Shares in surveillance firm Synectics fell nearly 20 per cent after the firm warned that full year profits will be materially below market expectations amid difficult UK market conditions.
The Sheffield-based firm, which provides security for casinos, high security prisons and transport operators, reported weakness in its UK security and transport divisions.
It said this has more than offset a good performance in its core Systems division, which supplies high end surveillance systems around the world. The group said the Systems division has performed well in the year so far and is expected to generate results ahead of expectations.
Based on the pipeline of expected new orders and customer schedules, the group had anticipated a significant improvement in revenue and profits from its Integration and Managed Service division in the second half of this year.
However, it said the weak performance reported at the half year has continued.
“UK market conditions remain difficult and, with apparent uncertainty among Synectics’ private and particularly public sector customers, the pattern of order deferrals and customer-led delays in the progress of existing contracts continues,” said chief executive Paul Webb.
In addition, the group’s on-vehicle security activities had been expected to deliver a positive profit contribution in the current financial year.
However, with the disruption from the bankruptcy of a bus manufacturer customer and new bus registrations in the UK market substantially down year-on-year, it said this will not be the case.
In contrast, Synectics said its core Systems division, where the majority of revenues are generated outside the UK, has made solid progress throughout the year and its results are expected to be ahead of the board’s expectations.
In particular, Synectics said it has made substantial progress in its target market sectors of Transport & Infrastructure and High Security and continues to achieve “excellent” results from its Gaming surveillance activities in the Far East and North America.
The firm said its competitive position is benefitting from both its focus on sophisticated, high-end customers with increasingly specialised security and surveillance needs and from investment to enhance Synectics’ core technology.
The group said work on a breakthrough, major European transport infrastructure project, which was announced in July, is progressing as planned and is expected to be delivered in 2020.
Synectics noted that the overall market for oil and gas infrastructure remains subdued and revenues remain at a similar level to last year and well below historical levels.
Despite its troubles, Synectics said its increased investment in research and development continues, with more resources being dedicated to its next-generation software solutions, as well as further enhancements to its Synergy software platform and cyber security resilience.
The firm said it sees increasing opportunities to capitalise on emerging software technology applications to expand its position at the forefront of the market for complex surveillance solutions. It added that it is determined to invest appropriately to grasp these opportunities.
Analyst Robert Sanders at Shore Capital said: “The UK public sector has been deferring many projects and this trend is now expected to continue for the rest of 2019.
“Synectics has done well in its target market sectors of Transport & Infrastructure and High Security and continues to achieve excellent results from its Gaming surveillance activities in the Far East and North America.”
Mr Sanders said he was encouraged by the continuing increased investment in research and development and the focus on next-generation software solutions.
Synectics will release final audited results for the year to November 30 in late February.