Interim Results

RNS Number : 3340M

Cerillion PLC

11 May 2020

 

11 May 2020

AIM: CER

Cerillion plc

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

 

Interim results  

for the six months ended 31 March 2020

Cerillion plc, the billing, charging and customer relationship management software solutions provider, today issues its interim results for the six months ended 31 March 2020.

Highlights

Well-positioned to Deliver Full Year Targets and for Ongoing Progress

Financial
•	New orders up 28% year-on-year to £9.5m (2019: £7.4m)
•	Revenue up 46% to £10.2m (2019: £7.0m), reflecting implementation work on five major new contract wins; one in H1 2019, three in H2 2019 and a further win in H1 2020
•	Annualised recurring revenue1 up 20% to £6.06m (2019:  £5.05m)
•	Back order book2 up 57% to a record £24.2m (2019: £15.4m)
•	Adjusted EBITDA3 up 673% to £2.7m (2019: £0.4m), reflecting strong second-half weighting in FY 2019
•	Adjusted profit before tax4 of £1.7m (2019: adjusted loss before tax of £0.2m)
•	Adjusted earnings per share5 of 5.6p (2019: adjusted loss per share of 0.77p)
•	Net cash up 86% to £4.8m (2019: £2.6m)
•	Interim dividend up 9% to 1.75p (2019: 1.6p)
Operational
•	Measures taken to ensure staff health in the face of the coronavirus crisis, with remote working and use of on-line collaboration tools to facilitate work across multiple locations
•	Major new contracts currently in implementation include:
	-  $8.3m contract won in February 2019 with a US telecoms provider -  £5.1m contract won in June 2019 with Danish telecoms and utilities provider SE Group -  £4.8m contract won in June 2019 with Link Mobility, Europe's leading provider of SMS and message delivery solutions -  £3.7m contract won in September 2019 with a telecoms provider in Asia -  £2.9m contract won in October 2019 with a Mobile Virtual Network Enabler in South Africa
•	New business pipeline is 19% higher year-on-year and sales processes continue to remain active to date, with a range of tenders at varying stages
•	The Board believes that the Group is well-positioned to deliver its full year targets

Louis Hall, CEO of Cerillion, commented:

"We are pleased to report record interim results, with the Company continuing to demonstrate very encouraging business momentum, and we are confident that our performance targets for the full year are well within reach, based on the volume of work in train and our back order book, which is at a record level.  

"Looking further forward, while the coronavirus pandemic has caused fundamental economic and social disruption, we remain cautiously optimistic for Cerillion's prospects. Our new business pipeline is strong and sales processes have continued to be active through the current crisis to date, putting the Company in a good position for further progress."

¹ Annualised recurring revenue includes annualised support and maintenance, managed service and Cerillion Skyline revenue.

² Back order book consists of £19.4m of sales contracted but not yet recognised at the end of the reporting period plus £4.8m of annualised support and maintenance revenue.  It is anticipated that 75% of the £19.4m of sales contracted but not yet recognised as at the end of the reporting period will be recognised within the next 12 to 24 months.

³   Adjusted EBITDA is a non-GAAP, company-specific measure, which is earnings excluding finance income, finance costs, taxes, depreciation, amortisation and share-based payments charges.

⁴   Adjusted profit before tax is a non-GAAP, company-specific measure, which is earnings excluding taxes, amortisation of acquired intangible assets and share-based payments charges. 

⁵ Adjusted earnings/(loss) per share is a non-GAAP, company-specific measure which is earnings after taxes, excluding amortisation of acquired intangible assets and share-based payments charges. 

For further information please contact:

Cerillion plc Louis Hall, CEO, Oliver Gilchrist, CFO		c/o KTZ Communications T: 020 3178 6378
Liberum (Nomad and Broker)		T: 020 7408 4090
Bidhi Bhoma, Euan Brown, William Hall
KTZ Communications		T: 020 3178 6378
Katie Tzouliadis, Dan Mahoney

About Cerillion

Cerillion is a leading provider of mission-critical software for billing, charging and customer relationship management, with a 20-year track record in providing comprehensive revenue and customer management solutions. The Company has c. 90 customers across c. 44 countries, principally serving the telecommunications market.

