TIDMCRW
RNS Number : 7393R
Craneware plc
16 September 2014
Craneware plc
("Craneware", "the Group" or the "Company")
Final Results
16 September 2014 - 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
2014.
Financial Highlights (US dollars)
-- Record total contract value signed in the year of $71.0m (FY13: $38.5m)
-- Revenue increased to $42.6m (2013: $41.5m)
-- Adjusted EBITDA(1) increased to $13.1m (2013: $12.4m)
-- Adjusted profit before taxation increased to $11.9m (2013: $11.2m)
-- Profit before tax increased to $11.3m (2013: $10.6m)
-- Basic adjusted EPS increased to 34.0 cents (2013: 32.9
cents), basic EPS increased to 31.9 cents (2013: 30.7 cents)
-- Positive operational cash flow of $10.2m (2013: $9.9m)
-- Cash at year end $32.6m (2013: $30.3m) after payment of $5.4m dividend to shareholders
-- Proposed final dividend of 6.8p (11.63 cents) per share
giving total dividend for the year of 12.5p (21.37 cents) (2013:
11.5p / 17.4 cents per share)
(1.) Adjusted EBITDA refers to earnings before interest, tax,
depreciation, amortisation, share based payments.
Operational Highlights
-- Leading indicators of customer confidence in the US healthcare market:
o Sales to all strata of hospitals
o Return of 7 and 9 year contracts
o Dollar renewal rates continue to be strong, within historic
range
o Longer average renewal contract lengths
o Strong sales momentum and pipeline continues into FY15
-- Supportive market environment for Craneware products due to
continued regulatory and fiscal pressures on US healthcare
providers
-- Continued investment in product suite:
o Major enhancement releases to gateway products
o Furthering enterprise capabilities across product families
o Post year end launch of Reference Plus; and
o Acquisition of Kestros Limited
Keith Neilson, CEO of Craneware plc commented, "We have been
pleased with the Group's performance in the year. We have seen
signs of growing customer confidence and believe Craneware is
increasingly well positioned to address a growing market
opportunity in what is the largest software vertical in the world;
the US healthcare market.
Craneware remains at the forefront of providing solutions to US
healthcare providers to help them achieve revenue integrity through
the management of their cost base whilst ensuring receipt of all
legitimate reimbursement. We believe true revenue integrity is
required if healthcare providers are to continue to support
improved patient care and clinical outcomes.
Investments in the business mean we have the people and the
expertise in place to take us through the next stage of growth,
building on our record sales performance. We have had a strong
start to the current year, carrying on the momentum from the
previous year and are confident we have the platform to deliver
ongoing increased stakeholder value."
For further information, please contact:
Craneware plc Peel Hunt Newgate Threadneedle
+44 (0)131 550 3100 +44 (0)20 7418 8900 +44 (0)20 7653 9850
Keith Neilson, CEO Dan Webster Caroline Forde
Craig Preston, CFO Richard Kauffer Tim Thompson
Heather Armstrong
Edward Treadwell
About Craneware
Founded in 1999, Craneware has headquarters in Edinburgh,
Scotland with offices in Georgia, Arizona, Massachusetts and
Tennessee 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.
Chairman's Statement
I am pleased to report that following a promising first half,
the increased sales activity which had been building over prior
years has resulted in a record sales performance for the Group
during the year. The marketplace for our products is developing as
we had anticipated, with sales now coming from both individual
hospitals and larger hospital groups. This trend has continued in
the first months of the new fiscal year and we expect this to
continue in a positive manner in the year ahead. The strength of
our business model, which spreads the value of each contract over
its lifetime, is such that these sales successes are building a
solid platform of future revenue on which the business will
grow.
The total value of contracts signed in the year increased by 84%
to $71.0m (FY13: $38.5m). In accordance with the Group's revenue
recognition policy, the vast majority of the revenue from these
sales will benefit future years. Revenues increased to $42.6m,
adjusted EBITDA increased to $13.1m and adjusted EPS increased to
34.0 cents. The Group continued to benefit from strong operational
cash flow, closing the period with a cash balance of $32.6m (30
June 2013: $30.3m).
We are now benefiting from the restructuring of the business in
previous periods, achieving record sales and ensuring scalability
and sustainability for the future. We continue to invest in our
products and people to ensure that we remain at the forefront of
this evolving sector of the US healthcare IT market, the world's
largest IT industry. With the acquisition of Kestros Limited, an
emerging technology player in the patient access market, after the
year end, the Group is well positioned to develop solutions to
address the ongoing consumerisation trend within healthcare on both
sides of the Atlantic.
The market environment for the business remains positive.
Craneware's growing product set addresses many of the problems
facing US healthcare organisations and the Group is increasing in
strategic importance to its customer base. I am pleased to report
that we recruited Colleen Blye and Russ Rudish to the Board in
November 2013 and August 2014 respectively. Colleen and Russ will
be able to provide significant additional insight into the
challenges facing US healthcare organisations.
With a quarter of US hospitals as customers, high levels of
visibility over future revenue, a significantly strengthened
operating structure and enhanced product set, we are confident in
the ongoing success of the Group.
I would like to thank our staff for their enthusiasm and
commitment. It is their passion that is the basis of our
success.
Lastly, I would like to thank you, our shareholders, for your
support.
George Elliott
Chairman
15 September 2014
Strategic Report / Operational and Financial Review
We are pleased to have delivered a strong year, showing progress
in each of our five key strategic focus areas. These have resulted
in increased relevance to our customers when considering their
strategy for funding the effective delivery of healthcare in an
evolving market.
These areas are, in the short to medium term:
-- to strengthen and leverage our dominant position in the
automated Chargemaster market to facilitate a greater understanding
of the true value of this strategic asset to hospitals;
-- to continue to invest and grow our Gateway solutions; and
-- to establish revenue and market penetration for a Gateway
product in the Patient Access and hospital consumerisation
arena.
The two other areas of focus are more medium to long-term,
being:
-- to invest and grow our data analytics platform; and
-- to continue to seek alternative channels to market.
We have made good progress in each of these five areas over the
course of the year.
As a result we have seen a significant increase in the total
value of contacts signed across both new hospitals and existing
customers taking new products in the year, a positive leading
indicator of future growth. While revenue and EBITDA growth in the
year has been modest, the high levels of sales during the year have
resulted in an increase in revenue which will be recognised in
future years, providing us with a growing platform on which to
build.
