The Board of Directors (“the Board”) has always recognised the importance and value of good corporate governance and has elected to adopt the UK Corporate Governance Code as its corporate governance framework but it is aware that this Code has been drafted in the context of larger, main-market listed companies. Our 2019 Corporate Governance Report referred to the 2016 version of the UK Corporate Governance Code however, a new version of the UK Corporate Governance Code was published in July 2018. As the 2018 Code is applicable to accounting periods beginning on or after 1 January 2019, this is the first year that the Board is reporting under the 2018 version of the UK Corporate Governance Code (the ‘Code’).
The Board is pleased to report how it has applied the principles and complied with the provisions of the Code in line with best practice and in view of the size of the Company. This Report sets out how it has complied with the individual provisions and applied the ‘spirit’ of the UK Corporate Governance Code 2018 as a whole and explains any areas of non-compliance with the provisions of the Code. The UK Corporate Governance Code 2018 is available from the Financial Reporting Council at www.frc.org.uk
The information in this report was reviewed by the Board on 18 September 2020 and will be reviewed at least annually.
Overview: Application of the UK Corporate Governance Code 2018 (the ‘Code’)
The Code itself explains that its set of Principles “emphasise the value of good corporate governance to long-term sustainable success…the governance of the company contributes to its long-term sustainable success and achieves wider objectives. Achieving this depends crucially on the way boards and companies apply the spirit of the Principles.” It is this overarching objective that the Board has sought to achieve in applying the Code principles. The Company is a smaller company for the purposes of the Code and, as such, certain provisions of the Code either do not apply to the Company or are judged to be disproportionate or less relevant in its case. Where the Company does not comply with any specific Code provision then this is highlighted and explained in this report.
The Board has complied with the spirit of the UK Corporate Governance Code 2018 and applied the principles and complied with the provisions of the Code throughout the year ended 30 June 2020, with the exception of the following areas the Board believes are not appropriate for a company of our size or steps are ongoing to achieve compliance:
- Provision 17: due to the size of the Board a separate nomination committee has not been established, instead these duties have been fulfilled by the Board as a whole,
- Provision 21: regarding annual Board evaluation, with the changes to Board composition that occurred throughout the year, no annual Board evaluation has taken place. This will, however, take place next year once all current Board members have been in place for at least 12 months; and
- Provision 36: concerning the development of a formal policy for post-employment shareholding requirements. Whilst still not considered the norm for AIM listed companies, a formal policy regarding minimum holding requirements and periods have been introduced for future Long Term Incentive grants for directors and senior management.
Further information regarding the Board’s committees is provided in this report and the Remuneration Committee’s Report is contained in the Annual Report.
Board Leadership and Company Purpose
The role of the Board
The Board is primarily responsible for promoting the long-term success of the Group and is collectively accountable to shareholders for its proper management. The Board must balance this responsibility with ensuring that the Directors have regard for key stakeholders and that there is sufficient time, information and understanding to properly take into account those stakeholders’ interests when making decisions and considering their long-term implications. The Board recognises that effective engagement with key stakeholders, including employees, customers, shareholders, the community and suppliers, is a core component of long-term sustainability and success.
Purpose, vision, strategy, values and culture
The Board leads and establishes the Group’s purpose, vision, strategy and values and ensures that they are being carried out in practice across the business. The Board provides leadership across the Group and applies a governance framework to ensure that this is delivered effectively with appropriate control mechanisms.
The Board is responsible for delivering value for shareholders by setting the Group’s strategy and overseeing its implementation by the Operations Board. Our strategy and business model are explained within the strategic report within the Group’s Annual Report. The Board, at least annually, meets to review the Group’s strategy, drawing on the wide and varied experience of the Board members, including detailed healthcare sector knowledge. The Board also receives regular updates on progress against the agreed strategy at Board meetings.
The Board is responsible for setting the Company’s purpose and values and ensuring these are aligned with the Group’s culture. Our purpose forms the basis of Group-wide strategic initiatives each year. Our culture is the way that we work together and is fundamental to how we operate. Our culture is underpinned by our Values.
The Board has a fundamental role in shaping our corporate culture defined by our values and purpose. The Board assesses and monitors the Group’s culture through regular interaction with management and other colleagues to ensure that its policies, practices and behaviours are aligned with the Group’s purpose vision, strategy and values.
The Board meets regularly to discuss and agree on the various matters brought before it, including the Group’s trading results. The Board is well supported by the Group’s Operations Board (details of which are provided below) and a broader senior management team, who collectively have the qualifications and experience necessary for the day to day running of the Group.
There is a formal schedule of matters reserved for the Board, which include approval of the Group’s strategy, annual budgets and business plans, acquisitions, disposals, business development, annual reports and interim statements, plus any significant financing and capital expenditure plans. As part of this schedule, the Board has clearly laid out levels of devolved decision making authority to the Group’s Operations Board.
