Source - LSE Regulatory
RNS Number : 0818G
Cerillion PLC
23 November 2020
 

 

23 November 2020

AIM: CER                                                    

 

Cerillion plc

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

Final results for the year ended 30 September 2020

Cerillion plc, the billing, charging and customer relationship management software solutions provider, presents its annual results for the 12 months ended 30 September 2020.

Highlights 

Financial:

·   All key financial performance measures reached record highs

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

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

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

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

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

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

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

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

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

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

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

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

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

Operational:

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

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

·    Strong pipeline of new business opportunities

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

Louis Hall, CEO of Cerillion, commented:

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

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

For further information please contact:

 

Cerillion plc

Louis Hall, CEO, Oliver Gilchrist, CFO

 

c/o KTZ Communications

T: 020 3178 6378

 

 

 

 

 

 

Liberum (Nomad and Broker)

 

T: 020 3100 2000

Bidhi Bhoma, Euan Brown, William Hall

 

 

 

 

 

KTZ Communications

 

T: 020 3178 6378

Katie Tzouliadis, Dan Mahoney

 

 

 

About Cerillion

 

Cerillion has a 20-year track record in providing mission-critical software for billing, charging and customer relationship management ("CRM"), mainly to the telecommunications sector but also to other markets, including utilities and financial services. The Company has c. 90 customer installations across c. 45 countries.

 

Headquartered in London, Cerillion has operations in Pune, India, where its Global Solutions Centre is located, as well as in Sydney and Miami.

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

Notes

 

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

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

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

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

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

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

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

 

 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

 

Introduction

 

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

 

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

 

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

 

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

 

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

  

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

 

Financial Overview

 

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

 

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

 

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

 

Software (including Software-as-a-Service) revenue decreased by 16% to £7.6m (2019: £9.1m).  This was due to the reduction in licence sales during the year to £1.6m (2019: £3.9m). Software revenues accounted for 37% of total revenues (2019: 48%).

Services revenue increased by 44% to £11.3m (2019: £7.9m) and comprised 54% of total revenue (2019: 42%).  This was due to a significant increase in new customer implementation work, following the closure of four major new enterprise contracts during the previous financial year.

Third-party income remained constant at £1.8m (2019: £1.8m) and comprised 9% of total revenue (2019: 10%).

 

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

 

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

 

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

 

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

 

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

 

Cash Flow and Banking

 

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

 

Dividend

 

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

 

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

 

Operational Overview

 

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

 

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

 

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

 

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

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

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

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

 

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

 

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

 

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

 

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

 

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

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

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

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

 

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

 

Outlook

 

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

 

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

 

 

A M Howarth

L T Hall

Non-executive Chairman

Chief Executive Officer

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 September 2020

 

 

 

Year to
30 September 2020

 

Year to
30 September 2019

 

Notes

 

£

 

£

 

 

 

 

 

 

Revenue

2

 

 

20,813,925

 

18,751,781

 

 

 

 

 

 

Cost of sales

 

 

(5,465,710)

 

(4,698,282)

 

 

 

 

 

 

Gross profit

 

 

15,348,215

 

14,053,499

 

 

 

 

 

 

Operating expenses

 

 

(12,545,475)

 

(11,531,711)

 

 

 

 

 

 

Adjusted EBITDA*

 

 

5,805,645

 

4,557,915

Depreciation and amortisation

 

 

(2,934,178)

 

(2,013,012)

Share-based payment charge

18

 

(68,727)

 

(23,115)

 

 

 

 

 

 

Operating profit

3

 

2,802,740

 

2,521,788

 

 

 

 

 

 

Finance income

4

 

49,990

 

6,375

Finance costs

5

 

(214,142)

 

(79,506)

 

 

 

 

 

 

Profit before taxation

 

 

2,638,588

 

2,448,657

 

 

 

 

 

 

Taxation

6

 

(28,783)

 

(135,890)

 

 

 

 

 

 

Profit for the year

 

 

2,609,805

 

2,312,767

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

Items that will or may be reclassified to profit or loss:

 

 

 

 

 

Exchange difference on translating foreign

 

 

(165,075)

 

130,807

operations

 

 

 

 

 


Total comprehensive income for the year

 

 

 

2,444,730

 

 

2,443,574

 

Earnings per share

 

 

 

 

 

Basic earnings per share - continuing and total operations

8

 


8.8 pence

 


7.8 pence

Diluted earnings per share - continuing and total operations

 

 

 

8.8 pence

 

 

7.8 pence

 

 

 

 

 

 

 

The Group has no other recognised gains or losses for the current year.

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 September 2020

 

 

 

2020

 

2019

 

 

Notes

 

£

 

£

 

ASSETS

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Goodwill

9

 

2,053,141

 

2,053,141

 

Other intangible assets

9

 

4,475,236

 

5,210,766

 

Property, plant and equipment

10

 

787,885

 

853,206

 

Right-of-use assets

11

 

4,389,175

 

-

 

Trade and other receivables

13

 

2,439,119

 

2,376,478

 

Deferred tax assets

12

 

145,060

 

133,578

 

 

 

 

14,289,616

 

10,627,169

 

Current assets

 

 

 

 

 

 

Trade and other receivables

13

 

9,516,568

 

8,166,271

 

Cash and cash equivalents

16

 

8,311,867

 

6,771,406

 

 

 

 

17,828,435

 

14,937,677

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

32,118,051

 

25,564,846

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Borrowings

15

 

-

 

(570,946)

 

Lease liabilities

11

 

(4,655,772)

 

-

 

Deferred tax liabilities

12

 

(883,823)

 

(955,569)

 

 

 

 

(5,539,595)

 

(1,526,515)

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

14

 

(9,020,502)

 

(7,293,357)

 

Lease liabilities

11

 

(922,706)

 

-

 

Borrowings

15

 

(609,359)

 

(1,200,000)

 

 

 

 

(10,552,567)

 

(8,493,357)

 

 

TOTAL LIABILITIES

 

 

 

(16,092,162)

 

 

(10,019,872)

 

 

NET ASSETS

 

 

 

16,025,889

 

 

15,544,974

 

 

 

 

 

 

 

 

EQUITY ATTRIBUTABLE TO SHAREHOLDERS

 

 

 

Share capital

17

 

147,567

 

147,567

 

Share premium account

 

 

13,318,725

 

13,318,725

 

Treasury stock

17

 

(375,025)

 

-

 

Share option reserve

 

 

151,619

 

158,515

 

Foreign exchange reserve

 

 

(46,981)

 

118,094

 

Retained earnings

 

 

2,829,984

 

1,802,073

 

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

16,025,889

 

15,544,974

 

 

 

 

 

 

 

 

                 
 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 September 2020

 

 

 

 

 

2020

 

2019

 

 

£

 

£

Cash flows from operating activities

 

 

 

 

Profit for the year

 

2,609,805

 

2,312,767

Adjustments for:

 

 

 

 

Taxation

 

28,783

 

135,890

Finance income

 

(49,990)

 

(6,375)

Finance costs

 

214,142

 

79,506

Share option charge

 

68,727

 

23,115

Depreciation

 

1,058,169

 

311,363

Amortisation

 

1,876,009

 

1,701,649

 

 

5,805,645

 

4,557,915

Increase in trade and other receivables

 

(1,412,938)

 

(1,606,038)

