# CYANCONNODE HOLDINGS PLC ## ANNUAL REPORT AND ACCOUNTS MARCH 2024 Company Registration No. 04554942 MEDNESDAY *ADAYRPTS* A9 04/09/2024 #49 COMPANIES HOUSE --- # Contents 01 CyanConnode at a glance 03 Highlights 05 Chairman's Statement 09 Strategic Report ## Our Governance 29 Board of Directors 31 Financial Review 34 Corporate Governance Statement 41 Directors' Remuneration Report 45 Audit Committee Report 46 Directors' Report 49 Directors' Responsibilities Statement ## Our Financials 50 Independent Auditor's Report 57 Consolidated Income Statement 57 Consolidated Statement of Comprehensive Income 58 Consolidated Statement of Financial Position 60 Consolidated Statement of Changes in Equity 61 Consolidated Cash Flow Statement 62 Company Balance Sheet 63 Company Statement of Changes in Equity 64 Company Cash Flow Statement 65 Notes to Financial Statements 95 Professional Advisers Company Registration No. 04554942 --- # CyanConnode at a glance ## Delivering IoT Excellence! Imagine a world where all devices communicate under one seamless network - a world of unmatched connectivity and operational efficiency. This isn't just our dream; it's our mission. Join us as we transform the future of Internet of Things (IoT) communications. ## Vision To empower our customers with sustainable and universal communication solutions, enabling seamless integration and boosting overall efficiency. Our vision at CyanConnode goes beyond mere connection. It's about unity. It's about transforming the landscape of IoT communications to create a future where all devices speak a common language, under a universal Canopy. We are not just aiming to be leaders in the IoT communications field, but pioneers paving the way for seamless connectivity. ## Mission At CyanConnode, our mission outlines our method and approach towards our vision. We are committed to delivering comprehensive communication solutions that uphold sustainability, promote transformation, and streamline efficiency. Our mission encapsulates our dedication to create a unified, seamless network, ushering in a new era of IoT communications. We believe in empowering our customers with solutions that are not only cutting-edge but also aligned with our collective responsibility towards a sustainable future. ## Pillars ![img-0.jpeg](img-0.jpeg) --- At CyanConnode, our brand pillars are more than just strategic focus areas; they are the fundamental building blocks that define our approach to business. These pillars are interconnected, forming a cohesive mesh that symbolises our unified vision and customer-centric philosophy. These pillars represent our commitment to creating a unified, seamless network, where everything we do resonates with our customers’ needs and aspirations. Together, they reflect our identity and our mission, guiding us towards a new era of IoT communications, always with our customers and our planet at the heart. The interconnected mesh design emphasises that these pillars are not isolated but are deeply intertwined. Each pillar supports and enhances the others, creating a synergistic relationship that embodies our approach to business. This visual structure demonstrates how we weave Innovation, Sustainability, Employees, and Transformation around our central focus on the Customer, aligning all aspects to deliver a unified, seamless network and leading us towards a new era of IoT communications. ## Values Ownership Taking responsibility and pride in our work, driving everything we do Integrity Upholding ethical practices and honesty in all our actions Adaptability Embracing change and innovation to stay ahead Excellence Striving for the highest standards in everything we do Collaboration Working together to achieve shared goals ![img-1.jpeg](img-1.jpeg) Values at CyanConnode are not just words on a wall; they are the principles that guide our every decision and the foundation on which our culture thrives. Centred around Ownership, they shape our attitude towards our work, our colleagues, our customers, and the world. Ownership embodies our commitment, responsibility, and pride in what we do. It is the core, the heart that infuses life into our values. At CyanConnode, our values operate like a canopy - ensuring seamless, continuous communication and interconnectedness. At the very core of this mesh lies Ownership, symbolising our prime responsibility and direction. Radiating from it are Collaboration, Adaptability, Excellence, and Integrity - values that resonate as the foundational nodes of our ethos. Just as in a Radio Frequency mesh, where every node has a role to play, every intersection of our values represents a synergy. This meshed approach signifies not just our method of operation but our deep-seated commitment to excellence in IoT. --- # Highlights ## Financial highlights - Increase of 60% in revenue to £18.7m in FY24 from £11.7m in FY23, the highest annual revenue for the Group to date after four consecutive years of growth¹ as a result of increased order book and acceleration of deployments in India - Increase in gross profit to £5.6m in FY24 (FY23: £4.2m) as a result of high-volume RF node sales through the Indian entity, and sales of third-party hardware in the Middle East North Africa (MENA) region - Reduction in gross margin to 30% (FY23: 36%) as a result of sales of third-party hardware and large premiums paid during the year on purchases of end-of-life components for the Group's previous version of gateway. A new lower cost version of the gateway was released in Q4 of FY24. Gross margin in the first two years of projects in India is expected to be around 35-40% due to revenue on hardware in the first two years of a project. After year two of each project it is expected gross margins of greater than 90% will be achieved due to the transition to services revenue - Operating loss increased to £4.2m in FY24 (FY23: £3.3m) as a result of increased costs incurred throughout the Group offsetting the increased revenues, largely attributable to increased headcount required to scale up the business to deploy its growing backlog of orders and develop industry leading hardware and software required by projects being deployed - EBITDA loss increased to £3.8m in FY24 (FY23: £2.9m) - Increase in adjusted EBITDA² loss to £2.8m in FY24 (FY23: £1.6m loss) as a result of lower gross margin % and increased operational costs - Decrease in cash position to £0.8m in FY24 (FY23: £4.1m) - Increase in cash collected from customers to £16.9m in FY24 (FY23: £10.7m) broadly in line with increase in revenues ## Operational highlights - Orders for 2.7m modules won in India during the period (FY23: 2.3m modules) taking the cumulative order book to 6.3m during the financial year. - Order for 101,360 Cellular Network Interface Card (CNIC) modules won for a deployment in Thailand - Further new order for 52,300 NBIoT hubs won from the Middle East North Africa (MENA) region - £2.7m (before expenses) raised in November 2023 through an oversubscribed placing and subscription, together with the issue of warrants at an exercise price of 15.0 pence per ordinary share, which would provide a potential further £4.1m if fully exercised - 1,370,000 Omnimesh Radio Frequency (RF) Modules shipped against current contracts during the period (FY23: 391,000), along with 55,200 NB-IoT gateways and 5,340 Cellular gateways - Project Management: JVVNL TN72 & TANGEDCO projects now under Facility Management Services (FMS), ensuring streamlined operations and maintenance - Gateway 200 Dual SIM: Successfully released the 'Gateway 200 – Dual SIM' version, enhancing network reliability and connectivity --- ¹ 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. --- - Integrated Meter OEMs: Integrated with twelve meter Original Equipment Manufacturers (OEMs) - Memorandum of Understanding (MOU) signed with Alfanar to explore opportunities in Advanced Metering Infrastructure (AMI) projects - Investment into recruitment, to scale up the business, and research and development to develop further products in response to market demand - CSR Initiatives: Supported the education of over 1000 school children, with more than 750 being girls, under our CSR initiatives - CyanConnode India recognised as Dun and Bradstreet 'Start-Up 50 Trailblazer' - Exhibitions: Participated in and showcased our solutions at DistribuElec 2024, where we were awarded the best booth ## Post-Period Highlights - 265,000 Omnimesh RF Modules and associated products ordered from a subsidiary of IntelliSmart Infrastructure Private Limited, taking cumulative order book in India alone to 6.6m modules, spanning sixteen utilities, across eleven states in India - CyanConnode India's subsidiary, DigiSmart Networks Private Ltd successfully empanelled as an Advanced Metering Infrastructure Service Provider (AMISP) for both RF and cellular, making it eligible to bid for smart metering contracts under the Revamped Distribution Sector Scheme (RDSS) - Revenue of £3.5m in the first quarter of FY25, being 25% higher than the same period in FY24 - £5.0m cash received from customers in the first quarter of FY25, being 40% higher than the same period on FY24 - Cash at end of June 2024 of £1.1m - Win ratio in India in terms of tenders to date of 29%, and 16% in terms of volumes - Commencement of setup of a subsidiary in the United Arab Emirates (UAE) to promote business in the MENA region - Changes to organisation to strengthen leadership in India and streamline global operations by having all engineering and operations reporting into the MD CEO of India - Key milestones such as Site Acceptance Tests (SATs) and project go-lives achieved across several key projects --- # Chairman's Statement Dear Shareholders I'm delighted to report that the positive trajectory we have seen in previous years has continued, making the financial year ending in March 2024 the Group's most successful yet in terms of revenue, orders secured, and cash received from customers. Additionally, we have maintained strong progress in the Indian smart metering market, which has seen tenders for over 100 million meters awarded so far out of the total market opportunity of 250 million meters. We have continued to achieve significant success by securing orders in various global markets, especially in the Middle East and North Africa (MENA) region. As a result, we are in the process of establishing a subsidiary in the United Arab Emirates (UAE) to better serve and expand our presence in this key area. We were excited to announce that our subsidiary, DigiSmart Networks Private Limited (DigiSmart), has been empanelled as an Advanced Metering Infrastructure Service Provider (AMISP). This accreditation enables DigiSmart to directly participate in upcoming smart metering tenders. The positive momentum we experienced in FY24 continues into the current financial year and am pleased to share further details on the highlights of FY24 and our current operations within this Annual Report. ## Operational Review ### India Market #### Overview of FY 24 The financial year 2024 witnessed substantial progress in the Indian smart metering sector, propelled by government initiatives and strategic implementations nationwide. A pivotal driver of this transformation has been the Indian government's Revamped Distribution Sector Scheme (RDSS), launched in August 2022. This scheme, with an allocation of ₹3.03 lakh crore (approximately £29 billion) and a gross budgetary support of ₹97,631 crore (approximately £9.5 billion), aims to reduce Aggregate Technical and Commercial (AT&C) losses across India to 12-15% and eliminate the cost-supply tariff gap by 2025. #### Key Developments ##### Government Initiatives and Mandates The RDSS requires the installation of 250 million smart meters by 2025. As of the end of FY 24, 222.3 million smart meters had been approved, with contracts awarded for 116.3 million meters. This program is designed to significantly improve billing efficiency and reduce AT&C losses. Initiatives like "Make in India" and "Skill India" have significantly enhanced domestic manufacturing capabilities for smart meters and related infrastructure by promoting local production and skill development. ##### Deployment and Installation The Government of India established ambitious installation targets, yet progress has been slower than initially anticipated, with just 11 million smart meters installed by May 2024. However, the pace picked up markedly in FY 24 compared to previous years, driven by enhancements in the tendering process and concerted efforts to improve the financial stability of Distribution Companies (DISCOMs). Notable deployments occurred in states such as Assam, Bihar, and Maharashtra, where smart meters have significantly improved billing accuracy and reduced AT&C losses. ##### Public and Private Sector Collaboration Effective collaboration among DISCOMs, technology providers, and system integrators has been critical in overcoming deployment challenges. Efforts have involved addressing public resistance through community engagement and adapting to diverse infrastructural and environmental conditions across different states. --- 6 # Chairman's Statement (continued) ## Outlook for the Coming Years The outlook for the Indian smart metering market remains highly positive, with substantial growth expected in the next few years. Several factors contribute to this positive forecast: ## Continued Government Support The Government of India's continued backing and potential extension of the RDSS beyond 2025 is anticipated to maintain the momentum of smart meter installations (the current government secured its third term following the national election results announced on 4 June 2024). The focus remains on enhancing DISCOM financial performance and operational efficiency through smart metering and infrastructure enhancements. ## Market Opportunities The Government of India's mandate to install 250 million smart meters by 2025 presents a vast market opportunity. With approximately 106 million meters pending award, there is significant potential for technology providers and system integrators to expand their market presence and secure large-scale contracts. ## Technological Innovations Ongoing research and development will lead to more advanced, cost-effective smart metering solutions. Innovations in communication technologies, data analytics, and Internet of Things (IoT) integration will further enhance the capabilities of smart meters, offering better value propositions to utilities and consumers. ## Expansion into Rural Areas Extending smart metering infrastructure to rural and remote areas will be a significant driver of growth. Advanced technologies such as CyanConnode's long-range Radio Frequency (RF) communication will ensure reliable connectivity and service delivery in these challenging terrains. ## Sustainability and Environmental Benefits Smart meters are poised to play a pivotal role in achieving India's sustainability goals by enabling improved energy management, reducing AT&C losses, and promoting energy-efficient practices among consumers. This will contribute significantly to lowering greenhouse gas emissions and overall environmental impact. The Indian smart metering sector made significant strides in FY24, propelled by government directives and technological advancements. With a robust pipeline of projects and ongoing support from both public and private sectors, the future of smart metering in India looks promising. A strategic emphasis on expanding installations, enhancing technological capabilities, and fostering collaborations will ensure the successful realisation of the RDSS goals and associated initiatives, paving the way for a more efficient and sustainable energy sector in India. ## APAC and Middle East North Africa Markets The smart metering market in the Asia Pacific (APAC) and Middle East North Africa (MENA) regions across electricity and water is expanding, with emerging opportunities in gas utilities, as more utilities start to adopt smart metering initiatives. In August 2023, CyanConnode expanded its portfolio beyond electricity and water metering into gas metering by successfully implementing a pilot project in Azerbaijan, a new market for CyanConnode. This initiative involved supplying smart retrofit hubs and gateways based on long range (LoRa) technologies for existing gas meters, facilitating automated meter data collection. This underscores CyanConnode's prowess in providing multi-utility solutions. ## MENA In October 2023, CyanConnode secured a contract for supplying NB-IoT Gateways for the ADDC/AADC Smart Metering project (phase 2). Under this agreement, CyanConnode will provide 52,100 interoperable smart NB-IoT gateways capable of communicating with and managing various legacy edge devices for both electricity and water. These gateways will have the capacity to connect to over one million edge devices. --- # Chairman's Statement (continued) By March 2024, 49,900 gateways were delivered under this contract. To bolster our footprint in the MENA region, CyanConnode is currently establishing CyanConnode Communications LLC in Dubai, UAE. ## Thailand CyanConnode, in collaboration with partners JS Technical Service Co Ltd. (JST) and Forth Corporation Public Company Limited (Forth), continues to advance the Smart Metro Grid (SMG) project for the Metropolitan Electricity Authority (MEA), which is nearing Go-Live stage. In February 2024, CyanConnode secured a Letter of Award (LOA) to supply 101,360 CNIC (Cellular Modules) to expand the ongoing MEA SMG Project. This LOA will be fulfilled after the project's Go-Live phase. Additionally, CyanConnode also received supplementary orders from JST, one in May 2023, for the supply of 3,000 RF Modules and another in October 2023 for 4,600 Cellular Modules to fulfil additional requirements for the MEA Smart Metro Grid project. These orders were completed in FY24. ## Malaysia As part of its APAC expansion, CyanConnode is actively collaborating with multiple utilities in Malaysia. The Company is currently in the process of certification of its radio products by Standard and Industrial Research Institute of Malaysia (SIRIM) for MCMC certification. ## Fundraising In November 2023 the Company completed an oversubscribed placing and subscription, raising £2.7 million before expenses. The new shares were issued at a price of 10 pence per share, a 1% discount to the mid-market price at the time of announcement of the fundraising. The net proceeds from this fundraising are being used to strengthen the Company's balance sheet and to increase working capital. The fundraising has enabled the Company to capitalise on significant growth opportunities and efficiently execute its expanding order book and pipeline, leading to increased revenues during the period. Cash is closely monitored to ensure alignment with these growth opportunities. ## Post period end and outlook The momentum from the previous financial year has continued into FY25. In April 2024, we were pleased to announce a new order from Madhyanchal One Infrastructure Private Limited, a subsidiary of IntelliSmart Infrastructure Private Ltd. This order includes 265,331 Omnimesh Modules, bringing the total CyanConnode orders in India to 6.6 million. The order includes Advanced Metering Infrastructure (AMI), Standards-Based Hardware, Services, Omnimesh Head-End Software, a Perpetual License, and an Annual Maintenance Contract to support smart metering deployment for Madhyanchal Vidyut Vitaran Nigam Ltd (MVVNL) in Lucknow, India. In May and June 2024, CyanConnode announced that its subsidiary, DigiSmart Networks Private Ltd, had been successfully empanelled as an AMISP in India for both RF communications and cellular technology. These accreditations allow DigiSmart to participate in smart metering contracts under the RDSS. Additionally, in May 2024, changes were made to the organisation to strengthen its leadership team in India. The new structure brings together seasoned leaders with extensive experience in smart metering, IoT solutions, and technology innovation. This restructuring ensures a robust leadership team and more streamlines organisation capable of driving the company's strategic vision forward. Revenue growth has been robust in the new financial year, with first-quarter revenue of £5.5 million, marking an increase of 25% compared to the same period in FY24. The Group continues to closely monitor cash and any potential requirement for future funding depending on working capital restraints. In July 2024 we have been delighted to announce the achievement of key milestones such as SATs and project go-lives across several projects. The "Go Live" milestone is a critical achievement for any project as it signifies the --- # Chairman's Statement (continued) transition to the billing phase, allowing for revenue generation. The SAT qualification process involves rigorous quality and performance testing of the meters and the communication network, ensuring the highest standards of operation. I want to express my sincere gratitude to all our employees for their exceptional dedication and contributions over the past year. My thanks also go to our valued partners and other stakeholders, with whom we look forward to continuing our collaborations on these innovative projects. Additionally, I extend appreciation to all shareholders for their steadfast support. We are confident that our current momentum will continue throughout this financial year, and we eagerly look forward to updating you on our progress. John Cronin Executive Chairman 24 July 2024 --- # Strategic Report ## 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. It 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 CyanConnode Holdings plc (the "Company") is that of a holding company. CyanConnode, continues to lead in providing cutting-edge IoT communication solutions, with over 2.7 million devices installed and managed worldwide. ## Business Model CyanConnode is a communications group 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 further supports these initiatives having set up an entity in India, employing local talent. 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 customerservice 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 ## AMISP In May and June 2024, CyanConnode announced the empanelment of its subsidiary DigiSmart Networks Private Limited (DigiSmart), as an Advanced Metering Infrastructure Service Provider (AMISP) for both RF and cellular technology. This enables DigiSmart to bid directly on upcoming smart metering tenders under the Revamped Distribution Sector Scheme (RDSS) on a Design, Build, Finance, Own, Operate, and Transfer (DBFOOT) basis. This will lead to increased order fulfilment and tender participation, direct engagement in smart metering projects and operational excellence and market expansion, providing a one stop solution and aligned economics as set out in the diagrams on the next page. --- # Strategic Report (continued) ![img-2.jpeg](img-2.jpeg) One Stop Solution # Aligned Economics Example of Potential Investment in CCI = Support Growth + Benefit from other AMI Platforms (% equity from each party may vary) ![img-3.jpeg](img-3.jpeg) # 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. --- # Strategic Report (continued) 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. ![img-4.jpeg](img-4.jpeg) Source: Company data --- 12 # Strategic Report (continued) 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. ## 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 (MOMS), 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. --- # Strategic Report (continued) ![img-5.jpeg](img-5.jpeg) ## Market Opportunity and Forecasts 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 awarded to prime bidders. 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. 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 smart electricity metering market in Asia-Pacific is inching ever closer to the historic milestone of 1 billion installed smart meter devices. The latest research report from the IoT analyst firm Berg Insight analyses the development of smart metering technology in China, Japan, South Korea, Taiwan, India, Bangladesh, Indonesia, the Philippines, Thailand, Vietnam, Australia and New Zealand. According to the study, the installed base of smart electricity meters in Asia-Pacific will grow at a compound annual growth rate (CAGR) of 6.4 percent from 818.6 million units in 2023 to nearly 1.2 billion units in 2029. At this pace, the milestone of 1 billion installed devices will be reached in mid-2026. The penetration rate of smart electricity meters in Asia-Pacific will at the same time grow from 61 percent in 2023 to 80 percent in 2029 while cumulative shipments during 2024–2029 will amount to a total of 872.7 million units.³ Mattias Carlsson, IoT Analyst at Berg Insight, said “Replacements of aging first-generation smart meters will be the most important driver for smart meter shipments in Asia-Pacific throughout the forecast period. The number of smart meters tendered by the State Grid of China is also expected to become more stable going forward at around 65–70 million units per year.” ³ Smart Metering in Asia-Pacific 6th Edition – Berg Insight --- # Strategic Report (continued) While East Asia constitutes the most mature smart metering market in Asia-Pacific, the fastest growing markets are on the other hand all found in South and Southeast Asia with a wave of smart metering projects now sweeping across the region. The most significant growth is expected in India where a massive new governmental funding scheme was introduced in the early 2020s with the goal of achieving the installation of 250 million smart prepayment meters. "India is already reaping the benefits from the modernisation of its electricity grid and has in the last two years managed to reduce overall aggregate and technical losses significantly", continued Mr. Carlsson. In neighbouring Bangladesh, large-scale smart electricity metering installations are also emerging in a similar push to install smart prepayment metering by the government. We also observe positive developments in markets such as Thailand, the Philippines, Indonesia and Taiwan – particularly the latter two. The Taiwanese smart metering market is showing stable growth, with a state-owned utility that has a track record of meeting set targets. Indonesia still constitutes a nascent smart metering market but is also a huge market opportunity with a growing economy and impressive electricity user base of almost 86 million", concluded Mr. Carlsson. In the UK it has been stated that smart meters are fundamental to the UK's targets of reaching Net Zero. ## New Identity and Strategic Vision In the past year, CyanConnode has undertaken a comprehensive rebranding exercise to better reflect its commitment to innovation, customer-centric solutions, and sustainable practices. This rebranding encompasses the Company's vision, mission, and new tagline, "Delivering IoT Excellence," symbolising its evolution as a company and strategic focus on leading the smart metering and IoT communication sectors. - Vision: To be the global leader in IoT communications and smart metering solutions, driving innovation and sustainability across the energy sector. - Mission: To provide cutting-edge, reliable, and cost-effective IoT communication solutions that empower utilities and consumers, enhance operational efficiency, and promote sustainable energy management. Rationale Behind the Rebranding: The decision to rebrand was driven by several key factors: - Alignment with Strategic Goals: Our new identity aligns with our strategic vision of becoming a global leader in IoT communications and smart metering technologies. It reflects our dedication to leveraging advanced technologies and innovative solutions to address the dynamic needs of the energy sector. - Emphasis on Innovation: The rebranding underscores our commitment to continuous innovation. As we expand our product portfolio and enhance our technological capabilities, our new identity serves as a visual representation of our forward-thinking approach. - Customer-Centric Approach: The new identity highlights our focus on providing tailored solutions that meet the specific needs of our customers. It emphasises our role as a trusted partner in the energy sector, committed to delivering exceptional service and value. - Sustainability Commitment: Sustainability is at the core of our operations. Our new identity reflects our dedication to developing eco-friendly solutions that contribute to environmental conservation and support global sustainability goals. This new identity is more than just a visual change; it represents a strategic transformation that aligns with our long-term goals. By integrating our vision, mission, and values into every aspect of our operations, we are well-positioned to drive growth, foster innovation, and deliver sustainable value to our stakeholders. --- # Strategic Report (continued) ## 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 18, 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 16 and 26-27. 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. C. The need to foster the Company's business relationships with suppliers, customers and others See pages 16 to 18, within the Principal Risks section on pages 24 to 26 and within the Corporate Governance Statement on pages 34 to 40, 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 FY24 CyanConnode in India partnered with Nanhi Kali, a Mahindra Group foundation, to support the Digital Equality Programme for 700 girls in Gurugram, Haryana, India. This initiative aimed to bridge the digital divide by providing these young girls with the necessary tools, resources, and digital literacy skills to succeed in a rapidly evolving digital world. By facilitating access to digital education, we empower these girls to unlock new opportunities and contribute meaningfully to their communities. --- # Strategic Report (continued) In addition to our partnership with NanhiKali, we have extended our support to two local government schools by providing educational toys and course books that were otherwise unaffordable for the institutions. This support has touched the lives of 300-400 students, enhancing their learning experiences and educational outcomes. By enriching their educational environment, we help create a more engaging and effective learning atmosphere, encouraging these young minds to pursue academic excellence and personal growth. Our Corporate Social Responsibility (CSR) initiatives reflect our dedication to creating positive and lasting impacts in the communities we serve. We believe in fostering an inclusive and equitable society where every individual has the opportunity to thrive. The Group’s focus on the environment and the community is discussed further in the ESG Report from page 19. ## 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 19. 