Cyanotech
Annual Report 2023

Plain-text annual report

C y a n C o n n o d e A N N U A L R E P O R T A N D A C C O U N T S 2 0 2 3 ANNUAL REPORT AND ACCOUNTS 2023 CyanConnode Merlin Place, Milton Road Cambridge CB4 0DP CYANCONNODE.COM CYANCONNODE AT A GLANCE CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023 91 A world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks Professional Advisers CyanConnode is a world leader in the design and development of narrowband RF smart mesh networks that enable machine to machine (M2M) communications. With a wealth of expertise and experience in smart technology, the Group provides customers with low-power, end-to-end networking solutions with high-performance applications that save energy, as well as providing enhanced service delivery and improved business efficiency. 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 M2M platform that uses narrowband radio mesh networks and cellular 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 suitable for applications requiring 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. Nominated Adviser and Broker Strand Hanson Ltd 26 Mount Row London W1K 3SQ Auditor RSM UK Audit LLP City House 126-130 Hills Road Cambridge CB2 1RE Solicitors to the Company Taylor Wessing LLP 5 New Street Square London EC4A 3TW 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 9-11 St Andrews Street Cambridge CB2 3AX Strategic Report 01 Highlights 02 Chairman’s Statement 06 Strategic Report Our Governance 22 Board of Directors 24 Financial Review 27 Corporate Governance Statement 34 Directors’ Remuneration Report 39 Audit Committee Report 41 Directors’ Report 45 Directors’ Responsibilities Statement Our Financials 46 Independent Auditor's Report 52 Consolidated Income Statement 53 Consolidated Statement of Comprehensive Income 54 Consolidated Statement of Financial Position 55 Consolidated Statement of Changes in Equity 56 Consolidated Cash Flow Statement 57 Company Balance Sheet 58 Company Statement of Changes in Equity 59 Company Cash Flow Statement 60 Notes to the Financial Statements 91 Professional Advisers CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023 Highlights 1 Financial highlights • Increase of 23% in revenue to £11.7m in FY23 from £9.6 million in FY22, the highest annual revenue for the Group to date after four consecutive years of growth1 • • • • • • Reduction in gross profit to £4.2m in FY23 (FY22: £5.0m) as a result of lower margin sales of third-party products Increase in operating loss to £3.3 million FY23 (FY22: £1.0m) as a result of lower gross margin, higher operating costs and a £1.0m impairment of intangible assets Increase in EBITDA loss to £2.9 million in FY23 (FY22: £0.4m) Reduction in adjusted EBITDA2 to loss of £1.6 million in FY23 (FY22: £0.06m profit) Increase in cash position to £4.1 million in FY23 (FY22: £2.4m) Increase in cash collected from customers to £10.7m in FY23 (FY22: £8.2m) Operational highlights • Orders for 2.3m modules won in India during the period – higher than the total number of modules won in India in the company’s history prior to the current year taking order book to 3.6m during the financial year, of which 2.3m were still to be deployed. Post period this order book has increased further to 4.2m as set out in the post period highlights below • • • • Order worth USD 6.7m won from MENA for NB-IoT gateways Further new order worth USD 2.5m won from MENA for Cellular gateways Oversubscribed placing and subscriptions completed raising, in aggregate, £5.8m before expenses 391,000 Omnimesh Radio Frequency (RF) Modules shipped against current contracts during the period (FY22: 612,000), along with 46,000 NB-IoT gateways and 63,000 Cellular gateways • Strategic Framework Agreement signed to deliver 3m units Post-Period Highlights • 600,000 Omnimesh RF Modules and associated products ordered from a subsidiary of IntelliSmart Infrastructure Private Limited , taking order book to 4.2m modules • • • • • • 1 CyanConnode India recognised as Dun and Bradstreet ‘Start-Up 50 Trailblazer’ Memorandum of Association (MOU) signed with Alfanar Revenue of greater than £2.8m in Q1 of FY24, being 2.1 times revenue of the whole of H1 FY23 291k modules shipped in Q1 of FY24 vs 391k shipped in the whole of FY23 £3.6 million cash received from customers in Q1 FY24 Investment into areas such as recruitment to scale up the business The majority of the Group's revenues are received in rupees for India and US dollars for the rest of world, whilst accounts are reported in Pound Sterling. Foreign exchange volatility can have an impact on the reported figures. 2 Where Adjusted EBITDA is operating loss before amortisation, depreciation, stock impairment, impairment of intangible assets, share-based compensation and foreign exchange losses. With an order book of 4.2 million modules to date of which 2.3 million are yet to be delivered, the Group ends the first quarter of FY24 in a strong position to continue the trend of year-on-year revenue growth. STRATEGIC REPORT2 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023 Chairman’s Statement Dear Shareholders The financial year ending March 2023 has been the most successful financial year for the Group in terms of revenue, orders won and cash collected from customers. It is encouraging to see the vast increase in volumes and numbers of tenders being released in India after many years working in the country, as the government continues with its plans to roll out 250 million meters by 2025. John Cronin Executive Chairman In addition, we have seen success with contracts in other territories around the world, particularly in the Middle East North Africa (MENA) region. I’m encouraged to see the momentum from FY2023 continuing into the current financial year and am delighted to provide more details on the highlights of both FY2023 and the current business in this Annual Report. Operational Review India The union budget of 2020-21 paved the way for the replacement of 250 million conventional electricity meters with smart meters by 2025 by announcing the Revamped Distribution Sector Scheme (RDSS). It also approved an outlay for the RDSS of Rs 3,03,758 Crore (circa £30 billion) over 5 years. In August 2022, the Government of India formally approved the RDSS to help Distribution Companies (DISCOMs) improve their operational efficiencies and financial sustainability by providing result-linked financial assistance to strengthen supply infrastructure. The ‘Collection Efficiency’ of not less than 98%, as set out in the RDSS and which CyanConnode achieves, favours the Group’s technology for network communication and management. RDSS mandates compulsory installation of smart meters across the country and will run for five years from FY22 to FY26. In addition, the Rural Electrification Corporation proposed a Request for Empanelment (RFE) to allow participation in the RDSS tenders. This requires Advanced Metering Infrastructure Service Providers (AMISP) to demonstrate their solutions in a controlled test environment. Empanelment will be required by all AMISPs to allow participation in RDSS tenders. Following an initial delay in the empanelment process, forty-three companies are now empanelled. Of the 250 million smart prepaid meters approved under the RDSS, over 200 million (an addressable market to CyanConnode worth a potential c. £2.5 billion) have been sanctioned so far, according to information recently tabled in the Indian Parliament (set out below). CHAIRMAN'S STATEMENT 3 John Cronin Executive Chairman State Tamil Nadu Uttar Pradesh Maharashtra West Bengal Gujarat Rajasthan Kerala Madhya Pradesh Punjab Haryana Consumer* DT** Feeder Consumer DT** Feeder Smart meters sanctioned under RDSS No. of meters (per cent share) 30,000,000 472,500 26,979,056 1,526,801 23,564,747 20,717,969 410,905 305,419 16,481,871 300,487 14,274,956 434,608 13,289,361 87,615 12,980,102 406,503 8,784,807 184,044 7,405,618 195,319 18,274 20,874 29,214 11,874 5,229 27,128 6,025 8,411 12,563 13,204 14.7 13.2 11.5 10.1 8.1 7.0 6.5 6.3 4.3 3.6 85.3 14.7 100.0 8.7 28.2 7.6 5.6 5.6 8.0 1.6 7.5 3.4 3.6 79.8 20.2 100.0 9.2 10.5 14.7 6.0 2.6 13.6 3.0 4.2 6.3 6.6 76.7 23.3 100.0 Total for above states 174,478,487 4,324,201 152,796 Rest of India All-India total * prepaid; ** distribution transformer; 30,144,695 1,087,807 46,030 204,623,182 5,412,008 198,826 Table shows top 10 states wrt consumer smart meters The win rate from contracts tendered since April 2022 has been approximately 38% in volume and the installed rate is around 25%. CyanConnode is currently bidding for contracts worth over £1 billion in value. During the period, CyanConnode won three new orders, totalling approximately 2.3 million units from its customers IntelliSmart, Genus and Monte Carlo Group, to be deployed in three different states. This volume was significantly higher than the total volume of units won by the Company in India in all years prior to FY2023 (1.3 million). All orders were for Omnimesh RF Modules together with advanced metering infrastructure, standards-based hardware, services, Omnimesh head-end software, perpetual license and annual maintenance contracts. To the end of March 2023, a total of 327,000 modules and associated gateways had been shipped against these new contracts, with a further 282,000 shipped during Q1 FY24, bringing the total modules shipped against these contracts at the end of June 2023 to 609,000. The first two orders, totalling 300,000 units, were from IntelliSmart for deployment in the state of Assam. IntelliSmart is the first service provider to use the Design, Build, Finance, Own, Operate, Transfer (DBFOOT) model and it has also installed the first smart prepaid meter in India under the RDSS. To the end of March 2023, a total of 195,000 modules and associated gateways had been shipped against these two contracts, with a further 49,000 shipped during Q1 FY24, bringing the total modules shipped against these contracts at the end of June 2023 to 244,000. The third order, CyanConnode’s largest order in its history, was for 1 million units, received by Genus for a deployment in South Bihar. To the end of March 2023, a total of 81,000 modules and associated gateways had been shipped against this contract, with a further 109,000 shipped during Q1 FY24, bringing the total modules shipped against these contracts at the end of June 2023 to 190,000. The fourth order, for 984,000 units was received from a new customer, Monte Carlo Group, relating to a smart metering deployment in Jabalpur, Madhya Pradesh. To the end of March 2023, a total of 51,000 modules and associated gateways had been shipped against this contract, with a further 124,000 shipped during Q1 FY24, bringing the total modules shipped against these contracts at the end of June 2023 to 175,000. In February 2023 the Group announced it had entered into a strategic framework agreement with a key partner to supply its Radio Frequency (RF) mesh technology in India. As a preferred partner, CyanConnode will provide Omnimesh RF modules, Advanced Metering Infrastructure, Standards-Based Hardware, Omnimesh Head-End Software and associated components, Perpetual License, design, installation, implementation, integration, training and support & Maintenance Contract for 3 million smart meters. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT4 CHAIRMAN'S STATEMENT In March 2023, CyanConnode announced a collaboration with Silicon Laboratories, Inc. (Silabs) a prominent supplier of System-On-Chips (SOCs), under which it will integrate SiLabs' FG25 Sub-GHz Wireless SoC into its Omnimesh product range. The FG25 is certified by the Wi-SUN Alliance (Wireless Smart Ubiquitous Network Alliance), which is the leading IPv6 sub-GHz mesh technology for smart city and smart utility applications. The open-source backbone of Wi-SUN will enable CyanConnode to quickly scale deployments and leverage the Wi-SUN ecosystem to provide new value to its customers. CyanConnode's adoption of SiLabs' flagship SoC and Wi-SUN would ensure that it is the first to meet the technical requirement set by the Government of India as defined by BIS LITD28 standards for Smart Meter RF Communication systems. CyanConnode's adoption of SiLabs' flagship SoC and Wi- SUN will ensure that it continues to meet the Service Level Agreements (SLAs) required by the Government of India. For a case study of the implementation of the FG25 and Wi-SUN in India, please visit https://www.silabs.com/applications/ case-studies/leveraging-fg25-and-wi-sun-for-smart- metering-in-india. APAC and Middle East North Africa The smart metering market in the APAC and MENA continues to mature and presents a significant opportunity for CyanConnode. In April 2022, an order was won for a smart metering deployment in the MENA region. Under this contract CyanConnode will supply 65,000 interoperable smart NB-IoT gateways which will communicate with and control all existing smart meters for both electricity and water; the gateways will have the capacity to connect up to one million smart meters. 46,000 gateways were delivered against this contract during FY23. In August 2022, an order was announced for Cellular Gateways to provide smart communications for an Advanced Metering Infrastructure project located in the MENA region. This order, worth USD 2.5 million, was for a new cellular product to be fitted to existing electricity meters. All of these gateways, plus an additional 5,000 gateways were delivered during FY23. CyanConnode continues to deliver The Metropolitan Electricity Authority (MEA) project with JST’s partner Forth (Forth Corporation Public Company Limited), a telecommunication and electronics company that provides products and integration services throughout Thailand. MEA, who serve around 4 million customers in the city of Bangkok and two adjacent provinces, is deploying a Smart Metro Grid platform to improve power availability and reliability, as well as to analyse distribution losses, automate meter reading, and increase customer satisfaction. CyanConnode’s Omnimesh technology has been integrated into Forth’s electricity meters, using the frequency bands of 442 and 447MMHz, which have been allocated to the Thai energy utilities by The National Broadcasting and Telecommunications Commission (NBTC) of Thailand. During the period CyanConnode’s scope of the Site Acceptance Test (SAT) has been successfully delivered. Fundraisings During October 2022 CyanConnode was pleased to announce a share subscription to raise £500,000 at a price of 12.25 pence per share, being the mid-market price at the time. In January 2023 the Company completed an oversubscribed placing and subscription, raising £5.25 million before expenses, at a price of 17 pence per share, the mid-market price at the time of announcement of the fundraising. The net proceeds of the above fundraisings are being used to strengthen the Company's balance sheet, to increase working capital, to allow the Company to continue to take advantage of its significant growth opportunities and to execute the Company's growing order book and pipeline. Post period end and outlook Momentum has continued into the new financial year, with the Group announcing a new order in May 2023 from Paschimanchal Infrastructure Pvt Ltd, a subsidiary of IntelliSmart Infrastructure Private Ltd, for 600,000 Omnimesh Modules, taking the total number of modules ordered in India to 4.2 million. The order also includes Advanced Metering Infrastructure (AMI), Standards-Based Hardware, Services, Omnimesh Head-End Software, a Perpetual License, and an Annual Maintenance Contract and will support a smart metering deployment in the utility, Pachimanchal Vidyut Vitran Nigam Ltd (PVVNL), located in Uttar Pradesh, India. In April 2023 CyanConnode announced the signing of a Memorandum of Association with Alfanar, a leading engineering, procurement, and construction (EPC) player, to explore joint investment opportunities in Advanced Metering Infrastructure (AMI) projects. In June 2023 it was announced that CyanConnode Private Limited, the subsidiary of CyanConnode Holdings plc had been recognised as a Start-Up 50 Trailblazer by Dun & Bradstreet. This award underscores the Company's firm commitment to innovation, quality, and customer-centric CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023CHAIRMAN'S STATEMENT 5 solutions, with a robust roadmap for sustainable growth and profitability. We’ve been delighted to see the continued revenue growth into the new financial year, with revenue for the first quarter of greater than £2.8 million, more than double that of the whole of the first half of FY23. In addition, more than 330k modules have been shipped in the first quarter compared to 391k being shipped in the whole of FY23. As a result of the increased business and requirements for the deployments, the Group is currently recruiting a number of new roles, particularly in India to scale the business. I’d like to thank all employees, who have worked incredibly hard over the past year, for their commitment and contribution. I’d also like to thank our partners with whom we look forward to continuing to work on these groundbreaking projects. And as always I’d like to thank all shareholders for their continued support. We’re confident that this momentum will continue through the current financial year and look forward to updating you throughout the period. John Cronin Executive Chairman 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT6 STRATEGIC REPORT Strategic Report Omnimesh is a highly-scalable and proven end-to-end platform for markets where performance criteria are stringent and national deployments are on an immense scale. Statement of scope This Strategic Report has been prepared to provide additional information for shareholders to assess the Group’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 narrowband RF smart mesh and cellular networks. The principal activity of the Company is that of a holding company. Currently the Group has over 2.7 million devices installed and managed throughout the world. Business Model CyanConnode is a communications company whose business model is based on collaborative partnerships, where it engages with customers and markets by establishing eco-systems across multiple manufacturers and system integrators. Our Partners support the transfer of skills and experience to facilitate customer ownership of hardware and network infrastructure. The Group places a high emphasis on engaging with utility executives, national and regional government officials, standards bodies and regulators. These activities help CyanConnode to understand and meet customer and market needs. A prime example of this strategy in action is the Group’s Indian business, where CyanConnode supports the ‘Make in India’ and ‘Skill India’ initiatives of Prime Minister Modi, by using local partners for the manufacture and deployment of equipment, which in turn leads to the generation of in- country wealth. The Group aims to build a world-class business by: • • • • • Being Thought Leaders in the Internet of Things (“IoT”) Offering customers solutions that result in optimised hybrid networks solutions that leverage existing infrastructure Offering full end-to-end solutions including the integration of embedded modules into meters and integration into the customers billing and meter data management systems The manufacture and deployment of equipment using local partners to generate in-country wealth Building strong relationships with Partners, Utilities, Governments, Standards Bodies and Regulators • Providing excellent customer service The Group aims to generate revenues from: • Direct sales of hardware and software • Licence and royalty fees from licensed hardware and software • Support and maintenance fees • Related services including project management, integration, installation services and network optimisation CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT 7 Our Technology Communications for IoT Intelligent devices enable two-way communication between the endpoint device and the central systems of the provider. These are generally deployed as part of a broader platform, which includes the intelligent modules that are embedded in the devices, communications networks/protocols, and data management systems. These are essential components for an Internet of Things (IoT) implementation. CyanConnode is a specialist provider of communication technologies for IoT networks. The company delivers secure, robust IoT communication networks for multiple enterprise applications, in a wide range of urban and rural environments. A private network is created between the endpoint devices (e.g. smart meters), with gateways aggregating data from a group of local devices. There are multiple approaches available for networking between smart devices and central data-gathering hubs. The appropriate technology will vary by country, topology, population density, mobile network capacity, backhaul network availability and other such factors. Multi-technology Approach While CyanConnode has historically been a strong proponent of RF mesh technology, and this remains its core product offering, the company also now has, within its portfolio, full capabilities for cellular 2G to 5G, including NB-IoT, and powerline communications. All of these communications technologies can be connected to the same head-end system (HES), which is also provided by CyanConnode. The HES is where the data is collected and then sent on to a data management system, which will be managed by a utility in the example of smart meters. The network is a mesh where each endpoint connects to multiple other points, so there is no single point of failure in the network. If a particular node malfunctions, the mesh network offers redundancy, such that the other nodes can still continue to connect via other routes in the network. Specifically for RF mesh networks, a key attribute is that every device on the network does not need to be within range of the gateway, making this approach ideal for rural locations or where dwellings are widely geographically dispersed, as well as high density dwellings. RF Mesh Networks Explained Narrowband RF mesh technology uses lower bandwidth radio frequencies (sub-GHz). These frequencies give better range and