REG - Synectics PLC - Final Results
22/02/2023 07:00
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RNS Number : 6844Q Synectics PLC 22 February 2023
22 February 2023
Synectics plc
('Synectics' or the 'Group' or the 'Company')
Final Results
Synectics plc (AIM: SNX), a leader in advanced security and surveillance
systems, announces its audited final results for the year ended 30 November
2022.
Headlines(1)
· Revenue: £39.1 million (2021: £36.6 million)
· Continued turnaround of underlying operating profit(2) to £1.2 million (2021:
£(0.5) million)
· Underlying earnings per share: 6.9p (2021: (2.6)p)
· Net cash at 30 November 2022: £4.3 million (2021: £4.6 million) with no bank
debt(3) and undrawn bank facilities of £3.0 million
· Order book at 30 November 2022 solid at £24.4 million (2021: £23.6 million)
with a strong pipeline of expected orders
· Strong gross margin performance in both operating divisions
· Recommended final dividend of 2.0p per share (2021: 1.5p)
(1) Following the disposal of a non-core business in November 2022, all
figures set out in this announcement reflect continuing operations unless
otherwise stated. Further details of discontinued operations can be found in
note 4.
(2) Underlying operating profit/(loss) represents profit/(loss) before tax,
finance costs and non-underlying items; see note 5 for further details.
( )
(3) Excluding IFRS 16 lease liabilities.
Commenting on the results, Paul Webb, Chief Executive of Synectics, said:
"The Company's return to profitability and maintained strong cash position pay
testimony to the underlying strength of the business and provide a robust
platform for the future.
With recovering markets, a sound order book and a strong pipeline of
opportunities, the Board is confident of further profitable growth this
year."
Craig Wilson, Non-executive Chair of Synectics, commented:
"I see great potential in Synectics. It has a clearly defined role in the
security technology market. I am committed to ensuring that our stakeholders
better understand our strategic direction and the value we bring."
For further information, please contact:
Synectics plc Tel: +44 (0) 114 280 2828
Craig Wilson, Chair
Paul Webb, Chief Executive
Amanda Larnder, 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
About Synectics plc
Synectics plc (AIM: SNX) is a leader in advanced security and surveillance systems that help protect people, property, communities, and assets around the world.
The Company's expertise is in providing solutions for specific markets where security and surveillance is critical to operations. These include gaming, oil and gas, public space, transport, and critical infrastructure.
Synectics has deep industry experience in these markets and works closely with customers to deliver solutions that are tailored to meet their needs. Technical excellence, combined with decades of experience and long-standing customer relationships, provides fundamental differentiation from mainstream suppliers and makes the company a stand-out in its field.
Find out more at www.synecticsplc.com (http://www.synecticsplc.com/)
Chair's Statement
It is my great pleasure to introduce this report as the new Chair of
Synectics. I am delighted to have joined such an excellent company that
embraces strong values and truly lives up to them through its outstanding
record of creative and practical innovation. Driven by the desire to find
viable and lasting solutions for its customers, Synectics stands out among
technology companies as a warm place, where intelligence and deep knowledge
are matched by energy, commitment, and a very human approach to work.
Synectics thinks about its customers in the right way, valuing and securing
long-term relationships through a sense of partnership that is strongly
reciprocated. I have joined the Company at an important stage in its evolution
and have been impressed by the business' resilience in riding through the
unprecedented circumstances of the past three years. Indeed, despite
unavoidable disruption to critical business streams, especially in the gaming
sector, the Company has remained cash positive and returned to profit in the
year ended 30 November 2022. Additionally, it has retained and strengthened
its relationships with key customers, providing a foundation for sustained
recovery and growth as markets continue their recovery.
I see great potential in Synectics. It has a clearly defined role in the
security technology market, focusing on a series of sectors that each have
complex security requirements where its know-how is most relevant, and where
the Company has built deep expertise and relationships over many years. The
Company is constantly evolving and innovating, and has the agility required to
succeed in an increasingly volatile and unpredictable world, while
anticipating and responding to changing customer needs. Its reputation for
rigour and the reliability of its solutions only adds to this potential.
The Board understands that it can be challenging for external stakeholders to
fully grasp the breadth and depth of Synectics' capabilities and how they
align with the market's needs. I am committed to improving communication and
transparency so that our stakeholders can better understand Synectics' value
and its strategic direction. I am equally committed to the high standards of
probity through good governance that stakeholders expect.
Despite everything that has happened in the world in recent times, the outlook
for this industry is extremely favourable, and demand for the expertise of our
people and the technologies and solutions they create will be high. Synectics
is well-placed to benefit from these opportunities, and it is the Board's role
to support the Company's management in ensuring that we focus our resources on
the right opportunities, foster an environment that will leverage the talents
of our people, and enable sustained growth and success for the business.
Finally, I would like to thank my predecessor, David Coghlan, for the many
years of leadership he has brought Synectics, for his counsel and for his warm
welcome.
Craig Wilson
Chair
21 February 2023
Chief Executive's Report
Firstly, I wish to take this opportunity to thank David Coghlan, who retired from the Board last week after many years' service in helping to create our business.
David's contribution to the development of this business is inestimable, and he personifies our values. On behalf of everyone in the Company, sincere thanks are due for his leadership, relentless commitment, limitless enthusiasm, and ever-available support.
