Craneware plc Annual Report
for the year ended 30 June 2011
About Craneware
Craneware is the leader in automated revenue integrity solutions
that improve financial performance and mitigate risk for US
healthcare organisations. Founded in 1999, Craneware has
headquarters in Edinburgh, Scotland with offices in Atlanta, Boston,
Nashville and Scottsdale employing more than 200 staff. Craneware’s
market-driven, SaaS solutions help hospitals and other healthcare
providers more effectively price, charge, code and retain earned
revenue for patient care services and supplies. This optimises
reimbursement, increases operational efficiency and minimises
compliance risk. By partnering with Craneware, clients achieve the
visibility required to identify, address and prevent revenue leakage.
To learn more, visit craneware.com and stoptheleakage.com.
Contents
Financial and Operational Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Craneware Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
What is Driving Our Growth?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Craneware Revenue Integrity Solutions™. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Operational Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Directors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Corporate Governance Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Remuneration Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Independent Auditors’ Report to the members of Craneware plc . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statement of Comprehensive Income for the year ended 30 June 2011 . . . . . . . . . 25
Statements of Changes in Equity for the year ended 30 June 2011 . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheet as at 30 June 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Company Balance Sheet as at 30 June 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Statements of Cash Flows for the year ended 30 June 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Contact Craneware. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Financial and Operational Highlights
Financial
Strong revenue and profit growth
34% increase in revenues to $38.1m (2010: $28.4m)
Adjusted EBITDA1 increased 32% to $10.1m (2010: $7.6m)
Adjusted profit before taxation increased 27% to $9.3m (2010: $7.3m)
Profit before tax increased 19% to $8.7m (2010: $7.3m)
Basic adjusted EPS increased 17% to 25.6 cents (2010: 21.8 cents)
Basic EPS increased 6% to 23.1 cents (2010: 21.8 cents)
Positive operational cash flow of $10.1m (2010: $8.9m)
Cash at year end $24.2m (2010: $29.4m) following $9m payment to acquire ClaimTrust in
February 2011
Proposed final dividend of 4.8p (7.7 cents) per share giving total dividend for the year of
8.8p (14.2 cents) per share (2010: 8p (12 cents) per share)
1 Adjusted EBITDA refers to earnings before interest, tax, depreciation,
amortisation, share based payments and transaction related costs
Operational
Significantly increased market share; approx. 1,500 US hospitals now use Craneware
software
Integration of ClaimTrust as Craneware InSight, Inc. proceeding ahead of plan
Leading indicator, the acceleration of the Recovery Audit Contractor programme, now
taking place and expected to increase demand in future years
Quick Facts — Financial
32%
increase in Adjusted EBITDA1
34%
increase in revenues
17%
increase in basic adjusted EPS
$24.2m
cash at year end
1.5
product attachment rate
Revenue $m
Adjusted EBITDA $m
Basic adjusted EPS cents/share
38.1
28.4
23.0
18.7
15.1
45
40
35
30
25
20
15
10
5
0
10.1
7.6
5.8
4.5
3.8
12
10
8
6
4
2
0
25.6
21.8
17.7
30
25
20
15
10
5
0
13.7
6.0
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
1
Craneware plc Annual Report 2011 Craneware Innovation
Craneware introduced the healthcare industry’s original chargemaster management solution more than twelve years
ago. For the last five years, Craneware’s Chargemaster Toolkit® has ranked number one in the “Top 20 Best in KLAS
Awards” report, the leading independent source of healthcare IT performance metrics. Craneware SaaS solutions provide
a level of visibility that allows US hospital and healthcare organisations to identify the specific causes of their revenue
leakage, more accurately price, charge and code for patient care services and supplies, while improving charge capture
and compliance documentation.
Craneware’s innovation is market-driven, meaning we look to the market in order to identify opportunities where
automation can help healthcare organisations improve financial performance. Then, we work with customers to
bring those solutions to the industry that exactly address healthcare organisations’ actual needs. Through Craneware
User Groups, the Craneware Client Advisory Council, and the online customer community, customers participate in
a collaborative network where they engage in sharing best practices while enhancing existing and influencing new
products and services. This network is a resource for ongoing dialogue. Craneware has also launched
stoptheleakage.com, an online resource for ongoing dialogue where healthcare revenue integrity professionals can
download whitepapers, read case studies and participate in blog posts written by Craneware thought leaders. One
result of this engagement with the marketplace is that customers are so passionate about their business process
improvements and results achieved using Craneware solutions that they regularly appear alongside Craneware experts
at industry trade shows and events.
Craneware continues to invest in innovating new solutions for customers. The most recent solutions that help
US hospital and healthcare organisations improve their financial performance are Physician Revenue Toolkit® –
Corporate and Value-based Pricing Analyzer™. Physician Revenue Toolkit – Corporate enables hospitals to manage
multiple physician operations’ charges to a corporate standard for greater operational efficiency, optimal reimbursement
and reduced compliance risk. Value-based Pricing Analyzer simplifies and automates the price-modeling process,
providing the speed and flexibility hospitals need to adapt to dynamic market conditions, anticipate potential impacts
of changes, and ensure pricing is defensible, transparent and competitive. By enabling clients to align their business
processes with best practices for compliance and reimbursement using our software, Craneware has become a trusted
healthcare business partner, known for our track-record of successful innovation, industry expertise and a deep
commitment to helping hospitals improve financial performance through revenue integrity.
2
Craneware plc Annual Report 2011 What is Driving Our Growth?
A Unique Challenge and a Unique Opportunity
Healthcare is one of the largest segments of the US economy, and with healthcare reform expected to provide insurance
to 40 million of the expected 55 million uninsured Americans, demand for healthcare services will only increase. To
achieve US healthcare reform objectives of “doing more with less,” organisations must accurately capture all revenue to
which they are entitled, whilst ensuring documented compliance to keep revenue earned. Craneware Revenue Integrity
Solutions™ help customers efficiently achieve these critical demands.
The US healthcare industry’s reimbursement is unlike any in the world: highly complex, with ever-growing regulatory
requirements. Sixty to sixty-five percent of healthcare costs are paid by various government programs, with the rest paid
by private insurers. All of these payors expect different criteria to be met for payment, while rules on what insurers and
government will pay are continually changing. As a result, hospitals’ need for software to maintain charge compliance
continues to intensify.
Craneware helps healthcare provider organisations navigate this complex environment successfully, with solutions that
help ensure correct, compliant pricing, charging and coding for patient care services and supplies so they can get paid
accurately and successfully defend earned revenue in an audit. Craneware Revenue Integrity Solutions help healthcare
organisations to both achieve revenue integrity and sustain it.
When hospitals use Craneware Revenue Integrity Solutions, they find the greatest rewards in improved reimbursement
for outpatient encounters: a revenue area of increasing importance to hospitals, growing from 28% of gross revenue
in1994 to 41% in 2009. Many healthcare provider organisations are looking to further expand outpatient services for their
greater profitability.
Increasingly Complex Healthcare Environment
The 2011 edition of AHA Hospital Statistics puts the total number of registered US hospitals at 5,795. Presently fewer than
half of these have chargemaster management software such as Craneware’s Chargemaster Tookit®. As the US healthcare
industry undergoes changes in coding and reimbursement models, it will become nearly impossible for hospitals to keep
up with these changes without such software.
Adding complexity, even a mid-size hospital can have as many as 100 different systems. Most of these systems do not
consistently share data to “talk” to each other, making it easy for essential business information to fall through the cracks.
US healthcare’s complexity has exceeded the capabilities for healthcare professionals and departments to operate
in these isolated silos. Craneware helps connect previously siloed systems so hospitals can ensure they’re not doing
anything incorrectly that would prevent them from being paid.
Healthcare organisations also face pressure to meet both funded and unfunded technology mandates before their
competitors. These pressures are driving acquisitions of both hospitals and physician practices as well as adoption of
additional business automation. When integrating healthcare acquisitions, standardisation of organisation-wide pricing,
charging and coding offers opportunity to optimise revenue and reduce compliance risks. Craneware’s market-leading
tools help different healthcare provider organisations reach a corporate revenue integrity standard, put more efficient
processes in place and support best practice standardisation whilst enabling a more accountable and compliant way of
doing business.
The 2011 Annual Report of the US Hospital IT Market, HIMSS Analytics says of the Revenue Cycle Management (RCM)
environment that, “this market segment continues to generate high levels of demand for enhanced and complimentary
software products to meet changes in these business requirements and technological advances in electronic data
exchange.” The report goes on to describe next generation revenue cycle management (NGRCM) saying, “These are
solutions that focus on improving collection rate, business office workflows, productivity and the overall efficiency of the
RCM process, whilst also improving patient satisfaction and convenience. The NGRCM market is still in its infancy, but
these applications will become critical solutions for all hospitals within the next few years.” Craneware’s market leadership
in RCM and NGRCM positions us well for growth.
3
Craneware plc Annual Report 2011 What is Driving Our Growth? [Cont’d.]
The ClaimTrust Acquisition
Reducing risks associated with managing financial transactions in order to keep earned revenue is a pressing priority for US hospitals facing
a myriad of audits from state and federal entities as well as private payors. The Recovery Audit Contractor (RAC) demonstration phase alone
took back from providers over $980 million in previously approved and paid Medicare payments. In addition, a hospital can easily lose 7%-
10% of its revenue to denied claims that could successfully be corrected and resubmitted. That level of unrecovered revenue can mean the
difference between operating at a loss and staying in the black.
Craneware’s acquisition of ClaimTrust in February 2011 was a major step in providing solutions to address these risks. ClaimTrust – now
known as Craneware® InSight – solutions have helped hospitals successfully manage the RAC process to win more than twice as many
appeals as their peers and defend millions of dollars in Medicare RAC denials. Craneware and Craneware InSight tools have an unmatched
track record and knowledge base for helping US hospitals efficiently optimise and defend earned revenue from audits and denials.
Building Partnerships
Over the years, Craneware has cultivated an extensive network of healthcare business relationships. Among these allies are industry-
leading hospital information systems, patient accounting systems and Group Purchasing Organisations (GPOs). These relationships provide
a competitive advantage in maximising opportunities to sell the range of Craneware Revenue Integrity Solutions and deliver compelling
value to customers.
As Craneware modernises customers’ revenue integrity processes with effective technologies, our view is toward delivering long-term
value and partnership. Since our beginning, we have devoted ourselves to building strong customer relationships, from implementation
and training through business process advancement. Customers tell us they value Craneware not only for the effectiveness of our industry-
leading software, but for the partnership we offer them: a key reason why renowned healthcare organisations have entrusted Craneware
over the years with increasing contracts for additional software and services. We take great pride in the quality of our software, the calibre
of our people and the collective track record they represent.
Craneware’s software innovations are helping US healthcare drive business improvements that will ultimately result in better health for
patients and institutions alike. This need for innovation and quality in a changing and complex environment, and our determination to lead
the response to this need, is ultimately driving our growth.
Clockwise from top-left: Her Majesty the Queen greeting Craneware’s CEO Keith Neilson and Craneware’s Chief Technology Officer and US President Gordon Craig at a reception for winners of the
Queen’s Awards for Enterprise 2011 held at Buckingham Palace; Gordon Craig and Keith Neilson at Buckingham Palace; Craneware Client Sales Manager Christian Borchet, Healthcare Financial Management
Association president Dick Clarke, Craneware Territory Sales Manager Chris Hammond and Craneware InSight Senior Consultant Karen Hoppe; United States Surgeon General Dr. Regina M. Benjamin with
Craneware’s Executive VP of Marketing Ann Marie Brown and Senior VP of Finance and Operations Sandy Rasmussen at Modern Healthcare’s Top 25 Women in Healthcare gala, a portion of the Women Leading
Healthcare Conference which Craneware sponsored in July; Gordon Craig, Lord Provost of the City of Edinburgh and the Queen’s Lord Lieutenant in Scotland, George Grubb, Lady Provost Elizabeth Grubb and Keith
Neilson at the opening of Craneware’s new Tanfield office and the presentation of the Queens Award for International Trade.
4
Craneware plc Annual Report 2011 Craneware Revenue Integrity Solutions™
Quick Facts – The Technology
Craneware and Craneware InSight Products and Services
Craneware solutions are based on an annuity
subscription model. 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. Client data is always kept secure within
healthcare facilities’ own networks or Craneware’s
high-security data centre, 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 in a facility, permitting different
prescribed levels of interaction with minimal impact to
resource-strained IS teams and busy users.
Craneware Revenue Integrity Solutions encompass four
product families – Access Management & Strategic
Pricing, Audit & Revenue Recovery, Revenue Cycle and
Supply Management – with corresponding modules
and services.
Access Management & Strategic Pricing
Solutions that enable organisations to establish
transparent, defensible pricing; quickly
and accurately assess patient
benefits; and manage payment
responsibility – improving
cash flow, compliance and
patient satisfaction
Revenue Cycle
Solutions that automate
chargemaster management
processes – increasing
operational efficiency,
minimising risk and
helping to prevent
revenue leakage
Audit & Revenue Recovery
Solutions that empower hospitals
to manage payor denials and retain
more cash from RAC and other auditors –
ensuring that they collect and retain all the
revenue to which they are entitled
Supply Management
Solutions that establish
a critical connection between
pharmaceutical and supply purchases
and billing – improving charge capture,
coding and financial performance
Craneware’s 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 2010. www.KLASresearch.com.
Data © 2010 KLAS Enterprises, LLC. All rights reserved.
Healthcare Financial Management Association 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 HFMA Peer Review Process. HFMA does not
endorse or guarantee the use of these products.
5
Craneware plc Annual Report 2011 Craneware Revenue Integrity Solutions [Cont’d.]
Access Management
& Strategic Pricing
Value-based Pricing Analyzer®
software simplifies the price modeling process to ensure
pricing is transparent, defensible and competitive.
Patient Charge Estimator®
software supports defensible and transparent pricing,
and simplifies providing estimates for inpatient and
outpatient services.
InSight Medical Necessity®
provides web-based, all-payor, medical necessity
validation and Advance Beneficiary Notice (ABN)
creation, which reduces accounts-receivable days by
preventing medical necessity denials, and facilitates
payment communication with Medicare beneficiaries.
InSight Eligibility
provides web-based, all-payor, eligibility verification,
which can prevent rejections related to inactive covered
benefit plans or coordination of benefits at patient
access, saving time not only at patient access but also in
the billing office.
Supply Management
Pharmacy ChargeLink®
improves charge capture, pricing and cost management,
establishing and maintaining a connection between a
hospital’s pharmaceutical purchases and billing.
Supplies ChargeLink®
helps optimise reimbursement for chargeable supplies
by establishing and maintaining a connection
between a hospital’s supply purchase history and its
chargemaster, which helps ensure accurate pricing,
coding and billing of these supplies.
Revenue Cycle
Audit & Revenue Recovery
InSight Audit™
software is comprehensive, web-based audit
management tool that empowers healthcare
organisations to manage RAC and other medical claim
audits and workflows from one central location.
InSight Payment Variance Analyzer™
identifies, tracks and helps eliminate revenue lost in
the form of underpaid claims.
InSight Denials®
analyses, tracks, trends and reports on denial data,
providing workflow tools to distribute denied claims to
the right departments and staff for resubmission.
Supporting Services
Craneware Professional Services and Craneware
InSight provide companion implementation and
consulting services that help facilities apply best
practices and achieve a fast sustainable return-on-
investment. Craneware augments initial product
training with live or self-led web-based training
through the Craneware Performance Center and
optional fee-based training.
Chargemaster Toolkit®,
Chargemaster Corporate Toolkit®
and Chargemaster Toolkit® - CAH
automate chargemaster management processes for
capturing optimal legitimate reimbursement for
hospitals. Customisable for organisations from small
community hospitals to large healthcare networks.
Bill Analyzer
is HFMA Peer-Reviewed software that improves charge
capture processes by identifying lost revenue and
categorising areas of risk resulting in cleaner, more
compliant claims.
Physician Revenue Toolkit®,
Physician Management Toolkit and
Physician Revenue Toolkit® – Corporate
are for managing physician group charges, codes, RVUs,
fee schedules, and related information – includes
Online Reference Toolkit® for physician billing.
Corporate version manages charges to a corporate
standard. Management version includes Decision
Dashboard® that tracks Key Performance Indicators
(KPIs) for strategic physician group management.
Supporting Modules
Online Reference Toolkit®
is an HFMA Peer-Reviewed Web-based tool for
reducing risk by providing access to reference and
regulatory resources.
Interface Scripting Module
is HFMA Peer-Reviewed software that automatically
uploads chargemaster changes to the patient billing
system for accurate billing.
6
Craneware plc Annual Report 2011 Chairman’s Statement
“Craneware has continued to
deliver...the Company is an
established part of the fabric of
the US healthcare industry.”
George Elliot, Chairman
We see the increasing level of fines levied on
hospitals from the Recovery Audit Contractor (RAC)
programme, as a leading indicator of hospital demand
for our unique solution set. In addition, we expect
other factors such as the anticipated McKesson re-
engagement in sales of their Horizon software, into
which our Revenue Cycle Management tools have been
integrated, to help drive forward customer decision
making in the coming year.
We continue to have extremely high levels of revenue
visibility due to the multiyear nature of our contracts
and our annuity revenue recognition policy. At the end
of the year under report Craneware had visibility of
over $105m of revenue for the next three years, having
increased from $83m at 30 June 2010.
I would like to take this opportunity to once again
welcome the Craneware InSight team and customers
into Craneware and thank all our customers, people
and partners for their ongoing support.
The expansion of our market share, our strong financial
position and excellent sales pipeline provide the
Board with a great deal of confidence in our ability to
continue to execute on our growth strategy.
