Calnex Solutions (LSE:CLX) — Final results for the year ended 31 March 2021

0:01 Good afternoon, ladies and gentlemen, and welcome to the CALNEX SOLUTIONS PLC investor presentation for the final results for the year ended 03/31/2021. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and can be submitted any time via the q and a tab situated on the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Tommy Cook, CEO and Ashley Grennan, CFO of CALNEX SOLUTIONS PLC. Good afternoon.

0:50 Thank you, and good good afternoon, everyone, and welcome along to the first set of field results from CALNEX since we listed it back in October. So before I go in and Ashley and I are gonna give you a detailed overview of what happened in FY twenty one. But before we do that, I thought for some of you may not be completely familiar with CALNEX, we'll just take a few minutes to remind everyone who CALNEX is and what we do. So CALNEX generates test equipment for the telecommunications industry. We design, produce, and manufacture test instrumentation. Our test instrumentation is used to prove critical performance of infrastructure in the new telecoms networks being developed around the world. We started back in 2006, launched our first product in 2007, and since then, I've been at the forefront of the global test and test and measurement industry.

1:44 We have been successful at selling into all the subgroups within the telecom sector. That's the network operators, the network equipment manufacturers, and the component manufacturers, as well as being increasingly successful with the large enterprises that are running their own networks and also the hyperscale companies that are building these data centers. So to date, we have actually managed to secure orders and ship products to over 600 customer sites in 68 countries around the world. The test and measurement fits into just about every part of the life cycle of the telecoms industry. From when you're developing new equipment to when you're manufacturing equipment to when you're building networks or when you're you're managing and maintaining networks. The best that we primarily focus on is mainly in the r and d phase when they're building new equipment. So that's into the r and d design validation and standards conformance testing.

2:38 And the reason we focus on that is that is an area where we feel that we can deliver real value and very much we are an enabler to our customers. Our customers are obviously trying to get their new product to market as quickly as they can, but it's not matter just quickly. It needs to be robust. They need to ensure they get good design margins so they don't have problems in manufacturing, and that it's gonna meet all the various scenarios that it's gonna be inflicted on it once it's in the real world. So they want to run with all real world scenarios to check that it meets them, and also that it conforms to the various standards. So we enable our customers to get their product to market quickly if we give them the right functionality at the right time. And when you do that, then you can command healthy margins from your products by getting the product to the customers at the right time.

3:26 The one other area that we focus on is maintenance test. Installation test and first level maintenance these days in live networks tends to be done by fairly limited amount of testing, putting things together, running quick self tests, running quick evaluations, even first level maintenance such as board swap and then run quick tests. Where we focus on is when you actually find that that doesn't solve the problem and there's some major issue in the network that's stopping a piece of equipment to work. Then you need to have deep insight into what's happening at that point that allows you to debug it, understand what's happening and obviously get the thing back up and working again. And so we provide tools that provide deep insight to what's happening in networks. And that fits in nicely with the ethos that we provide in our tools in the r and d environment, gives deep insight into performance and evaluation for evaluating, the new equipment coming to market.

4:23 So our customer sets fall into four major broad sets. Starting the top left, you've got the equipment vendors, the telecoms equipment vendors, names you'll have recognized at Ericsson, Nokia, Huawei, Cisco, Sienna. They represent roughly about 55% of our business, and they are using our products in that r and d verification and conformance test state. So their engineers developing new equipment that's when they use our test solutions. About 15% of our our business comes from the network operators. So these are the companies, again, names you'll be familiar with, BT, AT and T, China Mobile. And again, they they use our maintenance tester, but they actually use our r and d testers because especially the large operators, they actually always run evaluations of new equipment before they deploy it in the networks. And they use the exact same testers or equipment because they're running a very similar set of tests that the designers are using in the vendors, so they use our r and d testers for that evaluation as well.

5:28 The third set of customers in the telecom space is the bottom right, is the component manufacturers. Intel, Qualcomm, Broadcom, these companies that make very sophisticated chipsets that are high functionality. They make chips and they sell them to the vendors who build them into their products, who then sell them to the operators to build networks. Again, they need to do standards conformance tests, improve performance, so again, they're using our r and d type testers to do their testing. They represent more like 8% of our business. And then the last set in the top right is our growing set, our customer set that's growing for us. They're currently around 22, 23% of our business. These are either the large enterprises that run their own networks like banks and Walmart and companies like that. And then also the hyperscale companies, the companies you have Facebooks, Google's are building these huge data centers and running these. These are almost like mini networks and they have this a lot of the similar challenges that the operators and the telecoms people have.

6:30 So we are selling to these people as well and see see them as a growth opportunity for us as we move forward. The telecoms is very much a space that's all about innovation. You know, we hear a lot about five g cloud computing. And for me, g, people it's presented to the consumer world like a spot technology. You had three g. You had you had four g. You had some five g. But it's much more than that. It's really about the evolution of the whole mobile network to support the smart cities of the future. There's an insatiable desire to get more information through the network from more applications, new applications, new things that are coming along, new things that we don't know about today that will influence everybody's life in the future. And while telecoms is really an enabler for that and they have to create the platform, mobile connectivity that allowed all these applications and companies to offer these new services to you. So really, to me, five g is a euphemism of the evolution of the mobile network to get to meet the needs of the smart cities. The same with cloud computing. There's a huge movement of moving data into the cloud. That means there's vast amounts of data moving back and forward, and companies and employees, rather than just using networks within businesses, may need networks that run across literally tens of kilometers to to to work correctly.

