Cerillion plc
Annual Report and
Accounts 2017
Company
Information
Company registration number:
09472870
Registered office:
Directors:
Secretary:
Bankers:
Solicitors:
Nominated Adviser:
Broker:
Auditor:
25 Bedford Street
London
WC2E 9ES
O C R Gilchrist
L T Hall
G J O’Connor
A M Howarth
M Dee
O C R Gilchrist
HSBC Jersey
HSBC House
St Helier
Jersey
JE1 1HS
Orrick, Herrington & Sutcliffe (Europe) LLP
107 Cheapside
London
EC2V 6DN
Shore Capital and Corporate Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London
W1S 4JU
Grant Thornton UK LLP
Registered Auditor
Chartered Accountants
30 Finsbury Square
London
EC2P 2YU
Cerillion plc Annual Report and Accounts 2017
Contents
Overview
Highlights
Chairman and Chief Executive Officer’s Report
Strategic Report
Corporate Governance Report
Board of Directors
Report of the Remuneration Committee
Report of the Audit Committee
Directors’ Report
Independent Auditor’s Report
Principal Accounting Policies
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Notes to the Financial Statements
2
3
4
8
12
14
15
18
19
21
27
36
37
38
39
40
41
42
43
Cerillion plc Annual Report and Accounts 2017
|
1
Overview
About Cerillion
Cerillion is a leading provider of mission critical software for billing, charging and CRM, with an 18 year track record in providing
comprehensive revenue and customer management solutions. The Company has 81 customer installations across 43 countries,
principally serving the telecommunications market, but also utilities and financial services.
Led by a highly experienced management team, the Company is headquartered in London and has operations in Pune, India, where
its Global Solutions Centre is located, and in Sydney and Miami. Cerillion’s CEO, Louis Hall, led the management buyout from Logica
plc in 1999.
Cerillion plc
Cerillion plc acquired Cerillion Technologies Limited on 18 March 2016, in conjunction with the completion of its IPO on AIM. The table
below summarises the highlights for Cerillion plc, reflecting trading for the full year to 30 September 2017 and for the period from 18
March 2016 to 30 September 2016. Prior to 18 March 2016, Cerillion plc had no trading activity.
In addition, the table includes full year trading highlights for Cerillion Technologies Limited, Cerillion (India) pvt and Cerillion Inc
(collectively, CTL Group), for the year to 30 September 2017 and the year to 30 September 2016. These are provided to give a clearer
picture of the year-on-year trading activity of the underlying Group1.
Revenue
Key revenue streams2:
Services
Software & Software-as-a-Service
Recurring revenue
New orders
Back order book
Profit before tax
Add back: - IPO costs
- Amortisation of acquired intangibles
- Fair value loss on forward contracts
Adjusted profit before tax3
Employee numbers:
Onshore
India
Total
2017
£’000
Audited
16,033
7,284
7,901
Cerillion plc
CTL Group
2016
£’000
Audited
8,365
5,359
2,615
2017
£’000
Unaudited
16,033
7,284
7,901
2016
£’000
Unaudited
14,810
8,688
5,315
4,448
2,196
4,448
4,059
13,496
6,478
13,496
10,797
13,147
9,285
13,147
9,285
1,995
-
993
-
239
746
497
121
2,395
2,083
-
80
-
-
80
121
2,988
1,603
2,475
2,284
84
87
171
83
79
162
79
87
166
79
78
157
2
| Cerillion plc Annual Report and Accounts 2017
Highlights
Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the
12 months ended 30 September 2017.
Financial:
• Strong results reflecting buoyant software revenue growth
• Adjusted profit before tax up by 8.4% to £2.5m
•
Revenue up by 8.3% to £16.0m (annualised 2016: £14.8m)
(annualised 2016: £2.3m)
– extension of contracts with existing customers made a
strong contribution to software sales
Recurring revenue5 up by 9.6% to £4.4m
– c. 28% of total revenues
Back order book6 stood at £13.1m (2016: £9.3m) – up 40.8%
EBITDA up by 17.8% to £3.6m (annualised 2016: £3.1m)
•
•
•
– EBITDA margin up to 22.6% (annualised 2016: 20.7%)
Operational:
•
Two large new Enterprise customer wins in Europe
•
A further four new customers signed for Skyline, Cerillion’s
cloud billing solution
•
New Enterprise Product Catalogue module introduced
•
•
•
Earnings per share of 6.9p (annualised 2016: 1.3p)
Cerillion Technologies Limited earnings per share of 7.9p
(2016: 6.8p7)
Proposed final dividend of 2.8p per share, bringing the total
dividend for the year to 4.2p per share (2016: 3.9p) - growth
of 7.7%
•
Included in the ‘Visionaries’ quadrant of the Gartner Magic
Quadrant for Integrated Revenue and Customer Management
for CSPs for the 2nd consecutive year
Outlook for continuing progress remains very positive
•
Louis Hall, CEO of Cerillion, commented:
“I am pleased to present our second set of full year results as an AIM-quoted Company. Cerillion has continued to make strong
progress, and I am delighted not just with the substantial rise in software revenues, but also the progress we have made with margins,
aided by licence extensions with existing customers.
“Cerillion continues to generate significant revenues from its existing customer base and we have additionally secured contracts with a
number of major new customers. We believe the Company’s inclusion in the ‘Visionaries’ quadrant of the Gartner Magic Quadrant for
Integrated Revenue and Customer Management for CSPs for the second year in a row is an indication of the quality of our offering and
the importance we place on customer service.
“As we go into the 2018 financial year, we remain very positive about prospects for Cerillion’s continuing progress, underpinned by a
strong pipeline of prospects across EMEA, Asia Pacific and Americas.”
Notes
Note 1 Cerillion plc acquired Cerillion Technologies Limited on 18 March 2016 in conjunction with the completion of its IPO on AIM. Prior to 18 March
2016, Cerillion plc had no trading activity. Consequently, save for the dividend, earnings per share and net assets information, the 2017 results
and comparative 2016 figures reported in these highlights and in the Chairman and Chief Executive Officer’s Report are based on the unaudited
CTL Group proforma consolidated figures which include Cerillion Technologies Limited and its subsidiaries (Cerillion (India) pvt and Cerillion Inc).
Financial Information for Cerillion plc, is extracted from the audited year end IFRS accounts.
Note 2 Full analysis of the revenue streams for Cerillion plc can be found in the segmental reporting disclosure note 2.
Note 3 Adjusted profit before tax is calculated after adding back IPO costs, unrealised fair value movement on forward exchange contracts and
amortisation of acquired intangible assets.
Note 4 Revenue derived from software licence, support and maintenance, SaaS and managed services sales.
Note 5 Recurring revenue includes annualised support and maintenance, managed service and Skyline revenue.
Note 6 Back order book consists of £9.0m of sales contracted but not yet recognised at the end of the reporting period plus £4.1m of annualised support
and maintenance revenue. It is anticipated that 75% of the £9.0m of sales contracted but not yet recognised as at the end of the reporting period
will be recognised within the next 4 to 5 quarters.
Note 7 Based on earnings for Cerillion Technologies Limited for the current and comparative period and the total number of Cerillion plc shares in issue
as at 30 September 2017 and 30 September 2016 respectively.
Cerillion plc Annual Report and Accounts 2017
|
3
Chairman and
Chief Executive Officer’s Report
Introduction
Cerillion plc was admitted to trading on AIM on 18 March 2016, towards the end of the first half of its financial year ended 30 September
2016, and we are now very pleased to report the Group’s results for the second year as a publicly quoted company.
The CTL Group business is well established, and has an 18 year track record of providing mission critical software for billing, charging
and customer relationship management (“CRM”), predominantly to the telecommunications market, but also to the utilities and financial
services sectors.
We are continuing to drive growth in our core telecoms market, where demand for billing and charging solutions is growing, driven by
technological and regulatory change. At the same time, we are also seeking to develop in new market sectors, supported by our new
Software-as-a-Service (“SaaS”) billing product, Cerillion Skyline, which facilitates billing and the collection of payments from any type of
subscription or usage-based service.
We are pleased to report that Cerillion has continued to make good progress over the second half of its financial year and that results
are in line with market expectations. Revenue has increased year-on-year by 8.3% to £16.0m, whilst EBITDA is up by 17.8% to £3.6m
and adjusted profit before tax is up by 8.4% to £2.5m. All year-on-year comparisons are with the unaudited full year 2016 numbers for
the CTL Group.
These encouraging results have been supported by strong demand from our established customer base, as well as implementations for
new customers in Europe.
Financial Overview
CTL Group Proforma Consolidated Income Statement — for the year ended 30 September 2017
Year to 30
September 2017
£’000
Unaudited
Year to 30
September 2016
£’000
Unaudited
16,033
(3,815)
12,218
(8,601)
3,617
(1,109)
2,508
(118)
5
2,395
(61)
2,334
14,810
(4,019)
10,791
(7,719)
3,072
(872)
2,200
(123)
6
2,083
(74)
2,008
Revenue
Cost of sales
Gross profit
Administrative expenses
EBITDA
Depreciation and amortisation
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation
Profit for the year
4
| Cerillion plc Annual Report and Accounts 2017
Adjusted profit before taxation:
Profit before taxation
Add back:
Amortisation of acquired intangibles
Unrealised fair value movement on forward exchange contracts
Adjusted profit before taxation
Adjusted operating profit:
Operating profit
Add back:
Amortisation of acquired intangibles
Adjusted operating profit
2017
£’000
Unaudited
2,395
80
-
2016
£’000
Unaudited
2,083
80
121
2,475
2,284
£’000
2,508
80
2,588
£’000
2,200
80
2,280
Total revenue for the year to 30 September 2017 rose by 8.3% to £16.0m (2016: £14.8m). Our existing customer base typically drives a
very high proportion of total annual income, and established customers (those acquired at least 12 months before the beginning of the
reporting period) generated 81% of total revenue in the year (2016: 93%). The reduction in the proportion of revenue derived from our
existing customer base was lower in 2017 due to a larger contribution from implementation work with new customers.
A significant part of the Group’s revenues continues to be underpinned by recurring income, which is derived from support and
maintenance and managed service contracts. Recurring revenues accounted for 28% of the Group’s income (2016: 27%), having risen
by 10% year-on-year to £4.4m (2016: £4.1m).
Our revenue streams are broadly divided into three segments: software revenue, which principally comprises software licence sales,
and support and maintenance sales; services revenue, which is generated by software implementations and other services work; and
revenues from other activities, mainly the reselling of third party products.
• Software revenue rose by 49% to £7.9m (2016: £5.3m), aided by the completion of licence extensions with existing customers, and
accounted for 49% of total revenues (2016: 36%).
•
Services revenue decreased by 16% to £7.3m (2016: £8.7m) and constituted 45% of total revenue (2016: 59%). The decrease
was largely due to more focus in 2017 on new customer implementations, where a significant proportion of revenue is derived from
licence income.
•
Third party income remained constant at £0.8m (2016: £0.8m) and comprised 5% of total revenue (2016: 5%).
Administrative expenses increased by 11% to £8.6m (2016: £7.7m) and included personnel costs at £4.7m (2016: £4.5m).
Adjusted operating profit increased by 14% to £2.6m (2016: £2.3m), mainly driven by the increase in total revenue. The charge for
amortisation of R&D costs was £0.8m (2016: £0.5m). The increase was due to continued investment in our product set, including
investment in our cloud billing platform, Cerillion Skyline. Expenditure on tangible fixed assets was £0.2m (2016: £0.3m).
Adjusted profit before tax rose by 8.4% to £2.5m (2016: £2.3m) and adjusted earnings per share was 7.9p (2016: 6.8p5).
Cerillion plc Annual Report and Accounts 2017
|
5
Chairman and
Chief Executive Officer’s Report
Continued
Cash Flow and Banking
Net cash as at 30 September 2017 stood at £1.6m (2016: £0.4m), with total Group cash at £5.3m (2016: £5.0m) and total debt at
£3.7m (2016: £4.6m).
Dividend
In line with the Company’s dividend policy of paying out between a third to half of the Group’s free cash flow every year, subject to
the Group’s performance, the Board is pleased to propose a final dividend of 2.8p per share (2016: 2.6p). Together with the interim
dividend of 1.4p per share (2016: 1.3p), this brings the total dividend for the year to 4.2p per share (2016: 3.9p).
The dividend will become payable on 7 February 2018 to those shareholders on the Company’s register as at the close of business on
the record date of 5 January 2018. The ex-dividend date is 4 January 2018.
