CyanConnode Holdings plc (CYAN) Earnings Call Transcript & Summary

Welcome to BRR Media. Today, I'm joined by John Cronin, the Executive Chairman; and Heather Peacock, the Group Finance Director of CyanConnode. John and Heather, it's great to have you both with us.

Good talking with you again.

John, can you firstly provide a brief business overview and key highlights from your interim results for the 12 months to the 31st of December 2019?

Yes, sure, we'll do. So just to recap, CyanConnode is an international leader in smart IoT communications technology, and we're utilizing narrowband RF for smart city solutions. And we spent something in the region of GBP 50 million over many years doing research and developing a market-leading and pioneering RF smart mesh network technology, which offers: one, high reliability; two, low power; three, cost-effective machine-to-machine data communications and offer smart meters with electricity, gas or water. And we have built a very strong market position in providing our technology to electricity smart meters around the world, which is what I call the low-hanging fruit. Now whilst we are disappointed that our revenue did not meet the original market expectations, which we later changed the latter part of last year, as a result of these delays, which came from new tenders and a significant contract caused by the Indian general elections in April and May, there are a number of positives that we should take from this, and we can draw down from the set of results that we put out today. So first of all, really, there's a significant reduction in operating losses and costs. We've increased our cash collection from debtors during 2019. We have had a number of significant wins, both new and follow-on orders, from India, Thailand and Europe. And the launch, of course, during the year of a range of new Omnimesh products, including long-range RF module. We have had, I guess, encouraging first quarter for 2020, winning a significant order for the smart metering project in South India as well as a follow-on for a large order for the metropolitan electricity authority in Thailand known as MEA, and demand for our products remain strong as we continue to hold a leading position in the Indian market.

Heather, turning to you now, can you outline what investors should be taking note of?

Yes. Rosie, there are a number of promising takeaways from these results, including in February last year, we received a follow-on order from Larsen & Toubro. And as a result of this order and seeing the benefits of the Omnimesh solution to the utility, the utility has recently said that it intends to add a further 350,000 units across 5 RAPDRP towns to this project. It's expected that these units will be RF mesh and this tender is currently underway. We continue to secure orders from new partners, evidenced in April 2019 with the order from an Indian state-owned utility for the deployment of 3,000 Omnimesh modules. Orders received from Larsen & Toubro for our legacy product have reached over 50,000 units to date. We received a letter of intent for an order worth GBP 3.3 million in -- from Genus in December 2019, and this was converted in January into an actual order. We're expecting revenue for 80% of the order to be recognized by the middle of 2021 for this order. Moving to Europe. We received a follow-on order from HM Power for the smart metering of district's heating and power, which demonstrates the flexibility of the Omnimesh products. The smart metering market in the Asia Pacific and Middle East continues to mature and presents a significant opportunity for CyanConnode. The company is working closely with Beijing Instruments and on a number of tenders that may require smart meters with Omnimesh RF modules and gateways in these regions. The launch of new Omnimesh products, including a long-range RF module was another significant takeaway from the period.

John, turning back to you. You state that India is a key market for CyanConnode. Can you tell us why this is?

Indeed, Rosie. As you know, we've mentioned in the past that India represents a significant market opportunity for CyanConnode, and we do hold a leading position in the market. And India is poised to be the second fastest adopter of smart metering globally as the government lays out plans to scale from what they have today installed a 1.5 million meters to 250 million. Add to this the growing need for stability of power as a country industrialize and urbanizes, India faces huge power leakage and power theft which is equivalent to something like $32 billion. Also as a company, we have established great partnerships with many of the leading utilities and meter manufacturers in India. And this has really helped up open up tender opportunities for new businesses. We input regularly through roundtable meetings with the Ministry of Power, Central Electricity Authority, the National Smart Grid Mission, EESL and others and other agencies on how to implement large national rollout of smart meters through a consortium of service providers. CyanConnode's aim is to target and win something in the region of 20 million meters over the next 5 years, and this will produce significant revenues and profits for the company.

John, what impact do you anticipate COVID-19 having on your business? And what have you done to mitigate this?

Yes. It's worth looking at our interim results on the outlook section. But as you know, COVID-19 undoubtedly poses a significant worldwide uncertainty, not just for us but for many companies all over the world, and we are working hard to understand the risks and how best to mitigate them. And we have put in place the most appropriate measures to protect our business. The well-being of our staff is a priority. We're confident that at present, we're effectively matching the challenges that COVID-19 has presented to us. And some of the areas that we've covered, I'll just go through some of those. So first of all, we are following the advice by national governments. All our employees are operating productively from their homes as they are accustomed to remote working anyway. We were able to swiftly implement home working policy because today, that's how we work from the U.K. to India and also to Sweden and other places internationally. All the engineering staff were prepared with the necessary equipment and our contingency plans that we had and an agreed remote working model in preparation for the risk of a potential lockdown. The remote working model allows a continuity of the company's standard processes with access to developments and test environments, which is really important at this moment in time as really we are, for our customer projects, in the phase of design and development and not having to go to the field to complete any work. Also by using video conferencing, another remote meeting tools, I should say, our project management teams continue to support customer projects so that they remain on track. Our engineering teams have the necessary equipment at home, including hardware rigs to allow collaboration with their colleagues in different territories, and this is to ensure that we meet customer deadlines. Our manufacturing operations team have been working to secure the supply chain, which is really important, and they are beginning to see improved delivery times from Chinese manufacturers. We are now, at CyanConnode, in our third week of remote working and the engineering team's development work remains on track to customer milestones, thus delivering agreed project time lines, and we are planning that when customers return to their offices, we will still be on track and ready to do that field work that I talked about.

John, can you explain the CyanConnode proposition, and what sets the group apart from its peers?