Increase in trade and other payables

 

2,501,200

 

2,333,695

Cash generated from operations

 

6,893,907

 

5,285,572

Finance costs

 

(214,142)

 

(79,506)

Finance income

 

49,990

 

6,375

Tax paid

 

(123,171)

 

(112,879)

NET CASH GENERATED FROM OPERATING ACTIVITIES

 

6,606,584

 

5,099,562

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Capitalisation of intangible assets

 

(1,108,473)

 

(833,781)

Purchase of property, plant and equipment

 

(330,098)

 

(394,789)

NET CASH USED IN INVESTING ACTIVITIES

 

(1,438,571)

 

(1,228,570)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Borrowings repaid

 

(1,161,587)

 

(1,022,124)

Purchase of treasury stock

 

(737,506)

 

-

Receipts from exercise of share options

 

195,395

 

-

Principal elements of finance leases

 

(411,653)

 

-

Dividends paid

 

(1,490,431)

 

(1,357,620)

 

 

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

 

(3,605,782)

 

(2,379,744)

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

1,562,231

 

1,491,248

Translation differences

 

(21,770)

 

25,856

Cash and cash equivalents at beginning of year

 

6,771,406

 

5,254,302

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 

 

8,311,867

 

 

6,771,406

 

 

 

 

 

 

 

 

 

 

 

 

                             
 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2019

 

Ordinary share capital

 

Share premium

 

Treasury stock

 

Share option reserve

 

Foreign exchange reserve

 

Retained earnings

 

Total

 

£

 

£

 

£

 

£

 

£

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 October 2018

147,567

 

13,318,725

 

-

 

135,400

 

(12,713)

 

846,926

 

14,435,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

 

-

 

-

 

-

 

-

 

2,312,767

 

2,312,767

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

-

 

-

 

-

 

-

 

130,807

 

-

 

130,807

Total comprehensive income

-

 

-

 

-

 

-

 

130,807

 

2,312,767

 

2,443,574

Transactions with owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option charge

-

 

-

 

-

 

23,115

 

-

 

-

 

23,115

Dividends

-

 

-

 

-

 

-

 

-

 

(1,357,620)

 

(1,357,620)

Total transactions with owners

-

 

-

 

-

 

23,115

 

-

 

(1,357,620)

 

(1,334,505)

Balance as at 30 September 2019

147,567

 

13,318,725

 

 

-

 

 

158,515

 

 

118,094

 

1,802,073

 

15,544,974

 

 

 

 

 

Ordinary share capital

 

 

 

 

Share premium

 

 

 

 

Treasury stock

 

 

 

 

Share option reserve

 

 

 

 

Foreign exchange reserve

 

 

 

 

Retained earnings

 

 

 

 

Total

 

£

 

£

 

£

 

£

 

£

 

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 October 2019

147,567

 

13,318,725

 

-

 

158,515

 

118,094

 

1,802,073

 

15,544,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

-

 

-

 

-

 

-

 

-

 

2,609,805

 

2,609,805

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Exchange differences on translating foreign operations

-

 

-

 

-

 

-

 

(165,075)

 

-

 

(165,075)

Total comprehensive income

-

 

-

 

-

 

-

 

(165,075)

 

2,609,805

 

2,444,730

Transactions with owners:

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option charge

-

 

-

 

-

 

68,727

 

-

 

-

 

68,727

Purchase of treasury stock

-

 

-

 

(737,506)

 

-

 

-

 

-

 

(737,506)

Exercise of share options

-

 

-

 

362,481

 

(75,623)

 

-

 

(91,463)

 

195,395

Dividends

-

 

-

 

-

 

-

 

-

 

(1,490,431)

 

(1,490,431)

Total transactions with owners

-

 

-

 

(375,025)

 

(6,896)

 

-

 

(1,581,894)

 

(1,963,815)

Balance as at 30 September 2020

147,567

 

13,318,725

 

 

(375,025)

 

 

151,619

 

 

(46,981)

 

2,829,984

 

16,025,889

 

 

NOTES TO THE ACCOUNTS

 

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

1 (a) Critical accounting estimates and judgements

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

 

Judgements

(i) Capitalisation of development costs

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

 

(ii) Revenue recognition

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

 

Estimates

(i) Revenue recognition

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

 

(ii) Impairment of non-financial assets

All non-current assets are tested for impairment whenever events or circumstances indicate that their carrying value may be impaired. Additionally, goodwill is subject to an annual impairment test. An impairment loss is recognised in the Group statement of comprehensive income to the extent that an asset's carrying value exceeds its recoverable amount, which represents the higher of the asset's net realisable value and its value in use.

 

(iii) Depreciation and amortisation

Depreciation and amortisation rates are based on estimates of the useful economic lives and residual values of the assets involved. The assessment of these useful economic lives is made by projecting the economic lifecycle of the asset. The key judgement is estimating the useful economic life of the development costs capitalised, a review is conducted annually by project. Depreciation and amortisation rates are changed where economic lives are re-assessed and technically obsolete items written off where necessary.

 

 

 

 

(iv) Calculation of future minimum lease payments

The calculation of lease liabilities requires the Group to determine an incremental borrowing rate ("IBR") to discount future minimum lease payments. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group 'would have to pay', which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease.

 

1 (b) Other sources of estimation uncertainty

(i) Recoverability of trade debtors and accrued income

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

 

2        Segment information

During the year ended 30 September 2020, the Group was organised into four main business segments for revenue purposes.

 

Under IFRS 8 there is a requirement to show the profit or loss for each reportable segment and the total assets and total liabilities for each reportable segment if such amounts are regularly provided to the chief operating decision-maker.

 

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

 

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

 

 

 

2020

 

 

2019

 

£

 

£

Revenue

 

 

 

Services

11,326,196

 

7,891,085

Software

6,657,289

 

8,161,818

Software-as-a-Service

984,518

 

905,175

Third-party

1,845,922

 

1,793,703

Total revenue

20,813,925

 

18,751,781

 

 

 

 

 

             

 

The following table provides a reconciliation of the revenue by segment to the revenue recognition accounting policy. Revenue recognised on performance obligations partially satisfied in previous periods was £12,994,913 (2019: £8,965,033).

 

 

 

 

 

 

 

 

 

 

 

Accounting policies

 

 

 

Year ended 30 September 2020

(i)

(ii)

(iii)

(iv)

 

Total

 

 

£

 

£

£

£

£

 

£

 

 

 

 

 

 

 

 

 

 

Services

 11,326,196

 

 

 

 

 

 

 

 

 implementation fees

 

 

7,528,326

-

-

-

 

7,528,326

 

 ongoing account development work

 

 

-

-

3,797,870

-

 

3,797,870

Software

6,657,289

 

 

 

 

 

 

  

 

initial licence fees

 

 

 1,449,647

-

-

-

 

1,449,647

 

sale of additional licences

 

 

-

151,752

-

-

 

151,752

 

ongoing maintenance and support fees

 

 

5,055,890

-

-

-

 

5,055,890

Software-as-a-Service

   984,518

 

984,518

-

-

-

 

984,518

 

 

 

 

 

 

 

 

 

 

Third-Party

  1,845,922

 

-

-

-

1,845,922

 

 1,845,922

 

 

 

 

 

 

 

 

 

 

Total

20,813,925

 

