Craneware plc
("Craneware", "the Group" or the "Company")
Final Results
4 September 2018 - Craneware (AIM: CRW.L), the market leader in Value Cycle solutions for the US healthcare market, announces its audited results for the year ended 30 June 2018.
Financial Highlights (US dollars)
· Revenue increased 16% to $67.1m (FY17: $57.8m)
· Adjusted EBITDA1. increased 20% to $21.6m (FY17: $18.0m)
· Profit before tax increased 12% to $18.9m (FY17: $16.9m)
· Basic adjusted EPS2. increased 17% to $0.602 (FY17: $0.514) and adjusted diluted EPS increased to $0.591 (FY17: $0.503)
· Total visible revenue increased 20% to $192.9m (FY17 same 3 year period: $160.7m)
· Continued operating cash conversion above 100% of Adjusted EBITDA
· Renewal rate remains above 100% by dollar value
· Cash at year-end of $52.8m (FY17: $53.2m) after having returned $23.2m to shareholders via a share buyback and dividends, while also investing $4.2m in the Employee Benefit Trust
· Proposed final dividend of 14.0p (18.48 cents) (FY17: 11.3p, 14.71 cents) per share giving a total dividend for the year of 24.0p (36.68 cents) (FY17: 20.0p, 26.04 cents) per share
1. Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation and share based payments.
2. Adjusted Earnings per share calculations allow for the tax adjusted acquisition costs and share related transactions together with amortisation on acquired intangible assets.
Operational Highlights
· Over 100% increase in new sales in the year, including five significant contracts wins or contract extensions
· 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 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 Craneware Healthcare Intelligence software, the next Trisus software release
Outlook
· Record sales pipeline for the current financial year
· Board confident in outlook for the year and beyond
Keith Neilson, CEO of Craneware plc commented, "While the past year has been outstanding in terms of financial results and operational progress, this is by no means the end of the journey and we are excited by the far greater opportunity that lies ahead. It is clear that the investments we have made into the organisation's design, people and products are delivering excellent results, and we will continue to invest in our people and business to ensure we have the capabilities to succeed. We believe that the breadth of our customer base and the quantity of data within our solutions means we have the opportunity to sit at the heart of the move to value-based economics; collating and analysing the information that will support hospital-wide decision making and ultimately have a positive impact on the quality of healthcare.
"With an ongoing, growing market opportunity, a record sales pipeline and increasing long-term revenue visibility, we enter the new financial year with great confidence for the future and the ongoing success of the business."
For further information, please contact:
| Craneware plc | +44 (0)131 550 3100 |
| Keith Neilson, CEO / Craig Preston, CFO |
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| Peel Hunt (NOMAD and Joint Broker) | +44 (0)20 7418 8900 |
| Dan Webster/ George Sellar |
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| Investec Bank (Joint Broker) | +44 (0) 20 7597 5970 |
| Patrick Robb/ Sebastian Lawrence/ Henry Reast |
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| Alma (Financial PR) | +44 (0)208 004 4217 |
| Caroline Forde/ Robyn Fisher/ Josh Royston |
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About Craneware
Craneware enables healthcare providers to improve margins and enhance patient outcomes so they can continue to provide quality outcomes for all.
Craneware is the leader in automated Value Cycle solutions that help US Healthcare provider organisations discover, convert and optimise assets to achieve best clinical outcomes and financial performance. Founded in 1999, Craneware is headquartered in Edinburgh, Scotland with offices in Atlanta and Pittsburgh employing over 320 staff. Craneware's market-driven, SaaS solutions normalise disparate data sets, bringing in up-to-date regulatory and financial compliance data to deliver value at the points where clinical and operational data transform into financial transactions, creating actionable insights that enable informed tactical and strategic decisions. To learn more, visit craneware.com and thevaluecycle.com.
Learn more at www.craneware.com.
Chairman's Statement
I am delighted to report on another outstanding trading performance by the Group, with underlying new sales increasing by over 100%. Growth is being driven by the investments we have made into the business across our operations, people and product suite, and the supportive market environment. We now have the right structure and capabilities to capitalise on what we believe to be a significant, long-term growth opportunity supporting the movement of the US healthcare industry towards value-based care.
This enhanced positioning can be seen in the financial metrics. Revenue increased 16% to $67.1m (FY17: $57.8m) and adjusted EBITDA increased 20% to $21.6m (FY17: $18.0m). It is particularly pleasing to note the continued strong cash conversion of the Group, demonstrating the high quality of our earnings. The Group had cash reserves at the end of the year of $52.8m, a return to the level seen at the end of the previous financial year (FY17: $53.2m), after having returned $23.2m to shareholders via a share buyback and dividends, while also investing a further $4.2m in the Employee Benefit Trust during the year.
Sales in the year amounted to $98.6m (FY17: $54.0m) of which $71.3m and $27.3m were new sales and renewals, respectively (FY17: $35.4m and $18.6m respectively). The continued sales success, combined with renewals remaining above 100% (by dollar value), has once again delivered very high levels of revenue visibility that supports our continued future growth.
It is clear that Craneware has an exciting opportunity in front of it, supporting healthcare providers in the transition to value-based care. In an era of increasing scrutiny and the need to drive value in healthcare, the insight our suite of products provides will be crucial in ensuring our customers' long-term financial health and their ability to deliver better clinical outcomes for all their communities. As Craneware approaches its twentieth anniversary as a business, the data that the software has collected and the strong relationships we have forged with our customers, mean we are in a unique position to provide genuine insight into the economics of healthcare provision. Our mission is to identify and build solutions that will enable our customers to unlock the value of that data so that they can thrive in a new value-based environment, delivering better outcomes for all their patients, staff and stakeholders.
The strong progress within the business can be seen in the successful initial sales of the first Trisus product, which sits upon our newly launched cloud-based platform, the exciting results being delivered by our trial analytics customers and the expansion of our customer base. We now supply one or more of our solutions to a third of all US hospitals, with a strong pipeline of additional opportunities.
Alongside technology innovation and organic growth strategies, we continue to monitor potential acquisitions and with our healthy cash balance and a $50m funding facility in place, we have the resources to execute upon our strategic vision should an appropriate acquisition target arise. Strict criteria continue to be applied to potential acquisition targets ensuring that they would enhance our hospital footprint, data sets or our product roadmap so that they are quickly accretive to both the financial and operational strength of the Group.
As we enter the new financial year, we remain positive that the business environment in the US will continue to be supportive of Craneware, given our unique ability to support our customers. Our expanded market opportunity, double digit growth rates, record sales pipeline and increasing long-term revenue visibility provide the Board with confidence in achieving a successful outcome to the current year and beyond.
