Cyanconnode Regulatory News (CYAN)

CyanConnode Holdings plc("CyanConnode" or the "Company" or the "Group")

Final Results

CyanConnode (AIM: CYAN), the world leader in narrowband radio mesh networks, announces its audited results for the 12 months ended 31 December 2017.

Operational Highlights

· Order book increases during the period, with orders being won from a range of customers opening up new territories

· Board and management team streamlined and strengthened with the Group now firmly focused on converting the order book into revenue

· New team recruited into India with extensive industry experience

· Identifiable global new business pipeline grows at a rapid rate

· Expanded eco-system of partners across a number of territories

· Development and completion of new standards-based Omni IoT platform resulting in opportunity for new revenue streams including licensing. First order received for this technology and deployment of this order commenced in December 2017

Financial Highlights

· Revenue of £1.17m (2016: £1.82m) with the decrease directly as a result of the delay in deployment of a large customer contract notified to the Company just before the period end

· Operating loss of £11.15m (2016: £7.94m)

o Significant investment in strengthening the team to prepare for deployment of orders and research and development to complete development of new standards-based Omni IoT platform

· Research and development tax credit receivable increased to £1.4m (2016: £0.7m)

· Cash and cash equivalents of £5.39m (2016: £3.89m) following new equity funding during the period of £11.3m before expenses

Post Year End Highlights

· New order won from Larsen & Toubro for $3.2m

· The CESC Mysore contract in India has now officially passed the User Acceptance Testing milestone which has resulted in a cash payment of £0.3m having been received.

· The Company has taken positive steps to manage and reduce the cost base, with significant reductions being made in the last six months. The cost base from July 2018 onwards is expected to be around £670k per month, which is significantly lower than the average operating cost per month in 2017 of £808k 

· R&D tax credit cash refund claim of £1.4m (2016: £0.7m) has been submitted to HMRC

John Cronin, Executive Chairman of CyanConnode, commented:

"This was an important period for the Company with the successful integration of the IPv6 technology from the Connode acquisition, announced in June 2016, the expanded geographic footprint and scale of orders won during the period. In total we announced ~$50m of orders during the period, highlighting the strength of our value proposition within the smart metering markets around the world. Integration work is currently being undertaken with partners in three new territories with initial payments now received from these territories. In addition we have had successful demonstrations of our technology in a number of new locations.

"The nature of our business model has led to a significant committed pipeline of future revenues as we commence delivery on a number of high value contracts and, as such, the key objective remains focused on converting orders into revenue and profits as our business model evolves towards a cash generative one that can support and accelerate our ongoing corporate development.

"Our team continues to enhance our product suite, providing higher margin opportunities, while widening our potential customer base and the management team continues to invest in the Company and work tirelessly to provide significant returns for all of our shareholders."

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

Enquiries:

Chairman's Statement

Dear Shareholder,

2017 has been a year during which we have both made significant progress within the Company in terms of winning orders, growing our global ecosystem of partners, expanding our geographical reach, and putting in place a world class team to develop product and deliver on the order book which has grown significantly during the period. We have however also faced challenges within the Company as a result of delays to contracts.

I was delighted to welcome Anil Daulani as Managing Director of CyanConnode in India in September 2017, responsible for the overall operations of the company in India. Anil joined from Tech Mahindra where he held the position of Global Head & Vice President Utilities for the five years prior to joining CyanConnode, and is a highly experienced executive with knowledge of both the energy sector and IT solutions. He has well established strategic relationships with CEO/CXO officers at both public and private utilities, resulting in over $300 million contract wins during his career prior to joining the Company. Anil brought with him Gautam Kumar, also from Tech Mahindra who has been appointed as Head of Delivery, a role key to successful management of the delivery of projects won in India, and Manish Widhani who has been appointed as Business Development Director. As a result of bringing in this highly experienced team, we are already seeing significant inroads being made into the market in India with a solid pipeline of large opportunities having been developed. I am excited about working with them to close and deliver further orders as the business grows further.

In addition to the large orders won during the period, and changes made within the organisation in India, the Company has transformed its product, engineering and operational teams. Dr Graeme Milligan was announced as its Global Head of Integration during 2017. Graeme provides technical and planning support for the seamless integration of customers' devices and software with CyanConnode's Omni IoT platform. In addition, Sylvain Vittecoq has been named Chief Technology Officer for the Company. Sylvain joined Connode in 2011 as Development Manager and Architect and was appointed Lead Design Authority and Delivery Manager for the narrowband mesh solution part of the UK Smart Metering Implementation Program ("UK SMIP"). In his role as Chief Technology Officer at CyanConnode, Sylvain is responsible for the overall technical vision and solution definition. The engineering team across the UK and Sweden was streamlined with Allan Baig, who joined us in June 2017 from Landis+Gyr, now heading up the global engineering function.

As a result of the development of our new standards-based Omni IoT platform, we are in the process of delivering product to the Indian state-owned utility Uttar Gujarat Vij Company Ltd ("UGVCL"), through Genus Power Infrastructures Ltd ("Genus"), one of the largest meter manufacturers in India, a contract announced in July 2017. This new platform will be made available globally with an official launch at Asia Utility Week in June 2018. The new product is a multi-application, multi-communication technology platform, which will support any application on any device over any communication technology. It flexibly integrates both new and legacy applications, breaking down historical IT silos. This technology further provides the flexibility to integrate narrowband RF networks with other communication technologies and legacy / abandoned systems. It provides a reliable, pervasive, always-on network with government approved, critical infrastructure grade security which protects data and restricts access to command and control functions. The rapidity of the deployment at UGVCL (compared to previous projects in India) is testament to the quality of the solution which is highly appreciated by both the end utility customers as well as the local partners such as Genus. Being standards-based, this technology now provides licensing opportunities, a number of which are currently being explored by the Company which, if won, would add significant revenue streams to its business model. We have no doubt it will be seen as a world-class offering.

We are also working with key meter manufacturers to embed our new product into their meters making our solution a first choice for their communication needs. We have seen a recent surge of activity in India directly as a result of this strategy.

As highlighted above, we have also been faced with challenges during the year. In our trading update provided on 4 January 2018, the Company reported that it had been notified by a significant customer that deployment for one of the larger contracts won in 2017 had been delayed for reasons outside the Company's control. A regular dialogue has continued with this customer since year end, including a senior management visit to their head office to meet the CEO. The customer has reconfirmed that they will take delivery of the hardware that CyanConnode manufactured for them in Q4 2017, but currently the Company has little visibility on timing of the first delivery. A further update on progress in relation to this will be provided as soon as practicable.

As a result of the completion of the development of the new product, our streamlined organisation and improved processes and procedures within the Company, we have made significant reductions to our operating costs since the period end.

During the period we were delighted to be named the fastest growing tech company in the Cambridge and East region of the Deloitte UK Technology Fast 50 2017 while being ranked in 22nd place in the UK and believe this industry recognition highlights the Company's strong footing as we focus on deploying the orders won during 2017.

CyanConnode's narrowband RF mesh technology is now at the forefront of communication technologies for the Internet of Things ("IoT") and we are working hard on further extending our market leading position while our realigned teams and Board focus on converting our significant order book into revenue and receiving customer payments.

Operational Review

India

India continues to be a core market for CyanConnode and we are focused on establishing relationships with blue chip entities that provide significant roll out opportunities as we become a critical part of their customer offering.

As already mentioned, Anil Daulani was hired as Managing Director India in order to grow the sales opportunities and manage the sales and operations functions of the Company in India. Joining from Tech Mahindra, Anil has strong relationships with both public and private utilities.

The combination of new and follow on orders in India reflects our growing reputation in the region.

As such, we were delighted with the $1.1m purchase order from Genus for a smart metering deployment of over 23,000 units for UGVCL. Genus is a tier 1 meter provider with the largest installed base in India and supplier to multiple utilities. This was the first order from India for CyanConnode's IPv6-6LoWPAN standards-based Advanced Metering Infrastructure ("AMI") solution for volume commercial deployment, highlighting the benefits of the Company's range of solutions while further expanding its product footprint within the region.

