SHARE PURCHASE PLAN (SPP)
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Solution Dynamics Limited (SDL) | 9:29 am, Thursday 7 August 2008 | SDL | 0.260 |
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6 August 2008
Shareholder Name
Address
Dear Shareholder Name
SHARE PURCHASE PLAN (SPP)
On behalf of the Directors of Solution Dynamics Limited ("SDL"), we are
pleased to offer you the opportunity to participate in a Share Purchase Plan
("SPP"), allowing you to purchase up to $4,999.87 worth of ordinary shares in
SDL without brokerage and transaction costs.
The Directors of SDL have been considering a number of alternatives to fund
raising. On 13 June 2008, we made a detailed announcement to the NZX of our
conclusions. A copy of this announcement was sent to you as part of the
documentation for the Special Meeting to be held to approve a placement of
1,500,000 ordinary shares at 40 cents per share ("Placement") and is enclosed
with this letter for your information. The Placement was unanimously
approved at the Special Meeting held on 10 July 2008 and the issue of shares
under the Placement was completed on 17 July 2008.
As part of the Placement, the board of SDL agreed to give all shareholders
the opportunity to participate in a capital raising on a similar basis. The
SPP provides you with the opportunity to acquire up to 13,333 shares at
$0.375 cents per share.
Details of the terms and conditions of the offer under the SPP, and how you
can participate in it, are contained in the enclosed booklet. You are
encouraged to read these terms and conditions in their entirety before you
decide whether to participate. If you choose to apply for shares under the
SPP, please complete the enclosed personalised Application Form and return
the Application Form to SDL's share registry together with a cheque or money
order for the application monies. The SPP opens on 6 August 2008 and is
expected to close on 1 September 2008.
On behalf of the Directors we thank you for your ongoing support of SDL and
invite you to consider this opportunity.
Yours sincerely
Maurice Kidd
Chairman
Announcement - SDL Capital Raising
As the 2008 financial year draws to a close the board felt it timely to
update shareholders on progress.
While we have made good progress in sales we have not been able to hold costs
to budget. We therefore expect our 2008 result to compare with 2007 as
follows;
Turnover up 11.5%
EBITDA up 45% to approx. $570,000.
EBIT nearly at break even
Net profit will be a loss of about $260,000 compared with a loss of $568,000
in 2007.
External interest bearing debt has fallen 10% to $1.5 million
This result is still subject to some uncertainty because of some Dejar sales
we expect before June 30. These sales could improve the final result by as
much as $100,000.
The Mailhouse
At the close of the 2007 year we lost American Express but since that time we
have won some significant new business. We have added names like ACP Media,
Manukau Water, ABN AMRO Craigs and Cardmember Wines. Our sales pipeline
continues to grow and our sales team is winning further major accounts.
While we will still incur a loss in the mail house in 2008, looking ahead to
2009 we expect a solid contribution as we realise the benefit from the new
business and further reduce costs.
Dejar
Dejar has been a huge success in 2008. Australian Post, through its
subsidiary Printsoft, acquired a non-exclusive world wide licence to sell the
product - resulting in sales to new clients in the United Kingdom, Australia
and Europe. Also, in the last month Printsoft has adopted Dejar as the
scanning and archival system for DDG (Desk Direct Global - cross border mail
processing), its new worldwide mail product.
By way of background, Dejar is an archival and retrieval application,
specifically developed for mail houses. It addresses a subset of the
Enterprise Content Management market. It has application within the
mailhouse niche for large communication-intensive corporates in insurance,
banking, telecommunications, utilities, retail or postal organizations with
turnover of, say, $50m+ and employing up to 3,000 employees. The potential
global market is significant.
It has web centric architecture, providing an ideal base for some future
functionality we have planned over the next 3 to 5 years; in scanning,
document management and analysis and reporting.
Documents stored in Dejar are viewed by client-driven request. For example,
a client contacts a call centre (or physically contacts a bank, energy
company, insurance company etc) to enquire about a document (invoice,
statement etc) received. An operator logs into the Dejar web application,
locates the appropriate document and is able to display it online and answer
queries.
Dejar has now come of age. In 2007 sales of Dejar licenses and maintenance
contracts totalled $320,000, in 2008 sales will be approximately $1.1m.
Qualified prospects, expected to be closed in the next 8 months amount to
approximately $1.8m. Notwithstanding these prospects we are budgeting on
sales of $1.3m in 2009
Based on the agreed sales targets under the license agreement with Printsoft,
we can expect substantial earnings from Dejar in the years ahead. We are also
developing further sales channels.
Balance sheet
Although the balance sheet remains weak, we have been cash flow positive in
2008 With the forecast improvement in trading performance for the 2009 year
this position will improve.
Alternative approaches the Board and Management have considered
We have been working through a range of options to address the poor
profitability and the balance sheet.
Acquisitions.
Our preferred approach has been to find suitable acquisitions but for a
number of reasons these have not eventuated.
Acquisition prospects are few and far between with many vendors having quite
unrealistic price expectations. For instance one prospect, with sales less
than $2m expects a price nearly 2 times sales and 10 times earnings yet no
rationalisation is likely and the company doesn't have great growth prospects
or intellectual property.
Sale of parts of our business
Scanning
Following an offer (at 3.5xEBITDA) to acquire the relatively small, but
profitable scanning operation of our business we concluded it is in
shareholders best interests that we retain this activity. We have some very
real sales prospects to grow this division.
Dejar
The continued success of Dejar is a key element in building value for
shareholders. The product is enjoying increasing success in its own right and
through its functionality provides a key point of differentiation in both the
mail and scanning businesses. (v.3 is being released in June '08)
Although we have been tempted by a number of approaches to sell Dejar we
believe there is still significant upside for us to retain it and further
develop its potential. At this early stage it is simply too difficult to
establish a true value.
Mailhouse
To cover all bases we also sought expressions of interest from two companies
with logical interest in the mail house.
Indicative prices probably reflected the value attributed to SDL by the share
market rather than the full potential value and so we did not consider the
options worth pursuing.
Merger.
We have also entertained a merger proposal with a company with complementary
resources and client base. However the difficulty of fixing a value for
Dejar has meant that while this option remains in frame it's not likely to be
completed in the short term.
2009 Outlook
Strong growth was seen through the 2008 year and this momentum is expected to
continue in both the mailhouse and Dejar in 2009.
The comparatives are;
Earnings are expected to be evenly split between the mailhouse and Dejar.
Conclusion
Because such announcements often get lost, you may have missed the
announcement that in April a management group, led by Chief Executive Nelson
Siva acquired a 20% shareholding. This demonstrates management's commitment
to the business.
Both Board and Management, believe in the future of the business, want to see
the balance sheet stabilised, support further development of Dejar and
concentrate on exploiting the sales opportunities now in front of the
company.
We intend to pursue a private placement of shares to raise $600,000 and we
will shortly call a meeting of shareholders to approve this as management and
directors intend to participate.
Once completed we will make an offer to all shareholders under the Share and
Unit Purchase Plans Exemption Notice 2005. This will allow all shareholders
to participate up to $5,000 each without brokerage charges at a price no
worse than that at which the placement is completed.
Maurice Kidd, Chairman
Nelson Siva, Chief Executive
13 June 2008
