Craneware plc Annual Report
for the year ended 30 June 2019
Together, We Are
Founded in 1999
Craneware plc Annual Report 2019 Helping healthcare providers further
their mission through optimal
financial performance
Table of
Contents
Financial and Operational Highlights 1
Craneware Solutions 2
Chairman's Statement 4
Strategic Report: Operational Review 5
Strategic Report: Financial Review 8
Strategic Report: Key Performance Indicators and Principal Risks and Uncertainties 13
Directors, Secretary, Advisors and Subsidiaries 17
Board of Directors 18
Directors' Report 20
Corporate Governance Report 24
Remuneration Committee's Report 32
Independent Auditors’ Report to the Members of Craneware plc 39
Consolidated Statement of Comprehensive Income for the year ended 30 June 2019 43
Statements of Changes in Equity for the year ended 30 June 2019 44
Consolidated Balance Sheet as at 30 June 2019 45
Company Balance Sheet as at 30 June 2019 46
Statements of Cash Flows for the year ended 30 June 2019 47
Notes to the Financial Statements 48
Craneware plc Annual Report 2019 Financial and Operational Highlights
Financial
Revenue increased 6% to $71.4m (FY18: $67.1m)
Adjusted EBITDA1 increased 11% to $24.0m (FY18: $21.6m)
Profit before tax of $18.3m (FY18: $18.9m) the reduction being as a result of $1.2m one-off
costs related to a significant proposed acquisition that the Board decided not to enter into
during the year
Basic adjusted EPS2 increased 5% to $0.633 (FY18: $0.602) and adjusted diluted EPS
increased to $0.620 (FY18: $0.591)
Renewal rate remains above 100% by dollar value
Three Year Total Visible Revenue of $200.1m (FY18 same 3 year period: $191.0m)
Operating cash conversion at 63% of Adjusted EBITDA – further $8.5m collected post
year end – equating to 98% conversion
Cash at year-end of $47.6m (FY18: $52.8m) after having returned $8.5m to shareholders
via dividends
Proposed final dividend of 15.0p (19.05 cents) (FY18: 14.0p, 18.48 cents) per share giving a
total dividend for the year of 26.0p (33.02 cents) (FY18: 24.0p, 31.68 cents) per share
1 Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation and share based payments.
2 Adjusted Earnings per share calculations allow for the tax adjusted acquisition costs and share related
transactions together with amortisation on acquired intangible assets.
Operational
Ongoing transition of the US healthcare market to value-based care, supporting Craneware’s
software product suite
Sales in the year amounted to $63.1m (FY18: $98.6m, FY17: $54.0m)
Sales of Trisus Enterprise Value Platform products represented 13% of new sales in the year
(FY18: 4%)
Healthy sales mix, with 45% of sales relating to new customers
Continued investment in R&D and innovation to capitalise on growing market opportunity
Supportive market environment, with existing customers and wider healthcare market
responding positively to the enhanced solution set delivered on the Trisus platform
Quick Facts — Financial
$71.4m
Revenue
$24.0m
Adjusted EBITDA1
$18.3m
Profit before tax
63.3¢
Adjusted EPS2
$47.6m
Cash
15p
Final Dividend
80
70
60
50
40
30
20
10
0
80
70
60
50
40
30
20
10
0
80
70
60
50
40
30
20
10
0
71.4
67.1
57.8
49.8
44.8
24.0
21.6
25
20
14.4
15
18.0
15.9
70
60
50
42.9
40
37.8
63.3
60.2
51.4
2015
2016 2017
2018
2019
Revenue $m
71.4
67.1
57.8
49.8
44.8
10
5
0
25
20
30
20
10
0
2015
2016 2017
2018
2019
2015
2016 2017
2018
2019
Adjusted EBITDA1 $m
Basic adjusted EPS cents/share
24.0
21.6
18.0
15.9
63.3
60.2
1
51.4
70
60
50
42.9
40
37.8
30
20
10
0
70
60
50
40
30
20
10
0
14.4
15
10
5
0
25
20
15
10
5
0
2015
2016 2017
2018
2019
2015
2016 2017
2018
2019
2015
2016 2017
2018
2019
Craneware plc Annual Report 2019 Craneware Solutions
Chargemaster Tooolkit®
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
Trisus® Supply
Utilizes foundational
data from the item
master, OR file, and
chargemaster to identify
data gaps between the
systems, ensuring every
reimbursable supply,
implant, and device is
billed.
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.
>_
Physician Revenue Toolkit®
SaaS solutions for
managing physician
group KPIs, charges,
codes, RVUs, fee
schedules, and related
information
Charge Capture
& Pricing
Web-based and mobile-
friendly tool for reducing
risk by providing access to
reference and regulatory
resources.
Online Reference Toolkit®
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.
Pharmacy ChargeLink®
SaaS solution that
simplifies the price
modelling process,
creating a repeatable,
well-documented
method to establish
transparent, defensible
and competitive pricing.
Trisus® Pricing Analyzer
Interface Scripting Module
Software that
automatically uploads
chargemaster changes to
the patient billing system
for accurate billing.
Patient
Engagement
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.
Supplies Assistant
Craneware Value Cycle Solutions span five product families – Patient Engagement, Charge Capture & Pricing, Claims Analytics, Revenue Recovery & Retention, and Cost & Margin Analytics.
In addition, hospitals of all sizes and types rely on Craneware’s Customer Success Management and other Professional Services to help deliver results that lead to improved financial outcomes.
2
Craneware plc Annual Report 2019 Craneware Solutions
Solutions for healthcare providers to optimize
financial performance.
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 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.
InSight Audit®
A comprehensive, web-
based audit management
tool that empowers
healthcare organisations
to manage government
and commercial audits
from one central location.
Trisus® Healthcare Intelligence
A cost analytics and
resource efficiency
platform that unites
cost and operational
information across the
provider organisation,
delivering revenue,
cost, and operational
information for each
patient encounter.
Patient
Engagement
Claims
Analytics
Revenue Recovery
& Retention
Cost & Margin
Analytics
Customer Success
Management
Analyses, tracks,
trends and reports on
denial data, providing
workflow tools for
expediting repair
and resubmission of
denied claims.
InSight Denials®
Our consultants provide onsite
staffing and expertise to help
hospitals achieve their financial
goals. Customer Success
Managers design future state
operations, develop policies
and procedures, train staff on
operational tasks, and measure
and report on success metrics.
information for each patient
encounter.
Customer Success
Management and Consulting
Services
Craneware has the
experienced staff you
need to review your
denials, write successful
appeals and overturn
imporper denials.
Appeals Service
Simplifies the process
of providing patient bill
estimates for inpatient
and outpatient services
to improve up-front
collections and reduce
bad debt.
Patient Charge Estimator®
>_
Craneware Value Cycle Solutions span five product families – Patient Engagement, Charge Capture & Pricing, Claims Analytics, Revenue Recovery & Retention, and Cost & Margin Analytics.
In addition, hospitals of all sizes and types rely on Craneware’s Customer Success Management and other Professional Services to help deliver results that lead to improved financial outcomes.
3
Craneware plc Annual Report 2019 Chairman's Statement
2019 saw Craneware celebrate its 20th birthday. From an idea in 1999 to
use software to automate the maintenance of a hospital’s central database
of billing codes, Craneware has grown to become a trusted partner to over
a third of all US hospitals, its software providing insight into an increasing
number of areas in their businesses. The Company has continued to make
good progress against its long-term strategy: to build upon its central
position to profoundly impact healthcare, by providing data and applications
to improve margins and enhance patient outcomes. The fundamentals of the
business remain strong, and the opportunity significant.
Alongside our strategies for technology innovation and organic growth, we
continue to monitor potential acquisitions. With our healthy cash balance
and a $50m funding facility in place, we have the resources to execute
should an appropriate acquisition target arise. As in prior years, strict
criteria continued to be applied to evaluating potential acquisition targets
ensuring that they would enhance our hospital footprint, data sets or our
product roadmap so that they are quickly accretive to both the financial and
operational strength of the Group. No target consistently met this high bar in
more than one of these areas in the year.
Although lower than originally anticipated, revenue increased 6% to $71.4m
(FY18: $67.1m) and adjusted EBITDA increased 11% to $24.0m (FY18:
$21.6m). The Group had cash reserves at the end of the year of $47.6m, after
having returned $8.5m to shareholders via dividends, while also investing a
further $9.6m in the development of new products.
Sales in the year amounted to $63.1m (FY18: $98.6m, FY17: $54.0m). These
sales add another layer to our visible future revenue, which now stands
at over $200m for the three year period to 30 June 2022. Renewal levels
continued to be comfortably within our historic norms, at 101%.
Central to the Group’s growth strategy in recent years has been the evolution
of its product suite from on premise point solutions to a comprehensive
cloud-based platform, the Trisus® Enterprise Value Platform. Trisus will
enable Craneware’s customers to harness the power of the wealth of data
generated across all areas of the hospital. It sits as the intelligence layer
across all other software systems, delivering the information required to
improve financial and operational performance.
The first product on the Trisus platform was launched at the beginning of
FY18, and a further three have been launched in the financial year under
review. It would now appear that the speed with which we launched these
latter three products caused some temporary “indigestion” both within our
sales team and our customer base which we are systematically working
through. The response to Trisus from our customers continues to be extremely
positive, with the vast majority now interacting with the platform via the
Trisus Bridge, a connector layer linking their existing on-premise Craneware
solutions to the enhanced functionality of Trisus in the cloud.
The Board continues to look to the future with confidence. Craneware has
a significant and growing sales pipeline, which the team is focused on
converting. The market’s requirement for greater insight into cost, margin
and the value being derived from healthcare is as high, if not higher, than
ever. The Trisus platform differentiates us from other healthcare solutions
vendors, providing substantial benefits for our customers and making a
meaningful impact on the value of healthcare as a whole. This will result
in extensive improvements to the financial effectiveness of US hospital
providers and thereby drive significant customer demand for Craneware
solutions in the future.
When I joined Craneware as Chairman at the time of the Initial Public
Offering in 2007, it was clear that the Company had exciting prospects and its
success would be determined by how well the Company could execute. It is
very pleasing to see the progress Craneware has made over the last 20 years,
especially its ability to continue to evolve, identify opportunities and more
importantly capitalise on them. The Company is entering a new phase and I
feel that now is an appropriate time for me to hand the “baton” on to a new
Chairperson at the forthcoming AGM in November 2019, and as such I will
not be seeking re-election. The search for my successor has already begun
and we will update shareholders at the appropriate juncture.
I would like to thank all our employees across the UK and US for their hard
work throughout my 12 years of tenure and special thanks to my colleagues
on the Board. Equally, I thank our customers and shareholders for their
ongoing support.
George Elliott
Chairman
2 September 2019
4
Craneware plc Annual Report 2019 Strategic Report:
Operational Review
Twenty years ago we were the first to
market with a software tool to automate
the management of the chargemaster.
Building from an initial customer base
of just a handful of hospitals, we have
grown to providing three families of
solutions, aimed at improving the value
that can be achieved from every dollar
spent on healthcare. Now being used
in approximately a third of all US hospitals, our journey continues as we
continue to grow that customer base and widen our impact on the value that
each of those customers can deliver to their patients. Throughout this time,
we have been committed to being at the forefront of innovation within a
hospital’s finance function and in recent times have turned our attention to
improving our hospital customers’ operational efficiency. Once more it has
been impressive to see the outstanding work carried out by our innovation,
delivery and development teams, ensuring we further our reputation as
thought-leaders and innovators in our field.
This commitment to innovation saw us launch the Trisus® Enterprise Value
Platform, a cloud-based financial and operational management platform
specifically designed to address the challenges arising in the new era of
value-based care. The Trisus platform provides insight into all areas of
financial and operational risk within a hospital, sitting as an intelligence
layer across a myriad of other software systems, extracting data, normalising
it and then applying analytical tools to help improve hospital performance.
This powerful platform has been built from the bottom up, enabling the
migration of our existing customers from their on premise solutions into the
cloud with the development of several new solutions built on the substance
of our legacy products. We are just at the start of our Trisus journey and are
excited by the sizeable and significantly growing opportunity ahead of us.
Market
The move to value-based care continues at pace
The US healthcare market continues to transition from a fee-for-service
reimbursement model, towards value-based care, aiming to redress the
current imbalance in the US between spend and outcomes. The US has the
highest spend per capita on healthcare but ranks only 37th in the world
for outcomes.
Healthcare providers across the country are being asked by the government
and the insurance companies to justify the care they provide or risk the
withholding of payment. Meanwhile healthcare consumers are expecting a
greater transparency on costs and the ability to ‘shop around’ for the services
they require. An example of the growing pressures on hospitals includes the
introduction in June 2019 of an Executive order from the President of the
United States to drive greater transparency in pricing and quality. As a result
of these market shifts, US hospital management teams require a greater level
of insight than ever before into the costs and value being derived from the
care they provide. They need to understand where their organisations are at
financial risk, so that they can protect their margins, to ensure they are in a
position to continue to deliver quality care to their communities both now
and in the future.
The proportion of value-based care payments is increasing each month, as
the industry moves to this new reimbursement model. From data compiled
by the Catalyst for Payment Reform group, in 2010, 1 to 3% of all payor
contracts had a value-based care or quality driven modifying metric for
payment. In the last two years this has rapidly increased as confirmed by
many of the largest US healthcare insurance companies. Aetna, Inc. recently
confirmed that approximately 53% of their 2018 claims payments were made
to value-based providers and they are committed to increasing that number
to 75% by 2020. United Health Group is currently paying more than 60% of
their claims via value-based contracts and Anthem, Inc. underlined the size
of spend they now have associated with value-based contracts, stating they
currently have more than 66% of their total medical spend tied to payment
innovation contracts. Their Enhanced Patient HealthCare (EPHC) program
of private value-based care is one of the largest nationally, having grossed
$1.8bn of savings for Anthem clients since 2014.
It is clear that value-based care is here for the long-term. However, the
ultimate success of value-based care will be reliant on the industry having
access to granular data and insightful analytics to identify opportunities to
deliver better value. As a result, the US healthcare analytics sector is forecast
by US research firm MarketsandMarkets to grow 27.3% CAGR from $9.0bn in
2017 to $29.8bn by 2022. This is a large, growing opportunity for Craneware
given our specialism in helping hospitals better understand and manage
revenue and cost through data-driven solutions.
Strategy
Product innovation to revolutionise healthcare finance
and expand our addressable market
Our strategy is to continue to build on our established market-leading
position in revenue cycle solutions to expand our product suite coverage
of the Value Cycle. The Value Cycle describes the full life cycle of optimising
every opportunity to achieve the best outcome for the best cost. It includes
traditional revenue components such as pricing, charge capture, claims
performance and compliance, but also addresses additional dimensions, such
as: quality of care, patient satisfaction and engagement, clinical outcomes,
operational efficiency and risk management.
We will continue to follow a ‘land and expand’ customer strategy. We will
use the breadth of our product suite and depth of our long-term product
vision to bring new customers into the Group, at increasing average contract
sizes, while seeking opportunities to sell additional products to our existing
customer base. In the long-term, we believe we have the opportunity
to increase average annual licence fees up to 10x through much broader
adoption of the Trisus platform tied directly to an ongoing and increasing ROI
model for our customers. Our customers’ success will be our success.
5
Craneware plc Annual Report 2019 Strategic Report:
Operational Review [Cont’d.]
Demonstrable and compelling ROI
Each of our products has the ability to deliver many times over its cost in
terms of protected or increased revenue or margin for our customers, in the
first year alone.
Strong competitive position
The focus of the new products we are developing is to target ‘green field’
opportunities, where there is little or no existing competition. The breadth
of our offering, combined with 20 years of data within a sophisticated cloud
platform, provides us with a strong competitive position across our target
product areas.
Working in partnership with customers
Our innovation is being carried out alongside our customers, to ensure we
are providing them with the tools they need, addressing the key areas of
risk in their operations. Our high levels of customer renewals, consistently
high customer support scores and longevity of customer relationships
demonstrate the partnership role we have with our customers.
Investing in R&D to fulfil our vision
Our investment in R&D will continue to grow, in line with revenue growth,
as we fulfil our vision for Trisus. We are required to capitalise a certain
proportion of this investment relating to the products where clear future
revenue potential has been identified and therefore are deemed to be
an asset to the business. We are delighted to report that in the three
months since launch, the Trisus Pricing Analyser product has already
covered its development costs through the total value of contracts signed,
demonstrating both the quality of the development work and its relevance
to the market.
Potential to augment organic growth through acquisitions
The Board continues to assess acquisition opportunities to complement the
Group's organic growth strategy and increase its product coverage of the
Value Cycle. The Board adheres to rigorous criteria to evaluate acquisition
opportunities, including quality of earnings, customer relationships,
strategic fit and product offering. In addition to the Group's cash reserves,
an undrawn $50 million funding facility provides the Group with available
resources to carry out strategic acquisitions if, and when, these criteria are
met. Areas for consideration include: competitors who bring market share;
businesses with complementary data sources or products; and international
companies with complementary product suites of benefit to our customers,
who do not have a foothold in the US. The Group reviewed a substantial
transaction during the year that appeared to meet several of these criteria.
However, following extensive due diligence and legal process over several
months, it was decided that there was not sufficient assurance of enhanced
shareholder value to merit progressing with the transaction.
Annuity SaaS business model provides a strong foundation for
the business
We sign long-term, multi-year contracts, based on the annuity SaaS model,
providing the business with high levels of revenue visibility and the comfort
to be able to continue to invest in innovation. As we introduce new solutions
on the Trisus platform we continue to see some variability in contract
lengths, however as anticipated the key renewal dollar value statistics
remains comfortably above the middle of our historic range.
The business benefits from strong SaaS economics, with the lifetime value
of the current contract base significantly higher than the cost of acquiring
customers.
Product Roadmap
We continue to make progress in all areas of our product roadmap: the
development of our cloud-based Trisus Enterprise Value Platform; the
continued evolution and support of our existing market-leading product
suite as we migrate to Trisus; and the development of new products to sit
upon the Trisus platform. All of these solutions will increase our coverage
of the key areas of the Value Cycle and therefore increase our addressable
market.