Operational Overview
We have continued to make good progress with our core solution, the Group’s pre-integrated Enterprise BSS/OSS suite, which
includes our real-time, Convergent Charging System (“CCS”). Across our product suite, new orders were up 25% over the year to
£13.5m (2016: £10.8m). All of these new customer orders are now under way, and provide Cerillion with increased revenue visibility for
the new financial year and beyond.
Typically, because our implementation projects are governed by long term, high value contracts, the business enjoys a high level
of revenue visibility through both its back order book and its annualised support revenue. At the year end, the combined value of
annualised support revenue and the back order book - which consists of unperformed, contracted work under purchase orders and
contracted work that is still subject to the receipt of purchase order – rose by 40.8% to £13.1m (2016: £9.3m).
We began work on two major new customer implementations during the year. The first of these was with Scarlet, a quad-play service
provider operating in the Belgian market, which is a subsidiary of Proximus, a major European telco. Cerillion is migrating Scarlet from
its current, legacy systems to Cerillion’s pre-integrated, billing, charging and CRM product suite, in order to support Scarlet’s on-going
growth and to help it to respond to customer demand for the next generation of convergent services and real-time service control. A
key factor in Scarlet’s selection of Cerillion was the advanced capability provided by our CCS module. We also began a major new
implementation with a wholesale telecoms operator in Europe, where we will also provide our pre-integrated billing, charging and CRM
product suite. The new platform will enable this customer to manage the provision of services to its retail partners.
As in 2016, CCS continues to be a key driver for new sales of our software solutions as it enables communications service providers
(“CSPs”) to converge prepaid and postpaid charging and billing on the same software platform. This provides significant cost savings
and performance-related benefits to customers, as well as the flexibility to support multiple service types. CCS can be deployed in many
ways too, including as a standalone charging engine, as a replacement for legacy prepaid systems, or as an integral part of Cerillion’s
core end-to-end billing and CRM solution.
We won four new customers for Cerillion Skyline, our Software-as-a-Service billing solution. Skyline enables businesses to bill and
collect recurring revenue from subscription and usage-based services, and over time, we expect to expand our addressable market,
both within the telecoms sector and in new industry verticals with this product. The cloud (SaaS) delivery model provides many
advantages for our customers, including faster and lower cost implementation, easier integration, continuous product updates, and
greater flexibility in launching new services. New customers signed up this year include a UK-based B2B telecoms provider, an
established Scandinavian fibre broadband company, a specialist HR software vendor and a smart advertising platform start-up.
We continue to invest across our solutions, making further improvements to Cerillion Skyline, CCS and our other modules. During the
year, as planned, we brought our new Enterprise Product Catalogue module to the market, which enhances our ability to manage the
increasingly complex product and service bundles that our customers need to succeed in their markets.
6
| Cerillion plc Annual Report and Accounts 2017
After the period end, on 23 October 2017, we were delighted to be designated in the “Visionaries” quadrant of Gartner’s newly
published report, “Magic Quadrant for Integrated Revenue and Customer Management (“IRCM”) for CSPs”. This is the fourth
consecutive year that Cerillion has been included in this annual review of IRCM vendors and the second year that we have been
designated in the “Visionaries” quadrant. Gartner’s Magic Quadrant report evaluates vendors across a broad range of criteria,
including product strategy, sales & marketing strategies, innovation and client references, and companies are positioned according to
“completeness of vision” and “ability to execute”. Gartner evaluated both Cerillion Enterprise and Cerillion Skyline, and we believe our
designation reflects the Company’s growing stature and reputation as a leading IRCM vendor. In addition to this, we were pleased to
see that Cerillion was the highest rated supplier in the Integrated Revenue and Customer Management (IRCM) CSPs market, based on
six customer reviews, as of 21 November 2017, on the Gartner Peer Insights platform for its Enterprise BSS/OSS Suite8.
Outlook
We remain very positive about the outlook for the Group and are pursuing a strong pipeline of prospects across EMEA, Asia Pacific and
the Americas. We therefore believe that Cerillion remains well-positioned for continuing progress over the new financial year.
A M Howarth
Non-executive Chairman
24 November 2017
L T Hall
Chief Executive Officer
24 November 2017
Notes
Note 8 Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select
only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research
organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this
research, including any warranties of merchantability or fitness for a particular purpose.
The Gartner Report(s) described herein, (the “Gartner Report(s)”) represent(s) research opinion or viewpoints published, as part of a syndicated
subscription service, by Gartner, Inc. (“Gartner”), and are not representations of fact. Each Gartner Report speaks as of its original publication date
(and not as of the date of these Financial Statements/Annual Results/Accounts) and the opinions expressed in the Gartner Report(s) are subject to
change without notice.
Gartner Peer Insights reviews constitute the subjective opinions of individual end-users based on their own experiences, and do not represent the
views of Gartner or its affiliates.
Cerillion plc Annual Report and Accounts 2017
|
7
Strategic
Report
The Directors present their strategic report for the year ended 30 September 2017.
Financial overview
The Group’s results for the year comprise the results for the Company plus a full year of trading of the Cerillion Technologies Limited
Group. The Group’s results for the year ended 30 September 2016 comprise the additional costs incurred since 30 September 2015
in relation to the IPO on AIM plus the post-acquisition trade of the Cerillion Technologies Limited Group. Revenue for the year totals
£16,032,976 (2016 post acquisition: £8,364,774), generating a gross profit of £12,218,488 (2016: £6,102,075). The Group generated a
profit after tax of £2,022,679 (2016: £306,968).
In order to better understand the underlying trade of the Group, the Chairman and Chief Executive Officer’s report includes a proforma
consolidated CTL Group income statement.
Business review
The review of the year-on-year trade relating to CTL Group is covered within the Chairman and Chief Executive Officer’s report, along
with a review of the cash flows.
Future outlook of the business
This section of the Strategic Report is covered within the Chairman and Chief Executive Officer’s report.
Summary of key performance indicators
The Directors have monitored the performance of the Group with particular reference to the following key performance indicators. The
key performance indicators are monitored against budget and reviewed by the Board:
Revenue
Key revenue streams*:
Services
Software & Software-as-a-Service
Recurring revenue
New orders
Back order book
Profit before tax
Add back: - IPO costs
Amortisation of acquired intangibles
Fair value loss on forward contracts
Adjusted profit before tax**
Employee numbers:
Onshore
India
Total
8
| Cerillion plc Annual Report and Accounts 2017
Cerillion plc
CTL Group
2017
£’000
Audited
16,033
7,284
7,901
2016
£’000
Audited
8,365
5,359
2,615
2017
£’000
Unaudited
16,033
7,284
7,901
2016
£’000
Unaudited
14,810
8,688
5,315
4,448
2,196
4,448
4,059
13,496
6,478
13,496
10,797
13,147
9,285
13,147
9,285
1,995
-
993
-
239
746
497
121
2,395
2,083
-
80
-
-
80
121
2,988
1,603
2,475
2,284
84
87
171
83
79
162
79
87
166
79
78
157
Principal risks and uncertainties
Effectively managing risks is an integral part of Cerillion’s business. The Group has identified its main risks and is taking appropriate
action to manage and mitigate these risks. The Group’s multinational operations expose it to financial risks that include market
risk, credit risk, operational risk and liquidity risk. The Directors have split the risks into those relating to the Group and its business
operations and those relating to the industry and markets where the Group operates. The Directors review and agree policies for
managing each of these risks. These policies are detailed in note 19 to the accounts.
The key risk factors affecting the Group’s performance are expected to include the following:
The success of the Group’s business is partly dependent on key personnel.
The Group’s future growth and success depends, in part, upon the leadership and performance of its management team, many of
whom have significant experience in the technology sector and would be difficult to replace. In particular, the Group is highly dependent
on the continued services of the Directors, the senior management team and other key employees, including technical personnel.
Competition for employees with the particular skill sets the Group requires is intense. The loss of executive officers, any members of
the senior management team or other key employees, the inability to recruit sufficiently qualified personnel, or the inability to replace
departing employees in a timely manner could have a material adverse effect on the Group’s business, financial condition and results
of operations.
Fluctuations or devaluations in foreign currencies could adversely affect the Group’s financial condition.
The Group services customers in 43 countries and, in the year ended 30 September 2017, 88% (2016: 83%) of the Group’s revenues
were generated outside of the UK, some of which were transacted in foreign currencies. To the extent that the Group’s business
transactions are not denominated in the same currency, the Group is exposed to foreign currency exchange rate risk. The Group
continually reviews contract denominations and exchange rates and enters into hedging currency contracts, where deemed appropriate.
Movements in foreign exchange rates on transactions outside of those hedged items could have an adverse effect on the Group’s
business, financial condition and results of operations.
Changes in demand in the telecoms industry could impact the Group’s customers.
The Group generates a large proportion of its revenues from the telecoms industry. Prices for many telecoms products have declined
consistently in recent years, through a combination of regulatory intervention and market competition and these declining price trends
are expected to continue. It is possible that the pricing environment could become more difficult than currently anticipated by the
Group’s customers. Consequently, the Group’s customers may become less financially viable.
Any downturn in the global economy may affect the growth of the telecoms industry or result in reductions in telecoms expenditure. If
economic conditions were to deteriorate, or do not materially improve, the Group’s existing and potential customers may reduce their
expenditure with the Group as a result of their end customers’ reduction in demand for telecoms services. Any reduction in customer
expenditure could have an adverse effect on the Group’s business, financial condition and results of operations.
Furthermore, call volume reductions in the fixed line and mobile telephony sector have resulted from consumers being able
to communicate more readily by means of the Internet. The Group has traditionally been dependent on the fixed line, mobile
telecommunications, broadband and TV industries and on fixed line/mobile, broadband and TV volumes and revenues, which may fall
generally in the future.
Additionally, it is expected that there will be a trend for the Group’s customers to move towards managed service agreements. The
Group will need to invest in further resources including staff and servers to service this demand. There is no guarantee that the Group
will have the resources to respond to this demand at the time necessary.
* Full analysis of the revenue streams for Cerillion plc can be found in the segmental reporting disclosure note 2.
** Adjusted profit before tax is calculated after adding back IPO costs, unrealised fair value movement on forward exchange contracts and amortisation of
acquired intangible assets.
Cerillion plc Annual Report and Accounts 2017
| 9
Strategic
Report
Continued
The Group’s potential inability to adapt to changing customer demands could have an adverse effect on the Group’s business, financial
condition and results of operations.
The telecommunications industry is characterised by rapid technological change and continually evolving
industry standards, which could harm the Group’s competitive position, render its products obsolete and
cause it to incur substantial costs to replace its products or implement new technologies.
The telecommunications industry is characterised by rapid technological change and frequent new service introductions. Significant
technological changes could render the Group’s technology and services obsolete. If the Group does not adapt to rapid technological
change, it could lose customers or market share. The Group’s success depends in part on its ability to adapt to the rapidly changing
market by continually improving the features, functionality, reliability and responsiveness of the Group’s existing services and by
successfully developing, introducing and marketing new features, services and applications to meet changing customer needs.
There can be no assurance that any of the Group’s technological developments will be successful. The Group may encounter delays
and incur additional development and production costs and expenses, over and above those expected by the Directors, in order to
develop technologies.
Additionally, the Group may require additional third party licences to supplement new technology in order to remain competitive, and
it may not be able to acquire such licences on reasonable terms or at all. The Group cannot assure any investor that it will be able to
adapt to these challenges or respond successfully or in a cost effective way to adequately meet them. The Group’s failure to do so
could adversely affect its ability to compete, retain customers or maintain its financial performance.
The Group is reliant on a relatively small number of customers and the loss or deterioration of business
from any one of the top five customers could materially affect the Group’s financial condition.
The Group is reliant on a relatively small number of customers and expects this reliance to increase in the short to medium term.
10
| Cerillion plc Annual Report and Accounts 2017
Revenue/customer concentration
Customers by size:
Number 1
Top 5
Top 10
Top 20
2017
22.7%
59.3%
83.6%
95.2%
2016
28.8%
60.5%
81.7%
96.0%
2015
13.1%
53.0%
79.4%
96.2%
Any deterioration of the Group’s relationship with any one of its top five customers could have a material adverse effect on the Group’s
business, financial condition, results of operations, future prospects and/or the price of the Ordinary Shares.
Any one of the Group’s customers may experience financial difficulties and may cease to trade, may decide not to renew their support
contracts or may be unable to continue to conduct business with the Group, which could materially affect the Group’s business,
financial condition and results of operations.
