21 May 2024

Calnex Solutions plc

("Calnex", the "Company" or the "Group")

FY24 Final Results

 

Financial Highlights 

£000	FY24	FY23	YOY % change
	Audited	Audited
Revenue	16,274	27,449	(41%)
Underlying EBITDA1	80	7,980	(98%)
(Loss)/profit before tax	(384)	7,208	(105%)
Basic EPS (pence)	0.05	6.75	(99%)
Diluted EPS (pence)	0.04	6.42	(99%)
Closing cash and fixed term deposits2	11,868	19,098	(38%)

¹ Refer to note 32 for explanation of the alternative performance measures calculations. A full reconciliation between Underlying EBITDA and profit before tax is also shown in the Financial Review below.

² The Company takes advantage of high interest deposit accounts for surplus cash balances not required for working capital. Under IAS 7 Statement of Cash Flows, cash held on long-term deposits (being deposits with maturity of greater than 95 days, and no more than twelve months) that cannot readily be converted into cash is classified as a fixed term investment. 

 

Financial Highlights

·      Performance impacted by the wider economic environment and resulting deferral of investment in telecoms market.

·      Three consecutive 6 month periods of stable order levels (H2 FY23 through to H2 FY24).

·      Revenue of £16.3m (FY23: £27.5m).

·      Gross margins maintained at 73%, broadly in line with prior year (75%).

·      Loss before tax of £0.4m (FY23: profit before tax of £7.2m).

·      Profit after tax £0.04m (FY23: £5.9m)

·      Closing cash position of £11.9m (31 March 2023: £19.1m, including fixed term deposits).

·      Proposed final dividend of 0.62 pence per share, making a total of 0.93 pence per share for FY24 (FY23: 0.93 pence).

               

Operational Highlights

·      Refocused engineering programmes on areas of the market showing near-term resilience and growth opportunities, such as cloud computing and defence.

·      Successful launch of new network assurance offerings SNE-X and SNE-Ignite, and positive initial customer response to SyncSense our newly developed data centre and telecoms network timing management product.

·      NE-ONE offering for application assurance testing performing strongly, particularly in the defence, government, and satellite markets, with further success anticipated in FY25.

·      Development of major new release of Lab Synchronisation (Paragon-Neo) offering to capitalise on increasing demand for 800 Gb/s telecoms testing, expected to launch in H2 FY25.

·      FY23 closing headcount was maintained through FY24 (with the only increases being graduate hires), with Calnex well-placed to convert the telecoms sales pipeline once the trading environment improves. 

·      Post-period end review of sales channels and channel partner arrangements has identified opportunities to strengthen existing customer engagements and to reach new customers. To provide the Company with the ability to optimise the channel partner arrangements, the Board has elected to terminate its reseller agreement with Spirent and initiated the process of implementing the company's new sales channel strategy.  

Outlook

·      Recently launched products are gaining traction, providing confidence in a return to growth in FY25.

·      Cloud computing and data centre markets represent a growing opportunity, based on the increased data centre infrastructure investment and testing required to support the increasing demand for AI and virtual reality-based applications.

·      Challenges across the wider telecoms market are expected to remain for the duration of the year but the fundamental long-term need for telecoms testing solutions remains unchanged.

·      Longstanding customer relationships across all territories leave us well positioned to convert our telecoms sales pipeline once the trading environment improves. 

 

Tommy Cook, Chief Executive Officer and founder of Calnex, said:

 

"We have successfully expanded our new product development programmes to focus on near-term growth channels - specifically the development of new capability in the telecoms market to capitalise on demand for 800Gb/s, as well as our product launches to capitalise on the increasing demand in the cloud computing and data centre markets. Our recent product innovations are gaining traction and we anticipate a return to growth in FY25, notwithstanding the challenges in the telecoms market which are expected to remain for the duration of this year.

 

The fundamental drivers that underpin the build out of the mobile network and the expansion of the data centres and cloud computing capacity have not changed, and our longstanding customer relationships across all territories leave us well positioned to convert our telecoms sales pipeline once the trading environment improves.

 

Our healthy balance sheet will enable us to weather these uncertainties, providing the Board with confidence in the medium- and long-term future of Calnex and in our ability to deliver for our customers, team, and shareholders."

 

For more information, please contact:

Calnex Solutions plc	Via Alma
Tommy Cook, Chief Executive Officer Ashleigh Greenan, Chief Financial Officer
Cavendish Capital Markets Limited - NOMAD	+44 (0)131 220 6939
Derrick Lee, Peter Lynch
Alma	+ 44(0) 20 3405 0213
Caroline Forde, Joe Pederzolli, Emma Thompson

 

Overview of Calnex

 

Calnex Solutions designs, produces and markets test and measurement instrumentation and solutions for the telecoms and cloud computing industries. Calnex's portfolio enables R&D, pre-deployment and in-service testing for network technologies and networked applications, enabling its customers to validate the performance of the critical infrastructure associated with telecoms and cloud computing networks and the applications that run on it.

 

To date, Calnex has secured and delivered orders in 68 countries across the world. Customers include BT, China Mobile, NTT, Ericsson, Nokia, Intel, Qualcomm, IBM and Meta.

 

Founded in 2006, Calnex is headquartered in Linlithgow, Scotland, with additional locations in Belfast, Northern Ireland, Stevenage, England and California in the US, supported by sales teams in China and India. Calnex has a global network of partners, providing a worldwide distribution capability.

 

Chair's statement

Overview

While the year ended 31 March 2024 was a difficult period for Calnex, we are positive moving forward. In the year I continued to be struck by the dedication of the Calnex team, who worked tirelessly to respond dynamically to market conditions, focusing on the opportunities showing the most near-term resilience. The Calnex team is experienced at navigating the business through challenging trading environments, reinforcing confidence in a return to growth during FY25.

Resilient performance in FY24

As previously reported, the Group's financial performance in FY24 was impacted by the ongoing downturn across the telecoms market, with caution across the sector leading to subdued spending levels. The Company reports revenue of £16.3m and a small loss before tax of £0.4m. We have a healthy liquidity position, with cash as at 31 March 2024 of £11.9 million.

Measured cost-action was undertaken, while refocusing the Group's engineering programmes on opportunities showing the most near-term potential within the Group's established telecoms market and in the newer markets of cloud computing and defence. This year has seen the launch of new products across both these end markets, which have shown well received signs of initial uptake. The Board is encouraged by the level of engagement with customers on the Group's new product programmes and, in particular, expects that continued orders from the defence and cloud computing sectors will enable Calnex to return to growth in FY25.

ESG

Calnex continues to operate with a high regard to a good level of environmental awareness, social responsibility, and governance.  Calnex is a "people first" company, built on trust and respect. Not only for each other but also for the environment and for the local communities of our employees across the globe, where we do our best to make a meaningful impact. Our employees are encouraged to share their views, contribute to decision making, challenge each other and improve our processes to make a positive contribution to business success. This is reflected in the approach we take to delivering leading-edge test and measurement solutions for 5G networking and wireless technologies.  

Our software-first approach significantly reduces the impact our products have on the environment by building in best-in-class longevity and providing long-term expert support through cutting-edge upgrades designed to meet customer requirements. Although already a low environmental impact business, the senior management team and our staff are keen to do more to tackle environmental challenges and have several initiatives running to address this. Our employee-led environmental, social & charity team also continues to be extremely successful, with high levels of employee engagement experienced throughout the year.  This in turn enables the business to retain its talented team.

Outlook

With the product innovation and investments that have been taking place, we expect business growth in FY25 without reliance on the revival of the telecoms market, although we are confident that the fundamental need for our telecoms solutions in the long-term remains unchanged. We are, therefore, well-placed to capitalise on a return to normalised investment programs when the market stabilises.   

 

Stephen Davidson
Non-Executive Chair
20 May 2024

CEO's Statement and Operational Review

Our financial performance in 2024 was impacted by the well-documented and ongoing downturn across the telecoms sector, with caution across the market leading to subdued spending levels during the period. However, there remain reasons for optimism moving forward.  We have continued our focus on product innovation, maintaining R&D spend and adjusting our engineering programme to focus on areas showing the most near-term potential across both the telecoms and cloud computing markets. We believe that the fundamental drivers of the end markets for our products remain strong.

Within telecoms, we have focused on the area of 800Gb/s synchronisation testing for release in FY25, an unmet need where there is growing customer demand, while we also saw early successes in the year with recently launched products across the cloud computing and data centre markets.

We are confident that the action taken during FY24 to diversify our product offering positions us for a return to growth in FY25. Longer term, we continue to be supported by favourable underlying trends. We are confident that budgets will return in the telecoms market as the economic backdrop improves, in turn creating the need for test and measurement equipment to prove that new systems operate effectively and conform to rigorous international standards.

We continue to be supported by a strong balance sheet, with cash as at 31 March 2024 of £11.9 million. This cash position enables us to continue targeting growth opportunities across our key sectors and maintain relationships with customers as they plan future investment in their projects.

Customer metrics

 

The number of customers who ordered from us this year was 274 (FY23: 305 customers). The proportion of orders coming from customers from cloud computing markets continued to increase to 39% (FY23: 34%), with the sales of NE-ONE products the driving force behind this increase as we diversify into new sectors.

 

Our top 10 customers accounted for 52% of orders (FY23: 47%) on a 3-year average basis, and 76% of our orders were from repeat customers (FY23: 74%) on a 3-year average basis. Our geographical spread of orders across regions shows America 32%, North Asia 25% and ROW 43%. Although each region's order levels in the year have been impacted by the slowdown in the telecoms market, ROW's performance was mitigated by the diverse range of end customer sectors in the region.  

 

Market backdrop

 

Spending within the telecoms sector is generally led by the large infrastructure projects of the major telecoms operators, which filter down through the wider ecosystem. As previously reported, we are continuing to see a particularly prolonged period of limited customer spend, with network build-out projects continuing to be either slowed or delayed amidst a high interest rate environment and increased geopolitical tensions.

 

Due to the team's long history in the sector, we have experienced markets such as these before and we are adept at managing the business back to growth, as is expected in FY25. We have maintained close customer relationships, with customers confirming that they remain committed to the delivery of projects once spending budgets are released. We have also focused on segments of the telecoms market where demand remains, such as 800Gb/s synchronisation testing, the next wave of high-speed interface testing, driven by emerging technologies continually increasing the need for higher bandwidth.

While the wider telecoms market is anticipated to remain challenging throughout the remainder of 2024, the underlying structural growth drivers remain intact, including the increase in network complexity and the build-out of mobile infrastructure utilising 5G technology. The need for the testing solutions we provide will naturally increase as the transition to 5G continues and new technological standards gain traction. The scale of our long-term growth opportunity is considerable, with telcos projected to invest US$342.1 billion in their networks in 2027 alone¹.

 

Newer markets of cloud computing and defence continue to offer significant growth opportunities for Calnex. The impact of network connection on the performance of cloud-based applications is increasingly recognised, and there is an ever-increasing demand for testing solutions across these markets. With the rapid progress of incorporating Artificial Intelligence into applications and the uncertainty that surrounds its operation under varied networking impairment effects, test instrumentation is more important than ever. The development of these technologies that are both new and unknown drives the need for reliable testing, which in turn creates significant scope for growth for Calnex.

With these new developments, we are starting to see opportunity not only from data centres but also from devices and applications that incorporate cloud-based processing with end user devices. The performance of the network can impact the performance of the application or user experience, which can then impact the market share of the application or end user device.

Product innovation

Innovation is the lifeblood of our business, expanding our ability to capture a growing proportion of our customers' spend and taking us into new areas of the testing market where our engineering expertise provides us with a competitive edge. During the year, we pivoted R&D spend to focus on opportunities showing the most near-term resilience and potential within the established telecoms market and in the newer markets of cloud computing and defence.

Targeting growth in the telecoms market

R&D spend has been channelled into the development of our Lab Synchronisation (Paragon-Neo) offering, which provides support for very high-speed interfaces, 800Gb/s testing, which marks the natural next wave of the telecoms industry at a higher speed.

During the year we enhanced the Paragon platform and expect to launch a major new release in H2 FY25 to support leading edge 800Gb/s interface testing, for which we are already receiving customer requests and expect to generate revenue during FY25.

Cloud computing and data centre markets

We are seeing strong early progress within the cloud computing markets, given the significant investment into data centres to support the growth in cloud services and adoption of AI.  New opportunities in the areas of network time monitoring as well as data centre efficiency and effectiveness, are currently in the early stages of development.

¹ PWC "Perspectives from the Global Telecom Outlook 2023-2027", 2023

We have recently launched SNE-Ignite and SNE-X products to strengthen our portfolio. The SNE-Ignite is the high-performance platform that will initially target testing of telecoms equipment designed for use in the O-RAN Mobile network deployments. The SNE-X is our high-speed, high port count platform designed to prove the performance of new, real-time cloud-based applications. Both products are helping to build Calnex's presence in key markets for Network Emulation. SNE-X, the second version, is already finding some promising opportunities with Hyperscalers and companies developing wearable devices, such as virtual and augmented reality devices.

Our NE-ONE product, the recently acquired Network Emulation product following the acquisition of iTrinegy in April 2022, is performing well. The platform provides a targeted solution for engineering teams developing software applications to be hosted in-house or in cloud services. Since forming a business development team last year to drive sales for the platform, the product has been successful in the defence, government, and satellite markets, with further success anticipated in FY25. We have been particularly encouraged by the strong relationships formed with many major system integrators, through whom we have secured several defence contracts in the year and see this as an avenue for future growth in this market.

