Cyanconnode Regulatory News (CYAN)

CyanConnode Holdings plc 

Full Year Results for the Year Ended 31 December 2018

CyanConnode Holdings plc, ("CyanConnode" or "the Company", AIM: CYAN), a world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks, announces its full year results for the year ended 31 December 2018.

Financial and Operational Highlights

· Revenue of £4.5m achieved for 2018, being more than three and half times higher than the prior year revenue, (2017: £1.17m)

· The innovative Omnimesh smart metering platform, launched in June 2018, has generated over £15m worth of orders to the end of 2018, with £3m of revenues recognised against those orders during 2018

· The first Licensing Agreement for CyanConnode's smart metering technology was signed with Beijing Instruments, (a well-established Chinese meter manufacturer), potentially worth $4m (£3.1m)

· A significant improvement of the financial position with a 43% decrease in operating loss to £6.3m (2017: £11.2m), and adjusted LBITDA improving from £9.9m in 2017 to £4.8m in 2018

· Consolidation of European operations into the Company's centre of excellence based in Cambridge, with knowledge transfer and the closure of Swedish engineering facilities concluded

· 22% reduction in operating costs

· Cash and cash equivalents at the year-end of £4.6m (2017: £5.4m)

· Strong growth delivered as CyanConnode continues to establish itself as a world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks

Post Year End Highlights

· Follow-on order from Larsen & Toubro ("L&T") resulting in incremental increase to order received in May 2018 of £0.4m

· Follow-on order from HM Power for £0.7m for smart metering implementation for Swedish utility

· Order received from a new partner in India for a deployment of a hybrid RF smart mesh and cellular communications network

· R&D tax credit cash refund claim of £0.8m (2017: £1.4m) to be submitted to HMRC in May 2019 and expected to be paid in June/July 2019

· New Board appointments made to assist the Company's growth 

· Q1 2019 trading performing well against company budget and, in line with expectations, operating costs are consistently below budget averaging £0.48m per month

John Cronin, Executive Chairman of CyanConnode, commented:

"With the launch of the innovative Omnimesh smart metering platform, 2018 was a significant year for CyanConnode. The Company also consolidated its European operations to its centre of excellence in Cambridge, which helped to significantly reduce operating costs.

"During the year, £15m of orders were received and in addition CyanConnode executed its first Licensing Agreement with Chinese Partner, Beijing Instruments, a well-established Chinese meter manufacturer.

"The Company's focus for 2019 is to restore shareholder value by converting existing and new orders into revenue and by carefully controlling operating costs.

"I look forward to updating the market with further developments as CyanConnode capitalises upon the increasing global demand for smart city solutions. I would also like to take this opportunity to thank our staff, contractors and partners for their hard work during 2018, it is their dedication and commitment that will set CyanConnode apart from its competitors."

To view an interview regarding the Company's results please see the following link:

https://www.brrmedia.co.uk/broadcasts-embed/5cd532b9cfde5e11cc824928/cyanconnode-holdings-full-year-results-2018?popup=true

- Ends -

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Enquiries:

Chairman's Statement

I am delighted to report that revenue for 2018 was £4.5m, being almost four times higher than 2017. In 2018 CyanConnode launched Omnimesh, an Internet Protocol version 6 (IPv6) standard based smart metering platform, for which the Company has secured over £15m of new orders to date as well as establishing the Company as a world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks.

Revenue growth has been underpinned by strict cost control, supported by the streamlining of European operations, which has resulted in the lowest operating loss since 2015. These changes will continue to be felt during 2019, with the Company delivering on its order book and monthly cash costs running below budget.

The Company sought further equity in late 2018 to secure funds for working capital, growth and development. Despite an uncertain macroeconomic outlook, the Company raised £5.4m (gross), including a £1m investment by the directors, at a share price of 10 pence per share.

I am pleased to report that, as a result of the fundraise and cost control measures, the Company has improved its financial position. I am therefore confident that CyanConnode will flourish in 2019 and that it has sufficient funds in place to deliver on its current business plan.