The Company is headquartered in London and also has operations in Pune, Miami and Sydney.

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

Overview and Comment on the Coronavirus Crisis

We are pleased to report record interim results, with the Company continuing to demonstrate very encouraging business momentum. All of our major key performance indicators are either at record or near record levels at the first half stage. Revenue increased to £10.2m (2019: £7.0m), annualised recurring revenue to £6.06m (2019: £5.05m), and adjusted profit before tax rose to £1.7m (2019: loss £0.2m).  Net cash at the end of March 2020 stood at £4.8m (2019: £2.6m), and the Company continued to generate good cash flows.

These excellent results were mainly fuelled by the four major new contracts won in 2019 and a further major win in the first half of the current financial year.  In addition, demand from existing customers over the first half was strong and helped to drive the back order book up to a record £24.2m (2019: £15.4m). 

It should be noted that the half year-on-half year comparisons are affected by the timing of contract closures last year, which were very strongly weighted to the second half of that financial year. The Company's increased visibility in the marketplace and our high quality product offering are driving business momentum, and the new business pipeline remains strong.  The total, unweighted value of current opportunities is up by 19% as at 31 March 2020, compared with the same point last year.

The coronavirus pandemic has created seismic economic and social disruption globally, and we have taken additional precautions to protect staff health.  From a trading perspective, as yet, the Company has not experienced any significant slowdown in activity.  We believe that this reflects the nature of the Group's customers, being predominantly telecommunications businesses providing critical infrastructure and services.  Data traffic levels have also increased markedly as a result of national lockdowns across the globe.

At this stage of the crisis and with drastic emergency measures still in place in many countries, it is difficult to predict customer behaviour. However, we remain confident of progress over the balance of the current financial year, supported by our strong back order book.  We are also in a good position with potential major new orders at varying stages of negotiation.

Financial Overview

For the six months to 31 March 2020, the Group's revenue totalled £10.2m (H1 2019: £7.0m), a rise of 46% against the same period last year, although as already mentioned 2019 was significantly second-half weighted.

Services income was up 61% to £6.1m, accounting for 59% of Group revenue (H1 2019: £3.8m and 54%). Software income increased by 25% to £3.3m (from software licence, support and maintenance sales) making up 32% of revenue (H1 2019: £2.6m and 38%), and third party income increased to £0.8m, approximately 8% of revenues (H1 2019: £0.6m and 9%).  

Our existing customer base (those customers acquired at least 12 months before the end of the reporting period) accounted for a high proportion of the Group's income, as is typical, and generated 82% of the Group's revenue in the first half (H1 2019: 88%).

Recurring revenue¹, from support and maintenance and managed service contracts, grew by 17% to £2.7m (H1 2019: £2.3m) and accounted for 27% of the Group's income (H1 2019: 33%).  As a result of new customer 'go-lives' over the preceding 12 months, and an increased uptake of managed services,  annualised recurring revenue at the end of March increased by 20% year-on-year to £6.06m (H1 2019: £5.05m). This is especially encouraging as this follows a 22% increase in 2019.

Overheads in the first half rose 9% to £5.0m (H1 2019: £4.6m), with personnel costs also rising 9% to £3.0m (H1 2019: £2.7m). 

Earnings before interest, tax, depreciation and amortisation ("EBITDA") increased to £2.7m (H1 2019: £0.3m). Adjusted EBITDA, which excludes share-based payments charges, rose to £2.7m (H1 2019: £0.4m).

The adjusted profit before tax³ was £1.7m (H1 2019: adjusted loss before tax of £0.2m) and the adjusted earnings per share⁴ was 5.6p (H1 2019: adjusted loss per share of 0.77p).

Net assets rose by 20% to £15.4m as at 31 March 2020 (31 March 2019: £12.8m).  This includes £6.0m of cash balances (2019: £4.9m).

Cash Flow and Banking

Net cash as at 31 March 2020 increased by 86% to £4.8m (2019: £2.6m), reflecting cash of £6.0m (2019: £4.9m) and debt of £1.2m (2019: £2.3m). Net cash generated from operations in the period rose to £1.8m (2019: £1.7m).

Expenditure on capitalised R&D for the period was £0.4m (2019: £0.4m) reflecting investment in product development to further enhance our intellectual property.

Expenditure on fixed assets was £0.2m (2019: £0.2m). 

Free cash generation increased to £1.2m (2019: £1.0m) in the period. This was utilised to pay the final dividend of £1.0m (2019: £0.9m), in respect of the year ended 30 September 2019, and to repay £0.6m (2019: £0.5m) of the £5.0m term loan taken up in conjunction with the AIM IPO in March 2016.  £3.8m has now been repaid since that date (2019: £2.7m).

Dividend

The Board is pleased to declare an increased interim dividend of 1.75p per share, (2019: 1.6p), a 9% rise year-on-year. The interim dividend will become payable on 19 June 2020 to those shareholders on the Company's register as at the close of business on the record date of 29 May 2020. The ex-dividend date is 28 May 2020.  As previously stated, the Board intends to distribute between a third to a half of the Group's free cash flow as dividends each year, subject to the Group's performance and the Board's assessment of the trading environment.

Operational Overview

In response to the coronavirus pandemic and to protect staff, we have moved to home working worldwide, and the Company has been able to continue its business without significant interruption. Most staff were already used to some measure of remote working and the Company regularly uses on-line collaboration tools to facilitate work across multiple locations.

In October 2019, we won a major new contract worth £2.9m with a mobile virtual network enabler (MVNE) in South Africa, continuing the strong succession of wins from June 2019. We are now very well advanced into the delivery of our charging and product management solutions for this new customer.

Demand from the existing customer base was strong over the first half, with our larger, newer customers driving a significant proportion of new orders. We saw demand across the scope of our product and service offerings, including for additional modules, managed services, training and general consultancy. In particular, we agreed a major contract extension with Manx Telecom, in which Manx Telecom will upgrade their Cerillion platform and move to a new SaaS agreement under a five year contract. 

This demand helped to increase new orders at end of the first half by 28% to £9.5m year-on-year (H1 2019: £7.4m).   In turn, this has driven a 57% rise in the back order book to a new record level of £24.2m at 31 March 2020 (H1 2019: £15.4m).  These contracted (but not yet recognised sales) will drive revenues over the coming quarters.  Supported by a 20% increase in the annualised run rate of recurring revenue to £6.05m (H1 2019: £5.05m), they also provide the Company with a level of resilience in facing the potential challenges inherent in the coronavirus crisis.

Revenues continue to be internationally orientated, and we are making good progress in the Asia Pacific region, as well as in the Americas. The new relationship with a US telecoms provider signed in February last year, one of our largest wins to date, will support ongoing opportunities in this geography. 

The BSS/OSS solutions that we provide remain a core requirement for telecommunications operators and service providers, whose mobile and broadband infrastructure is currently more essential than ever in supporting remote interaction for businesses, communities and public services.  In April, we released the latest version of our Enterprise OSS/BSS suite, Cerillion 8.1.  It is one of two major software releases that we make each year, and those customers that choose our pioneering Evergreen software model can benefit from all of these upgrades. These regular software releases bring customers continuous benefits as well as regular communication touch points. 

Cerillion Skyline performed to budget, although it generates a very modest revenue contribution.

In order to support business growth, we have also continued to build the team, bringing on new, young talent, and have expanded our staff numbers in both India and London. 

We are currently tendering for a range of new business opportunities, with sales processes continuing to be active through the current crisis to date, and our pipeline of new business opportunities has increased by 19% year-on-year to a total value of £120m (H1 2019: £101m).

Outlook

The business is in a very healthy state operationally and financially, and existing major implementation projects and the strong back order book leave Cerillion well-positioned to achieve its performance targets for the full year and to continue its track record of steady revenue and earnings growth.

The Company's financial position is robust, with good cash flows in the first half and a 20% increase in annualised recurring income. 

Looking further forward, while the coronavirus pandemic has caused fundamental economic and social disruption, we remain cautiously optimistic. Our new business pipeline is strong, putting the Company in a good position for continuing progress.

Alan Howarth Chairman

Louis Hall Chief Executive Officer

Notes:

¹ Recurring revenue includes annualised support and maintenance, managed service and Skyline revenue.

² Back order book consists of £19.4m of sales contracted but not yet recognised at the end of the reporting period plus £4.8m of annualised support and maintenance revenue.  It is anticipated that 75% of the £19.4m of sales contracted but not yet recognised as at the end of the reporting period will be recognised within the next 12 to 24 months.

³ Adjusted profit before tax is a non-GAAP, company-specific measure which is earnings excluding taxes, amortisation of acquired intangible assets and share-based payments charges.

⁴ Adjusted earnings per share is a non-GAAP, company-specific measure which is earnings after taxes, excluding share-based payments charges and amortisation of acquired intangible assets.

Cerillion plc Interim Financial Information

Unaudited Consolidated Statement of Comprehensive Income

for the six months ended 31 March 2020

£	Consolidated Unaudited half year to 31 Mar 2020	Consolidated Unaudited half year to 31 Mar 2019	Consolidated Audited year to 30 Sep 2019
Continuing operations
Revenue	10,203,766	7,000,423	18,751,781
Cost of sales	(2,535,860)	(2,154,500)	(4,698,282)
Gross profit	7,667,906	4,845,923	14,053,499
Operating expenses	(6,453,497)	(5,550,651)	(11,531,711)
Adjusted EBITDA*	2,718,690	351,752	4,557,915
Depreciation and amortisation	(1,464,666)	(992,480)	(2,013,012)
Share based payment charge	(39,615)	(64,000)	(23,115)
Exceptional items	-	-	-
Operating profit/(loss)	1,214,409	(704,728)	2,521,788
Finance costs	(115,141)	(44,421)	(79,506)
Finance income	62,068	3,854	6,375
Adjusted profit/(loss) before tax**	1,697,366	(184,880)	3,464,602
Share based payment charge	(39,615)	(64,000)	(23,115)
Amortisation of acquired intangibles	(496,415)	(496,415)	(992,830)
Profit/(loss) before tax	1,161,336	(745,295)	2,448,657
Taxation	(48,021)	(40,931)	(135,890)
Adjusted profit/(loss) for the period***	1,649,345	(225,811)	3,328,712
Share based payment charge	(39,615)	(64,000)	(23,115)
Amortisation of acquired intangibles	(496,415)	(496,415)	(992,830)
Profit/(loss) for the period	1,113,315	(786,226)	2,312,767
Other comprehensive income
Exchange differences on translating foreign operations	(126,789)	(9,283)	130,807
Total comprehensive profit/(loss) for the period	986,526	(795,509)	2,443,574

All transactions are attributable to the owners of the parent.

Basic earnings per share
from continuing operations	3.8 pence	(2.67) pence	7.8 pence
Diluted earnings per share
from continuing operations	3.7 pence	(2.67) pence	7.8 pence
Adjusted basic earnings per share
from continuing operations	5.6 pence	(0.77) pence	11.3 pence

*Adjusted EBITDA is a non-GAAP, company-specific measure, which is earnings excluding finance income, finance costs, taxes, depreciation, amortization and share-based payments charge.

** Adjusted profit before tax is a non-GAAP, company-specific measure which is earnings excluding taxes, amortisation of acquired intangible assets and share-based payments charge.
*** Adjusted profit for the period is a non-GAAP, company-specific measure which is earnings excluding share-based payments charge and amortisation of acquired intangible assets.

