Craneware plc Annual Report
for the year ended 30 June 2017
About Craneware
Craneware is the leader in automated value cycle solutions that help US provider organisations
discover, convert and optimise assets to acheive best clinical outcomes and financial
performance.
Founded in 1999, Craneware has headquarters in Edinburgh, Scotland with offices in Atlanta,
Boston, and Pittsburgh employing over 250 staff. Craneware's market-driven, SaaS solutions
normalise disparate data sets, bringing in up-to-date regulatory and financial compliance
data to deliver value at the points where clinical and operational data transform into financial
transactions, creating actionable insights that enable informed tactical and strategic decisions.
To learn more, visit craneware.com.
Contents
Financial and Operational Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Craneware Value Cycle Solutions® . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Chairman’s Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Strategic Report: Operational and Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Strategic Report: Key Performance Indicators and Principal Risks and Uncertainties. . . . . . . . 11
Directors, Secretary, Advisors and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Directors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Corporate Governance Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Remuneration Committee's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Independent Auditors’ Report to the Members of Craneware plc . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statement of Comprehensive Income for the year ended 30 June 2017 . . . . . . 32
Statements of Changes in Equity for the year ended 30 June 2017 . . . . . . . . . . . . . . . . . . . 33
Consolidated Balance Sheet as at 30 June 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Company Balance Sheet as at 30 June 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Statements of Cash Flows for the year ended 30 June 2017. . . . . . . . . . . . . . . . . . . . . . . . 36
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Craneware plc Annual Report 2017 Quick Facts — Financial
$57.8m
in revenue
$18.0m
in adjusted EBITDA1
$53.2m
cash at year end
20.0p
total dividend for year
Financial and Operational Highlights
Financial
Revenue increased 16% to $57.8m (FY16: $49.8m)
Adjusted EBITDA1 increased 13% to $18.0m (FY16: $15.9m)
Profit before tax increased 22% to $16.9m (FY16: $13.9m)
Basic adjusted EPS increased 20% to $0.514 (FY16: $0.429) and adjusted diluted EPS
increased to $0.503 (FY16: $0.423)
Total visible revenue increased 13% to $163.8m (FY16 same 3 year period: $145.3m)
Continued operating cash conversion above 100% of Adjusted EBITDA1
Cash at year-end of $53.2m (FY16: $48.8m) after payment of $6.4m dividend to
shareholders and increased investment of over $3.0m in R&D
Proposed final dividend of 11.3p (14.71 cents) per share giving a total dividend for the
year of 20.0p (26.04 cents) per share (FY16: 16.5p (22 cents) per share)
Renewal rate remains above 100% by dollar value
1 Adjusted EBITDA refers to earnings before acquisition and share related transaction
costs, interest, tax, depreciation, amortisation and share based payments.
Operational
Continued supportive market environment as the US healthcare market evolves towards
value-based care, with a critical dependency on accurate financial and operating data
Continued high levels of customer acquisition and retention
Successful launch of cloud-based Trisus™ platform, with extremely positive customer
response
Initial sales of Trisus Claims Informatics™, the first product on the Trisus™ platform
Early adopters secured for Craneware Healthcare Intelligence, the Group’s new business
focused on healthcare Cost Analytics and Resource Efficiency (CARE)
Record sales pipeline for the current financial year
Revenue $m
Adjusted EBITDA1 $m
Basic adjusted EPS cents/share
57.8
49.8
41.5
42.6
44.8
18.0
15.9
14.4
12.4
13.1
20
15
10
5
0
60
50
40
30
20
10
0
51.4
1
1
42.9
37.8
32.9
34.0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
20
15
10
5
0
60
50
40
30
20
10
0
60
50
40
30
20
10
0
60
50
40
30
20
10
0
Craneware plc Annual Report 2017 Craneware Value Cycle Solutions®
Craneware Solutions and Services
Craneware Value Cycle Solutions span four product families – Patient Engagement, Charge Capture & Pricing, Revenue Collection & Retention, and Cost Analytics. In addition,
hospitals of all sizes and types rely on Craneware’s Professional Services to help deliver results that lead to improved financial outcomes.
Value Cycle Areas
Patient Engagement
Charge Capture & Pricing
Revenue Recovery & Retention
Medical
Necessity & Prior
Authorisation
Patient
Responsibility
Business Outcomes
Procedures
Pharmacy
Supplies
Billing & Claims
Analyis
Audit
Management
Denials
Management
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
I.D. and correct all
coding mistakes
Identify missed
charges
Automated
audit tracking
and execution
Automated
denial tracking
and execution
Multiple facility/
department
segmentation
and workflow
Defensible
accrual
and reserve
forecasting
Appeals
workflow
Determine
requirement
for payers:
government &
commercial
Waiver forms
for non-covered
procedures
Multi-attribute
verification
Estimate patient
responsibility
Ensure charge
accuracy
Ensure
chargemaster
accuracy across
enterprise
Creation/
maintenance
of physician fee
schedule
Model contract
proposals
Model net
revenue
reimbursement
Craneware Solutions
InSight Medical
Necessity®
Trisus® Patient
Payment
Chargemaster
Toolkit®
Pharmacy
ChargeLink®
Supplies
ChargeLink®
Trisus® Claims
Informatics
InSight Audit®
InSight Denials®
Patient Charge
Estimator®
Physician
Revenue Toolkit®
Supplies Assistant
Pricing
Analyzer™
Reference Plus™
Craneware Consulting and Professional Services
Cost Analytics
Cost of Care
Analyse cost,
utilisation and
reimbursement
to Identify the
most effective and
efficient way to
provide care
Craneware
Healthcare
Intelligence
CDM Review & Educational Review
CDM Standardisation
Pricing Optimization Study
Supply Banding
Charge Capture Performance Improvement Services
Interim & full time Success Management Services
Revenue Integrity Assessments
Appeal Services
Trisus Claims Informatics™ Launch
The first Trisus product launch took place in June 2017 with Trisus Claims Informatics™. This product enables hospitals and healthcare systems to drive revenue growth and
increase compliance by automating claims review through analysing for completeness, accuracy, and patterns of changing charging behaviour. Trisus Claims Informatics is an
easy-to-use, cloud-based solution providing predictive analytics around charge capture issues hospitals often experience. These issues include missing charges, incorrect charges,
and non-compliant charges. These three main issue types can have major impacts on hospital revenue.
In the Trisus solution, drill-down dashboards allow the user to quickly pinpoint areas of high-financial impact. A root cause wizard walks the user through auditing an issue,
step-by-step, using yes or no questions to determine the cause. Claim data is matched with remit data with an explanation of benefits viewer to identify remittance variances.
Trisus Claims Informatics directs users to the areas with the most financial impact and intuitively guides them through the audit and discovery process. These insights are
especially important given revenue-impacting errors related to constant changes in coding and payment rules along with healthcare IT system upgrades.
2
Craneware plc Annual Report 2017
Craneware Value Cycle Solutions® [Cont’d.]
Patient Engagement
InSight Medical Necessity®
A SaaS solution that provides medical necessity
validation for all major U.S. 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.
Trisus® Patient Payment
A SaaS solution that provides hospitals and health
systems a way to modernise patient payment by
moving collections to the front end, better manage
cash flow, reduce bad debt, and improve collection
rates while minimising administrative costs.
Patient Charge Estimator®
This SaaS solution simplifies the process of providing
patient bill estimates for inpatient and outpatient
services to improve up-front collections and reduce
bad debt.
Charge Capture & Pricing
Chargemaster Toolkit®,
Chargemaster Toolkit® Discovery
Viewer and Chargemaster Toolkit®
Corporate Discovery Viewer
Automated SaaS chargemaster management solutions
for capturing optimal legitimate reimbursement
for providers, while mitigating compliance risk.
Chargemaster Toolkit is customisable for any
organisation, from small community providers to large
healthcare networks, and addresses the challenges that
enterprise chargemaster data presents to hospitals by
enabling all related chargemaster data to be viewed in
one place.
Physician Revenue Toolkit® and
Physician Revenue Toolkit® – Corporate
SaaS solutions for managing physician group KPIs,
charges, codes, RVUs, fee schedules, and related
information.
Pricing Analyzer™
SaaS solution that simplifies the price modelling
process, creating a repeatable, well-documented
method to establish transparent, defensible and
competitive pricing.
Reference Plus™
SaaS solution for providers with less than $44 million in
operating expenses to perform chargemaster analysis,
and efficiently optimise revenue, charge compliance
and 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 provider’s pharmaceutical
purchases and billing.
Supplies ChargeLink®
Helps optimise reimbursement for supplies, implants,
and devices by identifying missing or invalid charges,
codable recommendations and establishing and
maintaining a connection between supply purchase
history and chargemaster, helping to ensure accurate
pricing, coding and billing of these supplies.
Supporting Modules
Online Reference Toolkit®
Web-based and mobile-friendly tool for reducing
risk by providing access to reference and
regulatory resources.
Interface Scripting Module
Software that automatically uploads chargemaster
changes to the patient billing system for
accurate billing.
Supplies Assistant
Web-based, mobile-friendly supplies lookup tool
available in Supplies ChargeLink or Online Reference
Toolkit. Supplies Assistant enables providers to access
Craneware’s proprietary supply master catalog and
quickly and correctly code expensive implants
and devices.
Revenue Recovery & Retention
Bill Analyzer
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.
Trisus® Claims Informatics
Software built on Craneware’s next generation SaaS
based product platform that 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.
InSight Audit®
A comprehensive, web-based audit management tool
that empowers healthcare organisations to manage
government and commercial audits from one central
location.
InSight Denials®
Analyses, tracks, trends and reports on denial data,
providing workflow tools for expediting repair and
resubmission of denied claims.
Cost Analytics
Craneware Healthcare Intelligence
A new Craneware plc business, developing new
solutions to address an emerging but significant
market opportunity for healthcare cost analytics.
Professional Services
Craneware Professional Services provides 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.
Chargemaster Toolkit® is ranked No.1 in the Revenue Cycle –
Chargemaster Management market category for the eleventh year
in a row (2006 – 2017) in the "2017 Best in KLAS Awards: Software
& Services" report, published January 2017. Data © 2017 KLAS
Enterprises, LLC. All rights reserved. . www.KLASresearch.com
*HFMA staff and volunteers determined that Craneware's
Chargemaster Toolkit®, Chargemaster Corporate Toolkit®, Bill
Analyzer, Online Reference Toolkit®, and Interface Scripting
Module have met specific criteria developed under the HFMA Peer
Review Process. HFMA does not endorse or guarantee the use of
these products.
Craneware is a Microsoft Gold Partner for Application Development.
3
Craneware plc Annual Report 2017 Strong trading in the year
The Board is pleased to confirm an increase of 16%
in revenue recognised in the year to $57.8m (FY16:
$49.8m) and an adjusted EBITDA increase of 13% to
$18.0m (FY16: $15.9m).
The need to drive value in healthcare, and the
challenges this brings, remains a universal topic
of focus in the US, providing a supportive market
environment for Craneware through the year. Each
year brings another layer of change within the US
healthcare market, but what remains consistent is the
need for our customers’ patients to get better value
for their healthcare dollar and for our customers to
gain a greater understanding of their financial and
operational data in order to ensure their long-term
financial health and better outcomes for all.
Our customers are increasingly turning to Craneware as
a strategic partner to provide solutions that will enable
them to preserve revenue and increase the quality of
their margins so they can continue to invest in their
future and focus on the wellbeing of patients. This has
been reflected in the Group’s continued sales success in
the year. The strong sales from previous years continue
to flow, through to our reported results contributing to
current year revenue and adjusted EBITDA growth.
This year we are reporting New Sales in the year
of $35.4m and Total Value of Contracts of $54.0m.
Whilst on the surface not at the level reported in the
prior year for total sales (FY16: $58.6m and $82.3m
respectively), the difference reflects the prior year
announced three large enterprise wide sales, the
anticipated impact of the Trisus migration on contract
end dates and the cyclically low number of customers
due for renewal in the year. On a like for like basis,
underlying new sales in the period reflect favourably
compared to the prior year of $34.2m for FY16. These
sales have contributed to a further 13% increase in our
three year visible revenue and continue to support the
ongoing growth of the business.
At the end of current contracts, we expect to see
our renewal rates remain at their current high (well
above 100% by dollar value) as customers move to the
improvements brought to them by the Trisus Platform.
Cash generation in the period was strong, resulting
in cash reserves of $53.2m at 30 June 2017 (FY16:
$48.8m) after payment of $6.4m in dividends to
shareholders, $5.5m of tax payments and investing
c.$6.6m into new product development and the
Employee Benefit Trust.
Investing for the future
The Group continues to utilise its cash reserves to
invest in our teams, organisation and infrastructure
in the US and UK as they are all crucial elements
of our build, buy or partner strategy as we further
develop our value cycle platform. This includes further
development of the Trisus Product Suite and Craneware
Healthcare Intelligence, the Group's unique Cost
Analytics and Resource Efficiency (CARE) solution.
With our healthy cash balances and an undrawn $50m
funding facility from the Bank of Scotland, we have the
resources to execute upon our strategic vision.
First new product sales demonstrate
execution of our vision
We were delighted by the extremely positive customer
response to the launch of our new cloud-based
platform, Trisus, with the first product sales secured
towards the end of the year. We believe the innovation
in Trisus positions us firmly at the forefront of an
expanding market opportunity, as the long term shift
in US healthcare to value-based care and increased
consumerism continues unabated. The first product on
the platform, Trisus Claims Informatics™ was launched
in June 2017, with early sales recorded towards
the year end. During the current financial year we
anticipate further product launches on the
Trisus Platform.
The dedication of our employees in Scotland and the
US to our customers and their passion for innovation
are the pillars on which our ongoing success is built.
I would like to take this opportunity to thank them
once again for all their hard work in the year. Their
commitment has ensured Craneware has delivered
revenue and profit growth for each of its ten years as a
public company and has successfully transitioned into
the execution phase of our long term strategy.
Positive outlook for the business
We remain positive that the business environment in
the US will continue to be supportive for our business.
The investments we have made in the business mean
we have the product suite, people and scalability
to drive long-term growth and we will continue to
build Craneware with the future opportunity in mind.
While always mindful of the global and US macro
environment, the continued sales success, high levels
of revenue visibility, continued cash generation and a
record sales pipeline provide the Board with confidence
in the success of Craneware in the year ahead.
George Elliott
Chairman
4 September 2017
Chairman’s Statement
“Our customers are increasingly
turning to Craneware as a
strategic partner to provide
solutions that will enable
them to preserve revenue and
increase the quality of their
margins so they can continue to
invest in their future and focus
on the wellbeing of patients”
George Elliott, Chairman
4
Craneware plc Annual Report 2017 Strategic Report: Operational and Financial Review
“We have proven our ability to
execute on our long term vision
and are excited by the size of the
opportunity now ahead of us"
Keith Neilson, CEO and co-founder
“By expanding our offerings into
operational areas of the hospital,
incorporating cost management
and combining this with data from
the revenue cycle we will provide…
unique insight"
Craig Preston, CFO
Operational Review
With continued sales success and double digit financial
growth, we have been investing in Craneware’s product
suite and people. We made these investments to
address the challenges we foresaw taking place in the
US healthcare market. Our vision was to be the first
to market with a unique range of broad solutions that
help our customers in the new era of value-based care.
We have expanded our product suite into the value
cycle, adding new product areas; developed a new
cloud-based technology platform, Trisus; and created a
new Group business, Craneware Healthcare Informatics,
addressing the significant healthcare analytics market.
This will enable greater scalability of the business to
address the growing market opportunity.
We are delighted to report that, with the early sales
of our first Trisus product and the roll out to our first
Craneware Healthcare Intelligence customers, this was
the year in which we saw our vision become reality. We
will continue to invest in the expansion of our business
to support our customers as they navigate the ongoing
re-imbursement model changes and the move towards
value-based care.
Through these initial product sales we have proven
our ability to execute on our long term vision and are
excited by the size of the opportunity now ahead of us.
Market and Strategy
Market drivers continue unabated
While the US healthcare landscape continues to evolve,
the fundamentals driving a long-term evolution of the
landscape remain the same. The largest healthcare
market in the world, the US consistently continues
to fall short in its quest for value for the healthcare
dollars spent. A greater number of people need access
to the healthcare system regardless of any pre-
existing medical condition, a greater proportion of the
population will soon reach the end of their working
life and the cost of delivering healthcare is increasing,
all putting an unsustainable burden on the US and its
citizens. New regulations, increasing requirements for
reliable data analytics, emerging medical techniques
and technologies, are all contributing to a major
shift in the operational requirements of US
healthcare providers.
