REG - Synectics PLC - Final Results
22/02/2022 07:00
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RNS Number : 3515C Synectics PLC 22 February 2022
22 February 2022
Synectics plc
('Synectics' or the 'Group' or the 'Company')
Final Results for the year ended 30 November 2021
Synectics plc (AIM: SNX), a leader in the design, integration and support of
advanced security and surveillance systems, reports its unaudited final
results for the year ended 30 November 2021.
Headlines
· Revenue: £43.6 million (2020: £44.6 million)
· Significant improvement in underlying losses(1) to £(0.6) million (2020:
£(4.1) million)
· Loss before tax: £(0.6) million (2020: £(6.3) million)
· Fully diluted EPS: (2.8)p (2020: (27.7)p)
· Net cash at 30 November 2021: £4.6 million (2020: £6.9 million) with no bank
debt2 and undrawn facilities of £3.0 million
· Company returned to profit in the second half, as expected, on a restructured
cost base
· Order book at 30 November 2021: £28.4 million (2020: £25.4 million)
· Recommended final dividend of 1.5p per share, in recognition of profitable H2
and strong balance sheet
(1 )Underlying (loss) represents (loss) before tax and non-underlying items;
see note 4 for further details.
(2 )Excluding IFRS 16 lease liabilities
Commenting on the results, Paul Webb, Chief Executive of Synectics, said:
"The second half of the year saw the Company return to profit, on a
restructured cost base, delivering a significant reduction in losses. The
Board is confident that the Company's excellent customer relationships in
attractive markets, coupled with its talented and committed teams, provide
sound foundations for a strong recovery and sustained
growth."
For further information, please contact:
Synectics plc Tel: +44 (0) 114 280 2828
David Coghlan, Chairman
Paul Webb, Chief Executive
David Bedford, Finance Director
email: info@synecticsplc.com www.synecticsplc.com
Shore Capital Tel: +44 (0) 20 7408 4050
Tom Griffiths / David Coaten
Media enquiries:
Intelligent Conversation Tel: +44 (0) 161 694 3979
Claire Evans
email: claire@weareic.com
Chairman's Statement
Overview
The period under review encompassed Synectics' second year, and first full
financial year, since the global COVID-19 environment came to dominate
business life from March 2020. Against that background, Synectics produced
resilient financial and strategic progress in the year ended 30 November 2021,
consistent with the objectives agreed by the Board.
The financial objective for the year was to protect the value of the Company
by restoring profitability without damaging the growth potential inherent in
Synectics' technology and market positions. I am pleased to report that this
objective was achieved, with profitability restored in the second half and
both of the Group's operating divisions effecting substantial turnarounds to
produce positive operating profits for the year as a whole.
After nearly two years, it is time to move on from a discussion of the
pandemic as a critical element in current business performance and to
concentrate on progress in the execution and delivery of Synectics' growth
plans. It is nevertheless worth highlighting the ability of Synectics to drive
financial growth, as this is easily forgotten given the impact of the
pandemic. In the five financial years 2015 - 2019 inclusive, Synectics' core
technology Systems Division grew its annual revenue from £32.7 million to
£40.5 million, and its underlying profits from £1.3 million to £4.7
million. In the year just ended, the corresponding comparable figures were
revenue of £20.7 million (2020: £23.6 million) and profit of £0.1 million
(2020: £(1.8) million), with the dramatic decline largely driven by the
closure, or collapse in business levels, of most major casinos and gaming
resorts in Asia and North America. The recovery of these markets has begun in
North America, albeit still gradually, and should follow in Asia once leisure
travel in the region resumes. Nothing structural has changed in Synectics'
market opportunities and competitive position to suggest that the Systems
Division cannot regain its 2019 result levels, and considerably more.
Strategically, Synectics has continued to strengthen its position in the large
transport and infrastructure segment of the market, particularly for Safe City
applications. During the year, the security management project for the S-Bahn
in Berlin on behalf of Deutsche Bahn moved from development to the delivery
and long-term service phase, complementing the Company's position with
government-owned BVG for Berlin's underground and main transport hub. Similar
sizeable projects were won with the City of London Corporation and Police, and
with the West Midlands Police, for wide-scale integration of security
management in those jurisdictions. Collectively, these deployments represent
impressive reference sites for Synectics' latest technology.
Strategy
Synectics' primary strategy remains to develop and capitalise on
market-leading positions within relevant sectors of the global surveillance
and security market where customers value high-performance, sector-specific
capability. The Company achieves cost competitiveness and scalability in these
markets by maintaining a standard modular core software platform which
supports solutions tailored as required for specific sectors and customers.
Significant technology development investment is focused on expanding the
range of capabilities of the Company's core Synergy platform, delivered in
traditional, Cloud-based or hybrid architectures, to enable end-to-end control
of the overall surveillance function and resources in complex operations. To
customers whose other options would largely be based on bespoke development,
the Synectics alternative offers the flexibility and power they need, but at
lower cost and with substantially reduced implementation risk.
