Telecoms firm Calnex weathers uncertainties as revenues slump
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.
“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 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 in the massive telecoms equipment markets in the US, India and China.
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 their estimates could be on the low side.
Calnex has proposed a final dividend of 0.62p per share, making a total of 0.93p for the full year. The firm’s Aim-listed shares closed yesterday’s trading 7.5p lower at 55p, a decline of 12%.