5 September 2017 – 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 2017.
Financial Highlights (US dollars)
- Revenue increased 16% to $57.8m (FY16: $49.8m)
- Adjusted EBITDA1. increased 13% to $18.0m (FY16: $15.9m)
- Profit before tax increased 22% to $16.9m (FY16: $13.9m)
- Basic adjusted EPS increased 20% to $0.514 (FY16: $0.429) and adjusted diluted EPS increased to $0.503 (FY16: $0.423)
- Total visible revenue increased 13% to $163.8m (FY16 same 3 year period: $145.3m)
- Continued operating cash conversion above 100% of Adjusted EBITDA
- Cash at year-end of $53.2m (FY16: $48.8m) after payment of $6.4m dividend to shareholders and increased investment of over $3.0m in R&D
- Proposed final dividend of 11.3p (14.71 cents) per share giving a total dividend for the year of 20.0p (26.04 cents) per share (FY16: 16.5p (22 cents)
- Renewal rate remains above 100% by dollar value
1. Adjusted EBITDA refers to earnings before acquisition and share related transaction costs, interest, tax, depreciation, amortisation and share based payments.
- Continued supportive market environment as the US healthcare market evolves towards value-based care, with a critical dependency on accurate financial and operating data
- Continued high levels of customer acquisition and retention
- Successful launch of cloud-based Trisus™ platform, with extremely positive customer response
- Initial sales of Trisus Claims Informatics™, the first product on the Trisus™ platform
- Early adopters secured for Craneware Healthcare Intelligence, the Group’s new business focused on healthcare Cost Analytics and Resource Efficiency (CARE)
- Record sales pipeline for the current financial year
Keith Neilson, CEO of Craneware plc commented, “We are delighted to report that, with record levels of revenue and profitability, the launch of our Trisus platform with secured sales for the first Trisus product (Trisus Claims Informatics™), and the launch of Craneware Healthcare Intelligence, this was the year in which we saw our unique vision of the Value Cycle, turn from concept to reality.
“While laying out our vision for the Value Cycle over the last two years, Craneware has delivered double digit growth in our key metrics, including revenue and profit, supported by sales success throughout the period. We have expanded our product suite into the Value Cycle; developed a new cloud-based technology platform, Trisus; and created a new Group business, Craneware Healthcare Intelligence, all significantly increasing the Company’s total addressable market. At the same time we have been investing in improving our customers’ experience and have returned in excess of $15m to shareholders by way of dividends and share buy backs.
“The unceasing evolution of the US healthcare market towards value-based care presents us with an ongoing, growing market opportunity and the investments we have made mean we now have the potential to deliver against this expanding opportunity. With our sales pipeline increasing each year, this increased scalability and opportunity, combined with our high levels of revenue visibility, strong cash positionand extensive customer base provide us with confidence in Craneware’s ongoing success.”
For further information, please contact:
- +44 (0)20 7418 8900
- Dan Webster
- Adrian Trimmings
- +44 (0)208 004 4218
- Caroline Forde
- Hilary Buchanan
- Robyn Fisher
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, Pittsburgh, Boston and Phoenix employing over 250 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 To learn more, visit craneware.com and thevaluecycle.com.
Strong trading in the year
The Board is pleased to confirm an increase of 16% in revenue recognised in the year to $57.8m (FY16: $49.8m) and an adjusted EBITDA increase of 13% to $18.0m (FY16: $15.9m).
The need to drive value in healthcare, and the challenges this brings, remains a universal topic of focus in the US, providing a supportive market environment for Craneware through the year. Each year brings another layer of change within the US healthcare market, but what remains consistent is the need for our customers’ patients to get better value for their healthcare dollar and for our customers to gain a greater understanding of their financial and operational data in order to ensure their long-term financial health and better outcomes for all.
Our customers are increasingly turning to Craneware as a strategic partner to provide solutions that will enable them to preserve revenue and increase the quality of their margins so they can continue to invest in their future and focus on the wellbeing of patients. This has been reflected in the Group’s continued sales success in the year. The strong sales from previous years continue to flow, through to our reported results contributing to current year revenue and adjusted EBITDA growth.
This year we are reporting New Sales in the year of $35.4m and Total Value of Contracts of $54.0m. Whilst on the surface not at the level reported in the prior year for total sales (FY16: $58.6m and $82.3m respectively), the difference reflects the prior year announced three large enterprise wide sales, the anticipated impact of the Trisus migration on contract end dates and the cyclically low number of customers due for renewal in the year. On a like for like basis, underlying new sales in the period reflect favourably compared to the prior year of $34.2m for FY16. These sales have contributed to a further 13% increase in our three year visible revenue and continue to support the ongoing growth of the business.
At the end of current contracts, we expect to see our renewal rates remain at their current high (well above 100% by dollar value) as customers move to the improvements brought to them by the Trisus platform.
Cash generation in the period was strong, resulting in cash reserves of $53.2m at 30 June 2017 (FY16: $48.8m) after payment of $6.4m in dividends to shareholders, $5.5m of tax payments and investing c.$6.6m into new product development and the Employee Benefit Trust.
Investing for the future
The Group continues to utilise its cash reserves to invest in our teams, organisation and infrastructure in the US and UK as they are all crucial elements of our build, buy or partner strategy as we further develop our Value Cycle platform. This includes further development of the Trisus Product Suite and Craneware Healthcare Intelligence, the Group’s unique Cost Analytics and Resource Efficiency (CARE) solution. With our healthy cash balances and an undrawn $50m funding facility from the Bank of Scotland, we have the resources to execute upon our strategic vision.
First new product sales demonstrate execution of our vision
We were delighted by the extremely positive customer response to the launch of our new cloud-based platform, Trisus, with the first product sales secured towards the end of the year. We believe the innovation in Trisus positions us firmly at the forefront of an expanding market opportunity, as the long term shift in US healthcare to value-based care and increased consumerism continues unabated. The first product on the platform, Trisus Claims Informatics was launched in June 2017, with early sales recorded towards the year end. During the current financial year we anticipate further product launches on the Trisus platform.
The dedication of our employees in Scotland and the US to our customers and their passion for innovation are the pillars on which our ongoing success is built. I would like to take this opportunity to thank them once again for all their hard work in the year. Their commitment has ensured Craneware has delivered revenue and profit growth for each of its ten years as a public company and has successfully transitioned into the execution phase of our long term strategy.
Positive outlook for the business
We remain positive that the business environment in the US will continue to be supportive for our business. The investments we have made in the business mean we have the product suite, people and scalability to drive long-term growth and we will continue to build Craneware with the future opportunity in mind. While always mindful of the global and US macro environment, the continued sales success, high levels of revenue visibility, continued cash generation and a record sales pipeline provide the Board with confidence in the success of Craneware in the year ahead.
4 September 2017
With continued sales success and double digit financial growth, we have been investing in Craneware’s product suite and people. We made these investments to address the challenges we foresaw taking place in the US healthcare market. Our vision was to be the first to market with a unique range of broad solutions that help our customers in the new era of value-based care. We have expanded our product suite into the Value Cycle, adding new product areas; developed a new cloud-based technology platform, Trisus, and created a new Group business, Craneware Healthcare Informatics addressing the significant healthcare analytics market. This will enable greater scalability of the business to address the growing market opportunity.
We are delighted to report that, with the early sales of our first Trisus product and the roll out to our first Craneware Healthcare Intelligence customers, this was the year in which we saw our vision become reality. We will continue to invest in the expansion of our business to support our customers as they navigate the ongoing re-imbursement model changes and the move towards value-based care.
Through these initial product sales we have proven our ability to execute on our long term vision and are excited by the size of the opportunity now ahead of us.
Market and Strategy
Market drivers continue unabated
While the US healthcare landscape continues to evolve, the fundamentals driving a long-term evolution of the landscape remain the same. The largest healthcare market in the world, the US consistently continues to fall short in its quest for value for the healthcare dollars spent. A greater number of people need access to the healthcare system regardless of any pre-existing medical condition, a greater proportion of the population will soon reach the end of their working life and the cost of delivering healthcare is increasing, all putting an unsustainable burden on the US and its citizens. New regulations, increasing requirement for reliable data analytics, emerging medical techniques and technologies, are all contributing to a major shift in the operational requirements of US healthcare providers.
These factors are all driving the need for hospitals to have additional insight into their operational, clinical and financial data – insight our Value Cycle solutions provide, together with the tools they need to effect change. In the era of value-based care, a hospital provider must understand and reduce the cost of care, increase margins so they can invest in future care delivery and simultaneously improve patient outcomes. We believe that we are among the first to market with solutions addressing the move to value-based care and are committed to continuing to innovate in this space in response to the needs of our customers.
Meanwhile, as 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. This is another area of focus for our expanded Value Cycle product suite.
