Final Results

RNS Number : 4111H

Cyan Holdings Plc

19 May 2014

 



Cyan Holdings plc

("Cyan or "the Company")

Results for the year ended 31 December 2013

Cyan Holdings plc (AIM: CYAN.L), the integrated system design company delivering wireless solutions for lighting control, utility metering and industrial telemetry, announces its audited results for the year ended 31 December 2013.

Operational highlights

·      Strategic partnership agreement with Nobre de la Torre to develop and supply smart metering solutions across Brazil

·      Strategic partnership agreement with Ilumatic to develop and supply smart lighting solutions across Brazil

·      Development and launch of retrofit smart metering solution to enable utility customers to easily upgrade to smart metering

·      Strengthened management and operational team, including the appointment of Simon Smith as Chief Financial Officer

·      Appointment of three Special Advisers in Brazil and India

·      Established operations in India - local team of four (including Country Manager) recruited to progress sales opportunities

·      Qualification of additional manufacturing facilities with two India based Tier 1 Contract Equipment Manufacturers

·      Equity funds raised during the year (from two placings and warrant exercises) totalling £2.6 million before expenses to strengthen balance sheet and fund continued expansion of operations

Financial highlights

·      Decrease in revenue during 2013 to £137,996 (2012: £315,194)

·      Increase in research and development spending to £1,479,355 (2012: £1,141,005)

·      Increase in operating loss for the year to £3,266,757 (2012: £3,103,622)

·      Cash balance at end of year £1,636,149 (2012: £1,618,574)

Post period end highlights

·      Deployment of a retrofit smart metering solution pilot at a utility customer in Brazil

·      Appointment of Harry Berry to the Cyan Board as Non-Executive Director, with Stephen Newton stepping down for health reasons 

John Cronin, Chairman of Cyan, commented:

"I am pleased to report that Cyan has successfully built and consolidated its position in multiple emerging markets through the investments we have made on shareholders' behalf. The smart metering market in India is starting to see positive momentum and we have established good partnerships in Brazil. Our local partners are reporting strong prospects to close opportunities during 2014, some of which may be near term. The Cyan Board and management team believe that 2014 will be the year that Cyan becomes firmly established as a leader in our chosen markets and I look forward to communicating further positive results to shareholders in due course."

Enquiries:

Cyan Holdings plc John Cronin, Executive Chairman	www.cyantechnology.com Tel: [phone]
Allenby Capital Limited AIM Nominated Adviser and Joint Broker Jeremy Porter Chris Crawford Hume Capital Securities plc Joint Broker Jon Belliss	Tel: [phone] Tel: [phone]
Walbrook PR (Financial PR) Paul Cornelius	Tel: [phone]

Chairman's Statement

Review of the year

This is my second report to shareholders as Chairman and I am pleased to report that we have been able to both build and consolidate our position in our chosen markets. During the second half of 2013 (and ongoing into 2014), we have built out new channel and business partners instead of the narrower focus we previously had on a single large order. This preparation will help us to grow on solid foundations to a much wider customer base in the countries we have chosen to pursue. This diversification strategy is also helping to identify new targets as well as opening up new opportunities in additional emerging markets that in turn we anticipate should deliver orders going forward.

During the year we announced the strategic partnership with Ilumatic to pursue smart lighting opportunities in Brazil and two months later the strategic partnership with Nobre de la Torre to pursue smart metering opportunities in Brazil.

In December we launched the Cyan retrofit solution which allows utility customers to quickly and cost effectively upgrade existing deployed meters to become full smart meters. There has been a lot of interest in this solution in the Brazilian market and we are also seeing good interest in India.

We have also taken significant steps during the year to build out the Cyan team. We hired four staff in India to pursue sales opportunities as well as three Special Advisers in both India and Brazil. Our strategy going forward will be to continue to build out the Cyan teams in-country, either through our own hires or through partnerships, as this model has been clearly requested by our local customer prospects and partners.

