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CYANCONNODE HOLDINGS PLC
ANNUAL REPORT AND ACCOUNTS 2018
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Contents
Our Business
02 CyanConnode at a glance
03 Highlights
05 Chairman’s Statement
10 Financial Review
13 Strategic Report
Our Governance
20 Board of Directors
23 Corporate Governance Statement
29 Directors’ Report
32 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
54 Notes to Financial Statements
86 Professional Advisers
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CyanConnode at a glance
A world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks
CyanConnode is a world leader in the design and development of narrowband RF smart mesh networks
that enable the 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 Omnimesh solution, based on IPv6 6LoWPAN, 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 networks and provide excellent penetration through obstructions, such as buildings, in smart metering
deployments.
Highlights
Operational highlights
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• Revenue of £4.5 million achieved for 2018, being more than three and half
times higher than the prior year revenue, (2017: £1.17 million)
• The innovative Omnimesh smart metering platform, launched in June 2018,
has generated over £15 million worth of orders during 2018, with £3 million
of revenues recognised against those orders to the end of 2018
• The first Licensing Agreement for CyanConnode’s smart metering technology
was signed with Beijing Instruments, (a well-established Chinese meter
manufacturer), potentially worth $4 million (£3.1 million)
• A significant improvement of the financial position with a 43% decrease in
operating loss to £6.3 million, (2017: £11.2 million), and adjusted LBITDA
improving from £9.9 million in 2017 to £4.8 million in 2018 (see page 11)
• Consolidation of European operations into the Company’s centre of
excellence based in Cambridge, with knowledge transfer and the closure of
Swedish engineering facilities concluded
• 22% reduction in operating costs
• Cash and cash equivalents at the year-end of £4.6 million (2017: £5.4 million)
• Strong growth delivered as CyanConnode continues to establish itself as a
world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Highlights
Financial highlights
Revenue
Gross Margin
Operating costs
Operating loss
Depreciation and
amortisation
LBITDA ¹
Adjusted LBITDA²
Cash
2018
£m
4.5
2.7
(9.1)
(6.3)
(0.5)
(5.8)
(4.8)
4.6
2017
£m
1.2
0.5
(11.7)
(11.2)
(0.5)
(10.7)
(9.9)
5.4
%
Change
281%
452%
22%
43%
3%
45%
51%
15%
¹ Where "LBITDA" is Loss before Interest, Tax, Depreciation and Amortisation. This is calculated by adding Depreciation and
Amortisation back to the Operating loss. Please see page 10 for details.
² Where "Adjusted LBITDA" is calculated as LBITDA after the impact of stock impairment, foreign exchange gains/losses and
share-based compensation have been removed. Please see page 10 for details.
Post Year End Highlights
• Follow-on order from Larsen & Toubro (“L&T”) resulting in incremental increase to order received in
May 2018 of £0.4 million
• Follow-on order from HM Power for £0.7 million for smart metering implementation for Swedish
utility
• Order received from a new partner in India for a deployment of a hybrid RF smart mesh and cellular
communications network
• R&D tax credit cash refund claim of £0.8 million (2017: £1.4 million) to be submitted to HMRC in
May 2019 and expected to be paid in June/July 2019.
• New Board appointments made to assist the Company’s growth.
• Q1 2019 trading performing well against company budget and in line with expectations, operating
costs are consistently below budget averaging £0.48 million per month.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 5
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Chairman’s Statement
Dear Shareholder
I am delighted to report that revenue for 2018 was £4.5m, being almost four times
higher than 2017. In 2018 CyanConnode launched Omnimesh, an Internet Protocol
version 6 (IPv6) standards-based smart metering platform, for which the Company
has secured over £15 million of new orders to date as well as establishing the
Company as a world leader in Narrowband Radio Frequency (RF) Smart Mesh
Networks.
Revenue growth has been underpinned by strict cost control, supported by the
streamlining of European operations, which has resulted in the lowest operating
loss since 2015. These changes will continue to be felt during 2019, with the
Company delivering on its order book and monthly cash costs running below budget.
The Company sought further equity in late 2018 to secure funds for working capital, growth and development. Despite
an uncertain macroeconomic outlook, the Company raised £5.4 million (gross), including a £1 million investment by the
directors, at a share price of 10 pence per share.
I am pleased to report that, as a result of the fundraise and cost control measures, the Company has improved its financial
position. I am therefore confident that CyanConnode will flourish in 2019 and that it has sufficient funds in place to deliver
on its current business plan.
Nevertheless, with break-even sometime away and with continued uncertainty around the timing of customer receipts, it is
prudent that the Company continues to explore options to finance its working capital requirements.
Operational Review
CyanConnode is a world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks that enable cost-effective
machine-to-machine ("M2M") communication. The Company’s innovative Narrowband RF Smart Mesh Networks offer highly
reliable data communication and management of devices including smart meters. Smart metering improves utilities’
business efficiency and facilitates the reduction of non-technical losses. Consumers also benefit from smart metering, as it
allows them to measure and control their energy consumption.
In 2018 the Company launched Omnimesh, a smart metering platform, which has gained substantial commercial traction.
With this award-winning technology and experienced teams, based in Cambridge and India, CyanConnode believes it is
ideally placed to capitalise upon increasing global demand for smart metering solutions, which McKinsey estimates is worth
US$12 billion and growing at a compound rate of 14% p.a.
As a result of the success of Omnimesh, and its suitability to the markets in which the Company operates, the Company has
taken a decision to write down its stock of Optimal modules, originally manufactured for its Bangladesh order. The Company
is no longer offering Optimal to its customers and plans to move all existing customers to Omnimesh.
India
During 2018, the Company made significant progress in India. The Indian smart metering market continues to evolve
rapidly and due to the experience gained from successful implementations, the opportunities for CyanConnode continue to
increase.
In May 2018, the Company announced a £2.5 million order through CyanConnode’s Indian strategic Partner, L&T,
a US$27 billion global technology, engineering, construction, manufacturing and financial services conglomerate.
The order was for a smart metering deployment to Madhya Pradesh Paschim Kshetra Vidyut Vitaran Company Ltd (“MPWZ”),
an Indian state-owned utility with over 3 million electricity meters, located in Indore, Ujjain and other cities. The Company
is pleased to announce that all hardware modules for this project were delivered during 2018, contributing significantly
to the revenues for the year.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Chairman’s Statement
India (continued)
The launch of the innovative Omnimesh smart metering platform in June 2018, was a significant milestone for
CyanConnode. Omnimesh meets the Indian Government’s standards for Smart Metering and Advanced Metering
Infrastructure and its suitability for the market has been demonstrated by orders to date in excess of £15 million.
In September 2018, the Company announced a £9.1 million order for Omnimesh, from a Tier One Metering Partner for an
Indian State-Owned Utility. This is the largest order of its kind in India with 40,000 modules being delivered to the customer
by the year end. Furthermore, the Company was delighted to announce in the same month a follow-on five-year support
and maintenance contract for the project, totalling £2.3 million.
During the year, CyanConnode completed an order won from Genus Power Infrastructures ("Genus") in 2017. The order
included 23,000 RF modules and the end customer was the Indian state-owned utility Uttar Gujarat Vij Company Ltd. This
project made a large contribution to revenue. JK Agarwal, Joint MD Genus said “The implementation of CyanConnode’s
world class communication solution, based on IPv6 narrowband RF mesh network, will meet the technical requirements for
AMI in India. CyanConnode’s robust networks are proven by its customer deployments globally and Genus looks forward to
working with CyanConnode on this and other projects in India. By joining hands with such proven players, we are committed
to make Smart Cities and Smart Grid possible in India.”
L&T placed further orders for Optimal, CyanConnode’s proprietary cost-optimised narrowband RF mesh network based on
Internet Protocol version 4 (IPv4), bringing the total number of Optimal RF modules ordered by L&T to 41,735.
CyanConnode was also pleased to see the successful “Go Live” of a 2015 purchase order from Enzen Global Solutions
Pvt Ltd, for a large pilot project being implemented by Chamundeshwari Electricity Supply Corporation Limited, Mysore,
Karnataka in southwest India.
On 7 June 2018, Power minister R.K. Singh requested that meter manufacturers ramp up production of smart prepaid
meters, as the increase in the number of consumers being added to the electricity grid would ensure a steady demand.
“Manufacturing of smart prepaid meters will also generate skilled employment for the youth,” the statement added.
Notably, India is poised to be the second fastest growing adopter of smart metering globally and it is estimated that the
number of smart meters will increase from the current level of less than 0.5 million meters to c.250 million meters by 2021.
Furthermore, on 24 December 2018, the Indian Government announced it had mandated the use of smart prepaid
electricity meters in the country beginning April 2019 and is looking to complete the transition over the next three years¹.
Leading meter manufacturers, such as Genus, HPL Electric & Power and L&T, have integrated CyanConnode’s standards-
based Omnimesh technology with their IS 16444 smart meters, so as to comply with Bureau of Indian Standards meter
protocol. Through these partners CyanConnode expects to see further strong growth. However, although Indian
utilities are issuing large ‘Requests For Proposals’ ("RFPs") for smart meters with RF mesh technology, due to the 2019 Indian
General Election, (being held in seven phases from 11 April to 19 May 2019, with the counting of votes on 23 May), the
Company does not expect to receive any meaningful orders during H1. Nevertheless, a number of these ‘Requests For
Proposals’ are in the final stages of tender and the Company will keep the market updated on developments during H2 2019.
APAC and Middle East
The smart metering market in the APAC and Middle East is maturing and continues to present a significant opportunity for
CyanConnode. In order to obtain a leading position, CyanConnode acknowledges that it is necessary to establish strategic
alliances, and it is actively pursuing opportunities in several territories.
In November 2018, the Company announced the signing of two new distribution agreements, one with Adtel Inc
to distribute smart metering RF network technology in the Philippines, and the other with DS Technology DWC LLC, a
Systems Integration and Distribution Partner for the UAE and Bahrain. These partners will maximise sales potential in several
new territories as well as expanding the Company’s global distribution channels.
1 https://economictimes.indiatimes.com/industry/energy/power/power-ministry-mandates-use-of-smart-prepaid-meters-april-2019-onwards/articleshow/67233334.cms
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Chairman’s Statement
APAC and Middle East (continued)
In December 2018, the Company signed its first Licensing Agreement with Chinese Partner, Beijing Jingybeifang
Instrument Co., Ltd (“Beijing Instruments”). Beijing Instruments is a well-established meter manufacturer and, since 1998,
it has been a main supplier to the State Grid Corporation of China. The Licensing Agreement provides Beijing Instruments
with the right to use CyanConnode's reference designs to manufacture RF mesh modules and gateways, which Beijing
Instruments hopes to supply to its customers.
Beijing Instruments will pay a license fee every time a RF module or gateway unit is manufactured. The Licensing
Agreement is for a predetermined number of modules and gateways, with a potential value totalling £3.1 million over a
two-year period. It is currently envisaged that Beijing Instruments will commence production in H2 2019. Each of these
RF modules when deployed in a smart meter will also lead to additional revenue for CyanConnode’s Omnimesh smart
metering platform.
Under the agreement CyanConnode and Beijing Instruments will collaborate on opportunities in various territories
including Afghanistan, Kenya, Nepal, and Sri Lanka. In these territories Beijing Instruments will act as the prime contractor
and will supply the hardware with CyanConnode supplying the Omnimesh smart metering platform. This structure reduces
CyanConnode’s working capital requirements as the Company doesn’t need to finance any manufacturing costs.
The previously announced contracts in Iran and Bangladesh are still active although they have suffered delays. The delay
to the Iran contract is largely due to geopolitical factors. The Company is in discussion with its partners to find alternative
routes to progress these contracts.
Europe
During the period the Company announced two orders from customers in the Nordics. In June 2018 a purchase order worth
£0.2 million was received from an existing Partner for a smart metering deployment for a European Utility and the order
was completed in 2018. In July 2018 an order for £0.6 million was announced for the supply of an IPv6-based solution
with perpetual software licenses and annual maintenance fees, for an initial period of 10 years.
CyanConnode was pleased to see progress of the UK Smart Metering Implementation Programme, with the rollout of
SMET2 meters commencing in Q4 2018. More than half a million SMET2 meters have been installed to date and installations
are currently running at over seven thousand SMETS2 meters per day. CyanConnode’s technology is embedded in the
Toshiba SUK2 and SUK3 SMETS2 Communications Hub which enables SMETS2 meters located in a spot that cannot
access mobile services, known by mobile operators as "not-spots", to communicate with the Data Communications Centre,
(DCC). Toshiba SUK2 and SUK3 SMETS2 Communications Hubs are being deployed under the Telefónica contract with the
DCC, for the Central and Southern regions.
Based on an assumption that 10% of SMETS2 meters under the Telefónica contract will be located in a “not-spot”,
CyanConnode’s contract with Toshiba is projected to deliver £24 million of revenues over a 15-year period. Revenue
is derived from software licenses and support fees and will increase after the first 500,000 pre-paid licenses have been
activated. The first 500,000 licences were purchased from Connode, prior to its acquisition and therefore CyanConnode
does not expect material revenue from this contract during 2019. £0.5 million of revenue was recognised for this project in
2018.
In September 2017, CyanConnode announced an order from NIK, a manufacturer of electricity, water and heat meters. The
order relates to the deployment of one million smart meters in the Ukraine, over a three-year period. The order continues to
suffer from delays. The original order was for Optimal, however following the decision by the Company to no longer supply
Optimal, this customer will be moved onto Omnimesh should the order progress. The Company is also in discussion with
partners to find alternative routes to progress this contract.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Chairman’s Statement
Other Highlights
As highlighted earlier in this statement, in June 2018, the Company officially launched its Omnimesh smart metering
platform. Omnimesh utilises Internet Protocol version 6, (IPv6), and narrowband RF mesh technology, (the acronym for the
combination being 6LoWPAN), to create a scalable and robust platform that provides cost-effective machine-to-machine
communication for smart city solutions. Orders for Omnimesh currently stand at £15.2 million.
In September 2018, the Company announced the consolidation of its European operations. Connode Holding AB, based
in Sundbyberg, Sweden, was acquired by Cyan in July 2016, whereupon Cyan changed its name to CyanConnode. During
2018 its operations, including software development and technical support, were transferred to the Company’s Cambridge
Headquarters. CyanConnode continues to support Nordic customers and develop Nordic opportunities using Swedish staff
working as Company contractors.
