25 July 2024

CyanConnode Holdings plc

("CyanConnode", "the "Group" or the "Company")

Final Results for the Year Ended 31 March 2024

CyanConnode Holdings plc (AIM: CYAN), a global leader in Narrowband Radio Frequency (RF) Smart Mesh Networks, announces its audited results for the year ended 31 March 2024.

Financial highlights

·    Increase of 60% in revenue to £18.7m in FY24 from £11.7m in FY23, the highest annual revenue for the Group to date after four consecutive years of growth[1] as a result of increased order book and acceleration of deployments in India

·    Increase in gross profit to £5.6m in FY24 (FY23: £4.2m) as a result of high-volume RF node sales through the Indian entity, and sales of third-party hardware in the Middle East North Africa (MENA) region

·    Reduction in gross margin to 30% (FY23: 36%) as a result of sales of third-party hardware and large premiums paid during the year on purchases of end-of-life components for the Group's previous version of gateway. A new, lower cost version of the gateway was released in Q4 of FY24. Gross margin in the first two years of projects in India is expected to be around 35-40% due to revenue on hardware in the first two years of a project. After year two of each project it is expected gross margins of greater than 90% will be achieved due to the transition to services revenue

·    Operating loss increased to £4.2m in FY24 (FY23: £3.3m) as a result of increased costs incurred throughout the Group offsetting the increased revenues, largely attributable to increased headcount required to scale up the business to deploy its growing backlog of orders and develop industry leading hardware and software required by projects being deployed

·    EBITDA loss increased to £3.8m in FY24 (FY23: £2.9m)

·    Increase in adjusted EBITDA[2] loss to £2.8m in FY24 (FY23: £1.6m loss) as a result of lower gross margin % and increased operational costs

·    Decrease in cash position to £0.8m in FY24 (FY23: £4.1m)

·    Increase in cash collected from customers to £16.9m in FY24 (FY23: £10.7m) broadly in line with increase in revenues

Operational Highlights

·    Orders for 2.7m modules won in India during the period (FY23: 2.3m modules) taking the cumulative order book to 6.3m during the financial year

·    Order for 101,360 Cellular Network Interface Card (CNIC) modules won for a deployment in Thailand

·    Further new order for 52,300 NBIoT hubs won from the Middle East North Africa (MENA) region

·    £2.7m (before expenses) raised in November 2023 through an oversubscribed placing and subscription, together with the issue of warrants at an exercise price of 15.0 pence per ordinary share, which would provide a potential further £4.1m if fully exercised

·    1,370,000 Omnimesh Radio Frequency (RF) Modules shipped against current contracts during the period (FY23: 391,000), along with 55,200 NB-IoT gateways and 5,340 Cellular gateways

·    Project Management: JVVNL TN72 & TANGEDCO projects now under Facility Management Services (FMS), ensuring streamlined operations and maintenance

·    Gateway 200 Dual SIM: Successfully released the 'Gateway 200 - Dual SIM' version, enhancing network reliability and connectivity

·    Integrated Meter OEMs: Integrated with twelve meter Original Equipment Manufacturers (OEMs)

·    Memorandum of Understanding (MOU) signed with Alfanar to explore opportunities in Advanced Metering Infrastructure (AMI) projects

·    Investment into recruitment, to scale up the business, and research and development to develop further products in response to market demand

·    CSR Initiatives: Supported the education of over 1000 school children, with more than 750 being girls, under our CSR initiatives

·    CyanConnode India recognised as Dun and Bradstreet 'Start-Up 50 Trailblazer'

·    Exhibitions: Participated in and showcased our solutions at DistribuElec 2024, where we were awarded the best booth

Post Year End Highlights

·    265,000 Omnimesh RF Modules and associated products ordered from a subsidiary of IntelliSmart Infrastructure Private Limited, taking cumulative order book in India alone to 6.6m modules, spanning sixteen utilities, across eleven states in India

·    CyanConnode India's subsidiary, DigiSmart Networks Private Ltd successfully empanelled as an Advanced Metering Infrastructure Service Provider (AMISP) for both RF and cellular, making it eligible to bid for smart metering contracts under the Revamped Distribution Sector Scheme (RDSS)

·    Revenue of £3.5m in the first quarter of FY25, being 25% higher than the same period in FY24

·    £5.0m cash received from customers in the first quarter of FY25, being 40% higher than the same period on FY24

·    Cash at end of June 2024 of £1.1m

·    Win ratio in India in terms of tenders to date of 29%, and 16% in terms of volumes

·    Commencement of setup of a subsidiary in the United Arab Emirates (UAE) to promote business in the MENA region

·    Changes to organisation to strengthen leadership in India and streamline global operations by having all engineering and operations reporting into the MD CEO of India

·    Key milestones such as Site Acceptance Tests (SATs) and project go-lives achieved across several key projects

John Cronin, Executive Chairman of CyanConnode, commented:

"FY24 marked another exceptional period for CyanConnode in terms of our strategic footprint and revenue, with revenue growth of 60% over FY23, significantly exceeding market expectations.