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. With the revised QCA Corporate Governance Code having come into effect in April 2024, we will be reviewing the revised principals to monitor compliance with this Code. ## F. The need to act fairly between members of the Company See pages 16 to 18 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 37. - **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. ## Shareholders CyanConnode has a large number of shareholders, both institutional and private, many of whom have been supportive shareholders for a number of years. These shareholders play an important role in monitoring the performance of the Group. --- # Strategic Report (continued) - Why we engage 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. - How we engaged The Executive Directors engaged with both institutional and private investors to present trading updates and the 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 2023 the Group held an Annual General Meeting in person 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 November 2023, to raise £2.7 million before expenses. More recently the Executive Directors took on board feedback from shareholders regarding communication and held a Q&A session on an investor platform to answers any questions regarding the business that shareholders had. ## 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. - 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 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 --- 18 # Strategic Report (continued) ## 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 - Negotiating lowest possible prices, including price decreases ## 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. Examples 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 around the world 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 Company raised £2.7m (before expenses) in November 2023 through an oversubscribed placing and subscription, together with the issue of warrants at an exercise price of 15.0 pence per ordinary share, which would provide a potential further £4.1m if fully exercised. - **Q&A session** Early in the new financial year (FY25) a number of shareholders requested updates on various areas of the business. The result of this was that in May 2024, the Executive Directors held a Q&A session to answer all questions by shareholders. This session was very well received as indicated by feedback provided to the Company. --- 19 # Strategic Report (continued) ## Environment, Social and Governance (ESG) CyanConnode remains steadfast in its commitment to sustainability and environmental responsibility. Our Omnimesh solution has enabled utilities to improve customer experience, enhance billing accuracy, and significantly reduce carbon emissions. CyanConnode's current order book has the potential to avoid −453,000 KG of CO2 emissions annually, primarily by reducing the need for manual meter readings. This significant reduction in emissions is achieved through the deployment of our Omnimesh RF communications solution, which enable more efficient energy management and operational practices for utilities. The environmental benefits of our solutions extend further, encompassing improved load forecasting and peak load management. These capabilities allow utilities to better balance supply and demand, reducing strain on energy resources and minimising wastage. Additionally, smart meters support the adoption of energy-efficient lifestyles among consumers by providing real-time insights into energy usage, encouraging more conscientious consumption patterns. Our communication solutions also play a crucial role in demand-side management and contribute to the reduction of Aggregate Technical and Commercial (AT&C) losses, enhancing the efficiency and reliability of energy distribution networks. By mitigating these losses, we not only improve the sustainability of energy systems but also support the reduction of greenhouse gas emissions. CyanConnode is a proud Green Economy Mark company, underscoring our dedication to environmental stewardship. Sustainability is a core element of our business strategy and corporate pillars, guiding our decisions and actions as we strive to create a more sustainable future. Our continued investment in developing and deploying eco-friendly communication solutions demonstrates our commitment to responsible business practices and our role in fostering a greener, more sustainable world. ## Potential impact on the environment due to reduction of manual reads ![img-6.jpeg](img-6.jpeg) Please Note: The savings will be much higher if we take associated Smart Meter benefits such as load forecasting, peak load management, adoption of energy efficient lifestyle due to Smart Meters, Demand Side Measures, AT&C loss reduction, etc. --- # Strategic Report (continued) Impact of CyanConnode on Carbon Emission Reduction & savings for Utilities in India | | FY24 | FY23 | | --- | --- | --- | | Nodes OrderBook | 6,565,000 | 4,200,000 | CCI impact on Carbon emission reduction due to reduction of Manual reads | Avg. meter reads per day by a meter reader | 40 | 40 | | --- | --- | --- | | Total no. of Man days required for meter reads | 164,125 | 105,000 | | Avg. 2 wheeler running per day (in KM) by meter reader | 5 | 5 | | Total KM to be covered for meter reads | 820,625 | 525,000 | | Avg. bike mileage per litre of petrol (KM/ ltr) | 50 | 50 | | Fuel required for monthly meter reading (in ltrs) | 16,413 | 10,500 | | CO2 (KG) emission per litre of petrol | 2 | 2 | | Total Monthly CO2 (KG) emission saved due to removal of manual intervention | 37,749 | 24,150 | | Fuel required for Annual meter reading (in ltrs) | 196,950 | 126,000 | | Annual CO2 emission avoided (in KG) | 452,985 | 289,800 | | Avg cost of Manual Meter reading per meter per month (in INR) | 15 | 15 | | --- | --- | --- | | Monthly Savings for utility on account of reduction of manual meter reads (in INR) | 98,475,000 | 63,000,000 | | Annual savings for utility on account of reduction of manual meter reads (in INR) | 1,181,700,000 | 756,000,000 | | One litre of Petrol equivalent to kWh | 9 | 9 | | --- | --- | --- | | kWh equivalent to annual fuel saved by CCI | 1,752,855 | 1,121,400 | | Per capita energy consumption in India (in kWh) | 1,208 | 1,208 | | Avg members in Indian Household | 4 | 4 | | Indian homes that can be lit for an entire year from the fuel saved by CC | 363 | 232 | | CO2 sequestered by one tree annually (in KG) | 25 | 25 | | --- | --- | --- | | 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 | 18,119 | 11,592 | # Corporate Social Responsibility (CSR) CyanConnode is deeply committed to its Corporate Social Responsibility (CSR) mission, focusing on empowering girls, advancing equity, and sustaining our planet. We recently partnered with Nanhi Kali, a Mahindra Group foundation, to support the Digital Equality Programme for 700 girls in Gurugram, Haryana, India. This initiative aims to bridge the digital divide by providing these young girls with the necessary tools, resources, and digital literacy skills to succeed in a rapidly evolving digital world. By facilitating access to digital education, we empower these girls to unlock new opportunities and contribute meaningfully to their communities. In addition to our partnership with NanhiKali, we have extended our support to two local government schools by providing educational toys and course books that were otherwise unaffordable for the institutions. This support has touched the lives of 300-400 students, enhancing their learning experiences and educational outcomes. By enriching their educational environment, we help create a more engaging and effective learning atmosphere, encouraging these young minds to pursue academic excellence and personal growth. --- # Strategic Report (continued) Our CSR initiatives reflect our dedication to creating positive and lasting impacts in the communities we serve. We believe in fostering an inclusive and equitable society where every individual has the opportunity to thrive. ![img-7.jpeg](img-7.jpeg) --- # Strategic Report (continued) | 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 pages 26 to 28 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 pages 26 to 28 of this report. 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. | | Responsible supply chain | 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. | | Social responsibility | 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. | --- 23 | | Information relating to our employment practices can be found in the Employee Matters section on pages 26 to 27 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. | 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 31. ## Operational Review ### Principal Risks and Uncertainties #### 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 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 due to the nature of the business. --- 74 # Strategic Report (continued) ## Financial risks | 1. Global events such as a pandemic | | | --- | --- | | Risk and impact Delays to deployment of projects, resulting in delays to revenue and payments from customers. 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. | Mitigation • Continual monitoring of the situation and adopting a flexible approach to ensure appropriate response to support the business. • 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. | | 2. Movements in component pricing and stock shortages | | | --- | --- | | Risk and impact Movements in component pricing can materially impact profitability and cash. During recent 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. If any components in any CyanConnode products reach end-of-life, it could lead to significant premiums being paid to source these components from alternative suppliers. | 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. • Continually monitoring stock availability with suppliers to ensure that we are prepared for any end-of-life products and can source / build in alternatives. | | 3. Funding | | | --- | --- | | Risk and impact There is a risk that there could be delays to customer deliveries or receipts from customers, or extended payment terms in customers contracts, impacting the availability of working capital. There is a reliance on three customers in India and one customer in the UAE. 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 several 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. The 'OPEX' model is a model where the utility would pay for the meters on a per-meter-per-month basis, leading to recurring monthly payments. 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. • The UK trading entity makes significant sales and purchases in other currencies; and • The Indian entity generates significant translation risk. | **Mitigation** • Whilst all of the Group's customers in India are invoiced in Indian Rupees, we also contract the manufacture of our hardware in India in Indian Rupees and this partially offsets the risk. • 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. | ## 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. | --- 76 | 7. IT issues including network, hardware, data and security | | | --- | --- | | Risk and impact | Mitigation | | Loss of IT systems and/or data, impacting on the ability of the business to function effectively. | • Well-constructed IT infrastructure 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. | | 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. | | | 8. Macroeconomic conditions and political risk | | | --- | --- | | Risk and impact | Mitigation | | Sales cycles to our customers and end utilities in emerging markets can be lengthy and unpredictable leading to loss of stakeholder confidence and reputation. | • 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. | | 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. | | ## Laws and regulatory risks | 9. Failure to comply with relevant environmental, H&S and other applicable legislation | | | --- | --- | | Risk and impact | Mitigation | | 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. | • 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. This is done with a specialist Health and Safety organisation. • 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 2024 to 117 (2023: 64). 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 --- 77 # Strategic Report (continued) region to ensure suppliers and customers are fully supported, while at the same time keeping costs optimised. ## 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 25% of employees that reported to the Board, or 2 out of 8 employees (2023: 44%, or 4 out of 9 employees) and at Board level 20% (2023: 20%). At year end women comprised 13% of total employees across the Group (2023: 14%) or 15 out of a total of 120 employees (2023: 10 out of 70). 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. ## Environmental Policy CyanConnode recognises that it has a moral duty of care as well as a legal obligation to the environment and is committed to minimising the impact of its activities on the environment. Taking a responsible approach to the environment is good business practice as well as essential in helping the world to tackle climate change issues. Our technology is also at the heart of new strategies that will deal with other environmental and resource challenges such as the management of smart grids and water resources. 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 offices in Cambridge and Gurgaon. 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. --- # Strategic Report (continued) 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 24 July 2024 --- # Board of Directors ## John Cronin - Executive Chairman John joined the Board in March 2012 initially as a Non-Executive Director and is now Executive Chairman of CyanConnode. He is a highly successful Chairman, CEO and MD in International markets (Europe, Americas, SE. Asia) in the Technology and Telecommunications sector 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. ## 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. ## David Johns-Powell - Non-Executive Director David, who joined the board in July 2018, has over 30 years' experience in Small to Medium Sized Enterprises over a diverse range of industries including, Ceramics, Farming, Insurance, Leisure and Property. His career started in Ceramics, where he built a manufacturing facility from scratch and by 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 PowerPlant. 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. ## Björn Lindblom - Non-Executive Director Björn joined the board as a non-executive director in January 2024. He joined Connode in 2011 as Chairman and in 2012 was appointed CEO, a position he held until Cyan acquired the Company in 2016. After the acquisition, Björn continued to support the business providing consultancy services as needed. Björn is a successful serial entrepreneur with a corporate background in the communications industry with companies including Ericsson and MCI WorldCom. Björn has successfully grown several IoT companies over the last 16 years and pioneered radio-based smart metering in the Nordic markets. Björn has served as CEO, Chairman and board member in a number of technology companies, including Allgon AB, listed on NASDAQ First North. He is currently Co-Founder and Chairman of Luvly AB, a company designing and selling sustainable electric vehicles. Björn holds the role of the Chairman of the Remuneration Committee and is a member of the Audit and Nominations Committees. --- # Board of Directors (continued) Peter Tyler - Non-Executive Director 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 24 July 2024 --- # Financial Review ## Key Financials ### Financial Summary Financial Year 2024 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 FY24 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. 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. | | 12 months Mar 2024 £000 | 12 months Mar 2023 £000 | 12 months Mar 2022 £000 | 12 months Mar 2021 £000 | 15 months Mar 2020 £000 | | --- | --- | --- | --- | --- | --- | | Revenue | 18,730 | 11,732 | 9,562 | 6,437 | 2,451 | | Gross Margin % | 30% | 36% | 52% | 48% | 56% | | R&D expenditure (including staff costs) | 3,573 | 2,247 | 1,755 | 1,791 | 2,381 | | Operating costs | 9,817 | 7,561 | 6,025 | 5,788 | 7,600 | | Operating loss | (4,204) | (3,347) | (1,017) | (2,685) | (6,230) | | Depreciation and amortisation | 398 | 489 | 616 | 627 | 773 | | EBITDA | (3,806) | (2,858) | (401) | (2,058) | (5,457) | | Stock impairment | 20 | 102 | 62 | 108 | 4 | | Impairment of intangible assets | 791 | 968 | - | - | - | | Share based compensation | 51 | 224 | 363 | 80 | 267 | | Foreign exchange losses / (gains) | 194 | 8 | 34 | (15) | 267 | | Adjusted EBITDA⁴ | (2,750) | (1,556) | 58 | (1,885) | (4,919) | | Cash and cash equivalents | 783 | 4,070 | 2,355 | 1,489 | 1,172 | | Average monthly operating cash outflow | (242) | (185) | (261) | (81) | (245) | | | Mar 2024 FTE⁵ | Mar 2023 FTE | Mar 2022 FTE | Mar 2021 FTE | Mar 2020 FTE | | --- | --- | --- | --- | --- | --- | | Average | 117 | 64 | 59 | 47 | 50 | | Year end | 120 | 70 | 60 | 54 | 48 | Gross Margin is lower than expected because of third-party sales along with significant one-off costs linked to the difficulty of sourcing an end-of-life component for the version of gateways being shipped in FY24. These additional costs will not continue going forward, as we have recently launched our new gateway, which no longer uses this component. Gross margins in the first two years of projects in India are expected to be around 35-40% as they consist of mainly lower margin hardware, increasing to greater than 90% after year two when the main revenue transitions to higher margin support and services. 