CyanConnode Holdings plc (LON:CYAN), a world leader in narrowband radio frequency (RF) smart mesh networks, has announced that it is proposing to raise approximately £2 million, before expenses, by way of a placing of, and subscription by certain of the Company’s Directors and other investors for, new ordinary shares of 2p each in the Company.
The Placing will be effected by way of an accelerated bookbuild at a price of 14p per Placing Share. The Bookbuild will open with immediate effect following release of this Announcement. A further announcement confirming the closing of the Bookbuild and the number of new Ordinary Shares to be issued pursuant to the Placing and the Subscription is expected to be made in due course.
John Cronin, Heather Peacock, David Johns-Powell and Chris Jones, being Directors of the Company, have indicated their intention to participate in the Fundraising, via either the placing or the subscription, for up to £151,000, in aggregate.
· The Company intends to raise approximately £2 million to new and existing institutional and other investors at 14p per Ordinary Share;
· The Issue Price represents a discount of 1.8 per cent. to the closing price on 24 March 2022, being the last trading date prior to the announcement of the proposed Fundraising;
· The net proceeds of the Fundraising will be used to further strengthen the Company’s balance sheet, to increase working capital, to fund long lead time critical components and to execute CyanConnode’s growing order book and pipeline.
Background to and reasons for the Fundraising
On 12 January 2022, the Company provided a trading update for the CyanConnode group for the nine-month period ended 31 December 2021. This update confirmed that deployments had significantly increased and that once again record revenues of double those for the comparative previous financial period had been achieved. The key contributor to this growth was the shipment of 455,000 modules for new and existing contracts in India, Thailand and the Nordics. £5.9 million cash was received from customers during the period, more than double that received for the same period of the previous financial year.
Whilst the Covid-19 pandemic has brought significant challenges, the CyanConnode group has continued to make good progress against projects, while maintaining a low-cost base. Despite seeing a continued worldwide shortage of semiconductors, CyanConnode has taken steps to mitigate such shortages by purchasing components from alternative suppliers and purchasing components well in advance of manufacture. However, this has meant it has become necessary to make advance payments, or payments well in advance of collecting the cash against the sales of the Company’s products, to secure the supply of semiconductors used in the module manufacturing process.
The Company has made significant inroads into executing on its model since the start of the year, further growing its order book and laying down the foundations for increased levels of deployment, which will underpin significant revenue growth in the coming months and years. Tenders for more than 40 million meters are currently being floated or will be floated shortly. This further highlights the Company’s capacity to win contracts from both existing and new clients and to further develop its ecosystem of partners, while at the same time deploying existing contracts to achieve record revenues.
There is a substantial sales pipeline of potential contracts to close within a window of 6-12 months.
During FY21 and continuing into FY22 there has been a significant increase in activity in the Indian market as the Government of India moves forward with its plan to deploy 250 million smart meters. As has been proven by CyanConnode’s Omnimesh technology, smart meters will help India develop a smart grid, reduce consumer power outages, address challenges evolving from the energy mix and improve billing efficiency. The deployment of these smart meters is also expected to improve consumer energy efficiency and the quality of networks and services.
The Government recently announced funding of a circa £30 billion “Revamped Power Distribution Scheme” aimed at creation and strengthening of the Transmission and Distribution infrastructure. This will be provided by an outlay of 15% against the total Project cost c. £15 billion of installing approximately 250 million smart meters.
The National Smart Grid Mission, Ministry of Power, Government of India has issued a Standard Bidding Document. This Model Standard Bidding Document (SBD) has been prepared for the selection and appointment of Advanced Metering Infrastructure (AMI) Service Provider (AMISP) for Smart Prepaid Metering in India on Design Build Finance Own Operate Transfer (DBFOOT) basis by the State Power Utilities. This is set up to roll out and manage large scale tenders. Under this Standard Bidding Document, they will work to establish a DBFOOT model where utilities will pay for the meters on a per month basis. This is an exciting development, which is thought will significantly increase the speed of the rollout of these enlarged tenders, and requires the involvement of infrastructure funds to allow the model to operate. They are key to the success of this model and provide CyanConnode, which is already ahead of the field in terms of developing these strategic partnerships, with a great opportunity. This will not only increase momentum but also give CyanConnode the opportunity to be directly involved with the end customer.
During 2020 and 2021, the Company has deployed record numbers of modules and gateways, thereby achieving record revenues.
Since the beginning of the year, the size of the pipeline in India has increased significantly with several tenders now active for public utility projects each representing millions of meters. Furthermore, the Government of India has started the process of empanelling solution providers for the rollout of millions of meters. CyanConnode has established a leadership position in the Indian market.
The Company is very well positioned to win the communications solutions element of these large tenders and is targeting to win 20 million – 30 million smart meters over the next five years.
Rest of World
The smart metering markets in APAC and the Middle East continue to mature and the recently won orders for Thailand and Africa, as well as announced partnership with EESL for Africa and the Middle East present CyanConnode with good opportunities for growth.
The CyanConnode group’s project in Thailand continues to make progress and CyanConnode believes that there will be further smart metering and smart lighting opportunities in Thailand in the foreseeable future.
Use of proceeds
The Company continues to go through a period of significant growth and, in order to maintain the momentum and enable further expansion, will use the net proceeds of the Fundraising to:
· Fund certain long lead time critical components that are required for production
· Fund working capital, particularly with regard to stock
· Fund the additional resources required to develop the strategic infrastructure funding partnerships required to operate in the emerging DBFOOT world
· Fund resourcing required to manage the scale-up of the Company to secure new orders, deployment of new and existing contracts and maintain CyanConnode’s leadership position in key markets, particularly India
· Integrate with new meter manufacturers to expand footprint
· Increase project support in existing and new territories
Financial position and trading
As previously disclosed in the Company’s trading update on 12 January 2022, turnover for the 9 months to 31 December 2021 was £6.8m, a doubling over the comparative period (2020: £3.4m).
Approximately £5.9 million of cash was received from customers during the 9 months to 31 December 2021, a 103% increase on the comparative period (2020: £2.9m).
As at 31 December 2021, cash held by the company was £1.1 million. The Directors believe that the Fundraising will enable the Company to continue to execute on its order book and pipeline, supporting the growth required as the Company scales to meet market demand.
The timing for the close of the Bookbuild and the allocation of the Placing Shares will be determined by Arden Partners plc and the Company.
The final number of new Ordinary Shares to be issued pursuant to the Placing will be determined following closure of the Bookbuild. The Placing Shares, when issued, will be fully paid and will rank pari passu in all respects with the existing Ordinary Shares.
The Placing has been arranged by Arden in accordance with the terms and conditions set out in the Appendix to this Announcement. The Bookbuild is expected to close not later than 8.00 a.m. (London time) today, but may be closed at such earlier or later time as the Broker, in their absolute discretion (following consultation with the Company), determine.
Details of the result of the Placing will be announced as soon as practicable after closure of the Bookbuild. Attention is drawn to the detailed terms and conditions of the Placing described in Appendix I (which forms part of this Announcement). By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this Announcement in its entirety (including Appendix I) and to be making such offer on the terms and subject to the conditions in it, and to be providing the representations, warranties and acknowledgements contained in Appendix I.
The Placing is not conditional upon the approval of the Company’s shareholders.
Admission, settlement and CREST
Application will be made for the new Ordinary Shares issued pursuant to the Fundraising to be admitted to trading on AIM (“Admission“).
Settlement for and admission of the new Ordinary Shares pursuant to the Fundraising to trading on AIM is expected to take place on or before 8.00 a.m. on 30 March 2022. The Placing is conditional upon, among other things, admission of the Placing Shares becoming effective and the Placing Agreement not being terminated in accordance with its terms.