During the period and since, our order book has continued to grow; for India alone, cumulative orders stand at approximately 6.6 million Omnimesh modules. To the end of March 2024 we had successfully delivered around 2.8 million Omnimesh modules, and we anticipate that deliveries of Omnimesh modules will significantly increase during FY25.

We were also delighted with the empanelment of DigiSmart as an AMISP for both RF and cellular, which we believe will present significant further opportunities for the Company. More recently we have also been pleased with the successful achievement of milestones such as SAT and go-live for some of our key projects.

I look forward to an even more successful FY25!"

- Ends -

The information contained within this announcement is deemed to constitute inside information for the purposes of Article 7 of EU Regulation 596/2014 (Market Abuse Regulations) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. Upon publication of this announcement, this inside information is now considered to be in the public domain.

Enquiries:

Rupert Dearden / Freddy Crossley

Chairman's Statement

Dear Shareholders

I'm delighted to report that the positive trajectory we have seen in previous years has continued, making the financial year ending in March 2024 the Group's most successful yet in terms of revenue, orders secured, and cash received from customers. Additionally, we have maintained strong progress in the Indian smart metering market, which has seen tenders for over 100 million meters awarded so far out of the total market opportunity of 250 million meters.

We have continued to achieve significant success by securing orders in various global markets, especially in the Middle East and North Africa (MENA) region. As a result, we are in the process of establishing a subsidiary in the United Arab Emirates (UAE) to better serve and expand our presence in this key area.

We were excited to announce that our subsidiary, DigiSmart Networks Private Limited (DigiSmart), has been empanelled as an Advanced Metering Infrastructure Service Provider (AMISP). This accreditation enables DigiSmart to directly participate in upcoming smart metering tenders.

The positive momentum we experienced in FY24 continues into the current financial year and I am pleased to share further details on the highlights of FY24 and our current operations within this results statement.

Operational Review

India Market

Overview of FY24

The financial year 2024 witnessed substantial progress in the Indian smart metering sector, propelled by government initiatives and strategic implementations nationwide. A pivotal driver of this transformation has been the Indian government's Revamped Distribution Sector Scheme (RDSS), launched in August 2022. This scheme, with an allocation of ₹3.03 lakh crore (approximately £29 billion) and a gross budgetary support of ₹97,631 crore (approximately £9.5 billion), aims to reduce Aggregate Technical and Commercial (AT&C) losses across India to 12-15% and eliminate the cost-supply tariff gap by 2025.

Key Developments

Government Initiatives and Mandates

The RDSS requires the installation of 250 million smart meters by 2025. As of the end of FY24, 222.3 million smart meters had been approved, with contracts awarded for 116.3 million meters. This program is designed to significantly improve billing efficiency and reduce AT&C losses.

Initiatives like "Make in India" and "Skill India" have significantly enhanced domestic manufacturing capabilities for smart meters and related infrastructure by promoting local production and skill development.

Deployment and Installation

The Government of India established ambitious installation targets, yet progress has been slower than initially anticipated, with just 11 million smart meters installed by May 2024.  However, the pace picked up markedly in FY24 compared to previous years, driven by enhancements in the tendering process and concerted efforts to improve the financial stability of Distribution Companies (DISCOMs). Notable deployments occurred in states such as Assam, Bihar, and Maharashtra, where smart meters have significantly improved billing accuracy and reduced AT&C losses.

Public and Private Sector Collaboration

Effective collaboration among DISCOMs, technology providers, and system integrators has been critical in overcoming deployment challenges. Efforts have involved addressing public resistance through community engagement and adapting to diverse infrastructural and environmental conditions across different states.

Outlook for the Coming Years

The outlook for the Indian smart metering market remains highly positive, with substantial growth expected in the next few years. Several factors contribute to this positive forecast:

Continued Government Support

The Government of India's continued backing and potential extension of the RDSS beyond 2025 is anticipated to maintain the momentum of smart meter installations (the current government secured its third term following the national election results announced on 4 June 2024). The focus remains on enhancing DISCOM financial performance and operational efficiency through smart metering and infrastructure enhancements.