Overview
Synectics is now at an exciting point in its evolution. Our leadership has been refreshed with the appointments of Craig Wilson as Chair, Andrew Lockwood as Non-Executive Director, and the return of Amanda Larnder as Finance Director.
From a trading perspective, we have demonstrated great resilience in coming through these unprecedented times. The Company returned to profit this year and our final results have been delivered in line with the Board's expectations.
The completion of the disposal of the non-core SSS business, as announced on 30 November 2022, concluded the planned consolidation of our businesses and operating footprint.
We are benefitting from the tighter operating footprint established over the
last few years; our sales and marketing efforts are focused on sectors
offering the best opportunities for recovery, and we have continued to invest
in product and technology development.
Supply chain problems have not to date had a material impact on the business
and continue to be well managed. Concerns remain, however, that global supply
constraints remain real, particularly concerning extended lead-times and
limited component availability.
Our actions to continue strengthening and simplifying the business are bearing fruit. Our oil & gas business is picking up significantly as new investment within that industry returns, and we are continuing to make progress in public space, transportation, and critical infrastructure. While the gaming sector remains challenging in Asia, we are starting to see movement on new projects and a steady recovery in North America.
We see our customer relationships as integral to our purpose and inextricably linked to the achievement of our financial goals, and are delighted that, throughout the turbulence of the past three years, we have achieved and sustained high levels of customer approval.
Our financial results are of course the critical measure of the way in which these core strengths combine to deliver value for our business. The return to profitability and the maintained strong cash position pay testimony to the underlying health of the Company.
Results
For the year to 30 November 2022, Synectics' consolidated revenue from
continuing operations was £39.1 million (2021: £36.6 million).
The underlying operating profit before tax 1 improved significantly to £1.2
million (2021: £(0.5) million), as a result, in particular, of the recovery
in revenues and strong margins in the Systems business, and the reduction in
operating footprint implemented over the last few years. Revenues from
discontinued operations of £7.3 million (2021: £7.0 million) made no
material difference to underlying profits.
Underlying earnings per share were 6.9p (2021: (2.6)p).
There was a net non-underlying profit of £0.3 million, comprising a profit on
disposal of a non-core business offset by non-underlying costs that included
the planned re-constitution of the Board during the year.
The net impact on these results of foreign exchange movements was not
material.
The tax credit in the year was £0.3 million (2021: £0.1 million) driven by
differences in overseas tax rates, changes in tax rates and research and
development tax relief.
Profit after tax from continuing and discontinued operations was £1.5 million
(2021: £(0.5) million). Total earnings per share were 8.7p (2021: (2.6p)).
The Group's cash balance as at 30 November 2022 was £4.3 million (2021: £4.6
million) with no bank debt 2 and undrawn bank facilities of £3.0 million.
The consolidated firm order book at 30 November 2022 was solid at £24.4
million (2021: £23.6 million) with a strong pipeline of expected orders.
Approximately two-thirds of this order book is expected to be traded in the
year ending 30 November 2023 with the balance being largely long-term service
and support contracts. Recurring revenue accounted for approximately one-fifth
of the Group's revenue in the year ended 30 November 2022 and now accounts for
approximately half of the Group's order book.
Dividend
The Directors recommend the payment of a final dividend of 2.0p per share
(2021: 1.5p). Subject to shareholders' approval at the Company's forthcoming
Annual General Meeting, this will be paid on 5 May 2023 to shareholders on the
register as at the close of business on 11 April 2023. No interim dividend
was paid during the year (2021: nil).
Business review
Synectics' business is to provide advanced electronic security and
surveillance systems that help protect people, property, communities, and
assets around the world.
The Company's expertise is in providing solutions for specific markets where
security and surveillance are critical or intrinsic to operations. These
markets include gaming, oil and gas, public space, transportation, and
critical infrastructure.
The Company comprises the 'Systems' division which operates globally, and the
UK-based 'Security' integration division.
During the year the Group disposed of its non-core SSS Management Services
business which had previously been part of its 'Security' division.
Systems division
Synectics' Systems division provides specialist surveillance systems, based on
its own proprietary technology, to global end customers with large-scale
highly complex security requirements, particularly for gaming, oil & gas,
public space, transportation and critical infrastructure applications.
Revenue
£24.2 million (2021: £20.7 million)
Gross margin 50.6%
(2021: 46.4%)
Operating profit 3 £1.9 million
(2021: £0.1 million)
Operating margin 7.8%
(2021: 0.3%)
Operating profit increased significantly in the year as revenues continued to
recover. The gross margin also improved materially, reflecting sustained
savings in direct costs as well as a planned increase of software in the
revenue mix. The progressive increase of software as a proportion of the
division's revenue means that gross margin should remain strong going forward.
The global gaming market continued to be heavily impacted by the extended
closure of much of the gaming market in Asia, with low levels of activity
where resorts were open, and the impact is still being absorbed globally by
all of the major gaming operators.
Activity levels in the oil & gas market continued to gather momentum in
the second half of the year, with a strong trading performance and a solid
pipeline of expected orders in 2023 across all regions.
Europe, Middle East and Africa (Revenue £10.6 million (2021: £10.1 million))
Revenues in EMEA saw stronger performance in the oil & gas market, with
other markets continuing at approximately the same level as in the previous
year.