coverage than higher frequencies. The Omnimesh RF platform is an open standards-based (IPv6, 6LoWPAN) network solution that provides long-range and reliable communication between devices – for example, between smart meters. RF mesh is a proven, cost-effective technology for delivering excellent service levels. The diagram below (Figure 1) shows an RF mesh network for a smart meter network with the multiple paths from each node or endpoint meter to the gateway, which is connected via a long-haul network to the central platform. As we noted earlier, the central system in a country such as India may increasingly be a shared platform operated by a JV entity. The current architecture typically allows around 200-250 meters to be connected to one gateway (although ratios up to 1000:1 have been deployed) – this ratio is being improved consistently. Figure 1: CyanConnode RF Mesh Configuration Source: Company data CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT8 STRATEGIC REPORT Cellular CyanConnode is a strong advocate of RF mesh technology. However, no single technology meets the requirements of every customer in every deployment environment. For example, cellular technologies may provide good service levels in areas where there are too few devices to justify the deployment of a mesh. To cover a wider market, in March 2020, CyanConnode announced its new Omnimesh cellular products, which use mobile network technologies as an alternative to RF to connect meters, where required. The products are available in all cellular regions and bands, and support all the 2G, 3G, 4G and emerging 5G standards, including NB-IoT and Cat-M1-IoT cellular technologies. The Omnimesh cellular products have dual SIM capabilities, and the best available cellular network is automatically selected for point-to-point connectivity. To allow a mix of RF and cellular connectivity to be used across a single region, the updated Omnimesh HES can simultaneously manage both RF mesh and cellular connected smart meters. This technology flexibility allows customers to maximise service levels while minimising costs. In-meter Gateways CyanConnode’s development of in-meter gateways has been well received by utility customers. These allow the aggregation gateways to be installed in the same units as endpoint smart meters in individual dwellings, which represent more secure locations than externally, where additional costs of secure metal boxes are incurred. Network Management System The network management component is focused on managing the overall mesh network environment (including device configurations, device status, etc). The platform scales to millions of nodes and offers a unified interface to view multiple network types across RF and cellular. Advance Metering Infrastructure (AMI) AMI is an integrated system of smart meters, communications networks, and data management systems that enables two-way communication between utilities and customers. AMI enables two-way communication so that not only can meters be read automatically, but instructions can be sent to the meter from a central point, which might be to disconnect (for example, if a bill has not been paid, or to update time-based pricing data to manage consumptions). The information collected from smart meters can be processed in real time, and signals can be sent to manage demand. These systems are widely acknowledged to offer substantial potential benefits, many of which are central to the highly positive returns on investment associated with smart meter implementations. The analytical processes to understand load patterns and optimise use of these platforms can be complex and data-intensive – in fact, there are ongoing programmes at large utilities around the world to take greater advantage of the capabilities of AMI platforms that have been implemented. CyanConnode offers a comprehensive platform that covers the AMI from the meter endpoint through to the Meter Data Management System (MDMS), which stores the huge quantities of data generated by the smart meter network and will typically be provided by major Enterprise Resource Planning (ERP) vendors, such as Oracle and SAP. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT 9 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, to minimise resource wastage. In India, the Government has mandated the installation of 250 million smart meters in the next few years. This presents a significant market opportunity to the Group, as recently tenders for over 100 million smart meters have been issued. 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. Market Forecasts The smart meter market can be broken down into three subcategories: smart gas meters, smart water meters and smart electricity meters. Of the three, smart electricity meters are expected to deliver the highest growth rates, as the global industry seeks to modernise infrastructure and systems to drive much-needed improvements to financial performance, efficiency and resilience of energy grids. The global market is characterised by quite marked differentials by region in current smart meter penetration and, hence, in expected growth rates in smart meter shipments over the next five to ten years. The Global Smart Electricity Meters Market Report 2022, produced by Research & Markets (R&Ms), states that the global market for smart electricity meters was estimated at US$10.5 Billion in 2020, and is projected to reach US$15.2 Billion by 2026, growing at a CAGR of 6.7% over the analysis period. R&M’s report also notes utilities are aiming to modernise their grid operations with advanced solutions, and that smart electricity meters have emerged as an effective tool that can flawlessly address their various energy transmission and distribution losses in a simple and flexible manner. In India alone the market opportunity is 250 million meters, which are required to be rolled out by the end of 2025. In the UK it has been stated that smart meters are fundamental to the UK’s targets of reaching Net Zero. s172 Statement Understanding the needs of stakeholders is fundamental to the success of the Group. By understanding the perspectives of all its stakeholders, the Board is able to ensure that it can best promote the success of the Group, fully aware of its impacts on them, on the environment and ultimately, therefore, in the best interests of its members as a whole. In the event that a decision had to be made that not all stakeholder groups may have found favourable, steps would be taken to mitigate any negative impacts as far as possible, and to communicate the reasons for such decisions to all stakeholders. Decisions of the CyanConnode Board take into account not just short-term, but also medium and long-term consequences, which are carefully considered and balanced, having regard to the sometimes conflicting needs and priorities of the business, its customers, partners, employees and other stakeholders. At an operational level, engagement with stakeholders is reported to the Board via the Executive Directors and through written and verbal reports from the Group Leadership Team. Section 172 of the Companies Act 2006 requires Directors to act in the way which they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard, amongst other matters, to: A. The likely consequences of any decision in the long-term A practical example of consideration of the long-term consequences of Board decisions can be found on page 12, where it sets out how the views of shareholders were taken into account when determining the best source of funding. B. The interests of the Group’s employees The Strategic report sets out the Group’s policy towards employees and how it engages with them in greater detail on pages 9-11 and 19-20. CyanConnode’s employees are of central importance to the Group’s success, and the directors believe that the CyanConnode culture and core values create an environment for engaged and successful employees. The Group’s HR department supports employees and managers to look after employee needs. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT10 STRATEGIC REPORT C. The need to foster the Company's business relationships F. The need to act fairly between members of the with suppliers, customers and others Company See pages 10 to 12, within the Principal Risks section on pages 17 to 20 and within the Corporate Governance Statement on pages 27 to 33, where it sets out how the Board interacts and fosters business relationships with key stakeholders. The Group has frequent meetings with key suppliers, customers and shareholders to update on business developments. D. The impact of the Group’s operations on the community and the environment We are committed to making a positive contribution to the communities in which we operate, including supporting the local community, maintaining good relationships within the community and providing employment opportunities. We are an active member of the Cambridge Network which provides excellent opportunities for sharing information and best practice in the Cambridge area. We also engage with Cambridge Wireless, a body for organisations engaged in wireless technology. We are also engaging with Cambridge University Computer Science and Engineering departments with the aim of providing graduate and/or internship opportunities. During FY23 CyanConnode made donations for good causes within the community such as supporting a cause to raise money for electric blankets for those in need in the Cambridge area during winter. CyanConnode India also contributed to a government school for girls in Delhi NCR, helping to improve their educational resources and enhance their classroom experience. This initiative aims to inspire these young students to dream big and achieve their full potential. The Group’s focus on the environment and the community is discussed further in the ESG Report from page 12. E. The desirability of the Company maintaining a reputation for high standards of business conduct Examples of this principal are set out throughout this Strategic Report, particularly in the ESG Report from page 12. The Group strives to maintain a reputation for the highest standards of business conduct. Its adoption of the QCA Corporate Governance Code provides the oversight and context for how it achieves that and its procedures to monitor compliance with the Bribery Act helps to ensure it achieves these high standards. See pages 9 to 13 for examples of how the Group achieves this standard. The Directors recognise the need to act fairly between members of the Company. Wherever a conflict or potential conflict arises, the Board takes independent legal and professional advice to ensure that members are treated fairly. The following pages set out those we consider to be our key stakeholders and provides examples of how we have engaged with them during the course of the year. Employees CyanConnode is proud of its diverse workforce. It is a multicultural, global organisation, committed to providing equal opportunities for training, career development and promotion to all employees, regardless of any physical disability, gender, religion, race or nationality. • Why we engage Our employees are essential to the success of our business; our culture and our commitment to our purpose and values drives our business performance. We engage with our people regularly and seek to create an environment in which all staff feel happy and supported. Further details on our culture can be found on page 15. • How we engaged Our culture is supported by maintaining an open and active dialogue across the business. Direct engagement took place through ‘town hall’ type sessions led by the Executive Chairman and the Chief Financial Officer, where updates were provided on the business (information on customer wins, financial results and strategy) and other employee matters. Employees were encouraged to ask questions on the business and any other matters. During the period various company functions and team building events were also held to engage with employees. These included Christmas parties, a ‘learn to row’ event in Cambridge and an offsite event held for the team in India, which included various team building activities. • Outcomes and actions The events appear to have led to more open dialogue between employees and management. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023 STRATEGIC REPORT 11 Shareholders CyanConnode has a large number of shareholders, both institutional and private, many of who have been supportive shareholders for a number of years. These shareholders play an important role in monitoring the performance of the Group. • Why we engage Customers CyanConnode’s works in ecosystems, going to market through customers, many of whom are well-known multinationals such as Schneider, Genus, IntelliSmart and the Monte Carlo Group. The Group integrates with electricity meters to provide its communication technology which makes the meters smart. Shareholder views inform our decision-making and engagement enables us to explain our strategic goals; it is important that all shareholders have confidence in our business and how it is managed, whether they are institutional investors, private individuals or employee shareholders. • Why we engage It is important that we understand all of our customers’ requirements to allow us to deliver the products and services they need and maintain a good and open relationship. Their feedback and support is crucial to the success of our business. • How we engaged • How we engaged The Executive Directors engaged with both institutional and private investors to present trading updates and financial results, as well as updates on business and to obtain feedback, which is important to the Board. Regular, more informal communication from investors also provides feedback to the Board, for example emails received from shareholders. In 2022 the Group held an Annual General Meeting in person for the first time since 2019 and this was well attended by shareholders who were keen to have face to face conversations with the Board. In addition, investor webinars were held on a platform which allowed shareholders to attend and ask questions and pass comments before and during the webinars. Attendees could also provide feedback following the webinar. The Executive Directors also engaged actively with analysts who write research on our Company and industry. This provides shareholders with additional information on the business and business model. • Outcomes and actions An example of how the Board sought feedback from shareholders was via ongoing discussions to determine the most appropriate form of funding acceptable to shareholders for example working capital, convertible loans and direct equity investment into the Group. Following these discussions the Group undertook an oversubscribed placing in January 2023, to raise £5.25 million before expenses. The Board engages both directly and indirectly with customers at an operational level through members of the Group Leadership Team and their teams. The majority of the Group’s customers are in India where the largest part of the Group’s business is. The Executive Directors visited India, Thailand and the UAE various times during the period to engage with customers. It also listened to customers and their needs through key account management relationships, as well as working directly with relevant customer departments on technical, regulatory and logistics matters of concern to them. • What we discussed Key topics of engagement were: • • • • • The changing landscape of the market and business models Best ways to approach the market to win additional business Negotiation on contractual terms Quality delivery of contracts Ongoing quality of service • Outcomes and actions • • • Development of long-term strategic relationships formed on the basis of trust and understanding which are mutually beneficial Additional business opportunities Created a more open dialogue during deployment of contracts to ensure good communication and successful delivery of projects CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT 12 STRATEGIC REPORT Suppliers CyanConnode works closely with its suppliers, particularly component suppliers and Contract Equipment Manufacturers to ensure manufacture of quality products at the most competitive prices. • Why we engage We have a strong supplier base, particularly for key components required to manufacture our product, as well as strong relationships with our key contract equipment manufacturer. Our suppliers are fundamental to the quality and timely delivery of the products we offer our customers and it is therefore important to deal with suppliers who are committed to us and our values. • How we engaged The Board indirectly engages with suppliers through our procurement team, who are responsible for our supply chain relationships. In addition, the Executive Directors engaged directly with suppliers and distributors to ensure continuity of long lead time items, and to negotiate best payment terms with suppliers. They engaged with our suppliers through physical visits where possible (in both the UK and India) and through reciprocal visits to each other’s offices, as well as virtual meetings. • What we discussed • • • • Continuity of supply and planning of supply of long lead time components Pricing Flexibility on payment terms Reciprocal business growth and how to further collaborate • Outcomes and actions Development of long-term strategic relationships formed on the basis of trust and understanding, which are mutually beneficial Mitigation of sourcing risk by moving procurement of some products to alternate suppliers Adequate supply of long lead time items ensuring supply to meet customer requirements Flexibility on payment terms • • • • • • Board decision-making in practice During the year the Board made a number of principal decisions which we regard as those that are material to the group and to any of our key stakeholder groups. In making decisions the Board considers the views of its key stakeholders, as well as the need to maintain our reputation for high standards of business conduct and the need to act fairly between the members of the Company. An example of how the Board considered key stakeholders is set out below. • Funding The Board continuously monitors the Groups’ cashflow forecasts to ensure the Group has sufficient cash for operations, as well as for any growth opportunities and requirements. The CFO regularly engages with financial institutions regarding availability of working capital solutions and updates the Board on any proposals made to the Group. During the year the Board engaged with major shareholders, via the Executive Directors, to discuss some of the funding proposals available to them. In addition the Executive Directors discussed the large opportunities being presented to the Group, which it was hoping to win. The outcome from these discussions was that the Board agreed to progress with a Placing which was oversubscribed and at a premium to the share price at the time of closing, which meant there was minimal dilution to existing shareholders. This raised £5.25 million before expenses, to help with funding growth and working capital. Environment, Social and Governance (ESG) The CyanConnode focus on ESG is not viewed as a separate exercise to be “completed”, but as a core part of our business strategy and culture, integrated into work life and management processes. Through this integrated approach, CyanConnode ensures every area of the business delivers sustainable benefits for the environment, its customers, employees, and investors. One of our key areas of focus is to formalise our ESG (environmental, social and governance) agenda to ensure it is both robust and is setting relevant and ambitious targets. We intend to work to improve how we measure our impacts across a range of environmental and social areas. It is important to us that we operate in an ethically, socially and environmentally responsible way. Negotiating lowest possible prices, including price decreases Support via collaborations such as the one between the Group and Silicon Laboratories announced in March 2023 As we continue to make progress in improving our sustainability, our strategy will evolve to ensure that we continue to challenge ourselves, address all those issues material to our stakeholders and better understand the areas where we can achieve most impact. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023 STRATEGIC REPORT 13 CyanConnode's Omnimesh solution has enabled utilities to improve customer experience, billing, and reduce carbon emissions. Omnimesh technology has contributed to sustainability by reducing fuel consumption associated with manual meter readings. By utilizing this solution, CyanConnode has been able to save 36 thousand litres of fuel annually leading to avoided CO2 emission of 82,800 KG and with its orderbook of 3.6 million nodes as at 31 March 2023, it has the potential to save over 108 thousand litres of fuel annually, highlighting CyanConnode's commitment to environmental responsibility. These savings have been calculated by using the average meter reads per day, the average mileage travelled each day, the average fuel required for each meter reading and the CO2 emissions per litre of fuel as set out in the table below. CyanConnode's contribution to sustainability through its Omnimesh solution is aligned with the company's ESG objectives, supporting a greener and cleaner energy future. The company continues to invest in innovative solutions to drive sustainability, demonstrating its commitment to environmental and social responsibility. Impact of CyanConnode on Carbon Emission Reduction & savings for Utilities in India Nodes OrderBook CCI impact on Carbon emission reduction due to reduction of Manual reads Avg. meter reads per day by a meter reader Total no. of Man days required for meter reads Avg. 2 wheeler running per day (in KM) by meter reader Total KM to be covered for meter reads Avg. bike mileage per litre of petrol (KM/ ltr) Fuel required for monthly meter reading (in ltrs) 4,200,000 40 105,000 5 525,000 50 10,500 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT14 STRATEGIC REPORT CO2 (KG) emission per litre of petrol Total Monthly CO2 (KG) emission saved due to removal of manual intervention Fuel required for Annual meter reading (in ltrs) Annual CO2 emission avoided (in KG) Avg cost of Manual Meter reading per meter per month (in INR) Monthly Savings for utility on account of reduction of manual meter reads (in INR) Annual savings for utility on account of reduction of manual meter reads (in INR) One litre of Petrol equivalent to kWh kWh equivalent to annual fuel saved by CCI Per capita energy consumption in India (in kWh) Avg members in Indian Household Indian homes that can be lit for an entire year from the fuel saved by CC CO2 sequestered by one tree annually (in KG) Years required by one tree to sequester the annual CO2 avoided by CC or Trees required to sequester annual CO2 avoided by CC every year 2 24,150 126,000 289,800 15 63,000,000 756,000,000 9 1,121,400 1,208 4 232 25 11,592 At CyanConnode, we believe in the power of positive change and the impact that each of us can make in the lives of others. Our Corporate Social Responsibility initiatives focus on empowering girls, advancing equity, and promoting sustainability. We are proud to share that we recently contributed to a government school for girls in Delhi NCR, helping to improve their educational resources and enhance their classroom experience. This initiative aims to inspire these young students to dream big and achieve their full potential. Together, we strive to make a difference in the lives of these young students and contribute to the bright future of our community. By investing in their education, we empower the next generation of leaders and create lasting, positive change. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT 15 Material issues Actions we have taken and will take People and culture We are committed to our people and their wellbeing and aim to have a supportive, collaborative culture and strong values. We have a diverse team across the locations in which we operate. 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. Information relating to our employment practices can be found in the Employee Matters section on page 20 of this report. Environment and climate change CyanConnode seeks to minimise as far as possible its impact on the environment and received ISO14001 accreditation during 2019. This is subject to annual audits, each of which has been passed. It works closely with local businesses to put in place joint environmentally friendly policies. More on our Environmental Policy can be found in the Employee Matters section on page 20 of this report. Responsible supply chain Social responsibility During 2021, CyanConnode received the London Stock Exchange Green Economy Mark. A requirement of this award was for more than 70% of the Company’s revenue to come from green technologies. The Stock Exchange determined that CyanConnode’s technology fulfils the criteria. The requirements for this award are reviewed regularly by the Stock Exchange, and it has recently reconfirmed the Group’s eligibility. The Group regularly monitors the savings made to utilities in India as a result of deploying its technology. CyanConnode also monitors the reductions in CO2 emissions resulting from its deployments. CyanConnode works with the global leaders in its sector. Accordingly, the highest of standards of business are demanded. CyanConnode works with these global leaders, at the forefront of business, industry, and technological innovation, to ensure these standards are constantly challenged and improved. 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. We have processes and policies in place to ensure awareness of our social responsibilities. The Group 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, and provides training to employees on this policy. Information relating to our employment practices can be found in the Employee Matters section on page 20 of this report. Data Security The nature of CyanConnode’s business requires it to have a robust data security policy. This is key to underpin the trust our partners and customers place in us. CyanConnode received accreditation for the ISO27001 standard in 2019 and is audited on this accreditation annually. In addition, CyanConnode has strict security requirements due to its involvement in the UK Smart Metering Programme, and has annual audits against its ISO27001 accreditation by its customers. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT16 STRATEGIC REPORT Further details on practical steps the Group has taken on ESG can be found in the Strategic Report, the Directors’ Report and Corporate Governance Statement. The Board’s adoption and application of the QCA Corporate Governance Code further supports these principles, with more detail of the steps it has taken set out in the QCA website disclosures against the ten principles of the Code, which can be found on the CyanConnode website https:// cyanconnode.com/investors/governance/. The competing needs of the various stakeholders of the company are monitored and reviewed at management and at Board level. Where conflicting needs arise, advice is sought from the non-executive directors and, as necessary, from CyanConnode advisors. Through the careful balancing of stakeholder needs, CyanConnode seeks to promote success for the long-term benefit of shareholders. Key performance indicators An analysis of the financial performance for the year using Key Performance Indicators is included within the Financial Review, see page 24. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT Operational Review Principal Risks and Uncertainties 17 Risk Management The Board has overall responsibility for the management of risk at CyanConnode. The Board monitors the actions required to mitigate our risks and is responsible for: • • • • • Setting and communicating the Group’s risk appetite Aligning the risk mitigation approach with the Group’s strategic objectives Reviewing and challenging the risk register Embedding effective risk management in the culture of the Group Empowering people at all levels to engage with risk management and internal control systems The Executive Directors are responsible for: • Day-to-day risk management • Reviewing and monitoring risk and mitigation strategies across the business Financial risks 1. Pandemic The Group Leadership along with the ISO Team are responsible for: • Identifying key risks facing the business • Compiling Group risk registers • Determining appropriate and proportionate risk mitigation strategies Colleagues are responsible for: • • Identifying key risks facing the business Management of risk through applying appropriate controls, policies and processes 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 tables. Many of these risks have not changed from prior years. Risk and impact Delays to deployment of projects, resulting in delays to revenue and payments from customers. Mitigation • Continual monitoring of the situation and adopting a flexible approach to ensure appropriate response to support the business. Delays and difficulties in receiving adequate components for manufacture of the Group’s products, resulting in delayed deliveries to customers. Limited access to the Group’s offices resulting in delays to software / hardware development. Adverse effect on welfare of employees resulting in reduced output. • The health, safety and wellbeing of our employees is paramount and we have worked to ensure a safe working environment for all, offering as much flexibility as possible. • Adapted work practices to enable everyone who can, to work from home and to arrange our sites with safety in mind to ensure all vital operations and projects remained on track. Adopted a staged approach to the opening of office facilities to protect our employees. • Working closely with existing and new customers, to manage their immediate and longer-term needs. • Maintaining regular contact with our supply chain to ensure continuity of supply. • Monitoring the regulatory landscape and market conditions. • Managing cash to protect the Group’s liquidity. • Group Leadership Team providing regular updates to keep all staff informed and maintain team spirit. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT18 OPERATIONAL REVIEW PRINCIPAL RISKS AND UNCERTAINTIES 2. Movements in component pricing and stock shortages Risk and impact Movements in component pricing can materially impact profitability and cash. During the past couple of years there have been significant shortages of certain components and this has driven up prices globally. In addition, these shortages can lead to possible stock shortages. Mitigation • Detailed stock planning and stock movement processes. • Monitoring and communication of market conditions and long-term raw material contracts. • Maintaining close relationships with suppliers to ensure best pricing possible. • Continuing to identify new suppliers for key raw materials or those where shortages exist. 3. Funding Risk and impact There is a risk that there could be delays to customer deliveries or receipts from customers. Should the Group wish to explore new territories, products or business opportunities or models there would be a requirement for additional investment. Mitigation • The Directors regularly monitor the 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 advisor and brokers, to update on cash position. In addition to equity funding, the Directors are regularly in dialogue 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 or the OPEX model could be significant sources of funding should they be won. They may also require significant funding at the outset and the Group is in discussions with many infrastructure funds in this regard. • Dialogues with banks and other financial institutions have been positive and the Directors feel they would be in a position to secure working capital funding should any projects be delayed. 4. Currency Risk and impact We are exposed to both translation and transaction risk. In addition, transactions are carried out in currencies other than UK Sterling. Mitigation • 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. The majority of our revenues are currently denominated in Indian Rupees and USD, whilst the majority of our operating costs are denominated in UK Sterling, with production costs being in Indian Rupees and USD. • In Thailand, and the MENA region, we sell in US dollars with cost of sales also being paid in US dollars. • 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023OPERATIONAL REVIEW PRINCIPAL RISKS AND UNCERTAINTIES 19 People risks 5. Loss of key staff and failure to manage succession Risk and impact As with many technology businesses, the Group is dependent on a relatively small number of highly skilled staff. The ability of the Group to retain and motivate its key staff is a key business risk. A lack of experienced and engaged employees will have a detrimental impact on all areas of the business. Mitigation • Continue to develop succession planning for positions across the Group. • Provide well-structured and competitive reward and benefit packages that ensure our ability to attract and retain employees. • Offer training and development opportunities to support staff in their careers: • Ensure that employees receive regular performance reviews and discussions throughout the year to enable any issues to be identified and resolved in a timely manner. • Develop people managers to ensure that they are equipped with the right skills to manage and motivate teams. Operational risks 6. Quality of product and service Risk and impact A sub-standard quality of product and delivery could lead to reputational damage, loss of revenue and loss of key customers. Mitigation • Strong supplier qualification process, intake testing and analysis. • Regular review of risk matrix for raw materials handled. • Continuation of visits to suppliers. • Close monitoring of deployment to ensure quality of service and Service Level Agreements (SLAs). • Close communication between sales and operations to ensure early identification of any issues in deployments. • Manage sub-contractor relationships. 7. IT issues including network, hardware, data and security Risk and impact Loss of IT systems and/ or data, impacting on the ability of the business to function effectively. Reputational damage and litigation in respect of data protection. Disruption to or penetration of our information technology platforms could have a material adverse impact on the Group. Mitigation • Well-constructed IT infrastructure with failover capabilities, supported by a comprehensive asset management database and best practice maintenance processes such as those required by our ISO27001 accreditation. • Multi-layered security protection system in place. • Technology resources are continuously monitored by appropriately trained staff, which provide and maintain process controls aimed at securing our networks and data. • Security team continuously searches for and fixes vulnerabilities, including those reported by third-party security consultants. • Continued investment in infrastructure and particularly software security. • Ad hoc hacking attempts by third-party security consultants and penetration testing. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT 20 OPERATIONAL REVIEW PRINCIPAL RISKS AND UNCERTAINTIES 8. Macroeconomic conditions and political risk Risk and impact Sales cycles to our customers and end utilities in emerging markets can be lengthy and unpredictable leading to loss of stakeholder confidence and reputation. 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 and may delay award of contracts leading to loss of revenue and reputational damage. Mitigation • Maintain close relationships with partners and potential end customers to respond to the changing demands of the market and maximise contract wins. • Employ 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. • Analyse market data regularly to provide valuable information on demand changes, to allow the Group to react to these changes in a timely manner. • Use local partners who are familiar with local market conditions as agents or resellers of our technology. • Regular communication with stakeholders to update and educate on the macroeconomic conditions. Laws and regulatory risks 9. Failure to comply with relevant environmental, H&S and other applicable legislation Risk and impact HSE investigations could lead to possible enforcement actions including fines, enforcement notices. Failure to comply with relevant legislation could lead to risk of site closure. Mitigation • Detailed understanding of legislative requirements with internal involvement, consultative support and capital investment. • Pro-active role in ensuring the Group’s systems and procedures are adapted to ensure compliance. • Continuation of relevant training and assessment of employee skills across the Group. Employee Matters The responsibility for the recruitment and management of resources lies with the Executive Directors. Headcount The average number of employees increased during the year ending 31 March 2023 to 64 (2022: 59). The management, development and delivery of the Company’s innovative technologies is made possible through the contribution of highly skilled staff based in the UK and India. Staffing requirements continue to be monitored by region to ensure suppliers and customers are fully supported, while at the same time keeping costs optimised. and at Board level 20% (2022: 20%). At year end women comprised 14% of total employees across the Group (2022: 18%) or 10 out of a total of 70 employees (2022: 11 out of 60). The Group has and encourages a diverse workforce. 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. 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 44% of the management team that reports to the Board, or 4 out of 9 employees (2022: 29%, or 2 out of 7 employees) 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 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023OPERATIONAL REVIEW PRINCIPAL RISKS AND UNCERTAINTIES 21 deal with other environmental and resource challenges such as the management of smart grids and water resources. During 2019 CyanConnode received ISO14001 accreditation. It also works closely with its landlord and other companies located in the same building to ensure environmental awareness and implement eco-friendly initiatives and policies within the building. The key points of CyanConnode’s environmental strategy are to: • • • • • • • Minimise waste by evaluating operations and ensuring they are as efficient as possible. Use products efficiently and actively promote recycling both internally and amongst its customers and suppliers. Source and promote a product range to minimise the environmental impact of any production and distribution. Meet or exceed all the environmental legislation that relates to the Group. 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. Introduce and encourage more online meetings to reduce travel requirements across the globe. CyanConnode encourages 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. The ultimate responsibility for CyanConnode’s environmental policy lies with its Board of Directors. The policy is communicated to all employees within the Group via email. It is also available on the Group’s website. It is the responsibility of each employee to follow the rules and procedures the Group 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 Group. 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 Group. 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 Group 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 Board meetings. All accidents and incidents are reported to them. There were no accidents or incidents reported during the period. 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 and we seek to ensure compliance by having partners and suppliers sign up to our policies of business. Approved by the Board of Directors and signed on behalf of the Board. John Cronin Executive Chairman 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023STRATEGIC REPORT22 GOVERNANCE Board of Directors “The board remains confident about future opportunities and the Group’s expected revenues as we move towards profitability.” John Cronin Executive Chairman Heather Peacock Chief Financial Officer & Company Secretary Heather joined the Company in November 2008 as Financial Controller. Having a background and qualification in finance and more than 20 years’ global financial experience at a senior level, Heather has worked across diverse industry verticals in both the UK and South Africa. Her key areas of expertise are treasury, mergers and acquisitions, financial and cash planning and analysis, legal and compliance and subsidiaries governance and management. She is also an Associate Member of the Governance Institute, and is the Group’s Head of HR. In 2013 Heather was appointed as Company Secretary for CyanConnode and was responsible for the setup of the Company’s subsidiary and operations in India, and the acquisition and integration of Connode in 2016. She was appointed as Chief Financial Officer and board director in July 2018, to ensure robust financial systems were in place to support the Company’s growth. John joined the Board in March 2012 initially as a Non-Executive Director and is now Executive Chairman of CyanConnode. He is a highly successful Chairman, CEO and MD in International markets (Europe, Americas, SE. Asia) in the Technology and Telecommunications sector including, Smart Metering, IOT, Software companies, Infrastructure, Hardware Utilities and Managed Services. John is a seasoned and successful professional with experience in raising equity, debt facility and vendor finance funding as well as setting up operations in international markets. He has created significant value for shareholders with four company exits in Picochip, Azure Solutions, i2 and Netsource Europe. He has been instrumental in mergers and acquisitions worldwide, including Cyan’s 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 202323 David Johns-Powell Christopher Jones Peter Tyler Non-Executive Director Non-Executive Director 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 utilising 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. 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. Chris holds the role of Chairman of the Remuneration Committee and is a member of the Audit Committee. Peter joined the Board in March 2019 and 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. John Cronin Executive Chairman 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE24 GOVERNANCE Financial Review Key Financials Financial Summary Financial Year 23 has once again produced record results in terms of orders won and also saw a fourth consecutive year of revenue growth. The revenues reported during FY23 included revenues not only from the Group’s more traditional models seen for contracts in India, but also revenues from other territories which included revenue for sale of third-party products, often at a lower margin. This has resulted in lower than expected gross margin for the Group. A summary of the key financial and non-financial Key Performance Indicators (“KPIs”) for the year and details relating to its financing position at the year end are set out in the table below and discussed in this section. Revenue Gross Margin % R&D expenditure (including staff costs) Operating costs Operating loss Depreciation and amortisation EBITDA Impairment of intangible assets Stock impairment Share based compensation Foreign exchange losses / (gains) Adjusted EBITDA2 Cash and cash equivalents Average monthly operating cash outflow 12 months Mar 2023 12 months Mar 2022 12 months Mar 2021 15 months Mar 2020 12 months Dec 2018 £000 11,732 36% 2,247 7,561 (3,347) 489 (2,858) 968 102 224 8 (1,556) 4,070 (185) £000 9,562 52% 1,755 6,025 (1,017) 616 (401) – 62 363 34 58 2,355 (261) £000 6,437 48% 1,791 5,788 (2,685) 627 (2,058) – 108 80 (15) (1,885) 1,489 (81) £000 2,451 56% 2,381 7,600 (6,230) 773 (5,457) – 4 267 267 (4,919) 1,172 (245) £000 4,465 61% 2,466 9,061 (6,320) 472 (5,848) – 578 445 16 (4,809) 4,564 (487) Average Year end Mar 2023 FTE3 64 70 Mar 2022 Mar 2021 Mar 2020 Dec 2018 FTE 59 60 FTE 47 54 FTE 50 48 FTE 52 61 2 Where Adjusted EBITDA is Operating loss before amortisation, depreciation, stock impairment, impairment of intangible assets, share-based compensation and foreign exchange losses. 