7:51 So this is causing huge changes within the telecoms industry. It's whole architectures need to change to be able to support all this new this huge growth in data, new type of services. And in terms of doing that, it's all about bringing new you know, the operators also need to make money so they need to use technology that allows them to deliver these services at a cost effective price. And so very much we see the movement in the architectures, the new architectures, new equipment, new topologies, new services all need to be tested and checked and therefore that's what's driving the telecoms test industry is the fact there's so much change happening. To me it's an incessant change that's going forward and will go on for years to come until people decide they've got enough and they need no more. That's unlikely to happen for a very, very long time.

8:43 Excuse me. That's who CALNEX are, that's where we fit in the world. Let's talk about FY '21 and what happened last year. Well, a year that was a very difficult year for many companies, we had an exceptional year. We actually had really strong trading across all our product lines. So we've got three main product lines and all three of them exceeded our targets we set at the beginning of the year. We also split the world into three major regions, and all regions exceeded targets that were set at the beginning of the year. So we really had a great year. It felt as if the the chaos that was happening in the world because of COVID really didn't affect our business at all. We fairly quickly moved into a remote working scenario as did our customers. And fortunately for us, our customers very successfully moved to remote working, so they continued their projects, continued their investment in test equipment. So we really didn't see any blip.

9:38 If anything we've seen a positive upside in a bizarre sort of way. There was two things that we feel have actually had a positive short term effect and these are really driven by the effect of the pandemic. So they're not really changes in the industry, it's just the way certain companies have reacted and what's happened to change the, know, to deal with the the bizarre scenario we all faced last year. The first thing is that we believe in our top 10 customers, three year customers pulled our orders forward that we would have expected to get in f y twenty two into f y twenty one, which seemed roughly between point eight and one point one, 1.2 of business that we felt we closed this year that we would have expected to close next year. Now that may seem a bit strange to you, why would you spend early?

10:25 What we see in large companies is that, you know, when most of our in engineering teams, they use our capital spend to buy our products. And what happens, and we've seen this in the past happening, is when companies think there's trouble coming over the horizon that they may get cut. And as we all know, especially large corporations, the first lever of the pool when they think there's financial difficulties coming is the capital spend budget. So what we see, slightly bizarrely, is the engineering team spend quickly. So they spend the money before they get it, before their budgets get cut. And that's what we think we've seen here is that some people have placed orders three to six months earlier than we would have otherwise expected them to place orders. We have seen some customers slow their spend patterns slightly and already we're starting to see that pick up. So there has been kind of ripples caused by what's happened in the recent period, nothing that's changed in the underlying dynamics but it has brought the orders forward.

11:19 The other big difference that affected us is we travel a lot. You know, we build strong relationships with our customers. It's a very technical sale that we do. So we normally travel a lot and of course nobody could travel last year. All travel stopped and we saved around £400,000 compared to what we spent the year before and what we budgeted for at the start of the year on travel. Obviously that just falls straight through. We expect travel to come back this year. China, our team in China already, they've been travelling since the back end of last year. Travel opened up. We're starting to see in The US it opening up again and in Europe hopefully in the next few months it'll open up again. So we expect to see the travel spend to go back up this year but there was definitely a much reduced travel spend last year. And so the combination of that extra revenue, a million kind of revenue, formed through to around 600 k of profit plus the 400 k that we didn't spend. We've also seen the EBITDA and PBT increase by about a million. But even underneath that million that we see, we still had a great year.

12:23 And of course, at Topo having a great year and dealing with the pandemic, we floated the company as well and we floated and listed in October. As part of that exercise, raised capital for further investment in the business.

12:38 By the end of the year, we were sitting with an additional 9,000,000 of cash generation. Ashley will cover that in more detail later, but roughly half came from the float plus the less came from the the upside in the business that we generated from the the positive trading. As part of the float, and and we said we were going to invest in our teams and grow the business and we have been doing that through last year. You can see that in the chart how much we've grown as well as we plan to continue and complete that growth phase through the first part of this year. We've invested in our business development teams both out in the field that support customers, as well as the support teams back in the in the main offices, and we've obviously grown our r and d teams to give us a bigger footprint and more bandwidth to go after the opportunities that are ahead of us.

13:27 One of the other big initiatives we had internally was to look at our quality management system. We've seen through the many years and going through growth phases that you have to be careful when suddenly you start to grow quickly, that processes and things that worked in the past suddenly start to creak and are less efficient than they were in the past. So very much we got an ethos of continuous improvement, looking at things and always looking for ways to improve them and we had a major push in the last year to improve the way we go about that, make it more systematic in the way we do that, ensuring that we're always efficient and effective in the way we go about doing our business. One of the other things that Ashley will share with you is a lot of the metrics that we look at in our business in terms of the split of business between the three main regions, the amount of repeat business we get versus new customers, all the trains were pretty much on track, following the same trajectory that we've seen in the previous years. So in some ways, last year for us was in in a bizarre way, like a business as usual albeit it ended up being an exceptional business as usual.

14:31 And that gives us confidence looking forward that it wasn't just because we had a good year because we had one big deal or one region was doing well, that everything seems to be moving as we would expect in a positive trajectory. So that feels good. We have two major relationships with other companies. We work with Spirant Communications who provide a sales channel for around 70% of our our deals. And we also have a contract manufacturer, CALNEX SOLUTIONS, who do all our our manufacturing for us. These are relationships that have been in place for we're spiraling to seven years, Kevin said it's over ten years we've been working with them. And these relationships stay strong, again it was very much a business as usual. We work closely with both these companies again to continually look for ways to be better at what we do together, but the relationships remain strong and we expect them to continue moving forward for the foreseeable.

