REG - Cerillion PLC - Final Results
23 November 2020
AIM: CER
Cerillion plc
("Cerillion" or "Company" or "Group")
Final results for the year ended 30 September 2020
Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2020.
Highlights
Financial:
· All key financial performance measures reached record highs
· Revenue1 rose by 11% to £20.8m (2019: £18.8m)
- recurring revenue2 contributed £6.0m (2019: £5.1m), 29% of total revenue
- at the year end, on an annualised basis, recurring revenue was up 57% year-on-year to £7.9m (2019: £5.0m)
· New orders matched last year's record at £23.3m (2019: £23.3m) - consolidating 78% increase in 2019
· Back-order book3 increased by 41% to £31.0m at the year-end (2019: £22.0m)
· Adjusted EBITDA4 increased by 27% to £5.8m (2019: £4.6m)
- adjusted EBITDA margin rose to 27.9% (2019: 24.3%)
· Adjusted profit before tax5 up by 7% to £3.7m (2019: £3.5m)
· Adjusted earnings per share6 increased by 10% to 12.4p (2019: 11.3p)
· Reported profit before tax up by 8.0% to £2.6m (2019: £2.4m)
· Reported earnings per share up 13% to 8.8p (2019: 7.8p)
· Net cash increased by 54% to £7.7m (2019: £5.0m)
· Increased final dividend of 3.75p per share proposed (2019: 3.3p), bringing the total dividend for the year to 5.5p per share (2019: 4.9p), an increase of 12%
Operational:
· Smooth adjustment to remote working in response to the coronavirus pandemic, with no significant impact to the sales processes, implementation projects or customer service
· Largest ever contract won in September 2020 (£11.2m), 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:
"Cerillion has delivered an excellent performance. Revenue, pre-tax profits and the back-order book are at record levels, and we closed our largest ever contract win in the final quarter of the financial year, continuing a trend of larger wins. While the coronavirus pandemic has created severe disruption globally, it has underlined the importance of critical infrastructure and services, including telecommunications, our core market.
"The business has adapted effectively to remote working and we start the new financial year with greater revenue visibility than at the beginning of any previous financial year. We have a strong new customer pipeline and view both short and longer-term prospects very positively."
For further information please contact:
Cerillion plc
Louis Hall, CEO, Oliver Gilchrist, CFO
c/o KTZ Communications
T: 020 3178 6378
Liberum (Nomad and Broker)
T: 020 3100 2000
Bidhi Bhoma, Euan Brown, William Hall
KTZ Communications
T: 020 3178 6378
Katie Tzouliadis, Dan Mahoney
About Cerillion
Cerillion has a 20-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. 90 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 in 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
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 £25.1m of sales contracted but not yet recognised at the end of the reporting period plus £5.9m of annualised support and maintenance revenue. It is anticipated that 75% of the £25.1m 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 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.
Note 7 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.
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 reaching record highs. Revenue increased by 11% year-on-year to £20.8m (2019: £18.8m), adjusted profit before tax rose by 7% to £3.7m (2019: £3.5m) and the back-order book was up by 41% to £31.0m (2019: £22.0m).
New orders at £23.3m matched last year's record (2019: £23.3m), and included the largest initial contract the Company has signed in its history. This continued the Company's trend towards bigger deal sizes with larger customers, reflecting the growing recognition in the marketplace of the quality of our solution and services.
The Company's performance was also supported by strong demand from existing customers, with sales to existing accounts up by 88% to £9.4m (2019: £5.0m).
The global coronavirus pandemic has not significantly affected the Company's operations. The transition to remote working was effected smoothly and while precautions continue to be taken regarding staff safety, our sales processes, implementation projects and customer support services are all working well.
Looking to the future, demand for billing, charging and customer relationship management ("CRM") solutions in the Company's core telecommunications market is set to continue to rise. Telecoms operators are seeing strong data traffic levels as a consequence of national lockdowns across the globe, and 5G rollouts are driving a wave of investment in both telecoms infrastructure and ancillary systems. Cerillion remains well-placed to benefit from this and to grow both in Europe and its other international markets.
With a very healthy pipeline of potential new business and implementations for new customers, we expect the Company to make further strong progress in the new financial year.
Financial Overview
Total revenue for the year to 30 September 2020 rose by 11% to £20.8m (2019: £18.8m). 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 97% of the overall result (2019: 80%).
Recurring revenue, which is derived from support and maintenance and managed service contracts, contributed £6.0m to total revenue, approximately 29% of overall Group revenue (2019: £5.1m, 27%). At 30 September 2020, recurring revenue on an annualised basis was 57% higher year-on-year at £7.9m (30 September 2019: £5.0m), boosted by a 205% increase in annualised managed service contract revenue (2019: 96%).
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.
•
Software (including Software-as-a-Service) revenue decreased by 16% to £7.6m (2019: £9.1m). This was due to the reduction in licence sales during the year to £1.6m (2019: £3.9m). Software revenues accounted for 37% of total revenues (2019: 48%).
•
Services revenue increased by 44% to £11.3m (2019: £7.9m) and comprised 54% of total revenue (2019: 42%). This was due to a significant increase in new customer implementation work, following the closure of four major new enterprise contracts during the previous financial year.
•
Third-party income remained constant at £1.8m (2019: £1.8m) and comprised 9% of total revenue (2019: 10%).
Gross margin at 74% (2019: 75%) was in line with expectations.
Operating expenses increased by 9% to £12.5m (2019: £11.5m). Personnel costs of £5.8m (2019: £5.6m) accounted for 47% (2019: 48%) of operating expenses.
Adjusted EBITDA for the year increased by 27% to £5.8m (2019: £4.6m), 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 sets, including our cloud platform, and the charge for amortisation of intangibles was £1.9m (2019: £1.7m). Expenditure on tangible fixed assets was £0.3m (2019: £0.4m). Operating profit increased by 11% to £2.8m (2019: £2.5m), with £0.1m of the increase arising on the adoption of IFRS 16.
Adjusted profit before tax rose by 7% to £3.7m (2019: £3.5m) and adjusted earnings per share increased by 10% to 12.4p (2019: 11.3p). On a statutory basis, profit before tax was £2.6m (2019: £2.4m) and earnings per share was 8.8p (2019: 7.8p).