In the immediate term, the Board is committed to ensuring that the Company
makes rapid progress in creating value through its well invested software
technology base, powerful customer reference sites and strong balance sheet.
We will achieve this through:
(i) improved gross and net margins from both the increasing
proportion of software in the revenue mix and the benefits of substantial
operational gearing as revenues grow back to pre-pandemic levels and beyond;
(ii) continued investment in the Systems Division sales and
marketing resource, with a focus on delivery of ambitious sales results; and
(iii) the benefits of Synectics having transitioned during FY
2020 from an organisation of semi-autonomous sector-focused activities into
two complementary single-business divisions with greater sales and operating
efficiency and lower overhead costs.
The results of this commitment should be judged by growth in the Group's
consolidated revenues, margins and return on capital employed over FY 2022 and
subsequent years.
As Synectics' markets recover to more normal levels of activity, the Board
believes that it is appropriate to increase engagement with current and
potential shareholders. This process has now begun, with the objective of
raising and clarifying the Company's profile with both investors and other
market participants.
Results
For the year to 30 November 2021, Synectics' consolidated revenue was £43.6
million (2020: £44.6 million), reflecting a full financial year of the impact
of COVID-19. The underlying loss before tax 1 improved significantly to
£(0.6) million (2020: £(4.1) million), primarily as a result of cost
reductions from the restructuring implemented in 2020, and a recovery of
revenues in the Company's Security Division. This figure comprised an
underlying loss before tax of £(0.8) million in the first half, and an
underlying profit before tax of £0.2 million in the second half.
There were no material non-underlying costs incurred during the year, so the
loss before tax was also £(0.6) million (2020: £(6.3) million). The diluted
loss per share was (2.8)p (2020: (27.7)p).
The tax credit in the year was £0.1 million (2020: £1.6 million) consisting
largely of the recognition of tax losses incurred in the year.
The impact on these results of foreign exchange movements during the year was
not material. Net cash at 30 November 2021 was £4.6 million 2 (2020: £6.9
million). The Company has no bank debt (2020: £nil) and available undrawn
facilities of £3.0 million (2020: £3.0 million). The 2020 net cash number
was flattered by the timing of working capital movements.
The consolidated firm order book at 30 November 2021 was £28.4 million (2020:
£25.4 million) around two-thirds of which is expected to be traded in FY 2022
with the balance largely long-term service and support contracts. Service and
support revenue now accounts for approximately one third of Group revenue.
Dividend
Given the Company's return to profitability in the second half of the year
ended 30 November 2021, its strong balance sheet and as a mark of our
confidence in Synectics' future, the Board is recommending the payment of a
final dividend of 1.5p per share subject to shareholders' approval at the
Company's Annual General Meeting due to be held on 20 April 2022. If approved,
the dividend will be payable on 6 May 2022 to shareholders on the register as
at 8 April 2022.
The Board does not intend to declare an interim dividend during this financial
year ending 30 November 2022 but, so long as it remains prudent to do so, we
expect to recommend payment of a final dividend in respect of the full
financial year.
Business review
Synectics' business is to provide integrated electronic surveillance systems
and services to specialist markets. Our solutions are based on core
proprietary technology, in particular systems integration and high-end command
and control software. This technology is adapted for the specific needs of our
target customer sectors and provides fundamental differentiation from
mainstream suppliers in the wider electronic security market.
During 2021, the Group consolidated the organisation and management structure
changes implemented in 2020, delivering the cost savings (compared to 2019) of
£2.4 million per year estimated in last year's annual report, without
diminishing Synectics' capacity for growth and continued technical innovation
as markets recover.
Systems division
Synectics' Systems Division provides specialist electronic surveillance
systems, based on its own proprietary technology, to global end customers with
large-scale highly complex security requirements, particularly for gaming,
transport, critical infrastructure, public space, and oil & gas
applications.
Revenue
£20.7 million (2020: £23.6 million; 2019: £40.5 million)
Gross margin 46.4%
(2020: 40.8%; 2019: 42.0%)
Operating profit/(loss) 3 £0.1 million (2020: £(1.8)
million; 2019: £4.7 million)
Operating margin 0.3% (2020: (7.5)%; 2019:
11.6%)
The Systems Division completed its first full year as a single, global
business with bases in the UK, Europe, North America and Asia. The division is
now structured to provide more efficient and more scalable operations, rather
than the historical sector-based, multi-business structure.
After four years of solid organic revenue and underlying profits growth to 30
November 2019, as set out above, the Systems Division was substantially
affected by the pandemic during FY 2020. This remained the case in FY 2021,
particularly in its largest sector, global casinos and gaming resorts, where
its customers' businesses remained effectively shut down for most of the year.
The picture began to improve in North America during the Company's fourth
financial quarter, as domestic US and Canadian travel started to pick up
again, though market recovery was further postponed in Asia.
Outside gaming, the high security and public space sectors held up relatively
well, while the oil & gas sector remained subdued with some signs of
improvement as the year ended.
