAS 17 Leases . Management has made a preliminary
assessment of the impact of adopting this policy on the Group financial statements and has determined that it
will be material . Management expects to recognise a lease asset and lease liability for all lease contracts such
as premises rent and equipment lease . Note 24 provides disclosure on the Group’s current operating lease
commitments that are expected to be recognised .
3 . CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in Note 2, the Directors are required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are
not readily apparent from other sources . The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant . Actual results may differ from these estimates .
The estimates and underlying assumptions are reviewed on an on-going basis . Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or
in the period of the revision and future periods if the revision affects both current and future periods .
3.1 Annual Goodwill Impairment Testing
Determining whether goodwill is impaired requires an estimation of the value in use of the Electronic Content
Management cash-generating unit which is also known as SDL Software . The value in use calculation requires
the Directors to estimate the future cash flows expected to arise from this cash generating unit and a suitable
discount rate in order to calculate present value .
The carrying value of goodwill at each reporting date was $1,061,000 (2018: $1,061,000) .
The recoverable amount of $938,000 of goodwill associated with the acquisition of the Déjar and Bremy
businesses has been determined based on a value in use model applying the budget, approved by the
Directors covering the reporting period to 30 June 2019, and forecast sales based on assessments of the
current market opportunities through existing distribution channels net of forecast costs, through to the end
of 2024, at a post-tax discount rate of 10 .2% (2018: 5 .6%) . Cash flows beyond 2024 have been taken into
account by the calculation of a terminal value .
The revenue assumptions used for the forecast period are based on management expectations supported by
existing prospects for the budget period and allow for growth of 3 .0% (2018: 2 .5%) per annum over the balance
of the forecast period . The assumptions are subject to fundamental uncertainties, particularly those surrounding
future license sales which comprise a substantial portion of projected revenues and hence only inflationary
growth rates have been applied . Gross margin is forecast to be consistent through the budget and forecast
period .
In determining whether there was any impairment of goodwill associated with the SDL Software operations,
forecasts were prepared based on estimates for all the products sold in each market .
Goodwill of $123,000 also arose in the last reporting period associated with the acquisition of the Scantech
and DTP business (2018: $123,000) . This has similarly been tested for impairment through a review of revenue
and earnings forecasts for the financial year ended 30 June 2020 . Refer to note 19 and 33 for Directors
judgements and estimates .
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29
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
4 . REVENUE & OTHER INCOME
2019 2018
$000 $000
Revenue recognised over time 23,204 21,075
Revenue recognised at a point in time 1,675 11,308
Revenue from customers 24,879 22,383
Government grant revenue 265 293
Rent 11 56
Other Revenue 276 349
5 . EXPENSES
2019 2018
Note $000 $000
Acquisition related costs / (income) 33 (283) 118
Auditor’s remuneration 6 57 89
Credit losses 13 22 -
Freight, postage & external print 10,090 8,826
Directors remuneration - directors fees 29 477 513
Loss / (gain) on foreign exchange (21) (39)
Rental and operating lease expenses 668 715
Redundancy costs - 26
Research & development 681 473
Salaries 6,240 5,630
Superannuation (KiwiSaver) 273 152
Employee entitlements – share based payments 9 17
Donations 1 3
Other expenses 5,568 3,936
Total Operating Expenses 23,782 20,459
6 . AUDITOR’S REMUNERATION
2019 2018
$000 $000
Audit fees – statutory audit 57 61
Tax compliance and advisory services 13 28
Total auditor’s remuneration 70 89
Grant Thornton New Zealand Partnership is the auditor of the financial statements .
7 . INTEREST
2019 2018
$000 $000
Bank interest received (4) (5)
Interest on borrowings under finance facilities - -
Net interest received (4) (5)
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30
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
8 . INCOME TAX EXPENSE
8.1 Current Tax
2019 2018
$000 $000
Income tax expense comprises:
Current tax expense 138 586
Deferred tax expense relating to the origination and reversal of temporary differences (16) (9)
Total tax expense 122 577
The total charge for the reporting period can be reconciled to the accounting loss as follows:
Net profit before income tax 792 1,909
Income tax at company tax rate
(1)
221 534
Permanent differences (60) 34
(Over) provision in prior years (22) (8)
Benefit of tax losses not recognised - 17
Other (14) 6
Utilisation of previously unrecognised tax losses (3) (6)
Income tax expense 122 577
(1)
The Group tax rate of 28% (2018: 28%) has been used. This is the tax rate applicable to the territory where Solution Dynamics
Limited, the primary tax paying entity, is domiciled.
At 30 June 2019 there are imputation credits available of $770,000 (2018: $407,000) for use in subsequent
reporting periods .
8.2 Deferred Tax Balances
2019 2018
$000 $000
Temporary differences
Depreciable and amortisable assets (130) (121)
Accruals and provisions 122 97
(8) (24)
Net deferred tax asset not recognised - -
Deferred tax recognised (8) (24)
Deferred tax assets arising from deductible temporary differences are only recognised to the extent that it
is probable that taxable profits will be available against which the deductible temporary differences can be
utilised .
2019 2018
$000 $000
Deferred tax movement
Balance at beginning of period (24) 108
Current year movement through profit or loss 16 (9)
Deferred tax recognised on business acquisitions - (123)
Balance at end of period (8) (24)
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31
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
9 . EARNINGS PER SHARE (EPS)
2019 2018
$000 $000
Net profit for the year attributable to ordinary shareholders 670 1,332
Basic
Weighted average number of ordinary shares (000’s) 14,600 14,300
Cents Cents
Basic earnings per share 4.6 9.3
Basic earnings per share is calculated by dividing the net profit after tax attributable to equity holders of
the Company by the weighted average number of ordinary shares outstanding during the reporting period,
adjusted for bonus elements in ordinary shares issued during the reporting period .
Diluted
Weighted average number of ordinary shares (000’s) 14,600 14,300
Adjustment for share options 160 340
Weighted average 14,760 14,640
Cents Cents
Diluted earnings per share 4.5 9.1
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all potentially dilutive ordinary shares . Options are convertible into the
Company’s shares and are therefore considered dilutive securities for diluted earnings per share .
10 . CASH AND CASH EQUIVALENTS
2019 2018
$000 $000
Cash and cash equivalents 1,182 1,956
Total 1,182 1,956
Solution Dynamics has an overdraft facility in place with the ANZ Bank at an interest rate of 8 .1% p .a . (2018:
12 .35%) . This facility is to support the operational requirements of the Group, is interest only and is secured
by first ranking debenture over the assets of the Group .
At period end, the ANZ Bank has imposed no financial covenants to secure the existing facilities . The Group
maintains a $200,000 overdraft facility that was unused at the reporting date (2018: $200,000) . The Group
now holds a net cash position with no bank debt (2018: $Nil) .
At the end of the reporting period the Bank provided commercial guarantees totalling $65,000 (2018:
$65,000) to the Group’s suppliers .
11 . INVENTORIES AND WORK IN PROGRESS
2019 2018
$000 $000
Work in Progress 278 94
Inventory 81 89
Total Inventories and Work in Progress 359 183
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32
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
12 . RELATED PARTIES TRANSACTIONS
Transactions between related parties include transactions with subsidiaries, shareholders, directors and their
companies and senior executives
Related party transactions from 1 July 2018 to 30 June 2019 were as follows:
• Key management were paid $711,903 (as employees of Solution Dynamics Limited and including the
calculated benefit of the employee share option plan) during the reporting period (2018: $783,835) and
were owed $48,022, including annual leave, at 30 June 2019 (2018: $62,939) .
13 . TRADE & OTHER RECEIVABLES
2019 2018
$000 $000
Trade receivables 3,055 2,791
Allowance for credit losses (22) -
3,033 2,791
Allowance for credit notes (7) (11)
Total trade receivables 3,026 2,780
Sundry debtors 274 122
Total Trade & Other Receivables 3,300 2,902
Trading terms & aging of past due trade receivables
The Group’s trading terms require settlement by the 20th of the month following the date of invoice . At
the reporting date the Group had past due debtors of $374,000 (2018: $407,000) for which an allowance
of $22,000 (2018: $Nil) was made . There has not been a significant change in credit quality therefore the
amounts are considered recoverable . The Group does not hold any collateral over these balances .
2019 2018
$000 $000
30 – 60 days 206 192
60 – 90 days 54 187
90 – 120 days 114 28
Total overdue trade receivables 374 407
Movement in allowance for credit losses
2019 2018
$000 $000
Balance at the beginning of the reporting period - -
Accounts written off as uncollectable 22 -
Total allowance for credit losses 22 -
In assessing the recoverability of trade receivables, the Group considers any change in the quality of the trade
receivables from the date that the credit was initially granted up to the reporting date . The concentration of
credit risk is limited with the largest customer comprising 13% (2018: 11%) of the gross trade receivable
balance, 95% of the outstanding balance is less than 60 days old (2018: 92%) . Accordingly, the directors
believe that no further adjustments for credit are required in excess of the allowance for credit losses .
For the reporting period there are no provisions against third parties (2018: $Nil) .
The directors do not consider there to be any expected credit loss in addition to the credit losses recorded above .
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33
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
14 . OTHER CURRENT LIABILITIES
2019 2018
$000 $000
Sundry creditors 465 211
Payroll accruals 57 224
Provision for earnout (note 33) 52 335
Audit fees accrued 61 68
Total Other Current Liabilities 635 838
15 . OTHER NON-FINANCIAL LIABILITIES
2019 2018
$000 $000
PAYE 134 126
GST 305 318
Provision for tax (134) 256
Provision for deferred income 593 151
Total Non-Financial Liabilities 898 851
16 . EMPLOYEE BENEFIT LIABILITIES
2019 2018
$000 $000
Provision for sick pay 4 3
Provision for long service leave 96 82
Provision for holiday pay 384 387
Total Employee Benefit Liabilities 484 472
Provisions for sick and long service leave are based on the Group’s estimate of the present value of future
costs assuming payroll inflation rate of 2 .0% .
17 . PROPERTY, PLANT AND EQUIPMENT
Plant & Furniture Leasehold Total
Machinery & Fittings Improvements
$000 $000 $000 $000
Cost
Balance 1 July 2017 2,180 145 562 2,887
Additions 100 6 26 132
Acquisitions through business combinations 44 - 31 75
Balance 30 June 2018 2,324 151 619 3,094
Additions 240 6 27 273
Balance 30 June 2019 2,564 157 646 3,367
Accumulated depreciation
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34
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
17 . PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Plant & Furniture Leasehold Total
Machinery & Fittings Improvements
$000 $000 $000 $000
Balance 1 July 2017 1,838 137 317 2,292
Depreciation expense 137 2 69 208
Balance 30 June 2018 1,975 139 386 2,500
Depreciation expense 161 4 73 238
Disposals - - - -
Balance 30 June 2019 2136 143 459 2,738
Carrying amount
Balance 1 July 2017 342 8 245 595
Balance 30 June 2018 349 12 233 594
Balance 30 June 2019 428 14 187 629
18 . IDENTIFIABLE INTANGIBLES, FINITE LIFE
Software Software Software Customer Total
- Déjar
(i)
- Bremy Contracts
(ii)
$000 $000 $000 $000 $000
Cost
Balance 1 July 2017 2,090 110 1,099 - 3,299
Additions - purchased - - 74 - 74
- acquired through business combinations - - 531 441 972
Balance 30 June 2018 2,090 110 1,704 441 4,345
Additions - purchased - - 28 - 28
Balance 30 June 2019 2,090 110 1,732 441 4,373
Accumulated amortisation
Balance 1 July 2017 2,090 110 805 - 3,005
Amortisation expense - - 135 26 161
Balance 30 June 2018 2,090 110 940 26 3,166
Amortisation expense - - 224 123 347
Balance 30 June 2019 2,090 110 1,164 149 3,513
Carrying amount
Balance 1 July 2017 - - 294 - 294
Balance 30 June 2018 - - 764 415 1,179
Balance 30 June 2019 - - 568 292 860
(i) Déjar software (intellectual property) includes software costs of $1,400,000 purchased from Efactor
and Déjar Holdings .