Market Opportunities

The Government of India's mandate to install 250 million smart meters by 2025 presents a vast market opportunity. With approximately 106 million meters pending award, there is significant potential for technology providers and system integrators to expand their market presence and secure large-scale contracts.

Technological Innovations

Ongoing research and development will lead to more advanced, cost-effective smart metering solutions. Innovations in communication technologies, data analytics, and Internet of Things (IoT) integration will further enhance the capabilities of smart meters, offering better value propositions to utilities and consumers.

Expansion into Rural Areas

Extending smart metering infrastructure to rural and remote areas will be a significant driver of growth. Advanced technologies such as CyanConnode's long-range Radio Frequency (RF) communication will ensure reliable connectivity and service delivery in these challenging terrains.

Sustainability and Environmental Benefits

Smart meters are poised to play a pivotal role in achieving India's sustainability goals by enabling improved energy management, reducing AT&C losses, and promoting energy-efficient practices among consumers. This will contribute significantly to lowering greenhouse gas emissions and overall environmental impact.

The Indian smart metering sector made significant strides in FY24, propelled by government directives and technological advancements. With a robust pipeline of projects and ongoing support from both public and private sectors, the future of smart metering in India looks promising. A strategic emphasis on expanding installations, enhancing technological capabilities, and fostering collaborations will ensure the successful realisation of the RDSS goals and associated initiatives, paving the way for a more efficient and sustainable energy sector in India.

APAC and Middle East North Africa Markets

The smart metering market in the Asia Pacific (APAC) and Middle East North Africa (MENA) regions across electricity and water is expanding, with emerging opportunities in gas utilities, as more utilities start to adopt smart metering initiatives.

In August 2023, CyanConnode expanded its portfolio beyond electricity and water metering into gas metering by successfully implementing a pilot project in Azerbaijan, a new market for CyanConnode. This initiative involved supplying smart retrofit hubs and gateways based on long range (LoRa) technologies for existing gas meters, facilitating automated meter data collection. This underscores CyanConnode's prowess in providing multi-utility solutions.

MENA

In October 2023, CyanConnode secured a contract for supplying NB-IoT Gateways for the ADDC/AADC Smart Metering project (phase 2). Under this agreement, CyanConnode will provide 52,100 interoperable smart NB-IoT gateways capable of communicating with and managing various legacy edge devices for both electricity and water. These gateways will have the capacity to connect to over one million edge devices.

By March 2024, 49,900 gateways were delivered under this contract. To bolster our footprint in the MENA region, CyanConnode is currently establishing CyanConnode Communications LLC in Dubai, UAE.

Thailand

CyanConnode, in collaboration with partners JS Technical Service Co Ltd. (JST) and Forth Corporation Public Company Limited (Forth), continues to advance the Smart Metro Grid (SMG) project for the Metropolitan Electricity Authority (MEA), which is nearing Go-Live stage. In February 2024, CyanConnode secured a Letter of Award (LOA) to supply 101,360 CNIC (Cellular Modules) to expand the ongoing MEA SMG Project. This LOA will be fulfilled after the project's Go-Live phase. Additionally, CyanConnode also received supplementary orders from JST, one in May 2023, for the supply of 3,000 RF Modules and another in October 2023 for 4,600 Cellular Modules to fulfil additional requirements for the MEA Smart Metro Grid project. These orders were completed in FY24.

Malaysia

As part of its APAC expansion, CyanConnode is actively collaborating with multiple utilities in Malaysia. The Company is currently in the process of certification of its radio products by Standard and Industrial Research Institute of Malaysia (SIRIM) for MCMC certification. 

Fundraising

In November 2023 the Company completed an oversubscribed placing and subscription, raising £2.7 million before expenses. The new shares were issued at a price of 10 pence per share, a 1% discount to the mid-market price at the time of announcement of the fundraising.

The net proceeds from this fundraising are being used to strengthen the Company's balance sheet and to increase working capital. The fundraising has enabled the Company to capitalise on significant growth opportunities and efficiently execute its expanding order book and pipeline, leading to increased revenues during the period. Cash is closely monitored to ensure alignment with these growth opportunities.

Post period end and outlook

The momentum from the previous financial year has continued into FY25. In April 2024, we were pleased to announce a new order from Madhyanchal One Infrastructure Private Limited, a subsidiary of IntelliSmart Infrastructure Private Ltd. This order includes 265,331 Omnimesh Modules, bringing the total CyanConnode orders in India to 6.6 million. The order includes Advanced Metering Infrastructure (AMI), Standards-Based Hardware, Services, Omnimesh Head-End Software, a Perpetual License, and an Annual Maintenance Contract to support smart metering deployment for Madhyanchal Vidyut Vitaran Nigam Ltd (MVVNL) in Lucknow, India.

