Craneware plc Annual Report
for the year ended 30 June 2014
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
Phoenix employing approximately 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
revenueintegrityjourney.com.
Contents
Financial and Operational Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Craneware Revenue Integrity Solutions® . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Strategic Report: Operational and Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Strategic Report: Key Performance Indicators and Principal Risks and Uncertainties. . . . . . . . 13
Directors, Secretary, and Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Directors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Corporate Governance Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Remuneration Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Independent Auditors’ Report to the Members of Craneware plc . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Comprehensive Income for the year ended 30 June 2014 . . . . . . 29
Statements of Changes in Equity for the year ended 30 June 2014 . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheet as at 30 June 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Company Balance Sheet as at 30 June 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Statements of Cash Flows for the year ended 30 June 2014. . . . . . . . . . . . . . . . . . . . . . . . 33
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Craneware plc Annual Report 2014 Financial and Operational Highlights
Financial
Record total contract value signed in the year of $71.0m (FY13: $38.5m)
Revenue increased to $42.6m (2013: $41.5m)
Adjusted EBITDA1 increased to $13.1m (2013: $12.4m)
Adjusted profit before taxation increased to $11.9m (2013: $11.2m)
Profit before tax increased to $11.3m (2013: $10.6m)
Basic adjusted EPS increased to 34.0 cents (2013: 32.9 cents), basic EPS increased to 31.9
cents (2013: 30.7 cents)
Positive operational cash flow of $10.2m (2013: $9.9m)
Cash at year end $32.6m (2013: $30.3m) after payment of $5.4m dividends to
shareholders
Proposed final dividend of 6.8p (11.63 cents) per share giving total dividend for the year
of 12.5p (21.37 cents) (2013: 11.5p / 17.4 cents per share)
1 Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation and share based payments.
Quick Facts — Financial
$42.6m
in revenue
$13.1m
in adjusted EBITDA1
$32.6m
cash at year end
12.5p
total dividend for year
Operational
Leading indicators of customer confidence in the US healthcare market:
Sales to all strata of hospitals
Return of 7 and 9 year contracts
Dollar renewal rates continue to be strong, within historic range
Longer average renewal contract lengths
Strong sales momentum and pipeline continue into FY15
Supportive market environment for Craneware products due to continued regulatory
and fiscal pressures on US healthcare providers
Continued investment in product suite:
Major enhancement releases to gateway products
Furthering enterprise capabilities across product families
Post year end launch of Reference Plus; and
Acquisition of Kestros Limited
Revenue $m
Adjusted EBITDA $m
41.1
41.5
42.6
38.1
28.4
50
40
30
20
10
0
13.1
12.4
11.9
10.1
7.6
15
12
9
6
3
0
Basic adjusted EPS cents/share
34.0
32.9
31.6
25.6
21.8
35
30
25
20
15
10
5
0
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
1
1
Craneware plc Annual Report 2014 Craneware Revenue Integrity Solutions®
Quick Facts — The Technology
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 five product families – Patient Access, Charge Capture & Pricing, Coding Integrity, Revenue Collection & Retention, Data &
Decision Enablement.
Craneware Products and Services
Craneware Revenue Integrity Solutions®
Patient Access
Charge Capture and Pricing
Coding
Integrity
Revenue Recovery and Retention
Medical
Necessity +
Prior Auth.
Patient
Responsibility
Procedures
Pharmacy
Supplies
Billing + Claims
Analysis
Audit
Management
Denials
Management
Remittance
Auditing
• Import patient
demographics
• Estimate patient
responsibility
• Determine
requirement for
payers:
government &
commercial
• Waiver forms for
non-covered
procedures
• Multi-attribute
verification
• Ensure charge
accuracy
• Ensure
chargemaster
accuracy across
enterprise
• Creation/mainten-
ance of physician
fee schedule
• Model contract
proposals
• Model net revenue
reimbursement
Business Outcomes
• Identify and
correct
discrepancies
between
purchased and
billed drugs
• Identify and
correct
discrepancies
between
purchased and
billed supplies
• Accurate HCPCS
for billable
supplies
• Integrity for all
earned revenue
• Identify and
correct all coding
mistakes
• Identify missed
charges
• Automated audit
tracking and
execution
• Defensible accrual
and reserve
forecasting
• Appeals workflow
• Automated denial
tracking and
execution
• Multiple facility/
department
segmentation and
workflow
• Payer compliance
• Underpayment
notification
• InSight Medical
Necessity®
• Patient Charge
Estimator®
• Chargemaster
Toolkit®
• Pharmacy
ChargeLink®
• Supplies
ChargeLink®
• Bill Analyzer
• InSight Audit®
• InSight Denials®
Products and Solutions
• Supplies Assistant
• Chargemaster
Corporate Toolkit®
• Physician
Revenue Toolkit®
• Physician
Revenue Toolkit® -
Corporate
• Pricing Analyzer™
• Reference Plus™
Data Analysis & Decision Enablement
Consulting and Professional Services
• InSight Payment
Variance
Analyzer®
2
Craneware plc Annual Report 2014
Craneware Revenue Integrity Solutions® [Cont’d.]
Patient Access
Patient Charge Estimator®
software simplifies the process of providing patient
bill estimates for inpatient and outpatient services to
improve upfront collections and reduce bad debt.
InSight Medical Necessity®
provides medical necessity validation for all major US
payors and Advance Beneficiary Notice (ABN) creation.
The software helps reduce accounts-receivable days by
preventing medical necessity denials, and facilitates
payment communication with patients.
Charge Capture & Pricing
Chargemaster Toolkit®,
Chargemaster Corporate Toolkit®
and Chargemaster Toolkit® - CAH
automate chargemaster management processes for
capturing optimal legitimate reimbursement for
hospitals and mitigating compliance risk. The Toolkit
is customisable for any organisation, from small
community hospitals to large healthcare networks.
Physician Revenue Toolkit®,
Physician Management Toolkit and
Physician Revenue Toolkit® – Corporate
are for managing physician group charges, codes,
RVUs, fee schedules, and related information.
Online Reference Toolkit® is included for physician
billing. The corporate version manages charges to a
corporate standard. The management version includes
Decision Dashboard® which tracks Key Performance
Indicators (KPIs) for strategic physician group
charge management.
Pricing Analyzer™
software simplifies the price modeling process, creating
a repeatable, well-documented method to establish
transparent, defensible and competitive pricing.
Reference Plus™
provides a platform for hospitals with less than $44
million in operating expenses to perform chargemaster
analysis and efficiently achieve appropriate revenue
optimisation and compliant charging whilst accessing
reference and regulatory resources for coding integrity.
Pharmacy ChargeLink®
improves charge capture, pricing and cost
management, while simplifying the process for
ensuring drug coding and billing units are complete
and compliant, and establishing and maintaining
a connection between a hospital’s pharmaceutical
purchases and billing.
Supplies ChargeLink®
helps optimise reimbursement for codable supplies by
identifying missing or invalid charges, and 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.
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.
Coding Integrity
Bill Analyzer
software automates claim and coding reviews to
identify missed charges, billing errors, and categorise
areas of risk to help ensure that all legitimate revenue
is captured. Bill Analyzer ranks #1 in its KLAS Revenue
Cycle category for the third consecutive year.
Revenue Recovery & Retention
InSight Audit®
software is a comprehensive, web-based audit
management tool that empowers healthcare
organisations to manage claim audits and workflow
from one central location, leveraging an extensive
proprietary knowledgebase that includes current
payment rules, best practices, templates, checklists,
forms, and references for winning appeals.
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.
Professional Services
Craneware Professional Services provide companion
implementation and consulting services that help
clients 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.
Craneware’s Chargemaster Toolkit® is ranked No. 1 in the Revenue
Cycle – Chargemaster Management market category and Bill
Analyzer is ranked No. 1 in the Revenue Cycle – Charge Capture
market category in the “2013 Best in KLAS Awards: Software &
Services” report, published January 2014. www.KLASresearch.com
Data © 2014 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.
Craneware is a Microsoft Silver Independent Software Vendor.
3
Craneware plc Annual Report 2014 Chairman’s Statement
“Increased sales activity…
has resulted in a record sales
performance for the Group.”
George Elliott, Chairman
The market environment for the business remains
positive. Craneware’s growing product set addresses
many of the problems facing US healthcare
organisations and the Group is increasing in strategic
importance to its customer base. I am pleased to report
that we recruited Colleen Blye and Russ Rudish to the
Board in November 2013 and August 2014 respectively.
Colleen and Russ will be able to provide significant
additional insight into the challenges facing US
healthcare organisations.
With a quarter of US hospitals as customers, high
levels of visibility over future revenue, a significantly
strengthened operating structure and enhanced
product set, we are confident in the ongoing success of
the Group.
I would like to thank our staff for their enthusiasm
and commitment. It is their passion that is the basis
of our success.
Lastly, I would like to thank you, our shareholders, for
your support.
George Elliott
Chairman
15 September 2014
I am pleased to report that following a promising
first half, the increased sales activity which had been
building over prior years has resulted in a record
sales performance for the Group during the year. The
marketplace for our products is developing as we
had anticipated, with sales now coming from both
individual hospitals and larger hospital groups. This
trend has continued in the first months of the new
fiscal year and we expect this to continue in a positive
manner in the year ahead. The strength of our business
model, which spreads the value of each contract over
its lifetime, is such that these sales successes are
building a solid platform of future revenue on which
the business will grow.
The total value of contracts signed in the year increased
by 84% to $71.0m (FY13: $38.5m). In accordance
with the Group’s revenue recognition policy, the vast
majority of the revenue from these sales will benefit
future years. Revenues increased to $42.6m, adjusted
EBITDA increased to $13.1m and adjusted EPS increased
to 34.0 cents. The Group continued to benefit from
strong operational cash flow, closing the period with a
cash balance of $32.6m (30 June 2013: $30.3m).
We are now benefiting from the restructuring of the
business in previous periods, achieving record sales and
ensuring scalability and sustainability for the future.
We continue to invest in our products and people to
ensure that we remain at the forefront of this evolving
sector of the US healthcare IT market, the world’s
largest IT industry. With the acquisition of Kestros
Limited, an emerging technology player in the patient
access market, after the year end, the Group is well
positioned to develop solutions to address the ongoing
consumerisation trend within healthcare on both sides
of the Atlantic.
4
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review
Introduction
We are pleased to have delivered a strong year, showing
progress in each of our five key strategic focus areas.
These have resulted in increased relevance to our
customers when considering their strategy for funding
the effective delivery of healthcare in an
evolving market.
These areas are, in the short to medium term:
to strengthen and leverage our dominant position
in the automated Chargemaster market to facilitate
a greater understanding of the true value of this
strategic asset to hospitals;
to continue to invest and grow our Gateway
solutions; and
to establish revenue and market penetration for a
Gateway product in the Patient Access and hospital
consumerisation arena.
The two other areas of focus are more medium to long-
term, being:
to invest and grow our data analytics platform; and
to continue to seek alternative channels to market.
We have made good progress in each of these five areas
over the course of the year.
As a result we have seen a significant increase in the
total value of contacts signed across both new hospitals
and existing customers taking new product in the
year, a positive leading indicator of future growth.
While revenue and EBITDA growth in the year has
been modest, the high levels of sales during the year
have resulted in an increase in revenue which will be
recognised in future years, providing us with a growing
platform on which to build.
The majority of the larger contract wins in the year
were secured in the second half of the year and are
seen as the beginning of the return of sales to large
hospital groups from our pipeline. These large deals,
which contributed approximately a quarter of the total
contract value in the period, had been missing from
results in the previous two years. The sales pipeline
continues to be at a record high across all strata of
hospital, providing us with strong prospects for sales in
the current year and beyond.
Craneware has progressed considerably since its IPO
in 2007. We have a broader product set. We address
many more of the key issues experienced by healthcare
providers as they strive for revenue integrity. We have
considerably increased scalability and management
bandwidth. Additionally, we have a greater level of
industry expertise within the business, providing us
with better insight into the problems our customers
face. We are effectively maturing from being a single
product company, known primarily for its automated
Chargemaster Toolkit, to a leader in the evolving
revenue integrity marketplace. With a quarter of US
hospitals already using at least one of our products, our
vision is to be the partner healthcare providers rely on
to improve and sustain strong financial performance
with revenue integrity through the management of
their cost base whilst ensuring receipt of all legitimate
reimbursement . We believe that this will provide the
financial foundations for sustainable improvements to
patient care for the future.
As we look to this year, our long-term strategy
and focus remain consistent and build upon last
year’s successes by concentrating efforts on four
key areas: increase the awareness of Craneware’s
strategic relevance in the evolution of the financing
and effectiveness of healthcare; continue the sales
momentum gained last year across all strata of
hospitals; ensure the success of our customers,
confident in the knowledge that their success will lead
to our success; and finally to continue to be innovative
in the combinations of Revenue Integrity solutions
that we bring to market and as we develop our future
product sets to include data analytics and robust
consumerisation solutions.
We are confident that with this strategy we are on
the right path towards accelerated revenue and profit
growth in future years.
“We have seen a significant increase
in the total value of contracts signed
across both new hospitals and
existing customers.”
Keith Neilson, CEO and co-founder
“We have made significant
investments in prior years, which have
strengthened the Group.”
Craig Preston, CFO
5
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
Market Developments
The US healthcare market, worth more than $2.8
trillion, is quickly evolving and continues to grow
through 2014. Healthcare expenditure in the United
States is expected to increase to approximately $3.3
trillion in 2015, reaching 18% of GDP.*
With six main trends affecting US healthcare
reimbursement, outlined below, the main priority
of our customers continues to be providing quality
care to their patients against the background of
continuing cuts in Medicare reimbursements, imposed
restructuring of their business models and increased
pressure from payor auditors.