(ii) 2018 addition as acquired through business combinations arose from the Scantech and DTP acquisitions
(note 33) .
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35
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
19 . GOODWILL
Scantech DTP Déjar Bremy Total
$000 $000 $000 $000 $000
Balance at beginning of year 66 57 215 723 1,061
Net carrying amount 66 57 215 723 1,061
Goodwill has arisen on the acquisition of a business previously controlled by Déjar Holdings Limited and
Bremy Limited . For impairment testing purposes, goodwill is determined to be associated with the SDL
Software cash generating unit .
No accumulated impairment losses have been recognised against the goodwill .
The carrying value of Déjar and Bremy goodwill is tested on an annual basis through assessment of the
value-in-use of the SDL Software cash generating unit . Management has projected growth in sales for the
Déjar and Bremy products at 3 .0% per annum for the 2020-2024 forecast period because it reflects inflation .
Growth above inflation has not been projected due to there being uncertainty around this . The cash flows
used in the value-in-use calculations are based firstly on the management budget for the 2020 year followed
by management forecasts over a further four-year period . Cash flows after 2024 have been taken into
account through a terminal value calculation (2018: Nil) .
The pre-tax discount rate used in the impairment calculation is 13 .8% (2018: 26 .0%) . The equivalent post-
tax nominal rate for the forecast cash flows is 10 .2% (2018: 5 .6%) . In the Directors’ view this represents the
rate that the market would expect on an investment of equivalent risk . There has been no impairment in the
reporting period (2018: $Nil) .
During the year ended 30 June 2018, Scantech and DTP goodwill of $123,000 arose from deferred tax on
business combinations as outlined in note 33 . Following a review of forecast cash flows for the FY2020
budget period the Directors’ judgement is that this goodwill is not material to the financial statements and
that there are no indicators of impairment at reporting date (note 33) .
19.1 Sensitivity to Changes in Assumptions
As at 30 June 2019, the date of the Group’s annual impairment test, the estimated recoverable amount of the
indefinite life intangible assets exceeded their carrying amount by $7,200,000 (2018: $1,450,000) .
It is the judgement of Directors that reasonable changes in the foreseeable future to growth rates and
discount rates (sensitivity analysis) does not result in an impairment loss .
20 . SHARE CAPITAL
2019 2018
$000 $000
Ordinary Shares
Balance at beginning of year 5,357 5,169
Exercise of employee share options 56 188
Share Capital at End of Year 5,413 5,357
The Company had 14,639,810 (2018: 14,559,810) ordinary shares on issue as at 30 June 2019 . All ordinary
shares ranked equally with one vote attached to each fully paid ordinary share and share equally in dividends
and surplus on winding up .
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36
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Solution Dynamics Limited
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
21 . ACCUMULATED LOSSES
2019 2018
$000 $000
Balance at beginning of reporting period (1,366) (1,764)
Net operating profit after income tax 670 1,332
Exercise of employee share options 29 105
Payment of dividends (804) (1,039)
Accumulated Losses at end of reporting period (1,471) (1,366)
22 . EMPLOYEE REMUNERATION
Remuneration includes salaries, bonuses and other benefits including non-cash benefits . The number of
employees with total remuneration exceeding $100,000 in each of the following bands was:
2019 2018
$000 $000
$100,000 to $109,999 3 4
$110,000 to $119,999 1 -
$120,000 to $129,999 2 -
$140,000 to $149,999 1 1
$150,000 to $159,999 2 -
$160,000 to $169,999 1 -
$170,000 to $179,999 - 2
$180,000 to $189,999 2 -
$190,000 to $199,999 - 1
$200,000 to $209,999 - 1
$250,000 to $259,999 1
$390,000 to $399,999 1 -
$410,000 to $419,999 - 1
Total staff with remuneration exceeding $100,000 14 10
23 . RECONCILIATION OF NET LOSS AFTER INCOME TAX FOR YEAR WITH NET CASH
INFLOW FROM OPERATING ACTIVITIES
2019 2018
$000 $000
Net profit after income tax 670 1,332
Adjustments:
Depreciation and amortisation of assets 585 369
(Gain) on foreign exchange (21) (39)
Credit losses 22 -
Interest income (reclassified as financing activity) (4) (5)
Other non-cash items (16) 20
Cash flow from trading 1,236 1,677
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37
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
23 . RECONCILIATION OF NET LOSS AFTER INCOME TAX FOR YEAR WITH NET CASH
INFLOW FROM OPERATING ACTIVITIES (CONTINUED)
2019 2018
$000 $000
Add movements in working capital:
(Increase) in trade & other receivables (419) (536)
(Increase) in inventories and work in progress (176) (31)
Decrease / (increase) in prepayments 3 (35)
Increase in other current liabilities 36 28
(Decrease) / increase in other non-financial liabilities (4) 39
(Decrease) / increase in trade creditors (165) 443
(Decrease) / increase in employee benefit liabilities (155) 37
(880) (55)
Net Cash Flows From Operating Activities 356 1,622
24 . OPERATING LEASE COMMITMENTS
Operating leases include the property at 18 Canaveral Drive and other equipment . Operating leases have
remaining lease terms of 1- 6 years . The initial term of the 18 Canaveral Drive, Albany lease has been varied
and now terminates in September 2022 with a right, subject to penalty, to terminate from September 2020 .
The Canaveral Drive lease has a biennial inflationary rent review clause . The Group does not have an option
to purchase the leased assets at the expiry of the lease period .
At each reporting date the Group had the following operating lease commitments:
2019 2018
$000 $000
Less than 1 year 930 943
1 to 2 years 772 947
2 to 5 years 766 1,553
Total Operating Lease Commitments 2,468 3,443
A portion of the Canaveral Drive premises lease were sub-leased on month to month terms which resulted
in a reduction in rental expense . This arrangement was terminated in March 2018 . Rental income during the
2019 year totalled $Nil (2018: $56,017) associated with these rental agreements . The current full year rental
on the Canaveral Drive property is $562,758 (2018: $546,336) .
25 . SEGMENT INFORMATION
The Group operates in one business segment, the supply of customer communication solutions . These
include a range of integrated document management products and services separated into three revenue
generating streams; software and technology, digital printing and document handling services and
outsourced services . Specific elements of these streams are as follows:
• Software & Technology, Solution Dynamics owns the intellectual property in five products;
◊ Déjar, an online digital archival and retrieval system sold stand-alone under licence agreements and
also as a hosted service in New Zealand and Internationally .
◊ Bremy, Digital asset management, workflow and multichannel publishing software sold as a
licenced product and also as a hosted service in New Zealand, Australia and the UK .
◊ Composer, “On-Demand” content creation software .
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38
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
25 . SEGMENT INFORMATION (CONTINUED)
◊ DéjarMail, is a web browser-based desktop mail management solution which allows customers to
route mail correspondence to SDL or any other service provider for printing and delivery .
◊ Jupiter is a hybrid mail application that was acquired through the purchase of the DigitalToPrint
business . The application routes data received from clients for international distribution of
communications to the destination country for print production and lodgement as local mail .
In addition to owning the intellectual property for the above products, Solution Dynamics provides
programming, consulting and design services that help clients to distribute marketing and essential
communications by mail and electronically . The provision of these services is covered under this category .
• Digital Printing & Document Handling Services, the printing of client’s information digitally using high
speed laser printers followed by the lodgement and distribution of those documents using a variety of
machine and other processes .
• Outsourced Services, not all components of Solution Dynamics’ solutions are produced internally .
External elements such as post, freight, paper and envelopes are sourced from external suppliers and
included in this service stream . Solution Dynamics has long term arrangements with a number of key
suppliers such as NZ Post for the provision of these services .
An overhead structure including sales, marketing and administration departments provides services for all of
the above revenue streams .
There are no reconciling items in this note due to the management information provided to the Chief
Operating Decision Maker, the CEO Nelson Siva, being compiled using the same standards and accounting
policies as those used to prepare the financial statements .
Segment Consolidated Statement of Profit or Loss
2019 2018
$000 % $000 %
Software & Technology 8,324 33% 6,052 27%
Digital Printing & Document Handling Services 5,561 22% 6,773 30%
Outsourced services 11,270 45% 9,907 43%
Total revenue 25,155 100% 22,732 100%
Less cost of sales 16,827 67% 14,315 63%
Gross margin 8,328 33% 8,417 37%
Selling, general & administration 6,955 28% 6,144 27%
Earnings before interest,
tax, depreciation & amortisation 1,373 5% 2,273 10%
Less:
Depreciation 238 1% 208 1%
Amortisation 347 1% 161 1%
Interest (4) 0% (5) 0%
Tax 122 0% 577 2%
Operating profit 670 3% 1,332 6%
Segment Assets
Assets are not segmented between service streams .
Information about Major Customers
Included in revenues for the Group of $25 .2 million (2018: $22 .7 million) are revenues of $3 .15million (2018:
$2 .8 million) which arose from sales to the Group’s largest customer .
Geographical Information
The Group has customers in New Zealand, Australia, United States of America and Europe .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
25 . SEGMENT INFORMATION (CONTINUED)
Revenue from
External Customers Non-current Assets
2019 2018 2019 2018
$000 $000 $000 $000
New Zealand 16,472 17,604 2,677 2,434
Australia 519 1,111 - -
United States of America 3,033 62 4 140
Europe 5,131 3,955 7 1
Total revenue 25,155 22,732 2,688 2,575
26 . CONTINGENT LIABILITIES
There were no contingent liabilities at the reporting date for the Group (2018: $Nil) .
2 7 . CAPITAL COMMITMENTS
The Group had no capital commitments at the reporting date (2018: $Nil) .
28 . FINANCIAL INSTRUMENTS
28.1 Credit Risk
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally
of trade & other receivables . The maximum credit risk is the carrying value of these financial instruments;
however, the Group does not consider the risk of non-recovery of these accounts to be material .
In the normal course of its business the Group incurs credit risk from trade receivables and transactions with
financial institutions . The Group has a credit policy, which is used to manage this exposure to credit risk . As
part of this policy, credit evaluations are performed on all customers requiring credit . The Group does not
have any significant concentrations of credit risk, excluding the single largest customer referred to in Note 13 .
This customer is not viewed as a credit risk due to trading and payment history . The Group does not require
any collateral or security to support financial instruments as it only deposits with, or loans to banks and other
financial institutions with credit ratings of no less than AA- . It does not expect the non-performance of any
obligations that are not provided for at reporting date .
28.2 Categories of Financial Instruments
2019 2018
$000 $000
Financial Assets Financial Assets
& Liabilities at & Liabilities at
Amortised Cost Amortised Cost
Assets
Cash & cash equivalents (Note 10) 1,182 1,956
Trade & other receivables (Note 13) 3,300 2,902
Total Financial Assets 4,482 4,858
Total non-financial assets 3,183 3,209
Total Assets 7,665 8,067
Liabilities
Trade creditors 1,706 1,871
Other current liabilities (Note 14) 635 838
Total Financial Liabilities 2,341 2,709
Total non-financial liabilities 1,374 1,299
Total Liabilities 3,715 4,008
The carrying values of the financial instruments above are equivalent to their fair values .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
28.3 Maturity Date of Financial Instruments
Gross
Less than 1 - 3 3 Months 1 - 5 Nominal Carrying
1 Month Months to 1 Year Years Outflow Value
$000 $000 $000 $000 $000 $000
2019
Non-interest bearing 1,918 435 (12) - 2,341 2,341
1,918 435 (12) - 2,341 2,341
2018
Non-interest bearing 1,367 867 475 - 2,709 2,709
1,367 867 475 - 2,709 2,709
28.4 Interest Rates
The following table details the Group’s weighted average effective interest rates for financial liabilities at
reporting date .
