REG - Calnex Solutions PLC - FY24 Final Results
21/05/2024 07:00
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RNS Number : 1884P Calnex Solutions PLC 21 May 2024
21 May 2024
Calnex Solutions plc
("Calnex", the "Company" or the "Group")
FY24 Final Results
Financial Highlights
£000 FY24 FY23 YOY % change
Audited Audited
Revenue 16,274 27,449 (41%)
Underlying EBITDA(1) 80 7,980 (98%)
(Loss)/profit before tax (384) 7,208 (105%)
Basic EPS (pence) 0.05 6.75 (99%)
Diluted EPS (pence) 0.04 6.42 (99%)
Closing cash and fixed term deposits(2) 11,868 19,098 (38%)
(1) Refer to note 32 for explanation of the alternative performance measures
calculations. A full reconciliation between Underlying EBITDA and profit
before tax is also shown in the Financial Review below.
(2) The Company takes advantage of high interest deposit accounts for surplus
cash balances not required for working capital. 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.
Financial Highlights
· Performance impacted by the wider economic environment and
resulting deferral of investment in telecoms market.
· Three consecutive 6 month periods of stable order levels (H2 FY23
through to H2 FY24).
· Revenue of £16.3m (FY23: £27.5m).
· Gross margins maintained at 73%, broadly in line with prior year
(75%).
· Loss before tax of £0.4m (FY23: profit before tax of £7.2m).
· Profit after tax £0.04m (FY23: £5.9m)
· Closing cash position of £11.9m (31 March 2023: £19.1m,
including fixed term deposits).
· Proposed final dividend of 0.62 pence per share, making a total
of 0.93 pence per share for FY24 (FY23: 0.93 pence).
Operational Highlights
· Refocused engineering programmes on areas of the market showing
near-term resilience and growth opportunities, such as cloud computing and
defence.
· Successful launch of new network assurance offerings SNE-X and
SNE-Ignite, and positive initial customer response to SyncSense our newly
developed data centre and telecoms network timing management product.
· NE-ONE offering for application assurance testing performing
strongly, particularly in the defence, government, and satellite markets, with
further success anticipated in FY25.
· Development of major new release of Lab Synchronisation
(Paragon-Neo) offering to capitalise on increasing demand for 800 Gb/s
telecoms testing, expected to launch in H2 FY25.
· FY23 closing headcount was maintained through FY24 (with the only
increases being graduate hires), with Calnex well-placed to convert the
telecoms sales pipeline once the trading environment improves.
· Post-period end review of sales channels and channel partner
arrangements has identified opportunities to strengthen existing customer
engagements and to reach new customers. To provide the Company with the
ability to optimise the channel partner arrangements, the Board has elected to
terminate its reseller agreement with Spirent and initiated the process of
implementing the company's new sales channel strategy.
Outlook
· Recently launched products are gaining traction, providing
confidence in a return to growth in FY25.
· Cloud computing and data centre markets represent a growing
opportunity, based on the increased data centre infrastructure investment and
testing required to support the increasing demand for AI and virtual
reality-based applications.
· Challenges across the wider telecoms market are expected to
remain for the duration of the year but the fundamental long-term need for
telecoms testing solutions remains unchanged.
· Longstanding customer relationships across all territories leave
us well positioned to convert our telecoms sales pipeline once the trading
environment improves.
Tommy Cook, Chief Executive Officer and founder of Calnex, said:
"We have successfully expanded our new product development programmes to focus
on near-term growth channels - specifically the development of new capability
in the telecoms market to capitalise on demand for 800Gb/s, as well as our
product launches to capitalise on the increasing demand in the cloud computing
and data centre markets. Our recent product innovations are gaining traction
and we anticipate a return to growth in FY25, notwithstanding the challenges
in the telecoms market which are expected to remain for the duration of this
year.
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, and our longstanding customer relationships across all territories
leave us well positioned to convert our telecoms sales pipeline once the
trading environment improves.
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 customers, team, and
shareholders."
For more information, please contact:
Calnex Solutions plc Via Alma
Tommy Cook, Chief Executive Officer
Ashleigh Greenan, Chief Financial Officer
Cavendish Capital Markets Limited - NOMAD +44 (0)131 220 6939
Derrick Lee, Peter Lynch
Alma + 44(0) 20 3405 0213
Caroline Forde, Joe Pederzolli, Emma Thompson
Overview of Calnex
Calnex Solutions designs, produces and markets test and measurement
instrumentation and solutions for the telecoms 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 telecoms 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.
Chair's statement
Overview
While the year ended 31 March 2024 was a difficult period for Calnex, we are
positive moving forward. In the year I continued to be struck by the
dedication of the Calnex team, who worked tirelessly to respond dynamically to
market conditions, focusing on the opportunities showing the most near-term
resilience. The Calnex team is experienced at navigating the business through
challenging trading environments, reinforcing confidence in a return to growth
during FY25.
Resilient performance in FY24
As previously reported, the Group's financial performance in FY24 was impacted
by the ongoing downturn across the telecoms market, with caution across the
sector leading to subdued spending levels. The Company reports revenue of
£16.3m and a small loss before tax of £0.4m. We have a healthy liquidity
position, with cash as at 31 March 2024 of £11.9 million.
Measured cost-action was undertaken, while refocusing the Group's engineering
programmes on opportunities showing the most near-term potential within the
Group's established telecoms market and in the newer markets of cloud
computing and defence. This year has seen the launch of new products across
both these end markets, which have shown well received signs of initial
uptake. The Board is encouraged by the level of engagement with customers on
the Group's new product programmes and, in particular, expects that continued
orders from the defence and cloud computing sectors will enable Calnex to
return to growth in FY25.
ESG
Calnex continues to operate with a high regard to a good level of
environmental awareness, social responsibility, and governance. Calnex is a
"people first" company, built on trust and respect. Not only for each other
but also for the environment and for the local communities of our employees
across the globe, where we do our best to make a meaningful impact. Our
employees are encouraged to share their views, contribute to decision making,
challenge each other and improve our processes to make a positive contribution
to business success. This is reflected in the approach we take to delivering
leading-edge test and measurement solutions for 5G networking and wireless
technologies.
Our software-first approach significantly reduces the impact our products have
on the environment by building in best-in-class longevity and providing
long-term expert support through cutting-edge upgrades designed to meet
customer requirements. Although already a low environmental impact business,
the senior management team and our staff are keen to do more to tackle
environmental challenges and have several initiatives running to address this.
Our employee-led environmental, social & charity team also continues to be
extremely successful, with high levels of employee engagement experienced
throughout the year. This in turn enables the business to retain its
talented team.
Outlook
With the product innovation and investments that have been taking place, we
expect business growth in FY25 without reliance on the revival of the telecoms
market, although we are confident that the fundamental need for our telecoms
solutions in the long-term remains unchanged. We are, therefore, well-placed
to capitalise on a return to normalised investment programs when the market
stabilises.
Stephen Davidson
Non-Executive Chair
20 May 2024
CEO's Statement and Operational Review
Our financial performance in 2024 was impacted by the well-documented and
ongoing downturn across the telecoms sector, with caution across the market
leading to subdued spending levels during the period. However, there remain
reasons for optimism moving forward. We have continued our focus on product
innovation, maintaining R&D spend and adjusting our engineering programme
to focus on areas showing the most near-term potential across both the
telecoms and cloud computing markets. We believe that the fundamental drivers
of the end markets for our products remain strong.
Within telecoms, we have focused on the area of 800Gb/s synchronisation
testing for release in FY25, an unmet need where there is growing customer
demand, while we also saw early successes in the year with recently launched
products across the cloud computing and data centre markets.
We are confident that the action taken during FY24 to diversify our product
offering positions us for a return to growth in FY25. Longer term, we continue
to be supported by favourable underlying trends. We are confident that budgets
will return in the telecoms market as the economic backdrop improves, in turn
creating the need for test and measurement equipment to prove that new systems
operate effectively and conform to rigorous international standards.
We continue to be supported by a strong balance sheet, with cash as at 31
March 2024 of £11.9 million. This cash position enables us to continue
targeting growth opportunities across our key sectors and maintain
relationships with customers as they plan future investment in their projects.
Customer metrics
The number of customers who ordered from us this year was 274 (FY23: 305
customers). The proportion of orders coming from customers from cloud
computing markets continued to increase to 39% (FY23: 34%), with the sales of
NE-ONE products the driving force behind this increase as we diversify into
new sectors.
Our top 10 customers accounted for 52% of orders (FY23: 47%) on a 3-year
average basis, and 76% of our orders were from repeat customers (FY23: 74%) on
a 3-year average basis. Our geographical spread of orders across regions shows
America 32%, North Asia 25% and ROW 43%. Although each region's order levels
in the year have been impacted by the slowdown in the telecoms market, ROW's
performance was mitigated by the diverse range of end customer sectors in the
region.
Market backdrop
Spending within the telecoms sector is generally led by the large
infrastructure projects of the major telecoms operators, which filter down
through the wider ecosystem. As previously reported, we are continuing to see
a particularly prolonged period of limited customer spend, with network
build-out projects continuing to be either slowed or delayed amidst a high
interest rate environment and increased geopolitical tensions.
Due to the team's long history in the sector, we have experienced markets such
as these before and we are adept at managing the business back to growth, as
is expected in FY25. We have maintained close customer relationships, with
customers confirming that they remain committed to the delivery of projects
once spending budgets are released. We have also focused on segments of the
telecoms market where demand remains, such as 800Gb/s synchronisation testing,
the next wave of high-speed interface testing, driven by emerging technologies
continually increasing the need for higher bandwidth.
While the wider telecoms market is anticipated to remain challenging
throughout the remainder of 2024, the underlying structural growth drivers
remain intact, including the increase in network complexity and the build-out
of mobile infrastructure utilising 5G technology. The need for the testing
solutions we provide will naturally increase as the transition to 5G continues
and new technological standards gain traction. The scale of our long-term
growth opportunity is considerable, with telcos projected to invest US$342.1
billion in their networks in 2027 alone(1).
Newer markets of cloud computing and defence continue to offer significant
growth opportunities for Calnex. The impact of network connection on the
performance of cloud-based applications is increasingly recognised, and there
is an ever-increasing demand for testing solutions across these markets. With
the rapid progress of incorporating Artificial Intelligence into applications
and the uncertainty that surrounds its operation under varied networking
impairment effects, test instrumentation is more important than ever. The
development of these technologies that are both new and unknown drives the
need for reliable testing, which in turn creates significant scope for growth
for Calnex.
With these new developments, we are starting to see opportunity not only from
data centres but also from devices and applications that incorporate
cloud-based processing with end user devices. The performance of the network
can impact the performance of the application or user experience, which can
then impact the market share of the application or end user device.
Product innovation
Innovation is the lifeblood of our business, expanding our ability to capture
a growing proportion of our customers' spend and taking us into new areas of
the testing market where our engineering expertise provides us with a
competitive edge. During the year, we pivoted R&D spend to focus on
opportunities showing the most near-term resilience and potential within the
established telecoms market and in the newer markets of cloud computing and
defence.
Targeting growth in the telecoms market
R&D spend has been channelled into the development of our Lab
Synchronisation (Paragon-Neo) offering, which provides support for very
high-speed interfaces, 800Gb/s testing, which marks the natural next wave of
the telecoms industry at a higher speed.
During the year we enhanced the Paragon platform and expect to launch a major
new release in H2 FY25 to support leading edge 800Gb/s interface testing, for
which we are already receiving customer requests and expect to generate
revenue during FY25.
Cloud computing and data centre markets
We are seeing strong early progress within the cloud computing markets, given
the significant investment into data centres to support the growth in cloud
services and adoption of AI. New opportunities in the areas of network time
monitoring as well as data centre efficiency and effectiveness, are currently
in the early stages of development.
(1) PWC "Perspectives from the Global Telecom Outlook 2023-2027", 2023
We have recently launched SNE-Ignite and SNE-X products to strengthen our
portfolio. The SNE-Ignite is the high-performance platform that will initially
target testing of telecoms equipment designed for use in the O-RAN Mobile
network deployments. The SNE-X is our high-speed, high port count platform
designed to prove the performance of new, real-time cloud-based applications.
Both products are helping to build Calnex's presence in key markets for
Network Emulation. SNE-X, the second version, is already finding some
promising opportunities with Hyperscalers and companies developing wearable
devices, such as virtual and augmented reality devices.
Our NE-ONE product, the recently acquired Network Emulation product following
the acquisition of iTrinegy in April 2022, is performing well. The platform
provides a targeted solution for engineering teams developing software
applications to be hosted in-house or in cloud services. Since forming a
business development team last year to drive sales for the platform, the
product has been successful in the defence, government, and satellite markets,
with further success anticipated in FY25. We have been particularly encouraged
by the strong relationships formed with many major system integrators, through
whom we have secured several defence contracts in the year and see this as an
avenue for future growth in this market.
Our enhanced Network Emulation portfolio has a strong competitive position due
to the breadth of Calnex's product offering. Although there are other
solutions available, we are the only provider of both a hardware-based and
software-based offering, which allows the Group to provide the optimal
solution to meet our customers' needs.
SyncSense, Calnex's newly developed data centre and telecoms network timing
management product, has also been well received by customers. SyncSense offers
a Timing Performance Monitoring solution that provides real-time topology and
network operational information associated with the distribution of time
across large networks. The product will leverage the reputation of Calnex as
the Sync experts and can be sold in conjunction with the Sentinel and Sentry
platforms to provide fault diagnoses insight capability to complement the
fault identification capability of SyncSense. Customer engagement is at an
early stage, but feedback has been encouraging.
