TIDMCRW
RNS Number : 9721K
Craneware plc
03 September 2019
Craneware plc
("Craneware", "the Group" or the "Company")
Final Results
3 September 2019 - Craneware (AIM: CRW.L), the market leader in
Value Cycle software solutions for the US healthcare market,
announces its audited results for the year ended 30 June 2019.
Financial Highlights (US dollars)
-- Revenue increased 6% to $71.4m (FY18: $67.1m)
-- Adjusted EBITDA(1.) increased 11% to $24.0m (FY18: $21.6m)
-- Profit before tax of $18.3m (FY18: $18.9m) the reduction
being as a result of $1.2m one-off costs related to a significant
proposed acquisition that the Board decided not to enter into
during the year
-- Basic adjusted EPS(2.) increased 5% to $0.633 (FY18: $0.602)
and adjusted diluted EPS increased to $0.620 (FY18: $0.591)
-- Renewal rate remains above 100% by dollar value
-- Three Year Total Visible Revenue of $200.1m (FY18 same 3 year period: $191.0m)
-- Operating cash conversion at 63% of Adjusted EBITDA - further
$8.5m collected post year end - equating to 98% conversion
-- Cash at year-end of $47.6m (FY18: $52.8m) after having
returned $8.5m to shareholders via dividends
-- Proposed final dividend of 15.0p (19.05 cents) (FY18: 14.0p,
18.48 cents) per share giving a total dividend for the year of
26.0p (33.02 cents) (FY18: 24.0p, 31.68 cents) per share
(1.) Adjusted EBITDA refers to earnings before interest, tax,
depreciation, amortisation, exceptional costs and share based
payments.
(2.) Adjusted Earnings per share (EPS) calculations allow for
the tax adjusted acquisition costs and share related transactions
together with amortisation on acquired intangible assets.
Operational Highlights
-- Ongoing transition of the US healthcare market to value-based
care, supporting Craneware's software product suite
-- Sales in the year amounted to $63.1m (FY18: $98.6m, FY17: $54.0m)
-- Sales of Trisus Enterprise Value Platform products
represented 13% of new sales in the year (FY18: 4%)
-- Healthy sales mix, with 45% of sales relating to new customers
-- Continued investment in R&D and innovation to capitalise on growing market opportunity
-- Supportive market environment, with existing customers and
wider healthcare market responding positively to the enhanced
solution set delivered on the Trisus platform
Outlook
-- We continue to sign contracts with hospitals of all sizes and
have had a strong start to the year
-- Confident outlook, supported by strong sales pipeline
Keith Neilson, CEO of Craneware plc commented,
"The ongoing transition to value-based care is a powerful
underlying driver for our software, as healthcare providers seek
the means not only to survive but thrive in this new era. We are
committed to providing our customers with the tools they require to
continue to deliver outstanding care to their communities and are
passionate about the central role we will play in this substantial
evolution of the US healthcare market.
"While growth in the year was lower than originally anticipated,
renewal levels remained strong and our Trisus related sales and
revenues continued to increase, providing us with a strong platform
for the future. We have entered the new financial year with an
uptick in sales momentum.
"We are focused on the delivery of our growing opportunity and
have the correct strategy to succeed. With growing levels of
contracted future revenue, strong operating margins, healthy cash
balances and a growing sales pipeline, we look to the coming years
with confidence and high levels of excitement for the opportunity
ahead."
For further information, please contact:
Craneware plc Peel Hunt Investec Bank Alma
(NOMAD & Joint (Joint Broker) (Financial PR)
Broker)
+44 (0)131 550 +44 (0)20 7418 +44 (0)20 7597 +44 (0)203 405
3100 8900 5970 0205
Keith Neilson, Dan Webster Patrick Robb Caroline Forde
CEO
Craig Preston, George Sellar Sebastian Lawrence Hilary Buchanan
CFO
Guy Pengelley Henry Reast Helena Bogle
About Craneware
Craneware enables healthcare providers to improve margins and
enhance patient outcomes so they can continue to provide quality
outcomes for all.
Craneware is the leader in automated Value Cycle solutions that
help US Healthcare provider organisations discover, convert and
optimise assets to achieve best clinical outcomes and financial
performance. Founded in 1999, Craneware is headquartered in
Edinburgh, Scotland with offices in Atlanta and Pittsburgh
employing over 350 staff. Craneware's market-driven, SaaS solutions
normalise disparate data sets, bringing in up-to-date regulatory
and financial compliance data to deliver value at the points where
clinical and operational data transform into financial
transactions, creating actionable insights that enable informed
tactical and strategic decisions. To learn more, visit
craneware.com and thevaluecycle.com.
Learn more at www.craneware.com.
Chairman's Statement
2019 saw Craneware celebrate its 20th birthday. From an idea in
1999 to use software to automate the maintenance of a hospital's
central database of billing codes, Craneware has grown to become a
trusted partner to over a third of all US hospitals, its software
providing insight into an increasing number of areas in their
businesses. The Company has continued to make good progress against
its long-term strategy: to build upon its central position to
profoundly impact healthcare, by providing data and applications to
improve margins and enhance patient outcomes. The fundamentals of
the business remain strong, and the opportunity significant.
Although lower than originally anticipated, revenue increased 6%
to $71.4m (FY18: $67.1m) and adjusted EBITDA increased 11% to
$24.0m (FY18: $21.6m). The Group had cash reserves at the end of
the year of $47.6m, after having returned $8.5m to shareholders via
dividends, while also investing a further $9.6m in the development
of new products.
Sales in the year amounted to $63.1m (FY18: $98.6m, FY17:
$54.0m). These sales add another layer to our visible future
revenue, which now stands at over $200m for the three year period
to 30 June 2022. Renewal levels continued to be comfortably within
our historic norms, at 101%.
Central to the Group's growth strategy in recent years has been
the evolution of its product suite from on premise point solutions
to a comprehensive cloud-based platform, the Trisus Enterprise
Value Platform. Trisus will enable Craneware's customers to harness
the power of the wealth of data generated across all areas of the
hospital. It sits as the intelligence layer across all other
software systems, delivering the information required to improve
financial and operational performance.
The first product on the Trisus platform was launched at the
beginning of FY18, and a further three have been launched in the
financial year under review. It would now appear that the speed
with which we launched these latter three products caused some
temporary "indigestion" both within our sales team and our customer
base which we are systematically working through. The response to
Trisus from our customers continues to be extremely positive, with
the vast majority now interacting with the platform via the Trisus
Bridge, a connector layer linking their existing on-premise
Craneware solutions to the enhanced functionality of Trisus in the
cloud.
Alongside our strategies for technology innovation and organic
growth, we continue to monitor potential acquisitions. With our
healthy cash balance and a $50m funding facility in place, we have
the resources to execute should an appropriate acquisition target
arise. As in prior years, strict criteria continued to be applied
to evaluating potential acquisition targets ensuring that they
would enhance our hospital footprint, data sets or our product
roadmap so that they are quickly accretive to both the financial
and operational strength of the Group. No target consistently met
this high bar in more than one of these areas in the year.
The Board continues to look to the future with confidence.
Craneware has a significant and growing sales pipeline, which the
team is focused on converting. The market's requirement for greater
insight into cost, margin and the value being derived from
healthcare is as high, if not higher, than ever. The Trisus
platform differentiates us from other healthcare solutions vendors,
providing substantial benefits for our customers and making a
meaningful impact on the value of healthcare as a whole. This will
result in extensive improvements to the financial effectiveness of
US hospital providers and thereby drive significant customer demand
for Craneware solutions in the future.
When I joined Craneware as Chairman at the time of the Initial
Public Offering in 2007, it was clear that the Company had exciting
prospects and its success would be determined by how well the
Company could execute. It is very pleasing to see the progress
Craneware has made over the last 20 years, especially its ability
to continue to evolve, identify opportunities and more importantly
capitalise on them. The Company is entering a new phase and I feel
that now is an appropriate time for me to hand the "baton" on to a
new Chairperson at the forthcoming AGM in November 2019, and as
such I will not be seeking re-election. The search for my successor
has already begun and we will update shareholders at the
appropriate juncture.
I would like to thank all our employees across the UK and US for
their hard work throughout my 12 years of tenure and special thanks
to my colleagues on the Board. Equally, I thank our customers and
shareholders for their ongoing support.
George Elliott
Chairman
2 September 2019
Strategic Report
20 years ago we were the first to market with a software tool to
automate the management of the chargemaster. Building from an
initial customer base of just a handful of hospitals, we have grown
to providing three families of solutions, aimed at improving the
value that can be achieved from every dollar spent on healthcare.
Now being used in approximately a third of all US hospitals, our
journey continues as we continue to grow that customer base and
widen our impact on the value that each of those customers can
deliver to their patients. Throughout this time, we have been
committed to being at the forefront of innovation within a
hospital's finance function and in recent times have turned our
attention to improving our hospital customers' operational
efficiency. Once more it has been impressive to see the outstanding
work carried out by our innovation, delivery and development teams,
ensuring we further our reputation as thought-leaders and
innovators in our field.
This commitment to innovation saw us launch the Trisus
Enterprise Value Platform, a cloud-based financial and operational
management platform specifically designed to address the challenges
arising in the new era of value-based care. The Trisus platform
provides insight into all areas of financial and operational risk
within a hospital, sitting as an intelligence layer across a myriad
of other software systems, extracting data, normalising it and then
applying analytical tools to help improve hospital performance.
This powerful platform has been built from the bottom up,
enabling the migration of our existing customers from their on
premise solutions into the cloud with the development of several
new solutions built on the substance of our legacy products. We are
just at the start of our Trisus journey and are excited by the
sizeable and significantly growing opportunity ahead of us.
Market - the move to value-based care continues at pace
The US healthcare market continues to transition from a
fee-for-service reimbursement model, towards value-based care,
aiming to redress the current imbalance in the US between spend and
outcomes. The US has the highest spend per capita on healthcare but
ranks only 37th in the world for outcomes.
Healthcare providers across the country are being asked by the
government and the insurance companies to justify the care they
provide or risk the withholding of payment. Meanwhile healthcare
consumers are expecting a greater transparency on costs and the
ability to 'shop around' for the services they require. An example
of the growing pressures on hospitals includes the introduction in
June 2019 of an Executive order from the President of the United
States to drive greater transparency in pricing and quality. As a
result of these market shifts, US hospital management teams require
a greater level of insight than ever before into the costs and
value being derived from the care they provide. They need to
understand where their organisations are at financial risk, so that
they can protect their margins, to ensure they are in a position to
continue to deliver quality care to their communities both now and
in the future.
The proportion of value-based care payments is increasing each
month, as the industry moves to this new reimbursement model. From
data compiled by the Catalyst for Payment Reform group, in 2010, 1
to 3% of all payor contracts had a value-based care or quality
driven modifying metric for payment. In the last two years this has
rapidly increased as confirmed by many of the largest US healthcare
insurance companies. Aetna, Inc. recently confirmed that
approximately 53% of their 2018 claims payments were made to
value-based providers and they are committed to increasing that
number to 75% by 2020. United Health Group is currently paying more
than 60% of their claims via value-based contracts and Anthem, Inc.
underlined the size of spend they now have associated with
value-based contracts, stating they currently have more than 66% of
their total medical spend tied to payment innovation contracts.
Their Enhanced Patient HealthCare (EPHC) program of private
value-based care is one of the largest nationally, having grossed
$1.8bn of savings for Anthem clients since 2014.
It is clear that value-based care is here for the long-term.
However, the ultimate success of value-based care will be reliant
on the industry having access to granular data and insightful
analytics to identify opportunities to deliver better value. As a
result, the US healthcare analytics sector is forecast by US
research firm MarketsandMarkets to grow 27.3% CAGR from $9.0bn in
2017 to $29.8bn by 2022. This is a large, growing opportunity for
Craneware given our specialism in helping hospitals better
understand and manage revenue and cost through data-driven
solutions.
Strategy
Product innovation to revolutionise healthcare finance and
expand our addressable market
Our strategy is to continue to build on our established
market-leading position in revenue cycle solutions to expand our
product suite coverage of the Value Cycle. The Value Cycle
describes the full life cycle of optimising every opportunity to
achieve the best outcome for the best cost. It includes traditional
revenue components such as pricing, charge capture, claims
performance and compliance, but also addresses additional
dimensions, such as: quality of care, patient satisfaction and
engagement, clinical outcomes, operational efficiency and risk
management.
We will continue to follow a 'land and expand' customer
strategy. We will use the breadth of our product suite and depth of
our long-term product vision to bring new customers into the Group,
at increasing average contract sizes, while seeking opportunities
to sell additional products to our existing customer base. In the
long-term, we believe we have the opportunity to increase average
annual licence fees up to 10x through much broader adoption of the
Trisus platform tied directly to an ongoing and increasing ROI
model for our customers. Our customers' success will be our
success.
Demonstrable and compelling ROI
Each of our products has the ability to deliver many times over
its cost in terms of protected or increased revenue or margin for
our customers, in the first year alone.
Strong competitive position
The focus of the new products we are developing is to target
'green field' opportunities, where there is little or no existing
competition. The breadth of our offering, combined with 20 years of
data within a sophisticated cloud platform, provides us with a
strong competitive position across our target product areas.
Working in partnership with customers
Our innovation is being carried out alongside our customers, to
ensure we are providing them with the tools they need, addressing
the key areas of risk in their operations. Our high levels of
customer renewals, consistently high customer support scores and
longevity of customer relationships demonstrate the partnership
role we have with our customers.
Investing in R&D to fulfil our vision
Our investment in R&D will continue to grow, in line with
revenue growth, as we fulfil our vision for Trisus. We are required
to capitalise a certain proportion of this investment relating to
the products where clear future revenue potential has been
identified and therefore are deemed to be an asset to the business.
We are delighted to report that in the three months since launch,
the Trisus Pricing Analyser product has already covered its
development costs through the total value of contracts signed,
demonstrating both the quality of the development work and its
relevance to the market.
