Final Results

Craneware plc

05 September 2023

 

Craneware plc

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

2023 Final Results
Growth in key financial metrics, closing the year on an improving trajectory

5 September 2023 - Craneware (AIM: CRW.L), the market leader in Value Cycle software solutions for the US healthcare market, announces its audited results for the year ended 30 June 2023.

Financial Highlights (US dollars)

·      Revenue increased 5% to $174.0m (FY22: $165.5m)

·      Adjusted EBITDA¹ increased 6% to $54.9m (FY22: $51.8m)

·      Annual Recurring Revenue² increased to $169.0m (H1 FY22: $166.4m), with an associated Net Revenue Retention³ value of 100% (FY22: n/a)

·      Statutory Profit before tax $13.1m (FY22: $13.1m)

·      Basic adjusted EPS¹ 87.0 cents (FY22:  89.0 cents) and adjusted diluted EPS 86.3 cents (FY22: 88.1 cents)

·      Basic EPS 26.3 cents (FY22: 26.8 cents) and diluted EPS 26.1 cents (FY22: 26.5 cents)

·      Robust Operating Cash Conversion⁴ at 92% of Adjusted EBITDA (FY22: 80%)

·      Total Cash and cash equivalents $78.5m (FY22: $47.2m)

·      Total Bank Debt $83.0m (FY22: $111.6m)

·      Proposed final dividend of 16.0p per share (20.19 cents) (FY22: 15.5p, 18.80 cents) giving a total dividend for the year of 28.5p per share (35.95 cents) (FY22: 28.0p, 33.96 cents) up 2%

¹ Certain financial measures are not determined under IFRS and are alternative performance measures as described in Note 16

² Annual Recurring Revenue "ARR" includes the annual value of licence and related recurring revenues including transaction revenues as at 30 June 2023 that are subject to underlying contracts and where revenue is being recognised at the reporting date

³ Net Revenue Retention is the percentage of revenue retained from existing customers over the measurement period, taking into account both churn and expansion sales

⁴ Operating Cash Conversion is cash generated from operations (as per Note 16), adjusted to exclude cash payments for exceptional items and movements in cash held on behalf of customers, divided by adjusted EBITDA

⁵ When we refer to 'Craneware', or 'The Craneware Group' or 'Group' in the annual report we mean the group of companies having Craneware plc as its parent and therefore these words are used interchangeably

Operational Highlights

·      Migration of customers onto the Trisus platform now complete, providing the foundation for future product and customer expansion

·      Trisus Chargemaster secured first place in the Chargemaster Management category of the "2023 Best In KLAS Awards: Software & Services" - a record 13th time for the Group, demonstrating the success of the migration process and enhancements made to the underlying application

·      Strong levels of customer retention, maintained at +90% in the year

·      Continued investment in R&D and innovation to capitalise on the growing market opportunity, including the recent launch of Trisus Labor Productivity, addressing the highest single cost category for any healthcare organisation

·      Total R&D costs that have been capitalised are already covered by the total value of contracts written for the Trisus related products

·      First third-party partner applications are now accessing the Trisus platform, with the potential to add to ARR in future years 

Outlook

·      COVID-19 public health emergency in the US formally declared over in May 2023, providing a more supportive market backdrop at the end of the year and into Q1 FY24

·      Continued post-period sales momentum and a growing pipeline of opportunities

·      Well positioned for FY24 and beyond with balance sheet strength, high levels of ARR and early signs of increasing customer confidence

Keith Neilson, CEO of Craneware plc commented:

"This robust set of results is testament to the resilience of the Group through what was a prolonged period of disruption across the US healthcare landscape.

"With the COVID-19 public health emergency in the US formally declared over in May 2023 and the related pressures on hospitals starting to ease, we have begun to see US hospitals return their attention to providing Value-Based Care and investing in digitalisation, using data insights provided by the Trisus platform to transform and improve their processes and control their costs. We remain committed to providing the tools our customers need to manage their operations and finances more efficiently, as we seek to transform the business of US healthcare together.

"Against this backdrop, we are pleased to have seen the strong sales momentum seen at the close of the year carry through into the start of the new financial year, resulting in a growing sales pipeline. We are confident that our resilient business model, extensive customer base, high levels of Annual Recurring Revenue, together with our strategy for delivering growth centred on the expansion of the Trisus platform, will enable us to create further long-term value for all our stakeholders."

For further information, please contact:

Craneware plc	[phone]
Keith Neilson, CEO
Craig Preston, CFO
Alma (Financial PR)	[phone]
Caroline Forde, Joe Pederzolli, Kinvara Verdon	[e-mail]
Peel Hunt (NOMAD and Joint Broker)	[phone]
Neil Patel, Paul Gillam, Richard Chambers
Investec Bank PLC (Joint Broker)	[phone]
Patrick Robb, Henry Reast, Cameron MacRitchie
Berenberg (Joint Broker)	[phone]
Mark Whitmore, Richard Andrews, Dan Gee-Summons

About Craneware

The Craneware Group (AIM:CRW.L), the market leader in automated value cycle solutions, including 340B management, collaborates with U.S. healthcare providers to plan, execute, and monitor operational and financial performance so they can continue to deliver quality care to their communities. Customers choose The Craneware Group's Trisus data and applications platform as their key to navigating the journey to financially sustainable value-based care. Trisus combines revenue integrity, cost management, 340B performance, and decision enablement into a single, SaaS-based platform. Trisus Chargemaster secured top ranking in the Chargemaster Management category of the "2023 Best in KLAS Awards: Software & Services" and is part of an extensive value cycle management suite. The Craneware Group - transforming the business of healthcare.

Learn more at www.thecranewaregroup.com

Chair's Statement

In a year marked by the continuation of the Public Health Emergency in response to the pandemic, I am pleased to report on a period of robust performance. While we did not achieve the revenue growth we anticipated at the start of the year, due to the Group's services related lines of business taking longer to recover than previously expected, the team nonetheless delivered growth in key financial metrics, continued to execute on our product migration strategy, and closed the year on an improving trading trajectory.

With the Public Health Emergency in the US now declared over, attention is returning to improving the value and resilience of the healthcare system. Through Trisus, our cloud-based data analytics and intelligence platform, we can be a central player in the digitalisation of US healthcare. The team is focused on capturing this opportunity through product expansion and the delivery of value to our extensive customer base.

Steady, profitable growth

Group revenues for the year increased 5% to $174.0m (FY22: $165.5m) with an adjusted EBITDA increase of 6% to $54.9m (FY22: $51.8m) maintaining our target EBITDA margin of above 30%. Within this, software and related revenue increased by 5% to $159.1m, accounting for 92% of revenue. This growth, coupled with healthy levels of customer retention, at above 90%, drove growth in underlying ARR to $169.0m (31 December 2022: $166.4m), with an associated Net Revenue Retention value in excess of 100%.

As at 30 June 2023, the Group maintained strong total cash and cash equivalent balances of $78.5m (30 June 2022: $47.2m) with a reduced total bank debt of $83.0m (30 June 2022: $111.6m).

The Group's strong cash generation and high levels of revenue visibility provides the Board with the confidence to maintain our investment levels in the business, to support our growth aspirations.

A valuable position from which to build 

We hold an enviable central position within the US healthcare industry, with approximately 40% of registered US hospitals as Craneware customers, including more than 12,000 US hospitals, health systems, affiliated retail pharmacies and clinics, and data sets covering more than 175 million unique patient encounters.

The successful completion in the year of the migration of customers onto Trisus provides the foundation for future growth acceleration. Looking ahead, we will continue to seek ways to extend our Trisus platform, through product development, partnerships and M&A. 

Increasing our Board expertise

We were delighted to welcome Anne McCune, a new Non-executive Director, to the Board in November. Anne is a recognised leader in the US Healthcare industry, who has served as a senior Executive for several leading academic hospital and physician centres and as a Managing Director in healthcare consulting firms. Anne is currently a Community Board member of the Strategy and Transformation committee at Salinas Valley Memorial Healthcare System in California.

Making a positive contribution to society

Our purpose is to transform the business of healthcare through the profound impact our solutions deliver, enabling our customers to deliver quality care to their communities.

The tangible positive impact our solutions can make on the lives of others continues to be a great motivator for our talented team. The Craneware Group has always had a strong commitment to social responsibility and community engagement, which has been enhanced by the integration of our 340B offerings in recent years. As a Group, we have developed many initiatives over the past several years which contribute to our sustainability credentials, and we continue to develop a number of programmes and opportunities to positively impact the community around us.

The Group has always been cognisant of the importance of sustainability and Environmental, Social and Governance ('ESG') matters, particularly in the context of the Group's Purpose. However, we recognise that these areas are constantly evolving and that organisations must continually strive to do more and as such an ESG Committee has been established. We detail more of the impact the Group makes, within the communities we serve, in our ESG Statement within the Annual Report.

On behalf of the Board, I would like to thank all of The Craneware Group team for their continued passion and commitment to serving our customers.

An improving outlook

The breadth of solutions The Craneware Group can provide, as well as the power of its operational and administrative platform and data, give the Board confidence in the Group's ability to provide the insights its customers need to deliver greater value healthcare to their communities.

With the sales growth experienced in the final quarter of the year delivering incremental revenues, combined with further momentum in the current period, the Group has seen a positive start to trading in the new financial year.

The Group's balance sheet strength, high levels of ARR and early signs of increasing customer confidence, leave the Group well positioned for FY24 and beyond.

Will Whitehorn

Chair

4 September 2023

Strategic Report

We are pleased to have delivered a robust financial performance in the year, achieving growth in revenue and EBITDA whilst maintaining a strong balance sheet. These results demonstrate the resilience of the Group through a prolonged period of disruption across the US healthcare landscape and I am grateful for the team's hard work and dedication, amidst a challenging environment.

We successfully completed our primary strategic focus for the year - the migration of customers onto Trisus, our cloud-based platform. With the transition complete, we can focus on the continued expansion of the Trisus product offering, which we anticipate will in turn drive customer expansion.

While remaining cognisant of the challenges our customers and partners continue to face, we are encouraged by improving prospects across our market. The COVID-19 public health emergency in the US was formally declared over in May 2023, and with the related pressures on hospitals starting to ease we are seeing attention turn to the improvement of hospitals' underlying operations and financial performance. This was reflected in a healthy close to the financial year, as we saw an increasing number of opportunities enter our pipeline in Q4, with momentum carrying over to the new financial year.

Market - supportive underlying trends

The US healthcare market continues to experience challenges across three broad areas: clinical, financial and operational.