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. ⁴ Where Adjusted EBITDA is Operating loss before amortisation, depreciation, stock impairment, impairment of intangible assets, share-based compensation and foreign exchange losses. ⁵ Where FTE is the equivalent number of full-time equivalents --- 77 # Financial Review (continued) 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. Financial items of note during the year : - Cash received from customers during FY24 was £16.9 million (2023: £10.7 million) - Trade and other receivables increased by £4.3 million during the year to £13.6 million (including retentions) as a result of increased revenue, particularly in the final quarter of the financial year - R&D cash tax credit of £0.7 million for FY24 (FY23: £0.7 million); value remains the same, despite legislative changes regarding R&D Tax Credit Claims reducing the amounts to be claimed. This was as a result of higher R&D spend by the Company during the year - Working capital continued to be a key challenge through FY24. Increase in contract assets with financing components drives revenue recognition, but the cash for these contractual obligations won't be recovered for multiple years, with trade and other payables increasing to £4.6m from FY23 to £8.5m in FY24 due to increased demand for future deliverables on new contracts but also due to managing cashflow (increased creditor days to 108 in FY24 from 63 in FY23). The cash inflow from the equity raise (£2.7m before expenses) helped ensure that working capital during the year was sufficient for the continued growth - Following a review of the carrying value of the intangible asset held on the company's balance sheet relating the UK Smart Metering Project ("UKSMIP"), a further impairment of £750k has been made to be cautious, due to uncertainty on the future of the contract. See note 3 (b) (i) on page 73 for more detail on this. During the year an advance against the FY23 R&D tax credit was received and was repaid out of the FY23 R&D tax credit funds received from HMRC during FY24. A loan has been secured against the FY24 R&D tax credit since the year end and will be repaid out of the FY24 R&D tax credit funds received from HMRC. 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. - FY24 revenues were 60% up on FY23 revenues 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 36% to 30%, partly as a result of the sale of third-party hardware at gross margins lower than usual for the Group, and largely as a result of a significant premium paid on the purchase of end-of-life components for the gateway being deployed. A new gateway started shipping in Q4 of FY24, using a different component. Gross margin will however 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 37% compared to FY23, as a result of additional costs, mainly attributable to increased headcount required to scale the business up to deploy its growing backlog of orders and development of industry leading hardware and software developed by internal and external engineering teams. - Adjusted EBITDA loss increased from a loss of £1.6 million in FY23 to a loss of £2.8 million in FY24 as a result of lower gross margin and increased operating costs - Cash and cash equivalents at the end of FY24 of £0.8 million was £3.3 million lower than the end of FY23 - Average headcount increased to 117 (FY23: 64), and FTEs at year end increased from 70 in FY23 to 120 in FY24. Non-financial KPIs included the number of modules shipped which increased from 391,000 in FY23 to 1,371,000 in FY24. Furthermore, 55,000 NBlot gateways (FY23: 109,000) and 6,000 Omnimesh gateways (FY23: 1,200) were delivered during the year collectively across MENA and India regions. 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. --- # Financial Review (continued) 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 2024 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 (the "Group") and company to continue as a going concern, the directors have prepared a business plan and cash flow forecast for the period to 31 March 2026 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 invoice Letters of Credit which have been secured from customers against contracts recently won. At 31 March 2024 the Group had cash reserves of £0.8 million (FY23: £4.1m) and based on detailed cash flows provided to the Board within the FY25/26 budget, there is sufficient cash to see the Group through to profitability based on its standard operating model. In the first quarter of FY25, £5m has been received from customers and at the end of June 2024 the Group had cash reserves of £1.1 million. However, should the Group require additional cash to cover working capital, as a result of the targeted rapid growth, there could be a requirement for additional funding for this. The Group is discussing working capital funding solutions with banks, particularly in India, and it is believed that since the Indian entity was profitable for FY24, a suitable facility could be secured. To assist with working capital, a loan from one director for £400,000 is in place, as an advance against the FY24 R&D Tax Credit, expected to be received by October 2024. Notwithstanding the material uncertainties described above, which may cast significant doubt on the ability of the Group and company 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 (2023: £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 24 July 2024 --- 14 # Corporate Governance Statement ## Statement of Compliance with the QCA Corporate Governance Code As an AIM quoted company, we recognise the importance of applying sound governance principles in the successful running of the Group. Given the size and nature of the 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. A new QCA Code came into effect in April 2024. The Board has discussed the key changes to this Code, and has agreed to have more detailed discussions during FY2025 regarding how to ensure compliance with the revised Code. 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 framework across the organisation. The Board was refreshed in January 2024 with the replacement of one Non-executive Director bringing relevant skills and experience to the Board. We will continue to review the Board's composition to ensure that it maintains appropriate skills, experience, independence, and particularly diversify and that it remains effective. The sections below set out how we currently comply with the ten principles of the QCA Code which was in effect until 31 March 2024. ## 1. Establish a strategy and business model which promote long-term value for shareholders The strategy and business operations of the Group are set out in the FY2024 Strategic Report on pages 9 to 28. 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. ## 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 15 to 18 of our FY2024 Annual Report. --- # Corporate Governance Statement (continued) 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 27 of our Strategic Report in the FY2024 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 page 27 of the FY2024 Annual Report), 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. These accreditations are updated as standards are replaced with new ones. 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 was of particular importance during the COVID-19 pandemic and the Group 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 23 to 26 of the FY24 Annual Report 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 standards are updated as new standards become applicable. 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. --- Corporate Governance Statement (continued) 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, Björn Lindblom, 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 Björn Lindblom 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 and the Group Engineering function, which all reports into the MD & CEO of India. 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 all reports into the MD & CEO of India. 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 | Board | Audit Committee | Remuneration Committee | | --- | --- | --- | --- | | John Cronin | 9 (10)** | - | - | | Heather Peacock* | 9 (10)** | 2 (2) | - | | David Johns-Powell | 8 (10)*** | - | - | | Peter Tyler | 8 (10)*** | 2 (2) | - | | Björn Lindblom | 1 (1) | - | - | | Chris Jones*** | 7 (9) | 2 (2) | - | * Heather Peacock attended the Audit Committee meetings by invite. ** John Cronin and Heather Peacock each attended additional meetings which covered regulatory matters. Authority was delegated to them by the other Directors. *** David Johns-Powell and Peter Tyler each attended a meeting which did not include John Cronin or Heather Peacock as the agenda was a discussion regarding share options to be awarded to John Cronin and Heather Peacock. *** Chris Jones resigned and ceased being a Director on 31 January 2024. 36 --- 17 # Corporate Governance Statement (continued) There were no formal Remuneration Committee meetings during the year as one took place just before the commencement of FY2024, and another soon after the end of the financial year. ## 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 29-30 of the FY2024 Annual Report. 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. During FY2024 Chris Jones stepped back from his role as Non-Executive Director and was replaced by Björn Lindblom. Björn is a serial entrepreneur with a strong managerial track record and over 25 years' experience of starting and growing technology companies. He was previously Chief Executive of Connode AB prior to its acquisition by Cyan plc in 2016 to form CyanConnode and more recently, until 2021, has provided consultancy services to the Company. He has also served as Chairman and board member in several technology companies, including Allgon AB, listed on NASDAQ First North. 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. At the time of the appointment of Björn Lindblom, a discussion was had between the Board regarding composition. All agreed that the Board is still 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 39. ## 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. 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 --- # Corporate Governance Statement (continued) else working on our sites. Details of these policies can be found on pages 26-28 of the FY2024 Annual Report. ## 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 pages 39 and 40 of the Corporate Governance Statement in the FY2022 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. --- # Corporate Governance Statement (continued) ## Board Composition and Responsibility At 31 March 2024 the Board comprised five directors, including the Executive Chairman, the Chief Financial Officer and three non-executive directors. Four of the five directors in post at 31 March 2024 served throughout the year. | Name | Role | Appointed | In post 1 April 2023 | In post 31 Mar 2024 | | --- | --- | --- | --- | --- | | Executive | | | | | | John Cronin | Executive Chairman | 20/03/12 | Yes | Yes | | Heather Peacock | Chief Financial Officer* | 25/07/18 | Yes | Yes | | Non-executive | | | | | | William David Johns-Powell | | 25/07/18 | Yes | Yes | | Peter Tyler | | 19/03/19 | Yes | Yes | | Björn Lindblom | | 15/01/24 | No | Yes | | Chris Jones | | 19/03/19 | Yes | No | * 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, governs 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), Björn Lindblom. Peter Tyler has held the position of Chairman from 19 March 2019. The Audit Committee Report on page 45 sets out the roles and responsibilities of the Audit Committee. **Remuneration committee**: Björn Lindblom (Chairman), Peter Tyler. Björn Lindblom has held the position of Chairman since 15 January 2024. Chris Jones held the position of Chairman until 15 January 2024. The Directors’ Remuneration Report on page 41 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 Björn Lindblom. 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 --- # Corporate Governance Statement (continued) 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. ## 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 24 July 2024 --- # Directors' Remuneration Report ## Remuneration Committee Chris Jones served as chairman of the Remuneration Committee from 19 March 2019 until the appointment of Björn Lindblom on 15 January 2024, when Mr Lindblom took over the role of Chair. 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 their 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 £5.2m they have invested thus far (see page 43 for more details of their shareholdings). | | Total investment to date* | Annual remuneration FY 2024 | Total investment as % of remuneration | | --- | --- | --- | --- | | | £000 | £000 | | | John Cronin | 1,243 | 393 | 316% | | Heather Peacock | 168 | 261 | 64% | | David Johns-Powell | 3,093 | 40 | 7,733% | | Peter Tyler | 690 | 40 | 1,725% | | Björn Lindblom | 37 | 8 | 463% | | Total | 5,231 | 742 | 705% | * The investment value reflects the cost of actual cash paid at the time of purchase. In addition, during FY2021 a short-term loan was provided to the Company by John Cronin (£300,000) which was repaid during the year. ## 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. --- # Directors' Remuneration Report (continued) ## Benefits-in-Kind The executive directors are entitled to receive certain benefits-in-kind, principally private medical insurance. ## Annual Bonus Payments Annual bonuses are awarded at the discretion of the Remuneration Committee as an incentive and to reward performance during the financial year pursuant to specific performance criteria including cash collection and revenue growth. In exercising its discretion, the Committee takes into account the strategic objectives set by the Board to ensure these are being met. These objectives will evolve as the business grows and are expected to change year on year according to business requirements. Total bonus payments of £123,000 were accrued for Directors for FY 2024 (FY2023: £106,000) ## Directors' Share Options Full details of the directors' options over ordinary shares of 2.0p are set out below: | Director | Grant Date | Expiry Date | Exercise Price £ | As at 31 March 2024 Number | As at 31 March 2023 Number | | --- | --- | --- | --- | --- | --- | | John Cronin | 25/01/18 | 25/01/28 | 0.29 | 200,000 | 200,000 | | | 22/09/20 | 22/09/30 | 0.10 | 360,342 | 360,342 | | | 10/11/21 | 10/11/31 | 0.145 | 558,102 | 558,102 | | | 10/11/21 | 10/11/31 | 0.145 | 589,037 | 589,037 | | | 17/11/23 | 17/11/33 | 0.1575 | 600,000 | - | | | 17/11/23 | 17/11/33 | 0.14 | 506,082 | - | | | 17/11/23 | 17/11/33 | 0.17 | 442,857 | - | | | | | | 3,256,420 | 1,707,481 | | Heather Peacock | 11/12/17 | 11/12/27 | 0.40 | 25,000 | 25,000 | | | 22/09/20 | 22/09/30 | 0.10 | 90,909 | 90,909 | | | 10/11/21 | 10/11/31 | 0.145 | 619,424 | 619,424 | | | 10/11/21 | 10/11/31 | 0.145 | 798,875 | 798,875 | | | 17/11/23 | 17/11/33 | 0.1575 | 300,000 | - | | | 17/11/23 | 17/11/33 | 0.14 | 204,065 | - | | | 17/11/23 | 17/11/33 | 0.17 | 178,577 | - | | | | | | 2,216,850 | 1,534,208 | | Peter Tyler | 22/09/20 | 22/09/30 | 0.10 | 40,000 | 40,000 | | | | | | 40,000 | 40,000 | | David John-Powell | 28/09/20 | 28/09/30 | 0.10 | 250,000 | 250,000 | | | | | | 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. ## 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. The EBT shall vote the shares in accordance with the wishes of the participants. If any dividend is paid or other distributions are made on a share the joint owners should be entitled to that dividend in proportion to the respective values of their interest in the JSOP shares on the date on which shares are quoted ex that dividend. The respective value of each of the owner's interests shall be calculated on the assumption there had been a disposal --- # Directors' Remuneration Report (continued) of the JSOP shares on that date and that the net proceeds of such disposal had been equivalent to the closing price (as derived from an appropriate source) for the immediately preceding dealing day. At 31 March 2024, shares held by directors under this scheme were as follows: | Director | Grant Date | Expiry Date | Participation Price £ | As at 31 March 2024 Number | As at 31 March 2023 Number | | --- | --- | --- | --- | --- | --- | | John Cronin | 10/11/21 | 10/11/26 | 0.145 | 5,672,359 | 5,672,359 | | | | | | 5,672,359 | 5,672,359 | | Heather Peacock | 10/11/21 | 10/11/26 | 0.145 | 1,331,498 | 1,331,498 | | | | | | 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 | Shares | | --- | --- | | John Cronin | | | As at 1 April 2023 | 6,218,848 | | Purchased during the year | 300,000 | | As at 31 March 2024 | 6,518,848 | David Johns-Powell | As at 1 April 2023 | 16,621,561 | | --- | --- | | Purchased during the year | 500,000 | | As at 31 March 2024 | 17,121,561 | Peter Tyler | As at 1 April 2023 | 2,606,651 | | --- | --- | | Purchased during the year | - | | As at 31 March 2024 | 2,606,651 | Heather Peacock | As at 1 April 2023 | 1,069,246 | | --- | --- | | Purchased during the year | 200,000 | | As at 31 March 2024 | 1,269,246 | Björn Lindblom | Held at the time of appointment | 912,377 | | --- | --- | | As at 31 March 2024 | 912,377 | Total | As at 1 April 2023 | 26,516,306 | | --- | --- | | Purchased during the year | 1,912,377 | | As at 31 March 2024 | 28,428,683 | --- # Directors' Remuneration Report (continued) 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 | Date of contract | | --- | --- | | John Cronin | 20 March 2012 | | Heather Peacock | 25 July 2018 | | William David Johns-Powell | 25 July 2018 | | Peter Tyler | 19 March 2019 | | Björn Lindblom | 15 January 2024 | ## 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. ## Directors' Emoluments (audited) Amounts for the year ending 31 March 2024 | Name of Director | Salary £ | Fees £ | Pension £ | Other Benefits £ | Bonus £ | Total for FY 2024 Services £ | Total for FY 2023 Services £ | | --- | --- | --- | --- | --- | --- | --- | --- | | Executive | | | | | | | | | John Cronin | 40,000 | 295,000 | - | 3,458 | 55,000 | 393,458 | 371,998 | | Heather Peacock | 200,000 | - | 10,000 | 1,455 | 50,000 | 261,455 | 243,926 | | Non-Executive | | | | | | | | | Chris Jones (Note 1) | 71,585 | 40,000 | - | - | 18,000 | 129,585 | 30,000 | | David Johns-Powell (Note 2) | - | 40,000 | - | - | - | 40,000 | 37,500 | | Peter Tyler | - | 40,000 | - | - | - | 40,000 | 30,000 | | Björn Lindblom | - | 8,333 | - | - | - | 8,333 | - | | Total | 311,585 | 423,333 | 10,000 | 4,913 | 123,000 | 872,831 | 713,424 | Note 1 - Chris Jones fees included those for an interim role he held for six months during FY2024, covering the COO function of the Group. Note 2 - David Johns-Powell used all £37,500 of FY2023 fees and £12,500 of FY2024 fees to participate in the placing in November 2023 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. This report was approved by the Board of Directors on 24 July 2024 and signed on its behalf by: Björn Lindblom Chairman of the Remuneration Committee --- # Audit Committee Report ## 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 was Chris Jones until Björn Lindblom joined the Company on 15 January 2024, at which time he replaced Chris Jones. All three were Non-Executive Directors while on the Committee. The Committee met twice during the year ended 31 March 2024, 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 2023. ## 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 2023 Annual Report; - Review of the interim results for the six months ended 30 September 2023; 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. ## 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 new composition of Peter Tyler and Björn Lindblom was 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 24 July 2024 and signed on its behalf by: Peter Tyler Chairman of the Audit Committee 45 --- # Directors' Report The directors present their annual report on the affairs of the Group together with the audited financial statements for the year ended 31 March 2024. The Company's statement on corporate governance can be found on pages 34 to 40 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 2026 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 31 to 33 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 33. ## 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 2024, 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 34–40. In accordance with the Companies Act 2006 the Company has no authorised share capital. ## Capital Risk Management The primary objectives of the Group's capital management are to safeguard the Group's ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders, and to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares or sell assets to reduce debt. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the periods ended 31 March 2023 and 31 March 2024. --- 47 # Directors' Report (continued) ## 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 Peter Tyler Chris Jones (resigned 31 January 2024) Björn Lindblom (appointed 15 January 2024) 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 41-44. ## 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 £3,552,248 (2023: £2,247,000). ## Directors' indemnity arrangements CyanConnode has purchased and maintained throughout the year Directors' and Officers' liability insurance in respect of itself and its Directors. ## Significant Holdings The Company had been notified of the following voting rights of shareholders in the Company at 18 July 2024 and at the same date its issued share capital consisted of 299,075,864 Ordinary Shares: | Name | Percentage of issued share capital | Number of ordinary shares | | --- | --- | --- | | Premier Milton Group Plc | 10.996% | 32,886,536 | | Herald Investment Management Limited | 7.00% | 20,945,069 | | S Chari | 6.43% | 19,243,144 | | William David Johns-Powell | 5.72% | 17,121,561 | | CRUX Asset Management | 4.88% | 14,588,755 | | P Gough | 3.83% | 11,460,334 | ## 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 was higher at 108 days (2023: 63 days), due to back-to-back payment arrangements with key suppliers, and having points during FY24 where timing of payments had to be closely managed. --- # Directors' Report (continued) ## 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. ## 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 34-35. 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 24 July 2024 --- # 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 24 July 2024 --- 50 # 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 2024 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 2024 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: £374,000 (2023: £234,000) • Performance materiality: £243,000 (2023: £175,000) Parent Company • Overall materiality: £189,000 (2023: £120,000) • Performance materiality: £122,000 (2023: £90,000) | | Scope | Our audit procedures covered 100% of revenue, 100% of total assets and 98% of loss before tax. | --- 51 # Independent Auditor's Report to the members of CyanConnode Holdings plc (continued) ## 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. 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 3. | ### Group - impairment | Key audit matter description | The group has a significant goodwill balance of £1.93m 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 the judgements disclosed in note 3b. | --- 52 # Independent Auditor's Report to the members of CyanConnode Holdings plc (continued) ## 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. | ## 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: | | Group | Parent company | | --- | --- | --- | | Overall materiality | £374,000 (2023: £234,000) | £189,000 (2023: £120,000) | | Basis for determining overall materiality | 2% of total revenue | 0.5% of net assets, reduced to suitable levels 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 | £243,000 (2023: £175,000) | £122,000 (2023: 90,000) | | Basis for determining performance materiality | 65% (2023: 75%) of overall materiality | 65% (2023: 75%) of overall materiality | | Reporting of misstatements to the Audit Committee | Misstatements in excess of £19,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. | Misstatements in excess of £9,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. | --- 53 # Independent Auditor's Report to the members of CyanConnode Holdings plc (continued) ## 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 | 3 | 98% | 100% | 98% | | Specific audit procedures | 1 | 2% | - | - | | Total | 4 | 100% | 100% | 98% | Analytical procedures at group level were performed for the remaining component. Of the above, full scope audits 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. 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; - 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. --- 54 # Independent Auditor's Report to the members of CyanConnode Holdings plc (continued) ## 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. ## Responsibilities of directors As explained more fully in the directors' responsibilities statement set out on page 49, 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. --- 55 # Independent Auditor's Report to the members of CyanConnode Holdings plc (continued) 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. 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 | Review of the financial statement disclosures and testing to supporting documentation; Completion of disclosure checklists to identify areas of non-compliance | | Tax compliance regulations | Inspection of advice received from external tax advisors Inspection of correspondence with local tax authorities | | GDPR | 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. --- # Independent Auditor's Report to the members of CyanConnode Holdings plc (continued) ## 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 NEIL STEPHENSON (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants Blenheim House Newmarket Road Bury St Edmunds IP33 3SB 24/07/24 --- # Consolidated income statement For the year ended 31 March 2024 | | Note | Year | Year | | --- | --- | --- | --- | | | | 31 March | 31 March | | | | 2024 | 2023 | | | | £000 | £000 | | Continuing operations | | | | | Revenue | 4 | 18,730 | 11,732 | | Cost of sales | | (13,117) | (7,518) | | Gross profit | | 5,613 | 4,214 | | Exceptional item: impairment of intangible assets | 13 | (791) | (968) | | Other operating costs | 6 | (9,026) | (6,593) | | Operating loss | | (4,204) | (3,347) | | Amortisation and depreciation | | 398 | 489 | | Share based payments | 35 | 51 | 224 | | Stock impairment | 21 | 20 | 102 | | Impairment of intangible assets | 13 | 791 | 968 | | Foreign exchange losses | | 194 | 8 | | Adjusted EBITDA | | (2,750) | (1,556) | | Finance income | 9 | 92 | 35 | | Finance expense | 10 | (113) | (136) | | Loss before tax | | (4,225) | (3,448) | | Tax credit | 11 | 395 | 1,042 | | Loss for the year | | (3,830) | (2,406) | | Loss per share (pence) | | | | | Basic | 12 | (1.41) | (1.03) | | Diluted | 12 | (1.41) | (1.03) | # Consolidated statement of comprehensive income Derived from continuing operations and attributable to the equity owners of the Company. | For the year ended 31 March 2024 | Year | Year | | --- | --- | --- | | | 31 March | 31 March | | | 2024 | 2023 | | | £000 | £000 | | Loss for the year | (3,830) | (2,406) | | Exchange differences on translation of foreign operations | (112) | 21 | | Total comprehensive income for the year | (3,942) | (2,385) | --- # Consolidated statement of financial position As at 31 March 2024 | | Note | 31 March 2024 £000 | 31 March 2023 £000 | | --- | --- | --- | --- | | Non-current assets | | | | | Intangible assets | 13 | 3,759 | 3,433 | | Goodwill | 15 | 1,930 | 1,930 | | Property, plant and equipment | 16 | 196 | 30 | | Right of use asset | 17 | 474 | 122 | | Other financial assets | 19 | 51 | 62 | | Trade and other receivables | 20 | 3,085 | 2,076 | | Total non-current assets | | 9,495 | 7,653 | | Current assets | | | | | Inventories | 21 | 1,686 | 793 | | Trade and other receivables | 22 | 10,491 | 7,182 | | R&D tax credit receivables | | 665 | 748 | | Cash and cash equivalents | 23 | 783 | 4,070 | | Total current assets | | 13,625 | 12,793 | | Total assets | | 23,120 | 20,446 | | Current liabilities | | | | | Trade and other payables | 24 | (8,450) | (3,833) | | Short-term borrowings | 25 | - | (1,226) | | Corporation tax liability | | (508) | - | | Lease liabilities | 17 | (110) | (29) | | Total current liabilities | | (9,068) | (5,088) | | Net current assets | | 4,557 | 7,705 | | Non-current liabilities | | | | | Lease liabilities | 17 | (364) | (94) | | Deferred tax liability | 26 | (170) | (452) | | Other payables | 27 | (87) | (42) | | Total non-current liabilities | | (621) | (588) | | Total liabilities | | (9,689) | (5,676) | | Net assets | | 13,431 | 14,770 | | Equity | | | | | Share capital | 28 | 5,982 | 5,438 | | Share premium account | 29 | 80,196 | 78,671 | | Own shares held | 30 | (3,611) | (3,611) | | Share option reserve | 31 | 1,412 | 804 | | Translation reserve | 32 | (60) | 52 | | Retained losses | 33 | (70,488) | (66,584) | | Total equity being equity attributable to owners of the Company | | 13,431 | 14,770 | --- The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the Board of Directors and authorised for issue on 24 July 2024. They were signed on its behalf by: John Cronin Director 24/07/24 59 --- # Consolidated statement of changes in equity For the year ended 31 March 2024 | | Share Capital £000 | Share Premium Account £000 | Own Shares Held £000 | Share Option Reserve £000 | Translation Reserve £000 | Retained Losses £000 | Total Equity £000 | | --- | --- | --- | --- | --- | --- | --- | --- | | Balance at 31 March 2022 | 4,726 | 73,883 | (3,611) | 1,068 | 31 | (64,666) | 11,431 | | Loss for the year | - | - | - | - | - | (2,406) | (2,406) | | Other comprehensive income for the year | - | - | - | - | 21 | - | 21 | | Total comprehensive income for the year | - | - | - | - | 21 | (2,406) | (2,385) | | Issue of share capital (net of expenses) | 712 | 4,788 | - | - | - | - | 5,500 | | Credit to equity for share options | - | - | - | 224 | - | - | 224 | | Transfer | - | - | - | (488) | - | 488 | - | | Total transactions with owners | 712 | 4,788 | - | (264) | - | 488 | 5,724 | | Balance at 31 March 2023 | 5,438 | 78,671 | (3,611) | 804 | 52 | (66,584) | 14,770 | | Loss for the year | - | - | - | - | - | (3,830) | (3,830) | | Other comprehensive income for the year | - | - | - | - | (112) | - | (112) | | Total comprehensive income for the year | - | - | - | - | (112) | (3,830) | (3,942) | | Issue of share capital (net of expenses) | 544 | 1,525 | - | - | - | - | 2,069 | | Issue of share warrants | - | - | - | 483 | - | - | 483 | | Credit to equity for share options | - | - | - | 51 | - | - | 51 | | Transfer | - | - | - | 74 | - | (74) | - | | Total transactions with owners | 544 | 1,525 | - | 608 | - | (74) | 2,603 | | Balance at 31 March 2024 | 5,982 | 80,196 | (3,611) | 1,412 | (60) | (70,488) | 13,431 | --- # Consolidated cash flow statement For the year ended 31 March 2024 | | Note | Year | Year | | --- | --- | --- | --- | | | | 31 March | 31 March | | | | 2024 | 2023 | | | | £000 | £000 | | Net cash outflow from operating activities | 34 | (2,860) | (2,217) | | Investing activities | | | | | Interest received | | 15 | 3 | | Purchases of property, plant and equipment | 16 | (224) | (31) | | Purchases of intangible assets | 13 | (1,384) | (734) | | Sale/(purchase) of other financial assets | 19 | 11 | (4) | | Net cash outflow from investing activities | | (1,582) | (766) | | Financing activities | | | | | Interest paid on borrowings | | (93) | (125) | | Cash inflow from borrowings | 25 | - | 500 | | Cash outflow from directors loans | 25 | (300) | - | | Cash net outflow from debt factoring | 25 | (426) | (541) | | Loan repayment | 25 | (500) | (600) | | Capital repayments of lease liabilities | 17 | (74) | (30) | | Interest paid on lease liabilities | 17 | (19) | (11) | | Proceeds on issue of shares | 28 | 2,719 | 5,844 | | Share issue costs | | (167) | (344) | | Net cash inflow from financing activities | | 1,140 | 4,693 | | Net increase in cash and cash equivalents | | (3,302) | 1,710 | | Effects of exchange rate changes on cash and cash equivalents | | 15 | 5 | | Cash and cash equivalents at beginning of the year | | 4,070 | 2,355 | | Cash and cash equivalents at end of the year | | 783 | 4,070 | Analysis of changes in net cash / (debt) | For the year ended 31 March 2024 | At 1 April 2023 £000 | Cash flow £000 | Other non-cash movements £000 | Net foreign exchange difference £000 | At 31 March 2024 £000 | | --- | --- | --- | --- | --- | --- | | Cash and cash equivalents | 4,070 | (3,302) | - | 15 | 783 | | Short-term borrowings | (1,226) | 1,226 | - | - | - | | Lease liabilities | (123) | 93 | (444) | - | (474) | | | (1,349) | 1,319 | (444) | - | (474) | | Net cash / (debt) at end of year | 2,721 | (1,983) | (444) | 15 | 309 | | For the year ended 31 March 2023 | At 1 April 2022 £000 | Cash flow £000 | Other non-cash movements £000 | Net foreign exchange difference £000 | At 31 March 2023 £000 | | --- | --- | --- | --- | --- | --- | | Cash and cash equivalents | 2,355 | 1,710 | - | 5 | 4,070 | | Short-term borrowings | (1,867) | 641 | - | - | (1,226) | | Lease liabilities | (153) | 41 | (11) | - | (123) | | | (2,020) | 682 | (11) | - | (1,349) | | Net cash / (debt) at end of year | 335 | 2,392 | (11) | 5 | 2,721 | Other non-cash movements include interest on lease liabilities and new leases taken on in the year. --- # Company balance sheet As at 31 March 2024 | | Note | 31 March 2024 £000 | 31 March 2023 £000 | | --- | --- | --- | --- | | Non-current assets | | | | | Intangible assets | 14 | - | - | | Investments in subsidiaries | 18 | 4,127 | 5,042 | | Trade and other receivables | 20 | 1,329 | 2,299 | | Total non-current assets | | 5,456 | 7,341 | | Current assets | | | | | Trade and other receivables | 22 | 55 | 81 | | Cash and cash equivalents | 23 | 20 | 2,991 | | Total current assets | | 75 | 3,072 | | Total assets | | 5,531 | 10,413 | | Current liabilities | | | | | Trade and other payables | 24 | (205) | (168) | | Short-term borrowings | 25 | - | (800) | | Total current liabilities | | (205) | (968) | | Net current (liabilities)/assets | | (130) | 2,104 | | Net assets | | 5,326 | 9,445 | | Equity | | | | | Share capital | 28 | 5,982 | 5,438 | | Share premium account | 29 | 80,196 | 78,671 | | Share option reserve | 31 | 1,412 | 804 | | Retained losses | 33 | (82,264) | (75,468) | | Total equity being equity attributable to owners of the Company | | 5,326 | 9,445 | As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes as it prepares group accounts. The Company reported a loss for the financial year ended 31 March 2024 of £6,722,000 (2023: £8,077,000). The financial statements of CyanConnode Holdings plc (registered number 04554942) were approved by the board of directors and authorised for issue 24 July 2024. They were signed on its behalf by: John Cronin Director 24/07/24 --- # Company statement of changes in equity For the year ended 31 March 2024 | | Share Capital £000 | Share Premium Account £000 | Share Option Reserve £000 | Retained Losses £000 | Total Equity £000 | | --- | --- | --- | --- | --- | --- | | Balance at 31 March 2022 | 4,726 | 73,883 | 1,068 | (67,879) | 11,798 | | Loss for the year | - | - | - | (8,077) | (8,077) | | Total comprehensive income for the year | - | - | - | (8,077) | (8,077) | | Issue of share capital (net of expenses) | 712 | 4,788 | - | - | 5,500 | | Credit to equity for share options | - | - | 224 | - | 224 | | Transfer | - | - | (488) | 488 | - | | Total transactions with owners | 712 | 4,788 | (264) | 488 | 5,724 | | Balance at 31 March 2023 | 5,438 | 78,671 | 804 | (75,468) | 9,445 | | Loss for the year | - | - | - | (6,722) | (6,722) | | Total comprehensive income for the year | - | - | - | (6,722) | (6,722) | | Issue of share capital (net of expenses) | 544 | 1,525 | - | - | 2,069 | | Issue of warrants | - | - | 483 | - | 483 | | Credit to equity for share options | - | - | 51 | - | 51 | | Transfer | - | - | 74 | (74) | - | | Total transactions with owners | 544 | 1,525 | 608 | (74) | 2,603 | | Balance at 31 March 2024 | 5,982 | 80,196 | 1,412 | (82,264) | 5,326 | --- # Company cash flow statement For the year ended 31 March 2024 | | Year 31 March 2024 £000 | Year 31 March 2023 £000 | | --- | --- | --- | | Loss for the year before taxation and interest | (6,669) | (7,995) | | Shares issued in lieu of bonus | - | 24 | | Interest received | 4 | - | | Net impairment charge | 1,920 | 4,063 | | Operating cash outflows before movement in working capital | (4,745) | (3,908) | | Decrease/(increase) in receivables | 39 | (19) | | Increase / (decrease) in payables | 35 | (15) | | Net cash outflow from operating activities | (4,671) | (3,942) | | Financing activities | | | | Cash inflow from short-term borrowing | - | 500 | | Cash outflow from director's loan | (300) | - | | Loan repayment | (500) | (600) | | Interest paid on loans | (52) | (85) | | Proceeds on issue of shares | 2,719 | 5,844 | | Share issue costs | (167) | (344) | | Net cash inflow from financing activities | 1,700 | 5,315 | | Net (decrease)/increase in cash and cash equivalents | (2,971) | 1,373 | | Cash and cash equivalents at beginning of the year | 2,991 | 1,618 | | Cash and cash equivalents at end of year | 20 | 2,991 | Analysis of changes in net cash / (debt) | For the year ended 31 March 2024 | At 1 April | | Other non-cash | | | --- | --- | --- | --- | --- | | | 2023 £000 | Cash flow £000 | movements £000 | At 31 March 2024 £000 | | Cash and cash equivalents | 2,991 | (2,971) | - | 20 | | Short-term borrowings | (800) | 800 | - | - | | Net cash at end of year | 2,191 | (2,171) | - | 20 | | For the year ended 31 March 2023 | At 1 April | | Other non-cash | | | | 2022 £000 | Cash flow £000 | movements £000 | At 31 March 2023 £000 | | Cash and cash equivalents | 1,618 | 1,373 | - | 2,991 | | Short-term borrowings | (900) | 100 | - | (800) | | Net debt at end of year | 718 | 1,473 | - | 2,191 | --- 65 # 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 Suite 2, Ground Floor, The Jeffreys Building, Cowley Road, Cambridge CB4 0DS. The principal activities of the parent company (the "company") and its subsidiaries (the "Group") are set out in the strategic report on page 9. 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 (the "Group") and company to continue as a going concern, the directors have prepared a business plan and cash flow forecast for the period to 31 March 2026 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 2024 the Group had cash reserves of £0.8 million (FY23: £4.1m) and based on detailed cash flows provided to the Board within the FY25/26 budget, there is sufficient cash to see the Group through to profitability based on its standard operating model. In the first quarter of FY25, £5m cash has been received from customers and at the end of June 2024 the Group had cash reserves of £1.1 million. 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 for this. The Group is discussing working capital funding solutions with banks, particularly in India, and it is believed that since the Indian entity was profitable in FY24, a facility could be secured. To assist with working capital, a loan from one director received in April 2024 for £400,000 is in place, as an advance against the FY24 R&D Tax Credit, expected to be received by October 2024. Notwithstanding the material uncertainties described above, which may cast significant doubt on the ability of the Group and company 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. --- Notes to the financial statements ## 2. Significant accounting policies (continued) 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. ### 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 recognised 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. 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. 66 --- 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. In accordance to our group IFRS 15 revenue recognition policy, where significant timing differences arise between the revenue recognition period and invoicing, and thereon cash collection, a financing element is accounted with contract assets being discounted using an appropriate discount rate based on the credit rating of the customer, and the interest rates in the specific regions central bank. 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. Sales commissions directly attributable to individual contracts with customers are deferred on the balance sheet and charged to cost of sales in line with the recognition of the related income. ### 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. 67 --- Notes to the financial statements ## 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. 68 --- Notes to the financial statements ## 2. Significant accounting policies (continued) Determining whether goodwill is impaired requires an estimation of the higher 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. ## 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 69 --- Notes to the financial statements ## 2. Significant accounting policies (continued) 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. **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. ### 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. 70 --- 71 # Notes to the financial statements ## 2. Significant accounting policies (continued) ### 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 recognised in the period in which the employee's services are received. Termination benefits are recognised 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. 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 recognised 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 recognised, in its individual financial statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its consolidated financial statements with the corresponding credit being recognised directly in equity. When the Company issues options or warrants for services rendered by a non-employee they are measured at fair valued of the services received. Warrants issued as part of a placing of shares are fair valued using a Black Scholes model. The fair value of warrants issued is credited to a warrant reserve with the balance of consideration received allocated to share capital and share premium account. ### Leases Low value leases and leases of less than one year are recognised 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 --- 77 # Notes to the financial statements ## 2. Significant accounting policies (continued) 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 2023. 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 2024 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. General approach to critical judgments At all times, any critical judgement within the groups accounting policies, use a mix of historical and future information (where available) given the level of growth. #### ii. 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 customises another. Therefore, they are considered to be separate performance obligations. #### iii. 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, the internal pricing used when the contract was bid for and to consider the current market through existing live bids. #### iv. 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. ### v. 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 (three in the prior period). --- 73 # Notes to the financial statements ## 3. Critical accounting judgements and key sources of estimation uncertainty (continued) ### 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 £2,032k carrying value of the related intangible asset at the end of March 2024. 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 Group was notified by its customer Toshiba, in 2023 that due to an end-of-life Telit component, which is essential in the design of the Toshiba hardware (mesh hub), there would only be 761k mesh hubs supplied under the contract. Toshiba advised in 2024 that the final number supplied was 765k mesh hubs. 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. As a result of this, the Group made an impairment of £968k against the carrying value in FY23. The key assumptions analysed in determining the possible carrying values included the following: - The number of mesh hubs activated (generating a one off licence fee) - The number of mesh hubs active on a monthly basis (generating an ongoing monthly support fee) - The potential impact of the 3G sunset, expected to happen in 2025 for VMO2 (The Group's end customer for this contract). This impact could lead to either a higher number of mesh hubs being activated. A new model has now been created based on these sensitivities to determine if a further impairment to the intangible asset is required. The models were run based on various percentages of the finite number of 765k hubs being activated, and being active on a monthly basis. Due to the uncertainties and lack of information provided to the Group regarding the remainder of the rollout and taking into account the numerous delays that have already occurred, the Board has agreed that a further impairment of £750k would be taken in FY24 based on an assumption that 75% of the finite number of 765k hubs, being 574k hubs, would be activated. This is an increase from the 70% assumption in FY23 and is based on history of activations in the fifteen months prior to the end of FY24. To be cautious it has also been assumed that support fees for a maximum of 56% of the 574k hubs would be received on a monthly basis. If this number were reduced to a maximum of 53% it would lead to a further impairment of £182k. A WACC of 11.7% has been used in arriving at the £750k impairment. #### 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. --- 74 # Notes to the financial statements ## 3. Critical accounting judgements and key sources of estimation uncertainty (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. 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) on trade receivables and contract assets using expected credit losses based on historic levels of bad debt suffered against current and aged debts. 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 £858,000 (2023: £326,000) which is over 90 days overdue is included in trade debtors, of which a provision of £90,000 (2023: £136,000) is held based on historic credit losses with no specific exposures noted requiring additional provisions. CyanConnode Ltd has a loan of £69,281,018 (2023: £64,838,214) with CyanConnode Holdings plc. As at 31 March 2024, a 100% (2023:100%) 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. ### v. 