TIDMCRW
RNS Number : 1766N
Craneware plc
30 August 2011
Craneware plc
("Craneware", "the Group" or the "Company")
Final Results
30 August 2011 - Craneware plc (AIM: CRW.L), the market leader
in automated revenue integrity solutions for the US healthcare
market, announces its results for the year ended 30 June 2011.
Financial Highlights (US dollars)
-- Continued strong revenue and profit growth:
o Revenue increased 34% to $38.1m (2010: $28.4m)
o Adjusted EBITDA(1) increased 32% to $10.1m (2010: $7.6m)
o Adjusted profit before taxation increased 27% to $9.3m (2010:
$7.3m)
o Profit before tax increased 19% to $8.7m (2010: $7.3m)
o Basic adjusted EPS increased 17% to 25.6 cents (2010: 21.8
cents)
o Basic EPS increased 6% to 23.1 cents (2010: 21.8 cents)
-- Positive operational cash flow of $10.1m (2010: $8.9m)
-- Cash at year end $24.2m (2010: $29.4m) following $9m payment
to acquire ClaimTrust in February 2011
-- Proposed final dividend of 4.8p (7.7 cents) per share giving
total dividend for the year of 8.8p (14.2 cents) per share (2010:
8p (12 cents) per share)
(1.) Adjusted EBITDA refers to earnings before interest, tax,
depreciation, amortization, share based payments and transaction
related costs
Operational Highlights
-- Significantly increased market share; approx. 1,500 US
hospitals now use Craneware software
-- Integration of ClaimTrust as Craneware InSight, Inc.
proceeding ahead of plan
-- Leading indicator, the acceleration of the Recovery Audit
Contractor programme, now taking place and expected to increase
demand in future years
Keith Neilson, CEO of Craneware commented:
"This has been another year of strong growth for Craneware both
in operational and financial terms, highlighting the strength of
our product offering and business model.
"The financial challenges presented by today's economy and
healthcare reform mean it has never been more important for
hospitals to increase efficiency and protect revenue in order to
meet their objectives of providing increased levels of care to a
growing hospital population. We believe our suite of software
combined with our industry expertise uniquely positions us to help
hospitals protect themselves against this changing market
landscape, automating regulatory updates, increasing accuracy of
pricing, charging and coding for procedures, supplies and
pharmaceuticals and helping to manage the increasing number of
government led audits.
"Consequently with the market drivers, such as the Recovery
Audit Contractor programme, expected to increase in the year ahead,
the robust nature of our business model which provides for strong
cash generation and high levels of future revenue visibility,
together with our strong pipeline, we look to the future with
confidence."
For further information, please contact:
Craneware plc Peel Hunt Threadneedle Communications
+44 (0)131 550 +44 (0)20 7418
3100 8900 +44 (0)20 7653 9850
Keith Neilson, Dan Webster Caroline Evans-Jones
CEO
Craig Preston, Richard Kauffer Fiona Conroy
CFO
About Craneware
Founded in 1999, Craneware has headquarters in Edinburgh,
Scotland with offices in Atlanta, Boston, Nashville and Scottsdale
employing over 200 staff. Craneware is the leader in automated
revenue integrity solutions that improve financial performance for
healthcare organisations. Craneware's market-driven, SaaS solutions
help hospitals and other healthcare providers more effectively
price, charge, code and retain earned revenue for patient care
services and supplies. This optimises reimbursement, increases
operational efficiency and minimises compliance risk. By partnering
with Craneware, clients achieve the visibility required to
identify, address and prevent revenue leakage. To learn more, visit
craneware.com and stoptheleakage.com
Chairman's Statement
Craneware has continued to deliver against the backdrop of an
evolving marketplace. We have launched four new products during the
year, one of which we have developed organically, while three came
via the acquisition of ClaimTrust. We now count nearly 1,500
hospitals as our customers with some of the largest hospital groups
in the US amongst our growing band of software users. Through our
increased marketing efforts and continued commitment to customer
service, our reputation in the healthcare market as thought leaders
in the area of 'revenue integrity' has moved forward significantly
in the year.
With approximately 25% of hospitals in the US now using one or
more of Craneware's nine core products, the Company is an
established part of the fabric of the US healthcare industry. While
the US economy has been under much scrutiny in recent months and
the debate about healthcare reform continues, what is unavoidable
is that US healthcare facilities are being asked to provide a
higher level of patient care, to a greater number of people, at a
lower cost per patient. There is therefore a compelling case for
the implementation of software such as ours to efficiently protect
the revenue to which these healthcare facilities are entitled.
Following the acquisition of ClaimTrust in February, we have
been extremely encouraged by the response from our customers to the
newly launched Craneware InSight products in our "Audit Revenue and
Recovery" product family. The first sales of InSight products into
our existing customer base have taken place and we have built a
strong list of prospects. The expertise in the area of audits and
appeals brought to us by the ClaimTrust team has already proven to
be a valuable addition to the Group. We continue to assess
opportunities for similar acquisitions.
We see the increasing level of fines levied on hospitals from
the Recovery Audit Contractor (RAC) programme, as a leading
indicator of hospital demand for our unique solution set. In
addition, we expect other factors such as the anticipated McKesson
re-engagement in sales of their Horizon software, into which our
Revenue Cycle Management tools have been integrated, to help drive
forward customer decision making in the coming year.
We continue to have extremely high levels of revenue visibility
due to the multiyear nature of our contracts and our annuity
revenue recognition policy. At the end of the year under report
Craneware had visibility of over $105m of revenue for the next
three years, having increased from $83m at 30 June 2010.
I would like to take this opportunity to once again welcome the
Craneware InSight team and customers into Craneware and thank all
our customers, people and partners for their ongoing support.
The expansion of our market share, our strong financial position
and excellent sales pipeline provide the Board with a great deal of
confidence in our ability to continue to execute on our growth
strategy.
George Elliott
Chairman
29 August 2011
Operational Review
Introduction
This year has seen the business deliver our largest organic
increase in both revenues and EBITDA to date with revenues growing
organically by 25% and adjusted EBITDA growing by 32%. The
ClaimTrust acquisition resulted in an overall revenue growth rate
of 34%. Importantly, the business generated a high level of cash
from operating activities in the period, reaching $10m (a 100%
conversion of adjusted EBITDA), a fourfold increase since IPO. This
strong set of results continues to demonstrate the success of the
Craneware strategy in building out its unique product suite,
ensuring Craneware's market leading position as the strength of the
business model delivers growth into the long term.
Although sales to channel partners and large hospital systems
have not been at previous levels, we believe that this is a factor
of timing and not a long term or general market trend. The results
this year have been achieved despite this timing issue and the
significant strength of current pipeline opportunities compared to
historical norms gives us confidence that the growth opportunities
for Craneware remain strong. We continue to outperform our
competition in the majority of customer opportunities and believe
that as the RAC audit programme gathers pace so will the pressures
on hospitals to move towards automated systems in order to manage
these audits and protect revenue. Our acquisition of ClaimTrust in
particular means we believe we are well positioned to assist our
clients in this ever more pressing area.
