TIDMCLX
RNS Number : 0561U
Calnex Solutions PLC
21 November 2023
21 November 2023
Calnex Solutions plc
("Calnex", the "Company" or the "Group")
Interim Results
Calnex Solutions plc (AIM: CLX), a leading provider of test and
measurement solutions for the global telecommunications and cloud
computing markets, announces its unaudited results for the six
months ended 30 September 2023 ("H1 FY24" or "the Period").
Financial Highlights
-- Performance impacted by the wider economic environment and
resulting deferral of investment in telecommunications market.
-- Revenue decline of 38% to GBP7.8m (H1 FY23: GBP12.7m).
-- Gross margin maintained at 74%, broadly in line with the prior period (H1 FY23: 76%).
-- Cost controls implemented, while maintaining key product
development and customer engagement to support future growth.
-- Underlying EBITDA(1) loss of GBP0.4m (H1 FY23: profit of GBP3.5m).
-- Loss before tax of GBP0.6m (H1 FY23: profit of GBP3.1m).
-- Basic EPS loss ( pence ) of (0.42)p (H1 FY23: 2.78p).
-- Closing cash position of GBP13.5m (H1 FY23: GBP14.4m,
including fixed term deposits), enabling exploitation of growth
opportunities across key sectors. Cash levels expected to be
maintained for H2.
-- Interim dividend of 0.31 pence per share to be paid in December.
Operational Highlights
-- Sales pipeline remains strong with customers committed to
delivery of pipeline projects once budgets are released.
-- New products performing well, with first orders for SNE-X and
SNE-Ignite and NE-ONE gaining traction in new sectors, such as
defence.
-- Ongoing product development programme to support growth and
meet the evolving needs of customers.
Outlook
-- The Board expects to close the year in line with the current market expectations.
-- Confident in a return to growth in the 12 months to March
2025 ("FY25") through creation of new use cases for existing
products, plus the development of new products and expansion into
growing sectors.
-- Underlying market drivers, including the increase in network
complexity, the build-out of 5G and data centre investment, remain
positive.
Tommy Cook, Chief Executive Officer, and founder of Calnex,
said: "While the results for the first half are disappointing, the
strength of our offering, team, and balance sheet, resulting from
our consistent delivery in recent years, means we are well
positioned to weather the current conditions while continuing to
invest in our product roadmap.
"We have experienced markets such as these before and are adept
at managing the business back to growth.
"We believe the fundamental drivers that underpin the build out
of the mobile network and the expansion of data centres and cloud
computing capacity have not changed, but rather investment put on
pause due to the macro-economic climate. We will continue to focus
on the deployment of our new product programme as a means to
generate additional customer demand and are confident that Calnex
will return to growth in FY25."
(1) EBITDA after charging R&D amortisation.
For more information, please contact:
Calnex Solutions plc Via Alma
Tommy Cook, Chief Executive Officer
Ashleigh Greenan, Chief Financial Officer
+44 (0)131 220
Cavendish Capital Markets Limited - NOMAD 6939
Derrick Lee, Peter Lynch
+ 44(0) 20 3405
Alma 0213
Caroline Forde, Hannah Campbell, Joe Pederzolli
Overview of Calnex
Calnex Solutions designs, produces and markets test and
measurement instrumentation and solutions for the
telecommunications and cloud computing industries. Calnex's
portfolio enables R&D, pre-deployment and in-service testing
for network technologies and networked applications, enabling its
customers to validate the performance of the critical
infrastructure associated with telecommunications and cloud
computing networks and the applications that run on it.
To date, Calnex has secured and delivered orders in 68 countries
across the world. Customers include BT, China Mobile, NTT,
Ericsson, Nokia, Intel, Qualcomm, IBM and Meta.
Founded in 2006, Calnex is headquartered in Linlithgow,
Scotland, with additional locations in Belfast, Northern Ireland,
Stevenage, England and California in the US, supported by sales
teams in China and India. Calnex has a global network of partners,
providing a worldwide distribution capability.
Operational Review
Overview of the Period
Throughout the first half of the financial year, Calnex
continued to operate in a challenging economic environment,
reflecting the ongoing caution in the wider telecommunications
market. Our order inflow remained at the subdued levels we
experienced at the outset of the year. The cautiously improving
outlook reported widely across the sector earlier in H1 failed to
gain the momentum we expected and the typically strong September
trading period that we usually experience, following the seasonally
quiet July and August, did not materialise. As a result of these
factors, the Group achieved HY24 revenue of GBP7.8m (H1 FY23:
GBP12.7m) and a loss before tax of GBP0.6m (H1 FY23: profit of
GBP3.1m), below the Board's expectations set at the start of the
year.
While the extent of the first half decline in revenues and
profits is deeply disappointing for us all, there remain many
reasons for optimism over the longer term. We have multiple
customer orders that have passed through technical and commercial
validation stages and are awaiting budget allocation. Our strong
sales pipeline provides confidence, and customers have confirmed
they remain committed to the delivery of projects once budgets are
released.
Spending within the telecommunications sector is generally led
by the large infrastructure projects of the major
telecommunications operators, which filter down through the wider
ecosystem. These infrastructure projects face macro slowdowns at
times, and we are currently experiencing one that is particularly
prolonged, reflecting both the high interest rate environment and
the increased geopolitical tensions, which have caused network
build-out projects to be slowed or delayed.