A large proportion of the Group’s cash receipts are driven by project milestones (plus payment terms), resulting in volatility over any
given year. Revenue is recognised alongside percentage completion to successful implementation (services and licence) or term
(support), resulting in comparably low volatility across any one year. Relatively large levels of accrued income have built up in the past,
whereby the Group has incurred considerable effort and expense in relation to certain projects that it is yet to receive payment for. In
addition, certain customers have historically been offered longer payment terms, based on instalments over a number of years. As a
result, a number of the Group’s customers have in the past and are likely in the future to be in a position where they will in effect be
significant debtors.
Shareholder information
The Group’s website at www.cerillion.com contains a wide range of information about our activities and visitors can download copies of
the report and accounts in addition to newsletters and other articles of interest.
This report is approved by the Board on 24 November 2017 and signed on its behalf by:
L T Hall
Chief Executive Officer
Cerillion plc Annual Report and Accounts 2017
|
11
Corporate Governance
Report
The Company’s Ordinary Shares are traded on AIM, therefore the Company is not required to and does not comply with all aspects
of the UK Corporate Governance Code. Nonetheless, the Directors recognise that it is in the best interests of the Company and its
Shareholders to follow the UK Corporate Governance Code’s principles of corporate governance and to have in place risk controls
appropriate for a company of its size along with the NAPF Corporate Governance Policy and Voting Guidelines for AIM Companies.
The UK Corporate Governance Code provides that the board of directors of a UK public company should include an appropriate
combination of executive and non-executive directors. Except in the case of smaller companies, at least half the board, excluding the
Chairman, should comprise independent non-executive directors. The board should determine whether a director is independent in
character and judgement, and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the
director’s judgement, taking into account the criteria of independence defined in the UK Corporate Governance Code and the guidance
in the NAPF AIM Policy.
The Directors support high standards of corporate governance. The Company’s Board currently comprises three Executive Directors
and two Non-executive Directors. The Chairman and the other Non-executive Director are considered by the Board to be independent
of management and free of any relationship which could materially interfere with the exercise of their independent judgement.
The Directors have adopted terms of reference for and have formed an Audit Committee, a Nominations Committee and a
Remuneration Committee. In accordance with the NAPF AIM Policy, a majority of the members of the Audit Committee, Remuneration
Committee and Nominations Committee are independent non-executive directors. The UK Corporate Governance Code requires that
a majority of the members of the Nominations Committee should be independent non-executive directors. It also requires that the
Audit Committee and the Remuneration Committee comprise at least three (or in the case of small companies, two) independent non-
executive directors. The Company fully complies with these requirements.
The UK Corporate Governance Code recommends that the Board should appoint one of its independent non-executive directors to
be the Senior Independent Director (“SID”) to provide a sounding board for the Chairman and to serve as an intermediary for the other
directors when necessary. The SID should be available to shareholders if they have concerns that contact through the normal channels
of chairman, chief executive or other executive directors has failed to resolve or for which such contact is inappropriate. The Company’s
SID is Mike Dee.
The Audit Committee comprises Alan Howarth and Mike Dee, both independent Non-executive Directors and will be chaired by Mike
Dee. In compliance with the UK Corporate Governance Code, Mike Dee has relevant financial experience. The Audit Committee will
normally meet not less than twice a year and has responsibility for, amongst other things, the planning and review of the Group’s annual
report and accounts and half-yearly reports and the involvement of the Group’s auditors in that process. The committee will focus in
particular on compliance with legal requirements, accounting standards and on ensuring that an effective system of internal financial
control is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports
remains with the Board.
The terms of reference of the Audit Committee cover such issues as membership and the frequency of meetings, as mentioned above,
together with the role of the secretary and the requirements of notice of and quorum for the right to attend meetings. The duties
of the Audit Committee covered in the terms of reference are: financial reporting, internal controls and risk management systems,
whistleblowing, internal audit, external audit and reporting responsibilities. The terms of reference also set out the authority of the
Committee to exercise its duties.
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| Cerillion plc Annual Report and Accounts 2017
The Nominations Committee comprises Alan Howarth and Mike Dee, both of whom are independent Non-executive Directors, and
will be chaired by Alan Howarth. The Nominations Committee meets when appropriate and considers the composition of the Board,
retirements and appointments of additional and replacement directors and makes appropriate recommendations to the Board.
The Remuneration Committee comprises Alan Howarth and Mike Dee, both of whom are independent Non-executive Directors, and is
chaired by Alan Howarth. The Remuneration Committee will normally meet not less than twice a year and has responsibility for making
recommendations to the Board on the Group’s policy on the remuneration of certain senior executives (including senior management),
including annual bonuses, the eligibility requirements for benefits under long-term incentive schemes and for the determination, within
agreed terms of reference, of specific remuneration packages for each of the Executive Directors, including pension rights, contracts of
employment and any compensation payments.
The terms of reference of the Remuneration Committee cover such issues as membership and frequency of meetings, as mentioned
above, together with the role of secretary and the requirements of notice of and quorum for and the right to attend meetings. The duties
of the Remuneration Committee covered in the terms of reference relate to the following: determining and monitoring policy on and
setting levels of remuneration, contracts of employment, early termination, performance-related pay, pension arrangements, authorising
claims for expenses from the Executive Directors, reporting and disclosure, and remuneration consultants. The terms of reference also
set out the reporting responsibilities and the authority of the Committee to exercise its duties.
Cerillion plc Annual Report and Accounts 2017
|
13
Board of
Directors
The Group is run by its Board of Directors, which currently has five members, including two Non-executive Directors, and meets
regularly. The Non-executive Directors make a valuable contribution by bringing a breadth of business and relevant professional
experience to the Board.
The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for decision by the
Board. It is responsible for the overall Group strategy, acquisition and divestment policy, corporate policies, approval of major capital
expenditure and consideration of significant capital matters.
Alan Miles Howarth, Non-executive Chairman (aged 72 years)
Alan Howarth has extensive senior Executive experience in a range of national and international organisations in both the public and
private sector. At Ernst & Young he was one of the founding partners of the UK Management Consulting practice. For the last 16 years
he has managed a portfolio of Non-executive appointments, as chairman of both public and private companies primarily in the UK and
US Technology and Health sectors. He is Chairman of Essentia Trading Limited as well as a Non-executive Director of Premier Technical
Services Group plc.
Louis Tancred Hall, Chief Executive Officer (aged 53 years)
Louis Hall is the CEO and founder of Cerillion, having led the management buyout of the original business from Logica in 1999. Louis
has worked in the enterprise software industry for over 25 years and prior to forming Cerillion held a number of product, sales and
management positions at Logica.
Oliver Campbell Radnor Gilchrist, Chief Financial Officer (aged 53 years)
Oliver Gilchrist joined Cerillion in 2001 as CFO. He has over 30 years’ experience in finance, training as a chartered accountant at
Coopers & Lybrand (now part of PwC). He left Coopers & Lybrand for industry in 1995, joining Parallax plc as CFO, prior to its sale to
Keane Inc. in 1999 for $25m. Following this he acted as interim CFO to Apama Inc., managing a second round interim fundraise of $10
million in 2001. The company was subsequently sold to the Carlyle Group.
Guy Jason O’Connor, Business Development Director (aged 54 years)
Guy O’Connor is a co-founder of Cerillion and has led business development at Cerillion since the management buyout. Prior to
Cerillion, Guy was Group Director for Matheson Investment International, a subsidiary of Jardine Matheson Group.
Mike Dee, Non-executive Director (aged 62 years)
Mike Dee is a qualified accountant (CIMA). Until July 2015, he was CEO of Manx Telecom plc and led its successful AIM IPO in February
2014. Before becoming CEO in April 2011, he was Director of Finance and had been part of the British Telecom plc team which set up
Manx Telecom plc in 1987. Prior to his 29 years at Manx Telecom plc, Mike spent four years at British Telecom plc. Before that, Mike
held accounting and company secretary positions with the Dowty Group, Iloman Engineering and Castle Industries.
14
| Cerillion plc Annual Report and Accounts 2017
Report of the
Remuneration Committee
Companies quoted on AIM are not required to provide a formal remuneration report. Therefore this report is provided for information
purposes to give greater transparency to the way Directors and key management are remunerated.
Composition and role of the Remuneration Committee
The Board has established a Remuneration Committee, which currently consists of Alan Howarth, Non-executive Director, who chairs
the committee and Mike Dee, Non-executive Director. The committee determines the specific remuneration packages for each of the
Executive Directors and key management. No Director is involved in any decisions as to his own remuneration.
Framework and policy on Executive Directors’ remuneration
The Group’s remuneration policy is designed to provide competitive rewards for its Executive Directors and key management, taking
into account the performance of the Group and individual Executives, together with comparisons of pay conditions throughout the
markets in which the Group operates. It is the aim of the committee to attract, retain and motivate high calibre individuals with a
competitive remuneration package. It is common practice in the industry for total remuneration to be influenced by bonuses and long-
term incentives.
The remuneration packages are constructed to provide a balance between fixed and variable rewards. Therefore remuneration
packages for Executive Directors normally include basic salary, discretionary bonuses, long-term incentive awards and benefits in kind.
In agreeing the level of basic salaries and annual bonuses, the committee takes into consideration the total remuneration that Executive
Directors could receive.
Basic salary
Basic salaries are reviewed on an annual basis. The committee seeks to establish a basic salary for each position, determined by
individual responsibilities and performance taking into account comparable salaries for similar positions in companies of a similar size in
the same market.
Incentive arrangements
Annual discretionary bonuses
These are designed to reflect the Group’s performance taking into account the performance of its peers, the markets in which the
Group operates and the Executive Directors’ contribution to that performance.
Long-term incentive awards
The Group introduced a Save as You Earn (SAYE) share option scheme and a Long-Term Incentive Plan (LTIP) in 2017. All UK staff
members were eligible to take part in the SAYE scheme whilst the LTIP was restricted to the senior management team.
The LTIP was established to further incentivise the Senior Managers, who currently have limited equity in the Group, in the creation of
long-term value for shareholders. The options are exercisable at the nominal value of the ordinary shares and have today been granted
over an aggregate of 300,000 ordinary shares, representing approximately 1% of the current issued share capital of the Company.
The LTIP provides for these options to vest, in full, three years from the date of the grant, subject to the achievement of targets for
compound annual growth in the share price of the Company over this vesting period. The targets are as follows:
Below 8% compound annual growth:
8% compound annual growth:
15% compound annual growth:
nil vesting
25% vesting
100% vesting
Between 8% and 15% compound annual growth:
straight line vesting between 25% and 100%
The LTIP also contains standard provisions dealing with certain matters such as cessation of employment and change of control. No
Directors of the Company are participants in the LTIP.
Cerillion plc Annual Report and Accounts 2017
|
15
Report of the
Remuneration Committee
Continued
Under the SAYE scheme, employees could elect to contribute a monthly amount to be saved over three years to enable the exercise of
options over ordinary shares of 0.5 pence each in the Company. The options will be available for exercise from 1 March 2020, with an
exercise price of £1.132, which was a 20% discount to the closing price on 5 January 2017, the last trading date before the launch of
the Plan on 6 January 2017.
In total up to 189,845 options over Ordinary Shares (the “Options”) were awarded under the Plan, which would represent approximately
0.64 per cent. of the current issued share capital of the Company.
There is no charge recognised in the current year financial statements in respect of either the LTIP or SAYE scheme, as they are
not material.
Other benefits
Depending on the terms of their contracts, Executive Directors are entitled to contributions to pension plans, private medical insurance,
permanent health insurance and life assurance.
Service contracts and notice periods
All Executive Directors have employment contracts which are subject to between three and twelve months’ notice from either the
Executive or the Group, given at any time.
All Non-executive Directors have a remuneration agreement for an initial period of twelve months and thereafter on a rolling basis
subject to three months’ notice by either the Non-executive Director or the Group, given at any time. In the event of termination of their
appointment they are not entitled to any compensation.
Non-executive Directors’ fees are determined by the Executive Directors having regard to the need to attract high calibre individuals with
the right experience, the time and responsibilities entailed, and comparative fees paid in the market in which the Group operates. They
are not eligible for pensions. They may be invited to participate in the Group’s share option scheme.