15:25 Finally, think like everybody's found, you know, we were all forced to work from home, we didn't choose it, let's be honest, but we actually have learned a lot and you know, we've found that our team's been actually, at times more effective working from home, their work life balance is better and they're actually being more business effective. So we're really looking forward into the post lockdown phase of how we create a hybrid model and let our teams benefit from the best of both of us, both the teams and the business. We'll have times when people are in the office but we'll have times where people can work from home much more than they did in the past because we know it's actually better for the team and it's better for the business. It's a win win situation. If we have a quick look at our three main product families, we have three, our business falls into three sectors. We've got a lab sync, a Clayton IT, and field sync.

16:16 All three of them did really well, and we strengthened the position in the market with all three of them over the last year. In the lab sync, the Paragon Neo remains the market, you know, the de facto standard for proven standards conformance for the transfer of synchronization through the network, a critical part of the architecture that's required to support the expansion of the mobile network. So we had some new releases last year, these went down well with customers and we're seeing good growth across all regions and across all our customer sets. There's also been within the industry, there's a new alliance formed, which is like a standards body, sometimes they call them forums, sometimes they call them standards bodies. The ORAN alliance, and this is all about getting more companies involved. It was started by a number of the large operators who are always keen that there's competition and everybody involved in providing products to them.

17:08 So they basically started this ORAN alliance, there's now about two sixty companies involved, we're involved in it and it's basically about specifying equipment that can be used in the RAN, that's the radio access network. So it's not just the radio towers you see at the side of the road, but it's the architectural the stuff close by in the architectural wide ways to the radio tower, all the equipment. And it's basically defining breaking the whole system down into a number of parts and defining the blocks, the building blocks that allow smaller companies to come in and start playing. Now how that's going to change the dynamics of the industry, I would say it's too early to say. Probably need to give it a year or two to play out to see what it changes. But we are seeing a number of new companies starting to ask us about synchronization tests and so that's good for us. The more people involved, then the bigger the market opportunity for us.

17:59 In the cloud 19 with our network emulation products, we've got the two products. The Attero is very much aimed at the high performance applications. We've had good success over the last year with that, especially in with the data center guys. And the SNE is more about the people not in high performance but wanting to emulate complex networks with many different interfaces on many different rates, multi user type applications. And our SNE has done really well there. We've had a large focus on basically being from a marketing attack, being a lot more application focused, really showing the customer how they can use our product, which is really you can think of it as a toolset with many capabilities, but really showing them how they can apply it and gain value application. In But also that's important that the engineers understand it, also their managers understand where the value comes because it's the managers that are actually saying the purchase rates to buy their engineers the tools. So again, we've seen good growth last year in terms of growing our market with our product.

19:02 And then we've got our field sync product. So the lab sync product, is all about testing in the R and D application, the field syncs once you're out in the field and that maintenance application. Again, we're doing good progress. More and more of the three gs and four gs networks are starting to use time as a way of synchronization and that's where we're starting to see growth. There's actually there is deployment of five gs networks, but there are not many of them moving into the maintenance phase yet, so we see that as a future growth opportunity for Sentinel in that as as the five g networks start to move forward. We're also seeing a second application appearing, which is interesting for us, wherein the large data centers, they're actually distributing in these large physically very large warehouses.

19:48 They're distributing time to all the servers and they're using the Sentinel to prove they've got accurate time across the whole of the data center. So we've had some early success in there and it's an application we hope to exploit more in the years ahead. So at that point, I'm going to pass over to Ashley and she's going to give you a bit more detail on the actual numbers. Ashley? Thanks Tommy. Through these next few slides, I'll take you through our financial KPIs and our revenue model KPIs where you can see some of the different elements of our revenue drivers and before taking you on to the p and l income statement detail and the cash flow detail as well. So just so you can see from the KPI snapshot here and you'll already have seen this in the RNS and Tommy's already touched on it. CALNEX has had a very strong performance in the year.

20:41 Revenues of just under GBP 18,000,000 in the year have grown 31% on FY 2020, which in itself grew at 31% on FY 2019. And as Tommy mentioned in the earlier slides, we saw order intake and revenue performance increase across all three product lines in the year. And we believe there was an early pull through of about 800,000 to 1,100,000 of orders in revenue from FY twenty twenty two into FY twenty twenty one. And So that's supplementing that 17,900,000 or 18,000,000 revenue number. I'll cover that in a second as well. Gross profit grew 31% as well, so that's very much driven by the volume of revenue from the top line. Our margin is sitting at 78% at the moment, which you'll see on the p and l in a couple of slides time. That's very much in line with the averages from the previous couple of years. So the growth in gross profit from a pound perspective is very heavily driven by the growth in revenue.

