Final Results

26 November 2018

AIM: CER

Cerillion plc

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

Final results for the year ended 30 September 2018

Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2018.

Highlights

Financial:

Operational:

Louis Hall, CEO of Cerillion, commented:

"Cerillion has continued to make good progress, with revenues and profits for the year growing in line with market expectations.

"Three large enterprise customer implementations for our core product remain underway, with completion scheduled in 2019. We also started pilot work for a potential fourth, new enterprise customer in the final quarter of the financial year, and there are two further potential large orders, which are likely to be decided over the coming months.

"With a strong new customer pipeline, the ability to continue to rollout new and enhanced product modules, and continuing recognition by industry analysts, we believe the Company is well placed for continuing positive progress."

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About Cerillion

Cerillion has a 19-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 approximately 90 customer installations across 44 countries.

Headquartered in London, Cerillion has operations in Pune, India, where its Global Solutions Centre is located, Sydney and Miami.

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

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

We are pleased to report the Group's results for its third year as a publicly quoted company, following its admission to AIM.

The business has a 19-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 grow steadily in our core market, where demand for CRM, billing and charging solutions is rising. This reflects a number of factors, including:

We are also expanding into new market sectors, primarily through Cerillion Skyline, which facilitates the billing and the collection of payments from any type of subscription or usage-based service, and is delivered via the cloud.

Results for the year are in line with market expectations, with revenue up year-on-year by 8.2%* to £17.4m (2017: £16.0m), adjusted EBITDA up by 8.7%* to £3.9m (2017: £3.6m) and adjusted earnings per share up by 6.8% to 10.9p (2017: 10.2p). Our financial performance continued to be supported by strong demand from our established customer base, as well as implementations for new customers.

Financial Overview

Total revenue for the year to 30 September 2018 rose by 8.2% (2017: 8.3%) to £17.4m (2017: £16.0m). Existing customers (classified as those acquired at least 12 months before the beginning of the reporting period) typically drive a very high proportion of total annual income and they generated 75% of the overall revenue for the financial year (2017: 81%, which was exceptionally high).

Recurring income, which is derived from support and maintenance and managed service contracts, accounts for a significant proportion of overall revenues. It made up 29% of the Group's total income for the year (2017: 28%), having risen by 13% to £5.0m (2017: £4.4m, up 10%).

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

Administrative expenses increased by 5.7%* to £10.7m (2017: £10.1m) and included one-off costs from the relocation of the London office, where £0.4m of fit-out costs were included within total expenditure on tangible fixed assets of £0.7m, and a further £162,000 from over-lapping rental periods. Personnel costs of £4.8m (2017: £4.7m) accounted for close to 45% of administrative expenses.

The Board consider adjusted EBITDA to be a key performance indicator for Cerillion as it adds back exceptional items and key non-cash balances, being share based payments, depreciation and amortisation. Adjusted EBITDA for the year increased by 8.7%* to £3.9m (2017: £3.6m), mainly driven by the increase in total revenue.

We continue to invest in our product sets, including our cloud billing platform, Cerillion Skyline, and the charge for amortisation of intangibles was £1.4m (2017: £1.3m). Expenditure on tangible fixed assets was £0.7m (2017: £0.2m). Operating profit was £1.9m (2017: £2.1m).

Adjusted profit before tax rose by 3.4%* to £3.1m (2017: £3.0m) and adjusted earnings per share increased by 6.8% to 10.9p (2017: 10.2p). On a statutory basis, profit before tax was £1.8m (2017: £2.0m), with the one-off costs of property and the first year of share option charges accounting for the £0.3m reduction, year-on-year, and earnings per share was 6.9p (2017: 6.9p).

* Comparative movement from 2016 to 2017 has not been provided as it is not comparable given that the Group only existed from 18 March 2016.

Cash Flow and Banking

Net cash increased by 50% against the same point last year to stand at £2.5m as at 30 September 2018 (2017: £1.6m). This net position is after the payment of £900,000 of debt (2017: £879,000) and after the payment of dividends during the reporting period of £1,269,080 (2017: £1,180,539). Total Group cash at the year end was at £5.3m (2017: £5.3m) and total debt stood at £2.8m (2017: £3.7m).

Dividend

The Board is pleased to propose an increased final dividend of 3.0p per share (2017: 2.8p). Together with the interim dividend of 1.5p per share (2017: 1.4p), this brings the total dividend for the year to 4.5p per share (2017: 4.2p), an increase of 7.1%.

The dividend, which is subject to shareholder approval at the Company's Annual General Meeting to be held on 8 February 2019, will become payable on 12 February 2019 to those shareholders on the Company's register as at the close of business on the record date of 4 January 2019. The ex-dividend date is 3 January 2019.

Operational Overview

We have continued to work on three major new enterprise customer implementations for the Group's core product, our pre-integrated Enterprise BSS/OSS suite, which includes our real-time, Convergent Charging System ("CCS"). The addition of these further, substantial, new enterprise customers will strengthen recurring managed service, support and maintenance revenues, as well as ad-hoc services revenues. All three of these new implementations are in Europe.

