Final Results

AIM: CER

Cerillion plc

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

Final results for the year ended 30 September 2024

Record financial performance

Growth prospects remain very strong

Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2024.

Highlights

Financial:

Operational:

Louis Hall, CEO of Cerillion plc, commented:

"Revenue, pre-tax profit, and the new customer sales pipeline all reached new highs. Two major new customer wins in the year as well as orders from the existing customer base also helped to drive total new orders to a record level of £38.1m.

"Trading conditions remain favourable for us. While total global telco capital investment may have slowed, investment in the enterprise software layer connecting telcos' network infrastructure to their customers remains essential. This is because it enables telcos to monetise their network infrastructure assets, driving more revenue from their existing assets, and to improve operational efficiency and the customer experience.

"The Company remains well-positioned to make further progress over the new financial year, with a healthy back-order book and strong new customer sales pipeline. We will continue to invest across the business, supported by our strong balance sheet, rising levels of recurring income and good cash flows. We view the future with confidence."

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About Cerillion

Cerillion has a 25-year track record in providing mission-critical software for billing, charging and customer relationship management ("CRM"), mainly to the telecommunications sector but also to other markets, including utilities and financial services. The Company has c. 80 customer installations across c. 45 countries.

Headquartered in London, Cerillion also has operations in India and Bulgaria as well as a sales presence in the USA, Singapore and Australia.

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

Notes

Note 1 Recurring revenue includes support and maintenance, managed service, Skyline and third-party hardware and hosting revenue reported in the year. In the prior year, the recurring revenue metric excluded third-party hardware and hosting revenue. Since this is deemed to be recurring in nature as it is typically recognised on a straight-line basis over time, the metric has been amended to include this. The prior year comparative has been updated to reflect this change.

Note 2 Adjusted earnings before interest, tax, depreciation and amortisation ("EBITDA") is calculated by taking operating profit and adding back depreciation & amortisation and share-based payment charges.

Note 3 Adjusted profit before tax is calculated by taking reported profit before tax and adding back amortisation of acquired intangible assets and share-based payment charges.

Note 4 Adjusted earnings per share is calculated by taking profit after tax and adding back amortisation of acquired intangible assets and share-based payment charges and is divided by the weighted average number of shares in issue during the period.

Note 5 Net cash is made up of cash and cash equivalents.

Note 6 New customer sales pipeline is the total, unweighted value of all qualified sales prospects.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

Cerillion continues to make very strong progress and financial results for the year have achieved record levels. Revenue was up 12% year-on-year to £43.8m (2023: £39.2m), and adjusted profit before tax was up by 18% to £19.8m (2023: £16.8m), both new highs.

The Group has seen a material step up in new orders. New orders for the financial year under review increased by 21% to £38.1m (2023: £31.6m), a new record level. Two major new logo wins were signed, one with Virgin Media Ireland in early November 2023, which is worth €12.4m. The second major win was signed in May 2024 with a leading provider of connectivity solutions across Southern Africa and is worth $11.1m. Both contracts have the potential to expand further.

The pipeline of potential new customer sales remains strong and at the financial year-end stood at £262m (2023: £243m). This reflects the continuing strength of the market for our technology and includes some large opportunities.

While total global telecom capital spending may have softened, demand for billing, charging, customer relationship management ("CRM") and digital customer experience solutions continues to be driven by the need for telecom companies to realise greater value from their existing infrastructure assets and to maximise value from new infrastructure investments in 5G and fibre rollouts. In addition, they are looking to drive operational efficiencies and greater flexibility. Cerillion continues to remain well-placed to benefit from these secular market drivers, and market acceptance of SaaS-based product solutions continues to increase. Cerillion's platform solution with a modular approach compares favourably to the more bespoke, services-heavy systems provided by the traditional vendors, our SaaS-based product offers telecom companies significant financial and operational benefits, lowering the total cost of ownership and providing them with the ability to launch new products with greater agility.

To support the Company's ongoing growth, we invested further in our main operations in India and Bulgaria over the financial year. In Bulgaria, the team moved to new offices, providing increased capacity and a dedicated environment that will enable the growing team to build a stronger sense of identity.