The clinical arena is grappling with issues such as the impact of the opioid epidemic, a mental health crisis and an aging population increasing the demand for services around chronic conditions and long-term care. Financially the cost of healthcare in the US has been increasing significantly, including the cost of prescription drugs, medical procedures and associated insurance premiums. Meanwhile, against this backdrop, operational pressures are increasing, with managers having to navigate issues such as a shortage of healthcare professionals and wage inflation.

Addressing the challenges through data and insights

The combination of these factors means our customers are being asked to do more, with less. We believe the key to successfully achieving that, while improving patient care, is through accurate, accessible and meaningful data and insights, providing the ability to deliver enhanced services, improved infrastructure, governance and the ability to make smarter choices around resource allocation.

However, to make those smarter choices our customers need to manage and analyse vast amounts of data, which presents significant and costly considerations for hospitals, like scalability, interoperability, processing costs, security, and compliance.

Our vision is for the Trisus platform and its applications to address these challenges, providing connected technology in the cloud. Our Trisus platform and applications combine revenue integrity, cost management and decision enablement into a single cloud-based platform. Through our Data Foundations programme of work, Trisus brings together siloed data from the various existing software systems in a hospital or healthcare system, normalises that data and applies prescriptive analytics to provide insights to support informed decision making regarding a hospital's finances and operations, in one place.

This digitalisation of healthcare and improvement of processes through the use of data insights, as opposed to merely digitising healthcare, for example recording an individual healthcare encounter in an electronic form such as the recent move to electronic health records, provides the foundation for Value Based Care and enables the transformation of the business of healthcare.  

We provide customers with the ability to build effective strategies related to revenue, pricing, cost, and compliance to mitigate the internal and external challenges described above, delivering real financial returns and freeing up resources that can be re-invested and re-deployed by healthcare providers to support the clinical care of their communities and tackle their clinical challenges.

Growth Strategy -   innovation to profoundly impact US healthcare operations, which will drive demand and expand our addressable market.

To date, our growth has been driven through increases in market share and product set penetration (land and expand). In recent years, we have invested in the development of the Trisus platform; a sophisticated cloud delivered data aggregation and intelligence platform which will be the foundation for our future growth.

We are building on top of Trisus to strengthen our current products, leverage our data assets to expand our offering, integrate third party solutions to the platform and benefit from the scalability of cloud-technology.

Through our 20+ year history in the US healthcare market, we have collected our own unique and extensive data set, which we believe contains the insights that will generate our products of the future. While we have always had a team analysing this data, the growth in AI and machine learning means it is now easier and faster to do so. Meanwhile, we are also using AI to make our coding more efficient and productive.

Two Growth Pillars

Our growth strategy has two fundamental growth pillars:

1.   The transition of our customers to cloud delivered versions of our existing on-premise solutions, to act as a gateway to the benefits and additional applications on the Trisus platform

We are pleased to now have all our customers connected to, and benefiting from, the Trisus platform.

Of particular importance has been the migration of our previous flagship application, Chargemaster Toolkit, customers onto our Trisus Chargemaster offering. This has been carried out in phases over the last 36 months, as we have expanded the functionality of Trisus Chargemaster.

We were delighted Trisus Chargemaster secured first place in the Chargemaster Management category of the "2023 Best In KLAS Awards: Software & Services" during the year. For The Craneware Group, this is a record 13^th time, more than any other vendor in our space. The award demonstrates the success of the migration process, the enhancements made to the application and the high levels of customer support delivered by our teams.

All existing products now available as Trisus solutions, which will be further enhanced

During the year we continued to re-engineer our existing offerings into cloud-based applications - improving the benefits of our offerings to customers to facilitate the smooth transition onto Trisus. This continual improvement will be an ongoing process. The depth of our product offering continues to grow through the mining of the proprietary and regulatory data that we collect, identifying new ways the data can illuminate and support decision making within the hospital provider environment. We now have datasets for over 175 million unique patient encounters, providing incredibly valuable insights for our customers.

Whilst our Revenue Integrity and 340B related applications sit on different technology stacks within the Trisus platform, they both supplement and further enrich the Trisus data sets. Eventually the work we are doing with our Trisus Data Foundations programme will enable the full integration of these stacks, making our offerings yet more attractive to customers as the speed and depth of insights available is increased.

The four Medication related Trisus applications launched last year, replacing and adding to our non-340B pharmacy offerings, have been well received and we anticipate will support expansion sales in current and future periods.

Data Foundations increasing the interoperability of applications to increase speed of entry to the platform and facilitate cross sale

As part of our Data Foundations programme of work, we are utilising the advances in AI and data processing to increase the interoperability and connectivity of our applications, while making the platform's back-end processes more efficient and effective. For example, new customers coming onto the Trisus platform will only require one data feed, thus accelerating entry to the platform and its benefits.

Six application suites

The Trisus applications have now been grouped into six Trisus® Optimization Suites, bringing together the applications that address specific strategic issues facing healthcare providers and are powered by the same sub-set of customer data. Through bringing the applications into suites, we aim to make it easier for our customers to identify which of our multiple additional applications are likely to unlock immediate value and address their challenges most effectively, based on their existing data within the Trisus platform. 

The product portfolios are: Trisus Pricing Integrity, Trisus Data Integrity, Trisus Business of Pharmacy, Trisus Revenue Protection Optimization, Trisus Charge Capture Optimization and Trisus Value-based Margin & Productivity.

Launch of Trisus Labor Productivity

Towards the end of the financial year we were pleased to launch a new application, Trisus Labor Productivity, to encouraging early feedback, addressing the concerns of the market around effectively managing the workforce. Staff costs represent the single highest cost for any healthcare organisation. In addition, staffing shortages have resulted in a need to do more with less. Trisus Labor Productivity enables our customers to optimise their staffing by department or organisation, providing insights into daily staffing and productivity outcomes using detailed analytics and predictive modelling, thereby reducing costs and confusion for greater efficiency. The application also integrates payroll, timecard, hospital EMR/ADT events, and general ledger costs in one location for reporting, analysis, and strategic management of the workforce. 

2.   Value driven Customer Expansion

It is the intention that the product enhancements and expansion described above will facilitate cross sell and upsell to existing customers, alongside an increase in average contract value to new customers. The addition of new customers and the expansion with existing customers will in turn drive growth in ARR.

ARR at 30 June 2023 increased in the six months to $169.0m from $166.4m reported at 31 December 2022, demonstrating the Group's continued high levels of contracted revenue visibility. We continue to see the opportunity to accelerate ARR growth over the medium term, as we unlock the considerable cross and upsell opportunities within our enlarged customer base. The Group is now in a position to report a Net Revenue Retention figure, from the point of our first ARR calculation, which was 100% for the six months to 30 June 2023. Customer retention for the year exceeded 90%, which is testament to the value Craneware brings to its customer base.

With the first stage of cloud-based enhancements for existing products now complete, we can turn our focus to the development of new applications and the extension of existing applications, to expand our capabilities and provide benefits to our customers. We anticipate this in turn will facilitate a greater level of cross sale and product penetration across our extensive customer base over time.

We also continue to see considerable cross sale opportunity between our 340B and Revenue Integrity customers and this will be an ongoing area of focus.

We are encouraged to see expansion sales to existing customers represent 81% of our total 'new' sales in the year, demonstrating the positive response of our customers to the increased ROI derived from the uptake of additional cloud applications. However, this does mean our sales to new customers as a percentage of our total new sales is behind historical norms, consistent with the narrative reported by other vendors that support hospitals. We expect to see this mix move back towards our historical norms in the near term, as healthcare is once again returning its focus to Value Based Care now the impacts of the pandemic are dissipating.

We also formalised our partnering processes during the year, with the aim of hosting third party application providers on the platform. In the future, revenue from these partnerships, which are not directly derived from Trisus applications, will be categorised as third party revenues while they are in the test phase. Once their value to customers has been proven, we will seek to transition into recurring revenue models, adding to our ARR.

Due to recent hospital fears surrounding cyber security, the market environment is hindering new customer growth by smaller software providers, and we therefore anticipate that this will encourage smaller software providers to see the value of their applications being delivered through the Trisus platform, a certified HITRUST partner. In turn, our customers will benefit from complementary applications which will help them derive greater insight into their operations and financial performance without increasing their exposure to cyberthreats while we will benefit from a revenue share with the partner.

While organic growth across our portfolio remains the priority, we continue to evaluate the market for M&A opportunities and will continue to pursue strategically aligned companies that will accelerate our growth strategy, although it is unlikely that any acquisitions in the short-term will be of the relative scale of Sentry. We maintain the same four key acquisition criteria of which target companies must fit into at least one, being: the addition of relevant data sets; the extension of the customer base; the expansion of expertise; and the addition of applications suitable for the US hospital market. We view our partnering programme as a potential for building a pipeline of future M&A activity based on the mutual benefits derived by both partners.

Our People and Community 

Central to our Purpose is how we support our customers and, in turn, how they support their communities and how we collectively work towards delivering our strategy as a team within The Craneware Group. Our solutions benefit society; they continue to deliver value for our customers, through the provision of accurate financial data, insight and analytics, that can be reinvested to support our customers in the provision of care to their communities. In addition, our 340B pharmacy solutions enable our customers to generate cost savings which go directly to the provision of care for the underserved in their communities. The Craneware Group is also directly involved with the 340B Matters initiative, which aims to educate the market regarding the importance of the 340B program for the non-profit healthcare facilities that provide accessible and affordable care within their communities.

We recognise the value of our employees and that supporting our customers and the achievements of the Group is due to their efforts. Our team is a talented mix of employees from diverse backgrounds, which brings a high level of innovation and collaboration. We believe in the importance of fostering a team environment while also celebrating the individuals within the team. We continue to invest in the team, our facilities and working practices and we welcome feedback and suggestions for improvements through a range of employee engagement mechanisms.

Complementing our Purpose and reflecting the causes which are important to our employees, our team, has meant that, for many years, the Group has continually developed a number of programmes and opportunities to positively and directly impact the community around us. This has been achieved with our initiatives driven by our employees through Craneware Cares and the Craneware Cares Foundation.

Craneware has advanced and supported many social initiatives and continues to do so. However, we are conscious of the need to coordinate all of our ESG-related initiatives and policies, including environmental considerations, to enable greater alignment to our ESG focus areas and also recognising the general increased interest in ESG-related credentials by our stakeholders. With these considerations in mind, we established an ESG Committee during the year. We provide further details of these activities and the ESG Committee with our ESG Statement.