I would like to thank all our employees across the UK and US for their continued dedication and passion for our customers. They are the backbone on which the success of the Company has been formed, and grown. Twenty years ago, Craneware was a small group of people with a big vision - a notion that they could deliver a solution that would positively influence the United States healthcare market. Today, there are more than 320 of us serving a third of US hospitals and health systems, with a financial impact of over a quarter of a trillion dollars. Each year, approximately 200 million encounters are provided by Craneware customers to their patients. These customers chose Craneware to help them grow and protect their future vision, their legacy.
As we look to the next twenty years, I am confident we have the right people in place to build Craneware to a significant scale that will deliver on the sizeable opportunity that it has created, to profoundly impact healthcare delivery and improve the value achieved from the vast amount spent on healthcare world-wide.
George Elliott
Chairman
3 September 2018
Strategic Report
Introduction
We have enjoyed another excellent year, with the strong financial results just one proof point of the successful execution of our strategy. Our double-digit revenue and EBITDA growth rates are an indication not only of the success of the investments we have made into people, products and operations, but also the growing urgency now being felt within the US healthcare market to find a means to successfully adapt to the new environment of value-based care and to deliver value for the healthcare spend.
The combination of our significant expertise and experience in the US healthcare industry, the data that our solutions have gathered, and the 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 and make a meaningful impact on the quality of US healthcare.
Market and Strategy
The ongoing evolution of the US healthcare industry towards the provision of value-based care, puts 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 need to drive value in healthcare, and the challenges this brings, provide an ongoing supportive market environment for Craneware due to our ability to help our customers meet these challenges. Recent market developments include the announcement in August by the US Centers for Medicare and Medicaid Services (CMS), the US state and federal healthcare coverage programmes, of the overhaul of the 'meaningful use' programme which includes emphasis on measures that require the exchange of health information between providers and patients, a key capability of our Trisus platform. The new policies aim to bring the US closer to the creation of a patient-centred healthcare system by increasing pricing transparency and fluid information exchange.
Three years ago, we developed the idea of the 'Value Cycle', being the process and culture by which healthcare providers pursue quality patient outcomes and optimal financial performance, through the management of clinical, operational and financial data assets. Craneware's Value Cycle solutions provide the financial insight and actionable data needed to navigate this evolving and unchartered landscape.
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 areas of our product roadmap: the development of our cloud-based Trisus Enterprise Value Platform; the continued evolution and support of our existing market-leading product suite as we migrate to Trisus and the development of new products to sit upon the Trisus Platform including the development of our cost analytics software. All of these solutions will increase our coverage of the key areas of the Value Cycle and therefore increase our addressable market.
Trisus Enterprise Value Platform
In 2017 we launched the Trisus Enterprise Value platform. This cloud-based platform provides 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 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.
Trisus Supply was released in an early adopter version in June 2018. This unique solution aligns data across the supply item master database, the Operating Room supply database, and the chargemaster. Healthcare organisations need revenue preservation, data reliability, and critical analytics to address the ever-growing cost of supplies and medical devices, which when combined with pharmacy are expected to be higher than labour costs by 2020. With Trisus Supply, providers can ensure their high-dollar medical devices and supplies are accounted for, managed, and reimbursed properly increasing both compliance and revenue.
By the end of 2018, we are expecting a generally available version of Trisus Pricing Analyzer, our solution assisting healthcare organisations create transparent, defensible, and competitive pricing strategies. As government regulations begin requiring hospitals to publish their pricing schedules for procedures in 2019, providers will need to ensure their pricing strategies are in-line with their patient demographics and competitive hospitals. Trisus Pricing Analyzer will contain contract modelling tools, which assess all reimbursement methodologies by payor to identify net patient revenue opportunities, which enhance the predictive modelling used to create strategic pricing. This automated solution provides speed and flexibility to adapt to regulatory, payor contract, and market changes throughout the year.
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 regardless of the development origin, including outside of Craneware; elements of the Trisus platform; new Trisus products; and new early adopter Trisus enabled versions of other existing solutions.
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. We have seen many of our existing customers implement the Trisus Bridge over the year, a connector layer linking their existing on premise Craneware solutions to the advanced functionality of Trisus in the cloud. This provides us with confidence in the successful long-term transition of all our products to the cloud platform.
Craneware Healthcare Intelligence
In the second half of the 2016 financial year, Craneware formed a new wholly owned Group company, Craneware Healthcare Intelligence, LLC, to develop Cost Analytics and Resource Efficiency software to the US healthcare industry. This is a vital component within the emerging value cycle solutions market, representing a market opportunity several times larger than that of our existing product portfolio.
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. 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 quality-centric healthcare delivery system that provides true value. Our Healthcare Intelligence 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.
In 2017 we engaged with two hospitals, in Missouri and Pennsylvania, to run trial implementations of the software under the pilot phase of release, combining our Healthcare Intelligence models with live hospital data. Both implementations were successful and have led to multi-year contracts for the solution as well as providing valuable development information as we move towards general release. We have hired team members through the year and now have 15 employees and have plans to increase the team. The Group has hired a dedicated VP of Sales and we expect to see marketing activity increase in the year ahead.
Sales and Marketing
We have seen substantial, positive sales momentum, securing a high level of new sales in the year across all sizes, classes and types of hospital customer. This sales momentum has continued into the new 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.
During the year, sales to both new and existing customers grew in absolute terms, with sales to new hospitals becoming the larger proportion of the overall sales mix, increasing our platform for future sales. Of particular note in the year has been the strength of sales of our Pharmacy ChargeLink solution (PCL), which for the first time in its history was the Company's largest selling product. This is particularly pleasing given the strategic aim in the year to leverage the strength of our customer communities to assist in the development and promotion of our solutions. PCL has been championed by a number of our larger customers particularly as they attempt to understand the growing impact that pharmacy costs have on their organisation, as well as other customers who are in the process of migrating patient accounting systems.
The average length of contracts with new customers continues to be in-line with our historical norms of approximately five years. As with last year, for all other contracts we have anticipated the crossover dates of new product availability on the Trisus platform and the impact for each individual customer contract as part of our migration strategy. It is anticipated that our phased migration of all current products to the Trisus platform will be complete no later than 2021. With the adoption of the Trisus Bridge by the majority of our customer base, we are now able to offer customers a viable and secure method of transitioning to our cloud based platform at a pace that suits them.
At the end of any contract term, we expect to see our renewal rates remain at their current high levels (well above 100% by dollar value), along with additional sales, as customers move to the improvements brought to them by the Trisus platform.
