Craneware plc
Annual Report
for the year ended
30 June 2008
2008
Financial Performance Solutions for Hospitals and Healthcare Organisations
Craneware plc (AIM: CRW) is recognised as the leading provider of
solutions that improve financial performance in the US hospital and
healthcare provider market.
Craneware's strategic pricing, revenue cycle and supply management
solutions are designed to increase productivity, manage risk and
improve returns using market-driven revenue management software.
By enhancing revenue capture processes, Craneware's solutions
allow organisations to optimise reimbursement, improve operational
efficiency and support compliance. The bottom line? Improved
financial performance.
A distinctly customer-driven business with active user groups and a
client advisory council, Craneware's mix of employees hail from the
healthcare, software engineering, business consulting and customer
support industries providing a perfect blend to ensure that customers
have the information they require to succeed.
History of Craneware
Craneware, founded in May 1999, launched its
first product in October 1999 after signing its
first customer contract that September with
Bayshore Community Hospital in New Jersey,
which remains a Craneware customer today.
The Group's head office has been based in
Livingston, Scotland, since November 2000
where R&D and customer support functions
are also located. The Group opened its first
US sales office in Orlando, Florida, in January
2001 followed by Scottsdale, Arizona and
Kansas City. In September 2007 Craneware
listed on the AIM market of the London Stock
Exchange, raising $20.5m.
Based in Livingston, Scotland, with offices across the US, Craneware
delivers unparalleled solutions to a client market facing incessant
pressure from demographic shifts, regulatory change and extreme
competition.
Contents
About Craneware
2
Craneware's Financial Performance Solutions
5
Chairman's Statement
6
7
CEO's Statement
10 Directors' Report
15 Corporate Governance Report
17 Remuneration Committee Report
19
20 Consolidated Income Statement
21 Consolidated Balance Sheet
22 Company Balance Sheet
23 Cashflow Statement
24 Notes to the Financial Statements
45 Contact Craneware / Directors, Secretary and Advisors
Independent Auditors' Report to the members of Craneware plc
Craneware plc
Annual Report 2008 2008
Financial Highlights
Revenues increased by 24% to $18.7m (2007: $15.1m)
Profit before share-based payments, depreciation and amortisation
increased 18% to $4.5m (2007: $3.8m)
Profit before tax increased 133% to $4.2m (2007:$1.8m)
Basic and diluted EPS increased to $0.14 (2007: $0.06) and $0.13
(2007:$0.05) respectively
Operational Highlights
Number of US hospitals employing Craneware's software increased
by 19% to 950 (2007: 801)
Successful launch of the first products in two new product families
— Patient Charge Estimator ™ and Pharmacy ChargeLink™
Increasing fiscal and legislative pressures continuing to drive market
growth
Successful IPO in September 2007
Quick Facts — Financial
24%
increase in revenues to $18.7m
18%
increase in operating profit (before
share-based payments, depreciation
and amortisation) to $4.5m
133%
increase in profit before tax to $4.2m
160%
increase in diluted E.P.S.
$21.1m
cash resources (including $7.9m net
proceeds of placing at IPO)
IMPROVE RETURNS
BY OPTIMISING
REIMBURSEMENT
CRANEWARE
FINANCIAL
PERFORMANCE
SOLUTIONS
INCREASE
PRODUCTIVITY
BY IMPROVING
OPERATIONAL
EFFICIENCY
MANAGE RISK
BY SUPPORTING
COMPLIANCE
IMPROVED FINANCIAL PERFORMANCE
Craneware plc
Annual Report 2008
1
About Craneware
Background
What is driving the growth?
Quick Facts - Operational
Craneware provides proprietary financial
performance software solutions for the
US hospital and healthcare provider
market. The Group's flagship product,
Chargemaster Toolkit®, assists healthcare
providers in reducing billing errors,
managing compliance risk and ensuring
the timely and accurate submission of
claims. After launching Chargemaster
Toolkit®, Craneware developed a number of
revenue cycle management applications to
accompany it, including comparable tools
for physician practices.
In financial year 2008, Craneware extended
its focus into the strategic pricing and
supplies management fields when it
launched Patient Charge Estimator™ and
Pharmacy ChargeLink™.
The Group's financial performance solutions
serve more than 950 hospitals in 48 states
in the US Of the more than 5,750 hospitals
in the US, it is approximated that less
than half have purchased a technology-
based charge description master solution,
representing a substantial market
opportunity. Additionally, as more pricing
transparency regulations are passed in
the US and margins continue to decrease,
hospitals are looking to technology to
address these changes. Patient Charge
Estimator™ and Pharmacy ChargeLink™ are
designed to meet these challenges.
5,756 hospitals
in the USA of which the Directors
believe less than half have
purchased a technology-based
CDM solution.
Tightening margins,
government regulations
Approximately 40 percent of what hospitals bill
is collected1. And the uninsured population
in the US continues to grow, leading to
more uncompensated care costs. Even those
with insurance often have trouble covering
medical expenses2. For example, a non-profit
Ohio-based hospital system experienced 17
percent growth in uncompensated care while
reimbursement remained the same over the
past two years3.
In addition to tightening margins, US hospitals
face constantly changing rules and regulations
related to the revenue cycle. Keeping up with
these changes presents a significant problem
for many hospitals that have yet to implement
technology to automate these processes and
strategically apply updates to all affected
areas. Not being in compliance can result in
significant fines, or even jail time in some
cases. The Department of Health and Human
Services Office of Inspector General announced
$2.2 billion in expected recoveries from fraud
investigations and audits in the first-half of
financial year 20084.
By implementing automated software
applications, hospitals are able to address
tightening margins and compliance issues.
Use of the Craneware financial performance
solutions presents three key benefits for the
customers:
»
improved returns by optimising
reimbursement
increased productivity by improving
operational efficiency
managed risk by supporting compliance
»
»
1 Healthcare Financial Management: Trends in Hospital
Uncollectible Revenues (February 2008)
2 USA TODAY: Report: Even the Insured Have Trouble Paying Bills
(October 25, 2007)
3 Healthcare Finance News: Ohio Hospital System Addresses Bad
Debt by Identifying Patients, Resources (January 30, 2008)
4 Office of Inspector General: OIG Reports More Than $2 Billion in
Recoveries From Fighting Fraud, Waste, and Abuse for First-Half
FY 2008 (June 12, 2008)
Craneware plc
Annual Report 2008
2
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Honolulu
Maui
Hawaii
Barrow
Prudhoe
Bay
Nome
Alaska
Fairbanks
Anchorage
Valdez
Bethel
Juneau
Ketchikan
Seattle
Olympia
Washington
Salem
Oregon
Idaho
Boise
Montana
Helena
Wyoming
North Dakota
Bismarck
South Dakota
Pierre
Minnesota
St. Paul
Wisconsin
Michigan
Madison
Lansing
Sacramento
Carson City
Nevada
San Francisco
Salt Lake City
Utah
California
Las Vegas
Cheyenne
Nebraska
Denver
Colorado
Los Angeles
Arizona
Phoenix
Santa Fe
New Mexico
Iowa
Chicago
Des Moines
Illinois
Springfield
Indiana
Indianapolis
Detroit
Ohio
Columbus
West
Virginia
Charleston
Richmond
Virginia
Frankfort
Kentucky
Nashville
Raleigh
North Carolina
Tennessee
Memphis
Lincoln
Topeka
Kansas
Oklahoma
Oklahoma City
St. Louis
Jefferson City
Missouri
Arkansas
Little Rock
Texas
Dallas
Austin
Houston
Mississippi
Alabama
Montgomery
Louisiana
Jackson
Baton
Rouge
New Orleans
Columbia
South
Carolina
Atlanta
Georgia
Tallahassee
Florida
Miami
Maine
Augusta
Montpelier
Vt.
N.H.
Concord
Albany
New York
Mass.
Boston
Providence
R.I.
Conn.
Hartford
Pennsylvania
Philadelphia
Harrisburg
New York
Trenton
New Jersey
Dover
Md.
Delaware
Annapolis
Washington, D.C.
Chargemaster Toolkit® Facts
950 hospitals
using our software in the USA
48 states
using our software in the USA
194 client wins
Craneware plc
Annual Report 2008
3
Craneware plc
Annual Report 2008
4
Craneware's Financial Performance Solutions
Quick Facts — The Technology
Strategic Pricing Solutions
Revenue Cycle Solutions
Craneware products employ a mix
of traditional client/server windows
applications and hosted ASP technologies
to provide a comprehensive enterprise
solution for healthcare financial
performance management. Customer data
is always kept secure within healthcare
facilities own networks, compliant with
US, Health Insurance Portability and
Accountability Act (HIPAA) regulations
related to sensitive patient information.
Only registered users can access
Craneware's extensive knowledge base
and regulatory products through available
hospital-based browsers with Internet
access. This allows Craneware's software
to be rolled out to a number of staff within
a facility requiring different levels of
interaction with minimal impact to resource
strained IS teams and busy users.
Craneware's products are divided into
three product families with the Business
Solutions Group and Decision Dashboard®
spanning across all three families.
Business Solutions Group
Services for assisting organisations to
enhance processes and implement best
practices, resulting in improved financial
performance.
Decision Dashboard®
Software for providing decision makers
with actionable financial information by
monitoring key performance indicators.
Patient Charge Estimator™
Software that supports defensible and
transparent pricing, and simplifies the
process of providing estimates for inpatient
and outpatient services.
Comparative Pricing Modules
Comparison module for benchmarking a
facility's current prices against those of
similar organisations based on information
derived from Medicare.
Fee Schedule Modules
Fee schedule application for viewing and
comparing a facility's current pricing
against published state and national rates.
Supply Management Solutions
Pharmacy ChargeLink™
Pharmacy supply application for improving
cost management and pricing strategies by
establishing and maintaining a connection
between a hospital's pharmaceutical
purchase history and chargemaster
Supplies ChargeLink™
Supplies software solution for optimising
reimbursement by establishing and
maintaining a connection between a
hospital's supply purchase history and
chargemaster, ensuring accurate pricing,
coding and billing of chargeable supplies
Chargemaster Toolkit® Suite
Toolset for capturing legitimate
reimbursement by automating
chargemaster management processes,
customisable for organisations from small
community hospitals to large healthcare
networks.
Online Reference Toolkit®
Web-based tool for reducing risk by
providing access to reference and regulatory
resources.
Interface Scripting Module
Software for ensuring items are billed
accurately by automatically uploading
chargemaster changes to the patient billing
system.
Physician Revenue Toolkit®
Software for managing a physician group's
charges, codes, RVUs, fee schedules and
related information.
Physician Management Toolkit
Tracks key financial and operational drivers
through data trending with Decision
Dashboard®.
Bill Analyzer
Software for improving charge capture
processes by identifying lost revenue and
categorising areas of risk, resulting in
cleaner, more compliant claims.
No.1 in KLAS
Chargemaster Toolkit® is ranked No. 1 in the
Revenue Cycle-Chargemaster Management
market category in the “Top 20 Best in KLAS
Awards” report, published December 2007.
Peer Reviewed
Healthcare Financial Management Association (HFMA) staff and volunteers determined that
Craneware's Chargemaster Toolkit®, Chargemaster Corporate Toolkit®, Bill Analyzer, Online
Reference Toolkit® and Interface Scripting Module have met specific criteria developed under
the Healthcare Financial Management Peer Review Process.
Craneware plc
Annual Report 2008
5
Chairman's Statement
“secured revenue growth
in the year of 23.6% and
increased operating profits
from $1.4m to $3.6m. The
number of US hospitals
utilising our software
has increased from 801
at the start of the year to
950 at the end, squarely
positioning Craneware as a
leading provider of financial
performance improvement
solutions for US healthcare
organisations.”