During 2013, we also qualified two Tier 1 Contract Equipment Manufacturers ("CEMs") in India and they are now starting to supply Cyan hardware to our customers in India. This further establishes our position as leader in the Indian market, gives customers increased confidence and results in a lower overall cost for the customer.

The Board

During the year, we have taken active steps to strengthen the Cyan Board as follows:

·      the appointment of sales operations and China expert Stephen Newton as a Non-Executive Director; and

·      the appointment of experienced finance executive Simon Smith as Chief Financial Officer.

We are pleased to announce that since the year end, Harry Berry has joined the Board as Non-Executive Director. Harry brings substantial experience in growing companies successfully as well as direct experience of doing business in India. At the same time, Stephen Newton stepped down from the Board for health reasons. I would like to thank Steve for his valued assistance and coaching over the short period that he was on the Cyan Board.

I am pleased with the fact that we have now been able to attract high quality individuals to the Cyan Board and we are now well positioned to deliver value for shareholders. All three of the Cyan Board committees are now solely occupied by independent Non-Executive Directors. We plan to continue to strengthen the Board during 2014 and further announcements will be made in due course.

Our people

On behalf of the Board, I would like to thank all the people working for Cyan for their effective contribution in 2013. We work in an increasingly changing and challenging environment and I continue to be positively surprised and impressed by the way our people rise to the new challenges that are generated by the markets in which we work.

Outlook

2013 has been one where we have made investments to consolidate our position by building out our partnership network and sales pipeline across multiple markets, increasing our competitive advantage and positioning ourselves to become leaders in our chosen markets.

In March 2014, we announced that Cyan's retrofit solution (which was only launched in December 2013) had been deployed at a pilot site by a utility customer in Brazil. Our local partner has informed us that he has significant interest in this solution from multiple utility customers in Brazil.

Given the positive progress we are currently making, I remain confident that Cyan's solutions are well matched to the demands of the emerging markets that we are pursuing. The work currently being done in India as well as the deployment of the smart metering pilot in Brazil are positive signs from both countries that their smart metering projects are finally getting underway. We believe that our technology is better suited to our chosen markets than that of our competitors and therefore expect to win our share of the contracts that will be awarded. Our partners in India, Brazil and China have indicated that they have good prospects to close sales during 2014 and we remain determined to continue to deliver further progress for shareholders through the remainder of 2014.

The Cyan Board and management team believe that 2014 will be the year that Cyan becomes firmly established as a leader in our chosen markets and I look forward to communicating further positive results to shareholders in due course.

John Cronin

Executive Chairman

16 May 2014

 

  

Strategy and Business Model

Electricity Metering

Cyan provides a communication platform that enables utilities to transform their power grid infrastructure into a smart grid that intelligently controls millions of electricity meters, providing timely information and control to both utilities and consumers. CyLec® powers the next generation of advanced radio frequency ("RF") smart meters which enable power utilities to reduce losses and increase revenues through reliable and secure collection of consumer energy consumption data.

Cyan's business model is to provide hardware and software that enable the smart grid. Our revenue derives from the following principal elements:

·      A small hardware communication module that is integrated into the electricity meter of our meter manufacturer partners (such as Larsen & Toubro). With the addition of this module, the meter is then enabled to communicate back to the utility's data centre.

·      A further piece of hardware called a Data Concentrator Unit ("DCU"). This allows meters in the consumers' homes to communicate with each other over a self-forming, self-healing mesh network.

·      Software "CyLec® Server" that sits in the utility's data centre and communicates with the DCU (and therefore all the individual meters) over an internet connection (typically a mobile network).

Cyan generally sells and delivers solutions through local partners in each country.  Our revenues are derived from sales to local meter manufacturers or system integrators ("Sis"). Currently most of our revenues come from the former, but over time we expect SIs to take a lead role in providing a complete solution to utility customers and will bring in software/hardware from Cyan and meter manufacturers. Our SI partners have indicated that they expect the Indian market to evolve to one where they take over the relationship with the consumers on behalf of the utilities and (in exchange for a per consumer monthly fee) will provide the meters, read them, collect payments and manage the customer relationships. This will allow the utilities to focus on the power generation and distribution element of their business. We believe that our approach to the market is ideally suited to the dynamics of emerging countries such as India and Brazil where local partnerships, local manufacturing and price competitive hardware are critical.