These factors are all driving the need for hospitals to
have additional insight into their operational, clinical
and financial data – insight our value cycle solutions
provide, together with the tools they need to effect
change. In the era of value-based care, a hospital
provider must understand and reduce the cost of care,
increase margins so they can invest in future care
delivery and simultaneously improve patient outcomes.
We believe that we are among the first to market with
solutions addressing the move to value-based care and
are committed to continuing to innovate in this space
in response to the needs of our customers.
Meanwhile, as hospital leadership teams are focusing
on controlling costs and increasing levels of care,
consumers are facing ever increasing out-of-pocket
costs as the healthcare model shifts a significant
proportion of the payment responsibility to the patient,
via high deductible plans. This is another area of focus
for our expanded value cycle product suite.
The nearer-term reforms to healthcare which have
been discussed over the past year, in light of a change
in administration, remain consistent with the need
to move toward value-based care – in line with
Craneware's strategy.
Long-term strategy: to continue to expand
our coverage of the value cycle
Our strategy is to continue to build on our established
market-leading position in revenue cycle solutions and
expand our product suite coverage of the value cycle.
By expanding our offerings into operational areas of
the hospital, incorporating cost management and
combining this with data from the revenue cycle we
will provide a unique insight into the management and
analysis of clinical and operational data, providing the
best possible outcomes for all.
Our expansion will be achieved through a combination
of extensions to the current product set, building
products through internal development, targeting
potential acquisitions to buy and partnering with other
technology and services companies.
Craneware's value cycle solutions provide the financial
insight and actionable data needed to navigate this
evolving landscape and healthcare reform continues to
drive a growing demand for all our products.
Approximately a quarter of all US hospitals are existing
Craneware customers, providing us with a valuable
platform for growth. The insight they provide us drives
our strategy and we are committed to providing them
with long-term strategic support.
5
Craneware plc Annual Report 2017 Strategic Report: Operational and Financial Review [Cont’d.]
Product Roadmap
Our product roadmap has four clear areas of focus:
the development of our cloud-based Trisus Enterprise
Value Platform; the continued evolution and support
of our existing market-leading product suite as we
migrate to Trisus; the development of new products
to sit upon the Trisus Platform; and the development
of cost analytics software by our newly formed Group
company, Craneware Healthcare Intelligence. All of
these solutions will target areas of the value cycle,
being the process and culture by which healthcare
providers pursue quality patient outcomes and optimal
financial performance, through the management of
clinical, operational and financial assets.
As we undertake these initiatives and consider the
market opportunities these present, the Group has
decided to accelerate investment in many areas as we
have decided ‘Build’ is the right way forward. Through
the development already carried out over the last two
years, we now have products or partnerships providing
us with access to many of the data sources we require
within the key clinical, operational and financial areas
of a hospital’s operations in order to build our full
suite of value cycle solutions. Some of these areas now
have live Craneware products, others are now entering
development or will do so in the coming year.
We believe the comprehensive nature of our product
portfolio, the data that this adds and sophistication of
our technology platform, mean Craneware will have
the ability to be at the forefront of innovation within
the US healthcare market for many years to come.
Trisus Enterprise Value Platform
We have now launched the Trisus Enterprise Value
platform, the next generation of innovation in the
value cycle. The cloud-based platform enables a
suite of solutions for healthcare providers to identify
and take action on risks related to revenue, cost,
and compliance. We have a roadmap to move all our
solutions onto the platform, as well as continuing to
look for innovative combinations of our data sets into
new unique product offerings.
Trisus is designed to be versatile and expandable,
growing alongside our customers as the healthcare
industry continues to evolve. The platform provides
an environment to gather, process, and deliver data
across the continuum of care with an open architecture
allowing for synergies between applications. Common
components across applications, such as reporting, data
import, analytics, workflows, user administration, and
more, empower teams within a hospital to collaborate,
become more efficient and productive, and provide
better financial outcomes.
As the healthcare environment continues to change,
financial, operational, and clinical outcomes are tied
together more than ever before. Trisus is Craneware’s
innovative commitment to providing high-value
solutions for providers so they can improve margins
and provide better patient outcomes.
The first product launch took place in June 2017 with
Trisus Claims Informatics™. This product enables
hospitals and healthcare systems to drive revenue
growth and increase compliance by automating claims
review through analysing for completeness, accuracy,
and patterns of changing charging behaviour.
The Trisus Patient Payment solution was also made
available to early adopters during the year. The solution
effectively addresses growing consumerisation within
healthcare. The past five years have seen an explosion
of high-deductible health plans and an increasing
out-of-pocket burden for patients. In many hospitals,
patient payments represent a fast growing proportion
of their revenue, yet is the most difficult and expensive
portion to collect with a high reputational risk
associated with pursuing delinquent individuals. The
Trisus Patient Payment Module is a solution designed
to increase patient billing satisfaction through the
provision of flexible, web and mobile-friendly payment
options and simplification of the billing process,
while also improving point-of-service collection rates.
Following successful completion of the early adopter
phase we expect full general release later this
calendar year.
Further components of Trisus will be released
throughout the current calendar year and beyond. With
the componentised nature of the Trisus architecture we
expect the roadmap for future releases to accelerate as
we complete on these initial solutions.
Craneware Healthcare Intelligence
In the second half of fiscal year 2016, Craneware
formed a new Group company, Craneware Healthcare
Intelligence, to develop and market Cost Analytics
and Resource Efficiency (CARE) software to the US
healthcare industry. CARE is a vital component within
the emerging value cycle solutions market. The insight
into costs, combined with correct reimbursement
will enable our customers to better understand
and improve their margins; allowing a greater
understanding of resources available to invest and in
turn drive better patient outcomes both today and for
the future. With the additional insight our products
provide into Physician variability across the continuum
of care, Craneware is able to demonstrate the
tangible and valuable benefits of combining financial,
operational and clinic data particularly in better patient
outcomes. We believe this area of the value cycle
represents a market opportunity several times larger
than that of our existing product portfolio.
Under the leadership of our SVP, Health Analytics,
progress has continued at pace within this newly
formed business. We now have a team of people in
place with the initial phase of product development
complete and the first early adopters secured,
combining our initial models and algorithms with live
hospital data. The results of this phase will provide us
with invaluable insight as we approach general product
launch scheduled for later in the year.
Acquisitions
The Board continues to assess acquisition opportunities
to complement the Group's organic growth strategy
and increase our product coverage of the value cycle.
The Board adheres to a rigorous set of criteria to
evaluate acquisition opportunities, including quality
of earnings, strategic fit and product offering. In
addition to the Company's cash reserves, an undrawn
$50 million funding facility provides the Company with
available resources to carry out strategic acquisitions if
and when these criteria are met.
Sales and Marketing
The Group delivered good levels of sales to all segments
of the US healthcare market, demonstrating continued
sales momentum and the benefits of a supportive
market environment. Going forward the sales pipeline
continues to be at record highs with opportunities
across all strata of hospital, providing confidence that
we are on a continuing path of accelerated revenue and
profit growth in future years.
During the year, sales to existing customers increased
as a proportion of total new sales made. All new
hospital sales provide opportunities for further product
sales in the future. The average length of contracts
with new customers continues to be in-line with our
historical norms of approximately five years. This year,
however, for all other contracts we have anticipated
the crossover dates of new product availability on the
Trisus Platform and the impact for each individual
customer contract as part of our migration strategy. It
is anticipated that our phased migration of all current
products to the Trisus Platform will be complete
no later than 2021. As we factor in the resulting
anticipated migration dates the consequence of this is
to reduce the average effective length of all customer
contracts signed in the year to approximately 4 years.
Normalising FY16 contracts to the same average
term and considering just underlying contracts (i.e.
excluding the three large system sales announced in
the prior year), like for like sales in FY16 would be
$34.2m as compared to $35.4m in FY17.
6
Craneware plc Annual Report 2017 Strategic Report: Operational and Financial Review [Cont’d.]
At the end of the contract term, we expect to see
our renewal rates remain at their current high levels
(well above 100% by dollar value), along with
incremental additional sales, as customers move to the
improvements brought to them by the Trisus Platform.
Awards
Chargemaster Toolkit® was named Category Leader
in the "Revenue Cycle – Chargemaster Management"
market category for the eleventh consecutive year in
the annual "2017 Best in KLAS Awards: Software &
Services." KLAS's annual "Best in KLAS" report provides
unique insight gathered from thousands of healthcare
organisations across the US. The report includes client
satisfaction scores and benchmark performance
metrics.
Financial Review
Following our return to double digit growth in the prior
year, it is pleasing to report this growth has continued
in both revenue and adjusted EBITDA. As such, we are
reporting a growth in revenues for the financial year
under review of 16% to $57.8m (FY16: $49.8m) which
has resulted in an adjusted EBITDA of $18.0m
(FY16: $15.9m).
Underlying these results continues to be the contracts
we sign with our hospital customers. These new
contracts provide a license for a customer to access
specified products throughout their license period. This
license period on average, for a sale to a new customer,
is five years. In calculating averages, we only take the
contract length up to the first renewal point/break
clause for that specified product.
It is at the end of these license periods or a mutually
agreed earlier date that customers renew with us or
will modify contracts to license the Trisus Platform. It
is anticipated that future renewals will be significantly
enhanced by the move to Trisus. We measure renewal
rates by dollar value as this specifically ties to how we
are sustaining the underlying annuity base of revenue
which is demonstrated through the three-year visible
revenue detailed below. This metric measures ‘last
annual value’ of all customers due to renew in the
current year and compares it to actual value these
customers renew at (in total), including upsell and
cross-sell i.e. to demonstrate that we are maintaining
or increasing our annuity. This metric for the current
year is at 110%.
$m
60
50
40
30
20
10
0
Three Year Visible Revenue
0.2
5.7
50.1
0.2
14.9
38.8
0.3
24.6
29.0
FY18
FY19
FY20
As at 30 June 2017
Contracted
Renewals
Other recurring revenue
7
Craneware plc Annual Report 2017 Strategic Report: Operational and Financial Review [Cont’d.]
We further build the annuity with our new product
sales to new or existing customers (part way through
their current license term). These elements make up
our Annuity SaaS business model (which is described
in detail below) and is designed to deliver long term
sustainable growth reducing the impact of any short
term fluctuations in sales levels or contract timing.
It is anticipated that our phased migration of all current
products to the Trisus Platform will be complete no
later than 2021. This has meant that our reported
average contract length across all contracts signed
in the year, for the current “specified products”, has
been impacted on a case by case basis to reflect this
planned migration. As a result, the average contract
length for all contracts signed in the year reduces from
approximately five years to four years with a resultant
effect on calculated Total Value of Sales in the Year. We
are reporting New Sales in the year of $35.4m and Total
Value of Contracts of $54.0m. Whilst on the surface not
at the level reported in the prior year for total overall
sales (FY16: $58.6m and $82.3m respectively) the
difference reflects the prior year announced enterprise
wide sales, the anticipated impact of the Trisus
migration on contract end dates and the cyclically low
number of customers due for renewal in the year. These
sales have contributed to a further 13% increase in our
three year visible revenue. This level of sales continues
to support the ongoing growth of the business.
underlying signed contracts. As we sign new hospital
contracts that provide our customers access to our
products for an average life of five years, we will see
the revenue from any new sales recognised over this
underlying contract term.
Business Model
The Group’s ‘Annuity SaaS’ business model and
associated revenue recognition is designed to ensure
the long-term growth and stability of the Group.
Through this prudent approach to revenue recognition
and consistent application of this model, the Group
ensures it is focused on sustainable growth irrespective
of any short term fluctuations in sales levels. The
Annuity SaaS business model delivers a ‘smoothing’
effect as the majority of the revenue resulting from all
sales in any one period will be recognised over future
periods. Individual sales add to the Group’s long term
visibility of revenue under contract.
60
Under our model we recognise software license revenue
and any minimum payments due from our ‘other
route to market’ contracts evenly over the life of the
$m
30
As well as the incremental license revenues we
generate from each new sale, we normally expect
to deliver an associated professional services
engagement. This revenue is typically separately
identifiable from the license and is recognised as
we deliver the service to the customer, usually on a
percentage of completion basis. The nature and scope
of these engagements will vary depending on both our
customer needs and which of our solutions they have
contracted for. However these engagements will always
include the implementation of the software as well as
training the hospital staff in its use. As a result of the
different types of professional services engagement,
the period over which we deliver the services and
consequently recognise all associated revenue will vary,
however we would normally expect to recognise this
revenue over the first year of the contract.
60
$m
30
0
60
$m
30
0
Reported Revenue
0
FY13
FY14
FY15
FY16
FY17
Revenue
60
$m
30
0
60
$m
30
FY13
FY14
FY15
FY16
FY17
FY13
FY14
FY15
FY16
FY17
Revenue
Revenue
New Sales
60
$m
30
0
FY13
FY14
FY15
FY13
FY14
FY15
FY16
FY17**
New Sales
Large Enterprise Sales
Renewals*
Early Contract End Dates**
0
60
$m
30
FY16
0
FY17**
FY13
FY14
FY15
FY16
New Sales
FY17**
Large Enterprise Sales
Early Contract End Dates**
FY13
FY14
FY15
FY16
FY17**
New Sales
Large Enterprise Sales
Early Contract End Dates**
Renewals
Early Contract End Dates**
60
60
*As the Group signs new customer contracts for between three to nine years, the number and value of customers’ contracts coming to the end of their term (“renewal”) will vary in any one year.
This variation along with whether customers auto-renew on a one year basis or renegotiate their contracts for up to a further nine years, will impact the total contract value of renewals in that year
** Contract end dates (therefore TCV) impacted by phased Trisus Migration
$m
30
$m
30
0
8
0
FY13
FY14
FY15
FY16
FY17**
FY13
FY14
FY15
FY16
FY17**
Renewals
Early Contract End Dates**
Renewals
Early Contract End Dates**
Craneware plc Annual Report 2017 Strategic Report: Operational and Financial Review [Cont’d.]
In any individual year, we would normally expect
around 10% – 20% of revenues reported by the Group
to be from services performed.
Sales, Revenue and Revenue Visibility
As a result of how revenue is recognised under the
Annuity SaaS business model – ‘sales’ and ‘revenue’
have different meanings and are not interchangeable.
The charts on page 8 show both our reported revenues
and the total value of contracts signed in the relevant
years split between sales of new products (to both
new and existing hospital customers) and the value of
renewing products with existing customers at the end
of their current contract terms.
As the majority of the revenue resulting from sales
in the year will be recognised over future years, the
financial statements do not appropriately reflect the
valuable ‘asset’ that is this contracted, but not yet
recognised, revenue. As such, at every reporting period,
the Group presents its “Revenue Visibility”. This KPI
identifies revenues which we reasonably expect to
recognise over the next three year period, based on
sales that have already occurred.
This “Three Year Visible Revenue” metric includes
future revenue under contract
revenue generated from renewals (calculated at
100% dollar value renewal)
other recurring revenue
As we are signing multi-year contracts with our
customers and at the end of these contracts we are, on
average, renewing these customers at 100% of dollar
value, the Group is consistently building an underlying
annuity base of revenue.
The Three Year Revenue Visibility KPI is a forward
looking KPI and therefore will always include some
judgement. To help assess this, we separately identify
different categories of revenue to better reflect any
inherent future risk in recognising these revenues.
Future revenue under contract, is, as the title suggests,
subject to an underlying contract and therefore once
invoiced will be recognised in the respective years
(subject to future collection risk that exists with all
revenue). Renewal revenues are contracts coming to
the end of their original contract term (e.g., five years)
and will require their contracts to be renegotiated
and renewed for the revenue to be recognised. As
this category of revenue is assumed to renew at
100% of dollar value, we consistently monitor and
publish this KPI (at each reporting period) to ensure
the reasonableness of this assumption. The final
category “Other recurring revenue” is revenue that we
would expect to recur in the future but is monthly or
transactional in its nature and as such there is increased
potential for this revenue not to be recognised in future
years, when compared to the other categories.