Board Composition and Division of Responsibilities
Board of Directors
There were several changes to the Board during the year ended 30 June 2020. George Elliott stepped down as Chairman of the Board at the Company’s AGM on 12 November 2019. In the period from 13 November to 31 December 2019, our Senior Independent Director, Ronald Verni, was interim Chairman. William Whitehorn joined the Board as Chairman on 1 January 2020. Alistair Erskine and David Kemp were appointed as non-executive directors of the Company on 24 February 2020 and on 1 March 2020 respectively.
Therefore, in the period 1 March 2020 to 30 June 2020 the Company’s Board comprised of: its Chairman, William Whitehorn; two executive Directors: Keith Neilson, Chief Executive Officer; and Craig Preston, Chief Financial Officer; along with five further non-executive Directors (each of whom the Board considers to be independent), Ronald Verni (Senior Independent Director), Colleen Blye, Russ Rudish, Alistair Erskine and David Kemp. Detailed biographies of all Directors are contained in the ‘Board of Directors’ section of this website and in the Annual Report for the year ended 30 June 2020.
A summary of the composition of the Board for different periods during the year ended 30 June 2020 is:
|Period||Composition of the Board|
|Chairman (Independent on Appointment)||Executive Directors||Independent Non-executive Directors|
|1 July to 12 November 2019||1||2||3|
|13 November to 31 December 2019||interim||2||3|
|1 January to 23 February 2020||1||2||3|
|24 February to 29 February 2020||1||2||4|
|From 1 March 2020||1||2||5|
It was announced in March 2020, and as noted in the Chairman’s Statement in the Annual Report, that Ronald Verni will not be standing for re-election as a Director of the Company at the upcoming AGM and will be stepping down as Senior Independent Director.
Division of Responsibilities
The Board has established clearly defined and well understood roles for the Chairman of the Company and the Chief Executive Officer. A summary of the responsibilities of these roles is contained in the table below. The Chairman is responsible for the leadership of the Board, ensuring its effectiveness and setting its agenda. Once strategic and financial objectives have been agreed by the Board, it is the Chief Executive Officer’s responsibility to ensure they are delivered upon. To facilitate this, Keith Neilson as CEO chairs the Group’s Operations Board that comprises the Chief Financial Officer and five further members of the Senior Management Team. The day-to-day operation of the Group’s business is managed by this Operations Board, subject to the clearly defined authority limits.
The following table summarises the main responsibilities of the roles of: Chairman, Chief Executive Officer and Senior Independent Director.
|Role||Summary of Responsibilities|
|Chairman||The Chairman leads the Board and is responsible for its overall effectiveness in directing the Company. He promotes a culture of openness and debate, facilitating constructive Board relations and the effective contribution of all Non-Executive Directors, and ensures that the Board receive accurate, timely and clear information.|
|Chief Executive Officer||The Chief Executive Officer (CEO) ensures that the strategic and financial objectives, as agreed by the Board, are delivered upon. To facilitate this, the CEO chairs the Group’s Operations Board which manages, subject to the clearly defined authority limits, the day-to-day operation of the Group’s business.|
|Senior Independent Director||The Senior Independent Director provides a sounding board for the Chairman as well as providing an additional channel of contact for shareholders, other Directors or employees, if the need arises.|
William Whitehorn was appointed Chairman of the Board on 1 January 2020 and was independent on appointment, in accordance with Provisions 9 and 10 of the Code.
In the period from 1 July to 12 November 2019, George Elliott was Chairman of the Board, having served as a Director in that role since August 2007, shortly before the Company listed on the AIM market. At that time the then Board satisfied themselves that George was independent, fulfilling the requirements of the Code. As noted above, George did not stand for re-election as a Director of the Company at the AGM in 2019 and stepped down as Chairman on 12 November 2019.
The Board has appointed Ronald Verni as Senior Independent Director. In this role, Ronald provides a sounding board for the Chairman as well as providing an additional channel of contact for shareholders, other Directors or employees, if the need arises.
In addition to matters outlined above, there is regular communication between executive and non-executive Directors, including where appropriate, updates on matters requiring attention prior to the next Board meeting. The non-executive Directors meet, as appropriate but no less than annually, without executive Directors being present and further meet annually without the Chairman present.
The Composition of the Board
The composition of the Board has been designed to give a good mix and balance of different skill sets, including significant experience in:
- high growth companies;
- software and healthcare sectors;
- entrepreneurial cultures;
- senior financial reporting;
- both UK and US companies;
- acquisitions; and
- other listed companies.
The Board has been enhanced during the year with the appointments of three new directors, as explained above. Through this mix of experience, the Board and the individual Directors are well positioned to set the strategic aims of the Company as well as drive the Group’s values and standards throughout the organisation, whilst remaining focused on their obligations to shareholders and meeting their statutory obligations.