Trisus® Enterprise Value Platform
This cloud-based platform provides an expanding suite of solutions focused
on healthcare providers to identify and take action on risks related to
revenue, cost and compliance, leading to optimised operations within the
Healthcare provider. It is designed to be versatile and expandable, growing
alongside our customers as the healthcare industry continues to evolve. The
platform provides an environment to gather, process, and deliver data across
the continuum of care with an open architecture and common components,
allowing for synergies between applications.
We are particularly pleased to note how both our existing customer base
and the wider healthcare provider market have responded positively to
the technological evolution of the Craneware solution set, delivered on the
Trisus platform. The Trisus Bridge, the connector layer linking our customers’
existing on-premise Craneware solutions to the advanced functionality
of Trisus in the cloud has proven a valuable introduction to customers
on the potential benefits the platform can offer them. Greater than 95%
of our customer base is now submitting at least part of their data to the
Trisus platform via the Trisus Bridge. Over 90% of our existing customers
have converted or are in the process of converting to Single Authorisation
via the Trisus platform which is the first step for significant migration to
the platform from within our user base. We are confident the remaining
customers will make this step over the coming months. These positive
metrics bode well for the future transition to Trisus.
We now have four products live on Trisus: Trisus Claims Informatics, Trisus
Supply, Trisus Pricing Analyzer and Trisus Healthcare Intelligence, with the
latter three all entering full marketing mode through the course of the year.
6
Craneware plc Annual Report 2019 Strategic Report:
Operational Review [Cont’d.]
We are executing on a roadmap to migrate all our solutions onto the Trisus
platform and continue to look for innovative combinations of our data sets
into new unique product offerings. As part of this roadmap we expect to see
further hybrid solutions combining: the best of existing software regardless
of the development origin, including outside of Craneware; elements of the
Trisus platform; new Trisus products; and new early adopter Trisus enabled
versions of other existing solutions.
Trisus® Healthcare Ingelligence
Trisus Healthcare Intelligence is a decision support tool that integrates
revenue, cost, clinical and hospital operational information for each patient
encounter, throughout the journey of their medical condition. It
accumulates all patient costs from patient activities and services consumed
during their care to allow the healthcare provider to optimise hospital
operations. The aim of the tool is to provide our customers with an
understanding of the true cost of care by understanding all the elements
of every episode of care given to their patients so they can identify what
most affects financial and clinical outcomes and put in place improvement
programmes to effect those changes.
Most hospitals’ accounting systems account for cost in aggregate and
average these, allocating costs on a volumetric basis. This structure, while
useful in a fee-for-service system and for basic forecasting, financial
projections and budgeting, does not adequately support the shift to a
quality-centric healthcare delivery system that provides true value, where
a greater degree of insight and thereby more granularity of the data
is required.
Healthcare Intelligence is therefore a vital component within the emerging
value cycle solutions market, representing a market opportunity several
times larger than that of our existing product portfolio.
We now have three existing customers on multi-year contracts for the
solution with a growing pipeline of additional opportunities. Our initial
customers for this solution are using it to improve the operations of their
hospitals and working with Craneware to provide use cases that can be
utilised across future customers and in marketing the products further.
The benefits already being delivered to these organisations is meaningful.
Within two small sub-groups of observation status patients at a medium-
sized acute care hospital in the Northeast, the implementation of Trisus
Healthcare Intelligence Cost Analytics and Decision Support found that the
hospital had been under-reimbursed by up to $1m over a 9-month period.
This was due to the patients’ status not being correctly upgraded despite the
higher levels of treatments they received.
At a medium-sized acute care hospital in the Midwest, an analysis of two
Diagnosis Related Groups identified one sample with a significant margin
loss per case. Margin was being lost due to the hospital applying a particular
reimbursement code, where another, just as applicable, code would
have more accurately reflected the level and cost of care provided. It was
identified that the change of code, and an increase in certain efficiencies,
would have resulted in additional revenue of up to $1.4m for just this one
sample of patients.
From the pipeline of opportunities that have grown for this product we are
very pleased with the effectiveness of our investment in this product area
and believe that we will be able to report that we will see a return on this
investment within a relatively short period of time
Sales and Marketing
The positive sales momentum experienced in the first half of the year was
impacted as the market digested the release of three new Trisus products.
While this situation began to rectify towards the end of the year, it caused
our level and timing of sales for the year to be below our initial expectations.
The added options presented to customers towards the end of their contract
negotiation caused additional product reviews, discussion of new pricing
options and revised legal contracts, thereby extending the signing process.
Our annuity SaaS business model protects the business to a certain extent
from ‘lumpy’ licence sales, although the timing of sales directly impacts the
revenue growth of the Company in any one year (and for the subsequent
period) through delayed subscription revenue and lower service revenue
recognisable in the period. These factors are being successfully worked
through, with a strong level of sales secured at the start of the year. For
our growing number of future opportunities, we have devised strategies
to mitigate these factors, such as more standardised legal frameworks and
Service Level Agreements for our cloud based solutions.
We continued to sign contracts with hospitals of all sizes and have continued
to do so in the first few months of the current year, having had a strong start
to the year and the sales pipeline continues to grow.
Our sales in the year continued to support our ‘land and expand’ strategy,
with 45% of sales in the year coming from new customers, providing a
foundation for future growth, and the remaining 55% being additional
products to existing customers both as they are renewing their existing
licences and throughout the life of their original contracts. Pharmacy
ChargeLink has also continued its leading performance from last year.
Whilst the launch of our new Trisus products did lead to some sales
indigestion, we have seen early positive signs from the market to these
products. As a result, sales of Trisus products represented 13% of our new
sales in the year increasing from 4% in the prior year.
7
Craneware plc Annual Report 2019 Strategic Report:
Financial Review
Revenue grew 6% to $71.4m (FY18:
$67.1m) and adjusted EBITDA grew
11% to $24.0m (FY18: $21.6m). Whilst
this growth is lower than we originally
anticipated, we have continued to make
progress in the year which includes
making significant investments into
our Trisus® Enterprise Value Platform
and the products that both sit on and
interact with this platform. Our three year revenue visibility KPI has crossed
the record level of over $200m of visible revenue for the three year period
to 30 June 2022 against which we can plan our future investments and we
maintain a strong balance sheet with healthy cash reserves to support our
future growth.
It is especially pleasing to be able to report continuing momentum with our
Trisus strategy. In addition to the three new products launched in the year
(making a total of four Trisus products now being generally available), we
have over 95% of our customer base interacting in some way with the Trisus
platform through our Trisus Bridge and the total proportion of our new sales
being Trisus products has increased to 13% of our total new sales from 4% in
Financial Year 2018.
The total value of contracts signed in the year was $63.1m (FY18: $98.6m,
FY17: $54.0m). A contributing factor to this result being below that of the
prior year has been both the timing and contract lengths of our underlying
sales. As previously detailed, with the launch of three new Trisus products in
the year we experienced ‘indigestion’ within both our own direct sales teams
and our customer base. In addition, as anticipated, the average contract
length for new sales reduced from five to four years, in line with our Trisus
migration strategy. We continue to renew our existing customers at over
100% dollar value and do not attribute any increasing risk to this variability
in contract length during this migration period.
We have continued to see new sales successes in the year, signing $33.3m of
new total contract value with new and existing customers. Within these new
sales there has been a healthy mix between sales to new customers and sales
of additional products to existing customers. 45% of our new sales have been
with new hospital customers which further expand our hospital footprint
and provide further future cross selling opportunities. With the remaining
55% of our new sales coming from our existing customer base taking further
products from our portfolio, these additional cross selling activities occur
both as our customers renew their contracts (representing 41% of new sales)
as well as throughout the life of their existing contracts (representing 14% of
new sales).
At the end of an existing customer’s initial licence period, or at a mutually
agreed earlier date, we renew our licences with our customers. These
renewals contributed an additional $29.8m to sales in the period. By
renewing these contracts, we are sustaining our underlying revenue base,
onto which we are then layering new hospital sales. It is for this reason we
measure our renewal rates by dollar value. We do this by measuring the ‘last
annual value’ of all customers due to renew in the current year and compare
it to actual value these customers renew at (in total), including up-sell and
cross-sell. This metric for the FY19 is 101%.
As demonstrated by the numbers reported above, and as a result of our
business model, “sales” and “revenue” have very different meanings to the
Group and are not interchangeable. In fact, only a small proportion of the
revenue resulting from any sale made in the year will be recognised in the
year of sale. Instead the vast majority of revenue resulting from any sale is
recognised over future years, supporting future growth.
Through our business model and resulting revenue recognition, the Group
ensures that it is focused on building its underlying annuity revenue base to
deliver sustainable growth.
IFRS 15 & Our Business Model
IFRS 15 “Revenue from contracts with customers” is effective for accounting
periods that began on or after 1 January 2018 and as such this new
standard has been adopted in the current year. Under this standard revenue
is recognised using a five-step model, requiring the transaction price
for each identified contract to be apportioned to separate performance
obligations arising under the contract. Revenue is recognised either when
the performance obligation in the contract has been performed (point in
time recognition) or over time as control of the performance obligation is
transferred to the customer.
The new contracts we sign with our customers provide a licence for the
customer to access specified products throughout their licence period. This
licence period on average, for a sale to a new customer, has historically been
five years. In calculating averages, we only take the contract length up to the
first renewal point/break clause for that specified product.
Under the Group’s ‘Annuity SaaS’ business model we have always recognised
software licence revenue and any minimum payments due from our
‘other route to market’ contracts evenly over the life of the underlying
contract term.
As well as the incremental licence revenues we generate from each new
sale, we normally expect to deliver an associated professional services
engagement to assist our customers. This engagement focuses on embedding
the software within the customers’ core processes to maximise the value the
software can bring to them. This revenue is typically separately identifiable
from the licence and is recognised as we deliver the service to the customer,
usually on a percentage of completion basis. The nature and scope of
these engagements will vary depending on both our customers’ needs and
which of our solutions they have contracted for. As a result of the nature
of professional services engagement, the period over which we deliver
the services and consequently recognise the associated revenue will vary,
however we would normally expect to recognise this revenue over the first
year of the contract. In any individual year, we would normally expect around
10% to 20% of revenues reported by the Group to be from services.
8
Craneware plc Annual Report 2019 Strategic Report:
Financial Review [Cont’d.]
Our Annuity SaaS business model and the revenue recognition methodology
we have historically adopted is consistent with the aims and requirements of
IFRS15 and as such our adoption of this standard in the current financial year
has not resulted in any material difference to how we recognise and report
our revenues.
Sales, Revenue and Revenue Visibility
The graphs below shows the total value of contracts signed in the relevant
years, split between sales of new products (to both new and existing hospital
customers) and the value of renewing products with existing customers at
the end of their current contract terms, and how these sales have translated
into reported revenue in the corresponding year.
As the majority of the revenue resulting from sales in any one year is
recognised over future years, the financial statements do not fully reflect the
valuable ‘asset’ that is contracted, but not yet recognised, revenue. As such,
at every reporting period, the Group presents its “Revenue Visibility”. This KPI
identifies revenues which we reasonably expect to recognise, as of the first
day of the new Fiscal Year, over the next three year period, based on sales
that have already occurred.
Through this metric we can demonstrate how the underlying annuity base
of revenue continues to build as we sign new multi-year contracts with
our customers and at the end of these contracts by, on average, renewing
these customers at 100% of dollar value. In producing this KPI we assume
customers will renew at 100% of dollar value as they fall due, which again
is why we report our dollar value of renewals at each reporting period. Our
historical norms for this metric being between 85% and 115%, with the
longer term average being above 100%.
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. This Three Year Visible Revenue metric
includes:
future revenue under contract
revenue generated from renewals (calculated at 100% dollar
75
value renewal)
other recurring revenue
50
$m
25
0
Reported Revenue
FY15
FY16
FY17
Revenue
FY18
FY19
$m
$m
75
50
25
0
75
50
25
0
$m
75
50
25
0
FY15
FY16
FY17
Revenue
New Sales
75
$m
FY15
FY16
FY17
New Sales
50
25
0
75
75
50
25
0
75
50
25
0
FY15
FY16
FY18
FY19
FY17
Revenue
$m
$m
FY15
FY16
FY18
FY19
FY17
New Sales
FY18
FY19
FY15
FY16
FY17
New Sales
Renewals*
FY18
FY19
FY18
FY19
FY15
FY16
FY17
Renewals
FY18
FY19
*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.
75
50
$m
50
25
0
$m
25
0
FY15
FY16
FY17
Renewals
FY15
FY16
FY18
FY19
FY17
Renewals
FY18
FY19
9
Craneware plc Annual Report 2019 70
60
50
40
30
20
10
0
70
60
50
40
30
20
10
0
Strategic Report:
Financial Review [Cont’d.]
Future revenue under contract is, as the title suggests, subject to an
underlying contract and therefore once invoiced will be recognised in the
respective future years (subject to future collection risk that exists with
all revenue). Renewal revenues are contracts coming to the end of their
original contract term (e.g. five years) and will require their contracts to be
renegotiated and renewed for the revenue to be recognised. As this category
of revenue is assumed to renew at 100% of dollar value, we consistently
monitor and publish this KPI (at each reporting period) to ensure the
reasonableness of this assumption. The final category, other recurring
revenue, is revenue that we would expect to recur in the future but is
monthly or transactional in its nature and as such there is increased potential
for this revenue not to be recognised in future years, when compared to the
other categories.
The Group’s total visible revenue for the three years as at 30 June 2019
(i.e. visible revenue for FY20, FY21 and FY22) identifies $200.1m of revenue
which we reasonably expect to benefit the Group in this next three
year period.
This visible revenue breaks down as follows
future revenue under contract contributing $140.2m of which $60.0m is
expected to be recognised in FY20, $46.0m in FY21 and $34.2m in FY22
revenue generated from renewals contributing $59.2m; being $7.3m in
FY20, $19.9m in FY21 and $32.0m in FY22
other revenue identified as recurring in nature of $0.7m
Gross Margins
Typically, we expect the gross profit margin to be between 90% to 95%
reflecting the incremental costs we incur to obtain the underlying contracts,
including sales commission contract costs which are charged in line with the
associated revenue recognition. The gross profit for FY19 was $67.0m (FY18:
$63.7m) representing a gross margin percentage of 93.8% (FY18: 94.9%)
which continues to be within our historical range. This reflects the correct
matching of these incremental costs with the associated revenue
being recorded.
Three Year Visible Revenue
Three Year Visible Revenue
$m
70
60
50
40
30
20
10
0
0.3
7.3
60.0
0.2
19.9
46.0
0.2
32.0
34.2
FY20
FY21
FY22
Contracted
Renewals
Other recurring revenue
As at 30 June 2019
As at 30 June 2019
10
0.2
5.7
50.1
$m
60
50
40
30
20
10
0
0.2
14.9
38.8
0.3
24.6
29.0
FY18
FY19
FY20
Contracted
Renewals
Other recurring revenue
Craneware plc Annual Report 2019 Strategic Report:
Financial Review [Cont’d.]
Earnings
The Group presents an adjusted earnings figure as a supplement to the
IFRS based earnings figures. The Group uses this adjusted measure in its
operational and financial decision-making as it excludes certain one-off
items, so as to focus on what the Group regards as a more reliable indicator
of the underlying operating performance. We believe the use of this measure
is consistent with other similar companies and is frequently used by analysts,
investors and other interested parties.
Adjusted earnings represent operating profits excluding costs incurred as a
result of acquisition and share related activities (if applicable in the year),
share related costs including IFRS 2 share based payments charge, interest,
depreciation and amortisation (“Adjusted EBITDA”).
This fiscal year we incurred $1.2m (FY18: nil) of professional and other fees
relating to a significant proposed acquisition that ultimately the Board
decided not to enter into in the year under review. Whilst these costs have
impacted our cash generation in FY19, they are non-recurring in nature and
outside of our normal operations, as such we have adjusted earnings for
these amounts in presenting Adjusted EBITDA.
Adjusted EBITDA has grown in the year to $24.0m (FY18: $21.6m) an increase
of 11%. This reflects an Adjusted EBITDA margin of 33.6% (FY18: 32.2%). This
is consistent with the Group’s continued approach to making investments in
line with the revenue growth whilst monitoring our overall EPS growth.
Operating Expenses
We continually invest in the future growth of the Group. Our customers are
facing a market that continues to evolve towards value-based economics and
the Group is in a unique position with its Value Cycle strategy to help them
meet the challenges of these new reimbursement models. If we are to deliver
on our potential to both support our customers in this evolving market place
and address the market opportunity available to us, we must ensure we are
building a scalable business that can meet the future challenges our growth
will bring.
To do this the Group continues to invest in all areas of the business in line
with revenue growth whilst also takes opportunities where they arise, to
accelerate investments that will generate further growth whilst continually
managing to ensure the efficiency of the investments we make. The increase
in net operating expenses (to Adjusted EBITDA) of 2% to $43.0m (FY18:
$42.0m) reflects the balanced approach taken in the current year between
continued investment and delivering returns from previous investments
in new products as we start to see revenue and the associated impact the
resulting amortisation charge has on earnings.
As detailed in the Operating Review, product innovation and enhancement
continues to be core to the Group’s future; as such we continue to invest
significant resource in this area as we build out the Trisus platform and the
portfolio of products that will be part of this platform. We continue our Build,
Buy or Partner strategy to build out this portfolio of products, recognising
‘Build’ is often the best way forward. We undertake the development of
innovative new products whilst maintaining our current product offerings
and ensuring they remain market-leading. As a result of this investment
the total cost of development in the year was $20.0m (FY18: $17.9m), a
12% increase which is ahead of our revenue growth and reflective of the
opportunities in the market for our products.