Our enhanced Network Emulation portfolio has a strong competitive position due to the breadth of Calnex's product offering. Although there are other solutions available, we are the only provider of both a hardware-based and software-based offering, which allows the Group to provide the optimal solution to meet our customers' needs.

SyncSense, Calnex's newly developed data centre and telecoms network timing management product, has also been well received by customers. SyncSense offers a Timing Performance Monitoring solution that provides real-time topology and network operational information associated with the distribution of time across large networks. The product will leverage the reputation of Calnex as the Sync experts and can be sold in conjunction with the Sentinel and Sentry platforms to provide fault diagnoses insight capability to complement the fault identification capability of SyncSense. Customer engagement is at an early stage, but feedback has been encouraging.

Financial performance

 

Financial performance was impacted by the challenging trading environment. We report revenue of £16.3m (FY23: £27.4m), and a small loss before tax of £0.4m (FY23: profit of £7.2m). Importantly, gross margins remained strong during the year. Our investment into newer markets has driven strong sales growth across our Network and Applications Assurance ('NAA'- formerly Cloud & IT) products, and NE-ONE product orders grew by 56% over the course of the year, compared with revenue growth of 15% in the year.  The variance in revenue versus order growth is as a result of the level of multi-year support contracts being purchased by customers in the year which are recognised as revenue over the life of the contract).

 

During the year, tight cost control measures have been implemented, including overhead cost reduction and reduced spend in areas such as travel. We continue to benefit from a healthy cash balance, with cash as at 31 March 2024 of £11.9m (FY23: £19.1m). There was significant investment in inventory during the year to develop more flexibility in the ability to respond to customer orders plus an element of inventory build-up from material received to support previous order expectations.

 

People

 

The engine of our business is our dedicated group of staff globally. In the year headcount has been maintained, with new hires being frozen excluding graduate hires. Total headcount as at 31 March 2024 was 160 (FY23: 155).

 

We work as one team, sharing the successes, the challenges and the Group's ambitions moving forward. Our retention rate of staff over FY24 was 96% (with an average tenure of 5.3 years) which reflects Calnex's culture of inclusion, respect, and support. We firmly believe that we possess the right team to drive the business forward.

 

Calnex enjoys and thrives on a diverse workforce where inclusion is key to building high performing, engaged and successful teams. Our strong values, as reflected in our Investors in People Gold Award, are promoted through a variety of employee engagement programmes, such as supportive initial training and mentoring programmes, culture sessions and an extensive training and development framework.

 

Sales channel review

 

With an expanded product offering and growing global customer base, the Board has undertaken a review of the Company's sales channels and channel partner arrangements, to ensure that they will meet the Company's evolving requirements. The Board's review has identified opportunities to strengthen existing customer engagements and to reach new customers by adding both new channel partners and resources to support direct selling.  As part of this, and considering the proposed acquisition of the Company's main distributor, Spirent by a third party, the Board has commenced discussions with new and existing channel partners to facilitate changes to strengthen the current arrangements. 

Calnex has direct relationships with its end customers due to the technical nature of the Company's products and has close relationships with many existing and potential channel partners.  In order to provide the Company with the ability to optimise the channel partner arrangements, the Board has elected to initiate the termination of its reseller agreement with Spirent.  The existing agreement with Spirent will terminate with effect from 31 July 2024 and the Board is confident that the positive discussions to date with new and existing partners, including Spirent, will result in a straightforward transition to the new sales channel arrangements, with minimal impact on the business.

 

Outlook

 

We are confident of a return to growth in FY25, having expanded our new product development programmes to focus on near-term growth channels - specifically the development of new capability in the telecoms market to capitalise on demand for 800Gb/s, as well as our product launches to capitalise on the increasing demand in the cloud computing and data centre markets. Our recent product innovations are gaining traction and we anticipate a return to growth in the current year, notwithstanding the challenges in the telecoms market which are expected to remain for the duration of this year. We expect the growth in utilisation of AI will increase the growth rate of data centre infrastructure and increase the complexity of the relationship between edge devices and processing happening in the cloud, both of which should lead to increased opportunities.

 

The fundamental drivers that underpin the build out of the mobile network and the expansion of the data centres and cloud computing capacity have not changed. Our longstanding customer relationships across all territories leave us well positioned to convert our telecoms sales pipeline once the trading environment improves.

Our healthy balance sheet will enable us to weather these uncertainties, providing the Board with confidence in the medium- and long-term future of Calnex and in our ability to deliver for our customers, team, and shareholders.

Tommy Cook
Chief Executive
20 May 2024

ESG

A meaningful impact

 

Calnex is a "people first" company built on trust and respect. Not only for each other but also for the environment and for the local communities of our employees across the globe, where we do our best to make a meaningful impact.

The Group follows the Quoted Companies Alliance Practical Guide to ESG, which is intended to supplement The Quoted Companies Alliance Corporate Governance Code (the QCA Code), which the Group also follows. The QCA Practical Guide provides pragmatic steps for small and medium sized listed companies to develop how to identify and disclose those ESG issues that are important to them and outlines an approach that is proportionate to the resource availability within smaller companies, whilst also giving stakeholders the relevant information that they need. We have established an internal ESG Steering Committee, members of which are a cross departmental team of senior leaders who are responsible for reporting to the Senior Management Team on all ESG related activities and initiatives throughout the business.

Calnex is an innovative and forward-thinking business where our employees are encouraged to share their views, contribute to decision making, challenge each other and improve our processes to make a positive contribution to business success. This is reflected in the approach we take to delivering leading-edge test and measurement solutions for 5G networking and wireless technologies.

Our focus is increasingly on delivering platform products that enable software upgrades in line with customers' aspirations. We can't control how our customers use our products, but we can influence how they benefit from additional functionality without the need for additional hardware. Thanks to the skills of our team, our in-depth knowledge, and market insight, many of our customers enjoy hardware longevity of between 10 and 15 years.

Our software-first approach significantly reduces the impact our products have on the environment by building in best-in-class longevity and providing long-term expert support through cutting-edge upgrades that anticipate customer requirements. Although already a low environmental impact business, the senior management team and our staff are keen to do more to tackle the environmental challenges facing the planet and have several initiatives running to address this. Our employee-led environmental, social & charity team also continues to be extremely successful, with high levels of employee engagement experienced throughout the year.  

We also work closely with the UK Electronics Skill Foundation (UKESF), supporting the future talent of Engineering in providing student placements and supporting STEM education and development.

 

People

 

We work as one team. Respectful of each other, we consider how our actions, ideas and approaches impact others.  We are transparent, sharing in the successes, the challenges and the Group's ambitions moving forward. We help and encourage each other, supporting the business and our colleagues in building on an already successful company. Calnex also enjoys and thrives on a diverse workforce where inclusion is key to building high performing, engaged and successful teams. Our retention rate of staff over FY24 was 96% (with an average tenure of 5.3 years).

 

Our strong values, as reflected in our Investors in People Gold Award, are promoted through a variety of employee engagement programmes:

·      Robust Recruitment Process that only ever hires top talent and employees who value and support a positive working culture.

·      Supportive Induction Training Programme including a comprehensive internally delivered training programme that supports the integration of new employees.

·      Mentoring Programme to support the development of staff and career progression. All new employees are assigned a mentor as part of their probation.

·      Employee-built Annual Review Programme that recognises personal achievements and supports development and career progression.

·      Extensive Training and Development Framework to further develop skillsets and secure educational qualifications. Including a minimum of 5 days training as part of our Drop Everything and Learn initiative, as detailed below.

·      Group-wide mandatory Compliance Training to remain legally compliant worldwide.

·      A benchmarked Benefits Package that strongly supports the financial, physical and mental wellbeing of our people including, amongst other things, profit share for staff if the Company achieves budgeted profit targets, an employee share incentive plan, a flexible/hybrid working model, an employee wellbeing activity programme (including fitness classes, an onsite gym, and free use of facilities at the local sports and recreation centre), income protection and life assurance polices which covers all staff and a healthcare scheme of which 84% of UK employees signed up for in FY24.

·      Quality Management System that encourages inclusivity and drives process improvement.

·      Regular Culture sessions chaired by Calnex's CEO to gather feedback on the Company's culture, practices and processes, encouraging employees to provide their input into organisational development. In FY24 we held 17 meetings with 122 employees attending.

·      Annual Employee Surveys to enable two-way dialogue on topics such as company strategy, career progression opportunities and other current topics affecting the working lives and wellbeing of our employees. During FY24, 68% of employees completed the anonymous survey. The results and feedback from the survey helped us to focus on key areas resulting in the implementation of a new learning platform, increased Senior Leadership development and building on the Psychological Safety training.

·      Free Financial Education Workshops for UK employees, delivered by St James' Place, including an onsite and online employee clinic for those employees who want to seek free financial advice. 

 

Learning and development

Building on the prior year Power Skills programme and following a suggestion from one of our employees who had attended the programme, we identified a need this year to deliver more technical training to our Engineering team (58% of our employee base).  After trialling 3 different platforms, employee feedback and system performance led us to choose the Udemy platform.  The Udemy platform not only provides the high level of technical training the team requires, it also provides an abundance of content (24,000+ courses) relevant to all job roles at building on the Power Skills programme, supporting employees in not only advancing their technical knowledge but also looking after the general wellbeing and softer skills development.  Every employee at Calnex has a licence and 'DEAL' time (Drop Everything and Learn) of at least 5 days per year with managers also having the ability to assign learning paths to their direct reports, actively supporting their personal development with suggestions on learning content to focus on.

In recent years, we have partnered with Connect Three to provide Leadership Development (LDP) and Power Skills programmes to our employees. Our LDP is a mandatory programme for managers which supports them in leading high performing teams, developing capability, effective communication and leading effective change, which, in turn, will help with overall business productivity. As the business continues to grow and change, self-awareness and Psychological Safety training has also become a key element of this programme as we strive to retain the positive, inclusive and collaborative culture that has contributed to our success to date.

As we continue to build on our Psychological Safety awareness training (branded as our Positive Connections programme in-house), 89% of our people managers and leaders have now completed the LDP programme and presented their learnings to the senior leadership team, with suggestions for personal skills gap training and opportunities for improvement in how we manage our people and develop our leaders.  The Insights Discovery (psychometric profiling) approach was used as part of the training, to help our people managers understand themselves and others, with the goal to strengthen workplace relationships and interactions.  This programme is in line with our desire as a company to have trust and respect, inclusivity and approachability at the forefront of our culture in the way we behave towards each other, and our general desire to take care of the professional development and wellbeing of our employees.

In the last 12 months, our learning and development activities have supported all our managers and leaders in developing themselves and the organisation. As a result, we have a stronger internal network of managers supporting each other, sharing challenges and successes and building new cross functional relationships, which in turn supports positive communication and collaboration across departments.

Calnex Corporate Giving Scheme

 

We have two main initiatives in place under the Calnex Corporate Giving Scheme - the Calnex Corporate Responsibility Fund where employees can nominate charities, clubs or organisations for a monetary donation each quarter and our Calnex in the Community scheme where employees are given two days each financial year to volunteer within their local community during working hours, without the need to book annual leave.  

 

The Board is committed to setting aside a portion of the annual budget each year for the Calnex Corporate Responsibility Fund. The scheme is managed by an employee-led team (with senior management sponsorship) who consider proposals from employees for donations or support for groups and events that matter to them. The Calnex senior management team want to empower our employees to make a difference in their communities by directing the Company to support initiatives that our people truly care about.

The Calnex in the Community Scheme is also very popular with our employees. Group volunteering activities such as planting trees and helping out at food banks are beneficial in so many ways.  Beyond the obvious benefit of the primary task and the psychological benefit from making a positive contribution, we recognise how significantly such activities boost team spirit and engender pride in being associated with a company that helps our employees make a meaningful, local difference.

This financial year Calnex has donated £33,770 to 77 charities and organisations and social events across the globe through our Corporate Giving Scheme.  These donations were made to a wide range of different charitable causes including donating to meals for the homeless, mental and physical health charities, animal rescue organisations, sports clubs and rewilding programmes. 55 out of the 77 charities were put forward by employees across the globe. Key charitable donations included:

·      Foodbanks across Scotland, England and Northern Ireland.

·      Puppy supplies were donated to Dog Rescue in Bulgaria

·      Birmingham Children's Hospital

·      SiMBA charity and the Miscarriage Association

·      Save the Children

·      Breast Cancer Now

As well as monetary donations, we also supported homeless and hygiene bank charities and sexual assault referral centres in the UK and the US by creating care packages including items such as personal hygiene products and winter essentials, delivered in Calnex tote bags.

Our annual Christmas giving continued with our charity raffle in aid of HopScotch who give vulnerable children a much-deserved seaside holiday. Through employee ticket sales and Calnex Corporate matching scheme, £4,560 was raised. Our festive giving campaign also includes our gift tag appeal, where employees across all UK sites bring in toys which are then given to local charities to support vulnerable children over Christmas. In total over 140 presents were distributed to children across Scotland, England, and Northern Ireland. Calnex also made monetary donations to similar charities in America and Asia.

During FY24 Calnex organised 11 volunteering events for our 3 sites across the UK, and overall, we had 92 employees who participated in at least one of these events throughout the year, an 80% increase in employee participation on the prior year. These events were a combination of cross departmental and inter-department volunteering, both fostering team building as well as helping out in the local community.