Unaudited Condensed Consolidated Statement of Changes in Equity

as at 31 March 2020

£	Share capital	Share premium	Share option reserve	Treasury stock	Foreign exchange reserve	Retained earnings	Total Equity
Balance at 1 October 2018 (audited)	147,567	13,318,725	135,400	-	(12,713)	846,926	14,435,905
Loss for the period	-	-	-	-	-	(786,225)	(786,225)
Exchange difference on translating foreign operations	-	-	-	-	(9,283)	-	(9,283)
Total comprehensive income	-	-	-	-	(9,283)	(786,225)	(795,508)
Share option charge	-	-	64,000	-	-	-	64,000
Dividends	-	-	-	-	-	(885,405)	(885,405)
Balance at 31 March 2019 (unaudited)	147,567	13,318,725	199,400	-	(21,996)	(824,704)	12,818,992
Profit for the period	-	-	-	-	-	3,098,992	3,098,992
Exchange difference on translating foreign operations	-	-	-	-	140,090	-	140,090
Total comprehensive income	-	-	-	-	140,090	3,098,992	3,239,082
Share option charge	-	-	(40,885)	-	-	-	(40,885)
Dividends	-	-	-	-	-	(472,215)	(472,215)
Balance at 30 September 2019 (audited)	147,567	13,318,725	158,515	-	118,094	1,802,073	15,544,974
Profit for the period	-	-	-	-	-	1,113,315	1,113,315
Exchange difference on translating foreign operations	-	-	-	-	(126,789)	-	(126,789)
Total comprehensive income	-	-	-	-	(126,789)	1,113,315	986,526
Share option charge	-	-	39,615	-	-	-	39,615
Purchase of treasury stock	-	-	-	(362,506)	-	-	(362,506)
Exercise of share options	-	-	(75,623)	362,481	-	(91,464)	195,394
Dividends	-	-	-	-	-	(973,945)	(973,945)
Balance at 31 March 2020 (unaudited)	147,567	13,318,725	122,507	(25)	(8,695)	1,849,979	15,430,058

Unaudited Condensed Consolidated Balance Sheet

as at 31 March 2020

£	Unaudited Note	Consolidated Unaudited 31 Mar 2020	Consolidated Unaudited 31 Mar 2019	Consolidated Audited 30 Sep 2019
Assets
Non-current
Goodwill		2,053,141	2,053,141	2,053,141
Other intangible assets		4,683,009	5,667,670	5,210,766
Property, plant and equipment		870,301	851,088	853,206
Right-of-use assets		4,743,229	-	-
Other receivables	5	1,797,410	545,922	2,376,478
Deferred tax assets		118,487	188,168	133,578
		14,265,577	9,305,989	10,627,169
Current assets
Trade receivables		4,423,747	4,326,283	2,805,864
Other receivables	5	7,124,229	4,744,139	5,360,407
Cash and cash equivalents		6,004,415	4,925,075	6,771,406
		17,552,391	13,995,497	14,937,677
Total assets		31,817,968	23,301,486	25,564,846
Equity and liabilities
Shareholders' equity
Share capital		147,567	147,567	147,567
Share premium account		13,318,725	13,318,725	13,318,725
Treasury stock		(25)	-	-
Foreign exchange reserve		(8,695)	(21,996)	118,094
Share option reserve		122,507	199,400	158,515
Retained profit/(loss)		1,849,979	(824,704)	1,802,073
Total Equity		15,430,058	12,818,992	15,544,974
Liabilities
Non-current
Borrowings		-	1,135,910	570,946
Deferred tax liabilities		871,178	695,396	955,569
Lease liabilities		5,032,562	-	-
		5,903,740	1,831,306	1,526,515
Current liabilities
Trade payables		1,463,328	808,563	505,559
Other payables	5	7,824,561	6,642,625	6,787,798
Borrowings - current		1,196,281	1,200,000	1,200,000
		10,484,170	8,651,188	8,493,357
Total equity and liabilities		31,817,968	23,301,486	25,564,846