2019 2018
Financial Liabilities:
Finance facility (overdraft rate) 8 .1% 12 .35%
28.5 Foreign Currency Risk Management
Hosting and license sales linked to SDL Software operations are denominated in foreign currency and sold
under standard terms and conditions . Any variation in exchange rate between the date of sale and the date
cash is received is accounted for as a foreign exchange gain/loss in the period in which it occurs . For material
individual transactions in foreign currencies the Group has a policy of taking forward exchange . At 30 June
2019 of total trade receivables of $3,055,000 (2018: $2,791,000) a total of $1,384,000 (2018: $974,000) was
in foreign currencies . $1,076,000 (2018: $784,000) of the foreign currency receivables were denominated in
European currencies, $177,000 (2018: $63,000) in US $ with the remainder of the balance in AUD $ .
In addition to the trade receivables of $1,384,000 (2018: $974,000) held in foreign currencies at the end of
the reporting period, a further $700,000 (2018: $352,000) in cash was also held in foreign currencies, a total
of $2,084,000 (2018: $1,326,000) . Adjusted for offsetting payables balances of $1,243,000 (2018: 659,796), a
movement in the exchange rate of 10% would give rise to an exchange fluctuation of $78,700 .
Trading operations for the UK and Europe are largely undertaken through SDL’s UK subsidiary Solution
Dynamics International Limited (SDIL) . At period end the net assets for SDIL, comprising largely working
capital, was a credit balance of NZ$225,000 (2018: NZ$110,000) with cash and receivable balances as noted
above .
At 30 June 2019, the reporting date no forward exchange contracts were held (2018: $Nil) . The Directors
believe that any sensitivity to foreign exchange risk through its investment in offshore companies is not
material .
The foreign exchange gains or losses disclosed in Note 5 relate to trade and other receivables .
28.6 Liquidity Risk Management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an
appropriate liquidity risk management framework for the management of the Group’s short, medium and
long-term funding and liquidity management requirements . The Group manages liquidity risk by maintaining
adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast
and actual cash flows and matching the maturity profiles of financial assets and liabilities . With positive cash
inflows the Group’s liquidity risk is considered by the Directors to be low .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
28.7 Interest Rate Sensitivity Analysis
Interest on finance leases is on fixed rates with no exposure to fluctuations in interest rates . There are no
borrowings associated with the finance facility as at the end of the reporting period (2018: $Nil) .
At 30 June 2019 the interest rate on the overdraft facility was 8 .1% (2018: 12 .35%) . With a net cash position
of $1 .18 million (2018: $1 .96 million) at the end of the reporting period a material change in the interest
expense is not expected .
28.8 Capital Management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while
maximising the return to shareholders through the optimisation of the debt and equity balances .
The Group is in a net cash position of $1 .18 million (2018: $1 .96 million) and a net cash inflow from
operations of $0 .36 million (2018: $1 .62 million) . There was an operating profit of $0 .67 million in the current
year (2018: $1 .33 million) . A material improvement in financial performance is forecast for the 2020 year . The
Group has no externally imposed covenants to manage .
2019 2018
$000 $000
Cash & Finance facility (Note 10) 1,182 1,956
Net cash (debt) 1,182 1,956
Equity (all capital and reserves) 3,934 4,011
Net (cash) debt to equity ratio (30%) (49%)
During the reporting period the finance facility was subject to certain conditions which are disclosed in Note
10 .
29 . DIRECTORS’ REMUNERATION
The following fees and salaries were paid to Directors during the reporting period:
2019 2018
$000 $000
John McMahon (Chairman) 45 45
Nelson Siva (CEO) 374 413
Julian Beavis 25 25
Elmar Toime 25 30
Lee Eglinton 4 -
Andy Preece (Chairman Audit & Risk Management Committee) 4 -
Total Directors’ Remuneration 477 513
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
30 . EMPLOYEE OPTIONS
On 17 February 2014 the board of Solution Dynamics Limited announced the introduction of an equity
settled employee share option plan . The general principles of the scheme were:
• The maximum aggregate number of share options to be granted pursuant to the plan is 5% of the total
number of shares on issue .
• Options of no more than 1% of the total number of SDL’s shares on issue can be granted to an
individual staff member .
• The exercise price will be determined by the Board based on the market price at the time of issue .
• The options may be exercised by the participant (in whole or part) after three years from the date that
they are granted . The key employees have 18-months from the date of eligibility and must be employed
by SDL at the date the option is exercised .
All options from the initial tranches of the scheme were exercised by March 2019 . Effective 14 December
2018 the board issued 80,000 share options each to two staff who are key senior members of the Company’s
IT team . The options have an exercise price of $1 .70 per share .
2019 2018
Number of Number of
Shares Shares
$000 $000
Unvested shares at 1 July 2018 80 580
Granted 160 -
Vested (80) (500)
Unvested shares at 30 June 2019 160 80
Percentage of total ordinary shares 1 .1% 0 .5%
The fair value of the options granted during the reporting period was $50,445 (2018: $Nil) . This cost is
recognised over the vesting period .
Grant Date Options Share Price Exercise Options Option
Issued at Grant Date Price Expire Value $
November 2015 80,000 $0 .800 $0 .700 May 2019 $29,395
December 2018 160,000 $1 .700 $1 .700 June 2023 $50,445
The fair value was determined using a Black-Scholes option pricing model that takes into account the
exercise price, the term of the option, the share price at grant date and expected price volatility of the
underlying share, the dividend yield and the risk-free interest rate for the term of the option .
In addition to the factors as noted in the table above further inputs for the model included:
• Standard deviation of stock returns 35% . This is based on an analysis of share price movements over
the 12-months prior to the issue of the options .
• Dividend yield of 4 .37% .
• Annual risk-free rate of 1 .23% .
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
32 . SHAREHOLDERS AND SUBSTANTIAL SECURITY HOLDERS
32.1 The 20 largest shareholders as at 22 July 2019 were:
Shareholder % of Total Shares
NEW ZEALAND PERMANENT TRUSTEES LIMITED - NZCSD 11 .27% 1,649,343
ASB NOMINEES LIMITED 10 .56% 1,545,658
PHILIP HADFIELD HARDIE BOYS (P & K HARDIE BOYS FAMILY) 7 .96% 1,165,000
INDRAJIT NELSON SIVASUBRAMANIAM + TRACEY LEE SIVASUBRAMANIAM 6 .63% 970,000
CUSTODIAL SERVICES LIMITED 5 .07% 742,740
ACCIDENT COMPENSATION CORPORATION - NZCSD 4 .96% 725,553
MICHAEL CHARLES HARE 4 .78% 700,000
COLIN GLENN GIFFNEY 3 .55% 520,000
JILLIAN BERNADETTE WINSTANLEY 2 .22% 325,000
DEIRDRE ELIZABETH TALLOTT 1 .98% 289,444
INVESTMENT CUSTODIAL SERVICES LIMITED 1 .92% 280,881
CUSTODIAL SERVICES LIMITED 1 .84% 269,972
CHRISTOPHER VEALE + PENNY VEALE 1 .81% 265,704
ROGER DIXON ARMSTRONG 1 .79% 261,665
CUSTODIAL SERVICES LIMITED 1 .67% 245,000
DON NOMINEES LIMITED 1 .60% 234,944
KIRSTEN ROBERTS 1 .40% 205,000
FNZ CUSTODIANS LIMITED 1 .34% 196,183
INVESTMENT CUSTODIAL SERVICES LIMITED 1 .23% 180,000
ZEALANDIA ASSOCIATES LIMITED 1 .11% 162,000
Grand Total 74.69% 10,934,087
A total of 14,639,810 shares were on issue (2018: 14,559,810) .
32.1 Size of Shareholding as at 22 July 2019
Holdings Shareholders Shares Held % of Total
1-999 100 24,191 0 .2%
1,000-4,999 76 138,996 1 .0%
5,000-9,999 28 175,891 1 .2%
10,000-49,999 53 983,545 6 .7%
50,000-99,999 16 1,124,650 7 .7%
100,000 and over 30 12,192,537 83 .2%
TOTAL 303 14,639,810 100.0%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 30 June 2019
Solution Dynamics Limited
32.2 Substantial Security Holders
According to notices given under the Financial Markets Conduct Act 2013, the following persons were
substantial shareholders in Solution Dynamics Limited as at 22 July 2019:
Shareholder % of Total Shares
New Zealand Permanent Trustees Limited (The Aspiring Fund) 11 .27% 1,649,343
Meta Capital Limited (John McMahon) 10 .56% 1,545,658
Philip Hadfield Hardie Boys (P & K Hardie Boys Family A/C) 7 .96% 1,165,000
Indrajit Nelson Sivasubramaniam & Tracey Lee Sivasubramaniam 6 .63% 970,000
Michael Charles Hare (& others) 5 .05% 740,000
33 . BUSINESS COMBINATIONS
During the year ended 30 June 2018, the business and assets of Auckland-based scanning services and
technology provider Scantech Limited (Scantech) were acquired as at 1 April 2018 and the United States-
based technology company DigitalToPrint Inc . and its related companies (DTP) was acquired as at 1 May
2018 for an aggregate purchase consideration of $1 .05 million .
The Company obtained full control of these businesses by acquiring the assets of the Company, including
property leases and some staff .
The acquisition included contingent consideration determined by the Directors to be $335,000 based upon
achieving sales targets within 12-months of acquisition date . The range of possible contingent consideration
is nil to $1 .21 million . During the year ended 30 June 2019 contingent consideration has been revised
resulting in a credit to the Statement of Profit or Loss . The total payment to be made from contingent
consideration was assessed to be $52,000, with the remaining $283,000 being included as a credit to
acquisition costs in operating expenses, see note 5 .
The contribution of these businesses to the Group results for the reporting period ended 30 June 2019 was
revenue of $2,821,000 (2018: $231,000) and an operating loss before interest, income tax and amortisation
of intangibles of $37,000 (2018: $62,000) .
2019 2018
$000 $000
Purchase Consideration
Cash paid 712 712
Estimate of earnout related to acquisitions 52 335
Reversal of earnout related to acquisitions 283 -
Total Estimated Consideration 1,047 1,047
Fair value of assets arising from the acquisitions
Property plant and equipment 75 75
Intangible assets software 531 531
Intangible assets customer contracts 441 441
Goodwill – arising on deferred tax 123 123
Less liabilities assumed:
Deferred tax liability on customer contracts (123) (123)
Total 1,047 1,047
34 . EVENTS AFTER THE REPORTING DATE
On 29 August 2019, the Directors approved the payment of a fully imputed dividend of 2 .0 cents per share
amounting to $292,796 to be paid on 27 September 2019 (2018: The Directors approved the payment of a
fully imputed dividend of 3 .50 cents per share, amounting to $509,593) .
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STATEMENT OF CORPORATE GOVERNANCE
Solution Dynamics Limited
The corporate governance processes set out in this statement do not materially differ from the principles set
out in the New Zealand Stock Exchange Corporate Governance Best Practice Code issued on May 2017 . In
this regard, there are several items which the Board is progressing, particularly as a result of Solution Dynamics
Limited’s (SDL’s) migration to the New Zealand Stock Exchange (NZX) Main Board on 28 May 2019 and, as a
result of this migration, the need to comply with the new NZX Listing Rules from that date . The information in
this report is current as at 29 August 2019 and has been approved by the Board .
The Board Charter and key policies which were approved by the board on 2 May 2019 are available on the
Company’s website: www .solutiondynamics .com .
SDL is listed on the NZX’s Main Board and is subject to regulatory control and monitoring by both the NZX and
the Financial Markets Authority (FMA) .
PRINCIPLE 1 – CODE OF ETHICAL BEHAVIOUR
Directors should set high standards of ethical behaviour, model this behaviour and hold management to
account for adherence to these standards throughout the organisation.
The Board recognises that high ethical standards and behaviours are central to good corporate governance
and it is committed to the observance of a Code of Business Conduct and Ethics throughout the Group .
The Code of Business Conduct and Ethics, which was approved by the Board as part of the process of
migrating to the NZX Main Board, provides a framework of standards by which the directors, employees and
contractors to SDL and its related companies are expected to conduct themselves . It is intended to facilitate
actions and decision-making that is consistent with SDL’s values, business goals and legal obligations and,
thereby, enhance performance outcomes .