Significant contract wins
Alongside excellent levels of sales to individuals and mid-sized hospital groups, we were delighted to secure five significant contracts during the year, ranging from $3.5m to $16m in value. These included extensions with existing customers to roll out our solutions to newly acquired facilities, network roll outs to new customers following successful trials, new customers carrying out major systems changes and sales of the newly launched Trisus Claims Informatics and Pharmacy ChargeLink. These contracts demonstrate both the relevance of Craneware at an enterprise-wide level and the importance of Craneware Value Cycle solutions to customers that are looking for innovation to help them realise their strategic financial goals as they evolve in a value-based world. Almost the entirety of revenue from these sales will be recognised in future years, adding to our growing visibility of future revenue.
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 customer 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, customer relationships, 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. Areas for consideration will include: competitors who bring market share; businesses with complementary data sources; or international companies with complementary product suites of benefit to our customers, who do not have a foothold in the US.
Financial Review
It is pleasing to report that our double-digit revenue growth has continued for a third successive year and Adjusted EBITDA has accelerated, growing to 20%. Accordingly, we are reporting a growth in revenue of 16% to $67.1m (FY17: $57.8m) and an adjusted EBITDA of $21.6m (FY17: $18.0m).
However, the true success of the year, underlying these results continues to be the contracts we sign with our hospital customers, our "sales". In the year, we have seen significant sales success delivering an increase of over 100% in new sales contracts, signing $71.3m of new total contract value with new and existing customers. At the end of these initial licence periods, or at a mutually agreed earlier date, we renew our licences with our customers, these "renewals" contributed an additional $27.3m to sales in the period. As a result we are reporting the total value of contracts signed in the year of $98.6m (FY17: $54.0m).
As demonstrated by the numbers reported above, and as a result of our business model, "sales" and "revenue" have very different meanings and are not interchangeable. In fact, only a small proportion of the revenue resulting from the sales made in the year is recognised in the current year's reported revenue, instead the vast majority of the associated revenue is recognised in future years, adding to the Group's long-term visibility of future revenue.
New contracts provide a licence for a customer to access specified products throughout their licence period. This licence period on average, for a sale to a new customer, is five years. In calculating averages, we only take the contract length up to the first renewal point/break clause for that specified product. By renewing these contracts when they come to the end of their initial term, we ensure we are sustaining and, with new hospital sales, building our underlying annuity revenue base. It is for this reason, we measure our renewal rates by dollar value. We do this by measuring the 'last annual value' of all customers due to renew in the current year and compare it to actual value these customers renew at (in total), including up-sell and cross-sell. This metric for the current year is at 114%.
Through our business model and resulting revenue recognition, the Group ensures that it is focused on building its underlying annuity revenue base to deliver sustainable growth.
Business Model
Under the Group's 'Annuity SaaS' business model we recognise software licence revenue and any minimum payments due from our 'other route to market' contracts evenly over the life of the underlying signed contracts. As we sign new hospital contracts for an average life of five years, we will see the revenue from any new sales recognised over this underlying contract term.
As well as the incremental licence revenues we generate from each new sale, we normally expect to deliver an associated professional services engagement to assist our customers in embedding the software within their core processes to maximise the value the software can bring to them. This revenue is typically separately identifiable from the licence and is recognised as we deliver the service to the customer, usually on a percentage of completion basis. The nature and scope of these engagements will vary depending on both our customer needs and which of our solutions they have contracted for. However these engagements will always include the implementation of the software as well as training the hospital staff in its use. As a result of the different types of professional services engagement, the period over which we deliver the services and consequently recognise all associated revenue will vary, however we would normally expect to recognise this revenue over the first year of the contract.
In any individual year, we would normally expect around 10% - 20% of revenues reported by the Group to be from services performed.
Sales, Revenue and Revenue Visibility
The table below shows the total value of contracts signed in the relevant years, split between sales of new products (to both new and existing hospital customers) and the value of renewing products with existing customers at the end of their current contract terms, and how these sales have translated into reported revenue in the corresponding year.
| Fiscal Year | 2014 | 2015 | 2016 | 2017 | 2018 |
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| $m | $m | $m | $m | $m |
| Reported Revenue | 42.6 | 44.8 | 49.8 | 57.8 | 67.1 |
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| New Product Sales | 35.1 | 35.9 | 58.6 | 35.4 | 71.3 |
| Renewals* | 35.9 | 37.0 | 23.7 | 18.6 | 27.3 |
| Total Contract Value (TCV) | 71.0 | 72.9 | 82.3 | 54.0 | 98.6 |
*As the Group signs new customer contracts for between three to nine years, the number and value of customers' contracts coming to the end of their term ("renewal") will vary in any one year. This variation along with whether customers auto-renew on a one year basis or renegotiate their contracts for up to a further nine years, will impact the total contract value of renewals in that year
As the majority of the revenue resulting from sales in any one year will be recognised over future years, the financial statements do not fully reflect the valuable 'asset' that is contracted, but not yet recognised, revenue. As such, at every reporting period, the Group presents its "Revenue Visibility". This KPI identifies revenues which we reasonably expect to recognise over the next three year period, based on sales that have already occurred. This "Three Year Visible Revenue" metric includes:
· future revenue under contract
· revenue generated from renewals (calculated at 100% dollar value renewal)
· other recurring revenue
Through this metric we can demonstrate how the underlying annuity base of revenue is building as we sign new multi-year contracts with our customers and at the end of these contracts by, on average, renewing these customers at 100% of dollar value.
The Three Year Revenue Visibility KPI is a forward looking KPI and therefore will always include some judgement. To help assess this, we separately identify different categories of revenue to better reflect any inherent future risk in recognising these revenues. Future revenue under contract, is, as the title suggests, subject to an underlying contract and therefore once invoiced will be recognised in the respective future years (subject to future collection risk that exists with all revenue). Renewal revenues are contracts coming to the end of their original contract term (e.g. five years) and will require their contracts to be renegotiated and renewed for the revenue to be recognised. As this category of revenue is assumed to renew at 100% of dollar value, we consistently monitor and publish this KPI (at each reporting period) to ensure the reasonableness of this assumption. The final category "Other recurring revenue" is revenue that we would expect to recur in the future but is monthly or transactional in its nature and as such there is increased potential for this revenue not to be recognised in future years, when compared to the other categories.