Financial Review

For the year ended 30 June 2023, The Craneware Group is reporting an increase in revenue of 5% to $174.0m (FY22: $165.5m) and a 6% increase in adjusted EBITDA to $54.9m (FY22: $51.8m).

These results reflect a robust revenue performance against the backdrop of an industry recovering from and dealing with the aftereffects of the COVID-19 public health emergency. The challenge for our customers has, inevitably, impacted on Craneware, despite the solid performance of our annual software licence revenues, we have not yet seen the return of our professional services to the expected pre-pandemic levels as a percentage of our revenues.   

All industries and companies, including US healthcare and Craneware, have had to meet the challenges of the current macro-economic climate, including rising wage, medication, and supply cost inflation as well as key staffing shortages. Craneware has been successful in navigating these inflationary challenges during the year, and as such we have delivered an adjusted EBITDA performance in line with the Board's expectations. Our Adjusted earnings per share, however, has been impacted by the significant increases in interest rates that have occurred. With the interest we paid in the year increasing from $3.1m to $6.5m, our interest charge increased by 28% to $6.4m (FY22: $5.0m). In addition, our amortisation charge increased by 32% or $1.9m from the previous year. As a result, we are reporting a 2% reduction in our adjusted earnings per share to 87.0 cents per share (FY22: 89.0 cents per share).

The increased scale and our enlarged portfolio of products following the successful integration of Sentry Data Systems, mean we can do even more to support our customers as they look beyond the impact of the pandemic and return their focus to the delivery of Value Based Care. The need for accurate financial data, supporting analytics and the insights those analytics can bring has never been more important.

Underlying Business Model, Professional Services, and other revenue

The new contracts we sign with our customers provide a licence for the customer to access specified products throughout their licence period. At the end of an existing licence period, or at a mutually agreed earlier date, we look to renew these contracts with our customers. 

Under the Group's business model, we recognise software licence revenue and any minimum payments due from our 'other long term' contracts evenly over the life of the underlying contract term. 

In addition to the licence fees, we have a number of 340B customers whose underlying contracts provide for a number of associated transactional services in addition to their licences. These transactional services, whilst highly dependable and recurring over the life of the contract, see some variation period to period based on the volume of transactions. Transactional services are recognised as we provide the service, and we are contractually able to invoice the customer.

In any year, we also expect revenue to be recognised from providing professional and consulting services to our customers. These revenues are usually recognised as we deliver the service to the customer, on a percentage of completion basis. As we have previously reported, the challenges US hospitals have had regarding shortages of available staff have continued to impact our ability to deliver professional services throughout the year. As a result, we have not seen the return in our professional services revenues expected and as such we are reporting Professional Service in the year of $13.7m (FY22: $13.9m). 

This year, for the first time, we are reporting Other Revenue of $1.1m (FY22: $nil). These revenues are derived from our ability to leverage the Trisus platform in new and innovative ways. This was both through new ways to use our data assets to directly support our customers, and through hosting third-party applications on the platform. These revenues are recognised at the point we are able to invoice our customers. They are not, initially, deemed recurring in their nature, however once proven we expect many of these revenue opportunities to deliver future annual recurring revenue. 

Annual Recurring Revenue

By renewing our underlying contracts, and ensuring we continue to deliver the transactional services to our customers, we sustain a highly visible recurring revenue base, which means sales of new products to existing customers or sales to new hospital customers add to this recurring revenue.

Annual Recurring Revenue ("ARR") demonstrates the annual value of licence and transactional revenues that are subject to underlying contracts. 

At our interim results we tightened our definition of ARR to only include the annualised effect of bookings that are subject to an underlying contract and have generated revenue by the reporting date. This was done to better align future growth of ARR to near term revenue growth as well as facilitate the calculation of a Net Revenue Retention metric. This change primarily relates to the exclusion of contract pharmacy bookings where go live has not yet happened and therefore they have not contributed to revenue in the year. 

As a result, ARR is now defined as the annual value of licence and related recurring revenues including transaction revenues as at the Balance Sheet date that are subject to underlying contracts and where revenue is being recognised at the reporting date.

ARR at 30 June 2023 increased to $169.0m from the $166.4m reported at 31 December 2022, demonstrating the Group's continued high levels of contracted revenue visibility. The Group is also reporting Net Revenue Retention for the first time, from the point of our first ARR calculation, which was 100% for the six months to 30 June 2023. Customer retention for the year exceeded 90%, which is testament to the value Craneware brings to its customer base.

Gross Margins

Our gross profit margin is calculated after taking account of the incremental costs we incur to obtain the underlying contracts, including sales commission contract costs which are charged in line with the associated revenue recognition and the direct costs of professional services employees who deliver the services required to meet our contractual obligations.

The gross profit for FY23 was $148.4m (FY22: $142.4m). This represents a gross margin percentage of 85% (FY22: 86%) which is in line with the expected Gross Margins of the Group.   

Operating Expenses

Net operating expenses (to Adjusted EBITDA) increased 3% to $93.5m (FY22: $90.6m), which is a below inflation increase, reflecting our ongoing prudent cost control, including our ability to balance our investment between the US and the UK (and the associated Sterling exchange rate). This ultimately allows us to continue to deliver an Adjusted EBITDA margin of +30%.  

Product innovation and enhancement continues to be core to this future and our ability to achieve our potential. We continue to pursue our buy, build, or partner strategy to build out the Trisus platform and its portfolio of products. As we are cash generative, we are able to use our cash reserves to further "build" alongside the acquisition activities in the year and therefore continue to invest significant resource in R&D.

The total cost of development in the year was $50.6m (FY22: $51.1m). We continue to capitalise only the costs that relate to projects (including enhancements to our existing products) that have yet to be released to the market and will deliver new "future economic benefit" to the Group. With the total amount capitalised in the year, being $15.0m (FY22: $13.5m) representing 30% of total R&D spend in FY23 (FY22: 26%), which is still below our historical norms of 35 to 40% of total R&D spend. 

We continue to believe this investment is an efficient and cost-effective way to further build out our Value Cycle strategy alongside any acquisition strategy. As specific products are made available to relevant customers, the associated development costs capitalised are amortised and charged to the Group's income statement over their estimated useful economic life, thereby correctly matching costs to the resulting revenues.

Net Impairment reversal/(charge) on financial and contract assets

This relates to the movement in the provision for the impairment of trade receivables in the year.  Following the considerable efforts in this year since the acquisition of Sentry and our ongoing relationships with customers across the Group we are seeing a reversal in the year of $2.1m (FY22: charge of $0.5m).  

Adjusted EBITDA and Profit before taxation

To supplement the financial measures defined under IFRS the Group presents certain non-GAAP (alternative) performance measures as detailed in Note 16. We believe the use and calculation of these measures are consistent with other similar listed companies and are frequently used by analysts, investors and other interested parties in their research.

The Group uses these adjusted measures in its operational and financial decision-making as it excludes certain one-off items, allowing focus on what the Group regards as a more reliable indicator of the underlying operating performance.

Adjusted earnings represent operating profits, excluding costs incurred as a result of acquisition, its integration and share related activities (if applicable in the year), share related costs including IFRS 2 share-based payments charge, interest, depreciation and amortisation ("Adjusted EBITDA").

In the year, total costs of $0.5m (FY22: $2.1m) have been identified as exceptional. These relate primarily to the one-off costs associated with the back-office systems integration of Sentry. As such, these costs were adjusted from earnings in presenting Adjusted EBITDA. 

Adjusted EBITDA has grown in the year to $54.9m (FY22: $51.8m) an increase of 6%. This reflects an Adjusted EBITDA margin of 32% (FY22: 31%), confirming we continue to meet our target of a combined Group adjusted EBITDA margin of 30+%.  

Following the amortisation charge relating to acquired intangible assets relating to the Sentry acquisition of $20.9m (FY22: $20.2m), profit before taxation reported in the year is $13.1m (FY22: $13.1m).

Taxation

The Group generates profits in both the UK and the US. The Group's effective tax rate is primarily dependent on the applicable tax rates in these respective jurisdictions. Following the Sentry acquisition, whose profits are solely generated in the US, the Group now generates a higher proportion of its profits there. 

Following the substantive enactment of the increase in UK corporation tax rate to 25% effective from 1 April 2023, the UK corporation tax rate for the financial year increased from 19% to 20.5%.

Other factors impacting the effective tax rate include tax deductibility of amortisation of acquired intangibles, tax losses brought forward in the new enlarged group and the number of share options exercised and the associated tax treatment. Reconciliation of the tax charge for the year can be seen in Note 5.  As a result, the effective tax rate for the year ended 30 June 2023 is 29% (FY22: 28%).

EPS

The Group presents an Alternative Performance Measure of Adjusted EPS, to provide consistency to other listed companies. Both Basic and Diluted Adjusted EPS are calculated excluding costs incurred as a result of acquisition and share related activities, being $0.4m (tax adjusted) in the year (FY22: $1.6m) and amortisation of acquired intangibles of $20.9m (FY22: $20.2m).

Adjusted EPS, despite increased levels of Adjusted EBITDA, has decreased 2% to $0.870 (FY22: $0.890) as a result of increased bank interest charges and intangible amortisation in the year.  Adjusted diluted EPS has decreased to $0.863 (FY22: $0.881). Basic EPS in the period reduced to $0.263 (FY22: $0.268) and Diluted EPS reduced to $0.261 (FY22: $0.265).

Prior Year Restatements

As reported in the prior year Financial Statements, the Group completed its assessment of the fair value of the assets and liabilities acquired and the consolidated balance sheet and on the 12 month anniversary of the Sentry acquisition the "window" to complete this assessment closed.

However, during the current year, the Group has identified an item of disclosure that requires adjustment and, following the completion of the various US tax returns, two matters relating to the tax balances recorded in the opening balance sheet of the acquired business where the incorrect fair value had been assessed. None of the items impact the Consolidated Statement of Comprehensive Income nor any profit measures reported by the Group in the prior year.

Disclosure adjustment

Deferred Income, non-current and current liabilities - following a review of deferred income acquired through the Sentry acquisition, we have identified $4.8m of deferred income which should have been disclosed as a non-current rather than a current liability, and as such this has been corrected.

There is no change to the recorded Total Assets and Liabilities of the Group as a result of these disclosure restatements.