Products

 

Our products are innovative, leading-edge test and measurement solutions for designers and operators of the equipment and infrastructure that enables 5G networking and wireless technologies. 5G technologies provide enhanced mobile broadband, mission critical communications and the Internet of Things, all of which have a significant global impact across many aspects of society and industry.

 

Through the sales and post sales engagement with customers, we gather feedback on features and requirements that we need to enhance the product for the future. Regular engagement with customers is core to the value we deliver to support our customer's current and future needs.

 

Our approach to product development is as follows:

 

·      we develop hardware platforms that can be enhanced with downloadable software upgrades in line with customers' everchanging needs. For example, both our Paragon-X and Sentinel platforms, introduced in 2010, and 2013 respectively, are still supported by the Company;

·      our products are built into test racks where they remain for as long as the customers' products are supported. Customers expect their products, once deployed in networks, to be utilised for 10 - 15 years;

·      this longevity feeds back through the supply chain as our customers now expect that same longevity from test equipment vendors;

·      all our products comply with the Restrictions of Hazardous Substances Directive;

·      our products are manufactured by a highly skilled contract manufacturer, Kelvinside Electronics, whose close proximity allows for excellent two-way support and communication regarding the complex technical challenges of building and testing our products; and

·      our bespoke product packaging is manufactured by a local supplier with a comprehensive environmental policy including a focus to reduce, reuse and recycle all packaging materials wherever possible.

·      We are certified to ISO9001 for our Quality Management System, and ISO45001 for Health and Safety.

 

Environment

 

Both Calnex's operational processes and products have a low environmental impact.

 

The majority of our staff are office-based and have the ability to work part of the week from home where their responsibilities allow, performing their operations using computer and internet-based services. Our contract manufacturer, Kelvinside Electronics, is ISO14001 (Environmental Management Systems) certified. Our products, sales and customer support services are managed by locally-based partners together with Calnex support staff, which greatly minimises global travel for our people.

 

Our company HQ and the majority of our operations are based in serviced premises leased from Oracle in Linlithgow. Calnex uses the waste recycling services provided by Oracle. Oracle have also invested in efficient lighting and air conditioning systems which minimise energy consumption on site.

 

The small amount of electrical component and circuit board waste we generate is disposed of in accordance with the WEEE regulations.

 

Our products are designed as platforms enabling our customers to take advantage of future software upgrades and hardware longevity which means the customer can retain the hardware for a number of years after the initial purchase.

 

Other environmental initiatives include:

·      During the year, we have collaborated closely with Spirent to understand their approach to reaching their net zero targets.  This involves Calnex working closely with Spirent on identifying the carbon and other environmental reporting information they need from their suppliers, to be able to achieve their goals.  This close collaboration will assist Calnex in prioritising our climate related projects and reporting requirements, particularly as we work towards Scope 1 and 2 emissions reporting in future periods and our medium-term goal of establishing an Environmental Management System that is fit for purpose for a company of our size.

·      A Product Packaging Project was launched in FY23 to measure and improve the recyclability of our product packaging, working with Spirent and our local packaging supplier, Dewar Brothers.  This project has continued with pace in FY24. We used a defined measurement method to provide consistency in measurement across all our product lines. All material included in the packaging that we deliver to customers is identified and weighed and assessed for its recyclability. This exercise has helped to allocate an internal environmental score to each product in our portfolio and we have started to see an improvement in the amount of recyclable material used in our packaging. Some of the notable initiatives we have progressed are changing to paper tape from traditional polypropylene tape, launching a project to reduce the amount of physical paperwork sent with our products, and working with component suppliers to reduce plastic packaging and find recyclable or recycled alternatives.

·      We are continuing with our product design improvement exercise, launched in FY23, to assess if we can reduce or change materials included in our hardware designs to take environmental impact into account, whilst also adding appropriate recycling labelling information to customers. Every improvement identified is reviewed to ensure changes do not have a detrimental impact on quality of the product, protection of our intellectual property or the customer experience; and

·      A Terracycle initiative (a voluntary based recycling platform) was introduced to our HQ office in Linlithgow during the year to help employees recycle items that would normally end up in landfill, such as make-up containers, toothbrushes and toothpaste tubes, contact lenses and writing instruments such as pens and pencils.  This initiative has been extremely popular with employees, and we intend to have this as an ongoing initiative in future periods. 

·      The Calnex Marketplace was an idea put forward during one of our employee-led Green Team Committee meetings, which has been a great success. This platform gives employees the ability to sell or donate household items to other employees, which may have ended up in landfill. Some items have included old TVs, laptops, DVDs, furniture, toys, puzzles, paint and clothes. Since its launch, employees have put more than 50 items on our marketplace.

 

 

Chief Financial Officer's Statement

While the results for this year are disappointing, importantly gross margins have remained healthy and we continue to benefit from a strong balance sheet and cash balance, robust customer relationships and a high quality and productive R&D team, providing us with confidence in a return to a stronger financial performance in future periods.

 

The wider economic concerns and downturn in our telecoms markets had an impact on revenue levels across all geographies.

 

Amongst our three territories, Rest of World (EMEA, India, South East Asia, Australasia) was the least affected by the slow-down.  Although revenues in the year fell in relation to the prior year, the impact of the ongoing downturn in the telecoms industry was mitigated by the diverse range of end customer sectors in the region. Within North Asia, China remains challenging due to the impact of US restrictions and growing business in Taiwan and Japan continues to be a priority for Calnex. The Americas region was the most impacted by the telecoms slow down and, as a result, our current focus is on cloud-based infrastructure and applications and on government sector opportunities, which present a higher number of near-term opportunities.

 

From a product line perspective, Lab Sync (Paragon-Neo and Paragon-X) experienced a reduced performance in the year which, given their dominance in the telecoms market, is directly driven by the slowdown in the sector. Sentinel, our telecoms focused Network Sync product, experienced a similar trend in the year. Sales of Sentry, our Network Sync product aimed at data centres, are continuing as planned.

 

Our NAA network emulation product for infrastructure testing, SNE, had a challenging year given its exposure to the US market. Order performance picked up in H2 however, as a result of growing demand for our newly launched SNE-X & SNE-Ignite products. NE-ONE, our NAA network emulation for testing of applications product, experienced growth in orders and revenue in the year, driven by channel expansion and a strong performance in defence and satellite communications sectors.

 

 

Financial KPIs  

£000		FY24	FY22
Revenue		16,274	27,449
Gross Profit		11,947	20,472
Gross Margin		73%	75%
Underlying EBITDA 2		80	7,980
Underlying EBITDA %		0%	29%
(Loss)/Profit before tax		(384)	7,208
(Loss)/Profit before tax %		(2%)	26%
Closing cash and fixed term deposits 3		11,868	19,098
Capitalised R&D		5,579	4,523
Basic EPS (pence)		0.05	6.75
Diluted EPS (pence)		0.04	6.42

² Refer to note 32 for explanation of the alternative performance measures calculations. A full reconciliation between Underlying EBITDA and the statutory measures is also shown below.

³ The Group takes advantage of high interest deposit accounts for surplus cash balances not required for working capital. Under IAS 7 Statement of Cash Flows, cash held on long-term deposits (being deposits with maturity of greater than 95 days, and no more than twelve months) that cannot readily be converted into cash is classified as a fixed term investment and shown separately on the balance sheet.

Reconciliation of statutory figures to alternative performance measures - Income Statement
		FY24	FY23
		£000	£000
Revenue		16,274	27,449
Cost of sales		(4,327)	(6,977)
Gross Profit		11,947	20,472
Other income		797	751
Administrative expenses (excluding depreciation & amortisation)		(8,884)	(9,928)
EBITDA		3,860	11,295
Amortisation of development costs		(3,780)	(3,315)
Underlying EBITDA		80	7,980
Other depreciation & amortisation		(697)	(746)
Operating (Loss)/Profit		(617)	7,234
Interest received		357	-
Finance costs		(124)	(26)
(Loss)/Profit before tax		(384)	7,208
Tax		424	(1,297)
(Loss)/Profit for the year		40	5,911

 

Revenue

Revenues in the year fell 41% to 16.3m (FY23: £27.4m), as a result of subdued telecoms customer spending levels across all of our regions.   Revenues from the Americas and Asia regions both decreased by 48% and ROW saw a 31% decline on the prior year. ROW accounted for 48% of total revenues (FY23: 41%), Americas 31% (FY23: 35%) and North Asia 21% (FY23: 24%) in the year.   

 

Revenue model

Calnex generates revenues through the sale of bundled hardware and software, alongside the provision of software support and extended warranty programmes.

The Group's core sales model is bundled hardware and software. Sales pricing is dependent on the product type and the complexity of the software configuration built into the product package. Calnex also sells stand-alone software upgrades under licence.

Each of Calnex's units comes with a standard warranty period including maintenance and software upgrade cover in the event of any software upgrades being released for the options purchased. Calnex also sells software support programmes which provide customers with access to future software upgrades which are not included as part of the standard warranty. The Group also offers extended warranty programmes to cover repairs falling outside of the standard warranty period.

Bundled hardware and software revenues are recognised when the product is delivered to the customer, with stand-alone software revenues recognised in line with the length of the licence period. Revenues from software support and extended warranty programmes are typically recognised on a straight-line basis over the term of the contract.

Many of the products and services developed and deployed by Calnex's customers are interlinked and need to be tested independently, such as the individual components which are then built into the equipment used in telecoms networks. Calnex's test products can be used by a combination of equipment vendors, component manufacturers and network operators, to carry out testing during a new product development cycle. Products verified utilising Calnex's test solutions can be used in the knowledge that they will deliver consistent performance.

Sources of Revenue

Revenue streams

	FY24 £000	FY23 £000
Warranty support revenue - recognised over the life of cover	3,681	2,870
Hardware and software revenue - recognised on despatch/delivery	12,593	24,579
Total revenue	16,274	27,449

 

In FY24, 77% (FY23: 90%) of the Group's revenues were generated from the sale of bundled hardware and software products, with 23% (FY23: 10%) from software support and extended warranty programmes.   

This increase in support programmes, both as an absolute figure and as a proportion of total Group revenues, reflects the ongoing availability of operating expense budget at customers and the value they place on ensuring they can continue to receive support on our offerings. 

Geographical split (orders)

		FY24
	% of orders
Americas		32%
North Asia		25%
Rest of World		43%

 

The Group's customers are located across the world. Our global customer base and distributor network enables the Group to spread risk across our three key regions: the Americas, North Asia and Rest of the World (ROW).

On a three-year average basis, the split of orders across the three key regions was 43% for ROW (FY23: 39%), 32% for Americas (FY23: 34%) and 25% (FY23: 27%) for North Asia. North Asia has been experiencing a steady decrease since FY20 reflecting the ongoing US-China geopolitical tensions.

Top 10 customer orders

		FY24
	% of orders
Top 10 customer orders		48%
Total customer orders		52%

 

In FY24, Calnex received orders from 274 customers, a decrease of 31 on 305 customers in FY23, driven by market conditions.

The Group's top ten customers in FY24 accounted for 51% of total orders (FY23: 39%) and 52% of total orders on average over the last three years (FY23: 47%).   

In FY24, no underlying customer accounted for more than 15% of Calnex's total orders.

Repeat customers

		FY24
	% of orders
Repeat orders		76%
Other orders		24%

 

The average length of customer relationship across the top ten customers in FY24 is 11 years (FY23: 10 years), demonstrating our high levels of repeat demand from these customers.  In addition, the Group typically experiences a high level of repeat business from its total customer base.  In FY24, using a three-year order average, 76% of orders were generated from existing customers (FY23: 74%).

Telecoms v cloud computing markets customers

	FY24	FY23
	% of orders
Telecoms	61%	66%
Cloud Computing Market	39%	34%

 

Calnex's sales are predominantly derived from telecoms customers where the end-application is a telecoms (fixed and mobile) network. Customers from the cloud computing markets include hyperscale/data centre providers, defence and enterprise customers.  FY24 saw an increase in the proportion of total orders that came from cloud computing customers from 34% in FY23 to 39%, driven by a strong NE-ONE performance, and an increase in sales to hyperscalers, coupled with the effect of lower order volumes from telecoms customers.

As telecoms networks evolve, we are finding a number of companies whose primary business is hyperscale/datacentres and IT are also moving into the telecoms space. We classify sales to these companies from cloud computing markets for use in telecoms applications as telecoms sales for the purposes of this analysis.

Gross Profit

Gross profit decreased by 42% to £11.9m (FY23: £20.5m) reflecting the decline in revenue. Gross margin, which is calculated after discounts to channel partners are applied, is in line with the prior year at 73% (FY23: 75%). Gross margin is net of commissions payable to our channel partners and can fluctuate by 1-2% through the year depending on the mix and timing of the hardware and software bundles shipped.  

Underlying EBITDA

Underlying EBITDA, which includes R&D amortisation, fell to £0.1m in the year (FY23: £8.0m) as a result of the lower trading volumes. Administrative expenses (excluding depreciation & amortisation) were £8.9m in FY23 (FY23: £10.0m). This decrease on the prior year relates to lower commission costs as a result of lower order volumes, a reduction in recruitment costs as new hires were restricted to graduate hires only, reduced legal and professional costs (FY23 administration costs include £0.2m of non-recurring acquisition related deal costs) and no performance bonuses or profit share being accrued at the end of the current year due to Group FY24 budgeted profit targets not being achieved.

