Final Results

RNS Number : 7393R

Craneware plc

16 September 2014

 



Craneware plc

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

Final Results

16 September 2014 - Craneware plc (AIM: CRW.L), the market leader in automated revenue integrity solutions for the US healthcare market, announces its results for the year ended 30 June 2014.

Financial Highlights (US dollars)

·      Record total contract value signed in the year of $71.0m (FY13: $38.5m)

·      Revenue increased to $42.6m (2013: $41.5m)

·      Adjusted EBITDA¹ increased to $13.1m (2013:  $12.4m)

·      Adjusted profit before taxation increased to $11.9m (2013: $11.2m)

·      Profit before tax increased to $11.3m (2013: $10.6m)

·      Basic adjusted EPS increased to 34.0 cents (2013: 32.9 cents), basic EPS increased to 31.9 cents (2013: 30.7 cents)

·      Positive operational cash flow of $10.2m (2013: $9.9m)

·      Cash at year end $32.6m (2013: $30.3m) after payment of $5.4m dividend to shareholders

·      Proposed final dividend of 6.8p (11.63 cents) per share giving total dividend for the year of 12.5p (21.37 cents) (2013: 11.5p / 17.4 cents per share)

^1.  Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, share based payments.

Operational Highlights

·      Leading indicators of customer confidence in the US healthcare market:

o  Sales to all strata of hospitals

o  Return of 7 and 9 year contracts

o  Dollar renewal rates continue to be strong, within historic range

o  Longer average renewal contract lengths

o  Strong sales momentum and pipeline continues into FY15

·      Supportive market environment for Craneware products due to continued regulatory and fiscal pressures on US healthcare providers

·      Continued investment in product suite:

o  Major enhancement releases to gateway products

o  Furthering enterprise capabilities across product families

o  Post year end launch of Reference Plus; and

o  Acquisition of Kestros Limited

Keith Neilson, CEO of Craneware plc commented, "We have been pleased with the Group's performance in the year. We have seen signs of growing customer confidence and believe Craneware is increasingly well positioned to address a growing market opportunity in what is the largest software vertical in the world; the US healthcare market. 

Craneware remains at the forefront of providing solutions to US healthcare providers to help them achieve revenue integrity through the management of their cost base whilst ensuring receipt of all legitimate reimbursement. We believe true revenue integrity is required if healthcare providers are to continue to support improved patient care and clinical outcomes.

Investments in the business mean we have the people and the expertise in place to take us through the next stage of growth, building on our record sales performance.  We have had a strong start to the current year, carrying on the momentum from the previous year and are confident we have the platform to deliver ongoing increased stakeholder value."

For further information, please contact:

Craneware plc	Peel Hunt	Newgate Threadneedle
[phone]	[phone]	[phone]
Keith Neilson, CEO	Dan Webster	Caroline Forde
Craig Preston, CFO	Richard Kauffer	Tim Thompson
		Heather Armstrong
		Edward Treadwell

About Craneware

Founded in 1999, Craneware has headquarters in Edinburgh, Scotland with offices in Georgia,   Arizona, Massachusetts and Tennessee employing over 200 staff. Craneware is the leader in automated revenue integrity solutions that improve financial performance for healthcare organisations. Craneware's market-driven, SaaS solutions help hospitals and other healthcare providers more effectively price, charge, code and retain earned revenue for patient care services and supplies. This optimises reimbursement, increases operational efficiency and minimises compliance risk. By partnering with Craneware, clients achieve the visibility required to identify, address and prevent revenue leakage. To learn more, visit craneware.com.

Chairman's Statement

I am pleased to report that following a promising first half, the increased sales activity which had been building over prior years has resulted in a record sales performance for the Group during the year. The marketplace for our products is developing as we had anticipated, with sales now coming from both individual hospitals and larger hospital groups. This trend has continued in the first months of the new fiscal year and we expect this to continue in a positive manner in the year ahead. The strength of our business model, which spreads the value of each contract over its lifetime, is such that these sales successes are building a solid platform of future revenue on which the business will grow.

The total value of contracts signed in the year increased by 84% to $71.0m (FY13: $38.5m). In accordance with the Group's revenue recognition policy, the vast majority of the revenue from these sales will benefit future years. Revenues increased to $42.6m, adjusted EBITDA increased to $13.1m and adjusted EPS increased to 34.0 cents. The Group continued to benefit from strong operational cash flow, closing the period with a cash balance of $32.6m (30 June 2013: $30.3m).

We are now benefiting from the restructuring of the business in previous periods, achieving record sales and ensuring scalability and sustainability for the future. We continue to invest in our products and people to ensure that we remain at the forefront of this evolving sector of the US healthcare IT market, the world's largest IT industry. With the acquisition of Kestros Limited, an emerging technology player in the patient access market, after the year end, the Group is well positioned to develop solutions to address the ongoing consumerisation trend within healthcare on both sides of the Atlantic. 

The market environment for the business remains positive. Craneware's growing product set addresses many of the problems facing US healthcare organisations and the Group is increasing in strategic importance to its customer base. I am pleased to report that we recruited Colleen Blye and Russ Rudish to the Board in November 2013 and August 2014 respectively. Colleen and Russ will be able to provide significant additional insight into the challenges facing US healthcare organisations. 

With a quarter of US hospitals as customers, high levels of visibility over future revenue, a significantly strengthened operating structure and enhanced product set, we are confident in the ongoing success of the Group.

I would like to thank our staff for their enthusiasm and commitment. It is their passion that is the basis of our success.

Lastly, I would like to thank you, our shareholders, for your support. 

George Elliott

Chairman

15 September 2014

Strategic Report / Operational and Financial Review

We are pleased to have delivered a strong year, showing progress in each of our five key strategic focus areas. These have resulted in increased relevance to our customers when considering their strategy for funding the effective delivery of healthcare in an evolving market.

These areas are, in the short to medium term:

·      to strengthen and leverage our dominant position in the automated Chargemaster market to facilitate a greater understanding of the true value of this strategic asset to hospitals;

·      to continue to invest and grow our Gateway solutions; and

·      to establish revenue and market penetration for a Gateway product in the Patient Access and hospital consumerisation arena.

The two other areas of focus are more medium to long-term, being:

·      to invest and grow our data analytics platform; and

·      to continue to seek alternative channels to market.

We have made good progress in each of these five areas over the course of the year.

As a result we have seen a significant increase in the total value of contacts signed across both new hospitals and existing customers taking new products in the year, a positive leading indicator of future growth.  While revenue and EBITDA growth in the year has been modest, the high levels of sales during the year have resulted in an increase in revenue which will be recognised in future years, providing us with a growing platform on which to build.

The majority of the larger contract wins in the year were secured in the second half of the year and are seen as the beginning of the return of sales to large hospital groups from our pipeline. These large deals, which contributed approximately a quarter of the total contract value in the period, had been missing from results in the previous two years. The sales pipeline continues to be at a record high across all strata of hospital, providing us with strong prospects for sales in the current year and beyond.