In the final quarter of the financial year, we also began some pilot work for a potential new enterprise customer implementation. A key factor in securing this work was the Group's ability to provide an end-to-end, modular CRM and billing solution, which could be readily demonstrated, and which included a sophisticated, carrier-grade, "real-time" charging module.

At the financial year end, new orders stood at £13.0m (2017: £13.5m), most of which are in progress. The small decrease compared with 2017 is due to the timing of signature of major new contracts with new customers, with two potential, large new customer implementation orders likely to be decided over the coming months.

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 - was steady at £13.0m (2017: £13.1m).

Our charging module (CCS) remains an important component of our solutions set, enabling communications service providers ("CSPs") to converge prepaid and postpaid charging and billing on the same software platform. This drives significant cost savings as well as performance-related benefits, including the ability to support multiple service types. We provide CCS in many ways - 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 also won a number of new customers for Cerillion Skyline, our Software-as-a-Service billing solution that enables businesses to bill and collect recurring revenue from subscription and usage-based services. Its 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 market-leading medical products supplier, a supplier of services to the global cinema industry and a market-leading messaging service. Revenues from Skyline make up a relatively modest proportion of the Group's overall total currently, especially given the SaaS model, but we expect them to continue to grow, with take-up across a broad number of industry verticals.

We continue to invest in R&D to further improve both our enterprise platform and Cerillion Skyline. During the year, we commenced projects to deliver the new Enterprise Product Catalogue, which we brought to market last financial year, to new and existing customers. We also launched a new mobile app and self-service modules, which have been well-received by customers.

Outlook

Prospects for continuing growth remain positive. We have a strong new customer pipeline, including two potential large near-term orders, where we anticipate a decision being made over the coming months, and our pilot work for another new enterprise customer is also very encouraging.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2018

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2018

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2018

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

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.

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.

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

During the year ended 30 September 2018, 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.

The following table provides a reconciliation of the revenue by segment to the revenue recognition accounting policy.

(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 exceptional items represent one-off costs incurred from the relocation of the London office caused by over-lapping rental periods.

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 deferred tax assets or liabilities recognised within the Parent Company accounts. Taxable losses within the Parent Company totalling £134,591 (2017: £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.

7 Dividends

(a) Dividends paid during the reporting period

The Board paid the final dividend in respect of 2017 of 2.8p per share and declared and paid an interim 2018 dividend of 1.5p (2017: 1.4p) per share. Total dividends paid during the reporting period were £1,269,080 (2017: £1,180,539).

(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 3.0p per fully paid Ordinary Share (2017: 2.8p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30 September 2018, but not recognised as a liability at the year end is £885,405 (2017: £826,378).

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 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 2018, 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.

10 Property plant and equipment

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

The Group's loan is secured over all the assets of the Group.

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

11 Deferred tax

Deferred tax asset

Deferred tax liability

Group

The deferred tax liability arose in respect of the fair value uplift of intangible assets, with £1,320,465 arising on the acquisition of Cerillion Technologies Limited in March 2016 and £70,660 relating to the acquisition of "Net Solutions Services" by Cerillion Technologies Limited in 2015.

There are no deferred tax assets or deferred tax liabilities recognised within the Parent Company as at 30 September 2018 (2017: £nil).

12 Trade and other receivables

Credit quality of receivables

A detailed review of the credit quality of each client is completed before an engagement commences.

The credit risk relating to trade receivables is analysed as follows:

The Parent Company had no trade receivables in either period.

The other classes of assets within trade and other receivables do not contain impaired assets.

The net carrying value is judged to be a reasonable approximation of fair value.

The following is an ageing analysis of those trade receivables that were not past due and those that were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default.

Of the trade debt older than 6 months as at 30 September 2018, being £185,545 (2017: £123,092), cash of £nil (2017: £93,693) has been received since the year end.

The following is an ageing analysis of those trade receivables that were individually considered to be impaired:

13 Trade and other payables

The Directors consider that the carrying amount of trade and other payables approximates to their fair values.

14 Borrowings and financial liabilities

14a Terms and repayment schedule

The Facility Agreement between the Company and HSBC Bank plc made available a loan of up to £5 million (the "Loan") for the purpose of assisting with the payment of the cash element of the acquisition of Cerillion Technologies Limited.

The Loan is secured over the assets of the Group and was drawn down in full in March 2016. The terms and conditions of outstanding loans are as follows:

(a) it bears interest at the rate of 2.5 per cent. per annum over the Bank of England Base Rate as published from time to time;

(b) is repayable by the Company by quarterly repayments in the amount of £250,000 inclusive of interest, for the first three years of the term, and thereafter in an amount of £300,000 inclusive of interest, in accordance with an agreed repayment schedule;

(c) is terminable on a change of control of the Company and repayable following an event of default; and

(d) is for a term of five years from the date of first drawdown.