REG - Calnex Solutions PLC - Interim Results
22/11/2022 07:00
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RNS Number : 1317H Calnex Solutions PLC 22 November 2022
22 November 2022
Calnex Solutions plc
("Calnex", the "Company" or the "Group")
Interim Results
Calnex Solutions plc (AIM: CLX), a leading provider of test and measurement
solutions for the global telecommunications sector, is pleased to announce its
unaudited results for the six months ended 30 September 2022 ("H1 FY23" or
"the Period").
Financial Highlights
£000 H1 FY23 H1 FY22 FY22 H1 YOY % change
Unaudited Unaudited Audited
Revenue 12,728 9,251 22,046 38%
Underlying EBITDA (1) 3,466 2,479 6,351 40%
Profit before tax 3,086 2,308 5,973 34%
Basic EPS (pence) 2.78 2.05 5.19 36%
Diluted EPS (pence) 2.67 1.99 5.00 34%
Closing cash including fixed term deposits(2) 14,436 13,643 15,357 6%
· Revenue increase a combination of strong underlying growth and the
impact of currency movements.
· Gross margin and Underlying EBITDA margins maintained in line with
the prior period, despite the challenging external economic environment.
· Continued planned investment in product development and operational
scalability, to support future growth.
· £1.3m cash generated in the Period after £2.3m net acquisition cash
cost for the iTrinegy acquisition.
· Solid EPS growth in line with the profit performance for the Period.
· Interim dividend of 0.31p pence per share to be paid in December.
Operational Highlights
· Relationship development with hyperscale customers progressing well,
with new Network Synchronisation product, Sentry, due to be launched in H2,
enhancing product offering for the cloud computing market.
· Acquisition of iTrinegy Limited, enhancing the Group's position as a
leading network emulation test vendor, with integration progressing as
planned.
· Successful mitigation of well-documented, global supply chain
shortages to date, shipping scheduled orders as planned.
· Continued investment in talent globally.
Outlook:
· Strong order book as we move into H2 FY23.
· The Board is confident that the Group's performance for FY23 will be
in line with market expectations.
Tommy Cook, Chief Executive Officer, and founder of Calnex, said: "We are
pleased to deliver a strong financial performance during the period,
significantly increasing revenue and profit, while continuing to invest in our
team's capabilities and offering. We were delighted to successfully complete
the integration of the iTrinegy team into the Group during the period.
"Whilst it is sensible to look to the future with a degree of caution given
the continuing component shortages and global macro-economic challenges, the
Company's positive trading performance during the period and proven ability to
manage component shortages underpin the Board's confidence that the Group's
performance for FY23 will be in line with market expectations.
"The breadth of our customer base across multiple regions, ongoing successful
expansion of the team and offering, and wealth of industry
connections combine to place Calnex in a strong position to continue to
benefit from the underlying long-term growth drivers in the telecoms and
cloud computing markets."
(1) EBITDA after charging R&D amortisation.
(2) The Group places surplus cash balances not required for working capital
into notice and fixed term deposit accounts. Under IAS 7 Statement of Cash
Flows, cash held on long-term deposits (being deposits with maturity of
greater than 95 days, and no more than twelve months) that cannot readily be
converted into cash is classified as a fixed term investment.
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 designs, produces and markets test instrumentation and solutions for
network synchronization and network emulation, enabling its customers
to validate the performance of the critical infrastructure associated
with telecoms networks. To date, Calnex has secured and delivered
orders to over 600 customer sites 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 worldwide distribution capability.
Operational Review
Calnex delivered a robust financial performance during the first six months of
the year, growing revenues by 38% to £12.7m (H1 FY22: £9.3m) and profit
before tax by 34% to £3.1m (H1 FY22: £2.3m). The Group has experienced
continued strong revenue performance across its product lines, with the
ongoing transition to 5G and the growth in cloud computing continuing to drive
demand for test instrumentation and network validation.
Calnex continues to successfully mitigate the impacts of the global
semiconductor shortage, successfully shipping scheduled orders as planned, and
has entered the second half of FY23 with a strong order book. The impact of
inflation is being managed within the Group's budget and Calnex's breadth and
strength of customer and supplier relationships and geographic spread, mean
the Company continues to be well-equipped to deal with any wider macroeconomic
risks.