Cash Flow and Banking
The Group continued to generate strong cash flows and closed the financial year with net cash of £7.7m, up by 54% against the same point last year (30 September 2019: £5.0m). This net position is after the payment of £1.2m of debt repayments (2019: £1.0m) and £1.5m in dividends (2019: £1.4m). Total Group cash at the year-end was £8.3m (2019: £6.8m) and total debt stood at £0.6m (2019: £1.8m). It is anticipated that the remaining debt outstanding at year-end will be repaid during FY 2021.
Dividend
The Board is pleased to propose a 14% increase in the final dividend to 3.75p per share (2019: 3.3p). Together with the interim dividend of 1.75p per share (2019: 1.6p), this brings the total dividend for the year to 5.5p per share (2019: 4.9p), an increase of 12%.
The dividend, which is subject to shareholder approval at the Company's Annual General Meeting to be held on 5 February 2021, will become payable on 9 February 2021 to those shareholders on the Company's register as at the close of business on the record date of 4 January 2021. The ex-dividend date is 31 December 2020.
Operational Overview
Whilst the COVID-19 pandemic has presented some challenges, particularly the need to move to remote working, we have adjusted well to the change in circumstances, and have successfully completed a number of implementations remotely.
This global shift to remote working has however emphasised the dependence of the world economy on state-of-the-art telecoms infrastructure. With this in mind, we expect to see increased 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. Consequently, we expect demand for billing, charging and CRM software in our core telecoms market to continue to grow.
Beyond these broad sector trends we expect a number of other factors to drive demand for our specific offerings, including:
· digital transformation to put digital engagement at the forefront of the customer experience;
· the consolidation of multiple CRM, billing and charging systems onto a single platform;
· demand for real-time charging systems to enable more effective monetisation of data services; and
· demand for more agile systems to enable the more rapid introduction of new products.
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 to address more granular requirements. Earlier this year, we integrated our real-time charging ("CCS") and product catalogue ("EPC") modules with other legacy systems at Ignition Group, one of Africa's largest telecommunications providers. The Company's solutions are also able to support a broad range of communications service providers ("CSPs"), from traditional network operators to virtual network operators ("VNOs") to enterprise connectivity solutions providers.
The major new customer win announced in September marks an important milestone for Cerillion, as it represents the Company's largest ever initial contract value and reinforces the general trend towards signing bigger deals with larger new customers. This trend is an important contributor to driving the growth of the business, as these engagements typically involve higher recurring revenues.
The new customer wins and ongoing implementation work with existing customers create a strong platform for further growth in the new financial year. The back-order book at 30 September 2020 was up by 41% to an all-time record of £31.0m (2019: £22.0m), providing far greater visibility of revenues than at the beginning of any previous financial year. We have stepped up our delivery resources accordingly, and our offshore centre in Pune, India still retains ample capacity for further growth.
We continued to invest in R&D over the year to further improve our product set. This included the release of Cerillion 8, the next generation of our enterprise platform, which now includes:
· Cerillion Business Insights, a powerful, embedded analytics module that unlocks the full value of customer data by enabling users to easily explore, visualise and query data in real-time;
· enhanced support for B2B2X business models, including product margin analysis and a highly customisable data model, making it easy to map additional product and service attributes required for seamless integration with digital ecosystems;
· a completely redesigned user interface offering context personalisation, task-based navigation and separate microservices-based apps, all designed to increase customer service efficiency and reduce CSR training needs; and
· further improvements in putting digital engagement at the forefront of the customer experience, with streamlined navigation and communications, saving customers time and effort when reporting faults or raising queries natively within Self Service.
Our ambition is to retain our status as a 'Visionary' in Gartner's highly regarded annual report8, 'Magic Quadrant for Integrated Revenue and Customer Management (IRCM) for CSPs', where we have been recognised for the past three consecutive years it has been published. The report assesses vendors for their "completeness of vision" and "ability to execute", as well as taking customer references.
Outlook
Cerillion is well-positioned for further growth over the new financial year. The back-order book is at a record level, and the pipeline of new prospects is strong. The Company has adapted effectively to the changes caused by the global pandemic crisis, and can benefit from the market trends it has driven. In addition, its financial position is strong, with good cash flows and growing recurring revenue.
Our increasing success in the marketplace, alongside positive market trends, supports our positive view of the Company's short and longer term prospects for growth.
A M Howarth
L T Hall
Non-executive Chairman
Chief Executive Officer
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2020