With a very strong pipeline of potential new business opportunities, the Company is well-positioned to make further progress in the new financial year and we remain confident about prospects.

Financial Overview

Total revenue for the year to 30 September 2024 rose by 12% to £43.8m (2023: £39.2m). As is typical, existing customers (classified as those acquired before the beginning of the reporting period) accounted for a very high proportion of total revenue, generating 85% of the overall result (2023: 99%).

Recurring revenue1, which includes support and maintenance, managed service, Skyline and third-party hardware and hosting revenue, increased by 11% to £15.5m and comprised approximately 35% of total revenue (2023: £13.9m, 36%).

The Group's revenue streams are categorised into three segments: software revenue; services revenue; and revenue from other activities. Software revenue principally comprises software licences, related support and maintenance and managed service fees, while services revenue is generated by software implementations and ongoing account development work. Revenue from other activities includes the reselling of third-party hardware, hosting fees and rebillable expenses.

Gross margin was slightly ahead of the prior year at 80.5% (2023: 78.6%), mainly reflecting improved operational efficiency leading to an increase in day rates achieved on key implementation projects, partly offset by unfavourable foreign exchange.

Operating expenses increased by 7.7% to £16.5m (2023: £15.3m). This included non-repeat of the £0.5m amortisation charge for acquired intangibles from the prior year, which was partly offset by unfavourable foreign exchange year-on-year. Personnel costs were 9% higher at £9.5m (2023: £8.7m) and accounted for 58% (2023: 57%) of operating expenses.

Adjusted EBITDA for the year increased by 15% to £20.7m (2023: £18.1m), driven mainly by higher revenues and an improvement in operational efficiency, partly offset by unfavourable foreign exchange rates. The Board considers adjusted EBITDA to be a key performance indicator for Cerillion as it adds back key non-cash transactions, being share-based payments, depreciation and amortisation.

We continued to invest in our product set, and the charge for amortisation of intangibles was £1.1m (2023: £1.4m). The prior year included £0.5m from amortisation of acquired intangibles; this balance was fully amortised in the prior year and hence this charge was not repeated. Expenditure on tangible fixed assets was £0.2m (2023: £0.3m). Operating profit increased by 21% to £18.4m (2023: £15.3m).

Adjusted profit before tax rose by 18% to £19.8m (2023: £16.8m) and adjusted earnings per share increased by 13% to 52.2p (2023: 46.2p). On a statutory basis, profit before tax increased by 22% to £19.7m (2023: £16.1m) and earnings per share increased by 18% to 51.7p (2023: 43.8p).

Cash Flow and Banking

The Group continued to generate strong cash flows and closed the financial year with net cash up by 21% to £29.9m (2023: £24.7m). This was after £3.5m of dividend payments (2023: £2.9m). Total debt at the year-end remained £nil (2023: £nil).

Dividend

The Board is pleased to propose a 15% increase in the final dividend to 9.2p per share (2023: 8.0p). Together with the interim dividend of 4.0p per share (2023: 3.3p), this brings the total dividend for the year to 13.2p per share (2023: 11.3p), an increase of 17%.

The dividend, which is subject to shareholder approval at the Company's Annual General Meeting on 13 February 2025, is payable on 20 February 2025 to those shareholders on the Company's register as at the close of business on the record date of 29 December 2024. The ex-dividend date is 28 December 2024.

Operational and Market Overview

We completed two major implementations during the financial year. The first of these was for Telesur, the largest telecommunications provider in Suriname. Having completed the initial stage of delivery in 2023, moving Telesur's mobile services to our platform, we completed full delivery of our solution in this financial year, with the migration of the telco's fixed-wire services. The second implementation that we completed was for CWS, the largest telecommunications provider in the Seychelles. This project migrated all of CWS' fixed-wire and mobile services in a single phase, with final cutover taking place over a single weekend. Both these implementations involved the full range of Cerillion's core product modules, from product catalogue, charging and billing, to digital customer experience.