3 Where FTE is the equivalent number of full-time equivalents. Included within the table above are two alternative performance measures (“APMs” – see note 2): EBITDA and adjusted EBITDA. These are additional measures which are not required under UK adopted International Accounting Standards. These measures are consistent with those used internally and are considered important to understanding the financial performance and the financial health of the Group. EBITDA (Loss) before Interest, Tax, Depreciation and Amortisation is a measure of cash generated by operations before changes in working capital. Adjusted EBITDA is a measure of cash generated by operations before stock impairment, impairment of investments, share-based compensation, impairment of intangible assets and foreign exchange losses. It is used to achieve consistency and comparability between reporting periods. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL REVIEW 25 Notably from the table on the previous page: • Revenue of £11.7 million was 23% higher than for FY22 (£9.6 million) • Increase in operating loss to £3.3 million from £1.0 million • Reduction in adjusted EBITDA to loss of £1.6 million in FY23 from £0.06 million in FY22 • Adjusted EBITDA decreased from a profit of £58k in FY22 to a loss of £1.56 million in FY23 as a result of lower gross margin, increased operating costs and EBITDA loss increased from a loss of £0.4 million in FY22 to a loss of £2.9 million in FY23 also as a result of lower gross margin and increased operating costs, as well as an impairment of intangible assets • Average headcount increased by 5, and FTEs at year end • EBITDA loss for the year to March 2023 increased to increased from 59 in FY22 to 64 in FY23. £2.9 million from: £0.4 million loss in FY22 • Cash and cash equivalents at the end of FY23 of £4.1 million was £1.7 million higher than the end of FY22 • Share based compensation charges reflect the fair value of share options granted to employees over the vesting period of these options. Please see note 35 for more information Financial items of note during the year other than those set out above were: • Cash received from customers during FY23 was £10.7 million (2022: £8.2 million) • Trade and other receivables increased by £1.81 million during the year to £9.26 million (including retentions) as a result of increased revenue, particularly in the last two months of the financial year • R&D cash tax credit of £0.7 million for FY23 (FY22: £0.6 million) During the year an advance against the R&D tax credit was received. This will be repaid out of the R&D tax credit funds when received from HMRC. In addition, the loan from one director remained in place at year end, and letters of credit, invoice discounting and advance payments have been negotiated on recently won contracts to help with working capital requirements. Key Performance Indicators (KPIs) The financial and non-financial KPIs for the Group are as set out in the table above and described below. • FY23 revenues were 23% up on the previous year FY22 as a result of major contracts in India which started deploying during the year, and contracts delivered in the MENA region. • Gross margin for the year reduced from 52% to 36%, mainly as a result of the sale of third-party hardware at gross margins lower than usual for the Group. Gross margin will vary from year to year depending on the stage of deployment of each contract. Hardware, for which revenue is recognised typically during the first two years of a contract, is at a lower gross margin than software and services for which revenue can be recognised later in the deployment. • Operating costs for the year increased by 25% compared to FY22, as a result of additional costs required to scale the business up to deploy its growing backlog of orders and a £1.0 million impairment of intangible assets. • Non-financial KPIs included the number of modules shipped which decreased from 612,000 in FY22 to 391,000 in FY23. However 46,000 NB-IoT hubs and 63,000 Cellular Gateways were also delivered in the MENA region. The Group continually reviews whether additional financial and non-financial KPIs should be monitored. The Group’s long-term strategy is to deliver shareholder returns by generating revenue and moving into profitability. It seeks to do this by focusing its resources on emerging but fast-growing markets where it believes it can reach a market leading position with its technology. Management uses KPIs to track business performance, to understand general trends and to consider whether the Group is meeting its strategic objectives. As it grows, and as highlighted in the previous paragraph, it intends to review these KPIs and adapt them as appropriate, in response to how the business and strategy evolves. The Group’s key focus for the financial year ending March 2023 continued to be to streamline its processes from order to delivery and working to close further orders. A further focus was ensuring collection of cash from customers as Group revenues continued to grow. 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 31 March 2025 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, the timing of customer payments and the level of working capital requirements. The detailed cashflow scenarios include Letters of Credit which have been secured from customers against contracts recently won. At 31 March 2023 the Group had cash reserves of £4.1 million (FY22: £2.4m) and based on detailed cash flows provided to the Board within the FY24/25 budget, there is sufficient cash to see the Group through to profitability based on its standard operating model. However, should the Group require additional cash to cover working capital, as a result of rapid growth, there could be a requirement for additional funding to this. The Group is discussing working capital funding solutions with banks, particularly in India. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE26 FINANCIAL REVIEW To assist with working capital, a loan from one director for £300,000 is still in place, after being extended to the Group in November 2020. The Group also received an advance of £500,000 secured against its R&D tax credit in November 2022 and an invoice discounting facility secured against Letters of Credit for deliveries of Omnimesh modules in India. The advance against the R&D tax credit will be repaid out of the HMRC receipt which is expected to be received by October 2023. Notwithstanding the material uncertainties described above, which may cast significant doubt on the ability of the Group to continue as a going concern, 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. Financial Risk Management Objectives and Policies Details of the Group’s financial risk management objectives and policies are disclosed in note 36 to the financial statements. Dividends The directors do not recommend the payment of a dividend (2022: £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 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE Corporate Governance Statement 27 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 Group 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. As the business continues to grow it needs a strong, effective, entrepreneurial and engaged Board with the right skills and experience to oversee the strategy, governance, risk and financial frameworks across the organisation. The Board was refreshed in 2019 with the introduction of two new Non-executive Directors bringing relevant skills and experience to the Board. There have been no appointments since then. We will continue to review the Board’s composition to ensure that it maintains appropriate skills, experience, independence, and particularly diversity and that it remains effective. The sections below set out how we currently comply with the ten principles of the QCA Code. Establish a strategy and business model which promote long-term value for shareholders 1. The strategy and business operations of the Group are set out in the 2023 Strategic Report on pages 6 to 21. The Executive Directors are responsible for the leadership and day-to-day management of the Group. This includes formulating and recommending the Group’s long-term 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 usually encourages participation by them at the Annual General Meeting (AGM). All Board members attend the AGM and 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. 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. Our technology is low-cost, low-power and seeks to prevent theft from electricity or tampering with electricity meters. These features allowed utilities to safely read meters and carry on business remotely during the COVID-19 pandemic. It also results in large savings and reductions in CO2 emissions by automating the advanced metering infrastructure. 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. Further information on how we engage with our stakeholders can be seen in the s.172 report on pages 9 to 12 of our 2023 Annual Report. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE28 CORPORATE GOVERNANCE STATEMENT 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 20 of our Strategic Report in the 2023 Annual Report. The Group’s revenue is dependent on delivering complex projects to specific markets and therefore ensures that cross-functional teams including senior employees work together with customers and local, in-country employees and partners to ensure the successful integration of its products and technologies. Our customers and partners 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 both face to face meetings and online discussions where travel is not possible. Our Environmental policy and Health and Safety Management policy (see pages 20–21), provides information on the Group’s approach to the environment. The Group was awarded accreditation for the ISO14001, ISO9001 (2015) and ISO27001 standards in 2019 and has passed all audits for these accreditations since. 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. This has been of particular importance during the COVID-19 pandemic and the Group has found its processes to be robust minimising any impact of the lockdown. 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 regular 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 progress on each development. Please see pages 17 to 20 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 in 2019 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 received accreditation for the ISO9001:2015 standard in 2019. The Group 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, and provides training to employees on this policy. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023CORPORATE GOVERNANCE STATEMENT 29 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 . 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 has been adopted and will be reviewed periodically. It has been agreed that the Board will at any time consist of either two or three Executive Directors and three Non-Executive Directors. One of the Non-Executive Directors, Chris Jones, is 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. Both David Johns-Powell and Peter Tyler are only considered as non-independent due to their shareholdings 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 Group, the Board and its governance, including the planning and implementing of resources. The Group has an MD & CEO of its entity in India to manage the Indian operations. A Senior Vice President of International Sales handles all sales and opportunities outside of India. A Group Chief Financial Officer manages the finances of the Group while group engineering is managed by the Executive Vice President Global Engineering. These 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, including recruitment and management of resources. This includes formulating and recommending the Group’s strategy for Board approval and executing the approved strategy. The Board meets at least 4 times a year and more frequently if necessary. It is expected that each non-executive director will dedicate sufficient time to the Company to understand the business, prepare for and attend Board and committee meetings and carry out other work that is necessary for them to fulfil their duties as a director. Board and Committee attendance during the year Director John Cronin** Heather Peacock* David Johns-Powell Chris Jones Peter Tyler Board Audit Committee Committee Remuneration 8 (8)*** 8 (8)*** 6 (8) 6 (8) 6 (8) - - - 2 (2) 2 (2) - - - 2 (2) 2 (2) * Heather Peacock attended the Audit Committee and Remuneration Committee meetings by invite. She was not involved in any discussions regarding her own remuneration. ** John Cronin attended the Audit Committee and Remuneration Committee meetings by invite. He was not involved in any discussions regarding his own remuneration. ***John Cronin and Heather Peacock each attended an additional meeting which covered regulatory matters. Authority was delegated to them by the other Directors. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE30 CORPORATE GOVERNANCE STATEMENT 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/ and on pages 22-23. 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. At least 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’ skills and knowledge were kept up to date by receiving updates from the Company Secretary (who is a Member of the Governance Institute and receives regular updates from the Institute and other bodies) and external advisers, where relevant, on corporate governance matters. Corporate governance is an agenda item for all Board Meetings where updates are provided and discussed. Directors have access to independent professional advice at the Group’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. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement The effectiveness of the Board and its committees are kept under review in accordance with corporate governance best practice and the performance of the Board is evaluated continuously. Each Non-Executive Director’s value and input is continually monitored by the Executive Chairman to ensure they are actively contributing to the Company achieving its strategic and financial objectives. Towards the end of FY23 this performance review was undertaken whereby discussions were held between the Executive Chairman and the Non-Executive Directors of the Board to discuss their performance and obtain their views regarding the performance of the Board. All were in agreement that the Board is a well-balanced Board with a good mix of skills. The Nominations Committee is responsible for succession planning of the Board. Further information on this is set out on page 32. 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. The Group endeavours to ensure that its values are visible throughout its recruitment processes, internal communications and management style, corporate reports and external announcements. We expect that the Board and Senior Leadership Team demonstrate these values in their day-to-day work, setting the example for the rest of the Group. All policies and procedures are designed with these values at their core. The Company Secretary keeps in regular contact with teams in the UK and in India to ensure that these values are recognised and respected. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023CORPORATE GOVERNANCE STATEMENT 31 Upon commencement of an employee’s contract, they are given an induction programme to provide them with all information relating to Company procedures and values. The Group operates from two offices, one in Cambridge in the UK and one in Gurgaon in India, and has a subsidiary in Stockholm, Sweden (which has no employees). Our comprehensive set of policies and procedures, many of which fall under the Company’s ISO accredited 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 20-21 of the 2023 Annual Report. Since the COVID-19 outbreak, we have continued to evaluate the most appropriate ways of working for all employees across the Group. This evaluation continues, to ensure that the hybrid working policies currently followed in the UK are still the most appropriate policies for both the business and employees to follow. 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Board is made up of two Executive Directors (Executive Chairman, who covers the role of the CEO, and the Chief Financial Officer), and three Non-Executive Directors. Further information on the composition of the Board and how it operates is set out in Principle 5 above. In addition to any matters that are expressly required by law to be approved by the Board, a number of areas are specifically reserved for the Board as set out in an agreed set of Matters Reserved for the Board which was adapted by the Board in March 2018. The Group’s overriding principles are that the Board: • • • • Is established to govern by having the appropriate roles, skills and committees to oversee the governance framework under which it operates; Looks to the future: the Board will devote a large amount of its time to considering the future and providing strategic leadership; Is ultimately responsible to shareholders for the oversight and performance of the Group; and Is there to support and maintain a culture of governance, performance, accountability and communication within CyanConnode that embraces and establishes the principles that it has adopted. The Board has an Audit Committee, a Remuneration Committee and a Nominations Committee to oversee and consider issues of policy outside of main Board meetings. Each Committee has written terms of reference setting out its duties, authority and reporting responsibilities, also 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 on page 32 of the Corporate Governance Statement in the 2023 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 in accordance with AIM Rule 26 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 ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE32 CORPORATE GOVERNANCE STATEMENT Board Composition and Responsibility At 31 March 2023 the Board comprised five directors, including the Executive Chairman, the Chief Financial Officer and three non-executive directors. All of the five directors in post at 31 March 2023 served throughout the year. Name Executive John Cronin Role Executive Chairman Heather Peacock Chief Financial Officer* Non-executive William David Johns-Powell Christopher Jones Peter Tyler Appointed 1 April 2022 31 Mar 2023 In post In post 20/03/12 25/07/18 25/07/18 19/03/19 19/03/19 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes * Heather Peacock has also held the role of Company Secretary since September 2013. 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. Board Subcommittees The Board has three subcommittees as set out below. Each subcommittee has Terms of Reference, approved by the Board, which set out the main roles and responsibilities and remit of each committee. A set of Matters Reserved for the Board and a Board Charter, also approved by the Board, govern the way in which the Board operates and sets out the matters for which the Board has responsibility and those for which the Executive Directors have responsibility. Audit committee: Peter Tyler (Chairman), Chris Jones. Peter Tyler has held the position of Chairman from 19 March 2019. The Audit Committee Report on pages 39-40 sets out the roles and responsibilities of the Audit Committee. Remuneration committee: Chris Jones (Chairman), Peter Tyler. Chris Jones has held the position of Chairman since 19 March 2019. The Directors’ Remuneration Report on page 34 onwards sets out the roles and responsibilities of the Remuneration Committee and the Remuneration Policy for Executive Directors. Nominations committee: David Johns-Powell (Chairman), John Cronin, Peter Tyler and Chris Jones 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. The Chair continually considers the makeup of the Board to ensure it has the required skills for its industry and stage. Appointment of senior executives such as the CEO & MD of CyanConnode India are made by the Executive Directors in consultation with the full Board. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023CORPORATE GOVERNANCE STATEMENT 33 Relationships with Shareholders The Board actively engages with its shareholders on a 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 in accordance with AIM Rule 26. John Cronin and Heather Peacock are the directors responsible for investor relations. Approved by the Board of Directors and signed on behalf of the Board. John Cronin Executive Chairman 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE34 GOVERNANCE Directors’ Remuneration Report Remuneration Committee Chris Jones has served as chairman of the Remuneration Committee since 19 March 2019. The only personal financial interests of the members of the Committee are as shareholders. None of the Committee members has any 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 to ensure they remain competitive and also align with the success of the Group. 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; Share option incentives; and Pension arrangements. Executive directors are entitled to accept appointments outside the Company (for example Non-Executive Director roles and Consultancy) providing that the Chairman’s permission is sought and is not in conflict with CyanConnode. All Directors are encouraged to invest in the Company. This table shows the £5.1m they have invested thus far (see pages 36-37 for more details of their shareholdings). John Cronin Heather Peacock David Johns-Powell Peter Tyler Chris Jones Total Annual Total investment remuneration Total investment to date* £000 FY 2023 £000 as % of remuneration 1,213 148 3,043 690 14 5,108 372 244 38 30 30 714 326% 61% 8,000% 2,300% 47% 715% * The investment value reflects the cost of actual cash paid at the time of purchase. In addition, during FY21 a short-term loan was provided to the Company by John Cronin (£300,000) which has not yet been repaid. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023DIRECTORS’ REMUNERATION REPORT 35 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. 