George Elliot, Chairman
I am delighted to report to shareholders
on an outstanding first year for Craneware
as a public company. We continued the
growth begun as a privately owned
company, delivering on all targets set by
management at the time of the IPO.
The management team have secured
revenue growth in the year of 23.6% and
increased operating profits from $1.4m to
$3.6m. The number of US hospitals utilising
our software has increased from 801 at the
start of the year to 950 at the end, squarely
positioning Craneware as a leading provider
of financial performance improvement
solutions for US healthcare organisations.
The Board is very pleased to welcome Craig
Preston into the role of Chief Financial
Officer from the 15th of September 2008.
Craig comes with experience in senior
financial roles within publicly quoted
technology companies with exposure to
UK, US and global markets. His most
recent appointments being Group Director
of Finance and Company Secretary at
Intec Telecom Systems from 2004-2007
and Corporate Development Manager at
London Bridge Software plc from 2000-
2004 including the role of Chief Financial
Officer with the acquisition target Phoenix
International Inc the NASDAQ quoted
Software Company 2001-2002.
The quality of our products and
commitment to customer service continue
to be the foundations of our success.
During the year, our flagship product,
Chargemaster Toolkit®, was once again
ranked number 1 by the prestigious
industry research house KLAS, and we
launched two new products ahead of
schedule at the end of the first half of the
year, augmenting our product portfolio
and introducing two new product areas:
Supply Management and Strategic Pricing.
Customer feedback on these has been
extremely encouraging, with 30% of new
sales in the year including either one or
both products. This forms an excellent
platform for our growth in 2009.
The year was successfully concluded with
two large system sales to Catholic Health
East and Catholic Healthcare West that will
see the planned roll out of our software
across their 58 hospitals in the year to June
2009. This combined with the increasing
fiscal pressures on hospitals driven by
legislative changes gives us confidence in
another successful year ahead.
The Board would like to convey its thanks to
Sandy McDougall, who will step down from
the Board and resign from the Company on
the same date, after three years of service.
Sandy is to be particularly thanked for his
dedication and hard work in the service of
the Company in the build up to the IPO and
through this successful first year as a public
company. We wish Sandy the best of luck in
his future endeavours.
I would like to take this opportunity to
thank our teams in Scotland and the US for
their commitment and drive during what
has been one of the most significant years
in Craneware's history. We look forward
to maintaining momentum into 2009 and
beyond.
George Elliott, Chairman
9th September 2008
Craneware plc
Annual Report 2008
6
CEO's Statement
“As planned we have
expanded our customer
base, grown our market
share and recently
launched new products to
support future growth.”
Keith Neilson, Chief Executive
Introduction
We are delighted with the strong operating
and financial performance achieved by
Craneware during our first year as a public
company. We have delivered on all targets
set at the time of the IPO in September
2007, including increasing the scale of our
sales operation, growing our product set
and increasing our customer base.
Alongside our internal successes, we
have also seen positive developments in
our market and beneficial competitive
developments which combined with our
excellent reputation have resulted in
Craneware maintaining its market leading
position.
The Market
The market for financial management
solutions for US healthcare providers
continues to grow at pace, driven by
increasing fiscal and legislative pressures.
Hospitals' billing systems are coming under
increasing scrutiny, with the Healthcare
Financial Management Association in
the US reporting that currently only 40%
of the amounts billed by hospitals are
being collected, leading to $31.2 billion
nationwide in uncompensated care.
At the same time both the amount of
compliance being imposed by the Office of
the Inspector General is increasing as is the
rigour with which it is being implemented.
Medicare and Medicaid, the two US
healthcare programmes for individuals and
families with low incomes and resources
have been given increased auditing powers,
revealing a high level of inaccuracies in
hospital claims leaving hospitals exposed to
potential fines and backdated payments.
In tandem with these pressures, pharmacy
and supply costs are increasing with
the American Journal of Health System
Pharmacists recently projecting that in
2008 hospital expenditure on drugs would
increase by between 4 and 8 per cent.
Hospital management teams are therefore
now actively seeking ways in which not
only to increase the efficiency and accuracy
of their billing and reimbursement systems,
but also to optimise pricing, improve staff
productivity and retention, and therefore
improve overall financial performance.
Sales and Marketing
Craneware has been developing its
marketing and product positioning strategy
over the year to address several key areas
of this evolving market. Our focus is on
offering products which enable senior
level executives within US healthcare
organisations to improve returns, increase
productivity and manage risks. We are
building on a strong pedigree in this
area, with a track record of continual
yearly growth, best of breed products and
excellent customer endorsements.
Key to the development of our marketing
strategy has been the appointment in
May of Ann Marie Brown, as our first
Vice President of Marketing. With over
20 years experience in marketing both
to and for US healthcare organisations,
Ann Marie is responsible for Craneware's
strategic marketing and sales planning;
product management; and marketing
communications, including brand
management, corporate communications,
and customer marketing. This appointment
is in addition to the strengthening of the
US management team with the previously
announced promotion of James Wilson to
President of Craneware Inc.
We continue to attend several of the key
industry trade shows, where we are seeing
evidence of our growing reputation through
increased levels of interest at our booths.
Our attendance at HFMA in particular in
June 2008 culminated in the closing of our
two most significant deals to date.
Craneware plc
Annual Report 2008
7
CEO's Statement
We were especially pleased by the level of
sales of our newly launched products during
the year, with 30% of new sales including
either one or both of these products.
The pricing environment continues to
be supportive and given our success in
sales and marketing we believe we are
continuing to outsell our competition and
increase our market share.
Product Development
As mentioned above, US healthcare
organisations are seeking to enhance
their financial performance across all
areas of hospital operations. The launch in
November of Patient Charge Estimator™,
and in January of Pharmacy ChargeLink™
moved the Company into two new product
areas addressing Supply Management and
Strategic Pricing. These, combined with
Craneware's core area of Revenue Cycle
Management form three fundamental
levers by which healthcare organisations
can improve their financial performance.
We are now in the final stages of
development of a second product within
our Supply Management product set,
Supplies ChargeLink™, which we intend to
launch during 2009. Supplies ChargeLink™
is a software solution that establishes
and maintains a connection between a
hospital's supply purchase history and its
charge description master (CDM), enabling
the hospital to optimise reimbursement
by ensuring accurate pricing, coding, and
billing of chargeable supplies.
As mentioned earlier, our product sets
continue to win the endorsement of major
industry research houses and review
boards. In December our flagship product,
Chargemaster Toolkit®, was also once
again ranked number 1 in the Revenue
Cycle – Chargemaster Management market
category by the prestigious industry
research house KLAS in the US. Our
Chargemaster Toolkit® also successfully
Craneware plc
Annual Report 2008 2008
8
passed one of the industry's most rigourous
reviews, an HFMA Peer review, which
screens for the highest standards of
effectiveness, quality and usability, price,
value and customer and technical support.
Customers
Our customers range from small community
hospitals, to teaching hospitals and large
healthcare networks. Our software is
now in use at 950 of these organisations,
increasing from 801 at the start of the
year. Our customers, such as Poudre
Valley Hospital, MCG Health, Cleveland
Clinic, the University of California, San
Francisco Medical Center, the University of
Washington Medical Center and Cedars-
Sinai Medical Center regularly feature in
lists of the US highest ranked healthcare
providers.
Channel Partners
We continue to develop our third party
channels to market, with sales in the year
coming through Amerinet, Premier and
Cerner Corporation. We will continue to
explore opportunities with regards to
additional partnerships, particularly to
support the growth of our Physician family
of products.
Financial Review
On 13th September 2007, the Group raised
£5.4 million (prior to expenses of £1.6m)
through a Placing by KBC Peel Hunt of
4,247,830 new Ordinary Shares at the
Placing Price of 128p per share. The funds
raised have been utilised to strengthen
the balance sheet in order to facilitate
continued product development and future
strategic acquisitions.
As reported in our Trading Update on 10th
July 2008, the Group signed 194 new
hospitals during the year exceeding targets
set at the time of the IPO in September
2007. We continue to be satisfied that the
level of renewals continue to exceed 90%
for hospitals with multi-year contracts
expiring during the year.
No revenue has been recognised from the
major agreements with Catholic Healthcare
West and Catholic Health East in the last
month of the year. However with the
Group's annuity revenue recognition model,
the level of new business wins, set against
a background of continuing high renewal
levels, have allowed revenues to grow from
$15.1m to $18.7m during the year.
Operating costs have risen from $12.9m to
$14.1m following the decision to accelerate
ongoing development of our customer
support and sales infrastructure for the new
product pipeline. As a result, profit before
share-based payments, depreciation, and
amortisation has increased from $3.8m to
$4.5m.
R&D expenditure on Patient Charge
Estimator™ and Pharmacy ChargeLink™
continued to be capitalised during H1 until
amortisation commenced in H2 following
initial sales of these new products. In
accordance with IFRS we continued to
capitalise R&D expense on the Supplies
ChargeLink™ product during H2.
CEO's Statement
20
18
16
14
12
10
8
6
4
2
0
Contracted
Renewals
$18.3m
2.4
$16.8m
$16.7m
$15.5m
1.1
$14.0m
$13.8m
4.4
9.6
14.4
8.7
15.9
5.1
7.0
9.8
9.8
6.9
2008
2009
2010
2009
2010
2011
As at 30th Jun‘07
As at 30th Jun‘08
Figure 1.
“New business and renewal
activity added $25.7m,
whilst $18.7m revenue was
recognised through the
Income Statement”
"the Group had $39.9m
of future revenue under
contract at 30th June 2008"
Dividend
Basic and diluted earnings per share were
$0.14 and $0.13 respectively and the Board
recommends a dividend of 3.1p (6.17 cents)
per share. Subject to confrmation at the
Annual General Meeting, the final dividend
will be paid on 5th December 2008 to
shareholders on the register as at 7th
November 2008.
Outlook
Our first year as a public company has
seen Craneware increase its customer
base, broaden its product set and
maintain its market leading position in
the US healthcare financial performance
improvement market. With legislation
and fiscal pressures continuing to be key
drivers of growth in our market, exerting
pressure on US hospitals to improve their
financial management, we expect demand
for our suite of products to grow for the
foreseeable future.
Trading in the current year has started well.
Our high level of visibility, over $18.3m of
revenue, at the beginning of the year has
been augmented by a strong pipeline of
new sales opportunities as a result of which
we expect to exceed our expectations for
the full year.
I would like to thank our staff, customers
and investors for their continued support
and look forward to another successful year
of growth.
Keith Neilson, Chief Executive Officer
9th September 2008
Under IFRS 2 “Share-Based Payments” the
Group's earnings have now reflected most
of the charge relating to share options
which existed at IPO. The lower tax charge
and related reduction in tax payable reflects
the tax deductions originating from the
exercise of such options during the year. In
light of the share-based payment charge
of $0.6m during the year and $2.2m last
year, profit before tax increased from $1.8m
to $4.2m, whilst profit after tax increased
from $1.2m to $3.3m.
Given our advance annual billing model
ahead of revenue recognition, and by
paying particular attention to receivables
collection in light of global credit
conditions, it is pleasing to report a net
working capital inflow during the year.
This has allowed cash generated from
operations to increase from $2.6m to $5.0m
during the year.
As regards revenue visibility, the Group had
$39.9m of future revenue under contract at
30th June 2008 (2007 : $32.9m), $10.3m
of which is shown as deferred revenue
(2007 : $9.5m) with the balance of $29.6m
(2007 : $23.4m) to be invoiced in future
periods. New business and renewal activity
added $25.7m, whilst $18.7m revenue was
recognised through the Income Statement
during the period.
