Cerillion revenues rise by 11% to £20.8 million

Growth

Cerillion plc (LON:CER), the billing, charging and customer relationship management software solutions provider, has presented its annual results for the 12 months ended 30 September 2020.

Highlights  

Financial:

· All key financial performance measures reached record highs

· Revenue1 rose by 11% to £20.8m (2019: £18.8m)

– recurring revenue2 contributed £6.0m (2019: £5.1m), 29% of total revenue

– at the year end, on an annualised basis, recurring revenue was up 57% year-on-year to £7.9m (2019: £5.0m)

· New orders matched last year’s record at £23.3m (2019: £23.3m) – consolidating 78% increase in 2019

· Back-order book3 increased by 41% to £31.0m at the year-end (2019: £22.0m)

· Adjusted EBITDA4 increased by 27% to £5.8m (2019: £4.6m)

– adjusted EBITDA margin rose to 27.9% (2019: 24.3%)

· Adjusted profit before tax5 up by 7% to £3.7m (2019: £3.5m)

· Adjusted earnings per share6 increased by 10% to 12.4p (2019: 11.3p)

· Reported profit before tax up by 8.0% to £2.6m (2019: £2.4m)

· Reported earnings per share up 13% to 8.8p (2019: 7.8p)

· Net cash increased by 54% to £7.7m (2019: £5.0m)

· Increased final dividend of 3.75p per share proposed (2019: 3.3p), bringing the total dividend for the year to 5.5p per share (2019: 4.9p), an increase of 12%

Operational:

· Smooth adjustment to remote working in response to the coronavirus pandemic, with no significant impact to the sales processes, implementation projects or customer service

· Largest ever contract won in September 2020 (£11.2m), continuing the trend of winning bigger contracts with larger customers 

· Strong pipeline of new business opportunities

· The Board believes that Cerillion is well-positioned for further progress over the new financial year  

Louis Hall, CEO of Cerillion, commented:

“Cerillion has delivered an excellent performance. Revenue, pre-tax profits and the back-order book are at record levels, and we closed our largest ever contract win in the final quarter of the financial year, continuing a trend of larger wins. While the coronavirus pandemic has created severe disruption globally, it has underlined the importance of critical infrastructure and services, including telecommunications, our core market.

“The business has adapted effectively to remote working and we start the new financial year with greater revenue visibility than at the beginning of any previous financial year. We have a strong new customer pipeline and view both short and longer-term prospects very positively.”

Notes

Note 1  Revenue derived from software licence, support and maintenance, Software-as-a-Service (“SaaS”) and third-party sales.

Note 2  Recurring revenue includes annualised support and maintenance, managed service and Skyline revenue.

Note 3  Back order book consists of £25.1m of sales contracted but not yet recognised at the end of the reporting period plus £5.9m of annualised support and maintenance revenue.  It is anticipated that 75% of the £25.1m of sales contracted but not yet recognised as at the end of the reporting period will be recognised within the next 12 to 18 months.

Note 4  Adjusted earnings before interest depreciation and amortisation (“EBITDA”) is calculated by taking operating profit and adding back depreciation & amortisation, share-based payment charge and exceptional items.

Note 5  Adjusted profit before tax is calculated after adding back amortisation of acquired intangible assets, share-based payment charge and exceptional items.

Note 6  Adjusted earnings per share is calculated by taking profit after tax and adding back amortisation of acquired intangible assets, share-based payment charge and exceptional items and is divided by the weighted average number of shares in issue during the period. There is no tax impact relating to these items.

Note 7  Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation.  Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REPORT

Introduction

Cerillion performed very strongly over the financial year, with revenue, profit before tax and the back-order book reaching record highs. Revenue increased by 11% year-on-year to £20.8m (2019: £18.8m), adjusted profit before tax rose by 7% to £3.7m (2019: £3.5m) and the back-order book was up by 41% to £31.0m (2019: £22.0m).

New orders at £23.3m matched last year’s record (2019: £23.3m), and included the largest initial contract the Company has signed in its history. This continued the Company’s trend towards bigger deal sizes with larger customers, reflecting the growing recognition in the marketplace of the quality of our solution and services.