The majority of the larger contract wins in the year were
secured in the second half of the year and are seen as the
beginning of the return of sales to large hospital groups from our
pipeline. These large deals, which contributed approximately a
quarter of the total contract value in the period, had been missing
from results in the previous two years. The sales pipeline
continues to be at a record high across all strata of hospital,
providing us with strong prospects for sales in the current year
and beyond.
Craneware has progressed considerably since its IPO in 2007. We
have a broader product set. We address many more of the key issues
experienced by healthcare providers as they strive for revenue
integrity. We have considerably increased scalability and
management bandwidth. Additionally, we have a greater level of
industry expertise within the business, providing us with better
insight into the problems our customers face. We are effectively
maturing from being a single product company, known primarily for
its Automated Chargemaster Toolkit, to a leader in the evolving
revenue integrity marketplace. With a quarter of US hospitals
already using at least one of our products, our vision is to be the
partner healthcare providers rely on to improve and sustain strong
financial performance with revenue integritythrough the management
of their cost base whilst ensuring receipt of all legitimate
reimbursement. We believe that this will provide the financial
foundations for sustainable improvements to patient care for the
future.
As we look to this year our long term strategy and focus remain
consistent and builds upon last year's successes by concentrating
efforts on four key areas; increase the awareness of Craneware's
strategic relevance in the evolution of the financing and
effectiveness of healthcare; continue the sales momentum gained
last year across all strata of hospitals; ensure the success of our
customers, confident in the knowledge that their success will lead
to our success and finally to continue to be innovative in the
combinations of Revenue Integrity solutions that we bring to market
and as we develop our future product sets to include data analytics
and robust consumerisation solutions.
We are confident that with this strategy we are on the right
path towards accelerated revenue and profit growth in future
years.
Market Developments
The US healthcare market, worth more than $2.8 trillion, is
quickly evolving and continues to grow through 2014. Healthcare
expenditure in the United States is expected to increase to
approximately $3.3 trillion in 2015, reaching 18% of GDP*.
With six main trends affecting US healthcare reimbursement,
outlined below, the main priority of our customers continues to be
providing quality care to their patients against the background of
continuing cuts in Medicare reimbursements, imposed restructuring
of their business models and increased pressure from payor
auditors.
*Source: The US Centers for Medicare & Medicaid Services,
Office of the Actuary, "National Health Expenditure Projections and
Selected Economic Indicators, Levels and Annual Percent Change:
Calendar Years 2006-2022," which incorporate estimates from June
2013 of Gross Domestic Product.
The Affordable Care Act
Impacts of the Affordable Care Act are well underway. The online
Health Insurance Exchanges established under the Act, which allow
individuals and small businesses to purchase private health
insurance, resulted in enrollments from over 8 million people in
the Health Insurance marketplace according to a May 2014 press
release from the US Department of Health and Human Services.
Hospitals will shortly begin to see large numbers of these
patients in a setting that will be covered by at least a basic
level of insurance where previously many hospitals would have been
forced to see these patients and write off much of the treatment
costs as charity care. Future supply and demand curves for
hospitals are predicted to remove any current perceived spare
capacity in the industry.
New Reimbursement Models
As part of the Affordable Care Act, healthcare providers and
payors have been asked to consider and implement a wide range of
new business models for managing healthcare and related
reimbursement to reduce dependence on fee-for-service-only style
payments. This involves reimbursement coming from a variety of
healthcare business payment models. Alongside fee-for-service-based
payment and bundled payment, US healthcare is working toward
outcomes-based payment and is organising other new risk-sharing
models for efficient population health management.
The charge is the common unit of measurement across all new
business models that enables healthcare organisations to ensure
they bill accurately for all services provided. To disperse the
payments to varied providers in risk-sharing organisations,
accurate charges enable each party to identify their portion of
care. Population health management requires accurate charges as the
basis for measuring cost-per-patient and cost-per-patient-type.
As multiple reimbursement models move more risk to the
healthcare provider, they also create a greater dependency for them
to claim reimbursement correctly, requiring the accuracy of data
both clinically and financially within their systems to make
correct assessment of the acquired risk. Residing at the points in
a health system where clinical and operational data transform into
financial transactions, the chargemaster is central to the quality
drive, serving as the logical control point for data normalisation
that combines disparate data sets whilst maintaining the localised
context. Measuring of health system's operations from the viewpoint
of its chargemaster, enables the creation of organisation-wide
visibility and accountability, whilst proffering valuable,
actionable information regardless of reimbursement model or models
chosen.
Healthcare Consumerisation
With rising costs in healthcare being transferred
disproportionately from the government, insurers and the employer
to the consumer, hospitals have seen more than a trebling of their
reimbursement coming directly from the consumer in the last ten
years. This drive to consumerism and the need for healthcare
organisations to focus on patient-direct billing as never before
has resulted in a technology-backed focus on correct and efficient
patient registration with payment arrangements and collections
before the provision of treatment.
Payor Audits
With more than $3.7 billion in Medicare funds recouped from
hospitals and other healthcare providers in the twelve months prior
to June 30, 2014 alone, the Recovery Audit Programme has been a
financial boom for Medicare. Medicare recovery audits continue to
put strong pressure on hospitals, as hospitals must respond to
audit requests within tight deadlines, coordinating to provide
auditors with complete medical records and documentation from
multiple systems, and to show that care provided meets criteria as
medically necessary, and to effectively manage related payment
appeals.
The Medicare Recovery Audit Programme is also in a period of
transition. In order to complete all outstanding claim reviews and
related processes by the end date of the current Recovery Auditors'
contracts, there is a delay in the procurement process for the
ensuing round of contracts to be awarded to the next set of
Recovery Auditors. In the meantime, the current Recovery Audit
Programme contracts have been extended so that these active
Recovery Auditors' can continue sending additional documentation
requests and initiating automated reviews, however their activities
after June 1, 2014 are limited until new contracts are awarded.
Healthcare providers currently have billions of dollars in
denied payments tied up in a massive backlog of appeal cases. The
backlog is causing wait times of two or more years for appeal
resolution. In May 2014, the American Hospital Association filed a
lawsuit to compel Medicare to meet its stated requirement of 90-day
appeal resolution. In an attempt to clear this backlog, Medicare
has begun offering partial payment on these claims if providers
agree to drop their appeal.
The Recovery Audit Programme's success has also led to the
growth of audits as a method for commercial insurers as well as
other government agencies such as Medicaid to categorise payments
being made to hospitals as improper until the hospitals defends its
reimbursement. These trends all reinforce the business need for
hospitals to mitigate the hospital's exposure to the risk of having
their revenue reduced by ensuring they have the correct processes
and tools to ensure Revenue Integrity in the initial instance and
to be able to track, trend, and manage the variety of financial
audits that hospitals face in today's healthcare environment.
