REG - Calnex Solutions PLC - FY23 Final Results
23/05/2023 07:00
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RNS Number : 2598A Calnex Solutions PLC 23 May 2023
23 May 2023
Calnex Solutions plc
("Calnex", the "Company" or the "Group")
FY23 Final Results
Calnex Solutions plc (AIM: CLX) provides test and measurement solutions for
the global telecommunications sector and is pleased to announce its audited
results for the 12 months ended 31 March 2023 ("FY23" or the "Year").
Financial Highlights
£000 FY23 FY22 YOY % change
Audited Audited
Revenue 27,449 22,046 25%
Underlying EBITDA(1) 7,980 6,351 26%
Profit before tax 7,208 5,973 21%
Basic EPS (pence) 6.75 5.19 30%
Diluted EPS (pence) 6.42 5.00 28%
Closing cash and fixed term deposits(2) 19,098 15,357 24%
(1) 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
· Revenue growth of 25% to £27.4m (FY22: £22.0m).
· Growth in profit before tax of 21% to £7.2m (FY22: £6.0m).
· Closing cash position, including fixed term deposits, of £19.1m
(31 March 2022: £15.4m).
· Proposed final dividend of 0.62 pence per share, making a total
of 0.93 pence per share for FY23 (FY22: 0.84 pence).
Operational Highlights
· Successful mitigation of well-documented supply chain challenges,
delivering all orders as planned.
· Growing relationship with hyperscale customers, securing one
significant contract and seed unit sales into two other hyperscalers during
the year.
· Encouraging early uptake of Sentry, our Network Synchronisation
product launched in H2.
· Full integration of iTrinegy, expected to be an important
contributor to future profit.
· Increased staffing levels across business development, sales,
R&D, and support roles, to support growing customer demand, new product
development and maximise exposure in new and existing territories.
Outlook
· Trading in Q1 FY24 has continued as anticipated, and the Board is
confident in delivering results for the year in line with market expectations
as revised in March 2023.
· Whilst customer budgets continue to be restricted in the near
term, customer engagement levels remain high and Calnex's mid-term order
funnel has strengthened during Q1 FY24, although the timing of conversion of
these opportunities into orders remains unclear.
· The breadth of Calnex's customer base across multiple regions,
expanding product portfolio and strong balance sheet, alongside the market's
structural growth drivers, provide continued confidence in the future.
Tommy Cook, Chief Executive Officer and founder of Calnex, said:
"FY23 was another year of solid progress where we executed on our strategy,
increasing our addressable market, whilst successfully navigating the supply
chain challenges, achieving revenue and profit growth, in line with market
expectations.
"While customer budgets remain restricted in the short term, customer
engagement levels remain high, and we have been encouraged to see the early
signs of a more stable macro environment.
"We are confident the market's structural growth drivers will continue to
drive long-term growth opportunities for Calnex. These include the need to
build out new mobile networks to support the transition to 5G, and ongoing
data centre investment to support the demand for cloud computing coupled with
the need to be more energy efficient.
"The breadth of our customer base across multiple regions, expanding product
portfolio and strong balance sheet, mean we look to the future with continued
confidence."
For more information, please contact:
Calnex Solutions plc Via Alma PR
Tommy Cook, Chief Executive Officer
Ashleigh Greenan, Chief Financial Officer
Cenkos Securities plc - NOMAD +44 (0)131 220 6939
Derrick Lee, Peter Lynch
Alma PR + 44(0) 20 3405 0213
Caroline Forde, Hannah Campbell, Joe Pederzolli
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
It gives me great pleasure to present my first statement as Chair of Calnex
Solutions, following my appointment to the role in August 2022, post the
Company's AGM.
Upon joining the Board as a Non-Executive Director in January 2022, I found a
company with an innovative product offering, highly experienced leadership, an
expert and dedicated team, long-standing blue-chip customers, and strong
partner relationships. These factors have enabled Calnex to deliver strong
profit and revenue growth since IPO, which have in turn provided the means to
invest in its people and offering, while maintaining a strong balance sheet.
A positive performance in FY23
The Group successfully delivered results in line with market expectations.
This was driven by the growth in cloud computing and the roll out of 5G along
with the introduction of new standards for the telecoms industry, driving
demand for the Group's products.
There was an improved performance in H2 as expected and for the year the Group
achieved revenue growth of 25% to £27.4m (FY22: £22.0m) and profit before
tax increased by 21% to £7.2m (FY22: £6.0m). We closed the year with a
strong cash (including short term investments) figure of £19.1m (FY22:
£15.4m).
Calnex's relationship with its long-standing partners deepened during the year
with key highlights being the renewal of the contract with Spirent, the
Company's principal distribution partner, as well as the successful management
of supply chain issues with our contract manufacturer, Kelvinside Electronics.
We also made good progress in data centre activities and the integration of
iTrinegy has gone to plan.
ESG
The attitude of Calnex towards caring for its people and the communities
around it has always been a key feature of the business. As a business and
Board, we are committed to having a positive impact on our society, the
environment, and our team.
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.
Within product development, our focus is increasingly on delivering platform
products that enable software upgrades in line with customers' aspirations.
Thanks to our dedicated team, their in-depth knowledge, and market insight,
our customers enjoy hardware longevity typically between 10 and 15 years,
thereby reducing the impact our products have on the environment and providing
long-term expert support through cutting-edge upgrades that anticipate
customer requirements. Where possible, we look to work locally. Our product
packaging is manufactured by a local supplier with a comprehensive
environmental policy and our company HQ, and the majority of our operations
are based in serviced premises leased from Oracle in Linlithgow.
In FY22 the Board committed to build a Calnex Corporate Giving Scheme into our
Financial Plan equal to 1% of the profits we generate. An employee-led team
was created in FY23 to consider proposals from employees for donations or
support for groups and events that matter to them. We used 100% of the Calnex
Corporate Giving Scheme this year. We have two main initiatives in place to
utilise this fund - 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. In FY23 Calnex donated £70,000 to 84
charities and organisations and social events across the globe through our
Corporate Giving Scheme.
As a Board, we are also committed to high standards of corporate governance
and oversight. The approach we take is set out in detail in the Principal
Risks and Uncertainties, s172 and Corporate Governance sections of our Annual
Report and Accounts.
As part of our journey to continually improve our performance, our focus
remains on ensuring a diverse workforce with a good level of female
representation on both our Board and executive management team. The success
we have delivered since IPO is a tribute to the workforce's expertise and
knowledge. Their energy and professionalism whilst navigating the supply chain
challenges has been immense and on behalf of the Board, I would like to thank
all our staff across the globe for their hard work.
Board updates
I am delighted to have taken up the mantle as Chair during the period and I
have come to know Calnex's culture and structure well in my time so far. We
were also pleased to welcome Helen Kelisky to the Board in 2023, who brings
with her a wealth of cloud and data centre experience, which has already
proven of immense value.
I would also like to take this opportunity to thank George Elliott who retired
as Chair at last year's AGM, as well as Ann Budge, who stepped down as
Non-Executive Director in February of this year. The importance of both George
and Ann cannot be overstated, both of whom having provided significant
guidance along the way on Calnex's growth journey.
Outlook
As described in our Trading Update issued in March 2023, the macro-economic
conditions have prompted a more cautious approach to investment decisions by
our customer base. While we are seeing signs of a more stable macro
environment, trading in the current financial year has continued as
anticipated at that time. Customer engagement levels are high, although the
timing of orders remains unclear, consistent with wider industry dynamics.
The Board remains confident in the delivery of results for the year in line
with the revised market expectations and believes the breadth of product
offering, and the market's structural growth drivers, provide Calnex with a
considerable long-term opportunity.
Stephen Davidson
Non-Executive Chair
22 May 2023
CEO's Statement and Operational Review
We have delivered a strong FY23 financial performance, reporting double digit
growth across revenue and profit, in line with market expectations. Improved
performance in the second half was driven by the successful conversion of our
order book and we have continued to make considerable operational and
strategic progress during the period.
I am proud of the way in which the team has been able to deliver these results
while dealing with well-documented supply chain challenges. The mitigation
strategies in place enabled us to shield our customers from any impact,
successfully scheduling all orders aligned to customer needs. We continue to
benefit from the experience of our team and from the strength of the
relationship with our contract manufacturer, Kelvinside Electronics, in this
regard. We are optimistic about an improving picture and that the process
improvements we have put in place leave us well-positioned to capitalise on
the opportunities available to us.
