Financial Highlights
- Total revenues expected to be in the region of £1.0m
- Operating losses reduced by 16% to £3.0m
- Period end net cash was £2.4m
- R&D tax credits of £0.8m to be received, bringing total cash available to £3.2m (31 December 2018: £4.6m)
- Received approximately £2.0m in payments from customers during the period
John Cronin, CyanConnode Executive Chairman, commented: “We have made solid progress during H1 2019, securing a number of follow on orders in India and Europe, which is testament to the strength of our Omnimesh technology. As anticipated, the Indian general elections which took place during the period have impacted the number of new tenders awarded in this market during the first half of the year. Since the general elections closed in May 2019, we have seen in country business activity resume to normal, which we believe will result in increased contract orders from our key market and in-turn significantly higher revenues in H2 2019 than the whole of 2018. The growth in India and the demand from the rest of the world gives the Board confidence that we will meet full year market expectations[1]. We look forward to reporting on such new orders in H2 2019 and delivering significant revenue growth for FY 2019.”
[1] Market expectations denotes forecasts that have been made by the Company’s broker and external research parties
Operational Overview
India
In February 2019, CyanConnode announced a follow-on order from Larsen & Toubro (“L&T”), worth approximately £0.4m. The follow-on order relates to the order announced in May 2018, worth £2.5m. Deployment has progressed rapidly and already showing benefits of the Omnimesh solution to the utility. All of the modules ordered in the follow-on order were delivered in H1 2019 and revenue recognised during the period. The full contract is being rolled out over a period of up to two years followed by a five-year support and maintenance period.
In April 2019, CyanConnode announced an order from a new partner an Indian state-owned utility for the deployment of 3,000 smart meter modules, which utilise a hybrid radio frequency (“RF”) Smart Mesh and cellular communication network. All hardware was delivered to the new end customer, an Indian State-owned Utility, and revenue recognised in H1 2019.
Europe
In April 2019, CyanConnode announced a £0.7m follow-on order from HM Power (“HMP”) to several Swedish utilities. The order leverages the functionality of CyanConnode’s standards based Omnimesh Advanced Metering Infrastructure (“AMI”) platform, for the smart metering of district heating, as well as electricity. The Company is also supplying HMP with a new product, long-range RF communication modules, (modules with a range of up to 12km), to increase the resilience of the RF Smart Network in rural areas. Delivery of these modules is expected to commence in August 2019.
In June 2019, the Data Communications Company (“DCC”), who maintain the infrastructure that underpins the roll-out of smart meters across the United Kingdom, confirmed that over 1.3 million new generation smart meters (“SMETS2”) were connected to its secure network. In the Central and Southern regions of the UK, it is expected that approximately 24 million SMETS2 meters will communicate with the DCC via a 2/3G cellular communications hub which has CyanConnode's RF mesh technology embedded into it is installed on the meter. Where 2/3G cellular signal is unavailable (areas known as not-spots), a dual communications hub, which has CyanConnode's RF mesh technology embedded into it, is installed on the meter. Typically, to support the installation of a dual communications hub in a not-spot, approximately four further dual communications hubs with 2/3G cellular communication need to be installed to form the local RF mesh network. The resulting RF mesh is formed automatically giving multiple paths to the 2/3G gateway and to the DCC.
APAC and Middle East
The smart metering market in the APAC and Middle East continues to mature and presents a significant opportunity for CyanConnode.
In January 2019, members of the Company’s engineering team visited Beijing Jingyibeifang Instruments Co Ltd (“Beijing Instruments”), a Chinese partner with a license to manufacture CyanConnode’s RF modules and gateways (see announcement 07/12/18). The team, led by Allan Baig (VP Engineering & Operations), visited Beijing Instruments to develop the project plan, establish peer-to-peer relationships and provide the hardware design and manufacturing information to enable Beijing Instruments to set up the production line for manufacturing. The partnership has progressed well and the Company believes Beijing Instruments will be ready to commence manufacture CyanConnode’s RF modules and gateways in H2 2019.
Due to geopolitical factors, which have accelerated in recent weeks the Company has removed from its order pipeline an Iranian order from Micromodje, for a smart metering contract that was announced in February 2016.
Cash Collection
Whilst there are no plans to raise further capital from investors, several avenues are being pursued to secure working capital facilities, should it become necessary to ease cash flows and or mitigate against any unforeseen delays in deliveries or customer payments.
Board and senior management changes
Harry Berry and Paul Ratcliff stepped down from the Board during the period, and two new Non-Executive Directors, Chris Jones and Peter Tyler, were appointed.
There were also changes to senior management with the promotion of Heather Peacock to Chief Financial Officer, Anil Daulani to Chief Executive Officer & Managing Director of India, and Allan Baig to Vice President Engineering & Operations.
Post Period
H2 2019 has started with three follow-on orders, the first being from Genus Power Infrastructures Ltd, for a further 4,050 smart meters under the Uttar Gujarat Vij Company Ltd ("UGVCL") contract in India. The first phase of the project for 23,000 smart meters, has seen significant improvement to back office functions such as cash collection, and major reduction of Aggregate Technical & Commercial, (AT&C), losses and was inaugurated on 27 February 2019 by The Energy Minister of Gujarat, Shri Saurabh Bhai Patel.
The second follow-on order post period was from Toshiba Information Systems (UK) Ltd ("Toshiba") and was for service enhancements relating to the DCC infrastructure that underpins the roll-out of smart meters across Great Britain. The order is worth approximately £213k, which CyanConnode expects to recognise as revenue in H2 2019.
The third follow-on order was from an existing Partner and is for legacy hardware and software for a Nordic Utility. This order is worth approximately €489k with 50% of the revenues for this follow-on order expected in 2019 and 50% in 2020.
Outlook
Following the re-election of Narendra Modi as Indian Prime Minister, CyanConnode expects to see a material acceleration of the Indian Smart Meters National Programme. It is currently working on a large number of tenders for the Indian market, that the Company believe will result in significant new orders for the Company. The Company’s expectation and budget anticipated this increase in orders, revenues and therefore cash receipts in H2 2019. Trading is therefore in line with market expectation.
CyanConnode reconfirms that it believes that its UK Smart Metering Implementation Programme (“SMIP”) contract with Toshiba will ultimately deliver revenue and believe that it will begin to receive material revenue from the contract during 2020.