Delivery of our solution to Virgin Media Ireland, one of our major new logos wins this year, is well-advanced. Virgin Media Ireland is taking the core elements of the Cerillion solution, including billing, charging fulfilment and product catalogue and we anticipate that full integration with Virgin Media's network elements and other systems will be completed in the first quarter of 2025. Following this, we are optimistic that there will be opportunities to expand the relationship. The implementation of our solution for the other major customer win this year is also progressing well. This new customer, a leading provider of connectivity solutions in Southern Africa, serves both the B2B and B2C markets in the region and its offering spans a wide range of technologies, including fibre, satellite, microwave and 5G stand alone. A key driver of the decision to move to our solution was the customer's need to support the rollout of a new 5G mobile network and to be able to support its broadened range of service offerings on a single platform. This customer has further ambitious expansion plans and we anticipate the relationship growing as these plans unfold.

The back-order book at the financial year-end stood at £46.9m (2023: £45.4m), made up of £37.7m of sales contracted but not yet recognised (2023: £36.7m) together with £9.2m of annualised support and maintenance revenue (2023: £8.7m). We expect about 45% of the £37.7m contracted-but-not-yet-recognised sales will be recognised within 12 months.

During the year, we continued to enhance our teams of resources across all our key locations, adding graduate entrants at each location, as well as more experienced new staff members. Competition for technology professionals continued to ease over the year, as several technology businesses, including some of our competitors, trimmed their headcounts, which has been to our advantage.

We increased our investment in R&D over and above last year's level and, as scheduled, launched two major new releases of our product set. The most recent of these releases was Cerillion 24.2, which went live in early November 2024. A key feature of this latest release was the introduction of a new composable Self Service Module. Built on a completely new architecture and with user-centric design, the new Self Service Module enables frictionless sales journeys and intuitive service management. It is based on an adaptable user interface framework, which includes robust digital experience composition, one-click deployment content management and comprehensive user behaviour analytics. Communication service providers ("CSP") no longer need to choose between self-service products that are fast to implement but difficult to change and fully bespoke solutions that can be built-to-order yet are expensive to build and maintain. We believe that the new Module provides the best of both worlds being:

· a commercial off-the-shelf product, with a roadmap and on-going support and maintenance from an established and reputable BSS/OSS3 vendor, as well as

· a modern digital engagement solution, developed with cutting edge technologies, which combines inexpensive and fast initial rollout, with full flexibility to adapt and evolve whilst staying on the product path.

The new Self Service Module follows Cerillion's key design principle of delivering flexibility through configuration, not customisation. This means that the core product is the same for all customers, with adaptation and differentiation delivered via a design system and no-code configuration. Furthermore, with Self Service Pro, this flexibility is augmented with a visual content management system, which gives CSPs complete control of the digital experience and streamlines integration with external data sources and applications.

In an increasingly uncertain macro-economic and geopolitical environment, we believe that telcos will continue to be under pressure to improve the efficiency of both their operations and their enterprise software. Improving operational efficiency will mean:

· increasing focus on improving the digital customer experience to: attract more end-customers to sign up for services; reduce customer churn; and decrease customer service and sales department headcount;

· consolidating multiple legacy BSS/OSS platforms into single solutions that can support all service types on a single or multi-tenanted basis; and

· moving to BSS/OSS platforms that provide flexible, fully integrated, GUI and AI driven product and service catalogues that enable telcos to rapidly implement new product offerings and update existing ones themselves, without vendor intervention.

Improving platform efficiency will mean:

· using BSS/OSS solutions that can support the whole range of a telco's offerings within a single, SaaS-based platform, to save the substantial additional third-party and internal staff costs related to running multiple BSS/OSS platforms from multiple vendors;

· using BSS/OSS solutions that enable seamless upgrades on a regular basis, such that new features to support new market and technology developments become available without costly, ad-hoc upgrades to tailored solutions or migration to a different platform; and

· using BSS/OSS solutions that are provided on a SaaS basis, such that it is no longer necessary to maintain large teams of IT staff to manage those systems in-house.

We believe that all these factors play to the strengths of our solutions and that we are very well positioned to capitalise on these trends.