 

Amortisation of R&D costs increased by £0.5m to £3.8m (FY23: £3.3m) due to increased R&D investment in the current and previous years to support the product roadmap.  R&D spend is capitalised and amortised to the P&L over five years.  

 

Underlying EBITDA margin was nil% in FY24 (FY23: 29%), driven by the effect of the drop through of reduced revenue volumes and the relatively fixed cost base.

 

(Loss)/profit before tax

 

Profit before tax fell to a small loss of £0.4m in the year (FY23: profit of £7.2m) and the margin was a loss of 2% in FY24 compared to a profit margin of 26% in FY23, with the drop attributable to the fall in revenue performance.   

 

Tax

The Group's loss-making position resulted in a tax credit of £0.4m for the year (FY23: charge of £1.4m), driven predominantly by the proportion of R&D SME enhanced tax credit relief.  This tax credit represents an effective tax rate of a of 111% credit (FY23: 18% charge).

 

The weighted average applicable tax rate for FY24 is 25%, which without any further tax differences, would result in a tax credit of £0.1m.  The difference between the applicable rate of tax credit and the effective rate of 111% credit is due to the following:

 

·      Availability of enhanced 86% SME R&D deduction (increasing the effective rate credit by 138%);

·      Timing differences not recognised in the computation (decreasing the effective rate credit by 120%);

·      Expenses disallowable for tax purposes (increasing the effective rate credit by 84%);

·      Other differences, such as prior year adjustments and overseas taxes (decreasing the effective rate credit by 16%).

                                                                       

The weighted average applicable tax rate for FY23 was 19%. The difference between the applicable rate of tax and the effective rate of 18% was due to the following:

 

·      Availability of enhanced 130% SME R&D deduction (decreasing the effective rate by 2.2%);

·      Deferred tax charged directly to equity (decreasing the effective rate by 2.2%);

·      Recognition of the change in tax rate to 25% on certain deferred tax assets and liabilities as they are expected to reverse after 1 April 2023 (increasing the effective rate by 0.7%);

·      Overseas taxes (increasing the effective rate by 2.0%);

·      Other differences, such as prior year adjustments and disallowable expenses (increasing the effective rate by 0.7%).

 

 

Earnings per share

 

Basic earnings per share was a small profit of 0.05p in the year (FY23: 6.75p profit) and diluted earnings per share was a small profit of 0.04p (FY23: 6.42p profit), with the movement compared to the prior year attributed to reduced trading volumes, offset partially by the tax credit.

 

Cashflows

 

Closing cash at 31 March 2024 was £11.9m (31 March 2023: £19.1m including fixed term deposits).  The Group experienced an outflow of total cash and fixed term deposits of £7.2m in the year (FY23: £3.7m), reflecting the trading performance in the year, continuing investment in R&D to support our product roadmap and increases in working capital.

 

Working capital in the year increased by £3.7m (FY23: £0.4m increase) driven predominantly by a £2.8m increase in inventory.  At the start of the year, the Group had planned to increase levels of product to increase responsiveness to order intake. This was further increased as a result of the tail end effects of supply chain issues coupled with investment in inventory to support the previous order expectations prior to the slowdown in customer spending. The inventory will be sufficient to support the FY25 forecasts (excluding new products in the roadmap such as the Paragon 800Gb/s) and positions the Company well to deliver faster turnaround of orders in the year ahead.   

 

As a result of higher volumes of software support and extended warranty packages being sold in the year, the deferred revenue balance increased by £0.7m to £4.5m from £3.8m in the prior year.  This was offset by a reduction in trade and other payables balances of £1.5m as a result of lower trading volumes with our contract manufacturer at the year end due to our levels of inventory in-house and the reduction in performance bonus and profit share accruals as no bonuses are due to be paid out in relation to the FY24 year.

 

The Group paid £0.9m in tax in the period based on the profit generated in the prior year. Given the Group was loss making before tax in FY24, this cash is potentially refundable in FY25 after submission of the FY24 year-end tax return.  If refundable after the submission of the tax return, it will be shown as a receivable in the FY25 balance sheet up to receipt of the cash.   

 

Cash used in investing activities is principally cash spent on R&D activities, which is capitalised and amortised over five years. Investment in R&D in the year was £5.6m (FY23: £4.5m).  £0.6m of this increase was people spend, reflecting inflationary salary increases, the full year effect of hires made in FY23 and increases in graduate headcount. R&D equipment spend accounted for £0.4m of the increase in cash spend, which was predominantly driven by the requirements of the Paragon Neo 800 Gb/s project, which is due to complete in the second half of FY25.

 

The Group places surplus cash balances not required for working capital into notice and fixed term deposit accounts. Under IFRS, cash held on long-term deposits (being deposits with maturity of greater than 95 days, and no more than twelve months) that cannot readily be converted into cash is classified as a fixed term investment. This is shown separately on the balance sheet and on investment is classified as a cash outflow within investing activities in the consolidated cashflow statement in prior periods. As at 31 March 2024, the Group held surplus cash in notice accounts, but did not hold any on long term deposit.

 

There is currently no debt on the balance sheet, leading to no borrowings related cashflows in the current or prior periods. Closing cash at 31 March 2024 was £11.9m (31 March 2023: £19.1m including fixed term deposits).

 

Dividend

The directors are proposing a final dividend with respect to the financial year ended 31 March 2024 of 0.62p per share. The final dividend will be proposed for approval at the Annual General Meeting in August 2024 and, if approved, will be paid on 30 August 2024 to all shareholders on the register as at close of business on 26 July 2024, the record date. The ex-dividend date will be 25 July 2024.

 

 

 

 

Ashleigh Greenan
Chief Financial Officer
20 May 2024

 

 

Consolidated Statement of Comprehensive Income

_________________________________________________________________________________________________________________

 

							Year ended		Year ended
							31 March		31 March
							2024		2023
	Note						£'000		£'000
Revenue	5						16,274		27,449
Cost of sales							(4,327)		(6,977)
Gross profit							11,947		20,472
Other income	6						797		751
Administrative expenses							(13,361)		(13,989)
Operating (loss)/profit	7						(617)		7,234
Interest received							357		-
Finance costs	10						(124)		(26)
(Loss)/Profit before taxation							(384)		7,208
Taxation	11						424		(1,297)
Profit and total comprehensive
income for the year							40		5,911
Basic earnings per share	29						0.05		6.75
Diluted earnings per share	29						0.04		6.42

 

 

Consolidated and Company Statement of Financial Position

__________________________________________________________________________________________________________________

 

			Group					Company
			31 March		31 March			31 March		31 March
			2024		2023			2024		2023
			£'000		£'000			£'000		£'000
Non-current assets	Note
Intangible assets	12		12,110		10,565			11,337		9,525
Goodwill	13, 14		2,000		2,000			-		-
Plant and equipment	15		341		404			341		404
Right-of-use assets	20		287		533			287		533
Deferred tax asset	22		1,246		272			1,246		272
			15,984		13,774			13,211		10,734
Current assets
Inventories	16		5,373		2,748			5,373		2,748
Trade and other receivables	17		3,340		3,130			3,570		3,455
Corporation tax receivable			435		-			435		-
Cash and cash equivalents	18		11,868		17,583			11,683		17,186
Short term investment	18		-		1,515			-		1,515
			21,016		24,976			21,061		24,904
Total assets			37,000		38,750			34,272		35,638
Current liabilities
Trade and other payables	19		4,845		5,988			4,804		5,806
Corporation tax			-		843			-		741
Lease liabilities	20		220		260			220		260
			5,065		7,091			5,024		6,807
Non-current liabilities
Trade and other payables	19		1,510		1,396			1,510		1,356
Lease liabilities	20		195		431			195		431
Deferred tax liabilities	21		2,877		2,457			2,683		2,197
Provisions	22		15		15			15		15
			4,597		4,299			4,403		3,999
Total liabilities			9,662		11,390			9,427		10,806
Net assets			27,338		27,360			24.845		24,832
Equity
Share capital	28		109		109			109		109
Share premium			7,511		7,495			7,511		7,495
Share option reserve	26		1,414		873			1,414		873
Retained earnings			18,304		18,883			15,811		16,355
Total equity			27,338		27,360			24,845		24,832
The profit for the financial year of the parent company is £75,267 (2023: £3,428,306). As provided for by section 408 of the Companies Act 2006, no income statement is presented in respect of the parent company.    The accounts were approved by the Board of Directors and authorised for issue on 20 May 2024. The accounts are signed on their behalf by:
………………………………………………………..
Ashleigh Greenan
Director

 

Consolidated Statement of Changes in Equity

_________________________________________________________________________________________________________________

						Share
	Share		Share			option				Retained				Total
	capital		premium			reserve				earnings				equity
	£'000		£'000			£'000				£'000				£'000
Balance at 31 March 2022	109		7,484			502				13,733				21,828
Transactions with owner in their capacity as owners
Share options exercised	0		11			-				-				11
Share options	-		-			371				-				371
Dividends paid	-		-			-				(761)				(761)
Total transactions with owner in their capacity as owners	0		11			371				(761)				(379)
Total comprehensive income for the year	-		-			-				5,911				5,911
Balance at 31 March 2023	109		7,495			873				18,883				27,360
Transactions with owner in their capacity as owners
Share options exercised	0		16			(195)				195				16
Share options	-		-			736				-				736
Dividends paid	-		-			-				(814)				(814)
Total transactions with owner in their capacity as owners	0		16			541				(619)				(62)
Total comprehensive income for the year	-		-			-				40				40
Balance at 31 March 2024	109		7,511			1,414				18,304				27,338

 

 

 

Company Statement of Changes in Equity

__________________________________________________________________________________________________________________

						Share
	Share		Share			option				Retained				Total
	capital		premium			reserve				earnings				equity
	£'000		£'000			£'000				£'000				£'000
Balance at 31 March 2022	109		7,484			502				13,688				21,783
Transactions with owner in their capacity as owners
Share options exercised	0		11			-				-				11
Share options	-		-			371				-				371
Dividends paid	-		-			-				(761)				(761)
Total transactions with owner in their capacity as owners	0		11			371				(761)				(379)
Total comprehensive income for the year	-		-			-				3,428				3,428
Balance at 31 March 2023	109		7,495			873				16,355				24,832
Transactions with owner in their capacity as owners
Share options exercised	0		16			(195)				195				16
Share options	-		-			736				-				736
Dividends paid	-		-			-				(814)				(814)
Total transactions with owner in their capacity as owners	0		16			541				(619)				(62)
Total comprehensive income for the year	-		-			-				75				75
Balance at 31 March 2024	109		7,511			1,414				15,811				24,845

 

 

Consolidated and Company Cash Flow Statement

__________________________________________________________________________________________________________________

 

			Group								Company
			31 March			31 March					31 March		31 March
			2024			2023					2024		2023
			£'000			£'000					£'000		£'000
Cashflows from operating activities
(Loss)/profit before tax from continuing operations			(384)			7,208					(403)		4,459
Adjusted for:
Finance costs		10	124			26					124		26
Interest received			(357)			(160)					(357)		(160)
Government grant income			(218)			(201)					(218)		(201)
R&D tax credit income			(579)			(390)					(579)		(390)
Gain on disposal of fixed asset			(4)			-					(4)		-
Share-based payment transactions		25	746			574					746		574
Depreciation			424			371					177		371
Amortisation			4,053			3,690					4,032		3,422
Impairment of investment			-			-					-		2,436
Movement in inventories		16	(2,820)			(1,554)					(2,820)		(1,557)
Movement in obsolescence provision		16	195			(122)					195		(122)
Movement in trade and other receivables		17	(211)			1,619					(14)		1,484
Movement in trade and other payables		19	(903)			(329)					(737)		(770)
Cash generated from operations			66			10,732					141		9,572
Movement in provisions (overseas tax)			-			(140)					-		(140)
Corporation & foreign tax payments			(850)			(70)					(713)		-
R&D tax credit refunds received			-			589					-		589
Net cash from (absorbed by) operating activities			(784)			11,111					(572)		10,021
Investing activities
Purchase of intangible assets		12	(5,598)			(4,523)					(5,598)		(4,523)
Government grant income			-			432					-		432
Purchase of property and equipment		15	(111)			(181)					(111)		(181)
Purchase of subsidiary: net of cash acquired			-			(2,263)					-		(2,263)
Distribution from subsidiary from pre-acquisition reserves			-			-					-		767
Dividend received from subsidiary of post-acquisition reserves			-			-					-		191
Short term investment: fixed term deposit		16	1,515			(15)					1,515		(15)
Interest received			357			160					357		160
Net cash used in investing activities			(3,837)			(6,390)					(3,837)		(5,432)
Financing activities
Payment of lease obligations		20	(296)			(245)					(296)		(245)
Dividends paid		32	(814)			(761)					(814)		(761)
Share options proceeds		25	16			11					16		11
Net cash used in financing activities			(1,094)			(995)					(1,094)		(995)
Net increase (decrease) in cash and cash equivalents			(5,715)			3,726					(5,503)		3,594
Cash and cash equivalents at beginning of the year			17,583			13,857					17,186		13,592
Cash and cash equivalents at end of the year			11,868			17,583					11,683		17,186

 

 

 

Notes to the Financial Statements

____________________________________________________________________________________________________________

1.        General information

Calnex Solutions plc ("the Company") is a public limited company, limited by shares, domiciled and incorporated in Scotland. The registered office is Oracle Campus, Linlithgow, West Lothian, EH49 7LR.

 

The Company (together with its subsidiary, the "Group") was under the control of the directors throughout the period covered in the financial statements. The list of the subsidiaries consolidated in the financial statements is shown in Note 27.