We were especially pleased with the latest follow on order from Larsen & Toubro ("L&T"), further expanding the deployment of our smart metering solution at Tata Power Mumbai ("Tata Power"), bringing the total orders for this deployment to date to 25,100 units. Importantly, Tata Power now has over 2.6 million consumer customers, including over 670,000 in Mumbai1 and we are working hard to further build on our strong relationship and take advantage of the significant scope to further grow our footprint in the region.

We expect to see growing demand for these kinds of solutions, highlighting the importance of the Connode acquisition in 2016 and our growing product suite, which is enabling us to target more potential customers.

A number of projects being implemented in India continued during and post year end. Chamundeshwari Electricity Supply Corporation Limited ("CESC") in Mysore was the first of 14 smart grid pilots to be rolled out in 2017 under the Smart Grid Task Force in India. The contract to install AMI technology was awarded to CyanConnode, through its partner Enzen, for the supply of 21,000 smart meters and associated hardware and software. During implementation this project has become a valuable reference for the wider Indian Smart Grid community and in July, Energy Minister DK Shivakumar inspected the first phase and confirmed that CESC will expand its smart grid project to the entire city. Furthermore, in January 2018 CESC officially confirmed that the formal milestone for User Acceptance Test was officially complete. Payment of £0.3m for this milestone has since been received.

Rest of World

Whilst India has, and continues to be, a core growth market for the Company, we made significant strides in further expanding our international reach with large orders received from a number of new territories.

The Company has generated revenues and been paid for system integration work during the first quarter of 2018 by working with local tier 1 partners in three separate territories, including two new territories. These three commercial opportunities could result in significant orders which the Company will continue to pursue. An additional benefit of this work is that the Company has increased the number of successful integrations with tier 1 meter manufacturers, including some manufacturers with which the Company has not previously been engaged.

As previously mentioned, our strong product range, which was enhanced by the acquisition of Connode in 2016, means that the Company has been able to further grow its presence throughout Europe. We acquired a strong orderbook in the UK worth an estimated £24m as part of the Connode acquisition which also provided the Company with our standards-based software suite, IPv6-6LoWPAN. This is increasing in demand globally.

Our European reach grew further during the period as we received a purchase order for 100,000 software licenses from HM Power Metering AB ("HM Power") in Sweden for smart grid and IoT implementations. During the period 23,509 licenses of this order were supplied to HM Power. 

Board Changes

Harry Berry moved from a non-executive to executive director capacity as Chief Operating Officer (COO) during 2017. Harry's priority is to convert the order book (representing purchase orders received from customers but not yet delivered) into successful customer deployment projects, which will result in significant revenue growth for the Company.

Pete Hutton was appointed to the Board of CyanConnode as a non-executive director. Pete joined from his most recent role as a member of the executive committee at Cambridge based ARM Limited, the UK trading company of ARM Holdings plc. He brings with him a wealth of practical experience in the IoT market, as well as strong relationships from C-Suite down with Asian, European, and US technology companies.

Dr John Read, who has served on the Board of the Company since 2005 and served as Chairman of CyanConnode from 2007 to 2012, retired from the Company in June.

In addition to the above changes, Simon Smith, Chief Financial Officer, returned to a non-executive director role. The Company also appointed David Bland as full time non-board Finance Director, taking over the day to day finance activities from Simon.

Employees

Shortly before the start of 2017, the Company moved its UK office to new premises in Cambridge which are located close to the Science Park to be connected to the hub of R&D in the region. 2017 was a year that saw streamlining of the CyanConnode team as it evolves. We are proud of the world class talent brought into many areas of the business so establishing a center of excellence in Cambridge.

I would like to thank all our employees for their efforts during the period. I very much look forward to working closely with them during the remainder of 2018 as we further expand our reach into existing and new territories and watch further development of the Company at this exciting time.

The Board and management continue to invest in the Company with a total of £0.3m invested by the Board during 2017. Full details of directors' investments can be found in the Directors' Remuneration Report on page30 of the Annual Report.