Potential to augment organic growth through acquisitions
The Board continues to assess acquisition opportunities to
complement the Group's organic growth strategy and increase its
product coverage of the Value Cycle. The Board adheres to rigorous
criteria to evaluate acquisition opportunities, including quality
of earnings, customer relationships, strategic fit and product
offering. In addition to the Group's cash reserves, an undrawn $50
million funding facility provides the Group with available
resources to carry out strategic acquisitions if, and when, these
criteria are met. Areas for consideration include: competitors who
bring market share; businesses with complementary data sources or
products; and international companies with complementary product
suites of benefit to our customers, who do not have a foothold in
the US. The Group reviewed a substantial transaction during the
year that appeared to meet several of these criteria. However,
following extensive due diligence and legal process over several
months, it was decided that there was not sufficient assurance of
enhanced shareholder value to merit progressing with the
transaction.
Annuity SaaS business model provides a strong foundation for the
business
We sign long-term, multi-year contracts, based on the annuity
SaaS model, providing the business with high levels of revenue
visibility and the comfort to be able to continue to invest in
innovation. As we introduce new solutions on the Trisus platform we
continue to see some variability in contract lengths, however as
anticipated the key renewal dollar value statistics remains
comfortably above the middle of our historic range.
The business benefits from strong SaaS economics, with the
lifetime value of the current contract base significantly higher
than the cost of acquiring customers.
Product Roadmap
We continue to make progress in all areas of our product
roadmap: the development of our cloud-based Trisus Enterprise Value
Platform; the continued evolution and support of our existing
market-leading product suite as we migrate to Trisus; and the
development of new products to sit upon the Trisus platform. All of
these solutions will increase our coverage of the key areas of the
Value Cycle and therefore increase our addressable market.
Trisus Enterprise Value Platform
This cloud-based platform provides an expanding suite of
solutions focused on healthcare providers to identify and take
action on risks related to revenue, cost and compliance, leading to
optimised operations within the Healthcare provider. It is designed
to be versatile and expandable, growing alongside our customers as
the healthcare industry continues to evolve. The platform provides
an environment to gather, process, and deliver data across the
continuum of care with an open architecture and common components,
allowing for synergies between applications.
We are particularly pleased to note how both our existing
customer base and the wider healthcare provider market have
responded positively to the technological evolution of the
Craneware solution set, delivered on the Trisus platform. The
Trisus Bridge, the connector layer linking our customers' existing
on-premise Craneware solutions to the advanced functionality of
Trisus in the cloud has proven a valuable introduction to customers
on the potential benefits the platform can offer them. Greater than
95% of our customer base is now submitting at least part of their
data to the Trisus platform via the Trisus Bridge. Over 90% of our
existing customers have converted or are in the process of
converting to Single Authorisation via the Trisus platform which is
the first step for significant migration to the platform from
within our user base. We are confident the remaining customers will
make this step over the coming months. These positive metrics bode
well for the future transition to Trisus.
We now have four products live on Trisus: Trisus Claims
Informatics, Trisus Supply, Trisus Pricing Analyzer and Trisus
Healthcare Intelligence, with the latter three all entering full
marketing mode through the course of the year.
We are executing on a roadmap to migrate all our solutions onto
the Trisus platform and continue to look for innovative
combinations of our data sets into new unique product offerings. As
part of this roadmap we expect to see further hybrid solutions
combining: the best of existing software regardless of the
development origin, including outside of Craneware; elements of the
Trisus platform; new Trisus products; and new early adopter Trisus
enabled versions of other existing solutions.
Trisus(R) Healthcare Intelligence
Trisus(R) Healthcare Intelligence is a decision support tool
that integrates revenue, cost, clinical and hospital operational
information for each patient encounter, throughout the journey of
their medical condition. It accumulates all patient costs from
patient activities and services consumed during their care to allow
the healthcare provider to optimise hospital operations. The aim of
the tool is to provide our customers with an understanding of the
true cost of care by understanding all the elements of every
episode of care given to their patients so they can identify what
most affects financial and clinical outcomes and put in place
improvement programmes to effect those changes.
Most hospitals' accounting systems account for cost in aggregate
and average these, allocating costs on a volumetric basis. This
structure, while useful in a fee-for-service system and for basic
forecasting, financial projections and budgeting, does not
adequately support the shift to a quality-centric healthcare
delivery system that provides true value, where a greater degree of
insight and thereby more granularity of the data is required.
Healthcare Intelligence is therefore a vital component within
the emerging value cycle solutions market, representing a market
opportunity several times larger than that of our existing product
portfolio.
We now have three existing customers on multi-year contracts for
the solution with a growing pipeline of additional opportunities.
Our initial customers for this solution are using it to improve the
operations of their hospitals and working with Craneware to provide
use cases that can be utilised across future customers and in
marketing the products further.
The benefits already being delivered to these organisations is
meaningful. Within two small sub-groups of observation status
patients at a medium-sized acute care hospital in the Northeast,
the implementation of Trisus Healthcare Intelligence Cost Analytics
and Decision Support found that the hospital had been
under-reimbursed by up to $1m over a 9-month period. This was due
to the patients' status not being correctly upgraded despite the
higher levels of treatments they received.
At a medium-sized acute care hospital in the Midwest, an
analysis of two Diagnosis Related Groups identified one sample with
a significant margin loss per case. Margin was being lost due to
the hospital applying a particular reimbursement code, where
another, just as applicable, code would have more accurately
reflected the level and cost of care provided. It was identified
that the change of code, and an increase in certain efficiencies,
would have resulted in additional revenue of up to $1.4m for just
this one sample of patients.
From the pipeline of opportunities that have grown for this
product we are very pleased with the effectiveness of our
investment in this product area and believe that we will be able to
report that we will see a return on this investment within a
relatively short period of time.
Sales and Marketing
The positive sales momentum experienced in the first half of the
year was impacted as the market digested the release of three new
Trisus products. While this situation began to rectify towards the
end of the year, it caused our level and timing of sales for the
year to be below our initial expectations. The added options
presented to customers towards the end of their contract
negotiation caused additional product reviews, discussion of new
pricing options and revised legal contracts, thereby extending the
signing process.
Our annuity SaaS business model protects the business to a
certain extent from 'lumpy' licence sales, although the timing of
sales directly impacts the revenue growth of the Company in any one
year (and for the subsequent period) through delayed subscription
revenue and lower service revenue recognisable in the period. These
factors are being successfully worked through, with a strong level
of sales secured at the start of the year. For our growing number
of future opportunities, we have devised strategies to mitigate
these factors, such as more standardised legal frameworks and
Service Level Agreements for our cloud based solutions.
We continued to sign contracts with hospitals of all sizes and
have continued to do so in the first few months of the current
year, having had a strong start to the year and the sales pipeline
continues to grow.
Our sales in the year continued to support our 'land and expand'
strategy, with 45% of sales in the year coming from new customers,
providing a foundation for future growth, and the remaining 55%
being additional products to existing customers both as they are
renewing their existing licences and throughout the life of their
original contracts. Pharmacy ChargeLink has also continued its
leading performance from last year.
Whilst the launch of our new Trisus products did lead to some
sales indigestion, we have seen early positive signs from the
market to these products. As a result, sales of Trisus products
represented 13% of our new sales in the year increasing from 4% in
the prior year.