Financial performance
Financial performance was impacted by the challenging trading environment. We
report revenue of £16.3m (FY23: £27.4m), and a small loss before tax of
£0.4m (FY23: profit of £7.2m). Importantly, gross margins remained strong
during the year. Our investment into newer markets has driven strong sales
growth across our Network and Applications Assurance ('NAA'- formerly Cloud
& IT) products, and NE-ONE product orders grew by 56% over the course of
the year, compared with revenue growth of 15% in the year. The variance in
revenue versus order growth is as a result of the level of multi-year support
contracts being purchased by customers in the year which are recognised as
revenue over the life of the contract).
During the year, tight cost control measures have been implemented, including
overhead cost reduction and reduced spend in areas such as travel. We continue
to benefit from a healthy cash balance, with cash as at 31 March 2024 of
£11.9m (FY23: £19.1m). There was significant investment in inventory during
the year 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.
People
The engine of our business is our dedicated group of staff globally. In the
year headcount has been maintained, with new hires being frozen excluding
graduate hires. Total headcount as at 31 March 2024 was 160 (FY23: 155).
We work as one team, sharing the successes, the challenges and the Group's
ambitions moving forward. Our retention rate of staff over FY24 was 96% (with
an average tenure of 5.3 years) which reflects Calnex's culture of inclusion,
respect, and support. We firmly believe that we possess the right team to
drive the business forward.
Calnex enjoys and thrives on a diverse workforce where inclusion is key to
building high performing, engaged and successful teams. Our strong values, as
reflected in our Investors in People Gold Award, are promoted through a
variety of employee engagement programmes, such as supportive initial training
and mentoring programmes, culture sessions and an extensive training and
development framework.
Sales channel review
With an expanded product offering and growing global customer base, the Board
has undertaken a review of the Company's sales channels and channel partner
arrangements, to ensure that they will meet the Company's evolving
requirements. The Board's review has identified opportunities to strengthen
existing customer engagements and to reach new customers by adding both new
channel partners and resources to support direct selling. As part of this,
and considering the proposed acquisition of the Company's main distributor,
Spirent by a third party, the Board has commenced discussions with new and
existing channel partners to facilitate changes to strengthen the current
arrangements.
Calnex has direct relationships with its end customers due to the technical
nature of the Company's products and has close relationships with many
existing and potential channel partners. In order to provide the Company
with the ability to optimise the channel partner arrangements, the Board has
elected to initiate the termination of its reseller agreement with Spirent.
The existing agreement with Spirent will terminate with effect from 31 July
2024 and the Board is confident that the positive discussions to date with new
and existing partners, including Spirent, will result in a straightforward
transition to the new sales channel arrangements, with minimal impact on the
business.
Outlook
We are confident of a return to growth in FY25, having expanded our new
product development programmes to focus on near-term growth channels -
specifically the development of new capability in the telecoms market to
capitalise on demand for 800Gb/s, as well as our product launches to
capitalise on the increasing demand in the cloud computing and data centre
markets. Our recent product innovations are gaining traction and we anticipate
a return to growth in the current year, notwithstanding the challenges in the
telecoms market which are expected to remain for the duration of this year. We
expect the growth in utilisation of AI will increase the growth rate of data
centre infrastructure and increase the complexity of the relationship between
edge devices and processing happening in the cloud, both of which should lead
to increased opportunities.
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. Our longstanding customer relationships across all territories leave
us well positioned to convert our telecoms sales pipeline once the trading
environment improves.
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 customers, team, and
shareholders.
Tommy Cook
Chief Executive
20 May 2024
ESG
A meaningful impact
Calnex is a "people first" company built on trust and respect. Not only for
each other but also for the environment and for the local communities of our
employees across the globe, where we do our best to make a meaningful impact.
The Group follows the Quoted Companies Alliance Practical Guide to ESG, which
is intended to supplement The Quoted Companies Alliance Corporate Governance
Code (the QCA Code), which the Group also follows. The QCA Practical Guide
provides pragmatic steps for small and medium sized listed companies to
develop how to identify and disclose those ESG issues that are important to
them and outlines an approach that is proportionate to the resource
availability within smaller companies, whilst also giving stakeholders the
relevant information that they need. We have established an internal ESG
Steering Committee, members of which are a cross departmental team of senior
leaders who are responsible for reporting to the Senior Management Team on all
ESG related activities and initiatives throughout the business.
Calnex is an innovative and forward-thinking business where our employees are
encouraged to share their views, contribute to decision making, challenge each
other and improve our processes to make a positive contribution to business
success. This is reflected in the approach we take to delivering leading-edge
test and measurement solutions for 5G networking and wireless technologies.
Our focus is increasingly on delivering platform products that enable software
upgrades in line with customers' aspirations. We can't control how our
customers use our products, but we can influence how they benefit from
additional functionality without the need for additional hardware. Thanks to
the skills of our team, our in-depth knowledge, and market insight, many of
our customers enjoy hardware longevity of between 10 and 15 years.
Our software-first approach significantly reduces the impact our products have
on the environment by building in best-in-class longevity and providing
long-term expert support through cutting-edge upgrades that anticipate
customer requirements. Although already a low environmental impact business,
the senior management team and our staff are keen to do more to tackle the
environmental challenges facing the planet and have several initiatives
running to address this. Our employee-led environmental, social & charity
team also continues to be extremely successful, with high levels of employee
engagement experienced throughout the year.
We also work closely with the UK Electronics Skill Foundation (UKESF),
supporting the future talent of Engineering in providing student placements
and supporting STEM education and development.
People
We work as one team. Respectful of each other, we consider how our actions,
ideas and approaches impact others. We are transparent, sharing in the
successes, the challenges and the Group's ambitions moving forward. We help
and encourage each other, supporting the business and our colleagues in
building on an already successful company. Calnex also enjoys and thrives on a
diverse workforce where inclusion is key to building high performing, engaged
and successful teams. Our retention rate of staff over FY24 was 96% (with an
average tenure of 5.3 years).
Our strong values, as reflected in our Investors in People Gold Award, are
promoted through a variety of employee engagement programmes:
· Robust Recruitment Process that only ever hires top talent and
employees who value and support a positive working culture.
· Supportive Induction Training Programme including a comprehensive
internally delivered training programme that supports the integration of new
employees.
· Mentoring Programme to support the development of staff and
career progression. All new employees are assigned a mentor as part of their
probation.
· Employee-built Annual Review Programme that recognises personal
achievements and supports development and career progression.
· Extensive Training and Development Framework to further develop
skillsets and secure educational qualifications. Including a minimum of 5 days
training as part of our Drop Everything and Learn initiative, as detailed
below.
· Group-wide mandatory Compliance Training to remain legally
compliant worldwide.
· A benchmarked Benefits Package that strongly supports the
financial, physical and mental wellbeing of our people including, amongst
other things, profit share for staff if the Company achieves budgeted profit
targets, an employee share incentive plan, a flexible/hybrid working model, an
employee wellbeing activity programme (including fitness classes, an onsite
gym, and free use of facilities at the local sports and recreation centre),
income protection and life assurance polices which covers all staff and a
healthcare scheme of which 84% of UK employees signed up for in FY24.
· Quality Management System that encourages inclusivity and drives
process improvement.
· Regular Culture sessions chaired by Calnex's CEO to gather
feedback on the Company's culture, practices and processes, encouraging
employees to provide their input into organisational development. In FY24 we
held 17 meetings with 122 employees attending.
· Annual Employee Surveys to enable two-way dialogue on topics such
as company strategy, career progression opportunities and other current topics
affecting the working lives and wellbeing of our employees. During FY24, 68%
of employees completed the anonymous survey. The results and feedback from the
survey helped us to focus on key areas resulting in the implementation of a
new learning platform, increased Senior Leadership development and building on
the Psychological Safety training.
· Free Financial Education Workshops for UK employees, delivered by
St James' Place, including an onsite and online employee clinic for those
employees who want to seek free financial advice.
Learning and development
Building on the prior year Power Skills programme and following a suggestion
from one of our employees who had attended the programme, we identified a need
this year to deliver more technical training to our Engineering team (58% of
our employee base). After trialling 3 different platforms, employee feedback
and system performance led us to choose the Udemy platform. The Udemy
platform not only provides the high level of technical training the team
requires, it also provides an abundance of content (24,000+ courses) relevant
to all job roles at building on the Power Skills programme, supporting
employees in not only advancing their technical knowledge but also looking
after the general wellbeing and softer skills development. Every employee at
Calnex has a licence and 'DEAL' time (Drop Everything and Learn) of at least 5
days per year with managers also having the ability to assign learning paths
to their direct reports, actively supporting their personal development with
suggestions on learning content to focus on.
In recent years, we have partnered with Connect Three to provide Leadership
Development (LDP) and Power Skills programmes to our employees. Our LDP is a
mandatory programme for managers which supports them in leading high
performing teams, developing capability, effective communication and leading
effective change, which, in turn, will help with overall business
productivity. As the business continues to grow and change, self-awareness and
Psychological Safety training has also become a key element of this programme
as we strive to retain the positive, inclusive and collaborative culture that
has contributed to our success to date.
As we continue to build on our Psychological Safety awareness training
(branded as our Positive Connections programme in-house), 89% of our people
managers and leaders have now completed the LDP programme and presented their
learnings to the senior leadership team, with suggestions for personal skills
gap training and opportunities for improvement in how we manage our people and
develop our leaders. The Insights Discovery (psychometric profiling)
approach was used as part of the training, to help our people managers
understand themselves and others, with the goal to strengthen workplace
relationships and interactions. This programme is in line with our desire as
a company to have trust and respect, inclusivity and approachability at the
forefront of our culture in the way we behave towards each other, and our
general desire to take care of the professional development and wellbeing of
our employees.
In the last 12 months, our learning and development activities have supported
all our managers and leaders in developing themselves and the organisation. As
a result, we have a stronger internal network of managers supporting each
other, sharing challenges and successes and building new cross functional
relationships, which in turn supports positive communication and collaboration
across departments.
Calnex Corporate Giving Scheme
We have two main initiatives in place under the Calnex Corporate Giving Scheme
- the Calnex Corporate Responsibility Fund where employees can nominate
charities, clubs or organisations for a monetary donation each quarter and our
Calnex in the Community scheme where employees are given two days each
financial year to volunteer within their local community during working hours,
without the need to book annual leave.
The Board is committed to setting aside a portion of the annual budget each
year for the Calnex Corporate Responsibility Fund. The scheme is managed by an
employee-led team (with senior management sponsorship) who consider proposals
from employees for donations or support for groups and events that matter to
them. The Calnex senior management team want to empower our employees to make
a difference in their communities by directing the Company to support
initiatives that our people truly care about.
The Calnex in the Community Scheme is also very popular with our employees.
Group volunteering activities such as planting trees and helping out at food
banks are beneficial in so many ways. Beyond the obvious benefit of the
primary task and the psychological benefit from making a positive
contribution, we recognise how significantly such activities boost team spirit
and engender pride in being associated with a company that helps our employees
make a meaningful, local difference.
This financial year Calnex has donated £33,770 to 77 charities and
organisations and social events across the globe through our Corporate Giving
Scheme. These donations were made to a wide range of different charitable
causes including donating to meals for the homeless, mental and physical
health charities, animal rescue organisations, sports clubs and rewilding
programmes. 55 out of the 77 charities were put forward by employees across
the globe. Key charitable donations included:
· Foodbanks across Scotland, England and Northern Ireland.
· Puppy supplies were donated to Dog Rescue in Bulgaria
· Birmingham Children's Hospital
· SiMBA charity and the Miscarriage Association
· Save the Children
· Breast Cancer Now
As well as monetary donations, we also supported homeless and hygiene bank
charities and sexual assault referral centres in the UK and the US by creating
care packages including items such as personal hygiene products and winter
essentials, delivered in Calnex tote bags.
Our annual Christmas giving continued with our charity raffle in aid of
HopScotch who give vulnerable children a much-deserved seaside holiday.
Through employee ticket sales and Calnex Corporate matching scheme, £4,560
was raised. Our festive giving campaign also includes our gift tag appeal,
where employees across all UK sites bring in toys which are then given to
local charities to support vulnerable children over Christmas. In total over
140 presents were distributed to children across Scotland, England, and
Northern Ireland. Calnex also made monetary donations to similar charities in
America and Asia.
During FY24 Calnex organised 11 volunteering events for our 3 sites across the
UK, and overall, we had 92 employees who participated in at least one of these
events throughout the year, an 80% increase in employee participation on the
prior year. These events were a combination of cross departmental and
inter-department volunteering, both fostering team building as well as helping
out in the local community.
Products
Our products are innovative, leading-edge test and measurement solutions for
designers and operators of the equipment and infrastructure that enables 5G
networking and wireless technologies. 5G technologies provide enhanced mobile
broadband, mission critical communications and the Internet of Things, all of
which have a significant global impact across many aspects of society and
industry.
Through the sales and post sales engagement with customers, we gather feedback
on features and requirements that we need to enhance the product for the
future. Regular engagement with customers is core to the value we deliver to
support our customer's current and future needs.
Our approach to product development is as follows:
· we develop hardware platforms that can be enhanced with
downloadable software upgrades in line with customers' everchanging needs. For
example, both our Paragon-X and Sentinel platforms, introduced in 2010, and
2013 respectively, are still supported by the Company;
· our products are built into test racks where they remain for as
long as the customers' products are supported. Customers expect their
products, once deployed in networks, to be utilised for 10 - 15 years;
· this longevity feeds back through the supply chain as our
customers now expect that same longevity from test equipment vendors;
· all our products comply with the Restrictions of Hazardous
Substances Directive;
· our products are manufactured by a highly skilled contract
manufacturer, Kelvinside Electronics, whose close proximity allows for
excellent two-way support and communication regarding the complex technical
challenges of building and testing our products; and
· our bespoke product packaging is manufactured by a local supplier
with a comprehensive environmental policy including a focus to reduce, reuse
and recycle all packaging materials wherever possible.