In 2018, CyanConnode was recognised for its achievements by winning the Frost and Sullivan Company of the Year Award
for the Global Smart Metering Industry. In addition, CyanConnode was acknowledged at the Independent Power Producers
Association of India awards 2018, for its Omnimesh smart metering platform. In December 2018, the Company was invited
to be a keynote speaker at the Future Tech Festival in India; the festival was a major initiative under the India-UK Technology
Partnership and was promoted by Prime Ministers Narendra Modi and Theresa May.
In November 2018, the Company raised £5.4 million (gross) by the issue of ordinary shares to new and existing
shareholders. The Board of Directors would like to thank shareholders for their continued support and patience during 2018.
Your Board’s focus for 2019 will be to restore shareholder value by converting existing and new orders into revenue and by
carefully controlling operating costs.
Board Changes
In June 2018 Simon Smith stepped down from the Board after a tenure of more than eight years. The Company would like
to thank him for his contribution and support during that time. In July 2018, Heather Peacock joined the Board as Group
Financial Director and David Johns-Powell joined the Board as Non-Executive Director. In November, Peter Hutton also
stepped down and again the Company would like to thank him for his contribution.
In 2019, the Company saw Board changes with the appointment of Chris Jones and Peter Tyler as Non-Executive Directors
and the promotion of Heather Peacock to Chief Financial Officer of the Company. Harry Berry stepped down from the
Board on 31 March 2019 and will step down from the role of Chief Operating Officer at the next Annual General Meeting
in June 2019. Harry will provide ad hoc consultancy services to the Company for a 12-month period from July 2019. Paul
Ratcliff will also be stepping down as Non-Executive Director following the next Annual General Meeting.
Your Board is fully focussed on growing its order book whilst carefully controlling operating costs and converting existing
and new orders into revenue.
People
With a total investment in excess of £5.1 million, your Board of Directors and Management are fully invested in the business,
details of which can be found in the Directors’ Remuneration Report on page 32 of the 2018 Annual Report.
I would also like to thank all staff, contractors and partners for their continued efforts in developing, selling and delivering
innovative solutions. Over the past few years CyanConnode has built a world class team, and it is their know-how and
commitment that will set the Company apart from its competitors.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com Chairman’s Statement
Post Period End
In February 2019, the Company announced a follow-on order from L&T for the Madhya Pradesh Paschim Kshetra Vidyut
Vitaran Company Ltd (MPWZ) project, announced in May 2018, worth approximately £0.4 million. The Company is pleased
to report that all hardware for this order was delivered before the end of March 2019.
In April 2019, CyanConnode announced a purchase order from a new partner for an Indian state-owned utility, who is also
a new end-customer. This order was for a hybrid RF Smart Mesh and Cellular communications network and will be delivered
in full during 2019.
Also, in April 2019, the Company announced a follow-on order from HM Power worth approximately £0.7 million.
The order leverages the functionality of Omnimesh and will be used for the smart metering of electricity and district heating
using long-range RF communications to maximise the resilience of the RF Smart Mesh Network in rural areas.
During the first quarter of 2019, CyanConnode achieved accreditation for 3 ISO standards (9001:2015, 27001 and 14001),
all of which endorse the quality of the Company’s products.
Outlook
2018 was a significant year for CyanConnode and the launch of the Omnimesh smart metering platform confirmed its world
leadership in Narrowband Radio Frequency Smart Mesh Networks that facilitate machine-to-machine communication.
Trading in the first quarter of 2019 is in line with our expectations and operating costs are below budget. CyanConnode will
enter H2 2019 with a backlog of orders and as a result, 2019 revenues are expected to show further increase over 2018
revenues, with further improvement of the visibility of revenues going forward.
Given the scale and nature of the Company’s projects, changes to the level and timing of sales, or to the timing of customer
payments, creates a material uncertainty which could impact the Group’s funding requirements. Please see the Financial
Review for more information.
CyanConnode looks forward to updating the market with further developments, including new orders for our pioneering
technology, as we continue to capitalise on the increasing global demand for smart city solutions.
John Cronin
Executive Chairman
15 May 2019
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Financial Review
Heather Peacock, Chief Financial Officer
Financial Highlights
I am pleased to present my first Annual Report since joining the Board in July 2018. The Company is particularly pleased to
report revenues in 2018 of £4.5 million, which are substantially higher than FY 2017 revenues (£1.2 million). India was the
main contributor to this revenue growth, however Sweden and the Nordics also contributed largely to this figure.
FY 2018 operating loss before tax was a significant improvement over the 2017 loss. This reduction was partly due to the
increase in revenues, but also a result of significant reductions in costs during the year following the completion of
development of the Company’s Omnimesh product in June 2018 and streamlining of costs across the organisation. The
Company ended the period with £4.6 million of net cash (2017: £5.4 million), following a successful share placing of
£5.4 million (before expenses) in November 2018.
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. The extra funds raised in November 2018 provide the
Group with incremental financial resources for research and development, growth, general working capital, customer and
partner development activities in India and other markets.
A summary of the key financial results is set out in the table below and discussed in this section.
Revenue
R&D expenditure
(including staff costs)
Operating loss
LBITDA
Adjusted LBITDA
Cash and cash equivalents
Average monthly
operating cash outflow
Average employee
headcount
Year-end headcount
2018
£’000
4,465
2,466
(6,320)
(5,848)
(4,809)
4,564
(487)
2017
FTE¹
52
47
2017
£’000
1,171
4,148
(11,153)
(10,664)
(9,868)
5,394
(808)
2016
FTE
54
61
2016
£’000
1,823
2,913
(7,939)
(7,683)
(5,973)
3,893
(588)
2015
FTE
44
52
2015
£’000
272
2,038
(4,907)
(4,878)
(4,769)
2,461
(438)
2014
FTE
31
31
¹Where FTE is the number of full-time equivalents
Included within the table above are two alternative performance measures (“APMs” – see note 3): LBITDA and adjusted
LBITDA. These are additional measures which are not required under IFRS. These measures are consistent with those used
internally and are considered important to understanding the financial performance and the financial health of the Company.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 11
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Financial Review
Key Financials (continued)
LBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) is a measure of cash generated by operations before
changes in working capital. Adjusted LBITDA is a measure of cash generated by operations before changes in working capital
and after other items have been adjusted for (see below). It is used to achieve consistency and comparability between reporting
periods. These measures are calculated as follows:
Operating loss
Depreciation and Amortisation
LBITDA
Stock Impairment
Share based compensation
Acquisition - related costs
Foreign exchange losses
Adjusted LBITDA
Notably from the table above:
2018
£’000
(6,320)
472
(5,848)
578
445
-
16
2017
£’000
(11,153)
489
(10,664)
55
689
-
52
(4,809)
(9,868)
2016
£’000
(7,939)
256
(7,683)
96
2
1,564
48
(5,973)
2015
£’000
(4,907)
29
(4,878)
(4)
102
-
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(4,769)
•
• Adjusted loss before interest, tax, depreciation and amortisation ("LBITDA") is now marginally higher than it was in
2015 with the costs of the Connode acquisition in 2016 and the development costs associated with the launch of our
Omnimesh standards-based product having been fully absorbed.
2018 includes a £578,000 stock impairment charge relating to a write-down of the Optimal stock we are holding as
we plan to move all customers to Omnimesh. We believe this will bring significant benefits to our customers and also
help us to minimise our support and development costs.
Share based compensation charges reflect the fair value of share options granted to employees over the vesting period
of these options. Please see note 32 for more information.
•
Key Performance Indicators (KPIs)
The financial key performance indicators for the Group are as set out in the key financial results table above. 2018
revenues were almost four times 2017 comparatives resulting from the delivery of orders won in 2017 and 2018. Research
and development expenditure fell by 41% year-on-year following the launch of Omnimesh. As a result, operating losses,
LBITDA and adjusted LBITDA reduced to around half of 2017 losses. The Group’s average headcount has decreased from
54 in 2017 to 52 in 2018. The change in staffing is better illustrated by year end headcount, which fell by 14. In 2017, we
ramped our research and development activities and then in 2018 we reduced this headcount again following the successful
launch of Omnimesh.
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 2019 will be further streamlining its processes from order to delivery and continuing to close
further orders. A further focus will be ensuring collection of cash from customers as company revenues continue to grow. A
number of avenues are also being pursued to secure working capital facilities to help ease cash flows and mitigate against
any unforeseen delays in deliveries or customer payments.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
12
Financial Review
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 2020 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 timing of customer payments.
The forecast taken into account in the business plan shows that the Group has sufficient funds to execute its business
plan and that there would not be a need for further equity funding. If a more pessimistic scenario were taken and an
assumption were taken that no cash is received within the next twelve months from any new orders not currently
contracted, and that there were significant delays to receipts from customers, there is a material uncertainty relating to the
Group’s ability to continue as a going concern. Should the Group experience such downside sensitivities the directors would
look at measures such as cost reduction and working capital facilities (including invoice factoring) as ways to conserve cash
within the business.
Notwithstanding the material uncertainties described above, the directors have a reasonable expectation that the 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 disclosed in note 33 to the financial
statements.
Dividends
The directors do not recommend the payment of a dividend (2017: £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 its industry sector and stage of its development.
`
Heather Peacock
Chief Financial Officer
15 May 2019
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
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Strategic Report
Statement of scope
This Strategic Report has been prepared 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
The principal activity of the Group during the year was developing and supplying software and hardware for wireless
machine-to-machine ("M2M") communication over a narrowband RF smart mesh network. The principal activity of the
Company is that of a holding company. Currently the Group has over one million devices installed throughout the world.
Business Model
CyanConnode’s business model is based on collaborative partnerships, which engage with customers and markets by
establishing eco-systems that include manufacturers and system integrators. Our Partners support the transfer of skills and
experience to facilitate customer ownership of hardware and network infrastructure. The Company places a high emphasis
on engaging with utility executives, national and regional government officials, standards bodies and regulators. These
activities help CyanConnode to better understand and then meet customer and market needs as well to aid policy decisions
that can be serviced by all potential suppliers. CyanConnode also supports the ‘Make in India’ and ‘Skill India’ initiatives of
Prime Minister Modi by encouraging the manufacture and deployment of equipment through local partners, which in turn
leads to the generation of in-country wealth. Another prime example of this strategy in action is the Company’s Indian
business.
The Company aims to build a world-class business by:
• Providing excellent customer service
• Offering customers solutions that result in optimised hybrid networks solutions that lever existing infrastructure
• The manufacture and deployment of equipment using local partners to generate in-country wealth
• Building strong relationships with Utilities, Governments, Standards Bodies and Regulators
The Company aims to generate revenues from:
• Direct sales of hardware and software
•
•
• Related services including project management, integration, installation services and network optimisation
Licence and royalty fees from licensed hardware and software
Support and maintenance fees
Our Products
Narrowband Radio Frequency (RF) Smart Mesh Networks
CyanConnode is a world leader in the design and development of Narrowband RF Smart Mesh Networks which are
principally used today for communicating with smart meters and smart street lighting. By combining Narrowband RF Smart
Mesh Networks with Fixed Line, Mobile Signal and Power Line Communication (PLC), utilities and governments can create
hybrid networks by leveraging the existing communications infrastructure.
CyanConnode’s Narrowband RF Smart Mesh Networks use the license-free Industrial, Scientific and Medical Radio Bands
(ISM). This technology forms part of the UK Smart Metering Implementation Programme (UK SMIP). ISM provides more
capacity at a lower cost by using considerably less power than the higher frequencies used by CyanConnode’s competitors.
Frost & Sullivan, a global research and consulting firm, concluded that “CyanConnode is clearly a torch bearer in the field of
narrowband RF mesh technology” and CyanConnode is determined to remain at the forefront of this evolving technology.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
14
Strategic Report
Our Products (continued)
Narrowband Radio Frequency (RF) Modules and Gateways
CyanConnode’s Narrowband RF Modules and Gateways can be tuned to customer requirements, for example UK SMIP uses
500 milliwatts giving a communication range of around two kilometres, whilst the Bureau of Indian Standards require 50
milliwatts giving a communication range of around three hundred meters.
Narrowband RF Modules and Gateways are manufactured by contract equipment manufacturers (CEMs) and recently the
Company has signed a Licensing Agreement with Beijing Instruments for the right to use CyanConnode’s reference designs
to manufacture RF Modules and Gateways.
Omnimesh Smart Metering Platform
CyanConnode’s multi award-winning Omnimesh smart metering platform facilitates the control and monitoring of devices
over hybrid networks. Omnimesh uses Internet Official Protocol Standards version 6 (IPv6) as opposed to the more
common Internet Official Protocol Standards version 4 (IPv4). IPv4 provides approximately 4.3 billion addresses and is
being swamped by the plethora of devices being added to the internet on a daily basis, whereas IPv6 provides 340.3
undecillion addresses.
As well as being highly secure, Omnimesh is able to monitor and control electricity, gas, heat and water smart meters on the
same platform, thereby simplifying utility back office function.
Ominmesh uses the CyanConnode Narrowband RF Smart Mesh Network to communicate with and control smart meters,
which have a CyanConnode RF communications module on board. Depending upon customer requirements, RF modules
can be tuned to communicate with the RF Smart Mesh Network over distances of a few hundred meters to several
kilometres.
Omni IoT
CyanConnode’s Omni IoT platform allows customers to mix and match multiple communication systems under a single network
management system. This scalable future-proof technology enables cost effective network solutions that provide
industry standard security.
Uses include the control of public streetlights, where CyanConnode’s RF module is integrated with a dimmable lighting
ballast to create smart lighting which can monitor and control street lighting to save energy consumption and reduce lamp
replacement costs.
Competitive Position
CyanConnode’s Narrowband RF Smart Mesh Networks are self-forming and self-healing and facilitate a cost-effective,
build-as-you-go smart network, which enables rapid deployment. By combining Narrowband RF Smart Mesh Networks
with Fixed Line, Mobile Signal and Power Line Communication, utilities and governments can create hybrid networks by
leveraging the existing communications infrastructure, without the need to invest in costly tower structures to transmit
mobile signal.
CyanConnode’s Narrowband RF Smart Mesh Networks are inherently low power and use the license free ISM radio bands
to give a highly competitive price point for mass deployment in dense housing environments, which are typically found in
emerging markets.
CyanConnode’s RF modules have been designed to be integrated into new meters or retrofitted to existing meters so as to
avoid rip-and-replace costs.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
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Strategic Report
Market Opportunity
Global environmental concerns are more than ever to the forefront of political discourse and media attention. Governments
are seeking ways of responding to what many now view as an imperative for widespread action. Utilities have a significant
part to play by reducing inefficiencies in both generation and distribution. The World Bank has demonstrated that it is
three times cheaper for utilities to save lost electricity by improving distribution network efficiency, rather than investing in
further generating capacity. Smart metering is an important technology as it helps both utilities and consumers, of all types,
minimise resource wastage.