Activity levels in the oil & gas market continued to gather momentum
during the year, with solid trading performance and the pipeline of expected
orders in 2023 at higher levels than we have seen for some time, particularly
in the Middle East.
A major project undertaken during the year involved the deployment of Synergy,
including new web-based features, for West Midlands Police and other agencies
across the region - consolidating their regional security control capability
in advance of a very successful operation centred around the Commonwealth
Games.
Work also continued with City of London Police on their Safe City programme.
Both these projects provide powerful references for further growth of
Synectics' position at the forefront of operational control systems for Safe
City programmes.
Other highlights included new systems and expansions for a number of local
authorities across the UK; transport projects in the UK and Ireland, working
with the Group's Security division; and further work with a national power
utility.
North America (Revenue £7.6 million (2021: £5.3 million))
Gaming sector revenues in North America started to recover in late 2021 and
this recovery continued steadily throughout last year. Much of the work was
with existing customers and sites, with a number of customers updating their
systems, and committing to extended support contracts.
Also noteworthy was the increase in activity in the oil & gas market, with
the supply of specialist COEX cameras to projects in the Gulf of Mexico seeing
a significant upturn on the previous year.
Asia Pacific (Revenue £6.0 million (2021: £5.3 million))
Performance continued to be heavily impacted by the ongoing closure of much of
the gaming market, and low levels of activity where resorts were open. This
resulted in planned surveillance projects continuing to be postponed. Whilst
most travel restrictions have now been lifted, any expected increase in
visitor numbers is still tentative.
Nevertheless, the Company has been awarded a contract to provide the
surveillance system for a large new-build integrated resort in the
Philippines, which is expected to be completed during 2023.
Activity levels in the oil & gas market in the region gathered momentum,
particularly towards the end of the year, with a solid trading performance, a
sound order book, and a strong pipeline of expected orders in 2023.
Security division
Synectics Security is a UK-focused provider of large-scale electronic security
systems for critical and regulated environments. Its main markets are in
public space, transport, high security, and infrastructure projects. Its
capabilities include UK Government security-cleared personnel and facilities,
with nationwide project delivery, service and support. Synectics Security
delivers products and technology both from Synectics' Systems division, and
other partners.
Revenue
£16.6 million (2021: £18.0 million)
Gross margin 26.4%
(2021: 25.2%)
Operating profit 4 £1.2 million
(2021: £0.9 million)
Operating margin 7.0%
(2021: 5.2%)
The division experienced several customer-led delays to major projects during
the year which, coupled with some supply chain issues in the second half
resulted in slightly weaker revenues, although operating profit was improved
due to progress in gross margin and continued control of the cost base.
Nevertheless, significant progress was made to position the division for
growth, moving beyond its traditional heartland in public space and transport
into more complex, critical and highly regulated security environments,
providing scope for improved operating margins.
The division has entered 2023 with developing opportunities within the
utilities, power generation and nuclear segments and a notable increase in
interest for larger, more 'connected' security and surveillance solutions
across public space and transport infrastructure. These broad scale,
integrated security and surveillance solutions provide opportunities for sales
growth, in co-operation with the Group's Systems division and other technology
partners.
Technology development
Investment in the Company's intellectual property and technology base remains
an important priority for the Board.
During the 2022 financial year, Synectics spent a total of £3.2 million on
technology development (2021: £3.4 million). Of this, £0.2 million was
capitalised (2021: £0.6 million), and the remainder expensed to the Income
Statement. £1.0 million of previously capitalised development cost was
amortised in the year (2021: £0.9 million).
Our efforts this year were concentrated on project completion and numerous
extensions and improvements to the product suite, including the following: -
· New web-based capabilities incorporating next-generation video
streaming technology which allows users to utilise core Synergy features
"beyond the control room". These provide the foundation for a
next-generation UI (user interface) across the product suite.
· Improved cyber security measures are ensuring that Synergy is as
resilient as possible when deployed "out of the box" on a variety of devices
and across different communications environments.
· Enhanced capabilities for 'end-to-end' management of events,
incidents, and operational procedures are facilitating collaboration both with
other Synergy users and external systems.
· Our "open" approach to design, utilising industry and technology
standards is expanding our ability to integrate our solutions with third-party
products and technologies and providing increased compatibility with the other
tools customers are using.
· Our improved COEX camera range is delivering new features that our
customers are looking for with the inclusion of video content analysis
technology.
Technology development expenditure in 2023 is expected to increase
significantly to around £4.3 million, moving back to pre-pandemic levels of
investment.
With these resources, a team which combines proven world-class expertise with
fresh ideas, and an exciting technology road map, we will continue to innovate
to serve our customers better and capture the opportunities open to us.
People
I am proud of the commitment and talent within the Company, and we are
investing in our people to grow an outstanding team to deliver our future
growth ambitions.
While the employment market has been challenging, especially in the technology
sector, it is really exciting to see the new recruits we have hired over
recent months. I am especially pleased at the number and calibre of young
people who have joined our business and the rapid progress they are making.
Many are already refreshing our thinking, playing important roles, and some
are now taking the lead in developing and mentoring our newest employees.