21:42 And we ended the year with a 28 adjusted profit before tax number. So that's profit before tax adjusted for exceptional costs from the IPO, which again, I will show you more detail on when we get to the slide on the income statement. And as Tommy mentioned earlier, that's aided by the savings and travel events costs

22:02 as a result of everybody working from home during COVID and also the profit effect of the early pull through of revenues in FY '22 from FY '22, sorry. Statutory EPS, you'll see from the RNS, it's sitting at 4.18p per share, but that's adjusted for the IPO cost and the related tax deductions from the IPO. Adjusted EPS is 5.21p per share compared to 3.66p in FY '20. And the strong trading performance supplemented by the £4,900,000 of funds raised at the IPO drove the cash balance to £12,700,000 at the end of the year and an increase of £9,000,000 as we mentioned from £3,700,000 at the end of FY 2020. And within that net cash number of £9,000,000 net net cash flow of 9,000,000, we also spent 3,300,000 on r and d, which is an increase of of 400,000 on the previous year as we start the next phase of ramp up in an investment on our in our r and d teams.

23:10 I'll cover that later in the cash flow as well. So just on to the revenue metrics. The revenue model metrics just help you hopefully understand a little bit more about the drivers of our of our of our orders and our revenue. So just starting from the top left of this slide here, you'll see from if if you saw any of the IPO data or that that that and then we talked about the half year, our global customer base and distributor network leads us to have three main regions or segments, and that's Americas, North Asia, rest of the world. And the average spread of orders across these regions usually sets up a third, a third, a third each across each of these regions. And as you can see from the graph, FY '21 was no different.

23:58 We've got an even split of orders across all three divisions, which allows us just to maintain that spread of risk across these three regions. Now that that differs to the revenue split that you'll see in the operating segments part of the the notes to the RNNs. And the only difference there is timing on when we ship the product. So the orders are sitting at a third, a third, a third. The revenues may be slightly different just due to the lumpiness of timing on revenues. Just moving right to the right hand side of the top part of the charts here. We although we have a lot of our customers are telecoms customers, which Tommy covered, a growing proportion of our customer base is coming from the non telecom sectors, which include the hyperscale and enterprise customers mentioned earlier. So in f y f y twenty, we had 22% of of our orders coming from these non telecoms customers, that's grown slightly to 23% in f y twenty one, which just shows a steady increasing trend in that area.

24:58 Our top 10 customers have contributed to 49% on average over the last three years compared to prior year three year average of 48%. That number that number if if you're just looking at the the the years, it tends to tends to stay around that that number. The high level of repeat demand from these customers, and that's demonstrated by the nine year average length of relationship we have with them. And then we we not only have a high level repeat demand on our top 10 customers, we've got that across the the whole customer base. So that's what the graph on the bottom right hand side is showing here. The repeat revenue pie chart here shows that the last three year average repeat revenues generated to 03/31/2021 was 80%, all while the customer base was continuing to grow from 177 in FY 2020 to 192 revenue generating customers in FY 2021.

25:57 So just on to the full year results and the income statement. Just to cover the graph on right hand side, just to give you a little bit more flavor on our revenue. As you'll know, CALNEX generates revenues through the sale of bundled hardware and software as well as software support and extended warranty

26:17 programs. And as you can see from the graph on the right, the split of the revenue streams in FY '21 was very much in line with previous years. Generally speaking, this is a 90% to 10% split bundled hardware and software and software support. And as you can see, that's that's in FY '21 that's that's in line with with that metric. So just on the income statement, we've talked about revenues already. So and and we touched on gross margins. So I'll start with gross margin and work down the main categories. So group margin was 7% to 8%, as I mentioned earlier, in line with the previous year averages for the business. Now gross margins can fluctuate through the year and year on year depending on the mix of products, the mix of the bundle of hardware and software, and then the mix of those two things together as well. So that mix variability can give a percentage movement here or there, but in general, we see that 78% being very much in line with previous performance.

27:22 Administrative costs excluding depreciation and amortization are shown in the table here, But adjusting for the exceptional costs, which are shown below, so adding them back, the administrative costs were 6,500,000 in FY 2021 compared to 4,800,000 in FY 2020. And that increase in admin costs in the year is driven by a few things. So increased staff costs as we built the teams across the business as Tony covered earlier, increased or higher sales team commissions just as a result of our increased trading performance. As the orders go up, that that cost is variable linked to the orders. Higher professional fees post IPO, so we all know we floated right in the middle of our year. So H2 has a lot more professional fees in there and share incentive scheme costs as a result of being listed on AIM.

28:14 We now have a HMRC approved SIP scheme in place for staff where we match one for one share purchases through that. Now, of course, all goes into admin costs. We had some increased foreign exchange translation costs hit the p and l just as the US dollar weakened against sterling in the later part of the year. And that was all offset by those travel savings, the travel and events cost savings that we mentioned earlier as result of everybody being at home. Amortization of R and D costs increased by GBP 300,000 in year compared to last year as a result of increases in R and D investment in this year and in recent years before that. So we capitalize our R and D and amortize that over five years. So any spend any ramp ups in spend in that previous five years can impact the amortizations like there as well.

