27/2/20 Synertec FY20 Appendix 4D and Interim Financial Report
SOP released a disappointing half year report, with revenue falling from $12.8m to $7.3m and profit before tax falling from $121k to a loss of $968k. While revenue falling wasn't unexpected given the prior period had the benefit of large low margin construction work, higher margin engineering services revenue also fell from $3.1m to $1.7m.
However the most disappointing aspect and ultimately thesis breaker for me was the huge negative working capital with a $2.9m operating cash outflow compared to $1.2m inflow from the period before. Management commentary suggested some of this may be timing with one particular contract, but glancing at the balance sheet doesn't suggest a large receivables build-up but rather a general degradation across the receivables/payables and contract liabilities/assets balances.
One of the main reasons I was attracted to SOP originally was it appeared they were under-earning on reported profits but a strong focus on working capital meant cash results were strong. This may change in the future and I will keep SOP on my watchlist but removing it from my scorecard for now.