ICD 10 Coding Transition
For the fourth time, the compliance deadline has been delayed
for US hospitals and health systems to have to report their claims
with an International Classification of Diagnosis Code Version 10
(ICD-10) replacing the simpler version 9 which is currently
mandated for the US. Although very large in its magnitude and
increased complication for providers, as this conversion from ICD-9
to ICD-10 has been scheduled for a long time (with the most recent
delay moving the US compliance deadline from October 2014 to
October 2015) the majority of hospitals have had time to detail and
advance their plans to deal successfully with this conversion.
Although getting these codes wrong on a claim could have a
catastrophic effect on a hospital's reimbursement, the number of
hospitals that appear to have not been successfully testing their
claims with this data set is limited and therefore should not
substantially result in a diversion for hospitals, as long as the
payor systems are equally robust.
Consolidation and Affiliation
As reported in previous periods, the increasing trend for
healthcare providers to consolidate and affiliate to share
economies of scale continues. This has introduced the more complex
operational challenges for hospitals as they choose to run their
operations over many disparate Patient Accounting Systems from
different vendors or consolidate onto one patient accounting
platform from a single vendor. This decision has accelerated the
migration of healthcare providers into other Patient Accounting
System platforms with the need for tools to monitor this progress
and compensate for functionality that previously existed in legacy
systems.
Management believes Craneware has the most extensive suite of
revenue integrity solutions to address the aforementioned
healthcare trends and is confident of its growing prominence within
the US healthcare market as it continues to further develop and
enhance its solutions for Patient Access, Charge Capture &
Pricing, Coding Integrity, Revenue Collection & Retention, Data
& Decision Enablement, which encompass the span of the revenue
cycle, supply chain and audit areas in US healthcare
organisations.
Sales and Marketing
The Group delivered an outstanding sales performance in the
year, in part reflecting the anticipated development of the natural
buying cycle, with the increasing engagement of larger hospital
groups and their inherently more complex buying decisions. Total
contract sales values of $71.0m were a result of the investments
made into the sales force over the last two years through increased
capacity at a sales leadership level, training and a new
competitive incentive scheme to drive this performance.
The average length of new customer contracts continues to be
in-line with our historical norms of approximately five years,
although we have seen the return of 7 and 9 year contracts in the
year which is reflective of the increasing market confidence of our
customers. Where Craneware enters into new product contracts with
its existing customers, contracts are typically made co-terminus
with the customer's existing contracts, and as such, the average
length of these contracts remains greater than three years, in-line
with our expectations.
Renewal rates by dollar value is a financial metric which
specifically ties to the revenue visibility for future years. This
metric at 95% is within expected norms of 85-115% including cross
sell of further products to renewing clients. Variations are driven
by the timing of individual renewals, additional product sales and
contract negotiation or cancellation. Length of our average
contract for renewals in the period has increased to four years, a
significant increase from two and a half years previously, driven
by an active engagement with clients on 1 year evergreen auto-renew
contracts to sign new multi-year contracts.
The sales mix remained fairly constant throughout the period,
resulting in no change to the overall product attachment rate,
which remained steady at approximately 1.6 products per customer.
We have made further strides in the promotion and market acceptance
of our other Gateway products, outside of Chargemaster Toolkit.In a
year of record total sales, the sales of Chargemaster Toolkit and
our other two gateway products Pharmacy ChargeLink and InSight
Audit was approximately in the ratio of 3:2:1.
Our marketing focus has been on developing messaging that builds
on our historic brand values but highlights in a more contemporary
setting the strategic relevance of our assets in the effective
running of hospital operations across multiple disciplines
targeting the "C Suite" including the CFO of healthcare providers.
The importance of revenue integrity to all healthcare providers is
gaining increasing exposure at the top tier management of these
organisations as there is a growing realization that under new
payment models cost base management and receipt of legitimate
reimbursement combine to ensure revenue Integrity which is far more
critical than just monitoring and managing Revenue Cycle alone. We
are now seeing acknowledgment across the "C Suite" that financial
and clinical operations have to be aligned financially to drive
better healthcare and therefore better patient outcomes.
Awards
Once again two of our solutions ranked first in two distinct
revenue cycle categories in the annual "2013 Best in KLAS Awards:
Software & Services" report, published January 2014. In this
KLAS report, Craneware's flagship product, Chargemaster Toolkit(R),
earned the #1 ranking in the KLAS "Revenue Cycle - Chargemaster
Management" market category for the eighth consecutive year, and
Craneware's Bill Analyzer software ranked #1 in the "Revenue Cycle
- Charge Capture," winning a Category Leader award for the third
year running.
In June 2014, the Healthcare Financial Management Association
(HFMA) recognized five Craneware products at ANI: HFMA's 2014
National Institute in Las Vegas, for earning the "Peer Reviewed by
HFMA(R) " standard every year since 2004, the first year of the
Peer Review program. This is a testament to Craneware solutions'
ability to effectively enable hospitals and health systems to
achieve revenue integrity.
The Craneware products receiving this distinction include
Chargemaster Toolkit(R) , Chargemaster Corporate Toolkit(R) ,
Online Reference Toolkit(R) , Interface Scripting Module, and Bill
Analyzer: the only healthcare products and services to earn this
designation every year since the inception of the program.
Product Development
Our strategy is to provide software solutions that help
customers at the points in their systems where clinical and
operational data transform into financial transactions. Our
solutions automate data normalisation, combining disparate data
sets while maintaining the localised context. This produces
valuable, actionable information and creates organisation-wide
visibility and accountability. We consistently receive feedback
from our customers that the implementation of our software can have
a profound effect on the hospital operations, enabling the rapid
identification of significant amounts of dollars in missed revenue,
overspend on their cost base or incorrect billing which could lead
to lost income and indeed fines. We want to enhance these findings
with data analytics that sit natively within our products and draw
benchmarks from underlying data from our customer footprint and
proprietary data sets.
During the year we have progressed the initiatives that were
launched in the prior year. These include continuing to enhance the
functionality of current products whilst investigating the
opportunities that integration of current offerings into new
innovative combinations could present; leveraging our competencies
to help clients that are in a consolidation phase (as target or
acquirer) to better understand synergies from their combined
financial operations regardless of patient accounting platform
providing an enterprise wide view, management believe this is a
substantial competitive advantage; maintaining the focus on
external integration with Healthcare Information Systems, such as
the EPIC patient accounting system, to ensure we can fully support
all our customers should they decide to replace their current
systems.