29:12 One off exceptional costs you'll see are listed here all linked to the IPO. IPO fees are 1,100,000. We we also in addition to that, we issued some free shares through the six scheme I mentioned to all staff on IPO. That cost us a 166 k, so we've classed that as an exceptional one off item. And share based payments of 200,000, they're all share based payments relating to the share options in issue pre IPO. The

29:42 options are the best in condition that was an exit event, I. E, the IPO. So all all share options were were exercised at that point. All share based payments costs going forward will just sit in in administrative costs as normal. All that led us to the adjusted profit before tax figure of GBP 5,100,000. So that adjusted PBT just strips out the exceptional costs. And that's compared to the 3,500,000 in FY 2020 and that GBP 3,500,000 is adjusted for any IPO related costs, so that's just that share based payment piece and the discontinued operations that we had in FY 2020. And just as we've covered already, but

30:30 to to cover it again briefly, the COVID impact was twofold on that profit line. The impact of the pull through of revenues, the point eight to 1,100,000, if you take a midrange on that or you you just use million as a round number, that that dropped through to profit at around 600,000 of a of a benefit to the profit in FY '21. And then some added to that, we've got a 400,000 on travel and events costs in the year as a result of the pandemic restrictions. So so that that brings you to the to the million impact that we mentioned in the earnings. Just last one last thing on this on this slide here, tax charge, you'll notice is a lot lower than last year, so a 194 k in the year compared to $6.94 k in FY 2020. And that's driven by two main things that we as a result of the IPO mentioned earlier, there were share options exercised for

31:35 CALNEX employees. All UK based employee share option exercises are eligible for tax relief. So we we took that tax relief benefit in the year. That had an impact of or that had the beneficial impact to the tax rate of reducing it by 15, reducing from the 19 usual percentage, reducing that by 15% on the effective tax rate. There was also a review of our r and d tax credit claiming process.

32:05 We are we are heavily in the past, we've been heavily covered by from an r and d tax credit perspective, directed into the large company scheme because we've we've had a lot of grant funding in the past. This year, we're we were able to take a a split across the two r and d tax claiming processes. We were able to take advantage of the RDEK scheme, the large company scheme, plus the small and the SME scheme because some of our projects aren't covered by by the the one grant that we've got in place at this moment in time. So 500,000 of our r and d spend was eligible to sit under that SME scheme. And that just gave us an additional 130% accelerated deduction on tax taxable profits, which led to just over 3% reduction in our tax effective rate for that.

33:04 All other reconciling items here are all due to the fact that some of our IPO costs were disallowable, so that brings the rate back up. We'd expect going forward our rate to remain in the 21%, 22% effective tax rate level. On to the cash flow, and as you can see, the the cash generated in the year, very heavily driven by the trading performance and by the fundraise, the IPO. So just working down the main categories in the cash flow, net cash generated from operations was 9,100,000 in the period. And that same driven by working capital movements. So the working capital movements represented a cash inflow of $11,900,000 in a year. And that's driven by a few things. So we've got stock increases in line with growth in shipments.

33:56 We've lower year end debtor balances just as a result of our customers paying on time this year. So every everybody had paid paid pretty much on time. Increases in deferred warranty balances. So the deferred warranty balances are driven by the orders that we get in for our warranty and support warranty and support service and product that we we recognize that revenue over the life of the product as opposed to just recognizing it on sale. So anything that's over a year of our anything that serves the customer for over a year has to sit on the balance sheet and gets gets amortized to the p and l as revenue as you go through. We also had some accrued grant income, which I'll cover in just a second, that we had to hold on the balance sheet that gets recognized over over five years in line with our r and d recognition policy, and we had an increase in that grant income in the year. And we had some year end sales bonuses being accrued that were paid out in April, plus a profit share bonuses paid to staff that we paid out as a result of the exceptional year that we had.

35:10 Cash used in investing activities is predominantly cash spent on r and d as you can see. So cash spent on r and d in the period was 3.3 as I mentioned before, and that's 18% of revenues. That compares to 21% of revenues in FY twenty. However, our usual metric for r and d cash spend to revenues in a period of ramp up, which is what we're in right now, should be round about 25% of revenue. So we should expect to see that metric going forward into FY twenty two and FY twenty three as we continue the phase of ramp up on our R and D activities. Cash earned on financing activities in the year was £3,300,000 and that compares to cash spend of £800,000 last year. And that's as you can see, predominantly driven by the IPO funds raised. So the new shares issued on listing raised £6,000,000 before expenses and including expenses that takes you to the £4,900,000 of IPO funds, net IPO funds raised. We also raised 300,000 as a result of the share options exercise on IPO.

36:20 And we also we used the funds from the IPO part part of the funds from the IPO to pay down a term loan that we had outstanding at at the end of September. So that was 1,900,000 was paid off on on the term loan to take us to to to zero term loan liability. And that was replaced by our 3,000,000 revolving credit facility, which was put in place

36:44 after IPO was currently sitting undrawn. As I mentioned before, we had some increased grant cash in in the year. Scottish Enterprise paid us some some grant monies in advance, which you can see is that 600,000 sitting in the cash flow there. Again, we can't recognize that to the p and l all at once. We have to recognize that over five years. So that's just that's just that leading that then driver of that working capital increase there. And that led us to a closing cash balance of 12,700,000, which leaves us in a really strong balance sheet position to take us into FY '22. I'll just hand you back to Tommy to cover the rest of the slides. Okay, thank you Ashley. Sorry, trouble with the mute button now.

37:37 So just a quick look at the strategy. You know, we still believe the strategy we presented last year when we floated is still the right one and all the drivers we're seeing as as reinforcing is the right one. Basically, are focused the two big growth drivers within the telecom sector is is the evolution of the mobile network or the five g as it's referred to, and also the chip move to cloud computing. And we continue to our product lines today are already aligned to these growth trajectories and we continue to drive them forward. And in the year ahead, we've got some interesting releases coming out that we feel will both strengthen our position and protect our position in the market space. In the lab sync, we will have and it support the new high speed interfaces at 400 gigabits. Today, support 100 gigabits. We'll support 400 gigs. That's due to come out around September time.

