TIDMCRW
RNS Number : 0121J
Craneware plc
06 September 2016
Craneware plc
("Craneware", "the Group" or the "Company")
Final Results
6 September 2016 - Craneware plc (AIM: CRW.L), the market leader
in Value Cycle solutions for the US healthcare market, announces
its results for the year ended 30 June 2016.
Financial Highlights (US dollars)
-- Total Contract Value in the year continues at record levels of $82.3m (FY15: $72.9m)
-- new sales increased by 63% to $58.6m (FY15: $35.9m)
-- renewal rate remains above 100% by dollar value
-- Revenue increased 11% to $49.8m (FY15: $44.8m)
-- Adjusted EBITDA1. increased by 10% to $15.9m (FY15: $14.4m)
-- Profit before tax increased by 10% to $13.9m (FY15: $12.5m)
-- Basic adjusted EPS increased 13% to $0.429 (FY15: $0.378) and adjusted diluted EPS has increased to $0.423 (FY15:
$0.375)
-- Continued operating cash conversion above 100% of Adjusted EBITDA
-- Cash at year-end of $48.8m (FY15: $41.8m) after payment of $6m dividend to shareholders
-- Proposed final dividend of 9p (12 cents) per share giving a total dividend for the year of 16.5p (22 cents) per
share (FY15: 14p (22 cents) per share)
(1.) Adjusted EBITDA refers to earnings before acquisition and
share related transaction costs, interest, tax, depreciation,
amortisation and share based payments.
Operational Highlights (Finals)
-- US healthcare market continues its evolution towards value-based care with a critical dependency on accurate
financial and operating data
-- Further expansion of the product suite to support the Value Cycle, including:
-- development of Trisus Patient Payment Module, our Patient Engagement and Access gateway product, on track
for launch during calendar 2016
-- launch of Craneware Healthcare Intelligence, a new group business, developing new solutions to address an
emerging but significant market opportunity for healthcare cost analytics
-- Two significant 5 year contract wins in the year for Craneware core value cycle solutions, worth a combined
$15.5m
-- Continued very high levels of customer retention
-- Total visible revenue increased 23% to $149.1m (FY15 same 3 year period: $121.1m)
Keith Neilson, CEO of Craneware plc commented, "Craneware is in
a stronger position than ever and we are passionate about the
opportunity ahead. The double digit growth in our reported revenue
and adjusted EBITDA are only beginning to reflect the record levels
of sales which began three years ago. Importantly, the investment
we are making in our product suite mean our market opportunity is
now several times larger than it was when we joined AIM in
2007.
"The market continues to evolve as we anticipated. US healthcare
providers are seeking the solutions to address the challenges the
new value based re-imbursement environment brings to them. We
believe the investment we are making to expand the products in our
Value Cycle suite addresses these challenges and we are now
recognised beyond our original niche within the revenue cycle as a
more strategic provider within a hospital's financial operations
and their value cycle.
"We are confident that the ongoing investment we are making,
combined with our continuing sales successes, mean we are well
positioned to deliver continued future growth as well as increasing
stakeholder value."
For further information, please contact:
Craneware plc Peel Hunt Alma
+44 (0)131 550 +44 (0)20 7418 +44 (0)208 004
3100 8900 4218
Keith Neilson, Dan Webster Caroline Forde
CEO
Craig Preston, Adrian Trimmings Hilary Buchanan
CFO George Sellar Robyn McConnachie
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 provider organisations discover, convert and optimise
assets to achieve best clinical outcomes and financial performance.
Founded in 1999, Craneware has headquarters in Edinburgh, Scotland
with offices in Atlanta, Boston and Phoenix employing over 200
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.
Chairman's statement
The Board is pleased to confirm the Group's third consecutive
year of record sales performance and a return to double digit
growth in revenue and adjusted EBITDA.
With an impressive 63% growth in new sales to $58.6m (FY15:
$35.9m), the total value of contracts signed in the year increased
to $82.3m (FY15: $72.9m). Underlying this the average new contract
length was maintained at 5 years, renewal rates remained high (well
above 100% by dollar value) and customer retention continued to be
significantly higher than the industry norm. This has been a truly
successful sales year for the Group.
The Group's revenue recognition policy retains focus on long
term sustainable growth and mitigates against year on year
fluctuations in the total value of contracts signed. Therefore, the
vast majority of the revenue from these sales has not been
recognised in the year to 30 June 2016, and will instead benefit
future years.
We are now seeing the impact of this continued period of record
sales levels flow through into our reported figures. Revenue
increased 11% to $49.8m (FY15: $44.8m) and adjusted EBITDA,
increased by 10% to $15.9m (FY15: $14.4m). Cash generation was
strong, resulting in cash reserves of $48.8m (FY15: $41.8m) after
payment of $6m dividend to shareholders.
Craneware's solutions span the breadth of the US healthcare
provider landscape, from the smaller rural hospitals to
multi-hospital groups. Sales across all strata were strong in the
year and it was particularly pleasing to see two significant sales
successes into two large hospital groups. These $7.5m and $8m
contracts demonstrate the value and importance these groups
attribute to the Craneware software solutions in assisting them to
protect their operating margins while delivering improved outcomes
for all.
The US healthcare market continues to evolve as predicted
towards value-based care. The Group's strategy is to expand its
offerings, providing deeper insight into a broad range of a
hospital's operations, analysing and managing data from across the
organisation. Our solutions will enable providers to improve
margins and enhance patient outcomes so the hospitals can provide
quality care to their communities. To achieve this, we will
continue to utilise a combination of in-house development
expertise, partnerships and targeted acquisitions to expand our
offering.
We have made good progress towards delivering this vision in the
year, with two new areas of product development in the pipeline.