The nearer-term reforms to healthcare which have been discussed over the past year, in light of a change in administration, remain consistent with the need to move toward value-based care – in line with Craneware’s strategy.
Long-term strategy: to continue to expand our coverage of the Value Cycle
Our strategy is to continue to build on our established market-leading position in revenue cycle solutions and expand our product suite coverage of the Value Cycle. By expanding our offerings into operational areas of the hospital, incorporating cost management 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, providing the best possible outcomes for all.
Our expansion will be achieved through a combination of extensions to the current product set; building products through internal development; targeting potential acquisitions to buy and partnering with other technology and services companies.
Craneware’s Value Cycle solutions provide the financial insight and actionable data needed to navigate this evolving landscape and healthcare reform continues to drive a growing demand for all our products.
Approximately a quarter of all US hospitals are existing Craneware customers, providing us with a valuable platform for growth. The insight they provide us drives our strategy and we are committed to providing them with long-term strategic support.
Our product roadmap has four clear areas of focus; 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; the development of new products to sit upon the Trisus Platform and the development of cost analytics software by our newly formed Group company, Craneware Healthcare Intelligence. All of these solutions will target areas of the Value Cycle, being 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.
As we undertake these initiatives and consider the market opportunities these present, the Group has decided to accelerate investment in many areas as we have decided ‘Build’ is the favoured way forward Through the development already carried out over the last two years, we now have products or partnerships providing us with access to many of the data sources we require within the key clinical, operational and financial areas of a hospital’s operations in order to build our full suite of Value Cycle solutions. Some of these areas now have live Craneware products, others are now entering development or will do so in the coming year.
We believe the comprehensive nature of our product portfolio, the data that this adds and sophistication of our technology platform, mean Craneware will have the ability to be at the forefront of innovation within the US healthcare market for many years to come.
Trisus Enterprise Value Platform
We have now launched the Trisus Enterprise Value platform, the next generation of innovation in the value cycle. The cloud-based platform enables a suite of solutions for healthcare providers to identify and take action on risks related to revenue, cost, and compliance. We have a roadmap to move all our solutions onto the platform, as well as continuing to look for innovative combinations of our data sets into new unique product offerings.
Trisus 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 allowing for synergies between applications. Common components across applications, such as reporting, data import, analytics, workflows, user administration, and more, empower teams within a hospital to collaborate, become more efficient and productive, and provide better financial outcomes.
As the healthcare environment continues to change, financial, operational, and clinical outcomes are tied together more than ever before. Trisus is Craneware’s innovative commitment to providing high-value solutions for providers so they can improve margins and provide better patient outcomes.
The first product launch took place in June 2017; Trisus Claims Informatics. This product enables hospitals and healthcare systems to drive revenue growth and increase compliance by automating claims review; through analysing for completeness, accuracy, and patterns of changing charging behaviour.
The Trisus Patient Payment solution was also made available to early adopters during the year. The solution effectively addresses growing consumerisation within healthcare. 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. The Trisus Patient Payment Module is a solution designed to increase patient billing satisfaction through the provision of flexible, web and mobile-friendly payment options and simplification of the billing process, while also improving point-of-service collection rates. Following successful completion of the early adopter phase we expect full general release later this calendar year.
Further components of Trisus will be released throughout the current calendar year and beyond. With the componentised nature of the Trisus architecture we expect the roadmap for future releases to accelerate as we complete on these initial solutions.
Craneware Healthcare Intelligence
In the second half of fiscal year 2016, Craneware formed a new Group company, Craneware Healthcare Intelligence, to develop and market Cost Analytics and Resource Efficiency (CARE) software to the US healthcare industry. CARE is a vital component within the emerging value cycle solutions market. The insight into costs, combined with correct reimbursement will enable our customers to better understand and improve their margins; allowing a greater understanding of resources available to invest and in turn drive better patient outcomes both today and for the future. With the additional insight our products provide into Physician variability across the continuum of care, Craneware is able to demonstrate the tangible and valuable benefits of combining financial, operational and clinic data particularly in 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.
Under the leadership of our SVP, Health Analytics, progress has continued at pace within this newly formed business. We now have a team of people in place with the initial phase of product development complete and the first early adopters secured, combining our initial models and algorithms with live hospital data. The results of this phase will provide us with invaluable insight as we approach general product launch scheduled for later in the year.