The Affordable Care Act
Impacts of the Affordable Care Act are well underway.
The online Health Insurance Exchanges established
under the Act, which allow individuals and small
businesses to purchase private health insurance,
resulted in enrollments from over 8 million people in
the Health Insurance Marketplace according to a May
2014 press release from the US Department of Health
and Human Services.
Hospitals will shortly begin to see large numbers of
these patients in a setting that will be covered by at
least a basic level of insurance where previously many
hospitals would have been forced to see these patients
and write off much of the treatment costs as charity
care. Future supply and demand curves for hospitals
are predicted to remove any current perceived spare
capacity in the industry.
New Reimbursement Models
As part of the Affordable Care Act, healthcare providers
and payors have been asked to consider and implement
a wide range of new business models for managing
healthcare and related reimbursement to reduce
dependence on fee-for-service-only style payments.
This involves reimbursement coming from a variety of
healthcare business payment models. Alongside fee-
for-service-based payment and bundled payment, US
healthcare is working toward outcomes-based payment
and is organising other new risk-sharing models for
efficient population health management.
The charge is the common unit of measurement across
all new business models that enables healthcare
organisations to ensure they bill accurately for all
services provided. To disperse the payments to varied
providers in risk-sharing organisations, accurate
charges enable each party to identify their portion of
care. Population health management requires accurate
charges as the basis for measuring cost-per-patient and
cost-per-patient-type.
As multiple reimbursement models move more risk
to the healthcare provider, they also create a greater
dependency for them to claim reimbursement
correctly, requiring the accuracy of data both clinically
and financially within their systems to make correct
assessment of the acquired risk. Residing at the points
in a health system where clinical and operational data
transform into financial transactions, the chargemaster
is central to the quality drive, serving as the logical
control point for data normalisation that combines
disparate data sets whilst maintaining the localised
context. Measuring a health system's operations from
the viewpoint of its chargemaster enables the creation
of organisation-wide visibility and accountability,
whilst proffering valuable, actionable information
regardless of the reimbursement models chosen.
Healthcare Consumerisation
With rising costs in healthcare being transferred
disproportionately from the government, insurers and
the employer to the consumer, hospitals have seen
more than a trebling of their reimbursement coming
directly from the consumer in the last ten years. This
drive to consumerism and the need for healthcare
organisations to focus on patient-direct billing as never
before has resulted in a technology-backed focus on
correct and efficient patient registration with payment
arrangements and collections before the provision
of treatment.
Payor Audits
With more than $3.7 billion in Medicare funds recouped
from hospitals and other healthcare providers in
the twelve months prior to June 30, 2014 alone, the
Recovery Audit Programme has been a financial boom
for Medicare. Medicare recovery audits continue to put
strong pressure on hospitals, as hospitals must respond
to audit requests within tight deadlines, coordinating
to provide auditors with complete medical records
and documentation from multiple systems, and to
show that care provided meets criteria as medically
necessary, and to effectively manage related
payment appeals.
The Medicare Recovery Audit Programme is also
in a period of transition. In order to complete all
outstanding claim reviews and related processes
by the end date of the current Recovery Auditors’
contracts, there is a delay in the procurement process
for the ensuing round of contracts to be awarded to
the next set of Recovery Auditors. In the meantime,
the current Recovery Audit Programme contracts have
been extended so that these active Recovery Auditors’
can continue sending additional documentation
requests and initiating automated reviews, however
their activities after June 1, 2014 are limited until new
contracts are awarded.
Healthcare providers currently have billions of dollars
in denied payments tied up in a massive backlog of
appeal cases. The backlog is causing wait times of two
or more years for appeal resolution. In May 2014, the
American Hospital Association filed a lawsuit to compel
Medicare to meet its stated requirement of 90-day
appeal resolution. In an attempt to clear this backlog,
Medicare has begun offering partial payment on these
claims if providers agree to drop their appeal.
The Recovery Audit Programme’s success has also led
to the growth of audits as a method for commercial
insurers as well as other government agencies such
as Medicaid to categorise payments being made to
hospitals as improper until the hospital defends its
reimbursement. These trends all reinforce the business
need for hospitals to mitigate their exposure to the
risk of having their revenue reduced by ensuring they
have the correct processes and tools to ensure Revenue
Integrity in the initial instance and to be able to track,
trend, and manage the variety of financial audits that
hospitals face in today’s healthcare environment.
*Source: The US Centers for Medicare & Medicaid Services, Office of the Actuary,
“National Health Expenditure Projections and Selected Economic Indicators, Levels and Annual Percent Change:
Calendar Years 2006-2022,” which incorporate estimates from June 2013 of Gross Domestic Product.
6
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
ICD-10 Coding Transition
For the fourth time, the compliance deadline has been
delayed for US hospitals and health systems to have to
report their claims with an International Classification
of Diagnosis Code Version 10 (ICD-10) replacing the
simpler version 9, which is currently mandated for
the US. Although very large in its magnitude and
increased complication for providers, as this conversion
from ICD-9 to ICD-10 has been scheduled for a long
time (with the most recent delay moving the US
compliance deadline from October 2014 to October
2015) the majority of hospitals have had time to detail
and advance their plans to deal successfully with this
conversion. Although getting these codes wrong on a
claim could have a catastrophic effect on a hospital’s
reimbursement, the number of hospitals that appear
to have not been successfully testing their claims
with this data set is limited and therefore should not
substantially result in a diversion for hospitals, as long
as the payor systems are equally robust.
Consolidation and Affiliation
As reported in previous periods, the increasing trend
for healthcare providers to consolidate and affiliate to
share economies of scale continues. This has introduced
more complex operational challenges for hospitals
as they choose to run their operations over many
disparate Patient Accounting Systems from different
vendors or consolidate onto one patient accounting
platform from a single vendor. This decision has
accelerated the migration of healthcare providers
into other Patient Accounting System platforms
with the need for tools to monitor this progress and
compensate for functionality that previously existed
in legacy systems.
Management believes Craneware has the most
extensive suite of revenue integrity solutions to
address the aforementioned healthcare trends and
is confident of its growing prominence within the US
healthcare market as it continues to further develop
and enhance its solutions for Patient Access, Charge
Capture & Pricing, Coding Integrity, Revenue Collection
& Retention, Data & Decision Enablement, which
encompass the span of the revenue cycle, supply chain
and audit areas in US healthcare organisations.
Sales and Marketing
The Group delivered an outstanding sales performance
in the year, in part reflecting the anticipated
development of the natural buying cycle, with the
increasing engagement of larger hospital groups and
their inherently more complex buying decisions. Total
contract sales values of $71.0m were a result of the
investments made into the sales force over the last two
years through increased capacity at a sales leadership
level, training and a new competitive incentive scheme
to drive this performance.
The average length of new customer contracts
continues to be in line with our historical norms of
approximately five years, although we have seen the
return of seven and nine year contracts in the year,
which is reflective of the increasing market confidence
of our customers. Where Craneware enters into new
product contracts with its existing customers, contracts
are typically made co-terminus with the customer’s
existing contracts, and as such, the average length of
these contracts remains greater than three years, in line
with our expectations.
Renewal rates by dollar value is a financial metric
that specifically ties to the revenue visibility for
future years. This metric, at 95%, is within expected
norms of 85-115% including cross-selling of further
products to renewing clients. Variations are driven by
the timing of individual renewals, additional product
sales and contract negotiation or cancellation. Length
of our average contract for renewals in the period has
increased to four years, a significant increase from
two and a half years previously, driven by an active
engagement with clients on one-year evergreen auto-
renew contracts to sign new multi-year contracts.
The sales mix remained fairly constant throughout
the period, resulting in no change to the overall
product attachment rate, which remained steady at
approximately 1.6 products per customer. We have
made further strides in the promotion and market
acceptance of our other Gateway products, outside of
Chargemaster Toolkit. In a year of record total sales,
the sales of Chargemaster Toolkit and our other two
gateway products Pharmacy ChargeLink and InSight
Audit was approximately in the ratio of 3:2:1.
Our marketing focus has been on developing
messaging that builds on our historic brand values but
highlights in a more contemporary setting the strategic
relevance of our assets in the effective running
of hospital operations across multiple disciplines
targeting the “C Suite” including the CFO of healthcare
providers. The importance of revenue integrity to all
healthcare providers is gaining increasing exposure
at the top tier management of these organisations
as there is a growing realisation that under new
payment models, cost base management and receipt of
legitimate reimbursement combine to ensure revenue
Integrity which is far more critical than just monitoring
and managing Revenue Cycle alone. We are now seeing
acknowledgment across the “C Suite” that financial and
clinical operations have to be aligned financially to
drive better healthcare and therefore better
patient outcomes.
Awards
Once again two of our solutions ranked first in two
distinct revenue cycle categories in the annual
“2013 Best in KLAS Awards: Software & Services”
report, published January 2014. In this KLAS report,
Craneware’s flagship product, Chargemaster Toolkit®,
earned the #1 ranking in the KLAS “Revenue Cycle –
Chargemaster Management” market category for the
eighth consecutive year, and Craneware’s Bill Analyzer
software ranked #1 in the “Revenue Cycle – Charge
Capture,” winning a Category Leader award for the third
year running.
In June 2014, the Healthcare Financial Management
Association (HFMA) recognised five Craneware products
at HFMA’s 2014 Annual National Institute in Las Vegas,
for earning the "Peer Reviewed by HFMA®" standard
every year since 2004, the first year of the Peer Review
program. This is a testament to Craneware solutions’
ability to effectively enable hospitals and health
systems to achieve revenue integrity.
The Craneware products receiving this distinction
include Chargemaster Toolkit®, Chargemaster Corporate
Toolkit®, Online Reference Toolkit®, Interface Scripting
Module, and Bill Analyzer: the only healthcare products
and services to earn this designation every year since
the inception of the program.
7
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
Product Development
Our strategy is to provide software solutions that
help customers at the points in their systems
where clinical and operational data transform into
financial transactions. Our solutions automate data
normalisation, combining disparate data sets while
maintaining the localised context. This produces
valuable, actionable information and creates
organisation-wide visibility and accountability. We
consistently receive feedback from our customers
that the implementation of our software can have a
profound effect on hospital operations, enabling the
rapid identification of significant amounts of dollars
in missed revenue, overspend on their cost base or
incorrect billing that could lead to lost income and
fines. We want to enhance these findings with data
analytics that sit natively within our products and draw
benchmarks from underlying data from our customer
footprint and proprietary data sets.
During the year we have progressed the initiatives
that were launched in the prior year. These include
continuing to enhance the functionality of current
products whilst investigating the opportunities that
integration of current offerings into new innovative
combinations could present; leveraging our
competencies to help clients that are in a consolidation
phase (as target or acquirer) to better understand
synergies from their combined financial operations
regardless of patient accounting platform. Craneware
provides an enterprise-wide view, and management
believe this is a substantial competitive advantage.
We maintain our focus on external integration with
Healthcare Information Systems, such as the EPIC
patient accounting system, to ensure we can fully
support all our customers should they decide to replace
their current systems.
With the acquisition of Kestros Limited post
year-end it is expected that we will be able to use
technology already proven by them to develop a new
fourth Gateway product in the Patient Access and
Consumerisation area for intended FY16 launch.
During the year we completed the development of
a hybrid solution, which combines services with
some of our core products that enables them to be
implemented at smaller hospitals that do not have
their own internal revenue integrity teams. This
solution was subsequently launched on the 2nd of
September 2014.
In conjunction with and in support of these initiatives,
we have continued development of our common
software framework. This will provide the foundation
for our future development efforts, significantly
decreasing our time to market. Product development
continues to be focused on supporting this long-term
strategy as well as utilising technology to further
enhance options for products to move further on to the
cloud and mobile platforms.
Financial Review
Revenues reported for the financial year under review
were $42.6m (FY13: $41.5m) which has resulted in an
adjusted EBITDA of $13.1m (FY13: $12.4m).
We have made significant investments in prior years,
which have strengthened the Group in many ways,
and positioned Craneware for its next stage of growth.
In addition to the ongoing investments we make to
our product suites, we have further invested in our
people, both increasing the management bandwidth
and the levels of expertise across the Group. A major
focus of our investment has been in our sales force.
Here, as reported previously, we have made key hires
into the sales leadership level increasing the previous
capacity; have developed our core sales force through
enhanced training initiatives; implemented additional
sales support and contracting functions to ensure we
maximise the capacity of individual sales managers
and have redesigned sales incentive plans to ensure we
drive the performance we expect.
These investments were initially made in a market
environment that was in the early stages of recovery.
In the prior year, we reported that we had seen the
return of individual hospitals and small hospital
groups as purchasing entities. As expected, this trend
has continued to develop with our current year sales
including sales to all types of hospital entities, from
individual hospitals to the large multi-hospital network
sales that have been announced during the year.
It is pleasing that through both the anticipated
development of our US health provider marketplace
and its increasing refocus on revenue integrity
combined with the investments we have made, we
have delivered a record sales performance in the year,
delivering a total value of contracts (sales) signed
during the year of $71.0m (FY13: $38.5m). Due to the
Group’s business model, these sales represent a leading
indicator of future growth, not significantly impacting
financial results in the year in which they are signed.
Business Model
As a result of the Group’s business model and associated
revenue recognition policies, sales and revenue have
separate meanings and cannot be interchanged. The
Group continues to recognise the vast majority of
revenue under its annuity Software-as-a-Service (SaaS)
revenue recognition model. The strategy behind this
business model is to ensure the long-term growth and
stability of the Group.