From this total investment we have capitalised projects that will bring
future economic benefit to the Group including the development of the
new product offerings (“Build”), e.g. new Trisus products; the Trisus Bridge
extension of the Trisus platform and our new cost analytics and Trisus
Healthcare Intelligence products. With the significant investment into
our development and product management teams we have ensured costs
relating to expanding and training the new teams are not capitalised. As a
result the total amount capitalised in the year was $9.6m (FY18: $4.7m).
Amounts capitalised represent investment in our future. They are an efficient
and cost effective way to further build out our Value Cycle strategy. We expect
to see both the levels of development expense and capitalisation continue
at the current trends as we progress with building out this solution set. As
specific products are made available to relevant customers, the associated
amounts capitalised are charged to the Group’s income statement over their
estimated useful economic life.
Cash and Bank Facilities
An area of focus will always be our ability to convert our earnings into cash.
To this end we set ourselves a target in this area, to convert 100% conversion
of our earnings into cash. In prior years we have exceeded this target, in FY18
reaching 153% conversion (or approximately $11m over our 100% conversion
target). This success though inevitably has a knock on effect; as we expect a
long term average of 100%, the success in FY18 impacted the cash collection
in FY19. This impact was further compounded by the proportion of our
second half sales that occurred late in that half and as a result were not due
for collection at the end of the fiscal year, resulting in lower cash collections
in the year and a higher year end debtors balance. As a result of these two
factors, and the acquisition costs of $1.2m detailed above, our adjusted
EBITDA to cash conversion in the year was 63%. Whilst below our own
target, we have collected a further $8.5m of our year end debtors. Had these
collections been included we would have delivered a 98% cash conversion in
the current year.
During the year we have returned $8.5m to our shareholders via dividends.
As a result of all these factors, we retain cash reserves of $47.6m
(FY18: $52.8m).
This significant level of cash reserves and our balance sheet strength allows
us to fund acquisitions should 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.
11
Craneware plc Annual Report 2019 Strategic Report:
Financial Review [Cont’d.]
Balance Sheet
The Group maintains a strong balance sheet position. The level of trade and
other receivables has increased in comparison to the prior year. This is a
result of the factors identified above that impacted our cash collection in
the year.
IFRS 15 “Revenue from contracts with customers” also addresses how
reporting entities should treat incremental contract costs such as sales
commissions. It is again pleasing to report that adoption of this standard
has not resulted in any changes to our accounting treatment in this area.
The sales commissions we pay 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
deferred contract asset of $7.3m (FY18: $7.5m) is the balance to be charged
to the Group’s income statement as we recognise the associated revenue. As
we only pay the sales commission upon receipt of the first annual payment
from the customer, we remain cash flow positive from any new sale.
Deferred income levels reflect the amounts of the revenue under contract
that we have invoiced and/or been paid for in the year, but have yet to
recognise as revenue. This balance is a subset of the total visible revenue we
describe above and reflected through our three year visible revenue metric.
Deferred income, accrued income and the prepayment of sales commissions
all arise as a result of our Annuity SaaS business model described above and
we will always expect them to be part of our balance sheet. They arise where
the cash profile of our contracts does not exactly match how revenue and
related expenses are recognised in the Statement of Comprehensive Income.
Overall, levels of deferred income are significantly more than any accrued
income and the prepayment of sales commissions, we therefore remain cash
flow positive in regards to how we account for our contracts.
Currency
The functional currency for the Group, and cash reserves, is US dollars.
Whilst the majority of our cost base is US-located and therefore US dollar
denominated, we have approximately one quarter of the cost base situated
in the UK, relating primarily to our UK employees which is therefore
denominated in Sterling. As a result, we continue to closely monitor the
Sterling to US dollar exchange rate, and where appropriate consider hedging
strategies. The average exchange rate throughout the year being $1.2945 as
compared to $1.3472 in the prior year.
Taxation
The Group generates profits in both the UK and the US. The overall levels
are determined by both the proportion of sales in the year and the level
of professional services income recognised. The Group’s effective tax
rate remains dependent on the applicable tax rates in these respective
jurisdictions. In the current year the effective tax rate has been affected by
12
share options issued and exercised in the year which reduced the tax charge
by $0.4m (FY18: $1.4m) and R&D tax relief of $0.4m (FY18: $0.3m) which
further reduced the tax charge. As such the current year effective tax rate is
18% (FY18: 17%).
EPS
In the year being reported adjusted EPS has seen the benefit of the increased
levels of Adjusted EBITDA combined with the effective tax rate reported
above, offset by an increase in both the amortisation and share based
payment charges, and as such has increased 5% to $0.633 (FY18: $0.602)
and adjusted diluted EPS has increased to $0.620 (FY18: $0.591).
Dividend
The Board proposes a final dividend of 15p (19.05 cents) per share giving a
total dividend for the year of 26p (33.02 cents) per share (FY18: 24p (31.68
cents) per share). Subject to approval at the Annual General Meeting, the
final dividend will be paid on 19 December 2019 to shareholders on the
register as at 29 November 2019, with a corresponding ex-Dividend date of
28 November 2019.
The final dividend of 15p 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 29 November 2019. The exact amount to be
paid will be calculated by reference to the exchange rate to be announced
on 29 November 2019. The final dividend referred to above in US dollars
of 19.05 cents is given as an example only using the Balance Sheet date
exchange rate of $1.2695/£1 and may differ from that finally announced.
Outlook
The ongoing transition to value-based care is a powerful underlying driver
for our software, as healthcare providers seek the means not only to survive
but thrive in this new era. We are committed to providing our customers
with the tools they require to continue to deliver outstanding care to their
communities and are passionate about the central role we will play in this
substantial evolution of the US healthcare market.
While growth in the year was lower than originally anticipated, renewal
levels remained strong and our Trisus related sales and revenues continued
to increase, providing us with a strong platform for the future. We have
entered the new financial year with an uptick in sales momentum.
We are focused on the delivery of our growing opportunity and have
the correct strategy to succeed. With growing levels of contracted future
revenue, strong operating margins, healthy cash balances and a growing
sales pipeline, we look to the coming years with confidence and high levels
of excitement for the opportunity ahead.
Keith Neilson
Chief Executive Officer
2 September 2019
Craig Preston
Chief Financial Officer
2 September 2019
Craneware plc Annual Report 2019 Strategic Report:
Key Performance Indicators and Principal Risks and Uncertainties
Key Performance Indicator Review
Revenue Growth
Revenue
Growth
2019
$71.4m
6%
2018
$67.1m
16%
Revenue for the year grew by 6%. Through the Group’s Annuity SaaS revenue recognition model, underlying sales levels in the current year combine with
prior year’s sales and continued high levels of customer retention, to increase the recurring revenue reported each year. The long term nature of our contracts
supports sustainable growth with the majority of revenue resulting from current year sales being recognised in future periods.
Three Year Revenue Visibility
Three Year Revenue Visibility
2019
2018
$200.1m
$191.0m
The Group’s revenue recognition model means the full benefit of current year’s sales are not reflected in the current year financial statements. Instead, the
vast majority of any new sales adds to the growth in the underlying ‘annuity’ of recurring revenue. This is demonstrated through the Group’s ‘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 2019. Full details of how this is calculated are detailed in the financial review section of the Strategic Report.
Adjusted EBITDA Growth
Adjusted EBITDA
Growth
2019
$24.0m
11%
2018
$21.6m
20%
We take a measured approach to our investment, ensuring to invest to support the future growth of the Group. The continued revenue growth has allowed us to
both 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
2019
2018
63.3 cents
60.2 cents
5%
17%
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 Group’s effective tax rate remains dependent on the applicable tax rates in each respective jurisdiction.
Cash
Cash
2019
2018
$47.6m
$52.8m
The Group continues to convert very high levels of the Adjusted EBITDA reported in the year into operating cash flows which, having returned $8.5m to
shareholders by dividend during the year, has resulted in cash balances of c$48m at 30 June 2019. Overall Operating cash conversion, at 63% in the year ended
30 June 2019, is below our current long term target of 100% for the reasons explained in the Financial Review section on page 11.
13
Craneware plc Annual Report 2019 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 Corporate Governance
Report on pages 24 to 31 includes an overview of the Group’s risk
management and internal control systems.
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
Data and cyber security
Issue: Security of customer, commercial, and personal data poses increasing
reputational and financial risk to all businesses, especially against a
backdrop of increasing complex regulatory environments and safeguards
over personal and patient data. The continually increasing instances of cyber
and data-related crime presents a significant challenge in terms of securing
data and systems against attack.
Actions: Whilst it is impossible to completely eliminate data and cyber
security risk, it is clear that effective mitigation now goes beyond
building and operating security controls. The Group continues to invest
in strict physical and data security systems and protocols, including data
loss prevention systems, internal and external threat monitoring. We
deploy comprehensive auditing of our controls and processes targeted
in these areas. The Group has a Security Council, chaired by the Chief
Information Officer, which assesses current technology risks, approval
and implementation of mitigation plans as well as to inform the Chief
Information Officer and the Chief Technology Officer of future strategy
around this key business area. The Group also recognises and supports
(including through ongoing employee training and applicable policies and
procedures) a sustained evolution of culture within the organisation that
embeds security across the business.
Along that vein, as many studies suggest that employees and contractors
are the most common cause of data breaches, with phishing attacks being
the predominant cause, the Group requires mandatory data security training
of all employees and continues to develop and invest in additional training.
In view of the importance of the procedures, security, regulation and
controls around Craneware’s solutions and customer data, Craneware is
in final stages of and awaiting accreditation for the HITRUST CSF. Health
Information Trust Alliance (‘HITRUST’ Alliance) is a collaboration with
healthcare, technology and information security organisations which
develops, maintains and provides broad access to its widely adopted
common risk and compliance management and de-identification
frameworks; related assessment and assurance methodologies; and
initiatives advancing cyber sharing, analysis and resilience. HITRUST has
established a ‘common security framework’ (CSF) to address the multitude
of security, privacy and regulatory challenges facing organisations. The
scope of the HITRUST CSF’s requirements is wide and requires a very high
standard of data security arrangements as these have been set in the context
of the accreditation being relevant to US healthcare providers with handling
sensitive data (Protected Health Information) and impacts in some way all
areas of the business (at least in respect of the required enhancement to the
Group-wide IT and data security policies). This serves to inform IT Security
roadmaps and significant investments with continued compliance being an
ongoing a focus.
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. The use of third party contractors within the Group’s software
development organisation as well as increasing numbers of customers
using outsourced partners to operate parts of their finance departments,
results in a larger number of third parties having access to the Group’s
Intellectual Property.
Actions: The Group will continue to register its trademarks and protect
access to its confidential information, as appropriate. The Group continues to
include appropriate legal protections in its contractual relations with both
customers, suppliers, and employees to ensure legal protections available
are taken advantage of. 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.
Management of Growth
Issue: The Group’s growth and its plans for further significant growth,
both organically and through acquisition, could place strain on the Group’s
resources including management bandwidth.
Actions: The Group has continued to make significant investments to both
add to available resources as well as provide further improvements to the
training of existing resources. This training has included focused Leadership
Development training and Connector Manager Forums, where managers can
support each other in the challenges they face. These initiatives, combined
with appropriate organisational design that includes monitoring of spans
of control to ensure that the scope of roles and responsibilities are not
14
Craneware plc Annual Report 2019 Strategic Report:
Key Performance Indicators and Principal Risks and Uncertainties [Cont’d.]
excessive, all aim to increase bandwidth at all levels of management up
to and 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 visibility provides a foundation when planning
in advance, including any additional resourcing necessary as a result of
this growth. The Group has in place strategies to ensure a supportive
infrastructure for growth. This includes adopting “Lean” methodologies to
help promote operational excellence throughout the organisation as well as
ensuring assessments are regularly performed and improvements are made,
as appropriate to systems, policies, procedures including business controls
being upgraded.
US Healthcare Evolution and Reform
Issue: The US healthcare industry continues to evolve, with a drive for
increased value from healthcare spend and a shift towards consumerisation.
The US healthcare 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 and the launch of the Trisus® platform
strengthens our position as a trusted financial performance partner to
hospitals and it continually enhances and expands its product offerings,
launching three new Trisus products in the current year under review, to
meet the evolving challenges. In addition, the Group continues to innovate
and develop further new products to meet evolving market needs, such as
the ongoing development of the Group’s new product in the cost
analytics area.
These strategies keep the Group at the forefront of industry developments.
Regulatory Environment
Issue: The Group operates in an increasingly complex and heavily regulated
market environment. This includes very specific requirements in dealing
with, for example, data privacy, security, labour / employment, anti-kickback
statutes.
Actions: The Group has a Risk and Governance Committee, comprised of the
Chief Information Officer, Chief People Officer, Chief Financial Officer, and the
Chief Legal Officer to oversee activities and concerns pertaining to the strict
regulatory environment.
All employees and contractors are required to undertake regular mandatory
training in key topics. The Chief Legal Officer is certified in privacy law in the
US and UK. In addition to utilising external experts in the relevant areas,
senior management regularly attend educational events and forums to keep
up to date with evolving regulations.
Political and Macroeconomic Changes
Issue: The Group has significant operations in both the UK and the US
and therefore is exposed to the changes in the political and economic
environments of both. This includes the ongoing Brexit negotiations and any
changes in freedom of movement and international trade.
Actions: The Group has experienced Board members and senior management
in both countries. The Group’s operations are currently evenly balanced
between the two, contributing positively to both economies. Globally
there is a restricted supply of qualified personnel within the technology
sector. Political uncertainty in the world can exacerbate this situation
within specific geographies. To ensure the ongoing availability of qualified
personnel, the Group continues to support training programs both internally
and externally as well as develop partnerships with private enterprise. As
the Group is a manufacturer in the knowledge economy, we are agnostic to
the territory that we are ultimately domiciled in and therefore can mitigate
any long term economic or political detrimental change by adjusting the
balance of the organisation accordingly. This combined with the current
multi-jurisdictional operations of the business substantially mitigates the
Group’s exposure to foreign exchange rates and risk to cross border trade
which can be volatile in times of uncertainty. The Group continues to monitor
emerging news and trends to stay alert to any potential future impacts.
Market Consolidation
Issue: The evolving market in US Healthcare continues to place significant
pressure on Healthcare providers, which is resulting in ongoing market
consolidation. As a result, 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 at the
forefront of providing solutions to US Healthcare providers of all sizes.
15
Craneware plc Annual Report 2019 Strategic Report:
Key Performance Indicators and Principal Risks and Uncertainties [Cont’d.]
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 that exists within its products. The
Group continues to expand and develop its product portfolio and to ensure
its products are platform agnostic,c and actively seeks partnerships with
other healthcare IT vendors.
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 employees, alongside responsiveness to
changes, and the opportunities that result, as they arise.
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.
Craig Preston
Chief Financial Officer
2 September 2019
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 pages 24 to 31.
16
Craneware plc Annual Report 2019
Directors, Secretary, Advisors and Subsidiaries
Directors
G R Elliott (non-executive, Chairman)
K Neilson
C T Preston
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
Nominated Advisors
Peel Hunt LLP
120 London Wall
London
EC2Y 5ET
Registrars
Link Asset Services 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
Stockbrokers
Peel Hunt LLP
120 London Wall
London
EC2Y 5ET
Investec Bank plc
30 Gresham Street
London
EC2V 7QP
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 and
Registered Offices
Craneware, Inc.
3340 Peachtree Rd NE
Suite 850
Atlanta, GA 30326
Craneware InSight, Inc.
3340 Peachtree Rd NE
Suite 850
Atlanta, GA 30326
Kestros Ltd t/a Craneware Health
1 Tanfield
Edinburgh
EH3 5DA
Craneware Healthcare
Intelligence, LLC
12570 Perry Highway
Suite 110
Wexford, PA 15090
17
Craneware plc Annual Report 2019
Board of Directors
The Directors of the Company and their responsibilities within the Group are set out below:
George R Elliott, 66 — Non-Executive Chairman : Appointed 10 August 2007
George Elliott has a proven track record in profitably growing technology companies. His main achievements have centred
around building and bringing to market companies that compete and win on the global stage. George is currently non-
executive Chairman of Calnex Solutions Ltd, an Ethernet test equipment manufacturer, Optoscribe Ltd, which provides high
performance 3D waveguide solutions for the data and telecommunication industries, Design Led Productions Ltd, which
provides extremely thin, flexible LED lighting solutions and a non-executive director of Indigovision Group plc, a leader in the
design and manufacture of high performance video security systems. Since 2007 he has been non-executive chairman/director
of over 20 companies. From 2000 - 2007 George was CFO of Wolfson Microelectronics plc, which was a leading global provider
of high performance mixed-signal semiconductors to the consumer electronics market. From 1996 - 2000 he was Director of
Commercial Operations and latterly CFO at Calluna plc, which developed the first 1.8-inch hard disk drive that was later used in
several leading MP3 players and storage devices. 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, 50 — 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 CBI Scotland Council Member
and a board member of 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, 48 — 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.
18
Craneware plc Annual Report 2019 Board of Directors [Cont’d.]
Ron F Verni, 71 — Non-Executive Director : Appointed 1 May 2009
Ron is currently a director of On Deck Capital. Before that he served on the Board of Directors of Kewill Plc., was President &
CEO of Sage Software, Inc., and a member of the Board of Directors of the Sage Group plc. 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 the President and CEO of NEBS Software, Inc., the founder and CEO of ASTEC Software, and Vice
President of Marketing with Automatic Data Processing.
Colleen Blye, 59 — Non-Executive Director : Appointed 12 November 2013
Colleen Blye is the Executive Vice President and Chief Financial Officer for Montefiore Health System and Montefiore Medicine.
Montefiore Health System consists of eleven hospitals and an extended care facility; it is a premier academic medical center
and includes Montefiore 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, 67 — 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.
19
Craneware plc Annual Report 2019 Directors' Report
The Directors present herewith their report and the audited consolidated
financial statements for the year ended 30 June 2019.
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 exceptional 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 16 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 $71.4m (2018: $67.1m) which has
generated a profit before tax of $18.3m (2018: $18.9m). The full results for
the year, which were approved by the Board of Directors on 2 September
2019, are set out in the accompanying financial statements and the
notes thereto.
