REG - Craneware plc - Final Results
05/09/2023 07:00
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RNS Number : 3426L Craneware plc 05 September 2023
Craneware plc
("Craneware" or the "Company" or the "Group")
2023 Final Results
Growth in key financial metrics, closing the year on an improving trajectory
5 September 2023 - Craneware (AIM: CRW.L), the market leader in Value Cycle
software solutions for the US healthcare market, announces its audited results
for the year ended 30 June 2023.
Financial Highlights (US dollars)
· Revenue increased 5% to $174.0m (FY22: $165.5m)
· Adjusted EBITDA(1) increased 6% to $54.9m (FY22: $51.8m)
· Annual Recurring Revenue(2) increased to $169.0m (H1 FY22:
$166.4m), with an associated Net Revenue Retention(3) value of 100% (FY22:
n/a)
· Statutory Profit before tax $13.1m (FY22: $13.1m)
· Basic adjusted EPS(1) 87.0 cents (FY22: 89.0 cents) and
adjusted diluted EPS 86.3 cents (FY22: 88.1 cents)
· Basic EPS 26.3 cents (FY22: 26.8 cents) and diluted EPS 26.1
cents (FY22: 26.5 cents)
· Robust Operating Cash Conversion(4) at 92% of Adjusted EBITDA
(FY22: 80%)
· Total Cash and cash equivalents $78.5m (FY22: $47.2m)
· Total Bank Debt $83.0m (FY22: $111.6m)
· Proposed final dividend of 16.0p per share (20.19 cents) (FY22:
15.5p, 18.80 cents) giving a total dividend for the year of 28.5p per share
(35.95 cents) (FY22: 28.0p, 33.96 cents) up 2%
(1) Certain financial measures are not determined under IFRS and are
alternative performance measures as described in Note 16
(2) Annual Recurring Revenue "ARR" includes the annual value of licence and
related recurring revenues including transaction revenues as at 30 June 2023
that are subject to underlying contracts and where revenue is being recognised
at the reporting date
(3) Net Revenue Retention is the percentage of revenue retained from existing
customers over the measurement period, taking into account both churn and
expansion sales
(4) Operating Cash Conversion is cash generated from operations (as per Note
16), adjusted to exclude cash payments for exceptional items and movements in
cash held on behalf of customers, divided by adjusted EBITDA
(5) When we refer to 'Craneware', or 'The Craneware Group' or 'Group' in the
annual report we mean the group of companies having Craneware plc as its
parent and therefore these words are used interchangeably
Operational Highlights
· Migration of customers onto the Trisus platform now complete,
providing the foundation for future product and customer expansion
· Trisus Chargemaster secured first place in the Chargemaster
Management category of the "2023 Best In KLAS Awards: Software & Services"
- a record 13th time for the Group, demonstrating the success of the migration
process and enhancements made to the underlying application
· Strong levels of customer retention, maintained at +90% in the
year
· Continued investment in R&D and innovation to capitalise on
the growing market opportunity, including the recent launch of Trisus Labor
Productivity, addressing the highest single cost category for any healthcare
organisation
· Total R&D costs that have been capitalised are already
covered by the total value of contracts written for the Trisus related
products
· First third-party partner applications are now accessing the
Trisus platform, with the potential to add to ARR in future years
Outlook
· COVID-19 public health emergency in the US formally declared over
in May 2023, providing a more supportive market backdrop at the end of the
year and into Q1 FY24
· Continued post-period sales momentum and a growing pipeline of
opportunities
· Well positioned for FY24 and beyond with balance sheet strength,
high levels of ARR and early signs of increasing customer confidence
Keith Neilson, CEO of Craneware plc commented:
"This robust set of results is testament to the resilience of the Group
through what was a prolonged period of disruption across the US healthcare
landscape.
"With the COVID-19 public health emergency in the US formally declared over in
May 2023 and the related pressures on hospitals starting to ease, we have
begun to see US hospitals return their attention to providing Value-Based Care
and investing in digitalisation, using data insights provided by the Trisus
platform to transform and improve their processes and control their costs. We
remain committed to providing the tools our customers need to manage their
operations and finances more efficiently, as we seek to transform the business
of US healthcare together.
"Against this backdrop, we are pleased to have seen the strong sales momentum
seen at the close of the year carry through into the start of the new
financial year, resulting in a growing sales pipeline. We are confident that
our resilient business model, extensive customer base, high levels of Annual
Recurring Revenue, together with our strategy for delivering growth centred on
the expansion of the Trisus platform, will enable us to create further
long-term value for all our stakeholders."
For further information, please contact:
Craneware plc +44 (0)131 550 3100
Keith Neilson, CEO
Craig Preston, CFO
Alma (Financial PR) +44 (0)20 3405 0205
Caroline Forde, Joe Pederzolli, Kinvara Verdon craneware@almapr.co.uk
Peel Hunt (NOMAD and Joint Broker) +44 (0)20 7418 8900
Neil Patel, Paul Gillam, Richard Chambers
Investec Bank PLC (Joint Broker) +44 (0)20 7597 5970
Patrick Robb, Henry Reast, Cameron MacRitchie
( )
Berenberg (Joint Broker) +44 (0)20 3207 7800
Mark Whitmore, Richard Andrews, Dan Gee-Summons
About Craneware
The Craneware Group (AIM:CRW.L), the market leader in automated value cycle
solutions, including 340B management, collaborates with U.S. healthcare
providers to plan, execute, and monitor operational and financial performance
so they can continue to deliver quality care to their communities. Customers
choose The Craneware Group's Trisus data and applications platform as their
key to navigating the journey to financially sustainable value-based care.
Trisus combines revenue integrity, cost management, 340B performance, and
decision enablement into a single, SaaS-based platform. Trisus Chargemaster
secured top ranking in the Chargemaster Management category of the "2023 Best
in KLAS Awards: Software & Services" and is part of an extensive value
cycle management suite. The Craneware Group - transforming the business of
healthcare.
Learn more at www.thecranewaregroup.com (http://www.thecranewaregroup.com)
Chair's Statement
In a year marked by the continuation of the Public Health Emergency in
response to the pandemic, I am pleased to report on a period of robust
performance. While we did not achieve the revenue growth we anticipated at the
start of the year, due to the Group's services related lines of business
taking longer to recover than previously expected, the team nonetheless
delivered growth in key financial metrics, continued to execute on our product
migration strategy, and closed the year on an improving trading trajectory.
With the Public Health Emergency in the US now declared over, attention is
returning to improving the value and resilience of the healthcare system.
Through Trisus, our cloud-based data analytics and intelligence platform, we
can be a central player in the digitalisation of US healthcare. The team is
focused on capturing this opportunity through product expansion and the
delivery of value to our extensive customer base.
Steady, profitable growth
Group revenues for the year increased 5% to $174.0m (FY22: $165.5m) with an
adjusted EBITDA increase of 6% to $54.9m (FY22: $51.8m) maintaining our target
EBITDA margin of above 30%. Within this, software and related revenue
increased by 5% to $159.1m, accounting for 92% of revenue. This growth,
coupled with healthy levels of customer retention, at above 90%, drove growth
in underlying ARR to $169.0m (31 December 2022: $166.4m), with an associated
Net Revenue Retention value in excess of 100%.
As at 30 June 2023, the Group maintained strong total cash and cash equivalent
balances of $78.5m (30 June 2022: $47.2m) with a reduced total bank debt of
$83.0m (30 June 2022: $111.6m).
The Group's strong cash generation and high levels of revenue visibility
provides the Board with the confidence to maintain our investment levels in
the business, to support our growth aspirations.
A valuable position from which to build
We hold an enviable central position within the US healthcare industry, with
approximately 40% of registered US hospitals as Craneware customers, including
more than 12,000 US hospitals, health systems, affiliated retail pharmacies
and clinics, and data sets covering more than 175 million unique patient
encounters.
The successful completion in the year of the migration of customers onto
Trisus provides the foundation for future growth acceleration. Looking ahead,
we will continue to seek ways to extend our Trisus platform, through product
development, partnerships and M&A.
Increasing our Board expertise
We were delighted to welcome Anne McCune, a new Non-executive Director, to the
Board in November. Anne is a recognised leader in the US Healthcare industry,
who has served as a senior Executive for several leading academic hospital and
physician centres and as a Managing Director in healthcare consulting firms.
Anne is currently a Community Board member of the Strategy and Transformation
committee at Salinas Valley Memorial Healthcare System in California.
Making a positive contribution to society
Our purpose is to transform the business of healthcare through the profound
impact our solutions deliver, enabling our customers to deliver quality care
to their communities.
The tangible positive impact our solutions can make on the lives of others
continues to be a great motivator for our talented team. The Craneware Group
has always had a strong commitment to social responsibility and community
engagement, which has been enhanced by the integration of our 340B offerings
in recent years. As a Group, we have developed many initiatives over the past
several years which contribute to our sustainability credentials, and we
continue to develop a number of programmes and opportunities to positively
impact the community around us.
The Group has always been cognisant of the importance of sustainability and
Environmental, Social and Governance ('ESG') matters, particularly in the
context of the Group's Purpose. However, we recognise that these areas are
constantly evolving and that organisations must continually strive to do more
and as such an ESG Committee has been established. We detail more of the
impact the Group makes, within the communities we serve, in our ESG Statement
within the Annual Report.
On behalf of the Board, I would like to thank all of The Craneware Group team
for their continued passion and commitment to serving our customers.
An improving outlook
The breadth of solutions The Craneware Group can provide, as well as the power
of its operational and administrative platform and data, give the Board
confidence in the Group's ability to provide the insights its customers need
to deliver greater value healthcare to their communities.
With the sales growth experienced in the final quarter of the year delivering
incremental revenues, combined with further momentum in the current period,
the Group has seen a positive start to trading in the new financial year.