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| Cerillion plc Annual Report and Accounts 2017
Directors’ emoluments
The remuneration of each Director during the years ended 30 September 2017 and 30 September 2016 are detailed in the tables below:
Executive
L T Hall
O C R Gilchrist
G J O’Connor
Non-executive
A M Howarth
M Dee
Total
Executive
L T Hall
O C R Gilchrist
G J O’Connor
Non-executive
A M Howarth
M Dee
Total
Salary
£
278,865
165,072
244,678
25,000
25,000
Benefits
£
4,657
5,306
3,687
-
-
Bonus**
£
152,256
35,966
-
-
-
Pension
contribution
£
33,464
19,809
25,581
-
-
Total
2017
£
469,242
226,153
273,946
25,000
25,000
738,615
13,650
188,222
78,854
1,019,341
Salary*
£
Benefits*
£
Bonus**
£
Pension
contribution*
£
Total
2016
£
145,451
96,374
121,120
13,320
13,320
2,439
2,703
2,555
-
-
124,000
38,750
-
-
-
17,454
10,443
13,770
-
-
289,344
148,270
137,445
13,320
13,320
389,585
7,697
162,750
41,667
601,699
* The Salary, Benefits and Pension contribution represents the amounts in relation to the period from acquisition on 18 March 2016 to 30 September 2016.
** The bonus determination is made at the year-end, but relates to performance for the full year, so the above figures are a reward for the previous
financial year.
A M Howarth
Chairman of the Remuneration Committee
24 November 2017
Cerillion plc Annual Report and Accounts 2017
|
17
Report of the
Audit Committee
Membership and meetings of the Audit Committee
The Audit Committee is a committee of the Board and is composed entirely of Non-executive Directors, whom the Board considers to
be independent. The Audit Committee invites the Executive Directors and other senior managers to attend its meetings as appropriate.
During the year the Audit Committee was chaired by Mike Dee. The Audit Committee is considered to have sufficient, recent and
relevant financial experience to discharge its functions. The Audit Committee invites others, including the external auditor, to attend its
meetings as appropriate.
Role, responsibilities and terms of reference
The Audit Committee’s role is to assist the Board in the effective discharge of its responsibilities for financial reporting and internal control.
The Audit Committee’s responsibilities include:
•
reviewing the integrity of the annual and interim financial statements of the Group, ensuring they comply with legal requirements,
accounting standards, the AIM Rules and any other formal announcements relating to the Group’s financial performance;
•
reviewing the Group’s internal financial control and risk management systems;
• monitoring and reviewing the requirement for an internal audit function; and
• overseeing the relationship with the external auditor, including approval of its remuneration, reviewing the scope of the audit
engagement, assessing its independence, monitoring the provision of non-audit services and considering its reports on the Group’s
financial statements.
Independence of external auditor
The Audit Committee keeps under review the relationship with the external auditor including:
•
the independence and objectivity of the external auditor, taking into account the relevant UK professional and regulatory
requirements and the relationship with the auditor as a whole, including the provision of non-audit services;
•
recommending to the Board and shareholders the re-appointment or otherwise of the external auditor for the following financial
period; and
•
the consideration of audit fees and any fees for non-audit services.
The Audit Committee develops and recommends to the Board the Company’s policy in relation to the provision of non-audit services by
the auditor and ensures that the provision of such services does not impair the external auditor’s independence.
M Dee
Chairman of the Audit Committee
24 November 2017
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| Cerillion plc Annual Report and Accounts 2017
Directors’
Report
The Directors present their Report, the Strategic Report and the audited financial statements of the Group for the year ended
30 September 2017.
Directors
The present membership of the Board is set out below. All Directors served throughout the year unless indicated:
L T Hall
G J O’Connor
O C R Gilchrist
A M Howarth
M Dee
Directors’ Responsibilities Statement
The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared
the Group and parent Company financial statements in accordance with International Financial Reporting Standards as adopted by the
European Union (IFRSs). Under company law, the Directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that
period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether applicable IFRSs for Group and Company have been followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that:
• so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
•
the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant
audit information and to establish that the auditors are aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Cerillion plc Annual Report and Accounts 2017
|
19
Directors’
Report
Continued
Going concern
The Directors have assessed the current financial position of the Group, along with future cash flow requirements for a period in excess
of 12 months from the date of signing the financial statements, to determine if the Group has the financial resources to continue as a
going concern for the foreseeable future.
The conclusion of this assessment is that it is appropriate that the Group be considered a going concern, based on forecast profitability
and positive cash inflows. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Financial risk management
Information relating to the Group’s financial risk management is detailed in note 19 to the financial statements.
Research and development activities
Research and development expenditure incurred on the Group’s suite of products has been capitalised in line with the Group’s
accounting policy in the relevant period. Research and development comprises analysis, design, programming and testing of software
solutions. The Group will continue to invest in solutions to address new customer requirements as they arise and to take advantage
of technological advances in the underlying software platforms. Amounts not capitalised have been expensed to the consolidated
statement of comprehensive income.
The Group has incurred £303,849 (2016: £172,978) through the consolidated statement of comprehensive income during the year and
has capitalised software development costs of £850,000 (2016: £601,111).
Strategic report
Information in respect of the Business Review, Future Outlook of the Business and Principal Risks and Uncertainties is not shown in the
Report of the Directors because it is presented in the Strategic Report in accordance with s414c(ii) of the Companies Act 2006.
Subsequent events
There are no subsequent events requiring adjustment or disclosure within the financial statements.
Auditors
Grant Thornton UK LLP have expressed willingness to continue in office. In accordance with section 489(4) of the Companies Act 2006, a
resolution proposing the reappointment of Grant Thornton UK LLP will be put to the members at the forthcoming Annual General Meeting.
ON BEHALF OF THE BOARD
L T Hall
Director
24 November 2017
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| Cerillion plc Annual Report and Accounts 2017
Independent Auditor’s Report
to the members of Cerillion plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Cerillion plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 30
September 2017 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement
of Financial Position, the Consolidated and Company Statement of Cash Flows, the Consolidated and Company Statement of
Changes in Equity, and notes to the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 September
2017 and of the Group’s profit for the year then ended;
•
•
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies Act 2006; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least
twelve months from the date when the financial statements are authorised for issue.
Cerillion plc Annual Report and Accounts 2017
|
21
Independent Auditor’s Report
to the members of Cerillion plc
Continued
Overview of our audit approach
• Overall group materiality: £160,000 which represents 1% of the Group’s revenue;
• The Group key audit matter identified was the complexity and judgement involved in contract accounting in revenue recognition;
• We have performed a comprehensive audit of Cerillion Technologies Limited, a targeted audit approach for Cerillion Technologies
India Private Limited and an analytical review for Cerillion Inc.
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact
and the extent of management judgement.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those that had the greatest effect on: the overall audit strategy, the allocation of resources in
the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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| Cerillion plc Annual Report and Accounts 2017
Cut-off of revenuetransactionsExistence andrecoverability of trade debtorsCompleteness of employeeremuneration costs Completeness of operating expenses and creditorsHighLowLowHighExtent of management judgementPotentialfinancialstatementimpactComplexity and judgement involved in contract accountingCapitalisation and carrying value of intangible assets (including goodwill, purchased customer contracts and software development costs) Key Audit Matter - Group
How the matter was addressed in the audit - Group
The complexity and judgement involved in contract
accounting in revenue recognition
Our audit work included, but was not restricted to the
following procedures:
Revenue for all revenue streams (implementation, enhancement,
support and maintenance) is recognised in accordance with
the Group’s accounting policy and International Accounting
Standard (IAS) 18 – Revenue, which requires a significant amount
of management’s nderlying earnings before interest, taxes,
depreciation and amortisation (EBITDA) and profit before tax (PBT),
which are the primary financial KPI’s for the Group.
Therefore, we identified revenue recognition as a significant risk,
which was one of the most significant assessed risks of material
misstatement (whether due to fraud or error).
For implementation and enhancement revenue, we have tested
management’s processes and controls in determining the
percentage completion on projects by testing a sample of Effort
Status Reports (ESRs), tracing the input data per the ESR to
underlying approved time sheets, and testing the control that all
ESRs were appropriately reviewed by the Project Office Manager
and the Chief Financial Officer and approved by management
through physical signature by the Chief Financial Officer. We then
tested a sample of contracts by agreeing revenue recognised
to contractual terms and percentage completion reports to test
that the recognition criteria was appropriately applied, placing
greater emphasis on significant and new contracts, with particular
attention to percentage of completion and performance obligations
being achieved. We also assessed management’s judgements
and assumptions in applying revenue recognition policy in contract
accounting treatment.
For support and maintenance revenue, we developed a precise
expectation of revenues for the year and investigated any variances
outside of expectations. We obtained corroborating evidence for
management explanations.
The Group’s accounting policy on revenue recognition is shown
in the Principal Accounting Policies and related disclosures are
included in notes 1 and 3.
Key observations
Our testing did not identify any significant deficiencies in the
operation of controls which would require us to amend the
nature or scope of our planned detailed testing. Overall, based
on our audit work, our assessment is the estimates applied in
determining the level of revenue resulted in consistent levels
of revenue recognised in the Income Statement and unbilled
revenue within the Statement of Financial Position. We found
no material errors in the calculations.
Cerillion plc Annual Report and Accounts 2017
|
23
Independent Auditor’s Report
to the members of Cerillion plc
Continued
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent
of our audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality Measure
Group
Parent
Financial statements as a whole
Performance materiality used to drive the
extent of our testing
Communication of misstatements to the
Audit Committee
£160,000 which is 1% of total revenues.
This benchmark is considered the most
appropriate because revenue is a primary
key performance indicator and is a key
determinant in the earnings before interest,
taxes, depreciation and amortisation and
profit before tax figures.
Materiality is based on 2% of net assets,
capped to 90% of Group materiality, which
is £144,000. This benchmark is considered
the most appropriate as the parent entity
has minimal trade and primarily holds debt
and investments in subsidiaries.
Materiality for the current year is £61,000
higher than the level that we determined for
the year ended 30 September 2016 and
this reflects the full year of operations since
the acquisition of Cerillion Technologies
Limited in March 2016.
Materiality for the current year is £55,000
higher than the level that we determined for
the year ended 30 September 2016, given
the reasoning for the increase in Group
materiality as the Parent entity’s materiality
was capped to 90% of the Group materiality
in 2016 as well.
75% of financial statement materiality.
75% of financial statement materiality.
£8,000 and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.
£7,200 and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
Overall materiality - group
Overall materiality - parent
25%
25%
75%
75%
Tolerance for potential uncorrected misstatements
Performance materiality
Tolerance for potential uncorrected misstatements
Performance materiality
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| Cerillion plc Annual Report and Accounts 2017
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the Group’s business, its environment and risk
profile and in particular included:
• Planning meetings with management to gain an update on the business and trade during the year, as well as leveraging our
knowledge of the business from past audits.
•
Interim visit and test of controls – after planning discussions with management, we spent time on site in August 2017, where we
were able to complete our assessment of significant contracts and test controls surrounding the determination of the percentage
complete by contract.
• We have performed a comprehensive audit for Cerillion plc and Cerillion Technologies Limited, a targeted audit approach for Cerillion
Technologies India Private Limited and an analytical review for Cerillion Inc.
• The operations that were subject to targeted audit procedures made up 10% of underlying profit before tax. The operations that
were subject to comprehensive audit procedures made up 100% of consolidated revenues and 90% of profit before tax.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report
set out on pages 1 to 20, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
•
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
Cerillion plc Annual Report and Accounts 2017
|
25
Independent Auditor’s Report
to the members of Cerillion plc
Continued
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,
in our opinion:
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
•
•
•
the Parent Company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of Directors for the financial statements
As explained more fully in the Directors’ responsibilities statement set out on page 19 to 20, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting, unless the Directors either intend to liquidate the Group or the Parent Company, or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an Auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s report.
Marc Summers, BSc(Hons) FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
24 November 2017
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| Cerillion plc Annual Report and Accounts 2017
Principal Accounting
Policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
Basis of preparation
The Company is a public limited company, which was incorporated in England and Wales on 5 March 2015. The address of
its registered office is 25 Bedford Street, London, WC2E 9ES. The principal activity of the Group is a supplier and developer of
telecommunication software solutions and equipment. In the prior year the principal activity was to act as a platform to acquire the
entire issued share capital of Cerillion Technologies Limited for the purpose of admission to AIM. These financial statements have
been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs) and IFRIC
interpretations endorsed by the European Union (EU). The financial statements have been prepared under the historical cost convention,
except for derivative financial instruments which are held at fair value.
The Company’s Directors are responsible for the preparation of the financial statements.
The preparation of the financial statements in conformity with IFRSs requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual
results ultimately may differ from those estimates. Further details regarding areas requiring significant assumptions and estimates are
provided in Note 1 to the financial statements.
There is no material difference between the fair value of financial assets and liabilities and their carrying amount.
The functional and presentational currency is UK Sterling. Amounts in the financial statements have been rounded to the nearest pound.