As it is highly likely the levels of sales will fluctuate
between individual years, the Annuity SaaS business
model adopted by the Group delivers a ‘smoothing’
of these fluctuations and provides for more even and
consistent growth over the long term. Under this
model, we recognise software licence revenue and
any minimum payments due from our ‘other route to
market’ contracts evenly over the life of the underlying
signed contracts. As we sign new hospital contracts
over an average life of five years, we will see the
benefit of any new sales over this underlying
contract term.
As well as the incremental licence revenues we
generate from each new sale, we normally expect
to deliver an associated professional services
engagement. This revenue is typically recognised as
we deliver the service to the customer, usually on a
percentage of completion basis. The nature and scope
of these engagements will vary depending on both
our customer needs and which of our solutions they
have licenced. However these engagements will always
include the implementation of the software as well as
training the hospital staff in its use.
8
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
As a result of the different types of professional services
engagements, the period over which we deliver the
services and consequently recognise all associated
revenue will vary, however we would normally expect
to recognise this revenue over the first year of the
contract.
In any individual year we would normally expect
between 10% to 20% of revenues reported by the
Group to be from services performed.
Our final revenue model results from the ClaimTrust,
Inc. acquisition in 2011. As the company has now
been fully integrated, the ongoing transition of
customers to the Annuity SaaS business model, and
the redeployment of their highly skilled healthcare
consultants from more traditional services work to
contracted engagements that directly support existing
customers and potential new software sales, means
this revenue now represents less than 5% of total
Group Revenues reported. This revenue model results in
revenue still being recognised monthly (as billed) and
is recurring in its nature, but as it is not signed under
long term non-breakable contracts it does not deliver
the same advantages as the Annuity SaaS model.
As a result of these revenue recognition models, based
on our average contract life for new hospitals of five
years, the maximum value of an average contract that
is expected to be recognised as revenue in any one year
is 20% plus the value of associated services that have
been delivered. In all cases, should the contract contain
any material contingencies or any increased risk of
collection is identified, revenue is deferred until the
contingency or otherwise is satisfied, at which point
the revenue that has been deferred is released and
the revenue recognition is caught up to the level that
would have been recognised had there been
no deferral.
Sales, Revenue Reported and Revenue Visibility
The difference between revenue and sales under the
Annuity SaaS business model can be demonstrated by
reviewing the last five years sales levels to the reported
revenue numbers. In the table below we show our total
contracts signed in the relevant years between sales
of new products (to both new and existing hospital
clients) and clients who are renewing their contracts at
the end of their terms, our total sales and compare this
total to the revenue reported.
Annuity SaaS Model Sales
Fiscal Year
New Product Sales
Renewals3
Total Contract Value
Reported Revenue
2009
$m
25.4
17.8
43.2
23.0
2010
$m
44.11
14.0
58.1
28.4
2011
$m
16.9
7.5
24.4
38.1
2012
$m
21.62
12.7
34.3
41.1
2013
$m
20.8
17.7
38.5
41.5
2014
$m
35.1
35.9
71.0
42.6
1 FY10 included the large reseller agreement with Premier, Inc. that added $15m to the new product sales and therefore total contract value in the year, with revenue being recognised over ten years.
2FY12 included the large white label and reseller agreement that added $7.5m to new product sales and therefore total contract value in the year,
with the $3.5m white label revenue recognised in the year and the remaining $4m recognised over the related 28 month period.
3As the Group signs new customer contracts for between three to nine years, the number and value of customers’ contracts coming to the end of their term (“Renewal”) will vary in any one year. This
variation along with whether customers auto-renew on a one year basis or renegotiate their contracts for up to a further nine years, will impact the total contract value of renewals in any one year.
9
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
As described above, the advantages of the Group’s
business model is to protect against short term
fluctuations in sales levels, thereby promoting long-
term growth and stability. The majority of the revenue
from any new sale will not be recognised in the year
of sale. Instead, this balance of unrecognised revenue
leads to Future Revenue Visibility. This is revenue that
is under contract, that is going to be recognised in
future years, and subject to the renewal of the contract
at the end of its original life, forms an annuity base of
revenue for the Group that increases with each
new sale.
The Group illustrates this annuity base through its
“Three Year Visible Revenue” metric. This metric
includes:
Future revenue under contract;
Revenue generated from renewals (calculated at
100% dollar-value renewal).
Other recurring revenue (subject to an estimated
churn rate of 8% per year);
The different categories of revenue reflect any inherent
future risk in recognising these revenues. Future
revenue under contract, is, as the title suggests, subject
to an underlying contract and therefore only has to
be invoiced to be recognised in the respective years
(subject to future collection risk that exists with all
revenue). Renewal revenues are contracts coming to
the end of their original contract term (e.g. five years)
and will require their contracts to be renegotiated and
renewed for the revenue to be recognised. The average
value of customers renewed in any period (including
cross sell and upsell to those customers on renewal)
is over 100% renewals by dollar value therefore it
is reasonable to conclude little additional risk is
associated to this revenue. The final category “Other
recurring revenue” is revenue that we would expect to
recur in the future but as the underlying contracts are
not long term in their nature or contain break clauses,
there is potential for this revenue not to be recognised
in future years, however we apply an estimated 8%
churn rate to make allowance for this risk.
The Group’s total visible revenue for the three years as
at 30 June 2014 (i.e. visible revenue for FY2015, FY2016
and FY2017) shows how, combined with renewals and
other recurring revenue, we expect the current excess
of contracted value of sales to revenue reported to
benefit the Group in this next three year period. The
total of this visible revenue is $112.8m and breaks
down as follows:
Future revenue under contract contributing $76.4m
of which $32.0m is expected to be recognised in
FY15, $24.9m in FY16 and $19.5m in FY17.
Revenue generated from renewal activities
contributing $33.3m; being $5.2m in FY15, $11.3m
in FY16 and $16.8m in FY17.
InSight revenue identified as recurring in nature
of $3.1m.
Revenue
We are reporting revenue for the year of $42.6m (2013:
$41.5m). Underlying this marginal growth in revenue
we have seen the return of sales to large hospital
networks, as well as the return of seven and nine
year contracts.
As anticipated, the redeployment of the skilled
healthcare consultants from more traditional services
work (part of the ClaimTrust, Inc. acquired contracts) to
contracted engagements directly supporting existing
customers and supporting potential new software sales
has had an impact on levels of professional services
revenues delivered in the year. This has reduced
from $5.3m in FY13 to $4.9m in FY14, however this
transition effect is expected to be short term in nature
and professional services revenue at 11% of Group
revenue is still within our expected range of 10% to
20% of our revenue in any one year. We retain the
capacity within our existing business model and as a
result of the sales performance in the year we expect
this revenue stream to expand and contribute to future
years’ revenue growth.
Gross Margins
The Gross Profit for the year was $40.6m (FY13:
$39.4m) which represents a stable gross margin
percentage of 95% in both the current and prior
year. Included within the Group’s cost of sale
is the commissions paid to sales managers on
execution of contracts. As detailed earlier the
Three Year Visible Revenue
10
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
Group has introduced a new competitive sales
incentive scheme, and this combined with the
significant increase in the total value of sales
contracts in the year has resulted in higher levels
of commissions being earned in the current year.
The new IFRS15 Revenue Standard, expected to be
adopted in the EU in the future, has an effective
date for accounting periods on or after 1 January
2017. Whilst yet to fully assess the impact of the full
standard, part of this standard codifies the accounting
for sales commissions on long-term contracts, which
our licence contracts effectively are. The approach
is consistent with the outcome required by current
GAAP and would be the approach expected under
US GAAP, and as such the Group is charging sales
commissions earned under the new incentive scheme
in the year over the life of the underlying contracts.
The result of this is a consistent Gross Margin of 95%
and ‘deferred contract costs’ recorded in the balance
sheet of $2.3m that will be charged to cost of sales
in line with the recognition of the related revenue.
Due to new commission plan and the associated
level of sales that have resulted, not to take this
approach would result in profitable long-term
contracts signed in the year, being represented as
loss-making in their first reporting period solely
as a result of mismatching costs incurred with how
the Annuity business models evenly recognise
revenues. As a result, the current year commission
charge is materially in line with the prior period.
Earnings
Adjusted earnings before interest, taxation, share
based payments, depreciation and amortisation
(“Adjusted EBITDA”) has grown in the year to $13.1m
(FY13: $12.4m) an increase of 6%. This reflects an
Adjusted EBITDA margin of 30.7% (FY13: 29.8%). This
is consistent with the Group’s measured approach to
the release of additional investment, continuing to
make investments in line with the revenue growth
occurring, whilst continually managing to ensure
the efficiency of the investments we make.
Operating Expenses
Net operating expenses (before share based payments,
depreciation and amortisation) have, despite the
investments we have made in key areas, only increased
marginally to $27.6m (FY13: $27.0m). We continue to
invest in the future growth of the Group whilst looking
to leverage the investments we have made in prior
years. Continued investment in line with the growth of
the Group will provide us the opportunity to deliver on
the Group’s strategy.
As innovation will continue to be core to the Group’s
future we continue to invest in Product Development
spend, which has remained at $7.0m with no
significant amounts capitalised in the year.
Cash
We measure the quality of our earnings through our
ability to convert them into operating cash. As in prior
years, we have very high levels of cash conversion that
has enabled us to grow our cash reserves to $32.6m
(FY13: $30.3m). These cash levels are after paying
$2.2m in taxation (FY13: $3.4m) and a further $5.4m
(FY13: $4.7m) to our shareholders by way
of dividends.
We retain a significant level of cash reserves to fund
‘bolt-on’ acquisitions as suitable opportunities arise.
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.
As a result of the guaranteed minimum revenues
associated to a partner deal entered into in February
2012, we have been building up an accrued revenue
balance as we recognised the associated revenue under
our normal revenue recognition model. This accrued
balance reached its maximum level of $4m at 30 June
2014, at which point it was invoiced in line with the
underlying contractual terms and was recorded in Trade
Receivables. Since the year end, $3.6m of this balance
has been cleared. The remaining amounts relate to an
ongoing project and these amounts will be fully paid
by February 2015. The underlying contract with this
partner has been renewed for a minimum further term
of one year, allowing them on a non-exclusive basis
to sell our white-labelled software on a value added
reseller basis to State and Federal customers, however
no further contracted revenues were due as at 30 June
2014. No amounts relating to this contract are included
in our three year visible revenue detailed earlier.
Post Balance Sheet Event:
Acquisition of Kestros Limited
On 28 August 2014, Craneware acquired the entire
share capital of Kestros Limited for a maximum
consideration of $2.14m (£1.25m) that will be adjusted
according to revenue milestones. £150,000 of the
consideration has been paid in cash with the remainder
paid in new Craneware equity. The acquired assets
and intellectual property of this emerging Scottish
technology company, will provide Craneware with
a technology platform in the high growth Patient
Access market, addressing the growing level of
consumerisation within Healthcare.
11
Craneware plc Annual Report 2014 Strategic Report: Operational and Financial Review [Cont’d.]
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
been impacted through exchange rate movements,
with the average exchange rate throughout the year
being $1.6262 as compared to $1.5685 in the prior
year. However, this has been immaterial to our results.
Taxation
The Group’s effective tax rate remains dependent on
the proportion of profits generated in the UK and
the US and the applicable tax rates in the respective
jurisdictions. As detailed above, the sales performance
in the year has increased the levels of income in both
jurisdictions, and as detailed in previous years we
are as a result seeing our effective tax rate return
to more normalised levels. However this has been
partially offset by the reduction in the levels of
professional services revenue generated in the year.
As all professional services are delivered in the US,
the resulting lower levels of this revenue impacts the
overall total income subject to taxation in the US.
As result of the higher taxation levels in the US, the
current year's effective tax rate is 24% (FY13: 22%).
Effective tax rates will increase in future years if the
ratio of underlying professional services to software
license revenues increases and the overall levels of
sales increase.
EPS
In the year adjusted EPS has increased to $0.340 (FY13:
$0.329) and adjusted diluted EPS has increased to
$0.338 (FY13: $0.328). The increase in EPS is driven by
the increased levels of EBITDA but has been impacted
by the increasing effective tax rate.
Dividend
The Board recommends a final dividend of 6.8p (11.63
cents) per share giving a total dividend for the year
of 12.5p (21.37 cents) per share (2013: 11.5p (17.4
cents) per share). Subject to confirmation at the Annual
General Meeting, the final dividend will be paid on
16th December 2014 to shareholders on the register
as at 14th November 2014, with a corresponding ex-
Dividend date of 13th November 2014.
The final dividend of 6.8p 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 14th
November 2014. The exact amount to be paid will be
calculated by reference to the exchange rate to be
announced on 14th November 2014. The final dividend
referred to above in US dollars of 11.63 cents is given
as an example only using the Balance Sheet date
exchange rate of $1.7099/£1 and may differ from that
finally announced.
Outlook
We have been pleased with the Group’s performance
in the year. We have seen signs of growing customer
confidence and believe Craneware is increasingly well
positioned to address a growing market opportunity in
what is the largest software vertical in the world; the
US healthcare market.
Craneware remains at the forefront of providing
solutions to US healthcare providers to help them
achieve revenue integrity through the management of
their cost base whilst ensuring receipt of all legitimate
reimbursement. We believe true revenue integrity
is required if healthcare providers are to continue to
support improved patient care and clinical outcomes.
Investments in the business mean we have the people
and the expertise in place to take us through the
next stage of growth, building on our record sales
performance. We have had a strong start to the current
year, carrying on the momentum from the previous
year and are confident we have the platform to deliver
ongoing increased stakeholder value.