Year to
30 September 2020
Year to
30 September 2019
Notes
£
£
Revenue
2
20,813,925
18,751,781
Cost of sales
(5,465,710)
(4,698,282)
Gross profit
15,348,215
14,053,499
Operating expenses
(12,545,475)
(11,531,711)
Adjusted EBITDA*
5,805,645
4,557,915
Depreciation and amortisation
(2,934,178)
(2,013,012)
Share-based payment charge
18
(68,727)
(23,115)
Operating profit
3
2,802,740
2,521,788
Finance income
4
49,990
6,375
Finance costs
5
(214,142)
(79,506)
Profit before taxation
2,638,588
2,448,657
Taxation
6
(28,783)
(135,890)
Profit for the year
2,609,805
2,312,767
Other comprehensive income
Items that will or may be reclassified to profit or loss:
Exchange difference on translating foreign
(165,075)
130,807
operations
Total comprehensive income for the year
2,444,730
2,443,574
Earnings per share
Basic earnings per share - continuing and total operations
8
8.8 pence
7.8 penceDiluted earnings per share - continuing and total operations
8.8 pence
7.8 pence
The Group has no other recognised gains or losses for the current year.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2020
2020
2019
Notes
£
£
ASSETS
Non-current assets
Goodwill
9
2,053,141
2,053,141
Other intangible assets
9
4,475,236
5,210,766
Property, plant and equipment
10
787,885
853,206
Right-of-use assets
11
4,389,175
-
Trade and other receivables
13
2,439,119
2,376,478
Deferred tax assets
12
145,060
133,578
14,289,616
10,627,169
Current assets
Trade and other receivables
13
9,516,568
8,166,271
Cash and cash equivalents
16
8,311,867
6,771,406
17,828,435
14,937,677
TOTAL ASSETS
32,118,051
25,564,846
LIABILITIES
Non-current liabilities
Borrowings
15
-
(570,946)
Lease liabilities
11
(4,655,772)
-
Deferred tax liabilities
12
(883,823)
(955,569)
(5,539,595)
(1,526,515)
Current liabilities
Trade and other payables
14
(9,020,502)
(7,293,357)
Lease liabilities
11
(922,706)
-
Borrowings
15
(609,359)
(1,200,000)
(10,552,567)
(8,493,357)
TOTAL LIABILITIES
(16,092,162)
(10,019,872)
NET ASSETS
16,025,889
15,544,974
EQUITY ATTRIBUTABLE TO SHAREHOLDERS
Share capital
17
147,567
147,567
Share premium account
13,318,725
13,318,725
Treasury stock
17
(375,025)
-
Share option reserve
151,619
158,515
Foreign exchange reserve
(46,981)
118,094
Retained earnings
2,829,984
1,802,073
TOTAL EQUITY
16,025,889
15,544,974
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2020
2020
2019
£
£
Cash flows from operating activities
Profit for the year
2,609,805
2,312,767
Adjustments for:
Taxation
28,783
135,890
Finance income
(49,990)
(6,375)
Finance costs
214,142
79,506
Share option charge
68,727
23,115
Depreciation
1,058,169
311,363
Amortisation
1,876,009
1,701,649
5,805,645
4,557,915
Increase in trade and other receivables
(1,412,938)
(1,606,038)
Increase in trade and other payables
2,501,200
2,333,695
Cash generated from operations
6,893,907
5,285,572
Finance costs
(214,142)
(79,506)
Finance income
49,990
6,375
Tax paid
(123,171)
(112,879)
NET CASH GENERATED FROM OPERATING ACTIVITIES
6,606,584
5,099,562
Cash flows from investing activities
Capitalisation of intangible assets
(1,108,473)
(833,781)
Purchase of property, plant and equipment
(330,098)
(394,789)
NET CASH USED IN INVESTING ACTIVITIES
(1,438,571)
(1,228,570)
Cash flows from financing activities
Borrowings repaid
(1,161,587)
(1,022,124)
Purchase of treasury stock
(737,506)
-
Receipts from exercise of share options
195,395
-
Principal elements of finance leases
(411,653)
-
Dividends paid
(1,490,431)
(1,357,620)
NET CASH USED IN FINANCING ACTIVITIES
(3,605,782)
(2,379,744)
NET INCREASE IN CASH AND CASH EQUIVALENTS
1,562,231
1,491,248
Translation differences
(21,770)
25,856
Cash and cash equivalents at beginning of year
6,771,406
5,254,302
CASH AND CASH EQUIVALENTS AT END OF YEAR
8,311,867
6,771,406
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2019
Ordinary share capital
Share premium
Treasury stock
Share option reserve
Foreign exchange reserve
Retained earnings
Total
£
£
£
£
£
£
£
Balance at 1 October 2018
147,567
13,318,725
-
135,400
(12,713)
846,926
14,435,905
Profit for the year
-
-
-
-
-
2,312,767
2,312,767
Other comprehensive income:
Exchange differences on translating foreign operations
-
-
-
-
130,807
-
130,807
Total comprehensive income
-
-
-
-
130,807
2,312,767
2,443,574
Transactions with owners:
Share option charge
-
-
-
23,115
-
-
23,115
Dividends
-
-
-
-
-
(1,357,620)
(1,357,620)
Total transactions with owners
-
-
-
23,115
-
(1,357,620)
(1,334,505)
Balance as at 30 September 2019
147,567
13,318,725
-
158,515
118,094
1,802,073
15,544,974
Ordinary share capital
Share premium
Treasury stock
Share option reserve
Foreign exchange reserve
Retained earnings
Total
£
£
£
£
£
£
£
Balance at 1 October 2019
147,567
13,318,725
-
158,515
118,094
1,802,073
15,544,974
Profit for the year
-
-
-
-
-
2,609,805
2,609,805
Other comprehensive income:
Exchange differences on translating foreign operations
-
-
-
-
(165,075)
-
(165,075)
Total comprehensive income
-
-
-
-
(165,075)
2,609,805
2,444,730
Transactions with owners:
Share option charge
-
-
-
68,727
-
-
68,727
Purchase of treasury stock
-
-
(737,506)
-
-
-
(737,506)
Exercise of share options
-
-
362,481
(75,623)
-
(91,463)
195,395
Dividends
-
-
-
-
-
(1,490,431)
(1,490,431)
Total transactions with owners
-
-
(375,025)
(6,896)
-
(1,581,894)
(1,963,815)
Balance as at 30 September 2020
147,567
13,318,725
(375,025)
151,619
(46,981)
2,829,984
16,025,889
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.
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 2020, 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.
2020
2019
£
£
Revenue
Services
11,326,196
7,891,085
Software
6,657,289
8,161,818
Software-as-a-Service
984,518
905,175
Third-party
1,845,922
1,793,703
Total revenue
20,813,925
18,751,781
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 £12,994,913 (2019: £8,965,033).