Further execution of our growth strategy during the year has increased
Calnex's market opportunity as we move into adjacent areas of the testing
market. Relationships with hyperscalers continue to grow and we are encouraged
by the early performance of Sentry, our newly launched Network Synchronisation
product. We have also recently initiated discussions with Data Centre and
Telcom Network operators for the supply of a Monitoring system for
synchronisation quality across their network, SyncSense. Following the full
integration of the recently acquired iTrinegy, we now see it as an important
contributor to future profit. Following further investment into our team's
capabilities during the year, we believe we have the right team in place to
continue our journey.
Following three years of revenue and profit growth since becoming a listed
business, we are now a considerably larger business (headcount and turn-over),
with strong customer relationships across all territories. Although contending
with near-term uncertainty and delayed customer spending, we remain a
profitable, cash generative, well-managed business, with a diverse customer
base in growing markets and strong balance sheet.
Customer metrics
The number of customers who ordered from us this year increased by 72 to 305
(FY22: 233 customers) and the proportion of orders coming from non-telecoms
customers was 34% (FY22: 23%). The step change is primarily driven by sales of
NE-ONE products to customers new to Calnex. Over a three-year average basis,
our top 10 customers accounted for 47% of orders (FY22: 50%) and 74% of our
orders were from repeat customers (FY22: 79%). Again, the impact of NE-ONE new
customers accounts for this significant change compared to FY22. Our
geographic spread of orders across the regions on a three-year average basis,
shows Americas receiving 34%, North Asia receiving 27% and ROW receiving 39%.
Market backdrop
Many telecoms sector participants, including global equipment manufacturers,
have recently reported a general softening of demand for their products and
services in the short-term, albeit noting that the long-term structural
growth drivers, including the exponential increase in network complexity and
the transition to 5G, remain strong.
Importantly, our customers remain committed to the delivery of projects which
we know will rely on Calnex's test instrumentation and solutions.
Product innovation to support the transition to 5G and entry into cloud
computing market
Continued product innovation has allowed the Group to execute on its growth
strategy to capitalise on the transition to 5G and expand into adjacent areas
of the testing market, such as cloud computing and the data centre market.
Launch of new product to optimise entry into cloud computing market
The need for hyperscale and enterprise companies to drive greater efficiency
and performance in their data centre operations continues to drive growth in
the testing market and Calnex's relationship with these customers has
continued to develop during the year. In H2 we launched a new version of our
Network Synchronisation product, Sentry, which heavily leverages the
technology in Sentinel, Calnex's Field Sync solution, but with a form, fit and
function optimised for the data centre environment. This new format enhances
the ability to engage with potential data centre customers by strengthening
its usability in the data centre environment. Following the large deal secured
in FY22, our focus has remained on building relationships with other
hyperscalers and this year we successfully secured seed unit sales into two
other hyperscalers. We are now focused on using these early units to build
relationships and develop further opportunities.
Engagement with both data centre operators and telecom network operators has
identified an emerging opportunity to offer a monitoring system that provides
an indication of the quality of synchronisation across the network. Calnex
has recently launched its SyncSense product offering to address this need.
Calnex's reputation as experts in synchronisation enables us to provide
reassurance to network operators that we have the knowledge and insight to
collect and interpret the data obtained across the network to identify nodes
that are not operating correctly. For telecom operators, poor timing limits
the customer connectivity that can be supported. For data centre operators,
good synchronisation between servers increases processing bandwidth and
reduces the investment required for expansion of their server infrastructure
to meet the needs of their customers.
Cloud & IT, Infrastructure Verification (SNE, SNE-X & SNE-Ignite)
Calnex's Network Emulation products, which target customers developing
Infrastructure products (e.g. Ethernet switches, routers, SD-WAN equipment),
continued to make good progress this year. O-RAN has also impacted positively
on this product line. The O-RAN Alliance provides recommendations for
equipment deployed in the RAN network. Synchronisation is only one element of
the functionality specified. Calnex's SNE products are being utilised to
verify performance to other aspects of these recommendations.
This year, the Group expanded its portfolio by releasing a new SNE (network
emulation) product, SNE-X, a multi-port, high-performance network emulator
designed to drive product/application quality and reduce the cost of testing
with rigorous, scalable test capability. In FY24 the Group plans to release a
further product, SNE-Ignite, to target applications requiring performance and
accuracy only achievable with hardware-based implementation. With the SNE
family, Calnex now has a full suite of products capable of addressing the
needs of all applications in the target market.
Cloud & IT, Applications Verification (iTrinegy acquisition)
In April 2022 Calnex acquired iTrinegy Limited, a leading developer of
Software Defined Test Networks technology for the software application and
digital transformation testing market. 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 acquisition of iTrinegy's NE-ONE Network Emulation platform
has enhanced the Company's position as a leading Synchronisation Verification
test vendor, and we believe Calnex is the leading provider of Network
Emulation tools for its industry segments.
The integration of the iTrinegy team is progressing as planned, with the focus
during the period on building out the team and sales channel, which will
continue in FY24.
Financial performance
Calnex experienced another year of strong trading, achieving results in line
with market expectations. We delivered double digit growth across revenue and
profits with an improved performance in H2, as expected. The 25% growth in
revenue to £27.4m (FY22: £22.0m) is a result of the continued strong demand
for telecoms testing equipment across the Group's core markets. Three-year
revenue CAGR is 26%, reflecting the solid performance of the business since
IPO. Revenues from the Americas region increased 36%, whilst the Rest of the
World experienced a 38% uplift. North Asia revenues saw a slight decline of 4%
due to the ongoing geopolitical tensions between the US and China. Given the
overall growth in revenues, Americas account for 35% of total revenues (FY22:
32%), ROW 41% (FY22: 37%) and North Asia 24% (FY22: 24%).
The Group's adjusted profit before tax grew by 21% to £7.2m (FY22: £6.0m),
in line with market expectations, reflecting the uplift in revenues and the
Group's on-going investment in the business. This year saw the Group invest in
additional business development resources, products, and inventory, such that
we are in a stronger position to successfully respond to customer demands. The
Group ended the year with a healthy closing cash position, including fixed
term deposits, of £19.1m (31 March 2021: £15.4m).
People
We continue to invest in talent globally, to support and enhance the fantastic
work of our team, whose commitment continues to drive the business forward.
Such investment in talent, particularly within the R&D division, is part
of the Group's on-going growth strategy. We have grown our headcount by 33
staff over the past 12 months, including the iTrinegy acquisition, bringing
our total headcount to 155 as at 31 March 2023. We continue to be able to use
Calnex's platform as a means to attract talented people and continue to use
our overseas sponsor license to hire from outside of the UK in order to
strengthen and diversify our teams.
In January 2023, we welcomed Helen Kelisky to the Board as Non-Executive
Director. Helen brings over 30 years of technology sales leadership experience
and a track record of driving top line growth, leading national and
international businesses. Her experience across the cloud and data centre
world is already proving to be of immense value to Calnex as we exploit the
growth in the testing market, with the need for greater efficiency and
performance in data centre operations.
Following nine years on the Board, George Elliott retired as Chair at last
year's AGM. George was a significant source of support to me and the business
through our subsequent growth and journey onto the public markets. Also,
following 13 years on the Board, Ann Budge stepped down as Non-Executive
Director in February 2023. Ann was an early-stage investor in Calnex and was
pivotal in introducing the Discovery Investment Fund syndicate as seed
investors when the Group raised capital in 2007. I would like to take this
opportunity to thank both George and Ann for the valuable roles they played in
Calnex's growth journey, helping to establish a solid platform to support the
Group's financial and strategic ambitions.
Calnex is a people first business where we help and encourage each other,
supporting the business and our colleagues in building on our successful
achievements. During 2022, we introduced a range of programmes to support the
development of our employees including the Leadership Development, Power
Skills and Psychological Safety programmes, to ensure they can thrive in a
safe and supportive environment. I am pleased to report that in the last 12
months, the Group's learning and development activities have led to 24
promotions and five cross-departmental moves.