Nevertheless, with break-even sometime away and with continued uncertainty around the timing of customer receipts, it is prudent that the Company continues to explore options to finance its working capital requirements.

Operational Review

CyanConnode is a world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks that enable cost-effective machine to machine (M2M) communication. The Company's innovative narrowband RF Smart Mesh Networks offer highly reliable data communication and management of devices including smart meters. Smart metering improves utilities' business efficiency and facilitates the reduction of non-technical losses. Consumers also benefit from smart metering, as it allows them to measure and control their energy consumption.

In 2018 the Company launched Omnimesh, a smart metering platform, which has gained substantial commercial traction. With this award-winning technology and experienced teams based in Cambridge and India, CyanConnode believes it is ideally placed to capitalise upon increasing global demand for smart metering solutions, which McKinsey estimates is worth US$12 billion and growing at a compound rate of 14% p.a.

As a result of the success of Omnimesh, and its suitability to the markets in which the Company operates, the Company has taken a decision to write down its stock of Optimal modules, originally manufactured for the Bangladesh order. The Company is no longer offering Optimal to its customers and plans to move all existing customers to Omnimesh.

India

During 2018, the Company made significant progress in India. The Indian smart metering market continues to evolve rapidly and due to the experience gained from successful implementations, the opportunities for CyanConnode continue to increase.

In May 2018, the Company announced a £2.5m order through CyanConnode's Indian strategic Partner, L&T, a US$27 billion global technology, engineering, construction, manufacturing and financial services conglomerate. The order was for a smart metering deployment to Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Ltd ("MPWZ"), an Indian state-owned utility with over 3 million electricity meters, located in Indore, Ujjain and other cities. The Company is pleased to announce that all hardware modules for this project were delivered during 2018, contributing significantly to the revenues for the year. 

The launch of the innovative Omnimesh smart metering platform in June 2018, was a significant milestone for CyanConnode. Omnimesh meets the Indian Government's standards for Smart Metering and Advanced Metering Infrastructure and its suitability for the market has been demonstrated by orders to date in excess of £15m. 

In September 2018, the Company announced a £9.1m order for Omnimesh, from a Tier One Metering Partner for an Indian State-Owned Utility. This is the largest order of its kind in India with 40,000 modules being delivered to the customer by the year end. Furthermore, the Company was delighted to announce in the same month a follow-on five-year support and maintenance contract for the project, totalling £2.3m. 

During the year, CyanConnode completed an order won from Genus Power Infrastructures ("Genus") in 2017. The order included 23,000 RF modules and the end customer was the Indian state-owned utility Uttar Gujarat Vij Company Ltd. This project made a large contribution to revenue. JK Agarwal, Joint MD Genus said "The implementation of CyanConnode's world class communication solution, based on IPv6 narrowband RF mesh network, will meet the technical requirements for AMI in India. CyanConnode's robust networks are proven by its customer deployments globally and Genus looks forward to working with CyanConnode on this and other projects in India. By joining hands with such proven players, we are committed to make Smart Cities and Smart Grid possible in India."

L&T placed further orders for Optimal, CyanConnode's proprietary cost-optimised narrowband RF mesh network based on Internet Protocol version 4 (IPv4), bringing the total number of Optimal RF modules ordered by L&T to 41,735.

CyanConnode was also pleased to see the successful "Go Live" of a 2015 purchase order from Enzen Global Solutions Pvt Ltd, for a large pilot project being implemented by Chamundeshwari Electricity Supply Corporation Limited, Mysore, Karnataka in southwest India.

On 7 June 2018, Power minister R.K. Singh requested that meter manufacturers ramp up production of smart prepaid meters, as the increase in the number of consumers being added to the electricity grid would ensure a steady demand. "Manufacturing of smart prepaid meters will also generate skilled employment for the youth," the statement added. Notably, India is poised to be the second fastest growing adopter of smart metering globally and it is estimated that the number of smart meters will increase from the current level of less than 0.5 million meters to c.250 million meters by 2021. Furthermore, on 24 December 2018, the Indian Government announced it had mandated the use of smart prepaid electricity meters in the country beginning April 2019 and is looking to complete the transition over the next three years.