Accounting policies
Year ended 30 September 2020
(i)
(ii)
(iii)
(iv)
Total
£
£
£
£
£
£
Services
11,326,196
implementation fees
7,528,326
-
-
-
7,528,326
ongoing account development work
-
-
3,797,870
-
3,797,870
Software
6,657,289
initial licence fees
1,449,647
-
-
-
1,449,647
sale of additional licences
-
151,752
-
-
151,752
ongoing maintenance and support fees
5,055,890
-
-
-
5,055,890
Software-as-a-Service
984,518
984,518
-
-
-
984,518
Third-Party
1,845,922
-
-
-
1,845,922
1,845,922
Total
20,813,925
15,018,381
151,752
3,797,870
1,845,922
20,813,925
Accounting policies
Year ended 30 September 2019
(i)
(ii)
(iii)
(iv)
Total
£
£
£
£
£
£
Services
7,891,085
implementation fees
5,071,013
-
-
-
5,071,013
ongoing account development work
-
-
2,820,072
-
2,820,072
Software
8,161,818
initial licence fees
2,978,091
-
-
-
2,978,091
sale of additional licences
-
969,478
-
-
969,478
ongoing maintenance and support fees
4,214,249
-
-
-
4,214,249
Software-as-a-Service
905,175
905,175
-
-
-
905,175
Third-Party
1,793,703
-
-
-
1,793,703
1,793,703
Total
18,751,781
13,168,528
969,478
2,820,072
1,793,703
18,751,781
(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:
Europe
MEA
Americas
Asia Pacific
£
£
£
£
Year ended 30 September 2020
Revenue - by customer location
13,478,228
508,667
3,283,377
3,543,653
Capital expenditure
1,417,080
-
-
21,491
Non-current assets
13,301,609
-
-
988,007
Total assets
30,552,219
-
-
1,565,832
Net assets
15,789,432
-
-
236,457
Europe
MEA
Americas
Asia Pacific
£
£
£
£
Year ended 30 September 2019
Revenue - by customer location
10,369,113
29,667
6,059,644
2,293,357
Capital expenditure
1,049,536
-
-
179,034
Non-current assets
10,324,666
-
-
302,503
Total assets
24,729,262
-
-
835,584
Net assets
15,243,658
-
-
301,316
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:
Operating
2020
2019
segment
£
£
Customer
No. 1
Europe
4,483,638
503,440
No. 2
Asia Pacific
2,822,605
1,443,528
No. 3
Americas
1,659,425
3,674,824
No. 4
Europe
560,618
2,214,981
3 Operating profit
2020
2019
£
£
Operating profit is stated after (crediting)/charging:
Employee benefits expenses
11,923,335
10,196,561
Depreciation
1,058,169
311,363
Amortisation of intangibles
1,876,009
1,701,649
Research and development costs
341,834
465,920
Bad debt expense /(credit)
178,983
(32,941)
Foreign exchange losses
323,083
40,169
Operating leases*
126,265
846,187
Fees payable to Cerillion's principal auditor:
- Audit of Cerillion plc's annual accounts
8,400
8,000
- Audit of subsidiaries
62,600
59,500
- Non-audit services - tax services
20,000
9,400
Fees payable to associates of principal auditor:
- Audit of subsidiaries
7,500
-
Other costs
2,085,007
2,624,185
Total cost of sales and operating expenses
18,011,185
16,229,993
*The Group has adopted IFRS 16 in the year ended 30 September 2020 and the disclosure of leases has changed accordingly, see Note 23 and Note 11 for further information.
4 Finance income
2020
2019
£
£
Finance income:
Bank interest receivable
5,949
6,375
Unwinding discount of contracts with significant financing component
44,041
-
49,990
6,375
5 Finance costs
2020
2019
£
£
Finance costs:
Interest payable in respect of loans
(38,414)
(77,973)
Interest and finance charges for lease liabilities
(174,476)
-
Other interest payable
(1,252)
(1,533)
(214,142)
(79,506)
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:
2020
2019
£
£
Current tax credit - UK
-
-
Current tax expense - overseas
123,170
112,879
Current tax expense - total
123,170
112,879
Deferred tax credit
(56,323)
(16,757)
Deferred tax - adjustment in respect of prior year
(38,064)
39,768
Deferred tax (credit) /charge - total
(94,387)
23,011
Total tax charge
28,783
135,890
(b) Factors affecting total tax for the year
The tax assessed for the year differs from the standard rate of corporation tax in the United Kingdom 19.0% (2019: 19.0%). The differences are explained as follows:
Profit on ordinary activities before tax
2,638,588
2,448,657
Profit on ordinary activities multiplied by standard rate of corporation tax in the United Kingdom of 19.0% (2019: 19.0%)
501,333
465,245
Effect of:
Expenses not deductible for tax purposes
353,342
364,591
Non-taxable income for tax purposes
(386,800)
(373,624)
Difference in tax rates
107,942
60,217
Other temporary differences
-
3,876
Prior year tax adjustment
(38,064)
39,768
Other permanent differences - relating to share options
(97,054)
-
Enhanced relief for research and development
(411,916)
(424,183)
Total tax charge
28,783
135,890
There are currently no recognised or unrecognised deferred tax assets or liabilities within the Parent Company accounts.
7 Dividends
(a) Dividends paid during the reporting period
The Board paid the final dividend in respect of 2019 of 2.8p per share and declared and paid an interim 2020 dividend of 1.75p (2019: 1.6p) per share. Total dividends paid during the reporting period were £1,490,431 (2019: £1,357,620).
(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 3.75p per fully paid Ordinary Share (2019: 3.3p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30 September 2020, but not recognised as a liability at the year end is £1,106,756 (2019: £973,945). 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.
2020
2019
Profit attributable to equity holders of the Company (£)
2,609,805
2,312,767
Weighted average number of Ordinary Shares in issue (number)
29,513,486
29,513,486
Less weighted average number of shares held in Treasury
(9,911)
-
Weighted average number of Ordinary Shares in issue (number)
29,503,575
29,513,486
Effect of share options in issue
309,223
267,700
Weighted average shares for diluted earnings per share
29,812,798
29,781,186
Basic earnings per share (pence per share)
8.8
7.8
Diluted earnings per share (pence per share)
8.8
7.8
9 Intangible assets
Group
Goodwill
Purchased customer contracts
Intellectual property rights
Software development costs
External
software licences
Total
£
£
£
£
£
£
Cost
At 1 October 2018
2,053,141
4,382,654
2,567,160
2,383,646
-
11,386,601
Additions
-
-
-
833,781
-
833,781
At 30 September 2019
2,053,141
4,382,654
2,567,160
3,217,427
-
12,220,382
Additions
-
-
-
1,088,365
20,108
1,108,473
Reclassification*
-
-
-
-
210,345
210,345
At 30 September 2020
2,053,141
4,382,654
2,567,160
4,305,792
230,453
13,539,200
Amortisation
At 1 October 2018
-
1,565,233
916,843
772,750
-
3,254,826
Provided in the year
-
626,093
366,737
708,819
-
1,701,649
At 30 September 2019
-
2,191,326
1,283,580
1,481,569
-
4,956,475
Provided in the year
-
626,093
366,737
864,960
18,219
1,876,009
Reclassification*
-
-
-
-
178,339
178,339
At 30 September 2020
-
2,817,419
1,650,317
2,346,529
196,558
7,010,823
Net book amount at 30 September 2020
2,053,141
1,565,235
916,843
1,959,263
33,895
6,528,377
Net book amount at
30 September 2019
2,053,141
2,191,328
1,283,580
1,735,858
-
7,263,907
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 2020, 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
Group
Leasehold improvements
Computer equipment
Fixtures and fittings
Total
£
£
£
£
Cost
At 1 October 2018
585,745
1,201,147
270,553
2,057,445
Additions
138,062
232,284
24,443
394,789
Disposals
-
-
-
-
Exchange difference
15,056
12,887
9,336
37,279
At 30 September 2019
738,863
1,446,318
304,332
2,489,513
Additions
-
326,954
3,144
330,098
Disposals
-
(91,053)
(3,141)
(94,194)
Reclassification*
-
(210,345)
-
(210,345)
Exchange difference
(26,115)
(15,496)
(9,684)
(51,295)
At 30 September 2020
712,748
1,456,378
294,651
2,463,777
Depreciation
At 1 October 2018
198,484
941,779
148,729
1,288,992
Provided in the year
53,085
193,602
64,676
311,363
Disposals
-
-
-
-
Exchange difference
15,476
11,603
8,873
35,952
At 30 September 2019
267,045
1,146,984
222,278
1,636,307
Provided in the year
67,509
224,572
57,977
350,058
Disposals
-
(91,053)
(3,140)
(94,193)
Reclassification*
-
(178,339)
-
(178,339)
Exchange difference
(16,011)
(12,907)
(9,023)
(37,941)
At 30 September 2020
318,543
1,089,257
268,092
1,675,892
Net book amount at 30 September 2020
394,205
367,121
26,559
787,885
Net book amount at
30 September 2019
471,818
299,334
82,054
853,206
All depreciation charges are included within operating expenses and no impairment has been charged.