CyanConnode’s Narrowband RF Smart Mesh Networks can be used to control and monitor energy meters over hybrid
networks so as to assist Governments and utilities in meeting their greenhouse gas emissions target. In the UK
CyanConnode’s technology forms part of the UK Smart Metering Implementation Programme (UK SMIP), which will
contribute towards the UK meeting its target of cutting greenhouse gas emissions by at least 40% below 1990 levels.
Operational Review
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
Financial
• The Group is currently loss-making
• The Directors regularly monitor the
therefore absorbing cash. However, the
Directors believe that it has sufficient
cash reserves, debtors and future
revenues to execute its current
business plan and see it through to
profitability. There is however a risk
that there could be delays to customer
deliveries or receipts from customers.
Should the Group wish to explore new
territories or business opportunities or
models there may be a requirement for
additional investment.
•
financing needs of the Group and react
quickly should projects or customer
receipts be delayed. The Group actively
communicates with its investors and
potential investors, including through
its nominated adviser and brokers, to
update on cash position. In addition to
equity funding, the Directors are in dia-
logue with a number of banks and other
organisations to investigate working
capital facilities.
• New business models are also being
explored and some of these such as
licensing could be significant sources of
funding should they be won.
Growth Strategy
• The market for our products and ser-
• CyanConnode continues to adopt a
vices, 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 and revenue growth could be
slower than anticipated.
diversification strategy. This helps to
identify targets in additional emerging
markets, and new business models
allowing for a much wider customer
base and less pressure on one specific
market/country/business model.
Competitive Environment
• 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.
• Research and development costs have
reduced significantly however the
Group will continue to ensure that its
products provide the best possible
match to potential and existing
customers’ requirements. The Group
works closely with customers to
establish their requirements and
evaluates competitor products whilst
also researching the market to ensure a
market leading product suite.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Strategic Report
Operational Review (continued)
Principal Risks and Uncertainties (continued)
Area of Risk
Description
Mitigating Activity
•
Macro-economic
conditions and political
risk (in particular reliance
on the Indian smart
electricity metering sector)
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.
India elections due to take place in May
2019 may result in delays of both win-
ning and deploying orders.
•
Laws & Regulations
• The Group's customers operate in a
highly regulated business environment
and changes in regulation could impose
costs on them, which they could pass
on to the Group.
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.
•
• 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 has
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 Connode 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.
Connode Sweden’s main customer
is Toshiba for the UK SMIP contract,
which is billed and paid in UK Sterling.
• 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 Group has implemented an anti-
bribery policy in line with the Bribery
Act 2010, which sets strict guidelines
regarding the offering or receiving of
gifts or hospitality. All sales agents and
partners are required to sign to confirm
agreement to these policies and
payments are monitored to ensure
compliance with the Act.
• The Group takes legal advice and advice
from the Department of International
Trade regarding regulations when
entering new territories.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com Strategic Report
Operational Review (continued)
Principal Risks and Uncertainties (continued)
Area of Risk
Description
Mitigating Activity
Business Continuity
•
• CyanConnode depends on a limited
number of contract equipment
manufacturers (“CEMs”) for certain
critical aspects of the manufacture of its
products
In 2018, CyanConnode relied on two
major customers for the majority of its
revenue
•
Strong relationships are maintained
with several CEMs. This helps ensure
good quality. It also ensures that any
issues are communicated and can be
mitigated where possible in good time,
and can provide the opportunity to
switch supplier at short notice. The
Company has signed agreements with a
new CEM during the year to give more
choice should a new CEM be required
at short notice.
• CyanConnode maintains good
relationships with all its customers
and continues to maintain its strong
support for them. During the year it
has integrated with additional meter
manufacturers whilst also diversifying
its customer base with new licensing
agreements.
People
• As with many technology businesses,
• CyanConnode provides well-
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.
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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Strategic Report
Area of Risk
Description
Mitigating Activity
Currency Exchange
• We are exposed to both translation and
Brexit
transaction risk. In addition,
transactions are carried out in
currencies other than UK Sterling.
• The majority of our revenues are
currently denominated in Indian
Rupees, whilst the majority of our
costs are denominated in UK Sterling.
The uncertainty surrounding Britain’s future
relationship with the EU gives risk to a
number of risks including:
• Higher volatility in currency exchange
rates
• Potential for more onerous visa
requirements for EU nationals
working for us in our Cambridge centre
for excellence
• Potential for higher tariffs on goods and
services imported or exported from the
UK
• Potential for UK economic recession
• Whilst most of the Group's customers
are invoiced in Indian Rupees, we also
contract the manufacture of our
hardware in Indian Rupees and this
partially offsets the risk.
• Connode Sweden mainly operates in
SEK with customers paying and
suppliers being paid in the same
currency. The only exception is the UK
smart metering project which is paid in
UK Sterling.
• Wherever possible we seek to match
the currency that our revenues and
costs are denominated in. For example,
India revenue is denominated in Indian
rupees, matching the functional
currency and running costs of our
Indian entity
• At present, it is understood that
employees from the EU currently
working in the UK will be allowed to
continue to do so after the UK leaves
the EU. We will continue to monitor this
and apply for working visas as
necessary
• CyanConnode Ltd (the Group’s UK
trading company) does not import or
export goods from Europe, or
manufacture in Europe and it is
therefore expected that there would be
limited effect on tariffs payable by the
Company
Employee Matters
Headcount
The average number of employees decreased during 2018 from 54 to 52 with headcount falling to 47 by the year end. Most
of this reduction was in R&D headcount following the successful launch of Omnimesh. The management, development
and delivery of innovative technologies is made possible through the contribution of highly skilled staff based in the UK,
Sweden and India. During the year the Company continued to recruit in India to support Indian customers and partners. The
Company intends to closely monitor staffing requirements by region to ensure suppliers and customers are fully supported,
while at the same time keeping costs down.
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 29% of the management team that reports to the Board, or 2 out of 7 employees (2017: 40%, or 2 out of 5
employees) and at Board level 20% (2017: 0%). At year end women comprised 21% of total employees across the Group
(2017: 15%) or 10 out of a total of 47 employees (2017: 9 out of 61).
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 2018www.cyanconnode.com
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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:
Source and promote a product range to minimise the environmental impact of any production and distribution.
• 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.
•
• 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.
The Board is ultimately 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.
Ethical Standards
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. Moreover, the same standards are expected of its suppliers
including its contract equipment manufacturers in India and China.
Approved by the Board of Directors and signed on behalf of the Board.
John Cronin
Executive Chairman
15 May 2019
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Board of Directors
John Cronin - Executive Chairman
joined
the Board
in March 2012
John
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 including, Smart Metering, IOT,
Software companies, Infrastructure, Hardware Utilities and Managed Services.
John is a seasoned and successful professional with experience in raising eq-
uity, 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 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.
Heather Peacock - Chief Financial Officer & Company Secretary
Heather joined the Company in November 2008 initially as Financial Controller
managing the finance function of the Group. She has a background and
qualification in finance and more than 20 years’ global financial experience at a senior
level, having worked for large international organisations in both the UK and South
Africa. More recently Heather has worked as Company Secretary for the Company.
She was appointed as Group Finance Director (non-board) at the start of June 2018
and as a board director in July 2018.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Board of Directors
David Johns-Powell - Non-Executive Director
David, who joined the board in July 2018, has over 30 years’ experience in Small to
Medium Sized Enterprises over a diverse range of industries including, Ceramics,
Farming, Insurance, Leisure and Property.
His career started in Ceramics, where he built a manufacturing facility from scratch
and by utilizing cutting edge automation, the business became one of the UK’s
largest manufacturers of ceramic coffee mugs. As well as local markets, product
was exported worldwide, and customers included Cadburys, Disney, Safeway and
Woolworths.
As a Professional Investor, David is actively involved in several investments which
include a 360 key hotel development, a Beach Club, a Wood Modification Plant and
a Peak Power Plant.
As well as running his own businesses, David is also a member of the Society of Lloyd’s, where he is one of the few remaining
members that underwrite insurance on an unlimited liability basis.
Christopher Jones - Non-Executive Director
Chris joined CyanConnode in March 2019. A specialist in licensing models, he has
IoT experience and a strong commercial focus. His distinguished career has included
holding a wide range of positions at Arm, most recently as Vice President of
Commercial Operations for its IoT Services, overseeing product Licensing and SaaS
business models.
In 2012, he helped to create Trustonic (a joint venture between three mobile,
device and IoT security leaders - Arm, Gemalto and G&D). As Chief Operating
Officer at Trustonic, Chris was responsible for overseeing the formation of the
company and the implementation of its strategic direction, managing core functions
of legal, HR, finance, IT and facilities. From 2004 until 2012, he was Vice President
of Licensing at Arm. As such, he was responsible for Arm's CPU/Soc product
licensing and revenue management.
.
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Board of Directors
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 has also
held 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.
Peter Tyler – Non-Executive Director
Peter is a fellow of the Chartered Institute of Certified Accountants. He has held a
number of roles in finance, mainly in the pharmaceutical sector, and is well versed
in growing businesses and creating shareholder value. Peter has also been involved
in a number of charities where his role has been building them up, putting in place
structures, processes and teams and funding to satisfy the demands of the
programmes.
Peter holds the role of Chairman of the Audit Committee and is a member of the
Remuneration Committee.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Corporate Governance Statement
Statement Of Compliance With the QCA Corporate Governance Code
As an AIM quoted company, we recognise the importance of applying sound governance principles in the successful
running of the Group. Given the size and nature of the Company and composition of the Board, we have formally adopted the
QCA Corporate Governance Code for Small and Mid-Size Quoted Companies (the QCA Code) and will report annually on our
compliance with the QCA Code in our Annual Report.
The sections below set out how we currently comply with the ten principles of the QCA Code.
1. Establish a strategy and business model which promote long-term value for shareholders
The strategy and business operations of the Group are set out in the Strategic Report on pages 13 to 19.
The Executive Directors are responsible for the leadership and day-to-day management of the Group. This includes
formulating and recommending the Group’s strategy for Board approval and then executing the approved strategy.
2. Seek to understand and meet shareholders needs and expectations
The Group seeks regular dialogue with both existing and potential new shareholders, ensuring our strategy, business
model and performance are clearly understood as well as to understand the needs and expectations of shareholders.
The Executive Chairman and Chief Financial Officer meet regularly with investors and analysts via investor roadshows,
investor presentations and events and hosting tours of our development sites in order to provide them with updates on
the Group’s business and obtain feedback regarding the market’s expectations of the Group.
The Board invites communication from its private investors and encourages participation by them at the Annual General
Meeting (AGM). All Board members present at the AGM are available to answer questions from shareholders. Notice
of the AGM is in excess of 21 clear days and the business of the meeting is conducted with separate resolutions, voted
on initially by a show of hands and with the result of the voting being clearly indicated. The results of the AGM are
announced through a regulatory information service.
The normal channel of communication with shareholders is via our Chief Financial Officer and Executive Chairman.
Our Non-Executive Director, Chris Jones is available to shareholders where concerns have not been resolved through
the normal channels of communication with the Board and for when such contact would be inappropriate. Details
relating to this can be found on our website at https://cyanconnode.com/investors/governance/
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
Our technology has been designed to address social problems, particularly in emerging territories such as India where
there are significant losses to the government in the electricity sector. The technology is low-cost, low-power and
seeks to prevent theft from electricity or tampering with electricity meters.
The Group is mindful of its corporate social responsibilities and the need to build and maintain strong relationships
across a range of stakeholder groups is a key principle in what we do. Engaging with our stakeholders allows us to
create a positive legacy and create strong stakeholder relationships. Our project teams engage with stakeholders
throughout the development life cycle to help enrich communities.
Our employees are at the heart of our business and we consistently strive to ensure they have the opportunity to
develop in a job they enjoy. We embrace diversity and employ people from a range of cultures and backgrounds across
the group. Further information on our diversity policy can be found on page 18. The Group’s revenue is dependent on
delivering complex projects to specific markets and therefore ensures that cross-functional teams of senior employees
work together and with customers to ensure the successful integration of its products and technologies.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
24
Corporate Governance Statement
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
(continued)
Our customers are key to the Group’s success. The sales and delivery teams obtain feedback from customers regarding
current products, product requirements and customer service through regular interactions with customers mainly
comprising face to face meetings.
Our Environmental policy and Health and Safety Management policy, see page 19, provides information on the
Company’s approach to the environment. The Group has recently been awarded accreditation for the ISO14001
standard.
CyanConnode fully abides by the Modern Slavery Act 2015.
4. Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is
designed to mitigate the risk of failure to achieve business objectives and can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
There is an ongoing process for identifying, evaluating and managing the Group’s significant risks and is regularly
reviewed by the Board.
The internal control procedures are delegated to Executive Directors and senior management in the Group, operating
within a clearly defined departmental structure. The Board regularly reviews the internal control procedures
in light of the ongoing assessment of the Group’s significant risks.
On a monthly basis, management accounts, including a comprehensive cash flow forecast, are reviewed by the Board in
order to provide effective monitoring of financial performance. At the same time the Board considers other significant
strategic, organisational and compliance issues to ensure that the Group’s assets are safeguarded and financial information
and accounting records can be relied upon. The Board formally monitors monthly progress on each development.
Please see pages 15 to 18 for a summary of the principal risks and uncertainties facing the Group, as well as mitigating
actions.
The Group takes security of personal data seriously and ensures compliance with the GDPR which came into effect on
25 May 2018. The Group’s privacy policy can be found on the Company’s website at https://cyanconnode.com/about/
privacy-policy/
The Group also takes security of all data and its intellectual property very seriously and has recently received
accreditation for the ISO27001 standard.
Quality of product and process are important to the Group. The Group has been accredited for ISO9001:2008 since
2008 and has recently received accreditation for the ISO9001:2015 standard.
The Company has adopted an Anti-Bribery policy which can be found on the Company’s website at https://cyanconnode.
com/investors/bribery-act/ The Group Bribery Officer ensures that all partners and agents working for the Group sign
acceptance of the terms of this policy prior to engagement with any Group company.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Corporate Governance Statement
5. Maintain the Board as a well-functioning, balanced team led by the Chair
The Company and Group are managed by a Board of directors chaired by John Cronin. The Board is responsible for
taking all major strategic decisions and also addressing any significant operational matters. In addition, the Board reviews
the risk profile of the Group and ensures that an adequate system of internal control is in place. A formal schedule of
Matters Reserved for the Board was adopted in March 2018 and will be reviewed annually.