Our focus in the year ahead will be on the cross sale of our
increased product set to our extended customer base, the
integration of further ClaimTrust products into our offering and
the continued winning of market share. As we entered the current
financial year we had visibility of $105m in revenue for the next
three years and over $24m in cash.
Integration of ClaimTrust
We were delighted to have completed the acquisition of
ClaimTrust on 17 February 2011. This is the first acquisition for
Craneware and one which the Board believes to be strategically
valuable, bringing new areas of expertise into the Group, adding a
new product family and increasing our market share with the
addition of over 250 hospitals. All of ClaimTrust's products are
applicable to the Craneware customer base and target audience
providing for a significantly expanded market opportunity.
The first 90 day integration plan of ClaimTrust as Craneware
InSight Inc, has now been successfully completed. Both sales teams
have been crossed trained in the products and the management teams
aligned. In terms of marketing, the products have been given a
common branding and messaging under Craneware InSight and we have
established the foundation for new customers for the InSight
products to join on Craneware's traditional Annuity Software as a
Service revenue model. We are pleased to report that the uptake of
products by the Craneware customer base has been positive thus far,
securing our first customer, the Kingman Regional Medical Center,
in June 2011 and have made further sales since then supporting our
belief that the future for the products is extremely promising.
Market Developments
The US healthcare market continues to be impacted by the
introduction of new legislation and increased regulation as the
Government seeks to reduce the burden of healthcare on the state
whilst making healthcare available to a larger percentage of the
population. Cuts to Medicaid state budgets, the means-tested
programme for certain individuals and families with low incomes and
resources, have been as high as 20% across the US. Meanwhile the
number of people enrolling in the Medicaid programme continues to
increase by an additional 1% along with a 1.1% increase in the
uninsured for every 1% increase in the national unemployment rate.
These factors mean a growing number of hospitals are seeking
technology based solutions to help improve accuracy of billing and
reduce regulatory burdens, thereby protecting their slim profit
margins.
Two specific factors which have moved forward during the year
have been the introduction of the finalised RAC programme and the
movement in healthcare IT coding towards the use of ICD-10 (as
explained below).
RAC Programme
The Recovery Audit Contractors are tasked with detecting and
correcting past improper payments to hospitals, whether these are
overpayments which need to be recouped, or underpayments which need
to be reimbursed. Following a demonstration pilot of the RAC
programme in five states (California, Florida, New York,
Massachusetts and South Carolina) from 2004 to 2007, US Congress
authorised the nationwide expansion of the initiative through the
Tax Relief and Health Care Act of 2006, which regulated that it be
rolled out nationwide by January 1, 2010.
While the RACs identified and recouped $92.3m of corrections
from hospitals in its first 12 months of the programme to September
2010, this has increased significantly to $592.5m in the subsequent
9 month period*, placing a huge burden on hospitals. These
increasing amounts being levied on hospitals are creating a major
stimulus for hospital purchasing decisions for software such as
Craneware InSight's Audit and the Board believes are a leading
indicator of further Craneware product family sales.
*CMS - Centers for Medicare & Medicaid Services, June
2011
Craneware InSight Audit
Recovery Audit Contractors can request a maximum of 500 records
per 45 days from any individual healthcare provider over a 3-year
look back period. The volume of record requests and denials
initially overwhelmed healthcare providers, and still proves to be
a burden.
The InSight Audit product organises, manages and reports on all
audit requests, responses and appeal activities for all audit
types. It stores the relevant information and documents the steps
taken to appeal denials, whilst also identifying trends and areas
of exposure. InSight Audit manages (1) the patient record, (2) the
RAC audit workflow, and (3) reports on areas of risk.
InSight Audit can also be used to manage the RAC appeal process,
from the initial decision to appeal through to successful
resolution of the appeal; aiding hospitals recoup cash and reduce
the financial cost of doing so. The five levels of this process
take between 2 to 3 years to complete for each individual RAC
denial; costing in resources, tracking and reporting an estimated
$2,000 to appeal per record, if no technology solution has been
implemented. Therefore with RACs able to request up to 500 records
every 45 days, this can easily escalate to a significant cost.
ClaimTrust, having been based in the RAC demonstration catchment
area in 2007, prior to the Government's full roll-out of the
initiative, gained early insight into what was needed in terms of
product development; Craneware InSight appealed and won 84% of RAC
Medicare denials on behalf of its customers, when nationally only
8% of denials were appealed and won*.
* The Medicare Recovery Audit Contractor (RAC) Program: Update
to the Evaluation of the 3-year Demonstration June 2010, CMS
HIPAA 5010 & ICD-10
ICD-10 is a new, more detailed diagnosis and procedure code set
and logic. The goal of the introduction of this new coding is to
improve patient care, enhance claims processing, and improve data
collection. Due to the increased number of codes, the change in the
number of characters per code, and increased code specificity, this
transition will require significant planning, training,
software/system upgrades/replacements, as well as other necessary
investments. The HIPAA transaction standard 5010 is a transaction
format that allows for the additional field length and addition of
non-numeric characters to support ICD-10. All hospitals are
required to have moved to the use of 5010 by January 2012 with
ICD-10 coming into effect from 1 October 2013. Craneware
anticipates that the introduction of this coding will require
hospitals to reassess their current IT and data collection systems,
effectively mandating investment in this area. If physicians and
hospitals are not ready for these changes, they risk claim
rejections and interrupted cash flow. All of Craneware's software
is already ICD-10 compatible.
Sales and Marketing
Due to the expansion of our customer base in the year, we have
chosen to align our sales teams into three geographical regions,
with each region headed up by an experienced Regional Vice
President. We continue to build our separate Sales Support and
Marketing Teams in our Atlanta office. Each team will have a mix of
experience and skill sets, this combined with the closer
geographical alignment will, we believe, better place us to meet
the requirements of our current and future customers. We anticipate
further investment into these teams, in line with our revenue
growth, as we look to meet the market opportunity.
Following the acquisition of ClaimTrust in February this year,
we added over 250 hospitals to Craneware, many of these hospitals
having only one of the now nine 'core' products. As a result of
this larger customer base, our average product attachment rate per
customer is now 1.5 products as compared to 1.7 prior to the
acquisition. This represents an increased cross sell opportunity of
now 7.5 products per customer as we have broadened the product
solutions we can offer to meet our customers' needs.
At the half year period we advised that we were trialing a
system of 'auto renewals' in order to enable our sales people to
focus more on the sales of new products. However, having now
assessed this change of structure over some months, we do not
believe that this system generated the benefits anticipated for
either our customers or Craneware. As a result, we have therefore
reverted to our traditional active multi-year renewal policy,
commissioning the sales teams accordingly. This serves to provide a
greater level of revenue visibility for future years, whilst
retaining the administrative safeguard of the auto-renewal language
in our standard contract.