Financial Review
Revenue grew 6% to $71.4m (FY18: $67.1m) and adjusted EBITDA
grew 11% to $24.0m (FY18: $21.6m). Whilst this growth is lower than
we originally anticipated, we have continued to make progress in
the year which includes making significant investments into our
Trisus Enterprise Value Platform and the products that both sit on
and interact with this platform. Our three year revenue visibility
KPI has crossed the record level of over $200m of visible revenue
for the three year period to 30 June 2022 against which we can plan
our future investments and we maintain a strong balance sheet with
healthy cash reserves to support our future growth.
It is especially pleasing to be able to report continuing
momentum with our Trisus strategy. In addition to the three new
products launched in the year (making a total of four Trisus
products now being generally available), we have over 95% of our
customer base interacting in some way with the Trisus platform
through our Trisus Bridge and the total proportion of our new sales
being Trisus products has increased to 13% of our total new sales
from 4% in Financial Year 2018.
The total value of contracts signed in the year was $63.1m
(FY18: $98.6m, FY17: $54.1m). A contributing factor to this result
being below that of the prior year has been both the timing and
contract lengths of our underlying sales. As previously detailed,
with the launch of three new Trisus products in the year we
experienced 'indigestion' within both our own direct sales teams
and our customer base. In addition, as anticipated, the average
contract length for new sales reduced from five to four years, in
line with our Trisus migration strategy. We continue to renew our
existing customers at over 100% dollar value and do not attribute
any increasing risk to this variability in contract length during
this migration period.
We have continued to see new sales successes in the year,
signing $33.3m of new total contract value with new and existing
customers. Within these new sales there has been a healthy mix
between sales to new customers and sales of additional products to
existing customers. 45% of our new sales have been with new
hospitals customers which further expand our hospital footprint and
provide further future cross selling opportunities. With the
remaining 55% of our new sales coming from our existing customer
base taking further products from our portfolio, these additional
cross selling activities occur both as our customers renew their
contracts (representing 41% of new sales) as well as throughout the
life of their existing contracts (representing 14% of new
sales).
At the end of an existing customer's initial licence period, or
at a mutually agreed earlier date, we renew our licences with our
customers. These renewals contributed an additional $29.8m to sales
in the period. By renewing these contracts, we are sustaining our
underlying revenue base, onto which we are then layering new
hospital sales. It is for this reason we measure our renewal rates
by dollar value. We do this by measuring the 'last annual value' of
all customers due to renew in the current year and compare it to
actual value these customers renew at (in total), including up-sell
and cross-sell. This metric for the FY19 is 101%.
As demonstrated by the numbers reported above, and as a result
of our business model, "sales" and "revenue" have very different
meanings to the Group and are not interchangeable. In fact, only a
small proportion of the revenue resulting from any sale made in the
year will be recognised in the year of sale. Instead the vast
majority of revenue resulting from any sale is recognised over
future years, supporting future growth.
Through our business model and resulting revenue recognition,
the Group ensures that it is focused on building its underlying
annuity revenue base to deliver sustainable growth.
IFRS 15 & Our Business Model
IFRS 15 "Revenue from contracts with customers" is effective for
accounting periods that began on or after 1 January 2018 and as
such this new standard has been adopted in the current year. Under
this standard revenue is recognised using a five-step model,
requiring the transaction price for each identified contract to be
apportioned to separate performance obligations arising under the
contract. Revenue is recognised either when the performance
obligation in the contract has been performed (point in time
recognition) or over time as control of the performance obligation
is transferred to the customer.
The new contracts we sign with our customers provide a licence
for the customer to access specified products throughout their
licence period. This licence period on average, for a sale to a new
customer, has historically been five years. In calculating
averages, we only take the contract length up to the first renewal
point/break clause for that specified product.
Under the Group's 'Annuity SaaS' business model we have always
recognised software licence revenue and any minimum payments due
from our 'other route to market' contracts evenly over the life of
the 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 to assist our customers. This
engagement focuses on embedding the software within the customers'
core processes to maximise the value the software can bring to
them. This revenue is typically separately identifiable from the
licence and is 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
customers' needs and which of our solutions they have contracted
for. As a result of the nature of professional services engagement,
the period over which we deliver the services and consequently
recognise the 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
around 10% to 20% of revenues reported by the Group to be from
services.
Our Annuity SaaS business model and the revenue recognition
methodology we have historically adopted is consistent with the
aims and requirements of IFRS15 and as such our adoption of this
standard in the current financial year has not resulted in any
material difference to how we recognise and report our
revenues.
Sales, Revenue and Revenue Visibility
The table below shows the total value of contracts signed in the
relevant years, split between sales of new products (to both new
and existing hospital customers) and the value of renewing products
with existing customers at the end of their current contract terms,
and how these sales have translated into reported revenue in the
corresponding year.
Fiscal Year 2015 2016 2017 2018 2019
$m $m $m $m $m
Reported Revenue 44.8 49.8 57.8 67.1 71.4
----- ----- ----- ----- -----
New Product Sales 35.9 58.6 35.4 71.3 33.3
Renewals* 37.0 23.7 18.6 27.3 29.8
----- ----- ----- ----- -----
Total Contract
Value (TCV) 72.9 82.3 54.0 98.6 63.1
* During the product migration to the Trisus Platform we
anticipate and have experienced variability in the average contract
length in any single reporting period which will impact the Total
Contract Values reported
** As the Group signs new customer contracts for between three
to nine 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 nine
years, will impact the total contract value of renewals in that
year
As the majority of the revenue resulting from sales in any one
year is recognised over future years, the financial statements do
not fully reflect the valuable 'asset' that is contracted, but not
yet recognised, revenue. As such, at every reporting period, the
Group presents its "Revenue Visibility". This KPI identifies
revenues which we reasonably expect to recognise, as of the first
day of the new Fiscal Year, over the next three year period, based
on sales that have already occurred.
Through this metric we can demonstrate how the underlying
annuity base of revenue continues to build as we sign new
multi-year contracts with our customers and at the end of these
contracts by, on average, renewing these customers at 100% of
dollar value. In producing this KPI we assume customers will renew
at 100% of dollar value as they fall due, which again is why we
report our dollar value of renewals at each reporting period. Our
historical norms for this metric being between 85% and 115%, with
the longer term average being above 100%.
The Three Year Revenue Visibility KPI is a forward looking KPI
and therefore will always include some judgement. To help assess
this, we separately identify different categories of revenue to
better reflect any inherent future risk in recognising these
revenues. This Three Year Visible Revenue metric includes:
-- future revenue under contract
-- revenue generated from renewals (calculated at 100% dollar value renewal)
-- other recurring revenue
Future revenue under contract is, as the title suggests, subject
to an underlying contract and therefore once invoiced will be
recognised in the respective future 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.
five years) and will require their contracts to be renegotiated and
renewed for the revenue to be recognised. As this category of
revenue is assumed to renew at 100% of dollar value, we
consistently monitor and publish this KPI (at each reporting
period) to ensure the reasonableness of this assumption. The final
category, other recurring revenue, is revenue that we would expect
to recur in the future but is monthly or transactional in its
nature and as such there is increased potential for this revenue
not to be recognised in future years, when compared to the other
categories.
