Oil & gas sector volatility blamed for Synectics’ third profit warning in a year
WARWICK-based security and surveillance group, Synectics, has been forced to issue its third profits warning in a year following continued volatility in the oil and gas sector.
The Studley company said such a warning was “unacceptable” but it blamed falling global energy prices, political upheaval in the Middle East and reduced confidence in the sector for delays to orders.
The ground said it now expected to incur a loss for the full year – albeit smaller than anticipated.
Synectics has also said that chief executive John Shepherd will be stepping down from the business during the first half of next year. His replacement will be Paul Webb, currently managing director of Synectics’ Systems Division.
David Coghlan, chairman of Synectics, said: “In the board’s view, and I’m sure that of other shareholders, a third profits warning in a year for Synectics is unacceptable, even after five years of solid profits growth.
“Some of the factors behind this poor performance have been outside the company’s control, but others were not. Action is being taken to ensure future profitability is not dependent on the timing of revenue recovery in certain sectors. Despite this, Synectics remains a fundamentally strong and confident business.”
He added: “John Shepherd has led the management of the group through a period of considerable success since his arrival in 2008 and will be leaving Synectics well positioned for future growth. I am very grateful for all his good work over that time. Paul Webb will be a worthy replacement and I look forward to working with him in his new role.”
In a trading update, the company outlined the situation. It said the company had been experiencing continued delays both in the award of large expected contracts and from the extension of existing contracts. These issues are said to primarily affect the oil & gas sector.
In particular, it said the major oil and gas companies and their prime contractors had progressed energy development projects more slowly in the second half of 2014 than originally planned and therefore the timing of demand for sub-systems such as those supplied by Synectics had been disrupted.
“Until recent months Synectics’ sales into projects in this sector, characterised by long gestation periods and a high degree of revenue visibility, were delivered consistently in line with management’s plans. This historical record of consistency led to a degree of confidence in forecasts for oil & gas sector revenues in the current year that in the event has been unjustified,” it said.
“The company believes that these most recent delays and market disruptions in the oil & gas sector are a result of a combination of falling global energy prices, a worsening of the political situation in the Middle East and reduced confidence in long term investment planning in the sector generally.”
In addition, it said trading in the group’s UK security integration activities in the fourth quarter of FY 2014 was now likely to be below board expectations. The shortfall is also mainly due to the lengthening of procurement cycles for larger projects, in this case mostly within the UK public sector.
“As a result of these negative impacts, Synectics now anticipates that underlying profit for the second half of the financial year ending November 30, 2014 will be significantly below market expectations of £5m, though still positive. The company therefore expects to incur an underlying loss for the full financial year, though smaller than that already reported for the first half. The board will not be recommending payment of a final dividend for the year,” it said.
Outside of the oil & gas and the UK public sector, the company said trading remained positive. Sales in the global gaming surveillance sector, where Synectics has established a market leadership position were said to remain buoyant.