George Elliott
Chairman
29 August 2011
Craneware has continued to deliver against the
backdrop of an evolving marketplace. We have
launched four new products during the year, one of
which we have developed organically, while three
came via the acquisition of ClaimTrust. We now count
nearly 1,500 hospitals as our customers with some
of the largest hospital groups in the US amongst our
growing band of software users. Through our increased
marketing efforts and continued commitment to
customer service, our reputation in the healthcare
market as thought leaders in the area of ‘revenue
integrity’ has moved forward significantly in the year.
With approximately 25% of hospitals in the US now
using one or more of Craneware’s nine core products,
the Company is an established part of the fabric of
the US healthcare industry. While the US economy
has been under much scrutiny in recent months and
the debate about healthcare reform continues, what
is unavoidable is that US healthcare facilities are
being asked to provide a higher level of patient care,
to a greater number of people, at a lower cost per
patient. There is therefore a compelling case for the
implementation of software such as ours to efficiently
protect the revenue to which these healthcare facilities
are entitled.
Following the acquisition of ClaimTrust in February,
we have been extremely encouraged by the response
from our customers to the newly launched Craneware
InSight products in our “Audit Revenue and Recovery”
product family. The first sales of InSight products into
our existing customer base have taken place and we
have built a strong list of prospects. The expertise
in the area of audits and appeals brought to us by
the ClaimTrust team has already proven to be a
valuable addition to the Group. We continue to assess
opportunities for similar acquisitions.
7
Craneware plc Annual Report 2011 Operational Review
Introduction
Integration of ClaimTrust
This year has seen the business deliver our largest
organic increase in both revenues and EBITDA to
date with revenues growing organically by 25% and
adjusted EBITDA growing by 32%. The ClaimTrust
acquisition resulted in an overall revenue growth
rate of 34%. Importantly, the business generated
a high level of cash from operating activities in the
period, reaching $10m (a 100% conversion of adjusted
EBITDA), a fourfold increase since IPO. This strong set
of results continues to demonstrate the success of the
Craneware strategy in building out its unique product
suite, ensuring Craneware’s market leading position as
the strength of the business model delivers growth into
the long term.
Although sales to channel partners and large hospital
systems have not been at previous levels, we believe
that this is a factor of timing and not a long term or
general market trend. The results this year have been
achieved despite this timing issue and the significant
strength of current pipeline opportunities compared
to historical norms gives us confidence that the
growth opportunities for Craneware remain strong. We
continue to outperform our competition in the majority
of customer opportunities and believe that as the RAC
audit programme gathers pace so will the pressures
on hospitals to move towards automated systems in
order to manage these audits and protect revenue. Our
acquisition of ClaimTrust in particular means we believe
we are well positioned to assist our clients in this ever
more pressing area.
Our focus in the year ahead will be on the cross sale of
our increased product set to our extended customer
base, the integration of further ClaimTrust products
into our offering and the continued winning of market
share. As we enter the current financial year we have
visibility of $105m in revenue for the next three years
and over $24m in cash.
We were delighted to have completed the acquisition
of ClaimTrust on 17 February 2011. This is the first
acquisition for Craneware and one which the Board
believes to be strategically valuable, bringing new
areas of expertise into the Group, adding a new
product family and increasing our market share with
the addition of over 250 hospitals. All of ClaimTrust’s
products are applicable to the Craneware customer
base and target audience providing for a significantly
expanded market opportunity.
The first 90 day integration plan of ClaimTrust as
Craneware InSight Inc, has now been successfully
completed. Both sales teams have been cross-trained
in the products and the management teams aligned.
In terms of marketing, the products have been given
a common branding and messaging under Craneware
InSight and we have established the foundation for
new customers for the InSight products to join on
Craneware’s traditional Annuity Software as a Service
revenue model. We are pleased to report that the
uptake of products by the Craneware customer base
has been positive thus far, securing our first customer,
the Kingman Regional Medical Center, in June 2011
and have made further sales since then supporting
our belief that the future for the products is extremely
promising.
Market Developments
The US healthcare market continues to be impacted
by the introduction of new legislation and increased
regulation as the government seeks to reduce the
burden of healthcare on the state whilst making
healthcare available to a larger percentage of the
population. Cuts to Medicaid state budgets, the
means-tested programme for certain individuals and
families with low incomes and resources, have been as
high as 20% across the US. Meanwhile the number of
people enrolling in the Medicaid programme continues
to increase by an additional 1% along with a 1.1%
increase in the uninsured for every 1% increase in the
national unemployment rate. These factors mean a
growing number of hospitals are seeking technology
based solutions to help improve accuracy of billing and
reduce regulatory burdens, thereby protecting their
slim profit margins.
“This year has seen...our largest
organic increase in both
revenues and EBITDA to date.”
Keith Neilson, CEO and co-founder
“As we enter the current financial
year we have visibility of $105m in
revenue for the next three years
and over $24m in cash.”
Craig Preston, CFO
8
Craneware plc Annual Report 2011 Operational Review [Cont’d.]
Two specific factors which have moved forward during
the year have been the introduction of the finalised
RAC programme and the movement in healthcare IT
coding towards the use of ICD-10 (as explained below).
RAC Programme
The Recovery Audit Contractors are tasked with
detecting and correcting past improper payments to
hospitals, whether these are overpayments which need
to be recouped, or underpayments which need to be
reimbursed. Following a demonstration pilot of the RAC
programme in five states (California, Florida, New York,
Massachusetts and South Carolina) from 2004 to 2007,
US Congress authorised the nationwide expansion of
the initiative through the Tax Relief and Health Care
Act of 2006, which regulated that it be rolled out
nationwide by January 1, 2010.
While the RACs identified and recouped $92.3m of
corrections from hospitals in its first 12 months of the
programme to September 2010, this has increased
significantly to $592.5m in the subsequent 9 month
period1, placing a huge burden on hospitals. These
increasing amounts being levied on hospitals are
creating a major stimulus for hospital purchasing
decisions for software such as Craneware InSight’s
Audit and the Board believes are a leading indicator of
further Craneware product family sales.
Craneware InSight Audit
Recovery Audit Contractors can request a maximum of
500 records per 45 days from any individual healthcare
provider over a 3-year look back period. The volume
of record requests and denials initially overwhelmed
healthcare providers, and still proves to be a burden.
The InSight Audit product organises, manages and
reports on all audit requests, responses and appeal
activities for all audit types. It stores the relevant
information and documents the steps taken to appeal
denials, whilst also identifying trends and areas of
exposure. InSight Audit manages (1) the patient record,
(2) the RAC audit workflow, and (3) reports on areas
of risk.
InSight Audit can also be used to manage the RAC
appeal process, from the initial decision to appeal
through to successful resolution of the appeal; aiding
hospitals recoup cash and reduce the financial cost of
1 CMS – Centers for Medicare &
Medicaid Services, June 2011
2 The Medicare Recovery Audit Contractor
(RAC Program: Update to the Evaluation of the
3-year Demonstration June 2010, CMS)
doing so. The five levels of this process take between
2 to 3 years to complete for each individual RAC
denial; costing in resources, tracking and reporting an
estimated $2,000 to appeal per record, if no technology
solution has been implemented. Therefore with RACs
able to request up to 500 records every 45 days, this can
easily escalate to a significant cost.
ClaimTrust, having been based in the RAC demonstration
catchment area in 2007, prior to the government’s
full roll-out of the initiative, gained early insight into
what was needed in terms of product development;
Craneware InSight appealed and won 84% of RAC
Medicare denials on behalf of its customers, when
nationally only 8% of denials were appealed and won2 .
HIPAA 5010 & ICD-10
ICD-10 is a new, more detailed diagnosis and procedure
code set and logic. The goal of the introduction of this
new coding is to improve patient care, enhance claims
processing, and improve data collection. Due to the
increased number of codes, the change in the number
of characters per code, and increased code specificity,
this transition will require significant planning, training,
software/system upgrades/replacements, as well as
other necessary investments. The HIPAA transaction
standard 5010 is a transaction format that allows for
the additional field length and addition of non-numeric
characters to support ICD-10. All hospitals are required
to have moved to the use of 5010 by January 2012
with ICD-10 coming into effect from 1 October 2013.
Craneware anticipates that the introduction of this
coding will require hospitals to reassess their current
IT and data collection systems, effectively mandating
investment in this area. If physicians and hospitals are
not ready for these changes, they risk claim rejections
and interrupted cash flow. All of Craneware’s software is
already ICD-10 compatible.
Sales and Marketing
Due to the expansion of our customer base in the year,
we have chosen to align our sales teams into three
geographical regions, with each region headed up by
an experienced Regional Vice President. We continue
to build our separate Sales Support and Marketing
Teams in our Atlanta office. Each team will have a mix of
experience and skill sets, this combined with the closer
geographical alignment will, we believe, better place
us to meet the requirements of our current and future
customers. We anticipate further investment into these
teams, in line with our revenue growth, as we look to
meet the market opportunity.
Following the acquisition of ClaimTrust in February this
year, we added over 250 hospitals to Craneware, many
of these hospitals having only one of the now nine
‘core’ products. As a result of this larger customer base,
our average product attachment rate per customer
is now 1.5 products as compared to 1.7 prior to the
acquisition. This represents an increased cross sell
opportunity of now 7.5 products per customer as we
have broadened the product solutions we can offer to
meet our customers’ needs.
At the half year period we advised that we were trialing
a system of ‘auto renewals’ in order to enable our sales
people to focus more on the sales of new products.
However, having now assessed this change of structure
over some months, we do not believe that this system
generated the benefits anticipated for either our
customers or Craneware. As a result, we have therefore
reverted to our traditional active multi-year renewal
policy, commissioning the sales teams accordingly. This
serves to provide a greater level of revenue visibility
for future years, whilst retaining the administrative
safeguard of the auto-renewal language in our
standard contract.
During the year we have seen our dollar value of
renewals in the year drop below our historical norms
of over 100%. This was exacerbated by the reduced
number of hospitals due to renew and two large
hospital groups who, having given an indication they
would renew their original product sets in the period,
subsequently entered into discussions regarding
the purchase of additional products, leading to an
extended period of negotiation. It is important to
note that both these large hospital groups are under
contract. In the period since the year end we have seen
a return to our historical norms of at least 100%.
Internally Craneware continues to target a revenue split
of no more than 50% from any one product by the start
of FY14 (1 July 2013) and we remain confident that we
are achieving the correct additional balance of non-
Chargemaster sales to achieve this, whilst continuing to
add to our Chargemaster customer base.
The average length of new customer contracts
continues to be stable at approximately five years.
Where we enter into new product contracts with our
existing customers, these contracts are typically made
co-terminus with the customer’s existing contracts,
and as such the average length of these contracts is
three years, in line with our expectations. Annualised
new facility value dipped slightly as a result of the
new customer mix in the year, it is anticipated this will
stabilise or increase in future years.
9
Craneware plc Annual Report 2011 Operational Review [Cont’d.]
We continue to actively engage with some of the
largest multi-hospital groups in the US and have
several potential new deals in the pipeline. Due to the
size of these groups these types of contracts naturally
take longer to close but we are confident we will
continue to see success in this area, as we continue to
grow our market share.
In addition to our internal sales teams, Craneware
continues to partner with numerous industry-leading
hospital information systems, patient accounting
systems and GPOs. These alliances both extend
Craneware’s market reach and the range of solutions
we offer clients. Sales from the McKesson partnership,
whereby Craneware’s Revenue Cycle Management
software is integrated into McKesson’s healthcare IT
platform, Horizon, have been slower this year than
anticipated as McKesson delayed the roll-out of its
new platform. However, there are strong indications
that they intend to move forward from January 2012
which should benefit Craneware. We continue to
further develop our GPO partnerships with Premier and
Amerinet.
Product Development
Product development continues to sit at the heart
of Craneware’s success as we build our portfolio of
products sitting in and around the point where clinical
data turns into financial data. This year saw the
successful launch and first sale of our second product
within our Strategic Pricing family, Value-based Pricing
Analyzer, helping hospitals more effectively, accurately
and sustainably manage their pricing strategies for
services, drugs and supplies, optimising their financial
performance while making strategic decisions in both a
transparent and defensible manner.
New Product Family -
Audit Revenue and Recovery
Since February our focus has been on the integration
of the first three of the ClaimTrust products into our
core offering under the newly developed “Audit and
Revenue Recovery” product family. These products are
InSight Audit™, InSight Payment Variance Analyzer™
and InSight Denials®. Each of these three products has
the potential to be used by customers alongside any of
the current Craneware product suite to help manage
and protect against the increasing number of audits
being carried out under the Medicare Recovery RAC
programme introduced as part of healthcare reform.
We therefore believe the potential for these products
to be significant as the RAC programme gathers pace in
2012 and 2013.
Our focus this year will be on the integration of the
remaining 3 ClaimTrust products, fully integrating
them within the product suite and into Craneware
branding and finding new innovative ways of
leveraging the strengths of the combined data sets of
the two companies.
Customers
Approximately 1,500 hospital facilities across all
States in the US utilise one or more of our software
products, representing nearly a quarter of all US
hospital facilities. We continue to win market share
and believe our reputation for customer support
and product innovation, combined with our strong
industry partnerships mean we will continue to do so
in the year ahead.
Our customer base continues to cover a broad range of
facilities, from small community hospitals to some of
the largest healthcare networks such as Intermountain
Healthcare, Cleveland Clinic and many of the other
faith-based charity hospital networks. We were
delighted to begin working this year with Shriners
Hospitals for Children®, a national 20 hospital group
headquartered in Florida representing our largest
children’s hospital customer to date.
During the year our core product, Chargemaster
Toolkit® was awarded the number one position in its
category by the prestigious US industry research house
KLAS for the fifth consecutive year, demonstrating
Craneware’s commitment to continually enhancing our
software to meet current conditions and delivering
unparalleled customer service and support to
healthcare facilities across the country.
Financial Review
The financial results for the current year represent
another significant milestone in Craneware’s
evolution. Following the completion of the ClaimTrust
acquisition on 17 February 2011, the results for
the first time include a contribution, albeit four
months, from our new subsidiary Craneware InSight
Inc (“InSight”). The financial detail underlying this
acquisition, the accounting treatments adopted and
how we have adapted our reporting as a consequence
is explained below.
Revenue
Revenues in the year have grown by 34% to $38.1m
(2010: $28.4m) of which the original Craneware
business pre the acquisition (the “Core” business)
generated organic growth of 25% to $35.5m (2010:
$28.4m) with InSight delivering revenues of $2.6m in
the period since its acquisition. Of this total revenue
$33.4m (2010: $24.7m) has been delivered from
licence revenues generated through our customers’ use
of the software, the remainder $4.7m (2010: $3.7m)
has been delivered from our Professional Services
organisation through their work implementing the
software and consulting services provided to hospitals
in the Revenue Integrity area, primarily ensuring
they generate the maximum value from our software
solutions.
We continue to generate 100% of our revenue from
software and associated professional services to
hospitals in the US. Following the acquisition we have
nine core products that are equally applicable to our
hospital customer base and have cross-trained our sales
force to meet this opportunity. As such we still define
our revenue as being derived from one market segment
in the financial statements.
Earnings
As a result of the acquisition, the Group is now
reporting an ‘Adjusted’ earnings before interest,
taxation, share based payments, depreciation, and
amortisation (“EBITDA”). This EBITDA is calculated
in accordance with the prior years but also adjusts
for the impact of the one-off costs related to the
acquisition such as the legal and due diligence costs,
which amounted to $516,796. Reporting an ‘Adjusted’
EBITDA is consistent with other acquisitive companies
as it allows for a more accurate understanding of the
underlying profit generated from operations and for a
direct comparison year on year.
EBITDA for the year has grown to $10.1m (2010: $7.6m)
an increase of 32% in the period. As expected, as a
result of our increased investment and integration
spend in InSight, all of the EBITDA growth is organic
with InSight being EBITDA neutral in its contributing
period.
Organic EBITDA margins have increased to 28.5%
(2010: 26.8%). It was anticipated that the InSight
business would dilute the Core margins for a period of
time until sufficient operating leverage could be gained
as a result of the acquisition. As a result, the overall
Group margin for the year was 26.5%.
10
Craneware plc Annual Report 2011 Operational Review [Cont’d.]
Revenue – Recognition and Visibility
Operating Expenses
Craneware Core business continues to recognise
revenue primarily through its annuity revenue
recognition model. This model sees software licence
revenue recognised over the life of the contracts we
sign (which during the year has remained stable for
new customers at an average contract life of 5 years),
with any associated professional services revenue
recognised as we deliver the services. As a result of this
revenue recognition model, the maximum value of an
average contract that can be recognised as revenue in
the current year is 20% plus the value of associated
professional services that have been delivered. This
leaves the remaining 80% of the licence revenue being
contracted but not recognised until future reporting
periods.
InSight has historically adopted a different revenue
model, with monthly invoicing and recognition. Whilst
this revenue is classed as ‘recurring’ it does not meet
the strict criteria of no break clauses the Company
has applied to call it ‘contracted’. Over time it is our
intention to migrate InSight to the core business
model.
As a result of the combined business models, the
Company has identified the “Three Year Visible
Revenue” metric as the primary KPI to assess the
medium term growth prospects. This metric includes:
InSight revenue identified as recurring in nature
(subject to an estimated churn rate of 8% per year);
Future revenue under contract;
Revenue generated from renewals (calculated
at 100%).
During the year, the Three Year Visible Revenue has
increased 26.5% from $83m to $105m. The breakdown
of this total is as follows (Figure 1):
InSight contributed $16.5m.
Future revenue under contract contributed $62.6m
of which $28.1m will be recognised in FY12,
$20.1m in FY13 and $14.4m in FY14.