Cyan licenses its CyLec® software on the basis of a Cyan hosted "Software as a Service" ("SaaS") solution, to the SI partner to manage and host themselves or direct to the utility end customer. In each case, we receive either an upfront or a recurring revenue stream that is based on both the size of the customer's installation as well as the features (such as tamper alerts and remote disconnect) that have been enabled for the utility customer.

Lighting

The business model for lighting is very similar to that of metering above. In the case of lighting the Cyan module is contained in the lighting ballast. The rest of the solution and the business model remains the same as metering above and this commonality enables us to benefit from economies of scale in development and manufacturing.

Competitive Position

The Cyan solution has had over 100+ man years of development to date by a very capable engineering team in Cambridge, UK and this has created a substantial barrier to entry. The Cyan solutions solve large, complex, cross domain problems utilizing skills such as RF hardware design, regulatory approval experience, mesh network firmware design, communications infrastructure development, meter protocol and interoperability techniques, security, enterprise software, scalability and robustness.

The Cyan solution has been designed and built for emerging markets, whilst our competition has generally chosen western markets. Our solution is inherently low power and this has helped us to achieve a competitive price point for emerging market mass adoption. The Cyan mesh network is self-healing and self-configuring, which results in significant time (ie. cost) savings for customers. The Cyan Data Concentrator Unit (DCU) has also been designed to be highly functional, but in a small package which also results in a competitive price point. Cyan offers sub-GHz wireless mesh solutions which are inherently suited to typical dense housing conditions in emerging markets. We also use license free ISM (Industrial, Scientific and Medical) radio bands, which means that our customers do not need to invest in or pay for costly tower structures to carry the radio signals.

Business Review

Metering

Cyan has made good progress in smart metering in both India and Brazil during 2013 and in the subsequent period up until the date of preparation of this report.

The Government of India has now produced and released a Smart Grid Vision and Roadmap for India, which contains plans for 14 smart grid pilot projects. Several of these pilot projects are now underway and Cyan (through partners) is bidding on several of them. Near term opportunities have also emerged with private utilities in India and Cyan is progressing these.

The Indian market is undoubtedly a huge opportunity for the Company, with an estimated 120-200 million meters that need to be installed/replaced over the next 10 years as well as the Indian utilities' pressing need to reduce losses due to theft of electricity.

One of the obstacles the utilities face is collecting data from millions of meters deployed in rapidly growing and typically unplanned urban conditions. It is often problematic trying to locate and gain physical access to the meters and the process is at best slow or error prone. Cyan's Automated Meter Reading ("AMR") and Advanced Metering Infrastructure ("AMI") solutions address these key issues by providing high quality and timely information from each meter. Cyan's 865MHz based solution has been specifically designed to cope with demanding specifications such as a communication range of more than 60 meters and to be able to be read through concrete walls in order to cope with the dense urban conditions in India. In comparison, a 2.4GHz Zigbee solution has been observed to struggle to achieve a reliable communication range greater than 30 meters in the same challenging conditions.

India's transmission and distribution losses are among the highest in the world. When non-technical losses such as energy theft are included in the total, these losses increase to as high as 65% in some Indian States against an overall average of 30%-40%. The financial loss has been estimated at 1.7% of the national GDP. To address the issue of Aggregate Transmission and Commercial ("AT&C") losses, the Government of India implemented an Accelerated Power Development Reforms Programme ("APDRP"). Its key objectives were to reduce AT&C losses, improve customer satisfaction, introduce greater transparency and improve the financial viability of the State Distribution Companies ("SDCs"). It was against this backdrop that the Restructured APDRP ("R-APDRP") was conceived in September 2008 for the 11th Five Year Plan (2007-12). Monies are provided by the Indian Government as loans for the provision of advanced metering solutions and once in place, the loans are converted into grants. Frost & Sullivan have estimated that US$32Bn of power generated in India is not accounted for through billing to customers.