Unaudited Condensed Consolidated Cash Flow Statement

for the six months ended 31 March 2020

£	Consolidated Unaudited half year to 31 Mar 2020	Consolidated Unaudited half year to 31 Mar 2019	Consolidated Audited  year to 30 Sep 2019
Operating activities
Reconciliation of profit to operating cash flows
Profit/(loss) for the period	1,113,315	(786,226)	2,312,767
Add back:
Taxation	48,021	40,931	135,890
Depreciation	536,905	167,952	311,363
Amortisation and impairment	927,761	824,528	1,701,649
Share option charge	39,615	64,000	23,115
Finance costs	115,141	44,421	79,506
Finance income	(62,068)	(3,854)	(6,375)
	2,718,690	351,752	4,557,915
Increase in trade and other receivables	(2,744,569)	(679,634)	(1,606,038)
Increase in trade and other creditors	1,987,903	2,127,617	2,333,695
Cash from operations	1,962,024	1,799,735	5,285,572
Finance costs	(115,141)	(44,421)	(79,506)
Finance income	4,000	3,854	6,375
Tax paid	(52,023)	(72,396)	(112,879)
Net cash generated from operating activities	1,798,860	1,686,772	5,099,562
Investing activities
Capitalisation of development costs	(400,002)	(413,564)	(833,781)
Purchase of property, plant and equipment	(210,861)	(242,063)	(394,789)
Net cash used in investing activities	(610,863)	(655,627)	(1,228,570)
Financing activities
Borrowings repaid	(574,665)	(457,161)	(1,022,124)
Purchase of treasury stock	(362,506)	-	-
Receipts from exercise of share options	195,395	-	-
Principal elements of finance leases	(202,468)	-	-
Dividends paid	(973,945)	(885,405)	(1,357,620)
Net cash used in financing activities	(1,918,189)	(1,342,566)	(2,379,744)
Net (decrease)/increase in cash and cash equivalents	(730,192)	(311,421)	1,491,248
Translation differences	(36,799)	(17,806)	25,856
Cash and cash equivalents at beginning of period	6,771,406	5,254,302	5,254,302
Cash and cash equivalents at end of period	6,004,415	4,925,075	6,771,406

Unaudited Notes

1.  Basis of Preparation and Accounting Policies

The condensed financial information is unaudited and was approved by the Board of Directors on 7 May 2020.

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 interim financial information for the six months ended 31 March 2020 has been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations endorsed by the European Union (EU). The interim financial information for the six months ended 31 March 2020 has been prepared under the historical cost convention.

The interim financial information for the six months ended 31 March 2020 does not constitute statutory accounts within the meaning of section 434 of the Companies Act. Statutory accounts for the year ended 30 September 2019 have been delivered to the Registrar of Companies. These accounts contain an unqualified audit report and did not contain a statement under the Companies Act 2006 regarding matters which are required to be noted by exception.

The preparation of the interim financial information for the six months ended 31 March 2020 in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the 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. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below.

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.

1 (a). New and amended standards adopted by the Group

A number of new or amended standards became applicable for the current reporting period and the Group had to change its accounting policies and make retrospective adjustments as a result of adopting IFRS 16 Leases.

The impact of the adoption of the leasing standard and the new accounting policies are disclosed in note 6 below. The other standards did not have any impact on the Group's accounting policies and did not require retrospective adjustments.

2.  Going concern

The Directors have assessed the current financial position of the Group, along with future cash flow requirements, 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. For this reason the Directors continue to adopt the going concern basis in preparing the interim financial information for the six months ended 31 March 2020 . The interim financial information does not include any adjustments that would result in the going concern basis of preparation being inappropriate.

3.  Basis of consolidation

The consolidated financial information incorporates the financial information of the Company and entities controlled by the Company (its subsidiaries) at 31 March 2020. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities.