 

The principal activity of the Group is the design, production and marketing of test instrumentation and solutions for network synchronisation and network emulation, enabling its customers to validate the performance of critical infrastructure associated with telecoms networks, enterprise networks and data centres.

 

The financial statements were authorised for issue, in accordance with a resolution of directors, on 20 May 2024. The directors have the power to amend and reissue the financial statements.

 

2.        Basis of preparation

(a)       Statement of compliance

The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted International Accounting Standards and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

 

(b)      Basis of accounting

The financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities including financial instruments, which are stated at their fair values.

 

The preparation of the financial statements in conformity with UK-adopted IAS requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense. The estimates and judgements are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying amounts of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented.

 

(c)       Functional and presentation currency

The financial statements are presented in pounds Sterling, which is the functional and presentation currency of the Group. Results in these financial statements have been prepared to the nearest thousand.

 

(d)      Basis of consolidation

The consolidated financial statements incorporate those of Calnex Solutions plc, and all its subsidiaries. A subsidiary is an entity controlled by the Group, i.e. the Group is exposed to, or has the rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its current ability to direct the entity's relevant activities (power over the investee). All intra-Group transactions, balances, and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The total comprehensive income, assets and liabilities of the entities are amended, where necessary, to align the accounting policies.

 

The Group applies the acquisition method to account for all acquired businesses, whereby the identifiable assets acquired and the liabilities assumed are measured at their acquisition date fair values (with a few exceptions as required by IFRS 3 Business Combinations).

 

The cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill.

 

The acquisition of assets that falls outside the scope of IFRS 3 are accounted for by bringing the assets and liabilities of the acquired entity into the financial statements at their nominal value from the date of acquisition. Comparative information is not restated.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

2.        Basis of preparation (continued)

(e)      Going Concern

The financial information for the year to 31 March 2024 has been prepared on the basis that the Group and the Company will continue as a going concern.

 

The Board has approved financial forecasts for the current and succeeding financial years to 31 March 2026. Based on this review, along with regular oversight of the Company's risk management framework the Board has concluded that given the Company's cash reserves available of £11.9m, the Company will continue to trade as a going concern.

 

The Group's financial performance in FY24 was impacted by the ongoing downturn across the telecoms market, with caution across the sector leading to subdued spending levels. Although the year ended 31 March 2024 experienced a reduction in revenues compared to the prior year, the Group starts the new financial year with a healthy liquidity position, with cash as at 31 March 2024 of £11.9 million.

 

The Group is continuing to see a prolonged period of limited customer spend within the telecoms sector and as a result, The Company has taken action to diversify the product offering to position the business for a return to growth in FY25. Close customer relationships have been maintained, with customers confirming that they remain committed to the delivery of projects once spending budgets are released.

 

Measured cost-action was undertaken in FY24 and will continue into FY25, whilst the Company has continued focus on product innovation, maintaining R&D spend and adjusting engineering programme to focus on areas showing the most near-term potential across both the telecoms and the newer markets of cloud computing and defence.

 

The Group is confident that the action taken during FY24 to diversify the product offering positions the business for a return to growth in FY25, thereby protecting the liquidity position. Longer term, The Group continues to be supported by favourable underlying trends. The Board is confident that budgets will return in the telecoms market as the economic backdrop improves, in turn creating the need for test and measurement equipment to prove that new systems operate effectively and conform to rigorous international standards.

 

3.        Significant accounting policies

(a)       Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of sales related taxes and discounts and is recognised at the point in time when the relevant performance obligation is satisfied.

 

Where revenue contracts have multiple elements, all aspects of the transaction are considered to determine whether these elements can be separately identified. Where transaction elements can be separately identified and revenue can be allocated between them on a fair and reliable basis, revenue for each element is accounted for according to the relevant policy below. Where transaction elements cannot be separately identified, revenue is recognised over the contract period.

 

The Group recognises revenue from the following major sources:

 

Hardware & software revenue

Revenue from the sale of bundled hardware and software, is recognised when the Group transfers the risk and rewards to the customer, and the bundled product is delivered to the customer. Each unit sale comes with a standard warranty period during which the Group agrees to provide warranty cover, maintenance cover and software upgrade cover in the event of any software upgrades being released. This is recognised as a separately identifiable obligation from the provision of the hardware and is recognised over the life of the cover provided, being a year.

 

For the sale of stand-alone software, the licence period and therefore the revenue recognition, commences upon delivery.

 

Extended warranty programme

The Group enters into agreements with purchasers of its equipment to perform necessary repairs falling outside the Group's standard warranty period. As this service involves an indeterminate number of acts, the Group is required to 'stand ready' to perform whenever a request falling within the scope of the program is made by a customer. Revenue is recognised on a straight-line basis over the term of the contract.

 

This method best depicts the transfer of services to the customer as:

i)         The Group's historical experience demonstrates no statistically significant variation in the quantum of services provided in each year of a multi-year contract; and

ii)        no reliable prediction can be made as to if and when any individual customer will require service.

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

3.        Significant accounting policies (continued)

 

Software support programme

The Group enters into agreements with purchasers of its equipment to provide software support and access to future software updates. Revenue is recognised on a straight-line basis over the term of the contract.

 

Grant income

The Group has obtained grant funding from the Scottish Government in prior years in the form of reimbursement for research and development costs eligible for reclaim under the grant agreement. Costs were incurred before they were reclaimed under the grant agreement and revenue only recognised after receipt of the funds from the government. Grant funds received are recognised over five years, in line with the amortisation policy on capitalised research and development costs.

 

(b)      Retirement benefit costs

Payments to defined contribution schemes are charged to the Statement of Comprehensive Income as an expense as they fall due.

 

(c)       Share-based payments

Equity-settled and cash settled share-based compensation benefits are provided to some employees.  Equity-settled transactions are awards of shares, or options over shares that are provided to employees in exchange for the rendering of services. 

 

The cost of equity-settled transactions is measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the Group receives the services that entitle the employees to receive payment. There are no other vesting conditions.

 

The cost of equity-settled transactions is recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods.

 

The cost of cash-settled transactions is initially, and at each reporting date until vested, determined by applying the Black-Scholes option pricing model, taking into consideration the terms and conditions on which the award was granted. The cumulative charge to profit or loss until settlement of the liability is calculated as follows:

●         during the vesting period, the liability at each reporting date is the fair value of the award at that date multiplied by the expired portion of the vesting period.

●         from the end of the vesting period until settlement of the award, the liability is the full fair value of the liability at the reporting date.

 

All changes in the liability are recognised in profit or loss. The ultimate cost of cash-settled transactions is the cash paid to settle the liability.

 

If equity-settled awards are modified, as a minimum an expense is recognised as if the modification has not been made. An additional expense is recognised, over the remaining vesting period, for any modification that increases the total fair value of the share-based compensation benefit as at the date of modification.

 

If the non-vesting condition is within the control of the Group or employee, the failure to satisfy the condition is treated as a cancellation. If the condition is not within the control of the Group or employee and is not satisfied during the vesting period, any remaining expense for the award is recognised over the remaining vesting period, unless the award is forfeited.

 

If equity-settled awards are cancelled, it is treated as if it has vested on the date of cancellation, and any remaining expense is recognised immediately. If a new replacement award is substituted for the cancelled award, the cancelled and new award is treated as if they were a modification.

 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

 

Deferred tax assets and liabilities are offset when the relevant requirements of IAS 12 are satisfied.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

3.        Significant accounting policies (continued)

 

(d)      Taxation

The tax expense represents the sum of the current tax and deferred tax charge for the year. The tax currently payable is based on taxable profit for the year. The Group's liability for current tax is calculated using the tax rates that have been enacted or substantively enacted by the balance sheet date.

 

Deferred tax is measured on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases, as used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of financial assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

 

(e)      Business Combinations

The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.

 

The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the Group to former owners of the acquirer. All acquisition costs are expensed as incurred to profit or loss.  On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group's operating or accounting policies and other pertinent conditions in existence at the acquisition-date.

 

Contingent consideration to be transferred by the acquirer is recognised at the acquisition-date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss.

 

The difference between the acquisition-date fair value of assets acquired and liabilities assumed and the fair value of the consideration transferred is recognised as goodwill. If the consideration transferred is less than the fair value of the identifiable net assets acquired, a bargain purchase is recognised as a gain directly in profit or loss by the Group on the acquisition-date.

 

Business combinations are initially accounted for on a provisional basis. The Group retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value.

 

(f)       Intangible assets

Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

 

Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the Group is able to use or sell the asset; the Group has sufficient resources and intent to complete the development; and its costs can be measured reliably. Capitalised development costs are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years.

 

Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years.  Amortisation is charged to administrative expenses in the Statement of Comprehensive Income.

 

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

3.        Significant accounting policies (continued)

 

(g)       Financial assets

Where there is no publicly quoted market value, other investments, including subsidiaries, are shown at cost less provisions for impairment.

 

(h)      Plant and equipment

Plant and equipment are shown at cost, net of depreciation and any provision for impairment.  Depreciation is provided on all property, plant and equipment at varying rates calculated to write off cost less residual value over the useful lives. Depreciation is charged to administrative expenses in the Statement of Comprehensive Income. The principal rates employed are:

 

Plant and machinery                                                            25-33% straight line

 

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate these values may not be recoverable.  If there is an indication that impairment does exist, the carrying values are compared to the estimated recoverable amounts of the assets concerned.

 

The recoverable amount is the greater of an asset's value in use and its fair value less the cost of selling it.  Value in use is calculated by discounting the future cash flows expected to be derived from the asset.  Where the carrying value of an asset exceeds its recoverable amount, the asset is considered impaired and is written down through the income statement to its recoverable amount. 

 

An item of property, plant and equipment is written off either on disposal or when there is no expected future economic benefit from its continued use.  Any gain or loss (calculated as the difference between the net disposal proceeds and the carrying value of the asset) is included in the income statement in the year.

 

(i)        Right-of-use assets

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

 

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any re-measurement of lease liabilities.

 

(j)        Inventories

Inventories are valued at the lower of cost and net realisable value.  In determining the cost of raw materials, consumables and goods for resale, the average purchase price is used.  For work in progress and finished goods, cost is taken as production cost which includes an appropriate proportion of overheads.

 

Inventories are assessed for indicators of impairment at each year end and where a provision is required the income statement is charged directly.

 

(k)       Trade and other receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses.

 

The simplified approach to measuring expected credit losses has been applied, this uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue.

 

Other receivables are recognised at amortised cost, less any allowance for expected credit losses.

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

3.        Significant accounting policies (continued)

 

 

(l)        Cash and cash equivalents

Cash at bank and in hand are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of 95 days or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

 

(m)     Short term investments

Cash at bank on fixed term deposit, and other liquid investments with maturities of greater than 95 days, but less than 12 months at the reporting date.

 

(n)      Borrowings

Interest-bearing loans and bank overdrafts are initially recorded at the fair value of proceeds received and are subsequently stated at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

 

(o)      Trade and other payables

Trade payables are non-interest-bearing and are measured at amortised cost.

 

(p)      Provisions

Provisions are recognised when the Group has a present legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense.

 

(q)      Financial liabilities

Financial liabilities are recognised on the Group's Statement of financial position when the Group becomes a party to the contractual provisions of that instrument.

 

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. The changes in fair value are recorded in the statement of comprehensive income.

 

(r)       Lease liabilities                       

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. The lease term is the non-cancellable period of the lease plus extension periods that the group is reasonably certain to exercise and termination periods that the group is reasonably certain not to exercise. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.

 

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are re-measured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is re-measured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down.

 

The Group has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred.

 

 

 

 

Notes to the Financial Statements continued

____________________________________________________________________________________________________________

3.        Significant accounting policies (continued)

 

(s)       Foreign currency

In preparing the financial statements, transactions in currencies other than pounds sterling are recorded at the exchange rate ruling at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to sterling at the foreign exchange rate ruling at that date.  Exchange differences arising on translation are recognised in the consolidated Statement of comprehensive income for the period.

 

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated at the rates prevailing at the dates when the fair value was determined.  Non-monetary assets and liabilities that are measured at historical cost in a foreign currency (e.g. property, plant and equipment purchased in a foreign currency) are translated using the exchange rate prevailing at the date of the transaction.  Exchange differences arising on the translation of net assets are affected through the Statement of Comprehensive Income.

 

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date.  Income and expense items are translated at the average exchange rates for the period and recognised in the Statement of Comprehensive Income. 

 

(t)       Dividends

Dividends are recognised when declared during the financial year. The declaration of dividends is at the discretion of the directors.

 

(u)      Value Added Tax

Revenues, expenses and assets are recognised net of the amount of associated VAT, unless the VAT incurred is not recoverable from the tax authority. In this case it is recognised as part of the cost of the acquisition of the asset or as part of the expense.

 

Receivables and payables are stated inclusive of the amount of VAT receivable or payable. The net amount of VAT recoverable from, or payable to, the tax authority is included in other receivables or other payables in the statement of financial position.

 

Commitments and contingencies are disclosed net of the amount of VAT recoverable from, or payable to, the tax authority.

 

(v)       Earnings per share

Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to the shareholders, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.

 

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

 

(w)     Critical judgements in applying the Groups accounting estimates

In the process of applying the Group's accounting policies, the directors have made the following estimates that have the most significant effect on the amounts recognised in the financial statements.

