Telecoms testing equipment specialist Calnex Solutions fell into a loss in the first half of its financial year as slower spending across the global telecoms sector triggered a 38% decline in revenues.
The pre-tax loss of £600,000 for the six months to the end of September came against a profit of £3.1 million during the same period a year earlier. Revenues dropped to £7.8m from £12.7m previously.
Tommy Cook, founder and chief executive of the Linlithgow-based company, said "it's not been the best of times" for Calnex but added that the fundamental underlying need for mobile operators to build out their 5G networks remains. Spending in this area has slowed as higher interest rates have increased the cost of borrowing to finance projects.
READ MORE: Not the best of times for Calnex, but neither the worst
“Looking back now from about the turn of the calendar year we’ve had three quarters where the telecoms sector has been pretty flat on us," Mr Cook said.
"We have seen this before – this is not a straight line industry, it wobbles up and down all the time. This is quite a wobble at the moment but it’s happened before.”
Chief financial officer Ashleigh Greenen said the company is keeping a tight control on overheads and a keen eye on items such as travel expenses, but has not cut back on its research and development activities. A hiring freeze is in place for all expect the company's graduate recruitment programme, with headcount expected to be maintained at about 160.
Researchers at Cavendish said the figures for the first half were in line with the profit warning issued by Calnex on October 10. That sent shares in the company, which floated on London's AIM market in October 2020, down to a near-three year low from which they have since partially recovered.
READ MORE: Calnex looks to growth in new markets as sales soften
Calnex stock closed yesterday's trading 6.5% higher at 66p.
"This [decline in sales] is not specific to Calnex but a slowdown that has hit the entire sector, as the likes of Nokia, Eriksson and other testing and measurement sector peers such as Keysight, Viavi and Spirent have all confirmed this year,” Cavendish said.
The broker is predicting full year revenues of £17m, down from £27.4m. It has pencilled in a minimal pre-tax profit of £100,000, a sharp decrease on £7.2m previously.
Mr Cook said Calnex is continuing to engage with customers in the telecoms sector, who last year accounted for 78% of total revenues. However there has also been increased focus on new customers in sectors that are faring better at the moment such as the data centre and the defence industries.
Work also continues on the new product programme.
“You can imagine if you go and try to sell a product to somebody who’s already got three or four of them, it’s quite hard to sell them a fifth one when money is tight, whereas when you’ve got something new, or new features, that can often be the catalyst that gets the deal across the line," he said.
READ MORE: Calnex tumbles as slower growth hits global telecoms investment
Mr Cook added that it was difficult to predict when a recovery might kick in, but when it does Calnex will be well-prepared to take advantage. Analysts at Cavendish agreed.
"Given the relentless increase in data consumption worldwide, we do not believe the telecoms sector slowdown can endure without network operators risking the loss of market share to those pushing ahead with infrastructure investment," they said.
"The fundamental long-term drivers that underpin mobile network infrastructure investment and datacentre expansion (cloud computing capacity) have not changed and Calnex is structured and costed to deliver substantially higher revenue. As activity levels normalise and sales conversion improves, we would expect a strong recovery in profitability."
The board has declared an interim dividend of 0.31p per share to be paid in December. Calnex closed the first half with £13.5m in cash on hand.
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