Due to our long history in the sector, we have experienced
markets such as these before and are adept at managing the business
back to growth, delivering historically, low-teens long-term
revenue CAGR. We are confident that we can capitalise on the
opportunities available to us once market dynamics normalise.
While we are confident that budgets will return in the
telecommunications market as the economic backdrop improves, we are
not simply waiting for the market to re-open. Our new product
programme targeting both telecommunications and
non-telecommunications markets, such as cloud computing, data
centres and the defence sector, which are less affected by the
macroeconomic environment, is more important than ever, as a new
product that serves evolving customer needs provides a more
compelling reason for customers to buy, even in a downturn.
While order levels were suppressed across all product lines and
regions outside of the data centre and cloud and IT markets, we
continued to secure sales for both existing and newly released
products in the Period. Highlights include the first orders for our
newly launched products, SNE-X, SNE-Ignite and NE-ONE, which is
gaining traction in new sectors, such as defence.
The business continues to be supported by a healthy balance
sheet, with cash at the end of September 2023 of GBP13.5 million.
There was significant investment in inventory during the Period to
develop more flexibility in the ability to respond to customer
orders plus an element of inventory build-up from material received
to support previous order expectations. This cash position enables
us to continue to target growth opportunities across our key
sectors and maintain relationships with customers as they plan
future investment in their projects.
Market drivers
The underlying structural growth drivers in the
telecommunications and data centre markets continue to offer
long-term growth opportunities for Calnex. Within the
telecommunications market, these include the increase in network
complexity and the build-out of the mobile infrastructure utilising
5G technology. This will see a long-term transformation of the
telecommunications network, creating the need for test and
measurement equipment to prove that new systems operate effectively
and conform to rigorous international standards. The
telecommunications market is still very much only at the start of
this build out. In a recent interview with Bloomberg, Pekka
Lundmark, Chief Executive Officer, Nokia, is quoted as saying "In
Mobile Networks there is still substantial need for operators to
invest in 5G globally with only approximately 25% of the potential
mid-band 5G base stations so far deployed outside China."
The ongoing investment into data centre capacity and efficiency
to support the growth in cloud computing and adoption of AI is also
providing Calnex with new opportunities in the areas of network
time monitoring (with our recently introduced product 'SyncSense')
and data centre efficiency and effectiveness.
Product development
Innovation is the lifeblood of our business. We have
consistently brought highly engineered, high value and
differentiated products to market, stimulating customer demand and
supporting our growth. Each new platform we develop offers a large
number of features and capabilities. Much of this core capability
can be used in a multitude of testing scenarios in a wide range of
markets, both within telecommunications and non-telecommunications
markets. These core capabilities are then complemented by added
features making the platform appropriate for a specific market in
which we have identified a verified opportunity.
In this way, previous R&D investment is repurposed for new
growth channels, such as the adaptation of our telecommunications
network synchronisation offering, Sentinel, for the data centre
market, re-named Sentry.
We have innovation programmes across all of our product
families, adapting them for new customer needs or markets. These
include SyncSense, a new product to target network time monitoring
in data centres, and SNE-X and SNE-Ignite, targeting high-speed,
and high accuracy Network Emulation opportunities across both
telecommunications and non-telecommunications markets. We
anticipate the launch of these new products will support our growth
in FY25, as well as the demand we are seeing for the newly launched
Sentry and the acquired NE-ONE offering in defence.
Outlook
The Board expects to see a seasonal increase in H2, closing the
year in line with the current market expectations.
During H2, we will remain focused on the deployment of our
existing products as well as our new product programme that targets
both the telecommunications and non-telecommunication markets, to
address unmet customer needs. We are confident that these will
enable Calnex to return to growth in FY25.
We believe the fundamental drivers that underpin the build out
of the mobile network and the expansion of the data centres and
cloud computing capacity have not changed, there is simply a pause
caused by the macro-economic climate. Within the telecommunications
market, the close relationships we hold with our customers and
partners mean we are well positioned to convert the sales pipeline
to orders once spending patterns normalise.
Our healthy balance sheet will enable us to weather these
uncertainties, providing the Board with confidence in the medium-
and long-term future of Calnex and in our ability to deliver for
our shareholders.
Financial Review
While the results for the period are disappointing, importantly
gross margins have remained robust and we continue to benefit from
a healthy cash balance, strong customer relationships and a high
quality and productive R&D team, providing us with confidence
in a return to a stronger financial performance in future
periods.
Broadly, the wider economic concerns and reticence in the market
had an impact on revenue levels across all product lines and
geographies.
Amongst our three territories, Rest of World (EMEA, India, South
East Asia, Australasia) was the least affected by the slow-down,
driven by a resilient performance in EMEA where business is derived
from a wide range of sectors. Within North Asia, China remains
challenging due to the impact of US restrictions and as a result,
an increased focus is being applied to growing business in Taiwan
and Japan. The Americas region was most impacted by the
telecommunications slow down and therefore increased focus is being
applied on Hyperscalers and government opportunities where we see
the best chance to close business.