38:31 And then within the field product, we've got the new capability for the five g. We have got some limited capability for five g today, but the new, what we call the over the air module where it listens to the air signal to extract the synchronization, it'll be able to operate with three g, four g, and now five g. So that product will be well positioned for us if these five g networks get deployed and move into the maintenance phase. In the cloud and computing area, then again, with our ISNE product, we've got a good strong position there. We've got a new release coming out. It's a major revamp of the software which will allow it to be used for a web browser. It's a lot of usability improvements, but also what it's meant is the same software platform we can actually reuse it and create a virtual version of the product. So in that market space or in the network emulation, we've got an Artero product line, which is the high end, high performance product line. We've got the SNE for high complexity, flexibility, and they were gonna have a virtual version of the SNE, will be for people that are developing applications and equipment to run-in a kind of cloud environment.

39:40 And so that really positions us for when our customers move towards the cloud environment, we've got the product they need as and when they do move. And really within these two major trends, we're always looking for new opportunities and that's where the third element comes in is the m and a. We need to keep finding new growth opportunities that either gives us new products to go to the same customers but is able to take more different money off the table or find completely new customers. So within these trends, are continuing discussion with customers looking for opportunities to get new products and we plan to either do them by ourselves or if we see other companies where we can benefit from doing a partnership, an M and A type application, a maneuver, then we will do that as well and that's still very much on the radar and part of our strategy moving forward.

40:32 So to summarize and close off, this first part, F1 twenty one was just an exceptional year for us. Kinda everything worked well, some that doesn't often work happen too often in life, but it did. All the product lines exceeded the initial targets. All the regions exceeded the initial targets. We had that extra benefit almost from COVID that actually made a a really good year into an exceptional year. And we feel as we go into f y twenty two, especially if you take that exceptional part that we feel about million and and kinda reset it, then we are still following the same trajectories. We feel the underlying trajectory in our markets can sustain over a three to four year period, a kind of 15% CAGR and we believe that's the trajectory we are still on. And we feel really good going into this next period, the fact that all the dynamics of the market didn't change or they changed in a positive sense for us through this year, that we can go into this next year with confidence and hopefully deliver another great year of performance.

41:35 So at that point, I think we're going to move to some Q and A. Fantastic. So we actually thank you very much indeed for your presentation. Ladies and gentlemen, do please continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. Just But while the company take a few moments to review those investor questions submitted already, I'd like to remind you that recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company, and immediately after the presentation has ended, you will be redirected to the opportunity to provide your feedback in order the team can better understand your views and expectations. And, Tom, Ashley, you've had an awful lot of questions come through, and we may not be able to get through all of these. So thank you very much to the investors who submitted them. Obviously, the company will be able to review all questions submitted today.

42:23 But perhaps if I could just hand back to you and where appropriate to do so, if you could read out those questions, that would be fantastic. Thank you. Sure. So there's a couple here that I can answer straight away. So I've got a question here from Adrian C. Why did revenues from North Asia fall? Just just to give you a bit more flavor around the revenue and order sort of relationship. The the revenues from North Asia fell compared to last year, but actually from an orders perspective and so so timing wise, From an orders perspective, they actually grew by 3%. So it's very much when you're looking at that segmental analysis in the back of the notes to the accounts, It's just just worth keeping in mind that that the revenues are very very heavily driven by timing at the same time. So so so that North Asia growth is is still there.

43:22 Next question is for agent Adrian C as well. Is the company still considering a dividend in FY twenty two as mentioned in the IPO admission document? And the answer to that is yes. We are we are due to implement a progressive dividend policy starting in FY '22. There's a couple of questions here I can pick up, I think, Ashley. It's from Damian. The first one was when do you expect to go back to the previous cost levels for travel and meetings? We are kinda assuming in the second half of this year, Damian, you know, it obviously stopped last year. China's back to normal. We've kinda planned in a in a financial plan for this year that by the second half, it's back to normal. And through this first half, it's kinda ramping up. And at the moment, our best guess is we're actually seeing a team in The US are starting to travel.

44:14 I think by July, August, they'll be back to normal. I think the European team and then the other regions, perhaps at the same time, you know, you can all see what's happening in the papers, you know, when it's gonna happen. Because ultimately, it's when are we comfortable at traveling, the government let us, but then it's also partly driven by when the customers want us to meet them again. So that's that's a bit uncertain, but we are kind of assuming by the second half fall back to that. And I think the second part to that question is really, you know, will it go back to the same as before? Well, we expect initially it will because obviously we want to keep meeting people. We wanna keep using video technology. We wanna keep meeting people, because there is value in having face to face. So the fact we haven't seen a lot of these people now for eighteen months will wanna go out. And I think it'll probably be more towards the middle of f y twenty three that we'll see whether that level's down, whether there is a an underlying reduction because people are now a lot more willing to take video meetings rather than always wanting us to turn up in person. So that's where we are on that one.

45:17 You had another question, Damian, about with the new R and D hires, can you say anything about the how the new capacity will be deployed? Our customers are asking you to develop new products when where would you previously lacked R and D capacity? And there's a plans to plan more about improving existing products. Yeah. Yes. Kinda everything. So we basically, we we have started hiring people. We kinda see, you know, if you look at it from the point somebody comes in the door to when they actually generate revenue, it can be up to about eighteen months. You know, some a new engineer coming in, it takes them, let's say, three to four months to settle in, start getting involved in the team. Our projects typically take nine to twelve months to run. Some of them are slightly shorter. Some of them the big ones are slightly longer. So you can see it can take about eighteen months before that investment in r and d comes through.

46:10 So we are in the sort of business where you where you have to believe that, you know, you you see opportunity and going for it. We do actually get especially as part of having this relationship with customers and why it's important for us to keep speaking to people, We do have customers that come and ask us for our products. They ask us all the time about enhancements to our platforms, and that actually is a key part of how we decide what to do by taking that input from customers, looking at it, making sure we understand why they're asking it. Because sometimes they can do what they're asking. There already is capability in the product. They just didn't realize it. Our products have got many, many tools in them, and sometimes the customers don't realize everything they've got. But really, that customer feedback is critical to us to actually continue to make sure we are tracking what their needs are and know what they're going to need in the future. And there are occasions where they come and ask us to do whole products and that's part of the potential opportunity for new product lines in the future. We always engage with customers on these and look at them, but ultimately, we don't do bespoke solutions. We are looking for opportunities where people come and ask us for something, we can then see that this actually has got a general purpose need and that we can actually create a whole market for it rather than deliver a bespoke solution to one person.

47:24 And the teams that we're basically as you can see, we've actually got new capability. We've got active programs in all the product lines. So these people are being deployed into all the product lines to strengthen the team in all three of them. Thank you. Ashley, did you get any other question you've come up with you can answer? Yeah. So just one one more from Damien, actually. You said in the sources of revenue section, you use a three year average. Can you explain why you you're using a average rather than the just the split for the year? And also in the section, provided geographic split of orders, but the table refers to revenue percentage. Is that labeling error? Or I am am I missing something important? And so on the three year average, it's just really it just from our perspective, it just really lends lends a bit of flavor for for we believe for the for the reader to kinda see how particularly for the geographic piece, how that doesn't really move over over the the three year period. But, actually, if you're looking at the the annual the annual periods, it it it doesn't shift too much either. So we we just choose that three year average because it also smooths out a little bit of kind of year on year slight slight lumpiness, but we we just believe it gives a little bit more flavor.

48:44 And you're exactly right. Thank you for pointing that. I The table refers to our revenue percentage, but it should refer to an order percentage. So apologies for that, and thank you for pointing that out. There's always somebody in the catch, with the wrong slide. Simon's asked a question here. Fantastic performance. Can you continue double digit growth? What constraints do you face? I think continuing the growth we've had in the last couple of years is gonna be difficult. You know, I think underlying we believe that the underlying growth trends that were that are driving our business are more double double digits for more like double teens, low teens to mid teens. And so when we look through, we still think we are on that trajectory over our if you look over look at the CAGR over three, four years that we're on that 15%.

49:36 You know, I think one of the challenges for us to keep out of stripping that, and obviously there's two challenges. We need to keep on that with the active programs, but then every so often, we need to find something new, whether it's by ourselves, as to start with organic growth or inorganic, that's actually gonna add a bit extra on top of that. So we feel good about what we can do with the current product lines. We are always challenging ourselves to find new things, and it will always be a challenge for a company like us to always try and find something else to do. Okay. Got a question here from John. Hi, Tommy and Ashley. Thanks for doing this presentation. Heard of you, but haven't looked into you until now. A few questions. Can you tell us how much money you're spending on r and d as a percentage of sales? And what what is the direction of travel?

50:22 And also, can you talk to us about your r and d innovation strategy? So hopefully, answered that first part of the question around the percentage of cash spend to revenues, 19% in this year, moving up towards that 24, 25% in the in future f FY '22 and FY '23 as we ramp up those those teams and and add add add to the skill base. Tommy, did you want to cover the r and d innovation strategy? I think that's that that has been asked a few times on in in the questions. We might cover off some of the So do you wanna could you read that one again, please, Astra? Yeah. John's just asked, can you talk to us about your r and d innovation strategy?

51:10 Yeah. Well, I guess, from the point of view that, you know, in some ways, it's all driven by what customers need. We continually are looking to to meet what the customer needs. We're we're running the the the the sharp edge. And in some ways, like, example, we talk about coming out with 400 gigabits capability this year, and and you may know the other test vendors out there have 400 gigs and they've had it for a year or two. But fundamentally, for the type of test that we do in synchronization, the technology wasn't available until last year for us actually to deliver a solution for the type of high precision measurement that we do. So So we're continually looking at that, continually finding ways to improve performance from an innovative point of view.

51:56 We also actually run innovative sessions in in the organization as well from the point of view of getting different people to come in and get get involved. So it is a kinda key part of what we're doing. So for me, innovation's not just about coming up with a a magic widget. It's it's about doing what we do better. And, you know, we've done a lot with our plat products to create platform products, and a and a lot of the change that we've done in the s and e that I mentioned, from a customer perspective, they won't see it, but we've restructured the software to make it far more extendable because our products products have to continually be extended. And if you're not a true platform, then it's quite hard to add things on. And it's all about creating that right architecture internally that you can add things on and there's not a premium cost because you've added into to the architecture. So it is something we do all the time. We're continually changing the way we do things. We're continually trying to make ourselves better at what we do and make ourselves quicker at getting product to market.