The Board reviews on an annual basis the independence of each non-executive Director. In making this assessment, in addition to considering Provision 10 of the Code, the Board determines whether the Director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the Director’s judgement.
Ronald Verni, having been appointed on 1 May 2009, has completed his eleventh year of service on the Board this year. The Board in making its assessment of independence has noted the significant growth and changes in the Company during this period, this combined with Ronald’s conduct has led the Board to conclude his length of tenure has not affected his independence. As stated in the annual report for 2019, following George Elliott’s decision not to stand for re-election as a Director of the Company at the 2019 AGM, the Board reviewed the appointment of Ronald Verni and concluded that his continued appointment is both beneficial and appropriate, allowing for an appropriate period of succession to the new Board members and does not present any issues regarding independence. Ronald has decided not to seek re-election as a Director of the Company at the AGM to be held in November 2020.
In regards to all of the other non-executive directors, the Board has not identified any matters that would affect their independence. Throughout the year ended 30 June 2020, a least half the Board, excluding the Chair, were non-executive directors whom the Board considers to be independent.
The Board has established an Audit Committee and a Remuneration Committee, details of which are provided below. The Board does not have a separate Nomination Committee as the Company has incorporated this function within the remit of the entire Board. Although not in compliance with Provision 17 of the Code, the Board considers this to be an appropriate arrangement in view of the size of the Group.
Attendance of Directors at Board and Committee meetings convened in the year, along with the number of meetings that they were invited to attend, are set out below:
|Board||Remuneration Committee||Audit Committee|
|No. Meetings in year||10||2||2|
|C T Preston||10/10||–||–|
|G R Elliott*||3/3||–||–|
*for those directors that were appointed to / stepped down from the Board during the year, the number of meetings attended is with reference to those held from / until their date of appointment / resignation.
Where any Director has been unable to attend Board or Committee meetings during the year, their input has been provided to the Company Secretary ahead of the meeting. The relevant Chairman then provides a detailed briefing along with the minutes of the meeting following its conclusion.
As detailed in the Directors’ Report section within the Annual Report, the Company maintains appropriate insurance cover against legal action brought against Directors and officers. The Company has further indemnified all Directors or other officers against liability incurred by them in the execution or discharge of their duties or exercise of their powers.
Board Appointments and Evaluation
Appointments to the Board
When a new appointment to the Board is to be made, consideration is given to the particular skills, knowledge and experience that a potential new member could add to the existing Board composition. A formal process is then undertaken, usually involving external recruitment agencies, with appropriate consideration being given, in regards to executive appointments, to internal and external candidates. Before undertaking the appointment of a non-executive Director, the Board establishes that the prospective Director can give the time and commitment necessary to fulfil their duties, in terms of availability both to prepare for and attend meetings and to discuss matters at other times. This includes, prior to appointment, significant existing commitments being disclosed and assessed along with an indication of time commitment involved.
There were three new appointments to the Board in the year ended 30 June 2020, as explained above. External search consultancies were engaged by the Board in respect of the formal process to identify potential candidates for these positions. The search consultancies engaged were: FWB Park Brown; and WittKieffer. These external search consultancies have no other connection with the Company or with individual directors.
Any conflicts, or potential conflicts, of interest are disclosed and assessed prior to a new Director’s appointment to ensure that there are no matters which would prevent that person from accepting the appointment. The Group has procedures in place for managing conflicts of interest and Directors have continuing obligations to update the Board on any changes to these conflicts. This process includes relevant disclosure at the beginning of each Board meeting. If any potential conflict of interest arises, the Articles of Association permit the Board to authorise the conflict, subject to such conditions or limitations as the Board may determine.
The Group is supportive of and recognises the importance of diversity, including gender, ethnicity, nationality, skills and experience. This is evident from the diverse, inclusive and breadth and depth of skills and experience within the Craneware team. While not in favour of setting specific targets, in the event that a Board position is required to be filled, during succession planning, the Board aims to ensure that the search process is sufficiently inclusive to encourage applications from diverse candidates with relevant skills, experience and knowledge, and that the selection process is fair and transparent.
Across the Group, the team comprises 40% female and 60% male employees. At Operations Board plus vice president level, the composition is approximately 41% female and 59% male.
All Directors recognise the need to allocate sufficient time to the Company for them to be able to meet their responsibilities as Board members. All non-executive Directors’ contracts include minimum time commitments; however, these are recognised to be the minimums.
Details of the other directorships held by each Board member are provided in the Directors’ biographies in the ‘Board of Directors’ section of this website and in the Annual Report. The Board has evaluated the time commitments required by these other roles and does not believe it affects their ability to perform their duties with the Company. No executive Director currently holds any other directorship of a listed company. The non-executive Director contracts are available for inspection at the Company’s registered office and are made available for inspection both before and during the Company’s Annual General Meeting.
