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CyanConnode – attempts to mitigate with it cash crunch & AGM ahoy

By Steve Moore | Tuesday 12 June 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Having announced results little more than 3 weeks ago, now a “Pre-AGM Update” from CyanConnode (CYAN) – the AGM though not until next week. A significant development then?

... “Further cost reductions of £500k pa, effective immediately, have now been made in addition to those previously announced”. Er, ok – though the noted results showed a loss of more than £11 million on revenue down to £1.17 million!

This is with “in many cases… it has proved impossible to deliver against… orders to the anticipated time-scales” - with it stating “the overwhelming majority of the issues relate to either customer ‘readiness’ or political factors. CyanConnode is dealing with very large organisations with many layers of management who in many cases have a lower sense of urgency”. However, “we felt it was… important that we act in advance to build up the company's operational capability”! That meant higher costs… and now “in response to shareholder feedback over the last several weeks, and in light of the last year's significant under-delivery against the order book, the board has continued to 'right-size' the business”!

It is attempted to re-assure that “as demonstrated in the two new contracts announced from customers in India in the last three weeks, CyanConnode continues to win new orders which does much to underpin our confidence in the fundamental strength of the market demand for what we offer… In our most recent trading update, we indicated that 1H2018 revenue would be higher than revenue booked for the whole of 2017. As the first half draws to a close, we are re-confirming this and can also confirm our expectation that 2H2018 revenue will be substantially larger than 1H2018 based on contracts already won and already in the delivery phase”. However, as self-admitted, the problem has been converting orders to delivery, the comparisons are against a dire base and what has now changed from it admitted “the management team and board have in the past underestimated the impact of… issues across multiple contracts and geographies, particularly on timing of delivery of the contracts”?

Executive Chairman John Cronin, seeks to emphasise he has “invested approximately £900k in CyanConnode shares since I joined with corresponding investments of approximately £250k and £550k from Harry Berry and Simon Smith. You can be assured that the board and my senior team are deeply committed to seeing a successful outcome for all of our shareholders and I look forward to speaking with those of you who can attend the AGM in Cambridge next week. I believe that 2018 will represent a turning point in the company's ability to deliver against its order book and demonstrate high levels of growth”.

Hmmm, we’ll see on that John – I note he joined in 2012 (with Berry in 2014 and Smith in 2010) and their respective remuneration for 2017 was £337,500, £193,420 and £174,449. These included bonuses despite Cronin wanting “to thank all shareholders for your continued patience and ongoing support in what has been a difficult year” and the recent results including “the directors' cash flow forecast includes an assumption that further finance will need to be raised within the next 12 months”!

Now, “in response to shareholder feedback over the last several weeks”, we have further 'right-sizing'. Hmmm. That going to include boardroom remuneration? (no wonder “the board and my senior team are deeply committed to seeing a successful outcome”!) – and were you really looking forward to speaking with those who can attend the AGM in Cambridge next week, John, or were you concerned? – and hence the attempted re-assurance of this announcement? Natch, there remains not a bargepole long enough here. Sell.

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