Taxation adjustments

Deferred and current Taxation - Following completion of the current year tax returns it was identified that an asset class included in the opening balance sheet of the Sentry acquisition had incorrectly been given a "tax basis" and as such the deferred tax liability included $3.2m and the tax debtor included $0.4m incorrectly in relation to this asset class (with the net balance being in Goodwill). To correct this both the deferred tax liability and tax debtor have been reduced and Goodwill has been reduced by the net amount of $2.8m.

Provision for Sales Taxes due - In the period since the acquisition of Sentry, we have worked diligently to ensure the acquired companies were in good standing with all the States in which they operated. As part of this process we identified two States where there were amounts due in respect of periods prior to the acquisition. Whilst we continue to work to reduce any liability, a provision should have been made in respect of the net amounts that were potentially due - being $0.4m and as such this provision has been made as part of this re-statement.

Cash and Bank Facilities

Cash generation and a strong balance sheet have always been a focus of the Group. Our business model provides the basis for high levels of cash generation, and we continue to monitor the quality of our earnings through Operating Cash Conversion, this being our ability to convert our Adjusted EBITDA to "cash generated from operations" (as detailed in the consolidated cash flow statement). 

In the year, we have made improvements in the Operating Cash Conversion of Sentry and as a result achieved Operating Cash Conversion across the combined Group of 92% in the year (FY22: 80%).

We continue to invest in our future and return funds to our shareholder base via our progressive dividend policy, returning $12.1m in the current year (FY22: $13.0m), the reduction being due to exchange rates and the majority of our dividends being paid in Sterling.

Also, as part of the funding for the acquisition of Sentry, the Group entered into a debt facility and during FY22 drew down $120m of secured funding provided by our consortium of banking partners. This facility was provided on a 3+1+1 year term basis. During the year, $28m (FY22: $8m) of the loan has been repaid, $8m of the term loan on schedule and the amount drawn down on the Revolving Credit Facility was reduced by $20m. All covenants have been met, and the second extension of the term has been agreed. We continue to thank our banking partners, alongside our shareholders, for their continued support of our growth strategy. 

Cash reserves at the year-end were $78.5m (FY22: $47.2). Restricted cash was disclosed separately in the prior year. As the Group is unable to hold these amounts outside of its own treasury facilities, these "restricted cash" balances have now been incorporated within cash and cash equivalents for FY23 rather than being classified separately on the face of the balance sheet (FY22: $1.3m). Total borrowings of $83.0m (FY22: $111.6m) gives the Group both significant liquidity and a strong balance sheet.

Share Buy Back

On 12 April 2023, the Group commenced a share buyback programme (of up to £5m). The shares purchased through this programme are held in treasury and will be used to satisfy employee share plan awards. The programme is being undertaken using a phased approach. The programme is operating under the authority granted to the Company by shareholders at the Company's Annual General Meeting, held on 15 November 2022, and within the regulatory guidance on the quantity of shares the Company may purchase on any single day.

Under this programme we have purchased 223,632 Ordinary Shares (FY22: nil) at a total cost of £3.09m ($3.87m). These shares represent 0.63% of the Company's issued Ordinary Shares and are being held in treasury. The Board considers that a share buyback provides an optimal use of cash to deliver value for shareholders by offsetting future dilution from existing employee share plans and as such the share buyback programme continued after 30 June 2023 and is ongoing at the time of approval of this report.

Balance sheet

Within the balance sheet, deferred income levels reflect the amounts of the revenue under contract that we have invoiced but have yet to recognise as revenue. This balance is a subset of the Annual Recurring Revenue described above and future performance obligations detailed in Note 3.

Deferred income, accrued income, and the prepayment of sales commissions all arise as a result of our SaaS business model described above and we will always expect them to be part of our balance sheet. They arise where the cash profile of our contracts does not exactly match how revenue and related expenses are recognised in the Statement of Comprehensive Income. Overall, levels of deferred income are significantly more than any accrued income and the prepayment of sales commissions, we therefore remain cash flow positive in regard to how we account for our contracts.

Currency

The functional currency for the Group, debt and cash reserves, is US dollars. Whilst the majority of our cost base is US-located and therefore US dollar denominated, we have approximately one quarter of the cost base situated in the UK, relating primarily to our UK employees which is therefore denominated in Sterling. As a result, we continue to closely monitor the Sterling to US dollar exchange rate and where appropriate, consider hedging strategies. The average exchange rate throughout the year was $1.2043 as compared to $1.3317 in the prior year. The exchange rate at the Balance Sheet date was $1.2619 (FY22: $1.2128).

Dividend

In proposing a final dividend, the Board has carefully considered a number of factors including the prevailing macro-economic climate, the Group's trading performance, our current and future cash generation and our continued desire to recognise the support our shareholders provide.  After carefully weighing up these factors, the Board proposes a final dividend of 16.0p (20.19 cents) per share giving a total dividend for the year of 28.5p (35.95 cents) per share (FY22: 28p (33.96 cents) per share), an increase of 2%. Subject to approval at the Annual General Meeting, the final dividend will be paid on 15 December 2023 to shareholders on the register as at 24 November 2023, with a corresponding ex-Dividend date of 23 November 2023.

The final dividend of 16.0p per share is capable of being paid in US dollars subject to a shareholder having registered to receive their dividend in US dollars under the Company's Dividend Currency Election, or who register to do so by the close of business on 24 November 2023. The exact amount to be paid will be calculated by reference to the exchange rate to be announced on 24 November 2023. The final dividend referred to above in US dollars of 20.19 cents is given as an example only using the Balance Sheet date exchange rate of $1.2619/£1 and may differ from that finally announced.

Outlook

With the COVID-19 public health emergency in the US formally declared over in May 2023 and the related pressures on hospitals starting to ease, we have begun to see US hospitals return their attention to providing Value-Based Care and investing in digitalisation, using data insights provided by the Trisus platform to transform and improve their processes and control their costs. We remain committed to providing the tools our customers need to manage their operations and finances more efficiently, as we seek to transform the business of US healthcare together.

Against this backdrop, we are pleased to have seen the strong sales momentum seen at the close of the year carry through into the start of the new financial year, resulting in a growing sales pipeline. We are confident that our resilient business model, extensive customer base, high levels of Annual Recurring Revenue, together with our strategy for delivering growth centred on the expansion of the Trisus platform, will enable us to create further long-term value for all our stakeholders.

Keith Neilson CEO Craneware plc 4 September 2023

Craig Preston CFO Craneware plc 4 September 2023

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2023

		Total	Total
		2023	2022
	Notes	$'000	$'000
Continuing operations:
Revenue	3	174,018	165,544
Cost of sales		(25,576)	(23,178)
Gross profit		148,442	142,366
Other income		600	551
Operating expenses	4	(131,876)	(124,324)
Net impairment reversal/ (charge) on financial and contract assets	4	2,062	(461)
Operating profit	4	19,228	18,132
Analysed as:
Adjusted EBITDA1		54,892	51,757
Share based payments		(2,992)	(2,116)
Depreciation of property, plant and equipment		(3,451)	(3,259)
Exceptional Costs2	4	(510)	(2,106)
Amortisation of intangible assets - other		(7,781)	(5,905)
Amortisation of intangible assets - acquired intangibles		(20,930)	(20,239)
Finance income		214	1
Finance expense		(6,357)	(5,031)
Profit before taxation		13,085	13,102
Tax on profit on ordinary activities	5	(3,853)	(3,693)
Profit for the year attributable to owners of the parent		9,232	9,409
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Currency translation reserve movement		-	42
Total items that may be reclassified subsequently to profit or loss		-	42
Total comprehensive income attributable to owners of the parent		9,232	9,451

1.     See Note 16 for explanation of Alternative Performance Measures.

2.     Exceptional items relate to integration costs associated with the purchase of Sentry Data Systems, Inc (FY22: legal and professional fees associated with acquisition of Sentry Data Systems and related integration costs).

Earnings per share for the year attributable to equity holders

	Notes	2023	2022
Basic ($ per share)	7	0.263	0.268
*Adjusted Basic ($ per share)	7	0.870	0.890
Diluted ($ per share)	7	0.261	0.265
*Adjusted Diluted ($ per share)	7	0.863	0.881

* Adjusted Earnings per share calculations allow for the tax adjusted acquisition costs and share related transactions (if applicable in the year) together with amortisation on acquired intangible assets.

Statement of Changes in Equity for the year ended 30 June 2023

		Share		Capital
	Share	Premium	Treasury	Redemption	Merger	Other	Retained	Total
	Capital	Account	Shares	Reserve	Reserve	Reserves	Earnings	Equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
At 1 July 2021	624	21,097	-	9	186,993	4,728	46,828	260,279
Total comprehensive income - profit for the year	-	-	-	-	-	-	9,409	9,409
Total other comprehensive expense	-	-	-	-	-	-	42	42
Transactions with owners:
Share-based payments	-	-	-	-	-	2,294	-	2,294
Share issue	35	76,107	-	-	(12)	-	-	76,130
Purchase of own shares through EBT	-	-	-	-	-	-	(1,726)	(1,726)
Deferred tax taken directly to equity	-	-	-	-	-	-	(366)	(366)
Impact of share options and awards exercised/lapsed	-	-	-	-	-	(1,089)	1,025	(64)
Dividends (Note 6)	-	-	-	-	-	-	(12,976)	(12,976)
At 30 June 2022	659	97,204	-	9	186,981	5,933	42,236	333,022
Total comprehensive income - profit for the year	-	-	-	-	-	-	9,232	9,232
Transactions with owners:
Share-based payments	-	-	-	-	-	3,231	-	3,231
Purchase of own shares through EBT	-	-	-	-	-	-	(179)	(179)
Purchase of own shares through share buyback	-	-	(3,865)	-	-	-	-	(3,865)
Deferred tax taken directly to equity	-	-	-	-	-	-	(1,004)	(1,004)
Impact of share options and awards exercised/lapsed	-	-	128	-	-	(2,324)	1,719	(477)
Dividends (Note 6)	-	-	-	-	-	-	(12,119)	(12,119)
At 30 June 2023	659	97,204	(3,737)	9	186,981	6,840	39,885	327,841