Leading meter manufacturers, such as Genus, HPL Electric & Power and L&T, have integrated CyanConnode's standards based Omnimesh technology with their IS 16444 smart meters, so as to comply with Bureau of Indian Standards meter protocol. Through these partners CyanConnode expects to see further strong growth. However, although Indian utilities are issuing large 'Requests For Proposals ("RFPs") for smart meters with RF mesh technology, due to the 2019 Indian General Election, (being held in seven phases from 11 April to 19 May 2019, with the counting of votes on 23 May), the Company does not expect to receive any meaningful orders during H1 2019. Nevertheless, a number of these RFPs are in the final stages of tender and the Company will keep the market updated on developments during H2 2019.

APAC and Middle East

The smart metering market in the APAC and Middle East is maturing and continues to present a significant opportunity for CyanConnode. In order to obtain a leading position, CyanConnode acknowledges that it is necessary to establish strategic alliances and it is actively pursuing opportunities in several territories. 

In November 2018, the Company announced the signing of two new distribution agreements, one with Adtel Inc to distribute smart metering RF network technology in the Philippines, and the other with DS Technology DWC LLC, a Systems Integration and Distribution Partner for the UAE and Bahrain. These Partners will maximise sales potential in several new territories as well as expanding the Company's global distribution channels.

In December 2018, the Company signed its first Licensing Agreement with Chinese Partner, Beijing Jingybeifang Instrument Co., Ltd, (Beijing Instruments). Beijing Instruments is a well-established meter manufacturer and, since 1998, it has been a main supplier to the State Grid Corporation of China. The Licensing Agreement provides Beijing Instruments with the right to use CyanConnode's reference designs to manufacture RF mesh modules and gateways, which Beijing Instruments hopes to supply to its customers.

Beijing Instruments will pay a license fee every time a RF module or gateway unit is manufactured. The Licensing Agreement is for a predetermined number of modules and gateways, with a potential value totalling £3.1m over a two-year period. It is currently envisaged that Beijing Instruments will commence production in H2 2019. Each of these RF modules when deployed in a smart meter will also lead to additional revenue for CyanConnode's Omnimesh smart metering platform.

Under the agreement CyanConnode and Beijing Instruments will collaborate on opportunities in various territories including Afghanistan, Kenya, Nepal, and Sri Lanka. In these territories Beijing Instruments will act as the prime contractor and will supply the hardware with CyanConnode supplying the Omnimesh smart metering platform. This structure reduces CyanConnode's working capital requirements as the Company doesn't need to finance any manufacturing costs.

The previously announced contracts in Iran and Bangladesh are still active although they have suffered delays. The delay to the Iran contract is largely due to geopolitical factors. The Company is in discussion with its partners to find alternative routes to progress these contracts.

Europe

During the period the Company announced two orders from customers in the Nordics. In June 2018 a purchase order worth £0.2m was received from an existing Partner for a smart metering deployment for a European Utility and the order was completed in 2018. In July 2018 an order for £0.6m was announced for the supply of an IPv6-based solution with perpetual software licenses and annual maintenance fees, for an initial period of 10 years.

CyanConnode was pleased to see progress of the UK Smart Metering Implementation Programme, with the rollout of SMET2 meters commencing in Q4 2018. More than half a million SMET2 meters have been installed to date and installations are currently running at over seven thousand SMETS2 meters per day. CyanConnode's technology is embedded in the Toshiba SUK2 and SUK3 SMETS2 Communications Hub which enables SMET2 meters located in a spot that cannot access mobile services, known by mobile operators as "not-spots", to communicate with the Data Communications Centre, (DCC). Toshiba SUK2 and SUK3 SMETS2 Communications Hubs are being deployed under the Telefónica contract with the DCC, for the Central and Southern regions.