Our employee engagement is also reflected in the retention of our
longer-serving people. Over 40% of our team have more than 5 years' service
and 25% have been with us for over 10 years. We have also been delighted to
welcome back a significant number of 'returners', who have re-joined the
business after a period working elsewhere. This mix of hugely committed more
experienced employees and a rising generation of ambitious, talented young
people is vitally important to us.
Our values are a crucial part of the glue which bonds the team together, and
they really do define who we are. Synectics has a great story to tell, and
our success is based on a distinctive and unique culture that has been
nurtured over decades.
Summary & Outlook
The Company's return to profitability and maintained strong cash position pay testimony to the underlying strength of the business and provide a robust platform for the future.
The fundamentals of the business are healthy. The depth of our customer relationships, the calibre of our people, and the quality of our technical expertise are the core pillars upon which Synectics is built.
The security technology market has solid long term growth prospects, and
Synectics has a clearly defined role in this market.
With recovering markets, a sound order book and a strong pipeline of opportunities, the Board is confident of further profitable growth this year. However, the constraints of global supply chains and the timing of some of the larger new business opportunities remain uncertain.
Above all, everything is driven by our customers. Their continued support and
endorsement coupled with the assets we have in the Company give me confidence
that Synectics will continue to flourish in the years ahead.
Paul Webb
Chief Executive
21 February 2023
Consolidated income statement
For the year ended 30 November 2022
2022 2021
Underlying Non-underlying items (note 5) Underlying Non-underlying items
(note 5)
Total Total
Continuing operations Note £000 £000 £000 £000 £000 £000
Revenue 3 39,116 - 39,116 36,636 - 36,636
Cost of sales (22,486) - (22,486) (22,497) - (22,497)
Gross profit 16,630 - 16,630 14,139 - 14,139
Operating expenses (15,528) (658) (16,186) (14,980) - (14,980)
Other income 50 - 50 387 - 387
Operating profit/(loss) 1,152 (658) 494 (454) - (454)
Finance costs (133) - (133) (104) - (104)
Profit/(loss) before tax from continuing operations 1,019 (658) 361 (558) - (558)
Income tax credit 6 153 125 278 116 - 116
Profit/(loss) for the year from continuing operations 1,172 (533) 639 (442) - (442)
Discontinued operations(1)
Profit/(loss) for year from discontinued operations 22 - 22 (37) - (37)
Profit on sale of discontinued operations 4 - 804 804 - - -
Profit/(loss) for the year 1,194 271 1,465 (479) - (479)
Profit/(loss) for the year attributable to equity holders of the Parent 1,172 (533) 639 (442) - (442)
Company from:
- Continuing Operations
- Discontinued Operations 4 22 804 826 (37) - (37)
Earnings/(losses) per share from continuing and discontinued operations 8
Basic 8.7p (2.8)p
Diluted 8.7p (2.8)p
Earnings/(losses) per share from continuing operations 8
Basic 3.8p (2.6)p
Diluted 3.8p (2.6)p
1 Discontinued operations relate to the sale of SSS Management
Services Limited on 30 November 2022.
Consolidated statement of comprehensive income
For the year ended 30 November 2022
2022 2021
£000 £000
Profit/(loss) for the year from continuing operations 639 (442)
Items that will not be reclassified subsequently to profit or loss:
Remeasurement loss on defined benefit pension scheme, net of tax - (1,073)
- (1,073)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 246 (20)
Gains/(losses) on net investment in a foreign operation taken to equity 41 (184)
287 (204)
Tax on items that may be reclassified 110 -
Total comprehensive income/(expense) for the year from continuing operations 1,036 (1,719)
Total comprehensive income/(expense) for the year from discontinued operations 826 (37)
Total comprehensive income/(expense) for the year attributable to equity 1,862 (1,756)
holders of the Parent
Consolidated statement of financial position
As at 30 November 2022
2022 2021
Note £000 £000
Non-current assets
Property, plant and equipment 4,598 4,981
Intangible assets 20,776 21,728
Deferred tax assets 6 2,741 2,452
28,115 29,161
Current assets
Inventories 4,219 3,936
Trade and other receivables 9,090 11,156
Contract assets 6,317 5,244
Tax assets 425 -
Cash and cash equivalents 9 4,256 4,641
24,307 24,977
Total assets 52,422 54,138
Current liabilities
Trade and other payables (8,111) (10,902)
Contract liabilities (1,875) (3,096)
Lease liabilities 6 (683) (816)
Current provisions (796) (487)
(11,465) (15,301)
Non-current liabilities
Non-current provisions (746) (921)
Lease liabilities (2,137) (2,023)
Deferred tax liabilities (1,072) (549)
(3,955) (3,493)
Total liabilities (15,420) (18,794)
Net assets 37,002 35,344
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) (1,436)
Currency translation reserve 940 715
Retained earnings 7,925 6,492
Total equity 37,002 35,344
Consolidated statement of changes in equity
For the year ended 30 November 2022
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 2020 3,559 16,043 9,971 (1,448) 919 7,987 37,031
Loss for the year - - - - - (479) (479)
Other comprehensive expense
Currency translation adjustment - - - - (204) - (204)
Remeasurement loss on defined benefit pension scheme, net of tax - - - - - (1,073) (1,073)
Total other comprehensive expense - - - - (204) (1,073) (1,277)
Total comprehensive expense for the year - - - - (204) (1,552) (1,756)
Transactions with owners in their capacity as owners
Credit in relation to share-based payments - - - - - 69 69
Share scheme interests realised in the year - - - 12 - (12) -
At 30 November 2021 3,559 16,043 9,971 (1,436) 715 6,492 35,344