During the year the Company paid an interim dividend of 11p (14.00 cents)
per share. The Directors are recommending the payment of a final dividend
of 15p (19.05 cents) per share giving a total dividend of 26p (33.02 cents)
per share based on the results for 2019 (2018: 24p (31.68 cents)). Subject to
approval at the Annual General Meeting, the final dividend will be paid on
19 December 2019 to shareholders on the register as at 29 November 2019.
Dividends/Share (pence)
14.0
16.5
FY15
FY16
FY17
FY18
FY19
20.0
24.0
26.0*
*Subject to approval at AGM
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 16. 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 $20.0m (2018:
$17.9m) of which $9.6m (2018: $4.7m) has been capitalised.
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 16 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 8 to 12.
The Directors, having made suitable enquiries and analysis of the financial
statements, including the consideration of:
net cash reserves;
continued cash generation; and
Annuity SaaS business model;
have determined that the Group has adequate resources to continue in
business for the foreseeable future and that it is therefore appropriate to
adopt the going concern basis in preparing the consolidated and Company
financial statements.
Viability Statement
In accordance with the UK Corporate Governance Code, the Directors have
considered the viability of the Group over the three year period from 30 June
2019.
Considerations that impact this assessment include the Group’s current
financial position and available financial resources, the Group’s Annuity
SaaS business model (as outlined within the Strategic Report on pages
8 to 12) including Revenue Visibility, the Group’s strategic initiatives,
the financial forecasts, the Group’s cost base and annual budget. The
Directors also considered a number of other factors including the Group’s
risk management and internal control effectiveness and the principal risks
and uncertainties and their likelihood of occurrence within the period of
assessment. The Directors consider that three years is an appropriate period
for this assessment as it corresponds with the Three Year Revenue Visibility
key performance indicator, as explained in the Strategic Report on pages
8 to 12 and the strategic planning horizon.
20
Craneware plc Annual Report 2019 Directors' Report [Cont’d.]
The Directors have therefore considered, in making this assessment, the
Group’s current financial position and future prospects and have a reasonable
expectation that the Group will be able to continue in operation and meet
its liabilities as they fall due over the three year period from 30 June 2019.
However, future assessments of the Group’s prospects are naturally subject
to uncertainty that increases with time and therefore future performance
cannot be guaranteed.
Share capital allotted
During the year, 36,713 Ordinary Shares (2018: 329,431 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.
Directors
The Directors of the Company are listed on pages 18 and 19.
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 35.
Share Capital
The Company’s issued and fully paid up share capital at 30 June 2019 was
26,698,984 Ordinary Shares of 1p each (2018: 26,662,271 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.
Share buyback
The Company did not purchase any of its own shares in the year ended
30 June 2019. During the prior financial year, in January 2018, the
Company announced and completed a share buyback that was effected as
a mechanism to return capital to shareholders and to ameliorate dilution
under the Group’s share incentive plans. In accordance with that share
buyback, the Company purchased 628,869 of its own shares during the
financial year ended 30 June 2018, at 1769 pence per share which totalled
£11.1 million ($15.4 million). The nominal value of those shares was £6,289
($8,725) and they represented 2.33% of the Company’s issued Ordinary
Shares at that time. The shares purchased by the Company in the year ended
30 June 2018 were immediately cancelled.
Authority for purchase of own shares
Authorisation was given by shareholders at the Annual General Meeting on
6 November 2018 for the Company to purchase up to 2,669,898 Ordinary
Shares. A resolution to renew this authority will be proposed at the 2019
Annual General Meeting.
Employee benefit trust
The Company established an Employee Benefit Trust (EBT), ‘The Craneware
plc Employee Benefit Trust’ during the financial year ended 30 June 2017. As
at 30 June 2019 the EBT held 353,124 Craneware plc Ordinary Shares (at 30
June 2018: 353,124 Ordinary Shares). The EBT waived its right to dividends
in the year ended 30 June 2019. Further details regarding the EBT are
contained in Note 18 to the financial statements.
Directors and their Interests
The interests of the Directors who held office at 30 June 2019 and up to the
date of this report in the share capital of the company, were as follows:-
G R Elliott
K Neilson
CT Preston
2019
10,000
3,382,647
82,103
3,474,750
2018
10,000
3,377,799
82,103
3,469,902
Directors’ interests in share options are detailed in the Remuneration
Committee’s Report on pages 37 to 38.
Substantial Shareholders
As at 1 August 2019, the Company had been notified of the following
beneficial interests in 3% or more of the issued share capital pursuant to
section 793 of the Companies Act 2006:
No. of
Ordinary
£0.01
Shares
% of
issued
share
capital
Liontrust Asset Management
3,479,620
13.03
K Neilson
3,382,647
12.67
Canaccord Genuity Group
2,737,005
10.25
W G Craig
2,379,518
8.91
Sanford DeLand Asset
Management
1,274,605
4.77
AXA Investment Managers
1,045,556
Baillie Gifford & Co Ltd
D Paterson
896,479
873,800
3.92
3.36
3.27
21
Craneware plc Annual Report 2019 Directors' Report [Cont’d.]
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. This indemnity was in place during the financial year and is ongoing
up to the date of this report. 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
recycles waste products wherever possible, encouraging use of
environmentally friendly materials, and disposing safely of any non-
recyclable materials.
Customers
The Group treats all its customers with the utmost respect and seeks to
be honest and fair in all relationships with them. The Group provides its
customers with products and levels of customer service of
outstanding quality.
Community
The Group seeks to be a good corporate citizen respecting the laws of the
countries in which it operates and adhering to best social practice where
feasible. It aims to be sensitive to the local community’s cultural, social and
economic needs.
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 2019 was the
support of the Scottish Association for Mental Health and The Yard in the UK
and both the Fanconi Anemia Research Fund and KaBOOM! in the US. For
2020, the focus will be the support of both Scottish Association for Mental
Health in the UK and the Fanconi Anemia Research Fund in the US. Fund
raising activities have already begun and these supplement the Volunteer
Time Off program where Craneware employees 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 2019 or 2018.
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. The Group enhanced its employee wellness programmes during
the financial year. 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. Share schemes to encourage
involvement of employees in the Group’s performance have been
established and are planned to be launched as detailed on page 35 of the
Remuneration Committee Report.
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,
including the explanation and initiation of the roll out of Group-wide
strategic themes and related deliverables (with key performance indicators)
to all employees at the start of the financial year with regular updates
during the year. 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. There are also frequent postings and
information updates available to all employees on the Group’s intranet. An
annual employment engagement survey is conducted with anonymised
responses collated and rated to identify any aspects for improvement, which
then guide initiatives to address those areas.
The Group maintains core values of honesty, integrity, hard work, service and
quality and actively promotes these values in all activities undertaken on
behalf of the Group.
Employment of Disabled Persons
Applications for employment by disabled persons are always fully
considered, bearing in mind the respective aptitudes and abilities of the
applicant concerned. In the event of members of staff becoming disabled
every effort is made to ensure that their employment with the Group
continues and the appropriate training is arranged. It is the policy of the
Group that the training, career development and promotion of a disabled
person should, as far as possible, be identical to that of a person who does
not suffer from a disability.
Anti-Slavery and Human Trafficking Policy
The Modern Slavery Act requires the Company to publish an annual slavery
and human trafficking statement. The latest statement can be found on
the Craneware plc website. Neither the Company or any of its subsidiaries
permit, condone or otherwise accept any form of human trafficking or
slavery in its business or supply chains.
22
Craneware plc Annual Report 2019 Directors' Report [Cont’d.]
Policy on Payment of Payables
Relationships with suppliers and subcontractors are based on mutual
respect, and the Group seeks to be honest and fair in its relationships with
suppliers and subcontractors, and to honour the terms and conditions of its
agreements in place with such suppliers and subcontractors.
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 2019 represented, on average
18 days purchases (2018: 18 days) for the Group and 16 days purchases
(2018: 15 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 shareholders and will be 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
Company financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union. 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 and
the Company 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 have
been followed for the group and the company financial statements,
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 also responsible for safeguarding the assets of the Group
and Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Group and Company's transactions
and disclose with reasonable accuracy at any time the financial position
of the Group and Company and enable them to ensure that the financial
statements comply with the Companies Act 2006.
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.
Directors’ Confirmations
The Directors consider that the annual report and accounts, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group’s and the Company’s position
and performance, business model and strategy.
In the case of each Director in office at the date the Directors’ Report is
approved:
so far as the Director is aware, there is no relevant audit information of
which the Group’s and 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 Group’s and Company’s auditors are aware of this
information.
Auditors
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
2 September 2019
23
Craneware plc Annual Report 2019 Corporate Governance Report
The Board of Directors ("the Board") has always recognised the importance
and value of good corporate governance and in prior years has sought
to comply with both the principles and the spirit of the UK Corporate
Governance Code issued in April 2016 where they were considered
appropriate for the size of the Group.
Changes to AIM rules on 30 March 2018 required AIM companies to apply
a recognised corporate governance code by 28 September 2018. Under
the new rules, the Company is required to comply with the chosen code or
explain why it is not complying. The Company has elected to adopt the UK
Corporate Governance Code issued in April 2016 (the “Code”) as its corporate
governance framework but it is aware that the Code has been drafted in the
context of larger, main-market listed companies. The Board is pleased to
report how it has applied the principles and complied with the provisions of
the Code in line with best practice and in view of the size of the Company.
This Report sets out how it has complied with the individual provisions and
applied the ‘spirit’ of the Code as a whole and explains any areas of non-
compliance with the provisions of the Code. The UK Corporate Governance
Code is available from the Financial Reporting Council at www.frc.org.uk.
New UK Corporate Governance Code
In July 2018, the Financial Reporting Council published the UK Corporate
Governance Code 2018 (the ‘2018 Code’), which is applicable to
accounting periods beginning on or after 1 January 2019. The 2018 Code
contains a number of new provisions which primarily focus on corporate
culture, stakeholder engagement (with specific provisions on workforce
engagement), remuneration and succession. The Board will report on
compliance with the 2018 Code in next year’s annual report.
Overview: Application of the UK Corporate Governance Code 2016
(the “Code”)
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.
The Company is a smaller company for the purposes of the Code and, as
such, certain provisions of the Code either do not apply to the Company
or are judged to be disproportionate or less relevant in its case. Where the
Company does not comply with any specific Code provision then this is
highlighted and explained in this report.
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.”
Throughout the year under review the Company’s Board has been 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 (each of whom the Board
considers to be independent), Ronald Verni (Senior Independent Director),
Colleen Blye and Russ Rudish. Detailed biographies of all Directors are
contained on pages 18 and 19. As noted in the Chairman’s Statement on
page 4, George Elliott will not be standing for re-election as a Director of
the Company at the upcoming AGM and will be stepping down as Chairman.
The search for his successor is underway.
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 incorporated this
function within the remit of the entire Board. Although not in compliance
with Provision B.2.1 of the Code, the Board considers this to be an
appropriate arrangement in view of the size of the Group.
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:
Board
Remuneration
Committee
Audit
Committee
No. Meetings in year
Executive Directors
K Neilson
C T Preston
Non-Executive Directors
G R Elliott
R Verni
C Blye
R Rudish
8
8/8
8/8
8/8
6/8
8/8
8/8
2
-
-
-
2/2
2/2
2/2
3
-
-
-
2/3
3/3
3/3
24
Craneware plc Annual Report 2019
Corporate Governance Report [Cont’d.]
Where any Director 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 22, the Company maintains
appropriate insurance cover against legal action brought against Directors
and officers. The Company has further indemnified all Directors or other
officers against liability incurred by them in the execution or discharge of
their duties or exercise of their powers.
Division of Responsibilities
“There should be a clear division of responsibilities at the head of the company
between the running of the Board and the executive responsibility for the
running of the company’s business. No one individual should have unfettered
powers of decision.”
The Board has established clearly defined and well understood roles for the
Chairman of the Company, and the Chief Executive Officer. The Chairman is
responsible for the leadership of the Board, ensuring its effectiveness and
setting its agenda. Once strategic and financial objectives have been agreed
by the Board, it is the Chief Executive Officer’s responsibility to ensure they
are delivered upon. To facilitate this, Keith Neilson as CEO chairs the Group’s
Operations Board that comprises the Chief Financial Officer and seven 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 18. As noted above, George does not intend to stand for re-election
as a Director of the Company at the upcoming AGM and intends to step down
as Chairman; the search for his successor is underway. The Board will ensure
that upon appointment of a successor all requirements of the Code relating
to this appointment will be met.
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
The Composition of the Board
“The Board and its committees should have the appropriate balance of skills,
experience, independence and knowledge of the company to enable them to
discharge their respective duties and responsibilities effectively.”
The composition of the Board has been designed to give a good mix and
balance of different skill sets, including significant experience in:
high growth companies;
software and healthcare sectors;
entrepreneurial cultures;
senior financial reporting;
both UK and US companies;
acquisitions; and
other listed companies.
Through this mix of experience, the Board and the individual Directors are
well positioned to set the strategic aims of the Company as well as drive the
Group’s values and standards throughout the organisation, whilst remaining
focused on their obligations to shareholders and meeting their statutory
obligations.
The Board reviews on an annual basis the independence of each non-
executive Director. In making this assessment, in addition to considering
Provision B.1.1 of the Code, the Board determines whether the Director
is independent in character and judgement and whether there are
relationships or circumstances which are likely to affect, or could appear to
affect, the Director’s judgement. In regards to Ronald Verni, having been
appointed on 1 May 2009, he has completed his tenth year of service on the
Board this year. The Board in making its assessment of independence has
noted the significant growth and changes in the Company during this period,
this combined with Ronald’s conduct has led the Board to conclude his
length of tenure has not affected his independence.
25
Craneware plc Annual Report 2019 Corporate Governance Report [Cont’d.]
In regards to all other non-executive directors, the Board have not identified
any matters that would affect their independence. Code Provision B.2.3
states that any term beyond six years for a non-executive director should
be subject to rigorous review, taking into account the need for progressive
refreshing of the Board. Following George Elliott’s decision not to stand
for re-election as a Director of the Company, the Board reviewed the
appointment of Ronald Verni and have concluded that his continued
appointment is both beneficial and appropriate and does not present any
issues regarding independence. Colleen Blye will have been a non-executive
Director of the Company for more than six years in the year ending 30 June
2020 and the Board will review this appointment in accordance with Code
Provision B.2.3.
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.
The Group is supportive of and recognises the importance of diversity,
including gender, ethnicity, nationality, skills and experience. This is evident
from the diverse, inclusive and breadth and depth of skills and experience
within the Craneware team. While not in favour of setting specific targets,
in the event that a Board position is required to be filled, during succession
planning, the Board will aim to ensure that the search process is sufficiently
inclusive to encourage applications from diverse candidates with relevant
skills, experience and knowledge, and that the selection process is fair and
transparent.
Commitment
“All directors should be able to allocate sufficient time to the company to
discharge their responsibilities effectively.”
All 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 Directors' biographies on pages 18 and 19. 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.
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. The
Board ensures that the Audit and Remuneration Committees are provided
with sufficient resources to undertake their duties.
Training in matters relevant to their role on the Board is available to all
Directors. New Directors are provided with an induction in order to introduce
them to the operations and management of the business.
Information and Support
“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.
26
Craneware plc Annual Report 2019 Corporate Governance Report [Cont’d.]
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 Group 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.”
The Board performed a full formal evaluation in the prior financial year.
This was performed by means of a detailed questionnaire to be completed
by each Director. This evaluation included a review of the performance of
the Chairman and the Board Committees. The results of the process were
collated by the Senior Independent Director and were reviewed by the Board
as a whole.
Overall the Board concluded that its performance in the period under
review had been satisfactory, however it did identify that adding further
non-executive experience could complement the current Board. The Board
is in the process of implementing these recommendations and as such
has not performed a review in the current year. The Board recognises this
means the Principle in the Code that expects an annual evaluation process
to be conducted, has not been applied in the current year. However, it is
considered by the Board that the procedure for, and frequency of, this formal
evaluation process is appropriate and adequate in view of its current size.
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 applicable to FTSE 350 companies and
has determined it was not necessary to carry out an externally facilitated
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.
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, apart from George Elliott as explained on page
4, 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 23. An assessment of the Group’s market,
business model and performance is presented in the Chairman’s Statement
and the Strategic Review on pages 4 to 16.
As detailed on page 20 of the Directors’ Report, the Board has confirmed
that it is appropriate to adopt the going concern basis in preparing financial
statements. The Directors have also explained in the Strategic Report on
pages 5 to 7 their assessment of the prospects of the Company and
the Group.
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, which
cover all material controls, including financial, operational and compliance
controls 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.
The Directors have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model,
future performance, solvency and liquidity. The Group maintains its internal
risk register that forms the foundation of the Board and the Audit Committee
review process. 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.
The risk review is exercised through the monthly management reports
and Operations Board meetings and, due to the importance of this topic,
a sub-committee of the Operations Board has been formed (the Risk and
Governance Committee, chaired by the Chief Financial Officer) to ensure
there is specific focus on risk review and risk management. For each risk
identified the control strategy and who is accountable for discharging that
strategy is identified and documented in the meeting minutes. During
monthly Operations Board meetings, material emerging risks are reviewed
with discussion concerning actions to reduce or monitor Group exposure.
In this way, risks are reviewed and updated monthly. The Group also has
27
Craneware plc Annual Report 2019 Corporate Governance Report [Cont’d.]
a Security Council, chaired by the Chief Information Officer, which meets
weekly and reports into the Risk and Governance Committee. The purpose
of the Security Council is to assess current technology risks, approval and
implementation of mitigation plans and to inform the Chief Information
Officer and the Chief Technology Officer of future strategy around this key
business area.
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.
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 Russ
Rudish. When appropriate Keith Neilson, as Chief Executive Officer, is invited
to attend meetings (except where matters under review by the Committee
relate to him).
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.