The Group's total visible revenue for the three years as at 30
June 2019 (i.e. visible revenue for FY20, FY21 and FY22) identifies
$200.1m of revenue which we reasonably expect to benefit the Group
in this next three year period. This visible revenue breaks down as
follows:
-- future revenue under contract contributing $140.2m of which
$60.0m is expected to be recognised in FY20, $46.0m in FY21 and
$34.2m in FY22
-- revenue generated from renewals contributing $59.2m; being
$7.3m in FY20, $19.9m in FY21 and $32.0m in FY22
-- other revenue identified as recurring in nature of $0.7m
Gross Margins
Typically, we expect the gross profit margin to be between 90%
to 95% reflecting the incremental costs we incur to obtain the
underlying contracts, including sales commission contract costs
which are charged in line with the associated revenue recognition.
The gross profit for FY19 was $67.0m (FY18: $63.7m) representing a
gross margin percentage of 93.8% (FY18: 94.9%) which continues to
be within our historical range. This reflects the correct matching
of these incremental costs with the associated revenue being
recorded.
Earnings
The Group presents an adjusted earnings figure as a supplement
to the IFRS based earnings figures. The Group uses this adjusted
measure in its operational and financial decision-making as it
excludes certain one-off items, so as to focus on what the Group
regards as a more reliable indicator of the underlying operating
performance. We believe the use of this measure is consistent with
other similar companies and is frequently used by analysts,
investors and other interested parties.
Adjusted earnings represent operating profits excluding costs
incurred as a result of acquisition and share related activities
(if applicable in the year), share related costs including IFRS 2
share based payments charge, interest, depreciation and
amortisation ("Adjusted EBITDA").
This fiscal year we incurred $1.2m (FY18: nil) of professional
and other fees relating to a significant proposed acquisition that
ultimately the Board decided not to enter into in the year under
review. Whilst these costs have impacted our cash generation in
FY19, they are non-recurring in nature and outside of our normal
operations, as such we have adjusted earnings for these amounts in
presenting Adjusted EBITDA.
Adjusted EBITDA has grown in the year to $24.0m (FY18: $21.6m)
an increase of 11%. This reflects an Adjusted EBITDA margin of
33.6% (FY18: 32.2%). This is consistent with the Group's continued
approach to making investments in line with the revenue growth
whilst monitoring our overall EPS growth.
Operating Expenses
We continually invest in the future growth of the Group. Our
customers are facing a market that continues to evolve towards
value-based economics and the Group is in a unique position with
its Value Cycle strategy to help them meet the challenges of these
new reimbursement models. If we are to deliver on our potential to
both support our customers in this evolving market place and
address the market opportunity available to us, we must ensure we
are building a scalable business that can meet the future
challenges our growth will bring.
To do this the Group continues to invest in all areas of the
business in line with revenue growth whilst also takes
opportunities where they arise, to accelerate investments that will
generate further growth whilst continually managing to ensure the
efficiency of the investments we make. The increase in net
operating expenses (to Adjusted EBITDA) of 2% to $43.0m (FY18:
$42.0m) reflects the balanced approach taken in the current year
between continued investment and delivering returns from previous
investments in new products as we start to see revenue and the
associated impact the resulting amortisation charge has on
earnings.
As detailed in the Operating Review, product innovation and
enhancement continues to be core to the Group's future; as such we
continue to invest significant resource in this area as we build
out the Trisus platform and the portfolio of products that will be
part of this platform. We continue our Build, Buy or Partner
strategy to build out this portfolio of products, recognising
'Build' is often the best way forward. We undertake the development
of innovative new products whilst maintaining our current product
offerings and ensuring they remain market-leading. As a result of
this investment the total cost of development in the year was
$20.0m (FY18: $17.9m), a 12% increase which is ahead of our revenue
growth and reflective of the opportunities in the market for our
products.
From this total investment we have capitalised projects that
will bring future economic benefit to the Group including the
development of the new product offerings ("Build"), e.g. new Trisus
products; the Trisus Bridge extension of the Trisus platform and
our new cost analytics and Healthcare Intelligence products. With
the significant investment into our development and product
management teams we have ensured costs relating to expanding and
training the new teams are not capitalised. As a result the total
amount capitalised in the year was $9.6m (FY18: $4.7m).
Amounts capitalised represent investment in our future. They are
an efficient and cost effective way to further build out our Value
Cycle strategy. We expect to see both the levels of development
expense and capitalisation continue at the current trends as we
progress with building out this solution set. As specific products
are made available to relevant customers, the associated amounts
capitalised are charged to the Group's income statement over their
estimated useful economic life.
Cash and Bank Facilities
An area of focus will always be our ability to convert our
earnings into cash. To this end we set ourselves a target in this
area, to convert 100% conversion of our earnings into cash. In
prior years we have exceeded this target, in FY18 reaching 153%
conversion (or approximately $11m over our 100% conversion target).
This success though inevitably has a knock on effect; as we expect
a long term average of 100%, the success in FY18 impacted the cash
collection in FY19. This impact was further compounded by the
proportion of our second half sales that occurred late in that half
and as a result were not due for collection at the end of the
fiscal year, resulting in lower cash collections in the year and a
higher year end debtors balance. As a result of these two factors,
and the acquisition costs of $1.2m detailed above, our adjusted
EBITDA to cash conversion in the year was 63%. Whilst below our own
target, we have collected a further $8.5m of our year end debtors.
Had these collections been included we would have delivered a 98%
cash conversion in the current year.
During the year we have returned $8.5m to our shareholders via
dividends. As a result of all these factors, we retain cash
reserves of $47.6m (FY18: $52.8m).
This significant level of cash reserves and our balance sheet
strength allows us to fund acquisitions should suitable
opportunities arise. To supplement these reserves, the Group
retains a funding facility from the Bank of Scotland of up to $50m.
Whilst no draw down of this facility occurred in the year, the
Group continues to investigate strategic opportunities to add to
the Value Cycle strategy.
Balance sheet
The Group maintains a strong balance sheet position. The level
of trade and other receivables has increased in comparison to the
prior year. This is a result of the factors identified above that
impacted our cash collection in the year.
IFRS 15 "Revenue from contracts with customers" also addresses
how reporting entities should treat incremental contract costs such
as sales commissions. It is again pleasing to report that adoption
of this standard has not resulted in any changes to our accounting
treatment in this area. The sales commissions we pay are based on
the total value of the contract sold; however for the purposes of
the Statement of Comprehensive Income, a lower proportion of
revenue from the contract value is recognised in the year.
As a result we charge an equivalent percentage of the sales
commission, thereby properly matching revenue and incremental
expense. The resulting deferred contract asset of $7.3m (FY18:
$7.5m) is the balance to be charged to the Group's income statement
as we recognise the associated revenue. As we only pay the sales
commission upon receipt of the first annual payment from the
customer, we remain cash flow positive from any new sale.
Deferred income levels reflect the amounts of the revenue under
contract that we have invoiced and/or been paid for in the year,
but have yet to recognise as revenue. This balance is a subset of
the total visible revenue we describe above and reflected through
our three year visible revenue metric.
Deferred income, accrued income and the prepayment of sales
commissions all arise as a result of our Annuity SaaS business
model described above and we will always expect them to be part of
our balance sheet. They arise where the cash profile of our
contracts does not exactly match how revenue and related expenses
are recognised in the Statement of Comprehensive Income. Overall,
levels of deferred income are significantly more than any accrued
income and the prepayment of sales commissions, we therefore remain
cash flow positive in regards to how we account for our
contracts.