Employees are expected to report any breaches of the Code in line with the processes outlined in the Code of
Business Conduct and Ethics .
The Code of Business Conduct and Ethics was approved by the Board in May 2019 as part of the process of
migrating to the NZX Main Board . Nonetheless, the Board believes that all Directors conformed to the Code
during the 2019 financial year .
A copy of the Code of Business Conduct and Ethics was made is made available to all employees and is given
to all new employees when they join the Group . Any future changes to the Code of Business Conduct and
Ethics will be communicated to staff . The Code of Business Conduct and Ethics can also be found at http://
www .solutiondynamics .com/wp-content/uploads/2019/05/Code_of_Business_Conduct_and_Ethics .pdf .
SDL has a Share Trading Policy to mitigate the risk of insider trading in SDL’s securities by employees
and Directors . A copy of this Policy can also be found at http://www .solutiondynamics .com/wp-content/
uploads/2019/05/Share_Trading_Policy .pdf . The Policy was updated in May 2019 as a part of the process of
migrating to the NZX Main Board . Additional share trading restrictions apply to Restricted Persons including
Directors and certain employees .
Directors’ Share Dealings and Shareholding
Directors’ disclose the following relevant interests in shares in the Group at 30 June 2019 and transactions in
relevant interests in shares during the financial year ended 30 June 2019 .
Shareholder Balance 30 June 2018 Additions Disposals Balance 30 June 2019
John McMahon 1,504,801 40,857 - 1,545,658
Nelson Siva 970,000 - - 970,000
Entries in the Interests Register
In addition to the interests and related party transactions disclosures in Note 12 of the Notes to the Financial
Statements, there were no interests disclosed to the Board during the year .
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Conflicts of Interest and Related Parties
All Directors must disclose any general and specific interests that could be in conflict with their obligations to
the Group . Transactions with related parties and balances outstanding relating to the year ended 30 June 2019
are disclosed in Note 12 of the Notes to the Financial Statements .
PRINCIPLE 2 – BOARD COMPOSITION & PERFORMANCE
To ensure an effective Board, there should be a balance of independence, skills, knowledge, experience and
perspectives.
The primary responsibilities of the Board include:
• to establish the vision of the Group
• to establish the long-term goals and strategies of the Group
• to approve annual and half-year financial reports
• to approve annual budgets
• to approve corporate policies
• to ensure the Group has good internal controls and keeps adequate records
• to ensure legislative compliance
• to monitor executive management
• to ensure appropriate communication to stakeholders
Board procedures are governed by the Constitution .
The Board is responsible for setting the strategic direction of the Group, overseeing the financial and
operational controls of the business, putting in place appropriate risk management strategies and policies and
enhancing its value for shareholders in accordance with good corporate governance principles .
In addition to the Code of Business Conduct and Ethics, the Board also operates under a written Board Charter
which sets out the structure of the Board, role and responsibilities of Directors, procedures for the nomination,
resignation and removal of Directors; and identifies procedures to ensure that the Board meets regularly,
conducts its meetings in an efficient and effective manner and that each Director is fully empowered to perform
his or her duties as a Director of the Company and to fully participate in Board meetings .
The day-to-day management of SDL’s business is undertaken by SDL’s senior management team under the
leadership of the Chief Executive Officer, through a set of delegated authorities which are reviewed annually .
In order to discharge their duties, Directors have direct access to, and may rely on, financial, and other
management information, and advice provided by SDL’s senior management as well as professional advice
provided by external advisers . Directors have the right, with the approval of the Chairman or by resolution of
the Board, to seek independent legal or financial advice at the Company’s expense for the proper performance
of their duties .
Board Composition and Appointment
The number of elected Directors and the procedure for their retirement and re-election at Annual Shareholder
Meetings is set out in the Company’s constitution .
SDL considers that the nomination process for new Director appointments is the responsibility of the whole
Board and it does not have a separate Nomination Committee .
The Board takes into consideration tenure, capability, diversity and skills when reviewing Board composition
and new appointments .
At each Annual Meeting, one-third of the current Directors retire by rotation and are eligible for re-election . Any
Directors appointed since the previous Annual Meeting must also retire and are eligible for election .
When a new Director is appointed, SDL will enter into a written appointment letter setting out the terms of their
appointment .
The Board supports the separation of the roles of Chairman and CEO . The Chair of SDL as at 29 August 2019
is non-executive director, John McMahon, who has (through a related party) a 10 .56% shareholding in SDL and
is therefore not considered independent under the NZX Main Board Listing Rules .
STATEMENT OF CORPORATE GOVERNANCE
Solution Dynamics Limited
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The Board currently comprises six Directors, being a non-executive chairman (non-independent), four non-
executive Directors (independent) and the Chief Executive . They are all elected based on the value they bring to
the Board .
In order for a Director to be independent, the Board has determined that he or she must not be an executive of
SDL and must have no ‘Disqualifying Relationships’ . In this regard, the Board follows the requirements of the
NZX Listing Rules (and NZX guidance on the application of those requirements) . Information on each director
can be found at http://www .solutiondynamics .com/our-team/ . Director’s interests are disclosed on page 45 of
the 2019 Annual Rpeort .
The Company encourages all Directors to undertake appropriate training and education so that they may best
perform their duties . This includes attending presentations on changes in governance, legal and regulatory
frameworks; attending technical and professional development courses . ln addition, Directors can receive
updates on relevant industry and Company issues, and briefings from key executives .
The Board aims to regularly consider individual and collective performance, together with the skillsets, training
and development and succession planning required to govern the Group’s business .
Diversity
SDL is committed to a culture that actively supports diversity and inclusiveness and prevents or eliminates
discrimination in any form . As such, SDL firmly believes that diversity and inclusiveness enables SDL to better
respond to the ever-changing environment in which we operate and better serve the diverse customer and
stakeholder base we are accountable to .
The concept of diversity includes (but is not limited to) concepts of gender, race, ethnicity and cultural
background as well as physical capability, age, sexual orientation, and religious or political beliefs .
SDL does not have formal diversity policy . Instead, SDL’s Code of Business Conduct and Ethics notes that SDL
values diversity and has a workforce consisting of many individuals with diverse skills, values, backgrounds,
ethnicity and experience . We attract and retain a diverse workforce and this diversity brings a range of ideals,
skills and innovation to SDL, which assists in achieving our objectives . At the date of this report, the Board is
yet to consider whether it requires management to provide regular reporting and monitoring on diversity within
SDL’s workforce .
As at 30 June 2019, the gender balance of SDL’s directors and people were as follows:
30 June 2019 30 June 2018
Directors
Females 1 -
Males 5 4
Management Team
Females - -
Males 9 6
All Employees
Females 32 37
Males 53 42
The Management team is defined as being the Chief Executive Officer and 8 senior leaders reporting directly to
the Chief Executive Officer .
STATEMENT OF CORPORATE GOVERNANCE
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STATEMENT OF CORPORATE GOVERNANCE
Solution Dynamics Limited
Board Meetings and Attendance
The Board has 11 scheduled meetings a year .
During the period 1 July 2018 to 30 June 2019 attendance at Board and Committee meetings was:
Audit &
Board Meetings
(1)
Risk Management
(2)
Held Attended Held Attended
John McMahon (Chairman) 11 11 1 1
Julian Beavis 11 11
Nelson Siva (CEO) 11 11
Elmar Toime 11 11
Andy Preece (appointed 2 May 2019) 3 3 1 1
Lee Eglinton (appointed 29 May 2019) 2 2
(1)
John McMahon is the board chairman
(2)
Andy Preece is the chairman of the audit & risk management committee
PRINCIPLE 3 - COMMITTEES
The Board should use committees where this will enhance its effectiveness ln key areas, while still retaining
Board responsibility.
The Board has constituted one standing Committee being the Audit and Risk Committee . Due to the size of the
Board, matters normally dealt with by remuneration and the nominations committees are dealt with by the full
Board .
Committees allow issues requiring detailed consideration to be dealt with separately by members of the Board
with specialist knowledge and experience, thereby enhancing the efficiency and effectiveness of the Board .
However, the Board retains ultimate responsibility for the functions of its Committees and determines their
responsibilities .
The Audit and Risk Committee meets as required and has terms of reference (a Charter), which was approved
by the Board as part of the process of migration to the NZX Main Board in May 2019 . A copy of the Audit and
Risk Committee Charter can be found at: http://www .solutiondynamics .com/wp-content/uploads/2019/05/
Audit_Risk_Charter .pdf
Minutes of each Committee meeting are forwarded to all members of the Board . The Audit and Risk Committee
is empowered to seek any information it requires from employees in pursuing its duties and to obtain
independent legal or other professional advice .
The membership and performance of the Committee is reviewed annually .
From time to time, special purpose committees may be formed to review and monitor specific projects with
senior management .
As the Board believes that matters of remuneration and nominations are the responsibility of the entire Board,
SDL does not consider it necessary to comply with recommendations 3 .3 and 3 .11 of the NZX Corporate
Governance Code and accordingly does not have a separate remuneration committee or nomination committee .
The Board will continue to monitor best practice in the governance area and update SDL’s policies to ensure it
maintains the most appropriate standards .
Audit and Risk Committee
The role of the Audit and Risk Committee is to assist the Board in carrying out its responsibilities under the
Companies Act 1993 and part 7 of the Financial Markets Conduct Act 2013 regarding accountancy practices,
policies and controls relative to the Company’s consolidated financial position and make appropriate enquiry
into the audits of the Company’s consolidated financial statements . This responsibility includes providing the
Board with additional assurance about the quality and reliability of the financial information issued publicly by the
Company . All matters required to be addressed and for which the Committee has responsibility were addressed
during the 2019 financial year .
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49
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STATEMENT OF CORPORATE GOVERNANCE
A written charter outlines the Audit and Risk Committee’s delegated authority, duties, responsibilities
and relationship with the Board . The Charter is available on the Company’s website at: http://www .
solutiondynamics .com/wp-content/uploads/2019/05/Audit_Risk_Charter .pdf
The Committee must be comprised solely of Directors of SDL, have a minimum of three members, two of
whom have a majority of independent Directors and have at least one director with an accounting or financial
background . The makeup of the current members of the Committee complies with this recommendation . The
chair of the Committee cannot be Chair of the Board .
Members as at 30 June 2019 were Andy Preece (Chairman), Lee Eglinton and John McMahon . It met once
during the financial year following its establishment in May 2019 .
Management and employees may only attend meetings at the invitation of the committee and the Committee
routinely has Committee only time with the external and internal auditors without management present .
Takeovers
The Board has yet to whether to establish protocols or procedures to be followed in the event of a takeover .
Nonetheless, the Board understands that any such protocols or procedures would involve SDL forming an
independent takeover committee to oversee disclosure and response and engage expert legal and financial
advisors to provide advice on procedural matters affecting any such takeover .
PRINCIPLE 4 –REPORTING & DISCLOSURE
The Board should demand integrity in financial and non-financial reporting, and in the timeliness and balance
of corporate disclosures.
The Board is committed to keeping shareholders and the market informed of all material information about
the Company and its performance and ensure compliance with legislative requirements and those of the NZX
Listing Rules .
The release of material information is guided by the NZX Listing Rules (and the Listing Rules guidance provided
by NZX) .
In addition to all information required by law, SDL also seeks to provide sufficient meaningful information to
ensure stakeholders and investors are well informed, including financial and non-financial information .
Financial Statements
It is the Directors’ responsibility to ensure preparation of consolidated financial statements that present
fairly the financial position of the Group as at the end of the financial year and the results of operations and
cash flows for the year . The external auditors are responsible for expressing an independent opinion on the
consolidated financial statements .
The consolidated financial statements set out in this report have been prepared by management in accordance
with generally accepted accounting practice in New Zealand . They are based on appropriate accounting
policies which have been consistently applied and which are supported by reasonable judgements and
estimates .
For the financial year ended 30 June 2019, the directors believe that proper accounting records have been kept
which enable, with reasonable accuracy, the determination of the consolidated financial position of the Group
and facilitate compliance of the financial statements with the Companies Act 1993 and the Financial Markets
Conduct Act 2013 .