The Committee has responsibility for making recommendations to the Board
on the remuneration packages of the executive Directors, the remuneration
of the Chairman of the Board, and monitoring the level and structure of
remuneration for senior management, this includes:
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 pages 14 to 16. 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 is chaired by Colleen Blye and its other members
are Ronald Verni and Russ Rudish. 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 and the Audit Committee as a whole has significant
experience and competence in healthcare and software sectors.
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 32
to 38, which details the work undertaken operating under its terms of
reference (which are available on the Company’s website, at
www.craneware.com, and 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 32 to 38.
28
Craneware plc Annual Report 2019 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 Chief Executive Officer and Craig Preston as Chief
Financial Officer.
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.
On 6 November 2018, the Company held a Capital Markets Day in London for
institutional investors and analysts. This provided an insight into Craneware’s
Trisus® products, including Trisus Healthcare Intelligence. In addition, the
presentations discussed the evolution of the US healthcare market. All of the
Directors of the Company attended the Capital Markets Day, The presentation
slides from the Capital Markets Day can be viewed on the Company’s website
at www.craneware.com.
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 General Meetings
“The Board should use general meetings to communicate with investors and to
encourage their participation.”
The Board encourages attendance at its Annual General Meeting (“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. The Company proposes separate resolutions for each
substantially separate issue and specifically relating to the report and
accounts. All Directors, where possible, make themselves available to answer
any questions shareholders may have. All of the Directors of the Company
attended the AGM on 6 November 2018. 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 on the Company’s website, at www.craneware.com, and
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 the
Group;
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.
In accordance with its terms of reference, the Committee has reported to the
Board as to how it has discharged its responsibilities throughout the year.
29
Craneware plc Annual Report 2019 Corporate Governance Report [Cont’d.]
Significant matters considered in relation to the financial statements
The following table sets out the significant areas considered by the
Committee in relation to the Group’s financial statements for the year ended
30 June 2019:
Area of
judgement or
estimate
Revenue and
deferred
income (Group
and Company),
including the
adoption of
IFRS 15 (see
Note 4 to the
Financial
Statements)
Matter considered and Role of the Committee
Revenue and deferred income are significant amounts in the
context of the Consolidated Statement of Comprehensive
Income and the Group and Company Balance Sheets
respectively. The amount of revenue to be recognised and
timing of revenue recognition are determined based on the
details and terms contained in the contracts with customers.
The Group adopted IFRS 15 ‘Revenue from Contracts with
Customers’ with effect from 1 July 2018 and the Group
adopted the modified retrospective approach, which requires
opening reserves at 1 July 2018 to be adjusted for the
cumulative impact of the change to the new standard on a
cumulative effect basis.
Detailed assessments carried out by the Group have shown
that the adoption of the five step model does not
significantly alter the timing or value of revenue recognised
under IFRS 15 compared with the Group’s previous revenue
recognition policy. Accordingly, no financial restatement has
been made as a result of adopting IFRS 15.
Further details regarding the adoption of IFRS 15 are
included in the Note 1 to the Financial Statements. The Audit
Committee reviewed and considered the assessment of IFRS
15 and disclosures regarding its adoption.
Provision for
income tax
(Group and
Company)
The Group is subject to tax in the UK and in the US and this
requires the Directors to regularly assess the applicability of
its transfer pricing policy relevant to the revenue
transactions and costs between companies in the Group.
Internally
developed
intangible
assets (Group
and Company)
The Group and the Company capitalise development costs
when the conditions for capitalisation, as outlined in the
principal accounting policies, have been met. Consequently,
the Directors are required to continually assess the
commercial potential of each product in development and its
useful life following launch. The Committee reviews this area
as there is judgement involved in the Directors’ assessment.
Area of
judgement or
estimate
Impairment
assessment
Matter considered and Role of the Committee
The carrying amount of the Group’s and the Company’s
tangible and intangible assets, including goodwill, is
considered at each reporting date to determine whether
there is any indication that those assets have suffered an
impairment loss. The Committee reviews this assessment. 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. There are no impairment losses
recognised in the financial statements of the Company or of
the Group in the year ended 30 June 2019.
The Audit Committee also reviewed and considered other matters during and
in respect of the financial year ended 30 June 2019 including management’s
assessment of new accounting standards that were not effective for adoption
until after 30 June 2019.
The Audit Committee considered and discussed with the rest of the
Board whether the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for stakeholders to
assess the Group’s position and performance, business model and strategy.
Internal audit arrangements
The Committee has also reviewed the arrangements in place for internal
audit and concluded, due to the current size, complexity and internal control
environment of the Company and the Group, that a formal internal audit
function was not required. The Audit Committee believes that management
is able to derive assurance regarding the adequacy and effectiveness
of internal controls and risk management procedures, given the close
involvement of the Directors and the senior management on a day to day
basis, without the need for an internal audit function.
In view of the importance of the procedures, security, regulation and
controls around Craneware’s solutions and customer data, the focus
for other assurance activities for the Group is in respect of those areas.
Craneware is currently working towards accreditation for the HITRUST CSF.
Health Information Trust Alliance (‘HITRUST’ Alliance) is a collaboration
with healthcare, technology and information security organisation which
develops, maintains and provides broad access to its widely adopted
common risk and compliance management and de-identification
frameworks; related assessment and assurance methodologies; and
initiatives advancing cyber sharing, analysis and resilience. HITRUST has
established a ‘common security framework’ (CSF) to address the multitude
of security, privacy and regulatory challenges facing organisations. The
30
Craneware plc Annual Report 2019
Corporate Governance Report [Cont’d.]
scope of the HITRUST CSF’s requirements is wide and requires a very high
standard of data security arrangements as these have been set in the context
of the accreditation being relevant to US healthcare providers with handling
sensitive data (Protected Health Information) and impacts in some way all
areas of the business (at least in respect of the required enhancement to the
Group-wide IT and data security policies).
The Audit Committee will continue to monitor whether there is a
requirement for an internal audit function and will report accordingly to
the Board.
External audit
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.
Each year PricewaterhouseCoopers LLP prepares and presents their
audit plan to the Audit Committee for the audit of the full year financial
statements. The audit plan identifies what the external auditors consider
to be the key audit risks, the planned scope of work, the audit timetable
and also details of how they have assessed their independence to be able
to undertake the audit work. As part of ensuring independence, the audit
partner within PricewaterhouseCoopers LLP is required to rotate every five
years and, accordingly, Kenneth Wilson will step down following the audit
of the financial statements for the year ended 30 June 2019 and will be
replaced by a new audit partner. The audit plan is reviewed, along with the
Committee’s assessment of auditor independence, and is agreed in advance
by the Audit Committee. Having considered the planning work carried out
and the results of the audit of the Group and Company financial statements
for the year ended 30 June 2019, the Committee was satisfied that the
approach adopted was robust and appropriate and that their independence
and objectivity could be relied upon
Non-audit services provided by the external auditors
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. The policy in
respect of services provided by the external auditors is set out below:
The external auditors may be appointed to provide non-audit services where
it is in the Group’s best interests to do so, provided a number of criteria are
met. These are that the external auditor does not:
Audit their own work;
Make management decisions for the Group;
Create a conflict of interest;
Find themselves in the role of an advocate for the Group.
During the year, the Company’s auditors provided certain pieces of non-audit
work in relation to US tax compliance matters; in particular, in regards to
the individual State Tax Compliance Filings the Group is required to submit.
In order to maintain PricewaterhouseCoopers LLP’s independence and
objectivity, they conducted their standard independence procedures in
relation to those engagements. 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 extent and nature of non-audit
services and the related fees paid, especially as the total fees paid in relation
to the US tax compliance work exceeds the audit fee. The Committee noted
that the compliance work relates to a significant number of separate
regulatory filings to each individual State, each commanding a fee that is not
material and as such, the Committee has concluded they do not compromise
auditor independence.
Whistleblowing Policy
The Group is committed to conducting its business with honesty and
integrity and it is expected that these high standards be maintained
throughout the organisation. As an element of providing a supportive and
open culture within the organisation, the Group has a Whistleblowing
Policy and associated annual training. This Policy includes arrangements
by which employees, consultants or contractors may, in confidence and
also anonymously should they wish, raise concerns regarding possible
improprieties in matters of financial reporting or other matters. These
concerns would then be investigated and followed up appropriately.
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
2 September 2019
31
Craneware plc Annual Report 2019 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 2016. The members of the Committee are Ronald Verni (Chairman),
Colleen Blye and Russ Rudish. None of the Committee has any personal
financial interests 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 twice during the year and the
meeting attendance is shown on page 24.
No Director is involved in any decisions as to his or her own remuneration.
The remuneration of the non-executive Directors, other than the Chairman
of the Board, is determined by the Board as a whole within limits set out
in the Articles of Association. The levels of remuneration for non-executive
Directors are considered to reflect the time commitment and responsibilities
of the role. The non-executive Directors, including the Chairman of the
Board, 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:
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.
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 at up to 4% of basic salary (effective from September 2018; prior to
that the matching was at up to 3% of basic salary). 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.
32
Craneware plc Annual Report 2019 Remuneration Committee's Report [Cont’d.]
Annual performance related bonus
(iv)
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.
In view of the financial results of the Company in the current year the
Remuneration Committee has concluded that targets have not been met for
the current financial year and therefore no bonus amounts are payable to the
executive Directors.
Share options and LTIP awards
(v)
During the year and historically the Company has operated employee
share plans from which, and at the discretion of the Committee, executive
Directors and other employees (including senior management) could be
granted share-based awards.
The 2016 share plans
The Craneware Employees’ Share Option Plan 2007 (“2007 Share Option
Plan”) was operated by the Company from 2007 and further details
regarding this option plan are provided below. As the 2007 Share Option
Plan was approaching the tenth anniversary of its original adoption date
(after which no further grants could be made under its terms), 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”).;
Although the LTIP is intended to 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. Accordingly, two share option
plans were also established 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 not
based in the UK.
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.
The Rules of the LTIP provide for a Clawback provision, in respect of awards
granted under the LTIP, which may be applied in the event of: material
misstatement of financial results; error in the calculation of performance
condition outcomes; and/ or misconduct.
Awards granted under the 2016 share plans in the year ended 30 June 2019
In September 2018, the Chief Executive Officer and the Chief Financial Officer
were granted a combination of a conditional share award under the LTIP and
share options under the Unapproved Option Plan. The total value of these
awards at date of grant was equal to 100% of the basic salary for each of
these directors. These awards are included in the tables on pages 37 and
38. Conditional share awards and / or share options were granted to certain
other employees (including senior management) in September 2018 under
the 2016 share plans.
The vesting of the awards, which were granted from the 2016 share plans
in the year ended 30 June 2019, 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 and for share
options granted from the 2016 share option plans in September 2018, the
performance conditions are based on the Company’s total shareholder return
(“TSR”) performance relative to the performance achieved by the constituent
companies in the FTSE AIM 100 Index (the “Comparator Group”). As disclosed
in the 2018 Annual Report, similar performance conditions (but with the
comparator group being a group of comparable companies in the same
sector) apply to the conditional share awards and share options that were
granted in March 2017 and in January 2018.
33
Craneware plc Annual Report 2019 Remuneration Committee's Report [Cont’d.]
The performance conditions are assessed over the period of three years,
commencing on the date of grant, during 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's TSR
against the Comparator Group
% of Shares comprised in conditional
share award or share option that vest
Below median
Median
Upper quartile or above
0%
25%
100%
Between median and upper quartile
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 2019; one third based on performance over the three
years ending 30 June 2020; and the final third based on performance
over the three years to 30 June 2021 – resulting in an aggregate five year
performance evaluation 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.
Performance condition measurement to 30 June 2019
For share options and LTIP awards granted in March 2017, the third tranche
is not due to vest until March 2020 and, for the share option and LTIP awards
granted in January 2018, the second tranche is not due to vest until January
2020. However, the performance criteria for each of these tranches is tested
against the Company’s TSR for the three years to 30 June 2019 compared to
the TSR of the companies in the Comparator Group. Craneware plc’s relative
TSR for this period, when ranked against the Comparator Group was within
the upper quartile and therefore the respective tranches, being one third of
each award, will vest in full.
For share options and LTIP awards granted in September 2018, the first
tranche is not due to vest until September 2019. However, the performance
criteria for this tranche is tested against the Company’s TSR for the three
years to 30 June 2019 compared to the TSR of the constituent companies in
the FTSE AIM 100 Index. Craneware plc’s relative TSR for this period, when
ranked against that Comparator Group was between the median and the
upper quartile and therefore the tranche, being one third of the awards
granted in September 2018, will vest to the extent of 92%.
2007 Share Option Plan
Share options can no longer be granted under this share option plan as it
was established more than ten years ago. The last grant of share options
under this plan occurred in September 2016.
Options granted under this scheme in earlier financial years are normally
exercisable three years after the date the options were granted, provided
the option holder 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)
and results in performance criteria being tied to five years of share price
performance. 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 that must be maintained over that period if all options granted are to
become exercisable.
34
Craneware plc Annual Report 2019 Remuneration Committee's Report [Cont’d.]
These performance criteria were met in the three year period ended 30
June 2019 and as a result all options that were subject to the testing
of performance criteria over that period vested but will only become
exercisable on the third anniversary of the grant of the original option.
All employee share option plans
In order to provide a wider population of employees with an opportunity to
become Craneware shareholders, which promotes alignment to shareholder
interests and aids with recruitment and retention, a Save As You Earn
(‘SAYE’) share option plan for UK employees and an Employee Stock Purchase
Plan (‘ESPP’) for US employees within the Group were established in the year
ended 30 June 2019. The Committee supports this proposed enhancement
to Craneware’s employee reward offering. The executive Directors will be
permitted, if they choose to do so, to participate in the SAYE share option
plan on the same terms as other UK employees. These share option plans
were approved by the shareholders at the 2018 Annual General Meeting.
No share options have been granted, to date, under these two share
option plans.
SAYE and ESPP share option plans will allow employees, who choose to
participate, to contribute regularly to the plans from their net salary and to
use those funds to buy shares in the Craneware plc, at the end of the savings
period. This is usually at a discounted purchase price that is set at the start of
the savings period.
Source of shares and dilution limits
The share plans are 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.
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 2019,
are contained in Note 8 to the financial statements.
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
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 21.
35
Craneware plc Annual Report 2019 Remuneration Committee's Report [Cont’d.]
Directors’ Emoluments (audited)
For Directors who held office during the course of the year, emoluments1 in respect of the year ended 30 June 2019 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 the
period being reported)
Salary/Fees ($)
Benefits 2 ($)
Bonus ($)
Pension ($)
2019 Total ($)
2018 Total ($)
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
R Verni
C Blye
R Rudish
Total
417,793
311,209
800
869
91,411
60,414
54,469
52,644
-
-
-
-
987,940
1,669
-
-
-
-
-
-
-
24,679
13,582
443,272
325,660
878,000
656,429
-
-
-
-
91,411
60,414
54,469
52,644
104,139
58,658
56,078
52,388
38,261
1,027,870
1,805,692
1. Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire, or conditional share awards in respect of, ordinary shares in the Company held by the Directors.
2. Benefits represent payments for health insurance, death in service and disability insurance.
The following Directors were paid in Sterling:
Executives
K Neilson
C T Preston
Non-Executives
G R Elliott
Total
Salary/Fees (£)
Benefits 2 (£)
Bonus (£)
Pension (£)
2019 Total (£)
2018 Total (£)
322,745
240,408
70,615
633,768
618
671
-
1,289
-
-
-
-
19,065
10,492
342,428
251,571
639,495
478,047
-
70,615
68,557
29,557
664,614
1,186,099
Further information regarding Directors’ share options and LTIP awards are contained in the tables on pages 37 and 38.
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.
36
Craneware plc Annual Report 2019 Remuneration Committee's Report [Cont’d.]
Directors’ interests in share options and LTIP awards
Directors’ interests in share options as at 30 June 2019, 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
30/06/18
Granted
During
Year
Exercised
During Year
Lapsed
During Year
Held At
30/06/19
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
Schedule 4 Option Plan
534.0
618.0
650.0
621.0
839.0
1066.0
1563.0
335.0
401.0
400.0
395.0
523.0
750.0
1177.5
10,332
13,383
6,605
34,472
39,090
28,628
36,469
17 Jan 2018
2445.0
1775.0
1,690
2445.0
3488.0
1775.0
2710.0
7,238
-
5,848
Unapproved Option Plan
17 Jan 2018
5 Sep 2018
C T Preston
Share Option Plan 2007
Grant Date
9 Mar 2016
Schedule 4 Option Plan
1066.0
750.0
26,925
24 Mar 2017
1544.0
1237.5
2,424
Unapproved Option Plan
24 Mar 2017
17 Jan 2018
5 Sep 2018
1544.0
2445.0
3488.0
1237.5
1775.0
2710.0
6,162
6,618
-
4,334
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,332
13,383
6,605
34,472
39,090
28,628
36,469
23 Dec 12
23 Dec 19
6 Sep 13
6 Sept 20
21 Sep 15
21 Sept 22
10 Sep 16
10 Sept 23
22 Sep 17
22 Sept 24
9 Mar 19
9 Mar 26
2/3rd vested
12 Sept 26
1,690
1/3rd vested
17 Jan 28
7,238
5,848
1/3rd vested
17 Jan 28
Not yet vested
5 Sep 28
26,925
9 Mar 19
9 Mar 26
2,424
2/3rd vested
24 Mar 27
6,162
6,618
2/3rd vested
24 Mar 27
1/3rd vested
17 Jan 28
4,334
Not yet vested
5 Sep 28
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.
37
Craneware plc Annual Report 2019 Remuneration Committee's Report [Cont’d.]