The acquisition of iTrinegy has expanded the Group's offering into the
application testing market and the Group's organic R&D efforts continue to
enhance the existing product portfolio. Successfully expanding Calnex's
product offering has supported growth in the sales pipeline and order book.
Market Opportunity
The Covid-19 pandemic accentuated the importance of communications networks
around the world to support modern life. Whilst the current global market
backdrop is uncertain, investment in telecoms infrastructure to deliver next
generation connectivity continues at pace. The requirement for key areas of
design validation, conformance and maintenance testing on which Calnex is
focused, to support these infrastructure investments and validate network
performance, is supporting the continued growth of Calnex. The need for
hyperscale and enterprise companies to drive greater efficiency and
performance in their data centre operations is also expected to drive growth
in the testing market.
As the roll out of 4G and 5G continues, vendors are producing equipment which
conforms to the O-RAN recommendations in line with their customers'
requirements. Network Emulators and Sync testers are required to test this
equipment in order to prove interoperation between the various network
elements, and the continued strong demand for these products has enabled
Calnex to increase engagement with new and existing customers.
While the current economic environment is challenging, and may impact certain
customers or geographies, Calnex's long-established global presence means the
Company is well placed to withstand regional variations in end market
conditions.
Product development
Launch of new product to optimise entry into cloud computing market
Relationships with hyperscale customers seeking to increase the efficiency and
performance of their data centre operations are developing well and to align
Calnex's product portfolio with this emerging opportunity, a new version of
our Network Synchronisation product, Sentry, will be launched in the second
half of FY23. This product 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. We have commenced shipping product for the
significant data centre order received in FY22, with positive customer
feedback.
Expansion into network emulation for application
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. 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 remain a key
focus for the second half.
People
We continue to invest in talent globally, to support and enhance the fantastic
work of our team, and our total headcount now sits at 138. This has included
a new head of standards engagement activities, enhancing our interaction and
links with these important industry bodies.
Outlook
During the second half of the year, our focus will remain on product
development, the build out of the NE-ONE sales channel and the launch of
Sentry, as the expansion into adjacent markets provides the potential for
further progress over the longer term.
Whilst it is sensible to look to the future with a degree of caution given the
continuing component shortages and global macro-economic challenges, the
Company's positive trading performance during the period and proven ability to
manage component shortages underpin the Board's confidence that the Group's
performance for FY23 will be in line with market expectations.
The breadth of Calnex's customer base across multiple regions, ongoing
successful expansion of the team and offering, and wealth of industry
connections combine to place Calnex in a strong position to continue to
benefit from the underlying long-term growth drivers in the telecoms and
cloud computing markets.
Tommy Cook
Chief Executive Officer
Financial Review
The Group delivered a solid performance in the six months to 30 September
2022, with significant growth in revenues and profit compared with the prior
year. Strong growth in order levels, the partial flow through of revenue from
the significant data centre order received in FY22, alongside some favourable
currency movements, had a positive impact on the Group's revenue and profit
figures. Calnex ended the Period with a strong order book as the Group
continues to manage the component supply chain delays. As the component
shortages ease, the backlog is expected to continue to unwind through the
coming months, and together with a healthy future pipeline of orders for H2
FY23, the Board is confident in meeting current market expectations for the
full year.
Key performance indicators
£000 H1 FY23 H1 FY22 FY22
Unaudited Unaudited Audited
Revenue 12,728 9,251 22,046
Gross Profit 9,617 7,046 16,528
Gross Margin 76% 76% 75%
Underlying EBITDA (1) 3,466 2,479 6,351
Underlying EBITDA % 27% 27% 29%
Profit before tax 3,086 2,308 5,973
Profit before tax % 24% 25% 27%
Closing cash including fixed term deposits(2) 14,436 13,643 15,357
Capitalised R&D 2,247 1,904 3,905
Basic EPS (pence) 2.78 2.05 5.19
Diluted EPS (pence) 2.67 1.99 5.00
(1) EBITDA after charging R&D amortisation.
(2) The Group places surplus cash balances not required for working capital
into notice and fixed term deposit accounts. Under IAS 7 Statement of Cash
Flows, cash held on long-term deposits (being deposits with maturity of
greater than 95 days, and no more than twelve months) that cannot readily be
converted into cash is classified as a fixed term investment.