During the year we have seen our dollar value of renewals in the
year drop below our historical norms of over 100%. This was
exacerbated by the reduced number of hospitals due to renew and two
large hospital groups who, having given an indication they would
renew their original product sets in the period, subsequently
entered into discussions regarding the purchase of additional
products, leading to an extended period of negotiation. It is
important to note that both these large hospital groups are under
contract. In the period since the year end we have seen a return to
our historical norms of at least 100%.
Internally Craneware continues to target a revenue split of no
more than 50% from any one product by the start of FY14 (1 July
2013) and we remain confident that we are achieving the correct
additional balance of non-Chargemaster sales to achieve this,
whilst continuing to add to our Chargemaster customer base.
The average length of new customer contracts continues to be
stable at approximately five years. Where we enter into new product
contracts with our existing customers, these contracts are
typically made co-terminus with the customer's existing contracts,
and as such the average length of these contracts is three years,
in line with our expectations. Annualised new facility value dipped
slightly as a result of the new customer mix in the year, it is
anticipated this will stabilise or increase in future years.
We continue to actively engage with some of the largest
multi-hospital groups in the US and have several potential new
deals in the pipeline. Due to the size of these groups these types
of contracts naturally take longer to close but we are confident we
will continue to see success in this area, as we continue to grow
our market share.
In addition to our internal sales teams, Craneware continues to
partner with numerous industry-leading hospital information
systems, patient accounting systems and GPOs. These alliances both
extend Craneware's market reach and the range of solutions we offer
clients. Sales from the McKesson partnership, whereby Craneware's
Revenue Cycle Management software is integrated into McKesson's
healthcare IT platform, Horizon, have been slower this year than
anticipated as McKesson delayed the roll-out of its new platform.
However, there are strong indications that they intend to move
forward from January 2012 which should benefit Craneware. We
continue to further develop our GPO partnerships with Premier and
Amerinet.
Product Development
Product development continues to sit at the heart of Craneware's
success as we build our portfolio of products sitting in and around
the point where clinical data turns into financial data. This year
saw the successful launch and first sale of our second product
within our Strategic Pricing family, Value-based Pricing Analyzer,
helping hospitals more effectively, accurately and sustainably
manage their pricing strategies for services, drugs and supplies,
optimising their financial performance while making strategic
decisions in both a transparent and defensible manner.
New Product Family - Audit Revenue and Recovery
Since February our focus has been on the integration of the
first three of the ClaimTrust products into our core offering under
the newly developed "Audit and Revenue Recovery" product family.
These products are InSight Audit(TM), InSight Payment Variance
Analyzer(TM) and InSight Denials(TM). Each of these three products
has the potential to be used by customers alongside any of the
current Craneware product suite to help manage and protect against
the increasing number of audits being carried out under the
Medicare Recovery RAC programme introduced as part of healthcare
reform. We therefore believe the potential for these products to be
significant as the RAC programme gathers pace in 2012 and 2013.
Our focus this year will be on the integration of the remaining
3 ClaimTrust products, fully integrating them within the product
suite and into Craneware branding and finding new innovative ways
of leveraging the strengths of the combined data sets of the two
companies.
Customers
Approximately 1,500 hospital facilities across all States in the
US utilise one or more of our software products, representing
nearly a quarter of all US hospital facilities. We continue to win
market share and believe our reputation for customer support and
product innovation, combined with our strong industry partnerships
mean we will continue to do so in the year ahead.
Our customer base continues to cover a broad range of
facilities, from small community hospitals to some of the largest
healthcare networks such as Intermountain Healthcare, Cleveland
Clinic and many of the other faith based charity hospital networks.
We were delighted to begin working this year with Shriners
Hospitals for Children(R), a national 20 hospital group
headquartered in Florida representing our largest children's
hospital customer to date.
During the year our core product, Chargemaster Toolkit(R) was
awarded the number one position in its category by the prestigious
U.S. industry research house KLAS for the fifth consecutive year,
demonstrating Craneware's commitment to continually enhancing our
software to meet current conditions and delivering unparalleled
customer service and support to healthcare facilities across the
country.
Financial Review
The financial results for the current year represent another
significant milestone in Craneware's evolution. Following the
completion of the ClaimTrust acquisition on 17 February 2011, the
results for the first time include a contribution, albeit four
months, from our new subsidiary Craneware InSight Inc ("InSight").
The financial detail underlying this acquisition, the accounting
treatments adopted and how we have adapted our reporting as a
consequence is explained below.
Revenue
Revenues in the year have grown by 34% to $38.1m (2010: $28.4m)
of which the original Craneware business pre the acquisition (the
"Core" business) generated organic growth of 25% to $35.5m (2010:
$28.4m) with InSight delivering revenues of $2.6m in the period
since its acquisition. Of this total revenue $33.4m (2010: $24.7m)
has been delivered from licence revenues generated through our
customers' use of the software, the remainder $4.7m (2010: $3.7m)
has been delivered from our Professional Services organisation
through their work implementing the software and consulting
services provided to hospitals in the Revenue Integrity area,
primarily ensuring they generate the maximum value from our
software solutions.
We continue to generate 100% of our revenue from software and
associated professional services to hospitals in the US. Following
the acquisition we have nine core products that are equally
applicable to our hospital customer base and have cross trained our
sales force to meet this opportunity. As such we still define our
revenue as being derived from one market segment in the financial
statements.
Earnings
As a result of the acquisition, the Group is now reporting an
'Adjusted' earnings before interest, taxation, share based
payments, depreciation, and amortisation ("EBITDA"). This EBITDA is
calculated in accordance with the prior years but also adjusts for
the impact of the one-off costs related to the acquisition such as
the legal and due diligence costs, which amounted to $516,796.
Reporting an 'Adjusted' EBITDA is consistent with other acquisitive
companies as it allows for a more accurate understanding of the
underlying profit generated from operations and for a direct
comparison year on year.
EBITDA for the year has grown to $10.1m (2010: $7.6m) an
increase of 32% in the period. As expected, as a result of our
increased investment and integration spend in InSight, all of the
EBITDA growth is organic with InSight being EBITDA neutral in its
contributing period.
Organic EBITDA margins have increased to 28.5% (2010: 26.8%). It
was anticipated that the InSight business would dilute the Core
margins for a period of time until sufficient operating leverage
could be gained as a result of the acquisition. As a result, the
overall Group margin for the year was 26.5%.
Revenue - Recognition and Visibility
Craneware Core business continues to recognise revenue primarily
through its annuity revenue recognition model. This model sees
software licence revenue recognised over the life of the contracts
we sign (which during the year has remained stable for new
customers at an average contract life of 5 years), with any
associated professional services revenue recognised as we deliver
the services. As a result of this revenue recognition model, the
maximum value of an average contract that can be recognised as
revenue in the current year is 20% plus the value of associated
professional services that have been delivered. This leaves the
remaining 80% of the licence revenue being contracted but not
recognised until future reporting periods.