The Board continues to assess acquisition opportunities to complement the Group’s organic growth strategy and increase our product coverage of the Value Cycle. The Board adheres to a rigorous set of criteria to evaluate acquisition opportunities, including quality of earnings, strategic fit and product offering. In addition to the Company’s cash reserves, an undrawn $50 million funding facility provides the Company with available resources to carry out strategic acquisitions if and when these criteria are met.
Sales and Marketing
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 hospital, providing confidence that we are on a continuing path of accelerated revenue and profit growth in future years.
During the year, sales to existing customers increased as a proportion of total new sales made. All new hospital sales provide opportunities for further product sales in the future. The average length of contracts with new customers continues to be in-line with our historical norms of approximately five years. This year, however, for all other contracts we have anticipated the crossover dates of new product availability on the Trisus Platform and the impact for each individual customer contract as part of our migration strategy. It is anticipated that our phased migration of all current products to the Trisus platform will be complete no later than 2021. As we factor in the resulting anticipated migration dates the consequence of this is to reduce the average effective length of all customer contracts signed in the year to approximately 4 years. Normalising FY16 contracts to the same average term and considering just underling contracts (i.e. excluding the three large system sales announced in the prior year) like for like sales in FY16 would be $34.2m as compared to $35.4m in FY17.
At the end of the contract term, we expect to see our renewal rates remain at their current high levels (well above 100% by dollar value), along with incremental additional sales, as customers move to the improvements brought to them by the Trisus platform.
Chargemaster Toolkit® was named Category Leader in the “Revenue Cycle – Chargemaster Management” market category for the eleventh consecutive year in the annual “2017 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.
Following our return to double digit growth in the prior year, it is pleasing to report this growth has continued in both revenue and adjusted EBITDA. As such, we are reporting a growth in revenues for the financial year under review of 16% to $57.8m (FY16: $49.8m) which has resulted in an adjusted EBITDA of $18.0m (FY16: $15.9m).
Underlying these results continues to be the contracts we sign with our hospital customers. These new contracts provide a license for a customer to access specified products throughout their license period. This license period on average, for a sale to a new customer, is five years. In calculating averages, we only take the contract length up to the first renewal point/break clause for that specified product.
It is at the end of these license periods or a mutually agreed earlier date that customers renew with us or will modify contracts to license the Trisus platform. It is anticipated that future renewals will be significantly enhanced by the move to Trisus. We measure renewal rates by dollar value as this specifically ties to how we are sustaining the underlying annuity base of revenue which is demonstrated through 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 i.e. to demonstrate that we are maintaining or increasing our annuity. This metric for the current year is at 110%.
We further build the annuity with our new product sales to new or existing customers (part way through their current license term). These elements make up our Annuity SaaS business model (which is described in detail below) and is designed to deliver long term sustainable growth reducing the impact of any short term fluctuations in sales levels or contract timing.
It is anticipated that our phased migration of all current products to the Trisus platform will be complete no later than 2021. This has meant that our reported average contract length across all contracts signed in the year, for the current “specified products”, has been impacted on a case by case basis to reflect this planned migration. As a result, the average contract length for all contracts signed in the year reduces from approx. five years to four years with a resultant effect on calculated Total Value of Sales in the Year. We are reporting New Sales in the year of $35.4m and Total Value of Contracts of $54.0m. Whilst on the surface not at the level reported in the prior year for total overall sales (FY16: $58.6m and $82.3m respectively) the difference reflects the prior year announced enterprise wide sales, the anticipated impact of the Trisus migration on contract end dates and the cyclically low number of customers due for renewal in the year. These sales have contributed to a further 13% increase in our three year visible revenue. This level of sales continues to support the ongoing growth of the business.
The Group’s ‘Annuity SaaS’ business model and associated revenue recognition is designed to ensure the long-term growth and stability of the Group. Through this prudent approach to revenue recognition and consistent application of this model, the Group ensures it is focused on sustainable growth irrespective of any short term fluctuations in sales levels. The annuity SaaS business model delivers a ‘smoothing’ effect as the majority of the revenue resulting from all sales in any one period will be recognised over future periods. Individual sales add to the Group’s long term visibility of revenue under contract.