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: | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Hardware revenue - recognised at a point in time | 16,718 | 9,763 | | Software licenses - recognised at a point in time | 541 | 1,157 | | Revenue from services* - recognised at a point in time | 1,427 | 504 | | Revenue from support and maintenance** - recognised over time | 44 | 308 | | Total revenue | 18,730 | 11,732 | * 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. --- # Notes to the financial statements ## 5. Business and geographical segments (continued) During the year to end of March 2024 there were 3 customers (2023: 3) whose turnover accounted for more than 10% of the Group's total revenue as follows: | | 2024 | | 2023 | | | --- | --- | --- | --- | --- | | | Turnover £000 | Percentage of Total% | Turnover £000 | Percentage of Total% | | Customer A | 1,710 | 9 | 1,500 | 13 | | Customer B | 3,671 | 20 | 5,819 | 50 | | Customer C | 5,199 | 28 | 2,098 | 18 | | Customer D | 5,335 | 28 | - | - | Revenue split by geographical location was as follows: | | 2024 | | 2023 | | | --- | --- | --- | --- | --- | | | Turnover £000 | Percentage of Total% | Turnover £000 | Percentage of Total% | | India | 14,015 | 75 | 5,560 | 47 | | United Arab Emirates | 4,249 | 23 | 5,819 | 50 | | Rest of The World | 466 | 2 | 353 | 3 | | | 18,730 | 100 | 11,732 | 100 | ## 6. Other operating costs | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Staff costs | 5,572 | 4,154 | | Staff and other costs capitalised to research and development | (1,384) | (734) | | Research and development costs (non-staff costs) | 465 | 175 | | Research and development costs (subcontractor costs) | 1,090 | 141 | | Rent and site costs | 224 | 179 | | Office expenses | 542 | 417 | | Marketing and advertising | 176 | 197 | | Professional fees | 516 | 426 | | Audit and accountancy | 292 | 229 | | Bad debts | 242 | 117 | | Impairment of inventory | 20 | 102 | | Fixed assets written off | 62 | - | | Share based payments | 51 | 224 | | Foreign exchange | 194 | 13 | | Amortisation and depreciation | 393 | 476 | | Other | 571 | 477 | | Other operating costs | 9,026 | 6,593 | The total expenditure on research and development including staff costs in the year was £ 3,572,895 (2023: £2,247,000). --- # Notes to the financial statements ## 7. Auditor's remuneration The analysis of auditor's remuneration, including associate firms, is as follows: | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Fees payable to the Company's auditor for the audit of the Company's annual accounts | 113 | 121 | | 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 | 45 | 45 | | Total audit fees | 158 | 166 | ## 8. Employee information The average monthly number of employees (including executive directors) was: | | 2024 Number | 2023 Number | | --- | --- | --- | | Sales and administration | 28 | 21 | | Research and development | 19 | 25 | | Operations and logistics | 70 | 18 | | | 117 | 64 | There are no employees in the parent company other than Directors, whom are remunerated by other group companies (2023: nil). | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Their aggregate remuneration comprised: | | | | Wages and salaries | 5,168 | 3,856 | | Social security costs | 251 | 195 | | Other pension costs | 153 | 103 | | Share based payment | 51 | 224 | | | 5,623 | 4,378 | At the year end there were employer's pension contributions provided for but not paid of £8,282 (2023: £9,279). ### 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. | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Their aggregate remuneration comprised: | | | | Wages, salaries and fees | 858 | 693 | | Social security costs | 29 | 42 | | Pension and other benefits | 15 | 21 | | | 902 | 756 | 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, Björn Lindblom and Peter Tyler are not the members of the Company pension scheme. The highest paid Director received total remuneration of £393,458 (2023: £371,998). Please see page 44 for the details. --- # Notes to the financial statements ## 9. Finance income | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Discount on contract assets | 77 | 32 | | Bank deposits | 15 | 3 | | Total finance income | 92 | 35 | ## 10. Finance expense | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Interest on debt factoring | 27 | 19 | | Interest on loans | 22 | 44 | | Interest on loan from Directors | 31 | 41 | | Interest on lease liabilities | 19 | 11 | | Interest on bank overdraft | 2 | 18 | | Other interest | 12 | 3 | | Total finance expense | 113 | 136 | ## 11. Tax | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Current tax: | | | | UK corporation tax | (665) | (748) | | Overseas tax | 602 | - | | Adjustments in respect of prior year | (50) | - | | | (113) | (748) | | Deferred tax (note 26) | | | | Origination and reversal of timing differences | (282) | (294) | | Total tax credit | (395) | (1,042) | | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Loss on ordinary activities before tax | (4,225) | (3,448) | | Tax on loss at standard corporation tax rate of 25% (2023: 19%) | (1,056) | (655) | | Effects of: | | | | Expenses not deductible for tax purposes | 43 | 19 | | Capital allowances in excess of depreciation | (14) | - | | Capitalisation of R&D costs | (334) | (138) | | Losses surrendered for R&D tax credit | 1,661 | 980 | | R&D tax credit | (1,433) | (1,301) | | Unrelieved tax losses and other deductions arising in the year | 822 | 79 | | Adjustments in respect of prior periods | (50) | - | | Difference in tax rates | (34) | (26) | | Total tax credit for the year | (395) | (1,042) | --- # Notes to the financial statements ## 11. Tax (continued) Factors affecting tax charge in future years Tax losses carried forward at the end of March 2024 were £42,353,245 (2023: £39,036,486) of which £42,292,700 (2023: £39,005,763) relates to the UK and £60,545 (2023: £30,723) relates to Sweden. The Swedish tax rate reduced to 20.6% from 1 January 2021, and the Indian effective tax rate remains unchanged at 29.12% 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: | | 2024 | 2023 | | --- | --- | --- | | Loss for the purposes of basic loss per share being net loss attributable to equity holders of the parent (£000) | (3,830) | (2,406) | | Weighted average number of ordinary shares for the purposes of basic and diluted loss per share (excluding own shares held) | 271,910,382 | 232,763,664 | | Loss per share (pence) | (1.41) | (1,03) | 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. ## 13. Intangible Assets (Group) | | Software £000 | Software Development £000 | SMIP Intangible £000 | Total £000 | | --- | --- | --- | --- | --- | | Cost | | | | | | At 1 April 2022 | 144 | 424 | 6,100 | 6,668 | | Additions | - | 734 | - | 734 | | At 31 March 2023 | 144 | 1,158 | 6,100 | 7,402 | | Additions | - | 1,384 | - | 1,384 | | Disposal | (144) | - | - | (144) | | At 31 March 2024 | - | 2,542 | 6,100 | 8,642 | | Amortisation | | | | | | At 1 April 2022 | 144 | 11 | 2,420 | 2,575 | | Charge for the year | - | 5 | 421 | 426 | | Impairment | - | - | 968 | 968 | | At 31 March 2023 | 144 | 16 | 3,809 | 3,969 | | Charge for the year | - | 8 | 259 | 267 | | Disposal | (144) | - | - | (144) | | Impairment | - | 41 | 750 | 791 | | At 31 March 2024 | - | 65 | 4,818 | 4,883 | | Carrying amount | | | | | | At 31 March 2024 | - | 2,477 | 1,282 | 3,759 | | At 31 March 2023 | - | 1,142 | 2,291 | 3,433 | --- # Notes to the financial statements ## 13. Intangible Assets (Group) (continued) 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 £259,000 (2023: £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 £750,000 being made (2023: £968,000). The process and significant assumptions are as outlined in note 3b (i). ## 14. Intangible assets (Company) | | Software £000 | Total £000 | | --- | --- | --- | | Cost | | | | At 1 April 2023 | 144 | 144 | | Disposal | (144) | (144) | | At 31 March 2024 | - | - | | Amortisation | | | | At 1 April 2023 | 144 | 144 | | Disposal | (144) | (144) | | At 31 March 2024 | - | - | | Carrying amount | | | | At 1 April 2023 and 31 March 2024 | - | - | ## 15. Goodwill | | Group £000 | | --- | --- | | Cost at 1 April 2023 and 31 March 2024 | 1,930 | | Carrying amount at 31 March 2023 and 31 March 2024 | 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% (2023: 11.5%) - Compound annual growth rate in revenue over next five years between 11% and 21.5% (2023: 11% and 54%) - Growth rate in perpetuity 2% (2023: 2%) 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 21.5% 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). --- # Notes to the financial statements ## 15. Goodwill (continued) 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 £866k, 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 10% - 27% over the next five years against what is already a very conservative model (we have seen an actual revenue growth rate of 58% in financial year 2024 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. ## 16. Property, plant and equipment | Group | Fixtures and equipment £000 | | --- | --- | | Cost | | | At 1 April 2022 | 397 | | Additions | 31 | | At 31 March 2023 | 428 | | Additions | 224 | | Disposals | (25) | | At 31 March 2024 | 627 | | Accumulated Depreciation | | | At 1 April 2022 | 366 | | Charge for the year | 32 | | At 31 March 2023 | 398 | | Charge for the year | 58 | | Depreciation on disposals | (25) | | At 31 March 2024 | 431 | | Carrying Amount | | | At 31 March 2024 | 196 | | At 31 March 2023 | 30 | At 31 March 2024 the Group had no contractual commitments outstanding for the acquisition of property, plant and equipment (2023: £nil). --- # Notes to the financial statements ## 17. Leases | Right of use asset | | | | --- | --- | --- | | | Buildings | | | Group | £000 | | | Cost | | | | At 1 April 2022 | 679 | | | Disposals | (513) | | | At 31 March 2023 | 166 | | | Additions | 425 | | | At 31 March 2024 | 591 | | | Accumulated Depreciation | | | | At 1 April 2022 | 526 | | | Charge for the year | 31 | | | Disposals | (513) | | | At 31 March 2023 | 44 | | | Charge for the year | 73 | | | At 31 March 2024 | 117 | | | Carrying Amount | | | | At 31 March 2024 | 474 | | | At 31 March 2023 | 122 | | | Lease liability movements in the year | | | | --- | --- | --- | | | 2024 | 2023 | | | £000 | £000 | | As at 1 April | 123 | 153 | | New lease – Cambridge head office | 425 | - | | Payments | (93) | (41) | | Interest | 19 | 11 | | At 31 March | 474 | 123 | | Lease liabilities | 2024 | 2023 | | | £000 | £000 | | Current | 110 | 29 | | Non - Current | 364 | 94 | | As at 31 March | 474 | 123 | | Amounts recognised in Income Statement | 2024 | 2023 | | | £000 | £000 | | Expense on short-term lease | 103 | 103 | | Depreciation | 73 | 31 | | Interest | 19 | 11 | | Year to 31 March | 195 | 145 | CyanConnode Limited entered into a new lease agreement from 4 October 2023 for its head office in Cambridge on a term of 5 years with a mutual right of break by serving a notice at any time after 4 October 2026. At year end, there is no expectation that this break will be taken. Payments of £24,000 were made against the lease for the year ended 31 March 2024. An incremental borrowing rate of 5.91% was used to determine the lease liability on inception based on United Kingdom borrowing rates. CyanConnode Private Limited leases its office property on a 5-year term with a break clause after 3 years. Payments of £39,000 (2023: £41,000) were made against this lease during the year ended 31 March 2024. An incremental borrowing rate of 8.3% was used to determine the lease liability on inception based on Indian borrowing rates. --- # Notes to the financial statements ## 17. Leases (continued) CyanConnode Private Limited entered into an agreement for the rental of additional office space on 1 August 2023 for a period of 11 months. Payments of £30,000 were made against the short-term lease for the year ended 31 March 2024. ## 18. Subsidiaries Investment in subsidiaries | | Company 2024 £000 | Company 2023 £000 | | --- | --- | --- | | As at 1 April | 5,042 | 9,036 | | Capital contribution in respect of share-based payment | 51 | 224 | | Impairment in investment in Connode Holdings AB | (806) | (4,010) | | Impairment in investment in CyanConnode Limited | (160) | (208) | | As at 31 March | 4,127 | 5,042 | 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 £160,000 (2023: £208,000) in the year in line with the capital contribution to this company in the year. Movement in investment of subsidiaries | | Company 2024 £000 | Company 2023 £000 | | --- | --- | --- | | Cost | | | | Cost at 1 April | 15,156 | 14,932 | | Addition | 51 | 224 | | At 31 March | 15,207 | 15,156 | | Impairment | | | | Impairment at 1 April | (10,114) | (5,896) | | Impairment in the year | (966) | (4,218) | | At 31 March | (11,080) | (10,114) | | Carrying Amount at 31 March | 4,127 | 5,042 | The members of the Group, all of which are 100% owned are as follows: CyanConnode Limited Suite 2, Ground Floor The Jeffreys Building St Johns Innovation Park Cowley Road Cambridge CB4 0DS - 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 CyanConnode Private Limited B-41 Panchsheel Enclave New Dehli-110017 India - 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 --- # Notes to the financial statements ## 18. Subsidiaries (continued) DigiSmart Networks Private Limited 8 Kirti Nagar Sodala Jaipur Rajasthan-3020191 India - 100% of the issued share capital of the Company is held by CyanConnode Private Limited - The company is incorporated in India and has an accounting period ending 31 March - The principal activity of the Company is to act as an AMISP and to market and sell the Group's range of products in India along with products and services from other companies to provide a full end-to-end solution to utilities. Connode Holding 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 Sweden and has an accounting period ending 31 March - The principal activity of the Company is to act as a holding company Connode AB Solna Strandväg 80 172 54 Solna Stockholm Sweden - 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 | | 2024 | 2023 | | --- | --- | --- | | | £000 | £000 | | Bank securities | 51 | 62 | The Company held no bank securities at either balance sheet date. ## 20. Trade and other receivables – non-current assets | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2024 £000 | 2023 £000 | 2024 £000 | 2023 £000 | | Retention money | 548 | 315 | - | - | | Employee Benefit Trust Loan | - | - | 927 | 1,880 | | Contract assets | 2,537 | 1,761 | - | - | | Loans to other group entities | - | - | 402 | 419 | | Trade and other receivables | 3,085 | 2,076 | 1,329 | 2,299 | 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. However, in accordance to the updated IFRS 9 policy, retentions and contract assets will have the lowest level ECL rate applied. Our ECL rate is based on a different assessment criteria for aging, to better represent the risk profile of the company. It ranges from 1.07% to 2.5%. Refer to Note 22 for further details. The Employee Benefit Trust (EBT) holds own shares issued. The original amount of the EBT loan was £3,615,241 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 decreased by £952,947 (2023 £156,000 increased in value). There was no further loan made to the EBT in the year (2023: £nil). 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 2026 to 2029. --- # Notes to the financial statements ## 20. Trade and other receivables – non-current assets (continued) 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. 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. ## 21. Inventories | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Raw materials | 743 | 85 | | Raw materials - provision | (11) | (31) | | Raw materials – net realisable value | 732 | 54 | | Finished goods – cost | 954 | 739 | | Finished goods - provision | - | - | | Finished goods – net realisable value | 954 | 739 | | Inventories | 1,686 | 793 | Inventories are stated after provisions for impairment of £11,000 (2023: £31,000). £20,000 (2023: £102,000) of stock impairment charges were recognised in the year, and £20,000 (2023: £743,000) provision was utilised. There has been no impairment reversal (2023: £nil) in the year. The total cost of inventories expensed in the year amounted £12,708,000 (2023: £7,259,000). The Company held no inventories at either balance sheet date. ## 22. Trade and other receivables – current assets | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2024 | 2023 | 2024 | 2023 | | | £000 | £000 | £000 | £000 | | Trade receivables | 8,692 | 7,224 | - | - | | Allowance for expected credit losses | (175) | (274) | - | - | | | 8,517 | 6,950 | - | - | | Contract assets | 910 | 24 | - | - | | Other debtors | 911 | 52 | 12 | 32 | | Prepayments | 153 | 156 | 43 | 49 | | Trade and other receivables | 10,491 | 7,182 | 55 | 81 | CyanConnode Ltd has a loan of £69,281,018 (2023: £64,838,214) with CyanConnode Holdings plc with a current impairment provision of £69,281,018 (2023: £64,838,214). The directors consider that the carrying amount of trade and other receivables approximates to their fair value. Trade receivables are non-interest bearing. Credit terms offered to customers vary upon the country of operation and type of goods and services provided. Credit terms are often aligned with the credit terms agreed between the meter manufacturer and the end customer. Hardware sales are normally invoiced on delivery and settled within 30 or 60 days. Software licenses and other services tend to have longer payment terms due to being paid over the contract life. --- # Notes to the financial statements ## 22. Trade and other receivables – current assets (continued) ### Expected credit losses The movement in the expected credit loss provision in the year was as follows: | | Group 2024 £000 | Group 2023 £000 | | --- | --- | --- | | As at 1 April | (273) | (181) | | Credit /(charge) in the year | 98 | (117) | | Provision utilised | - | 25 | | As at 31 March | (175) | (273) | ### Credit risk At 31 March 2024 the Group had significant concentration of credit risk in five customers which represented 98% (2023: three customers, 57%) of the Group's trade receivables. This reliance on four customers in the India and one customer in UAE is included within our principal risks statement on pages 23 to 26 of this report. | Trade receivables | 2024 Credit loss % applied | 2023 Credit loss % applied | 2024 £000 | 2023 £000 | | --- | --- | --- | --- | --- | | Not yet due | 1.07% | 2.00% | 7,553 | 6,813 | | 30 – 59 days | 1.07% | 6.00% | 8 | 74 | | 60 – 89 days | 1.07% | 8.00% | 273 | 11 | | 90 – 120 days | 2.00% | 8.00% | 80 | 4 | | 120 days and over | 2.50% | 8.00% | 778 | 322 | | Total | | | 8,692 | 7,224 | 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 £858,000 (2023: £326,000) which is over 90 days overdue is included in trade receivables. A provision of £90,000 (2023: £136,000) has been recognised based on known exposures and expected credit losses. ## 23. Cash and cash equivalents | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2024 | 2023 | 2024 | 2023 | | | £000 | £000 | £000 | £000 | | Cash and cash equivalents | 783 | 4,070 | 20 | 2,991 | 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. The guarantee of £10,000 given by Barclays Bank plc to HMRC on behalf of CyanConnode Limited has been satisfied on 4 March 2024. Barclays Bank plc have granted a foreign exchange facility of £25,000. --- # Notes to the financial statements 24. Trade and other payables | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2024 | 2023 | 2024 | 2023 | | | £000 | £000 | £000 | £000 | | Trade payables | 6,226 | 2,657 | 44 | 78 | | Other payables | 290 | 87 | - | - | | Accruals | 1,310 | 716 | 161 | 90 | | Social security and other taxes | 392 | 306 | - | - | | Contract liabilities | 232 | 67 | - | - | | | 8,450 | 3,833 | 205 | 168 | 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 £114,000 is anticipated to unwind in financial year 2025 (2023: £59,000). During the year £nil (2023: £22,342) 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 (2023: £nil). The average credit period taken for trade purchases is 101 days (2023: 63 days) due to delayed payments for back-to-back arrangements and periodic payment management for cashflow timing. | Trade payables | 2024 | 2023 | | --- | --- | --- | | | £000 | £000 | | Not yet due | 2,628 | 2,187 | | 30 - 59 days | 452 | 384 | | 60 - 89 days | 783 | - | | Over 90 days | 2,363 | 86 | | Total | 6,226 | 2,657 | The directors consider that the carrying amount of trade payables approximates to their fair value. 