Revenue generated from renewal activities
contributed $25.9m (i.e. customers coming to the
end of their existing multi-year contracts) being
$3.1m in FY12, $8.6m in FY13 and $14.2m in FY14.
We have continued our planned investment during
the year. In relation to the Core business we have
increased our Client Servicing spend by 19% to
$4.8m (2010: $4.0m) and have made investments
in our infrastructure to support our future growth
(including new offices in Atlanta and an office move
to Edinburgh) resulting in our G&A costs increasing
by 15% to $3.8m from $3.3m. Where we have made
investments in prior years, we have continued to
grow in these areas, albeit at lower rates with sales
and marketing spend increasing by 11% to $7.8m
(2010: $7.1m) and product development by 16% to
$4.4m after capitalising $0.2m of costs relating to
new products (2010: $3.8m after capitalising $0.5m
of costs relating to new products). These investments
combined with the InSight cost base included since
the acquisition date of $2.6m has resulted in net
operating expenses (before acquisition costs, share
based payments, depreciation and amortisation) of
$23.4m (2010: $18.8m). This represents a growth in
our operating costs of 24% as compared to a revenue
growth of 34%.
Acquisition of ClaimTrust Inc
On the 17 February 2011, the Company acquired the
entire share capital of ClaimTrust Inc. for an initial
consideration of $15m. This initial consideration was
formed of $9m cash and $6m of new shares issued.
The acquisition is subject to a further contingent
consideration payment of up to a further $4.5m
(payable in cash) depending on financial over-
performance in both revenue and EBITDA for the
12 months to 30 June 2012. The $6m of new shares
issued by Craneware plc represents an additional
641,917 shares (of which 617,731 have been issued by
30 June 2011).
The acquisition was completed via a newly formed
100% owned subsidiary Craneware InSight Inc.
Following the acquisition, the ClaimTrust business
was consolidated into Craneware InSight Inc. In
presenting these consolidated financial statements
the financial results (including the balance sheet) of
Craneware InSight have been included since the date
of acquisition.
On consolidation, International Accounting Standards
require the Company to estimate the fair value of
the contingent consideration and separately identify
intangible assets and their Fair Value. Taking these
values into account along with the net assets acquired
results in consolidated goodwill being recognised in
the Consolidated Balance Sheet.
The Company (with the assistance of an external
independent advisor) has estimated, based on industry
standard modelling methodologies, the fair value of
contingent consideration to be $0.95m. Intangible
assets relating to the ‘attributable value’ of existing
customer relationshipes and proprietary software have
been separately identified and have been recorded on
consolidation with a fair value of $3.0m and $1.2m
respectively. As a result, consolidated goodwill
recorded on the balance sheet as a result of the
acquisition is $12.3m.
Cash
We continue to measure the quality of these earnings
through our ability to convert them into operating
cash. We are pleased to report that for the third
successive year we have collected at least 100% of
our EBITDA as operating cash. This has resulted in the
Group’s cash balance being $24.2m (2010: $29.4m)
despite paying out $9.0m in relation to the acquisition
of ClaimTrust and returning $3.0m to our shareholders
by way of dividend payments.
Balance Sheet
The Group maintains a strong balance sheet position,
not only through our significant cash balance but with
rigorous controls over working capital and no debt.
Currency
The reporting currency for the Group (and cash
reserves) is US Dollars. Whilst the majority of our
cost base is US located and therefore US Dollar
denominated we do have approximately one quarter
of the cost base based in the UK relating primarily
to our UK employees (and therefore denominated in
Sterling). As a result, we continue to closely monitor
the Sterling to US Dollar exchange rate, and where
appropriate consider hedging strategies. During the
year, we have not seen a significant impact through
exchange rate movements, with the average exchange
rate throughout the year being $1.5906 as compared
to $1.5821 in the prior year.
Taxation
As expected, we have seen an increase in our expected
rate of taxation this year to a more normalised level
of 30.5% (2010: 23.9%). The Group’s effective rate of
taxation is dependent on the ratio of profits generated
in the UK and overseas (which will change following
the acquisition) and the applicable tax rates in the
respective jurisdictions. In the two immediately
preceding years, we have seen lower effective rates of
taxation due primarily to agreeing enhanced Research
and Development tax relief in respect of financial years
2002 to 2009.
11
Craneware plc Annual Report 2011
Operational Review [Cont’d.]
EPS
Dividend
Outlook
As with EBITDA, the Group is now reporting an adjusted
EPS figure. This adjusted EPS figure has also been
adjusted for amounts relating to the acquisition,
i.e., $516,796 relating to one-off acquisition related
expenses and $147,302 relating to the amortisation on
acquired intangibles. Reporting an adjusted EPS figure
and how this has been calculated, is again consistent
with other acquisitive companies and allows for a more
accurate direct comparison year on year.
Adjusted basic EPS has increased by 17% to $0.256
(2010: $0.218) and adjusted diluted EPS has increased
by 20% to $0.253 (2010: $0.21). The growth rates for
both these metrics has been affected by the higher tax
effective rate detailed above and the increased number
of shares in issue as a result of both the acquisition and
share options exercised in the year.
The Board recommends a final dividend of 4.8p (7.7
cents) per share giving a total dividend for the year of
8.8p (14.14 cents) per share (2010: 8.0p (11.99 cents)
per share). Subject to confirmation at the Annual
General Meeting, the final dividend will be paid on 9
December 2011 to shareholders on the register as at
11 November 2011, with a corresponding ex-Dividend
date of 9 November 2011.
The final dividend of 4.8p per share is capable of being
paid in US dollars subject to a shareholder having
registered to receive their dividend in US dollars
under the Company’s Dividend Currency Election, or
who register to do so by the close of business on 11
November 2011. The exact amount to be paid will be
calculated by reference to the exchange rate to be
announced on 11 November 2011. The final dividend
referred to above in US dollars of 7.7 cents is given
as an example only using the Balance Sheet date
exchange rate of $1.6055/£1 and may differ from that
finally announced.
Figure 1.
70% visibility of 2012 expected revenue*
Contracted
Renewals
Craneware InSight recurring revenue
This has been another year of strong growth for
Craneware both in operational and financial terms,
highlighting the strength of our product offering and
business model.
The financial challenges presented by today’s economy
and healthcare reform mean it has never been more
important for hospitals to increase efficiency and
protect revenue in order to meet their objectives of
providing increased levels of care to a growing hospital
population. We believe our suite of software combined
with our industry expertise uniquely positions us to
help hospitals protect themselves against this changing
market landscape, automating regulatory updates,
increasing accuracy of pricing, charging and coding for
procedures, supplies and pharmaceuticals and helping
to manage the increasing number of government led
audits.
Consequently with the market drivers, such as the
Recovery Audit Contractor programme, expected
to increase in the year ahead, the robust nature of
our business model which provides for strong cash
generation and high levels of future revenue visibility,
together with our strong pipeline, we look to the future
with confidence.
Keith Neilson, Chief Executive Officer
Craig Preston, Chief Financial Officer
29 August 2011
$37.1m
5.9m
3.1m
28.1m
$28.4m
2.7m
$27.3m
$27.3m
7.6m
11.9m
25.7m
19.7m
15.4m
20.1m
2011
2012
As at 30th June 2010
2013
2012
2013
As at 30th June 2011
$34.2m
$33.7m
5.5m
8.6m
5.1m
14.2m
14.4m
2014
40m
35m
30m
25m
20m
15m
10m
5m
*Consensus analyst forecasts
12
Craneware plc Annual Report 2011 Board of Directors
George R Elliott, 58 — Non-Executive Chairman :: Appointed 10 August 2007
George is non-executive Chairman of Cupid plc (CUP) and Kewill plc (KWL). He is also a non-executive Director of Summit Corporation
plc (SUMM) and Corsair Components Inc. From 2000-2007 George was Chief Financial Officer of Wolfson Microelectronics plc (WLF), a
leading global provider of high performance mixed-signal semiconductors to the consumer electronics market. Previously, he was Business
Development Director at McQueen International Ltd (now Sykes), where he was responsible for strategic sales and marketing. George,
formerly a partner of Grant Thornton, is a member of the Institute of Chartered Accountants of Scotland and has a degree in Accountancy
and Finance from Heriot-Watt University.
Keith Neilson, 42 — Chief Executive Officer :: Co-founder
Keith co-founded Craneware in 1999 and has served as its CEO ever since. Under Keith’s guidance, Craneware became recognised as the
pioneer in revenue integrity management and a leading provider of superior products and professional services. Keith’s direction has helped
Craneware to win multiple prestigious awards in such areas as international achievement, business growth strategy and innovation. Keith
was named The Entrepreneurial Exchange’s “Emerging Entrepreneur of the Year 2003” and was a finalist in the 2004 World Young Business
Achiever Award, winning the Award of Excellence in the Business Strategy category. He received the UK Software & Technology Entrepreneur
of the Year Award from Ernst & Young in 2008 and was the Insider Elite Young Business Leader of the Year in 2009. Prior to launching
Craneware, Keith worked primarily in international management, where he handled sales, marketing and technical consulting for companies
with operations around the world. He studied Physics at Heriot-Watt University, Edinburgh, receiving a bachelor’s degree in 1991.
Craig T Preston, 40 — Chief Financial Officer :: Appointed 15 September 2008
Craig was appointed to the Board on 15 September 2008, just as the company was entering its second year as a publicly traded corporation
on the London Stock Exchange. As CFO, he directs Craneware’s financial operations in both the United Kingdom and United States. Craig has
significant experience in senior financial roles with other private and public technology companies, including those with a multi-national
presence. Prior to Craneware, he was group director of finance and company secretary at Intec Telecom Systems plc. Earlier, he served as
corporate development manager at London Bridge Software plc. During his time there, he also held the role of CFO for Phoenix International,
a previously NASDAQ-traded software company, following its acquisition by London Bridge. Earlier in his career, Craig worked for Deloitte in
both the United Kingdom and United States. Craig has a degree in Accounting and Financial Management from the University of Sheffield.
He is also a member of the Institute of Chartered Accountants in England and Wales.
Neil P Heywood, 49 — Non-Executive Director :: Appointed 31 January 2002
Neil is Managing Director of Matrix Alpha Analytics and Chairman of Codeplay Software. Prior to Matrix, Neil was co-founder and CEO of
Quadstone from 1995 to 2001. Quadstone won numerous awards for its software and was named best “Small Start-up” of the year at the
Financial Times/BVCA awards in 1999. It was acquired by Portrait Software in 2006. Quadstone was a buy-out from the Edinburgh Parallel
Computing Centre, a department at the University of Edinburgh, which Neil managed. Prior to EPCC, Neil was a co-founder and later
Commercial Director of 3L, a software firm specialising in software for parallel computers. 3L was bought by Spectrum Signal Processing, Inc.
Neil received his B.Sc. in Computer Science from the University of Edinburgh in 1984.
Ron F Verni, 63 — Non-Executive Director :: Appointed 1 May 2009
Ron is currently a director of Kewill plc (KWL), and on the Board of Advisors of Company.com, CEO Ventures, and the Robinson College of
Business. Before that he was President & CEO of Sage Software, Inc, and a member of the Board of directors of the Sage Group plc. Under
his leadership, the company grew from less than $160 million in revenue to over $1 billion, from under 1,000 employees to over 5,000, and
from 1 million business customers to over 2.5 million. Ron also engineered over 20 acquisitions and oversaw their successful integration into
the company. Prior to Sage Software, Ron was President and CEO of Peachtree Software, Inc., a leading pioneer in business management
solutions for small to medium size businesses. Ron also was a Vice President of Marketing with Automatic Data Processing, President and
CEO of NEBS Software, Inc., and the founder and CEO of ASTEC Software.
13
Craneware plc Annual Report 2011
Directors’ Report
The directors present herewith their report and the
audited financial statements for the year ended
30 June 2011.
Principal Activities and Business Review
The Group’s principal activity continues to be the
development, licensing and ongoing support of
computer software for the US healthcare industry.
The Company is required by the Companies Act to
include a business review in this report. This includes
an analysis of the development and performance of
the Group during the financial year and its position at
the end of the financial year, including relevant key
performance indicators (principally revenue, adjusted
operating profit before acquisition costs, share based
payments, depreciation and amortisation, visibility
of revenue over the next three years and the product
attachment rate). Detailed information on all matters
required is presented in the Operational Review
contained in pages 8–12 and is incorporated into this
report by reference. A description of the principal risks
and uncertainties facing the Group is set out below.
Where the Directors’ Report, Chairman’s Statement
and Operational Review contain forward looking
statements, these are made by the directors in good
faith based on the information available to them at the
time of their approval of this report. Consequently, such
statements should be treated with caution due to their
inherent uncertainties, including both economic and
business risk factors, underlying such forward looking
statements or information.
Financial Results and Dividends
The Group’s revenue for the year was $38.1m (2010:
$28.4m) which has generated an operating profit
(before one off acquisition related expenses) of $9.1m
(2010: $7.1m). The full results for the year, which were
approved by the Board of directors on 29 August 2011,
are set out in the accompanying financial statements
and the notes thereto.
During the year the Company paid an interim dividend
of 4.0p (6.4 cents). The directors are recommending the
payment of a final dividend of 4.8p (7.7 cents) per share
giving a total dividend of 8.8p (14.1 cents) per share
based on the results for 2011 (2010: 8.0p (11.99 cents)).
Subject to approval at the Annual General Meeting,
the final dividend will be paid on 9 December 2011 to
shareholders on the register as at 11 November 2011.
Dividends/Share (pence)
2.6
3.1
4.7
*Subject to approval at AGM
8.0
8.8*
The level of dividend proposed for the year continues
(and the directors intend to continue in future years)
the Company’s stated progressive dividend policy based
on the Group’s retained annual earnings. The level of
distributions will be subject to the Group’s working
capital requirements and the ongoing needs of
the business.
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, integration (where
appropriate) of products acquired through
the ClaimTrust acquisition in the year and the
enhancements to the Group’s 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. During
the year development expenditure amounted to $5.0m
(2010: $3.8m) net of expenditure capitalised of
$0.2m (2010: $0.5m).
Financial Instruments
The financial risk management strategy of the
Group, its exposure to currency risk, interest rate risk,
counterparty risk and liquidity is set out in note 3 to the
financial statements.
Principal Risks and Uncertainties
To deliver continued sustainable growth, the Group
recognises the need to minimise the likelihood and
impact of key risks. These risks are both general in
nature (i.e. business risks faced by all businesses), and
more specific to the Group and the market in which it
operates. The nature of the US Healthcare industry and
associated risks are detailed in the Operational Review
on pages 8–12.
The risks outlined here are those principal risks and
uncertainties that are material to the Group. They do
not include all risks associated with the Group and are
not set out in any order of priority.
US Healthcare Reform
Issue: The US healthcare industry is going through a
continued period of fundamental reform, the outcome
of which has yet to be fully determined and as such
could impact the Group’s market opportunity.
Actions: The Group has taken steps to ensure it stays at
the forefront of how the industry is interpreting current
proposals and actions they are taking. It does this
through, amongst other things, its
‘Strategic Advisory Council’ which is formed from the
industry experts from within the Group;
Regular attendance by members of this Council and
other senior management at healthcare forums and
industry education events; and
Client forums.
2007
2008
2009
2010
2011
14
The Strategic Advisory Council, the Operations Board
and the PLC board come together at periodic intervals to
review developments in the market and provide direct
input to the Group’s ongoing strategy appraisal and
product development.
Competitive Landscape
Issue: New entrants to the market or increased
competition from existing competitors could
significantly impact the Group’s market opportunity.
Actions: The Group continually monitors its competitive
landscape, including both existing and potential new
market entrants. Significant barriers to entry continue
to exist, including but not limited to the significant
data content built over the Group history which exists
within the products. The Group continues to ensure
its products are platform agnostic and actively seeks
partnerships with other Healthcare IT vendors.
Management of Growth
Issue: The Group continues to grow significantly both
organically and through acquisition which could place
strain on the current management and other resources
of the Group.
Actions: The Group’s Annuity SaaS (“Software as a
Service”) business model combined with its detailed
forecasting processes provide significant visibility to
expected growth rates. This allows the Group increased
certainty when planning in advance, including on
necessary resourcing levels. To ensure the correct
infrastructure to support growth, assessments are
performed within systems, policies & procedures and
business controls upgraded, as appropriate, in each
major component of the Group’s infrastructure. In
2011 these included insurance, pricing & contracting,
financial reporting, human resources and IT systems.
Dependence on Key Executives and Personnel
Issue: Due to the size of the Group significant reliance
is placed on a few members of the executive and senior
management team, the retention of which cannot
be guaranteed.
Actions: The Group continues to expand its senior
management team, with a new appointment to the
Operations Board having been made during the year
following the ClaimTrust acquisition. In addition, the
Group has developed its ‘leadership framework’ to help
develop its leaders of the future. In regards to retention
the Remuneration Committee continues to monitor and
develop the remuneration packages of key personnel
to ensure they are both competitive and include
appropriate long term incentives.
Craneware plc Annual Report 2011 Directors’ Report [Cont’d.]
Failure to develop or acquire
appropriate software solutions
Issue: Reliance on a small number of products could
significantly limit the Group’s market opportunity and
leave it unable to meet its customers’ needs.
Actions: Whilst remaining focused on its core ‘Revenue
Integrity’ market the Group has both internally
developed and acquired a total product suite of 9 core
products (from the original 1 in 2007). The Group
publishes its product attachment rate during every
reporting period and has a strategic goal of generating
no more than 50% of its revenue in any year, from any
one product.
Intellectual Property Risk
Issue: Failure to protect, register and enforce (if
appropriate) the Group’s Intellectual Property Rights
could materially impact the Group’s future performance.