It has been agreed that the Board will at any time consist of either two or three Executive Directors and three Non-
Executive Directors. Two of the Non-Executive Directors are considered by the Board to be independent of management
and free from any business or other relationship that could materially interfere with the exercise of their independent
judgement in accordance with the QCA Code. David Johns-Powell is only considered as non-independent due to his
significant shareholding in the Company.
The Non-Executive Chris Jones is available to shareholders where concerns have not been resolved through the normal
channels of communication with the Board and for when such contact would be inappropriate.
The Board has sufficient members to contain the appropriate balance of skills and experience to effectively operate and
control the business. No one individual has unfettered powers to make decisions.
The Roles of the Chairman and Chief Executive are not separate, however following consultation with the company’s
Nominated Adviser it is believed that this situation is appropriate for the Group’s current size and stage of growth.
This position is reviewed regularly and discussed with advisers. The Executive Chairman’s main responsibility is the
leadership and management of the Board and its governance. The Group has a CEO of India to manage the Indian
operations. Engineering and operations are managed by the VP of Operations and Engineering. These three executive
managers are very experienced and it is therefore felt that there is no need for a separate Chief Executive Officer role.
The Executive Directors are responsible for the leadership and day-to-day management of the Group. This includes
formulating and recommending the Group’s strategy for Board approval and executing the approved strategy.
The Board meets regularly, at least 9 times a year and more frequently if necessary. In addition to this the Board attends
regular strategy meetings with senior members of staff presenting on areas of the business and business strategy.
6. Ensure that between them, the directors have the necessary up-to-date experience, skills and capabilities
The Board considers that the skills, experience and knowledge of each director gives them the ability to constructively
challenge strategy and decision making and scrutinise performance. Their biographical details are set out on the
Company’s website at https://cyanconnode.com/about/team/
As the business has developed, the composition of the Board has been under review to ensure that it remains appropriate
to the managerial requirements of the group. One third of the directors retire annually in rotation in accordance with
the Company’s Articles of Association. This enables the shareholders to decide on the election of the Company’s Board.
The Board takes decisions regarding the appointment of new directors as a whole and this is only done following a
thorough assessment of a potential candidate’s skills and suitability for the role. During the course of the year, directors
received updates from the Company Secretary and external advisers, where relevant, on corporate governance matters,
and corporate governance is an agenda item for all Board Meetings where updates will be discussed.
Directors have access to independent professional advice at the Company’s expense. In addition, they have access to
the advice and services of the Company Secretary who is responsible to the Board for advice on corporate governance
matters.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
26
Corporate Governance Statement
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The Board has recently completed an evaluation of Board performance and effectiveness. The evaluation covered the
following areas:
Board and committee composition (mix of skills, experience, and adequate succession planning);
Board communication;
Board responsibilities;
•
•
•
• Decision processes;
•
Board induction and training; and
• Meeting arrangements and processes.
The effectiveness of the Board and its committees will be kept under review in accordance with corporate governance
best practice and at a minimum on an annual basis.
8. Promote a corporate culture that is based on ethical values and behaviours
We recognise that it is our people who make us different, and we strive to recruit, retain, engage and develop the best.
We continue to encourage our unique and supportive culture, which we believe sets us apart from competitors.
Our comprehensive set of policies and procedures cover all of our operations. They are constantly updated and
communicated to relevant employees and everyone else working on our sites. Details of these policies can be found on
pages 18 and 19 of the Annual Report.
9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the
Board
The Board has an Audit Committee, a Remuneration Committee and a Nominations Committee to oversee and consider
issues of policy outside main Board meetings. All recommendations for appointments to the Board are however
considered by the Board as a whole.
Each Committee has written terms of reference setting out its duties, authority and reporting responsibilities, adopted
by the Board in March 2018.
Board committees are authorised to engage the services of external advisers as they deem necessary in the furtherance
of their duties at the Company’s expense. Details concerning the composition and meetings of the committees are
contained in the Annual Report and on the Company’s website at https://cyanconnode.com/investors/governance/
10. Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other
relevant stakeholders
Communications with shareholders is through the Annual Report and Accounts, full-year and half-year announcements,
periodic market announcements (as appropriate), the AGM, investor presentations, one-to-one meetings and investor
road shows.
The Group’s website www.cyanconnode.com is regularly updated and users can register at
https://cyanconnode.com/investors/shareholder-information/investor-alert/ to be alerted when announcements or
details of presentations and events are posted on the website. Annual reports and notices of meetings for at least the
last five years can be found on the Group’s website.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 27
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Corporate Governance Statement
Board Composition and Responsibility
At 31 December 2018 the Board comprised five directors, including the Executive Chairman, the Chief Operating Officer,
the Chief Financial Officer and two independent non-executive directors. Three of the five directors in post at 31
December 2018 had served throughout the year.
Name
Role
Appointed
Resigned
In post
In post
Executive
John Cronin
Harry Berry
Executive Chairman
20/03/12
Chief Operating Officer
16/05/14
31/03/19
Heather Peacock
Chief Financial Officer*
25/07/18
Non-executive
Paul Ratcliff
William David Johns-Powell
Christopher Jones
Peter Tyler
01/01/16
25/07/18
19/03/19
19/03/19
* Heather Peacock has also held the role of Company Secretary since September 2013.
1 Jan 2018
31 Dec 2018
Yes
Yes
No
Yes
No
No
No
Yes
Yes
Yes
Yes
Yes
No
No
Recent Board Changes:
An IoT specialist who has previously held senior roles at ARM and Trustonic, Chris Jones brings a wealth of experience
in licensing and “software as a service” (SaaS) business models which will be invaluable as the Group implements its new
licensing models.
Peter Tyler is a fellow of the Chartered Institute of Certified Accountants and has had a successful career in scaling-up SMEs.
His particular focus is financial growth and driving shareholder return.
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 (COO) for a two-year tenure. In this time, he has overseen the successful development and launch
of our Omnimesh product and has established world-class engineering team. He retired from the Board on 31 March 2019.
Paul Ratcliff will be stepping down from the Board following the Company’s AGM in June 2019. Under his
stewardship, the Company has successfully put in place quality-focused procedures and controls: achieving ISO
certification for ISO standards ISO9001:2015, ISO27001 and ISO14001.
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 least on a quarterly basis 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.
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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
28
Corporate Governance Statement
Board Subcommittees
The Board has three subcommittees:
Audit committee: Peter Tyler (Chairman), Chris Jones
Remuneration committee: Chris Jones (Chairman). Peter Tyler
During the year, Paul Ratcliff (Chairman) and Peter Hutton were the members of the remuneration committee and they
oversaw the reductions to Directors' remuneration in June 2018. Peter Hutton resigned 5 November 2018. From then until
19 March 2019 any remuneration decisions were put by Paul Ratcliff to the full board, excluding the director concerned, for
full board approval.
Nominations committee: David Johns-Powell (Chairman), John Cronin, Peter Tyler and Chris Jones
Please see table on previous page for full list of Directors and changes in their appointments between 31 December 2018
and 15 May 2019.
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 actively engages with its shareholders on regular basis, with importance being placed on clear, timely
communications. This is in the form of open presentations at the Annual General Meeting and further private presentations
thereafter to fund managers, analysts, and institutional investors. Information is posted on the Company’s web site,
www.cyanconnode.com. Please take a look at the comprehensive Investor Relations section on this website which is regularly
updated. John Cronin and Heather Peacock are the directors responsible for investor relations.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.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 2018.
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 2020 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 timing of customer payments.
The forecast taken into account in the business plan shows that the Group has sufficient funds to execute its business plan
and that there would not be a need for further equity funding. If a more pessimistic scenario were taken and an assumption
were taken that no cash is received within the next twelve months from any new orders not currently contracted, and
that there were significant delays to receipts from customers, there is a material uncertainty relating to the Group’s ability
to continue as a going concern. Should the Group experience such downside sensitivities the directors would look at
measures such as cost reduction and working capital facilities (including invoice factoring) as ways to conserve cash within the
business.
Notwithstanding the material uncertainties described above, the directors have a reasonable expectation that the 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 note 33 of the financial statements.
Dividends
The directors’ dividend policy is set out in the Financial Review on page 12.
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. At 31 December 2018, 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 23.
In accordance with the Companies Act 2006 the Company has no authorised share capital.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
30
Directors’ Report
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 2018 and 31
December 2017.
Enterprise Investment Scheme (EIS)
During 2018, 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.
During 2018 the Company issued shares to the value of £1.2m under the EIS scheme and has lifetime headroom of £4.7m
remaining.
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) – resigned 31 March 2019
Heather Peacock (Chief Financial Officer) (appointed to the Board on 25 July 2018)
Non-Executive Directors
Paul Ratcliff
William David Johns-Powell (appointed to the Board on 25 July 2018)
Simon Smith (left office on 14 June 2018)
Peter Hutton (left office on 5 November 2018)
Chris Jones (appointed 19 March 2019)
Peter Tyler (appointed 19 March 2019)
Paul Ratcliff will retire at the next Annual General Meeting and does not offer himself for re-election.
The interests of the directors in the shares of the Company are shown in the remuneration committee report on page 35.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 31
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Directors’ Report
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 £2,466,104 (2017: £4,148,238),
including related staff costs.
Significant Holdings
The Company had been notified of the following voting rights as a shareholder in the Company at 15 May 2019:
Name
William David Johns-Powell
Canaccord Genuity Group inc
Herald Investment Management Limited
Nightingale Investment Co Limited
Biggles Enterprise Limited
Percentage of
voting rights and
issued share capital
Number of ordinary shares
9.64%
7.54%
6.80%
4.60%
4.57%
17,583,490
13,746,477
12,401,579
8,382,352
8,333,333
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.
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 68 days (2017: 63 days).
Charitable and Political Donations
Charitable donations for the year were £nil (2017: £nil) and no political donations were made during the year (2017: £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
15 May 2019
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
32
Directors’ Remuneration Report
Unaudited Information
Remuneration Committee
The Company has established a Remuneration Committee. Paul Ratcliff served as chairman of the Remuneration
Committee throughout the period. Chris Jones took over the role of Chairman of the Remuneration Committee upon his
appointment on 19 March 2019.
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.
The 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;
•
• Pension arrangements.
Share option incentives; and
Executive directors are entitled to accept appointments outside the Company providing that the Chairman’s permission is
sought.
All Directors are encouraged to invest in the Company. This table shows the £5.1m they have invested thus far (see page
34 for more details).
John Cronin
Harry Berry
David Johns-Powell
Paul Ratcliff
Heather Peacock
Total
Investment
in 2018
£000
Total Investment
to date
£000
Annual
salary and fees
£000
Total
Investment as % of
Remuneration
100
20
750
-
10
880
986
258
3,759
46
75
5,124
235
125
-
30
130
520
420%
206%
n/a
153%
58%
985%
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 remuneration policy for
Executive Directors and the Group as a whole. In addition, it relies on objective research, which gives up-to-date information
on a comparator group of companies.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com Directors’ Remuneration Report
Unaudited Information (continued)
Benefits-in-Kind
The executive directors are entitled to receive certain benefits-in-kind, principally private medical insurance.
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 including cash collection and revenue growth. 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 2018, the objectives were based on £7m revenues being achieved. No bonus payments were made to
Directors for 2018 (2017: £241,690).
Directors’ Share Options
Full details of the directors’ options over ordinary shares of 2.0p are set out below:
Grant Date
Expiry Date
Exercise
Price
£
As 31 December
2018 Number
As 31 December
2017 Number
Director
John Cronin
17 November 2017
25 January 2018
17 November 2027
25 January 2028
0.336
0.29
Harry Berry
17 November 2017
11 December 2017
17 November 2027
11 December 2027
0.336
0.42
Heather Peacock
17 November 2017
11 December 2017
17 November 2027
11 December 2027
0.308
0.40
Paul Ratcliff
11 December 2017 11 December 2027
0.42
* n/a - Heather Peacock was appointed Director in 2018
558,101
200,000
758,101
735,174
71,423
806,597
619,424
25,000
644,424
71,633
71,633
558,101
-
558,101
735,174
71,423
806,597
n/a
n/a
n/a
71,633
71,633
Share options have a life of 10 years. When a director leaves the Company, he or she will be entitled to exercise any vested
options for between three months and one year after leaving the Company. Any options not exercised during this period
will then lapse.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
34
Directors’ Remuneration Report
Directors’ Share Options (continued)
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 2018 no JSOP shares were granted to any directors of the Company. At 31 December 2018, shares held by directors
under this scheme were as follows:
Director
John Cronin
Grant Date
Expiry Date
23 October 2017
23 October 2022
23 October 2017
23 October 2022
Harry Berry
23 October 2017
23 October 2022
23 October 2017
23 October 2022
Heather Peacock
23 October 2017
23 October 2022
23 October 2017
23 October 2022
* n/a - Heather Peacock was appointed Director in 2018
Participation
Price £
At 31 December
2018 Number
At 31 December
2017 Number
0.4964
0.333
0.3904
0.333
0.434
0.333
3,219,200
1,382,425
4,601,625
2,076,085
925,303
3,219,200
1,382,425
4,601,625
2,076,085
925,303
3,001,388
3,001,388
267,396
296,568
563,964
n/a
n/a
n/a
JSOP shares have a life of 5 years. When a director leaves the Company, he or she will be entitled to keep the vested shares
until the expiry dates and any unvested shares will be brought back into the Employee Benefit Trust within 90 days of the
director leaving the Company.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Directors’ Remuneration Report
Directors’ Share Options (continued)
Directors’ Interests in Shares in the Company
Director
John Cronin
As at 1 January 2018
Purchased during the period
As at 31 December 2018
Harry Berry
As at 1 January 2018
Purchased during the period
As at 31 December 2018
Heather Peacock
As at 25 July 2018
Purchased during the period
As at 31 December 2018
Paul Ratcliff
As at 1 January
Purchased during the period
As at 31 December 2018
William David Johns-Powell
As at 25 July 2018
Purchased during the period
As at 31 December 2018
Total
As at 1 January 2018
Increases during the period
Shares
£’000
2,213,467
1,200,000
3,413,467
624,219
200,000
824,219
178,255
100,000
278,255
162,734
-
162,734
10,083,490
7,500,000
17,583,490
3,000,420
19,261,745
22,262,165
856
130
986
238
20
258
65
10
75
46
-
46
3,009
750
3,759
1,140
3,984
5,124
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.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
36
Directors’ Remuneration Report
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.
