LONDON (Alliance News) - Scisys PLC said Thursday it will see a "substantial short-fall in profits" for 2015 compared to guidance it gave in March, as a result of issues with a development project in its enterprise solutions and defence division, and a continued hit from the strength of sterling against the euro.
In March the software systems company gave cautious guidance, and said it expected its performance in 2015 to be flat on 2014 as a result of the strength of sterling and a challenging first half.
Scisys said Thursday that it is experiencing difficulties in one major fixed-price development project, and it has become clear that the size and complexity of the project has been underestimated. It will have to make provisions in 2015 for the anticipated additional cost to complete the project.
Whilst trading outside of the enterprise solutions and defence division is progressing in line with plans, Scisys does not believe trading in the other parts of the business will offset the provisions it will need to make to complete the problem project.
Additionally, the company warned that whilst it remains profitable, it may breach some of its UK banking covenants when they are tested in mid-August. Scisys has consulted with its principle UK bank, and said it remains supportive at this time.
Scisys stressed that it believes further growth in profits and margins can be resumed once the problems with this one project have been resolved, but the timescale to meet its stated targets will need to be revised.
Previously the company had given its longer-term target as double-digit margins by the end of 2018.
"The board views a profits warning as deeply regrettable and wholly disappointing given the strong and robust results achieved in the preceding five years. Some of the factors behind this update in performance have been within the company's control, but the exchange rate issue is not," said Chairman Mike Love in a statement.
"We believe in general that our review processes and project controls across the group are robust and that this failure in estimation and breakdown in controls is an isolated incident among many current successful projects. Scisys remains fundamentally strong and confident in its long term ambitions," Love added.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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