Keith Neilson
Chief Executive Officer
Craig Preston
Chief Financial Officer
15 September 2014
12
Craneware plc Annual Report 2014 Strategic Report: Key Performance Indicators and Principal Risks and Uncertainties
Key Performance Indicator Review
Revenue Growth
Revenue
Growth
2014
$42.6m
3%
2013
$41.5m
1%
Revenue for the year grew by 3%, whilst still below our historical norms, has increased over the prior year. The Group’s Annuity SaaS revenue recognition model means the full
benefit of current year’s sales will be recognised in later years.
Adjusted EBITDA Growth
EBITDA
Growth
2014
$13.1m
6%
2013
$12.4m
4%
We continue to invest in the future growth of the Group whilst looking to leverage the investments we have made in prior years. By taking a measured approach to investment
we aim to release additional investment, in line with revenue growth, with the focus on delivering profitable growth to all stakeholders.
Adjusted EPS
Adjusted EPS
Growth
2014
2013
34.0 cents
32.9 cents
3%
4%
Adjusted EPS growth is a factor of the the Group’s overall profitability after taking into account the taxation in the year. The Group’s effective tax rate remains dependent on the
proportion of profits generated in the UK and the US and the applicable tax rates in the respective jurisdictions, which is a function of both the level of sales in the year and the
level of professional services income.
Cash
Cash
Operating Cash Flow Generation
2014
$32.6m
$10.2m
2013
$30.3
$9.9m
The Group continues to convert very high levels of the Adjusted EBITDA reported in the year into Operating Cash flows. From these cash flows tax of $2.2m has been paid and
$5.4m has been returned to our shareholders by way of dividends. This has resulted in a net increase in cash of 8% over the prior year.
Three Year Revenue Visibility
Three Year Revenue Visibility
2014
2013
$112.8m
$103.0m*
* Three year revenue visibility was adjusted during FY13 to reflect the redeployment of skilled healthcare consultants from more traditional services work (part of the ClaimTrust
Inc acquired contracts) to ‘contracted engagements’ directly supporting existing customers and supporting potential new software sales
The three year revenue visibility metric compares the three years contracted, revenue subject to renewal and other recurring revenue, for the three year period starting 1 July
2014. Full details of how this is calculated are detailed in the financial review section of the Operational Review. The growth in this metric is a result of sales in the year and
reflects the growing annuity revenue base that results.
13
Craneware plc Annual Report 2014 Strategic Report: Key Performance Indicators and Principal Risks and Uncertainties [Cont’d.]
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 and
Financial Review on pages 5 to 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 Evolution and Reform
Issue: The US healthcare industry continues to evolve,
with the emergence of new payer models and a shift
towards consumerisation, the outcome and nature of
this market is subject to continual change 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:
Key hires adding to the industry expertise across
the Group, both at operational and strategic levels;
Having independent industry experts attend and
speak at internal and external Company events;
Regular attendance by senior management at
healthcare forums and industry education events;
and
Client forums.
Significant industry expertise has been added at
both the Operations Board and the PLC Board. These
Boards 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 that 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
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 will continue to register its
trademarks and copyrights and protects access to its
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: The Group has increasing experience of
acquisitions and Board members individually have
significant experience in regards to completing
acquisitions, gained prior to joining the Group. 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 21 to 24.
In summary, the US healthcare market is not immune
to the macro-economic climate and, with the
increasing focus and requirements of the evolving
healthcare marketplace, the Group expects the market
to continue to be 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.
Craig Preston
Chief Financial Officer
15 September 2014
Issue: The Group continues to plan for significant
growth both organically and through acquisition,
which could place strain on the current management
and other resources of the Group.
Actions: The Group has made significant investments
over the prior years to increase bandwidth at both
the Operations and PLC Board levels. The Group’s
annuity SaaS (“Software as a Service”) business
model combined with the detailed forecasting
processes provide visibility to expected growth
rates. This provides a foundation when planning
in advance, including any additional resourcing
necessary as a result of this growth. To ensure the
correct infrastructure to support growth, assessments
are performed and improvements are made within
systems, policies and procedures and business controls
are upgraded, as appropriate, across the Group.
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 has significantly expanded and
strengthened its senior management team, with three
new appointments to the Operations Board having
been made in the prior year. In addition, the Group
has utilised 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.
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 nine
core products (from the original one in 2007). The
Group publishes its product attachment rate during
every reporting period and has a medium term
strategic goal of generating no more than 55% of its
revenue in any year, from any one product.
14
Craneware plc Annual Report 2014 Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants & Statutory Auditors
Atria One
144 Morrison Street
Edinburgh
EH3 8EX
Solicitors
Pinsent Masons LLP
Princes Exchange
1 Earl Grey Street
Edinburgh
EH3 9AQ
Directors, Secretary, and Advisors
Directors
Bankers
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
G R Elliott (Chairman, non-executive)
K Neilson
C T Preston
N P Heywood (non-executive)
R F Verni (non-executive)
C Blye (non-executive), appointed 12 November 2013
R Rudish (non-executive), appointed 28 August 2014
Company Secretary &
Registered Office
C T Preston
1 Tanfield
Edinburgh
EH3 5DA
Stockbrokers and
Nominated Advisors
Peel Hunt LLP
120 London Wall
London
EC2Y 5ET
Registrars
Capita Registrars Ltd
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
15
Craneware plc Annual Report 2014
Board of Directors
George R Elliott, 61 — Non-Executive Chairman :: Appointed 10 August 2007
George is non-executive Chairman of Cupid plc, an online dating and data company, Calnex Solutions Ltd, an Ethernet test equipment
manufacturer and Cooper Software Ltd, an ERP systems integrator and is also a non-executive director of Two Big Ears Ltd, which develops
audio content and development tools for emerging mobile technologies. Since 2007 he has been non-executive chairman/director of a
number of technology companies, including MicroEmissive Displays Group plc, Corsair Components Inc, Kewill plc, and Summit Corporation
plc. From 2000-2007 George was Chief Financial Officer of Wolfson Microelectronics plc, 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), a manufacturing and support services provider, 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, 45 — 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. Keith is
a syndicate member and Partner in Par Equity LLP. Keith is also proud to be a Patron of the Princes Trust and a Trustee of the Polar Academy
both charitable organisations that work for the benefit of young people.
Craig T Preston, 43 — 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, 52 — Non-Executive Director :: Appointed 31 January 2002
Neil is chairman of Codeplay Software Ltd and Two Big Ears Ltd, and a non¬-executive director at Games Analytics Ltd. He is also a
director of Matrix Alpha Analytics, a company providing services to the hedge fund sector, and an advisory panel member at Par Equity LLP.
Previously he was CEO of Quadstone, a marketing analytics company, and head of the Edinburgh Parallel Computing Centre at the
University of Edinburgh.
16
Craneware plc Annual Report 2014 Board of Directors [Cont’d.]
Ron F Verni, 66 — Non-Executive Director :: Appointed 1 May 2009
Ron is currently a director of On Deck Capital, and on the Board of Advisors of 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.
Colleen Blye, 54 — Non-Executive Director :: Appointed 12 November 2013
Colleen Blye is the Executive Vice President and Chief Financial Officer for Catholic Health Systems of Long Island ("CHS"), an integrated
healthcare delivery system which includes six hospitals, three nursing homes, a regional home care and hospice group and a community-
based agency for persons with special needs.
Colleen Blye joined CHS in 2010 from Catholic Health Initiatives (CHI), where she served as Executive Vice President and Chief Financial
Officer since 2005. She was with CHI for over twenty years, serving in various roles of increasing responsibility. Ms. Blye started her career
in Finance with Ernst and Young in Philadelphia, PA. She has been a certified public accountant since 1984 and is a member of the American
Institute of Certified Public Accountants, and the Pennsylvania Institute of Public Accountants. She is also a member of the Healthcare
Financial Management Association.
Russ Rudish, 62 — Non-Executive Director :: Appointed 28 August 2014
Russ Rudish has more than 30 years' experience in serving the healthcare industry, both in the United States and internationally. Russ’s most
recent role was Global Sector Leader for Healthcare at Deloitte Touche Tohmatsu, where he led the $2 billion global consulting, audit, tax and
financial advisory business, developing the firm's Global health care strategy. Russ joined Deloitte in 2006 from Eclipsys Corp., which was
acquired by Allscripts in 2010. He is an active speaker and contributor to thought leadership on today's most pressing Healthcare business
issues. Russ holds a directorship in Rudish Health Solutions LLC. He previously held a partnership in Deloitte LLC, from 2006 - 2014.
17
Craneware plc Annual Report 2014 Directors’ Report
The directors present herewith their report and the
audited consolidated financial statements for the year
ended 30 June 2014.
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 cash generation
during the year. Detailed information on all matters
required is presented in the Strategic Report contained
on pages 5 to 14 and is incorporated into this
report by reference. A description of the principal risks
and uncertainties facing the Group is also presented in
the Strategic Report.
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 $42.6m (2013:
$41.5m) which has generated an adjusted operating
profit (before acquisition related matters) of $11.8m
(2013: $11.1m). The full results for the year, which were
approved by the Board of Directors on 15 September
2014, are set out in the accompanying financial
statements and the notes thereto.
Dividends/Share (pence)
8.0
8.8
10.5
11.5
12.5*
*Subject to approval at AGM
During the year the Company paid an interim dividend
of 5.7p (9.46 cents). The Directors are recommending
the payment of a final dividend of 6.8p (11.63 cents)
per share giving a total dividend of 12.5p (21.37 cents)
per share based on the results for 2014 (2013: 11.5p
(17.4 cents)). Subject to approval at the Annual General
Meeting, the final dividend will be paid on 16 December
2014 to shareholders on the register as at
14 November 2014.
The level of dividend proposed for the year continues
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
that includes research and development of new
complementary products, integration (where
appropriate) of products acquired through the
ClaimTrust Inc and Kestros Limited acquisitions 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 $7.0m
(2013: $6.9m) net of expenditure capitalised of
$0.1m (2013: $0.1m).
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.
Going Concern
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 16
and 17.
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 26.
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 27,008,763 were issued and fully paid up.
During the year, no options were exercised pursuant to
the Company’s share option schemes. (2013:16,872 new
ordinary shares were exercised).
Subsequent to the Balance Sheet date, on the 16 July
2014 the Company purchased for cancellation a total
of 393,816 issued ordinary shares and on 1 September
2014 the company allotted 211,539 ordinary shares
in respect of the acquisition of Kestros Limited.
Consequently at the date of this report 26,826,486
ordinary shares of 1p each were issued and fully
paid up.
Directors and their interests
The interests of the Directors who held office at 30
June 2014 and up to the date of this report in the share
capital of the company, were as follows:-
G R Elliott
N P Heywood
K Neilson
2014
15,650
96,356
3,488,380
3,600,386
2013
15,650
130,356
3,471,529
3,617,535
Directors’ interests in share options are detailed in the
Remuneration Committee Report on page 27.
FY10
FY11
FY12
FY13
FY14
18
Craneware plc Annual Report 2014 Directors’ Report [Cont’d.]
Substantial shareholders
As at 1 September 2014, 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:
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.
No. of
Ordinary
£0.01
Shares
% of
issued
share
capital
4,220,813
15.73
3,488,380
13.00
2,702,563
10.07
2,188,738
8.16
Liontrust Investment
Partners
K Neilson
W G Craig
Artemis Investment
Management
Hargreave Hale
1,957,285
7.30
Fidelity Worldwide
Investments
AXA Framlington
Baillie Gifford
Shroder Investment
Management
1,542,610
5.75
1,425,000
1,308,199
5.31
4.88
1,040,000
3.88
D Paterson
873,800
3.26
The total number of shares as at 30 June 2014 was
27,008,763 and at 1 September 2014 was 26,826,486.
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 them in the execution or
discharge of their duties or exercise of their powers,
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:
it meets all statutory obligations;
where sensible and practical, it encourages working
practices, such as teleconferencing, teleworking
and electronic information exchange that reduce
environmental impact; and
re-cycles waste products wherever possible,
encouraging use of environmentally friendly
materials, and disposing safely of any non-
recyclable materials.
Customers
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 Group that the training,
career development and promotion of a disabled person
should, as far as possible, is identical to that of a person
who does not suffer from a disability.
19
Craneware plc Annual Report 2014 Directors’ Report [Cont’d.]
Policy on payment of Payables
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.
The Group does not believe that the giving or accepting
of bribes is acceptable business conduct.
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 2014
represented, on average 19 days purchases
(2013: 16 days) for the Group and 16 days purchases
(2013: 22 days) for the Company.
Charitable and Political Contributions
As part of the Group’s commitment to Corporate
Social Responsibility it has continued to develop the
Craneware Cares program. The focus of Craneware Cares
is to raise awareness and funds for charity. Following on
from 2013, Craneware Cares initiatives included staff at
the Craneware headquarters in Edinburgh undertaking
the Walk the West Highland Way in a challenging 30
hours, 96-mile hike across many of Scotland's iconic
mountains and glens specifically to raise awareness
and funds for Alzheimer charities, and raised more than
$37,000. The focus for 2014 has been to support the
Polar Academy where staff at Craneware have given
their time and expertise to help support this charity to
deliver its aim of inspiring and motivating thousands
of young adults, positively demonstrating that by
“inspiring through exploration” anybody can achieve
their absolute potential.
Neither the Company nor its subsidiaries made any
donation for political purposes in fiscal years 2014
or 2013.
