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CYANCONNODE HOLDINGS PLC
ANNUAL REPORT AND ACCOUNTS 2017
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Contents
Our Business
02 CyanConnode at a glance
03 Highlights
05 Chairman’s Statement
Our Governance
11 Board of Directors
15 Strategic Report
25 Corporate Governance Statement
27 Directors’ Report
31 Directors’ Remuneration Report
38 Directors’ Responsibilities Statement
39 Independent Auditor’s Report
Our Financials
47 Consolidated Income Statement
47 Consolidated Statement of Comprehensive Income
48 Consolidated Balance Sheet
49 Consolidated Statement of Changes in Equity
50 Company Balance Sheet
51 Company Statement of Changes in Equity
52 Consolidated Cash Flow Statement
53 Company Cash Flow Statement
55 Notes to Financial Statements
84 Professional Advisers
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CyanConnode at a glance
World no.1 in narrowband mesh networks
CyanConnode is a world leader in the design and development of narrowband RF mesh networks
that enable Internet of Things (IoT) communications. With a wealth of expertise and experience in
smart technology, the Group provides customers with long-range, low-power, end-to-end networking
solutions and high-performance applications that help them enhance service delivery, improve
business efficiency and save energy.
CyanConnode’s optimised solutions provide narrowband RF network
technology, delivering
exceptional performance and lower total cost of ownership. Its optimised solutions include
hardware, software and network management and by understanding all the elements of the end-to-
end solution CyanConnode can increase the performance of its technology.
CyanConnode’s IPv6 solution is an easy to deploy standards-based wireless Neighbourhood Area
Network (NAN). It is a highly secure IP-based machine-to-machine platform that uses narrowband
radio mesh networks to create scalable, self-healing and self-configuring deployments that enable rapid
innovation for the implementation of third party applications.
Narrowband RF networks are low-power and best suited to applications requiring long-range and
reliable communications. CyanConnode’s solutions use sub GHz frequencies that maximise the range
of its low power network and provide excellent penetration through obstructions, such as buildings, in
smart metering deployments.
Highlights
Operational Highlights
• Order book increases during the period with orders won from a range of customers opening up
new territiories
• Board and management team streamlined and strengthened with the Group now firmly focused
on converting the order book into revenue
• New team recruited into India with extensive industry experience
•
Identifiable global new business pipeline grows at a rapid rate
• Expanded eco-system of partners across a number of territories
• Development and completion of new standards-based OmniIoT platform resulting in opporunity
for new revenue streams including licensing. First two orders received for this technology and deployment
of this the first order commenced in December 2017
Financial Highlights
• Revenue of £1.17m (2016: £1.82m) with the decrease directly as a result of the delay in deployment of a
large customer contract notified to the Company just before the period end
• Operating loss of £11.15m (2016: £7.94m)
- Significant investment in strengthening the team to prepare for deployment of orders and
research and development to complete development of new standards-based OmniIoT platform
• Research and development tax credit receivable increased to £1.4m (2016: £0.7m)
• Cash and cash equivalents of £5.39m (2016: £3.89m) following new equity funding during the period
of £11.3m before expenses
Post Year End Highlights
• New contract win from Larsen & Toubro for $3.2m
• The CESC Mysore contract in India has now officially passed the User Acceptance Testing milestone which
has resulted in a cash payment of £0.3m having been received
• The Company has taken positive steps to manage and reduce the cost base, with significant reductions
being made in the last six months. The cost base from July 2018 onwards is expected to be around £670k
per month, which is significantly lower than the average operating cost per month in 2017 of approximately
£808k
• R&D tax credit cash refund claim of £1.4m (2016: £0.7m) has been submitted to HMRC
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com 6
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Chairman’s Statement
Dear Shareholder
2017 has been a year during which we have both made significant
progress within the Company in terms of winning orders, growing our
global ecosystem of partners, expanding our geographical reach,
and putting in place a world class team to develop product and deliver
on the order book which has grown significantly during the period. We
have, however, also faced challenges within the Company as a result
of delays to contracts.
I was delighted to welcome Anil Daulani as Managing Director of
CyanConnode in India in September 2017, responsible for the overall
operations of the company in India. Anil joined from Tech Mahindra where he held the position of
Global Head & Vice President Utilities for the five years prior to joining CyanConnode, and is a highly
experienced executive with knowledge of both the energy sector and IT solutions.
He has well established strategic relationships with CEO/CXO officers at both public and private utilities, resulting in over $300
million contract wins. Anil brought with him Gautam Kumar, also from Tech Mahindra who has been appointed as Head of
Delivery, a role key to successful management of the delivery of projects won in India, and Manish Widhani who has been
appointed as Business Development Director. As a result of bringing in this highly experienced team, we are already seeing
significant inroads being made into the market in India. I am excited about working with them as the business grows further.
In addition to the large orders won during the period, and changes made within the organisation in India, the Company
has transformed its product, engineering and operational teams. Dr Graeme Milligan was announced as its Global Head of
Integration during 2017. Graeme provides technical and planning support for the seamless integration of customers’
devices and software with CyanConnode’s Omni IoT platform. In addition, Sylvain Vittecoq has been named Chief
Technology Officer for the Company. Sylvain joined Connode in 2011 as Development Manager and Architect and was
appointed Lead Design Authority and Delivery Manager for the narrowband mesh solution part of the UK Smart Metering
Implementation Program (“UKSMIP”). In his role as Chief Technology Officer at CyanConnode, Sylvain is responsible for the
overall technical vision and solution definition. The engineering team across the UK and Sweden was streamlined with Allan
Baig, who joined us in June 2017 from Landis+Gyr, now heading up the global engineering function.
As a result of the development of our new standards-based Omni IoT platform, we are in the process of delivering
product to the Indian state-owned utility Uttar Gujarat Vij Company Ltd (“UGVCL”), through Genus Power Infrastructures Ltd
(“Genus”), one of the largest meter manufacturers in India, a contract announced in July 2017. This new platform will be made
available globally with an official launch at Asia Utility Week in June 2018. We have no doubt it will be seen as a world-class
offering and will provide a strong revenue stream for the Company. We are also working with key meter manufacturers
to embed our new product into their meters making our solution a first choice for their communication needs. We have
seen a recent surge of activity in India directly due to this strategy. The new product is a multi-application, multi-
communication technology platform, which will support any application on any device over any communication technology. It flexibly
integrates both new and legacy applications, breaking down historical IT silos. This technology further provides the flexibility
to integrate narrowband RF networks with other communication technologies and legacy / abandoned systems. It provides a
reliable, pervasive, always-on network with government approved, critical infrastructure grade security which protects data and
restricts access to command and control functions. The rapidity of the deployment at UGVCL (compared to previous projects
in India) is testament to the quality of the solution which is highly appreciated by both the end utility customers as well as the
local partners such as Genus. Being standards-based, this technology now provides licensing opportunities, a number of
which are currently being explored by the Company which, if won, would add significant revenue streams to its business
model. We have no doubt it will be seen as a world-class offering.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Chairman’s Statement
We are also working with key meter manufacturers to embed our new product into their meters making our solution a first
choice for their communication needs. We have seen a recent surge of activity in India directly as a result of this strategy.
As highlighted above, we have also been faced with challenges during the year. In our trading update provided on 4
January 2018, the Company reported that it had been notified by a significant customer that deployment for one of the larger
contracts won in 2017 had been delayed for reasons outside the Company’s control. A regular dialogue has continued with
this customer since year end, including a senior management visit to their head office to meet the CEO. The customer has
reconfirmed that they will take delivery of the hardware that CyanConnode manufactured for them in Q4 2017, but currently
the Company has little visibility on timing of the first delivery. A further update on progress in relation to this will be provided as
soon as practicable.
As a result of the completion of the development of the new product, our streamlined organisation and improved processes
and procedures within the Company, we have made significant reductions to our operating costs since the period end.
During the period we were delighted to be named the fastest growing tech company in the Cambridge and East region of the
Deloitte UK Technology Fast 50 2017 while being ranked in 22nd place in the UK and believe this industry recognition highlights
the Company’s strong footing as we focus on deploying the orders won during 2017.
CyanConnode’s narrowband RF mesh technology is now at the forefront of communication technologies for the Internet of
Things (“IoT”) and we are working hard on further extending our market leading position while our realigned teams and Board
focus on converting our significant order book into revenue and receiving customer payments.
Operational Review
India
India continues to be a core market for CyanConnode and we are focused on establishing relationships with blue chip
entities that provide significant roll out opportunities as we become a critical part of their customer offering.
As already mentioned, Anil Daulani was hired as Managing Director India in order to grow the sales opportunities and
manage the sales and operations functions of the Company in India. Joining from Tech Mahindra, Anil has strong
relationships with both public and private utilities.
The combination of new and follow on orders in India reflects our growing reputation in the region.
As such, we were delighted with the $1.1m purchase order from Genus for a smart metering deployment of over 23,000
units for UGVCL. Genus is a tier 1 meter provider with the largest installed base in India and supplier to multiple utilities.
This was the first order from India for CyanConnode’s IPv6-6LoWPAN standards-based Advanced Metering Infrastructure
(“AMI”) solution for volume commercial deployment, highlighting the benefits of the Company’s range of solutions while
further expanding its product footprint within the region.
We were especially pleased with the latest follow on order from Larsen & Toubro (“L&T”), further expanding the deployment
of our smart metering solution at Tata Power Mumbai (“Tata Power”), bringing the total orders for this deployment to date to
25,100 units. Importantly, Tata Power now has over 2.6 million consumer customers, including over 670,000 in Mumbai and
we are working hard to further build on our strong relationship and take advantage of the significant scope to further grow our
footprint in the region.
We expect to see growing demand for these kinds of solutions, highlighting the importance of the Connode acquisition in 2016
and our growing product suite, which is enabling us to target more potential customers.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Chairman’s Statement
India (continued)
A number of projects being implemented in India continued during and post year end. Chamundeshwari Electricity Supply
Corporation Limited (“CESC”) in Mysore was the first of 14 smart grid pilots to be rolled out in 2017 under the Smart Grid Task
Force in India. The contract to install AMI technology was awarded to CyanConnode, through its partner Enzen, for the supply
of 21,000 smart meters and associated hardware and software. During implementation this project has become a valuable
reference for the wider Indian Smart Grid community and in July, Energy Minister DK Shivakumar inspected the first phase
and confirmed that CESC will expand its smart grid project to the entire city. Furthermore, in January 2018 CESC officially
confirmed that the formal milestone for User Acceptance Test was officially complete. Payment of £0.3m for this milestone has
since been received.
Rest of World
Whilst India has, and continues to be, a core growth market for the Company, we made significant strides in further
expanding our international reach with large orders received from a number of new territories.
The Company has generated revenues and been paid for system integration work during the first quarter of 2018 by
working with local tier 1 partners in three separate territories, including two new territories. These three commercial
opportunities could result in significant orders which the Company will continue to pursue. An additional benefit of this work
is that the Company has increased the number of successful integrations with tier 1 meter manufacturers, including some
manufacturers with which the Company has not previously been engaged.
As previously mentioned, our strong product range, which was enhanced by the acquisition of Connode in 2016, means that
the Company has been able to further grow its presence throughout Europe. We acquired a strong orderbook in the UK worth
an estimated £24m as part of the Connode acquisition which also provided the Company with our standards-based software
suite, IPv6-6LoWPAN. This is increasing in demand globally.
Our European reach grew further during the period as we received a purchase order for 100,000 software licenses from HM
Power Metering AB (“HM Power”) in Sweden for smart grid and IoT implementations. During the period 23,509 licenses of this
order were supplied to HM Power.
Board Changes
Harry Berry moved from a non-executive to executive director capacity as Chief Operating Officer (COO) during 2017.
Harry’s priority is to convert the order book (representing purchase orders received from customers but not yet delivered) into
successful customer deployment projects, which will result in significant revenue growth for the Company.
Pete Hutton was appointed to the Board of CyanConnode as a non-executive director. Pete joined from his most recent role
as a member of the executive committee at Cambridge based ARM Limited, the UK trading company of ARM Holdings plc.
He brings with him a wealth of practical experience in the IoT market, as well as strong relationships from C-Suite down with
Asian, European, and US technology companies.
Dr John Read, who has served on the Board of the Company since 2005 and served as Chairman of CyanConnode from 2007
to 2012, retired from the Company in June.
In addition to the above changes, Simon Smith, Chief Financial Officer, returned to a non-executive director role. The
Company also appointed David Bland as full time non-board Finance Director, taking over the day to day finance activities
from Simon.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Chairman’s Statement
Employees
Shortly before the start of 2017, the Company moved its UK office to new premises in Cambridge which are located
close to the Science Park to be connected to the hub of R&D in the region. 2017 was a year that saw streamlining of the
CyanConnode team as it evolves. We are proud of the world class talent brought into many areas of the business so
establishing a centre of excellence in Cambridge.
I would like to thank all our employees for their efforts during the period. I very much look forward to working closely with them
during the remainder of 2018 as we further expand our reach into existing and new territories and watch further development
of the Company at this exciting time.
The Board and management continue to invest in the Company with a total of £0.3m invested by the Board during 2017. Full
details of directors’ investments can be found in the Directors’ Remuneration Report on page 34.
Awards
During 2017 CyanConnode was lauded for its rapid growth and its technology awarded for innovation. In November,
CyanConnode was recognised as the fastest growing tech company in Cambridge and the East region in the Deloitte
UK Technology Fast 50 2017 and ranked in 22nd place overall. With more than 1,221% growth in 2016, CyanConnode
was also formally acknowledged as the fastest growing technology company in the UK Telecommunications sector. This
growth reflected the delivery of customer orders in India as well as the expansion of global reach and portfolio through the
acquisition of Connode, in July 2016.
In the same month, the Company was awarded ‘Innovation in Techno Commercials – Smart Metering’ at the Independent
Power Producers Association of India (“IPPAI”) Power Awards. CyanConnode has successfully deployed smart metering
solutions in India, a highly competitive business environment. The Company has built strong partner ecosystems in India,
helping to retain its position at the top of the industry, as well as to attract new customers.
CyanConnode’s innovation was recognised for its low implementation costs, successful customer deployments, including Tata
Power Mumbai, and scope for future development. The award was presented at the 18th Regulators & Policymakers Retreat
in Karnataka India, organised by IPPAI.
In September, at the Cambridge Independent Entrepreneurial Science & Technology Awards, CyanConnode was highly
commended in the cleantech, scale-up companies category.
Post Period End
Shortly before publication of this report, the Company announced it had received a further order from its partner L&T in
India for a smart metering deployment for the Indian state-owned utility Madhya Pradesh Paschim Kshetra Vidyut Vitaran
Company Ltd (“MPWZ”) worth $3.2m, to commence deployment in the current financial year. The Company has already
delivered 25,100 units in other regions of India since 2014. Importantly, this is for the IPv6-6LoWPAN standards-based AMI
solution, highlighting the strong value proposition of the Company’s advanced IPv6 standards-based technology, which is now
becoming the minimum requirement in certain territories around the World.
Since the period end £0.5m has been invoiced, and revenue recognised relating to the UK SMIP. During the remainder of 2018,
the Company expects to further benefit from the roll-out of the UK SMIP.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Chairman’s Statement
Post Period End (continued)
We were delighted to have confirmation of an important milestone in our CESC project post the period end. The milestone
which was completed in January 2018 was for the User Acceptance Test and payment of £0.3m has since been received for
this milestone.
In addition, the Company has made an application for £1.4m in tax credits, which it expects to receive in the coming months
following HMRC’s approval. The Company has also been focused on optimising its cost base for delivery of future contracts
and required development for its products and has now reduced its ongoing cost base, such that in the second half of the year
this will now be approximately £670,000 per month, reduced from over £800,000 during 2017.
Outlook
This was an important period for the Company with the size and scale of orders won and growing geographic reach
highlighting the strength of our proposition as well as highlighting a number of challenges to be considered and overcome as
we grow.
The key focus remains on delivery of a number of high value orders to ensure we convert these orders into revenue as our
model evolves towards a cash generative business that can support ongoing operations, development and profitability. We
are extremely excited by the global opportunities and scalability of our combined hardware and software solutions and look
forward to building on our relationships with existing and new clients. Furthermore, our team continues to further enhance our
product suite, providing higher margin opportunities while widening our potential customer base.
As a Board, we continue to closely monitor the cash resources available to the business in order to ensure adequate funding is
in place to meet the requirements of the business. During 2017, we received £11.3m (before expenses) of equity funding. We
continue to work on securing additional funding that will be required during 2018, especially as we start to deliver on orders
which are expected to require upfront working capital investment. This funding could include one or a mix of working capital
facilities, strategic corporate investments, additional equity funding and licensing deals for our new Omni IoT platform. We
remain grateful to our supportive shareholder base which has funded the Company to date, including the two fundraises from
last year.