Looking at our product lines, Lab Sync (Paragon-Neo and
Paragon-X) saw a softened performance in the Period which, given
their dominance in the telecommunications market, is directly
linked to the wider slowdown in the sector. This is also the case
with Sentinel, our telecommunications focused Network Sync product.
Sales of Sentry, our Network Sync product aimed at data centres,
are continuing as planned.
Our Cloud & IT (infrastructure) product, SNE, endured a
challenging H1 given its exposure to the US market, but performance
is expected to pick up in H2 from the growing sales pipeline for
the newly launched SNE-X & SNE-Ignite products. Across Cloud
& IT (Applications), NE-ONE, we are on track to achieve our
original FY revenue target, with the growth being driven by channel
expansion and a strong performance in defence and satellite
communications sectors.
Key performance indicators
GBP000 H1 FY24 H1 FY23 FY23
Unaudited Unaudited Audited
Revenue 7,847 12,728 27,449
Gross Profit 5,836 9,617 20,472
Gross Margin 74% 76% 75%
Underlying EBITDA (1) (411) 3,466 7,980
Underlying EBITDA % -5% 27% 29%
Profit before tax (599) 3,086 7,208
Profit before tax % -8% 24% 26%
Closing cash including fixed
term deposits (2) 13,478 14,436 19,098
Capitalised R&D 2,554 2,247 4,523
Basic EPS (pence) (0.42) 2.78 6.75
Diluted EPS (pence) (0.42) 2.67 6.42
(1) EBITDA after charging R&D amortisation.
(2) The Group places surplus cash balances not required for
working capital into notice and fixed term deposit accounts. Under
IAS 7 Statement of Cash Flows, cash held on long-term deposits
(being deposits with maturity of greater than 95 days, and no more
than twelve months) that cannot readily be converted into cash is
classified as a fixed term investment.
A reconciliation between the statutory reported income statement
and the adjusted income statement is shown in note 22 to the
financial statements.
Revenue
Revenue recognised in the first half of the year was GBP7.8m, a
38% decline on H1 FY23 revenue of GBP12.7m, driven by the subdued
level of order volumes experienced through the Period.
Gross Margin
Gross margin in the Period was 74%, in line with the FY23 margin
of 75%. (H1 FY23: 76%). This gross margin is net of commissions
payable to our channel partners and can fluctuate by 1-2% through
the year depending on the mix and timing of the hardware and
software bundles shipped.
The Group increased pricing in the prior period to negate
inflationary direct materials cost increases, which has contributed
to the protection of the product margins throughout the Period.
Underlying EBITDA
Underlying EBITDA is stated after charging R&D
amortisation.
Underlying EBITDA was a GBP0.4m loss in the Period (H1 FY23:
GBP3.5m), driven by the reduction in revenue volumes. Underlying
EBITDA margin was -5% (H1 FY23: 27%).
Administration costs excluding depreciation and amortisation
were GBP4.5m in H1 FY23 (H1 FY22: GBP4.7m). The Group paused on any
further recruitment at the start of the year as a consequence of
the slowdown in trading and, as a result, excluding graduate hires,
there were no new headcount increases in the Period.
The reduced order levels have resulted in lower commission costs
compared to the prior period together with lower recruitment costs
and legal fees (non-recurring deal fees for the iTrinegy
acquisition were included in administration costs in the prior
period). Staff and management profit share accruals have also been
reduced compared to the prior year. These cost savings were offset
partially by adverse foreign exchange impacts on overseas salary
costs and increased share-based payment charges.
GBP0.1m has been charged to the income statement in the Period
to account for the Earn-out Payment in relation to the iTrinegy
acquisition, with a further GBP0.1m to be charged in H2. If revenue
growth targets from the NE-ONE product line are met, the Earn-Out
Payment will be paid as a combination of cash and new shares issued
in Calnex Solutions plc in early FY25.
Whilst cost controls have been implemented across all cost lines
and departments, the Group has not implemented any investment
reduction programmes as maintaining investment in product
development and customer engagement at this point is fundamental to
support future growth.
Amortisation of R&D costs in H1 FY23 was GBP1.8m (H1 FY23:
GBP1.6m). The increase on the prior period is due to the impact of
the 5 year amortisation profile and growth in capital spend in
prior years. Excluding graduate hires (of which there were 5 new
hires in the Period), there have been no headcount increases in the
R&D team in the Period.
Profit before tax
Loss before tax was GBP0.6m in the Period (H1 FY23: GBP3.1m
profit), with the reduction in trading volumes and predominantly
fixed cost base causing a negative operational leverage effect on
profit.
Tax
The Group's loss-making position resulted in a tax credit of
GBP0.2m for the Period (H1 FY23: charge of GBP0.7m), driven
predominantly by the proportion of R&D SME enhanced tax credit
relief.
The weighted average applicable tax rate for FY24 is 25% (FY23:
19%). The difference between the applicable rate of tax and the
effective rate of 37% (H1 FY23: 21%) is largely due to the
following:
-- Availability of R&D SME enhanced deduction at 86% (increasing effective rate by 24%); and
-- A combination of such as prior year adjustments, timing
differences, and overseas tax (decreasing effective rate by
12%).
We expect the effective tax rate to revert back in line with the
weighted average applicable tax rate once the Group returns to
profitability in future periods.