Post Balance Sheet Events
On 28 August 2014, Craneware acquired 100% of
issued share capital of Kestros Ltd for a maximum
consideration of $2.14m (£1.25m), which will be
adjusted according to Revenue milestones. The Directors
are yet to complete the acquisition accounting for the
new business combination.
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
15 September 2014
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 SC196331.
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
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:
select suitable accounting policies and then apply
them consistently;
make judgements and accounting estimates that are
reasonable and prudent;
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;
and
prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Company will continue in business.
20
Craneware plc Annual Report 2014 Corporate Governance Report
The Board of Directors ("the Board") acknowledge the
importance of the Principles set out in The UK Corporate
Governance Code issued in September 2012 (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 identifies 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 's 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 continues to be headed by its
Chairman George Elliott and comprises two executive
Directors, Keith Neilson, Chief Executive Officer and
Craig Preston, Chief Financial Officer along with four
further non-executive Directors, Ron Verni (Senior
Independent Director), Neil Heywood, Colleen
Blye (appointed November 2013) and Russ Rudish
(appointed August 2014). Detailed biographies of all
Directors are contained on page 16 and 17. The
Board meets regularly, usually monthly, to discuss
and agree on the various matters brought before
it, including the Group’s trading results. The Board
is well supported by the Group’s Operations Board
(details of which are provided below) and a broader
senior management team, who collectively have the
qualifications and experience necessary for the day to
day running of the Group.
There is a formal schedule of matters reserved for the
Board, which include approval of the Group’s strategy,
annual budgets and business plans, acquisitions,
disposals, business development, annual reports and
interim statements, plus any significant financing and
capital expenditure plans. As part of this schedule, the
Board has clearly laid out levels of devolved decision
making authority to the Group’s Operations Board.
The Board has further established an Audit Committee
and a Remuneration Committee details of which are
provided below. George Elliott was a member of both
these committees during the year, in addition to the
two independent non-executives. In deciding this, the
Company had taken advantage of the Code's relaxations
available to smaller companies. However following
the appointment of Colleen Blye to these committees
in March, George Elliott stepped down from both. The
Board does not have a separate Nominations Committee
as the Company has again taken advantage of the
Code's relaxations available to smaller companies and
incorporated this function within the remit of the entire
Board. In the year it was determined appropriate to add
a further independent non-executive Director which
resulted in the appointment of Russ Rudish as
detailed above.
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
-
-
2/2
3/3
3/3
1/1
d
r
a
o
B
11
11/11
11/11
11/11
10/11
11/11
7/8
No. Meetings in year
Executive Directors
K Neilson
C T Preston
Non Executive Directors
G R Elliott
N P Heywood
R Verni
Colleen Blye
Where any Board member has been unable to attend
Board or Committee meetings during the year, their
input has been provided to the Company Secretary
ahead of the meeting. The relevant Chairman then
provides a detailed briefing along with the minutes of
the meeting following its conclusion.
As detailed in the Directors’ Report on page 19, 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 six 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.
21
Craneware plc Annual Report 2014
Corporate Governance Report [Cont’d.]
Effectiveness
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”
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.
Commitment
The composition of the Board has been designed to give
a good mix and balance of different skill sets, including
significant experience in:
“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 Directors’ contracts include minimum
time commitments; however these are recognised to be
the minimums.
Details of the other directorships held by each Board
member are provided in the Director Biographies on
pages 16 and 17. 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.
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 Director’s judgement. 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 ten 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.
Appointments to the Board
“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 was the case with the appointment of
Colleen Blye), with appropriate consideration being
given, in regards to executive appointments, to internal
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 periodically
meet with the Groups’s Operations Board on an informal
basis. 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.
Evaluation
“The Board should undertake a formal and rigorous
annual evaluation of its own performance and that of its
committees and individual directors”
In the current 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 which has resulted in
the recruitment of Russ Rudish as a further independent
non-executive Director, but overall has concluded that
its performance in the past year had been satisfactory.
This review process will be repeated and updated
as appropriate.
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.
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.
22
Craneware plc Annual Report 2014 Corporate Governance Report [Cont’d.]
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 20. An
assessment of the Group’s market, business model and
performance is presented in the Chairman’s Statement
and the Operational and Financial Review on
pages 4 to 12.
As detailed on page 18 of the Directors’ Report, the
Board has confirmed that it is appropriate to adopt the
going concern basis in preparing financial statements.
Risk Management and Internal Control
“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 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.
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 no less
than quarterly in the light of market developments
and the underlying performance and expectations.
Significant variances from plan are discussed at Board
meetings and actions set in place to address them.
Approval levels for authorisation of expenditure are
at set levels and cascaded through the management
structure with any expenditure in excess of pre-defined
levels requiring approval from the executive Directors
and selected senior managers.
Measures continue to be taken to review and embed
internal controls and risk management procedures
into the business processes of the organisation and
to deal with areas of improvement which come to the
management’s and the Board’s attention. Metrics and
quality objectives continue to be actively implemented
and monitored as part of a continual
improvement programme.
Details of the principal risks and uncertainties facing
the Group are detailed in the Strategic Report on
page 14. The principal financial risks are detailed in
Note 3 to the financial statements.
Audit Committee and Auditors
“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.”
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 Colleen Blye and
Ron Verni. George Elliott was also a member of the
Audit Committee during the year, however he stepped
down following Colleen Blye’s appointment. The Chief
Financial Officer, Chief Executive Officer and other senior
management attend meetings by invitation and the
Committee also meets the external auditors without
management present. Colleen Blye (previously 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 on page 24.
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 Colleen Blye and Neil Heywood. George
Elliott was also a member of the Remuneration
Committee during the year, however he stepped down
following Colleen Blye’s appointment. When appropriate
Keith Neilson, as Chief Executive Officer, is invited to
attend meetings (except where matters under review by
the Committee relate to him).
The Committee has responsibility for making
recommendations to the Board on the remuneration
packages of the executive Directors, and monitor
the level and structure of remuneration for senior
management, this includes:
making recommendations to the Board on the
Company’s policy on Directors’ and senior staff's
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 25 to 27, 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 25 to 27.
23
Craneware plc Annual Report 2014 Corporate Governance Report [Cont’d.]
Relations with Shareholders
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;
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.
The Audit Committee
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 auditors 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 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
15 September 2014
24
Craneware plc Annual Report 2014 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 Colleen Blye, George Elliott was also a member of
the Remuneration Committee during the year, however
he stepped down following Colleen Blye’s appointment.
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 on occasion will
attend 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 are:
basic annual salary and benefits in kind;
annual performance related bonus;
pension entitlement; and,
share option awards.
(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 27.
These options are normally exercisable three years
after the date the options were granted, provided the
Executive is still employed at the date of exercise. These
options are subject to stringent performance criteria
based on the share price performance in the preceding
three year period as compared to a comparator base
of companies that make up the Techmark 100. Each
option grant is split into 3 tranches (of no more than
a 1/3 of the total options granted) which allows the
performance criteria are assessed annually (against the
preceding three year period). If performance is below
the median of the comparator group over the relevant
three year period then no options vest that year. The
amount of options that vest increases as performance
reaches top quartile when the relevant tranche of
options vest. No more than 1/3 of the each option grant
can vest in any single year and options do not become
exercisable until three years from the original grant
date. As a result performance criteria are based on share
price performance over a five year period which must be
maintained over that period if all options granted are
to become exercisable. As this performance criteria was
not met in the current year, all options that were subject
to vesting in the current year lapsed.
Share Option grants in the year remain at a level
consistent with prior year but still remain
below the levels recommended by previous
benchmarking exercises.
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
The Committee develops overall directors’ remuneration
packages to ensure both the short and long term
objectives of the Company are met and potentially
exceeded, thereby ensuring that the Directors are
incentivised to maximise return to the Company’s
shareholders. However, in the year under review
there were no changes made to the directors’
remuneration packages.
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.
Maximum bonus entitlements were set at a level that
allowed additional growth of overall remuneration for
out-performance of targets but still remains below the
appropriate levels of the benchmarking exercise referred
to above.
As these financial targets were not met in the current
year, no bonus has been paid.
25
Craneware plc Annual Report 2014 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
C Blye
R Rudish
Contract Date
Unexpired Term
Normal Notice Period
Founder
15 September 2008
10 August 2007
11 January 2002
1 May 2009
12 November 2013
28 August 2014
Rolling
Rolling
1 Years 11 months
Rolling
Rolling
Rolling
Rolling
*3 months
*3 months
1 month
1 month
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 18.
Directors’ Emoluments
For Directors who held office during the course of the year, emoluments for the year ending 30 June 2014 were as follows (note: With the exception of R Verni and C Blye, all
directors are paid in UK Sterling; the amounts below are translated at the relevant average exchange rate for period being reported):
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
N P Heywood
R Verni
C Blye (appointed Nov 2013)
Total
Salary/Fees ($)
Benefits ($)
Bonus ($)
Pension ($)
2014 Total ($)
2013 Total ($)
332,151
312,757
99,605
53,258
52,400
31,200
777
881
-
-
-
-
881,371
1,658
-
-
-
-
-
-
-
8,131
-
341,059
313,638
328,720
302,281
-
-
-
-
99,605
53,258
52,400
31,200
96,071
51,607
52,400
-
8,131
891,160
831,079
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.
The following directors were paid in Sterling:
Salary/Fees (£)
Benefits (£)
Bonus (£)
Pension (£)
2014 Total (£)
2013 Total (£)
204,250
192,324
61,250
32,750
490,574
478
542
-
-
1,020
-
-
-
-
-
5,000
-
209,728
192,866
209,576
192,720
-
-
61,250
32,750
61,250
32,750
5,000
496,594
496,296
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
N P Heywood
Total
26
Craneware plc Annual Report 2014 Remuneration Committee Report [Cont’d.]
Directors’ interests in share options
Directors’ share options as at 30 June 2014 were in respect of Directors who held office during the course of the year:
Exercise Price
(cents)
Exercise Price
(pence)
Issue
Date
Held At
30/06/13
Granted
During Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/14
Dec-09
Sept-10
Sept-11
Sept-12
Sept-13
Sep-08
Dec-09
Sept-10
Sept-11
Sept-12
Sept-13
Issue
Date
Dec-09
Sept-10
Sept-11
Sept-12
June-13
Sept-13
Oct-13
K Neilson
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
C T Preston
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
534.0
618.0
866.0
650.0
621.0
365.0
534.0
618.0
866.0
650.0
621.0
335.0
401.0
561.0
400.0
395.0
208.0
335.0
401.0
561.0
400.0
395.0
Employee share options as at 30th June 2014 were:
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Exercise Price
(cents)
Exercise Price
(pence)
534.0
618.0
866.0
572.0
520.0
621.0
755.0
335.0
401.0
561.0
360.0
343.0
395.0
467.0
On behalf of the Remuneration Committee:
Ron Verni
Chairman of the Remuneration Committee
15 September 2014
28,580
13,383
23,623
34,875
-
-
-
-
-
51,708
72,115
25,099
11,721
14,284
32,054
-
-
-
-
-
-
48,689
-
-
-
-
-
-
-
-
-
-
-
-
(23,623)
(17,438)
(17,236)
-
-
-
(14,284)
(16,027)
(16,230)
Granted
During Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/13
32,355
27,487
33,935
144,154
48,076
-
-
-
-
-
-
-
221,458
3,975
-
-
(33,935)
(75,528)
-
-
-
-
-
-
-
28,580
13,383
-
17,437
34,472
72,115
25,099
11,721
-
16,027
32,459
Held At
30/06/14
32,355
27,487
-
68,626
(16,025)
32,051
(80,260)
141,198
(1,325)
2,650
27
Craneware plc Annual Report 2014 Independent Auditors’ Report to the Members of Craneware plc
Report on the financial statements
In our opinion:
the financial statements, defined below, give a true
and fair view of the state of the group’s and of the
company’s affairs as at 30 June 2014 and of the
group’s profit and the group’s and the company’s
cash flows for the year then ended;
the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the
European Union;
the company financial statements have been
properly prepared in accordance with International
Financial Reporting Standards (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.
This opinion is to be read in the context of what we say
in the remainder of this report.
What we have audited
The group financial statements and company financial
statements (the “financial statements”), which are
prepared by Craneware plc, comprise:
the consolidated balance sheet as at 30 June 2014;
the company balance sheet as at 30 June 2014;
the consolidated statement of comprehensive
income for the year then ended;
the statements of cash flows for the year then
ended;
the statements of changes in equity for the year
then ended; and
the notes to the financial statements, which include
a summary of significant accounting policies and
other explanatory information.
The financial reporting framework that has been
applied in their preparation is applicable law and IFRSs
as adopted by the European Union and, as regards the
company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
In applying the financial reporting framework,
the directors have made a number of subjective
judgements, for example in respect of significant
accounting estimates. In making such estimates, they
have made assumptions and considered future events.
Notes:
What an audit of financial statements involves
We conducted our audit in accordance with
International Standards on Auditing (UK and Ireland)
(“ISAs (UK & Ireland)”). 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 the 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
and to identify any information that is apparently
materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we
consider the implications for our report.
Opinion on other matter prescribed
by the Companies Act 2006
In our opinion the information given in the Strategic
Report and the Directors’ Report for the financial year
for which the financial statements are prepared is
consistent with the financial statements.
Other matters on which we are
required to report by exception
Adequacy of accounting records and
information and explanations received
Directors’ remuneration
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of directors’
remuneration specified by law are not made. We have
no exceptions to report arising from this responsibility.