During the year, the Board has successfully seen the succession of the Chair and the appointment of two new non-executive directors prior to Ronald Verni stepping down at the upcoming AGM. Succession plans are in place for the senior management talent pipeline which are re-visited and reviewed with the Board as appropriate. The Board takes an active interest in the quality and development of talent and capabilities within Craneware, ensuring that appropriate opportunities are in place to develop high-performing individuals.
The Chairman is responsible for ensuring that all the Directors continually update their skills, their knowledge and familiarity with the Group in order to fulfil their role on the Board and the Board’s Committees. Updates dealing with changes in legislation and regulation relevant to the Group’s business are provided to the Board by the Company Secretary/Chief Financial Officer and through the Board Committees.
All Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for advising the Board on all governance matters, ensuring that Board procedures are properly complied with and that discussions and decisions are appropriately minuted. Directors may seek independent professional advice at the Company’s expense in furtherance of their duties as Directors. The Board ensures that the Audit and Remuneration Committees are provided with sufficient resources to undertake their duties.
Training in matters relevant to their role on the Board is available to all Directors. New Directors are provided with an induction in order to introduce them to the operations and management of the business.
Information and Support
In setting the Board agendas, the Chairman, in conjunction with the Company Secretary, ensures input is gathered from all Directors on matters that should be included. Board papers are then issued in advance of meetings to ensure Board members have appropriate detail in regards to matters that will be covered, thereby encouraging openness and healthy debate. At a minimum, these board papers include the financial results of the Group and a report from both the Chief Executive Officer and the Chief Financial Officer.
In addition, the non-executive Directors will normally meet periodically with the Group’s Operations Board on an informal basis. This provides all Directors with direct access to the senior management of the Group and allows for better understanding of how the strategy set by the Board is being implemented across the Group.
With the changes to the Board part way through the year, a Board evaluation process was not conducted in the year ended 30 June 2020 but it is planned to conduct a Board evaluation process in the financial year ending 30 June 2021, after the recently appointed Directors have served for at least 12 months. The Board has therefore not complied with Provision 21 of the Code during the year ended 30 June 2020.
The Board will continue to consider the Code’s recommendation that the evaluation of the Board be carried out with an external evaluator at least every three years, however, at present, remains of the opinion that with the current size of the Board this is not required.
The Board last performed a full formal evaluation in the year ended 30 June 2018. This was performed by means of a detailed questionnaire completed by each Director. This evaluation included a review of the performance of the Chairman and the Board Committees. The results of the process were collated by the Senior Independent Director and were reviewed by the Board as a whole. As explained in 2019 annual report, overall the Board concluded that its performance in the period under review had been satisfactory, however it did identify that adding further non-executive experience could complement the current Board. The Board implemented these recommendations in the year ended 30 June 2020.
Under the Company’s Articles of Association, at every Annual General Meeting (‘AGM’), at least one-third of the Directors who are subject to retirement by rotation, are required to retire and may be proposed for re-election. In addition, any Director who was last appointed or re-appointed three years or more prior to the AGM is required to retire from office and may be proposed for re-election. Such a retirement will count in obtaining the number required to retire at the AGM. New Directors, who were not appointed at the previous AGM, automatically retire at their first AGM and, if eligible, can seek re-appointment.
However, the Board recognises the Code’s recommendation that all Directors should stand for re-election every year, and whilst not a requirement, the Board has decided to adopt this recommendation as best practice. As such, all Directors will retire from office at the Company’s forthcoming AGM. It is the intention of all Directors, apart from Ronald Verni as explained above, to stand for re-appointment.
Dialogue with Shareholders
The Company engages in full and open communication with both institutional and private investors and responds promptly to all queries received. In conjunction with the Company’s brokers and other financial advisors all relevant news is distributed in a timely fashion through appropriate channels to ensure shareholders are able to access material information on the Company’s progress.
To facilitate this:
- All shareholders are usually invited to attend the AGM and are encouraged to take the opportunity to ask questions. Unfortunately, different arrangements are having to be made for the AGM in November 2020, due to the current public health guidelines in relation to COVID-19; and consideration for the safety and well-being of our shareholders, the Directors and employees of the Company. This is explained within the Annual Report.
- The primary point of contact for shareholders on operational matters are Keith Neilson as Chief Executive Officer and Craig Preston as Chief Financial Officer.
- The primary point of contact for shareholders on corporate governance and other related matters is Will Whitehorn as Chairman. Ronald Verni as Senior Independent Director is available as a point of contact should a shareholder not wish to contact the Chairman for any reason.
- The Board welcomes regular engagement with major shareholders to understand their views on governance and performance against our stated strategy.