The first to be launched will be Trisus Patient Payment Module, our
gateway product within our newly formed Patient Engagement product
family. This will be launched this calendar year and joins the
first product launched on our new cloud-based platform, Trisus. The
product will ultimately combine the mobile platform brought into
the Group last year via the acquisition of Kestros with the
technology from the reseller agreement with VestaCare announced
this year.
We are also particularly excited to announce the launch of
Craneware Healthcare Intelligence, a new Group company. The company
has been created to develop and market cost analytics software to
the US healthcare industry. Initial product is expected to be
launched towards the end of Craneware's 2017 financial year. This
is expected to be a significant new market opportunity for
Craneware and will be a key area of investment for the Company
moving forward.
The Board continues to be alert to potential acquisitions.
Strict criteria will be applied to targets to ensure they both
deliver against the product roadmap while being accretive to the
financial strength of the Group.
As we enter our tenth year since the Company IPO in 2007, I
continue to be impressed by the enthusiasm and commitment shown by
our employees across Scotland and the US. Their passion for service
to our customers and the healthcare industry is a key element of
our success and I would like to take this opportunity to thank them
for all their hard work during the year.
I would like to express particular gratitude to Gordon Craig,
who has decided after 16 years to retire as CTO and take on a
salaried advisory role within the Company. Gordon has been
responsible for product development during his tenure and hands
that on at this appropriate time. We have seen significant progress
made on the Trisus platform, with the roll out of the first
components of the platform taking place in the next twelve months.
Gordon's replacement will join the Company on 12 September, from
his role as a VP (and Fellow) of R&D at a Fortune 10 Healthcare
company. He brings relevant experience of migrating highly scalable
enterprise applications to the cloud that are HIPAA compliant and
process large volumes of healthcare data.
Neil Heywood who has been a non-executive director throughout
the last 14 years has decided not to stand for re-election at the
forthcoming AGM. I would like to take this opportunity to thank
both Neil and Gordon, on behalf of the Board, for all their service
and support to the Group and wish them well in their future
endeavours.
The excellent sales performances over the last three years, the
clear strategy for growth and the strong financial position of
Company provide the Board with confidence in the success of
Craneware in the year ahead.
George Elliott
Chairman
5 September 2016
Strategic Report:
Operational Review
We have enjoyed another strong year, delivering significant
operational and financial progress against our long term strategic
objectives.
The US healthcare landscape continues to evolve. New
regulations, increasing requirement for reliable data analytics,
emerging medical techniques and technologies, are all contributing
to a major shift in the operational needs of US healthcare
providers. However, the one thing that appears unchanged is the
need for quality patient outcomes. At Craneware, we deliver
solutions that help healthcare providers maintain their financial
health so they can concentrate on what matters most: providing the
best possible outcomes for all.
Three consecutive years of record sales, we believe, have only
scratched the surface of our long term potential. We have entered
the next phase of growth for Craneware, in which we are expanding
our product suite, whilst supporting our customers as they meet the
challenges value-based care brings.
Market and Strategy
Overview
While the need to address the healthcare requirements of an
ageing population grows more urgent, the growing cost of US
healthcare is unsustainable. Hospital operating margins continue to
be under pressure and there is still significant waste and
inefficiency in the system.
We are approaching an era where, it is expected, greater than
50% of all US healthcare payments will have a value-based
component. These major changes in reimbursement and care delivery
models have made understanding and reducing the cost of care, while
improving patient outcomes, mission-critical for every healthcare
provider in the US.
While hospital leadership teams are focusing on controlling
costs and increasing levels of care, consumers are facing ever
increasing out-of-pocket costs as the healthcare model shifts a
significant proportion of the payment responsibility to the
patient, via high deductible plans.
These factors and the challenges they bring to US healthcare
providers drive two major areas of focus in the comings years - a
high growth market for cost analytics and performance platforms as
well as solutions to manage our customers' challenges with the
growing levels of direct engagement they have with consumers.
Delivering the Value Cycle
The Value Cycle is the process and culture by which healthcare
providers pursue quality patient outcomes and optimal financial
performance, through the management of clinical, operational and
financial assets.
Without this data, and the insight into that data, to enable
action, healthcare systems cannot protect their margins and provide
quality outcomes for all.
Craneware's Value Cycle solutions support our customers in this
new world of value based reimbursement. Our solutions monitor the
points in their system where clinical and operational data
transform into financial transactions, delivering value in the
discovery, conversion and optimisation of these assets.
Our Strategy
Our strategy is to continue to build on our established
market-leading position in revenue cycle solutions, expanding our
product suite coverage of the Value Cycle. By expanding our
offerings in the cost management area of hospital operations and
combining this with data from the revenue cycle we will provide a
unique insight into the management and analysis of clinical and
operational data.
The expansion will be achieved through a combination of
extensions to the current product set, internal product
development, partnerships with other technology providers and
targeted acquisitions.
Craneware's Product Roadmap, Trisus Enterprise Value
Platform
We continue to invest in our current solutions set, however,
alongside this investment we have a roadmap to move all these
solutions to a new cloud-based platform, the Trisus Enterprise
Value Suite. Trisus will combine revenue integrity, cost management
and decision enablement functionality in a versatile, customisable
solution that fully delivers on Craneware's primary purpose to help
healthcare systems improve margins and enhance patient outcomes.
Development of the Trisus platform continues with a release of the
first elements of the platform scheduled to take place later this
year and throughout calendar 2017.
In addition to our current solution set, we continue to expand
our coverage of the Value Cycle. Our initial area of focus for this
expansion has been within the area of patient access and engagement
- addressing the growing consumerisation within healthcare.