Based on an assumption that 10% of SMET2 meters under the Telefónica contract will be located in a "not-spot", CyanConnode's contract with Toshiba is projected to deliver £24m of revenues over a 15-year period. Revenue is derived from software licenses and support fees and will increase after the first 500,000 pre-paid licenses have been activated. The first 500,000 licences were purchased from Connode, prior to its acquisition and therefore CyanConnode does not expect material revenue from this contract during 2019.

In September 2017, CyanConnode announced an order from NIK, a manufacturer of electricity, water and heat meters. The order relates to the deployment of one million smart meters in the Ukraine, over a three-year period. The order continues to suffer from delays. The original order was for Optimal, however following the decision by the Company to no longer supply Optimal, this customer will be moved onto Omnimesh should the order progress. The Company is also in discussion with partners to find alternative routes to progress this contract.

Other Highlights

As highlighted earlier in this statement, in June 2018, the Company officially launched its Omnimesh smart metering platform. Omnimesh utilises Internet Protocol version 6, (IPv6), and narrowband RF mesh technology, (the acronym for the combination being 6LoWPAN), to create a scalable and robust platform that provides cost-effective machine-to-machine communication for smart city solutions. Orders for Omnimesh currently stand at £15.2m.

In September 2018, the Company announced the consolidation of its European operations. Connode Holding AB, based in Sundbyberg, Sweden, was acquired by Cyan in July 2016, whereupon Cyan changed its name to CyanConnode. During 2018 its operations, including software development and technical support, were transferred to the Company's Cambridge Headquarters. CyanConnode continues to support Nordic customers and develop Nordic opportunities using Swedish staff working as Company contractors.

In 2018, CyanConnode was recognised for its achievements by winning the Frost and Sullivan Company of the Year Award for the Global Smart Metering Industry. In addition, CyanConnode was acknowledged at the Independent Power Producers Association of India awards 2018, for its Omnimesh smart metering platform. In December 2018, the Company was invited to be a keynote speaker at the Future Tech Festival in India; the festival was a major initiative under the India-UK Technology Partnership and was promoted by Prime Ministers Narendra Modi and Theresa May.

In November 2018, the Company raised £5.4m (gross) by the issue of ordinary shares to new and existing shareholders. The Board of Directors would like to thank shareholders for their continued support and patience during 2018. Your Board's focus for 2019 will be to restore shareholder value by converting existing and new orders into revenue and by carefully controlling operating costs.

Board Changes

In June 2018 Simon Smith stepped down from the Board after a tenure of more than eight years. The Company would like to thank him for his contribution and support during that time. In July 2018, Heather Peacock joined the Board as Group Financial Director and David Johns-Powell joined the Board as Non-Executive Director. In November, Peter Hutton also stepped down and again the Company would like to thank him for his contribution.

In 2019, the Company saw Board changes with the appointment of Chris Jones and Peter Tyler as Non-Executive Directors and the promotion of Heather Peacock to Chief Financial Officer of the Company. Harry Berry stepped down from the Board on 31 March 2019 and will step down from the role of Chief Operating Officer at the next Annual General Meeting in June 2019. Harry will provide ad hoc consultancy services to the Company for a 12-month period from July 2019. Paul Ratcliff will also be stepping down as Non-Executive Director following the next Annual General Meeting.

Your Board is fully focussed on growing its order book whilst carefully controlling operating costs and converting existing and new orders into revenue.

People

With a total investment in excess of £5.1m, your Board of Directors and Management are fully invested in the business, details of which will be in the Directors' Remuneration Report in the 2018 Annual Report.

I would also like to thank all staff, contractors and partners for their continued efforts in developing, selling and delivering innovative solutions. Over the past few years CyanConnode has built a world class team, and it is their know-how and commitment that will set the Company apart from its competitors.

Post Period End

In February 2019, the Company announced a follow-on order from L&T for the Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Ltd (MPWZ) project, announced in May 2018, worth approximately £0.4m. The Company is pleased to report that all hardware for this order was delivered before the end of March 2019.