During the year, we also worked closely with the UK Electronics Skill
Foundation, supporting the future talent of Engineering in providing student
placements and supporting STEM education and development.
Our continued success at Calnex, together with the diversity of our employees,
enables us to make meaningful contributions all over the world. Guided and
driven by what is important to our teams, we are committed to use the
resources we have at our disposal and our platform to support events,
charities, and groups to demonstrate our commitment to Environmental, Social
and Governance responsibilities.
Outlook
FY23 was another year of solid progress where we executed on our strategy,
increasing our addressable market, whilst successfully navigating the supply
chain challenges, achieving revenue and profit growth, in line with market
expectations.
In our Trading Update issued in March 2023, we described how some customers
had begun to take a more cautious approach to investment decisions in response
to the macro-economic conditions, prompting a revision in market expectations
for FY24. Trading in the first few months of FY24 has continued as
anticipated, and the Board remains confident in delivering results for the
year in line with the revised market expectations.
Customer engagement levels remain high, and we have been encouraged to see the
early signs of a more stable macro environment. Whilst customer budgets
continue to be restricted in the near term, we have seen our mid-term order
funnel strengthen during Q1 FY24, although the timing of conversion of these
opportunities into orders remains unclear, which is as expected and consistent
with wider industry dynamics.
We are confident the market's structural growth drivers will continue to drive
long-term growth opportunities for Calnex. These include the need to build out
new mobile networks to support the transition to 5G, and ongoing data centre
investment to support the demand for cloud computing coupled with the need to
be more energy efficient.
The breadth of our customer base across multiple regions, expanding product
portfolio and strong balance sheet, mean we look to the future with continued
confidence.
Tommy Cook
Chief Executive Officer
22 May 2023
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.
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 we are working towards becoming
an ISO14001 certified business by the end of 2023. Our recently established
employee-led environmental, social & charity team have also had a very
successful FY23.
At the end of FY22, the Board committed to build a Calnex Corporate Giving
Scheme into future Financial Plans equal to 1% of the profits we generate. An
employee-led team (with senior management sponsorship) was created in FY23 to
consider proposals from employees for donations or support for groups and/or
events that matter to them. The Calnex senior management team want to support
groups local to our employees and offices and empower our employees to make a
difference in their community by directing the Company to support
activities/groups that they truly care about.
We also encourage employees to donate their time to make meaningful
contributions. Group activities such as planting trees, re-planting local
flower beds 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.
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.
We are pleased to report that we used 100% of the Calnex Corporate Giving
Scheme this year. We have two main initiatives in place to utilise this fund -
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.
This financial year Calnex has donated £70,000 to 84 charities and
organisations and social events across the globe through our Corporate Giving
Scheme. Key charitable initiatives included:
· Donating 120 sleeping bags to a homeless charity in Belfast, as
well as supplying 120 meals across our worldwide regions to those in need
during the festive period;
· The Calnex September250 challenge where we encouraged our
employees across the world to either walk 250,000 steps, cycle 250 miles, or
take part in 25 exercises during the month of September to help support four
worldwide charities - Mind
(https://www.mind.org.uk/donate/?gclid=CjwKCAiA_6yfBhBNEiwAkmXy55jbbzXIi2aMemOZWAp3YbovD3Jm5Vqbr_R5an9sZF5XfNSvaXqbsBoCl0MQAvD_BwE)
, Sea Shepherd (https://seashepherd.org/) , Save the Children
(https://www.fiercewireless.com/tech/open-ran-reach-15-20-total-market-2027-delloro)
and National Autistic Society (https://www.autism.org.uk/) ;
· Eighty employees from every region (UK, US, North Asia, India)
accepted our challenge, which resulted in Calnex donating over £16,000 from
our Corporate Responsibility Fund to split between these charities. During
September our employees walked 13,877,757 steps, cycled 2,752 miles and took
part in 230 exercise classes which not only raised a lot of money for charity
but helped keep our employees and their families active;
· The Christmas Tree Gift Tag Appeal in our Linlithgow and Belfast
office. In each office we decided to put up our Christmas trees early and
attach gift tags which gave suggestions on toys to purchase for disadvantaged
children. Our employees did an amazing job and brought in more than 100 gifts
which were then donated to Cash for Kids (https://cashforkids.org.uk/mission)
Northern Ireland and River Kids (https://riverkids.org.uk/what-we-do) in
Scotland;
· The return of our Annual Christmas Charity Raffle in aid of
HopScotch (https://www.hopscotch-charity.org/) , which provide a much-needed
seaside holiday for disadvantaged children in the UK;
· 24 large bug hotels were donated to nurseries and primary schools
local to our employees across the UK, allowing the schools to educate and base
projects around the wildlife that inhabit the hotels;
· All 3 UK offices took part in our charity bake sale in aid of
Fare Share, who redistribute good food which would otherwise go to waste to
almost 11,000 frontline charities nationwide. With over 30 home baked goods
brought in by our employees across all 3 sites and with Calnex matching the
amount raised through employee donations, we raised £1,795 for Fare Share;
and
· As well as these activities organised by Calnex, 62 out of the 84
donations to clubs, charities and organisations were suggested by employees
across the globe. A few key employee donations were:
o £4,000 to SEAL Dunfermline, Scotland, who support the health and
wellbeing of young people aged between 8 - 16 who are referred through social
work and schools. As SEAL recently had their funding reduced due to council
cutbacks, this money allowed them to continue their work;
o £1,000 to Stevenage Scouts Group, England, which was used to help enable
disadvantaged children to attend a trip to Normandy;
o £1,000 to Operation 143, USA, who support over 30 schools providing
disadvantaged children with backpacks containing easy to prepare food to feed
them over the weekend; and
o £2,000 to Linlithgow Rose Community Football Club under 10s, Scotland.
The money helped purchase new kit for all the young players.
This financial year Calnex has organised 7 Calnex in the Community days for
our employees across Northern Ireland, England, Scotland and India, including:
· Fife Coastal Path Clear-Up: 22 employees from our HQ office in
Linlithgow helped collect rubbish along Fife Coastal Path;
· Assisi Animal Sanctuary: 8 employees from our Belfast office
volunteered with the sanctuary, clearing out and reorganising their donations
container and giving the walls a fresh lick of paint;
· Five Sister Zoo: 17 employees from our HQ office in Linlithgow
volunteered with the zoo to paint their large wooden ship play park and tidy
up their Japanese inspired garden by clearing out leaves and laying new
gravel;
· Akshaya Patra: our India-based team of 4 became our first
overseas volunteering activity. The team helped package up and deliver
lunchtime meals to disadvantaged schools in the area;
· Muiravonside Country Park: 20 employees from our HQ office in
Linlithgow volunteered in the county park to help create a wildflower field as
well as placing, filling and planting up their new planters, moving 8 tonnes
of soil and stone in the process;
· Shepreth Wildlife Park: 10 employees from our Stevenage office in
England volunteered to help scarify the large grass mound where the prairie
dogs lived, removing all the moss to enable their resident donkey to move back
home; and
· Ulster Wildlife Bog Meadows: 4 employees from our Belfast office
volunteered to help plant the last of their one million trees for the year.
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.
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;
· 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.
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 duties 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.
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.
Despite being a low environmental impact business, a project is currently
underway to gain ISO14001 certification. The ISO14001 standard defines a
framework to formally manage the environmental impact of our business
operations and products.
As well as the charitable giving activities mentioned above, other
environmental initiatives include:
· We have initiated a Product Packaging Project to measure and
improve the recyclability of our product packaging. 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;
· We are currently conducting a product design improvement exercise
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
· We have initiated an energy usage and business travel data
collation project which will allow us to have visibility on our Scope 1 and 2
emissions for future reporting requirements.
People
Calnex is a people first company built on trust and respect. 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.
Respectful of each other, we consider how our actions, ideas and approaches
impact others.
We work as one team.
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, (each potential
employee has a 'fit interview' as well as skills and experience assessments).
· 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.
· Employee-built Annual Review Programme that recognises personal
achievements and supports development and career progression.
· Training and Development Opportunities to further develop
skillsets and/or secure educational qualifications.
· Group-wide 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, 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, a healthcare scheme available to all staff
and income protection and life assurance polices.
· 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.
· 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.