15,018,381

151,752

3,797,870

1,845,922

 

20,813,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounting policies

 

 

 

Year ended 30 September 2019

 

(i)

(ii)

(iii)

(iv)

 

Total

 

 

 

£

 

£

£

£

£

 

£

 

 

 

 

 

 

 

 

 

 

 

 

Services

7,891,085

 

 

 

 

 

 

 

 

 

 implementation fees

 

 

5,071,013

-

-

 

5,071,013

 

 

 ongoing account development work

 

 

-

-

  2,820,072

-

 

2,820,072

 

Software

8,161,818

 

 

 

 

 

 

 

 

 

initial licence fees

 

 

2,978,091

-

-

-

 

2,978,091

 

 

sale of additional licences

 

 

-

969,478

-

-

 

969,478

 

 

ongoing maintenance and support fees

 

 

4,214,249

-

-

-

 

4,214,249

 

Software-as-a-Service

905,175

 

905,175

-

-

 

905,175

 

 

 

 

 

 

 

 

 

 

 

 

Third-Party

1,793,703

 

-

-

-

1,793,703

 

1,793,703

 

 

 

 

 

 

 

 

 

 

 

 

Total

18,751,781

 

13,168,528

969,478

 2,820,072

1,793,703

 

18,751,781

 

 

 

 

 

 

 

 

 

 

 

                                   

 

(a) Geographical information

As noted above, the internal reporting of the Group's performance does not require that the statement of financial position information is gathered on the basis of the business streams. However, the Group operates within discrete geographical markets such that capital expenditure, total assets and net assets of the Group are split between these locations as follows:

 

 

 

Europe

 

MEA

 

Americas

 

Asia Pacific

 

£

 

£

 

£

 

£

Year ended 30 September 2020

 

 

 

 

 

 

 

 

Revenue - by customer location

13,478,228

 

508,667

 

3,283,377

 

3,543,653

Capital expenditure

1,417,080

 

-

 

-

 

21,491

Non-current assets

13,301,609

 

-

 

-

 

988,007

Total assets

30,552,219

 

-

 

-

 

1,565,832

Net assets

15,789,432

 

-

 

-

 

236,457

 

 

Europe

 

MEA

 

Americas

 

Asia Pacific

 

£

 

£

 

£

 

£

Year ended 30 September 2019

 

 

 

 

 

 

 

Revenue - by customer location

10,369,113

 

29,667

 

6,059,644

 

2,293,357

Capital expenditure

1,049,536

 

-

 

-

 

179,034

Non-current assets

10,324,666

 

-

 

-

 

302,503

Total assets

24,729,262

 

-

 

-

 

835,584

Net assets

15,243,658

 

-

 

-

 

301,316

 

All revenue is contracted within the UK subsidiary Cerillion Technologies Limited and therefore all revenue is domiciled in the Europe segment.

 

Cerillion receives greater than 10% of revenue from individual customers in the following geographical regions:

 

 

 

Operating

 

2020

 

2019

 

 

 

segment

 

£

 

£

Customer

 

 

 

 

 

 

 

No. 1

 

 

Europe

 

4,483,638

 

503,440

No. 2

 

 

Asia Pacific

 

2,822,605

 

1,443,528

No. 3

 

 

Americas

 

1,659,425

 

3,674,824

No. 4

 

 

Europe

 

560,618

 

2,214,981

 

 

 

 

3        Operating profit

 

2020

 

2019

 

£

 

£

Operating profit is stated after (crediting)/charging:

 

 

 

Employee benefits expenses

11,923,335

 

10,196,561

Depreciation

1,058,169

 

311,363

Amortisation of intangibles

1,876,009

 

1,701,649

Research and development costs

341,834

 

465,920

Bad debt expense /(credit)

178,983

 

(32,941)

Foreign exchange losses

323,083

 

40,169

Operating leases*

126,265

 

846,187

Fees payable to Cerillion's principal auditor:

 

 

 

- Audit of Cerillion plc's annual accounts

8,400

 

8,000

- Audit of subsidiaries

62,600

 

59,500

- Non-audit services - tax services

20,000

 

9,400

Fees payable to associates of principal auditor:

 

 

 

- Audit of subsidiaries

7,500

 

-

Other costs

2,085,007

 

2,624,185

Total cost of sales and operating expenses

18,011,185

 

16,229,993

 

 

 

 

 

             

*The Group has adopted IFRS 16 in the year ended 30 September 2020 and the disclosure of leases has changed accordingly, see Note 23 and Note 11 for further information.

4        Finance income

 

2020

 

2019

 

£

 

£

Finance income:

 

 

 

Bank interest receivable

5,949

 

6,375

Unwinding discount of contracts with significant financing component

44,041

 

-

 

49,990

 

6,375

 

 

 

 

5        Finance costs

 

2020

 

2019

 

£

 

£

Finance costs:

 

 

 

Interest payable in respect of loans

(38,414)

 

(77,973)

Interest and finance charges for lease liabilities

(174,476)

 

-

Other interest payable

(1,252)

 

(1,533)

 

(214,142)

 

(79,506)

 

 

 

6        Taxation

(a) Analysis of tax charge for the year

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

 

2020

2019

 

 

£

£

 

Current tax credit - UK

-

-

 

Current tax expense - overseas

123,170

112,879

 

Current tax expense - total

123,170

112,879

 

Deferred tax credit

(56,323)

(16,757)

 

Deferred tax - adjustment in respect of prior year

(38,064)

39,768

 

Deferred tax (credit) /charge - total

(94,387)

23,011

 

Total tax charge

28,783

135,890

 

 

 

 

 

(b) Factors affecting total tax for the year

 

 

The tax assessed for the year differs from the standard rate of corporation tax in the United Kingdom 19.0% (2019: 19.0%). The differences are explained as follows:

 

 

 

 

Profit on ordinary activities before tax

2,638,588

2,448,657

 

 

 

Profit on ordinary activities multiplied by standard rate of corporation tax in the United Kingdom of 19.0% (2019: 19.0%)

501,333

465,245

 

 

 

Effect of:

 

 

Expenses not deductible for tax purposes

353,342

364,591

Non-taxable income for tax purposes

(386,800)

(373,624)

Difference in tax rates

107,942

60,217

Other temporary differences

-

3,876

Prior year tax adjustment

(38,064)

39,768

Other permanent differences - relating to share options

(97,054)

-

Enhanced relief for research and development

(411,916)

(424,183)

Total tax charge

28,783

135,890

 

There are currently no recognised or unrecognised deferred tax assets or liabilities within the Parent Company accounts.
 

7        Dividends

(a)   Dividends paid during the reporting period

The Board paid the final dividend in respect of 2019 of 2.8p per share and declared and paid an interim 2020 dividend of 1.75p (2019: 1.6p) per share. Total dividends paid during the reporting period were £1,490,431 (2019: £1,357,620).

 

(b)   Dividends not recognised at the end of the reporting period

Since the year end the Directors have proposed the payment of a dividend in respect of the full financial year of 3.75p per fully paid Ordinary Share (2019: 3.3p). The aggregate amount of the proposed dividend expected to be paid out of retained earnings at 30 September 2020, but not recognised as a liability at the year end is £1,106,756 (2019: £973,945). Since the year end the Directors of Cerillion Technologies Limited have approved a £3.0 million dividend to Cerillion plc.

