Synergon’s net income Ft 23.7 mln H1 2006

The net sales of the Synergon Group amounted to almost exactly Ft 10 billion during the H1 of 2006, with this the Company's performance exceeded that of the equivalent period of the previous year by 18%. At the beginning of the period, the hardware orders of the telecom and the public administration sectors played a substantial part in the sales achieved. However, due to various high-contribution projects of Q2, the contribution ratio for the entire six-month period was virtually the same as that of the base period. In contrast with H1 of 2005, it made a loss of Ft 59.1 million when, eliminating the non-recurring effect of the releasing of previously made provisions of Ft 372 million. The Group closed the period with a positive net profit of Ft 23.7 million, prepared with International Financial Reporting Standards (IFRS) and published on Friday.

In H1 2005, Synergon reported net profits of Ft 336.6 million, but this included a one-off Ft 372 million from the release of risk provisions set aside in previous years. Of the operating companies, Fibex, performing substantially better than in quarter 1, achieved a sales level 8% higher compared to the base during the first six-month period, despite the fact that there were considerable shortfalls during the Q1 due to the delays of cabling works. While operating expenses jumped during the period due partly to the increasing headcount, the net profit of the Company did not fall far behind that of the base period. Q2 net income was Ft 3.3 million, well under analysts' Ft 14 million estimate in a poll by online business news site portfolio.hu. H1 sales revenue rose 18% yr/yr to Ft 9.980 billion, helped by orders from the telecommunications sector and the state. State orders dropped off, however, after the government introduced austerity measures in the Q2. Direct cost of sales rose faster than revenue during the period, increasing 20% to Ft 6.87 billion.

In the Q2, however, direct cost of sales rose 9% yr/yr, while revenues rose 14%. Synergon's gross profit margin fell to 31% in H1 2006 from 32% in H1 2005. However, the Q2 gross profit margin rose to 33% from 30% in the same period a year earlier because of projects with a high service content. Operating profit was Ft 3.36 million in H1 2006 compared to operating losses of Ft 181.78 million in H1 2005. In Q2 alone, however, Synergon recorded an operating loss of Ft 47.7 million, down from a Ft 221.2 million loss a year earlier. H1 operating costs came to Ft 3.1 billion in H1 2006, rising 8% yr/yr because of higher payroll costs, fuel costs, consultancy fees and maintenance costs. Net financial profit totaled Ft 54 million in H1, up 68%, including Ft 16.7 million in Q2, a 46% fall yr/yr. Synergon had net assets of Ft 7.06 billion on June 30, 2006, 2% more than twelve months earlier. Synergon shares, listed in category 'A' of the Budapest Stock Exchange, were selling for 831 a little after the start of trading on Friday, down 1.1%.
As a result of the discontinuance of uneconomical activities and the loss of some of its established markets, the sales of Infinity were 15% lower than the equivalent figure in the base period. Through the efficiency-improving measures instituted by the Czech company, losses were reduced by 62% on the operating level and by 70% net within a year. The company is expected to close the current year around the break-even point. Like the in first quarter, Spam also closed the second quarter with a loss; the company is facing increasingly tough competition on one of its major markets, i.e. Microsoft solutions applications. Strong competition results in a contribution level substantially lower than before; consequently, the Croatian company closed the six-month period at a loss in excess of Ft 100 million despite the fact that its net sales increased by 25%.

Synergon CEO Zoltán Radnóty stated: “The introduction in October of matrix management will be a significant step forwards in the operation of the Group. Using the new operation model we will endeavour to make better use of our client relations in the region, our knowledge base and still significant efficiency reserves. At the same time group-level business branch control will become stronger ensuring that the operating companies are set on the growth course that the parent company is now clearly moving along.” (MTI-Eco, Synergon)