Of the future revenue under contract
(Figure 1.) the Directors consider that
$15.9m will be recognised during FY09 with
a further $9.8m and $6.9m respectively
to be recognised in FY10 and FY11. In
addition, assuming all contracts renew with
no cancellations, $2.4m revenues will be
recognised from renewal activity during
FY09, with a further $7.0m and $9.8m
respectively in FY10 and FY11 relating to
contracts due for renewal from 1 July 2008
through these years.
Craneware plc
Annual Report 2008
9
Directors' Report
The directors present herewith their report
and the audited financial statements for the
year ended 30th June 2008.
Principal Activities
The Group's principal activity continues to
be the development, licensing and post
contract support of computer software for
the healthcare industry.
Admission to AIM
Business Review
»
Craneware Ltd was admitted to trading on
the Alternative Investment Market (AIM)
and became a plc on 13th September
2007. Net proceeds of £3.8m ($7.9m) after
expenses were raised by the Company
from a total placing of £20.5m ($41.6m),
providing a full exit for the Company's
venture capital investors.
Market Position and Products
»
The Group has continued to enhance its
product range and functionality, whilst
increasing the number of hospitals using
its software products within its market in
the US. The directors are satisfied with the
performance of the Company and Group for
the year and expect this growth, as set out
below, to continue in future years.
Financial Highlights
»
The Group has increased revenues by 23.6%
to $18.7m and operating profits from $1.4m
to $3.6m, with cash reserves of $21.1m and
future revenue under contract of $39.9m as
at 30th June 2008.
Operational Highlights
»
The number of hospitals using the Group's
software has now increased from 801 to
950, with two new product launches during
the first half of the year.
Future Developments
»
The Company continues to grow strongly
with a positive outlook going forward
as outlined in the Chairman's and Chief
Executive's Statements.
Corporate Social Responsibility
»
The Company is committed to maintaining
a high level of social responsibility. Aspects
of the environment are considered during
board meetings and attempts made to
ensure that the Group undertakes a 'green'
policy wherever practicably possible. This
includes the careful planning of travel
requirements and the recent investment in
video conferencing technology.
Principal Risks and Uncertainties and
Key Performance Indicators (KPIs)
The directors consider that the US
healthcare software market is likely to
continue to provide growth opportunities
for the Company's existing products and
development pipeline. In addition, and with
a high contract renewal rate, the Company's
predominantly annuity-based pricing
models and revenue recognition approach
gives a high degree of revenue visibility and
earnings growth predictability.
Nevertheless the market continues to be
very competitive following a period of
M&A activity and new product offerings.
The Company therefore requires to remain
at the forefront of product innovation and
delivery, through a combination of in-house
development whilst assessing specific
acquisition opportunities. This requires
the recruitment, retention, and reward of
skilled staff, alongside a responsiveness to
opportunities as they arise.
With approximately one third of its cost
denominated in Sterling, the Company
requires to continually assess the most
appropriate approach to managing its
currency exposure in line with an overall
goal of achieving predictable earnings
growth.
The principal financial risks are detailed in
Note 3 to the financial statements.
Craneware plc
Annual Report 2008
10
Directors' Report
The directors consider that the following operating and financial KPIs remain critical to an understanding of the development,
performance, and position of the business:
Hospital sites (cum)
Contract renewal rate (cum)
Value of contracts written (cum)
Revenue
Profit/(loss) before share-based
payments and taxation
Cash and receivables
less payables
Deferred income
Further contractual entitlements
Future revenue under contract
2003
197
-
$m's
12.5
2.8
(0.6)
4.6
4.9
4.2
9.1
2004
376
92%
$m's
33.2
6.7
1.5
8.2
9.6
13.4
23.1
2005
455
84%
$m's
46.0
10.5
2.7
8.9
10.7
14.7
25.4
2006
631
84%
$m's
61.1
13.2
3.6
10.5
9.5
17.8
27.3
2007
801
88%
$m's
81.8
15.1
4.0
2008
950
91%
$m's
107.5
18.7
4.8
11.4
24.0
9.5
23.4
32.9
10.3
29.6
39.9
Dividends
No interim dividend was paid in the year (2007: $1,000,000/£498,430) the directors are (subject to confirmation at the Annual General
Meeting) recommending the payment of a final dividend of 3.1p (6.17 cents) per share based on the results for 2008 (2007: $nil). Subject
to confrmation at the Annual General Meeting, the final dividend will be paid on 5th December 2008 to shareholders on the register as at
7th November 2008. The directors intend to adopt a progressive dividend policy based on the Group's retained annual earning. The level of
distribution will be subject to the Group's working capital requirements and the ongoing needs of the business.
Going Concern
The directors have reviewed the financial forecast for the Group and consider that it is appropriate to prepare the financial statements on
the going concern basis.
Research and Development activities
The Group continues its development programme of software products for the US healthcare industry which includes research and
development of new complimentary products and the enhancements to the existing portfolio of market leading products. The directors
regard investment in development activities as a prerequisite for success in the medium and long term future.
Directors and their interests
The directors of the Company are listed on page 45.
K J Lyon, who had served as chairman in the year, resigned on 11th July 2007, and G R Elliot was appointed as chairman on 10th August
2007. W G Craig, D W Paterson and J R Wilson resigned on 6th September 2007 prior to admission to AIM.
After adjusting for the 299 for 1 share split pursuant to admission to AIM the interests of the directors who held office at 30th June 2008
were as follows:-
G R Elliot
N P Heywood
K Neilson
A M McDougall
2008
15,625
150,000
3,887,790
207,000
4,260,415
2007
-
-
3,833,100
-
3,833,100
Craneware plc
Annual Report 2008
11
Directors' Report
Director's interests in share options are detailed in the Remuneration Committee Report on page 18.
Note 21 details the changes in equity over the course of the year.
Substantial shareholders
As at the 30th June 2008, the Company had been notified of the following beneficial interests in 3% or more of the issued share capital
pursuant to Part VI of the Companies Act 1985:
K Neilson
W G Craig
Artemis Investment Management
Blackrock Investment Management
Fidelity Investments
Standard Life Investments
Axa Framlington Investment Management
Aegon
D W Paterson
ISIS EP LLP
The total number of shares as at 30th June 2008 was 25,109,950.
No. of Ordinary
£0.01 Shares
3,887,790
3,833,100
2,977,500
2,505,544
2,098,100
1,676,600
1,312,750
867,916
835,900
796,950
% of issued
share capital
15.48
15.27
11.86
9.98
8.36
6.68
5.23
3.46
3.33
3.17
Indemnity of Directors and Officers
Under the Company's Articles of Association and subject to the provisions of the Companies Acts, the Company may indemnify any director
or other officer against liability incurred by him in the execution or discharge of his duties or exercise of his powers. Including but not
limited to any liability for the costs of legal proceedings where judgement is given in their favour. In addition, the Company may purchase
and maintain for any director or other officer, insurance against any liability, and the Company does maintain appropriate insurance cover
against legal action brought against directors and officers.
Employee Involvement
The general policy of the Company is to welcome employee involvement as far as it is reasonably practicable. Employees are kept informed
by meeting, regular updates and web page postings. In addition the Group's UK and US senior management teams, referred to as the
Leadership Group, meet regularly to continually review and update the Group's strategic aims and department roadmaps.
Employment of Disabled Persons
Applications for employment by disabled persons are always fully considered, bearing in mind the respective aptitudes and abilities of
the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with
the Group continues and the appropriate training is arranged. It is the policy of the Company that the training, career development and
promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability.
Craneware plc
Annual Report 2008
12
Directors' Report
Auditors and Disclosure of
Information to Auditors
Each director, as at the date of this
report, has confirmed that insofar as
they are aware there is no relevant audit
information (that is, information needed
by the Company's auditors in connection
with preparing their report) of which the
Company's auditors are unaware, and they
have taken all the steps that they ought
to have taken as a director in order to
make themselves aware of any relevant
audit information and to establish that
the Company's auditors are aware of that
information.
A resolution to reappoint
PricewaterhouseCoopers LLP as auditors
will be proposed at the annual general
meeting.
Approved by the Board of Directors and
signed on behalf of the Board by:
K Neilson
Director
9th September 2008
Statement of Directors' Responsibilities
The directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors to
prepare financial statements for each
financial year that give a true and fair
view of the state of affairs of the Company
and the Group and of the profit or loss of
the Company and Group for that period.
Under that law the directors have elected
to prepare the financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted
by the European Union. In preparing those
financial statements, the directors are
required to:
Select suitable accounting policies and apply
them consistently;
Make judgements and estimates that are
reasonable and prudent;
State whether applicable accounting
standards have been followed, subject
to any material departures disclosed and
explained in the financial statements; and
Prepare the financial statements on
the going concern basis, unless it is
inappropriate to presume that the Group
and Company will continue in business.
The directors are responsible for keeping
proper accounting records that disclose
with reasonable accuracy at any time the
financial position of the Company and the
Group and for ensuring that the financial
statements comply with the Companies
Act 1985. They are also responsible for
safeguarding the assets of the Group and
hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
Craneware plc
Annual Report 2008
13
Craneware plc
Annual Report 2008
14
Corporate Governance Report
The Board of Directors (“the Board”) acknowledge the importance of the Principles set out in The Combined Code on Corporate Governance
issue by the Financial Reporting Council in June 2006. Although the Combined Code is not compulsory for AIM listed companies, the Board
has applied the principles in this statement, together with the Remuneration Committee Report set out on page 17 as far as practicable
for a public Company of its size, as follows:
The Board of Directors
The Board consists of two executive Directors and currently two non-executive Directors. The role of Chairman and Chief Executive Officer
are distinct. The Chairman is responsible for the effectiveness of the Board and ensuring communication with shareholders and the Chief
Executive Officer is accountable for the management of the Group. The Company is actively in the process of seeking to appoint a third
independent non-executive Director to compliment the existing Board. The Chairman will be responsible for providing a tailored formal
induction to any new Board member and major shareholders will be given the opportunity to meet them.
At the first Annual General Meeting (AGM) all the Directors shall retire from office, and at every subsequent AGM one third of the Directors
who are subject to retirement by rotation, or, if their number is not three or a multiple of three, the number nearest to but not less than
one-third, shall retire from office.
The Board meets regularly and is responsible for strategy, performance, approval of major capital investments, treasury and financing
matters and the framework of internal controls.
To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all
Directors in advance of Board meetings. All Directors have access to the advice and services of the Company Secretary, who is responsible
for ensuring that Board procedures are followed and that applicable rules and regulations are compiled with. The appointment and
removal of the Company Secretary is a matter for the Board as a whole. In addition, procedures are in place to enable the Directors to
obtain independent professional advice in the furtherance of their duties, if necessary, at the Company's expense. The Company Secretary
maintains the minutes together with a register of individual's attendance at Directors' meetings and the record of attendance between
IPO and the year ended 30th June 2008 was as follows:
G R Elliot
N P Heywood
K Neilson
A M McDougall
Board
7
7
7
7
Remuneration Committee
5
5
5
5
Audit Committee
2
2
2
2
Total
14
14
14
14
Nominations Committee
The Nominations Committee during the year consisted of the two non-executive directors. It was not deemed necessary for the
Nominations Committee to meet during the year although there have already been two meetings after the balance sheet date. The
Committee is responsible for succession planning and for ensuring the right mix of skills and experience are represented on the Board
together with considering any senior company appointments or potential appointments.
Audit Committee
The Audit Committee during the year consisted of the two non-executive directors (Chaired by N P Heywood). The executive directors
and PricewaterhouseCoopers LLP (external auditors) are invited to attend meetings and sub-meetings. The Board is satisfied that at
least one member of the Audit Committee has recent and relevant financial experience. The Audit Committee meets at least twice a
year and considers the appointment, reappointment and removal of the external auditors and approves their remuneration and terms
of engagement, including developing and implementing a policy on the provision of non-audit services by the external audit firm. It
also reviews and monitors the independence and objectivity of the external auditor. The Committee is also responsible for monitoring
Craneware plc
Annual Report 2008
15
Corporate Governance Report
compliance with accounting and legal
requirements and for reviewing the annual
and interim financial statements prior to
their submission for approval by the Board.