In 2022, partnering with Connect Three, we have introduced Leadership
Development (LDP) and Power Skills programmes. Our LDP is a mandatory
programme for managers which supports them in leading high performing teams,
developing capability, effective communication and leading effective change.
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.
Our employee designed Power Skills programme provides all our employees with
regular access to a weekly programme of skills sessions designed to engender
confidence, understanding and awareness of a wide variety of skills ranging
from Understanding Self and Others, Resilience and Change to Super Powering
Communication and Influencing and Developing a Global Mindset.
The introduction of our new Psychological Safety programme also nurtures an
inclusive, supportive and safe environment for our employees to thrive in,
providing a work environment where we support each other through change and
growth ensuring our positive, people-focused culture remains at the heart of
everything we do.
In the last 12 months, our learning and development activities have led to 24
promotions and 5 cross-departmental moves. Structural development within the
organization due to rapid growth over the last three years has created
openings for 16 new management positions. Our focus on internal skills and
leadership development has meant that we have been able to fill 60% of these
positions internally, which is a major positive for both the business and the
careers of those involved.
To actively support our employees' mental wellbeing, we have also partnered
with David Beeney at Breaking the Silence to deliver interactive manager and
employee workshops on managing our own mental health and supporting our
colleagues in the workplace. Employees also have direct access to David for
more personal support.
Calnex has also engaged a Chartered Financial Planner to provide financial
wellbeing workshops for all employees and 1:1 free financial support to our UK
team.
Our continued success at Calnex, together with the diversity of our employees,
enables us to make meaningful contributions all over the world. Guided and
driven by what is important to our teams, we are committed to use the
resources we have at our disposal to support events, charities and groups to
demonstrate our commitment to Environmental, Social and Governance
responsibilities.
Tommy Cook
Chief Executive Officer
22 May 2023
Financial Review
Chief Financial Officer's Statement
The Group delivered a solid financial performance in the year to 31 March
2023, with growth in revenue, underlying EBITDA, profit before tax and cash in
the year.
Financial KPIs
£000 FY23 FY22
Revenue 27,449 22,046
Gross Profit 20,472 16,528
Gross Margin 75% 75%
Underlying EBITDA (1) 7,980 6,351
Underlying EBITDA % 29% 29%
Profit before tax 7,208 5,973
Profit before tax % 26% 27%
Closing cash and fixed term deposits (2) 19,098 15,357
Capitalised R&D 4,523 3,905
Basic EPS (pence) 6.75 5.19
Diluted EPS (pence) 6.42 5.00
(1) Refer to note 33 for explanation of the alternative performance measures
calculations. A full reconciliation between Underlying EBITDA and the
statutory measures is also shown below.
(2) 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
FY23 FY22
£000 £000
Revenue 27,449 22,046
Cost of sales (6,977) (5,518)
Gross Profit 20,472 16,528
Other income 751 648
Administrative expenses (excluding depreciation & amortisation) (9,928) (7,917)
EBITDA 11,295 9,259
Amortisation of development costs (3,315) (2,908)
Underlying EBITDA 7,980 6,351
Other depreciation & amortisation (746) (358)
Operating Profit 7,234 5,993
Finance costs (26) (20)
Profit before tax 7,208 5,973
Tax (1,297) (1,433)
Profit for the year 5,911 4,540
Revenue
Revenues in the year increased 25% to £27.4m (FY22: £22.0m), with growth
across all of the major product lines compared to the prior year. Revenues
from the Americas and Rest of World regions increased 36% and 38%
respectively. North Asia revenues experienced a slight 4% decline on the prior
year due in part to the ongoing geopolitical tensions between the US and
China. Americas accounted for 35% of total revenues (FY22: 32%), ROW 41%
(FY22: 37%) and North Asia 24% (FY22: 31%) 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 delivered to the
customer, with stand-alone software revenues recognised in line with 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. A customer can choose to use Calnex's products
in the knowledge that a more consistent result may be obtained if a Calnex
test solution had already been used on a particular product.
Sources of Revenue
Revenue streams
FY23 FY22
£000
£000
Warranty support revenue - recognised over the life of cover 2,870 2,006
Hardware and software revenue - recognised on despatch/delivery 24,579 20,040
Total revenue 27,449 22,046
In FY23, 90% (FY22: 91%) of the Group's revenues were generated from the sale
of bundled hardware and software products, with 10% (FY22: 9%) from software
support and extended warranty programmes.
Geographical split of orders (average over 3 years)
FY23
% of orders
Americas 39%
North Asia 27%
Rest of World 34%
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 39% for
ROW (FY22: 35%), 34% for Americas (FY22: 35%) and 27% (FY22: 30%) for North
Asia. North Asia experienced a decrease in the period reflecting the ongoing
US-China geopolitical tensions.
Top 10 customer orders (average over 3 years)
FY23
% of orders
Top 10 customer revenues 47%
Other revenues 53%
In FY23, Calnex received orders from 305 customers, an increase of 72 on 233
customers in FY22.
The Group's top ten customers in FY23 accounted for 39% of total orders (FY22:
53%) and 47% of total orders on average over the last three years (FY22:
50%). The step change in percentage in the year is primarily driven by sales
of NE-ONE products to customers new to Calnex.
In FY23, no underlying customer accounted for more than 8% of Calnex's total
orders.
Repeat customers (average over 3 years)
FY23
% of orders
Repeat orders 74%
Other orders 26%
The average length of customer relationship across the top ten customers in
FY23 is 10 years (FY22: 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 FY23, using a
three year order average, 74% of orders were generated from existing customers
(FY22: 79%). The impact of NE-ONE new customers accounts for this change
compared to FY22.
During the last five years, 230 customers have placed repeat orders with
Calnex (FY22: 199).
Telecoms v non-telecoms customers (average over 3 years, excluding NE-ONE in
FY23)
FY23 FY22
% of orders
Telecoms 75% 77%
Non Telecoms 25% 23%
Calnex's sales are predominantly derived from telecoms customers where the
end-application is a telecoms (fixed and mobile) network. Non-telecoms
customers include hyperscale/data centres and enterprise customers. On a
three year average basis, and excluding NE-ONE orders (as these are a new set
of customers in FY23 only), these non-telecoms customers represented 25% in
FY23 (FY22: 23%).
Including NE-ONE in FY23, the three year average percentage of non-telecoms
customers represents 26% in FY23 (FY22: 23%).
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 non-telecoms companies for use in
telecoms applications as telecoms sales for the purposes of this analysis.
Gross Profit
Gross profit increased by 24% to £20.5m (FY22: £16.5m) reflecting the solid
trading performance. Gross margin, which is calculated after discounts to
channel partners are applied, is in line with the prior year at 75% (FY22:
75%).
Underlying EBITDA
Underlying EBITDA, which includes R&D amortisation, increased by 26% to
£8.0m in the year (FY22: £6.4m), in line with market expectations, as a
result of the strong trading performance. Administrative expenses (excluding
depreciation & amortisation) were £10.0m in FY23 (FY22: £7.9m). This
increase relates predominantly to the planned investment in the management,
sales and support teams across the business in line with the Group's growth
strategy, increases in travel costs as COVID-19 restrictions have been lifted
across the majority of our regions, increases in US dollar based costs for our
overseas sales teams as a result of the strengthening of USD over GBP and
overheads relating to the Stevenage site after the acquisition of iTrinegy.
Administration costs also include £0.2m of non-recurring acquisition related
deal costs and £0.1m of a charge in relation to the contingent consideration
accounting in relation to the iTrinegy acquisition.
Amortisation of R&D costs increased by £0.4m to £3.3m (FY22: £2.9m) due
to increased R&D investment in recent years to support the growth in
revenues.
Underlying EBITDA margin was 29% in FY23, in line with the prior year.
Profit before tax
Profit before tax increased by 21% in the year to £7.2m (FY22: £6.0m) driven
by the growth in revenue performance. Profit before tax margin was 26% in FY23
compared to 27% in FY22. This slight change in profit margin is driven by
the increase in other depreciation and amortisation costs as an additional
£0.3m amortisation of acquired intangible assets was charged to the income
statement in the Period in relation to the iTrinegy acquisition.
Tax
The tax charge in the year was £1.4m (FY22: £1.3m), representing an
effective tax rate of 18% (FY22: 24%).