Consolidated Balance Sheet as at 30 June 2023

	Notes	2023	Restated 2022
		$'000	$'000
ASSETS
Non-Current Assets
Property, plant and equipment		8,464	8,819
Intangible assets - goodwill	9	235,236	235,236
Intangible assets - acquired intangibles	9	166,327	187,257
Intangible assets - other	9	50,230	43,430
Trade and other receivables	10	2,758	3,234
		463,015	477,976
Current Assets
Trade and other receivables	10	35,424	39,584
Cash and cash equivalents		78,537	47,157
Restricted cash		-	1,251
		113,961	87,992
Total Assets		576,976	565,968
EQUITY AND LIABILITIES
Non-Current Liabilities
Borrowings	13	75,033	103,589
Deferred income		2,875	4,792
Leased property		2,224	1,206
Hire purchase equipment		44	290
Deferred tax	11	41,337	44,417
Other provisions		243	568
		121,756	154,862
Current Liabilities
Borrowings	13	8,000	8,000
Deferred income		49,643	53,930
Amounts held on behalf of customers		51,220	672
Tax payable		2,565	-
Trade and other payables	14	15,951	15,482
		127,379	78,084
Total Liabilities		249,135	232,946
Equity
Share capital		659	659
Share premium account		97,204	97,204
Treasury shares		(3,737)	-
Capital redemption reserve		9	9
Merger reserve		186,981	186,981
Other reserves		6,840	5,933
Retained earnings		39,885	42,236
Total Equity		327,841	333,022
Total Equity and Liabilities		576,976	565,968

Consolidated Statement of Cash Flows for the year ended 30 June 2023         

	Notes	2023	2022
		$'000	$'000
Cash flows from operating activities
Cash generated from operations	12	100,591	32,943
Tax paid		(1,843)	(5,979)
Net cash generated from operating activities		98,748	26,964
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired	8	-	(293,288)
Purchase of property, plant and equipment		(520)	(353)
Capitalised intangible assets	9	(15,031)	(13,680)
Interest received		214	1
Net cash used in investing activities		(15,337)	(307,320)
Cash flows from financing activities
Dividends paid to company shareholders	6	(12,119)	(12,976)
Share issue professional fees		-	(263)
Paid up share capital		-	236
Proceeds from issuance of treasury shares		138	-
Proceeds from borrowings		-	120,000
Loan arrangement fees		(252)	(268)
Repayment of borrowings	13	(28,000)	(8,000)
Interest on borrowings		(6,503)	(3,080)
Purchase of own shares by EBT		(179)	(1,726)
Share buyback programme		(3,815)	-
Payment of lease liabilities		(2,552)	(2,027)
Net cash (used in)/ generated from financing activities		(53,282)	91,896
Net increase/ (decrease) in cash and cash equivalents		30,129	(188,460)
Cash and cash equivalents at the start of the year		47,157	235,617
Restricted cash previously excluded from cashflow*		1,251	-
Cash and cash equivalents at the end of the year		78,537	47,157

*Restricted cash was not included within cash and cash equivalents on the Balance Sheet or within the Cashflow in the prior period.  As the Group is unable to hold these amounts outside of its own treasury facilities, these "restricted cash" balances are now incorporated within cash and cash equivalents for FY23 and are therefore included with the Cashflow Statement for the current year.

Notes to the Financial Statements

General Information

Craneware plc ("the Company") is a public limited company incorporated and domiciled in Scotland. The Company has a primary listing on the Alternative Investment Market ('AIM') of the London stock Exchange. The principal activity of the Company continues to be the development, licensing and ongoing support of computer software for the US healthcare industry.

Basis of preparation

The financial statements of the Group and the Company are prepared in accordance with UK adopted international accounting standards (International Financial Reporting Standards ("IFRS")) and the applicable legal requirements of the Companies Act 2006.

The Group and the Company financial statements have been prepared under the historic cost convention and prepared on a going concern basis.  The Strategic Report contains information regarding the Group's activities and an overview of the development of its products, services and the environment in which it operates. The Group's revenue, operating results, cash flows and balance sheet are detailed in the financial statements and explained in the Financial Review.

The Directors have prepared cash flow forecasts covering a period of over twelve months from the date of approval of these financial statements. These forecasts include consideration of severe but plausible downsides, should these events occur, the Group would have sufficient funds to meet its liabilities as they fall due for that period. These scenarios anticipate a zero-growth scenario, such that the only sales made by the Group would be to replace losses of existing long-term contracts. Under this basis, without the need to make cost savings, the Group remained in compliance with its covenants and had no need to draw upon the committed undrawn facility.

Based on this assessment, the Directors have determined that the Group has adequate resources to continue in business for the foreseeable future and that it is therefore appropriate to adopt the going concern basis in preparing the consolidated and the Company financial statements.

The applicable accounting policies are set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year, if relevant.

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

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

1.   Selected principal accounting policies

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

Reporting currency

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

Currency translation

Transactions denominated in currencies other than US dollars are translated into US dollars at the rate of exchange ruling at the date of the transaction. The average exchange rate during the course of the year was $1.2043/£1 (FY22: $1.3317/£1). Monetary assets and liabilities expressed in foreign currencies are translated into US dollars at rates of exchange ruling at the Balance Sheet date $1.2619 /£1 (FY22: $1.2128/£1). Exchange gains or losses arising upon subsequent settlement of the transactions and from translation at the Balance Sheet date, are included within the related category of expense where separately identifiable, or administrative expenses.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the acquisition date, of assets given, liabilities incurred or assumed, and the equity issued by the Group. The consideration transferred includes the fair value of any assets or liabilities resulting from any contingent consideration.  Any costs directly attributable to the acquisition costs are expensed as incurred.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be a financial asset or financial liability is recognised in accordance with IFRS 9 in the Statement of Comprehensive Income and any balances at the Balance Sheet date are categorised as 'fair value through profit and loss'. Contingent consideration that is classified as equity is not re-measured and its subsequent settlement is accounted for within equity.

Goodwill arising on the acquisition is recognised as an asset and initially measured at cost, being the excess of fair value of the consideration over the Group's assessment of the net fair value of the identifiable assets and liabilities recognised.

If the Group's assessment of the net fair value of a subsidiary's assets and liabilities had exceeded the fair value of the consideration of the business combination, then the excess ('negative goodwill') would be recognised in the Consolidated Statement of Comprehensive Income immediately. The fair value of the identifiable assets and liabilities assumed on acquisition are brought onto the Balance Sheet at their fair value at the date of acquisition.

Revenue from contracts with customers

The Group follows the principles of IFRS 15, 'Revenue from Contracts with Customers'; accordingly, revenue is recognised using the five-step model:

1.         Identify the contract;

2.         Identify the performance obligations in the contract;

3.         Determine the transaction price;

4.         Allocate the transaction price to the performance obligations in the contract; and

5.         Recognise revenue when or as performance obligations are satisfied.

Revenue is recognised either when the performance obligation in the contract has been performed (point in time recognition) or over time as control of the performance obligation is transferred to the customer. 

Revenue is derived from sales of software licences and professional services including training and consultancy and transactional fees.

Revenue from software licenses

Revenue from both on premise and Trisus software licenced products is recognised from the point at which the customer gains control and the right to use our software. The following key judgements have been made in relation to revenue recognition of software license:

•           This is right of use software due to the integral updates provided on a regular basis to keep the software relevant and, as a result, the licenced software revenue will be recognised over time rather than at a point in time;

•           The software license together with installation, regular updates and access to support services form a single performance obligation;

•           The transaction price is allocated to each distinct one year license period with annual increases being recognised in the year they apply; and

•           Discounts in relation to software licenses are recognised over the life of the contract.

This policy is consistent with the Company's products providing customers with a service through the delivery of, and access to, software solutions (Software-as-a-Service ("SaaS")), and results in revenue being recognised over the period that these services are delivered to customers.

Incremental costs directly attributable in securing the contract are charged equally over the life of the contract and as a consequence are matched to revenue recognised. Any deferred contract costs are included in both current and non-current trade and other receivables.

Revenue from professional services

Revenue from all professional services including training and consulting services is recognised when the performance obligation has been fulfilled and the services are provided.  These services could be provided by a third party and are therefore considered to be separate performance obligations. Where professional services engagements contain material obligations, revenue is recognised when all the obligations under the engagement have been fulfilled. Where professional services engagements are provided on a fixed price basis, revenue is recognised based on the percentage complete of the relevant engagement. Percentage completion is estimated based on the total number of hours performed on the project compared to the total number of hours expected to complete the project.

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

Revenue from transactional services

Transactional service fees are recognised at the point in time when the service is provided.

Should any contracts contain non-standard clauses, revenue recognition will be in accordance with the underlying contractual terms which will normally result in recognition of revenue being deferred until all material obligations are satisfied. The Group does not have any contracts where a financing component exists within the contract.

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

Contract assets include sales commissions and prepaid royalties. Contract liabilities include unpaid sales commissions on contracts sold and deferred income relating to license fees billed in advance and recognised over time.

Exceptional items

The Group defines exceptional items as transactions (including costs incurred by the Group) which relate to non-recurring events. These are disclosed separately where it is considered it provides additional useful information to the users of the financial statements.

Taxation

The charge for taxation is based on the profit for the period as adjusted for items which are non-assessable or disallowable. It is calculated using taxation rates that have been enacted or substantively enacted by the Balance Sheet date.

Deferred taxation is computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities.  They are measured using enacted rates and laws that will be in effect when the differences are expected to reverse. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction does not affect accounting or taxable profit or loss. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will arise against which the temporary differences will be utilised.

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

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

Intangible Assets

(a)  Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as a non-current asset in accordance with IFRS 3 and is not amortised. 

After initial recognition, goodwill is stated at cost less any accumulated impairment losses.  It tested at least annually for impairment. Any impairment loss is recognised in the Consolidated Statement of Comprehensive Income.

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

(b)  Proprietary software

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

(c)  Customer relationships

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

(d) Development costs

Expenditure associated with developing and maintaining the Group's software products is recognised as incurred. 

Development expenditure is capitalised where new product development projects

•           are technically feasible;

•           production and sale is intended;

•           a market exists;

•           expenditure can be measured reliably; and

•           sufficient resources are available to complete such projects.

Costs are capitalised until initial commercialisation of the product, and thereafter amortised on a straight-line basis over its estimated useful life, which has been assessed as between five and ten years. Expenditure not meeting the above criteria is expensed as incurred. 

Employee costs and specific third party costs involved with the development of the software are included within amounts capitalised.

(e)  Computer software

Costs associated with acquiring computer software and licenced to-use technology are capitalised as incurred. They are amortised on a straight-line basis over their useful economic life which is typically three to five years.

(f)   Trademarks

Trademarks acquired in a business combination are initially measured at fair value at the acquisition date.  Trademarks have a finite useful economic life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the associated costs over their estimated useful lives of up to ten years.

Impairment of non-financial assets

At each reporting date the Group considers the carrying amount of its tangible and intangible assets including goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If there is such an indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any) through determining the value in use of the cash generating unit that the asset relates to.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the impairment loss is recognised as an expense.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset. A reversal of an impairment loss is recognised as income immediately. Impairment losses relating to goodwill are not reversed.

Treasury shares

Treasury Shares are Ordinary Shares of the Company which are purchased by the Company in a share buyback programme and held for the purpose of satisfying employee share plan awards.  The consideration paid, including any directly attributable costs, for the Company's shares held in treasury is deducted from equity in the Treasury Shares reserve until the shares are transferred or disposed.  When these shares in the Company are transferred to employees, in accordance with employee share plans, the cost is transferred from the Treasury Shares reserve to retained earnings.

2.   Critical accounting estimates and judgements

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

Estimates

·    Impairment assessment: the Group tests annually whether Goodwill has suffered any impairment and for other assets including acquired intangibles at any point where there are indications of impairment. This requires an estimation of the recoverable amount of the applicable cash generating unit to which the Goodwill and other assets relate. Estimating the recoverable amount requires the Group to make an estimate of the expected future cash flows from the specific cash generating unit using certain key assumptions including growth rates and a discount rate. These assumptions result in no impairment in Goodwill.

·    Useful lives of intangible assets: in assessing useful life, the Group uses careful judgement based on past experience, advances in product development and also best practice. The Group amortises intangible assets over a period of up to 15 years.

·    Intangible assets acquired and liabilities assumed: the Group measured assets acquired and liabilities assumed on the acquisition of Sentry at their fair value on acquisition.  Assessing the fair value required the use of a number of assumptions and estimates in relation to future cash flows generated by the assets and the use of valuation techniques.  The assumptions were based on the best information available to management and valuation techniques were supported by third party valuation experts. The valuations methods used for the intangibles acquired were:

o  Customer relationships - the residual income method was used for arriving at the fair value of this asset.  This calculates the residual profit attributable less the appropriate returns for all other assets that benefit the business.

o  Proprietary software - the cost approach was used in determining the fair value of this asset.  This method estimates the cost to replicate the asset as at the purchase date using current prices for time and materials adding an appropriate margin and opportunity cost.

o  Trademarks - the relief from royalty method was used to provide the fair value of this asset.  This uses an estimate of the cost savings that accrue on an intangible asset that would otherwise incur royalties or licence fees on revenues generated from the use of the asset.

Judgements

·    Capitalisation of development expenditure: the Group capitalises development costs provided the aforementioned conditions have been met. Consequently, the Directors require to continually assess the commercial potential of each product in development and its useful life following launch. 

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

·    Revenue recognition: in determining the amount of revenue and related balance sheet items to be recognised in the period, management is required to make a number of judgements and assumptions. These are detailed in Note 1 Revenue from contracts with customers.

3.   Revenue

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

	2023	2022
	$'000	$'000
Software licensing	143,125	137,956
Professional services	13,741	13,893
Transactional fees	16,018	13,695
Other revenue	1,134	-
Total revenue	174,018	165,544

Contract assets

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

	2023	2022
	$'000	$'000
Prepaid commissions and royalties < 1 year	2,206	2,504
Prepaid commissions and royalties > 1 year	2,758	3,208
Total contract assets	4,964	5,712

Contract assets are included within deferred contract costs and prepayments in the Balance Sheet. Costs recognised during the year in relation to assets at 30 June 2022 were $2.5m.

Contract liabilities

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

	2023	2022
	$'000	$'000
Software licensing	47,037	53,596
Professional services	5,481	5,126
Total contract liabilities	52,518	58,722

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

Revenue of $53.7m was recognised during the year in relation to contract liabilities as of 30 June 2022.

The following table shows the aggregate transaction price allocated to performance obligations that are partially or fully unsatisfied from software license and professional service contracts. 

	Total unsatisfied	Expected recognition
	performance obligations	< 1 year	1 to 2 years	2 to 3 years	> 3 years
Revenue expected to be recognised	$'000	$'000	$'000	$'000	$'000
At 30 June 2023
-    Software	348,919	124,279	99,613	67,757	57,270
-    Professional services	14,376	8,313	3,207	1,981	875
Total at 30 June 2023	363,295	132,592	102,820	69,738	58,145
At 30 June 2022
-    Software	370,081	137,234	102,247	71,642	58,958
-    Professional services	13,274	6,891	3,080	1,910	1,393
Total at 30 June 2022	383,355	144,125	105,327	73,552	60,351

Revenue of $144.1m was recognised during the year in relation to unsatisfied performance obligations as of 30 June 2022.

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

4.   Operating profit

The following items have been included in arriving at operating profit:

	2023	2022
	$'000	$'000
Employee costs	87,755	88,698
Employee costs capitalised	(10,261)	(9,584)
Depreciation of property, plant and equipment	3,451	3,259
Amortisation of intangible assets - other	7,781	5,905
Amortisation of intangible assets - acquired intangibles	20,930	20,239
Impairment of trade receivables	463	77
Exceptional items*	510	2,106
Operating lease rents for premises	-	72

* Exceptional items relate to integration costs associated with the purchase of Sentry Data Systems, Inc (FY22: exceptional items relate to legal and professional fees associated with a successful acquisition and related integration costs).

Included in reaching operating profit is the movement in the provision for impairment of trade receivables during the year of a $1,971,000 credit, plus $91,000 net impairment credit for trade receivables recognised directly in operating costs.

5.   Tax on profit on ordinary activities

	2023	2022
	$'000	$'000
Profit on ordinary activities before tax	13,085	13,102
Current tax
Corporation tax on profits of the year	5,596	2,774
Adjustments for prior years	1,080	94
Total current tax charge	6,676	2,868
Deferred tax
Deferred tax for current year	(3,324)	842
Adjustments for prior years	485	9
Change in UK tax rate	16	(26)
Total deferred tax (credit)/charge	(2,823)	825
Tax on profit on ordinary activities	3,853	3,693
The difference between the current tax charge on ordinary activities for the year, reported in the consolidated Statement of Comprehensive Income, and the current tax charge that would result from applying a relevant standard rate of tax to the profit on ordinary activities before tax, is explained as follows:
Profit on ordinary activities at the UK tax rate 20.5% (2022 19%)	2,682	2,490
Effects of:
Adjustment for prior years	1,566	103
Change in tax rate on opening deferred tax balance	23	(26)
Change in tax rate on closing deferred tax balance	-	339
Additional US taxes on profits 25% (2022: 25%)	392	328
Internally developed software	628	-
Expenses not deductible for tax purposes	246	119
Income not taxable in the period	(1,004)	-
Spot rate remeasurement	240	39
Use of tax losses	(427)	-
(Deduction)/expense on share plan charges	(535)	301
Other	42	-
Total tax charge	3,853	3,693

6.   Dividends

The dividends paid during the year were as follows:-

	2023	2022
	$'000	$'000
Final dividend, re 30 June 2022 - 18.80 cents (15.5 pence)/share	6,645	7,227
Interim dividend, re 30 June 2023 - 15.13 cents (12.5 pence)/share	5,474	5,749
Total dividends paid to Company shareholders in the year	12,119	12,976

Prior year:

Final dividend 21.47 cents (15.5 pence)/share

Interim dividend 16.88 cents (12.5 pence)/share

The proposed final dividend 20.19 cents (16 pence), as noted in the Financial Review section of the Strategic Report, for the year ended 30 June 2023 is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

7.   Earnings per share

The calculation of basic and diluted earnings per share is based on the following data:

Weighted average number of shares

	2023	2022
	No. of Shares	No. of Shares
	000s	000s
Weighted average number of Ordinary Shares for the purpose of basic earnings per share	35,146	35,110
Effect of dilutive potential Ordinary Shares: share options and LTIPs	289	367
Weighted average number of Ordinary Shares for the purpose of diluted earnings per share	35,435	35,477

The Group has one category of dilutive potential Ordinary shares, being those granted to Directors and employees under the employee share plans.

Shares held by the Employee Benefit Trust and Treasury Shares held directly by the Company are excluded from the weighted average number of Ordinary shares for the purposes of basic earnings per share.

Profit for year

	2023	2022
	$'000	$'000
Profit for the year attributable to equity holders of the parent	9,232	9,409
Acquisition and associated share placing costs (tax adjusted)	-	1,279
Acquisition integration costs (tax adjusted)	405	325
Amortisation of acquired intangibles (tax adjusted)	20,930	20,238
Adjusted profit for the year attributable to equity holders of the parent	30,567	31,251

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

For diluted earnings per share, the weighted average number of Ordinary shares calculated above is adjusted to assume conversion of all dilutive potential Ordinary shares.

Earnings per share

	2023	2022
	cents	cents
Basic EPS	26.3	26.8
Diluted EPS	26.1	26.5
Adjusted basic EPS	87.0	89.0
Adjusted diluted EPS	86.3	88.1

8.   Business Combinations

Year ended 30 June 2023

There were no business combinations in the year ended 30 June 2023.

Year ended 30 June 2022

On 12 July 2021, the Group acquired 100% of the voting rights of SDS Holdco, Inc., the ultimate holding company of Sentry Data Systems, Inc. ('Sentry'), a leader in the pharmacy procurement, compliance and utilisation management, based in Florida, USA. For further information on the reasons for the acquisition see Note 25 of the annual report for the year ended 30 June 2021. The aggregate consideration for the acquisition of Sentry on a cash free/ debt free basis subject to an adjustment against a benchmark level of working capital on the date of acquisition as calculated and determined in accordance with the terms of the agreement relating to the acquisition.

The deal was funded by $297.0m (as adjusted) of cash and $75.9m from the issue of 2,507,348 new ordinary shares at fair value on 12 July 2021 (measured using the closing market price of the Company's ordinary shares on that date). The cash consideration was funded from the Group's existing cash resources, $120m from a new debt facility and $187.3m net proceeds from a share placing completed in June 2021.

Details of the purchase consideration, net assets acquired and goodwill, were as follows:

			$'000
Cash paid (net of working capital adjusted)			297,015
Shares issued (fair value)			75,905
Total purchase consideration			372,920

The fair values for assets and liabilities recognised as a result of the acquisition were as follows:

			Restated Fair value $'000
Non-Current assets
Property, plant and equipment			9,179
Intangible assets - customer relations			151,000
Intangible asset - proprietary software			51,496
Intangible assets - trademarks			5,000
Intangible assets - other			3,762
Other contract assets			376
Total non-current assets			220,813
Current assets
Trade and other receivables			13,254
Cash and cash equivalents			3,727
Restricted cash			1,880
Total current assets			18,861
Non-current liabilities
Leased property > 1 year			1,540
Leased equipment > 1 year			1,146
Deferred tax			48,685
Total non-current liabilities			51,371
Current liabilities
Deferred income			27,164
Trade and other payables			12,267
Total current liabilities			39,431
Net identifiable assets acquired			148,872
Add: goodwill			224,048
Total consideration			372,920

The goodwill is attributable to Sentry's strong position in the market and synergies expected to arise after the company's acquisition of these new subsidiaries. 

The fair value of the acquired customer list and customer contracts of $151m, proprietary software of $51.5m and trademarks of $5.0m have been valued as per the details in Note 2.  Deferred tax of $37.8m, $9.7m (restated) and $1.2m has been provided respectively in relation to these intangible assets.

Acquisition related costs of $2.1m (FY21: $6.5m) were included within exceptional costs in profit and loss in the year ended 30 June 2022.

The fair value of trade and other receivables is $13.7m and includes trade receivables with a fair value of $9.5m. The gross contractual amount for trade receivables due is $12.7m of which $3.2m was expected to be uncollectible. 

Sentry contributed revenue of $94.7m and net profit of $1.6m to the Group for the period from 13 July 2021 to 30 June 2022. If the acquisition had occurred on 1 July 2021, consolidated revenue and consolidated profit after tax for the year ended 30 June 2022 would have been $168.2m and $9.5m respectively.

See Note 15 for details of the restatement in the prior year.

9.   Intangible assets

	Goodwill	Customer	Proprietary		Development		Computer
		Relationships	Software	Trademarks	Costs		Software		Total
	$'000	$'000	$'000	$'000	$'000		$'000		$'000
Cost
At 1 July 2022	235,486	153,964	52,724	5,000	56,096		4,840		508,110
Additions	-	-	-	-	14,960		71		15,031
Reclassification	-	-	-	-	-		(450)		(450)
At 30 June 2023	235,486	153,964	52,724	5,000	71,056		4,461		522,691
Accumulated amortisation and impairment
At 1 July 2022	250	12,706	11,187	538	15,607		1,899		42,187
Charge for the year	-	10,067	10,307	556	6,477		1,304		28,711
At 30 June 2023	250	22,773	21,494	1,094	22,084		3,203		70,898
Net Book Value at 30 June 2023	235,236	131,191	31,230	3,906	48,972		1,258		451,793
Cost
At 1 July 2021	11,438	2,964	3,043	-	42,976		1,004		61,425
Additions	-	-	-	-	13,506		174		13,680
Acquisition of subsidiary - restated	224,048	151,000	51,496	5,000	-		3,762		435,306
Disposals	-	-	(1,815)	-	(386)		(100)		(2,301)
At 30 June 2022 - restated	235,486	153,964	52,724	5,000	56,096		4,840		508,110
Accumulated amortisation and impairment
At 1 July 2021	250	2,964	3,043	-	11,324		734		18,315
Charge for the year	-	9,742	9,959	538	4,669		1,236		26,144
Amortisation on disposal	-	-	(1,815)	-	(386)		(71)		(2,272)
At 30 June 2022	250	12,706	11,187	538	15,607		1,899		42,187
Net Book Value at 30 June 2022 - restated	235,236	141,258	41,537	4,462	40,489		2,941		465,923

See Note 15 for details of the restatement in the prior year.

In accordance with the Group's accounting policy, the carrying values of Goodwill and other intangible assets are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Goodwill arose on the acquisition of subsidiaries and is split into the following CGUs:

	2023	Restated 2022
	$'000	$'000
Craneware InSight	11,188	11,188
Sentry	224,048	224,048
Total Goodwill	235,236	235,236

Craneware InSight

The carrying values are assessed for impairment purposes by calculating the value in use of the core Craneware business cash generating unit. This is the lowest level of which there are separately identifiable cash flows to assess the Goodwill acquired as part of the Craneware InSight, Inc purchase.

Sentry

The carrying values are assessed for impairment purposes by calculating the value in use of the Sentry business cash generating unit. This is the lowest level of which there are separately identifiable cash flows to assess the Goodwill acquired as part of the Sentry acquisition.

The key assumptions in assessing value in use for the CGU's are:

	Growth rate in perpetuity		Post-tax discount rate
	2023	2022	2023	2022
Craneware InSight	2.0%	2.0%	9.0%	12.1%
Sentry	2.0%	2.0%	9.0%	9.5%

After the initial term of 5 years, the Group applied a growth rate for each CGU. These take into consideration the customer bases and expected revenue commitments from it, anticipated additional sales to both existing and new customers and market trends currently seen and those expected in the future.

The Group has assessed events and circumstances in the year and the assets and liabilities of the business cash-generating unit; this assessment has confirmed that no significant events or circumstances occurred in the year and that the assets and liabilities showed no significant change from last year.

After review of future forecasts, the Group confirmed the growth forecast for the next five years showed that the recoverable amount would continue to exceed the carrying value. There are no reasonable possible changes in assumptions that would result in an impairment. Certain disclosures, including sensitivities, relating to goodwill have not been made, given the significant headroom on impairment testing.

10. Trade and other receivables

	2023	Restated 2022
	$'000	$'000
Trade receivables	27,594	34,730
Less: provision for impairment of trade receivables	(3,421)	(5,855)
Net trade receivables	24,173	28,875
Other receivables	1,024	827
Current tax receivable	-	2,932
Prepayments and accrued income	8,270	4,714
Deferred Contract Costs	4,715	5,470
	38,182	42,818
Less non-current receivables:
Prepayments	-	(26)
Deferred Contract Costs	(2,758)	(3,208)
Current portion	35,424	39,584

See Note 15 for details of the restatement in the prior year.

11.  Deferred tax

Deferred tax is calculated in full on the temporary differences under the liability method using a rate of tax of 25% (FY22: 25%) in the UK and 25% (FY22: 25%) in the US including a provision for state taxes.

See Note 15 for details of the restatement in the prior year.

	2023	Restated 2022
	$'000	$'000
At 1 July	(44,417)	5,459
Credit/ (charge) to comprehensive income	4,084	(825)
Transfer direct to equity	(1,004)	(366)
Deferred tax arising on acquisitions	-	(48,685)
At 30 June	(41,337)	(44,417)

The movements in deferred tax assets and liabilities during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. The net deferred tax liability at 30 June 2023 was $41,337,000 (FY22: net deferred tax liability $44,417,000 restated).

Deferred tax assets - recognised

	Short term timing differences $'000	Loses $'000	Share options $'000	Total $'000
A 1 July 2022	3,926	293	3,201	7,420
Credited to comprehensive income	585	135	160	880
Charged to equity	-	-	(1,004)	(1,004)
Total provided at 30 June 2023	4,511	428	2,357	7,296
At 1 July 2021	759	1,058	3,924	5,741
Credited/ (charged) to comprehensive income	3,167	(765)	(357)	2,045
Charged to equity	-	-	(366)	(366)
Total provided at 30 June 2022	3,926	293	3,201	7,420

Deferred tax liabilities - recognised

		Long term timing differences $'000	Accelerated tax depreciation $'000	Total $'000
A 1 July 2022		(47,921)	(3,916)	(51,837)
Credited to comprehensive income		3,543	(339)	3,204
Total provided at 30 June 2023		(44,378)	(4,255)	(48,633)
At 1 July 2021		-	(282)	(282)
Credited/ (charged) to comprehensive income		764	(3,634)	(2,870)
Arising on acquisition - restated		(48,685)	-	(48,685)
Total provided at 30 June 2022 - restated		(47,921)	(3,916)	(51,837)

	2023	Restated 2022
	$'000	$'000
Deferred tax assets:
Deferred tax assets to be recovered after more than 1 year	6,867	7,126
Deferred tax assets to be recovered within 1 year	429	294
	7,296	7,420
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 1 year	(43,633)	(46,837)
Deferred tax liabilities to be recovered within 1 year	(5,000)	(5,000)
	(48,633)	(51,837)
Net deferred tax liability	(41,337)	(44,417)

12. Cash flow generated from operating activities

Reconciliation of profit before taxation to net cash inflow from operating activities
	2023	2022
	$'000	$'000
Profit before tax	13,085	13,102
Finance income	(214)	(1)
Finance expense	6,357	5,031
Depreciation on property, plant and equipment	3,451	3,259
Amortisation on intangible assets - other	7,781	5,905
Amortisation on intangible assets - acquired intangibles	20,930	20,239
Loss/ (gain) on disposals	7	(5)
Share-based payments	2,992	2,116
Movements in working capital:
Decrease/ (increase) in trade and other receivables	1,116	(3,203)
Decrease in trade and other payables	(5,462)	(13,500)
Increase in amounts held on behalf of customers	50,548	-
Cash generated from operations	100,591	32,943

See Note 15 for details for restatement in the prior year.

13. Borrowings

The debt facility comprises a term loan of $24m (FY22: $32m) which is repayable in quarterly instalments over 5 years up to 30 June 2026, and a revolving loan facility of $100m of which $60m (FY22: $80m) is drawn down and which expires on 7 June 2026.  During the year, $8m was repaid on the term loan and $20m was repaid on the revolving credit facility.

Interest is charged on the facility on a daily basis at margin and compounded reference rate. The margin is related to the leverage of the Group as defined in the loan agreement. As the leverage of the Group strengthens, the applicable margin reduces.

The facility is secured by a Scots law floating charge granted by the Company, an English law debenture granted by the Company and a New York law security agreement to which the Company and certain of its subsidiaries are parties. The securities granted by the Company and the relevant subsidiaries provide security over all assets of the Company and specified assets of the Group.

	2023	2022
	$'000	$'000
Current interest bearing borrowings	8,000	8,000
Non current interest bearing borrowings	75,033	103,589
Total	83,033	111,589

Arrangement fees paid in advance of the setting up of the facility are being recognised over the life of the facility in operating costs. The remaining balance of unamortised fees and interest at 30 June 2023 is $0.97m (FY22: $3.2m).

See Note 16 for a reconciliation between borrowings, cash and net borrowings.

Loan covenants

Under the facilities the Group is required to meet quarterly covenants tests in respect of:

a)   Adjusted leverage which is the ratio of total net debt on the last day of the relevant period to adjusted EBITDA.

b)   Cash flow cover which is the ratio of cashflow to net finance charges in respect of the relevant period.

The Group complied with these ratios throughout the reporting period. 

Financing arrangements

The Group's undrawn borrowing facilities were as follows:

	2023	2022
	$'000	$'000
Revolving facilities	40,000	20,000
Undrawn borrowing facilities	40,000	20,000

14. Trade and other payables

	2023	Restated 2022
	$'000	$'000
Trade payables	4,005	3,587
Lease creditor due < 1 year	1,389	2,439
Other provisions < 1 year	420	379
Social security and PAYE	1,299	2,705
Other creditors	237	128
Accruals	8,466	6,222
Advance payments	135	22
Trade and other payables	15,951	15,482

Other provisions relate to employer taxes due in relation to employee share awards from the 2007 Share Option Plan payable on exercise of options of $59,000 (FY22: $17,000) and potential sales tax due in relation to audits in respect of Sentry Data Systems for periods prior to the acquisition of $362,000 (FY22: $362,000 restated).

See Note 15 for details of the restatement in the prior year.

15. Prior year restatement

Deferred revenue in Sentry opening balance sheet

On acquisition of Sentry Data Systems, Inc. in FY22, $4.792m of the deferred revenue for one contract recorded in the Sentry opening balance sheet related to a period more than one year from 30 June 2022. This was disclosed as less than one year on the prior year balance sheet. The balance sheet has been restated to reflect the long term portion of the deferred revenue on the closing balance sheet.   There was no impact on the opening balance sheet at 1 July 2021.

Balance sheet extract	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Non-current liabilities
Deferred income	4,792	4,792	-
	158,051	4,792	153,259
Current liabilities
Deferred income	53,930	(4,792)	58,722
	77,722	(4,792)	82,514
Total liabilities	235,773	-	235,773

Deferred tax, current tax, sales tax and goodwill on acquisition

On acquisition of Sentry Data Systems, Inc. in FY22, $51.874m of the deferred tax liabilities and $1.100m of corporation tax receivables were recognised at 30 June 2022, with the other side going against goodwill. Following the completion of the FY22 tax returns it was identified that an asset class included in the fair value of assets and liabilities recognised on acquisition liabilities has incorrectly been given a 'tax basis' and as such the deferred tax liability included $3.189m and the tax debtor included $0.417m incorrectly in relation to this asset class.

In the period since acquisition, it has been identified that there are two states in which Sentry Data Systems, Inc operates where amounts are due in respect of sales tax for periods prior to the acquisition.  A provision should have been made in respect of these amounts as part of the fair value of assets and liabilities recognised on acquisition. A provision of $0.362m should have been included on acquisition.

The balance sheet has been restated to reflect the reduction in the deferred tax liability on acquisition of $3.189m, an increase in trade and other payables of $0.362m on acquisition, a decrease in trade and other receivables of $0.417m on acquisition and a corresponding reduction in goodwill of $2.410m. While these adjustments have decreased total assets and total liabilities by $2.410m each, there is no impact on nets assets. There was no impact on the opening balance sheet at 1 July 2021.

Balance sheet extract	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Non-current assets
Intangible assets - goodwill	235,236	(2,410)	237,646
	477,976	(2,410)	480,386
Current assets
Trade and other receivables	39,584	(417)	40,001
	87,992	(417)	88,409
Total assets	565,968	(2,827)	568,795
Equity and Liabilities
Non-current liabilities
Deferred tax	44,417	(3,189)	47,606
	154,862	(3,189)	158,051
Current liabilities
Trade and other payables	15,482	362	15,120
	78,084	362	77,722
Total liabilities	232,946	(2,827)	235,773
Total equity and liabilities	565,968	(2,827)	568,795

Note 8 Business combinations has been updated to reduce the deferred tax liability on acquisition by $3.189m, increase trade and other payables by $0.362m and decrease in trade and other receivables by $0.417m with a respective decrease to goodwill on acquisition of $2.410m.

Note 8 extract	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Current assets
Trade and other receivables	13,254	(417)	13,671
Total current assets	18,861	(417)	19,278
Non-current liabilities
Deferred tax	48,685	(3,189)	51,874
Total non-current liabilities	51,371	(3,189)	54,560
Current liabilities
Trade and other payables	12,267	362	11,905
Total current liabilities	39,431	362	39,069
Net identifiable assets acquired	148,872	2,410	146,462
Add: goodwill	224,048	(2,410)	226,458
Total consideration	372,920	-	372,920

The fair value of the acquired customer list and customer contracts of $151m, proprietary software of $51.5m and trademarks of $5.0m have been valued as per the details in Note 2.  Deferred tax of $37.8m, $9.7m restated (FY22: $12.9m) and $1.2m has been provided respectively in relation to these intangible assets.

Note 9 Intangible assets has been updated to reflect the reduction in goodwill on acquisition of $2.410m.

Note 9 extract		Goodwill	Total
		$'000	$'000
Cost
Acquisition of subsidiary - restated		224,048	435,306
At 30 June 2022 - restated		235,486	508,110
Net Book Value at 30 June 2022 - restated		235,236	465,923
Cost
Acquisition of subsidiary - adjusted		(2,410)	(2,410)
At 30 June 2022 - adjusted		(2,410)	(2,410)
Net Book Value at 30 June 2022 - adjusted		(2,410)	(2,410)
Cost
Acquisition of subsidiary		226,458	437,716
At 30 June 2022		237,896	510,520
Net Book Value at 30 June 2022		237,646	468,333

	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Craneware InSight	11,188	-	11,188
Sentry	224,048	(2,410)	226,458
Total Goodwill	235,236	(2,410)	237,646

Note 10 Trade and other receivables has been updated to reflect the reduction in tax receivable of $0.417m.

Note 10 extract	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Current tax receivable	2,932	(417)	3,349
	42,818	(417)	43,235
Current portion	39,584	(417)	40,001

Note 11 Deferred tax has been updated to reflect the reduction in deferred tax liabilities on acquisition of $3.189m.

Note 11 extract	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Deferred tax arising on acquisition	(48,685)	3,189	(51,874)
At 30 June	(44,417)	3,189	(47,606)

Deferred tax liabilities - recognised		Long term timing differences	Total
		$'000	$'000
Arising on acquisition - restated		(48,685)	(48,685)
Total provided at 30 June 2022 - restated		(47,921)	(51,837)
Arising on acquisition - adjusted		3,189	3,189
Total provided at 30 June 2022 - adjusted		3,189	3,189
Arising on acquisition		(51,874)	(51,874)
Total provided at 30 June 2022		(51,110)	(55,026)

The analysis if deferred tax assets and liabilities is as follows:

	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Deferred tax liabilities:
Deferred tax liabilities to be recovered after more than 1 year	(46,837)	3,189	(50,026)
	(51,837)	3,189	(55,026)
Net deferred tax liabilities	(44,417)	3,189	(47,606)

Note 14 has been updated to reflect the inclusion of the provision for sales taxes of $0.362m.

	Restated 2022	Adjustment 2022	2022
	$'000	$'000	$'000
Other provisions < 1 year	379	362	17
Trade and other payables	15,482	362	15,120

Other provisions relate to employer taxes due in relation to employee share awards from the 2007 Share Option Plan payable on exercise of options of $59,000 (FY22: $17,000) and potential sales tax due in relation to audits in respect of Sentry Data Systems for periods prior to the acquisition of $362,000 (FY22: $362,000 restated, FY22: nil).

16. Alternative performance measures

The Group's performance is assessed using a number of financial measures which are not defined under IFRS and are therefore non-GAAP (alternative) performance measures. 

The Directors believe these measures enable the reader to focus on what the Group regard as a more reliable indicator of the underlying performance of the Group since they exclude items which are not reflective of the normal course of business, accounting estimates and non-cash items.  The adjustments made are consistent and comparable with other similar companies.

Adjusted EBITDA

Adjusted EBITDA refers to earnings before interest, tax, depreciation, amortisation, exceptional items and share based payments.

		2023	2022
		$'000	$'000
Operating profit		19,228	18,132
Depreciation of property, plant and equipment		3,451	3,259
Amortisation of intangible assets - other		7,781	5,905
Amortisation of intangible assets - acquired intangibles		20,930	20,239
Share based payments		2,992	2,116
Exceptional items - acquisition and associated share placing		-	1,705
Exceptional items - integration costs		510	401
Adjusted EBITDA		54,892	51,757

Adjusted earnings per share (EPS)

Adjusted earnings per share (EPS) calculations allow for the tax adjusted acquisition costs and share related transactions together with amortisation on acquired intangibles via business combinations. See Note 7 for the calculation.

Operating Cash Conversion

Operating Cash Conversion is calculated as cash generated from operations (as per Note 12), adjusted to exclude cash payments for exceptional items, divided by adjusted EBITDA.

		2023	2022
		$'000	$'000
Cash generated from operations (Note 12)		100,591	32,943
Total exceptional items		510	2,106
Movement in amounts held on behalf of customers (Note 12)		(50,548)	-
Accrued exceptional items at the start of the period paid in the current period		60	5,509
Accrued exceptional items at the end of the period		(92)	(60)
Trade payable exceptional items at the start of the period paid in the current period		12	683
Trade payables cash exceptional items at the end of the period		-	(12)
Cash generated from operations before exceptional items		50,533	41,169
Adjusted EBITDA		54,892	51,757
Operating Cash Conversion		92.1%	79.5%

Adjusted PBT

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

		2023	2022
		$'000	$'000
Profit before taxation		13,085	13,102
Amortisation of intangible assets - acquired intangibles		20,930	20,239
Exceptional items - acquisition and associated share placing		-	1,705
Exceptional items - integration costs		510	401
Adjusted PBT		34,525	35,447

Net Borrowings

Net Borrowings refers to net balance of short term borrowings, long term borrowings and cash and cash equivalents (excluding restricted cash in prior year).

		2023	2022
		$'000	$'000
Cash and cash equivalents		78,537	47,157
Borrowings (Note 13)		(83,033)	(111,589)
Net Borrowings		(4,496)	(64,432)

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

Total Sales

Total Sales refer to the total value of contracts signed in the year, consisting of New Sales and Renewals.

New Sales

New Sales refer to the total value of contracts with new customers or new products to existing customers at some time in their underlying contract.

Annual Recurring Revenue

Annual Recurring Revenue includes the annual value of license and transaction revenues at 30 June 2023 that are subject to underlying contracts.

Net Revenue Retention

Net revenue retention is the percentage of revenue retained from existing customers over the measurement period, taking into account both churn and expansion sales.

Revenue Growth

Revenue Growth is the increase in Revenue in the current year compared to the prior year expressed as a percentage of the previous year Revenue.

 

END