The Group's total visible revenue for the three years as at 30 June 2018 (i.e. visible revenue for FY19, FY20 and FY21) identifies $192.9m of revenue which we reasonably expect to benefit the Group in this next three year period. This visible revenue breaks down as follows:
· future revenue under contract contributing $140.6m of which $59.8m is expected to be recognised in FY19, $46.3m in FY20 and $34.5m in FY21
· revenue generated from renewals contributing $51.7m; being $6.1m in FY19, $16.9m in FY20 and $28.7m in FY21
· other revenue identified as recurring in nature of $0.6m
Gross Margins
Typically, we expect the gross profit margin to be between 90% - 95% reflecting the incremental costs we incur to obtain the underlying contracts. The gross profit for FY18 was $63.7m (FY17: $54.2m) representing a gross margin percentage of 94.9% (FY17: 93.8%) which is towards the top of our historical range. This reflects the correct matching of these incremental costs with the associated revenue being recorded.
Earnings
The Group presents an adjusted earnings figure as a supplement to the IFRS based earnings figures. The Group uses this adjusted measure in our operational and financial decision-making as it excludes certain one-off items, so as to focus on what the Group regards as a more reliable indicator of the underlying operating performance. We believe the use of this measure is consistent with other similar companies and is frequently used by analysts, investors and other interested parties.
Adjusted earnings represent operating profits excluding costs incurred as a result of acquisition and share related activities (if applicable in the year), share related costs including IFRS 2 share based payments charge, depreciation and amortisation ("Adjusted EBITDA").
Adjusted EBITDA has grown in the year to $21.6m (FY17: $18.0m) an increase of 20%. This reflects an Adjusted EBITDA margin of 32.2% (FY17: 31.1%). This is consistent with the Group's continued approach to making investments in line with the revenue growth. The Group also takes opportunities where they exist to accelerate investments in certain areas, such as development (detailed below), to further build for future growth whilst continually managing to ensure the efficiency of the investments we make.
Operating Expenses
The increase in net operating expenses (to Adjusted EBITDA) reflects our policy of investing in line with revenue growth, increasing by 16% to $42.0m (FY17: $36.2m). As detailed in the Operating Review, product innovation and enhancement continues to be core to the Group's future; our customers are facing a market that continues to evolve towards value-based economics and the Group is in a unique position with its Value Cycle strategy to help them meet the challenges these new reimbursement models bring. As such we continue to invest significant resource in this area as we build out the Trisus Platform and the portfolio of products that will be part of this platform.
We continue our Build, Buy or Partner strategy to build out this portfolio of products, recognising 'Build' is often the best way forward. We undertake the development of innovative new products whilst maintaining our current product offerings and ensuring they remain market-leading. As a result of this investment the total cost of development in the year was $17.9m (FY17: $12.3m), a 46% increase which is ahead of our revenue growth and reflective of the opportunities in the market for our products. From this total investment we have capitalised very specific projects relating to the development of the new product offerings ("Build"), which includes our new Trisus products and the Trisus Bridge extension of the Trisus platform, as well as our new cost analytics and Healthcare Intelligence product. With the significant investment into our development and product management teams we have ensured costs relating to expanding and training the new teams are not capitalised. As a result the total amount capitalised in the year was $4.7m (FY17: $3.5m). These capitalised amounts represent further investment in our future and are an efficient and cost effective way to further build out our Value Cycle strategy. We expect to see both the levels of development expense and capitalisation continue at the current trends as we progress with building out this solution set. As specific products are made available to relevant customers, the associated amounts capitalised are charged to the Group's income statement over their estimated useful economic life.
Cash and Bank Facilities
We measure the quality of our earnings through our ability to convert them into operating cash. During the year we have seen continued high levels of cash conversion, achieving over 100% conversion of our adjusted EBITDA into operating cash.
During the year we have returned $23.2m to our shareholders through a share buyback (detailed below) in January of $15.4m and dividends paid in the year of $7.8m. In addition we have provided additional funding to our Employee Benefits Trust of $4.2m. The success of our very high levels of cash conversion has enabled us to return our end of year cash balances to $52.8m, a level equivalent to the prior year balance of $53.2m.
We retain a significant level of cash reserves and balance sheet strength to fund acquisitions as suitable opportunities arise. To supplement these reserves, the Group retains a funding facility from the Bank of Scotland of up to $50m. Whilst no draw down of this facility occurred in the year, the Group continues to investigate strategic opportunities to add to the Value Cycle strategy.
Balance Sheet
The Group maintains a strong balance sheet position. The level of trade and other receivables has decreased in comparison to the prior year. This is a result of the positive levels of cash collection, especially during the last quarter of the year.
Every year as we make sales, we pay out amounts relating to sales commissions; these costs are incremental costs in obtaining the underlying contracts. Total sales commissions are based on the total value of the contract sold; however for the purposes of the Statement of Comprehensive Income, a lower proportion of revenue from the contract value is recognised in the year. As a result we charge an equivalent percentage of the sales commission, thereby properly matching revenue and incremental expense. The resulting prepayment of $7.5m (FY17: $5.9m) is the balance to be charged to the Group's income statement as we recognise the associated revenue. As we only pay the sales commission upon receipt of the first annual payment from the customer, we remain cash flow positive from any new sale.
Deferred income levels reflect the amounts of the revenue under contract that we have invoiced and/or been paid for in the year, but have yet to recognise as revenue. This balance is a subset of the total visible revenue we describe above and reflected through our three year visible revenue metric.
Deferred income, accrued income and the prepayment of sales commissions all arise as a result of our Annuity SaaS business model described above and we will always expect them to be part of our balance sheet. They arise where the cash profile of our contracts does not exactly match how revenue and related expenses are recognised in the Statement of Comprehensive Income. Overall, levels of deferred income are significantly more than accrued income and the prepayment of sales commissions, we therefore remain cash flow positive in regards to how we account for our contracts.
Currency
The functional currency for the Group, and cash reserves, is US dollars. Whilst the majority of our cost base is US-located and therefore US dollar denominated, we have approximately one third of the cost base based in the UK, relating primarily to our UK employees which is therefore denominated in Sterling. As a result, we continue to closely monitor the Sterling to US dollar exchange rate, and where appropriate consider hedging strategies. The average exchange rate throughout the year being $1.3472 as compared to $1.2688 in the prior year.
Taxation
The Group generates profits in both the UK and the US, the overall levels are determined by both the proportion of sales in the year and the level of professional services income recognised. The Group's effective tax rate remains dependent on the applicable tax rates in these respective jurisdictions. In the current year the effective tax rate has seen the benefit of a tax deduction related to share option exercises that occurred in the year reducing the tax charge by $1.4m (FY17: $0.2m) and increased R&D tax relief of $0.3m. This benefit has been reduced by $0.5m as a result of revaluing of the deferred tax asset, originally established for US tax losses as part of the accounting for the FY11 acquisition of Claimtrust Inc., following the change in US Federal Tax rates in January 2018. As such the current year effective tax rate is 17% (FY17: 20%).