The weighted average applicable tax rate for FY23 was 19%. The difference
between the applicable rate of tax and the effective rate is largely 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%).
The weighted average applicable tax rate for FY22 was 19%. The difference
between the applicable rate of tax and the effective rate of 24% was largely
due to the following:
· 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 5.9%);
· Availability of R&D SME enhanced deduction (decreasing
effective rate by 0.3%);
· Impact of the super deduction in relation to fixed asset
additions (decreasing the effective rate by 0.3%); and
· Other differences, such as prior year adjustments, disallowable
expenses and overseas tax (decreasing effective rate by 0.3%).
The 2021 budget proposal increases the corporation tax rate to 25% from 1
April 2023. This was substantively enacted in the Finance Act 2021 on 24 May
2021.
Earnings per share
Basic earnings per share was 6.75 pence in the Period (FY22: 5.19 pence) and
diluted earnings per share was 6.42 pence (FY22: 5.00 pence), with the
increases in both metrics reflecting the strong performance in the year.
iTrinegy acquisition
The acquisition of 100% of the issued share capital of iTrinegy Ltd (together
with its wholly owned subsidiary iTrinegy Inc.) completed on 12 April 2022 on
a cash free, debt free basis, for an initial cash consideration of £2.5m,
fully funded from the Group's free cash. An additional £0.5m was paid to
the vendors in exchange for them leaving all available cash (£0.7m at
acquisition date) within the acquired business. The net cash effect of the
transaction was £2.3m. A detailed summary of the transaction is set out in
note 13 to the financial statements.
Up to a further £1m is potentially payable to the vendors subject to the
achievement of revenue growth targets from the NE-ONE product line in the year
ended 31 March 2024. This "Earn-Out Payment" would be paid as a combination of
cash and new shares issued in Calnex Solutions plc.
The Earn-Out Payment in relation to those iTrinegy vendors who have remained
as employees of the new Group has been treated as remuneration, with the fair
value expensed to the income statement (using current forecasts, the Earn Out
Payment is assumed to be paid out at 50% of the maximum). This results in a
charge of £0.3m related to post acquisition service, and this will be charged
to the Income Statement over the vesting period. In the current year, £0.1m
has been charged to administrative expenses within the Income Statement.
£1.3m of a fair value adjustment has been calculated as valuation of the
intellectual property associated with the acquired technology, and customer
relationships (offset by a £0.3m deferred tax liability recognised in
relation to the fair value uplift on the intangibles balance). The goodwill
balance of £2.0m represents an accelerated R&D development timeline, cost
and sales channel synergies expected from combination, as well as intangible
assets not qualifying for separate recognition, such as workforce in place.
£0.2m of acquisition related expenses for legal and professional fees, as
well as £0.3m amortisation of acquired intangible assets have also been
charged to the income statement in the year.
Cashflows
The Group generated cash before acquisitions of £6.0m in FY23 (FY22: £2.7m),
reflecting the solid trading performance and working capital movements in the
year.
Cashflow summary
FY23 FY22
£000 £000
Net cash from operating activities 11,111 7,350
Investing activities - intangible and property, plant and equipment (4,704) (4,213)
Dividends paid (761) (245)
Other financing and investing activities 358 (203)
Increase in cash before acquisitions and transfers to fixed term investments 6,004 2,689
Purchase of subsidiary: net of cash acquired (2,263) -
Fixed term investment: fixed term deposit (15) (1,500)
Increase in cash per consolidated cashflow statement 3,726 1,189
Net cash from operating activities was £11.1m in the year (FY22: £7.4m).
Working capital movements represented a cash outflow of £0.4m (FY22: £1.5m),
predominately as a result of the timing and volume of shipping and invoicing
to customers.
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 £4.5m (FY22: £3.9m), reflecting the planned growth
in the R&D team as projects resource demands increased.
Cash spend on financing activities in the year was £0.6m (FY22: £0.4m),
largely representing dividends paid in the year of £0.8m (FY22: 0.3m), which
included the final dividend for FY22 of 0.56p per share, approved at the
Company's AGM and paid on 30 August 2022, and the interim dividend for FY23 of
0.31 pence per share, paid on 16 December 2022. This was offset by £0.4m of
cash received for the final tranche of the Scottish Enterprise government
grant, which came to the end of its term in January 2023. The remainder of the
cash spend on financing activities reflects payment of lease obligations.
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
is accounted for as a cash outflow within investing activities in the
consolidated cashflow statement for the year ended 31 March 2022. It is added
back in the non-statutory cash flow reconciliation above as we regard this as
cash generated and owned by the Group in the year.
There is currently no debt on the balance sheet, leading to no borrowings
related cashflows in the current or prior periods. Closing cash, including
fixed term deposits, at 31 March 2023 was £19.1m (31 March 2022: £15.4m).
Dividend
The directors are proposing a final dividend with respect to the financial
year ended 31 March 2023 of 0.62p per share. The final dividend will be
proposed for approval at the Annual General Meeting in August 2023 and, if
approved, will be paid on 30 August 2023 to all shareholders on the register
as at close of business on 28 July 2023, the record date. The ex-dividend date
will be 27 July 2023.
Ashleigh Greenan
Chief Financial Officer
22 May 2023
Consolidated statement of Comprehensive Income
Year ended Year ended
31 March 31 March
2023 2022
Note £'000 £'000
Revenue 5 27,449 22,046
Cost of sales (6,977) (5,518)
Gross profit 20,472 16,528
Other income 6 751 648
Administrative expenses (13,989) (11,183)
Operating profit 7,234 5,993
Finance costs 10 (26) (20)
Profit before taxation 7,208 5,973
Taxation 11 (1,297) (1,433)
Profit and total comprehensive
income for the year 5,911 4,540
Basic earnings per share 29 6.75 5.19
Diluted earnings per share 29 6.42 5.00
Consolidated and Company Statement of Financial Position
__________________________________________________________________________________________________________________
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Non-current assets Note
Intangible assets 12 10,565 8,424 9,525 8,424
Goodwill 13, 14 2,000 - - -
Plant and equipment 15 404 274 404 274
Right-of-use assets 21 533 791 533 791
Deferred tax asset 22 272 304 272 304
13,774 9,793 10,734 9,793
Current assets
Inventories 16 2,748 998 2,748 998
Trade and other receivables 17 3,130 4,997 3,455 5,197
Cash and cash equivalents 18 17,583 13,857 17,186 13,592
Short term investment 18 1,515 1,500 1,515 1,500
24,976 21,352 24,904 21,287
Total assets 38,750 31,145 35,638 31,080
Current liabilities
Trade and other payables 20 5,988 5,569 5,806 5,549
Corporation tax 843 - 741 -
Lease liabilities 21 260 193 260 193
Provisions 23 - 141 - 141
7,091 5,903 6,807 5,883
Non-current liabilities
Trade and other payables 20 1,396 718 1,356 718
Lease liabilities 21 431 664 431 664
Deferred tax liabilities 22 2,457 2,017 2,197 2,017
Provisions 23 15 15 15 15
4,299 3,414 3,999 3,414
Total liabilities 11,390 9,317 10,806 9,297
Net assets 27,360 21,828 24,832 21,783
Equity
Share capital 28 109 109 109 109
Share premium 7,495 7,484 7,495 7,484
Share option reserve 26 873 502 873 502
Retained earnings 18,883 13,733 16,355 13,688
Total equity 27,360 21,828 24,832 21,783
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 2021 109 7,484 126 9,438 17,157
Transactions with owner in their capacity as owners
Share options - - 376 - 376
Dividends paid - - (245) (245)
Total transactions with owner in their capacity as owners 376 (245) 131
Total comprehensive income for the year - - - 4,540 4,540
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
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 2021 109 7,484 126 9,452 17,171
Transactions with owner in their capacity as owners
Share options - - 376 - 376
Dividends paid - - - (245) (245)
Total transactions with owner in their capacity as owners 376 (245) 131
Total comprehensive income for the year - - - 4,481 4,481
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
Consolidated and Company Cash Flow Statement
__________________________________________________________________________________________________________________
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Cashflows from operating activities
Profit before tax from continuing operations 7,208 5,973 4,459 5,872
Adjusted for:
Finance costs 26 20 26 20
Interest received (160) - (160) -
Government grant income (201) (197) (201) (197)
R&D tax credit income (390) (457) (390) (457)
Movement in provisions - (150) - (150)
Share-based payment transactions 574 262 574 262
Depreciation 371 252 371 252
Amortisation 3,690 3,014 3,422 3,014
Impairment of investment - - 2,436 -
Movement in inventories (1,554) (38) (1,557) (38)
Movement in obsolescence provision (122) 150 (122) 150
Movement in trade and other receivables 1,619 (2,815) 1,484 (2,567)
Movement in trade and other payables (329) 1,129 (770) 1,108
Cash generated from operations 10,732 7,143 9,572 7,269
Movement in provisions (overseas tax) (140) - (140) -
Corporation & foreign tax payments (70) - - -
R&D tax credit refunds received 589 207 589 207
Net cash from operating activities 11,111 7,350 10,021 7,476
Investing activities
Purchase of intangible assets (4,523) (3,913) (4,523) (3,913)
Purchase of property and equipment (181) (300) (181) (300)
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 (15) (1,500) (15) (1,500)
Interest received 160 - 160
Net cash used in investing activities (6,822) (5,713) (5,864) (5,713)
Financing activities
Payment of lease obligations (245) (203) (245) (203)
Dividends paid (761) (245) (761) (245)
Share options proceeds 11 - 11 -
Government grant income 432 - 432 -
Net cash from financing activities (563) (448) (563) (448)
Net increase in cash and cash equivalents 3,726 1,189 3,594 1,315
Cash and cash equivalents at beginning of the year 13,857 12,668 13,592 12,277
Cash and cash equivalents at end of the year 17,583 13,857 17,186 13,592
Notes to the Financial Statements
____________________________________________________________________________________________________________
1. General information
Calnex Solutions plc ("the Company") is a public limited company 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 22 May 2023. The directors have the power to amend
and reissue the financial statements.