In addition to the licensing opportunities referenced above, some of which are in discussion at the time of this report, we
expect the new Omni IoT platform to present a large growth in opportunities as can be seen by the two recent orders won in
India (UGVCL and Indore), and many of the tenders coming out in India.
The combination of new product development, continued roll outs and expansion into new territories will provide foundations
for the Company to remain at the forefront of the markets in which it operates and we remain passionate about our ability to
turn opportunities into revenue. As a Board and management team we continue to heavily invest in the Company with both our
time and CyanConnode share purchases and are working hard to provide returns for all of our shareholders.
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John Cronin
Executive Chairman
18 May 2018
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Board of Directors
John Cronin - Executive Chairman
John joined the Board in March 2012 initially as a Non-Executive Director,
and is now Executive Chairman of CyanConnode. He is a highly successful
Chairman, CEO and MD in International markets (Europe, Americas, SE. Asia) in the
Technology and Telecommunications sector
IOT,
including, Smart Metering,
Software companies, Infrastructure, Hardware Utilities and Managed Services.
John is a seasoned and successful professional with experience in raising
equity, debt facility and vendor finance funding as well as setting up operations in
international markets. He has created significant value for shareholders with four
company exits in Picochip, Azure Solutions, i2 and Netsource Europe. He has
been instrumental in mergers and acquisitions worldwide, including Cyan’s recent
acquisition of Connode.
John’s contribution to high-tech industries includes being Chairman, CEO, NED, or adviser to Antenova, GCI Com, Aria
networks, Picochip, Arqiva, i2, Cambridge Networks, Kast, Azure, Next2Friends, Bailey Fisher, Netsource, Mercury (C&W), BT
and providing independent consultancy to private equity and VC firms.
Harry Berry - Chief Operating Officer
Harry joined the Board in May 2014. He has over 30 years’ experience in the
technology and telecommunications industries and has held a wide range of
senior positions and responsibilities in sales, global product management, change
management, and development programs.
joined BT
in 1970 and was
Harry
the creation of BT
Brightstar, a corporate incubator focussing on BT’s R&D portfolio to create technology
venturing. Harry is currently European Partner with New Venture Partners, a
global venture capital firm dedicated to corporate technology spinouts with over $700
million under management.
responsible
for
He is also the Chairman of the Eastern Enterprise Hub, which is an organisation
responsible for delivering entrepreneurship into academic establishments working
with the University Campus Suffolk and colleges across the eastern region of England. Harry is also the Chairman of New
Anglia Capital, which helps to provide funding for early stage businesses.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Board of Directors
Simon Smith - Non-Executive Director
Simon joined the Company as a Non-Executive Director in March 2010 and was
appointed CFO in October 2013. He is an experienced financial executive with over
twenty five years’ experience in the Software and Semiconductor sectors.
independent adviser and
to establishing himself as an
Prior
technology
company Board member in the period from 2007 to 2013, Simon had held the
position of Chief Financial Officer/Director of Finance at multi-national businesses
in both the UK and USA since 1997 and his experiences include multiple business
acquisitions/disposals, fund raising, business planning, cash management and
customer contract negotiation.
In
the period
from 2001
to 2007, he was Chief Financial Officer at
semiconductor IP company Elixent, which was venture capital funded and sold to Panasonic Japan. In the period from
1997 to 2001, he worked at the Silicon Valley (USA) software company McAfee as Senior Director of Finance and then
CFO of their Software as a Service (SaaS) subsidiary myCIO.com with McAfee acquiring 14 companies during this
period. Before 1997, Simon was a Management Consultant in both the UK and USA where he managed a team of
consultants on multiple implementations of ERP systems. Simon qualified with the Institute of Chartered Accountants in
England & Wales in 1991.
Paul Ratcliff - Non-Executive Director
With strong analytical skills, Paul started his career working in various IT,
marketing and product development roles in large corporates before becoming a
senior consultant for Coopers & Lybrand, within its London-based business
information management practice. He is a now multi-disciplined, entrepreneur with a
wealth of practical experience in creating shareholder value by growing businesses
and has been involved in a number of corporate transactions resulting in premium
returns for investors. This includes the founding of his own software and services
CRM company which he later sold for a substantial sum to a UK plc.
A highly successful Chairman and director in the SME environment, Paul currently
holds non-executive Chairman and Non-Executive Director positions for a number
of companies operating in a range of sectors including IT, managed services and
software. Paul holds an MBA (with Distinction) from the University of Warwick.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Board of Directors
Peter Hutton – Non-Executive Director
Pete Hutton joined the board in April 2017 from ARM Limited, the UK trading
subsidiary of ARM Holdings plc, based in Cambridge. He was most recently
president of product groups at ARM, where he had P&L ownership of all product
development, marketing and licensing. This covered 3,500 staff in more than 25
global locations, working closely with a range of global partners. During his time in this
role, revenue increased by approximately 50% (> $500m). Prior to this role, Pete held
senior positions within other ARM divisions. Before joining ARM his roles included
running corporate engineering for Wolfson, general manager for processors at ARC
international and a group director for Cadence.
Pete is skilled in long term strategy and medium term planning and understands
the need to balance these with focusing on short term execution. He is also
experienced in software, hardware and Intellectual Property management. He is knowledgeable in the mobile computing,
consumer, enterprise and IoT markets and has good relationships with C-suite executives with Asian, European, and US
technology companies.
Heather Peacock - Company Secretary
Heather joined the Company in November 2008 initially as Financial Controller,
bringing 20 years’ senior financial management and business experience gained
in a variety of companies. These include large multinationals and smaller, listed
start-ups, both in the UK and in South Africa. Being qualified through the ICSA
Heather was appointed as Company Secretary in September 2013, and works
closely with the Board and advisers to ensure compliance with all Corporate Governance
matters associated with the Company. Heather also manages the global HR and legal
functions at CyanConnode.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Strategic Report
Statement of scope
This Strategic Report has been prepared solely to provide additional information for shareholders to assess the Company’s
strategies and the potential for those strategies to succeed.
The Strategic Report contains certain forward-looking statements. These statements are made by the directors in good
faith based on the information available to them up to the time of their approval of this report. Such statements should be
treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such
forward-looking information.
The directors, in preparing this Strategic Report, have complied with s414C of the Companies Act 2006.
This Strategic Report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters that
are significant to CyanConnode Holdings plc and its subsidiary undertakings when viewed as a complete enterprise.
Principal Activity and Review of the Business
The principal activity of the Group during the year was specialisation in the development of wireless monitoring and control
products for smart metering infrastructure, intelligent lighting and wider IoT applications. The principal activity of the Company
is that of a holding company. A more detailed review of the business can be found in the Chairman’s Statement.
Overview
CyanConnode is a world leader in the design and development of narrowband RF mesh networks, with an installed base of
over 800,000 devices globally. CyanConnode’s award-winning narrowband Omni IoT platform enables machine-to-machine
communication for any smart city or IoT application. Its solutions use license free, regulated ISM bands that support
interoperability between devices as well as connectivity in hard to reach places.
Within the energy sector, CyanConnode’s Omni IoT platform enables AMI solutions, providing highly secure communication
between utilities and consumers across the globe. Its proven technology is part of the SMIP as well as across a number of
other projects being deployed in other territories worldwide.
Narrowband technology uses considerably less power and is less spectrum-intensive than technologies using higher
frequencies, and therefore provides more capacity at lower cost. As the IoT market evolves, the co-existence of applications
on the same network is essential for network efficiency as it will support multiple applications on finite, valuable spectrum.
CyanConnode’s standards-based communication platform is an enabling technology, delivered through a collaborative
engagement model. The company has established a local eco-system of partners, encompassing multiple meter
manufacturers, system integrators and utilities, to support the transfer of skills and experience to facilitate customer
ownership and generate local wealth.
The commercial opportunity for the Company’s solutions is very strong. However, we have also faced challenges
within the Company as a result of delays to contracts. The Company is operating principally in emerging markets where the
procurement and deployment processes are both complicated and highly dynamic. The Company endeavours to mitigate the
risk of delays through a portfolio of contracts across different, unconnected markets. Additionally, both smart metering and
IoT solutions are still in the early stages of global deployment and delays in contract award and rollout are frequent as the end
customers struggle to make and implement decisions that can significantly impact their business processes as well as the
relationships with their end customers.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Strategic Report
Strategy and Objectives
CyanConnode’s Omni IoT platform is an enabling technology for service companies that want to systemise operations,
improving customer experience and reducing cost to serve. Its award-winning platform provides secure machine-to-machine
communication, globally.
CyanConnode is currently focused on the global smart metering and intelligent lighting control markets, as its technology is
ideally suited to both. Furthermore, these markets offer vast opportunity for the Company’s continued growth as well as a
gateway to expand into other industrial IoT markets.
CyanConnode’s enabling technology is delivered through a collaborative engagement model that supports the transfer
of skills and experience to facilitate customer ownership and generate local wealth. The Company has established, and
continues to strengthen, its global partner eco-systems of tier 1 meter manufacturers and system integrators.
The Company’s aim is to continue to grow a world class organisation with global knowledge and capacity that supports
sustainable value through:
•
Excellent customer service delivering customer satisfaction through the implementation of successful smart
metering projects
• Delivery of order book
• Recognising recurring revenue from multi-year software licenses as well as support and maintenance contracts
• Continuing to develop a strong, global partner eco-system to:
- Facilitate conversion of global sales pipeline
- Increase market penetration in existing and new geographic regions
• Creating new enabling approaches including gas and water metering as well as applications in the industrial
IoT market
Business Model
Smart Electricity Metering
CyanConnode has the technology and experience to support resilient networks that scale from single application networks
to multi-application, city-wide implementations. Its AMI technology enhances utilities’ service delivery, improves business
efficiency and saves energy through improved revenue collection and cash flow.
CyanConnode’s business model is based on generating revenues through hardware, integration services and support
followed by commencement of long-term software license payments. These recurring revenues provide high levels of
visibility while also enabling further margin improvements.
Through the implementation of smart metering projects, the company’s revenue is derived from the following principal
elements:
• Hardware – a communication module, which is integrated into every electricity meter and data concentrator
unit/gateway that collects the data from the meter and sends it back to the utility via CyanConnode’s Head
End Server (HES).
•
•
Software (HES) – charged on a per meter per year basis through multiyear contracts
Support and maintenance – from integration services to annual maintenance contracts
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
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Smart Electricity Metering (continued)
As markets evolve and the size of smart metering implementations increases, CyanConnode will offer partners a
licensing model, which will enable them to take over local manufacture of the hardware. This model is dependent on the partner
having the capabilities, including experience and certifications, to deliver CyanConnode’s integrated solution.
Delivery Process
CyanConnode’s technology is delivered in a phased approach that involves engineering, system integration and operations.
At each stage there is site acceptance testing (SAT), which will require CyanConnode’s partner and/or customer to determine
whether their requirements have been met.
SAT-0 Laboratory Proof of Concept, with restricted functionality
The objective of SAT-0 is to provide customers with a tangible demonstration of the capability of CyanConnode’s technology.
This stage includes a small number of units, such as smart meters operating in a laboratory environment. SAT-0 should be
completed within 1-2 months of the project start date.
SAT-1 Limited field trial
The objective of SAT-1 is allow customers to further evaluate the technology with 50 devices (meters) being deployed in a
realistic field environment. SAT1 is also to prepare meters and enterprise environment.
SAT-2 Preproduction trial with full functionality
SAT-2 is the installation of 2,000 meters at consumer premises, with full functionality supported through the enterprise
environment. The system will be observed for a period of 1-2 months from installation before further rollout.
Once each user acceptance test has been completed the next phase of the project commences. However, the adoption
of new technology may present operational challenges to both partners and customers, which could impact on delivery
schedules particularly during initial roll outs.
Market Opportunity
Growing populations and global urbanisation continue to drive the demand for energy and other essential services.
Governments, city authorities and businesses are seeking ways of achieving more efficient management of devices such as
energy meters. In addition, energy distributors require consumer data to help to reduce technical and commercial losses,
enable demand side management and provide enhanced customer service.
The global smart metering market is estimated to grow from $12.79bn in 2017 to $19.98bn by 2019 1. During 2017
CyanConnode has continued its positive momentum, expanding its geographic reach and increasing the scale of orders
won. Significant orders for smart metering deployments in new and existing territories have also highlighted the strength of
CyanConnode’s value proposition within the global smart metering sector.
The size of the markets the Company operates in and the opportunity from existing contract wins provide CyanConnode with
substantial scope for follow on orders. Furthermore, the growing number of successful meter integrations with tier 1 meter
manufacturers and the success of existing smart metering implementations increases the prospect of repeat business.
At the time of this report, the Company contracted a total of 3.4m end points of which 0.9m had been deployed.
1https://www.marketsandmarkets.com/PressReleases/smart-meter.asp
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Strategic Report
Smart Lighting Control
The business model for smart lighting is very similar to that of smart electricity metering. CyanConnode’s enabling technology
is integrated with a dimmable lighting ballast that is built into public street lights, supporting intelligent lighting management to
save energy and costs. These commonalities enable CyanConnode to benefit from economies of scale in development and
manufacturing.
The revenue model is the same as with metering, with revenues derived from hardware and recurring revenue from software
licenses (charged on a per lamp per year basis) and maintenance contracts.
Internet of Things/Smart Cities
According to a new report the global industrial IoT market is expected to reach $933.62bn by 2025 . The growing demand
and adoption of cloud computing, coupled with the scalability of IPv6-based solutions are predicted to drive the market over
the forecast period. Through the acquisition of Connode in 2016, CyanConnode offers IPv6 6LoWPAN technology that can
be deployed as a city-wide IoT network ready to connect millions of devices, such as smart meters and smart street lights.
IoT infrastructure has many challenges, one of which is that organisations have end-to-end, silo driven business models that
use a separate communication platform for each application. CyanConnode’s new Omni IoT platform supports multiple IoT
business applications and provides the flexibility to integrate narrowband RF network with other communication technologies
and legacy/abandoned systems.
The Omni IoT platform allows customers to mix and match multiple communication systems on a single network
management system. This scalable, future-proof technology enables cost effective network solutions that provide
government approved critical grade security.
Revenues are derived from hardware and recurring revenue from software licenses (charged on a per device per year basis)
and maintenance contracts.
Competitive Position
To date, CyanConnode’s solutions have had over £34 million of product development by very capable engineering teams
based in Cambridge, UK and Stockholm, Sweden. This has created substantial barriers to entry to new competitors as
these solutions solve large, complex, cross domain problems. The necessary skills and experience are considerable; they
include RF hardware design, regulatory approval, mesh network firmware design, communications infrastructure
development, meter protocol, plus interoperability techniques, security, enterprise software and scalability and robustness.
CyanConnode’s solutions have been mainly designed and built for emerging markets, whilst its competitors have
generally chosen Western markets. They can be integrated into new meters or retrofitted to existing meter infrastructure to
avoid rip-and-replace costs. Its solutions are inherently low power and this has helped CyanConnode to achieve a highly
competitive price point for emerging market mass adoption. The CyanConnode mesh network is self-forming and self-healing,
which results in significant time (and therefore cost) savings for customers. Its DCU/gateway has been designed to be highly
functional, but in a small package which results in a competitive price point. CyanConnode offers sub-GHz wireless mesh
solutions that are innately suited to dense housing conditions typical of emerging markets. The network uses license free ISM
(Industrial, Scientific and Medical) radio bands, which means that CyanConnode’s customers do not need to invest in or pay
for costly tower structures to carry the radio signals.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Strategic Report
Operational Review
Key Financials
Substantial commercial orders were won during the period, however the revenue and cash generated therefrom during the
period remained well below the level required to sustain the business. In 2017, the Company raised £11.3 million before
expenses, by way of share placings. This funding provided the Company incremental financial resources for growth, general
working capital, customer and partner development activities in India and other markets. A substantial amount of this funding
was used to develop the Company’s full standards-based technology platform following the acquisition of Connode in 2016.
A summary of the key financial results is set out in the table below and discussed in this section.
Revenue
Research and
development
expenditure
Operating loss
Cash and cash
equivalents
Average monthly
operating cash outflow
Average employee
headcount
2017
£’000
1,171
4,148
11,153
5,394
808
2017
Number
54
2016
£’000
1,823
2,913
7,939
3,893
588
2016
Number
44
2015
£’000
272
2,038
4,907
2,461
438
2015
Number
31
2014
£’000
194
1,359
3,260
2,344
253
2014
Number
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Key Performance Indicators (KPIs)
The key performance indicators for the Group are as set out in the key financial results table above. During 2017
revenues decreased from 2016 and the operating losses continued to be significant and have again increased substantially
from 2016 to 2017. As can be seen from the table, CyanConnode has significantly increased investment in R&D in order to
develop the full standards-based Omni IoT technology platform using the Connode IPv6 technology. In addition the Company’s
system integration and delivery teams grew in order to deliver on the Company’s growing order book. The Group’s average
headcount has increased from 44 in 2016 to 54 in 2017. The main increases in headcount related to the research and
development and delivery teams.