The Audit Committee has assessed the
need for an internal audit function and
has concluded that the present size and
complexity of the group does not merit
such a function at this time.
Remuneration Committee
The Remuneration Committee during the
year consisted of the two non-executive
directors (Chaired by N P Heywood) with
an invitation extended to the executive
directors. The Committee's role is to
consider and approve the remuneration
and benefits of the executive directors. In
the current financial year, the salaries of
the directors were determined following
benchmarking against market rates for
such positions. Details of the highest
paid director are noted on page 17 in the
Remuneration Committee Report.
In framing the Company's remuneration
policy, the Remuneration Committee
has given full consideration, as far as
practically possible, to Section B of The
Combined Code. The Report on Directors'
Remuneration is set out on page 17.
The Remuneration Committee met on
five occasions during the year and it
was attended by both members of the
Remuneration Committee.
Internal Financial Control
The Board is responsible for establishing
and maintaining the Company's system
of internal financial control and places
importance on maintaining a strong
control environment and continually
reviewing its effectiveness. The key risk
management procedures, which the Board
has established with a view to providing
effective internal financial control are as
follows:
The Company's organisational structure
has clear lines of responsibility, with
professionally qualified staff in positions of
responsibility.
The Company prepares a comprehensive
annual budget that is approved by the
Board. Monthly results are reported against
the budget and variances are closely
monitored by the Board.
The Board is responsible for identifying the
major business risks faced by the Company
and for determining the appropriate courses
of action to manage those risks.
Relations with Shareholders
Communications with shareholders are
given high priority. The Board use the
Annual General Meeting to communicate
with investors and welcomes their
participation. Continuous updates are made
on the Group's website for shareholders to
review and the "Investor relations" section
is under continued development.
Statement by Directors on Compliance
with the Provisions of the Combined Code
The Board considers that they have
complied with the provisions of The
Combined Code, as far as practicable and
appropriate for a public Company of
this size, in accordance with the
recommendations on corporate governance
of the Quoted Companies Alliance.
The specific provisions of The Combined
Code not yet adopted are A1.3, A3.1,
A3.3, A6.1, A7.2, C2.1, C3.1 and D1.1. It is
the intention of the Group to develop its
procedures in certain areas where it would be
valuable to do so.
AIM Rule Compliance Report
Craneware plc is quoted on AIM and, as such
under AIM Rule 31 the Company is required
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.
Approved by the Board of Directors and
signed on behalf of the Board by:
N P Heywood
Director
9th September 2008
Craneware plc
Annual Report 2008
16
Remuneration Committee Report
The Remuneration Committee consisted of the two non-executive directors (Chaired by N P Heywood) during the year under review. It is
anticipated that the new Non-Executive appointment will also join the Remuneration Committee.
The Remuneration Committee is responsible for determining and reviewing the terms of appointment and the remuneration of executive
Directors. The Committee takes external advice, as appropriate, on remuneration issues and takes cognisance of major surveys covering all
aspects of the pay and benefits of directors and senior executives in many companies.
Policy
The Committee aims to provide base salaries and benefits which are competitive in the relevant external market and which take account
of the Company and individual performance thus enhancing the Company's ability to recruit and retain the calibre of individuals required
for its continuing business success. It is the policy of the Committee to provide financial incentives and to reward superior performance
over the medium and long term by creating opportunities to enable cash bonuses, benefits packages and share incentives at all levels
throughout the organisation. A large proportion of bonuses are dependent upon the achievement of targets and objectives.
Service Contracts
The executive Directors and the non-executive directors are employed under individual employment arrangements or letters of
appointment where appropriate, which provide for three and one months notice respectively by either party.
G R Elliott was appointed Chairman for an initial term of three years commencing 10th August 2007.
Directors' Interests
The Directors' interests in the ordinary shares of the Company are set out in the Directors' Report on page 12.
Directors' Emoluments
For Directors who held office at the balance sheet date, emoluments for the year ending 30th June 2008 were as follows (this information
is not subjected to audit):
Executives
K Neilson
A M McDougall
Non-Executives
G R Elliott
N P Heywood
Total
Salary/Fees ($)
Benefits ($)
Bonus ($)
Pension ($)
2008 Total ($) 2007 Total ($)
240,494
200,413
89,313
432,888
718
914
32,066
32,066
10,020
-
283,298
233,393
235,036
192,223
-
-
-
-
-
-
89,313
432,888
-
43,919
963,108
1,632
64,132
10,020
1,038,892
471,178
1. Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company held by the Directors.
2. Benefits represent payments for health insurance.
3. Accrued bonuses are included in the above and were approved by the Remuneration Committee.
4. A supplemental charge by Matrix Trading Systems Ltd in respect of services rendered by N P Heywood is included in the above, details of which are disclosed
within the Related Party Transactions note to the financial statements on page 44.
All options which were granted or exercised during the year, or are outstanding at 30th June 2008 are over ordinary shares. Options over
ordinary shares described as “initial options” were granted on the day following IPO and are subject to performance criteria. Options over
Incentive Shares lapsed at IPO without any such options having been exercised.
Craneware plc
Annual Report 2008
17
Remuneration Committee Report
Directors' interests in share options
Directors' share options as at 30th June 2008 were:
Exercise
Price
(cents)
Exercise
Price
(pence)
Issue
Date
Held At
30/06/07
Granted
During Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/08
1.991
1.0
Sep-07
-
20,000
-
-
20,000
0.007
0.001
1.991
0.0033 May-06
0.0003 May-06
207,000
78,000
- (207,000)
-
-
-
(78,000)
-
-
1.0
Sep-07
-
98,000
-
-
98,000
K Neilson
Ordinary shares
(“initial options”)
A M McDougall
Ordinary shares
Incentive shares
Ordinary shares
(“initial options”)
Employee share options as at 30th June 2008 were:
Exercise
Price
(cents)
0.007
0.001
1.991
Ordinary shares
Incentive shares
Ordinary shares
(“initial options”)
Ordinary shares
Exercise
Price
(pence)
Issue
Date
Held At
30/06/07
Granted
During Year
Exercised
During Year
Lapsed
During Year
0.0033 May-06 1,273,800
0.0003 May-06 1,188,900
- (876,420)
-
-
(191,580)
(1,188,900)
Held At
30/06/08
205,800
-
1.0
Sep-07
0.007
0.0033
Sep-07
- 1,282,000
-
-
50,100
40,600
-
-
-
(241,200) 1,040,800
-
-
50,100
40,600
Ordinary shares
3.690
187.0 May-08
On behalf of the Remuneration Committee:
N P Heywood
Chairman of the Remuneration Committee
9th September 2008
Craneware plc
Annual Report 2008
18
Independent Auditors' Report to the members of Craneware plc
We have audited the Group and Parent
Company financial statements (the
''financial statements'') of Craneware plc
for the year ended 30th June 2008 which
comprise the Group Income Statement, the
Group and Parent Company Balance Sheets,
the Group and Parent Company Cash Flow
Statements, and the related notes. These
financial statements have been prepared
under the accounting policies set out
therein.
Respective responsibilities of
directors and auditors
The directors' responsibilities for
preparing the Annual Report and the
financial statements in accordance with
applicable law and International Financial
Reporting Standards (IFRSs) as adopted
by the European Union are set out in the
Statement of Directors' Responsibilities.
Our responsibility is to audit the financial
statements in accordance with relevant
legal and regulatory requirements and
International Standards on Auditing (UK
and Ireland). This report, including the
opinion, has been prepared for and only
for the Company's members as a body
in accordance with Section 235 of the
Companies Act 1985 and for no other
purpose. We do not, in giving this opinion,
accept or assume responsibility for any
other purpose or to any other person to
whom this report is shown or into whose
hands it may come save where expressly
agreed by our prior consent in writing.
We report to you our opinion as to whether
the financial statements give a true and fair
view and whether the financial statements
have been properly prepared in accordance
with the Companies Act 1985 and, as
regards the Group financial statements,
Article 4 of the IAS Regulation. We also
report to you whether in our opinion the
information given in the Directors' Report is
consistent with the financial statements.
In addition we report to you if, in our
opinion, the Company has not kept proper
accounting records, if we have not received
all the information and explanations we
require for our audit, or if information
specified by law regarding directors'
remuneration and other transactions is not
disclosed.
We read other information contained in
the Annual Report and consider whether
it is consistent with the audited financial
statements. The other information
comprises only the Directors' Report,
the Chairman's Statement, the Chief
Executive Officer's Statement, the Corporate
Governance Report and the Remuneration
Committee Report. We consider the
implications for our report if we become
aware of any apparent misstatements or
material inconsistencies with the financial
statements. Our responsibilities do not
extend to any other information.
Basis of audit opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK and Ireland) issued by the Auditing
Practices Board. An audit includes
examination, on a test basis, of evidence
relevant to the amounts and disclosures in
the financial statements. It also includes
an assessment of the significant estimates
and judgments made by the directors in
the preparation of the financial statements,
and of whether the accounting policies are
appropriate to the Group's and Company's
circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit
so as to obtain all the information and
explanations which we considered
necessary in order to provide us with
sufficient evidence to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or other irregularity or
error. In forming our opinion we also
evaluated the overall adequacy of the
presentation of information in the financial
statements.
Opinion
In our opinion:
the Group financial statements give a true
and fair view, in accordance with IFRSs as
adopted by the European Union, of the state
of the Group's affairs as at 30th June 2008
and of its profit and cash flows for the year
then ended;
the Parent Company financial statements
give a true and fair view, in accordance with
IFRSs as adopted by the European Union as
applied in accordance with the provisions
of the Companies Act 1985, of the state
of the Parent Company's affairs as at 30th
June 2008 and cash flows for the year then
ended;
the financial statements have been properly
prepared in accordance with the Companies
Act 1985 and, as regards the Group financial
statements, Article 4 of the IAS Regulation;
and
the information given in the Directors'
Report is consistent with the financial
statements.
PricewaterhouseCoopers LLP
Chartered Accountants
and Registered Auditors
Edinburgh
9th September 2008
Craneware plc
Annual Report 2008
19
Consolidated Income Statement for the year ended 30th June 2008
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Analysed as:
Profit before share-based payments, depreciation and amortisation
Share-based payments
Depreciation of plant and equipment
Amortisation of intangible assets
Finance income
Profit before taxation
Tax charge
Profit for the year
The results relate to continuing operations.