2. Basis of preparation
(a) Statement of compliance
This financial information does not include all information required for full
annual financial statements and therefore does not constitute statutory
accounts within the meaning of section 435(1) and (2) of the Companies Act
2006 or contain sufficient information to comply with the disclosure
requirements of International Financial Reporting Standards. These should be
read in conjunction with the Financial Statements of the Group as at and for
the year ended 31 March 2023. The report of the auditors for the year ended 31
March 2023 was (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis without
qualifying their report, and (iii) did not contain a statement under section
498 (2) or (3) 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 2023 has been prepared on
the basis that the Company will continue as a going concern.
The Board has approved financial forecasts for the current and succeeding
financial period to 31 March 2025. 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 and access to additional
liquidity through banking facilities the Company will continue to trade as a
going concern.
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. 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.
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.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
3. Significant accounting policies (continued)
Grant income
The Group obtains grant funding from the Scottish Government in the form of
reimbursement for research and development costs eligible for reclaim under
the grant agreement. Costs are incurred before they can be reclaimed under the
grant agreement and revenue is 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 acquired through business combination
Where Intangible assets are acquired through business combination for which no
active market for the asset exists, fair value is determined by discounting
estimated future net cashflows generated by the asset. Estimates relating to
the future cashflows and discount rates used may have a material effect on the
reported amounts of finite lived intangible assets.
(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 resulted 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
2023 2022
£'000 £'000
Americas 9,644 7,066
North Asia 6,475 6,780
Rest of World 11,330 8,200
27,449 22,046
5 Revenue
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Sale of goods 24,579 20,040
Rendering of services 2,870 2,006
Total revenue 27,449 22,046
69% (2022: 76%) of the Group order intake has been generated through the
network of the Group's principal distribution partner. Included within orders
there are no customers which exceed 10% of the Group's orders (2022:
£3,656,051 from one customer exceeded 10% of Group orders).
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
6 Other income
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Government grant income 201 191
R&D tax credit 390 457
Interest received 160 -
751 648
7 Material operating profit items
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Operating profit for the year is stated after charging/(crediting):
Share-based payments 574 262
Legal and professional fees associated with acquisition of subsidiary 200 -
Depreciation of tangible and ROU assets 371 252
Amortisation of intangible assets 3,690 3,014
Auditor's remuneration
Fees payable to the Group's auditor and its associates for the audit of the 44 44
Group's annual accounts
Total fees payable for audit services 44 44
Fees payable to the Group's auditor and its associates for other services:
Audit related services - 2
Tax related services - -
Other services - -
Total fees payable to the Group's auditor and its associates 44 46
8 Employee benefits costs
Average monthly number of employees
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Development staff 70 64
Administrative staff 68 42
Management staff 11 10
149 116
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Employee costs during the year (including directors remuneration) amounted to:
Wages and salaries 8,560 7,694
Social security costs 875 630
Defined contribution pension 418 251
Share incentive scheme 233 210
Equity-settled share-based payment 531 249
Cash-settled share-based payment 43 13
10,660 9,047
Total gross wages and salaries capitalised in the year, included in the 3,837 3,138
analysis above
Notes to the Financial Statements continued
_________________________________________________________________________________________________________________
9 Key management personnel emoluments
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Wages and salaries 636 638
Social security costs 100 67
Defined contribution pension 7 6
Equity-settled share-based payment 29 29
772 740
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 237 255
Key management refers to the directors of the Group.
10 Finance costs
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Interest expense on lease liabilities 26 20
Notes to the Financial Statements continued
_______________________________________________________________________________________________________________
11 Taxation
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Current taxation
UK corporation tax on profits for the year 1,143 373
Foreign current tax expense 149 46
Adjustments relating to prior years (4) (120)
1,288 299
Deferred taxation
Origination and reversal of temporary differences (46) 799
Adjustments relating to prior periods - (46)
Effect of changes in tax rates 55 381
9 1,134
Total taxation charge 1,297 1,433
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Profit before tax for the year 7,208 5,973
Tax thereon at 19% 1,369 1,134
Effects of:
Expenses disallowable for tax purposes 40 67
Adjustments in respect of prior periods - current tax (4) (120)
Adjustments in respect of prior periods - deferred tax - (46)
Change in tax rate on opening balance 55 381
SME R&D credit (161) (9)
Timing differences not recognised in the computation 19 -
Impact of super deduction (10) (20)
Deferred tax (charged)/credited directly to equity (160) -
Overseas tax 149 46
Taxation charge 1,297 1,433
The weighted average applicable tax rate for the year ended 31 March 2023 was
19% (2022: 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 18% (2022:
24.0%) The (1.0) percentage point difference between the applicable rate of
tax and the effective rate is largely due to the following:
· Availability of enhanced 130% SME R&D deduction
· Overseas taxes
The 2021 budget proposal increases the corporation tax rate to 25% from 1
April 2023. This was substantively enacted in the Finance Act 2021 on 24 May
2021.
Notes to the Financial Statements continued
_________________________________________________________________________________________________________________
12 Intangible assets
Included within intangible assets are the following significant items:
· Cost of patent applications and on-going patent maintenance fees.
· Acquired intellectual property from business combinations.
· Capitalised development costs representing expenditure relating
to technological advancements on the core product base of the Group. These
costs meet the requirement of IAS 38 (Intangible Assets) and will be amortised
over the future commercial life of the related product. Amortisation is
charged to administrative expenses.
Intellectual Development Group
property Costs Total
£'000 £'000 £'000
Cost
At 1 April 2022 2,224 27,238 29,462
Additions - 4,523 4,523
Acquired through business combination 1,308 - 1,308
Disposals (6) (1,366) (1,372)
At 31 March 2023 3,526 30,395 33,921
Amortisation
At 1 April 2022 2,114 18,924 21,038
Charge for the year 375 3,315 3,690
Eliminated on disposal (6) (1,366) (1,372)
At 31 March 2023 2,483 20,873 23,356
Net book value
31 March 2022 110 8,314 8,424
31 March 2023 1,043 9,522 10,565
Intellectual Development Company
property Costs Total
£'000 £'000 £'000
Cost
At 1 April 2022 2,224 27,238 29,462
Additions - 4,523 4,523
Disposals (6) (1,366) (1,372)
At 31 March 2023 2,218 30,395 32,613
Amortisation
At 1 April 2022 2,114 18,924 21,038
Charge for the year 107 3,315 3,422
Eliminated on disposal (6) (1,366) (1,372)
At 31 March 2023 2,215 20,873 23,088
Net book value
31 March 2022 110 8,314 8,424
31 March 2023 3 9,522 9,525
During the year, a review of the carried development costs brought forward has
resulted in a disposal of £1,365,530, and elimination of amortisation of
£1,365,530 resulting in a net book value impact of £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, additions of £1,308,000 are included
relating to the fair value assessment of intellectual property on the NE-ONE
product range resulting from the business combination of iTrinegy. This
intellectual property addition has also resulted in £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. Up to a further £1 million consideration is potentially payable
subject to the achievement of revenue growth from the NE-ONE product line in
the year ended 31 March 2024 (the 'Earn-Out Payment'). This Earn-Out Payment
will be realised as a combination of cash and new ordinary shares issued in
Calnex Solutions plc. The maximum number of new ordinary shares that may be
issued as a result of the Earn-Out Payment targets being met in full is
322,579.