· We are certified to ISO9001 for our Quality Management System,
and ISO45001 for Health and Safety.
Environment
Both Calnex's operational processes and products have a low environmental
impact.
The majority of our staff are office-based and have the ability to work part
of the week from home where their responsibilities allow, performing their
operations using computer and internet-based services. Our contract
manufacturer, Kelvinside Electronics, is ISO14001 (Environmental Management
Systems) certified. Our products, sales and customer support services are
managed by locally-based partners together with Calnex support staff, which
greatly minimises global travel for our people.
Our company HQ and the majority of our operations are based in serviced
premises leased from Oracle in Linlithgow. Calnex uses the waste recycling
services provided by Oracle. Oracle have also invested in efficient lighting
and air conditioning systems which minimise energy consumption on site.
The small amount of electrical component and circuit board waste we generate
is disposed of in accordance with the WEEE regulations.
Our products are designed as platforms enabling our customers to take
advantage of future software upgrades and hardware longevity which means the
customer can retain the hardware for a number of years after the initial
purchase.
Other environmental initiatives include:
· During the year, we have collaborated closely with Spirent to
understand their approach to reaching their net zero targets. This involves
Calnex working closely with Spirent on identifying the carbon and other
environmental reporting information they need from their suppliers, to be able
to achieve their goals. This close collaboration will assist Calnex in
prioritising our climate related projects and reporting requirements,
particularly as we work towards Scope 1 and 2 emissions reporting in future
periods and our medium-term goal of establishing an Environmental Management
System that is fit for purpose for a company of our size.
· A Product Packaging Project was launched in FY23 to measure and
improve the recyclability of our product packaging, working with Spirent and
our local packaging supplier, Dewar Brothers. This project has continued
with pace in FY24. We used a defined measurement method to provide consistency
in measurement across all our product lines. All material included in the
packaging that we deliver to customers is identified and weighed and assessed
for its recyclability. This exercise has helped to allocate an internal
environmental score to each product in our portfolio and we have started to
see an improvement in the amount of recyclable material used in our packaging.
Some of the notable initiatives we have progressed are changing to paper tape
from traditional polypropylene tape, launching a project to reduce the amount
of physical paperwork sent with our products, and working with component
suppliers to reduce plastic packaging and find recyclable or recycled
alternatives.
· We are continuing with our product design improvement exercise,
launched in FY23, to assess if we can reduce or change materials included in
our hardware designs to take environmental impact into account, whilst also
adding appropriate recycling labelling information to customers. Every
improvement identified is reviewed to ensure changes do not have a detrimental
impact on quality of the product, protection of our intellectual property or
the customer experience; and
· A Terracycle initiative (a voluntary based recycling platform)
was introduced to our HQ office in Linlithgow during the year to help
employees recycle items that would normally end up in landfill, such as
make-up containers, toothbrushes and toothpaste tubes, contact lenses and
writing instruments such as pens and pencils. This initiative has been
extremely popular with employees, and we intend to have this as an ongoing
initiative in future periods.
· The Calnex Marketplace was an idea put forward during one of our
employee-led Green Team Committee meetings, which has been a great success.
This platform gives employees the ability to sell or donate household items to
other employees, which may have ended up in landfill. Some items have included
old TVs, laptops, DVDs, furniture, toys, puzzles, paint and clothes. Since its
launch, employees have put more than 50 items on our marketplace.
Chief Financial Officer's Statement
While the results for this year are disappointing, importantly gross margins
have remained healthy and we continue to benefit from a strong balance sheet
and cash balance, robust 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.
The wider economic concerns and downturn in our telecoms markets had an impact
on revenue levels across all geographies.
Amongst our three territories, Rest of World (EMEA, India, South East Asia,
Australasia) was the least affected by the slow-down. Although revenues in
the year fell in relation to the prior year, the impact of the ongoing
downturn in the telecoms industry was mitigated by the diverse range of end
customer sectors in the region. Within North Asia, China remains challenging
due to the impact of US restrictions and growing business in Taiwan and Japan
continues to be a priority for Calnex. The Americas region was the most
impacted by the telecoms slow down and, as a result, our current focus is on
cloud-based infrastructure and applications and on government sector
opportunities, which present a higher number of near-term opportunities.
From a product line perspective, Lab Sync (Paragon-Neo and Paragon-X)
experienced a reduced performance in the year which, given their dominance in
the telecoms market, is directly driven by the slowdown in the sector.
Sentinel, our telecoms focused Network Sync product, experienced a similar
trend in the year. Sales of Sentry, our Network Sync product aimed at data
centres, are continuing as planned.
Our NAA network emulation product for infrastructure testing, SNE, had a
challenging year given its exposure to the US market. Order performance picked
up in H2 however, as a result of growing demand for our newly launched SNE-X
& SNE-Ignite products. NE-ONE, our NAA network emulation for testing of
applications product, experienced growth in orders and revenue in the year,
driven by channel expansion and a strong performance in defence and satellite
communications sectors.
Financial KPIs
£000 FY24 FY22
Revenue 16,274 27,449
Gross Profit 11,947 20,472
Gross Margin 73% 75%
Underlying EBITDA (2) 80 7,980
Underlying EBITDA % 0% 29%
(Loss)/Profit before tax (384) 7,208
(Loss)/Profit before tax % (2%) 26%
Closing cash and fixed term deposits (3) 11,868 19,098
Capitalised R&D 5,579 4,523
Basic EPS (pence) 0.05 6.75
Diluted EPS (pence) 0.04 6.42
(2) Refer to note 32 for explanation of the alternative performance measures
calculations. A full reconciliation between Underlying EBITDA and the
statutory measures is also shown below.
(3) The Group takes advantage of high interest deposit accounts for surplus
cash balances not required for working capital. 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 and shown
separately on the balance sheet.
Reconciliation of statutory figures to alternative performance measures -
Income Statement
FY24 FY23
£000 £000
Revenue 16,274 27,449
Cost of sales (4,327) (6,977)
Gross Profit 11,947 20,472
Other income 797 751
Administrative expenses (excluding depreciation & amortisation) (8,884) (9,928)
EBITDA 3,860 11,295
Amortisation of development costs (3,780) (3,315)
Underlying EBITDA 80 7,980
Other depreciation & amortisation (697) (746)
Operating (Loss)/Profit (617) 7,234
Interest received 357 -
Finance costs (124) (26)
(Loss)/Profit before tax (384) 7,208
Tax 424 (1,297)
(Loss)/Profit for the year 40 5,911
Revenue
Revenues in the year fell 41% to 16.3m (FY23: £27.4m), as a result of subdued
telecoms customer spending levels across all of our regions. Revenues from
the Americas and Asia regions both decreased by 48% and ROW saw a 31% decline
on the prior year. ROW accounted for 48% of total revenues (FY23: 41%),
Americas 31% (FY23: 35%) and North Asia 21% (FY23: 24%) in the year.
Revenue model
Calnex generates revenues through the sale of bundled hardware and software,
alongside the provision of software support and extended warranty programmes.
The Group's core sales model is bundled hardware and software. Sales pricing
is dependent on the product type and the complexity of the software
configuration built into the product package. Calnex also sells stand-alone
software upgrades under licence.
Each of Calnex's units comes with a standard warranty period including
maintenance and software upgrade cover in the event of any software upgrades
being released for the options purchased. Calnex also sells software support
programmes which provide customers with access to future software upgrades
which are not included as part of the standard warranty. The Group also offers
extended warranty programmes to cover repairs falling outside of the standard
warranty period.
Bundled hardware and software revenues are recognised when the product is
delivered to the customer, with stand-alone software revenues recognised in
line with the length of the licence period. Revenues from software support and
extended warranty programmes are typically recognised on a straight-line basis
over the term of the contract.
Many of the products and services developed and deployed by Calnex's customers
are interlinked and need to be tested independently, such as the individual
components which are then built into the equipment used in telecoms networks.
Calnex's test products can be used by a combination of equipment vendors,
component manufacturers and network operators, to carry out testing during a
new product development cycle. Products verified utilising Calnex's test
solutions can be used in the knowledge that they will deliver consistent
performance.
Sources of Revenue
Revenue streams
FY24 FY23
£000
£000
Warranty support revenue - recognised over the life of cover 3,681 2,870
Hardware and software revenue - recognised on despatch/delivery 12,593 24,579
Total revenue 16,274 27,449
In FY24, 77% (FY23: 90%) of the Group's revenues were generated from the sale
of bundled hardware and software products, with 23% (FY23: 10%) from software
support and extended warranty programmes.
This increase in support programmes, both as an absolute figure and as a
proportion of total Group revenues, reflects the ongoing availability of
operating expense budget at customers and the value they place on ensuring
they can continue to receive support on our offerings.
Geographical split (orders)
FY24
% of orders
Americas 32%
North Asia 25%
Rest of World 43%
The Group's customers are located across the world. Our global customer base
and distributor network enables the Group to spread risk across our three key
regions: the Americas, North Asia and Rest of the World (ROW).
On a three-year average basis, the split of orders across the three key
regions was 43% for ROW (FY23: 39%), 32% for Americas (FY23: 34%) and 25%
(FY23: 27%) for North Asia. North Asia has been experiencing a steady decrease
since FY20 reflecting the ongoing US-China geopolitical tensions.
Top 10 customer orders
FY24
% of orders
Top 10 customer orders 48%
Total customer orders 52%
In FY24, Calnex received orders from 274 customers, a decrease of 31 on 305
customers in FY23, driven by market conditions.
The Group's top ten customers in FY24 accounted for 51% of total orders (FY23:
39%) and 52% of total orders on average over the last three years (FY23: 47%).
In FY24, no underlying customer accounted for more than 15% of Calnex's total
orders.
Repeat customers
FY24
% of orders
Repeat orders 76%
Other orders 24%
The average length of customer relationship across the top ten customers in
FY24 is 11 years (FY23: 10 years), demonstrating our high levels of repeat
demand from these customers. In addition, the Group typically experiences a
high level of repeat business from its total customer base. In FY24, using a
three-year order average, 76% of orders were generated from existing customers
(FY23: 74%).
Telecoms v cloud computing markets customers
FY24 FY23
% of orders
Telecoms 61% 66%
Cloud Computing Market 39% 34%
Calnex's sales are predominantly derived from telecoms customers where the
end-application is a telecoms (fixed and mobile) network. Customers from the
cloud computing markets include hyperscale/data centre providers, defence and
enterprise customers. FY24 saw an increase in the proportion of total orders
that came from cloud computing customers from 34% in FY23 to 39%, driven by a
strong NE-ONE performance, and an increase in sales to hyperscalers, coupled
with the effect of lower order volumes from telecoms customers.
As telecoms networks evolve, we are finding a number of companies whose
primary business is hyperscale/datacentres and IT are also moving into the
telecoms space. We classify sales to these companies from cloud computing
markets for use in telecoms applications as telecoms sales for the purposes of
this analysis.
Gross Profit
Gross profit decreased by 42% to £11.9m (FY23: £20.5m) reflecting the
decline in revenue. Gross margin, which is calculated after discounts to
channel partners are applied, is in line with the prior year at 73% (FY23:
75%). 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.
Underlying EBITDA
Underlying EBITDA, which includes R&D amortisation, fell to £0.1m in the
year (FY23: £8.0m) as a result of the lower trading volumes. Administrative
expenses (excluding depreciation & amortisation) were £8.9m in FY23
(FY23: £10.0m). This decrease on the prior year relates to lower commission
costs as a result of lower order volumes, a reduction in recruitment costs as
new hires were restricted to graduate hires only, reduced legal and
professional costs (FY23 administration costs include £0.2m of non-recurring
acquisition related deal costs) and no performance bonuses or profit share
being accrued at the end of the current year due to Group FY24 budgeted profit
targets not being achieved.
Amortisation of R&D costs increased by £0.5m to £3.8m (FY23: £3.3m) due
to increased R&D investment in the current and previous years to support
the product roadmap. R&D spend is capitalised and amortised to the
P&L over five years.
Underlying EBITDA margin was nil% in FY24 (FY23: 29%), driven by the effect of
the drop through of reduced revenue volumes and the relatively fixed cost
base.
(Loss)/profit before tax
Profit before tax fell to a small loss of £0.4m in the year (FY23: profit of
£7.2m) and the margin was a loss of 2% in FY24 compared to a profit margin of
26% in FY23, with the drop attributable to the fall in revenue performance.
Tax
The Group's loss-making position resulted in a tax credit of £0.4m for the
year (FY23: charge of £1.4m), driven predominantly by the proportion of
R&D SME enhanced tax credit relief. This tax credit represents an
effective tax rate of a of 111% credit (FY23: 18% charge).
The weighted average applicable tax rate for FY24 is 25%, which without any
further tax differences, would result in a tax credit of £0.1m. The
difference between the applicable rate of tax credit and the effective rate of
111% credit is due to the following:
· Availability of enhanced 86% SME R&D deduction (increasing
the effective rate credit by 138%);
· Timing differences not recognised in the computation (decreasing
the effective rate credit by 120%);
· Expenses disallowable for tax purposes (increasing the effective
rate credit by 84%);
· Other differences, such as prior year adjustments and overseas
taxes (decreasing the effective rate credit by 16%).