Going concern
The Directors have assessed the current financial position of the Group, along with future cash flow requirements for a period in excess
of 12 months from the date of signing the financial statements, to determine if the Group has the financial resources to continue as a
going concern for the foreseeable future.
The conclusion of this assessment is that it is appropriate that the Group be considered a going concern, based on forecast profitability
and positive cash inflows. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.
Basis of consolidation
The Group financial statements consolidate those of the Parent Company and all of its subsidiaries as of 30 September 2017. All
subsidiaries have a reporting date of 30 September, with the exception of the Indian subsidiary, which has a mandatory reporting date
of 31 March. The Indian subsidiary is consolidated using its management accounts through to 30 September.
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights
to, variable returns from its involvement with the subsidiary, and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date
that control ceases.
Cerillion plc Annual Report and Accounts 2017
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27
Principal Accounting
Policies
Continued
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a
subsidiary or a business is the fair values of the assets transferred, the liabilities incurred to former owners of the acquiree and the equity
interests issued to the Group. The consideration transferred includes the fair values of any asset or liability resulting from a contingent
consideration arrangement.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values on the acquisition date. Acquisition-related costs are expensed as incurred.
Intercompany transactions, unrealised gains and losses on intragroup transactions and balances between group companies are
eliminated on consolidation.
New and Revised Standards
IFRS in issue but not applied in the current financial statements
The following IFRS and IFRIC Interpretations have been issued but have not been applied by the Company in preparing these financial
statements as they are not as yet effective. The Company intends to adopt these Standards and Interpretations when they become
effective, rather than adopt them early.
•
•
•
•
•
IFRS 9, ‘Financial instruments’, effective date 1 January 2018
IFRS 15, ‘Revenue from Contracts with Customers’, effective date 1 January 2018
IFRS 16, ‘Leases’, effective date 1 January 2019
Disclosure Initiative: Amendments to IAS 7: Statement of Cash Flows (effective: 1 January 2017, but not yet adopted by the EU)
Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective: 1 January 2017, but not yet adopted by
the EU).
The above standards are yet to be subject to a detailed review. IFRS 9 will impact both the measurement and disclosure of financial
instruments, IFRS 15 may have an impact on revenue recognition and related disclosures and IFRS 16 will impact the treatment of
leases currently treated as operating leases. Beyond this, it is not practicable to provide a reasonable estimate of the effect of IFRS 9,
IFRS 15 and IFRS 16 until a detailed review has been completed.
Segmental reporting
In accordance with IFRS 8, segmental information is presented based on the way in which financial information is reported internally
to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board who makes strategic decisions.
During the year ended 30 September 2017 (2016: since the acquisition of Cerillion Technologies Limited), the Group was organised into
four main business segments for revenue purposes:
• Services: relates to revenue from providing services to customers on new implementation projects and enhancements.
•
•
•
Software: relates to support and maintenance revenue derived from people using the software as well as the licences to use the software.
Software-as-a-Service: relates to monthly subscriptions for a managed service or to use products on a pay-as-you-go service.
3rd Party: relates to revenue derived from 3rd party services or licences, re-billable expenses and pass through of selling on hardware.
Assets are used across all segments and therefore are not split between segments.
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| Cerillion plc Annual Report and Accounts 2017
Foreign currency translation
(i) Functional and presentation currency
Items included in the Financial Statements are measured using the currency of the primary economic environment in which entities
operate (‘the functional currency’). The Financial Statements are presented in Sterling, which is the Parent Company’s functional and
presentation currency. There has been no change in the functional currency during the current or preceding period.
(ii) Transactions and balances
Transactions in foreign currencies are translated into Sterling using monthly average exchange rates. This is permissible in this case as
there are no significant fluctuations between the currencies with which the entity operates. Monetary assets and liabilities denominated
in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date and any exchange differences arising are
taken to profit or loss.
Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the
transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when
fair value was determined.
(iii) Foreign operations
In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than the GBP
are translated into GBP upon consolidation. The functional currency of the entities in the Group has remained unchanged during the
reporting period.
On consolidation, assets and liabilities have been translated into GBP at the closing rate at the reporting date. Goodwill and fair
value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and
translated into GBP at the closing rate. Income and expenses have been translated into GBP at the average rate over the reporting
period. Exchange differences arising from significant foreign subsidiaries are charged or credited to other comprehensive income and
recognised in the currency translation reserve in equity. On disposal of a foreign operation, the related cumulative translation differences
recognised in equity are reclassified to profit or loss and are recognised as part of the gain or loss on disposal.
Cerillion plc Annual Report and Accounts 2017
|
29
Principal Accounting
Policies
Continued
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable net of sales related taxes.
The Group follows the principals of IAS 18 “Revenue” in determining appropriate revenue recognition policies. In principle, revenue is
recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group.
Revenue is derived from sales of standard licensed products (including installation, implementation, maintenance and support fees),
additional licences, on-going account development work, third party time and material works.
The excess of amounts invoiced over revenue recognised are included in deferred income. If the amount of revenue recognised exceeds
the amount invoiced the excess is included within accrued income.
In applying the income recognition policies below where there is a requirement for a contract to be signed, income is recognised in
accordance with the policy when the contract has been signed or persuasive evidence of an arrangement exists.
(i) Sale of standard licensed products
Revenue from standard licensed products comprises two elements, being:
•
initial licence and implementation fees (“inception fees”)
• ongoing maintenance and support fees,
with the contract detailing separately the contract value and payment milestones for each element.
When each element operates independently of the other, the Group will recognise inception fees and ongoing maintenance and support
fees on the following basis.
Revenue for initial licence and implementation fees in relation to products which are not modified to meet the specific requirements of
each customer and follow a straightforward implementation profile is recognised at the point at which the customer has the ability and
right to use all prepaid licences on the installed solution.
Revenue from ongoing maintenance and support fees is recognised on a pro-rated basis over the duration of the contract.
Where a licensed product requires significant customer modifications and implementation is complex, revenue is recognised on applying
the percentage of completion method to total contract value with estimates based on the total number of hours performed on the
project compared to the total number of hours expected to complete the project. Provision is made for any losses on the contract as
soon as they are foreseen.
(ii) Sale of additional licences
Revenue from the sale of additional licences is recognised when the additional licences are delivered to the customer.
(iii) Ongoing account development work
Ongoing account development work is generally provided on a fixed price basis and as such revenue is recognised based on the
percentage completion or delivery of the relevant project, whichever is most appropriate for the transaction. Where percentage
completion is used, it is estimated based on the total number of hours performed on the project compared to the total number of hours
expected to complete the project. Provision is made for any losses as soon as they are foreseen.
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| Cerillion plc Annual Report and Accounts 2017
(iv) Third party time, material works and re-billable expenses
Revenue on contracted third party time and material works is recognised on a time basis using pre agreed day rates.
Revenue on re-billable expenses is recognised as incurred. In the case of third party time, material works and re-billable expenses the
Group is considered to be acting as principal as it is the primary obligor in the sales transaction, the Group can select the supplier of the
service and the Group holds the credit risk in the transaction.
Cost of sales
Costs considered to be directly related to revenue are accounted for as cost of sales. All direct production costs and overheads,
including indirect overheads that can reasonably be allocated, have been classified as cost of sales.
Taxation and deferred taxation
The income tax expense or income for the period is the tax payable on the current period’s taxable income. This is based on the
national income tax rate enacted or substantively enacted for each jurisdiction with any adjustment relating to tax payable in previous
years and changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and
liabilities and their carrying amounts in the Financial Statements.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applicable when the asset
or liability crystallises based on current tax rates and laws that have been enacted or substantively enacted by the reporting date. The
relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax
asset or liability.
A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be
regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from
which the future reversal of temporary differences can be deducted. The carrying amount of deferred tax assets are reviewed at each
reporting date.
Deferred tax liabilities are generally recognised in full, although IAS 12 ‘Income Taxes’ specifies limited exemptions. As a result of
these exemptions, the Group does not recognise deferred tax on temporary differences relating to goodwill, or to its investments
in subsidiaries. Temporary differences associated with investments in subsidiaries are not provided if reversal of these temporary
differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.
Operating leases
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as
operating leases. These are the only types of lease utilised by the entity. Operating lease payments for assets leased from third parties
are charged to profit or loss on a straight line basis over the period of the lease, on an accrued basis.
Impairment
Goodwill and assets that are subject to amortisation are reviewed for impairment annually or whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which
the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to
sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash generating units).
Cerillion plc Annual Report and Accounts 2017
|
31
Principal Accounting
Policies
Continued
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and other short term highly liquid deposits with original maturities of
three months or less.
Financial instruments
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial
instrument and are measured initially at fair value adjusted for transaction costs. Subsequent measurement of financial assets and
financial liabilities is described below.
Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial
asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged,
cancelled or expires.
Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the following categories upon initial recognition:
Derivative financial instruments
Derivative financial instruments held by the Group comprise forward foreign currency contracts and are recognised at fair value. The
Group has not applied hedge accounting and the gain or loss on remeasurement to fair value is recognised immediately in profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment.
Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade and most other
receivables fall into this category of financial instruments.
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective
evidence that Cerillion will not be able to collect all amounts due according to the original terms of the receivables. Significant financial
difficulties of the debtors, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in
payments (more than 90 days overdue) are considered indicators that the trade and other receivables may be impaired. The amount of
the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the
amount of the loss is recognised in the profit or loss within ‘cost of sales’. When a trade or other receivable is uncollectible, it is written
off against the allowance account for trade and other receivables. Subsequent recoveries of amounts previously written off are credited
against ‘cost of sales’ in the profit or loss.
Classification and subsequent measurement of financial liabilities
The Group’s financial liabilities include trade and certain other payables. Financial liabilities are measured subsequently at amortised cost
using the effective interest method.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
These amounts represent liabilities for goods and services provided to Cerillion prior to the end of the financial period which are unpaid.
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| Cerillion plc Annual Report and Accounts 2017
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognised in profit or loss over the period of
the borrowings using the effective interest method.
Equity
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.
Equity instruments issued by the Company are recorded as the proceeds received net of direct issue costs.
The share premium account represents premiums received on the initial issuing of the share capital. Any transaction costs associated
with the issuing of shares are deducted from share premium, net of any related income tax benefits.
The ordinary share capital account represents the amount subscribed for shares at nominal value.
Retained earnings include all results as disclosed in the statement of comprehensive income.
Foreign exchange reserve – comprises foreign currency translation differences arising from the translation of financial statements of the
Group’s foreign entities into Sterling.
Provisions
Provisions are recognised when Cerillion has a present legal or constructive obligation as a result of past events, it is more likely than
not that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not
recognised for future operating losses.
Provisions are the best estimate of the expenditure required to settle the obligation at the current reporting date.
Property, plant and equipment (PPE)
PPE is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the
acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to Cerillion and the cost of the item can be measured reliably.
All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
Depreciation on plant and machinery and fixtures and fittings is calculated using the straight line method to allocate their cost or
revalued amounts, net of their residual values, over their estimated useful lives, as follows:
• Leasehold Improvements
•
•
Fixtures and fittings
Computer Equipment
Life of lease
3 – 4 years
3 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its
estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These
are included in the profit or loss.
Cerillion plc Annual Report and Accounts 2017
|
33
Principal Accounting
Policies
Continued
Intangible assets and amortisation
(i) Software
Expenditure on research is written off in the period in which it is incurred. Development expenditure incurred on specific projects is
capitalised where the Board is satisfied that the following criteria have been met:
•
it is technically feasible to complete the software product so that it will be available for use;
• management intends to complete the software product and use or sell it;
•
•
there is an ability to use or sell the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
• adequate technical, financial and other resources to complete the development and to use or sell the software product are
available; and
•
the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an
appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset in a subsequent period.
Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed 5 years.
(ii) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the assets and liabilities assumed at the date of
acquisition. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually or more
frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment
losses. Impairment testing is carried out by assessing the recoverable amount of the cash-generating unit to which the goodwill relates.
(iii) Purchased customer contracts
Purchased customer contracts acquired as part of a business combination are recognised at fair value if they are project specific and
there is a level of certainty that there will be future recovery. Customer contracts are amortised over the perceived period that they will
generate economic benefits. This is calculated using in depth analysis of future revenue from cash flow forecasts.
The customer contracts acquired as part of the acquisition of Cerillion Technologies Limited are to be amortised over a period of 7 years.
(iv) Intellectual property rights
Intellectual property rights acquired as part of a business combination are recognised at fair value based on an estimate of future profits.
Intellectual property rights are amortised over the perceived period that they will generate economic benefits. This is calculated using in
depth analysis of future revenue from cash flow forecasts.