Earnings per share
Basic earnings per share was a loss of 0.42p in the Period (H1
FY23: 2.78p) and diluted earnings per share was also a loss of
0.42p (H1 FY23: 2.67p), with the movement compared to the prior
period attributed to reduced trading volumes.
Cashflows
The Group experienced a cash outflow of GBP5.6m in the period,
reflecting the loss made in the Period and increases in working
capital.
Working capital in the period increased by GBP3.3m (H1 FY23:
GBP1.3m) driven predominantly by increased levels of product to
increase responsiveness to order intake, plus inventory increases
as a result of the tail end effects of supply chain issues coupled
with investment in inventory to support the previous order
expectations. The inventory will be sufficient to support the
remainder of the year and positions the company well to deliver
faster turnaround of orders to revenue in H2.
The Group paid GBP0.8m in tax in the period based on the profit
generated in the prior year. Given the Group's current expectations
for profit for FY24, this cash is potentially refundable in FY25
after submission of the FY24 year-end tax return.
Cash used in investing activities is principally cash spent on
R&D activities which is capitalised and amortised over five
years. Investment in R&D in the Period was GBP2.6m (H1 FY22:
GBP2.5m), reflecting inflationary salary increases and graduate
headcount increases.
The Group places surplus cash balances not required for working
capital into notice and fixed term deposit accounts. Under IFRS,
cash held on long-term deposits (being deposits with maturity of
greater than 95 days, and no more than twelve months) that cannot
readily be converted into cash is classified as a fixed term
investment. This is shown separately on the balance sheet and
classed as a cash outflow within investing activities in the
consolidated cashflow statement in prior periods. As at 30
September 2023, the Group held surplus cash in notice accounts, but
did not hold any on long term deposit.
Closing cash at 30 September 2023 was GBP13.5m (30 September
2022: GBP14.4m including fixed term deposits; 31 March 2022:
GBP19.1m including fixed term deposits). Subject to any effects of
supply chain issues, we expect this cash balance to be maintained
throughout H2.
Dividend
The Board retain full confidence in future growth and
accordingly has resolved to pay an interim dividend of 0.31 pence
per ordinary share (FY23 Interim dividend 0.31p) on 15 December
2023 to those shareholders on the register as at 1 December 2023,
the record date. The ex-dividend date is 30 November 2023.
Calnex Solutions plc
Consolidated Statement of Comprehensive Income
For the period ended 30 September 2023
6 months 6 months Year ended
to to
30 Sep 30 Sep 31 Mar
2023 2022 2023
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Revenue 5 7,847 12,728 27,449
Cost of sales (2,011) (3,111) (6,977)
------------ ------------ -----------
Gross profit 5,836 9,617 20,472
Other income 111 150 751
Administrative expenses (6,705) (6,669) (13,989)
------------ ------------ -----------
Operating (loss)/profit (758) 3,098 7,234
Presented as:
EBITDA 1,405 5,076 11,295
Depreciation and amortisation of non-R&D
assets (347) (368) (746)
Amortisation of R&D asset (1,816) (1,610) (3,315)
Operating (loss)profit (758) 3,098 7,234
============ ============ ===========
Finance costs 6 (11) (12) (26)
Interest received 170 - -
(Loss)/profit before taxation (599) 3,086 7,208
Taxation 7 223 (656) (1,297)
------------ ------------ -----------
(Loss)/profit and total comprehensive
income for the year (376) 2,430 5,911
============ ============ ===========
Earnings per share (pence)
Basic (loss)/earnings per share 8 (0.42) 2.78 6.75
Diluted (loss)/earnings per share 8 (0.42) 2.67 6.42
Calnex Solutions plc
Consolidated statement of financial position
For the period ended 30 September 2023
6 months 6 months Year ended
to to
30 Sep 30 Sep 31 Mar
2023 2022 2023
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 9 11,168 10,181 10,565
Goodwill 10,11 2,000 1,646 2,000
Plant and equipment 12 434 297 404
Right of use assets 13 409 660 533
Deferred tax asset 14 691 304 272
------------ ------------ -----------
14,702 13,088 13,774
Current assets
Inventory 15 3,837 1,532 2,748
Trade and other receivables 16 4,676 6,035 3,130
Corporation tax receivable 42 - -
Cash and cash equivalents 17 13,478 12,936 17,583
Short term investments 17 - 1,500 1,515
------------ ------------ -----------
22,033 22,003 24,976
Total assets 36,735 35,091 38,750
------------ ------------ -----------
Current liabilities
Trade and other payables 18 5,515 6,059 5,988
Corporation tax payable - - 843
Lease liability payable within
one year 13 271 192 260
5,786 6,251 7,091
Non-current liabilities
Trade and other payables 18 1,096 1,965 1,396
Lease liabilities payable later
than one year 13 280 566 431
Deferred tax liability 14 2,663 2,253 2,457
Provisions 19 15 15 15
------------ ------------ -----------
4,054 4,799 4,299
Total liabilities 9,840 11,050 11,390
------------ ------------ -----------
Net assets 26,895 24,041 27,360
============ ============ ===========
Equity
Share capital 109 109 109
Share premium 7,495 7,495 7,495
Share option reserve 1,327 764 873
Retained earnings 17,964 15,673 18,883
Total equity 26,895 24,041 27,360
============ ============ ===========
Calnex Solutions plc
Consolidated statement of cashflows
For the period ended 30 September 2023
6 months 6 months Year ended
to to
30 Sep 30 Sep 31 Mar
2023 2022 2023
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Cashflow from operating activities
(Loss)/profit before tax from