Earnings per share for the period attributable to equity holders
- Basic ($ per share)
- Diluted ($ per share)
Notes
2008
$'000
2007
$'000
4
5
6
9
10
11
21
18,676
(954)
17,722
(14,141)
3,581
15,111
(808)
14,303
(12,906)
1,397
4,516
(634)
(183)
(118)
607
4,188
(899)
3,289
3,796
(2,191)
(152)
(56)
446
1,843
(627)
1,216
Notes
13a
13b
2008
0.14
0.13
2007
0.06
0.05
Craneware plc
Annual Report 2008
20
Consolidated Balance Sheet for the year ended 30th June 2008
ASSETS
Non-Current Assets
Plant and equipment
Intangible assets
Deferred tax
Trade and other receivables
Current Assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total Assets
EQUITY & LIABILITIES
Non-Current Liabilities
Deferred income
Current Liabilities
Deferred income
Trade and other payables
Total Liabilities
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total Equity
Total Equity and Liabilities
Notes
2008
$'000
2007
$'000
14
15
19
18
17
18
23
24
20
21
21
21
21
415
794
1,075
75
2,359
487
434
810
75
1,806
8
-
4,016
4,685
9,664
21,112
25,797 13,688
28,156 15,494
444
444
903
903
9,853
1,760
8,579
2,261
11,613 10,840
12,057 11,743
509
9,253
3,041
3,296
1
1,823
2,477
(550)
16,099
3,751
28,156 15,494
The financial statements on pages 20 to 44 were approved and authorised for issue by the board of directors on
9th September 2008 and were signed on its behalf by:
K Neilson
Director
A M McDougall
Director and Company Secretary
Craneware plc
Annual Report 2008
21
Company Balance Sheet for the year ended 30th June 2008
ASSETS
Non-Current Assets
Investment in subsidiary undertakings
Plant and equipment
Intangible assets
Deferred Tax
Trade and other receivables
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
EQUITY & LIABILITIES
Non-Current Liabilities
Deferred income
Current Liabilities
Deferred income
Trade and other payables
Total Liabilities
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total Equity
Total Equity and Liabilities
Notes
2008
$'000
2007
$'000
16
14
15
19
18
18
23
24
20
21
21
21
21
0
315
785
281
75
1,456
0
388
418
460
75
1,341
4,437
3,857
9,116
20,336
24,773 12,973
26,229 14,314
444
444
903
903
9,853
1,784
8,579
1,645
11,637 10,224
12,081 11,127
1
509
1,823
9,253
1,793
2,195
(430)
2,191
3,187
14,148
26,229 14,314
The financial statements on pages 20 to 44 were approved and authorised for issue by the board of directors on
9th September 2008 and signed on its behalf by:
K Neilson
Director
A M McDougall
Director and Company Secretary
Craneware plc
Annual Report 2008
22
Cashflow Statement for the year ended 30th June 2008
Cash flows from operating activities
Cash generated from operations
Interest received
Tax (paid)
Net cash from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Capitalised intangible assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to company shareholders
Net IPO proceeds
Net cash from/(used) in financing activities
Notes
Group
2008
$'000
2007
$'000
Company
2008
$'000
2007
$'000
22
4,987
2,626
4,376
2,641
607
446
607
446
(1,495)
4,099
(1,638)
1,434
(1,168)
3,815
(1,604)
1,483
(111)
(478)
(589)
(504)
(433)
(937)
(59)
(474)
(533)
(418)
(423)
(841)
20
(1,000)
-
-
7,938
7,938 (1,000)
(1,000)
-
-
7,938
7,938 (1,000)
Net (decrease) / increase in cash and cash equivalents
11,448
(503) 11,220
(358)
Cash and cash equivalents at the start of the year
9,664
10,167
9,116
9,474
Cash and cash equivalents at the end of the year
21,112
9,664 20,336
9,116
Craneware plc
Annual Report 2008
23
Notes to the Financial Statements
General Information
Craneware plc (the Company) is a public
limited company incorporated in Scotland.
The Company has a primary listing on
the AIM stock exchange. The address of
its registered office and principal place
of business is disclosed on page 45 of the
financial statements. The principal activity
of the company is described in the directors'
report.
Basis of preparation
The financial statements are prepared in
accordance with International Financial
Reporting Standards (IFRS), IFRIC
interpretations and with those parts of
the Companies Act 1985 applicable to
companies reporting under IFRS. The
financial statements have been prepared
under the historic cost convention. A
summary of the more important accounting
policies is 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
applicable.
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
undertaking are referred to in this report as
the Group.
Craneware plc
Annual Report 2008
24
1 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 principal functional currency
is the US dollar. The Group's financial
statements are therefore prepared in US
dollars.
Currency Translation
Transactions denominated in foreign
currencies are translated into US dollars
at the rate of exchange ruling at the date
of the transaction. Monetary assets and
liabilities expressed in foreign currencies
are translated into US dollars at rates of
exchange ruling at the balance sheet date
($1.9906/£1). Exchange gains or losses
arising upon subsequent settlement of the
transactions and from translation at the
balance sheet date are included within
the related category of expense where
separately identifiable, or in general and
administrative expenses.
New Standards, amendments and
interpretations effective in the year
IFRS 7, 'Financial Instruments: Disclosures',
and complementary amendment to IAS 1,
'Presentation of financial statements
– Capital disclosures', introduces new
disclosure relating to financial instruments
that replace the disclosure requirements
of IAS 32. This standard has been applied
to both the current and comparative
years' information within these financial
statements and does not materially change
the financial results.
IFRIC 8, 'Scope of IFRS 2', requires
consideration of transactions involving the
insurance of equity instruments, where
the identifiable consideration received
is less than the fair value of the equity
instruments issued in order to establish
whether or not they fall within the scope
of IFRS 2. This interpretation does not
have any impact on the Group financial
statements.
IFRIC 9, 'Re-assessment of embedded
derivatives', clarifies certain aspects of the
treatment of embedded derivatives under
IAS 39, 'Financial Instruments: Recognition
and Measurement'. This interpretation does
not have any impact on the Group financial
statements.
IFRIC 10, 'Interim financial reporting and
impairment', prohibits the impairment
losses recognised in an interim period on
goodwill, investment in equity instruments
and in financial assets carried at cost to
be reversed at a subsequent balance sheet
date. This interpretation does not have any
impact on the Group financial statements.
IFRIC 11, 'IFRS – Group and treasury
share transactions', provides guidance on
whether share-based transactions involving
treasury shares or involving Group entities
should be accounted for as equity-settled
or cash-settled share-based payment
transactions in the stand alone accounts of
the parent and the Group companies. This
interpretation does not have any impact on
the Group financial statements.
New Standards, amendments and
interpretations not yet effective
IFRS 2, 'Share-based payments' (effective
1st January 2009*), amendment relating
to vesting conditions and cancellations.
There is no anticipated impact on the Group
financial statements of this amendment.
IFRS 3, 'Business combinations', A
comprehensive revision on applying the
acquisition method and the consequential
amendments to IAS 27, 'Consolidated
and separate financial statements' (both
effective 1st July 2009*). The revision and
amendment of the standards will affect the
accounting treatment of any future business
acquisitions.
Notes to the Financial Statements
IFRS 8, 'Operating segments' (effective 1st
January 2009*), replaces IAS 14, 'Segment
reporting'. The new standard requires a
'managed approach', under which segment
information is presented on the same basis
as that used for internal reporting purposes.
There is no anticipated impact on the Group
financial statements although this will
be continually assessed by management
as reportable operating segments will be
subject to change based on amendments to
internal reporting.
IAS 1, 'Presentation of financial
statements' (effective 1st January 2009*).
A comprehensive revision of the standard
that will affect the way financial statements
are presented. Management is assessing
the affects of the revised disclosure
requirements of this standard; although
no material impact on the Group financial
statements is anticipated.
IAS 23, 'Borrowing costs' (effective 1st
January 2009*), is amended to remove the
option to immediately expense borrowing
costs that are directly attributable to a
qualifying asset. This amendment will not
have any impact on the Group financial
statements.
IFRIC 12, 'Service concession arrangements'
(effective 1st January 2008*), applies
to contractual arrangements whereby a
private sector operator participates in the
development, financing, operations and
maintenance of infrastructure for public
sector services. This amendment will not
have any impact on the Group financial
statements.
IFRIC 13, 'Customer loyalty programmes'
(effective 1st July 2008*), clarifies that
where goods or services are sold together
with a customer loyalty incentive,
the arrangement is a multi-element
arrangement and the consideration
receivable from the customer is allocated
between components of the arrangement
using fair values. It is not anticipated that
this clarification will have any impact on
the Group financial statements.
IFRIC 14, 'IAS 19 – The limit on a
defined benefit asset, minimum funding
requirements and their interaction'
(effective 1st January 2008*), provides
guidance on assessing the limit in IAS 19
on the amount of the surplus that can be
recognised as an asset. It also explains
how the pension asset or liability may
be affected by a statutory or contractual
minimum funding requirement. It is not
anticipated that this interpretation will
have any impact on the Group financial
statements.
The directors anticipate that the future
adoption of these standards, amendments
and interpretations (where relevant to
the Group) will have no material financial
impact on the financial statements of
the Group. None of the above standards,
amendments or interpretations have been
adopted early.
* Effective for accounting periods starting on or
after this date.
Basis of consolidation
The consolidated income statement and
balance sheet include the accounts of the
Parent Company and its subsidiary. Intra
Group revenue and profits are eliminated on
consolidation and all sales and profit figures
relate to external transactions only. As
permitted by Section 230 of the Companies
Act 1985, the income statement of the
Parent Company is not presented.
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 comprises the value of software
license sales, installation, training,
maintenance and support services, and
consulting engagements. Revenue is
recognised when (i) persuasive evidence
of an arrangement exists; (ii) delivery has
occurred or services have been rendered;
(iii) the sales price has been fixed and
determinable; and (iv) collectability is
reasonably assured.
For software arrangements with multiple
elements, revenue is recognised dependent
on whether vendor-specific objective
evidence (“VSOE”) of fair value exists for
each of the elements. VSOE is determined
by reference to sales to external customers
made on a stand-alone basis. Where there is
no VSOE revenue is recognised rateably over
the full term of each contract.
Revenue from standard license products
which are not modified to meet the
specific requirements of each customer is
recognised when the risks and rewards of
ownership of the product are transferred to
the customer.
Revenue from installation and training
is recognised as services are provided,
from consulting engagements when all
obligations under the consulting agreement
have been fulfilled.
Software sub-licensed to third parties
is recognised in accordance with the
underlying contractual agreements. Where
separate services are delivered, revenue is
recognised on delivery of the service. All
other revenue is recognised rateably over
the term of the sub licence agreement.
The excess of amounts invoiced and future
invoicing over revenue recognised, is
included in deferred revenue. If the amount
of revenue recognised exceeds the amounts
invoiced the excess amount is included
within accounts receivable.
Craneware plc
Annual Report 2008
25
Notes to the Financial Statements
Tangible assets – Plant and Equipment
All equipment and fixtures are stated
at historical cost less depreciation.
Depreciation is provided to write off the
cost less estimated residual values of
tangible fixed assets over their expected
useful lives. It is calculated at the following
rates:
projects, development expenditure is
capitalised until initial commercialisation of
the product, and thereafter amortised on a
straight-line basis over its estimated useful
life. Staff costs and specific third party
costs involved with the development of
the software are included within amounts
capitalised.
Computer equipment — 33% straight line
Tenants improvements — 20% straight line
Office furniture — 25% straight line
Where the carrying amount of an asset
is greater than its estimated recoverable
amount, it is written down immediately to
its recoverable amount.
Gains and losses on disposal of assets are
included in operating profit.
Repairs and maintenance are charged to
the income statement during the financial
year in which they are incurred. The cost
of major renovations is included in the
carrying amount of the assets when it is
probable that future economic benefits in
excess of the originally assessed standard of
performance of the existing asset will flow
to the Group.
Acquired Intangible Assets
Computer software and licensed to-use
technology are capitalised at cost and
amortised on a straight-line basis over a
prudent estimate of the time that the Group
is expected to benefit from them, which is
typically three to five years.
Intangible Assets – Research and
Development Expenditure
Expenditure associated with developing and
maintaining the Group's software products
are 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
Impairment Tests
The Group considers whether there is any
indication that non-current assets are
impaired on an annual basis. If there is
such an indication, the Group carries out an
impairment test by measuring the assets'
recoverable amount, which is the higher
of the assets' fair value less costs to sell
and their value in use. If the recoverable
amount is less than the carrying amount an
impairment loss is recognised.
Taxation
The charge for taxation is based on the
profit for the period and takes into account
deferred taxation. 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” below,
a compensation expense is recorded in
the Group's income statement 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 income statement. 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.
Investments in subsidiary
The investment in subsidiary is stated at
cost.
Operating leases
The costs of operating leases are charged on
a straight line basis over the duration of the
leases in arriving at operating profit.