The Group’s long-term strategy is to deliver shareholder returns by generating revenue and moving into profitability. We seek
to do this by focusing our investment on emerging but fast growing markets where we believe we can reach a market
leading position with our technology. Management use KPIs to track business performance, to understand general trends and
to consider whether we are meeting our strategic objectives. As we grow we intend to review these KPIs and adapt them as
appropriate, in response to how our business and strategy evolves.
The Group’s key focus for 2018 will be streamlining its process from order to delivery and converting its large order book into
revenues. A further focus will be converting the large pipeline of opportunities into successful orders and eventually cash, also
following a streamlined process.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Strategic Report
Going Concern
To assess the ability of CyanConnode Holdings plc (“Group”) to continue as a going concern, the directors have prepared a
business plan and cash flow forecast for the period to 30 June 2019 which, together, represent the directors’ best estimate of
the future development of the Group. The forecast contains certain assumptions, the most significant of which are the level
and timing of sales and the gross margin on those sales, together with the ability to secure additional finance in order to fund
working capital within the next 12 months.
The directors have recognised that the Group is trading principally in emerging country markets. These markets have an
inherent level of uncertainty associated with them and this may result in the predicted level of sales not being achieved and/
or the timing of orders being delayed, as has been the case for the Group in the past. The directors have taken reasonable
steps to satisfy themselves about the robustness of sales forecasts but acknowledge that the timing of customer orders in
the Group’s target markets is fundamentally uncertain. This may impact both the Group’s ability to generate positive cash flow
and to raise new finance. Consequently, there is a significant risk that the level of sales achieved is materially lower than the
forecast, may be significantly delayed or at materially lower margins. This constitutes a material uncertainty.
The directors’ cash flow forecast includes an assumption that further finance will need to be raised within the next 12
months. Having consulted with stakeholders, the directors consider that the Group has a realistic opportunity to secure the
additional funding that will be required. There remains, however, a significant risk that the required level of new funding will not
be received in the necessary timescales or at all. This constitutes a material uncertainty.
There is a material uncertainty related to the assumptions described above which may cast significant doubt on the Group
and Company’s ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge
its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if
the Group or Company was unable to continue as a going concern. In the event the Group and Company ceased to be a
going concern, the adjustments would include writing down the carrying value of assets, including stocks, to their recoverable
amount and providing for any further liabilities that might arise.
Notwithstanding the material uncertainties described above, on the basis of sensitivities applied to the cash flow forecast and
that further finance can be raised in the relevant timescale, the directors have a reasonable expectation that the Company and
Group can continue to meet its liabilities as they fall due, for a period of at least 12 months from the date of approval of this
report.
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Principal Risks and Uncertainties
The Group is exposed to a number of risks and uncertainties. Those that are considered to be key to the Group are set out
in the following table:
Area of Risk
Description
Mitigating Activity
Funding
•
• We have a history of losses, anticipate
continued losses, which would lead to
negative operating cash flow in future
periods, and we may not achieve or
sustain profitability on a quarterly or
annual basis in the near term. The
Group’s ability to continue as a going
concern is subject to significant risks
and uncertainty. We may not be able to
secure additional financing on favourable
terms, or at all, to meet our future capital
needs. Cash flow projections have
highlighted a need for further funding
during the 12 months following sign off
of accounts.
The Directors regularly monitor the
financing needs of the Group and react
quickly should further funding be
required. The Group actively
communicates with its investors and
potential investors, including through its
nominated adviser and brokers, in order
to identify potential sources of further
investment. In addition to equity
funding, the Directors are in dialogue
with a number of banks to investigate
working capital facilities. A number of
licensing opportunities are also being
explored as it would be a significant
source of funding should any of these
opportunities be won.
Growth Strategy
•
The market for our products and
services, and smart grid and smart
lighting technology generally, is still
developing. If the market develops less
extensively or more slowly than we
expect, our business could be harmed.
• CyanConnode continues to adopt a
diversification strategy. This helps to
identify targets in additional
emerging markets, allowing for a much
wider customer base and less pressure
on one specific market/country.
Macro-economic
conditions and political risk
•
• Sales cycles to our customers and end
utilities in emerging markets can be
lengthy and unpredictable and require
significant employee time and financial
resources with no assurances that a
prospective customer will select our
products and services.
•
• CyanConnode sales and profits may be
impacted by spending slowdowns and/
or increasing inflationary pressures in
key territories.
The territories in which we operate are
subject to political risk whereby
decisions by national or state
governments may impact our ability to
effectively trade in these markets.
The UK is now in the process of exiting
the European Union and this process
creates uncertainty for companies
based in the UK and exporting into other
markets.
•
The Group maintains close
relationships with its partners and
potential end customers in order to
respond to the changing demands of
the market and maximise contract wins.
The Group have employed world class
experts in their fields in many areas of
the business to respond to market
requirements and anticipate the
changing demands of the market.
• Market data is regularly analysed to
provide valuable information on demand
changes, allowing the Company to react
according to these changes.
• We mitigate the political risk through the
effective use of local partners in each
territory who act as agents or resellers of
CyanConnode’s technology.
• Other than CyanConnode in Sweden,
which is part of the European Union,
the Group does not trade substantially
with any other EU country and therefore
the outcome of the exit from the EU is
not expected to be significant. Cyan-
Connode Sweden’s main customer is
Toshiba for the UK SMIP contract, which
is billed and paid in UK Sterling.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Strategic Report
Area of Risk
Description
Mitigating Activity
Competitive Environment
•
Laws & Regulations
•
The Group’s products compete for
technological superiority over those of
competitors. There is a risk that new
product developments by
competitors diminish the
attractiveness of the Group’s
products, reducing sales.
The Group and its customers operate in
a highly regulated business
environment and changes in
regulation could impose costs on us or
make our products less
economical.
•
•
•
Business Continuity
People
• Some of the markets we are targeting
and have entered such as Iran are highly
complex in terms of regulations to be
followed as a UK exporter.
• CyanConnode does not control
certain critical aspects of the
manufacture of its products and
depend on a limited number of
contract manufacturers.
• As with many technology businesses,
the Group is dependent on a relatively
small number of highly skilled staff. The
ability of the Group to retain and
motivate its key staff is a key business
risk.
• Being a small company there is the
added challenge of requiring staff to be
skilled across a number of areas, with
flexibility and agility to deliver results for
customers.
The Group continues to make a
substantial investment in research and
development to ensure that its products
provide the best possible
match to potential customers’
requirements.
The design and engineering team have
a proven track record in introducing new
products that meet the requirements
and regulations of diverse markets we
operate in.
The Company has taken specialist legal
advice on trading with Iran and will
continue to do so in entering other new
markets.
• Strong relationships are maintained with
several suppliers. This helps ensure that
any issues are communicated and can
be mitigated where possible in good
time, as well as providing the
opportunity to switch supplier at short
notice.
• CyanConnode provides well-
structured and competitive reward and
benefit packages that ensure our ability
to attract and retain employees.
Training and development
opportunities are offered to support staff
in their careers.
•
Cyber Risk
• Disruption to or penetration of our
•
information technology platforms could
have a material adverse impact on the
Group.
Technology resources are continuously
monitored by appropriately trained staff,
which provide and maintain process
controls aimed at securing our networks
and data. In recent years, we
commissioned external agencies to
carry out penetration testing of our
network in order to ensure we meet
industry best practice and we believe
that this meets the needs of the
business today and we plan to repeat
this on an annual basis.
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Area of Risk
Description
Mitigating Activity
Currency Exchange
• We are exposed to both
• Whilst most of CyanConnode UK
translation and transaction risk. In
addition transactions are carried out in
currencies other than UK Sterling.
customers are invoiced in US Dollars,
we also contract the manufacture of
CyanConnode’s hardware in US
Dollars and this partially offsets the risk.
CyanConnode India operates mainly in
Rupees. There is minimal currency risk
due to customers paying and suppliers
being paid in the same currency.
CyanConnode Sweden mainly operates
in either SEK or Euro with customers
paying and suppliers being paid in the
same currency. There are limited
manufacturing costs in Sweden as it
mainly supplies software. Its prime
customer is the UK smart metering
project that is paid in UK Sterling.
Financial Risk Management Objectives and Policies
Details of the Group’s financial risk management objectives and policies are disclosed in note 22 to the financial statements.
Dividends
The directors do not recommend the payment of a dividend (2016: £nil). The Group has no plans to adopt a dividend policy
in the immediate future and all funds generated by the Group will be invested in the further development of the business, as is
normal for a company operating in this industry sector and at CyanConnode’s stage of its development.
Employee Matters
Headcount
The average number of employees increased during 2017 from 44 to 54. The management, development and delivery of
innovative technologies is made possible through the contribution of our highly-skilled people, operating in three different
territories in the world, namely the UK, Sweden and India. During the year the Company continued the recruitment of
employees to be based locally on the ground in India to support local customers and partners, and recruited a Managing
Director to manage the subsidiary in India. In addition the engineering and delivery teams increased to deliver a world-class
organisation to execute the growing order book. The Company intends to closely monitor the requirement for employees by
region to ensure we have an appropriate presence to support our business, suppliers and customers, while at the same time
managing its resources.
Diversity
CyanConnode is a multicultural, global organisation and we are committed to providing equal opportunities for training,
career development and promotion to all employees, regardless of any physical disability, gender, religion, race or nationality.
Women comprised 40% of the management team that reports to the Board, or 2 out of 5 employees (2016: 17%, or 1 out of 6
employees) and at Board level 0% (2016: 0%). At year end women comprised 15% of total employees across the Group (2016:
13%) or 9 out of a total of 61 employees (2016: 7 out of 52).
Employment Policy
Applications for vacancies are considered based on capabilities and reflecting the requirements of the role, and resources for
development and training are made available to all employees. In the event of members of staff becoming disabled, every effort
is made to ensure that their employment with the Group continues and that appropriate training is arranged.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Strategic Report
Environmental Policy
CyanConnode recognises that it has a moral duty of care as well as a legal obligation to the environment and is committed to
minimising the impact of its activities on the environment. Taking a responsible approach to the environment is good business
practice as well as essential in helping the world to tackle climate change issues. Our technology is also at the heart of new
strategies that will deal with other environmental and resource challenges such as the management of smart grids and water
resources.
The key points of CyanConnode’s environmental strategy are to:
• Minimise waste by evaluating operations and ensuring they are as efficient as possible.
• Use products efficiently and actively promote recycling both internally and amongst its customers and suppliers.
•
Source and promote a product range to minimise the environmental impact of any production and distribution.
• Meet or exceed all the environmental legislation that relates to the Company.
•
•
Encourage employees to use alternative methods of transport to work other than motor vehicles.
In territories other than the UK, building out local workforces to reduce carbon footprint with less flying.
CyanConnode strives on encouraging its members of staff to commit to the environment and works with suppliers who:
•
•
are certified ISO14001
or work towards the protection of the environment
Responsibility:
The ultimate responsibility for CyanConnode’s environmental policy lies with its Board of Directors. The policy is communicated
to all employees within the Company via email. It is the responsibility of each employee to follow the rules and procedures
the Company has set for its environmental work. The purchasing department is responsible for ensuring all environmental
considerations and policies are followed in all purchasing and procurement for the Company.
Health and Safety Management
The Group operates predominantly in an industry and environments which are considered relatively low risk from a health
and safety perspective. However the health and safety and welfare of CyanConnode’s employees, contractors and visitors
are a priority in Group workplaces worldwide. There are health and safety risks attached to some of the work undertaken by
employees and to travel to territories in which CyanConnode is currently engaging in business. Electrical safety training is
given to all new employees and contractors upon joining the Company. Travel advice is always checked on the FCO website
prior to employees travelling to any region, and if a region is considered unsafe employees will not be permitted to travel there.
Employees are advised to be vigilant while travelling, and keep in regular contact with the CyanConnode Head Office in
Cambridge.
CyanConnode expects the highest of ethical standards of all its employees and its policies and procedures support its stated
aim of acting with integrity in all aspects of its operations. The Board as a whole is responsible for health and safety matters.
CyanConnode has a Health and Safety Manager who manages the health and safety of the Company on a day to day basis
taking advice from an external firm of health and safety consultants. The Board discusses health and safety at all monthly
Board meetings. All accidents and incidents are reported to them.
Approved by the Board of Directors and signed on behalf of the Board.
John Cronin
Executive Chairman
18 May 2018
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com 26
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Corporate Governance Statement
Whilst companies whose shares are listed on AIM are not formally required to comply with the Combined Code, the Board
supports the Code and applies it in so far as is practicable and appropriate for a public Company of its size. The Board is
committed to ensuring that high standards of corporate governance are maintained. In addition the Company follows the
requirements of the Corporate Governance Code for Small and Mid-Sized Quoted Companies 2013 published by the Quoted
Companies Alliance from time to time, to the extent the directors consider it appropriate given the Company’s size and nature.
Board Composition and Responsibility
At 31 December 2017 the Board comprised five directors, including the Executive Chairman, the Chief Operating Officer and
three independent non-executive directors. Four of the five directors in post at 31 December 2017 had served throughout the
year.
Name
Role
Executive
John Cronin
Harry Berry
Non-Executive
Simon Smith
Paul Ratcliff
Pete Hutton
Executive Chairman
Chief Operating Officer
Chairman Audit Committee
Chairman Remuneration Committee
Chairman Nominations Committee
In post
1 Jan 2017
In post
31 Dec 2017
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
John Cronin has served on the Board since 20 March 2012, and as Chairman since the Company’s AGM on 17 May 2012.
Harry Berry was appointed to the Board on 16 May 2014 as a non-executive director. In July 2017 he was appointed as Chief
Operating Officer. He served as Chairman of the Remuneration Committee during the period he was a non-executive director
(January to June 2017) after which Paul Ratcliff took over this role.
Simon Smith has served on the Board since 29 March 2010, as Chief Financial Officer, in an executive director capacity since
1 October 2013 until September 2017 when he returned to a non-executive director role. He now serves as Chairman of the
Audit Committee and a member of the Nominations Committee.
Paul Ratcliff was appointed to the Board on 1 January 2016 as a non-executive director. He served as Chairman of the Audit
Committee from July to September 2017 and as Chairman of the Nominations Committee until the appointment of Peter
Hutton on 3 April 2017. He serves as Chairman of the Remuneration Committee, taking over the role from Harry Berry on 1
July 2017, and a member of the Audit Committee and Nominations Committee.
Peter Hutton was appointed to the Board on 3 April 2017 as a non-executive director. He serves as Chairman of the
Nominations Committee and a member of the Remuneration Committee.
The Board is responsible for overall strategy, the policy and decision making framework in which this strategy is
implemented, approval of budgets, monitoring performance, and risk management. The Board meets at regular scheduled
intervals and follows a formal agenda; it also meets as and when required to discuss matters that may arise in between formal
Board meetings. All directors are required to retire by rotation according to the Articles of the Company.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
27
Corporate Governance Statement
Board Composition and Responsibility (continued)
No director has a service agreement requiring more than twelve months’ notice of termination to be given.
The Board is satisfied that an appropriate balance of independence, skills and experience has been and remains in place to
enable the Board to perform its responsibilities effectively. An overview of the skills and experience of each Board member is
given above.
The directors may take independent professional advice at the Company’s expense.
Board Committees
The Company has an Audit Committee, a Remuneration Committee and a Nominations Committee.
Since returning to a non-executive role in September 2017 Simon Smith chairs the Audit Committee with Paul Ratcliff being
the other member of this committee. Prior to this and following the retirement of Dr John Read at the end of June 2017, Paul
Ratcliff was Chairman of the Audit Committee. Dr John Read was Chairman of the Audit Committee until 30 June 2017.
Paul Ratcliff chairs the Remuneration Committee with Pete Hutton being the other member of this committee. From January
to June 2017 Harry Berry was Chairman of the Remuneration Committee with Paul Ratcliff being the other member of this
committee.
Pete Hutton chairs the Nominations Committee, with all three Non-Executive Directors being members of this committee.
Board Nominations
The Company has formal procedures for making appointments to the Board and these are applied to ensure that any new
appointments that might be made meet the desired criteria.
Relationships with Shareholders
The Board understands the need for clear communications with its shareholders. In addition to presentations after
publication of results and the Annual General Meeting, meetings are held with fund managers, analysts, and institutional
investors. Information is posted on the Company’s web site, www.cyanconnode.com, which contains a comprehensive
Investor Relations section. Simon Smith is the director responsible for investor relations.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Directors’ Report
The directors present their annual report on the affairs of the Group together with the audited financial statements and
auditor’s report for the year ended 31 December 2017.
Going Concern
To assess the ability of CyanConnode Holdings plc (“Group”) to continue as a going concern, the directors have prepared a
business plan and cash flow forecast for the period to 30 June 2019 which, together, represent the directors’ best estimate of
the future development of the Group. The forecast contains certain assumptions, the most significant of which are the level
and timing of sales and the gross margin on those sales, together with the need to secure additional finance.