With the acquisition of Kestros Limited post year end it is
expected that we will be able to use technology already proven by
them to develop a new fourth Gateway product in the Patient Access
and Consumerisation area for intended FY16 launch.
During the year we completed the development of a hybrid
solution, which combine services with some of our core products
which enables them to be implemented at smaller hospitals that do
not have their own internal revenue integrity teams. This solution
was subsequently launched on the 2(nd) of September 2014.
In conjunction with and in support of these initiatives, we have
continued development of our common software framework, this will
provide the foundation for our future development efforts,
significantly decreasing our time to market. Product development
continues to be focused on supporting this long term strategy as
well as utilizing technology to further enhance options for
products to move further on to the cloud and mobile platforms.
Financial Review
Revenues reported for the financial year under review were
$42.6m (FY13: $41.5m) which has resulted in an adjusted EBITDA of
$13.1m (FY13: $12.4m).
We have made significant investments in prior years, which have
strengthened the Group in many ways, and positioned Craneware for
its next stage of growth. In addition to the ongoing investments we
make to our product suites, we have further invested in our people,
both increasing the management bandwidth and the levels of
expertise across the Group. A major focus of our investment has
been in our sales force. Here, as reported previously, we have made
key hires into the sales leadership level increasing the previous
capacity; have developed our core sales force through enhanced
training initiatives; implemented additional sales support and
contracting functions to ensure we maximise the capacity of
individual sales managers and have re-designed sales incentive
plans to ensure we drive the performance we expect.
These investments were initially made in a market environment
which was in the early stages of recovery. In the prior year we
reported we had seen the return of individual hospitals and small
hospital groups as purchasing entities, as expected this trend has
continued to develop with our current year sales including sales to
all types of hospital entities, from individual hospitals to the
large multi-hospital network sales that have been announced during
the year.
It is pleasing that through both the anticipated development of
our US health provider market place and their increasing re-focus
on Revenue Integrity combined with the investments we have made, we
have delivered a record sales performance in the year, delivering a
total value of contracts (sales) signed during the year of $71.0m
(FY13: $38.5m). Due to the Group's business model, these sales
represent a leading indicator of future growth, not significantly
impacting financial results in the year in which they are
signed.
Business Model
As a result of the Group's business model and associated revenue
recognition policies, sales and revenue have separate meanings and
cannot be interchanged. The Group continues to recognise the vast
majority of revenue under its annuity Software-as-a-Service (SaaS)
revenue recognition model. The strategy behind this business model
is to ensure the long term growth and stability of the Group.
It is highly likely the levels of sales will fluctuate between
individual years, the Annuity SaaS business model adopted by the
Group delivers a 'smoothing' of these fluctuations and provides for
more even and consistent growth over the long term. Under this
model we recognise software licence revenue and any minimum
payments due from our 'other route to market' contracts evenly over
the life of the underlying signed contracts. As we sign new
hospital contracts over an average life of 5 years, we will see the
benefit of any new sales over this underlying contract term.
As well as the incremental licence revenues we generate from
each new sale, we normally expect to deliver an associated
professional services engagement. This revenue is typically
recognised as we deliver the service to the customer, usually on a
percentage of completion basis. The nature and scope of these
engagements will vary depending on both our customer needs and
which of our solutions they have contracted for. However these
engagements will always include the implementation of the software
as well as training the hospital staff in its use. As a result of
the different types of professional services engagement, the period
over which we deliver the services and consequently recognise all
associated revenue will vary, however we would normally expect to
recognise this revenue over the first year of the contract.
In any individual year we would normally expect between 10% to
20% of revenues reported by the Group, to be from services
performed.
Our final revenue model results from the ClaimTrust, Inc.
acquisition in 2011. As the company has now been fully integrated,
the ongoing transition of customers to the Annuity SaaS business
model, and the redeployment of their highly skilled healthcare
consultants from more traditional services work to 'contracted
engagements' directly supporting existing customers and potential
new software sales, means this revenue now represents less than 5%
of total Group Revenues reported. This revenue model results in
revenue still being recognised monthly (as billed) and is recurring
in its nature, but as it is not signed under long term
non-breakable contracts it does not deliver the same advantages as
the Annuity SaaS model.
As a result of these revenue recognition models, based on our
historical average contract life for new hospitals of 5 years, the
maximum value of an average contract that is expected to be
recognised as revenue in any one year is 20% plus the value of
associated services that have been delivered. In all cases, should
the contract contain any material contingencies or any increased
risk of collection is identified, revenue is deferred until the
contingency or otherwise is satisfied, at which point the revenue
that has been deferred is released and the revenue recognition is
'caught up' to the level that would have been recognised had there
been no deferral.
Sales, Revenue Reported and Revenue Visibility
The difference between revenue and sales under the Annuity SaaS
business model can be demonstrated by reviewing the last 5 years
sales levels to the reported revenue numbers. In the table below we
show our total contracts signed in the relevant years between sales
of new products (to both new and existing hospital clients) and
clients who are renewing their contracts at the end of their terms,
our total sales and compare this total to the revenue reported.
Fiscal Year 2009 2010 2011 2012 2013 2014
$m $m $m $m $m $m
New Product
Sales 25.4 44.1* 16.9 21.6** 20.8 35.1
Renewals*** 17.8 14.0 7.5 12.7 17.7 35.9
----- ------ ----- ------- ----- -----
Total Contract
Value 43.2 58.1 24.4 34.3 38.5 71.0
Reported Revenue 23.0 28.4 38.1 41.1 41.5 42.6
*FY10 included the large reseller agreement with Premier, Inc.
that added $15m to the new product sales and therefore total
contract value in the year, with revenue being recognised over 10
years.
**FY12 included the large white label and reseller agreement
that added $7.5m to new product sales and therefore total contract
value in the year, with the $3.5m white label revenue recognised in
the year and the remaining $4m recognised over the related 28 month
period.
*** As the Group signs new customer contracts for between 3 to 9
years, the number and value of customers' contracts coming to the
end of their term ("Renewal") will vary in any one year. This
variation along with whether customers auto-renew on a one year
basis or renegotiate their contracts for up to a further 9 years,
will impact the total contract value of renewals in any one
year.
As described above the advantages of the Group's business model
is to protect against short term fluctuations in sales levels,
thereby promoting long term growth and stability. The majority of
the revenue from any new sale will not be recognised in the year of
sale. Instead this balance of unrecognised revenue leads to "Future
Revenue Visibility". This is revenue that is under contract that is
going to be recognised in future years, and subject to the renewal
of the contract at the end of its original life, forms an annuity
base of revenue for the Group that increases with each new
sale.