After reviewing internal management financial reports and budgets the Directors believe that the Group will
continue to be a going concern in the foreseeable future . For this reason, they continue to adopt the going
concern basis in preparing the consolidated financial statements .
The Chief Executive and Chief Financial Officer have confirmed in writing to the Board that SDL’s external
financial reports are presented fairly in all material aspects .
SDL’s full and half year financial statements are available on the Company/s website at: http://www .
solutiondynamics .com/investor-centre/
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STATEMENT OF CORPORATE GOVERNANCE
Solution Dynamics Limited
Non-financial information
The Board recognises the importance of non-financial disclosure . Given SDL’s size the Board has elected not
to comply with recommendation 4 .3 of the NZX Corporate Governance Code and has not adopted a formal
environmental, social and governance (ESG) framework .
SDL discusses its strategic objectives and its progress against these in the Management Discussion and
Analysis section of this annual report and at the Annual Meeting .
SDL is committed to using its resources responsibly and is actively working with its supply chain partners
to look for opportunities to reduce any negative environmental risk or impact from its business operations,
products and services .
The Board encourages diversity and will not knowingly allow SDL to participate in business activities where
SDL could be complicit in human rights and labour standard abuses .
PRINCIPLE 5 – REMUNERATION
The remuneration of Directors and management should be transparent, fair and reasonable.
The Board promotes the alignment of the interests of the directors, the Chief Executive Officer and
management with the long-term interests of shareholders . Remuneration policies and structure are reviewed
regularly to ensure remuneration of management and directors is fair and reasonable in a competitive market
for the skills, knowledge and experience required by the Company .
The Board recognises that it is desirable that management (including that for any executive Director)
remuneration should include an element dependent upon the performance of both the Group and the individual
and should be clearly differentiated from non-executive Director remuneration .
Details of Directors and management remuneration and entitlements for the 2019 financial year are set out on
pages 36, 41 and 51 of the annual report .
SDL does not have a Remuneration Committee and matters relating to remuneration are dealt with by the full
Board .
Directors’ Remuneration
The total remuneration pool available for Directors is fixed by shareholders . The Board determines the level
of remuneration paid to Directors from the approved collective pool . Directors also receive reimbursement for
reasonable travelling, accommodation and other expenses incurred in the course of performing their duties .
The annual fee pool is $140,000 which was approved by shareholders at the Annual Meeting in October 2015 .
Any proposed increases in non-executive Director fees and remuneration will be put to shareholders for
approval . If independent advice is sought by the Board, it will be disclosed to shareholders as part of the
approval process .
Board Role Approved Remuneration
Chair $45,000
Non-executive Director $25,000
Directors’ remuneration during the year is disclosed in Note 29 of the Notes to the Consolidated Financial
Statements .
Executives’ Remuneration
Executive remuneration consists of a fixed base salary, incentives and a Share Option Plan . Incentives are
paid against targets agreed with members of the management team at the commencement of the year and are
based on earnings and sales targets .
Executives’ remuneration greater than $100,000 per annum received in their capacity as employees during the
year is disclosed in Note 22 of the Notes to the Consolidated Financial Statements .
Details of the SDL Share Option Plan are detailed in Note 30 to the 2019 Financial Statements .
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STATEMENT OF CORPORATE GOVERNANCE
Chief Executive Officer Remuneration
The review and approval of the Chief Executive Officer’s remuneration is the responsibility of the Board .
The Chief Executive Officer’s remuneration comprises a fixed base salary and bonus paid annually .
The CEO’s remuneration can be summarised as follows:
(000’s)
Base salary 242
Incentive based on earnings performance
(1)
181
Total on target earnings 423
(1)
This is paid annually in arrears based on Company earnings . No payment will be made for FY2019 .
PRINCIPLE 6 – RISK MANAGEMENT
Directors should have a sound understanding of the material risks faced by the issuer and how to manage
them. The Board should regularly verify that the issuer has appropriate processes that identify and manage
potential and material risks.
SDL is committed to proactively managing risk . Whilst risk management, and the Group’s system of internal
controls, is the responsibility of the entire Board, the Audit and Risk Committee assists the Board and provides
additional oversight with regard to the risk management framework and monitoring compliance with that
framework .
The Board monitors the operational and financial aspects of the Group and considers recommendations from
external auditors and advisors on the risks that the Group faces .
The Board ensures that recommendations made are assessed and appropriate action is taken where necessary
to ensure risks are managed appropriately .
The Board’s approach to risk management is incorporated into the Audit and Risk Committee Charter, which
can be found at: http://www .solutiondynamics .com/wp-content/uploads/2019/05/Audit_Risk_Charter .pdf
The Board delegates day-to-day management of the risk to the Chief Executive Officer . SDL’s management
team is required to regularly identify the major risks affecting SDL’s business and develop structures, practices
and processes to manage and monitor these risks .
It is the responsibility of the Directors to ensure adequate accounting records are kept . Directors are also
responsible for the Group’s system of internal financial controls .
Internal financial controls have been implemented to minimize the possibility of material misstatement . They
can provide only reasonable assurance and not absolute assurance against material misstatements or loss .
No major breakdowns of internal controls were identified during the year .
The Board is satisfied that SDL has in place a risk management process to effectively identify, manage and
monitor SDL’s principal risks .
SDL also maintains insurance policies that it considers adequate to meet its insurable risks .
Key financial and non-financial risks are included in Note 28 to the financial statements .
Health and Safety
The Board recognises that effective management of health and safety is essential for the operation of a
successful business, and its intent is to prevent harm and promote wellbeing for SDL’s employees and
contractors . The Board is responsible for ensuring that the systems used to identify and manage health and
safety risks are fit for purpose, being effectively implemented, regularly reviewed and continuously improved .
SDL has a Health and Safety Charter which is monitored by the management team . Health and Safety reports,
including incident reports, for SDL’s business are included in the compliance section of the Board papers .
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STATEMENT OF CORPORATE GOVERNANCE
Solution Dynamics Limited
PRINCIPLE 7 – AUDITORS
The Board should ensure the quality and independence of the external audit process.
The Board’s approach to the appointment and oversight of the external auditor are outlined in SDL’s Audit
and Risk Committee Charter, which can be found at: http://www .solutiondynamics .com/wp-content/
uploads/2019/05/Audit_Risk_Charter .pdf . Amongst other things, the Charter is designed to ensure that audit
independence is maintained, both in fact and appearance, so that SDL’s external financial reporting is viewed
as being highly reliable and credible .
The Audit and Risk Committee provides additional oversight of the external auditor reviews the quality and cost
of the audit undertaken by SDL’s external auditors and provides a formal channel of communication between
the Board, the management team and the external auditors . The Committee also assesses the auditor’s
independence on an annual basis . These requirements are detailed in the Audit and Risk Committee Charter .
For the financial year ended 30 June 2019, Grant Thornton continued in their appointment as the external
auditor for SDL . Grant Thornton has occupied that role since 2009 . The last audit partner rotation was in 2016 .
All audit work at SDL is fully separated from any non-audit services, to ensure that appropriate independence is
maintained . The amount of fees paid to Grant Thornton for audit and other services is identified on page 29 of
this annual report .
Grant Thornton has provided the Board with written confirmation that, in their view, they were able to operate
independently during the financial year .
Grant Thornton attends the Annual Meeting, and the lead audit partner is available to answer questions from
shareholders at that meeting . In this capacity, Grant Thornton attended the 2018 annual meeting .
SDL has a number of internal controls overseen by Audit and Risk Committee, including controls for
computerised information system, security, business continuity management, insurance, health and safety,
conflicts of interest, and prevention and identification of fraud . SDL does not have a dedicated Group internal
auditor role .
PRINCIPLE 8 – SHAREHOLDER RIGHTS & RELATIONS
The Board should respect the rights of shareholders and foster constructive relationships with shareholders
that encourage them to engage with the issuer.
The Board is committed to open dialogue and to facilitating engagement with shareholders .
SDL has a calendar of communications for shareholders, including but not limited to:
• Annual and Half-Yearly Reports
• Market announcements
• Annual Meeting
• Access to information through the SDL website www .solutiondynamics .com
SDL Company maintains a comprehensive website which provides access to key corporate governance
documents, copies of all major announcements and Company reports .
Shareholders are encouraged to attend the Annual Meeting and may raise matters for discussion at the
meeting . In accordance with NZX Corporate Governance Code, the Board ensured that the notice of the Annual
Meeting was posted to SDL’s website as soon as possible and at least 28 days prior to the meeting .
Shareholders have the ultimate control in corporate governance by voting Directors on or off the Board . Voting
is by poll, upholding the ‘one share, one vote’ philosophy .
In accordance with the Companies Act 1993, SDL’s constitution and the NZX Listing Rules, SDL refers major
decisions which may change the nature of SDL’s business to shareholders for approval .
All shareholders are given the option to elect to receive electronic communications from SDL . In addition to
shareholders, SDL has a wide range of stakeholders and maintains open channels of communication for all
audiences, including shareholders, brokers and the investing community, as well as our staff, suppliers and
customers .
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Nature of Business
Data management, electronic digital printing, document distribution, web presentment and archiving,
fulfilment, print services, scanning, data entry and document management .
Directors
John McMahon – Non-independent Chairman
Elmar Toime -Independent
Julian Beavis - Independent
Andy Preece - Independent
Lee Eglinton - Independent
Indrajit Nelson Sivasubramaniam (Nelson Siva) –
Chief Executive Officer
Auditor
Grant Thornton New Zealand Audit Partnership
Grant Thornton House
152 Fanshawe Street
AUCKLAND
Bankers
ANZ National Bank Limited
Level 20, ANZ Centre
23 - 29 Albert Street
AUCKLAND
Legal Representative
Stephen Layburn
Commercial Barrister
Level 3, 175 Queen Street
AUCKLAND
Share Registry
Computershare Investor Services
Level 2, 159 Hurstmere Rd
Takapuna
AUCKLAND
Private Bag 92119
Auckland Mail Centre
AUCKLAND 1142
Registered Office and address for service
18 Canaveral Drive
Albany
AUCKLAND
PO Box 301248
Albany
AUCKLAND 0752
Tel: +64 (9) 970-7700
Solution Dynamics (International) Limited
Lancaster Court, 8 Barnes Wallis Road,
Fareham, PO15 5TU
Hampshire
UNITED KINGDOM
Tel: +44 1489 668219
Solution Dynamics Incorporated
260 Madison Avenue, 8th floor
New York, New York 10016
UNITED STATES of AMERICA
Tel: +1 (917) 319 5625
Déjar International Limited
18 Canaveral Drive
Albany
AUCKLAND
PO Box 301248
Albany
AUCKLAND 0752
Tel: +64 (9) 970-7700
COMPANY DIRECTORY
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SOLUTION DYNAMICS
ON THE WEB
www.solutiondynamics.com
www.dejar.com
www.bremy.com
www.digitaltoprint.com
www.scantech.co.nz
Jupiter
www.solutiondynamics.com
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The basic building block of good communication is the feeling that every human is unique and of value.
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MANAGEMENT DISCUSSION AND ANALYSIS
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Solution Dynamics Limited
FY2019 Retrospective
It was the best of times, it was the worst of times... (with apologies to Charles Dickens
1
) . FY2019 was a year of
change – both positive and negative – for Solution Dynamics Limited (“SDL” or the “Company”) .
Dealing with the negative issues first; these manifested in the domestic print and mailhouse sector, still the largest
individual component of the Company’s revenue and earnings . SDL lost three medium sized contracts, all the result
of customers moving their print volumes to a single source supplier . In each case, the majority of each customer’s
requirement was offset printing; SDL only undertakes digital printing and was not able to provide the full range
of print services each customer required . A further factor was NZ Post’s postage price hike on 1 July 2018 . This
resulted in many customers accelerating the rate at which they were migrating from paper to electronic delivery,
particularly transactional mail customers (about half SDL’s domestic volume is transactional mail, as opposed
to direct or promotional mail) . The combination of these factors – along with the inevitable lag in reducing costs
following the volume declines – meant pressure on margins in New Zealand operations .