The Group’s total visible revenue for the three years
as at 30 June 2017 (i.e. visible revenue for FY18, FY19
and FY20) identifies $163.8m of revenue which we
reasonably expect to benefit the Group in this next
three year period. This visible revenue breaks down
as follows:
future revenue under contract contributing
$117.9m of which $50.1m is expected to be
recognised in FY18, $38.8m in FY19 and $29.0m
in FY20
revenue generated from renewals contributing
$45.2m; being $5.7m in FY18, $14.9m in FY19 and
$24.6m in FY20
other revenue identified as recurring in nature
of $0.7m
Gross Margins
Typically, we expect the gross profit margin to be
between 90 – 95%. The gross profit for the FY17 was
$54.2m (FY16: $46.8m) representing a gross margin
percentage of 93.8% (FY16: 93.9%) which is towards
the top of our historical range. This reflects the correct
matching of incremental costs incurred to obtain the
underlying contracts with the associated revenue being
recorded.
Earnings
The Group presents an adjusted earnings figure as a
supplement to the IFRS based earnings figures. The
Group uses this adjusted measure in our operational
and financial decision-making as it excludes certain
one-off items, so as to focus on what the Group
regards as a more reliable indicator of the underlying
operating performance. We believe the use of this
measure is consistent with other similar companies
and is frequently used by analysts, investors and other
interested parties.
Adjusted earnings represent operating profits excluding
costs incurred as a result of acquisition and share
related activities, share related costs including IFRS
2 share based payments charge, depreciation and
amortisation (“Adjusted EBITDA”). In the prior year
this also excluded the ‘other income’ arising out of the
conclusion of the contingent consideration arising from
the prior year: the acquisition of Kestros.
Adjusted EBITDA has grown in the year to $18.0m
(FY16: $15.9m) an increase of 13%. This reflects an
Adjusted EBITDA margin of 31.1% (FY16: 31.8%). This
is consistent with the Group’s continued approach to
making investments in line with the revenue growth.
The Group also takes opportunities where they exist
to accelerate investments in certain areas, such as
development, to further build for future growth whilst
continually managing to ensure the efficiency of the
investments we make.
Operating Expenses
The increase in net operating expenses (to Adjusted
EBITDA) reflects our policy of investing in line with
revenue growth, increasing by 17% to $36.2m (FY16:
$30.9m). However we have also taken the opportunity
to increase our investment in Product Development.
Product innovation and enhancement continues to be
core to the Group’s future; our customers are facing a
market that continues to evolve towards value-based
reimbursements and the Group is in a unique position
with its value cycle strategy to help them meet the
challenges these new reimbursement models bring.
The Operating Review provides significant detail of our
current ongoing development programs, including the
Trisus Platform and the portfolio of products that will
be part of this platform. We continue our Build, Buy or
Partner strategy to build out this portfolio of products.
As we undertake these initiatives and consider the
market opportunities these present, the Group has
decided to accelerate investment in many areas as we
have decided ‘Build’ is the favoured way forward. We do
this whilst maintaining our current product offerings
and ensuring they remain market-leading. This has
resulted in an increase in the cost of development
related to our current products and therefore a charge
in the period of $9.1m (FY16: $7.7m), a 19% increase
and therefore ahead of our revenue growth. In
addition, we have made further investments relating
to the development of the new product offerings
(“Build”), this includes our new cost analytics tool
‘Trisus CARE’. As these products have yet to be made
available to our customers, the associated incremental
costs have been capitalised, this has resulted in $3.5m
(FY16: $2.0m) of capitalised development spend in
the year. These capitalised amounts represent further
investment in our future and have been undertaken as
we have concluded that it represents the most efficient
and cost effective way to fulfil our value cycle strategy.
We expect to see both the levels of development
expense and capitalisation continue the current trends
as we progress with building out this solution set.
Cash and Bank Facilities
We measure the quality of our earnings through our
ability to convert them into operating cash. During
the year we have seen continued high levels of cash
conversion, achieving over 100% conversion of our
adjusted EBITDA into operating cash.
The success of these very high levels of cash conversion
has enabled us to grow our cash reserves to $53.2m
(FY16: $48.8m). These cash levels are after paying
$5.5m in taxation (FY16: $2.3m), investing $3.1m in
our new Employee Benefit Trust, the $3.5m further
investment in new product development and returning
$6.4m (FY16: $6.0m) to our shareholders by way
of dividends.
9
Craneware plc Annual Report 2017 Strategic Report: Operational and Financial Review [Cont’d.]
We retain a significant level of cash reserves and
balance sheet strength to fund acquisitions as suitable
opportunities arise. To supplement these reserves,
the Group retains a funding facility from the Bank of
Scotland of up to $50m. Whilst no draw down of this
facility occurred in the year, the Group continues to
investigate strategic opportunities to add to the value
cycle strategy.
Balance Sheet
The Group maintains a strong balance sheet position.
The level of trade and other receivables has decreased
in comparison to the prior year. This is a result of the
positive levels of cash collection, especially during the
last quarter of the year.
Every year as we make sales, we pay out amounts
relating to sales commissions; these costs are
incremental costs in obtaining the underlying
contracts. Total sales commissions are based on the
total value of the contract sold; however for the
purposes of the Statement of Comprehensive Income,
a lower proportion of revenue from the contract value
is recognised in the year. As a result we charge an
equivalent percentage of the sales commission, thereby
properly matching revenue and incremental expense.
The resulting prepayment of $5.9m (FY16: $6.0m)
is the balance to be charged against future profit as
we recognise the associated revenue. As we only pay
the sales commission upon receipt of the first annual
payment from the customer, we remain cash flow
positive from any new sale.
Deferred income levels reflect the amounts of the
revenue under contract that we have invoiced and/
or been paid for in the year, but have yet to recognise
as revenue. This balance is a subset of the total visible
revenue we describe above and reflected through our
three year visible revenue metric.
Deferred income, accrued income and the prepayment
of sales commissions all arise as a result of our Annuity
SaaS business model described above and we will
always expect them to be part of our balance sheet.
They arise where the cash profile of our contracts does
not exactly match how revenue and related expenses
are recognised in the Statement of Comprehensive
Income. Overall, levels of deferred income are
significantly more than accrued income and the
prepayment of sales commissions, we therefore remain
cash flow positive in regards to how we recognise
revenue from our contracts.
Currency
The functional currency for the Group (and cash
reserves) is US dollars. Whilst the majority of our
cost base is US-located and therefore US dollar
denominated, we 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,
for example as was the case in the year, consider
hedging strategies. During the year, we have seen some
benefit of exchange rate movements, with the average
exchange rate throughout the year being $1.2688 as
compared to $1.4837 in the prior year. This benefit has
allowed us to continue to release further investment
whilst maintaining profit margins.
Taxation
The Group generates profits in both the UK and
the US, the overall levels are determined by both
the proportion of sales in the year and the level of
professional services income recognised. The Group’s
effective tax rate remains dependent on the applicable
tax rates in these respective jurisdictions. In the current
year the effective tax rate has seen the benefit of a
tax deduction related to share option exercises that
occurred in the year, as well as the reducing rate of UK
Corporation Tax and as such the current year effective
tax rate is 20% (FY16: 24%).
EPS
In the year adjusted EPS has seen the benefit of the
increased levels of adjusted EBITDA combined with the
lower effective tax rate reported above and as such has
increased 20% to $0.514 (FY16: $0.429) and adjusted
diluted EPS has increased to $0.503 (FY16: $0.423).
Dividend
The Board recommends a final dividend of 11.3p (14.71
cents) per share giving a total dividend for the year of
20p (26.04 cents) per share (FY16: 16.5p (22 cents) per
share). Subject to confirmation at the Annual General
Meeting, the final dividend will be paid on 7 December
2017 to shareholders on the register as at 10 November
2017, with a corresponding ex-Dividend date of 9
November 2017.
The final dividend of 11.3p 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 10
November 2017. The exact amount to be paid will be
calculated by reference to the exchange rate to be
announced on 10 November 2017. The final dividend
referred to above in US dollars of 14.71 cents is given
as an example only using the Balance Sheet date
exchange rate of $1.30197/£1 and may differ from that
finally announced.
Outlook
We are delighted to report that, with record levels
of revenue and profitability, the launch of our Trisus
Platform with sales secured for the first Trisus product
(Trisus Claims Informatics™), and the launch of
Craneware Healthcare Intelligence, this was the year in
which we saw our unique vision of the value cycle turn
from concept to reality.
While laying out our vision for the value cycle over the
last two years, Craneware has delivered double digit
growth in our key metrics, including revenue and profit,
supported by sales success throughout the period. We
have expanded our product suite into the value cycle;
developed a new cloud-based technology platform,
Trisus; and created a new Group business, Craneware
Healthcare Intelligence, all significantly increasing the
Company’s total addressable market. At the same time
we have been investing in improving our customers’
experience and have returned in excess of $15m to
shareholders by way of dividends and share buy backs.
The unceasing evolution of the US healthcare market
towards value-based care presents us with an ongoing,
growing market opportunity and the investments
we have made mean we now have the potential to
deliver against this expanding opportunity. With our
sales pipeline increasing each year, this increased
scalability and opportunity, combined with our high
levels of revenue visibility, strong cash position and
extensive customer base provide us with confidence in
Craneware’s ongoing success.
Keith Neilson
Chief Executive Officer
4 September 2017
Craig Preston
Chief Financial Officer
4 September 2017
10
Craneware plc Annual Report 2017 Strategic Report: Key Performance Indicators and Principal Risks and Uncertainties
Key Performance Indicator Review
Revenue Growth
Revenue
Growth
2017
$57.8m
16%
2016
$49.8m
11%
Revenue for the year grew by 16%. This results from the combination of underlying sales levels combined with the Group’s Annuity SaaS revenue recognition model. The
recognition model, combined with continued high levels of customer retention, results in additional sales increasing the quantum of recurring revenue reported each year and
through the long term nature of our contracts also increases the underlying visible revenue (see KPI below).
Three Year Revenue Visibility
Three Year Revenue Visibility
2017
2016
$163.8m
$145.3m
The Group’s revenue recognition model means the full benefit of current year’s sales are not reflected in the current year financial statements. However, new sales add to
the underlying ‘annuity’ of recurring revenue and to demonstrate this the Group produces a ‘Three Year Revenue Visibility’ KPI. This metric compares the growth in the three
years contracted revenue, revenue subject to renewal and other recurring revenue, for the same three year period starting 1 July 2017. Full details of how this is calculated are
detailed in the financial review section of the Strategic Report.
Adjusted EBITDA Growth
Adjusted EBITDA
Growth
2017
$18.0m
13%
2016
$15.9m
10%
We take a measured approach to our investment, ensuring to invest to support the future growth of the Group. The increasing revenue growth has allowed us to continue and
in certain areas accelerate this investment whilst delivering Adjusted EBITDA growth. By taking this approach, 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
2017
2016
51.4 cents
42.9 cents
18%
13%
Adjusted EPS growth demonstrates the Group’s overall profitability after taking into account the taxation in the year and any changes in share capital. The Group generates
profits in both the UK and the US, the overall level of which is determined by both the level of sales in the year and the level of professional services income. The Group’s
effective tax rate remains dependent on the applicable tax rates in each respective jurisdiction.
Cash
Cash
2017
$53.2m
2016
$48.8m
The Group continues to convert very high levels of the Adjusted EBITDA reported in the year into operating cash flows which has resulted in an increase in cash balances of 9%.
Overall Operating cash conversion continues above our long term target of 100%.
11
Craneware plc Annual Report 2017 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 Review
on pages 5 to 10.
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.
Management of Growth
Issue: The Group continues to grow and is planning for
further significant growth both organically and through
acquisition. This could place strain on the Group’s
resources including management bandwidth.
Actions: The Group has and continues to make
significant investments to add to available resources
and increase bandwidth at all levels of management
including the Board of Directors. The Group’s annuity
SaaS business model combined with the detailed
forecasting processes provides 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.
US Healthcare Evolution and Reform
Issue: The US healthcare industry continues to evolve,
with the value based reimbursement model 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 has and it
continues to develop significant industry expertise
at all levels of management including the Board of
Directors. It actively promotes developing further
experience throughout the wider organisation by,
amongst other things:
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
customer forums.
The Group’s “value cycle” strategy strengthens our
position as a trusted financial performance partner to
hospitals and it continually enhances and expands its
product offerings to meet the evolving challenges.
These strategies keep the Group at the forefront of
industry developments.
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 and will continue to expand and
strengthen its senior management team, including the
Board of Directors, as appropriate. The Group continues
to utilise programs to identify, train and mentor the
management and talent who will be the 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; this is explained further in the
Remuneration Committee’s Report on
pages 23 to 27.
Market Consolidation
Issue: The evolving market in US Healthcare continues
to place significant pressure on Healthcare providers.
Consequently, there is a significant amount of ongoing
market consolidation. The result is the Group’s market
is increasingly dominated by larger Hospital Networks.
Failure to enhance products, ensure scalability or add
to the current product suite could significantly limit the
Group’s market opportunity and leave it unable to meet
its customers’ evolving needs.
Actions: The Group’s “value cycle” strategy and Trisus
Platform, combined with the continued evolution of
the product suite, positions the Group forefront of
providing solutions to US healthcare providers of all
sizes. In addition, the Group continues to innovate and
develop new products to meet evolving market needs,
such as the ongoing development of Trisus ‘CARE’, the
Group’s new product in the cost analytics area.
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 protect 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.
Data and cyber security
Issue: Security of customer, commercial and personal
data poses increasing reputational and financial risk to
all businesses. In particular, the sharp rise in cyber and
data related crime presents a significant challenge in
terms of securing data and systems against attack.
Actions: Whilst it is not possible to completely
eliminate data and cyber security risk, it is clear that
effective mitigation now go beyond building and
operating security controls. While the Group will
continue to invest in the strict physical and data
security systems and protocols mentioned above it also
carries specific insurance in this regard. The Group also
recognises and supports that a sustained evolution of
culture within the organisation which embeds security
across the business.
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’s history which exists
within its products. The Group continues to ensure
its products are platform agnostic and actively seeks
partnerships with other healthcare IT vendors.
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 and Board members individually
have relevant experience in regards to completing
acquisitions and this experience has been added
to in recent years through key appointments to the
Operations Board. In addition, and where appropriate,
the Board appoints independent professional advisors
to assist in the consideration of potential acquisitions
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 page 21.
In summary, and as explained in the Operational
Review section of this Strategic Report, 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 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
4 September 2017
12
Craneware plc Annual Report 2017 Directors, Secretary, Advisors and Subsidiaries
Directors
G R Elliott (non-executive, Chairman)
K Neilson
C T Preston
N P Heywood (non-executive) (Resigned 8 November 2016)
R F Verni (non-executive)
C Blye (non-executive)
R Rudish (non-executive)
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
Bankers
Bank of Scotland
The Mound
Edinburgh
EH1 1YZ
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
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
Subsidiaries
Craneware, Inc.
3340 Peachtree Rd NE
Suite 850
Atlanta, GA 30326
Craneware InSight, Inc.
3340 Peachtree Rd NE
Suite 850
Atlanta, GA 30326
Craneware Health
1 Tanfield
Edinburgh
EH3 5DA
Craneware Healthcare Intelligence, LLC
12570 Perry Highway
Suite 110
Wexford, PA 15090
13
Craneware plc Annual Report 2017 Board of Directors
The Directors of the Company and their responsibilities within the Group are set out below:
George R Elliott, 64 — Non-Executive Chairman :: Appointed 10 August 2007
George is non-executive Chairman of Calnex Solutions Ltd, an Ethernet test equipment manufacturer, Cooper Software Ltd, an enterprise
and business intelligence solutions consultancy, Indigovision Group plc, a developer of complete end-to-end video security solutions,
Optoscribe Ltd, which develops and supplies high performance 3D waveguide solutions for the data and telecommunications industries and
Visionware Ltd, a developer of master data management solutions. He is also a non-executive director of Par Equity Holdings Ltd, a venture
capital company, which focuses on early stage high growth potential companies. 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, Summit Corporation
plc and Cupid plc. From 2000-2007 George was Chief Financial Officer of Wolfson Microelectronics plc, which was 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 for software publishers, 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, 48 — 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 value cycle 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
an active member of the Young Presidents Organisation (YPO), a syndicate member and Partner in Par Equity LLP, a board member of Code
Clan, the Scottish Digital Skills Academy and the Scottish North American Business Council (SNABC). 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, 46 — 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.
14
Craneware plc Annual Report 2017 Board of Directors [Cont’d.]
Ron F Verni, 69 — 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, 57 — Non-Executive Director :: Appointed 12 November 2013
Colleen Blye is the Executive Vice President and Chief Financial Officer for Montefiore Health System and Albert Einstein College of Medicine.