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. Total bonus payments of £103,750 were accrued for Directors for FY 2023 (2022: £90,000). Directors’ Share Options Full details of the directors’ options over ordinary shares of 2.0p are set out below: Director John Cronin Heather Peacock Chris Jones Peter Tyler Grant Date Expiry Date 25/01/18 22/09/20 10/11/21 10/11/21 25/01/28 22/09/30 10/11/31 10/11/31 11/12/17 11/12/27 22/09/20 22/09/30 10/11/21 10/11/21 10/11/31 10/11/31 22/09/20 22/09/30 22/09/20 22/09/30 David John-Powell 28/09/20 28/09/30 Exercise Price 31 March 2023 31 March 2022 As at As at £ 0.29 0.10 0.145 0.145 0.40 0.10 0.145 0.145 0.10 0.10 0.10 Number 200,000 360,342 558,102 589,037 1,707,481 25,000 90,909 619,424 798,875 Number 200,000 360,342 558,102 589,037 1,707,481 25,000 90,909 619,424 798,875 1,534,208 1,534,208 57,556 57,556 40,000 40,000 250,000 250,000 57,556 57,556 40,000 40,000 250,000 250,000 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE36 DIRECTORS’ REMUNERATION REPORT Joint Share Ownership Plan In 2008, the Company established a Joint Share Ownership Plan (“JSOP”) to provide additional incentives to directors and certain senior executives (the “Participants”). The JSOP shares are held jointly between the Participant and the CyanConnode Holdings plc Employee Benefit Trust. (“EBT”). 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. At 31 March 2023, shares held by directors under this scheme were as follows: Director John Cronin Grant Date Expiry Date 10/11/21 10/11/26 Heather Peacock 10/11/21 10/11/26 Participation As at As at Price 31 March 2023 31 March 2022 £ 0.145 0.145 Number Number 5,672,359 5,672,359 1,331,498 1,331,498 5,672,359 5,672,359 1,331,498 1,331,498 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. Directors’ Interests in Shares in the Company Director John Cronin As at 1 April 2022 Purchased during the year As at 31 March 2023 David Johns-Powell As at 1 April 2022 Purchased during the year As at 31 March 2023 Peter Tyler As at 1 April 2022 Purchased during the year As at 31 March 2023 Heather Peacock As at 1 April 2022 Purchased during the year As at 31 March 2023 Shares 5,846,464 372,384 6,218,848 16,474,503 147,058 16,621,561 2,489,004 117,647 2,606,651 879,259 189,987 1,069,246 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023DIRECTORS’ REMUNERATION REPORT Director Chris Jones As at 1 April 2022 Purchased during the year As at 31 March 2023 Total As at 1 April 2022 Purchased during the year As at 31 March 2023 37 Shares 136,127 – 136,127 25,825,357 827,076 26,652,433 The shareholding for Directors of the Company disclosed above excludes shares held under the Company's Joint Share Ownership Plan ("JSOP") in which they are beneficial co-owner of shares. Pension Arrangements Executive directors are entitled to become members of the Company pension scheme. This is a defined contribution scheme whereby the Company contributes at a rate of 5% of the executive’s gross salary. Heather Peacock is a member of the Company pension scheme. John Cronin is not a member of this scheme. Directors’ Contracts It is the Company’s policy that the executive directors should have contracts 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 William David Johns-Powell Chris Jones Peter Tyler Date of contract 20 March 2012 25 July 2018 25 July 2018 19 March 2019 19 March 2019 Non-Executive Directors 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 period are set out in the table below. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE38 DIRECTORS’ REMUNERATION REPORT Directors’ Emoluments (audited) Amounts for the year ending 31 March 2023 Name of Director Executive John Cronin (note 1) Heather Peacock (note 2) Non-Executive Chris Jones David Johns-Powell (note 3) Peter Tyler Total Salary £ 30,000 176,501 – – – 206,501 Fees £ Pension and other benefits £ 292,917 – 30,000 37,500 30,000 390,417 2,893 16,425 – – – Bonus £ 46,188 51,000 – – – Total for FY 2023 Services £ Total for FY 2022 Services £ 371,998 335,062 243,926 208,612 30,000 37,500 30,000 713,424 30,000 – 7,500 581,174 19,318 97,188 Note 1 – John Cronin received £10,000 of his remuneration during the year in shares rather than cash Note 2 – Heather Peacock received £15,000 (gross) of her remuneration during the year in shares rather than cash Note 3 – David Johns-Powell will be paid the £37,500 in shares rather than cash 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 25 July 2023 and signed on its behalf by: Chris Jones Chairman of the Remuneration Committee CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE Audit Committee Report 39 Introduction This Audit Committee Report has been prepared by the Audit Committee and approved by the Board. Membership and meetings held The Audit Committee is chaired by Peter Tyler and its other member is Chris Jones (both Non-Executive Directors). The Committee met twice during the year ended 31 March 2023, linked to events in the Company’s financial calendar. The Chief Financial Officer also attended each of these meetings. The external audit partner attended the meeting held in connection with the Company’s Report and Accounts for the year ended 31 March 2022. Role of the Audit Committee The Terms of Reference for the Audit Committee, which have been prepared in accordance with the QCA Code, provide for the Committee’s main responsibilities to include: • • • • • • Monitoring the integrity of the financial statements of the Company and its Group; Reviewing and challenging the consistency of accounting policies and standards; Reporting back to the Board on any aspects of the proposed financial reporting of the Group with which it is not satisfied; Keep under review the adequacy and effectiveness of the Company’s and Group’s internal financial controls and systems; Reviewing the risk identification and risk management processes of the Group, and Reviewing the Group’s procedures to prevent bribery and corruption in addition to ensuring that appropriate whistleblowing arrangements are in place. Internal Audit Due to the current size of the Group the audit committee obtain sufficient oversight over the operations through engagement with the Group and attendance of board meetings. It is therefore not considered appropriate to have an internal audit function. Key Areas of Focus The Committee’s particular areas of focus during the year were as follows: • • • Review of the March 2022 Annual Report; Review of the interim results for the six months ended 30 September 2022; and Ongoing review of the Group’s cash forecasts, including review of sufficiency of financing as the business grows. Management of Risk As in previous years, the oversight of risk, and risk management are the responsibility of the Board as a whole, rather than a sub-committee. This is put into effect by the preparation of a Risk Register, maintained as part of the ISO 9001 procedures. The Group passed its ISO audits during the year. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE40 AUDIT COMMITTEE REPORT Committee Evaluation During the period the Audit Committee was re-evaluated as part of a Board evaluation and at a Board meeting and it was agreed that its composition remained appropriate. The committee will be evaluated as part of each evaluation of the Board. Approval This report was approved by the Board of Directors on 25 July 2023 and signed on its behalf by: Peter Tyler Chairman of the Audit Committee CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE Directors’ Report 41 The directors present their annual report on the affairs of the Group together with the audited financial statements for the year ended 31 March 2023. The Company’s statement on corporate governance can be found on pages 27 to 33 of the financial statements. The corporate governance report forms part of the Directors’ Report and is incorporated by cross reference. 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 31 March 2025 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 Financial Review on pages 24 to 26 set out more detail regarding the Board’s assessment of its going concern position. Financial Risk Management Objectives and Policies Details of the Group’s financial risk management objectives and policies are set out in note 36 of the financial statements. Dividends The directors’ dividend policy is set out in the Financial Review on page 26. 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 28. At 31 March 2023, 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 35. 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 pages 27–33. In accordance with the Companies Act 2006 the Company has no authorised share capital. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE42 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 periods ended 31 March 2022 and 31 March 2023. 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) Heather Peacock (Chief Financial Officer) Non-Executive Directors William David Johns-Powell Chris Jones Peter Tyler The interests of the directors in the shares of the Company and share options granted to the Directors are shown in the remuneration committee report on pages 34-37. 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. As a high growth technology company, the focus is to develop unique technology that takes CyanConnode forward with its strategy to be a world leader in the design and development of Narrowband RF mesh networks that enable Omni Internet of Things (IoT) communications. The total expenditure on research and development including staff costs in the period was £1,724,000 (2022: £1,755,000). Directors’ indemnity arrangements CyanConnode has purchased and maintained throughout the year Directors’ and Officers’ liability insurance in respect of itself and its Directors. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023DIRECTORS’ REPORT 43 Significant Holdings The Company had been notified of the following voting rights of shareholders in the Company at 21 July 2023 and at the same date its issued share capital consisted of 271,887,364 Ordinary Shares: Name Premier Miton Group Plc S Chari Herald Investment Management Limited William David Johns-Powell CRUX Asset Management Nightingale Investment Co Limited Biggles Enterprise Limited Percentage of issued share Number of capital ordinary shares 7.76% 7.04% 6.70% 6.12% 5.20% 3.09% 3.07% 21,074,390 19,121,874 18,205,869 16,621,561 14,120,677 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 16 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 constant at 63 days (2022: 56 days). 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. RSM UK Audit 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE44 DIRECTORS’ REPORT Information in other reports The company has chosen, in accordance with the Companies Act 2006 s414C(11), to set out in the Chairman’s Statement, Financial Review, Strategic Report and Corporate Governance Statement, certain information required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 Sch. 7 to be contained in the Directors’ Report. This information includes how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others. It also includes the effect of having this regard for key stakeholders, including on the principal decisions taken by the company during the financial year, which can be found in Principle 3 of the Corporate Governance Report on pages 27-28. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Approved by the Board of Directors and signed on behalf of the Board. John Cronin Executive Chairman 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 202345 GOVERNANCE Directors’ Responsibilities Statement The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and company financial statements for each financial year. The directors have elected under company law and are required by the AIM Rules of the London Stock Exchange to prepare the group financial statements in accordance with UK-adopted International Accounting Standards and to prepare the company financial statements in accordance with UK-adopted International Accounting Standards and applicable law. The group and company financial statements are required by law and UK-adopted International Accounting Standards to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing each of the group and company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • • state whether they have been prepared in accordance with UK-adopted International Accounting Standards; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and enable them to ensure that the financial statements comply with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the group and 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 CyanConnode Holdings plc website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board John Cronin Executive Chairman 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023GOVERNANCE46 FINANCIAL STATEMENTS Independent Auditor’s Report TO THE MEMBERS OF CYANCONNODE HOLDINGS PLC Opinion We have audited the financial statements of CyanConnode Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2023 which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated cash flow statement, company balance sheet, company statement of changes in equity, company cash flow statement and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted International Accounting Standards and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2023 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards; the parent company financial statements have been properly prepared in accordance with UK-adopted International Accounting Standards and as applied in accordance with the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for 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 parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Summary of our audit approach Key audit matters Group • • Revenue recognition Impairment Parent company • Impairment Materiality Group • • Overall materiality: £234,000 (2022: £191,000) Performance materiality: £175,000 (2022: £143,000) Parent company • • Overall materiality: £120,000 (2022: £133,000) Performance materiality: £90,000 (2022: £100,000) Scope Our audit procedures covered 98% of revenue, 100% of total assets and 100% of loss before tax. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023INDEPENDENT AUDITOR’S REPORT 47 Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group and parent company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including 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 group and parent company 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 related to going concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. Group - revenue recognition Key audit matter description The group’s contracts involve the supply of various products and services. There is management judgement required to determine the performance obligations in the contracts, allocate revenue to each of these obligations and ensure income is appropriately recognised in line with the requirements of IFRS 15. How the matter was addressed in the audit We reviewed and challenged management’s assessment of the performance obligations identified for a sample of contracts. Group - impairment Key audit matter description We performed cut-off testing and other substantive testing procedures to validate the recognition of revenue throughout the year was in line with contractual arrangements and IFRS 15 requirements. We also considered the adequacy of the group’s revenue recognition accounting policy as disclosed in note 2 and judgements disclosed in note 3a. The group has a significant goodwill balance of £1.93 million which is subject to an annual impairment review. In addition, due to the loss-making nature of the group, other assets including the SMIP intangible is also subject to an impairment review. In performing the impairment review, management judgement is required in a number of areas including estimating future sales, costs and timing of related cashflows as well as determining an appropriate discount rate. How the matter was addressed in the audit We critically assessed the impairment reviews performed by management including a review of the client’s board approved forecasts and discounted cashflow calculations to assess whether the assumptions appeared reasonable. We also evaluated management’s sensitivity analysis around the key assumptions to ascertain the extent of change in those assumptions that individually or collectively would be required to lead to an impairment. We also considered the adequacy of judgements disclosed in note 3b. Parent company - impairment Key audit matter description The parent company has investments in its subsidiaries and significant receivable balances due from subsidiary undertakings. Given the loss-making nature of the subsidiaries, an impairment review of these balances is required. This involves management judgement including estimating future sales and cashflows. How the matter was addressed in the audit We critically assessed the impairment review performed by management over the carrying value of investments and group debtor balances. Our work included a review of the client’s assessment of the potential for impairment including a review of board approved forecasts and discounted cashflow calculations to assess whether the assumptions appeared reasonable. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS48 INDEPENDENT AUDITOR’S REPORT Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined materiality as follows: Overall materiality £234,000 (2022: £191,000) £120,000 (2022: £133,000) Group Parent company Basis for determining overall materiality 2% of total revenue 1% of net assets, reduced to suitable level to support the group opinion Rationale for benchmark applied Total revenue chosen as the group is revenue growth orientated Net assets were chosen as the entity is a non-trading holding company Performance materiality £175,000 (2022: £143,000) £90,000 (2022: £100,000) Basis for determining performance materiality Reporting of misstatements to the Audit Committee 75% of overall materiality 75% of overall materiality Misstatements in excess of £11,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds Misstatements in excess of £6,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds An overview of the scope of our audit The group consists of 5 components, located in the United Kingdom, India and Sweden. The coverage achieved by our audit procedures was: Number of components Revenue Total assets Loss before tax Full scope audit Total 3 3 98% 98% 100% 100% 100% 100% Analytical procedures at the group level were performed for the remaining 2 components. Of the above, a full scope audit for one component was undertaken by component auditors. Material uncertainty relating to going concern We draw attention to the going concern wording in note 2 to the financial statements where the directors have identified that there is uncertainty in relation to the level of funding required for working capital as the group grows. The potential need for additional financing indicates that a material uncertainty exists that may cast significant doubt on the group’s and parent company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included: • • understanding how the cash flow forecasts for the going concern period had been prepared and the assumptions adopted; testing of the integrity of the forecast model to ensure it was operating as expected; CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023INDEPENDENT AUDITOR’S REPORT 49 • • challenging the key assumptions within the forecast with agreement to supporting data where possible; review and consideration of the appropriateness of the sensitivity analysis performed by management and available actions should performance be behind expectations. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. We have nothing to report in this regard. 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. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • • • • 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 the parent company financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS50 INDEPENDENT AUDITOR’S REPORT Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 45, 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. The extent to which the audit was considered capable of detecting irregularities, including fraud Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements, to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the financial statements, and to respond appropriately to identified or suspected non-compliance with laws and regulations identified during the audit. In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements due to fraud, to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate responses and to respond appropriately to fraud or suspected fraud identified during the audit. However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity's operations are conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud. In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the group audit engagement team and component auditors: • • • obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks that the group and parent company operates in and how the group and parent company are complying with the legal and regulatory frameworks; inquired of management, and those charged with governance, about their own identification and assessment of the risks of irregularities, including any known actual, suspected or alleged instances of fraud; discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the financial statements may be susceptible to fraud. All relevant laws and regulations identified at a group level and areas susceptible to fraud that could have a material effect on the financial statements were communicated to component auditors. Any instances of non-compliance with laws and regulations identified and communicated by a component auditor were considered in our audit approach. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023INDEPENDENT AUDITOR’S REPORT 51 The most significant laws and regulations were determined as follows: Legislation / Regulation Additional audit procedures performed by the group audit engagement team and component auditors included: UK-adopted IAS and Companies Act 2006 Tax compliance regulations GDPR Review of the financial statement disclosures and testing to supporting documentation Completion of disclosure checklists to identify areas of non-compliance Inspection of advice received from external tax advisors Inspection of correspondence with local tax authorities ISAs limit the required audit procedures to identify non-compliance with these laws and regulations to inquiry of management and where appropriate, those charged with governance (as noted above) and inspection of legal and regulatory correspondence, if any. The areas that we identified as being susceptible to material misstatement due to fraud were: Risk Audit procedures performed by the audit engagement team: Revenue recognition See key audit matter above. Management override of controls Testing the appropriateness of journal entries and other adjustments; Assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and Evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. NEIL STEPHENSON (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants City House 126-130 Hills Road Cambridge CB2 1RE 25 July 2023 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS52 FINANCIAL STATEMENTS Consolidated income statement FOR THE YEAR ENDED 31 MARCH 2023 Continuing operations Revenue Cost of sales Gross profit Exceptional item: impairment of intangible assets Other operating costs Operating loss Amortisation and depreciation Share based payments Stock impairment Impairment of intangible assets Foreign exchange losses Adjusted EBITDA Finance income Finance expense Loss before tax Tax credit Loss for the year Loss per share (pence) Basic Diluted Year 31 March 2023 £000 Note 4 13 6 35 21 13 9 10 11 12 12 11,732 (7,518) 4,214 (968) (6,593) (3,347) 489 224 102 968 8 (1,556) 35 (136) (3,448) 1,042 (2,406) (1.03) (1.03) Year 31 March 2022 £000 9,562 (4,554) 5,008 – (6,025) (1,017) 616 363 62 – 34 58 3 (164) (1,178) 307 (871) (0.42) (0.42) CYANCONNODE ANNUAL REPORT & ACCOUNTS 202353 FINANCIAL STATEMENTS Consolidated statement of comprehensive income FOR THE YEAR ENDED 31 MARCH 2023 Derived from continuing operations and attributable to the equity owners of the Company. Loss for the year Exchange differences on translation of foreign operations Total comprehensive income for the year Year 31 March 2023 £000 (2,406) 21 (2,385) Year 31 March 2022 £000 (871) 76 (795) CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS54 FINANCIAL STATEMENTS Consolidated statement of financial position AS AT 31 MARCH 2023 31 March 31 March Non-current assets Intangible assets Goodwill Property, plant and equipment Right of use asset Other financial assets Trade and other receivables Total non-current assets Current assets Inventories Trade and other receivables R&D tax credit receivables Cash and cash equivalents Total current assets Total assets Current liabilities Trade and other payables Short-term borrowings Corporation tax liabilities Lease liabilities Total current liabilities Net current assets Non-current liabilities Lease liabilities Deferred tax liability Other payables 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 13 15 16 17 19 20 21 22 23 24 25 17 17 26 27 28 29 30 31 32 33 2023 £000 3,433 1,930 30 122 62 2,076 7,653 793 7,182 748 4,070 12,793 20,446 (3,833) (1,226) – (29) (5,088) 7,705 (94) (452) (42) (588) (5,676) 14,770 5,438 78,671 (3,611) 804 52 (66,584) 14,770 2022 £000 4,093 1,930 31 153 58 1,058 7,323 159 6,393 562 2,355 9,469 16,792 (2,364) (1,867) (193) (28) (4,452) 5,017 (125) (746) (38) (909) (5,361) 11,431 4,726 73,883 (3,611) 1,068 31 (64,666) 11,431 The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the Board of Directors and authorised for issue on 25 July 2023. They were signed on its behalf by: John Cronin Director CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS Consolidated statement of changes in equity FOR THE YEAR ENDED 31 MARCH 2023 Share Option Translation Retained Reserve Reserve £000 Losses £000 (45) (64,015) Share Capital £000 Share Premium Account £000 Own Shares Held £000 Balance at 31 March 2021 3,735 69,662 (3,253) Loss for the year Other comprehensive income for the year Total comprehensive income for the year – – – – – – – – – Issue of share capital 991 4,221 (358) Credit to equity for share options Transfer Total transactions with owners Balance at 31 March 2022 Loss for the year Other comprehensive income for the year Total comprehensive income for the year – – – – – – 991 4,726 4,221 73,883 (358) (3,611) – – – – – – Issue of share capital 712 4,788 Credit to equity for share options Transfer Total transactions with owners Balance at 31 March 2023 – – – – 712 5,438 4,788 78,671 – – – – – – – (3,611) £000 925 – – – – 363 (220) 143 1,068 – – – – 224 (488) (264) 804 55 Total Equity £000 7,009 – 76 76 – – – – 31 – 21 21 – – – – (871) (871) – 76 (871) (795) – – 220 220 (64,666) 4,854 363 – 5,217 11,431 (2,406) (2,406) – 21 (2,406) (2,385) – – 488 488 5,500 224 – 5,724 14,770 52 (66,584) CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS56 FINANCIAL STATEMENTS Consolidated cash flow statement FOR THE YEAR ENDED 31 MARCH 2023 Net cash outflow from operating activities Investing activities Interest received Purchases of property, plant and equipment Purchases of intangible assets Purchase of other financial assets Net cash outflow from investing activities Financing activities Interest paid on borrowings Cash inflow from borrowings Cash net outflow from debt factoring Loan repayment Capital repayments of lease liabilities Interest paid on lease liabilities Proceeds on issue of shares Share issue costs Note 34 16 13 19 25 25 25 17 17 28 Net cash inflow from financing activities Net increase in cash and cash equivalents Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Analysis of changes in net cash / (debt) For the year ended 31 March 2023 Cash and cash equivalents Short-term borrowings Lease liabilities Net cash / (debt) at end of year For the year ended 31 March 2022 Cash and cash equivalents Short-term borrowings Lease liabilities Net cash / (debt) at end of year At 1 April 2022 £000 2,355 (1,867) (153) (2,020) 335 Other non-cash Cash flow movements £000 1,710 641 41 682 2,392 £000 – – (11) (11) (11) At 1 April 2021 Cash flow movements Other non-cash £000 1,489 (2,118) (98) (2,216) (727) £000 852 251 160 411 1,263 £000 – – (215) (215) (215) Other non-cash movements include interest on lease liabilities and new leases taken on in the year. Year 31 March 2023 £000 (2,217) Year 31 March 2022 £000 (3,134) 3 (31) (734) (4) (766) (125) 500 (541) (600) (30) (11) 5,844 (344) 4,693 1,710 5 2,355 4,070 Net foreign exchange difference £000 5 – – – 5 Net foreign exchange difference £000 14 – – – 14 3 (26) (259) (14) (296) (157) 500 (366) (385) (153) (7) 5,177 (327) 4,282 852 14 1,489 2,355 At 31 March 2023 £000 4,070 (1,226) (123) (1,349) 2,721 At 31 March 2022 £000 2,355 (1,867) (153) (2,020) 335 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS Company balance sheet AS AT 31 MARCH 2023 Non-current assets Intangible assets Investments in subsidiaries Trade and other receivables 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 Short-term borrowings Total current liabilities Net current assets Net assets Equity Share capital Share premium account Share option reserve Retained losses Total equity being equity attributable to owners of the Company Note 14 18 20 22 23 24 25 28 29 31 33 57 31 March 31 March 2023 £000 – 5,042 419 5,461 1,961 2,991 4,952 10,413 (168) (800) (968) 3,984 9,445 5,438 78,671 804 (75,468) 9,445 2022 £000 – 9,036 438 9,474 1,789 1,618 3,407 12,881 (183) (900) (1,083) 2,324 11,798 4,726 73,883 1,068 (67,879) 11,798 The Company reported a loss for the financial year ended 31 March 2023 of £8,077,000 (2022: £3,283,000). The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the board of directors and authorised for issue on 25 July 2023. They were signed on its behalf by: John Cronin Director CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS58 FINANCIAL STATEMENTS Company statement of changes in equity FOR THE YEAR ENDED 31 MARCH 2023 Balance at 31 March 2021 Loss for the year Total comprehensive income for the year Issue of share capital Credit to equity for share options Transfer Total transactions with owners Balance at 31 March 2022 Loss for the year Total comprehensive income for the year Issue of share capital Credit to equity for share options Transfer Total transactions with owners Share Capital £000 3,735 – – 991 – – 991 4,726 – – 712 – – 712 Balance at 31 March 2023 5,438 Share Premium Account £000 69,662 – – 4,221 – – 4,221 73,883 – – 4,788 – – 4,788 78,671 Share Option Reserve £000 925 – – – 363 (220) 143 1,068 – – – 224 (488) (264) 804 Retained Losses £000 (64,816) (3,283) Total Equity £000 9,506 (3,283) (3,283) (3,283) – – 220 220 (67,879) (8,077) 5,212 363 – 5,575 11,798 (8,077) (8,077) (8,077) – – 488 488 (75,468) 5,500 224 – 5,724 9,445 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS Company cash flow statement FOR THE YEAR ENDED 31 MARCH 2023 59 Loss for the year before taxation and interest Shares issued in lieu of bonus Net impairment charge Operating cash outflows before movement in working capital Increase in receivables (Decrease)/increase in payables Net cash outflow from operating activities Financing activities Cash inflow from short-term borrowing Loan repayment Interest paid on loans Proceeds on issue of shares Share issue costs Net cash inflow from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of year Analysis of changes in net cash / (debt) Year 31 March 2023 £000 (7,995) 24 4,063 (3,908) (19) (15) (3,942) 500 (600) (85) 5,844 (344) 5,315 1,373 1,618 2,991 Year 31 March 2022 £000 (3,198) 5 1,286 (1,907) (1,551) 6 (3,452) 500 (385) (85) 5,177 (327) 4,880 1,428 190 1,618 For the year ended 31 March 2023 Cash and cash equivalents Short-term borrowings Net cash at end of year For the year ended 31 March 2022 Cash and cash equivalents Short-term borrowings Net debt at end of year At 1 April Other non-cash At 31 March 2022 £000 1,618 (900) 718 Cash flow movements £000 1,373 100 1,473 £000 – – – 2023 £000 2,991 (800) 2,191 At 1 April Other non-cash At 31 March 2021 £000 190 (785) (595) Cash flow movements £000 1,428 (115) 1,313 £000 – – – 2022 £000 1,618 (900) 718 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS60 FINANCIAL STATEMENTS 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 and Wales 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, rounded to nearest thousand (£’000), because that is the currency of the primary economic environment in which the Group operates. Foreign operations are included in accordance with the policies set out in note 2. 2. Significant accounting policies Basis of accounting The financial statements have been prepared in accordance with UK-adopted International Accounting Standards. The financial statements have been prepared on the historical cost basis, with the exception of recognising 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 31 March 2025 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, the timing of customer payments and the level of working capital requirements. The detailed cashflow scenarios include Letters of Credit which have been secured from customers against contracts recently won. At 31 March 2023 the Group had cash reserves of £4.1 million (FY22: £2.4m) and based on detailed cash flows provided to the Board within the FY24/25 budget, there is sufficient cash to see the Group through to profitability based on its standard operating model. However, should the Group require additional cash to cover working capital, as a result of rapid growth, there could be a requirement for additional funding to cover this. The Group is discussing working capital funding solutions with banks, particularly in India. To assist with working capital, a loan from one director for £300,000 is still in place, after being extended to the Group in November 2020. The Company received an advance of £500,000 secured against its R&D tax credit in November 2022 and an invoice discounting facility secured against Letters of Credit for deliveries of Omnimesh modules in India. The advance against the R&D tax credit will be repaid out of the HMRC receipt which is expected to be received by October 2023. Notwithstanding the material uncertainties described above which may cast significant doubt on the ability of the Group to continue as a going concern, 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 Group financial statements include the financial statements of the Company and all of its subsidiary undertakings. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All intra-group balances and transactions are eliminated. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree, and the equity interests issued by the Group. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 61 2. Significant accounting policies (continued) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Group, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of the net investment. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of the transactions are used. Exchange differences arising, if any, are classified as equity and recognised in the Group’s foreign currency translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Revenue recognition The Group supplies customers with hardware, software and services. Revenue is recognized according to the five-step approach under IFRS 15 Revenue from Contracts with Customers. 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 against each relevant separate performance obligation. 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 / performance obligation – see “Sale of services” below for more information. Revenue for hardware is recognised when control has been passed to the customer. 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. Term licenses are recognised evenly over the term of the license. The full value of committed payments for perpetual licenses is recognised as revenue when it is granted because at this point the customer is given full “right to use”. Any variable consideration is recognised in revenue when the requirements for recognition have been met. 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 the contract. Installation of the HES software onto the end customer’s servers is recognised as a separate contractual element / performance obligation – see “Sale of services” below for more information. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS62 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 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 (AMC ) for the Omnimesh system (which includes 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 across a period of time, and hence the performance obligation is fulfilled over 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). If the customer does not enjoy the value of the service over time, 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. 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 period. If there are significant time differences between revenue recognition period and invoicing and thereon cash collection, a financing element is accounted with contract assets being discounting using an appropriate discount rate based on the credit rating of the customer. The Group implements Service Level Agreements (SLAs) as an assurance to the customers that products and services supplied are as specified in the contract and will operate at the required levels. The income recognised on the sale of hardware and services is constrained under the variable consideration rules of IFRS 15 for any expected penalties under SLAs during the contract. The Group also implements retention at 5% on the products and services supplied as specified in the contracts. The retention money is payable by the customers on the completion of the projects. The accounts receivable balance recognised for retentions is based on the expected level of recovery of outstanding balances. Recoverability of revenue already recognised 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 operating expense and not as an adjustment of the amount of revenue originally recognised, applying the rules as laid out in IFRS 9. 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 63 2. Significant accounting policies (continued) 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. The capitalised assets will be amortised over their useful lives of 5 years. 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 period under review. 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 period. 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. Intangible assets: software Software is accounted for at cost and amortised in equal annual instalments over a period of 5 years which is its estimated useful economic life. Provision is made for any 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. 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. Determining whether goodwill is impaired requires an estimation of the higher of value in use of the cash-generating units to which goodwill has been allocated or fair value less cost of disposal. 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 regard 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. The impact of reasonably possible changes in assumptions are disclosed in note 15. A fair value less cost of disposal is only performed if the value in use model indicates an impairment. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS64 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) 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 to their estimated residual values on the following bases: Fixtures and equipment 20% - 50% per annum Right to use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. The gain or loss arising on the disposal of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. 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. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial instruments – assets Classification and measurement of financial assets 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, and contract assets 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 65 2. Significant accounting policies (continued) Impairment of financial assets For trade and other receivables, and contract assets, 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. 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 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. 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 Group 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. Employee benefits The cost of any unused holiday entitlement is recognized in the period in which the employee’s services are received. Termination benefits are recognized immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. The cost of equity settled transactions with employees is measured by reference to the fair value on the date they are granted. Where there are no market conditions attaching to the exercise of the options, the fair value is determined using a range of inputs into the Black-Scholes pricing model. The fair value of equity-settled transactions is charged to profit or loss over the period in which the service conditions are fulfilled with a corresponding credit to a share option reserve in equity. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS66 NOTES TO THE FINANCIAL STATEMENTS 2. Significant accounting policies (continued) At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions and service conditions. It recognized the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. On the exercise of share options, an amount equal to the fair value of the option at the date it was granted is transferred from the share option reserve into retained earnings. Where the Company grants options over its own shares to the employees of its subsidiaries it recognized, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognized in its consolidated financial statements with the corresponding credit being recognized directly in equity. When the Company issues options or warrants for services rendered by a non-employee they are measured at fair value of the services received. Leases Low value leases and leases of less than one year are recognized on a straight-line basis over the lease term. On inception of other leases, ‘right-of-use' assets have been capitalised in the statement of financial position, measured at the present value of the unavoidable future lease payments to be made over the lease term discounted at an incremental borrowing rate. The Company’s investments in subsidiaries The Company recognises its investments in subsidiaries at cost less any impairment in its separate financial statements. Impairment is determined by assessing the recoverable amount of the investment. The recoverable amount has been assessed using a value in use model. The value in use calculation requires the entity to estimate the future cash flows expected to and a suitable discount rate in order to calculate present value. Where the recoverable amount is less than the carrying amount, an impairment loss is recognised in the Statement of Comprehensive Income. New accounting standards and interpretations not yet adopted For the purpose of the preparation of these consolidated financial statements, the Group has applied all standards and interpretations that are effective for accounting periods beginning on or after 1 April 2022. No new standards, amendments or interpretations to existing standards that have been published and that are mandatory for the Group’s accounting periods beginning on or after 1 April 2023 or later periods, have been adopted early. The new standards and interpretations are not expected to have any significant impact on the financial statements when applied. 3. 