A reconciliation between the statutory reported income statement and the
adjusted income statement is shown in note 17 to the financial statements.
Revenue
Revenue recognised in the first half of the year was £12.7m, a 38% growth on
H1 FY22 revenue of £9.3m. With around 80% of the Group's revenues being
invoiced in USD, approximately a third of the growth in Group revenues was due
to the strength of the US dollar in the period. The Group experienced growth
in revenues across all product lines and geographic regions.
Gross Margin
Gross margin in the Period was 76%, (H1 FY22: 76%). This gross margin is net
of commissions payable to our channel partners. Gross margins can fluctuate by
1-2% through the year depending on the mix of products and the mix of the
hardware and software bundles shipped.
Gross margin levels were maintained in line with the prior period. The Group
increased pricing in the Period to negate increases in component costs and
wages driven by inflation and foreign exchange movements, providing further
protection for the gross margin in future periods.
Underlying EBITDA
Underlying EBITDA is EBITDA stated after charging R&D amortisation.
Underlying EBITDA was £3.5m in the Period (H1 FY22: £2.5m), driven by the
strong revenue performance. Underlying EBITDA margin was 27% (H1 FY22: 27%),
in line with the prior year. The business has continued to invest to support
the growth of the business, whilst maintaining profit margins.
Administration costs excluding depreciation and amortisation were £4.7m in H1
FY23 (H1 FY22: £3.2m). 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 and overheads
relating to the Stevenage site after the acquisition of iTrinegy in April,
offset partially by savings in foreign exchange translation costs.
With the majority of the Group's costs being sterling based, the Group's
overhead cost base has not been materially affected by the strengthening of
the US dollar against sterling. The increase in costs related to our overseas
sales team as a result of the movement in foreign exchange rates in the period
has been more than offset by the upside to revenues in the Period.
Amortisation of R&D costs in H1 FY23 was £1.6m (H1 FY22: £1.4m). The
increase on the prior period is due to planned growth in R&D headcount to
support new and ongoing projects.
Profit before tax
Profit before tax was £3.1m in the Period (H1 FY22: £2.3m), being 24% of
revenues (H1 FY22: 25%), with the increase in intangibles amortisation, as a
result of the new intangibles brought on by the iTrinegy acquisition, driving
the slight variance on the prior period. As the backlog reduces through H2,
management expect the margin on profit before tax to align with expectation
set at the start of the year.
Tax
The tax charge for the Period was £0.7m (H1 FY22: £0.5m) representing an
effective tax rate of 21% (H1 FY22: 22.2%).
The Finance Act 2021, now substantively enacted, increases the UK corporation
tax rate from 19% to 25% effective 1 April 2023. As a result, the Company's
deferred tax assets and liabilities have been measured using the tax rates
that are expected to apply when the reversal of the timing differences takes
place. Using this methodology, an effective hybrid tax rate has been
calculated, offset partially by the availability of R&D tax credits.
Earnings per share
Basic earnings per share was 2.78 pence in the Period (H1 FY22: 2.05 pence)
and diluted earnings per share was 2.67 pence (H1 FY22: 1.99 pence), with the
increases in both metrics reflecting the strong performance in the period.
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 £2.5
million fully funded from the Group's free cash. An additional £0.5 million
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 16 to the financial statements.
A further £1 million 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.
£1.3m of a fair value adjustment has been calculated as valuation of the
intellectual property associated with the acquired technology, and customer
relationships. The goodwill balance of £1.6 million, 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.
£0.1m has been charged to the income statement in the Period to account for
the Earn-out Payment in relation to those vendors that have remained with
Calnex post acquisition. In addition, £0.1m of acquisition related expenses
for legal and professional fees, as well as £0.1m amortisation of acquired
intangible assets have also been charged to the income statement in the
Period.
The Company has a 12 month measurement period under IFRS 3 Business
combinations to finalise the acquisition accounting allocations, and as such,
the numbers within note 16 to the financial statements remain provisional.
Cashflows
The Group generated cash before acquisitions of £1.3m in H1 FY23 (H1 FY22:
£0.9m), reflecting the strong trading in the Period.