The directors have recognised that the Group is trading principally in emerging country markets. These markets have an
inherent level of uncertainty associated with them and this may result in the predicted level of sales not being achieved and/
or the timing of orders being delayed, as has been the case for the Group in the past. The directors have taken reasonable
steps to satisfy themselves about the robustness of sales forecasts but acknowledge that the timing of customer orders in the
Group’s target markets is fundamentally uncertain. This may impact both the Group’s ability to generate positive cash flow and
to raise new finance. Consequently, there is a significant risk that the level of sales achieved is materially lower than the forecast
or at materially lower margins. This constitutes a material uncertainty.
The directors’ cash flow forecast includes an assumption that further finance will need to be raised within the next 12
months. Having consulted with stakeholders, the directors consider that the Group has a realistic opportunity to secure the
additional funding that will be required. There remains, however, a significant risk that the required level of new funding will not
be received in the necessary timescales or at all. This constitutes a material uncertainty.
There is a material uncertainty related to the assumptions described above which may cast significant doubt on the Group
and Company’s ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge
its liabilities in the normal course of business. The financial statements do not include the adjustments that would result if
the Group or Company was unable to continue as a going concern. In the event the Group and Company ceased to be a
going concern, the adjustments would include writing down the carrying value of assets, including stocks, to their
recoverable amount and providing for any further liabilities that might arise.
Notwithstanding the material uncertainties described above, on the basis of sensitivities applied to the cash flow forecast and
the expectation that further finance can be raised in the relevant timescale, the directors have a reasonable expectation that
the Company and Group can continue to meet its liabilities as they fall due, for a period of at least 12 months from the date of
approval of this report.
Financial Risk Management Objectives and Policies
Details of the Group’s financial risk management objectives and policies are set out in the Strategic Report on page 15.
Dividends
The directors’ dividend policy is set out in the Strategic Report on page 25.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Directors’ Report
Share capital and capital structure
Details of the issued share capital, together with details of the movements in the Company’s issued share capital during
the year are shown in note 25. During the year the Company underwent a share consolidation exercise which resulted in
every 200 ordinary shares of 0.01 pence per share being replaced with 1 ordinary share of 2.0 pence per share. At 31
December 2017, the Company had one class of ordinary shares of 2.0 pence each, which carried no right to fixed income and
represented 100% of the issued share capital of the Company. Each share carried the right to one vote at general meetings
of the Company. The Company’s capital structure consisted only of issued share capital, which it manages to maximise the
return to shareholders.
There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between
holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights.
Details of the employee share schemes are set out in note 32.
No person has any special rights of control over the Company’s share capital and all issued shares are fully paid.
With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association, the
Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders.
The powers of directors are described in the Corporate Governance Statement on page 26.
In accordance with the Companies Act 2006 the Company has no authorised share capital.
Capital Risk Management
The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue
as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders, and to provide
an adequate return to shareholders by pricing products and services commensurately with the level of risk.
The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the
risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new
shares or sell assets to reduce debt. The Group is not subject to any externally imposed capital requirements. No changes
were made in the objectives, policies or processes for managing capital during the years ended 31 December 2017 and 31
December 2016.
Enterprise Investment Scheme (EIS)
During 2017 CyanConnode’s shares qualified under the Enterprise Investment Scheme (EIS) which is a scheme that
provides tax incentives in the form of a variety of income tax and capital gains tax reliefs to investors who invest in certain
qualifying companies. This qualification is subject to the Company’s gross assets being below £15m. At times the gross
assets may go above £15m depending largely on cash reserves. Since CyanConnode’s incorporation, a number of high
net worth individuals looking to build tax efficient EIS portfolios have invested in CyanConnode and received these tax
reliefs. Following a number of recent changes to the EIS rules, the Directors have had confirmation from HMRC that the
Company’s shares do still qualify under this scheme, and that the Company qualifies as a knowledge-intensive company
which means it is granted a higher threshold and a longer time period during which EIS relief may be granted to investors. The
Directors expect this to remain the case until the thresholds under the new rules are reached. The Directors do not expect
these thresholds to be met within the twelve months following this report.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Directors’ Report
Directors and their Interests
The Directors who served the Company throughout the year and up to the date of signing, unless otherwise stated, were as
follows:
Executive Directors
John Cronin (Executive Chairman)
Harry Berry (Chief Operating Officer)
Non-Executive Directors
Simon Smith
Paul Ratcliff
Peter Hutton
Dr John Read (left office on 30 June 2017)
Simon Smith and Paul Ratcliff will retire at the next Annual General Meeting and, being eligible, will offer themselves for
re-election.
The interests of the directors in the shares of the Company are shown in the remuneration committee report on page 34.
Research, Design and Development
The Group is committed to the research, design and development of mesh based flexible solutions for metering, lighting and
IoT markets. The costs relating to this which have been written off in the year, amounted to £4,148,238 (2016: £2,912,631).
Significant Holdings
The Company had been notified of the following voting rights as a shareholder in the Company at 31 December 2017:
Name
William David Johns-Powell
Nightingale Investment Co Limited
Biggles Enterprise Limited
Herald Investment Management Limited
Legal and General
Swedestart Tech KB
Percentage of voting
rights and issued share
capital
Number of ordinary
shares
6.89%
6.55%
6.51%
4.17%
3.72%
2.18%
8,818,491
8,382,352
8,333,333
5,342,929
4,764,121
2,793,771
The Company received 1 notification under Chapter 5 of the Disclosure and Transparency Rules during the period between
31 December 2017 and 18 May 2018.
Fixed Assets
In the opinion of the directors there is no material difference between the market value of fixed assets and the amounts at
which they are stated in note 17 to the accounts.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
31
Directors’ Report
Supplier Payment Policy
It is the policy of the Group to settle supplier invoices in line with the terms of business negotiated with them. The average credit
period taken for trade purchases is higher at 63 days (2016: 49 days) including significant purchases in 2016 of meters for the
two smart metering deployments in India, most of which were purchased from one supplier under local procurement terms.
Excluding this one supplier, the average credit period taken in 2017 was 54 days (2016: 24 days).
Charitable and Political Donations
Charitable donations for the year were £nil (2016: £nil) and no political donations were made during the year (2016: £nil).
Auditor
Each of the persons who is a director at the date of approval of this annual report confirms that:
•
•
so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware;
and
the director has taken all the steps that he/she ought to have taken as a director in order to make himself/
herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that
information.
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Deloitte LLP has expressed its willingness to continue in office as auditor and a resolution to reappoint it will be proposed at
the forthcoming Annual General Meeting.
Approved by the Board of Directors and signed on behalf of the Board
John Cronin
Executive Chairman
18 May 2018
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
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Directors’ Remuneration Report
Unaudited Information
Remuneration Committee
The Company has established a Remuneration Committee. Paul Ratcliff took over the role of chairman of the Remuneration
Committee from Harry Berry on 1 July 2017.
None of the Committee members has any personal financial interest (other than as shareholders) or conflicts of interests arising
from cross-directorships. The Committee makes recommendations to the Board. No director plays a part in any discussion
about his own remuneration.
Whilst companies whose shares are listed on AIM are not formally required to comply with the accounting regulations
regarding directors’ remuneration, the Board supports these regulations and applies them in so far as is practicable and
appropriate for a public Company of its size. In line with previous years, the Directors’ Remuneration Report will not be put to
a shareholders’ vote.
Remuneration Policy for the Executive Directors
Executive remuneration packages are designed to attract, motivate and retain directors of the high calibre needed to
maintain the Group’s market position to reward them for enhancing value to shareholders. Their packages are set to
reflect their responsibilities, experience and marketability. The performance measurement of the executive directors and key
members of senior management and the determination of their annual remuneration package is undertaken by the
Committee.
Main elements of the remuneration package for the executive directors and senior management are:
• Basic annual salary;
• Benefits-in-kind;
•
Annual bonus payments;
• Consultancy fees;
•
•
Share option incentives; and
Pension arrangements.
Executive directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is
sought.
All directors are encouraged to make equity investments in the shares of the Company. The current directors have invested a
total of £1.7m in the Company, with full details of these investments set out later in this report. Of the executive directors John
Cronin’s total investment to the end of 2017 was 252% of his current annual package of £340,000 and Harry Berry’s total
investment to the end of 2017 was 119% of his current annual fees of £200,000.
Basic Salary
An executive director’s basic salary is reviewed by the Committee prior to the beginning of each year and when an individual
changes position or responsibility. In deciding appropriate levels, the Committee considers the Group as a whole and relies on
objective research, which gives up-to-date information on a comparator group of companies.
Benefits-in-Kind
The executive directors are entitled to receive certain benefits-in-kind, principally private medical insurance.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
33
Directors’ Remuneration Report
Annual Bonus Payments
Annual bonuses are awarded at the discretion of the Remuneration Committee as an incentive and to reward performance
during the financial year pursuant to specific performance criteria. In exercising its discretion, the Committee takes into
account the strategic objectives set by the Board to ensure these are being met. These objectives will evolve as the business
grows and are expected to change year on year according to business requirements. During 2017 the objectives included
ensuring the Company was adequately funded and customer contracts won. Bonus payments of £241,690 were made
during the year (2016: £200,000).
Directors’ Share Options
Full details of the directors’ options over ordinary shares of 2.0p are set out below (all numbers below have been restated
following the 200:1 share consolidation which took place on 3 October 2017):
Director
John Cronin
Simon Smith
Harry Berry
Grant Date
19 December 2013
30 September 2014
7 July 2016
17 November 2017
19 December 2013
30 September 2014
7 July 2016
17 November 2017
12 December 2017
28 July 2014
4 December 2014
18 December 2014
7 July 2016
17 November 2017
11 December 2017
Peter Hutton
Paul Ratcliff
6 April 2017
11 December 2017
Exercise
Price
£
As at 31 December 2017
Number
As at 31 December 2016
Number
0.6
0.84
0.5
0.336
0.6
0.84
0.5
0.336
0.46
0.76
0.58
0.56
0.5
0.336
0.42
0.38
0.42
-
-
-
558,101
558,101
-
-
-
596,304
62,245
661,549
-
-
-
-
735,174
71,423
806,597
131,545
71,633
382,803
508,447
1,937,903
-
-
2,829,153
210,031
130,746
741,247
-
-
-
-
1,082,024
25,000
35,000
111,604
372,944
-
-
544,548
-
-
Options granted under the EMI Share Option Scheme and unapproved share option schemes, are not subject to
performance criteria. No share options were exercised by directors during 2017.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Directors’ Remuneration Report
Joint Share Ownership Plan
In 2008, the Company established a Joint Share Ownership Plan (“JSOP”) to provide additional incentives to
directors and certain senior executives (the “Participants”). The JSOP shares are held jointly between the Participant and the
CyanConnode Holdings plc Employee Benefit Trust. Under the terms of the JSOP rules the Participants are eligible to receive
the excess of any disposal proceeds received for the JSOP shares over the participation price.
During 2017, JSOP shares were granted to certain directors of the Company. At 31 December 2017, shares held by
directors under this scheme were as follows:
Director
John Cronin
Harry Berry
Simon Smith
Grant Date
Participation Price
£
At 31 December
2017 Number
At 31 December
2016 Number
23 October 2017
23 October 2017
23 October 2017
23 October 2017
23 October 2017
23 October 2017
0.4964
0.333
0.3904
0.333
0.4502
0.333
3,219,200
1,382,425
4,601,625
2,076,085
925,303
3,001,388
837,520
132,275
969,795
-
-
-
-
-
-
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
35
Directors’ Remuneration Report
Directors’ Interests in Shares in the Company
All numbers below are restated following the 200 for 1 share consolidation which took place on 3 October 2017
Director
Shares
£’000
John Cronin
As at 1 January 2017
Purchased during the period
As at 31 December 2017
Simon Smith
As at 1 January 2017
Purchased during the period
As at 31 December 2017
Harry Berry
As at 1 January 2017
Purchased during the period
As at 31 December 2017
Paul Ratcliff
As at 1 January 2017
Purchased during the period
As at 31 December 2017
Peter Hutton
As at 1 January 2017
Purchased during the period
As at 31 December 2017
Total
As at 1 January 2017
Purchased during the period
As at 31 December 2017
1,736,008
477,459
2,213,647
988,162
196,918
1,185,080
482,796
141,423
624,219
73,243
89,491
162,734
-
167,259
167,259
3,280,209
1,072,550
4,352,759
721
135
856
482
58
540
203
35
238
26
20
46
-
60
60
1,432
308
1,740
The shareholding for Directors of the Company disclosed above excludes shares held under the Company’s Joint Share
Ownership Plan (“JSOP”) in which they are beneficial co-owner of shares.
Pension Arrangements
Executive directors are entitled to become members of the Company pension scheme. This is a defined contribution scheme
whereby the Company contributes at a rate of 5% of the executive’s gross salary. Neither John Cronin nor Harry Berry are
members of the Company pension scheme.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Directors’ Remuneration Report
Directors’ Contracts
It is the Company’s policy that the executive directors should have contracts with an indefinite term providing for a maximum
of one year’s notice. It may be necessary on occasion to offer longer notice periods but this has not been necessary for any
director on the current board. All executive directors have contracts that are subject to twelve months’ notice by either party.
Name of Director
John Cronin
Simon Smith
Harry Berry
Paul Ratcliff
Peter Hutton
Audited Information
Non-Executive Directors
Date of contract
20 March 2012
1 September 2017
1 July 2017
1 January 2016
3 April 2017
All non-executive directors have specific terms of engagement and their remuneration is determined by the Board within the
limits set by the Articles of Association and based on independent surveys of fees paid to non-executive directors of similar
companies. The fees paid to each non-executive director during the year was:
Peter Hutton
Paul Ratcliff
Simon Smith
£22,500
£34,100
£228,778
(the fees stated above that were paid to Simon Smith during 2017 included fees of £154,449 relating to the period during
which he was an executive director, £54,329 fees for prior year services and £20,000 for his non-executive director role for the
last 4 months of 2017)
Non-executive directors are not eligible to join the Company’s pension scheme.
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Directors’ Remuneration Report
Directors’ Emoluments
Name of Director
Fees/Basic
Salary
Pension
Annual
bonus
£
21,000
246,500
267,500
82,730
69,000
Executive
John Cronin - salary
John Cronin - consultancy
fees
Of the total paid in 2017,
£251,934 was paid in
shares and £243,066 in
cash
John Cronin - Total
(note 1)
Harry Berry- salary
Harry Berry - fees for other
services
Of the total paid in 2017,
£44,505 was paid in
shares and £148,915 in
cash
Harry Berry - Total (note 2)
151,730
£
-
-
-
-
-
-
Total
for 2017
Services
£
Fees for
Prior Year
Services
£
Total
Paid
2017
£
2016 Total
£
21,000
386,500
-
87,500
21,000
474,000
12,000
363,000
£
-
140,000
140,000*
41,690
-
407,500
124,420
124,420
41,690
193,420
87,500
-
-
-
495,000
142,420
69,000
375,000
24,000
815,835
193,420
105,835
Non-Executive
Simon Smith - fees
Of the total paid in 2017,
£76,460 was paid in
shares and £152,318 in
cash
Simon Smith - Total
(note 3)
Paul Ratcliff
£15,000 paid in shares
Peter Hutton
Dr John Read
All paid in shares
TOTAL
111,616
2,833
60,000
174,449
54,329
228,778
183,000
111,616
2,833
60,000
174,449
54,329
228,778
183,000
34,100
22,500
15,000
602,446
-
-
-
-
-
-
2,833
241,690
34,100
22,500
15,000
846,969
-
-
-
141,829
34,100
22,500
15,000
988,798
30,000
-
30,000
723,835
* Of the £140,000 bonus paid to John Cronin in 2017, £70,000 related to bonus for the second half of 2016. The bonus
element of John Cronin’s remuneration package reduced to £20k for the second half of 2017 (annual equivalent £40,000). His
total remuneration package reduced from £375,000 to £340,000 during 2017.
Note 1 – John Cronin: £407,500 of the £495,000 fees paid to John Cronin during 2017 related to services provided
during 2017, while £87,500 related to additional time worked during 2013-2014, over and above the hours paid out under his
service and consultancy contracts. Success criteria based on securing customer contracts and equity funding were agreed
by the Remuneration Committee at that time. These criteria were met during 2015 and £100,000 relating to the additional
fees earned was paid out during 2015. Mr Cronin chose not to receive the remaining £87,500 of these additional fees in 2015,
however it was agreed that these would be paid during 2017.
Of the £495,000 fees paid to John Cronin during 2017, £251,934 was paid in shares and £243,066 was paid in cash.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Directors’ Remuneration Report
Directors’ Emoluments (continued)
Note 2 – Harry Berry: For the periods January to June 2017 Harry Berry was a non-executive director of the Company. On 1
July 2017 he moved to an executive director role in the position of Chief Operating Officer. His fees relating to the second six
months were £75,000 and were £118,420 relating to second six months when he was an executive director.