As referred to in note 15 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.
*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 statement of financial position
The consolidated statement of financial position shows the following amounts relating to leases:
Group
Company
Right-of-use assets
30 September 2020
£
1 October 2019
£
30 September 2020
£
1 October 2019
£
Properties
4,383,327
5,060,934
3,668,011
4,173,943
IT Equipment
5,848
36,353
-
-
4,389,175
5,097,287
3,668,011
4,173,943
Group
Company
Lease liabilities
30 September 2020
£
1 October 2019
£
30 September 2020
£
1 October 2019
£
Current
922,706
582,127
731,000
365,500
Non-current
4,655,772
5,408,004
4,012,028
4,600,500
5,578,478
5,990,131
4,743,028
4,966,000
Additions to the right-of-use assets during the 2020 financial year were £nil.
(ii). amounts recognised in the consolidated statement of comprehensive income
The consolidated statement of comprehensive income shows the following amounts relating to leases:
Depreciation charge of right-of-use assets
30 September 2020
£
30 September 2019
£
Properties
677,606
-
IT Equipment
30,505
-
708,111
-
Interest expense (included in finance cost)
174,476
-
Expense relating to short-term leases (included in operating expenses)
120,797
-
Expenses relating to low value assets that are not shown above as short-term leases (included in operating expenses)
5,468
-
The total cash outflow for leases in 2020 was £586,132.
The property within the Company had a depreciation charge for the year of £505,932 (2019: £nil).
12 Deferred tax
Deferred tax asset
Group
Accelerated capital allowances
Other temporary differences
Total
£
£
£
1 October 2018
46,842
122,251
169,093
Foreign exchange movement on opening deferred tax asset
-
11,428
11,428
Debited to statement of comprehensive income
(25,789)
(21,154)
(46,943)
30 September 2019
21,053
112,525
133,578
Group
Accelerated capital allowances
Other temporary differences
Total
£
£
£
1 October 2019
21,053
112,525
133,578
Foreign exchange movement on opening deferred tax asset
(3,273)
(7,887)
(11,160)
Credited to statement of comprehensive income
622
22,020
22,642
30 September 2020
18,402
126,658
145,060
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.
2020
2019
£
£
At 1 October
955,569
979,501
Debited to statement of comprehensive income in respect of net ACAs & other temporary differences
47,394
159,166
Credited to statement of comprehensive income in respect of acquisitions
(119,140)
(183,098)
As at 30 September
883,823
955,569
There are no deferred tax assets or deferred tax liabilities recognised within the Parent Company as at 30 September 2020 (2019: £nil).
13 Trade and other receivables and other contract balances
Contract balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.
Group
2020
2019
£
£
Trade receivables
2,687,472
2,805,864
Contract assets
8,494,767
7,107,393
Contract liabilities
5,084,999
3,557,283
Contract assets, which are included in 'Accrued income' within trade and other receivables and are composed of the current and non-current balances. Contract liabilities, which are included in 'Deferred income' within trade and other payables.
Payment terms and conditions in customer contracts may vary. In some cases, customers pay in advance of the delivery of solutions or services; in other cases, payment is due as services are performed or in arrears following the delivery of the solutions or services. Differences in timing between revenue recognition and invoicing result in trade receivables, contract assets or contract liabilities in the statement of financial position.
Contract assets refer to accrued income and arise when revenue is recognised, but invoicing is contingent on performance of other performance obligations or on completion of contractual milestones. Contract assets are transferred to receivables when the rights become unconditional, typically upon invoicing of the related performance obligations in the contract or upon achieving the requisite project milestone.
Contract liabilities refer to deferred income and result from customer payments in advance of the satisfaction of the associated performance obligations and relate primarily to prepaid support or other recurring services. Deferred income is released as revenue is recognised.
Significant changes in the contract assets and contract liabilities balances during the period are driven by the timing of income recognition and when associated invoices are raised. Specifically, revenue recognised in the year in relation to deferred income brought forward from prior year of £3,003,462 (2019: £1,585,275).
When certain costs to acquire a contract meet defined criteria, those costs are deferred as contract assets. The total amount of deferred contract assets (commission fees recognised in prepaid assets) are £86,599 (2019: £48,944). The total amount of accrued costs to acquire a contract are £203,629 (2019: £184,745).
The total amount of revenue allocated to unsatisfied performance obligations is £25,102,075 (2019: £17,587,772). It is estimated that 75% will be recognised over the next 18 months, the remainder over the following year thereafter.
There are no contract balances within the Parent Company (2019: £nil).