Actions: The Group has, and will continue to, register
its trademarks and protects access to its copyrights and
confidential information, as appropriate. The Group
would vigorously defend itself against a third-party
claim should any arise. The Group also has in place strict
physical and data security processes and encryption to
protect its intellectual property.
Acquisition Risk
Issue: The Group has a stated acquisition strategy. Any
acquisition carries with it an inherent risk, including
failure to identify material matters that could adversely
affect future Group performance.
Actions: Whilst the Group has limited experience
of acquisitions, the Board members individually
have significant experience in regards to completing
acquisitions.
In addition, and where appropriate, the Board
appoints independent professional advisors to assist
in the consideration of the acquisition and to assist
management in the due diligence process.
The principal financial risks are detailed in Note 3 to the
financial statements. How the Board determines and
manages risks is detailed in the Corporate Governance
report on pages 17 – 20.
In summary, the US Healthcare market is not immune
to the macro-economic climate and, with the increasing
focus and requirements of the proposed Healthcare
reform, the Group expects the market to continue to be
very competitive. The Group therefore aims to remain
at the forefront of product innovation and delivery,
through a combination of in-house development
and specific acquisition opportunities. This requires
the recruitment, retention, and reward of skilled
staff, alongside responsiveness to changes, and the
opportunities that result, as they arise.
Going Concern
Substantial shareholders
The directors, having made suitable enquiries and
analysis of the accounts, including the consideration of:
cash reserves,
no debt or debt related covenants,
continued cash generation, and
Annuity SaaS business model
have determined that the Group has adequate resources
to continue in business for the foreseeable future and
that it is therefore appropriate to adopt the going
concern basis in preparing these financial statements.
Directors
The directors of the Company are listed on page 13.
The directors have the power to manage the business
of the Company, subject to the provisions of the
Companies Act, the Memorandum and Articles of
Association of the Company, and to any directions given
by special resolution, including the Company’s power
to purchase its own shares. The Company’s Articles
of Association may only be amended by a special
resolution of the Company’s shareholders.
Details of the directors’ service contracts and
their respective notice terms are detailed in the
Remuneration Committee Report on page 22.
Authorised and Issued Share Capital
The Company’s authorised share capital at the balance
sheet date was 50,000,000 ordinary shares of 1p
each of which 26,792,681 were issued and fully paid
up. During the year, the Company has issued 617,731
shares (a further 24,186 are to be issued to give a total
issued of 641,917) in respect of the ClaimTrust Inc
acquisition detailed on page 43. In addition, options
were exercised pursuant to the Company’s share option
schemes, resulting in the allotment of 809,100 new
ordinary shares. No further new ordinary shares have
been allotted as a result of these matters since the end
of the financial year to the date of this report.
Directors and their interests
The interests of the directors who held office at
30 June 2011 and up to the date of this report in the
share capital of the company, were as follows:
As at 1 August 2011, the Company had been notified
of the following beneficial interests in 3% or more of
the issued share capital pursuant to section 793 of the
Companies Act 2006:
No. of
Ordinary
£0.01
Shares
% of
issued
share
capital
3,448,779
12.87
K Neilson
Standard Life Investments
3,202,589
11.95
W G Craig
3,153,151
11.77
Aegon Asset Management
2,304,817
Fidelity Investments
1,997,717
8.60
7.46
Artemis Investment
Management
Blackrock
D Paterson
Axa Investment Managers
1,212,500
4.53
952,401
873,800
848,248
3.55
3.26
3.17
The total number of shares as at 30 June 2011
and 1 August 2011 was 26,792,681.
Indemnity of Directors and Officers
Under the Company’s Articles of Association and subject
to the provisions of the Companies Act, the Company
may and has indemnified all directors or other officers
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 has purchased and
maintains appropriate insurance cover against legal
action brought against directors and officers.
Corporate Social Responsibility
& Environmental Policy
The Group is committed to maintaining a high level of
social responsibility. It is the Group’s policy to support
and encourage environmentally sound business
operations, with aspects and impact on the environment
being considered at Board level. Recognising that the
Group’s operations have minimal direct environmental
impact, the Group aims to ensure that:
G R Elliott
N P Heywood
K Neilson
2011
15,650
130,356
3,448,779
3,594,785
2010
it meets all statutory obligations;
15,650
127,926
3,398,044
3,541,620
where sensible and practical, it encourages working
practices, such as teleconferencing, teleworking
and electronic information exchange that reduce
environmental impact; and
Directors’ interests in share options are detailed in the
Remuneration Committee Report on page 23.
recycles waste products wherever possible,
encouraging use of environmentally friendly
materials, and disposing safely of any non-
recyclable materials.
15
Craneware plc Annual Report 2011
Directors’ Report [Cont’d.]
Customers
Policy on payment of Payables
The Group treats all its customers with the utmost
respect and seeks to be honest and fair in all
relationships with them. The Group provides its
customers with products and levels of customer service
of outstanding quality.
Community
The Group seeks to be a good corporate citizen
respecting the laws of the countries in which it operates
and adhering to best social practice where feasible. It
aims to be sensitive to the local community’s cultural
social and economic needs.
Employees and Employee Involvement
The Group recognises the value of its employees and
that the success of the Group is due to their efforts.
The Group respects the dignity and rights of all its
employees. The Group provides clean, healthy and safe
working conditions. An inclusive working environment
and a culture of openness are maintained by the regular
dissemination of information. The Group endeavours
to provide equal opportunities for all employees and
facilitates the development of employees’ skill sets. A
fair remuneration policy is adopted throughout
the Group.
The Group does not tolerate any sexual, physical
or mental harassment of its employees. The Group
operates an equal opportunities policy and specifically
prohibits discrimination on grounds of colour, ethnic
origin, gender, age, religion, political or other opinion,
disability or sexual orientation. The Group does not
employ underage staff.
The general policy of the Group is to welcome employee
involvement as far as it is reasonably practicable.
Employees are kept informed by meetings, regular
updates and web page postings. In addition the Group’s
UK and US senior management teams meet regularly to
review performance against the Group’s strategic aims
and development roadmaps.
The Group maintains core values of Honesty, Integrity,
Hard Work, Service and Quality and actively promotes
these values in all activities undertaken on behalf of
the Group.
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.
16
Relationships with suppliers and subcontractors are
based on mutual respect, and the Group seeks to be
honest and fair in its relationships with suppliers and
subcontractors, and to honour the terms and conditions
of its agreements in place with such suppliers and
subcontractors.
statements, the directors have also elected to comply
with IFRSs, issued by the International Accounting
Standards Board (IASB). Under company law the directors
must not approve the financial statements unless they
are satisfied that they give a true and fair view of the
state of affairs of the Group and the Company and of the
profit or loss of the Group for that period. In preparing
these financial statements, the directors are required to:
The Group does not believe that the giving or accepting
of bribes is acceptable business conduct.
select suitable accounting policies and then apply
them consistently;
It is the Group’s normal practice to make payments
to suppliers in accordance with agreed terms and
conditions, generally within 30 days, provided that the
supplier has performed in accordance with the relevant
terms and conditions. Trade payables at 30 June 2011
represented, on average 21 days purchases (2010: 25
days) for the Group and 22 days purchases (2010: 26
days) for the Company.
Charitable and Political Contributions
The Group has developed the “Craneware Cares”
program. The focus of Craneware Cares is to raise
awareness and funds for charity. In FY11, the
Company directly donated $2,374 relating to corporate
participation in the Highland 100 charitable bike riding
events (2010: $5,401) and $7,820 to CHAS, Children’s
Hospice Association Scotland, a Scottish charity
established to provide hospice services in Scotland for
children and young people with life-limiting conditions.
Additionally, the Craneware Cares program raised more
than $3,500 from industry speaking engagements that
was donated to Villa La Paz Foundation for poor and
abandoned children needing medical care, as well as
arranged donations from Hotels Rewards programs
to The American Red Cross relief efforts in honour of
Craneware clients affected by natural disasters. Neither
the Company nor its subsidiary made any donation for
political purposes in fiscal years 2011 or 2010.
Annual General Meeting
The resolutions to be proposed at the AGM, together
with explanatory notes, appear in a separate
Notice of Annual General Meeting which is sent
to all Shareholders. The proxy card for registered
shareholders is distributed along with the notice.
Company Registration
The Company is registered in Scotland as a public
limited company with number SC196231.
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. Under that law the
directors have prepared the Group and Parent Company
financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted
by the European Union. In preparing these financial
make judgements and accounting estimates that are
reasonable and prudent; and
state whether applicable IFRSs as adopted by the
European Union and IFRSs issued by IASB have been
followed, subject to any material departures disclosed
and explained in the financial statements.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the Company and the Group and enable them to ensure
that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding
the assets of the Company and the Group and hence for
taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The directors are responsible for the maintenance
and integrity of the company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
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:
Craig Preston
Company Secretary
29 August 2011
Craneware plc Annual Report 2011 Corporate Governance Report
The Board of directors (“the Board”) acknowledges the
importance of the Principles set out in The UK Corporate
Governance Code issued in June 2010 (the “Code”).
Although the Code is not compulsory for AIM listed
companies, the Board recognises the importance of
good corporate governance practices and therefore has
applied the principles as far as practicable for a public
Company of its size. This Report and the Remuneration
Committee Report (on pages 21–23) identify how it has
complied with both the individual principles and the
‘spirit’ of the Code as a whole.
The Code itself defines the purpose of corporate
governance being “to facilitate effective,
entrepreneurial and prudent management that can
deliver the long-term success of the company;” it is
this overarching objective that the Board has sought to
achieve in applying the Code principles.
Leadership
The role of the Board
“Every Company should be headed by an effective Board
which is collectively responsible for the long-term success
of the company.”
The Company’s Board is headed by its Chairman George
Elliott and comprises two executive directors, Keith
Neilson, Chief Executive Officer and Craig Preston, Chief
Financial Officer along with two further non-executive
directors, Ron Verni (Senior Independent Director) and
Neil Heywood. Detailed biographies of all directors are
contained on page 13.
The Board meets regularly, usually monthly, to discuss
and agree on the various matters brought before
it, including the Group trading results. The Board
is well supported by the Group’s Operations Board
(details of which are provided below) and a broader
senior management team, who collectively have the
qualifications and experience necessary for the day to
day running of the Group.
There is a formal schedule of matters reserved for the
Board, which include approval of the Group’s strategy,
annual budgets and business plans, acquisitions,
disposals, business development, annual reports and
interim statements, plus any significant financing and
capital expenditure plans. As part of this schedule, the
Board has clearly laid out levels of devolved decision
making authority to the Group’s Operations Board.
The Board has further established an Audit Committee
and a Remuneration Committee details of which are
provided below. George Elliott is a member of both
these committees, in addition to the two independent
non-executives. In deciding this the Company has
taken advantage of the Code’s ‘relaxations’ available
to smaller companies. The Board has also established
a Nominations Committee which is chaired by Neil
Heywood and includes George Elliott and Ron Verni
as its members. Part of the role of the Nominations
Committee is to review and determine the composition
and structure of the Board as well as, if appropriate,
identify potential candidates to be appointed as
directors. During the year, the Board as a whole
performed a review of its composition as part of its
annual performance review and determined the Board
was of an appropriate size and composition for the
Group in its current form. As such no separate meetings
of the Nominations Committee have been held.
Attendance of directors at Board and Committee
meetings convened in the year, along with the number
of meetings that they were invited to attend, are set
out below:
s
n
o
i
t
a
n
m
o
N
i
e
e
t
t
i
m
m
o
C
n
o
i
t
a
r
e
n
u
m
e
R
e
e
t
t
i
m
m
o
C
e
e
t
t
i
m
m
o
C
t
i
d
u
A
-
-
-
-
-
-
2
-
-
2/2
2/2
2/2
3
-
-
1/3
3/3
3/3
d
r
a
o
B
13
12/13
13/13
11/13
11/13
12/13
No. Meetings in year
Executive Directors
K Neilson
C T Preston
Non Executive Directors
G R Elliott
N P Heywood
R Verni
Where any Board member has been unable to attend
Board or Committee meetings during the year, input
has been provided to the Company Secretary ahead of
the meeting. The relevant Chairman then provides a
detailed briefing along with the minutes of the meeting
following its conclusion.
As detailed in the Directors’ Report on page 15, the
Company maintains appropriate insurance cover against
legal action brought against directors and officers.
The Company has further indemnified all directors or
other officers against liability incurred by them in the
execution or discharge of their duties or exercise of
their powers.
Division of Responsibilities
“There should be a clear division of responsibilities at
the head of the company between the running of the
Board and the executive responsible for the running of
the company’s business. No one individual should have
unfettered powers of decision.”
The Board has established clearly defined and well
understood roles for George Elliott as Chairman of
the Company, and Keith Neilson as Chief Executive
Officer. The Chairman is responsible for the leadership
of the Board, ensuring its effectiveness and setting its
agenda. Once strategic and financial objectives have
been agreed by the Board, it is the Chief Executive
Officer’s responsibility to ensure they are delivered
upon. To facilitate this, Keith Neilson as CEO chairs the
Group’s Operations Board which comprises the Chief
Financial Officer and four further members of the Senior
Management Team. The day-to-day operation of the
Group’s business is managed by this Board, subject to
the clearly defined authority limits.
The Chairman
“The chairman is responsible for leadership of the Board
and ensuring its effectiveness on all aspects of its role.”
George Elliott was appointed Chairman of the Board
in August 2007, shortly before the Company listed on
the AIM market. At that time the then Board satisfied
themselves that he was independent, fulfilling the
requirements of the Code.
In setting the Board agendas, the Chairman, in
conjunction with the Company Secretary, ensures input
is gathered from all Board directors on matters that
should be included. ‘Board papers’ are issued in advance
of meetings to ensure Board members have appropriate
detail in regards to matters that will be covered, thereby
encouraging openness and healthy debate.
Non-Executive Directors
“As part of their role as members of a unitary Board, non-
executive directors should constructively challenge and
help develop proposals on strategy.”
The Board has appointed Ron Verni as Senior
Independent Director. In this role, Ron provides a
sounding board for the Chairman as well as providing
an additional channel of contact for shareholders, other
directors or employees, if the need arises.
In addition to matters outlined above, there is regular
communication between executive and non-executive
directors, including where appropriate, updates
on matters requiring attention prior to the next
Board meeting. The non-executive directors meet,
as appropriate but no less than annually, without
executive directors being present and further meet
annually without the Chairman present.
17
Craneware plc Annual Report 2011
Corporate Governance Report [Cont’d.]
Effectiveness
Appointments to the Board
The Composition of the Board
“The Board and its committees should have the
appropriate balance of skills, experience, independence
and knowledge of the company to enable them to
discharge their respective duties and responsibilities
effectively.”
The composition of the Board has been designed to give
a good mix and balance of different skill sets, including
significant experience in:
High growth companies;
Software and healthcare sectors;
Entrepreneurial cultures;
Both UK and US companies;
Acquisitions; and
Other listed plc companies.
Through this mix of experience the Board and the
individual directors are well positioned to set the
strategic aims of the Company as well as drive
the Group’s values and standards throughout the
organisation, whilst remaining focused on their
obligations to shareholders and meeting their statutory
obligations.
The Board reviews on an annual basis the independence
of each non-executive director. In making this
consideration the Board determines whether the
director is independent in character and judgement
and whether there are relationships or circumstances
which are likely to affect, or could appear to affect,
the directors’ judgement. In regards to Ron Verni, the
Board considered, that during the year, he was paid
a consulting fee by the Company. This fee related to
advice and assistance he provided to the Executive
team in concluding the due diligence and acquisition
of ClaimTrust Inc. This fee was not material and
nonrecurring in nature and therefore the Board has
concluded this does not affect his independence. In
regards to Neil Heywood, the Board considered his
appointment to the original Craneware Limited Board
being in January 2002. Whilst Neil’s tenure is over 9
years, the Company and the Board have significantly
changed since the Company’s IPO in 2007, as a result of
this and Neil’s conduct, the Board has concluded this has
not affected his independence.
“There should be a formal, rigorous and transparent
procedure for the appointment of new directors to
the Board.”
When a new appointment to the Board is to be
made, consideration is given to the particular skills,
knowledge and experience that a potential new
member could add to the existing Board composition.
A formal process is then undertaken, usually involving
external recruitment agencies (as has been the case
with the last two appointments to the Board), with
appropriate consideration being given, in regards
to executive appointments, to internal and external
candidates. Before undertaking the appointment of
a non-executive director, the Chairman establishes
that the prospective director can give the time and
commitment necessary to fulfil their duties, in terms
of availability both to prepare for and attend meetings
and to discuss matters at other times.
This process is normally performed under the remit of
the Nominations Committee.
Commitment
“All directors should be able to allocate sufficient time
to the company to discharge their responsibilities
effectively.”
All Board directors recognise the need to allocate
sufficient time to the Company for them to be able
to meet their responsibilities as Board members. All
non-executive director contracts include minimum
time commitments; however these are recognised to be
the minimums.
Details of the other directorships held by each Board
Member are provided in the Director Biographies
on page 13. The Board has evaluated the time
commitments required by these other roles and
does not believe it affects their ability to perform
their duties with the Company. No executive director
currently holds any other plc directorship. The non-
executive director contracts are available for inspection
at the Company’s registered office and are made
available for inspection both before and during the
Company’s Annual General Meeting.
Development
“The Board should be supplied in a timely manner with
the information in a form and a quality appropriate to
enable it to discharge its duties.”