EPS
In the year being reported adjusted EPS has seen the benefit of the increased levels of Adjusted EBITDA combined with the lower effective tax rate reported above, offset by an increase in both the amortisation and share based payment charges, and as such has increased 17% to $0.602 (FY17: $0.514) and adjusted diluted EPS has increased to $0.591 (FY17: $0.503).
Dividend
The Board recommends a final dividend of 14p (18.48 cents) per share giving a total dividend for the year of 24p (36.68 cents) per share (FY17: 20p (26.04 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 6 December 2018 to shareholders on the register as at 9 November 2018, with a corresponding ex-Dividend date of 8 November 2018.
The final dividend of 14p per share is capable of being paid in US dollars subject to a shareholder having registered to receive their dividend in US dollars under the Company's Dividend Currency Election, or who register to do so by the close of business on 9 November 2018. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 9 November 2018. The final dividend referred to above in US dollars of 18.48 cents is given as an example only using the Balance Sheet date exchange rate of $1.3198/£1 and may differ from that finally announced.
Outlook
While the past year has been outstanding in terms of financial results and operational progress, this is by no means the end of the journey and we are excited by the far greater opportunity that lies ahead. It is clear that the investments we have made into the organisation's design, people and products are delivering excellent results, and we will continue to invest in our people and business to ensure we have the capabilities to succeed. We believe that the breadth of our customer base and the quantity of data within our solutions means we have the opportunity to sit at the heart of the move to value-based economics; collating and analysing the information that will support hospital-wide decision making and ultimately have a positive impact on the quality of healthcare.
With an ongoing, growing market opportunity, a record sales pipeline and increasing long-term revenue visibility, we enter the new financial year with great confidence for the future and the ongoing success of the business.
| Keith Neilson | Craig Preston |
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2018
|
|
| Total | Total |
|
|
| 2018 | 2017 |
|
| Notes | $'000 | $'000 |
| Continuing operations: |
|
|
|
| Revenue | 3 | 67,067 | 57,796 |
| Cost of sales |
| (3,407) | (3,582) |
| Gross profit |
| 63,660 | 54,214 |
| Operating expenses | 4 | (44,968) | (37,588) |
| Operating profit |
| 18,692 | 16,626 |
|
|
|
|
|
| Analysed as: |
|
|
|
|
|
|
|
|
| Adjusted EBITDA1 |
| 21,611 | 18,002 |
| Share based payments |
| (663) | (283) |
| Depreciation of plant and equipment |
| (578) | (478) |
| Amortisation of intangible assets |
| (1,678) | (615) |
|
|
|
|
|
| Finance income |
| 241 | 258 |
| Profit before taxation |
| 18,933 | 16,884 |
| Tax on profit on ordinary activities | 5 | (3,136) | (3,359) |
| Profit for the year attributable to owners of the parent |
| 15,797 | 13,525 |
| Other comprehensive (expense) / income |
|
|
|
| Items that may be reclassified subsequently to profit or loss |
|
|
|
| Currency Translation movement |
| (10) | 40 |
| Total items that may be reclassified subsequently to profit or loss |
| (10) | 40 |
| Total comprehensive income attributable to owners of the parent |
| 15,787 | 13,565 |
|
|
|
|
|
1. Adjusted EBITDA is defined as operating profit before share based payments, depreciation and amortisation
Earnings per share for the year attributable to equity holders
|
| Notes | 2018 | 2017 |
| Basic ($ per share) | 7a | 0.590 | 0.502 |
| *Adjusted Basic ($ per share) | 7a | 0.602 | 0.514 |
|
|
|
|
|
| Diluted ($ per share) | 7b | 0.579 | 0.491 |
| *Adjusted Diluted ($ per share) | 7b | 0.591 | 0.503 |
* Adjusted Earnings per share calculations allow for the tax adjusted acquisition costs and share related transactions (if applicable in the year) together with amortisation on acquired intangible assets.
Statement of Changes in Equity for the year ended 30 June 2018
|
|
| Share | Capital |
|
|
|
|
| Share | Premium | Redemption | Other | Retained | Total |
|
| Capital | Account | Reserve | Reserves | Earnings | Equity |
|
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| At 1 July 2016 | 536 | 17,451 | - | 555 | 34,266 | 52,808 |
| Total comprehensive income - profit for the year | - | - | - | - | 13,525 | 13,525 |
| Total other comprehensive income | - | - | - | - | 40 | 40 |
| Transactions with owners: |
|
|
|
|
|
|
| Company shares acquired by employee benefit trust | - | - |
- | - | (3,083) | (3,083) |
| Share-based payments | - | - | - | 519 | 1,078 | 1,597 |
| Impact of share options exercised/lapsed | 1 | 523 |
- | (116) | 416 | 824 |
| Dividends (Note 6) | - | - | - | - | (6,356) | (6,356) |
| At 30 June 2017 | 537 | 17,974 | - | 958 | 39,886 | 59,355 |
| Total comprehensive income - profit for the year |
|
|
|
|
|
|
| Total other comprehensive income | - | - | - | - | 15,797 | 15,797 |
| Transactions with owners: | - | - | - | - | (10) | (10) |
| Company share movement in employee benefit trust | - | - |
- | - | (4,248) | (4,248) |
| Buyback and cancellation of shares | (9) | - | 9 | - | (15,378) | (15,378) |
| Share-based payments | - | - | - | 1,503 | 634 | 2,137 |
| Impact of share options exercised/lapsed | 6 | 1,803 |
- | (377) | 378 | 1,810 |
| Dividends (Note 6) | - | - | - | - | (7,817) | (7,817) |
| At 30 June 2018 | 534 | 19,777 | 9 | 2,084 | 29,242 | 51,646 |
Consolidated Balance Sheet as at 30 June 2018
|
| Notes | 2018 | 2017 |
|
|
| $'000 | $'000 |
| ASSETS |
|
|
|
| Non-Current Assets |
|
|
|
| Plant and equipment |
| 1,223 | 1,375 |
| Intangible assets | 8 | 23,267 | 19,845 |
| Trade and other receivables | 9 | 5,275 | 4,278 |
| Deferred tax |
| 3,831 | 3,102 |
|
|
| 33,596 | 28,600 |
|
|
|
|
|
| Current Assets |
|
|
|
| Trade and other receivables | 9 | 12,503 | 15,381 |
| Cash and cash equivalents |
| 52,833 | 53,170 |
|
|
| 65,336 | 68,551 |
|
|
|
|
|
| Total Assets |
| 98,932 | 97,151 |
|
|
|
|
|
| EQUITY AND LIABILITIES |
|
|
|
|
|
|
|
|
| Current Liabilities |
|
|
|
| Deferred income |
| 35,371 | 29,803 |
| Current tax liabilities |
| 80 | 198 |
| Trade and other payables |
| 11,835 | 7,795 |
|
|
| 47,286 | 37,796 |
|
|
|
|
|
| Total Liabilities |
| 47,286 | 37,796 |
|
|
|
|
|
| Equity |
|
|
|
| Share capital | 10 | 534 | 537 |
| Share premium account |
| 19,777 | 17,974 |
| Capital redemption reserve |
| 9 | - |
| Other reserves |
| 2,084 | 958 |
| Retained earnings |
| 29,242 | 39,886 |
| Total Equity |
| 51,646 | 59,355 |
|
|
|
|
|
| Total Equity and Liabilities |
| 98,932 | 97,151 |
Statement of Cash Flows for the year ended 30 June 2018
|
| Notes | 2018 | 2017 |
|
|
| $'000 | $'000 |
|
|
|
|
|
| Cash flows from operating activities |
|
|
|
| Cash generated from operations | 11 | 33,110 | 23,068 |
| Interest received |
| 227 | 258 |
| Tax paid |
| (3,349) | (5,474) |
| Net cash from operating activities |
| 29,988 | 17,852 |
|
|
|
|
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
| Purchase of plant and equipment |
| (434) | (654) |
| Capitalised intangible assets |
| (4,258) | (3,925) |
| Net cash used in investing activities |
| (4,692) | (4,579) |
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
| Dividends paid to company shareholders | 6 | (7,817) | (6,356) |
| Proceeds from issuance of shares |
| 1,810 | 524 |
| Company share movement in employee benefit trust |
| (4,248) | (3,083) |