- The Chairman ensures that the Board as a whole has a clear understanding of the views of shareholders.
Keith Neilson and Craig Preston meet regularly with shareholders, normally immediately following the Company’s half year and full year financial results announcements, to discuss the Group’s performance and answer any questions. The Board monitors the success of these meetings through anonymous evaluations from both shareholders and analysts performed by the Company’s Broker and Financial PR advisor.
On 6 November 2018, the Company held a Capital Markets Day in London for institutional investors and analysts. This provided an insight into Craneware’s Trisus products, including Trisus Healthcare Intelligence. In addition, the presentations discussed the evolution of the US healthcare market. All of the Directors of the Company attended the Capital Markets Day. The presentation slides from the Capital Markets Day can be viewed on the Company’s website within the ‘Financial Reports’ section.
The Company’s website has a section for investors that contains all publicly available financial information and news on the Company.
Details of the Company’s share capital and substantial shareholders are contained in the Directors’ Report within the Annual Report.
Constructive Use of General Meetings
The Board normally encourages attendance at its Annual General Meeting (‘AGM’) from all shareholders. The Notice of AGM together with all resolutions and explanations of these resolutions are sent at least 20 working days before the meeting. The Company proposes separate resolutions for each substantially separate issue and specifically relating to the report and accounts. All Directors, where possible, make themselves available to answer any questions shareholders may have. Results of all votes on resolutions are published as soon as practicable on the Company’s website.
Update to the 2019 AGM
Following the AGM that was held on 12 November 2019, the Company announced that all resolutions were passed and a majority of over 71% of the proxy votes received were ‘for’ each of the resolutions proposed at the AGM however there were three resolutions (numbers 3, 6 and 9) that had received a number of proxy votes ‘against’. As stated following the conclusion of the AGM in November 2019, the Board committed to consult with the Company’s shareholders to more fully understand the reasons for those votes against and to carefully reflect on the feedback received.
As reported within the Company’s interim results announcement on 3 March 2020, the Board understood that the voting in relation to resolution 6 (re-appointment of Colleen Blye as a director of the Company) and resolution 9 (re-appointment of PricewaterhouseCoopers LLP as auditors) was specifically in relation to perceived threats to auditor independence, primarily due to the level of non-audit fees as compared to the level of the audit fees. The votes against Ms. Blye being as chair of the Audit Committee. The level of non-audit fees was the result of the volume of tax compliance work relating to US State filings with each individual filing attaching to a low individual fee. Whilst the Board did not believe this in any way impaired the auditors’ independence, we have noted the views of our shareholders and in the year ended 30 June 2020 a different tax advisor has been engaged to assist with this compliance work. We also note that PricewaterhouseCoopers LLP have, as part of their independence requirements, rotated and appointed a new lead audit partner for the audit of the Group and the Company’s financial statements for the year ended 30 June 2020 with the previous partner having completed his five year cycle.
The Board understands that the voting in relation to resolution 3 (re-appointment of Ronald Verni as a director of the Company) related to Mr Verni having served on the Board for over 9 years and, whilst the Board had deemed him independent through his actions, this was not in keeping with the UK Corporate Governance Code. As a result, the ratio of Independent Non-executives to executives on the Board was not in keeping with the Code’s requirements. Mr Verni has decided not to seek re-election at the Company’s next AGM and, as announced on 24 February 2020, the Board has appointed two further independent non-executive directors to the Board. Mr Verni is working with these new directors and the rest of the Board throughout this transition period.
The Board has decided to utilise alternative workforce engagement mechanisms, instead of the suggested workforce engagement mechanisms in the 2018 Code (i.e. a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director). Craneware has established an Employee Advisory Committee and utilises the results and feedback received from the annonymous annual engagement survey, which has a high response rate, as well as the other engagement mechanisms outlined in the Stakeholder Engagement section and in the Directors’ Report within the Annual Report for the year ended 30 June 2020. The Board considers these employee engagement mechanisms to be appropriate at this time, in view of the size of the Group, but will keep these engagement mechanisms under review.
Engagement with other key stakeholder groups
The Stakeholder Engagement section and the Directors’ Report within the Annual Report for the year ended 30 June 2020 contains an overview of the engagement with other key stakeholder groups including: customers and the community.
Audit, Risk and Internal Control
Audit Committee and Auditors
An Audit Committee has been established to assist the Board with the discharge of its responsibilities in relation to internal and external audits and controls. The Audit Committee will normally meet at least twice a year. The Audit Committee is chaired by Colleen Blye and its other members are Ronald Verni and Russ Rudish. The Chief Financial Officer, Chief Executive Officer and other senior management attend meetings by invitation and the Committee also meets the external auditors without management present. Colleen Blye, as chair of the Audit Committee, has recent and relevant financial experience and the Audit Committee as a whole has significant experience and competence in healthcare and software sectors.