 

 

8        Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Ordinary Shares in issue during the year.

 

 

2020

2019

 

 

 

 

Profit attributable to equity holders of the Company (£)

 

2,609,805

2,312,767

 

 

 

 

Weighted average number of Ordinary Shares in issue (number)

 

29,513,486

29,513,486

Less weighted average number of shares held in Treasury

 

(9,911)

-

Weighted average number of Ordinary Shares in issue (number)

 

29,503,575

29,513,486

Effect of share options in issue

 

309,223

267,700

Weighted average shares for diluted earnings per share

 

29,812,798

29,781,186

 

 

 

 

Basic earnings per share (pence per share)

 

8.8

 

7.8

Diluted earnings per share (pence per share)

 

8.8

 

7.8

 

9        Intangible assets

Group

 

Goodwill

 

Purchased customer contracts

 

Intellectual property rights

 

Software development costs

 

External
software licences

 

Total

 

 

£

 

£

 

£

 

£

 

£

 

£

Cost

 

 

 

 

 

 

 

 

 

 

 

 

At 1 October 2018

 

2,053,141

 

4,382,654

 

2,567,160

 

2,383,646

 

-

 

11,386,601

Additions

 

-

 

-

 

-

 

833,781

 

-

 

833,781

At 30 September 2019

 

2,053,141

 

4,382,654

 

2,567,160

 

3,217,427

 

-

 

12,220,382

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions

 

-

 

-

 

-

 

1,088,365

 

20,108

 

1,108,473

Reclassification*

 

-

 

-

 

-

 

-

 

210,345

 

210,345

At 30 September 2020

 

 2,053,141

 

4,382,654

 

2,567,160  

 

4,305,792

 

230,453

 

13,539,200  

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation

 

 

 

 

 

 

 

 

 

 

 

 

At 1 October 2018

 

-

 

1,565,233

 

916,843

 

772,750

 

-

 

3,254,826

Provided in the year

 

-

 

626,093

 

366,737

 

708,819

 

-

 

1,701,649

At 30 September 2019

 

-

 

2,191,326

 

1,283,580

 

1,481,569

 

-

 

4,956,475

 

 

 

 

 

 

 

 

 

 

 

 

 

Provided in the year

 

-

 

626,093  

 

366,737

 

864,960

 

18,219

 

1,876,009

Reclassification*

 

-

 

-

 

-

 

-

 

178,339

 

178,339

At 30 September 2020

 

 -  

 

2,817,419  

 

 1,650,317

 

2,346,529 

 

196,558 

 

7,010,823

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book amount at 30 September 2020

 

2,053,141

 

1,565,235

 

916,843

 

1,959,263 

 

33,895 

 

6,528,377

 

 

 

 

 

 

 

 

 

 

 

 

Net book amount at
30 September 2019

 

2,053,141

 

2,191,328

 

1,283,580

 

1,735,858

 

-

 

7,263,907

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation has been included in operating expenses in the consolidated statement of comprehensive income.

 

The carrying value of goodwill included within the Cerillion plc consolidated statement of financial position is £2,053,141, which is allocated to the cash-generating unit ("CGU") of Cerillion Technologies Limited Group. The CGU's recoverable amount has been determined based on its fair value less costs to sell. As Cerillion plc was established to purchase the CTL Group the fair value less costs to sell has been calculated based on the market capitalisation of Cerillion plc less the estimated costs to sell the CTL Group.

 

Using an average market share price of Cerillion plc for the year ended 30 September 2020, less an estimate of costs to sell, there is significant headroom above the carrying value of the cash-generating unit and therefore no impairment exists. The calculations show that a reasonably possible change, as assessed by the Directors, would not cause the carrying amount of the CGU to exceed its recoverable amount.

 

*The Company's external software licences were previously presented as tangible assets in the balance sheet. However, management has assessed that these assets are not closely linked to underlying hardware and can be used independently, the cost and accumulated amortisation of those was reclassified to intangible assets.
 
 

10      Property plant and equipment

Group

 

Leasehold  improvements

 

Computer  equipment

 

Fixtures  and fittings

 

Total

 

 

 

£

 

£

 

£

 

£

 

Cost

 

 

 

 

 

 

 

 

 

At 1 October 2018

 

585,745

 

1,201,147

 

270,553

 

2,057,445

 

Additions

 

 138,062

 

 232,284

 

 24,443

 

 394,789

 

Disposals

 

-

 

-

 

-

 

-

 

Exchange difference

 

15,056

 

12,887

 

9,336

 

37,279

 

At 30 September 2019

 

738,863

 

1,446,318

 

304,332

 

2,489,513

 

 

 

 

 

 

 

 

 

 

 

Additions

 

-

 

326,954

 

3,144

 

330,098

 

Disposals

 

-

 

(91,053)

 

(3,141)

 

(94,194)

 

Reclassification*

 

-

 

(210,345)

 

-

 

(210,345)

 

Exchange difference

 

(26,115)

 

(15,496)

 

(9,684)

 

(51,295)

 

At 30 September 2020

 

 712,748

 

 1,456,378

 

 294,651

 

 2,463,777

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

 

 

At 1 October 2018

 

198,484

 

941,779

 

148,729

 

1,288,992

 

Provided in the year

 

 53,085

 

 193,602

 

 64,676

 

 311,363

 

Disposals

 

-

 

-

 

-

 

-

 

Exchange difference

 

15,476

 

11,603

 

8,873

 

35,952

 

At 30 September 2019

 

267,045

 

1,146,984

 

222,278

 

1,636,307

 

 

 

 

 

 

 

 

 

 

 

Provided in the year

 

67,509

 

224,572

 

57,977

 

350,058

 

Disposals

 

-

 

(91,053)

 

(3,140)

 

(94,193)

 

Reclassification*

 

-

 

(178,339)

 

-

 

(178,339)

 

Exchange difference

 

(16,011)

 

(12,907)

 

(9,023)

 

(37,941)

 

At 30 September 2020

 

318,543

 

1,089,257

 

 268,092

 

 1,675,892

 

 

 

 

 

 

 

 

 

 

 

Net book amount at 30 September 2020

 

 394,205

 

367,121

 

 26,559

 

 787,885

 

 

 

 

 

 

 

 

 

 

 

Net book amount at

30 September 2019

 

471,818

 

299,334

 

82,054

 

853,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                       

All depreciation charges are included within operating expenses and no impairment has been charged.

 

As referred to in note 15 the Group's loan is secured over all the assets of the Group.

 

There were no property, plant and equipment assets owned by the Parent Company.

 

*The reclassification is explained in note 9.
 

 

11       Leases

Group

This note provides information for leases where the Group is a lessee. The Group leases offices in London and India, along with some IT equipment.

 

(i). amounts recognised in the consolidated statement of financial position

The consolidated statement of financial position shows the following amounts relating to leases:

 

 

 

Group

 

Company

 

Right-of-use assets

 

30 September 2020

£

 

1 October 2019

£

 

30 September 2020

£

 

1 October 2019

£

Properties

 

4,383,327

 

5,060,934

 

3,668,011

 

4,173,943

IT Equipment

 

5,848

 

36,353

 

-

 

-

 

 

4,389,175

 

5,097,287

 

3,668,011

 

4,173,943

 

 

 

Group

 

Company

 

 

Lease liabilities

 

30 September 2020

£

 

1 October 2019

£

 

30 September 2020

£

 

1 October 2019

£

Current

 

922,706

 

582,127

 

731,000

 

365,500

Non-current

 

4,655,772

 

5,408,004

 

4,012,028

 

4,600,500

 

 

5,578,478

 

5,990,131

 

4,743,028

 

4,966,000

                   

 

Additions to the right-of-use assets during the 2020 financial year were £nil.