InSight has historically adopted a different revenue model, with
monthly invoicing and recognition. Whilst this revenue is classed
as 'recurring' it does not meet the strict criteria the Company has
applied to call it 'contracted'. Over time it is our intention to
migrate InSight to the core business model.
As a result of the combined business models, the Company has
identified the "Three Year Visible Revenue" metric as the primary
KPI to assess the medium term growth prospects. This metric
includes:
-- InSight revenue identified as recurring in nature (subject to
an estimated churn rate of 8% per year);
-- Future revenue under contract;
-- Revenue generated from renewals (calculated at 100%).
During the year, the Three Year Visible Revenue has increased
26.5% from $83m to $105m. The breakdown of this total is as
follows:
-- InSight contributed $16.5m.
-- Future revenue under contract contributed $62.6m of which
$28.1m will be recognised in FY12, $20.1m in FY13 and $14.4m in
FY14.
-- Revenue generated from renewal activities contributed $25.9m
(i.e. customers coming to the end of their existing multi-year
contracts) being $3.1m in FY12, $8.6m in FY13 and $14.2m in
FY14.
Operating Expenses
We have continued our planned investment during the year. In
relation to the Core Business we have increased our Client
Servicing spend by 19% to $4.8m (2010: $4.0m) and have made
investments in our infrastructure to support our future growth
(including new offices in Atlanta and an office move to Edinburgh)
resulting in our G&A costs increasing by 15% to $3.8m from
$3.3m). Where we have made investments in prior years, we have
continued to grow in these areas, albeit at lower rates with sales
and marketing spend increasing by 11% to $7.8m (2010: $7.1m) and
product development by 16% to $4.4m after capitalising $0.2m of
costs relating to new products (2010: $3.8m after capitalising
$0.5m of costs relating to new products). These investments
combined with the InSight cost base included since the acquisition
date of $2.6m has resulted in net operating expenses (before
acquisition costs, share based payment, depreciation and
amortisation) of $23.4m (2010: $18.8m). This represents a growth in
our operating costs of 24% as compared to a revenue growth of
34%.
Acquisition of ClaimTrust, Inc
On the 17 February 2011, the Company acquired the entire share
capital of ClaimTrust Inc. for an initial consideration of $15m.
This initial consideration was formed of $9m cash and $6m of new
shares issued. The acquisition is subject to a further contingent
consideration payment of up to a further $4.5m (payable in cash and
shares) depending on financial over-performance in both revenue and
EBITDA for the 12 months to 30 June 2012. The $6m of new shares
issued by Craneware plc represents an additional 641,917 shares (of
which 617,731 have been issued by 30 June 2011).
The acquisition was completed via a newly formed 100% owned
subsidiary Craneware InSight Inc. Following the acquisition, the
ClaimTrust business was consolidated into Craneware InSight Inc. In
presenting these consolidated financial statements the financial
results (including the balance sheet) of Craneware InSight have
been included since the date of acquisition.
On consolidation, International Accounting Standards require the
Company to estimate the fair value of the contingent consideration
and separately identify intangible assets and their Fair Value.
Taking these values into account along with the net assets acquired
results in consolidated goodwill being recognised in the
Consolidated Balance Sheet.
The Company (with the assistance of an external independent
advisor) has estimated, based on industry standard modelling
methodologies, the fair value of contingent consideration to be
$0.95m. Intangible assets relating to the 'attributable value' of
existing customers and proprietary software have been separately
identified and have been recorded on consolidation with a fair
value of $3.0m and $1.2m respectively. As a result, consolidated
goodwill recorded on the balance sheet as a result of the
acquisition is $12.3m.
Cash
We continue to measure the quality of these earnings through our
ability to convert them into operating cash. We are pleased to
report that for the third successive year we have collected at
least 100% of our EBITDA as operating cash. This has resulted in
the Group's cash balance being $24.2m (2010: $29.4m) despite paying
out $9m in relation to the acquisition of ClaimTrust and returning
$3.0m to our shareholders by way of dividend payments.
Balance Sheet
The Group maintains a strong balance sheet position, not only
through our significant cash balance but with rigorous controls
over working capital and no debt.
Currency
The reporting currency for the Group (and cash reserves) is US
Dollars. Whilst the majority of our cost base is US located and
therefore US Dollar denominated we do have approximately one
quarter of the cost base based in the UK relating primarily to our
UK employees (and therefore denominated in Sterling). As a result,
we continue to closely monitor the Sterling to US Dollar exchange
rate, and where appropriate consider hedging strategies. During the
year, we have not seen a significant impact through exchange rate
movements, with the average exchange rate throughout the year being
$1.5906 as compared to $1.5821 in the prior year.
Taxation
As expected, we have seen an increase in our expected rate of
taxation this year to a more normalised level of 30.5% (2010:
23.9%). The Group's effective rate of taxation is dependent on the
ratio of profits generated in the UK and overseas (which will
change following the acquisition) and the applicable tax rates in
the respective jurisdictions. In the two immediately preceding
years, we have seen lower effective rates of taxation due primarily
to agreeing enhanced Research and Development tax relief in respect
of financial years 2002 to 2009.
EPS
As with EBITDA, the Group is now reporting an adjusted EPS
figure. This adjusted EPS figure has also been adjusted for amounts
relating to the acquisition i.e. $516,796 relating to one-off
acquisition related expenses and $147,302 relating to the
amortisation on acquired intangibles. Reporting an adjusted EPS
figure and how this has been calculated, is again consistent with
other acquisitive companies and allows for a more accurate direct
comparison year on year.
Adjusted basic EPS has increased by 17% to $0.256 (2010: $0.218)
and adjusted diluted EPS has increased by 20% to $0.253 (2010:
$0.21). The growth rates for both these metrics has been affected
by the higher tax effective rate detailed above and the increased
number of shares in issue as a result of both the acquisition and
share options exercised in the year.
Dividend
The Board recommends a final dividend of 4.8p (7.7 cents) per
share giving a total dividend for the year of 8.8p (14.14 cents)
per share (2010: 8.0p (11.99 cents) per share). Subject to
confirmation at the Annual General Meeting, the final dividend will
be paid on 9 December 2011 to shareholders on the register as at 11
November 2011, with a corresponding ex-Dividend date of 9 November
2011.
The final dividend of 4.8p per share is capable of being paid in
US dollars subject to a shareholder having registered to receive
their dividend in US dollars under the Company's Dividend Currency
Election, or who register to do so by the close of business on 11
November 2011. The exact amount to be paid will be calculated by
reference to the exchange rate to be announced on 11 November 2011.
The final dividend referred to above in US dollars of 7.7 cents is
given as an example only using the Balance Sheet date exchange rate
of $1.6055/GBP1 and may differ from that finally announced.