On the positive side, FY2019 was a year when international sales began to gain increasing traction, helped by
a step up in North America following the acquisition of DigitalToPrint Inc (“DTP”) in late FY2018 . While DTP has
incurred greater than expected losses in the short term, and fell well short of meeting first year earn out targets, it
now forms an essential component of SDL’s technology platform and assisted in winning several substantial pieces
of new business . These new business wins had limited impact in FY2019, will provide some lift during FY2020 and
should contribute sizeable gains thereafter . Additionally, expansion into the US market has seen the Company’s
sales pipeline grow very significantly (SDL is achieving successful conversion from pipeline into sales, although
sales cycles into large corporate customers are typically longer) .
SDL has historically been an “old economy” company with a predominantly New Zealand-based business
consisting mainly of print and mail services . It additionally had an emerging growth software technology business,
mostly in international markets . But the past financial year has seen the Company take a step change in its
metamorphosis towards becoming mainly a provider of software technology that enables customers to more
efficiently communicate (whether via print or electronically) . It is notable that Europe and North America accounted
for 32 .5% of total SDL revenue in FY2019 (versus 17 .7% for FY2018) . And while the inevitable lags of new business
onboarding and client volume ramp up means that this step change had minimal effect on FY2019 earnings results,
the benefits should progressively appear in strong earnings growth over the coming two years .
Particular mention should be made of SDL’s staff . FY2019 was a difficult year in the domestic market as the
Company’s volumes dropped, which necessitated restructuring and cost cutting . These are never easy exercises
and the Directors would like to thank staff for their assistance during these processes . Furthermore, as the scope
and span of SDL’s international business has expanded, the time zone differences of dealing with increasing
numbers of UK/Europe and US clients has meant NZ staff have frequently had to go well beyond regular work
hours to provide the service levels that SDL prides itself on . Again, the Directors thank staff, including international
staff, who have had to regularly work the “wee hours” .
FY2019 Result Overview
SDL has produced an audited net profit after tax of $0 .67 million for FY2019 . This is approximately half the profit
earned in FY2018 with the decline primarily stemming from pressure on revenue and margins in the domestic
print and mail business . This was coupled with additional costs relating to investing to support and accelerate
international expansion . Key points from the result are:
• revenue growth of 10 .7% to $25 .2 million
• revenue from the UK and Europe rose 29 .7% to $5 .1 million and US revenue was $3 .0 million, partly from the
acquisition of DTP but also from new US customers won by SDL
• EBITDA declined 39 .6% to $1 .37 million
• acquisitions were a modest, but largely expected, net drag on EBITDA of $0 .04 million
• acquisition add back to earnings of unearned earn out payments of $0 .28 million
• amortisation rose 115 .5% to $0 .35 million (mainly acquisition related for customer contracts and software)
• net cash on hand at 30 June balance date was $1 .18 million (no bank debt)
• the Directors have declared a final, fully imputed dividend of 2 .0 cents per share (FY2018: 3 .5 cents), taking the
total dividend for FY2019 to 4 .0 cents per share (FY2018: 7 .5 cents), a decrease of 46 .7% .
1. Opening words from A Tale of Two Cities.
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MANAGEMENT DISCUSSION AND ANALYSIS
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Solution Dynamics Limited
FY2019 Retrospective
It was the best of times, it was the worst of times... (with apologies to Charles Dickens
1
) . FY2019 was a year of
change – both positive and negative – for Solution Dynamics Limited (“SDL” or the “Company”) .
Dealing with the negative issues first; these manifested in the domestic print and mailhouse sector, still the largest
individual component of the Company’s revenue and earnings . SDL lost three medium sized contracts, all the result
of customers moving their print volumes to a single source supplier . In each case, the majority of each customer’s
requirement was offset printing; SDL only undertakes digital printing and was not able to provide the full range
of print services each customer required . A further factor was NZ Post’s postage price hike on 1 July 2018 . This
resulted in many customers accelerating the rate at which they were migrating from paper to electronic delivery,
particularly transactional mail customers (about half SDL’s domestic volume is transactional mail, as opposed
to direct or promotional mail) . The combination of these factors – along with the inevitable lag in reducing costs
following the volume declines – meant pressure on margins in New Zealand operations .
On the positive side, FY2019 was a year when international sales began to gain increasing traction, helped by
a step up in North America following the acquisition of DigitalToPrint Inc (“DTP”) in late FY2018 . While DTP has
incurred greater than expected losses in the short term, and fell well short of meeting first year earn out targets, it
now forms an essential component of SDL’s technology platform and assisted in winning several substantial pieces
of new business . These new business wins had limited impact in FY2019, will provide some lift during FY2020 and
should contribute sizeable gains thereafter . Additionally, expansion into the US market has seen the Company’s
sales pipeline grow very significantly (SDL is achieving successful conversion from pipeline into sales, although
sales cycles into large corporate customers are typically longer) .
SDL has historically been an “old economy” company with a predominantly New Zealand-based business
consisting mainly of print and mail services . It additionally had an emerging growth software technology business,
mostly in international markets . But the past financial year has seen the Company take a step change in its
metamorphosis towards becoming mainly a provider of software technology that enables customers to more
efficiently communicate (whether via print or electronically) . It is notable that Europe and North America accounted
for 32 .5% of total SDL revenue in FY2019 (versus 17 .7% for FY2018) . And while the inevitable lags of new business
onboarding and client volume ramp up means that this step change had minimal effect on FY2019 earnings results,
the benefits should progressively appear in strong earnings growth over the coming two years .
Particular mention should be made of SDL’s staff . FY2019 was a difficult year in the domestic market as the
Company’s volumes dropped, which necessitated restructuring and cost cutting . These are never easy exercises
and the Directors would like to thank staff for their assistance during these processes . Furthermore, as the scope
and span of SDL’s international business has expanded, the time zone differences of dealing with increasing
numbers of UK/Europe and US clients has meant NZ staff have frequently had to go well beyond regular work
hours to provide the service levels that SDL prides itself on . Again, the Directors thank staff, including international
staff, who have had to regularly work the “wee hours” .
FY2019 Result Overview
SDL has produced an audited net profit after tax of $0 .67 million for FY2019 . This is approximately half the profit
earned in FY2018 with the decline primarily stemming from pressure on revenue and margins in the domestic
print and mail business . This was coupled with additional costs relating to investing to support and accelerate
international expansion . Key points from the result are:
• revenue growth of 10 .7% to $25 .2 million
• revenue from the UK and Europe rose 29 .7% to $5 .1 million and US revenue was $3 .0 million, partly from the
acquisition of DTP but also from new US customers won by SDL
• EBITDA declined 39 .6% to $1 .37 million
• acquisitions were a modest, but largely expected, net drag on EBITDA of $0 .04 million
• acquisition add back to earnings of unearned earn out payments of $0 .28 million
• amortisation rose 115 .5% to $0 .35 million (mainly acquisition related for customer contracts and software)
• net cash on hand at 30 June balance date was $1 .18 million (no bank debt)
• the Directors have declared a final, fully imputed dividend of 2 .0 cents per share (FY2018: 3 .5 cents), taking the
total dividend for FY2019 to 4 .0 cents per share (FY2018: 7 .5 cents), a decrease of 46 .7% .
1. Opening words from A Tale of Two Cities.
18 Canaveral Drive, Rosedale
PO Box 301248, Albany, Auckland 0752
Telephone: +64 9 970 7700
Facsimile: +64 9 970 7800
www.solutiondynamics.com
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MANAGEMENT DISCUSSION AND ANALYSIS
Business Overview
SDL 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 (itself separated into digital print & document handling services, outsourced services and
scanning); and
• Software & Technology .
Services includes digital print and mail house processing for two categories of mail items: transactional
mail, such as invoices and statements; and direct marketing mail such as promotional material . These are
then distributed through New Zealand Post’s (“NZ Post”) mail delivery system . A number of the components
included in this service, such as envelopes and postage, form part of outsourced service revenues . This service
differs from traditional printing in that each document printed is typically personalised and unique . Revenue
from Scantech is included in Services (for New Zealand scanning operations), while consulting and software
revenues that are related to Scantech’s software technology are included in the Software & Technology revenue
stream .
Software & Technology develops and markets SDL’s own software products related to a) multi-channel
marketing communications, which includes: a) digital asset management, communication templates and
campaign management, b) document archiving, c) document composition, d) desktop mail solutions, e)
scanning and scanning workflow, and f) international cross-border print-on-demand management software .
A range of further technology services are also offered relating to SDL’s own software and the management
of client data around the formatting, electronic output and archiving of customer communications . The US
business, DTP, acquired by SDL in May 2018 is wholly included in Software & Technology .
Despite the ongoing erosion of transactional mail volumes in particular, (anecdotal evidence suggests direct
marketing mail is seeing less erosion and is estimated to be reasonably static), the Directors believe that
SDL’s key point of difference is in offering integrated solutions incorporating both physical print and digital
technology . Some communications are better suited to print and will likely remain so for the foreseeable future .
In other cases, use of software technology such as DéjarMail (SDL’s desktop mail solution) can improve the
handling efficiency, management and cost of physical mail . The Company’s integrated range of print and
software technologies means it is able to offer a holistic and distribution channel/platform-agnostic approach to
managing its customers’ communications needs .
The Company operates from leased premises in the UK, USA and Albany, Auckland .
Acquisitions Update
SDL made two acquisitions late in the FY2018 financial year, Scantech in April 2018 and DTP in May 2018 .
While neither acquisition met its earnout target, and in aggregate they operated for FY2019 at only a modest
EBITDA profit (with additional charges for amortisation), both are nevertheless adding greater business value
than FY2019 results infer .
Scantech saw weaker than expected domestic scanning revenue as the historic usual flow of one-off back
scan jobs ran at a much lower level than usual in the last year . However, there is significant consulting and
scanning software opportunities in the UK where privacy and data disclosure requirements mean organisations
are increasingly required to scan and archive physical documents . This is seeing print companies entering
scanning and Scantech is now consulting and selling its scanning software and services to establish scanning
bureaus in that market .
DTP was unprofitable when acquired and remained so during FY2019 . However, the cross-border distributed
printing opportunity and the toe-hold into the US market have already opened significant opportunities for
SDL that are not reflected in the historic earnings result . DTP’s Jupiter platform has been a key component
(combined with other SDL software) of two client wins in the US, one part way through the year and one that
commenced a pilot trial early in FY2020 . As both these annualise (the second one will only be trialling during
FY2020 and, assuming no issues during the pilot trials, only becomes fully operational in FY2021) they will
contribute material gains to revenue and earnings, particularly in FY2021 .
Additionally, the sales pipeline in the US is sufficiently strong that further resource has been added with the
appointment of Pat Brand as President – SDL North America . Pat’s most recent role was with Pitney Bowes
where he was President of Document Messaging Technologies (now BlueCrest) . He was also President of
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Pitney Bowes’ Small and Medium Business (SMB) - North America division and retired from Pitney Bowes in
2018 to become founder of an independent business consulting firm . Pat’s remit is to accelerate profitable
growth in North America across the Enterprise and SMB (small to medium business) market sectors, through
both direct and partner channels .
Accounting rules require intangible assets acquired through acquisition to be allocated to items such as
intellectual property (e .g . software) and the value of customer contracts . These intangibles must be written off
by amortisation through the Income Statement and SDL is opting to write down acquired intangibles over a four
to five year period . This means the Company incurred a non-cash amortisation charge against profit of $0 .23
million in FY2019 (and will incur this charge annually for each year for the next three years) .
Description and Review of Revenue Streams
SDL Services
SDL Services predominantly provides mail house operations to high-volume postal mail users, mainly those in
the business-to-consumer sector . DéjarMail has expanded the market for SDL’s print and post service down to
the SME (small to medium enterprise) sector although the Company does not sell directly to SMEs but reaches
this market through channel partners .
SDL Services operates leased, high-speed digital colour and monochrome printers . In addition to digital
printing, Services also provides the usual ancillary document handling operations such as automated envelope
inserting and flowrap .