The Chairman is responsible for ensuring that all
the directors continually update their skills, their
knowledge and familiarity with the Group in order
to fulfil their role on the Board and the Board’s
Committees. Updates dealing with changes in
legislation and regulation relevant to the Group’s
business are provided to the Board by the Company
Secretary/Chief Financial Officer and through the
Board Committees.
All directors have access to the advice and services
of the Company Secretary, who is responsible to the
Board for ensuring that Board procedures are properly
complied with and that discussions and decisions are
appropriately minuted. Directors may seek independent
professional advice at the Company’s expense in
furtherance of their duties as directors.
Training in matters relevant to their role on the Board
is available to all Board directors. New directors are
provided with an induction in order to introduce them
to the operations and management of the business.
In addition, the non-executive directors join, at least
once a quarter, the Group’s Operations Board. This
provides all directors with direct access to the senior
management of the Company and allows for better
understanding of how the strategy set by the Board is
being implemented across the Group.
Further to this the non-executive directors also
regularly join the Group’s Strategic Advisory Council.
This is a committee of the Group’s industry experts who
meet periodically to assess potential changes in the US
Healthcare market identifying both opportunities and
risks to the Group.
Evaluation
“The Board should undertake a formal and rigorous
annual evaluation of its own performance and that of its
committees and individual directors.”
During the year, a formal evaluation was conducted
by means of a detailed questionnaire which was
completed by each director. The results of this process
were collated by the Chairman and were presented
to the Board as a whole. This evaluation included
a review of the performance of individual directors
including the Chairman and the Board Committees.
Based on this evaluation, the Board has taken steps
to implement certain agreed upon suggestions, but
overall has concluded that its performance in the past
year had been satisfactory.
The Board has considered the Code’s recommendation
that the evaluation of the Board be carried out
externally at least every three years. The Board
recognises this recommendation is not applicable to
AIM listed companies and has determined it was not
necessary to carry out an external review in the
current year.
18
Craneware plc Annual Report 2011 Corporate Governance Report [Cont’d.]
Re-election
“All directors should be submitted for re-election at
regular intervals, subject to continued satisfactory
performance.”
Under the Company’s Articles of Association, at every
Annual General Meeting, at least one-third of the
directors who are subject to retirement by rotation, are
required to retire and may be proposed for re-election.
In addition, any director who was last appointed or
re-appointed three years or more prior to the AGM is
required to retire from office and may be proposed for
re-election. Such a retirement will count in obtaining
the number required to retire at the AGM. New
directors, who were not appointed at the previous AGM,
automatically retire at their first AGM and, if eligible,
can seek re-appointment.
However, the Board recognises the Code’s
recommendation that all directors should stand for
re-election every year, and whilst not a requirement,
the Board has decided to adopt this recommendation
as best practice. As such, all directors will retire from
office at the Company’s forthcoming AGM and stand for
re-appointment.
Accountability
Financial and Business Reporting
“The Board should present a balanced and
understandable assessment of the company’s position
and prospects.”
The Board recognises its responsibilities, including
those statutory responsibilities laid out on page 16. An
assessment of the Group’s market, business model and
performance is presented in the Chairman’s Statement
and the Operational Review on pages 7–12.
As detailed on page 15 of the Directors’ Report, the
Board has confirmed that it is appropriate to adopt the
going concern basis in preparing financial statements.
Executive directors and senior management meet
to review both the risks facing the business and the
controls established to minimise those risks and their
effectiveness in operation on an ongoing basis. The
aim of these reviews is to provide reasonable assurance
that material risks and problems are identified and
appropriate action taken at an early stage. From this
review the company maintains its internal risk register
which forms the foundation of the Board and the Audit
Committee review process.
The annual financial plan is reviewed and approved by
the Board. Financial results with comparisons to plan
and forecast results are reported on at least a quarterly
basis to the Board together with a report on operational
achievements, objectives and issues encountered. The
quarterly reports are supplemented by interim monthly
financial information. Forecasts are updated quarterly
in the light of market developments and the underlying
performance and expectations. Significant variances
from plan are discussed at Board meetings and actions
set in place to address them.
Approval levels for authorisation of expenditure are
at set levels and cascaded through the management
structure with any expenditure in excess of predefined
levels requiring approval from the executive directors
and selected senior managers.
Measures continue to be taken to review and embed
internal controls and risk management procedures
into the business processes of the organisation and
to deal with areas of improvement which come to the
management’s and the Board’s attention. Metrics and
quality objectives continue to be actively implemented
and monitored as part of a continual improvement
programme.
Details of the principal risks and uncertainties facing
the Group are detailed in the Directors’ Report on pages
14–15. The principal financial risks are detailed in
Note 3 to the financial statements.
Risk Management and Internal Control
Audit Committee and Auditors
“The Board is responsible for determining the nature
and extent of the significant risks it is willing to take
in achieving its strategic objectives. The Board should
maintain sound risk management and internal
control systems.”
“The Board should establish formal and transparent
arrangements for considering how they should apply
the corporate reporting risk management and internal
control principles and for maintaining an appropriate
relationship with the Company’s auditor.”
The directors recognise their responsibility for the
Group’s system of internal control, and have established
systems to ensure that an appropriate and reasonable
level of oversight and control is provided. These
systems are reviewed for effectiveness annually by the
Audit Committee and the Board. The Group’s systems
of internal control are designed to help the Group meet
its business objectives by appropriately managing,
rather than eliminating, the risks to those objectives.
The controls can only provide reasonable, not absolute,
assurance against material misstatement or loss.
An Audit Committee has been established to assist
the Board with the discharge of its responsibilities in
relation to internal and external audits and controls. The
Audit Committee will normally meet at least three times
a year. The Audit Committee is chaired by Neil Heywood
and its other members are George Elliott and Ron Verni.
The Chief Financial Officer, Chief Executive Officer and
other senior management attend meetings by invitation
and the Committee also meets the external auditors
without management present. George Elliott, as a
member of the Audit Committee has recent and relevant
financial experience.
Details of how the Audit Committee has discharged its
responsibilities are provided below.
Remuneration
The Level and Components of Remuneration
“Levels of remuneration should be sufficient to attract,
retain and motivate directors of the quality required to
run the company successfully, but a company should
avoid paying more than is necessary for this purpose. A
significant proportion of executive directors’ remuneration
should be structured so as to link rewards to corporate
and individual performance.”
The Company has established a Remuneration
Committee to assist the Board in this area. This
Committee is chaired by Ron Verni and its other
members are George Elliott and Neil Heywood. It is
usual for Keith Neilson, as Chief Executive Officer, to be
invited to attend meetings except where matters under
review by the Committee relate to him.
The Committee has responsibility for making
recommendations to the Board on the remuneration
packages of the executive directors, and monitor
the level and structure of remuneration for senior
management, this includes:
making recommendations to the Board on the
Company’s policy on director and senior staff
remuneration, and to oversee long term incentive
plans (including share option schemes);
ensuring remuneration is both appropriate to the
level of responsibility and adequate to attract and/
or retain directors and staff of the calibre required
by the Company; and
ensuring that remuneration is in line with current
industry practice.
The Committee has presented its Remuneration Report
on pages 21–23, which details the work undertaken
operating under its terms of reference (which are
available at the Company’s registered office), to
discharge its responsibilities.
Procedure
“There should be a formal and transparent procedure
for developing policy on executive remuneration and for
fixing the remuneration packages of individual directors.
No director should be involved in deciding his or her own
remuneration.”
Details of how the Committee and Board have
discharged their responsibilities in this area are detailed
in the Remuneration Report on pages 21–23.
19
Craneware plc Annual Report 2011 Corporate Governance Report [Cont’d.]
Relations with Shareholders
The Audit Committee
Dialogue with Shareholders
“There should be a dialogue with shareholders based
on mutual understanding of objectives. The Board as a
whole has responsibility for ensuring that a satisfactory
dialogue with shareholders takes place.”
The Company engages in full and open communication
with both institutional and private investors and
responds promptly to all queries received. In
conjunction with the Company’s brokers and other
financial advisors all relevant news is distributed in a
timely fashion through appropriate channels to ensure
shareholders are able to access material information on
the Company’s progress.
To facilitate this:
all shareholders are invited to attend the AGM and
are encouraged to take the opportunity to ask
questions;
the primary point of contact for shareholders on
operational matters is Keith Neilson as CEO and Craig
Preston as CFO; and
the primary point of contact for shareholders on
corporate governance and other related matters
is George Elliott as Chairman. Ron Verni as Senior
Independent Director is available as a point of
contact should a shareholder not wish to contact the
Chairman for any reason.
Keith Neilson and Craig Preston meet regularly with
shareholders, normally immediately following the
Company’s half year and full year financial results
announcements, to discuss the Group’s performance and
answer any questions. The Board monitors the success
of these meetings through anonymous evaluations
from both shareholders and analysts performed by the
Company’s Broker and Financial PR advisor.
The Company’s website has a section for investors which
contains all publicly available financial information and
news on the Company.
Constructive Use of the AGM
“The Board should use the AGM to communicate with
investors and to encourage their participation.”
The Board encourages attendance at its AGM from all
shareholders. The Notice of AGM together with all
resolutions and explanations of these resolutions are
sent at least 20 working days before the meeting. All
directors, where possible, make themselves available to
answer any questions shareholders may have. Results
of all votes on resolutions are published as soon as
practicable on the Company’s website.
During the year the Audit Committee, operating
under its terms of reference (which are available
at the Company’s registered office), discharged its
responsibilities, including reviewing and monitoring:
interim and annual reports information including
consideration of the appropriateness of accounting
policies and material assumptions and estimates
adopted by management;
developments in accounting and reporting
requirements;
external auditors’ plan for the year-end audit of the
Company and its subsidiaries;
the Committee’s effectiveness;
the Internal Risk Register covering the systems of
internal control and their effectiveness, reporting
and making new recommendations to the Board
on the results of the review and receiving regular
updates on key risk areas of financial control;
the requirements or otherwise for an internal audit
function;
the performance and independence of the external
auditors concluding in a recommendation to the
Board on the reappointment of the auditors by
shareholders at the Annual General Meeting.
The auditors provide annually a letter to the
Committee confirming their independence and
stating the methods they employ to safeguard their
independence;
the audit and non-audit fees charged by the external
auditors; and
the formal engagement terms entered into with the
external auditors.
The Committee has also reviewed the arrangements
in place for internal audit and concluded, due to the
current size and complexity of the Company, that a
formal internal audit function was not required.
Under its terms of reference the Audit Committee
is responsible for monitoring the independence,
objectivity and performance of the external auditors,
and for making a recommendation to the Board
regarding the appointment of external auditors
on an annual basis. The Group’s external auditors,
PricewaterhouseCoopers LLP, were first appointed as
external auditor of the Company for the year ended 30
June 2003.
The Audit Committee has also implemented procedures
relating to the provision of non-audit services by the
Company auditors, which include requiring non-audit
work and any related fees over and above a de-minimis
level to be approved in advance by the Chairman of
the Audit Committee. Details of the fees paid to the
auditors for audit and non-audit services are shown in
Note 6 to the financial statements.
The Audit Committee has considered the level of
non-audit services and the related fees paid and
have concluded they do not compromise auditor
independence.
AIM Rule Compliance Report
Craneware plc is quoted on AIM and as a result the
Company has complied with AIM Rule 31 which requires
the following:
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:
Craig Preston
Company Secretary
29 August 2011
20
Craneware plc Annual Report 2011 Remuneration Committee Report
This report sets out Craneware plc’s remuneration and
benefits for the financial year under review. A resolution
to approve the report will be proposed at the Annual
General Meeting of the Company at which the financial
statements will be presented for approval.
Remuneration Committee
The Company has a Remuneration Committee (“the
Committee”) in accordance with the recommendations
of the UK Corporate Governance Code. The members of
the Committee are Ron Verni (Chairman), Neil Heywood
and George Elliott. None of the Committee has any
personal financial interests, other than as shareholders,
in matters directly decided by this Committee, nor
are there any conflicts of interests arising from cross
directorships or day to day involvement in the running
of the business.
The Company’s Chief Executive Officer often attends
meetings, at the invitation of the Committee, to advise
on operational aspects of implementing existing and
proposed policies. The Company Secretary acts as
secretary to the Committee. Under the Committee
Chairman’s direction, the Chief Executive Officer
and the Company Secretary have responsibility for
ensuring the Committee has the information relevant
to its deliberations. In formulating its policies, the
Committee has access, as required, to professional
advice from outside the Company and to publicly
available reports and statistics.
The remuneration of the non-executive directors is
determined by the Board as a whole within limits set
out in the Articles of Association.
Policy
Executive remuneration packages are designed to
attract, motivate and retain directors of the calibre
necessary to achieve the Group’s growth objectives
and to reward them for enhancing shareholder value.
The main elements of the remuneration package for
executive directors and senior management are:
basic annual salary and benefits in kind;
annual performance related bonus;
pension entitlement; and,
share option awards.
The Company’s policy is that a substantial proportion
of the remuneration of executive directors should be
performance related.
None of the executive directors hold any outside
appointments.
Directors’ remuneration
In assessing all aspects of the package provided, the
Committee compares packages offered by similar listed
companies. The Committee has designed the overall
directors’ remuneration packages to ensure both the
short and long term objectives of the Company are met
and potentially exceeded and also that the directors
are incentivised to maximise return to the Company’s
shareholders.
The remuneration package comprises:
(i)
Basic Salary and pension entitlement
This is normally reviewed annually, usually in
September, or when an individual’s position or
responsibilities change and is normally paid as a fixed
cash sum monthly.
In regards to pension entitlement, the Company pays a
fixed sum to a personal pension plan on behalf of the
Chief Executive Officer.
(ii)
Annual Performance Related Bonus
Under the annual performance related bonus
plan executive directors are eligible to earn a cash
bonus payment based on targets that are set by
the Committee. In determining these targets, the
Committee’s objective is to set targets that reflect
challenging financial performance in the current year,
but also provide for the future growth of the Company.
(iii)
Share Options
The Company operates the Craneware Employees’ Share
Option Plan 2007 (“Share Option Plan”) from which, and
at the discretion of the Committee, executive directors
and other employees (including senior management)
may be awarded share options under this scheme.
During the year, the executive directors were awarded
share options under this scheme, details of which
are shown in the table on page 23. These options are
subject to performance criteria based on long term
shareholder returns.
Following the year end, the Remuneration Committee
has engaged Hewitt New Bridge Street Consultants to
perform a review of executive and senior management
remuneration. This review has been performed against
a peer group of similar sized software and services
listed companies and a peer group of similar sized AIM
listed companies across all sectors. The conclusions and
recommendations of this report will be incorporated
as part of the longer term strategy for executive
remuneration.
21
Craneware plc Annual Report 2011 Remuneration Committee Report [Cont’d.]
Service Contracts
The executive directors and the non-executive directors are employed under individual employment arrangements or letters of appointment where appropriate. Details of these
service contracts are set out below.
K Neilson
C T Preston
G R Elliott
N P Heywood
R Verni
Contract Date
Unexpired Term
Normal Notice Period
Founder
15 September 2008
10 August 2007
11 January 2002
1 May 2009
Rolling
Rolling
1 year 11 months
Rolling
Rolling
*3 months
*3 months
1 month
1 month
1 month
* The notice terms for Keith Neilson and Craig Preston are normally three months, however in the event of a change of control, these notice periods are automatically extended to twelve months.
Directors’ Interests
The directors’ interests in the ordinary shares of the Company are set out in the Directors’ Report on page 15.
Directors’ Emoluments
For directors who held office during the course of the year, emoluments for the year ending 30 June 2011 were as follows (note: With the exception of R Verni, all directors are
paid in UK Sterling; the amounts below are translated at the relevant average exchange rate for period being reported) :
Salary/Fees ($)
Benefits ($)
Bonus ($)
Pension ($)
2011 Total ($)
2010 Total ($)
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
N P Heywood
R Verni
Total
254,337
223,360
85,594
46,212
65,920
701
602
102,164
102,164
7,953
-
365,155
326,126
403,898
367,413
-
-
-
-
-
-
-
-
-
85,594
46,212
65,920
100,405
52,203
49,629
973,548
675,423
1,303
204,328
7,953
889,007
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, death in service and disability insurance.
3. Accrued bonuses are included in the above and were approved by the Remuneration Committee.
22
Craneware plc Annual Report 2011 Remuneration Committee Report [Cont’d.]
Directors’ interests in share options
Directors’ share options as at 30 June 2011 were in respect of directors who held office during the course of the year:
Exercise Price
(cents)
Exercise Price
(pence)
Issue
Date
Held At
30/06/10
Granted
During Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/11
K Neilson
Ordinary shares
(“initial options”)
Ordinary shares
Ordinary shares
C T Preston
Ordinary shares
Ordinary shares
Ordinary shares
1.991
534.0
618.0
365.0
534.0
618.0
1.0
Sep-07
335.0
401.0
208.0
335.0
401.0
Dec-09
Sept-10
Sep-08
Dec-09
Sept-10
20,000
42,870
-
-
-
40,150
72,115
37,649
-
-
-
35,162
(20,000)
-
-
-
-
-
Employee share options as at 30th June 2011 were:
Exercise Price
(cents)
Exercise Price
(pence)
Issue
Date
Held At
30/06/10
Granted
During Year
Exercised
During Year
Lapsed
During Year
1.0
Sep-07
909,100
187.0
211.0
343.0
335.0
401.0
May-08
Oct-08
Oct-09
Dec-09
Sept-10
40,600
14,424
44,285
89,784
-
-
-
-
-
(789,100)
-
-
-
-
-
-
180,343
Ordinary shares
(“initial options”)
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
1.991
369.0
355.3
542.0
534.0
618.0
On behalf of the Remuneration Committee:
Ron Verni
Chairman of the Remuneration Committee
29 August 2011
-
-
-
-
-
-
-
42,870
40,150
72,115
37,649
35,162
Held At
30/06/11
120,000
40,600
14,424
44,285
89,784
-
-
-
-
-
(47,548)
132,795
23
Craneware plc Annual Report 2011 Independent Auditors’ Report to the members of Craneware plc
Opinion on financial statements
In our opinion:
the financial statements give a true and fair view of
the state of the group’s and of the parent company’s
affairs as at 30 June 2011 and of the group’s profit
and group’s and the parent company’s cash flows for
the year then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have
been properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in
accordance with the provisions of the Companies Act
2006; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Opinion on other matters prescribed
by the Companies Act 2006
In our opinion the information given in the Directors’
Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
Matters on which we are required
to report by exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
adequate accounting records have not been kept
by the parent company, or returns adequate for our
audit have not been received from branches not
visited by us; or
the parent company financial statements are not
in agreement with the accounting records and
returns; or
certain disclosures of directors’ remuneration
specified by law are not made; or
we have not received all the information and
explanations we require for our audit.