Outlook
This has been another year of strong growth for Craneware both
in operational and financial terms, highlighting the strength of
our product offering and business model.
The financial challenges presented by today's economy and
healthcare reform mean it has never been more important for
hospitals to increase efficiency and protect revenue in order to
meet their objectives of providing increased levels of care to a
growing hospital population. We believe our suite of software
combined with our industry expertise uniquely positions us to help
hospitals protect themselves against this changing market
landscape, automating regulatory updates, increasing accuracy of
pricing, charging and coding for procedures, supplies and
pharmaceuticals and helping to manage the increasing number of
government led audits.
Consequently with the market drivers, such as the Recovery Audit
Contractor programme, expected to increase in the year ahead, the
robust nature of our business model which provides for strong cash
generation and high levels of future revenue visibility, together
with our strong pipeline, we look to the future with
confidence.
Keith Neilson Craig Preston
Chief Executive Officer Chief Financial Officer
29 August 2011 29 August 2011
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2011
Continuing
Operations Acquisition Total Total
17/2/11
2011 - 30/6/11 2011 2010
Notes $'000 $'000 $'000 $'000
--------------------- ------ ----------- ------------ --------- ---------
Revenue 35,511 2,613 38,124 28,397
Cost of sales (4,554) (142) (4,696) (2,553)
----------- ------------ --------- ---------
Gross profit 30,957 2,471 33,428 25,844
Net operating
expenses 3 (22,197) (2,677) (24,874) (18,781)
----------- ------------ --------- ---------
Operating profit 8,760 (206) 8,554 7,063
Analysed as:
Adjusted EBITDA* 10,074 3 10,077 7,622
Acquisition costs on
business
combination (517) - (517) -
Share based payments (139) - (139) (114)
Depreciation of
plant and
equipment (266) (46) (312) (192)
Amortisation of
intangible assets (392) (163) (555) (253)
--------------------- ------ ----------- ------------ --------- ---------
Finance income 99 - 99 195
----------- ------------ --------- ---------
Profit before
taxation 8,859 (206) 8,653 7,258
Tax on profit on
ordinary
activities 4 (2,719) 81 (2,638) (1,733)
----------- ------------ --------- ---------
Profit for the year
attributable to
owners of the
parent 6,140 (125) 6,015 5,525
--------------------- ------ ----------- ------------ --------- ---------
*Adjusted EBITDA is defined as operating profit before
acquisition costs, share based payments, depreciation and
amortisation.
Earnings per share for the period attributable to equity
holders
Notes 2011 2010
------------------------------- ------ ------ ------
Basic ($ per share) 6a 0.231 0.218
*Adjusted Basic ($ per share) 6a 0.256 0.218
Diluted ($ per share) 6b 0.228 0.210
*Adjusted Diluted ($ per
share) 6b 0.253 0.210
------------------------------- ------ ------ ------
*Adjusted Earnings per share calculations allow for acquisition
costs and amortisation on acquired intangible assets to form a
better comparison with the previous year.
Statements of Changes in Equity for the year ended 30 June
2011
Share
Share Premium Other Retained Total
Capital Account Reserves Earnings Equity
Group $'000 $'000 $'000 $'000 $'000
-------------------------- -------- -------- --------- --------- --------
At 1 July 2009 512 9,250 3,123 5,790 18,675
Total comprehensive
income - profit for the
year - - - 5,525 5,525
Transactions with owners:
Share-based payments - - 114 730 844
Dividends (Note 5) - - - (2,992) (2,992)
--------------------------
At 30 June 2010 512 9,250 3,237 9,053 22,052
Total comprehensive
income - profit for the
year - - - 6,015 6,015
Transactions with owners:
Share-based payments - - 139 1,249 1,388
Impact of share options
exercised 13 - (3,074) 3,074 13
Issue of ordinary shares
related to business
combination 11 5,989 - - 6,000
Dividends (Note 5) - - - (3,063) (3,063)
--------------------------
At 30 June 2011 536 15,239 302 16,328 32,405
-------------------------- -------- -------- --------- --------- --------
Consolidated Balance Sheet as at 30 June 2011
Notes 2011 2010
$'000 $'000
---------------------------------- ------ ------- -------
ASSETS
Non-Current Assets
Plant and equipment 2,167 281
Intangible assets 7 17,728 1,474
Deferred tax - 1,521
19,895 3,276
------- -------
Current Assets
Trade and other receivables 13,121 8,596
Cash and cash equivalents 24,176 29,442
37,297 38,038
------- -------
Total Assets 57,192 41,314
---------------------------------- ------ ------- -------
EQUITY AND LIABILITIES
Non-Current Liabilities
Contingent consideration 8 954 -
Deferred tax 52 -
Deferred income 250 218
1,256 218
------- -------
Current Liabilities
Deferred income 15,638 13,660
Corporation tax 288 392
Trade and other payables 7,605 4,992
23,531 19,044
------- -------
Total Liabilities 24,787 19,262
------- -------
Equity
Called up share capital 9 536 512
Share premium account 15,239 9,250
Other reserves 302 3,237
Retained earnings 16,328 9,053
Total Equity 32,405 22,052
------- -------
Total Equity and Liabilities 57,192 41,314
---------------------------------- ------ ------- -------
Statements of Cash Flows for the year ended 30 June 2011
Group
-------------------
Notes 2011 2010
$'000 $'000
---------------------------------------- ------ --------- --------
Cash flows from operating activities
Cash generated/(used) from operations 10 10,089 8,906
Interest received 99 195
Tax paid (1,595) (2,188)
---------------------------------------- ------ --------- --------
Net cash from operating activities 8,593 6,913
Cash flows from investing activities
Purchase of plant and equipment (1,790) (127)
Acquistion of subsidiary, net of cash
acquired 8 (8,772) -
Capitalised intangible assets 7 (247) (521)
---------------------------------------- ------ --------- --------
Net cash used in investing activities (10,809) (648)
Cash flows from financing activities
Dividends paid to company shareholders 5 (3,063) (2,992)
Proceeds from issuance of shares 13 -
---------------------------------------- ------ --------- --------
Net cash used in financing activities (3,050) (2,992)
Net (decrease)/increase in cash and cash
equivalents (5,266) 3,273
Cash and cash equivalents at the start
of the year 29,442 26,169
Cash and cash equivalents at the end
of the year 24,176 29,442
---------------------------------------- ------ --------- --------
Notes to the Financial Statements
General Information
Craneware plc (the Company) is a public limited company
incorporated and domiciled in Scotland. The Company has a primary
listing on the AIM stock exchange. The address of its registered
office and principal place of business is disclosed on page 10 of
the financial statements. The principal activity of the Company is
described in the directors' report.