During the year, gross margins moved ahead quite considerably, reflecting
savings in direct costs as well as an increase of software in the revenue mix,
as planned. The progressive increase of software as a proportion of the
division's revenue means that gross margins should remain strong going
forward.
Europe, Middle East and Africa (Revenue £12.0 million (2020: £13.6 million;
2019: £15.7 million))
Revenues in EMEA continued at approximately the same level as in the second
half of FY2020.
Substantial progress was achieved on large strategic projects incorporating
the new generation of Synectics' Synergy software platform, including the
launch of Cloud deployment. As previously announced, major orders were
received from the City of London Corporation and City of London Police for
their joint Safe City programme, as well as from West Midlands Police
consolidating their unified regional security control capability.
Development and deployment of the Company's major Deutsche Bahn project for
the Berlin S-Bahn progressed well, and will continue throughout 2022, to
include a number of enhancements and additional features identified during the
course of the project. The eight-year service and support phase of this
contract will commence on 1 March 2022.
These projects constitute a powerful reference portfolio for further growth of
Synectics' position at the forefront of operational control systems for Safe
City programmes.
Other highlights include:
· transport systems for Irish rail and bus;
· new systems and expansions of existing solutions for a number of
London boroughs and local authorities across the UK;
· further work for Irish prisons;
· various upgrade and supply orders for certain existing oil &
gas customers in the UK and Middle East; and
· upgrades to the latest version of Synergy and new software
support contracts for a number of customers across various end markets, as
they recognise the value of keeping their systems updated and taking advantage
of the new features that are continuously being added to the software
platform, as described below.
North America (Revenue £4.0 million (2020: £2.4 million; 2019: £7.2
million))
After a dearth of new orders in 2020, the tentative emerging recovery of the
North American casino and gaming markets in Q4 FY21 resulted in increased
revenue in FY2021, though still to a relatively low level compared to
historical results.
A number of substantial projects for new customers in the US and Canada were
secured late in the second half, including that recently announced for
Fallsview Niagara, the largest gaming resort in Canada, as well as increased
repeat orders from existing gaming customers.
In addition, notable in the year, as previously announced, was a large order
received from a new oil & gas customer in Mexico, PEMEX (Petróleos
Mexicanos) as well as smaller orders from several other new oil & gas
customers in the region.
Plans for the expansion of sales to North America of Synectics' latest Synergy
technology for the wider transport, infrastructure and Safe City markets were,
for obvious reasons, put on hold for 2021, but will be re-evaluated in the
current financial year.
Asia Pacific (Revenue £4.7 million (2020: £7.7 million; 2019: £17.7
million))
Synectics' performance in the Asia Pacific region in 2021 remained heavily
impacted by the closure of most of the gaming market during the year and low
levels of activity in other sectors.
In gaming, despite the market closure, the Company was pleased to receive
several new security upgrade and spares orders from two important existing
customers.
A number of new oil & gas customers in the region placed orders with
Synectics, particularly for projects on- and offshore Australia, and the
Company was able to welcome a new government defence customer.
Technology development
During the 2021 financial year, Synectics spent a total of £3.4 million on
technology development (2020: £4.0 million). Of this, £0.6 million was
capitalised (2020: £0.8 million), and the remainder expensed to the Income
Statement. £0.9 million (2020: £0.4 million) of previously capitalised
development costs were amortised in the year.
Continued investment in the Company's intellectual property and technology
base remains an important priority for the Group and development expenditure
in 2022 is expected to return to approximately 2020 levels.
During the year, the Company made significant progress in developing the core,
underlying capabilities of its fourth-generation Synergy platform to cater for
the most demanding security applications - allowing hundreds of simultaneous
operators to handle hundreds of thousands of events and video channels without
compromising system performance.
Numerous extensions and improvements to the product suite included:
· modularised Synergy software suite, with improved scalability and
reliability and allowing customers to enhance core platform features and
functions through a series of add-on modules and capabilities;
· enhanced Cloud capability, offering full end-to-end deployment of
Synergy and our recording platforms in the Cloud, using efficient, highly
redundant Cloud-native storage whilst retaining the performance expected of
traditional solutions;
· enhanced cyber security features, including an innovative, built in
"cyber-checking" tool which highlights potential weaknesses in system
configurations and prompts recommended actions;
· a new, dynamic mapping engine supporting a range of map formats, now
displaying both clustered and moving objects;
· a variety of new integrations to support leading third-party products
and systems, including location tracking services;
· ultra-dense storage platforms supporting very large systems and
increased 4K camera resolution; and
· extended COEX camera range with new entry-level models in response
to market demand.
Security division
Synectics' Security Division is a leading UK provider in the design,
integration, monitoring, and management of large-scale electronic security
systems for critical and regulated environments. Its main markets are in
critical infrastructure, transport, and public space. Its capabilities include
UK Government security-cleared personnel and facilities, nationwide project
delivery and service support, and an in-house 24-hour monitoring centre and
helpdesk. Synectics Security supplies proprietary products and technology from
Synectics' Systems Division as well as outside partners, and also provides
highly-regarded security monitoring and facilities management services.