Patient Access and Engagement: Trisus Patient Payment Module
Development of Trisus Patient Payment Module, a new fourth
gateway product, operating within the patient access and engagement
area, has progressed well in the year and is on track for launch
before the end of this calendar year.
The ultimate offering will combine the automated payment
technologies and services (VestaPay) provided by VestaCare, the
exclusive value added reseller agreement signed in January 2016,
with Craneware's medical necessity and price estimation products as
well as Craneware's mobile patient engagement platform, which has
been developed following the acquisition of Kestros. Together these
will form this enhanced Patient Engagement solution.
The past five years have seen an explosion of high-deductible
health plans and an increasing out-of-pocket burden for patients.
In many hospitals, patient payments represents a fast-growing
proportion of their revenue, yet is the most difficult and
expensive portion to collect with a high reputational risk
associated with pursuing delinquent individuals. After decades of
primarily relying on financial transactions with health plans,
Medicare and Medicaid, hospital revenue cycle and patient access
teams are often ill-equipped to manage effective patient-friendly
point-of-service collections. For the patient, who is often
underinsured, it can be mentally and financially overwhelming to
receive expensive and confusing medical bills after being
discharged.
Trisus Patient Payment Module is a solution designed to increase
patient billing satisfaction while also improving point-of-service
collection rates.
The solution will be launched by the end of this calendar year.
We will receive an annual license fee from customers with an
additional revenue share element based on improved collection
rates.
New Group company: Craneware Healthcare Intelligence
In the second half of FY16, Craneware formed a new Group
company, Craneware Healthcare Intelligence, to develop and market
cost analytics software to the US healthcare industry. Cost
analytics are a vital component within the emerging Value Cycle
solutions market. The understanding of costs, combined with correct
reimbursement will enable our customers to better understand their
margin and in turn drive better patient outcomes. We believe this
area of the Value Cycle represents a market opportunity several
times larger than that of our existing product portfolio.
Having assessed various acquisition and partnering options, we
concluded that developing our own solution is the best way to
ensure we have a world class product to take to our customer
base.
We have appointed one of the pre-eminent experts in the field of
Cost Analytics in the US as Senior Vice President, Healthcare
Analytics, who will lead this new development. With 16 years'
experience working with a major US hospital network, developing and
deploying ground-breaking cost analytics solutions, we believe our
new head of this project gives us a significant head start in
delivering this new solution. We are in the process of building a
complete development and delivery team and expect to see initial
product within calendar 2017.
Acquisitions
The Board continues to assess opportunities to complement the
Group's organic growth strategy and increase speed to market for
new products through acquisition. The Board adheres to a rigorous
set of criteria to analyse acquisition opportunities, including
quality of earnings and product offering. The $50 million funding
facility provided by the Bank of Scotland announced previously
combined with our own cash resources, provides the Company with the
firepower to carry out strategic acquisitions if and when these
criteria are met.
Sales and Marketing
Within our record sales performance, the Group delivered good
levels of sales to all segments of the US healthcare market,
demonstrating continued sales momentum and the benefits of a
supportive market environment. Going forward the sales pipeline
continues to be at record highs with opportunities across all
strata of hospitals.
The average length of new hospital contracts continues to be
in-line with our historical norms of approximately five years.
Where Craneware enters into new product contracts with its existing
customers, contracts are occasionally 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.
We were delighted to secure two significant contract wins within
the year. The first contract announced in January 2016 is expected
to deliver $7.5m revenue over the initial five year term. The new
customer is a growing hospital operator and consolidator that
manages in excess of 50 hospitals across multiple US states
primarily in non-urban communities. Chargemaster Corporate
Toolkit(R) will be used by the group to establish and manage
corporate standardisation across its entire portfolio of owned and
managed facilities. This will enable system-wide reporting
efficiencies and the timely submission of accurate claims whilst
managing billing compliance risk.
The second contract, secured at the end of the year, is with
another of the US' largest multi-hospital groups. Commencing in
2017, the contract is expected to deliver revenue greater than $8m
during the next five years, as the hospital network rolls out
multiple Craneware core value cycle solutions, led by Chargemaster
Toolkit, Pharmacy ChargeLink and Supplies ChargeLink.
With these significant contract wins bringing new hospital
systems to the Group, the sales mix saw a higher percentage of
sales to new customers in the year, however overall the levels of
sales between new customers and existing customers (both
mid-contract and at renewal time) is well balanced. All new
hospital sales provide opportunities for further product sales in
the future.
Awards
Chargemaster Toolkit(R) was named Category Leader in the
"Revenue Cycle - Chargemaster Management" market category for the
tenth consecutive year in the annual "2015/2016 Best in KLAS
Awards: Software & Services." KLAS's annual "Best in KLAS"
report provides unique insight gathered from thousands of
healthcare organisations across the US. The report includes client
satisfaction scores and benchmark performance metrics.
Strategic Report:
Financial Review
In our 6 July trading statement we were pleased to report our
third year of record sales levels. Equally pleasing was the
confirmation of our return to double digit growth rates for both
Revenue and adjusted EBITDA. This translates to Revenues reported
for the financial year under review of $49.8m (FY15: $44.8m) which
has resulted in an adjusted EBITDA of $15.9m (FY15: $14.4m).
Our Annuity SaaS business model (which is described in detail
below) is designed to deliver long term sustainable growth. Whilst
this means the vast majority of any current year's sales success is
not reflected in that year's income statement, it does mean the
majority of the growth in revenues we are currently reporting is
reflective of prior year's sales successes, with the sales success
of the current year being available to further benefit future
years. In our revenue visibility KPI detailed below, we already
have visibility over $51.3m of potential revenue for FY17 prior to
any further new product sales being made.