Basis of preparation
The financial statements are prepared in accordance with
International Financial Reporting Standards, as adopted by the
European Union (IFRS), IFRIC interpretations and with those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS. The consolidated financial statements have been prepared
under the historic cost convention. The applicable accounting
policies are set out below, together with an explanation of where
changes have been made to previous policies on the adoption of new
accounting standards in the year, if relevant.
The preparation of financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting 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 Company and its subsidiary undertakings are referred to in
this report as the Group.
1. Selected Principal accounting policies
The principal accounting policies adopted in the preparation of
these accounts are set out below. These policies have been
consistently applied, unless otherwise stated.
Reporting currency
The Directors consider that as the Group's revenues are
primarily denominated in US dollars the Company's principal
functional currency is the US dollar. The Group's financial
statements are therefore prepared in US dollars.
Currency Translation
Transactions denominated in foreign currencies are translated
into US dollars at the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities expressed in foreign
currencies are translated into US dollars at rates of exchange
ruling at the balance sheet date $1.6055/GBP1 (2010 :
$1.4961/GBP1). Exchange gains or losses arising upon subsequent
settlement of the transactions and from translation at the balance
sheet date, are included within the related category of expense
where separately identifiable, or in general and administrative
expenses.
Revenue recognition
The Group follows the principles of IAS 18, "Revenue
Recognition", in determining appropriate revenue recognition
policies. In principle revenue is recognised to the extent that it
is probable that the economic benefits associated with the
transaction will flow into the Group.
Revenue is derived from sales of, and distribution agreements
relating to, software licenses and professional services (including
installation). Revenue is recognised when (i) persuasive evidence
of an arrangement exists; (ii) the customer has access and right to
use our software; (iii) the sales price can be reasonably measured;
and (iv) collectability is reasonably assured.
Revenue from standard licensed products which are not modified
to meet the specific requirements of each customer is recognised
from the point at which the customer has access and right to use
our software. This right to use software will be for the period
covered under contract and, as a result our annuity based revenue
model, recognises the licensed software revenue over the life of
this contract. This policy is consistent with the Company's
products providing customers with a service through the delivery
of, and access to, software solutions (Software-as-a-Service
("SaaS")), and results in revenue being recognised over the period
that these services are delivered to customers.
Revenue from all professional services is recognised as the
applicable services are provided. Where professional services
engagements contain material obligation, revenue is recognised when
all the obligations under the engagement have been fulfilled. Where
professional services engagements are provided on a fixed price
basis, revenue is recognised based on the percentage completion of
the relevant engagement. Percentage completion is estimated based
on the total number of hours performed on the project compared to
the total number of hours expected to complete the project.
Software and professional services sold via a distribution
agreement will normally follow the above recognition policies.
Should any contracts contain non-standard clauses, revenue
recognition will be in accordance with the underlying contractual
terms which will normally result in recognition of revenue being
deferred until all material obligations are satisfied.
The excess of amounts invoiced over revenue recognised are
included in deferred income. If the amount of revenue recognised
exceeds the amount invoiced the excess is included within accrued
income.
Intangible Assets
(a) Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the fair value of the identifiable assets
and liabilities of a subsidiary at the date of acquisition.
Goodwill is capitalised and recognised as a non-current asset in
accordance with IFRS 3 and is tested for impairment annually, or on
such occasions that events or changes in circumstances indicate
that the value might be impaired.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units that are expected to benefit from the
business combination in which the goodwill arose.
(b) Proprietary software
Proprietary software acquired in a business combination is
recognised at fair value at the acquisition date. Proprietary
software has a finite life and is carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line
method to allocate the associated costs over their estimated useful
lives of 5 years.
(c) Contractual Customer relationships
Contractual customer relationships acquired in a business
combination are recognised at fair value at the acquisition date.
The contractual customer relations have a finite useful economic
life and are carried at cost less accumulated amortisation.
Amortisation is calculated using the straight-line method over the
expected life of the customer relationship which has been assessed
as 10 years.
(d) Research and Development Expenditure
Expenditure associated with developing and maintaining the
Group's software products are recognised as incurred. Where,
however, new product development projects are technically feasible,
production and sale is intended, a market exists, expenditure can
be measured reliably, and sufficient resources are available to
complete such projects, development expenditure is capitalised
until initial commercialisation of the product, and thereafter
amortised on a straight-line basis over its estimated useful life.
Staff costs and specific third party costs involved with the
development of the software are included within amounts
capitalised.
(e) Computer software
Costs associated with acquiring computer software and licensed
to-use technology are capitalised as incurred. They are amortised
on a straight-line basis over their useful economic life which is
typically 3 to 5 years.
Impairment of non-financial assets
At each reporting date the Group considers the carrying amount
of it tangible and intangible assets including goodwill to
determine whether there is any indication that those assets have
suffered an impairment loss. If there is such an indication, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any) through determining the
value in use of the cash generating unit that the asset relates to.
Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be less
than its carrying amount, the impairment loss is recognised as an
expense.
Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset. A reversal of an
impairment loss is recognised as income immediately. Impairment
losses relating to goodwill are not reversed.
Taxation
The charge for taxation is based on the profit for the period
and takes into account deferred taxation. Taxation is computed
using the liability method. Under this method, deferred tax assets
and liabilities are determined based on temporary differences
between the financial reporting and tax bases of assets and
liabilities and are measured using enacted rates and laws that will
be in effect when the differences are expected to reverse. The
deferred tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction that at the
time of the transaction affects neither accounting nor taxable
profit or loss. Deferred tax assets are recognised to the extent
that it is probable that future taxable profits will arise against
which the temporary differences will be utilised.
Deferred tax is provided on temporary differences arising on
investments in subsidiaries except where the timing of the reversal
of the temporary difference is controlled by the Group and it is
probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets and liabilities arising in
the same tax jurisdiction are offset.
In the UK and the US, the Group is entitled to a tax deduction
for amounts treated as compensation on exercise of certain employee
share options under each jurisdiction's tax rules. As explained
under "Share-based payments" below, a compensation expense is
recorded in the Group's statement of comprehensive income over the
period from the grant date to the vesting date of the relevant
options. As there is a temporary difference between the accounting
and tax bases a deferred tax asset is recorded. The deferred tax
asset arising is calculated by comparing the estimated amount of
tax deduction to be obtained in the future (based on the Company's
share price at the balance sheet date) with the cumulative amount
of the compensation expense recorded in the statement of
comprehensive income. If the amount of estimated future tax
deduction exceeds the cumulative amount of the remuneration expense
at the statutory rate, the excess is recorded directly in equity
against retained earnings.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, deposits held
with banks and short term highly liquid investments. For the
purpose of the statements of cash flows, cash and cash equivalents
comprise of cash on hand, deposits held with banks and short term
high liquid investments.
