Cerillion Regulatory News (CER)

22 November 2021

AIM: CER

Cerillion plc

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

Final results for the year ended 30 September 2021

Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2021.

Highlights 

Financial:

· All key financial performance measures reached record highs

· Revenue1 rose by 25% to £26.1m (2020: £20.8m)

- recurring revenue2 contributed £8.6m (2020: £6.0m), 33% of total revenue

- at the year end, on an annualised basis, recurring revenue was up 25% year-on-year to £9.9m (2020: £7.9m)

· New orders rose by 43% to £33.3m (2020: £23.3m)

· Back-order book3 increased by 36% to £42.1m at the year-end (2020: £31.0m)

· Adjusted EBITDA4 increased by 81% to £10.5m (2020: £5.8m)

- adjusted EBITDA margin rose to 40.3% (2020: 27.9%)

· Adjusted profit before tax5 up by 131% to £8.5m (2020: £3.7m)

· Adjusted earnings per share6 increased by 105% to 25.5p (2020: 12.4p)

· Reported profit before tax up by 181% to £7.4m (2020: £2.6m)

· Reported earnings per share up 147% to 21.8p (2020: 8.8p)

· Net cash increased by 71% to £13.2m (2020: £7.7m)

· Final dividend of 5.00p per share proposed (2020: 3.75p), bringing the total dividend for the year to 7.1p per share (2020: 5.5p), an increase of 29%

Operational:

· Staff continued to work remotely in light of the ongoing coronavirus pandemic, but there was little adverse impact to operations and implementations

· Largest ever contract won in March 2021 ($18.4m), with Telesur, a full-service Latin American network operator, continuing the trend of winning bigger contracts with larger customers

· Strong pipeline of new business opportunities

· The Board believes that Cerillion is well-positioned for further progress over the new financial year

Louis Hall, CEO of Cerillion, commented:

"We have more than doubled our top-line growth rate to 25%, building on the increasing momentum in new business wins over the last three to four years. I am also pleased to highlight strong margin growth and a rising base of recurring income. Cerillion has made huge strides in increasing market awareness of its flagship product, and the signing of its largest ever contract win in the first half of the financial year continued the trend of securing bigger contracts with larger customers.

"Prospects for ongoing growth remain very strong. With a record back-order book and strong new business pipeline, we remain confident of continued momentum over the new financial year. The market backdrop remains extremely favourable. The roll-out of 5G and digitisation continue to drive investment by telecom companies in enterprise software. These tailwinds should help to support Cerillion's continued expansion over the short-term and longer term."

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.

For further information please contact:

About Cerillion

Cerillion has a 22-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, USA 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 annualised support and maintenance, managed service and Skyline revenue.

Note 3 Back order book consists of £34.9m of sales contracted but not yet recognised at the end of the reporting period plus £7.2m of annualised support and maintenance revenue. It is anticipated that 75% of the £34.9m 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, share-based payment charge and exceptional items.

Note 5 Adjusted profit before tax is calculated after adding back amortisation of acquired intangible assets, share-based payment charge and exceptional items.

Note 6 Adjusted earnings per share is calculated by taking profit after tax and adding back amortisation of acquired intangible assets, share-based payment charge and exceptional items and is divided by the weighted average number of shares in issue during the period. There is no tax impact relating to these items.

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 25% year-on-year to £26.1m (2020: £20.8m), more than doubling the growth rate achieved in the previous four financial years post-IPO. Adjusted profit before tax rose by 131% to £8.5m (2020: £3.7m), significantly better than market expectations as previously reported in our trading update in October. In addition, the back-order book was up by 36% to £42.1m (2020: £31.0m).

New orders over the year were up by 43% to £33.3m (2020: £23.3m), and included the largest initial contract the Company has signed in its history at $18.4m. The contract, with Telesur, a full-service Latin American network operator, followed a £11.2m contract win in the prior financial year, which at the time was Cerillion's largest ever contract win. 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 strong demand from existing customers, with orders from existing accounts up by 105% to £19.2m (2020: £9.4m), which exceeded the 88% increase in the prior year. This significant uplift in sales mainly reflected the increased presence in the base of larger customers with commensurately broader and deeper requirements as well as larger budgets.

The global coronavirus pandemic did not significantly impede the Company's operations over the financial year. Staff continued to work remotely, and a hybrid model is now operating in the London office, with staff working two core days a week in the office and three days a week from home. It is anticipated that staff will begin to return to the Pune office in some form from January 2022.