Awards

During 2017 CyanConnode was lauded for its rapid growth and its technology awarded for innovation. In November, CyanConnode was recognised as the fastest growing tech company in Cambridge and the East region in the Deloitte UK Technology Fast 50 2017 and ranked in 22nd place overall. With more than 1,221% growth in 2016, CyanConnode was also formally acknowledged as the fastest growing technology company in the UK Telecommunications sector. This growth reflected the delivery of customer orders in India as well as the expansion of global reach and portfolio through the acquisition of Connode, in July 2016.

In the same month, the Company was awarded 'Innovation in Techno Commercials - Smart Metering' at the Independent Power Producers Association of India ("IPPAI") Power Awards. CyanConnode has successfully deployed smart metering solutions in India, a highly competitive business environment. The Company has built strong partner ecosystems in India, helping to retain its position at the top of the industry, as well as to attract new customers.

CyanConnode's innovation was recognised for its low implementation costs, successful customer deployments, including Tata Power Mumbai, and scope for future development. The award was presented at the 18th Regulators & Policymakers Retreat in Karnataka India, organised by IPPAI.

In September, at the Cambridge Independent Entrepreneurial Science & Technology Awards, CyanConnode was highly commended in the cleantech, scale-up companies category.

Post Period End

Shortly before publication of this report, the Company announced it had received a further order from its partner L&T in India for a smart metering deployment for the Indian state-owned utility Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Ltd ("MPWZ") worth $3.2m, to commence deployment in the current financial year. The Company has already delivered 25,100 units in other regions of India since 2014. Importantly, this is for the IPv6-6LoWPAN standards-based AMI solution, highlighting the strong value proposition of the Company's advanced IPv6 standards-based technology, which is now becoming the minimum requirement in certain territories around the World.

Since the period end £0.5m has been invoiced, and revenue recognised relating to the UK SMIP. During the remainder of 2018, the Company expects to further benefit from the roll-out of the UK SMIP.

We were delighted to have confirmation of an important milestone in our CESC project post the period end. The milestone which was completed in January 2018 was for the User Acceptance Test and payment of £0.3m has since been received for this milestone.

In addition, the Company has made an application for £1.4m in tax credits, which it expects to receive in the coming months following HMRC's approval. The Company has also been focused on optimising its cost base for delivery of future contracts and required development for its products and has now reduced its ongoing cost base, such that in the second half of the year this will now be approximately £670,000 per month, reduced from over £800,000 during 2017.

Outlook

This was an important period for the Company with the size and scale of orders won and growing geographic reach highlighting the strength of our proposition as well as highlighting a number of challenges to be considered and overcome as we grow.

The key focus remains on delivery of a number of high value orders to ensure we convert these orders into revenue as our model evolves towards a cash generative business that can support ongoing operations, development and profitability. We are extremely excited by the global opportunities and scalability of our combined hardware and software solutions and look forward to building on our relationships with existing and new clients. Furthermore, our team continues to further enhance our product suite, providing higher margin opportunities while widening our potential customer base.

As a Board, we continue to closely monitor the cash resources available to the business in order to ensure adequate funding is in place to meet the requirements of the business. During 2017, we received £11.3m (before expenses) of equity funding. We continue to work on securing additional funding that will be required during 2018, especially as we start to deliver on orders which are expected to require upfront working capital investment. This funding could include one or a mix of working capital facilities, strategic corporate investments, additional equity funding and licensing deals for our new Omni IoT platform. We remain grateful to our supportive shareholder base which has funded the Company to date, including the two fundraises from last year.

In addition to the licensing opportunities referenced above, some of which are in discussion at the time of this report, we expect the new Omni IoT platform to present a large growth in opportunities as can be seen by the two recent orders won in India (UGVCL and Indore), and many of the tenders coming out in India.

The combination of new product development, continued roll outs and expansion into new territories will provide foundations for the Company to remain at the forefront of the markets in which it operates and we remain passionate about our ability to turn opportunities into revenue. As a Board and management team we continue to heavily invest in the Company with both our time and CyanConnode share purchases and are working hard to provide returns for all of our shareholders.