The maximum number of Ordinary Shares subject to conditional share awards granted to Directors under the LTIP as at 30 June 2019 were as follows, in respect
of Directors who held office during the course of the year:
Grant date
Held At
30/06/18
Granted
During
Year
Released
During Year
Lapsed
During Year
Held At
30/06/19
Share price at date of
grant (pence)
K Neilson
Conditional share award
17 Jan 2018
8,928
-
Conditional share award
5 Sep 2018
-
5,848
C T Preston
Conditional share award
24 Mar 2017
Conditional share award
17 Jan 2018
8,586
6,618
-
-
Conditional share award
5 Sep 2018
-
4,334
-
-
-
-
-
-
-
-
-
-
8,928
5,848
8,586
6,618
4,334
1,775.0
2,710.0
1,237.5
1,775.0
2,710.0
Vesting date
17 Jan 2021
5 Sep 2021
24 Mar 2020
17 Jan 2021
5 Sep 2021
There was no consideration for the grant of these conditional awards and no consideration will be payable by the award holders to receive the Shares from
these awards, if and to the extent that they vest. The entitlement to shares under the LTIP is subject to achieving the performance conditions referred to on
pages 33 and 34. The table above shows the maximum entitlement and the actual number of shares (if any) that vest from the awards will depend on
those conditions being achieved.
On behalf of the Remuneration Committee:
Ronald Verni
Chairman of the Remuneration Committee
2 September 2019
38
Craneware plc Annual Report 2019
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 2019 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 International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the
company’s financial statements, 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
2019; 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
Overall group materiality: $916,000 (2018: $947,000), based on 5% of profit before tax.
Overall company materiality: $695,000 (2018: $565,600), based on 5% of profit before tax.
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 we audited comprise 100% of Group revenues.
All audit work was undertaken by a single engagement team in the UK.
Revenue and deferred income (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.
39
Craneware plc Annual Report 2019 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)
The Group has revenue of $71,401k (2018: $67,067k) and deferred income of $37,849k (2018:
$35,371k). The Company has revenue of $37,962k (2018: $31,433k) and deferred income of
$37,848k (2018: $35,362k). 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 is determined based on the contract details. The timing of revenue recognition is
dependent on the terms contained in the contracts with customers. There is a risk that revenue and
deferred income are not recognised appropriately or within the correct period.
Internally developed intangible assets (Group and Company)
The Group has $17,851k (2018: $10,067k) and the Company has $17,691k (2018: 9,734k) of
development costscapitalised on the balance sheet. Development costs are capitalised 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 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 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.
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. In regard to recoverability of intangible assets,
we assessed the intangible assets for indications of impairment. No
matters arose during our testing.
How we tailored the audit scope
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.
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 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
$916,000 (2018: $947,000).
$695,000 (2018: $565,600).
How we determined it
5% of profit before tax.
5% of profit before tax.
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.
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 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 $650,000 and $900,000. Certain components were audited to a local statutory audit materiality that was also less than our
overall group materiality.
40
Craneware plc Annual Report 2019
Independent Auditors’ Report to the Members of Craneware plc [Cont’d.]
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $46,000 (Group audit) (2018: $47,000)
and $34,750 (Company audit) (2018: $28,000) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Going Concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to
in respect of the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting in
preparing the financial statements and the directors’ identification of any material
uncertainties to the group’s and the company’s ability to continue as a going concern over
a period of at least twelve months from the date of approval of the financial statements.
We have nothing material to add or to draw attention to. 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.
For example, the terms on which the United Kingdom may withdraw from the
European Union are not clear, and it is difficult to evaluate all of the potential
implications on the group’s trade, customers, suppliers and the wider economy.
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, Directors’ Report and Corporate Governance Statement, 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, the Companies Act 2006 (CA06) and ISAs (UK) require us also
to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).
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 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the group and 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. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group
As a result of the directors’ voluntary reporting on how they have applied the UK Corporate Governance Code (the “Code”), we are required to report to you if
we have anything material to add or draw attention to regarding:
The directors’ confirmation on page 27 of the Annual Report that they have carried out a robust assessment of the principal risks facing the group, including
those that would threaten its business model, future performance, solvency or liquidity.
The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
The directors’ explanation on page 20 of the Annual Report as to how they have assessed the prospects of the group, over what period they have done so
and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to
continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We have nothing to report in respect of this responsibility.
41
Craneware plc Annual Report 2019 Independent Auditors’ Report to the Members of Craneware plc [Cont’d.]
Other Code Provisions
As a result of the directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in our opinion:
The statement given by the directors, on page 23, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and
provides the information necessary for the members to assess the group’s and company’s position and performance, business model and strategy is
materially inconsistent with our knowledge of the group and company obtained in the course of performing our audit.
The section of the Annual Report on page 29 describing the work of the Audit Committee does not appropriately address matters communicated by us to the
Audit Committee.
We have nothing to report in respect of this responsibility.
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, 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 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
2 September 2019
42
Craneware plc Annual Report 2019 Consolidated Statement of Comprehensive Income
for the year ended 30 June 2019
Continuing operations:
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Analysed as:
Adjusted EBITDA1
Share based payments
Depreciation of plant and equipment
Exceptional Aborted Acquisition Costs2
Amortisation of intangible assets
Finance income
Profit before taxation
Tax charge on profit on ordinary activities
Profit for the period attributable to owners of the parent
Other comprehensive income / (expense)
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
Total
2019
$’000
Total
2018
$’000
Notes
4
5
6
8
13
14
9
10
71,401
(4,394)
67,007
67,067
(3,407)
63,660
(49,003)
(44,968)
18,004
18,692
23,996
(1,296)
(603)
(1,168)
(2,925)
318
18,322
(3,337)
14,985
21,611
(663)
(578)
-
(1,678)
241
18,933
(3,136)
15,797
28
28
(10)
(10)
15,013
15,787
Earnings per share for the period attributable to equity holders
- Basic ($ per share)
- Diluted ($ per share)
12a
12b
0.561
0.550
0.590
0.579
1Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, exceptional items and share based payments.
2Exceptional items relate to legal and professional fees associated with an aborted potential acquisition.
The accompanying notes are an integral part of these financial statements.
43
Craneware plc Annual Report 2019 Statements of Changes in Equity for the year ended 30 June 2019
Group
At 1 July 2017
Total comprehensive income - profit for the year
Total other comprehensive expense
Transactions with owners:
Company share movement in employee benefit trust (Note 18)
Buyback and cancellation of shares
Share-based payments
Impact of share options exercised / lapsed
Dividends (Note 11)
At 30 June 2018
Total comprehensive income - profit for the year
Total other comprehensive income
Transactions with owners:
Share-based payments
Impact of share options exercised / lapsed
Dividends (Note 11)
At 30 June 2019
Company
At 1 July 2017
Total comprehensive income - profit for the year
Transactions with owners:
Buyback and cancellation of shares
Share-based payments
Impact of share options exercised / lapsed
Dividends (Note 11)
At 30 June 2018
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 2019
Share
Capital
$’000
Share
Premium
Account
$’000
Capital
Redemption
Reserve
$’000
537
17,974
-
-
-
(9)
-
6
-
-
-
-
-
-
1,803
-
534
19,777
-
-
-
1
-
-
-
-
245
-
535
20,022
537
17,974
-
(9)
-
6
-
-
-
-
1,803
-
534
19,777
-
-
1
-
-
-
245
-
535
20,022
-
-
-
-
9
-
-
-
9
-
-
-
-
-
9
-
-
9
-
-
-
9
-
-
-
-
9
Other
Reserves1
$’000
Retained
Earnings
$’000
Total
Equity
$’000
958
39,886
59,355
-
-
-
-
15,797
15,797
(10)
(10)
(4,248)
(4,248)
(15,378)
(15,378)
1,503
(377)
634
378
2,137
1,810
-
(7,817)
(7,817)
2,084
29,242
51,646
-
-
14,985
14,985
28
28
1,611
(146)
(184)
146
1,427
246
-
(8,497)
(8,497)
3,549
35,720
59,835
504
33,540
52,555
-
10,360
10,360
-
(15,378)
(15,378)
232
(251)
202
252
434
1,810
-
(7,817)
(7,817)
485
21,159
41,964
-
11,193
11,193
1,011
(33)
(107)
33
904
246
-
(8,497)
(8,497)
1,463
23,781
45,810
1Other reserves relate to share-based payments and are detailed in Note 1 and these reserves are not available for distribution.
The accompanying notes are an integral part of these financial statements.
44
Craneware plc Annual Report 2019
Consolidated Balance Sheet as at 30 June 2019
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
Current Liabilities
Deferred income
Current tax liabilities
Trade and other payables
Total Liabilities
Equity
Called up share capital
Share premium account
Capital redemption reserve
Other reserves
Retained earnings
Total Equity
Total Equity and liabilities
Registered Number SC196331
Notes
2019
$’000
2018
$’000
13
14
16
17
16
20
4
21
18
1,274
30,437
4,946
3,244
39,901
18,789
47,611
66,400
106,301
37,849
1,085
7,532
46,466
46,466
535
20,022
9
3,549
35,720
59,835
106,301
1,223
23,267
5,275
3,831
33,596
12,503
52,833
65,336
98,932
35,371
80
11,835
47,286
47,286
534
19,777
9
2,084
29,242
51,646
98,932
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 43 to 73 were approved and authorised for issue by the Board of Directors on 2 September 2019 and signed on its
behalf by:
Keith Neilson
Director
Craig Preston
Director
45
Craneware plc Annual Report 2019 Company Balance Sheet as at 30 June 2019
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
Current Liabilities
Deferred income
Current tax liabilities
Trade and other payables
Total Liabilities
Equity
Share capital
Share premium account
Capital redemption reserve
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
Registered Number SC196331
Notes
2019
$’000
2018
$’000
15
13
14
17
16
16
20
21
18
10,107
800
18,278
1,154
6,000
36,339
22,435
43,357
65,792
102,131
37,848
1,998
16,475
56,321
56,321
535
20,022
9
1,463
23,781
21,159
11,193
(8,571)
45,810
102,131
10,107
748
10,156
1,204
6,000
28,215
17,042
43,955
60,997
89,212
35,362
-
11,886
47,248
47,248
534
19,777
9
485
21,159
33,540
10,360
(22,741)
41,964
89,212
The accompanying notes are an integral part of these financial statements.
The financial statements on pages 43 to 73 were approved and authorised for issue by the Board of Directors on 2 September 2019 and signed on its
behalf by:
Keith Neilson
Director
Craig Preston
Director
46
Craneware plc Annual Report 2019 Statements of Cash Flows for the year ended 30 June 2019
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
Buy back of ordinary shares
Net cash used in financing activities
Net decrease 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
2019
$’000
2018
$’000
2019
$’000
2018
$’000
15,078
318
(1,933)
13,463
(654)
(9,780)
(10,434)
(8,497)
246
-
-
(8,251)
(5,222)
52,833
47,611
33,110
227
(3,349)
29,988
(434)
(4,258)
(4,692)
(7,817)
1,810
(4,248)
(15,378)
(25,633)
(337)
53,170
52,833
17,514
313
(32)
17,795
(413)
(9,729)
(10,142)
(8,497)
246
-
-
(8,251)
(598)
43,955
43,357
26,820
432
(3,111)
24,141
(244)
(4,128)
(4,372)
(7,817)
1,810
(4,248)
(15,378)
(25,633)
(5,864)
49,819
43,955
Notes
19
13
11
20
47
Craneware plc Annual Report 2019 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 17 of the Annual Report. The principal activity of the
Company is described in the Directors’ Report.
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.
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
(IFRSIC) interpretations and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The Group and Company
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 $1.2945/£1
(2018: $1.3472/£1). Monetary assets and liabilities expressed in foreign
currencies are translated into US dollars at rates of exchange ruling at the
Balance Sheet date $1.2695/£1 (2018: $1.31977/£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.
Annual improvements 2014-2016 (effective 1 January 2018) - this set of
annual improvements addresses issues in the 2014-2016 reporting cycle,
which affects two different standards,
IFRS 2, ‘Share-based payments’ (effective 1 January 2018),
IFRS 4, ‘Insurance contracts’ (effective 1 January 2018),
IFRIC 22, ‘Foreign currency transactions and advance consideration’ (effective
1 January 2018),
IAS 40, ‘Investment property’ (effective 1 January 2018).
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaced IAS 29 Financial Instruments:
Recognition and Measurement (effective from periods beginning on or after
1 January 2018).
This new standard introduces changes to the classification and measurement
of financial assets and financial liabilities; impairment of financial assets;
and general hedge accounting.
IFRS 9 introduces three categories of financial instruments being fair value
through profit and loss (FVTPL), fair value through other comprehensive
income (FVTOCI) and amortised cost. There were previously four categories
under IAS 39 being fair value through profit and loss, available-for-sale,
loans and receivables and held-to-maturity. An analysis of the Group’s and
Company’s financial instruments by category as a result of the adoption
of IFRS 9 is provided in financial assets and financial liabilities accounting
policies.
IFRS 9 has also introduced a new model for impairment which is based on
assessing changes in credit quality from initial recognition of a financial
instrument. The model requires expected credit losses to be determined,
being a probability weighted estimate of the difference between cash flows
that are due in accordance with the contract and the cash flows that are
expected to be received. As a result, the Group has implemented a forward-
looking credit loss model in contrast to the historical incurred credit loss
model previously applied under IAS 39.
There have been no changes in the measurement bases for the Group’s or the
Company’s financial assets or liabilities as a result of the adoption of IFRS 9.
There is no impact on the opening reserves from the change to the new
standard.
48
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers replaced IAS 18 Revenue
(effective from periods beginning on or after 1 January 2018).
This new standard replaces all existing revenue recognition requirements
in IFRS and sets out a comprehensive framework for determining whether,
when and how much revenue to recognise.
Detailed assessments carried out by the Group have shown that the adoption
of the five step model does not significantly alter the timing or value of
revenue recognised under IFRS 15 compared with the Group’s previous
revenue recognition policy. Accordingly no financial restatement has
been made.
Revenue is only recognised when, or as, control of goods or services passes
to the customer, in accordance with when distinct performance obligations
are met, and at the amount to which the Group expects to be entitled.
Additional disclosures required by IFRS 15 are set out in Note 4.
In implementing IFRS 15, the Group adopted the modified retrospective
approach, which requires opening reserves at 1 July 2018 to be adjusted
for the cumulative impact of the change to the new standard. In doing so,
the Group elected to apply a practical expedient which permits IFRS 15 to
be applied only to contracts that were not completed as at 1 July 2018.
The Group’s assessments have shown that no adjustments are required to
opening reserves at 1 July 2018. The assessments have also shown that there
would not have been a material impact on the financial statements for the
year ended 30 June 2019 had IAS 18 been applied in their preparation.
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) 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.
Other standards
Annual improvements 2015-2017 (effective 1 January 2019*),
This set of annual improvements addresses issues in the 2015-2017
reporting cycle, which affects four different standards.
IFRS 9, ‘Financial Instruments’ (effective 1 January 2019*)
IFRS 17, ‘Insurance contracts’ (effective 1 January 2021*),
IFRIC 23, ‘Uncertainty over income tax treatments’ (effective 1 January
2019*),
IAS 12, ‘Income Taxes’ (effective 1 January 2019*)
IAS 19, ‘Employee benefits’ (effective 1 January 2019*),
IAS 28, ‘Investments in associates’ (effective 1 January 2019*),
*effective for accounting periods starting on or after this date.
IFRS 16 Leases
This standard is effective for annual reporting periods beginning on or after
1 January 2019. As a result, the standard is applicable to the Group for the
year ended 30 June 2020. The adoption of IFRS 16 will result in the Group
recognising a right-of-use asset and lease liability for all contracts that
are, or contain, a lease. For leases currently classified as operating leases,
the Group currently accounts for these under IAS 17 spreading the value
of the lease on a straight line basis over its term and discloses total future
commitments. The Group does not currently recognise assets or liabilities for
operating leases.
The Group has some long term leases in respect of rental property. The Group
is continuing to evaluate the full impact of the accounting changes that will
arise under IFRS 16. On transition to IFRS 16 the Group expects to recognise:
Assets of $2.4m, specifically right-of-use assets leased by the Group.
Currently no assets are included on the Group’s consolidated statement of
financial position for operating leases.
Liabilities of $2.7m for future payments due on leases. Currently liabilities
of $0.9m are included on the Group’s consolidated statement of financial
position for operating leases.
Operating lease expenditure will be reclassified and split between
depreciation and finance costs, resulting in an increase in EBITDA. Lease
expenses will be for depreciation of right-of-use assets and interest on
lease liabilities. There is no material impact on opening reserves.
Operating lease cash flows are currently included within operating cash
flows in the consolidated statement of cash flows; under IFRS 16 these
will be recorded as cash flows from financing activities reflecting the
repayment lease liabilities.
The Group intends to use the practical expedient not to recognise
short-term leases and low-value leases. Theses leases will continue to be
classified as operating leases under IAS 17.
IFRS 16, ‘Leases’ (effective 1 January 2019*). The Group has commenced
an initial assessment of the potential impact on its consolidated financial
statements; this assessment is not yet concluded.
The Group will transition to IFRS 16 using the modified retrospective
application approach with no restatement of prior year comparatives and an
adjustment to reserves at the date of adoption.
49
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
Basis of consolidation
The consolidated Statement of Comprehensive Income, Balance Sheet,
Statement of Changes in Equity and Statement of 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 IFRS 9 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 IFRS 15, ‘Revenue from Contracts with
Customers’; accordingly revenue will be recognised using the five-step
model, requiring the transaction price for each identified contract to be
apportioned to separate performance obligations arising under the contract.
Revenue is recognised either when the performance obligation in the
contract has been performed (point in time recognition) or over time as
control of the performance obligation is transferred to the customer.
Revenue is derived from sales of software licences and professional services
including installation and training.
‘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 licenced products is recognised from the point at
which the customer gains control and the right to use our software. This
right to use software will be for the period covered under contract and, as a
result, the licenced software revenue will be recognised over the life of the
contract. This policy is consistent with the Company’s products providing
customers with a service through the delivery of, and access to, software
solutions (Software-as-a-Service (“SaaS”)), and results in revenue being
recognised over the period that these services are delivered to customers.
Incremental costs directly attributable in securing the contract are charged
equally over the life of the contract and as a consequence are matched to
revenue recognised. Any deferred contract costs are included in both current
and non-current trade and other receivables.
Revenue from all professional services is recognised when the performance
obligation has been fulfilled and the 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 Group does not have any contracts where a financing
component exists within the contract.
50
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
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.
Contract assets include sales commissions and prepaid royalties. Contract
liabilities include unpaid commissions and deferred 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
relationships have a finite useful economic life and are carried at cost less
accumulated amortisation. Amortisation is calculated using the straight-line
method over the expected life of the customer relationship which has been
assessed as up to 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 licenced to-use
technology are capitalised as incurred. They are amortised on a straight-line
basis over their useful economic life which is typically three to
five years.
Impairment of non-financial assets
At each reporting date the Group considers the carrying amount of its
tangible and intangible assets including goodwill to determine whether
there is any indication that those assets have suffered an impairment loss. If
there is such an indication, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any) through
determining the value in use of the cash generating unit that the asset
relates to. Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the cash
generating unit to which the asset belongs.
If the recoverable amount of an asset is estimated to be less than its carrying
amount, the impairment loss is recognised as an expense.
Where an impairment loss subsequently reverses, the carrying amount of
the asset is increased to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognised
for the asset. A reversal of an impairment loss is recognised as income
immediately. Impairment losses relating to goodwill are not reversed.
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
- Between 20% - 33% straight line
Tenant's improvements
- Between 10% - 20% straight line
Office furniture
- Between 14% - 25% straight line
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable
amount.
Gains and losses on disposal of assets are included in operating profit.
Repairs and maintenance are charged to the Statement of Comprehensive
Income during the financial year in which they are incurred. The cost of
major renovations is included in the carrying amount of the assets when it
is probable that future economic benefits in excess of the originally assessed
standard of performance of the existing asset will flow to the Group.
51
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
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 does not affect accounting or
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
The Group classifies its financial assets in the following categories: (i) at
fair value through profit and loss (FVTPL), (ii) financial assets at amortised
cost and (iii) fair value through other comprehensive income (FVTOCI). 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 financial assets at
amortised cost.
Financial assets at amortised cost 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. They 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
Impariment of financial assets
IFRS 9 replaced the existing incurred loss model with a forward looking
expected credit loss model. The Group recognises an allowance for expected
credit loses (ECLs) for all debt instruments not held at fair value through
profit and loss. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash flows the
Group expects to receive.
For trade receivables, the Group applies a simplified approach to calculating
ECLs. Therefore the Group does not track changes in credit risk but instead
recognises a loss allowance based on lifetime ECLS at each reporting date.
The expected credit losses on these trade receivables are estimated using
a provision matrix based on the Group’s historical credit loss experience,
adjusted for management judgement concerning factors that are specific to
the receivables, general economic conditions and assessment of the current
as well as the forecast direction of conditions at the reporting date based
on reasonable and supportable information available. A financial asset
is written off when there is no reasonable expectation of recovering the
contractual cashflow.
Amounts owed from Group companies and other receivables due to the
Company are also subject to the impairment requirements of IFRS 9. All
amounts owed from Group companies are repayable on demand and
sufficient funds are held or are readily available to satisfy repayment the
loans. Other debtors consists mainly of the Employee Benefit Trust. Therefore
the identified impairment loss was assessed as immaterial for both.
52
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
1 Principal accounting policies (cont’d.)
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.
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.
2 Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS requires
the Directors to make critical accounting estimates and judgements that
affect the amounts reported in the financial statements and accompanying
notes. The estimates and assumptions that have a significant risk of causing
material adjustment to the carrying value of assets and liabilities within the
next financial year are discussed below:
Impairment assessment: the Group tests annually whether Goodwill
has suffered any impairment and for other assets including acquired
intangibles at any point where there are indications of impairment. This
requires an estimation of the recoverable amount of the applicable cash
generating unit to which the Goodwill and other assets relate. Estimating
the recoverable amount requires the Group to make an estimate of the
expected future cash flows from the specific cash generating unit using
certain key assumptions including growth rates and a discount rate.
These assumptions result in no impairment in Goodwill.
Provisions for income taxes: the Group is subject to tax in the UK and
US and this requires the Directors to regularly assess the applicability of
its transfer pricing policy.
Capitalisation of development expenditure: the Group capitalises
development costs provided the aforementioned conditions have been
met. Consequently, the Directors require to continually assess the
commercial potential of each product in development and its useful life
following launch.
3 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 is therefore required to continually assess the Group’s foreign
exchange risk against the Group’s functional currency, and whether any
form of hedge should be entered into. The Board continues to assess the
appropriateness of the Group’s hedging policy.
53
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
3 Financial risk management (cont’d.)
The Directors believe that a 10% change in the value of Sterling relative to the US dollar would impact post-tax profits and equity in the region of $3,050,000
lower/higher respectively as a result of foreign exchange gains/losses on Sterling denominated transactions and the translation of Sterling denominated
current liabilities. The Directors believe that, consistent with the prior year, 10% is appropriate for the sensitivity analysis.
(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 $110,000 higher/lower
respectively. The Directors believe that 25 basis points is appropriate for the sensitivity analysis based on recent market conditions.
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and trade receivables. In order to minimise the Group’s exposure to
risk, all cash deposits are placed with reputable banks and financial institutions. The Group’s exposure to trade receivables is reduced due to contractual terms
which require installation, training, annual licensing and support fees, to be invoiced annually in advance.
Credit risk also arises on cash and cash equivalents placed with the Group’s banks. The Group monitors the financial standing of any institution with which it
deposits cash.
(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 "Bankers" on page 17.
(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 2018
Trade and Other Payables
11,374
At 30 June 2019
Trade and Other Payables
7,005
-
-
-
-
-
-
Total
$’000
11,374
7,005
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.
54
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
4 Revenue
The chief operating decision maker has been identified as the Board of Directors. The Group revenue is derived almost entirely from the sale of software licences
and professional services (including installation) to hospitals within the United States of America. Consequently, the Board has determined that Group supplies
only one geographical market place and as such revenue is presented in line with management information without the need for additional segmental
analysis. All of the Group assets are located in the United States of America with the exception of the Parent Company’s, the net assets of which are disclosed
separately on the Company Balance Sheet and are located in the United Kingdom.
Software licensing
Professional services
Total revenue
Contract assets
The Group has recognised the following assets related to contracts with customers:
Prepaid commissions and royalities < 1 year
Prepaid commissions and royalities > 1 year
Total contract assets
*As permitted under the transitional provisions of IFRS 15, the transaction price allocated to contract assets at 30 June 2018 is not disclosed.
Contract assets are included within deferred contract costs and prepayments in the Balance Sheet.
Costs recognised during the year in relation to assets at 30 June 2018 were $2.4m
2019
$’000
60,488
10,913
71,401
2018
$’000
56,346
10,721
67,067
2019
$’000
2,537
4,946
7,483
2018
$’000
- *
- *
-
Contract liabilities
The following table shows both the total contract liabilities and the aggregate transaction price allocated to performance obligations that are partially or fully
unsatisfied at 30 June 2019 from software license and professional service contracts:
Software licensing
Professional services
Total contract liabilities
2019
$’000
33,949
3,900
37,849
2018
$’000
- *
- *
-
*As permitted under the transitional provisions of IFRS 15, the transaction price allocated to contract assets at 30 June 2018 is not disclosed.
Contract liabilities are included within deferred income in the Balance Sheet.
Revenue of $35.2m was recognised during the year in relation to unsatisfied performance obligations as of 30 June 2018.
Management expects that 99% of the transaction price allocated to unsatisfied performance obligations as of 30 June 2019 will be recognised as revenue
during the next reporting period ($37.5m).
55
Craneware plc Annual Report 2019 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
Share-based payments (Note 8)
Depreciation of plant and equipment (Note 13)
Amortisation of intangible assets (Note 14)
Exceptional aborted acquisition costs*
Exchange loss / (gain)
Operating expenses
*Exceptional items relate to legal and professional fees associated with an aborted potential acquisition.
6 Operating profit
The following items have been included in arriving at operating profit:
Staff costs (Note 7)
Staff costs capitalised
Depreciation of plant and equipment (Note 13)
Amortisation of intangible assets (Note 14)
Loss on disposal
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
Tax compliance fees include filing of a UK tax return and in the USA 3 federal and 47 state returns.
2019
$’000
9,726
14,086
10,405
8,723
1,296
603
2,925
1,168
71
2018
$’000
8,257
11,981
13,174
8,736
663
578
1,678
-
(99)
49,003
44,968
2019
$’000
34,714
(5,950)
603
2,925
-
-
878
2019
$’000
84
149
233
2018
$’000
34,343
(2,978)
578
1,678
10
416
775
2018
$’000
91
146
237
56
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
7 Staff costs
The average monthly number of persons employed by the Group and Company 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
2019
Group
Number
2018
Group
Number
2019
Company
Number
2018
Company
Number
33
113
148
45
339
2019
Group
$’000
29,888
2,488
1,042
1,296
34,714
32
97
136
30
295
2018
Group
$’000
30,305
2,707
668
663
34,343
-
35
87
33
155
-
30
88
21
139
2019
Company
$’000
2018
Company
$’000
13,345
1,191
530
1,116
16,182
9,563
1,380
273
232
11,448
The remuneration of the highest paid Director including the gain from exercising share options in the year (granted from 2008 to 2014) is $0.4m (2018:
$3.8m). Full details of Directors’ emoluments and share option exercises are detailed in the Remuneration Committee’s Report on page 36 and key
management compensation is given in Note 23, Related Party Transactions. Contributions are made on behalf of two of the executive Directors to a defined
contribution retirement benefit scheme (2018: two).
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 Directors. Directors’ interests in share plan awards are set out in the Remuneration Committee’s Report on
pages 37 to 38. 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 $1,296,220 (2018: $663,158) was recognised in the Statement of Comprehensive Income for the year, as stated
in Note 7 above. This comprises $760,610 (2018: nil) relating to estimated employer National Insurance contributions on the unexercised options granted
under the 2007 Share Options Plan and $535,610 (2018: $663,158) share-based payment charge split as follows:
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
Contingent share awards
Total share-based payments charge
2019
$’000
2018
$’000
76
(11)
(10)
459
22
536
132
145
35
172
179
663
57
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d.)
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 2019.
Date of grant
Exercise
price (GBP)
Exercise
price (USD)
2007 Share Option Plan
22 Dec 2009
06 Sep 2010
04 Sep 2012
21 Sep 2012
10 Sep 2013
22 Sep 2014
09 Mar 2016
01 Apr 2016
12 Sep 2016
2016 Unapproved Option Plan
24 Mar 2017
17 Jan 2018
05 Sep 2018
2016 Schedule 4 Option Plan
24 Mar 2017
17 Jan 2018
£3.35
£4.01
£3.60
£4.00
£3.95
£5.225
£7.50
£7.50
£11.775
£12.375
£17.750
£27.100
$5.34
$6.18
$5.72
$6.50
$6.21
$8.39
$10.66
$10.72
$15.63
$15.44
$24.45
$34.88
£12.375
£17.750
$15.44
$24.45
05 Sep 2018
£27.100
$34.88
Remaining
life at
1 July 2018
(years)
No. of options
at 1 July 2018
Granted
Exercised
Lapsed
No. of
options at
30 June 2019
Remaining
life at 30
June 2019
(years)
17,467
20,310
5,178
6,605
56,850
143,182
224,732
10,000
41,263
61,113
73,571
-
21,008
9,575
1.5
2.2
4.2
4.2
5.2
6.2
7.7
7.8
8.2
8.7
9.5
-
8.7
9.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,221)
(33,492)
-
-
-
-
-
-
-
(3,221)
(4,112)
(11,687)
-
-
-
-
55,077
-
-
-
5,899
-
-
-
-
-
-
(3,434)
(5,914)
(2,583)
(1,616)
(1,408)
(738)
17,467
20,310
5,178
6,605
50,408
105,578
213,045
10,000
41,263
57,679
67,657
52,494
19,392
8,167
5,161
0.5
1.2
3.2
3.2
4.2
5.2
6.7
6.8
7.2
7.7
8.5
9.2
7.7
8.5
9.2
The weighted average share price at the date of exercise of share options in the year ended 30 June 2019 was £32.83 ($43.17) (2018: £19.43 ($26.17)). The
market value of Craneware plc Ordinary Shares at 30 June 2019 was £19.00 ($24.12) per share. The weighted average remaining contractual life of the options
outstanding at 30 June 2019 is 6.5 years (2018: 7.2 years).
690,854
60,976
(36,713)
(34,713)
680,404
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
2019
2018
Number of Options
Weighted average
exercise price (£)
Number of Options
Weighted average
exercise price (£)
690,854
60,976
(36,713)
(34,713)
680,404
428,591
8.53
27.10
5.11
11.65
10.22
6.09
1,023,332
88,074
(385,600)
(34,952)
690,854
249,592
6.06
17.75
3.91
10.14
8.53
4.64
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.
58
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d.)
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. 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
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
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 September 2018, January 2018 and in
March 2017, as summarised in the table below. 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 September 2018, January 2018 and in March 2017 are
outlined in the Remuneration Committee’s Report on pages 33 to 34.
The fair value of the share options granted under these two Plans was estimated using a Monte Carlo pricing model, as appropriately adjusted, 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 at date of grant
Fair value per option
05-Sep-18
17-Jan-18
24-Mar-17
£27.100
$34.88
3
26.6%
0.77%
£27.100
$34.88
60,976
$5.88
£17.750
$24.45
3
22.8%
0.56%
£17.750
$24.45
88,074
$3.05
£12.375
$15.44
3
20.5%
0.11%
£12.375
$15.44
93,029
$1.55
The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous three years.
The Craneware plc SAYE Option Plan (2018)
The Craneware plc Employee Stock Purchase Plan (2018)
The Save As You Earn (SAYE) option plan and the Employee Stock Purchase Plan (ESPP) were approved by the Company’s shareholders at the Annual General
Meeting held on 6 November 2018. No share options have been granted under these Plans.
59
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
8 Share-based payments (cont’d.)
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 September 2018, in January 2018 and 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 September 2018, in January 2018 and in March 2017, are outlined in the Remuneration Committee’s Report on
pages 33 to 34.
Balance outstanding at 1 July
Awards granted in the year
Forfeited / lapsed during the year
Balance outstanding at 30 June
Number of
conditional
share awards
2019
Number of
conditional
share awards
2018
90,842
33,590
(5,344)
119,088
46,770
46,814
(2,742)
90,842
The remaining weighted average contractual life of the conditional share awards outstanding at 30 June 2019 is 1.4 years (at 30 June 2018: 2.7 years).
The fair values of the conditional share awards granted in 2019, 2018 and in 2017 were estimated using the Monte Carlo pricing model, as appropriately
adjusted, with the following main assumptions:
Date of Grant
05 Sep 2018
17 Jan 2018
24 Mar 2017
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
£27.100
$34.88
3
26.6%
0.77%
$31.48
£17.750
$24.45
3
22.8%
0.56%
$19.84
£12.375
$15.44
3
20.5%
0.11%
$12.50
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 159,336 Ordinary Shares were outstanding at 30 June 2019 (159,336 Ordinary Shares at 30 June 2018).
There are three sets of non-market performance conditions applicable to each of 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: a maximum of 159,336 award shares will vest on 1 July 2020 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 share awards that actually vest. In the year ended 30 June 2019, as some of the
expense in respect of these contingent share awards related to employee costs incurred on the eligible development of software, $315,007 (2018: $839,932) of
those costs have been capitalised within development costs.
9 Finance income
Deposit interest receivable
Total interest receivable
60
2019
$’000
318
318
2018
$’000
241
241
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
10 Tax on profit on ordinary activities
Profit on ordinary activities before tax
Current tax
Corporation tax on profits of the year
Adjustments for prior years
Total current tax charge
Deferred tax
Origination & reversal of timing differences
Adjustments for prior years
Change in tax rate
Total deferred tax charge / (credit)
Tax on profit on ordinary activities
2019
$’000
18,322
3,047
(113)
2,934
323
80
-
403
3,337
2018
$’000
18,933
3,536
(305)
3,231
382
(8)
(469)
(95)
3,136
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% (2018: 19%)
Effects of:
Adjustment for prior years
Change in tax rate
Additional US taxes on profits 25% (2018: 32%)
R&D tax credit
Expenses not deductible for tax purposes
Origination and reversal of temporary differences
Deduction on share plan charges
Total tax charge
11 Dividends
The dividends paid during the year were as follows:-
3,481
(33)
-
54
(364)
17
561
(379)
3,337
3,597
(313)
(469)
1,137
(327)
29
847
(1,365)
3,136
Final dividend, re 30 June 2018 - 18.48 cents (14.0 pence)/share (2018: 14.71 cents (11.3 pence) / share)
Interim dividend, re 30 June 2019 - 14.0 cents (11 pence)/share (2018: 13.50 cents (10.0 pence) / share)
Total dividends paid to Company shareholders in the year
2019
$’000
4,713
3,784
8,497
2018
$’000
4,065
3,752
7,817
The proposed final dividend of 19.05 cents (15 pence), as noted on page 12, for the year ended 30 June 2019 is subject to approval by the shareholders at the
Annual General Meeting and has not been included as a liability in these financial statements.
61
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
12 Earnings per share
a) Basic
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue
during the year.
Profit attributable to equity holders of the Company ($'000)
Weighted average number of Ordinary shares in issue (thousands)
Basic earnings per share ($ per share)
Profit attributable to equity holders of the Company ($'000)
Adjustments* ($'000)
Adjusted Profit attributable to equity holders ($'000)
Weighted average number of Ordinary shares in issue (thousands)
Adjusted Basic earnings per share ($ per share)
2019
14,985
26,691
0.561
14,985
1,914
16,899
26,691
0.633
2018
15,797
26,790
0.590
15,797
329
16,126
26,790
0.602
*Relate to aborted acquisition costs, share related activities and amortisation of acquired intangibles if applicable in the year. These adjustments are to focus on what the Group
regards as a more reliable indicator of the underlying operating performance and are consistent with other similar companies.
b) Diluted
For diluted earnings per share, the weighted average number of Ordinary shares calculated above is adjusted to assume conversion of all dilutive potential
Ordinary shares. The Group has one category of dilutive potential Ordinary shares, being those granted to Directors and employees under the share option
scheme.