Cashflow summary
H1 FY23 H1 FY22 FY22
Unaudited Unaudited Audited
£000 £000 £000
Net cash from operating activities 4,243 3,130 7,350
Investing activities - intangible and property, plant and equipment (2,311) (2,058) (4,213)
Dividends paid (490) - (245)
Other financing activities (100) (97) (203)
Increase in cash before acquisitions and transfers to fixed term deposit 1,342 975 2,689
Acquisition of iTrinegy (net cash effect) (2,263) - -
Transfer of cash into fixed term deposit - - (1,500)
(Decrease)/increase in cash per consolidated cashflow statement (921) 975 1,189
Opening cash 13,857 12,668 12,668
Include fixed term deposit 1,500 - 1,500
Closing cash including fixed term deposits 14,436 13,643 15,357
Net cash from operating activities was £4.2m in the Period (H1 FY22: £3.1m).
Working capital movements represented a cash outflow of £1.3m (H1 FY22:
£0.7m), 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 Period was £2.3m (H1 FY22: £1.9m), reflecting the planned
growth in the R&D team as projects resource demands increased.
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
also classed 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.
Cash spend on financing activities in the Period was £0.6m (H1 FY22: £0.1m),
largely representing payment of the final dividend for the year ended 31 March
2022 of £0.5m (H1 FY22: nil) which was approved at the Company's AGM and paid
on 30 August 2022. The remainder of the cash spend reflects payment of lease
obligations. 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 30 September 2022 was £14.4m
(30 September 2021: £13.6m; 31 March 2022: £15.3m).
Dividend
The Board has resolved to pay an interim dividend of 0.31 pence per ordinary
share on 16 December 2022 to those shareholders on the register as at 2
December 2022, the record date (FY22 Interim dividend 0.28p). The ex-dividend
date is 1 December 2022.
Calnex Solutions plc
Consolidated income statement
For the period ended 30 September 2022
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Revenue 5 12,728 9,251 22,046
Cost of sales (3,111) (2,205) (5,518)
Gross profit 9,617 7,046 16,528
Other income 150 93 648
Administrative expenses (6,669) (4,820) (11,183)
Operating profit 3,098 2,319 5,993
Presented as:
EBITDA 5,076 3,877 9,259
Depreciation and amortisation of non-R&D assets (368) (160) (358)
Amortisation of R&D asset (1,610) (1,398) (2,908)
Operating profit 3,098 2,319 5,993
Finance costs 6 (12) (11) (20)
Profit before taxation 3,086 2,308 5,973
Taxation 7 (656) (512) (1,433)
Profit and total comprehensive income for the year 2,430 1,796 4,540
Earnings per share (pence)
Basic earnings per share 8 2.78 2.05 5.19
Diluted earnings per share 8 2.67 1.99 5.00
Calnex Solutions plc
Consolidated statement of financial position
For the period ended 30 September 2022
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Non-current assets
Intangible assets 9 10,181 7,982 8,424
Goodwill 16 1,646 - -
Plant and equipment 297 158 274
Right of use assets 10 660 541 791
Deferred tax asset 304 730 304
13,088 9,411 9,793
Current assets
Inventory 11 1,532 1,189 998
Trade and other receivables 12 6,035 2,414 4,997
Cash and cash equivalents 13 12,936 13,643 13,857
Short term investments 13 1,500 - 1,500
22,003 17,246 21,352
Total assets 35,091 26,657 31,145
Current liabilities
Trade and other payables 14 6,059 4,182 5,569
Lease liability payable within one year 10 192 175 193
Provisions 15 - 291 141
6,251 4,648 5,903
Non-current liabilities
Trade and other payables 14 1,965 868 718
Lease liabilities payable later than one year 10 566 417 664
Deferred tax liability 2,253 1,650 2,017
Provisions 15 15 15 15
4,799 2,950 3,414
Total liabilities 11,050 7,598 9,317
Net assets 24,041 19,059 21,828
Equity
Share capital 109 109 109
Share premium 7,495 7,484 7,484
Share option reserve 764 232 502
Retained earnings 15,673 11,234 13,733
Total equity 24,041 19,059 21,828
Calnex Solutions plc
Consolidated statement of cashflows
For the period ended 30 September 2022
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Cashflow from operating activities
Profit before tax from continuing operations 3,086 2,308 5,973
Adjusted for
Finance costs 12 11 20
Government grant income (96) (93) (197)
R&D tax credit income - - (457)
Movement in provisions (141) - (150)
Share based payment transactions 286 105 262
Depreciation 368 160 252
Amortisation 1,610 1,398 3,014
Movement in inventories (569) (63) (38)
Movement in obsolescent provision 109 (16) 150
Movement in trade and other receivables (1,054) (595) (2,815)