Responsibilities for the financial
statements and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 20, 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 ISAs (UK & 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
Mark Hoskyns-Abrahall
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
Chartered Accountants and Statutory Auditors
Edinburgh
15 September 2014
we have not received all the information and
explanations we require for our audit; or
adequate accounting records have not been kept by
the company, or returns adequate for our audit have
not been received from branches not visited by us; or
the company financial statements are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from
this responsibility.
(a) The maintenance and integrity of the Craneware plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
28
Craneware plc Annual Report 2014 Consolidated Statement of Comprehensive Income for the year ended 30 June 2014
Continuing operations:
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Analysed as:
Adjusted EBITDA1
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 year 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
Total
2014
$’000
42,574
(1,943)
40,631
Total
2013
$’000
41,452
(2,071)
39,381
(29,407)
(28,881)
11,224
10,500
13,069
12,357
(198)
(575)
(181)
(621)
(1,072)
(1,055)
66
11,290
(2,680)
8,610
8,610
103
10,603
(2,307)
8,296
8,296
12a
12a
12b
12b
0.319
0.340
0.317
0.338
0.307
0.329
0.306
0.328
1Adjusted EBITDA is defined as operating profit before share based payments, depreciation and amortisation.
2Adjusted Earnings per share calculations allow for amortisation on acquired intangible assets to form a better comparison with previous years.
The accompanying notes are an integral part of these financial statements.
29
Craneware plc Annual Report 2014 Statements of Changes in Equity for the year ended 30 June 2014
Group
At 1 July 2012
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Impact of share options exercised/lapsed
Dividends (Note 11)
At 30 June 2013
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Impact of share options lapsed
Dividends (Note 11)
At 30 June 2014
Company
At 1 July 2012
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Impact of share options exercised/lapsed
Dividends (Note 11)
At 30 June 2013
Total comprehensive income - profit for the year
Transactions with owners:
Share-based payments
Impact of share options lapsed
Dividends (Note 11)
At 30 June 2014
Share
Capital
$’000
Share
Premium
$’000
Other
Reserves1
$’000
538
15,408
-
-
1
-
-
-
88
-
539
15,496
-
-
-
-
-
-
-
-
539
15,496
538
15,408
-
-
1
-
-
-
88
-
539
15,496
-
-
-
-
-
-
-
-
539
15,496
209
-
181
(178)
-
212
-
198
(175)
-
235
172
-
116
(101)
-
187
-
120
(115)
-
192
Retained
Earnings
$’000
21,282
8,296
15
174
(4,693)
25,074
8,610
146
175
(5,359)
28,646
17,078
8,058
15
101
(4,693)
20,559
8,424
111
115
(5,359)
23,850
Total Equity
$’000
37,437
8,296
196
85
(4,693)
41,321
8,610
344
-
(5,359)
44,916
33,196
8,058
131
89
(4,693)
36,781
8,424
231
-
(5,359)
40,077
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.
30
Craneware plc Annual Report 2014 Consolidated Balance Sheet as at 30 June 2014
ASSETS
Non-Current Assets
Plant and equipment
Intangible assets
Trade and other receivables
Deferred tax
Current Assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total Assets
EQUITY & LIABILITIES
Non-Current Liabilities
Deferred income
Current Liabilities
Deferred income
Current tax liabilities
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
2014
$’000
2013
$’000
13
14
16
17
16
20
21
18
1,329
14,325
1,890
1,644
19,188
20,946
110
32,613
53,669
72,857
2,077
2,077
19,355
1,136
5,373
25,864
27,941
539
15,496
235
28,646
44,916
72,857
1,596
15,291
-
1,615
18,502
15,128
468
30,277
45,873
64,375
30
30
16,419
1,055
5,550
23,024
23,054
539
15,496
212
25,074
41,321
64,375
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 29 to 54 were approved and authorised for issue by the Board of Directors on 15 September 2014 and signed on its behalf by:
Keith Neilson
Director
Craig Preston
Director
31
Craneware plc Annual Report 2014 Company Balance Sheet as at 30 June 2014
ASSETS
Non-Current Assets
Investment in subsidiary undertakings
Plant and equipment
Intangible assets
Deferred Tax
Amounts due from subsidiary undertaking
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
EQUITY & LIABILITIES
Non-Current Liabilities
Deferred tax
Deferred income
Current Liabilities
Deferred income
Current tax liabilities
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
15
13
14
17
16
20
17
21
18
2014
$’000
9,000
944
764
156
6,000
2013
$’000
9,000
1,163
1,131
-
6,000
16,864
17,294
18,035
30,242
48,277
65,141
-
2,077
2,077
17,911
1,136
3,940
22,987
25,064
539
15,496
192
23,850
40,077
65,141
11,920
27,452
39,372
56,666
31
30
61
15,576
1,055
3,193
19,824
19,885
539
15,496
187
20,559
36,781
56,666
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 29 to 54 were approved and authorised for issue by the Board of Directors on 15 September 2014 and signed on its behalf by:
Keith Neilson
Director
Craig Preston
Director
32
Craneware plc Annual Report 2014
Statements of Cash Flows for the year ended 30 June 2014
Cash flows from operating activities
Cash generated from operations
Interest received
Tax paid
Net cash from operating activities
Cash flows from investing activities
Purchase of plant and equipment
Capitalised intangible assets
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to company shareholders
Proceeds from issuance of shares
Net cash used in financing activities
Net 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
19
13
14
11
Group
Company
2014
$’000
2013
$’000
2014
$’000
2013
$’000
10,197
66
(2,154)
8,109
(308)
(106)
(414)
(5,359)
-
(5,359)
2,336
30,277
32,613
9,891
103
(3,377)
6,617
(190)
(336)
(526)
(4,693)
89
(4,604)
1,487
28,790
30,277
10,615
159
(2,448)
8,326
(88)
(89)
(177)
(5,359)
-
(5,359)
2,790
27,452
30,242
9,420
208
(3,330)
6,298
(77)
(316)
(393)
(4,693)
89
(4,604)
1,301
26,151
27,452
33
Craneware plc Annual Report 2014 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 page15 of
the financial statements. The principal activity of the
Company is described in the Directors’ Report.
Basis of preparation
The financial statements are prepared in accordance
with International Financial Reporting Standards
(IFRS), as adopted by the European Union, IFRS IC
interpretations and with those parts of the Companies
Act 2006 applicable to companies reporting under
IFRS. The consolidated financial statements have
been prepared under the historic cost convention and
prepared on a going concern basis. The applicable
accounting policies are set out below, together with
an explanation of where changes have been made to
previous policies on the adoption of new accounting
standards in the year, if relevant.
The preparation of financial statements in conformity
with IFRS requires the use of estimates and assumptions
that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Although these estimates are based
on management’s best knowledge of the amount, event
or actions, actual results ultimately may differ from
those estimates.
The Company and its subsidiary undertakings are
referred to in this report as the Group.
1 Principal accounting policies
The principal accounting policies adopted in the
preparation of these accounts are set out below.
These policies have been consistently applied, unless
otherwise stated.
Reporting currency
The Directors consider that as the Group’s revenues are
primarily denominated in US dollars the Company’s
principal functional currency is the US dollar. The
Group’s financial statements are therefore prepared
in US dollars.
Currency translation
Transactions denominated in foreign currencies are
translated into US dollars at the rate of exchange ruling
at the date of the transaction. The average exchange
rate during the course of the year was $1.6262/£1
(2013: $1.5685/£1). Monetary assets and liabilities
expressed in foreign currencies are translated into
US dollars at rates of exchange ruling at the Balance
Sheet date $1.7099/£1 (2013 : $1.5167/£1). Exchange
gains or losses arising upon subsequent settlement of
the transactions and from translation at the Balance
Sheet date, are included within the related category of
expense where separately identifiable, or
administrative expenses.
New Standards, amendments and
interpretations effective in the year
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.
Annual improvements 2011 (effective 1 January 2013*),
This set of annual improvements addresses issues in
the 2009-2011 reporting cycle which includes changes
to five standards, none of which are expected to have a
material impact on the Group.
IFRS 1, ‘First time adoption’ on fixed dates,
hyperinflation and government loans (effective 1
January 2013*), this amendment on government
loans addresses on how to account for a government
loan with a below-market rate of interest when
transitioning to IFRS. The amendment on ‘first
time adoption’ on fixed dates and hyperinflation
provides guidance on how an entity should resume
presenting financial statements in accordance with
IFRSs after a period when the entity was unable to
comply with IFRSs because its functional currency
was subject to severe hyperinflation.
IFRS 7, ‘Financial instruments: disclosures’ (effective
1 January 2013*), this amendment reflects the joint
IASB and FASB requirements to enhance current
offsetting disclosures. These new disclosures are
intended to facilitate comparison between those
entities that prepare IFRS financial statements and
those prepare US GAAP financial statements.
IFRS 13, ‘Fair value measurement’ (effective 1
January 2013*), this standard aims to improve
consistency and reduce complexity by providing a
precise definition of fair value and a single source of
fair value measurement and disclosure requirements
for use across IFRSs.
IAS 19, ‘Employee benefits’ (effective 1 January
2013*), these amendments eliminate the corridor
approach and calculates finance costs in a net
funding basis. Essentially this removes a choice to
include expenses in the calculation of the defined
benefit obligation (expected return on asset plan),
the amendment forces the expense to be recognised
in profit and loss as services rendered.
New Standards, amendments and
interpretations not yet effective
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 in their current form. None
of the below Standards, amendments or interpretations
has been adopted early but their potential impact is
continually monitored.
Annual improvements 2012 (effective 1 July 2014*),
this set of annual improvements addresses issues in
the 2010-2012 reporting cycle which affects seven
different standards.
Annual improvements 2013 (effective 1 July 2014*),
this set of annual improvements addresses issues in
the 2011-2013 reporting cycle which affects four
different standards.
IFRS 9, ‘Financial instruments: classification and
measurement’ (effective 1 January 2018*),
IFRS 10, ‘Consolidated financial statements’
(effective 1 January 2014*),
IFRS 11, ‘Joint arrangements’ (effective 1 January
2014* and 1 January 2016*),
IFRS 12, ‘Disclosures of interests in other entities’
(effective 1 January 2014*),
IFRS 14, ‘Regulatory deferral accounts’ (effective 1
January 2016*),
IFRIC 21, ‘Levies’ (effective 1 January 2014*),
IAS 16, ‘Property, plant and equipment’ (effective 1
January 2016*),
IAS 19, ‘Employee benefits’ (effective 1 January
2014*),
IAS 27, ‘Separate financial statements’ (effective 1
January 2014*),
IAS 28 (revised 2011), ‘Associates and joint ventures’
(effective 1 January 2014*),
IAS 32, ‘Financial instruments presentation’
(effective 1 January 2014*).
IAS 36, ‘Impairment of assets’ (effective 1 January
2014*),
IAS 38, ‘Intangible assets’ (effective 1 January
2016*),
IAS 39, ‘Financial instruments: Recognition and
measurement’ (effective 1 January 2014*),
The Directors are yet to assess the potential implications
of IFRS 15, ‘Revenue from contracts with customers’
(effective 1 January 2017*). The first year end that is
expected to be affected is 30 June 2018.
*effective for accounting periods starting on or after this date.
34
Craneware plc Annual Report 2014 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 although the Company performance can
been seen in isolation in the Statements of Changes in
Equity. 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.
Any contingent consideration to be transferred by the
Group is recognised at fair value at the acquisition
date. Subsequent changes to the fair value of the
contingent consideration that is deemed to be an asset
or liability are recognised in accordance with IAS 39 in
the Statement of Comprehensive Income. Contingent
consideration that is classified as equity is not re-
measured and its subsequent settlement is accounted
for within equity.
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. Incremental
costs directly attributable in securing the contract are
charged equally over the life of the contract and as a
consequence are matched to revenue recognised. Any
deferred contract costs are included in, both current and
non-current, Trade and other receivables.
‘White-labelling’ or other ‘Paid for development work’
is generally provided on a fixed price basis and as
such revenue is recognised based on the percentage
completion or delivery of the relevant project. Where
percentage completion is used it is estimated based
on the total number of hours performed on the project
compared to the total number of hours expected to
complete the project. Where contracts underlying
these projects contain material obligations, revenue is
deferred and only recognised when all the obligations
under the engagement have been fulfilled.
Revenue from all professional services is recognised as
the applicable services are provided. Where professional
services engagements contain material obligations,
revenue is recognised when all the obligations under
the engagement have been fulfilled. Where professional
services engagements are provided on a fixed price
basis, revenue is recognised based on the percentage
completion of the relevant engagement. Percentage
completion is estimated based on the total number of
hours performed on the project compared to the total
number of hours expected to complete
the project.
Software and professional services sold via a
distribution agreement will normally follow the above
recognition policies.
Should any contracts contain non-standard clauses,
revenue recognition will be in accordance with the
underlying contractual terms which will normally
result in recognition of revenue being deferred until all
material obligations are satisfied.
The excess of amounts invoiced over revenue recognised
are included in deferred income. If the amount of
revenue recognised exceeds the amount invoiced the
excess is included within accrued income.
Intangible Assets
(a) Goodwill
Goodwill arising on consolidation represents the
excess of the cost of acquisition over the fair value of
the identifiable assets and liabilities of a subsidiary
at the date of acquisition. Goodwill is capitalised and
recognised as a non-current asset in accordance with
IFRS 3 and is tested for impairment annually, or on
such occasions that events or changes in circumstances
indicate that the value might be impaired.
Goodwill is allocated to cash generating units for the
purpose of impairment testing. The allocation is made
to those cash-generating units that are expected to
benefit from the business combination in which the
goodwill arose.
(b) Proprietary software
Proprietary software acquired in a business combination
is recognised at fair value at the acquisition date.