 

(ii). amounts recognised in the consolidated statement of comprehensive income

The consolidated statement of comprehensive income shows the following amounts relating to leases:

 

 

Depreciation charge of right-of-use assets

 

30 September 2020

£

30 September 2019

£

Properties

 

677,606

-

IT Equipment

 

30,505

-

 

 

708,111

-

 

Interest expense (included in finance cost)

 

174,476

-

Expense relating to short-term leases (included in operating expenses)

 

120,797

-

Expenses relating to low value assets that are not shown above as short-term leases (included in operating expenses)

 

5,468

-

 

The total cash outflow for leases in 2020 was £586,132.

 

The property within the Company had a depreciation charge for the year of £505,932 (2019: £nil).

 

 

 

 

12      Deferred tax

Deferred tax asset

Group

Accelerated capital allowances

Other temporary differences

Total

 

£

£

£

 

 

 

 

1 October 2018

46,842

122,251

169,093

Foreign exchange movement on opening deferred tax asset

-

11,428

11,428

Debited to statement of comprehensive income

(25,789)

(21,154)

(46,943)

30 September 2019

21,053

112,525

133,578

 

Group

Accelerated capital allowances

Other temporary differences

Total

 

£

£

£

 

 

 

 

1 October 2019

21,053

112,525

133,578

Foreign exchange movement on opening deferred tax asset

(3,273)

(7,887)

(11,160)

Credited to statement of comprehensive income

622

22,020

22,642

30 September 2020

18,402

126,658

145,060

 

Deferred tax liability

 

Group

The deferred tax liability arose in respect of the fair value uplift of intangible assets, with £1,320,465 arising on the acquisition of Cerillion Technologies Limited in March 2016 and £70,660 relating to the acquisition of "Net Solutions Services" by Cerillion Technologies Limited in 2015.

 

2020

 

2019

 

£

 

£

 

 

 

 

At 1 October

955,569

 

979,501

Debited to statement of comprehensive income in respect of net ACAs & other temporary differences

47,394

 

159,166

Credited to statement of comprehensive income in respect of acquisitions

(119,140)

 

(183,098)

As at 30 September

883,823

 

955,569

 

There are no deferred tax assets or deferred tax liabilities recognised within the Parent Company as at 30 September 2020 (2019: £nil).

 

 

 

 

13      Trade and other receivables and other contract balances

Contract balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

 

Group

 

2020

2019

 

£

£

 

 

 

 

 

 

Trade receivables

2,687,472

2,805,864

Contract assets

8,494,767

7,107,393

Contract liabilities

5,084,999

3,557,283

 

Contract assets, which are included in 'Accrued income' within trade and other receivables and are composed of the current and non-current balances. Contract liabilities, which are included in 'Deferred income' within trade and other payables.

 

Payment terms and conditions in customer contracts may vary. In some cases, customers pay in advance of the delivery of solutions or services; in other cases, payment is due as services are performed or in arrears following the delivery of the solutions or services. Differences in timing between revenue recognition and invoicing result in trade receivables, contract assets or contract liabilities in the statement of financial position.

 

Contract assets refer to accrued income and arise when revenue is recognised, but invoicing is contingent on performance of other performance obligations or on completion of contractual milestones. Contract assets are transferred to receivables when the rights become unconditional, typically upon invoicing of the related performance obligations in the contract or upon achieving the requisite project milestone.

 

Contract liabilities refer to deferred income and result from customer payments in advance of the satisfaction of the associated performance obligations and relate primarily to prepaid support or other recurring services. Deferred income is released as revenue is recognised.

 

Significant changes in the contract assets and contract liabilities balances during the period are driven by the timing of income recognition and when associated invoices are raised. Specifically, revenue recognised in the year in relation to deferred income brought forward from prior year of £3,003,462 (2019: £1,585,275).

 

When certain costs to acquire a contract meet defined criteria, those costs are deferred as contract assets. The total amount of deferred contract assets (commission fees recognised in prepaid assets) are £86,599 (2019: £48,944). The total amount of accrued costs to acquire a contract are £203,629 (2019: £184,745).

 

The total amount of revenue allocated to unsatisfied performance obligations is £25,102,075 (2019: £17,587,772). It is estimated that 75% will be recognised over the next 18 months, the remainder over the following year thereafter.

 

There are no contract balances within the Parent Company (2019: £nil).

 

 

 

 

Current receivables

Group

Company

 

2020

2019

2020

2019

 

£

£

£

£

 

 

 

 

 

 

 

 

 

 

Trade receivables

2,687,472

2,805,864

-

-

Accrued income

6,055,648

4,730,915

-

-

Amounts owed by Group undertakings

-

-

1,908,131

1,719,497

Other receivables

366,875

390,524

32,029

-

Prepayments

406,573

238,968

8,066

3,626

 

9,516,568

8,166,271

1,948,226

1,723,123

 

 

 

 

 

Non-current receivables

Group

Company

 

2020

2019

2020

2019

 

£

£

£

£

 

 

 

 

 

 

 

 

 

 

Accrued income

2,439,119

2,376,478

-

-

 

 

 

 

 

 

 

The amounts owed by Group undertakings are unsecured, interest free and repayable on demand.

 

Credit quality of receivables

A detailed review of the credit quality of each client is completed before an engagement commences.

 

The credit risk relating to trade receivables is analysed as follows:

 

2020

 

2019

 

£

 

£

Group

 

 

 

Trade receivables

3,015,131

 

2,951,383

ECL reserve

(327,659)

 

(145,519)

 

2,687,472

 

2,805,864

 

 

 

 

 

             

The Parent Company had no trade receivables in either period.

 

The other classes of assets within trade and other receivables do not contain impaired assets.

 

The net carrying value is judged to be a reasonable approximation of fair value.

 

The following is an ageing analysis of those trade receivables that were not past due and those that were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default.

 

 

 

2020

 

2019

 

£

 

£

Group

 

 

 

Not past due

2,065,185

 

2,660,707

Up to 3 months

395,178

 

132,681

3 to 6 months

51,771

 

-

Older than 6 months

175,338

 

12,476

 

2,687,472

 

2,805,864

 

 

 

 

 

             

Of the trade debt older than 6 months as at 30 September 2020, being £175,338 (2019: £12,476), cash of £122,471 (2019: £nil) has been received since the year end.

 

The following is an ageing analysis of those trade receivables that were individually considered to be impaired:

 

 

2020

 

2019

 

£

 

£

Group

 

 

 

Not past due

-

 

-

Up to 3 months

98,324

 

390

3 to 6 months

39,682

 

-

Older than 6 months

189,653

 

145,129

 

327,659

 

145,519

 

 

 

 

 

             

 

 

        

 

14      Trade and other payables

 

     Group

     Company

 

2020

2019

2020

2019

 

£

£

£

£

 

 

 

 

 

Trade payables

736,157

505,559

53,539

46,777

Taxation

-

-

-

-

Other taxation and social security

551,990

181,508

-

10,961

Pension contributions

42,232

42,188

-

-

Other payables

481,391

555,556

250

-

Accruals

2,123,733

2,451,263

66,830

842,427

Deferred income

5,084,999

3,557,283

-

-

 

9,020,502

7,293,357

120,619

900,165

 

The Directors consider that the carrying amount of trade and other payables approximates to their fair values.