Profit for the year - - - - - 1,465 1,465
Other comprehensive income
Currency translation adjustment - - - - 287 - 287
Tax relating to components of other comprehensive income - - - - (62) 172 110
Total other comprehensive income - - - - 225 172 397
Total comprehensive income for the year - - - - 225 1,637 1,862
Transactions with owners in their capacity as owners
Dividends paid - - - - - (253) (253)
Credit in relation to share-based payments - - - - - 49 49
At 30 November 2022 3,559 16,043 9,971 (1,436) 940 7,925 37,002
Consolidated cash flow statement
For the year ended 30 November 2022
2022 2021
Continuing operations Note £000 £000
Cash flows from operating activities
Profit/(loss) from continuing operations 639 (442)
Profit/(loss) from discontinued operations 826 (37)
Profit/(loss) for the year 1,465 (479)
Income tax credit 6 (306) (116)
Finance costs 148 121
Depreciation and amortisation charge 2,186 2,121
Loss on disposal of non-current assets - 88
Unrealised foreign exchange differences (212) 6
Profit arising on sale of discontinued operation, before transaction fees (923) -
Inventory write down 243 (658)
Cash flow relating to non-underlying items in previous years - (1,321)
Other non-cash movements 268 390
Share-based payment charge 49 12
Operating cash inflow/(outflow) before movement in working capital 2,918 164
(Increase)/decrease in inventories (526) 1,383
(Increase)/decrease in receivables and contract assets (85) 260
Decrease in payables and contract liabilities (1,186) (2,571)
Cash impact of provisions (134) -
Cash generated from/(used in) operations 987 (764)
Tax received 242 157
Net cash generated from/(used in) operating activities 1,229 (607)
Cash flows from investing activities
Purchase of property, plant and equipment (86) (73)
Capitalised development costs (207) (648)
Purchased software (21) (154)
Net cash disposed on discontinued operation (268) -
Proceeds from sale of property plant and equipment - 33
Net cash used in investing activities (582) (842)
Cash flows from financing activities
Lease payments (913) (1,006)
Bank interest paid - (12)
Dividends paid to equity holders of the parent 7 (253) -
Net cash used in financing activities (1,166) (1,018)
Net decrease in cash and cash equivalents (519) (2,467)
Effect of exchange rates on cash and cash equivalents 134 244
Cash and cash equivalents at the beginning of the year 4,641 6,864
Cash and cash equivalents at the end of the year 9 4,256 4,641
Notes
1 Basis of preparation
The information contained within this announcement has been extracted from the
audited financial statements which have been prepared in accordance with
UK-adopted International Accounting Standards and applicable law. They have
been prepared using the historical cost convention except where the
measurement of balances at fair value is required.
Going concern
The Directors have considered the Group's current activities and future
prospects, financial performance, liquidity position and risks and
uncertainties affecting the business, which are set out in the strategic
report, in assessing the appropriateness of the going concern assumption.
The Directors continue to monitor the effects of the Covid pandemic on the
business and will react accordingly if any material risks arise.
When assessing the going concern assumption, the Directors have reviewed the
year-to-date actual results, as well as detailed financial forecasts and the
Group's funding position for the period through to August 2024. This review
includes in depth scenario modelling and stress testing of budget and strategy
planning.
In preparing its going concern assessment, management have considered any
potential future impact of Covid on the business. 2022's results have been
impacted by the slow recovery in the gaming sector, particularly the extended
closure of much of the gaming market in Asia; however there are early signs of
recovery as opportunities start to arise now that restrictions have been
lifted. The Directors consider that the Group benefits from a level of
diversification within both sectors and geographies that helps mitigate an
element of macro-economic risk. Despite the challenging trading environment
experienced in the financial year in gaming, this diversification was seen,
for example, in oil & gas where there has been strong order intake in
recent months.
The Directors believe that the Group operates in a resilient industry enabling
it to continue its profitable growth trajectory following this solid
turnaround year. In addition, there is further resilience from the Group's
operating model with strong customer and supplier relationships, approximately
one-fifth of revenue being recurring and high levels of repeat business.
Forecasting and stress testing
The Directors have undertaken a rigorous budgeting and forecasting process
with management to understand the impact of the economic environment on the
future of the business. The assumptions used in the financial forecasts are
based on recent financial performance, management's extensive industry
experience and reflect expectations of future market conditions.
The base case scenario reflects the remaining uncertainty regarding the timing
of the return to normal trading circumstances within the gaming sector.
Despite the rigour applied, the base case showed a positive cash balance
throughout the year with no requirement to utilise the £3 million overdraft
facility. Sensitivity and stress testing has been performed on the base case
model; various plausible but severe downside scenarios were applied which
considered general downturns resulting in reductions in revenue and margins
and the related impact on working capital. Under these downsides, the
Directors have not considered any mitigating factors that would be applied.
