Dear Shareholder, On behalf of the Board of Directors, I am pleased to invite you to attend the Annual General Meeting to be held at Eden on the Park Hotel, 6 Queens Road, Melbourne at 10.30am on 19th November 2008 If you are unable to attend the meeting, but wish to vote your shares, a proxy form is enclosed for your use. Should you attend the meeting in person, please bring the proxy form, as it will assist in a speedy registration. Following the transformation of Senetas from its initial venture capital focus to a strategy of achieving operational efficiencies and balanced growth, I am pleased to report the company has achieved a significant $14 million turnaround during 2007/08. During this period Senetas was re-focused to concentrate on an increase in sales through a combination of new competitive arenas, new geographies, new products and services to both existing and new customers. During the year ended 30 June 2008, Senetas achieved: • A turnaround of $14M • A before-tax profit of $231,000. • Total Operating Revenue up 52% • Consulting up 18% • Direct Product & Channel revenue up 143% • 258% increase in royalties from OEM partner, SafeNet • 239% increase in maintenance revenue • Further reductions in corporate Expenses • Increased cash at bank and Senetas remains Debt-Free • Further increased its global reseller network • Ongoing R&D resulted in release of three new encryption products Last year, Senetas initiated re-negotiation of its agreement with SafeNet to introduce provisions guaranteeing Senetas minimum quarterly revenues from its US OEM manufacturing partner. This incentive, plus a better working relationship built by John DuBois and the SafeNet CEO, Chris Fedde, resulted in SafeNet lifting its performance so that the actual royalties exceeded the minimum contracted level. Senetas’ Board and management believe that the ongoing excellent relationship with SafeNet is a major resource for the company. With the increase in Senetas’ direct sales and maintenance revenues, the company is becoming less reliant on SafeNet and both revenue sources and risk are being diversified. The company has healthy sales pipelines and management worked to further improve visibility of international channel partner sales and sales forecasting to ensure timelines for manufacturing and delivery continue to be met. Despite the turnaround, which resulted from a strategic focus by Senetas management and staff to boost sales of encryption hardware, the company’s core business involves a sales cycle typically around 18-24 months, and, accordingly, Senetas has still not seen full benefit from the enhanced focus on sales. Senetas recorded strong growth in its consulting services business unit, despite a contraction of the overall market for consulting services over the past year. Senetas recorded 35% growth in its business intelligence group, 56% growth in the relatively new financial solutions group and it continues to achieve one of the highest utilization rates in Australia for its consultants in both private and public sectors. Senetas Consulting continues its long-term projects in telecommunications, has won re-engagement in retail, banking, insurance and the not-for-profit sectors and during the past year Senetas has won major new clients in banking and finance, retail, construction, energy, and government, plus a financial services project in the Middle East. Senetas maintains global leadership in information security through high speed network encryption and its continued R&D investment resulted in the release of three new products last year - CypherNet Fibre Channel encryptors, used to secure data transmission between storage area networks (SANs), ultra high-speed Ethernet encryptors running at 10 Gigabits per second (Gbps) and Gemini, a switchable Layer 2/Layer 3 encryptor. The Board announced recently that while Senetas had achieved an unprecedented turnaround in its performance, it recognised that the result fell below its market forecast. In the prevailing economic circumstances of the past year forecasting $1.5M to $2.5M profit was possibly too aggressive. Sales were delayed due to changes to timelines on a major tender in the Middle East and, whilst the budget anticipated significant sales via UK-based reseller nCipher, a change of management at nCipher resulted in that company making no sales of Senetas’ CypherNet products. Once these risks to the sales forecast were identified, management moved quickly to improve its other global sales through a combination of new sales channel management and direct sales leadership in a number of international markets. Senetas remains in a healthy position with no debt and qualified pipelines within Australasia, Europe and Asia. Please review our notice of meeting attached to this letter.
SEN Price at posting:
1.7¢ Sentiment: Hold Disclosure: Held
(20min delay)