52:57 There's a question here from John that's a it's a bit tricky, but an old political front, but we'll have a go. Sorry to ask, but have you got any contingency plans if Scotland in the future decides to vote for independence? How is your supply chain? How interlinked are you with the other parts of The UK? Independence, there you go. How long have you got? So I actually am not particular I think, you know, if you looked at Brexit, we went because we already got a global footprint, we're not completely you know, we're doing a tied into one local market. You know, when Brexit happened, we really didn't have any effect from it. All I said, you know, we sell through partners in Europe who already imported products from other test vendors in other parts of the world so they're able to do it.

53:44 And because our products typically have a four to six week lead time, the fact that it may have taken a bit longer in ports to get it across the border, it really didn't matter to us. And I kinda see Scotland that way in terms of things. I mean, it's hard to predict exactly what it's gonna be but we've got that global footprint. We already sell internationally. We sell into country we sell into Europe. We sell into countries we've got relationships with. We sell in The UK has got relationships with. We sell in the countries we don't have strong relationships with as a country. So I'm sure there'll be lot of heartache along the way. But in terms from a business point of view, I'm you know, I think there'll be bumps that'll create problems for us, but nothing that I do think we'll be able to cope with at the time. You asked about the supply chain.

54:31 I kinda wonder whether you're really asking there about the the lot of discussion at the moment about shortages of components. I I maybe should cover that because that is worth talking about. You know, last year when the pandemic came, there was a lot of talk of shortages of components and it seemed we weren't affected by that at all because it seemed to be more about the the high the high volume people, the the people that work a just in time manufacturing model where the components arrive at the front door in the morning and they're at the back door as a as a a product at the end of the day. You know, a lot of our components, because they're very sophisticated, we we our products are low volume, high complexity. Our components, some of them are always running kinda twelve to fifteen week lead time. So we tend to sit with quite large levels of inventory. In CALNEX SOLUTIONS, they basically buy to our six month forecast.

55:22 And, of course, now there's a lot of talk of shortages in the world, and we've stepped up these forecasts to and asked CALNEX to go and buy to twelve months. Now I do suspect there's a bit of a the toilet roll effect happening here. You know, probably everybody else has done the same as what we've done. We've all just upped our order numbers, which is probably making a a difficult situation worse. So at this point in time, we don't see any immediate problems, but we're very well aware of what's happening in terms of suppliers are seeing are seeing lead times for components going up. We're taking what steps we can at the moment, and we're gonna keep stay very aware of it over the rest of the year. For me, I think it's probably gonna last about a year there, so six months, six, nine months. There's a lot of new capacity in terms of foundries coming onboard next year. There's new foundries being built in China and in North America, and I think the ones that are there are probably stepping up at the moment. But so through the next period, we don't see any issues at the moment, but we're keeping very close closely aware with it and working closely with CALNEX make sure we can keep the supply of components to meet our our our customers' needs.

56:31 There's a question here from Adrian that says, are the company predicting similar revenues in f y twenty two to FY twenty one? And how is the order book in FY twenty two looking compared to FY twenty one? So in terms of the guidance that our broker has given to the market, Our we we expect our our revenues remembering that that we believe one point up point eight to 1,100,000 of revenues has been brought forward from f y twenty two into f y twenty one. If you take that into account and reduce our our revenues in FY twenty one, if you can add back that effect, it takes you down to $270,000,000 of revenues in this year.

57:23 And then we believe that that revenue would increase in FY twenty twenty two to an underlying revenue of just over 18,000,000. So on the face of it, if you're if you're looking at our reported revenues versus versus what what the market guidance is saying, it's it looks flat. However, when when you look at the sort of drivers and and the COVID effect, I mean, there there is there is growth in there. In terms of the the order book for for this year, so so so the order book is looking very much in line with with with what we we believe our our forecasts or what the market guidance is seeing just now. So, May I ask, I was just gonna say we're just coming up to that hour mark. And I know you have got a lot of questions, which is great. Thank you for answering so many of them.

58:14 Perhaps as we do come up to the hour and thank you for for the attendees for submitting it, the company will obviously have the ability to review all those questions submitted to them. We will publish responses where it's appropriate to do so. But just on that basis, Tommy, perhaps I could just ask you just for a few final words just to to close-up, please, before we redirect investors to give you some feedback. Okay, thank you for that. Well thanks very much for attending. I hope that's been of value to you. I hope you we managed to answer most of your questions, I will get right into them. In terms of giving you an understanding of where we are and where we're going, you know, it has been a great year for us. We are really pleased with how the years went. You know, think we can't as already mentioned, it's been a very satisfying year, not just because of the headline numbers, but because of the way that all our product lines have made progress, we've made progress in all regions.

59:03 It's not been linked to, hey, we've closed one big deal and one product line, which can be fine, but I think that kind of sustainability comes from moving everything forward and everything moved forward really well last year. As Ashley shared, a lot of our metrics underneath show that our business trajectories are staying on board. They're all going the same direction they were going in previous years. We saw them in the positive direction so we feel really confident going into the year. We've set forward a plan that we feel robust and we feel good that we can deliver another strong year of performance. Thanks very much for your time and hopefully we'll see you again in the future. Fantastic. Tom and Ashley, thank you indeed for updating investors today. Could I please ask investors not to close the session and should we automatically redirect it for the opportunity to provide your feedback in order that the team can better understand your views and expectations. This would only take a few moments to complete and is greatly valued by the company. Do please give it your consideration.

1:00:00 On behalf of the management team of CALNEX SOLUTIONS PLC, we'd like to thank you very much for attending today's presentation. That concludes today's session. Thank you, and good afternoon. Bye.