Currency
The functional 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 have approximately one quarter
of the cost base situated in the UK, relating primarily to our UK
employees which is 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. The
average exchange rate throughout the year being $1.2945 as compared
to $1.3472 in the prior year.
Taxation
The Group generates profits in both the UK and the US. The
overall levels are determined by both the proportion of sales in
the year and the level of professional services income recognised.
The Group's effective tax rate remains dependent on the applicable
tax rates in these respective jurisdictions. In the current year
the effective tax rate has been affected by share options issued
and exercised in the year which reduced the tax charge by $0.4m
(FY18: $1.4m) and R&D tax relief of $0.4m (FY18: $0.3m) which
further reduced the tax charge. As such the current year effective
tax rate is 18% (FY18: 17%).
EPS
In the year being reported adjusted EPS has seen the benefit of
the increased levels of Adjusted EBITDA combined with the effective
tax rate reported above, offset by an increase in both the
amortisation and share based payment charges, and as such has
increased 5% to $0.633 (FY18: $0.602) and adjusted diluted EPS has
increased to $0.620 (FY18: $0.591).
Dividend
The Board proposes a final dividend of 15p (19.05 cents) per
share giving a total dividend for the year of 26p (33.02 cents) per
share (FY18: 24p (31.68 cents) per share). Subject to approval at
the Annual General Meeting, the final dividend will be paid on 19
December 2019 to shareholders on the register as at 29 November
2019, with a corresponding ex-Dividend date of 28 November
2019.
The final dividend of 15p 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 29
November 2019. The exact amount to be paid will be calculated by
reference to the exchange rate to be announced on 29 November 2019.
The final dividend referred to above in US dollars of 19.05 cents
is given as an example only using the Balance Sheet date exchange
rate of $1.2695/GBP1 and may differ from that finally
announced.
Outlook
The ongoing transition to value-based care is a powerful
underlying driver for our software, as healthcare providers seek
the means not only to survive but thrive in this new era. We are
committed to providing our customers with the tools they require to
continue to deliver outstanding care to their communities and are
passionate about the central role we will play in this substantial
evolution of the US healthcare market.
While growth in the year was lower than originally anticipated,
renewal levels remained strong and our Trisus related sales and
revenues continued to increase, providing us with a strong platform
for the future. We have entered the new financial year with an
uptick in sales momentum.
We are focused on the delivery of our growing opportunity and
have the correct strategy to succeed. With growing levels of
contracted future revenue, strong operating margins, healthy cash
balances and a growing sales pipeline, we look to the coming years
with confidence and high levels of excitement for the opportunity
ahead.
Keith Neilson Craig Preston
Chief Executive Officer Chief Financial Officer
2 September 2019 2 September 2019
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2019
Total Total
2019 2018
Notes $'000 $'000
--------------------------------------------- ------ --------- ---------
Continuing operations:
Revenue 3 71,401 67,067
Cost of sales (4,394) (3,407)
--------- ---------
Gross profit 67,007 63,660
Operating expenses 4 (49,003) (44,968)
--------- ---------
Operating profit 18,004 18,692
Analysed as:
Adjusted EBITDA(1) 23,996 21,611
Share based payments (1,296) (663)
Depreciation of plant and equipment (603) (578)
Exceptional Aborted Acquisition Costs (1,168) -
Amortisation of intangible assets (2,925) (1,678)
--------------------------------------------- ------ --------- ---------
Finance income 318 241
--------- ---------
Profit before taxation 18,322 18,933
Tax on profit on ordinary activities 5 (3,337) (3,136)
--------- ---------
Profit for the year attributable to
owners of the parent 14,985 15,797
Other comprehensive income / (expense)
Items that may be reclassified subsequently
to profit or loss
Currency Translation movement 28 (10)
--------- ---------
Total items that may be reclassified
subsequently to profit or loss 28 (10)
--------------------------------------------- ------ --------- ---------
Total comprehensive income attributable
to owners of the parent 15,013 15,787
--------------------------------------------- ------ --------- ---------
1. Adjusted EBITDA is defined as operating profit before
interest, tax, depreciation, amortisation, exceptional items and
share based payments
Earnings per share for the year attributable to equity
holders
Notes 2019 2018
------------------------------- ------ ------ ------
Basic ($ per share) 7a 0.561 0.590
*Adjusted Basic ($ per share) 7a 0.633 0.602
Diluted ($ per share) 7b 0.550 0.579
*Adjusted Diluted ($ per
share) 7b 0.620 0.591
------------------------------- ------ ------ ------
* Adjusted Earnings per share calculations allow for the tax
adjusted acquisition costs and share related transactions (if
applicable in the year) together with amortisation on acquired
intangible assets.
Statement of Changes in Equity for the year ended 30 June
2019
Share Capital
Share Premium Redemption Other Retained Total
Capital Account Reserve Reserves Earnings Equity
$'000 $'000 $'000 $'000 $'000 $'000
---------------------------- -------- -------- ----------- --------- --------- ---------
At 1 July 2017 537 17,974 - 958 39,886 59,355
Total comprehensive income
- profit for the year - - - - 15,797 15,797
Total other comprehensive
expense - - - - (10) (10)
Transactions with owners:
Company shares acquired
by employee benefit trust - - - - (4,248) (4,248)
Buyback and cancellation
of shares (9) - 9 - (15,378) (15,378)
Share-based payments - - - 1,503 634 2,137
Impact of share options
exercised/lapsed 6 1,803 - (377) 378 1,810
Dividends (Note 6) - - - - (7,817) (7,817)
----------------------------
At 30 June 2018 534 19,777 9 2,084 29,242 51,646
Total comprehensive income
- profit for the year
Total other comprehensive
income - - - - 14,985 14,985
Transactions with owners: - - - - 28 28
Share-based payments - - - 1,611 (184) 1,427
Impact of share options
exercised/lapsed 1 245 - (146) 146 246
Dividends (Note 6) - - - - (8,497) (8,497)
----------------------------
At 30 June 2019 535 20,022 9 3,549 35,720 59,835
---------------------------- -------- -------- ----------- --------- --------- ---------
Consolidated Balance Sheet as at 30 June 2019
Notes 2019 2018
$'000 $'000
---------------------------------- ------ -------- -------
ASSETS
Non-Current Assets
Plant and equipment 1,274 1,223
Intangible assets 8 30,437 23,267
Trade and other receivables 9 4,946 5,275
Deferred tax 3,244 3,831
39,901 33,596
-------- -------
Current Assets
Trade and other receivables 9 18,789 12,503
Cash and cash equivalents 47,611 52,833
66,400 65,336
-------- -------
Total Assets 106,301 98,932
---------------------------------- ------ -------- -------
EQUITY AND LIABILITIES
Current Liabilities
Deferred income 37,849 35,371
Current tax liabilities 1,085 80
Trade and other payables 7,532 11,835
46,466 47,286
-------- -------
Total Liabilities 46,466 47,286
-------- -------
Equity
Share capital 10 535 534
Share premium account 20,022 19,777
Capital redemption reserve 9 9
Other reserves 3,549 2,084
Retained earnings 35,720 29,242
Total Equity 59,835 51,646
-------- -------
Total Equity and Liabilities 106,301 98,932
---------------------------------- ------ -------- -------
Statement of Cash Flows for the year ended 30 June 2019
Notes 2019 2018
$'000 $'000
------------------------------------------ ------ --------- ---------
Cash flows from operating activities
Cash generated from operations 11 15,078 33,110
Interest received 318 227
Tax paid (1,933) (3,349)
------------------------------------------ ------ --------- ---------
Net cash from operating activities 13,463 29,988
Cash flows from investing activities
Purchase of plant and equipment (654) (434)
Capitalised intangible assets (9,780) (4,258)
------------------------------------------ ------ --------- ---------
Net cash used in investing activities (10,434) (4,692)
Cash flows from financing activities
Dividends paid to company shareholders 6 (8,497) (7,817)
Proceeds from issuance of shares 246 1,810
Company share movement in employee
benefit trust - (4,248)
Buy back of ordinary shares - (15,378)
------------------------------------------ ------ --------- ---------
Net cash used in financing activities (8,251) (25,633)
Net (decrease) / increase in cash
and cash equivalents (5,222) (337)
Cash and cash equivalents at the
start of the year 52,833 53,170
Cash and cash equivalents at the
end of the year 47,611 52,833
------------------------------------------ ------ --------- ---------
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, International Financial Reporting Standards
Interpretation Committee (IFRSIC) 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 currencies other than US dollars 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 $1.2945/GBP1 (2018: $1.3472/GBP1). Monetary
assets and liabilities expressed in foreign currencies are
translated into US dollars at rates of exchange ruling at the
Balance Sheet date $1.2695/GBP1 (2018 : $1.31977/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 IFRS 15, 'Revenue from
Contracts with Customers', accordingly revenue will be recognised
using the five-step model, requiring the transaction price for each
identified contract to be apportioned to separate performance
obligations arising under the contract. Revenue is recognised
either when; the performance obligation in the contract has been
performed (point in time recognition) or over time as control of
the performance obligation is transferred to the customer.