Craneware has progressed considerably since its IPO in 2007. We have a broader product set. We address many more of the key issues experienced by healthcare providers as they strive for revenue integrity. We have considerably increased scalability and management bandwidth. Additionally, we have a greater level of industry expertise within the business, providing us with better insight into the problems our customers face. We are effectively maturing from being a single product company, known primarily for its Automated Chargemaster Toolkit, to a leader in the evolving revenue integrity marketplace. With a quarter of US hospitals already using at least one of our products, our vision is to be the partner healthcare providers rely on to improve and sustain strong financial performance with revenue integritythrough the management of their cost base whilst ensuring receipt of all legitimate reimbursement. We believe that this will provide the financial foundations for sustainable improvements to patient care for the future.

As we look to this year our long term strategy and focus remain consistent and builds upon last year's successes by concentrating efforts on four key areas; increase the awareness of Craneware's strategic relevance in the evolution of the financing and effectiveness of healthcare; continue the sales momentum gained last year across all strata of hospitals; ensure the success of our customers, confident in the knowledge that their success will lead to our success and finally to continue to be innovative in the combinations of Revenue Integrity solutions that we bring to market and as we develop our future product sets to include data analytics and robust consumerisation solutions. 

We are confident that with this strategy we are on the right path towards accelerated revenue and profit growth in future years.

Market Developments

The US healthcare market, worth more than $2.8 trillion, is quickly evolving and continues to grow through 2014. Healthcare expenditure in the United States is expected to increase to approximately $3.3 trillion in 2015, reaching 18% of GDP*.

With six main trends affecting US healthcare reimbursement, outlined below, the main priority of our customers continues to be providing quality care to their patients against the background of continuing cuts in Medicare reimbursements, imposed restructuring of their business models and increased pressure from payor auditors.

*Source: The US Centers for Medicare & Medicaid Services, Office of the Actuary, "National Health Expenditure Projections and Selected Economic Indicators, Levels and Annual Percent Change: Calendar Years 2006-2022," which incorporate estimates from June 2013 of Gross Domestic Product.

The Affordable Care Act

Impacts of the Affordable Care Act are well underway. The online Health Insurance Exchanges established under the Act, which allow individuals and small businesses to purchase private health insurance, resulted in enrollments from over 8 million people in the Health Insurance marketplace according to a May 2014 press release from the US Department of Health and Human Services.

Hospitals will shortly begin to see large numbers of these patients in a setting that will be covered by at least a basic level of insurance where previously many hospitals would have been forced to see these patients and write off much of the treatment costs as charity care. Future supply and demand curves for hospitals are predicted to remove any current perceived spare capacity in the industry.

New Reimbursement Models

As part of the Affordable Care Act, healthcare providers and payors have been asked to consider and implement a wide range of new business models for managing healthcare and related reimbursement to reduce dependence on fee-for-service-only style payments. This involves reimbursement coming from a variety of healthcare business payment models. Alongside fee-for-service-based payment and bundled payment, US healthcare is working toward outcomes-based payment and is organising other new risk-sharing models for efficient population health management.

The charge is the common unit of measurement across all new business models that enables healthcare organisations to ensure they bill accurately for all services provided. To disperse the payments to varied providers in risk-sharing organisations, accurate charges enable each party to identify their portion of care. Population health management requires accurate charges as the basis for measuring cost-per-patient and cost-per-patient-type.

As multiple reimbursement models move more risk to the healthcare provider, they also create a greater dependency for them to claim reimbursement correctly, requiring the accuracy of data both clinically and financially within their systems to make correct assessment of the acquired risk. Residing at the points in a health system where clinical and operational data transform into financial transactions, the chargemaster is central to the quality drive, serving as the logical control point for data normalisation that combines disparate data sets whilst maintaining the localised context. Measuring of health system's operations from the viewpoint of its chargemaster, enables the creation of organisation-wide visibility and accountability, whilst proffering valuable, actionable information regardless of reimbursement model or models chosen.

Healthcare Consumerisation

With rising costs in healthcare being transferred disproportionately from the government, insurers and the employer to the consumer, hospitals have seen more than a trebling of their reimbursement coming directly from the consumer in the last ten years. This drive to consumerism and the need for healthcare organisations to focus on patient-direct billing as never before has resulted in a technology-backed focus on correct and efficient patient registration with payment arrangements and collections before the provision of treatment.

Payor Audits

With more than $3.7 billion in Medicare funds recouped from hospitals and other healthcare providers in the twelve months prior to June 30, 2014 alone, the Recovery Audit Programme has been a financial boom for Medicare. Medicare recovery audits continue to put strong pressure on hospitals, as hospitals must respond to audit requests within tight deadlines, coordinating to provide auditors with complete medical records and documentation from multiple systems, and to show that care provided meets criteria as medically necessary, and to effectively manage related payment appeals.

The Medicare Recovery Audit Programme is also in a period of transition. In order to complete all outstanding claim reviews and related processes by the end date of the current Recovery Auditors' contracts, there is a delay in the procurement process for the ensuing round of contracts to be awarded to the next set of Recovery Auditors. In the meantime, the current Recovery Audit Programme contracts have been extended so that these active Recovery Auditors' can continue sending additional documentation requests and initiating automated reviews, however their activities after June 1, 2014 are limited until new contracts are awarded.

Healthcare providers currently have billions of dollars in denied payments tied up in a massive backlog of appeal cases. The backlog is causing wait times of two or more years for appeal resolution. In May 2014, the American Hospital Association filed a lawsuit to compel Medicare to meet its stated requirement of 90-day appeal resolution. In an attempt to clear this backlog, Medicare has begun offering partial payment on these claims if providers agree to drop their appeal.

The Recovery Audit Programme's success has also led to the growth of audits as a method for commercial insurers as well as other government agencies such as Medicaid to categorise payments being made to hospitals as improper until the hospitals defends its reimbursement. These trends all reinforce the business need for hospitals to mitigate the hospital's exposure to the risk of having their revenue reduced by ensuring they have the correct processes and tools to ensure Revenue Integrity in the initial instance and to be able to track, trend, and manage the variety of financial audits that hospitals face in today's healthcare environment.

ICD 10 Coding Transition

For the fourth time, the compliance deadline has been delayed for US hospitals and health systems to have to report their claims with an International Classification of Diagnosis Code Version 10 (ICD-10) replacing the simpler version 9 which is currently mandated for the US. Although very large in its magnitude and increased complication for providers, as this conversion from ICD-9 to ICD-10 has been scheduled for a long time (with the most recent delay moving the US compliance deadline from October 2014 to October 2015) the majority of hospitals have had time to detail and advance their plans to deal successfully with this conversion. Although getting these codes wrong on a claim could have a catastrophic effect on a hospital's reimbursement, the number of hospitals that appear to have not been successfully testing their claims with this data set is limited and therefore should not substantially result in a diversion for hospitals, as long as the payor systems are equally robust.