The intellectual property rights acquired as part of the acquisition of Cerillion Technologies Limited are to be amortised over a period of
seven years.
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| Cerillion plc Annual Report and Accounts 2017
Interest
Interest income and expense are recognised using the effective interest method and comprise amounts receivable and payable on bank
deposits and bank borrowings respectively.
Post-retirement benefits
Defined contribution schemes
The defined contribution schemes provide benefits based on the value of contributions made. The amounts charged as expenditure for
the defined contribution scheme represent the contributions payable by Cerillion for the accounting years in respect of the schemes.
Exceptional items
Exceptional items are those significant items, and are one off items, that are separately disclosed by virtue of their size or incidence to
enable a full understanding of the Group’s financial performance. Transactions that were recorded as exceptional items during the prior
year were the costs associated with the IPO of Cerillion plc.
Cerillion plc Annual Report and Accounts 2017
|
35
Consolidated Statement
of Comprehensive Income
For the year ended 30 September 2017
Revenue
Cost of sales
Gross profit
Administrative expenses
Depreciation and amortisation
Year to
30 September 2017
£
Year to
30 September 2016
£
16,032,976
8,364,774*
Notes
2
(3,814,488)
(2,262,699)
12,218,488
6,102,075
(8,602,252)
(4,209,334)
(1,507,927)
(714,250)
Operating profit before exceptional items
2,108,309
1,178,491
Exceptional item - IPO costs
Operating profit
Finance income
Finance costs
Profit before taxation
Taxation
Profit for the year
Other comprehensive income
Exchange difference on translating foreign operations
3
5
6
7
-
(746,055)
2,108,309
432,436
4,611
6,059
(117,569)
(199,559)
1,995,351
238,936
27,328
68,032
2,022,679
306,968
(38,026)
145,913
Total comprehensive profit for the year
1,984,653
452,881
Earnings per share
Basic earnings per share – continuing and total operations
Diluted earnings per share – continuing and total operations
10
6.9 pence
6.8 pence
1.3 pence
1.3 pence
All transactions are attributable to the owners of the parent.
The Group has no other recognised gains or losses for the current year.
* Revenue from acquisition, as the Group came into existence on 18 March 2016.
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| Cerillion plc Annual Report and Accounts 2017
Consolidated Statement
of Financial Position
For the year ended 30 September 2017
ASSETS
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Non-current liabilities
Borrowings
Other payables
Deferred tax liabilities
Current liabilities
Trade and other payables
Borrowings
TOTAL LIABILITIES
NET ASSETS
EQUITY ATTRIBUTABLE TO SHAREHOLDERS
Share capital
Share premium account
Foreign exchange reserve
Retained profit/(loss)
TOTAL EQUITY
Notes
Group
2017
£
2016
£
11
11
12
14
15
18
19
14
16
16
2,053,141
6,571,158
359,939
270,123
2,053,141
6,979,370
411,505
320,546
9,254,361
9,764,562
8,508,826
5,338,935
9,164,872
5,006,185
13,847,761
14,171,057
23,102,122
23,935,619
(2,693,139)
(3,572,602)
-
(1,076,166)
(3,769,305)
(4,573,705)
(1,000,000)
(5,573,705)
(120,000)
(1,280,805)
(4,973,407)
(5,007,214)
(1,000,000)
(6,007,214)
(9,343,010)
(10,980,621)
13,759,112
12,954,998
21
147,567
147,567
13,318,725
13,318,725
107,887
184,933
145,913
(657,207)
13,759,112
12,954,998
The financial statements were approved and authorised for issue by the Board of Directors on 24 November 2017. Signed on behalf of
the Board of Directors by:
L T Hall
Director
Company Number 09472870
The accompanying accounting policies and notes form an integral part of these financial statements.
Cerillion plc Annual Report and Accounts 2017
|
37
Company Statement
of Financial Position
For the year ended 30 September 2017
ASSETS
Non-current assets
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Non-current liabilities
Borrowings
Current liabilities
Trade and other payables
Borrowings
TOTAL LIABILITIES
NET ASSETS
EQUITY ATTRIBUTABLE TO SHAREHOLDERS
Share capital
Share premium account
Retained profit
TOTAL EQUITY
Notes
13
Company
2017
£
2016
£
14,651,571
14,651,571
14,651,571
14,651,571
15
2,973,834
10,780
2,984,614
57,490
3,457,157
3,514,647
17,636,185
18,166,218
18
16
16
(2,693,139)
(2,693,139)
(3,572,602)
(3,572,602)
(202,115)
(1,000,000)
(1,202,115)
(72,146)
(1,000,000)
(1,072,146)
(3,895,254)
(4,644,748)
13,740,931
13,521,470
21
147,567
147,567
13,318,725
13,318,725
274,639
55,178
13,740,931
13,521,470
The financial statements were approved and authorised for issue by the Board of Directors on 24 November 2017. Signed on behalf of
the Board of Directors by:
L T Hall
Director
Company Number 09472870
The accompanying accounting policies and notes form an integral part of these financial statements.
38
| Cerillion plc Annual Report and Accounts 2017
Consolidated Statement
of Cash Flows
For the year ended 30 September 2017
Cash flows from operating activities
Profit for the year
Adjustments for:
Taxation
Finance income
Finance costs
Depreciation
Amortisation
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Cash generated/(used in) operations
Finance costs
Finance income
Tax received/(paid)
NET CASH GENERATED FROM/(USED IN) OPERATING ACTIVITIES
Cash flows from investing activities
Acquisition of subsidiary undertakings, net of cash and overdrafts acquired
Capitalisation of development costs
Purchase of property, plant and equipment
NET CASH USED IN INVESTING ACTIVITIES
Cash flows from financing activities
Proceeds from issue of equity shares
Borrowings repaid
Borrowings received
Dividends paid
Notes
Group
2017
£
206
£
2,022,679
306,968
(27,328)
(4,611)
117,569
249,715
1,258,212
3,616,236
656,046
(724,060)
3,548,222
(117,569)
4,611
7,845
3,443,109
(68,032)
(6,059)
199,559
142,695
571,555
1,146,686
(1,765,866)
(101,524)
(720,704)
(72,981)
6,059
(30,511)
(818,137)
-
(11,129,200)
(850,000)
(197,808)
(601,111)
(136,993)
(1,047,808)
(11,867,304)
-
13,450,632
(879,463)
(427,398)
-
5,000,000
(1,180,539)
(383,675)
NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES
(2,060,002)
17,639,559
NET INCREASE IN CASH AND CASH EQUIVALENTS
Translation differences
Cash and cash equivalents at beginning of year
335,299
4,954,118
(2,549)
5,006,185
37,226
14,841
CASH AND CASH EQUIVALENTS AT END OF YEAR
5,338,935
5,006,185
The accompanying accounting policies and notes form an integral part of these financial statements.
Cerillion plc Annual Report and Accounts 2017
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39
Company Statement
of Cash Flows
For the year ended 30 September 2017
Cash flows from operating activities
Profit for the year
Adjustments for:
Taxation
Finance costs
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash (used in)/generated from operations
Finance costs
NET CASH (USED IN)/GENERATED FROM OPERATING ACTIVITIES
Cash flows from investing activities
Acquisition of subsidiary undertakings
NET CASH USED IN INVESTING ACTIVITIES
Cash flows from financing activities
Proceeds from issue of equity shares
Borrowings repaid
Borrowings received
Dividends paid
Notes
Company
2017
£
2016
£
1,400,000
1,019,353
100,000
116,773
-
77,770
1,616,773
1,097,123
(2,916,344)
29,969
(1,269,602)
(116,773)
(1,386,375)
(12,967)
(557,226)
526,930
(72,602)
454,328
-
-
-
(14,651,571)
(14,651,571)
13,450,632
(879,463)
(427,398)
-
5,000,000
(1,180,539)
(383,675)
NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES
(2,060,002)
17,639,559
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year
(3,446,377)
3,442,316
3,457,157
14,841
CASH AND CASH EQUIVALENTS AT END OF YEAR
10,780
3,457,157
40
| Cerillion plc Annual Report and Accounts 2017
Consolidated Statement
of Changes in Equity
For the year ended 30 September 2017
Group
Balance at 1 October 2015
Profit for the year
Other comprehensive income:
Exchange differences on translating foreign operations
Total comprehensive income
Ordinary
share
capital
£
15,660
-
-
-
Share
premium
£
-
-
-
-
Foreign
exchange
reserve
£
-
-
Retained
Earnings
£
Total
£
(580,500)
(564,840)
306,968
306,968
145,913
145,913
-
306,968
145,913
452,881
Transactions with owners:
Issue of shares
Dividends
Total transactions with owners
Balance as at 30 September 2016
131,907
13,318,725
-
131,907
147,567
-
13,318,725
13,318,725
-
-
-
-
13,450,632
(383,675)
(383,675)
(383,675)
13,066,957
145,913
(657,207)
12,954,998
Balance at 1 October 2016
147,567
13,318,725
Ordinary
share
capital
£
Share
premium
£
Profit for the year
Other comprehensive income:
Exchange differences on translating foreign operations
Total comprehensive income
Transactions with owners:
Dividends
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
Foreign
exchange
reserve
£
145,913
Retained
Earnings
£
Total
£
(657,207)
12,954,998
-
2,022,679
2,022,679
(38,026)
(38,026)
-
(38,026)
2,022,679
1,984,653
-
-
(1,180,539)
(1,180,539)
(1,180,539)
(1,180,539)
Balance as at 30 September 2017
147,567
13,318,725
107,887
184,933
13,759,112
The accompanying accounting policies and notes form an integral part of these financial statements.
Cerillion plc Annual Report and Accounts 2017
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41
Company Statement
of Changes in Equity
For the year ended 30 September 2017
Company
Balance at 1 October 2015
Profit for the year
Total comprehensive income
Transactions with owners:
Issue of shares
Dividends
Total transactions with owners
Balance as at 30 September 2016
Company
Balance at 1 October 2016
Profit for the year
Total comprehensive income
Transactions with owners:
Dividends
Total transactions with owners
Balance as at 30 September 2017
Ordinary
share
capital
£
15,660
-
-
Share
premium
£
Retained
Earnings
£
Total
£
-
-
-
(580,500)
(564,840)
1,019,353
1,019,353
1,019,353
1,019,353
131,907
13,318,725
-
13,450,632
-
(383,675)
(383,675)
13,318,725
13,318,725
(383,675)
13,066,957
55,178
13,521,470
Share
premium
£
147,567
13,318,725
-
-
-
-
-
-
-
-
Retained
Earnings
£
55,178
Total
£
13,521,470
1,400,000
1,400,000
1,400,000
1,400,000
(1,180,539)
(1,180,539)
(1,180,539)
(1,180,539)
147,567
13,318,725
274,639
13,740,931
-
131,907
147,567
Ordinary
share
capital
£
The accompanying accounting policies and notes form an integral part of these financial statements.
42
| Cerillion plc Annual Report and Accounts 2017
Notes to the
Financial Statements
For the year ended 30 September 2017
1. Critical accounting estimates and judgements
The preparation of Financial Statements under IFRS requires the use of certain critical accounting assumptions, and requires
management to exercise its judgement and to make estimates in the process of applying Cerillion’s accounting policies.
Judgements
i. Capitalisation of development costs
Development costs are capitalised only after the technical and commercial feasibility of the asset for sale or use have been
established. This is determined by our intention to complete and/or use the intangible asset. The future economic benefits of the
asset are reviewed using detailed cash flow projections. The key judgement is whether there will be a market for the products
once they are available for sale.
ii. Revenue recognition
Revenue is recognised on the basis of implementation of the project. In respect of long term contracts, the revenue is in line with
percentage completed in terms of effort to date as a percentage of total forecast effort. Total forecast is prepared by project
managers on a monthly basis and reviewed by the project office and senior management team on a monthly basis. The key
judgement is accurately forecasting the effort required to complete the project.
iii. Recoverability of trade debtors and accrued income
Management use their judgement when determining whether trade debtors and accrued income are considered recoverable or
where a provision for impairment is considered necessary. The assessment of recoverability will include consideration of whether
the balance is with a long standing client, whether the customer is experiencing financial difficulties, the fact that balances are
recognised under contract and that the products sold are mission critical to the customer’s business. Refer to notes 15 and 19.
Estimates
i. Business combinations
Management uses valuation techniques in determining the fair values of various elements of a business combination.