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
Heather Peacock
Paul Ratcliff
William David Johns-Powell
Chris Jones
Peter Tyler
Non-Executive Directors
Date of contract
20 March 2012
25 July 2018
1 January 2016
25 July 2018
19 March 2019
19 March 2019
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 were:
Paul Ratcliff
Peter Hutton
William David Johns-Powell
£40,800
£26,250
£nil
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Directors’ Remuneration Report
Directors’ Emoluments
Name of Director
Salary
Fees
Pension
Executive
John Cronin (Note 1)
Harry Berry (Note 2)
Heather Peacock (Note 3)
Non-Executive
Peter Hutton
Paul Ratcliff (Note 4)
John Read
Simon Smith
Total
£
£
30,000
205,000
125,000
69,231
26,250
40,800
-
-
-
-
-
-
26,154
38,750
317,435
243,750
£
-
-
2,750
-
1,500
-
1,308
5,558
Private
Health
Insurance
£
-
3,460
525
-
-
-
-
Total for
2018
Services
£
235,000
128,460
72,506
26,250
42,300
-
2017 Total
£
495,000
193,420
-
22,500
34,100
15,000
66,212
228,778
3,985
570,728
988,798
Note 1
In June 2018 John Cronin agreed to receive a reduction to his total rate of pay, including bonus, for the 12 month period
from July 2018 to June 2019. The reduced rate of pay resulted in basic salary (including fees) of £170,000 and a bonus of
£70,000. The bonus was to be paid in shares based on revenue of £7 million being achieved for the calendar year ending 31
December 2018. This revenue was not achieved and the bonus was not paid.
Note 2
In June 2018 Harry Berry agreed to receive a reduction to his rate of pay, including bonus, for the 12 month period from July
2018 to June 2019. The reduced rate of pay resulted in basic salary of £100,000 and a bonus of £50,000. The bonus was
to be paid in shares based on revenue of £7 million being achieved for the calendar year ending 31 December 2018. This
revenue was not achieved and the bonus was not paid.
Note 3
Heather Peacock was appointed Director in July 2018. Her salary is pro-rated salary for six months to 31 December 2018
(annual equivalent £130,000), plus £4,231 paid for untaken holiday.
Note 4
Paul Ratcliff received £10,800 for additional services provided relating to the Company's ISO accreditations.
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 15 May 2019 and signed on its behalf by:
Paul Ratcliff
Chairman of the Remuneration Committee
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
38
Directors’ Responsibilities 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 or 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
15 May 2019
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.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 of CyanConnode Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’)
give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2018
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 which comprise:
•
•
•
•
•
•
•
•
the consolidated income statement;
the consolidated statement of comprehensive income;
the consolidated balance sheet;
the consolidated statement of changes in equity;
the parent company balance sheet;
the parent company statement of changes in equity;
the consolidated and parent company cash flow statements; and
the related notes 1 to 35.
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 Financial Reporting Council’s (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.
Material uncertainty relation to going concern
We draw attention to note 3 in the financial statements, which indicates that the group incurred a net loss of £5.38
million during the year ended 31 December 2018. The directors have identified that a certain level of sales is required to be
achieved as well as the timing of cash receipts from customers to allow the Company to continue trading without seeking
additional funding.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
40
Independent Auditor’s report to the members of
CyanConnode Holdings plc
Material uncertainty relation to going concern (continued)
In response to this, we:
•
•
•
•
•
•
assessed the design and implementation of the key controls in place around the forecasting process;
performed a retrospective review of actual performance to prior year forecast and budget;
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;
considered the impact of Brexit on forecasted cash flows; and
considered the appropriateness of the disclosure contained within 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 compa-
ny’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:
Revenue recognition – new significant contracts during the year
Impairment of intangible assets and goodwill
•
•
• Going Concern (see material uncertainty relating to going concern section)
•
Inventory provisioning
Materiality
Scoping
The materiality that we used for the group financial statements was £0.38 million which
was determined on the basis of a combination of loss before tax and total expenses
measures. This represents approximately 6.0% of loss before tax and 4.2% of total ex-
penses.
The scope of our audit was driven by our risk assessment and understanding of the busi-
ness. This consisted of four components subjected to full scope audits and two compo-
nents subjected to analytical procedures at group level.
Significant changes in our
approach
There have been no significant changes in our approach in the current year.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.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 significant revenue contracts
Key audit matter
description
How the scope of our
audit responded to the key
audit matter
Key observations
We consider there to be a key audit matter with respect to new significant revenue
contracts arising in the period. Revenue earned under new contracts in the year was
£3.06 million. This is due to the judgement involved in recognising revenue in accordance
with IFRS 15: Revenue from Contracts with Customers 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. An analysis of the
Group’s revenue is provided in note 5 to the financial statements.
We assessed the design and implementation of the key controls addressing the risk.
We obtained an understanding of whether the revenue recognition policies have been
applied across the group and considered if there were any new significant revenue
contracts in the period. We also assessed whether the recognition of revenue is in line
with IFRS 15.
For new significant contracts identified, we reviewed management’s assessment of the
identification of the components contained within the contract, the allocation of prices to
the individual components and the period over which revenue was recognised. We also
reviewed signed agreements for each selected project/contract and agreed key terms
and amounts to management’s paper and calculations for revenue to be recognised in the
prior period, current period and future periods.
In addition to the above, we reviewed and challenged the disclosures in the financial
statements, including the relevant disclosure in the critical accounting judgements and
key sources of estimation uncertainty disclosure.
Based on the audit procedures performed, we concluded that revenue recognition in
respect of new significant revenue contracts is in line with the group’s accounting policy
and IFRS 15.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
42
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 of £1.93 million as at 31 December 2018
and 2017 which arose on the acquisition of Connode in 2016. The group also holds
acquisition-related intangibles with a balance of £5.05 million (2017: £5.47 million) at the
balance sheet date.
How the scope of our
audit responded to the key
audit matter
Key observations
Inventory provisioning
Key audit matter
description
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 and intangible assets arising from the acquisition are 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 assessed the design and implementation of the key controls addressing the risk.
We applied sensitivities to calculations prepared by management to test uncertain
variables against headroom to assess the risk of impairment.
We obtained cash flow forecasts prepared by management and challenged management
estimates included in the forecast, such as revenue growth, through challenging the ex-
pected future market growth, historical forecasting accuracy, commercial challenges and
future strategy; working capital assumptions; and the discount rates applied to the cash
flows. The net present value of the forecast cash flow was compared to the carrying value
of acquisition goodwill.
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.
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 included in note 16 to
be appropriate.
We consider there to be a key audit matter in respect of the valuation of inventory in
CyanConnode Limited. This is due to the degree of judgement and estimation involved in
stating inventory at the lower of cost and net realisable value.
At the year end management provided for a total of £0.69 million (2017: £0.12 million) of
the CyanConnode Limited inventory balance of £1.02 million (2017: £1.23 million).
The accounting policy is disclosed in note 3 and inventory balances are disclosed in note
20 to the financial statements.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 43
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Independent Auditor’s report to the members of
CyanConnode Holdings plc
Impairment of intangible assets and goodwill (continued)
How the scope of our
audit responded to the key
audit matter
Key observations
We assessed the design and implementation of the key controls addressing the risk.
Following the provision being taken by management we obtained their considerations
of the valuation of the inventory, including the remaining amount not covered by this
provision and the possible alternative uses. We challenged management’s assumptions
used, such as the ability to utilise and 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.
Based on the audit procedures performed, we concluded that inventory provisioning is
appropriate. 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:
Group financial statements
Parent company financial statements
Materiality
£0.38 million (2017: £0.37 million)
£0.16 million (2017: £0.14 million)
Basis of determining
materiality
Rationale for the benchmark
applied
Our materiality was determined on the
basis of a combination of loss before tax
and total expenses measures. This
represents approximately 6.0% (2017:
3.3%) of loss before tax and 4.2% (2017:
3.2%) of total expenses.
A combination of loss before tax and total
expenses benchmarks has been selected as
the group remains in a development phase
where significant expenditure and losses
are incurred reflecting the group’s
investment in research and development
activities as the group looks to secure
future contracts.
Parent company materiality equates to
1.1% (2017: 1.0%) of net assets, which is
capped at 40% of group materiality.
Net assets is considered the most
appropriate benchmark as it is the key
performance metric for users of the
financial statements for CyanConnode
Holdings plc company only.
Materiality has been capped at £0.16
million (2017: £0.14 million) for the
purpose of the Group audit.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
44
Independent Auditor’s report to the members of
CyanConnode Holdings plc
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.019
million (2017: £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 focused were audited by the group audit team.
The four components subject to a full audit account for 96% (2017: 99%) of the group’s revenue, 98% (2017: 98%) of the
group’s loss before tax and 97% (2017: 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 £0.15 million to £0.29 million (2017: £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
Other information
Revenue
96%
4%
Loss before tax
Net Assets
98%
2%
97%
3%
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
required 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 2018www.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
assurance 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 FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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 of 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.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
46
Independent Auditor’s report to the members of
CyanConnode Holdings plc
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
•
accounting records and returns.
the parent company financial statements are not in agreement with the
We have nothing to
report in respect of these
matters.
Directors’ remuneration
We have nothing to report
in respect of this matter.
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made.
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.
Julian Rae (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
15 May 2019
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Consolidated income statement
For the year ended 31 December 2018
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating 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
5
10
11
12
7
13
13
Consolidated statement of comprehensive income
For the year ended 31 December 2018
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
47
2018
£000
4,465
(1,724)
2,741
(8,589)
(472)
(9,061)
(6,320)
13
(2)
(6,309)
927
(5,382)
(4.26)
(4.26)
2018
£
(5,382)
54
(5,328)
2017
£000
1,171
(674)
497
(11,161)
(489)
(11,650)
(11,153)
16
(6)
(11,143)
1,402
(9,741)
(10.18)
(10.18)
2017
£
(9,741)
46
(9,695)
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L 48
Consolidated balance sheet
At 31 December 2018
Non-current assets
Intangible assets
Goodwill
Investments
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
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
22
23
24
25
26
27
28
29
2018
£000
5,048
1,930
44
73
7,095
319
4,827
4,564
9,710
2017
£000
5,469
1,930
48
83
7,530
1,128
3,019
5,394
9,541
16,805
17,071
(1,994)
(1,994)
7,716
(690)
(690)
(2,684)
14,121
3,648
69,515
(3,253)
1,761
(76)
(57,474)
14,121
(2,248)
(2,248)
7,293
(858)
(858)
(3,106)
13,965
2,559
65,565
(3,253)
1,316
(130)
(52,092)
13,965
The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the board of
directors and authorised for issue on 15 May 2019. They were signed on its behalf by:
John Cronin
Director
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Consolidated statement of changes in equity
At 31 December 2018
Share
Capital
£000
Share
Premium
£000
Balance at 31 December 2016
1,579
52,832
Own
Shares
Held
£000
(809)
Share
Option
Reserve
£000
Transla-
tion
Reserve
£000
Retained
Losses
£000
627
(176)
(42,351)
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 pay-
ments
-
-
-
-
-
-
-
-
-
980
12,733
-
-
-
-
-
-
(2,444)
-
-
-
-
-
-
-
422
267
-
46
46
-
-
-
-
(9,741)
-
(9,741)
(9,695)
Total
Equity
£000
11,702
(9,741)
46
13,713
(2,444)
422
267
13,965
(5,382)
-
-
-
-
Balance at 31 December 2017
2,559
65,565
(3,253)
1,316
(130)
(52,092)
Loss for the year
Other comprehensive income
for the year
Total comprehensive income
for the year
-
-
-
-
-
-
Issue of share capital
1,089
3,950
Credit to equity for share
options
-
-
-
-
-
-
-
-
-
-
-
445
-
(5,382)
54
54
-
-
-
54
(5,382)
(5,328)
-
-
5,039
445
Balance at 31 December 2018
3,648
69,515
(3,253)
1,761
(76)
(57,474)
14,121
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Company balance sheet
At 31 December 2018
Non-current assets
Intangible assets
Investments in subsidiaries
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
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
22
23
25
27
29
2018
£000
-
7,898
7,898
3,726
4,210
7,936
15,834
(196)
(196)
7,740
15,638
3,648
69,515
1,761
(59,286)
15,638
2017
£000
-
7,436
7,436
4,829
4,611
9,440
16,876
(131)
(131)
9,309
16,745
2,559
65,565
1,316
(52,695)
16,745
The Company reported a loss for the financial year ended 31 December 2018 of £6.6m (2017: £10.7m).
The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the board of
directors and authorised for issue on 15 May 2019. They were signed on its behalf by
John Cronin
Director
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com Company statement of changes in equity
At 31 December 2018
Balance at 31 December 2016
Loss for the year
Total comprehensive income for the year
Share
Capital
£000
1,579
-
-
Share
Premium
£000
52,832
-
-
Issue of share capital
980
12,733
Credit to equity for share options
Credit to equity for share payments
-
-
-
-
Share
Option
Reserve
£000
627
-
-
-
422
267
Retained
Losses
£000
(41,980)
(10,715)
(10,715)
-
-
-
Balance at 31 December 2017
2,559
65,565
1,316
(52,695)
Loss for the year
Total comprehensive income for the year
Issue of share capital
Credit to equity for share options
-
-
1,089
-
-
-
3,950
-
Balance at 31 December 2018
3,648
69,515
-
-
-
445
1,761
(6,591)
(6,591)
-
-
Total
Equity
£000
13,058
(10,715)
(10,715)
13,713
422
267
16,745
(6,591)
(6,591)
5,039
445
(59,286)
15,638
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Consolidated cash flow statement
For the year ended 31 December 2018
Net cash outflow from operating activities
Investing activities
Interest received
Purchases of property, plant and equipment
Disposal/(purchase) of investments
Net cash used in investing activities
Financing activities
Interest paid
Proceeds on issue of shares
Share issue costs
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
30
2018
£000
(5,843)
13
(41)
4
(24)
(2)
5,467
(428)
5,037
(830)
5,394
4,564
2017
£000
(9,697)
15
(73)
(6)
(64)
(7)
11,804
(535)
11,262
1,501
3,893
5,394
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com Company cash flow statement
For the year ended 31 December 2018
Loss for the year
Impairment charges
Share based payment expenses
Operating cash flows before movement in working capital
(Increase) in receivables
Increase 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 (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2018
£000
(6,591)
6,466
-
(125)
(4,979)
65
(5,039)
(401)
(401)
5,467
(428)
5,039
(401)
4,611
4,210
2017
£000
(10,715)
10,691
267
243
(9,647)
117
(9,287)
(1,184)
(1,184)
11,804
(535)
11,269
798
3,813
4,611
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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 3.
