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Adacel warns it could swing to a full year loss up to $1.9 million

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Adacel Technologies Ltd (ASX: ADA) shares could fall this morning after the aeronautical software business warned it expected to swing to a full year loss before between $1.7 million to $1.9 million in FY19, compared to a profit before tax of $10.2 million in the prior financial year.

This might leave investors asking what on earth has caused such a large swing in the bottom line over just one financial year. 

The company blamed three “primary factors” for the disastrous result. Firstly, it experienced cost blowouts when installing its new “Approach and Tower” control systems in Fiji, Guadeloupe and NavPortugal. However, its confident these will be resolved by FY20 and that it can even sell the software to more clients over FY20.

Second, it admitted its sales forecasts for the second half of FY19 were too optimistic, or just plain wrong. It claims that it has now taken a ‘more prudent’ approach to forecasts which is notable given it’s now “forecasting” a profit before tax between $4.1 million to $4.6 million in FY20.

It reports its confident in the FY20 forecast in part because its cost control will be much better over the year ahead, with poor cost control in FY19 identified as the third factor behind the poor year.

Adacel shares are down 63% over the past year and could fall further today.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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