 

 

15      Borrowings and financial liabilities

 

     Group

     Company

 

2020

2019

2020

2019

 

£

£

£

£

 

 

 

 

 

Current liabilities:

 

 

 

 

Secured loans

609,359

1,200,000

609,359

1,200,000

Lease liabilities

922,706

-

731,000

-

 

 

 

 

 

Non-current liabilities:

 

 

 

 

Secured loans

-

570,946

-

570,946

Lease liabilities

4,655,772

-

4,012,028

-

 

6,187,837

1,770,946

5,352,387

1,770,946

 

15a Terms and repayment schedule

The Facility Agreement between the Company and HSBC Bank plc made available a loan of up to £5 million (the "Loan") for the purpose of assisting with the payment of the cash element of the acquisition of Cerillion Technologies Limited.

 

The Loan is secured over the assets of the Group and was drawn down in full in March 2016. The terms and conditions of outstanding loans are as follows:

(a) it bears interest at the rate of 2.5 per cent. per annum over the Bank of England Base Rate as published from time to time;

(b) is repayable by the Company by quarterly repayments in the amount of £250,000 inclusive of interest, for the first three years of the term, and thereafter in an amount of £300,000 inclusive of interest, in accordance with an agreed repayment schedule;

(c) is terminable on a change of control of the Company and repayable following an event of default; and

(d) is for a term of five years from the date of first drawdown.

 

 

 

 

Group and Company

Non-current Borrowings

 

Current Borrowings

 

 

Total

 

£

 

£

 

£

 

 

 

 

 

 

1 October 2019

570,946

 

1,200,000

 

1,770,946

Cash-flows:

 

 

 

 

 

Repayment

-

 

(1,161,587)

 

(1,161,587)

Non-cash:

 

 

 

 

 

Reclassification

(570,946)

 

570,946

 

-

30 September 2020

-

 

609,359

 

609,359

 

 

 

 

 

 

 

 

Non-current Borrowings

 

Current Borrowings

 

 

Total

Group and Company

£

 

£

 

£

 

 

 

 

 

 

1 October 2018

1,793,070

 

1,000,000

 

2,793,070

Cash-flows:

 

 

 

 

 

Repayment

-

 

(1,022,124)

 

(1,022,124)

Non-cash:

 

 

 

 

 

Reclassification

(1,222,124)

 

1,222,124

 

-

30 September 2019

570,946

 

1,200,000

 

1,770,946

 

 

 

 

 

 

 

Group

Non-current Lease liabilities

 

Current Lease liabilities

 

 

 

Total

 

£

 

£

 

£

 

 

 

 

 

 

1 October 2019

-

 

-

 

-

Recognised on adoption of IFRS 16

5,408,004

 

582,127

 

5,990,131

1 October 2019 post adoption of IFRS 16

5,408,004

 

582,127

 

5,990,131

Cash-flows:

 

 

 

 

 

Repayment

-

 

(586,132)

 

(586,132)

Accrued interest

-

 

174,479

 

174,479

Non-cash:

 

 

 

 

 

Reclassification

(752,232)

 

752,232

 

-

30 September 2020

4,655,772

 

922,706

 

5,578,478

 

 

 

 

 

 

 

Company

Non-current Lease liabilities

 

Current Lease liabilities

 

 

 

Total

 

£

 

£

 

£

 

 

 

 

 

 

1 October 2019

-

 

-

 

-

Recognised on adoption of IFRS 16

4,600,500

 

365,500

 

4,966,000

1 October 2019 post adoption of IFRS 16

4,600,500

 

365,500

 

4,966,000

Cash-flows:

 

 

 

 

 

Repayment

-

 

(369,504)

 

(369,504)

Accrued interest

-

 

146,532

 

146,532

Non-cash:

 

 

 

 

 

Reclassification

(588,472)

 

588,472

 

-

30 September 2020

4,012,028

 

731,000

 

4,743,028

 

 

 

 

 

 

 

                       

16      Financial instruments and risk management

 

Group - Financial instruments by category

2020

£

 

2019

£

 

Financial assets - loans and receivables

 

 

 

 

 

Non-current

 

 

 

 

 

Accrued income

 

2,439,119

 

2,376,478

 

Current

 

 

 

 

 

Trade and other receivables

 

3,054,347

 

3,196,388

 

Accrued income

 

6,055,648

 

4,730,915

 

Cash and cash equivalents

 

8,311,867

 

6,771,406

 

 

 

17,421,862

 

14,698,709

                   

 

Prepayments are excluded, as this analysis is required only for financial instruments.

 

Financial liabilities - held at amortised cost

 

2020

£

 

2019

             £

Non-current

 

 

 

 

 

Borrowings

 

-

 

570,946

 

Lease liabilities

 

4,655,772

 

-

 

 

 

 

570,946

 

Current

 

 

 

 

 

Current borrowings

 

609,359

 

1,200,000

 

Lease liabilities

 

922,706

 

-

 

Trade and other payables

 

1,217,548

 

1,061,115

 

Pension costs

 

42,232

 

42,188

 

Accruals

 

2,123,733

 

2,451,263

 

 

 

4,915,578

 

4,754,566

 

             

 

Statutory liabilities and deferred income are excluded from the trade payables balance, as this analysis is required only for financial instruments.

 

Company

 

 

Financial instruments by category

 

2020

£

 

2019

£

 

Financial assets - loans and receivables

 

 

 

 

 

Current

 

 

 

 

 

Amounts owed by Group undertakings & other receivables

1,940,160

 

1,719,497

 

Cash and cash equivalents

 

114,129

 

169,163

 

 

 

2,054,289

 

1,888,660

                   

 

 

 

 

Financial liabilities - held at amortised cost

 

2020

£

2019

             £

Non-current

 

 

 

 

 

Borrowings

 

-

 

570,946

 

Lease liabilities

 

4,012,028

 

-

 

 

 

 

570,946

 

Current

 

 

 

 

 

Current borrowings

 

609,359

 

1,200,000

 

Lease liabilities

 

731,000

 

-

 

Trade and other payables

 

53,789

 

46,777

 

Accruals

 

66,830

 

842,427

 

 

 

1,460,978

 

2,089,204

 

 

There is no material difference between the book value and the fair value of the financial assets and financial liabilities disclosed above for either the Group or Parent Company.

 

There were no derivative financial instruments in existence as at 30 September 2020 (2019: £nil).

 

The Group's multinational operations expose it to financial risks that include market risk, credit risk, foreign currency risk and liquidity risk. The Directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years.

 

 

Credit quality of financial assets

 

The credit quality of financial assets can be assessed by reference to external credit ratings (S&P) (if available) or to historical information about counterparty default rates:

 

 

2020

 

2019

 

£

 

£

Trade receivables

 

 

 

Group 1

295,153

 

1,849,871

Group 2

2,274,277

 

707,722

Group 3

118,042

 

248,271

 

2,687,472

 

2,805,864

 

 

 

 

 

               

Group 1 - new customers (less than 6 months).