Proprietary software has a finite life and is carried at
cost less accumulated amortisation. Amortisation is
calculated using the straight-line method to allocate
the associated costs over their estimated useful lives
of five years.
35
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
(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 ten years.
(d) Research and Development expenditure
Expenditure associated with developing and
maintaining the Group’s software products is recognised
as incurred. Where, however, new product development
projects are technically feasible, production and
sale is intended, a market exists, expenditure can be
measured reliably, and sufficient resources are available
to complete such projects, development expenditure
is capitalised until initial commercialisation of the
product, and thereafter amortised on a straight-line
basis over its estimated useful life, which has been
assessed as five years. Staff costs and specific third party
costs involved with the development of the software are
included within amounts capitalised.
(e) Computer software
Costs associated with acquiring computer software and
licensed to-use technology are capitalised as incurred.
They are amortised on a straight-line basis over their
useful economic life which is typically three to
five years.
Impairment of non-financial assets
At each reporting date the Group considers the carrying
amount of its tangible and intangible assets including
goodwill to determine whether there is any indication
that those assets have suffered an impairment loss. If
there is such an indication, the recoverable amount of
the asset is estimated in order to determine the extent
of the impairment loss (if any) through determining
the value in use of the cash generating unit that the
asset relates to. Where it is not possible to estimate
the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the cash
generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be
less than its carrying amount, the impairment loss is
recognised as an expense.
Where an impairment loss subsequently reverses,
the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that
the increased carrying amount does not exceed the
carrying amount that would have been determined had
no impairment loss been recognised for the asset. A
reversal of an impairment loss is recognised as income
immediately. Impairment losses relating to goodwill are
not reversed.
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
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 as adjusted for items which are non-assessable
or disallowable. It is calculated using taxation rates
that have been enacted or substantively enacted by the
Balance Sheet date.
Deferred taxation is computed using the liability
method. Under this method, deferred tax assets
and liabilities are determined based on temporary
differences between the financial reporting and tax
bases of assets and liabilities and are measured using
enacted rates and laws that will be in effect when the
differences are expected to reverse. The deferred tax is
not accounted for if it arises from initial recognition of
an asset or liability in a transaction that at the time of
the transaction affects neither accounting nor taxable
profit or loss. Deferred tax assets are recognised to the
extent that it is probable that future taxable profits will
arise against which the temporary differences will
be utilised.
Deferred tax is provided on temporary differences
arising on investments in subsidiaries except where
the timing of the reversal of the temporary difference
is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable
future. Deferred tax assets and liabilities arising in the
same tax jurisdiction are offset.
In the UK and the US, the Group is entitled to a tax
deduction for amounts treated as compensation on
exercise of certain employee share options under each
jurisdiction’s tax rules. As explained under “Share-based
payments”, a compensation expense is recorded in the
Group’s Statement of Comprehensive Income over the
period from the grant date to the vesting date of the
relevant options. As there is a temporary difference
between the accounting and tax bases a deferred
tax asset is recorded. The deferred tax asset arising is
calculated by comparing the estimated amount of tax
deduction to be obtained in the future (based on the
Company’s share price at the Balance Sheet date) with
the cumulative amount of the compensation expense
recorded in the Statement of Comprehensive Income. If
the amount of estimated future tax deduction exceeds
the cumulative amount of the remuneration expense
at the statutory rate, the excess is recorded directly in
equity against retained earnings.
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.
36
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
Financial assets
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 of 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.
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
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the
effective interest method.
Cash and cash equivalents
For the purpose of the Statements of Cash flows,
cash and cash equivalents comprise cash on hand,
deposits held with banks and short term highly
liquid investments.
2 Critical accounting estimates
and judgements
The preparation of financial statements in accordance
with IFRS requires the Directors to make critical
accounting estimates and judgements that affect the
amounts reported in the financial statements and
accompanying notes. The estimates and assumptions
that have a significant risk of causing material
adjustment to the carrying value of assets and liabilities
within the next financial year are discussed below:-
Impairment assessment:- the Group tests
annually whether Goodwill has suffered any
impairment and for other assets including acquired
intangibles at any point where there are indications
of impairment. This requires an estimation of the
value in use of the applicable cash generating unit
to which the Goodwill and other assets relate.
Estimating the value in use requires the Group
to make an estimate of the expected future cash
flows from the specific cash generating unit using
certain key assumptions including growth rates
and a discount rate. Reasonable changes to these
assumptions such as increasing the discount rate
by 5% (20% to 25%) and decreasing the long term
growth rate applied to revenues by 1% (2% to 1%)
would still result in no impairment.
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.
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.
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.
37
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
3 Financial risk management (cont’d.)
(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 $828,000 and $912,000
(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 in interest
rates would, with all variables held constant, alter post-tax profit and equity for the year in the region of $75,000 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 15.
(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 2013
Trade and Other Payables
5,174
At 30 June 2014
Trade and Other Payables
4,946
-
-
-
-
-
-
Total
$’000
5,174
4,946
There is no difference between the undiscounted liabilities and the amounts shown in Note 21 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.
38
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
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 licences, white labelling and
professional services (including installation) to hospitals within the United States of America. Consequently the Board has determined that Group supplies only one geographical
market place and as such revenue is presented in line with management information without the need for additional segmental analysis. All of the Group assets are located in
the United States of America with the exception of the Parent Company’s, the net assets of which are disclosed separately on the Company Balance Sheet and are located in the UK.
Software licensing
White labelling
Professional services
Total revenue
5 Operating expenses
Operating expenses comprise the following:
Sales and marketing expenses
Client servicing
Research and development
Administrative expenses
Share-based payments (Note 8)
Depreciation of plant and equipment
Amortisation of intangible assets
Exchange loss
Operating expenses
6 Operating profit
The following items have been included in arriving at operating profit:
Staff costs (Note 7)
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
2014
$’000
37,717
-
4,857
42,574
2013
$’000
36,174
-
5,278
41,452
2014
$’000
8,482
7,461
6,979
4,594
198
575
1,072
46
2013
$’000
8,251
7,306
6,932
4,433
181
621
1,055
102
29,407
28,881
2014
$’000
18,708
575
1,072
83
955
2014
$’000
97
110
207
2013
$’000
17,807
621
1,055
41
828
2013
$’000
85
111
196
39
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
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
2014
Number
2013
Number
36
70
62
27
36
69
66
27
195
198
2014
$’000
17,004
1,490
16
198
2013
$’000
16,202
1,408
16
181
18,708
17,807
333
8
38
379
321
8
38
367
Directors’ emoluments are detailed in the Remuneration Committee Report on page 26 and key management compensation is given in the Related Party Transaction note on
pages 53 and 54. Retirement benefits are accruing to 1 of the executive Directors under a defined contribution scheme (2013: 1).
40
Craneware plc Annual Report 2014 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 $197,992 (2013: $180,623) as detailed in Note 7 above.
Directors and employees interests in share options are set out in the Remuneration Committee Report on page 27.
There were no share options exercised during the year ended 30 June 2014 (2013: market value of share options exercised during the year ranged from $6.64 (£4.12) to $6.71 (£4.42)). The
market value at 30 June 2014 was $9.28 (£5.42).
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
21-Oct-13
10-Sep-13
28-Jun-13
21-Sep-12
4-Sep-12
23-Sep-11
6-Sep-10
22-Dec-09
8-Sep-08
Options over Ordinary shares
Share price at date of grant
Share price at date of grant
Vesting period (years)
Expected volatility
Risk free rate
Dividend yield
Exercise price
Exercise price
Number of employees
Shares under option
Fair value per option
$7.55
£4.67
3.00
36%
0.90%
2.8%
$7.55
£4.67
1
3,975
$1.79
$6.21
£3.95
3.00
36%
1.02%
2.8%
$6.21
£3.95
26
321,855
$1.48
$5.20
£3.43
3.00
36%
0.73%
2.7%
$5.20
£3.43
1
48,076
$1.23
$6.50
£4.00
3.00
37%
0.37%
2.6%
$6.50
£4.00
2
100,394
$5.72
£3.60
3.00
37%
0.16%
2.5%
$5.72
£3.60
28
230,034
$8.66
£5.61
3.00
28%
0.83%
1.6%
$8.66
£5.61
25
255,520
$6.18
£4.01
3.00
24%
1.18%
2.2%
$6.18
£4.01
20
255,655
$5.34
£3.35
3.00
23%
1.96%
1.5%
$5.34
£3.35
10
170,303
$0.94
$0.82
$1.42
$1.40
$1.34
$3.65
£2.08
3.00
40%
4.41%
1.5%
$3.65
£2.08
1
72,115
$1.67
41
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d.)
The following options have been granted over Ordinary shares:
2007 Share Option Plan:
2014 options number
2013 options number
72,115
-
-
72,115
86,034
-
-
86,034
52,591
-
52,591
71,842
(71,842)
-
144,154
-
(75,528)
68,626
66,929
-
(33,465)
33,464
48,076
-
(16,025)
32,051
-
321,855
(113,726)
208,129
-
3,975
(1,325)
2,650
72,115
-
-
72,115
113,535
(10,629)
(16,872)
86,034
121,806
(69,215)
52,591
155,111
(83,269)
71,842
-
230,034
(85,880)
144,154
-
100,394
(33,465)
66,929
-
48,076
-
48,076
-
-
-
-
-
-
-
-
Ordinary share options (£2.08 exercise price)
Outstanding at 1 July
Forfeited
Exercised
Outstanding at 30 June
Ordinary share options (£3.35 exercise price)
Outstanding at 1 July
Forfeited
Exercised
Outstanding at 30 June
Ordinary share options (£4.01 exercise price)
Outstanding at 1 July
Forfeited
Outstanding at 30 June
Ordinary share options (£5.61 exercise price)
Outstanding at 1 July
Forfeited
Outstanding at 30 June
Ordinary share options (£3.60 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£4.00 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 (£3.95 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
Ordinary share options (£4.67 exercise price)
Outstanding at 1 July
Granted
Forfeited
Outstanding at 30 June
42
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
9 Finance income
Deposit interest receivable
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
Adjustments for prior years
Change in tax rate
Total deferred tax charge/(credit)
Tax on profit on ordinary activities
2014
$’000
66
66
2014
$’000
11,290
2,542
(36)
57
2,563
63
55
(1)
117
2,680
2013
$’000
103
103
2013
$’000
10,603
2,453
152
(168)
2,437
133
(264)
1
(130)
2,307
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 22.5% (2013: 23.75%)
Effects of:
Adjustment in respect of prior years
Change in tax rate
Additional US taxes on profits/losses 39% (2013: 39%)
Foreign Exchange
Expenses not deductible for tax purposes
Tax on share plan charges
Total tax charge
2,541
112
(1)
89
(36)
(25)
-
2,680
2,518
(432)
1
39
152
(4)
33
2,307
43
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
11 Dividends
The dividends paid during the year were as follows:-
Final dividend, re 30 June 2013 - 10.08 cents (6.3 pence)/share
Interim dividend, re 30 June 2014 - 9.46 cents (5.7 pence)/share
Total dividends paid to Company shareholders in the year
2014
$’000
2,783
2,576
5,359
2013
$’000
2,481
2,212
4,693
The proposed final dividend for 30 June 2014 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these accounts.
12 Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year.
Profit attributable to equity holders of the Company ($'000)
Weighted average number of ordinary shares in issue (thousands)
Basic earnings per share ($ per share)
Profit attributable to equity holders of Company ($'000)
Amortisation of acquired intangibles ($'000)
Adjusted Profit attributable to equity holders ($'000)
Weighted average number of ordinary shares in issue (thousands)
Adjusted Basic earnings per share ($ per share)
2014
8,610
27,009
0.319
8,610
574
9,184
27,009
0.340
b) Diluted
For diluted earnings per share, the weighted average number of ordinary shares calculated above is adjusted to assume conversion of all dilutive potential ordinary
shares. The Group has one category of dilutive potential ordinary shares, being those granted to Directors and employees under the share option scheme.
