SDL
08/07/2013 16:52
FORECAST
REL: 1652 HRS Solution Dynamics Limited
FORECAST: SDL: SDL - Trading Update, FY2014 Outlook and Bank Covenants
Trading Update
Trading during the second half of FY2013 has been largely to plan and the
company expects to record close to a breakeven result for the year, subject
to any amendments during the audit process and also before the likely need to
provision for an outstanding debt owed by a European distributor. At 30 June
that outstanding debt amounted to around $152,000 although in the last two
months the distributor has commenced a programme to repay the arrears. While
there is no certainty, the directors have reasonable expectations for
believing that the debt will, in time, be recovered in full.
In spite of the general continuing decline in traditional mail volumes the
Services division slightly increased its mail lodgement volume over last
year, assisted both by a large IPO and volume growth within new and existing
clients. The Software division saw little in the way of new, one-off licence
revenue generated although annuity revenue continues to steadily build via
the SaaS (Software as a Service) offering.
Outlook for FY2014
SDL's budget outlook for FY2014 is for a return to profit and the directors
have approved a base budget for net profit in excess of $250,000. There are
several reasons for a more optimistic view in the coming financial year.
First, SDL will see a full year's benefit from the cost cutting undertaken at
mid-year. This amounted to around $600,000 on an annualised basis and has
meant the business should now be capable of sustained profitability, even in
the absence of one-off licence revenues.
Secondly, the company has recently secured additional Services business in
its traditional mail house offering, including two sizeable wins in the
consumer-related space. Additionally another of SDL's larger clients has
flagged the likelihood of business expansion potentially doubling their
throughput to SDL. These gains are expected to comfortably offset the
inevitable mail volume decline. Additionally the company has a healthy new
business tender pipeline which it is aggressively pursuing.
Thirdly, the Software division has broadened its distribution channels. This
includes reinitiating its relationship with Australian distributor FUJIFILM
Australia, which will see SDL receive maintenance and support income plus a
share of any revenue that FUJIFILM generates from SDL software (the parties
have signed a heads of agreement which is in the process of being
formalised). The company has also revised or added reseller arrangements in
the Czech Republic and the UK, with the latter sharing some of SDL's UK costs
and already producing new revenue.
The FY2014 outlook comes with the caveats that competition in the mail house
market remains intense, macroeconomic conditions remain challenging in most
of SDL's markets and big ticket software licence sales are difficult to
predict and close in such an environment. Nevertheless, the company's lower
cost base coupled with steady new business gains provide a reasonable degree
of confidence that improved profitability is now achievable.
Bank Covenant Compliance
SDL confirms it is back in compliance with all its banking covenants and that
any doubtful debt provisioning required for FY2013 accounts will not cause
further compliance breach. The company finished FY2013 with closing net debt
of approximately $160,000 (subject to final audit), a significant improvement
of the prior year. Based on the FY2014 outlook noted above, SDL does not
expect any further compliance breaches and is progressively reducing its
facility limit and debt levels.
For further information, please contact:
John McMahon / Nelson Siva
Chairman / Chief Executive Officer
+61-410-411 806 / +64-21-415 027
End CA:00238326 For:SDL Type:FORECAST Time:2013-07-08 16:52:49