In April 2019, CyanConnode announced a purchase order from a new partner for an Indian state-owned utility, who is also a new end-customer. This order was for a hybrid RF Smart Mesh and Cellular communications network and will be delivered in full during 2019.

Also, in April 2019, the Company announced a follow-on order from HM Power worth approximately £0.7m. The order leverages the functionality of Omnimesh and will be used for the smart metering of electricity and district heating using long-range RF communications to maximise the resilience of the RF Smart Mesh Network in rural areas.

During the first quarter of 2019, CyanConnode achieved accreditation for 3 ISO standards (9001:2015, 27001 and 14001), all of which endorse the quality of the Company's products.

Outlook

2018 was a significant year for CyanConnode and the launch of the Omnimesh smart metering platform confirmed its world leadership in Narrowband Radio Frequency Smart Mesh Networks that facilitate machine-to-machine communication.

Trading in the first quarter of 2019 indicates that full year results will be in line with market expectation and operating costs for the first quarter are below budget. CyanConnode will enter H2 2019 with a backlog of orders and as a result, 2019 revenues are expected to show further increase over 2018 revenues, with further improvement of the visibility of revenues going forward.

Given the scale and nature of the Company's projects, changes to the level and timing of sales, or to the timing of customer payments, creates a material uncertainty which could impact the Group's funding requirements. Please see the Financial Review for more information.

CyanConnode looks forward to updating the market with further developments, including new orders for our pioneering technology, as we continue to capitalise on the increasing global demand for smart city solutions.

John Cronin

Executive Chairman

13 May 2019

FINANCIAL REVIEW

Heather Peacock

Chief Financial Officer

Financial Highlights

I am pleased to present my first Annual Report since joining the Board in July 2018. The Company is particularly pleased to report revenues in 2018 of £4.5m, which are more than three and a half times higher than FY 2017 revenues. India was the main contributor to this revenue growth, with the Nordics also contributing.

The FY 2018 operating loss before tax was a significant improvement over the 2017 loss. This improvement was assisted by increased revenues and the reduction of development costs following the completion of the Omnimesh smart metering platform, as well as the streamlining of costs across the organisation.

The Company ended the period with £4.6m of net cash, following a successful share placing of £5.4m (before expenses) in November 2018.

Key financials

Substantial commercial orders were won during the period, however the revenue and cash generated therefrom during the period remained well below the level required to sustain the business. The extra funds raised in November 2018 provide the Group with incremental financial resources for research and development, growth, general working capital, customer and partner development activities in India and other markets.

Included within the table above are two alternative performance measures ("APMs"): LBITDA and adjusted LBITDA. These are additional measures which are not required under IFRS. These measures are consistent with those used by management internally and are considered important to understanding the financial performance and the financial health of the Company.

Notably from our table above:

· Adjusted loss before interest, tax, depreciation and amortisation ("LBITDA") is now marginally higher than it was in 2015 with the costs of the Connode acquisition in 2016 and the development costs associated with the launch of our Omnimesh standards-based product having been fully absorbed

· 2018 includes a £578k stock impairment charge relating to a write down of the Optimal stock we are holding as we plan to move all customers to Omnimesh. We believe this will bring significant benefits to our customers and also help us to minimise our support and development costs

· Stock based compensation charges reflect the fair value of share options granted to employees over the vesting period of these options. Please see note 32 of the 2018 Annual Report for more information

Key Performance Indicators (KPIs)

The financial key performance indicators for the Group are as set out in the key financial results table above. 2018 revenues were almost four times 2017 comparatives resulting from the delivery of orders won in 2017 and 2018. Research and development expenditure fell by 41% year-on-year following the launch of Omnimesh. As a result, operating losses, LBITDA and Adjusted LBITDA reduced to around half of 2017 losses.

The Group's average headcount has decreased from 54 in 2017 to 52 in 2018. The change in staffing is better illustrated by year end headcount, which fell by 14. In 2017, we ramped our research and development activities and then in 2018 we reduced this headcount again following the successful launch of Omnimesh.