continuing operations (599) 3,086 7,208
Adjusted for:
Finance costs 11 12 26
Interest received (170) - (160)
Government grant income (111) (96) (201)
R&D tax credit income - - (390)
Movement in provisions - (141) -
Share based payment transactions 450 286 574
Depreciation 211 368 371
Amortisation 1,952 1,610 3,690
Movement in inventories (1,234) (569) (1,554)
Movement in obsolescence provision 145 109 (122)
Movement in trade and other receivables (1,546) (1,054) 1,619
Movement in trade and other payables (649) 239 (329)
Cash (outflow)/inflow generated
from operations (1,540) 3,850 10,732
Movement in provision (overseas
tax) - - (140)
Corporation and foreign tax payments (843) - (70)
Corporation tax receivable (42) - -
R&D tax credit cash refunds received - 393 589
------------ ------------ -----------
Net cash (outflow)/inflow from
operating activities (2,425) 4,243 11,111
------------ ------------ -----------
Investing activities
Purchase of intangible assets (2,554) (2,247) (4,523)
Purchase of plant and equipment (117) (64) (181)
Purchase of subsidiary: net of
cash acquired - (2,263) (2,263)
Short term investment: fixed term
deposit 1,515 - (15)
Interest received 170 - 160
Net cash outflow from investing
activities (986) (4,574) (6,822)
------------ ------------ -----------
Financing activities
Payment of lease obligations (151) (111) (245)
Dividends paid (543) (490) (761)
Share options proceeds - 11 11
Government grant income - - 432
Net cash outflow from financing
activities (694) (590) (563)
------------ ------------ -----------
Net (decrease)/increase in cash
and cash equivalents (4,105) (921) 3,726
Cash and cash equivalents at the beginning
of the period 17,583 13,857 13,857
Cash and cash equivalents at
the end of the period 13,478 12,936 17,583
============ ============ ===========
Calnex Solutions plc
Consolidated statement of changes in equity
For the period ended 30 September 2023
Share
Share Share option Retained Total
capital premium reserve earnings Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at 30 September
2022 109 7,495 764 15,673 24,041
Transactions with owner in their capacity as owners
Share options - - 109 - 109
Interim dividend - - - (271) (271)
--------- --------- --------- ---------- --------
- - 109 (271) (162)
Profit for period ended 31 March
2023 - - - 3,481 3,481
Balance as at 31 March 2023 109 7,495 873 18,883 27,360
--------- --------- --------- ---------- --------
Transactions with owner in
their capacity as owners
Share options - - 454 - 454
Final dividend - - - (543) (543)
--------- --------- --------- ---------- --------
- - 454 (543) (89)
Loss for period ended 30 September
2023 - - - (376) (376)
Balance at 30 September 2023 109 7,495 1,327 17,964 26,895
--------- --------- --------- ---------- --------
Calnex Solutions plc
Notes to the interim consolidated financial statements
For the period ended 30 September 2023
1. General information
The interim consolidated financial statements cover the
consolidated entity Calnex Solutions plc and the entities it
controlled at the end of, or during, the interim period to 30
September 2023 ("the Group").
Calnex Solutions plc ("the Company") is a public limited company
and is domiciled and incorporated in Scotland.
The registered office is:
Oracle Campus
Linlithgow
West Lothian
EH49 7LR
The principal activity of the Group is the design, production
and marketing of test instrumentation and solutions for network
synchronisation and network emulation enabling its customers to
validate the performance of critical infrastructure associated with
telecommunications networks, enterprise networks and data
centres.
The interim consolidated financial statements for the period
ended 30 September 2023 are unaudited, and do not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. They do not therefore include all the information and
disclosures required in annual statutory financial statements and
should be read in conjunction with the Group annual report and
accounts for the year ended 31 March 2023.
The Group annual report and accounts for the year ended 31 March
2023 were approved by the Board of Directors on 22 May 2023 and
have been delivered to the Registrar of Companies. The auditor's
report on those accounts was unqualified, did not draw attention to
any matters by way of emphasis and did not contain a statement made
under Section 498(2) or (3) of the Companies Act 2006.
The interim consolidated financial statements for the period
ended 30 September 2023 were approved by the Board of Directors on
20 November 2023.
2. Basis of preparation
The interim consolidated financial statements for the period
ended 30 September 2023 have been prepared in accordance with IAS
34 'Interim Financial Reporting' as issued by the International
Accounting Standards Board, endorsed by, and adopted for use in,
the United Kingdom.
The accounting policies and methods of computation adopted are
consistent with those applied in the Group's consolidated financial
statements for the year ended 31 March 2023 and have been applied
consistently to all periods presented.
There have been no new standards or amendments to existing
standards effective from 1 April 2023 that are applicable to the
Group or that has had any material impact on the financial
statements and related notes as at 30 September 2023.
The Directors do not anticipate that the adoption of any of the
new standards and interpretations issued by the IASB and IFRIC with
an effective date for the Group after the date of these interim
financial statements will have a material impact on the Group's
interim financial statements in the period of initial
application.