Movement in trade and other payables 239 (74) 1,129
Cash generated from operations 3,850 3,141 7,143
Interest paid - (11) -
45621
R&D tax credit cash refunds received 393 - 207
Net cash from operating activities 4,243 3,130 7,350
Investing activities
Purchase of intangible assets (2,247) (1,904) (3,913)
Purchase of plant and equipment (64) (154) (300)
Short term cash deposits - - (1,500)
Acquisition of subsidiary (3,000) - -
Subsidiary cash balance on acquisition 737 - -
Net cash used in investing activities (4,574) (2,058) (5,713)
Financing activities
Payment of lease obligations (111) (97) (203)
Dividends paid (490) - (245)
Shares issued 11 - -
Net cash from financing activities (590) (97) (448)
Net (decrease)/increase in cash and cash equivalents (921) 975 1,189
Cash and cash equivalents at the beginning of the period 13,857 12,668 12,668
Cash and cash equivalents at the end of the period 12,936 13,643 13,857
Calnex Solutions plc
Consolidated statement of changes in equity
For the period ended 30 September 2022
Share Share premium Share option reserve Retained earnings Total
capital Equity
£'000 £'000 £'000 £'000 £'000
Balance at 30 September 2021 109 7,484 232 11,234 19,059
Share options - - 270 - 270
Interim dividend - - (245) (245)
-
- - - 2,744 2,744
Profit for period ended 31 March 2022
Balance at 31 March 2022 109 7,484 502 13,733 21,828
Share options - - 262 - 262
Shares issued - 11 - - 11
Final dividend - - - (490) (490)
Profit for period ended 30 September 2022 - - - 2,430 2,430
Balance at 30 September 2022 109 7,495 764 15,673 24,041
Calnex Solutions plc
Notes to the interim consolidated financial statements
For the period ended 30 September 2022
1. General information
The interim consolidated financial statements cover the consolidated entity
Calnex Solutions plc and the entities it controlled at the end of, or during,
the interim period to 30 September 2022 ("the Group").
Calnex Solutions plc ("the Company") is a public limited company and is
domiciled and incorporated in Scotland.
The registered office is:
Oracle Campus
Linlithgow
West Lothian
EH49 7LR
The principal activity of the Group is the design, production and marketing of
test instrumentation and solutions for network synchronisation and network
emulation enabling its customers to validate the performance of critical
infrastructure associated with telecoms networks, enterprise networks and data
centres.
The interim consolidated financial statements for the period ended 30
September 2022 are unaudited, and do not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. They do not therefore
include all the information and disclosures required in annual statutory
financial statements and should be read in conjunction with the Group annual
report and accounts for the year ended 31 March 2022.
The Group annual report and accounts for the year ended 31 March 2022 were
approved by the Board of Directors on 23 May 2022 and have been delivered to
the Registrar of Companies. The auditor's report on those accounts was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement made under Section 498(2) or (3) of the Companies Act
2006.
The interim consolidated financial statements for the period ended 30
September 2022 were approved by the Board of Directors on 21 November 2022.
2. Basis of preparation
The interim consolidated financial statements for the period ended 30
September 2022 have been prepared in accordance with IAS 34 'Interim Financial
Reporting' as issued by the International Accounting Standards Board, endorsed
by and adopted for use in the United Kingdom.
The accounting policies and methods of computation adopted are consistent with
those applied in the Group's consolidated financial statements for the year
ended 31 March 2022 and have been applied consistently to all periods
presented.
There have been no new standards or amendments to existing standards effective
from 1 April 2022 that are applicable to the Group or that has had any
material impact on the financial statements and related notes as at 30
September 2022. The Directors do not anticipate that the adoption of any of
the new standards and interpretations issued by the IASB and IFRIC with an
effective date for the Group after the date of these interim financial
statements will have a material impact on the Group's interim financial
statements in the period of initial application.
3. Going concern
The interim consolidated financial statements have been prepared on the basis
that the Group will continue as a going concern.