In order to support the significant acceleration of the Company's growth rate, we increased our resource in the main London and Pune operations. In early September, we also launched a new delivery and development centre in Sophia, Bulgaria, which has a reputation for its strong technology skill base. We expect the new centre to become another major strategic base for the Group.

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 continue to rise as telecoms businesses continue to invest in 5G rollouts and the ancillary systems that are essential to supporting and monetizing those investments. Cerillion remains well-placed to benefit from this, and to grow both in Europe and its other international markets.

The pipeline of potential new business opportunities remains very strong, at £146.4m (2020: £121.9m) and major implementations for new customers are progressing well. We therefore expect the Company to make further strong progress in the new financial year.

Financial Overview

Total revenue for the year to 30 September 2021 rose by 25% to £26.1m (2020: £20.8m). As is typical, existing customers (classified as those acquired before the beginning of the reporting period) accounted for a high proportion of total revenue, generating 96% of the overall result (2020: 97%).

Recurring revenue, which is derived from support and maintenance and managed service contracts, contributed £8.6m to total revenue, approximately 33% of overall Group revenue (2020: £6.0m, 29%). At 30 September 2021, recurring revenue on an annualised basis was 25% higher year-on-year at £9.9m (30 September 2020: £7.9m), boosted by a 36% increase in annualised managed service contract revenue (2020: 205%) 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 and ongoing account development work. Revenue from other activities is mainly from the reselling of third-party products.

Gross margin increased to 78% (2020: 74%), which was in line with management expectations.

Reflecting growth, operating expenses increased by 3% to £12.9m (2020: £12.5m). Personnel costs were steady at £5.8m (2020: £5.8m), and accounted for 45% (2020: 47%) of operating expenses.

Adjusted EBITDA for the year increased by 81% to £10.5m (2020: £5.8m), mainly driven by higher revenues. 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 (2020: £1.9m). Expenditure on tangible fixed assets was £0.3m (2020: £0.3m). Operating profit increased by 168% to £7.5m (2020: £2.8m) due to the increase in revenue, which included a higher proportion of software licence revenue and a lower proportion of lower margin 3rd party revenue, as well as operational leverage.

Adjusted profit before tax rose by 131% to £8.5m (2020: £3.7m) and adjusted earnings per share increased by 105% to 25.5p (2020: 12.4p). On a statutory basis, profit before tax increased by 181% to £7.4m (2020: £2.6m) and earnings per share increased by 147% to 21.8p (2020: 8.8p).

Cash Flow and Banking

The Group continued to generate strong cash flows, and closed the financial year with net cash of £13.2m, up by 71% against the same point last year (30 September 2020: £7.7m). This net position is after £0.6m of debt repayments (2020: £1.2m) and £1.7m of dividend payments (2020: £1.5m). Total Group cash at the year-end increased to £13.2m (2020: £8.3m), up by 59% year-on-year, and total debt stood at £nil (2020: £0.6m).

Dividend

The Board is pleased to propose a 33% increase in the final dividend to 5.00p per share (2020: 3.75p). Together with the interim dividend of 2.1p per share (2020: 1.75p), this brings the total dividend for the year to 7.1p per share (2020: 5.5p), an increase of 29%.

The dividend, which is subject to shareholder approval at the Company's Annual General Meeting to be held on 4 February 2022, will become payable on 8 February 2022 to those shareholders on the Company's register as at the close of business on the record date of 31 December 2021. The ex-dividend date is 30 December 2021.

Operational Overview

Whilst the coronavirus pandemic presented fewer challenges this financial year compared to the prior year, with the Group having already adapted well to the change in circumstances, we remained vigilant. Staff continued to work remotely, and we were able to continue to complete new implementations and new projects for existing customers remotely.

The global experience of enforced 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. We are seeing high levels of investment in the sector in general, and an acceleration of investment in 5G rollouts, with spending trickling down from core network improvements to ancillary system upgrades and replacements. 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 specific offerings. These include:

- the acceleration of digital investments, initially driven by the pandemic as a necessity to ensure continuity of services, but increasingly as a requirement to improve the customer experience. This means 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 - 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, changing business processes to address new market opportunities, from the complexities of B2B/enterprise use cases to the simplest of digital subscription services; 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. In addition to 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.

