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Project delays see Petards warn of loss for 2019
4th Feb 2020 15:34
(Sharecast News) - Security and surveillance system developer Petards updated the market on its trading for 2019 on Tuesday, saying its result, while not yet finalised, was expected to be a loss before tax.
The AIM-traded firm said that was primarily due to a customer rescheduling eyeTrain system deliveries late in the year into 2020, coupled with "much lower than forecast" profitability on two unrelated rail projects.
It said it expected to report revenues for the year ended 31 December of £15.8m, compared with a market expectation of £17.3m, and net debt of £0.5m including additional lease liabilities recognised under IFRS 16 of £0.4m, compared with the £0.7m it reported as at 30 June.
The group's order book on 31 December remained in the region of £15m, the board said.
During the process of completing its year-end project reviews, issues had been identified on two projects, Petards said.
Both projects were in their final phases and as they are neared completion, most of their related revenues had already been recognised.
While those issues resulted in "significant reductions" in project profitability and provisions against contract work-in-progress held, both projects remained profitable.
Additionally, the directors said that as most of the project costs had already been incurred, they were not expected to have a material ongoing cash impact.
Both projects differed from those usually undertaken by the group, Petards noted, and those issues had no impact on any other projects in its order book or pipeline.
"The first project relates to an eyeTrain system supply and installation contract, whereas the group usually only contracts on a system supply-only basis," the company explained.
"This project is the only eyeTrain installation the group has contracted to undertake in over 10 years.
"It is now evident that the costs relating to the installation element of this contract, which was subcontracted by Petards, will be significantly higher than was previously anticipated and only a small element of the cost overrun is expected to be recoverable from the customer."
The second affected project had experienced delays in the train commissioning programme, that fell outside of Petards' control.
As a result, additional project and engineering costs had been and continued to be incurred by the group, and the overall forecast project outcome had been re-assessed on the assumption that the costs were unlikely to be recoverable.
"While it is disappointing to report on the lower than expected 2019 revenues due to customer re-scheduling and on the impact this and the higher project costs have had on profitability, the group remains in good shape," said chairman Raschid Abdullah.
"Following the group's significant investment in recent years, and with little further investment in product development anticipated to be required in 2020, the group expects to be net cash generative in the coming year and the board remains confident of the group's future prospects."
At 1332 GMT, shares in Petards were down 22.8% at 9.65p.
The AIM-traded firm said that was primarily due to a customer rescheduling eyeTrain system deliveries late in the year into 2020, coupled with "much lower than forecast" profitability on two unrelated rail projects.
It said it expected to report revenues for the year ended 31 December of £15.8m, compared with a market expectation of £17.3m, and net debt of £0.5m including additional lease liabilities recognised under IFRS 16 of £0.4m, compared with the £0.7m it reported as at 30 June.
The group's order book on 31 December remained in the region of £15m, the board said.
During the process of completing its year-end project reviews, issues had been identified on two projects, Petards said.
Both projects were in their final phases and as they are neared completion, most of their related revenues had already been recognised.
While those issues resulted in "significant reductions" in project profitability and provisions against contract work-in-progress held, both projects remained profitable.
Additionally, the directors said that as most of the project costs had already been incurred, they were not expected to have a material ongoing cash impact.
Both projects differed from those usually undertaken by the group, Petards noted, and those issues had no impact on any other projects in its order book or pipeline.
"The first project relates to an eyeTrain system supply and installation contract, whereas the group usually only contracts on a system supply-only basis," the company explained.
"This project is the only eyeTrain installation the group has contracted to undertake in over 10 years.
"It is now evident that the costs relating to the installation element of this contract, which was subcontracted by Petards, will be significantly higher than was previously anticipated and only a small element of the cost overrun is expected to be recoverable from the customer."
The second affected project had experienced delays in the train commissioning programme, that fell outside of Petards' control.
As a result, additional project and engineering costs had been and continued to be incurred by the group, and the overall forecast project outcome had been re-assessed on the assumption that the costs were unlikely to be recoverable.
"While it is disappointing to report on the lower than expected 2019 revenues due to customer re-scheduling and on the impact this and the higher project costs have had on profitability, the group remains in good shape," said chairman Raschid Abdullah.
"Following the group's significant investment in recent years, and with little further investment in product development anticipated to be required in 2020, the group expects to be net cash generative in the coming year and the board remains confident of the group's future prospects."
At 1332 GMT, shares in Petards were down 22.8% at 9.65p.