Montefiore Health System consists of eleven hospitals and an extended care facility, it is a premier academic medical center and includes
the Albert Einstein College of Medicine. Colleen has a distinguished background in large, complex healthcare organizations. Prior to joining
Montefiore, she served as Executive Vice President and Chief Financial Officer of Catholic Health Services of Long Island, an integrated
healthcare delivery system comprising six hospitals and three nursing homes. Earlier, she served as Executive Vice President for Finance
and Integrated Services at Catholic Health Initiatives, a health system with 102 hospitals across the United States. Her previous experience
includes responsibility for treasury management, revenue cycle, financial reporting and planning, third-party contracting, supply chain,
accounts payable, payroll, and information technology. Colleen Blye is a Certified Public Accountant and a member of the American Institute
of Certified Public Accountants and the Healthcare Financial Management Association.
Russ Rudish, 65 — 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
holds a directorship in Rudish Health Solutions, LLC, and StarBridge Advisors, LLC, both healthcare professional services firms. Russ is also
a principal in Healthcare IT Leaders and Run Consultants, both of which provide IT staff augmentation services. Between 2006 and 2014,
Russ served as partner and 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. He is an active speaker and contributor to
thought leadership on today's most pressing healthcare business issues.
15
Craneware plc Annual Report 2017 During the year the Company paid an interim dividend
of 8.7p (10.7 cents). The Directors are recommending
the payment of a final dividend of 11.3p (14.71 cents)
per share giving a total dividend of 20p (26.04 cents)
per share based on the results for 2017 (2016: 16.5p
(22.0 cents)). Subject to approval at the Annual
General Meeting, the final dividend will be paid on
7 December 2017 to shareholders on the register as at
10 November 2017.
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 market. The
primary focus of this development continues to be the
enhancement and expansion of the product suite to
support the Group’s value cycle strategy. Full details of
the development activities and the Group’s roadmap
is provided in the Strategic Report contained in pages
5 to 12. 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 $9.1m
(2016: $7.7m) net of expenditure capitalised of
$3.5m (2016: $2.0m).
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 Strategic Report on pages 5 to 12 contains
information regarding the Group’s activities and an
overview of the development of its products, services
and the environment in which it operates. The Group’s
revenue, operating results, cash flows and balance sheet
are detailed in the financial statements and explained
in the Financial Review on pages 5 to 10.
The Directors, having made suitable enquiries and
analysis of the financial statements, including the
consideration of:
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 the consolidated and
Company financial statements.
Directors
The Directors of the Company are listed on pages 14
and 15.
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’s Report on page 25.
Share Capital
The Company’s issued and fully paid up share capital
at 30 June 2017 was 26,961,709 Ordinary Shares of 1p
each (2016: 26,850,248 Ordinary Shares). The shares are
traded on the Alternative Investment Market (‘AIM’),
a market operated by the London Stock Exchange. The
Company’s Articles of Association, which are available
on the Company’s website, contain the details of the
rights and obligations attached to the shares. During
the year, 111,461 Ordinary Shares (2016: 17,666
Ordinary Shares) were allotted to satisfy employee
share options which were exercised in accordance
with The Craneware plc Employee’s Share Option Plan
2007. Details of the Company’s employee share plans,
including the number of ordinary shares subject to
employee share plan awards, are included in Note 8 to
the financial statements.
The Company has established an Employee Benefit Trust
(EBT), ‘The Craneware plc Employee Benefit Trust’. As
at 30 June 2017 the EBT held 242,930 Craneware plc
Ordinary Shares. The EBT waived its right to dividends
in the year ended 30 June 2017. Further details
regarding the EBT are contained in Note 18 to the
financial statements.
net cash reserves;
20.0
continued cash generation; and
Annuity SaaS business model;
Directors’ Report
The Directors present herewith their report and the
audited consolidated financial statements for the year
ended 30 June 2017.
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
and share related payments, 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 in pages
5 to 12 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 $57.8m (2016:
$49.8m) which has generated an adjusted profit before
tax (before acquisition related matters (in Fiscal Year
2016)) of $17.2m (2016: $15.0m). The full results for
the year, which were approved by the Board of Directors
on 4 September 2017, are set out in the accompanying
financial statements and the notes thereto.
Dividends/Share (pence)
11.5
12.5
14.0
16.5
*Subject to approval at AGM
FY13
FY14
FY15
FY16
FY17
16
Craneware plc Annual Report 2017 Directors’ Report [Cont’d.]
Authority for purchase of own shares
Authorisation was given by shareholders at the Annual
General Meeting on 8 November 2016 for the Company
to purchase up to 1,347,434 Ordinary Shares. The
Company has not purchased any of its own shares during
the financial year (2016: nil). A resolution to renew this
authority will be proposed at the 2017 Annual General
Meetings.
Directors and their Interests
The interests of the Directors who held office at 30
June 2017 and up to the date of this report in the share
capital of the company, were as follows:-
G R Elliott
K Neilson
2017
15,650
3,459,718
3,475,368
2016
15,650
3,504,130
3,519,780
Directors’ interests in share options are detailed in the
Remuneration Committee’s Report on page 27.
Substantial Shareholders
As at 1 August 2017, 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:
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,
including but not limited to any liability for the costs
of legal proceedings where judgement is given in their
favour. In addition, the Company has purchased and
maintains appropriate insurance cover against legal
action brought against Directors and officers.
Corporate Social Responsibility
& Environmental Policy
The Group is committed to maintaining a high
level of social responsibility. It is the Group’s policy
to support and encourage environmentally sound
business operations, with aspects and impact on
the environment being considered at Board level.
Recognising that the Group’s operations have minimal
direct environmental impact, the Group aims to ensure
that:
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
No. of
Ordinary
£0.01
Shares
% of
issued
share
capital
recycles waste products wherever possible,
encouraging use of environmentally friendly
materials, and disposing safely of any non-
recyclable materials.
Liontrust Asset Management
4,782,455
17.74
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.
K Neilson
Hargreave Hale
W G Craig
3,459,718
12.83
2,568,964
2,450,258
9.53
9.09
5.29
AXA Investment Managers
1,425,000
Shroder Investment
Management
1,178,824
4.37
Baillie Gifford & Co Ltd
1,111,840
D Paterson
884,758
4.12
3.28
Artemis Investment
Management
880,689
3.27
FIL Investment International
873,655
3.24
Charitable and Political Contributions
As part of the Group’s commitment to Corporate
Social Responsibility it has continued to develop its
“Craneware Cares” program. The focus of Craneware
Cares is to raise awareness and funds for charity. The
focus for 2017 was the support of the Children’s Hospice
Association Scotland (CHAS) in the UK and the Shriners
Hospital for Children in the US. For 2018 the focus will
again be the support of CHAS in the UK and Creative
Philanthropy in the US. Fund raising activities have
already begun and these supplement the Volunteer
Time Off program where Craneware staff take paid leave
to support projects and charities in their communities.
Neither the Company nor its subsidiaries made any
donation for political purposes in fiscal years 2017
or 2016.
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.
17
Craneware plc Annual Report 2017 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.
The auditors, PricewaterhouseCoopers LLP, have
indicated their willingness to be re-appointed and a
resolution for reappointment 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
4 September 2017
Directors’ Report [Cont’d.]
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, be identical to that of a
person who does not suffer from a disability.
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.
As a UK company, Craneware plc is bound by the laws
of the UK, including the Bribery Act 2010, in respect of
our conduct within and outside of the UK. In addition,
we uphold all laws relevant to countering bribery and
corruption in all the jurisdictions in which we operate.
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 2017
represented, on average 18 days purchases (2016: 19
days) for the Group and 13 days purchases (2016: 21
days) for the Company.
Annual General Meeting
The resolutions to be proposed at the Annual General
Meeting, together with explanatory notes, appear in
a separate Notice of Annual General Meeting which
is sent to all shareholders and made available on the
Company’s website at www.craneware.com. 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.
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.
18
Craneware plc Annual Report 2017 Corporate Governance Report
The Board of Directors ("the Board") acknowledges
the importance and continued applicability for this
reporting period of the principles set out in the UK
Corporate Governance Code issued in April 2016 (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 in line with best practice for
an AIM listed company. 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 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 three
further non-executive Directors, Ronald Verni (Senior
Independent Director), Colleen Blye and Russ Rudish.
As previously announced, Neil Heywood who was a
non-executive Director for over 10 years did not stand
for re-appointment at the 2016 AGM and resigned from
the Board on 8th November 2016. Detailed biographies
of all Directors are contained on pages 14 and 15.
The Board meets regularly to discuss and agree on the
various matters brought before it, including the Group’s
trading results. The Board is well supported by the
Group’s Operations Board (details of which are provided
below) and a broader senior management team, who
collectively have the qualifications and experience
necessary for the day to day running of the Group.
There is a formal schedule of matters reserved for the
Board, which include approval of the Group’s strategy,
annual budgets and business plans, acquisitions,
disposals, business development, annual reports and
interim statements, plus any significant financing and
capital expenditure plans. As part of this schedule, the
Board has clearly laid out levels of devolved decision
making authority to the Group’s Operations Board.
The Board has further established an Audit Committee
and a Remuneration Committee details of which are
provided below. 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.
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:
No. Meetings in year
Executive Directors
K Neilson
C T Preston
Non-Executive Directors
G R Elliott
N P Heywood*
R Verni
C Blye
R Rudish**
d
r
a
o
B
8
8/8
8/8
8/8
3/3
7/8
8/8
8/8
n
o
i
t
a
r
e
n
u
m
e
R
e
e
t
t
i
m
m
o
C
3
-
-
-
1/1
3/3
3/3
2/2
e
e
t
t
i
t
i
d
u
A
m
m
o
C
3
-
-
-
1/1
3/3
3/3
2/2
* Resigned 8th November 2016
** Appointed to the Remuneration Committee and the
Audit Committee on 8th November 2016
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 17, 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.
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 Operations 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. George has a depth of
experience both as Chairman and a non-executive
director for a number of other companies, including
other listed companies, details of which can be found in
the Directors’ biographies on page 14.
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 Ronald Verni as Senior
Independent Director. In this role, Ronald provides a
sounding board for the Chairman as well as providing
an additional channel of contact for shareholders, other
Directors or employees, if the need arises.
In addition to matters outlined above, there is regular
communication between executive and non-executive
Directors, including where appropriate, updates
on matters requiring attention prior to the next
Board meeting. The non-executive Directors meet,
as appropriate but no less than annually, without
executive Directors being present and further meet
annually without the Chairman present.
Effectiveness
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 responsibility for the running of
the company’s business. No one individual should have
unfettered powers of decision.”
The Composition of the Board
“The Board and its committees should have the
appropriate balance of skills, experience, independence
and knowledge of the company to enable them to
discharge their respective duties and responsibilities
effectively.”
The 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
The composition of the Board has been designed to give
a good mix and balance of different skill sets, including
significant experience in:
high growth companies;
software and healthcare sectors;
entrepreneurial cultures;
senior financial reporting;
both UK and US companies;
acquisitions; and
other listed companies.
19
Craneware plc Annual Report 2017
Corporate Governance Report [Cont’d.]
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.
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, with appropriate consideration being given,
in regards to executive appointments, to internal
and external candidates. Before undertaking the
appointment of a non-executive Director, the Chairman
establishes that the prospective Director can give the
time and commitment necessary to fulfil their duties,
in terms of availability both to prepare for and attend
meetings and to discuss matters at other times.
Any conflicts, or potential conflicts, of interest are
disclosed and assessed prior to a new Director’s
appointment to ensure that there are no matters
which would prevent that person from accepting the
appointment. The Group has procedures in place for
managing conflicts of interest and Directors have
continuing obligations to update the Board on any
changes to these conflicts. This process includes relevant
disclosure at the beginning of each Board meeting. If
any potential conflict of interest arises, the Articles of
Association permit the Board to authorise the conflict,
subject to such conditions or limitations as the Board
may determine.
Commitment
“All directors should be able to allocate sufficient
time to the company to discharge their
responsibilities effectively.”
All Board Directors recognise the need to allocate
sufficient time to the Company for them to be able
to meet their responsibilities as Board members. All
non-executive 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 14 and 15. The Board has evaluated the time
commitments required by these other roles and does
not believe it affects their ability to perform their duties
with the Company. No executive Director currently
holds any other directorship of a listed company. The
non-executive Director contracts are available for
inspection at the Company’s registered office and are
made available for inspection both before and during
the Company’s Annual General Meeting.
In addition, the non-executive Directors periodically
meet with the Group’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.”
Development
“All Directors should receive induction on joining the
Board and should regularly update and refresh their skills
and knowledge.”
The Chairman is responsible for ensuring that all
the Directors continually update their skills, their
knowledge and familiarity with the Group in order
to fulfil their role on the Board and the Board’s
Committees. Updates dealing with changes in
legislation and regulation relevant to the Group’s
business are provided to the Board by the Company
Secretary/Chief Financial Officer and through the
Board Committees.
All Directors have access to the advice and services
of the Company Secretary, who is responsible to the
Board for ensuring that Board procedures are properly
complied with and that discussions and decisions are
appropriately minuted. Directors may seek independent
professional advice at the Company’s expense in
furtherance of their duties as Directors.
Training in matters relevant to their role on the Board
is available to all Board Directors. New Directors are
provided with an induction in order to introduce them
to the operations and management of the business.
Appropriate Information
“The board should be supplied in a timely manner with
information in a form and of a quality appropriate to
enable it to discharge its duties.”
In setting the Board agendas, the Chairman, in
conjunction with the Company Secretary, ensures input
is gathered from all Directors on matters that should be
included. Board papers are then issued in advance of
meetings to ensure Board members have appropriate
detail in regards to matters that will be covered,
thereby encouraging openness and healthy debate. At
a minimum these board papers include the Financial
Results of the Group and a report from both the Chief
Executive Officer and the Chief Financial Officer.
Following Neil Heywood’s resignation, the Board
reviewed the skills and attributes of the individual
Directors to identify a skills set that would be required
from a new non-executive Director. In addition, the
remuneration and audit committees were reviewed
for both performance and skill sets. In regards to the
committees, Russ Rudish has been appointed to both
committees and Colleen Blye has been appointed
chairman of the Audit Committee. The Board is
proposing a full formal evaluation, in the current
Financial Year. This is expected to take the form of
a detailed questionnaire to be completed by each
Director. This evaluation will include a review of the
performance of individual Directors including the
Chairman and the Board Committees.
Overall the Board has concluded that its performance
in the period under review 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.
20
Craneware plc Annual Report 2017 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. It is the intention
of all Directors to stand for re-appointment.
Accountability
Financial and Business Reporting
“The Board should present a fair, balanced and
understandable assessment of the company’s position
and prospects.”
The Board recognises its responsibilities, including those
statutory responsibilities laid out on page 18. An
assessment of the Group’s market, business model and
performance is presented in the Chairman’s Statement
and the Strategic Review on pages 5 to 12.
As detailed on page 16 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 principal 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
12. 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 and risk management and internal
control principles and for maintaining an appropriate
relationship with the Company's auditors.”
An Audit Committee has been established to assist
the Board with the discharge of its responsibilities in
relation to internal and external audits and controls.
The Audit Committee will normally meet at least three
times a year. The Audit Committee was chaired by Neil
Heywood until he left the Board in November 2016.
At that time, Colleen Blye took over as chair and Russ
Rudish joined the Committee, its other member is
Ronald Verni. The Chief Financial Officer, Chief Executive
Officer and other senior management attend meetings
by invitation and the Committee also meets the external
auditors without management present. Colleen Blye, as
chair of the Audit Committee has recent and relevant
financial experience.
Details of how the Audit Committee has discharged its
responsibilities are provided below.
Remuneration
The Level and Components of Remuneration
“Executive Directors’ remuneration should be designed
to promote the long-term success of the company.
Performance-related elements should be transparent,
stretching and rigorously applied.”
The Company has established a Remuneration
Committee to assist the Board in this area. This
Committee comprises non-executive directors and is
chaired by Ronald Verni and its other members are
Colleen Blye and Neil Heywood, until he left the Board
in November 2016, at which point Russ Rudish joined
the Committee. 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
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 23 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 Committee’s Report on pages 23
to 27.
21
Craneware plc Annual Report 2017 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. Ronald Verni as Senior
Independent Director is available as a point of
contact should a shareholder not wish to contact the
Chairman for any reason.