2. Adoption of new and revised Standards
IFRS 9: Financial Instruments
IFRS 15: Revenue from Contracts with Customers (and the related clarifications)
In the current financial year, the Company has adopted the following new and revised Standards and Interpretations.
Their adoption has not had a significant impact on the comparative amounts reported in these Financial Statements:
•
•
• Amendments to IFRS 2: Classification and Measurement of Share-Based Payment Transactions
• Annual improvements to IFRSs: 2014 –16 cycle
• Amendments to IAS 7: Disclosure initiative
• Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses
•
• Amendments to IAS 28: Investments in associates and joint ventures
IFRIC 22: Foreign currency transactions and advance consideration
The Company adopted IFRS 15: “Revenue from Contracts with Customers” on 1 January 2018 using the full retrospec-
tive approach. Due to the immaterial impact of IFRS 15 on the Group for the year ended 31 December 2017, no further
disclosure is provided on the comparative results or balance sheet position.
IFRS 15 introduced a 5-step approach to revenue recognition and requires the Company to identify deliverables in
contracts with customers that qualify as separate “performance obligations”. The performance obligations identified
will depend on the nature of individual customer contracts. They might typically be identified for the sale of hardware,
software and associated accessories, bespoke development/professional services, support and maintenance, licence
fees, or the provision of services.
The transaction price receivable from customers must be allocated between the Company’s performance obligations
under the contracts on a relative stand-alone selling price basis. Revenue is then recognised either at a point in time or
over time when the respective performance obligations in a contract are delivered to the customer. The table below
shows the main revenue recognition differences for each type of good or service provided under IAS 18 and IFRS 15:
Performance obligation
IAS 18
IFRS 15
Hardware and software
On delivery of the goods
No change
License revenues (perpetual and
term)
On transfer of the economic benefit When control of the software has
passed to the customer (i.e. when
the license has been granted) – a
change in terminology only with no
change in amounts recognised for
the Group.
Support and maintenance and other
services
On transfer of the economic benefit
of the license to the customer
No change
Bespoke development services
Professional services billed on a time
and materials basis
(including training)
Percentage of completion method by
reference to work performed
At a point in time when control
of the bespoke development has
passed to the customer
As work performed
No change
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 55
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Notes to the Financial Statements
2. Adoption of new and revised Standards (continued)
Adoption of IFRS 15 has not had a material impact on the financial statements of the Company. Please see Note
5 for the additional disclosures which have been provided in the current year to satisfy the requirements of
IFRS 15.
IFRS 9 Financial Instruments
In the current year, the Company has applied IFRS 9 Financial Instruments (as revised in July 2014) and the related
consequential amendments to other IFRS Standards that are effective for an annual period that begins on or after 1
January 2018. The Company has taken advantage of the transition provisions of IFRS 9 which allow it not to restate
comparatives.
Additionally, the Company adopted consequential amendments to IFRS 7 Financial Instruments: Disclosures that were
applied to the disclosures for 2018 and to the comparative period.
IFRS 9 introduced new requirements for:
(i)
(ii)
(iii) general hedge accounting.
the classification and measurement of financial assets and liabilities;
impairment of financial assets; and
The Company has elected not to restate the comparatives but instead record any adjustments identified in retained
earnings in line with the transition arrangement within the standard. Following management’s review, a £26,000
reduction in net assets was identified due to the recognition of expected credit losses. The Company has reviewed the
classification of its financial instruments and has concluded that financial assets previously classified within the “loans
and receivables” category are classified in the “amortised cost” category. The introduction of IFRS 9 has resulted in
changes to the accounting policies in trade and other receivables and contract assets.
Standards in issue but not yet effective
At the date of the authorization of these financial statements, the Company has not applied the following new and
revised IFRSs that have been issued but are not yet effective and, in some cases, have not yet been adopted by the
European Union:
IFRS 16
IFRS 17
Amendments to IFRS 9
Amendments to IAS 28
Annual Improvements to IFRS
Standards 2015-2017 Cycle
Leases
Insurance Contracts
Prepayment Features With Negative Compensation
Long-term Interests in Associates and Joint Ventures
Amendments to IFRS 3 Business Combinations, IFRS 11
Joint
Arrangements, IAS 12 income Taxes and IAS 23
Borrowing Costs
Amendments to IAS 19 Employee Benefits
Plan Amendment, Curtailment or Settlement
IFRS 10 Consolidated Financial Statements and IAS 28
(amendments)
Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture
IFRIC 23
Uncertainty over Income Tax Treatments
The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial
statements of the Company in future periods, except as noted below:
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. The income statement
impact is not expected to be material as there are only a small number of leases.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
56
Notes to the Financial Statements
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.
Alternative Performance Measures
The Group presents Alternative Performance Measures (“APMs”) in addition to the statutory results of the Group. These
are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority
(“ESMA”).
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 2020 (“the Forecast Period”) which, 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 together with the associated timing of cash receipts from
customers.
The Group’s principal markets are in emerging countries and these have an inherent level of uncertainty associated
with them. As a result, future sales could be lower than predicted and/or the timing of orders or cash receipts from
customers could be delayed. The directors have taken reasonable steps to satisfy themselves about the robustness
of sales forecasts but acknowledge that the timing of cash inflows from customers during the Forecast Period in the
Group’s target markets is fundamentally uncertain. If material cashflows are delayed the Group may need to seek
additional working capital funding.
As a result, 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 may include writing down the carrying value of assets, 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, 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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
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Notes to the Financial Statements
3. Significant accounting policies (continued)
Basis of consolidation
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.
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
An internally-generated, or separately acquired, intangible asset arising from development (or from the development
phase of an internal project) is recognised if, and only if, all 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 such 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 on the above basis, development expenditure is recognised in profit or loss in the period in which it is
incurred.
To date all expenditure on research activities has been recognised as an expense in the period in which it is incurred.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
58
Notes to the Financial Statements
3. Significant accounting policies (continued)
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
The Group supplies customers with hardware, software and services.
Revenue is recognised according to the five-step approach under IFRS 15 Revenue from Contracts with Customers:
STEP 1.
STEP 2.
STEP 3.
STEP 4.
STEP 5.
The contract with the customer is identified
The performance obligations within the contract are identified
The transaction price is determined
The transaction price is allocated to the contractual performance obligations
Revenue is recognised in line with us satisfying the performance obligations
The transaction price 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 hardware
Most hardware revenue relates to the sale of RF modules and gateways. RF modules are fitted into electricity and
other meters to make them “smart”. Gateways collect information from the smart meters and send it back to the utility
company. CyanConnode is not responsible for fitting the RF modules into its customers’ meters. Installation of the
Gateways can be performed by CyanConnode or by a third party. Gateway installation is recognised as a separate
contractual element – see “Sale of services” below for more information. Revenue for hardware is recognised when it is
delivered to the customer.
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3. Significant accounting policies (continued)
Sale of software
CyanConnode has its own standards-based software which it licenses to its customers on either a term or a perpetual
basis. These licenses are referred to as Head End Software (HES) licenses. The full value of the license is recognised as
revenue when it is granted because at this point the customer is given full “right to use”. Sometimes, the price of the HES
license is not separately disclosed in the contract with the end customer but is included with related services. In these
cases, the value related to the HES license is estimated based on the internal pricings CyanConnode used when it bid
for contract. Installation of the HES software onto the end customer’s servers is recognised as a separate contractual
element - see “Sale of services” below for more information.
Sale of services
The Group offers a range of services including but not limited to:
Installation of HES software on end customer servers;
Installation of gateways;
Custom integration of HES software with end customer’s own system;
-
-
-
- Network planning and optimisation;
-
-
-
Project management;
End user training; and
Annual Maintenance Contract for the Omnimesh system (including the RF modules, gateways and
HES software)
How revenue is recognised for these services depends on the way in which they are delivered.
If the customer enjoys the value of the service at a point in time, then revenue is recognised at the point of completion.
This is the case for: installation of HES software on end customer servers; installation of gateways; custom integration
of HES software with end customer’s own system; network planning and optimisation; and end user training.
If the customer enjoys the value of the service across a period of time, then revenue is spread over the period of
delivery. This is the case for: project management (for which revenue is recognised based on stage of completion); and
an annual maintenance contract for the Omnimesh system (for which revenue is recognised in equal increments over
time).
Royalties
CyanConnode receives royalties for the manufacture of hardware according to its proprietary design. Royalty revenue
is recognised based on the agreed charge per unit multiplied by the number of units manufactured. No revenue for
royalties has been recognised in the current or prior year.
Contract liabilities
Where revenue is deferred for the sale of goods which have already been invoiced, the associated cost of goods sold is
also deferred and subsequently recognised in the income statement at the same point in time as the revenue to which
it relates.
Fair value of consideration
If costs are higher than anticipated to the extent that a contract becomes loss-making as a whole, then a provision for
this loss is charged to the income statement as soon as the loss is reasonably certain. No such loss has been recognised
in the current or prior year.
Provision for bad debts
Should collectability of an amount already included in revenue become uncertain, then the estimated amount which is
no longer expected to be recovered is recognised as an expense and not as an adjustment of the amount of revenue
originally recognised.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
60
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 transac-
tions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retrans-
lated 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.
Foreign currencies (continued)
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.
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 £120,587 (2017: £165,496).
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com 61
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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 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%
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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
62
Notes to the Financial Statements
3. Significant accounting policies (continued)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applica-
ble, 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 – assets
Classification and measurement
All financial assets are classified as either those which are measured at fair value, through profit or loss or Other
Comprehensive Income, and those measured at amortised cost.
Financial assets are initially recognised at fair value. For those which are not subsequently measured at fair value
through profit or loss, this includes directly attributable transaction costs. Trade and other receivables, contract assets
and amounts due from equity accounted investments are subsequently measured at amortised cost.
Recognition and derecognition of financial assets
Financial assets are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual
provisions of the instrument. The Group derecognises a financial asset only when the contractual rights to the cash
flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity.
Impairment of financial assets
For trade and other receivables, contract assets and amounts due from equity accounted investments, the simplified
approach permitted under IFRS 9 is applied. The simplified approach requires that at the point of initial recognition the
expected credit loss across the life of the receivable must be recognised. As these balances do not contain a significant
financing element, the simplified approach relating to expected lifetime losses is applicable under IFRS 9. Cash and cash
equivalents are also subject to impairment requirements.
Trade and other receivables
Trade receivables and other receivables are measured and carried at amortised cost using the effective interest method,
less any impairment. The carrying amount of other receivables is reduced by the impairment loss directly and a charge
is recorded in the Income Statement. For trade receivables, the carrying amount is reduced by the expected lifetime
losses. Subsequent recoveries of amounts previously written off are credited against the allowance account and
changes in the carrying amount of the allowance account are recognised in the Income Statement.
Trade receivables that are assessed not to be impaired individually are also assessed for impairment on a collective
basis. Each period end, on a country by country basis we consider the amount of trade debtor provisions booked in
the previous twelve months and book a general provision for doubtful debts according to the expected lifetime credit
losses (based on an expected life of 12 months). The increase/decrease in this “general doubtful debts” provision is
then recognised through the income statement.
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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
3. Significant accounting policies (continued)
Financial instruments – liabilities
Financial liabilities are recognised in the Group’s Balance Sheet when the Group becomes a party to the contractual
provisions of the instruments and are initially measured at fair value, net of transaction costs. Non-derivative 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 periods. The effective interest rate is the rate that
discounts estimated future cash payments throughout the expected life of the financial liability or, where appropriate,
a shorter period to the net carrying amount on initial recognition. The Group derecognises financial liabilities when the
Group’s obligations are discharged, cancelled or they expire.
The Company does not have any derivative financial instruments (including no embedded derivatives within its
customer contracts). The Company manages its foreign exchange risk through natural hedging by proactively planning
to match the currency that revenues are receivable in with the currency of the costs associated with those revenues
over the long term.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and
a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material,
provisions are determined by discounting the expected future cash flows at a rate that reflects the current market
assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is
used, the increase in the provision due to the passage of time is recognised as a finance cost.
Warrants
Warrants are accounted for under IFRS 2 Share based payment where services have been received or are to be received
from third party service providers. Otherwise, no accounting entries are posted.
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.
Where they relate to the employees of subsidiary companies, share-based payments are treated as investments
in the accounts of the parent company and as capital contribution reserves for the subsidiary companies. The
movements during the year in this account are set out in Note 32.
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Notes to the Financial Statements
3. Significant accounting policies (continued)
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 16.
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 loss 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
This section sets out the key areas of judgement and estimation that have the most significant effect on the amounts
recognised in the consolidated Financial Statements.
a. Critical judgements in applying the Group’s and the Company’s accounting policies
Management has made the following key judgements around revenue recognition in applying the Group’s
accounting policies that have a significant effect on the consolidated Group Financial Statements.
i. Separable performance obligations
Judgements have been made around whether performance obligations are separable. For example,
revenue relating to gateway hardware is recognised at the point that hardware is received by the
customer. It may later be installed by the Company or by a third party. In the former case, the revenue for
installation services is recognised as a separate performance obligation when the gateways are installed.
ii. All inclusive pricing
Some customer contracts involve multiple performance obligations being bundled into one all-inclusive
price. To allocate consideration between performance obligations, the Group must consider whether
these performance obligations are separable as well as the standalone value of each performance
obligation. The standalone values are calculated with reference to pricing on other comparable contracts
and the internal pricing used when the contract was bid for.
iii. Variable consideration
Revenue for all goods and services includes an assessment of future collectability. Where credit terms
are aligned with those agreed with the end customer (often a utility company), this involves an
assessment of variable consideration.
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Notes to the Financial Statements
b. Key sources of estimation uncertainty
Estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, including current and expected economic conditions. Although
these estimates and associated assumptions are based on management’s best knowledge of current events and
circumstances, actual results may differ.
i. SMIP Intangible
We have modelled expected net cash flows from Connode AB's UK SMIP contract over the lifetime of the
contract and compared the net present value of these cashflows to the £5m carrying value of the related
intangible asset at the end of 2018. Sensitivities were run based on (i) a weighted average cost of capital
of 15%; (ii) roll-out ceasing at the end of 2020; and (iii) a range of 10% to 15% of UK households being in
“not spots”.