 

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

3.        Significant accounting policies (continued)

 

(w)     Critical judgements in applying the Groups accounting estimates (continued)

 

Useful lives

The Group uses forecast cash flow information and estimates of future growth to assess whether goodwill and other intangible fixed assets are impaired, and to determine the useful economic lives of its goodwill and intangible assets.  If the results of operations in a future period are adverse to the estimates used a reduction in useful economic life may be required.

 

Intangible assets

Intangible assets acquired as part of a business combination, other than goodwill, are initially measured at their fair value at the date of the acquisition. Intangible assets acquired separately are initially recognised at cost. Indefinite life intangible assets are not amortised and are subsequently measured at cost less any impairment. Finite life intangible assets are subsequently measured at cost less amortisation and any impairment. The method and useful lives of finite life intangible assets are reviewed annually. Changes in the expected pattern of consumption or useful life are accounted for prospectively by changing the amortisation method or period.

 

Research costs are expensed in the period in which they are incurred. Development costs are capitalised when it is probable that the project will be a success considering its commercial and technical feasibility; the Group is able to use or sell the asset; the Group has sufficient resources and intent to complete the development; and its costs can be measured reliably. Capitalised development costs are amortised on a straight-line basis over the period of their expected benefit, being their finite life of 5 years.

 

Significant costs associated with patents and trademarks are deferred and amortised on a straight-line basis over the period of their expected benefit, being their finite life of 10 years.  Amortisation is charged to administrative expenses in the Statement of Comprehensive Income.

 

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the asset using a pre-tax discount rate specific to the asset or cash-generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash-generating unit.

 

(x)       New accounting standards

There have been no applicable new standards, amendments to standards and interpretations effective from 1 April 2023 that have been applied by the Group which have or are expected to result in a significant impact on its consolidated results or financial position.

 

4         Operating Segments

Operating segments are based on the internal reports that are reviewed and used by the Board (who are identified as the Chief Operating Decision Makers) in assessing performance and determining the allocation of resources. As the Group has a central cost structure and a central pool of assets and liabilities, the Board does not consider segmentation in their review of costs or the statement of financial position. The only operating segment information reviewed, and therefore disclosed, are the revenues derived from different geographies.

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Americas							5,042		9,644
North Asia							3,396		6,475
Rest of World							7,836		11,330
							16,274		27,449

 

 

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

 

 

5         Revenue

							Year ended			Year ended
							31 March			31 March
							2024			2023
							£'000			£'000
Sale of goods							12,593			24,579
Rendering of services							3,681			2,870
Total revenue							16,274			27,449

 

67% (2023: 69%) of the Group revenue has been generated through the network of the Group's principal distribution partner. In the current year, one customer accounted for 15% of the Group's revenue. In the prior year there were no customers which exceeded 10% of the Group's revenue.

 

 

6         Other income

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Government grant income							218		201
R&D tax credit							579		390
Interest received							-		160
							797		751

 

7         Material operating profit items

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Operating profit for the year is stated after charging/(crediting):
Equity settled share-based payments							756		574
Cash settled share based payments							(10)		-
Reversal of non-employee vendor contingent consideration							(334)		-
Unwinding of discount on contingent consideration for non employee vendors							104		-
Inventory recognised as an expense							3,111		5,744
Legal and professional fees associated with acquisition of subsidiary							-		200
Depreciation of tangible and ROU assets							423		371
Amortisation of intangible assets							4,053		3,690
Auditor's remuneration
Fees payable to the Group's auditor and its associates for the audit of the Group's annual accounts							47		44
Total fees payable for audit services							47		44
No fees were payable to the Group's auditor and its associates for other services.

 

 

 

 

 

 

 

Notes to the Financial Statements continued

_________________________________________________________________________________________________________________

 

8         Employee benefits costs

Average monthly number of employees

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Development staff							79		70
Administrative staff							76		68
Management staff							11		11
							166		149

 

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Employee costs during the year (including directors remuneration) amounted to:
Wages and salaries							8,846		8,560
Social security costs							889		875
Defined contribution pension							423		418
Share incentive scheme							226		233
Equity-settled share-based payment							756		531
Cash-settled share-based payment							(10)		43
							11,130		10,660
Total gross wages and salaries capitalised in the year, included in the analysis above							4,451		3,837

 

9         Key management personnel emoluments

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Wages and salaries							575		636
Social security costs							77		100
Defined contribution pension							7		7
Equity-settled share-based payment							77		29
							736		772
The number of directors who accrued benefits under the company pension plans:
Defined contribution plans							1		1
Remuneration of the highest paid director in respect of qualifying services:
Aggregate remuneration							211		237
Key management refers to the directors of the Group.

 

 

10      Finance costs

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Interest expense on lease liabilities							20		26
Unwinding of discount on contingent consideration							104		-
							124		26

 

 

Notes to the Financial Statements continued

_______________________________________________________________________________________________________________

 

 

11      Taxation

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Current taxation
UK corporation tax on profits for the year							-		1,143
Foreign current tax expense							192		149
Adjustments relating to prior years							(42)		(4)
							150		1,288
Deferred taxation
Origination and reversal of temporary differences							(580)		(46)
Adjustments relating to prior periods							6		-
Effect of changes in tax rates							-		55
							(574)		9
Total taxation (credit)/charge							(424)		1,297

 

 

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
(Loss)/Profit before tax for the year							(384)		7,208
Tax thereon at 25% (2023: 19%)							(96)		1,369
Effects of:
Expenses disallowable for tax purposes							(321)		40
Adjustments in respect of prior periods - current tax							(42)		(4)
Adjustments in respect of prior periods - deferred tax							6		-
Change in tax rate on opening balance							-		55
SME R&D credit							(530)		(161)
Timing differences not recognised in the computation							460		19
Impact of super deduction							-		(10)
Deferred tax (charged)/credited directly to equity							(20)		(160)
Overseas tax							119		149
Taxation (credit)/charge							(424)		1,297

 

 

 

The weighted average applicable tax rate for the year ended 31 March 2024 was 25% (2023: 19%). The effective rate of tax for the year, based on the taxation charge for the year as a percentage of the profit before tax is 111% (2023: 18.0%) The 87 percentage point difference between the applicable rate of tax and the effective rate is due to the following:

 

·      Availability of enhanced 86% SME R&D deduction                                        138%

·      Timing differences not recognised in the computation                                   (120%)

·      Expenses disallowable for tax purposes                                                          84%

·      Overseas taxes                                                                                               (31%)

·      Prior period adjustments                                                                         11%

·      Cumulative other                                                                                      4%

Notes to the Financial Statements continued

_________________________________________________________________________________________________________________

 

12      Intangible assets

Included within intangible assets are the following significant items:

·      Acquired intellectual property from business combinations, cost of patent applications and on-going patent maintenance fees.

·      Capitalised development costs representing expenditure relating to technological advancements on the core product base of the Group. These costs meet the requirement of IAS 38 (Intangible Assets) and will be amortised over the future commercial life of the related product. Amortisation is charged to administrative expenses.

 

					Intellectual		Development		Group
					property		Costs		Total
					£'000		£'000		£'000
Cost
At 1 April 2023					3,526		30,395		33,921
Additions					19		5,579		5,598
Disposals					-		(1,714)		(1,714)
At 31 March 2024					3,545		34,260		37,805
Amortisation
At 1 April 2023					2,483		20,873		23,356
Charge for the year					273		3,780		4,053
Eliminated on disposal					-		(1,714)		(1,714)
At 31 March 2024					2,756		22,939		25,695
Net book value
31 March 2023					1,043		9,522		10,565
31 March 2024					789		11,321		12,110

 

					Intellectual		Development		Company
					property		Costs		Total
					£'000		£'000		£'000
Cost
At 1 April 2023					2,218		30,395		32,613
Additions					19		5,579		5,598
Disposals					-		(1,714)		(1,714)
At 31 March 2024					2,237		34,260		36,497
Amortisation
At 1 April 2023					2,215		20,873		23,088
Charge for the year					6		3,780		3,786
Eliminated on disposal					-		(1,714)		(1,714)
At 31 March 2024					2,221		22,939		25,160
Net book value
31 March 2023					3		9,522		9,525
31 March 2024					16		11,321		11,337

During the year, a review of the carried development costs brought forward has resulted in a disposal of £1,714,991 (2023: £1,365,530), and elimination of amortisation of £1,714,991 (2023: £1,365,530) resulting in a net book value impact of £nil (2023: £nil). This reflects removal of aged spend on product features that are now considered to be superseded by current product developments.

 

Within Group intellectual property cost £1,308,000 relates to the fair value assessment of intellectual property on the NE-ONE product range resulting from the business combination of iTrinegy in April 2022. This intellectual property addition has also resulted in £267,970 (2023: £267,970) of amortisation being charged to administration expenses in the year. Details of the business combination are included in note 13.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

13      Business combinations

On 12 April 2022, Calnex Solutions plc acquired 100 per cent of the issued share capital of iTrinegy Ltd, a leading developer of Software Defined Test Networks technology for the software application and digital transformation testing market. The core product, the NE-ONE hardware and software based Network Emulation platforms, provide organisations, primarily across the technology, financial, gaming and military/government sectors, with the ability to accurately recreate complex, real-world network test environments in which to analyse and verify the performance of applications, before deployment. The NE-ONE platform, provides users with insight which enables them to reduce deployment costs and risk, whilst also addressing the needs of the cloud-based and virtual development environments, a rapidly growing sub-sector of the application development market.

 

This acquisition was made on a cash free, debt free basis, for an initial cash consideration of £2.5 million, fully funded from Group free cash. An additional £0.5 million was also paid to the vendors in exchange for them leaving all available cash (£0.7m at acquisition date) within the acquired business

 

The fair values of the identifiable net assets are set our below:

							Fair value
					Book value		Adjustment		Fair value
					£'000		£'000		£'000
Intangible assets					-		1,308		1,308
Deferred tax liability					-		(311)		(311)
Plant & equipment					8		-		8
Cash and cash equivalents					737		-		737
Trade and other receivables					397		-		397
Inventories					74		-		74
Trade and other payables					(1,010)		-		(1,010)
Total identifiable assets					206		997		1,203
Goodwill on acquisition									2,000
Total consideration									3,203
Satisfied by:
Initial cash consideration									3,000
Contingent consideration									203
									3,203
Cashflow
Initial cash consideration									3,000
Cash acquired									(737)
Net cashflow impact of acquisition									2,263

 

The fair value adjustment noted above has been derived from the valuation of the intellectual property associated with acquired technology, and customer relationships. These intangible assets have been assigned a useful life of between three and five years.

 

The book value of all other assets and liabilities recognised at acquisition date have been determined to approximate their fair value. Trade and other receivables acquired were mainly trade receivables, of which no recovery issues were identified post-acquisition.

 

The values identified in relation to the acquisition of iTrinegy were final as at 31 March 2023.

 

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

13      Business combinations (continued)

The directors have reviewed the £2.0m goodwill valuation and are comfortable it benchmarks consistently with similar acquisitions within the sector. Goodwill carried reflects the inherent value of an accelerated R&D development timeline to address the network emulation market with the NE-ONE product, coupled with significant cost and sales channel synergies the group will be able to leverage from its more mature organisational and sales structure. Goodwill also includes intangible assets not qualifying for separate recognition, such as workforce in place.

 

The goodwill is not expected to be deductible for tax purposes.

 

As part of the integration of the iTrinegy business, the Group has transferred all iTrinegy staff and trading over to Calnex Solutions plc, with the iTrinegy legal entities being 'hived up' into the existing Calnex entities. Details of the group structure changes in the year are detailed in note 27.

 

Contingent consideration of up to a further £1 million was potentially payable subject to the achievement of revenue growth from the NE-one product line in the year ended 31 March 2024 (the 'Earn-out payment'). Although NE-ONE revenues experienced healthy growth in the period, the vendors did not meet the Earn-Out Payment targets, the revenue growth trigger for the earn-out payment was not met, and no further contingent consideration measures remain in place.

 

14      Goodwill

The goodwill arising in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from the business combination. The Board consider the Group to consist of a single cash generating unit, reflective of not only the manner in which the Board (who operate as the Chief Operating Decision Makers) assess and review performance and resource allocation of the group, but also the centralised cost structure and pooled assets and liabilities which are critical to revenue generation across all platforms. The determination of a single cash generating unit within the group therefore reflects accurately the way the Group manages its operations and with which goodwill would naturally be associated.

 

									Group
									31 March
									2024
									£'000
Cost
As at 31 March 2023									2,000
As at 31 March 2024									2,000

 

The Group test goodwill for impairment annually, or more frequently if there are indications that the goodwill has been impaired. Goodwill is tested for impairment by comparing the carrying amount of the cash generating unit, including goodwill, with the recoverable amount. The recoverable amounts are determined based on value-in-use calculations which require assumptions. The calculations use cashflow projections based on financial budgets approved by the Board covering a two year period, together with management forecasts for a further three year period. These budgets and forecasts have regard to historical financial performance and knowledge of the current market, together with the Group's views on the future achievable growth and the impact of committed cashflows. Cashflows beyond this are extrapolated using estimated growth rates.

 

Key assumptions used in the value in use calculation:

·      The terminal cash flows are extrapolated in perpetuity using a growth rate of 2%,(2023:2%) which has been based on management judgement reflecting sector and industry experience. This is not considered to be higher than the average long-term industry growth rate.