Mark Hoskyns-Abrahall
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
29 August 2011
We have audited the Group and Parent Company
financial statements (the ‘‘financial statements’’) of
Craneware plc for the year ended 30 June 2011 which
comprise the Group and Parent Company Balance
Sheets, the Consolidated Statement of Comprehensive
Income, the Group and Parent Company Statement of
Cash Flow, the Group and Parent Company Statement
of Changes in Equity, the Accounting Policies and the
related notes. The financial reporting framework that
has been applied in their preparation is applicable
law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as
regards the parent company financial statements,
as applied in accordance with the provisions of the
Companies Act 2006.
Respective responsibilities of
directors and auditors
As explained more fully in the Directors’
Responsibilities Statement set out on page 16, the
directors are responsible for the preparation of the
financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements
in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared
for and only for the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and for no other purpose. We do not, in
giving these opinions, 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the
amounts and disclosures in the financial statements
sufficient to give reasonable assurance that
the financial statements are free from material
misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting
policies are appropriate to the group’s and parent
company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the
directors; and the overall presentation of the financial
statements. In addition, we read all the financial
and non-financial information in the annual report
to identify material inconsistencies with the audited
financial statements. If we become aware of any
apparent material misstatements or inconsistencies we
consider the implications for our report.
24
Craneware plc Annual Report 2011
Consolidated Statement of Comprehensive Income for the year ended 30 June 2011
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Analysed as:
Adjusted EBITDA1
Acquisition costs on business combination
Share based payments
Depreciation of plant and equipment
Amortisation of intangible assets
Finance income
Profit before taxation
Tax charge on profit on ordinary activities
Profit for the year attributable to owners of the parent
Total comprehensive income attributable to
owners of the parent
Earnings per share for the period attributable to
equity holders
- Basic ($ per share)
Adjusted Basic ($ per share)2
- Diluted ($ per share)
Adjusted Diluted ($ per share)2
Notes
4
5
6
8
9
10
Notes
12a
12a
12b
12b
Continuing
Operations
2011
$’000
35,511
(4,554)
30,957
(22,197)
8,760
Acquisition
17/2/11 - 30/6/11
$’000
Total
2011
$’000
2,613
(142)
2,471
(2,677)
(206)
38,124
(4,696)
33,428
(24,874)
8,554
10,074
3
10,077
Total
2010
$’000
28,397
(2,553)
25,844
(18,781)
7,063
7,622
-
(114)
(192)
(253)
195
7,258
(1,733)
5,525
(517)
(139)
(312)
(555)
99
8,653
(2,638)
6,015
6,015
5,525
(517)
(139)
(266)
(392)
99
8,859
(2,719)
6,140
6,140
-
-
(46)
(163)
-
(206)
81
(125)
(125)
2011
0.231
0.256
0.228
0.253
2010
0.218
0.218
0.210
0.210
1Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation and amortisation
2Adjusted Earnings per share calculations allow for acquisition costs and amortisation on acquired intangible assets to form a better comparison with the previous year.
The accompanying notes are an integral part of these financial statements.
25
Craneware plc Annual Report 2011 Statements of Changes in Equity for the year ended 30 June 2011
Group
At 1 July 2009
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Dividends
At 30 June 2010
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Impact of share options exercised
Issue of ordinary shares related to business combination
Dividends
At 30 June 2011
Company
At 1 July 2009
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Dividends
At 30 June 2010
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Impact of share options exercised
Issue of ordinary shares related to business combination
Dividends
At 30 June 2011
Notes
Share
Capital
$’000
Share
Premium
$’000
Other
Reserves1
$’000
512
9,250
3,123
Retained
Earnings
$’000
5,790
5,525
-
114
730
-
(2,992)
-
-
-
-
-
-
Total
$’000
18,675
5,525
844
(2,992)
22,052
6,015
1,388
13
512
9,250
3,237
-
-
-
-
139
(3,074)
9,053
6,015
1,249
3,074
5,989
-
-
-
-
6,000
(3,063)
(3,063)
536
15,239
302
16,328
32,405
512
9,250
2,226
-
-
-
-
-
-
-
52
-
512
9,250
2,278
-
-
-
-
84
(2,225)
4,429
4,877
16,417
4,877
131
(2,992)
6,445
5,446
478
2,225
183
(2,992)
18,485
5,446
562
13
5,989
-
-
-
-
6,000
(3,063)
(3,063)
536
15,239
137
11,531
27,443
-
-
13
11
-
-
-
13
11
-
11
16
11
11
16
11
1Other reserves relate to share-based payments and are detailed in Note 1 and these reserves are not available for distribution.
The accompanying notes are an integral part of these financial statements.
26
Craneware plc Annual Report 2011 Consolidated Balance Sheet as at 30 June 2011
ASSETS
Non-Current Assets
Plant and equipment
Intangible assets
Deferred tax
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
EQUITY & LIABILITIES
Non-Current Liabilities
Contingent consideration
Deferred tax
Deferred income
Current Liabilities
Deferred income
Corporation tax
Trade and other payables
Total Liabilities
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total Equity
Total Equity and Liabilities
Registered Number SC196331
Notes
13
14
18
17
21
16, 23
18
22
19
2011
$’000
2010
$’000
2,167
17,728
-
19,895
13,121
24,176
37,297
57,192
954
52
250
1,256
15,638
288
7,605
23,531
24,787
536
15,239
302
16,328
32,405
57,192
281
1,474
1,521
3,276
8,596
29,442
38,038
41,314
-
-
218
218
13,660
392
4,992
19,044
19,262
512
9,250
3,237
9,053
22,052
41,314
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 25–50 were approved and authorised for issue by the Board of directors on 29 August 2011 and signed on its behalf by:
Keith Neilson
Director
Craig Preston
Director and Company Secretary
27
Craneware plc Annual Report 2011
Company Balance Sheet as at 30 June 2011
ASSETS
Non-Current Assets
Investment in subsidiary undertakings
Plant and equipment
Intangible assets
Deferred tax
Amounts due from subsidiary undertakings
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
EQUITY & LIABILITIES
Non-Current Liabilities
Deferred income
Current Liabilities
Deferred income
Corporation tax
Trade and other payables
Total Liabilities
Equity
Called up share capital
Share premium account
Other reserves
Retained earnings
Total Equity
Total Equity and Liabilities
Registered Number SC196331
Notes
2011
$’000
15
13
14
18
17
21
22
19
-
1,647
1,313
67
14,923
17,950
11,753
20,272
32,025
49,975
250
250
15,590
673
6,019
22,282
22,532
536
15,239
137
11,531
27,443
49,975
2010
$’000
-
159
1,467
284
-
1,910
7,670
28,213
35,883
37,793
218
218
13,660
854
4,576
19,090
19,308
512
9,250
2,278
6,445
18,485
37,793
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 25–50 were approved and authorised for issue by the Board of directors on 29 August 2011 and signed on its behalf by:
Keith Neilson
Director
Craig Preston
Director and Company Secretary
28
Craneware plc Annual Report 2011
Statements of Cash Flows for the year ended 30 June 2011
Cash flows from operating activities
Cash generated/(used) from operations
Interest received
Tax paid
Net cash from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Acquisition of subsidiary, net of cash acquired
Capitalised intangible assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to company shareholders
Proceeds from issuance of shares
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the year
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of these financial statements.
Notes
20
13
16
14
11
Group
2011
$’000
Company
2010
$’000
2011
$’000
10,089
99
(1,595)
8,593
(1,790)
(8,772)
(247)
(10,809)
(3,063)
13
(3,050)
(5,266)
29,442
24,176
8,906
195
(2,188)
6,913
(127)
-
(521)
(648)
(2,992)
-
(2,992)
3,273
26,169
29,442
(1,499)
99
(1,579)
(2,979)
(1,679)
-
(233)
(1,912)
(3,063)
13
(3,050)
(7,941)
28,213
20,272
2010
$’000
8,572
195
(966)
7,801
(37)
-
(518)
(555)
(2,992)
-
(2,992)
4,254
23,959
28,213
29
Craneware plc Annual Report 2011 Notes to the Financial Statements
General Information
Craneware plc (the Company) is a public limited
company incorporated and domiciled in Scotland.
The Company has a primary listing on the AIM stock
exchange. The address of its registered office and
principal place of business is disclosed on page 53 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,
as adopted by the European Union (IFRS), IFRIC
interpretations and with those parts of the Companies
Act 2006 applicable to companies reporting under
IFRS. The consolidated financial statements have
been prepared under the historic cost convention.
The applicable accounting policies are set out below,
together with an explanation of where changes have
been made to previous policies on the adoption of new
accounting standards in the year, if relevant.
The preparation of financial statements in conformity
with IFRS requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Although these estimates are based on
management’s best knowledge of the amount, event or
actions, actual results ultimately may differ from those
estimates.
The Company and its subsidiary undertakings are
referred to in this report as the Group.
New Standards, amendments and
interpretations effective in the year
New Standards, amendments and
interpretations not yet effective
The directors have adopted the following Standards,
amendments and interpretations (where relevant to
the Group and subject to their endorsement by the EU)
and they have concluded that they have no material
financial impact on the financial statements of the
Group or Company.
A collection of amendments (effective 1 January 2010*)
as part of the IASB programme of annual enhancements
included updates to:
IFRS 2, ‘Share-based payments’,
IFRS 5, ‘Non-current assets held for sale and
discontinued operations’,
IFRS 8, ‘Operating segments’,
IAS 1, ‘Presentation of financial statements’,
IAS 7, ‘Statement of cash flows’,
IAS 17, ‘Leases’,
IAS 18, ‘Revenue’,
IAS 36, ‘Impairment of assets’,
IAS 38, ‘Intangible assets’, and
IAS 39, ‘Financial instruments: Recognition and
measurement’.
The directors anticipate that the future adoption of the
following Standards, amendments and interpretations
(where relevant to the Group and subject to their
endorsement by the EU) will have no material financial
impact on the financial statements of the Group and
Company. None of the below Standards, amendments or
interpretations has been adopted early.
IFRS 7, ‘Financial instruments: Disclosures’ on
derecognition (effective 1 July 2011*),
IFRS 9, ‘Financial instruments: classification and
measurement’ (effective 1 January 2013*),
IFRS 10, ‘Consolidated financial statements’
(effective 1 January 2013*),
IFRS 11, ‘Joint arrangements’ (effective 1 January
2013*),
IFRS 12, ‘Disclosures of interests in other entities’
(effective 1 January 2013*),
IFRS 13, ‘Fair value measurement’ (effective 1
January 2013*),
IAS 1, ‘Financial statement presentation’ regarding
other comprehensive income’ (effective 1 July
2012*),
IAS 12, ‘Income taxes’ on deferred tax (effective 1
January 2012*),
Other relevant standards are summarised below:
IAS 19, ‘Employee benefits’ (effective 1 January
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.
IFRS 1, ‘First-time adoption’ on ‘Financial instrument
disclosures’ (effective 1 July 2010*), amendment
providing first time adopters with the same transition
provisions as included in previous amendment to IFRS 7,
‘Financial instruments: Disclosures’.
Reporting currency
The Directors consider that as the Group’s revenues are
primarily denominated in US dollars the Company’s
principal functional currency is the US dollar. The
Group’s financial statements are therefore prepared in
US dollars.
Currency translation
Transactions denominated in 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 $1.6055/£1 (2010 : $1.4961/£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.
IFRS 2, ‘Share-based payments’ (effective 1 January
2010*), amendment relating to group cash-settled
share based payment transactions.
IAS 32, ‘Financial instruments: Presentation’ (effective 1
February 2010*), amendment relating to classification
of rights issues.
IFRIC 19, ‘Extinguishing financial liabilities with equity
investments’ (effective 1 July 2010*) a clarification of
the requirements of IFRS when an entity renegotiates
the terms of a financial liability with its creditors
and the creditors accept the entities shares or equity
instruments as full or partial settlement.
2013*),
IAS 24, ‘Related party disclosures’ (effective 1
January 2011*),
IAS 27, ‘Separate financial statements’ (effective 1
January 2013*), and
IAS 28 (revised 2011), ‘Associates and joint ventures’
(effective 1 January 2013*).
*Effective for accounting periods starting on or after this date.
30
Craneware plc Annual Report 2011 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
Basis of consolidation
The consolidated statement of comprehensive income,
balance sheet, statement of changes in equity and
statement of cashflows include the accounts of the
Parent Company and its subsidiaries. Subsidiaries are
all entities over which the Group has power to govern
the financial and operational policies, generally
accompanying a shareholding of more than one half
of the voting rights. Subsidiaries are fully consolidated
from the date on which control transferred to the Group
and are deconsolidated from the time control ceases.
Intra Group revenue and profits/(losses) are eliminated
on consolidation and all sales and profit figures relate
to external transactions only. As permitted by Section
408(4) of the Companies Act 2006, the statement of
comprehensive income of the Parent Company is not
presented. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with
the policies adopted by the Group.
Business combinations
The acquisition of subsidiaries is accounted for using
the purchase method. The cost of the acquisition is
measured at the aggregate of the fair values, at the
acquisition date, of assets given, liabilities incurred
or assumed, and the equity issued by the Group. The
consideration transferred includes the fair value of
any assets or liability resulting from a contingent
consideration and acquisition costs are expensed as
incurred.
Goodwill arising on the acquisition is recognised as an
asset and initially measured at cost, being the excess
of fair value of the consideration over the Group’s
assessment of the net fair value of the identifiable
assets and liabilities recognised.
If the Group’s assessment of the net fair value of a
subsidiary’s assets and liabilities had exceeded the fair
value of the consideration of the business combination
then the excess (‘negative goodwill’) would be
recognised in the statement of comprehensive income
immediately. The fair value of the identifiable assets
and liabilities assumed on acquisition are brought
onto the Balance Sheet at their fair value at the date of
acquisition.
Revenue recognition
The Group follows the principles of IAS 18, “Revenue
Recognition”, in determining appropriate revenue
recognition policies. In principle revenue is recognised
to the extent that it is probable that the economic
benefits associated with the transaction will flow into
the Group.
Revenue is derived from sales of, and distribution
agreements relating to, software licenses and
professional services (including installation). Revenue
is recognised when (i) persuasive evidence of an
arrangement exists; (ii) the customer has access and
right to use our software; (iii) the sales price can
be reasonably measured; and (iv) collectability is
reasonably assured.
Revenue from standard licensed products which are
not modified to meet the specific requirements of each
customer is recognised from the point at which the
customer has access and right to use our software. This
right to use software will be for the period covered
under contract and, as a result, our annuity based
revenue model recognises the licensed software
revenue over the life of this contract. This policy is
consistent with the Company’s products providing
customers with a service through the delivery of, and
access to, software solutions (Software-as-a-Service
(“SaaS”)), and results in revenue being recognised
over the period that these services are delivered to
customers.
Revenue from all professional services is recognised
as the applicable services are provided. Where
professional services engagements contain material
obligation, revenue is recognised when all the
obligations under the engagement have been
fulfilled. Where professional services engagements are
provided on a fixed price basis, revenue is recognised
based on the percentage completion of the relevant
engagement. Percentage completion is estimated
based on the total number of hours performed on
the project compared to the total number of hours
expected to complete the project.
Software and professional services sold via a
distribution agreement will normally follow the above
recognition policies.
Should any contracts contain non-standard clauses,
revenue recognition will be in accordance with the
underlying contractual terms which will normally
result in recognition of revenue being deferred until all
material obligations are satisfied.
The excess of amounts invoiced over revenue
recognised are included in deferred income. If the
amount of revenue recognised exceeds the amount
invoiced the excess is included within accrued income.
Intangible Assets
(a) Goodwill
Goodwill arising on consolidation represents the
excess of the cost of acquisition over the fair value of
the identifiable assets and liabilities of a subsidiary
at the date of acquisition. Goodwill is capitalised and
recognised as a non-current asset in accordance with
IFRS 3 and is tested for impairment annually, or on
such occasions that events or changes in circumstances
indicate that the value might be impaired.
Goodwill is allocated to cash-generating units for the
purpose of impairment testing. The allocation is made
to those cash-generating units that are expected to
benefit from the business combination in which the
goodwill arose.
(b) Proprietary software
Proprietary software acquired in a business combination
is recognised at fair value at the acquisition date.
Proprietary software has a finite life and is carried at
cost less accumulated amortisation. Amortisation is
calculated using the straight-line method to allocate
the associated costs over their estimated useful lives of
5 years.
(c) Contractual customer relationships
Contractual customer relationships acquired in a
business combination are recognised at fair value at
the acquisition date. The contractual customer relations
have a finite useful economic life and are carried at
cost less accumulated amortisation. Amortisation is
calculated using the straight-line method over the
expected life of the customer relationship which has
been assessed as 10 years.