The Group's long-term strategy is to deliver shareholder returns by generating revenue and moving into profitability. We seek to do this by focusing our investment on emerging but fast-growing markets where we believe we can reach a market leading position with our technology. Management use KPIs to track business performance, to understand general trends and to consider whether we are meeting our strategic objectives. As we grow, we intend to review these KPIs and adapt them as appropriate, in response to how our business and strategy evolves.

The Group's key focus for 2019 will be further streamlining its processes from order to delivery and continuing to close further orders. A further focus will be ensuring collection of cash from customers as company revenues continue to grow. A number of avenues are also being pursued to secure working capital facilities should it become necessary to ease cash flows and mitigate against any unforeseen delays in deliveries or customer payments.

Going Concern 

To assess the ability of CyanConnode Holdings plc ("Group") to continue as a going concern, the directors have prepared a business plan and cash flow forecast for the period to 30 June 2020 which, together, represent the directors' best estimate of the future development of the Group. The forecast contains certain assumptions, the most significant of which are the level and timing of sales and the timing of customer payments.

The forecast taken into account in the business plan shows that the Group has sufficient funds to execute its business plan and that there would not be a need for further equity funding. If a more pessimistic scenario were taken and an assumption were taken that no cash is received within the next twelve months from any new orders not currently contracted, and that there were significant delays to receipts from customers, there is a material uncertainty relating to the Group's ability to continue as a going concern. Should the Group experience such downside sensitivities the directors would look at measures such as cost reduction and working capital facilities (including invoice factoring) as ways to conserve cash within the business.

Notwithstanding the material uncertainties described above, the directors have a reasonable expectation that the Group can continue to meet its liabilities as they fall due, for a period of at least 12 months from the date of approval of this report.

CyanConnode Holding Plc

Consolidated income statement

For the year ended 31 December 2018

Derived from continuing operations and attributable to the equity owners of the Company.

CyanConnode Holding Plc

Consolidated cash flow statement

For the year ended 31 December 2018

Notes to the Financial Statements

For the year ended 31 December 2018

1. General information

CyanConnode Holdings plc, (Company Registered No. 04554942), is a company limited by shares, incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is Merlin Place, Milton Road, Cambridge CB4 0DP.

The final results announcement is based on the financial statements which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2017 or 2018. The financial information for the year ended 31 December 2017 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not contain a statement under s498(2) or (3) of the Companies Act 2006 but referred to a material uncertainty regarding the Group's ability to continue as a going concern. The audit of the statutory accounts for the year ended 31 December 2018 is not yet complete but is expected to contain similar language in respect of going concern. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. While the financial information included in this preliminary announcement has been prepared in accordance with the measurement and recognition criteria of IFRS, this announcement itself does not contain sufficient information to comply with IFRS. The company expects to publish full financial statements that comply with IFRS, as adopted by the EU, a copy of which will be posted to the shareholders.

The financial statements were approved by the Board of Directors on 13 May 2019 and authorised for issue. The Group's specific IFRS accounting policies can be found in the 2018 annual report.

2. Loss per share

The calculation of the basic and diluted loss per share is based on the following data:

Number of shares

The denominations used are the same as those detailed above for both basic and diluted earnings per share from continuing operations. However, in accordance with IAS 33 "Earnings Per Share", potential ordinary shares are only considered dilutive when their conversion would decrease the profit per share or increase the loss per share from continuing operations attributable to the equity shareholders.

3. Share Capital

4. Notes to the consolidated cash flow statement

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and other short-term highly liquid investments with maturity of three months or less.

5. Annual Report and Accounts and Notice of Annual General Meeting

The Notice of AGM and Proxy Form and the full colour Annual Report and Accounts will be sent to shareholders on 17 May 2019 and made available on the Company's website shortly thereafter. The AGM will be held on 10 June 2019 at 2.00 p.m. at the offices of Trowers & Hamlins LLP at 3 Bunhill Row, London, EC1Y 8YZ.