If roll-out ceased at the end of 2020 and only 1.0 million communication hubs were installed in “not
spots”, this asset would be impaired by £0.9m. However, this is not considered a likely outcome as all
indications are that the UK government will extend the SMIP programme beyond its 2020 deadline.
Furthermore, if such a situation were to occur, roll-out might be accelerated. If a minimum 1.2 million
communication hubs were installed in “not spots” by the end of the project, the asset would not be
impaired.
If the weighted average cost of capital is increased to 18% and roll-out ended in 2020, then a minimum
1.3 million communication hubs would have to be installed in “not spots” for the asset not to be
impaired.
A useful economic life of 15 years has been assumed in line with the term of the associated support and
maintenance contract.
ii. Goodwill Intangible
The recoverable amount of the cash generating unit (“CGU”) is derived from estimates of future cash
flows and hence the goodwill impairment test is also subject to these key estimates. The results of these
tests may then be verified by reference to external market valuation data. Further details on the goodwill
balances and the assumptions used in determining the recoverable amounts are provided in note 16.
Sensitivity to the assumptions is also found in this note.
iii. Inventory Provision
Inventories include stocks of raw materials and finished goods that the directors believe will be sold
within the period to December 2023 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, or which will no longer be supported by the
Group have been provided against in full. £578,000 (2017: £55,000) was provided against inventory in
the year.
iv. Debtor recoverability
The Group tracks its debtor ageing and cash collection on a contract-by-contract basis each month. A
provision has been made for expected lifetime credit losses (see Note 21) based on the amount of bad
debts in the last twelve months as a percentage of the total year end debtor balance in each country.
Increasing the provision for expected lifetime credit losses by 1% would increase the Company’s
operating loss by £34,000.
An amount of £644,000 (2017: £617,000) which is over 90 days old is included in trade debtors and
has not been provided for because management believes that this amount will be received in full.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
66
Notes to the Financial Statements
5. Revenue
An analysis of the Group’s revenue is as follows:
Continuing operations
Hardware revenue - recognised at a point in time
Software licenses - recognised at a point in time
Revenue from non-recurring services - recognised at a point in time
Revenue from other services - recognised over time
Total revenue
2018
£000
2,601
1,191
489
184
4,465
As permitted under the transitional provisions in IFRS 15, the comparable amount for the year ended 31 December
2017 is not disclosed. As a practical expedient, performance obligations within a contract that had an original
expectation of less than one year in duration have been excluded.
There was no revenue recognised in the current reporting period that related to performance obligations satisfied by
the Company in the prior year.
£75,000 of revenue recognised in 2018 came from brought forward contract liabilities from 31 December 2017.
6. Business and geographical segments
The Group has concluded that as in 2017, 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 2018 there were 3 customers (2017: 3) whose turnover accounted for more than 10% of the Group’s total
revenue as follows:-
Customer A
Customer B
Customer C
2018
2017
Turnover
£000
1,468
1,891
454
Percentage of
Total
%
Turnover
£000
Percentage of
Total
%
33
42
10
365
256
131
31
22
11
Revenue split between Europe, India and other parts of the World was as follows:
Europe
India
Rest of World
2018
2017
Turnover
£000
Percentage of
Total %
Turnover
£000
Percentage of
Total %
1,067
3,398
-
4,465
23.9
76.1
0.0
640
508
23
1,171
54.6
43.5
1.9
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
7. Loss for the year
Loss for the year has been arrived at after charging:
Net foreign exchange losses
Research and development costs (excluding staff costs)
Depreciation of property, plant and equipment
Amortisation of intangibles
Bad debts written off
Provision for expected credit losses
Impairment of stock
Cost of inventory recognised as an expense
Staff costs (see note 9)
Operating lease costs (see note 31)
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
2018
£000
16
1,041
51
421
78
64
578
1,385
4,227
141
2018
£000
130
46
176
2017
£000
52
1,765
68
421
27
-
55
616
5,313
174
2017
£000
34
24
58
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Notes to the Financial Statements
9. Employee information
The average monthly number of employees (including executive directors) was:
Sales and administration
Research and development
Operations and logistics
There are no employees in the parent company.
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Remuneration paid in shares
Share option charges
2018
£000
19
23
10
52
2018
£000
2017
Number
23
22
9
54
2017
£
3,363
3,861
314
105
-
445
500
263
267
422
4,227
5,313
Key management compensation
The directors are of the opinion that key management personnel during 2018 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:
Wages, salaries and fees
Social security costs
Other pension costs
2018
£000
565
35
6
606
2017
£000
986
37
3
1,026
Specific details of directors' remuneration and other information (including share based compensation) are included in
the Remuneration Committee Report within this Annual Report. Neither John Cronin nor Harry Berry are members of
the Company pension scheme.
The highest paid Director received total remuneration of £235,000 (2017: £495,000). Please see page 37 for the
details.
10. Investment income
Interest revenue:
Bank deposits
Investment revenue is all earned on cash and cash equivalents.
2018
£000
13
2017
£000
16
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
11. Finance costs
Interest on bank overdrafts
2018
£000
2
2017
£000
6
Connode AB has a SEK 2 million overdraft facility (secured against the assets of Connode AB). This was £nil at 31
December 2018 (2017: £nil)
12. Tax
Current tax:
UK corporation tax on profits of the period
Adjustments in respect of prior periods
Deferred tax (note 24)
Total tax credit
Loss on ordinary activities before tax
Tax on loss at standard corporation tax rate of 19.00% (2017: 19.25%)
Effects of:
Expenses not deductible for tax purposes
Capital allowances in excess of depreciation
Other short term timing differences
Losses surrendered for R&D tax credit
Additional R&D deduction
R&D Tax credit receivable
Unrelieved tax losses c/f
Difference in tax rates
Adjustment in respect of prior period
Total tax charge/(credit) for the period
2018
£000
(822)
63
(168)
(927)
2018
£000
(6,309)
(1,199)
52
(1)
(67)
1,080
(610)
(822)
600
(23)
63
(927)
2017
£000
(1,383)
65
(84)
(1,402)
2017
£000
(11,143)
(2,145)
56
(2)
(38)
1,836
(1,038)
(1,383)
1,246
1
65
(1,402)
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. The Swedish tax rate of 22% and Indian effective tax rate of
34.608% remain unchanged and the deferred tax in these countries has been recognised at the relevant rate.
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Notes to the Financial Statements
13. Loss per share
The calculation of the basic and diluted loss per share is based on the following data:
Loss for the purposes of basic loss per share being net loss attributable to
equity holders of the parent (£000)
Weighted average number of ordinary shares for the purposes of basic and
diluted loss per share
Loss per share (pence)
2018
2017
(5,382)
(9,741)
126,443,036
95,740,200
(4.26)
(10.18)
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.
14. Intangible Assets (Group)
Cost
Balance at 31 December 2016, 2017 and 2018
Amortisation
Balance at 1 January 2017
Charge for year
Balance at 31 December 2017
Charge for year
Balance at 31 December 2018
Carrying amount
At 31 December 2018
At 31 December 2017
Software
£000
SMIP
Intangible
£000
Total
£000
144
144
-
144
-
144
-
-
6,100
6,244
210
421
631
421
354
421
775
421
1,052
1,196
5,048
5,469
5,048
5,469
Smart Metering Implementation Programme (‘SMIP’) relates to a contract acquired with the Connode Group in
2016 to partner Telefonica and Toshiba in their SMETS2 rollout in the UK. CyanConnode's technology enables
their communication hubs to work in areas of the UK that have no, or intermittent, mobile network coverage.
Software is amortised over 5 years. SMIP intangible is amortised over 15 years.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
15. Intangible assets (Company)
Cost at 31 December 2017 and 31 December 2018
Amortisation at 31 December 2017 and 31 December 2018
Carrying amount at 31 December 2018 and 31 December 2017
16. Goodwill
Cost at 1 January and 31 December 2018
Carrying amount at 31 December 2017 and 31 December 2018
Software
£000
144
144
-
Group
£000
1,930
1,930
Impairment testing
The Company tests goodwill annually or more frequently if there are indications that goodwill might be impaired.
In accordance with IAS 36: “Impairment of assets” the Company values goodwill at the recoverable amount, being the
higher of the value in use basis and the fair value less costs to sell basis. Note that goodwill has been allocated to a
single cash generating unit for the purposes of this testing.
Value in use calculations have been used to determine the recoverable amount of goodwill. The calculations use the
latest approved forecast extrapolated to perpetuity using growth rates shown below, which do not exceed the long-
term growth rate for the relevant market. Based on impairment testing completed at the year end, no impairment was
identified in respect of goodwill.
Significant assumptions and estimates
The following significant assumptions have been used:
• Weighted average cost of capital 15%
• Compound annual growth rate in revenue over next five years 18%
• Growth rate in perpetuity 5%
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 18% over the next five
years with revenues beyond that period based upon a terminal growth rate of 5%. The 5% growth rate has been used
to reflect the long term growth rate for the Group's target markets including India (where forecast growth rates in
perpetuity are around 8% to 10% per annum).
A reduction in revenue compound annual growth rates over the next five years from 18% to 14%, an increase in
discount rate from 15% to 17.94%, or a reduction in terminal growth rate from 5% to 0.34% would reduce the £5.0m
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.
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Notes to the Financial Statements
17. Property, plant and equipment
No assets are held at valuation in these accounts.
Group
Cost
At 1 January 2017
Additions
Disposals
At 31 December 2017
Additions
At 31 December 2018
Accumulated Depreciation
At 1 January 2017
Charge for the year
Disposals
At 31 December 2017
Charge for the year
At 31 December 2018
Carrying Amount
At 31 December 2018
At 31`December 2017
Fixtures and
equipment
£000
336
73
(118)
291
41
332
258
68
(118)
208
51
259
73
83
At 31 December 2018 the Group had no contractual commitments outstanding for the acquisition of property, plant
and equipment (31 December 2017: £nil).
18. Subsidiaries
Investment in subsidiaries
As at 1 January
Capital contribution in respect of share based payment
Investment in CyanConnode Pvt Ltd
Impairment
As at 31 December
Company
2018
£000
7,436
445
401
(384)
7,898
Company
2017
£000
8,330
422
1,184
(2,500)
7,436
In 2018, CyanConnode Holdings plc invested £401,000 (2017: £1,184,000) in CyanConnode Pvt Ltd (in India) to fund
working capital. In 2018, an impairment charge of £384,000 (2017: £2,500,000) was banked against the carrying value
of the parent company's investment in its subsidiaries. All of this (2017: £1,187,000) related to share options issued to
employees of CyanConnode Ltd.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
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Notes to the Financial Statements
18. Subsidiaries (continued)
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 ending 31 December
• The principal activity of the Company is research and development, and to
market and sell the Group's range of products
• The Company’s results are consolidated into these accounts
CyanConnode Private Limited
B-41 Panchsheel Enclave
New Delhi-110017
India
•
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 market and sell the Group's range
of products in India.
• The Company’s results for the period ending 31 December 2018 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
•
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 December
• The principal activity of the Company is to act as a parent company
• The Company’s results are consolidated into these accounts
•
100% of the issued capital of the Company is held by Connode Holding AB
• The Company is incorporated in Sweden and has an accounting period ending
31 December
• The principal activity of the Company is to market and sell the Group's range
of products in the Nordic region
• The Company’s results 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 market and sell the Group’s range
of products in India
• The Company’s results for the 12 months ending 31 December 2018 are
consolidated into these accounts
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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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.
20. Inventories
Raw materials - cost
Raw materials - provision
Raw materials - net realisable value
Finished goods - cost
Finished goods - provision
Finished goods - net realisable value
Group
2018
£000
44
Group
2018
£000
219
(104)
115
801
(597)
204
2017
£000
48
2017
£000
318
(88)
230
933
(35)
898
Inventories
319
1,128
£578,000 (2017: £55,000) of stock impairment charges were recognised in the year.
The Company held no inventories at either balance sheet date.
21. Trade and other receivables
Trade receivables: amount receivable for
the sale of goods and services
Allowance for expected credit losses
R&D tax credit receivable
Contract asset
Other debtors
Employee Benefit Trust Loan
Prepayments
Loans to other group entities
Trade and other receivables
2017
£000
Company
2018
£000
2017
£000
1,291 -
Group
2018
£000
3,408
(64)
822
246
176
-
239
-
-
1,391
40
139
-
158
-
-
-
-
138
890
95
2,603
3,726
4,827
3,019
-
-
-
-
10
2,083
19
2,717
4,829
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Trade receivables are non-interest bearing. Credit terms offered to customers vary upon the country of operation and
type of goods and services provided. Credit terms are often aligned with the credit terms agreed between the meter
manufacturer and the end customer. Hardware sales are normally invoiced on delivery and settled within 30 or 60 days.
Software licenses and other services tend to have longer payment terms but these vary contract by contract.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
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Notes to the Financial Statements
21. Trade and other receivables (continued)
Loans to other group entities relates to amounts owed to CyanConnode Holdings plc by Connode Holding AB.
This is considered recoverable because it will be largely paid off in the first half of 2019. This inter Company
loan is unsecured and will be settled in cash. No guarantees have been given or received. The parent
company also has amounts receivable of £53 million from CyanConnode Limited. These amounts have been fully
provided for as not recoverable. For more information on loans to other group entities please see note 35.
Expected credit losses
During the year £78,000 (2017: £27,000) was written off the value of the carrying amount of trade and other
receivables. A further £64,000 allowance was made for expected credit losses:
As at 1 January 2018
Adoption of IFRS9
Current year charge
As at 31 December 2018
Group
£000
-
(26)
(38)
(64)
Credit risk
At 31 December 2018 the Group had significant concentration of credit risk in two customers which represented 78%
(2017: one customer 82%) of the Group’s trade receivables. These two customers have paid £1 million in the first four
months of 2019. This reliance on two customers in the Indian smart electricity metering sector is included within our
principal risks statement on page 17.
Trade receivables
Not yet due
30-59 days
60-89 days
Over 90 days
Total
2018
£000
2,121
204
439
644
3,408
2017
£000
565
103
6
617
1,291
Credit control procedures are implemented to ensure that sales are only made to organisations that are willing and
able to pay for them. Such procedures include the establishment and review of customer credit limits and terms. The
Company does not hold any collateral or any other credit enhancements over any of its trade receivables nor does it
have legal right of offset against any amounts owed by the Company to the counterparty.