The scenario testing applied confirmed that, even with no mitigating factors,
the overdraft facility would not need to be utilised until 2024 and that there
would be sufficient headroom within the facility throughout the outlook
period. The base case was then reverse stress tested and the level of
deterioration required for the Group to become close to the banking headroom
was deemed to be highly unlikely.
Cash and funding position
Positive cash balances were maintained throughout the year and ended the year
at £4.3 million (2021: £4.6 million). Undrawn overdraft facilities of £3
million were held throughout the period. Despite the central forecast
indicating that the Group should not require to draw upon the overdraft
facilities for the foreseeable future, management is in the process of
renewing, as a matter of prudence, the overdraft facility of £3 million with
Lloyds Bank until March 2024. Whilst the renewal process is still underway at
the time of signing these accounts, the bank has indicated that the facilities
are expected to renew as normal.
Conclusion
Based on the analysis above, the Group has sufficient liquidity headroom
throughout the forecast period and therefore the Directors have a reasonable
expectation that the Group has adequate resources to continue in operational
existence for the outlook period without material uncertainty. Accordingly,
the Directors conclude it is appropriate to continue to adopt the going
concern basis in preparing the financial statements.
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
2022 2021
Revenue £000 £000
Continuing operations
Systems 24,201 20,661
Security 16,595 18,004
Reconciliation to consolidated revenue:
Intra-Group sales (1,680) (2,029)
39,116 36,636
Revenue from discontinued operations 7,253 6,959
Total revenue 46,369 43,595
No single customer contributed 10% or more to the Group's revenues in either
year.
2022 2021
Underlying operating profit/(loss) £000 £000
Continuing operations
Systems 1,880 58
Security 1,166 945
Total segmental underlying operating profit 3,046 1,003
Reconciliation to consolidated underlying operating profit/(loss):
Central costs (1,894) (1,457)
1,152 (454)
Non-underlying items
Underlying Pension Total
operating Legal buy-out Restructuring Operating
profit costs costs costs Profit
Underlying operating profit 2022 £000 £000 £000 £000 £000
Continuing operations
Systems 1,880 (250) - - 1,630
Security 1,166 - - - 1,166
Total segmental underlying operating profit 3,046 (250) - - 2,796
Reconciliation to consolidated underlying operating profit:
Central costs (1,894) (85) (92) (231) (2,302)
1,152 (335) (92) (231) 494
Non-underlying items
Underlying Pension Total
operating Legal buy-out Restructuring operating
loss costs costs costs loss
Underlying operating profit/(loss) 2021 £000 £000 £000 £000 £000
Continuing operations
Systems 58 - - - 58
Security 945 - - - 945
Total segmental underlying operating profit 1,003 - - - 1,003
Reconciliation to consolidated underlying operating loss:
Central costs (1,457) - - - (1,457)
(454) - - - (454)
3 Revenue from contracts with customers
Disaggregated revenue information
Set out below is the disaggregation of the Group's revenue from contracts with
customers:
Systems Security 2022
Revenue by contract location 2022 £000 £000 £000
Continuing operations
UK and Europe 7,225 16,511 23,736
North America 7,570 - 7,570
Middle East & Africa 1,790 68 1,858
Asia Pacific 5,936 16 5,952
22,521 16,595 39,116
Revenue by contract location 2021 Systems Security 2021
Continuing operations £000 £000 £000
UK and Europe 7,354 18,004 25,358
North America 5,276 - 5,276
Middle East & Africa 724 - 724
Asia Pacific 5,278 - 5,278
18,632 18,004 36,636
Set out below is the reconciliation of the revenue from contracts with
customers with the amounts disclosed in the segment information (note 2):
Reconciliation to segment revenue 2022 Systems Security 2022
Continuing operation £000 £000 £000
External 22,521 16,595 39,116
Intra-Group 1,680 - 1,680
24,201 16,595 40,796
Reconciliation to segment revenue 2021 Systems Security 2021
Continuing operations £000 £000 £000
External 18,632 18,004 36,636
Intra-Group 2,029 - 2,029
20,661 18,004 38,665
Contract balances
2022 2021
£000 £000
Contract assets 6,317 5,244
Contract liabilities (1,875) (3,096)
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 and forward looking experience shows that no credit losses have
been incurred.
Contract liabilities relate to short-term advances received to deliver ongoing
projects.
£2.9 million (2021: £4.3 million) of the contract liabilities balance at 1
December 2021 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 2022 that are
expected to be recognised over more than one year is £7.4 million (2021:
£8.7 million). These performance obligations relate predominantly to the
provision of service and maintenance contracts and are as follows:
2022
£000
Less than two years 3,065
Two to five years 3,804
More than five years 526
4 Discontinued operations
On 11 November 2022, the Group announced that it had reached an agreement to
sell SSS Management Services Limited ('SSS'), which was previously part of its
Security division. On 30 November 2022 the transaction was completed for
£100,000 payable in cash and further contingent consideration of £100,000.