Except as noted below, the financial information of subsidiaries is included in the consolidated financial statements using the acquisition method of accounting. On the date of acquisition the assets and liabilities of the relevant subsidiaries are measured at their fair values.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

4.  Adjusted earnings

EBITDA, profit before tax, profit for the period and earnings per share have been adjusted to take account of £39,615 (6 months to 31 March 2019 £64,000) relating to P&L charges in respect of the Company's share based long term incentive plan. The profit before tax, profit for the period and earnings per share have also been adjusted to take account of the amortisation of acquired intangibles of £496,415 (6 months to 31 March 2019 £496,415).

5.  Other receivables and other payables

		Unaudited 31 Mar 2020 £	Unaudited 31 Mar 2019 £	Audited 30 Sep 2019 £
Other receivables - non-current
Amounts recoverable on contracts		1,797,410	545,922	2,376,478
		1,797,410	545,922	2,376,478
Other receivables - current
Amounts recoverable on contracts Prepayments		6,365,637 433,534	3,644,887 407,883	4,730,915 238,968
Other receivables		325,058	691,369	390,524
		7,124,229	4,744,139	5,360,407
Other payables
Taxation		72,000	271,714	-
Other taxation and social security		306,763	378,750	181,508
Pension		41,060	42,394	42,188
Accruals Deferred income		915,307 5,291,483	1,261,641 4,122,807	2,451,263 3,557,283
Lease liability		755,101	-	-
Other payables		442,847	565,319	555,556
		7,824,561	6,642,625	6,787,798

6.  Changes in accounting policies

This note explains the impact of the adoption of IFRS 16 "Leases" on the Group's financial statements and discloses the new accounting policies that have been applied since 1 October 2019 in note 6 (b) below.

The Group has adopted IFRS 16 retrospectively from 1 October 2019, but has not restated comparatives for the 2019 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 October 2019.

6(a). Adjustments recognised on adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as "operating leases" under the principles of IAS 17 "Leases". These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 October 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 October 2019 was 3.0%. There were no leases previously classified as finance leases.

		30 Sep 2019 £
Operating lease commitments disclosed as at 30 September 2019		6,099,366
Discounted using the lessee's incremental borrowing rate at the date of initial application		6,002,352
Less: low-value/short-term leases recognised on a straight-line basis as expense		(12,221)
Lease liability recognised as at 1 October 2019		5,990,131
Of which are:
Current lease liabilities		582,127
Non-current lease liabilities		5,408,004
		5,990,131

The right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 30 September 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

The recognised right-of-use assets relate to the following types of assets:

		Unaudited 31 Mar 2020 £	Unaudited 1 Oct 2019 £
Properties		4,722,129	5,060,934
IT Equipment		21,100	36,353
Total right-of-use assets		4,743,229	5,097,287

The change in accounting policy affected the following items in the balance sheet on 1 October 2019:

-  Right-of-use assets - increased by £5,097,287

-  Accruals - decreased by £892,844

-  Lease liabilities - increased by £5,990,131.

The net impact on retained earnings on 1 October 2019 was £nil.

Practical expedients applied

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

-  the accounting for operating leases with a remaining lease term of less than 12 months as at 1 October 2019 as short-term leases.

6(b). The Group's leasing activities and how these are accounted for

The Group leases offices in London and India, along with some IT equipment. The lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Up to 30 September 2019 the Group only entered into operating leases and payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.

From 1 October 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

-  fixed payments (including in-substance fixed payments), less any lease incentives receivable;

-  variable lease payments that are based on an index or a rate;

-  amounts expected to be payable by the lessee under residual value guarantees;

-  the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and

-  payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Right-of-use assets are measured at cost comprising the following:

-  the amount of the initial measurement of lease liability;

-  any lease payments made at or before the commencement date less any lease incentives received;

-  any initial direct costs; and

-  restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.

7.  Availability of this announcement

This announcement together with the financial statements herein and a presentation in respect of the interim financial results are available on the Group's website, www.cerillion.com.

 

END

 

 

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