2013
8,296
26,998
0.307
8,296
574
8,870
26,998
0.329
2013
8,296
26,998
69
27,067
0.306
8,296
574
8,870
2014
8,610
27,009
162
27,171
0.317
8,610
574
9,184
27,009
26,998
162
27,171
0.338
69
27,067
0.328
Profit attributable to equity holders of the Company ($'000)
Weighted average number of ordinary shares in issue (thousands)
Adjustments for:- Share options (thousands)
Weighted average number of ordinary shares for diluted earnings per share (thousands)
Diluted earnings per share ($ per share)
Profit attributable to equity holders of Company ($'000)
Amortisation of acquired intangibles ($'000)
Adjusted Profit attributable to equity holders ($'000)
Weighted average number of ordinary shares in issue (thousands)
Adjustments for:- Share options (thousands)
Weighted average number of ordinary shares for diluted earnings per share (thousands)
Adjusted Diluted earnings per share ($ per share)
44
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
13 Plant and equipment
Group
Cost
At 1 July 2013
Additions
At 30 June 2014
Accumulated depreciation
At 1 July 2013
Charge for year
At 30 June 2014
Net Book Value at 30 June 2014
Cost
At 1 July 2012
Additions
At 30 June 2013
Accumulated depreciation
At 1 July 2012
Charge for the year
At 30 June 2013
Net Book Value at 30 June 2013
Company
Cost
At 1 July 2013
Additions
At 30 June 2014
Accumulated depreciation
At 1 July 2013
Charge for year
At 30 June 2014
Net Book Value at 30 June 2014
Cost
At 1 July 2012
Additions
At 30 June 2013
Accumulated depreciation
At 1 July 2012
Charge for year
At 30 June 2013
Net Book Value at 30 June 2013
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
1,732
138
1,870
1,358
263
1,621
249
1,565
167
1,732
1069
289
1,358
374
861
109
970
594
156
750
220
852
9
861
451
143
594
267
1,668
61
1,729
713
156
869
860
1,654
14
1,668
524
189
713
955
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
703
83
786
605
82
687
99
643
60
703
525
80
605
98
621
3
624
454
106
560
64
618
3
621
348
106
454
167
1,508
2
1,510
610
119
729
781
1,494
14
1,508
469
141
610
898
Total
$’000
4,261
308
4,569
2,665
575
3,240
1,329
4,071
190
4,261
2,044
621
2,665
1,596
Total
$’000
2,832
88
2,920
1,669
307
1,976
944
2,755
77
2,832
1,342
327
1,669
1,163
45
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
14 Intangible assets
Goodwill and Other Intangible assets
Group
Cost
At 1 July 2013
Additions
At 30 June 2014
Accumulated amortisation
At 1 July 2013
Charge for the year
At 30 June 2014
11,188
-
11,188
-
-
-
Net Book Value at 30 June 2014
11,188
Cost
At 1 July 2012
Additions
At 30 June 2013
Accumulated amortisation
At 1 July 2012
Charge for the year
At 30 June 2013
11,188
-
11,188
-
-
-
Net Book Value at 30 June 2013
11,188
Goodwill
$’000
Customer
Relationships
$’000
Proprietary
Software
$’000
Development
Costs
$’000
Computer
Software
$’000
2,964
-
2,964
724
330
1,054
1,910
2,964
-
2,964
395
329
724
2,240
1,222
-
1,222
570
244
814
408
1,222
-
1,222
326
244
570
652
3,004
31
3,035
2,101
356
2,457
578
2,912
92
3,004
1,718
383
2,101
903
787
75
862
479
142
621
241
543
244
787
380
99
479
308
Total
$’000
19,165
106
19,271
3,874
1,072
4,946
14,325
18,829
336
19,165
2,819
1,055
3,874
15,291
In accordance with the Group’s accounting policy, the carrying values of goodwill and other intangible assets are reviewed for impairment annually or more frequently if events
or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of Craneware InSight Inc.
The carrying values are assessed for impairment purposes by calculating the value in use (net present value (NPV) of future cashflows) of the Craneware InSight cash generating
unit. The goodwill impairment review assesses whether the carrying value of goodwill is supported by the NPV of the future cashflows based on management forecasts for five
years and then using an assumed sliding scale annual growth rate which is trending down to give a long-term growth rate of 2% in the residual years of the assessed period.
Management have made the judgement that this long-term growth rate does not exceed the long-term average growth rate for the industry and also estimated a pre-tax
discount rate of 20%.
Sensitivity analysis was performed using a combination of different annual growth rates and a range of different weighted average cost of capital rates. Management concluded
that the tempered growth rates resulting in 2% during the residual period and the pre-tax discount rate of 20% were appropriate in view of all relevant factors and reasonable
scenarios and that there is currently sufficient headroom over the carrying value of the assets in the acquired business that any reasonable change to key assumptions is not
believed to result in impairment.
46
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
14 Intangible assets (cont’d.)
Goodwill and Other Intangible assets (Cont’d.)
Company
Cost
At 1 July 2013
Additions
At 30 June 2014
Accumulated amortisation
At 1 July 2013
Charge for the year
At 30 June 2014
Net Book Value at 30 June 2014
Cost
At 1 July 2012
Additions
At 30 June 2013
Accumulated amortisation
At 1 July 2012
Charge for the year
At 30 June 2013
Net Book Value at 30 June 2013
Development
Costs
$’000
Computer
Software
$’000
3,004
31
3,035
2,101
356
2,457
578
2,912
92
3,004
1,718
383
2,101
903
520
58
578
293
99
392
186
296
224
520
247
45
292
228
Total
$’000
3,524
89
3,613
2,394
455
2,849
764
3,208
316
3,524
1,965
428
2,393
1,131
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. and Craneware InSight Inc. are both incorporated in the United States of America and Craneware plc holds 10,000 (2013: 10,000) and 1,000 (2013: 1,000)
common shares respectively with a nominal value of $0.01 each.
The results of the Subsidiary companies have been included in the consolidated financial statements.
47
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
16 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
Deferred Contract Costs
Less non-current receivables:
Deferred Contract Costs
Current portion
Group
Company
2014
$’000
16,589
(658)
15,931
175
-
4,382
2,348
22,836
-
(1,890)
20,946
2013
$’000
8,448
(607)
7,841
203
-
7,084
-
15,128
-
-
15,128
2014
$’000
16,084
(621)
15,463
73
6,000
2,499
-
24,035
(6,000)
-
18,035
2013
$’000
7,748
(505)
7,243
103
6,000
4,574
-
17,920
(6,000)
-
11,920
There is no material difference between the fair value of trade and other receivables and the book value stated above. All amounts included within trade and other
receivables are classified as loans and receivables.
The $6,000,000 loan due to the Company from Craneware InSight Inc. is five years in its duration from the date of issue (the acquisition date) and interest is charged quarterly
in accordance with the agreement at LIBOR plus 1%.
As at 30 June 2014, trade receivables of $808,670 (2013: $623,906) were past due and deemed to be impaired. The amount of the provision against these receivables was
$657,573 as of 30 June 2014 (2013: $607,032). 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
2014
$’000
-
43
117
649
809
2013
$’000
-
45
317
262
624
48
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
16 Trade and other receivables (cont’d.)
As at 30 June 2014, trade receivables of $2,874,915 (2013: $4,630,211) 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
2014
$’000
1,275
79
1,422
99
2013
$’000
2,752
1,265
359
254
2,875 4,630
As at 30 June 2014, trade receivables of $12,905,004 (2013: $3,192,432) were not past due or impaired, and the Group does not anticipate collection issues. None of these
balances were deemed to be impaired (2013: $1,750).
Movement on the provision for impairment of trade receivables is as follows:
At 1 July
Provision for receivables impairment on revenue recognised
Receivables written off during year as uncollectable
Unused amounts reversed
At 30 June
2014
$’000
607
236
(32)
(153)
658
2013
$’000
750
568
(184)
(527)
607
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.
17 Deferred taxation
Deferred tax is calculated in full on the temporary differences under the liability method using a rate of tax of 20% (2013: 23%) in the UK and 39% (2013: 39%) in the US
including a provision for state taxes.
The movement on the deferred tax account is shown below:-
At 1 July
(Charge)/credit to comprehensive income
Transfer direct to equity
At 30 June
Group
Company
2014
$’000
1,615
(117)
146
1,644
2013
$’000
1,470
130
15
1,615
2014
$’000
(31)
76
111
156
2013
$’000
(14)
(32)
15
(31)
49
Craneware plc Annual Report 2014 Notes to the Financial Statements [Cont’d.]
17 Deferred taxation (cont'd.)
The movements in deferred tax assets and liabilities during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right
of offset and there is an intention to settle the balances net. The net deferred tax asset at 30 June 2014 was $1,643,755 (2013: $1,615,387).
Deferred tax assets - recognised
Group
At 1 July 2013
(Charged)/Credited to comprehensive income
Credited to equity
Total provided at 30 June 2014
At 1 July 2012
Credited/(Charged) to comprehensive income
Credited to equity
Total provided at 30 June 2013
Deferred tax liabilities - recognised
Group
At 1 July 2013
(Charged)/Credited to comprehensive income
Total provided at 30 June 2014
At 1 July 2012
Credited to comprehensive income
Total provided at 30 June 2013
Total
$’000
2,838
86
146
3,070
2,890
(67)
15
2,838
Accelerated
accounting
depreciation
$’000
Short term
timing
differences
$’000
Losses
$’000
Share Options
$’000
-
-
-
-
-
-
-
-
452
(1)
-
451
125
327
-
452
Long Term
Timing
differences
$’000
Accelerated
tax
depreciation
$’000
-
(454)
(454)
-
-
-
(1,223)
251
(972)
(1,420)
197
(1,223)
2014
$’000
1,714
1,356
3,070
(1,061)
(365)
(1,426)
1,644
36
96
146
278
19
2
15
36
2,350
(9)
-
2,341
2,746
(396)
-
2,350
Total
$’000
(1,223)
(203)
(1,426)
(1,420)
197
(1,223)
2013
$’000
1,581
1,257
2,838
(927)
(296)
(1,223)
1,615
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
The Company's Deferred tax assets and liabilities are all expected to be recovered in the future.
50
Craneware plc Annual Report 2014
Total
$’000
35
54
111
200
19
1
15
35
Accelerated
accounting
depreciation
$’000
Share
Options
$’000
-
-
-
-
-
-
-
-
Accelerated
tax depreciation
$’000
(66)
22
(44)
(33)
(33)
(66)
35
54
111
200
19
1
15
35
Total
$’000
(66)
22
(44)
(33)
(33)
(66)
Notes to the Financial Statements [Cont’d.]
17 Deferred taxation (cont'd.)
Deferred tax assets - recognised
Company
At 1 July 2013
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2014
At 1 July 2012
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2013
Deferred tax liabilities - recognised
Company
At 1 July 2013
Credited to comprehensive income
Total provided at 30 June 2014
At 1 July 2012
Charged to comprehensive income
Total provided at 30 June 2013
18 Called up share capital
Authorised
Equity share capital
Ordinary shares of 1p each
Allotted called-up and fully paid
Equity share capital
Ordinary shares of 1p each
There was no movement in share capital during the year.
2014
2013
Number
$’000
Number
50,000,000
1,014
50,000,000
2014
2013
Number
$’000
Number
27,008,763
539
27,008,763
$’000
1,014
$’000
539
51
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
19 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)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
20 Cash and cash equivalents
Cash at bank and in hand
The effective rates on short term bank deposits were 0.21% (2013: 0.36%).
21 Trade and other payables - current
Trade payables
Amounts owed to group companies
Social security and PAYE
Other creditors
Accruals
Advance receipts
Group
Company
2014
$’000
11,290
(66)
575
1,072
198
(7,708)
4,836
10,197
2013
$’000
10,603
(103)
621
1,055
181
(2,721)
255
9,891
2014
$’000
10,878
(159)
307
455
120
(6,165)
5,179
10,615
2013
$’000
10,520
(208)
327
428
115
(1,971)
209
9,420
Group
Company
2014
$’000
32,613
2013
$’000
30,277
2014
$’000
30,242
2013
$’000
27,452
Group
Company
2014
$’000
1,228
-
427
26
3,692
-
5,373
2013
$’000
1,699
-
376
8
3,467
-
5,550
2014
$’000
344
2,180
179
1
1,236
-
3,940
2013
$’000
569
1,355
160
1
1,108
-
3,193
Amounts owed to Group companies on trading accounts 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 2014
was 19 days (2013: 16 days). Trade and other payables are classified as financial liability at amortised cost.
52
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
22 Contingent liabilities and financial commitments
a) Capital commitments
The Group has no capital commitments at 30 June 2014 (2013: $nil).
b) 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
2014
$’000
713
3,788
4,066
8,567
2013
$’000
679
2,876
4,760
8,315
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.
23 Related party transactions
During the year the Group has traded in its normal course of business with shareholders and its wholly owned subsidiaries in which Directors and the subsidiaries have a material
interest as follows:-
2014
2013
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
Salaries and Short-term employee benefits
Post employment benefits
Share-based payments
Charged
$
83,600
152,863
646,566
8,131
67,354
1,355,038
8,131
64,768
Outstanding
at year end
$
-
-
-
-
-
-
-
-
Charged
$
91,165
108,913
623,158
7,843
66,775
958,521
7,843
40,734
Outstanding
at year end
$
-
-
-
-
-
-
-
-
53
Craneware plc Annual Report 2014
Notes to the Financial Statements [Cont’d.]
23 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
Amounts due from Craneware InSight Inc - Subsidiary company
2014
Outstanding
at year end
$
-
-
-
-
-
-
-
-
Charged
$
83,600
152,863
646,566
8,131
67,354
610,277
8,131
28,993
Charged
$
91,165
108,913
623,158
7,843
66,775
454,665
7,843
26,064
2013
Outstanding
at year end
$
-
-
-
-
-
-
-
-
14,463,743
2,352,097
-
-
-
1,304,690
13,282,825
2,249,402
-
-
-
2,011,375
Balance
-
5,125,406
-
6,656,168
Key management are considered to be the Directors together with the Chief Intelligence Officer, Chief Technology Officer (President of US Operations), the Chief Marketing
Officer (appointed September 2013), EVP of Human Resources, EVP of Sales and EVP of Revenue Integrity Officer (appointed July 2013).
There were no other related party transactions in the year which require disclosure in accordance with IAS 24.
24 Subsequent Events
On 28 August 2014, Craneware acquired 100% of issued share capital of Kestros Ltd for a maximum consideration of $2.14m (£1.25m), which will be adjusted according to
Revenue milestones. The Directors are yet to complete the acquisition accounting for the new business combination.
25 Ultimate controlling party
The Directors have deemed that there are no controlling parties of the Company.
54
Craneware plc Annual Report 2014 Personal Notes
55
Craneware plc Annual Report 2014 Craneware plc
1 Tanfield
Edinburgh
EH3 5DA
Scotland, UK
Telephone: +44 [0] 131 550 3100
Facsimile: +44 [0] 131 550 3101
craneware.com
marketing@craneware.com
training@craneware.com
sales@craneware.com
support@craneware.com
Company Registration No. SC196331
Craneware plc