| Buy back of ordinary shares |
| (15,378) | - |
| Net cash used in financing activities |
| (25,633) | (8,915) |
|
|
|
|
|
|
|
|
|
|
| Net (decrease) / increase in cash and cash equivalents |
| (337) | 4,358 |
|
|
|
|
|
| Cash and cash equivalents at the start of the year |
| 53,170 | 48,812 |
|
|
|
|
|
| Cash and cash equivalents at the end of the year |
| 52,833 | 53,170 |
Notes to the Financial Statements
General Information
Craneware plc (the Company) is a public limited company incorporated and domiciled in Scotland. The Company has a primary listing on the AIM stock exchange. The principal activity of the Company continues to be the development, licensing and ongoing support of computer software for the US healthcare industry.
Basis of Preparation
The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, International Financial Reporting Standards Interpretation Committee (IFRS IC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historic cost convention and prepared on a going concern basis. The applicable accounting policies are set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year, if relevant.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.
The Company and its subsidiary undertakings are referred to in this report as the Group.
1. Selected principal accounting policies
The principal accounting policies adopted in the preparation of these accounts are set out below. These policies have been consistently applied, unless otherwise stated.
Reporting currency
The Directors consider that as the Group's revenues are primarily denominated in US dollars the Company's principal functional currency is the US dollar. The Group's financial statements are therefore prepared in US dollars.
Currency translation
Transactions denominated in currencies other than US dollars are translated into US dollars at the rate of exchange ruling at the date of the transaction. The average exchange rate during the course of the year was $1.3472/£1 (2017: $1.2688/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date $1.31977/£1 (2017 : $1.30197/£1). Exchange gains or losses arising upon subsequent settlement of the transactions and from translation at the Balance Sheet date, are included within the related category of expense where separately identifiable, or administrative expenses.
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 licences and professional services (including installation). Revenue is recognised when (i) persuasive evidence of an arrangement exists; (ii) the customer has access and right to use our software; (iii) the sales price can be reasonably measured; and (iv) collectability is reasonably assured.
Revenue from standard licenced 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 licenced software revenue over the life of this contract. This policy is consistent with the Company's products providing customers with a service through the delivery of, and access to, software solutions (Software-as-a-Service ("SaaS")), and results in revenue being recognised over the period that these services are delivered to customers. Incremental costs directly attributable in securing the contract are charged equally over the life of the contract and as a consequence are matched to revenue recognised. Any deferred contract costs are included in, both current and non-current, trade and other receivables.
'White-labelling' or other 'Paid for development work' is generally provided on a fixed price basis and as such revenue is recognised based on the percentage completion or delivery of the relevant project. Where percentage completion is used it is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project. Where contracts underlying these projects contain material obligations, revenue is deferred and only recognised when all the obligations under the engagement have been fulfilled.
Revenue from all professional services is recognised as the applicable services are provided. Where professional services engagements contain material obligations, revenue is recognised when all the obligations under the engagement have been fulfilled. Where professional services engagements are provided on a fixed price basis, revenue is recognised based on the percentage completion of the relevant engagement. Percentage completion is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project.
Software and professional services sold via a distribution agreement will normally follow the above recognition policies.
Should any contracts contain non-standard clauses, revenue recognition will be in accordance with the underlying contractual terms which will normally result in recognition of revenue being deferred until all material obligations are satisfied.
The excess of amounts invoiced over revenue recognised are included in deferred income. If the amount of revenue recognised exceeds the amount invoiced the excess is included within accrued income.
Intangible Assets
(a) Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is capitalised and recognised as a non-current asset in accordance with IFRS 3 and is tested for impairment annually, or on such occasions that events or changes in circumstances indicate that the value might be impaired.
Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
(b) Proprietary software
Proprietary software acquired in a business combination is recognised at fair value at the acquisition date. Proprietary software has a finite life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the associated costs over their estimated useful lives of 5 years.
(c) Contractual customer relationships
Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful economic life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship which has been assessed as up to 10 years.
(d) Research and Development expenditure
Expenditure associated with developing and maintaining the Group's software products is recognised as incurred. Where, however, new product development projects are technically feasible, production and sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete such projects, development expenditure is capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life, which has been assessed as 5 years. Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised.
(e) Computer software
Costs associated with acquiring computer software and licenced to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically three to five years.
Impairment of non-financial assets
At each reporting date the Group considers the carrying amount of its tangible and intangible assets including goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If there is such an indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) through determining the value in use of the cash generating unit that the asset relates to. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the impairment loss is recognised as an expense.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset. A reversal of an impairment loss is recognised as income immediately. Impairment losses relating to goodwill are not reversed.
Taxation
The charge for taxation is based on the profit for the period as adjusted for items which are non-assessable or disallowable. It is calculated using taxation rates that have been enacted or substantively enacted by the Balance Sheet date.
Deferred taxation is computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. The deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilised.
Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets and liabilities arising in the same tax jurisdiction are offset.