Outlook

The size of the market opportunity for Cerillion remains significant and our unrivalled product-based SaaS solution remains well placed to continue to grow, benefiting from a broad range of market drivers, including greater market acceptance of product solutions and SaaS. Our Tier-1 new customer win, in the first half of the financial year, reflected this and provides a further reference point to compete for future Tier-1 opportunities.

The back-order book continues to underpin revenue visibility, and the new customer sales pipeline, which closed the financial year at a new high, includes some large deal opportunities at varying stages of the discussion process. These factors together with the Company's strong balance sheet, significant net cash and strong cash flows all support our continued confidence in Cerillion's prospects. We expect to make further good progress over the new financial year and will continue to invest in the business to support future growth.

Notes

Note 1 Recurring revenue includes support and maintenance, managed service, Skyline and third-party hardware and hosting revenue reported in the year. In the prior year, the recurring revenue metric excluded third-party hardware and hosting revenue. Since this is deemed to be recurring in nature as it is typically recognised on a straight-line basis over time, the metric has been amended to include this. The prior year comparative has been updated to reflect this change.

Note 2 In the prior year, Software-as-a-Service revenue was disclosed as a separate segment, being made up of Managed Service and Skyline fees. In addition, third-party licence revenue was disclosed within the Third-party revenue segment. In order to give a clearer view on the Group's performance, Managed Service and Skyline revenue are now reported within Software revenue, and third-party licence revenue is now reported within Software revenue, with the Third-party segment being renamed as Other revenue. The prior year comparatives have been updated to reflect these changes.

Note 3 "BSS/OSS" refers to business support systems and operations support systems.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2024

All transactions are attributable to the owners of the parent.

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2024

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2024

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2024

NOTES TO THE ACCOUNTS

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

1 (a) Critical accounting estimates and judgements

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

Judgements

(i) Capitalisation of development costs

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

(ii) Revenue recognition

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

Estimates

(i) Revenue recognition

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

(ii) 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 9 and 10.

1 (b) Other sources of estimation uncertainty

(i) Recoverability of trade debtors and accrued income

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

(ii) 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.

2 Segment information

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

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

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

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

In the prior year, Software-as-a-Service revenue was disclosed as a separate segment, being made up of Managed service and Skyline fees. In addition, third-party licence revenue was disclosed within the Third-party revenue segment. In order to give a clearer view on the Group's performance, Managed Service and Skyline fees are now reported within Software revenue, and third-party licence revenue is now reported within Software revenue, with the Third-party segment being renamed as Other revenue. The prior year comparatives have been restated to reflect these changes

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 £25,079,000 (2023: £29,993,000).

(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 impairment losses on financial assets relates to the provisions made against the risk of non-recovery of receivables.

4 Finance income

5 Finance costs

6 Taxation

(a) Analysis of tax charge for the year

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

There are currently no recognised or unrecognised deferred tax assets or liabilities within the Parent Company financial statements. In the Spring Budget 2021, the Government announced that from 1 April 2023 the main rate of UK corporation tax rate will increase from 19% to 25%. This new rate was substantively enacted on 24 May 2021 and therefore its impact was reflected in the measurement of deferred taxes in the prior year financial statements. In the prior year ended 30 September 2023, the impact of the increase to 25% from 1 April 2023 resulted in the standard tax rate of 22.0%.

Periodically, the Group is subject to inquiries from tax authorities. There is currently ongoing discussion with the India tax authority in relation to the period 2021 to 2022. We firmly consider all Group submissions made to be valid and fully supportable and accordingly no provision has been made. If necessary, the Group will record the outcome of any discussion in the period to which such resolution occurs.

7 Dividends

(a) Dividends paid during the reporting period

The Board paid the final dividend in respect of 2023 of 8.0p per share, on 8 February 2024, and declared and paid an interim 2024 dividend of 4.0p (2023: 3.3p) per share on 21 June 2024. Total dividends paid during the reporting period were £3,542,000 (2023: £2,892,000).

(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 9.2p per fully paid Ordinary Share (2023: 8.0p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30 September 2024, but not recognised as a liability at the year end is £2,717,000 (2023: £2,361,000).

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