The Group's balance sheet strength, high levels of ARR and early signs of
increasing customer confidence, leave the Group well positioned for FY24 and
beyond.
Will Whitehorn
Chair
4 September 2023
Strategic Report
We are pleased to have delivered a robust financial performance in the year,
achieving growth in revenue and EBITDA whilst maintaining a strong balance
sheet. These results demonstrate the resilience of the Group through a
prolonged period of disruption across the US healthcare landscape and I am
grateful for the team's hard work and dedication, amidst a challenging
environment.
We successfully completed our primary strategic focus for the year - the
migration of customers onto Trisus, our cloud-based platform. With the
transition complete, we can focus on the continued expansion of the Trisus
product offering, which we anticipate will in turn drive customer expansion.
While remaining cognisant of the challenges our customers and partners
continue to face, we are encouraged by improving prospects across our market.
The COVID-19 public health emergency in the US was formally declared over in
May 2023, and with the related pressures on hospitals starting to ease we are
seeing attention turn to the improvement of hospitals' underlying operations
and financial performance. This was reflected in a healthy close to the
financial year, as we saw an increasing number of opportunities enter our
pipeline in Q4, with momentum carrying over to the new financial year.
Market - supportive underlying trends
The US healthcare market continues to experience challenges across three broad
areas: clinical, financial and operational.
The clinical arena is grappling with issues such as the impact of the opioid
epidemic, a mental health crisis and an aging population increasing the demand
for services around chronic conditions and long-term care. Financially the
cost of healthcare in the US has been increasing significantly, including the
cost of prescription drugs, medical procedures and associated insurance
premiums. Meanwhile, against this backdrop, operational pressures are
increasing, with managers having to navigate issues such as a shortage of
healthcare professionals and wage inflation.
Addressing the challenges through data and insights
The combination of these factors means our customers are being asked to do
more, with less. We believe the key to successfully achieving that, while
improving patient care, is through accurate, accessible and meaningful data
and insights, providing the ability to deliver enhanced services, improved
infrastructure, governance and the ability to make smarter choices around
resource allocation.
However, to make those smarter choices our customers need to manage and
analyse vast amounts of data, which presents significant and costly
considerations for hospitals, like scalability, interoperability, processing
costs, security, and compliance.
Our vision is for the Trisus platform and its applications to address these
challenges, providing connected technology in the cloud. Our Trisus platform
and applications combine revenue integrity, cost management and decision
enablement into a single cloud-based platform. Through our Data Foundations
programme of work, Trisus brings together siloed data from the various
existing software systems in a hospital or healthcare system, normalises that
data and applies prescriptive analytics to provide insights to support
informed decision making regarding a hospital's finances and operations, in
one place.
This digitalisation of healthcare and improvement of processes through the use
of data insights, as opposed to merely digitising healthcare, for example
recording an individual healthcare encounter in an electronic form such as the
recent move to electronic health records, provides the foundation for Value
Based Care and enables the transformation of the business of healthcare.
We provide customers with the ability to build effective strategies related to
revenue, pricing, cost, and compliance to mitigate the internal and external
challenges described above, delivering real financial returns and freeing up
resources that can be re-invested and re-deployed by healthcare providers to
support the clinical care of their communities and tackle their clinical
challenges.
Growth Strategy - innovation to profoundly impact US healthcare
operations, which will drive demand and expand our addressable market.
To date, our growth has been driven through increases in market share and
product set penetration (land and expand). In recent years, we have invested
in the development of the Trisus platform; a sophisticated cloud delivered
data aggregation and intelligence platform which will be the foundation for
our future growth.
We are building on top of Trisus to strengthen our current products, leverage
our data assets to expand our offering, integrate third party solutions to the
platform and benefit from the scalability of cloud-technology.
Through our 20+ year history in the US healthcare market, we have collected
our own unique and extensive data set, which we believe contains the insights
that will generate our products of the future. While we have always had a team
analysing this data, the growth in AI and machine learning means it is now
easier and faster to do so. Meanwhile, we are also using AI to make our coding
more efficient and productive.
Two Growth Pillars
Our growth strategy has two fundamental growth pillars:
1. The transition of our customers to cloud delivered versions of our
existing on-premise solutions, to act as a gateway to the benefits and
additional applications on the Trisus platform
We are pleased to now have all our customers connected to, and benefiting
from, the Trisus platform.
Of particular importance has been the migration of our previous flagship
application, Chargemaster Toolkit, customers onto our Trisus Chargemaster
offering. This has been carried out in phases over the last 36 months, as we
have expanded the functionality of Trisus Chargemaster.
We were delighted Trisus Chargemaster secured first place in the Chargemaster
Management category of the "2023 Best In KLAS Awards: Software & Services"
during the year. For The Craneware Group, this is a record 13(th) time, more
than any other vendor in our space. The award demonstrates the success of the
migration process, the enhancements made to the application and the high
levels of customer support delivered by our teams.
All existing products now available as Trisus solutions, which will be further
enhanced
During the year we continued to re-engineer our existing offerings into
cloud-based applications - improving the benefits of our offerings to
customers to facilitate the smooth transition onto Trisus. This continual
improvement will be an ongoing process. The depth of our product offering
continues to grow through the mining of the proprietary and regulatory data
that we collect, identifying new ways the data can illuminate and support
decision making within the hospital provider environment. We now have datasets
for over 175 million unique patient encounters, providing incredibly valuable
insights for our customers.
Whilst our Revenue Integrity and 340B related applications sit on different
technology stacks within the Trisus platform, they both supplement and further
enrich the Trisus data sets. Eventually the work we are doing with our Trisus
Data Foundations programme will enable the full integration of these stacks,
making our offerings yet more attractive to customers as the speed and depth
of insights available is increased.
The four Medication related Trisus applications launched last year, replacing
and adding to our non-340B pharmacy offerings, have been well received and we
anticipate will support expansion sales in current and future periods.
Data Foundations increasing the interoperability of applications to increase
speed of entry to the platform and facilitate cross sale
As part of our Data Foundations programme of work, we are utilising the
advances in AI and data processing to increase the interoperability and
connectivity of our applications, while making the platform's back-end
processes more efficient and effective. For example, new customers coming onto
the Trisus platform will only require one data feed, thus accelerating entry
to the platform and its benefits.
Six application suites
The Trisus applications have now been grouped into six Trisus® Optimization
Suites, bringing together the applications that address specific strategic
issues facing healthcare providers and are powered by the same sub-set of
customer data. Through bringing the applications into suites, we aim to make
it easier for our customers to identify which of our multiple additional
applications are likely to unlock immediate value and address their challenges
most effectively, based on their existing data within the Trisus platform.
The product portfolios are: Trisus Pricing Integrity, Trisus Data Integrity,
Trisus Business of Pharmacy, Trisus Revenue Protection Optimization, Trisus
Charge Capture Optimization and Trisus Value-based Margin & Productivity.
Launch of Trisus Labor Productivity
Towards the end of the financial year we were pleased to launch a new
application, Trisus Labor Productivity, to encouraging early feedback,
addressing the concerns of the market around effectively managing the
workforce. Staff costs represent the single highest cost for any healthcare
organisation. In addition, staffing shortages have resulted in a need to do
more with less. Trisus Labor Productivity enables our customers to optimise
their staffing by department or organisation, providing insights into daily
staffing and productivity outcomes using detailed analytics and predictive
modelling, thereby reducing costs and confusion for greater efficiency. The
application also integrates payroll, timecard, hospital EMR/ADT events, and
general ledger costs in one location for reporting, analysis, and strategic
management of the workforce.
2. Value driven Customer Expansion
It is the intention that the product enhancements and expansion described
above will facilitate cross sell and upsell to existing customers, alongside
an increase in average contract value to new customers. The addition of new
customers and the expansion with existing customers will in turn drive growth
in ARR.
ARR at 30 June 2023 increased in the six months to $169.0m from $166.4m
reported at 31 December 2022, demonstrating the Group's continued high levels
of contracted revenue visibility. We continue to see the opportunity to
accelerate ARR growth over the medium term, as we unlock the considerable
cross and upsell opportunities within our enlarged customer base. The Group is
now in a position to report a Net Revenue Retention figure, from the point of
our first ARR calculation, which was 100% for the six months to 30 June 2023.
Customer retention for the year exceeded 90%, which is testament to the value
Craneware brings to its customer base.
With the first stage of cloud-based enhancements for existing products now
complete, we can turn our focus to the development of new applications and the
extension of existing applications, to expand our capabilities and provide
benefits to our customers. We anticipate this in turn will facilitate a
greater level of cross sale and product penetration across our extensive
customer base over time.
We also continue to see considerable cross sale opportunity between our 340B
and Revenue Integrity customers and this will be an ongoing area of focus.
We are encouraged to see expansion sales to existing customers represent 81%
of our total 'new' sales in the year, demonstrating the positive response of
our customers to the increased ROI derived from the uptake of additional cloud
applications. However, this does mean our sales to new customers as a
percentage of our total new sales is behind historical norms, consistent with
the narrative reported by other vendors that support hospitals. We expect to
see this mix move back towards our historical norms in the near term, as
healthcare is once again returning its focus to Value Based Care now the
impacts of the pandemic are dissipating.
We also formalised our partnering processes during the year, with the aim of
hosting third party application providers on the platform. In the future,
revenue from these partnerships, which are not directly derived from Trisus
applications, will be categorised as third party revenues while they are in
the test phase. Once their value to customers has been proven, we will seek to
transition into recurring revenue models, adding to our ARR.
Due to recent hospital fears surrounding cyber security, the market
environment is hindering new customer growth by smaller software providers,
and we therefore anticipate that this will encourage smaller software
providers to see the value of their applications being delivered through the
Trisus platform, a certified HITRUST partner. In turn, our customers will
benefit from complementary applications which will help them derive greater
insight into their operations and financial performance without increasing
their exposure to cyberthreats while we will benefit from a revenue share with
the partner.