3. Going concern
The interim consolidated financial statements have been prepared
on the basis that the Group will continue as a going concern.
In adopting the going concern basis, the Directors have
considered the principal risks and uncertainties of the group,
which remain unchanged from those reported in the Group annual
report for the year ended 31 March 2023, a copy of which is
available on the Company's website at:
https://investors.calnexsol.com. The uncertainties arising from the
macro-economic backdrop and inflationary pressures are covered by
existing risks, and these continue to be closely monitored.
The Board has reviewed cashflow forecasts and availability of
cashflow to fund the ongoing operations of the Group. Based on this
review, along with regular oversight of the Group's risk management
framework, the Board has concluded the going concern basis to
remain appropriate.
4. Operating segments
Operating segments are based on the internal reports that are
reviewed and used by the Board of Directors (who are identified as
the Chief Operating Decision Makers) in assessing performance and
determining the allocation of resources. As the Group has a central
cost structure and a central pool of assets and liabilities, the
Board of Directors do not consider segmentation in their review of
costs or the balance sheet. The only operating segment information
reviewed, and therefore disclosed, are the revenues derived from
different geographies.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Americas 1,893 4,538 9,644
North Asia 1,527 3,168 6,475
Rest of world 4,427 5,022 11,330
Total revenue 7,847 12,728 27,449
========= ========= ===========
5. Revenue
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Sale of goods 5,981 11,665 24,579
Rendering of services 1,866 1,063 2,870
Total revenue 7,847 12,728 27,449
========= ========= ===========
6. Finance costs
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Interest expense on lease liabilities 11 12 26
Total finance costs 11 12 26
========= ========= ===========
7. Taxation
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Current taxation
UK corporation tax on profits for
the period - 413 1,143
Foreign current tax expense 46 8 149
Adjustments relating to prior years (42) - (4)
Deferred taxation
Origination and reversal of temporary
differences (233) 235 (46)
Adjustments relating to prior years 6 - -
Effects of changes in tax rate - - 55
Taxation charge (223) 656 1,297
========= ========= ===========
(Loss)/profit before tax for the year (599) 3,086 7,208
Effective tax rate 37% 21% 18%
The weighted average applicable tax rate for the period ended 30
September 2023 is forecast at 37% (2022: 21%), being the current
period tax charge as a percentage of profit/(loss) before tax.
The current underlying corporation tax rate is 25% and the
movement to the effective tax rate of 37% has been affected by the
following factors:
-- UK corporation tax rate: 25%
-- Timing differences/deferred tax movement/ disallowable expenses (12%)
-- Enhanced R&D relief 24%
8. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average
number of Ordinary Shares in issue during the year.
Diluted earnings per share is calculated by dividing the
earnings attributable to ordinary shareholders by the total of the
weighted average number of Ordinary Shares in issue during the year
and adjusting for the dilutive potential Ordinary Shares relating
to share options.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
(Loss)/profit after tax attributable
to shareholders (376) 2,430 5,911
Weighted average number of shares
used in calculation:
Basic earnings per share 87,524 87,508 87,520
Diluted earnings per share 92,430 91,493 92,070
(Loss)/earnings per share - basic
(pence) (0.42) 2.78 6.75
(Loss)/earnings per share - diluted
(pence) (0.42) 2.67 6.42
9. Intangible Assets
Included within intangible assets are the following significant
items:
-- Intellectual property representing the cost of patent
applications and on-going patent maintenance fees.
-- Acquired intellectual property from business combinations.
-- Capitalised development costs representing expenditure
relating to technological advancements on the core product base of
the Group. These costs meet the requirement of IAS 38 (Intangible
Assets) and will be amortised over the future commercial life of
the related product. Amortisation is charged to administrative
expenses.
Intellectual Development
property Costs Total
GBP'000 GBP'000 GBP'000
Cost
At 1 April 2023 3,526 30,395 33,921
Additions - 2,554 2,554
Disposals - - -
------------- ------------ --------
At 30 September 2023 3,526 32,949 36,475
------------- ------------ --------
Amortisation
Balance at 1 April 2023 2,482 20,874 23,356
Charge for the period 136 1,816 1,952
Eliminated on disposal - - -
------------- ------------ --------
At 30 September 2023 2,618 22,690 25,308
------------- ------------ --------
Net book value
31 March 2023 1,044 9,522 10,565
============= ============ ========
30 September 2023 908 10,260 11,168
============= ============ ========
10. Business combinations
In the prior financial period, on 12 April 2022, Calnex
Solutions plc acquired 100 per cent of the issued share capital of
iTrinegy Ltd, a leading developer of Software Defined Test Networks
technology for the software application and digital transformation
testing market. This acquisition was made on a cash free, debt free
basis, for an initial cash consideration of GBP2.5 million, fully
funded from Group free cash. An additional GBP0.5 million was also
paid to the vendors in exchange for them leaving all available cash
(GBP0.7m at acquisition date) within the acquired business. Up to a
further GBP1 million consideration is potentially payable subject
to the achievement of revenue growth from the NE-ONE product line
in the year ended 31 March 2024 (the 'Earn-Out Payment'). This
Earn-Out Payment will be realised as a combination of cash and new
ordinary shares issued in Calnex Solutions plc. The maximum number
of new ordinary shares that may be issued as a result of the
Earn-Out Payment targets being met in full is 322,579.