Share-Based Payments
The Group grants share options to certain employees. In
accordance with IFRS 2, "Share-Based Payments" equity-settled
share-based payments are measured at fair value at the date of
grant. Fair value is measured by use of the Black-Scholes pricing
model as appropriately amended. The fair value determined at the
date of grant of the equity-settled share-based payments is
expensed on a straight-line basis over the vesting period, based on
the Group's estimate of the number of shares that will eventually
vest. Non-market vesting conditions are included in assumptions
about the number of options that are expected to vest. At the end
of each reporting period, the entity revises its estimates of the
number of options that are expected to vest based on the non-market
vesting conditions. It recognises the impact of the revision to
original estimates, if any, in the statement of comprehensive
income, with a corresponding adjustment to equity. When the options
are exercised the Company issues new shares. The proceeds received
net of any directly attributable transaction costs are credited to
share capital and share premium.
The share-based payments charge is included in net operating
expenses and is also included in 'Other reserves'.
2 Critical accountingestimates and judgements
The preparation of financial statements in accordance with
international financial reporting standards requires the directors
to make critical accounting estimates and judgements that affect
the amounts reported in the financial statements and accompanying
notes. The estimates and assumptions that have a significant risk
of causing material adjustment to the carrying value of assets and
liabilities within the next financial year are discussed
below:-
-- Investment in Subsidiary/Purchase Price Allocation:- the
Group determines whether investments in subsidiaries and the
related Intangible assets acquired are impaired at least on an
annual basis and measures the recoverable amount of the investment
whenever there is an indication that the investment may be
impaired. This requires an estimation of the value in use of the
applicable cash generating unit. Estimating the value in use
requires the Group to make an estimate of the expected future
cashflows from the subsidiary and also to choose a suitable
discount rate in order to calculate the present value of those
cashflows. Where there is an indication of impairment, management
perform an impairment review to determine the level of provision
required.
-- Calculation of goodwill and contingent consideration:-
Goodwill is calculated based on estimated consideration payable to
the former shareholders of the acquired subsidiary. This
consideration includes a contingent element which is based on
future estimated profits. This requires an initial assessment as to
the probability of whether the full amount of the purchase
consideration will be payable. These accounting estimates and
judgements are based on assumptions that management and the Board
of Directors believe are reasonable under the circumstances and are
disclosed in more detail in note 8. The Group also make estimates
and judgements concerning the future and the resulting estimates
may, by definition, vary from the related actual results.
-- Provision for impairment of trade receivables:- the Group
assesses trade receivables for impairment which requires the
directors to estimate the likelihood of payment forfeiture by
customers.
-- Revenue recognition:- the Group assesses the economic benefit
that will flow from future milestone payments in relation to
sub-licensing partnership arrangements. This requires the directors
to estimate the likelihood of the Group, its partners, and
sub-licensees meeting their respective commercial milestones and
commitments.
-- Capitalisation of development expenditure:- the Group
capitalises development costs provided the conditions laid out
previously have been met. Consequently the directors require to
continually assess the commercial potential of each product in
development and its useful life following launch.
-- Provisions for income taxes:-the Group is subject to tax in
the UK and US and this requires the directors to regularly assess
the applicability of its transfer pricing policy.
-- Share-based payments:-the Group requires to make a charge to
reflect the value of share-based equity-settled payments in the
period. At each grant of options and balance sheet date, the
Directors are required to consider whether there has been a change
in the fair value of share options due to factors including number
of expected participants.
3 Net operating expenses
Net operating expenses are comprised of
the follows:-
2011 2010
$'000 $'000
------------------------------------------- ------- -------
Sales and marketing expenses 8,368 7,102
Client servicing 5,775 4,037
Research and development 5,024 3,785
Administrative expenses 4,143 3,314
Acquisition costs on business combination 517 -
Share-based payments 139 114
Depreciation of plant and equipment 312 192
Amortisation of intangible assets 555 253
Exchange loss/(gain) 41 (16)
Net operating expenses 24,874 18,781
------------------------------------------- ------- -------
4 Tax on profit on ordinary activities
2011 2010
$'000 $'000
------------------------------------------------------ ------ -----
Profit on ordinary activities before tax 8,653 7,258
Current tax
Corporation tax on profits of the year 3,257 2,005
Foreign exchange on taxation in the year 42 58
Adjustments for prior years 68 (257)
------------------------------------------------------ ------ -----
Total current tax charge 3,367 1,806
------------------------------------------------------ ------ -----
Deferred tax
Origination & reversal of timing differences (749) (73)
Change in tax rate 20 -
------------------------------------------------------ ------ -----
Total deferred tax (credit) (729) (73)
Tax on profit on ordinary activities 2,638 1,733
------------------------------------------------------ ------ -----
The difference between the current tax charge on ordinary
activities for the year, reported in the consolidated statement
of comprehensive income, and the current tax charge that would
result from applying a relevant standard rate of tax to the
profit on ordinary activities before tax, is explained as
follows:
Profit on ordinary activities at the UK tax
rate 27.5% (2010: 28%) 2,380 2,032
Effects of
Adjustment in respect of prior years:
Current tax 68 (257)
Change in tax rate 20 -
State tax 60 49
Additional US tax on profits 34% (2010: 34%) 76 59
Foreign Exchange 34 (33)
Expenses not deductible for tax purposes 13 (1)
Tax deduction on share plan charges (13) (116)
------------------------------------------------------ ------ -----
Total tax charge 2,638 1,733
------------------------------------------------------ ------ -----
5 Dividends
The dividends paid during the year were as follows:-
2011 2010
$'000 $'000
---------------------------------------------- ------ ------
Final dividend, re 30 June 2010 - 5.31 cents
(3.3 pence)/share 1,333 1,220
Interim dividend, re 30 June 2011 - 6.44
cents (4.0 pence)/share 1,730 1,772
Total dividends paid to company shareholders
in the year 3,063 2,992
---------------------------------------------- ------ ------
The proposed final dividend for 30 June 2011 is subject to
approval by the shareholders at the Annual General Meeting and has
not been included as a liability in these accounts.
6 Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year.
2011 2010
Profit attributable to equity holders of the
Company ($'000) 6,015 5,525
Weighted average number of ordinary shares in
issue (thousands) 26,079 25,315
----------------------------------------------- ------- -------
Basic earnings per share ($ per share) 0.231 0.218
----------------------------------------------- ------- -------
Adjusted Basic earnings per share is calculated under the same
method as shown above except that the profit attributable to equity
holders of the Company is increased by $664,098 which represents
the total acquisition costs expensed during the year and
amortisation of acquired intangible assets. This gives rise to an
adjusted basic earnings per share of $0.256 per share.
b) Diluted
For diluted earnings per share, the weighted average number of
ordinary shares calculated above is adjusted to assume conversion
of all dilutive potential ordinary shares. The Group has one
category of dilutive potential ordinary shares, being those share
options granted to directors and employees under the share option
scheme.
