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Interim Results

6 March 2018 – Craneware (AIM: CRW.L), the market leader in Value Cycle solutions for the US healthcare market, announces its unaudited results for the six months ended 31 December 2017.

Financial Highlights (US dollars)

  • Revenue increased 16% to $31.1m (H1 2017: $26.8m)
  • Adjusted EBITDA1 increased 18% to $9.7m (H1 2017: $8.2m)
  • Profit before tax increased 16% to $8.7m (H1 2017: $7.5m)
  • Adjusted basic EPS increased 18% to 25.4 cents per share (H1 2017: 21.6 cents per share)
  • Cash position of $52m (H1 2017: $45m) following dividend payment of $4.1m
  • Proposed interim dividend increased 15% to 10p (H1 2017: 8.7p per share)

1. Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, share based payments and acquisition and share transaction related costs.

Operational Highlights

  • Two significant contracts secured in the half, with a further two announced post period end
  • 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
  • Increasing market engagement with our newly launched cloud-based platform, Trisus®
  • Strong sales and opportunities across the product suite and across all classes of hospital providers, including for the first Trisus product: Trisus Claims Informatics
  • Early adopters reporting positive results for our new Cost Analytics and Resource Efficiency software (Trisus CARE), the next Trisus software release

Outlook

  • Record sales pipeline for the current financial year
  • Total visible revenue of over $63.1m for the current financial year and $179.4m for the three-year period to June 2020 (H1 2017 same three year period: $149.1m)
  • Board confident in outlook for the year

Keith Neilson, CEO of Craneware plc commented, “Our extensive expertise and experience in the US healthcare market means we are well positioned to provide actionable insight for our customers. By combining their financial and operational data in unique ways, our solutions ensure they can continue to thrive in the new era of value-based care.

“The investments made into Craneware’s product suite and operations in recent years means we are now delivering growth rates which are outperforming our industry. We are seeing growing interest across our enlarged product suite and are particularly pleased with the high levels of interest and opportunities across our customer base for our newly launched cloud-based platform, Trisus.

“With an ongoing, growing market opportunity, a record sales pipeline and increasing long-term revenue visibility, we enter the second half of the year with great confidence for the future and the ongoing success of the business.”

For further information, please contact:

Craneware plc

Peel Hunt

  • +44 (0)20 7418 8900
  • Dan Webster
  • Adrian Trimmings
  • George Sellar

Alma

  • +44 (0)208 004 4218
  • Caroline Forde
  • Hilary Buchanan
  • Robyn McConnachie

About Craneware

Craneware (AIM: CRW.L) is the market leader in software and supporting services that help healthcare providers improve margins so they can invest in quality patient outcomes. The Company’s flagship solution, Chargemaster Toolkit®, has earned the KLAS No.1 ranking in Revenue Cycle – Chargemaster Management since 2006 and is part of Craneware’s value cycle management suite, which includes patient engagement, charge capture and pricing, claims analysis, revenue recovery and retention, and cost analytics solutions.

Founded in 1999, Craneware is headquartered in Edinburgh, Scotland with offices in Atlanta, Boston and Pittsburgh employing over 250 staff.

Learn more at www.craneware.com.

Chairman Statement

We are delighted to confirm another very positive trading period for the Group. We are seeing initial returns from investments made in recent years, with the Group delivering a growth rate which is outperforming the broader US healthcare IT market. Revenue increased 16% to $31.1m (H1 2017: $26.8m) and adjusted EBITDA increased 18% to $9.7m (H1 2017: $8.2m). Continued cash generation resulted in cash reserves of $52m at the end of the period (H1 2017: $45m) after returning $4.1m to shareholders in dividends and investing a further $2.1m into new product development.

Continued sales success, combined with renewals remaining above 100% (by dollar value) has delivered very high levels of revenue visibility that supports our continued future growth. Importantly, we are seeing increasing evidence of the validation of our strategy – the move into the Value Cycle. This has seen investment of significant resources into the expansion of our product suite into complementary areas of hospital operations, providing tools to ensure our customers gain a greater understanding of their financial and operational data. In an era of increasing scrutiny and the need to drive value in healthcare, this increased insight will be crucial to ensure our customers’ long-term financial health and their ability to deliver better clinical outcomes for all their communities.

We announced two large contracts in the first half of the year; the first entails us hosting one of our solutions for the use of all the customer’s 75 hospitals, the second sees the expansion of an existing relationship with the customer implementing additional Craneware solutions as they expand their hospital network, both further demonstrating our growing strategic value to our customers.

Following the launch at the end of the last financial year of Trisus Claims Informatics, which was the first product on our newly developed cloud-based platform, we are pleased to report we have seen good initial sales in the period and continue to build a healthy pipeline of opportunities. We are particularly pleased to note how both our existing customer base and the wider healthcare provider market have responded positively to the technological evolution of the Craneware solution set, delivered on the Trisus platform. This provides us with confidence in the successful long-term transition of all our products to the platform.

Alongside the expansion of our core product suite and the move to Trisus, we are also further expanding our offering through the provision of cost analytics, via our Group Company, Craneware Healthcare Intelligence (CHI). The aim of the business is to provide our customers with an understanding of the true cost of every episode of care given to their patients. CHI has built a cost analytics platform that has the ability to identify and analyse charges from each patient encounter from beginning to end. Early adopters have now integrated their live data into the platform and are reporting some exciting results. We remain on track for the launch of the initial product this calendar year.

With our healthy cash balance and a $50m funding facility, we have the resources to execute upon our strategic vision should an acquisition target arise. Strict criteria continue to be applied to potential acquisition targets to ensure that they enhance our product roadmap and are accretive to the financial strength of the Group.

The sales momentum we saw in the first half of this financial year has continued into the second half, with two further significant contracts announced in February 2018. The sales pipeline continues at record levels, with opportunities across all sizes and types of hospitals and for all areas of our product suite.

We remain positive that the business environment in the US will continue to be supportive for Craneware, given our unique ability to support our customers. Our expanded market opportunity, accelerating growth rates, record sales pipeline and increasing long-term revenue visibility provide the Board with confidence in achieving a successful outcome to the year as a whole and beyond.

George Elliott
Chairman
5 March 2018

Introduction

We have enjoyed another strong first half to the year, delivering increasing revenues and EBITDA growth while continuing to invest in the expansion of the business. In addition to the financial success, the sales performance was very positive, and this has continued into the second half of our financial year adding to our future visible revenues, supporting further growth.

The US healthcare industry continues to evolve towards the provision of value-based care, putting the emphasis onto the healthcare provider to ensure they are delivering the right care, in the right place and at the right cost. This is a significant shift away from the historic fee-for-service environment and requires every hospital CFO to have a far greater understanding of their costs and the value they provide.

The combination of our significant expertise and experience in the US healthcare industry and continued investment into the expansion of our product suite means we are well positioned to provide the insight our customers need to thrive in this new era of value-based care.

Market & Strategy

The need to drive value in healthcare, and the challenges this brings, remains a key topic of focus in the US, providing an ongoing supportive market environment for Craneware due to our ability to help our customers meet these challenges. 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. Craneware’s Value Cycle solutions provide the financial insight and actionable data needed to navigate this evolving landscape and ongoing healthcare reform.

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 comprehensive insight into the management and analysis of clinical and operational data, providing the best possible outcomes for all.

The expansion of our solutions is being achieved through a combination of extensions to the current product set; building products through internal development; targeting potential acquisitions and partnering with other technology and services companies.

Product Roadmap

We continue to make progress in all fours areas of our product roadmap: the development of our cloud-based Trisus Enterprise Value Platform; the continued evolution and support of our existing market-leading product suite as we migrate to Trisus; the development of new products to sit upon the Trisus Platform; and the development of our cost analytics software, Trisus CARE. All of these solutions will increase our key areas of the Value Cycle and therefore addressable market.

Trisus Enterprise Value Platform

In 2017 we launched the Trisus Enterprise Value platform. This cloud-based platform enables a suite of solutions for healthcare providers to identify and take action on risks related to revenue, cost, and compliance. It is designed to be versatile and expandable, growing alongside our customers as the healthcare industry continues to evolve. The platform provides an environment to gather, process, and deliver data across the continuum of care with an open architecture and common components, allowing for synergies between applications.

The first product on the platform, Trisus Claims Informatics, was released in June 2017, with a good level of early sales secured during the first half of the current financial year. This product enables hospitals and healthcare systems to drive revenue growth and increase compliance by automating claims review and analysing claims for completeness, accuracy, and patterns of changing charging behaviour.

We are executing on a roadmap to migrate all our solutions onto the Trisus platform, as well as continuing to look for innovative combinations of our data sets into new unique product offerings. As part of this roadmap we expect to see further hybrid solutions combining the best of existing software and elements of the Trisus platform; new Trisus products; and new early adopter Trisus enabled versions of other existing solutions; all on track for releases throughout the current calendar year and beyond.

Cost Analytics and Resource Efficiency (Trisus CARE)

In the second half of financial year 2016, Craneware formed a new wholly owned Group company, Craneware Healthcare Intelligence, LLC, 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.

Most hospitals’ accounting systems are set up to collect financial data in aggregate and average metrics. This structure, while useful in a fee-for-service system, does not adequately support the shift to a value-based, quality-centric healthcare delivery system. Our CARE platform unites cost and operational information across the provider organisation, delivering revenue, cost, and operational information for each patient encounter. It enables understanding of the critical components of operational metrics and expenses across the entire episode of care.

We believe this area of the value cycle represents a market opportunity several times larger than that of our existing product portfolio.

The first early adopters of the platform have now combined our initial models and algorithms with live hospital data. The results of this phase will provide us with invaluable insight as we approach general launch of the initial product scheduled for later this year.

Sales and Marketing

We have seen very positive sales momentum, securing a high level of new sales in the period across all sizes and classes of hospital and type of hospital customer. This sales momentum has continued into the second half of our financial year and the sales pipeline continues to be at record highs, all combining to provide further confidence of accelerated revenue and profit growth by supplying products that are meeting real world customer needs.

The average length of new hospital contracts continues to be consistent with our historical norms of five years. At the end of the contract term, we expect and continue 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.

Significant contract wins

We were delighted to secure two significant contracts during the period. The first, announced in October 2017 was a renewal and significant expansion of an existing contract with a growing hospital operator in the US. This $6m win sees the extension of a relationship that has been in place since 2007, with the renewal of the customer’s existing value cycle solutions and the roll out of these same solutions to further facilities that have been recently acquired by this hospital network. The contract is expected to deliver $3.5m of incremental revenue, in addition to the $2.5m of ‘renewal’ revenue, over this new five year term as the hospital network rolls out these solutions at its additional facilities demonstrating the significant relevance of Craneware as the market continues its consolidation trend.

The second contract, announced in early January 2018, is expected to deliver in excess of $16m of revenue over its initial five year term as Craneware’s Value Cycle solutions are utilised by over 75 facilities across the network. Having previously contracted to utilise Craneware’s software in a small number of its hospitals, the customer carried out an assessment of the potential financial and operational impact Craneware’s solution could bring to its entire network. This has resulted in the roll out of Craneware’s software across the entire network, with Craneware hosting the solution as part of the network’s strategic financial performance plans. This demonstrates both the relevance of Craneware at an enterprise-wide level with one of the largest healthcare operators in the US and the importance of Craneware Value Cycle solutions to new customers that are looking for innovation to help them realise their strategic financial goals as they evolve in a value-based world.

We continue to see further sales successes in the second half of our financial year with two additional significant contracts announced in February 2018. These contracts add further new hospitals to Craneware’s customer base, the first with a large blue chip healthcare provider, the second with an innovative surgical hospital, together demonstrating the strategic value Craneware’s solutions can bring to all sizes and classes of US hospital providers. Combined, these contracts are expected to add a further $8.5m to revenue over their initial terms.

Awards

Chargemaster Toolkit® was named Category Leader in the “Revenue Cycle – Chargemaster Management” market category for the twelfth consecutive year in the annual “2018 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.

Acquisitions

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 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.

Financial Review

Revenue

We are pleased to announce an increase in revenue in the period of 16% to $31.1m (H117: $26.8m). Our prudent approach to revenue recognition means this increase in revenue does not fully represent the sales success we have seen in the period. The vast majority of the benefit of these sales will be reported in future year’s revenue, as a result of our Annuity SaaS business model.

Our Annuity SaaS business model and associated revenue recognition policy is designed to focus on the long-term growth and stability of the Group. It does this, in part, by taking the software licence associated to each new sale and recognising the revenue as the customer receives the benefit of the software during the life of the underlying contract (which for a new hospital sale is an average of five years). Our software sales also include professional services and this revenue is recognised as we deliver the services i.e. on a percentage of completion basis. There are a number of benefits of this conservative revenue recognition model including high levels of cash conversion, high levels of future years’ revenue visibility and, as we renew our customer base at over 100% (by dollar value), each new sale adds to the Group’s “annuity base of revenue”.

We have seen a strong level of sales growth to both existing and new customers that will continue to support future revenue growth expectations as these sales are converted to Group revenue via our Annuity SaaS business model. We have continued to renew those customers whose multi-year contracts came to an end in the period with a higher percentage of cross sell (new products) and upsell (contract price increases due to the passage of time). Renewal rates by dollar value are above the top end of our historical range (normally 85% to 115%) as a result.

Earnings

The increase in revenue, combined with efficient investments has delivered an associated increase in the adjusted EBITDA of 18% to $9.7m (H117: $8.2m). This has ultimately led to a 18% increase in adjusted earnings per share to 25.4 cents per share compared with 21.6 cents per share for this same period last year. All underlying metrics continue to be in line with, or above, our historical norms.<.p>

Cash

We continue to maintain healthy cash reserves which at the period end were $52m (H117: $45m) after returning $4.1m to our shareholders through dividends and investing $2.1m in new product development which has been capitalised. We continue to target conversion of 100% of adjusted EBITDA to operating cash over the full financial year. Following exceptionally high levels of cash collection in the prior year, we anticipated lower cash conversion levels in the period under review, however the conversion of 62% of our adjusted EBITDA to operating cash, results in cash conversion levels of over 100% over the last 12 months, which more accurately reflects our cash conversion performance. We have continued to collect our period end debtors with a further $8.2m collected since the period end.

As a result of these significant cash reserves, continued high levels of cash conversion and management’s ongoing confidence in the performance of the Group, in January 2018 we returned $15.4m to shareholders through a share buy-back. Through this process, the Company re-purchased and then cancelled 628,869 ordinary shares at a price of £17.69 ($24.45) per share.

Revenue Visibility

To demonstrate the high levels of visible revenue generated through new sales and our business model, at the end of each financial year, the Group reports it’s Three Year Visible Revenue KPI. This KPI also demonstrates the underlying annuity revenue stream that is also building as a result of sales and these revenue recognition policies. At each subsequent half year reporting period, we report how that metric for the same three year period has progressed and therefore show how visible revenue for the current and future years is building towards our expectations.

We now have visibility of revenues of $63.1m for the current year before any further sales (including those announced in February 2018) are made in the second half. In regard to total visible revenue for the three year period 1 July 2017 to 30 June 2020 this has grown 20% to $179.4m from $149.1m for the same forward three year period at H1 2017.

Our total visible revenue of $179.4m comprises $146.1m ‘Revenue under Contract’, $32.7m ‘Renewal Revenue’ and $0.6m of ‘Other Recurring Revenue’. ‘Revenue under Contract’, relates to revenues that are supported by ongoing underlying contracts. ‘Renewal Revenue’ relates to the amount of revenue which is potentially available for renewal and will be recognised in that financial year provided the underlying contracts are renewed. In calculating this, we assume a 100% dollar value renewal level. As we sign the renewal contracts the aggregated related revenue for the new multi-year term moves from ‘Renewal Revenues’ to ‘Revenue under Contract’. The final element is ‘Other Recurring Revenue’, this relates to revenue that is not subject to long term contracts, which can be billable ‘per transaction’ or a set monthly amount and is usually invoiced on a monthly basis, however it is reasonable to expect it to be recurring in nature.

As we show our ‘Renewal Revenue’ in our revenue visibility graph at 100% of dollar value, we track and publish our ‘Renewal Rate by dollar value KPI’ to ensure our 100% assumption in producing our revenue visibility KPI is still appropriate. This KPI measures the average value of customers renewing in the relevant period, including cross sell and upsell to those renewing customers.

R&D

These high levels of visible revenue provide certainty in investment decisions. These investments include our investment in R&D of $7.8m (H117: $6.3m) of which $5.7m relates to products currently available for sale and as such has been expensed in the period. The balance of $2.1m (H117: $1.5m) relates to new product development and as such has been capitalised. We continue to make these and other investment decisions as appropriate for the future growth of the Group, whilst consistently ensuring the efficiency of all expenditures. This has contributed to our adjusted EBITDA margin, which for the period is 31%. The adjustments we make to both EBITDA and EPS are those normally expected and include costs related to acquisition and share activity in the period.

Currency

We continue to report the results (and hold the cash reserves) of the Group in US Dollars, whilst having approximately twenty five percent of our costs, mainly our UK employees and UK purchases, denominated in Sterling. The average exchange rate for the Company during the reporting period was $1.32/£1 which compares to $1.27/£1 in the corresponding period last year.

Dividend

The Board has resolved to pay an interim dividend of 10p (13.5 cents) per ordinary share on 20 April 2018 to those shareholders on the register as at 3 April 2018 (FY17 Interim dividend 8.7p). The ex-dividend date is 29 March 2018.

The interim dividend of 10p 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 has registered to do so by the close of business on 3 April 2018. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 3 April 2018. The interim dividend referred to above in US dollars of 13.5 cents is given as an example only using the Balance Sheet date exchange rate of $1.35/£1 and may differ from that finally announced.

Outlook

Our extensive expertise and experience in the US healthcare market means we are well positioned to provide actionable insight for our customers. By combining their financial and operational data in unique ways, our solutions ensure they can continue to thrive in the new era of value-based care.

The investments made into Craneware’s product suite and operations in recent years means we are now delivering growth rates which are outperforming our industry. We are seeing growing interest across our enlarged product suite and are particularly pleased with the high levels of interest and opportunities across our customer base for our newly launched cloud-based platform, Trisus.

With an ongoing, growing market opportunity, a record sales pipeline and increasing long-term revenue visibility, we enter the second half of the financial year with great confidence for the future and the ongoing success of the business.

Keith Neilson Chief Executive Officer 5 March 2018 Craig Preston Chief Financial Officer 5 March 2018
 
Craneware PLC

Interim Results FY18

Consolidated Statement of Comprehensive Income
H1 2018 H1 2017 FY 2017
Notes $’000 $’000 $’000
Revenue 31,138 26,790 57,796
Cost of sales (1,593) (1,619) (3,582)
Gross profit 29,545 25,171 54,214
Net operating expenses (21,048) (17,751) (37,588)
Operating profit 8,497 7,420 16,626
 
Analysed as:  
Adjusted EBITDA1 9,689 8,217 18,002
Acquisition costs and share related transactions (26)
Share-based payments (165) (127) (283)
Depreciation of plant and equipment (292) (353) (478)
Amortisation of intangible assets (735) (291) (615)
 
Finance income 169 88 258
Profit before taxation 8,666 7,508 16,884
Tax charge on profit on ordinary activities (1,990) (1,884) (3,359)
Profit for the period attributable to owners of the parent 6,676 5,624 13,525
Other comprehensive income  
Items that may be reclassified subsequently to profit or loss  
Cash flow hedge reserve movement, net of tax (527)
Currency Translation Reserve movement (19) 183 40
Total items that may be reclassified subsequently to profit or loss (19) (344) 40
Total comprehensive income attributable to owners of the parent   6,657 5,280 13,565
1Adjusted EBITDA is defined as operating profit before, share based payments, depreciation, amortisation, acquisition costs and share related transactions.
Earnings per share for the period attributable to equity holders
  – Basic ($ per share) – *Adjusted Basic ($ per share)2   1a 1a   0.248 0.254   0.209 0.216   0.502 0.514  
 – Diluted ($ per share) – *Adjusted Diluted ($ per share)2 1b 1b 0.242 0.248 0.205 0.212 0.491 0.503
2Adjusted Earnings per share calculations allow for the tax adjusted acquisition costs and share related transactions together with amortisation on acquired intangible assets to form a better comparison of the underlying performance with previous periods.  
Craneware PLC
Interim Results FY18
Consolidated Statement of Changes in Equity
Share Capital Share Premium Other Reserves Retained Earnings Total
$’000 $’000 $’000 $’000 $’000
At 1 July 2016 536 17,451 555 34,266 52,808
Total comprehensive income – profit for the period 5,624 5,624
Total other comprehensive income (344) (344)
Transactions with owners Company shares acquired by employee benefit trust (3,083) (3,083)
Share-based payments 127 127
Impact of share options exercised / lapsed 1 481 (71) 68 479
Dividend (3,246) (3,246)
At 31 December 2016 537 17,932 611 33,285 52,365
Total comprehensive income – profit for the period –   –   –   7,901   7,901  
Total other comprehensive income 384 384
Transactions with owners
Share-based payments 392 1,078 1,470
Impact of share options exercised / lapsed 42 (45) 348 345
Dividend (3,110) (3,110)
At 30 June 2017 537 17,974 958 39,886 59,355
Total comprehensive income – profit for the period 6,676 6,676
Total other comprehensive income Transactions with owners –   –   –   (19)   (19)  
Share-based payments 480 814 1,294
Impact of share options exercised / lapsed (2) (7) (9)
Dividend (4,066) (4,066)
At 31 December 2017 537 17,972 1,431 43,291 63,231
 
Craneware PLC Interim Results FY18 Consolidated Balance Sheet as at 31 December 2017
H1 2018 H1 2017 FY2017
 Notes $’000 $’000 $’000
ASSETS
Non-Current Assets  
Plant and equipment 1,264 1,392 1,375
Intangible assets 21,542 17,510 19,845
Trade and other receivables 2 4,683 4,172 4,278
Deferred Tax 4,073 1,819 3,102
31,562 24,893 28,600
 
Current Assets  
Trade and other receivables 2 22,356 17,679 15,381
Cash and cash equivalents 52,205 45,098 53,170
74,561 62,777 68,551
 
Total Assets 106,123 87,670 97,151
 
EQUITY AND LIABILITIES  
 
Non-Current Liabilities  
Deferred income 48 20
48 20
 
Current Liabilities  
Deferred income 32,173 27,649 29,803
Current tax liabilities 1,531 490 198
Trade and other payables 3 9,140 7,146 7,795
42,844 35,285 37,796
 
Total Liabilities 42,892 35,305 37,796
 
Equity  
Called up share capital 4 537 537 537
Share premium account 17,972 17,932 17,974
Other reserves 1,431 611 958
Retained earnings 43,291 33,285 39,886
Total Equity 63,231 52,365 59,355
 
Total Equity and Liabilities 106,123 87,670 97,151
 
Craneware PLC Interim Results FY18 Consolidated Statement of Cash Flow for the six months ended 31 December 2017
H1 2018 H1 2017 FY 2017
Notes $’000 $’000 $’000
Cash flows from operating activities
  Cash generated from operations 5 6,046 7,411 23,068
  Interest received 169 88 258
  Tax paid (821) (3,403) (5,474)
  Net cash from operating activities 5,394 4,096 17,852
 
 
Cash flows from investing activities  
  Purchase of plant and equipment (183) (512) (654)
  Capitalised intangible assets (2,110) (1,452) (3,925)
  Net cash used in investing activities (2,293) (1,964) (4,579)
 
 
Cash flows from financing activities  
  Dividends paid to company shareholders (4,066) (3,246) (6,356)
  Proceeds from issuance of shares 483 524
  Treasury shares upon consolidation of employee Share trusts (3,083) (3,083)
  Net cash used in financing activities (4,066) (5,846) (8,915)
 
 
Net (decrease)/increase in cash and cash equivalents (965) (3,714) 4,358
 
Cash and cash equivalents at the start of the period 53,170 48,812 48,812
 
Cash and cash equivalents at the end of the period 52,205 45,098 53,170
Craneware PLC Interim Results FY18 Notes to the Financial Statements
  1. 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 ordinary shares in issue during the period.  
H1 2018 H1 2017 FY 2017
Profit attributable to equity holders of the Company ($’000) 6,676 5,624 13,525
 
Weighted average number of ordinary shares in issue (thousands) 26,962 26,908 26,934
 
Basic earnings per share ($ per share) 0.248 0.209 0.502
  Profit attributable to equity holders of the Company ($’000) 6,676 5,624 13,525
Tax adjusted acquisition costs, share related transactions and amortisation of acquired intangibles ($’000) 165 190 329
Adjusted Profit attributable to equity holders ($’000) 6,841 5,814 13,854
 
Weighted average number of ordinary shares in issue (thousands) 26,962 26,908 26,934
 
Adjusted Basic earnings per share ($ per share) 0.254 0.216 0.514
   
(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.  
H1 2018 H1 2017 FY 2017
Profit attributable to equity holders of the Company ($’000) 6,676 5,624 13,525
 
Weighted average number of ordinary shares in issue (thousands) 26,962 26,908 26,934
 
Adjustments for: – share options (thousands) 613 490 590
 
Weighted average number of ordinary shares for diluted earnings per share (thousands) 27,575 27,397 27,524
 
Diluted earnings per share ($ per share) 0.242 0.205 0.491
     
  1. Earnings per share (Cont.)
 
H1 2018 H1 2017 FY 2017
Profit attributable to equity holders of the Company ($’000) 6,676 5,624 13,525
Tax adjusted acquisition costs, share related transactions and amortisation of acquired intangibles ($’000) 165 190 329
Adjusted Profit attributable to equity holders ($’000) 6,841 5,814 13,854
 
Weighted average number of ordinary shares in issue (thousands) 26,962 26,908 26,934
 
Adjustments for: – share options (thousands) 613 490 590
 
Weighted average number of ordinary shares for diluted earnings per share (thousands) 27,575 27,397 27,524
 
Adjusted Diluted earnings per share ($ per share) 0.248 0.212 0.503
 
  1. Trade and other receivables
 
H1 2018 H1 2017 FY 2017
$’000 $’000 $’000
Trade Receivables 19,556 14,389 13,102
Less: provision for impairment of trade receivables (1,630) (1,244) (1,353)
Net trade receivables 17,926 13,145 11,749
Other Receivables 288 176 144
Prepayments and accrued income 2,212 2,808 1,826
Deferred Contract Costs 6,613 5,722 5,940
27,039 21,851 19,659
Less non-current receivables: Deferred Contract Costs (4,683) (4,172) (4,278)
Trade and other receivables 22,356 17,679 15,381
 
  ­­­­­­There is no material difference between the fair value of trade and other receivables and the book value stated above.
  1. Trade and other payables
 
H1 2018 H1 2017 FY 2017
$’000 $’000 $’000
 
Trade Payables 493 1,247 759
Social Security and PAYE 327 205 54
Derivatives used for Hedging 658
Other Payables 124 66 47
Accruals 8,196 4,970 6,935
Trade and other payables 9,140 7,146 7,795
Derivatives held for hedging have been measured at fair value. The inputs used in determining the fair value are based on observable market data therefore the balances are categorised as level 2 under IFRS 13. No derivatives have been entered into in the current reporting period.  No other assets or liabilities have been measured at fair value.
4. Called up share capital
H1 2018 H1 2017 FY 2014
Number $’000 Number $’000 Number $’000
Authorised
Equity share capital
Ordinary shares of 1p each 50,000,000 1,014 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 26,961,709 537 26,961,709 537
 
5. Consolidated Cash Flow generated from operating activities  
Reconciliation of profit before taxation to net cash inflow from operating activities:
H1 2018 H1 2017 FY 2017
$’000 $’000 $’000
Profit before taxation 8,666 7,506 16,884
Finance income (169) (88) (258)
Depreciation on plant and equipment 292 353 478
Amortisation on intangible assets 735 291 615
Share-based payments 165 127 283
 
Movements in working capital:  
 
(Increase)/Decrease in trade and other receivables (7,380) 3,682 6,146
Increase/(Decrease) in trade and other payables 3,737 (4,460) (1,080)
Cash generated from operations 6,046 7,411 23,068
  1. Basis of Preparation

The interim financial statements are unaudited and do not constitute statutory accounts as defined in S435 of the Companies Act 2006. These statements have been prepared applying accounting policies that were applied in the preparation of the Group’s consolidated accounts for the year ended 30th June 2017. Those accounts, with an unqualified audit report, have been delivered to the Registrar of Companies.

  1. Segmental Information

The Directors consider that the Group operates in predominantly one business segment, being the creation of software sold entirely to the US Healthcare Industry, and that there are therefore no additional segmental disclosures to be made in these financial statements.

  1. Significant Accounting Policies

The significant accounting policies adopted in the preparation of these statements are set out below.

Reporting Currency

The Directors consider that as the Group’s revenues are primarily denominated in US dollars the principal functional currency is the US dollar. The Group’s financial statements are therefore prepared in US dollars.

Currency Translation

Transactions denominated in foreign currencies are translated into US dollars at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date ($1.3459/£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 in 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.

‘White-labelling’ or other ‘Paid for development work’ is generally provided on a fixed price basis and as such revenue is recognised based on the percentage completion or delivery of the relevant project.  Where percentage completion is used it is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project. Where contracts underlying these projects contain material obligations, revenue is deferred and only recognised when all the obligations under the engagement have been fulfilled.

Revenue from standard 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.

Revenue from all professional services is recognised as the applicable services are provided.  Where professional services engagements contain material obligation, revenue is recognised when all the obligations under the engagement have been fulfilled. Where professional services engagements are provided on a fixed price basis, revenue is recognised based on the percentage completion of the relevant engagement.  Percentage completion is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project.

Software and professional services sold via a distribution agreement will normally follow the above recognition policies.

Should any contracts contain non-standard clauses, revenue recognition will be in accordance with the underlying contractual terms which will normally result in recognition of revenue being deferred until all material obligations are satisfied.

The excess of amounts invoiced over revenue recognised are included in deferred income.  If the amount of revenue recognised exceeds the amount invoiced the excess is included within accrued income.

Intangible Assets

  • 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.

  • 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.

  • 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.

  • 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.

  • Computer software

Costs associated with acquiring computer software and licensed to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically 3 to 5 years.

Impairment of non-financial assets

At each reporting date the Group considers the carrying amount of its tangible and intangible assets including goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If there is such an indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) through determining the value in use of the cash generating unit that the asset relates to. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the impairment loss is recognised as an expense.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset. A reversal of an impairment loss is recognised as income immediately. Impairment losses relating to goodwill are not reversed.

Cash and Cash Equivalents

For the purpose of the Statement of Cash flow, cash and cash equivalents comprise of cash on hand, deposits held with banks and short term high liquid investments.

Share-Based Payments and Taxation Implications

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 ‘operating expenses’ with a corresponding increase in ‘Other reserves’.

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 and on the vesting of conditional share awards under each jurisdiction’s tax rules. 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 and conditional share awards. 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.

  1. Availability of announcement and Half Yearly Financial Report
 

Copies of this announcement are available on the Company’s website, www.craneware.com. Copies of the Interim Report will be posted to shareholders, downloadable from the Company’s website and available from the registered office of the Company shortly.