Group 2 - existing customers (more than 6 months) with no defaults in the past.

Group 3 - existing customers (more than 6 months) with some defaults in the past.

 

At the year end there are 6 customers (2019: 2 customers) with trade receivable balances each representing in excess of 5% of the total trade receivables of £2,687,472 (2019: 2,805,864). Of these customers, 1 is categorised within Group 1 representing 11% of total trade receivables (2019: nil), 5 are within Group 2 representing 53% of total trade receivables (2019: 1 customer), with none in Group 3 (2019: 1 customer).

 

There are no trade receivables within the Parent Company.

 

 

 

 

2020

 

2019

 

£

 

£

Cash at bank and short-term deposits

 

 

 

A1

8,309,074

 

6,768,218

Not rated

2,793

 

3,188

 

8,311,867

 

6,771,406

 

 

 

 

 

             

 

A1 rating means that the risk of default for the investors and the policy holder is deemed to be very low.

Not rated balances relate to petty cash amounts. All cash within the Parent Company is within the A1 category.

 

Market risk - foreign exchange risk

 

Exposure to currency exchange rates arise from the Group's overseas sales and purchases, which are primarily denominated in US Dollars (USD), Australian Dollars (AUD) and Euros (EUR). There is no foreign exchange exposure within the Parent Company.

 

To mitigate the Group's exposure to foreign currency risk, non-GBP cash flows are monitored and forward exchange contracts are entered into in accordance with the Group's risk management policies. Generally, the Group's risk management procedures distinguish short-term foreign currency cash flows (due within 6 months) from longer-term cash flows (due after 6 months). Where the amounts to be paid and received in a specific currency are expected to largely offset one another, no further hedging activity is undertaken. Forward exchange contracts are mainly entered into for significant long-term foreign currency exposures that are not expected to be offset by other same-currency transactions.

 

As at 30 September 2020 the Group had no forward foreign exchange contracts in place (2019: none) to mitigate exchange rate exposure arising from forecast income in US Dollars, Australian Dollars and Euros.

 

Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into GBP at the closing rate:

 

 

 

AUD

 

USD

 

EUR

 

INR

 

DKK

 

BND

30 September 2020

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

374,834

 

3,117,456

 

2,202,588

 

722,885

 

2,845,424

 

729,482

Financial liabilities

 

-

 

(101,187)

 

(40,063)

 

(509,071)

 

-

 

-

Total exposure

 

374,834

 

3,016,269

 

 2,162,525

 

213,814

 

2,845,424

 

729,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AUD

 

USD

 

EUR

 

INR

 

DKK

 

BND

30 September 2019

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

298,452

 

5,025,829

 

2,697,106

 

665,743

 

229,950

 

2,232,614

Financial liabilities

 

-

 

(148,032)

 

(23,227)

 

(535,533)

 

-

 

-

Total exposure

 

298,452

 

4,877,797

 

 2,673,879

 

130,210

 

229,950

 

2,232,614

 

 

 

The following table illustrates the sensitivity of profit and equity in regards to the Group's financial assets and financial liabilities and the US Dollar, Australian Dollar, Euro, Indian Rupee, Danish Krone and Brunei Dollar to GBP exchange rate 'all other things being equal'. It assumes a +/- 10% change to each of the foreign currency to GBP exchange rates. These percentages have been determined based on the average market volatility in exchange rates in the previous 12 months. The sensitivity analysis is based on the Group's foreign currency financial instruments held at each reporting date and also takes into account forward exchange contracts that offset effects from changes in currency exchange rates.

 

If the GBP had strengthened against the foreign currencies by 10% then this would have had the following impact:

 

30 September 2020

 

AUD

 

USD

 

EUR

 

INR

 

DKK

 

BND

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

(34,076) 

 

(274,206) 

 

(196,593) 

 

(19,438) 

 

(258,675) 

 

(66,317) 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity total

 

(34,076) 

 

(274,206) 

 

(196,593) 

 

(19,438) 

 

(258,675) 

 

(66,317) 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September 2019

 

AUD

 

USD

 

EUR

 

INR

 

DKK

 

BND

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

(27,132) 

 

(443,436) 

 

(243,080) 

 

(11,837) 

 

(20,869) 

 

(202,965)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity total

 

(27,132) 

 

(443,436) 

 

(243,080) 

 

(11,837) 

 

(20,869) 

 

(202,965)

 

If the GBP had weakened against the foreign currencies by 10% then this would have had the following impact:

 

30 September 2020

 

AUD

 

USD

 

EUR

 

INR

 

DKK

 

BND

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain for the year

 

41,648 

 

335,141

 

240,281

 

23,757

 

316,158

 

81,054

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity total

 

41,648 

 

335,141

 

240,281

 

23,757

 

316,158

 

81,054

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September 2019

 

AUD

 

USD

 

EUR

 

INR

 

DKK

 

BND

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain for the year

 

33,161 

 

541,977 

 

297,098

 

14,468

 

25,507 

 

248,068

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity total

 

33,161 

 

541,977 

 

297,098

 

14,468

 

25,507 

 

248,068 

 

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group's exposure to currency risk.

 

 

 

Market Risk - cash flow interest rate risk

 

Cerillion had outstanding borrowing within the Group and Company, as disclosed in note 18.

 

These were loans taken out with HSBC to facilitate the purchase of shares prior to the Admission on AIM.

 

The Group's policy is to minimise interest rate cash flow risk exposures on long-term financing. Longer-term borrowings are therefore usually at fixed rates. At 30 September 2020, the Group is exposed to changes in market interest rates through bank borrowings at variable interest rates. Other borrowings are at fixed interest rates. The exposure to interest rates for the Group's cash at bank and short-term deposits is considered immaterial.

 

The following table illustrates the sensitivity of profit and equity to a reasonably possible change in interest rates of +/- 1%. These changes are considered to be reasonably possible based on observation of current market conditions. The calculations are based on a change in the average market interest rate for each period, and the financial instruments held at each reporting date that are sensitive to changes in interest rates. All other variables are held constant.

 

 

 

 

     Profit for the year

 

  Equity

 

 

+1%

 

-1%

 

+1%

 

-1%

 

 

 

 

 

 

 

 

 

30 September 2020

 

(11,621) 

 

13,101 

 

(11,621) 

 

13,101 

 

 

 

 

 

 

 

 

 

30 September 2019

 

(21,928) 

 

21,761 

 

(21,928) 

 

21,761 

 

 

 

 

 

 

 

 

 

 

Liquidity risk

 

Cerillion actively maintains cash that is designed to ensure Cerillion has sufficient available funds for operations and planned expansions. The table below analyses Cerillion's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

 

 

Less than 1 year

 

Between 1 and 2 years

 

Between 2 and 5 years

 

Over 5 years

 

 

 

 

 

30 September 2020

 

 

 

 

 

 

 

 

Borrowings

 

614,793

 

-

 

-

 

-

Lease liabilities

 

913,473

 

936,879

 

2,651,816

 

1,644,750

Trade and other payables

 

3,935,503

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

30 September 2019

 

 

 

 

 

 

 

 

Borrowings

 

1,242,252

 

626,914

 

-

 

-

Trade and other payables

 

3,736,074

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

 

                             

 

 

 

Capital risk management

 

The Group manages its capital to ensure it will be able to continue as a going concern while maximising the return to shareholders through optimising the debt and equity balance. In the short-term this means generating sufficient cash to repay the existing loans, whilst maintaining the dividend policy and investment in research and development.