The Company’s performance was also supported by strong demand from existing customers, with sales to existing accounts up by 88% to £9.4m (2019: £5.0m).

The global coronavirus pandemic has not significantly affected the Company’s operations. The transition to remote working was effected smoothly and while precautions continue to be taken regarding staff safety, our sales processes, implementation projects and customer support services are all working well.

Looking to the future, demand for billing, charging and customer relationship management (“CRM”) solutions in the Company’s core telecommunications market is set to continue to rise.  Telecoms operators are seeing strong data traffic levels as a consequence of national lockdowns across the globe, and 5G rollouts are driving a wave of investment in both telecoms infrastructure and ancillary systems. Cerillion remains well-placed to benefit from this and to grow both in Europe and its other international markets. 

With a very healthy pipeline of potential new business and implementations for new customers, we expect the Company to make further strong progress in the new financial year.

Financial Overview

Total revenue for the year to 30 September 2020 rose by 11% to £20.8m (2019: £18.8m). As is typical, existing customers (classified as those acquired before the beginning of the reporting period) accounted for a high proportion of total revenue, generating 97% of the overall result (2019: 80%).

Recurring revenue, which is derived from support and maintenance and managed service contracts, contributed £6.0m to total revenue, approximately 29% of overall Group revenue (2019: £5.1m, 27%). At 30 September 2020, recurring revenue on an annualised basis was 57% higher year-on-year at £7.9m (30 September 2019: £5.0m), boosted by a 205% increase in annualised managed service contract revenue (2019: 96%).

The Group’s revenue streams are categorised in three segments: software revenue (including Software-as-a-Service); services revenue; and revenue from other activities. Software revenue principally comprises software licences and related support and maintenance sales, while services revenue is generated by software implementations and ongoing account development work.  Revenue from other activities is mainly from the reselling of third-party products.

Software (including Software-as-a-Service) revenue decreased by 16% to £7.6m (2019: £9.1m).  This was due to the reduction in licence sales during the year to £1.6m (2019: £3.9m). Software revenues accounted for 37% of total revenues (2019: 48%).
Services revenue increased by 44% to £11.3m (2019: £7.9m) and comprised 54% of total revenue (2019: 42%).  This was due to a significant increase in new customer implementation work, following the closure of four major new enterprise contracts during the previous financial year.
Third-party income remained constant at £1.8m (2019: £1.8m) and comprised 9% of total revenue (2019: 10%).

Gross margin at 74% (2019: 75%) was in line with expectations.

Operating expenses increased by 9% to £12.5m (2019: £11.5m). Personnel costs of £5.8m (2019: £5.6m) accounted for 47% (2019: 48%) of operating expenses.

Adjusted EBITDA for the year increased by 27% to £5.8m (2019: £4.6m), mainly driven by higher revenues. The Board considers adjusted EBITDA to be a key performance indicator for Cerillion as it adds back exceptional items and key non-cash transactions, being share-based payments, depreciation and amortisation.

We continued to invest in our product sets, including our cloud platform, and the charge for amortisation of intangibles was £1.9m (2019: £1.7m). Expenditure on tangible fixed assets was £0.3m (2019: £0.4m). Operating profit increased by 11% to £2.8m (2019: £2.5m), with £0.1m of the increase arising on the adoption of IFRS 16.

Adjusted profit before tax rose by 7% to £3.7m (2019: £3.5m) and adjusted earnings per share increased by 10% to 12.4p (2019: 11.3p). On a statutory basis, profit before tax was £2.6m (2019: £2.4m) and earnings per share was 8.8p (2019: 7.8p).

Cash Flow and Banking

The Group continued to generate strong cash flows and closed the financial year with net cash of £7.7m, up by 54% against the same point last year (30 September 2019: £5.0m). This net position is after the payment of £1.2m of debt repayments (2019: £1.0m) and £1.5m in dividends (2019: £1.4m). Total Group cash at the year-end was £8.3m (2019: £6.8m) and total debt stood at £0.6m (2019: £1.8m).  It is anticipated that the remaining debt outstanding at year-end will be repaid during FY 2021.

Dividend

The Board is pleased to propose a 14% increase in the final dividend to 3.75p per share (2019: 3.3p). Together with the interim dividend of 1.75p per share (2019: 1.6p), this brings the total dividend for the year to 5.5p per share (2019: 4.9p), an increase of 12%.