The weighted average applicable tax rate for FY23 was 19%. The difference
between the applicable rate of tax and the effective rate of 18% was due to
the following:
· Availability of enhanced 130% SME R&D deduction (decreasing
the effective rate by 2.2%);
· Deferred tax charged directly to equity (decreasing the effective
rate by 2.2%);
· Recognition of the change in tax rate to 25% on certain deferred
tax assets and liabilities as they are expected to reverse after 1 April 2023
(increasing the effective rate by 0.7%);
· Overseas taxes (increasing the effective rate by 2.0%);
· Other differences, such as prior year adjustments and
disallowable expenses (increasing the effective rate by 0.7%).
Earnings per share
Basic earnings per share was a small profit of 0.05p in the year (FY23: 6.75p
profit) and diluted earnings per share was a small profit of 0.04p (FY23:
6.42p profit), with the movement compared to the prior year attributed to
reduced trading volumes, offset partially by the tax credit.
Cashflows
Closing cash at 31 March 2024 was £11.9m (31 March 2023: £19.1m including
fixed term deposits). The Group experienced an outflow of total cash and
fixed term deposits of £7.2m in the year (FY23: £3.7m), reflecting the
trading performance in the year, continuing investment in R&D to support
our product roadmap and increases in working capital.
Working capital in the year increased by £3.7m (FY23: £0.4m increase) driven
predominantly by a £2.8m increase in inventory. At the start of the year,
the Group had planned to increase levels of product to increase responsiveness
to order intake. This was further increased as a result of the tail end
effects of supply chain issues coupled with investment in inventory to support
the previous order expectations prior to the slowdown in customer spending.
The inventory will be sufficient to support the FY25 forecasts (excluding new
products in the roadmap such as the Paragon 800Gb/s) and positions the Company
well to deliver faster turnaround of orders in the year ahead.
As a result of higher volumes of software support and extended warranty
packages being sold in the year, the deferred revenue balance increased by
£0.7m to £4.5m from £3.8m in the prior year. This was offset by a
reduction in trade and other payables balances of £1.5m as a result of lower
trading volumes with our contract manufacturer at the year end due to our
levels of inventory in-house and the reduction in performance bonus and profit
share accruals as no bonuses are due to be paid out in relation to the FY24
year.
The Group paid £0.9m in tax in the period based on the profit generated in
the prior year. Given the Group was loss making before tax in FY24, this cash
is potentially refundable in FY25 after submission of the FY24 year-end tax
return. If refundable after the submission of the tax return, it will be
shown as a receivable in the FY25 balance sheet up to receipt of the cash.
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 year was £5.6m (FY23: £4.5m). £0.6m of this increase was
people spend, reflecting inflationary salary increases, the full year effect
of hires made in FY23 and increases in graduate headcount. R&D equipment
spend accounted for £0.4m of the increase in cash spend, which was
predominantly driven by the requirements of the Paragon Neo 800 Gb/s project,
which is due to complete in the second half of FY25.
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
on investment is classified as a cash outflow within investing activities in
the consolidated cashflow statement in prior periods. As at 31 March 2024, the
Group held surplus cash in notice accounts, but did not hold any on long term
deposit.
There is currently no debt on the balance sheet, leading to no borrowings
related cashflows in the current or prior periods. Closing cash at 31 March
2024 was £11.9m (31 March 2023: £19.1m including fixed term deposits).
Dividend
The directors are proposing a final dividend with respect to the financial
year ended 31 March 2024 of 0.62p per share. The final dividend will be
proposed for approval at the Annual General Meeting in August 2024 and, if
approved, will be paid on 30 August 2024 to all shareholders on the register
as at close of business on 26 July 2024, the record date. The ex-dividend date
will be 25 July 2024.
Ashleigh Greenan
Chief Financial Officer
20 May 2024
Consolidated Statement of Comprehensive Income
_________________________________________________________________________________________________________________
Year ended Year ended
31 March 31 March
2024 2023
Note £'000 £'000
Revenue 5 16,274 27,449
Cost of sales (4,327) (6,977)
Gross profit 11,947 20,472
Other income 6 797 751
Administrative expenses (13,361) (13,989)
Operating (loss)/profit 7 (617) 7,234
Interest received 357 -
Finance costs 10 (124) (26)
(Loss)/Profit before taxation (384) 7,208
Taxation 11 424 (1,297)
Profit and total comprehensive
income for the year 40 5,911
Basic earnings per share 29 0.05 6.75
Diluted earnings per share 29 0.04 6.42
Consolidated and Company Statement of Financial Position
__________________________________________________________________________________________________________________
Group Company
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Non-current assets Note
Intangible assets 12 12,110 10,565 11,337 9,525
Goodwill 13, 14 2,000 2,000 - -
Plant and equipment 15 341 404 341 404
Right-of-use assets 20 287 533 287 533
Deferred tax asset 22 1,246 272 1,246 272
15,984 13,774 13,211 10,734
Current assets
Inventories 16 5,373 2,748 5,373 2,748
Trade and other receivables 17 3,340 3,130 3,570 3,455
Corporation tax receivable 435 - 435 -
Cash and cash equivalents 18 11,868 17,583 11,683 17,186
Short term investment 18 - 1,515 - 1,515
21,016 24,976 21,061 24,904
Total assets 37,000 38,750 34,272 35,638
Current liabilities
Trade and other payables 19 4,845 5,988 4,804 5,806
Corporation tax - 843 - 741
Lease liabilities 20 220 260 220 260
5,065 7,091 5,024 6,807
Non-current liabilities
Trade and other payables 19 1,510 1,396 1,510 1,356
Lease liabilities 20 195 431 195 431
Deferred tax liabilities 21 2,877 2,457 2,683 2,197
Provisions 22 15 15 15 15
4,597 4,299 4,403 3,999
Total liabilities 9,662 11,390 9,427 10,806
Net assets 27,338 27,360 24.845 24,832
Equity
Share capital 28 109 109 109 109
Share premium 7,511 7,495 7,511 7,495
Share option reserve 26 1,414 873 1,414 873
Retained earnings 18,304 18,883 15,811 16,355
Total equity 27,338 27,360 24,845 24,832
The profit for the financial year of the parent company is £75,267 (2023:
£3,428,306). As provided for by section 408 of the Companies Act 2006, no
income statement is presented in respect of the parent company.
The accounts were approved by the Board of Directors and authorised for issue
on 20 May 2024. The accounts are signed on their behalf by:
………………………………………………………..
Ashleigh Greenan
Director
Consolidated Statement of Changes in Equity
_________________________________________________________________________________________________________________
Share
Share Share option Retained Total
capital premium reserve earnings equity
£'000 £'000 £'000 £'000 £'000
Balance at 31 March 2022 109 7,484 502 13,733 21,828
Transactions with owner in their capacity as owners
Share options exercised 0 11 - - 11
Share options - - 371 - 371
Dividends paid - - - (761) (761)
Total transactions with owner in their capacity as owners 0 11 371 (761) (379)
Total comprehensive income for the year - - - 5,911 5,911
Balance at 31 March 2023 109 7,495 873 18,883 27,360
Transactions with owner in their capacity as owners
Share options exercised 0 16 (195) 195 16
Share options - - 736 - 736
Dividends paid - - - (814) (814)
Total transactions with owner in their capacity as owners 0 16 541 (619) (62)
Total comprehensive income for the year - - - 40 40
Balance at 31 March 2024 109 7,511 1,414 18,304 27,338
Company Statement of Changes in Equity
__________________________________________________________________________________________________________________
Share
Share Share option Retained Total
capital premium reserve earnings equity
£'000 £'000 £'000 £'000 £'000
Balance at 31 March 2022 109 7,484 502 13,688 21,783
Transactions with owner in their capacity as owners
Share options exercised 0 11 - - 11
Share options - - 371 - 371
Dividends paid - - - (761) (761)
Total transactions with owner in their capacity as owners 0 11 371 (761) (379)
Total comprehensive income for the year - - - 3,428 3,428
Balance at 31 March 2023 109 7,495 873 16,355 24,832
Transactions with owner in their capacity as owners
Share options exercised 0 16 (195) 195 16
Share options - - 736 - 736
Dividends paid - - - (814) (814)
Total transactions with owner in their capacity as owners 0 16 541 (619) (62)
Total comprehensive income for the year - - - 75 75
Balance at 31 March 2024 109 7,511 1,414 15,811 24,845
Consolidated and Company Cash Flow Statement
__________________________________________________________________________________________________________________
Group Company
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Cashflows from operating activities
(Loss)/profit before tax from continuing operations (384) 7,208 (403) 4,459
Adjusted for:
Finance costs 10 124 26 124 26
Interest received (357) (160) (357) (160)
Government grant income (218) (201) (218) (201)
R&D tax credit income (579) (390) (579) (390)
Gain on disposal of fixed asset (4) - (4) -
Share-based payment transactions 25 746 574 746 574
Depreciation 424 371 177 371
Amortisation 4,053 3,690 4,032 3,422
Impairment of investment - - - 2,436
Movement in inventories 16 (2,820) (1,554) (2,820) (1,557)
Movement in obsolescence provision 16 195 (122) 195 (122)
Movement in trade and other receivables 17 (211) 1,619 (14) 1,484
Movement in trade and other payables 19 (903) (329) (737) (770)
Cash generated from operations 66 10,732 141 9,572
Movement in provisions (overseas tax) - (140) - (140)
Corporation & foreign tax payments (850) (70) (713) -
R&D tax credit refunds received - 589 - 589
Net cash from (absorbed by) operating activities (784) 11,111 (572) 10,021
Investing activities
Purchase of intangible assets 12 (5,598) (4,523) (5,598) (4,523)
Government grant income - 432 - 432
Purchase of property and equipment 15 (111) (181) (111) (181)
Purchase of subsidiary: net of cash acquired - (2,263) - (2,263)
Distribution from subsidiary from pre-acquisition reserves - - - 767
Dividend received from subsidiary of post-acquisition reserves - - - 191
Short term investment: fixed term deposit 16 1,515 (15) 1,515 (15)
Interest received 357 160 357 160
Net cash used in investing activities (3,837) (6,390) (3,837) (5,432)
Financing activities
Payment of lease obligations 20 (296) (245) (296) (245)
Dividends paid 32 (814) (761) (814) (761)
Share options proceeds 25 16 11 16 11
Net cash used in financing activities (1,094) (995) (1,094) (995)
Net increase (decrease) in cash and cash equivalents (5,715) 3,726 (5,503) 3,594
Cash and cash equivalents at beginning of the year 17,583 13,857 17,186 13,592
Cash and cash equivalents at end of the year 11,868 17,583 11,683 17,186
Notes to the Financial Statements
____________________________________________________________________________________________________________
1. General information
Calnex Solutions plc ("the Company") is a public limited company, limited by
shares, domiciled and incorporated in Scotland. The registered office is
Oracle Campus, Linlithgow, West Lothian, EH49 7LR.
The Company (together with its subsidiary, the "Group") was under the control
of the directors throughout the period covered in the financial statements.
The list of the subsidiaries consolidated in the financial statements is shown
in Note 27.
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 telecoms networks, enterprise networks and data
centres.
The financial statements were authorised for issue, in accordance with a
resolution of directors, on 20 May 2024. The directors have the power to amend
and reissue the financial statements.
2. Basis of preparation
(a) Statement of compliance
The financial reporting framework that has been applied in their preparation
is applicable law and UK-adopted International Accounting Standards and, as
regards the parent company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
(b) Basis of accounting
The financial statements have been prepared under the historical cost
convention, except for certain financial assets and liabilities including
financial instruments, which are stated at their fair values.
The preparation of the financial statements in conformity with UK-adopted IAS
requires the directors to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities, income and expense. The estimates and judgements are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about carrying amounts of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from
these estimates. The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented.
(c) Functional and presentation currency
The financial statements are presented in pounds Sterling, which is the
functional and presentation currency of the Group. Results in these financial
statements have been prepared to the nearest thousand.
(d) Basis of consolidation
The consolidated financial statements incorporate those of Calnex Solutions
plc, and all its subsidiaries. A subsidiary is an entity controlled by the
Group, i.e. the Group is exposed to, or has the rights, to variable returns
from its involvement with the entity and has the ability to affect those
returns through its current ability to direct the entity's relevant activities
(power over the investee). All intra-Group transactions, balances, and
unrealised gains on transactions between Group companies are eliminated on
consolidation. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. The total
comprehensive income, assets and liabilities of the entities are amended,
where necessary, to align the accounting policies.
The Group applies the acquisition method to account for all acquired
businesses, whereby the identifiable assets acquired and the liabilities
assumed are measured at their acquisition date fair values (with a few
exceptions as required by IFRS 3 Business Combinations).
The cost of a business combination is the fair value at the acquisition date
of the assets given, equity instruments issued and liabilities incurred or
assumed, plus costs directly attributable to the business combination. The
excess of the cost of a business combination over the fair value of the
identifiable assets, liabilities and contingent liabilities is recognised as
goodwill.
The acquisition of assets that falls outside the scope of IFRS 3 are accounted
for by bringing the assets and liabilities of the acquired entity into the
financial statements at their nominal value from the date of acquisition.
Comparative information is not restated.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
2. Basis of preparation (continued)
(e) Going Concern
The financial information for the year to 31 March 2024 has been prepared on
the basis that the Group and the Company will continue as a going concern.
The Board has approved financial forecasts for the current and succeeding
financial years to 31 March 2026. Based on this review, along with regular
oversight of the Company's risk management framework the Board has concluded
that given the Company's cash reserves available of £11.9m, the Company will
continue to trade as a going concern.
The Group's financial performance in FY24 was impacted by the ongoing downturn
across the telecoms market, with caution across the sector leading to subdued
spending levels. Although the year ended 31 March 2024 experienced a reduction
in revenues compared to the prior year, the Group starts the new financial
year with a healthy liquidity position, with cash as at 31 March 2024 of
£11.9 million.
The Group is continuing to see a prolonged period of limited customer spend
within the telecoms sector and as a result, The Company has taken action to
diversify the product offering to position the business for a return to growth
in FY25. Close customer relationships have been maintained, with customers
confirming that they remain committed to the delivery of projects once
spending budgets are released.
Measured cost-action was undertaken in FY24 and will continue into FY25,
whilst the Company has continued focus on product innovation, maintaining
R&D spend and adjusting engineering programme to focus on areas showing
the most near-term potential across both the telecoms and the newer markets of
cloud computing and defence.
The Group is confident that the action taken during FY24 to diversify the
product offering positions the business for a return to growth in FY25,
thereby protecting the liquidity position. Longer term, The Group continues to
be supported by favourable underlying trends. The Board is confident that
budgets will return in the telecoms market as the economic backdrop improves,
in turn creating the need for test and measurement equipment to prove that new
systems operate effectively and conform to rigorous international standards.
3. Significant accounting policies
(a) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided
in the normal course of business, net of sales related taxes and discounts and
is recognised at the point in time when the relevant performance obligation is
satisfied.
Where revenue contracts have multiple elements, all aspects of the transaction
are considered to determine whether these elements can be separately
identified. Where transaction elements can be separately identified and
revenue can be allocated between them on a fair and reliable basis, revenue
for each element is accounted for according to the relevant policy below.
Where transaction elements cannot be separately identified, revenue is
recognised over the contract period.
The Group recognises revenue from the following major sources:
Hardware & software revenue
Revenue from the sale of bundled hardware and software, is recognised when the
Group transfers the risk and rewards to the customer, and the bundled product
is delivered to the customer. Each unit sale comes with a standard warranty
period during which the Group agrees to provide warranty cover, maintenance
cover and software upgrade cover in the event of any software upgrades being
released. This is recognised as a separately identifiable obligation from the
provision of the hardware and is recognised over the life of the cover
provided, being a year.
For the sale of stand-alone software, the licence period and therefore the
revenue recognition, commences upon delivery.
Extended warranty programme
The Group enters into agreements with purchasers of its equipment to perform
necessary repairs falling outside the Group's standard warranty period. As
this service involves an indeterminate number of acts, the Group is required
to 'stand ready' to perform whenever a request falling within the scope of the
program is made by a customer. Revenue is recognised on a straight-line basis
over the term of the contract.
This method best depicts the transfer of services to the customer as:
i) The Group's historical experience demonstrates no
statistically significant variation in the quantum of services provided in
each year of a multi-year contract; and
ii) no reliable prediction can be made as to if and when any
individual customer will require service.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
3. Significant accounting policies (continued)
Software support programme
The Group enters into agreements with purchasers of its equipment to provide
software support and access to future software updates. Revenue is recognised
on a straight-line basis over the term of the contract.
Grant income
The Group has obtained grant funding from the Scottish Government in prior
years in the form of reimbursement for research and development costs eligible
for reclaim under the grant agreement. Costs were incurred before they were
reclaimed under the grant agreement and revenue only recognised after receipt
of the funds from the government. Grant funds received are recognised over
five years, in line with the amortisation policy on capitalised research and
development costs.
(b) Retirement benefit costs
Payments to defined contribution schemes are charged to the Statement of
Comprehensive Income as an expense as they fall due.
(c) Share-based payments
Equity-settled and cash settled share-based compensation benefits are provided
to some employees. Equity-settled transactions are awards of shares, or
options over shares that are provided to employees in exchange for the
rendering of services.
The cost of equity-settled transactions is measured at fair value on grant
date. Fair value is independently determined using the Black-Scholes option
pricing model that takes into account the exercise price, the term of the
option, the impact of dilution, the share price at grant date and expected
price volatility of the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option, together with non-vesting
conditions that do not determine whether the Group receives the services that
entitle the employees to receive payment. There are no other vesting
conditions.
The cost of equity-settled transactions is recognised as an expense with a
corresponding increase in equity over the vesting period. The cumulative
charge to profit or loss is calculated based on the grant date fair value of
the award, the best estimate of the number of awards that are likely to vest
and the expired portion of the vesting period. The amount recognised in profit
or loss for the period is the cumulative amount calculated at each reporting
date less amounts already recognised in previous periods.
The cost of cash-settled transactions is initially, and at each reporting date
until vested, determined by applying the Black-Scholes option pricing model,
taking into consideration the terms and conditions on which the award was
granted. The cumulative charge to profit or loss until settlement of the
liability is calculated as follows:
● during the vesting period, the liability at each reporting
date is the fair value of the award at that date multiplied by the expired
portion of the vesting period.
● from the end of the vesting period until settlement of the
award, the liability is the full fair value of the liability at the reporting
date.
All changes in the liability are recognised in profit or loss. The ultimate
cost of cash-settled transactions is the cash paid to settle the liability.
If equity-settled awards are modified, as a minimum an expense is recognised
as if the modification has not been made. An additional expense is recognised,
over the remaining vesting period, for any modification that increases the
total fair value of the share-based compensation benefit as at the date of
modification.
If the non-vesting condition is within the control of the Group or employee,
the failure to satisfy the condition is treated as a cancellation. If the
condition is not within the control of the Group or employee and is not
satisfied during the vesting period, any remaining expense for the award is
recognised over the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on
the date of cancellation, and any remaining expense is recognised immediately.
If a new replacement award is substituted for the cancelled award, the
cancelled and new award is treated as if they were a modification.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised. Deferred tax
is charged or credited in the income statement, except when it relates to
items charged or credited directly to equity, in which case the deferred tax
is also dealt with in equity.
Deferred tax assets and liabilities are offset when the relevant requirements
of IAS 12 are satisfied.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
3. Significant accounting policies (continued)
(d) Taxation
The tax expense represents the sum of the current tax and deferred tax charge
for the year. The tax currently payable is based on taxable profit for the
year. The Group's liability for current tax is calculated using the tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is measured on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases,
as used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in
a business combination) of financial assets and liabilities in a transaction
that affects neither the taxable profit nor the accounting profit.
(e) Business Combinations
The acquisition method of accounting is used to account for business
combinations regardless of whether equity instruments or other assets are
acquired.
The consideration transferred is the sum of the acquisition-date fair values
of the assets transferred, equity instruments issued or liabilities incurred
by the Group to former owners of the acquirer. All acquisition costs are
expensed as incurred to profit or loss. On the acquisition of a business,
the Group assesses the financial assets acquired and liabilities assumed for
appropriate classification and designation in accordance with the contractual
terms, economic conditions, the Group's operating or accounting policies and
other pertinent conditions in existence at the acquisition-date.
Contingent consideration to be transferred by the acquirer is recognised at
the acquisition-date fair value. Subsequent changes in the fair value of the
contingent consideration classified as an asset or liability is recognised in
profit or loss.
The difference between the acquisition-date fair value of assets acquired and
liabilities assumed and the fair value of the consideration transferred is
recognised as goodwill. If the consideration transferred is less than the fair
value of the identifiable net assets acquired, a bargain purchase is
recognised as a gain directly in profit or loss by the Group on the
acquisition-date.
Business combinations are initially accounted for on a provisional basis. The
Group retrospectively adjusts the provisional amounts recognised and also
recognises additional assets or liabilities during the measurement period,
based on new information obtained about the facts and circumstances that
existed at the acquisition-date. The measurement period ends on either the
earlier of (i) 12 months from the date of the acquisition or (ii) when the
acquirer receives all the information possible to determine fair value.
(f) Intangible assets
Intangible assets acquired as part of a business combination, other than
goodwill, are initially measured at their fair value at the date of the
acquisition. Intangible assets acquired separately are initially recognised at
cost. Indefinite life intangible assets are not amortised and are subsequently
measured at cost less any impairment. Finite life intangible assets are
subsequently measured at cost less amortisation and any impairment. The method
and useful lives of finite life intangible assets are reviewed annually.
Changes in the expected pattern of consumption or useful life are accounted
for prospectively by changing the amortisation method or period.
Research costs are expensed in the period in which they are incurred.
Development costs are capitalised when it is probable that the project will be
a success considering its commercial and technical feasibility; the Group is
able to use or sell the asset; the Group has sufficient resources and intent
to complete the development; and its costs can be measured reliably.
Capitalised development costs are amortised on a straight-line basis over the
period of their expected benefit, being their finite life of 5 years.
Significant costs associated with patents and trademarks are deferred and
amortised on a straight-line basis over the period of their expected benefit,
being their finite life of 10 years. Amortisation is charged to
administrative expenses in the Statement of Comprehensive Income.
Goodwill and other intangible assets that have an indefinite useful life are
not subject to amortisation and are tested annually for impairment, or more
frequently if events or changes in circumstances indicate that they might be
impaired. Other non-financial assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs of disposal and
value-in-use. The value-in-use is the present value of the estimated future
cash flows relating to the asset using a pre-tax discount rate specific to the
asset or cash-generating unit to which the asset belongs. Assets that do not
have independent cash flows are grouped together to form a cash-generating
unit.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
3. Significant accounting policies (continued)
(g) Financial assets
Where there is no publicly quoted market value, other investments, including
subsidiaries, are shown at cost less provisions for impairment.
(h) Plant and equipment
Plant and equipment are shown at cost, net of depreciation and any provision
for impairment. Depreciation is provided on all property, plant and
equipment at varying rates calculated to write off cost less residual value
over the useful lives. Depreciation is charged to administrative expenses in
the Statement of Comprehensive Income. The principal rates employed are:
Plant and
machinery
25-33% straight line
The carrying values of property, plant and equipment are reviewed for
impairment when events or changes in circumstances indicate these values may
not be recoverable. If there is an indication that impairment does exist,
the carrying values are compared to the estimated recoverable amounts of the
assets concerned.
The recoverable amount is the greater of an asset's value in use and its fair
value less the cost of selling it. Value in use is calculated by discounting
the future cash flows expected to be derived from the asset. Where the
carrying value of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down through the income statement to its
recoverable amount.
An item of property, plant and equipment is written off either on disposal or
when there is no expected future economic benefit from its continued use.
Any gain or loss (calculated as the difference between the net disposal
proceeds and the carrying value of the asset) is included in the income
statement in the year.
(i) Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The
right-of-use asset is measured at cost, which comprises the initial amount of
the lease liability, adjusted for, as applicable, any lease payments made at
or before the commencement date net of any lease incentives received, any
initial direct costs incurred, and, except where included in the cost of
inventories, an estimate of costs expected to be incurred for dismantling and
removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis over the
unexpired period of the lease or the estimated useful life of the asset,
whichever is the shorter. Where the Group expects to obtain ownership of the
leased asset at the end of the lease term, the depreciation is over its
estimated useful life. Right-of use assets are subject to impairment or
adjusted for any re-measurement of lease liabilities.
(j) Inventories
Inventories are valued at the lower of cost and net realisable value. In
determining the cost of raw materials, consumables and goods for resale, the
average purchase price is used. For work in progress and finished goods,
cost is taken as production cost which includes an appropriate proportion of
overheads.
Inventories are assessed for indicators of impairment at each year end and
where a provision is required the income statement is charged directly.
(k) Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently
measured at amortised cost using the effective interest method, less any
allowance for expected credit losses.
The simplified approach to measuring expected credit losses has been applied,
this uses a lifetime expected loss allowance. To measure the expected credit
losses, trade receivables have been grouped based on days overdue.
Other receivables are recognised at amortised cost, less any allowance for
expected credit losses.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
3. Significant accounting policies (continued)
(l) Cash and cash equivalents
Cash at bank and in hand are basic financial assets and include cash in hand,
deposits held at call with banks, other short-term liquid investments with
original maturities of 95 days or less, and bank overdrafts. Bank overdrafts
are shown within borrowings in current liabilities.
(m) Short term investments
Cash at bank on fixed term deposit, and other liquid investments with
maturities of greater than 95 days, but less than 12 months at the reporting
date.
(n) Borrowings
Interest-bearing loans and bank overdrafts are initially recorded at the fair
value of proceeds received and are subsequently stated at amortised cost.
Finance charges, including premiums payable on settlement or redemption and
direct issue costs, are accounted for on an accruals basis in the income
statement using the effective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled in the period
in which they arise.
(o) Trade and other payables
Trade payables are non-interest-bearing and are measured at amortised cost.
(p) Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation arising as a result of a past event, it is probable that an outflow
of economic benefits will be required to settle the obligation and a reliable
estimate can be made. Provisions are measured at the present value of the
expenditure expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and
the risks specific to the obligation. The increase in the provision due to the
passage of time is recognised as an interest expense.
(q) Financial liabilities
Financial liabilities are recognised on the Group's Statement of financial
position when the Group becomes a party to the contractual provisions of that
instrument.
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair value
at each reporting date. The changes in fair value are recorded in the
statement of comprehensive income.
(r) Lease
liabilities
A lease liability is recognised at the commencement date of a lease. The lease
liability is initially recognised at the present value of the lease payments
to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the
Group's incremental borrowing rate. The lease term is the non-cancellable
period of the lease plus extension periods that the group is reasonably
certain to exercise and termination periods that the group is reasonably
certain not to exercise. Lease payments comprise of fixed payments less any
lease incentives receivable, variable lease payments that depend on an index
or a rate, amounts expected to be paid under residual value guarantees,
exercise price of a purchase option when the exercise of the option is
reasonably certain to occur, and any anticipated termination penalties. The
variable lease payments that do not depend on an index or a rate are expensed
in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest
method. The carrying amounts are re-measured if there is a change in the
following: future lease payments arising from a change in an index or a rate
used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is re-measured, an adjustment is
made to the corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
The Group has elected not to recognise a right-of-use asset and corresponding
lease liability for short-term leases with terms of 12 months or less and
leases of low-value assets. Lease payments on these assets are expensed to
profit or loss as incurred.
Notes to the Financial Statements continued
____________________________________________________________________________________________________________
3. Significant accounting policies (continued)
(s) Foreign currency
In preparing the financial statements, transactions in currencies other than
pounds sterling are recorded at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated to sterling at the foreign
exchange rate ruling at that date. Exchange differences arising on
translation are recognised in the consolidated Statement of comprehensive
income for the period.
Non-monetary assets and liabilities denominated in foreign currencies that are
stated at fair value are translated at the rates prevailing at the dates when
the fair value was determined. Non-monetary assets and liabilities that are
measured at historical cost in a foreign currency (e.g. property, plant and
equipment purchased in a foreign currency) are translated using the exchange
rate prevailing at the date of the transaction. Exchange differences arising
on the translation of net assets are affected through the Statement of
Comprehensive Income.
For the purpose of presenting consolidated financial statements, the assets
and liabilities of the Group's foreign operations are translated at exchange
rates prevailing on the balance sheet date. Income and expense items are
translated at the average exchange rates for the period and recognised in the
Statement of Comprehensive Income.
(t) Dividends
Dividends are recognised when declared during the financial year. The
declaration of dividends is at the discretion of the directors.
(u) Value Added Tax
Revenues, expenses and assets are recognised net of the amount of associated
VAT, unless the VAT incurred is not recoverable from the tax authority. In
this case it is recognised as part of the cost of the acquisition of the asset
or as part of the expense.
Receivables and payables are stated inclusive of the amount of VAT receivable
or payable. The net amount of VAT recoverable from, or payable to, the tax
authority is included in other receivables or other payables in the statement
of financial position.
Commitments and contingencies are disclosed net of the amount of VAT
recoverable from, or payable to, the tax authority.
(v) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
the shareholders, excluding any costs of servicing equity other than ordinary
shares, by the weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares issued
during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued
for no consideration in relation to dilutive potential ordinary shares.
(w) Critical judgements in applying the Groups accounting estimates
In the process of applying the Group's accounting policies, the directors have
made the following estimates that have the most significant effect on the
amounts recognised in the financial statements.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by
reference to the fair value of the equity instruments at the date at which
they are granted. The fair value is determined by using the Black-Scholes
model taking into account the terms and conditions upon which the instruments
were granted. The accounting estimates and assumptions relating to
equity-settled share-based payments would have no impact on the carrying
amounts of assets and liabilities within the next annual reporting period but
may impact profit or loss and equity.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
3. Significant accounting policies (continued)
(w) Critical judgements in applying the Groups accounting estimates
(continued)
Useful lives
The Group uses forecast cash flow information and estimates of future growth
to assess whether goodwill and other intangible fixed assets are impaired, and
to determine the useful economic lives of its goodwill and intangible
assets. If the results of operations in a future period are adverse to the
estimates used a reduction in useful economic life may be required.
Intangible assets
Intangible assets acquired as part of a business combination, other than
goodwill, are initially measured at their fair value at the date of the
acquisition. Intangible assets acquired separately are initially recognised at
cost. Indefinite life intangible assets are not amortised and are subsequently
measured at cost less any impairment. Finite life intangible assets are
subsequently measured at cost less amortisation and any impairment. The method
and useful lives of finite life intangible assets are reviewed annually.
Changes in the expected pattern of consumption or useful life are accounted
for prospectively by changing the amortisation method or period.
Research costs are expensed in the period in which they are incurred.
Development costs are capitalised when it is probable that the project will be
a success considering its commercial and technical feasibility; the Group is
able to use or sell the asset; the Group has sufficient resources and intent
to complete the development; and its costs can be measured reliably.
Capitalised development costs are amortised on a straight-line basis over the
period of their expected benefit, being their finite life of 5 years.
Significant costs associated with patents and trademarks are deferred and
amortised on a straight-line basis over the period of their expected benefit,
being their finite life of 10 years. Amortisation is charged to
administrative expenses in the Statement of Comprehensive Income.
Goodwill and other intangible assets that have an indefinite useful life are
not subject to amortisation and are tested annually for impairment, or more
frequently if events or changes in circumstances indicate that they might be
impaired. Other non-financial assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the
asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs of disposal and
value-in-use. The value-in-use is the present value of the estimated future
cash flows relating to the asset using a pre-tax discount rate specific to the
asset or cash-generating unit to which the asset belongs. Assets that do not
have independent cash flows are grouped together to form a cash-generating
unit.
(x) New accounting standards
There have been no applicable new standards, amendments to standards and
interpretations effective from 1 April 2023 that have been applied by the
Group which have or are expected to result in a significant impact on its
consolidated results or financial position.
4 Operating Segments
Operating segments are based on the internal reports that are reviewed and
used by the Board (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 does not consider segmentation in their review of costs
or the statement of financial position. The only operating segment information
reviewed, and therefore disclosed, are the revenues derived from different
geographies.
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Americas 5,042 9,644
North Asia 3,396 6,475
Rest of World 7,836 11,330
16,274 27,449
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
5 Revenue
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Sale of goods 12,593 24,579
Rendering of services 3,681 2,870
Total revenue 16,274 27,449
67% (2023: 69%) of the Group revenue has been generated through the network of
the Group's principal distribution partner. In the current year, one customer
accounted for 15% of the Group's revenue. In the prior year there were no
customers which exceeded 10% of the Group's revenue.
6 Other income
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Government grant income 218 201
R&D tax credit 579 390
Interest received - 160
797 751
7 Material operating profit items
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Operating profit for the year is stated after charging/(crediting):
Equity settled share-based payments 756 574
Cash settled share based payments (10) -
Reversal of non-employee vendor contingent consideration (334) -
Unwinding of discount on contingent consideration for non employee vendors 104 -
Inventory recognised as an expense 3,111 5,744
Legal and professional fees associated with acquisition of subsidiary - 200
Depreciation of tangible and ROU assets 423 371
Amortisation of intangible assets 4,053 3,690
Auditor's remuneration
Fees payable to the Group's auditor and its associates for the audit of the 47 44
Group's annual accounts
Total fees payable for audit services 47 44
No fees were payable to the Group's auditor and its associates for other
services.
Notes to the Financial Statements continued
_________________________________________________________________________________________________________________
8 Employee benefits costs
Average monthly number of employees
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Development staff 79 70
Administrative staff 76 68
Management staff 11 11
166 149
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Employee costs during the year (including directors remuneration) amounted to:
Wages and salaries 8,846 8,560
Social security costs 889 875
Defined contribution pension 423 418
Share incentive scheme 226 233
Equity-settled share-based payment 756 531
Cash-settled share-based payment (10) 43
11,130 10,660
Total gross wages and salaries capitalised in the year, included in the 4,451 3,837
analysis above
9 Key management personnel emoluments
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Wages and salaries 575 636
Social security costs 77 100
Defined contribution pension 7 7
Equity-settled share-based payment 77 29
736 772
The number of directors who accrued benefits under the company pension plans:
Defined contribution plans 1 1
Remuneration of the highest paid director in respect of qualifying services:
Aggregate remuneration 211 237
Key management refers to the directors of the Group.
10 Finance costs
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Interest expense on lease liabilities 20 26
Unwinding of discount on contingent consideration 104 -
124 26
Notes to the Financial Statements continued
_______________________________________________________________________________________________________________
11 Taxation
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Current taxation
UK corporation tax on profits for the year - 1,143
Foreign current tax expense 192 149
Adjustments relating to prior years (42) (4)
150 1,288
Deferred taxation
Origination and reversal of temporary differences (580) (46)
Adjustments relating to prior periods 6 -
Effect of changes in tax rates - 55
(574) 9
Total taxation (credit)/charge (424) 1,297
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
(Loss)/Profit before tax for the year (384) 7,208
Tax thereon at 25% (2023: 19%) (96) 1,369
Effects of:
Expenses disallowable for tax purposes (321) 40
Adjustments in respect of prior periods - current tax (42) (4)
Adjustments in respect of prior periods - deferred tax 6 -
Change in tax rate on opening balance - 55
SME R&D credit (530) (161)
Timing differences not recognised in the computation 460 19
Impact of super deduction - (10)
Deferred tax (charged)/credited directly to equity (20) (160)
Overseas tax 119 149
Taxation (credit)/charge (424) 1,297
The weighted average applicable tax rate for the year ended 31 March 2024 was
25% (2023: 19%). The effective rate of tax for the year, based on the taxation
charge for the year as a percentage of the profit before tax is 111% (2023:
18.0%) The 87 percentage point difference between the applicable rate of tax
and the effective rate is due to the following:
· Availability of enhanced 86% SME R&D
deduction
138%
· Timing differences not recognised in the computation
(120%)
· Expenses disallowable for tax purposes
84%
· Overseas taxes
(31%)
· Prior period adjustments
11%
· Cumulative other
4%
Notes to the Financial Statements continued
_________________________________________________________________________________________________________________
12 Intangible assets
Included within intangible assets are the following significant items:
· Acquired intellectual property from business combinations, cost
of patent applications and on-going patent maintenance fees.
· 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 Group
property Costs Total
£'000 £'000 £'000
Cost
At 1 April 2023 3,526 30,395 33,921
Additions 19 5,579 5,598
Disposals - (1,714) (1,714)
At 31 March 2024 3,545 34,260 37,805
Amortisation
At 1 April 2023 2,483 20,873 23,356
Charge for the year 273 3,780 4,053
Eliminated on disposal - (1,714) (1,714)
At 31 March 2024 2,756 22,939 25,695
Net book value
31 March 2023 1,043 9,522 10,565
31 March 2024 789 11,321 12,110
Intellectual Development Company
property Costs Total
£'000 £'000 £'000
Cost
At 1 April 2023 2,218 30,395 32,613
Additions 19 5,579 5,598
Disposals - (1,714) (1,714)
At 31 March 2024 2,237 34,260 36,497
Amortisation
At 1 April 2023 2,215 20,873 23,088
Charge for the year 6 3,780 3,786
Eliminated on disposal - (1,714) (1,714)
At 31 March 2024 2,221 22,939 25,160
Net book value
31 March 2023 3 9,522 9,525
31 March 2024 16 11,321 11,337
During the year, a review of the carried development costs brought forward has
resulted in a disposal of £1,714,991 (2023: £1,365,530), and elimination of
amortisation of £1,714,991 (2023: £1,365,530) resulting in a net book value
impact of £nil (2023: £nil). This reflects removal of aged spend on product
features that are now considered to be superseded by current product
developments.
Within Group intellectual property cost £1,308,000 relates to the fair value
assessment of intellectual property on the NE-ONE product range resulting from
the business combination of iTrinegy in April 2022. This intellectual property
addition has also resulted in £267,970 (2023: £267,970) of amortisation
being charged to administration expenses in the year. Details of the business
combination are included in note 13.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
13 Business combinations
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. The core product, the NE-ONE hardware and software based
Network Emulation platforms, provide organisations, primarily across the
technology, financial, gaming and military/government sectors, with the
ability to accurately recreate complex, real-world network test environments
in which to analyse and verify the performance of applications, before
deployment. The NE-ONE platform, provides users with insight which enables
them to reduce deployment costs and risk, whilst also addressing the needs of
the cloud-based and virtual development environments, a rapidly growing
sub-sector of the application development market.
This acquisition was made on a cash free, debt free basis, for an initial cash
consideration of £2.5 million, fully funded from Group free cash. An
additional £0.5 million was also paid to the vendors in exchange for them
leaving all available cash (£0.7m at acquisition date) within the acquired
business
The fair values of the identifiable net assets are set our below:
Fair value
Book value Adjustment Fair value
£'000 £'000 £'000
Intangible assets - 1,308 1,308
Deferred tax liability - (311) (311)
Plant & equipment 8 - 8
Cash and cash equivalents 737 - 737
Trade and other receivables 397 - 397
Inventories 74 - 74
Trade and other payables (1,010) - (1,010)
Total identifiable assets 206 997 1,203
Goodwill on acquisition 2,000
Total consideration 3,203
Satisfied by:
Initial cash consideration 3,000
Contingent consideration 203
3,203
Cashflow
Initial cash consideration 3,000
Cash acquired (737)
Net cashflow impact of acquisition 2,263
The fair value adjustment noted above has been derived from the valuation of
the intellectual property associated with acquired technology, and customer
relationships. These intangible assets have been assigned a useful life of
between three and five years.
The book value of all other assets and liabilities recognised at acquisition
date have been determined to approximate their fair value. Trade and other
receivables acquired were mainly trade receivables, of which no recovery
issues were identified post-acquisition.
The values identified in relation to the acquisition of iTrinegy were final as
at 31 March 2023.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
13 Business combinations (continued)
The directors have reviewed the £2.0m goodwill valuation and are comfortable
it benchmarks consistently with similar acquisitions within the sector.
Goodwill carried reflects the inherent value of an accelerated R&D
development timeline to address the network emulation market with the NE-ONE
product, coupled with significant cost and sales channel synergies the group
will be able to leverage from its more mature organisational and sales
structure. Goodwill also includes intangible assets not qualifying for
separate recognition, such as workforce in place.