As at 30 September 2022, the reported business combination
financial impact was provisional on release of the interim
financials. In line with the 12 month measurement period afforded
within IFRS 3 Business Combinations, the accounting work was
finalised ahead of the year end, 31 March 2023. A reconciliation of
adjustments processed following the interim reporting period ended
30 September 2022 is detailed below:
Goodwill
GBP'000
Goodwill reported as at 30 September
2022 1,646
Adjustments reducing net identifiable assets
of acquired entity :
Recognition of deferred tax liability arising from IP
fair value adjustment 311
'Other payables' acquisition accounts
finalisation adjustment 43
---------
Total adjustments 354
Goodwill reported as at 31 March
2023 2,000
---------
All values identified in relation to the acquisition of iTrinegy
Ltd were final as at 31 March 2023.
11. Goodwill
The goodwill arising in a business combination is allocated, at
acquisition, to the cash generating units that are expected to
benefit from the business combination. The Board considers the
Group to consist of a single cash generating unit, reflective of
not only the manner in which the Board (who operate as the Chief
Operating Decision Makers) assesses and reviews performance and
resource allocation of the group, but also the centralised cost
structure and pooled assets and liabilities which are critical to
revenue generation across all platforms. The determination of a
single cash generating unit within the Group therefore reflects
accurately the way the Group manages its operations and with which
goodwill would naturally be associated.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Cost 2,000 1,646 2,000
--------- --------- -----------
The Group tests goodwill for impairment annually, or more
frequently if there are indications that the goodwill has been
impaired. The Group has an annual impairment testing date of 31
March. As at 30 September 2023, management has reviewed goodwill
for indicators of impairment, and has considered the Group's
trading performance, the Group's principal risks and uncertainties,
and the other assumptions utilised in the value in use calculation.
Management has performed sensitivity analyses on the key
assumptions both with other variables held constant and with the
other variables simultaneously changed. Management has concluded
that there are no reasonable changes in the key assumptions that
would cause the carrying amount of goodwill to exceed the value in
use for the cash generating unit.
No evidence of impairment was found at balance sheet date.
12. Plant & equipment
Plant
and
equipment
GBP'000
Cost
At 1 April 2023 570
Additions 117
Disposals -
-----------
At 30 September 2023 687
-----------
Amortisation
Balance at 1 April 2023 166
Charge for the period 87
Eliminated on disposal -
-----------
At 30 September 2023 253
-----------
Net book value
31 March 2023 404
===========
30 September 2023 434
===========
13. Leases
The Group has recognised a right-of use asset and a lease
liability for the lease of land and buildings for its head office
in Linlithgow, Scotland.
The Group leases IT equipment with contract terms ranging
between 1 to 2 years. The Group has recognised right-of use assets
and lease liabilities for these leases.
The Group also leases land and buildings in Belfast and one
motor vehicle. These leases are low-value, so have been expensed as
incurred. The Group has elected not to recognise right -- of -- use
assets and lease liabilities for these leases.
Information about the right of use assets and leases for which
the Group is a lessee is presented below:
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Right of use assets
NBV brought forward in the period 533 791 791
Additions to right of use assets
for the period - - -
Depreciation charge for the period (124) (131) (258)
NBV carried forward for the period 409 660 533
========= ========= ===========
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Lease liabilities
Balance brought forward in the period 691 857 857
Lease additions for the period - - 53
Payment of lease expense (151) (111) (245)
Interest on lease expense 11 12 26
--------- ---------
Balance carried forward for the period 551 758 691
========= ========= ===========
Represented as:
Due within 1 year 271 192 260
Due in more than 1 year 280 566 431
--------- --------- -----------
Total amounts due 551 758 691
========= ========= ===========
14. Deferred tax
Deferred tax asset 6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Opening balance 272 304 304
Recognised in statement of comprehensive
income 405 - (192)
Recognised in equity 14 - 160
--------- --------- -----------
Closing balance 691 304 272
--------- --------- -----------
Deferred tax assets arise as follows:
Unused losses 321 - -
Share based remuneration 348 265 250
Other timing differences 22 39 22
--------- --------- -----------
Total deferred tax asset 691 304 272
--------- --------- -----------
Deferred tax liability 6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Opening balance 2,457 2,017 2,017
Recognised in statement of comprehensive
income 206 236 440
Closing balance 2,663 2,253 2,457
--------- --------- -----------
Deferred tax liabilities arise as
follows:
Deferred tax on acquisition 226 19 260
Timing differences on development
costs 2,333 2,151 2,108
Accelerated capital allowances 104 83 89
--------- --------- -----------
Total deferred tax liability 2,663 2,253 2,457
--------- --------- -----------
15. Inventory
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Finished goods 4,314 2,071 3,055
Provision for obsolescence (478) (539) (307)
3,837 1,532 2,748
========= ========= ===========
16. Trade and other receivables
Trade receivables are consistent with trading levels across the
Group and are also affected by exchange rate fluctuations.
No interest is charged on the trade receivables.