The Group illustrates this annuity base through its "Three Year
Visible Revenue" metric. This metric includes:
-- Future revenue under contract;
-- Revenue generated from renewals (calculated at 100% dollar value renewal).
-- Other recurring revenue (subject to an estimated churn rate of 8% per year);
The different categories of revenue reflect any inherent future
risk in recognising these revenues. Future revenue under contract,
is, as the title suggests, subject to an underlying contract and
therefore only has to be invoiced to be recognised in the
respective years (subject to future collection risk that exists
with all revenue). Renewal revenues are contracts coming to the end
of their original contract term (e.g. 5 years) and will require
their contracts to be renegotiated and renewed for the revenue to
be recognised. The average value of customers renewed in any period
(including cross sell and upsell to those customers on renewal) is
over 100% renewals by dollar value therefore it is reasonable to
conclude little additional risk is associated to this revenue. The
final category "Other recurring revenue" is revenue that we would
expect to recur in the future but as the underlying contracts are
not long term in their nature or contain break clauses there is
potential for this revenue not to be recognised in future years,
however we apply an estimated 8% churn rate to make allowance for
this risk.
The Group's total visible revenue for the three years as at 30
June 2014 (i.e. visible revenue for FY2015, FY2016 and FY2017)
shows how, combined with renewals and other recurring revenue, we
expect the current excess of contracted value of sales to revenue
reported to benefit the Group in this next three year period. The
total of this visible revenue is $112.8m and breaks down as
follows:
-- Future revenue under contract contributing $76.4m of which
$32.0m is expected to be recognised in FY15, $24.9m in FY16 and
$19.5m in FY17.
-- Revenue generated from renewal activities contributing
$33.3m; being $5.2m in FY15, $11.3m in FY16 and $16.8m in FY17.
-- InSight revenue identified as recurring in nature of $3.1m.
Revenue
We are reporting revenue for the year of $42.6m (2013: $41.5m).
Underlying this marginal growth in revenue we have seen the return
of sales to large hospital networks, as well as the return of 7 and
9 year contracts.
As anticipated, the redeployment of the skilled healthcare
consultants from more traditional services work (part of the
ClaimTrust, Inc. acquired contracts) to 'contracted engagements'
directly supporting existing customers and supporting potential new
software sales has had an impact on levels of professional services
revenues delivered in the year. This has reduced from $5.3m in FY13
to $4.9m in FY14, however this transition effect is expected to be
short term in nature and professional services revenue at 11% of
Group revenue is still within our expected range of 10% to 20% of
our revenue in any one year. We retain the capacity within our
existing business model and as a result of the sales performance in
the year we expect this revenue stream to expand and contribute to
future years' revenue growth.
Gross Margins
The Gross Profit for the year was $40.6m (FY13: $39.4m) which
represents a stable gross margin percentage of 95% in both the
current and prior year. Included within the Group's cost of sale is
the commissions paid to sales managers on execution of contracts.
As detailed earlier, the Group has introduced a new competitive
sales incentive scheme, and this, combined with the significant
increase in the total value of sales contracts in the year, has
resulted in higher levels of commissions being earned in the
current year.
The new IFRS15 Revenue Standard, expected to be adopted in the
EU in the future, has an effective date for accounting periods on
or after 1 January 2017. Whilst yet to fully assess the impact of
the full standard, part of this standard codifies the accounting
for sales commissions on long term contracts, which our licence
contracts effectively are. The approach is consistent with the
outcome required by current GAAP and would be the approach expected
under US GAAP, and as such the Group is charging sales commissions
earned under the new incentive scheme in the year over the life of
the underlying contracts. The result of this is a consistent Gross
Margin of 95% and 'deferred contract costs' recorded in the balance
sheet of $2.3m which will be charged to cost of sales in line with
the recognition of the related revenue. Due to new commission plan
and the associated level of sales that have resulted, not to take
this approach would result in profitable long term contracts signed
in the year, being represented as loss making in their first
reporting period solely as a result of mismatching costs incurred
with how the Annuity business models evenly recognising revenues.
As a result the current year commission charge is materially in
line with the prior period.
Earnings
Adjusted earnings before interest, taxation, share based
payments, depreciation and amortisation ("Adjusted EBITDA") has
grown in the year to $13.1m (FY13: $12.4m) an increase of 6%. This
reflects an Adjusted EBITDA margin of 30.7% (FY13: 29.8%). This is
consistent with the Group's measured approach to the release of
additional investment, continuing to make investments in line with
the revenue growth occurring, whilst continually managing to ensure
the efficiency of the investments we make.
Operating Expenses
Net operating expenses (before share based payments,
depreciation and amortisation) have, despite the investments we
have made in key areas, only increased marginally to $27.6m (FY13:
$27.0m). We continue to invest in the future growth of the Group
whilst looking to leverage the investments we have made in prior
years. Continued investment in line with the growth of the Group
will provide us the opportunity to deliver on the Group's
strategy.
As innovation will continue to be core to the Group's future we
continue to invest in Product Development spend which has remained
at $7.0m with no significant amounts capitalised in the year.
Cash
We measure the quality of our earnings through our ability to
convert them into operating cash. As in prior years, we have very
high levels of cash conversion which has enabled us to grow our
cash reserves to $32.6m (FY13: $30.3m). These cash levels are after
paying $2.2m in taxation (FY13: $3.4m) and a further $5.4m (FY13:
$4.7m) to our shareholders by way of dividends.
We retain a significant level of cash reserves to fund 'bolt-on'
acquisitions as suitable opportunities arise.
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.
As a result of the guaranteed minimum revenues associated to a
partner deal entered into in February 2012, we have been building
up an accrued revenue balance as we recognised the associated
revenue under our normal revenue recognition model. This accrued
balance reached its maximum level of $4m at 30 June 2014, at which
point it was invoiced in line with the underlying contractual terms
and was recorded in Trade Receivables. Since the year end $3.6m of
this balance has been cleared, the remaining amounts relate to an
ongoing project and these amounts will be fully paid by February
2015. The underlying contract with this partner has been renewed
for a minimum further term of one year, allowing them on a
non-exclusive basis to sell our white-labelled software on a value
added reseller basis to State and Federal customers, however no
further contracted revenues were due as at 30 June 2014. No amounts
relating to this contract are included in our three year visible
revenue detailed earlier.
