Cerillion Regulatory News (CER)

28 November 2022

AIM: CER

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

Cerillion plc

("Cerillion" or "Company" or "Group")

Final results for the year ended 30 September 2022

Record financial performance

Group is well-placed for continued growth

Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2022.

Highlights

Financial:

· Key financial performance measures reached new highs

· Revenue up 26% to a record £32.7m (2021: £26.1m), driven by major new customer implementations and strong demand from existing customers

· Back-order book3 reached a new high of £45.4m at the year-end (30 September 2021: £42.1m)

· Strong balance sheet with net cash up 54% to £20.2m (2021: £13.2m)

· Final dividend of 6.5p per share proposed (2021: 5.0p), bringing the total dividend for the year to 9.1p per share (2021: 7.1p), an increase of 28%

· New customer sales pipeline up 43% to a record £209m (30 September 2021: £146m)

Operational:

· Continued expansion of new resource centres in Bulgaria and India

· Largest ever contract won in July 2022 (£15m), with Cable & Wireless Seychelles (CWS), a full-service network operator - continued the trend of winning bigger contracts and/or larger customers

· Gained Gold-level status for flagship BSS/OSS suite in the TM Forum's Open API Conformance Certification program in early November 2022

· Strong pipeline of new business opportunities

· Cerillion well-positioned for further growth over the new financial year and beyond

Louis Hall, CEO of Cerillion, commented:

"It has been another year of very strong growth and development. Reported revenue, pre-tax profit and back-order book all reached new highs. We have maintained our top-line growth rate of c.25% for the second year running, building on the momentum of the last three to four years. We also secured another record-breaking contract win, and continued to expand the business, enlarging our resources, especially in India and Bulgaria, and enhancing our technology.

"We start the new financial year with a very high degree of visibility over our earnings, based on our very strong back-order book and higher level of recurring income. The new business pipeline is very strong and includes a number of large potential deals.

"The market backdrop remains extremely favourable. The roll-out of 5G and digitisation, and the need to be able to react rapidly to changing market conditions, means that telecom companies continue to drive investment in enterprise software. These tailwinds should help to support Cerillion's continued expansion over the longer term."

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About Cerillion

Cerillion has a 23-year track record in providing mission-critical software for billing, charging and customer relationship management ("CRM"), mainly to the telecommunications sector but also to other markets, including utilities and financial services. The Company has c. 80 customer installations across c. 45 countries.

Headquartered in London, Cerillion has operations in Pune, India, where its Global Solutions Centre is located, as well as operations in Bulgaria, Belgium, Singapore and Australia.

The business was originally part of Logica plc before its management buyout, led by CEO, Louis Hall, in 1999. The Company joined AIM in March 2016.

Notes

Note 1 Revenue derived from software licence, support and maintenance, Software-as-a-Service ("SaaS") and third-party sales.

Note 2 Recurring revenue includes support and maintenance, managed service and Skyline revenue.

Note 3 Back order book consists of £37.4m of sales contracted but not yet recognised at the end of the reporting period plus £8.0m of annualised support and maintenance revenue. It is anticipated that 75% of the £37.4m of sales contracted but not yet recognised as at the end of the reporting period will be recognised within the next 12 to 18 months.

Note 4 Adjusted earnings before interest, tax, depreciation and amortisation ("EBITDA") is calculated by taking operating profit and adding back depreciation & amortisation and share-based payment charge.

Note 5 Adjusted profit before tax is calculated by taking reported profit before tax and adding back amortisation of acquired intangible assets and share-based payment charge.

Note 6 Adjusted earnings per share is calculated by taking profit after tax and adding back amortisation of acquired intangible assets and share-based payment charge and is divided by the weighted average number of shares in issue during the period.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

Cerillion performed very strongly over the financial year, with revenue, profit before tax and the back-order book setting new record highs. Revenue increased by 26% to £32.7m year-on-year (2021: £26.1m), slightly ahead of the 25% growth rate achieved in the last financial year. Adjusted profit before tax rose by 40% to £11.9m (2021: £8.5m), which was significantly better than consensus market expectations, as we reported in our trading update in October. In addition, the back-order book increased by 8% to £45.4m (2021: £42.1m).