The terms of reference of the Audit Committee are available here and at the Company’s registered office. Details of how the Audit Committee has discharged its responsibilities are provided below.
Financial and Business Reporting
The Board recognises its responsibilities, including those statutory responsibilities laid out in the ‘Statement of Directors’ Responsibilities’ section of the Directors’ Report contained in the Annual Report (which can be viewed and downloaded from the ‘Financial Reports’ area of this website). An assessment of the Group’s market, business model and performance is presented in the Chairman’s Statement and the Strategic Report sections of the Annual Report.
As detailed in the Directors’ Report within the Annual Report, the Board has confirmed that it is appropriate to adopt the going concern basis in preparing the consolidated and Company financial statements for the year ended 30 June 2020. The Board has explained within the Viability Statement section of the Strategic Report within the Annual Report for the year ended 30 June 2020 that it has assessed the prospects of the Company and the Group, taking into account the Group and the Company’s current position and principal risks.
Risk Management and Internal Control
Details of the principal risks and uncertainties and emerging risks facing the Group are detailed in the Strategic Report section within the Annual Report. The principal financial risks are detailed in Note 3 to the financial statements.
The Directors recognise their responsibility for the Group’s system of internal control and have established systems to ensure that an appropriate and reasonable level of oversight and control is provided. These systems, which cover all material controls, including financial, operational and compliance controls are reviewed for effectiveness annually by the Audit Committee and the Board. The Group’s systems of internal control are designed to help the Group meet its business objectives by appropriately managing, rather than eliminating, the risks to those objectives. The controls can only provide reasonable, not absolute, assurance against material misstatement or loss.
The Directors have carried out a robust assessment of the principal and emerging risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity. The Group maintains its internal risk register that forms the foundation of the Board and the Audit Committee review process. Executive Directors and senior management meet to review both the risks facing the business and the controls established to minimise those risks and their effectiveness in operation on an ongoing basis. The aim of these reviews is to provide reasonable assurance that material risks and problems are identified and appropriate action taken at an early stage.
The implications of the COVID-19 pandemic have more recently been at the forefront of the risk management process and while there remains a level of uncertainty, management has been considering and evaluating the risk to the Group’s people, customers, business and operations and putting in place mitigation wherever possible.
The risk review is exercised through the monthly management reports and Operations Board meetings and, due to the importance of this topic, a sub-committee of the Operations Board has been formed (the Risk and Compliance Committee, chaired by the Chief Financial Officer) to ensure there is specific focus on risk review and risk management. For each risk identified the control strategy and who is accountable for discharging that strategy is identified and documented in the meeting minutes. During monthly Operations Board meetings, material emerging risks are reviewed with discussion concerning actions to reduce or monitor Group exposure. In this way, risks are reviewed and updated monthly. The Group also has a Security Council, chaired by the Chief Information Officer, which meets weekly and reports into the Risk and Compliance Committee. The purpose of the Security Council is to assess current technology risks, approval and implementation of mitigation plans and to inform the Chief Information Officer and the Chief Technology Officer of future strategy around this key business area.
During the year ended 30 June 2020 the Risk and Compliance Committee (chaired by the Chief Financial Officer and joined by the CEO), was given the responsibility of being the COVID-19 response Committee.
The annual financial plan is reviewed and approved by the Board. Financial results, with comparisons to plan and forecast results, are reported on at least a quarterly basis to the Board together with a report on operational achievements, objectives and issues encountered. The quarterly reports are supplemented by interim monthly financial information. Forecasts are updated no less than quarterly in the light of market developments and the underlying performance and expectations. Significant variances from plan are discussed at Board meetings and actions set in place to address them.
Approval levels for authorisation of expenditure are at set levels and cascaded through the management structure with any expenditure in excess of pre-defined levels requiring approval from the executive Directors and selected senior managers.
Measures continue to be taken to review and embed internal controls and risk management procedures into the business processes of the organisation and to deal with areas of improvement which come to the management’s and the Board’s attention. Metrics and quality objectives continue to be actively implemented and monitored as part of a continual improvement programme.
Audit Committee: role, responsibilities and activities during the year
During the year the Audit Committee, operating under its terms of reference (which are available here and at the Company’s registered office), discharged its responsibilities, including reviewing and monitoring:
- interim and annual reports information including consideration of the appropriateness of accounting policies and material assumptions and estimates adopted by management;
- developments in accounting and reporting requirements;
- external auditors’ plan for the year-end audit of the Company and the Group;
- the Committee’s effectiveness;
- the systems of internal control and their effectiveness, reporting and making new recommendations to the Board on the results of the review and receiving regular updates on key risk areas of financial control;
- the requirements or otherwise for an internal audit function;
- the provision of tax compliance services to the Group and, as described above, the decision to engage a new tax advisor instead of PricewaterhouseCoopers LLP;
- the performance and independence of the external auditors concluding, in a recommendation to the Board, on the reappointment of the auditors by shareholders at the Annual General Meeting. The auditors provide annually a letter to the Committee confirming their independence and stating the methods they employ to safeguard their independence;
- the audit and non-audit fees charged by the external auditors; and
- the formal engagement terms entered into with the external auditors.