Grants
Grants are recognised at their fair value
where there is a reasonable assurance that
the grant will be received and the Company
will comply with all conditions pertaining
to the grant. Government grants relating
to costs are deferred and recognised in the
income statement over the period necessary
to match them with the costs that they are
intended to compensate.
Craneware plc
Annual Report 2008
26
Notes to the Financial Statements
Financial assets
The Group classifies its financial assets in
the following categories: (i) at fair value
through profit and loss, (ii) loans and
receivables and (iii) available for sale. The
classification depends on the purpose for
which the financial assets were acquired.
Management determines the classification
of its financial assets at initial recognition.
At each balance sheet date included in the
financial information, the Group held only
items classified as loans and receivables.
Loans and receivables are non-derivative
financial assets with fixed or determinable
payments that are not quoted in an active
market. They are included in current assets,
except for maturities greater than 12
months after the balance sheet date. These
are classified as non-current assets. Loans
and receivables are classified as 'trade and
other receivables' in the balance sheet.
Trade receivables are recognised initially
at fair value and subsequently measured
at amortised cost using the effective
interest method, less provision for
impairments. A provision for impairment
of trade receivables is established when
there is objective evidence that the Group
will not be able to collect all amounts
due according the original terms of the
receivables. Significant financial difficulties
of the debtor, probability that the
debtor will enter bankruptcy or financial
reorganisation, and default or delinquency
in payments (more than 90 days overdue)
are considered indicators that the trade
receivable is impaired. The amount of the
provision is the difference between the
asset's carrying amount and the present
value of the estimated future cash flows,
discounted at the original effective interest
rate. The carrying amount of the asset is
reduced through the use of an allowance
account, and the amount of the loss is
recognised in the income statement within
'net operating expenses'. When a trade
receivable is uncollectible, it is written off
against the allowance account for trade
receivables. Subsequent recoveries of
amounts previously written off are credited
against net operating expenses in the
income statement.
Financial liabilities
The only financial liability held by the Group
at each balance sheet date included in the
financial information is trade payables.
Trade payables are recognised initially at
fair value and subsequently measured at
amortised cost using the effective interest
method.
Inventories
Inventories consist of consumables and
are valued at the lower of costs and net
realisable value.
Cash and Cash Equivalents
Cash and cash equivalents include cash in
hand, deposits held with banks and short
term highly liquid investments. For the
purpose of the cash flow statement, cash
and cash equivalents comprise of cash on
hand, deposits held with banks and short
term high liquid investments.
Employee Benefits
The Group operates a defined contribution
Stakeholder Pension Scheme as described
in Section 3 of Welfare Reform and Pensions
Act 1999. Private medical insurance is also
provided to every employee. Amounts
payable in respect to these benefits are
charged to the income statement as they
fall due.
Share-Based Payments
The Group grants share options to certain
employees. In accordance with IFRS 2,
“Share-Based Payments” equity-settled
share-based payments are measured at
fair value at the date of grant. Fair value
is measured by use of the Black-Scholes
pricing model as appropriately amended.
The fair value determined at the date of
grant of the equity-settled share-based
payments is expensed on a straight-line
basis over the vesting period, based on the
Group's estimate of the number of shares
that will eventually vest.
The share-based payments charge is
included in net operating expenses and also
included in 'Other reserves'.
Dividends
Dividends are recorded in the accounts in
the year in which they are approved by
the shareholders. Interim dividends are
recognised as a distribution when paid.
2 Critical accounting estimates
and judgements
The preparation of financial statements
in accordance with generally accepted
accounting principles 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:-
Provision for impairment of trade
receivables:- the Group assesses trade
receivables for
impairment which requires the directors
to estimate the likelihood of payment
forfeiture by customers.
Revenue recognition:-
the Group assesses the economic benefit
that will flow from future milestone
payments in relation to sub-licensing
partnership arrangements. This requires
the directors to estimate the likelihood of
the Group, its partners, and sub-licensees
meeting their respective commercial
milestones and commitments.
Craneware plc
Annual Report 2008
27
Notes to the Financial Statements
Capitalisation of development
expenditure:-
the Group capitalises development costs
provided the conditions laid out below
have been met. Consequently the directors
require to continually assess the commercial
potential of each product in development
and its useful life following launch.
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.
Share-based payments:-
the Group requires to make a charge to
reflect the value of share-based equity-
settled payments in the period. At each
grant of options and balance sheet date, the
directors are required to consider whether
there has been a change in the fair value
of share options due to factors including
number of expected participants.
3 Financial risk management
Financial risk factors
The Group's activities expose it to a variety
of financial risks: market risk (primarily
currency risk and cash flow interest risk
rate), credit risk and liquidity risk. Risk
management is carried out under policies
approved by the board of directors. The
board provides written principles for
overall risk management, as well as written
policies covering specific areas, such as
foreign exchange risk, interest rate risk and
credit risk.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises when
commercial transactions or recognised
assets or liabilities are denominated in a
currency that is not the entity's functional
currency. The Group operates primarily in
the US however a significant proportion of
costs are incurred in Sterling.
Management are therefore required to
continually assess the Group's foreign
exchange risk against the Group's
functional currency, and whether any
form of hedge should be entered into. The
Group's policy has not been to enter into
hedging arrangements, although the Board
continues to assess the appropriateness of
this approach.
The directors believe that a 10% change
in the value of Sterling relative to the
Dollar would impact post-tax profits by
approximately $250,000 as a result of
foreign exchange gains/losses on Sterling
denominated transactions and the
translation of Sterling denominated current
liabilities.
(ii) Cash flow and interest rate risk
The Group has no significant interest-
bearing assets or liabilities, other than
cash held on deposit at variable rates. The
directors believe that a 25 basis point move
in interest rates would, with all variables
held constant, alter post-tax profit for the
year in the region of $50,000 higher/lower
respectively.
(b) Credit risk
Credit risk is managed on a group basis.
Credit risk arises from cash and cash
equivalents and trade receivables. In order
to minimise the Group's exposure to risk,
all cash deposits are placed with reputable
banks and financial institutions. The Group's
exposure to trade receivables is reduced
due to contractual terms which require
installation, training, annual licensing and
support fees, to be invoiced annually in
advance.
(c) Liquidity risk
Management review the liquidity position
of the Group to ensure that sufficient cash
is available to meet the underlying needs of
the Group as they fall due for payment.
The table below analyses the Group's
financial liabilities which will be settled on
a net basis into relevant maturity groupings
based on the remaining period from the
balance sheet date to the contractual
maturity date. The amounts disclosed
in the table below are the contractual
undiscounted cash flows. There is no
difference between the undiscounted
liabilities and the amounts shown in Note
24 as the Group's financial liabilities are all
short term in nature.
Capital risk management
The Group is cash generative and trading is
funded internally. As a result, management
do not consider capital risk to be significant
for the Group. Contracts are normally billed
annually in advance. Assuming timely
receivables collection, the Group will have
favourable movements from working
capital by generating cash ahead of revenue
recognition. Consequently funds are
retained in the business to finance future
growth, either organically or by acquisition.
Less than 1 year
$'000
421
Between 1 & 2 years
$'000
-
Between 2 & 5 years
$'000
-
Over 5 years
$'000
-
Total
$'000
421
257
-
-
-
257
At 30 June 2007
Trade Payables
At 30 June 2008
Trade Payables
Craneware plc
Annual Report 2008
28
Notes to the Financial Statements
4 Revenue
The Group revenue is derived entirely from the sale, supply, installation and ongoing support of software
products to hospitals within the United States of America and is deemed to have no other segments.
5 Net operating expenses
Net operating expenses are made up as follows:-
Sales and marketing expenses
Client Servicing
Research and development
Administrative expenses
Share-based payments
Depreciation of plant and equipment
Amortisation of intangible assets
Exchange loss/(gain)
Net operating expenses
6 Operating profit
The following items have been included in arriving at operating profit:-
Staff costs (Note 8)
Depreciation of plant and equipment
Amortisation of intangible assets
Impairment of trade receivables
Purchased licences expensed
Operating lease rents for premises
Services provided by the Group's auditor
During the year the Group obtained the following services from the Group's auditors as detailed below:-
Statutory audit - Group
Tax compliance and other tax services
Employee incentive advice
Other assurance services
Reporting accountants at IPO
7 Grant
Grants received / receivable in the year
2008
$'000
4,857
3,359
2,623
2,319
634
183
118
48
14,141
2008
$'000
9,217
183
118
110
73
256
2008
$'000
96
64
90
116
356
722
2008
$'000
399
2007
$'000
4,500
2,498
2,173
1,398
2,191
152
56
(62)
12,906
2007
$'000
9,720
152
56
109
111
174
2007
$'000
74
43
13
30
-
160
2007
$'000
200
The grant receivable in the year related to an application made by the Group for a RSA grant. The criteria
to qualify for this consisted of adding to existing development and support staff. This grant is not shown
separately on the income statement but reduces net operating expenses.
Craneware plc
Annual Report 2008
29
Notes to the Financial Statements
8 Staff costs
The average number of persons employed by the Group during the year, excluding executive directors, is analysed below:
Sales and distribution
Client Servicing
Research and development
Administration
Employment costs of all employees excluding executive directors:-
Wages and salaries
Social security costs
Post employment benefits
Share-based payments
Total direct costs of employment
Highest paid director:-
Salary and short-term employee benefits
Share-based payments
2008
Number
21
31
31
17
100
2008
$'000
7,760
803
20
634
9,217
233
53
286
2007
Number
21
26
26
17
90
2007
$'000
6,890
620
19
2,191
9,720
305
-
305
Director's emoluments are detailed in the Remuneration Committee Report on page 17 and key management
compensation is given in the Related party transaction note on page 43. Retirement benefits are accruing to
one of the executive directors under a defined contribution scheme (2007: 2).
9 Share-based payments
The Group has an equity-settled share-based payment scheme, whereby options over shares in Craneware
plc can be granted to employees and directors. A charge is shown in the income statement of $633,554 (2007:
$2,190,911) as detailed in Note 8 above.
Options issued under the 2006 Share Options Plan over Ordinary shares and Incentive shares were granted
at par and have been adjusted to reflect the 299 for 1 share split. Options over Ordinary shares vested on
admission to AIM on 13th September 2007 and became fully exercisable on that date, whilst options over
Incentive shares lapsed at this event. Outstanding options lapse upon leaving employment or if not exercised
within 10 years from the date of grant. Directors and employees interests in share options are set out in the
Remuneration Committee Report on page 18.
The market value of share options exercised during the year ranged from $2.60 (£1.28) at IPO to $4.13 (£2.075).
The market value at 30th June 2008 was $4.13 (£2.075).
Craneware plc
Annual Report 2008
30
Notes to the Financial Statements
Under the 2007 Share Options Plan, options over a maximum of 1,400,000 ordinary shares (“initial options”)
were granted on 14th September 2007 shortly after admission to AIM with an exercise price of $0.02 (£0.01)
per share. These options are subject to performance targets, will not normally vest until 1st October 2010, and
will lapse upon leaving employment or 30th April 2011.
Other options over ordinary shares under the 2007 Share Options Plan may be granted with an exercise price
no less than the market value of the Ordinary shares on the date of grant, and in the case of the directors of
the Company will be granted subject to sufficiently stretching performance targets. These options will be
subject to time based vesting and will not normally be exercisable before the third anniversary of grant. Such
options will lapse on the tenth anniversary of grant.
The fair value of options granted was estimated on the date of grant using the Black-Scholes option pricing
model as appropriately adjusted. The Company estimates the number of options likely to vest by reference
to the Group's staff retention rate, and expenses the fair value over the relevant vesting period. Volatility has
been estimated by reference to similar companies whose shares are traded on a recognised stock exchange.