22. Cash and cash equivalents
Cash and cash equivalents
Group
2018
£000
4,564
2017
£000
5,394
Company
2018
£000
4,210
2017
£000
4,611
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 to 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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
76
Notes to the Financial Statements
23. Trade and other payables
Both the Group and the Company have two categories of financial liability being trade payables held at amortised cost.
Those of the Group totalled £935,000 (2017: £1,047,000) and those of the Company totalled £94,000 (2017: £60,000).
The second category is accruals, held at an estimated fair value.
Trade and other payables
Trade payables
Other payables
Accruals
Social security and other taxes
Contract liabilities
Group
Company
2018
£000
935
292
388
365
14
2017
£000
1,047
46
765
301
89
1,994
2,248
2018
£000
94
5
97
-
-
196
2017
£000
60
5
66
-
-
131
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 68 days (2017: 63 days)
due to significant purchases of meters for smart metering deployments in December 2018. The average credit period
taken in 2018 for trade purchases by the Company was 32 days (2017: 27 days). Neither the Group nor the Company
has incurred interest charges for late payment of invoices during the year (2017: £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.
Trade payables
Not yet due
30-59 days
60-89 days
Over 90 days
Total
24. Deferred tax
2018
£000
418
469
2
46
935
2017
£000
569
107
150
221
1,047
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
Origination and reversal of timing differences (note 12)
At 31 December
Intangibles deferred tax
Deferred tax asset - Swedish losses
Total recognised deferred tax liability
2018
£000
858
(168)
690
1,111
(421)
690
2017
£000
942
(84)
858
1,202
(344)
858
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
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Notes to the Financial Statements
24. Deferred tax (continued)
Unrecognised provision for deferred tax
Accelerated capital allowances
Short-term timing differences
Losses
Total unrecognised deferred tax (asset)
No deferred tax asset has been recognised due to the recent history of losses.
25. Share capital
Issued and fully paid:
182,398,523 ordinary shares of 2.0 pence each (2017 127,933,196 ordinary
shares of 2.0 pence each)
2018
£000
(1)
(1)
(6,224)
(6,226)
2017
£000
(2)
-
(5,785)
(5,787)
2018
£000
2017
£000
3,648
2,559
In November 2018, the Company completed a placing, the result of which was 53,824,474 ordinary shares of 2.0 pence
per share being issued at a price of 10.0 pence per share to raise £5,382,000 before expenses of £428,000.
In the year, shares were issued at prevailing market prices as settlement for professional services provided. A further
£85,000 was raised this way.
No shares were issued as a result of the exercise of share options (2017: none).
The Company has one class of ordinary share which carries no right to fixed income.
26. Own shares held
Balance at 31 December 2017 and 31 December 2018 (9,467,256) ordinary
shares of 2.0 pence per share)
Own shares are those issued to the Employee Benefit Trust.
27. Share option reserve
Balance at 1 January 2017
Credit to equity for share options
Credit to equity for share payments
Balance at 31 December 2017
Credit to equity for share options
Balance at 31 December 2018
Group
£000
(3,253)
Company
£000
-
Group
£000
627
422
267
1,316
445
1,761
Company
£000
627
422
267
1,316
445
1,761
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 2018Stock symbol: CYAN.L
78
Notes to the Financial Statements
28. Translation Reserve
Group
Balance at 1 January
Exchange differences on translation of foreign operations
Balance at 31 December
29. Retained earnings
Balance at 1 January 2017
Net loss for the year
Balance at 31 December 2017
Net loss for the year
Balance at 31 December 2018
2018
£000
(130)
54
(76)
Group
£000
(42,351)
(9,741)
(52,092)
(5,382)
(57,474)
2017
£000
(176)
46
(130)
Company
£000
(41,980)
(10,715)
(52,695)
(6,591)
(59,286)
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
Provision for expected credit losses
Foreign exchange
Share payment expense
Share-option payment expense
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables
(Decrease)/increase in payables
Cash reduced by operations
Income taxes received
Net cash outflow from operating activities
2018
£000
(6,320)
51
421
578
64
55
-
445
(4,706)
231
(2,441)
(253)
(7,169)
1,326
(5,843)
2017
£000
(11,153)
69
421
56
-
46
267
422
(9,872)
(844)
348
43
(10,325)
628
(9,697)
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 2018www.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
2018
£000
141
2017
£000
174
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:
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.
Within one year
In the second to fifth years inclusive
2018
£000
18
-
2017
£000
82
18
£18,000 is equivalent to one quarter's rent for the Company's Cambridge office and laboratory. The Company signed
a new lease in 2019 for these premises.
The Company as a lessee
Minimum lease payments under operating leases recognised as an expense in
the year
2018
£000
82
2017
£000
82
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Notes to the Financial Statements
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.
2018
2017
Number
of share
options
20,318,732
4,292,744
(3,841,813)
20,769,663
2,222,530
Weighted
average
exercise
price (in £)
0.38
0.19
0.41
0.40
0.70
Number
of share
options
9,023,848
11,874,654
(579,770)
20,318,732
1,893,923
Weighted
average
exercise
price (in £)
0.80
0.57
0.69
0.38
0.51
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
The options outstanding at 31 December 2018 had a weighted average exercise price of £0.40 (2017: £0.38) and a
weighted average remaining contractual life of 19 months (2017: 90 months).
In 2018, options were granted on 25 and 29 January, 26 March, 6 April, 20 June, 15 and 29 November, 11,12,13 and
19 December. The aggregate of the estimated fair values of those options is £338,506.
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.
A share option charge of £445,000 (2017: £422,000) 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
2018
20.68p
32.46p
65%
4 years
0.5%
0%
2017
32.78p
50.88p
64%
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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
32. Share-based payments (continued)
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:
2018
2017
Outstanding at beginning of period
Granted during the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
Weighted
average
exercise
price (in £)
0.54
-
-
0.54
0.54
Number of
warrants
341,605
-
-
341,605
341,605
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
Weighted
average
exercise
price (in £)
1.20
0.39
0.77
0.54
0.53
2017
32.78p
54.0p
64%
4 years
0.50%
0%
Number of
warrants
529,076
7,400
(194,871)
341,605
313,703
2018
32.78p
54.0p
65%
4 years
0.5%
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.
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Notes to the Financial Statements
33. Financial instruments and risk management
The table below sets out the Company's accounting classification of each category of financial assets and liabilities and
their carrying values at 31 December 2018 and 31 December 2017:
As at 31 December 2018
Financial assets
Classified as amortised cost
Trade receivables
Allowance for expected credit losses
Other receivables
Contract assets
Cash and cash equivalents
Total financial assets
Financial liabilities
Classified as amortised cost
Trade payables
Other payables
Contract liabilities
Total financial liabilities
Group
£000
Company
£000
3,408
(64)
110
246
4,564
8,264
935
292
14
1,241
-
-
110
-
4,210
4,320
94
5
-
99
The Directors consider that the financial assets and liabilities have fair values not materially different to carrying values.
Risk management
The Company’s financial function provides services to the business, monitors and manages the financial
risks relating to the operations of the Group. The main types of risk are outlined below. The Group does not
enter into or trade financial instruments, including derivative financial instruments, for any purpose.
Credit risk
The Company’s credit risk is primarily attributable to its trade receivables and cash, the credit risk on other classes of
financial asset is insignificant. The Company's credit risk on cash and cash equivalents was limited because the majority
of its liquid resources are held with mainstream financial institutions which have good credit ratings.
The Company's credit risk was therefore primarily attributable to its trade receivables. Note 21 provides further details
regarding the recovery of trade receivables.
The Company has made a provision against the full amount of the debt owed to it by its subsidiary company
CyanConnode Limited totalling £51,913,000 (2017: £39,331,000). In addition, the Company has made a total provision
of £2,363,000 (2017: £1,170,000) 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.
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 30.
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. It is 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.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
33. Financial instruments and risk management (continued)
Market risk
We operate primarily in the smart electricity metering sector in India, Scandinavia and the UK. Therefore, we are
exposed to changes in market growth rates in this sector as well as macro-economic and political risk in these countries.
We are currently expanding operations both in terms of industry sector and geographic reach. This will help to diversify
away this market risk. At present, the market we are in continues to grow rapidly in line with industry forecasts.
Currency 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 2018 exchange rate.
Fixed assets
Current assets
Current liabilities
Net assets
INR
£000
57
3,738
(1,779)
2,016
SEK
£000
1,932
234
(87)
2,079
Foreign currency sensitivity analysis
Currency risks are defined by IFRS 7: "Financial Instruments: Disclosures" as the risk that the fair value or future cash
flows of a financial asset or liability will fluctuate because of changes in foreign exchange rates.
The following table details the transactional impact of hypothetical changes in foreign exchange rates on financial
assets and liabilities at the balance sheet date, illustrating the increase/(decrease) in Group operating profit caused by
a 10% strengthening of the Indian Rupee and Swedish Krona against Sterling compared to the year-end spot rate. The
analysis assumes that all other variables (in particular, other foreign currency exchange rates) remain constant.
Year ended 31 December 2018
Indian Rupee
Swedish Krona
2018
£000
224
231
2017
£000
131
231
The following table details the impact of hypothetical changes in foreign exchange rates on financial assets and
liabilities at the balance sheet date, illustrating the increase/(decrease) in Group equity cause by a 10% weakening of
the Indian Rupee and Swedish Krona against Sterling. The analysis assumes that all other variables (in particular, other
foreign currency exchange rates) remain constant.
Year ended 31 December 2018
Indian Rupee
Swedish Krona
2018
£000
(183)
(189)
2017
£000
(107)
(189)
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
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Notes to the Financial Statements
33. Financial instruments and risk management (continued)
Fair value of financial instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The Group has documented internal
policies for determining fair value, including methodologies used to establish valuation adjustments required for credit
risk.
Fair value hierarchy
Financial assets and financial liabilities measured and held at fair value are classified into one of three categories,
known as hierarchy levels, which are defined according to the inputs used to measure fair value as follows:
•
•
•
Level 1: fair value is determined using observable inputs that reflect unadjusted quoted market prices for
identical assets and liabilities;
Level 2: fair value is determined using significant inputs that may be directly observable inputs or
unobservable inputs that are corroborated by market data; and
Level 3: fair value is determined using significant unobservable inputs that are not corroborated by market
data and may be used with internally developed methodologies that result in management's best estimate of
fair value.
In valuing share options issued as compensation, the Black Scholes methodology has been used. The assumptions made
are explained in note 32. The share-based compensation is level 2 on the fair value hierarchy.
In valuing expected credit losses we have used internal information. This is therefore categorised as level 3.
34. Post balance sheet events
In February 2019, we announced a follow-on order from Larsen & Toubro (L&T) for the Madhya Pradesh Paschim
Kshetra Vidyut Vitaran Company Ltd (MPWZ) project, announced in May 2018, worth approximately £0.4 million. All
hardware for this order was delivered before the end of March 2019. In April 2019 we announced a purchase order from
a new Partner for an Indian state-owned Utility, who is also a new end-customer. This order was for a hybrid RF Smart
Mesh and Cellular communications network and will be delivered in full during 2019.
We achieved accreditation for 3 ISO standards (9001:2015, 27001 and 14001) during the first quarter of 2019, all
of which are important in our industry as they highlight the quality and security of our products, and the streamlined
processes which have been implemented across the organisation. Obtaining accreditation for ISO 14001 highlights our
commitment to the environment.
In early 2019, we signed a new lease agreement for our Cambridge office and laboratory.
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com
Notes to the Financial Statements
35. Related Party Transactions
The Board is satisfied that procedures are in place to ensure that all transactions with related parties are on an arm's
length basis and subject to market testing.
Investments by parent company
Included in the investment in subsidiaries figure (Note 18) of £7,898,000 is an amount of £2,000 (2017: £2,000) relating
to the investment held by CyanConnode Holdings plc in CyanConnode Limited.
In 2018 an investment of £401,000 (2017: £1,184,000) was made by CyanConnode Holdings Plc in CyanConnode
Private Limited. The remaining amount is a capital contribution amounting to £61,000 (2017: £1,203,000), which
relates to the share compensation charge in respect of share options granted in the Company on behalf of employees in
CyanConnode Pvt Limited.
Board members
Please refer to page 27 of the Corporate Governance Statement for a full list of directors who served in the year.
During the year, the directors of the Company purchased newly issued shares to the amount of 8,800,000 shares (2017:
313,021 shares) for £880,000 (2017: £108,000).
During the year, the Company paid fees of £244,000 (2017: £543,000) in respect of services provided by directors.
Please see page 37 for the Directors' Remuneration Report for further information.
Other key management personnel
Hans-Erik Wikman is a director of Connode AB and Connode Holding AB. He is also CFO, Board Director and
shareholder of Tritech. Tritech sold the Connode Group to the Company in late 2016. Tritech have continued to provide
bookkeeping and company secretarial support for the Connode group of companies. In 2018, revenue of £42,000 and
costs of £103,000 were recognised in relation to Tritech.
Transactions between parent company and subsidiaries
Year end balances outstanding and transactions in the year between the parent company and its subsidiaries and
associates are disclosed below.
Loans to related parties
Balance as at 31 December 2017
Cash advances/(repayments)
Interest on loan balance
Loss on revaluation
Management fee
Balance as at 31 December 2018
Connode
Holding AB
£000
CyanConnode
Limited
£000
CyanConnode
Pvt Limited
£000
2,311
298
37
(47)
-
2,599
47,025
4,521
-
-
367
51,913
405
(401)
-
-
-
4
The balance due to CyanConnode Holdings plc from Connode Holding AB carries an interest charge of £21,000 (2017:
£16,000); 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 2018 these amounted to £375,000 (2017: £335,000).
85
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CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018Stock symbol: CYAN.L
86
Professional Advisers
Nominated Adviser and Broker
Arden Partners plc
125 Old Broad Street
London
EC2N 1AR
Auditor and Reporting Accountants
Deloitte LLP
1 Station Square
Cambridge
CB1 2GA
Solicitors to the Company
Trowers & Hamlins LLP
3 Bunhill Row
London
EC1Y 8YZ
Taylor Vinters
Merlin Place
Milton Road
Cambridge
CB4 0DP
Registrars
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
Yellow Jersey PR
Wells Street
London
W1T 3QE
CyanConnode Holdings plc Annual report and Accounts for the year ended 31 December 2018www.cyanconnode.com CyanConnode, Merlin Place, Milton Road, Cambridge, CB4 0DP
T: +44 (0) 1223 225060
E: information@cyanconnode.com
CYANCONNODE.COM