Further to its trading update announced on 19 February 2019, Synnovia (AIM: SYN) announces that it expects results for the financial year ended 31 March 2019 to show significant growth in both sales and profits albeit, while up significantly, profits are expected to be marginally below current market expectations.
Overall, we experienced another year of strong sales and profit growth. Our Industrial Division, led by the bearings business, has performed extremely well as new business came on stream after the unexpected delays we reported in the prior year. This performance was supported by the acquisitions completed during the past three years in the creasing matrix business, which have continued to show good improvement.
As previously reported, our Films Division has continued to grow both sales and customers despite becoming capacity constrained mid-year due to some relatively minor project delays in planned expansion within the division. Whilst new capacity came on stream in early calendar year 2019, it was too late to enable performance to recover fully before the financial year came to an end.
Profitability in the Films Division was adversely affected by these project delays, with the Group having incurred costs to meet anticipated sales growth. In addition, there has been some modest cost inflation in energy, packaging and logistics. None of these factors have applied to the Industrial Division, where margins and costs increases have been in line with expectations.
We have continued to invest heavily to add capacity and capabilities to support the sales and profit growth being achieved. Naturally this impacts depreciation costs, interest costs and cash flow in the near term. We are confident that these investments will continue to benefit shareholders over the longer run.
Restatement of Historic Accounts
The Group also reports that, while there is no effect on reported profitability, it has recently discovered a non-material overstatement of revenue for the financial year ended 31 March 2018. The overstatement amounts to £1.619 million, which represents circa 2% of reported revenues, together with a corresponding amount in relation to cost of sales. It is intended that revenues and cost of sales for that year will be restated in the forthcoming Report and Accounts for the year ended 31 March 2019. The error arose through a failure to eliminate inter-company sales and attendant costs and additional checks have been added to the internal review and audit processes which are designed to prevent the such a recurrence.
Commenting, Faisal Rahmatallah, Chairman, said: “We are pleased to report continued strong organic growth across the business over the last financial year, despite the capacity constraints faced in the Films Division. The Industrial Division has enjoyed a good FY2018-19; in particular, the bearings business has performed well and its prospects are good going forward. In the Films Division, small delays to capacity expansion projects have restricted profit growth relative to expectations over the last six months. We enter the new financial year with these projects concluded and we now have an excellent platform in the Films Division for profit growth to resume. We continue to focus on organic growth opportunities across the business as we enter FY2019-20.”