The total value of contracts written during the year increased
by 13% to $82.3m (FY15: $72.9m). However, this growth
under-represents the true sales success in the period. Contracts
written for new product sales actually increased 63% to $58.6m
(FY15: $35.9m). The overall growth rate reported was moderated by
the lower number of customers that were coming to the end of their
multi-year contracts and therefore fewer were due to renew in the
year. Whilst this did impact the Sales KPI, it does mean we have
more customers under contract enjoying the benefits our solutions
can bring.
Our average contract for a new hospital customer continues to be
five years, with contracts for customers renewing and buying
additional products part way through an existing contract both
averaging over three years, continuing to be in line with our
historical norms.
The sales success of the prior financial years saw a significant
proportion of our customer base renew on multiyear contracts. As a
result, fewer customers were due to renew in the financial year
under review which whilst not impacting revenue did impact both the
total value of renewal contracts signed, as detailed above, and the
renewal rate by dollar value metric. The upcoming financial year
will have a similar number of customers due to renew.
Renewal rates by dollar value is a financial metric which
specifically ties to the three-year visible revenue detailed below.
This metric measures 'last annual value' of all customers due to
renew in the current year and compares it to actual value these
customers renew at (in total), including upsell and cross-sell.
This metric at 122% is above our expected norms of 85-115% however
with fewer customers being due to renew in the current year, we do
not believe this represents a change to our future expected range.
Variations in our dollar value renewal rates are driven by the
timing of individual renewals, additional product sales and
contract negotiation or cancellation.
Business Model
The Group recognises the vast majority of revenue under its
'Annuity SaaS' revenue recognition model. This business model has
been consistently applied throughout the period under review. The
strategy behind this business model is to ensure the long-term
growth and stability of the Group. The annuity SaaS business model
adopted by the Group delivers a 'smoothing' of any sales
fluctuations and focusing on growth over the long-term. As a result
the majority of the revenue resulting from all sales will be
recognised over future periods, adding to the Group's long term
visibility of revenue under contract - as stated in all our trading
and contract win announcements.
Under our 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 five years, we will
see the revenue from 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 around 10% - 20%
of revenues reported by the Group to be from services
performed.
Sales, Revenue and Revenue Visibility
Under our model 'revenue' and 'sales' have different meanings
and are not interchangeable. This can be demonstrated by reviewing
the last five years' sales levels and comparing these 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 2012 2013 2014 2015 2016
$m $m $m $m $m
New Product
Sales 21.6* 20.8 35.1 35.9 58.6
Renewals** 12.7 17.7 35.9 37.0 23.7
------ ----- ----- ----- -----
Total Contract
Value 34.3 38.5 71.0 72.9 82.3
Reported
Revenue 41.1 41.5 42.6 44.8 49.8
*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 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 all sales will be
recognised over future periods, the financial statements do not,
anywhere, record the valuable 'asset' this contracted, but not yet
recognised, revenue represents to the Group. As such, at every
reporting period, the Group presents it's "Revenue Visibility".
This KPI identifies revenues which we reasonably expect to
recognise over the next three year period, without any further new
product sales. This "Three Year Visible Revenue" metric
includes:
-- future revenue under contract
-- revenue generated from renewals (calculated at 100% dollar value renewal)
-- other recurring revenue
As we are signing multi-year contracts with our customers and at
the end of these contracts we are, on average, renewing these
customers at 100% of dollar value, the Group is consistently
building an underlying annuity base of revenue that increases with
each new sale.
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. Future revenue under contract, is, as the title suggests,
subject to an underlying contract and therefore once invoiced will
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. 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 2016 (i.e. visible revenue for FY17, FY18 and FY19) identifies
$149.1m 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 $114.0m of which $47.4m is expected to be recognised in FY17, $37.4m
in FY18 and $29.2m in FY19
-- revenue generated from renewals contributing $34.3m; being $3.5m in FY17, $11.1m in FY18 and $19.7m in FY19
-- other revenue identified as recurring in nature of $0.8m
Gross Margins
We expect the gross profit margin to be between 90 - 95%, the
gross profit for the year was $46.8m (FY15: $42.4m) which
represents a gross margin percentage of 93.9% which is towards the
top of our historical range and therefore reflects the correct
matching of incremental costs incurred as a result of sales 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 our 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,
share related costs including IFRS 2 share based payments charge,
depreciation, amortisation and in the current year excludes the
'other income' arising out of the conclusion of the contingent
consideration arising from the prior year Kestros acquisition
("Adjusted EBITDA").
Adjusted EBITDA has grown in the year to $15.9m (FY15: $14.4m)
an increase of 10%. This reflects an Adjusted EBITDA margin of
31.8% (FY15: 32.0%). This is consistent with the Group's measured
approach to 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
The increase in net operating expenses (to Adjusted EBITDA)
reflects our policy of investing in line with revenue growth
increasing over 10% to $30.9m (FY15: $28.0m). We are now seeing the
benefits of our previous investments, in both management bandwidth
and the Sales and Marketing areas, through our record sales levels.
The resulting revenue increases allowed us to expand our investment
with the focus in the past year being in Client Servicing and
Development.
We firmly believe "we win when our client wins" so ensuring we
continue to provide the highest level of customer support whether
during the initial implementation or later as the customers use our
software during the life cycle of their contract, is paramount to
the Group. We continually rank top in category in the KLAS scores
for our customer support and through appropriate and targeted
investment we aim to continue this focus on our customers.
Product innovation and enhancement continues to be core to the
Group's future. The Operating Review provides significant detail of
our current ongoing development programs, including the Trisus
platform and the portfolio of products that will be part of this
platform, the new gateway product development in the Patient Access
and Engagement arena and the launch of Craneware Healthcare
Intelligence.