The Earn-Out Payment in relation to those iTrinegy vendors who have remained
as employees of the new Group has been treated as remuneration, with the fair
value expensed to the income statement. The share-based element of the
Earn-Out Payment has been measured at fair value as at grant date, whilst the
cash element of the Earn-Out Payment will be fair value assessed at each
reporting date, consistent with IFRS 2 Share-based Payment. This results in a
charge of £0.3m related to post acquisition service, and this will be charged
to the Income Statement over the vesting period. In the current year, £0.1m
has been charged to administrative expenses within the Income Statement.
£0.2m of acquisition related expenses for legal and professional fees, as
well as £0.3m amortisation of acquired intangible assets have been charged to
administrative expenses in the period.
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 are final as
at 31 March 2023.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
13 Business combinations (continued)
The acquired business contributed revenues of £1.3m and profit after tax of
£0.2m profit for the period 12 April 2022 to 31 March 2023. If the
acquisition had occurred on 1 April 2022 the full year contributions to
revenue and profit after tax would have been £1.3m and £0.2m profit after
tax. The proximity of the acquisition date to the beginning of the financial
year resulted in a significant amount of the acquired business transactions
for financial year being captured post acquisition.
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.
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
2023
£'000
Cost
As at 1 April 2022 -
Acquisitions (note 13) 2,000
As at 31 March 2023 2,000
Goodwill of £2,000,000 has been recognised in the Group in the year,
following the acquisition of iTrinegy Ltd.
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%, 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 11.7%, which would be anticipated for a market participant
investing in the Group.
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 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 2022 335 335
Additions 235 235
Acquired through business combination 8 8
Disposals (8) (8)
At 31 March 2023 570 570
Depreciation
At 1 April 2022 61 61
Charge for the year 113 113
Eliminated on disposal (8) (8)
At 31 March 2023 166 166
Net book value
31 March 2022 274 274
31 March 2023 404 404
16 Inventories
Group Company
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Finished goods 3,055 1,427 3,055 1,427
Provision for obsolescence (307) (429) (307) (429)
2,748 998 2,748 998
Cost of inventories recognised as an expense 5,744 4,811 5,685 4,811
Group inventories reflect the following movement in provision for
obsolescence:
At start of the financial year 429 279 429 279
Utilised (122) (23) (122) (23)
Provided - 173 - 173
At end of the financial year 307 429 307 429
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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Amounts due within one year
Trade receivables 2,605 4,120 2,605 4,120
R&D tax credit repayments - 598 - 598
Other receivables 213 150 213 150
Amounts owed by group companies - - 325 201
Prepayments and accrued income 312 129 312 128
3,130 4,997 3,455 5,197
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 £339,366 (2022: £103,605), 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Overdue by
0-30 days 322 104 322 104
30-60 days 3 - 3 -
60+ days 14 - 14 -
339 104 339 104
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 £9,214 (2022: £11,080). 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Cash at bank 12,439 7,330 12,042 7,065
Cash on short term deposit 5,144 6,527 5,144 6,527
Total cash and cash equivalents 17,583 13,857 17,186 13,592
Short term investment: fixed term deposit 1,515 1,500 1,515 1,500
Short term cash deposits of £12,974 (2022: £1,501,049) are callable on a
notice of 65 days.
Short term cash deposits of £5,130,587 (2022: £5,025,495) 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 £1,515,000 (2021: £1,500,000) 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 Borrowings
The Group currently has a £3,000,000 revolving credit facility, at an
interest rate of 2.25% above the Bank of England base rate and secured with a
floating charge over the Group assets. The total amount drawn from the
borrowing facility as at 31 March 2023 was £nil. (31 March 2022: £nil)
This facility is subject to the following financial covenants:
i) Leverage covenant: Gross borrowings to R&D adjusted
EBITDA: The ratio of Gross Borrowings at the end of each relevant period to
R&D Adjusted EBITDA for such Relevant Period shall not exceed 1.75 to 1.
R&D adjusted EBITDA is defined as EBITDA less capitalised development
expenditure in the period.
ii) Interest Cover Covenant: EBIT to Net Financing Costs: The
ratio of EBIT for each Relevant Period to Net Financing Costs for such
Relevant Period shall not fall below 4.00 to 1.
The Group has passed all covenant tests during the review period.
20 Trade and other payables
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Amounts due within one year
Trade payables 1,770 924 1,767 911
Other taxes and social security 197 149 197 149
Other payables 75 60 75 60
Accruals 1,275 2,406 1,264 2,399
Deferred income 2,671 2,030 2,503 2,030
5,988 5,569 5,806 5,549
Amounts due after one year
Deferred income 1,166 718 1,126 718
Other payables 230 - 230 -
1,396 718 1,356 718
Total amounts due 7,384 6,287 7,162 6,267
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
20 Trade and other payables (continued)
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.
21 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 the 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 2022 1,044 170 1,214 1,214
Additions - - - -
Disposals - - - -
At 31 March 2023 1,044 170 1,214 1,214
Depreciation
At 1 April 2022 336 87 423 423
Charge for the year 218 40 258 258
Eliminated on disposal - - - -
At 31 March 2023 554 127 681 681
Net book value
31 March 2022 708 83 791 791
31 March 2023 490 43 533 533
Right-of-use assets Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Balance at 1 April 791 522 791 522
Additions to right of use assets - 473 - 473
Depreciation charge for the year (258) (204) (258) (204)
Balance at 31 March 533 791 533 791
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
21 Leases (continued)
Lease liabilities
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Balance at 1 April 857 566 857 566
Acquisition of new leases 53 474 53 474
Payment of lease liabilities (245) (203) (245) (203)
Interest expense on lease liabilities 26 20 26 20
Balance at 31 March 691 857 691 857
Disclosed as
Current 260 193 260 193
Non-current 431 664 431 664
691 857 691 857
During the year, the Group also leased additional land and buildings in
Belfast and one motor vehicle. 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Motor vehicles 17 17 17 17
Land and buildings 58 51 58 51
75 68 75 68
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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Depreciation charge - building lease 218 162 218 162
Depreciation charge - IT equipment 40 42 40 42
Interest on lease liabilities 26 20 26 20
Low value lease rental 75 68 75 68
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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Total cash outflow for leases (245) (203) (245) (203)
A maturity analysis of contractual cashflows relating to lease liabilities is
included in note 24 (d).
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
22 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Opening balance 304 613 304 613
Recognised in statement of comprehensive income (192) (424) (192) (424)
Recognised in equity 160 115 160 115
Closing balance 272 304 272 304
Deferred tax assets arise as follows:
Share-based remuneration 250 265 250 265
Other timing differences 22 39 22 39
Total deferred tax asset 272 304 272 304
Deferred tax liability
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Opening liability 2,017 1,321 2,017 1,321
Recognised in statement of comprehensive income 440 696 180 696
Recognised in equity - - - -
Closing liability 2,457 2,017 2,197 2,017
Deferred tax liabilities arise as follows:
Deferred tax on acquisition 260 19 - 19
Timing differences on development costs 2,108 1,915 2,108 1,915
Accelerated capital allowances 89 83 89 83
Total deferred tax liability 2,457 2,017 2,197 2,017
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
23 Provisions
Group Company
Year ended Year ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Current provisions
Overseas tax - 141 - 141
Non-current provisions
Dilapidations 15 15 15 15
Total provisions 15 156 15 156
The movement in the total provision liability
At start of financial year 156 306 156 306
Recognised in profit and loss (141) (150) (141) (150)
At end of financial year 15 156 15 156
Following submission and acceptance of all required documentation, provisions
recognised in respect of potential payments to be made to overseas tax
authorities of £141,000 have been released in the current year.