Current receivables
Group
Company
2020
2019
2020
2019
£
£
£
£
Trade receivables
2,687,472
2,805,864
-
-
Accrued income
6,055,648
4,730,915
-
-
Amounts owed by Group undertakings
-
-
1,908,131
1,719,497
Other receivables
366,875
390,524
32,029
-
Prepayments
406,573
238,968
8,066
3,626
9,516,568
8,166,271
1,948,226
1,723,123
Non-current receivables
Group
Company
2020
2019
2020
2019
£
£
£
£
Accrued income
2,439,119
2,376,478
-
-
The amounts owed by Group undertakings are unsecured, interest free and repayable on demand.
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:
2020
2019
£
£
Group
Trade receivables
3,015,131
2,951,383
ECL reserve
(327,659)
(145,519)
2,687,472
2,805,864
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.
2020
2019
£
£
Group
Not past due
2,065,185
2,660,707
Up to 3 months
395,178
132,681
3 to 6 months
51,771
-
Older than 6 months
175,338
12,476
2,687,472
2,805,864
Of the trade debt older than 6 months as at 30 September 2020, being £175,338 (2019: £12,476), cash of £122,471 (2019: £nil) has been received since the year end.
The following is an ageing analysis of those trade receivables that were individually considered to be impaired:
2020
2019
£
£
Group
Not past due
-
-
Up to 3 months
98,324
390
3 to 6 months
39,682
-
Older than 6 months
189,653
145,129
327,659
145,519
14 Trade and other payables
Group
Company
2020
2019
2020
2019
£
£
£
£
Trade payables
736,157
505,559
53,539
46,777
Taxation
-
-
-
-
Other taxation and social security
551,990
181,508
-
10,961
Pension contributions
42,232
42,188
-
-
Other payables
481,391
555,556
250
-
Accruals
2,123,733
2,451,263
66,830
842,427
Deferred income
5,084,999
3,557,283
-
-
9,020,502
7,293,357
120,619
900,165
The Directors consider that the carrying amount of trade and other payables approximates to their fair values.
15 Borrowings and financial liabilities
Group
Company
2020
2019
2020
2019
£
£
£
£
Current liabilities:
Secured loans
609,359
1,200,000
609,359
1,200,000
Lease liabilities
922,706
-
731,000
-
Non-current liabilities:
Secured loans
-
570,946
-
570,946
Lease liabilities
4,655,772
-
4,012,028
-
6,187,837
1,770,946
5,352,387
1,770,946
15a 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.
Group and Company
Non-current Borrowings
Current Borrowings
Total
£
£
£
1 October 2019
570,946
1,200,000
1,770,946
Cash-flows:
Repayment
-
(1,161,587)
(1,161,587)
Non-cash:
Reclassification
(570,946)
570,946
-
30 September 2020
-
609,359
609,359
Non-current Borrowings
Current Borrowings
Total
Group and Company
£
£
£
1 October 2018
1,793,070
1,000,000
2,793,070
Cash-flows:
Repayment
-
(1,022,124)
(1,022,124)
Non-cash:
Reclassification
(1,222,124)
1,222,124
-
30 September 2019
570,946
1,200,000
1,770,946
Group
Non-current Lease liabilities
Current Lease liabilities
Total
£
£
£
1 October 2019
-
-
-
Recognised on adoption of IFRS 16
5,408,004
582,127
5,990,131
1 October 2019 post adoption of IFRS 16
5,408,004
582,127
5,990,131
Cash-flows:
Repayment
-
(586,132)
(586,132)
Accrued interest
-
174,479
174,479
Non-cash:
Reclassification
(752,232)
752,232
-
30 September 2020
4,655,772
922,706
5,578,478
Company
Non-current Lease liabilities
Current Lease liabilities
Total
£
£
£
1 October 2019
-
-
-
Recognised on adoption of IFRS 16
4,600,500
365,500
4,966,000
1 October 2019 post adoption of IFRS 16
4,600,500
365,500
4,966,000
Cash-flows:
Repayment
-
(369,504)
(369,504)
Accrued interest
-
146,532
146,532
Non-cash:
Reclassification
(588,472)
588,472
-
30 September 2020
4,012,028
731,000
4,743,028
16 Financial instruments and risk management
Group - Financial instruments by category
2020
£
2019
£
Financial assets - loans and receivables
Non-current
Accrued income
2,439,119
2,376,478
Current
Trade and other receivables
3,054,347
3,196,388
Accrued income
6,055,648
4,730,915
Cash and cash equivalents
8,311,867
6,771,406
17,421,862
14,698,709
Prepayments are excluded, as this analysis is required only for financial instruments.
Financial liabilities - held at amortised cost
2020
£
2019
£
Non-current
Borrowings
-
570,946
Lease liabilities
4,655,772
-
4,655,772
570,946
Current
Current borrowings
609,359
1,200,000
Lease liabilities
922,706
-
Trade and other payables
1,217,548
1,061,115
Pension costs
42,232
42,188
Accruals
2,123,733
2,451,263
4,915,578
4,754,566
Statutory liabilities and deferred income are excluded from the trade payables balance, as this analysis is required only for financial instruments.
Company
Financial instruments by category
2020
£
2019
£
Financial assets - loans and receivables
Current
Amounts owed by Group undertakings & other receivables
1,940,160
1,719,497
Cash and cash equivalents
114,129
169,163
2,054,289
1,888,660
Financial liabilities - held at amortised cost
2020
£
2019
£
Non-current
Borrowings
-
570,946
Lease liabilities
4,012,028
-
4,012,028
570,946
Current
Current borrowings
609,359
1,200,000
Lease liabilities
731,000
-
Trade and other payables
53,789
46,777
Accruals
66,830
842,427
1,460,978
2,089,204
There is no material difference between the book value and the fair value of the financial assets and financial liabilities disclosed above for either the Group or Parent Company.
There were no derivative financial instruments in existence as at 30 September 2020 (2019: £nil).
The Group's multinational operations expose it to financial risks that include market risk, credit risk, foreign currency risk and liquidity risk. The Directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years.
Credit quality of financial assets
The credit quality of financial assets can be assessed by reference to external credit ratings (S&P) (if available) or to historical information about counterparty default rates:
2020
2019
£
£
Trade receivables
Group 1
295,153
1,849,871
Group 2
2,274,277
707,722
Group 3
118,042
248,271
2,687,472
2,805,864
Group 1 - new customers (less than 6 months).
