Wynyard announces huge loss but still a going concern say directors

The directors of crime fighting software company Wynyard Group [NZX: WYN] say they believe the company can remain a going concern after reporting a half year loss of $36.3 million.

On August 11 the company said it had obtained a stand-by credit facility of up to $10 million from its shareholder Skipton Building Society.

Announcing its interim results for the six months to June 30, Wynyard said: “After making enquiries, it is the considered view of the directors that the company and group will have access to adequate resources to continue operations for at least a period of 12 months from the date of signing these interim financial statements.”

Wynyard shares plunged 16.2% to 31c, valuing the company at $55.5 millon. 

At balance date, Wynyard had cash of $14.7 million, after recording a net operating cash outflow, plus capitalised software development costs, of $28.6 million for the previous six months.

The reported bottom line loss included an impairment of software assets of $4.4 million and a one-off writedown and provision of $7.1 million.

The writedown related to the company’s replacement of a royalty-based proprietary technology with open source software.

The change would reduce research and development costs by $2.7 million a year and improve the gross profit margin, Wynyard said.

In a statement to the NZX, Wynyard Group chairman Guy Haddleton said it had been a tough first half for everybody.

“We have focused our limited resources on building our US public sector business, our Middle East homeland security business and proving our securities analytics opportunity. This relentless focus has yielded significant cash savings of $17 million annualised and I believe the company is now in much better shape to deliver on its opportunities. We have laser focus on our core markets; now we must execute strongly, day by day.”

Previous guidance of $54-65 million in revenue for the full year was revised to $27-30 million.

The company said it had changed its approach to revenue guidance and excluded pending large government deals between $3 million and $20 million.

“Given the significance of the very large contracts we believe a prudent approach to revenue forecasting is necessary. None of the large deals in our pipeline have been lost – we’re making good progress but wish to be cautious in setting market expectations,” said Mr Haddleton.

The company said a conditional government contract announced in January of $27 million, including $14.4 million of software licence fees, “continues to progress but has also been excluded from guidance.”

Soaring costs
Revenue for the six-month period was $12.9 million compared to $12.2 million in the previous corresponding period.

Operating expenses rose 49% to $38 million.

Net assets at balance date were $60.4 million and net current assets were $11 million.

Presenting its unaudited interim accounts, Wynyard said: “The directors have considered the appropriateness of the adoption of the going concern assumption. This included an assessment of the level of funds available and the achievability of the financial performance and cash flow forecasts covering the period to December 31, 2017. These forecasts have been approved by the board, including the appropriateness of the assumptions underlying those forecasts, and include the $10 million, one-year revolving credit facility provided by Skipton Building Society, which was signed on August 10, 2016.

“The key assumptions and judgements in the forecasts include the ability of management to execute and achieve forecast sales and associated cash flows over the period and in particular over the next three to 12 months, continuing the planned product release programme and the  review of expenditure on operating and software development costs to be able to operate within the funds on hand and facilities available over the forecast period.

“The directors acknowledge that certain assumptions inherent in the cash flow forecasts, including forecast sales and the associated cash flows involve significant judgment and the existence of material uncertainties in relation to the group’s ability to continue as a going concern. The directors are in the process of undertaking a strategic review of the group’s operations and product portfolio. This review also includes an assessment of the plans should one of more of these material uncertainties result in an adverse impact on the forecast cash position of the group.”

Wynyard's share price has fallen since a disappointing annual result in February, followed by a heavily discounted rights issue in March to raise working capital. 

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