In adopting the going concern basis, the Directors have considered the
principal risks and uncertainties of the group, which remain unchanged from
those reported in the Group annual report for the year ended 31 March 2022, a
copy of which is available on the Company's website at:
https;//investors.calnexsol.com. The uncertainties arising from the
macro-economic backdrop and inflationary pressures are covered by existing
identified risks, and these continue to be closely monitored.
The Board has reviewed financial profit and cashflow forecasts for the current
and succeeding financial years to 31 March 2024. Based on this review, along
with regular oversight of the Group's risk management framework, the Board has
concluded the going concern basis to remain appropriate.
4. Operating segments
Operating segments are based on the internal reports that are reviewed and
used by the Board of Directors (who are identified as the Chief Operating
Decision Makers) in assessing performance and determining the allocation of
resources. As the Group has a central cost structure and a central pool of
assets and liabilities, the Board of Directors do not consider segmentation in
their review of costs or the balance sheet. The only operating segment
information reviewed, and therefore disclosed, are the revenues derived from
different geographies.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Americas 4,538 3,293 7,066
North Asia 3,168 2,140 6,780
ROW 5,022 3,818 8,200
Total revenue 12,728 9,251 22,046
5. Revenue
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Sale of goods 11,665 8,268 20,040
Rendering of services 1,063 983 2,006
Total revenue 12,728 9,251 22,046
6. Finance costs
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Interest expense on lease liabilities 12 11 20
Total finance costs 12 11 20
7. Taxation
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Current taxation
UK corporation tax on profits for the period 413 291 373
Foreign current tax expense 8 5 46
Adjustments relating to prior years - - (120)
Deferred taxation
Effect of timing differences 235 104 799
Adjustments relating to prior years - - (46)
Effects of changes in tax rate - 112 381
Taxation charge 656 512 1,433
Profit before tax for the year 3,086 2,308 5,973
Effective tax rate 21% 22% 24%
The weighted average applicable tax rate for the period ended 30 September
2022 is forecast at 21%, being the current period tax charge as a percentage
of profit before tax.
The Finance Act 2021, now substantively enacted, increases the UK corporation
tax rate from 19% to 25% effective 1 April 2023. In accordance with IAS 12:
(Income Taxes), the deferred tax asset and liability have been measured using
the tax rates that are expected to apply when the reversal of the timing
differences takes place.
8. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the weighted average number of Ordinary Shares in
issue during the year.
Diluted earnings per share is calculated by dividing the earnings attributable
to ordinary shareholders by the total of the weighted average number of
Ordinary Shares in issue during the year and adjusting for the dilutive
potential Ordinary Shares relating to share options.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Profit after tax attributable to shareholders 2,430 1,796 4,540
Weighted average number of shares used in calculation:
Basic earnings per share 87,508 87,500 87,500
Diluted earnings per share 91,493 90,375 90,845
Earnings per share - basic (pence) 2.78 2.05 5.19
Earnings per share - diluted (pence) 2.67 1.99 5.00
9. Intangible Assets
Included within intangible assets are the following significant items:
· Intellectual property representing the cost of patent
applications and on-going patent maintenance fees. Intellectual property
additions for the period reflect the NE-ONE product line acquired in April
2022 as part of the iTrinegy Ltd acquisition. Details of the acquisition can
be found in note 16.
· Capitalised development costs representing expenditure relating
to technological advancements on the core product base of the Group. These
costs meet the requirement of IAS 38 (Intangible Assets) and will be amortised
over the future commercial life of the related product. Amortisation is
charged to administrative expenses.
Intellectual Development
property Costs Total
£'000 £'000 £'000
Cost
At 1 April 2022 2,224 27,238 29,462
Additions 1,308 2,247 3,555
Disposals - - -
At 30 September 2022 3,532 29,485 33,017
Amortisation
Balance at 1 April 2022 2,114 18,924 21,038
Charge for the period 187 1,611 1,798
Eliminated on disposal - - -
At 30 September 2022 2,301 20,535 22,836
Net book value
31 March 2022 110 8,314 8,424
30 September 2022 1,231 8,950 10,181
10. Leases
The Group has recognised a right-of use asset and a lease liability for the
lease of land and buildings for its head office in Linlithgow, Scotland.
The Group leases IT equipment with contract terms ranging between 1 to 2
years. The Group has recognised right-of use assets and lease liabilities
for these leases.