The assumptions for each option grant were as follows:
2-May-08
$3.69
£1.87
3.00
40%
5.00%
1%
14-Sep-07
$2.60
£1.28
3.04
40%
5.75%
1%
$3.69
£1.87
1
$0.02
£0.01
84
40,600 1,400,000
$0.95
$1.11
Date of Grant
Share price at date of grant
Share price at date of grant
Vesting period (years)
Expected volatility
Risk free rate
Dividend yield
Options over Ordinary shares
Exercise price
Exercise price
Number of employees
Shares under option
Fair value per option
Options over Incentive shares
Exercise price
Exercise price
Number of employees
Shares under option
Weighted average fair value
per option
* At directors' valuation prior to IPO.
13-Sep-07
$2.60
£1.28
0.00
40%
5.75%
1%
0.007¢
0.0033p
1
50,100
$2.60
16-Mar-07
$2.06*
£1.06*
0.45
40%
5.25%
2%
0.007¢
0.0033p
19
56,700
$2.04
0.001¢
0.0003p
18
147,900
26-Oct-06
$1.97*
£1.04*
0.84
40%
4.75%
2%
11-May-06
$1.87*
£0.99*
1.30
40%
4.50%
2%
0.007¢
0.0033p
5
0.007¢
0.0033p
48
16,200 1,412,700
$1.82
$1.93
0.001¢
0.0003p
5
0.001¢
0.0003p
42
15,000 1,104,000
$0.004
$0.037
$0.131
Craneware plc
Annual Report 2008
31
Notes to the Financial Statements
The following options have been granted over Ordinary shares and Incentive shares:
2006 Share Option Plan:-
Ordinary share options (0.0033p exercise price)
Outstanding at 1 July
Granted
Forfeited
Exercised
Outstanding at 30 June
Incentive share options (0.0003p exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
2007 Share Option Plan:-
Initial options of ordinary shares (£0.01 exercise price)
Outstanding at 1 July
Granted
Forfeited
Exercised
Outstanding at 30 June
Ordinary share options (£0.01 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
10 Finance Income
Deposit interest receivable
2008
Options Number
2007
Options Number
1,480,800
50,100
(191,580)
(1,083,420)
255,900
1,266,900
-
(1,266,900)
-
-
1,400,000
(241,200)
-
1,158,800
-
40,600
-
40,600
1,412,700
81,900
(13,800)
-
1,480,800
1,104,000
177,300
(14,400)
1,266,900
-
-
-
-
-
-
-
-
-
2008
$'000
607
2007
$'000
446
Craneware plc
Annual Report 2008
32
Notes to the Financial Statements
11 Tax on profit on ordinary activities
Profit on ordinary activities before tax
Current tax
Corporation tax on profits of the period
Adjustments for prior periods
Total current tax charge
Deferred tax
Origination & reversal of timing differences
Adjustments for prior periods
Total deferred tax charge / (credit)
Tax on profit on ordinary activities
2008
$'000
4,188
701
(8)
693
206
-
206
899
2007
$'000
1,843
1,242
60
1,302
(678)
3
(675)
627
The difference between the current tax charge on ordinary activities for the period, reported in the income
statement, 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 29.5% (2007: 30%)
Effects of
Adjustment in respect of prior periods
Current tax
Deferred tax
State tax
Additional US tax on losses at 34% (2007: 34%)
Expenses not deductible for tax purposes
Non-taxable income
Tax deduction on share plan charges
Adjustment to rate at which deferred tax will unwind
Total tax charge
1,235
(8)
31
49
(40)
79
(61)
(375)
(11)
899
553
61
3
20
(40)
82
(60)
-
8
627
12 Dividends
After adjusting for the 299 for 1 share split pursuant to admission to AIM the dividend information was as follows:-
Interim dividend - $nil (2007: 5.24 cents (2.62 pence) / share)
2008
$'000
-
2007
$'000
1,000
The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and has
not been included as a liability in these accounts.
Craneware plc
Annual Report 2008
33
Notes to the Financial Statements
13 Earnings per share
(a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by
the weighted average number of shares in issue during the year.
Profit attributable to equity holders of the Company ($'000)
Weighted average number of ordinary shares in issue (thousands)
Basic earnings per share ($ per share)
2008
3,289
23,964
0.14
2007
1,216
19,799
0.06
(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 share options granted to directors and employees under the share option
scheme (Note 9).
Profit attributable to equity holders of the Company ($'000)
Weighted average number of ordinary shares in issue (thousands)
Adjustment for:
Share options (thousands)
Weighted average number of ordinary shares for diluted
earnings per share (thousands)
Basic earnings per share ($ per share)
2008
3,289
23,964
1,408
25,372
0.13
2007
1,216
19,799
2,719
22,518
0.05
Craneware plc
Annual Report 2008
34
Notes to the Financial Statements
14 Plant and equipment
Group
Cost
At 1 July 2007
Additions
At 30 June 2008
Depreciation
At 1 July 2007
Charge for the year
At 30 June 2008
Net book value at 30 June 2008
Cost
At 1 July 2006
Additions
At 30 June 2007
Depreciation
At 1 July 2006
Charge for the year
At 30 June 2007
Net book value at 30 June 2007
Company
Cost
At 1 July 2007
Additions
At 30 June 2008
Depreciation
At 1 July 2007
Charge for the year
At 30 June 2008
Net book value at 30 June 2008
Cost
At 1 July 2006
Additions
At 30 June 2007
Depreciation
At 1 July 2006
Charge for the year
At 30 June 2007
Net book value at 30 June 2007
Computer Equipment
$'000
Office Furniture
$'000
Tenants Improvements
$'000
528
83
611
370
94
464
147
390
138
528
274
96
370
158
328
42
370
237
55
292
78
241
87
328
182
55
237
91
213
26
239
98
40
138
101
84
129
213
68
30
98
115
158
15
173
75
28
103
70
64
94
158
54
21
75
83
321
2
323
107
49
156
167
84
237
321
81
26
107
214
321
2
323
107
49
156
167
84
237
321
81
26
107
214
Total
$'000
1,062
111
1,173
575
183
758
415
558
504
1,062
423
152
575
487
807
59
866
419
132
551
315
389
418
807
317
102
419
388
Craneware plc
Annual Report 2008
35
Notes to the Financial Statements
15 Intangible assets
Research & Development, plus computer software
Group
In Process R & D
$'000
Computer Software
$'000
Total
$'000
In Process R & D
$'000
Company
Computer Software
$'000
Total
$'000
Cost
At 1 July 2007
Additions
At 30 June 2008
Amortisation
At 1 July 2007
Charge for the year
At 30 June 2008
NBV at 30 June 2008
Cost
At 1 July 2006
Additions
At 30 June 2007
Amortisation
At 1 July 2006
Charge for the year
At 30 June 2007
NBV at 30 June 2007
16 Investment in subsidiary
867
450
1,317
536
63
599
718
536
331
867
522
14
536
331
224
28
252
121
55
176
76
122
102
224
79
42
121
103
1,091
478
1,569
657
118
775
794
658
433
1,091
601
56
657
434
867
450
1,317
536
63
599
718
536
331
867
522
14
536
331
170
24
1,037
474
194
1,511
83
44
127
67
78
92
170
55
28
83
87
619
107
726
785
614
423
1,037
577
42
619
418
The following information relates to the subsidiary which, in the opinion of the directors, principally affected the profits or assets of the
Group:-
Name of Company
Class of Shares held
Proportion of Nominal
Value of Issued Shares
held by Craneware plc
Craneware Inc.
Ordinary
100%
Nature of Business
Sales & Marketing
The above Company is incorporated in the United States of America and Craneware plc hold 10,000 (2007:
10,000) common shares with a nominal value of $0.01 each. The results of the Subsidiary Company have been
included in the consolidated financial statements.
Craneware plc
Annual Report 2008
36
Notes to the Financial Statements
17 Inventory
Licence inventory
There are no provisions made against inventory.
18 Trade and other receivables
Trade receivables
less: provision for impairment
of trade receivables
Net trade receivables
Other receivables
Prepayments and accrued income
Less non-current trade receivables
Current portion
Group
2008
$'000
-
2007
$'000
8
Company
2008
$'000
-
Group
2008
$'000
3,808
(196)
3,612
68
1,080
4,760
(75)
4,685
2007
$'000
3,728
(271)
3,457
131
503
4,091
(75)
4,016
Company
2008
$'000
3,808
(196)
3,612
63
837
4,512
(75)
4,437
2007
$'000
-
2007
$'000
3,728
(271)
3,457
131
344
3,932
(75)
3,857
There is no material difference between the fair value of trade and other receivables and the book value stated
above.
As at 30th June 2008, trade receivables of $256,842 (2007: $317,478) were past due and, therefore, deemed to
be impaired. The amount of the provision against these receivables was $196,296 as of 30th June 2008 (2007:
$270,840). The individually impaired receivables mainly relate to clients' financial difficulties and unresolved
disputes. It was assessed a portion of the receivables is expected to be recovered.
The ageing of these receivables is as follows:
Less than 30 days past due
30 – 60 days past due
61 – 90 days past due
91 – 120 days past due
121+ days past due
2008
$'000
23
-
23
-
211
257
2007
$'000
-
-
23
-
294
317
Craneware plc
Annual Report 2008
37
Notes to the Financial Statements
As at 30th June 2008, trade receivables of $1,218,915 (2007: $1,815,917) were past due but not impaired.
These relate to a number of clients for whom there is no recent history of default.
The ageing analysis of these trade receivables is as follows:
Less than 30 days past due
31 – 60 days past due
61 – 90 days past due
91 – 120 days past due
121+ days past due
2008
$'000
489
176
148
55
351
1,219
2007
$'000
634
453
186
341
202
1,816
As at 30th June 2008, trade receivables of $2,331,946 (2007: $1,594,872) were not past due or impaired, and
the Group does not anticipate collection issues.
Movement on the provision for impairment of trade receivables is as follows:
At 1 July 2007
Provision for receivables impairment on revenue recognised
Provision for receivables impairment on deferred revenue
Receivables written off during year as uncollectable
Unused amounts reversed
At 30 June 2008
2008
$'000
271
189
-
(155)
(109)
196
2007
$'000
278
105
89
(201)
-
271
The creation and release of provision for impaired receivables has been included in net operating expenses in
the income statement. Amounts charged to the allowance account are generally written off when there is no
expectation of recovering additional cash.
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable
mentioned above. The Group does not hold any collateral as security.
Craneware plc
Annual Report 2008
38
Notes to the Financial Statements
19 Deferred taxation
Deferred tax is calculated in full on the temporary differences under the liability method using a rate of tax of
28% (2007: 29.5%).
The movement on the deferred tax account is shown below:-
At 1 July 2007
Income statement charge / (credit)
Transfer direct to equity
At 30 June 2008
Group
2008
$'000
(810)
206
(471)
(1,075)
2007
$'000
(135)
(675)
-
(810)
Company
2008
$'000
(460)
240
(61)
(281)
2007
$'000
(66)
(394)
-
(460)
A deferred tax asset of $479,408 (2007: $349,846) has arisen in respect of net operating losses and other
temporary differences in Craneware Inc. This asset is recognised in the Group balance sheet as the Directors
are of the view that Craneware Inc will establish a sufficient pattern of profitability.
The movements in deferred tax assets and liabilities during the year are shown below. Deferred tax assets
and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to
settle the balances net. The net deferred tax asset to be recovered from 30th June 2008 was $1,075,367 (2007:
$810,272).
