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Solution Dynamics post half year loss

Media release

Friday 4th February 2005

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Solution Dynamics Ltd (SDL) has released its half-year results for the period to December 31 2004, showing a loss of $125,000.

Compared to the same period ending December 2003, sales are virtually in line. Considering that the earlier period included a full contribution from Telstra Clear this was a satisfactory result. Reflecting costs related to the shift into new premises, additional compliance costs and overruns in some key areas, operating expenses were 6% higher than 2003 and the net profit before tax and amortization recorded a loss of $59,000.

"Considering the major changes in the business this may have been considered satisfactory", said chief executive Rob Ford. "However, we were aiming for better and we are disappointed."

Against budget for the period group sales were down 6% and gross margin was down 2%.

"The sales mix was different from expectations. Déjar sales were down 33% on budget. Sales for Comit, the traditional engine room of our business, were down 6% on budget. While there have been significant business wins in the first six months we still did not quite achieve our aim", said Ford.

Looking ahead the second half sales performance is critically dependent on some large contracts, particularly in Déjar. In the first six months SDL recorded a sale of Déjar for a pilot programme for RWE, the European gas utility. They anticipate a successful conclusion to the pilot in March and hope this will flow to further work from what is Europe's largest utility. They have not yet had any sales recorded by Czech Post which will be selling to its own clients. In February the joint venture between Printsoft Czech and Solution Dynamics is formally launched in the Czech Republic to sub distributors throughout Europe and directors expect much from the venture. Déjar still represents a high risk, high return activity.

In New Zealand the Comit business is awaiting results of some significant tenders while new clients such as ING, North Shore City, Metrowater and Blackwoods come on stream in the second half of 2004/2005.

Overhead costs for the half year were approximately $410,000 over budget. Nearly half of this was employment costs which have been addressed for the second half of this financial year and the remainder was of the result of over-runs in a number of areas, including professional costs indirectly related to our public company standing and the new building.

"We are still coming to grips with the costs and opportunities of our new building and our public company status," said Ford. "We are going to reduce the head count further, we will close our Wellington branch and we expect professional costs to settle. These actions should produce annual savings of about $1million per annum. We are determined that sales wins will flow to the bottom line. However, the full effect of these changes will not be felt until 2005-2006."

Due to work commitments Malcolm Don has resigned as a director of Solution Dynamics, " Malcolm's expertise has been of great value to the group and thank him for his contributions during these early stages of becoming a publicly listed company", said Ford.

Ford concluded that "due to the overrun in overhead costs already incurred and continuing in the short term we do not expect to reach our prospectus forecasts for the year to June 2005. If we do not hit forecasts, we will not pay a dividend. However, the full years result is heavily dependent on events unfolding in the next few weeks or months. Because of the size of these transactions it is not possible to forecast 2005 with any certainty at this stage."

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