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 (at www.craneware.com)
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 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’s auditors, which include non-audit work and
any related fees over and above a de-minimis level to
be approved in advance by the Chairman of the Audit
Committee. 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
has 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 company to:
have in place sufficient procedures, resources and
controls to enable its compliance with the AIM
Rules;
seek advice from its Nominated Advisor (“Nomad”)
regarding its compliance with the AIM Rules
whenever appropriate and take that advice into
account;
provide the Company’s Nomad with any information
it reasonably requests in order for the Nomad to
carry out its responsibilities under the AIM Rules
for Nominated Advisors, including any proposed
changes to the Board and provision of draft
notifications in advance;
ensure that each of the Company’s Directors accepts
full responsibility, collectively and individually, for
compliance with the AIM Rules; and
ensure that each Director discloses without delay
all information which the Company needs in
order to comply with AIM Rule 17 (Disclosure
of Miscellaneous Information) insofar as that
information is known to the Director or could with
reasonable diligence be ascertained by the Director.
Approved by the Board of Directors and signed on
behalf of the Board by:
Craig Preston
Company Secretary
4 September 2017
22
Craneware plc Annual Report 2017 Remuneration Committee's Report
This report sets out Craneware plc’s remuneration
and benefits provided to Directors 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. As an AIM listed
company, Craneware plc is not required to comply
with the Directors’ Remuneration Report regulations
requirements under Main Market UK Listing Rules or
those aspects of the Companies Act 2006 applicable to
listed companies.
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 Ronald Verni (Chairman),
Colleen Blye and Neil Heywood until he left the Board
in November 2016 at which point Russ Rudish was
appointed to the Committee in his place. None of the
Committee has any personal financial interests, other
than as shareholders (in the case of Neil Heywood),
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 Committee met three times during
the year and the meeting attendance is shown on
page 19.
The remuneration of the non-executive Directors is
determined by the Board as a whole within limits set
out in the Articles of Association. The non-executive
Directors do not participate in performance related
bonus or share based incentive arrangements.
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:
Directors’ salaries into line. In addition, to recognise the
performance of the Company over this extended period,
a one-off payment was made to address the shortfall
in compensation that had occurred over these previous
years (“Benchmark Adjustment”). These one-time
payments, which are non-pensionable, are detailed
separately in the table on page 26.
Pension entitlement
(ii)
The Company operates an open enrolment pension
scheme in which all UK employees, including executive
Directors, are entitled to participate. As part of
this scheme, the Company has matched employee
contributions into the scheme, this matching has
increased from 1% to 2% during the course of the year.
In addition, the Company pays a fixed sum to a personal
pension plan on behalf of the Chief Executive Officer.
Benefits in kind
(iii)
Executive Directors are entitled to private medical
insurance, life insurance and permanent health
insurance.
(iv)
Annual performance related bonus
Under the annual performance related bonus plan,
executive Directors are eligible to earn a cash bonus
(non-pensionable) 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 partially met in the
current year, a proportion of the performance related
bonus entitlement for the year is payable and is part of
the bonus amounts detailed in the table below.
basic annual salary and benefits in kind;
annual performance related bonus;
pension entitlement; and,
long term incentives.
The Company’s policy is that a substantial proportion
of the remuneration of executive Directors should be
performance related.
None of the executive Directors holds any outside
appointments with any other publicly traded company.
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.
The remuneration package for the executive Directors
comprises:
Basic salary
(i)
This is normally reviewed annually, or when an
individual’s position or responsibilities change and is
normally paid as a fixed cash sum monthly. As reported
in the Remuneration Committee Report section of the
2016 Annual Report, the Committee had identified
that executive remuneration, was significantly below
the levels recommended by previous benchmarking
exercises and had been so for a number of years.
This was despite the performance of the Company
which had seen both growth in the financial results
during this period but also significant shareholder
value. Also during this time, benchmarking studies
had been performed for all employees with annual
adjustments being made to bring compensation in line
with benchmark to ensure remuneration remained
competitive for all employees. As such, in April
2017, the executive Directors’ basic salary levels were
reviewed and adjustments were made to bring the
23
Craneware plc Annual Report 2017 Remuneration Committee's Report [Cont’d.]
Share options and LTIP awards
(v)
During the year and historically since September 2007,
the Company operated the Craneware Employees’
Share Option Plan 2007 (“2007 Share Option Plan”)
from which, and at the discretion of the Committee,
executive Directors and other employees (including
senior management) could be awarded share options
under this scheme.
As explained in the Remuneration Committee’s Report
section of the 2016 Annual Report, the 2007 Share
Option Plan is approaching the tenth anniversary
of its original adoption date (after which no further
grants can be made under its terms) and therefore the
Committee conducted a review to determine whether it
remained the most appropriate form of incentivisation
vehicle for the Company going forward.
In September 2016, the Chief Executive Officer was
awarded share options under this scheme, details of
which are shown in the table on page 27.
Options issued under this scheme 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. Each
option grant is split into three tranches (of no more than
a 1/3 of the total options granted) which allows the
performance criteria to be 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 vests in full. No more than 1/3
of 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.
These performance criteria were met in the current year
and as a result all options that were subject to vesting in
the current year vested but only become exercisable on
the third anniversary of the grant of the original option.
New share plans
The Company implemented three new discretionary
employee share plans in the year ended 30 June 2017,
following approval and authorisation obtained from
shareholders at the Annual General Meeting on 8
November 2016:
The Craneware plc Long Term Incentive Plan (2016)
(the “LTIP”);
The Craneware plc Schedule 4 Company Share
Option Plan (2016) (the "Schedule 4 Option Plan”);
and
The Craneware plc Unapproved Company Share
Option Plan (2016) (the "Unapproved Option Plan”).;
The main conclusion from that review was that, whilst
the 2007 Share Option Plan had, in the past, provided
a satisfactory mechanism for delivering performance-
based rewards to the most senior employees, the
Committee wished to update the Companys approach
in line with best and market practice by implementing
a new arrangement, the LTIP, that will allow for the
grant of awards that require the holder to pay no (or a
nominal) price for their shares.
Although the new LTIP will be used as the primary
means of incentivising senior management going
forward, the Committee was also of the view that it
would be useful for the Company to retain the flexibility
to grant “market value” options if the need arises. For
example, the Committee may decide that, in order to
responsibly manage the share based payment charge
associated with its incentive programme in any year, it
would be appropriate for a participant’s awards to be
granted partly under the LTIP and partly as a market
value option. Accordingly, authority from shareholders
was obtained at the 2016 AGM for two new share option
plans as direct replacements for the 2007 Share Option
Plan. The Schedule 4 Option Plan allows for the grant
of tax advantaged options to UK based participants
over shares worth up to £30,000 per individual; and the
Unapproved Option Plan is used to grant options where
the above limit has been reached or where the relevant
individual is based overseas.
If, in any year, executive directors are given a
combination of LTIP awards and options under the
Schedule 4 / Unapproved Option Plans, the same form
of performance condition will apply across each of the
arrangements and the individual limits on participation
will take into account both forms of grant.
Awards granted under the new share plans in the year
ended 30 June 2017
In March 2017 the Chief Financial Officer was granted
a combination of a conditional share award under the
LTIP and share options under each of the Schedule 4
Option Plan and the Unapproved Option Plan. The total
value of these awards at date of grant was equal to
100% of the basic salary for the Chief Financial Officer.
These awards are included in the tables on page 27.
Conditional share awards and / or share options were
granted to certain other employees (including senior
management) in March 2017 under these new
share plans.
The vesting of the awards granted from the new share
plans in the year are subject to performance conditions
set by the Committee that are appropriate to the
strategic objectives of the business, are considered to
be challenging and in line with best practice/investor
guidelines and are measured over three years.
For the conditional share awards granted under the LTIP
in March 2017 and for share options granted from the
new share option plans, the performance conditions
are based on the Company’s total shareholder return
(“TSR”) performance relative to the performance
achieved by a group of comparable companies in the
same sector (the “Comparator Group”).
The performance conditions are assessed over the
period of three years commencing on the date of grant,
at the end of which each company in the Comparator
Group will be ranked in order of TSR performance.
Vesting will then take place as follows.
Ranking of the Company
against the Comparator
Group
Below median
Median
Upper quartile or above
Between median and upper
quartile
% of Shares comprised
in conditional share
award or share option
that vest
0%
25%
100%
25% – 100% on a straight
line basis
The performance condition is measured in three
tranches such that one third of the Ordinary Shares over
which the conditional share awards and share options
subsist will vest based on performance over the three
years ending on 30 June 2017, one third based on
performance over the three years ending 30 June 2018
and the final third based on performance over the three
years to 30 June 2019 – an aggregate five year period.
Any tranche (or part thereof) that does not meet the
performance criteria will lapse and not be re-tested
in later years. However, notwithstanding the TSR
ranking achieved by the Company, no part of a share
plan award subject to the above conditions will vest
unless the Committee is satisfied that there has been an
overall satisfactory and sustained improvement in the
underlying financial performance of the Company over
the relevant period.
If and to the extent that the performance conditions are
satisfied and subject to the award holder’s continued
employment within the Craneware Group throughout
the period, the conditional share award will normally
vest three years after the date of grant; and the share
options will only become exercisable three years after
the date of grant. Share options will expire, at the
latest, 10 years after the date of grant.
24
Craneware plc Annual Report 2017 Remuneration Committee's Report [Cont’d.]
Source of shares and dilution limits
The LTIP is being operated in conjunction with an Employee Benefit Trust, The Craneware plc Employee Benefit Trust, (“EBT”) which was established during the year ended
30 June 2017. Further details regarding the EBT are contained in Note 18 to the financial statements on page 56.
Conditional share awards granted under the LTIP and share options granted from the new share option plans may be satisfied either by the issue of new Ordinary Shares, the
transfer of shares from treasury or the transfer of existing Ordinary Shares purchased in the market.
In any ten year period, the Company may not issue (or grant rights to issue) more than 10% of the issued ordinary share capital of the Company under the LTIP and any other
employee share plan adopted by the Company. For the purpose of this limit:
any Shares which are purchased in the market by the EBT for the purposes of satisfying Awards will not be counted;
treasury Shares will count as new issue Ordinary Shares unless institutional investors decide that they need not count;
no account will be taken of any Shares where the right to acquire them was released or lapsed prior to vesting / exercise; and
no account will be taken of any Shares where the right to acquire them was granted prior to the Company’s original admission to AIM in 2007.
Details of all share options and conditional share awards, which have been awarded and had not lapsed or been exercised or released at 30 June 2017, are contained in Note 8 to
the financial statements on pages 45 to 47.
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
R Verni
C Blye
R Rudish
Contract Date
Unexpired Term
Normal Notice Period
Founder
15 September 2008
10 August 2007
1 May 2009
12 November 2013
28 August 2014
Rolling
Rolling
1 year 11 months
Rolling
Rolling
Rolling
3 months*
3 months*
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 17.
Directors’ Emoluments (audited)
For Directors who held office during the course of the year, emoluments1 in respect of the year ending 30 June 2017 were as follows (note: with the exception of R Verni, C Blye
and R Rudish, all directors are paid in Sterling; the amounts below are translated into US Dollars at the relevant average exchange rate for period being reported):
Salary/Fees ($)
Benefits 2 ($)
Bonus ($)
Pension ($)
2017 Total ($)
2016 Total ($)
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
N P Heywood3
R Verni
C Blye
R Rudish
Total
300,390
274,359
84,864
16,173
57,228
53,508
51,108
902
877
241,302
178,857
14,340
6,971
556,934
461,064
489,248
465,101
-
-
-
-
-
-
-
-
-
-
-
162
-
-
-
84,864
16,335
57,228
53,508
51,108
96,375
52,046
55,572
49,140
49,632
837,630
1,779
420,159
21,473
1,281,041
1,257,114
1. Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company held by the Directors.
2. Benefits represent payments for health insurance, death in service and disability insurance.
3. N P Heywood resigned from the Board 8th November 2016.
25
Craneware plc Annual Report 2017 Remuneration Committee's Report [Cont’d.]
The following Directors were paid in Sterling:
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
N P Heywood
Total
Salary/Fees (£)
Benefits (£)
Bonus (£)
Pension (£)
2017 Total (£)
2016 Total (£)
236,751
216,235
66,885
12,746
532,617
711
691
190,181
140,966
11,302
5,494
438,945
363,386
329,786
313,509
-
-
-
-
-
127
66,885
12,873
64,956
35,078
1,402
331,147
16,923
882,089
743,329
In addition, as detailed in section (i) of this report, the following one-time, non-pensionable, Benchmark Adjustment payments were made in relating to prior years
compensation.
Executives
K Neilson
C T Preston
Total
2017
$
2016
$
2017
£
2016
£
351,343
72,886
424,229
-
-
-
276,910
57,445
334,355
-
-
-
Total Shareholder Return Performance Graph
The following graph charts the cumulative shareholder return of the Company over the past three years, compared to the FTSE AIM all share Index and the FTSE techMARK Focus
Index. The FTSE AIM all share index provides a comparison to a broad equity market index (of which Craneware is a constituent company). The FTSE techMARK Focus Index is
selected because the constituents of this index are affected by similar economic and commercial factors to Craneware.
26
Craneware plc Annual Report 2017 Remuneration Committee's Report [Cont’d.]
Directors’ interests in share options and LTIP awards
Directors’ interests in share options as at 30 June 2017, in respect of Ordinary Shares of 1p each in Craneware plc, were for the following Directors who held office during the
course of the year:
Exercise Price
(cents)
Exercise Price
(pence)
Held At
30/06/16
Granted
During
Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/17
Exercisable from date
Expiry
date
K Neilson
Share Option Plan 2007
Grant Date
23 Dec 2009
6 Sep 2010
21 Sep 2012
10 Sep 2013
22 Sep 2014
9 Mar 2016
12 Sep 2016
C T Preston
Share Option Plan 2007
Grant Date
15 Sep 2008
23 Dec 2009
6 Sep 2010
21 Sep 2012
10 Sep 2013
22 Sep 2014
9 Mar 2016
Schedule 4 Option Plan
534.0
618.0
650.0
621.0
839.0
1066.0
1563.0
365.0
534.0
618.0
650.0
621.0
839.0
1066.0
335.0
401.0
400.0
395.0
523.0
750.0
28,580
13,383
17,438
34,472
39,090
28,628
-
-
-
-
-
-
1177.5
-
36,469
208.0
335.0
401.0
400.0
395.0
523.0
750.0
72,115
25,099
11,721
16,027
32,459
36,808
26,925
-
-
-
-
-
-
-
24 Mar 2017
1544.0
1237.5
Unapproved Option Plan
24 Mar 2017
1544.0
1237.5
-
-
2,424
6,162
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
28,580
13,383
17,438
34,472
39,090
28,628
36,469
72,115
25,099
11,721
16,027
32,459
36,808
26,925
23 Dec 12
23 Dec 19
6 Sep 13
6 Sep 20
21 Sep 15
21 Sep 22
10 Sep 16
10 Sep 23
22 Sep 17
22 Sep 24
1/3rd vested
9 Mar 26
Not yet vested
12 Sep 26
15 Sep 11
15 Sep 18
23 Dec 12
23 Dec 19
6 Sep 13
6 Sep 20
21 Sep 15
21 Sep 22
10 Sep 16
10 Sep 23
22 Sep 17
22 Sep 24
1/3rd vested
9 Mar 26
2,424
Not yet vested
24 Mar 27
6,162
Not yet vested
24 Mar 27
Information regarding total share options, as granted to Directors and other employees, which were in existence during the year is contained in Note 8 to the financial
statements on pages 45 to 47.
The maximum number of Ordinary Shares subject to conditional share awards granted to Directors under the LTIP as at 30 June 2017 were as follows, in respect of Directors who
held office during the course of the year:
Grant date
Held At
30/06/16
Granted
During
Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/17
Share price at date of
grant (pence)
Vesting date
C T Preston
Conditional share award
24 Mar 2017
-
8,586
-
-
8,586
1,237.5
24 Mar 2020
There was no consideration for the grant of the conditional award and no consideration will be payable by the award holder to receive the Shares from this award, if and to the
extent that it vests. The entitlement to shares under the LTIP is subject to achieving the performance conditions referred to on page 24. The table above shows the maximum
entitlement and the actual number of shares (if any) that vest from the award will depend on those conditions being achieved.