Revenue
£25.0 million (2020: £21.8 million; 2019: £28.6 million)
Gross margin 24.1%
(2020: 24.6%; 2019: 21.9%)
Operating profit/(loss) 4 £0.9 million (2020: £(0.4)
million; 2019: £0.0 million)
Operating margin 3.7% (2020:
(1.8)%; 2019: (0.1)%)
The major consolidation of the operations of Synectics' Security Division was
completed during FY2020. This reorganisation has borne fruit with the delivery
of 15% revenue growth on a comparable basis, and a significant turnaround of
operating results from a loss of £(0.4) million to an on-budget profit of
£0.9 million in FY2021, with clear ongoing momentum. Although there is still
more to be done in the current year and beyond to raise operating margins to
our target levels of 6%-8%, this very satisfactory outcome is a tribute to the
divisional management's handling of a complex challenge.
During last year, Synectics Security participated with the Company's Systems
Division as its integration partner for delivery of the large and important
new Synergy projects referred to above for each of the City of London and West
Midlands Police, as well as for the Irish rail and bus market.
Other highlights during the year included:
· a large order for protecting diplomatic premises in London;
· a recovery in orders from the UK on-vehicle market;
· an upgrade to the security system of a major sporting venue;
· new and expanded systems for a number of London boroughs and
local authorities across the UK;
· upgrades for a defence customer; and
· upgrades for a major utility generation customer.
Synectics Security, as now constituted, has excellent partnerships across the
security solutions portfolio. These enable the team to develop Synectics
Security beyond its traditional heartlands in public space and transport into
new opportunities that utilise its experience in complex, critical and highly
regulated environments. As noted in last year's annual report, the Company
increasingly sees opportunities in more inter-connected urban infrastructures
where there is a growing alignment between transportation and large-scale
security and surveillance operations. Approaching these converged
opportunities with the right partners will help the Company to continue to
reshape the business over the next few years.
In addition to Synectics Security, the Security Division also includes our
managed services business, SSS. During the year, this business secured a
contract renewal with its largest retail customer for a further two years plus
one-year option, as well as winning one new multi-site customer. Despite the
negative impact of the pandemic on a number of its customers, the business
produced a profitable trading result compared to a loss in the preceding year.
People
I would like once again to pay tribute to the skills, commitment and goodwill
of Synectics' people through another exceptionally difficult period. On behalf
of the Board and the Company's shareholders, I pass on our sincere thanks.
During 2021, considerable effort was directed by the Board and the senior
management team towards reasserting and re-articulating the Company's core
values, and in visibly strengthening the importance attributed to behaviours
consistent with the Company's long-maintained culture of absolute focus on
customer needs, integrity and the mutual support of colleagues. These values
have underpinned Synectics' growth from its foundation more than 30 years ago,
and are an essential part of what the Company is. The Board is clear that long
term financial success will flow from resolutely maintaining these values.
As another measure of the direct impact of our people on the business, for the
sixth year running, the Company's independently assessed metric of overall
customer satisfaction has risen. The Board attaches significant importance to
the results of this annual survey as a leading indicator of the Group's
performance, long-term success and sustainability.
Outlook
Synectics' recovery in results in H2 2021 was primarily driven by
restructuring efficiencies and cost saving measures undertaken in the
preceding financial year. Further progress this year will come from organic
growth in revenue and gross margins.
The degree to which this objective will be aided in 2022 by the general
macroeconomic recovery as pandemic restrictions are lifted is still uncertain,
as is the timing. Nevertheless, the Group's growing order book, pipeline of
expected new business and the emerging opportunities in our markets underpin
some ambitious internal plans for this financial year and next. Based on this,
the Board is confident that Synectics' trajectory of revenue growth in the
Systems Division will resume in the current financial year, though timing does
remain uncertain and is likely to be second half weighted. The revenue growth
delivered by the newly-formed Security Division in 2021 is expected to
continue at approximately the same rate in the current year.
Although Synectics has not been immune from the well-documented supply chain
pressures affecting the electronics industry globally, these challenges have
not had a material impact on its trading to date, and are not expected to do
so in the current year. Likewise, cost inflation experienced by the Group has
been increasing, but the impact on gross margins has been more than offset by
efficiencies and improvements in the mix of higher value-added software
revenue; this trend is also expected to continue through 2022.
The underlying global market for sophisticated, software-led security systems
is fundamentally attractive, with solid long term growth prospects. The Board
believes that Synectics is a financially sound group, supported by significant
intellectual property and well positioned to capitalise on its established
market positions as the post-COVID recovery continues.