Cyan provides a platform product (CyLec®) to enable deployment of AMI. AMI is an architecture for automated end-to-end two way communications between a utility company and electricity meters (smart meters). The CyLec® solution provides utilities with real time data about power consumption and allows customers to make informed choices about energy usage based on price at time of use. The Cylec® solution includes hardware and software to enable this communication and allows easy interfacing to existing meter data management systems ("MDMS"), billing systems and other Smart Grid infrastructure monitoring tools within the utility such as outage detection and load management. Consumer meter tamper and electricity theft detection features are included and this helps utilities ensure they collect revenue for electricity that is used by consumers. The CyLec® solution has been proven to be easy to integrate to existing meters from various metering companies to upgrade them to be AMI compatible smart meters.

In South America, the situation is similar to India. Cyan's initial target market (Brazil) has a dynamic population of 200 million, and Brazil's Energy Research Corporation (Empresa de Pesquisa Energética) has estimated that generating capacity will need to grow by 56% in the next decade to keep up with demand and not stifle economic growth. The distribution loss rate of 15.5% in South America is the highest in the world due to pervasive electricity theft (power outages are a continuing problem). In some parts of Brazil, power losses reach as high as 20%. Spend in South America on smart metering will reach $19 billion with 80.7 million meters by 2023. One Brazilian electricity distribution company has estimated that 11GW of power (equivalent to $6Bn) are lost in the country due to AT&C losses. Cyan's local partner in Brazil has now deployed a smart meter pilot project for a local utility customer. Our partner has several other opportunities in their pipeline and has told us that they are confident of closing sales before the end of 2014.

The Cyan retrofit solution which allows utility customers to quickly and cost effectively upgrade existing deployed meters to become full smart meters, is now available to customers in both Brazil and India. There has been a lot of interest in this solution and we hope to receive the first orders from both Brazil and India during the remainder of 2014.

Lighting

Cyan has signed a strategic partnership with Ilumatic in Brazil to pursue the local lighting market and this included an initial order.

Cyan has also continued to receive small lighting orders in China during the year under review.

Operational Review

Commercial orders remained well below the level required to sustain the business.  In 2013, the company raised approximately £2.1 million before expenses, by way of share placings. In addition to the share placings, the Company received a total of £0.5 million from the exercise of warrants during the year. This income provided the Company incremental financial resources for general working capital, customer and partner development activities in India and further development to integrate Cyan's AMI solution into high level enterprise software.

Revenue decreased from £315,194 in 2012 to £137,996 in 2013. Operating loss for the year ended 31 December 2013 was £3,266,757 (2012: £3,103,622) and net loss increased to £2,992,195 (2012: £2,876,772). This was predominantly due to a provision for possible stock obsolescence of £473,448. Cash at year end was £1,636,149 (2012: £1,618,574).

Going Concern

To assess the ability of Cyan 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 December 2015 which, together, represent the directors' best estimate of the future development of the Group. The forecast contains certain assumptions, the most significant of which are the level and timing of sales and the gross margin on those sales, together with the need to secure additional finance in order to fund working capital within the next six months. 

At the time of the preparation of these financial statements, the sales forecast includes a number of sales opportunities in emerging markets, two of which the directors believe to be at an advanced stage. A sensitivity analysis has been performed on the sales forecast in order to evaluate the additional cash requirement in the event that some of the opportunities do not close or are further delayed.

The directors have recognised that the Group is trading principally in three emerging country markets, namely India, Brazil and China. These markets have an inherent level of uncertainty associated with them and this may result in the predicted level of sales not being achieved and/or the timing of orders being delayed, as has been the case for the Group in the past. The directors have taken reasonable steps to satisfy themselves about the robustness of sales forecasts but acknowledge that the timing of customer orders in the Group's chosen markets is fundamentally uncertain. This may impact both the Group's ability to generate positive cashflow and to raise new finance.  Consequently there is a significant risk that the level of sales achieved is materially lower than the forecast or at materially lower margins. This constitutes a material uncertainty.

