Cyanconnode Regulatory News (CYAN)

23 Apr 2009 07:00



Embargoed Release: Thursday 23 April 2009

Cyan Holdings Plc

("Cyan" or "the Group")

Final Results

Cyan Holdings plc (AIM:CYAN.L), a fabless semiconductor company providing configurable application software and production ready modules based on feature rich, low power, microcontroller chips announces its Final Results for the year ended 31 December 2008.

Summary of 2008

Substantial progress with Multiple Cy-Solved products and product families released to market for evaluation

Cyan achieving increasing levels of interest in products for Automatic Meter Reading/ Advanced Meter Infrastructure, Wireless Industrial Control and Asset Tracking markets.

New Gateway Products (access points to industrial wireless networks) offer extended features at very competitive prices providing Cyan with products to access installed networks and support a broader range of international network standards.

Cyan secured two very valuable partnerships, the first with Micrel Inc, a global manufacturer of integrated circuits, and the second with Future Electronics Inc, a global electronics distributor operating in 41 countries. These partnerships significantly enhance Cyan's credibility with its customers, while simultaneously providing the Company with a global sales and support network

Successfully raised £2.8million net of expenses to enable the Company to deliver revenue growth and profitability in 2009.

Investment in new product development was completed on plan in 2008 with only nominal expenditure required for 2009

Post Year end

In the first three months of the year, Cyan received orders for 2009 delivery with a cumulative value in excess of $1.0 million. The orders, which came from significant customers in China, were for a range of Cyan products across automated meter modules and streetlamp controllers, in addition to a Hong Kong order for microcontrollers in a USB Printer application destined for an end user OEM. Meanwhile in Europe, orders were for microcontrollers within a jointly designed gateway for automated metering networks.

Kenn Lamb, CEO of Cyan, commented:

"During 2008 we successfully developed a strong range of products and some key distribution partners. I am delighted to be able to tell shareholders that despite the prevailing economic conditions we are now seeing sales coming through from significant customers who are embracing the benefits of our product range.

We have a very efficient cost base. The four new sales orders clearly demonstrate that our products are highly competitive both technically and in terms of price. The size of the markets our customers address combined with the margins that we can achieve mean that relatively few such customers are required to take the company to cash flow break even and profitability. Given the number of companies already actively engaged in serious evaluation of Cyan products, the prospects for the second half of 2009 and beyond are exciting."

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Chairman's Statement

2008 was another challenging year for Cyan as the management team continued to reposition the Group. This has successfully led to several customer engagements moving to pilot production and now in 2009 we have seen the first substantial orders.

In last year's statement I reported that under Kenn's leadership as CEO the Group was addressing the twin issues of competing at component level with the major semiconductor manufacturers and of producing product which was technically excellent but could not be manufactured at a cost that customers were willing to pay.

At the outset of the year we were developing a cost-reduced microcontroller which we felt would be the key to profitable sales penetration in China. This development was successfully completed in mid-2008. The specification and performance of the new microcontroller is extremely competitive both technically and on cost with similarly targeted designs from the major semiconductor manufacturers.

We also began development of a range of module solutions that demonstrate the use of Cyan microcontrollers for several specific application areas. These are to provide ready-made solutions to customers to facilitate rapid prototyping for their product development programs. The initial take-up of these through our agreements with catalogue suppliers Farnell and RS in the UK and Mouser in the US plus our direct sales gave us further insight into some key developing market segments. This, together with specific customer discussions led us to improve our range of RF enabled modules together with robust, proprietary mesh-networking software that has resulted not only directly in the new orders announced in March but also to a number of other exciting potential engagements. 

We have been presented with the opportunity to supply not just low-cost microcontrollers but modules and larger parts of our customer's systems requirements together with our mesh-networking software at substantially higher selling prices than microcontrollers alone. While this approach will still lead eventually to the higher volumes of chip sales that were the original aim of the module strategy they should also ease the path to earlier significant revenues than would otherwise have been the case.