In May and June 2024, CyanConnode announced that its subsidiary, DigiSmart Networks Private Ltd, had been successfully empanelled as an AMISP in India for both RF communications and cellular technology. These accreditations allow DigiSmart to participate in smart metering contracts under the RDSS.

Additionally, in May 2024, changes were made to the organisation to strengthen its leadership team in India. The new structure brings together seasoned leaders with extensive experience in smart metering, IoT solutions, and technology innovation. This restructuring ensures a robust leadership team and more streamlined organisation capable of driving the company's strategic vision forward.

Revenue growth has been robust in the new financial year, with first-quarter revenue of £5.5 million, marking an increase of 25% compared to the same period in FY24. The Group continues to closely monitor cash and any potential requirement for future funding depending on working capital restraints.

In July 2024 we have been delighted to announce the achievement of key milestones such as SATs and project go-lives across several projects. The "Go Live" milestone is a critical achievement for any project as it signifies the transition to the billing phase, allowing for revenue generation. The SAT qualification process involves rigorous quality and performance testing of the meters and the communication network, ensuring the highest standards of operation.

I want to express my sincere gratitude to all our employees for their exceptional dedication and contributions over the past year. My thanks also go to our valued partners and other stakeholders, with whom we look forward to continuing our collaborations on these innovative projects. Additionally, I extend appreciation to all shareholders for their steadfast support.

We are confident that our current momentum will continue throughout this financial year, and we eagerly look forward to updating you on our progress.

John Cronin

Executive Chairman

Financial Review

Financial Year 2024 has once again produced record results in terms of orders won and also saw a fourth consecutive year of revenue growth. The revenues reported during FY24 included revenues not only from the Group's more traditional models seen for contracts in India, but also revenues from other territories which included revenue for sale of third-party products, often at a lower margin.

A summary of the key financial and non-financial Key Performance Indicators ("KPIs") for the year and details relating to its financing position at the year end are set out in the table below and discussed in this section.

Gross Margin is lower than expected because of third-party sales along with significant one-off costs linked to the difficulty of sourcing an end-of-life component for the version of gateways being shipped in FY24.  These additional costs will not continue going forward, as we have recently launched our new gateway, which no longer uses this component. Gross margins in the first two years of projects in India are expected to be around 35-40% as they consist of mainly lower margin hardware, increasing to greater than 90% after year two when the main revenue transitions to higher margin support and services.

Included within the table above are two alternative performance measures ("APMs" - see note 1): EBITDA and adjusted EBITDA. These are additional measures which are not required under UK adopted International Accounting Standards. These measures are consistent with those used internally and are considered important to understanding the financial performance and the financial health of the Group.

EBITDA (Loss) before Interest, Tax, Depreciation and Amortisation is a measure of cash generated by operations before changes in working capital. Adjusted EBITDA is a measure of cash generated by operations before stock impairment, impairment of investments, share-based compensation, impairment of intangible assets and foreign exchange losses. It is used to achieve consistency and comparability between reporting periods.

Financial items of note during the year :

·    Cash received from customers during FY24 was £16.9 million (2023: £10.7 million)

·    Trade and other receivables increased by £4.3 million during the year to £13.6 million (including retentions) as a result of increased revenue, particularly in the final quarter of the financial year

·    R&D cash tax credit of £0.7 million for FY24 (FY23: £0.7 million); value remains the same, despite legislative changes regarding R&D Tax Credit Claims reducing the amounts to be claimed. This was as a result of higher R&D spend by the Company during the year

·    Working capital continued to be a key challenge through FY24. Increase in contract assets with financing components drives revenue recognition, but the cash for these contractual obligations won't be recovered for multiple years, with trade and other payables increasing to £4.6m from FY23 to £8.5m in FY24 due to increased demand for future deliverables on new contracts but also due to managing cashflow (increased creditor days to 108 in FY24 from 63 in FY23). The cash inflow from the equity raise (£2.7m before expenses) helped ensure that working capital during the year was sufficient for the continued growth

·    Following a review of the carrying value of the intangible asset held on the company's balance sheet relating the UK Smart Metering Project ("UKSMIP"), a further impairment of £750k has been made to be cautious, due to uncertainty on the future of the contract See note 3 (b) (i) on page 73 for more detail on this.