The major new contract win announced in March 2021 with Telesur, the main telecoms provider in Suriname, was another important milestone for Cerillion, representing the Company's largest ever initial contract value, and enhancing the Cerillion brand in the marketplace. We expect the general trend towards signing bigger deals with larger new customers to continue. As mentioned previously, these engagements typically involve higher recurring revenues as well as much greater upsell opportunity, and therefore will contribute significantly to the ongoing growth of the business.

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 2021 was up by 36% to an all-time record of £42.1m (2020: £31.0m), providing far greater visibility of revenues than at the beginning of any previous financial year.

As we grow across the globe, and global labour markets evolve, we will continue to expand our operating locations, both to have access to the best talent most cost-effectively, and to be able to support our expanding customer base at closer proximity.

We continued to invest in R&D over the year to further improve our product set, maintaining our commitment to provide two major new releases of the product set in each calendar year. The most recent of these upgrades was Cerillion 21.2, which went on general release in early November 2021.

Outlook

The Company delivered a record set of results, and our products are gaining greater visibility in the marketplace. In addition, Cerillion's financial position is very strong, supported by a growing base of recurring income, increased cash flows, and no debt.

We believe that Cerillion remains well-positioned to deliver another strong performance over the new financial year. The back-order book stands at a record level, providing strong visibility of revenues, and the pipeline of new business is strong. In addition to these strong organic growth prospects, we also continue to assess a range of inorganic growth opportunities as they arise.

The market backdrop is favourable, with increasing investment by telecom companies in their networks and in digital transformation, and this long-term trend should continue to benefit Cerillion's growth prospects.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2021

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, share-based payment charge and exceptional items.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2021

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2021

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2021

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 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.

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 £12,703,901 (2020: £12,994,913).

(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

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:

There are currently no recognised or unrecognised deferred tax assets or liabilities within the Parent Company financial statements. There has been a change in the future tax rates to 25%, which has been used to calculate the deferred tax balances.

7 Dividends

(a) Dividends paid during the reporting period

The Board paid the final dividend in respect of 2020 of 3.75p per share, on 9 February 2021, and declared and paid an interim 2021 dividend of 2.1p (2020: 1.75p) per share on 18 June 2021. Total dividends paid during the reporting period were £1,726,538 (2020: £1,490,431).

(b) Dividends not recognised at the end of the reporting period

Since the year end the Directors have proposed the payment of a dividend in respect of the full financial year of 5.00p per fully paid Ordinary Share (2020: 3.75p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30 September 2021, but not recognised as a liability at the year end is £1,475,674 (2020: £1,106,756). Since the year end the Directors of Cerillion Technologies Limited have approved a £3.0 million dividend to Cerillion plc

8 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year.

9 Intangible assets

Amortisation has been included in operating expenses in the consolidated statement of comprehensive income.

The carrying value of goodwill included within the Cerillion plc consolidated statement of financial position is £2,053,141, which is allocated to the cash-generating unit ("CGU") of Cerillion Technologies Limited Group. The CGU's recoverable amount has been determined based on its fair value less costs to sell. As Cerillion plc was established to purchase the CTL Group the fair value less costs to sell has been calculated based on the market capitalisation of Cerillion plc less the estimated costs to sell the CTL Group.

Using an average market share price of Cerillion plc for the year ended 30 September 2021, less an estimate of costs to sell, there is significant headroom above the carrying value of the cash-generating unit and therefore no impairment exists. The calculations show that a reasonably possible change, as assessed by the Directors, would not cause the carrying amount of the CGU to exceed its recoverable amount.

\* The Company's external software licences were previously presented as tangible assets in the balance sheet. However, management has assessed that these assets are not closely linked to underlying hardware and can be used independently, the cost and accumulated amortisation of those was reclassified to intangible assets. 

10 Property plant and equipment

All depreciation charges are included within operating expenses and no impairment has been charged.

As referred to in note 15 the Group's loan was secured over all the assets of the Group.

There were no property, plant and equipment assets owned by the Parent Company.

\* The reclassification is explained in note 9.

11 Leases

Group

This note provides information for leases where the Group is a lessee. The Group leases offices in London and India, along with some IT equipment.

(i). amounts recognised in the consolidated and company statements of financial position

The consolidated and company statements of financial position shows the following amounts relating to leases: