Cerillion Regulatory News (CER)

27 November 2017

AIM: CER

Cerillion plc

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

Final results for the year ended 30 September 2017

Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2017. 

Highlights1 

Financial:

· Strong results reflecting buoyant software revenue growth

· Revenue up by 8.3% to £16.0m (annualised 2016: £14.8m)

- extension of contracts with existing customers made a strong contribution to software sales

· Recurring revenue5 up by 9.6% to £4.4m

- c. 28% of total revenues

· Back order book6 stood at £13.1m (2016: £9.3m) - up 40.8%

· EBITDA up by 17.8% to £3.6m (annualised 2016: £3.1m)

- EBITDA margin up to 22.6% (annualised 2016: 20.7%)

· Adjusted profit before tax up by 8.4% to £2.5m (annualised 2016: £2.3m)

· Earnings per share of 6.9p (annualised 2016: 1.3p)

· Cerillion Technologies Limited earnings per share of 7.9p (2016: 6.8p7)

· Proposed final dividend of 2.8p per share, bringing the total dividend for the year to 4.2p per share (2016: 3.9p) growth of 7.7%

Operational:

· Two large new Enterprise customer wins in Europe

· A further four new customers signed for Skyline, Cerillion's cloud billing solution

· New Enterprise Product Catalogue module introduced

· Included in the 'Visionaries' quadrant of the Gartner Magic Quadrant for Integrated Revenue and Customer Management for CSPs for the 2nd consecutive year

· Outlook for continuing progress remains very positive

Louis Hall, CEO of Cerillion, commented:

"I am pleased to present our second set of full year results as an AIM-quoted Company. Cerillion has continued to make strong progress, and I am delighted not just with the substantial rise in software revenues, but also the progress we have made with margins, aided by licence extensions with existing customers.

"Cerillion continues to generate significant revenues from its existing customer base and we have additionally secured contracts with a number of major new customers. We believe the Company's inclusion in the 'Visionaries' quadrant of the Gartner Magic Quadrant for Integrated Revenue and Customer Management for CSPs for the second year in a row is an indication of the quality of our offering and the importance we place on customer service.

"As we go into the 2018 financial year, we remain very positive about prospects for Cerillion's continuing progress, underpinned by a strong pipeline of prospects across EMEA, Asia Pacific and Americas."

For further information please contact:

About Cerillion

Cerillion is a leading provider of mission critical software for billing, charging and CRM, with an 18 year track record in providing comprehensive revenue and customer management solutions. The Company has 81 customer installations across 43 countries, principally serving the telecommunications market, but also utilities and financial services.

Led by a highly experienced management team, the Company is headquartered in London and has operations in Pune, India, where its Global Solutions Centre is located, and in Sydney and Miami. Cerillion's CEO, Louis Hall, led the management buyout from Logica plc in 1999.

Cerillion plc

Cerillion plc acquired Cerillion Technologies Limited on 18 March 2016 in conjunction with the completion of its IPO on AIM. The table below summarises the highlights for Cerillion plc, reflecting trading for the full year to 30 September 2017 and for the period from 18 March 2016 to 30 September 2016. Prior to 18 March 2016, Cerillion plc had no trading activity.

In addition, the table includes full year trading highlights for Cerillion Technologies Limited, Cerillion (India) pvt and Cerillion Inc (collectively, CTL Group), for the year to 30 September 2017 and the year to 30 September 2016. These are provided to give a clearer picture of the year-on-year trading activity of the underlying Group1.

Notes

Note 1 Cerillion plc acquired Cerillion Technologies Limited on 18 March 2016 in conjunction with the completion of its IPO on AIM. Prior to 18 March 2016, Cerillion plc had no trading activity. Consequently, save for the dividend, earnings per share and net assets information, the 2017 results and comparative 2016 figures reported in these highlights and in the Chairman and Chief Executive Officer's Report are based on the unaudited CTL Group proforma consolidated figures which include Cerillion Technologies Limited and its subsidiaries (Cerillion (India) pvt and Cerillion Inc). Financial Information for Cerillion plc, is extracted from the audited year end IFRS accounts.

Note 2 Full analysis of the revenue streams for Cerillion plc can be found in the segmental reporting disclosure note 2.

Note 3 Adjusted profit before tax is calculated after adding back IPO costs, unrealised fair value movement on forward exchange contracts and amortisation of acquired intangible assets.

Note 4 Revenue derived from software licence, support and maintenance, SaaS and managed services sales.

Note 5 Recurring revenue includes annualised support and maintenance, managed service and Skyline revenue.

Note 6 Back order book consists of £9.0m of sales contracted but not yet recognised at the end of the reporting period plus £4.1m of annualised support and maintenance revenue. It is anticipated that 75% of the £9.0m of sales contracted but not yet recognised as at the end of the reporting period will be recognised within the next 4 to 5 quarters.

Note 7 Based on earnings for Cerillion Technologies Limited for the current and comparative period and the total number of Cerillion plc shares in issue as at 30 September 2017 and 30 September 2016 respectively.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

Cerillion plc was admitted to trading on AIM on 18 March 2016, towards the end of the first half of its financial year ended 30 September 2016, and we are now very pleased to report the Group's results for the second year as a publicly quoted company. 

The CTL Group business is well established, and has an 18 year track record of providing mission critical software for billing, charging and customer relationship management ("CRM"), predominantly to the telecommunications market, but also to the utilities and financial services sectors.

We are continuing to drive growth in our core telecoms market, where demand for billing and charging solutions is growing, driven by technological and regulatory change. At the same time, we are also seeking to develop in new market sectors, supported by our new Software-as-a-Service ("SaaS") billing product, Cerillion Skyline, which facilitates billing and the collection of payments from any type of subscription or usage-based service.

We are pleased to report that Cerillion has continued to make good progress over the second half of its financial year and that results are in line with market expectations. Revenue has increased year-on-year by 8.3% to £16.0m, whilst EBITDA is up by 17.8% to £3.6m and adjusted profit before tax is up by 8.4% to £2.5m. All year-on-year comparisons are with the full year 2016 numbers for CTL Group. 

These encouraging results have been supported by strong demand from our established customer base, as well as implementations for new customers in Europe.

Financial Overview

CTL Group Proforma Consolidated Income Statement - for the year ended 30 September 2017

Total revenue for the year to 30 September 2017 rose by 8.3% to £16.0m (2016: £14.8m). Our existing customer base typically drives a very high proportion of total annual income and established customers (those acquired at least 12 months before the beginning of the reporting period) generated 81% of total revenue in the year (2016: 93%). The reduction in the proportion of revenue derived from our existing customer base was lower in 2017 due to a larger contribution from implementation work with new customers.

A significant part of the Group's revenues continues to be underpinned by recurring income, which is derived from support and maintenance and managed service contracts. Recurring revenues accounted for 28% of the Group's income (2016: 27%), having risen by 10% year-on-year to £4.4m (2016: £4.1m). 

Our revenue streams are broadly divided into three segments: software revenue, which principally comprises software licence sales, and support and maintenance sales; services revenue, which is generated by software implementations and other services work; and revenues from other activities, mainly the reselling of third party products.

· Software revenue rose by 49% to £7.9m (2016: £5.3m), aided by the completion of licence extensions with existing customers, and accounted for 49% of total revenues (2016: 36%). 

· Services revenue decreased by 16% to £7.3m (2016: £8.7m) and constituted 45% of total revenue (2016: 59%). The decrease was largely due to more focus in 2017 on new customer implementations, where a significant proportion of revenue is derived from licence income.

· Third party income remained constant at £0.8m (2016: £0.8m) and comprised 5% of total revenue (2016: 5%).

Administrative expenses increased by 11% to £8.6m (2016: £7.7m) and included personnel costs at £4.7m (2016: £4.5m).

Adjusted operating profit increased by 14% to £2.6m (2016: £2.3m), mainly driven by the increase in total revenue. The charge for amortisation of R&D costs was £0.8m (2016: £0.5m). The increase was due to continued investment in our product set, including investment in our cloud billing platform, Cerillion Skyline. Expenditure on tangible fixed assets was £0.2m (2016: £0.3m).

Adjusted profit before tax rose by 8.4% to £2.5m (2016: £2.3m) and adjusted earnings per share was 7.9p (2016: 6.8p5).

Cash Flow and Banking

Net cash as at 30 September 2017 stood at £1.6m (2016: £0.4m), with total Group cash at £5.3m (2016: £5.0m) and total debt at £3.7m (2016: £4.6m).

Dividend

In line with the Company's dividend policy of paying out between a third to half of the Group's free cash flow every year, subject to the Group's performance, the Board is pleased to propose a final dividend of 2.8p per share (2016: 2.6p). Together with the interim dividend of 1.4p per share (2016: 1.3p), this brings the total dividend for the year to 4.2p per share (2016: 3.9p).

The dividend will become payable on 7 February 2018 to those shareholders on the Company's register as at the close of business on the record date of 5 January 2018. The ex-dividend date is 4 January 2018.

Operational Overview

We have continued to make good progress with our core solution, the Group's pre-integrated Enterprise BSS/OSS suite, which includes our new, real-time, Convergent Charging System ("CCS"). Across our product suite, new orders were up 25% over the year to £13.5m (2016: £10.8m). All of these new customer orders are now under way, and provide Cerillion with increased revenue visibility for the new financial year and beyond. 

Typically, because our implementation projects are governed by long term, high value contracts, the business enjoys a high level of revenue visibility through both its back order book and its annualised support revenue. At the year end, the combined value of annualised support revenue and the back order book - which consists of unperformed, contracted work under purchase orders and contracted work that is still subject to the receipt of purchase order - rose by 40.8% to £13.1m (2016: £9.3m).

We began work on two major new customer implementations during the year. The first of these was with Scarlet, a quad-play service provider operating in the Belgian market, which is a subsidiary of Proximus, a major European telco. Cerillion is migrating Scarlet from its current, legacy systems to Cerillion's pre-integrated, billing, charging and CRM product suite, in order to support Scarlet's on-going growth and to help it to respond to customer demand for the next generation of convergent services and real-time service control. A key factor in Scarlet's selection of Cerillion was the advanced capability provided by our CCS module. We also began a major new implementation with a wholesale telecoms operator in Europe, where we will also provide our pre-integrated billing, charging and CRM product suite. The new platform will enable this customer to manage the provision of services to its retail partners.

As in 2016, CCS continues to be a key driver for new sales of our software solutions as it enables communications service providers ("CSPs") to converge prepaid and postpaid charging and billing on the same software platform. This provides significant cost savings and performance-related benefits to customers, as well as the flexibility to support multiple service types. CCS can be deployed in many ways too, including as a standalone charging engine, as a replacement for legacy prepaid systems, or as an integral part of Cerillion's core end-to-end billing and CRM solution. 

We won four new customers for Cerillion Skyline, our Software-as-a-Service billing solution. Skyline enables businesses to bill and collect recurring revenue from subscription and usage-based services, and over time, we expect to expand our addressable market, both within the telecoms sector and in new industry verticals with this product. The cloud (SaaS) delivery model provides many advantages for our customers, including faster and lower cost implementation, easier integration, continuous product updates, and greater flexibility in launching new services. New customers signed up this year include a UK-based B2B telecoms provider, an established Scandinavian fibre broadband company, a specialist HR software vendor and a smart advertising platform start-up.

We continue to invest across our solutions, making further improvements to Cerillion Skyline, CCS and our other modules. During the year, as planned, we brought our new Enterprise Product Catalogue module to the market, which enhances our ability to manage the increasingly complex product and service bundles that our customers need to succeed in their markets.

After the period end, on 23 October 2017, we were delighted to be designated in the "Visionaries" quadrant of Gartner's newly published report, "Magic Quadrant for Integrated Revenue and Customer Management ("IRCM") for CSPs". This is the fourth consecutive year that Cerillion has been included in this annual review of IRCM vendors and the second year that we have been designated in the "Visionaries" quadrant. Gartner's Magic Quadrant report evaluates vendors across a broad range of criteria, including product strategy, sales & marketing strategies, innovation and client references, and companies are positioned according to "completeness of vision" and "ability to execute". Gartner evaluated both Cerillion Enterprise and Cerillion Skyline, and we believe our designation reflects the Company's growing stature and reputation as a leading IRCM vendor. In addition to this, we were pleased to see that Cerillion was the highest rated supplier in the Integrated Revenue and Customer Management (IRCM) CSPs market, based on six customer reviews, as of 21 November 2017, on the Gartner Peer Insights platform for its Enterprise BSS/OSS Suite8.

Outlook

We remain very positive about the outlook for the Group and are pursuing a strong pipeline of prospects across EMEA, Asia Pacific and the Americas. We therefore believe that Cerillion remains well-positioned for continuing progress over the new financial year.

Notes

Note 8 Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of these Financial Statements/Annual Results/Accounts) and the opinions expressed in the Gartner Report(s) are subject to change without notice.

Gartner Peer Insights reviews constitute the subjective opinions of individual end-users based on their own experiences, and do not represent the views of Gartner or its affiliates.

Consolidated Statement of Comprehensive Income

All transactions are attributable to the owners of the parent.

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

* Revenue from acquisition, as the Group came into existence on 18 March 2016.

Consolidated Statement of Financial Position

The financial statements were approved and authorised for issue by the Board of Directors on 24 November 2017. Signed on behalf of the Board of Directors by:

L T Hall - Director

Company Number 09472870

The accompanying accounting policies and notes form an integral part of these financial statements.

Company Statement of Financial Position

The financial statements were approved and authorised for issue by the Board of Directors on 24 November 2017. Signed on behalf of the Board of Directors by:

L T Hall - Director

Company Number 09472870

The accompanying accounting policies and notes form an integral part of these financial statements.

Consolidated Statement of Cash Flows

The accompanying accounting policies and notes form an integral part of these financial statements. 

Company Statement of Cash Flows

The accompanying accounting policies and notes form an integral part of these financial statements

Consolidated Statement of changes in Equity

The accompanying accounting policies and notes form an integral part of these financial statements

Company Statement of Changes in Equity

The accompanying accounting policies and notes form an integral part of these financial statements

Notes to the financial statements for the year ended 30 September 2017

1 PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below.

Basis of preparation

The Company is a public limited company, which was incorporated in England and Wales on 5 March 2015. The address of its registered office is 25 Bedford Street, London, WC2E 9ES. The principal activity of the Group is a supplier and developer of telecommunication software solutions and equipment. In the prior year the principal activity was to act as a platform to acquire the entire issued share capital of Cerillion Technologies Limited for the purpose of admission to AIM. These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and IFRIC interpretations endorsed by the European Union (EU). The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are held at fair value.

The Financial information contained in this announcement does not constitute statutory financial statements for the year ended 30 September 2017 within the meaning of section 435 of the Companies Act 2006, but is extracted from those financial statements. Statutory accounts for Cerillion plc for the year ended 30 September 2016 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 30 September 2017 will be delivered to the Registrar of Companies following the Group's Annual General Meeting.

The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and (iii) did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The Company's directors are responsible for the preparation of the financial statements.

The preparation of the financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Further details regarding areas requiring significant assumptions and estimates are provided in Note 1 to the financial statements.

There is no material difference between the fair value of financial assets and liabilities and their carrying amount.

The functional and presentational currency is UK Sterling. Amounts in the financial statements have been rounded to the nearest pound.

Going concern

The Directors have assessed the current financial position of the Group, along with future cash flow requirements for a period in excess of 12 months from the date of signing the financial statements, to determine if the Group has the financial resources to continue as a going concern for the foreseeable future.

The conclusion of this assessment is that it is appropriate that the Group be considered a going concern, based on forecast profitability and positive cash inflows. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements.

Basis of consolidation

The Group financial statements consolidate those of the parent company and all of its subsidiaries as of 30 September 2017. All subsidiaries have a reporting date of 30 September with the exception of the Indian subsidiary, which has a mandatory reporting date of 31 March. The Indian subsidiary is consolidated using its management accounts through to 30 September.

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary or a business is the fair values of the assets transferred, the liabilities incurred to former owners of the acquiree and the equity interests issued to the Group. The consideration transferred includes the fair values of any asset or liability resulting from a contingent consideration arrangement.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values on the acquisition date. Acquisition-related costs are expensed as incurred.

Intercompany transactions, unrealised gains and losses on intragroup transactions and balances between group companies are eliminated on consolidation.

New and Revised Standards

IFRS in issue but not applied in the current financial statements

The following IFRS and IFRIC Interpretations have been issued but have not been applied by the Company in preparing these financial statements as they are not as yet effective. The Company intends to adopt these Standards and Interpretations when they become effective, rather than adopt them early.

· IFRS 9, 'Financial instruments', effective date 1 January 2018

· IFRS 15, 'Revenue from Contracts with Customers', effective date 1 January 2018

· IFRS 16, 'Leases', effective date 1 January 2019

· Disclosure Initiative: Amendments to IAS 7: Statement of Cash Flows (effective: 1 January 2017, but not yet adopted by the EU)

· Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective: 1 January 2017, but not yet adopted by the EU).

The above standards are yet to be subject to a detailed review. IFRS 9 will impact both the measurement and disclosure of financial instruments, IFRS 15 may have an impact on revenue recognition and related disclosures and IFRS 16 will impact the treatment of leases currently treated as operating leases. Beyond this, it is not practicable to provide a reasonable estimate of the effect of IFRS 9, IFRS 15 and IFRS 16 until a detailed review has been completed.

Segmental reporting

In accordance with IFRS 8, segmental information is presented based on the way in which financial information is reported internally to the chief operating decision maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board who makes strategic decisions.

During the year ended 30 September 2017 (2016: since the acquisition of Cerillion Technologies Limited), the Group was organised into four main business segments for revenue purposes:

· Services: relates to revenue from providing services to customers on new implementation projects and enhancements.

· Software: relates to support and maintenance revenue derived from people using the software as well as the licences to use the software.

· Software as a Service: relates to monthly subscriptions for a managed service or to use products on a pay as you go service.

· 3rd Party: relates to revenue derived from 3rd party services or licences, re-billable expenses and pass through of selling on hardware.

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

Foreign currency translation

(i) Functional and presentation currency

Items included in the Financial Statements are measured using the currency of the primary economic environment in which entities operate ('the functional currency'). The Financial Statements are presented in sterling, which is the Parent Company's functional and presentation currency. There has been no change in the functional currency during the current or preceding period.

(ii) Transactions and balances

Transactions in foreign currencies are translated into sterling using monthly average exchange rates. This is permissible in this case as there are no significant fluctuations between the currencies with which the entity operates. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date and any exchange differences arising are taken to profit or loss.

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

(iii) Foreign operations

In the Group's financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the GBP are translated into GBP upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting period.

On consolidation, assets and liabilities have been translated into GBP at the closing rate at the reporting date. Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into GBP at the closing rate. Income and expenses have been translated into GBP at the average rate over the reporting period. Exchange differences arising from significant foreign subsidiaries are charged or credited to other comprehensive income and recognised in the currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences recognised in equity are reclassified to profit or loss and are recognised as part of the gain or loss on disposal.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable net of sales related taxes.

The Group follows the principals of IAS 18 "Revenue" in determining appropriate revenue recognition policies. In principle revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group.

Revenue is derived from sales of standard licensed products (including installation, implementation, maintenance and support fees), additional licences, on-going account development work, third party time and material works.

The excess of amounts invoiced over revenue recognised are included in deferred income. If the amount of revenue recognised exceeds the amount invoiced the excess is included within accrued income.

In applying the income recognition policies below where there is a requirement for a contract to be signed, income is recognised in accordance with the policy when the contract has been signed or persuasive evidence of an arrangement exists.

(i) Sale of standard licensed products

Revenue from standard licensed products comprises two elements, being:

• Initial licence and implementation fees ("inception fees")

• Ongoing maintenance and support fees

With the contract detailing separately the contract value and payment milestones for each element.

When each element operates independently of the other, the Group will recognise inception fees and ongoing maintenance and support fees on the following basis.

Revenue for initial licence and implementation fees in relation to products which are not modified to meet the specific requirements of each customer and follow a straightforward implementation profile is recognised at the point at which the customer has the ability and right to use all prepaid licences on the installed solution.

Revenue from ongoing maintenance and support fees are recognised on a pro-rated basis over the duration of the contract.

Where a licenced product requires significant customer modifications and implementation is complex, revenue is recognised on applying the percentage of completion method to total contract value with estimates based on the total number of hours performed on the project compared to the total number of hours expected to complete the project. Provision is made for any losses on the contract as soon as they are foreseen.

(ii) Sale of additional licences

Revenue from the sale of additional licences is recognised when the additional licences are delivered to the customer.

(iii) Ongoing account development work

Ongoing account development work is generally provided on a fixed price basis and as such revenue is recognised based on the percentage completion or delivery of the relevant project, whichever is most appropriate for the transaction. Where percentage completion is used it is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project. Provision is made for any losses as soon as they are foreseen.

(iv) Third party time, material works and re-billable expenses

Revenue on contracted third party time and material works is recognised on a time basis using pre agreed day rates.

Revenue on re-billable expenses is recognised as incurred. In the case of third party time, material works and re-billable expenses the Group is considered to be acting as principal as it is the primary obligor in the sales transaction, the Group can select the supplier of the service and the Group holds the credit risk in the transaction.

Cost of sales

Costs considered to be directly related to revenue are accounted for as cost of sales. All direct production costs and overheads, including indirect overheads that can reasonably be allocated, have been classified as cost of sales.

Taxation and deferred taxation

The income tax expense or income for the period is the tax payable on the current period's taxable income. This is based on the national income tax rate enacted or substantively enacted for each jurisdiction with any adjustment relating to tax payable in previous years and changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the Financial Statements.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applicable when the asset or liability crystallises based on current tax rates and laws that have been enacted or substantively enacted by the reporting date. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. 

A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of temporary differences can be deducted. The carrying amount of deferred tax assets are reviewed at each reporting date.

Deferred tax liabilities are generally recognised in full, although IAS 12 'Income Taxes' specifies limited exemptions. As a result of these exemptions the Group does not recognise deferred tax on temporary differences relating to goodwill, or to its investments in subsidiaries. Temporary differences associated with investments in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases. These are the only types of lease utilised by the entity. Operating lease payments for assets leased from third parties are charged to profit or loss on a straight line basis over the period of the lease, on an accrued basis.

Impairment

Goodwill and assets that are subject to amortisation are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and other short term highly liquid deposits with original maturities of three months or less.

Financial instruments

Recognition, initial measurement and derecognition

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted for transaction costs. Subsequent measurement of financial assets and financial liabilities is described below.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and subsequent measurement of financial assets

For the purpose of subsequent measurement financial assets are classified into the following categories upon initial recognition:  

Derivative financial instruments

Derivative financial instruments held by the Group comprise forward foreign currency contracts and are recognised at fair value. The Group has not applied hedge accounting and the gain or loss on remeasurement to fair value is recognised immediately in profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that Cerillion will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days overdue) are considered indicators that the trade and other receivables may be impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the profit or loss within 'cost of sales'. When a trade or other receivable is uncollectible, it is written off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited against 'cost of sales' in the profit or loss.

Classification and subsequent measurement of financial liabilities

The Group's financial liabilities include trade and certain other payables. Financial liabilities are measured subsequently at amortised cost using the effective interest.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. These amounts represent liabilities for goods and services provided to Cerillion prior to the end of the financial period which are unpaid.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of the borrowings using the effective interest method.

Equity

An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

The ordinary share capital account represents the amount subscribed for shares at nominal value.

Retained earnings include all results as disclosed in the statement of comprehensive income.

Foreign exchange reserve - comprises foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities into Sterling.

Provisions

Provisions are recognised when Cerillion has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are the best estimate of the expenditure required to settle the obligation at the current reporting date.