Of the £193,420 fees paid to Harry Berry during 2017, £44,505 was paid in shares and £148,915 was paid in cash.
Note 3 – Simon Smith: £174,449 of the £228,778 fees paid to Simon Smith during 2017 related to services provided during
2017, while £54,329 related to additional time worked during 2013-2014, over and above the hours paid out under his service
and consultancy contracts. Success criteria based on securing customer contracts and equity funding were agreed by the
Remuneration Committee at that time. These criteria were met during 2015 and £50,000 relating to the additional fees earned
was paid out during 2015. Simon Smith chose not to receive 100% of the additional fees due in 2015, however the balance of
these additional fees was paid during 2017.
Of the £228,778 fees paid to Simon Smith during 2017, £76,460 was paid in shares and £152,318 was paid in cash.
For the period January to August 2017 Simon Smith was an executive director of the Company (Chief Financial Officer). On 1
September 2017 he moved to a non-executive director role. His fees relating to the first eight months were £151,616 and were
£20,000 relating to four months when he was a non-executive director.
All directors used 100% of their remuneration for the period January to June 2017 to purchase newly issued shares in the
Company. The exact amounts invested by each director to date are set out earlier in this Remuneration Report.
Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the
Company granted to or held by the directors.
Approval
This report was approved by the Board of directors on 18 May 2018 and signed on its behalf by:
Paul Ratcliff
Chairman of the Remuneration Committee
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Directors’ Responsibility Statement
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are
required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union and Article 4 of the IAS Regulation and have chosen to prepare the parent Company financial
statements under IFRSs as adopted by the EU. Under Company law the directors must not approve the accounts unless they
are satisfied that they give a fair view of the state of affairs of the Company and of profit and loss of the Company for that
period. In preparing these financial statements, International Accounting Standard 1 requires that the directors:
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity’s financial
position and financial performance; and
• make an assessment of the Company’s ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose them with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements
differs from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
•
•
•
the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by
the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation taken as a whole;
the strategic report includes a fair review of the development and performance of the business and the position of
the company and the undertakings included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face; and
the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the company’s position and performance, business model
and strategy.
By order of the Board
John Cronin
Executive Chairman
18 May 2018
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s
affairs as at 31 December 2017 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in accordance with the provisions of the Companies
Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of CyanConnode Holdings plc (the ‘parent company’) and its subsidiaries (the
‘group’) which comprise:
•
•
•
•
•
•
•
the consolidated income statement;
the consolidated statement of comprehensive income;
the consolidated and parent company balance sheets;
the consolidated and parent company statements of changes in equity;
the consolidated and parent company cash flow statements;
the related notes 1 to 33; and
that part of the directors’ remuneration report described as audited.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
41
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Material uncertainty relating to going concern
We draw attention to note 3 in the financial statements, which indicates that the group incurred a net loss of £9,741,720
during the year ended 31 December 2017. The directors have identified that a certain level of sales is required to be achieved
as well as additional funding is required in the foreseeable future to allow the Company to continue trading.
In response to this, we:
•
•
•
•
obtained cash flow forecasts prepared by management, which were tested for mathematical accuracy;
challenged management estimates and assumptions included in the forecast, such as revenue growth and timing
of cash receipts, against external data and to the Board approved budgets as well as the appropriateness of the
sensitivities developed by management;
assessed management’s ability to raise further funds from existing and new shareholders; and
considered the appropriateness of the disclosure contained with note 3 to the financial statements which set out
the material uncertainties identified.
Whilst we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate, these events or conditions, along with the other matters as set forth in note 3 to the
financial statements, indicate that a material uncertainty exists that may cast significant doubt on the group’s and company’s
ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group
and company were unable to continue as a going concern. Our opinion is not modified in respect of this matter.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Impairment of intangible assets and goodwill
• Revenue recognition – new revenue generating multiple element contracts
during the year
•
• Going concern (see material uncertainty relating to going concern section)
•
contract
Inventory – provisioning of inventory held in relation to a specific customer
Materiality
Scoping
The materiality used was £0.37 million which was determined on the basis of a
combination of loss before tax and total expenses measures. This represents
approximately 3% of loss before tax and 3% of total expenses.
The scope of our audit was driven by our risk assessment and understanding of the
business. This consisted of four components subjected to full scope audits and two
components subjected to analytical procedures at group level.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the material uncertainty relating to going concern section, we have determined the
matters described below to be the key audit matters to be communicated in our report.
Revenue recognition - new revenue generating multiple element contracts during the year
Key audit matter
description
We consider there to be a key audit matter with respect to new multiple element revenue
contracts arising in the period. This is due to the judgement involved in recognising revenue
in accordance with IAS18 Revenue across contracts that contain multiple elements
including both products and services. This is dependent on the identification of the
components contained within the contract and the allocation of prices to the individual
components.
The accounting policy is disclosed in note 3 to the financial statements.
How the scope of our
audit responded to the
key audit matter
We obtained an understanding of whether the revenue recognition policies have been
applied across the group and considered if there were any new revenue contracts in the
period that contained multiple elements.
For new contracts identified, we reviewed management’s assessment of the identification
of the components contained within the contract, the allocation of consideration to the
individual components and the period over which revenue was recognised. We also
assessed whether the recognition of revenue is in line with IAS 18.
Key observations
Based on the audit procedures performed, we concluded that revenue recognition in
respect of new multiple element revenue contracts is in line with the group’s accounting
policy and IAS 18.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
43
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Impairment of intangible assets and goodwill
Key audit matter
description
The group has a significant goodwill balance £1,930,229 as at 31 December 2017 which
arose on the acquisition of Connode in 2016. The group also holds acquisition related
intangibles with a balance of £5,468,967 at the balance sheet date.
How the scope of our
audit responded to the
key audit matter
Management performs an impairment review in accordance with IAS 36 Impairment of
assets. There is a risk that the key assumptions such as revenue growth and discount
rates used in the impairment review model are not appropriate and therefore this affects
the calculation of the value in use leading to an incorrect conclusion as to whether goodwill
is impaired. There are also significant intangible assets balances resulting from the
acquisitions which may also be impaired.
Note 3 to the financial statements sets out the group’s accounting policy for business
combinations and Note 16 to the financial statements outlines the key assumptions
involved in the goodwill impairment assessment and the reasonable possible change
disclosure due to the high degree of sensitivity.
We obtained cash flow forecasts prepared by management and challenged
management estimates included in the forecast, such as revenue growth, through
challenging the expected future market growth, previous issues turning orders into
revenue, commercial challenges and future strategy, and the discount rates through
engaging internal valuations specialists to estimate an appropriate discount rate with
reference to market data and comparing that to the rate used by management. The net
present value of the forecast cash flow was compared to the carrying value of acquisition
goodwill.
We applied sensitivities to calculations prepared by management to test uncertain variables
against headroom to assess the risk of impairment.
In addition, consideration was also made in light of our knowledge of the business and any
other information to identify any indicators of impairment for acquisition related intangibles.
We used internal valuations specialists to estimate an appropriate discount rate with
reference to market data and compared that to the rate used by management.
Key observations
Based on the audit procedures performed, we concurred that the assumptions used in the
impairment review model are appropriate and applied in line with the principles of IAS 36.
We considered the reasonable possible change disclosure to be appropriate.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Inventory - provisioning of inventory held in relation to a specific customer contract
Key audit matter
description
We consider there to be a key audit matter with respect to the inventory held in relation to
a specific customer contract. At 31 December 2017, inventory with a value of
approximately £0.85m is held on the balance sheet relating to this contract.
How the scope of our
audit responded to the
key audit matter
Significant delays, both during the year and post year end, have been encountered in
respect of this contract and so there is a risk that inventory is not held at an amount higher
than its net realisable value, as required by IAS 2 and the Group’s accounting policy.
The accounting policy is disclosed in note 3 and inventory balances are disclosed in note
20 to the financial statements.
We obtained management’s considerations of the valuation of the inventory and the
possible alternative uses. We challenged management’s assumptions used, such as the
ability to sell the inventory elsewhere and the period of time before the technology
becomes outdated, using our knowledge of the business, consideration of any indicators
of contradictory evidence and obtaining supporting evidence to substantiate the alternative
options for use of the inventory as set out by management, including any cost of
conversion that may be required.
In addition, we considered the appropriateness of the disclosure contained within the key
accounting estimates and uncertainties to the financial statements which set out the key
uncertainties around the valuation of inventory.
Key observations
Based on the audit procedures performed, we concurred that the inventory balance is not
materially misstated based on the fact that it may be used in the specific customer
contract or could be used in other contracts, with minimal alterations. We consider the
critical judgement disclosure in relation to this to be appropriate.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
45
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Our application of materiality (continued)
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.014 million,
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group level.
Based on that assessment, four components were subject to a full scope audit, and two components were subject to a review
at the group level based on our assessment of the materiality of the group’s operations at those components. All components
where our group audit was focussed were audited by the group audit team.
The four components subject to a full audit account for 99% of the group’s revenue, 98% of the group’s loss before tax and
94% of the group’s net assets. Our audit work for each component was executed at levels of materiality applicable to each
individual component which were lower than group materiality. The component materiality ranges between £0.14 million to
£0.28 million.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the
remaining components not subject to audit.
Full audit scope
Review at group level
99%
1%
98%
2%
94%
6%
Revenue
Loss before tax
Net Assets
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report other than the financial statements and our auditor’s
report thereon.
We have nothing to
report in respect of these
matters.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are re-
quired to determine whether there is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to
report that fact.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s
ability to continue as a going concern disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable a
ssurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
46
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
47
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit;
or
•
adequate accounting records have not been kept by the parent company, or
returns adequate for our audit have not been received from branches not visited by
us; or
•
records and returns.
the parent company financial statements are not in agreement with the accounting
We have nothing to
report in respect of these
matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made.
We have nothing to
report in respect of this
matter.
Julian Rae (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
18 May 2018
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Consolidated income statement
For the year ended 31 December 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating costs
Acquisition related costs
Amortisation / depreciation
Total operating costs
Operating loss
Investment income
Finance costs
Loss before tax
Tax Credit
Loss for the year
Loss per share (pence)
Basic
Diluted
Note
2017
£
2016
£
5
1,171,215
1,823,129
(674,297)
496,918
(11,160,819)
-
(489,193)
(11,650,012)
(11,153,094)
15,619
(6,467)
(1,128,498)
694,631
(6,813,782)
(1,564,102)
(255,963)
(8,633,847)
(7,939,216)
7,290
(4,525)
(11,143,942)
(7,936,451)
1,402,222
819,212
(9,741,720)
(7,117,239)
(10.18)
(10.18)
(13.02)
(13.02)
5,10
11
12
7
13
13
Consolidated statement of comprehensive income
For the year ended 31 December 2017
Derived from continuing operations and attributable to the equity owners of the Company.
Loss for the year
Items that may be reclassified subsequently to profit and loss
Exchange differences on translation of foreign operations
Total comprehensive income for the year
2017
£
2016
£
(9,741,720)
(7,117,239)
46,384
(30,963)
(9,695,336)
(7,148,202)
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
49
Consolidated balance sheet
At 31 December 2017
Non-current assets
Intangible assets
Goodwill
Investments
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Total current liabilities
Net current assets
Non current liabilities
Deferred tax liability
Total non current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Own shares held
Share option reserve
Translation reserve
Retained losses
Total equity being equity attributable to owners of the Company
Note
14
16
19
17
20
21
21
24
23
25
26
27
29
28
2017
£
5,468,967
1,930,229
47,827
82,510
2016
£
5,889,656
1,930,229
41,515
78,171
7,529,533
7,939,571
1,128,443
3,019,113
5,393,922
9,541,478
340,178
2,677,071
3,892,505
6,909,754
17,071,011
14,849,325
(2,248,068)
(2,248,068)
7,293,410
(858,976)
(858,976)
(3,107,044)
13,963.967
2,558,663
65,564,717
(3,252,943)
1,316,020
(130,240)
(2,205,302)
(2,205,302)
4,704,452
(942,938)
(942,938)
(3,148,240)
11,701,085
1,579,123
52,831,234
(808,856)
626,738
(176,624)
(52,092,250)
(42,350,530)
13,963,967
11,701,085
The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the board of
directors and authorised for issue on 18 May 2018. They were signed on its behalf by:
John Cronin
Director
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Consolidated statement of changes in equity
At 31 December 2017
Own
Share
Share
Share
Shares
Option
Translation
Retained
Capital
Premium
Held
Reserve
Reserve
Losses
£
£
£
£
£
£
Total
Equity
£
Balance at 31 December 2015
680,320
38,085,627
(808,856)
624,411
(145,661)
(35,233,291)
3,202,550
Loss for the year
Other comprehensive income for
the year
Total comprehensive income
for the year
-
-
-
-
-
-
Issue of share capital
898,803
14,745,607
Credit to equity for share options
-
-
Debit to equity for share payments
-
-
-
-
-
-
-
-
-
269,692
(267,365)
-
(7,117,239)
(7,117,239)
(30,963)
-
(30,963)
(30,963)
(7,117,239)
(7,148,202)
-
-
-
-
15,644,410
269,692
(267,365)
Balance at 31 December 2016
1,579,123
52,831,234
(808,856)
626,738
(176,624)
(42,350,530)
11,701,085
Loss for the year
Other comprehensive income for
the year
Total comprehensive income
for the year
Issue of share capital
Employee Benefit Trust
Credit to equity for share options
Credit to equity for share payments
-
-
-
-
-
-
979,540
12,733,483
-
-
-
-
-
-
-
-
-
-
(2,444,087)
-
-
-
-
-
-
-
421,917
267,365
-
(9,741,720)
(9,741,720)
46,384
-
46,384
46,384
(9741,720)
(9,695,336)
-
-
-
-
-
-
-
-
13,713,023
(2,444,087)
421,917
267,365
Balance at 31 December 2017
2,558,663
65,564,717 (3,252,943)
1,316,020
(130,240)
(52,092,250)
13,963,967
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
51
Company balance sheet
At 31 December 2017
Non-current assets
Intangible assets
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Total Liabilities
Net current assets
Net assets
Equity
Share capital
Share premium account
Share option reserve
Retained losses
Total equity
Note
15
18
21
21
24
25
27
28
2017
2016
£
-
7,435,594
7,435,594
4,828,462
4,611,149
9,439,611
£
-
8,330,129
8,330,129
927,896
3,812,724
4,740,620
16,875,205
13,070,749
(130,697)
(130,697)
9,308,914
(13,353)
(13,353)
4,727,267
16,744,508
13,057,396
2,558,663
1,579,123
65,564,717
52,831,234
1,316,020
626,738
(52,694,892)
(41,979,699)
16,744,508
13,057,396
The Company reported a loss for the financial year ended 31 December 2017 of £10,715,193 (2016: £5,335,169).
The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the board of
directors and authorised for issue on 18 May 2018. They were signed on its behalf by
John Cronin
Director
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Company statement of changes in equity
At 31 December 2017
Share
Capital
£
Share
Premium
£
Share
Option
Reserve
£
Retained
Losses
£
Total
Equity
£
Balance at 31 December 2015
680,320
38,085,627
624,411
(36,644,530)
2,745,828
Loss for the year
Total comprehensive income for the year
Issue of share capital
Credit to equity for share options
Debit to equity for share payments
-
-
-
-
898,803
14,745,607
-
-
-
-
-
269,692
(267,365)
(5,335,169)
(5,335,169)
(5,335,169)
(5,335,169)
-
-
-
15,644,410
269,692
(267,365)
Balance at 31 December 2016
1,579,123
52,831,234
626,738
(41,979,699)
13,057,396
Loss for the year
Total comprehensive income for the year
-
-
-
-
Issue of share capital
979,540
12,733,483
-
-
-
Credit to equity for share options
Credit to equity for share payments
-
-
-
-
421,917
267,365
(10,715,193)
(10,715,193)
(10,715,193)
(10,715,193)
-
-
-
13,713,023
689,282
267,365
Balance at 31 December 2017
2,558,663
65,564,717
1,316,020
(52,694,892)
16,744,508
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Consolidated cash flow statement
For the year ended 31 December 2017
Net cash outflow from operating activities
Investing activities
Acquisition of subsidiary
Interest received
Purchases of property, plant and equipment
Net cash used in investing activities
Financing activities
Interest paid
Proceeds on issue of shares
Share issue costs
Purchase of investments
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
2017
£
2016
£
30
(9,697,343)
(7,061,808)
-
(4,367,670)
15,619
(73,018)
(57,399)
7,289
(80,289)
(4,440,670)
(6,467)
(4,525)
11,804,432
13,487,320
(535,493)
(6,313)
(533,662)
(15,207)
11,256,159
12,933,926
1,501,417
3,892,505
5,393,922
1,431,448
2,461,057
3,892,505
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Company cash flow statement
For the year ended 31 December 2017
Loss for the year
Impairment charges
Share based payment expenses
Operating cash flows before movement in working capital
Increase in receivables
Increase / (decrease) in payables
Net cash outflow from operating activities
Investing activities
Purchase of investment
Net cash outflow from investing activities
Financing activities
Proceeds on issue of shares
Share issue costs
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2017
£
2016
£
(10,715,193)
(5,335,169)
10,691,048
5,480,500
267,366
243,221
2,327
147,658
(9,647,526)
(6,254,885)
117,343
(21,611)
(9,286,962)
(6,128,838)
(1,183,548)
(1,183,548)
(5,041,664)
(5,041,664)
11,804,428
13,487,320
(535,493)
(533,662)
11,268,935
12,953,658
798,425
3,812,724
4,611,149
1,783,156
2,029,568
3,812,724
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com Notes to the Financial Statements
1. General information
CyanConnode Holdings plc, (Company Registered No. 04554942), is a public company limited by shares, incorporated
in England in the United Kingdom under the Companies Act 2006. The address of the registered office is Merlin Place,
Milton Road, Cambridge CB4 0DP.