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 modules and gateway hardware is recognised at the point that the modules and gateways are received by the customer. Gateways may later be installed by the Company or by a third party. The revenue for installation services is recognised as a separate performance obligation when the gateways are installed. The goods and services that CyanConnode supplies and provides are highly independent, they could be supplied and provided by other suppliers and are not considered transformative in nature, i.e. one good or service does not significantly modify or customize another. Therefore, they are considered to be separate performance obligations. 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 67 3. Critical accounting judgements and key sources of estimation uncertainty (continued) iii.  Service level agreement (SLAs) The Group implements SLAs as an assurance to the customers that products and services supplied are as specified in the contract and will operate at the required levels. The income recognised on the sale of hardware and services is constrained under the variable consideration rules of IFRS 15 for any expected penalties under SLAs during the contract. Income as not been constrained in current and prior year as the level of penalties is not expected to be significant. iii.  Discounting of significant financial element of revenue contracts  The revenue for head end software, hardware and certain services for the Group’s contracts are recognised at a point in time when supplied to the customer, however some of these elements are paid for over the term of the contract. A significant financing element therefore needs to be considered for these elements applying a discount based on the time value of money. Judgement is required in applying a suitable discount rate which is dependent on the credit rating of the customer. Such a financing element has been recognised on three contracts in the current period (one in the prior period). 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 carrying value 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 £3,259k carrying value of the related intangible asset at the end of March 2023. Connode AB’s contract involves the supply of software in areas where traditional smart meter technology would not work due to lack of mobile coverage (“not-spots”). The intangible asset had originally been valued based on the assumption that 10% of the areas being supplied by the contract would be not-spots, which would result in 2.3 million units of software being supplied over the duration of the contract. The Group has now been notified by its customer Toshiba, that due to an end-of-life Telit component, which is essential in the design of the Toshiba hardware (mesh hub), there will now only be a maximum of 761k mesh hubs supplied under the contract. In addition, the Group has been notified that 3G is gradually being switched off in the UK, and meters will be replaced with 4G, commencing in 2025. A model has now been created based on sensitivities to determine if an impairment to the intangible asset is required. Sensitivities were run based on various percentages of the finite number of 761k hubs being activated. Due to the uncertainties surrounding the contract and taking into account the numerous delays that have already occurred, the Board has agreed that an impairment of £968k would be taken in FY23 based on an assumption that 70% of the finite number of 761k hubs, being 532k meters, would be activated. We note that if a 60% activation assumption had been adopted then there would have been an additional impairment of £352k with no impairment arising if an assumption of 90% had been taken. ii.  Goodwill impairment 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 15. Sensitivity to the assumptions is also found in this note. iii.  Development costs The group assesses the probability of expected future economic benefits using reasonable and supportable assumptions that present managements best estimate of the set of economic conditions that will exist over the useful life of the asset in accordance with IAS38. We are currently seeing an increase in development costs as a result of new projects and new development requirements for the market. Management have carried out an assessment for all projects undertaken during the year, and identified the additional projects that meet the IAS38 development phase criteria. We reviewed these costs closely using the timesheet system and capitalised relevant costs to intangible assets. For those projects that do not meet the criteria, all expenditure incurred during the year has been written off to the income statement as an expense. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS68 NOTES TO THE FINANCIAL STATEMENTS 3. Critical accounting judgements and key sources of estimation uncertainty (continued) iii.  Development costs (continued) Under IAS 38 each development project must be reviewed at the end of each accounting period to ensure that the recognition criteria are still met. Management has undertaken a review of all capitalised projects at the year end, and confirmed that the recognition criteria are still met, there has been no indication of impairment in the year. iv.  Inventory provision Inventories include stocks of raw materials and finished goods that the directors believe will be sold within the period to March 2024 covered by the Group’s business plan. Old stock items have been fully provided for at the year end. 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. v.  Debtor and intercompany receivable recoverability The Group tracks its trade 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 22) 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. The Group revise the estimate of the expected credit loss by looking at how current and future economic conditions impact the amount of loss on a forward-looking basis. An amount of £326,000 (2022: £1,020,000) which is over 90 days overdue is included in trade debtors, of which a provision of £251,000 (2022: £146,000) is held. CyanConnode Ltd has a loan of £64,838,214 (2022: £61,030,804) with CyanConnode Holdings plc. As at 31 March 2023, a 100% (2022: 100%) provision against the loan was recognised based on expected future profitability of the entity. The Board has considered the provisions around impairment of inter-company indebtedness contained within IFRS9 “Financial Instruments” in relation to all intergroup debtors. vi.  Investments in subsidiaries  The company has made an investment in each of its subsidiaries. Impairment is determined by assessing the recoverable amount of the investment. The recoverable amount has been assessed using a value in use model. The value in use calculation requires the entity to estimate the future cash flows to and a suitable discount rate in order to calculate present value. See note 18 for details of impairments booked in the year. 4. Revenue An analysis of the Group’s revenue is as follows: Hardware revenue - recognised at a point in time Software licenses - recognised at a point in time Revenue from services* - recognised at a point in time Revenue from support and maintenance** - recognised over time Total revenue 2023 £000 9,763 1,157 504 308 11,732 2022 £000 7,032 1,347 1,028 155 9,562 * Services can include installation of gateways, training, integration of software etc ** Support and maintenance can include Annual Maintenance Contract (AMC) or Field Maintenance Services (FMS) 5. Business and geographical segments The Group has concluded that 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 20235. Business and geographical segments (continued) NOTES TO THE FINANCIAL STATEMENTS 69 5. Business and geographical segments (continued) During the year to end of March 2023 there were 3 customers (2022: 3) whose turnover accounted for more than 10% of the Group’s total revenue as follows: Customer A Customer B Customer C Customer D Revenue split by geographical location was as follows India Thailand Europe United Arab Emirates Rest of The World 6. Other operating costs Staff costs Staff costs capitalized to research and development Research and development costs (excluding staff costs) Rent and site costs Office expenses Marketing and advertising Professional fees Audit and accountancy Bad debts Impairment of inventory Share based payments Foreign exchange Amortisation and depreciation Other Other operating costs 2023 2022 Turnover Percentage of Turnover Percentage of £000 1,500 795 5,819 2,098 Total% 13 7 50 18 £000 4,123 2,370 1,937 - Total% 43 24 20 - 2023 2022 Turnover Percentage of Turnover Percentage of £000 5,560 143 210 5,819 - 11,732 Total% 47 1 2 50 - 100 £000 8,471 449 502 - 140 9,562 2023 £000 4,154 (734) 316 179 417 197 426 229 117 102 224 13 476 477 Total% 89 5 5 - 1 100 2022 £000 3,590 (259) 173 66 281 173 582 195 146 62 363 34 616 3 6,593 6,025 The total expenditure on research and development including staff costs in the year was £2,247,000 (2022: £1,755,000). CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS70 NOTES TO THE FINANCIAL STATEMENTS 7. Auditor’s remuneration The analysis of auditor’s remuneration, including associate firms, 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 other services to the Group - The audit of the Company’s subsidiaries pursuant to legislation Total audit fees 8. Employee information The average monthly number of employees (including executive directors) was: Sales and administration Research and development Operations and logistics 2023 £000 121 45 166 2022 £000 75 90 165 2023 Number 2022 Number 21 25 18 64 18 29 12 59 There are no employees in the parent company other than Directors, whom are remunerated by other group companies (2022: nil). Their aggregate remuneration comprised: Wages and salaries Social security costs Other pension costs Share based payment charge 2023 £000 3,856 195 103 224 4,378 2022 £000 3,302 193 95 363 3,953 At the year end there were employer’s pension contributions provided for but not paid of £9,279 (2022: £9,791). Key management compensation The directors are of the opinion that key management personnel during the period 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 benefits 2023 £000 693 42 21 756 2022 £000 570 33 11 614 Specific details of directors’ remuneration and other information (including share-based compensation) are included in the Remuneration Committee Report within this Annual Report. John Cronin, David Johns-Powell, Chris Jones and Peter Tyler are not the members of the Company pension scheme. The highest paid Director received total remuneration of £371,998 (2022: £335,062). Please see page 38 for the details. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 9. Finance income Discount on contract assets Bank deposits Total finance income 10. Finance expense Interest on debt factoring Interest on loans Interest on loan from Directors Interest on lease liabilities Interest on bank overdraft Other interest Total finance expense 11. Tax Current tax: UK corporation tax Overseas tax Deferred tax (note 26) Origination and reversal of timing differences Total tax credit 71 2022 £000 - 3 3 2022 £000 57 31 54 7 15 - 164 2022 £000 (586) 345 (241) (66) (307) 2023 £000 32 3 35 2023 £000 19 44 41 11 18 3 136 2023 £000 (748) - (748) (294) (1,042) CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS72 NOTES TO THE FINANCIAL STATEMENTS 11. Tax (continued) Loss on ordinary activities before tax Tax on loss at standard corporation tax rate of 19% (2022: 19%) Effects of: Expenses not deductible for tax purposes Capitalisation of R&D costs Losses surrendered for R&D tax credit R&D tax credit Unrelieved tax losses not provided for CyanConnode Pvt Ltd utilisation of losses brought forward Difference in tax rates Total tax credit for the year 2023 £000 (3,447) (655) 19 (138) 980 (1,301) 79 - (26) (1,042) 2022 £000 (1,178) (224) 60 (47) 767 (1,020) 398 (284) 43 (307) Factors affecting tax charge in future years The Finance Act 2021 provided for the main rate of UK corporation tax to increase to 25% for companies with profits over £250,000. It was substantively enacted in May 2021, and as such the unrecognised deferred tax asset at the balance sheet date has been calculated at 25% reflecting the tax rate at which it may be utilised in future periods. Tax losses carried forward at the end of March 2023 were £39,036,486 (2022: £38,582,446). The Swedish tax rate reduced to 20.6% from 1 January 2021, and the Indian effective tax rate remains unchanged at 25.17% from 1 April 2019 and the deferred tax for Sweden and India has been calculated at these rates. 12. 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) 2023 (2,406) 2022 (871) Weighted average number of ordinary shares for the purposes of basic and diluted loss per share (excluding own shares held) 232,763,664 205,173,434 Loss per share (pence) (1.03) (0.42) The weighted average number of shares and the loss for the year for the purposes of calculating diluted loss per share are the same as for the basic loss per share calculation. This is because the outstanding share options would have the effect of reducing the loss per share and would not, therefore, be dilutive under the terms of IAS 33. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 13. Intangible Assets (Group) Cost At 1 April 2021 Additions At 31 March 2022 Additions At 31 March 2023 Amortisation At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year Impairment At 31 March 2023 Carrying amount At 31 March 2023 At 31 March 2022 Software SMIP Software Development Intangible £000 £000 £000 144 - 144 - 144 144 - 144 - - 144 - - 165 259 424 734 1,158 - 11 11 5 - 16 1,142 413 6,100 - 6,100 - 6,100 1,999 421 2,420 421 968 3,809 2,291 3,680 73 Total £000 6,409 259 6,668 734 7,402 2,143 432 2,575 426 968 3,969 3,433 4,093 Smart Metering Implementation Programme (‘SMIP’) relates to a contract acquired with the Connode Group in 2016 to partner Toshiba and Telefonica 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. The amortisation charge for the year is £421,000 (2022: £421,000). This is included in other operating costs. An impairment review of the intangibles assets has been undertaken in the year with an impairment of £968k arising. The process and significant assumptions are as outlined in note 3b (i). 14. Intangible assets (Company) Cost Balance at 1 April 2022 and 31 March 2023 Amortisation Balance at 1 April 2022 and 31 March 2023 Carrying amount At 1 April 2022 and 31 March 2023 Software £000 144 144 - Total £000 144 144 - CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS 74 NOTES TO THE FINANCIAL STATEMENTS 15. Goodwill Cost at 1 April 2022 and 31 March 2023 Carrying amount at 31 March 2022 and 31 March 2023 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: • • • Pre-tax discount rate 11.5% (2022: 11.5%) Compound annual growth rate in revenue over next five years between 11% and 54% (2022: 15% and 34%) Growth rate in perpetuity 2% (2022: 4.5%), reflecting the rate of the countries to which the goodwill is associated 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 between 11% and 54% over the next five years with revenues beyond that period based upon a terminal growth rate of 2%. The 2% 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 in the main countries in which the Group operates are expected to be higher). Using the above assumptions does not show a requirement for an impairment to goodwill, however failure to achieve the expected revenue growth could make an impairment to goodwill possible. Should the expected revenues not be achieved, costs would be adapted to match revenues and this would mean an impairment would be unlikely. In the most stretched impairment model, it shows headroom of £1,445, however this uses a weighted average cost of capital of 15%, a perpetual growth rate of 0% (6.5% below market forecasts for growth rates in India) and uses very conservative revenue growth rates ranging from 11% to 47% over the next five years against what is already a very conservative model (we have seen an actual revenue growth rate of 21% in financial year 2022 and there is strong order book). Should expected revenue growth not be achieved, the Group would revise the level of costs that have been modelled. On this basis, management believe that goodwill is not impaired. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 16. Property, plant and equipment Group Cost At 1 April 2021 Additions At 31 March 2022 Additions At 31 March 2023 Accumulated Depreciation At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year At 31 March 2023 Carrying Amount At 31 March 2023 At 31 March 2022 75 Fixtures and equipment £000 371 26 397 31 428 335 31 366 32 398 30 31 At 31 March 2023 the Group had no contractual commitments outstanding for the acquisition of property, plant and equipment (2022: £nil). 17. Leases Right of use asset Group Cost At 1 April 2021 Additions At 31 March 2022 Disposals At 31 March 2023 Accumulated Depreciation At 1 April 2021 Charge for the year At 31 March 2022 Charge for the year Disposals At 31 March 2023 Carrying Amount At 31 March 2023 At 31 March 2022 Building £000 471 208 679 (513) 166 373 153 526 31 (513) 44 122 153 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS76 NOTES TO THE FINANCIAL STATEMENTS 17. Leases (continued) Lease liability movements in the year As at 1 April New lease – India head office Payments Interest At 31 March Lease liabilities Current Non - Current As at 31 March Amounts recognised in Income Statement Depreciation Interest Year to 31 March Expenses relating to leases of low-value assets that are not shown above as short-term lease in the year (included in other operating costs) 2023 £000 153 - (41) 11 123 2023 £000 29 94 123 2023 £000 31 11 42 103 2022 £000 98 208 (160) 7 153 2022 £000 28 125 153 2022 £000 153 7 160 67 From 25 March 2022 the company entered into a new lease agreement for its head office on a term of 18 months with a mutual right of break at any time after 30 November 2022. This was considered to be a short-term lease due to the mutual right of break clause. CyanConnode Private Limited leases its office property on a 5 year term with a break clause after 3 years. Payments of £41,000 (2022: £19,000) were made against this lease during the year ended 31 March 2023. An incremental borrowing rate of 8.3% was used to determine the lease liability on inception based on Indian borrowing rates. 18. Subsidiaries Investment in subsidiaries As at 1 April Capital contribution in respect of share-based payment Impairment in investment in Connode Holdings AB Impairment in investment in CyanConnode Limited As at 31 March Company Company 2023 £000 9,036 224 (4,010) (208) 5,042 2022 £000 9,185 363 - (512) 9,036 The impairment in relation to Connode Holdings AB in the year has been based on the future value in use of this sub-group which is based on the value of the SMIP contract. The process and significant assumptions are as outlined in note 3b (i). The investment in CyanConnode Limited has also been fully impaired based on the expected future profitability of this company. This led to an impairment of £208,000 in the year in line with the capital contribution to this company in the year. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 77 18. Subsidiaries (continued) Movement in investment of subsidiaries Cost Cost at 1 April Addition At 31 March Impairment Impairment at 1 April Impairment in the year At 31 March Carrying Amount at 31 March Company Company 2023 £000 14,932 224 15,156 (5,896) (4,218) (10,114) 5,042 2022 £000 14,569 363 14,932 (5,384) (512) (5,896) 9,036 The members of the Group, all of which are 100% owned are as follows: CyanConnode Limited Merlin Place Milton Road Cambridge CB4 0DP CyanConnode Private Limited B-41 Panchsheel Enclave New Dehli-110017 India Connode Holding AB Solna Strandväg 80 172 54 Solna Stockholm Sweden Connode AB Solna Strandväg 80 172 54 Solna Stockholm Sweden • • • • • • • • • • • • 100% of the issued share 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 March The principal activity of the Company is research and development, and to market and sell the Group’s range of products 100% of the issued share 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 100% of the issued share capital of the Company is held by CyanConnode Holdings plc The company is incorporated in Sweden and has an accounting period ending 31 March The principal activity of the Company is to act as a holding company 100% of the issued share capital of the Company is held by Connode Holding AB The company is incorporated in Sweden 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 the Nordic region 19. Other financial assets Bank securities The Company held no bank securities at either balance sheet date. 2023 £000 62 2022 £000 58 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS78 NOTES TO THE FINANCIAL STATEMENTS 20. Trade and other receivables – non-current assets Group Company Retention money Contract assets Loans to other group entities Trade and other receivables 2023 £000 315 1,761 – 2,076 2022 £000 458 600 – 1,058 2023 £000 – – 419 419 2022 £000 – – 438 438 The retention money represents 5% retention on contracts that invoices have been issued and the amount is due from customers on completion of projects. The Group has zero non-settlement of retention historically, and management assessment for expected credit loss on the retention is low looking forward, therefore management is confident that no provision is required. The contract assets represent revenue recognised in the year but have not been invoiced. Management expects to raise invoices for these assets in financial years 2025 to 2028. The loan from the Company to subsidiaries has arisen as the Company provides support as needed to all subsidiaries. These amounts will be paid depending on the affordability of each subsidiary. Repayment of these loans is assessed each year to determine whether impairment is required. 21. Inventories Raw materials Raw materials - provision Raw materials – net realisable value Finished goods – cost Finished goods - provision Finished goods – net realisable value Inventories 2023 £000 85 (31) 54 739 – 739 793 2022 £000 171 (49) 122 660 (623) 37 159 Inventories are stated after provisions for impairment of £31,000 (2022: £672,000). £102,000 (2022: £62,000) of stock impairment charges were recognised in the year, and £743,000 (2022: £160,000) provision was utilised. There has been no impairment reversal (2022: £nil) in the year. The total cost of inventories expensed in the year amounted £7,259,000 (2022: £4,606,000). The Company held no inventories at either balance sheet date. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 22. Trade and other receivables – current assets Group Company Trade receivables Allowance for expected credit losses Contract assets Other debtors Employee Benefit Trust Loan Prepayments Trade and other receivables 2023 £000 7,224 (274) 6,950 24 52 – 156 7,182 2022 £000 6,242 (181) 6,061 – 106 – 226 6,393 2023 £000 – – – – 32 1,880 49 1,961 79 2022 £000 – – – 7 1,724 58 1,789 CyanConnode Ltd has a loan of £64,838,214 (2022: £61,030,804) with CyanConnode Holdings plc with a current impairment provision of £64,838,214 (2022: £61,030,804). The Employee Benefit Trust (EBT) holds own shares issued. The original amount of the EBT loan was £3,015,135, of which based on a share price of 33.0 pence for 9,136,772 shares, During the year the fair value of the EBT loan has increased by £156,000 (2022 £774,000 increased in value). There was no further loan made to the EBT in the year (2022: £358,000). 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. Loans to other group entities relates to amounts owed to CyanConnode Holdings plc by Connode Holding AB. This is considered recoverable because customers settle Connode AB’s (a wholly owned subsidiary of Connode Holding AB) payments monthly and both Connode Holding AB and Connode AB have very little running costs so free cash is expected to be generated monthly. It is expected that future repayments are to be made as and when is required. This intercompany loan is unsecured and will be settled in cash. No guarantees have been given or received. For more information on loans to other group entities please see note 37. Expected credit losses The movement in the expected credit loss provision in the year was as follows: As at 1 April Charge in the year Provision utilised As at 31 March Group 2023 £000 (181) (117) 25 (273) Group 2022 £000 (435) (146) 400 (181) CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS80 NOTES TO THE FINANCIAL STATEMENTS 22. Trade and other receivables – current assets (continued) Credit risk At 31 March 2023 the Group had significant concentration of credit risk in three customers which represented 57% (2022: two customers, 94%) of the Group’s trade receivables. This reliance on two customers in the India and one customer in UAE is included within our principal risks statement on pages 17 to 20 of this report. Trade receivables Not yet due 30 – 59 days 60 – 89 days 90 – 120 days 120 days and over Total 2023 £000 6,813 74 11 4 322 7,224 2022 £000 4,404 550 268 845 175 6,242 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 Group 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 Group to the counterparty. An amount of £326,000 (2022: £1,020,000) which is over 90 days overdue is included in trade receivables. A provision of £251,000 (2022: £146,000) has been recognised based on known exposures and expected credit losses. 23. Cash and cash equivalents Cash and cash equivalents Group Company 2023 £000 4,070 2022 £000 2,355 2023 £000 2,991 2022 £000 1,618 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. 24. Trade and other payables Trade payables Other payables Accruals Social security and other taxes Contract liabilities Group Company 2023 £000 2,657 87 716 306 67 3,833 2022 £000 955 73 922 325 89 2,364 2023 £000 78 – 90 – – 168 2022 £000 74 – 109 – – 183 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 81 24. Trade and other payables (continued) Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs all of which are payable within a year. Contract liabilities represent deferred revenue from ongoing contracts and recently won contracts of which £59,000 is anticipated to unwind in financial year 2024 (2023: £89,000). During the year £22,342 (2022: £333,039) was recognised, which was part of the prior period contract liabilities closing balance. The Group has financial risk management policies in place to ensure that all payables are paid within agreed credit timeframes. Neither the Group nor the Company has incurred interest charges for late payment of invoices during the year (2022: £nil). The average credit period taken for trade purchases is 63 days (2022: 56 days) due to significant purchases of meters for smart metering deployments in the year. Trade payables Not yet due 30 – 59 days 60 – 89 days Over 90 days Total 2023 £000 2,187 384 – 86 2,657 The directors consider that the carrying amount of trade payables approximates to their fair value. 25. Short-term borrowings Advance on R&D tax credit Loan from Directors Debt factoring As at 31 March Group Company 2023 £000 500 300 426 1,226 2022 £000 500 400 967 1,867 2023 £000 500 300 – 800 2022 £000 352 603 – – 955 2022 £000 500 400 – 900 As at 31 March 2023 a loan of £300,000 (2022: £400,000) from one Director to assist with working capital is still in place after being extended, and continues on a rolling month by month basis, unless repayment is requested by the Director giving no less than 60 days written notice. Interest is charged at 13.5% per annum. In November 2022, the Company received an advance loan for £500,000 (2022: £500,000) against its R&D tax credit. This loan will be repaid to the lender out of the funds received from HMRC for the Group’s R&D tax credit. These funds are expected to be received from HMRC by October 2023. The loan is secured against the R&D tax credit and bears an interest rate of 13% per annum. The details of interest charges for the year can be found in note 10. The Group has entered a debt factoring facility with HDFC and ICICI banks in India which are secured against Letters of Credit provided by a customer for deliveries of Omnimesh modules. As at the year end a balance of £426,000 (2022: £967,000) was owing to the bank. The facility bore interest at 8% (2022:8.3%) per annum at year end. Connode AB has an overdraft facility for SEK 2 million (£163k) secured against the assets of Connode AB. The balance on this facility was £nil at 31 March 2023 (2022: £nil). CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS82 NOTES TO THE FINANCIAL STATEMENTS 26. Deferred tax 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 April Movement during the year (note 11) At 31 March SMIP Intangibles deferred tax Deferred tax asset – India Total recognised deferred tax liability Unrecognised deferred tax asset Accelerated capital allowances Short term timing differences R&D intangible Share options Losses Total unrecognised deferred tax asset 2023 £000 746 (294) 452 2023 £000 472 (20) 452 2023 £000 (2) (2) 285 (80) 2022 £000 812 (66) 746 2022 £000 758 (12) 746 2022 £000 (3) (2) 103 (27) (9,759) (9,558) (9,646) (9,575) The deferred tax asset has not been recognised due to the unpredictability and uncertainty of future profit streams. 27. Other non-current liabilities Other payables 2023 £000 42 The other non-current liabilities relate to CyanConnode Private Limited in relation to employment obligations. 28. Share capital Issued and fully paid, ordinary shares of 2.0 pence each As at 31 March 2021 Issue of new shares As at 31 March 2022 Issue of new shares As at 31 March 2023 No 186,742,898 49,566,137 236,309,035 35,578,329 271,887,364 2022 £000 38 £000 3,735 991 4,726 712 5,438 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 83 28. Share capital (continued) In the year, shares were issued at prevailing market prices as settlement for professional services provided. £68,750 was raised this way during the year (2022: £4,710). In October 2022 the Company successfully raised funding of £500,000 before expenses through a subscription for 4,081,632 ordinary shares. In January 2023 the Company successfully raised funding of £5.25m before expenses through a placing of 30,882,354 ordinary shares. During the year, shares were issued to directors and employees as part payment for their remuneration. £24,175 was raised this way during the year (2022: £4,710). During the year 451,722 shares were issued as a result of the exercise of share options (2022: 201,250 shares). The Company has one class of ordinary share which carries no right to fixed income. 29. Share premium account Amount subscribed for share capital in excess of nominal value. 30. Own shares held Balance at 31 March 2022 (11,305,524 ordinary share of 2.0 pence per share) Movement in year Balance at 31 March 2023 (11,305,524 ordinary share of 2.0 pence per share) Own shares held are those issued to the Employee Benefit Trust. Group £000 (3,611) – (3,611) Company £000 – – – 31. Share option reserve Represents the accumulated balance of share-based payment charges recognised in respect of share options granted by the Company less transfers to accumulated deficit in respect of options exercised or cancelled/lapsed. 32. Translation reserve The translation reserve records the cumulative exchange differences arising from the translation of the financial statements of overseas subsidiaries. 33. Retained losses Cumulative net gains and losses recognised in the Consolidated Statement of Comprehensive Income. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS84 NOTES TO THE FINANCIAL STATEMENTS 34. Reconciliation of operating loss to net cashflow from operating activities Group Operating loss for the year Adjustments for: Depreciation of property, plant and equipment Amortisation of Intangible assets Depreciation on right of use assets Impairment of intangible assets Interest received on contract assets Foreign exchange Shares issued in lieu of bonus Share-option payment expense Operating cash flows before movements in working capital (Increase)/decrease in inventories Increase in receivables Increase/(decrease) in payables Cash outflow from operating activities Net income taxes received Net cash outflow from operating activities 2023 £000 (3,347) 32 426 31 968 32 8 24 224 (1,602) (634) (1,827) 1,475 (2,588) 371 (2,217) 2022 £000 (1,017) 31 432 153 – – 20 5 363 (13) 52 (2,054) (1,568) (3,583) 449 (3,134) 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. 35. Share based payments Equity-settled share option scheme The Company has a share option scheme for all employees of the Group. EMI and unapproved options are exercisable at a price equal to, or at a premium to, the average quoted market price of all the Company’s shares on the date of grant. The vesting period is typically 3-4 years and the options have a life of 10 years. If the options remain unexercised after the period of 10 years from the date of grant, they will expire. Options are forfeited if the employee leaves the Group before they vest. The Company also has a Joint Share Ownership Plan (“JSOP”) under which shares are granted to certain directors and senior employees of the Company. Shares issued under the JSOP are issued at a premium to the quoted market price at the time of issue. They typically have vesting periods up to 3 years and a life of 5 years. Further information on shares issued under the JSOP can be found in the Directors’ Remuneration Report on page 36. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 85 35. Share based payments (continued) Details of the share options outstanding during the year were as follows: Outstanding at beginning of year Granted during year Exercised during the year Modifications during the year Forfeited during year Outstanding at the end of the year Exercisable at the end of the year 2023 2022 Number of share options 34,268,640 4,011,315 (451,722) – (13,251,155) 24,577,078 9,097,418 Weighted average Exercise price (in £) 0.19 0.11 0.10 – 0.23 0.15 0.18 Number of share options 24,400,486 21,622,674 (201,250) (7,908,277) (3,644,993) 34,268,640 12,909,681 Weighted average Exercise price (in £) 0.22 0.17 0.13 0.40 0.25 0.19 0.24 The options outstanding at 31 March 2023 had a weighted average remaining contractual life of 97 months (2022: 65 months). The options outstanding at year end had exercise prices ranging from £0.10 to £0.84. In the year to 31 March 2023, options were granted on 9 May and 30 September. The aggregate of the estimated fair value of those options is £239,300. In addition, in April 2022, replacement options were granted for options granted in February 2021 with no incremental fair value as all terms of the option remained the same. In the year to 31 March 2022, options were granted on 8 April 2021, 22 June, 25 June and 30 June 2021, 5 January and 31 January 2022. The aggregate of the estimated fair value of those options is £1,266,099. In addition, on 10 November 2021 and 17 December 2021, 7,908,277 options and JSOP shares granted in previous years were cancelled and replaced with new options and JSOP shares with an incremental fair value of £408,062. This incremental fair value was accounted for as a modification and is being spread over the vesting period of the new options. A share option charge of £224,218 (2022: £362,903) was recognised during the year. The inputs into the Black-Scholes model for options granted during the year (EMI, unapproved and JSOP shares) are as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividend yield 2023 22.27p 16.63p 78% 4 years 3.50% 0% 2022 18.65p 17.67p 77% 2021 10.00p 10.00p 80% 4 years 6 years 1.30% 0% 0.10% 0% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 48 months. The expected life used in the model is the time from the grant date to the expected exercise date. The life of the options is dependent on the expiration date, volatility of the underlying shares and vesting features. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS86 NOTES TO THE FINANCIAL STATEMENTS 35. 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. There was no movement in the share warrants outstanding during the year: 2023 2022 Weighted Weighted Number average Exercise Number average Exercise of warrants price (in £) of warrants price (in £) Outstanding at beginning of year Outstanding at the end of the year Exercisable at the end of the year 341,605 341,605 341,605 0.54 0.54 0.54 341,605 341,605 341,605 The inputs into the Black-Scholes model for the warrants are as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividend yield 0.54 0.54 0.54 32.78p 54.0p 65% 10 years 0.5% 0% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous 48 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. 36. 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: As at end of year Financial assets Classified as amortised cost Trade receivables Intercompany receivables Other debtors Contract assets Cash and cash equivalents Total financial assets Financial liabilities Classified as amortised cost Trade payables Other payables Accruals Short-term borrowings Lease liabilities Total financial liabilities Group 2023 £000 6,950 – 45 1,785 4,070 12,850 2,657 87 2022 £000 6,061 – 37 600 2,355 9,053 955 73 Company 2023 £000 – 419 1,912 – 2,991 5,322 78 – 716 922 90 1,226 123 4,809 1,867 153 3,970 800 – 968 2022 £000 – 438 1,731 – 1,618 3,787 74 – 109 900 – 1,083 CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 87 36. Financial instruments and risk management (continued) The Directors consider that the financial assets and liabilities have fair values not materially different to carrying values. The following are the remaining contractual maturities of financial liabilities at the year end. The amounts are gross and undiscounted and include contractual interest payments and exclude the impact of netting agreements. As at 31 March 2023 Non-derivative financial liabilities Trade payables Other payables Accruals Short-term borrowing Lease liabilities Total As at 31 March 2022 Non-derivative financial liabilities Trade payables Other payables Accruals Short-term borrowing Lease liabilities Total Carrying Amount £000 2,657 87 716 1,226 123 4,809 Carrying Amount £000 955 73 922 1,867 153 3,970 Contractual Cash Flows Total £000 (2,657) (87) (716) (1,226) (141) (4,827) 1 – 12 months 1 – 2 years 2 – 5 years £000 £000 £000 (2,657) (87) (716) (1,226) (37) (4,723) – – – – (40) (40) – – – – (64) (64) Contractual Cash Flows Total £000 (955) (73) (922) (1,867) (182) (3,999) 1 – 12 months 1 – 2 years 2 – 5 years £000 £000 £000 (955) (73) (922) (1,867) (38) (3,855) – – – – (38) (38) – – – – (106) (106) 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 Group’s credit risk is primarily attributable to its trade receivables and cash, the credit risk on other classes of financial asset is insignificant. The Group'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 Group's credit risk was therefore primarily attributable to its trade receivables. Note 22 provides further details regarding the recovery of trade receivables. The Company has made a provision against the amount of the debt owed to it by its subsidiary company CyanConnode Limited totalling £64,838,214 (2022: £61,030,804). In addition, the Company has made a total provision of £1,996,407 (2022: £2,151,858) against the debt owed to it by CyanConnode Employees Benefit Trust which is held with Zedra and relates to the loan for the EBT shares, to bring the loan in line with market value of the shares held in the Trust. These amounts are not overdue. The EBT loan is a five-year agreement from November 2021. Since the Group holds no collateral, the maximum exposure to credit risk is the carrying value of trade receivables. . CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS88 NOTES TO THE FINANCIAL STATEMENTS 36. Financial instruments and risk management (continued) Capital risk Details relating to capital risk and capital risk management are set out in the capital structure section in the Directors’ Report on pages 41-42 of this report. 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. 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 March 2023 exchange rate. Fixed assets Current assets Current liabilities Net assets INR £000 142 8,018 (2,619) 5,541 SEK £000 263 89 (48) 304 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 Indian Rupee Swedish Krona March 2023 £000 789 49 March 2022 £000 880 37 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. CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023NOTES TO THE FINANCIAL STATEMENTS 36. Financial instruments and risk management (continued) March Year ended Indian Rupee Swedish Krona 2023 £000 (344) (37) 89 March 2022 £000 (225) (40) 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. 37. Related Party Transactions Board members Please refer to page 42 of the Directors’ Report for a full list of directors who served in the year. During the year, 827,076 (2022: 1,446,992) newly issued shares were purchased by the directors of the Company for £133,500 (2022: £186,000). During the year, the Company paid fees of £379,605 (2022: £262,000) in respect of services provided by directors. The balance outstanding at the year end was £Nil (2022: £54,000). Please see page 38 of the Directors' Remuneration Report for further information. To assist with working capital, a loan from one director for £300,000 is still in place, after being extended during FY22. Interest is charged at 13.5% per annum. During the year interest of £40,500 (2022: £54,000) was incurred and no balance (2022: £Nil) was outstanding at the year end. Transactions between parent company and subsidiaries Year end balances outstanding and transactions in the year between the parent company and its subsidiaries are disclosed below. Loans to related parties Balance as at 31 March 2022 Cash advances/(repayments) Impairment provision Loss on foreign exchange revaluation Balance as at 31 March 2023 Connode CyanConnode CyanConnode Holding AB Connode AB £000 £000 Limited £000 Pvt Limited £000 397 – – (19) 378 37 – – – 37 – 3,807 (3,807) – – 4 – – – 4 CyanConnode Holdings plc makes a management charge for services rendered to CyanConnode Limited. In the year to 31 March 2023 these amounted to £297,000 (2022: £49,000). CyanConnode Ltd has a loan of £64,838,214 (2022: £61,030,804) with CyanConnode Holdings plc with a current impairment provision of £64,838,214 (2022: £61,030,804). CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023FINANCIAL STATEMENTS90 Notes CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023CYANCONNODE AT A GLANCE CYANCONNODE ANNUAL REPORT & ACCOUNTS 2023 91 A world leader in Narrowband Radio Frequency (RF) Smart Mesh Networks Professional Advisers CyanConnode is a world leader in the design and development of narrowband RF smart mesh networks that enable machine to machine (M2M) communications. With a wealth of expertise and experience in smart technology, the Group provides customers with low-power, end-to-end networking solutions with high-performance applications that save energy, as well as providing enhanced service delivery and improved business efficiency. 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 M2M platform that uses narrowband radio mesh networks and cellular 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 suitable for applications requiring 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. Nominated Adviser and Broker Strand Hanson Ltd 26 Mount Row London W1K 3SQ Auditor RSM UK Audit LLP City House 126-130 Hills Road Cambridge CB2 1RE Solicitors to the Company Taylor Wessing LLP 5 New Street Square London EC4A 3TW 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 9-11 St Andrews Street Cambridge CB2 3AX Strategic Report 01 Highlights 02 Chairman’s Statement 06 Strategic Report Our Governance 22 Board of Directors 24 Financial Review 27 Corporate Governance Statement 34 Directors’ Remuneration Report 39 Audit Committee Report 41 Directors’ Report 45 Directors’ Responsibilities Statement Our Financials 46 Independent Auditor's Report 52 Consolidated Income Statement 53 Consolidated Statement of Comprehensive Income 54 Consolidated Statement of Financial Position 55 Consolidated Statement of Changes in Equity 56 Consolidated Cash Flow Statement 57 Company Balance Sheet 58 Company Statement of Changes in Equity 59 Company Cash Flow Statement 60 Notes to the Financial Statements 91 Professional Advisers C y a n C o n n o d e A N N U A L R E P O R T A N D A C C O U N T S 2 0 2 3 ANNUAL REPORT AND ACCOUNTS 2023 CyanConnode Merlin Place, Milton Road Cambridge CB4 0DP CYANCONNODE.COM 

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