The Group has reviewed for estimated irrecoverable amounts in
accordance with its accounting policy, and at the balance sheet
date, there are no amounts outstanding beyond agreed credit
terms.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Trade receivables 2,675 5,237 2,605
Other receivables 180 468 213
Prepayments and accrued income 1,821 330 312
4,676 6,035 3,130
========= ========= ===========
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
17. Cash and cash equivalents
Cash and cash equivalent amounts included in the Consolidated
Statement of Cashflows comprise the following:
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Cash at bank 8,222 6,370 12,439
Cash on short term deposit 5,256 6,566 5,144
Total cash and cash equivalents 13,478 12,936 17,583
========= ========= ===========
Short term investment: Fixed term
deposit - 1,500 1,515
========= ========= ===========
Short term cash deposits of GBP5,255,881 are callable on a
notice of 95 days.
Cash held on long-term deposits (being deposits with maturity of
greater than 95 days) that cannot be readily converted into cash
have been classified as short term investments in prior
periods.
The Directors consider that the carrying value of cash and cash
equivalents and short term investments approximates their fair
value.
18. Trade and other payables
Trade and other payables are consistent with trading levels
across the Group but are also affected by exchange rate
fluctuations. Trade payables and accruals principally comprise
amounts outstanding for trade purchases and ongoing costs. The
Group has financial risk management policies in place to ensure all
payables are paid within the agreed credit terms.
Deferred income relates to fees received for ongoing services to
be recognised over the life of the service rendered.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Trade payables 2,038 2,204 1,770
Other taxes and social security 217 183 197
Other payables 84 76 75
Accruals 783 1,818 1.275
Deferred income 2,393 1,778 2,671
5,515 6,059 5,988
Amounts due in more than one year
Deferred income 1,096 1,748 1,166
Other payables - 217 230
--------- --------- -----------
1,096 1,965 1,396
Total amounts due 6,611 8,024 7,384
========= ========= ===========
The Directors consider that the carrying amount of trade and
other payables approximates their fair value.
19. Provisions
Current provisions are recognised in respect of dilapidations on
leased assets. No discount is recorded on recognition of the
provisions or unwound due to the short-term nature of the expected
outflow and the low value and estimable nature of the non-current
element.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Non-current provisions
Dilapidations 15 15 15
========= ========= ===========
20. Dividends paid and proposed
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Proposed but not yet recognised
Interim dividend 2024: 0.31 per share 271 - -
Declared and paid
Final dividend 2022: 0.56p per share - 490 490
Interim dividend 2023: 0.31p per
share - - 271
Final dividend 2023: 0.62p per share 543 - -
An interim dividend of 0.31 pence per Ordinary Share (FY23
interim dividend:0.31 pence per Ordinary Share) was declared by the
board on 21 November 2023, and will be paid to ordinary
shareholders on 15 December 2023. The dividend is payable to all
shareholders on the Register of Members at the close of business on
the 1 December 2023.
All dividends are determined and paid in Sterling.
21. Events after the reporting date
On 5 October 2023, the Company submitted an application to
Companies House to strike off iTrinegy Ltd, a 100% owned subsidiary
of Calnex Solutions plc. This will finalise the post-acquisition
hive up of the iTrinegy entity, with all trade and operations
having been transferred to Calnex Solutions plc in the prior
financial year.
The first Gazette notice was issued on the 17(th) October 2023,
and expectation is the strike off will complete in the current
financial year.
22. Alternative performance measures ('APMs')
The performance of the Group is assessed using a variety of
performance measures, including APMs which are presented to provide
users with additional financial information that is regularly
reviewed by the Board of Directors. These APMs are not defined
under IFRS and therefore may not be directly comparable with
similarly identified measures used by other companies.
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Underlying EBITDA (411) 3,466 7,980
Underlying EBITDA % (5%) 27% 29%
Capitalised R&D spend 2,554 2,247 4,523
-- Underlying EBITDA: EBITDA including R&D amortisation.
Reconciliation of statutory figures to alternative performance
measures - Income Statement
6 months 6 months
to to Year ended
30 Sep 30 Sep 31 Mar
2023 2022 2023
GBP'000 GBP'000 GBP'000
Revenue 7,847 12,728 27,449
Cost of sales (2,011) (3,111) (6,977)
Gross profit 5,836 9,617 20,472
Other income 111 150 751
Administrative expenses (excl depreciation
and amortisation) (4,542) (4,691) (9,928)
-------------------------------------------- --------- --------- -----------
EBITDA 1,405 5,076 11,295
Amortisation of development costs (1,816) (1,610) (3,315)
-------------------------------------------- --------- --------- -----------
Underlying EBITDA (411) 3,466 7,980
Other depreciation and amortisation (347) (368) (746)
-------------------------------------------- --------- --------- -----------
Operating (loss)/ profit (758) 3,098 7,234
Finance costs (11) (12) (26)
Interest received 170 - -
(Loss)/profit before tax (599) 3,086 7,208
Tax 223 (656) (1,297)
-------------------------------------------- --------- --------- -----------
(Loss)/profit for the year (376) 2,430 5,911
23. Availability of Interim Report
The Company's Interim Report for the six months ended 30
September 2023 will be available to view on the Company's website
https://investors.calnexsol.com.
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END
IR FBLLLXFLFFBK
(END) Dow Jones Newswires
November 21, 2023 02:00 ET (07:00 GMT)
Calnex Solutions (LSE:CLX)
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