Services revenue also includes a variety of outsourced functions or components such as postage, offset
printing, freight, paper and envelopes . The Company has an access agreement with NZ Post which provides
bulk mail discounts off NZ Post’s retail rates, subject to SDL meeting minimum volumes requirements over a
twelve month period . SDL continues to exceed NZ Post’s minimum volumes under this agreement . The profit
margins on many of these outsourced components, especially postage, are slim .
With general mail volumes continuing to decline, SDL’s FY2019 mail lodgement volumes fall accelerated to
15 .1% from 8 .6% the prior year . The Company’s digital print volumes also fell, dropping by 19 .2% . Both of
these declines were exacerbated by the loss of three medium sized contracts during the year . In each case, the
customer put their entire print volumes out for competitive tender with the aim of consolidating to a single print
supplier; SDL was unable to compete as it does not offer offset printing and for each of the three customers the
majority of their print requirement was offset print .
On the digital communications side, SDL’s volume of customer emails rose 12 .0% .
Note that the growth in Outsourced Services revenue in the following table is a combination of both very low
margin postage and the outsourced printing for part of DéjarMail volumes in the UK .
SDL Services Revenue Breakdown Percentage
(all figures $000) FY2019 FY2018 Change
Digital Printing and Document Handling 5,561 6,773 -17 .9%
Outsourced Services 11,270 9,907 13 .8%
Total Services Revenue 16,831 16,680 0.9%
The decline in digital printing was from erosion of print to electronic communications and client losses as noted
above . Digital printing revenue in FY2020 will see the headwind of the full annualised effect of the client losses,
although the earnings impact will be more muted as the Company is currently implementing a cost savings
programme .
SDL Software & Technology
Digital tools and the ensuing digital transformation mean communication channels and the customer
engagement model in most businesses has needed to adapt and become nimble and personalised .
Organisations increasingly need to employ more “pull” marketing tactics, drawing people in to their brands
with interesting, informative and engaging content . Communication channels are no longer “one size fits all”;
customers can receive messaging through an omni-channel or multi-media approach . SDL treats every form
of communication – whether a customer email, an invoice or account statement, or a piece of marketing
collateral – as a means to enrich and deepen the personalised relationships that our customers have with their
customers .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
SDL Software has six software engines or platforms that are used to develop customer solutions:
Déjar is a digital archival system that provides the
ability to efficiently store and retrieve electronic
documents created from most formatting tools .
Déjar allows users to exactly reproduce the original
document and access these via a browser over the
local network or via the Internet . The reproduced
document can be printed, faxed or emailed and
Déjar’s security and history features ensure every
document created and subsequent access event is
recorded by User ID and date/time stamp .
Composer is SDL’s electronic document
creation software . It is flexible and allows
customised documents to be built on the fly,
based on information retrieved from databases .
Based on templates it automatically creates
templates, documents and letters with dynamic,
customised content, formatted to each customer’s
requirements . Composer allows companies to
easily standardise corporate documentation
formats for all users, including regional and
legal variations . Templates, documents, emails,
letters and newsletters created by Composer are
automated, ready to archive, print, publish online, or
electronically distribute to customers in one step .
Bremy is an integrated, multi-channel publishing
and distribution solution for businesses across a
broad spectrum of industries . It manages the work
flow of digital assets, from document creation
and revision, to final email or print-ready files and
distribution through multiple channels, including
print, email, web, digital signage and mobile . It
helps streamline and provides integrity to document
proofing and integrates with data sources to
produce complex documents such as online
or physical catalogues . It also has a Campaign
Manager module to assist companies in creating
and managing specific advertising programmes .
DéjarMail is a web browser-based desktop mail
management solution which allows customers to
route mail correspondence, by file transfer or web
browser portal (Post On Demand), to SDL or any
other service provider for printing and delivery
via post or any other medium . This delivers costs
savings for smaller businesses and for larger
companies’ ad hoc mail .
Jupiter
Jupiter, acquired as part of the DTP acquisition,
is a global print and mail solution that benefits
Postal Administrators, senders and recipients, all
via a “Managed Print and Mail Solution” . Jupiter
provides a technology platform which links together
customer communication origin points such as ERP,
transactional and marketing output with production
and fulfilment on a globally distributed basis .
Closely integrated with over 300 service providers
globally, customers can use a highly flexible web
service API to achieve simultaneous concurrent
fulfilment across five continents, all while retaining
visibility and control of the process via an intuitive
and mobile friendly, web portal .
The scope for integration of the SDL product set
with Jupiter’s global fulfilment network opens the
door to expansion of the markets that the range of
SDL solutions can apply to .
Scantech’s suite of software solutions include
scanning applications to digitise physical
documents, automated extraction of data from
documents (both physical and digital) including
workflows for the processing of this data and
the automation of business processes such as
accounts payable and accounts receivable . These
are also integrated into SDL products, such as Déjar
for archival and retrieval .
The Company’s history in mailhouse and fulfilment means we fully understand the importance of data accuracy,
timely delivery, and cost efficiency . The ongoing investment in software and technology demonstrates the SDL’s
commitment to making the most of the digital transformation opportunities available to our clients .
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Software & Technology revenue is earned from three sources .
SaaS (Software as a Service) is an alternative to the traditional, now largely defunct, licensing of software
(although SDL did sell one licence in FY2019) . Under SaaS, rather than pay an upfront fee, customers opt to
run SDL’s software on a pay-as-you-go model, typically by way of a per-document or per-electronic transaction
charge . Under this model, SDL will usually host the software (using third party hosting infrastructure, such as
Amazon Web Services) and related data on behalf of the client . While SDL forgoes the benefit of any large
up-front licence revenue, the SaaS approach does build an annuity revenue base that then generates value
over a longer term and typically results in “stickier” clients . The trend in recent years has been for customers to
prefer SaaS rather than acquiring a software licence, to the point where the Company no longer expects to sell
licences .
Secondly, the company offers bespoke software development services where this is related to a customer
using SDL’s software . An example is a customer requiring a front end, web-based access portal to allow its
clients to access the underlying data being stored or managed by SDL’s software .
The third is the provision of programming, consulting, business analysis and design services that help clients to
manage essential and marketing communications both by mail and electronic transfer .
Software encompasses all international software revenue and all revenue from all of our software products and
services . It also includes Déjar revenue in New Zealand for digital document archival and management for SDL
Services’ customers . Note that a significant part of the revenue from DéjarMail is generated in SDL Services (as
part of Outsourced Service revenue) from the postage component of the service .
In addition to New Zealand and Australia, both Déjar and Composer are sold internationally, mainly in the
UK and Europe . Bremy is predominantly a New Zealand product, with several Australian and UK customers
and the Company sees potential for ongoing and potentially strong growth in the UK, albeit from a low base .
DéjarMail is continuing to see solid growth in the UK and given the early-stage client base in that region we
expect this will be a secular growth trend that will run for a number of years . SDL expects the growth in the UK
to be mirrored in the US and an initial client aimed at the SME market is gaining traction and expected to show
significant volume gains in FY2020 .
In the UK, SDL has continued to add further sales and support personnel as business has grown, and will
incur the full annualised impact on profitability from these costs during FY2020 . As noted previously, additional
sales personnel are being added in the US to support what the Company views as a very significant market
opportunity, and one where some success has already been achieved . As part of this growth initiative, SDL
has secured a market development grant from NZ Trade and Enterprise (“NZTE”) to assist with the costs of this
expansion . The NZTE grant covers 40% of applicable costs and is to a maximum of $0 .6 million or for three
years, which comes first .
Software & Technology generated revenue of $8 .32 million in FY2019, an increase of 37 .5% on the prior
year’s revenue of $6 .05 million (and an acceleration of growth from 19 .5% the prior year), largely the result of
DéjarMail growth in both the UK and USA . There was one medium-sized, one-off licence deal booked late in
the year . Software development activity ran at a lower than expected rate and SDL’s key driver of growth –
SaaS revenues – continued to build steadily aided by expansion into the USA with the DTP acquisition plus
securing a sizeable new DejarMail customer mid-way through the financial year .
Financial Performance
Revenue growth in FY2019 was generated by both Software and Technology, and Outsourced Services,
while Digital Imaging and Document Handling fell by around 18% . Outsourced Services revenue gains are
predominantly the effect of printing for DéjarMail volumes in the UK . Postage margins remain very low and New
Zealand Post has disbanded the Postal Network Access Committee, with zonal pricing now in effect (this is
neutral to perhaps modestly positive given SDL’s mail volume emphasis in Auckland) .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
Summary Financial Performance Percentage
(all figures $000) FY2019 FY2018 Change
Total Revenue 25,155 22,732 10 .7%
Less: Cost of Goods Sold 16,827 14,315 17 .5%
Gross Margin 8,328 8,417 -1.0%
Gross Margin (%) 33 .1% 37 .0%
Less: Selling, General & Admin 6,955 6,144 13 .2%
EBITDA 1,373 2,273 -39.6%
EBITDA margin (%) 5 .5% 10 .0%
Depreciation 238 208 14 .4%
Amortisation 347 161 115 .5%
EBIT 788 1,904 -58.6%
Net Interest (4) (5) n .m .
Income Tax 122 577 -78 .9%
Net Profit after Tax 670 1,332 -49.7%
Tax rate 15 .4% 30 .2%
FY2019 earnings were reduced by the loss of digital print and mail customers as noted .
The other main effect came from acquisitions . First, SDL’s amortisation charge increased from the amortisation
of acquired intangibles for the value of software and customer contracts; this amounted to an additional $0 .23
million of amortisation . Secondly, the accounting for acquisitions required SDL to estimate, at the time of
purchase, the likely earn out that would be paid . In the event, only a partial earn out for Scantech was paid
and the requirements to pay the balance for Scantech and all of DTP were not met . Accordingly, the residual
earn out amount that was allowed for in the accounts in FY2018 was written back to earnings in FY2019 . This
amount was $0 .283 million (there was no tax liability on this write back) and this was a credit against Selling,
General & Administration costs . SG&A was reported as $6 .96 million, an increase of 13 .2%; removing the earn
out credit to give a like-for-like comparison would see SG&A as $7 .24 million or an increase of 17 .8%, although
part of the SG&A increase was a result of additional staff through the acquisitions of Scantech and DTP .
SDL’s effective tax rate was 15 .4% for FY2019 . This is predominantly from the impact of the acquisition write
back to profit and ring fenced losses in the US which could not be grouped for tax purposes . These losses are
not material and the Company expects that new business already won in the US will see the tax losses utilised
and the US market turn to profitability in FY2020 .
The change in mix of revenue towards a greater component of low margin, outsourced services is causing
SDL’s percentage Gross Margin to continue compressing, although the dollar Gross Margin held broadly flat
for the year (down 1 .0%) . This trend of Gross Margin percentage pressure should persist in the coming year as
DéjarMail’s offshore revenue grows at a faster rate than the rest of the Company’s business . SDL’s is continuing
with the addition to sales and support staff in offshore markets, particularly the UK, and also had additional
overhead from Scantech and DTP .
The following table highlights first and second half performance for the last two financial years . Both years
contain net EBITDA losses from the acquisitions combined but these are not material amounts .
SDL Half Financial Years
(all figures $000) 2H 2H Percent 1H 1H Percent
FY2019 FY2018 Change FY2019 FY2018 Change
Total Revenue 12,429 11,440 8 .6% 12,726 11,292 12 .7%
EBITDA 791 949 -16 .6% 582 1,324 -56 .0%
EBITDA margin 6 .4% 8 .3% 4 .6% 11 .7%
Tax rate 2 .2% 32 .2% 36 .6% 28 .9%
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Balance Sheet, Liquidity and Debt
Capital expenditure in FY2019 was $0 .36 million . The capex spend mainly related to specialised booklet
equipment, upgrading older inserting equipment and finalising the upgrade of SDL’s accounting and print job
management systems .