IFRS 5 Non-current assets held for sale and discontinued operations requires
that a component (one which the operations and cash flows can be clearly
distinguished, operationally and for financial reporting purposes, ie a
cash-generating unit) of an entity which has been sold is disclosed as a
discontinued operation. SSS was a separate CGU and the operations and cash
flows could be clearly distinguished and therefore the disposal met the
recognition criteria of a discontinued operation. SSS is no longer presented
within the segmental note and its result is instead presented below, as well
as the net cash flows attributable to the operating, investing and financing
activities of the discontinued operation. The income statement comparatives at
30 November 2021 have been re-presented accordingly.
Notes to the consolidated statement of financial position are presented on a
total group basis and, as a result, income statement and cash flow movements
included in these notes may not reconcile to those presented in the
consolidated income statement and the consolidated cash flow statement.
Results from discontinued operations:
2022 2021
£000 £000
Revenue 7,253 6,959
Cost of Sales (5,902) (5,495)
Gross profit 1,351 1,464
Operating Costs (1,314) (1,485)
Operating profit/(loss) before non-underlying items 37 (21)
Finance costs (15) (16)
Profit/(loss) before tax and non-underlying items 22 (37)
Non-underlying item - profit on disposal 776 -
Profit/(loss)before tax 798 (37)
Tax on non-underlying item 28 -
Profit/(loss) attributable to discontinued operations 826 (37)
The profit/(loss) from discontinued operations of £826,000 (2021: loss
£(37,000)) is attributable entirely to the Group.
The average monthly number of persons employed by the discontinued operation
during the year was 41 (2021: 45).
The average staff costs for the year for the above employees was:
2022 2021
£000 £000
Salaries and wages 1,335 1,388
Social security costs 144 135
Pension costs 87 84
1,566 1,607
Cash flow statement
2022 2021
£000 £000
Net cash flows from operating activities 189 (4)
Net cash flows from investing activities (377) (87)
Net cash flows from financing activities (40) (67)
Net cash flows from discontinued operations (228) (158)
Profit on disposal
The Group recognised a net profit on disposal of £776,000 in relation to the
disposal of SSS Management Services Limited. The gain arising from the sale is
calculated as follows:
£'000
Cash consideration 100
Contingent consideration 100
Sale costs (147)
Net proceeds 53
Net book value of assets disposed
Property, plant and equipment (109)
Right of use assets (167)
Intangible assets (69)
Deferred tax assets (114)
Trade and other receivables (1,357)
Cash and cash equivalents (368)
Trade and other payables 3,129
Lease liabilities 155
Net book value of assets and liabilities disposed 1,100
Write off of associated goodwill (377)
Profit on disposal 776
Tax attributable to the profit on disposal 28
Profit on disposal, net of tax 804
The disposal group was measured at its carrying value which was lower than its
fair value less costs to sell.
5 Non-underlying items
2022 2021
Continuing operations £000 £000
Costs associated with ongoing legal matters 335 -
Costs associated with restructuring Central operations 231 -
Costs associated with the buy-out of the defined benefit pension scheme 92 -
658 -
Central restructuring costs incurred during 2022 relate to the Board of
Directors.
Costs associated with an ongoing buy-out of the defined benefit pension scheme
represent costs incurred by the Group in relation to winding up the scheme.
For details of the non-underlying item in relation to discontinued operations,
refer to note 4.
6 Taxation
2022 2021
Tax (credit)/charge £000 £000
Current income tax
UK tax - 285
Overseas tax 1 -
Adjustments in respect of prior periods (717) -
Total current tax (credit)/charge (716) 285
Deferred tax
Origination and reversal of temporary differences (142) (927)
Adjustments in respect of prior periods 552 526
Total deferred tax charge/(credit) 410 (401)
Income tax credit reported in the consolidated income statement (306) (116)
Further analysed as tax relating to:
Underlying profit (153) (116)
Non-underlying items (153) -
Reconciliation of tax credit for the year
The corporation tax assessed for the year differs from the standard rate of
corporation tax in the UK of 19% (2021: 19%). The differences are explained
below:
2022 2021
£000 £000
Profit/(loss) before tax from continuing operations 361 (558)
Profit/(loss) before tax from a discontinued operation 798 (37)
Total profit/(loss) before tax 1,159 (595)
Tax on profit/(loss) on ordinary activities before tax at standard rate of 19% 220 (113)
(2021: 19%)
Effects of:
Differences in overseas tax rates (77) (272)
Tax losses not recognised 161 142
Utilisation of previously unrecognised tax losses (43) (61)
Other differences (105) (493)
Effect of changes in tax rates and tax laws (142) 2
(Income)/expenses not deductible for tax purposes (155) 153
Adjustment in respect of prior periods (165) 526
Total tax credit for the year (306) (116)
Income tax credit attributable to continuing operations (278) (116)
Income tax attributable to a discontinued operation (28) -
(306) (116)
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 2022 has been impacted by R&D tax
relief and current year losses, as well as the profit on disposal of the
discontinued operation, which is not tax deductible.
Deferred tax
The deferred tax in the Consolidated Statement of Financial Position relates
to the following:
Property, Other Retirement
plant and temporary benefit
equipment differences asset Losses Total
Deferred tax (liability)/asset £000 £000 £000 £000 £000
At 1 December 2020 (319) (331) (252) 2,165 1,263
(Charged)/credited to the Income Statement (119) (78) - 598 401
Credited to the Statement of Comprehensive Income - - 252 - 252
Currency translation adjustment - (2) - (11) (13)
At 30 November 2021 (438) (411) - 2,752 1,903
(Charged)/credited to the Income Statement (125) 221 - (506) (410)
Credited to the Statement of Comprehensive Income - 110 - - 110
Currency translation adjustment (3) 4 - 65 66
At 30 November 2022 (566) (76) - 2,311 1,669
Factors that may affect future tax charges
Deferred tax assets of £2.3 million (2021: £2.8 million) have been
recognised in relation to legal entities which suffered a tax loss in the
current or 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 £5.7 million (2021: £6.6 million). No deferred tax asset
(2021: £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. There is no time limit in which the tax losses are required to
be utilised.