·    The discount rate is based on the weighted average cost of capital (WACC) of 8.2% (2023:11.7%), which would be anticipated for a market participant investing in the Group. WACC was tested for materiality based on movement of up to 4%, with no resultant material impact on the calculation

 

Management has performed sensitivity analysis on the key assumptions both with other variables held constant and with the other variables simultaneously changed. Management has concluded that there are no reasonable changes in the key assumptions that would cause the carrying amount of goodwill to exceed the value in use for the cash generating unit.

 

No evidence of impairment was found at the balance sheet date.

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

 

15      Plant and equipment

The Group annually reviews the carrying value of tangible fixed assets taking recognition of the expected working lives of the plant and equipment available to the Group and known requirements. Depreciation is charged to administrative expenses.

 

							Group		Company
							Plant and		Plant and
							equipment		equipment
							Total		Total
							£'000		£'000
Cost
At 1 April 2023							570		570
Additions							132		132
Disposals							(26)		(26)
At 31 March 2024							676		676
Depreciation
At 1 April 2023							166		166
Charge for the year							177		177
Eliminated on disposal							(8)		(8)
At 31 March 2024							335		335
Net book value
31 March 2023							404		404
31 March 2024							341		341

 

 

16      Inventories

			Group				Company
			Year ended		Year ended		Year ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Finished goods			5,875		3,055		5,875		3,055
Provision for obsolescence			(502)		(307)		(502)		(307)
			5,373		2,748		5,373		2,748
Cost of inventories recognised as an expense			3,111		5,744		3,111		5,685

Group inventories reflect the following movement in provision for obsolescence:

 

At start of the financial year			307		429		307		429
Utilised			-		(122)		-		(122)
Provided			195		-		195		-
At end of the financial year			502		307		502		307

 

 

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

17      Trade and other receivables

			Group				Company
			Year ended		Year ended		Year ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Amounts due within one year
Trade receivables			2,922		2,605		2,922		2,605
Other receivables			61		213		61		213
Amounts owed by group companies			-		-		230		325
Prepayments and accrued income			357		312		357		312
			3,340		3,130		3,570		3,455

 

 

Trade receivables are consistent with trading levels across the Group and are also affected by exchange rate fluctuations.   

 

No interest is charged on the trade receivables.  The Group has reviewed for estimated irrecoverable amounts in accordance with its accounting policy.

 

The Group's credit risk is primarily attributable to its trade and other receivables.  Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis.  Credit evaluations are performed on customers as appropriate to the level of credit extended. In addition, credit insurance would be sought for major areas of exposure, although this has not been required in the year under review. 

 

The Group reviews trade receivables past due but not impaired on a regular basis and considers, based on experience, that the credit quality of these amounts at the balance sheet date has not deteriorated since the date of the transaction.

 

Included in the Group's trade receivables balance are debtors with a carrying amount of £143,109 (2023: £339,366), which are past due at the reporting date but for which the Group has not provided against. As there has not been a significant change in credit quality, the Group believes that all amounts remain recoverable.

 

 

 

Ageing of past due but not impaired trade receivables

			Group				Company
			Year ended		Year ended		Year ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Overdue by
0-30 days			56		322		56		322
30-60 days			13		3		13		3
60+ days			74		14		74		14
			143		339		143		339

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

 

Note 24 includes disclosures relating to the credit risk exposures and analysis relating to the allowance for expected credit losses. The calculated credit risk is £9,184  (2023: £9,214). Due to the immaterial nature of the balance, no provision has been recognised. 

 

 

 

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

18      Cash and cash equivalents

Cash and cash equivalent amounts included in the Consolidated Statement of Cashflows comprise the following:

 

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Cash at bank			11,748		12,439		11,563		12,042
Cash on short term deposit			120		5,144		120		5,144
Total cash and cash equivalents			11,868		17,583		11,683		17,186
Short term investment: fixed term deposit			-		1,515		-		1,515

Short term cash deposits of £nil (2023: £12,974) are callable on a notice of 65 days.

Short term cash deposits of £120,084 (2023: £5,130,587) are callable on a notice of 95 days.

 

Cash held on long-term deposits (being deposits with maturity of greater than 95 days) that cannot readily be converted into cash have been classified as a short term investment. A total of £nil (2023: £1,515,000) is currently held on fixed term deposit, with a maturity on this investment of less than twelve months at the reporting date.

 

The directors consider that the carrying value of cash and cash equivalents and short-term investments approximates their fair value. Details of the Group's credit risk management are included in note 24.

 

 

19      Trade and other payables

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Amounts due within one year
Trade payables			913		1,770		897		1,767
Other taxes and social security			211		197		211		197
Other payables			95		75		95		75
Accruals			663		1,275		656		1,264
Deferred income			2,963		2,671		2,945		2,503
			4,845		5,988		4,804		5,806
Amounts due after one year
Deferred income			1,510		1,166		1,510		1,126
Other payables			-		230		-		230
			1,510		1,396		1,510		1,356
Total amounts due			6,355		7,384		6,314		7,162

 

Trade and other payables are consistent with trading levels across the Group but are also affected by exchange rate fluctuations.  

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.  The Group has financial risk management policies in place to ensure all payables are paid within the agreed credit terms.

 

The directors consider that the carrying amount of trade and other payables approximates their fair value.

 

Deferred income relates to fees received for ongoing services to be recognised over the life of the service rendered, and grant proceeds received but not yet released to the Statement of Comprehensive Income. In the year £3,571,718 (2023:£2,869,774) was released from deferred warranties, and £217,513 (2023: £200,852) was released from deferred grants

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

 

20      Leases

 

Right of use assets

The Group leases land and buildings for its head office in Linlithgow, Scotland. The current lease was agreed on 1 December 2019 and will run for the 5 year period to 30 November 2024.  On 4 March 2022 the Group agreed an additional premises lease for office space in Belfast. This lease has an initial 5 year term and will run until 4 March 2027.

 

The Group leases IT equipment with contract terms ranging between 1 to 2 years.  The Group has recognised right-of use assets and lease liabilities for these leases. 

 

The carrying value of right of use assets, and lease obligations recognised with respect to these leases are shown below:

 

			Building				Group		Company
			Lease		IT equipment		Total		Total
			£'000		£'000		£'000		£'000
Cost
At 1 April 2023			1,044		170		1,214		1,214
Additions			-		-		-		-
Disposals			-		-		-		-
At 31 March 2024			1,044		170		1,214		1,214
Depreciation
At 1 April 2023			554		127		681		681
Charge for the year			218		28		246		246
Eliminated on disposal			-		-		-		-
At 31 March 2024			772		155		927		927
Net book value
31 March 2023			490		43		533		533
31 March 2024			272		15		287		287

 

Right-of-use assets			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Balance at 1 April			533		791		533		791
Additions to right of use assets			-		-		-		-
Depreciation charge for the year			(246)		(258)		(246)		(258)
Balance at 31 March			287		533		287		533

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

20      Leases (continued)

 

Lease liabilities

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Balance at 1 April			691		857		691		857
Acquisition of new leases			-		53		-		53
Payment of lease liabilities			(296)		(245)		(296)		(245)
Interest expense on lease liabilities			20		26		20		26
Balance at 31 March			415		691		415		691
Disclosed as
Current			220		260		220		260
Non-current			195		431		195		431
			415		691		415		691

           

During the year, the Group also leased additional land and buildings in Stevenage and four motor vehicles. These leases were low-value, so have been expensed as incurred. The Group has elected not to recognise right‑of‑use assets and lease liabilities for these leases.

 

Lease commitments for short-term and low value leases

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Motor vehicles			49		17		49		17
Land and buildings			72		58		72		58
			121		75		121		75

 

Amounts recognised in the income statement

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Depreciation charge - building lease			218		218		218		218
Depreciation charge - IT equipment			28		40		28		40
Interest on lease liabilities			20		26		20		26
Low value lease rental			121		75		121		75

 

Amounts recognised in statement of cashflows

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Total cash outflow for leases			(296)		(245)		(296)		(245)

 

A maturity analysis of contractual cashflows relating to lease liabilities is included in note 24 (d).

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

21      Deferred tax

The 2021 budget proposal increased the corporation tax rate to 25% from 1 April 2023. This was substantively enacted in the Finance Act 2021 on 24 May 2021.

 

Deferred tax asset

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Opening balance			272		304		272		304
Recognised in statement of comprehensive income			974		(192)		974		(192)
Recognised in equity			-		160		-		160
Closing balance			1,246		272		1,246		272
Deferred tax assets arise as follows:
Unused tax losses			1,143		-		1,143		-
Share-based remuneration			76		250		76		250
Other timing differences			27		22		27		22
Total deferred tax asset			1,246		272		1,246		272

Deferred tax liability

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Opening liability			2,457		2,017		2,197		2,017
Recognised in statement of comprehensive income			399		440		645		180
Recognised in equity			21		-		21		-
Closing liability			2,877		2,457		2,863		2,197
Deferred tax liabilities arise as follows:
Deferred tax on acquisition			193		260		-		-
Timing differences on development costs			2,606		2,108		2,605		2,108
Accelerated capital allowances			78		89		78		89
Total deferred tax liability			2,877		2,457		2,863		2,197

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

22      Provisions

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Non-current provisions
Dilapidations			15		15		15		15

Provisions pertain to potential payments to be made in respect of dilapidations on leased assets.

 

No discount is recorded on recognition of the provisions or unwound due to the low value and estimable nature of the non-current element.

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

 

23      Financial instruments

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk and interest rate risk), credit risk and liquidity risk. The Group's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. When required, the Group uses derivative financial instruments in the form of forward foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, and not as trading or other speculative instruments. The Group uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks and ageing analysis for credit risk.

 

Capital management

The Board's policy is to maintain a strong capital base so as to cover all liabilities and to maintain the business and to sustain its development. The Board defines capital as total equity, as recognised in the statement of financial position, plus net debt. Net debt is calculated as total borrowings less cash and cash equivalents.  In order to maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares or sell assets to reduce debt.

 

There were no changes in the Group's approach to capital management during the year. 

 

Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

 

(a)       Categories of financial instruments

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Financial assets (current and non-current) at amortised cost
Trade and other receivables			2,922		2,605		3,072		2,930
Cash and cash equivalents			11,868		17,583		11,683		17,186
Short term investments			-		1,515		2,173		1,515
Financial liabilities (current and non-current) at amortised cost
Lease liabilities			416		691		416		691
Trade and other payables			1,671		4,636		1,648		4,600

 

 

Unless otherwise stated, the carrying amounts of financial instruments reflect their fair value. Under the fair value three-level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:

•                     Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date;

•                     Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

•                     Level 3: Unobservable inputs for the asset or liability.

There have been no Level 3 fair value measurements in the current or prior financial year.

                       

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

23 Financial instruments (continued)

 

Financial risk management objectives

 

The Group's senior management team manage the financial risks relating to the operations of each department.  These risks include market risk, credit risk and liquidity risk.

 

Where appropriate, the Group seeks to minimise the effects of market risks by using financial instruments to mitigate these risk exposures as appropriate.  The Group does not enter into or trade in financial instruments for speculative purposes.

 

(b)      Market risks

Foreign currency risk

The Group's activities expose it primarily to the financial risks of changes in foreign currency exchange rates.

 

As at 31 March 2024			Sterling		Euro		US Dollar		Total
			£'000		£'000		£'000		£'000
Trade receivables			415		82		2,425		2,922
Lease liabilities			(416)		-		-		(416) 416
Trade payables			(856)		-		(57)		(913)
Cash and cash equivalents			10,117		145		1,606		11,868
Short term investments: fixed term deposit			-		-		-		-
			9,260		227		3,974		13,461
Based on this exposure, had Pound Sterling weakened by 5% the Group's profit before tax would have been £210,050 lower. The percentage change is based on management's assessment of reasonable possible fluctuations.

 

As at 31 March 2023			Sterling		Euro		US Dollar		Total
			£'000		£'000		£'000		£'000
Trade receivables			400		378		1,827		2,605
Lease liabilities			(691)		-		-		(691)
Trade payables			(1,706)		(2)		(62)		(1,770)
Cash and cash equivalents			13,309		517		3,757		17,583
Short term investments: fixed term deposit			1,515		-		-		1,515
			12,827		893		5,522		19,242

 

Based on this exposure had Pound Sterling weakened by 5% the Group's profit before tax would have been £320,750 lower. The percentage change is based on management's assessment of reasonable possible fluctuations.

 

Interest rate risk

The Group is not exposed to any significant interest rate risk as borrowings are obtained at fixed rates.

 

Other market price risk

The Group is not exposed to any other significant market price risks.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

23      Financial instruments (continued)

(c)       Credit risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group's receivables from customers.

 

The Group's principal financial assets, other than business assets, are trade and other receivables and cash and cash equivalents.  These represent the Group's maximum exposure to credit risk in relation to financial assets.

 

 

			Group				Company
			Year ended		Year ended		Year ended ended		Year ended
			31 March		31 March		31 March		31 March
			2024		2023		2024		2023
			£'000		£'000		£'000		£'000
Trade and other receivables			2,921		2,605		3,072		2,930
Cash and cash equivalents			11,868		17,583		11,683		17,186
Short term investments			-		1,515		-		1,515
			14,789		21,703		14,755		21,631

 

 

Trade and other receivables

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer.

 

The balance presented in the balance sheet is net of allowances for doubtful receivables and returns, estimated by the Group's management based on prior experience and their assessment in the current economic climate. No adjustment has been estimated for the allowance for credit loss.

 

The Group's main concentration of credit risk relates to where a credit risk management approach is employed, including strict retention of title, customer stock holding visibility and the use of credit insurance.