On behalf of the Remuneration Committee:
Ronald Verni
Chairman of the Remuneration Committee
4 September 2017
27
Craneware plc Annual Report 2017
Independent Auditors’ Report to the Members of Craneware plc
Report on the audit of the financial statements
Opinion
In our opinion, Craneware plc’s group financial statements and company financial statements (the “financial statements”):
give a true and fair view of the state of the group’s and of the company’s affairs as at 30 June 2017 and of the group’s profit and the group’s and the company’s cash flows for
the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and company balance sheets as at 30 June 2017; the
consolidated statement of comprehensive income, the group and company statements of cash flows, and the group and company statements of changes in equity for the year
then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described
in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s
Ethical Standard as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Materiality
Group financial statements: $842,500 (2016: $705,000), based on 5% of Group profit before taxation.
Company financial statements: $747,690 (2016: $700,000), based on 5% of Company profit before taxation.
Audit Scope
We performed an audit of the complete financial information of Craneware plc and Craneware, Inc.
We also audited material balances in Craneware Insight, Inc and Craneware Healthcare Intelligence LLC.
Taken together, the entities audited comprised 100% of Group revenues.
All audit work was performed by one team in the UK.
Key Audit Matters
Revenue and deferred income (Group and Company).
Provision of income tax (Group and Company).
Internally developed intangible assets (Group and Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the
directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are
inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by
the directors that represented a risk of material misstatement due to fraud.
28
Craneware plc Annual Report 2017 Independent Auditors’ Report to the Members of Craneware plc [Cont’d.]
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
Revenue and deferred income (Group and Company)
(Refer to page 38 (Principal accounting policies)).
The Group has revenue of $57,796k (2016: $49,846k) and deferred income of $29,803k (2016: $28,963k).
The Company has revenue of $53,848k (2016: $45,022k) and deferred income of $29,797k (2016 $27,870k).
These amounts are significant in the context of the Group statement of comprehensive income and the Group
and Company balance sheets. The amount of revenue to be recognised and the amount to be deferred is
calculated manually in a spreadsheet. There is a risk that revenue and deferred income are not recognised
appropriately or within the correct period.
Provision for income tax (Group and Company)
(Refer to page 40 (Principal accounting policies) and page 41 (Critical accounting estimates and
judgements)).
The Group has cross border activities and is subject to tax in the UK and the US. The Directors must regularly
assess the applicability of the transfer pricing policy being applied to revenue transaction between Craneware
Plc and Craneware Inc. We focus on this area as there is judgement involved in the creation of the policy. If
the policy were to be challenged by either the UK or US tax authorities it could lead to a material difference in
the current tax charge.
Internally developed intangible assets (Group and Company)
(Refer to page 39 (Principal accounting policies) and page 41 (Critical accounting estimates and
judgements)).
The Group has $6,191k (2016: $2,829k) and the Company has $5,844k (2016: $2,460k) of Development costs
capitalised on the balance sheet. The Group capitalises development costs when the following criteria have
been met: new product development costs 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.
The Directors are required to continually assess the commercial potential of each product in development
in order to determine if costs can continue to be capitalised. We focus on this area as there is judgement
involved in the Directors' assessment.
How we tailored the audit scope
How our audit addressed the key audit matter
For a sample of revenue transactions we agreed the key inputs
for revenue recognition to contracts, and agreed to invoices and
cash receipts. For each transaction tested we recalculated the
revenue recognised in the current year and agreed amounts
recognised as deferred income in order to conclude that the
correct amount of revenue had been recognised and in the
correct period. A sample of revenue transactions recorded post
year end were assessed to conclude that they should not have
been recorded in an earlier period. No matters arose during our
testing.
We obtained and assessed the transfer pricing policy that
management has in place. We reviewed the transfer pricing
adjustments to confirm they were made in line with the policy.
On a sample basis we agreed additions to intangible assets
to supporting documentation, including invoices and time
records. The nature of the costs being capitalised was assessed
to ensure it met the accounting requirements to capitalise.
Discussions were held with management in order to understand
how all criteria for capitalisation had been met and supporting
evidence was obtained to corroborate this.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the
structure of the group and the company, the accounting processes and controls, and the industry in which they operate.
The group is comprised of five entities. We performed an audit of the complete financial information of Craneware plc and Craneware, Inc due to their financial significance
within the group. We also audited material balances in Craneware Insight, Inc and Craneware Healthcare Intelligence LLC. Taken together, the entities where we performed our
audit work accounted for 100% of Group revenues.
All audit work was undertaken by a single engagement team at the Group's head office.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in
29
Craneware plc Annual Report 2017 Independent Auditors’ Report to the Members of Craneware plc [Cont’d.]
evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
$842,500 (2016: $705,000).
$747,690 (2016: $700,000).
How we determined it
5% of profit before taxation.
5% of profit before taxation.
Rationale for benchmark
applied
Consistent with last year, we have applied this
benchmark, a generally accepted auditing practice.
We also believe the measure of profit before tax is the
measure most commonly used by the shareholders to
measure the performance of the Group.
We have applied this benchmark, a generally accepted auditing
practice. We also believe the measure of profit before tax is the
measure most commonly used by the shareholders to measure
the performance of the Company.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across
components was between $550,000 and $812,000. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $42,125 (Group audit) (2016: $35,250) and $37,400
(Company audit) (2016: $35,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:
the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s and company’s ability to
continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s and company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible
for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the
extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material
inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as
described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 30 June 2017 is
consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report.
30
Craneware plc Annual Report 2017
Independent Auditors’ Report to the Members of Craneware plc [Cont’d.]
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 18, the directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations,
or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
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
certain disclosures of directors’ remuneration specified by law are not made; or
the parent company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Kenneth Wilson
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
4 September 2017
Notes:
(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.
31
Craneware plc Annual Report 2017 Consolidated Statement of Comprehensive Income for the year ended 30 June 2017
Continuing operations:
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Analysed as:
Adjusted EBITDA1
Acquisition costs and share related transactions
Share based payments
Depreciation of plant and equipment
Contingent consideration on business combination
Amortisation and impairment of intangible assets
Finance income
Profit before taxation
Tax on profit on ordinary activities
Profit for the year attributable to owners of the parent
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency Translation Reserve movement
Total items that may be reclassified subsequently to profit or loss
Total comprehensive income attributable to owners of the parent
Notes
4
5
6
8
13
14
9
10
Total
2017
$’000
57,796
(3,582)
54,214
Total
2016
$’000
49,846
(3,011)
46,835
(37,588)
(33,024)
16,626
13,811
18,002
15,863
-
(283)
(478)
-
(556)
(251)
(442)
1,005
(615)
(1,808)
258
16,884
(3,359)
13,525
112
13,923
(3,348)
10,575
40
40
-
-
13,565
10,575
1Adjusted EBITDA is defined as operating profit before acquisition costs, share based payments, depreciation, contingent consideration, amortisation, impairment
and share related transactions.
The accompanying notes are an integral part of these financial statements.
32
Craneware plc Annual Report 2017 Statements of Changes in Equity for the year ended 30 June 2017
Group
At 1 July 2015
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 2016
Total comprehensive income - profit for the year
Total other comprehensive income
Transactions with owners:
Company shares acquired by employee benefit trust
Share-based payments
Impact of share options exercised / lapsed
Dividends (Note 11)
At 30 June 2017
Company
At 1 July 2015
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 2016
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 2017
Share
Capital
$’000
Share
Premium
Account
$’000
536
17,356
-
-
-
-
-
-
95
-
536
17,451
-
-
-
-
1
-
-
-
-
-
523
-
537
17,974
536
17,356
-
-
-
-
-
-
95
-
536
17,451
-
-
1
-
-
-
523
-
537
17,974
Other
Reserves
$’000
378
-
251
(74)
-
555
-
-
-
519
(116)
-
958
285
-
141
(45)
-
381
-
159
(36)
-
504
Retained
Earnings
$’000
29,360
10,575
210
74
(5,953)
34,266
13,525
40
Total
Equity
$’000
47,630
10,575
461
95
(5,953)
52,808
13,525
40
(3,083)
(3,083)
1,078
416
(6,356)
39,886
24,161
8,773
-
138
(5,953)
27,119
12,052
627
98
(6,356)
33,540
1,597
824
(6,356)
59,355
42,338
8,773
141
188
(5,953)
45,487
12,052
786
586
(6,356)
52,555
Other 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.
33
Craneware plc Annual Report 2017 Consolidated Balance Sheet as at 30 June 2017
ASSETS
Non-Current Assets
Plant and equipment
Intangible assets
Trade and other receivables
Deferred tax
Current Assets
Trade and other receivables
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
Share capital
Share premium account
Other reserves
Retained earnings
Total Equity
Total Equity and Liabilities
Registered Number SC196331
Notes
2017
$’000
2016
$’000
13
14
16
17
16
20
21
18
1,375
19,845
4,278
3,102
28,600
15,381
53,170
68,551
97,151
-
-
29,803
198
7,795
37,796
37,796
537
17,974
958
39,886
59,355
97,151
1,213
16,535
4,581
1,685
24,014
20,953
48,812
69,765
93,779
4
4
28,963
2,353
9,651
40,967
40,971
536
17,451
555
34,266
52,808
93,779
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 32 to 59 were approved and authorised for issue by the Board of Directors on 4 September 2017 and signed on its behalf by:
Keith Neilson
Director
Craig Preston
Director
34
Craneware plc Annual Report 2017 Company Balance Sheet as at 30 June 2017
ASSETS
Non-Current Assets
Investment in subsidiary undertakings
Plant and equipment
Intangible assets
Deferred Tax
Amounts owed from group companies
Current Assets
Trade and other receivables
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
Share capital
Share premium account
Other reserves
Retained earnings
At 1 July
Profit for the year attributable to owners
Other changes in retained earnings
Total Equity
Total Equity and Liabilities
Notes
2017
$’000
2016
$’000
15
13
14
17
16
16
20
21
18
10,107
826
6,240
980
6,000
24,153
15,468
49,819
65,287
89,440
-
-
29,797
1,539
5,549
36,885
36,885
537
17,974
504
33,540
27,119
12,052
(5,631)
52,555
89,440
10,107
838
2,603
405
6,000
19,953
16,573
45,324
61,897
81,850
4
4
27,870
1,019
7,470
36,359
36,363
536
17,451
381
27,119
24,161
8,773
(5,815)
45,487
81,850
Registered Number SC196331
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 32 to 59 were approved and authorised for issue by the Board of Directors on 4 September 2017 and signed on its behalf by:
Keith Neilson
Director
Craig Preston
Director
35
Craneware plc Annual Report 2017 Statements of Cash Flows for the year ended 30 June 2017
Cash flows from operating activities
Cash generated from operations
Interest received
Tax paid
Net cash generated 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
Company shares acquired by employee benefit trust
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.
Group
Company
2017
$’000
2016
$’000
2017
$’000
2016
$’000
23,068
258
(5,474)
17,852
(654)
(3,925)
(4,579)
(6,356)
524
(3,083)
(8,915)
4,358
48,812
53,170
17,564
112
(2,254)
15,422
(418)
(2,166)
(2,584)
(5,953)
95
-
(5,858)
6,980
41,832
48,812
19,378
420
(2,271)
17,527
(251)
(3,866)
(4,117)
(6,356)
524
(3,083)
(8,915)
4,495
45,324
49,819
14,944
245
(1,913)
13,276
(230)
(1,796)
(2,026)
(5,953)
95
-
(5,858)
5,392
39,932
45,324
Notes
19
13
14
11
20
36
Craneware plc Annual Report 2017 Notes to the Financial Statements
General Information
Craneware plc (the Company) is a public limited
company incorporated and domiciled in Scotland.
The Company has a primary listing on the AIM stock
exchange. The address of its registered office and
principal place of business is disclosed on page 13 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, International
Financial Reporting Standards Interpretation Committee
(IFRS IC) interpretations and with those parts of the
Companies Act 2006 applicable to companies reporting
under IFRS. The consolidated financial statements
have been prepared under the historic cost convention
and prepared on a going concern basis. The applicable
accounting policies are set out below, together with
an explanation of where changes have been made to
previous policies on the adoption of new accounting
standards in the year, if relevant.
The preparation of financial statements in conformity
with IFRS requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities
at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting year. 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 financial statements are set out
below. These policies have been consistently applied,
unless otherwise stated.
Reporting currency
The Directors consider that as the Group’s revenues are
primarily denominated in US dollars the Company’s
principal functional currency is the US dollar. The
Group’s financial statements are therefore prepared in
US dollars.
Currency translation
Transactions denominated in currencies other than
US dollars are translated into US dollars at the rate
of exchange ruling at the date of the transaction.
The average exchange rate during the course of the
year was $1.2688/£1 (2016: $1.4837/£1). Monetary
assets and liabilities expressed in foreign currencies
are translated into US dollars at rates of exchange
ruling at the Balance Sheet date $1.30197/£1 (2016:
$1.3397/£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.
IAS 27, ‘Separate financial statements’ (effective 1
January 2016*),
These amendments allow entities to use the equity
method to account for investments in subsidiaries,
joint ventures and associates in their separate financial
statements.
IFRS 10, ‘Consolidated Financial Statements’ and IAS
18, ‘Investments in Associates’ on investment entities
applying the consolidation exception. (effective 1
January 2016*),
These amendments clarify the application of the
consolidated exception for investment entities and their
subsidiaries.
IFRS 11, ‘Joint arrangements’ (effective 1 January
2016*),
This amendment adds new guidance on how to account
for the acquisition of an interest in a joint operation
that constitutes a business. The amendments specify the
appropriate accounting treatment for such acquisitions.
Annual improvements 2014 (effective 1 January
2016*),
IFRS 14, ‘Regulatory deferral accounts’ (effective 1
January 2016*),
This set of annual improvements addresses issues in
the 2012-2014 reporting cycle, which affects four
different standards, none of which are expected to have
a material impact on the Group.
IAS 1, ‘Presentation of financial statements’ (effective 1
January 2016*),
These amendments are as part of the IASB initiative
to improve presentation and disclosure in financial
reports.
IAS 16, ‘Property, plant and equipment’ and IAS 38
‘Intangible assets’ (effective 1 January 2016*),
These amendments clarify that the use of revenue-
based methods to calculate the depreciation of an
asset is not appropriate because revenue generated by
an activity that includes the use of an asset generally
reflects factors other than the consumption of the
economic benefits embodied in the asset. It has also
been clarified by the IASB, that revenue is generally
presumed to be an inappropriate basis for measuring
the consumption of the economic benefits embodied in
an intangible asset.
This standard permits first-time adopters to continue
to recognise amounts related to rate regulation in
accordance with previous GAAP requirements when
they adopt IFRS. However, to enhance comparability
with entities which already apply IFRS and do not
recognise such amounts, the standard requires that the
effect of rate regulation must be presented separately
from other items.
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 have been
adopted early but their potential impact is continually
monitored.
Annual improvements 2014-2016 (effective 1 January
2017*),
37
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
This set of annual improvements addresses issues in the
2014-2016 reporting cycle, which affects three different
standards.
IFRS 2, ‘Share based payments’ (effective 1 January
2018*),
IFRS 4, ‘Insurance contracts’ (effective 1 January
2018*),
IFRS 9, ‘Financial instruments: classification and
measurement’ (effective 1 January 2018*). IFRS 9
requires new disclosures in particular about hedge
accounting, credit risk and expected credit losses;
the Group plans to implement controls it believes
necessary to capture the required data.
IFRS 15, ‘Revenue from contracts with customers’.
The Group has commenced an assessment of the
potential impact on its consolidation financial
statements; this assessment is not yet concluded.
IFRS 16, ‘Leases’ (effective 1 January 2019*). The
Group has commenced and initial assessment of
the potential impact on its consolidated financial
statements; this assessment is not yet concluded.
IFRS 17, ‘Insurance contracts’ (effective 1 January
2021*),
IFRIC 22, ‘Foreign currency transactions and advance
consideration’ (effective 1 January 2018*),
IAS 7, ‘Statement of Cash Flows’ (effective 1 January
2017*),
IAS 12, ‘Income Taxes’ (effective 1 January 2017*),
IAS 40, ‘Investment property’ (effective 1 January
2018*),
The Directors continue to assess the potential
implications of IFRS 15, ‘Revenue from contracts with
customers’ (effective 1 January 2018). The first year end
that is expected to be affected is 30 June 2019.
*effective for accounting periods starting on or after this date.
Basis of consolidation
The consolidated Statement of Comprehensive Income,
Balance Sheet, Statement of Changes in Equity
and Statement of Cash flows include the financial
statements of the Company and its subsidiaries.
Subsidiaries are all entities over which the Group has
control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability
to affect those returns through its power over the
entity. 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 a financial asset
or financial liability is recognised in accordance with
IAS 39 in the Statement of Comprehensive Income and
any balances at the balance sheet date are categorised
as ‘fair value through profit and loss’. 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.
‘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 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
38
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
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.
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.
(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 historic 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
39
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
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 and on
the vesting of conditional share awards 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 and conditional share awards. 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.
Kestros Ltd
Kestros Ltd (SC362481), one of Craneware plc's
subsidiaries is exempt from the requirement for its
financial statements to be audited under the provisions
of section 479 A of the Companies Act 2006.
Operating leases
The costs of operating leases are charged on a straight
line basis over the duration of the leases in arriving at
operating profit.
Financial assets
TThe 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 ‘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 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.
40
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
2 Critical accounting estimates
and judgements
The preparation of financial statements in accordance
with IFRS requires the Directors to make critical
accounting estimates and judgements that affect the
amounts reported in the financial statements and
accompanying notes. The estimates and assumptions
that have a significant risk of causing material
adjustment to the carrying value of assets and liabilities
within the next financial year are discussed below:
Impairment assessment:- the Group tests
annually whether Goodwill has suffered any
impairment and for other assets including acquired
intangibles at any point where there are indications
of impairment. This requires an estimation of
the recoverable amount of the applicable cash
generating unit to which the Goodwill and other
assets relate. Estimating the recoverable amount
requires the Group to make an estimate of the
expected future cash flows from the specific cash
generating unit using certain key assumptions
including growth rates and a discount rate.
Reasonable changes to these assumptions such as
increasing the discount rate by 5% (18% to 23%)
and decreasing the long-term growth rate applied
to revenues by 1% (2% to 1%) would still result in
no impairment in goodwill.
Provisions for income taxes:- the Group is
subject to tax in the UK and US and this requires the
Directors to regularly assess the applicability of its
transfer pricing policy.
Capitalisation of development expenditure:-
the Group capitalises development costs provided
the aforementioned conditions have been met.
Consequently, the Directors require to continually
assess the commercial potential of each product in
development and its useful life following launch.
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 and / or conditional
share awards to certain employees. In accordance with
IFRS 2, “Share Based Payments”, equity-settled share
based payments are measured at fair value at the date
of grant. Fair value is measured using the Black-Scholes
pricing model or the Monte Carlo pricing model, as
appropriately amended, taking into account the terms
and conditions of the share based awards. The fair value
determined at the date of grant of the equity-settled
share based payments is expensed on a straight-line
basis over the vesting period, based on the Group’s
estimate of the number of shares that will eventually
vest. Non-market vesting conditions are included in
assumptions about the number of options that are
expected to vest. At the end of each reporting period,
the entity revises its estimates of the number of options
that are expected to vest based on the non-market
vesting conditions. It recognises the impact of the
revision to original estimates, if any, in the Statement
of Comprehensive Income, with a corresponding
adjustment to equity. When the options are exercised
and are satisfied by new issued shares, the proceeds
received net of any directly attributable transaction
costs are credited to share capital and share premium.
The share based payments charge is included in
‘operating expenses’ with a corresponding increase in
‘Other reserves’.
Share capital
Ordinary shares are classified as equity.
Dividends
Dividends are recorded in the financial statements
in the year in which they are approved by the
shareholders. Interim dividends are recognised as a
distribution when paid.
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, counterparty risk and
liquidity risk.
Risk management is carried out under policies approved
by the Board of Directors. The Board provides written
principles for overall risk management, as well as
written policies covering specific areas, such as foreign
exchange risk, interest rate risk and credit risk.
(a) Market risk
(i) Foreign exchange risk
Foreign exchange risk arises when commercial
transactions or recognised assets or liabilities are
denominated in a currency that is not the entity’s
functional currency. The Group operates primarily in
the US however a significant proportion of costs are
incurred in Sterling.
Management are therefore required to continually
assess the Group’s foreign exchange risk against the
Group’s functional currency, and whether any form
of hedge should be entered into. A cash flow hedge
arrangement, comprising forward exchange contracts
in respect of highly probable forecast transactions was
utilised during the year. These contracts were concluded
in the year with none outstanding at the year-end. The
Board continues to assess the appropriateness of the
Group’s hedging policy.
The Directors believe that a 10% change in the value
of Sterling relative to the US dollar would impact
post-tax profits and equity between approximately
$1,380,000 and $1,260,000 (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 other variables held
constant, alter post-tax profit and equity for the year in
the region of $119,000 higher/lower respectively. The
Directors believe that 25 basis points is appropriate
for the sensitivity analysis based on recent
market conditions.
41
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
3 Financial risk management (cont’d.)
(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 has treasury deposits spread across a range of
reputable banks, the details of which are disclosed on page 13.
(d) Liquidity risk
Management reviews 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 2016
Trade and Other Payables
9,155
At 30 June 2017
Trade and Other Payables
7,741
-
-
-
-
-
-
Total
$’000
9,155
7,741
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.
4 Revenue
The chief operating decision maker has been identified as the Board of Directors. The Group revenue is derived almost entirely from the sale of software licenses, 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.
2017
$’000
49,556
8,240
57,796
2016
$’000
43,170
6,676
49,846
Software licensing
Professional services
Total revenue
42
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
5 Operating expenses
Operating expenses comprise the following:
Sales and marketing expenses
Client servicing
Research and development
Administrative expenses
Acquisition Costs
Share based payments (Note 8)
Depreciation of plant and equipment (Note 13)
Contingent consideration of business combination
Amortisation and Impairment of intangible assets (Note 14)
Exchange (gain)/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 (Note 13)
Amortisation of intangible assets (Note 14)
Impairment of intangible assets (Note 14)
Impairment of trade receivables
Operating lease rents for premises
Services provided by the Group’s auditors
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
2017
$’000
7,326
10,688
9,108
9,216
-
283
478
-
615
(126)
2016
$’000
7,634
9,285
7,668
6,340
556
251
442
(1,005)
1,808
45
37,588
33,024
2017
$’000
26,861
478
615
-
653
1,173
2017
$’000
75
135
210
2016
$’000
22,329
442
803
1,005
381
974
2016
$’000
67
113
180
43
Craneware plc Annual Report 2017
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
Pension costs - defined contribution plans
Share based payments
Total direct costs of employment
Highest paid director:
Salary and short-term employee benefits
Pension costs - defined contribution plans
Share-based payments
2017
Group
Number
2016
Group
Number
2017
Company
Number
2016
Company
Number
32
89
112
30
263
2017
Group
$’000
24,311
1,954
313
283
26,861
32
78
92
28
230
2016
Group
$’000
20,254
1,748
76
251
22,329
-
31
73
21
125
1
30
63
21
115
2017
Company
$’000
2016
Company
$’000
11,133
1,027
210
158
12,528
2017
$’000
894
14
32
940
8,283
715
87
141
9,226
2016
$’000
479
11
33
523
The highest paid Director did not exercise any shares during the year (2016: Nil).
Directors’ emoluments are detailed in the Remuneration Committee’s Report on page 25 and key management compensation is given in the Related Party Transaction note on
page 58 . Retirement benefits are accruing for two of the executive Directors under a defined contribution scheme (2016: three).
44
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
8 Share-based payments
During the year the Group operated four equity-settled share based payment plans whereby options over, or conditional awards of, Ordinary Shares in Craneware plc can be
granted to employees and executive Directors. Directors’ interests in share plan awards are set out in the Remuneration Committee’s Report on page 27. The fair value of the
share based awards is recognised as an expense, with a corresponding increase in equity, during the vesting period. A total share based payments expense of $283,446 (2016:
$250,669) was recognised in the Statement of Comprehensive Income for the year, as stated in Note 7 above, which comprises:
Type of award and name of share plan
Share options granted under the 2007 Share Option Plan
Share options granted under the 2016 Unapproved Share Option Plan
Share options granted under the 2016 Schedule 4 Share Option Plan
Conditional share awards granted under the LTIP
Total share based payments charge
2017
$’000
2016
$’000
237
15
6
25
283
251
-
-
-
251
Share option plans
Share options, granted by the Company to employees in respect of the following number of Ordinary Shares, were outstanding at 30 June 2017.
Date of grant
Exercise
price (GBP)
Exercise
price (USD)
Remaining
life at
1 July 2016
(years)
No. of options
at 1 July 2016
Granted
Exercised
Lapsed
No. of
options at
30 June 2017
Remaining
life at 30
June 2017
(years)
2007 Share Option Plan
15 Sep 2008
22 Dec 2009
06 Sep 2010
04 Sep 2012
21 Sep 2012
28 Jun 2013
10 Sep 2013
22 Sep 2014
09 Mar 2016
01 Apr 2016
£2.08
£3.35
£4.01
£3.60
£4.00
£3.43
£3.95
£5.225
£7.50
£7.50
$3.65
$5.34
$6.18
$5.72
$6.50
$5.20
$6.21
$8.39
$10.66
$10.72
12 Sep 2016
£11.775
$15.63
2016 Unapproved Option Plan
24 Mar 2017
2016 Schedule 4 Option Plan
£12.375
$15.44
24 Mar 2017
£12.375
$15.44
2.2
3.5
4.2
6.2
6.2
7
7.2
8.2
9.7
9.8
-
-
-
72,115
86,034
43,835
33,465
40,534
32,051
172,479
274,061
254,652
10,000
-
-
-
-
-
-
-
-
-
-
-
(6,865)
(1,330)
(19,630)
-
(32,051)
(51,585)
-
-
-
-
-
-
-
-
-
-
(4,700)
(14,025)
-
-
-
-
41,263
67,173
25,856
-
-
-
-
-
-
72,115
79,169
42,505
13,835
40,534
-
120,894
269,361
240,627
10,000
41,263
67,173
25,856
1,019,226
134,292 (111,461)
(18,725)
1,023,332
1.2
2.5
3.2
5.2
5.2
-
6.2
7.2
8.7
8.8
9.2
9.7
9.7
45
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d.)
The weighted average share price at the date of exercise of share options in the year ended 30 June 2017 was £11.96 ($15.17) (2016: £7.52 ($11.16)). The market value of
Craneware plc Ordinary Shares at 30 June 2017 was £12.825 ($16.70) per share. The weighted average remaining contractual life of the options outstanding at 30 June 2017
is 6.7 years (2016: 7.2 years).
Balance outstanding at beginning of the year
Share options granted during the year
Exercised during the year
Lapsed during the year
Balance outstanding at end of the year
Exercisable at end of the year
2017
2016
Number of Options
Weighted average
exercise price (£)
Number of Options
Weighted average
exercise price (£)
1,019,226
134,292
(111,461)
(18,725)
1,023,332
369,051
5.01
12.19
3.70
6.93
6.06
3.45
801,151
267,457
(17,666)
(31,716)
1,019,226
201,984
4.16
7.50
3.70
5.24
5.01
3.04
The Craneware plc Employees’ Share Option Plan 2007 (‘the 2007 Share Option Plan’)
Options over Ordinary Shares were granted under the 2007 Share Option Plan 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, were granted subject to sufficiently stretching performance conditions. These options are subject to time-based vesting and
are not normally exercisable before the third anniversary of the date of grant. Such options lapse no later than the tenth anniversary of the date of grant.
For share option awards granted under the 2007 Share Option Plan, fair value has been estimated on the date of grant using a Black-Scholes option pricing model, as
appropriately adjusted. The Company estimates the number of options likely to vest by reference to the Group’s employee 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 the 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 applied in the option pricing model, in respect of each option grant were as follows:
Date of Grant
12-Sep-16
1-Apr-16
9-Mar-16
22-Sep-14
21-Oct-13
10-Sep-13
28-Jun-13
21-Sep-12
4-Sep-12
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
$15.63
£11.775
3.00
16%
0.15%
2.0%
$15.63
£11.775
2
41,263
$1.07
$10.72
£7.50
3.00
31%
0.48%
2.0%
$10.72
£7.50
1
10,000
$5.78
$10.66
£7.50
3.00
31%
0.51%
2.0%
$10.66
£7.50
49
257,459
$8.39
£5.23
3.00
33%
1.33%
2.4%
$8.39
£5.14
36
306,765
$1.78
$2.28
$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
$0.94
$0.82
As explained in the Remuneration Committee’s Report on page 24, shareholder approval was obtained at the AGM in November 2016 for the establishment of three new
employee share plans (two share option plans and a long term incentive plan) which are outlined below:
The Craneware plc Unapproved Company Share Option Plan (2016)
The Craneware plc Schedule 4 Company Share Option Plan (2016)
Share options were granted under these Plans to certain employees, senior managers and executive Directors in March 2017, as summarised in the table above. The exercise
price of these share options was at the Company share price on the day before the grant date. The market-based performance conditions applicable to all of those share
options granted in March 2017 are outlined in the Remuneration Committee’s Report on page 24.
46
Craneware plc Annual Report 2017 Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d.)
The fair value of the share options granted under these two Plans was estimated using a Monte Carlo pricing model, based on the following assumptions:
Date of Grant
Share price at date of grant
Share price at date of grant
Vesting period (years)
Expected volatility
Risk free rate
Exercise price
Exercise price
Shares under option
Fair value per option
24 Mar 2017
£12.375
$15.44
3
22%
0.23%
£12.375
$15.44
93,029
$2.58
The expected volatility was determined by calculating the historic volatility of the Company's share price over the previous three years.
Long Term Incentive Plan
The Craneware plc Long Term Incentive Plan (2016) (the ‘LTIP’)
Conditional share awards were granted under this Plan to certain senior managers and to the executive Directors in March 2017, as summarised in the table below. The market-
based performance conditions, measured over three consecutive three year periods, applicable to those conditional share awards granted in March 2017, are outlined in the
Remuneration Committee’s Report on page 24.
Balance outstanding at 1 July 2016
Awards granted in the year (on 24 March 2017)
Forfeited / lapsed during the year
Balance outstanding at 30 June 2017
Number of
conditional
share awards
-
46,770
-
46,770
The remaining contractual life of the conditional share awards outstanding at 30 June 2017 is 3.2 years.
The fair values of the conditional share awards granted in 2017 were estimated using the Monte Carlo pricing model with the following main assumptions:
Date of Grant
Share price at date of grant
Share price at date of grant
Vesting period (years)
Expected volatility
Risk free rate
Fair value per conditional share award
24 Mar 2017
£12.375
$15.44
3
22%
0.23%
$6.11
Other share based payments
In addition to the employee share plans detailed above, employee contingent share awards have also been granted by the Company. Contingent share awards in respect of a
total of 94,560 Ordinary Shares were outstanding at 30 June 2017.
There are three sets of non-market performance conditions applicable to the contingent share awards such that the vesting of each one-third amount of the award shares is
assessed against one of the performance conditions. If the respective performance conditions are achieved, and subject to continuous employment within the Group throughout
the period from the grant date, each one third amount of the award shares will vest on 1 July 2019 at the earliest.
The fair value of the contingent share awards is based on the market value of an Ordinary Share on the date of grant. An assessment of the expected extent of vesting of the
awards is made at the end of each reporting period and the share based payments expense recognised is adjusted so that over the whole vesting period the expense recognised
is based on the fair value of the quantity of shares awards that actually vest. As the whole of the expense in the year ended 30 June 2017, in respect of these contingent share
awards, related to employee costs incurred on the eligible development of software, these costs have been capitalised within development costs.
47
Craneware plc Annual Report 2017 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
Tax on profit on ordinary activities
2017
$’000
258
258
2017
$’000
16,884
3,463
(65)
300
3,698
(161)
(178)
-
(339)
3,359
2016
$’000
112
112
2016
$’000
13,923
3,344
54
(86)
3,312
27
25
(16)
36
3,348
The difference between the current tax charge on ordinary activities for the year, reported in the consolidated Statement of Comprehensive Income, and the current
tax charge that would result from applying a relevant standard rate of tax to the profit on ordinary activities before tax, is explained as follows:
Profit on ordinary activities at the UK tax rate 19.75% (2016: 20%)
Effects of:
Adjustment in respect of prior years
Change in tax rate
Additional US taxes on profits 39% (2016: 39%)
Foreign Exchange
Expenses not deductible for tax purposes
Deduction on share plan charges
Total tax charge
3,335
2,785
122
-
209
(65)
(16)
(226)
3,359
(61)
(16)
559
54
27
-
3,348
48
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
11 Dividends
The dividends paid during the year were as follows:-
Final dividend, re 30 June 2016 - 12.1 cents (9 pence)/share
Interim dividend, re 30 June 2017 - 10.83 cents (8.7 pence)/share
Total dividends paid to Company shareholders in the year
2017
$’000
3,246
3,110
6,356
2016
$’000
3,097
2,856
5,953
The proposed final dividend for 30 June 2017 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these financial
statements.
12 Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year.
Profit attributable to equity holders of the Company ($'000)
Weighted average number of Ordinary shares in issue (thousands)
Basic earnings per share ($ per share)
Profit attributable to equity holders of the Company ($'000)
Tax adjusted acquisition costs, share related transactions and amortisation of acquired intangibles ($'000)
Adjusted Profit attributable to equity holders ($'000)
Weighted average number of Ordinary shares in issue (thousands)
Adjusted Basic earnings per share ($ per share)
2017
13,525
26,934
0.502
13,525
329
13,854
26,934
0.514
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.
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 the Company ($'000)
Tax adjusted acquisition costs, share related transactions and amortisation of acquired intangibles ($'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)
2017
13,525
26,934
590
27,524
0.491
13,525
329
13,854
26,934
590
27,524
0.503
2016
10,575
26,838
0.394
10,575
937
11,512
26,838
0.429
2016
10,575
26,838
345
27,183
0.389
10,575
937
11,512
26,838
345
27,183
0.423
49
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
13 Plant and equipment
Group
Cost
At 1 July 2016
Additions
Disposals
At 30 June 2017
Accumulated depreciation
At 1 July 2016
Charge for year
At 30 June 2017
Net Book Value at 30 June 2017
Cost
At 1 July 2015
Additions
Disposals
At 30 June 2016
Accumulated depreciation
At 1 July 2015
Charge for year
Depreciation on disposal
At 30 June 2016
Net Book Value at 30 June 2016
Company
Cost
At 1 July 2016
Additions
At 30 June 2017
Accumulated depreciation
At 1 July 2016
Charge for year
At 30 June 2017
Net Book Value at 30 June 2017
Cost
At 1 July 2015
Additions
At 30 June 2016
Accumulated depreciation
At 1 July 2015
Charge for year
At 30 June 2016
Net Book Value at 30 June 2016
50
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
2,281
383
(3)
2,661
1,779
281
2,060
601
2,148
391
(258)
2,281
1,812
225
(258)
1,779
502
1,045
56
(9)
1,092
920
65
985
107
1,066
15
(36)
1,045
875
76
(31)
920
125
1,643
215
(2)
1,856
1,057
132
1,189
667
1,735
15
(107)
1,643
1,020
141
(104)
1,057
586
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
1,125
89
1,214
868
128
996
218
925
200
1,125
757
111
868
257
644
41
685
624
14
638
47
629
15
644
621
3
624
20
1,529
121
1,650
968
121
1,089
561
1,514
15
1,529
848
120
968
561
Total
$’000
4,969
654
(14)
5,609
3,756
478
4,234
1,375
4,949
421
(401)
4,969
3,707
442
(393)
3,756
1,213
Total
$’000
3,298
251
3,549
2,460
263
2,723
826
3,068
230
3,298
2,226
234
2,460
838
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
14 Intangible assets
Goodwill and Other Intangible assets
Group
Cost
At 1 July 2016
Additions
At 30 June 2017
Accumulated amortisation
At 1 July 2016
Charge for the year
At 30 June 2017
Cost
At 1 July 2015
Additions
Disposals
At 30 June 2016
Accumulated amortisation
At 1 July 2015
Charge for the year
Impairment of acquisition
Amortisation on disposal
At 30 June 2016
Net Book Value at 30 June 2017
11,188
Goodwill
$’000
Customer
Relationships
$’000
Proprietary
Software
$’000
Development
Costs
$’000
Computer
Software
$’000
11,438
-
11,438
250
-
250
2,964
-
2,964
1,713
329
2,042
922
3,043
-
3,043
1,976
-
1,976
1,067
11,438
2,964
3,043
-
-
-
-
-
-
11,438
2,964
3,043
-
-
250
-
250
1,384
329
-
-
1,713
1,251
1,058
163
755
-
1,976
1,067
5,755
3,482
9,237
2,926
120
3,046
6,191
3,796
1,959
-
5,755
2,759
167
-
-
2,926
2,829
993
443
1,436
793
166
959
477
912
207
(126)
993
756
144
-
(107)
793
200
Total
$’000
24,193
3,925
28,118
7,658
615
8,273
19,845
22,153
2,166
(126)
24,193
5,957
803
1,005
(107)
7,658
16,535
Net Book Value at 30 June 2016
11,188
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 core Craneware business cash
generating unit. This is the lowest level of which there are separately identifiable cash flows to assess the goodwill acquired as part of the Craneware InSight Inc purchase.
The 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 18.5%.
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 18% 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.
51
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
14 Intangible assets (cont’d.)
Goodwill and Other Intangible assets (Cont’d.)
Company
Cost
At 1 July 2016
Additions
At 30 June 2017
Accumulated amortisation
At 1 July 2016
Charge for the year
At 30 June 2017
Net Book Value at 30 June 2017
Cost
At 1 July 2015
Additions
At 30 June 2016
Accumulated amortisation
At 1 July 2015
Charge for the year
At 30 June 2016
Net Book Value at 30 June 2016
Development
Costs
$’000
Computer
Software
$’000
5,342
3,482
8,824
2,882
98
2,980
5,844
3,694
1,648
5,342
2,738
144
2,882
2,460
737
384
1,121
594
131
725
396
589
148
737
495
99
594
143
Total
$’000
6,079
3,866
9,945
3,476
229
3,705
6,240
4,283
1,796
6,079
3,233
243
3,476
2,603
15 Investments in subsidiary undertakings
The following information relates to all of the subsidiaries 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
Craneware Health
(Kestros Ltd)
Ordinary
Craneware Healthcare
Intelligence, LLC
Ordinary
100%
100%
100%
100%
Nature of Business
Sales & Marketing
Product Development &
Professional Services
Software Development
Software Development
Craneware Inc, Craneware InSight Inc and Craneware Healthcare Intelligence, LLC are incorporated in the United States of America and Craneware plc holds 10,000 (2016:
10,000) and 1,000 (2016: 1,000) common shares respectively with a nominal value of $0.01 each. Kestros Ltd (t/a Craneware Health) is incorporated within the United Kingdom
and Craneware plc holds 1,075 (2016: 1,075) Ordinary shares respectively with a nominal value of £1 each.
The results of the Subsidiary companies have been included in the consolidated financial statements
Kestros Ltd
Kestros Ltd (SC362481), one of Craneware plc's subsidiaries is exempt from the requirement for its financial statements to be audited under the provisions of section 479 A of the
Companies Act 2006.
52
Craneware plc Annual Report 2017
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
2017
$’000
13,102
(1,353)
11,749
144
-
1,826
5,940
19,659
-
(4,278)
15,381
2016
$’000
16,504
(1,135)
15,369
1,177
-
2,950
6,038
25,534
-
(4,581)
20,953
2017
$’000
12,928
(1,353)
11,575
3,218
6,000
675
-
21,468
(6,000)
-
15,468
2016
$’000
15,932
(1,134)
14,798
1,162
6,000
613
-
22,573
(6,000)
-
16,573
TThere 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 2017, trade receivables of $2,501,771 (2016: $1,313,903) were past due and deemed to be impaired. The amount of the provision against these receivables
was $1,270,008 as of 30 June 2017 (2016: $1,135,429). 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
2017
$’000
48
-
-
2,454
2,502
2016
$’000
-
117
187
1,010
1,314
As at 30 June 2017, trade receivables of $7,335,171 (2016: $7,921,577) 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
2017
$’000
4,297
717
1,162
1,159
2016
$’000
6,279
403
527
713
7,335
7,922
As at 30 June 2017, trade receivables of $2,973,334 (2016: $7,180,798) were not past due or impaired, and the Group does not anticipate collection issues. A further $165,743
was not past due but deemed to be impaired due to a client in financial difficulty. The amount of the provision against these receivables was $82,550 as at 30 June 2017
(2016: None).
53
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
16 Trade and other receivables (cont’d.)
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
2017
$’000
1,135
1,038
(435)
(385)
1,353
2016
$’000
779
499
(25)
(118)
1,135
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 19% (2016: 20%) in the UK and 39% (2016: 39%) in the US
including a provision for state taxes.
The movement on the deferred tax account is shown below:-
At 1 July
Credit/(charge) to comprehensive income
Transfer direct to equity
At 30 June
Group
Company
2017
$’00
1,685
339
1,078
3,102
2016
$’000
1,510
(36)
211
1,685
2017
$’000
405
(21)
596
980
2016
$’000
318
(6)
93
405
54
Craneware plc Annual Report 2017
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 2017 was $3,101,546 (2016: $1,684,964).
Losses
$’000
Share Options
$’000
Long-term
Timing
differences
$’000
Accelerated
tax
depreciation
$’000
Deferred tax assets - recognised
Group
At 1 July 2016
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2017
At 1 July 2015
(Charged)/Credited to comprehensive income
Credited to equity
Total provided at 30 June 2016
Deferred tax liabilities - recognised
Group
At 1 July 2016
Credited to comprehensive income
Total provided at 30 June 2017
At 1 July 2015
Credited to comprehensive income
Total provided at 30 June 2016
Short term
timing
differences
$’000
633
27
-
660
435
198
-
633
-
-
-
-
-
-
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.
817
16
-
833
1,282
(465)
-
817
(562)
73
(489)
(732)
170
(562)
2017
$’000
2,801
790
3,591
(341)
(148)
(489)
3,102
797
223
1,078
2,098
525
61
211
797
Total
$’000
(562)
73
(489)
(732)
170
(562)
2016
$’000
1,457
790
2,247
(341)
(221)
(562)
1,685
Total
$’000
2,247
266
1,078
3,591
2,242
(206)
211
2,247
55
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
17 Deferred taxation (cont'd.)
Deferred tax assets - recognised
Company
At 1 July 2016
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2017
At 1 July 2015
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2016
Deferred tax liabilities - recognised
Company
At 1 July 2016
Credited to comprehensive income
Total provided at 30 June 2017
At 1 July 2015
Credited to comprehensive income
Total provided at 30 June 2016
Share
Options
$’000
465
32
627
1,124
352
20
93
465
Accelerated
tax depreciation
$’000
(60)
(84)
(144)
(34)
(26)
(60)
Total
$’000
465
32
627
1,124
352
20
93
465
Total
$’000
(60)
(84)
(144)
(34)
(26)
(60)
The Group continues to monitor the recoverability of deferred tax assets and are satisfied that the continuing profitability will utilise the assets in respect of losses and there
remains the expectation that share options will be exercised which will give rise to the utilisation of the asset in this regard.
18 Share Capital
Equity share capital
Ordinary shares of 1p each
Allotted called-up and fully paid
2017
2016
Number
$’000
Number
50,000,000
1,014
50,000,000
Equity share capital
Ordinary shares of 1p each
26,961,709
537
26,850,248
2017
2016
Number
$’000
Number
$’000
1,014
$’000
536
The movement in share capital during the year is presented as follows:
111,461 Ordinary Shares were issued due to options that were exercised by employees in the year, as detailed in Note 8 above.
The Company has granted share options and conditional share awards in respect of its Ordinary Shares and details of these are contained in Note 8.
The Company established the ‘The Craneware plc Employee Benefit Trust’ (the ‘EBT’) during the financial year. This is a discretionary trust established, in conjunction with the
operation of the Company’s employee share plans, for the benefit of the employees of the Company and its subsidiaries. The EBT has an independent trustee, RBC Cees Trustee
Ltd. During the year ended 30 June 2017 the Company provided a loan of £2.5m ($3.1m) to the EBT which was due from the EBT to the Company at 30 June 2017. The EBT
purchased 242,930 Craneware plc Ordinary Shares of 1p each in the market on 29 November 2016 at a price of 1025 pence per share and all of those Shares remained in the EBT
as at 30 June 2017. The Shares held by the EBT will be utilised to satisfy employee share plan awards.
56
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
19 Cash generated from operations
Reconciliation of profit before tax to net cash inflow from operating activities
Profit before tax
Finance income
Depreciation on plant and equipment
Amortisation and Impairment on intangible assets
Share-based payments
Movements in working capital:
Decrease/(Increase) in trade and other receivables
(Decrease)/Increase 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 0.54% (2016: 0.26%).
21 Trade and other payables
Trade payables
Amounts owed to group companies
Social security and PAYE
Other creditors
Accruals
Group
Company
2017
$’000
16,884
(258)
478
615
283
6,146
(1,080)
23,068
2016
$’000
13,923
(112)
442
1,808
251
(8,065)
9,317
17,564
2017
$’000
14,986
(420)
269
230
158
1,962
2,193
19,378
2016
$’000
11,538
(245)
234
243
141
(3,771)
6,804
14,944
Group
Company
2017
$’000
53,170
2016
$’000
48,812
2017
$’000
49,819
2016
$’000
45,324
Group
Company
2017
$’000
759
-
54
47
6,935
7,795
2016
$’000
1,473
-
496
63
7,619
9,651
2017
$’000
278
2,217
234
1
2,819
5,549
2016
$’000
400
4,443
223
1
2,403
7,470
Amounts owed to Group companies are non-interest bearing and have no fixed repayment terms. Trade payables are settled in accordance with those terms and conditions
agreed, generally within 30 days, provided that all trading terms and conditions on invoices have been met. The Group’s average payment period at 30 June 2017 was 18 days
(2016: 19 days). Trade and other payables are classified as financial liabilities at amortised cost.
57
Craneware plc Annual Report 2017
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 2017 (2016: $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
2017
$’000
914
3,966
1,191
6,071
2016
$’000
824
3,560
1,693
6,077
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 subsidiary in which Directors and the subsidiary have a material
interest as follows:-
Group
Fees for services provided as non-executive Directors
Fees
Short-term employee benefits
Executive Directors
Short-term employee benefits
Post employment benefits
Share based payments
Other key management
Short-term employee benefits
Post employment benefits
Share based payments
Subsidiary registered addresses listed on page 13.
Charged
$
101,199
161,844
1,420,918
21,311
64,887
1,992,705
22,336
100,052
2017
Outstanding
at year end
$
-
-
844,390
-
-
384,388
-
-
2016
Outstanding
at year end
$
4,095
-
316,891
-
-
380,943
-
-
Charged
$
154,344
148,421
940,792
13,628
64,347
1,918,469
14,075
131,269
58
Craneware plc Annual Report 2017
Notes to the Financial Statements [Cont’d.]
23 Related party transactions (cont’d.)
Company
Charged
$
Fees for services provided as non-executive Directors
Fees
Short-term employee benefits
Executive Directors
Short-term employee benefits
Post employment benefits
Share-based payments
Other key management
Short-term employee benefits
Post employment benefits
Share-based payments
Amounts due to Craneware Inc - Subsidiary company
Sales commission
Net operating expenses
Balance
Net Amounts due from Craneware InSight Inc - Subsidiary company
Balance
Net Amounts due from Craneware Health/Kestros - Subsidiary company
101,199
161,844
1,420,918
21,311
64,887
566,335
17,925
33,597
21,812,184
4,849,023
-
Balance
Net Amounts due to Craneware Healthcare Intelligence - Subsidiary company
Balance
-
-
-
2017
Outstanding
at year end
$
-
-
844,390
-
-
145,656
-
-
-
-
2,800,613
7,331,174
1,080,695
1,828,578
2016
Outstanding
at year end
$
4,095
-
316,891
-
-
181,999
-
-
-
-
2,530,272
3,300,809
786,442
-
Charged
$
154,344
148,421
940,792
13,628
64,347
913,303
14,075
72,578
21,383,869
2,669,387
-
-
-
-
Note 18 contains details of the transactions and balances between the Company and the employee benefit trust during and at the end of the financial year.
Key management are considered to be the Directors together with the Chief Intelligence Officer, Chief Technology Officer, the Chief Marketing Officer, Chief People Officer, EVP of
Sales and EVP of Customer Management.
There were no other related party transactions in the year which require disclosure in accordance with IAS 24.
24 Ultimate controlling party
The Directors have deemed that there are no controlling parties of the Company.
59
Craneware plc Annual Report 2017 Personal Notes
60
Craneware plc Annual Report 2017 Personal Notes
61
Craneware plc Annual Report 2017 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