 

The Group monitors cash balances and prepares regular forecasts, which are reviewed by the Board. Since the year end the Directors have proposed the payment of a dividend. In order to maintain or adjust the capital structure, the Group may, in the future, adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

The Parent Company has the same approach to capital risk management, with the additional focus of monitoring dividends up from Group companies to ensure that sufficient reserves are in place to maintain the dividend policy.

 

 

17      Share capital

 

 

2020

 

2019

 

 

£

 

£

Issued, allotted, called up and fully paid:

 

 

 

 

29,513,486 (2019: 29,513,486) Ordinary Shares of 0.5 pence

 

147,567

 

147,567

 

The Ordinary Shares have been classified as Equity. The Ordinary Shares have attached to them full voting and capital distribution rights. The Company does not have an authorised share capital.

 

In February 2020, the Company acquired 172,622 of its own shares in the market, at £2.10 per share, to be held as Treasury Stock to be used to satisfy the exercise of share options. In March 2020 172,610 of these shares were issued on the exercise of share options. In September 2020, the Company acquired 125,000 of its own shares in the market, at £3.00 per share, all 125,000 shares were held as Treasury Shares at the year end. At the year end there were 125,012 shares remaining in Treasury Stock at an average cost of £3.00 per share.

 

18      Share-based payments

The Group introduced a Save as You Earn ("SAYE") share option scheme and a Long-Term Incentive Plan ("LTIP") in 2017. The Group is required to reflect the effects of share-based payment transactions in its statement of comprehensive income and statement of financial position. For the purposes of calculating the fair value of share options granted, the Black Scholes Pricing Model has been used by the Group in respect of the SAYE schemes, the LTIP has been fair valued using a Monte-Carlo Simulation Model. Fair values have been calculated on the date of grant.

 

A new Save as You Earn ("SAYE") share option scheme was introduced in 2019. A charge of £68,727 (2019: £23,115) has been reflected in the consolidated statement of comprehensive income, with the corresponding entry recognised within the share option reserve.

 

The fair value of options granted in the current year and the assumptions used in the calculation are shown below:

 

 

 

Year of grant

 

2017

2017

2019

Scheme

 

SAYE

LTIP

SAYE

 

 

 

 

 

Exercise price (£)

 

1.132

0.05

1.092

Number of options granted

 

   189,845

300,000

   132,917

Vesting period (years)

 

3 years

3 to 3.5 years

3 years

Option life (years)

 

3.5 years

5 to 5.5 years

3.5 years

Risk free rate

 

0.50%

0.49%

0.50%

Volatility

 

41%

41%

41%

Dividend yield

 

3.00%

3.33%

3.00%

Fair value (£)

 

0.44

0.53

0.43

 

 

 

 

 

 

The share option schemes are issued by the Parent Company, therefore the disclosures within this note cover the Group and Parent Company, the share-based payment expense is recharged to Cerillion Technologies Limited as this is where the option holders are employed.

 

Share options relating to the SAYE 2017 were exercised during the year ended 30 September 2020, with Treasury Shares being used to settle the options exercised. Since the year end, 20 October 2020, half of the LTIP share options were exercised, being options over 125,000 shares.

 

During the year options were granted as summarised in the table below:

 

 

 

 

 

2020

 

 

Number of

 Options

2020

Weighted

 average

 exercise

 price

2019

 

 

Number of

 Options

2019

Weighted

 average

 exercise

 price

 

 

 

£

 

£

 

 

 

 

 

 

 

Outstanding at start of year

555,522

0.62

439,845

0.49

 

Granted

-

-

132,912

1.09

 

Expired

-

-

(17,235)

1.13

 

Exercised

(172,610)

(1.13)

-

-

 

Outstanding at 30 September

382,912

0.38

555,522

0.62

 

 

 

 

 

 

 

Exercisable at 30 September

-

-

-

-

 

 

19      Retirement benefits

The Group operates a group personal contribution pension scheme for the benefit of the employees. The pension cost charge for the year represents contributions payable by the Group to the fund and amounted to £313,181 (2019: £322,658). At the year end the contributions payable to the scheme were £42,232 (2019: £42,188).

 

 

 

 

20      Future lease payments

From 1 October 2019, the Group has recognised right-of-use assets for these leases, except for short-term and low value leases, see Note 23 and Note 11 for further information. In the prior year, the Group had commitments under non-cancellable operating leases in respect of land and buildings and plant and machinery. The Group's future minimum operating lease payments were as follows:

 

 

2020

 

2019

Group

£

 

£

 

 

 

 

Within one year

-

 

570,839

Between one and five years

-

 

3,152,777

After five years

-

 

2,375,750

 

-

 

6,099,366

 

 

 

 

 

             

There are no lease commitments within the Parent Company.

 

 

21      Annual General Meeting

The Annual General Meeting is to be held on 5 February 2021.  Notice of the AGM will be despatched to shareholders with Cerillion's report and accounts.

22      Preliminary Announcement

The financial information set out in the announcement does not constitute the Company's full statutory accounts for the years ended 30 September 2020 or 2019, which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, it did not draw attention to any matters by way of emphasis without qualifying their report and it did not contain a statement under s498(2) or (3) Companies Act 2006. The audit of the statutory accounts for the year ended 30 September 2020 has been completed and the accounts will be delivered to the Registrar of Companies before the Company's Annual General Meeting and will be available on the Company's website at www.cerillion.com.  This announcement is derived from the statutory accounts for that year.

 

23      First time adoption of IFRS 16 "Leases"

This section explains the impact of the adoption of IFRS 16 "Leases" on the Group's financial statements.

 

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

 

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

 

 

 

(i) Practical expedients applied

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

by the standard:

·    relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review - there were no onerous contracts as at 1 October 2019; and

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

 

The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and Interpretation 4 Determining whether an Arrangement contains a Lease.

 

(ii) Measurement of lease liabilities

 

Group
30 Sep 2019

£

Operating lease commitments disclosed as at 30 September 2019

 

6,099,366

 

 

 

Discounted using the lessee's incremental borrowing rate at the date of initial application

 

6,002,352

Less: low value/short-term leases recognised on a straight-line basis as expense

 

(12,221)

Lease liability recognised as at 1 October 2019

 

5,990,131

 

 

 

Of which are:

 

 

Current lease liabilities

 

582,127

Non-current lease liabilities

 

5,408,004

 

 

5,990,131


The Parent Company recognised a lease liability of £4,966,000 as at 1 October 2019, which was split £365,500 as current and £4,600,500 as non-current.
 

(iii) Measurement of right-of-use assets

The associated right-of-use assets were measured on a retrospective basis as if the new rules had always been applied. The right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 30 September 2019. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

 

(iv) Adjustments recognised in the statement of financial position on 1 October 2019

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

·    Right-of-use assets - increased by £5,097,287 (Parent Company: £4,173,943)

·    Accruals - decreased by £892,844 (Parent Company: £792,057)

·    Lease liabilities - increased by £5,990,131 (Parent Company: £4,966,000).

 

The net impact on retained earnings on 1 October 2019 was £nil (Parent Company: £nil).

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