The Group also leases land and buildings in Belfast and one motor vehicle.
These leases are low-value, so have been expensed as incurred. The Group has
elected not to recognise right‑of‑use assets and lease liabilities for
these leases.
Information about the right of use assets and leases for which the Group is a
lessee is presented below:
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Right of use assets
NBV brought forward in the period 791 522 522
Additions to right of use assets for the period - 112 473
Depreciation charge for the period (131) (93) (204)
NBV carried forward for the period 660 541 791
6 months to 6 months to 6 months to
30 Sep 2022 30 Sep 2021 30 Sep 2022
£'000 £'000 £'000
Lease liabilities
Balance brought forward in the period 857 566 566
Lease additions for the period - 112 474
Payment of lease expense (111) (97) (203)
Interest on lease expense 12 11 20
Balance carried forward for the period 758 592 857
Represented as:
Due within 1 year 192 175 193
Due in more than 1 year 566 417 664
Total amounts due 758 592 857
11. Inventory
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Finished goods 2,071 1,452 1,427
Provision for obsolescence (539) (263) (429)
1,532 1,189 998
Group inventories reflect the following movement in provision for
obsolescence:
At start of the financial year 429 253 279
Utilised (8) (98) (23)
Provided 118 187 173
At end of the financial year 539 342 429
12. Trade and other receivables
Trade receivables are consistent with trading levels across the Group and are
also affected by exchange rate fluctuations.
No interest is charged on the trade receivables.
The Group has reviewed for estimated irrecoverable amounts in accordance with
its accounting policy, and at the balance sheet date, there are no amounts
outstanding beyond agreed credit terms.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Trade receivables 5,237 1,538 4,120
Less provision for bad debt - -
Other receivables 468 691 748
Prepayments and accrued income 330 185 129
6,035 2,414 4,997
The Directors consider that the carrying amount of trade and other receivables
approximates their fair value.
13. Cash and cash equivalents
Cash and cash equivalent amounts included in the Consolidated Statement of
Cashflows comprise the following:
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Cash at bank 6,370 7,131 7,330
Cash on short term deposit 6,566 6,512 6,527
Total cash and cash equivalents 12,936 13,643 13,857
Short term investment: fixed term deposit 1,500 - 1,500
Short term cash deposits of £1,508,886 are callable on a notice of 65 days.
Short term cash deposits of £5,056,698 are callable on a notice of 95 days.
Cash held on long-term deposits (being deposits with maturity of greater than
95 days and no more than twelve months) that cannot be readily converted into
cash have been classified as short term investments. A total of £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.
14. Trade and other payables
Trade and other payables are consistent with trading levels across the Group
but are also affected by exchange rate fluctuations. Trade payables and
accruals principally comprise amounts outstanding for trade purchases and
ongoing costs. The Group has financial risk management policies in place to
ensure all payables are paid within the agreed credit terms.
Deferred income relates to fees received for ongoing services to be recognised
over the life of the service rendered.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Trade payables 2,204 884 924
Taxes 183 131 149
Other payables 76 172 60
Accruals 1,818 1,481 2,406
Deferred income 1,778 1,514 2,030
6,059 4,182 5,569
Amounts due in more than one year
Deferred income 1,748 868 718
Other payables 217 - -
Total amounts due 8,024 5,050 6,287
The Directors consider that the carrying amount of trade and other payables
approximates their fair value.
15. Provisions
Current provisions are recognised in respect of dilapidations on leased
assets. No discount is recorded on recognition of the provisions or unwound
due to the short-term nature of the expected outflow and the low value and
estimable nature of the non-current element.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Current provisions
Overseas tax - 291 141
Non-current provisions
Dilapidations 15 15 15
Total provisions 15 306 156
In the period provisions totalling £140,570 were released. This provision was
held with respect to potential payments to be made to overseas tax
authorities, which is no longer required.
16. Business combinations
The acquisition accounting with regards to the business combination detailed
within this note remains provisional as at the reporting date. The values may
be retrospectively adjusted within the 12 month measurement period afforded
within IFRS 3 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 targets 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 will be fair value assessed at each reporting
date, consistent with IFRS 2 Share based payments. This results in £0.3m
related to post acquisition service, and this will be charged to the Income
Statement over the vesting period. In the six months to 30 September 2022,
£0.1m has been charged to administrative expenses within the income
statement.