(d) Research and Development expenditure
Expenditure associated with developing and
maintaining the Group’s software products is recognised
as incurred. Where, however, new product development
projects are technically feasible, production and
sale is intended, a market exists, expenditure can be
measured reliably, and sufficient resources are available
to complete such projects, development expenditure
is capitalised until initial commercialisation of the
product, and thereafter amortised on a straight-line
basis over its estimated useful life. Staff costs and
specific third party costs involved with the development
of the software are included within amounts capitalised.
(e) Computer software
Costs associated with acquiring computer software and
licensed to-use technology are capitalised as incurred.
They are amortised on a straight-line basis over their
useful economic life which is typically 3 to 5 years.
31
Craneware plc Annual Report 2011 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
Impairment of non-financial assets
At each reporting date the Group considers the carrying
amount of its tangible and intangible assets including
goodwill to determine whether there is any indication
that those assets have suffered an impairment loss. If
there is such an indication, the recoverable amount of
the asset is estimated in order to determine the extent
of the impairment loss (if any) through determining
the value in use of the cash generating unit that the
asset relates to. Where it is not possible to estimate
the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be
less than its carrying amount, the impairment loss is
recognised as an expense.
Where an impairment loss subsequently reverses,
the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that
the increased carrying amount does not exceed the
carrying amount that would have been determined had
no impairment loss been recognised for the asset. A
reversal of an impairment loss is recognised as income
immediately. Impairment losses relating to goodwill are
not reversed.
Plant and Equipment
All plant and equipment are stated at historical cost less
depreciation, costs include the original purchase price of
the asset and the costs attributable to bring the asset to
its working condition for its intended use. 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:
Computer equipment
Tenants improvements
Office furniture
- Between 20% - 33%
straight line
- Between 10% - 20%
straight line*
- Between 14% - 25%
straight line
*As part of the annual assessment of the
appropriateness of the previous periods depreciation
rates it was concluded that an amendment should
be applied to the rate at which some of the Tenants
improvements are being written off, consequently the
historic 20% straight line basis was amended to a 10%
straight line basis based on the useful economic life
expected from the material investment made during the
year into the new offices development. This change did
not result in a material difference to the depreciation
charge for the year if the change had not been made
and will not have a material impact on future years.
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 statement
of comprehensive income 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.
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”, a compensation expense is recorded
in the Group’s statement of comprehensive income over
the period from the grant date to the vesting date of
the relevant options. As there is a temporary difference
between the accounting and tax bases a deferred tax
asset is recorded. The deferred tax asset arising is
calculated by comparing the estimated amount of tax
deduction to be obtained in the future (based on the
Company’s share price at the balance sheet date) with
the cumulative amount of the compensation expense
recorded in the statement of comprehensive income. If
the amount of estimated future tax deduction exceeds
the cumulative amount of the remuneration expense
at the statutory rate, the excess is recorded directly in
equity against retained earnings.
Investment in subsidiaries
Investment in Group undertakings is recorded at cost,
which is the fair value of the consideration paid, less
any provision for impairment.
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.
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’ or ‘cash and cash
equivalents’ 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 to 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 statement of comprehensive income 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 statement of comprehensive
income.
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.
32
Craneware plc Annual Report 2011 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
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 statements of cash
flows, 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 offered to every employee. Amounts
payable in respect to these benefits are charged to the
Statement of Comprehensive Income as they fall due.
The Group has no further payment obligations once
the payments have been made. The contributions are
recognised as an employee benefit expense when they
are due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in
future payments is available.
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. Non-market vesting conditions
are included in assumptions about the number of
options that are expected to vest. At the end of each
reporting period, the entity revises its estimates of
the number of options that are expected to vest based
on the non-market vesting conditions. It recognises
the impact of the revision to original estimates, if
any, in the statement of comprehensive income, with
a corresponding adjustment to equity. When the
options are exercised the Company issues new shares.
The proceeds received net of any directly attributable
transaction costs are credited to share capital and share
premium.
The share-based payments charge is included in net
operating expenses and is also included in ‘Other
reserves’.
Share capital
Ordinary shares are classified as equity.
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
assess the commercial potential of each product in
development and its useful life following launch.
The preparation of financial statements in accordance
with international financial reporting standards 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:
Investment in Subsidiary/Purchase Price
Allocation: the Group determines whether
investments in subsidiaries and the related
Intangible assets acquired are impaired at least
on an annual basis and measures the recoverable
amount of the investment whenever there is an
indication that the investment may be impaired.
This requires an estimation of the value in use of
the applicable cash generating unit. Estimating the
value in use requires the Group to make an estimate
of the expected future cashflows from the subsidiary
and also to choose a suitable discount rate in order
to calculate the present value of those cashflows.
Where there is an indication of impairment,
management perform an impairment review to
determine the level of provision required.
Calculation of goodwill and contingent
consideration: Goodwill is calculated based on
estimated consideration payable to the former
shareholders of the acquired subsidiary. This
consideration includes a contingent element which
is based on future estimated profits. This requires an
initial assessment as to the probability of whether
the full amount of the purchase consideration
will be payable. These accounting estimates
and judgements are based on assumptions that
management and the Board of directors believe
are reasonable under the circumstances and are
disclosed in more detail in Note 16. The Group
also makes estimates and judgements concerning
the future and the resulting estimates may, by
definition, vary from the related actual results.
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.
Capitalisation of development expenditure:
the Group capitalises development costs provided
the conditions laid out previously have been met.
Consequently the directors require to continually
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 rate risk), 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 and equity between approximately $550,000
and $600,000 (dependent on whether lower or higher)
as a result of foreign exchange gains/losses on Sterling
denominated transactions and the translation of
Sterling denominated current liabilities. The directors
believe that 10% is appropriate for the sensitivity
analysis based on recent movements in the
exchange rates.
(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
33
Craneware plc Annual Report 2011 Notes to the Financial Statements [Cont’d.]
3 Financial risk management (cont’d)
(ii) Cash flow and interest rate risk (cont’d.)
in interest rates would, with all variables held constant,
alter post-tax profit and equity for the year in the region
of $65,000 higher/lower respectively. The directors
believe that 25 basis points is appropriate for the
sensitivity analysis based on recent market conditions.
(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) Counterparty risk
The Group has significant cash and cash equivalent
balances and in order to mitigate the risk of failing
institutions management have treasury deposits spread
across a range of reputable banks, the details of which
are disclosed on page 53.
(d) 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 grouping based on the remaining period from
the Balance Sheet date to the contractual maturity date.
The amounts disclosed in the table are the contractual
undiscounted cash flows.
Less than 1 year
$’000
Between 1 and 2
years
$’000
Between 2 and 5
years
$’000
Over 5 years
$’000
At 30 June 2010
Trade Payables
At 30 June 2011
Trade Payables
588
984
-
-
-
-
-
-
Total
$’000
588
984
There is no difference between the undiscounted liabilities and the amounts shown in Note 22 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.
4 Revenue
The chief operating decision maker has been identified as the Board of directors. The Group revenue is derived entirely from the sale of software and professional services
(including installation) to hospitals within the United States of America. Consequently the Board has determined that Group supplies only one geographical market place and as
such revenue is presented in line with management information without the need for additional segmental analysis. All of the Group assets are located in the United States of
America with the exception of the Parent Company’s, the net assets of which are disclosed separately on the Company Balance Sheet. Revenue is analysed as follows:
Software
Professional services
Total revenue
5 Net operating expenses
Net operating expenses are comprised of the following:
Sales and marketing expenses
Client servicing
Research and development
Administrative expenses
Acquisition costs on business combination
Share-based payments (Note 8)
Depreciation of plant and equipment
Amortisation of intangible assets
Exchange loss/(gain)
Net operating expenses
34
2011
$’000
33,381
4,743
38,124
2010
$’000
24,739
3,658
28,397
2011
$’000
8,368
5,775
5,024
4,143
517
139
312
555
41
2010
$’000
7,102
4,037
3,785
3,314
-
114
192
253
(16)
24,874
18,781
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
6 Operating profit
The following items have been included in arriving at operating profit:
Staff costs (Note 7)
Acquisition costs on business combination
Depreciation of plant and equipment
Amortisation of intangible assets
Impairment of trade receivables
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 - Parent company financial statements and consolidation
Tax compliance and other tax services
Employee incentive advice
Other assurance services
7 Staff costs
The average number of persons employed by the Group during the year, excluding non-executive directors, is analysed below:
Sales and distribution
Client servicing
Research and development
Administration
Employment costs of all employees excluding non-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
Post employment benefits
Share-based payments
2011
$’000
14,773
517
312
555
581
607
2011
$’000
81
89
-
1
171
2010
$’000
12,196
-
192
253
202
263
2010
$’000
64
54
3
3
124
2011
Number
2010
Number
39
58
53
22
33
41
39
18
172
131
2011
$’000
13,246
1,372
16
139
2010
$’000
10,952
1,114
16
114
14,773
12,196
357
8
18
383
396
8
6
410
Directors’ emoluments are detailed in the Remuneration Committee Report on page 22 and key management compensation is given in the Related Party Transaction note on
pages 49–50. Retirement benefits are accruing to 1 of the executive directors under a defined contribution scheme (2010: 1).
35
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
8 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 statement of comprehensive income of $139,058 (2010: $113,589) as detailed in Note 7 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 13 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 23.
The market value of share options exercised during the year ranged from $8.60 (£5.37) to $8.55 (£5.37). The market value at 30 June 2011 was $9.47 (£5.90).
Under the 2007 Share Options Plan, options over a maximum of 1,400,000 ordinary shares (“initial options”) were granted on 14 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 1 October 2010, and will normally lapse upon
leaving employment or at 30 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. A sufficiently long trading history of the
Company’s own share price, dating from IPO to date of grant, results in an actual volatility calculation for all grants from December 2010. Prior to this date volatility had to be
estimated by reference to similar companies whose shares are traded on a recognised stock exchange.
The assumptions for each option grant were as follows:
Date of Grant
6-Sep-10 22-Dec-09 14-Oct-09
5-Jan-09 21-Oct-08
8-Sep-08
2-May-08 14-Sep-07 13-Sep-07
$6.18
Options over Ordinary shares
Share price at
date of grant
Share price at
date of grant
Vesting period
(years)
Expected
volatility
£4.01
24%
3.00
$5.34
$5.42
$3.10
$3.55
$3.65
$3.69
$2.60
$2.60
£3.35
£3.43
£2.12
£2.11
£2.08
£1.87
£1.28
£1.28
3.00
23%
3.00
40%
3.00
40%
3.00
40%
3.00
40%
3.00
40%
3.04
40%
0.00
40%
Risk free rate
1.18%
1.96%
1.86%
2.10%
3.82%
4.41%
5.00%
5.75%
5.75%
Dividend yield
2.2%
1.5%
1.4%
1.5%
1.5%
1.5%
1.0%
1.0%
1.0%
Exercise price
$6.18
$5.34
$5.42
$3.10
$3.55
$3.65
$3.69
$0.02 0.007cents
Exercise price
£4.01
£3.35
£3.43
£2.12
£2.11
£2.08
£1.87
£0.01
0.0033p
Number of
employees
Shares under
option
Fair value per
option
20
10
1
1
1
1
1
84
1
255,655
170,303
44,285
30,000
14,424
72,115
40,600
1,400,000
50,100
$1.40
$1.34
$1.37
$0.85
$1.01
$1.67
$1.11
$0.95
$2.60
36
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d)
The following options have been granted over Ordinary shares:
2006 Share Option Plan:
2011 options number
2010 options number
Ordinary share options (0.0033p exercise price)
Outstanding at 1 July
Granted
Forfeited
Exercised
Outstanding at 30 June
2007 Share Options Plan:
Initial options of ordinary shares (£0.01 exercise price)
Outstanding at 1 July
Granted
Forfeited
Exercised
Outstanding at 30 June
Ordinary share options (£1.87 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£2.08 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£2.11 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£2.12 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£3.43 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£3.35 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£4.01 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
-
-
-
-
-
929,100
-
-
(809,100)
120,000
40,600
-
-
40,600
72,115
-
-
72,115
14,424
-
-
14,424
-
-
-
-
44,285
-
(44,285)
-
170,303
-
-
170,303
-
255,655
(47,548)
208,107
68,100
-
-
(68,100)
-
930,300
-
(1,200)
-
929,100
40,600
-
-
40,600
72,115
-
-
72,115
14,424
-
-
14,424
30,000
-
(30,000)
-
-
44,285
-
44,285
-
170,303
-
170,303
-
-
-
-
37
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
9 Finance income
Deposit interest receivable
Other interest
Total interest receivable
10 Tax on profit on ordinary activities
Profit on ordinary activities before tax
Current tax
Corporation tax on profits of the year
Foreign exchange on taxation in the year
Adjustments for prior years
Total current tax charge
Deferred tax
Origination & reversal of timing differences
Change in tax rate
Total deferred tax (credit)
Tax on profit on ordinary activities
2011
$’000
93
6
99
2011
$’000
8,653
3,257
42
68
3,367
(749)
20
(729)
2,638
2010
$’000
195
-
195
2010
$’000
7,258
2,005
58
(257)
1,806
(73)
-
(73)
1,733
The difference between the current tax charge on ordinary activities for the year, reported in the consolidated statement of
comprehensive income, and the current tax charge that would result from applying a relevant standard rate of tax to the profit
on ordinary activities before tax, is explained as follows:
Profit on ordinary activities at the UK tax rate 27.5% (2010: 28%)
Effects of
Adjustment in respect of prior years:
Current tax
Change in tax rate
State tax
Additional US tax on profits 34% (2010: 34%)
Foreign Exchange
Expenses not deductible for tax purposes
Tax deduction on share plan charges
Total tax charge
2,380
2,032
68
20
60
76
34
13
(13)
2,638
(257)
-
49
59
(33)
(1)
(116)
1,733
38
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
11 Dividends
The dividends paid during the year were as follows:
Final dividend, re 30 June 2010 - 5.31 cents (3.3 pence)/share
Interim dividend, re 30 June 2011 - 6.44 cents (4.0 pence)/share
Total dividends paid to company shareholders in the year
2011
$’000
1,333
1,730
3,063
2010
$’000
1,220
1,772
2,992
The proposed final dividend for 30 June 2011 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these accounts.
12 Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year.
Profit attributable to equity holders of the Company ($’000)
Weighted average number of ordinary shares in issue (thousands)
Basic earnings per share ($ per share)
2011
6,015
26,079
0.231
2010
5,525
25,315
0.218
Adjusted Basic earnings per share is calculated under the same method as shown above except that the profit attributable to equity holders of the Company is increased by
$664,098 which represents the total acquisition costs expensed during the year and amortisation of acquired intangible assets. This gives rise to an adjusted basic earnings per
share of $0.256.
b) Diluted
For diluted earnings per share, the weighted average number of ordinary shares calculated above is adjusted to assume conversion of all dilutive potential ordinary shares. The
Group has one category of dilutive potential ordinary shares, being those share options granted to directors and employees under the share option scheme (Note 8).
Profit attributable to equity holders of the Company ($’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)
Diluted earnings per share ($ per share)
2011
6,015
26,079
324
26,403
0.228
2010
5,525
25,315
1,005
26,320
0.210
Adjusted diluted earnings per share is calculated under the same method as shown above except that the profit attributable to equity holders of the Company is increased by
$664,098 which represents the total acquisition costs expensed during the year and amortisation of acquired intangible assets. This gives rise to an adjusted diluted earnings per
share of $0.253.
39
Craneware plc Annual Report 2011
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
804
246
243
1,293
665
146
811
482
709
95
804
570
95
665
139
287
403
68
758
231
79
310
448
265
22
287
185
46
231
56
343
1,141
97
1,581
257
87
344
1,237
333
10
343
206
51
257
86
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
447
162
609
395
55
450
159
413
34
447
350
45
395
52
198
401
599
171
63
234
365
198
-
198
137
34
171
27
336
1,116
1,452
256
73
329
1,123
333
3
336
206
50
256
80
Total
$’000
1,434
1,790
408
3,632
1,153
312
1,465
2,167
1,307
127
1,434
961
192
1153
281
Total
$’000
981
1,679
2,660
822
191
1,013
1,647
944
37
981
693
129
822
159
Notes to the Financial Statements [Cont’d.]
13 Plant and equipment
Group
Cost
At 1 July 2010
Additions
Acquisition of subsidiary (Note 16)
At 30 June 2011
Depreciation
At 1 July 2010
Charge for year
At 30 June 2011
NBV at 30 June 2011
Cost
At 1 July 2009
Additions
At 30 June 2010
Depreciation
At 1 July 2009
Charge for the year
At 30 June 2010
NBV at 30 June 2010
Company
Cost
At 1 July 2010
Additions
At 30 June 2011
Depreciation
At 1 July 2010
Charge for year
At 30 June 2011
NBV at 30 June 2011
Cost
At 1 July 2009
Additions
At 30 June 2010
Depreciation
At 1 July 2009
Charge for year
At 30 June 2010
NBV at 30 June 2010
40
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
14 Intangible assets
Goodwill and Other Intangible assets
Goodwill
$’000
Customer
Relationships
$’000
Proprietary
Software
$’000
Development
Costs
$’000
Computer
Software
$’000
Group
Cost
At 1 July 2010
Additions
Additions acquired at
Fair Value
At 30 June 2011
Amortisation
At 1 July 2010
Charge for the year
At 30 June 2011
-
-
12,264
12,264
-
-
-
-
-
2,964
2,964
-
66
66
-
-
1,222
1,222
-
82
82
NBV at 30 June 2011
12,264
2,898
1,140
Cost
At 1 July 2009
Additions
At 30 June 2010
Amortisation
At 1 July 2009
Charge for the year
At 30 June 2010
NBV at 30 June 2010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,385
199
-
2,584
944
364
1,308
1,276
1,886
499
2,385
725
219
944
1,441
293
48
112
453
260
43
303
150
271
22
293
226
34
260
33
Total
$’000
2,678
247
16,562
19,487
1,204
555
1,759
17,728
2,157
521
2,678
951
253
1,204
1,474
The additions acquired in the year are all in respect of the 17 February 2011 acquisition of Craneware InSight Inc. (Note 16). Future anticipated payments arising from earn-outs
are based on the directors’ best estimates of these contingent obligations. The earn-out is dependent on the future performance of the relevant business and a continued
assessment of the liability arising is performed at least twice yearly.