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, that provide our customers access to our products for an average life of five years, we will see the revenue from any new sales recognised 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 separately identifiable to 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 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
As a result of how revenue is recognised under the Annuity SaaS business model – ‘sales’ and ‘revenue’ have different meanings and are not interchangeable. The table below shows both our reported revenues and 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.
|New Product Sales||20.8||35.1||35.9||58.6||35.4|
|Total Contract Value (TCV)||38.5||71.0||72.9||82.3||54.0|
*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
** Contract end dates (therefore TCV) impacted by phased Trisus Migration
As the majority of the revenue resulting from sales in the year will be recognised over future years, the financial statements do not appropriately reflect the valuable ‘asset’ that is this 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 over the next three year period, based on sales that have already occurred. 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.
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 2017 (i.e. visible revenue for FY18, FY19 and FY20) identifies $163.8m 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 $117.9m of which $50.1m is expected to be recognised in FY18, $38.8m in FY19 and $29.0m in FY20
- revenue generated from renewals contributing $45.2m; being $5.7m in FY18, $14.9m in FY19 and $24.6m in FY20
- other revenue identified as recurring in nature of $0.7m
Typically, we expect the gross profit margin to be between 90 – 95%, the gross profit for FY17 was $54.2m (FY16: $46.8m) representing a gross margin percentage of 93.8% (FY16; 93.9%) which is towards the top of our historical range. This reflects the correct matching of incremental costs incurred to obtain the underlying contracts with the associated revenue being recorded.
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 and amortisation (“Adjusted EBITDA”). In the prior year this also excluded the ‘other income’ arising out of the conclusion of the contingent consideration arising from the prior year the acquisition of Kestros.
Adjusted EBITDA has grown in the year to $18.0m (FY16: $15.9m) an increase of 13%. This reflects an Adjusted EBITDA margin of 31.1% (FY16: 31.8%). This is consistent with the Group’s continued approach to making investments in line with the revenue growth. The Group also takes opportunities where they exist to accelerate investments in certain areas, such as development, to further build for future growth whilst continually managing to ensure the efficiency of the investments we make.
The increase in net operating expenses (to Adjusted EBITDA) reflects our policy of investing in line with revenue growth, increasing by 17% to $36.2m (FY16: $30.9m). However we have also taken the opportunity to increase our investment in Product Development. Product innovation and enhancement continues to be core to the Group’s future; our customers are facing a market that continues to evolve towards value-based re-imbursements and the Group is in a unique position with its Value Cycle strategy to help them meet the challenges these new reimbursement models bring.
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. We continue our Build, Buy or Partner strategy to build out this portfolio of products.
As we undertake these initiatives and consider the market opportunities these present, the Group has decided to accelerate investment in many areas as we have decided ‘Build’ is the favoured way forward. We do this 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 $9.1m (FY16: $7.7m), a 19% increase and therefore ahead of our revenue growth. In addition, we have made further investments relating to the development of the new product offerings (“Build”), this includes our new cost analytics tool ‘Trisus CARE’. As these products have yet to be made available to our customers, the associated incremental costs have been capitalised, this has resulted in $3.5m (FY16: $2.0m) of capitalised development spend in the year. These capitalised amounts represent further investment in our future and have been undertaken as we have concluded that it represents the most efficient and cost effective way to fulfil our Value Cycle strategy. We expect to see both the levels of development expense and capitalisation continue the current trends as we progress with building out this solution set.
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.
The success of these very high levels of cash conversion has enabled us to grow our cash reserves to $53.2m (FY16: $48.8m). These cash levels are after paying $5.5m in taxation (FY16: $2.3m), investing $3.1m in our new employee benefits trust, the $3.5m further investment in new product development and returning $6.4m (FY16: $6.0m) 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 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.
The Group maintains a strong balance sheet position. The level of trade and other receivables has decreased in comparison to the prior year. This is a result of the positive levels of cash collection, especially during the last quarter of the year.
Every year as we make sales, we pay out amounts relating to sales commissions, these costs are incremental costs in obtaining the underlying contracts. Total sales commissions 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 prepayment of $5.9m (FY16: $6.0m) is the balance to be charged against future profit 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 accrued income and the prepayment of sales commissions, we therefore remain cash flow positive in regards to how we recognise revenue from our contracts.
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, for example as was the case in the year, consider hedging strategies. During the year, we have seen some benefit of exchange rate movements, with the average exchange rate throughout the year being $1.2688 as compared to $1.4837 in the prior year. This benefit has allowed us to continue to release further investment whilst maintaining profit margins.
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 seen the benefit of a tax deduction related to share option exercises that occurred in the year, as well as the reducing rate of UK Corporation Tax and as such the current year effective tax rate is 20% (FY16: 24%).
In the year adjusted EPS has seen the benefit of the increased levels of adjusted EBITDA combined with the lower effective tax rate reported above and as such has increased 20% to $0.514 (FY16: $0.429) and adjusted diluted EPS has increased to $0.503 (FY16: $0.423).
The Board recommends a final dividend of 11.3p (14.71 cents) per share giving a total dividend for the year of 20p (26.04 cents) per share (FY16: 16.5p (22 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 7 December 2017 to shareholders on the register as at 10 November 2017, with a corresponding ex-Dividend date of 9 November 2017.
The final dividend of 11.3p 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 10 November 2017. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 10 November 2017. The final dividend referred to above in US dollars of 14.71 cents is given as an example only using the Balance Sheet date exchange rate of $1.30197/£1 and may differ from that finally announced.
We are delighted to report that, with record levels of revenue and profitability, the launch of our Trisus platform with sales secured for the first Trisus product (Trisus Claims Informatics™), and the launch of Craneware Healthcare Intelligence, this was the year in which we saw our unique vision of the Value Cycle turn from concept to reality.
While laying out our vision for the Value Cycle over the last two years, Craneware has delivered double digit growth in our key metrics, including revenue and profit, supported by sales success throughout the period. We have expanded our product suite into the Value Cycle; developed a new cloud-based technology platform, Trisus; and created a new Group business, Craneware Healthcare Intelligence, all significantly increasing the Company’s total addressable market. At the same time we have been investing in improving our customers’ experience and have returned in excess of $15m to shareholders by way of dividends and share buy backs.
The unceasing evolution of the US healthcare market towards value-based care presents us with an ongoing, growing market opportunity and the investments we have made mean we now have the potential to deliver against this expanding opportunity. With our sales pipeline increasing each year, this increased scalability and opportunity, combined with our high levels of revenue visibility, strong cash position and extensive customer base provide us with confidence in Craneware’s ongoing success.
Chief Executive Officer
4 September 2017
Chief Financial Officer
4 September 2017
Consolidated Statement of Comprehensive Income For the year ended 30 June 2017
|Cost of sales||(3,582)||(3,011)|
|Acquisition costs and share related transactions||–||(556)|
|Share based payments||(283)||(251)|
|Depreciation of plant and equipment||(478)||(442)|
|Contingent consideration on business combination||–||1,005|
|Amortisation and impairment of intangible assets||(615)||(1,808)|
|Profit before taxation||16,884||13,923|
|Tax on profit on ordinary activities||5||(3,359)||(3,348)|
|Profit for the year attributable to owners of the parent||13,525||10,575|
|Other comprehensive income|
|Items that may be reclassified subsequently to profit or loss|
|Currency Translation movement||40||–|
|Total items that may be reclassified subsequently to profit or loss||
Total comprehensive income attributable to owners of
- Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation, contingent consideration, amortization, impairment and share related transactions.
Statement of Changes in Equity for the year ended 30 June 2017
|At 1 July 2015||536||17,356||378||29,360||47,630|
|Total comprehensive income – profit for the year||–||–||–||10,575||10,575|
|Transactions with owners:|
|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|
|Total comprehensive income – profit for the year||–||–||–||13,525||13,525|
|Total other comprehensive income||–||–||–||40||40|
|Transactions with owners:|
Treasury shares upon consolidation of employee
|Impact of share options exercised/lapsed||1||523||(116)||416||824|
|Dividends (Note 6)||–||–||–||(6,356)||(6,356)|
|At 30 June 2017||537||17,974||958||39,886||59,355|
Consolidated Balance Sheet as at 30 June 2017
|Plant and equipment||1,375||1,213|
|Trade and other receivables||9||4,278||4,581|
|Trade and other receivables||9||15,381||20,953|
|Cash and cash equivalents||53,170||48,812|
EQUITY AND LIABILITIES
|Current tax liabilities||198||2,353|
|Trade and other payables||7,795||9,651|
|Share premium account||17,974||17,451|
|Total Equity and Liabilities||97,151||93,779|
Statement of Cash Flows for the year ended 30 June 2017
Cash flows from operating activities
|Cash generated from operations||11||23,068||17,564|
|Net cash from operating activities||17,852||15,422|
Cash flows from investing activities
|Purchase of plant and equipment||(654)||(418)|
|Capitalised intangible assets||8||(3,925)||(2,166)|
|Net cash used in investing activities||(4,579)||(2,584)|
Cash flows from financing activities
|Dividends paid to company shareholders||6||(6,356)||(5,953)|
|Proceeds from issuance of shares||524||95|
Treasury shares upon consideration of employee
|Net cash used in financing activities||(8,915)||(5,858)|
Net increase in cash and cash equivalents
|Cash and cash equivalents at the start of the year||48,812||41,832|
|Cash and cash equivalents at the end of the year||53,170||48,812|
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.
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.
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 $1.2688/£1 (2016: $1.4837/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date
$1.30197/£1 (2016 : $1.3397/£1). 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.
The Group follows the principles of IAS 18, “Revenue Recognition”, in determining appropriate revenue recognition policies. In principle revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group.
Revenue is derived from sales of, and distribution agreements relating to, software licenses and professional services (including installation). Revenue is recognised when (i) persuasive evidence of an arrangement exists; (ii) the customer has access and right to use our software; (iii) the sales price can be reasonably measured; and (iv) collectability is reasonably assured.
Revenue from standard licensed products which are not modified to meet the specific requirements of each customer is recognised from the point at which the customer has access and right to use our software. This right to use software will be for the period covered under contract and, as a result, our annuity based revenue model recognises the licensed software revenue over the life of this contract. This policy is consistent with the Company’s products providing customers with a service through the delivery of, and access to, software solutions (Software-as-a-Service (“SaaS”)), and results in revenue being recognised over the period that these services are delivered to customers. Incremental costs directly attributable in securing the contract are charged equally over the life of the contract and as a consequence are matched to revenue recognised. Any deferred contract costs are included in, both current and non-current, trade and other receivables.
‘White-labelling’ or other ‘Paid for development work’ is generally provided on a fixed price basis and as such revenue is recognised based on the percentage completion or delivery of the relevant project. Where percentage completion is used it is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project. Where contracts underlying these projects contain material obligations, revenue is deferred and only recognised when all the obligations under the engagement have been fulfilled.
Revenue from all professional services is recognised as the applicable services are provided. Where professional services engagements contain material obligations, revenue is recognised when all the obligations under the engagement have been fulfilled. Where professional services engagements are provided on a fixed price basis, revenue is recognised based on the percentage completion of the relevant engagement. Percentage completion is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project.
Software and professional services sold via a distribution agreement will normally follow the above recognition policies.
Should any contracts contain non-standard clauses, revenue recognition will be in accordance with the underlying contractual terms which will normally result in recognition of revenue being deferred until all material obligations are satisfied.
The excess of amounts invoiced over revenue recognised are included in deferred income. If the amount of revenue recognised exceeds the amount invoiced the excess is included within accrued income.
Goodwill arising on consolidation represents the excess of the cost of acquisition over the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is capitalised and recognised as a non-current asset in accordance with IFRS 3 and is tested for impairment annually, or on such occasions that events or changes in circumstances indicate that the value might be impaired.
Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
(b) Proprietary software
Proprietary software acquired in a business combination is recognised at fair value at the acquisition date. Proprietary software has a finite life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the associated costs over their estimated useful lives of 5 years.
(c) Contractual customer relationships
Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful economic life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship which has been assessed as 10 years.
(d) Research and Development expenditure
Expenditure associated with developing and maintaining the Group’s software products is recognised as incurred. Where, however, new product development projects are technically feasible, production and sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete such projects, development expenditure is capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life, which has been assessed as 5 years. Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised.
(e) Computer software
Costs associated with acquiring computer software and licensed to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically 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.
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.
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 value in use of the applicable cash generating unit to which the Goodwill and other assets 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
- 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
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.
4. Operating expenses
|Operating expenses are comprised of the following:-|
|Sales and marketing expenses||7,326||7,634|
|Research and development||9,108||7,668|
|Depreciation of plant and equipment||478||442|
|Contingent consideration of business combination||–||(1,005)|
|Amortisation and impairment of intangible assets||615||1,808|
5. Tax on profit on ordinary activities
|Profit on ordinary activities before tax||16,884||13,923|
|Corporation tax on profits of the year||3,463||3,344|
|Foreign exchange on taxation in the year||(65)||54|
|Adjustments for prior years||300||(86)|
|Total current tax charge||3,698||3,312|
|Origination & reversal of timing differences||(161)||27|
|Adjustments for prior years||(178)||25|
|Change in tax rate||–||(16)|
|Total deferred tax charge(credit)||(339)||36|
|Tax on profit on ordinary activities||3,359||3,348|
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 19.75% (2016: 20%)
|Adjustment in respect of prior years||122||(61)|
|Change in tax rate||–||(16)|
|Additional US taxes on profits/losses 39% (2016: 39%)||209||559|
|Expenses not deductible for tax purposes||(16)||27|
|Deduction on share plan charges||(226)||–|
|Total tax charge||3,359||3,348|
The dividends paid during the year were as follows:-
|Final dividend, re 30 June 2016 – 12.1 cents (9 pence)/share||3,246||3,097|
|Interim dividend, re 30 June 2017 – 10.83 cents (8.7 pence)/share||3,110||2,856|
|Total dividends paid to Company shareholders in the year||6,356||5,953|
The proposed final dividend for 30 June 2017 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
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.