2011 2010
Profit attributable to equity holders of the
Company ($'000) 6,015 5,525
Weighted average number of ordinary shares in
issue (thousands) 26,079 25,315
Adjustment for:
- Share options (thousands) 324 1,005
Weighted average number of ordinary shares for
diluted
earnings per share (thousands) 26,403 26,320
------------------------------------------------ ------- -------
Diluted earnings per share ($ per share) 0.228 0.210
Adjusted diluted earnings per share is calculated under the same
method as shown above except that the profit attributable to equity
holders of the Company is increased by $664,098 which represents
the total acquisition costs expensed during the year and
amortisation of acquired intangible assets. This gives rise to an
adjusted diluted earnings per share of $0.253 per share.
7 Intangible assets
Goodwill and Other Intangible assets
Group
Goodwill Customer Proprietary Development Computer
Relationships Software Costs Software Total
$'000 $'000 $'000 $'000 $'000 $'000
-------------- --------- -------------- ------------ ------------ --------- -------
Cost
At 1 July
2010 - - - 2,385 293 2,678
Additions - - - 199 48 247
Additions
acquired at
Fair Value 12,264 2,964 1,222 - 112 16,562
At 30 June
2011 12,264 2,964 1,222 2,584 453 19,487
-------------- --------- -------------- ------------ ------------ --------- -------
Amortisation
At 1 July
2010 - - - 944 260 1,204
Charge for
the year - 66 82 364 43 555
At 30 June
2011 - 66 82 1,308 303 1,759
NBV at 30
June 2011 12,264 2,898 1,140 1,276 150 17,728
-------------- --------- -------------- ------------ ------------ --------- -------
Cost
At 1 July
2009 - - - 1,886 271 2,157
Additions - - - 499 22 521
At 30 June
2010 - - - 2,385 293 2,678
-------------- --------- -------------- ------------ ------------ --------- -------
Amortisation
At 1 July
2009 - - - 725 226 951
Charge for
the year - - - 219 34 253
At 30 June
2010 - - - 944 260 1,204
NBV at 30
June 2010 - - - 1,441 33 1,474
-------------- --------- -------------- ------------ ------------ --------- -------
The additions acquired in the year are all in respect of the 17
February 2011 acquisition of Craneware InSight Inc (see Note 8).
Future anticipated payments arising from earn-outs are based on the
Directors best estimates of these contingent obligations. The
earn-out is dependent on the future performance of the relevant
business and a continued assessment of the liability arising is
performed at least twice yearly.
In accordance with the Group's accounting policy, the carrying
values of goodwill and other intangibles assets are reviewed for
impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
For goodwill the recoverable amount of the applicable
cash-generating unit, which relates to the acquisition in the
period (see Note 8), has been determined on the basis of fair value
less costs to sell, determined by the binding contract for the sale
of the ClaimTrust Inc. business to Craneware plc, as enacted on 17
February 2011.
The consideration for the sale supports the valuation of
goodwill, as does the proximity of the applicable impairment review
date to this agreement.
8 Acquisition of subsidiary: Craneware InSight Inc
On 17 February 2011, the Company acquired 100% of the issued
share capital of ClaimTrust Inc. On the date of acquisition the
assets and liabilities of ClaimTrust Inc. were merged into the
newly created entity, Craneware InSight Inc. The total
consideration for the acquisition along with the fair value of the
identified assets and assumed liabilities is shown below:
Fair Value
Recognised amounts of
identifiable Book Value Adjustments Fair Value
assets acquired and liabilities
assumed $'000 $'000 $'000
Tangible fixed assets
Plant and equipment 408 - 408
Intangible assets
Computer software 112 - 112
Customer relationships - 2,964 2,964
Proprietary software - 1,222 1,222
Other assets and liabilities
Trade and other receivables 1,171 - 1,171
Bank and cash balances 228 - 228
Trade and other payables (741) - (741)
Deferred tax - (1,674) (1,674)
1,178 2,512 3,690
----------- ------------ -----------
Goodwill 12,264
Fair Value 15,954
-----------
Satisfied by: $'000
Cash 9,000
Ordinary shares issued - 641,917
shares at $9.347 (GBP5.83) 6,000
Fair value of contingent deferred
consideration 954
15,954
-----------
Bank balances and cash
acquired 228
Cash consideration (9,000)
Net cash on acquisition (8,772)
-----------
The contingent consideration is subject to performance criteria,
including revenue and profit targets, set for the next financial
year and consequently the actual consideration is payable following
the respective year end. The maximum potential deferred
consideration payable is an additional $4.5m subject to meeting all
the performance criteria. The acquisition costs, including all due
diligence costs that related to the transaction amounted to
$516,796 and these have been expensed as operating costs in
compliance with IFRS 3 (revised).
Goodwill of $12,263,819 has been recognised on acquisition and
is attributable to future customers, future software and the
assembled workforce.
In the period following the acquisition, Craneware InSight Inc.
contributed $2,612,624 to Group revenue and $3,016 to adjusted
EBITDA* which has been included with the consolidated statement of
comprehensive income for the year. Had Craneware InSight Inc. been
consolidated from 1 July 2010, the consolidated statement of
comprehensive income would show revenue of $42,958,489 and adjusted
EBITDA* of $10,235,219.
The initial accounting for the business combination is
incomplete as at 30 June 2011 and is based on provisional amounts.
In particular, the directors are still to determine if there is a
deferred tax asset in relation to 'net operating losses' carried
forward from the acquired business that can be recognised.
*Adjusted EBITDA is defined as operating profit before
acquisition costs, share based payments, depreciation and
amortisation.
9 Called up share capital
Authorised
2011 2010
Number $'000 Number $'000
---------------------------- ----------- ------ ----------- ------
Equity share capital
Ordinary shares of 1p each 50,000,000 1,014 50,000,000 1,014
---------------------------- ----------- ------ ----------- ------
Allotted called-up and fully paid
2011 2010
Number $'000 Number $'000
---------------------------- ----------- ------ ----------- ------
Equity share capital
Ordinary shares of 1p each 26,792,681 536 25,365,850 512
---------------------------- ----------- ------ ----------- ------
The movement in share capital during the year is represented as
follows:
-- 809,100 Ordinary Share options were exercised in the
year.
-- 617,731 Ordinary Shares were issued at the balance sheet date
as equity in respect of the consideration for the Craneware InSight
Inc acquisition at price of $9.347 (GBP5.83).
10 Cash flow generated from operating activities
Reconciliation of profit before tax to net cash inflow from
operating activities
Group
2011 2010
---------------------------------------- ------- -------
$'000 $'000
Profit before tax 8,653 7,258
Finance income (99) (195)
Depreciation on plant and equipment 312 192
Amortisation on intangible assets 555 253
Share-based payments 139 114
Movements in working capital:
Increase in trade and other receivables (3,353) (3,385)
Increase in trade and other payables 3,882 4,669
---------------------------------------- ------- -------
Cash generated from operations 10,089 8,906
---------------------------------------- ------- -------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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