Property, plant and equipment (PPE)

PPE is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Cerillion and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Depreciation on plant and machinery and fixtures and fittings is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

· Leasehold Improvements Life of lease

· Fixtures and fittings 3 - 4 years

· Computer Equipment 3 years

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting

date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the profit or loss.

Intangible assets and amortisation

(i) Software

Expenditure on research is written off in the period in which it is incurred. Development expenditure incurred on specific projects is capitalised where the Board is satisfied that the following criteria have been met:

• it is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the software product;

• it can be demonstrated how the software product will generate probable future economic benefits;

• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

• the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed 5 years.

(ii) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the assets and liabilities assumed at the date of acquisition. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Impairment testing is carried out by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. 

(iii) Purchased customer contracts

Purchased customer contracts acquired as part of a business combination are recognised at fair value if they are project specific and there is a level of certainty that there will be future recovery. Customer contracts are amortised over the perceived period that they will generate economic benefits. This is calculated using in depth analysis of future revenue from cash flow forecasts.

The customer contracts acquired as part of the acquisition of Cerillion Technologies Limited are to be amortised over a period of 7 years.

(iv) Intellectual property rights

Intellectual property rights acquired as part of a business combination are recognised at fair value based on an estimate of future profits. Intellectual property rights are amortised over the perceived period that they will generate economic benefits. This is calculated using in depth analysis of future revenue from cash flow forecasts.

The intellectual property rights acquired as part of the acquisition of Cerillion Technologies Limited are to be amortised over a period of 7 years.

Interest

Interest income and expense are recognised using the effective interest method and comprise amounts receivable and payable on bank deposits and bank borrowings respectively.

Post-retirement benefits

Defined contribution schemes

The defined contribution schemes provide benefits based on the value of contributions made. The amounts charged as expenditure for the defined contribution scheme represents the contributions payable by Cerillion for the accounting years in respect of the schemes.

Exceptional items

Exceptional items are those significant items, and are one off items, that are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Transactions that were recorded as exceptional items during the prior year were the costs associated with the IPO of Cerillion plc.

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 judgment 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

Revenue is recognised on the basis of implementation of the project. In respect of long term contracts the revenue is in line with 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 key judgement is accurately forecasting the effort required to complete the project.

(iii) 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 15 and 19.

Estimates

(i) Business combinations

Management uses valuation techniques in determining the fair values of various elements of a business combination.

On initial recognition, the assets and liabilities of the acquired business are included in the consolidated statement of financial position at their provisional fair values. In measuring fair value, management uses estimates about future cash flows and discount rates, however, actual results may vary.

(ii) 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. Refer to notes 11 and 12.

2 Segment information

During the year ended 30 September 2017, the Group was 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.

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.

(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:

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

3 Operating profit

4 Directors and employees

For details of Directors' remuneration, refer to the Remuneration report on pages 17 and 18. Key management personnel is covered in note 23.

5 Finance income

6 Finance costs

7 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 deferred tax assets or liabilities recognised within the parent company accounts. Taxable losses within the parent company totalling £134,591 (2016: £134,591) have been carried forward, but no deferred tax asset has been recognised in relation to these losses due to the uncertainty surrounding the timing of their recovery.

8 Profit attributable to Cerillion plc

The profit for the financial year of the Parent Company, Cerillion plc was £1,400,000 (2016: £1,019,353). As permitted by section 408 of the Companies Act 2006, no separate income statement is presented in respect of the Parent Company.

9 Dividends

(a) Dividends paid during the reporting period

The Board paid the final dividend in respect of 2016 of 2.6p per share and declared and paid an interim 2017 dividend of 1.4p (2016: 1.3p) per share. Total dividends paid during the reporting period were £1,180,539 (2016: £383,675).

(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 2.8p per fully paid Ordinary share (2016: 2.6p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30 September 2017, but not recognised as a liability at the year end is £826,378 (2016: £767,351).

10 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.

There were no potentially dilutive equity instruments in issue during the prior year.

11 Intangible assets

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

The carrying value of goodwill included within the Cerillion plc balance sheet 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 2017, 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.

12 Property plant and equipment