John Cronin

Executive Chairman

21 May 2018

STRATEGIC REPORT

Operational Review

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. In 2017, the Company raised £11.3 million before expenses, by way of share placings. This funding provided the Company incremental financial resources for growth, general working capital, customer and partner development activities in India and other markets. A substantial amount of this funding was used to develop the Company's full standards-based technology platform following the acquisition of Connode in 2016.

A summary of the key financial results is set out in the table below and discussed in this section.

Key Performance Indicators (KPIs)

The key performance indicators for the Group are as set out in the key financial results table above. During 2017 revenues decreased from 2016 and the operating losses continued to be significant and have again increased substantially from 2016 to 2017. As can be seen from the table, CyanConnode has significantly increased investment in R&D in order to develop the full standards-based Omni IoT technology platform using the Connode IPv6 technology. In addition the Company's system integration and delivery teams grew in order to deliver on the Company's growing order book. The Group's average headcount has increased from 44 in 2016 to 54 in 2017. The main increases in headcount related to the research and development and delivery teams.

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 2018 will be streamlining its process from order to delivery and converting its large order book into revenues. A further focus will be converting the large pipeline of opportunities into successful orders and eventually cash, also following a streamlined process.

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 2019 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 gross margin on those sales, together with the ability to secure additional finance in order to fund working capital within the next 12 months.

The directors have recognised that the Group is trading principally in emerging country markets. These markets have an inherent level of uncertainty associated with them and this may result in the predicted level of sales not being achieved and/or the timing of orders being delayed, as has been the case for the Group in the past. The directors have taken reasonable steps to satisfy themselves about the robustness of sales forecasts but acknowledge that the timing of customer orders in the Group's target markets is fundamentally uncertain. This may impact both the Group's ability to generate positive cash flow and to raise new finance. Consequently, there is a significant risk that the level of sales achieved is materially lower than the forecast, may be significantly delayed or at materially lower margins. This constitutes a material uncertainty.

The directors' cash flow forecast includes an assumption that further finance will need to be raised within the next 12 months. Having consulted with stakeholders, the directors consider that the Group has a realistic opportunity to secure the additional funding that will be required. There remains, however, a significant risk that the required level of new funding will not be received in the necessary timescales or at all. This constitutes a material uncertainty.

There is a material uncertainty related to the assumptions described above which may cast significant doubt on the Group and Company's ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if the Group or Company was unable to continue as a going concern. In the event the Group and Company ceased to be a going concern, the adjustments would include writing down the carrying value of assets, including stocks, to their recoverable amount and providing for any further liabilities that might arise.

Notwithstanding the material uncertainties described above, on the basis of sensitivities applied to the cash flow forecast and that further finance can be raised in the relevant timescale, the directors have a reasonable expectation that the Company and 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.

Consolidated income statement

For the year ended 31 December 2017

Consolidated Statement of Comprehensive Income

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

Consolidated balance sheet

At 31 December 2017

Consolidated Statement of Changes in Equity

At 31 December 2017

Consolidated cash flow statement

For the year ended 31 December 2017

Notes to the Financial Statements

For the year ended 31 December 2017

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 EU.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2017 or 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation but did contain an emphasis of matter concerning the uncertainties around the Group's ability to continue as a going concern. 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 18 May 2018 and authorised for issue. The Group's specific IFRS accounting policies can be found in the 2017 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 2016 number of shares has been re-presented following the 200:1 share consolidation which took place on 3 October 2017.

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 Company's Annual Report and Accounts in word format will be available on the Company's website shortly after release of these results. The Notice of AGM and Proxy Form and the full colour Annual Report and Accounts will be posted to shareholders on 25 May 2018. The AGM will be held on 18 June 2018 at 2.30 p.m. at the Company's registered office, Merlin Place, Milton Rd, Cambridge CB4 0DP.

1http://www.tata.com/company/releasesinside/tata-power-increase-in-power-generation-fy17