As we undertake these initiatives and consider the market
opportunities these present, the Group has decided to accelerate
investment in these areas whilst maintaining our current product
offerings and ensuring they remain market leading. This has
resulted in an increase in the cost of Development related to our
current products and therefore charged in the period to $7.7m
(FY15: $7.0m), a 10% increase and therefore in line with our
revenue growth. In addition, we have made further investments to
accelerate the development of the new product offerings. As these
products have yet to be made available to our customers, the
associated incremental costs have been capitalised, this has
resulted in $2.0m (FY15: $0.8m) of capitalised development spend in
the year. We expect to see both the levels of development expense
and capitalisation continue the current trends as we continue to
build out the solution set that supports the Value Cycle.
Cash and Bank Facilities
We measure the quality of our earnings through our ability to
convert them into operating cash. During the year we have seen
continued high levels of cash conversion, achieving over 100%
conversion of our adjusted EBITDA into operating cash. When
comparing to the prior year, the comparative should be adjusted for
the one-time amount of $4m of accrued revenue relating to a partner
contract clearing the Group's balance sheet. After adjusting for
this amount the levels of cash generated are consistent.
The success of our very high levels of cash conversion (over
100% of Adjusted EBITDA) has enabled us to grow our cash reserves
to $48.8m (FY15: $41.8m). These cash levels are after paying $2.3m
in taxation (FY15: $2.5m) and returning $6.0m (FY15: $5.4m) to our
shareholders by way of dividends.
We retain a significant level of cash reserves and balance sheet
strength to fund acquisitions as suitable opportunities arise. To
supplement these reserves, the Group announced in our interim
report that we had secured 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 for further its growth strategy.
Balance Sheet
The Group maintains a strong balance sheet position with
rigorous controls over working capital.
The level of trade and other receivables has increased in
comparison to the prior year. This is a result of the significant
level of sales made in the second half of the year and the
associated increase in accounts receivable. The corresponding
increase in Deferred income and our continued cash collection rates
confirm this increase is solely a result of the increased sales
levels.
As we continue to deliver record levels of sales so the amounts
we pay out relating to sales commissions continue to increase.
Total sales commissions are based on the total value of the
contract sold, however for income statement purposes, only a small
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 prepayment has increased, as expected, in
the year from $3.2m to $6.0m (resulting from the growth in new
product sales). However, 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 recorded in the income statement. Overall levels of deferred
income are significantly more than accrued income and the
prepayment of sales commissions, confirming we remain cash flow
positive in regards to how we recognise revenue from our
contracts.
Conclusion of the Contingent Consideration arising from the
Kestros Limited Acquisition
On 28 August 2014, Craneware acquired the entire share capital
of Kestros Limited (now trading as Craneware Health) for a maximum
consideration of $2.14m (GBP1.25m) subject to the achievement of
certain revenue milestones. The contingent consideration element
has now been assessed and as a result the income statement in the
year records other income of $1.0m (FY15: $Nil). Concurrently the
Group has assessed the original goodwill and associated
intellectual property intangible assets and has reduced the
carrying value of these accordingly. This impairment of $1.0m is
included in the amortisation charge for intangible assets charged
in the year.
Both amounts are recorded as 'adjustments' in calculating
Adjusted EBITDA and due to their relative amounts have no effect on
Operating Profit or EPS reported in the year.
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 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 seen some benefit of exchange rate movements, with
the average exchange rate throughout the year being $1.4837 as
compared to $1.5750 in the prior year. This benefit has allowed us
to release further investment whilst maintaining profit
margins.
Taxation
The Group generates profits in both the UK and the US, the
overall levels of which are determined by both the level 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 seen the benefit of a
reducing UK corporation tax rate and as such the current year
effective tax rate is 24% (FY15: 25%). Effective tax rates in any
one year will reflect the relative tax rates in the UK and the US,
the ratio of underlying professional services to software licence
revenues and the overall level of sales increase.
EPS
In the year adjusted EPS has increased to $0.429 (FY15: $0.378)
and adjusted diluted EPS has increased to $0.423 (FY15: $0.375).
The increase in EPS is driven by the increased levels of EBITDA
combined with the overall reduced effective tax rate detailed
above.
Dividend
The Board recommends a final dividend of 9.0p (12.1 cents) per
share giving a total dividend for the year of 16.5p (22.0 cents)
per share (FY15: 14.0p (22 cents) per share). Subject to
confirmation at the Annual General Meeting, the final dividend will
be paid on 8 December 2016 to shareholders on the register as at 11
November 2016, with a corresponding ex-Dividend date of 10 November
2016.
The final dividend of 9p per share is capable of being paid in
US dollars subject to a shareholder having registered to receive
their dividend in US dollars under the Company's Dividend Currency
Election, or who register to do so by the close of business on 11
November 2016. The exact amount to be paid will be calculated by
reference to the exchange rate to be announced on 11 November 2016.
The final dividend referred to above in US dollars of 12.1 cents is
given as an example only using the Balance Sheet date exchange rate
of $1.3397/GBP1 and may differ from that finally announced.
Outlook
The IPO of Craneware on AIM in 2007 provided us with access to
capital in order to build a business capable of delivering on the
significant opportunity we could see approaching within the US
healthcare industry. We have achieved the targets we set the
business since that time, delivering significant revenue and profit
growth, cash generation and other factors such as expanding our
solution suite to better address the challenges faced by our
customers.
Craneware is in a stronger position than ever and we are
passionate about the opportunity ahead. The double digit growth in
our reported revenue and adjusted EBITDA are only beginning to
reflect the record levels of sales which began three years ago.
Importantly, the investment we are making in our product suite mean
our market opportunity is now several times larger than it was when
we joined AIM in 2007.