£0.1m of acquisition related expenses for legal and professional fees, as
well as £0.1m amortisation of acquired intangible assets have been charged to
administrative expenses in the period.
The fair values of the identifiable net assets are set out below:
Fair value adjustment Fair value
Book value
£'000 £'000 £'000
Intangible assets - 1,308 1,308
Plant and equipment 8 - 8
Cash and cash equivalents 737 - 737
Trade and other receivables 397 - 397
Inventories 74 - 74
Trade and other payables (967) - (967)
Total identifiable net assets 249 1,308 1,557
Goodwill on acquisition 1,646
Total consideration 3,203
Satisfied by
Initial cash consideration 3,000
Contingent consideration accrued 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 IP 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 goodwill arising of £1.6 million, 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.
The goodwill is not expected to be deductible for tax purposes.
From the date of acquisition, iTrinegy Ltd has contributed £0.6m of revenue,
and £0.4m of profit before tax to the Group financial results.
As part of the integration of the iTrinegy business, the Group has transferred
all iTrinegy staff and trading over to Calnex Solutions plc, with a view to
the iTrinegy legal entities being 'hived up' into the existing Calnex entities
by the end of this financial year. The first stage of this restructure
completed on 30 September 2022 when iTrinegy Inc. was merged with Calnex
Americas Corporation, a 100% owned subsidiary of Calnex Solutions plc.
This involved a two-step process, whereby ownership of iTrinegy Inc. was first
disposed of by iTrinegy Ltd and acquired by Calnex Solutions plc, followed by
a merger, under US law, of iTrinegy Inc. and Calnex Americas Inc. (a 100%
subsidiary of Calnex Solutions plc). The final stage of the restructure will
be to hive up the assets of iTrinegy Ltd into Calnex Solutions plc, which is
scheduled for the second half of the year.
Calnex Solutions plc remains the overall controlling parent of all parties
throughout the reorganisation, and thus there is no change to the consolidated
group financials.
17. Alternative performance measures
The performance of the Group is assessed using a variety of performance
measures, including APMs which are presented to provide users with additional
financial information that is regularly reviewed by the Board of Directors.
These APMs are not defined under IFRS and therefore may not be directly
comparable with similarly identified measures used by other companies.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Underlying EBITDA 3,466 2,480 6,351
Underlying EBITDA % 27% 27% 29%
Capitalised R&D spend 2,247 1,904 3,905
· Underlying EBITDA: EBITDA after charging R&D amortisation
The table below shows the reconciliation between the statutory reported income
statement and the adjusted income statement:
Reconciliation of statutory figures to alternative performance measures:
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
£000
Revenue 12,728 9,251 22,046
Cost of sales (3,111) (2,205) (5,518)
Gross Profit 9,617 7,046 16,528
Other income 150 93 648
Administrative expenses (excl depreciation & amortisation) (4,691) (3,262) (7,917)
EBITDA 5,076 3,877 9,259
Amortisation of development costs (1,610) (1,398) (2,908)
Underlying EBITDA 3,466 2,479 6,351
Other depreciation & amortisation (368) (160) (358)
Operating Profit 3,098 2,319 5,993
Finance expense (12) (11) (20)
Profit before tax 3,086 2,308 5,973
Tax (656) (512) (1,433)
Profit for the Period 2,430 1,796 4,540
18. Dividends paid and proposed
All dividends are determined and paid in Sterling.
6 months to 6 months to Year ended
30 Sep 2022 30 Sep 2021 31 Mar 2022
£'000 £'000 £'000
Proposed but not yet recognised
Interim dividend 2023: 0.31p per share 271 - -
Declared and paid
Interim dividend 2022: 0.28p per share 245 -
Final dividend 2022: 0.56p per share - 490
An interim dividend of 0.31p per Ordinary Share (2021:0.28p per Ordinary
Share) was declared by the board on 22 November 2022, and will be paid to
ordinary shareholders on 16 December 2022. The dividend is payable to all
shareholders on the Register of Members at the close of business on the 1
December 2022.
19. Availability of Interim Report
The Company's Interim Report for the six months ended 30 September 2022 will
be available to view on the Company's website https://investors.calnexsol.com.
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