David Coghlan
Chairman
21 February 2022
Consolidated income statement
For the year ended 30 November 2021
Unaudited Audited
2021 2020
Before Non- Before Non-
non- underlying non- underlying
underlying items 1 underlying items 1
items (note 4 ) Total items (note 4 ) Total
Note £000 £000 £000 £000 £000 £000
Revenue 3 43,595 - 43,595 44,648 - 44,648
Cost of sales excluding other income (27,993) - (27,993) (30,054) - (30,054)
Other income 2 1 - 1 416 - 416
Cost of sales (27,992) - (27,992) (29,638) - (29,638)
Gross profit 15,603 - 15,603 15,010 - 15,010
Operating expenses (16,464) - (16,464) (19,857) (2,181) (22,038)
Other income 2 387 - 387 880 - 880
Loss from operations (474) - (474) (3,967) (2,181) (6,148)
Finance income - - - 124 - 124
Finance costs (121) (121) (263) - (263)
Loss before tax (595) - (595) (4,106) (2,181) (6,287)
Income tax credit 5 116 - 116 1,199 417 1,616
Loss for the year attributable to equity holders of the Parent (479) - (479) (2,907) (1,764) (4,671)
Basic loss per share 7 (2.8)p (27.7)p
Diluted loss per share 7 (2.8)p (27.7)p
1. Underlying (loss)/profit represents (loss)/profit before tax and
non-underlying items; see note 4 for further detail. Underlying earnings per
share are based on (loss)/profit after tax but before non-underlying items.
2. Other income represents government grant income received in relation
to Covid-19.
Consolidated statement of comprehensive income
For the year ended 30 November 2021
Unaudited Audited
2021 2020
£000 £000
Loss for the year (479) (4,671)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (loss)/gain on defined benefit pension scheme, net of tax (1,073) 492
(1,073) 492
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 37 39
Gains/(losses) on a hedge of a net investment taken to equity (184) 160
(147) 199
Total comprehensive loss for the year attributable to equity holders of the (1,699) (3,980)
Parent
Consolidated statement of financial position
As at 30 November 2021
Unaudited Audited
2021 2020
Note £000 £000
Non-current assets
Property, plant and equipment 4,981 5,243
Intangible assets 21,728 22,155
Retirement benefit asset - 1,325
Deferred tax assets 2,452 1,864
29,161 30,587
Current assets
Inventories 3,936 4,661
Trade and other receivables 11,156 9,013
Contract assets 3 5,244 8,185
Tax assets - 505
Cash and cash equivalents 8 4,641 6,864
24,977 29,228
Total assets 54,138 59,815
Current liabilities
Trade and other payables (10,902) (12,839)
Contract liabilities 3 (3,096) (4,295)
Lease liabilities (816) (870)
Tax liabilities - (63)
Current provisions 9 (487) (1,621)
(15,301) (19,688)
Non-current liabilities
Non-current provisions 9 (921) (575)
Lease liabilities (2,023) (1,920)
Deferred tax liabilities (549) (601)
(3,493) (3,096)
Total liabilities (18,794) (22,784)
Net assets 35,344 37,031
Equity attributable to equity holders of the Parent Company
Called up share capital 3,559 3,559
Share premium account 16,043 16,043
Merger reserve 9,971 9,971
Other reserves (1,436) (1,448)
Currency translation reserve 772 919
Retained earnings 6,435 7,987
Total equity 35,344 37,031
Consolidated statement of changes in equity
For the year ended 30 November 2021
Called up Share Currency
share premium Merger Other translation Retained
capital account reserve reserves reserve earnings Total
£000 £000 £000 £000 £000 £000 £000
At 1 December 2019 3,559 16,043 9,971 (1,499) 720 12,167 40,961
Loss for the year - - - - - (4,671) (4,671)
Other comprehensive income
Currency translation adjustment - - - - 199 - 199
Remeasurement gain on defined benefit pension scheme, net of tax - - - - - 492 492
Total other comprehensive income - - - - 199 492 691
Total comprehensive income for the year - - - - 199 (4,179) (3,980)
Transactions with owners in their capacity as owners
Credit in relation to share-based payments - - - - - 50 50
Share scheme interests realised in the year - - - 51 - (51) -
At 30 November 2020 3,559 16,043 9,971 (1,448) 919 7,987 37,031
Loss for the year - - - - - (479) (479)
Other comprehensive income
Currency translation adjustment - - - - (147) - (147)
Remeasurement gain on defined benefit pension scheme buy in net of tax - - - - - (1,073) (1,073)
Total other comprehensive income - - - - (147) (1,073) (1,220)
Total comprehensive income for the year - - - - (147) (1,552) (1,699)
Transactions with owners in their capacity as owners
Credit in relation to share-based payments - - - - - 12 12
Share scheme interests realised in the year - - - 12 - (12) -
At 30 November 2021 3,559 16,043 9,971 (1,436) 772 6,435 35,344