The market continues to evolve as we anticipated. US healthcare
providers are seeking the solutions to address the challenges the
new value based re-imbursement environment brings to them. We
believe the investment we are making to expand the products in our
Value Cycle suite addresses these challenges and we are now
recognised beyond our original niche within the revenue cycle as a
more strategic provider within a hospital's financial operations
and their value cycle.
We are confident that the ongoing investment we are making,
combined with our continuing sales successes, mean we are well
positioned to deliver continued future growth as well as increasing
stakeholder value.
Keith Neilson Craig Preston
Chief Executive Officer Chief Financial Officer
5 September 2016 5 September 2016
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2016
Total Total
2016 2015
Notes $'000 $'000
---------------------------------- ------ --------- ---------
Continuing operations:
Revenue 3 49,846 44,817
Cost of sales (3,011) (2,421)
--------- ---------
Gross profit 46,835 42,396
Operating expenses 4 (33,024) (29,984)
--------- ---------
Operating profit 13,811 12,412
Analysed as:
Adjusted EBITDA(1) 15,863 14,356
Acquisition costs and share
related transactions (556) (219)
Share based payments (251) (247)
Depreciation of plant and
equipment (442) (467)
Contingent consideration on
business combination 1,005 -
Amortisation and impairment
of intangible assets (1,808) (1,011)
---------------------------------- ------ --------- ---------
Finance income 112 84
--------- ---------
Profit before taxation 13,923 12,496
Tax on profit on ordinary
activities 5 (3,348) (3,108)
--------- ---------
Profit for the year attributable
to owners of the parent 10,575 9,388
---------------------------------- ------ --------- ---------
Total comprehensive income
attributable to owners of
the parent 10,575 9,388
---------------------------------- ------ --------- ---------
(1.) Adjusted EBITDA is defined as operating profit before
acquisition costs, share based payments, depreciation, contingent
consideration, amortization, impairment and share related
transactions.
Earnings per share for the year attributable to equity
holders
Notes 2016 2015
----------------------- ------ ------ ------
Basic ($ per share) 7a 0.394 0.350
*Adjusted Basic ($
per share) 7a 0.429 0.378
Diluted ($ per share) 7b 0.389 0.348
*Adjusted Diluted ($
per share) 7b 0.423 0.375
----------------------- ------ ------ ------
* Adjusted Earnings per share calculations allow for the tax
adjusted acquisition costs and share related transactions together
with amortisation on acquired intangible assets to better
understand the underlying performance and a better comparison with
previous years.
Statement of Changes in Equity for the year ended 30 June
2016
Share
Share Premium Other Retained Total
Capital Account Reserves Earnings Equity
$'000 $'000 $'000 $'000 $'000
---------------------------------- -------- -------- --------- --------- --------
At 1 July 2014 539 15,496 235 28,646 44,916
Total comprehensive income
- profit for the year - - - 9,388 9,388
Transactions with owners:
Share-based payments - - 247 182 429
Impact of share options
exercised/lapsed - 40 (104) 104 40
Issue of Ordinary shares
related to business combination 4 1,820 - - 1,824
Buy Back of Ordinary
Shares (7) - - (3,572) (3,579)
Dividends (Note 6) - - - (5,388) (5,388)
----------------------------------
At 30 June 2015 536 17,356 378 29,360 47,630
Total comprehensive income
- profit for the year - - - 10,575 10,575
Transactions with owners:
Share-based payments - - 251 210 461
Impact of share options
exercised/lapsed - 95 (74) 74 95
Dividends (Note 6) - - - (5,953) (5,953)
----------------------------------
At 30 June 2016 536 17,451 555 34,266 52,808
---------------------------------- -------- -------- --------- --------- --------
Consolidated Balance Sheet as at 30 June 2016
Notes 2016 2015
$'000 $'000
---------------------------------- ------ ------- -------
ASSETS
Non-Current Assets
Plant and equipment 1,213 1,242
Intangible assets 8 16,535 16,196
Trade and other receivables 9 4,581 2,432
Deferred tax 1,685 1,510
24,014 21,380
------- -------
Current Assets
Trade and other receivables 9 20,953 15,010
Cash and cash equivalents 48,812 41,832
69,765 56,842
------- -------
Total Assets 93,779 78,222
---------------------------------- ------ ------- -------
EQUITY AND LIABILITIES
Non-Current Liabilities
Deferred income 4 819
4 819
------- -------
Current Liabilities
Deferred income 28,963 22,460
Current tax liabilities 2,353 1,289
Trade and other payables 9,651 6,024
40,967 29,773
------- -------
Total Liabilities 40,971 30,592
------- -------
Equity
Share capital 10 536 536
Share premium account 17,451 17,356
Other reserves 555 378
Retained earnings 34,266 29,360
Total Equity 52,808 47,630
------- -------
Total Equity and Liabilities 93,779 78,222
---------------------------------- ------ ------- -------
Statement of Cash Flows for the year ended 30 June 2016
Notes 2016 2015
$'000 $'000
--------------------------------- ------ -------- --------
Cash flows from operating
activities
Cash generated from operations 11 17,564 22,025
Interest received 112 84
Tax paid (2,254) (2,527)
--------------------------------- ------ -------- --------
Net cash from operating
activities 15,422 19,582
Cash flows from investing
activities
Purchase of plant and
equipment (418) (378)
Capitalised intangible
assets 8 (2,166) (811)
Acquisition of subsidiary,
net of cash acquired 12 - (247)
--------------------------------- ------ -------- --------
Net cash used in investing
activities (2,584) (1,436)
Cash flows from financing
activities
Dividends paid to company
shareholders 6 (5,953) (5,388)
Buy back of Ordinary Shares - (3,579)
Proceeds from issuance
of shares 95 40
--------------------------------- ------ -------- --------
Net cash used in financing
activities (5,858) (8,927)
Net increase in cash and
cash equivalents 6,980 9,219
Cash and cash equivalents
at the start of the year 41,832 32,613
Cash and cash equivalents
at the end of the year 48,812 41,832
--------------------------------- ------ -------- --------
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 (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 $1.4837/GBP1 (2015: $1.5750/GBP1). Monetary assets and
liabilities expressed in foreign currencies are translated into US
dollars at rates of exchange ruling at the Balance Sheet date
$1.3397/GBP1 (2015 : $1.5717/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.Notes to the Financial Statements.