New orders over the year stood at £29.4m (2021: £33.3m). While this is a small year-on-year decrease, the total value of the new customer sales pipeline has increased by 43% to £209.0m (2021: £146.4m) reflecting strong on-going demand for the Company's solutions. For a second year in a row, we signed the largest initial contract order in the Company's history, securing a major contract worth £15.0m with Cable & Wireless Seychelles.

The trend in recent years towards bigger deal sizes with larger customers has multiple benefits. It evidences the quality of our product offering, adds customers that are typically more active and generate higher income over the long-term, and since larger deals frequently have a higher software licence element, they tend to be margin enhancing.

The Company's performance was also supported by continuing strong demand from existing customers, with orders from existing accounts at £16.7m. This compared to £19.2m last year, which was a 105% increase on the prior year. The continuing strong performance mainly reflected the increased presence of larger customers in the customer base, with commensurately broader and deeper requirements as well as larger budgets.

In order to support the significant acceleration of the Company's growth rate, we increased our resource in our main London and Pune operations and expanded our new base in Sofia, Bulgaria, opened in September 2021. We also established new teams in India at Indore and Ahmedabad.

Looking to the future, demand for billing, charging, customer relationship management ("CRM") and digital customer experience solutions in the Company's core telecommunications market is set to rise further as telecoms businesses continue to invest in 5G and fibre rollouts and in ancillary systems, which are essential to supporting and monetising those investments and to enabling telecoms businesses to adapt to rapidly changing market conditions. Cerillion remains well-placed to benefit from this, and to grow both in Europe and its other international markets. We also expect our growth to benefit from increasing market acceptance of SaaS-based product solutions, which lower total cost of ownership and provide significant commercial and operational benefits.

With the pipeline of potential new business opportunities remaining very strong, we expect the Company to make further strong progress in the new financial year.

Financial Overview

Total revenue for the year to 30 September 2022 rose by 26% to £32.7m (2021: £26.1m). As is typical, existing customers (classified as those acquired before the beginning of the reporting period) accounted for a very high proportion of total revenue, generating 98% of the overall result (2021: 96%).

Recurring revenue, which is derived from support and maintenance and managed service contracts, increased by 21% to £10.5m and comprised approximately 32% of total revenue (2021: £8.6m, 33%). At 30 September 2022, recurring revenue on an annualised basis was 25% higher year-on-year at £12.4m (30 September 2021: £9.9m), boosted by a 67% increase in annualised managed service contract revenue (2021: 36%) as more customers contracted for these services.

The Group's revenue streams are categorised in three segments: software revenue (including Software-as-a-Service); services revenue; and revenue from other activities. Software revenue principally comprises software licences and related support and maintenance sales, while services revenue is generated by software implementations, managed services and ongoing account development work. Revenue from other activities is mainly from the reselling of third-party products.

Gross margin was in line with the prior year at 77.9% (2021: 78.3%).

Operating expenses increased by 2.9% to £13.0m (2021: £12.7m). This included a favourable year-on-year foreign exchange impact of £0.9m due to retranslation of balance sheet items at year end. Excluding this, operating expenses increased by 9.9%, reflecting strong focus on cost control. Personnel costs were flat at £7.4m (2021: £7.1m), and accounted for 57% (2021: 56%) of operating expenses.

Adjusted EBITDA for the year increased by 31% to £13.8m (2021: £10.5m), driven mainly by higher revenues, and supported by favourable foreign exchange rates and higher resource utilisation. The Board considers adjusted EBITDA to be a key performance indicator for Cerillion as it adds back exceptional items and key non-cash transactions, being share-based payments, depreciation and amortisation.