These financial statements are presented in pounds sterling because that is the currency of the primary economic
environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note
2. Adoption of new and revised Standards
In the current year, the following new and revised Standards and Interpretations have been adopted and have affected the
amounts reported in these financial statements.
Standards affecting the reported results or the financial position
In the current year, there were no new and revised Standards and Interpretations that have been adopted and which
affected the amounts reported in these financial statements.
Standards not affecting the reported results or the financial position
The
the current year.
Their adoption has not had any significant impact on the amounts reported in these financial statements.
following new and revised Standards and
Interpretations have been adopted
in
Annual Improvements to IFRSs:
Amendments to IAS 19 (Nov 2013)
Annual Improvements to IFRSs:
Defined Benefit Plans Employee Contributions
Annual improvements to IFRSs: 2010 - 2012 Cycle (Dec 2013)
Annual improvements to IFRSs
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been
applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IFRS 9
IFRS 15
IFRS 16
Financial Instruments
Revenue from Contracts with Customers
Leases
IFRS 2 (amendments)
Classification and Measurement of Share-based
IFRIC 22
IFRIC 23
Payment Transactions
Foreign Currency Transactions and Advanced
Consideration
Uncertainty over Income Tax Treatments
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Notes to the Financial Statements
2. Adoption of new and revised Standards (continued)
The directors do not expect that the adoption of the Standards and Interpretations listed above will have a material
impact on the financial statements of the Group in future periods. IFRS 15, (effective 1 January 2018) has not been
implemented, however, management has considered the potential impact of implementing the new standard on
future accounting of revenue and disclosures. Criteria considered have included the contract, the provision of
hardware, software and services, the nature of the contract, the timescales for delivery, the length and type of
services and the differing revenue streams. Adoption is not expected to have a major impact on revenue recognition and
related disclosures however it is not practicable to provide a full and reasonable estimate of the effect of this standard
until a detailed review has been completed. IFRS 16 (effective date 1 January 2019) will bring all operating leases onto
the balance sheet in line with the accounting treatment for finance leases. This will have the impact of increasing both
assets and liabilities, but the P&L impact is not expected to be material as there are only a small number of leases.
The Group will apply IFRS 9 from 1 January 2018. IFRS 9 contains the requirements for the classification and
measurement of financial assets and financial
impairment methodology and general hedge
accounting. The full impact of adopting IFRS 9 on the Group’s consolidated financial statements will depend on the
financial instruments that the group has during 2018 as well as economic conditions and judgements made at year end.
liabilities,
Classification and measurement of debt assets will be driven by the Group’s business model for managing the
financial assets and the contractual cash flow characteristics of the financial assets. Management will continue to
determine the classification of financial assets at initial recognition and re-evaluate this designation at each reporting date.
The impairment model under IFRS 9 reflects expected credit losses, as opposed to only incurred credit losses.
Under the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are
recognised. The new impairment model will apply to the Group’s financial assets that are debt instruments measured at
amortised cost.
Beyond the information above, it is not practicable to provide a reasonable estimate of the effect of these standards until
a detailed review has been completed.
3. Significant accounting policies
Group
Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).
The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and
therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared on the historical cost basis, with the exception of recognizing financial
instruments at fair value. This relates to bank securities only. The principal accounting policies adopted are set out below.
Going concern
To assess the ability of CyanConnode Holdings plc (“Group”) to continue as a going concern, the directors have
prepared a business plan and cash flow forecast for the period to 30 June 2019 which, together, represent the
directors’ best estimate of the future development of the Group. The forecast contains certain assumptions, the most
significant of which are the level and timing of sales and the gross margin on those sales, together with the need to secure
additional finance.
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Group (continued)
The directors have recognised that the Group is trading principally in emerging country markets. These markets have an
inherent level of uncertainty associated with them and this may result in the predicted level of sales not being achieved
and/or the timing of orders being delayed, as has been the case for the Group in the past. The directors have taken
reasonable steps to satisfy themselves about the robustness of sales forecasts but acknowledge that the timing of
customer orders in the Group’s target markets is fundamentally uncertain. This may impact both the Group’s ability
to generate positive cash flow and to raise new finance. Consequently, there is a significant risk that the level of sales
achieved is materially lower than the forecast or at materially lower margins. This constitutes a material uncertainty.
The directors’ cash flow forecast includes an assumption that further finance will need to be raised within the next
12 months. Having consulted with stakeholders, the directors consider that the Group has a realistic opportunity to
secure the additional funding that will be required. There remains, however, a significant risk that the required level of new
funding will not be received in the necessary timescales or at all. This constitutes a material uncertainty.
There is a material uncertainty related to the assumptions described above which may cast significant doubt on the
Group and Company’s ability to continue as a going concern and, therefore, it may be unable to realise its assets
and discharge its liabilities in the normal course of business. The financial statements do not include the adjustments
that would result if the Group or Company were unable to continue as a going concern. In the event the Group and
Company ceased to be a going concern, the adjustments would include writing down the carrying value of
assets, including stocks, to their recoverable amount and providing for any further liabilities that might arise.
Notwithstanding the material uncertainties described above, on the basis of sensitivities applied to the cash flow forecast
and that further finance can be raised in the relevant timescale, the directors have a reasonable expectation that the
company can continue to meet its liabilities as they fall due, for a period of at least 12 months from the date of approval
of this report.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company:
•
•
•
has the power over the investee;
is exposed, or has rights, to variable return from its involvement with the investee; and
has the ability to use its power to affects its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control listed above. When the Company has less than a majority of the voting
rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the
practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and
circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power,
including:
•
the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other
vote holders;
potential voting rights held by the Company, other vote holders or other parties;
rights arising from other contractual arrangements; and
any additional facts and circumstances that indicate that the Company has, or does not have, the current ability
to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous
shareholders’ meetings.
•
•
•
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the date the Company gains control until the date when the Company
ceases to control the subsidiary.
Business combinations are accounted for under the acquisition method. Where necessary, adjustments are made to
the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses are eliminated on consolidation.
Goodwill
Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value
of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and is then
assessed annually for impairment.
Intangible assets: customer contracts
Separately acquired customer contracts are included at cost and amortised in equal annual instalments over a period of
15 years which is their estimated useful economic life. Provision is made for any impairment.
Research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally-generated intangible asset arising from development (or from the development phase of an internal project)
is recognised if, and only if, all of the following conditions have been demonstrated:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible
asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
A separately acquired intangible asset arising from development (or from the development phase of an internal project) is
recognised if, and only if, all of the following conditions have been demonstrated:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Research and development expenditure (continued)
The amount initially recognised for an externally acquired intangible asset is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible
asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset
does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. They are allocated to the smallest group of cash-generating units
for which a reasonable and consistent allocation basis can be identified. For this purpose, the Group is taken as a single
cash-generating unit.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows
have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased
to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-
generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless
the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a
revaluation increase.
Revenue recognition
Turnover 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 discounts, VAT and other sales related taxes.
Sale of Goods
Revenue from the sale of goods shall be recognised when all of the following conditions have been met:
•
•
•
•
•
The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
The Company retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
The amount of revenue can be measured reliably;
It is probable that the economic benefits associated with the transaction will flow to the Company; and
The costs incurred or to be incurred in respect of the transaction can be measured reliably.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
61
Notes to the Financial Statements
3. Significant accounting policies (continued)
Sale of Services
Revenue from the sale of services shall be recognised when all of the following conditions have been met:
•
•
•
•
The amount of revenue can be measured easily;
It is probable that the economic benefits associated with the transaction will flow to the entity;
The stage of completion of the transaction at the end of the reporting period can be measured reliably;
and
The costs incurred for the transaction and the costs to complete the transaction can be measured reliably.
The specific policies to be applied in accounting for the recognition of revenue arising from the Company’s
transactions are as follows:
Hardware
• MCU’s sold to distributors – Revenue recognised on shipment from distributor to third party. Revenue
recognised on shipment based on standard Incoterms EXW. Individual distributor agreements allow for stock
to be returned based on certain conditions. Provision should be in the accounts for the maximum amount
returnable as per the agreement.
• MCU’s sold to end customer – Revenue recognised on shipment to customer based on standard incoterms
EXW
• Modules (metering and lighting) and antennas – Revenue recognised on shipment based on standard
Incoterms EXW
• Data Concentrator Units (DCUs) – Where DCU’s are delivered before HES license is provided the DCU revenue
is recognised when installation is complete and software commissioned (customer able to obtain the economic
benefit from the CyanConnode solution). Ideally this would have written customer sign-off of completion,
otherwise internal sign-off document. Subsequent DCU sales where software is already operational can be
recognised in full on shipment of the DCU’s.
Software / Software Licenses / AMC
• Head End Software (Perpetual) and Installation Services – Revenue bundled with DCUs and recognised when
installation is complete and customer able to obtain the economic benefit from the CyanConnode solution.
Ideally this would have written customer sign-off of completion, otherwise internal sign-off document.
• CyanConnode hosted term software licenses for lighting/metering – Revenue recognised over the term of the
license and bundled with DCU revenues
• Annual Maintenance Contract (AMC) – Revenue recognised over the support period (generally recurring periods
of 12 months)
• Any discounts (such as free installation / training) should be allocated across all the contract elements on a
pro-rata basis
• Revenue for application software will be recognised on the same basis as HES.
Services
• Revenue recognition based on contracts to provide services require income to be recognised in stages of
completion often as a percentage of services performed to the total of services to be provided as stipulated in
the contract.
• Revenue associated with the sale of services is recognised by reference to the stage of completion of the
transaction at the reporting date when the outcome of a transaction involving the rendering of services can be
estimated reliably.
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Revenue recognition (continued)
•
The outcome of a transaction can be reliably estimated when all of the following conditions are satisfied:-
- The amount of revenue can be reliably measured;
- It is probable that economic benefits associated with the transaction will flow to the Company;
- The stage of completion of the transaction at the reporting date can be measured reliably; and
- The costs incurred for the transaction and the costs to complete the transaction can be measured
reliably.
Royalties
• Royalties paid for the use of the Company’s assets are recognised on an accrual basis in accordance with the
substance of the relevant agreement.
Multi-element Contracts with Milestones
•
For contracts where CyanConnode is responsible for delivering a full end to end solution and gets paid based
on the achievement of milestones, revenue must be broken down into the separate identifiable categories as
discussed above (Hardware/Software/Services). The agreed revenue recognition principles will then be applied
to each category to determine the revenue recognition profile of the contract.
• Where part of a multi-element contract is loss making, the revenue of the contract is re-allocated to spread
the impact of the loss making element across the rest of the contract. Costs in relation to each line item in the
contract must be split into the following categories:
- Third party hardware
- CyanConnode hardware
- Third party software
- CyanConnode software
- Third party services
- CyanConnode services
When costs have been allocated the average margin for each category can be calculated. The average margin is then
applied to the sales price to calculate a revised revenue for each line item. The revised revenue split is, in essence, the fair
value of each line item and is then recognised as standard (with agreed principles on Hardware/Software and Services).
Other Considerations
• Where revenue is deferred, the associated cost of goods sold (COGS) is also deferred and subsequently
•
•
recognised in the P&L at the same point in time as the associated revenue
If any non multi-element contract is expected to be loss making, then a provision for this loss should be made
and charged to the P&L when the loss is reasonably certain.
For implementation services, summary level timesheets are required in order to calculate the implementation
time / cost.
• A provision for hardware warranty costs needs to be made – initially this will be 1%, but will be reviewed
annually at each year end.
Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to
the Company. However, when an uncertainty arises about the collectability of an amount already included in revenue, the
uncollectible amount, or rather the amount in respect of which recovery has ceased to be probable, is recognised as an
expense, rather than as an adjustment of the amount of revenue originally recognised.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
63
Notes to the Financial Statements
3. Significant accounting policies (continued)
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases. The Group currently only holds operating
leases. Rentals payable under the operating leases are charged to income on a straight-line basis over the term of the
relevant lease.
Foreign currencies
The individual financial statements of each Group Company are presented in the currency of the primary economic
environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the
results and financial position of each Group Company are expressed in pounds sterling, which is the functional currency
of the Group, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions.
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at
the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on
monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur,
which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation
reserve and recognised in profit or loss on disposal of the net investment.
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, unless exchange rates fluctuate
significantly during that period, in which case the exchange rates at the date of the transactions are used. Exchange
differences arising, if any, are classified as equity and recognised in the Group’s foreign currency translation reserve. Such
translation differences are recognised as income or as expenses in the period in which the operation is disposed of.
Operating loss
Operating loss is stated after charging restructuring and non-recurring costs but before investment income and finance costs.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. These
were the only payments made by the Group in the year under review. At year end there were employer’s pension
contributions provided for but not paid of £165,496 (2016: £134,175).
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Notes to the Financial Statements
3. Significant accounting policies (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The R&D tax credit is recognised upon
submission to HMRC.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases 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 against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary
difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
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 there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the
straight-line method, on the following bases:
Fixtures and equipment
20% - 50%
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Property, plant and equipment
At each balance sheet date, the Directors review the carrying value of the Group’s tangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. If the recoverable amount
of the asset is less than its carrying amount, an impairment loss is recognised against the asset.
There are no assets held under finance leases.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in income.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated using the weighted average method. Net realisable value represents the
estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and
distribution.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to
the contractual provisions of the instrument.
Financial assets
Investments are recognised and derecognised on a trade date where the purchase or sale of an investment is under a
contract whose terms require delivery of the investment within the timeframe established by the market concerned, and
are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through
profit or loss, which are initially measured at fair value.
The Group has only two classes of financial assets being cash and cash equivalents and loans and receivables. A
financial asset is considered for derecognition when the contractual rights to the cash flows from the financial asset expire.
Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active
market are classified as loans and receivables. All the Group’s loans and receivables are short-term receivables and no
interest is accounted for on these balances.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired
where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment have been impacted.
For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a
portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of
delayed payments in the portfolio past the average credit period of 15 days, as well as observable changes in national or
local economic conditions that correlate with default on receivables.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Notes to the Financial Statements
3. Significant accounting policies (continued)
Impairment of financial assets
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When
a trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the
allowance account are recognised in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid
investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in
value.
Financial liabilities and equity
All the Group’s financial liabilities are classified as ‘other financial liabilities’.
A financial liability is considered for derecognition when the contractual obligations related to the cash flows for the
financial liability expire
Other financial liabilities and equity
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other
financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised
cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where
appropriate, a shorter period.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of
its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Warrants
Warrants are accounted for under IFRS 2 Share based payment where services have been received or are to be
received from 3rd party service providers. Otherwise, no accounting entries are posted.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the
Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure
required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Share-based payments
The Group has applied the requirements of IFRS 2 Share-based Payment. In accordance with the transitional
provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1
January 2005.
The Group issues equity-settled share-based payments to certain employees and third party suppliers. Equity-settled
share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the
date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a
straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted
for the effect of non market-based vesting conditions.
Fair value is measured by use of the Black Scholes model. The expected life used in the model has been
adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural
considerations.
Share-based payments are treated as a capital contribution reserve in the accounts of the parent company. The
movements during the year in this account are set out in Note 32.
Forecasts and discount rates
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which
goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected
to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Whilst there
is no indication of impairment, the model used by management in performing this assessment contains estimates in
regards to the inputs into the discount rates and the inherent assumptions in forecasting which includes estimates of the
growth in future sales, projected production costs and operating expenditure. Discount rates are based on management’s
assessment of risk inherent in the current business model. Reasonably possible changes in assumptions which could
cause an impairment are disclosed in note 15.
Company
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are
the same as those set out for the Group consolidated financial statements except as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
As permitted by section 408 of the Companies Act 2006, no separate income statement is presented in respect of the
parent Company. The profit attributable to the Company is disclosed in the footnote to the Company’s balance sheet.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, the directors are required to
make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
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Notes to the Financial Statements
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
In addition, the directors carry out a sensitivity analysis on the material assets and liabilities where judgments and
estimations have been required. This allows a review of the carrying value of these assets and liabilities in a range of
scenarios and the potential impact on the carrying value of the asset/liability.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements that the directors have made in the process of applying both the Group’s
accounting policies and that have the most significant effect on the amounts recognised in financial statements.
a. The directors have prepared the financial statements on the basis that the Company is a going concern. They
have applied sensitivities to cash flow forecasts to satisfy themselves of the robustness of these forecasts and
satisfied themselves that further funding can be raised during the 12 months following the date of signing of the
accounts should this be required. Further information on this critical judgement is included in note 3 and within
the Directors’ Report.
b.
Inventories include stocks of raw materials and finished goods that the directors believe will be sold within the
period to December 2018 covered by the Group’s business plan. The directors have assumed that the carrying
value is recoverable as a result of the sales and gross margins forecast in that plan. Stocks of product that are
not included within the sales forecasts have been provided against in full.
The Company had recently been notified by a significant customer that deployment for one of the larger
contracts had been delayed for reasons outside the Company’s control. Finished goods inventory of £745k was
held at the year end. Whilst regular dialogue is continuing with this customer who has reconfirmed that delivery
of the hardware will be undertaken in 2018, alternative contracts have been identified to utilise this inventory.
Therefore, no provision is deemed necessary.
c. The fair value of the SMIP intangible contract acquired was estimated using a discounted cashflow
valuation technique. The key areas of judgement were the discount factor used to calculate present value of the
cashflows and the timing of the delivery schedule.
The judgement set out in ‘a’ above is are also applied to the Company and this is the only critical judgement applied to
the Company.
Key Sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below.
At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets (other than
goodwill) to determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss
(if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the
recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of
allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are
allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be
identified.
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Notes to the Financial Statements
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
Key Sources of estimation uncertainty
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment
annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the
impairment loss is treated as a revaluation decrease.
5. Revenue
An analysis of the Group’s revenue is as follows:
Continuing operations
Sale of goods
Sale of services
Bank interest
2017
£
837,122
334,093
1,171,215
15,619
2016
£
1,230,672
592,457
1,823,129
7,290
1,186,834
1,830,419
6. Business and geographical segments
The Group has concluded that as in 2016, it operates only one business segment as defined by IFRS 8. The information
used by the Group’s chief operating decision maker to make decisions about the allocation of resources and
assessing performance is presented on a consolidated Group basis. Accordingly, no segmental analysis is presented.
For the future, the split of the business may be revised dependent upon geographical contract wins, centres of
operations and the strategic direction taken as the Group’s business develops further.
During 2017 there were 3 customers (2016: 2) whose turnover accounted for more than 10% of the Group’s total
revenue as follows:-
Customer A
Customer B
Customer C
2017
2016
Turnover
£
364,589
256,095
130,797
Percentage of
Total
%
31
22
11
Turnover
£
781,856
123,237
473,601
Percentage of
Total
%
43%
7%
26%
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Notes to the Financial Statements
6. Business and geographical segments
Revenue split between Sweden, India and other parts of the World was as follows:
2017
2016
Turnover
£
Percentage of
Total %
639,855
508,588
22,802
1,171,215
54.6
43.5
1.9
Turnover
£
757,337
988,392
77,400
1,823,129
Percentage of
Total %
41.5
54.3
4.2
Sweden
India
Rest of World
7. Loss for the year
Loss for the year has been arrived at after charging:
Net foreign exchange losses
Research and development costs
Depreciation of property, plant and equipment
Amortisation of intangibles
Bad debts written off
Impairment of stock
Staff costs (see note 9)
Operating lease costs (see note 31)
Cost of inventories recognised as an expense
8. Auditor’s remuneration
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for the other services to the
Group
- The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
- Corporate finance services
Total non-audit fees
9. Employee information
The average monthly number of employees (including executive directors) was:
Sales and administration
Research and development
Operations and logistics
2017
£
52,461
2016
£
47,870
4,148,238
2,912,631
68,292
420,689
26,908
55,276
45,619
210,344
6,558
96,060
4,623,728
3,335,645
173,814
616,423
182,011
925,214
2017
£
34,000
24,000
58,000
-
-
2016
Number
30,000
22,800
52,800
39,000
39,000
2017
Number
2016
Number
23
22
9
54
27
14
3
44
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Notes to the Financial Statements
9. Employee information
There are no employees in the parent company.
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Share option charges
2017
£
2016
£
3,861,185
2,902,486
499,340
263,203
689,292
292,464
140,695
2,327
5,313,020
3,337,972
Key management compensation
The directors are of the opinion that key management personnel during 2017 comprised the Board of Directors. These
persons had the authority and responsibility for planning, directing and controlling the activities of the Group.
Remuneration of these personnel is detailed below.
Their aggregate remuneration comprised:
Fees
Social security costs
Other pension costs
2017
£
985,965
36,907
2,833
1,025,705
2016
£
720,835
12,985
3,000
736,820
Specific details of director’s remuneration are included in Remuneration Committee Report within this Annual Report.
Neither John Cronin nor Harry Berry are members of the Company pension scheme. Included in the 2017 fees to
directors were amounts of £141,829 relating to prior year services.
10. Investment income
Interest revenue:
Bank deposits
Investment revenue is all earned on cash and cash equivalents.
11. Finance costs
Interest on bank overdrafts and loans
12. Tax
Current tax:
UK corporation tax on profits of the period
Adjustments in respect of prior periods
Deferred tax (note 23)
Total tax credit
2017
£
2016
£
15,619
7,290
2017
£
6,467
2017
£
2016
£
4,525
2016
£
(1,383,437)
(693,131)
65,177
(83,962)
1,402,222
-
(126,081)
(819,212)
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Notes to the Financial Statements
12. Tax (continued)
Loss before tax
Tax on profit on ordinary activities at standard CT rate of 19.25% (2016: 20%)
Effects of:
Expenses not deductible for tax purposes
Tax effect of capital allowances in (excess) / deficit of depreciation
Other short term timing differences
Additional R&D deduction
Losses surrendered for R&D tax credit
Utilisation of losses b/f
2017
£
(11,143,942)
(2,145,209)
55,879
(1,959)
(38,080)
(1,038,095)
1,836,632
-
2016
£
(7,936,451)
(1,587,290)
53,893
(7,626)
4,177
(540,372)
956,045
(23,031)
Unrelieved tax losses and other deductions in the period c/f
1,245,797
1,102,332
Difference in rate of deferred tax
Adjustment in rate of deferred tax
Research and development tax credit receivable - current year
Actual total tax in the year
1,073
65,177
(1,383,437)
(1,402,222)
(4,207)
-
(693,131)
(819,212)
Notes:
Current year tax rate 19.25%
Prior year tax rate
20%
Factors affecting tax charge in future years
The Finance Act 2016, which provided for a reduction in the main rate of corporation tax from 18% to 17% effective
from 1 April 2020, was substantively enacted on 6 September 2016. These rate reductions have been reflected in the
calculations of deferred tax at the balance sheet date.
13. Loss per share
The calculation of the basic and diluted loss per share is based on the following data:
Loss
Loss for the purposes of basic loss per share being net loss attributable to
equity holders of the parent
9,741,720
7,117,239
2017
£
2016
£
Number of shares
2016
No.
**Re-presented
2017
No.
Weighted average number of ordinary shares for the purposes of basic and diluted
loss per share
95,740,200
54,670,001
The denominations used are the same as those detailed above for both basic and diluted earnings per share from
continuing operations. However, in accordance with IAS 33 “Earnings Per Share”, potential ordinary shares are only
considered dilutive when their conversion would decrease the profit per share or increase the loss per share from
continuing operations attributable to the equity shareholders. The number of shares reflects the 200:1 share
consolidation exchange on 3 October 2017
**The number for 2016 has been restated following the 200:1 share consolidation which completed on 3 October 2017.
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Notes to the Financial Statements
14. Intangible assets (Group)
Cost
Balance at 1 January 2016
Acquired on acquisition of a subsidiary
Balance at 31 December 2016 and 31 December 2017
Amortisation
Balance at 1 January 2016
Charge for year
Balance at 31 December 2016
Charge for year
Balance at 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
Software
Intangible
SMIP
£
143,964
-
143,964
143,964
-
143,964
-
143,964
£
-
6,100,000
6,100,000
-
210,344
210,344
420,689
631,033
Total
£
143,964
6,100,000
6,243,964
143,964
210,344
354,308
420,689
774,997
-
-
5,468,967
5,889,656
5,468,967
5,889,656
Smart Metering Implementation Programme (‘SMIP’) – more details can be found in the Strategic Report.
15. Intangible assets (Company)
Cost
Balance at 1 January 2016 and 1 January 2017
Balance at 31 December 2017
Amortisation
Balance at 1 January 2016 and 1 January 2017
Balance at 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
16. Goodwill (Group)
Cost
Balance at 1 January and 31 December 2017
Impairment
Balance at 1 January 2017 and 31 December 2017
Carrying amount
At 31 December 2016 and 31 December 2017
Software
£
143,964
143,964
143,964
143,964
-
-
£
1,930,229
-
1,930,229
Goodwill and intangible assets have been allocated for impairment testing purposes to a single cash generating unit,
being the Group. The carrying amount of goodwill has been assessed based on value in use using cash projections
that cover a five-year period in which the key judgements are the revenue growth rates and the applied discount rate of
10.74%. Cash flows beyond that period have been extrapolated using a terminal growth rate of 4.5%. This reflects
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Notes to the Financial Statements
Goodwill (continued)
a higher expected growth in the smart metering market than the general economy, combined with the impact of higher
growth markets in which the group operates.
The Group applies sensitivity analyses to assess whether any reasonable possible changes in assumptions could cause
an impairment that would be material to these Consolidated Financial Statements.
The key assumption in the impairment review is that compound annual revenue growth will be 108% over the next five
years with revenues beyond that period based upon a terminal growth rate of 4.5%, consistent with the Group’s
forecast.
A 2% reduction in revenue compound annual growth rates over the next five years, a 2.2% increase in discount rate, or
a 3.06% reduction in terminal growth rate would reduce the £7.2 million headroom in the base case impairment model
to zero. A failure to achieve the expected revenue growth could therefore make an impairment to goodwill reasonably
possible.
17. Property, plant and equipment
No assets are held at valuation in these accounts.
Group
Cost
At 1 January 2016
Additions
Acquisition of subsidiary undertakings
Disposols
Exchange adjustment
At 1 January 2017
Additions
Disposals
Exchange adjustment
At 31 December 2017
Accumulated Depreciation
At 1 January 2016
Charge for the year
Disposals
Exchange differences
At 1 January 2017
Charge for the year
Disposals
Exchange differences
At 31 December 2017
Carrying Amount
At 31 December 2017
At 3` December 2016
Fixtures and
equipment
£
347,305
87,626
5,725
(105,582)
958
336,032
73,018
(118,739)
(165)
290,146
317,338
45,619
(105,407)
311
257,861
68,292
(118,515)
(2)
207,636
82,510
78,171
At 31 December 2017 the Group had no contractual commitments outstanding for the acquisition of property, plant and
equipment (31 December 2016: £nil).
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Notes to the Financial Statements
18. Subsidiaries (continued)
Group
Investment in subsidiaries
As at 1 January
Capital contribution in respect of share based payment
Investment in Connode Holding AB
Investment in CyanConnode Pvt Ltd
Impairment
As at 31 December
Company
Company
2017
£
8,330,129
421,917
-
1,183,548
(2,500,000)
7,435,594
2016
£
597,713
238,964
6,777,567
715,885
(2,500,000)
8,330,129
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation. The ultimate holding Company of the Group is CyanConnode Holdings plc. The members of the Group,
all of which are 100% owned are as follows:
CyanConnode Limited
Merlin Place, Milton Road
Cambridge CB4 0DP
•
•
100% of the issued capital of the Company is held by CyanConnode Holdings plc
The Company is incorporated in England and Wales and has an accounting period co
terminus with that of the Group
•
The principal activity of the Company is to provide a vehicle to market and sell the Groups’
CyanConnode Private Limited
B-41 Panchsheel Enclave
New Delhi-110017
India
•
•
•
•
range of products
The Company’s results are consolidated into these accounts
100% of the issued capital of the Company is held by CyanConnode Holdings plc
The Company is incorporated in India and has an accounting period ending 31 March
The principal activity of the Company is to provide a sales and marketing service for the
Groups’ range of products in India. The Company was incorporated on 20 January 2015
•
The Company’s results for the period ending 31 December 2015 are consolidated into
these accounts
•
The Company’s results for the period ending 31 December 2017 are consolidated into
these accounts
•
•
•
•
•
•
•
•
•
•
•
100% of the issued capital of the Company is held by CyanConnode Holdings plc
The Company is incorporated in Sweden and has an accounting period ending 31 De-
cember
The principal activitiy of the Company is to act as a parent company
The Company’s results for the 12 months ending 31 December 2017 are consolidated
into these accounts
100% of the issued capital of the Company is helf by Connode Holding AB
The Company is incorporated in Sweden and has an accounting period ending 31 De-
cember
The prinipal activity of the Comapny is to act as a parent company
The Company’s results for the 12 months ending 31 December 2017 are consolidated
into these accounts
100% of the issued capital of the Company is held by Connode AB
The Company is incorporated in India and has an accounting period ending 31 March
The principal activity of the Company is to provide a sales and marketing service for the
Group’s range of products in India
•
The Company’s results for the 12 months ending 31 December 2017 are consolidated
into these accounts
Connode Holding AB
Järnvägsgatan 10
172 35 Sundbyberg
Stockholm
Sweden
Connode AB
Järnvägsgatan 10
172 35 Sundbyberg
Stockholm
Sweden
Connode India
B-407 (IV), 4th Floor
Pranik Chambers
Off Sakinaka Junction
Saki Vihar Road
Andheri (East)
Mumbai – 400 072
India
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
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Notes to the Financial Statements
19. Fixed Asset Investments
Bank securities
The Company held no bank securities at either balance sheet date.
2017
£
47,827
2016
£
41,515
20. Inventories
Group
Raw materials
Finished goods at cost
2017
£
230,542
897,901
1,128,443
2016
£
248,675
91,503
340,178
The finished goods inventory, whilst held at cost, was also the replacement cost, as the units are current, assembled
in December 2017 and held specifically for a customer contract. Raw materials were after allowing £55,276 (2016:
£96,060) for write-down.
The Company held no inventories at either balance sheet date.
21. Trade and other receivables and financial assets
Both the Company and the Group have two categories of financial assets being loans and receivables and cash and
cash equivalents.
The Group’s loans and receivables and cash and cash equivalents as well as trade receivables are set out in the table
below
Amount receivable for the sale of goods
Cash and cash equivalents
Trade and other receivables
Amount receivable for the sale of goods
R&D tax credit receivable
Other debtors
Employee Benefit Trust Loan
Prepayments
Loans to other group entities
Group
Company
2017
£
1,290,752
5,393,922
2016
£
1,742,205
3,892,505
2017
£
-
2016
£
-
4,611,149
3,812,724
6,684,674
5,634,710
4,611,149
3,812,724
Group
Company
2017
£
1,290,752
1,391,039
179,233
-
158,089
-
2016
£
1,742,205
701,080
139,526
2017
£
-
-
10,281
-
2,082,797
94,260
-
18,029
2,717,355
4,828,462
3,019,113
2,677,071
2016
£
-
-
49,620
135,499
5,133
737,644
927,896
All amounts are due within one year, unsecured and interest free. For the amounts owed by group undertakings, they
are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made
for doubtful debts in respect of the amounts owed by related parties.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
77
Notes to the Financial Statements
21. Trade and other receivables and financial assets (continued)
During the year £26,908 was written off the value of the carrying amount of trade and other receivables (2016: £6,558).
The directors consider that the carrying amount of trade and other receivables at 31 December 2017 approximates to
their fair value.
Amounts receivable from the Group undertakings are shown in note 33.
Cash and cash equivalents
Group
2017
£
2016
£
Company
2017
£
2016
£
Cash and cash equivalents
5,393,922
3,892,505
4,611,149
3,812,724
Cash and cash equivalents comprise cash held by the Group and Company and short-term bank deposits with an
original maturity of three months or less. The carrying amount of these assets approximates their fair value.
Barclays Bank plc have given a guarantee in respect of £10,000 to HMRC on behalf of CyanConnode Limited. As
security for this guarantee, Barclays hold a legal charge over a deposit account held specifically for this purpose for
£10,000. This cash cannot be used for any other purpose. Barclays Bank plc have granted a foreign exchange facility of
£25,000.
22. Financial risk management
The Group’s financial function provides services to the business, monitors and manages the financial risks relating to the
operations of the Group. These risks include market risk (including currency risk), credit risk and liquidity risk. The Group
does not enter into or trade financial instruments, including derivative financial instruments, for any purpose.