25. Short-term borrowings | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2024 | 2023 | 2024 | 2023 | | | £000 | £000 | £000 | £000 | | Advance on R&D tax credit | - | 500 | - | 500 | | Loan from Directors | - | 300 | - | 300 | | Debt factoring | - | 426 | - | - | | As at 31 March | - | 1,226 | - | 800 | A loan of £300,000 (2023: £300,000) from one Director to assist with working capital was repaid in November 2023. Interest was charged at 13.5% per annum. In November 2022, the Company received an advance loan for £500,000 against its R&D tax credit. This loan was repaid to the lender out of the funds received from HMRC for the group's R&D tax credit. The loan bore interest at 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 £nil (2023: £426,000) was owing to the bank. The facility bore interest at 8% (2023: 8%) per annum. --- # Notes to the financial statements ## 25. Short-term borrowings (continued) 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 2024 (2023: £nil). To assist with working capital, a loan from one director for £400,000 was put in place after year end, as an advance against the FY24 R&D Tax Credit, expected to be received by October 2024. ## 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. | | 2024 £000 | 2023 £000 | | --- | --- | --- | | At 1 April | 452 | 746 | | Movement during the year (note 11) | (282) | (294) | | At 31 March | 170 | 452 | | | 2024 £000 | 2023 £000 | | SMIP Intangibles deferred tax | 264 | 472 | | Deferred tax asset - India | (82) | (20) | | Deferred tax asset - Sweden | (12) | - | | Accelerated capital allowances | 11 | (2) | | Short term timing differences | (2) | (2) | | R&D intangible | 619 | 285 | | Losses | (628) | (281) | | Total recognised deferred tax liability | 170 | 452 | | Unrecognised deferred tax asset | | | | | 2024 £000 | 2023 £000 | | Share options | - | (80) | | Losses - UK | (9,958) | (9,759) | | Total unrecognised deferred tax asset | (9,958) | (9,839) | The deferred tax asset has not been recognised due to the unpredictability and uncertainty of future profit streams. ## 27. Other non-current liabilities | | 2024 £000 | 2023 £000 | | --- | --- | --- | | Other payables | 87 | 42 | The other non-current liabilities relate to CyanConnode Private Limited in relation to employment obligations. --- # Notes to the financial statements ## 28. Share capital | Issued and fully paid, ordinary shares of 2.0 pence each | No | £000 | | --- | --- | --- | | As at 31 March 2022 | 236,309,035 | 4,726 | | Issue of new shares | 35,578,329 | 712 | | As at 31 March 2023 | 271,887,364 | 5,438 | | Issue of new shares | 27,188,500 | 544 | | As at 31 March 2024 | 299,075,864 | 5,982 | In the year, no shares were issued at prevailing market prices as settlement for professional services provided (2023: £68,750). In January 2023 the Company successfully raised funding of £5.25m before expenses through a placing of 30,882,354 ordinary shares. In November 2023 the Company successfully raised funding of £2.72m before expenses through a placing of 27,188,500 ordinary shares. During the year, shares were issued to directors and employees as part payment for their remuneration. £50,000 was raised this way during the year (2023: £24,175). During the year no shares were issued as a result of the exercise of share options (2023: 451,722 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 | | Group £000 | Company £000 | | --- | --- | --- | | Balance at 31 March 2023 (11,305,524 ordinary share of 2.0 pence per share) | (3,611) | - | | Movement in year | - | - | | Balance at 31 March 2024 (11,305,524 ordinary share of 2.0 pence per share) | (3,611) | - | Own shares held are those issued to the Employee Benefit Trust. ## 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 retained losses in respect of options exercised or cancelled/lapsed. The reserve also includes the fair value of warrants issued less transfers to retained losses in respect of warrants that have been exercised or have 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. --- # Notes to the financial statements ## 34. Reconciliation of operating loss to net cashflow from operating activities | Group | 2024 £000 | 2023 £000 | | --- | --- | --- | | Operating loss for the year | (4,204) | (3,347) | | Adjustments for: | | | | Depreciation of property, plant and equipment | 58 | 32 | | Amortisation of Intangible assets | 267 | 426 | | Depreciation on right of use assets | 73 | 31 | | Impairment of intangible assets | 791 | 968 | | Shares issued in lieu of bonus / service | - | 24 | | Share based payments | 51 | 224 | | Operating cash flows before movements in working capital | (2,964) | (1,642) | | Increase in inventories | (913) | (634) | | Increase in receivables | (4,348) | (1,787) | | Increase in payables | 4,662 | 1,475 | | Cash outflow from operating activities | (3,563) | (2,588) | | Net income taxes received | 703 | 371 | | Net cash outflow from operating activities | (2,860) | (2,217) | ## 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 pages 42 to 43. Details of the share options outstanding during the year were as follows: | | 2024 | | 2023 | | | --- | --- | --- | --- | --- | | | Number of share options | Weighted average Exercise price (in £) | Number of share options | Weighted average Exercise price (in £) | | Outstanding at beginning of year | 24,577,078 | 0.15 | 34,268,640 | 0.19 | | Granted during year | 9,167,271 | 0.14 | 4,011,315 | 0.11 | | Exercised during the year | - | - | (451,722) | 0.10 | | Forfeited during year | (5,043,338) | 0.16 | (13,251,155) | 0.23 | | Outstanding at the end of the year | 28,701,011 | 0.15 | 24,577,078 | 0.15 | | Exercisable at the end of the year | 16,731,987 | 0.15 | 9,097,418 | 0.18 | --- # Notes to the financial statements ## 35. Share based payments (continued) The options outstanding at 31 March 2024 had a weighted average remaining contractual life of 81 months (2023: 97 months). The options outstanding at year end had exercise prices ranging from £0.10 to £0.84. In the year to 31 March 2024, options were granted on 17 November and 30 January. The aggregate of the estimated fair value of those options is £710,437. In addition, on 30 January, 437,793 replacement options were granted for options granted in 2017 with no incremental fair value. 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. A share option charge of £51,059 (2023: £224,218) 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: | | 2024 | 2023 | | --- | --- | --- | | Weighted average share price | 14.55p | 22.27p | | Weighted average exercise price | 15.30p | 16.63p | | Expected volatility | 85% | 78% | | Expected life | 4 years | 4 years | | Risk free rate | 3.50% | 3.50% | | Expected dividend yield | 0% | 0% | Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous 60 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. ## 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. | | 2024 | | 2023 | | | --- | --- | --- | --- | --- | | | Number of warrants | Weighted average Exercise price (in £) | Number of warrants | Weighted average Exercise price (in £) | | Outstanding at beginning of year | 341,605 | 0.54 | 341,605 | 0.54 | | Granted during the year | 27,188,500 | 0.15 | - | - | | Lapsed during the year | (230,000) | 0.54 | - | - | | Outstanding at the end of the year | 27,300,105 | 0.15 | 341,605 | 0.54 | | Exercisable at the end of the year | 111,604 | 0.61 | 341,605 | 0.54 | --- # Notes to the financial statements ## 35. Share based payments (continued) The inputs into the Black-Scholes model for the warrants are as follows: | | 2024 | Pre-2023 | | --- | --- | --- | | Weighted average share price | 14.94p | 32.78p | | Weighted average exercise price | 15.0p | 54.0p | | Expected volatility | 85% | 65% | | Expected life | 10 years | 10 years | | Risk free rate | 3.5% | 0.5% | | Expected dividend yield | 0% | 0% | Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous 60 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: | | Group | | Company | | | --- | --- | --- | --- | --- | | | 2024 | 2023 | 2024 | 2023 | | As at end of year | £000 | £000 | £000 | £000 | | Financial assets | | | | | | Classified as amortised cost | | | | | | Trade receivables | 8,517 | 6,950 | - | - | | Retention money | 548 | 315 | - | - | | Intercompany receivables | - | - | 401 | 419 | | Other debtors | 496 | 45 | 939 | 1,912 | | Contract assets | 3,447 | 1,785 | - | - | | Cash and cash equivalents | 783 | 4,070 | 20 | 2,991 | | Total financial assets | 13,791 | 13,165 | 1,360 | 5,322 | | | Group | | Company | | | | 2024 | 2023 | 2024 | 2023 | | As at end of year | £000 | £000 | £000 | £000 | | Financial liabilities | | | | | | Classified as amortised cost | | | | | | Trade payables | 6,226 | 2,657 | 44 | 78 | | Other payables | 290 | 87 | - | - | | Accruals | 1,310 | 716 | 161 | 90 | | Short-term borrowings | - | 1,226 | - | 800 | | Lease liabilities | 474 | 123 | - | - | | Total financial liabilities | 8,300 | 4,809 | 205 | 968 | The Directors consider that the financial assets and liabilities have fair values not materially different to carrying --- # Notes to the financial statements ## 36. Financial instruments and risk management (continued) 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 2024 | | Contractual Cash Flows | | | | | | --- | --- | --- | --- | --- | --- | | | Carrying Amount £000 | Total £000 | 1 - 12 months £000 | 1 - 2 years £000 | 2 - 5 years £000 | | Non-derivative financial liabilities | | | | | | | Trade payables | 6,226 | (6,226) | (6,226) | - | - | | Other payables | 290 | (290) | (290) | - | - | | Accruals | 1,310 | (1,310) | (1,310) | - | - | | Lease liabilities | 474 | (528) | (135) | (138) | (255) | | Total | 8,300 | (8,354) | (7,961) | (138) | (255) | As at 31 March 2023 | | Contractual Cash Flows | | | | | | --- | --- | --- | --- | --- | --- | | | Carrying Amount £000 | Total £000 | 1 - 12 months £000 | 1 - 2 years £000 | 2 - 5 years £000 | | Non-derivative financial liabilities | | | | | | | Trade payables | 2,657 | (2,657) | (2,657) | - | - | | Other payables | 87 | (87) | (87) | - | - | | Accruals | 716 | (716) | (716) | - | - | | Short-term borrowing | 1,226 | (1,226) | (1,226) | - | - | | Lease liabilities | 123 | (141) | (37) | (40) | (64) | | Total | 4,809 | (4,827) | (4,723) | (40) | (64) | ## 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 £69,281,017 (2023: £64,838,214). In addition, the Company has made a total provision of £2,688,189 (2023: £1,996,407) 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. ## Capital risk Details relating to capital risk and capital risk management are set out in the capital structure section in the Directors' Report on page 46 of this report. --- # Notes to the financial statements ## 36. Financial instruments and risk management (continued) ### 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, United Arab Emirates, 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 2024 exchange rate. | | INR £000 | SEK £000 | | --- | --- | --- | | Fixed assets | 792 | 251 | | Current assets | 13,184 | 81 | | Current liabilities | (6,540) | (103) | | Net assets | 7,436 | 229 | ### 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 | March | March | | --- | --- | --- | | | 2024 | 2023 | | | £000 | £000 | | Indian Rupee | 1,252 | 789 | | Swedish Krona | 39 | 49 | 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. --- # Notes to the financial statements ## 36. Financial instruments and risk management (continued) | Year ended | March 2024 £000 | March 2023 £000 | | --- | --- | --- | | Indian Rupee | (667) | (344) | | Swedish Krona | (4) | (37) | ### 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 44 of the Directors’ Report for a full list of directors who served in the year. During the year, 1,000,000 (2023: 827,076) newly issued shares were purchased by the directors of the Company for £100,000 (2023: £133,000). During the year, the Company paid fees of £423,333 (2023: £379,605) in respect of services provided by directors. The balance outstanding at the year-end was £78,500 (2023: £50,000). Please see page 44 of the Directors’ Remuneration Report for further information. To assist with working capital, a loan was granted from one director in December 2020 for £300,000. This was repaid during the year. Interest was charged at 13.5% per annum. During the year interest of £30,375 (2023: £40,500) was incurred and no balance (2023: £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. | | Connode Holding AB £000 | Connode AB £’000 | CyanConnode Limited £000 | CyanConnode Private Limited £000 | | --- | --- | --- | --- | --- | | Loans to related parties | | | | | | Balance as at 31 March 2023 | 378 | 37 | - | 4 | | Cash advances/(repayments) | - | - | - | - | | Impairment provision | - | - | - | - | | Loss on foreign exchange revaluation | (18) | - | - | - | | Balance as at 31 March 2024 | 360 | 37 | - | 4 | CyanConnode Holdings plc makes a management charge for services rendered to CyanConnode Limited. In the year to 31 March 2024 these amounted to £194,000 (2023: £297,000). CyanConnode Ltd has a loan of £69,281,018 (2023: £64,838,214) with CyanConnode Holdings plc with a current impairment provision of £69,281,018 (2023: £64,838,214). --- # Professional Advisers | Nominated and Financial Adviser | Registrars | | --- | --- | | Strand Hanson Ltd | Share Registrars Ltd | | 26 Mount Row | 3, The Millennium Centre | | London | Crosby Way | | W1K 3SQ | Farnham | | | GU9 7XX | | Joint Broker | Joint Broker | | Zeus Capital Ltd | Panmure Liberum | | 125 Old Broad Street | 25 Ropemaker Street | | London | London | | EC2N 1AR | EC2Y 9LY | | Auditor | Patent Attorneys | | RSM UK Audit LLP | Beresford & Co | | Blenheim House | 16 High Holborn | | Newmarket Road | London | | Bury St Edmunds | WC1V 6BX | | Suffolk | | | IP33 3SB | | | Solicitors to the Company | Principal Banker | | Taylor Wessing LLP | Barclays Bank plc | | 5 New Street Square | 9-11 St Andrews Street | | London | Cambridge | | EC4A 3TW | CB2 3AX |