We continued to invest in our product set, and the charge for amortisation of intangibles was £1.9m (2021: £1.9m). Expenditure on tangible fixed assets was £0.6m (2021: £0.3m). Operating profit increased by 42% to £10.7m (2021: £7.5m) due to the increase in revenue, as well as operational leverage.

Adjusted profit before tax rose by 40% to £11.9m (2021: £8.5m) and adjusted earnings per share increased by 38% to 35.2p (2021: 25.5p). On a statutory basis, profit before tax increased by 47% to £10.9m (2021: £7.4m) and earnings per share increased by 45% to 31.7p (2021: 21.8p).

Cash Flow and Banking

The Group continued to generate strong cash flows, and closed the financial year with net cash up by 54% against the same point last year to £20.2m (30 September 2021: £13.2m). This was after £2.2m of dividend payments (2021: £1.7m). Total debt at the year-end remained £nil (2021: £nil).

Dividend

The Board is pleased to propose a 30% increase in the final dividend to 6.5p per share (2021: 5.0p). Together with the interim dividend of 2.6p per share (2021: 2.1p), this brings the total dividend for the year to 9.1p per share (2021: 7.1p), an increase of 28%.

The dividend, which is subject to shareholder approval at the Company's Annual General Meeting to be held on 2 February 2023, will become payable on 8 February 2023 to those shareholders on the Company's register as at the close of business on the record date of 30 December 2022. The ex-dividend date is 29 December 2022.

Operational and Market Overview

Whilst the coronavirus pandemic is no longer directly affecting business operations, the global experience of remote-working - still in place in many economies - has continued to emphasise the dependence of the world economy on state-of-the-art telecoms infrastructure. Over the year, we continued to see high levels of investment in the sector in general, and an acceleration of investment in 5G and fibre rollouts, with spending trickling down from core network improvements to ancillary system upgrades and replacements. We expect to see these trends continue. 

In addition, as the global cost of living crisis begins to bite, we anticipate increasing pressure on telcos to find efficiencies in their digital real-estate. This is likely to encourage further market take-up of product-based SaaS solutions, which Cerillion offers, rather than the more bespoke solutions available from more traditional vendors. We therefore fully expect demand for billing, charging, CRM and digital customer experience software in our core telecoms market to continue to grow. 

Beyond these broad sector trends, a number of other factors will continue to drive demand for our offerings. These include:

- the acceleration of digital investments, initially driven by the pandemic as a necessity to ensure continuity of services, but now increasingly a requirement to improve the customer experience. This means that Communication Service Providers ("CSPs") are now going beyond their digital front-ends and investing in wider digitalisation and in the transformation of their BSS/OSS systems in order to automate and optimise customer engagement and deliver a seamless experience across all touchpoints;

- the rollout of 5G and the evolution to 5G "Standalone" networks, which is driving further investment in convergent charging systems and product catalogue solutions, as CSPs aim to maximise their opportunities in the B2B sector;

- the requirement for agility; with CSPs facing the on-going threat from digital services providers and the hyperscalers, agility is more important than ever. This is driving further investment in BSS/OSS platforms that will allow CSPs to pivot quickly and change business processes to address new market opportunities, from the complexities of B2B/enterprise use cases to the simplest of digital subscription services;

- the need for CSPs to be able to respond rapidly to changing conditions in their markets, which fully integrated BSS/OSS product solutions enable, heightened by current inflationary pressures and other macro-economic drivers; and

- the trend to 'low-code' / 'no-code', with many CSPs now preferring to invest in products with standardised interfaces (Open Application Programming Interfaces ("API") for interoperability with other systems, and moving away from 'customisation' towards 'configuration'.

