The global slump in telecoms investment has taken its toll on Calnex Solutions with annual revenues down by nearly half and profits all but wiped out.
Founder and chief executive Tommy Cook said the company, which makes telecoms testing gear from its base in Linlithgow, will continue to "weather the uncertainties" as the fundamentals underpinning the market remain intact. This includes the need for mobile operators to build out their 5G networks, but spending has been slowed by higher interest rates that have increased the cost of borrowing to finance projects.
Mr Cook said although some individual companies are starting to spend, there has not yet been a material change in conditions. Even so, Calnex is maintaining "good engagement" with customers who in general have delayed projects, rather than cancelling them.
READ MORE: Calnex grabs the bull by the horns as going gets tough
"It’s interesting...that the number of customer sales we had this year didn’t drop by the proportion of the actual revenue that dropped, so people are still working with us, still speaking to us, [and we are] still getting money," he said.
"There was an increase in [maintenance revenues], so that is money they have been able to squeeze out of their budgets, but it’s hard to say that there are signs that it’s starting to move yet. I think the bottom line is there are not enough indicators to put together to say that is the start of growth.”
Calnex made a pre-tax loss of £384,000 during the year to the end of March, down from a profit of £7.2 million previously, but eked back into the black after including £424,000 of R&D tax credits. Revenues plunged by 41% to £16.3m versus £27.5m before.
The company has called early time on its 12-year sales partnership with London-listed Spirent, which in March agreed a takeover offer from US giant Keysight Technologies which values the UK firm at nearly £1.2 billion. Spirent accounts for about three-quarters of Calnex sales and services the massive telecoms equipment markets in the US, India and China.
READ MORE: Calnex slides into a loss as telecoms spending slows
Mr Cook said the move is "not as scary as what it might look like" as plans are in place to handle the switchover and increase the proportion of sales direct to customers.
“There’s clearly areas in the world where we have got enough volume of sales that it makes sense to go direct, for instance in some of the states in the US," he said.
"We probably won’t go direct everywhere in the US because the US is really 50 different countries when it comes to reporting, but there are three or four states where we do a lot of business, and by going direct we get higher margin from that, but there is a cost to that as well.”
The company said recently-launched products are gaining traction in the market, providing confidence in a return to growth. Analysts at Canaccord Genuity are predicting a 13% rebound in sales this year followed by further growth in the low percentage teens, but added that their estimates could be on the low side.
READ MORE: Not the best of times for Calnex, but neither the worst
"In our experience, spending cycles can turn quickly and with multiple additional company-specific secular demand and new product drivers, our profit forecasts could turn out to be conservative," they said in a note to investors.
Calnex had a closing cash position of £11.9m and is refocusing on areas of the market showing near-term resilience and growth opportunities, such as cloud computing and defence. Chief financial officer Ashleigh Greenen noted that cloud computing grew to 39% of annual revenues this past year.
Despite wider market difficulties, the company has maintained its headcount at approximately 160 with the only additions being five new hires to maintain its graduate programme.
"Because we are developing new products and going out to new channels as well, we can’t…cut the headcount at the same time," Ms Greenen said.
Calnex has proposed a final dividend of 0.62p per share making a total of 0.93p for the full years. The company's AIM-listed shares closed yesterday's trading 7.5p lower at 55p, a decline of 12%.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here