The Committee and the Board as a whole has considered the impact of COVID-19 on our Group and Company financial statements. It has reviewed the Group’s profitability and liquidity as part of a number of forecast scenarios. As part of this assessment, the Committee has also reviewed the Viability Statement and going concern note (as included within the Annual Report for the year ended 30 June 2020) following which it was agreed that the going concern basis of accounting continues to be an appropriate basis of preparation for the financial statements.
In accordance with its terms of reference, the Committee has reported to the Board as to how it has discharged its responsibilities throughout the year.
Significant matters considered in relation to the financial statements
The following table sets out the significant areas considered by the Committee in relation to the Group’s financial statements for the year ended 30 June 2020:
|Area of judgement or estimate||Matter considered and Role of the Committee|
|Revenue recognition (Group and Company), including compliance with IFRS 15||Revenue and deferred income are significant amounts in the context of the Consolidated Statement of Comprehensive Income and the Group and Company Balance Sheets respectively. The amount of revenue to be recognised and timing of revenue recognition are determined based on the details and terms contained in the contracts with customers. Revenue recognition on non-standard contracts can involve significant judgement and interpretation of both the Group’s policy and the newly adopted IFRS 15.|
|Internally developed intangible assets (Group and Company)||The Group and the Company capitalise development costs when the conditions for capitalisation, as outlined in the principal accounting policies, have been met. Consequently, the Directors are required to continually assess the commercial potential of each product in development and its useful life following launch. There is judgement involved in determining whether or not costs being capitalised meet the definition of intangible assets under IAS 38 Intangible assets. The Committee reviews this area as there is judgement involved in the Directors’ assessment.|
|Impairment assessment||The carrying amount of the Group’s and the Company’s tangible and intangible assets, including goodwill, is considered at each reporting date to determine whether there is any indication that those assets have suffered an impairment loss. The Committee reviews this assessment. 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. There are no impairment losses recognised in the financial statements of the Group in the year ended 30 June 2020. In regards to the Company, during the year the remaining intellectual property in Kestros Ltd reached the end of its useful life with all relevant code being fully integrated into the Trisus software. Additionally, the number of customers using the MiCheckin software is now minimal. Therefore, the directors decided to provide fully against the investment in Kestros Ltd within the financial statements of the Company in the year ended 30 June 2020.|
|Provision for income tax (Group and Company)||The Group is subject to tax in the UK and in the US and this requires the Directors to regularly assess the applicability of its transfer pricing policy relevant to the revenue transactions and costs between companies in the Group.|
The Audit Committee also reviewed and considered other matters during and in respect of the financial year ended 30 June 2020 including management’s assessment of new accounting standards that were not effective for adoption until after 30 June 2020.
The Audit Committee considered and discussed with the rest of the Board whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for stakeholders to assess the Group’s position and performance, business model and strategy.
Internal audit arrangements
The Committee has also reviewed the arrangements in place for internal audit and concluded, due to the current size, complexity and internal control environment of the Company and the Group, that a formal internal audit function was not required. The Audit Committee believes that management is able to derive assurance regarding the adequacy and effectiveness of internal controls and risk management procedures, given the close involvement of the Directors and the senior management on a day to day basis, without the need for an internal audit function.
In view of the importance of the procedures, security, regulation and controls around Craneware’s solutions and customer data, the focus for other assurance activities for the Group is in respect of those areas. During the financial year ended 30 June 2020, Craneware achieved HITRUST CSF Certification for all of its Trisus and InSight solutions, as well as associated operational processes. This involved an external, validated audit of Craneware’s security and data privacy practices. Health Information Trust Alliance (‘HITRUST’ Alliance) is a collaboration with healthcare, technology and information security organisation which develops, maintains and provides broad access to its widely adopted common risk and compliance management and de-identification frameworks; related assessment and assurance methodologies; and initiatives advancing cyber sharing, analysis and resilience. HITRUST has established a ‘common security framework’ (CSF) to address the multitude of security, privacy and regulatory challenges facing organisations. The scope of the HITRUST CSF’s requirements is wide and requires a very high standard of data security arrangements as these have been set in the context of the accreditation being relevant to US healthcare providers with handling sensitive data (Protected Health Information) and impacts in some way all areas of the business (at least in respect of the required enhancement to the Group-wide IT and data security policies).
The Audit Committee will continue to monitor whether there is a requirement for an internal audit function and will report accordingly to the Board.