The goodwill is not expected to be deductible for tax purposes.
As part of the integration of the iTrinegy business, the Group has transferred
all iTrinegy staff and trading over to Calnex Solutions plc, with the iTrinegy
legal entities being 'hived up' into the existing Calnex entities. Details of
the group structure changes in the year are detailed in note 27.
Contingent consideration of up to a further £1 million was 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'). Although NE-ONE
revenues experienced healthy growth in the period, the vendors did not meet
the Earn-Out Payment targets, the revenue growth trigger for the earn-out
payment was not met, and no further contingent consideration measures remain
in place.
14 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 consider 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) assess and review 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.
Group
31 March
2024
£'000
Cost
As at 31 March 2023 2,000
As at 31 March 2024 2,000
The Group test goodwill for impairment annually, or more frequently if there
are indications that the goodwill has been impaired. Goodwill is tested for
impairment by comparing the carrying amount of the cash generating unit,
including goodwill, with the recoverable amount. The recoverable amounts are
determined based on value-in-use calculations which require assumptions. The
calculations use cashflow projections based on financial budgets approved by
the Board covering a two year period, together with management forecasts for a
further three year period. These budgets and forecasts have regard to
historical financial performance and knowledge of the current market, together
with the Group's views on the future achievable growth and the impact of
committed cashflows. Cashflows beyond this are extrapolated using estimated
growth rates.
Key assumptions used in the value in use calculation:
· The terminal cash flows are extrapolated in perpetuity using a
growth rate of 2%,(2023:2%) which has been based on management judgement
reflecting sector and industry experience. This is not considered to be higher
than the average long-term industry growth rate.
· The discount rate is based on the weighted average cost of capital
(WACC) of 8.2% (2023:11.7%), which would be anticipated for a market
participant investing in the Group. WACC was tested for materiality based on
movement of up to 4%, with no resultant material impact on the calculation
Management has performed sensitivity analysis 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 the balance sheet date.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
15 Plant and equipment
The Group annually reviews the carrying value of tangible fixed assets taking
recognition of the expected working lives of the plant and equipment available
to the Group and known requirements. Depreciation is charged to administrative
expenses.
Group Company
Plant and Plant and
equipment equipment
Total Total
£'000 £'000
Cost
At 1 April 2023 570 570
Additions 132 132
Disposals (26) (26)
At 31 March 2024 676 676
Depreciation
At 1 April 2023 166 166
Charge for the year 177 177
Eliminated on disposal (8) (8)
At 31 March 2024 335 335
Net book value
31 March 2023 404 404
31 March 2024 341 341
16 Inventories
Group Company
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Finished goods 5,875 3,055 5,875 3,055
Provision for obsolescence (502) (307) (502) (307)
5,373 2,748 5,373 2,748
Cost of inventories recognised as an expense 3,111 5,744 3,111 5,685
Group inventories reflect the following movement in provision for
obsolescence:
At start of the financial year 307 429 307 429
Utilised - (122) - (122)
Provided 195 - 195 -
At end of the financial year 502 307 502 307
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
17 Trade and other receivables
Group Company
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Amounts due within one year
Trade receivables 2,922 2,605 2,922 2,605
Other receivables 61 213 61 213
Amounts owed by group companies - - 230 325
Prepayments and accrued income 357 312 357 312
3,340 3,130 3,570 3,455
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.
The Group's credit risk is primarily attributable to its trade and other
receivables. Management has a credit policy in place and the exposure to
credit risk is monitored on an ongoing basis. Credit evaluations are
performed on customers as appropriate to the level of credit extended. In
addition, credit insurance would be sought for major areas of exposure,
although this has not been required in the year under review.
The Group reviews trade receivables past due but not impaired on a regular
basis and considers, based on experience, that the credit quality of these
amounts at the balance sheet date has not deteriorated since the date of the
transaction.
Included in the Group's trade receivables balance are debtors with a carrying
amount of £143,109 (2023: £339,366), which are past due at the reporting
date but for which the Group has not provided against. As there has not been a
significant change in credit quality, the Group believes that all amounts
remain recoverable.
Ageing of past due but not impaired trade receivables
Group Company
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Overdue by
0-30 days 56 322 56 322
30-60 days 13 3 13 3
60+ days 74 14 74 14
143 339 143 339
The Directors consider that the carrying amount of trade and other receivables
approximates their fair value.
Note 24 includes disclosures relating to the credit risk exposures and
analysis relating to the allowance for expected credit losses. The calculated
credit risk is £9,184 (2023: £9,214). Due to the immaterial nature of the
balance, no provision has been recognised.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
18 Cash and cash equivalents
Cash and cash equivalent amounts included in the Consolidated Statement of
Cashflows comprise the following:
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Cash at bank 11,748 12,439 11,563 12,042
Cash on short term deposit 120 5,144 120 5,144
Total cash and cash equivalents 11,868 17,583 11,683 17,186
Short term investment: fixed term deposit - 1,515 - 1,515
Short term cash deposits of £nil (2023: £12,974) are callable on a notice of
65 days.
Short term cash deposits of £120,084 (2023: £5,130,587) 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 readily be converted into cash have been classified as a
short term investment. A total of £nil (2023: £1,515,000) is currently held
on fixed term deposit, with a maturity on this investment of less than twelve
months at the reporting date.
The directors consider that the carrying value of cash and cash equivalents
and short-term investments approximates their fair value. Details of the
Group's credit risk management are included in note 24.
19 Trade and other payables
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Amounts due within one year
Trade payables 913 1,770 897 1,767
Other taxes and social security 211 197 211 197
Other payables 95 75 95 75
Accruals 663 1,275 656 1,264
Deferred income 2,963 2,671 2,945 2,503
4,845 5,988 4,804 5,806
Amounts due after one year
Deferred income 1,510 1,166 1,510 1,126
Other payables - 230 - 230
1,510 1,396 1,510 1,356
Total amounts due 6,355 7,384 6,314 7,162
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.
The directors consider that the carrying amount of trade and other payables
approximates their fair value.
Deferred income relates to fees received for ongoing services to be recognised
over the life of the service rendered, and grant proceeds received but not yet
released to the Statement of Comprehensive Income. In the year £3,571,718
(2023:£2,869,774) was released from deferred warranties, and £217,513 (2023:
£200,852) was released from deferred grants
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
20 Leases
Right of use assets
The Group leases land and buildings for its head office in Linlithgow,
Scotland. The current lease was agreed on 1 December 2019 and will run for the
5 year period to 30 November 2024. On 4 March 2022 the Group agreed an
additional premises lease for office space in Belfast. This lease has an
initial 5 year term and will run until 4 March 2027.
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 carrying value of right of use assets, and lease obligations recognised
with respect to these leases are shown below:
Building Group Company
Lease IT equipment Total Total
£'000 £'000 £'000 £'000
Cost
At 1 April 2023 1,044 170 1,214 1,214
Additions - - - -
Disposals - - - -
At 31 March 2024 1,044 170 1,214 1,214
Depreciation
At 1 April 2023 554 127 681 681
Charge for the year 218 28 246 246
Eliminated on disposal - - - -
At 31 March 2024 772 155 927 927
Net book value
31 March 2023 490 43 533 533
31 March 2024 272 15 287 287
Right-of-use assets Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Balance at 1 April 533 791 533 791
Additions to right of use assets - - - -
Depreciation charge for the year (246) (258) (246) (258)
Balance at 31 March 287 533 287 533
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
20 Leases (continued)
Lease liabilities
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Balance at 1 April 691 857 691 857
Acquisition of new leases - 53 - 53
Payment of lease liabilities (296) (245) (296) (245)
Interest expense on lease liabilities 20 26 20 26
Balance at 31 March 415 691 415 691
Disclosed as
Current 220 260 220 260
Non-current 195 431 195 431
415 691 415 691
During the year, the Group also leased additional land and buildings in
Stevenage and four motor vehicles. These leases were 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.
Lease commitments for short-term and low value leases
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Motor vehicles 49 17 49 17
Land and buildings 72 58 72 58
121 75 121 75
Amounts recognised in the income statement
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Depreciation charge - building lease 218 218 218 218
Depreciation charge - IT equipment 28 40 28 40
Interest on lease liabilities 20 26 20 26
Low value lease rental 121 75 121 75
Amounts recognised in statement of cashflows
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Total cash outflow for leases (296) (245) (296) (245)
A maturity analysis of contractual cashflows relating to lease liabilities is
included in note 24 (d).
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
21 Deferred tax
The 2021 budget proposal increased the corporation tax rate to 25% from 1
April 2023. This was substantively enacted in the Finance Act 2021 on 24 May
2021.
Deferred tax asset
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Opening balance 272 304 272 304
Recognised in statement of comprehensive income 974 (192) 974 (192)
Recognised in equity - 160 - 160
Closing balance 1,246 272 1,246 272
Deferred tax assets arise as follows:
Unused tax losses 1,143 - 1,143 -
Share-based remuneration 76 250 76 250
Other timing differences 27 22 27 22
Total deferred tax asset 1,246 272 1,246 272
Deferred tax liability
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Opening liability 2,457 2,017 2,197 2,017
Recognised in statement of comprehensive income 399 440 645 180
Recognised in equity 21 - 21 -
Closing liability 2,877 2,457 2,863 2,197
Deferred tax liabilities arise as follows:
Deferred tax on acquisition 193 260 - -
Timing differences on development costs 2,606 2,108 2,605 2,108
Accelerated capital allowances 78 89 78 89
Total deferred tax liability 2,877 2,457 2,863 2,197
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
22 Provisions
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Non-current provisions
Dilapidations 15 15 15 15
Provisions pertain to potential payments to be made in respect of
dilapidations on leased assets.
No discount is recorded on recognition of the provisions or unwound due to the
low value and estimable nature of the non-current element.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
23 Financial instruments
The Group's activities expose it to a variety of financial risks: market risk
(including foreign currency risk, price risk and interest rate risk), credit
risk and liquidity risk. The Group's overall risk management program focuses
on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the financial performance of the Group. When required, the
Group uses derivative financial instruments in the form of forward foreign
exchange contracts to hedge certain risk exposures. Derivatives are
exclusively used for hedging purposes, and not as trading or other speculative
instruments. The Group uses different methods to measure different types of
risk to which it is exposed. These methods include sensitivity analysis in the
case of interest rate, foreign exchange and other price risks and ageing
analysis for credit risk.
Capital management
The Board's policy is to maintain a strong capital base so as to cover all
liabilities and to maintain the business and to sustain its development. The
Board defines capital as total equity, as recognised in the statement of
financial position, plus net debt. Net debt is calculated as total borrowings
less cash and cash equivalents. In order to maintain or adjust the capital
structure, the Group may return capital to shareholders, issue new shares or
sell assets to reduce debt.
There were no changes in the Group's approach to capital management during the
year.
Neither the Company nor any of its subsidiaries are subject to externally
imposed capital requirements.
(a) Categories of financial instruments
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Financial assets (current and non-current) at amortised cost
Trade and other receivables 2,922 2,605 3,072 2,930
Cash and cash equivalents 11,868 17,583 11,683 17,186
Short term investments - 1,515 2,173 1,515
Financial liabilities (current and non-current) at amortised cost
Lease liabilities 416 691 416 691
Trade and other payables 1,671 4,636 1,648 4,600
Unless otherwise stated, the carrying amounts of financial instruments reflect
their fair value. Under the fair value three-level hierarchy, based on the
lowest level of input that is significant to the entire fair value
measurement, being:
• Level 1: Quoted prices
(unadjusted) in active markets for identical assets or liabilities that the
Group can access at the measurement date;
• Level 2: Inputs other than quoted
prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly; and
• Level 3: Unobservable inputs for
the asset or liability.
There have been no Level 3 fair value measurements in the current or prior
financial year.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
23 Financial instruments (continued)
Financial risk management objectives
The Group's senior management team manage the financial risks relating to the
operations of each department. These risks include market risk, credit risk
and liquidity risk.
Where appropriate, the Group seeks to minimise the effects of market risks by
using financial instruments to mitigate these risk exposures as appropriate.
The Group does not enter into or trade in financial instruments for
speculative purposes.
(b) Market risks
Foreign currency risk
The Group's activities expose it primarily to the financial risks of changes
in foreign currency exchange rates.
As at 31 March 2024 Sterling Euro US Dollar Total
£'000 £'000 £'000 £'000
Trade receivables 415 82 2,425 2,922
Lease liabilities (416) - - (416)
416
Trade payables (856) - (57) (913)
Cash and cash equivalents 10,117 145 1,606 11,868
Short term investments: fixed term deposit - - - -
9,260 227 3,974 13,461
Based on this exposure, had Pound Sterling weakened by 5% the Group's profit
before tax would have been £210,050 lower. The percentage change is based on
management's assessment of reasonable possible fluctuations.
As at 31 March 2023 Sterling Euro US Dollar Total
£'000 £'000 £'000 £'000
Trade receivables 400 378 1,827 2,605
Lease liabilities (691) - - (691)
Trade payables (1,706) (2) (62) (1,770)
Cash and cash equivalents 13,309 517 3,757 17,583
Short term investments: fixed term deposit 1,515 - - 1,515
12,827 893 5,522 19,242
Based on this exposure had Pound Sterling weakened by 5% the Group's profit
before tax would have been £320,750 lower. The percentage change is based on
management's assessment of reasonable possible fluctuations.
Interest rate risk
The Group is not exposed to any significant interest rate risk as borrowings
are obtained at fixed rates.
