Solution Dynamics pivots offshore after local mail slump

Solution Dynamics pivots offshore after local mail slump

Software and technology key as Solution Dynamics integrates recent acquisitions

John McMahon (Solution Dynamics)

John McMahon (Solution Dynamics)

Credit: Supplied

NZX-listed communications technology developer Solution Dynamics is banking on offshore success as mail volume declines locally impacted legacy business.

2019 was a year of both "difficulty and opportunity" for Solution Dynamics, chair John McMahon told shareholders today.

In NZ the company suffered from a combination of the loss of several medium-sized accounts coupled with unexpectedly greater mail volume declines as a result of NZ Post price hikes.

In addition, two acquisitions failed to meet planned revenue and earn-out targets, "although both were progressively adding business value and have become core components of SDL’s software technology offering, McMahon said.

Acquisitions Scantech, which develops scanning and workflow systems, and US-based DigitalToPrint (DTP) both contributed for the full year for the first time since they were bought.

"On the positive side, the opportunities and new business gains occurred in the growth segment the company is targeting, international software technology," chair McMahon said. 

"Several new business wins are expected to be material to future growth prospects; these made minimal contribution in 2019 but should progressively ramp up and are expected to contribute to very material earnings growth over the coming two years, subject to SDL successfully executing what are complex customer requirements."

The DigitalToPrint buy opened a beachhead into a new region and assisted with new business wins and a strong pipeline of sales opportunity, he added.

"While pipeline doesn’t pay any bills, the success of converting some of the opportunities to date suggests that a US sales presence – and one that the company is expanding – is likely to add future shareholder value."

The net outcome  was a decline in 2019 EBITDA of around 40 per cent to $1.4 million, with reported net profit after tax down approximately 50 per cent to $0.7 million. 

Revenue was up 10.7 per cent to $25.2 million with all of the gains in software and technology, assisted by the inclusion of DTP for a full year.

McMahon said a limited management focus on the domestic business was intentional because the directors viewed the size of potential gains in international software technology opportunities as worth it.

He  said he expected results in 2020 and 2021 would vindicate that assessment.

The company’s strategy is now mostly based around building the software technology business internationally with increased sales and support were being deployed in the UK and the US.

"It is proving successful, although we reiterate the message from last year that developing sales channels and selling into large organisations on the other side of the world is difficult," McMahon said.

Scantech's workflow software has broader application than its internal use and sales have been made to print-related clients in the UK where privacy and data disclosure requirements mean organisations are increasingly required to scan and archive physical documents.

DTP, meanwhile, operates the Jupiter software platform, which provides functionality to manage and globally distribute print across a network over 300 printers in more than 50 countries. 

Jupiter is progressively being integrated with Solution Dynamics' other software engines as an essential component of the document management proposition the company offers.

Solution Dynamics has previously provided guidance for 2020 revenue growth of around 15 per cent and for EBITDA to recover to be broadly in line with 2018 levels of around $2.3 million. 

Current trading was running ahead of budget and revenue growth for the year is more likely to be around 20 per cent, subject to the caveat of timing around new business on-boarding.

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