Cerillion's ability to address the market through a range of flexible solutions remains a key strength. As well as our proven ability to support end-to-end transformation projects, the Company can provide individual product modules, or subsets of modules, to implement point solutions that address more specific requirements. The Company's solutions are also able to support a broad range of CSPs, from traditional network operators and virtual network operators ("VNOs") to enterprise connectivity solutions providers.

In July 2022, the Company announced a major new contract win with Cable & Wireless Seychelles ("CWS"), the main telecoms provider in the Seychelles. This latest win is the Company's largest initial contract agreement to date, and further enhances the Cerillion brand in the marketplace. We expect the general trend towards signing bigger deals with larger new customers to continue. These contracts normally involve higher recurring revenues and there is a much greater upsell opportunity as well. Therefore they contribute significantly to the ongoing growth of the business. As mentioned previously, these larger contracts typically have a longer sales cycle than smaller ones.

The new customer wins, ongoing implementation work with existing customers, and major new deals signed with existing customers, create a strong platform for further growth in the new financial year. The back-order book at 30 September 2022 was up by 8% to an all-time record of £45.4m (2021: £42.1m). This means that the Company has started the new financial year with far greater visibility of revenues than any previous year.

As we grow across the globe, and global labour markets evolve, we will continue to expand our operating locations, recruiting the best talent cost-effectively and supporting our expanding global customer base. We continued to build our teams at our new locations in Sofia, Bulgaria and at Ahmedabad and Indore in India and maintain a mix of remote and office-based working. The competition for technology professionals remained strong during most of the financial year, however, we believe that we have seen a peak in demand at our main operating locations and consequently expect those pressures to ease a little during the new financial year. Nevertheless, we remain focused on potential inflation in people costs and intend to continue to manage carefully the mix and location of resource.

We continued to invest in R&D over the year, enhancing our technology and providing two major new releases of our product set as scheduled. The most recent of these releases was Cerillion 22.2, which went live in early November 2022. The focus of this release was a major upgrade of the 'Wholesale Gateway' module. This module supports the automation of the wholesale operations of network operators ("NetCos"), and the upgraded version speeds up the on-boarding process of new service provider partners ("ServCos"). It also simplifies the integration of business support systems between NetCos and ServCos, whilst providing a high level of security for NetCos through a dedicated authorisation layer and comprehensive API (application programming interfaces) management policies.

In early November 2022, we were delighted to gain Gold-level status for the Company's BSS/OSS suite in the TM Forum's Open API Conformance Certification program. Achieving this level underlines Cerillion's commitment to delivering open and standards-based products in accordance with the TM Forum's Open API & Open Digital Architecture Manifesto, and puts Cerillion at the forefront of adoption.

Outlook

The Company continues to grow strongly, and the Cerillion brand is gaining visibility in what is a huge marketplace.

Looking ahead, we are well-placed to deliver another strong performance in the new financial year, supported by a record order book. The new customer sales pipeline is also at a record high and contains large deal opportunities. 

Cerillion's financial position is very robust. The Company continues to generate strong cash flows, maintains significant net cash, and recurring income is rising. We are therefore well-placed to support ongoing growth, including taking advantage of any suitable acquisitions opportunities as they arise.

The long-term trend of telecoms companies increasing investment in their networks and in digital transformation remains entrenched. This should continue to benefit Cerillion's own long-term growth prospects.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2022

All transactions are attributable to the owners of the parent.

The Group has no other recognised gains or losses for the current year.

* Adjusted earnings before interest, tax, depreciation and amortisation ("EBITDA") is calculated by taking operating profit and adding back depreciation & amortisation and share-based payment charge.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2022

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2022

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2022

NOTES TO THE ACCOUNTS

1 Critical accounting estimates and judgements and other sources of estimation uncertainty

1 (a) Critical accounting estimates and judgements

The preparation of Financial Statements under IFRS requires the use of certain critical accounting assumptions, and requires management to exercise its judgement and to make estimates in the process of applying Cerillion's accounting policies.