Consolidated cash flow statement
For the year ended 30 November 2021
Unaudited Audited
2021 2020
Note £000 £000
Cash flows from operating activities
Loss for the year (479) (4,671)
Income tax credit 5 (116) (1,616)
Finance income - (124)
Finance costs 121 263
Depreciation and amortisation charge 2,121 2,348
Loss on disposal of non-current assets 88 1
Net foreign exchange differences 6 80
Non-underlying items - 2,158
Other inventory write (back)/down (658) 448
Cash flow relating to non-underlying items (1,321) (1,652)
Other non-cash movements (4) 359
Share-based payment charge 12 50
Operating cash (outflow) before movement in working capital (230) (2,356)
Decrease in inventories 1,383 1,969
Decrease in receivables 260 7,923
(Decrease) in payables (2,571) (1,778)
Net movement in provisions 394 141
Cash (used in)/ generated from operations (764) 5,899
Tax received/ (paid 157 (148)
Net cash (used in)/ generated from operating activities (607) 5,751
Cash flows from investing activities
Purchase of property, plant and equipment (73) (329)
Capitalised development costs (648) (828)
Purchased software (154) (61)
Proceeds from sale of property plant and equipment 33 -
Net cash used in investing activities (842) (1,218)
Cash flows from financing activities
Lease payments (1,006) (1,117)
Bank interest paid (12) (33)
Net cash used in financing activities (1,018) (1,150)
Effect of exchange rate changes on cash and cash equivalents 244 (99)
Net (decrease)/increase in cash and cash equivalents (2,223) 3,284
Cash and cash equivalents at the beginning of the year 6,864 3,580
Cash and cash equivalents at the end of the year 8 4,641 6,864
Notes
1. Basis of preparation
The information contained within this announcement has been extracted from the
unaudited financial statements which have been prepared in accordance with
international accounting standards in conformity with the Companies Act 2006
('adopted IFRS'), and with those parts of the Companies Act 2006 applicable to
companies reporting under adopted IFRS. They have been prepared using the
historical cost convention except where the measurement of balances at fair
value is required.
The financial statements have been prepared on a going concern basis. The
Directors have reviewed the Group's funding position and financial forecasts
for the foreseeable future. Based on all of the work performed, the Directors
have a reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future without material
uncertainty.
New and amended standards adopted by the Group
The Group has not early adopted any standards, interpretations or amendments
that have been issued but are not yet effective.
2. Segmental analysis
2021 2020
Revenue £000 £000
Systems 20,661 23,645
Security 24,965 21,802
Total segmental revenue 45,626 45,447
Reconciliation to consolidated revenue:
Intra-Group sales (2,031) (799)
43,595 44,648
No single customer contributed 10% or more to the Group's revenues in either
year.
2021 2020
Underlying operating profit/(loss) £000 £000
Systems 58 (1,774)
Security 924 (388)
Total segmental underlying operating profit/(loss) 982 (2,162)
Reconciliation to consolidated underlying operating loss:
Central costs (1,456) (1,805)
(474) (3,967)
2. Segmental analysis (continued)
Underlying Pension Amortisation Total
operating Legal buy-out Restructuring of acquired operating
profit/(loss) 1 provision costs costs intangibles loss
Underlying operating profit/(loss) 2021 £000 £000 £000 £000 £000 £000
Systems 58 - - - - 58
Security 924 - - - - 924
Total segmental underlying operating loss 2 982 - - - - 982
Reconciliation to consolidated underlying operating loss:
Central costs (1,456) - - - - (1,456)
(474) - - - - (474)
Underlying Pension Amortisation Total
operating Legal buy-out Restructuring of acquired operating
loss 1 provision costs costs intangibles loss
Underlying operating loss 2020 £000 £000 £000 £000 £000 £000
Systems (1,774) 42 - (1,249) - (2,981)
Security (388) - - (528) - (916)
Total segmental underlying operating loss 2 (2,162) 42 - (1,777) - (3,897)
Reconciliation to consolidated underlying operating loss:
Central costs (1,805) - (150) (273) (23) (2,251)
(3,967) 42 (150) (2,050) (23) (6,148)
1. Underlying operating loss represents operating profit before
non-underlying items (2020: release of overprovision for costs on settlement
of a legal claim, costs associated with the defined benefit pension scheme
buy-out, restructuring costs and amortisation of acquired intangibles).
2. Net finance expenses and income and income tax credit/(charge) are
not allocated to segments.