In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under each jurisdiction's tax rules. As explained under "Share-based payments", a compensation expense is recorded in the Group's Statement of Comprehensive Income over the period from the grant date to the vesting date of the relevant options. As there is a temporary difference between the accounting and tax bases a deferred tax asset is recorded. The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company's share price at the Balance Sheet date) with the cumulative amount of the compensation expense recorded in the Statement of Comprehensive Income. If the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate, the excess is recorded directly in equity against retained earnings.
Share-based payments
The Group grants share options and / or conditional share awards to certain employees. In accordance with IFRS 2, "Share-Based Payments", equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured using the Black-Scholes pricing model or the Monte Carlo pricing model, as appropriately amended, taking into account the terms and conditions of the share-based awards. The fair value determined at the date of grant of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Statement of Comprehensive Income, with a corresponding adjustment to equity. When the options are exercised and are satisfied by new issued shares, the proceeds received net of any directly attributable transaction costs are credited to share capital and share premium.
The share-based payments charge is included in net operating expenses and is also included in 'Other reserves'.
2. Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires the Directors to make critical accounting estimates and judgements that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying value of assets and liabilities within the next financial year are discussed below:-
· Impairment assessment: - the Group tests annually whether Goodwill has suffered any impairment and for other assets including acquired intangibles at any point where there are indications of impairment. This requires an estimation of the recoverable amount of the applicable cash generating unit to which the Goodwill and other assets relate. Estimating the recoverable amount requires the Group to make an estimate of the expected future cash flows from the specific cash generating unit using certain key assumptions including growth rates and a discount rate. These assumptions result in no impairment in goodwill.
· Provisions for income taxes: - the Group is subject to tax in the UK and US and this requires the Directors to regularly assess the applicability of its transfer pricing policy.
· Capitalisation of development expenditure: - the Group capitalises development costs provided the aforementioned conditions have been met. Consequently, the directors require to continually assess the commercial potential of each product in development and its useful life following launch.
3. Revenue
The chief operating decision maker has been identified as the Board of Directors. The Group revenue is derived almost entirely from the sale of software licences and professional services (including installation) to hospitals within the United States of America. Consequently, the Board has determined that Group supplies only one geographical market place and as such revenue is presented in line with management information without the need for additional segmental analysis. All of the Group assets are located in the United States of America with the exception of the Parent Company's, the net assets of which are disclosed separately on the Company Balance Sheet and are located in the UK.
|
| 2018 | 2017 |
|
| $'000 | $'000 |
| Software licencing | 56,346 | 49,556 |
| Professional services | 10,721 | 8,240 |
| Total revenue | 67,067 | 57,796 |
4. Operating expenses
| Operating expenses are comprised of the following: |
|
|
|
| 2018 | 2017 |
|
| $'000 | $'000 |
| Sales and marketing expenses | 8,257 | 7,326 |
| Client servicing | 11,981 | 10,688 |
| Research and development | 13,174 | 9,108 |
| Administrative expenses | 8,736 | 9,216 |
| Share-based payments | 663 | 283 |
| Depreciation of plant and equipment | 578 | 478 |
| Amortisation of intangible assets | 1,678 | 615 |
| Exchange (gain) | (99) | (126) |
| Operating expenses | 44,968 | 37,588 |
5. Tax on profit on ordinary activities
|
| 2018 | 2017 |
|
| $'000 | $'000 |
| Profit on ordinary activities before tax | 18,933 | 16,884 |
| Current tax |
|
|
| Corporation tax on profits of the year | 3,536 | 3,463 |
| Foreign exchange on taxation in the year | - | (65) |
| Adjustments for prior years | (305) | 300 |
| Total current tax charge | 3,231 | 3,698 |
| Deferred tax |
|
|
| Origination & reversal of timing differences | 382 | (161) |
| Adjustments for prior years | (8) | (178) |
| Change in tax rate | (469) | - |
| Total deferred tax (credit) | (95) | (339) |
|
|
|
|
| Tax on profit on ordinary activities | 3,136 | 3,359 |
|
The difference between the current tax charge on ordinary activities for the year, reported in the consolidated Statement of Comprehensive Income, and the current tax charge that would result from applying a relevant standard rate of tax to the profit on ordinary activities before tax, is explained as follows: | ||
|
|
|
|
|
|
|
|
| Profit on ordinary activities at the UK tax rate 19% (2017: 19.75%) | 3,597 | 3,335 |
| Effects of: |
|
|
| Adjustment for prior years | (313) | 122 |
| Change in tax rate | (469) | - |
| Additional US taxes on profits 32% (2017: 39%) | 1,137 | 209 |
| Foreign Exchange | - | (65) |
| R & D tax credit | (327) | - |
| Expenses not deductible for tax purposes | 29 | (16) |
| Origination and reversal of temporary differences | 847 | - |
| Deduction on share plan charges | (1,365) | (226) |
| Total tax charge | 3,136 | 3,359 |
6. Dividends
The dividends paid during the year were as follows:-
|
| 2018 | 2017 |
|
| $'000 | $'000 |
| Final dividend, re 30 June 2017 - 14.71 cents (11.3 pence)/share | 4,065 | 3,246 |
| Interim dividend, re 30 June 2018 - 13.5 cents (10 pence)/share | 3,752 | 3,110 |
| Total dividends paid to Company shareholders in the year | 7,817 | 6,356 |
Prior year:
Final dividend 12.1 cents (9 pence) / share
Interim dividend 10.83 cents (8.7 pence) / share
The proposed final dividend 18.48 cents (14 pence), as noted in the Financial Review section of the Strategic Report, for 30 June 2018 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these accounts.
7. Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year.
|
| 2018 | 2017 |
| Profit attributable to equity holders of the Company ($'000) | 15,797 | 13,525 |
| Weighted average number of ordinary shares in issue (thousands) | 26,790 | 26,934 |
| Basic earnings per share ($ per share) | 0.590 | 0.502 |
|
|
|
|
| Profit attributable to equity holders of Company ($'000) | 15,797 | 13,525 |
| Adjustments* ($'000) | 329 | 329 |
| Adjusted Profit attributable to equity holders ($'000) | 16,126 | 13,854 |
| Weighted average number of ordinary shares in issue (thousands) | 26,790 | 26,934 |
| Adjusted Basic earnings per share ($ per share) | 0.602 | 0.514 |
*Relate to acquisition, share related activities and amortisation of acquired intangibles if applicable in the year. These adjustments are to focus on what the Group regards as a more reliable indicator of the underlying operating performance and are consistent with other similar companies.
b) Diluted
For diluted earnings per share, the weighted average number of ordinary shares calculated above is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares, being those granted to Directors and employees under the share option scheme.