Group 2 - existing customers (more than 6 months) with no defaults in the past.
Group 3 - existing customers (more than 6 months) with some defaults in the past.
At the year end there are 6 customers (2019: 2 customers) with trade receivable balances each representing in excess of 5% of the total trade receivables of £2,687,472 (2019: 2,805,864). Of these customers, 1 is categorised within Group 1 representing 11% of total trade receivables (2019: nil), 5 are within Group 2 representing 53% of total trade receivables (2019: 1 customer), with none in Group 3 (2019: 1 customer).
There are no trade receivables within the Parent Company.
2020
2019
£
£
Cash at bank and short-term deposits
A1
8,309,074
6,768,218
Not rated
2,793
3,188
8,311,867
6,771,406
A1 rating means that the risk of default for the investors and the policy holder is deemed to be very low.
Not rated balances relate to petty cash amounts. All cash within the Parent Company is within the A1 category.
Market risk - foreign exchange risk
Exposure to currency exchange rates arise from the Group's overseas sales and purchases, which are primarily denominated in US Dollars (USD), Australian Dollars (AUD) and Euros (EUR). There is no foreign exchange exposure within the Parent Company.
To mitigate the Group's exposure to foreign currency risk, non-GBP cash flows are monitored and forward exchange contracts are entered into in accordance with the Group's risk management policies. Generally, the Group's risk management procedures distinguish short-term foreign currency cash flows (due within 6 months) from longer-term cash flows (due after 6 months). Where the amounts to be paid and received in a specific currency are expected to largely offset one another, no further hedging activity is undertaken. Forward exchange contracts are mainly entered into for significant long-term foreign currency exposures that are not expected to be offset by other same-currency transactions.
As at 30 September 2020 the Group had no forward foreign exchange contracts in place (2019: none) to mitigate exchange rate exposure arising from forecast income in US Dollars, Australian Dollars and Euros.
Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into GBP at the closing rate:
AUD
USD
EUR
INR
DKK
BND
30 September 2020
Financial assets
374,834
3,117,456
2,202,588
722,885
2,845,424
729,482
Financial liabilities
-
(101,187)
(40,063)
(509,071)
-
-
Total exposure
374,834
3,016,269
2,162,525
213,814
2,845,424
729,482
AUD
USD
EUR
INR
DKK
BND
30 September 2019
Financial assets
298,452
5,025,829
2,697,106
665,743
229,950
2,232,614
Financial liabilities
-
(148,032)
(23,227)
(535,533)
-
-
Total exposure
298,452
4,877,797
2,673,879
130,210
229,950
2,232,614
The following table illustrates the sensitivity of profit and equity in regards to the Group's financial assets and financial liabilities and the US Dollar, Australian Dollar, Euro, Indian Rupee, Danish Krone and Brunei Dollar to GBP exchange rate 'all other things being equal'. It assumes a +/- 10% change to each of the foreign currency to GBP exchange rates. These percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. The sensitivity analysis is based on the Group's foreign currency financial instruments held at each reporting date and also takes into account forward exchange contracts that offset effects from changes in currency exchange rates.
If the GBP had strengthened against the foreign currencies by 10% then this would have had the following impact:
30 September 2020
AUD
USD
EUR
INR
DKK
BND
Loss for the year
(34,076)
(274,206)
(196,593)
(19,438)
(258,675)
(66,317)
Equity total
(34,076)
(274,206)
(196,593)
(19,438)
(258,675)
(66,317)
30 September 2019
AUD
USD
EUR
INR
DKK
BND
Loss for the year
(27,132)
(443,436)
(243,080)
(11,837)
(20,869)
(202,965)
Equity total
(27,132)
(443,436)
(243,080)
(11,837)
(20,869)
(202,965)
If the GBP had weakened against the foreign currencies by 10% then this would have had the following impact:
30 September 2020
AUD
USD
EUR
INR
DKK
BND
Gain for the year
41,648
335,141
240,281
23,757
316,158
81,054
Equity total
41,648
335,141
240,281
23,757
316,158
81,054
30 September 2019
AUD
USD
EUR
INR
DKK
BND
Gain for the year
33,161
541,977
297,098
14,468
25,507
248,068
Equity total
33,161
541,977
297,098
14,468
25,507
248,068
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group's exposure to currency risk.
Market Risk - cash flow interest rate risk
Cerillion had outstanding borrowing within the Group and Company, as disclosed in note 18.
These were loans taken out with HSBC to facilitate the purchase of shares prior to the Admission on AIM.
The Group's policy is to minimise interest rate cash flow risk exposures on long-term financing. Longer-term borrowings are therefore usually at fixed rates. At 30 September 2020, the Group is exposed to changes in market interest rates through bank borrowings at variable interest rates. Other borrowings are at fixed interest rates. The exposure to interest rates for the Group's cash at bank and short-term deposits is considered immaterial.
The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/- 1%. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant.
Profit for the year
Equity
+1%
-1%
+1%
-1%
30 September 2020
(11,621)
13,101
(11,621)
13,101
30 September 2019
(21,928)
21,761
(21,928)
21,761
Liquidity risk
Cerillion actively maintains cash that is designed to ensure Cerillion has sufficient available funds for operations and planned expansions. The table below analyses Cerillion's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Less than 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
30 September 2020
Borrowings
614,793
-
-
-
Lease liabilities
913,473
936,879
2,651,816
1,644,750
Trade and other payables
3,935,503
-
-
-
30 September 2019
Borrowings
1,242,252
626,914
-
-
Trade and other payables
3,736,074
-
-
-
Capital risk management
The Group manages its capital to ensure it will be able to continue as a going concern while maximising the return to shareholders through optimising the debt and equity balance. In the short-term this means generating sufficient cash to repay the existing loans, whilst maintaining the dividend policy and investment in research and development.
The Group monitors cash balances and prepares regular forecasts, which are reviewed by the Board. Since the year end the Directors have proposed the payment of a dividend. In order to maintain or adjust the capital structure, the Group may, in the future, adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Parent Company has the same approach to capital risk management, with the additional focus of monitoring dividends up from Group companies to ensure that sufficient reserves are in place to maintain the dividend policy.