Under its terms of reference, the Audit Committee is responsible for monitoring the independence, objectivity and performance of the external auditors, and for making a recommendation to the Board regarding the appointment of external auditors on an annual basis. The Group’s external auditors, PricewaterhouseCoopers LLP, were first appointed as external auditors of the Company for the year ended 30 June 2003.
Each year PricewaterhouseCoopers LLP prepares and presents their audit plan to the Audit Committee for the audit of the full year financial statements. The audit plan identifies what the external auditors consider to be the key audit risks, the planned scope of work, the audit timetable and also details of how they have assessed their independence to be able to undertake the audit work. As part of ensuring independence, the audit partner within PricewaterhouseCoopers LLP is required to rotate every five years and, accordingly, Kenneth Wilson stepped down following the audit of the financial statements for the year ended 30 June 2019 and was replaced by a new audit partner, Lindsay Gardiner. This audit plan is reviewed, along with the Committee’s assessment of auditor independence, and is agreed in advance by the Audit Committee. Having considered the planning work carried out and the results of the audit of the Group and Company financial statements for the year ended 30 June 2020, the Committee was satisfied that the approach adopted was robust and appropriate and that their independence and objectivity could be relied upon.
Non-audit services provided by the external auditors
The Audit Committee has also implemented procedures relating to the provision of non-audit services by the Company’s auditors, which include non-audit work and any related fees over and above a de-minimis level to be approved in advance by the Chairman of the Audit Committee. The policy in respect of services provided by the external auditors is set out below:
The external auditors may be appointed to provide non-audit services where it is in the Group’s best interests to do so, provided a number of criteria are met. These are that the external auditor does not:
- Audit their own work;
- Make management decisions for the Group;
- Create a conflict of interest;
- Find themselves in the role of an advocate for the Group.
Therefore, during the year ended 30 June 2020, the Company’s auditors have not provided the Group or the Company with any non-audit work. Details of the fees paid to the auditors for audit and non-audit services are shown in Note 6 to the financial statements.
The Group is committed to conducting its business with honesty and integrity and it is expected that these high standards be maintained throughout the organisation. As an element of providing a supportive and open culture within the organisation, the Group has a Whistleblowing Policy and associated annual training. This Policy includes arrangements by which employees, consultants or contractors may, in confidence and also anonymously should they wish, raise concerns regarding possible improprieties in matters of financial reporting or other matters. These concerns would then be investigated and followed up appropriately. The Board has provision to review these arrangements and any reports arising from their operation.
The Company has established a Remuneration Committee to assist the Board in this area. This Committee comprises non-executive Directors and is chaired by Ronald Verni and its other members are Colleen Blye and Russ Rudish. When appropriate Keith Neilson, as Chief Executive Officer, is invited to attend meetings (except where matters under review by the Committee relate to him).
The Committee has responsibility for making recommendations to the Board on the remuneration packages of the executive Directors, the remuneration of the Chairman of the Board and setting the level and structure of remuneration for senior management, this includes:
- making recommendations to the Board on the Company’s policy on Directors’ and senior management remuneration, and to oversee long-term incentive plans (including share option schemes);
- ensuring remuneration is both appropriate to the level of responsibility and adequate to attract and/or retain Directors and staff of the calibre required by the Company; and
- ensuring that remuneration is in line with current industry practice.
The Committee has presented its Remuneration Report within the Group’s Annual Report, which details the work undertaken operating under its terms of reference (which are available on the Company’s website here and at the Company’s registered office) to discharge its responsibilities. The Remuneration Committee’s Report also explains the Board’s compliance with provisions 32 to 41 of the Code.
AIM Rule Compliance Report
Craneware plc is quoted on AIM and as a result the Company has complied with AIM Rule 31 which requires the Company to:
- have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
- seek advice from its Nominated Advisor (“Nomad”) regarding its compliance with the AIM Rules whenever appropriate and take that advice into account;
- provide the Company’s Nomad with any information it reasonably requests in order for the Nomad to carry out its responsibilities under the AIM Rules for Nominated Advisors, including any proposed changes to the Board and provision of draft notifications in advance;
- ensure that each of the Company’s Directors accepts full responsibility, collectively and individually, for compliance with the AIM Rules; and
- ensure that each Director discloses without delay all information which the Company needs in order to comply with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known to the Director or could with reasonable diligence be ascertained by the Director.
In addition, Craneware plc maintains compliance with AIM Rule 26, which specifies a list of information that the Company is required to make publicly available. AIM Rule 26 also requires the Company to adopt a corporate governance code and the Company has chosen the UK Corporate Governance Code 2018, against which the Directors are responsible for reporting the Company’s compliance as set out above.
Approved by the Board of Directors and signed on behalf of the Board by:
18 September 2020