On initial recognition, the assets and liabilities of the acquired business are included in the consolidated statement of financial
position at their provisional fair values. In measuring fair value, management uses estimates about future cash flows and discount
rates, however, actual results may vary.
ii. Depreciation and amortisation
Depreciation and amortisation rates are based on estimates of the useful economic lives and residual values of the assets
involved. The assessment of these useful economic lives is made by projecting the economic lifecycle of the asset. The key
judgement is estimating the useful economic life of the development costs capitalised, a review is conducted annually by project.
Depreciation and amortisation rates are changed where economic lives are re-assessed and technically obsolete items written off
where necessary. Refer to notes 11 and 12.
Cerillion plc Annual Report and Accounts 2017
|
43
2. Segment information
During the year ended 30 September 2017, the Group was organised into four main business segments for revenue purposes.
Under IFRS 8 there is a requirement to show the profit or loss for each reportable segment and the total assets and total liabilities
for each reportable segment if such amounts are regularly provided to the chief operating decision-maker.
In respect of the profit or loss for each reportable segment the expenses are not reported by segment and cannot be allocated on
a reasonable basis and, as a result, the analysis is limited to the Group revenue.
Assets and liabilities are used or incurred across all segments and therefore are not split between segments.
Revenue
Services
Software
Software-as-a-Service
3rd party
Total revenue
2017
£
2016
£
7,283,678
7,594,346
306,834
848,118
5,358,998
2,467,507
147,266
391,003
16,032,976
8,364,774
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:
Year ended 30 September 2017
Revenue
Capital expenditure
Total assets
Net assets
Year ended 30 September 2016
Revenue
Capital expenditure
Total assets
Net assets
Europe
£
MEA
£
Americas
£
Asia Pacific
£
7,425,865
1,030,452
22,567,238
13,587,658
1,040,313
6,206,583
1,360,215
-
-
-
-
-
-
17,613
534,884
171,454
Europe
£
MEA
£
Americas
£
Asia Pacific
£
1,851,745
686,774
23,392,783
12,397,168
888,575
4,835,022
-
-
-
-
-
-
789,432
51,330
542,836
557,830
Cerillion receives greater than 10% of revenue from individual customers in the following geographical regions:
Customer
No. 1
No. 2
No. 3
44
| Cerillion plc Annual Report and Accounts 2017
Operating
segment
2017
£
2016
£
Americas
MEA
3,637,472
2,046,630
Americas
1,770,640
4,239,879
859,256
-
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
3. Operating profit
Operating profit is stated after (crediting)/charging:
Depreciation
Amortisation of intangibles
Research and development costs
Exceptional item - IPO costs
Bad debt expense
Foreign exchange losses/(gains)
Operating leases
Fees payable to Cerillion’s principal auditor:
- Audit of Cerillion plc’s annual accounts
- Audit of subsidiaries
- Non-audit services – tax services
- Non-audit services – corporate finance
- Non-audit services – other
Fees payable to associates of principal auditor:
- Audit of subsidiaries
- Non-audit services – tax services
4. Directors and employees
Group
Employee costs (including Directors):
Wages and salaries
Social security costs
Payments into defined contribution pension schemes
Group
2017
£
2016
£
249,715
1,258,212
303,849
-
174,551
464,858
614,906
6,000
44,000
11,000
-
5,500
10,182
24,048
142,695
571,555
172,978
746,055
495,649
(544,389)
412,852
5,000
40,000
12,400
145,000
8,000
8,000
13,200
2017
£
2016
£
7,897,555
4,079,149
602,462
336,465
311,036
170,521
8,836,482
4,560,706
2017
Number
2016
Number
The average number of employees (including Directors) during the year was made up as follows:
Management and administration
Sales and marketing
Support and development staff
Executive Directors
Non-executive Directors
21
14
131
3
2
171
20
12
125
3
2
162
For details of Directors’ remuneration, refer to the Remuneration report on page 17. Key management personnel is covered in
note 23.
Cerillion plc Annual Report and Accounts 2017
|
45
5. Finance income
Finance income:
Bank interest receivable
6. Finance costs
Finance costs:
Interest payable in respect of loans
Other interest payable
Fair value loss on forward exchange contracts
7. Taxation
a. Analysis of tax charge for the year
The tax charge for the Group is based on the profit for the year and represents:
Current tax expense/ (credit)
Deferred tax (credit)
Total tax (credit)
2017
£
2016
£
4,611
6,059
2017
£
2016
£
(116,772)
(78,149)
(797)
-
(117,569)
-
(121,410)
(199,559)
2017
£
229,263
(256,591)
(27,328)
2016
£
(3,804)
(64,228)
(68,032)
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 of 19.5% (2016: 20.0%). The
differences are explained as follows:
Profit on ordinary activities before tax
1,995,351
238,936
Profit on ordinary activities multiplied by standard rate of
corporation tax in the United Kingdom of 19.5% (2016: 20.0%)
Effect of:
Expenses not deductible/income not taxable for tax purposes
Difference in tax rates
Other temporary differences
Surrender of tax losses
Losses carried forward
R&D tax credit payable
Enhanced relief for research and development
Total tax (credit)
389,093
47,787
8,529
20,123
3,477
-
-
-
(448,550)
(27,328)
195,446
23,506
(120,470)
29,113
26,918
(21,107)
(249,225)
(68,032)
There are currently no deferred tax assets or liabilities recognised within the Parent Company accounts. Taxable losses within the
Parent Company totalling £134,591 (2016: £134,591) have been carried forward, but no deferred tax asset has been recognised
in relation to these losses due to the uncertainty surrounding the timing of their recovery.
46
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
8. Profit attributable to Cerillion plc
The profit for the financial year of the Parent Company, Cerillion plc was £1,400,000 (2016: £1,019,353). As permitted by section
408 of the Companies Act 2006, no separate income statement is presented in respect of the Parent Company.
9. Dividends
a. Dividends paid during the reporting period
The Board paid the final dividend in respect of 2016 of 2.6p per share and declared and paid an interim 2017 dividend of 1.4p
(2016: 1.3p) per share. Total dividends paid during the reporting period were £1,180,539 (2016: £383,675).
b. Dividends not recognised at the end of the reporting period
Since the year end the Directors have proposed the payment of a dividend in respect of the full financial year of 2.8p per fully paid
Ordinary share (2016: 2.6p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30
September 2017, but not recognised as a liability at the year end is £826,378 (2016: £767,351).
10. Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average
number of Ordinary Shares in issue during the year.
Profit attributable to equity holders of the Company (£)
Weighted average number of Ordinary Shares in issue (number)
Effect of share options in issue
Weighted average shares for diluted earnings per share
Basic earnings per share (pence per share)
Diluted earnings per share (pence per share)
There were no potentially dilutive equity instruments in issue during the prior year.
2017
2,022,679
2016
306,968
29,513,486
23,425,877
33,492
-
29,546,978
23,425,877
6.9
6.8
1.3
1.3
Cerillion plc Annual Report and Accounts 2017
|
47
11. Intangible assets
Group
Cost
At 1 October 2015
Acquired
Arising on acquisition
Additions
Goodwill
£
Purchased
customer
contracts
£
Intellectual
property
rights
£
Software
development
costs
£
-
-
-
80,000
4,382,654
2,567,160
1,973,141
-
-
-
-
-
Total
£
-
7,029,814
1,973,141
601,111
9,604,066
-
-
-
601,111
601,111
At 30 September 2016
2,053,141
4,382,654
2,567,160
Additions
-
-
-
850,000
850,000
At 30 September 2017
2,053,141
4,382,654
2,567,160
1,451,111
10,454,066
Amortisation
At 1 October 2015
Provided in the year
At 30 September 2016
Provided in the year
At 30 September 2017
Net book amount at
30 September 2017
Net book amount at
30 September 2016
-
-
-
-
-
-
313,047
313,047
-
183,369
183,369
-
75,139
75,139
-
571,555
571,555
626,093
939,140
366,737
550,106
265,382
340,521
1,258,212
1,829,767
2,053,141
3,443,514
2,017,054
1,110,590
8,624,299
2,053,141
4,069,607
2,383,791
525,972
9,032,511
Amortisation has been included in administrative expenses in the statement of comprehensive income.
The carrying value of goodwill included within the Cerillion plc balance sheet is £2,053,141, which is allocated to the cash-
generating unit (“CGU”) of Cerillion Technologies Limited Group. The CGU’s recoverable amount has been determined based on
its fair value less costs to sell. As Cerillion plc was established to purchase the CTL Group the fair value less costs to sell has been
calculated based on the market capitalisation of Cerillion plc less the estimated costs to sell the CTL Group.
Using an average market share price of Cerillion plc for the year ended 30 September 2017, less an estimate of costs to sell, there
is significant headroom above the carrying value of the cash-generating unit and therefore no impairment exists.
The calculations show that a reasonably possible change, as assessed by the Directors, would not cause the carrying amount of
the CGU to exceed its recoverable amount.
48
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
12. Property plant and equipment
Group
Cost
At 1 October 2015
Acquisition
Additions
Exchange difference
At 30 September 2016
Additions
Disposals
Exchange difference
At 30 September 2017
Depreciation
At 1 October 2015
Acquisition
Provided in the year
Exchange difference
At 30 September 2016
Provided in the year
Disposals
Exchange difference
At 30 September 2017
Leasehold
improvements
£
Computer
equipment
£
Furniture
and fittings
£
-
-
-
Total
£
-
588,807
3,221,908
759,094
4,569,809
-
16,406
605,213
126,448
12,910
10,545
9,524
136,993
38,840
3,361,266
779,163
4,745,642
-
-
(2,633)
170,519
(2,000)
(2,073)
27,289
(1,500)
(1,529)
197,808
(3,500)
(6,235)
602,580
3,527,712
803,423
4,933,715
-
-
-
-
573,895
2,848,847
746,268
4,169,010
8,916
11,582
125,472
5,064
8,307
5,786
142,695
22,432
594,393
2,979,383
760,361
4,334,137
7,057
-
(2,669)
225,529
(2,000)
(2,671)
17,129
(1,000)
(1,736)
249,715
(3,000)
(7,076)
598,781
3,200,241
774,754
4,573,776
Net book amount at 30 September 2017
3,799
327,471
28,669
359,939
Net book amount at 30 September 2016
10,820
381,883
18,802
411,505
All depreciation charges are included within administrative expenses and no impairment has been charged.
As referred to in note 18, 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.
Cerillion plc Annual Report and Accounts 2017
|
49
13. Investments in subsidiaries
The Group
At 30 September 2017, the Company’s subsidiary undertakings, all of which have been included in the Group financial
statements, were:
Name
Cerillion Technologies Limited*
Cerillion Inc
Cerillion Technologies India Private Limited
Country of
incorporation
Percentage of
shares held
Year end
Nature of Business
UK
USA
India
100%
100%
30 September Software services
30 September Software services
100%**
31 March*** Software services
* Cerillion Technologies Limited is the only subsidiary owned directly by Cerillion plc. Cerillion Technologies Limited is the parent for the other
two subsidiaries
** includes holdings held indirectly through Cerillion Inc
*** For the purpose of the Group financial statements for the year ended 30 September 2017, management accounts have been drawn up to 30
September 2017.
The Company
Cost and net book value:
As at 1 October 2015
Additions
As at 30 September 2016
Additions
As at 30 September 2017
Investments in
subsidiary undertakings
£
-
14,651,571
14,651,571
-
14,651,571
50
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
14. Deferred tax
Deferred tax asset
Group
1 October 2015
Deferred tax asset acquired
Foreign exchange movement on opening deferred tax asset
(Charged)/credited to profit or loss
30 September 2016
Group
1 October 2016
Foreign exchange movement on opening deferred tax asset
Repayment of tax deposit
Credited to profit or loss
30 September 2017
Deferred tax liability
Group
Accelerated capital
allowances
£
Other temporary
differences
£
-
169,888
-
(56,242)
113,646
-
184,166
12,584
10,150
206,900
Accelerated capital
allowances
£
Other temporary
differences
£
113,646
-
-
4,682
118,328
206,900
(2,375)
(100,000)
47,270
151,795
Total
£
-
354,054
12,584
(46,092)
320,546
Total
£
320,546
(2,375)
(100,000)
51,952
270,123
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.
At 1 October 2016
Deferred tax liability acquired
Deferred tax arising on acquisition of Cerillion Technologies Ltd
Credited to profit or loss
As at 30 September 2017
2017
£
1,280,805
-
-
(204,639)
Fair value uplift on
acquisitions
2016
£
-
70,660
1,320,465
(110,320)
1,076,166
1,280,805
There are no deferred tax assets or deferred tax liabilities recognised within the Parent Company as at 30 September 2017
(2016: £nil).