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
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:-
-- Contingent consideration: - the contingent consideration
related to the acquisition of Kestros Limited is measured at fair
value which requires judgement with regards to the likelihood of
the subsidiary acquired meeting the revenue targets stipulated in
the sales and purchase agreement. The balance was re-measured
taking into account revenue achieved to date and the forecasted
revenue up to the final day of the earn out period
-- 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% (18% to 23%) and
decreasing the long term growth rate applied to revenues by 1% (2%
to 1%) would still result in no impairment.
-- 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, 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.
2016 2015
$'000 $'000
----------------------- ------- -------
Software licencing 43,170 38,842
Professional services 6,676 5,975
Total revenue 49,846 44,817
----------------------- ------- -------
4. Operating expenses
Operating expenses are comprised
of the following:-
2016 2015
$'000 $'000
-------------------------------------- -------- -------
Sales and marketing expenses 7,634 7,930
Client servicing 9,285 7,965
Research and development 7,668 6,985
Administrative expenses 6,340 5,222
Acquisition Costs 556 219
Share-based payments 251 247
Depreciation of plant and equipment 442 467
Contingent consideration of business
combination (1,005) -
Amortisation and impairment of
intangible assets 1,808 1,011
Exchange loss/(gain) 45 (62)
Operating expenses 33,024 29,984
-------------------------------------- -------- -------
5. Tax on profit on ordinary activities
2016 2015
$'000 $'000
-------------------------------------- ------ ------
Profit on ordinary activities before
tax 13,923 12,496
Current tax
Corporation tax on profits of the
year 3,344 2,765
Foreign exchange on taxation in
the year 54 (59)
Adjustments for prior years (86) 86
-------------------------------------- ------ ------
Total current tax charge 3,312 2,792
Deferred tax
Origination & reversal of timing
differences 27 114
Adjustments for prior years 25 202
Change in tax rate (16) -
-------------------------------------- ------ ------
Total deferred tax charge(credit) 36 316
-------------------------------------- ------ ------
Tax on profit on ordinary activities 3,348 3,108
-------------------------------------- ------ ------
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 20% (2015: 20.75%) 2,785 2,592
Effects of:
Adjustment in respect of prior years (61) 288
Change in tax rate (16) -
Additional US taxes on profits/losses
39% (2015: 39%) 559 319
Foreign Exchange 54 (59)
Expenses not deductible for tax
purposes 27 (32)
Total tax charge 3,348 3,108
-------------------------------------- ------ ------
6. Dividends
The dividends paid during the year were as follows:-
2016 2015
$'000 $'000
----------------------------------- ------ ------
Final dividend, re 30 June 2015
- 12.1 cents (7.7 pence)/share 3,097 2,863
Interim dividend, re 30 June 2016
- 10.65 cents (7.5 pence)/share 2,856 2,525
Total dividends paid to Company
shareholders in the year 5,953 5,388
----------------------------------- ------ ------
The proposed final dividend for 30 June 2016 is subject to
approval by the shareholders at the Annual General Meeting and has
not been included as a liability in these accounts.
7. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of shares in issue during the year.
2016 2015
--------------------------------------- ---------- ---------
Profit attributable to equity
holders of the Company ($'000) 10,575 9,388
Weighted average number of ordinary
shares in issue (thousands) 26,838 26,815
Basic earnings per share ($ per
share) 0.394 0.350
--------------------------------------- ---------- ---------
Profit attributable to equity
holders of Company ($'000) 10,575 9,388
Tax Adjusted acquisition costs,
share related transactions and
amortisation of acquired intangibles
($'000) 937 749
Adjusted Profit attributable to
equity holders ($'000) 11,512 10,137
--------------------------------------- ---------- ---------
Weighted average number of ordinary
shares in issue (thousands) 26,838 26,815
Adjusted Basic earnings per share
($ per share) 0.429 0.378
--------------------------------------- ---------- ---------
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.