Given the commercial prospects at the time of the preparation of this report, together with the prior track record of the Group in raising new equity financing, the directors consider that the Group has a good opportunity to close some of the sales opportunities in the pipeline and secure the additional funding that will be required. However there remains a significant risk that the required level of new funding will not be received in the necessary timescales or at all. This constitutes a material uncertainty.

There is a material uncertainty related to the assumptions described above which may cast significant doubt on the company's ability to continue as a going concern and, therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business.  The financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.  In the event that the company ceased to be a going concern, the adjustments would include writing down the carrying value of assets, including stocks, to their recoverable amount and providing for any further liabilities that might arise.

Notwithstanding the material uncertainties described above, the directors have a reasonable expectation that the Company can continue to meet their liabilities as they fall due, for a period of at least 12 months from the date of approval of this report.

Dividends

The directors do not recommend the payment of a dividend (2012: £nil).  The Group has no plans to adopt a dividend policy in the immediate future and all funds generated by the Group will be invested in the further development of the business, as is normal for a company operating in this industry sector and at this stage of its development.

Consolidated income statement For the year ended 31 December 2013
	Note		2013 £		2012 £
Continuing operations
Revenue			137,996		315,194
Cost of sales			(87,366)		(203,654)
Gross profit			50,630		111,540
Operating costs			(2,843,939)		(3,215,162)
Provision for stock obsolescence			(473,448)		-
Operating loss			(3,266,757)		(3,103,622)
Investment revenue			4,437		4,091
Finance costs			(10)		(3)
Loss before tax			(3,262,330)		(3,099,534)
Tax			270,135		222,762
Loss for the year			(2,992,195)		(2,876,772)
Loss per share (pence)
Basic	2		(0.1)		(0.1)
Diluted	2		(0.1)		(0.1)

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013		2013		2012
		£		£
Loss for the year		(2,992,195)		(2,876,772)
Exchange differences on translation of foreign operations		65,075		113,540
Total comprehensive income for the period		(2,927,120)		(2,763,232)

 

Consolidated balance sheet

At 31 December 2013

	Note		2013 £		2012 £
Non-current assets Intangible assets			-		-
Property, plant and equipment			3,875		8,990
			3,875		8,990
Current assets
Inventories			583,200		1,024,241
Trade and other receivables			345,794		333,021
Cash and cash equivalents			1,636,149		1,618,574
			2,565,143		2,975,836
Total assets			2,569,018		2,984,826
Current liabilities
Trade and other payables			(298,441)		(287,772)
Total liabilities			(298,441)		(287,772)
Net current assets			2,266,702		2,688,064
Net assets			2,270,577		2,697,054
Equity
Share capital		3	341,638		232,681
Share premium account			30,570,401		27,779,215
Own shares held			(808,856)		(808,856)
Share option reserve			376,690		776,190
Translation reserve			(149,742)		(214,817)
Retained losses			(28,059,554)		(25,067,359)
Total equity being equity attributable to owners of the Company			2,270,577		2,697,054

Consolidated Statement of Changes in Equity

At 31 December 2013

				Share Capital		Share Premium		Own shares held		Share Option Reserve		Translation Reserve	Retained Losses	Total Equity
				£		£		£		£		£	£	£
Balance at 31 December 2011				2,385,401		21,654,936		(690,191)		749,865		(328,358)	(22,190,587)	1,581,066
Loss for the year				-		-		-		-		-	(2,876,772)	(2,876,772)
Other comprehensive income for the year				-		-		-		-		113,541	-	113,541
Total comprehensive income for the year												113,541	(2,876,772)	(2,763,231)
Issue of share capital				114,781		3,856,778		(118,665)		-		-	-	3,852,894
Capital Restructure				(2,267,501)		2,267,501		-		-		-	-	-
Credit to equity for share options				-		-		-		26,325		-	-	26,325
Balance at 31 December 2012				232,681		27,779,215		(808,856)		776,190		(214,817)	(25,067,359)	2,697,054
Loss for the year				-		-		-		-		-	(2,992,195)	(2,992,195)
Other comprehensive income for the year				-		-		-		-		65,075	-	65,075
Total comprehensive income for the year				-		-		-		-		65,075	(2,992,195)	(2,927,120)
Issue of share capital				108,957		2,791,186		-		-		-	-	2,900,143
Debit to equity for share options				-		-		-		(399,500)		-	-	(399,500)
Balance at 31 December 2013				341,638		30,570,401		(808,856)		376,690		(149,742)	(28,059,554)	2,270,577