Other market price risk
The Group is not exposed to any other significant market price risks.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
23 Financial instruments (continued)
(c) Credit risk management
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Group's receivables from
customers.
The Group's principal financial assets, other than business assets, are trade
and other receivables and cash and cash equivalents. These represent the
Group's maximum exposure to credit risk in relation to financial assets.
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Trade and other receivables 2,921 2,605 3,072 2,930
Cash and cash equivalents 11,868 17,583 11,683 17,186
Short term investments - 1,515 - 1,515
14,789 21,703 14,755 21,631
Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the individual
characteristics of each customer.
The balance presented in the balance sheet is net of allowances for doubtful
receivables and returns, estimated by the Group's management based on prior
experience and their assessment in the current economic climate. No adjustment
has been estimated for the allowance for credit loss.
The Group's main concentration of credit risk relates to where a credit risk
management approach is employed, including strict retention of title, customer
stock holding visibility and the use of credit insurance.
The Group applies the IFRS 9 Financial Instruments simplified model of
recognising lifetime expected credit losses for all trade receivables as these
items do not have a significant financing component.
In measuring the expected credit losses, the trade receivables have been
assessed on a collective basis as they possess shared credit risk
characteristics. They have been grouped based on the days past due.
The expected credit loss for trade receivables as at 31 March 2024 and 31
March 2023 were determined as follows:
Days past due 0 1-30 31-60 >60 Total
2024
Balance outstanding (£'000) 2,779 56 12 74 2,921
Historic loss rate 0% 0% 0% 0%
Estimated credit loss provision 0.25% 1% 1.5% 2%
Potential credit loss allowance (£'000) 7 1 0 1 9
Days past due 0 1-30 31-60 >60 Total
2023
Balance outstanding (£'000) 2,267 322 2 14 2,605
Historic loss rate 0% 0% 0% 0%
Estimated credit loss provision 0.25% 1% 1.5% 2%
Potential credit loss allowance (£'000) 6 3 0 0 9
Due to the immaterial nature of the assessed credit risk, no provision has
been recognised for 31 March 2024 or 31 March 2023.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
23 Financial instruments (continued)
(c) Credit risk management (continued)
Cash
Cash is held with banks in the UK and US with high credit ratings and no
financial loss due to the banks' failure to meet their contractual obligations
is expected.
(d) Liquidity risk management
The Group manages liquidity risk through the monitoring of forecast cash flows
and through the use of bank loans when required, thereby maintaining
sufficient liquid assets to fund its contractual obligations and maintain the
ongoing development of the Group.
The table below provides an analysis of the Group's financial liabilities to
be settled on a gross basis by relevant maturity categories from the balance
sheet date to the contractual settlement date. The table includes both
interest and principal cash flows disclosed as remaining contractual
maturities and therefore these totals may differ from their carrying amount in
the statement of financial position.
1 year or 1 to 2 to Over 5 Total
less 2 years 5 years years liabilities
31 March 2024 £'000 £'000 £'000 £'000 £'000
Trade payables 913 - - - 913
Other payables 970 - - - 970
Lease liabilities 220 133 64 - 417
2,103 133 64 - 2,300
1 year or 1 to 2 to Over 5 Total
less 2 years 5 years years liabilities
31 March 2023 £'000 £'000 £'000 £'000 £'000
Trade payables 1,770 - - - 1,770
Other payables 2,834 230 - - 3,064
Lease liabilities 293 269 143 - 705
4,897 499 143 - 5,539
24 Retirement benefits
Contributions by Group companies are charged to the income statement as an
expense as they fall due. The amount recognised as an expense in relation to
defined contributions plans was £422,669 (2023: £417,521).
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
25 Share-based payments
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Charged to administration expenses:
Equity settled share-based payments 756 531
Cash settled share-based payments (10) 43
Total share-based payments 746 574
During the year 26,550 share options were granted (2023: 797,500). The fair
value of share options granted has been estimated at the date of the grant
using the Black-Scholes model. Expected volatility in the current year was
determined by calculating the historical volatility of the Group's share price
over the previous year, which the Board consider to be representative of
future volatility.
The following table gives the assumptions made in arriving at the share-based
payment charge and the fair value:
Year ended Year ended
31 March 31 March
2024 2023
Options issued 26,550 797,500
Weighted average share price (pence) 113 117
Weighted average exercise price (pence) 113 117
Expected volatility (%) 51.8% 63.4-67.1
Vesting period (years) 3-5 3-5
Option life (years) 10 10
Risk free rate (%) 5.0 0.75-4.25
Dividend yield (%) 1.0 1.0
Fair value at grant date (£'000) 11 399
Equity options in issue at 31 March 2023 5,199,000
Equity options issued in the year 26,550
Equity options realised in the year (34,367)
Equity options forfeited in the year -
Equity options in issue at 31 March 2024 5,191,183
As at 31 March 2024
Number of option awards in issue 2,459,633 2,676,550 55,000
Exercise price (pence) 48 112-118 155-158
Share price as at 31 March 2024 (pence) 59 59 59
Weighted average share price for year ended 31 March 2024 (pence) 92 92 92
Number of options available to exercise at 31 March 2024 692,966 Nil Nil
Average period remaining of options in issue (months) 114 - -
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
25 Share-based payments (continued)
During the year no cash settled options were granted (2023: 38,000). The fair
value has been measured at the reporting date using the Black-Scholes model.
Due to the proximity of the reporting date to the issue of equity settled
share options granted, the model assumptions on volatility, risk free rate,
and dividend yield used for the cash settled options do not materially differ
from those in the table above.
Year ended Year ended
31 March 31 March
2024 2023
Options issued - 38,000
Weighted average share price (pence) - 115
Weighted average exercise price (pence) - 115
Vesting period (years) - 3-5
Option life (years) - 10
Fair value at reporting date (£'000) - 18
As at 31 March 2024
Number of awards in issue 118,500
Exercise price (pence) 115-118
Share price as at 31 March 2024 (pence) 59
Weighted average share price for year ended 31 March 2024 (pence) 92
Number of options available to exercise at 31 March 2024 nil
During the year a management long term incentive plan ('LTIP') was created
inclusive of market based vesting conditions. To determine fair value, a
Black-Scholes model was utilised for the EPS and Revenue tranches, and a Monte
Carlo valuation for the TSR tranche. Further details can be found on the LTIP
vesting criteria within the Remuneration Committee report.
Key assumptions in deriving the fair value charge:
As at 31 March 2024 EPS Revenue TSR
Tranche Tranche Tranche
Number of awards granted 465,713 232,857 232,856
Fair value (pence per share granted) 108 108 46
Fair value (% of share price at grant date) 97.1% 97.1% 41.3%
Share price at grant date (pence) 111 111 111
Exercise price (pence) - UK participants 1 1 1
Exercise price (pence) - US participants 0 0 0
Risk free rate (%) - - 4.39
Dividend yield (%) 0.84 0.84 0.84
Expected term (years) 3 3 3
Volatility (Simulating TSR performance) 43.8%
Due to the inclusion of performance-based measures beyond only the passage of
time, these performance-based employee share options have been treated as
contingently issuable shares in the calculation of both basic and diluted
earnings per share (note 29). The performance measures will be assessed (based
on audited data) by the Remuneration Committee at the end of the 3-year
period.
As part of the iTrinegy acquisition in April 2022, the 'Earn out' contingent
consideration had the potential for issuance of 322,579 ordinary shares if
revenue targets for the year ended 31 March 2024 had been met. This
consideration for the vendors who remained employees was treated as
remuneration and expensed through the income statement in line with IFRS2
Share based payment.
The revenue target for the year ended 31 March 2024 was not met, and as a
result the contingent equity settled share based payment to the employee
vendors was forfeited. As these options contained performance based measures
beyond only the passage of time, they had been carried as contingently
issuable shares. The forfeiture of these options does not therefore have any
effect on the basic or diluted earnings per share calculations in note 29.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
25 Share-based payments (continued)
Year ended Year ended
Share option reserve reconciliation 31 March 31 March
2024 2023
£'000 £'000
Opening balance 873 502
Equity settled share-based payments 756 531
Share options realised or forfeited (195) -
Deferred taxation on share options: charge recognised in equity (20) (160)
Total share option reserve 1,414 873
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
26 Group companies
Country of registration
% of direct shares
held
Subsidiary undertakings or incorporation Principal activity 2024 2023
Calnex Americas Corporation USA Sales and marketing 100% 100%
Support services to
Calnex Solutions plc
iTrinegy Ltd UK Development and marketing - 100%
of software defined test
network technology
On 02 January 2024, iTrinegy Ltd, the only remaining entity following the
post-acquisition hive up of the iTrinegy group, was dissolved. All trade and
assets of iTrinegy Ltd were transferred to Calnex Solutions plc in the prior
financial year.
27 Called up share capital
As at 31 March 2024, the Company had 87,558,302 (2023: 87,523,935) issued and
fully paid Ordinary Shares held at a nominal value of 0.125p. During the year,
exercise of share options resulted in 34,367 shares being issued.
Group and Company
31 March 31 March
2024 2023
£'000 £'000
Ordinary shares of 0.125p each 109 109
In issue at the start of the financial year 109 109
Share options exercised 0 -
In issue at end of the financial year 109 109
28 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 and warrants.
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Profit after tax attributable to shareholders 40 5,911
Weighted average number of ordinary shares used in calculating:
Basic earnings per share 87,530 87,520
Diluted earnings per share 92,749 92,070
Earnings per share - basic (pence) 0.05 6.75
Earnings per share - diluted (pence) 0.04 6.42
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
29 Notes to the Statement of Cashflow
Reconciliation of changes in liabilities to cashflows arising from financing
activities
Lease
liabilities Total
£'000 £'000
Balance at 31 March 2023 691 691
Lease repayment (296) (296)
Interest payments 20 20
Total changed from financing cashflows (276) (276)
Acquisition of new lease - -
Total other changes - -
Balance at 31 March 2024 415 415
30 Share schemes
The company operates a number of share incentive plans on behalf of its
employees, details of which can be found in the Remuneration Committee
report. Included in these are the UK Share Incentive Plan and a cash settled
phantom plan for Non-UK employees:
UK Employee Share Incentive Plan (UK SIP)
The UK SIP is an all-employee HMRC approved share plan open to employees based
in the UK. Employees can elect to invest up to £150 each month (£1,800 per
year), deducted from their gross salary, which is used to purchase shares at
market value as "partnership" shares. The Company offers participants
"matching" shares, which are subject to forfeiture for three years, on the
basis of one free matching share for each partnership share purchased.
Non-UK Employee Incentive Plan
Under the UK SIP Plan, shares may only be awarded to UK based employees of the
Group. As the Board also wanted to have the discretion to grant awards to
contractors and overseas employees, it was necessary to set up a separate
Non-UK Employee Incentive Plan under the rules of the Notional Plan (refer to
the Remuneration Committee Report for more detail). This Plan acts as a
non-tax advantaged shadow equity interest plan to the UK SIP, mirroring the UK
SIP awards for overseas employees and contractors with equity ownership being
replaced by cash settlement. The non-UK Employee Incentive plan is therefore
available to employees in countries other than the UK, on a cash-settled
basis. Employees can elect to save funds up to £150 each month (£1,800 per
year), deducted from their pre-tax salary, for a 12-month period, and matched
by the Group. In the cash settled model, these savings are then returned to
the participant at the prevailing market share price at the end of the savings
period, had the funds been used to purchase Calnex Solutions plc shares
(returns being fully funded by the Group). Employees participating in this
scheme during the period under review included those based in China, Hong Kong
and India and the USA. The fair value assessment of this obligation at the
year-end was £110,500 (2023: £180,000) and is included within other
creditors.
31 Dividends
All dividends are determined and paid in Pound Sterling.
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Declared and paid in the year
Final dividend 2022: 0.56p per share - 490
Interim dividend 2023: 0.31p per share - 271
Final dividend 2023: 0.62p per share 543 -
Interim dividend 2024: 0.31p per share 271 -
Proposed for approval at the Annual General Meeting (not recognised as a
liability at 31 March 2024)
Final dividend 2024: 0.62p per share 543
The directors are proposing a final dividend with respect to the financial
year ended 31 March 2024 of 0.62p per share, which will represent £542,861 of
a dividend payment. The final dividend will be proposed for approval at the
Annual General Meeting in August 2024 and, if approved, will be paid on 30
August 2024 to all shareholders on the register as at close of business on 26
July 2024, the record date. The ex-dividend date will be 25 July 2024.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
32 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. These APMs are
not defined under IFRS and therefore may not be directly comparable with
similarly identified measures used by other companies.
Year ended Year ended
31 March 31 March
2024 2023
£'000 £'000
Underlying EBITDA 80 7,234
Underlying EBITDA % 0% 29%
Capitalised R&D 5,579 4,523
Key performance measures:
Underlying EBITDA: EBITDA after charging R&D amortisation
Reconciliation of statutory figures to alternative performance measures -
Income Statement
FY24 FY23
£000 £000
Revenue 16,274 27,449
Cost of sales (4,327) (6,977)
Gross Profit 11,947 20,472
Other income 797 751
Administrative expenses (excluding depreciation & amortisation) (8,884) (9,928)
EBITDA 3,860 11,295
Amortisation of development costs (3,780) (3,315)
Underlying EBITDA 80 7,980
Other depreciation & amortisation (697) (746)
Operating (Loss)/Profit (617) 7,234
Interest received 357 -
Finance costs (124) (26)
(Loss)/Profit before tax (384) 7,208
Tax 424 (1,297)
Profit for the year 40 5,911
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