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Synectics sees FY revenue down

By BFN News | 07:32 AM | Tuesday 16 December, 2014

Synectics said consolidated revenues for the year just ended are estimated to have been approximately £65 million, a decline of just over 20% compared to the previous year. Underlying results for the year ended 30 November 2014 are likely to be in line with the Board's expectations set out in the trading statement on 27 October 2014 ("the Trading Statement"). As reported in the Trading Statement, this decline in revenues and profits has been primarily the result of two factors: serial delays by some customers in planned projects in the Oil & Gas surveillance market and the impact of significant problems encountered in the delivery of a large project within Synectics' Integration and Managed Services ("IMS") division. The Group also suffered the organisational disruption of a major factory move during the year. The first of these impacts has been caused by developments in the underlying world markets for oil and gas across the year, both in terms of falling commodity prices and a worsening political situation in the Middle East. These developments have clearly affected the pace at which capital expenditure projects around the world are being delivered, including those for which Synectics has won or expects to win contracts for its specialist surveillance systems. Such issues are continuing, though there are some signs that progress on a number of delayed projects is resuming. The troubled major project within the IMS division has now been successfully delivered and signed off by the customer, and Synectics has been awarded a follow-on maintenance contract worth £0.2 million per annum. The consolidation of several sites within the Systems division into the single new operations centre in Scunthorpe has also now been successfully completed. As also reported in the Trading Statement, the impacts from delayed contracts in the Oil & Gas sector have had a substantial effect on levels of stock and work in progress as planned delivery dates have been delayed by customers, which in turn has had a significant impact on the Group's cash position. The Group's net debt as at 30 November 2014 was £6.0 million, compared to net cash of £1.2 million a year earlier. Bank borrowings as at 30 November 2014 comprised a balance on two term loans totalling £3.7 million and a net overdraft of £2.3 million on current accounts. The Group's overdraft facility was renewed in October 2014 at an increased level well in excess of the 30 November 2014 overdrawn balance. The Group expects to generate positive cash flows in 2015 and does not anticipate needing any increase in its current banking facilities. Synectics has taken firm action in response to the weaker trading and increased levels of working capital experienced in 2014. Although a recovery of revenues and profits is expected during 2015, the Board believes that a re-alignment of the Group's operating cost base in the UK is necessary. Management have therefore implemented a restructuring that will result in a reduction of approximately 10% of Synectics' UK-based workforce. The ongoing savings in personnel costs will be around £2.1 million per year and the total one-off costs of the restructuring approximately £1.3 million. The majority of these restructuring costs will be accounted for in the 2014 financial year and the remainder in the first half of 2015. In the period since the Trading Statement, Synectics' overall trading and new order intake has been in line with the Board's expectations. The Group's consolidated total order book as at 30 November 2014 was approximately £28.6 million, compared with £28.1 million at the same point in 2013. This was augmented in the first week of the new financial year with the receipt of an anticipated but delayed order of £1.6 million for an existing high security UK infrastructure customer. Whilst we do not anticipate any near term improvement in commodity prices nor in the political situation in the Middle East, we do see an unblocking of a number of projects within Synectics' Oil & Gas sector that should result in trading for that business in 2015 being stronger than in 2014. Also, bid activity within the Group's gaming and high security sectors has picked up. Together these factors underpin an expectation for improved overall performance for Synectics in the current financial year. Specifically, the Board's expectations for underlying results in 2015 have not changed since the Trading Statement, namely that Synectics is likely to record an underlying result in the first half just under breakeven, and a return to a more acceptable level of profitability in the second half. The Company's preliminary results for the year to 30 November 2014 will be released on or around 10 March 2015. Story provided by

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