3. Revenue from contracts with customers
Disaggregated revenue information:
Set out below, is the disaggregation of the Group's revenue from
contracts with customers:
Revenue by contract location 2021 Systems Security 2021
£000 £000 £000
UK and Europe 7,354 24,963 32,317
North America 5,276 - 5,276
Middle East & Africa 724 - 724
Asia Pacific 5,278 - 5,278
18,632 24,963 43,595
Revenue by contract location 2020 Systems Security 2021
£000 £000 £000
UK and Europe 8,881 21,667 30,548
North America 3,166 - 3,166
Middle East & Africa 2,600 - 2,600
Asia Pacific 8,208 126 8,334
22,855 21,793 44,648
3. Revenue from contracts with customers (continued)
Set out below, is the reconciliation of the revenue from contracts with
customers with the amounts disclosed in the segment information:
Reconciliation to segment revenue 2021 Systems Security 2021
£000 £000 £000
External 18,632 24,963 43,595
Intra-Group 2,029 2 2,031
20,661 24,965 45,626
Reconciliation to segment revenue 2020 Systems Security 2020
£000 £000 £000
External 22,855 21,793 44,648
Intra-Group 790 9 799
23,645 21,802 45,447
2021 2020
Contract balances £000 £000
Contract assets 5,244 8,185
Contract liabilities (3,096) (4,295)
Contract assets relate to revenue earned from ongoing projects. As such, the
balance of this account varies and depends on the number of ongoing projects
at the end of the year. The timing of payment in respect of both contract
assets and liabilities varies depending on the nature and terms of each
individual contract, with payment sometimes being before and sometimes after
satisfaction of the corresponding performance obligations. No expected credit
loss has been recognised in relation to the contract asset as the Group's
historical experience shows that no credit losses have been incurred.
Contract liabilities relate to short-term advances received to deliver ongoing
projects.
£4.3 million (2020: £4.1 million) of the contract liabilities balance at 1
December 2020 was recognised as revenue during the year. No revenue was
recognised in the current year in relation to performance obligations
satisfied, or partially satisfied in previous years.
Performance obligations
The transaction price allocated to the remaining performance obligations
(unsatisfied or partially unsatisfied) as at 30 November 2021 that are
expected to be recognised over more than one year is £8.7 million (2020:
£18.0 million). These performance obligations relate predominantly to the
provision of service and maintenance contracts.
4. Non-underlying items
2021 2020
£000 £000
(Release)/accrual of costs associated with settlement of a legal claim - (42)
Costs associated with the restructuring of the Systems division - 1,249
Costs associated with the restructuring of the Security division - 528
Costs associated with restructuring Central operations - 273
Costs associated with the buy-out of the defined benefit pension scheme - 150
Amortisation of acquired intangible assets - 23
- 2,181
The Systems restructuring costs incurred during 2020 related to the
consolidation of the Munich office into Berlin, along with a review of the
cost base across the Systems division.
The Security restructuring costs incurred during 2020 relate to the merger of
Synectics Mobile Systems into Quadrant Security Group (i.e. the formation of
"Synectics Security"), along with a review of the cost base across the whole
Security division.
The Central restructuring costs incurred during 2020 relate to the closure of
the Group's Studley office and consolidation of Head Office functions into
Sheffield.
5. Taxation
2021 2020
Tax (credit)/charge £000 £000
Current taxation
UK tax 482 4
Overseas tax - (473)
Adjustments in respect of prior periods - (173)
Total current tax charge/(credit) 482 (642)
Deferred taxation
Origination and reversal of temporary differences (1,124) (913)
Adjustments in respect of prior periods 526 (61)
Total deferred tax credit (598) (974)
Total tax credit for the year (116) (1,616)
Further analysed as tax relating to:
Underlying profit (116) (1,199)
Non-underlying items - (417)
5.Taxation (continued)
Reconciliation of tax (credit)/charge for the year
The corporation tax assessed for the year differs from the standard rate of
corporation tax in the UK of 19% (2020: 19%). The differences are explained
below:
2021 2020
£000 £000
Loss on ordinary activities before tax (595) (6,287)
Tax on (loss)/profit on ordinary activities before tax at standard rate of 19% (113) (1,195)
(2020: 19%)
Effects of:
Net effect of different rates of tax in overseas businesses (272) 11
Tax losses not recognised 142 180
Utilisation of previously unrecognised tax losses (61) -
Net permanent differences (493) (377)
Effect of changes in tax rates and tax laws 2 (80)
Other differences and (income)/expenses not deductible for tax purposes 153 79
Adjustment in respect of prior periods 526 (234)
Total tax credit for the year (116) (1,616)
The Group's tax rate is sensitive to a geographic mix of profits and reflects
a combination of higher rates in the US and lower rates in Singapore and
Macau. The Group's effective tax rate in 2021 has been impacted by R&D tax
relief and current year losses, as well as an increase in the recognition of
US net operating losses as a result of the CARES Act.
Deferred tax assets of £1.9 million (2020: £2.3 million) have been
recognised in relation to legal entities which suffered a tax loss in the
current preceding periods. The assets are recognised based upon future taxable
profit forecasts for the entities concerned.
The Group has further losses which may be available to be carried forward for
offset against the future taxable profits of certain Group companies amounting
to approximately £6.6 million (2020: £6.2 million). No deferred tax asset
(2020: £nil) in respect of these losses has been recognised at the year end
as the Group does not currently anticipate being able to offset these against
future profits.
6. Dividends
The Directors recommend the payment of a final dividend of 1.5p per share held
at 30 November 2021 (2020: £nil). No interim dividend was paid during 2021
(2020: £nil).