17 Share capital
2020
2019
£
£
Issued, allotted, called up and fully paid:
29,513,486 (2019: 29,513,486) Ordinary Shares of 0.5 pence
147,567
147,567
The Ordinary Shares have been classified as Equity. The Ordinary Shares have attached to them full voting and capital distribution rights. The Company does not have an authorised share capital.
In February 2020, the Company acquired 172,622 of its own shares in the market, at £2.10 per share, to be held as Treasury Stock to be used to satisfy the exercise of share options. In March 2020 172,610 of these shares were issued on the exercise of share options. In September 2020, the Company acquired 125,000 of its own shares in the market, at £3.00 per share, all 125,000 shares were held as Treasury Shares at the year end. At the year end there were 125,012 shares remaining in Treasury Stock at an average cost of £3.00 per share.
18 Share-based payments
The Group introduced a Save as You Earn ("SAYE") share option scheme and a Long-Term Incentive Plan ("LTIP") in 2017. The Group is required to reflect the effects of share-based payment transactions in its statement of comprehensive income and statement of financial position. For the purposes of calculating the fair value of share options granted, the Black Scholes Pricing Model has been used by the Group in respect of the SAYE schemes, the LTIP has been fair valued using a Monte-Carlo Simulation Model. Fair values have been calculated on the date of grant.
A new Save as You Earn ("SAYE") share option scheme was introduced in 2019. A charge of £68,727 (2019: £23,115) has been reflected in the consolidated statement of comprehensive income, with the corresponding entry recognised within the share option reserve.
The fair value of options granted in the current year and the assumptions used in the calculation are shown below:
Year of grant
2017
2017
2019
Scheme
SAYE
LTIP
SAYE
Exercise price (£)
1.132
0.05
1.092
Number of options granted
189,845
300,000
132,917
Vesting period (years)
3 years
3 to 3.5 years
3 years
Option life (years)
3.5 years
5 to 5.5 years
3.5 years
Risk free rate
0.50%
0.49%
0.50%
Volatility
41%
41%
41%
Dividend yield
3.00%
3.33%
3.00%
Fair value (£)
0.44
0.53
0.43
The share option schemes are issued by the Parent Company, therefore the disclosures within this note cover the Group and Parent Company, the share-based payment expense is recharged to Cerillion Technologies Limited as this is where the option holders are employed.
Share options relating to the SAYE 2017 were exercised during the year ended 30 September 2020, with Treasury Shares being used to settle the options exercised. Since the year end, 20 October 2020, half of the LTIP share options were exercised, being options over 125,000 shares.
During the year options were granted as summarised in the table below:
2020
Number of
Options
2020
Weighted
average
exercise
price
2019
Number of
Options
2019
Weighted
average
exercise
price
£
£
Outstanding at start of year
555,522
0.62
439,845
0.49
Granted
-
-
132,912
1.09
Expired
-
-
(17,235)
1.13
Exercised
(172,610)
(1.13)
-
-
Outstanding at 30 September
382,912
0.38
555,522
0.62
Exercisable at 30 September
-
-
-
-
19 Retirement benefits
The Group operates a group personal contribution pension scheme for the benefit of the employees. The pension cost charge for the year represents contributions payable by the Group to the fund and amounted to £313,181 (2019: £322,658). At the year end the contributions payable to the scheme were £42,232 (2019: £42,188).
20 Future lease payments
From 1 October 2019, the Group has recognised right-of-use assets for these leases, except for short-term and low value leases, see Note 23 and Note 11 for further information. In the prior year, the Group had commitments under non-cancellable operating leases in respect of land and buildings and plant and machinery. The Group's future minimum operating lease payments were as follows:
2020
2019
Group
£
£
Within one year
-
570,839
Between one and five years
-
3,152,777
After five years
-
2,375,750
-
6,099,366
There are no lease commitments within the Parent Company.
21 Annual General Meeting
The Annual General Meeting is to be held on 5 February 2021. Notice of the AGM will be despatched to shareholders with Cerillion's report and accounts.
22 Preliminary Announcement
The financial information set out in the announcement does not constitute the Company's full statutory accounts for the years ended 30 September 2020 or 2019, which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, it did not draw attention to any matters by way of emphasis without qualifying their report and it did not contain a statement under s498(2) or (3) Companies Act 2006. The audit of the statutory accounts for the year ended 30 September 2020 has been completed and the accounts will be delivered to the Registrar of Companies before the Company's Annual General Meeting and will be available on the Company's website at www.cerillion.com. This announcement is derived from the statutory accounts for that year.
23 First time adoption of IFRS 16 "Leases"
This section explains the impact of the adoption of IFRS 16 "Leases" on the Group's financial statements.
The Group has adopted IFRS 16 "Leases" retrospectively from 1 October 2019 but has not restated comparatives for the 2019 reporting period, as permitted under the specific transition provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 October 2019. The new accounting policies are disclosed within the "Leases" policy below.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 October 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 October 2019 was 3.0%. There were no leases previously classified as finance leases.
(i) Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted
by the standard:
· relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review - there were no onerous contracts as at 1 October 2019; and
· accounting for operating leases with a remaining lease term of less than 12 months as at 1 October 2019 as short-term leases
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease.
(ii) Measurement of lease liabilities
Group
30 Sep 2019£
Operating lease commitments disclosed as at 30 September 2019
6,099,366
Discounted using the lessee's incremental borrowing rate at the date of initial application
6,002,352
Less: low value/short-term leases recognised on a straight-line basis as expense
(12,221)
Lease liability recognised as at 1 October 2019
5,990,131
Of which are:
Current lease liabilities
582,127
Non-current lease liabilities
5,408,004
5,990,131
The Parent Company recognised a lease liability of £4,966,000 as at 1 October 2019, which was split £365,500 as current and £4,600,500 as non-current.
(iii) Measurement of right-of-use assets
The associated right-of-use assets were measured on a retrospective basis as if the new rules had always been applied. The right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 30 September 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.
(iv) Adjustments recognised in the statement of financial position on 1 October 2019
The change in accounting policy affected the following items in the balance sheet on 1 October 2019:
· Right-of-use assets - increased by £5,097,287 (Parent Company: £4,173,943)
· Accruals - decreased by £892,844 (Parent Company: £792,057)
· Lease liabilities - increased by £5,990,131 (Parent Company: £4,966,000).
The net impact on retained earnings on 1 October 2019 was £nil (Parent Company: £nil).
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