While organic growth across our portfolio remains the priority, we continue to
evaluate the market for M&A opportunities and will continue to pursue
strategically aligned companies that will accelerate our growth strategy,
although it is unlikely that any acquisitions in the short-term will be of the
relative scale of Sentry. We maintain the same four key acquisition criteria
of which target companies must fit into at least one, being: the addition of
relevant data sets; the extension of the customer base; the expansion of
expertise; and the addition of applications suitable for the US hospital
market. We view our partnering programme as a potential for building a
pipeline of future M&A activity based on the mutual benefits derived by
both partners.
Our People and Community
Central to our Purpose is how we support our customers and, in turn, how they
support their communities and how we collectively work towards delivering our
strategy as a team within The Craneware Group. Our solutions benefit society;
they continue to deliver value for our customers, through the provision of
accurate financial data, insight and analytics, that can be reinvested to
support our customers in the provision of care to their communities. In
addition, our 340B pharmacy solutions enable our customers to generate cost
savings which go directly to the provision of care for the underserved in
their communities. The Craneware Group is also directly involved with the 340B
Matters initiative, which aims to educate the market regarding the importance
of the 340B program for the non-profit healthcare facilities that provide
accessible and affordable care within their communities.
We recognise the value of our employees and that supporting our customers and
the achievements of the Group is due to their efforts. Our team is a talented
mix of employees from diverse backgrounds, which brings a high level of
innovation and collaboration. We believe in the importance of fostering a team
environment while also celebrating the individuals within the team. We
continue to invest in the team, our facilities and working practices and we
welcome feedback and suggestions for improvements through a range of employee
engagement mechanisms.
Complementing our Purpose and reflecting the causes which are important to our
employees, our team, has meant that, for many years, the Group has continually
developed a number of programmes and opportunities to positively and directly
impact the community around us. This has been achieved with our initiatives
driven by our employees through Craneware Cares and the Craneware Cares
Foundation.
Craneware has advanced and supported many social initiatives and continues to
do so. However, we are conscious of the need to coordinate all of our
ESG-related initiatives and policies, including environmental considerations,
to enable greater alignment to our ESG focus areas and also recognising the
general increased interest in ESG-related credentials by our stakeholders.
With these considerations in mind, we established an ESG Committee during the
year. We provide further details of these activities and the ESG Committee
with our ESG Statement.
Financial Review
For the year ended 30 June 2023, The Craneware Group is reporting an increase
in revenue of 5% to $174.0m (FY22: $165.5m) and a 6% increase in adjusted
EBITDA to $54.9m (FY22: $51.8m).
These results reflect a robust revenue performance against the backdrop of an
industry recovering from and dealing with the aftereffects of the COVID-19
public health emergency. The challenge for our customers has, inevitably,
impacted on Craneware, despite the solid performance of our annual software
licence revenues, we have not yet seen the return of our professional services
to the expected pre-pandemic levels as a percentage of our revenues.
All industries and companies, including US healthcare and Craneware, have had
to meet the challenges of the current macro-economic climate, including rising
wage, medication, and supply cost inflation as well as key staffing shortages.
Craneware has been successful in navigating these inflationary challenges
during the year, and as such we have delivered an adjusted EBITDA performance
in line with the Board's expectations. Our Adjusted earnings per share,
however, has been impacted by the significant increases in interest rates that
have occurred. With the interest we paid in the year increasing from $3.1m to
$6.5m, our interest charge increased by 28% to $6.4m (FY22: $5.0m). In
addition, our amortisation charge increased by 32% or $1.9m from the previous
year. As a result, we are reporting a 2% reduction in our adjusted earnings
per share to 87.0 cents per share (FY22: 89.0 cents per share).
The increased scale and our enlarged portfolio of products following the
successful integration of Sentry Data Systems, mean we can do even more to
support our customers as they look beyond the impact of the pandemic and
return their focus to the delivery of Value Based Care. The need for accurate
financial data, supporting analytics and the insights those analytics can
bring has never been more important.
Underlying Business Model, Professional Services, and other revenue
The new contracts we sign with our customers provide a licence for the
customer to access specified products throughout their licence period. At the
end of an existing licence period, or at a mutually agreed earlier date, we
look to renew these contracts with our customers.
Under the Group's business model, we recognise software licence revenue and
any minimum payments due from our 'other long term' contracts evenly over the
life of the underlying contract term.
In addition to the licence fees, we have a number of 340B customers whose
underlying contracts provide for a number of associated transactional services
in addition to their licences. These transactional services, whilst highly
dependable and recurring over the life of the contract, see some variation
period to period based on the volume of transactions. Transactional services
are recognised as we provide the service, and we are contractually able to
invoice the customer.
In any year, we also expect revenue to be recognised from providing
professional and consulting services to our customers. These revenues are
usually recognised as we deliver the service to the customer, on a percentage
of completion basis. As we have previously reported, the challenges US
hospitals have had regarding shortages of available staff have continued to
impact our ability to deliver professional services throughout the year. As a
result, we have not seen the return in our professional services revenues
expected and as such we are reporting Professional Service in the year of
$13.7m (FY22: $13.9m).
This year, for the first time, we are reporting Other Revenue of $1.1m (FY22:
$nil). These revenues are derived from our ability to leverage the Trisus
platform in new and innovative ways. This was both through new ways to use our
data assets to directly support our customers, and through hosting third-party
applications on the platform. These revenues are recognised at the point we
are able to invoice our customers. They are not, initially, deemed recurring
in their nature, however once proven we expect many of these revenue
opportunities to deliver future annual recurring revenue.
Annual Recurring Revenue
By renewing our underlying contracts, and ensuring we continue to deliver the
transactional services to our customers, we sustain a highly visible recurring
revenue base, which means sales of new products to existing customers or sales
to new hospital customers add to this recurring revenue.
Annual Recurring Revenue ("ARR") demonstrates the annual value of licence and
transactional revenues that are subject to underlying contracts.
At our interim results we tightened our definition of ARR to only include the
annualised effect of bookings that are subject to an underlying contract and
have generated revenue by the reporting date. This was done to better align
future growth of ARR to near term revenue growth as well as facilitate the
calculation of a Net Revenue Retention metric. This change primarily relates
to the exclusion of contract pharmacy bookings where go live has not yet
happened and therefore they have not contributed to revenue in the year.
As a result, ARR is now defined as the annual value of licence and related
recurring revenues including transaction revenues as at the Balance Sheet date
that are subject to underlying contracts and where revenue is being recognised
at the reporting date.
ARR at 30 June 2023 increased to $169.0m from the $166.4m reported at 31
December 2022, demonstrating the Group's continued high levels of contracted
revenue visibility. The Group is also reporting Net Revenue Retention for the
first time, from the point of our first ARR calculation, which was 100% for
the six months to 30 June 2023. Customer retention for the year exceeded 90%,
which is testament to the value Craneware brings to its customer base.
Gross Margins
Our gross profit margin is calculated after taking account of 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 and the direct costs of professional services employees who
deliver the services required to meet our contractual obligations.
The gross profit for FY23 was $148.4m (FY22: $142.4m). This represents a gross
margin percentage of 85% (FY22: 86%) which is in line with the expected Gross
Margins of the Group.
Operating Expenses
Net operating expenses (to Adjusted EBITDA) increased 3% to $93.5m (FY22:
$90.6m), which is a below inflation increase, reflecting our ongoing prudent
cost control, including our ability to balance our investment between the US
and the UK (and the associated Sterling exchange rate). This ultimately allows
us to continue to deliver an Adjusted EBITDA margin of +30%.
Product innovation and enhancement continues to be core to this future and our
ability to achieve our potential. We continue to pursue our buy, build, or
partner strategy to build out the Trisus platform and its portfolio of
products. As we are cash generative, we are able to use our cash reserves to
further "build" alongside the acquisition activities in the year and therefore
continue to invest significant resource in R&D.
The total cost of development in the year was $50.6m (FY22: $51.1m). We
continue to capitalise only the costs that relate to projects (including
enhancements to our existing products) that have yet to be released to the
market and will deliver new "future economic benefit" to the Group. With the
total amount capitalised in the year, being $15.0m (FY22: $13.5m) representing
30% of total R&D spend in FY23 (FY22: 26%), which is still below our
historical norms of 35 to 40% of total R&D spend.
We continue to believe this investment is an efficient and cost-effective way
to further build out our Value Cycle strategy alongside any acquisition
strategy. As specific products are made available to relevant customers, the
associated development costs capitalised are amortised and charged to the
Group's income statement over their estimated useful economic life, thereby
correctly matching costs to the resulting revenues.
Net Impairment reversal/(charge) on financial and contract assets
This relates to the movement in the provision for the impairment of trade
receivables in the year. Following the considerable efforts in this year
since the acquisition of Sentry and our ongoing relationships with customers
across the Group we are seeing a reversal in the year of $2.1m (FY22: charge
of $0.5m).
Adjusted EBITDA and Profit before taxation
To supplement the financial measures defined under IFRS the Group presents
certain non-GAAP (alternative) performance measures as detailed in Note 16. We
believe the use and calculation of these measures are consistent with other
similar listed companies and are frequently used by analysts, investors and
other interested parties in their research.
The Group uses these adjusted measures in its operational and financial
decision-making as it excludes certain one-off items, allowing focus on what
the Group regards as a more reliable indicator of the underlying operating
performance.
Adjusted earnings represent operating profits, excluding costs incurred as a
result of acquisition, its integration 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").
In the year, total costs of $0.5m (FY22: $2.1m) have been identified as
exceptional. These relate primarily to the one-off costs associated with the
back-office systems integration of Sentry. As such, these costs were adjusted
from earnings in presenting Adjusted EBITDA.
Adjusted EBITDA has grown in the year to $54.9m (FY22: $51.8m) an increase of
6%. This reflects an Adjusted EBITDA margin of 32% (FY22: 31%), confirming we
continue to meet our target of a combined Group adjusted EBITDA margin of
30+%.
Following the amortisation charge relating to acquired intangible assets
relating to the Sentry acquisition of $20.9m (FY22: $20.2m), profit before
taxation reported in the year is $13.1m (FY22: $13.1m).
Taxation
The Group generates profits in both the UK and the US. The Group's effective
tax rate is primarily dependent on the applicable tax rates in these
respective jurisdictions. Following the Sentry acquisition, whose profits are
solely generated in the US, the Group now generates a higher proportion of its
profits there.
Following the substantive enactment of the increase in UK corporation tax rate
to 25% effective from 1 April 2023, the UK corporation tax rate for the
financial year increased from 19% to 20.5%.
Other factors impacting the effective tax rate include tax deductibility of
amortisation of acquired intangibles, tax losses brought forward in the new
enlarged group and the number of share options exercised and the associated
tax treatment. Reconciliation of the tax charge for the year can be seen in
Note 5. As a result, the effective tax rate for the year ended 30 June 2023
is 29% (FY22: 28%).
EPS
The Group presents an Alternative Performance Measure of Adjusted EPS, to
provide consistency to other listed companies. Both Basic and Diluted Adjusted
EPS are calculated excluding costs incurred as a result of acquisition and
share related activities, being $0.4m (tax adjusted) in the year (FY22: $1.6m)
and amortisation of acquired intangibles of $20.9m (FY22: $20.2m).
Adjusted EPS, despite increased levels of Adjusted EBITDA, has decreased 2% to
$0.870 (FY22: $0.890) as a result of increased bank interest charges and
intangible amortisation in the year. Adjusted diluted EPS has decreased to
$0.863 (FY22: $0.881). Basic EPS in the period reduced to $0.263 (FY22:
$0.268) and Diluted EPS reduced to $0.261 (FY22: $0.265).
Prior Year Restatements
As reported in the prior year Financial Statements, the Group completed its
assessment of the fair value of the assets and liabilities acquired and the
consolidated balance sheet and on the 12 month anniversary of the Sentry
acquisition the "window" to complete this assessment closed.
However, during the current year, the Group has identified an item of
disclosure that requires adjustment and, following the completion of the
various US tax returns, two matters relating to the tax balances recorded in
the opening balance sheet of the acquired business where the incorrect fair
value had been assessed. None of the items impact the Consolidated Statement
of Comprehensive Income nor any profit measures reported by the Group in the
prior year.
Disclosure adjustment
Deferred Income, non-current and current liabilities - following a review of
deferred income acquired through the Sentry acquisition, we have identified
$4.8m of deferred income which should have been disclosed as a non-current
rather than a current liability, and as such this has been corrected.
There is no change to the recorded Total Assets and Liabilities of the Group
as a result of these disclosure restatements.
Taxation adjustments
Deferred and current Taxation - Following completion of the current year tax
returns it was identified that an asset class included in the opening balance
sheet of the Sentry acquisition had incorrectly been given a "tax basis" and
as such the deferred tax liability included $3.2m and the tax debtor included
$0.4m incorrectly in relation to this asset class (with the net balance being
in Goodwill). To correct this both the deferred tax liability and tax debtor
have been reduced and Goodwill has been reduced by the net amount of $2.8m.
Provision for Sales Taxes due - In the period since the acquisition of Sentry,
we have worked diligently to ensure the acquired companies were in good
standing with all the States in which they operated. As part of this process
we identified two States where there were amounts due in respect of periods
prior to the acquisition. Whilst we continue to work to reduce any liability,
a provision should have been made in respect of the net amounts that were
potentially due - being $0.4m and as such this provision has been made as part
of this re-statement.
Cash and Bank Facilities
Cash generation and a strong balance sheet have always been a focus of the
Group. Our business model provides the basis for high levels of cash
generation, and we continue to monitor the quality of our earnings through
Operating Cash Conversion, this being our ability to convert our Adjusted
EBITDA to "cash generated from operations" (as detailed in the consolidated
cash flow statement).
In the year, we have made improvements in the Operating Cash Conversion of
Sentry and as a result achieved Operating Cash Conversion across the combined
Group of 92% in the year (FY22: 80%).
We continue to invest in our future and return funds to our shareholder base
via our progressive dividend policy, returning $12.1m in the current year
(FY22: $13.0m), the reduction being due to exchange rates and the majority of
our dividends being paid in Sterling.
Also, as part of the funding for the acquisition of Sentry, the Group entered
into a debt facility and during FY22 drew down $120m of secured funding
provided by our consortium of banking partners. This facility was provided on
a 3+1+1 year term basis. During the year, $28m (FY22: $8m) of the loan has
been repaid, $8m of the term loan on schedule and the amount drawn down on the
Revolving Credit Facility was reduced by $20m. All covenants have been met,
and the second extension of the term has been agreed. We continue to thank our
banking partners, alongside our shareholders, for their continued support of
our growth strategy.
Cash reserves at the year-end were $78.5m (FY22: $47.2). Restricted cash was
disclosed separately in the prior year. As the Group is unable to hold these
amounts outside of its own treasury facilities, these "restricted cash"
balances have now been incorporated within cash and cash equivalents for FY23
rather than being classified separately on the face of the balance sheet
(FY22: $1.3m). Total borrowings of $83.0m (FY22: $111.6m) gives the Group both
significant liquidity and a strong balance sheet.
Share Buy Back
On 12 April 2023, the Group commenced a share buyback programme (of up to
£5m). The shares purchased through this programme are held in treasury and
will be used to satisfy employee share plan awards. The programme is being
undertaken using a phased approach. The programme is operating under the
authority granted to the Company by shareholders at the Company's Annual
General Meeting, held on 15 November 2022, and within the regulatory guidance
on the quantity of shares the Company may purchase on any single day.
Under this programme we have purchased 223,632 Ordinary Shares (FY22: nil) at
a total cost of £3.09m ($3.87m). These shares represent 0.63% of the
Company's issued Ordinary Shares and are being held in treasury. The Board
considers that a share buyback provides an optimal use of cash to deliver
value for shareholders by offsetting future dilution from existing employee
share plans and as such the share buyback programme continued after 30 June
2023 and is ongoing at the time of approval of this report.
Balance sheet
Within the balance sheet, deferred income levels reflect the amounts of the
revenue under contract that we have invoiced but have yet to recognise as
revenue. This balance is a subset of the Annual Recurring Revenue described
above and future performance obligations detailed in Note 3.
Deferred income, accrued income, and the prepayment of sales commissions all
arise as a result of our 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
regard to how we account for our contracts.
Currency
The functional currency for the Group, debt 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 was $1.2043 as compared to $1.3317
in the prior year. The exchange rate at the Balance Sheet date was $1.2619
(FY22: $1.2128).
Dividend
In proposing a final dividend, the Board has carefully considered a number of
factors including the prevailing macro-economic climate, the Group's trading
performance, our current and future cash generation and our continued desire
to recognise the support our shareholders provide. After carefully weighing
up these factors, the Board proposes a final dividend of 16.0p (20.19 cents)
per share giving a total dividend for the year of 28.5p (35.95 cents) per
share (FY22: 28p (33.96 cents) per share), an increase of 2%. Subject to
approval at the Annual General Meeting, the final dividend will be paid on 15
December 2023 to shareholders on the register as at 24 November 2023, with a
corresponding ex-Dividend date of 23 November 2023.
The final dividend of 16.0p 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 24 November 2023. The exact amount to be paid
will be calculated by reference to the exchange rate to be announced on 24
November 2023. The final dividend referred to above in US dollars of 20.19
cents is given as an example only using the Balance Sheet date exchange rate
of $1.2619/£1 and may differ from that finally announced.
Outlook
With the COVID-19 public health emergency in the US formally declared over in
May 2023 and the related pressures on hospitals starting to ease, we have
begun to see US hospitals return their attention to providing Value-Based Care
and investing in digitalisation, using data insights provided by the Trisus
platform to transform and improve their processes and control their costs. We
remain committed to providing the tools our customers need to manage their
operations and finances more efficiently, as we seek to transform the business
of US healthcare together.
Against this backdrop, we are pleased to have seen the strong sales momentum
seen at the close of the year carry through into the start of the new
financial year, resulting in a growing sales pipeline. We are confident that
our resilient business model, extensive customer base, high levels of Annual
Recurring Revenue, together with our strategy for delivering growth centred on
the expansion of the Trisus platform, will enable us to create further
long-term value for all our stakeholders.
Keith Neilson Craig Preston
CEO Craneware plc CFO Craneware plc
4 September 2023 4 September 2023
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2023
Total Total
2023 2022
Notes $'000 $'000
Continuing operations:
Revenue 3 174,018 165,544
Cost of sales (25,576) (23,178)
Gross profit 148,442 142,366
Other income 600 551
Operating expenses 4 (131,876) (124,324)
Net impairment reversal/ (charge) on financial and contract assets 4 2,062 (461)
Operating profit 4 19,228 18,132
Analysed as:
Adjusted EBITDA(1) 54,892 51,757
Share based payments (2,992) (2,116)
Depreciation of property, plant and equipment (3,451) (3,259)
Exceptional Costs(2) 4 (510) (2,106)
Amortisation of intangible assets - other (7,781) (5,905)
Amortisation of intangible assets - acquired intangibles (20,930) (20,239)
Finance income 214 1
Finance expense (6,357) (5,031)
Profit before taxation 13,085 13,102
Tax on profit on ordinary activities 5 (3,853) (3,693)
Profit for the year attributable to owners of the parent 9,232 9,409
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation reserve movement - 42
Total items that may be reclassified subsequently to profit or loss - 42
Total comprehensive income attributable to owners of the parent 9,232 9,451
1. See Note 16 for explanation of Alternative Performance Measures.
2. Exceptional items relate to integration costs associated with the
purchase of Sentry Data Systems, Inc (FY22: legal and professional fees
associated with acquisition of Sentry Data Systems and related integration
costs).
Earnings per share for the year attributable to equity holders
Notes 2023 2022
Basic ($ per share) 7 0.263 0.268
*Adjusted Basic ($ per share) 7 0.870 0.890
Diluted ($ per share) 7 0.261 0.265
*Adjusted Diluted ($ per share) 7 0.863 0.881
* Adjusted Earnings per share calculations allow for the tax adjusted
acquisition costs and share related transactions (if applicable in the year)
together with amortisation on acquired intangible assets.
Statement of Changes in Equity for the year ended 30 June 2023
Share Capital
Share Premium Treasury Redemption Merger Other Retained Total
Capital Account Shares Reserve Reserve Reserves Earnings Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 July 2021 624 21,097 - 9 186,993 4,728 46,828 260,279
Total comprehensive income - profit for the year - - - - - - 9,409 9,409
Total other comprehensive expense - - - - - - 42 42
Transactions with owners:
Share-based payments - - - - - 2,294 - 2,294
Share issue 35 76,107 - - (12) - - 76,130
Purchase of own shares through EBT - - - - - - (1,726) (1,726)
Deferred tax taken directly to equity - - - - - - (366) (366)
Impact of share options and awards exercised/lapsed - - - - - (1,089) 1,025 (64)
Dividends (Note 6) - - - - - - (12,976) (12,976)
At 30 June 2022 659 97,204 - 9 186,981 5,933 42,236 333,022
Total comprehensive income - profit for the year - - - - - - 9,232 9,232
Transactions with owners:
Share-based payments - - - - - 3,231 - 3,231
Purchase of own shares through EBT - - - - - - (179) (179)
Purchase of own shares through share buyback - - (3,865) - - - - (3,865)
Deferred tax taken directly to equity - - - - - - (1,004) (1,004)
Impact of share options and awards exercised/lapsed - - 128 - - (2,324) 1,719 (477)
Dividends (Note 6) - - - - - - (12,119) (12,119)
At 30 June 2023 659 97,204 (3,737) 9 186,981 6,840 39,885 327,841
Consolidated Balance Sheet as at 30 June 2023
Notes 2023 Restated
2022
$'000 $'000
ASSETS
Non-Current Assets
Property, plant and equipment 8,464 8,819
Intangible assets - goodwill 9 235,236 235,236
Intangible assets - acquired intangibles 9 166,327 187,257
Intangible assets - other 9 50,230 43,430
Trade and other receivables 10 2,758 3,234
463,015 477,976
Current Assets
Trade and other receivables 10 35,424 39,584
Cash and cash equivalents 78,537 47,157
Restricted cash - 1,251
113,961 87,992
Total Assets 576,976 565,968
EQUITY AND LIABILITIES
Non-Current Liabilities
Borrowings 13 75,033 103,589
Deferred income 2,875 4,792
Leased property 2,224 1,206
Hire purchase equipment 44 290
Deferred tax 11 41,337 44,417
Other provisions 243 568
121,756 154,862
Current Liabilities
Borrowings 13 8,000 8,000
Deferred income 49,643 53,930
Amounts held on behalf of customers 51,220 672
Tax payable 2,565 -
Trade and other payables 14 15,951 15,482
127,379 78,084
Total Liabilities 249,135 232,946
Equity
Share capital 659 659
Share premium account 97,204 97,204
Treasury shares (3,737) -
Capital redemption reserve 9 9
Merger reserve 186,981 186,981
Other reserves 6,840 5,933
Retained earnings 39,885 42,236
Total Equity 327,841 333,022
Total Equity and Liabilities 576,976 565,968
Consolidated Statement of Cash Flows for the year ended 30 June
2023
Notes 2023 2022
$'000 $'000
Cash flows from operating activities
Cash generated from operations 12 100,591 32,943
Tax paid (1,843) (5,979)
Net cash generated from operating activities 98,748 26,964
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired 8 - (293,288)
Purchase of property, plant and equipment (520) (353)
Capitalised intangible assets 9 (15,031) (13,680)
Interest received 214 1
Net cash used in investing activities (15,337) (307,320)
Cash flows from financing activities
Dividends paid to company shareholders 6 (12,119) (12,976)
Share issue professional fees - (263)
Paid up share capital - 236
Proceeds from issuance of treasury shares 138 -
Proceeds from borrowings - 120,000
Loan arrangement fees (252) (268)
Repayment of borrowings 13 (28,000) (8,000)
Interest on borrowings (6,503) (3,080)
Purchase of own shares by EBT (179) (1,726)
Share buyback programme (3,815) -
Payment of lease liabilities (2,552) (2,027)
Net cash (used in)/ generated from financing activities (53,282) 91,896
Net increase/ (decrease) in cash and cash equivalents 30,129 (188,460)
Cash and cash equivalents at the start of the year 47,157 235,617
Restricted cash previously excluded from cashflow* 1,251 -
Cash and cash equivalents at the end of the year 78,537 47,157
*Restricted cash was not included within cash and cash equivalents on the
Balance Sheet or within the Cashflow in the prior period. As the Group is
unable to hold these amounts outside of its own treasury facilities, these
"restricted cash" balances are now incorporated within cash and cash
equivalents for FY23 and are therefore included with the Cashflow Statement
for the current year.
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 Alternative
Investment Market ('AIM') of the London stock Exchange. The principal activity
of the Company continues to be the development, licensing and ongoing support
of computer software for the US healthcare industry.
Basis of preparation
The financial statements of the Group and the Company are prepared in
accordance with UK adopted international accounting standards (International
Financial Reporting Standards ("IFRS")) and the applicable legal requirements
of the Companies Act 2006.
The Group and the Company financial statements have been prepared under the
historic cost convention and prepared on a going concern basis. The
Strategic Report 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.
The Directors have prepared cash flow forecasts covering a period of over
twelve months from the date of approval of these financial statements. These
forecasts include consideration of severe but plausible downsides, should
these events occur, the Group would have sufficient funds to meet its
liabilities as they fall due for that period. These scenarios anticipate a
zero-growth scenario, such that the only sales made by the Group would be to
replace losses of existing long-term contracts. Under this basis, without the
need to make cost savings, the Group remained in compliance with its covenants
and had no need to draw upon the committed undrawn facility.
Based on this assessment, the Directors 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 the Company financial statements.
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. Selected 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 $1.2043/£1 (FY22:
$1.3317/£1). Monetary assets and liabilities expressed in foreign currencies
are translated into US dollars at rates of exchange ruling at the Balance
Sheet date $1.2619 /£1 (FY22: $1.2128/£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.
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 liabilities resulting from any contingent
consideration. Any costs directly attributable to the 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
Consolidated 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 from contracts with customers
The Group follows the principles of IFRS 15, 'Revenue from Contracts with
Customers'; accordingly, revenue is recognised using the five-step model:
1. Identify the contract;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance
obligations in the contract; and
5. Recognise revenue when or as performance obligations are
satisfied.
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 training and consultancy and transactional fees.
Revenue from software licenses
Revenue from both on premise and Trisus software licenced products is
recognised from the point at which the customer gains control and the right to
use our software. The following key judgements have been made in relation to
revenue recognition of software license:
• This is right of use software due to the integral
updates provided on a regular basis to keep the software relevant and, as a
result, the licenced software revenue will be recognised over time rather than
at a point in time;
• The software license together with installation,
regular updates and access to support services form a single performance
obligation;
• The transaction price is allocated to each distinct
one year license period with annual increases being recognised in the year
they apply; and
• Discounts in relation to software licenses are
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 professional services
Revenue from all professional services including training and consulting
services is recognised when the performance obligation has been fulfilled and
the services are provided. These services could be provided by a third party
and are therefore considered to be separate performance obligations. 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 complete 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.
'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 transactional services
Transactional service fees are recognised at the point in time when the
service is provided.
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.
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 sales commissions on contracts sold and deferred
income relating to license fees billed in advance and recognised over time.
Exceptional items
The Group defines exceptional items as transactions (including costs incurred
by the Group) which relate to non-recurring events. These are disclosed
separately where it is considered it provides additional useful information to
the users of the financial statements.
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. They are measured using enacted rates and laws that will be in
effect when the differences are expected to reverse. 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.
"Share-based payments" are recorded in the Group's Consolidated 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 Consolidated 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.
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 recognised as a
non-current asset in accordance with IFRS 3 and is not amortised.
After initial recognition, goodwill is stated at cost less any accumulated
impairment losses. It tested at least annually for impairment. Any
impairment loss is recognised in the Consolidated Statement of Comprehensive
Income.
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 useful
economic 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) 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 fifteen years.
(d) Development costs
Expenditure associated with developing and maintaining the Group's software
products is recognised as incurred.
Development expenditure is capitalised where 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.
Costs are 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 between five and ten years. Expenditure not meeting
the above criteria is expensed as incurred.
Employee 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.
(f) Trademarks
Trademarks acquired in a business combination are initially measured at fair
value at the acquisition date. Trademarks have a finite useful economic life
and are 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 up to ten 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.
Treasury shares
Treasury Shares are Ordinary Shares of the Company which are purchased by the
Company in a share buyback programme and held for the purpose of satisfying
employee share plan awards. The consideration paid, including any directly
attributable costs, for the Company's shares held in treasury is deducted from
equity in the Treasury Shares reserve until the shares are transferred or
disposed. When these shares in the Company are transferred to employees, in
accordance with employee share plans, the cost is transferred from the
Treasury Shares reserve to retained earnings.
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:
Estimates
· 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.
· Useful lives of intangible assets: in assessing useful life, the
Group uses careful judgement based on past experience, advances in product
development and also best practice. The Group amortises intangible assets over
a period of up to 15 years.
· Intangible assets acquired and liabilities assumed: the Group
measured assets acquired and liabilities assumed on the acquisition of Sentry
at their fair value on acquisition. Assessing the fair value required the
use of a number of assumptions and estimates in relation to future cash flows
generated by the assets and the use of valuation techniques. The assumptions
were based on the best information available to management and valuation
techniques were supported by third party valuation experts. The valuations
methods used for the intangibles acquired were:
o Customer relationships - the residual income method was used for arriving
at the fair value of this asset. This calculates the residual profit
attributable less the appropriate returns for all other assets that benefit
the business.
o Proprietary software - the cost approach was used in determining the fair
value of this asset. This method estimates the cost to replicate the asset
as at the purchase date using current prices for time and materials adding an
appropriate margin and opportunity cost.
o Trademarks - the relief from royalty method was used to provide the fair
value of this asset. This uses an estimate of the cost savings that accrue
on an intangible asset that would otherwise incur royalties or licence fees on
revenues generated from the use of the asset.
Judgements
· 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.
· Provisions for income taxes: the Group is subject to tax in the UK
and US and this requires the Directors to regularly assess the appropriateness
of its transfer pricing policy.
· Revenue recognition: in determining the amount of revenue and related
balance sheet items to be recognised in the period, management is required to
make a number of judgements and assumptions. These are detailed in Note 1
Revenue from contracts with customers.
3. 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 US. 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.
2023 2022
$'000 $'000
Software licensing 143,125 137,956
Professional services 13,741 13,893
Transactional fees 16,018 13,695
Other revenue 1,134 -
Total revenue 174,018 165,544
Contract assets
The Group has recognised the following assets related to contracts with
customers:
2023 2022
$'000 $'000
Prepaid commissions and royalties < 1 year 2,206 2,504
Prepaid commissions and royalties > 1 year 2,758 3,208
Total contract assets 4,964 5,712
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 2022 were $2.5m.
Contract liabilities
The following table shows the total contract liabilities from software license
and professional service contracts:
2023 2022
$'000 $'000
Software licensing 47,037 53,596
Professional services 5,481 5,126
Total contract liabilities 52,518 58,722
Contract liabilities are included within deferred income in the Balance Sheet.
Revenue of $53.7m was recognised during the year in relation to contract
liabilities as of 30 June 2022.
The following table shows the aggregate transaction price allocated to
performance obligations that are partially or fully unsatisfied from software
license and professional service contracts.
Total unsatisfied Expected recognition
performance obligations < 1 year 1 to 2 years 2 to 3 years > 3 years
Revenue expected to be recognised $'000 $'000 $'000 $'000 $'000
At 30 June 2023
- Software 348,919 124,279 99,613 67,757 57,270
- Professional services 14,376 8,313 3,207 1,981 875
Total at 30 June 2023 363,295 132,592 102,820 69,738 58,145
At 30 June 2022
- Software 370,081 137,234 102,247 71,642 58,958
- Professional services 13,274 6,891 3,080 1,910 1,393
Total at 30 June 2022 383,355 144,125 105,327 73,552 60,351
Revenue of $144.1m was recognised during the year in relation to unsatisfied
performance obligations as of 30 June 2022.
The majority of these performance obligations are unbilled at the Balance
Sheet date and therefore not reflected in these financial statements.
4. Operating profit
The following items have been included in arriving at operating profit:
2023 2022
$'000 $'000
Employee costs 87,755 88,698
Employee costs capitalised (10,261) (9,584)
Depreciation of property, plant and equipment 3,451 3,259
Amortisation of intangible assets - other 7,781 5,905
Amortisation of intangible assets - acquired intangibles 20,930 20,239
Impairment of trade receivables 463 77
Exceptional items* 510 2,106
Operating lease rents for premises - 72
* Exceptional items relate to integration costs associated with the purchase
of Sentry Data Systems, Inc (FY22: exceptional items relate to legal and
professional fees associated with a successful acquisition and related
integration costs).
Included in reaching operating profit is the movement in the provision for
impairment of trade receivables during the year of a $1,971,000 credit, plus
$91,000 net impairment credit for trade receivables recognised directly in
operating costs.
5. Tax on profit on ordinary activities
2023 2022
$'000 $'000
Profit on ordinary activities before tax 13,085 13,102
Current tax
Corporation tax on profits of the year 5,596 2,774
Adjustments for prior years 1,080 94
Total current tax charge 6,676 2,868
Deferred tax
Deferred tax for current year (3,324) 842
Adjustments for prior years 485 9
Change in UK tax rate 16 (26)
Total deferred tax (credit)/charge (2,823) 825
Tax on profit on ordinary activities 3,853 3,693
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 20.5% (2022 19%) 2,682 2,490
Effects of:
Adjustment for prior years 1,566 103
Change in tax rate on opening deferred tax balance 23 (26)
Change in tax rate on closing deferred tax balance - 339
Additional US taxes on profits 25% (2022: 25%) 392 328
Internally developed software 628 -
Expenses not deductible for tax purposes 246 119
Income not taxable in the period (1,004) -
Spot rate remeasurement 240 39
Use of tax losses (427) -
(Deduction)/expense on share plan charges (535) 301
Other 42 -
Total tax charge 3,853 3,693
6. Dividends
The dividends paid during the year were as follows:-
2023 2022
$'000 $'000
Final dividend, re 30 June 2022 - 18.80 cents (15.5 pence)/share 6,645 7,227
Interim dividend, re 30 June 2023 - 15.13 cents (12.5 pence)/share 5,474 5,749
Total dividends paid to Company shareholders in the year 12,119 12,976
Prior year:
Final dividend 21.47 cents (15.5 pence)/share
Interim dividend 16.88 cents (12.5 pence)/share
The proposed final dividend 20.19 cents (16 pence), as noted in the Financial
Review section of the Strategic Report, for the year ended 30 June 2023 is
subject to approval by the shareholders at the Annual General Meeting and has
not been included as a liability in these financial statements.
7. Earnings per share
The calculation of basic and diluted earnings per share is based on the
following data:
Weighted average number of shares
2023 2022
No. of Shares No. of Shares
000s 000s
Weighted average number of Ordinary Shares for the purpose of basic earnings 35,146 35,110
per share
Effect of dilutive potential Ordinary Shares: share options and LTIPs 289 367
Weighted average number of Ordinary Shares for the purpose of diluted earnings 35,435 35,477
per share
The Group has one category of dilutive potential Ordinary shares, being those
granted to Directors and employees under the employee share plans.
Shares held by the Employee Benefit Trust and Treasury Shares held directly by
the Company are excluded from the weighted average number of Ordinary shares
for the purposes of basic earnings per share.
Profit for year
2023 2022
$'000 $'000
Profit for the year attributable to equity holders of the parent 9,232 9,409
Acquisition and associated share placing costs (tax adjusted) - 1,279
Acquisition integration costs (tax adjusted) 405 325
Amortisation of acquired intangibles (tax adjusted) 20,930 20,238
Adjusted profit for the year attributable to equity holders of the parent 30,567 31,251
Basic earnings per share are calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of shares in
issue during the year.
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.
Earnings per share
2023 2022
cents cents
Basic EPS 26.3 26.8
Diluted EPS 26.1 26.5
Adjusted basic EPS 87.0 89.0
Adjusted diluted EPS 86.3 88.1
8. Business Combinations
Year ended 30 June 2023
There were no business combinations in the year ended 30 June 2023.
Year ended 30 June 2022
On 12 July 2021, the Group acquired 100% of the voting rights of SDS Holdco,
Inc., the ultimate holding company of Sentry Data Systems, Inc. ('Sentry'), a
leader in the pharmacy procurement, compliance and utilisation management,
based in Florida, USA. For further information on the reasons for the
acquisition see Note 25 of the annual report for the year ended 30 June 2021.
The aggregate consideration for the acquisition of Sentry on a cash free/ debt
free basis subject to an adjustment against a benchmark level of working
capital on the date of acquisition as calculated and determined in accordance
with the terms of the agreement relating to the acquisition.
The deal was funded by $297.0m (as adjusted) of cash and $75.9m from the issue
of 2,507,348 new ordinary shares at fair value on 12 July 2021 (measured using
the closing market price of the Company's ordinary shares on that date). The
cash consideration was funded from the Group's existing cash resources, $120m
from a new debt facility and $187.3m net proceeds from a share placing
completed in June 2021.
Details of the purchase consideration, net assets acquired and goodwill, were
as follows:
$'000
Cash paid (net of working capital adjusted) 297,015
Shares issued (fair value) 75,905
Total purchase consideration 372,920
The fair values for assets and liabilities recognised as a result of the
acquisition were as follows:
Restated
Fair value
$'000
Non-Current assets
Property, plant and equipment 9,179
Intangible assets - customer relations 151,000
Intangible asset - proprietary software 51,496
Intangible assets - trademarks 5,000
Intangible assets - other 3,762
Other contract assets 376
Total non-current assets 220,813
Current assets
Trade and other receivables 13,254
Cash and cash equivalents 3,727
Restricted cash 1,880
Total current assets 18,861
Non-current liabilities
Leased property > 1 year 1,540
Leased equipment > 1 year 1,146
Deferred tax 48,685
Total non-current liabilities 51,371
Current liabilities
Deferred income 27,164
Trade and other payables 12,267
Total current liabilities 39,431
Net identifiable assets acquired 148,872
Add: goodwill 224,048
Total consideration 372,920
The goodwill is attributable to Sentry's strong position in the market and
synergies expected to arise after the company's acquisition of these new
subsidiaries.
The fair value of the acquired customer list and customer contracts of $151m,
proprietary software of $51.5m and trademarks of $5.0m have been valued as per
the details in Note 2. Deferred tax of $37.8m, $9.7m (restated) and $1.2m
has been provided respectively in relation to these intangible assets.
Acquisition related costs of $2.1m (FY21: $6.5m) were included within
exceptional costs in profit and loss in the year ended 30 June 2022.
The fair value of trade and other receivables is $13.7m and includes trade
receivables with a fair value of $9.5m. The gross contractual amount for trade
receivables due is $12.7m of which $3.2m was expected to be uncollectible.
Sentry contributed revenue of $94.7m and net profit of $1.6m to the Group for
the period from 13 July 2021 to 30 June 2022. If the acquisition had occurred
on 1 July 2021, consolidated revenue and consolidated profit after tax for the
year ended 30 June 2022 would have been $168.2m and $9.5m respectively.
See Note 15 for details of the restatement in the prior year.
9. Intangible assets
Goodwill Customer Proprietary Development Computer
Relationships Software Trademarks Costs Software Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Cost
At 1 July 2022 235,486 153,964 52,724 5,000 56,096 4,840 508,110
Additions - - - - 14,960 71 15,031
Reclassification - - - - - (450) (450)
At 30 June 2023 235,486 153,964 52,724 5,000 71,056 4,461 522,691
Accumulated amortisation and impairment
At 1 July 2022 250 12,706 11,187 538 15,607 1,899 42,187
Charge for the year - 10,067 10,307 556 6,477 1,304 28,711
At 30 June 2023 250 22,773 21,494 1,094 22,084 3,203 70,898
Net Book Value at 30 June 2023 235,236 131,191 31,230 3,906 48,972 1,258 451,793
Cost
At 1 July 2021 11,438 2,964 3,043 - 42,976 1,004 61,425
Additions - - - - 13,506 174 13,680
Acquisition of subsidiary - restated 224,048 151,000 51,496 5,000 - 3,762 435,306
Disposals - - (1,815) - (386) (100) (2,301)
At 30 June 2022 - restated 235,486 153,964 52,724 5,000 56,096 4,840 508,110
Accumulated amortisation and impairment
At 1 July 2021 250 2,964 3,043 - 11,324 734 18,315
Charge for the year - 9,742 9,959 538 4,669 1,236 26,144
Amortisation on disposal - - (1,815) - (386) (71) (2,272)
At 30 June 2022 250 12,706 11,187 538 15,607 1,899 42,187
Net Book Value at 30 June 2022 - restated 235,236 141,258 41,537 4,462 40,489 2,941 465,923
See Note 15 for details of the restatement in the prior year.
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 subsidiaries and is
split into the following CGUs:
2023 Restated
2022
$'000 $'000
Craneware InSight 11,188 11,188
Sentry 224,048 224,048
Total Goodwill 235,236 235,236
Craneware InSight
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.
Sentry
The carrying values are assessed for impairment purposes by calculating the
value in use of the Sentry 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 Sentry acquisition.
The key assumptions in assessing value in use for the CGU's are:
Growth rate in perpetuity Post-tax discount rate
2023 2022 2023 2022
Craneware InSight 2.0% 2.0% 9.0% 12.1%
Sentry 2.0% 2.0% 9.0% 9.5%
After the initial term of 5 years, the Group applied a growth rate for each
CGU. These take into consideration the customer bases 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. Certain disclosures, including
sensitivities, relating to goodwill have not been made, given the significant
headroom on impairment testing.
10. Trade and other receivables
2023 Restated
2022
$'000 $'000
Trade receivables 27,594 34,730
Less: provision for impairment of trade receivables (3,421) (5,855)
Net trade receivables 24,173 28,875
Other receivables 1,024 827
Current tax receivable - 2,932
Prepayments and accrued income 8,270 4,714
Deferred Contract Costs 4,715 5,470
38,182 42,818
Less non-current receivables:
Prepayments - (26)
Deferred Contract Costs (2,758) (3,208)
Current portion 35,424 39,584
See Note 15 for details of the restatement in the prior year.
11. Deferred tax
Deferred tax is calculated in full on the temporary differences under the
liability method using a rate of tax of 25% (FY22: 25%) in the UK and 25%
(FY22: 25%) in the US including a provision for state taxes.
See Note 15 for details of the restatement in the prior year.
2023 Restated
2022
$'000 $'000
At 1 July (44,417) 5,459
Credit/ (charge) to comprehensive income 4,084 (825)
Transfer direct to equity (1,004) (366)
Deferred tax arising on acquisitions - (48,685)
At 30 June (41,337) (44,417)
The movements in deferred tax assets and liabilities during the year are shown
below. Deferred tax assets and liabilities are only offset where there is a
legally enforceable right of offset and there is an intention to settle the
balances net. The net deferred tax liability at 30 June 2023 was $41,337,000
(FY22: net deferred tax liability $44,417,000 restated).
Deferred tax assets - recognised
Short term timing differences Loses Share options Total
$'000 $'000 $'000 $'000
A 1 July 2022 3,926 293 3,201 7,420
Credited to comprehensive income 585 135 160 880
Charged to equity - - (1,004) (1,004)
Total provided at 30 June 2023 4,511 428 2,357 7,296
759 1,058 3,924 5,741
At 1 July 2021
Credited/ (charged) to comprehensive income 3,167 (765) (357) 2,045
Charged to equity - - (366) (366)
Total provided at 30 June 2022 3,926 293 3,201 7,420
Deferred tax liabilities - recognised
Long term timing differences Accelerated tax depreciation Total
$'000 $'000 $'000
A 1 July 2022 (47,921) (3,916) (51,837)
Credited to comprehensive income 3,543 (339) 3,204
Total provided at 30 June 2023 (44,378) (4,255) (48,633)
- (282) (282)
At 1 July 2021
Credited/ (charged) to comprehensive income 764 (3,634) (2,870)
Arising on acquisition - restated (48,685) - (48,685)
Total provided at 30 June 2022 - restated (47,921) (3,916) (51,837)
2023 Restated
2022
$'000 $'000
Deferred tax assets:
Deferred tax assets to be recovered after more than 1 year 6,867 7,126
Deferred tax assets to be recovered within 1 year 429 294
7,296 7,420
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 1 year (43,633) (46,837)
Deferred tax liabilities to be recovered within 1 year (5,000) (5,000)
(48,633) (51,837)
Net deferred tax liability (41,337) (44,417)
12. Cash flow generated from operating activities
Reconciliation of profit before taxation to net cash inflow from operating
activities
2023 2022
$'000 $'000
Profit before tax 13,085 13,102
Finance income (214) (1)
Finance expense 6,357 5,031
Depreciation on property, plant and equipment 3,451 3,259
Amortisation on intangible assets - other 7,781 5,905
Amortisation on intangible assets - acquired intangibles 20,930 20,239
Loss/ (gain) on disposals 7 (5)
Share-based payments 2,992 2,116
Movements in working capital:
Decrease/ (increase) in trade and other receivables 1,116 (3,203)
Decrease in trade and other payables (5,462) (13,500)
Increase in amounts held on behalf of customers 50,548 -
Cash generated from operations 100,591 32,943
See Note 15 for details for restatement in the prior year.
13. Borrowings
The debt facility comprises a term loan of $24m (FY22: $32m) which is
repayable in quarterly instalments over 5 years up to 30 June 2026, and a
revolving loan facility of $100m of which $60m (FY22: $80m) is drawn down and
which expires on 7 June 2026. During the year, $8m was repaid on the term
loan and $20m was repaid on the revolving credit facility.
Interest is charged on the facility on a daily basis at margin and compounded
reference rate. The margin is related to the leverage of the Group as defined
in the loan agreement. As the leverage of the Group strengthens, the
applicable margin reduces.
The facility is secured by a Scots law floating charge granted by the Company,
an English law debenture granted by the Company and a New York law security
agreement to which the Company and certain of its subsidiaries are parties.
The securities granted by the Company and the relevant subsidiaries provide
security over all assets of the Company and specified assets of the Group.
2023 2022
$'000 $'000
Current interest bearing borrowings 8,000 8,000
Non current interest bearing borrowings 75,033 103,589
Total 83,033 111,589
Arrangement fees paid in advance of the setting up of the facility are being
recognised over the life of the facility in operating costs. The remaining
balance of unamortised fees and interest at 30 June 2023 is $0.97m (FY22:
$3.2m).
See Note 16 for a reconciliation between borrowings, cash and net borrowings.
Loan covenants
Under the facilities the Group is required to meet quarterly covenants tests
in respect of:
a) Adjusted leverage which is the ratio of total net debt on the last day
of the relevant period to adjusted EBITDA.
b) Cash flow cover which is the ratio of cashflow to net finance charges
in respect of the relevant period.
The Group complied with these ratios throughout the reporting period.
Financing arrangements
The Group's undrawn borrowing facilities were as follows:
2023 2022
$'000 $'000
Revolving facilities 40,000 20,000
Undrawn borrowing facilities 40,000 20,000
14. Trade and other payables
2023 Restated
2022
$'000 $'000
Trade payables 4,005 3,587
Lease creditor due < 1 year 1,389 2,439
Other provisions < 1 year 420 379
Social security and PAYE 1,299 2,705
Other creditors 237 128
Accruals 8,466 6,222
Advance payments 135 22
Trade and other payables 15,951 15,482
Other provisions relate to employer taxes due in relation to employee share
awards from the 2007 Share Option Plan payable on exercise of options of
$59,000 (FY22: $17,000) and potential sales tax due in relation to audits in
respect of Sentry Data Systems for periods prior to the acquisition of
$362,000 (FY22: $362,000 restated).
See Note 15 for details of the restatement in the prior year.
15. Prior year restatement
Deferred revenue in Sentry opening balance sheet
On acquisition of Sentry Data Systems, Inc. in FY22, $4.792m of the deferred
revenue for one contract recorded in the Sentry opening balance sheet related
to a period more than one year from 30 June 2022. This was disclosed as less
than one year on the prior year balance sheet. The balance sheet has been
restated to reflect the long term portion of the deferred revenue on the
closing balance sheet. There was no impact on the opening balance sheet at
1 July 2021.
Balance sheet extract Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Non-current liabilities
Deferred income 4,792 4,792 -
158,051 4,792 153,259
Current liabilities
Deferred income 53,930 (4,792) 58,722
77,722 (4,792) 82,514
Total liabilities 235,773 - 235,773
Deferred tax, current tax, sales tax and goodwill on acquisition
On acquisition of Sentry Data Systems, Inc. in FY22, $51.874m of the deferred
tax liabilities and $1.100m of corporation tax receivables were recognised at
30 June 2022, with the other side going against goodwill. Following the
completion of the FY22 tax returns it was identified that an asset class
included in the fair value of assets and liabilities recognised on acquisition
liabilities has incorrectly been given a 'tax basis' and as such the deferred
tax liability included $3.189m and the tax debtor included $0.417m incorrectly
in relation to this asset class.
In the period since acquisition, it has been identified that there are two
states in which Sentry Data Systems, Inc operates where amounts are due in
respect of sales tax for periods prior to the acquisition. A provision
should have been made in respect of these amounts as part of the fair value of
assets and liabilities recognised on acquisition. A provision of $0.362m
should have been included on acquisition.
The balance sheet has been restated to reflect the reduction in the deferred
tax liability on acquisition of $3.189m, an increase in trade and other
payables of $0.362m on acquisition, a decrease in trade and other receivables
of $0.417m on acquisition and a corresponding reduction in goodwill of
$2.410m. While these adjustments have decreased total assets and total
liabilities by $2.410m each, there is no impact on nets assets. There was no
impact on the opening balance sheet at 1 July 2021.
Balance sheet extract Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Non-current assets
Intangible assets - goodwill 235,236 (2,410) 237,646
477,976 (2,410) 480,386
Current assets
Trade and other receivables 39,584 (417) 40,001
87,992 (417) 88,409
Total assets 565,968 (2,827) 568,795
Equity and Liabilities
Non-current liabilities
Deferred tax 44,417 (3,189) 47,606
154,862 (3,189) 158,051
Current liabilities
Trade and other payables 15,482 362 15,120
78,084 362 77,722
Total liabilities 232,946 (2,827) 235,773
Total equity and liabilities 565,968 (2,827) 568,795
Note 8 Business combinations has been updated to reduce the deferred tax
liability on acquisition by $3.189m, increase trade and other payables by
$0.362m and decrease in trade and other receivables by $0.417m with a
respective decrease to goodwill on acquisition of $2.410m.
Note 8 extract Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Current assets
Trade and other receivables 13,254 (417) 13,671
Total current assets 18,861 (417) 19,278
Non-current liabilities
Deferred tax 48,685 (3,189) 51,874
Total non-current liabilities 51,371 (3,189) 54,560
Current liabilities
Trade and other payables 12,267 362 11,905
Total current liabilities 39,431 362 39,069
Net identifiable assets acquired 148,872 2,410 146,462
Add: goodwill 224,048 (2,410) 226,458
Total consideration 372,920 - 372,920
The fair value of the acquired customer list and customer contracts of $151m,
proprietary software of $51.5m and trademarks of $5.0m have been valued as per
the details in Note 2. Deferred tax of $37.8m, $9.7m restated (FY22: $12.9m)
and $1.2m has been provided respectively in relation to these intangible
assets.
Note 9 Intangible assets has been updated to reflect the reduction in goodwill
on acquisition of $2.410m.
Note 9 extract Goodwill Total
$'000 $'000
Cost
Acquisition of subsidiary - restated 224,048 435,306
At 30 June 2022 - restated 235,486 508,110
Net Book Value at 30 June 2022 - restated 235,236 465,923
Cost
Acquisition of subsidiary - adjusted (2,410) (2,410)
At 30 June 2022 - adjusted (2,410) (2,410)
Net Book Value at 30 June 2022 - adjusted (2,410) (2,410)
Cost
Acquisition of subsidiary 226,458 437,716
At 30 June 2022 237,896 510,520
Net Book Value at 30 June 2022 237,646 468,333
Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Craneware InSight 11,188 - 11,188
Sentry 224,048 (2,410) 226,458
Total Goodwill 235,236 (2,410) 237,646
Note 10 Trade and other receivables has been updated to reflect the reduction
in tax receivable of $0.417m.
Note 10 extract Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Current tax receivable 2,932 (417) 3,349
42,818 (417) 43,235
Current portion 39,584 (417) 40,001
Note 11 Deferred tax has been updated to reflect the reduction in deferred tax
liabilities on acquisition of $3.189m.
Note 11 extract Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Deferred tax arising on acquisition (48,685) 3,189 (51,874)
At 30 June (44,417) 3,189 (47,606)
Deferred tax liabilities - recognised Long term timing differences Total
$'000 $'000
Arising on acquisition - restated (48,685) (48,685)
Total provided at 30 June 2022 - restated (47,921) (51,837)
Arising on acquisition - adjusted 3,189 3,189
Total provided at 30 June 2022 - adjusted 3,189 3,189
Arising on acquisition (51,874) (51,874)
Total provided at 30 June 2022 (51,110) (55,026)
The analysis if deferred tax assets and liabilities is as follows:
Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 1 year (46,837) 3,189 (50,026)
(51,837) 3,189 (55,026)
Net deferred tax liabilities (44,417) 3,189 (47,606)
Note 14 has been updated to reflect the inclusion of the provision for sales
taxes of $0.362m.
Restated Adjustment 2022
2022 2022
$'000 $'000 $'000
Other provisions < 1 year 379 362 17
Trade and other payables 15,482 362 15,120
Other provisions relate to employer taxes due in relation to employee share
awards from the 2007 Share Option Plan payable on exercise of options of
$59,000 (FY22: $17,000) and potential sales tax due in relation to audits in
respect of Sentry Data Systems for periods prior to the acquisition of
$362,000 (FY22: $362,000 restated, FY22: nil).
16. Alternative performance measures
The Group's performance is assessed using a number of financial measures which
are not defined under IFRS and are therefore non-GAAP (alternative)
performance measures.
The Directors believe these measures enable the reader to focus on what the
Group regard as a more reliable indicator of the underlying performance of the
Group since they exclude items which are not reflective of the normal course
of business, accounting estimates and non-cash items. The adjustments made
are consistent and comparable with other similar companies.
Adjusted EBITDA
Adjusted EBITDA refers to earnings before interest, tax, depreciation,
amortisation, exceptional items and share based payments.
2023 2022
$'000 $'000
Operating profit 19,228 18,132
Depreciation of property, plant and equipment 3,451 3,259
Amortisation of intangible assets - other 7,781 5,905
Amortisation of intangible assets - acquired intangibles 20,930 20,239
Share based payments 2,992 2,116
Exceptional items - acquisition and associated share placing - 1,705
Exceptional items - integration costs 510 401
Adjusted EBITDA 54,892 51,757
Adjusted earnings per share (EPS)
Adjusted earnings per share (EPS) calculations allow for the tax adjusted
acquisition costs and share related transactions together with amortisation on
acquired intangibles via business combinations. See Note 7 for the
calculation.
Operating Cash Conversion
Operating Cash Conversion is calculated as cash generated from operations (as
per Note 12), adjusted to exclude cash payments for exceptional items, divided
by adjusted EBITDA.
2023 2022
$'000 $'000
Cash generated from operations (Note 12) 100,591 32,943
Total exceptional items 510 2,106
Movement in amounts held on behalf of customers (Note 12) (50,548) -
Accrued exceptional items at the start of the period paid in the current 60 5,509
period
Accrued exceptional items at the end of the period (92) (60)
Trade payable exceptional items at the start of the period paid in the current 12 683
period
Trade payables cash exceptional items at the end of the period - (12)
Cash generated from operations before exceptional items 50,533 41,169
Adjusted EBITDA 54,892 51,757
Operating Cash Conversion 92.1% 79.5%
Adjusted PBT
Adjusted PBT refers to profit before tax adjusted for exceptional items and
amortisation of acquired intangibles.
2023 2022
$'000 $'000
Profit before taxation 13,085 13,102
Amortisation of intangible assets - acquired intangibles 20,930 20,239
Exceptional items - acquisition and associated share placing - 1,705
Exceptional items - integration costs 510 401
Adjusted PBT 34,525 35,447
Net Borrowings
Net Borrowings refers to net balance of short term borrowings, long term
borrowings and cash and cash equivalents (excluding restricted cash in prior
year).
2023
2022
$'000 $'000
Cash and cash equivalents 78,537 47,157
Borrowings (Note 13) (83,033) (111,589)
Net Borrowings (4,496) (64,432)
Lease liabilities are excluded from borrowings for the purpose of net
borrowings.
Total Sales
Total Sales refer to the total value of contracts signed in the year,
consisting of New Sales and Renewals.
New Sales
New Sales refer to the total value of contracts with new customers or new
products to existing customers at some time in their underlying contract.
Annual Recurring Revenue
Annual Recurring Revenue includes the annual value of license and transaction
revenues at 30 June 2023 that are subject to underlying contracts.
Net Revenue Retention
Net revenue retention is the percentage of revenue retained from existing
customers over the measurement period, taking into account both churn and
expansion sales.
Revenue Growth
Revenue Growth is the increase in Revenue in the current year compared to the
prior year expressed as a percentage of the previous year Revenue.
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