The dividend, which is subject to shareholder approval at the Company’s Annual General Meeting to be held on 5 February 2021, will become payable on 9 February 2021 to those shareholders on the Company’s register as at the close of business on the record date of 4 January 2021.  The ex-dividend date is 31 December 2020.

Operational Overview

Whilst the COVID-19 pandemic has presented some challenges, particularly the need to move to remote working, we have adjusted well to the change in circumstances, and have successfully completed a number of implementations remotely.

This global shift to remote working has however emphasised the dependence of the world economy on state-of-the-art telecoms infrastructure. With this in mind, we expect to see increased investment in the sector in general and an acceleration of investment in 5G rollouts, with spending trickling down from core network improvements to ancillary system upgrades and replacements.  Consequently, we expect demand for billing, charging and CRM software in our core telecoms market to continue to grow. 

Beyond these broad sector trends we expect a number of other factors to drive demand for our specific offerings, including:

· digital transformation to put digital engagement at the forefront of the customer experience;

· the consolidation of multiple CRM, billing and charging systems onto a single platform;

· demand for real-time charging systems to enable more effective monetisation of data services; and

· demand for more agile systems to enable the more rapid introduction of new products.

Cerillion’s ability to address the market through a range of flexible solutions remains a key strength. In addition to our proven ability to support end-to-end transformation projects, the Company can provide individual product modules, or subsets of modules, to implement point solutions to address more granular requirements. Earlier this year, we integrated our real-time charging (“CCS”) and product catalogue (“EPC”) modules with other legacy systems at Ignition Group, one of Africa’s largest telecommunications providers. The Company’s solutions are also able to support a broad range of communications service providers (“CSPs”), from traditional network operators to virtual network operators (“VNOs”) to enterprise connectivity solutions providers.

The major new customer win announced in September marks an important milestone for Cerillion, as it represents the Company’s largest ever initial contract value and reinforces the general trend towards signing bigger deals with larger new customers. This trend is an important contributor to driving the growth of the business, as these engagements typically involve higher recurring revenues.

The new customer wins and ongoing implementation work with existing customers create a strong platform for further growth in the new financial year. The back-order book at 30 September 2020 was up by 41% to an all-time record of £31.0m (2019: £22.0m), providing far greater visibility of revenues than at the beginning of any previous financial year. We have stepped up our delivery resources accordingly, and our offshore centre in Pune, India still retains ample capacity for further growth. 

We continued to invest in R&D over the year to further improve our product set. This included the release of Cerillion 8, the next generation of our enterprise platform, which now includes:

· Cerillion Business Insights, a powerful, embedded analytics module that unlocks the full value of customer data by enabling users to easily explore, visualise and query data in real-time;

· enhanced support for B2B2X business models, including product margin analysis and a highly customisable data model, making it easy to map additional product and service attributes required for seamless integration with digital ecosystems;

· a completely redesigned user interface offering context personalisation, task-based navigation and separate microservices-based apps, all designed to increase customer service efficiency and reduce CSR training needs; and

· further improvements in putting digital engagement at the forefront of the customer experience, with streamlined navigation and communications, saving customers time and effort when reporting faults or raising queries natively within Self Service.

Our ambition is to retain our status as a ‘Visionary’ in Gartner’s highly regarded annual report8, ‘Magic Quadrant for Integrated Revenue and Customer Management (IRCM) for CSPs’, where we have been recognised for the past three consecutive years it has been published.  The report assesses vendors for their “completeness of vision” and “ability to execute”, as well as taking customer references.

Outlook

Cerillion is well-positioned for further growth over the new financial year. The back-order book is at a record level, and the pipeline of new prospects is strong. The Company has adapted effectively to the changes caused by the global pandemic crisis, and can benefit from the market trends it has driven.  In addition, its financial position is strong, with good cash flows and growing recurring revenue.

Our increasing success in the marketplace, alongside positive market trends, supports our positive view of the Company’s short and longer term prospects for growth.

A M HowarthL T Hall
Non-executive ChairmanChief Executive Officer
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Cerillion plc

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