Post Balance Sheet Event: Acquisition of Kestros Limited
On 28 August 2014, Craneware acquired the entire share capital
of Kestros Limited for a maximum consideration of $2.14m (GBP1.25m)
which will be adjusted according to revenue milestones. GBP150,000
of the consideration has been paid in cash with the remainder paid
in new Craneware equity. The acquired assets and intellectual
property of this emerging Scottish technology company, will provide
Craneware with a technology platform in the high growth Patient
Access market, addressing the growing level of consumerisation
within Healthcare.
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 been impacted through exchange rate movements, with
the average exchange rate throughout the year being $1.6262 as
compared to $1.5685 in the prior year. However, this has been
immaterial to our results.
Taxation
The Group's effective tax rate remains dependent on the
proportion of profits generated in the UK and the US and the
applicable tax rates in the respective jurisdictions. As detailed
above, the sales performance in the year has increased the levels
of income in both jurisdictions, and as detailed in previous years
we are as a result seeing our effective tax rate return to more
'normalised' levels. However this has been partially offset by the
reduction in the levels of professional services revenue generated
in the year. As all professional services are delivered in the US,
the resulting lower levels of this revenue impacts the overall
total income subject to taxation in the US. As result of the higher
taxation levels in the US the current year effective tax rate is
24% (FY13: 22%). Effective tax rates will increase in future years
if the ratio of underlying professional services to software
license revenues increases and the overall levels of sales
increase.
EPS
In the year adjusted EPS has increased to $0.340 (FY13: $0.329)
and adjusted diluted EPS has increased to $0.338 (FY13: $0.328).
The increase in EPS is driven by the increased levels of EBITDA but
has been impacted by the increasing effective tax rate.
Dividend
The Board recommends a final dividend of 6.8p (11.63 cents) per
share giving a total dividend for the year of 12.5p (21.37 cents)
per share (2013: 11.5p (17.4 cents) per share). Subject to
confirmation at the Annual General Meeting, the final dividend will
be paid on 16th December 2014 to shareholders on the register as at
14th November 2014, with a corresponding ex-Dividend date of 13th
November 2014.
The final dividend of 6.8p 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 14th
November 2014. The exact amount to be paid will be calculated by
reference to the exchange rate to be announced on 14th November
2014. The final dividend referred to above in US dollars of 11.63
cents is given as an example only using the Balance Sheet date
exchange rate of $1.7099/GBP1 and may differ from that finally
announced.
Outlook
We have been pleased with the Group's performance in the year.
We have seen signs of growing customer confidence and believe
Craneware is increasingly well positioned to address a growing
market opportunity in what is the largest software vertical in the
world; the US healthcare market.
Craneware remains at the forefront of providing solutions to US
healthcare providers to help them achieve revenue integrity through
the management of their cost base whilst ensuring receipt of all
legitimate reimbursement. We believe true revenue integrity is
required if healthcare providers are to continue to support
improved patient care and clinical outcomes.
Investments in the business mean we have the people and the
expertise in place to take us through the next stage of growth,
building on our record sales performance. We have had a strong
start to the current year, carrying on the momentum from the
previous year and are confident we have the platform to deliver
ongoing increased stakeholder value.
Keith Neilson Craig Preston
Chief Executive Officer Chief Financial Officer
15 September 2014 15 September 2014
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2014
Total Total
2014 2013
Notes $'000 $'000
----------------------------------------- ------ --------- ---------
Continuing operations:
Revenue 3 42,574 41,452
Cost of sales (1,943) (2,071)
--------- ---------
Gross profit 40,631 39,381
Operating expenses 4 (29,407) (28,881)
--------- ---------
Operating profit 11,224 10,500
Analysed as:
Adjusted EBITDA* 13,069 12,357
Share based payments (198) (181)
Depreciation of plant and equipment (575) (621)
Amortisation of intangible assets (1,072) (1,055)
----------------------------------------- ------ --------- ---------
Finance income 66 103
--------- ---------
Profit before taxation 11,290 10,603
Tax on profit on ordinary activities 5 (2,680) (2,307)
--------- ---------
Profit for the year attributable to
owners of the parent 8,610 8,296
----------------------------------------- ------ --------- ---------
Total comprehensive income attributable
to owners of the parent 8,610 8,296
----------------------------------------- ------ --------- ---------
(1.) Adjusted EBITDA is defined as operating profit before,
share based payments, depreciation and amortisation.
Earnings per share for the year attributable to equity
holders
Notes 2014 2013
------------------------------- ------ ------ ------
Basic ($ per share) 7a 0.319 0.307
*Adjusted Basic ($ per share) 7a 0.340 0.329
Diluted ($ per share) 7b 0.317 0.306
*Adjusted Diluted ($ per
share) 7b 0.338 0.328
------------------------------- ------ ------ ------
* Adjusted Earnings per share calculations allow for
amortisation on acquired intangible assets to form a better
comparison with previous years.
Statement of Changes in Equity for the year ended 30 June
2014
Share
Share Premium Other Retained Total
Capital Account Reserves Earnings Equity
$'000 $'000 $'000 $'000 $'000
------------------------------------------ -------- -------- --------- --------- --------
At 1 July 2012 538 15,408 209 21,282 37,437
Total comprehensive income -
profit for the year - - - 8,296 8,296
Transactions with owners:
Share-based payments - - 181 15 196
Impact of share options exercised/lapsed 1 88 (178) 174 85
Dividends (Note 6) - - - (4,693) (4,693)
------------------------------------------
At 30 June 2013 539 15,496 212 25,074 41,321
Total comprehensive income -
profit for the year - - - 8,610 8,610
Transactions with owners:
Share-based payments - - 198 146 344
Impact of share options lapsed - - (175) 175 -
Dividends (Note 6) - - - (5,359) (5,359)
------------------------------------------
At 30 June 2014 539 15,496 235 28,646 44,916
------------------------------------------ -------- -------- --------- --------- --------
Consolidated Balance Sheet as at 30 June 2014
Notes 2014 2013
$'000 $'000
---------------------------------- ------ ------- -------
ASSETS
Non-Current Assets
Plant and equipment 1,329 1,596
Intangible assets 8 14,325 15,291
Trade and other receivables 9 1,890 -
Deferred tax 1,644 1,615
19,188 18,502
------- -------
Current Assets
Trade and other receivables 9 20,946 15,128
Current tax assets 110 468
Cash and cash equivalents 32,613 30,277
53,669 45,873
------- -------
Total Assets 72,857 64,375
---------------------------------- ------ ------- -------
EQUITY AND LIABILITIES
Non-Current Liabilities
Deferred income 2,077 30
2,077 30
------- -------
Current Liabilities
Deferred income 19,355 16,419
Current tax liabilities 1,136 1,055
Trade and other payables 5,373 5,550
25,864 23,024
------- -------
Total Liabilities 27,941 23,054
------- -------
Equity
Called up share capital 10 539 539
Share premium account 15,496 15,496
Other reserves 235 212
Retained earnings 28,646 25,074
Total Equity 44,916 41,321
------- -------
Total Equity and Liabilities 72,857 64,375
---------------------------------- ------ ------- -------
Statement of Cash Flows for the year ended 30 June 2014
Notes 2014 2013
$'000 $'000
------------------------------------------- ------ -------- --------
Cash flows from operating activities
Cash generated from operations 11 10,197 9,891
Interest received 66 103
Tax paid (2,154) (3,377)
------------------------------------------- ------ -------- --------
Net cash from operating activities 8,109 6,617
Cash flows from investing activities
Purchase of plant and equipment (308) (190)
Capitalised intangible assets 8 (106) (336)
------------------------------------------- ------ -------- --------
Net cash used in investing activities (414) (526)
Cash flows from financing activities
Dividends paid to company shareholders 6 (5,359) (4,693)
Proceeds from issuance of shares - 89
------------------------------------------- ------ -------- --------
Net cash used in financing activities (5,359) (4,604)
Net increase in cash and cash equivalents 2,336 1,487
Cash and cash equivalents at the
start of the year 30,277 28,790
Cash and cash equivalents at the
end of the year 32,613 30,277
------------------------------------------- ------ -------- --------
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 principal activity of the
Company continues to be the development, licensing and ongoing
support of computer software for the US healthcare industry.
