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REG - Craneware plc - Final Results

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RNS Number : 9361Z  Craneware plc  20 September 2022

 

Craneware plc

("Craneware" or the "Company" or the "Group")

 

Final Results

Successful integration of Sentry operations and cloud momentum provides strong
foundation for growth

 

20 September 2022 - 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 2022.

 

Financial Highlights (US dollars)

 

·      Revenue increased 119% to $165.5m (FY21: $75.6m)

·      Adjusted EBITDA(1) increased 91% to $51.8m (FY21: $27.1m)

·      Statutory Profit before tax $13.1m (FY21: $13.2m) reflecting
increased operating profit offset by amortisation of acquired intangibles and
bank interest payments resulting from the Sentry Data Systems, Inc. ("Sentry")
acquisition

·      Basic adjusted EPS(1)increased 29% to 89.0 cents (FY21: 69.0
cents) and adjusted diluted EPS increased to 88.1 cents (FY21: 68.1 cents)

·      Basic EPS 26.8 cents (FY21: 48.1 cents) and diluted EPS 26.5
cents (FY21: 47.5 cents)

·      Annual Recurring Revenue(2) increased by 164% to $170.3m (FY21
$64.5m)

·      Robust operating cash conversion(1) at 80% of Adjusted EBITDA
(FY21: 99%) reflecting different cash generation profiles of acquired business

·      Operating cash reserves (excluding restricted cash) at year-end
of $47.2m (FY21: $48.3m) and Net Debt of $64.4m (FY21: $Nil)

·      Proposed final dividend of 15.5p per share (18.80 cents) (FY21:
15.5p, 21.47 cents) giving a total dividend for the year of 28p per share
(33.96 cents) (FY21: 27.5p, 38.10 cents) up 2%

 

Operational Highlights

 

·      Sentry and Agilum businesses successfully acquired and integrated
during the year, providing considerably increased scale, offering, team and
market opportunity

·      The enlarged business has successfully rebranded to The Craneware
Group(3)

·      Synergies realised have delivered combined target +30% Adjusted
EBITDA(1) margin ahead of schedule

·      Initial cross-sales achieved and pipeline of opportunities is
building

·      80% of ARR now from the Cloud, demonstrating successful execution
of cloud strategy

·      Trisus Chargemaster launched and vast majority of customers
expected to have moved to the Trisus platform by end of current calendar year

·      Continued investment in R&D and innovation to capitalise on
growing market opportunity

 

Outlook

·     Continued sales momentum across the enlarged Group

·     Ongoing, long-term transition to value-based care provides basis
for sustainable future growth

·     Whilst cognisant of ongoing macro-economic challenges that are
faced by our end customers, the Board remains confident in the continued
strong performance of the enlarged Group

 

(1)  Certain financial measures are not determined under IFRS and are
alternative performance measures as described in Note 14.

(2)  Annual Recurring Revenue ("ARR") includes the annual value of licence
and transaction revenues as at 30 June 2022 that are subject to underlying
contracts.

(3) When we refer to 'Craneware', or 'The Craneware Group' or 'Group' we mean
the group of companies having Craneware plc as its parent and therefore these
words are used interchangeably.

 

 

Keith Neilson, CEO of Craneware plc commented:

 

"We are pleased to be reporting such positive results, which clearly
demonstrate the increased scale of the enlarged Craneware Group and the
breadth of our future opportunity. The addition of Sentry, which was completed
and integrated during the fiscal year, represents a significant milestone for
Craneware.

 

Whilst we remain cognisant of the ongoing challenges faced by our customers
and partners, we are proud of the manner in which the Group has dealt with the
challenging backdrop during the year. A focus for the year was to integrate
our widened team and this was achieved with great success. Now, with our
expanded and reorganised team we are confident we will be able to serve the
considerable market need within the US healthcare space through the next stage
of our evolution.

 

We anticipate accelerated levels of sales moving forward, delivering our next
phase of growth. We have a robust balance sheet, high recurring revenues and
with our high levels of customer retention, we look to further increase
shareholder value."

 

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, Hilary Buchanan, Joe Pederzolli             craneware@almapr.co.uk

 Peel Hunt (NOMAD and Joint Broker)                          +44 (0)20 7418 8900
 Dan Webster, Andrew Clark

 Investec Bank PLC (Joint Broker)                            +44 (0)20 7597 5970
 Patrick Robb, Henry Reast, Sebastian Lawrence
 ( )
 Berenberg (Joint Broker)                                    +44 (0)20 3207 7800
 Mark Whitmore, Richard Andrews, Alix Mecklenburg-Solodkoff

 

About Craneware

 

We at The Craneware Group of companies, including our latest additions Sentry
Data Systems and Agilum Healthcare Intelligence, passionately believe we can
impact healthcare profoundly by delivering the insights healthcare
organisations need to also transform the business of healthcare. Our shared
vision is to be the operational and financial partner for US healthcare
providers.

 

Our combined suite of applications and industry-leading team of experts help
our customers contextualise operational, financial, and clinical data,
providing insights that clearly demonstrate what great looks like. These value
cycle insights deliver revenue integrity and 340B compliance, as well as
margin and operational intelligence - something no other single partner can
provide.

 

Together, approximately 40% of registered US hospitals are now our customers,
including more than 12,000 US hospitals, health systems and affiliated retail
pharmacies and clinics. Our customers are operating with a financial impact of
nearly half a trillion dollars. We have data sets from customers covering more
than 150 million unique patients encounters.

 

Learn more at www.thecranewaregroup.com (http://www.thecranewaregroup.com)

 

Chair's Statement

I am pleased to report on a year of significant strategic progress, in which
the acquisitions of US-based Sentry Data Systems, Inc. ("Sentry") and Agilum
Healthcare Intelligence, Inc. ("Agilum") (collectively referred to as the
acquisition of Sentry), were successfully completed, considerably increasing
the scale of The Craneware Group, enhancing our pharmacy offering and
cementing Craneware's position as a leading provider of Value Cycle solutions
to the US healthcare market. The combination of the three organisations paves
the way for long-term sustained growth, as COVID-19 related impediments
dissipate, and the Group unlocks the significant opportunities of our extended
product suite.  With the transition of the Craneware offerings to the Cloud,
which remains on track to complete in the current calendar year, and 80% of
ARR now derived from Cloud based solutions, we are confident the building
blocks are in place for our ongoing success.

Financials demonstrate increased scale of the Group

The increased scale of The Craneware Group can be seen in the financial
performance achieved this year. Revenues increased 119% in the year to $165.5m
with an adjusted EBITDA increase of 91% to $51.8m, achieving the combined
Group adjusted EBITDA margin target of 30% ahead of schedule.

Software revenue and customer retention continues to be robust across the
Group's offerings, as demonstrated by the growth in underlying ARR to $170.3m
(30 June 2021: $64.5m). As previously reported, professional services revenues
continue to be affected by the impact of the COVID pandemic on hospital
workforce and operations. We are confident we will see professional services
revenues return to pre-COVID levels once hospital staffing pressures ease.

 

As at 30 June 2022, the Group had strong operating cash reserves of $47.2m (30
June 2021: $48.3m) and net debt of $64.4m (30 June 2021: $nil) representing
circa 1.2 times reported adjusted EBITDA. This balance sheet strength,
combined with our high levels of ARR, standing at $170.3m at year end, and the
potential for a return to pre-pandemic levels of professional services
revenue, leaves the Group well positioned for FY23 and beyond.

 

Investment in innovation provides increased addressable opportunity

With a customer base representing approximately 40% of registered US
hospitals, including more than 12,000 US hospitals, health systems, clinics
and affiliated retail pharmacies, supported by access to over 20 years of
contextualised healthcare data, we have an enviable position within the US
healthcare industry.

Our investment in innovation and M&A strategy provide us with a growing
solution set to provide further value to our customers. Following two years of
intense pressure on our customers and healthcare professionals, they are more
motivated than ever to implement strategic and long-term planning. Our Trisus
platform is specifically designed to help them achieve this. While we may see
fluctuations in our professional services revenue in any individual reporting
period, our largely recurring revenue business model provides us with the
revenue visibility to continue to invest in our people and offering, to
capitalise on the significant opportunity.

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
and colleagues.  We have been delighted to welcome the Sentry and Agilum
teams into The Craneware Group as well as additional new colleagues across the
Group, on behalf of the Board, I would like to thank all the enlarged team for
their continued passion and commitment. We detail more of the impact the Group
makes, within the communities we serve, in our ESG Statement within the Annual
Report.

We were pleased to welcome Issy Urquhart, the Group Chief People Officer to
the Craneware plc Board in April this year. Issy has been central in the
successful integration of the Sentry team into The Craneware Group and the
appointment of a leader with her skillset reflects both the importance the
Board places on creating the right environment for our people to thrive and
the increased scale of The Craneware Group.

Positive Outlook

 

The strength of the newly enlarged Craneware Group, our high levels of Annual
Recurring Revenue, the breadth of solutions we can provide and the scale of
data flowing through our platform are the solid foundations for our future
sustained growth.  Building on these foundations, whilst remaining cognisant
of the challenges our customers and partners continue to face, the Board
remains confident in Craneware's ability to address the expanded market
opportunity presented.

 

 

 

Will Whitehorn

Chair

Craneware plc

19 September 2022

 

 

 

 

 

 

Strategic Report

We are pleased to be reporting such positive results, which clearly
demonstrate the increased scale of the enlarged Craneware Group and the
breadth of our future market opportunity. The addition of Sentry, which
completed during the fiscal year, represents a significant milestone for
Craneware. We are now bolstered by the deepened pharmacy data insights within
our platform, the addition of new customers with further products and
expertise. We are delighted to have welcomed the Sentry and Agilum teams along
with their customers to The Craneware Group as we look forward to our next
phase of growth together, in line with our shared vision of transforming the
business of healthcare.

Following Sentry's acquisition, we have seen pleasing initial cross-sales
which we believe are only a glimpse of things to come, as we look to
capitalise on this considerable opportunity moving forwards. Additionally, we
have made good progress in growing the number of customers on Trisus, our
cloud-based platform, with the vast majority of hospital customers now
interacting with the platform, and we expect to have largely completed the
migration of customers onto the platform by the end of calendar 2022. Having
achieved the scale and integration we had been aiming for during the period,
we now have a solid foundation to move to the next step of our evolution.

There is great pride across the Group in the way in which the team has
achieved these results amid a significant integration process and testing
macro-economic challenges. Whilst remaining cognisant of the challenges our
customers and partners continue to face, the strength of the newly enlarged
Craneware Group, the applicability of our powerful data sets and solutions
together with the scale of the opportunity ahead, means the Board remains
confident in the Group's future success.

Market - the move to value-based care continues at pace

As we move through 2022, market conditions are continuing to normalise
following the impact of the COVID pandemic, although there is still some way
to go before full recovery in hospital workforce and operations to
pre-pandemic conditions.

The pandemic ushered in a new era for the industry with healthcare providers
having to adjust to new methods of healthcare delivery, with a reduced
workforce available to them. Financially, both providers and payers struggled
to navigate the rapidly changing market.  However, with the US continuing to
lag other developed nations in terms of life-expectancy while incurring the
highest cost per capita in healthcare spend, the need to provide increased
value in healthcare has continued unabated. We expect investment across the
healthcare industry to deliver this change, with software and analytics being
a key component.

The need for accurate financial data, supporting analytics and the insights
those analytics can bring along with the efficiency of technology solutions
has never been more important. We provide our customers with access to the
market's only platform that directly and holistically addresses issues
pertaining to the value cycle. Our products and systems, which are built on
the insights of our data, enhance efficiency and helps ensure that both
operational and administrative functions of a hospital are working optimally,
enabling the existing teams to be more effective and efficient in their roles.
Through these insights our solutions can deliver real financial returns and
free up resource with a more targeted approach, that can be re-invested and
re-deployed by healthcare providers to support the clinical care for their
communities.

Our customers have remained resilient in the face of this ongoing challenging
and evolving landscape, and we are committed to providing them with the
support to navigate through the future impacts of the pandemic and deliver
value-based care.

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 as we migrate our existing on-premise products to the Cloud,
leverage our data assets to expand our offering, integrate third party
solutions to the platform and benefit from the scalability of
cloud-technology.

Three Growth Pillars

Our growth strategy has three 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 with the rate at which our customers are transitioning onto the
Trisus platform, and we are on track in our move to be a fully cloud based
provider. We currently have 80% of our annual recurring revenue (30 June 2021:
16%) being delivered from cloud based solutions, pointing to the strong
progress made and the Sentry products acquired already being cloud based.
 There has been strong adoption of the Trisus Chargemaster offering, the
cloud version of our original Chargemaster Toolkit product and we anticipate
the migration of our existing customers to Trisus to be largely complete by
end of calendar 2022. We are confident in the value our new Trisus
Chargemaster will bring to our customers through more readily accessible
insights into hospital operations providing a more efficient and effective
manner of driving improvements.

Pharmacy operations within healthcare providers is the largest cost area for
US hospitals apart from staff costs and an area where we see considerable
opportunity to scale our value-focused solutions. We are continually evolving
our full Pharmacy product suite, due to the dynamic nature of the 340B
marketplace, to ensure our market leading position.

As a result of our R&D in this area and the acquisition of Sentry, we now
have four cloud based pharmacy offerings to take to market, effectively
replacing our existing on-premise offering, Pharmacy Chargelink (PCL) and 65%
of the current PCL customer base are already scheduled to migrate to the new
cloud based replacements before the end of the calendar year. These four
offerings are: Trisus Pharmacy Financial Management (TRxFM) and Trisus
Medication Formulary, which was launched in the last 12 months, and Trisus
Medication Claims and Trisus Medication Compare, which are both evolutions of
two original Sentry products.

While we are planning to refresh the user interface of the existing Sentry
offerings, to create the same look and feel as the Craneware Trisus platform,
they are using established cloud architecture and do not require technical
integration.

2.   To continue to enhance the capabilities of the platform through the
addition of new technology layers and applications - developed through
internal R&D, selective M&A and Third-Party Partnerships.

The dynamic nature of the healthcare market means that we are constantly
developing additional applications and tools to provide benefits to our
customers. We are continuing to see additional opportunities for the Group as
we evolve and expand our capabilities.

While organic growth remains a 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.

In evaluating potential acquisition opportunities, the Board implements a
rigorous and disciplined approach to valuation, seeking to maintain its
prudent approach to preserving balance sheet strength and efficiency for the
long-term. Targets that are profitable with recurring revenue models that
provide earnings accretion within the first 12 months of ownership are
prioritised.

3.   To grow our customer footprint, through increasing the attractiveness
of our solutions and acquiring non-overlapping customers, which in turn
provides further expansion opportunities

In addition to seeing a higher percentage of our ARR driven from cloud based
solutions, we have also seen pleasing ARR growth from sales activities during
the period, including our initial cross sale successes.  ARR for the enlarged
Group now stands at $170.3m (30 June 2021: $64.5m).  This provides the
foundation for further growth through our sales successes and high levels of
customer retention, to deliver future organic growth. During the year we have
seen some significant customers transition to Trisus and extend their
long-term relationships with Craneware through both renewals and extensions to
existing contracts, along with competitive wins in the Chargemaster and
Pharmacy space.

We are confident that we will be able to further increase sales activity in
the future with our broadened and improved products and add to our substantial
existing customer base. This success is underpinned by consistently strong
customer retention rates which remained high in the period at above 90%.

Post-Acquisition Integration Update

We were delighted with the Sentry acquisition integration during the period.
There are strong synergies between the businesses through the complementary
nature of Sentry's product suite and customer base, which has been typified by
the collaboration between the teams. We have formed one combined management
team, including a new role of Transformation Officer, to oversee the continued
evolution of The Craneware Group with our commitment to a lean operating
model.

We are proud of the manner in which the challenges of integrating businesses
of comparable size have been dealt with by the team, achieving comparatively
strong staff retention rates and we have successfully achieved the scale and
level of integration we had been targeting.

We are now benefitting from an integrated, well-structured team which will no
doubt drive strong levels of new sales moving forward.

Our People and Community

Our commitment to our people has always been at the centre of what we do.  We
are always reviewing our work practices to ensure that our employees are
receiving maximum support.  We provide further details of these activities
with our ESG Statement within the Annual Report.

Craneware continues to develop many social initiatives, such as Craneware
Cares and the Craneware Cares Foundation which is driven by our employees.
Further, following our acquisition of Sentry, we have also become directly
involved with the 340B Coalition. This program aims to give back to local
communities with vulnerable populations. Even though our staff were mostly
working from home through this year, they still managed to help a total of 42
different charities across the UK and US, including our four Spotlight
Charities.

We are uniquely positioned to provide the insights our customers need to
manage their operations more efficiently and mitigate risk while they focus on
delivering increased levels of care. Importantly, in the period our customers
have seen in excess of a $1 billion in benefit from utilising our solutions
including a significant contribution from our 340B offerings, helping to
stretch scarce federal resources as far as possible, reach more eligible
patients and provide more comprehensive services.

Financial Review

We began this financial year as a standalone business, and then completed the
transformational acquisition of Sentry.  Whilst the financial results we are
reporting have yet to include a full twelve-month contribution from this
acquisition, they do demonstrate the significant step change that has occurred
within The Craneware Group.  We are pleased to report the successful
integration of Sentry and be able to demonstrate this evolution of our
enlarged Group despite the backdrop of the pandemic and the challenges this
created for all healthcare providers.

For the year ended 30 June 2022, The Craneware Group is reporting an increase
in revenue of 119% to $165.5m (FY21: $75.6m) and a 91% increase in adjusted
EBITDA to $51.8m (FY21: $27.1m).

These results not only demonstrate the new scale of The Craneware Group but,
with our resulting enlarged portfolio of products and data sets that support
them, provide a new 'foundation' for all our key performance metrics. From
this foundation, we can demonstrate future organic growth as we do even more
to support our customers as they meet the challenges of the post-pandemic
macro-environment.

Sentry Acquisition

Our intention to acquire Sentry was originally announced in our prior
financial year (June 2021) and was accompanied by a share placing which
resulted in the allotment of 6,192,652 new ordinary shares.  Following the
clearance of the relevant regulatory hurdles, we completed the acquisition on
12 July 2021. The final consideration for the acquisition (being on a cash
free / debt free basis and after adjusting for working capital) was $372.9m.

We have completed our assessment of the fair value of the assets and
liabilities acquired and the consolidated balance sheet presented includes
these amounts; as detailed in Note 8, we have recorded $226.5m of goodwill,
having recognised $146.5m of net assets acquired including the fair value of
intangible assets: customer list and customer contracts of $151m, proprietary
software of $51.5m and trademarks of $5.0m.  Deferred tax of $37.8m, $12.9m
and $1.2m has been provided respectively in relation to the fair value of
those intangible assets.  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.

Underlying Business Model and Professional Services

In Sentry, we have acquired a business model which is similar in its nature to
the existing Craneware Annuity SaaS business model.  The Sentry business also
signs multi-year contracts albeit they are often for a slightly shorter
duration, usually three years.  In addition to the licence fees, Sentry also
provides a number of transactional services to customers, throughout the life
of their underlying contracts.  These transactional services, whilst highly
dependable, see some variation period to period dependent on volume of
transactions.

As The Craneware Group, 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.  Transactional services are recognised
as we provide the service, and we are contractually able to invoice the
customer.

In addition to the licence revenues recognised 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.

The COVID-19 pandemic and the current macro-economic environment has resulted
in shortages of available staff at hospitals which has continued to impact our
ability to deliver professional services to our full capability, impacting the
underlying growth (especially organic) in the year. As a result, we have
experienced a reduction in our professional services revenues, reducing to
$13.9m from $14.5m in FY21 despite the enlarged Group and well below our
expectations of 15%+ of our combined revenues in any single year being
generated from delivery of these services.

However, we have retained our professional services capacity and as this,
anticipated to be, short-term impact reverses we are well positioned to return
to growth in our professional services delivery and associated 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.

Following the acquisition of Sentry, we have introduced a new KPI of Annual
Recurring Revenue ("ARR") to supplement our existing financial KPIs.  With
the increasing standardisation in how SaaS companies report, this KPI will
replace our historic three year visible revenue KPI.  ARR demonstrates the
annual value of licence and transactional revenues that are subject to
underlying contracts.

As at 30 June 2022, ARR had reached a new milestone of $170.3m (30 June 2021:
$64.5m). Within this metric we include the annual value of licence and
recurring transaction revenues as at 30 June 2022 that are subject to
underlying contracts.  In future years, we will introduce further KPIs to
demonstrate how the underlying growth of the Group is progressing from this
'foundation', such as Net Revenue Retention.  We believe this will allow even
easier comparison between the Group and its peers.

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.

The gross profit for FY22 was $142.4m (FY21: $70.2m).  This represents a
gross margin percentage of 86% (FY21: 93%) which was expected following the
Sentry acquisition and reflects the nature of the enlarged portfolio of
software and services the Group now delivers.  This represents a normal level
of Gross Margin, going forward.

Operating Expenses

The increase in net operating expenses (to Adjusted EBITDA) to $90.6m (FY21:
$43.1m) again reflects the scale of our enlarged Group.  The bringing
together of the organisations has delivered on anticipated synergies to
deliver our combined target Adjusted EBITDA margin of +30% ahead of schedule
and has helped to offset the macro-economic inflationary pressures faced.
With the ongoing macro-economic challenges, our ability to deliver focused
investment whilst retaining our normal prudent cost control is key.  Whilst
the majority of our cost base is US-located, our ability to balance our
investment between the US and the UK (and the associated Sterling exchange
rate) will provide an element of protection against the inflationary pressures
that currently exist.

Product innovation and enhancement continue 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 $51.1m (FY21: $24.7m), a 107%
increase primarily as a result of bringing the R&D departments
together.   We continue to capitalise only the costs that relate to projects
that bring future economic benefit to the Group.  With a focus in the year on
integration activities, the total amount capitalised in the year reduced from
41% of total R&D spend in FY21 to 26% in the current year, being $13.5m
(FY21: $10.1m).

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. With the completion of our integration efforts, we expect to see
both the levels of development expense and capitalisation return to our
historical proportion of revenue in future years.  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 charge on financial and contract assets

This relates to the movement in the provision for the impairment of trade
receivables in the year, being $461,000 (FY21: $495,000).  The nature of the
market the Group serves, and the SaaS based business model limit the Group's
exposure in this regard but are required to be shown separately on the face of
the Consolidated Statement of Comprehensive Income.

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 14.
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 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 $2.1m (FY21: $6.5m) have been identified as
exceptional. These relate primarily to the costs associated with the
acquisition of Sentry. As such, these costs were adjusted from earnings in
presenting Adjusted EBITDA.

Adjusted EBITDA has grown in the year to $51.8m (FY21: $27.1m) an increase of
91%. This reflects an Adjusted EBITDA margin of 31% (FY21: 36%). This result
confirms we have achieved our post acquisition target of returning to a
combined Group adjusted EBITDA margin of 30% ahead of schedule.  This is a
result of the success of the integration following the Sentry acquisition and
the synergies the combined organisations have delivered.

Following the amortisation charge relating to acquired intangible assets
relating to the Sentry acquisition of $20.2m (FY21: $nil), profit before
taxation reported in the year is $13.1m (FY21: $13.2m).

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. As Sentry has no UK operations, its profits are
solely generated in the US and therefore the Group now generates a higher
proportion of its profits there.

In prior years, the Company qualified for the enhanced small and medium-sized
enterprises (SME) R&D tax relief in the UK but, with the increased scale
of the Group, this enhanced relief is no longer applicable to the Group and we
now fall into the R&D Expenditure Credit (RDEC) scheme at reduced rates of
relief. R&D tax relief has reduced in the current year to $0.5m (FY21:
$0.7m) due to the reduced rate of applicable relief.   RDEC also requires
the qualifying expenditure to be included as a tax credit in other income and
therefore taxable, rather than a reduction to the tax charge and ultimately
results in a net increase of $0.4m.

In the year ended 30 June 2021, the effective tax rate had been further
positively affected by the finalisation of R&D tax relief claims in
respect to the prior two years, totalling $1.6m, along with the estimated
R&D tax relief for that year.  In addition, in the year to 30 June 2021,
following the substantive enactment of the increase in UK corporation tax rate
to 25% effective from 1 April 2023, the UK deferred tax assets and liabilities
as at 30 June 2021 were revalued which reduced that year's tax charge by
$0.5m.

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 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 2022 is 28%
(FY21: 2%).

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 $1.6m (tax adjusted) in the
year (FY21: $5.6m) and amortisation of acquired intangibles of $20.2m (FY21:
$nil).

Adjusted EPS, after the factors noted above including the increased levels of
Adjusted EBITDA, has increased 29% to $0.890 (FY21: $0.690) and adjusted
diluted EPS has increased to $0.881 (FY21: $0.681).

Basic EPS in the period reduced to $0.268 (FY21: $0.481) and Diluted EPS
reduced to $0.265 (FY21: $0.475) primarily as a result of the exceptional
items noted above and bank interest relating to the new borrowings.

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).

Sentry, prior to its acquisition, whilst cash generative was not achieving the
levels of cash generation achieved by Craneware.   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 80% in the
year after adjusting for cash outflows relating to exceptional costs accrued
in the prior year (FY21: 99%).

We continue to invest in our future and return funds to our enlarged
shareholder base via dividends, returning $13.0m in the current year (FY21:
$9.7m).

Also, as part of the funding for the acquisition of Sentry, the Group entered
into a debt facility and during the year 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, $8m (FY21: $nil) of the loan
has been repaid on schedule, all covenants have been met, and the first
extension of the term has been agreed.  We would like to thank our banking
partners, alongside our shareholders, for their continued support of our
growth strategy.

Cash reserves at the year-end were $47.2m (FY21: $48.3m operating cash
reserves) with net debt of $64.4m (FY21: $nil) representing a comfortable
level of debt for the Group.

Balance sheet

Whilst the consolidated balance sheet has significantly changed following the
Sentry acquisition (details of net assets acquired are provided in Note 8),
the Group maintains a strong 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
regards 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 $1.3317 as compared to $1.3466
in the prior year.  The exchange rate at the Balance Sheet date was $1.2128
(FY21: $1.3853).

Audit Tender

Following the audit tender process conducted in the prior year, in which a
number of audit firms were invited to tender, the Board approved
PricewaterhouseCoopers LLP for recommendation to shareholders, for
re-appointment as auditors, and this was approved by shareholders at the
Company's Annual General Meeting which was held in November 2021.

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 especially in light of the
Sentry acquisition and our continued desire to recognise the support our
shareholders provide.  After carefully weighing up these factors, the Board
proposes a final dividend of 15.5p (18.80 cents) per share giving a total
dividend for the year of 28p (33.96 cents) per share (FY21: 27.5p (38.10
cents) per share), an increase of 2%. Subject to approval at the Annual
General Meeting, the final dividend will be paid on 16 December 2022 to
shareholders on the register as at 25 November 2022, with a corresponding
ex-Dividend date of 24 November 2022.

The final dividend of 15.5p 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 25 November 2022. The exact amount to be paid
will be calculated by reference to the exchange rate to be announced on 25
November 2022. The final dividend referred to above in US dollars of 18.80
cents is given as an example only using the Balance Sheet date exchange rate
of $1.2128/£1 and may differ from that finally announced.

Outlook

Whilst we remain cognisant of the ongoing challenges faced by our customers
and partners, we are proud of the manner in which the Group has dealt with the
challenging backdrop during the year. A focus for the year was to integrate
our widened team and this was achieved with great success. Now, with our
expanded and reorganised team we are confident we will be able to serve the
considerable market need within the US healthcare space through the next stage
of our evolution.

 

We anticipate accelerated levels of sales moving forward, delivering our next
phase of growth. We have a robust balance sheet, high recurring revenues and
with our high levels of customer retention, we look to further increase
shareholder value.

 Keith Neilson       Craig Preston

 CEO Craneware plc   CFO Craneware plc

 19 September 2022   19 September 2022

 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2022

 

                                                                             Total      Total
                                                                             2022       2021
                                                                      Notes  $'000      $'000
 Continuing operations:
 Revenue                                                              3      165,544    75,578
 Cost of sales                                                               (23,178)   (5,373)
 Gross profit                                                                142,366    70,205
 Other income                                                                551        37
 Operating expenses                                                   4      (124,324)  (56,507)
 Net impairment charge on financial and contract assets               4      (461)      (495)
 Operating profit                                                            18,132     13,240

 Analysed as:

 Adjusted EBITDA(1)                                                          51,757     27,111
 Share based payments                                                        (2,116)    (2,141)
 Depreciation of property, plant and equipment                               (3,259)    (1,403)
 Exceptional Costs(2)                                                 8      (2,106)    (6,487)
 Amortisation of intangible assets - other                                   (5,905)    (3,840)
 Amortisation of intangible assets - acquired intangibles                    (20,239)   -

 Finance income                                                              1          1
 Finance expense                                                             (5,031)    (76)
 Profit before taxation                                                      13,102     13,165
 Tax on profit on ordinary activities                                 5      (3,693)    (260)
 Profit for the year attributable to owners of the parent                    9,409      12,905
 Other comprehensive income/ (expense)
 Items that may be reclassified subsequently to profit or loss
 Currency translation reserve movement                                       42         (126)
 Total items that may be reclassified subsequently to profit or loss         42         (126)
 Total comprehensive income attributable to owners of the parent             9,451      12,779

1.     See Note 14 for explanation of Alternative Performance Measures.

2.     Exceptional items relate to legal and professional fees associated
with a successful acquisition and related integration costs (FY21: legal and
professional fees associated with an aborted potential acquisition in H1 2021
and a successful acquisition completed post year end its associated share
placing).

 

 

Earnings per share for the year attributable to equity holders

 

                                  Notes  2022   2021
 Basic ($ per share)              7      0.268  0.481
 *Adjusted Basic ($ per share)    7      0.890  0.690

 Diluted ($ per share)            7      0.265  0.475
 *Adjusted Diluted ($ per share)  7      0.881  0.681

 

* 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 2022

 

 

                                                               Share    Capital
                                                      Share    Premium  Redemption  Merger   Other     Retained  Total
                                                      Capital  Account  Reserve     Reserve  Reserves  Earnings  Equity
                                                      $'000    $'000    $'000       $'000    $'000     $'000     $'000
 At 30 June 2020                                      536      21,097   9           -        4,148     42,605    68,395
 Total comprehensive income - profit for the year     -        -        -                    -         12,905    12,905

                                                                                    -
 Total other comprehensive expense                    -        -                             -         (126)     (126)

                                                                        -           -
 Transactions with owners:
 Share-based payments                                 -        -        -           -        1,332     -         1,332
 Share placing                                        88       -        -           186,933  -         -         187,081
 Purchase of own shares through EBT                   -        -        -           -        -         (422)     (422)
 Deferred tax taken directly to equity                -        -        -           -        -         1,212     1,212
 Impact of share options and awards exercised/lapsed  -        -        -                    (752)     354       (398)

                                                                                    -
 Dividends (Note 6)                                   -        -        -           -        -         (9,700)   (9,700)
 At 30 June 2021                                      624      21,097   9           186,933  4,728     46,828    260,279
 Total comprehensive income - profit for the year     -        -        -           -        -         9,409     9,409
 Total other comprehensive income                     -        -        -           -        -         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

 

 

Consolidated Balance Sheet as at 30 June 2022

 

                                           Notes  2022     2021
                                                  $'000    $'000
 ASSETS
 Non-Current Assets
 Property, plant and equipment                    8,819    2,552
 Intangible assets - goodwill              9      237,646  11,188
 Intangible assets - acquired intangibles  9      187,257  -
 Intangible assets - other                 9      43,430   31,922
 Trade and other receivables               10     3,234    5,427
 Deferred tax                                     -        5,459
                                                  480,386  56,548

 Current Assets
 Trade and other receivables               10     40,001   19,435
 Cash and cash equivalents                        47,157   235,617
 Restricted cash                                  1,251    -
                                                  88,409   255,052

 Total Assets                                     568,795  311,600

 EQUITY AND LIABILITIES
 Non-Current Liabilities
 Borrowings                                13     103,589  -
 Leased property                                  1,206    1,148
 Hire purchase equipment                          290      -
 Deferred tax                                     47,606   -
 Other provisions                                 568      764
                                                  153,259  1,912

 Current Liabilities
 Borrowings                                13     8,000    -
 Deferred income                           3      58,722   33,670
 Trade and other payables                         15,792   15,739
                                                  82,514   49,409

 Total Liabilities                                235,773  51,321

 Equity
 Share capital                             11     659      624
 Share premium account                            97,204   21,097
 Capital redemption reserve                       9        9
 Merger reserve                                   186,981  186,993
 Other reserves                                   5,933    4,728
 Retained earnings                                42,236   46,828
 Total Equity                                     333,022  260,279

 Total Equity and Liabilities                     568,795  311,600

 

 

Consolidated Statement of Cash Flows for the year ended 30 June
2022

 

                                                        Notes  2022       2021
                                                               $'000      $'000

 Cash flows from operating activities
   Cash generated from operations                       12     32,943     26,711
   Tax paid                                                    (5,979)    (3,174)
     Net cash generated from operating activities              26,964     23,537

 Cash flows from investing activities
   Acquisition of subsidiary, net of cash acquired      8      (293,288)  -
   Purchase of property, plant and equipment                   (353)      (159)
   Capitalised intangible assets                        9      (13,680)   (10,167)
   Interest received                                           1          1
     Net cash used in investing activities                     (307,320)  (10,325)

 Cash flows from financing activities
   Dividends paid to company shareholders               6      (12,976)   (9,700)
   Shares issued for cash                               11     -          187,244
   Share issue professional fees                               (263)      -
   Paid up share capital                                11     236        88
   Proceeds from borrowings                             13     120,000    -
   Loan arrangement fees                                13     (268)      (1,692)
   Repayment of borrowings                              13     (8,000)    -
   Interest on borrowings                                      (3,080)    -
   Purchase of own shares by EBT                               (1,726)    (422)
   Payment of lease liabilities                                (2,027)    (964)
     Net cash generated from financing activities              91,896     174,554

 Net (decrease)/ increase in cash and cash equivalents         (188,460)  187,766
 Cash and cash equivalents at the start of the year            235,617    47,851
 Cash and cash equivalents at the end of the year              47,157     235,617

 

 

In FY21 shares issued for cash includes net proceeds of $187,331,713 related
to the share placing in June 2021, being gross proceeds of $192,282,712 less
transaction costs of $4,950,999.

 

Notes to the Financial Statements

 

General Information

Craneware plc ("the Company") is a public limited company incorporated and
domiciled in Scotland. The Company has a primary listing on the AIM stock
exchange. The 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, having made suitable enquiries and analysis
of the financial statements, including the consideration of:

•           net debt;

•           continued cash generation;

•           continued compliance with: debt facility covenants and
related payments (Note 13); and

•           SaaS business model

have determined that the Group has adequate resources to continue in business
for the foreseeable future and that it is therefore appropriate to adopt the
going concern basis in preparing the consolidated and 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 $1.3317/£1 (2021:
$1.3466/£1). Monetary assets and liabilities expressed in foreign currencies
are translated into US dollars at rates of exchange ruling at the Balance
Sheet date $1.2128/£1 (2021: $1.3853/£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 premises 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 material non-recurring events. These are
disclosed separately where it is considered it provides additional useful
information to the users of the financial statements.

 

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.

 

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.
As explained under "Share-based payments", a compensation expense is 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.

 

Share-based payments

 

The Group grants share options and / or conditional share awards to certain
employees. In accordance with IFRS 2, "Share-Based Payments", equity-settled
share-based payments are measured at fair value at the date of grant. Fair
value is measured using the Black-Scholes pricing model or the Monte Carlo
pricing model, as appropriately amended, taking into account the terms and
conditions of the share-based awards.

The fair value determined at the date of grant of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of the number of shares that will
eventually vest. Non-market vesting conditions are included in assumptions
about the number of options that are expected to vest. At the end of each
reporting period, the entity revises its estimates of the number of options
that are expected to vest based on the non-market vesting conditions. It
recognises the impact of the revision to original estimates, if any, in the
Consolidated Statement of Comprehensive Income, with a corresponding
adjustment to equity.

When the options are exercised and are satisfied by new issued shares, the
proceeds received net of any directly attributable transaction costs are
credited to share capital and share premium.

The share-based payments charge is included in 'operating expenses' with a
corresponding increase in 'Other reserves'. Charges relating to subsidiaries
are recharged by Craneware plc to the relevant subsidiary.

 

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 (2021: 5 to 10 years).  During the year, the Group
has updated the estimated useful life of Customer Relationships to up to 15
years as a result of the valuation work performed on the acquisition of
Sentry.  This has been applied on a prospective basis.  All historic
customer relationship assets were fully amortised at 30 June 2021 and
therefore there is no change to historic asset amortisation as a result of the
change.

 

·    Intangible assets acquired and liabilities assumed: the Group has
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.

 

                        2022     2021
                        $'000    $'000
 Software licencing     137,956  61,115
 Professional services  13,893   14,463
 Transactional fees     13,695   -
 Total revenue          165,544  75,578

 

Contract assets

The Group has recognised the following assets related to contracts with
customers:

                                                2022   2021
                                                $'000  $'000
 Prepaid commissions and royalties < 1 year     2,504  2,483
 Prepaid commissions and royalties > 1 year     3,208  3,735
 Total contract assets                          5,712  6,218

 

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 2021 were $2.5m.

 

Contract liabilities

The following table shows the total contract liabilities at 30 June 2022 from
software license and professional service contracts:

 

                             2022    2021
                             $'000   $'000
 Software licencing          53,596  29,245
 Professional services       5,126   4,425
 Total contract liabilities  58,722  33,670

 

Contract liabilities are included within deferred income in the Balance Sheet.

Revenue of $33.0m was recognised during the year in relation to contract
liabilities as of 30 June 2021.

The following table shows the aggregate transaction price allocated to
performance obligations that are partially or fully unsatisfied at 30 June
2022 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 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

 At 30 June 2021
 -    Software                      155,617                  57,862       43,485        28,282        25,988
 -    Professional services         11,513                   6,475        2,419         1,306         1,313
 Total at 30 June 2021              167,130                  64,337       45,904        29,588        27,301

 

Revenue of $64.3m was recognised during the year in relation to unsatisfied
performance obligations as of 30 June 2021.

The majority of these performance obligations are unbilled at the Balance
Sheet date and therefore not reflected in these financial statements.

 

4.   Operating expenses

 

                                                           2022     2021
                                                           $'000    $'000
 Sales and marketing expenses                              15,268   6,620
 Client servicing                                          17,729   12,615
 Research and development                                  37,584   14,549
 Administrative expenses                                   20,383   9,300
 Share-based payments                                      2,116    2,141
 Depreciation of property, plant and equipment             3,259    1,403
 Amortisation of intangible assets - other                 5,905    3,840
 Amortisation of intangible assets - acquired intangibles  20,239   -
 Exceptional costs*                                        2,106    6,487
 Exchange loss                                             196      47
 Operating expenses                                        124,785  57,002

 

* Exceptional items relate to legal and professional fees associated with a
successful acquisition and related integration costs (FY21: legal and
professional fees associated with an aborted potential acquisition in H1 2021
and a successful acquisition completed post year end its associated share
placing).

Included in operating expenses is the movement in the provision for impairment
of trade receivable during the year of $444,000 (FY21: $495,000), plus $17,000
net impairment charge for trade receivables recognised directly in operating
expenses.

 

 

5.   Tax on profit on ordinary activities

                                                                   2022    2021
                                                                   $'000   $'000
 Profit on ordinary activities before tax                          13,102  13,165
 Current tax
 Corporation tax on profits of the year                            2,774   3,772
 Adjustments for prior years                                       94      (1,673)
 Total current tax charge                                          2,868   2,099
 Deferred tax
 Deferred tax for current year                                     842     (1,656)
 Adjustments for prior years                                       9       122
 Change in UK tax rate                                             (26)    (305)
 Total deferred tax charge/ (credit)                               825     (1,839)
 Tax on profit on ordinary activities                              3,693   260

 The difference between the current tax charge on ordinary activities for the
 year, reported in the consolidated Statement of Comprehensive Income, and the
 current tax charge that would result from applying a relevant standard rate of
 tax to the profit on ordinary activities before tax, is explained as follows:

 Profit on ordinary activities at the UK tax rate 19% (2021: 19%)  2,490   2,501
 Effects of:
 Adjustment for prior years                                        103     (1,551)
 Change in tax rate on opening deferred tax balance                (26)    (305)
 Change in tax rate on closing deferred tax balance                339     (227)
 Additional US taxes on profits 25% (2021: 25%)                    328     116
 R&D tax credit                                                    -       (712)
 Expenses not deductible for tax purposes                          119     703
 Spot rate remeasurement                                           39      12
 Expense/ (deduction) on share plan charges                        301     (258)
 Other                                                             -       (19)
 Total tax charge                                                  3,693   260

 

 

6.   Dividends

 

The dividends paid during the year were as follows:-

                                                                     2022    2021
                                                                     $'000   $'000
 Final dividend, re 30 June 2021 - 21.47 cents (15.5 pence)/share    7,227   5,329
 Interim dividend, re 30 June 2022 - 16.88 cents (12.5 pence)/share  5,749   4,371
 Total dividends paid to Company shareholders in the year            12,976  9,700

 

Prior year:

Final dividend 19.80 cents (15 pence)/share

Interim dividend 16.68 cents (12 pence)/share

The proposed final dividend 18.80 cents (15.5 pence), as noted in the
Financial Review section of the Strategic Report, for the year ended 30 June
2022 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

                                                                                 2022           2021
                                                                                 No. of Shares  No. of Shares
                                                                                 000s           000s
 Weighted average number of Ordinary Shares for the purpose of basic earnings    35,110           26,811
 per share
 Effect of dilutive potential Ordinary Shares: share options and LTIPs           367              374
 Weighted average number of Ordinary Shares for the purpose of diluted earnings  35,477         27,185
 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 are excluded from the weighted
average number of Ordinary shares for the purposes of basic earnings per
share.

Profit for year

                                                                            2022    2021
                                                                            $000's  $'000s
 Profit for the year attributable to equity holders of the parent           9,409   12,905
 Aborted share placing costs (tax adjusted)                                 -       386
 Acquisition and associated share placing costs (tax adjusted)              1,279   5,210
 Acquisition integration costs (tax adjusted)                               325     -
 Amortisation of acquired intangibles                                       20,238  -
 Adjusted profit for the year attributable to equity holders of the parent  31,251  18,501

 

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

                       2022   2021
                       cents  cents
 Basic EPS             26.8   48.1
 Diluted EPS           26.5   47.5
 Adjusted basic EPS    89.0   69.0
 Adjusted diluted EPS  88.1   68.1

 

 

8.   Business Combinations

 

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, are
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 are as follows:

 

                                                  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                      13,671
 Cash and cash equivalents                        3,727
 Restricted cash                                  1,880
 Total current assets                             19,278
 Non-current liabilities
 Leased property > 1 year                         1,540
 Leased equipment > 1 year                        1,146
 Deferred tax                                     51,874
 Total non-current liabilities                    54,560
 Current liabilities
 Deferred income                                  27,164
 Trade and other payables                         11,905
 Total current liabilities                        39,069
 Net identifiable assets acquired                 146,462
 Add: goodwill                                    226,458
 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 $51.5 and trademarks of $5.0m have been valued as per
the details in Note 2.  Deferred tax of $37.8m, $12.9m and $1.2m has been
provided respectively in relation to these intangible assets.

Acquisition related costs of $2.1m (FY21: $6.5m) are included within
exceptional costs in profit and loss.

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 is 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.

 

 

9.   Intangible assets

 

Goodwill and Other Intangible assets

 

                                 Goodwill        Customer        Proprietary              Development     Computer
                                                 Relationships   Software     Trademarks  Costs           Software      Total
                                 $'000           $'000           $'000        $'000       $'000           $'000         $'000
 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       226,458         151,000         51,496       5,000       -               3,762         437,716
 Disposals                       -               -               (1,815)      -           (386)           (100)         (2,301)
 At 30 June 2022                 237,896         153,964         52,724       5,000       56,096          4,840         510,520

 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  237,646         141,258         41,537       4,462       40,489          2,941         468,333

 Cost
 At 1 July 2020                  11,438          2,964           3,043        -           32,877          2,104         52,426
 Additions                       -               -               -            -           10,099          68            10,167
 Disposals                       -               -               -            -           -               (1,168)       (1,168)
 At 30 June 2021                 11,438          2,964           3,043        -           42,976          1,004         61,425

 Accumulated amortisation and impairment
 At 1 July 2020                   250            2,964           3,043        -           7,794           1,592         15,643
 Charge for the year             -               -               -            -           3,530           310           3,840
 Amortisation on disposal        -               -               -            -           -               (1,168)       (1,168)
 At 30 June 2021                  250            2,964           3,043        -           11,324          734           18,315
 Net Book Value at 30 June 2021  11,188          -               -            -           31,652          270           43,110

 

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:

                    2022     2021
                    $000's   $'000s
 Craneware InSight  11,188   11,188
 Sentry             226,458  -
 Total Goodwill     237,646  11,188

 

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
                    2022           2021           2022          2021
 Craneware InSight  2%             2%             12.1%         13.5%
 Sentry             2%             -              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

                                                      2022     2021

                                                      $'000    $'000
 Trade receivables                                    34,730   16,450
 Less: provision for impairment of trade receivables  (5,855)  (2,270)
 Net trade receivables                                28,875   14,180
 Other receivables                                    827      302
 Current tax receivable                               3,349    278
 Prepayments and accrued income                       4,714    4,090
 Deferred Contract Costs                              5,470    6,012
                                                      43,235   24,862
 Less non-current receivables:
 Prepayments                                          (26)     (1,692)
 Deferred Contract Costs                              (3,208)  (3,735)
 Current portion                                      40,001   19,435

 

 

11.  Share capital

 

                             2022               2021
                             Number      $'000  Number      $'000
 Equity share capital
 Ordinary shares of 1p each  50,000,000  1,014  50,000,000  1,014

 

 

Allotted called-up and fully paid

 

                                                                        2022               2021
                                                                        Number      $'000  Number      $'000
 Equity share capital
 Ordinary shares of 1p each
 At 1 July                                                              33,019,191  624    26,826,539  536
 Share placing                                                          -           -      6,192,652   88
 Allotted and issued in the year as part of the consideration for the   2,507,348   34     -           -
 acquisition of Sentry (Note 8)
 Allotted and issued in the year on exercise of employee share options  15,630      1      -           -
 At 30 June                                                             35,542,169  659    33,019,191  624

 

The Company did not purchase any of its own shares during the financial year
ended 30 June 2022 (2021: nil).

 

Shares issued during the year ended 30 June 2022

 

On 12 July 2021, 2,507,348 new Ordinary Shares in Craneware plc were issued as
part of the consideration for the acquisition of SDS Holdco, Inc., the
ultimate holding company of Sentry.  Note 8 contains further details of this
business combination. The fair value of the consideration given in excess of
the nominal value of these issued Ordinary Shares was $75,870,408 which is
included in the share premium account.

 

The Company has granted share options and conditional share awards in respect
of its Ordinary Shares. During the year ended 30 June 2022 15,630 Ordinary
Shares (2021: no Ordinary Shares) were issued on the exercise of share options
by employees in March 2022. The exercise price of those share options was
£11.475 per share (approximately $15.13 cents per share) and therefore the
total amount received by the Company was $236,464 (£179,354) including share
premium totalling $236,258 (£179,198) recognised on the issue of those
Ordinary Shares.

 

 

12.  Cash flow generated from operating activities

 

 Reconciliation of profit before taxation to net cash inflow from operating
 activities

                                                           2022      2021
                                                           $'000     $'000
 Profit before tax                                         13,102    13,165
 Finance income                                            (1)       (1)
 Finance expense                                           5,031     76
 Depreciation on property, plant and equipment             3,259     1,403
 Amortisation on intangible assets - other                 5,905     3,840
 Amortisation on intangible assets - acquired intangibles  20,239    -
 Gain on disposals                                         (5)       -
 Share-based payments                                      2,116     2,141
 FX on non cash items                                      -         (136)
 Movements in working capital:
 (Increase)/ decrease in trade and other receivables       (3,202)   2,026
 (Decrease)/ increase in trade and other payables          (13,500)  4,197
 Cash generated from operations                            32,943    26,711

 

 

13.  Borrowings

 

In June 2021, the Group entered into a new debt facility to finance the
purchase of Sentry.  The total available amount under the facility is $140m,
of which $120m was drawn down on 12 July 2021.

 

The debt facility comprises a term loan of $40m which is repayable in
quarterly instalments over 5 years up to 30 June 2026, and a revolving loan
facility of $80m which expires on 7 June 2025.  The Group has the ability to
extend the revolving loan facility for an additional one year term.  Interest
is charged on the facility on a daily basis at margin and compounded reference
rate.  The margin rate was fixed at 2.55% for the first 9 months of the
facility term.  Following this initial period, 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.

 

                                          2022     2021
                                          $'000    $'000
 Current interest bearing borrowings      8,000    -
 Non current interest bearing borrowings  103,589  -
 Total                                    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 2022 is $3.2m.

 

See Note 14 for a reconciliation between borrowings, cash and net debt.

 

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:

 

                               2022    2021
                               $'000   $'000
 Term loan                     -       40,000
 Revolving facilities          20,000  100,000
 Undrawn borrowing facilities  20,000  140,000

 

 

14.  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.

 

                                                                   2022    2021
                                                                   $'000   $'000
 Operating profit                                                  18,132  13,240
 Depreciation of property, plant and equipment                     3,259   1,403
 Amortisation of intangible assets - other                         5,905   3,840
 Amortisation of intangible assets - acquired intangibles          20,239  -
 Share based payments                                              2,116   2,141
 Exceptional items - aborted share placing                         -       283
 Exceptional items - acquisition and associated share placing      1,705   6,204
 Exceptional items - integration costs                             401     -
 Adjusted EBITDA                                                   51,757  27,111

 

 

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.

 

                                                                                     2022     2021
                                                                                     $'000   $'000
 Cash generated from operations (Note 12)                                            32,943  26,711
 Total exceptional items                                                             2,106   6,487
 Accrued exceptional items at the start of the period paid in the current            5,509   -
 period
 Accrued exceptional items at the end of the period                                  (60)    (5,509)
 Trade payable exceptional items at the start of the period paid in the current      683     -
 period
 Trade payables cash exceptional items at the end of the period                      (12)    (683)
 Cash generated from operations before exceptional items                             41,169  27,006

 Adjusted EBITDA                                                                     51,757  27,111

 Operating cash conversion                                                           79.5%   99.6%

 

Adjusted PBT

 

Adjusted PBT refers to profit before tax adjusted for exceptional items and
amortisation of acquired intangibles.

 

                                                                   2022    2021
                                                                   $'000   $'000
 Profit before taxation                                            13,102  13,165
 Amortisation of intangible assets - acquired intangibles          20,239  -
 Exceptional items - aborted share placing                         -       283
 Exceptional items - acquisition and associated share placing      1,705   6,204
 Exceptional items - integration costs                             401     -
 Adjusted PBT                                                      35,447  19,652

 

Net Debt

 

Net Debt refers to net balance of short term borrowings, long term borrowings
and cash and cash equivalents (excluding restricted cash).

 

                                2022       2021
                                $'000      $'000
 Cash and cash equivalents      47,147     235,617
 Borrowings (Note 13)           (111,589)  -
 Net (debt)/ cash               (64,432)   235,617

 

Lease liabilities are excluded from borrowings for the purpose of net debt.

 

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 2022 that are subject to underlying contracts.

 

% Annual Recurring Revenue from the Cloud

 

Annual Recurring Revenue from the Cloud is the Annual Recurring Revenue as
described above relating specifically to cloud-based products expressed as a
percentage of total Annual Recurring Revenue.

 

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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