Revenue is derived from sales of software licences and
professional services including installation and training.
'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 standard licenced products are recognised from the
point at which the customer gains control and the right to use our
software. This right to use software will be for the period covered
under contract and, as a result, the licenced software revenue will
be recognised over the life of the 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.
Revenue from all professional services is recognised when the
performance obligation has been fulfilled and the 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 Group
does not have any contracts where a financing component exists
within the contract.
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.
Contract assets include sales commissions and prepaid royalties.
Contract liabilities include unpaid commissions and deferred
income.
Exceptional costs
The Group defines exceptional items as costs incurred by the
group which relate to material non-recurring costs. These are
disclosed separately where it is considered it provides additional
useful information to the users of the financial statements.
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 up to 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 licenced
to-use technology are capitalised as incurred. They are amortised
on a straight-line basis over their useful economic life which is
typically three to five 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 and / or conditional share awards
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 using the
Black-Scholes pricing model or the Monte Carlo pricing model, as
appropriately amended, taking into account the terms and conditions
of the share-based awards. 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
and are satisfied by new issued 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 recoverable amount
of the applicable cash generating unit to which the Goodwill and
other assets relate. Estimating the recoverable amount requires the
Group to make an estimate of the expected future cash flows from
the specific cash generating unit using certain key assumptions
including growth rates and a discount rate. These assumptions
result in no impairment in goodwill.
-- 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.
-- Capitalisation of development expenditure: - the Group
capitalises development costs provided the aforementioned
conditions have been met. Consequently, the directors require to
continually assess the commercial potential of each product in
development and its useful life following launch.
3. Revenue
The chief operating decision maker has been identified as the
Board of Directors. The Group revenue is derived almost entirely
from the sale of software licences 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.
2019 2018
$'000 $'000
----------------------- ------- -------
Software licencing 60,488 56,346
Professional services 10,913 10,721
Total revenue 71,401 67,067
----------------------- ------- -------
Contract assets
The Group has recognised the following assets related to
contracts with customers:
2019 2018
$'000 $'000
------------------------------------------- ------ ------
Prepaid commissions and royalties < 1 year 2,537 -*
Prepaid commissions and royalties > 1 year 4,946 -*
Total contract assets 7,483 -
------------------------------------------- ------ ------
*As permitted under the transitional provisions of IFRS 15, the
transaction price allocated to contract assets at 30 June 2018 is
not disclosed.
Contract assets are included within deferred contract costs and
prepayments in the balance sheet.
Costs recognised during the year in relation to assets at 30
June 2018 were $2.4m.
Contract liabilities
The following table shows both the total contract liabilities
and the aggregate transaction price allocated to performance
obligations that are partially or fully unsatisfied at 30 June 2019
from software license and professional service contracts:
2019 2018
$'000 $'000
--------------------------- ------- ------
Software licencing 33,949 -*
Professional services 3,900 -*
Total contract liabilities 37,849 -
--------------------------- ------- ------
*As permitted under the transitional provisions of IFRS 15, the
transaction price allocated to unsatisfied performance obligations
at 30 June 2018 is not disclosed.
Contract liabilities are included within deferred income in the
balance sheet.
Revenue of $35.2m was recognised during the year in relation to
unsatisfied performance obligations as of 30 June 2018.
Management expects that 99% of the transaction price allocated
to unsatisfied performance obligations as of 30 June 2019 will be
recognised as revenue during the next reporting period
($37.5m).
4. Operating expenses
Operating expenses are comprised of the following:
2019 2018
$'000 $'000
---------------------------------------------------- ------- -------
Sales and marketing expenses 9,726 8,257
Client servicing 14,086 11,981
Research and development 10,405 13,174
Administrative expenses 8,723 8,736
Share-based payments 1,296 663
Depreciation of plant and equipment 603 578
Amortisation of intangible assets 2,925 1,678
Exceptional aborted acquisition costs* 1,168 -
Exchange (gain) 71 (99)
Operating expenses 49,003 44,968
---------------------------------------------------- ------- -------
* Exceptional items relate to legal and professional fees
associated with an aborted potential acquisition.
5. Tax on profit on ordinary activities
2019 2018
$'000 $'000
----------------------------------------------------- ------ -------
Profit on ordinary activities before tax 18,322 18,933
Current tax
Corporation tax on profits of the year 3,047 3,536
Adjustments for prior years (113) (305)
----------------------------------------------------- ------ -------
Total current tax charge 2,934 3,231
Deferred tax
Origination & reversal of timing differences 323 382
Adjustments for prior years 80 (8)
Change in tax rate - (469)
----------------------------------------------------- ------ -------
Total deferred tax charge / (credit) 403 (95)
----------------------------------------------------- ------ -------
Tax on profit on ordinary activities 3,337 3,136
----------------------------------------------------- ------ -------
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 19% (2018: 19%) 3,481 3,597
Effects of:
Adjustment for prior years (33) (313)
Change in tax rate - (469)
(Additional US taxes on profits 25% (2018:
32%) 54 1,137
R & D tax credit (364) (327)
Expenses not deductible for tax purposes 17 29
Origination and reversal of temporary differences 561 847
Deduction on share plan charges (379) (1,365)
Total tax charge 3,337 3,136
----------------------------------------------------- ------ -------
6. Dividends
The dividends paid during the year were as follows:-
2019 2018
$'000 $'000
---------------------------------------------- ------ ------
Final dividend, re 30 June 2018 - 18.48
cents (14 pence)/share 4,713 4,065
Interim dividend, re 30 June 2019 - 14.0
cents (11 pence)/share 3,784 3,752
Total dividends paid to Company shareholders
in the year 8,497 7,817
---------------------------------------------- ------ ------
Prior year:
Final dividend 14.71 cents (11.3 pence) / share
Interim dividend 13.5 cents (10 pence) / share
The proposed final dividend 19.05 cents (15 pence), as noted in
the Financial Review section of the Strategic Report, for 30 June
2019 is subject to approval by the shareholders at the Annual
General Meeting and has not been included as a liability in these
accounts.
7. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year.
2019 2018
------------------------------------------------ ------- ----------
Profit attributable to equity holders of
the Company ($'000) 14,985 15,797
Weighted average number of ordinary shares
in issue (thousands) 26,691 26,790
Basic earnings per share ($ per share) 0.561 0.590
------------------------------------------------ ------- ----------
Profit attributable to equity holders of
Company ($'000) 14,985 15,797
Adjustments* ($'000) 1,914 329
Adjusted Profit attributable to equity holders
($'000) 16,899 16,126
------------------------------------------------ ------- ----------
Weighted average number of ordinary shares
in issue (thousands) 26,691 26,790
Adjusted Basic earnings per share ($ per
share) 0.633 0.602
------------------------------------------------ ------- ----------
*Relate to aborted acquisition costs, share related activities
and amortisation of acquired intangibles if applicable in the year.
These adjustments are to focus on what the Group regards as a more
reliable indicator of the underlying operating performance and are
consistent with other similar companies.
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.
2019 2018
------------------------------------------------ ------- ----------
Profit attributable to equity holders of
the Company ($'000) 14,985 15,797
Weighted average number of ordinary shares
in issue (thousands) 26,691 26,790
Adjustments for:- Share options (thousands) 555 492
Weighted average number of ordinary shares
for diluted earnings per share (thousands) 27,246 27,282
Diluted earnings per share ($ per share) 0.550 0.579
------------------------------------------------ ------- ----------
Profit attributable to equity holders of
Company ($'000) 14,985 15,797
Adjustments* ($'000) 1,914 329
Adjusted Profit attributable to equity holders
($'000) 16,889 16,126
------------------------------------------------ ------- ----------
Weighted average number of ordinary shares
in issue (thousands) 26,691 26,790
Adjustments for:- Share options (thousands) 555 492
------------------------------------------------ ------- ----------
Weighted average number of ordinary shares
for diluted earnings per share (thousands) 27,246 27,282
Adjusted Diluted earnings per share ($ per
share) 0.620 0.591
------------------------------------------------ ------- ----------
*Relate to aborted acquisition costs, share related activities
and amortisation of acquired intangibles if applicable in the year.
These adjustments are to focus on what the Group regards as a more
reliable indicator of the underlying operating performance and are
consistent with other similar companies.
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 2018 11,438 2,964 3,043 13,960 1,395 32,809
Additions - - - 9,580 515 10,095
Disposals - - - - - -
At 30 June 2019 11,438 2,964 3,043 23,549 1,910 42,904
------------------ --------- -------------- ------------ ------------ --------- -------
Accumulated
amortisation
At 1 July 2018 250 2,371 2,189 3,902 830 9,542
Charge for the
year - 330 429 1,796 370 2,925
Amortisation
on disposals - - - - - -
At 30 June 2019 250 2,701 2,618 5,698 1,200 12,467
Net Book Value
at 30 June 2019 11,188 263 425 17,851 710 30,437
------------------ --------- -------------- ------------ ------------ --------- -------
Cost
At 1 July 2017 11,438 2,964 3,043 9,237 1,436 28,118
Additions - - - 4,732 368 5,100
Disposals - - - - (409) (409)
At 30 June 2018 11,438 2,964 3,043 13,969 1,395 32,809
------------------ --------- -------------- ------------ ------------ --------- -------
Accumulated
amortisation
At 1 July 2017 250 2,042 1,976 3,046 959 8,273
Charge for the
year - 329 213 856 280 1678
Amortisation
on disposal - - - - (409) (409)
At 30 June 2018 250 2,371 2,189 3,902 830 9,542
Net Book Value
at 30 June 2018 11,188 593 854 10,067 565 23,267
------------------ --------- -------------- ------------ ------------ --------- -------
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 of the core Craneware business cash
generating unit. This is the lowest level of which there are
separately identifiable cash flows to assess the goodwill acquired
as part of the Craneware InSight Inc purchase.
The key assumptions in assessing value in use are the discount
rate applied, future growth rate of revenue and the operating
margin. These take into account the customer base and expected
revenue commitments from it, anticipated additional sales to both
existing and new customers and market trends currently seen and
those expected in the future.
The Group have assessed events and circumstances in the year and
the assets and liabilities of the business cash-generating unit;
this assessment has confirmed that no significant events or
circumstances occurred in the year and that the assets and
liabilities showed no significant change from last year.
After review of future forecasts, the Group confirmed the growth
forecast next five years showed that the recoverable amount would
continue to exceed the carrying value. There are no reasonable
possible changes in assumptions that would result in an
impairment.
9. Trade and other receivables
2019 2018
$'000 $'000
----------------------------------- -------- --------
Trade receivables 15,415 9,215
Less: provision for impairment of
trade receivables (1,246) (1,072)
----------------------------------- -------- --------
Net trade receivables 14,169 8,143
Other receivables 308 230
Prepayments and accrued income 1,924 1,904
Deferred Contract Costs 7,334 7,501
----------------------------------- -------- --------
23,735 17,778
Less non-current receivables: - -
Deferred Contract Costs (4,946) (5,275)
Current portion 18,789 12,503
----------------------------------- -------- --------
10. Share capital
2019 2018
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
2019 2018
Number $'000 Number $'000
------------------------------- ----------- ------ ----------- ------
Equity share capital
Ordinary shares of 1p each
------------------------------- ----------- ------ ----------- ------
At 1 July 26,662,271 534 26,961,709 537
------------------------------- ----------- ------ ----------- ------
Cancelled, following purchase
by Company of own shares - - (628,869) (9)
------------------------------- ----------- ------ ----------- ------
Allotted and issued in the
year on exercise of employee
share options 36,713 1 329,431 6
------------------------------- ----------- ------ ----------- ------
At 30 June 26,698,984 535 26,662,271 534
------------------------------- ----------- ------ ----------- ------
11. Cash flow generated from operating activities
Reconciliation of profit before taxation to
net cash inflow from operating activities
2019 2018
$'000 $'000
------------------------------------- -------- -------
Profit before tax 18,322 18,933
Finance income (318) (241)
Depreciation on plant and equipment 608 578
Amortisation and Impairment on
intangible assets 2,925 1,678
Share-based payments 1,296 663
Loss on disposals - 10
Movements in working capital:
(Increase) / Decrease in trade
and other receivables (5,957) 1,881
Increase / (Decrease) in trade
and other payables (1,793) 9,608
Cash generated from operations 15,078 33,110
------------------------------------- -------- -------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BIGDCDXGBGCD
(END) Dow Jones Newswires
September 03, 2019 02:00 ET (06:00 GMT)
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