Basis of Preparation
The financial statements are prepared in accordance with
International Financial Reporting Standards (IFRS), as adopted by
the European Union, IFRS IC 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 and prepared on a going concern
basis. 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. The average exchange rate during the course of the
year was $1.6262/GBP1 (2013 :$1.5685/GBP1). Monetary assets and
liabilities expressed in foreign currencies are translated into US
dollars at rates of exchange ruling at the Balance Sheet date
$1.7099/GBP1 (2013 : $1.5167/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
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. Incremental costs
directly attributable in securing the contract are charged equally
over the life of the contract and as a consequence are matched to
revenue recognised. Any deferred contract costs are included in
both current and non-current, Trade and other receivables.
'White-labelling' or other 'Paid for development work' is
generally provided on a fixed price basis and as such revenue is
recognised based on the percentage completion or delivery of the
relevant project. Where percentage completion is used it is
estimated based on the total number of hours performed on the
project compared to the total number of hours expected to complete
the project. Where contracts underlying these projects contain
material obligations, revenue is deferred and only recognised when
all the obligations under the engagement have been fulfilled.
Revenue from all professional services is recognised as the
applicable services are provided. Where professional services
engagements contain material obligations, 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 is 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,
which has been assessed as 5 years. 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 its 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 as
adjusted for items which are non-assessable or disallowable. It is
calculated using taxation rates that have been enacted or
substantively enacted by the Balance Sheet date.
Deferred 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", 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.
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 accounting estimates and judgements
The preparation of financial statements in accordance with IFRS
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:-
-- Impairment assessment:- the Group tests annually whether
Goodwill has suffered any impairment and for other assets including
acquired intangibles at any point where there are indications of
impairment. This requires an estimation of the value in use of the
applicable cash generating unit to which the Goodwill and other
assets relate. Estimating the value in use requires the Group to
make an estimate of the expected future cashflows from the specific
cash generating unit using certain key assumptions including growth
rates and a discount rate. Reasonable changes to these assumptions
such as increasing the discount rate by 5% (20% to 25%) and
decreasing the long term growth rate applied to revenues by 1% (2%
to 1%) would still result in no impairment.
-- 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.
-- 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.
3. Revenue
The chief operating decision maker has been identified as the
Board of Directors. The Group revenue is derived entirely from the
sale of software licences, white labelling and professional
services (including installation) to hospitals within the United
States of America. Consequently the Board has determined that Group
supplies only one geographical market place and as such revenue is
presented in line with management information without the need for
additional segmental analysis. All of the Group assets are located
in the United States of America with the exception of the Parent
Company's, the net assets of which are disclosed separately on the
Company Balance Sheet and are located in the UK.
2014 2013
$'000 $'000
----------------------- ------- -------
Software licencing 37,717 36,174
White labeling - -
Professional services 4,857 5,278
Total revenue 42,574 41,452
----------------------- ------- -------
4. Operating expenses
Operating expenses are comprised of the
following:-
2014 2013
$'000 $'000
----------------------------------------- ------- -------
Sales and marketing expenses 8,482 8,251
Client servicing 7,461 7,306
Research and development 6,979 6,932
Administrative expenses 4,594 4,433
Share-based payments 198 181
Depreciation of plant and equipment 575 621
Amortisation of intangible assets 1,072 1,055
Exchange loss 46 102
Operating expenses 29,407 28,881
----------------------------------------- ------- -------
5. Tax on profit on ordinary activities
2014 2013
$'000 $'000
---------------------------------------------------- ------- ------
Profit on ordinary activities before tax 11,290 10,603
Current tax
Corporation tax on profits of the year 2,542 2,453
Foreign exchange on taxation in the year (36) 152
Adjustments for prior years 57 (168)
---------------------------------------------------- ------- ------
Total current tax charge 2,563 2,437
Deferred tax
Origination & reversal of timing differences 63 133
Adjustments for prior years 55 (264)
Change in tax rate (1) 1
---------------------------------------------------- ------- ------
Total deferred tax charge(credit) 117 (130)
---------------------------------------------------- ------- ------
Tax on profit on ordinary activities 2,680 2,307
---------------------------------------------------- ------- ------
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 22.5% (2013: 23.75%) 2,541 2,518
Effects of:
Adjustment in respect of prior years 112 (432)
Change in tax rate (1) 1
Additional US taxes on profits/losses 39%
(2012: 39%) 89 39
Foreign Exchange (36) 152
Expenses not deductible for tax purposes (25) (4)
Tax/(deduction) on share plan charges - 33
---------------------------------------------------- ------- ------
Total tax charge 2,680 2,307
---------------------------------------------------- ------- ------
6. Dividends
The dividends paid during the year were as follows:-
2014 2013
$'000 $'000
---------------------------------------------- ------ ------
Final dividend, re 30 June 2013 - 10.08
cents (6.3 pence)/share 2,783 2,481
Interim dividend, re 30 June 2014 - 9.46
cents (5.7 pence)/share 2,576 2,212
Total dividends paid to Company shareholders
in the year 5,359 4,693
---------------------------------------------- ------ ------
The proposed final dividend for 30 June 2014 is subject to
approval by the shareholders at the Annual General Meeting and has
not been included as a liability in these accounts.
7. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year.
2014 2013
------------------------------------------------ ---------- ----------
Profit attributable to equity holders of
the Company ($'000) 8,610 8,296
Weighted average number of ordinary shares
in issue (thousands) 27,009 26,998
Basic earnings per share ($ per share) 0.319 0.307
------------------------------------------------ ---------- ----------
Profit attributable to equity holders of
Company ($'000) 8,610 8,296
Amortisation of acquired intangibles ($'000) 574 574
Adjusted Profit attributable to equity holders
($'000) 9,184 8,870
------------------------------------------------ ---------- ----------
Weighted average number of ordinary shares
in issue (thousands) 27,009 26,998
Adjusted Basic earnings per share ($ per
share) 0.340 0.329
------------------------------------------------ ---------- ----------
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 granted
to Directors and employees under the share option scheme.
2014 2013
------------------------------------------------ ------------- ----------
Profit attributable to equity holders of
the Company ($'000) 8,610 8,296
Weighted average number of ordinary shares
in issue (thousands) 27,009 26,998
Adjustments for:- Share options (thousands) 162 69
Weighted average number of ordinary shares
for diluted earnings per share (thousands) 27,171 27,067
Diluted earnings per share ($ per share) 0.317 0.306
------------------------------------------------ ------------- ----------
Profit attributable to equity holders of
Company ($'000) 8,610 8,296
Amortisation of acquired intangibles ($'000) 574 574
Adjusted Profit attributable to equity holders
($'000) 9,184 8,870
------------------------------------------------ ------------- ----------
Weighted average number of ordinary shares
in issue (thousands) 27,009 26,998
Adjustments for:- Share options (thousands) 162 69
------------------------------------------------ ------------- ----------
Weighted average number of ordinary shares
for diluted earnings per share (thousands) 27,171 27,067
Adjusted Diluted earnings per share ($ per
share) 0.338 0.328
------------------------------------------------ ------------- ----------
8. Intangible assets
Goodwill and Other Intangible assets
Goodwill Customer Proprietary Development Computer
Relationships Software Costs Software Total
$'000 $'000 $'000 $'000 $'000 $'000
------------------ --------- -------------- ------------ ------------ --------- -------
Cost
At 1 July 2013 11,188 2,964 1,222 3,004 787 19,165
Additions - - - 31 75 106
At 30 June 2014 11,188 2,964 1,222 3,035 862 19,271
------------------ --------- -------------- ------------ ------------ --------- -------
Accumulated
amortization
At 1 July 2013 - 724 570 2,101 479 3,874
Charge for the
year - 330 244 356 142 1,072
At 30 June 2014 - 1,054 814 2,457 621 4,946
Net Book Value
at 30 June 2014 11,188 1,910 408 578 241 14,325
------------------ --------- -------------- ------------ ------------ --------- -------
Cost
At 1 July 2012 11,188 2,964 1,222 2,912 543 18,829
Additions - - - 92 244 336
At 30 June 2013 11,188 2,964 1,222 3,004 787 19,165
------------------ --------- -------------- ------------ ------------ --------- -------
Accumulated
amortisation
At 1 July 2012 - 395 326 1,718 380 2,819
Charge for the
year - 329 244 383 99 1,055
At 30 June 2013 - 724 570 2,101 479 3,874
Net Book Value
at 30 June 2013 11,188 2,240 652 903 308 15,291
------------------ --------- -------------- ------------ ------------ --------- -------
In accordance with the Group's accounting policy, the carrying
values of goodwill and other intangible assets are reviewed for
impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. Goodwill
arose on the acquisition of Craneware InSight Inc.
The carrying values are assessed for impairment purposes by
calculating the value in use (net present value (NPV) of future
cashflows) of the Craneware InSight cash generating unit. The
goodwill impairment review assesses whether the carrying value of
goodwill is supported by the NPV of the future cashflows based on
management forecasts for 5 years and then using an assumed sliding
scale annual growth rate which is trending down to give a long-term
growth rate of 2% in the residual years of the assessed period.
Management have made the judgement that this long-term growth rate
does not exceed the long-term average growth rate for the industry
and also estimated a pre-tax discount rate of 20%.
Sensitivity analysis was performed using a combination of
different annual growth rates and a range of different weighted
average cost of capital rates. Management concluded that the
tempered growth rates resulting in 2% during the residual period
and the pre-tax discount rate of 20% were appropriate in view of
all relevant factors and reasonable scenarios and that there is
currently sufficient headroom over the carrying value of the assets
in the acquired business that any reasonable change to key
assumptions is not believed to result in impairment.
9. Trade and other receivables
2014 2013
$'000 $'000
------------------------------------- -------- -------
Trade receivables 16,589 8,448
Less: provision for impairment
of trade receivables (658) (607)
------------------------------------- -------- -------
Net trade receivables 15,931 7,841
Other receivables 175 203
Prepayments and accrued income 4,382 7,084
Deferred Contract Costs 2,348 -
------------------------------------- -------- -------
22,836 15,128
Less non-current trade receivables: - -
Deferred Contract Costs (1,890) -
Current portion 20,946 15,128
------------------------------------- -------- -------
10. Called up share capital
Authorised
2014 2013
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
2014 2013
Number $'000 Number $'000
---------------------------- ----------- ------ ----------- ------
Equity share capital
Ordinary shares of 1p each 27,008,763 539 27,008,763 539
---------------------------- ----------- ------ ----------- ------
There was no movement in share capital during the year.
11. Cash flow generated from operating activities
Reconciliation of profit before tax to net
cash inflow from operating activities
2014 2013
$'000 $'000
------------------------------------- -------- --------
Profit before tax 11,290 10,603
Finance income (66) (103)
Depreciation on plant and equipment 575 621
Amortisation on intangible assets 1,072 1,055
Share-based payments 198 181
Movements in working capital:
(Increase)/decrease in trade and
other receivables (7,708) (2,721)
Increase/(decrease) in trade and
other payables 4,836 255
Cash generated from operations 10,197 9,891
------------------------------------- -------- --------
12. Subsequent Events
On 28 August 2014, Craneware acquired 100% of issued share
capital of Kestros Ltd for a maximum consideration of $2.14m
(GBP1.25m), which will be adjusted according to Revenue milestones.
The Directors are yet to complete the acquisition accounting for
the new business combination.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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