The Company’s net cash (i .e . cash net of interest bearing debt) position declined to $1 .18 million . The lower
than usual conversion to earnings to cash was the result of two main factors . The first was the non-cash write
back to earnings of the $0 .28 million of unearned acquisition earn out . The second was from several larger
software contracts and associated setup revenues occurring in June, causing year end accounts receivable to
be somewhat higher than expected and the cash received subsequent to balance date .
At balance date the Company’s sole remaining bank facility was an unused overdraft arrangement from ANZ
Bank with a $0 .20 million limit .
Selected Balance Sheet and Cashflow Figures
(all figures $000) FY2019 FY2018 Change
Net Bank Cash/(Debt & Borrowings) 1,182 1,956 (774)
Non-Current Assets 2,696 2,895 (199)
Net Other Liabilities 56 (840) 896
Net Assets 3,934 4,011 (77)
Cashflow from Trading 1,236 1,677 (441)
Movement in Working Capital (880) (55) (825)
Cash Inflow from Operations 356 1,622 (1,266)
Cash dividends paid 804 1,042 (235)
Net Assets includes goodwill related to the original purchases of the software products Déjar and Bremy .
Bremy accounts for around three quarters of the $1 .06 million carrying value of goodwill . An impairment test is
conducted against the carrying value of these assets each year and the Directors believe the current value of
these products remains comfortably in excess of their carrying values . Net assets also includes around $0 .77
million of intangibles for software and customers contracts from acquisitions; these will largely be amortised
over the coming three years (and were much of the amortisation expense in FY2019) .
While SDL’s balance sheet shows a positive net-cash position, the Company is also carrying leases on its
premises and much of its digital printing equipment . The annual cost of rentals and leases was $0 .68 million
in FY2019 ($0 .72 million in FY2018) and represents off balance sheet leverage . In FY2020 the accounting
standards relating to leases will change . Operating leases will be capitalised as a right to use asset and a
debt liability recognised, increasing the amount of debt on the balance sheet, as well as altering the Income
Statement by mandating that part of the lease payment be accounted for as a financing (i .e . interest cost)
charge and depreciation of the right to use asset .
Excluding the net cash balance from SDL’s working capital, the Company currently operates with a largely
neutral working capital balance . The Company adopts a positive view to this aspect of its balance sheet . It
means SDL can generally continue to grow revenue without particular requirement to fund additional working
capital needs .
Taxation and Dividends
Aside from minor timing issues and non-deductible expenses, the Company pays full New Zealand tax on
locally generated earnings . SDL is now paying UK tax at the full rate . The DTP business in the US is currently
making losses and has some residual tax losses available . These are effectively ring fenced within the US and
SDL is not able to group them to offset other profits . However, the extent of recent new contract wins in the US
means it likely that these losses will be fully utilised in FY2020 . As noted above, the tax rate in FY2019 was also
distorted by the non-cash write back of unearned acquisition earn out, on which no tax was payable . Further,
a portion (relating to customer contracts and some of the acquired software) of amortisation of acquired
intangibles is not tax deductible and this will bias the reported tax rate upwards until these are fully written
down .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
SDL only intends to pay dividends to the extent that it can fully impute them and also subject to SDL not
experiencing any one-off requirements for abnormal capital expenditure or any significant acquisition or
investment activity .
Percentage
Earnings and Dividends per Share FY2019 FY2018 Change
Shares on Issue (‘000) 14,640 14,560 0 .5%
Earnings per Share (cents)
(a)
4 .58 9 .15 -50 .0%
Adjusted Earnings per Share (cents)
(b)
6 .95 10 .25 -32 .2%
Dividend per Share (cents) 4 .00 7 .50 -46 .7%
Dividend Proportion Imputed 100 .0% 100 .0%
Dividend Payout ratio 87 .4% 82 .0%
Dividend Payout ratio on NPATA
(c)
57 .6% 73 .1%
(a) Earnings per share is calculated by dividing the net profit after tax by the number of ordinary shares outstanding at the end of the accounting
period.
(b) Adjusted earnings per share is a non-GAAP accounting measure that is calculated by adding back the costs and losses relating to SDL’s two
recent acquisitions. It is provided to provide investors with a more meaningful like-for-like comparison against the prior year earnings per share.
(c) Note that SDL’s FY2019 agreement with NZTE for market development funding for North America limits the Company to a maximum
dividend payout ratio of 75% of Net Profit after Tax plus Amortisation.
Shares on issue rose slightly (+0 .5%) over FY2019, entirely the result of SDL staff exercising Employee Share
Option Programme (“ESOP”) options that were issued in 2014 . A further tranche of ESOP options were granted
during the year to two key staff .
Operational Performance
The industry-wide decline in general mail volume is continuing and anecdotal industry comments suggest that
the rate of decline increased in FY2019, exacerbated by NZ Post postal pricing increases from 1 July 2018 .
While SDL has historically gained sufficient market share to offset industry-wide volume declines, this was not
the case in FY2019; SDL’s mail volumes dropped 15 .1% and digital print volumes were down 19 .2% on the
prior year . SDL’s print equipment has significant capacity, particularly from a high-speed, continuous printer
under the DMS agreement with FXNZ . The Company is continuing to transition a greater proportion of its print
jobs from cut sheet printers onto the continuous printer as this provides efficiency benefits .
New Zealand Postal Market
The domestic postal services market remains difficult . A substantial increase in the price of mail took effect
from 1 July 2018 with the price of a standard letter rising by 20 cents from $1 .00 to $1 .20, and bulk mail prices
also increased along with tighter conditions to achieve bulk pricing .
SDL experienced a step down in mail volumes from this (plus customer losses as noted), and estimates there
will be ongoing volume erosion from the lower base, albeit the rate of decline is unlikely to be as severe as in
FY2019 . SDL is seeing an accelerated move towards greater use of digital communications solutions from
some customers .
Nevertheless, as the Company’s customers opt to more rapidly switch towards greater electronic
communications, SDL will inevitably suffer margin loss from lower utilisation of its printing assets and any
revenue and margin gained from SDL Software & Technology will not be sufficient to offset all of this decline .
Risk Factors
The physical mail market will continue to decline in volume although we believe it is unlikely to be as steep as in
FY2019 . This has several industry-wide implications . First, excess printing capacity in the mail house physical
print sector, already a problem, will worsen from an already poor position . Secondly, increased competition
for lower volumes may spill over into pricing and margin pressure . The risk is partly mitigated by SDL’s ability
to add value through its technology offerings although excessive price discounting of printing services would
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affect profitability across the entire industry and SDL would not be immune to this threat . Additionally, pressure
on marginal print operators is likely to cause industry rationalisation . While SDL has held discussions with
various participants in the print sector, these have not led anywhere to date .
SDL’s top five customers (both domestic and international) provided 38 .6% of the Company’s revenue in
FY2019 with the largest customer accounting for 12 .7% of revenue . Loss of one or more of those customers
could cause financial results to differ materially from those outlined in the FY2020 Outlook section below . This
risk is partly mitigated by having a number of these clients under contract, as well as the offset of expecting
revenue growth outside these clients, particularly from DéjarMail .
The Company’s software provides critical document management and storage functions for its clients . SDL
needs to ensure it continues to maintain adequate levels of software quality control . SDL also regards IT and
data security as a potential risk area and regularly reviews its IT and data security arrangements .
The Company operates a single site facility, albeit with an offsite for data and server backup . The Directors
are conscious of the operational risk a single site implies for digital imaging operations . SDL has investigated
reciprocal disaster recovery (“DR”) plans with other printers, and the Company has some capability with Fuji
Xerox DMS, however, in general, print capacity mismatches have meant there are few possible solutions . SDL
continues to explore DR options .
The Company relies on several third party distributors to market and support its software products, especially
in international markets . There is no certainty that these arrangements will be successful in meeting revenue
expectations and SDL may be required to devote more time and funds to support its existing international
distribution structures . The Company has been increasingly investing in its own direct sales channels to market
in the UK in recent years and is currently in the process of investing in sales infrastructure (i .e . people) in the
US .
Technology Innovation
SDL operates in both the old economy print/mail house business and the new economy document
management business . While there are many areas where printed mail is continuing to decline, some elements
(e .g . direct marketing) of print and mail remain reasonably resilient . Nevertheless, SDL is continuing to innovate
and develop its software offerings to ensure the Company is agnostic in the communication channels it is able
to offer its clients to communicate with their customers .
SDL has been progressively managing its portfolio of digital document software IP to ensure the Company
is capable of making this progressive transition towards the growing emphasis on digital customer
communications . This involves increasing internationalisation of SDL’s revenues, both through software
product development and acquisitions such as DTP, as well as the development of channel partners to build
distribution .
Migration to NZX Main Board Listing and Governance
Late in FY2019, SDL migrated its listing to the NZX main board, following NZX’s announcement that it
would close the NZAX board where SDL was historically listed . NZX provided a pathway to migration that
included various waivers . As part of the migration, SDL was obliged to update its Constitution and one of the
NZX waivers was that SDL could delay requiring shareholder approval of the new Constitution until its next
shareholders’ meeting . The Notice of Meeting that will be issued for the next Annual Meeting, scheduled for
23 October 2019, will contain the new Constitution and shareholders will be asked to vote to adopt it .
The Directors remain aware that the Company’s shares trade relatively infrequently . The predominant factor
for this is the high extent to which large blocks of SDL’s shares are held by parties who do not normally trade
them, reducing the effective free float . Additionally the lack of sharebroker research coverage means financial
advisors are somewhat precluded from discussing or recommending the stock with investing clients . The
Directors will review the extent to which the move to the main board listing assists with liquidity and then
contemplate what other actions may be possible .
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MANAGEMENT DISCUSSION AND ANALYSIS CONTINUED
As part of the migration to the NZX main board, SDL has updated its Constitution to comply with more recent
NZX Listing Rules which it is now subject to . A formal Audit & Risk Committee has been established and a
range of governance and policy statements produced (available on the Company’s website) .
The Company added two directors ahead of the main board move: Andy Preece and Lee Eglinton . Andy has
extensive experience across a range or print-related and communications-related businesses and a proven
record of turning around businesses and delivering sustainable shareholder returns, along with experience
managing acquisition and divestment activities globally . Andy is an independent director and chairs the Audit
& Risk Committee . Lee has a broad range of experience across the technology, consumer electronics and
telecommunications sectors, and her executive roles have included General Manager Australia/NZ and NZ
Country Manager of an IT services and consulting business . Prior to that she spent eight years at IBM NZ
in a range of roles including Consulting Services, the company’s CRM practice, and business analytics and
optimisation . Lee is a member of the Audit & Risk Committee .
FY2020 Outlook
The outlook for FY2020 is for significant growth over FY2019 . The key factors that change in the coming year
are:
• the annualised negative effect of the FY2019 print and mail account losses in NZ;
• cost savings in the domestic business that should progressively be achieved during 1H FY2020;
• margin erosion as domestic physical print and mail volumes shift to digital delivery;
• revenue growth in North America from annualising software contract wins during FY2019;
• ongoing revenue growth in the UK, particularly from DéjarMail;
• addition of costs in North America and UK to build out sales efforts and channels; and
• offset to North American cost growth from NZTE market development funding .
A major contract with a multinational company that SDL won late in FY2019 will make a modest contribution
during FY2020 as it remains in pilot phase during the year . Subject to successful execution of the two pilot
programmes – we can report that the first phase has already been successfully completed – then the full
revenue and earnings effects will occur in FY2021 .
Additionally, SDL continues to have a significant pipeline of opportunities, especially in North America, and has
already seen successful conversion of some of those opportunities . The Company’s outlook has a degree of
expectation that this conversion of pipeline to contracts will continue .
The net outcome of the above factors is that SDL expects revenue growth for FY2020 of around 15% and
that operating earnings (EBITDA) is expected to recover significantly and be broadly in line with the FY2018
outcome . Amortisation charges have increased and will remain elevated as a result of writing down the
software and customer contract values from the DTP and Scantech acquisitions . As noted, the Company’s
forecast has the caveat that it includes some new business growth assumptions (especially in North America)
and is subject to the usual risks that the print and mail house markets remain extremely competitive and in
decline .
John McMahon Nelson Siva
Director (Chairman) Director (CEO)
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Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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