The results of these actions only began to materialize towards the end of the year and we closed 2008 with a turnover of £145,627 (2007:£32,596). The loss for the year was lower at £3,999,326 (2007:£4,287,626).

We believe that the group has reacted well to the challenges and is now in a position to grow revenues strongly in 2009.

Board Changes

In the early part of the year David Gutteridge joined the board as a non-executive with financial background. He also chairs the Audit committee. David's experience and advice are invaluable and have been particularly so during the difficult second half of 2008 and early 2009.

Andrew Lee, CFO, was taken ill in late August and terminated his employment in February. We thank Andy for his contributions since the founding of the Company and wish him well and to restored health for the future. The position of Finance Director was terminated and the company hired Heather Peacock as full-time financial controller. 

Placing of New Shares

The company sought and secured a further round of finance in August 2008 with the support of several major existing shareholders and some new ones and I would like to take this opportunity to thank them for their support.. 

We believe that the Company will continue to benefit from the changes that were put in place during 2008 and indeed we are already seeing orders coming through as a result of those actions and the continued hard work by everyone at the Company.

Dr John Read

Chairman

22 April 2009

Chief Executive's Review

Twelve months ago the Cyan team were deeply engaged in executing the new strategic business plan. Organisational changes had been completed, investment in enhancements and extensions to the technology were under way, the first module products had been defined and marketed under the Cy-Solved brand and significant manufacturing cost reductions had been realised by a new operations team.

Today Cyan has taken the first steps to becoming a major supplier to the global Automated/Smart metering market, the global street lamp control market and to become a leading supplier of gateways (access points) to a wide range of industrial wireless networks.

Cyan has secured valuable partnerships with Micrel Inc and Future Electronics Inc providing a global network of sales and support and for the first time offering Cyan access to worldwide markets through major established players. Cyan has secured working relationships with established suppliers of meters, street lamps and wireless networking standards and is actively engaged in multiple field trials and joint development of customised products.

Cyan has realised a number of key features in our new products that offer prices and functionality that customers demand and require. These features include the low power and cost saving capability of our microcontrollers, the system development capacity of our software tools and the application knowledge of our engineering teams. Cyan has targeted markets that, even in the current economic climate, are receiving new investment and benefit from government incentives as they contribute to reducing energy consumption.

Cyan is inevitably affected by the global slowdown. The first half of 2008 saw the release of a generation of products that could be rapidly developed and launched onto the market. These products addressed a broad range of applications so as to maximise the prospects of early sales. The initial market reaction was positive but as the slowdown progressed these failed to achieve initial sales expectations but instead guided us to the metering, street lamp and industrial control markets. The company then developed proprietary, application specific software, targeted directly at these markets, including features that customers had specifically requested. This second generation of products, (only recently fully released), is rapidly gaining traction, but the delay in realising sales necessitated a substantial reduction in the cost base of the business, a reduction that has now been fully implemented. 

Looking Forward

Cyan now has the products, partners, customers and prospective customers that have more than sufficient capacity to drive growth and profitability for the business. Proprietary application software ensures that good margins can be consistently realised, our targeted markets demonstrably support annual sales volumes in tens of millions and our partnerships support a roadmap of product and technology enhancements that ensures that Cyan can grow market share. 

The Cyan team have worked diligently and have developed valuable intellectual property further enhancing our technology leadership, a process that has accelerated, as we understand more of the requirements of our target markets. Once again I wish to acknowledge and thank Cyan employees for their enthusiasm and dedication. 

In developing new products Cyan has delivered all that we set out to achieve. Customer's reaction to the price, specification and ease of use confirms this view. Cyan would not have secured its partnerships if we had not developed attractive and competitive products and together with these partners we now have our first customer orders, across a range of products, each targeted at a fast growing global market. 

The rate at which customers can fund the purchase and deployment of our products now determines how soon Cyan will achieve profitability, however we must recognise that in the current economic climate not even our customers can predict timing with any certainty. I am nonetheless enormously encouraged by the announcement on 31st March of four new customers spread across our range of new products. These four clearly demonstrate the potential that relatively few such customers are all that is required to take the company into profitability. When compared with the number of prospective companies where Cyan is currently actively engaged in product evaluation the prospects for the remainder of 2009 and beyond are exciting.