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 ($'000)
Adjustments* ($'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)
2019
14,985
26,691
555
27,246
0.550
14,985
1,914
16,899
26,691
555
27,246
0.620
2018
15,797
26,790
492
27,282
0.579
15,797
329
16,126
26,790
492
27,282
0.591
*Relate to aborted acquisition costs, share related activities and amortisation of acquired intangibles if applicable in the year. These adjustments are to focus on what the Group
regards as a more reliable indicator of the underlying operating performance and are consistent with other similar companies.
62
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
13 Plant and equipment
Group
Cost
At 1 July 2018
Additions
Disposals
At 30 June 2019
Accumulated depreciation
At 1 July 2018
Charge for year
Depreciation on disposals
At 30 June 2019
Net Book Value at 30 June 2019
Cost
At 1 July 2017
Additions
Disposals
At 30 June 2018
Accumulated depreciation
At 1 July 2017
Charge for year
Depreciation on disposals
At 30 June 2018
Net Book Value at 30 June 2018
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
1,755
500
-
2,255
1,109
413
-
1,522
733
2,661
418
(1,324)
1,755
2,060
371
(1,322)
1,109
646
718
7
(18)
707
668
29
(18)
679
28
1,092
1
(375)
718
985
57
(374)
668
50
1,480
147
(2)
1,625
953
161
(2)
1,112
513
1,856
15
(391)
1,480
1,189
150
(386)
953
527
Total
$’000
3,953
654
(20)
4,587
2,730
603
(20)
3,313
1,274
5,609
434
(2,090)
3,953
4,234
578
(2,082)
2,730
1,223
63
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
13 Plant and equipment (cont’d.)
Company
Cost
At 1 July 2018
Additions
Disposals
At 30 June 2019
Accumulated depreciation
At 1 July 2018
Charge for year
Depreciation on disposals
At 30 June 2019
Net Book Value at 30 June 2019
Cost
At 1 July 2017
Additions
Disposals
At 30 June 2018
Accumulated depreciation
At 1 July 2017
Charge for year
Depreciation on disposals
At 30 June 2018
Net Book Value at 30 June 2018
Computer
Equipment
$’000
Office
Furniture
$’000
Tenants
Improvements
$’000
809
279
-
1,088
527
202
-
729
359
1,214
239
(644)
809
996
173
(642)
527
282
489
-
-
489
457
15
-
472
17
685
1
(197)
489
638
16
(197)
457
32
1,317
134
-
1,451
883
144
-
1,027
424
1,650
4
(337)
1,317
1,089
131
(337)
883
434
Total
$’000
2,615
413
-
3,028
1,867
361
-
2,228
800
3,549
244
(1,178)
2,615
2,723
320
(1,176)
1,867
748
64
Craneware plc Annual Report 2019 Notes to the Financial Statements [Cont’d.]
14 Intangible assets
Goodwill and Other Intangible assets
Goodwill
$’000
Customer
Relationships
$’000
Proprietary
Software
$’000
Development
Costs
$’000
Computer
Software
$’000
Group
Cost
At 1 July 2018
Additions
Disposals
At 30 June 2019
Accumulated amortisation
At 1 July 2018
Charge for the year
Amortisation on disposal
At 30 June 2019
11,438
-
-
11,438
250
-
-
250
Net Book Value at 30 June 2019
11,188
Cost
At 1 July 2017
Additions
Disposals
At 30 June 2018
Accumulated amortisation
At 1 July 2017
Charge for the year
Amortisation on disposal
At 30 June 2018
11,438
-
-
11,438
250
-
-
250
Net Book Value at 30 June 2018
11,188
2,964
-
-
2,964
2,371
330
-
2,701
263
2,964
-
-
2,964
2,042
329
-
2,371
593
3,043
-
-
3,043
2,189
429
-
2,618
425
3,043
-
-
3,043
1,976
213
-
2,189
854
13,969
9,580
-
23,549
3,902
1,796
-
5,698
17,851
9,237
4,732
-
13,969
3,046
856
-
3,902
10,067
1,395
515
-
1,910
830
370
-
1,200
710
1,436
368
(409)
1,395
959
280
(409)
830
565
Total
$’000
32,809
10,095
-
42,904
9,542
2,925
-
12,467
30,437
28,118
5,100
(409)
32,809
8,273
1,678
(409)
9,542
23,267
In accordance with the Group’s accounting policy, the carrying values of Goodwill and other intangible assets are reviewed for impairment annually or more
frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of Craneware InSight, Inc.
The carrying values are assessed for impairment purposes by calculating the value in use of the core Craneware business cash generating unit. This is the lowest
level of which there are separately identifiable cash flows to assess the Goodwill acquired as part of the Craneware InSight, Inc purchase.
The key assumptions in assessing value in use are the discount rate applied, future growth rate of revenue and the operating margin. These take into account
the customer base and expected revenue commitments from it, anticipated additional sales to both existing and new customers and market trends currently
seen and those expected in the future.
The Group has assessed events and circumstances in the year and the assets and liabilities of the business cash-generating unit; this assessment has confirmed
that no significant events or circumstances occurred in the year and that the assets and liabilities showed no significant change from last year.
After review of future forecasts, the Group confirmed the growth forecast for the next five years showed that the recoverable amount would continue to exceed
the carrying value. There are no reasonable possible changes in assumptions that would result in an impairment.
65
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
14 Intangible assets (cont’d.)
Goodwill and Other Intangible assets (Cont’d.)
Company
Cost
At 1 July 2018
Additions
Disposals
At 30 June 2019
Accumulated amortisation
At 1 July 2018
Charge for the year
Amortisation on disposal
At 30 June 2019
Net Book Value at 30 June 2019
Cost
At 1 July 2017
Additions
Disposals
At 30 June 2018
Accumulated amortisation
At 1 July 2017
Charge for the year
Amortisation on disposal
At 30 June 2018
Net Book Value at 30 June 2018
Development
Costs
$’000
Computer
Software
$’000
13,549
9,593
-
23,142
3,815
1,636
-
5,451
17,691
8,824
4,725
-
13,549
2,980
835
-
3,815
9,734
1,068
451
-
1,519
646
286
-
932
587
1,121
243
(296)
1,068
725
217
(296)
646
422
Total
$’000
14,617
10,044
-
24,661
4,461
1,922
-
6,383
18,278
9,945
4,968
(296)
14,617
3,705
1,052
(296)
4,461
10,156
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
Kestros Ltd (t/a
Craneware Health)
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 (2018: 10,000) and 1,000 (2018: 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 (2018: 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.
66
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
15 Investments in subsidiary undertakings (cont’d.)
Subsidiary registered addresses are listed on Page 17.
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.
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
2019
$’000
15,415
(1,246)
14,169
308
-
1,924
7,334
23,735
-
(4,946)
18,789
2018
$’000
9,215
(1,072)
8,143
230
-
1,904
7,501
17,778
-
(5,275)
12,503
2019
$’000
15,271
(1,246)
14,025
7,335
6,000
1,075
-
28,435
(6,000)
-
22,435
2018
$’000
9,066
(1,072)
7,994
8,284
6,000
764
-
23,042
(6,000)
-
17,042
There is no material difference between the fair value of trade and other receivables and the book value stated above. All amounts included within trade and
other receivables are classified as financial assets at amortised cost.
The $6,000,000 loan due to the Company from Craneware InSight Inc. remains outstanding and is payable on demand; interest is charged quarterly in
accordance with the agreement at LIBOR plus 1%.
Expected credit loss allowance for trade receivables
The following table provides information about the exposure to credit risk and ECLs for trade receivables as at 30 June 2019.
Current
$’000
<30 days
$’000
30 – 60 days
$’000
60 – 90 days
$’000
> 90 days
$’000
Expected credit loss rate
Gross carrying amount
Expected credit loss
Net carrying amount
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
0.0%
6,879
-
6,879
2019
$’000
1,072
443
-
(269)
1,246
2.1%
4,073
86
3,987
1.5%
722
11
711
1.9%
896
17
879
39.8%
2,845
1,132
1,713
2018
$’000
1,353
1,318
(416)
(1,183)
1,072
The creation and release of provision for impaired receivables has been included in net operating expenses in the Statement of Comprehensive Income.
67
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
16 Trade and other receivables (cont’d.)
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.
Comparative information
In the prior year, the impairment of trade receivables was based on the incurred loss model. The information disclosed relates to the Group’s credit risk exposure
disclosed under IFRS 7, per recognition and measurement under IAS 39, prior to the transition by the Group to IFRS 9 on 1 July 2018:
30 Jun 2018
Current
< 30 days past due
31 – 60 days past due
61 – 90 days past due
91 + days past due
Gross carrying
amount
$’000
6,523
264
459
468
1,501
9,215
Provision
$’000
18
-
17
97
940
1,072
Net carrying
amount
$’000
6,505
264
442
371
561
8,143
17 Deferred taxation
Deferred tax is calculated in full on the temporary differences under the liability method using a rate of tax of 19% (2018: 19%) in the UK and 25%
(2018: 25%) in the US including a provision for state taxes.
The movement on the deferred tax account is shown below:
At 1 July
(Charge) / credit to comprehensive income
Transfer direct to equity
At 30 June
Group
Company
2019
$’00
3,831
(403)
(184)
3,244
2018
$’000
3,102
95
634
3,831
2018
$’000
1,204
57
(107)
1,154
2018
$’000
980
22
202
1,204
68
Craneware plc Annual Report 2019 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 2019 was $3,243,859 (2018: $3,831,282).
Deferred tax assets - recognised
Group
At 1 July 2018
Credited / (charged) to comprehensive income
Credited to equity
Total provided at 30 June 2019
At 1 July 2017
Credited / (charged) to comprehensive income
Credited to equity
Total provided at 30 June 2018
Deferred tax liabilities - recognised
Group
At 1 July 2018
Credited to comprehensive income
Total provided at 30 June 2019
At 1 July 2017
Credited to comprehensive income
Total provided at 30 June 2018
Losses
$’000
Share Options
$’000
Short term
timing
differences
$’000
801
(582)
-
219
660
141
-
801
461
(104)
-
357
833
(372)
-
461
Long-term
Timing
differences
$’000
Accelerated
tax
depreciation
$’000
-
-
-
-
-
-
(191)
54
(137)
(489)
298
(191)
2019
$’000
3,100
281
3,381
-
(137)
(137)
3,244
2,760
229
(184)
2,805
2,098
28
634
2,760
Total
$’000
(191)
54
(137)
(489)
298
(191)
2018
$’000
3,574
448
4,022
(66)
(125)
(191)
3,831
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.
Total
$’000
4,022
(457)
(184)
3,381
3,591
(203)
634
4,022
69
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
17 Deferred taxation (cont'd.)
Deferred tax assets - recognised
Company
At 1 July 2018
Credited to comprehensive income
Credited to equity
Total provided at 30 June 2019
At 1 July 2017
Charged to comprehensive income
Credited to equity
Total provided at 30 June 2018
Deferred tax liabilities - recognised
Company
At 1 July 2018
Credited to comprehensive income
Total provided at 30 June 2019
At 1 July 2017
Credited to comprehensive income
Total provided at 30 June 2018
Share
Options
$’000
1,269
41
(107)
1,203
1,124
(57)
202
1,269
Accelerated
tax depreciation
$’000
(65)
16
(49)
(144)
79
(65)
Total
$’000
1,269
41
(107)
1,203
1,124
(57)
202
1,269
Total
$’000
(65)
16
(49)
(144)
79
(65)
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
Equity share capital
Ordinary shares of 1p each
At 1 July
Cancelled, following purchase by
Company of own shares
Allotted and issued in the year on exercise
of employee share options
At 30 June
Share buyback
2019
2018
Number
$’000
Number
50,000,000
1,014
50,000,000
$’000
1,014
2019
2018
Number
$’000
Number
$’000
26,662,271
534
26,961,709
-
36,713
-
1
(628,869)
329,431
26,698,984
535
26,662,271
537
(9)
6
534
The Company has not purchased any of its own shares during the financial year (2018: 628,869 Ordinary Shares). The shares purchased by the Company in the
prior financial year, in accordance with the share buyback completed in January 2018, were cancelled immediately.
70
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
18 Share Capital (cont'd.)
Shares issued during the year
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. During the
year ended 30 June 2019 a total of 36,713 Ordinary Shares (2018: 329,431 Ordinary Shares) were issued on the exercise of share options by employees.
Employee Benefit Trust
The Company established the ‘The Craneware plc Employee Benefit Trust’ (the EBT) during the year ended 30 June 2017. 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. The Company has provided a loan to the EBT. The movement in the balance of the loan, which is denominated in
Sterling, from the Company to the EBT during the year ended 30 June 2019 is summarised in the table below.
Group
Loan balance (from Company to the EBT) at 1 July
Exchange loss
Addition to the loan from the Company to the EBT during the year
Partial repayment of loan, by the EBT, during the year
Loan balance (from Company to the EBT) at 30 June
2019
$’000
7,331
(300)
-
-
7,031
2018
$’000
3,083
-
5,315
(1,067)
7,331
The EBT did not purchase any shares in the Company in the year ended 30 June 2019 (2018: 166,363 Craneware plc Ordinary Shares of 1 pence each were
purchased by the EBT in the market at a price of 1950 pence per share). The Shares held by the EBT are utilised to satisfy employee share plan awards and,
during the financial year ended 30 June 2019, none of the shares from the EBT (2018: 56,169) were used to satisfy the exercise of employee share options. At
30 June 2019 the EBT held 353,124 Craneware plc Ordinary Shares (at 30 June 2018: 353,124 Ordinary Shares).
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
Loss on disposals
Movements in working capital:
(Increase) / decrease in trade and other receivables
Increase / (Decrease) in trade and other payables
Cash generated from operations
20 Cash and cash equivalents
Cash at bank and in hand
The effective rates on short term bank deposits were 0.72% (2018: 0.51%).
Group
Company
2019
$’000
18,322
(318)
603
2,925
1,296
-
(5,957)
(1,793)
15,078
2018
$’000
18,933
(241)
578
1,678
663
10
1,881
9,608
33,110
2019
$’000
13,897
(522)
361
1,922
1,116
-
(6,124)
6,864
17,514
2018
$’000
11,178
(447)
320
1,052
232
2
3,404
11,079
26,820
Group
Company
2019
$’000
47,611
2018
$’000
52,833
2019
$’000
43,357
2018
$’000
43,955
71
Craneware plc Annual Report 2019
Notes to the Financial Statements [Cont’d.]
21 Trade and other payables
Trade payables
Amounts owed to group companies
Social security and PAYE
Other creditors
Accruals
Group
Company
2019
$’000
1,708
-
527
173
5,124
7,532
2018
$’000
824
-
461
41
10,509
11,835
2019
$’000
1,037
13,440
325
56
1,617
16,475
2018
$’000
390
7,484
291
127
3,594
11,886
Amounts owed to Group companies are non-interest bearing and are payable on demand. 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 2019 was 18 days (2018: 18 days). Trade and other payables are classified as financial liabilities at amortised cost.
22 Contingent liabilities and financial commitments
a) Capital commitments
The Group has no capital commitments at 30 June 2019 (2018: $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 1 and 5 years
More than 5 years
2019
$’000
938
2,902
227
4,067
2018
$’000
1,048
3,761
405
5,214
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
Salaries and short-term employee benefits
Executive Directors
Salaries and short-term employee benefits
Post employment benefits
Share based payments
Other key management
Salaries and short-term employee benefits
Post employment benefits
Share based payments
Subsidiary registered addresses listed on page 17.
Charged
$
167,527
91,411
730,671
38,261
166,377
2,112,587
74,127
285,173
2019
Outstanding
at year end
$
-
-
-
-
-
-
-
-
2018
Outstanding
at year end
$
-
-
765,685
-
-
1,006,413
-
-
Charged
$
167,124
104,139
1,530,044
30,374
103,570
2,474,345
60,666
191,438
72
Craneware plc Annual Report 2019
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
Salaries and short-term employee benefits
Post employment benefits
Share-based payments
Other key management
Salaries and short-term employee benefits
Post employment benefits
Share-based payments
Amounts due to Craneware Inc - Subsidiary company
Sales commission
Net operating expenses
Balance
Net Amounts due from Craneware InSight Inc - Subsidiary company
Net operating expenses
Balance
Net Amounts due from Craneware Health/Kestros - Subsidiary company
Net operating expenses
167,527
91,411
730,671
38,261
166,377
378,510
18,954
72,689
27,544,819
5,518,344
-
4,901,823
-
1,310,153
Balance
-
Net Amounts due to Craneware Healthcare Intelligence - Subsidiary company
Net operating expenses
2,523,000
2019
Outstanding
at year end
$
-
-
-
-
-
-
-
-
2018
Outstanding
at year end
$
-
-
765,685
-
-
252,462
-
-
Charged
$
167,124
104,139
1,530,044
30,347
103,570
646,425
14,968
55,339
-
-
(9,201,180)
31,303,528
4,252,117
-
-
-
(7,768,936)
-
6,255,571
699,258
-
-
8,529,727
-
-
-
-
-
-
1,268,431
2,610,348
-
Balance
-
(4,495,094)
-
(3,512,779)
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 Information Officer, Chief Technology Officer, Chief Marketing Officer, Chief People
Officer, Executive Vice President of Sales, Executive Vice President of Customer Management and Chief Legal Officer.
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.
73
Craneware plc Annual Report 2019 Personal Notes
74
Craneware plc Annual Report 2019 Personal Notes
75
Craneware plc Annual Report 2019 Craneware plc
1 Tanfield
Edinburgh
EH3 5DA
Scotland, UK
Telephone: +44 [0] 131 550 3100
Facsimile: +44 [0] 131 550 3101
marketing@craneware.com
training@craneware.com
sales@craneware.com
support@craneware.com
Company Registration No. SC196331
Craneware plc
craneware.com