Remaining 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
__________________________________________________________________________________________________________________
24 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Financial assets (current and non-current) at amortised cost
Trade and other receivables 2,605 4,279 2,930 4,480
Cash and cash equivalents 17,583 13,857 17,186 13,592
Short term investments 1,515 1,500 1,515 1,500
Financial liabilities (current and non-current) at amortised cost
Lease liabilities 691 857 691 857
Trade and other payables 4,636 3,391 4,600 3,371
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.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
24 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 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.
As at 31 March 2022 Sterling Euro US Dollar Total
£'000 £'000 £'000 £'000
Trade receivables 89 93 3,938 4,120
Borrowings - - - -
Lease liabilities (857) - - (857)
Trade payables (818) - (106) (924)
Cash and cash equivalents 12,989 207 661 13,857
Short term investments: fixed term deposit 1,500 - - 1,500
12,903 300 4,493 17,696
Based on this exposure had Pound Sterling weakened by 5% the Group's profit
before tax would have been £239,650 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
__________________________________________________________________________________________________________________
24 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
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade and other receivables 2,605 4,075 2,930 4,276
Cash and cash equivalents 17,583 13,857 17,186 13,592
Short term investments 1,515 1,500 1,515 1,500
21,703 19,432 21,631 19,368
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 2023 and 31
March 2022 were determined as follows:
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
Days past due 0 1-30 31-60 >60 Total
2022
Balance outstanding (£'000) 4,016 104 - - 4,120
Historic loss rate 0% 0% 0% 0%
Estimated credit loss provision 0.25% 1% 1.5% 2%
Potential credit loss allowance (£'000) 10 1 - - 11
Due to the immaterial nature of the assessed credit risk, no provision has
been recognised for 31 March 2023 or 31 March 2022.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
24 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 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
1 year or 1 to 2 to Over 5 Total
less 2 years 5 years years liabilities
31 March 2022 £'000 £'000 £'000 £'000 £'000
Trade payables 924 - - - 924
Other payables 2,615 - - - 2,615
Lease liabilities 243 239 674 - 1,156
3,782 239 674 - 4,695
25 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 £417,521 (2022: £250,504).
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
26 Share-based payments
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Charged to administration expenses:
Equity settled share-based payments 531 249
Cash settled share-based payments 43 13
Total share-based payments 574 262
During the year 0.8m share options were granted (2022: 1.9m). The fair value
of share options granted has been estimated at the date of the grant using the
Black-Scholes binomial model. 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
2023 2022
Options issued 797,500 1,917,000
Weighted average share price (pence) 117 118
Weighted average exercise price (pence) 117 118
Expected volatility (%) 63.4-67.1 77.2- 105.2
Vesting period (years) 3-5 3-5
Option life (years) 10 10
Risk free rate (%) 0.75-4.25 0.02
Dividend yield (%) 1.0 1.0
Fair value at grant date (£'000) 399 1,071
Equity options in issue at 31 March 2022 4,474,935
Equity options issued in the year 797,500
Equity options realised in the year (23,935)
Equity options forfeited in the year (49,500)
Equity options in issue at 31 March 2023 5,199,000
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.
During the year 38,000 cash settled options were granted (2022: 150,500). The
fair value has been measured at the reporting date using the Black-Scholes
binomial 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
2023 2022
Options issued 38,000 150,500
Weighted average share price (pence) 115 117
Weighted average exercise price (pence) 115 117
Vesting period (years) 3-5 3-5
Option life (years) 10 10
Fair value at reporting date (£'000) 18 80
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
26 Share-based payments (continued)
Year ended Year ended
Share option reserve reconciliation 31 March 31 March
2023 2022
£'000 £'000
Opening balance 502 126
Equity settled share-based payments 531 249
Deferred taxation on share options: charge recognised in equity (160) 127
Total share option reserve 873 502
27 Group companies
Country of
registration
% of direct shares held
Subsidiary
undertakings or
incorporation
Principal
activity
2023 2022
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 12 April 2022, Calnex Solutions plc acquired 100 per cent of the issued
share capital of iTrinegy Ltd. The operations and trading of iTrinegy Ltd have
been hived up into the Calnex Solutions plc entity, and the company is
currently in the process of strike-off, which is expected to complete in the
proceeding financial year. 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.
The first stage of this reorganisation completed on 30 September 2022 when
iTrinegy Inc a 100% owned subsidiary of iTrinegy Ltd. Was merged with Calnex
Americas Corporation, a 100% owned subsidiary of Calnex Solutions plc.
On 31 December 2022, all of the assets of iTrinegy Ltd were transferred to
Calnex Solutions plc. The directors are currently in the process of striking
off iTrinegy Ltd. It is anticipated this will complete within the first half
of the FY24 financial year.
Movement in fixed asset investments
Company
Shares in group undertakings
£'000
Cost or valuation
As at 1 April 2022 -
Cost recognised for acquisition of iTrinegy Ltd 3,203
Dividends received from pre-acquisition reserves of subsidiary (767)
Impairment of investment value (2,436)
As at 31 March 2023 -
As at 31 March 2022 -
As a result of the intention to strike off the remaining iTrinegy Ltd entity,
investment value impairment of £2,436,000 has been recognised within the
Company in the current year.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
28 Called up share capital
As at 31 March 2023, the Company had 87,523,935 (2022: 87,500,000) Ordinary
Shares held at a nominal value of 0.125p. During the year, an exercise of
share options resulted in 23,935 shares being issued.
Group and Company
31 March 31 March
2023 2022
£'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
29 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
2023 2022
£'000 £'000
Profit after tax attributable to shareholders 5,911 4,540
Weighted average number of ordinary shares used in calculating:
Basic earnings per share 87,520 87,500
Diluted earnings per share 92,070 90,845
Earnings per share - basic (pence) 6.75 5.19
Earnings per share - diluted (pence) 6.42 5.00
30 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 2022 857 857
Lease repayment (245) (245)
Interest payments 26 26
Total changed from financing cashflows 638 638
Acquisition of new lease 53 53
Total other changes 53 53
Balance at 31 March 2023 691 691
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
31 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 £180,000 (2022: £150,000) and is included within other
creditors.
32 Dividends
All dividends are determined and paid in Pound Sterling.
Year ended Year ended
31 March 31 March
2023 2022
£'000 £'000
Declared and paid in the year
Interim dividend 2022: 0.28p per share - 245
Final dividend 2022: 0.56p per share 490
Interim dividend 2023: 0.31p per share 271
Proposed for approval at the Annual General Meeting (not recognised as a
liability at 31 March 2023)
Final 2023: 0.62p per share 543
The directors are proposing a final dividend with respect to the financial
year ended 31 March 2023 of 0.62p per share, which will represent £542,648 of
a dividend payment. The final dividend will be proposed for approval at the
Annual General Meeting in August 2023 and, if approved, will be paid on 30
August 2023 to all shareholders on the register as at close of business on 28
July 2023, the record date. The ex-dividend date will be 27 July 2023.
Notes to the Financial Statements continued
__________________________________________________________________________________________________________________
33 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
2023 2022
£'000 £'000
Underlying EBITDA 7,979 6,351
Underlying EBITDA % 29% 29%
Capitalised R&D 4,523 3,905
Key performance measures:
· Underlying EBITDA: EBITDA after charging R&D amortisation
Reconciliation of statutory figures to alternative performance measures -
Income Statement
FY23 FY22
£000 £000
Revenue 27,449 22,046
Cost of sales (6,977) (5,518)
Gross Profit 20,472 16,528
Other income 751 648
Administrative expenses (excluding depreciation & amortisation) (9,928) (7,917)
EBITDA 11,295 9,259
Amortisation of development costs (3,315) (2,908)
Underlying EBITDA 7,980 6,351
Other depreciation & amortisation (746) (358)
Operating Profit 7,234 5,993
Finance costs (26) (20)
Profit before tax 7,208 5,973
Tax (1,297) (1,433)
Profit for the year 5,911 4,540
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