Consolidated cash flow statement

For the year ended 31 December 2013

	Notes	2013		2012
		£		£
Net cash outflow from operating activities	4	(3,001,981)		(2,765,349)
Investing activities
Interest received		4,437		4,091
Purchases of property, plant and equipment		(5,198)		(4,919)
Net cash used in investing activities		(761)		(828)
Financing activities
Interest paid		(10)		(3)
Proceeds on issue of shares		3,037,961		4,185,627
Share issue costs		(137,818)		(296,094)
Net cash from financing activities		2,900,133		3,889,530
Net (decrease) / increase in cash and cash equivalents		(102,609)		1,123,353
Cash and cash equivalents at beginning of year		1,618,574		364,590
Effect of foreign exchange rate changes		120,184		130,631
Cash and cash equivalents at end of year		1,636,149		1,618,574

 

Notes to the Financial Information

For the year ended 31 December 2013

1.   General information

Cyan Holdings plc is a Company incorporated in the United Kingdom under the Companies Act 2006.  The address of the registered office is Cyan Holdings plc, Buckingway Business Park, Swavesey CB24 4UQ. 

The final results announcement is based on the financial statements which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered following the company's annual general meeting. The auditors have reported on those accounts: their reports were unqualified and did not contain statements under s498 (2) or (3) Companies Act 2006 or equivalent preceding legislation but did contain an emphasis of matter concerning the uncertainties around the Group's ability to continue as a going concern.  While the financial information included in this preliminary announcement has been prepared in accordance with the measurement and recognition criteria of IFRS, this announcement itself does not contain sufficient information to comply with IFRS. The company expects to publish full financial statements that comply with IFRS, as adopted by the EU, a copy of which will be posted to the shareholders.

The financial statements were approved by the Board of Directors on 16 May 2014 and authorised for issue.  The Group's specific IFRS accounting policies can be found in the 2012 annual report.

2.   Loss per share

The calculation of the basic and diluted loss per share is based on the following data:

Loss

			2013		2012
			£		£
Loss for the purposes of basic loss per share being net loss attributable to equity holders of the parent		2,992,195			2,872,772

Number of shares

			2013			2012
			No.			No.
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share				2,797,766,136		2,297,507,867

3.   Share capital

		2013		2012
		£		£
Issued and fully paid:
3,416,381,300 ordinary shares of 0.01 pence each (2012: 2,326,805,503 ordinary shares of 0.01 pence each)		341,638		232,681

 

4.  Notes to the consolidated cash flow statement

			2013	2012
			£	£
	Operating loss for the year		(3,266,757))	(3,103,622)
Adjustments for:
	Depreciation of property, plant and equipment		9,334	24,993
	Share-based payment expense		(399,500)	(10,314)
Operating cash flows before movements in working capital			(3,656,923)  )	(3,088,943)
	Decrease / (increase) in inventories		441,041	(50,664)
	(Increase) / decrease in receivables		(12,773)	98,436
	Decrease in payables		(10,669)	(61,355)
Cash reduced by operations			(3,239,324)	(3,102,526)
	Income taxes received		237,343	337,177
Net cash outflow from operating activities			(3,001,981)	(2,765,349)

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.

5.    Annual Report and Accounts and Notice of Annual General Meeting

The Company's Annual Report and Accounts, Notice of AGM and Proxy form are available on the Company's website and will be posted to shareholders on Friday 23 May 2014. The AGM will be held on 17 June 2014 at 11.00 a.m. at the Stanley Library, Girton College, Cambridge CB3 0JG.

 

END

 

 

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