2016 2015
--------------------------------------- ---------- ----------
Profit attributable to equity
holders of the Company ($'000) 10,575 9,388
Weighted average number of ordinary
shares in issue (thousands) 26,838 26,815
Adjustments for:- Share options
(thousands) 345 188
Weighted average number of ordinary
shares for diluted earnings per
share (thousands) 27,183 27,003
Diluted earnings per share ($
per share) 0.389 0.348
--------------------------------------- ---------- ----------
Profit attributable to equity
holders of Company ($'000) 10,575 9,388
Tax Adjusted acquisition costs,
share related transactions and
amortisation of acquired intangibles
($'000) 937 749
Adjusted Profit attributable to
equity holders ($'000) 11,512 10,137
--------------------------------------- ---------- ----------
Weighted average number of ordinary
shares in issue (thousands) 26,838 26,815
Adjustments for:- Share options
(thousands) 345 188
--------------------------------------- ---------- ----------
Weighted average number of ordinary
shares for diluted earnings per
share (thousands) 27,183 27,003
Adjusted Diluted earnings per
share ($ per share) 0.423 0.375
--------------------------------------- ---------- ----------
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
2015 11,438 2,964 3,043 3,796 912 22,153
Additions - - - 1,959 207 2,166
Disposals - - - - (126) (126)
At 30 June
2016 11,438 2,964 3,043 5,755 993 24,193
----------------- --------- -------------- ------------ ------------ --------- -------
Accumulated
amortisation
At 1 July
2015 - 1,384 1,058 2,759 756 5,957
Charge for
the year - 329 163 167 144 803
Impairment
of acquisition 250 - 755 - - 1,005
Amortisation
of disposal - - - - (107) (107)
At 30 June
2016 250 1,713 1,976 2,926 793 7,658
Net Book
Value at
30 June 2016 11,188 1,251 1,067 2,829 200 16,535
----------------- --------- -------------- ------------ ------------ --------- -------
Cost
At 1 July
2014 11,188 2,964 1,222 3,035 862 19,271
Additions - - - 761 50 811
Acquisition
of subsidiary
(Note 12) 250 - 1,821 - - 2,071
At 30 June
2015 11,438 2,964 3,043 3,796 912 22,153
----------------- --------- -------------- ------------ ------------ --------- -------
Accumulated
amortisation
At 1 July
2014 - 1,054 814 2,457 621 4,946
Charge for
the year - 330 244 302 135 1,011
At 30 June
2015 - 1,384 1,058 2,759 756 5,957
Net Book
Value at
30 June 2015 11,188 1,580 1,985 1,037 156 16,196
----------------- --------- -------------- ------------ ------------ --------- -------
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 acquisitions of Craneware InSight Inc and Craneware
Health (Kestros Ltd) (although the Group recognised the impairment
in the current year).
The carrying values are assessed for impairment purposes by
calculating the value in use (net present value (NPV) of future
cashflows) 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 goodwill impairment review assesses
whether the carrying value of goodwill is supported by the NPV of
the future cashflows based on management forecasts for five 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 18%.
The carrying amount of the separately identifiable Craneware
Health cash generating unit has been reduced to its recoverable
amount through recognition of an impairment loss against goodwill
and proprietary software. This loss has been included in operating
expenses. The level of sales achieved in the period since the
acquisition of Craneware Health and the sales forecasted in the
future have been below what was previously forecasted. Refer to
note 12 for further details.
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 18% 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
2016 2015
$'000 $'000
-------------------------------- -------- --------
Trade receivables 16,504 11,917
Less: provision for impairment
of trade receivables (1,135) (779)
-------------------------------- -------- --------
Net trade receivables 15,369 11,138
Other receivables 1,177 99
Prepayments and accrued
income 2,950 3,032
Deferred Contract Costs 6,038 3,173
-------------------------------- -------- --------
25,534 17,442
Less non-current trade
receivables: - -
Deferred Contract Costs (4,581) (2,432)
Current portion 20,953 15,010
-------------------------------- -------- --------
10. Share capital
2016 2015
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
2016 2015
Number $'000 Number $'000
---------------------- ----------- ------ ----------- ------
Equity share capital
Ordinary shares of
1p each 26,850,248 536 26,832,582 536
---------------------- ----------- ------ ----------- ------
The movement in share capital during the year is presented as
follows:
-- 17,666 Ordinary Share options were exercised in the year.
11. Cash flow generated from operating activities
Reconciliation of profit before
tax to net cash inflow from operating
activities
2016 2015
$'000 $'000
-------------------------------- -------- -------
Profit before tax 13,923 12,496
Finance income (112) (84)
Depreciation on plant and
equipment 442 467
Amortisation and Impairment
on intangible assets 1,808 1,011
Share-based payments 251 247
Movements in working capital:
(Increase)/decrease in
trade and other receivables (8,065) 5,422
Increase in trade and other
payables 9,317 2,466
Cash generated from operations 17,564 22,025
-------------------------------- -------- -------
12. Acquisition of Subsidiary: Craneware Health
In the prior year, on 26th August 2014, the Company acquired
100% of the issued share capital of Kestros Ltd. The total
consideration for the acquisition along with the fair value of the
identified assets and assumed liabilities as acquired are shown
below:
Fair Value
Adjustments Provisional
Book 31-Dec-14 Fair
Recognised amounts Value Value
of identifiable assets $'000
acquired and liabilities $'000 $'000
assumed
------------------------------- -------- ------------- --------------
2 - 2
101 1,720 1,821
33 - 33
43 - 43
(35) - (35)
-------- ------------- --------------
144 1,720 1,864
-------- ------------- --------------
250
--------------
2,114
--------------
Tangibles fixed assets
Plant and Equipment
Intangibles assets
Proprietary Software
Other assets and liabilities
Trade and other receivables
Bank and cash balances
Trade and other payables
Goodwill
Fair Value
$'000
Satisfied by
----------------------------------------- ------
Cash 290
Ordinary Shares issued - 211,539 shares
at $8.623 (GBP5.20) 1,824
------
2,114
Bank balances and cash acquired 43
Cash consideration (290)
----------------------------------------- ------
Net Cash on acquisition (247)
----------------------------------------- ------
The value of the equity consideration was subject to revenue
performance criteria through to 31 July 2016 with a potential cash
repayment where stipulated revenue targets were not met. Due to the
likelihood of revenue targets not being met a contingent
consideration receivable is included in other receivables and
disclosed in Note 9. An impairment charge has also been recognised
against Goodwill (reduced by $250,000 to Nil) and a fair value
reduction of $754,791 was made to the Proprietary Software.
$'000
Opening balance of Contingent -
consideration
Contingent consideration of
Business Combination 1,005
------
Closing Balance 1,005
------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BIGDCBXGBGLU
(END) Dow Jones Newswires
September 06, 2016 02:00 ET (06:00 GMT)