Synectics Regulatory News (SNX)

Synectics plc

("the Company" or "the Group")

Trading Statement

Synectics plc (AIM: SNX), a leader in the design, integration, control and management of advanced surveillance technology and networked security systems, provides the following update on trading.

Synectics has suffered recent negative impacts that have substantially lowered its expectations of results, both for the first half year to 31 May 2014, and for the year to 30 November 2014, which are expected to be significantly below market expectations. However, trading for the second half of this year is expected to be very strong and well ahead of the record results achieved in the second half of last year (underlying PBT of £3.5 million). This is supported by substantial growth in the Group's consolidated order book, which stood at £32.9 million at 31 May 2014 (30 November 2013: £27.6 million), and particularly by an increase of 34% in the Group's qualified pipeline of anticipated orders to £46.8 million at 31 May 2014 (30 November 2013: £35.0 million). The Company's expectations for the 2015 financial year remain unchanged.

The Company indicated in its last annual report that results in the first half of this year would be significantly below those in 2012/13. Due to the impact of the issues referred to below, results for the half year ended 31 May 2014 are now expected to show an underlying loss before tax of approximately £2.5 million. The Company does not expect to report any non-underlying restructuring costs for either the half year or full year in 2013/14. As a result of the loss expected to be reported for the first half, the Board does not propose to pay an interim dividend. However, on the basis that trading is as strong as anticipated in the second half, the Board's intention would be to recommend payment of a final dividend at the same level as that of last year.

The largest impact on the full year results to 30 November 2014 is due to the current events in Iraq. Specifically, due to delays in awarding three oil & gas surveillance systems contracts for re-building and expanding oil refineries in southern Iraq, a total of around £7 million of revenue and just over £2.1 million of net profit contribution to the Group have been removed from the business' forecasts for the second half of this financial year. It is impossible to say at this stage when or whether these delays will be resolved, and the Company's expectations for the 2015 financial year are not dependent on any such resolution.

There are two issues that have had a negative impact on the Group's half year results to 31 May 2014. The first of these relates to the UK systems integration activities within Synectics' Integration & Managed Services division where local management have been implementing a new management information system, as well as significant changes in organisation structure and management personnel. It is now apparent that during this process, a large surveillance system integration project suffered much more seriously than was at first believed due mainly to a combination of external difficulties beyond Synectics' control as well as inadequate internal project management. These problems led to delays, inefficiencies and an unexpectedly large cost overrun. A full review of all projects by the newly-appointed divisional Finance Director has revealed a need for substantially increased provisions for additional costs and reduced forecast future revenues on this project. There are no other material loss-making projects. The total negative impact of the reduced revenues and additional costs incurred or provided for on this project, compared with the original bid margin, is around £1.9 million, of which the larger part is in the first half to 31 May 2014.

Group management has already taken decisive action to address the issues at the root of the problem and the Board believes that the project is now back under control. Underlying trading for the integration business and the division as a whole is now positive, and results for the second half of this year are expected to be at levels consistent with recent years. Market conditions in the sector remain generally favourable.

Secondly, as reported in the Company's last annual report, the rapid growth of Synectics' Systems division over the past several years created an imperative to move and consolidate two of the division's operations facilities into a single new site, with expanded capacity. To that end, the Group has purchased and refurbished a 54,000 square foot freehold building in Scunthorpe, and the move of plant and personnel from both operations into this new facility has just been successfully completed. The benefits of much increased capacity for both production and customer acceptance tests, as well as improved efficiencies, are already very evident. Nevertheless, the impact of disruption to operations during the transition in the first half of this year has been beyond that originally envisaged.

Synectics' global high-end surveillance markets remain robust, particularly in the oil & gas and gaming sectors. On the basis of the current growth being seen in the Group's pipeline of new business, and the recent major investments in new facilities and infrastructure, the Company expects that the strong level of anticipated trading in the second half of the current year will continue in the 2015 financial year.

Results for the half year to 31 May 2014 will be released on 29 July 2014.

For further information, please contact: