The purchase order is significantly larger than any received to date by CyanConnode and marks a further step change in the Company's commercial progress.
As a result of this new contract, the order book, representing the value of purchase orders received but not yet delivered, will be $100 million, which includes $33million of expected software licence and support revenue from the UK smart metering contract.
Purchase Order
The purchase order is for the supply of CyanConnode’s hardware and software advanced metering infrastructure solution for a 1 million unit smart metering deployment to be delivered over the next three years.
CyanConnode will receive $13 million for the provision of hardware with the majority of deliveries expected to be weighted towards years two and three.
Once each meter has been installed and is operational, the Head End Server software (HES) licence payments (to be made on a per meter per year basis) will commence. The HES payments will be made over the 10-year period post installation and will be worth $16 million, providing the company with a recurring revenue stream.
NIK, an energy management system company based in Ukraine, currently manufactures circa. 1.5 million utility meters per year and will integrate CyanConnode’s hardware with its meters at their production facility. The NIK smart meters, enabled by CyanConnode’s narrowband radio mesh network technology, will be part of NIK’s 'smart meter' product offering and will replace their existing ZigBee-based smart meter offering.
This is the Company’s first order from NIK for a utility customer in Eastern Europe, and the order size and revenue visibility provided by this contract reflects the Company’s ability to win and service large scale contracts providing increasing levels of high margin recurring software revenues.
Furthermore, this order further demonstrates the Company's growing geographical sales footprint in addition to highlighting the advantages of CyanConnode’s radio mesh network technology over conventional ZigBee-based solutions.
Strategic Partnership
CyanConnode and NIK have also signed a non-exclusive, strategic partnership agreement to collaborate on the supply of all aspects of smart metering technology for gas and electricity meters, initially in Ukraine. As part of the agreement, NIK will be responsible for all certification of CyanConnode’s hardware in Ukraine and when NIK have sold an agreed number of units, it will take over local manufacture of the Company’s hardware, under a licensing model.
The Large Market Opportunity in Eastern Europe
A recent report by Northeast Group, a well-respected market intelligence firm based in Washington, DC, highlighted that Central and Eastern European countries are forging ahead with investment in smart grid infrastructure with a reported US$25.2 billion to be invested over the next ten years.(1) The overall number of electricity consumers in Ukraine is circa. 16.5 million, providing scope for further significant follow-on orders.
John Cronin, CyanConnode Executive Chairman, commented: “We are pleased to announce such a significant order from our partner, in a new geographic region. This latest contract win further demonstrates the suitability of CyanConnode’s award-winning technology for smart metering implementations and the scalability of its collaborative business model.
“NIK has the skills and experience to deliver integrated smart metering deployments in Eastern Europe as well as other markets including Russia and South Asia. We look forward to working with NIK to implement existing contracts as well as win new opportunities.”
Sergiy Bokoch, Chief Executive Officer, NIK, commented: “As a leading smart grid solution provider we are seeing more opportunities for narrowband RF mesh networks as the technology offers resilient, feature-rich and cost-effective solutions. NIK selected CyanConnode, to replace its existing ZigBee solution, based on the performance, reliability and the total cost of ownership of CyanConnode’s technology. Furthermore, being part of CyanConnode’s partner eco-system provides NIK with world class support for the integration and deployment of narrowband networks.”
(1) https://www.metering.com/eastern-europe-to-meet-eu-smart-meter-targets-says-report/