|
| 2018 | 2017 |
| Profit attributable to equity holders of the Company ($'000) | 15,797 | 13,525 |
| Weighted average number of ordinary shares in issue (thousands) | 26,790 | 26,934 |
| Adjustments for:- Share options (thousands) | 492 | 590 |
| Weighted average number of ordinary shares for diluted earnings per share (thousands) | 27,282 | 27,524 |
| Diluted earnings per share ($ per share) | 0.579 | 0.491 |
|
|
|
|
| Profit attributable to equity holders of Company ($'000) | 15,797 | 13,525 |
| Adjustments* ($'000) | 329 | 329 |
| Adjusted Profit attributable to equity holders ($'000) | 16,126 | 13,854 |
| Weighted average number of ordinary shares in issue (thousands) | 26,790 | 26,934 |
| Adjustments for:- Share options (thousands) | 492 | 590 |
| Weighted average number of ordinary shares for diluted earnings per share (thousands) | 27,282 | 27,524 |
| Adjusted Diluted earnings per share ($ per share) | 0.591 | 0.503 |
*Relate to acquisition, share related activities and amortisation of acquired intangibles if applicable in the year. These adjustments are to focus on what the Group regards as a more reliable indicator of the underlying operating performance and are consistent with other similar companies.
8. Intangible assets
Goodwill and Other Intangible assets
|
| Goodwill | Customer | Proprietary | Development | Computer |
|
|
|
| Relationships | Software | Costs | Software | Total |
|
| $'000 | $'000 | $'000 | $'000 | $'000 | $'000 |
| Cost |
|
|
|
|
|
|
| At 1 July 2017 | 11,438 | 2,964 | 3,043 | 9,237 | 1,436 | 28,118 |
| Additions | - | - | - | 4,732 | 368 | 5,100 |
| Disposals | - | - | - | - | (409) | (409) |
| At 30 June 2018 | 11,438 | 2,964 | 3,043 | 13,969 | 1,395 | 32,809 |
|
|
|
|
|
|
|
|
| Accumulated amortisation |
|
|
|
|
|
|
| At 1 July 2017 | 250 | 2,042 | 1,976 | 3,046 | 959 | 8,273 |
| Charge for the year | - | 329 | 213 | 856 | 280 | 1,678 |
| Amortisation on disposals | - | - | - | - | (409) | (409) |
| At 30 June 2018 | 250 | 2,371 | 2,189 | 3,902 | 830 | 9,542 |
| Net Book Value at 30 June 2018 | 11,188 | 593 | 854 | 10,067 | 565 | 23,267 |
|
|
|
|
|
|
|
|
| Cost |
|
|
|
|
|
|
| At 1 July 2016 | 11,438 | 2,964 | 3,043 | 5,755 | 993 | 24,193 |
| Additions | - | - | - | 3,482 | 443 | 3,925 |
| At 30 June 2017 | 11,438 | 2,964 | 3,043 | 9,237 | 1,436 | 28,118 |
|
|
|
|
|
|
|
|
| Accumulated amortisation |
|
|
|
|
|
|
| At 1 July 2016 | 250 | 1,713 | 1,976 | 2,926 | 793 | 7,658 |
| Charge for the year | - | 329 | - | 120 | 166 | 615 |
| At 30 June 2017 | 250 | 2,042 | 1,976 | 3,046 | 959 | 8,273 |
| Net Book Value at 30 June 2017 | 11,188 | 922 | 1,067 | 6,191 | 477 | 19,845 |
In accordance with the Group's accounting policy, the carrying values of goodwill and other intangible assets are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of Craneware InSight Inc.
The carrying values are assessed for impairment purposes by calculating the value in use of the core Craneware business cash generating unit. This is the lowest level of which there are separately identifiable cash flows to assess the goodwill acquired as part of the Craneware InSight Inc purchase.
The key assumptions in assessing value in use are the discount rate applied, future growth rate of revenue and the operating margin. These take into account the customer base and expected revenue commitments from it, anticipated additional sales to both existing and new customers and market trends currently seen and those expected in the future.
The Group have assessed events and circumstances in the year and the assets and liabilities of the business cash-generating unit; this assessment has confirmed that no significant events or circumstances occurred in the year and that the assets and liabilities showed no significant change from last year.
After review of future forecasts, the Group confirmed the growth for next five years was consistent with last year's growth calculations confirming that the recoverable amount would continue to exceed the carrying value. There are no reasonable possible changes in assumptions that would result in an impairment.
9. Trade and other receivables
|
| 2018 | 2017 |
|
|
|
|
|
| $'000 | $'000 |
| Trade receivables | 9,215 | 13,102 |
| Less: provision for impairment of trade receivables | (1,072) | (1,353) |
| Net trade receivables | 8,143 | 11,749 |
| Other receivables | 230 | 144 |
| Prepayments and accrued income | 1,904 | 1,826 |
| Deferred Contract Costs | 7,501 | 5,940 |
|
| 17,778 | 19,659 |
| Less non-current receivables: | - | - |
| Deferred Contract Costs | (5,275) | (4,278) |
| Current portion | 12,503 | 15,381 |
10. Share capital
|
| 2018 | 2017 | ||
|
| Number | $'000 | Number | $'000 |
| Equity share capital |
|
|
|
|
| Ordinary shares of 1p each | 50,000,000 | 1,014 | 50,000,000 | 1,014 |
Allotted called-up and fully paid
|
| 2018 | 2017 | ||
|
| Number | $'000 | Number | $'000 |
| Equity share capital |
|
|
|
|
| Ordinary shares of 1p each |
|
|
|
|
| At 1 July | 26,961,709 | 537 | 26,850,248 | 536 |
| Cancelled, following purchase by Company of own shares | (628,869) | (9) | - | - |
| Allotted and issued in the year on exercise of employee share options | 329,431 | 6 | 111,461 | 1 |
| At 30 June | 26,662,271 | 534 | 26,961,709 | 537 |
11. Cash flow generated from operating activities
| Reconciliation of profit before taxation to net cash inflow from operating activities | ||
|
|
|
|
|
| 2018 | 2017 |
|
| $'000 | $'000 |
| Profit before tax | 18,933 | 16,884 |
| Finance income | (241) | (258) |
| Depreciation on plant and equipment | 578 | 478 |
| Amortisation and Impairment on intangible assets | 1,678 | 615 |
| Share-based payments | 663 | 283 |
| Loss on disposals | 10 | - |
| Movements in working capital: |
|
|
| Decrease in trade and other receivables | 1,881 | 6,146 |
| Increase / (Decrease) in trade and other payables | 9,608 | (1,080) |
| Cash generated from operations | 33,110 | 23,068 |