During the year an advance against the FY23 R&D tax credit was received and was repaid out of the FY23 R&D tax credit funds received from HMRC during FY24. A loan has been secured against the FY24 R&D tax credit since the year end and will be repaid out of the FY24 R&D tax credit funds received from HMRC. Letters of credit, invoice discounting and advance payments have been negotiated on recently won contracts to help with working capital requirements.

Key Performance Indicators (KPIs)

The financial and non-financial KPIs for the Group are as set out in the table above and described below.

·    FY24 revenues were 60% up on FY23 revenues as a result of major contracts in India which started deploying during the year, and contracts delivered in the MENA region.

·    Gross margin for the year reduced from 36% to 30%, partly as a result of the sale of third-party hardware at gross margins lower than usual for the Group, and largely as a result of a significant premiums paid on the purchase of end-of-life components for the gateway being deployed. A new gateway started shipping in Q4 of FY24, using a different component. Gross margin will however vary from year to year depending on the stage of deployment of each contract. Hardware, for which revenue is recognised typically during the first two years of a contract, is at a lower gross margin than software and services for which revenue can be recognised later in the deployment.

·    Operating costs for the year increased by 37% compared to FY23, as a result of additional costs, mainly attributable to increased headcount required to scale the business up to deploy its growing backlog of orders and development of industry leading hardware and software developed by internal and external engineering teams. 

·    Adjusted EBITDA loss increased from a loss of £1.6 million in FY23 to a loss of £2.8 million in FY24 as a result of lower gross margin and increased operating costs

·    Cash and cash equivalents at the end of FY24 of £0.8 million was £3.3 million lower than the end of FY23

·    Average headcount increased to 117 (FY23: 64), and FTEs at year end increased from 70 in FY23 to 120 in FY24.

Non-financial KPIs included the number of modules shipped which increased from 391,000 in FY23 to 1,371,000 in FY24. Furthermore, 55,000 NBIot gateways (FY23: 109,000) and 6,000 Omnimesh gateways (FY23: 1,200) were delivered during the year collectively across MENA and India regions.

The Group continually reviews whether additional financial and non-financial KPIs should be monitored.

The Group's long-term strategy is to deliver shareholder returns by generating revenue and moving into profitability. It seeks to do this by focusing its resources on emerging but fast-growing markets where it believes it can reach a market leading position with its technology. Management uses KPIs to track business performance, to understand general trends and to consider whether the Group is meeting its strategic objectives. As it grows, and as highlighted in the previous paragraph, it intends to review these KPIs and adapt them as appropriate, in response to how the business and strategy evolves.

The Group's key focus for the financial year ending March 2024 continued to be to streamline its processes from order to delivery and working to close further orders. A further focus was ensuring collection of cash from customers as Group revenues continued to grow.

Going concern

To assess the ability of CyanConnode Holdings plc (the "Group") and company to continue as a going concern, the directors have prepared a business plan and cash flow forecast for the period to 31 March 2026 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, the timing of customer payments and the level of working capital requirements. The detailed cashflow scenarios include invoice discounting available in contracts recently won, and the R&D Tax Credit advance.

At 31 March 2024 the Group had cash reserves of £0.8 million (FY22: £4.1m) and based on detailed cash flows provided to the Board within the FY25/26 budget, there is sufficient cash to see the Group through to profitability based on its standard operating model. In the first quarter of FY25, £5m has been received from customers and at the end of June 2024 the Group had cash reserves of £1.1 million. However, should the Group require additional cash to cover working capital, as a result of the targeted rapid growth, there could be a requirement for additional funding for this. The Group is discussing working capital funding solutions with banks, particularly in India, and it is believed that since the Indian entity was profitable for FY24, a suitable facility could be secured.

To assist with working capital, a loan from one director for £400,000 is in place, as an advance against the FY24 R&D Tax Credit, expected to be received by October 2024.

Notwithstanding the material uncertainties described above, which may cast significant doubt on the ability of the Group and company to continue as a going concern, on the basis of sensitivities applied to the cash flow forecast, the directors have a reasonable expectation that the company 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.

Financial Risk Management Objectives and Policies

Details of the Group's financial risk management objectives and policies are disclosed in note 36 to the financial statements.

Dividends

The directors do not recommend the payment of a dividend (2023: £nil). The Group has no plans to adopt a dividend policy in the immediate future and all funds generated by the Group will be invested in the further development of the business, as is normal for its industry sector and stage of its development.

Heather Peacock

Chief Financial Officer

24 July 2024

CyanConnode Holdings plc

Consolidated income statement

For the year ended 31 March 2024

Consolidated statement of comprehensive income

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

CyanConnode Holdings plc

Consolidated statement of financial position

As at 31 March 2024