Kenn Lamb

Chief Executive Officer

 22 April 2009

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2008

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 31 December 2008

CONSOLIDATED BALANCE SHEET

At 31 December 2008

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2008

NOTES TO THE FINANCIAL INFORMATION

For the year ended 31 December 2008

1. Basis of Preparation

The financial information set out in this announcement has been based on the Company's financial statements which are prepared in accordance with International Financial Reporting Standards as adopted for use in the EU. The Company's specific IFRS accounting policies are available in the 2007 Annual Report. The financial information does not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985.

The results for the year ended 31 December 2007 have been extracted from the statutory financial statements of Cyan Holdings plc. Statutory financial statements for the year ended 31 December 2007 are available on the Company's website and have been filed with the Registrar of Companies. The Company's auditors issued a report on those financial statements that was unqualified and did not contain a statement under section 237(2) or section 237(3) of the Companies Act 1985; however the auditor's report was modified to emphasise the uncertainty around the Company's ability to continue as a going concern.

The statutory accounts for the year ended 31 December 2008 have been finalized on the basis of the financial information presented by the directors in this announcement and will be delivered to the Registrar of Companies shortly. The audit report for the year ended 31 December 2008 was unqualified and did not contain a statement under section 237(2) or section 237(3) of the Companies Act 1985; however the auditor's report has been modified to reflect uncertainty around the Company's ability to continue as a going concern. Note 6 to this announcement contains further information about this uncertainty.

2. Restructuring costs

During the latter half of 2007 the group undertook a radical restructuring of its senior management and product portfolio. Costs of £177,800 relating to that restructuring only came through in early 2008. In addition the Group implemented a cost cutting exercise which resulted in a number of redundancies at the end of 2008, the costs of which are included in the relevant functional areas on the income statement. Total restructuring costs in 2008 were as follows:

Restructuring

Non recurring costs

3. Earnings per share

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

4. Share capital

On 3 September 2008 the Company completed a placing as a result of which 300,000,000 ordinary shares of 0.2 pence each were issued at a price of 1 pence per share to raise £2,774,681 after expenses. The funds were raised to develop and execute on the group's new strategy. No shares (2007: 1,291,500) were issued as a result of the exercise of share options.

On 9 April 2008, 3 directors of the Company were awarded interests in 10,200,000 shares under the Cyan Joint Ownership Scheme.

On 18 December 2008, 2 directors and 6 senior staff of the Company were awarded interests in 27,303,000 shares under the Cyan Joint Ownership Scheme.

The Company has one class of ordinary shares which carry no right to fixed income.

In August 2008, 25,000,000 warrants were issued to Cenkos, the Company's broker, the exercise price of which is £0.01 per share.

At 5pm on 31 December 2008 the 43,595 outstanding C warrants to buy shares at 20 pence per share lapsed.

5. 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.

6. Going Concern

The directors have prepared a business plan and cash flow forecast for the period to 30 April 2010. The forecast contains certain assumptions about the level of future sales and the level of gross margins and also identified the imminent need for additional finance to fund working capital. On this basis, the directors have assumed that the Company is a going concern. These assumptions are the directors' best estimate of the future development of the business.

The directors acknowledge that the Group is trading in a difficult economic environment and in markets that are new to the Group. This may impact both the Group's ability to generate positive cashflow and to raise new finance. There is a risk that the level of sales achieved is materially lower than the level forecast. The directors have taken steps to satisfy themselves about the robustness of sales forecasts. In addition, the directors have been in communication with a number of potential investors, including current shareholders, who have expressed interest in providing the necessary funding. There does remain a significant risk that the required level of funding will not be received in the necessary timescale.

There is a material uncertainty related to the assumptions described above which may cast significant doubt on the 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 was unable to continue as a going concern. In the event the Group ceased to be a going concern, the adjustments would include writing down the carrying value of assets to their recoverable amount and providing for any further liabilities that might arise.