Profit attributable to equity holders of the Company ($’000)
|Weighted average number of ordinary shares in issue (thousands)||26,934||26,838|
|Basic earnings per share ($ per share)||0.502||0.394|
Profit attributable to equity holders of Company ($’000)
|Tax Adjusted acquisition costs, share related transactions and amortisation of acquired intangibles ($’000)||
Adjusted Profit attributable to equity holders ($’000)
|Weighted average number of ordinary shares in issue (thousands)||26,934||26,838|
|Adjusted Basic earnings per share ($ per share)||0.514||0.429|
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.
|Profit attributable to equity holders of the Company ($’000)||13,525||10,575|
|Weighted average number of ordinary shares in issue (thousands)||26,934||26,838|
|Adjustments for:- Share options (thousands)||590||345|
|Weighted average number of ordinary shares for diluted earnings per share (thousands)||
|Diluted earnings per share ($ per share)||0.491||0.389|
Profit attributable to equity holders of Company ($’000)
Tax Adjusted acquisition costs, share related transactions and
amortisation of acquired intangibles ($’000)
Adjusted Profit attributable to equity holders ($’000)
|Weighted average number of ordinary shares in issue (thousands)||26,934||26,838|
|Adjustments for:- Share options (thousands)||590||345|
|Weighted average number of ordinary shares for diluted earnings per share (thousands)||
|Adjusted Diluted earnings per share ($ per share)||0.503||0.423|
8. Intangible assets
Goodwill and Other Intangible assets
|At 1 July 2016||11,438||2,964||3,043||5,755||993||24,193|
|At 30 June 2017||11,438||2,964||3,043||9,237||1,436||28,118|
|At 1 July 2016||250||1,713||1,976||2,926||793||7,658|
|Charge for the year||–||329||–||120||166||615|
|At 30 June 2017||250||2,042||1,976||3,046||959||8,273|
|Net Book Value at 30 June 2017||
|At 1 July 2015||11,438||2,964||3,043||3,796||912||22,153|
|At 30 June 2016||11,438||2,964||3,043||5,755||993||24,193|
|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||
|Amortisation of disposal||–||–||–||–||(107)||(107)|
|At 30 June 2016||250||1,713||1,976||2,926||793||7,658|
Net Book Value at 30
In accordance with the Group’s accounting policy, the carrying values of goodwill and other intangible assets are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of Craneware InSight Inc.
The carrying values are assessed for impairment purposes by calculating the value in use (net present value (NPV) of future cashflows) of the 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 18.5%.
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
|Less: provision for impairment of trade receivables||(1,353)||(1,135)|
|Net trade receivables||11,749||15,369|
|Prepayments and accrued income||1,826||2,950|
|Deferred Contract Costs||5,940||6,038|
|Less non-current trade receivables:||–||–|
|Deferred Contract Costs||(4,278)||(4,581)|
10. Share capital
|Equity share capital|
|Ordinary shares of 1p each||50,000,000||1,014||50,000,000||1,014|
Allotted called-up and fully paid
|Equity share capital|
|Ordinary shares of 1p each||26,961,709||537||26,850,248||536|
The movement in share capital during the year is presented as follows:
- 111,461 Ordinary Share options were exercised in the
11. Cash flow generated from operating activities
|Reconciliation of profit before tax to net cash inflow from operating activities|
|Profit before tax||16,884||13,923|
|Depreciation on plant and equipment||478||442|
|Amortisation and Impairment on intangible assets||615||1,808|
|Movements in working capital:|
|Decrease/(Increase) in trade and other receivables||6,146||(8,065)|
|(Decrease)/Increase in trade and other payables||(1,080)||9,317|
|Cash generated from operations||23,068||17,564|