Consolidation and Affiliation

As reported in previous periods, the increasing trend for healthcare providers to consolidate and affiliate to share economies of scale continues. This has introduced the more complex operational challenges for hospitals as they choose to run their operations over many disparate Patient Accounting Systems from different vendors or consolidate onto one patient accounting platform from a single vendor. This decision has accelerated the migration of healthcare providers into other Patient Accounting System platforms with the need for tools to monitor this progress and compensate for functionality that previously existed in legacy systems.

Management believes Craneware has the most extensive suite of revenue integrity solutions to address the aforementioned healthcare trends and is confident of its growing prominence within the US healthcare market as it continues to further develop and enhance its solutions for Patient Access, Charge Capture & Pricing, Coding Integrity, Revenue Collection & Retention, Data & Decision Enablement, which encompass the span of the revenue cycle, supply chain and audit areas in US healthcare organisations.

Sales and Marketing

The Group delivered an outstanding sales performance in the year, in part reflecting the anticipated development of the natural buying cycle, with the increasing engagement of larger hospital groups and their inherently more complex buying decisions. Total contract sales values of $71.0m were a result of the investments made into the sales force over the last two years through increased capacity at a sales leadership level, training and a new competitive incentive scheme to drive this performance.

The average length of new customer contracts continues to be in-line with our historical norms of approximately five years, although we have seen the return of 7 and 9 year contracts in the year which is reflective of the increasing market confidence of our customers. Where Craneware enters into new product contracts with its existing customers, contracts are typically made co-terminus with the customer's existing contracts, and as such, the average length of these contracts remains greater than three years, in-line with our expectations.

Renewal rates by dollar value is a financial metric which specifically ties to the revenue visibility for future years. This metric at 95% is within expected norms of 85-115% including cross sell of further products to renewing clients. Variations are driven by the timing of individual renewals, additional product sales and contract negotiation or cancellation. Length of our average contract for renewals in the period has increased to four years, a significant increase from two and a half years previously, driven by an active engagement with clients on 1 year evergreen auto-renew contracts to sign new multi-year contracts.

The sales mix remained fairly constant throughout the period, resulting in no change to the overall product attachment rate, which remained steady at approximately 1.6 products per customer.  We have made further strides in the promotion and market acceptance of our other Gateway products, outside of Chargemaster Toolkit.In a year of record total sales, the sales of Chargemaster Toolkit and our other two gateway products Pharmacy ChargeLink and InSight Audit was approximately in the ratio of 3:2:1.

Our marketing focus has been on developing messaging that builds on our historic brand values but highlights in a more contemporary setting the strategic relevance of our assets in the effective running of hospital operations across multiple disciplines targeting the "C Suite" including the CFO of healthcare providers. The importance of revenue integrity to all healthcare providers is gaining increasing exposure at the top tier management of these organisations as there is a growing realization that under new payment models cost base management and receipt of legitimate reimbursement combine to ensure revenue Integrity which is far more critical than just monitoring and managing Revenue Cycle alone. We are now seeing acknowledgment across the "C Suite" that financial and clinical operations have to be aligned financially to drive better healthcare and therefore better patient outcomes.

Awards

Once again two of our solutions ranked first in two distinct revenue cycle categories in the annual "2013 Best in KLAS Awards: Software & Services" report, published January 2014. In this KLAS report, Craneware's flagship product, Chargemaster Toolkit®, earned the #1 ranking in the KLAS "Revenue Cycle - Chargemaster Management" market category for the eighth consecutive year, and Craneware's Bill Analyzer software ranked #1 in the "Revenue Cycle - Charge Capture," winning a Category Leader award for the third year running.

In June 2014, the Healthcare Financial Management Association (HFMA) recognized five Craneware products at ANI: HFMA's 2014 National Institute in Las Vegas, for earning the "Peer Reviewed by HFMA^®" standard every year since 2004, the first year of the Peer Review program. This is a testament to Craneware solutions' ability to effectively enable hospitals and health systems to achieve revenue integrity.

The Craneware products receiving this distinction include Chargemaster Toolkit^®, Chargemaster Corporate Toolkit^®, Online Reference Toolkit^®, Interface Scripting Module, and Bill Analyzer: the only healthcare products and services to earn this designation every year since the inception of the program.

Product Development

Our strategy is to provide software solutions that help customers at the points in their systems where clinical and operational data transform into financial transactions. Our solutions automate data normalisation, combining disparate data sets while maintaining the localised context. This produces valuable, actionable information and creates organisation-wide visibility and accountability. We consistently receive feedback from our customers that the implementation of our software can have a profound effect on the hospital operations, enabling the rapid identification of significant amounts of dollars in missed revenue, overspend on their cost base or incorrect billing which could lead to lost income and indeed fines. We want to enhance these findings with data analytics that sit natively within our products and draw benchmarks from underlying data from our customer footprint and proprietary data sets.

During the year we have progressed the initiatives that were launched in the prior year.  These include continuing to enhance the functionality of current products whilst investigating the opportunities that integration of current offerings into new innovative combinations could present; leveraging our competencies to help clients that are in a consolidation phase (as target or acquirer) to better understand synergies from their combined financial operations regardless of patient accounting platform providing an enterprise wide view, management believe this is a substantial competitive advantage; maintaining the focus on external integration with Healthcare Information Systems, such as the EPIC patient accounting system, to ensure we can fully support all our customers should they decide to replace their current systems. 

With the acquisition of Kestros Limited post year end it is expected that we will be able to use technology already proven by them to develop a new fourth Gateway product in the Patient Access and Consumerisation area for intended FY16 launch.

During the year we completed the development of a hybrid solution, which combine services with some of our core products which enables them to be implemented at smaller hospitals that do not have their own internal revenue integrity teams. This solution was subsequently launched on the 2^nd of September 2014.

In conjunction with and in support of these initiatives, we have continued development of our common software framework, this will provide the foundation for our future development efforts, significantly decreasing our time to market. Product development continues to be focused on supporting this long term strategy as well as utilizing technology to further  enhance options for products to move further on to the cloud and mobile platforms.

Financial Review

Revenues reported for the financial year under review were $42.6m (FY13: $41.5m) which has resulted in an adjusted EBITDA of $13.1m (FY13: $12.4m). 

We have made significant investments in prior years, which have strengthened the Group in many ways, and positioned Craneware for its next stage of growth. In addition to the ongoing investments we make to our product suites, we have further invested in our people, both increasing the management bandwidth and the levels of expertise across the Group.  A major focus of our investment has been in our sales force.  Here, as reported previously, we have made key hires into the sales leadership level increasing the previous capacity; have developed our core sales force through enhanced training initiatives; implemented additional sales support and contracting functions to ensure we maximise the capacity of individual sales managers and have re-designed sales incentive plans to ensure we drive the performance we expect.

These investments were initially made in a market environment which was in the early stages of recovery.  In the prior year we reported we had seen the return of individual hospitals and small hospital groups as purchasing entities, as expected this trend has continued to develop with our current year sales including sales to all types of hospital entities, from individual hospitals to the large multi-hospital network sales that have been announced during the year.

It is pleasing that through both the anticipated development of our US health provider market place and their increasing re-focus on Revenue Integrity combined with  the investments we have made, we have delivered a record sales performance in the year, delivering a total value of contracts (sales) signed during the year of $71.0m (FY13: $38.5m).  Due to the Group's business model, these sales represent a leading indicator of future growth, not significantly impacting financial results in the year in which they are signed.

Business Model

As a result of the Group's business model and associated revenue recognition policies, sales and revenue have separate meanings and cannot be interchanged.  The Group continues to recognise the vast majority of revenue under its annuity Software-as-a-Service (SaaS) revenue recognition model.  The strategy behind this business model is to ensure the long term growth and stability of the Group.

It is highly likely the levels of sales will fluctuate between individual years, the Annuity SaaS business model adopted by the Group delivers a 'smoothing' of these fluctuations and provides for more even and consistent growth over the long term.  Under this model we recognise software licence revenue and any minimum payments due from our 'other route to market' contracts evenly over the life of the underlying signed contracts.  As we sign new hospital contracts over an average life of 5 years, we will see the benefit of any new sales over this underlying contract term.

As well as the incremental licence revenues we generate from each new sale, we normally expect to deliver an associated professional services engagement. This revenue is typically recognised as we deliver the service to the customer, usually on a percentage of completion basis. The nature and scope of these engagements will vary depending on both our customer needs and which of our solutions they have contracted for.  However these engagements will always include the implementation of the software as well as training the hospital staff in its use. As a result of the different types of professional services engagement, the period over which we deliver the services and consequently recognise all associated revenue will vary, however we would normally expect to recognise this revenue over the first year of the contract.

In any individual year we would normally expect between 10% to 20% of revenues reported by the Group, to be from services performed.

Our final revenue model results from the ClaimTrust, Inc. acquisition in 2011. As the company has now been fully integrated, the ongoing transition of customers to the Annuity SaaS business model, and the redeployment of their highly skilled healthcare consultants from more traditional services work to 'contracted engagements' directly supporting existing customers and potential new software sales, means this revenue now represents less than 5% of total Group Revenues reported.  This revenue model results in revenue still being recognised monthly (as billed) and is recurring in its nature, but as it is not signed under long term non-breakable contracts it does not deliver the same advantages as the Annuity SaaS model.

As a result of these revenue recognition models, based on our historical average contract life for new hospitals of 5 years, the maximum value of an average contract that is expected to be recognised as revenue in any one year is 20% plus the value of associated services that have been delivered.  In all cases, should the contract contain any material contingencies or any increased risk of collection is identified, revenue is deferred until the contingency or otherwise is satisfied, at which point the revenue that has been deferred is released and the revenue recognition is 'caught up' to the level that would have been recognised had there been no deferral.

Sales, Revenue Reported and Revenue Visibility

The difference between revenue and sales under the Annuity SaaS business model can be demonstrated by reviewing the last 5 years sales levels to the reported revenue numbers.  In the table below we show our total contracts signed in the relevant years between sales of new products (to both new and existing hospital clients) and clients who are renewing their contracts at the end of their terms, our total sales and compare this total to the revenue reported.

Fiscal Year	2009	2010	2011	2012	2013	2014
	$m	$m	$m	$m	$m	$m
New Product Sales	25.4	44.1*	16.9	21.6**	20.8	35.1
Renewals***	17.8	14.0	7.5	12.7	17.7	35.9
Total Contract Value	43.2	58.1	24.4	34.3	38.5	71.0
Reported Revenue	23.0	28.4	38.1	41.1	41.5	42.6

*FY10 included the large reseller agreement with Premier, Inc. that added $15m to the new product sales and therefore total contract value in the year, with revenue being recognised over 10 years.

**FY12 included the large white label and reseller agreement that added $7.5m to new product sales and therefore total contract value in the year, with the $3.5m white label revenue recognised in the year and the remaining $4m recognised over the related 28 month period.

*** As the Group signs new customer contracts for between 3 to 9 years, the number and value of customers' contracts coming to the end of their term ("Renewal") will vary in any one year.  This variation along with whether customers auto-renew on a one year basis or renegotiate their contracts for up to a further 9 years, will impact the total contract value of renewals in any one year.

As described above the advantages of the Group's business model is to protect against short term fluctuations in sales levels, thereby promoting long term growth and stability. The majority of the revenue from any new sale will not be recognised in the year of sale.  Instead this balance of unrecognised revenue leads to "Future Revenue Visibility".  This is revenue that is under contract that is going to be recognised in future years, and subject to the renewal of the contract at the end of its original life, forms an annuity base of revenue for the Group that increases with each new sale.

The Group illustrates this annuity base through its "Three Year Visible Revenue" metric. This metric includes:

·      Future revenue under contract;

·      Revenue generated from renewals (calculated at 100% dollar value renewal).

·      Other recurring revenue (subject to an estimated churn rate of 8% per year);

The different categories of revenue reflect any inherent future risk in recognising these revenues. Future revenue under contract, is, as the title suggests, subject to an underlying contract and therefore only has to be invoiced to be recognised in the respective years (subject to future collection risk that exists with all revenue).  Renewal revenues are contracts coming to the end of their original contract term (e.g. 5 years) and will require their contracts to be renegotiated and renewed for the revenue to be recognised. The average value of customers renewed in any period (including cross sell and upsell to those customers on renewal) is over 100% renewals by dollar value therefore it is reasonable to conclude little additional risk is associated to this revenue. The final category "Other recurring revenue" is revenue that we would expect to recur in the future but as the underlying contracts are not long term in their nature or contain break clauses there is potential for this revenue not to be recognised in future years, however we apply an estimated 8% churn rate to make allowance for this risk.

The Group's total visible revenue for the three years as at 30 June 2014 (i.e. visible revenue for FY2015, FY2016 and FY2017) shows how, combined with renewals and other recurring revenue, we expect the current excess of contracted value of sales to revenue reported to benefit the Group in this next three year period. The total of this visible revenue is $112.8m and breaks down as follows:

·      Future revenue under contract contributing $76.4m of which $32.0m is expected to be recognised in FY15, $24.9m in FY16 and $19.5m in FY17. 

·      Revenue generated from renewal activities contributing $33.3m; being $5.2m in FY15, $11.3m in FY16 and $16.8m in FY17.

·      InSight revenue identified as recurring in nature of $3.1m.

Revenue

We are reporting revenue for the year of $42.6m (2013: $41.5m). Underlying this marginal growth in revenue we have seen the return of sales to large hospital networks, as well as the return of 7 and 9 year contracts.

As anticipated, the redeployment of the skilled healthcare consultants from more traditional services work (part of the ClaimTrust, Inc. acquired contracts) to 'contracted engagements' directly supporting existing customers and supporting potential new software sales has had an impact on levels of professional services revenues delivered in the year.  This has reduced from $5.3m in FY13 to $4.9m in FY14, however this transition effect is expected to be short term in nature and professional services revenue at 11% of Group revenue is still within our expected range of 10% to 20% of our revenue in any one year.  We retain the capacity within our existing business model and as a result of the sales performance in the year we expect this revenue stream to expand and contribute to future years' revenue growth.

Gross Margins

The Gross Profit for the year was $40.6m (FY13: $39.4m) which represents a stable gross margin percentage of 95% in both the current and prior year.  Included within the Group's cost of sale is the commissions paid to sales managers on execution of contracts.  As detailed earlier, the Group has introduced a new competitive sales incentive scheme, and this, combined with the significant increase in the total value of sales contracts in the year, has resulted in higher levels of commissions being earned in the current year. 

The new IFRS15 Revenue Standard, expected to be adopted in the EU in the future, has an effective date for accounting periods on or after 1 January 2017.  Whilst yet to fully assess the impact of the full standard, part of this standard codifies the accounting for sales commissions on long term contracts, which our licence contracts effectively are.  The approach is consistent with the outcome required by current GAAP and would be the approach expected under US GAAP, and as such the Group is charging sales commissions earned under the new incentive scheme in the year over the life of the underlying contracts.  The result of this is a consistent Gross Margin of 95% and 'deferred contract costs' recorded in the balance sheet of $2.3m which will be charged to cost of sales in line with the recognition of the related revenue.  Due to new commission plan and the associated level of sales that have resulted, not to take this approach would result in profitable long term contracts signed in the year, being represented as loss making in their first reporting period solely as a result of  mismatching costs incurred with how the Annuity business models evenly recognising revenues.  As a result the current year commission charge is materially in line with the prior period.  

Earnings

Adjusted earnings before interest, taxation, share based payments, depreciation and amortisation ("Adjusted EBITDA") has grown in the year to $13.1m (FY13: $12.4m) an increase of 6%. This reflects an Adjusted EBITDA margin of 30.7% (FY13: 29.8%). This is consistent with the Group's measured approach to the release of additional investment, continuing to make investments in line with the revenue growth occurring, whilst continually managing to ensure the efficiency of the investments we make.

Operating Expenses

Net operating expenses (before share based payments, depreciation and amortisation) have, despite the investments we have made in key areas, only increased marginally to $27.6m (FY13: $27.0m). We continue to invest in the future growth of the Group whilst looking to leverage the investments we have made in prior years.  Continued investment in line with the growth of the Group will provide us the opportunity to deliver on the Group's strategy.

As innovation will continue to be core to the Group's future we continue to invest in Product Development spend which has remained at $7.0m with no significant amounts capitalised in the year.

Cash

We measure the quality of our earnings through our ability to convert them into operating cash. As in prior years, we have very high levels of cash conversion which has enabled us to grow our cash reserves to $32.6m (FY13: $30.3m). These cash levels are after paying $2.2m in taxation (FY13: $3.4m) and a further $5.4m (FY13: $4.7m) to our shareholders by way of dividends.

We retain a significant level of cash reserves to fund 'bolt-on' acquisitions as suitable opportunities arise.

Balance Sheet

The Group maintains a strong balance sheet position, not only through our significant cash balance but with rigorous controls over working capital and no debt.

As a result of the guaranteed minimum revenues associated to a partner deal entered into in February 2012, we have been building up an accrued revenue balance as we recognised the associated revenue under our normal revenue recognition model.  This accrued balance reached its maximum level of $4m at 30 June 2014, at which point it was invoiced in line with the underlying contractual terms and was recorded in Trade Receivables.  Since the year end $3.6m of this balance has been cleared, the remaining amounts relate to an ongoing project and these amounts will be fully paid by February 2015. The underlying contract with this partner has been renewed for a minimum further term of one year, allowing them on a non-exclusive basis to sell our white-labelled software on a value added reseller basis to State and Federal customers, however no further contracted revenues were due as at 30 June 2014. No amounts relating to this contract are included in our three year visible revenue detailed earlier.

Post Balance Sheet Event:  Acquisition of Kestros Limited

On 28 August 2014, Craneware acquired the entire share capital of Kestros Limited for a maximum consideration of $2.14m (£1.25m) which will be adjusted according to revenue milestones. £150,000 of the consideration has been paid in cash with the remainder paid in new Craneware equity.  The acquired assets and intellectual property of this emerging Scottish technology company, will provide Craneware with a technology platform in the high growth Patient Access market, addressing the growing level of consumerisation within Healthcare.

Currency

The reporting currency for the Group (and cash reserves) is US Dollars. Whilst the majority of our cost base is US located and therefore US Dollar denominated, we do have approximately one quarter of the cost base based in the UK relating primarily to our UK employees (and therefore denominated in Sterling). As a result, we continue to closely monitor the Sterling to US Dollar exchange rate, and where appropriate consider hedging strategies. During the year, we have been impacted through exchange rate movements, with the average exchange rate throughout the year being $1.6262 as compared to $1.5685 in the prior year. However, this has been immaterial to our results.

Taxation

The Group's effective tax rate remains dependent on the proportion of profits generated in the UK and the US and the applicable tax rates in the respective jurisdictions. As detailed above, the sales performance in the year has increased the levels of income in both jurisdictions, and as detailed in previous years we are as a result seeing our effective tax rate return to more 'normalised' levels.  However this has been partially offset by the reduction in the levels of professional services revenue generated in the year. As all professional services are delivered in the US, the resulting lower levels of this revenue impacts the overall total income subject to taxation in the US. As result of the higher taxation levels in the US the current year effective tax rate is 24% (FY13: 22%). Effective tax rates will increase in future years if the ratio of underlying professional services to software license revenues increases and the overall levels of sales increase.

EPS

In the year adjusted EPS has increased to $0.340 (FY13: $0.329) and adjusted diluted EPS has increased to $0.338 (FY13: $0.328). The increase in EPS is driven by the increased levels of EBITDA but has been impacted by the increasing effective tax rate.

Dividend

The Board recommends a final dividend of 6.8p (11.63 cents) per share giving a total dividend for the year of 12.5p (21.37 cents) per share (2013: 11.5p (17.4 cents) per share). Subject to confirmation at the Annual General Meeting, the final dividend will be paid on 16th December 2014 to shareholders on the register as at 14th November 2014, with a corresponding ex-Dividend date of 13th November 2014.

The final dividend of 6.8p per share is capable of being paid in US dollars subject to a shareholder having registered to receive their dividend in US dollars under the Company's Dividend Currency Election, or who register to do so by the close of business on 14th November 2014. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 14th November 2014. The final dividend referred to above in US dollars of 11.63 cents is given as an example only using the Balance Sheet date exchange rate of $1.7099/£1 and may differ from that finally announced.

Outlook

We have been pleased with the Group's performance in the year. We have seen signs of growing customer confidence and believe Craneware is increasingly well positioned to address a growing market opportunity in what is the largest software vertical in the world; the US healthcare market. 

Craneware remains at the forefront of providing solutions to US healthcare providers to help them achieve revenue integrity through the management of their cost base whilst ensuring receipt of all legitimate reimbursement. We believe true revenue integrity is required if healthcare providers are to continue to support improved patient care and clinical outcomes.

Investments in the business mean we have the people and the expertise in place to take us through the next stage of growth, building on our record sales performance.  We have had a strong start to the current year, carrying on the momentum from the previous year and are confident we have the platform to deliver ongoing increased stakeholder value.

Keith Neilson Chief Executive Officer 15 September 2014

Craig Preston Chief Financial Officer 15 September 2014

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2014

		Total	Total
		2014	2013
	Notes	$'000	$'000
Continuing operations:
Revenue	3	42,574	41,452
Cost of sales		(1,943)	(2,071)
Gross profit		40,631	39,381
Operating expenses	4	(29,407)	(28,881)
Operating profit		11,224	10,500
Analysed as:
Adjusted EBITDA*		13,069	12,357
Share based payments		(198)	(181)
Depreciation of plant and equipment		(575)	(621)
Amortisation of intangible assets		(1,072)	(1,055)
Finance income		66	103
Profit before taxation		11,290	10,603
Tax on profit on ordinary activities	5	(2,680)	(2,307)
Profit for the year attributable to owners of the parent		8,610	8,296
Total comprehensive income attributable to owners of the parent		8,610	8,296

^1.  Adjusted EBITDA is defined as operating profit before, share based payments, depreciation and amortisation.

Earnings per share for the year attributable to equity holders

	Notes	2014	2013
Basic ($ per share)	7a	0.319	0.307
*Adjusted Basic ($ per share)	7a	0.340	0.329
Diluted ($ per share)	7b	0.317	0.306
*Adjusted Diluted ($ per share)	7b	0.338	0.328

* Adjusted Earnings per share calculations allow for amortisation on acquired intangible assets to form a better comparison with previous years.

Statement of Changes in Equity for the year ended 30 June 2014

		Share
	Share	Premium	Other	Retained	Total
	Capital	Account	Reserves	Earnings	Equity
	$'000	$'000	$'000	$'000	$'000
At 1 July 2012	538	15,408	209	21,282	37,437
Total comprehensive income - profit for the year	-	-	-	8,296	8,296
Transactions with owners:
Share-based payments	-	-	181	15	196
Impact of share options exercised/lapsed	1	88	(178)	174	85
Dividends (Note 6)	-	-	-	(4,693)	(4,693)
At 30 June 2013	539	15,496	212	25,074	41,321
Total comprehensive income - profit for the year	-	-	-	8,610	8,610
Transactions with owners:
Share-based payments	-	-	198	146	344
Impact of share options lapsed	-	-	(175)	175	-
Dividends (Note 6)	-	-	-	(5,359)	(5,359)
At 30 June 2014	539	15,496	235	28,646	44,916

Consolidated Balance Sheet as at 30 June 2014

	Notes	2014	2013
		$'000	$'000
ASSETS
Non-Current Assets
Plant and equipment		1,329	1,596
Intangible assets	8	14,325	15,291
Trade and other receivables	9	1,890	-
Deferred tax		1,644	1,615
		19,188	18,502
Current Assets
Trade and other receivables	9	20,946	15,128
Current tax assets		110	468
Cash and cash equivalents		32,613	30,277
		53,669	45,873
Total Assets		72,857	64,375
EQUITY AND LIABILITIES
Non-Current Liabilities
Deferred income		2,077	30
		2,077	30
Current Liabilities
Deferred income		19,355	16,419
Current tax liabilities		1,136	1,055
Trade and other payables		5,373	5,550
		25,864	23,024
Total Liabilities		27,941	23,054
Equity
Called up share capital	10	539	539
Share premium account		15,496	15,496
Other reserves		235	212
Retained earnings		28,646	25,074
Total Equity		44,916	41,321
Total Equity and Liabilities		72,857	64,375

Statement of Cash Flows for the year ended 30 June 2014

	Notes	2014	2013
		$'000	$'000
Cash flows from operating activities
Cash generated from operations	11	10,197	9,891
Interest received		66	103
Tax paid		(2,154)	(3,377)
Net cash from operating activities		8,109	6,617
Cash flows from investing activities
Purchase of plant and equipment		(308)	(190)
Capitalised intangible assets	8	(106)	(336)
Net cash used in investing activities		(414)	(526)
Cash flows from financing activities
Dividends paid to company shareholders	6	(5,359)	(4,693)
Proceeds from issuance of shares		-	89
Net cash used in financing activities		(5,359)	(4,604)
Net increase in cash and cash equivalents		2,336	1,487
Cash and cash equivalents at the start of the year		30,277	28,790
Cash and cash equivalents at the end of the year		32,613	30,277

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 are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, IFRS IC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historic cost convention and prepared on a going concern basis. The applicable accounting policies are set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year, if relevant.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates

The Company and its subsidiary undertakings are referred to in this report as the Group.

1.   Selected principal accounting policies

The principal accounting policies adopted in the preparation of these accounts are set out below.  These policies have been consistently applied, unless otherwise stated.

Reporting currency

The Directors consider that as the Group's revenues are primarily denominated in US dollars the Company's principal functional currency is the US dollar. The Group's financial statements are therefore prepared in US dollars.

Currency translation

Transactions denominated in foreign currencies are translated into US dollars at the rate of exchange ruling at the date of the transaction. The average exchange rate during the course of the year was $1.6262/£1 (2013 :$1.5685/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date $1.7099/£1 (2013 : $1.5167/£1).  Exchange gains or losses arising upon subsequent settlement of the transactions and from translation at the Balance Sheet date, are included within the related category of expense where separately identifiable, or administrative expenses.

Revenue recognition

The Group follows the principles of IAS 18, "Revenue Recognition", in determining appropriate revenue recognition policies. In principle revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction will flow into the Group.

Revenue is derived from sales of, and distribution agreements relating to, software licenses and professional services (including installation).  Revenue is recognised when (i) persuasive evidence of an arrangement exists; (ii) the customer has access and right to use our software; (iii) the sales price can be reasonably measured; and (iv) collectability is reasonably assured.

Revenue from standard licensed products which are not modified to meet the specific requirements of each customer is recognised from the point at which the customer has access and right to use our software.  This right to use software will be for the period covered under contract and, as a result, our annuity based revenue model recognises the licensed software revenue over the life of this contract.  This policy is consistent with the Company's products providing customers with a service through the delivery of, and access to, software solutions (Software-as-a-Service ("SaaS")), and results in revenue being recognised over the period that these services are delivered to customers. Incremental costs directly attributable in securing the contract are charged equally over the life of the contract and as a consequence are matched to revenue recognised.  Any deferred contract costs are included in both current and non-current, Trade and other receivables.

'White-labelling' or other 'Paid for development work' is generally provided on a fixed price basis and as such revenue is recognised based on the percentage completion or delivery of the relevant project.  Where percentage completion is used it is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project. Where contracts underlying these projects contain material obligations, revenue is deferred and only recognised when all the obligations under the engagement have been fulfilled.

Revenue from all professional services is recognised as the applicable services are provided.  Where professional services engagements contain material obligations, revenue is recognised when all the obligations under the engagement have been fulfilled. Where professional services engagements are provided on a fixed price basis, revenue is recognised based on the percentage completion of the relevant engagement.  Percentage completion is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project.

Software and professional services sold via a distribution agreement will normally follow the above recognition policies.

Should any contracts contain non-standard clauses, revenue recognition will be in accordance with the underlying contractual terms which will normally result in recognition of revenue being deferred until all material obligations are satisfied.

The excess of amounts invoiced over revenue recognised are included in deferred income.  If the amount of revenue recognised exceeds the amount invoiced the excess is included within accrued income.

Intangible Assets

(a)  Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is capitalised and recognised as a non-current asset in accordance with IFRS 3 and is tested for impairment annually, or on such occasions that events or changes in circumstances indicate that the value might be impaired.

Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

(b)  Proprietary software

Proprietary software acquired in a business combination is recognised at fair value at the acquisition date. Proprietary software has a finite life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the associated costs over their estimated useful lives of 5 years.

(c)  Contractual customer relationships

Contractual customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful economic life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship which has been assessed as 10 years.

(d)  Research and Development expenditure

Expenditure associated with developing and maintaining the Group's software products is recognised as incurred. Where, however, new product development projects are technically feasible, production and sale is intended, a market exists, expenditure can be measured reliably, and sufficient resources are available to complete such projects, development expenditure is capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life, which has been assessed as 5 years. Staff costs and specific third party costs involved with the development of the software are included within amounts capitalised.

(e)  Computer software

Costs associated with acquiring computer software and licensed to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically 3 to 5 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 and are measured using enacted rates and laws that will be in effect when the differences are expected to reverse.  The deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction affects neither accounting nor taxable profit or loss.  Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilised.

Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.  Deferred tax assets and liabilities arising in the same tax jurisdiction are offset.

In the UK and the US, the Group is entitled to a tax deduction for amounts treated as compensation on exercise of certain employee share options under each jurisdiction's tax rules.  As explained under "Share-based payments", a compensation expense is recorded in the Group's Statement of Comprehensive Income over the period from the grant date to the vesting date of the relevant options.  As there is a temporary difference between the accounting and tax bases a deferred tax asset is recorded.  The deferred tax asset arising is calculated by comparing the estimated amount of tax deduction to be obtained in the future (based on the Company's share price at the Balance Sheet date) with the cumulative amount of the compensation expense recorded in the Statement of Comprehensive Income.  If the amount of estimated future tax deduction exceeds the cumulative amount of the remuneration expense at the statutory rate, the excess is recorded directly in equity against retained earnings.

Share-based payments

The Group grants share options to certain employees.  In accordance with IFRS 2, "Share-Based Payments" equity-settled share-based payments are measured at fair value at the date of grant. Fair value is measured by use of the Black-Scholes pricing model as appropriately amended. The fair value determined at the date of grant of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Statement of Comprehensive Income, with a corresponding adjustment to equity. When the options are exercised the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium.

The share-based payments charge is included in net operating expenses and is also included in 'Other reserves'.

2.   Critical accounting estimates and judgements

The preparation of financial statements in accordance with IFRS requires the Directors to make critical accounting estimates and judgements that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying value of assets and liabilities within the next financial year are discussed below:-

·      Impairment assessment:- the Group tests annually whether Goodwill has suffered any impairment and for other assets including acquired intangibles at any point where there are indications of impairment. This requires an estimation of the value in use of the applicable cash generating unit to which the Goodwill and other assets relate. Estimating the value in use requires the Group to make an estimate of the expected future cashflows from the specific cash generating unit using certain key assumptions including growth rates and a discount rate. Reasonable changes to these assumptions such as increasing the discount rate by 5% (20% to 25%) and decreasing the long term growth rate applied to revenues by 1% (2% to 1%) would still result in no impairment.

·      Revenue recognition:- the Group assesses the economic benefit that will flow from future milestone payments in relation to sub-licensing partnership arrangements. This requires the Directors to estimate the likelihood of the Group, its partners, and sub-licensees meeting their respective commercial milestones and commitments.

·      Provisions for income taxes:-the Group is subject to tax in the UK and US and this requires the Directors to regularly assess the applicability of its transfer pricing policy.

3.   Revenue

The chief operating decision maker has been identified as the Board of Directors. The Group revenue is derived entirely from the sale of software licences, white labelling and professional services (including installation) to hospitals within the United States of America. Consequently the Board has determined that Group supplies only one geographical market place and as such revenue is presented in line with management information without the need for additional segmental analysis. All of the Group assets are located in the United States of America with the exception of the Parent Company's, the net assets of which are disclosed separately on the Company Balance Sheet and are located in the UK.

	2014	2013
	$'000	$'000
Software licencing	37,717	36,174
White labeling	-	-
Professional services	4,857	5,278
Total revenue	42,574	41,452

4.   Operating expenses

Operating expenses are comprised of the following:-
	2014	2013
	$'000	$'000
Sales and marketing expenses	8,482	8,251
Client servicing	7,461	7,306
Research and development	6,979	6,932
Administrative expenses	4,594	4,433
Share-based payments	198	181
Depreciation of plant and equipment	575	621
Amortisation of intangible assets	1,072	1,055
Exchange loss	46	102
Operating expenses	29,407	28,881

5.   Tax on profit on ordinary activities

	2014	2013
	$'000	$'000
Profit on ordinary activities before tax	11,290	10,603
Current tax
Corporation tax on profits of the year	2,542	2,453
Foreign exchange on taxation in the year	(36)	152
Adjustments for prior years	57	(168)
Total current tax charge	2,563	2,437
Deferred tax
Origination & reversal of timing differences	63	133
Adjustments for prior years	55	(264)
Change in tax rate	(1)	1
Total deferred tax charge(credit)	117	(130)
Tax on profit on ordinary activities	2,680	2,307
The difference between the current tax charge on ordinary activities for the year, reported in the consolidated Statement of Comprehensive Income, and the current tax charge that would result from applying a relevant standard rate of tax to the profit on ordinary activities before tax, is explained as follows:
Profit on ordinary activities at the UK tax rate 22.5% (2013: 23.75%)	2,541	2,518
Effects of:
Adjustment in respect of prior years	112	(432)
Change in tax rate	(1)	1
Additional US taxes on profits/losses 39% (2012: 39%)	89	39
Foreign Exchange	(36)	152
Expenses not deductible for tax purposes	(25)	(4)
Tax/(deduction) on share plan charges	-	33
Total tax charge	2,680	2,307

6.   Dividends

The dividends paid during the year were as follows:-

	2014	2013
	$'000	$'000
Final dividend, re 30 June 2013 - 10.08 cents (6.3 pence)/share	2,783	2,481
Interim dividend, re 30 June 2014 - 9.46 cents (5.7 pence)/share	2,576	2,212
Total dividends paid to Company shareholders in the year	5,359	4,693

The proposed final dividend for 30 June 2014 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these accounts.

7.   Earnings per share

a)   Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of shares in issue during the year.

	2014	2013
Profit attributable to equity holders of the Company ($'000)	8,610	8,296
Weighted average number of ordinary shares in issue (thousands)	27,009	26,998
Basic earnings per share ($ per share)	0.319	0.307
Profit attributable to equity holders of Company ($'000)	8,610	8,296
Amortisation of acquired intangibles ($'000)	574	574
Adjusted Profit attributable to equity holders ($'000)	9,184	8,870
Weighted average number of ordinary shares in issue (thousands)	27,009	26,998
Adjusted Basic earnings per share ($ per share)	0.340	0.329

b)   Diluted

For diluted earnings per share, the weighted average number of ordinary shares calculated above is adjusted to assume conversion of all dilutive potential ordinary shares.  The Group has one category of dilutive potential ordinary shares, being those granted to Directors and employees under the share option scheme.

	2014	2013
Profit attributable to equity holders of the Company ($'000)	8,610	8,296
Weighted average number of ordinary shares in issue (thousands)	27,009	26,998
Adjustments for:- Share options (thousands)	162	69
Weighted average number of ordinary shares for diluted earnings per share (thousands)	27,171	27,067
Diluted earnings per share ($ per share)	0.317	0.306
Profit attributable to equity holders of Company ($'000)	8,610	8,296
Amortisation of acquired intangibles ($'000)	574	574
Adjusted Profit attributable to equity holders ($'000)	9,184	8,870
Weighted average number of ordinary shares in issue (thousands)	27,009	26,998
Adjustments for:- Share options (thousands)	162	69
Weighted average number of ordinary shares for diluted earnings per share (thousands)	27,171	27,067
Adjusted Diluted earnings per share ($ per share)	0.338	0.328

8.   Intangible assets

Goodwill and Other Intangible assets

	Goodwill	Customer	Proprietary	Development	Computer
		Relationships	Software	Costs	Software	Total
	$'000	$'000	$'000	$'000	$'000	$'000
Cost
At 1 July 2013	11,188	2,964	1,222	3,004	787	19,165
Additions	-	-	-	31	75	106
At 30 June 2014	11,188	2,964	1,222	3,035	862	19,271
Accumulated amortization
At 1 July 2013	-	724	570	2,101	479	3,874
Charge for the year	-	330	244	356	142	1,072
At 30 June 2014	-	1,054	814	2,457	621	4,946
Net Book Value at 30 June 2014	11,188	1,910	408	578	241	14,325
Cost
At 1 July 2012	11,188	2,964	1,222	2,912	543	18,829
Additions	-	-	-	92	244	336
At 30 June 2013	11,188	2,964	1,222	3,004	787	19,165
Accumulated amortisation
At 1 July 2012	-	395	326	1,718	380	2,819
Charge for the year	-	329	244	383	99	1,055
At 30 June 2013	-	724	570	2,101	479	3,874
Net Book Value at 30 June 2013	11,188	2,240	652	903	308	15,291

In accordance with the Group's accounting policy, the carrying values of goodwill and other intangible assets are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of Craneware InSight Inc. 

The carrying values are assessed for impairment purposes by calculating the value in use (net present value (NPV) of future cashflows) of the Craneware InSight cash generating unit. The goodwill impairment review assesses whether the carrying value of goodwill is supported by the NPV of the future cashflows based on management forecasts for 5 years and then using an assumed sliding scale annual growth rate which is trending down to give a long-term growth rate of 2% in the residual years of the assessed period. Management have made the judgement that this long-term growth rate does not exceed the long-term average growth rate for the industry and also estimated a pre-tax discount rate of 20%.

Sensitivity analysis was performed using a combination of different annual growth rates and a range of different weighted average cost of capital rates. Management concluded that the tempered growth rates resulting in 2% during the residual period and the pre-tax discount rate of 20% were appropriate in view of all relevant factors and reasonable scenarios and that there is currently sufficient headroom over the carrying value of the assets in the acquired business that any reasonable change to key assumptions is not believed to result in impairment. 

9.   Trade and other receivables

	2014	2013
	$'000	$'000
Trade receivables	16,589	8,448
Less: provision for impairment of trade receivables	(658)	(607)
Net trade receivables	15,931	7,841
Other receivables	175	203
Prepayments and accrued income	4,382	7,084
Deferred Contract Costs	2,348	-
	22,836	15,128
Less non-current trade receivables:	-	-
Deferred Contract Costs	(1,890)	-
Current portion	20,946	15,128

10.  Called up share capital

Authorised

	2014		2013
	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

	2014		2013
	Number	$'000	Number	$'000
Equity share capital
Ordinary shares of 1p each	27,008,763	539	27,008,763	539

There was no movement in share capital during the year.

11.  Cash flow generated from operating activities

Reconciliation of profit before tax to net cash inflow from operating activities
	2014	2013
	$'000	$'000
Profit before tax	11,290	10,603
Finance income	(66)	(103)
Depreciation on plant and equipment	575	621
Amortisation on intangible assets	1,072	1,055
Share-based payments	198	181
Movements in working capital:
(Increase)/decrease in trade and other receivables	(7,708)	(2,721)
Increase/(decrease) in trade and other payables	4,836	255
Cash generated from operations	10,197	9,891

12.  Subsequent Events

On 28 August 2014, Craneware acquired 100% of issued share capital of Kestros Ltd for a maximum consideration of $2.14m (£1.25m), which will be adjusted according to Revenue milestones.  The Directors are yet to complete the acquisition accounting for the new business combination.

 

END

 

 

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