7. Earnings per share
2021 2020
Pence Pence
per share per share
Basic (loss)/earnings per share (2.8) (27.7)
Diluted (loss)/earnings per share (2.8) (27.7)
Underlying (loss)/basic earnings per share (2.8) (17.2)
Underlying (loss)/diluted earnings per share (2.8) (17.2)
The calculations of basic and underlying earnings per share are based upon:
2021 2020
£000 £000
(Loss)/earnings for basic and diluted earnings per share (479) (4,671)
Non-underlying items - 2,181
Impact of non-underlying items on tax credit for the year - (417)
(Loss)/earnings for underlying basic and underlying diluted earnings per share (479) (2,907)
2021 2020
000 000
Weighted average number of ordinary shares - basic calculation 16,886 16,880
Dilutive potential ordinary shares arising from share options - -
Weighted average number of ordinary shares - diluted calculation 16,886 16,880
As a result of the Group's loss in 2021, potential ordinary shares arising
from share options are considered anti-dilutive and have therefore been
excluded from the diluted weighted average number of ordinary shares
calculation.
8. Cash and cash equivalents
2021 2020
£000 £000
Cash at bank and in hand 4,641 6,864
The fair value of cash and cash equivalents approximates to their book value.
Cash at bank earns interest at the daily bank base rate.
At 30 November 2021 the Group had undrawn overdraft facilities of up to £3.0
million (2020: £3 million), on which interest would be payable at the rate of
Bank of England base rate plus 2.5% (2020: Bank of England base rate plus 2%).
9. Provisions
Legal Warranty Restructuring Property Total
£000 £000 £000 £000 £000
At 1 December 2019 908 713 - 66 1,687
Utilised in the year (866) (359) (775) - (2,000)
Released in the year (42) - - - (42)
Charged to the Income Statement - 270 2,050 231 2,551
At 30 November 2020 - 624 1,275 297 2,196
Utilised in the year - (41) (1,182) (97) (1,320)
Released in the year - (6) - - (6)
Charged to the Income Statement - 414 - 124 538
At 30 November 2021 - 991 93 324 1,408
Provisions have been analysed between current and non-current as follows:
2021 2020
£000 £000
Current 487 1,621
Non-current 921 575
1,408 2,196
Costs of warranty include the cost of labour, material and related overhead
necessary to repair a product during the warranty period. The standard
warranty periods are usually one to three years. The Group accrues for the
estimated cost of the warranty on its products shipped in the provision for
warranty, upon recognition of the sale of the product. The costs are estimated
based on actual historical expenses incurred and on estimated future expenses
related to current sales, and are updated periodically. Actual warranty costs
are charged against the provision for warranty.
The Group has certain properties where the Directors believe that dilapidation
costs may be incurred; therefore, appropriate cost provisions have been made.
It is anticipated that substantially all of the property cost provision
carried forward at 30 November 2021 will be utilised within a year.
In 2020 the restructuring provision related to the costs recognised in
relation to the Group's restructuring activities in the prior year (see note
6) where the associated cash outflow has not yet occurred. There is £93,000
of this provision remaining which is expected to be utilised in 2022.
The impact of discounting the above provisions is immaterial.
10. Company Information
The preliminary financial information set out herein does not constitute
statutory accounts as defined in Section 434 of the Companies Act 2006 but is
derived from accounts for the years ended 30 November 2021 and 30 November
2020. The preliminary financial information is prepared on the same basis as
will be set out in the statutory accounts for the year ended 30 November
2021. The figures for the year ended 30 November 2021 are unaudited.
The preliminary financial information was approved for issue by the Board of
Directors on 21 February 2022.
The financial information for the year ended 30 November 2020 has been
extracted from the Group's audited financial statements which were approved by
the Board of Directors on 1 March 2021 and which have been delivered to the
Registrar of Companies for England and Wales.
The audit of the statutory accounts for the year ended 30 November 2021 is not
yet complete. These accounts will be finalised on the basis of the financial
information presented by the directors in the preliminary announcement. The
statutory accounts for the year ended 30 November 2021 will be delivered to
the Registrar of Companies following the Company's Annual General Meeting.
Statutory accounts for the year ended 31 November 2020 have been filed with
the Registrar of Companies. The auditor's report on those 2020 accounts was
unqualified and did not contain any statement under Section 498 (2) or (3) of
the Companies Act 2006. Further copies of these results, and the full
financial statements when published, will be available on the Company website
at www.synecticsplc.com and at the Company's registered office: Synectics plc,
Synectics House, 3-4 Broadfield Close, Sheffield, S8 0XN.
Forward-looking statements
This report may contain certain statements about the future outlook for
Synectics plc. Although the Directors believe their expectations are based on
reasonable assumptions, any statements about future outlook may be influenced
by factors that could cause actual outcomes and results to be materially
different.
1 ( )Underlying (loss)/profit represents (loss)/profit before tax and
non-underlying items; see note 4 for further detail.
2 Excluding IFRS 16 lease liabilities
3 After research and development expenditure, but before non-underlying
costs (see note 4) and Group central costs.
4 before non-underlying costs (see note 4) and Group central costs.
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