 

The Group applies the IFRS 9 Financial Instruments simplified model of recognising lifetime expected credit losses for all trade receivables as these items do not have a significant financing component.

 

In measuring the expected credit losses, the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due.

 

The expected credit loss for trade receivables as at 31 March 2024 and 31 March 2023 were determined as follows:

 

 

Days past due	0		1-30		31-60		>60		Total
2024
Balance outstanding (£'000)	2,779		56		12		74		2,921
Historic loss rate	0%		0%		0%		0%
Estimated credit loss provision	0.25%		1%		1.5%		2%
Potential credit loss allowance (£'000)	7		1		0		1		9

 

 

Days past due	0		1-30		31-60		>60		Total
2023
Balance outstanding (£'000)	2,267		322		2		14		2,605
Historic loss rate	0%		0%		0%		0%
Estimated credit loss provision	0.25%		1%		1.5%		2%
Potential credit loss allowance (£'000)	6		3		0		0		9

 

Due to the immaterial nature of the assessed credit risk, no provision has been recognised for 31 March 2024 or 31 March 2023.

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

23      Financial instruments (continued)

 

(c)       Credit risk management (continued)

 

Cash

Cash is held with banks in the UK and US with high credit ratings and no financial loss due to the banks' failure to meet their contractual obligations is expected.

 

(d)      Liquidity risk management

The Group manages liquidity risk through the monitoring of forecast cash flows and through the use of bank loans when required, thereby maintaining sufficient liquid assets to fund its contractual obligations and maintain the ongoing development of the Group.

The table below provides an analysis of the Group's financial liabilities to be settled on a gross basis by relevant maturity categories from the balance sheet date to the contractual settlement date. The table includes both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

	1 year or		1 to		2 to		Over 5		Total
	less		2 years		5 years		years		liabilities
31 March 2024	£'000		£'000		£'000		£'000		£'000
Trade payables	913		-		-		-		913
Other payables	970		-		-		-		970
Lease liabilities	220		133		64		-		417
	2,103		133		64		-		2,300

                                                                                                                                                                       

 

	1 year or		1 to		2 to		Over 5		Total
	less		2 years		5 years		years		liabilities
31 March 2023	£'000		£'000		£'000		£'000		£'000
Trade payables	1,770		-		-		-		1,770
Other payables	2,834		230		-		-		3,064
Lease liabilities	293		269		143		-		705
	4,897		499		143		-		5,539

 

 

24      Retirement benefits

Contributions by Group companies are charged to the income statement as an expense as they fall due. The amount recognised as an expense in relation to defined contributions plans was £422,669 (2023: £417,521).

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

25      Share-based payments

 

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Charged to administration expenses:
Equity settled share-based payments							756		531
Cash settled share-based payments							(10)		43
Total share-based payments							746		574

 

During the year 26,550 share options were granted (2023: 797,500). The fair value of share options granted has been estimated at the date of the grant using the Black-Scholes model. Expected volatility in the current year was determined by calculating the historical volatility of the Group's share price over the previous year, which the Board consider to be representative of future volatility.

 

The following table gives the assumptions made in arriving at the share-based payment charge and the fair value:           

 

							Year ended		Year ended
							31 March		31 March
							2024		2023
Options issued							26,550		797,500
Weighted average share price (pence)							113		117
Weighted average exercise price (pence)							113		117
Expected volatility (%)							51.8%		63.4-67.1
Vesting period (years)							3-5		3-5
Option life (years)							10		10
Risk free rate (%)							5.0		0.75-4.25
Dividend yield (%)							1.0		1.0
Fair value at grant date (£'000)							11		399

 

 

 

Equity options in issue at 31 March 2023									5,199,000
Equity options issued in the year									26,550
Equity options realised in the year									(34,367)
Equity options forfeited in the year									-
Equity options in issue at 31 March 2024									5,191,183

 

As at 31 March 2024
Number of option awards in issue					2,459,633		2,676,550		55,000
Exercise price (pence)					48		112-118		155-158
Share price as at 31 March 2024 (pence)					59		59		59
Weighted average share price for year ended 31 March 2024 (pence)					92		92		92
Number of options available to exercise at 31 March 2024					692,966		Nil		Nil
Average period remaining of options in issue (months)					114		-		-

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

25      Share-based payments (continued)

 

During the year no cash settled options were granted (2023: 38,000). The fair value has been measured at the reporting date using the Black-Scholes model. Due to the proximity of the reporting date to the issue of equity settled share options granted, the model assumptions on volatility, risk free rate, and dividend yield used for the cash settled options do not materially differ from those in the table above.

 

							Year ended		Year ended
							31 March		31 March
							2024		2023
Options issued							-		38,000
Weighted average share price (pence)							-		115
Weighted average exercise price (pence)							-		115
Vesting period (years)							-		3-5
Option life (years)							-		10
Fair value at reporting date (£'000)							-		18

 

 

As at 31 March 2024
Number of awards in issue									118,500
Exercise price (pence)									115-118
Share price as at 31 March 2024 (pence)									59
Weighted average share price for year ended 31 March 2024 (pence)									92
Number of options available to exercise at 31 March 2024									nil

 

During the year a management long term incentive plan ('LTIP') was created inclusive of market based vesting conditions. To determine fair value, a Black-Scholes model was utilised for the EPS and Revenue tranches, and a Monte Carlo valuation for the TSR tranche. Further details can be found on the LTIP vesting criteria within the Remuneration Committee report.

 

Key assumptions in deriving the fair value charge:

 

As at 31 March 2024					EPS		Revenue		TSR
					Tranche		Tranche		Tranche
Number of awards granted					465,713		232,857		232,856
Fair value (pence per share granted)					108		108		46
Fair value (% of share price at grant date)					97.1%		97.1%		41.3%
Share price at grant date (pence)					111		111		111
Exercise price (pence) - UK participants					1		1		1
Exercise price (pence) - US participants					0		0		0
Risk free rate (%)					-		-		4.39
Dividend yield (%)					0.84		0.84		0.84
Expected term (years)					3		3		3
Volatility (Simulating TSR performance)									43.8%

 

Due to the inclusion of performance-based measures beyond only the passage of time, these performance-based employee share options have been treated as contingently issuable shares in the calculation of both basic and diluted earnings per share (note 29). The performance measures will be assessed (based on audited data) by the Remuneration Committee at the end of the 3-year period.

 

As part of the iTrinegy acquisition in April 2022, the 'Earn out' contingent consideration had the potential for issuance of 322,579 ordinary shares if revenue targets for the year ended 31 March 2024 had been met. This consideration for the vendors who remained employees was treated as remuneration and expensed through the income statement in line with IFRS2 Share based payment.

 

The revenue target for the year ended 31 March 2024 was not met, and as a result the contingent equity settled share based payment to the employee vendors was forfeited. As these options contained performance based measures beyond only the passage of time, they had been carried as contingently issuable shares. The forfeiture of these options does not therefore have any effect on the basic or diluted earnings per share calculations in note 29.

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

25      Share-based payments (continued)

 

							Year ended		Year ended
Share option reserve reconciliation							31 March		31 March
							2024		2023
							£'000		£'000
Opening balance							873		502
Equity settled share-based payments							756		531
Share options realised or forfeited							(195)		-
Deferred taxation on share options: charge recognised in equity							(20)		(160)
Total share option reserve							1,414		873

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

 

26      Group companies

 

                                                                Country of registration                                                                 % of direct shares held

Subsidiary undertakings                             or incorporation                                  Principal activity                                2024            2023           

 

Calnex Americas Corporation                            USA                                                    Sales and marketing                          100%           100%

                                                                                                                              Support services to

                                                                                                                              Calnex Solutions plc

 

iTrinegy Ltd                                                         UK                                                      Development and marketing                    -           100%

                     of software defined test

                     network technology

                                                                       

 

On 02 January 2024, iTrinegy Ltd, the only remaining entity following the post-acquisition hive up of the iTrinegy group, was dissolved. All trade and assets of iTrinegy Ltd were transferred to Calnex Solutions plc in the prior financial year.

 

27      Called up share capital

As at 31 March 2024, the Company had 87,558,302 (2023: 87,523,935) issued and fully paid Ordinary Shares held at a nominal value of 0.125p. During the year, exercise of share options resulted in 34,367 shares being issued.

 

 

									Group and Company
									31 March		31 March
									2024		2023
									£'000		£'000
Ordinary shares of 0.125p each									109		109
In issue at the start of the financial year									109		109
Share options exercised									0		-
In issue at end of the financial year									109		109

                       

 

28      Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of Ordinary Shares in issue during the year.

 

Diluted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the total of the weighted average number of Ordinary Shares in issue during the year and adjusting for the dilutive potential Ordinary Shares relating to share options and warrants.

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Profit after tax attributable to shareholders							40		5,911
Weighted average number of ordinary shares used in calculating:
Basic earnings per share							87,530		87,520
Diluted earnings per share							92,749		92,070
Earnings per share - basic (pence)							0.05		6.75
Earnings per share - diluted (pence)							0.04		6.42

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

29      Notes to the Statement of Cashflow

Reconciliation of changes in liabilities to cashflows arising from financing activities

					Lease
					liabilities		Total
					£'000		£'000
Balance at 31 March 2023					691		691
Lease repayment					(296)		(296)
Interest payments					20		20
Total changed from financing cashflows					(276)		(276)
Acquisition of new lease					-		-
Total other changes					-		-
Balance at 31 March 2024					415		415

 

30      Share schemes

The company operates a number of share incentive plans on behalf of its employees, details of which can be found in the Remuneration Committee report.  Included in these are the UK Share Incentive Plan and a cash settled phantom plan for Non-UK employees:

 

UK Employee Share Incentive Plan (UK SIP)

The UK SIP is an all-employee HMRC approved share plan open to employees based in the UK. Employees can elect to invest up to £150 each month (£1,800 per year), deducted from their gross salary, which is used to purchase shares at market value as "partnership" shares. The Company offers participants "matching" shares, which are subject to forfeiture for three years, on the basis of one free matching share for each partnership share purchased.

 

Non-UK Employee Incentive Plan

Under the UK SIP Plan, shares may only be awarded to UK based employees of the Group. As the Board also wanted to have the discretion to grant awards to contractors and overseas employees, it was necessary to set up a separate Non-UK Employee Incentive Plan under the rules of the Notional Plan (refer to the Remuneration Committee Report for more detail).  This Plan acts as a non-tax advantaged shadow equity interest plan to the UK SIP, mirroring the UK SIP awards for overseas employees and contractors with equity ownership being replaced by cash settlement.  The non-UK Employee Incentive plan is therefore available to employees in countries other than the UK, on a cash-settled basis. Employees can elect to save funds up to £150 each month (£1,800 per year), deducted from their pre-tax salary, for a 12-month period, and matched by the Group. In the cash settled model, these savings are then returned to the participant at the prevailing market share price at the end of the savings period, had the funds been used to purchase Calnex Solutions plc shares (returns being fully funded by the Group). Employees participating in this scheme during the period under review included those based in China, Hong Kong and India and the USA. The fair value assessment of this obligation at the year-end was £110,500 (2023: £180,000) and is included within other creditors.

 

 

31      Dividends

All dividends are determined and paid in Pound Sterling.

							Year ended		Year ended
							31 March		31 March
							2024		2023
							£'000		£'000
Declared and paid in the year
Final dividend 2022: 0.56p per share							-		490
Interim dividend 2023: 0.31p per share							-		271
Final dividend 2023: 0.62p per share							543		-
Interim dividend 2024: 0.31p per share							271		-
Proposed for approval at the Annual General Meeting (not recognised as a liability at 31 March 2024)
Final dividend 2024: 0.62p per share							543
The directors are proposing a final dividend with respect to the financial year ended 31 March 2024 of 0.62p per share, which will represent £542,861 of a dividend payment.  The final dividend will be proposed for approval at the Annual General Meeting in August 2024 and, if approved, will be paid on 30 August 2024 to all shareholders on the register as at close of business on 26 July 2024, the record date. The ex-dividend date will be 25 July 2024.

 

 

Notes to the Financial Statements continued

__________________________________________________________________________________________________________________

 

32      Alternative performance measures (APMs)

The performance of the Group is assessed using a variety of performance measures, including APMs which are presented to provide users with additional financial information that is regularly reviewed by the Board. These APMs are not defined under IFRS and therefore may not be directly comparable with similarly identified measures used by other companies.

	Year ended	Year ended
	31 March	31 March
	2024	2023
	£'000	£'000
Underlying EBITDA	80	7,234
Underlying EBITDA %	0%	29%
Capitalised R&D	5,579	4,523
Key performance measures:
Underlying EBITDA: EBITDA after charging R&D amortisation

 

Reconciliation of statutory figures to alternative performance measures - Income Statement
		FY24	FY23
		£000	£000
Revenue		16,274	27,449
Cost of sales		(4,327)	(6,977)
Gross Profit		11,947	20,472
Other income		797	751
Administrative expenses (excluding depreciation & amortisation)		(8,884)	(9,928)
EBITDA		3,860	11,295
Amortisation of development costs		(3,780)	(3,315)
Underlying EBITDA		80	7,980
Other depreciation & amortisation		(697)	(746)
Operating (Loss)/Profit		(617)	7,234
Interest received		357	-
Finance costs		(124)	(26)
(Loss)/Profit before tax		(384)	7,208
Tax		424	(1,297)
Profit for the year		40	5,911