In accordance with the Group’s accounting policy, the carrying values of goodwill and other intangible assets are reviewed for impairment annually or more frequently if events
or changes in circumstances indicate that the asset might be impaired.
For goodwill the recoverable amount of the applicable cash-generating unit, which relates to the acquisition in the period (Note 16), has been determined on the basis of fair
value less costs to sell, determined by the binding contract for the sale of the ClaimTrust Inc. business to Craneware plc, as enacted on 17 February 2011. The consideration for
the sale supports the valuation of goodwill, as does the proximity of the applicable impairment review date to this agreement.
41
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
14 Intangible assets (cont’d)
Goodwill and Other Intangible assets (Cont’d.)
Company
Cost
At 1 July 2010
Additions
At 30 June 2011
Amortisation
At 1 July 2010
Charge for the year
At 30 June 2011
NBV at 30 June 2011
Cost
At 1 July 2009
Additions
At 30 June 2010
Amortisation
At 1 July 2009
Charge for the year
At 30 June 2010
NBV at 30 June 2010
Development
Costs
$’000
Computer
Software
$’000
2,385
199
2,584
944
364
1,308
1,276
1,886
499
2,385
725
219
944
1,441
227
34
261
201
23
224
37
208
19
227
172
29
201
26
Total
$’000
2,612
233
2,845
1,145
387
1,532
1,313
2,094
518
2,612
897
248
1,145
1,467
15 Investments in subsidiary undertakings
The following information relates to the subsidiaries 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
Craneware InSight Inc
Ordinary
100%
100%
Nature of Business
Sales & Marketing
Product Development &
Professional Services
Craneware Inc is incorporated in the United States of America and Craneware plc hold 10,000 (2010: 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.
On the 17 February 2011 Craneware plc established Craneware InSight Inc, to acquire all of issued share capital of ClaimTrust Inc (subsequently disclosed in Note 16) and this
Company is also incorporated in the United States of America. Craneware plc holds 1,000 common shares with a nominal value of $0.0001 each. The results of the Subsidiary
Company have been included in the consolidated financial statements from the date of acquisition.
42
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
16 Acquisition of subsidiary: Craneware InSight Inc
On 17 February 2011, the Company acquired 100% of the issued share capital of ClaimTrust Inc. On the date of acquisition the assets and liabilities of ClaimTrust Inc. were
merged into the newly created entity, Craneware InSight Inc. The total consideration for the acquisition along with the fair value of the identified assets and assumed liabilities
is shown below:
Recognised amounts of identifiable assets acquired and
liabilities assumed
Book Value
$’000
Fair Value
Adjustments
$’000
Fair Value
$’000
Tangible fixed assets
Plant and equipment
Intangible assets
Computer software
Customer relationships
Proprietary software
Other assets and liabilities
Trade and other receivables
Bank and cash balances
Trade and other payables
Deferred tax
Goodwill
Fair Value
Satisfied by:
Cash
Ordinary shares issued - 641,917 shares at $9.347 (£5.83)
Fair value of contingent deferred consideration
Bank balances and cash acquired
Cash consideration
Net cash on acquisition
408
112
-
-
1,171
228
(741)
-
1,178
-
-
2,964
1,222
-
-
-
(1,674)
2,512
408
112
2,964
1,222
1,171
228
(741)
(1,674)
3,690
12,264
15,954
9,000
6,000
954
15,954
228
(9,000)
(8,772)
The contingent consideration is subject to performance criteria, including revenue and profit targets, set for the next financial year and consequently the actual consideration
is payable following the respective year end. The maximum potential deferred consideration payable is an additional $4.5m subject to meeting all the performance criteria. The
acquisition costs, including all due diligence costs that related to the transaction amounted to $516,796 and these have been expensed as operating costs in compliance with
IFRS 3 (revised).
Goodwill of $12,263,819 has been recognised on acquisition and is attributable to future customers, future software and the assembled workforce.
In the period following the acquisition, Craneware InSight Inc. contributed $2,612,624 to Group revenue and $3,016 to adjusted EBITDA* which has been included with the
consolidated statement of comprehensive income for the year. Had Craneware InSight Inc. been consolidated from 1 July 2010, the consolidated statement of comprehensive
income would show revenue of $42,958,489 and adjusted EBITDA* of $10,235,219.
The initial accounting for the business combination is incomplete as at 30 June 2011 and is based on provisional amounts. In particular, the directors are still to determine if
there is a deferred tax asset in relation to net operating losses carried forward from the acquired business that can be recognised.
*Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation and amortisation.
43
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
17 Trade and other receivables
Trade receivables
less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Amounts owed from group companies
Prepayments and accrued income
Less non-current trade receivables
Current portion
Group
Company
2011
$’000
8,856
(876)
7,980
335
-
4,806
13,121
-
13,121
2010
$’000
7,507
(445)
7,062
288
-
1,246
8,596
-
8,596
2011
$’000
8,159
(856)
7,303
134
14,923
4,316
26,676
(14,923)
11,753
2010
$’000
7,507
(445)
7,062
58
-
550
7,670
-
7,670
There is no material difference between the fair value of trade and other receivables and the book value stated above.
As at 30 June 2011, trade receivables of $1,057,793 (2010: $538,666) were past due and therefore deemed to be impaired. The amount of the provision against these receivables
was $876,438 as of 30 June 2011 (2010: $437,337). The individually impaired receivables mainly relate to customers’ 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 + days past due
2011
$’000
-
-
-
1,058
1,058
2010
$’000
-
1
31
507
539
As at 30 June 2011, trade receivables of $2,169,265 (2010: $1,576,109) were past due but not impaired. These relate to a number of customers 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 + days past due
2011
$’000
831
315
186
837
2,169
2010
$’000
731
467
119
259
1,576
44
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
17 Trade and other receivables (cont’d)
As at 30 June 2011, trade receivables of $5,629,478 (2010: $5,384,874) were not past due or impaired, and the Group does not anticipate collection issues. None of these
balances were deemed to be impaired (2010: $7,500).
Movement on the provision for impairment of trade receivables is as follows:
At 1 July
Provision for receivables impairment on revenue recognised
Provision acquired on business combination
Receivables written off during year as uncollectable
Unused amounts reversed
At 30 June
2011
$’000
445
895
20
(179)
(305)
876
2010
$’000
322
269
-
(79)
(67)
445
The creation and release of provision for impaired receivables has been included in net operating expenses in the statement of comprehensive income. 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.
18 Deferred taxation
Deferred tax is calculated in full on the temporary differences under the liability method using a rate of tax of 26% (2010: 28%) in the UK and 39% (2010: 39%) in the US
including a provision for state taxes.
The movement on the deferred tax account is shown below:
At 1 July
Acquired at fair value on business combination
(Charge)/credit to comprehensive income
Transfer direct to equity
At 30 June
Group
Company
2011
$’000
1,521
(1,674)
729
(628)
(52)
2010
$’000
718
-
73
730
1,521
2011
$’000
284
-
(106)
(111)
67
2010
$’000
157
-
(4)
131
284
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 liability at 30 June 2011 was $52,237 (2010: Net asset of $1,520,735).
45
Craneware plc Annual Report 2011
Accelerated
accounting
depreciation
$’000
Short term
timing
differences
$’000
Losses
$’000
Share Options
$’000
Total
$’000
1,526
772
(628)
1,670
746
50
730
1,526
1,430
(157)
(628)
645
650
50
730
1,430
-
898
-
898
-
-
-
-
Total
$’000
(5)
(1,674)
(43)
(1,722)
(28)
23
(5)
2010
$’000
1,437
89
1,526
(5)
-
(5)
1,521
Notes to the Financial Statements [Cont’d.]
18 Deferred taxation (cont’d)
Deferred tax assets - recognised
Group
At 1 July 2010
Credited/(charged) to comprehensive
income
Debited to equity
Total provided at 30 June 2011
At 1 July 2009
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2010
Deferred tax liabilities - recognised
7
31
-
38
7
-
-
7
89
-
-
89
89
-
-
89
Accelerated
tax depreciation
$’000
(5)
(1,674)
(43)
(1,722)
(28)
23
(5)
2011
$’000
683
987
1,670
(1,722)
-
(1,722)
(52)
Group
At 1 July 2010
Acquired Intangible assets on business combination
Charged to comprehensive income
Total provided at 30 June 2011
At 1 July 2009
Credited to comprehensive income
Total provided at 30 June 2010
The analysis of the deferred tax assets and liabilities is as follows:
Group
Deferred tax assets:
Deferred tax assets to be recovered
after more than 1 year
Deferred tax assets to be recovered
within 1 year
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 1
year
Deferred tax liabilities to be recovered within 1 year
Net deferred tax (assets)/liabilities
The Company’s Deferred tax assets and liabilities are all expected to be recovered after 1 year.
46
Craneware plc Annual Report 2011
Total
$’000
289
(63)
(111)
115
185
(27)
131
289
Notes to the Financial Statements [Cont’d.]
18 Deferred taxation (cont’d)
Deferred tax assets - recognised
Company
At 1 July 2010
Charged to comprehensive income
Debited to equity
Total provided at 30 June 2011
At 1 July 2009
Charged to comprehensive income
Credited to equity
Total provided at 30 June 2010
Deferred tax liabilities -
recognised
Company
At 1 July 2010
Charged to comprehensive income
Total provided at 30 June 2011
At 1 July 2009
Credited to comprehensive income
Total provided at 30 June 2010
19 Called up share capital
Authorised
Equity share capital
Ordinary shares of 1p each
Allotted called-up and fully paid
Accelerated
accounting
depreciation
$’000
Short term
timing
differences
$’000
Losses
$’000
Share Options
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Accelerated
tax depreciation
$’000
(5)
(43)
(48)
(28)
23
(5)
-
-
-
-
-
-
-
-
Total
$’000
(5)
(43)
(48)
(28)
23
(5)
2011
2010
Number
$’000
Number
50,000,000
1,014
50,000,000
2011
2010
Number
$’000
Number
289
(63)
(111)
115
185
(27)
131
289
$’000
1,014
$’000
512
Equity share capital
Ordinary shares of 1p each
26,792,681
536
25,365,850
The movement in share capital during the year is represented as follows:
809,100 Ordinary Share options were exercised in the year, as detailed in the Remuneration Committee Report on page 23.
617,731 Ordinary Shares were issued by the Balance Sheet date as equity in respect of the consideration for the Craneware InSight Inc acquisition at price of $9.347 (£5.83).
47
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
20 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
Movements in working capital:
Increase in trade and other receivables
Increase in trade and other payables
Cash generated from operations
21 Cash and cash equivalents
Cash at bank and in hand
The effective rates on short term bank deposits were 0.35% (2010: 0.73%).
22 Trade and other payables - current
Trade payables
Amounts owed to group companies
Social security and PAYE
Other creditors
Accruals
Advance receipts
Group
Company
2011
$’000
8,653
(99)
312
555
139
(3,353)
3,882
10,089
2010
$’000
7,258
(195)
192
253
114
(3,385)
4,669
8,906
2011
$’000
7,538
(99)
190
387
84
(14,345)
4,746
(1,499)
2010
$’000
6,280
(195)
129
248
52
(1,030)
3,088
8,572
Group
Company
2011
$’000
24,176
2010
$’000
29,442
2011
$’000
20,272
2010
$’000
28,213
Group
Company
2011
$’000
984
-
371
26
6,186
38
7,605
2010
$’000
588
-
72
-
4,104
228
4,992
2011
$’000
414
1,483
146
-
3,938
38
6,019
2010
$’000
229
2,822
72
-
1,225
228
4,576
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 Group’s average payment period at 30 June 2011 was 21 days
(2010: 25 days).
48
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
23 Contingent liabilities and financial commitments
a) Deferred consideration
The Parent Company and consequently the Group have contingent consideration that relates to the acquisition of Craneware InSight Inc. The consideration is payable
based on the future revenue and profits of this company over the following financial year and as such will be payable in approximately September 2012 (Note 16).
b) Capital commitments
The Group has no capital commitments at 30 June 2011 (2010: $nil).
c) Lease commitments
The Group leases certain land and buildings. The commitments payable by the Group under these operating leases are as follows:
Within one year
Between 2 and 5 years
More than 5 years
2011
$’000
446
2,176
4,633
7,255
2010
$’000
198
647
276
1,121
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. During the year the Group has acquired 2 additional leases in respect of business combinations and signed a new 12 year lease on new headquarters offices based
in Edinburgh.
24 Related party transactions
During the year 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:
Group
Fees for services provided as non-executive directors
Fees
Salaries and Short-term employee benefits
Executive directors
Salaries and Short-term employee benefits
Post employment benefits
Share-based payments
Other key management
2011
2010
Charged
$
112,132
85,594
683,328
7,953
53,856
Outstanding
at year end
$
3,969
-
204,328
-
-
Charged
$
101,832
100,405
763,401
7,910
30,590
Outstanding
at year end
$
15,970
7,855
299,220
-
-
Salaries and Short-term employee benefits
1,264,951
306,492
1,374,746
473,830
Post employment benefits
Share-based payments
7,953
41,344
-
-
7,910
26,388
-
-
49
Craneware plc Annual Report 2011
Notes to the Financial Statements [Cont’d.]
24 Related party transactions (cont’d)
Company
Fees for services provided as non-executive directors
Fees
Salaries and Short-term employee benefits
Executive directors
Salaries and Short-term employee benefits
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 22)
Amounts due from Craneware InSight Inc - Subsidiary
company
2011
Outstanding
at year end
$
3,969
-
204,328
-
-
204,328
-
-
Charged
$
112,132
85,594
683,328
7,953
53,856
594,283
7,953
17,329
2010
Outstanding
at year end
$
15,970
7,855
299,220
-
-
299,220
-
-
Charged
$
101,832
100,405
763,401
7,910
30,590
675,940
7,910
8,377
14,077,095
5,688,147
-
-
-
1,483,259
13,118,407
2,682,527
-
-
-
2,822,295
Balance (Note 17)
-
14,923,115
-
-
Key management are considered to be the directors together with the Chief Operating Officer, Chief Technology Officer (also now the newly appointed President of US
Operations), the EVP of Marketing, the outgoing Executive Vice President of Sales and the Executive Vice President of Craneware InSight Inc. (appointed to the Operations Board
at the time of the Craneware InSight Inc. acquisition).
There were no other related party transactions in the year which require disclosure in accordance with IAS 24.
25 Ultimate controlling party
The directors have deemed that there are no controlling parties of the Company.
50
Craneware plc Annual Report 2011 Personal Notes
51
Craneware plc Annual Report 2011 Personal Notes
52
Craneware plc Annual Report 2011 Contact Craneware
UK Headquarters
Craneware plc
1 Tanfield
Edinburgh
EH3 5DA
Scotland, UK
Telephone: +44 [0] 131 550 3100
Fax: +44 [0] 131 550 3101
Directors & Officials
Directors
G R Elliott [Chairman, non-executive]
K Neilson [CEO and Co-Founder]
C T Preston [CFO]
N P Heywood [non-executive]
R F Verni [non-executive]
Solicitors
McGrigors LLP
Princes Exchange
1 Earl Grey Street
Edinburgh
EH3 9AQ
US Administrative Office
Secretary & Registered Office
Bankers
Craneware, Inc.
3340 Peachtree Road NE, Suite 850
Atlanta, GA 30326
USA
Fax: +1 404 364 2033
Support & Information
Client training/support:
+1 888 601 4162
support@craneware.com
training@craneware.com
Sales:
+1 877 624 2792
sales@craneware.com
Careers:
hr@craneware.com
General enquiries:
+1 877 624 2792
info@craneware.com
Investor information:
+44 (0) 207 653 9850
Threadneedle Communications
C T Preston
1 Tanfield
Edinburgh
EH3 5DA
Brokers & Nominated Advisors
Peel Hunt Ltd
111 Old Broad Street
London
EC2N 1PH
Registrars
Capita Registrars Ltd
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Registered Auditors
PricewaterhouseCoopers LLP
Erskine House
68-73 Queen Street
Edinburgh
EH2 4NH
The Royal Bank of Scotland plc
36 St. Andrew Square
Edinburgh
EH2 2YB
Clydesdale Bank
20 Waterloo Street
Glasgow
G2 6DB
Barclays Commercial Bank
Aurora House
120 Bothwell Street
Glasgow
G2 7JT
HSBC Bank plc
7 West Nile Street
Glasgow
G1 2RG
Lloyds TSB
Henry Duncan House
120 George Street
Edinburgh
EH2 4LH
53
Craneware plc Annual Report 2011
craneware.com
marketing@craneware.com
training@craneware.com
sales@craneware.com
support@craneware.com
Craneware plc
1 Tanfield
Edinburgh
EH3 5DA
Scotland, UK
Telephone: +44 [0] 131 550 3100
Facsimile: +44 [0] 131 550 3101
Company Registration No. SC196331
Craneware plc