Cerillion plc Annual Report and Accounts 2017
|
51
15. Trade and other receivables
Trade receivables
Accrued income
Amounts owed by group undertakings
Other receivables
Prepayments
The Group
The Company
2017
£
1,956,936
5,866,024
-
492,662
193,204
2016
£
2,894,015
5,565,952
2017
£
-
-
-
2,967,584
464,500
240,405
-
6,250
8,508,826
9,164,872
2,973,834
2016
£
-
-
54,238
-
3,252
57,490
Credit quality of receivables
A detailed review of the credit quality of each client is completed before an engagement commences and the concentration of
credit risk is limited as exposure is spread over a large number of clients.
The credit risk relating to trade receivables is analysed as follows:
Group
Trade receivables
Bad debt provision
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.
2017
£
2016
£
2,301,586
3,598,795
(344,650)
(704,780)
1,956,936
2,894,015
52
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
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.
Group
Not past due
Up to 3 months
3 to 6 months
Older than 6 months
2017
£
2016
£
1,598,807
80,898
154,139
123,092
983,403
973,520
291,492
645,600
1,956,936
2,894,015
Of the trade debt older than 6 months as at 30 September 2017, being £123,092 (2016: £645,600), cash of £93,693 (2016:
£514,267) has been received since the year end.
The following is an ageing analysis of those trade receivables that were individually considered to be impaired:
Group
Not past due
Up to 3 months
3 to 6 months
Older than 6 months
16. Trade and other payables
Trade payables
Taxation
Other taxation and social security
Pension contributions
Other payables
Derivative financial instrument
Accruals
Deferred income
Loans (note 18)
2017
£
2016
£
16,982
25,926
101,347
200,395
344,650
108,206
322,086
133,913
140,575
704,780
The Group
The Company
2017
£
732,185
236,822
170,854
40,413
427,940
-
1,221,442
1,744,049
1,000,000
5,573,705
2016
£
336,684
99,714
255,876
38,653
453,212
121,410
1,729,473
1,972,192
1,000,000
6,007,214
2017
£
34,162
100,000
49,133
-
-
-
18,820
-
1,000,000
1,202,115
2016
£
16,564
-
41,312
-
-
-
14,270
-
1,000,000
1,072,146
The Directors consider that the carrying amount of trade and other payables approximates to their fair values.
Cerillion plc Annual Report and Accounts 2017
|
53
17. Non-current other payables
Other payables
The Group
The Company
2017
£
-
-
2016
£
120,000
120,000
2017
£
-
-
2016
£
-
-
Other payables comprise the amount outstanding on the purchase of the “Net Solutions Services” business by Cerillion
Technologies Limited during its year ended 30 September 2015. The total balance outstanding at 30 September 2017 is £nil, the
debt having been settled in full during the year (2016: £240,000 payable by two equal instalments of £120,000, one of which was
shown in current liabilities).
18. Borrowings and financial liabilities
Current liabilities:
Secured loans
Non-current liabilities:
Secured loans
The Group
2017
£
2016
£
The Company
2017
£
2016
£
1,000,000
1,000,000
1,000,000
1,000,000
2,693,139
3,693,139
3,572,602
4,572,602
2,693,139
3,693,139
3,572,602
4,572,602
18a 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.
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.
b.
c.
d.
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;
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;
is terminable on a change of control of the Company and repayable following an event of default; and
is for a term of five years from the date of first drawdown.
54
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
19. Financial instruments and risk management
Group
Financial instruments by category
Financial assets - loans and receivables
Trade and other receivables
Accrued income
Unpaid share capital
Cash and cash equivalents
Prepayments are excluded, as this analysis is required only for financial instruments.
Financial liabilities - held at amortised cost
Non-current
Borrowings
Other payables
Current
Current borrowings
Trade and other payables
Pension costs
Accruals
2017
£
2016
£
2,449,598
5,866,024
-
3,358,515
5,565,952
-
5,338,935
5,006,185
13,654,557
13,930,652
2017
£
2016
£
2,693,139
-
2,693,139
1,000,000
1,330,979
40,413
1,221,442
3,592,834
3,572,602
120,000
3,692,602
1,000,000
1,045,772
38,653
1,729,473
3,813,898
Statutory liabilities and deferred income are excluded from the trade payables balance, as this analysis is required only for
financial instruments.
Financial liabilities - at fair value through profit and loss
Derivative financial instruments
2017
£
-
-
2016
£
121,410
121,410
There is no material difference between the book value and the fair value of the financial assets and financial liabilities disclosed above.
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, with the exception of currency risk where forward currency contracts have
been entered into during the year.
Cerillion plc Annual Report and Accounts 2017
|
55
19. Financial instruments and risk management (continued)
Credit quality of financial assets
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings
(S&P) (if available) or to historical information about counterparty default rates:
Trade receivables
Group 1
Group 2
Group 3
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.
Cash at bank and short-term deposits
A1
Not rated
2017
£
2016
£
1,900
1,939,473
15,563
131,788
2,677,325
84,902
1,956,936
2,894,015
2017
£
2016
£
5,336,036
5,003,700
2,899
2,485
5,338,935
5,006,185
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.
Market risk – foreign exchange risk
Exposure to currency exchange rates arises 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 2016 the Group had forward foreign exchange contracts in place to mitigate exchange rate exposure arising
from forecast income in US Dollars, Australian Dollars and Euros. The contracts are considered by management to be part of
economic hedge arrangements but have not been formally designated as hedging instruments, so are treated as held for trading
in accordance with IAS 39. The above contract was settled during the year ended 30 September 2017 and no other contracts
were entered into.
56
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
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:
30 September 2017
Financial assets
Financial liabilities
Total exposure
30 September 2016
Financial assets
Financial liabilities
Total exposure
AUD
USD
EUR
INR
269,699
7,662,036
1,376,700
-
(141,917)
(15,395)
269,699
7,520,119
1,361,305
365,994
(378,943)
(12,949)
AUD
USD
EUR
INR
162,863
4,462,267
1,424,000
(117,806)
(1,259,697)
45,507
3,202,570
(615,115)
808,885
366,804
(329,079)
37,725
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 and Indian Rupee 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 2017
Loss for the year
Equity total
30 September 2016
Loss for the year
Equity total
AUD
(24,518)
(24,518)
AUD
(4,096)
(4,096)
USD
EUR
(683,647)
(683,647)
USD
(291,143)
(291,143)
(123,755)
(123,755)
EUR
(73,535)
(73,535)
If the GBP had weakened against the foreign currencies by 10% then this would have had the following impact:
30 September 2017
Profit for the year
Equity total
30 September 2016
Profit for the year
Equity total
AUD
29,967
29,967
AUD
5,006
5,006
USD
835,569
835,569
USD
355,841
355,841
EUR
151,256
151,256
EUR
89,876
89,876
INR
1,177
1,177
INR
(3,430)
(3,430)
INR
(1,439)
(1,439)
INR
4,192
4,192
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.
Cerillion plc Annual Report and Accounts 2017
|
57
19. Financial instruments and risk management (continued)
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 exposure on long-term financing. Longer-term borrowings are
therefore usually at fixed rates. At 30 September 2017, 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.
30 September 2017
30 September 2016
Profit for the year
Equity
+1%
(38,643)
(30,564)
-1%
38,354
30,499
+1%
(38,643)
(30,564)
-1%
38,354
30,499
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.
30 September 2017
Borrowings
Trade and other payables
30 September 2016
Borrowings
Trade and other payables
Less than
1 year
Between 1
and 2 years
Between 2
and 5 years
Over 5
years
1,000,000
4,573,705
1,000,000
1,693,139
-
-
1,000,000
5,007,214
1,000,000
2,572,602
120,000
-
-
-
-
-
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.
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.
58
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
20. Fair value measurement of financial instruments
Financial assets and financial liabilities measured at fair value are required to be grouped into three Levels of a fair value hierarchy.
The three Levels are defined based on the observability of significant inputs to the measurement, as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly; and
• Level 3: unobservable inputs for the asset or liability.
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring
basis at 30 September 2017:
Classes of financial liabilities measured at fair value – carrying amounts
Derivative financial instruments
Classes of financial liabilities measured at fair value – carrying amounts
Derivative financial instruments
Level 1
2017
£
-
Level 1
2016
£
-
Level 2
2017
£
-
Level 2
2016
£
121,410
Level 3
2017
£
-
Level 3
2016
£
-
Total
2017
£
-
Total
2016
£
121,410
There were no transfers between Level 1 and Level 2 in 2017 or 2016 and no derivative financial instruments within the
Parent Company.
Measurement of fair value of financial instruments
The Group’s finance team performs valuations of financial items for financial reporting purposes, with valuation techniques
selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based
information. The Group’s foreign currency forward contracts (Level 2) are not traded in active markets, so have been fair valued
using observable forward exchange rates corresponding to the maturity of the contract. The effects of non-observable inputs are
not significant for foreign currency forward contracts.
Cerillion plc Annual Report and Accounts 2017
|
59
21. Share capital
Issued, allotted, called up and fully paid:
29,513,486 (2016: 29,513,486) Ordinary shares of 0.5 pence
2017
£
2016
£
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.
On 1 October 2015, the issued share capital of the Company was £59,363.955 divided into 8,740,822 A ordinary shares of
£0.005 each with an amount paid up of £0.00125 per share and 3,131,969 ordinary shares of £0.005 each with an amount paid
up of £0.00125 per share.
On 3 November 2015, the amounts outstanding were fully paid up by way of irrevocable undertakings to pay from the shareholders.
Pursuant to a resolution of the Directors on 9 November 2015 and a general meeting of the Shareholders on 9 November 2015,
the 8,740,822 A ordinary shares of £0.005 each in the capital of the Company were redesignated as 8,740,822 Ordinary Shares.
Pursuant to a resolution of the Directors and a general meeting of the Company on 9 November 2015, and a subscription
agreement on the same date, Livingbridge VC LLP, on behalf of funds managed by it, subscribed for 5,263,158 Ordinary Shares
for an aggregate subscription price of £4 million.
By shareholder resolutions passed at the annual general meeting of the Company held on 11 March 2016:
a.
the Directors were generally and unconditionally authorised in accordance with section 551 of the Act to exercise all of the
powers of the Company to allot Ordinary Shares up to an aggregate nominal amount of £61,887.69 as follows:
i. 4,482,800 Ordinary Shares pursuant to the Acquisition; and
ii. 7,894,737 Ordinary Shares pursuant to the Placing.
22. 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 £336,465 (2016: £170,521).
60
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued
23. Related party transactions
i. Remuneration of Key Management Personnel
The Group and Company consider that the Directors are their key management personnel and further detail of their remuneration
is disclosed in the Remuneration Report for 2017.
No key personnel other than the Directors have been identified in relation to the period ended 30 September 2016.
ii. Related party transactions
As at 1 October 2015, the Directors owed the following amounts in respect of unpaid share capital:
O C R Gilchrist
L T Hall
G J O’Connor
£2,687
£32,778
£9,058
The amounts were fully paid up on 3 November 2015 by way of an irrevocable undertaking to pay, which took place prior to IPO.
No further related party transactions took place during the period.
24. Future lease payments
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 are as follows:
Group
Within one year
Between one and five years
There are no lease commitments within the Parent Company.
2017
£
251,440
41,902
293,342
2016
£
541,268
350,489
891,757
On 16 October 2017, the Group entered into a 10 year lease for a new London Office, through to 31 December 2027. The lease is
rent free for the first year, at £365,500 for years two and three, and £731,000 per annum for the remaining years.
Cerillion plc Annual Report and Accounts 2017
|
61
25. Charge over assets
In providing the Group with banking, credit card and forward currency facilities, the Group’s bankers, HSBC plc, hold:
• a fixed charge over all present freehold and leasehold property;
• a first charge over book and other debts, chattels, goodwill and uncalled capital, both present and future; and
• a first floating charge over all assets, both present and future.
26. Contingent asset
The Group have a contingent asset in relation to a legal claim regarding receivables outstanding from a customer. Management
believe that it is likely that a material amount will be collected. The Group has recognised an immaterial amount within revenue
based on it being virtually certain.
27. Subsequent events
There have been no subsequent events requiring adjustment or disclosure within the financial statements.
28. Ultimate controlling party
In the opinion of the Directors, there was no ultimate controlling party at 30 September 2017 or 30 September 2016.
62
| Cerillion plc Annual Report and Accounts 2017
Notes to the Financial StatementsFor the year ended 30 September 2017Continued Cerillion plc
25 Bedford Street
London
WC2E 9ES
United Kingdom
Tel: +44 20 7927 6000
Fax: +44 20 7927 6006
Email: info@cerillion.com
Web: www.cerillion.com