Credit risk
The Group’s credit risk is primarily attributable to its trade receivables and cash, the credit risk on other classes of
financial asset is insignificant. The amounts presented in the balance sheet are net of allowances for doubtful
receivables. An allowance for impairment is made where there is an identified loss event which, based on previous
experience, is evidence of a reduction in the recoverability of the cash flows. There is no collateral held or other credit
enhancements.
At 31 December 2017 the Group had significant concentration of credit risk in one customer which represented 82% of
the Group’s trade receivables. Due to the nature of the contracts a significant proportion of this receivable had not yet
fallen due with 76% of the 82% not yet due as the customer delivery payment milestones on the projects have not yet
been reached. The customer has since paid £264,000 as it became due.
The receivable as at 31 December 2017 totalling £1,290,752 includes £565,000 not yet due, £103,000 30 days old,
£6,000 - 60 days and the balance of £616,752 is over 90 days old. The board have reviewed the aging of the trade
receivables and do not consider that impairment is necessary. There were bad debt charges totaling £26,908 during the
year (2016: £6,558).
The Company has made a provision against the full amount of the debt owed to it by its subsidiary company
CyanConnode Ltd totalling £39,330,690 (2016: £47,024,945). In addition, the Company has made a provision of
£1,170,145 (2016: £673,358) against the debt owed to it by CyanConnode Limited relating to the loan for EBT shares, to
bring the loan in line with market value of the shares held in the Trust. These amounts are not overdue. Since the Group
holds no collateral, the maximum exposure to credit risk is the carrying value of trade receivables.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Notes to the Financial Statements
22. Financial risk management (continued)
Market risk
The Group’s activities expose it to the financial risks of changes in foreign currency exchange rates as it undertakes
certain transactions denominated in foreign currencies. It is also exposed to the financial risks of changes in foreign
currency exchange rates as subsidiaries primary accounting records are held in foreign currencies (INR and SEK). The risk is
managed through careful control of the Group’s foreign currency balances.
The table below is showing assets and liabilities from the overseas group companies which have been converted to
Sterling at the 31 December 2017 exchange rate.
Fixed assets
Current assets
Current liabilities
Net assets/liabilities
INR
£
55,208
1,420,096
(1,179,681)
295,623
SEK
£
506,627
346,106
(155,695)
694,038
USD
£
-
123,807
(328,250)
(204,443)
EUR
£
-
(85,331)
-
(85,331)
Sensitivity analysis has been performed on the financial assets and liabilities to assess the exposure of the Group to
foreign exchange movements. It was considered that exposure to currency movements would impact the Group. A
variance of 10%, reasonable in today’s markets, would show a loss of £69,989, if Sterling weakened. Conversely, if
Sterling strengthened by 10%, then the positive variance would be £63,987. Whilst the Group has an exposure to
currency fluctuations, it is not considered a major factor.
Liquidity risk
Liquidity risk of the Group is attributable to the sales level at the current business development stage not
being able to generate sufficient cash flows to support required working capital. Also attributable to the company not
being able to raise sufficient funding. The Group manages liquidity risk by maintaining adequate reserves and banking
facilities and continuously monitoring forecast and actual cash flows.
Capital risk
Details relating to capital risk and capital risk management are set out in the capital structure section in the Directors’
Report on page 27.
23. Deferred tax
Recognised Deferred tax liability. This relates primarily to a deferred tax liability recognised on the acquisition of the intangible assets
relating to the Connode acquisition, and amortisation relating thereto.
At 1 January 2016
Deferred tax liability recognised on acquisition of intangible
Amortisation of SMIP intangible
Deferred tax – Swedish losses
At 1 January 2017
Deferred tax - current period based on Swedish operations at 22%
At 31 December 2017
£
-
1,069,019
(46,276)
(79,805)
942,938
(83,962)
858,976
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Notes to the Financial Statements
23. Deferred tax
Unrecognised provision for deferred tax
Accelerated capital allowances
Short term timing differences
Losses
Total unrecognised deferred tax (asset)
2017
£
(1,728)
-
2016
£
(4,566)
(22,810)
(5,785,198)
(5,786,926)
(4,516,872)
(4,544,248)
No deferred tax asset has been recognised due to the unpredictability and uncertainty of future profit streams.There is
no deferred tax asset in the Company.
24. Other financial liabilities
Both the Group and the Company have two categories of financial liability being trade payables held at amortised cost.
Those of the Group totalled £1,047,310 (2016: £689,696) and those of the Company totalled £60,158 (2016: £13,353).
The second category is accruals, held at an estimated fair value.
Trade and other payables
Trade payables
Other payables
Accruals and deferred income
Social security and other taxes
Group
Company
2017
£
1,047,310
45,841
853,819
301,098
2016
£
689,696
93,671
1,380,694
41,241
2017
£
60,158
5,251
65,288
-
2,248,068
2,205,302
130,697
2016
£
(27,529)
(4,801)
45,683
-
13,353
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs all of
which are payable within a year. The average credit period taken for trade purchases is higher at 63 days (2016: 49 days)
due to significant purchases of meters for smart metering deployments. Excluding this one supplier in India the average
credit period taken in 2017 was 54 days (2016: 19 days). The average credit period taken in 2017 for trade purchases
by the Company was 27 days (2016: N/A). Neither the Group nor the Company has incurred interest charges for late
payment of invoices during the year (2016: £nil). The Group has financial risk management policies in place to ensure that
all payables are paid within agreed credit timeframes.
The directors consider that the carrying amount of trade payables approximates to their fair value.
The Group’s operating lease commitments are shown within note 31.
25. Share capital
Issued and fully paid:
2017
£
2016
£
127,933,196 ordinary shares of 2.0 pence each (2016 15,790,791,254 ordinary shares of
0.01 pence each, or re-presented as 78,953,956 ordinary shares of 2.0 pence each)
2,558,663
1,579,123
Between 4 April 2017 and 6 April 2017 the Company completed a placing, the result of which was 1,906,912,392
ordinary shares of 0.01 pence per share being issued at a price of 0.17 pence per share to raise £3.2M before expenses.
(re-presented as 9,534,562 ordinary shares of 2.0 pence each issued at a price of 34 pence per share).
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
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Notes to the Financial Statements
25. Share capital (continued)
Between 1 January and 3 October 2017 invoices for certain suppliers were settled by way of share issues. The
number of shares issued for this purpose was 139,193,087 ordinary shares of 0.01 pence per share (or re-presented as
695,966 ordinary shares of 2.0 pence per share).
Between 1 January and 3 October 2017, certain employees chose to receive shares in lieu of part of their salary. The
number of shares issued for this purpose during this period was 358,650 ordinary shares of 2.0 pence per share (2016:
332,310,331 ordinary shares of 0.01 pence per share).
On 3 October 2017 a share consolidation exercise was completed whereby each 200 shares of 0.01 pence per share
were exchanged for 1 share of 2.0 pence per share. This resulted in an issued share capital of 89,543,134 ordinary shares
of 2.0 pence per share.
Furthermore, on 3 and 4 October 2017 following the share consolidation exercise 29,066,774 ordinary shares of 2.0
pence each were issued at a price of 28 pence per share to raise £8.1M before expenses.
On 13 November 2017, 9,136,772 ordinary shares of 2.0 pence per share were issued to employees to be held jointly in
a trust as part of the Company EBT Share Scheme.
Between October and December 2017, invoices for certain suppliers were settled by way of share issues. The number
of shares issued for this purpose during this period was 186,516 ordinary shares of 2.0 pence per share.
No shares were issued as a result of the exercise of share options (2016: none).
The Company has one class of ordinary share which carries no right to fixed income. to fixed income.
26. Own shares held
Group
£
Company
£
Balance at 1 January 2016 and 1 January 2017 (66,096,811 ordinary shares of
0.01 pence per share, re-presented as 330,484 ordinary shares of 2.0 pence per
share following the share consolidation that completed on 3 October 2017)
Issue of shares during 2017 (9,136,772 ordinary shares of 2.0 pence per share)
Balance at 31 December 2017 (9,467,256 ordinary shares of 2.0 pence per share)
(808,856)
(2,444,087)
(3,252,943)
-
-
-
Own shares are those issued to the Employee Benefit Trust.
27. Share option reserves
Balance at 1 January 2016
Credit to equity for share options
Debt to equity for share payments
Balance at 31 December 2016
Credit to equity for share options
Credit to equity for share payments
Balance at 31 December 2017
Group
Company
£
624,411
269,692
(267,365)
626,738
421,917
267,365
£
624,411
269,692
(267,365)
626,738
421,917
267,365
1,316,020
1,316,020
Share option reserve arises from the share options issued to the employees of the Group. The movement during the
year is due to the issue of share options during the year and the issue of shares in lieu of remuneration.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
81
Notes to the Financial Statements
28. Retained earnings
Balance at 1 January 2016
Net loss for the year
Balance at 31 December 2016
Net loss for the year
Balance at 31 December 2015
29. Translation Reserve
Balance at 1 January 2016
Exchange differences on translation of foreign operations
Balance at 1 January 2016
Exchange differences on translation of foreign operations
Balance at 31 December 2017
Group
£
Company
£
(35,233,291)
(36,644,530)
(7,117,239)
(5,335,169)
(42,350,530)
(41,979,699)
(9,741,720)
(10,715,193)
(52,092,250)
(52,694,892)
Group
£
(145,661)
(30,963)
(176,624)
46,384
(130,240)
Translation reserve arises from retranslating the financial results of the foreign subsidiary which are consolidated into the
Group’s consolidated financial statements.
30. Notes to the consolidated cash flow statement
Operating loss for the year:
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of Intangible assets
Impairment of stock
Foreign exchange
Share-based payment expense
Operating cash flows before movements in working capital
(Increase)/ decrease in inventories
Decrease/ (increase) in receivables
Increase in payables
Cash reduced by operations
Income taxes received
Net cash outflow from operating activities
2017
£
2016
£
(11,153,094)
(7,939,216)
68,504
420,689
55,615
46,220
689,282
45,619
210,344
-
47,870
2,327
(9,872,784)
(7,633,056)
(843,543)
347,917
42,766
247,307
(1,713,013)
1,457,369
(10,325,644)
(7,641,393)
628,301
579,585
(9,697,343)
(7,061,808)
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise
cash at bank and other short-term highly liquid investments with maturity of three months or less.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com
Notes to the Financial Statements
31. Operating lease arrangements
The Group as a lessee
Minimum lease payments under operating leases recognised as an expense in the year
173,814
182,011
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
2017
£
2016
£
Within one year
In the second to fifth years inclusive
2017
£
82,800
17,921
2016
£
200,130
163,875
Operating lease payments represent rentals payable by the Group for certain of its office properties. These include its
offices in Cambridge and in Gurgaon, India.
The Company as a lessee
Minimum lease payments under operating leases recognised as an expense in the year
2017
£
82,274
2015
£
78,033
32. Share-based payments
Equity-settled share option scheme
The Company has a share option scheme for all employees of the Group. Options are exercisable at a price equal to
the average quoted market price of all the Company’s shares on the date of grant. The vesting period is 4 years. If the
options remain unexercised after a period of 10 years from the date of grant, the options expire. Options are forfeited if
the employee leaves the Group before the options vest.
Details of the share options outstanding during the year are as follows.
2017
Weighted
average
exercise
price (in £)
0.80
0.57
0.69
0.38
0.51
2016**re-presented
Weighted
average
exercise
price (in £)
0.8
0.6
0.8
0.6
0.8
Number
of share
options
3,201,241
5,873,647
(51,040)
9,023,848
1,744,743
Number
of share
options
9,023,848
11,874,654
(579,770)
20,318,732
1,893,923
Outstanding at beginning of period
Granted during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
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Notes to the Financial Statements
32. Share-based payments (continued)
The options outstanding at 31 December 2017 had a weighted average exercise price of £0.38 and a weighted average
remaining contractual life of 90 months. In 2017, options were granted on 3, 6 and 10 April, 16 May, 8 June, 23, 25 and
27 October, 17, 22 and 28 November and 11, 12 and 19 December. The aggregate of the estimated fair values of those
options is £2,759,372. In 2016, options were granted on 6 and 7 July and 21 September. The aggregate of the estimated
fair values of those options is £1,766,216. A share option charge of £421,917 was recognized during the year. Note 27
gives further detail on the share option charges and reserve.
The inputs into the Black-Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
2017
2016** re-presented
32.78p
50.88p
64%
4 years
0.50%
0%
0.50p
0.70p
77%
4 years
0.50%
0%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous
36 months. The expected life used in the model has been adjusted, based on management’s best estimates, for the
effects of non-transferability, exercise restrictions and behavioural considerations.
** The re-presented number refers to the number of options following the 200:1 share consolidation which
completed on 3 October 2017. The effect on share options following the share consolidation was that the number of options
referred to in all share option agreements from prior to the consolidation would be divided by 200, and the exercise price
in all share option agreements from prior to the consolidation would be multiplied by 200. All other terms relating to the
share options remain the same.
Warrants
The Company issues share warrants, either in connection with the issue of equity or for the service received
from third parties. Warrants are issued at a fixed price and for a fixed number of shares, such that each warrant
entitles the holder to subscribe for one Ordinary Share in the Company. All share warrants vest immediately on issue.
Details of the share warrants outstanding during the year are as follows:
2017
2016
Weighted
average
exercise
price (in £)
1.20
0.39
0.77
-
0.54
0.53
Number of
warrants
529,076
7,400
(194,871)
-
341,605
313,703
Weighted
average
exercise
price (in £)
Number of
warrants
**re-presented
126,513
402,563
-
-
529,076
300,710
0.80
1.20
-
-
1.20
1.20
Outstanding at beginning of period
Granted during the period
Expired during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
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Notes to the Financial Statements
32. Share-based payments (continued)
The inputs into the Black Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Expected dividend yield
2017
2016** re-presented
32.78p
54.0p
64%
4 years
0.50%
0%
0.50p
0.62p
77%
4 years
0.50%
0%
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 36
months. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects
of non-transferability, exercise restrictions, and behavioural considerations.
** The re-presented number refers to the number of options following the 200:1 share consolidation which completed on
3 October 2017. The effect on warrants following the share consolidation was that the number of warrants referred to in
all warrant deeds from prior to the consolidation would be divided by 200, and the exercise price in all warrant deeds from
prior to the consolidation would be multiplied by 200. All other terms relating to the warrants remain the same.
33. Related Party Transactions
Included in the investment in subsidiaries figure (Note 19) of £9,935,594 is an amount of £2,000 (2016: £2,000)
relating to the investment held by CyanConnode Holdings plc in CyanConnode Ltd. In 2017 an investment of
£1,183,548 (2016: £715,885) was made by CyanConnode Holdings Plc in CyanConnode Private Limited. The
remaining amount is a capital contribution amounting to £1,203,242 (2016: £781,326), which relates to the share
compensation charge in respect of share options granted in the Company on behalf of employees in CyanConnode
Limited. The movement in 2017 of £421,916 related to a credit to the share option reserve which was mainly as a result
of share option charges relating to shares in the Employee Benefit Trust.
During the year executive directors of the Group and Company purchased newly issued shares to the amount of 313,021
shares (£108,402).
During the year, the Group and Company paid £543,000 (2016: £570,834) in respect of services provided by executive
directors.
Company
Transactions between the Company and its subsidiaries and associates are disclosed below.
Loans to related parties
CyanConnode Limited
Connode Holding AB
Connode AB
CyanConnode Private Limited
2017
£
2016
£
47,024,950
39,330,690
2,311,850
-
405,504
703,765
29,759
4,120
49,742,304
40,068,334
The balance due to CyanConnode Holdings plc from Connode Holding AB carries an interest charge of £15,554;
amounts due from the other subsidiaries do not carry an interest charge. CyanConnode Holdings plc makes a
management charge for services rendered to CyanConnode Limited. In the year to 31 December 2017 these amounted
to £334,571 (2016: £1,047,404).
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L
85
Professional Advisers
Nominated Adviser and Broker
FinnCap Limited
60 New Broad Street
London
EC2M 1JJ
Auditor and Reporting Accountants
Deloitte LLP
1 Station Square
Cambridge
CB1 2GA
Solicitors to the Company
Taylor Wessing LLP
24 Hills Road
Cambridge
CB2 1JP
Taylor Vinters
Merlin Place
Milton Road
Cambridge
CB4 0DP
Registars
Share Registrars Ltd
The Courtyard
17 West Street
Farnham
GU9 7DR
Patent Attorneys
Beresford & Co
16 High Holborn
London
WC1V 6BX
Principal Banker
Barclays Bank plc
Chesterton Branch
28 Chesterton Road
Cambridge
CB4 3AZ
Financial Public Relations Advisors
to the Company
Walbrook PR Ltd
4 Lombard Street
London
EC4N 1TX
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017www.cyanconnode.com 86
CyanConnode, Merlin Place, Milton Road, Cambridge, CB4 0DP
T: +44 (0) 1223 225060
E: information@cyanconnode.com
CYANCONNODE.COM
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2017Stock symbol: CYAN.L