Judgements

(i) Capitalisation of development costs

Development costs are capitalised only after the technical and commercial feasibility of the asset for sale or use have been established. This is determined by our intention to complete and/or use the intangible asset. The future economic benefits of the asset are reviewed using detailed cash flow projections. The key judgement is whether there will be a market for the products once they are available for sale.

(ii) Revenue recognition

The Group assesses the products and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a product or service (or bundle of products and services) that is distinct. This assessment is performed on a contract by contract basis and involves significant judgement. The determination of whether performance obligations are distinct or not affects the timing and quantum of revenue and profit recognised in each period.

Estimates

(i) Revenue recognition

For contracts where goods or services are transferred over time, revenue is recognised in line with the percentage completed in terms of effort to date as a percentage of total forecast effort. Total forecast effort is prepared by project managers on a monthly basis and reviewed by the project office and senior management team on a monthly basis. The forecast requires management to be able to accurately estimate the effort required to complete the project and affects the timing and quantum of revenue and profit recognised on these contracts in each period.

(ii) Impairment of non-financial assets

All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying value may be impaired. Additionally, goodwill is subject to an annual impairment test. An impairment loss is recognised in the Group statement of comprehensive income to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's net realisable value and its value in use.

(iii) Depreciation and amortisation

Depreciation and amortisation rates are based on estimates of the useful economic lives and residual values of the assets involved. The assessment of these useful economic lives is made by projecting the economic lifecycle of the asset. The key judgement is estimating the useful economic life of the development costs capitalised, a review is conducted annually by project. Depreciation and amortisation rates are changed where economic lives are re-assessed and technically obsolete items written off where necessary.

(iv) Calculation of future minimum lease payments

The calculation of lease liabilities requires the Group to determine an incremental borrowing rate ("IBR") to discount future minimum lease payments. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group 'would have to pay', which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease.

Management has considered the above areas of estimation and concluded that there are no deemed material changes arising from changes in underlying assumptions.

1 (b) Other sources of estimation uncertainty

(i) Recoverability of trade debtors and accrued income

Management use their judgement when determining whether trade debtors and accrued income are considered recoverable or where a provision for impairment is considered necessary. The assessment of recoverability will include consideration of whether the balance is with a long-standing client, whether the customer is experiencing financial difficulties, the fact that balances are recognised under contract and that the products sold are mission-critical to the customer's business. Refer to notes 13 and 16.

2 Segment information

The Group continues to be organised into four main business segments for revenue purposes.

Under IFRS 8 there is a requirement to show the profit or loss for each reportable segment and the total assets and total liabilities for each reportable segment if such amounts are regularly provided to the chief operating decision-maker. There are no other material items that are separately presented to the chief operating decision-maker.

In respect of the profit or loss for each reportable segment the expenses are not reported by segment and cannot be allocated on a reasonable basis and, as a result, the analysis is limited to the Group revenue.

Assets and liabilities are used or incurred across all segments and therefore are not split between segments.

The following table provides a reconciliation of the revenue by segment to the revenue recognition accounting policy. Revenue recognised on performance obligations partially satisfied in previous periods was £19,928,729 (2021: £12,703,901).

(a) Geographical information

As noted above, the internal reporting of the Group's performance does not require that the statement of financial position information is gathered on the basis of the business streams. However, the Group operates within discrete geographical markets such that capital expenditure, total assets and net assets of the Group are split between these locations as follows:

All revenue is contracted within the UK subsidiary Cerillion Technologies Limited and therefore all revenue is domiciled in the Europe segment.

Cerillion receives greater than 10% of revenue from individual customers in the following geographical regions:

3 Operating profit

The bad debt expense relates to the provisions made against the risk of non-recovery of receivables. The increase during the year is predominantly due to an assessment over certain implementation work that may not be fully recoverable.

4 Finance income

5 Finance costs

6 Taxation

a) Analysis of tax charge for the year

The tax charge for the Group is based on the profit for the year and represents: