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 EBITDA1	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 deposits2	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, Sea Shepherd, Save the Children and National Autistic Society;

·      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 Northern Ireland and River Kids in Scotland;

·      The return of our Annual Christmas Charity Raffle in aid of HopScotch, 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 £000	FY22 £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

 

 

 

							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

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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

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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

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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

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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

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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

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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

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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

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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 Group's annual accounts							44		44
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 analysis above							3,837		3,138

 

Notes to the Financial Statements continued

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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

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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