Deferred tax assets - recognised
Group
At 1 July 2007
Charged to income statement
Charged to equity
Excess DT charged to equity
Total provided at 30 June 2008
At 1 July 2006
Charged to income statement
Total provided at 30 June 2007
Deferred tax liabilities - recognised
Group
At 1 July 2007
Charged to income statement
Total provided at 30 June 2008
At 1 July 2006
Charged to income statement
Total provided at 30 June 2007
Accelerated
accounting
depreciation
$'000
(4)
(3)
-
-
(7)
(8)
4
(4)
Accelerated
tax
depreciation
$'000
31
36
67
1
30
31
Short term
timing
differences
$'000
(79)
(10)
-
-
(89)
(40)
(39)
(79)
Losses
$'000
-
(232)
(247)
-
(479)
-
-
-
Share
Options
$'000
(758)
415
-
(224)
(567)
(88)
(670)
(758)
Total
$'000
(841)
170
(247)
(224)
(1,142)
(136)
(705)
(841)
Total
$'000
31
36
67
1
30
31
Craneware plc
Annual Report 2008
39
Notes to the Financial Statements
Deferred tax assets - recognised
Company
At 1 July 2007
Charged to income statement
Excess DT charged to Equity
Total provided at 30 June 2008
At 1 July 2006
Charged to income statement
Total provided at 30 June 2007
Deferred tax liabilities - recognised
Company
At 1 July 2007
Charged to income statement
Total provided at 30 June 2008
At 1 July 2006
Charged to income statement
Total provided at 30 June 2007
20 Called up share capital
Authorised
Equity share capital
Ordinary shares of 1p each
Ordinary A shares of 1p each
Incentive shares of 0.1p each
Allotted called-up and fully paid
Equity share capital
Ordinary shares of 1p each
Ordinary A shares of 1p each
Losses
$'000
-
-
-
-
-
-
-
Share
Options
$'000
(492)
204
(60)
(348)
(59)
(433)
(492)
Total
$'000
(492)
204
(60)
(348)
(67)
(425)
(492)
Accelerated
accounting
depreciation
$'000
-
-
-
-
(8)
8
-
Accelerated
tax depreciation
$'000
32
35
67
-
32
32
Short term
timing
differences
$'000
-
-
-
-
-
-
-
Total
$'000
32
35
67
-
32
32
2008
Number
2007
Number
$'000
50,000,000
-
-
1,014
-
-
9,980,361
19,639
5,087
2008
Number
2007
Number
$'000
25,109,950
-
509
-
50,500
13,093
$'000
165
-
-
$'000
1
-
The movement in share capital during the year is represented as follows:-
Prior to flotation on 6th September 2007:
All existing classes of shares were converted into ordinary shares on a 1 for 1 basis.
A 1 for 299 share split occurred for all ordinary shares.
A bonus allotment of 700,800 ordinary shares were issued.
Craneware plc
Annual Report 2008
40
Notes to the Financial Statements
On Flotation on 13th September 2007:
4,247,830 new Ordinary Shares were issued. The nominal value of each share was £0.01 and the issue price
was £1.28 ($2.60). The proceeds of the issue generated additional share capital of $86,137 and additional
share premium of $7,852,000 after deduction of issue and transaction costs of $3,138,318.
Post Flotation:
1,083,420 Ordinary Share options were exercised in the year, as detailed in the Remuneration Committee
Report on page 18.
21 Statement of changes in equity
Group
At 1 July 2006
Share-based payments
Retained profit for the year
Dividends (Note 12)
At 30 June 2007
Share split
Allotment pursuant to IPO
Share-based payments
New shares issued in the year
Options exercised
Retained profit for the year
At 30 June 2008
Company
At 30 June 2006
Share-based payments
Retained profit for the year
Dividends (Note 12)
At 30 June 2007
Share split
Allotment pursuant to IPO
Share-based payments
New shares issued in the year
Options exercised
Retained profit for the year
At 30 June 2008
Share Capital
$'000
1
-
-
-
1
386
14
-
86
22
-
509
1
-
-
-
1
386
14
-
86
22
-
509
Share Premium
Account
$'000
1,823
-
Other Reserves
$'000
286
2,191
Retained
Earnings
$'000
(766)
-
1,216
(1,000)
(550)
-
-
557
-
-
-
-
2,477
-
-
564
-
-
-
3,041
3,289
3,296
210
1,583
-
-
1,793
-
-
402
-
-
-
2,195
(786)
-
1,356
(1,000)
(430)
-
-
61
-
-
2,560
2,191
Total
$'000
1,344
2,191
1,216
(1,000)
3,751
-
-
1,121
7,938
-
3,289
16,099
1,248
1,583
1,356
(1,000)
3,187
-
-
463
7,938
-
2,560
14,148
-
-
1,823
(386)
(14)
-
7,852
(22)
-
9,253
1,823
-
-
-
1,823
(386)
(14)
-
7,852
(22)
-
9,253
Other reserves relate to share-based payments as detailed in Note 1, accounting policies, on page 27.
Craneware plc
Annual Report 2008
41
Notes to the Financial Statements
22 Cash flow generated from operating activities
Reconciliation of profit before tax to net cash inflow from operating activities
Profit before tax
Finance income
Depreciation on plant and equipment
Amortisation on intangible assets
Share-based payments
Less US employer tax on exercise of options
Less related professional fees
Movements in working capital:
Decrease / (increase) in inventory
(Increase) / decrease in trade and other receivables
(Decrease) / increase in trade and other payables
Cash generated from operations
23 Cash and cash equivalents
Cash at bank and in hand
Group
Company
2008
$'000
4,188
(607)
183
118
634
(58)
(12)
8
(669)
1,202
4,987
2007
$'000
1,843
(446)
152
56
2,191
-
-
11
(1,056)
(125)
2,626
2008
$'000
3,557
(607)
132
107
414
-
(12)
-
(580)
1,365
4,376
2007
$'000
2,081
(446)
102
42
1,582
-
-
-
(964)
244
2,641
Group
Company
2008
$'000
21,112
2007
$'000
9,664
2008
$'000
20,336
2007
$'000
9,116
The effective rates on short term bank deposits were 3.55% (2007: 5.25%)
24 Trade and other payables - current
Trade payables
Amounts owed to group companies
Social security and PAYE
Corporation tax
Accruals
Advance receipts
Group
Company
2008
$'000
257
-
125
(124)
1,354
148
2007
$'000
421
-
262
764
754
60
2008
$'000
169
551
125
151
640
148
2007
$'000
195
470
117
562
241
60
1,760
2,261
1,784
1,645
Amounts owed to Group companies are non interest bearing and have no fixed repayment terms. Trade
payables are settled in accordance with those terms and conditions agreed, generally within 30 days, provided
that all trading terms and conditions on invoices have been met. The Company's average payment period at
30th June 2008 was 13 days (2007: 29 days).
Craneware plc
Annual Report 2008
42
Notes to the Financial Statements
25 Contingent liabilities and financial commitments
(a) Capital commitments
The Group has no capital commitments at 30th June 2008 (2007: $nil).
(b) Lease commitments
The Group leases certain land and buildings.
The commitments payable by the Group under these leases are as follows:-
Within one year
Between 2 and 5 years
2008
$'000
240
489
729
2007
$'000
172
379
551
The rents payable under these leases are subject to renegotiation at various intervals specified in the leases.
The Group pays all insurance, maintenance and repairs of these properties.
26 Related party transactions
During the period the Group has traded in its normal course of business with shareholders, consultancy
businesses and its wholly owned subsidiary in which directors, former directors and the subsidiary have a
material interest as follows:-
2008
2007
Group
Investor monitoring fees
Fees for services provided as Non-Executive Directors
Charged
$
6,321
Outstanding
at year end
$
-
Charged
$
21,344
Outstanding
at year end
$
848
Fees
Salaries and short-term employee benefits
Executive Directors
432,888
89,313
4,678
-
97,644
-
6,720
-
Salaries and short-term employee benefits
506,671
64,132
Post employment benefits
Share-based payments
Other Key Management
Salaries and short-term employee benefits
Post employment benefits
Share-based payments
10,020
55,213
825,347
10,020
248,806
-
-
96,198
-
-
417,596
9,663
299,236
700,270
9,663
667,609
-
-
-
-
-
-
Craneware plc
Annual Report 2008
43
Notes to the Financial Statements
Company
Investor monitoring fees
2008
2007
Charged
$
6,321
Outstanding
at year end
$
-
Charged
$
21,344
Outstanding
at year end
$
848
Fees for services provided as Non-Executive Directors
Fees
Salaries and short-term employee benefits
Executive Directors
432,888
89,313
4,678
-
97,644
-
6,720
-
Salaries and short-term employee benefits
506,671
64,132
417,596
Post employment benefits
Share-based payments
Other Key Management
Salaries and short-term employee benefits
Post employment benefits
Share-based payments
Amounts due to Craneware Inc. - subsidiary company
Sales commission
Net operating expenses
Balance (Note 24)
10,020
55,213
486,434
10,020
197,560
-
-
9,663
299,236
64,132
-
-
395,488
9,663
373,634
-
-
-
-
-
-
8,005,396
1,778,079
-
- 6,402,959
- 1,583,133
-
551,046
-
-
470,278
Investor monitoring fees were charged by the Group's institutional shareholders (3i plc and Lothian
Investment Fund for Enterprise Limited) who held A Ordinary and Ordinary shares in Craneware Limited prior
to IPO.
On 20th August 2007, conditional upon admission to AIM, the Company agreed to pay a supplemental fee to be
satisfied by the issue 150,000 ordinary shares valued at £192,000 ($389,338) to Matrix Trading Systems Limited, in
consideration for having made N P Heywood available to supply significant additional advisory services during the
period between the resignation of K J Lyon as chairman and Admission; this additional cost is included in the Non-
Executive directors' fees above.
Key management are considered to be the directors together with the Chief Operating Officer, Chief
Technology Officer and the President of Craneware Inc.
There were no other related party transactions in the period which require disclosure in accordance with
IAS24.
27 Ultimate controlling party
The directors have deemed that there are no controlling parties of the Company.
Craneware plc
Annual Report 2008
44
Contact Craneware
Directors, Secretary and Advisors
Support & Information
Directors and Officials
Broker and Nominated Advisor
Directors
G R Elliott (Chairman, non-executive)
Appointed 10/08/2007
KBC Peel Hunt Ltd
111 Old Broad Street
London
EC2N 1PH
Client support:
+1 888 601 4162
support@craneware.com
Client training:
training@craneware.com
Sales:
+1 877 624 2792
sales@craneware.com
Careers:
+44 (0)1506 407666
hr@craneware.com
General enquiries:
+1 407 384 1711
info@craneware.com
Investor information:
+44 (0) 207 6518688
ICIS
K Neilson
W G Craig
Resigned 06/09/2007
N P Heywood (non-executive)
D W Paterson
Resigned 06/09/2007
A M McDougall
J R Wilson
Resigned 06/09/2007
UK Headquarters
Secretary and Registered Office
Craneware plc
Rosebank Business Park
Kirkton Campus
Livingston
West Lothian EH54 7EJ
United Kingdom
Fax: +44 (0)1506 407667
A M McDougall
Rosebank Business Park
Kirkton Campus
Livingston
EH54 7EJ
USA Headquarters
Craneware Inc
5770 Hoffner Ave., Suite 102
Orlando, FL 32822-4809
USA
Fax: +1 407 384 9413
Registrars
Capita Registrars Ltd
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Bankers
The Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Registered Auditors
PricewaterhouseCoopers LLP
Erskine House
68-73 Queen Street
Edinburgh
EH2 4NH
Solicitors
McGrigors LLP
Princes Exchange
1 Earl Grey Street
Edinburgh
EH3 9AQ
Craneware plc
Annual Report 2008
45
www.craneware.com
sales@craneware.com
training@craneware.com
support@craneware.com
Craneware plc
Rosebank Business Park
Kirkton Campus
Livingston
EH54 7EJ, UK
Tel: (+44) 01506 407 666
Fax: (+44) 01506 407 667
Company Registration No. SC196331
Craneware plc