In addition to the above, the Group has capital losses of approximately £17.8
million (2021: £17.8 million) available for offset against future taxable
gains. No deferred tax asset in respect of these losses has been recognised in
these financial statements as there is insufficient certainty that the asset
will be recovered against future capital gains.
7 Dividends
The following dividends were paid by the Company during the year:
2022 2021
Pence Pence
per share £000 per share £000
Final dividend paid in respect of prior year but not recognised as a liability 1.5 267 - -
in that year
Interim dividend paid in respect of current year - - - -
1.5 267 - -
Total dividend paid, net of shares held by the share trust 1.5 253 - -
Proposed final dividend for the year ended 30 November 2.0 356 1.5 267
The Directors recommend the payment of a final dividend of 2.0p per share for
the year ended 30 November 2022 (2021: 1.5p). Subject to shareholders'
approval at the Company's forthcoming Annual General Meeting, this will be
paid on 5 May 2023 to shareholders on the register as at the close of business
on 11 April 2023. No interim dividend was paid during 2022 (2021: £nil).
8 Earnings per share
2021
2022
Pence Pence Pence Pence Pence Pence
per share per share discontinued operations per per share per share discontinued operations per
continuing operations share continuing operations share
Total Total
Basic earnings/(loss) per share 3.8 4.9 8.7 (2.6) (0.2) (2.8)
Diluted earnings/(loss) per share 3.8 4.9 8.7 (2.6) (0.2) (2.8)
Underlying basic earnings/(loss) per share 6.9 0.2 7.1 (2.6) (0.2) (2.8)
Underlying diluted earnings/(loss) per share 6.9 0.2 7.1 (2.6) (0.2) (2.8)
Profit/(loss) per share has been calculated by dividing the profit
attributable to equity holders of the Parent after taxation for each financial
year by the weighted average number of ordinary shares in issue and ranking
for dividend during the year.
The calculations of basic and underlying earnings per share are based upon:
Continuing operations Total Continuing operations 2021
2022 2022 Total
2021
£'000 £000 £000 £000
Earnings/(losses) for basic and diluted earnings per share 639 1,465 (442) (479)
Non-underlying items 658 (118) - -
Impact of non-underlying items on tax credit for the year (125) (153) - -
Earnings/(losses) for underlying basic and underlying diluted earnings per 1,172 1,194 (442) (479)
share
2022 2021
000 000
Weighted average number of ordinary shares - basic calculation 16,888 16,888
Dilutive potential ordinary shares arising from share options 2 -
Weighted average number of ordinary shares - diluted calculation 16,890 16,888
Note: 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.
9 Cash and cash equivalents
2022 2021
£000 £000
Cash at bank and in hand 4,256 4,641
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 2022 the Group had undrawn overdraft facilities of up to £3.0
million (2021: £3.0 million), on which interest would be payable at the rate
of Bank of England base rate plus 2.5% (2021: Bank of England base rate plus
2.5%).
10 Provisions
Legal Warranty Restructuring Property Total
£000 £000 £000 £000 £000
At 1 December 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
Utilised in the year - (119) (15) - (134)
Released in the year - (15) (78) (78) (171)
Charged to the Income Statement 250 178 - 11 439
At 30 November 2022 250 1,035 - 257 1,542
Provisions have been analysed between current and non-current as follows:
2022 2021
£000 £000
Current 796 487
Non-current 746 921
1,542 1,408
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 2022 will be utilised in more than one year.
In 2021 the restructuring provision related to the costs recognised in
relation to the Group's restructuring activities in the prior year.
11 Company Information
The financial information set out herein does not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006 as it does not
contain all the information required to be disclosed in the financial
statements prepared in accordance with UK-adopted International Accounting
Standards. The financial information for the year ended 30 November 2022 has
been extracted from the Group's audited financial statements which were
approved by the Board of Directors on 21 February 2023 and which, if adopted
by the members at the Annual General Meeting, will be delivered to the
Registrar of Companies for England and Wales.
The financial information for the year ended 30 November 2021 has been
extracted from the Group's audited financial statements which have been
delivered to the Registrar of Companies for England and Wales.
The reports of the auditors on both these financial statements were
unqualified, did not include any references to any matters to which the
auditors drew attention by way of emphasis without qualifying their report and
did not contain a statement under Section 498(2) or Section 498(3) of the
Companies Act 2006.
Copies of these results, and the full financial statements when published,
will be available on the Company's 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 profit/(loss) represents profit/(loss) before tax, finance
costs and non-underlying items; see note 5 for further detail.
2 Excluding IFRS 16 lease liabilities.
3 After research and development expenditure, but before non-underlying
costs (see note 5) and Group central costs.
4 Continuing operations before non-underlying costs (see note 5) and Group
central costs.
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